Ratio Analysis of I.T.
C Ltd
1. Liquidity Ratios
Current Ratio: It helps to measure a company’s ability to pay short-term obligations.
The standard current ratio is 2:1.
Current Ratio = Current Assets/Current Liabilities
Ratio 2020 2019 2018 2017 2016
Current Ratio 4.13 3.17 2.85 3.69 3.73
● ITC Ltd. In the past five years has maintained a ratio higher than the standard ratio.
The ratio is maintained at moderate-high and determines the capacity to meet its
short-term obligations effectively in the year.
● The company certainly has enough assets to meet its current liabilities and indicates
the company maintains moderate-high levels of assets that include current
investments, cash, inventory, prepaid expenses, and debtors.
● In 2018 the ratio is near to standard ratio. However, in 2020 the ratio is maintained
at the highest level in comparison to other years.
Quick Ratio: It helps to determine a company’s ability to meet its short-term
obligations with its most liquid assets. The standard Quick ratio is 1:1.
Quick Ratio = Quick Assets/Current Liabilities
Ratio 2020 2019 2018 2017 2016
Quick Ratio 3.19 2.38 2.03 2.54 2.37
● ITC Ltd has certainly maintained the quick ratio in double and has increased it over
the years maintaining it highest in the year 2020.
● It indicates that the company has access to quick assets indicating the money could
be used for further purposes or expansion or diversification.
● The company should focus on decreasing the level of ratio near to the standard ratio
to gain optimum utilization of quick assets.
2. Efficiency Ratios
Inventory turnover Ratio: The ratio helps to determine efficient inventory
management capacity of the management.
Inventory turnover ratio = Net Sales/ Inventory
Inventory Turnovers Period = 52 weeks / Inventory turnover ratio
Ratio 2020 2019 2018 2017 2016
Inventory Turnover Ratio 5.46 6.02 5.69 5.17 4.28
Inventory Holding Period (weeks) 11 12 11 10 08
● The company has an efficient inventory management system. Ideally a company
should have a range between 6-10 weeks depending upon the product offered. ITC
Ltd is in fast moving consumer good business and products have expiry in a range of
2 months to a year.
● In 2016 the company had the lowest inventory turnover ratio and holding period
indicating the product within an expected time frame was purchased by the consumer
determining the overall efficiency of the marketing department.
● The company has increased its inventory holding period over the years at an
acceptable level. However, the company should focus on decreasing it at levels of
2016.
Total Asset Turnover Ratio: The ratio establishes a relationship between net sales
and total assets of the company and helps to determine effectiveness of
management to utilize their assets.
Total Asset Turnover Ratio= Net sales/Total Assets
Ratio 2020 2019 2018 2017 2016
Asset Turnover Ratio 0.63 0.67 0.67 0.76 0.75
