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This project presents a report on company
analysis.The organization taken is ITC LTD. It
contains a detailed analysis on the company
and its all the factors and components
including the vision,mission,code of conduct of
the company,its different product lines,factors
in determining the demand,cost
analysis,regression analysis,production
function analysis and ratio analysis.

ITC is one of India's foremost private sector companies with a market
capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion.
ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the
World's Most Reputable Companies by Forbes magazine, among India's Most
Respected Companies by BusinessWorld and among India's Most Valuable
Companies by Business Today. ITC also ranks among India's top 10 `Most
Valuable (Company) Brands', in a study conducted by Brand Finance and
published by the Economic Times.
ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty
Papers, Packaging, Agri-Business, Packaged Foods & Confectionery,
Information Technology, Branded Apparel, Greeting Cards, Safety Matches and
other FMCG products. While ITC is an outstanding market leader in its
traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-
Exports, it is rapidly gaining market share even in its nascent businesses of
Packaged Foods & Confectionery, Branded Apparel and Greeting Cards.
As one of India's most valuable and respected corporations, ITC is widely
perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this
source of inspiration "a commitment beyond the market". In his own words:
"ITC believes that its aspiration to create enduring value for the nation provides
the motive force to sustain growing shareholder value. ITC practises this
philosophy by not only driving each of its businesses towards international
competitiveness but by also consciously contributing to enhancing the
competitiveness of the larger value chain of which it is a part."
ITC's diversified status originates from its corporate strategy aimed at creating
multiple drivers of growth anchored on its time-tested core competencies:
unmatched distribution reach, superior brand-building capabilities, effective
supply chain management and acknowledged service skills in hoteliering. Over
time, the strategic forays into new businesses are expected to garner a
significant share of these emerging high-growth markets in India.
ITC's Agri-Business is one of India's largest exporters of agricultural products.
ITC is one of the country's biggest foreign exchange earners (US $ 2.8 billion in
the last decade). The Company's 'e-Choupal' initiative is enabling Indian
agriculture significantly enhance its competitiveness by empowering Indian
farmers through the power of the Internet. This transformational strategy, which
has already become the subject matter of a case study at Harvard Business
School, is expected to progressively create for ITC a huge rural distribution
infrastructure, significantly enhancing the Company's marketing reach.
ITC's wholly owned Information Technology subsidiary, ITC Infotech India
Limited, is aggressively pursuing emerging opportunities in providing end-to-
end IT solutions, including e-enabled services and business process outsourcing.

ITC's production facilities and hotels have won numerous national and
international awards for quality, productivity, safety and environment
management systems. ITC was the first company in India to voluntarily seek a
corporate governance rating.
ITC employs over 21,000 people at more than 60 locations across India. The
Company continuously endeavors to enhance its wealth generating capabilities
in a globalizing environment to consistently reward more than 4,46,000
shareholders, fulfill the aspirations of its stakeholders and meet societal
expectations. This over-arching vision of the company is expressively captured
in its corporate positioning statement: "Enduring Value. For the nation. For the


ITC was incorporated on August 24, 1910 under the name Imperial Tobacco
Company of India Limited. As the Company's ownership progressively
Indianised, the name of the Company was changed from Imperial Tobacco
Company of India Limited to India Tobacco Company Limited in 1970 and
then toI.T.C. Limited in 1974. In recognition of the Company's multi-business
portfolio encompassing a wide range of businesses - Cigarettes & Tobacco,
Hotels, Information Technology, Packaging, Paperboards & Specialty Papers,
Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal
Care - the full stops in the Company's name were removed effective September
18, 2001. The Company now stands rechristened 'ITC Limited'.

The Company’s beginnings were humble. A leased office on Radha Bazar Lane,
Kolkata, was the centre of the Company's existence. The Company celebrated
its 16th birthday on August 24, 1926, by purchasing the plot of land situated at
37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs
310,000. This decision of the Company was historic in more ways than one. It
was to mark the beginning of a long and eventful journey into India's future.
The Company's headquarter building, 'Virginia House', which came up on that
plot of land two years later, would go on to become one of Kolkata's most
venerated landmarks.

Though the first six decades of the Company's existence were primarily devoted
to the growth and consolidation of the Cigarettes and Leaf Tobacco
businesses, the Seventies witnessed the beginnings of a corporate
transformation that would usher in momentous changes in the life of the

ITC's Packaging & Printing Business was set up in 1925 as a strategic
backward integration for ITC's Cigarettes business. It is today India's most
sophisticated packaging house.

In 1975 the Company launched its Hotels business with the acquisition of a
hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'.
The objective of ITC's entry into the hotels business was rooted in the concept
of creating value for the nation. ITC chose the hotels business for its potential to
earn high levels of foreign exchange, create tourism infrastructure and generate
large scale direct and indirect employment. Since then ITC's Hotels business has
grown to occupy a position of leadership, with over 100 owned and managed
properties spread across India.

In 1979, ITC entered the Paperboards business by promoting ITC

Bhadrachalam Paperboards Limited, which today has become the market leader
in India. Bhadrachalam Paperboards amalgamated with the Company effective
March 13, 2002 and became a Division of the Company, Bhadrachalam
Paperboards Division. In November 2002, this division merged with the
Company's Tribeni Tissues Division to form the Paperboards & Specialty
Papers Division. ITC's paperboards' technology, productivity, quality and
manufacturing processes are comparable to the best in the world. It has also
made an immense contribution to the development of Sarapaka, an
economically backward area in the state of Andhra Pradesh. It is directly
involved in education, environmental protection and community development.
In 2004, ITC acquired the paperboard manufacturing facility of BILT Industrial
Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit
allows ITC to improve customer service with reduced lead time and a wider
product range.

In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British
joint venture. Since inception, its shares have been held by ITC, British
American Tobacco and various independent shareholders in Nepal. In August
2002, Surya Tobacco became a subsidiary of ITC Limited and its name was
changed to Surya Nepal Private Limited (Surya Nepal).

In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing

company and a major supplier of tissue paper to the cigarette industry. The
merged entity was named the Tribeni Tissues Division (TTD). To harness
strategic and operational synergies, TTD was merged with the Bhadrachalam
Paperboards Division to form the Paperboards & Specialty Papers
Division in November 2002.

Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri
Business Division for export of agri-commodities. The Division is today one of
India's largest exporters. ITC's unique and now widely acknowledged e-
Choupal initiative began in 2000 with soya farmers in Madhya Pradesh. Now it
extends to 10 states covering over 4 million farmers. ITC's first rural mall,
christened 'Choupal Saagar' was inaugurated in August 2004 at Sehore. On the
rural retail front, 24 'Choupal Saagars' are now operational in the 3 states of
Madhya Pradesh, Maharashtra and Uttar Pradesh.

In 2000, ITC forayed into the Greeting, Gifting and Stationery products
business with the launch of Expressions range of greeting cards. A line of
premium range of notebooks under brand “Paperkraft”was launched in 2002.
To augment its offering and to reach a wider student population, the popular
range of notebooks was launched under brand “Classmate” in
2003. “Classmate” over the years has grown to become India’s largest
notebook brand and has also increased its portfolio to occupy a greater share
of the school bag. Years 2007- 2009 saw the launch of Children Books, Slam
Books, Geometry Boxes, Pens and Pencils under the “Classmate” brand. In
2008, ITC repositioned the business as the Education and Stationery Products
Business and launched India's first environment friendly premium business
paper under the “Paperkraft” Brand. “Paperkraft” offers a diverse portfolio
in the premium executive stationery and office consumables segment.
Paperkraft entered new categories in the office consumable segment with the
launch of Textliners, Permanent Ink Markers and White Board Markers in 2009.

ITC also entered the Lifestyle Retailing business with the Wills Sport range of
international quality relaxed wear for men and women in 2000. The Wills
Lifestyle chain of exclusive stores later expanded its range to include Wills
Classic formal wear (2002) and Wills Clublife evening wear (2003). ITC also
initiated a foray into the popular segment with its men's wear brand, John
Players, in 2002. In 2006, Wills Lifestyle became title partner of the country's
most premier fashion event - Wills Lifestyle India Fashion Week - that has
gained recognition from buyers and retailers as the single largest B-2-B
platform for the Fashion Design industry. To mark the occasion, ITC launched a
special 'Celebration Series', taking the event forward to consumers.

In 2000, ITC spun off its information technology business into a wholly owned
subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging
opportunities in this area. Today ITC Infotech is one of India’s fastest growing
global IT and IT-enabled services companies and has established itself as a key
player in offshore outsourcing, providing outsourced IT solutions and services
to leading global customers across key focus verticals - Manufacturing, BFSI
(Banking, Financial Services & Insurance), CPG&R (Consumer Packaged
Goods & Retail), THT (Travel, Hospitality and Transportation) and Media &

ITC's foray into the Foods business is an outstanding example of successfully
blending multiple internal competencies to create a new driver of business
growth. It began in August 2001 with the introduction of'Kitchens of
India' ready-to-eat Indian gourmet dishes. In 2002, ITC entered the
confectionery and staples segments with the launch of the brands mint-
o and Candyman confectionery and Aashirvaadatta (wheat flour). 2003
witnessed the introduction of Sunfeast as the Company entered the biscuits
segment. ITC's entered the fast growing branded snacks category with Bingo! in
2007. In eight years, the Foods business has grown to a significant size with
over 200 differentiated products under six distinctive brands, with an enviable
distribution reach, a rapidly growing market share and a solid market standing.

In 2002, ITC's philosophy of contributing to enhancing the competitiveness of

the entire value chain found yet another expression in the Safety
Matches initiative. ITC now markets popular safety matchesbrands like iKno,
Mangaldeep, Aim, Aim Mega and Aim Metro.

ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked
the manifestation of its partnership with the cottage sector. ITC's popular
agarbattis brands include Spriha and Mangaldeepacross a range of fragrances
like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa.

ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and

bath & body care products for men and women in July 2005. Inizio, the
signature range under Essenza Di Wills provides a comprehensive grooming
regimen with distinct lines for men (Inizio Homme) and women (Inizio
Femme). Continuing with its tradition of bringing world class products to
Indian consumers the Company launched 'Fiama Di Wills', a premium range of
Shampoos, Shower Gels and Soaps in September, October and December 2007
respectively. The Company also launched the 'Superia' range of Soaps and
Shampoos in the mass-market segment at select markets in October 2007
and Vivel De Wills & Vivelrange of soaps in February and Vivel range of
shampoos in June 2008.

Flowing from the concept and principles of Corporate Governance adopted by
the Company, leadership within ITC is exercised at three levels. The Board of
Directors at the apex, as trustee of shareholders, carries the responsibility for
strategic supervision of the Company. The strategic management of the
Company rests with the Corporate Management Committee comprising the
wholetime Directors and members drawn from senior management. The
executive management of each business division is vested with the Divisional
Management Committee (DMC), headed by the Chief Executive. Each DMC is
responsible for and totally focused on the management of its assigned business.
This three-tiered interlinked leadership process creates a wholesome balance
between the need for focus and executive freedom, and the need for supervision
and control.




Mr. Yogesh Chander Deveshwar is the present Chairman of ITC LTD.Along

with the above 5 main committees,Corporate Management Committee forms a
part of the management of the company.

The ITC vision

Susstain ITC's position as one of India's most valuable corporations through

world class performance,creating growing value for the Indian economy and the
Company’s stakeholders.

The ITC mission

To enhance the wealth generating capability of the enterprise in a globalising

environment,delivering superior and sustainable stakeholder value.


Over the years, ITC has evolved from a single product company to a multi-
business corporation. Its businesses are spread over a wide spectrum, ranging
from cigarettes and tobacco to hotels, packaging, paper and paperboards and
international commodities trading. Each of these businesses is vastly different
from the others in its type, the state of its evolution and the basic nature of its
activity, all of which influence the choice of the form of governance. The
challenge of governance for ITC therefore lies in fashioning a model that
addresses the uniqueness of each of its businesses and yet strengthens the unity
of purpose of the Company as a whole.

Since the commencement of the liberalisation process, India's economic

scenario has begun to alter radically. Globalisation will not only significantly
heighten business risks, but will also compel Indian companies to adopt
international norms of transparency and good governance. Equally, in the
resultant competitive context, freedom of executive management and its ability
to respond to the dynamics of a fast changing business environment will be the
new success factors. ITC's governance policy recognises the challenge of this
new business reality in India.

Definition and Purpose

ITC defines Corporate Governance as a systemic process by which companies

are directed and controlled to enhance their wealth generating capacity. Since
large corporations employ vast quantum of societal resources, it believes that
the governance process should ensure that these companies are managed in a
manner that meets stakeholders aspirations and societal expectations.

Core Principles

ITC's Corporate Governance initiative is based on two core principles. These

are :

i. Management must have the executive freedom to drive the enterprise

forward without undue restraints; and

ii. This freedom of management should be exercised within a framework of

effective accountability.

ITC believes that any meaningful policy on Corporate Governance must provide
empowerment to the executive management of the Company, and
simultaneously create a mechanism of checks and balances which ensures that
the decision making powers vested in the executive management is not only not
misused, but is used with care and responsibility to meet stakeholder aspirations
and societal expectations.


From the above definition and core principles of Corporate Governance emerge
the cornerstones of ITC's governance philosophy, namely trusteeship,
transparency, empowerment and accountability, control and ethical corporate
citizenship. ITC believes that the practice of each of these leads to the creation
of the right corporate culture in which the company is managed in a manner that
fulfils the purpose of Corporate Governance.


ITC believes that large corporations like itself have both a social and economic
purpose. They represent a coalition of interests, namely those of the
shareholders, other providers of capital, business associates and employees.
This belief therefore casts a responsibility of trusteeship on the Company's
Board of Directors. They are to act as trustees to protect and enhance

shareholder value, as well as to ensure that the Company fulfils its obligations
and responsibilities to its other stakeholders. Inherent in the concept of
trusteeship is the responsibility to ensure equity, namely, that the rights of all
shareholders, large or small, are protected.


ITC believes that transparency means explaining Company's policies and

actions to those to whom it has responsibilities. Therefore transparency must
lead to maximum appropriate disclosures without jeopardising the Company's
strategic interests. Internally, transparency means openness in Company's
relationship with its employees, as well as the conduct of its business in a
manner that will bear scrutiny. It believes transparency enhances

Empowerment and Accountability

Empowerment is an essential concomitant of ITC's first core principle of

governance that management must have the freedom to drive the enterprise
forward. ITC believes that empowerment is a process of actualising the
potential of its employees. Empowerment unleashes creativity and innovation
throughout the organisation by truly vesting decision-making powers at the
most appropriate levels in the organisational hierarchy.

ITC believes that the Board of Directors are accountable to the shareholders, and
the management is accountable to the Board of Directors. It believes that
empowerment, combined with accountability, provides an impetus to
performance and improves effectiveness, thereby enhancing shareholder value.


ITC believes that control is a necessary concomitant of its second core principle
of governance that the freedom of management should be exercised within a
framework of appropriate checks and balances. Control should prevent misuse
of power, facilitate timely management response to change, and ensure that
business risks are pre-emptively and effectively managed.

Ethical Corporate Citizenship

ITC believes that corporations like itself have a responsibility to set exemplary
standards of ethical behaviour, both internally within the organisation, as well

as in their external relationships. It believes that unethical behaviour corrupts
organisational culture and undermines stakeholder value.


ITC’s Code of Conduct was circulated to the employees more than five years
back and is posted on the Company’s corporate website. This Code has now
been re-drafted for better presentation. This Code is derived from three
interlinked fundamental principles, viz. good corporate governance, good
corporate citizenship and exemplary personal conduct.


ITC is a professionally managed organisation and the core value underlying

corporate philosophy is "trusteeship". They believe the organisation has been
handed to us by the various stakeholders in "trust" and they as professionals are
the "trustees" of these stakeholders. It is therefore their responsibility to ensure
that the organisation is managed in a manner that protects and furthers the
interests of our stakeholders. They recognise society as an important
stakeholder in this enterprise and therefore it is part of our responsibility to
practise good corporate citizenship.

It is also their belief that in order to serve the interests of the stakeholders in
perpetuity, they must build ITC into an institution whose dynamism and vitality
are anchored in its core values.

Corporate Citizenship

In the conduct of the Company’s business, the practice of good corporate

citizenship is a prerequisite and embraces the following:

Dealing with People in the Organisation

In dealing with each other, directors, senior management and employees shall
uphold the values which are at the core of our HR Philosophy - trust, teamwork,
mutuality and collaboration, meritocracy, objectivity, self respect and human
dignity. Indeed, these values form the basis of HR management systems and
processes. In selection and recruitment, while meritocracy will be a prime
criterion, managers will scrupulously consider all factors that go towards
securing the interests of the Company. ITC will focus on meritocracy, equity
and upholding of Company values in all people processes including
performance management systems, appraisals, remuneration and rewards.

A Gender Friendly Workplace

As a good corporate citizen, ITC is committed to a gender friendly workplace. It

seeks to enhance equal opportunities for men and women, prevent/stop/redress
sexual harassment at the workplace and institute good employment practices.

Sexual harassment includes unwelcome sexually determined behaviour such as:

unwelcome physical contact; a demand or request for sexual favours; sexually
coloured remarks; showing pornography and any other unwelcome physical,
verbal or non-verbal conduct of a sexual nature.

ITC maintains an open door for reportees; encourages employees to report any
harassment concerns and is responsive to employee complaints about
harassment or other unwelcome and offensive conduct. A Grievance Committee
on Gender Issues has been constituted to enquire into complaints and to
recommend appropriate action, wherever required.

ITC demands, demonstrates and promotes professional behaviour and respectful

treatment of all employees.

Relationships with Suppliers and Customers

All directors, senior management and employees shall ensure that in their
dealings with suppliers and customers, the Company’s interests are never
compromised. Accepting gifts and presents of more than a nominal value,
gratuity payments and other payments from suppliers or customers will be
viewed as serious breach of discipline as this could lead to compromising the
Company’s interests.

Legal Compliance

It is the Company’s policy to comply fully with all applicable laws and
regulations. Ensuring legal and regulatory compliance is the responsibility of
the Chief Executives of the Businesses and the Divisional Management
Committees. The Company cannot accept practices which are unlawful or may
be damaging to its reputation. Divisional Management Committees must satisfy

themselves that sound and adequate arrangements exist to ensure that they
comply with the legal and regulatory requirements impacting each business and
identify and respond to developments in the regulatory environment in which
they operate. In the event the implication of any law is not clear, the Company’s
Legal Department shall be consulted for advice.

Health and Safety

The Company attaches great importance to a healthy and safe work

environment. ITC is committed to provide good physical working conditions
and encourages high standards of hygiene and housekeeping. Particular
attention should be paid to training of employees to increase safety awareness
and adoption of safe working methods, particularly designed to prevent serious
or fatal accidents.

Environment Policies

The Company believes that commitment to sustainable development is a key

component of responsible corporate citizenship and therefore deserves to be
accorded the highest priority. Accordingly, the Company is committed to Best
Practices in environmental matters arising out of its business activities and
expects each business to fully demonstrate this commitment.

In addition to complying with applicable laws and regulations, Businesses must

establish procedures for assessing the environmental effects of their present and
future activities. They should adopt Best Practices in their environmental
policies and procedures.

Personal Conduct

All directors, senior management and employees have the obligation to conduct
themselves in an honest and ethical manner and act in the best interest of the
Company at all times. They are expected to demonstrate exemplary personal
conduct through adherence to the following:

Avoidance of Conflict of Interest

All directors, senior management and employees must avoid situations in which
their personal interest could conflict with the interest of the Company. This is an
area in which it is impossible to provide comprehensive guidance but the

guiding principle is that conflict, if any, or potential conflict must be disclosed
to higher management for guidance and action as appropriate.

Transparency and Auditability

All directors, senior management and employees shall ensure that their actions
in the conduct of business are totally transparent except where the needs of
business security dictate otherwise. Such transparency shall be brought about
through appropriate policies, systems and processes, including as appropriate,
segregation of duties, tiered approval mechanism and involvement of more than
one manager in key decisions and maintaining supporting records. It shall be
necessary to voluntarily ensure that areas of operation are open to audit and the
conduct of activities is totally auditable.

Protection of Confidential Information

No director, senior management and employee shall disclose or use any

confidential information gained in the course of employment/ association with
the Company for personal gain or for the advantage of any other person. No
information either formally or informally shall be provided to the press, other
publicity media or any other external agency except within approved policies.

Company Facilities

No director, senior management and employee shall misuse Company facilities.

In the use of Company facilities, care shall be exercised to ensure that costs are
reasonable and there is no wastage.

Leading by Example

The organisation’s directors and senior management set the professional tone
for the Company. Through both their words and their actions, the organisation’s
leadership conveys what is acceptable and unacceptable behaviour. ITC’s
directors, senior management and employees must constantly reinforce through
their actions and behaviour that ITC’s stated beliefs of responsible corporate
citizenship are rooted in individual conviction and personal integrity.


Any waiver of any provision of this Code of Conduct for a director, senior
management or employee must be placed for approval before the Company’s
Board of Directors/ Corporate Management Committee, as appropriate.
Non Adherence

Any instance of non-adherence to the Code of Conduct / any other observed

unethical behaviour on the part of those covered under this Code should be
brought to the attention of the immediate reporting authority, who shall in turn
report the same to the Head of Corporate Human Resources.

This Code of Conduct, as adopted by the Board of Directors of the Company

on 26th March, 2005, was amended on 29th March, 2006.


ITC believes that all its employees must live with social and economic dignity and
freedom, regardless of nationality, gender, race, economic status or religion. In the
management of its businesses and operations therefore, ITC ensures that it upholds
the spirit of human rights as enshrined in existing international standards such as
the Universal Declaration and the Fundamental Human Rights Conventions of the

ITC upholds international human rights standards, does not condone human rights
abuses, and creates and nurtures a working environment where human rights are
respected without prejudice.

The Corporate Human Resources function of ITC is responsible for the Human Rights
Policy design, implementation and updation.

The policy is implemented at all locations of ITC through a set of separate policies
and procedures covering each of the main constituents of human rights applicable at
the workplaces.

Monitoring & Audit

The assessment procedures for different constituents of this policy are defined
against each specific policy.

Consideration of Human Rights Impacts Across the Supply Chain

As a large and multi-product enterprise whose products are benchmarked
nationally and internationally, ITC's main supply chains can be grouped as

1. For all its operations, technology, machinery and equipment are sourced
from reputed and globally benchmarked suppliers/vendors who are
expected to follow internationally accepted norms and standards on
human rights.

2. ITC's major businesses are vertically integrated across several Divisions.

A substantial part of the supply chain is therefore internal through
strategic backward linkages. Common values relating to human rights
performance are shared across this supply chain.

3. Being a major agri-based company, the agriculture sector is a major

supplier of inputs for its operations. The bulk of agricultural commodities
are procured from state controlled trading platforms and the open market.

4. A very small proportion of ITC's business consists of supply chains

comprising local vendors and suppliers. The policy framework for such
entities is enunciated separately in 'Policy to Ensure Respect for Human
Rights across the Supply Chain'.

Policy to Ensure Respect for Human Rights Policy across the Supply Chain

ITC provides products and services of superior quality and value by sourcing its
technologies, equipment and inputs from reputed international and Indian
manufacturers and suppliers. Common values, relating to human rights
performance, are shared across the entire supply chain because ITC is
committed to the importance of a socially responsible and accountable supply

ITC nurtures an internal working environment which respects human rights
without prejudice. Likewise, it expects its business partners to establish a
human rights compliant business environment at the workplace.

The responsibility for implementation of this policy rests with the Divisional
Chief Executive of the concerned business and the Unit Manager. The policy is

communicated internally through policy manuals and intranet portals, and
externally by the HR personnel of concerned units to vendors/suppliers.

Monitoring & Audit

ITC has established a policy intent for mapping/monitoring progress and
performance of existing and potential vendors/suppliers on human rights

Policy to Prevent Discrimination at Workplace

ITC acknowledges that every individual brings a different and unique set of
perspectives and capabilities to the team. A discrimination-free workplace for
employees provides the environment in which diverse talents can bloom and be
nurtured. This is achieved by ensuring that a non-discrimination policy and
practice is embedded across the Company in line with corporate principles and
benchmarked business practices.

ITC's approach to its human resources is premised on the fundamental belief in
fostering meritocracy in the organisation which, pari passu, promotes diversity
and offers equality of opportunity to all employees. ITC does not engage in or
support direct or indirect discrimination in recruitment, compensation, access to
training, promotion, termination or retirement based on caste, religion,
disability, gender, age, race, colour, ancestry, marital status or affiliation with a
political, religious, or union organization or minority group.

The policy is communicated to all employees through induction programmes,
policy manuals and intranet portals.

The custodian of this policy is the head of each operational unit and Divisional
Chief Executives of the respective business.

ITC's complaints resolution procedure is premised on the freedom of employees

to approach higher officials beyond his/her immediate superior. For the
unionised employees, compliance of the policy is ensured through a robust
grievance handling procedure and the presence of a union that brings violations
to the notice of the unit HR head.

Monitoring & Auditing

The accountability for the application of the non-discrimination employment

policy rests with the Unit Head who reviews anti-discriminatory complaints
annually or on a case-by-case basis.

The Corporate Human Resources function conducts non-discrimination reviews

annually on a sample basis with unit heads and through on-site assessments.

Policy on Freedom of Association

ITC's culture is characterized by cooperative relationships and high employee

involvement that relies on building partnerships and interdependence. Adhering
to these principles has helped build, sustain and strengthen harmonious
employee relations in the organisation.

ITC respects the employees' right to organize themselves into interest groups as
initiatives of the workers, independent from supervision by the management. In
keeping with the spirit of this Policy, employees are not discriminated against
for exercising this right.

The policy is comunicated to all employees through induction programmes,
policy manuals and intranet portals.

The custodian of this policy is the HR head of each operational unit who reports
directly to Unit Head on such issues.

The actualisation of this policy is evident from the joint agreements and minutes
that are signed between the union and the management.

Monitoring & Audit

Each ITC Unit has appropriate systems and checks to ensure compliance with
the Policy and statutory provisions, including means for filing of grievances,
collective bargaining agreements and minutes from worker meetings.
Compliance with the Policy is regularly monitored by Divisional and Corporate

Policy Prohibiting Child Labour and Preventing Forced Labour from


The foundation of ITC's "No Child or Forced Labour policy" is based on the
Company's commitment to find practical, meaningful and culturally appropriate

responses to support the elimination of such labour practices. It thus endorses
the need for appropriate initiatives to progressively eliminate these abuses.

ITC does not employ any person below the age of eighteen years in the

ITC prohibits the use of forced or compulsory labour at all its units. No
employee is made to work against his/her will or work as bonded/forced labour,
or subject to corporal punishment or coercion of any type related to work.

This policy is publicly available throughout the Company and clearly
communicated to all employees in a manner in which it can be understood
through induction programmes, policy manuals and intranet portals.

The responsibility for the implementation of the policy rests with the Units HR
Department and the security staff who do not permit underage persons to enter
the factory as workers.

Employment contracts and other records documenting all relevant details of the
employees, including age, are maintained at all units and are open to
verification by any authorized personnel or relevant statutory body.

Compliance with the policy is evident in the transparent system of recruitment

and the policy of exit interviews which are undertaken by a manager not
directly connected with the employee. For the unionised employees, compliance
is also ensured through a robust grievance handling procedure and the presence
of a union that brings violations to the notice of the unit HR head.

Monitoring & Audit

Sample checks of the records are undertaken annually by Corporate Human
Resources function.

Audit and assessment is undertaken annually by Corporate Internal Audit and

the Environment, Occupation Health and Safety function.

ITC's core values support an employee engagement process that aligns its
employees with a shared vision and purpose of the Company in the belief that
every individual brings a different perspective and capability to the team. ITC
thus harnesses the creative potential of all its employees by promoting a culture
of partnerships to unleash relevant synergies between different groups of

All major changes in operations involving work processes, manning norms and
other productivity linked issues are carried out after discussions with the
employees and the recognized unions at each location.

Business plans are shared with employees at all units through a series of formal
communication meetings, and through the intranet portals. Unionised
employees at the concerned units are informed of all major changes well in
advance through their representatives.

The responsibility for the implementation of the policy rests with the Unit's HR
Department in the case of unionized employees and with the concerned
Divisional Management Committees for other employees.The employees are
given enough time to consider the implications of change and an opportunity to
discuss their apprehensions, if any, with the management.The Policy is
actualised through consultative meetings with representatives of employees,
culminating in joint minutes/agreements.

Monitoring & Auditing

Compliance with the Policy is regularly monitored by the Unit Head.

HIV/AIDS: Policy Guidelines

ITC is committed to providing a safe and healthy work environment to all its
employees. These policy guidelines on HIV/AIDS are an endorsement of this
commitment and, in particular, of the Company's commitment to specific
programmes and actions in response to the HIV epidemic.
The Company's position is based on scientific and epidemiological evidence
that people with HIV/AIDS do not pose a risk of transmission of the virus to co-
workers by casual, non-sexual contact in the normal work setting.

Policy Guidelines

1. Compliance
The Company's policies on HIV/AIDS with regard to its employees will,
at a minimum, comply with all relevant Central and State legislation and
the Company will implement all policies and directions of the
Government regarding HIV/AIDS whenever issued.
2. Prevention through Awareness
The Company will provide to all its employees sensitive, accurate and the
latest information about risk reduction strategies in their personal lives,
with the objectives of reducing the stigma of HIV/AIDS, encouraging
safe behaviour and improving understanding of treatment.
3. Safe and Healthy Workplace
The Company is committed to providing a safe and healthy workplace to
all its employees. It is the Company's objective that employees will have
access to health services to prevent and manage HIV/AIDS.
4. Non-discrimination
The Company will not discriminate against any employee infected by
HIV/AIDS with regard to promotions, training and other privileges and
benefits as applicable to all employees.
1. A HIV positive employee will be allowed to continue to work in
his/her job unless medical conditions interfere with the specific job
being done, in which case reasonable alternative working
arrangements will be made; or
The employee is incapacitated to perform his/her duties and is
declared medically unfit by a medical doctor, in which case the
employee will be assisted to rehabilitate himself/herself outside the
2. The Company will not make pre-employment HIV/AIDS screening
mandatory as part of its fitness to work assessment. Screening of
this kind refers to direct methods (HIV testing), indirect methods
(assessment of risk behaviour), and questions about HIV tests
already taken.
3. HIV/AIDS test will not be part of the annual health check-ups
unless specifically requested for by an employee.

5. Confidentiality
Voluntary testing for HIV/AIDS when requested for by the employee,
will be carried out by private or community health services and not at the
workplace.There will no obligation on the part of the employees to
inform the Company about their clinical status in relation to HIV/AIDS.
Information on clinical diagnosis of an employees' status in terms of
his/her HIV/AIDS status if advised to the Company, will be kept strictly

ITC IT E-Waste Policy

ITC’s achievements across all three dimensions of the "Triple Bottom Line" –
economic , social and environmental is well known and recognized globally.
Being a pioneer in environmentally sustainable operations ( e.g Carbon and
Water positive , solid waste recycling positive), we need to meet demanding
standards of responsible waste management in all aspects of our operations.

With pervasive use of electrical and electronic equipments in their daily

operations, disposal of obsolete equipments is increasingly posing a threat to
our environment . There is therefore a need to handle such disposals – referred
to as E-Waste – in a responsible manner in line with emerging global best
practices and standards

IT E-Waste is a subset of E-Waste and covers the following IT equipments

Category Items
1. Computers Server / Desktop computer (CPU, Monitor, Keyboard
and Mouse), Laptop, Notebook, Dumb terminal, etc or
similar items
2. Printer & Printer, Scanner, Printer Cartridge, Toner, etc or
Accessories similar items
3. Network Routers, Switches, Patch panel, Modem, Converter,
equipments VSAT equipments, etc or similar items
4. IT Accessories TV Tuner box, Floppy, CD and DVD, Pen Drive,

External Hard disk, External CD / DVD writer, DAT
Drive, Speaker, Laptop Battery, Hand Held device,
VC equipments, Data Cartridge, etc or similar items
5. Associated Power cable, Data cable, UPS, etc or similar items


The lifecycle of all IT assets spanning from acquisition to disposal shall be

managed in a manner which conforms to sound environmental norms as
detailed in the IT E-Waste guidelines. This includes :

 Preferential dealing with IT vendors having sound E-Waste management


 Extending the useful life of IT assets to postpone / minimize generation

of E-Waste

 Responsible disposal processes conforming to regulatory requirements

and best practices

IT E-waste management guidelines

Regulatory environment

 Different government bodies have published regulatory framework for

handling E-waste. Similarly, different trade and industry bodies are also
evolving the best practices to deal with IT E-Waste. CIO Office scans the
evolving code of practice and keep updating this policy document
(supported by Corporate EHS) in line with the best practices for disposal
of IT E-Waste. This is done once a year, or more frequently if deemed

 The appropriate government bodies, e.g., Ministry of Environments &

Forests / Central or State pollution control boards in India, etc. have
initiated the process of approving and authorizing E-Waste Recyclers.
CIO Office shall identify authorized Recyclers, publish a list of such E-
Waste Recyclers and enter into appropriate agreements covering all
aspects of the E-Waste disposal. The list of authorized Recyclers and the
agreed terms and conditions have been circulated to the DMMs.

IT E-waste minimization process

 It shall be the endeavor of every user to maximize utilization of all IT

assets to their full productive life. Apart from internal re-use, option to
extend use outside ITC through donation to bonafide philanthropic
institutions will also extend the useful life of IT assets.

 Only such IT assets which are non-operational and can not be reused for
any other alternate purpose should be considered as IT E-waste for
disposal. The DMM will certify this position.

Compliance reporting

As part of Quarterly IT Policy Compliance, the DMM shall report the

Division’s compliance to E-Waste Policy to the CIO, who in turn will present
Companywide consolidated status to the Corporate IT Steering Committee.



ITC constantly endeavours to benchmark its products, services and processes to

global standards. The Company's pursuit of excellence has earned it national
and international honours. ITC is one of the eight Indian companies to figure
in Forbes A-List for 2004, featuring 400 of "the world's best big companies".
Forbes has also named ITC among Asia's'Fab 50' and the World's Most
Reputable Companies.

ITC has several firsts to its credit:ITC is the first from India and among the first
10 companies in the world to publish its Sustainability Report in compliance (at
the highest A+ level) with the latest G3 guidelines of the Netherlands-based
Global Reporting Initiative (GRI), a UN-backed, multistakeholder international
initiative to develop and disseminate globally applicable Sustainability
Reporting Guidelines.

 ITC is the first Indian company and the second in the world to win the
prestigious Development Gateway Award. It won the $100,000 Award
for the year 2005 for its trailblazing ITC e-Choupal initiative which has
achieved the scale of a movement in rural India. The Development
Gateway Award recognizes ITC's e-Choupal as the most exemplary
contribution in the field of Information and Communication Technologies
(ICT) for development during the last 10 years. ITC e-Choupal won the
Award for the importance of its contribution to development priorities
like poverty reduction, its scale and replicability, sustainability and
 ITC has won the inaugural 'World Business Award', the worldwide
business award recognising companies who have made significant efforts
to create sustainable livelihood opportunities and enduring wealth in
developing countries. The award has been instituted jointly by the United
Nations Development Programme (UNDP), International Chamber of
Commerce (ICC) and the HRH Prince of Wales International Business
Leaders Forum (IBLF).
 ITC is the first Corporate to receive the Annual FICCI Outstanding
Vision Corporate Triple Impact Award in 2007 for its invaluable
contribution to the triple bottom line benchmarks of building economic,
social and natural capital for the nation.
 ITC has won the Golden Peacock Awards for 'Corporate Social
Responsibility (Asia)' in 2007, the Award for 'CSR in Emerging
Economies 2005' and 'Excellence in Corporate Governance' in the same
year. These Awards have been instituted by the Institute of Directors,

New Delhi, in association with the World Council for Corporate
Governance and Centre for Corporate Governance.
 ITC Hotel Gardenia, Bengaluru is the first Indian Hotel and world's
largest, to get the LEED Platinum rating - thehighest green building
certification globally.
 The Company's Green Leaf Threshing plants at Chirala and Anaparti in
Andhra Pradesh are the first units of their kind in the world to get ISO
14001environment management systems certification.
 ITC's cigarette factory in Kolkatais the first such unit in India to get ISO
9000quality certification and the first among cigarette factories in the
world to be awarded the ISO 14001 certification.
 ITC Maurya in New Delhi is the first hotel in India to get the coveted ISO
14001Environment Management Systems certification.
 ITC Filtrona is the first cigarette filter company in the world to obtain
ISO 14001.
 ITC Infotech finds pride of place among a select group of SEI CMM
Level 5companies in the world.
 ITC's Green Leaf Threshing plant in Chirala is the first in
India and among the first 10 units in the world to bag the Social
Accountability (SA 8000) certification.
 ITC's R&D Centre at Peenya, Bengaluru has the distinction of being the
first independent R&D centre in India to get ISO 9001 accreditation and
certified with ISO 14001 for Environment Management Systems by
DNV. The R&D Centre is also certified for the
standard ISO/IEC17025:2005, by National Accreditation Board for
Testing and Calibration Laboratories (NABL). This certification is
awarded for "General requirement for the competence of Testing &
Callibration Laboratories".
 ITC Chairman Y C Deveshwar has received several honours over the
years. Notable among them are:

Year Award
The Padma Bhushan, one of the highest civilian awards in the country by
2011 the Government of India in recognition of his distinguished service of a
high order to the Nation.
2010 The U.S.-India Business Council (USIBC) Award for Global Leadership.
SAM/SPG Sustainability Leadership Award conferred at the International
Sustainability Leadership Symposium, Zurich.
2006 Business Person of the Year from UK Trade & Investment, the UK

Government organisation that supports overseas businesses in that
2006 Inducted into the `Hall of Pride' by the 93rd Indian Science Congress.
2005 Honoured with the Teacher's Lifetime Achievement Award.
Manager Entrepreneur of the Year from Ernst & Young.
2001 Retail Visionary of the Year from Images, India's only fashion and retail
trade magazine.
1998 Honorary Fellowship from the All India Management Association
1996 Distinguished Alumni Award from IIT, Delhi.
1994 Marketing Man of the Year from A&M, the leading marketing magazine.
1986 Meridien Hotelier of the Year.
Some of the other notable recognitions are:

 The Stockholm Challenge 2006 for the e-Choupal initiative. This award
is for usingInformation Technology for the economic development of
rural communities.
 United Nations Industrial Development Organisation (UNIDO) Award at
the international conference on Sharing Innovative Agribusiness
Solutions 2008 at Cairo for ITC's exemplary initiatives in agri business
through the e-Choupal.
 The Corporate Social Responsibility Crown Award for Water
Practices from UNESCOand Water Digestfor its distinguished work
carried out in the water sector in India. ITC also received the National
Award for Excellence in Water Management 2007 in the 'beyond the
fence' category from the CII Sohrabji Godrej Green Business Centre for
its leadership role in implementing water and watershed management
 The watershed programme also won the Asian CSR Award 2007 for
Environmental Excellence given by the Asian Institute of
Management. The Award recognizes and honours Asian companies for
outstanding, innovative and world-class projects. The Company also
received the Ryutaro Hashimoto Incentive Prize 2007 for Environment &
Development from the Asia Pacific Forum. This Award aims at
promoting information dissemination of good practices towards
sustainable development in the Asia-Pacific region.
 The Readers' Digest Pegasus Award for corporate social responsibility,
recognising outstanding work done by socially conscious companies.

 The Corporate Award for Social Responsibility 2008 from The Energy
and Resources Institute (TERI) in recognition of its exemplary initiatives
in implementing integrated watershed development programmes across 7
states in India. The company also won the award in 2004 for its e-
Choupal initiative. The Award provides impetus to sustainable
development and encourages ongoing social responsibility processes
within the corporate sector.
 The 'Enterprise Business Transformation Award' for Asia Pacific
(Apac), instituted by Infosys Technologies and Wharton School of the
University of Pennsylvania for its celebrated e-Choupal initiative.
 The Best Corporate Social Responsibility Practice Award 2008 jointly
instituted by the Bombay Stock Exchange, Times Foundation and the
NASSCOM Foundation.
 The NASSCOM - CNBC IT User Award 2008 in the Retail & Logistics
category. The Company has been recognised for its pro-active and
holistic approach to IT adoption and the seamless alignment of IT with
business strategy. This is the fourth time that ITC has won Nasscom's
Best IT User Award since it was instituted in 2003.
 The Institute of Chartered Accountants of India Award for Excellence in
Financial Reporting with its Annual Report and Accounts, adjudged as a
commendable entry under the Category 'Manufacturing and Trading
 The Business Today Award for the Best Managed Company in
recognition of its outstanding initiatives in the consumer products
 The only Indian FMCG company to have featured in the Forbes 2000 list.
The Forbes 2000 is a comprehensive ranking of the world's biggest
companies, measured by a composite of sales, profits, assets and market
value. The list spans 51 countries and 27 industries.
 The NDTV Profit Business Leadership Award for being the Best Food
Company of 2007. The Award has been instituted to recognise
organisational excellence.
 The CNBC-TV18's International Trade Award 2008 for Outstanding
Exporter of the Year in the FMCG & Food category.
 ITC continues its dominance of The Economic Times' Brand
Equity listing of India's 100 Biggest FMCG Brands, with three brands from its
stable making it to the top five. Gold Flake remains India's biggest FMCG
brand in terms of sales. Navy Cut ranks at No. 4. ITC's Scissors brand ranks at
No 5 and is the only new entrant into the top 10.
 Restaurant magazine has chosen Bukhara at the ITC Maurya, New
Delhi as thebest Indian restaurant in the world and the best restaurant in
Asia. Bukhara has also been adjudged one of the top 50 restaurants in the

world by the London based magazine 'The Good Food Guide'. Bukhara is
the only South Asian restaurant to figure in the list.
 The "Best Supply Chain Practices Award" for time-effective and cost-
efficient Logistics Management in Organized Retail to ITC's Lifestyle
Retailing Business Division (LRBD). The awards were organized by
Retailers Association of India (RAI) in association with ITW Signode -
the International leaders in packaging solutions.


ITC is committed to delivering world-class products and services. This requires
a clear focus on continuously striving to create a higher value to customers by
achieving excellence in all Company's operations. Business excellence calls for
a passionate focus on technology, products, services, processes and an operating
environment firmly anchored to an impregnable foundation of Quality.

ITC firmly believes that quality is not a specifically assignable task. It needs to
be firmly rooted and institutionalized in the culture and value system of the
Company. ITC nurtures a culture of striving for continuous improvement in
quality, be it in products, services, systems or performance. The Company is
committed to the establishment of systems and processes to promote
organisational creativity and innovation.

ITC's development of its Integrated Quality Management System (IQMS) is

based on its strong foundation of implementing ISO 9001:2000, ISO 14001,
OHSAS 18001, SA 8000, HACCP (for Foods) and IQRS (performance rating
and benchmarking of the quality management system). Likewise, ITC's strategic
initiatives for developing its people have been based on participative
management concepts like QC (Quality Control), TQM (Total Quality
Management), KSS (Kaizen Suggestion Scheme), 5S, Six Sigma.

All ITC manufacturing units have ISO quality certification. Almost all contract
manufacturing units in the Foods Business and all large hotels have food safety

and quality systems certified by accredited 'third party' in accordance with
'Hazard Analysis Critical Control Points' (HACCP) standards. Additionally, the
quality of all FMCG products of the Company is regularly monitored through
'Product Quality Rating System' (PQRS). The Leaf Tobacco and Printing &
Packaging businesses have achieved world-class ratings in the 'International
Quality Rating System' (IQRS) for business excellence in which key processes
are rated against international benchmarks and certified by accredited 'third
party' independent assurance providers.

ITC's Research & Development Centres

At ITC's Research & Development Centres at Bengaluru, Bhadrachalam and

Rajahmundry, the Company has assembled a pool of world-class scientists
focused on providing the requisite R&D support to its established and new
businesses enabling the Company to consistently attain internationally
benchmarked quality standards and constantly offer product innovations.

ITC R&D Centre at Bengaluru provides systemized service to the entire range
of ITC's businesses through Product Technology Cells, Common Service
Modules, Advanced Research Initiatives and networking with national and
international R&D centres.

Product Technology Cells (PTCs) are product-specific. Each PTC caters to the
needs of the businesses through Market Intelligence, Product Testing & PQRS
services, Prototyping services through advanced pilot plants, flavour and
fragrance development services, periodic audit of factory quality systems and
Product Knowledge and Training Workshops.

PTCs assist businesses through sensory evaluations by highly trained and

specialised panelists. Common service modules like Packaging and Advanced
Analytical labs offer their services across all businesses.

ITC R&D Centres are manned by highly qualified and trained scientists
specialised in their fields. The labs and pilot plants have ultra modern, state-of-
the-art testing and prototyping facilities. The laboratory at Bengaluru has
obtainedaccreditation from NABL (National Accreditation Board for Testing &
Calibration of Laboratories) for ISO 17025 for key testing protocols.

ITC Corporate R&D located in Bengaluru undertakes research programs for

multiple ITC businesses built on a common set of core competencies. The initial
sets of core competency areas identified are: Plant Breeding and Genetics,
Agronomy, Microbiology, Molecular Biology, Silviculture, Cell Biology,
Proteomics, Genomics, Biochemistry and Ingredient Sciences. The facility aims
to create 'Centres of Excellence' in these areas.

ITC's R&D programme at Bhadrachalam is the core of the Company's fibre

strategy for its Paperboards and Specialty Papers business. This state-of-the-art
research centre is consistently striving to improve the productivity of several
tree species, in order to give attractive land-use alternatives to traditional
farmers and wasteland owners. So far, more than 100 high-yielding, fast-
growing and disease resistant 'Bhadrachalam' clones have been produced on a
commercial scale, including 23 site-specific clones adapted to problematic soils.
The productivity of these saplings is 6-9 times that of normal seedlings.

ITC's comprehensive R&D facilities at Rajahmundry in Andhra Pradesh cover
all aspects of tobacco crop cultivation. In collaboration with the Central
Tobacco Research Institute and the Tobacco Board, ITC pioneered FCV
tobacco cultivation in India and introduced the Burley and HDBRG varieties.
ITC's continued focus on crop development has resulted in new varieties of
seeds and hybrids in Andhra Pradesh and Karnataka, which have significantly
improved farm yields and helped fulfill the demands of a dynamic global

The Company's R&D team collaborates with other centres of excellence, and
leverages expertise from several leading institutes including the University of
Agricultural Science, Bengaluru; Indian Institute of Science, Bengaluru;
CSIOR, Australia and CSIR, South Africa.

Catering to the need of ITC's Lifestyle Business is a contemporary

master Design Facility at Gurgaon. It offers R&D facilities that have enabled
the Company to offer internationally benchmarked fashion collection every


 Cigarettes & Cigars
 Foods
 Lifestyle Retailing
 Personal Care
 Education and Stationery
 Safety Matches
 Agarbattis

 Hotels
 Paperboards and packaging
 Paperboards and
 Specialty Papers
 Packaging
 Agribusiness
 Agri Commodities & Rural Services
 e-Choupal
 Leaf Tobacco, Spices
 Agri Inputs
 Information technology


 Taste ( the consumer preferences) :-For example, in a same store, there

are two kinds of shampoos, HUL company brand and ITC brand.The
consumers preference decides the demand of the product.
 Quality of product –It is the most important factor which determines the
demand of the product.A good quality product always helps to in crease the
 Shelf-life of product-Since the FMCG products are consumer products
and perishable in nature,it is very important to manufacture products of better
shelf life so that they can be used for a longer period.
 Better finish of products-Finishing of FMCG products is very important
factor in deciding the buyimg behaviour of the consumers and finally ttheir
demand for the product.
 Good looks and stylish packaging-Packaging of the product leads an
important role in the demand of a product.So unlike earlier companies have
started to pay attention on the packaging and the appearance of the product as
 Quantity of the product-If the quantity of teh product is not enough
according to the price demanded by the company for its product then the
consumers would not buy that product.So it is necessary that a right
combination of price along with the quantity of the product is sold to the
 Expectations of the consumers-After using a FMCG product the
consumer tend to establish an opinion and expectations from the product of a
certain quality and if that expectations of the consumers is not fulfilled then the
demand for that product falls.

 Changing lifestyles: With improving domestic living standards, demand

for better consumer goods has increased.Moreover, the bent of young
generation towards better lifestyle has increased the demand of these goods.

 Increasing competition in the market-ITC has been facing tough

competition from other companies in the FMCG sector like HUL,Dabur
Ltd,Emami,Palmolive etc.

 Availability of Substitutes

 Some other determinants include:

 Population growth
 Level of literacy
 Public and private spending on education
 Level of business activity
 Growing economy


The cost analysis of the company can be done by taking various factors and
comparing them with a common factor which helps us to know the relationship
between those factors.The different factors taken into account here are:-
 Electricity & fuel expenses
 Salaries & wages expenses
 Raw materials costs
 Advertisement expenses


Electricity expenses and sales of the company for the previous 6 years is
as follows:
2005 14177.58 227.26 1.602953395
2006 17222.25 260.84 1.514552396
2007 19894.89 290.40 1.459671303
2008 21355.94 309.90 1.451118518
2009 23143.53 387.34 1.673642698
2010 26259.60 394.12

To compare the sales and electricity & fuel expenes,a pivot chart is prepared
and a graph is plotted between year and % ratio to see the variation of % ratio
of electricity and fuel expenses to sales.



80000 CRORES)


40000 CRORES)


2005 2006 2007 2008 2009 2010 Total







1 2 3 4 5 6
YEAR 2005 2006 2007 2008 2009 2010

of the workers and sales of the company for the previous 6 years is as follows:


2005 14177.58 380.87 2.686425
2006 17222.25 454.93 2.641525
2007 19894.89 588.46 2.957845
2008 21355.94 610.24 2.857472
2009 23143.53 733.57 3.169655
2010 26259.60 794.31

To compare the sales and salaries& wages expenses ,a pivot table is plotdrawn
and a graph is plotted between year and % ratio to see the variation of % ratio
of salaries and wages expenses to sales.





40000 CRORES)


2005 2006 2007 2008 2009 2010 TOTAL







1 2 3 4 5 6 7
380.87 454.93 588.46 610.24 733.57 794.31
YEAR 2005 2006 2007 2008 2009 2010


costs and sales of the company for the previous 6 years is as follows:


2005 14177.58 2785.26 19.64552
2006 17222.25 4018.97 23.33592
2007 19894.89 5384.86 27.06655
2008 21355.94 6016.70 28.17343
2009 23143.53 6446.78 27.85565
2010 26259.60 6971.40

To compare the sales and salaries& wages expenses ,a pivot chart is drawn and
a graph is plotted between year and % ratio to see the variation of % ratio of
raw materials to sales.

30000 8000

SALES15000 4000


0 0
2005 2006 2007 2008 2009 2010







1 2 3 4 5
% RATIO 19.64552 23.33592 27.06655 28.17343 27.85565
YEAR 2005 2006 2007 2008 2009

Advertisements costs and sales of the company for the previous 6 years is as


2005 14177.58 229.92 1.621715
2006 17222.25 238.25 1.383385
2007 19894.89 288.15 1.448362
2008 21355.94 377.54 1.767845
2009 23143.53 502.30 2.170369
2010 26259.60 514.66

To compare the sales and advertisement expenses ,a graph is plotted . a graph is

plotted between year and % ratio to see the variation of % ratio of
advertisement expenses to sales.

30000 600

25000 500

20000 400


15000 300
10000 200

5000 100

0 0
2005 2006 2007 2008 2009 2010








1 2 3 4 5 6
% RATIO 1.621715 1.383385 1.448362 1.767845 2.170369 1.959893
YEAR 2005 2006 2007 2008 2009 2010

So,from the above comparisons and graphs,we can see that raw material
expenses account for the maximum expenses in the company followed by the
salaries and wages expenses.Advertisement expenses have been increasing
continuosly at a large rate as compared to the fuel expenses.The graphs show a
particular rise in sales ratio with the coming years but there was a small drift or
plateau from the year 2008-2009.The cause of this drift may have been the
recession period in the economy and in some cases,sales are trying to recover
from that drift to rise to the normal.


Introduction to Regression Analysis

Regression analysis is a statistical tool for the investigation of relationships
between variables. Regression analysis includes any techniques for modeling
and analyzing several variables, when the focus is on the relationship between
a dependent variable and one or more independent variables. More specifically,
regression analysis helps one understand how the typical value of the dependent
variable changes when any one of the independent variables is varied, while the
other independent variables are held fixed.
Regression analysis is widely used for prediction and forecasting, where its use
has substantial overlap with the field of machine learning. Regression analysis
is also used to understand which among the independent variables are related to
the dependent variable, and to explore the forms of these relationships. In
restricted circumstances, regression analysis can be used to infer causal
relationships between the independent and dependent variables.
A large body of techniques for carrying out regression analysis has been
developed. Familiar methods such as linear regression and ordinary least
squares regression are parametric, in that the regression function is defined in
terms of a finite number of unknown parameters that are estimated from
the data. Nonparametric regression refers to techniques that allow the regression
function to lie in a specified set of functions, which may be infinite-
Linear regression

Linear regression is an approach to modeling the relationship between a scalar

variable y and one or more variables denoted X. In linear regression, data are
modeled using linear functions, and unknown
model parameters are estimated from the data. Such models are called linear
models. The various regression equations which can be used for forecasting
exercise are:
Fitting Simple Linear Regression: In this case a straight line is fitted to
the data containing one dependent variable and only one independent
variable, e.g.,
Sales = a + b*(Price)
Fitting of the straight line can be done by following methods:
i. Graphical Method
ii. Least Squares Method
i. Graphical Method: In graphical method, we plot the sets of data of
the two variable (dependent and independent variable) on the graph
and a line is drawn through all the points. Thereafter, the movement of
the series is assessed and future values of the variable are forecasted.
Figure 1.0 shows how to project trend by graphical method, using the figures
on sales for FMCG products from the numerical example of ITC Limited
cited below:


2002 9843.16
2003 11028.41
2004 11819.66
2005 13360.24
2006 16236.42
2007 19519.99
2008 21467.38
2009 23247.84
2010 26399.63





15000 Total


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Least Squares Method: Least squares estimation is a powerful tool to estimate
the coefficients of a linear function. It is based on the minimisation of squared
deviations between the best fitting line and the original observations given. In
this method, we fit the data on demand and time in the form of equations and
then project the demand for the future period. These equations are termed as
normal equations and the task of least square method is to find out the values of
the coefficients in these equations.

The Equation of the linear trend is given by: Y =a + b X, where a is the

intercept of the demand curve, b is the slope of the curve(a and b are known as
regression coefficients) and X is the deviation from mean of independent
variable. We can find the values of a and b using the normal equations:
∑Y= na + b∑X
∑Y.X= a∑X + b∑X2
Let us explain linear trend projection with the help of a numerical example, data
is given below:


2002 9843.16 83.67
2003 11028.41 116.5
2004 11819.66 168.23
2005 13360.24 201.98
2006 16236.42 238.25
2007 19519.99 311.39
2008 21467.38 454.48
2009 23247.84 532.37
2010 26399.63 514.66


Regression Statistics
Multiple R 0.982948
R Square 0.966186
Adjusted R Square
Standard Error
Observations 10

df SS MS F Significance F
Regression 1 4.34E+08 4.34E+08 228.5905 3.62E-07
Residual 8 15173574 1896697
Total 9 4.49E+08

Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 6880.843 875.0321 7.863531 4.94E-05 4863.015 8898.67 4863.015 8898.67
X Variable 135.02597 2.316654 15.11921 3.62E-07 29.68376 40.36818 29.68376 40.36818

Y=sales and
Y= 6880.843 + 35.026 X X=advertisement expenses


Regression Statistics
Multiple R 0.982948
R Square 0.966186
Adjusted R Square
Standard Error
Observations 10

df SS MS F Significance F
Regression 1 4.34E+08 4.34E+08 228.5905 3.62E-07
Residual 8 15173574 1896697
Total 9 4.49E+08

Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 6880.843 875.0321 7.863531 4.94E-05 4863.015 8898.67 4863.015 8898.67
X Variable 135.02597 2.316654 15.11921 3.62E-07 29.68376 40.36818 29.68376 40.36818

Y=sales and
Y= 6880.843 + 35.026 X X=advertisement expenses

Now here the independent variable is the advertisement expenses and sales data
is the dependent variable.
Using the method of regression analysis,we find the regression coefficients a
and b.
By calculating the coefficients here we get a value of a=6880.843 and b=
Thus the regression equation becomes:-
The regression equation establishes a relationship between the variables taken
here and can also be used for further calculating the different values of Y at
different known values of X in future.


Production is the process of transformation of inputs into goods and services of

utility to consumers and/or producers.Production process depends upon the
technology and fixed and variable inputs.
Economists have used the term “factors of production” for identifying the
broad categories of inputs.The factors of production are:-
i. Land
ii. Labour
iii. Capital
iv. Enterprise
v. Organisation
Production function
Production function is defined as the relationship between quantities of inputs
used and maximum quantity of output that can be produced, given current
knowledge about technology and organization.

Production function with two variables -a production function that uses only
labor and capital:

q = f (L, K)

to produce the maximum amount of output given efficient production.

The production function for ITC LTD. has to be calculated. The various factors
which are required in the production analysis are: -

Output: - The output for ITC is being depicted by the total income of the

Labour Cost: - The total labour cost is being taken as the total compensation
that is paid to the employees of the ITC.

Capital: - The total capital cost that is taken into the ITC is the sum of raw
materials and power fuel.

The data for the following is given below:-
2008 2009 2010 2011
14,581.16 16,042.32 18,664.9622,205.01
94.83 108.43 102.3 130.43
309.9 394.12 387.34 421.68
376.86 377.44 381.82 773.81
6,307.79 6,864.96 7,140.69 8,601.13



Raw materials
Total capital
15,000.00 Power fuel


Now we plot the function of labour/Income and capital/Income

Labour/Income Graph
Year Labour/Income
2002 0.005315695
2003 0.005043809
2004 0.005805019
2005 0.006417247
2006 0.006592544
2007 0.006096952
2008 0.006503598
2009 0.006758997
2010 0.005480858
2011 0.0058739

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year Labour/Income

Capital/income graph

Year Capital/Income
2002 0.046457434
2003 0.04143356
2004 0.036043797
2005 0.029975329
2006 0.037043723
2007 0.029134958
2008 0.02584568
2009 0.023527769
2010 0.020456513
2011 0.034848442

2004 Capital/Income

2002 Year

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Analysis: -So, we plot the labour/output (total income) and we observe that the
ratio is decreasing for most of the corresponding years and there is a sudden
sharp decrease in the year 2005-06. This means that the organization is
spending more on technology advancement i.e capital and less on labour to
increase the output. This also shows that due to computerization the workforce
was reducing which is shown from the years.
We see that the ratio capital/output is constant for initial few years and then it
decreased for few years and after 2005 , ratio is increasing which means that the
organization has increased the capital spending over the time. This also explains
the decrease in the labour/output ratio.

Now, we find the output as function of labour and capital using the function

Output = f(L,K)

Where L is the labour cost and K is the capital cost.

We define O = A* L^α * K^β

To obtain the values of alpha and beta we have to use the regression analysis.
To do so we take log on both the sides.

Log O = α log L + β Log K + Log A.

The various values for the logarithms are given. Then we use regression
analysis to calculate the values thereof.

Year Log(Total Income) Log(Labour) Log(Capital)
2002 3.722837039 3.722837039 2.389892255
2003 3.7762405 1.478999132 2.39359275
2004 3.837060399 1.600864036 2.393890939
2005 3.91807282 1.72542155 2.394836771
2006 4.005918443 1.824971461 2.574633072
2007 4.111027487 1.896140251 2.575441879
2008 4.163792076 1.976945751 2.576180044
2009 4.205267175 2.035149458 2.576847924
2010 4.271027064 2.009875634 2.581858673
2011 4.346450973 2.115377494 2.888634338

Putting this information in to regression analysis software we get the values of

A, alpha and beta. The values observed are as follows.
A = 0.627
α = 0.246
β = 0.915
α+ β = 1.161
so, we get the function as
O = 0.62 * L0.246 * K0.915
So, we observe that the value of α+ β is less than 1 so, we observe increasing
return to scale in this case.


To understand the information contained in financial statements with a view to
know the strength or weaknesses of the firm and to make forecast about the
future prospects of the firm and thereby enabling the financial analyst to take
different decisions regarding the operations of the firm.

Fundamental Analysis has a very broad scope. One aspect looks at the general
(qualitative) factors of a company. The other side considers tangible and
measurable factors (quantitative). This means crunching and analyzing numbers
from the financial statements. If used in conjunction with other methods,
quantitative analysis can produce excellent results. Ratio analysis isn't just
comparing different numbers from the balance sheet, income statement, and
cash flow statement. It's comparing the number against previous years, other
companies, the industry, or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future.

Meaning of ratio:A ratio is one figure express in terms of another figure. It is a

mathematical yardstick that measures the relationship two figures, which are
related to each other and mutually interdependent. Ratio is express by dividing
one figure by the other related figure. Thus a ratio is an expression relating one
number to another. It is simply the quotient of two numbers. It can be expressed
as a fraction or as a decimal or as a pure ratio or in absolute figures as “ so
many times”. As accounting ratio is an expression relating two figures or
accounts or two sets of account heads or group contain in the financial

Meaning of ratio analysis:

Ratio analysis is the method or process by which the relationship of items or
group of items in the financial statement are computed, determined and
presented.Ratio analysis is an attempt to derive quantitative measure or guides
concerning the financial health and profitability of business enterprises. Ratio
analysis can be used both in trend and static analysis. There are several ratios at
the disposal of an annalist but their group of ratio he would prefer depends on
the purpose and the objective of analysis.
. Ratio analysis can provide valuable information about a company's financial
health. A financial ratio measures a company's performance in a specific area.
For example, you could use a ratio of a company's debt to its equity to measure

a company's leverage. By comparing the leverage ratios of two companies, you
can determine which company uses greater debt in the conduct of its business.
A company whose leverage ratio is higher than a competitor's has more debt per
equity. You can use this information to make a judgment as to which company
is a better investment risk.

Objective of ratios
Ratio is work out to analyze the following aspects of business organization-
A) Solvency-
1) Long term
2) Short term
3) Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing


The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards. The standard ratio
may be the past ratio of the same firm or industry’s average ratio or a projected
ratio or the ratio of the most successful firm in the industry. In interpreting the
ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless
the calculated ratio is compared with some predetermined standard. The
importance of a correct standard is oblivious as the conclusion is going to be
based on the standard itself.

I. Classification of ratio









Based on financial statement

Accounting ratios express the relationship between figures taken from financial
statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-
way of classification of ratios is based upon the sources from which are taken.
1] Balance sheet ratio:
If the ratios are based on the figures of balance sheet, they are called
Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of
debt to equity. While calculating these ratios, there is no need to refer to the
Revenue statement. These ratios study the relationship between the assets & the
liabilities, of the concern. These ratio help to judge the liquidity, solvency &
capital structure of the concern. Balance sheet ratios are Current ratio, Liquid

ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock
working capital ratio.
2] Revenue ratio:
Ratio based on the figures from the revenue statement is called revenue
statement ratios. These ratio study the relationship between the profitability &
the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio,
Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio.
3] Composite ratio:
These ratios indicate the relationship between two items, of which one is found
in the balance sheet & other in revenue statement.
There are two types of composite ratios-
a) Some composite ratios study the relationship between the profits & the
investments of the concern. E.g. return on capital employed, return on
proprietors fund, return on equity capital etc.
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover
ratios, dividend payout ratios, & debt service ratios.

Based on function:Accounting ratios can also be classified according to their

functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios
& turnover ratios.
1] Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the
concern e.g. liquid ratios & current ratios.
2] Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing
the assets of the concern e.g. capital gearing ratios, debt equity ratios, &
Proprietory ratios.
3] Activity ratios:It shows relationship between the sales & the assets. It is also
known as Turnover ratios & productivity ratios e.g. stock turnover ratios,
debtors turnover ratios.
4] Profitability ratios:It shows the relationship between profits & sales e.g.
operating ratios, gross profit ratios, operating net profit ratios, expenses ratios.It
shows the relationship between profit & investment e.g. return on investment,
return on equity capital.
5] Coverage ratios: It shows the relationship between the profit on the one
hand & the claims of the outsiders to be paid out of such profit e.g. dividend
payout ratios & debt service ratios.

Based on user:
1] Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios
2] Ratios for the shareholders:Return on proprietors fund, return on equity
3] Ratios for management:Return on capital employed, turnover ratios,
operating ratios, expenses ratios
4] Ratios for long-term creditors:Debt equity ratios, return on capital
employed, proprietor ratios.

(1) Liquidity ratio:Liquidity refers to the ability of a firm to meet its short-
term (usually up to 1 year) obligations. The ratios, which indicate the liquidity
of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These
ratios are discussed below-
2)Current ratio:This ratio compares the current assests with the current
liabilities. It is also known as ‘working capital ratio’ or ‘ solvency ratio’. It is
expressed in the form of pure ratio.
The current assests of a firm represents those assets which can be, in the
ordinary course of business, converted into cash within a short period time,
normally not exceeding one year. The current liabilities defined as liabilities
which are short term maturing obligations to be met, as originally contemplated,
with in a year.
Current ratio (CR) is the ratio of total current assets (CA) to total current
liabilities (CL). Current assets include cash and bank balances; inventory of raw
materials, semi-finished and finished goods; marketable securities; debtors (net

of provision for bad and doubtful debts); bills receivable; and prepaid expenses.
Current liabilities consist of trade creditors, bills payable, bank credit, provision
for taxation, dividends payable and outstanding expenses. This ratio measures
the liquidity of the current assets and the ability of a company to meet its short-
term debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted
into cash in the operating cycle of the firm and provides the funds needed to pay
for CL. The higher the current ratio, the greater the short-term solvency. This
compares assets, which will become liquid within approximately twelve months
with liabilities, which will be due for payment in the same period and is
intended to indicate whether there are sufficient short-term assets to meet the
short- term liabilities. Recommended current ratio is 2: 1. Any ratio below
indicates that the entity may face liquidity problem but also Ratio over 2: 1 as
above indicates over trading, that is the entity is under utilizing its current

Liquid ratio:Liquid ratio is also known as acid test ratio or quick ratio. Liquid
ratio compare the quick assets with the quick liabilities. It is expressed in the
form of pure ratio.The term quick assets refer to current assets, which can be
converted into, cash immediately or at a short notice without diminution of

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA
refers to those current assets that can be converted into cash immediately
without any value strength. QA includes cash and bank balances, short-term
marketable securities, and sundry debtors. Inventory and prepaid expenses are
excluded since these cannot be turned into cash as and when required.
QR indicates the extent to which a company can pay its current liabilities
without relying on the sale of inventory. This is a fairly stringent measure of
liquidity because it is based on those current assets, which are highly liquid.
Inventories are excluded from the numerator of this ratio because they are
deemed the least liquid component of current assets. Generally, a quick ratio of
1:1 is considered good. One drawback of the quick ratio is that it ignores the
timing of receipts and payments.

Cash ratio:This is also called as super quick ratio. This ratio considers only the
absolute liquidity available with the firm.

Since cash and bank balances and short term marketable securities are the most
liquid assets of a firm, financial analysts look at the cash ratio. If the super
liquid assets are too much in relation to the current liabilities then it may affect
the profitability of the firm.
(2) Investment / shareholder ratio

Earning per share:-Earnings per Share are calculated to find out overall
profitability of the organization. An earnings per Share represents earning of the
company whether or not dividends are declared. If there is only one class of
shares, the earning per share are determined by dividing net profit by the
number of equity shares.EPS measures the profits available to the equity
shareholders on each share held.

EPS will attract more investors to acquire shares in the company as it indicates
that the business is more profitable enough to pay the dividends in time. But
remember not all profit earned is going to be distributed as dividends the
company also retains some profits for the business
Dividend per share:-DPS shows how much is paid as dividend to the
shareholders on each share held.

Gearing ratio:Gearing means the process of increasing the equity shareholders

return through the use of debt. Equity shareholders earn more when the rate of
the return on total capital is more than the rate of interest on debts. This is also
known as leverage or trading on equity. The Capital-gearing ratio shows the
relationship between two types of capital viz: - equity capital & preference
capital & long term borrowings. It is expressed as a pure ratio.

B. 3.Profitability Ratio

These ratios help measure the profitability of a firm. A firm, which generates a
substantial amount of profits per rupee of sales, can comfortably meet its
operating expenses and provide more returns to its shareholders. The
relationship between profit and sales is measured by profitability ratios. There
are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.
Gross Profit Ratio:-This ratio measures the relationship between gross profit
and sales. It is defined as the excess of the net sales over cost of goods sold or
excess of revenue over cost. This ratio shows the profit that remains after the
manufacturing costs have been met. It measures the efficiency of production as
well as pricing. This ratio helps to judge how efficient the concern is I
managing its production, purchase, selling & inventory, how good its control is
over the direct cost, how productive the concern , how much amount is left to
meet other expenses & earn net profit.
Net profit ratio:-Net Profit ratio indicates the relationship between the net
profit & the sales it is usually expressed in the form of a percentage.This ratio
shows the net earnings (to be distributed to both equity and preference
shareholders) as a percentage of net sales. It measures the overall efficiency of
production, administration, selling, financing, pricing and tax management.
Jointly considered, the gross and net profit margin ratios provide an
understanding of the cost and profit structure of a firm.
Return on capital employed:-The profitability of the firm can also be analyzed
from the point of view of the total funds employed in the firm. The term fund
employed or the capital employed refers to the total long-term source of funds.
It means that the capital employed comprises of shareholder funds plus long-
term debts. Alternatively it can also be defined as fixed assets plus net working
capital.Capital employed refers to the long-term funds invested by the creditors
and the owners of a firm. It is the sum of long-term liabilities and owner's
equity. ROCE indicates the efficiency with which the long-term funds of a firm
are utilized.


(i) These ratios determine how quickly certain current assets can be
converted into cash. They are also called efficiency ratios or asset utilization
ratios as they measure the efficiency of a firm in managing assets. These ratios
are based on the relationship between the level of activity represented by sales
or cost of goods sold and levels of investment in various assets. The important
turnover ratios are debtors turnover ratio, average collection period,
inventory/stock turnover ratio, fixed assets turnover ratio, and total assets
turnover ratio. These are described below:

B)Debtors Turnover Ratio (Dto)

DTO is calculated by dividing the net credit sales by average debtors

outstanding during the year. It measures the liquidity of a firm's debts. Net
credit sales are the gross credit sales minus returns, if any, from customers.
Average debtors are the average of debtors at the beginning and at the end of
the year. This ratio shows how rapidly debts are collected. The higher the DTO,
the better is.

C)Inventory Or Stock Turnover Ratio (Itr)

ITR refers to the number of times the inventory is sold and replaced during the
accounting period.ITR reflects the efficiency of inventory management. The
higher the ratio, the more efficient is the management of inventories, and vice
versa. However, a high inventory turnover may also result from a low level of
inventory, which may lead to frequent stock outs and loss of sales and customer
goodwill. For calculating ITR, the average of inventories at the beginning and
the end of the year is taken. In general, averages may be used when a flow
figure (in this case, cost of goods sold) is related to a stock figure (inventories).

D)Fixed Assets Turnover (Fat):The FAT ratio measures the net sales per
rupee of investment in fixed assets. ts This ratio measures the efficiency with
which fixed assets are employed. A high ratio indicates a high degree of
efficiency in asset utilization while a low ratio reflects an inefficient use of
assets. However, this ratio should be used with caution because when the fixed
assets of a firm are old and substantially depreciated, the fixed assets turnover
ratio tends to be high (because the denominator of the ratio is very low).

Proprietors Ratio:Proprietary ratio is a test of financial & credit strength of the
business. It relates shareholders fund to total assets. This ratio determines the
long term or ultimate solvency of the company.

II)Debt Equity Ratio:This ratio compares the long-term debts with

shareholders fund. The relationship between borrowed funds & owners capital
is a popular measure of the long term financial solvency of a firm. This
relationship is shown by debt equity ratio. Alternatively, this ratio indicates the
relative proportion of debt & equity in financing the assets of the firm. It is
usually expressed as a pure ratio.
Debt equity ratio is also called as leverage ratio. Leverage means the process of
the increasing the equity shareholders return through the use of debt. Leverage
is also known as ‘gearing’ or ‘trading on equity’. Debt equity ratio shows the
margin of safety for long-term creditors & the balance between debt & equity.

Return On Proprietor Fund:Return on proprietors fund is also known as

‘return on proprietors equity’ or ‘return on shareholders investment’ or ‘
investment ratio’. This ratio indicates the relationship between net profit earned
& total proprietors funds. Return on proprietors fund is a profitability ratio,
which the relationship between profit & investment by the proprietors in the
concern. Its purpose is to measure the rate of return on the total fund made
available by the owners. This ratio helps to judge how efficient the concern is in
managing the owner’s fund at disposal. This ratio is of practical importance to
prospective investors & shareholders.
Both the ratios indicate promptness in payment of creditor purchases. Higher
creditors turnover ratio or a lower credit period enjoyed signifies that the
creditors are being paid promptly. It enhances credit worthiness of the company.
A very low ratio indicates that the company is not taking full benefit of the
credit period allowed by the creditors.

The various ratios for the years 2002-20011 are given below

Key financial ratios Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Investment Valuation Ratios
Face Value 10 10 10 10 1 1 1 1 1 1
Dividend Per Share 13.5 15 20 31 2.65 3.1 3.5 3.7 10 4.45
Operating Profit Per Share (Rs) 78.17 89.07 96.11 111.55 8.97 10.64 11.76 13.04 16.06 9.3
Net Operating Profit Per Share (Rs) 204.77 237.13 258.89 306.4 26.09 32.73 37.23 39.7 48.63 27.29
Free Reserves Per Share (Rs) 149.05 188.92 231.39 290.89 22 25.62 29.88 34.27 34.73 19.07
Bonus in Equity Capital 82.56 81.86 81.81 81.63 87.29 87.12 86.98 86.84 85.85 91.81
Profitability Ratios
Operating Profit Margin(%) 38.17 37.56 37.12 36.4 34.36 32.51 31.57 32.84 33.02 34.08
Profit Before Interest And Tax Margin(%) 33.42 32.98 32.33 31.39 30.13 28.86 27.5 28.37 28.97 30.05
Gross Profit Margin(%) 38.23 37.96 38.59 37.56 35.98 34.05 28.44 29.17 29.74 30.97
Cash Profit Margin(%) 26.97 26.97 27.73 32 25.49 24.28 23.45 24.22 23.98 25.17
Adjusted Cash Margin(%) 26.4 26.09 27.01 25.67 25.73 23.98 23.45 24.22 23.98 25.17
Net Profit Margin(%) 23.12 22.99 24.08 28 22.19 21.4 21.5 21.18 21.3 22.91
Adjusted Net Profit Margin(%) 22.54 22.11 23.36 21.67 22.43 21.1 21.5 21.18 21.3 22.91
Return On Capital Employed(%) 39.69 38.03 36.17 33.09 36.26 37.24 36.6 34.6 42.64 44.94
Return On Net Worth(%) 27.34 25.86 25.09 27.97 24.83 26.01 25.99 23.85 28.98 31.36
Adjusted Return on Net Worth(%) 26.67 24.86 24.33 21.64 25.09 25.64 24.71 23.26 28.29 30.34
Return on Assets Excluding Revaluations 16.42 15.82 14.92 18.65 16.8 27.59 31.85 36.24 36.69 20.55
Return on Assets Including Revaluations 16.56 15.93 15 18.75 16.87 27.74 32 36.39 36.84 20.62
Return on Long Term Funds(%) 40.19 38.4 36.48 33.8 36.36 37.51 36.88 34.75 42.64 44.95
Liquidity And Solvency Ratios
Current Ratio 1.26 1.19 0.95 0.97 1.25 1.33 1.36 1.42 0.92 1.08
Quick Ratio 0.74 0.7 0.47 0.43 0.57 0.58 0.56 0.61 0.39 0.5
Debt Equity Ratio 0.07 0.02 0.02 0.03 0.01 0.02 0.02 0.01 0.01 0.01
Long Term Debt Equity Ratio 0.05 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01
Debt Coverage Ratios
Interest Cover 25.79 58.88 80.18 56.01 209.63 456.67 258.92 168.97 82.46 123.3
Total Debt to Owners Fund 0.07 0.02 0.02 0.03 0.01 0.02 0.02 0.01 0.01 0.01
Financial Charges Coverage Ratio 26.23 57.13 75.54 58.8 172.52 268.33 199.51 112.17 73.42 100.46
Financial Charges Coverage Ratio Post Tax 18.86 40.97 54.67 50.3 122.69 191.95 145.6 81.02 52.72 73.25
Management Efficiency Ratios
Inventory Turnover Ratio 4.36 4.76 4.31 3.91 3.82 3.76 5.51 5.26 6.04 6.05
Debtors Turnover Ratio 35 30.02 29.35 20.07 18.22 20.79 20.43 21.32 24.31 23.91
Investments Turnover Ratio 8.92 9.4 8.16 6.99 6.43 6.05 5.51 5.26 6.04 6.05
Fixed Assets Turnover Ratio 2.11 1.97 1.94 2.01 2.31 2.42 1.59 1.44 1.58 1.69
Total Assets Turnover Ratio 1.09 1.09 0.99 0.95 1.08 1.17 1.16 1.09 1.33 1.34
Asset Turnover Ratio 1.37 1.39 1.36 1.33 1.59 1.75 1.59 1.44 1.58 1.69

Average Raw Material Holding 159.71 182.29 144.66 212.57 223.31 213.12 220.61 185.08 193.81 184.53
Average Finished Goods Held 46.25 37.89 59.26 53.53 48.89 52.68 43.88 64.35 36.33 40.67
Number of Days In Working Capital 58.14 43.17 -7.59 6.12 40.51 49.56 52.39 62.19 -13.69 13.97
Profit & Loss Account Ratios
Material Cost Composition 41.41 39.87 41.8 38.95 43.53 47.16 44.95 45.8 38.45 40.72
Imported Composition of Raw Materials Consumed 18.86 20.56 14.83 18.66 16.35 16.92 12.78 12.98 12.03 13.34
Selling Distribution Cost Composition 6.95 7.25 8.04 7 6.39 6.52 7.44 7.12 6.66 6.8
Expenses as Composition of Total Sales 18.85 22.04 16.8 16.68 18.3 18.54 15.45 14.85 12.68 13.32
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 28.08 30.54 35.08 40.29 50.76 50.53 49.45 50.06 109.63 80.24
Dividend Payout Ratio Cash Profit 24.07 26.03 30.46 35.25 44.19 44.54 43.36 42.84 95.34 70.91
Earning Retention Ratio 71.21 68.25 63.84 47.94 49.78 48.75 47.98 48.67 -12.31 17.06
Cash Earning Retention Ratio 75.41 73.09 68.73 56.05 56.22 54.9 54.68 56.23 2.64 26.99
AdjustedCash Flow Times 0.21 0.08 0.07 0.12 0.05 0.07 0.06 0.05 0.02 0.02
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Earnings Per Share 48.48 55.41 64.31 88.28 5.95 7.18 8.28 8.65 10.64 6.45
Book Value 177.23 214.29 256.35 315.63 23.97 27.59 31.85 36.24 36.69 20.55

Advantages of Ratio Analysis
Financial ratios are essentially concerned with the identification of significant
accounting data relationships, which give the decision-maker insights into the
financial performance of a company. The advantages of ratio analysis can be
summarized as follows:

 Ratios facilitate conducting trend analysis, which is important for

decision making and forecasting.
 Ratio analysis helps in the assessment of the liquidity, operating
efficiency, profitability and solvency of a firm.
 Ratio analysis provides a basis for both intra-firm as well as inter-firm
 The comparison of actual ratios with base year ratios or standard ratios
helps the management analyze the financial performance of the firm.

Limitations of Ratio Analysis

Ratio analysis has its limitations. These limitations are described below:

1] Information problems
 Ratios require quantitative information for analysis but it is not decisive
about analytical output .
 The figures in a set of accounts are likely to be at least several months out
of date, and so might not give a proper indication of the company’s
current financial position.
 Where historical cost convention is used, asset valuations in the balance
sheet could be misleading. Ratios based on this information will not be
very useful for decision-making.
2] Comparison of performance over time
 When comparing performance over time, there is need to consider the
changes in price. The movement in performance should be in line with
the changes in price.
 When comparing performance over time, there is need to consider the
changes in technology. The movement in performance should be in line
with the changes in technology.
 Changes in accounting policy may affect the comparison of results
between different accounting years as misleading.

3] Inter-firm comparison

 Companies may have different capital structures and to make comparison

of performance when one is all equity financed and another is a geared
company it may not be a good analysis.
 Selective application of government incentives to various companies may
also distort intercompany comparison. comparing the performance of two
enterprises may be misleading.

 Inter-firm comparison may not be useful unless the firms compared are of
the same size and age, and employ similar production methods and
accounting practices.
 Even within a company, comparisons can be distorted by changes in the
price level.
 Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do not
indicate future trends and they do not consider economic conditions.