A PROJECT REPORT

ON

Financial Statement Analysis of Britannia and Cadbury

IN THE SUBJECT

Advanced Financial Accounting

PREPARED BY

Name: Shahnawaz Patel

Roll No.36 Div: A

UNDER THE GUIDANCE OF

Prof. Meghna Chotalia

TO

UNIVERSITY OF MUMBAI
FOR MASTER OF COMMERCE PROGRAMME (SEMESTER - I) YEAR: 2012-13 SVKMS NARSEE MONJEE COLLEGE OF COMMERCE & ECONOMICS VILE PARLE (W), MUMBAI 400056

EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project on Financial Statement Analysis of Britannia and Cadbury submitted by Shahnawaz Patel student of M.Com. Part - I (Semester I) for the academic year 2012-13. This project is original to the best of our knowledge and has been accepted for Internal Assessment.

Name & Signature of Internal Examiner

Name & Signature of External Examiner

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PRINCIPAL

Shri Sunil B. Mantri

DECLARATION BY THE STUDENT

I, Shahnawaz Patel, student of M.Com. (Part I) Roll No.: 36 hereby declare that the project titled Financial Statement Analysis of Britannia and Cadbury for the subject Advanced Financial accountancy submitted by me for Semester I of the academic year 2012-13, is based on actual work carried out by me under the guidance and supervision of Prof. Meghna Chotalia. I further state that this work is original and not submitted anywhere else for any examination.

Place:

Date:
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Name & Signature of Student

ACKNOWLEDGEMENT

It is great pleasure for me to acknowledge the kind of help and guidance received to me during my project work. I was fortunate enough to get support from a large number of people to whom I shall always remain grateful. I wish to express my sincere gratitude to Prof. Meghna Chotalia for having help me get a better perspective of the subject matter and conduct the study effectively. I am very thankful to Mr. Vikram Arora, Management Accounts Officer at Cadbury and Mr. Rahul Bothra, Finance Controller at Britannia for giving me valuable suggestion and encouragement to bring out a good project.

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CONTENTS
SR.NO. 1 2 3 4 5 6 7 8 9 10 15 TITLE Introduction Objective of the Study Company Profile Research Methodology Understanding Theoretical Framework Data Analysis and Interpretation Observations and Findings Limitations Suggestion and Conclusion Bibliography Questionnaire PAGE NO.

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1.0 Introduction
Ratios are the means of presenting information, in the form of a ratio or percentage, which enables a comparison to be made between one significant figure and another. Often the same ratios of like firms are used to compare the performance of one firm with another. A "one off" ratio is often useless - trends need to be established by company ratios over a number of years. The great volume of statistics made available in the annual accounts of companies must be simplified in some way. Present and potential investors can therefore quickly assess whether the company is a good investment or not. Financial ratio analysis is helpful in assessing an organisation's internal strengths and weaknesses. Potential suppliers will, for example, want to judge credit worthiness. Ratios by themselves provide no information; they simply indicate by exceptions where further study may improve company performance. Management can compare current performance with previous periods and competing companies. This project report covers all the aspects relating to the ratios of BRITANNIA and CADBURY INDIA LTD interpreted according to standards. The data analysed for this purpose was Secondary Data and the conclusions derived are based on performance and not potential
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valuation of the companies.

2.0 Objective of the Study

The main objective of ratio analysis is to show the firms relative strengthsand weakness. The objectives of ratio analysis are as follows:

It determines the financial condition and financial performance of the firm. It involves comparison for a useful interpretation of the financial statements. It helps in finding solutions to unfavorable financial statements. It helps to take suitable corrective measures when the financial conditions and performance are unfavorable to the firm, in comparison to other firms in the same industry. With the help of this analysis, an analyst can determine the

The ability of the firm to meet its obligations. The efficiency with which the firm is utilizing its various assets in generating sales.
The overall operating efficiency and performance of the firm

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3.0. COMPANY PROFILE

3.0.1. Britannia
Britannia was incorporated in 1918 as Britannia Biscuits Co LTD in Calcutta. In 1924, Pea Frean UK acquired a controlling stake, which later passed on to the Associated Biscuits International (ABI) an UK based company. During the 50s and 60s, Britannia expanded operations to Mumbai, Delhi and Chennai. In 1989, J M Pillai, a Singapore based NRI businessman along with the Group Danone acquired Asian operations of Nabisco, thus acquiring controlling stake in Britannia. Later, Group Danone and Nusli Wadia took over Pillais holdings. Britannia Industries Limited (Britannia) is one of the largest biscuit manufacturing companies in India. The company is engaged in the manufacture of biscuits, rusks, cookies and cakes. Britannia operates in a single segment, foods including bakery products such as biscuits, bread, cakes, rusk, and dairy products. The company is headquarted in Kolkata, India and employs 2,358 people Global Markets Direct, the leading business information provider, presents an in-depth business, strategic and financial analysis of Britannia Industries Ltd. The report provides a comprehensive insight into the company, including business structure and operations, executive biographies and key competitors. The hallmark of the report is the detailed strategic analysis and Global Markets Directs views on the company.
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Britannia's plants are located in the 4 major metro cities Kolkata, Mumbai, Delhi, and Chennai.

A large part of products arealso outsourced from third party producers. Dairy products are outsourced from three producers - Dynamic Dairy based in Baramati, Maharashtra, and Modern Dairy at Karnal in Haryana and Thacker Dairy Products at Howrah in West Bengal.

3.0.2. Cadbury
Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenues of approximately $50 billion, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. We employ approximately 140,000 people and have operations in more than 70 countries. In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Currently, Cadbury India operates in four categories viz. Chocolate Confectionery, Milk Food Drinks, Candy and Gum category. In the Chocolate Confectionery business, Cadbury has maintained its undisputed leadership over the years. Some of the key brands in India are Cadbury DairyMilk, 5Star, Perk, clairs and Celebrations. Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world! Our billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" for
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chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer.

Today, as a combined company with an unmatched portfolio in confectionery, snacking and quick meals, we are poised in our leap towards quantum growth. We are the world's No.1 Confectionery Company. And we will continue to make today delicious!

4.0.Research Methodology
Four key areas are generally used for analysis: Profitability Liquidity Leverage (capital structure) Activity or management effectiveness (efficiency)

a) Profitability
In most organisations profits are limited by the cost of production and by the marketability of the product. Therefore, "profit maximisation" entails the most efficient allocation of resources by management and "profitability ratios" when compared to others in the industry will indicate how well management has performed this task.

Key questions to be identified in profitability analysis include:

o o o Page30 o Does the company make a profit? Is the profit reasonable in relation to the capital employed in the business? Are the profits adequate to meet the returns required by the providers of capital, for the maintenance of the business and to provide for growth? How are sales and trading profit split among the major activities?

o o o o o o o o o o o o

To what extent are changes due to price change? To what extent does volume change? Does inter-company transfer pricing policy distort the analysis? Has the appropriate proportion of profit been taken in tax charged? What deferred taxation policy is being followed? Has the share of profit (or loss) attributable to minority interests in subsidiaries changed? If so, is it clear why? Are profits and losses on sales of fixed assets: What has been included in Extraordinary Items? Should any of these items be regarded as part of the ordinary business of the company? Do any items tend to recur year after year? Is it clear which items have been transferred directly to reserves without going through the profit and loss account? Is such treatment appropriate in each case?

b) Liquidity "Liquidity measures" are based on the notion that a business cannot operate if it is unable to pay its bills. A sufficient amount of cash and other short-term assets must be available when needed. On the other hand, because most short term assets do not produce any return, a strong liquidity position will be damaging to profits. Therefore, management must try to keep the firm's liquidity as low as possible whilst ensuring that short term obligations will be met. This means that industries with stable and predictable conditions will generally require smaller current ratios than will more volatile industries.

Key questions to be identified in liquidity analysis include:

o Has the business sufficient liquid resources to meet immediate demands from
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creditors?

o Has the business sufficient resources to meet the requirements of creditors due for payment in the next 12 months i.e. creditors payable within one year? o Has the business sufficient resources to meet the demands of its fixed asset replacement programme and its commitments to providers of long-term capital falling due for repayment in say, the next five years?

c) Leverage
"Leverage ratios" show how a company's operations are financed. Too much equity in a firm often means the management is not taking advantage of the leverage available with long-term debt. On the other hand, outside financing will become more expensive as the debt-to-equity ratio increases. Thus, the leverage of an organisation has to be considered with respect both to its profitability and the volatility of the industry.

Key questions to be identified in leverage analysis include:

o What sort of capital has the company issued? o Who owns the capital? o What is the cost of capital in terms of interest or dividend? o What proportions of the capital have a financed return (gearing or leverage) o Is the mix of capital optimum for the company?

o Is further capital available if required? o Is total capital employed analysed among different classes of business? o If so, can return on capital be calculated for each class? o Has issued Ordinary share capital increased during the period? If so, why? e.g. Rights issue? Bonus (scrip) issue? Acquisition? o Are "per share" figures calculated using appropriately weighted number of
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shares?

o Are prior years' figures comparable? o What individual items have caused significant movements on Reserves? o Do any of them really belong in the profit and loss account? o Is any long term debt convertible into ordinary shares? o Is any long term debt repayable within a short period? o If so, should it be treated as a current liability? o Are there significant borrowings in foreign currencies? o Are they matched by foreign assets? o How are exchange losses and gains thereon treated? o Is there any preference capital? o Is short term borrowing included in capital employed? Should it be? o Is the treatment of pensions appropriate? Is information revealed? o Would capitalising leases significantly affect long term debt and gearing ratios?

d) Activity
"Activity ratios" are used to measure the productivity and efficiency of a firm. When compared to the industry average, the fixed-asset turnover ratio, for example, will show how well the company is using its productive capacity. Similarly, the inventory turnover ratio will indicate whether the company used too much inventory in generating sales and whether the company may be carrying obsolete inventory.

Key questions to be identified in activity analysis are:

o Does management control the costs of the business well? o Which costs, if any, have changed significantly, thus reducing or improving
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apparent profitability? o Does management control the investment in assets well?

o Are fixed assets sufficient for the current level of activity? Are they replaced on a regular basis and adequately maintained? o Are the stock levels adequate for the level of activity, or excessive? o Are debts collected promptly? o Are creditors paid within a reasonable period of time? o Are surplus cash resources invested to increase overall returns? o How variable are the profits before interest and tax? o How many times can the interest be paid from the available profit? o How many times can the existing dividend be paid from the available profit?

e) Other
Other questions can be asked in interpreting final accounts. These may relate to long-term trends in the business or to fixed assets, e.g.

i) Long-term trends in the business

o Are profits increasing or decreasing? o Is the size of the business growing faster or slower than inflation? o How has past growth been financed? o Are the levels of stocks, debtors and creditors consistent with the long-term growth of the business? o Are dividends increasing? o Have any radical changes occurred in the past, giving rise to major changes in the
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business?

ii) Fixed assets

o Where fixed assets are shown "at historical cost": How old are they? What is their estimated current value? o How would revaluation affect the depreciation charge? o Where fixed assets are shown "at valuation": o When was the valuation made, and on what basis? o How have values changed since that date? o Might the assets be more valuable if used for other purposes? o What method of depreciation is used for valuation? o What asset lives are used? Are different lives used for Current Cost Accounting? o Has adequate provision been made for technological obsolescence? o Are any assets leased? What is their value o How much are the annual rentals? How long is the commitment? o How does the book value of goodwill compare with the estimated surplus of the current value of fixed assets over their net book value? o Has the status of any investments changed during the period? Subsidiaries? Associated companies? Trade investments? Non-consolidated subsidiaries? o Are investments in associated companies shown by the "cost" method or by the "equity" method? o What is the difference between cost and market value of quoted investments? Is market value used if it is lower than cost? o Are there any long-term debtors? How have they been treated in the balance sheet?
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SOURCES OF DATA COLLECTION

Data for this project is collected through Secondary sources. Secondary data is collected with the help of following

1. Annual report
Majority of information gathered from data exhibited in the annual reports of the company. These includes annual reports of the year 2005-06,2006-07,2007-08,2008-09 and 2009-10.

2. Reference Books
Theory relating to the subject matter and various concepts taken from various financial reference books

4.0 Understanding Theoretical Background

Definition
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Wixon, Kell and Bedford, Ratio is an expression of quantitative relationship

between figures drawn from financial statements.

2)

Hunt, Willant Donaldosa, Ratios are simply a means of highlighting in

arithmetical terms, of relationship between figures drawn from financial statements.

Importance of Ratio Analysis

Ratios are useful for the following reasons:1)

Helpful in Forecasting: - The ratio can be used by financial managers for future
financial planning. Ratio calculated for a number of years work as a guide for the future.

2)

Useful in Co-ordination: - Ratios are useful in co-ordination, which is very much

needed in business. The efficiency and weakness of an enterprise if communicated properly, will establish a better co-ordination among areas of appreciation and control.

3)

Helpful in Control: - The most important aspect of ratio analysis is that is very
useful in controlling the areas of inefficiencies or weakness. It can be use by the management as a technique of correction.

4)

Helpful in Communication: - Ratios are used for communication weak and good
point to the concerned parties.

5)

Helpful in Efficiency Appraisal: - Ratios are the scale of comparison; here the
variations in financial statement, if they need appreciation, are brought to limelight.

6)

Helpful in Evaluation of Financial Position: - The ratio analysis is useful for

financial diagnosis of an enterprise. The under mentioned ratios will make the above clear:

Current Ratio: - It speaks about the working capital the company is having
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and the

funds to pay-off its short-term commitments.

Solvency Ratio: - Profitability Ratio, Capital Gearing Ratio are all such ratio that can
evaluate the financial soundless or weakness of a company.

7)

Helpful to Investors, Financial Institutions and Employees: - The ratios are

economic barometer useful to all mentioned above as they can know the good and bad position of a company by making a comparative study of financial statement.

Various Types of Financial Statements

Classification of ratio is made based on requirement by end users and they indicate symptoms as characteristic of the company.

Profitability Ratio
Measures that indicate how well a firm is performing interms of its ability to generate profit. Formulae of some of the common ratios are as follows: (1) Book Value Per share: Total common (ordinary) equity Number of common

(ordinary) shares issued and outstanding. (2)Dividends Per Share: Dividends paid Number of common (ordinary) shares issued and outstanding. (3) Earnings Per Share: (Net income - preferred stock or preference shareinterest) Number of common (ordinary) shares issued and outstanding. (4) Gross profit percentage: Total cost ofsales in a period x 100 Total sales revenue for that period. (5) Net income percentage: Net income for a period x 100 Total sales revenue for that period. (6) Operating profit percentage: Earnings before interest and taxes (EBIT) in a period x 100 Total sales revenue in the sameperiod. (7) Return On Common equity: (Net income for a period Page30

Dividends) (Common equity - Preferred stock). (8) Return On Investment: Net income Total assets.

1] GROSS PROFIT RATIO:GROSS PROFIT RATIO = GROSS PROFIT X 100 SALES

In 2008-09,the Gross Profit Ratio was 7.85 and it went to 6.12 next year.As there is no standard Ratio,company has to determine its standard ratio based on past GP ratios or GP ratios of other concern.The Ratio if we compare it shows that1)Failure in managing purchases,production,sales and inventory 2)Loose control over direct costs of labour,fuel,freights etc. 3)Lower productivity and lower margin to meet other expenses

2] OPERATING RATIO:OPERATING RATIO = COGS + OPERATING

EXPENSES X 100 SALES

In 2008-09,the Operating Ratio was 8.97 and it went to 7.2 next year.It indicates the cost of Expenses.As there is no standard Ratio,company has to determine its standard ratio based on past GP ratios or GP ratios of other concern.The Ratio if we compare it shows that1) High efficiency in managing the Operations of the concern like purchases made at lower prices,optimum level of production,good inventory management and good control of
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direct cost of labour,fuel,freight etc. 2) 2) A very good Margin available to meet non-operating Expenses.

3] NET PROFIT RATIO:NET PROFIT RATIO =

NPAT X 100 SALES

In 2008-09,the Net profit Ratio was 7.31 and it went to 5.75 next year.It indicates the relationship between net profit and sales.As there is no standard Ratio,company has to determine its standard ratio based on past NP ratios or NP ratios of other concern.The Ratio if we compare it shows that1) Inefficiency in managing its activities like trading.production,financing and investment. 2) unsatisfactory control over operating as well as non operating costs 3) unusual losses like loss by fire,flood etc. 4) Low increase in the net worth or the proprietors funds. 5) Weak capacity of the concern to face bad economic situation.

4] EXPENSES RATIO:Page30

EXPENSES RATIO = EXPENSES NET SALES

X 100

Expense ratios indicate the relationship of various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Hence, expense ratios are calculated by dividing each item of expenses or group of expense with the net sales to analyze the cause of variation of the operating ratio. The ratio can be calculated for individual items of expense or a group of items of a particular type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and higher the operating ratio, lower is the profitability.

DATA INTERPRETATION

COMPARATIVE ANALYSIS OF BRITANNIA INDUSTRIES LTD AND CADBURY PROFITABILITY RATIOS:-

1] GROSS PROFIT RATIO:Page30

GROSS PROFIT RATIO = GROSS PROFIT X 100 SALES

Norm: - Higher the ratio shows higher efficiency and vice versa.

Particulars BRITANNIA CADBURY

2010 4.89 11.54

2009 6.12 6.12

2008 7.85 7.85

2007 4,7 4.7

2006 10.46 10.46

INTERPRETATION:The above table shows that the In Britannia Gross profit ratio is decreasing year by year from 2006 to 2010. This is due to increase in cost of sales and in Cadbury india Ltd, gross profit is increasing as compared to previous years.
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2] OPERATING RATIO:-

OPERATING

RATIO

COGS

OPERATING

EXPENSES X 100 SALES

Norm: - Higher the ratio shows higher efficiency and vice versa.

Particulars BRITANNIA CADBURY

2010 5.99 13.81

2009 7.20 13.75

2008 8.97 13.27

2007 5.85 13.16

2006 11.72 11.25

INTERPRETATION:-

The above table shows that in Britannia, Operating ratio is decreasing year by year from 2006 to 2010 and in Cadbury india Ltd there is no major change in operating ratios from 2006 to 2010.As we compare we come to know that Cadbury is performing well than Britannia.

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3] NET PROFIT RATIO :NET PROFIT RATIO =

NPAT X 100 SALES

Norm: - Higher the ratio shows higher efficiency and vice versa. Particulars BRITANNIA CADBURY 2010 3.38 9.68 2009 5.75 10.27 2008 7.31 8.94 2007 4.86 6.42 2006 8.48 5.11

OBSERVATIONS/ INTERPRETATION:-

The above table shows that in Britannia ,the net profit is decreasing year by year like it in 2006, it was 8.48 and it went up to 3.38 in 2010.whereas in Cadbury net profit is increasing year by year.

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4] RETURN ON NETWORTH:RETURN ON NETWORTH = NPAT SHAREHOLDERS FUND X 100

Norm: - Higher the ratio shows higher efficiency and vice versa.

Particulars BRITANNIA CADBURY

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2010 48.27 35.53

2009 18.40 35.69

2008 24.06 27.77

2007 16.87 19.42

2006 24.99 11.30

OBSERVATIONS/ INTERPRETATION:-

The above ratio indicates that in Britannia, the net profit available to equity shareholder is rising from 2006 to 2010 whereas in Cadbury also return on networth is rising from 11.30 in 2006 to 35.53 in 2010.

OBSERVATION AND FINDINGS

In this project I calculate some ratios; these ratios are very useful to interpret financial position of the company. From that it is clear that the Britannia and Cadbury india Ltd are in advanced stage. From the ratios calculated above following conclusions can be drawn.

The gross profit earned by the both the companies are declining every year. From 2006 to 2010, it is fluctuating a lot which is due to failure in managing purchases, production, sales and inventory or loses control over direct costs of labor, fuel, freights etc.

Operating ratio of Britannia going down from 2006 to 2010 which is nothing but due to certain reasons like low efficiency in managing the operations of the company or low margin available to meet non-operating expenses whereas as compared to Cadbury the fluctuations are not much.

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The net profit is nothing but profit earned by the company after deducting interest and taxes. The graph is showing that in Britannia from 2006 to 2010,the net profit is declining which is due to inefficiency in managing its activities like trading, production,

financing and investment or unsatisfactory control over operating or non operating costs whereas in Cadbury its rising from year year.

SUGGESTIONS AND CONCLUSION:-

The in-depth analysis of key financial ratios in this project helps in measuring the financial strength, liquidity conditions and operating efficiency of the company. It also provides valuable interpretation separately for each ratio that helps

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organization implementing the findings that would help the organization to increase its efficiency. Ratios are only post mortem analysis of what has happened between two balance sheet dates. For one thing the position of the company in the interim period not revealed by analysis, moreover they give no clue about the future. Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather than as an end itself. From the analysis it is evident that the gross profit ratio is good, whereas the operating ratio is around optimum level to the industry standards. As a whole the liquidity position of the company is good.

The company not very well used its fixed assets efficiently company has reduce it in order to invest the major portion in working capital or investment in current assets. This is one of the reason for profit fluctuation.

Thus finally the company must try to improve its profit margins as they are below industry levels. This improvement may also bring up its return on investment and overall efficiency to the company.

The business environment of both the company is reasonably good. The companys track record is always oriented towards profitable growth and with strong fundamentals

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LIMITATIONS
Though the every researcher tries his/her best to fulfill the objectives of his, her study, but still there are some limitation. The authority and genuinely of the data received cannot be tested as every company does not disclose al l of its records on internet or discloses bon the financial statement. False result Accounting ratio is based on data drawn from accounting records. In this case if data is correct, then only the ratio will be correct. The data therefore must be absolutely correct. Effect of price level changes Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of the assets. The comparison is rendered difficult because of differences in situations of one company as compared to the other. Ratios are tool of quantitative analysis only. Normally qualitative factors are needed to draw conclusions. Ratio Analysis is only the beginning as it gives only a little information for the purpose of decision making.

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BIBLIOGRAPHY
Following books were referred for carrying out the project: 1. Financial Management by N.M. Venchalekar. 2. Financial Management by KHAN AND JAIN. 3. Annual Reports of Britannia and Cadbury India Ltd.
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4. Financial Management by Ainapure Ainapure

Following websites were referred: 1. 2. 3. 4. www.money.rediff.com www.cadburyindia.com www.wikipedia.com www.cadbury.com

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