STUDY OF COMPARATIVE RATIO ANALYSIS OF HINDUSTAN UNILIVER

LTd
.

ABSTRACT

Ratio analysis is the process of examining and comparing financial

information by calculating meaningful financial statement figure percentages
instead of comparing line items from each financial statement.
Interpreting the financial statements and other financial data is essential for
all stakeholders of an entity. Ratio Analysis hence becomes a vital tool for
financial analysis and financial management. It helps us to know the reasons for
relative changes - either in profitability or in the financial position as a whole.
The company should make more efforts to increase the profitability ratio for
its further business growth and development.
Ratio analysis helps validate or disprove the financing, investment and
operating decisions of the firm. They summarize the financial statement into
comparative figures, thus helping the management to compare and evaluate the
financial position of the firm and the results of their decisions.
Ratio Analysis is useful in anticipation of future conditions and planning for
actions that will improve the firm's future performance
INDEX

Sr. No. Chapter Title of the Chapter Page No.

1 Chapter - 01 Introduction

2 Chapter - 02 Research Methodology

3 Chapter -03 Literature Review

 4 Chapter - 04 Data Analysis and
Interpretation

5 Chapter - 05 Conclusion

6 Chapter – 06 Suggestions

7 Chapter - 07 Reference

CONTENT

Chapter Introduction Pages

No.1
1.1 Theoretical Background
1.2 Statement of the Problem
1.3 Definition and Meaning
1.4 Interpretation of Ratios
1.5 Classification of Ratios
1.6 Advantages of Ratio analysis
1.7 Limitations of Ratio analysis
1.8 Profile of The Company
Chapter Research methodology
No.2
2.1 Objective of study
2.2 Research Hypothesis
2.3 Limitations of study
2.4 Need of the study
2.5 Scope of study
 2.6 Data sources
2.7 Sampling
2.8 Methodology
Chapter no. Literature Review
3
Chapter Data Analysis and Interpretation
no.4
Chapter Conclusion
no.5
Chapter Suggestion
no.6
Chapter Reference
no.7

INTRODUCTION

INTRODUCTION

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the

indicated quotient of two mathematical expressions” and “the relationship
between two or more things”. In financial analysis, a ratio is used as a benchmark
for evaluation the financial position and performance of a firm. The absolute
accounting figures reported in the financial statements do not provide a
meaningful understanding of the performance and financial position of a firm. An
accounting figure conveys meaning when it is related to some other relevant
information. For example, an Rs.5 core net profit may look impressive, but the
firm’s performance can be said to be good or bad only when
the net profit figure is related to the firm’s Investment.
The relationship between two accounting figures expressed mathematically, is
known as a financial ratio (or simply as a ratio). Ratios help to summarize large
quantities of financial data and to make qualitative
judgment about the firm’s financial performance. For example, consider current
ratio. It is calculated by dividing current assets by current liabilities; the ratio
indicates a relationship- a quantified relationship between current assets and
current liabilities. This relationship is an index or yardstick, which permits a
quantitative judgment to be formed about the firm’s liquidity and vice versa. The
point to note is that a ratio reflecting a quantitative relationship helps to
form a qualitative judgment. Such is the nature of all financial ratios.

Standards of comparison:
The ratio analysis involves comparison for a useful interpretation of the financial
statements. A single ratio in itself does not indicate favourable or unfavourable
condition. It should be compared with some standard. Standards of comparison
may consist of:
Past ratios, i.e. ratios calculated from the past financial statements of the same
firm; Competitors’ ratios, i.e., of some selected firms, especially the most
progressive and successful competitor, at the same point in time; Industry ratios,
i.e. ratios of the industry to which the firm belongs; and
Protected ratios, i.e., developed using the protected or proforma, financial
statements of the same firm.

In this project calculating the past financial statements of the same firm does ratio
analysis.

1.1 Theoretical background:

1.1.1 Use and significance of ratio analysis: -

The ratio is one of the most powerful tools of financial analysis. It is used as a
device to analyse and interpret the financial health of enterprise. Ratio analysis
stands for the process of determining and presenting the
relationship of items and groups of items in the financial statements. It is an
important technique of the financial analysis. It is the way by which financial
stability and health of the concern can be judged. Thus, ratios have wide
applications and are of immense use today. The following are the main points of
importance of ratio analysis:

A) Managerial uses of ratio analysis:

1. Helps in decision making: -
Financial statements are prepared primarily for decision-making. Ratio analysis
helps in making decision from the information provided in these financial
Statements.
2. Helps in financial forecasting and planning: -
Ratio analysis is of much help in financial forecasting and planning.
Planning is looking ahead and the ratios calculated for a number of years a work
as a guide for the future. Thus, ratio analysis helps in forecasting and planning.
3. Helps in communicating: -
The financial strength and weakness of a firm are communicated in a more easy
and understandable manner by the use of ratios. Thus, ratios help in
communication and enhance the value of the financial statements.
4. Helps in co-ordination: -
Ratios even help in coordination, which is of at most importance in effective
business management. Better communication of efficiency and weakness of an
enterprise result in better coordination in the enterprise
5. Helps in control: -
Ratio analysis even helps in making effective control of business. The weaknesses
are otherwise, if any, come to the knowledge of the managerial,
which helps, in effective control of the business.
B) Utility to shareholders/investors: -
An investor in the company will like to assess the financial position of the concern
where he is going to invest. His first interest will be the security of
his investment and then a return in form of dividend or interest. Ratio analysis will
be useful to the investor in making up his mind whether present financial
position of the concern warrants further investment or not.
C) Utility to creditors: -
The creditors or suppliers’ extent short-term credit to the concern. They are
invested to know whether financial position of the concern warrants their
payments at a specified time or not.
D) Utility to employees: -
The employees are also interested in the financial position of the concern
especially profitability. Their wage increases and amount of fringe benefits are
related to the volume of profits earned by the concern.
E) Utility to government: -
Government is interested to know overall strength of the industry. Various
financial statement published by industrial units are used to calculate ratios for
determining short term, long-term and overall financial position of the concerns.
F) Tax audit requirements: -
Sec44AB was inserted in the income tax act by financial act; 1984.Caluse 32 of
the income tax act requires that the following accounting ratios should be
given:
1. Gross profit/turnover.
2. Net profit/turnover.
3. Stock in trade/turnover.
4. Material consumed/finished goods produced.

Further, it is advisable to compare the accounting ratios for the year under
consideration with the accounting ratios for earlier two years so that the auditor
can make necessary enquiries, if there is any major variation in the accounting
ratios.

1.2 Statement of the problem

The financial state and the results of operations of business enterprises are of
interest to various groups including the management, shareholders, creditors. The
government, employees customers, financial analysts and advisers, potential
shareholders, competitors etc. the  principal statements together with
supplementary statement present much of basic information needed to make
sound economic decisions regarding the business enterprise.

Most of the items in the financial statement when considered individually, do not
give any  serious meaning so there is the need of finding an effective tool of
evaluating the performance of the company’s operations.

Hence, the adoption of ratio analysis as a tool for performance evaluation and the
research is conducted on the GlaxoSmithKline consumer Plc to ascertain whether
truly or not analysis is an effective tool for evaluating the performance of
manufacturing industries.
1.3 Definition and meaning of Ratio analysis

Definition:
Ratio analysis is the process of examining and comparing financial information by
calculating meaningful financial statement figure percentages instead of
comparing line items from each financial statement.

Managers and investors use a number of different tools and comparisons to tell
whether a company is doing well and whether it is worth investing in. The most
common ways people analysis a company’s performance are horizontal analysis,
vertical analysis, and ratio analysis. Horizontal and vertical analyses compare a
company’s performance over time and to a base or set of standard percentage.

Meaning
A ratio is a simple arithmetical expression of the relationship of one number to
another. It may be defined as the indicated quotient of two mathematical
expressions. According to Accountant’s Handbook by Wixom, Kell and Bedford, a
ratio “is an expression of the quantitative relationship between two numbers'”
According to Kohler, a ratio is the relation, of the amount, a, to another, b,
expressed as the ratio of a to b; a: b (a is to b); or as a simple fraction, integer,
decimal, fraction or percentage.

1.4 Interpretation of Ratios

The interpretation of ratios is an important factor. Though calculation of ratios is

also important but it is only a clerical task whereas interpretation needs skill,
intelligence and foresightedness. The inherent limitations of ratio analysis should
be kept in mind while interpreting them. The impact of factors such as price level
changes, change in accounting policies, window dressing etc., should also be kept
in mind when -attempting to interpret ratios.

A single ratio in itself does not convey much of the sense. To make ratios useful,
they have to be further interpreted. For example, say, the current ratio of 3: 1 does
not convey any sense unless it is interpreted and conclusion is drawn from it
regarding the financial condition of the firm as to whether it is very strong, good,
questionable or poor.

The interpretation of the ratios can be made in the following ways:

1. Single absolute Ratio:
Generally speaking, one cannot draw any meaningful conclusion when a single
ratio is considered in isolation. But single ratios may be studied in relation to
certain rules of thumb which are based upon well proven conventions as for
example 2: 1 is considered to be a good ratio for current assets to current
liabilities.

2. Group of Ratios:
Ratios may be interpreted by calculating a group of related ratios. A single ratio
supported by other related additional ratios becomes more understandable and
meaningful. For example, the ratio of current assets to current liabilities may be
supported by the ratio of liquid assets to liquid liabilities to draw more dependable
conclusions.

3. Historical Comparison:
One of the easiest and most popular ways of evaluating the performance of the
firm is to compare its present ratios with the past ratios called comparison
overtime. When financial ratios are compared over a period of time, it gives an
indication of the direction of change and reflects whether the firm’s performance
and financial position has improved, deteriorated or remained constant over a
period of time. But while interpreting ratios from comparison over time, one has
to be careful about the changes, if any, in the firm’s policies and accounting
procedures.

4. Projected Ratios:
Ratios can also be calculated for future standards based upon the projected or
performed financial statements. These future ratios may be taken as standard for
comparison and the ratios calculated on actual financial statements can be
compared with the standard ratios to find out variances, if any. Such variances
help in interpreting and taking corrective action for improvement in future.

5. Inter-Firm Comparison:
Ratios of one firm can also be compared with the ratios of some other selected
firms in the same industry at the same point of time. This kind of comparison
helps in evaluating relative financial position and performance of the firm. But
while making use of such comparison one has to be very careful regarding the
different accounting methods, policies and procedures adopted different firms.
1.5 classifications of Ratios

1.5.1 Liquidity Ratios

It is extremely essential for a firm to be able to meet the obligations as they
become due. Liquidity ratios measure the ability of the firm to meet its current
obligations (liabilities). The liquidity ratios reflect the short-term financial
strength and solvency of a firm. In fact, analysis of liquidity needs the preparation
of cash budgets and cash and funds flow statements; but
liquidity ratios, by establishing a relationship between cash and other current
assets to current obligations, provide a quick measure of liquidity. A firm should
ensure that it does not suffer from lack of liquidity, and also that it does not have
excess liquidity. The failure of a company to meet its obligations due to lack of
sufficient liquidity, will result in a poor credit worthiness, loss of credit
worthiness, loss of creditors’ confidence, or even in legal tangles resulting in the
closure of the company. A very high degree of liquidity is also bad; idle assets
earn nothing. The firm’s funds will be unnecessarily tied up in current assets.
Therefore, it is necessary to strike a proper balance between high liquidity and
lack of liquidity.

1. Current Ratio:
Current ratio is calculated by dividing current assets by current liabilities.
Current assets include cash and other assets that can be converted into cash within
in a year, such as marketable securities, debtors and inventories. Prepaid
expenses are also included in the current assets as they represent the payments that
will not be made by the firm in the future. All obligations maturing within a year
are included in the current liabilities. Current liabilities include creditors, bills
payable, accrued expenses, short-term bank loan, income tax, liability and long-
term debt maturing in the current year.
The current ratio is a measure of firm’s short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. A
ratio of greater than one means that the firm has more current assets than current
claims against them Current liabilities

Current ratio = current assets ÷current liabilities

2. Quick Ratio:
Quick ratio also called Acid-test ratio, establishes a relationship between quick,
or liquid, assets and current liabilities. An asset is a liquid if it can be converted
into cash immediately or reasonably soon without a loss of value. Cash is the most
liquid asset. Other assets that are considered to be relatively liquid and included in
quick assets are debtors and bills receivables and marketable securities (temporary
quoted investments). Inventories are considered to be less liquid. Inventories
normally require some time for
realizing into cash; their value also has a tendency to fluctuate. The quick ratio is
found out by dividing quick assets by current liabilities.
  
Quick ratio= quick assets÷ current liabilities

3. Cash Ratio:
Since cash is the most liquid asset, it may be examined cash ratio and its
equivalent to current liabilities. Trade investment or marketable securities are
equivalent of cash; therefore, they may be included in the computation of cash
ratio:

Cash Ratio = (cash+ marketable security) ÷ current liabilities

1.5.2 PROFITABILITY RATIOS

A company should earn profits to survive and grow over a long period of time.
Profits are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximizing profits, irrespective of
concerns for customers, employees, suppliers or social consequences. It is
unfortunate that the word profit is looked upon as a term of abuse since some
firms always want to maximize profits ate the cost of employees, customers and
society. Except such infrequent cases, it is a fact that sufficient profits must be
able to obtain funds from investors for expansion and growth and to contribute
towards the social overheads for welfare of the society.
  Profit is the difference between revenues and expenses over a period of time
(usually one year). Profit is the ultimate output of a company, and it
will have no future if it fails to make sufficient profits. Therefore, the financial
manager should continuously evaluate the efficiency of the company in terms of
profit. The profitability ratios are calculated to measure the operating efficiency of
the company. Besides management of the company, creditors and owners are also
interested in the profitability of the firm. Creditors want to get interest and
repayment of principal regularly. Owners want to get a required rate of return on
their investment. This is possible only when the company earns enough profits.

1. Gross profit ratio:

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship
between gross profit and total net sales revenue. It is a popular tool to evaluate the
operational performance of the business. The ratio is computed by dividing the
gross profit figure by net sales.

Gross profit =gross profit ÷ net sales ×100

2. Operating Cost Ratio:

Operating ratios is the comparison of an operating expense to the revenue of a
business. Operating expense could be any expense or a category of expenses like
selling and distribution, administration, depreciation, salaries etc. It is an
important determinant of the operational efficiency of an organization.
Operating ratio measures the relationship of expenses to sales. It is also known as
an expenses-to-sales ratio. The expense can be an individual expense or a group of
expenses like cost of goods sold, labour costs, material expenses, administrative
expenses, or sales and distribution expenses. The ratio is expressed in percentage.
 Operating cost ratio = operating cost /net sales *100

3. Operating Profit Ratio:

Operating profit ratio establishes a relationship between operating Profit earned
and net revenue generated from operations (net sales). Operating profit ratio is a
type of profitability ratio which is expressed as a percentage.

Net sales include both Cash and Credit Sales, on the other hand, Operating Profit
is the net operating profit i.e. the Operating Profit before interest and taxes.
Operating Profit ratio helps to find out Operating Profit earned in comparison to
revenue earned from operations.

Operating profit ratio= Operating profit ÷ net sales ×100

4. Net profit ratio:

Net profit ratio establishes a relationship between net profit and sales and
indicates and management’s in manufacturing, administrating and selling the
products. This ratio is the overall measure of the firm’s ability to turn each rupee
sales into net profit. If the net margin is inadequate the firm will fail to achieve
satisfactory return on shareholders’ funds. This ratio also indicates the firm’s
capacity to withstand adverse economic conditions. A firm with high net margin
ratio would be advantageous position to survive in the face of falling prices,
selling prices and cost of production.

Net profit is obtained when operating expenses; interest and taxes are subtracted
from the gross profit margin ratio is measured by dividing profit after tax by sales:

Net profit ratio= Net profit ÷ Net sales ×100

4. Return on capital Employed:

Return on capital employed or ROCE is a profitability ratio that measures how
efficiently a company can generate profits from its capital employed by
comparing net operating profit to capital employed. In other words, return on
capital employed shows investors how many dollars in profits each dollar of
capital employed generates.

ROCE is a long-term profitability ratio because it shows how effectively assets are
performing while taking into consideration long-term financing. This is why
ROCE is a more useful ratio than return on equity to evaluate the longevity of a
company.

Return on capital employed = EBIT ÷ Capital employed ×100

6. Earning per share ratio:

the profitability of the shareholders investments can also be measured in many
other ways. One such measure is to calculate the earnings per share.
The earnings per share (EPS) are calculated by dividing the profit after taxes by
the total number of ordinary shares outstanding.

Earnings per share ratio = profit after tax ÷ no of shares

outstanding

7. Dividend payout ratio :

The Dividend – payout Ratio or simply payout ratio is DPS (or total equity
dividends) divided by the EPS (or profit after tax):

Dividend payout ratio = DPS ÷ EPS ×100

8. Dividend yield ratio:

the dividend yield or dividend-price ratio of a share is the dividend per share,
divided by the price per share. It is also a company's total annual dividend
payments divided by its market capitalization, assuming the number of shares is
constant. It is often expressed as a percentage.
Dividend yield is used to calculate the earnings on investment (shares)
considering only the returns in the form of total dividends declared by the
company during the year.

Dividend yield ratio= DPS ÷MPS ×100

9. Price Earning Ratio:

The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s
stock price and earnings per share (EPS). It is a popular ratio that gives investors a
better sense of the value of the company. The P/E ratio shows the expectations of
the market and is the price you must pay per unit of current earnings.
Earnings are important when valuing a company’s stock because investors want to
know how profitable a company is and how profitable it will be in the future.
Furthermore, if the company doesn’t grow and the current level of earnings
remains constant, the P/E can be interpreted as the number of years it will take for
the company to pay back the amount paid for each share.

Price Earnings ratio =MPS ÷EPS ×100

10. Net worth ratio:

the net worth ratio states the return that shareholders could receive on their
investment in a company, if all of the profit earned were to be passed through
directly to them. Thus, the ratio is developed from the perspective of the
shareholder, not the company, and is used to analyze investor returns. The ratio is
useful as a measure of how well a company is utilizing the shareholder investment
to create returns for them, and can be used for comparison purposes with
competitors in the same industry.

To calculate the return on net worth, first compile the net profit generated by the
company. The profit figure used should have all financing costs and taxes
deducted from it, so that it accurately reflects the profit available to shareholders.
This is the numerator in the formula. Next, add together the capital contributions
made by shareholders, as well as all retained earnings; this is the denominator in
the formula. The final formula is:

Net worth ratio =Net profit after tax ÷Shareholders fund ×100

11. Preference dividend cover ratio:

the preferred dividend coverage ratio is a coverage ratio that measures a
company's ability to pay off its required preferred dividend payments. Preferred
dividend payments are the scheduled dividend payments that are required to be
paid on the company's preferred stock shares. Unlike common stock shares, the
dividend payments for preferred stock are set in advance and cannot be changed
from quarter to quarter. The company is required to pay them. A healthy company
will have a high coverage ratio, indicating that it has little difficulty in paying off
its preferred dividend requirements. A company with less financial health will
have a lower coverage ratio, indicating they have fewer funds on hand to make the
required dividend payments. Since preferred stock dividends are paid out before
common stock dividends are determined, a falling preferred dividend payout ratio
may indicate a company could be inclined to reduce its common stock dividend in
the future.

Preference dividend cover ratio= Profit after tax ÷ Preference

dividend

12. Equity dividend cover ratio:

Dividend Coverage Ratio states the number of times an organization is capable of
paying dividends to shareholders from the profits earned during an accounting
period.
Dividend cover in respect of ordinary share capital may be calculated as follows:

Equity Dividend Cover Ratio = PAT ÷ Equity dividend

1.5.3 Working capital Ratios

the final element of working capital management is inventory management. To

operate with maximum efficiency and maintain a comfortably high level of
working capital, a company must carefully balance sufficient inventory on hand to
meet customers' needs while avoiding unnecessary inventory that ties up working
capital for a long period before it is converted into cash. Companies typically
measure how efficiently that balance is maintained by monitoring the inventory
turnover ratio. The inventory turnover ratio, calculated as revenues divided by
inventory cost, reveals how rapidly a company's inventory is being sold and
replenished. A relatively low ratio compared to industry peers indicates inventory
levels are excessively high, while a relatively high ratio indicates the efficiency of
inventory ordering can be improved.

1. Inventory turnover Ratio:

Inventory turnover indicates the efficiency of the firm in producing and selling its
product. The average inventory is the average of opening and closing balances of
inventory.
The cost of goods sold may not be available so we can compute inventory
turnover as sales divided by inventory in a manufacturing company inventory of
finished goods is used to calculate inventory turnover. This inventory turnover
ratio indicates whether investment in inventory is efficiently utilized or not. It,
therefore, explains whether investment in inventory in within proper limits or not.
It is calculated by dividing the cost of goods sales by the average inventory.
The inventory turnover shows how rapidly the inventory in turning into receivable
through sales.
A high inventory turnover is indicative of good inventory management. A low
inventory turnover implies excessive inventory levels than warranted by
production and sales activities or a slow moving or obsolete inventory.

Inventory turnover ratio = cost of goods sold ÷ average stock

OR  
Inventory turnover Ratio   = Net sales ÷ Inventory

2. Debtors turnover ratio:

a firm sells goods for cash and credit. Credit is used as a marketing tool by
number of companies. When the firm extends credits to its customers, debtors
(accounts receivable) are created in the firm’s accounts. Debtors are convertible
into cash over a short period and, therefore, are included in current assets. The
liquidity position of the firm depends on the quality of debtors to a great extent.
Debtors’ turnover indicates the number of times debtors’ turnover each year
generally, the higher the value of debtors’ turnover, the more efficient is the
management of credit. To outside analyst, information about credit sales and
opening and closing balances of debtors may not be available. Therefore, debtors’
turnover can be calculated by dividing Total sales by the year-end balances of
debtors:

Debtors turnover ratio = Total sales ÷ Accounts receivable

3. Debt collection Ratio:

The period, on average, that a business takes to collect the money owed to it by its
trade debtors. If a company gives one month’s credit then, on average, it should
collect its debts within 45 days. The debtor collection period ratio is calculated by
dividing the amount owed by trade debtors by the annual sales on credit and
multiplying by 365 days

Debt collection ratio = Account receivable ÷ net credit sales ×

365 days

4. Accounts payable turnover ratio:

the accounts payable turnover ratio, also known as the payables turnover or the
creditor’s turnover ratio, is a liquidity ratio that measures how many times a
company pays its creditors over an accounting period. The accounts payable
turnover ratio is a measure of short-term liquidity, with a higher payable turnover
ratio being more favourable.

Accounts payable ratio = Net credit purchase ÷Average

accounts payable ×100
 5. Average payment period:
Average payment period (APP) is a solvency ratio that measures the average
number of days it takes a business to pay its vendors for purchases made on credit.

Average payment period is the average amount of time it takes a company to pay
off credit accounts payable. Many times, when a business makes a purchase at
wholesale or for basic materials, credit arrangements are used for payment. These
are simple payment arrangements that give the buyer a certain number of days to
pay for the purchase.

Average payment period= Average trade creditors ÷ Net credit purchase × 100

6. Working capital turnover ratio:

Working capital turnover is a ratio that measures how efficiently a company is
using its working capital to support a given level of sales. Also referred to as net
sales to working capital, work capital turnover shows the relationship between the
funds used to finance a company's operations and the revenues a company
generates as a result.
The working capital turnover ratio is calculated by dividing net annual sales by
the average amount of working capital current assets minus current liabilities
during the same 12-month period.

Working capital turnover ratio= Net sales ÷Working capital

7. Fixed assets turnover ratio:

the fixed asset turnover ratio (FAT) is, in general, used by analysts to measure
operating performance. This efficiency ratio compares net sales (income
statement) to fixed assets (balance sheet) and measures a company's ability to
generate net sales from its fixed-asset investments, namely property, plant, and
equipment
the fixed asset balance is used as a net of accumulated depreciation. In general, a
higher fixed asset turnover ratio indicates that a company has more effectively
utilized investment in fixed assets to generate revenue.

Fixed capital turnover ratio= Sales ÷ Total fixed assets

8. Capital turnover Ratio :

Capital turnover ratio shows the relationship between net sales and capital
employed. It is used to measure the efficiency of management to generate revenue
from companies’ capital.
The higher degree of this ratio is better for a company in sense that capital is
being used in effective way.

Capital turnover ratio= Sales ÷ Capital employed

1.5.4 Capital structure Ratio

Capital structure ratios are also known as leverage ratios. Capital structure ratios
may be defined as those financial ratios which measure the long-term stability and
structure of the firm. These ratios provide an insight into the financing techniques
used by the business and focus on the long-term solvency position. From the
balance sheet one can get only the absolute funds employed and its sources, but
they do not convey any significant message about their proportion to another type
of source of funds. For example: Debt ratio, it is used to know how much debt is
there in total capital employed.

1. Debt equity ratio:

The relationship describing the lenders contribution for each rupee of the owners’
contribution is called debt-equity (DE) ratio is directly computed by dividing total
debt by net worth:

Debt Equity ratio = Total long-term debt ÷ Equity fund

2. Proprietary ratio:
the proprietary ratio (also known as the equity ratio) is the proportion of
shareholders' equity to total assets, and as such provides a rough estimate of the
amount of capitalization currently used to support a business. If the ratio is high,
this indicates that a company has a sufficient amount of equity to support the
functions of the business, and probably has room in its financial structure to take
on additional debt, if necessary. Conversely, a low ratio indicates that a business
may be making use of too much debt or trade payables, rather than equity, to
support operations (which may place the company at risk of bankruptcy).

Thus, the equity ratio is a general indicator of financial stability. It should be used
in conjunction with the net profit ratio and an examination of the statement of
cash flows to gain a better overview of the financial circumstances of a business.
These additional measures reveal the ability of a business to earn a profit and
generate cash flows, respectively.

Proprietary ratio = shareholders fund / total assets ×100

3. Capital gearing return:

Gearing focuses on the capital structure of the business – that means the
proportion of finance that is provided by debt relative to the finance provided by
equity (or shareholders).
The gearing ratio is also concerned with liquidity. However, it focuses on the
long-term financial stability of a business.
Gearing (otherwise known as "leverage") measures the proportion of assets
invested in a business that are financed by long-term borrowing.

Capital gearing ratio = Capital entitled to get fix rate of return /capital
 not entitled to get fix rate of return

4. Debt service ratio :

the debt service coverage ratio, also known as "debt coverage ratio", is the ratio of
cash available to debt servicing for interest, principal and lease payments. It is a
popular benchmark used in the measurement of an entity's ability to produce
enough cash to cover its debt payments.

Debt service ratio= Net profit before interest and tax ÷ Fix
interest charges

1.6 Advantages of Ratio analysis:

financial statement analysis is useful in anticipation of future conditions and

planning for actions that will improve the firm's future performance. Financial
ratios are designed to help you evaluate a financial statement. Users of financial
information such as creditors, investors, management and financial analyst use
ratio analysis for different purposes, such as analyzing liquidity and profitability
of the company. It is essential for users to understand the different environments
that companies operate in when using ratios to analyze the suitability of an
investment.

1. Comparison
Analysts use ratios to compare the performance of a company with those of other
firms in the same industry before deciding on where to invest. It is imperative
however for analysts to have an understanding of the environment in which a
business operates to be able to make best decisions on investment. Profitability
ratios such as profit margin on sales allows the management to compare, evaluate
and benchmark the performance of the company with its competitors in the
industry in an effort to come up with beneficial strategies that will increase the
company's profitability and market share.
2. Trend analysis
Trend analyses describe changes that have occurred from one period to the next.
Ratios calculated over a number of years are used to forecast the future
profitability, liquidity and market share of the company. Management uses this
analysis to identify deficiencies and try to come up with strategies to improve
performance. Creditors analyze current ratios over a number of years in an effort
to gauge credibility of a company to meet its short-term obligations.

3. Historical Data
Ratio analysis is performed on historical data for the purpose of forecasting future
performance. The historical relationship may not continue because of changes in
the general state of the economy, management, general environment in which the
firm operates and policies established by management. Failure to adjust for
inflation or changes in fair value of the historical cost used in computing the ratios
may result in computations providing misleading information on trend analysis.

4. Different Accounting Methods

accounting information used in computation of ratios is affected by the estimates,
assumptions and different accounting methods used by companies. An example is
a company that uses First in, First Out method to value its inventory will have a
higher inventory value compared to the company that uses Last in, First Out
method. Ratios computed from such data differ and they provide misleading
information when used to compare the two companies even if they operate in the
same industry. Ratios ignore the qualitative factors such as the skill of human
capital that plays an important role in the advancement of financial performance
of a company.

1.7 Limitations of the ratio analysis:

Some of the most important limitations of ratio analysis include:

1.Historical Information: Information used in the analysis is based on real past

results that are released by the company. Therefore, ratio analysis metrics do not
necessarily represent future company performance.
2. Inflationary effects: Financial statements are released periodically and,
therefore, there are time differences between each release. If inflation has
occurred in between periods, then real prices are not reflected in the financial
statements. Thus, the numbers across different periods are not comparable until
they are adjusted for inflation.

3. Changes in accounting policies: If the company has changed its accounting

policies and procedures, this may significantly affect the financial reporting. In
this case, the key financial metrics utilized in ratio analysis are altered and the
financial results recorded after the change are not comparable to the results
recorded prior to the change. It is up to the analyst to be up to date with changes to
accounting policies. Changes made are generally found in the notes to financial
statements section.

4. Operational changes: A company may significantly change its operational

structure, anything from their supply chain strategy to the product that they are
selling. When significant operational changes occur, the comparison of financial
metrics before and after the operational change may lead to misleading
conclusions about the company’s performance and future prospects.

5. Seasonal effects: An analyst should be aware of seasonal factors that could

potentially result in limitations of ratio analysis. The inability to adjust the ratio
analysis to the seasonality effects may lead to false interpretations of the results
from the analysis.
Manipulation of financial statements: Ratio analysis is based on information that
is reported by the company in their financial statements. This information may be
manipulated by the company’s management to report a better result than its actual
performance. Hence, ratio analysis may not accurately reflect the true nature of
the business, as the misrepresentation of information is not detected by simple
analysis.

1.8 company profile

Hindustan Unilever Limited

1.8.1History and annual growth:

1888 - Sunlight soap introduced in India.

1895 - Lifebuoy soap launched; Lever Brothers appoints agents in Mumbai,
Chennai, Kolkata, and Karachi.
1902 -Pears soap introduced in India
. 1903 - Brooke Bond Red Label tea launched.
1905 - Lux flakes introduced.
1913 -Vim scouring powder introduced.
1914 - Vinolia soap launched in India.
1918 - Vanaspati introduced by Dutch margarine manufacturers like Van den
Burghs, Jurgens, Verschure Creameries, and Hartogs.
1922 - Rinso soap powder introduced.
1924 - Gibbs dental preparations launched.
1925 - Lever Brothers gets full control of North West Soap Company.
1926 - Hartogs registers Dalda Trademark.
1930 - Unilever is formed on January 1 through merger of Lever Brothers and
Margarine Unie. 1888, less than four years after William Hesketh Lever launched
Sunlight Soap in England, his newly-founded company, Lever Brothers, started
exporting the revolutionary laundry soap to India. By the time the company
merged with the Netherlands-based Margarine Unie in 1930 to form Unilever, it
had already carved a niche for itself in the Indian market. Coincidentally,
Margarine Unit also had a strong presence in India, to which it exported
Vanaspati (hydrogenated edible fat).
1931 - Hindustan Vanaspati Manufacturing Company registered on November
27; Sewri factory site bought.
1932 - Vanaspati manufacture starts at Sewri.
1933 - Incorporated on 17th October, under the name of a Lever Brothers (India)
Pvt., Ltd. (LBIL) was the wholly owned subsidiary of Unilever Ltd. London, UK. -
1933 Lever Brothers India Limited (LBIL) incorporated in India to manufacture
Soaps.
1934 - Soap manufacture begins at Sewri factory in October; North West Soap
Company's Garden Reach Factory, Kolkata rented and expanded to produce
Lever brands.
1935 - On 11th May a subsidiary Co. was incorporated under the name United
Traders Pvt. Ltd. for marketing the products of the Co. or imported from the
parent Co.
1937- Mr. Prakash Tandon, one of the first Indian covenanted managers, joins
HVM.
1939 - Garden Reach Factory purchased outright; concentration on building up
Dalda Vanaspati as a brand.
1941 - Agencies in Mumbai, Chennai, Kolkata and Karachi taken over; company
acquires own sales force.
1942 - Unilever takes firm decision to "train Indians to take over junior and senior
management positions instead of Europeans".
1943 - Personal Products manufacture begins in India at Garden Reach Factory.
1944 - Reorganization of the three companies with common management but
separate marketing operations.
1947 - Pond's Cold Cream launched. 1951 - Mr. Prakash Tandon becomes first
Indian Director. Shamnagar, Tiruchy, and Ghaziabad Vanaspati factories bought.
1955 - 65% of managers are Indians.
1956 - On 27th October, the Co. was converted into a Public Ltd. Co. - On 1st
November, Hindustan Vanaspati Mfg. Co. Pvt. Ltd., William Gossage & Sons
(India) Pvt. Ltd. and Joseph Crosfield & Sons Unilever Ltd. were amalgamated
with LBIL and the name was changed to Hindustan Lever Ltd. From 23rd october
onwards activities of subsidiary Co. were taken over by its holding Co. - On 17th
November Unilever Ltd. Offered to the public 557,000 No. of equity shares of
Rs.10 each.
1957 - Unilever Special Committee approves research activity by Hindustan
Unilever.
1958 - Research Unit starts functioning at Mumbai Factory.
1959 - Surf launched.
1961- Mr. Prakash Tandon takes over as the first Indian Chairman; 191 of the
205 managers are Indians.
1962 - Formal Exports Department starts.
1963 - Head Office building at Backbay Reclamation, Mumbai, opened.
1964 - Etah dairy set up, Anik ghee launched; Animal feeds plant at Ghaziabad;
Sunsilk shampoo launched. 1965 - Signal toothpaste launched; Indian
shareholding increases to 14%.
1966 - Lever's baby food, more new foods introduced; Nickel catalyst production
begins; Indian shareholding increases to 15%. Statutory price control on
Vanaspati; Taj Mahal tea launched.
1967 - Hindustan Unilever Research Centre, opens in Mumbai.
1968 - Mr. V. G. Rajadhyaksha takes over as Chairman from Mr. Prakash
Tandon; Fine Chemicals Unit commissioned at Andheri; informal price control on
soap begins.
1969 - Rin bar launched; Fine Chemicals Unit starts production; Bru coffee
launched
1971 - Mr. V. G. Rajadhyaksha presents plan for diversification into chemicals to
Unilever Special Committee - plan approved; Clinic shampoo launched. 1973 -
Mr. T. Thomas takes over as Chairman from Mr. V. G. Rajadhyaksha.
1974 - Pilot plant for industrial chemicals at Taloja; informal price control on
soaps withdrawn; Liril marketed.
1975 - Ten-year modernisation plan for soaps and detergent plants; Jammu
project work begins; statutory price control on Vanaspati and baby foods
withdrawn; Close-up toothpaste launched.
1976 - Construction work of Haldia chemicals complex begins; Taloja chemicals
unit begins functioning.
1977 - On February synthetic detergents plant in Jammu was commissioned.
Plant for manufacture of linalool from betapinere, pheneyl ethyl alcohol and
eaters commissioned at Jammu.
1978 - Indian shareholding increases to 34%; Fair & Lovely skin cream
launched.
1979 - In October, the company set up a new industrial undertaking at Haldia for
the manufacture of sodium tri-polyphosphate, phosphoric acid and sulphuric acid.
1980 - In order to reduce the non-resident holding in the Co. to 51%, Uniliver Ltd.
offered for sale during Feb. out of its shareholding in the Co. 4239523 No. of
equity shares of Rs.10 each at a premium of Rs.9.50 per share in the following
manner; - i) 10,00,000 shares to public financial institutions. - ii) 25,12,702 shares
to the existing resident Indian shareholders on a pro-rata basis in the ratio of 1:4.
- iii) 726,821 shares to employees and Indian directors.
1982 - Government allows 51% Unilever shareholding.
1983 - A new plant for synthetic detergents in Chindwara district of M.P
commissioned Co. took on lease a detergent and toilet soap factory at the
request of Punjab govt. owned by a joint sector Co. Stephans Chemicals Ltd. - A
new fine chemical unit was commissioned. - As consideration, Indian
shareholders of HL Ltd. were offered 62,20,576 No. of equity shares of Rs.10
each of Lipton India Ltd., at par in proportion of 2:8. ie 2 Lipt:8 HL equity.
1984 - Foods, Animal Feeds businesses transferred to Lipton.
1985 - A project for the manufacture of 500 tonnes per day of diammonium
phosphate was commissioned.
1986 - Lux toilet soap was launched. - Agri-products unit at Hyderabad starts
functioning - first range of hybrid seeds comes out; Khamgaon Soaps unit and
Yavatmal Personal Products unit start production.
1987 Lifebouy Personal and Breez soaps launched.
1988 - Company in collaboration with National Starch Corporation USA,
undertook to set up a new facility at pondicherry for the manufacture of
functionalised biopolymers. - The Co. took on lease cum purchase basis the
detergents undertakings of Union Home Products Ltd. Mangalore.
1989 - Synthetic Detergent plant at Sumerpur in UP & Tiolet soap plant in Orai in
UP were commissioned. - Cracking catalyst plant at Haldia commissioned. -
Vegetable oil plant commissioned at Kandla free trade zone.
1991 - Seed and Tissue culture projects commissioned at Hyderabad.
- Company proposed to set up a 17,000 tpa. film sulphonation plant at Taloja to
manufacture a range of detergent actives.
- Company signed a collaboration and 100% buy back agreement with Sawyer of
Napa, California, USA to produce wool-on-leather garment and wool-on-leather
products.
- Commissioned a plant for manufacture of 10,000 tonnes per annum of toilet
preparations at Pondicherry.
1992 - Entered in dental product market by introducing Pepsodent, Mentadent G
etc.
- A factory to manufacture leather garments and other leather based products
including wool-on-leather garments and wool-on-leather was set up in Chennai. -
The Company undertook to set up a large scale acquaculture centre at Tanjavur
in Tamil Nadu for farming and processing catfish for the U.S. markets in technical
collaboration with FFDA, Florida, USA who also provide a full buy-back
guarantee.
1993 - Temporary shut down of Haldia Plant due to duty free import of DAP.
Entered skin product market by introducing fair & lovely. Also entered hair care
product by introducing sunsilk salon treatment & clinic super gel. Close-up
confident toothbrush also introduced on the same year.
- During the year Company entered into joint selling agreement with Ponds India
Ltd. for distributing their products.
- Company set up rice millong facilities in the free trade zone of Kandla.
- Company obtained all permissions and approvals for acquiring 80% of the
equity capital of Nepal Lever Ltd. The company was also taking steps to set up
an effective distribution system in Nepal to distribute and market the products of
the Co.
- Tata Oil Mills Co. Ltd. (TOMCO) was merged with Hindustan Lever Ltd with
effect from 1st April. As per the scheme of amalgamation, shareholders of
TOMCO were allotted without Payment in cash 2 equity shares of Rs.10 each of
HL for 15 equity shares of Rs.10 each held in TOMCO. After the amalgamation
Unilever PLC London were allotted on a preferencial basis 29,84,347 equity
shares of Rs.10 each at a premimium of Rs.95 per share for maintain their share
holding at 51% in the Co.
1994 HLL and US-based Kimberley-Clark Corporation form 50:50 joint venture,
Kimberley-Clark Lever Ltd. 1994 - Company entered male toiletries segment with
the launch of Denim after shave & Ean Dee Toilette. - Co. set up Hot Melt
Adhesive manufacturing facilities at Taloja. And also entered SSP business and
trading. - Wool-on-leather and wool-on-garment plant was commissioned. - The
Company entered into joint venture agreement with Kimberly-Clark Corporation,
USA to promote a joint company `Kimberly-Clark Lever Ltd.' with 50% equity
participation by the company.
1995 - In technical collaboration with Shinto Corporation, a subsidiary of Toya
Suisan, Japan, the Co. undertook to set up a Surimi (Fish Paste) project at an
initial cost of Rs.15 crores near Veraval in Gujarat State. The collaborators
provided 100% buy-back guarantee for the output of this unit which seeks to
upgrade the hitherto wasted fishery resources of the country. The plant was
commissioned in the second quarter.
- The Company entered into joint venture agreement with Lakme Lever Ltd. to
undertake the manufacturing and distribution of colour cosmetics and other
personal care products.
- The Company also entered into an agreement with S C Johnson & Son USA,
for manufacture and sales of insecticides such as insect repellents, disinfectants
and similar products in India.
- The Company received the President's Award for Outstanding performance in
Agri Commodities for the year 1994-95.
- 1995 HLL and Indian cosmetics major, Lakme Ltd, form 50:50 joint venture,
Lakme Lever Ltd. HLL acquires Kwality and Milkfood 100% brandnames and
distribution assets. - HLL and US-based S.C. Johnson & Son Inc. form 50:50 joint
venture, Lever Johnson (Consumer Products) Pvt. Ltd.HLL Soaps and Detergent
sales cross one million tonnes.
1996 - Brooke Bond India Ltd. was amalgamated with the Company. As per the
scheme of amalgamation, the Company allotted 533,28,713 equity shares to the
share holders of Brooke Bond India Ltd. in the proportion 9 shares of the
company for 20 shares held in Brooke Bond India Ltd. - The Company entered
into joint venture S C Johnson & Son USA. The Joint Venture named Lever
Johnson Consumer products Pvt. Ltd.
1997 - Company received the Solvent Extractors' Association Award for being
the highest exporter of Rice Bran Extractions during 1996-97. - The Far Eastern
Economic Review, Hong Kong, has adjudged HLL the Best Indian company in its
Review 200: Asia's Leading Companies survey.
1998 - The Directors of Hindustan Lever Limited at their meeting held on 16th
March, considered and approved the proposal for amalgamation of Ponds India
Limited with Hindustan Lever Limited. HLL's tea business is among the biggest in
the world.
- The Department of Agriculture and co-operation under the ministry of
agriculture has directed Lever Johnson (Consumer Products) Ltd., a subsidiary of
Hindustan Lever Limited, and Icon Household Products Pvt. Ltd. to withdraw from
the market, the mosquito mat repellent Raid from Domex on charges of having
grossly violated the conditions of registration.
- HLL has also taken several initiatives in raising awareness of oral care and
hygiene in India. One of these programmes is the free dental check-up
programme, which is conducted in collaboration with the Indian Dental
Association.
- Hindustan Lever Ltd (HLL) has signed the Fuel Supply Agreement (FSA) with
public sector Indian Oil Corporation (IOC) for the entire fuel and lubricant
requirements of its manufacturing unit in Orai. This the first time that two giants,
one from public sector and other from the private sector, have joined hands as
"partners in progress", and also augurs future partnerships between IOC and
HLL.
- IOC's northern region general manager (sales) I H Hashmi and R K Mutreja
from HLL signed FSA for five years supply of HSD (petrol), furnace oil and lubes
to the tune of 555 kilo litre per month.
- Hindustan Lever is the largest manufacturer of Lifebuoy, Lux, Breeze, Rexona
and Haman in the country, under a division christened the personal products
division.
- The managements of Pond's (India) (PIL) and HLL have decided to propose the
amalgamation of PIL with HLL. They are subsidiaries of Unilever, UK, which holds
51 per cent equity in both.
- The Tatas have joined hands with Hindustan Lever Ltd (HLL) in Kerala to set up
a Rs.686 crore hospitality, housing and infrastructure project. The project
proposes to construct a five star hotel complex, technology park, world trade
centre, business and commercial space, shopping mall and housing complexes
at Tatapuram in the heart of Kochi city covering an area of 35 acres. - HLL has
signed a memorandum of understanding with Swastic Vanaspati of Biratnagar,
Nepal, for the supply of hydrogenated oil under its own brandname Dalda.
- Hindustan Lever to buy out Kwality's ice-cream plants; agreement to be signed
soon Hindustan Lever Limited (HLL) has suffered twin setbacks in its plans of
selling Kwality Ice creams nationwide. - The board of directors of Tasty Bite
Eatables has issued 59,530 non convertible preference shares of Rs.100 each at
a premium of Rs.1,950 per share to Hindustan Lever on private placement basis.
The preference share will carry a coupon of 1 per cent for a tenure of ten years,
said a notice issued to the Mumbai Stock Exchange.
- HLL has entered into an agreement with Johnson & Johnson for using the
trademark Savlon for its soap products. The agreement was entered into eight
months back and concerns only soaps. - HLL has also entered into joint ventures
to introduce products that are not in Unilever's global portfolio. These include joint
ventures with Kimberly Clark and SC. Johnson for personal hygiene and
households care respectively.
- HLL was one of the first companies to join the National Securities Depository
(NSDL) to encourage its shareholders to avail themselves of its benefits. -
Hindustan Lever Limited's Bangalore factory has received National Productivity
Award for the fourth year in a row from National Productivity Council. The factor
has also received ISO 9002 certification. - 1998 Group company, Pond's India
Ltd, merges with HLL. HLL acquires Lakme brand, factories and Lakme Ltd's
50% equity in Lakme Lever Ltd. HLL acquires manufacturing rights of Kwality
icecream. Appellate Authority of Government of India absolves HLL of insider
trading charges, made by SEBI in 1997, in the BBLIL merger.
1999 - Hindustan Lever Ltd (HLL), has joined hands with the Institute for Social
and Economic Change (Isec) for a rural development programme in Karnataka. -
Hindustan lever Ltd, has decided to merge its subsidiary Industrial Perfumes Ltd
with the company. The merger would be effective from January 1.
- The company holds 1,27,497 shares of Rs. 100 each. Industrial Perfumes
manufacturers aroma chemicals such as deodorant and perfumes. According to
the company as per the scheme of amalgamation for every five equity shares of
Rs 10 each of Industrial Perfumes two shares of HLL will be given. - Hindustan
Lever Ltd is selling its Rs 80-crore dairy business to Nutricia International BV, part
of the $1.7bn Dutch dairy products giant Koninklijke (Royal) Numico NV Group,
for a yet undisclosed sum. A memorandum to this effect was signed a few days
ago.
-Working Consumer Giant Hindsutan Lever Limited (HLL) has converted a part of
its debt, which otherwise would have been non-realisable from Tasty Bite
Eatables Ltd, into non-cumulative, non-convertible redeemable preference shares
carrying an interest rate of 1 per cent.
- Hindustan Lever Limited (HLL) has decided to dispose of its dairy business to
Nutricia (India) Pvt Ltd and spin off its animal and poultry feeds into a separate
subsidiary.
- Industrial Perfumes Limited is to amalgamate with Hindustan Lever Limited
(HLL) and under the scheme HLL is to issue at par and allot two equity shares of
Rs 10 each to the shareholders of Industrial performes for every five shares held
by them in that company.
- Hindustan Lever holds about 51 per cent of the issued, subscribed and paid-up
capital of Industrial Perfumes Limited and the shares, if any held by HLL and its
subsidiary companies as on the record date in Industrial perfumes shall be
concelled.
2000 - HLL acquires Modern Foods, the first public sector company to be
divested by the Government of India
- The Company has launched Surf Excell Liquid Detergent, for daily washing of
clothes.
- HLL markets more than 110 brands, in 950 packs. the products are sold in one
million retail outlets, directly covering India's entire urban population and about
50,000 villages.
- The Company has launched a cooking medium New Dalda Activ.
- FMCG major Hindustan Lever Ltd, aiming to strengthen its foods business, has
received a boost in this endeavour with its parent Unilever acquiring the US-
based food company Bestfoods.
- The Aviance, the international range of beauty solutions by the Hindustan Lever
Ltd. has launched a hair care range comprising four shampoos and two
conditioners.
- The Company has acquired four factories from Amalgam Foods Ltd. on a wet
lease to carry out the processing of marine products.
- The Company for the second year running, has been rated among the world's
100 best-managed companies.
- HLL has introduced ColourFast Slims, a new range on lipsticks under its
Aviance Beauty Solutions brand.
- The Company has launched the Lux Body Wash along with a Lux loofah in
Karnataka. This is the first mass-appeal body wash to be launched under the
brandname Lux.
- Hindustan Lever and Elizabeth Arden, launched Elizabeth Arden, Unilever's
Prestigious cosmetics and fragrance brand, in India.
- The Company has set up 12 counters across the country to carry out exchange
of share certificates for new certificates of Re 1 face value.
- Kwality Wall's, a division of Hindustan Lever Ltd., has launched softy ice cream
and has positioned it as a mass market product and Head of the ice cream
business.
- FMCG major Hindustan Lever Ltd will mark its entry into the softy ice cream
segment by setting up softy kiosks in all major metros starting with Chennai.
- The Company has relaunched its tea brand, Brooke Bond Red Label, with
Assam Super Tasters.
- Hindustan Lever Ltd. has proposed to make an open offer for a 24 per cent
stake held by local shareholders in International Bestfoods Ltd., which is now a
subsidiary of parent Unilever. - Hindustan Lever Ltd's Pepsodent toothpaste has
introduced games at McDonald's outlets - The Company has launched Aim
toothbrush in South India.
- The Company has launched an innovative scheme with gold coins embedded in
tablets of its Lux brand of soap.
- The Company has launched the new Nutririch Fair & Lovely fairness reviving
lotion.
- HLL has entered into an agreement with FFI Fragrances to continue importing
and distributing the globally renowned prestige brand - Elizabeth Arden - for the
next six ti twelve months.
2001 - Shampoo brand `Clinic All Clear' on the Net, Hindustan Lever has
launched a host of Web Promotions on popular Websites which include,
Rediff.com, Sify.com, Indya.com, Uthplanet.com, Hungama.com and C2W.com.
- HLL has over 36,000 employees, and has created 2 lakh indirect jobs. Its
operations are spread across 70 locations in India. There are over 50 factories, of
which 28 are in backward areas. The operations involve 2000 suppliers and
associates and 7000 stockists and agents. HLL has emerged as a major
Exporter.
- Hindustan Lever Ltd. has organised a mobile van promotion called `Dare to
Wear Black Mania' in order to promote Clinic All Clear, its anti-dandruff shampoo.
- Hindustan Lever Ltd is hiving off its existing business of fragrances, flavours
and food ingredients into a separate joint venture, Quest International India, in
which paints major ICI India will hold a majority stake.
- HLL has launched the new Fair & Lovely Fairness Soap -- which will help make
the skin fairer, safely and gently.
- Company's branded salt Annapurna launched in Africa - Project Shakti, a rural
marketing initiative, brings HLL 20% rise in rural consumption - Signs Joint
Venture with India Seeds Holdings Ltd., a company incorporated in Mauritius
engaged in the seed and biotechnology industry, for transfer of its seeds
business undertaking Paras Extra Growth Seeds Ltd. (PEGSL) for a
consideration of Rs 115 crore - Comes out from the premium (prestige)
fragrances segment by stopping distribution of Calvin Klein in the country - Enters
into ayurvedic healthcare market by releasing their Lever Ayush ayurvedic health
and beauty care products -Enters into sourcing agreement with Unilever Australia
and Unilever US for supplying tea bags - Lever Gist Brocades, a 50:50 joint
venture of Hindustan Lever (HLL) and DSM of The Netherlands, was sold to
Burns Philp India, the local arm of the Australia-based food conglomerate Burns
Philp
- Relaunches Deluxe Green Label with a better and stronger aroma in the four
southern states to consolidate its position as a leading filter coffee brand -
Acquires remaining 26% stake in Modern Foods for Rs 44.07cr
- The company chosen as the most preferred company on campus - Hindustan
Lever, Kochi wins commendation certificates for energy conservation from the
State-level Monitoring Committee for Energy Conservation for year 2002 2003 -
Ties up with Pepsi for distribution, signs a memorandum of understanding with
Pepsi, to leverage each otherÂ’s strengths in distribution. The agreement
provides Pepsi access to the HLLÂ’s institutional accounts.
2004 - Hindustan Lever Ltd launches Domex Thick, a disinfectant cleaner, in
Kerala, priced at Rs 22 for 500 ml. -HLL unveils 2 imported products under
Lakme brand -HLL enters into kids' personal care market -Unilever, the parent
company of Hindustan Lever and one of the world's largest consumer products
companies, has set up a global sourcing arm, that will have a large presence in
India to buy products and raw materials from low-cost locations for its
subsidiaries across the world -HLL sells Kissan factory premises in Bangalore for
Rs 60 cr -HLL's Modern Food unveils diet bread -Launches Dove Ultra
Moisturizing Body Wash -HLL inks pact with Pepsi in beverage segment 2005 -
HLL introduce iced tea in glass bottles - Unilever Overseas Holdings BV
(UOHBV), the Netherlands based wholly owned subsidiary of Unilever PLC
divests 37,00,000 equity shares Rs 10/- each of Rossell Industries Ltd (RIL) in
favour of M/s M K Shah Exports Ltd, one of the leading exporter and tea
plantation company in India, being an Indian unlisted company. - Hindustan lever
Ltd, on May 22, 2005, entered Himachal in a big way by setting up a home-and-
personal-care(HPC) factory, with an initial investment of Rs 110 crore. -HLL rolls
out Brooke Bond brand variation -Mcleod Russel & HLL signs MoU 2006 -
Brookefields food operations moved to Mumbai
2007 -Hindustan Lever Ltd. has appointed Mr. Ashok K. Gupta as "Officer who is
in default" for the purposes of Compliance with section 5(f) of the Companies Act,
1956. - Company name has been changed from Hindustan Lever Ltd to
Hindustan Unilever Ltd.
2008 -Hindustan Unilever Limited has informed that Mr. Sanjiv kakkar, Executive
Director, Sales & Customer Development has been appointed Chairman,
Unilever Russia, Ukraine and Belarus (RUB), with effect from 1st September,
2008. - HUL completes 75 years on 17th October 2008 2009 - Hindustan Unilever
on Jan 26 said it has appointed R Sridhar as its Chief Financial Officer by
succeeding D Sundaram. Sridhar was serving as the Vice-President, Finance
and Controller for Unilever (Asia), Africa and Central & Eastern Europe region.
He joined HUL in 1989. - Hindustan Unilever decided to license 'Lakme' and
'Lever Ayush', brands to it's subsidiary, Lakme Lever Private Limited, for the
Beauty and Wellness services business. 2010 - Hindustan Unilever said it exited
from BPO firm Capgemini Business Services India by selling its remaining 49%
stake to IT consultancy firm Cap Gemini SA. - The directors of Hindustan
Unilever Limited (HUL) have approved the appointment of Dev Bajpai as
Executive Director, Legal and Company Secretary with effect from June 1, 2010.
- Hindustan Unilever (HUL) may have grown by a healthy 5 per cent last quarter,
entirely driven by volume growth.But for its parent company Unilever, the
performance was still disappointing.Now, to please Unilever and mop up more
volume growth, HUL has introduced a distribution initiative called 'Must Win
2010'. - The India born, Manvinder Singh Banga who is better known as Vindi
Banga, will leave Unilever with service of 33years to the Company in May this
year. - Mr. Paul Polman the global CEO of Unilever looks to take the innovation
route to double HUL business. - Fast Moving Consumer Goods major Hindustan
Unilever Ltd launched a new affordable variant of water purifier brand Pureit,
known as a‘Pureit Compact’ with a price tag of Rs 1,000 in the Indian market. -
Hindustan Unilever Ltd. (HUL) has stepped forward to divest part of its stake in
Hindustan Field Services (HFS). -Hindustan Unilever Ltd (HUL) has raised prices
of its Lux and Lifebuoy toilet soaps by Rs 1 each. The price hikes are the
company’s first in 20 months.
2011 - Hindustan Unilever Ltd informs about the changes and Details of
Corporate Office. - HUL comes up with a‘Bru World Cafaca’ - With the objective
of doubling the sales by 2015, the FMCG major, Hindustan Unilever (HUL) is
eyeing at strategies, which includes re-launches, moves ahead with its plans,
Hindustan Unilever has re-launched its popular Lifebuoy talcum powder brand. -
India's biggest fast moving consumer goods company, Hindustan Unilever, has
started a campaign across the country in order to save water by assessing the
demand-supply gap. - HUL taps banks and telecom firms to penetrate deeper into
rural India - HDFC chairman Deepak Parekh resigns from HUL's board. 2012 -
HUL to enter into agreement with Unilever to market Brylcreem in India -
Hindustan Unilever Limited (HUL) and entities of Piramal Realty (Ajay Piramal
Group) have signed an agreement for assignment of HUL's leasehold rights of
the land and building named Gulita situated at Worli Sea Face, Mumbai, for a
transaction value of Rs. 452.5 Crores (Rupees Four Hundred and Fifty Two
Crores and Fifty lakhs only). - Hindustan Unilever Ltd have shifted Registered
Office from 165/166 Backbay Reclamation, Mumbai 400 020 to the following
address:Hindustan Unilever Ltd.Unilever House, B. D. Sawant Marg, Chakala
Andheri East Mumbai 400099 Tel: 022- 39832312 / 39832532 / 39834510 Fax:
022- 28249457,Email: [email protected] 2013 -Unilever announces
€50 million investment for Khamgaon plant -HUL announces launch of Domex
Toilet Academy -Unilever launches project sunlight
2014 - Unilever announced a partnership with Internet.org, a Facebook-led
alliance of partners, to understand better how internet access can be increased to
reach millions more people across rural India. -HUL launches Prabhat initiative
for community development in villages around its factories -Unilever helps
families live more sustainably at home -HUL enters into partnership with MTV to
endorse its brands 2015 -Hindustan Unilever launched The Unilever Foundry -
HUL signs an agreement with Mosons Group for acquisition of its flagship
'Indulekha' brand -HUL was recognized as the most innovative marketer on
mobile, at the Mobile Marketing Association (MMA) -HUL revives Ayush with e-
launch -HUL was awarded and honored Ancient of the Year’ -HUL won five
awards - one Gold, one Silver and three Bronze awards. -HUL launches
a‘Swachh Aadat, Swachh Bharata’ programme in India
2016 -HUL signs agreement with LT Foods for the sale of its Rice. -HUL factory in
Khamgaon awarded the CII Sustainability Award 2016. HUL retains Ancient of the
Year’ at Effie’s 2016. -HUL recognized among Top 10 Best Companies 2016 for
Women. -HUL recognized at the Cold Chain Industry Awards 2016. -HUL digital
campaigns win big at 2016 CMO Asia Awards.
2017 -Hindustan Unilever Ltd.new unit in Assam starts commercial production. -
Hindustan Unilever Ltd.develops new technology to reduce plastic sachet waste.
 -HUL receives national certificate of recognition from ICSI. -HULÂ’s Puducherry
factory ranks second at CII-SR EHS Excellence Awards. -HUL's Project Prabhat
wins at the Social Change Awards. -HUL wins National Award for excellence in
Employee Relations. -HUL wins at CII National Food Safety Award 2017. -
HULÂ’s Haridwar factory wins bronze at the WCM Awards 2017. -HUL launches
‘A Playing Billions’ campaign. -HUL awarded for Excellence in Water
Management.
-HUL wins big at the first-ever Marquee Awards 2017.
-HUL emerges as the No. 1 Employer of Choice.

Additional details:

• Public company
• Incorporated:1956
• Employees:41000
• Sales:
• Stock exchange: Mumbai

1.8.2 Company Profile:

Industry name Personal care

Business group name MNC
Association 1933-10-17
incorporated date
ISIN code INE030A01027
Address Uniliver House, B D Marg,Andheri
(East),Mumbai
Country India
Pin code 400099
Telephone 39832285,39832452
Fax 28249457
Email [email protected]
Website Http://www.hul.co.in

2. RESEARCH METHODOLOGY

2.1. OBJECTIVES OF STUDY

Interpreting the financial statements and other financial data is essential for all
stakeholders of an entity. Ratio Analysis hence becomes a vital tool for financial
analysis and financial management. Let us take a look at some objectives that
ratio analysis fulfils.

1. To examine the financial performance of the Hindustan Unilever Ltd. For the
period of 2009-2018.
2. To analyses interpret and to suggest the operational efficiency of the Hindustan
Unilever Ltd. by comparing the balance sheet& profit & loss A\c
3. To critically analyses the financial performance of the Hindustan Unilever Ltd.
With Help of the ratios.
4. To study the most important financial ratios.
5. To study real life example of Ratio Analysis
6. To study a list of ratio Equations
2.2 RESEARCH HYPOTHESIS

A hypothesis is a preparation or principles which assumed perhaps without belief

in other to draw its logical consequences and also by method to test its accord
with fact, which are know or may be determine.

A hypothesis is a conjectural statement of the relationship between two or more

variables. Hypothesis is always in declarative sentence. Form and they relate
either generally or specifically variable to variables.

A good accounting ratio gives a proper accounting record and effective informal
control. In view of this study, the researcher formulates Null hypothesis (Ho) and
Alternate hypothesis (Hi) to test the research work.

Null hypothesis (Ho): Ratio analysis are not significant in performance

evaluation.

Alternative hypothesis (H1): Ratio analysis are significant in performance

evaluation.

2.3 Limitations of the study

Ratio analysis is very important in revealing the financial position and soundness
of the business.
But, inspire of its advantages, it has some limitations
which restrict its use. These limitations should be kept in mind while making use
of ratio analysis for interpreting the financial the financial statements.
The following are the main limitations of ratio analysis:

1. Ratios are based upon the financial statement. In case financial statement are in
correct or the data of on which ratios are based is in correct, ratios calculated will
all so false and defective.

2.. The difference in the methods of calculation of stock or the methods used to
record the deprecation on assets will not provide identical data, so they cannot be
compared.

3. Different meanings are given to a particular term, egg. Some firms take profit
before interest and tax; others may take profit after interest and tax.

4. The comparability of ratios suffers, if the prices of the commodities in two

different years are not the same.

5. Ratio analysis is the quantitative measurement of the performance of the

business. It ignores qualitative aspect of the firm, how so ever important it may
be.

6. Ratios are only means of financial analysis and an end in itself. The ratio has to
be interpreted and different people may interpret the same ratio in different ways.

7. Ratios devoid of absolute figures may prove distortive, as ratio analysis is

primarily a quantitative analysis and not a qualitative analysis.

2.4 Need for the study:

(a) It helps us to know the reasons for relative changes - either in profitability or
in the financial position as a whole.

(b) It also help to know both the short-term liquidity position vis-a-vis working
capital position; as also the long-term liquidity and solvency position of a firm.

(c) It also highlights the operating efficiency and the present profit-earning
capacity of the firm as a whole.
 2.5 scope of the study:
The scope of the study is limited to collecting financial data published in the
annual reports of the company every year. The analysis is done to suggest the
possible solutions. The study is carried out for 10 years (2008-18).

2.6 Data sources:

• Study based on secondary data
• Secondary data collected from annual reports and also existing manuals and like
company records balance sheet and necessary
records.

2.7 Sampling Design

Sampling Unit: Financial Statements

Sample Size: Last Ten Years Financial Statements

2.8 Methodology

1.The Secondary data is collected from annual reports of the Hindustan Uniliver
LTD
2.During the Research it is not possible to calculate ratios related with preference
shares, because of company only have an equity shares itself.
3.All the amounts and figures collected from financial statement is shown in
crores.
 LITRATURE REVIEW

Kumar B. Das (1987) has made an analysis of the financial performance of the
cement industry. it can be analysed that the net fixed assets as a percentage of total
assets decreased for the period 1970-71 to 1977-78 that was 553.5% to 44.04 %
respectively. Current liabilities have increased than the current assets. Liquidity
performance of the cement industry is not healthy during period of the study. The
Debt Asset ratio has downward During the period of the study and Debt Equity
ratio has slightly increased while net worth ratio has decreased over the years
Nair N.K. (1991) has focused the productivity aspect of Indian Cement Industry.
This study emphasised that cement, being a construction material, occupied a
strategic place in the Indian economy. This study has revealed that, in 1990-91,
the industry had an installed capacity of 60 million tonnes with a production of 48
million tonnes. In this study, the cement industry was forecasted to have a
capacity growth of about 100 million tonnes by the year 2000. This study has also
analysed the productivity and financial performance ratios of the cement industry
with a view to identifying the major problem areas and the prospects for solving
them.

Subir Cokavn and Rejendra Vaidha (1993) have analysed to evaluate the
performance of cement industry after decontrol. They found that the performance
of the cement industry after decontrol was characterized by outcomes that were
generally competitive and welfare enhancing. This study has revealed that the
structure of the industry changed significantly with large magnitude of relative
technologically and superior capacity being created by many new entrants into the
industry. It was also noticed in this study that there were significant real price
increase and an associated increase in profitability. The performance of firms
across the strategic group was different with firms operating relatively new and
large plants appeared to have an advantage. Further, the study has dealt with the
nature and effect of inter-firm heterogeneities in the cement industry.
Srinivasa Rao.G and Indrasena Reddy.P (1995), in their study, analysed the
financial strength of paper industry had been improving from year to year. The
company's performance in relation to generating internal funds in the form of
reserves and surplus was excellent and also the company was doing well in
mobilizing outsiders' funds. The liquidity position of the company was sound as
revealed by current ratio and quick ratio which were above the standard. The
solvency ratio showed that the company had been following the policy of low
capital gearing from the 1990-91 as these ratios had been decreasing from this
year. The performance of the company in relation to its profitability was not up to
the expected level. The company's ability to utilize assets for generation of sales
had not been improved much during the period of study period as revealed by its
turnover ratios.

Nand Kishore Sharma (2002), in his Study on financial appraisal of cement

industry in India, has found that the liquidity position was decreasing, current
ratio and quick ratio showed a decreasing trend and also these ratios varied from
time to time. On comparing the current ratio and quick ratio of cement industry,
six companies were found higher than the industry average and four companies
lower than industry average. The solvency position in term of debt-equity ratio
has showed a decreasing trend in the first 4 years of study, after that, it registered
an increasing trend. The ratio of fixed assets to total debt always showed more
than 100 percent which indicated that the claims of outsiders were covered by the
fixed assets of the cement companies

Bardia (2006), in his study on Liquidity Management of Steel Authority of India

Limited, has analysed the overall performance of liquidity maintained by steel
sector and the amount tied-up in various components of working capital. This
study has found that there was a positive relationship between liquidity and
profitability.

Amalendu Bhunia (2007), studied on liquidity management, analysed the short-

term financial strength through the analysis of the working capital management of
selected iron and steel companies in India. The study revealed that actual values of
working capital have been found to be lower than the estimated values of working
capital for the companies, such as Steel Authority of India Limited (SAIL) and
Indian Iron and Steel Corporation (IISCO). There was a poor liquidity
performance existed in case of both SAIL and IISCO, inefficient inventory
management in case of SAIL and inefficient receivable management in case of
both the enterprises. It suggested that increase in additional investment in raw
materials, reduction in the burden of current liabilities were necessary in order to
improve the inventory management and liquidity position of these steel
companies.

Sudipta Ghosho (2008) has analysed the liquidity performance of Tata Iron and
Steel Company (TISCO). During the selected period of the study, it was found
that the liquidity position of the company, on the basis of current ratio as well as
quick ratio, was not satisfactory. It indicated that the share of current assets in total
assets of the company, on an average, was 29.1 percent during the period of study.
It was suggested that to maintain overall control of liquidity position, the company
should give special attention to the management of current assets. He found that
the degree of influence of liquidity on its profitability was low and insignificant.

Adolphus J. Toby (2008) has conducted a study on liquidity performance

relationship of Nigerian manufacturing companies. The results of the study have
revealed a significant relationship between liquidity, profitability, efficiency and
leverage measures. The study has also made an attempt to suggest that in order to
target money supply, monetary policy could be used to facilitate monetary
transmission mechanism by integrating a minimum liquidity requirement for the
manufacturing industry. Rationale for the present study.

Hajihassani (2012) A Comparison of Financial Performance in Cement Sector in

Iran. This study exhibited comparison of financial performance for the period
study 2006 to 2009. It can be analysed comparison of financial performance of
selected cement companies by using various financial ratios and measures of
cement companies working in Iran. Financial ratios are divided into three
categories in this concludes that the performance of cement companies on the
basis of profitability ratios different than on the basis of liquidity ratio and
leverage ratio.

DATA ANALYSIS AND INTERPRETATION OF DATA

• Liquidity Ratios:

Current ratio:
The current ratio is a liquidity ratio that measures a company's ability to pay short-
term obligations or those due within one year. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy its current
debt and other payables.
Formula:
Current Ratio = Current assets / Current liabilities
 Table 4.1
years Current assets Current liabilities Current ratio
2008-2009 5601 5783 0.96
2009-2010 5367 6733 0.79
2010-2011 6095 7399 0.82
2011-2012 7793 6448 1.20
2012-2013 7569 7655 0.98
2013-2014 8852 8518 1.03
2014-2015 9263 8782 1.05
2015-2016 9552 6652 1.43
2016-2017 9411 7202 1.30
2017-2018 11169 8636 1.29
(As per annual report)

Interpretation: The above table shows current ratio of ten years i.e. from 2009-
2018 .the current ratio varied between 0.96 to 1.29 with an average of 1.08 during
the study period .the current ratio in the year 2008-09 was 0.96 which come down
in next year and further increase in last 5 years of study period increase in the
current ratio shows the firm has more current assets than current claims this ratio
measures whether or not a firm has enough resources to meet its short term
obligations.

Quick ratio:
The quick ratio is an indicator of a company’s short-term liquidity position and
measures a company’s ability to meet its short-term obligations with its most
liquid assets.

Formula
Quick assets = Quick assets / current liabilities

Table 4.2
years Quick Current Quick assets
assets liabilities
2008-2009 3072 5783 0.531212174
2009-2010 3187 6733 0.473340264
2010-2011 3283 7399 0.443708609
2011-2012 5276 6448 0.818238213
2012-2013 5043 7655 0.658785108
2013-2014 6104 8518 0.716600141
2014-2015 6661 8782 0.758483261
2015-2016 7024 6652 1.055923031
2016-2017 7049 7202 0.978755901
2017-2018 8810 8636 1.020148217

(as per annual Reports)

Interpretation: The above table shows the quick ratio of Hindustan Unilever ltd
for 10 years (2009-2018). During the study period quick ratio varied from 0.53 to
1.02. during the period most of the years has quick ratio less than 1 which shows
company may not able to full pay off its current liabilities in short term. At the end
of the year 2016&2018 ratio was more than 1 which shows a liquidity position of
a company.

Absolute Liquid Ratio:

The relationship between the absolute liquid assets and current liabilities is
established by this ratio. Absolute Liquid Assets take into account cash in hand,
cash at bank, and marketable securities or temporary investments. The most
favourable and optimum value for this ratio.

Formula:
Absolute liquid Ratio = Absolute Quick assets / Current Liabilities
 Table 4.3
years Absolute quick Current liabilities Absolute quick
assets ratio
2008-2009 1777 5783 0.30
2009-2010 1892 6733 0.28
2010-2011 1640 7399 0.22
2011-2012 1830 6448 0.28
2012-2013 1707 7655 0.22
2013-2014 2220 8518 0.26
2014-2015 2537 8782 0.28
2015-2016 2759 6652 0.41
2016-2017 1671 7202 0.23
2017-2018 3373 8636 039
(As Per Annual Report)

Interpretation: Above graph and table shows a cash ratio of Hindustan Unilever
ltd for 10 years 2009-2018). the cash ratio has less than 1 during study period.
Cash ratio was 0.30 in the year 2008-09; it was in next 2 years and further
increase in 2011-12. At the end of 2018 it was 0.39

B. Profitability Ratio

Gross profit Ratio

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship
between gross profit and total net sales revenue. It is a popular tool to evaluate the
operational performance of the business. The ratio is computed by dividing
the gross profit figure by net sales.

Formula:
Gross Profit Ratio = Gross profit/sales * sales

Table 4.4
years Gross profit Net sales Gross profit ratio
2008-2009 3025 20239 14.94
2009-2010 2707 17523 15.44
2010-2011 2730 19401 14.07
2011-2012 3350 22800 14.69
2012-2013 4349 26679 16.30
2013-2014 4799 28947 16.57
2014-2015 5523 32086 17.21
2015-2016 5977 32929 18.15
2016-2017 6155 33895 18.16
2017-2018 7347 34619 21.22
(as per annual Reports)

Interpretation: The above table and graph shows the gross profit and gross profit
ratio of Hindustan Unilever ltd for 10 years (2009-2018). the gross profit varied
between 14.94 to 21.22 during study period. Gross profit ratio shows an increased
margin from 2010 to 2018, it means company earn maximum profit by reducing a
cost of goods sold and expenses.

Operating cost Ratio

The operating expense ratio is a measurement of how profitable a piece of income
real estate is for an investor. It is calculated by dividing all operating expenses less
depreciation by operating income. A lower OER is desired as it means
that expenses are minimized relative to revenue.

Formula:
Operating cost Ratio= Operating cost /Net sales *100

Table 4.5
years Operating cost Net sales Operating cost
ratio
2008-2009 17561 20239 86.76
2009-2010 14975 17523 85.46
2010-2011 17035 19401 87.80
2011-2012 19044 22800 83.53
2012-2013 22067 26679 82.71
 2013-2014 22840 28947 78.90
2014-2015 25901 32086 80.72
2015-2016 28078 32929 85.27
2016-2017 28858 33895 84.33
2017-2018 28440 34619 82.15
(as per annual report)

Interpretation: As given above the operating cost ratio varied between 86.76 to
82.15. the date is for 10 years .in 2010-11 operating cost ratio was high i.e. 87.80,
whereas it was low in 2013-14 which was 78.90 and at the end of the study period
ratio was 82.15. the operating cost ratio shows the efficiency of a company’s
management by comparing the total operating cost of a company to net sales.

Operating Profit Ratio

Operating Profit Margin is profitability or performance ratio used to calculate the
percentage of profit a company produces from its operations, prior to subtracting
taxes and interest charges. It is calculated by dividing the operating profit by total
revenue.

Formula
Operating Profit Ratio= Operating Profit/Net Sales *100

Table 4.6

years Operating profit Net sales Operating profit

ratio
2008-2009 2678 20239 13.23
2009-2010 2548 17523 14.54
2010-2011 2366 19401 21.19
2011-2012 3756 22800 16.47
2012-2013 4612 26679 16.47
2013-2014 6106 28947 21.09
2014-2015 6185 32086 19.77
2015-2016 6107 32929 18.55
2016-2017 5037 33895 14.86
2017-2018 6179 34619 17.84
(as per Annual Report)

Interpretation: The above data is for 10 years of Hindustan Unilever Ltd i.e.
from 2009-2018.during the study period the operating profit ratio varied between
13.23 to 17.84. Operating profit ratio in 2009 was 13.23 which increased till 2014
except 2011. In 2011 it was came down and it was lowest operating profit ratio
during the study period whereas in 2014 the operating profit ratio was 21.09
which was highest ratio it shows a company earns a satisfactory profit.

Net Profit Ratio

Net profit ratio. The net profit percentage is the ratio of after-
tax profits to net sales. It reveals the remaining profit after all costs of production,
administration, and financing have been deducted from sales, and income taxes
recognized.

Formula
Net profit Ratio=Net Profit /Net Sales *100

Table 4.7
years Net profit Net sales Net profit ratio
2008-2009 2496 20239 12.33
2009-2010 2202 17523 12.56
2010-2011 2305 19401 11.89
2011-2012 2691 22800 11.80
2012-2013 3796 26679 14.22
2013-2014 3867 28947 13.33
2014-2015 4315 32086 13.44
2015-2016 4137 32929 12.56
2016-2017 4490 33895 13.25
2017-2018 5237 34619 15.12

Interpretation: The above table and graph shows the net profit ratio for ten years
of Hindustan Unilever Ltd and the net profit ratio varied from 12.33 to 15.12.
Higher the net profit ratio shows the company earns a more profit .in the year
2008-09 net profit ratio was 12.33 which increase in next year and decrease in
2011,2012. At the end of the study period i.e. in 2018 it was higher net profit ratio
of the company and it shows company earns a healthy profit.

Return on Capital Employed:

Return on capital employed formula is calculated by dividing net operating profit
or EBIT by the employed capital. If employed capital is not given in a problem or
in the financial statement notes, you can calculate it by subtracting current
liabilities from total assets.

Formula
Return on Capital Employed=EBIT/Capital Employed*100

Table 4.8
years Earnings Capital Returned
before interest employed on capital
and tax employed
ratio
2008-2009 3025 2483 121.83
2009-2010 2707 2583 104.80
2010-2011 2730 2633 103.68
2011-2012 3350 3512 95.39
2012-2013 4349 2674 162.64
2013-2014 4799 3277 146.44
2014-2015 5523 3724 148.30
2015-2016 5977 3835 155.85
2016-2017 6155 4043 152.23
 2017-2018 7347 4618 159.09
(AS Per Annual Report)

Interpretation: Above table and graph shows the return on capital employed of
Hindustan Unilever Ltd. The return on capital employed varied between 121.83 to
159.09. In first 4 years i.e. from 2009-2013 it shows a decrease ratio of return on
capital employed which means company earns less as compares to a capital
employed but it further increases in 2018 and the ratio was 2018. In 2013
company was have a good return on capital employed.

Earnings per share ratio:

Earnings per share (EPS) are the portion of a company's profit allocated to each
share of common stock. Earnings per share serve as an indicator of a company's
profitability. It is common for a company to report EPS that is adjusted
for extraordinary items and potential share dilution.

Formula:
Earnings Per share Ratio=EAT / Number of equity shares
(EAT=earnings after tax – Preference Dividend)
Table 4.9
years Earnings after tax Number of shares Earnings per share
ratio
2008-2009 2500 217.98 11.46
2009-2010 2203 218.17 10.10
2010-2011 2280 215.95 10.56
2011-2012 2693 216.15 12.46
2012-2013 3790 216.26 17.56
2013-2014 3866 216.27 17.88
2014-2015 4316 216.35 19.95
2015-2016 4137 216.39 19.12
2016-2017 4490 216.44 20.74
2017-2018 5237 216.45 24.19
(As Per Annual Report)
 Interpretation: Above table and graph shows earning per share ratio of
Hindustan Unilever Ltd for 10 years. the EPS ratio varied between 11.46-24.19
during the study period. Earnings per share ratio of Hindustan Unilever Ltd
increased from 2009-10 to 2017-18 which was goes higher every year. The
highest earning per share ratio was in 2018 i.e. 24.19. it shows the shareholders
earn profit and get healthy returns

Dividend Payout Ratio:

The dividend payout ratio is the ratio of the total amount of dividends paid out to
shareholders relative to the net income of the company. It is the percentage of
earnings paid to shareholders in dividends. The amount that is not paid to
shareholders is retained by the company to pay off debt or to reinvest in core
operations. It is sometimes simply referred to as the 'payout ratio.'

Formula:
Dividend Payout Ratio=DPS/EPS*100

Table 4.10
years Dividend per Earnings per share Dividend per share
equity share
2008-2009 4 11.46 34.90
2009-2010 3.50 10.10 34.65
2010-2011 3.50 10.56 33.14
2011-2012 3.50 12.46 28.09
2012-2013 4.50 17.56 25.62
2013-2014 5.50 17.88 30.76
2014-2015 6 19.95 30.07
2015-2016 6.50 19.12 33.99
2016-2017 7 20.75 33.73
2017-2018 8 24.20 33.05
(As Per Annual Report)
Interpretation: The above table and graph shows a dividend payout ratio for 10
years of Hindustan Unilever Ltd 2009-2018). The dividend payout ratio varied
between 34.90 to 33.05 during the study period. From the year 2008-09 to 2012-
13 dividend payout ratio decreased it means shareholders earn less dividend as
compare to earning per share. From 2013-14 it further increased till 2018 and it
shows a satisfactory dividend earned by shareholders.

Dividend Yield Ratio:

The dividend yield or dividend-price ratio of a share is the dividend per share,
divided by the price per share. It is also a company's total annual
dividend payments divided by its market capitalization, assuming the number of
shares is constant. It is often expressed as a percentage.

Formula:
Dividend Yield Ratio = DPS/MPS*100

Table 4.11
years Dividend Market Dividend
per share price per yield ratio
share
2008-2009 4 231 1.73
2009-2010 3.50 268 1.30
2010-2011 3.50 287 1.21
2011-2012 3.50 441 0.79
2012-2013 4.50 483 0.93
2013-2014 5.50 556 0.98
2014-2015 6 956 0.62
2015-2016 6.50 831 0.78
2016-2017 7 1040 0.67
2017-2018 8 1351 0.59
(As Per Annual Reports)
Interpretation: The above table and graph shows a dividend yield ratio for 10
years of Hindustan Unilever Ltd 2009-2018). The ratio varied between 1.73 to
0.59. Dividend yield ratio decreased throughout the period of study because of
market price per share raise and it have effect on it.

Price Earning Ratio:

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that
measures its current share price relative to its per-share earnings (EPS). The price-
to-earnings ratio is also sometimes known as the price multiple or the
earnings multiple.

Formula:
Price Earning Ratio = MPS/EPS*100
Table 4.12
years Market Earning Price
price per per share earning
share ratio
2008-2009 231 11.46 20.15
2009-2010 268 10.10 26.53
2010-2011 287 10.56 27.18
2011-2012 441 12.46 35.39
2012-2013 483 17.56 27.51
2013-2014 556 17.88 31.09
2014-2015 956 19.95 47.91
2015-2016 831 19.12 43.46
2016-2017 1040 20.75 50.12
2017-2018 1351 24.20 55.82
(As Per Annual Report)

Interpretation: The above table and graph shows a price earning ratio for 10
years of Hindustan Unilever Ltd 2009-2018) Which varied between 20.15 to
55.82. In 2009 the price earning ratio was 2.0.15 and it increased in all year except
203 and 2014. The highest price earning ratio was in 2018 which was 55.82. the
higher the price earning ratio indicates the high expected price of share based on
earned.
Net Worth Ratio:
Net worth is the amount by which assets exceed liabilities. Net worth is a concept
applicable to individuals and businesses as a key measure of how much an entity
is worth. A consistent increase in net worth indicates good financial health;
conversely, net worth may be depleted by annual Operating losses or a substantial
decrease in asset values relative to liabilities.

Formula:
Net Worth Ratio = Net Profit After Tax/Shareholders Fund*100

Table 4.13
years Net Shareholders Net
profit fund worth
after tax ratio
2008-2009 2501 2061 121.30
2009-2010 2203 2583 85.29
2010-2011 2280 2633 86.59
2011-2012 2693 3512 76.68
2012-2013 3790 2674 141.73
2013-2014 3866 3277 117.97
2014-2015 4316 3724 115.89
2015-2016 4137 3835 107.87
2016-2017 4490 4043 111.06
2017-2018 5237 4618 114.49
(As Per Annual Report)

Interpretation: The above table and graph shows a net worth ratio for 10 years of
Hindustan Unilever Ltd 2009-2018).Net worth ratio varied between 121.30 to
114.49. Higher the net worth ratio means healthy financial position of the
company. In 2012 net worth ratio was lowest which shows the financial position
of a company was no so good. Where in next year the company have good net
worth ratio which shows a good financial condition and it also further decreased
in next 4 years.
Equity Dividend Cover Ratio:
Dividend cover, also commonly known as dividend coverage, is the ratio of
company's earnings (net income) over the dividend paid to shareholders,
calculated as net profit or loss attributable to ordinary shareholders by total
ordinary dividend. The dividend cover formula is the inverse of the dividend
payout ratio.

Formula:
Equity Dividend Cover Ratio=PAT / Equity Dividend
PAT= (Profit After Tax- Preference Dividend)

Table 4.14
years Profit Equity Equity
after tax dividend dividend
cover ratio
2008-2009 2501 871 2.87
2009-2010 2203 763 2.75
2010-2011 2280 755 2.85
2011-2012 2693 972 2.89
2012-2013 3790 756 5.83
2013-2014 3866 1189 4.03
2014-2015 4316 1298 4.25
2015-2016 4137 1407 2.94
2016-2017 4490 1515 2.96
2017-2018 5237 1732 3.02
(As Per Annual Report)

Interpretation: The above table and graph shows a equity dividend cover ratio
for 10 years of Hindustan Unilever Ltd 2009-2018) which varied between 2.87 to
3.02 . In 2009 the equity dividend cover ratio was 2.87 and increased in next 2
years. in the year 2013 it was highest ratio, it means company earns most profit as
compared to equity dividend. From that it again decreased in 2015. At the end of
the study period i.e. in 2018 the equity dividend cover ratio was 3.02.

C. Working Capital Ratio:

Debtors Turnover Ratio: The accounts receivable turnover ratio is an accounting
measure used to quantify a company's effectiveness in collecting its receivables or
money owed by clients. The ratio shows how well a company uses and manages
credit it extends to customers and how quickly that short-term debt is collected or
is paid. The receivables turnover ratio is also called the accounts receivable
turnover ratio.

Formula:
Debtors Turnover Ratio = Total Sales / Account Receivables

Table 4.15
years Total sales Accounts Debtors turnover
receivable ratio
2008-2009 20239 536 37.69
2009-2010 17523 671 26.11
2010-2011 19401 943 20.57
2011-2012 22800 678 33.62
2012-2013 26679 833 32.02
2013-2014 28947 816 35.46
2014-2015 32086 782 41.03
2015-2016 32929 1064 30.98
2016-2017 33895 928 36.52
2017-2018 34619 1147 30.18
(As Per Annual Report)

Interpretation: The above table and graph shows a debtors turnover ratio for 10
years of Hindustan Unilever Ltd 2009-2018) which varied between 37.69 to
30.18. In 2009 the debtors turnover ratio was 37.69 which decreased in next 2
year. The highest debtors turnover ratio was in 2015 which indicates the higher
turnover and effective collection from debtors. Whereas in 2011 debtors turnover
ratio was lowest this shows less credit sales as compared to collection. At end of
the study period the debtors turnover ratio was 30.18 I.e. in year 2018.
Debt Collection Ratio:
Debtor Collection Period indicates the average time taken to collect trade debts. In
other words, a reducing period of time is an indicator of increasing efficiency. It
enables the enterprise to compare the real collection period with the
granted/theoretical credit period.

Formula:
Debtor Collection Period = (Average Debtors / Credit Sales) x 365

Table 4.16
years Accounts Credit Debt
receivable sales collection
ratio
2008-2009 536 20239 9.67
2009-2010 671 17523 13.97
2010-2011 943 19401 17.74
2011-2012 678 22800 10.85
2012-2013 833 26679 11.39
2013-2014 816 28947 10.28
2014-2015 782 32086 8.90
2015-2016 1064 32929 11.79
2016-2017 928 33895 9.99
2017-2018 1147 34619 12.09
(As Per Annual Source)

Interpretation: The above table and graph shows a debt collection ratio for 10
years of Hindustan Unilever Ltd 2009-2018) which varied between 9.67 to12.09.
debt collection ratio shows the period of payment made by the debtors. In 2009
the debt collection ratio was 9.67 and it increased in 2010 and 2011. in 2011 it was
higher ratio of debt collection; the lowest ratio was in 2015. At the end of the
study period the debt collection ratio was 12.09
Creditors Turnover Ratio:
Accounts payable turnover ratio (also known as creditors turnover
ratio or creditors' velocity) is computed by dividing the net credit purchases by
average accounts payable. It measures the number of times, on average, the
accounts payable are paid during a period.

Formula:
Creditors Turnover Ratio = Net Credit Sales / Average Accounts Payable *100

Table 4.17
years Net credit Average accounts Creditors turnover
purchase payable ratio
2008-2009 2875 3305 86.08
2009-2010 2292 4373 52.39
2010-2011 2818 4726 59.62
2011-2012 3024 4622 65.42
2012-2013 3235 5167 62.61
2013-2014 3350 5623 59.57
2014-2015 3697 5288 69.71
2015-2016 3951 5498 71.86
2016-2017 4166 6006 69.36
2017-2018 3812 7013 54.35
(As Per Annual Report)

Interpretation: The above table and graph shows a creditors turnover ratio for
10 years of Hindustan Unilever Ltd 2009-2018).Average payment period which
varied between 86.08 to 54.35 .the creditors turnover ratio in 2009 was 86.08
which decreased in the next year and thereafter increased in 2011 and 2012 which
was 59.62 , 65.61 respectively. Higher the ratio means the company pays slowly
to its supplier. The lowest creditors turnover ratio was in 2010. at the end of the
study period ratio was 54.35
Average Payment Period:
Average Payment Period. Average payment period (APP) is a solvency ratio that
measures the average number of days it takes a business to pay its vendors for
purchases made on credit. Average payment period is the average amount of time
it takes a company to pay off credit accounts payable.

Formula:
Average Payment Period = Average Trade Creditors/Net Creditors Purchase*365
Days.

Table 4.18
years Average trade Net credit Average payments
creditors purchase ratio
2008-2009 3305 2845 424
2009-2010 4373 2291 696
2010-2011 4726 2818 612
2011-2012 4622 3024 557
2012-2013 5167 3235 582
2013-2014 4741 3350 516
2014-2015 4851 3697 478
2015-2016 5158 3951 476
2016-2017 5764 4166 505
2017-2018 6872 3812 657
(As Per Annual Reports)

Interpretation: Above table and graph shows the average payment period of
Hindustan Unilever Ltd for ten years i.e. from 2009-2018.the average payment
period varied between 421 to 657 during study period. This ratio measures the
number of days that a company take to pay its suppliers. Average payment period
ratio was above 600 in the year 2010,2011&2018. In the year 2009 it was very
lowest as compare study period which was 424.
Fixed Assets Turnover Ratio:
Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the
value of fixed assets (on the balance sheet). It indicates how well the business is
using its fixed assets to generate sales.

Formula:
Fixed Assets Turnover Ratio = Sales/Total Fixed Assets

Table 4.19

years Sales Total fixed Fixed assets

assets turnover ratio
2008-2009 20239 2078 9.74
2009-2010 17523 2436 7.19
2010-2011 19401 2468 7.86
2011-2012 22800 2362 9.65
2012-2013 26679 2508 10.63
2013-2014 28947 2741 10.56
2014-2015 32086 2936 10.92
2015-2016 32929 3300 9.97
2016-2017 33895 4227 8.02
2017-2018 34619 4572 7.57
(As Per Annual Report)

Interpretation: The above table and graph shows the fixed assets turnover ratio
for 10 years of Hindustan Unilever Ltd (2009-2018). The fixed assets turnover
ratio varied between 9.74 to 7.57. In the year 2009 the ratio was 9.74 and from
2012 the fixed assets turnover ratio was increased till the year 2015 which shows
the company invested more in fixed assets for increase sales. but from 2015 it was
further decreased till at the end of study period which shows company not
invested much to increase the sales.
Capital Turnover Ratio:
The working capital turnover ratio is also referred to as net sales to
working capital. It indicates a company's effectiveness in using its
working capital. The working capital turnover ratio is calculated as follows: net
annual sales divided by the average amount of working capital during the same
year.

Formula:
Capital Turnover Ratio = Sales / Capital Employed

Table 4.20
years Sales Capital employed Capital turnover
ratio
2008-2009 20239 2483 8.15
2009-2010 17523 2583 6.78
2010-2011 19401 2633 7.36
2011-2012 22800 3512 6.49
2012-2013 26679 2674 9.97
2013-2014 28947 3277 8.83
2014-2015 32086 3724 8.39
2015-2016 32929 3835 8.58
2016-2017 33895 4043 8.38
2017-2018 34619 4618 7.49
(As Per Annual Reports)

Interpretation: The above table and graph shows the capital turnover ratio of
Hindustan Unilever Ltd for ten years i.e. from 2009 to 2018. The capital turnover
ratio varied between 8.15 to 7.49 during study period. This ratio shows how much
company earn revenue from capital fund. capital turnover ratio was fluctuated
during study period. Capital turnover ratio was 9.97 in the year 2013 which was
highest and Shows Company earns high revenue as compared to other years
during study period.
 D. Capital Structure Ratios:

Debt Equity Ratio:

The debt-to-equity (D/E) ratio is calculated by dividing a company’s total
liabilities by its shareholder equity. These numbers are available on the balance
sheet of a company’s financial statements.

Table 4.21
years Long term debt Equity fund Debt equity ratio
2008-2009 421 217.98 1.93
2009-2010 0 218.17 0
2010-2011 0 216.95 0
2011-2012 164 216.15 0.75
2012-2013 314 216.25 1.45
2013-2014 166 216.27 0.76
2014-2015 18 216.35 0.08
2015-2016 19 216.39 0.08
2016-2017 22 216.44 0.10
2017-2018 24 216.45 0.11
(As Per Annual Report)

Interpretation: The above table and graph shows the debt equity ratio for ten
years of Hindustan Unilever Ltd (2009-2018). The debt equity ratio varied
between 1.93 to 0.11 in the year 2009 the debt equity ratio was 1.93 and for next 2
years it was 0 because of company was not have long term debt at that time. In the
year 2015 ,2016 the debt equity ratio was low during study period which shows
the less risk for equity shareholders.

Proprietary Ratio:
The proprietary ratio (also known as the equity ratio) is the proportion of
 shareholders' equity to total assets, and as such provides a rough estimate of the
amount of capitalization currently used to support a business.

Formula:
Proprietary Ratio = Shareholders Fund / Total Assets*100

Table 4.22
years Shareholders fund Total assets Proprietary ratio
2008-2009 2061 8267 24.93
2009-2010 2583 7803 33.10
2010-2011 2633 8563 30.75
2011-2012 3512 10156 34.58
2012-2013 2674 10078 26.53
2013-2014 3277 11594 28.26
2014-2015 3724 12200 30.52
2015-2016 3835 12852 29.83
2016-2017 4043 13638 29.64
2017-2018 4618 15741 29.33
(As Per Annual Report)

Interpretation: Above table and graph shows the proprietary ratio of Hindustan
Unilever Ltd for ten years i.e. from 2009 to 2018. The proprietary ratio varied
between 24.93 to 29.33 .in the year 2009 the proprietary ratio was 24.93 and it
was above 30 in the year 2010,2011,2012,2015 which is high as compare to other
years. Higher the proprietary ratio shows the strong financial position of a
company. At the end of the 2018 the proprietary ratio was 29.33

CONCLUSION

After all information, it proves that Null Hypothesis (H0) is going to wrong and
alternative hypothesis (H1) is totally right after conducting a research.

• The main objective of study is to analyse and campers the financial

performance through ratio analysis technique.
• It is found that quick ratio and absolute quick ratio are below the standards
which shows company not have much quick assets to fulfil the requirements
of current liabilities.
• During the study period profitability ratios shows increased trend which
means company earns satisfactory profit through reducing cost of goods sold
and increase in sales.
• It is found that while calculating earning per share ratio, the earnings of equity
shareholders increased during study period.
• While calculating capital structure ratios, it is found that company’s financial
position become very strong because of company invented more in capital and
fixed assets for increase in production.
SUGGESTION

1. The company’s quick and absolute quick assets are not sufficient to meet the
current liabilities of the company which shows not good liquid position. This
should be maintain by company through acquiring more quick and current assets
in following years
2. The company should make more efforts to increase the profitability ratio for its
further business growth and development.
3. The company have to take necessary steps to improve the dividend payout ratio
and dividend yield ratio
4. The company’s earning per share was increased and it is advice that it should
be continued for following years.