A

PROJECT REPORT ON
“A STUDY ON RATIO ANALYSIS OF COLGATE
PALMOLIVE INDIA LTD FOR A PERIOD OF FIVE YEARS”
PROJECT SUBMITTED TO
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce
Submitted By
UMA RAMNIWAS YADAV
ROLL NO: 217927
T.Y.B.A.F (SEMESTER 6)

UNDER THE GUIDANCE OF

“MR. PANKAJ DANDGE”

KARMAVEER BHAURAO PATIL COLLEGE VASHI

(AUTONOMOUS)
VASHI, NAVI-MUMBAI – 400705
ACADEMIC YEAR 2021- 2022

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 KARMAVEER BHAURAO PATIL COLLEGE, VASHI

CERTIFICATE

This is to certify that UMA RAMNIWAS YADAV Student of TYBAF

(Semester-VI) has completed this project on “A STUDY ON RATIO
ANALYSIS OF COLGATE PALMOLIVE INDIA LTD FOR A PERIOD
OF FIVE YEARS” and has submitted a satisfactory report under the guidance
of MR. PANKAJ DANDGE in the partial fulfilment of TYBAF (Semester-VI)
course of University of Mumbai in the academic year 2021-2022.

MR. PANKAJ DANDGE DR. VIVEK BHOIR DR. SHUBHADA NAYAK

PROJECT GUIDE CO-ORDINATOR PRINCIPAL

Date of submission: UNIVERSITY EXAMINER

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 DECLARATION

I the undersigned UMA RAMNIWAS YADAV student of KARMAVEER

BHAURAO PATIL, COLLEGE, VASHI Studying in TYBAF (Semester-VI)
hereby declare that the work embodied in this project work titled “A STUDY ON
RATIO ANALYSIS OF COLGATE PALMOLIVE INDIA LTD FOR A
PERIOD OF FIVE YEARS” forms my own contribution to the research work
carried out by me under the guidance of MR. PANKAJ DANDGE is a result of
my own research work and has been previously submitted to any other University
for any other Degree/ Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

UMA RAMNIWAS YADAV

Name & Signature of the learner

Certified by:

MR. PANKAJ DANDGE

Name and Signature of the Guiding Teacher

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 ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous, and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance
to do this project.
I would like to thank my Principal DR. SHUBHADA NAYAK, for providing
the necessary facilities required for completion of this project.
I take this opportunity to thank our Co-ordinator DR. VIVEK BHOIR for his
moral support and guidance.
I would also like to express my sincere gratitude towards my project guide MR.
PANKAJ DANDGE

Whose guidance and care made the project successful?

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my parents and Peers who
supported me throughout my project.

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 Index

Chapter no. Particulars Page No.

1 Introduction 6-32

2 Review of literature 33-38

3 Research methodology 39-41

Data analysis, interpretation &

4 42-49
Presentation

5 Findings & conclusion 51-54

Bibliography 55

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 Chapter 1
INTRODUCTION

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 CHAPTER 1: INTRODUCTION

1.1 THEORETICAL BACKGROUND:

FINANCIAL STATEMENTS

Financial statements are the formal record of the financial activity of a business and provide an
overview of its financial condition. These are prepared on the basis of business transactions
recorded in the books of original entry or subsidiary books, ledger and trial balance.

According to International Accounting Standards Board, ‘the objective of financial statement is

to provide information about the financial position, performance and changes in financial
position of an enterprise that is useful to a wide range of users in making economic decisions.’

NATURE OF FINANCIAL STATEMENTS

1. Recorded facts: - The financial statements show the factual data drawn from financial
accounts. For example, items like cash in hand and at bank, cost of fixed assets, salaries
paid, etc., are the facts recorded in the books.

2. Accounting conventions: - The financial statements are affected to a large extent by the
various accounting concepts and conventions. F or example, because of going concern
concepts, fixed assets are recorded at cost and not at their market value.

3. Personal judgement: - An accountant has to exercise personal judgement in many cases,

which affects the financial statements. For example, an accountant has to decide whether
to use straight line method or written down value method for depreciation of fixed assets.

OBJECTIVES OF FINANCIAL STATEMENTS

The following are the important objective of financial statement

1. To provide adequate information about the financial and obligation of the finance firm.

2. To provide reliable information about the financial performance and financial soundness
of the concern.

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 3. To provide sufficient information about results of operations of business over a period of
time.

4. To provide useful information about the financial conditions of the business and movement
of resources in and out of business.

5. To provide necessary information to enable the users to evaluate the earning performance
of resources or managerial in forecasting the earning potentials of business.

LIMITATIONS OF FINANCIAL STATEMENTS

1. Financial statements are normally prepared of the basis of accounting principle,

conventions and past experiences. Therefore, they do not communicate much about the
profitability, solvency, liquidity etc of the undertakers to the users of the statements.

2. Financial statements disclose only the historical information. It does not consider changes
in money value, fluctuations of price level etc. Thus, correct forecasting for future is not
possible.

3. Influences of personal judgement leads to opportunities for manipulation while preparing

financial statements.

4. Information disclosed by financial statements based on accounting concepts and

conventions. It is unrealistic due to difference in terms and conditions and changes of
economic situations.

5. Financial statements emphasise to disclose only monetary facts, i.e., quantitative

information and ignore qualitative information.

The Financial Statements are: Income statement, balance sheet, statement of earnings, statement
of changes in financial position and the cash flow statement.

The Income Statement, having been termed as profit and loss account is the most useful financial
statement to enlighten what has happened to the business between the specified time intervals
while showing, revenues, expenses gains and losses.

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Balance sheet is a statement which shows the financial position of a business at certain point of
time. The distinction between income statement and the balance sheet is that the former is for a
period and the latter indicates the financial position on a particular date.

However, on the basis of financial statements, the objective of financial analysis is to draw
information to facilitate decision making, to evaluate the strength and the weakness of a business,
to determine the earning capacity, to provide insights on liquidity, solvency and profitability and
to decide the future prospects of a business entity.

MEANING OF ANALYSIS AND INTERPRETATIONS-

The term ‘Analysis’ refers to rearrangement of the data given in the financial statements. In other
words, simplification of data by methodical classification of the data given in the financial
statements.

The term ‘Interpretation’ refers to ‘explaining the meaning and significance of the data so
simplified.’
Both analysis and interpretations are closely connected and inter related. They are complementary
to each other. Therefore, presentation of information becomes more purposeful and meaningful.

There are various methods and techniques used in analysing financial statements, such as
comparative statements, trend analysis, common-size statements, schedule of changes in working
capital, fund flow and cash flow analysis, cost-volume profit analysis and ratio analysis. The Ratio
Analysis is one of the most powerful tools of financial analysis. It is the process of establishing
and interpreting various ratios (quantitative relationship between figures and groups of figures). It
is with the help of ratios that the financial statements can be analysed more clearly and decisions
made from such analysis.

RATIO ANALYSIS: Ratio analysis is a very powerful and most commonly used tool of
analysis and interpretation of financial statements. It is systematic use of ratios to interpret/
assess the performance and status of the firm. It concentrates on the inter-relationship among
the figures appearing in the financial statements. It is defined as the systematic use of ratio to
interpret the financial statements so that the strengths and weaknesses of a firm as well as its
historical performance and current financial condition can be determined.

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TYPES OF RATIOS

1. Liquidity ratios

a) Current ratio

b) Liquid or quick ratio

c) Absolute Liquid Ratio

2. Solvency ratios

a) Debt-Equity ratio

b) Proprietary ratio

c) Fixed Assets to Long term ratio

d) Debt to Capital Ratio

3. Activity ratios

a) Inventory turnover ratio

b) Debtors turnover ratio
c) Working capital turnover ratio
d) Fixed assets turnover ratio
e) Capital turnover ratio
f) Current Assets to Fixed Assets turnover Ratio
g) Total Assets Turnover Ratio
h) Payable Turnover Ratio

4. Profitability ratio

a) Gross profit turnover ratio

b) Net profit ratio

c) Operating ratio

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 d) Operating profit ratio

e) Return on investment ratio

f) Return on equity capital ratio

g) Earnings per share

h) Dividend pay-out ratio

i) Return On Capital Employed ratio

j) Reserves & Surplus to Capital ratio

ADVANTAGES OF RATIO ANALYSIS

1. Forecasting and Planning: The trend in costs, sales, profits and other facts can be known
by computing ratios of relevant accounting figures of last few years. This trend analysis with the
help of ratios may be useful for forecasting and planning future business activities.

2. Budgeting: Budget is an estimate of future activities on the basis of past experience.

Accounting ratios help to estimate budgeted figures. For example, sales budget may be prepared
with the help of analysis of past sales.

3. Measurement of Operating Efficiency: Ratio analysis indicates the degree of efficiency

in the management and utilisation of its assets. Different activity ratios indicate the operational
efficiency. In fact, solvency of a firm depends upon the sales revenues generated by utilizing its
assets.

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4. Communication: Ratios are effective means of communication and play a vital role in
informing the position of and progress made by the business concern to the owners or other parties.

5. Control of Performance and Cost: Ratios may also be used for control of performances
of the different divisions or departments of an undertaking as well as control of costs.
6. Inter-firm Comparison: Comparison of performance of two or more firms reveals
efficient and inefficient firms, thereby enabling the inefficient firms to adopt suitable measures
for improving their efficiency. The best way of inter-firm comparison is to compare the relevant
ratios of the organisation with the average ratios of the industry.

LIMITATIONS OF RATIO ANALYSIS

The technique of ratio analysis is a very useful device for making a study of the
financial health of a firm. But it has some limitations which must not be lost sight of before
undertaking such analysis.

1. Limitations of Financial Statements: Ratios are calculated from the information recorded
in the financial statements. But financial statements suffer from a number of limitations
and may, therefore, affect the quality of ratio analysis.

2. Historical Information: Financial statements provide historical information. They do not

reflect current conditions. Hence, it is not useful in predicting the future.

3. Different Accounting Policies: Different accounting policies regarding valuation of

inventories, charging depreciation etc. make the accounting data and accounting ratios of
two firms non-comparable.

4. Lack of Standard of Comparison: No fixed standards can be laid down for ideal ratios.
For example, current ratio is said to be ideal if current assets are twice the current liabilities.
But this conclusion may not be justifiable in case of those concerns which have adequate
arrangements with their bankers for providing funds when they require, it may be perfectly
ideal if current assets are equal to or slightly more than current liabilities.

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 5. Quantitative Analysis: Ratios are tools of quantitative analysis only and qualitative
factors are ignored while computing the ratios. For example, a high current ratio may not
necessarily mean sound liquid position when current assets include a large inventory
consisting of mostly obsolete items.

TOOLS FOR ANALYSIS

1. LIQUIDITY RATIOS: liquidity means ability of a firm to meet its current liabilities. They
try to establish a relationship between current liabilities, which are the obligation soon
becoming due and current assets, which presumably provide the source from which these
obligations will be met.

i. Current ratio: This ratio is most commonly used to perform the short-term
financial analysis. Also known as working capital ratio, this ratio matches
the current assets of the firm to its current liability. The formula is as
follows :
CURRENT ASSETS
CURRENT LIABILITIES

ii. Quick ratio: This ratio is also known as acid test ratio. It is a more severe
test of liquidity of a company. It shows the ability of a company to meet its
financial obligation. It is used to supplement the information given by the
current ratio. The formula is as follows :

QUICK ASSETS
CURRENT LIABILITIES

iii. Absolute Liquid ratio: Although receivables, debtors & bills receivables
are generally more liquid than inventories yet there may be doubts
regarding the realisation into cash immediately or in time pay off the current
liabilities. Absolute liquid ratio cannot be calculated solely for companies
they should be calculated in addition to the current ratio and acid test ratio,
so as to exclude even the receivables from the liquid current assets.

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 The formula to compute this ratio is given below:

2. Solvency Ratios: Solvency ratio also called financial leverage ratios, solvency ratios
compare a company’s debt levels with its assets, equity, and earnings to evaluate whether
a company can stay afloat in the long-term by paying its long-term debt and interest on the
debt. Leverage ratios include:

• Debt Equity Ratio

• Debt to Total Capital Ratio
• Proprietary/Equity Ratio Capital Gearing Ratio.

a) Debt-equity ratio: This ratio attempts to measure the relationships between long term debt
and shareholders fund. In other words, this ratio measures the relative claims of long-term
creditors on the one hand and the claims of owners on the other hand, on the assets of the
company.

𝐓𝐨𝐭𝐚𝐥 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Debt-to-Equity Ratio = 𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝐬′ 𝐄𝐪𝐮𝐢𝐭𝐲

b) Debt to Capital Ratio: Debt-to-capital ratio is a solvency ratio that measures the proportion
of interest-bearing debt to the sum of interest-bearing debt and shareholders' equity.
Interest-bearing debt includes bonds payable, bank loans, notes payable, etc. Noninterest-
bearing debt includes trade payable, accrued expenses, etc. It measures how much of the
capital employed (i.e. the resources on which the company pays a cost) is debt.
Higher debt included in the capital employed means higher risk of insolvency.

𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐛𝐞𝐚𝐫𝐢𝐧𝐠 𝐃𝐞𝐛𝐭

Debt to Capital Ratio =
𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐛𝐞𝐚𝐫𝐢𝐧𝐠 𝐃𝐞𝐛𝐭 + 𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬′ 𝐄𝐪𝐮𝐢𝐭𝐲

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 c) Proprietary ratio: It measures the relationship between shareholders fund and total assets.
Shareholders fund comprise ordinary share capital, preference share capital and all items
of reserves and surplus. Total assets include all tangible assets and only those intangible
assets which have a definite realizable value.

𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬 𝐅𝐮𝐧𝐝
Proprietary Ratio =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

d) Interest coverage ratio: This ratio indicates whether the business earns sufficient profit
to pay periodically the interest charges.

𝐈𝐧𝐜𝐨𝐦𝐞 𝐁𝐞𝐟𝐨𝐫𝐞 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐚𝐧𝐝 𝐈𝐧𝐜𝐨𝐦𝐞 𝐭𝐚𝐱 𝐞𝐱𝐩𝐞𝐧𝐬𝐞𝐬

Interest Coverage Ratio =
𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬

e) Fixed Assets to long term fund ratio: It measures the relationship between fixed
assets& long term funds comprise long term liabilities. Fixed assets include all
tangible assets, intangible assets and capital work in progress. The formula is
Fixed Assets
Long term Fund

3. Turnover Ratios: A measure of the number of times a company's inventory is replaced

during a given time period. In the case of mutual funds, the percentage of a fund's assets that have
changed over the course of a given time period, usually a year. Activity Ratio or Turnover Ratio
includes:

• Inventory Turnover Ratio

• Receivables Turnover Ratio
• Working Capital Turnover Ratio
• Fixed Assets Turnover Ratio
• Capital Turnover Ratio

a) Inventory turnover ratio: Inventory turnover is an efficiency ratio which calculates the
number of times per period a business sells and replaces its entire batch of inventories. It

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 is the ratio of cost of goods sold by a business during an accounting period to the average
inventories of the business during the period.

𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝

Inventory Turnover Ratio =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐢𝐞𝐬

b) Receivable turnover ratio: Receivable turnover is the ratio of net credit sales of a business
to its average accounts receivable during a given period, usually a year. It is an activity
ratio which estimates the number of times a business collects its average accounts
receivable balance during a period.
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬
Receivables Turnover Ratio =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐬 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞

c) Fixed assets turnover ratio: Fixed assets turnover ratio is an activity ratio that measures
how successfully a company is utilizing its fixed assets in generating revenue. It calculates
the dollars of revenue earned per one dollar of investment in fixed assets. A higher fixed
asset turnover ratio is generally better.
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬
Fixed Assets Turnover Ratio =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐅𝐢𝐱𝐞𝐝 𝐀𝐬𝐬𝐞𝐭𝐬

d) Working capital turnover ratio: Working capital turnover ratio is an activity ratio that
measures dollars of revenue generated per dollar of investment in working capital. Working
capital is defined as the amount by which current assets exceed current liabilities.
𝐑𝐞𝐯𝐞𝐧𝐮𝐞
Working Capital Turnover Ratio =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥

e) Capital turnover ratio: capital turnover ratio shows the relationship between cost of sales
and the total capital employed.
𝐂𝐨𝐬𝐭 𝐨𝐟 𝐒𝐚𝐥𝐞𝐬
Capital Turnover Ratio =
𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝

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4. Profitability Ratios: Profitability ratios show how well a company can generate profits from
its operations. Profitability Ratio includes:
• Gross Profit Ratio
• Operating Ratio
• Net Profit Ratio
• Return on Equity
• Dividend yield ratio
• Price earnings ratio
• Earnings per share
• Dividend Pay-out Ratio
a) Gross profit ratio: Gross margin ratio is the ratio of gross profit of a business to its
revenue. It is a profitability ratio measuring what proportion of revenue is converted into
gross profit (i.e. revenue less cost of goods sold). Gross Profit Ratio = 𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭 x 100
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬

b) Net profit ratio: Net profit ratio (also called profit margin) is the most basic profitability
ratio that measures the percentage of net income of an entity to its net sales. It represents
the proportion of sales that is left over after all relevant expenses have been adjusted.
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭
Net Profit Ratio = x 100
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬

c) Operating profit ratio: Operating margin ratio or return on sales ratio is the ratio of
operating income of a business to its revenue. It is profitability ratio showing operating
income as a percentage of revenue.
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭
Operating Profit Ratio = x 100
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬

d) Return on equity: Return on equity or return on capital is the ratio of net income of a
business during a year to its stockholders' equity during that year. It is a measure of
profitability of stockholders' investments. It shows net income as percentage of shareholder
equity.
𝐀𝐧𝐧𝐮𝐚𝐥 𝐍𝐞𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
Return on Equity =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐒𝐭𝐨𝐜𝐤𝐡𝐨𝐥𝐝𝐞𝐫𝐬′ 𝐄𝐪𝐮𝐢𝐭𝐲

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 e) Earnings per share: Earnings per share (EPS) is a profitability indicator which shows
dollars of net income earned by a company in a particular period per share of its common
stock (also called ordinary shares). Earnings per share is calculated by dividing net income
for a period attributable to common stock owners by the weighted average number of
common shares outstanding during the period.
𝐍𝐞𝐭 𝐈𝐧𝐜𝐨𝐦𝐞 – 𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐝𝐢𝐯𝐢𝐝𝐞𝐧𝐝𝐬
Earnings per Share = 𝐖𝐞𝐢𝐠𝐡𝐭𝐞𝐝 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 x 100
𝐨𝐟 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐡𝐚𝐫𝐞𝐬 𝐎𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠

f) Dividend pay-out ratio: Dividend pay-out ratio is the percentage of a company’s earnings
that it pays out to investors in the form of dividends. It is calculated by dividing dividends
paid during a period by net earnings for that period. Dividend pay-out ratio is reciprocal of
retention ratio (or plowback period) which measures the percentage of earnings a company
reinvests in projects to generate future growth.

𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝𝐬 𝐏𝐚𝐢𝐝 𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝 𝐩𝐞𝐫 𝐒𝐡𝐚𝐫𝐞

Dividend Pay-Out Ratio = =

𝐍𝐞𝐭 𝐈𝐧𝐜𝐨𝐦𝐞 𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐩𝐞𝐫 𝐒𝐡𝐚𝐫𝐞

1.2 INDUSTRY OVERVIEW

Introduction
Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian
economy with Household and Personal Care accounting for 50 per cent of FMCG sales in India.
Growing awareness, easier access and changing lifestyles have been the key growth drivers for
the sector.

FMCG goods are popularly known as consumer-packaged goods. Items in this category include
all consumables (other than groceries/pulses) people buy at regular intervals. The most frequently
listed items are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain electronic goods. These
items are meant for daily of frequent consumption and have a high return. These retail products
have short-lived shelf life compared to kitchen and other home appliances. Meanwhile, some

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common FMCG include coffee, tea, detergents, tobacco and cigarettes, soaps and others. The big
names in this sector include Sara Lee, Nestle, Reckitt Benckiser, Unilever, Procter & Gamble,
Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi, Mars and others; In recent years, the
fastmoving consumer goods sector (FMCG) is witnessing increased use of sales promotion
activities all over the world.
Another key factor today is speed. Today consumer wants packaged goods that work
better, faster, and smarter. The ‘need for speed’ trend highlights the importance of speed as a
potentially decisive purchase factor for packaged goods products in a world where distinctions
between products are shrinking.
Characteristics
The following are the main characteristics of FMCGs:
From customer’s perspective From the seller’s perspective
• Frequent purchase Low • High volumes
involvement • Low contribution margins
(little or no effort to choose the • Extensive distribution networks

item) • High stock turnover

• Low price
• Short shelf life
• Rapid consumption

Investments/ Developments

The government has allowed 100 per cent Foreign Direct Investment (FDI) in food
processing and single-brand retail and 51 per cent in multi-brand retail. This would bolster
employment and supply chains, and also provide high visibility for FMCG brands in organised
retail markets, bolstering consumer spending and encouraging more product launches. The sector
witnessed healthy FDI inflows of US$ 12.25 billion, during April 2000 to June 2017.

Government initiatives

Some of the major initiatives taken by the government to promote FMCG sector in India
are as follows:

• In the Union Budget 2017-18, the Government of India has proposed to spend more on the
rural side with an aim to double the farmer’s income in five years; as well as the cut in income

17
 tax rate targeting mainly the small tax payers, focus on affordable housing and infrastructure
development will provide multiple growth drivers for the consumer market industry.

• The Government of India’s decision to allow 100 per cent Foreign Direct Investment (FDI) in
online retail of goods and services through the automatic route has provided clarity on the
existing businesses of e-commerce companies operating in India.
• With the demand for skilled labour growing among Indian industries, the government plans to
train 500 million people by 2022 and is also encouraging private players and entrepreneurs to
invest in the venture. Many governments, corporate and educational organisations are working
towards providing training and education to create a skilled workforce.
• The Government of India has drafted a new Consumer Protection Bill with special emphasis
on setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and
timely delivery of justice to consumers.
• The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG
products such as Soap, Toothpaste and Hair oil now come under 18 per cent tax bracket against
the previous 23-24 per cent rate.

Major Segments in FMCG Sector:

FMCG can broadly be categorized into three segments which are:

➢ Household items (detergents, soaps, household accessories etc.):

The size of the fabric wash market is estimated to be US$ 1 billion, household cleaners to be US$
239 million and the production of synthetic detergents at 2.6 million tonnes. The demand for
detergents has been growing at an annual growth rate of 10 to 11 per cent during the past five
years. The urban market prefers washing powder and detergents to bars on account of convenience
of usage, increased purchasing power, aggressive advertising and increased penetration of washing
machines.

➢ Food and beverages (tea, coffee, soft drinks, snacks etc.)

The size of the semi-processed/ready to eat food segment is over US$ 1.1 billion. Large biscuits
& confectionery units, soya processing units and starch/glucose/sorbitol producing units have also

18
come up, catering to domestic and international markets. The three largest consumed categories
of packaged foods are packed tea, biscuits and soft drinks. The Indian beverage industry faces
over supply in segments like coffee and tea. The total soft drink (carbonated beverages and juices)
market is estimated at 284 million crates a year or US$ 1 billion.

➢ Personal care items (shampoos, hair oils, toothpaste etc.)

The size of the personal wash products is estimated at US$ 989 million; hair care products at US$
831 million and oral care products at US$ 537 million. While the overall personal wash market is
growing at one per cent, the premium and middle-end soaps are growing at a rate of 10 per cent.
The leading players in this market are HLL, Nirma, Godrej Soaps and Reckitt &Colman.

Future of Indian FMCG Sector-

The consumers today are endowed with a wide range of options to make their pick in FMCG
products. There is a lot of competition in the FMCG sector as a number of factors are to be
considered while selling the products. This precisely denotes that only the innovators can survive
this tough competition. The investors must be very proactive to the market needs and also build
strong and powerful distribution channel.

Opportunities:

➢ With fast-evolving lifestyles and the increasing disposable income of urban consumers, there
exists a definite opportunity for lifestyle and high-end products.
➢ With more than 33 percent of the Indian consumer base present in rural areas, the rural market
will be a key growth driver for FMCG majors planning to expand their domestic business.
➢ Indian consumers are highly adaptable to new and innovative products. For instance, the
market acceptance of men's fairness creams clearly demonstrates an opportunity for
companies to offer new products targeting specific customer segments
➢ Indian and multinational FMCG players can leverage India as a strategic sourcing hub for
costcompetitive product development and manufacturing for their international markets.

Here is the List of few top FMCG companies of India

19
• Patanjali Ayurveda Ltd.
• Parle Agro
• Asian Paints Ltd
• Himalaya Healthcare Ltd
• ITC FMCG
• Amul
• Godrej Consumer Products Limited Dabur India Ltd.
• Hindustan Unilever Limited
• Emami
• Nirma
• Zydus Wellness
• Britannia
• Pidilite Industries
• Wipro Consumer Care & Lighting Ltd Marico

20
1.3 COMPANY PROFILE

Colgate Palmolive is an American multinational consumer products company focused on the

production and distribution of household, healthcare and personal care products such as soaps,
detergents, and oral hygiene products (including toothpaste and toothbrushes). Colgate Palmolive
is a $ 17.1billion consumer products company that serves people around the world with well-
known brands that make their lives healthier and more enjoyable.

HISTORY OF THE COMPANY

COLGATE
William Colgate was born in England on 25 January 1783. He came to New York City and
obtained employment as an apprentice to a soap-boiler and learned the business. He closely
watched the methods practiced by his employer, nothing what seemed to him to be
mismanagement, and learned useful lessons for his own guidance. At the close of his
apprenticeship, he opened up a starch, soap and candle factory under the name of ‘William
Colgate & Company’. He was able, by correspondence with dealers in other cities, to establish
his company in the business and became one of the most prosperous men in the New York
City. In 1857, William Colgate died, and the company was recognised as ‘Colgate &
Company’ under the management of Samuel Colgate, his son.
In 1873, the firm introduced its first aromatic toothpaste sold in jars. Later, in 1896, the Colgate
Company added another innovation- Colgate Ribbon Dental Cream- and became the first
company to sell toothpaste in a collapsible tube. By 1908, they initiated mass sale of toothpaste
in the U.S.A

21
PALMOLIVE
Another company in the U.S.A. the B.J. Johnson Company was making a soap entirely of palm
and olive oil. The soap was popular enough for the company to be renamed after it- ‘Palmolive’.
At the turn of the century, Palmolive was the world’s best- selling soap. In 1928, Palmolive bought
Colgate Company and renamed the merged companies ‘Colgate- Palmolive Company’, the current
name.

COLGATE- PALMOLIVE TODAY

Today, with sales surpassing $15 billion, Colgate focuses on four core businesses: oral care,
personal care, home care and pet nutrition. Colgate now sells its products in over 200 counties and
territories though it is publicly listed in only two, the United States and India.

COLGATE TOOTHPASTE

Colgate Palmolive Company is a manufacturer of wide range of toothpastes and toothbrushes.

Colgate is one of the namesake brands of the Colgate Palmolive Company. From 1940 to 1960,
an advertising campaign for Colgate toothpaste used the slogan ‘It cleans your breath while it
cleans your teeth.’ As 1960, the slogan was ‘The Colgate ring of confidence.’

COLGATE IN INDIA

Established in the year 1937 in India, Colgate – Palmolive is today, a RS 1,300Crore company
spread across 4.5 million retail outlets out of which 1.5 million are direct outlets making it almost
synonymous with toothpaste here.

From a modest start in the 1930s, when hand-carts were used to distribute Colgate dental cream
toothpaste, Colgate Palmolive (India) today has one of the widest distribution networks in India –
which is logistic wonder that makes Colgate available in around 43 lakh retail outlets in the
country. The company dominates the RS 3,500crore Indian toothpaste market with more than 50
% market share finding acceptance in both the rural and urban areas.

Colgate (toothpaste) has been ranked the 17th most trusted brand in India by The Brand Trust
Report 2011. Though 17th in the list, it is the first in the list as far a FMCG companies go.

22
COLGATE BRANDS

Colgate provides oral care, personal care, home care and pet nutrition products under trusted brand
such as: Colgate, Palmolive, Mennen, Softsoap, Irish spring, Protex, Sorriso, Kolynos, Elmex,
Toms of Maine, Ajax Axion, Soupline, Suavitel, Hill’s Science Diet and Hill’s prescription Diet.

COLGATE ORAL CARE PRODUCTS

• Toothpastes
• Toothbrushes
• Mouthwashes
• Kids products
• Toothpowder
• Specialty products

Educational and community involvement

In 1890, Madison University in New York State was renamed Colgate University in honour of the
Colgate family following decades of financial support and involvement.

The Colgate-Palmolive Company has sponsored a non-profit track meet open to women of all ages
called the Colgate Women's Games. The Colgate Women's Games is the nation's largest amateur
track series open to all girls from elementary school through college. Held at Brooklyn's Pratt
Institute, competitors participate in preliminary meets and semi-finals over five weekends
throughout January. Finalists compete for trophies and educational grants-in-aid from
ColgatePalmolive Company at New York City's Madison Square Garden in February. For more
than 20 years, the company supports the Starlight Children Foundation which is a non-profit
organization dedicated to help seriously ill children and their families. The mission is to help
children to cope with pain, fear and isolation through entertainment, family activities and
education.

23
THREE FUNDMENTAL VALUES
Caring

The Company cares about people: Colgate people, customers, shareholders and business
partners. Colgate is committed to act with compassion, integrity, honesty and high ethics in all
situations, to listen with respect to others and to respect differences. The Company is also
committed to protect the global environment, to enhance the communities where Colgate people
live and work, and to be compliant with government laws and regulations.

Global Teamwork
All Colgate people are part of a global team, committed to working together across countries and
throughout the world. Only by sharing ideas, technologies and talents can the Company achieve
and sustain profitable growth.

Continuous Improvement
Colgate is committed to getting better every day in all it does, as individuals and as teams. By
better understanding consumers' and customers' expectations and continuously working to
innovate and improve products, services and processes, Colgate will ‘become the best.’

Environmental record
Products of the Colgate-Palmolive company, specifically ‘Total’ brand toothpaste contains
triclosan. This ingredient has a questionable impact on waterways and marine life. Colgate
consumes approximately 0.2 percent of the combined palm oil output of Malaysia, Indonesia and
Thailand, the cultivation of which is known for environmental impacts on a global level including:
deforestation, loss of natural habitats of critically endangered species, and increased greenhouse
gas emissions. Colgate-Palmolive, as a successor to The Mennen Company, is one of about 300
companies held potentially responsible for hazardous waste at the Chemsol federal Superfund site
in Piscataway, New Jersey. Their involvement in this site may have contributed to the
contamination of an estimated 18,500 cubic yards (14,100 m3) of soil with volatile organic
compounds (VOCs), PCBs, and lead off-site. A proposed $23 million agreement with the
government and state of New Jersey would require Colgate-Palmolive and the other involved
companies to pay for the clean-up of this hazardous waste that is contaminating the soil as well as
the groundwater. Colgate Palmolive received the 2012 Safe-in-Sound Excellence in Hearing
Loss Prevention Award.

24
SWOT Analysis of Colgate

STRENGTHS

1. Brand recall & visibility: Colgate being the household name it is, has high brand
recall & visibility. Excellent advertising and brand visibility of products with a
strong customer loyalty for brands had helped the brand to compete with other
players, thereby emerging as one of the topmost brands in the FMCG market.

2. Product line: It offers product categories namely oral care, personal care,
household surface, fabric care and pet nutrition having deep assortments across the
product categories. In FMCG, the more in depth your product line, the more
chances of success increases because the cost of logistics drops further.

3. Efficient Supply chain: With extensive distribution network in rural & urban
markets, Colgate ensures that it reaches a wide customer make, thereby making the
product available. Product availability is the major concern in this highly
competitive market as brand switching is very easy.

25
 4. Financial position: Being 2 centuries old company and having operations in 200
countries has built a strong financial base for Colgate. Thus, it is able to take on the
likes of HUL due to its deep pockets.

5. Market share: With high penetration in the market, Colgate has managed to hold
their market share and some products / brand extensions are market leaders in
particular regions.

WEAKNESSES

1. Saturated market: With large number of local & national players fighting in personal &
oral care segment, the market has become saturated & there is little scope for growth while
all companies are eating each other’s market share.

2. Commoditized brand name: The brand’s toothpaste category under Coalgate brand name
was so successful that the name itself has been commoditized and now it is being used for
different brands of toothpaste. This has hampered the brand recognition of other products
of the same brand.

3. Cost control: Majority of its properties have been on rent basis resulting into high cost of
operations due to which its profits are decreasing. Due to high cost of operations, Colgate
products are also priced higher than the rivals.

4. Limited brands under different product categories & segments: Colgate have limited
brands under a particular product category and they have limited offerings under different
segments unlike their competitors like P&G, HUL etc

26
OPPORTUNITIES

1. Expanding their product line: By following product line stretching & product line filling
strategies they can increase their sales, create offerings and give value for different
segments.

2. Tapping the rural market in developing economies: It is one of the major challenges
that every FMCG company is facing nowadays. With urban markets close to saturation,
the rural markets are the only hope for reaping profits for the company.

3. Strengthening the business through mergers & acquisitions: It’s one of the smart
strategies followed by global companies to sustain and expand in the overseas market.
However Colgate is yet to capitalize the market by use of such strategies

THREATS

1. Competition in the market: With increasing number of local & national players it’s
becoming very hard for the companies to differentiate themselves from others. There is
also threat from counterfeit products destroying its brand image in the market.

2. Low Margins: As the competition rises, the margins for companies are dropping and
companies find that they have to give more and more discount to sustain in the same
channel.

3. Price of raw material: Increasing price of raw material will result in further increase in
the price of Colgate. Over a period of time, justifying the high price compared to
competition will become difficult in a saturated market. Further increase in price will result
in decrease in sales & brand switching by consumers.

4. Ethical issues: The ‘Ethical Consumer Research Association’ once recommended that its
readers should not buy Colgate because of its use of animal testing. In the digital age,
information like this will affect the brand Colgate.

27
 5. Frequent Brand switching: With highly diversified personal & Oral care consumer
market where there are lots of brands claiming different sorts of benefits, it’s very difficult
for consumers to stick to a particular brand & hence results into brand switching where
consumer got power to select a brand based on several factors like availability, reference
group recommendation, preference & price.

Living our values for sustainability

As a company that strives to be the best truly global consumer products company, we are
committed to doing business with integrity and respect for all people and for the world around us.

Colgate's Code of Conduct promotes the highest ethical standards in all of the Company's
business dealings.

Since 1987, our Code of Conduct has served as a guide for our daily business interactions,
reflecting our standard for proper behaviour and our corporate values. The Code of Conduct is
regularly updated and reissued to ensure its comprehensiveness. The Code clearly conveys to each
of us that the manner in which we achieve our business results matters just as much as achieving
them. The Colgate Code of Conduct applies to all Colgate people, including Directors, Officers,
and all employees of the Company and its subsidiaries around the globe. Vendors and Suppliers
are also subject to these requirements as adherence to the Code is a condition for conducting
business with Colgate.

Most importantly, each employee is responsible for demonstrating integrity and leadership by
complying with the provisions of the Code of Conduct, Global Business Practices Guidelines,
Company policies and all applicable laws. By fully including ethics and integrity in our ongoing
business relationships and decision-making, we demonstrate a commitment to a culture that
promotes the highest ethical standards.

28
The Code has been translated and is available in 40 local languages. If you would like additional
information regarding any of the topics listed in the Code of Conduct, please refer to the Business
Practices Guidelines, which can be found on our websites

Achieving economic, social and environmental performance in today’s business climate requires
a long-term corporate social responsibility and sustainability strategy that is executed with
discipline year after year. At Colgate, we bring to our 2015–2020 Sustainability Strategy the same
dedication we bring to our business building efforts, and a strong focus on delivering our five
global commitments and goals:

Helping Colgate People and Their Families Live Better and Contributing to the Communities
Where We Live and Work Brands That Delight Consumers and Sustain Our World and Making
Every Drop of Water Count Reducing Our Impact on Climate and the Environment Publication
of this report provides the opportunity to thank Colgate people and our partners for their
contributions to delivering our strategy. We are also especially pleased to highlight these aspects
of our ongoing sustainability journey:
2016 marked the 25th Anniversary of our Bright Smiles, Bright Futures program (BSBF), through
which Colgate has reached over 900 million children in need around the world with oral health
education.
Colgate no longer uses microbeads or phthalates as ingredients in our products. We have also
reformulated our products using alternative, safe preservative systems and no longer use parabens
as preservatives in our products. In 2017, we will also complete the elimination of the use of
formaldehyde donors as preservatives in our products.
The efforts of Colgate people around the world enabled us to be recognized as a member of the
North American DJSI Leadership Index, CDP Water a List and CDP Climate a List as well as
sector leaders in the Just Capital Ranking. In We continue to increase the number of facilities that
were constructed with sustainability in mind—14 facilities have achieved 17 certifications from
the U.S. Green building Council under Leadership in Energy and Environmental Design.

29
30
Awards

• Colgate ranked Number One - The Most Trusted Brand in India, — across all
categories, in the 2016 edition of The Economic Times Brand Equity Most Trusted Brands
survey,
• Ranked once again #2 in 'The Top Brands in India' survey conducted by Market Xcel
in collaboration with Brand Asia. — Colgate has been in top 5 in this survey since its
inception in 2012.
• Top 50 Brands in the Bottom of the Pyramid Category — by Pitch from
exchange4media 2016.
• Recognition for Excellence in Supply Chain & Logistics during the 3rd Annual
Edition by — The Economic Times Supply Chain Management & Logistics 2016.
• GOLD Certification - LEED (Leadership in Energy & Environmental Design) New
Construction Project 2016 - Indian Green Building Council (IGBC) — manufacturing
facility at Sricity, Andhra Pradesh2016
• Innovative Approach to Waste Management was conferred to the Plant at Goa— In
the Geocycle Meet 2015
• Conferred with the Award for Excellence in Quality - FMCG for its brilliant
customer service — at Aditya Birla Retail’s (ABR) MORE Confluence 2015
• Colgate Slim Soft Charcoal Toothbrush was honoured with Award for Outstanding
Innovation — at Aditya Birla Retail’s (ABR) MORE Confluence 2015
• Product of the Year 2015, in the Toothbrush category, was awarded to Colgate
Charcoal Slim Soft — in a research conducted by Nielsen for Product of the Year (India)
Pvt. Ltd.
• Brand Colgate was facilitated as one of Top 50 Most Valuable Brands — in a Brands
Survey conducted by the WPP agency Millward Brown for the first time in India
• Product of the Year 2014, in the Toothpaste category, was awarded to Colgate Visible
White — in a research conducted by Nielsen for Product of the Year (India) Pvt. Ltd.
• Ranked the #1 Most Chosen Consumer Brand — In Kantar World Panel Brand
Footprint Report 2014.
• Awarded the Best Supplier of the Year 2013 — Tesco India at their Supplier Conference.

31
Achievements

• Asia Book of Records for ‘Most People Brushing Their Teeth Together’ — 23615
people brushed their teeth together at the same time at one place 2017.

• Most people rinsing at the same time — Guinness World Records - Maximum number
of people to rinse with a mouthwash at the same time at one place 2011.

• Public Dental Check-ups by the Guinness World Records — The most people involved
in a dental health check across multiple locations in 24 hours was 66,322 in an event
organized by Colgate-Palmolive (India) Limited and Indian Dental Association which
involved 33 schools, in five cities2010.

• Colgate Brush-up Challenge by the Guinness World Records — The most people
brushing their teeth simultaneously was 177,003 at 380 locations across India for an
attempt organized by Colgate-Palmolive (India) Limited in association with the Indian
Dental Association 2007.

32
 Chapter 2
Review Literature
1.5 REVIEW OF LITERATURE

Mathur & Agarwal (2016) Ratios are an excellent and scientific way to analyse the financial
performance of any firm. The company has received many awards and achievements due to its
new innovations and technological advancement. These indicators help the investors to invest the
right company for expected profits.

Kalsie and Arora (2015) in their study investigated the impact of various components of Working
Capital Management on the stock prices of panel of 6 FMCG companies of India from 2000-2014.
The study found that current ratio, inventory turnover ratio and EPS significantly impact the stock
prices. However, relatively less influence of receivable turnover ratio on stock prices was
unearthed interestingly, negative relationship was found between current ratio and stock prices
whereas Inventory Turnover Ratio, and EPS supported a positive association with the stock prices.

Takeh Ata & Navaprabha Jubiliy (2015) Author has made conceptual model to outline the
impact of capital structure on the financial performance i.e. capital structure is independent
variable that value is measured by using four ratios namely, financial debt, total debt equity, total
asset debt and interest coverage ratio whereas financial performance is dependent variable that
value is measured by using four ratios as return on assets, return on equity , operating profit margin
and return on capital employed. Researcher has selected 13 major steel industries and applied
various statistical tools like standard deviation, correlation matrix, anova etc are employed for
testing hypothesis with help of SPSS22.

Anu B. (2015) made an attempt to examine the relationship between capital structure indicators,
market price per shares and also to test relationship between debt-equity and market price per
share of selected companies in industry. The study concludes that all three companies support the
hypothesis that there is relation between debt-equity and MPS.

[Link] & Dr. S. Sekar (2014) The study was undertaken in Standard Chartered Finance Limited
with a view to have an insight in the financial performance of the firm. In the research study efforts
have been taken to determine the financial condition and performance of the firm. The present

34
study has thrown major concentration in ratio analysis, comparative statements, common size
statements and trend analysis from the five years’ financial statements of the firm. The study
concluded that the short-term assets were well managed, and the long term financial position of
the firm was just satisfactory.

Sai Naga Radha V (2013) concluded that net profit margin, operating profit margin, return on
capital employed, return on equity and debt equity ratio there is no significant difference in these
ratios before after merger. Significant difference with respect to gross profit margin.

Nagarajan. G and Khaja Sheriff. J (2013) - ‘Emerging challenges and prospects of FMCG
products development in India’, it provides inputs for clear understanding of consumer mindsets
towards FMCGs. It focuses on some of the fundamental issues pertaining to the emerging
challenges and prospects of marketing FMCGs (new product launch) in India, emerging trends in
sales and customer attraction which enable to improvements in new product development. When
the marketer wants to fulfil the customer requirements they come up with challenges which are
new and unseen in yesteryears.

Performance Evaluation of Prime Bank Limited in Terms of Capital

Adequacy by Md. Abdullah Al Mamun on Year 2013
The study aims at evaluating performance of prime bank. Data of the bank is analysed using capital
adequacy ratio, debt equity ratio and advance to asset ratio for the period 2008 to 2012. The study
finds, though high debt equity ratio bank maintains capital above regulatory requirement. This will
help the researcher and bank to further improvement in capital adequacy to meet regulatory
requirement and enhance bank performance.

Sai Naga Radha V (2013) concluded that net profit margin, operating profit margin, return on
capital employed, return on equity and debt equity ratio there is no significant difference in these
ratios before after merger. Significant difference with respect to gross profit margin.

35
Sabura F. Metal (2012) has drawn conclusion from the retailer’s point of view is that, in order to
increase the market share company should put forward certain measures in the initial stage to
retain and develop the market share. As per Indian researcher’s view, the attitude of consumers is
‘ready to bare high speed capital and never have the attitude of spending high working capital’.

Jain. A, (2012) studied that, the brand awareness in rural areas particularly in respect of beauty
care and health care products is showing an increasing tendency. Most of the people both from
illiterate & literate groups prefer branded products with the belief that quality is assured as the
manufacturers are reputed companies. For Ex: Colgate Tooth Paste, Head & Shoulder shampoo.
People are not worried about the price of the product. They are showing willingness to spend
higher price when they realize that they can afford to spend. Since the usage of branded products
of reputed companies will elevate their status as well as importance in that village. This change in
the attitude to spend more on the highly priced branded products among high income groups in
rural areas clearly suggests that there is an ample scope for such products to capture the markets
in this areas by increasing the supply of these products.

Venukumar G., (2012) in his study conclude that, it is certain that F.M.C.G. companies will have
to really gain inroads in the rural markets in order to achieve double digit growth targets in future.
There is huge potential and definitely there is lot of money in rural India. The companies entering
rural market must do so, for strategic reasons and not for tactical gains as rural consumer is still a
closed book and it is only through unwavering commitment that the companies can make a dent
in the market. Ultimately the winner would be the one with the required resources like time and
money and also with the much-needed innovative ideas to tap the rural market.
Sushash B - He has discussed about the share of rural areas in total FMCGs consumption in India,
factors influencing sale in rural markets, ways of market penetration, problems and limitations.
He has finally concluded that with the increasing competition and saturation of urban markets the
future prospects in rural markets are high.

Reddy Viswanatha C. (2012)-Attempts to study the association between liquidity, profitability

and risk factor. A study of liquidity, profitability and their association with risk, assessing the
financial position (financial distress / bankruptcy) is very much necessary to evaluate the financial

36
strength of a company. A firm in financial distress may face bankruptcy or liquidation leading to
delay in meeting its liabilities. The results indicate that the liquidity and solvency position of the
company have been satisfactory. Further the analysis reveals that the company was not suffering
from financial distress and there are indications of turnaround activities already undertaken by the
company.

Mistry Dharmendra S. (2012) understood a study to analyse the effect of various determinants on
the profitability of the selected companies. It concluded that debt equity ratio, inventory ratio, total
assets were important determinants which effect positive or negative effect on the profitability. It
suggested to improve solvency as to reduce fixed financial burden on the company profit & give
the benefit of trading on equity to the shareholders.

Zafar [Link] & Khalid S.M (2012) the study explored that ratios are calculated from
financial statements which are prepared as desired policies adopted on depreciation and stock
valuation by the management. Ratio is simple comparison of numerator and a denominator that
cannot produce complete and authentic picture of business. Results are manipulated and also may
not highlight other factors which affect performance of firm by promoters.

Beaver, William H & Correia, Maria&[Link], Maureen F (2011)They observe that

financial statement analysis has been used to assess of the company‘s likelihood of financial
distress –the profitability that it will not be able to repay its debts. Financial statement analysis
was used by credit suppliers to assess the credit worthiness of its borrowers. Today, financial
statement analysis is ubiquitous and involves a wide variety of ratios and wide variety of users,
including trade suppliers, bank, credit rating agency, investors and management.
Financial analysis is the process of evaluating businesses, projects, budgets and other
financerelated entities to determine their performance and suitability. Typically, financial analysis
is used to analyse whether an entity is stable, solvent, liquid or profitable enough to warrant a
monetary investment. When looking at a specific company, a financial analysts conducts analysis
by focusing on the income statement, balance sheet and cash flow statement.

37
Ratio Analysis and Equity Valuation: From Research to Practice; Doron Nissim & Stephen
H. Penman

This paper has laid out a structured financial statement analysis that facilitates forecasting and
valuation. The analysis involves an analysis of profitability and an analysis of growth. The analysis
of profitability extends the traditional analysis, the analysis of growth complements it profitability
and growth drive equity values. The analysis is guided by the residual earnings valuation model
but is appropriate for forecasting free cash flows and dividends if other valuation approaches are
adopted.

Mysers says ratio analysis of financial statement is a study of relationship among various financial
factors in a business as disclosed by the various financial statement and study the trends of those
factors as shown in statement.

Attempt made by Nandi to examine the influence of working capital management on corporate
profitability carries a meaningful insight. For assessing impact of working capital management on
profitability of NTPC, Pearson‟ coefficient of correlation and multiple regression analysis
between some ratios relating to working capital management and the impact measure relating to
profitability (i.e., ROI ratio) had been computed and applied. This attempt purposefully measured
the sensitivity of return of investment (ROI) to changes in the level of working capital leverage
(WCL) of the studying company. This spreads the message of positive relationship of capital
structure with that financial structure to logically justify the profitability.

38
Chapter 3 Research
Methodology
1.6 SCOPE OF STUDY
• Scope of the study is limited to the financial analysis of Colgate Palmolive India LTD.
• The analysis and interpretation of the financial statements through ratio analysis helps the
firm as well as the stake holders make important decisions.
• To have an insight into the accounts of the company and to evaluate the performance of
company in various aspects over the period of five years.
• The study is limited to five financial years.
• The study is based on the secondary data and details have been collected through website.

1.7 OBJECTIVES OF THE STUDY

The following are the objectives:
• To analyses the financial activities of COLGATE PALMOLIVE INDIA LTD through
ratio analysis.
• To analyses the trend of reports of accounts through ratios
• To know the workspace of company
• To process of ratio analysis in company
• To understand the practical analysis of any company

2.1 RESEARCH METHODOLOGY:

The various liquidity ratios, long-term solvency ratios, profitability ratios and turnover
ratios have been used to analyse and interpret the reports of accounts.

2.2 SOURCES OF DATA:

The data which is collected and represented in the research paper is based on secondarydata
which is collected from the company’s annual reports which are published on the
company’s website. There is a drawback that could be associated with this that is if there
is any tampering with the primary data then this would also impact the study.

2.3 SAMPLING PLAN:

• The sampling plan of the present study is convenience sampling.
• The study is based on a period of 5 financial years i.e., 2016-17, 2017-18,
2018-19, 2019-20, and 2020-21.
 LIMITATIONS OF THE STUDY:
• The study is based on secondary data.
• It checks just monetary aspect of company’s performance and position, but it
ignores non-monetary aspect of the company.
• It does not analyse the inflationary changes of different items of financial
statements.

1.4 STATEMENT OF THE PROBLEM:

The financial ratio analysis is considered to be the fundamental element in financial

statement analysis .A ratio analysis is a quantitative analysis of information contained in a
company’s financial statements. It involves conducting a quantitative analysis of information
disclosed in financial statement by various ratios that shows relation among different items of the
balance sheet, income statement to evaluate the company’s performance.

Individual investors or firms that are interested in investing in company need financial
analysis information and ratio analysis in evaluating target companies'. Potential investors can
form opinions about investment value and expectations of future performance by examining
financial statements & their ratio. In order to help investors to decide right company which benefits
them with maximum returns financial statement analysis is to be performed.

The present Ratio analysis of Colgate Palmolive India Ltd. is related to the financial
performance. The study aims to study the financial performance of consecutive five years with the
help of ratio analysis. The investors need the financial performance that the company has delivered
over the five years in order to seek opportunities available and various other financial component
that has to consider for investing. Therefore the researcher here is interested to know which all are
the important tools or concepts of ratio analysis that are suitable in FMCG sector.

To study the operating, profitability and expenditure and various financial activities of
Colgate Palmolive India Ltd, and analyse the relation of these activities through various long-
term, short-term, liquidity and profitability ratios.
 Chapter 4
Data & Interpretation
 TABLE 2.5.1

Analysis of Current ratio for Five years (2012-2016)

Year Current Assets Current Ratio

liabilities

2012 72368.09 66,338.61 1.0909

2013 79,303.71 78,144.10 1.0148

2014 67,180.16 86,326.62 0.7782

2015 68,971.79 86,658.98 0.7959

2016 77431.83 83,654.23 0.9256

CURRENT RATIO
1.2000 1.0909
1.0148
0.9256
1.0000
0.7782 0.7959
0.8000
0.6000
0.4000
0.2000
0.0000
2012 2013 2014 2015 2016
YEAR

Graph 2.5.1: Analysis of current ratio for Five years (2012-2016)

ANALYSIS

• The computation and graph hold the current ratio (short-term solvency position) of the
company for the past 5 years i.e. FY 2012-2016.
• For the first two financial years, the company’s Current assets are comparatively higher
than Current Liabilities.
• The Currents assets are 1.0909 times larger than Current Liabilities in FY 2011-12,
which has decreased to 1.0148 times in FY 2012-13. From 2014 to 2016 current ratio is
decreasing continuously.
• Current assets were decreased continuously as compared to current liabilities. In the
year 2015-16 current assets were increased as compared to previous year.
INTERPRETATION
• Current ratio is a useful test of the short-term-debt paying ability of any business. The
ideal ratio is 2:1 i.e. investors look for a company with a current ratio of 2:1, meaning
current assets twice as large as current liabilities.

• The company has ratio more than 1 but less than 2, in first two years which is a good
sign indicating that it doesn’t have idle assets nor difficulty meeting current obligations,
it has adequate current assets to settle its current liabilities

• From 2014 current ratio is decreasing which is less than 1 which shows company’s bad
liquidity position. The company should improve its liquidity position by increasing
current assets or by decreasing its current liability.
• In the above graph we can see that the trend is gradually declining, then a company is
probably losing its ability to pay off its liabilities.
• A company with high current ratio may not always be able to pay its current liabilities
as they become due if a large portion of its current assets consists of slow moving or
obsolete inventories. On the other hand, a company with low current ratio may be able
to pay its current obligations as they become due if a large portion of its current assets
consists of highly liquid assets i.e., cash, bank balance, marketable securities and fast-
moving inventories.
• In other words, for every ₹1 of current liability, the company has ₹1.0909, ₹1.0148
₹0.7782 ₹0.7959 and ₹0.9256 of current assets in FY 2013-14, FY 2014-15 and FY
2012-16 respectively available to pay for it.
 TABLE 2.5.2
Analysis of quick ratio for Five years (2012-2016)

Year Quick Assets Current liabilities Ratio

2012 50600.1 66,338.61 0.7628

2013 60773.88 78,144.10 0.7777

2014 44605.89 86,326.62 0.5167

2015 43749.26 86,658.98 0.5048

2016 48165.68 83,654.23 0.5758

QUICK RATIO
1.0000
0.7628 0.7777
0.8000
0.5758
0.6000 0.5167 0.5048

0.4000

0.2000

0.0000
2012 2013 2014 2015 2016
YEARS

42
 Graph 2.5.2: Analysis of quick ratio for Five years (2012-2016)
ANALYSIS

• The computation and graph hold the Quick ratio (short-term liquidity) of the company
for the past 5 years i.e. FY 2012-2016.
• For all the five financial years, the company’s quick assets are comparatively lower than
Current Liabilities.
• The quick assets are 0.7628 times lower than Current Liabilities in FY 2011-12, which
has increased to 0.7777 times in FY 2012-13 and then it is continuously decreased in all
the next years.
• In last 3 years almost current liabilities were doubled as compare to its current assets.

INTERPRETATION
• Quick ratio measures the ability to use its quick assets (cash and cash equivalents,
marketable securities and accounts receivable) to pay its current liabilities. Ideal quick
ratio is 1:1.
• A quick ratio lower than 1:1 does not necessarily mean the company is going into default
or bankruptcy, it could mean that the company is relying heavily on inventory or other
assets to pay its short-term liabilities i.e. the company cannot currently fully pay back
its current liabilities.
• In 2014, 2015 & 2016 the ratio is below the optimal level, this is due to the reduction in
the cash and bank balance and current investments.

• One of the quickest ways to improve the quick ratio would be to pay off the current bills
and at the same time increase sales so that the cash on hand or Account Receivable
increases. As the quick ratio is similar to the current ratio but does not include stock in
current assets, it can be improved by similar actions that increase the current ratio.
• A quick ratio lower than 1:1 may indicate that the company relies too much on inventory
or other assets to pay its short-term liabilities.

43
 TABLE 2.5.3
Analysis of absolute ratio for Five years (2012-2016)

Cash + Marketable
Year Securities Current liabilities Ratio

2012 30980.54 66,338.61 0.4670

2013 43877.80 78,144.10 0.5615

2014 28695.38 86,326.62 0.3324

2015 26145.00 86,658.98 0.3017

2016 28830.45 83,654.23 0.3446

ABSOLUTE LIQUID RATIO

0.5615
0.6000
0.4670
0.5000
0.4000
0.3324 0.3446
0.3000 0.3017
0.2000
0.1000
0.0000

2012 2013 2014 2015 2016

YEARS

44
 Graph 2.5.3: Analysis of absolute liquid ratio for Five years (2012-2016)
ANALYSIS

• The computation and graph hold the Absolute Liquid ratio of the company for the past
5 years i.e. FY 2012-2016.
• For the first two financial years, the company’s Absolute Liquid assets are almost 50%
of its Current Liabilities.
• The Absolute Liquid assets are 0.4670 times lower than Current Liabilities in FY
201112, which has increased to 0.5615 times in FY 2012-13 and has decreased to 0.3324
times in FY 2013-14. In FY 2014-15 and 2015-16 the ratio is 0.3017 and 0.3446 times
respectively.

INTERPRETATION

• Absolute liquidity ratio lays down very strict and exacting standard of liquidity. The
most favourable and optimum value for this ratio should be 1: 2. It indicates the
adequacy of the 50% worth absolute liquid assets to pay the 100% worth current
liabilities in for satisfactory liquid position of a business time.
• As the ratio for the first 2 years is above 50% indicating that there are enough funds in
the form of cash to meet its short-term obligations in time and the company’s dayto-day
cash management is not in a poor light.
• In the last three years company’s cash and bank balances decreasing because of this the
above graph shows decreasing trend.

• The above graph shows company’s cash ratio which is decreasing in the last three years
which shows the company does not holding cash and bank balances appropriately. The
company should improve its cash and bank balances as soon as possible.

45
 •

2.6 ANALYSIS AND INTERPRETATION OF SOLVENCY RATIO TABLE2.6.1

Analysis of debt-equity ratio for Five years (2012-2016)
year Debt Equity Ratio

2012 76.17 43,538.89 0.0017

2013 84.42 48,959.14 0.0017

0.0012
2014 74.65 59,987.86

2015 154.35 77,031.55 0.0020

2016 168.96 1,01,947.07 0.0017

Debt Equity Ratio

0.0025
0.0020
0.0020 0.0017 0.0017 0.0017

0.0015 0.0012

0.0010

0.0005

0.0000

2012 2013 2014 2015 2016

Years

Graph 2.6.1: Analysis of debt-equity ratio for Five years (2012-

2016)
The Debt-Equity ratio of the company for the past five years i.e. FY 2012-2016.
For all the financial years, the company’s Debt-Equity Ratio stands less than one.
The Debt-Equity Ratio is 0.0017:1 in FY 2011-12 and 2012-13. In FY 2013-14, which has
decreased to 0.0012:1. In FY 2014-15 and has increased to 0.0020:1 in FY 201516 again it has
decreased to 0.0017.

46
INTERPRETATION

• Debt Equity ratio is a leverage ratio and indicates the company’s obligations to lenders
in relation to funds invested by the owners. Ideal ratio is 2:1.

• The Debt-Equity Ratio is 0.0017:1 in FY 2011-12 and 2012-13. In FY 2013-14, which

has decreased to 0.0012:1. In FY 2014-15 and has increased to 0.0020:1 in FY 2015-
16 again it has decreased to 0.0017. It would suggest that the company is not fully utilizing
the cheaper source of finance (i.e. debt).

• As the debt-equity ratio shows a result of less than one, then it means that equity is
mainly used to finance operations. Colgate Palmolive’s average long-term debt equity
ratio over the 5 financial years has been 0.0- times which indicates that the Company
operates with close to zero debt and is placed well to withstand economic slowdowns.

• Measuring debt-to-equity ratio of companies provides them a measure of the financial

risk associated with their investment or lending which influences their required rate of
return and their decisions to investment or disinvest.

• As the lower values of debt-to-equity ratio of the company indicating favourable & less
risk. Higher debt-to-equity ratio is unfavourable because it means that the business relies
more on external lenders thus it is at higher risk, especially at higher interest rates.
A lower debt to equity ratio usually implies a more financially stable business.

• The company has lower debt equity ratio it is good sign to the company & less risk.
Which shows less risk means low returns to the company?

47
 Analysis of Proprietary ratio for Five years (2012-2016)

Year Proprietary Funds Total Assets Ratio

2012 43,538.89 1,04,748.38 0.4157

2013 48,959.14 1,17,565.66 0.4164

2014 59,987.86 1,36,921.46 0.4381

2015 77,031.55 1,61,248.25 0.4777

2016 1,01,947.07 1,86,083.15 0.5479

Proprietary Ratio
0.6000 0.5479
0.4777
0.5000 0.4157 0.4164 0.4381
0.4000
0.3000
0.2000
0.1000
0.0000
2012 2013 2014 2015 2016
Years

Graph 2.6.2: Analysis of Proprietary ratio for Five years (2012-2016)

48
INTERPRETATION
• The proprietary ratio (also known as the equity ratio) is the proportion of shareholders'
equity to total assets, and as such provides a rough estimate of the amount of
capitalization currently used to support a business.
• As the ratio for all the first four years is not even 0.5 i.e. a low ratio indicates that
company may be making use of too much debt or trade payables, rather than equity, to
support operations (which may place the company at risk of bankruptcy).
• The ratio had improved a little in FY 2015-16 as the increase in proprietary funds is
more than increase in total assets. Proprietary ratio highlights the financial position of
the company and therefore
• The ideal value of the proprietary ratio of the company depends on the risk appetite of
the investors. If the investors agree to take a large amount of risk, then a lower
proprietary ratio is preferred. This is because, more debt means more leverage means
profits and losses both will be magnified. The result will be highly uncertain payoffs for
the investors.
• The firm has to undertake many risks and balance them out. There are market risks
which are external to the firm and there are capital structure risks that are internal to the
firm. If the external risks are high, the firm must not undertake aggressive financing
because this could lead to a complete washout of the firm. On the other hand, if the
external environment is stable, the firm can afford to take more risks.
• As the company is below its standard ratio it is unfavourable to the company. As the
company has lower proprietary ratio would imply that company is not in a position to
pay all of its creditors and therefore a low proprietary ratio is a cause of concern for the
creditors of the company.

49
 Chapter 5
Conclusion & Suggestion

50
3.1 FINDINGS

1. The current Ratio of the company below than 1 which means the company is
maintaining working capital position lower. Current assets of the company is not
increasing proportionately as compared to current liabilities. Current liabilities of the
company is are more than current assets in the last 3 years.
2. The firm has also been successful in maintaining the cash limit as there was a drop
because it had paid its debts that’s the reason we can see the dip in the trend also after
that the company has able to achieve good progress and though there are few hurdles in
that financial aspect the company is making progress.
3. The cash flow coverage also considered as one of the major ratio which indicates that
the company is efficient enough and this would keep the creditors more aware that the
company has the power to pay back the debts. Maintaining cash balances in all the
financial years will lead to win the creditors confidence to pay back them and also helps
in meeting the day to day expenses.
4. The sales of the company has also improved and they are making progress, which is
also a good sign. The company is increasing sales its profits also increasing. By
increasing sales it will leads to increase the profits of the company which helps to
increase the earnings of the shareholders. In the last year the company’s EPS is
decreased due to issue of shares.

5. The firm has also had difficulty in managing working capital and as its current liabilities.
It is because the current liabilities of the company is increasing more than its current
assets. Cash balances of the company in previous two years is decreased and increased
in short term borrowings.
6. Quick ratio has decreased in all the financial years except one year but the ratio is less
than 1 indicating the company is relying heavily on inventories or other assets to pay
off its liabilities.
7. Absolute liquid ratio for all the years is below its optimal level except one year. It shows
there is no cash to meet its current obligations. In case of emergency, the company’s
stability will be at a stake.

51
8. The fixed asset of the company also are generating more revenue for the firm, the added
advantage also that the company has improved the returns concerned with the
shareholders capital.

9. Debt equity ratio for all the years is far below than its optimal level. It shows the
company is not using the external debt being the cheap source of finance. The company
gave more preference its own capital i.e. equity share capital.

10. Proprietary ratio shows relationship between shareholders fund and total assets. As the
ratio for all the years is not even 0.5 i.e. a low ratio indicates that company may be
making use of too much debt or trade payables, rather than equity, to support operations.
3.2 SUGGESTIONS:

• The overall analysis of the financial performance of Colgate Palmolive India LTD is
satisfactory.
• The overall efficiency of the business has been improving in most of the area but there
are few areas which needs correction the management can invest in research and
development as it is a FMCG sector the company can come up with superior toothpastes
which could be used by all the people at an economical price.
• The Company should take various actions with regarding to the liquidity of thecompany
as the current ratio is not stable.
• There are other various issues which are to be considered by the company like debtors
turnover ratio which is very important for the company.
• As higher expenses will affect the earnings of the company. It is suggested that the
company has to reduce its cost expenses such as the employee cost, finance cost,
depreciation and amortisation expenses, and other expenses by taking necessary steps.
• The revenue of the company is majorly from the sale of its products. So, the company
has to maximize its sales to earn more revenue. Sales can be maximized by improving
market strategy, improving quality control, focusing on the customer needs etc.
• The company should try to minimise its current liability and increase its current assets
to maintain its working capital position. The company has to improve its liquidity
position by maintaining sufficient funds to pay its short-term debts.
• The company has to improve its absolute liquid assets by increasing its cash and cash
equivalents which is required to meet its immediate short-term debts.
• Since the inventories are moving fast and the operations are efficient, the company has
to maintain the same inventory turnover in future as well as it shows that the company
can effectively sell the inventory it buys.
• The company has to improve its capital turnover ratio to achieve maximum sales with
minimum amount of capital employed by using its capital resources efficiently.
.1CONCLUSION

• As COLGATE PALMOLIVE INDIA LTD. is an FMCG industry it is very important to

consider the changes in the economy as this would lead to various factors which influences
the business. Considering the long-term aspects of the business, the company has to
improve its financial position in order to sustain in the market. The company has to make
effective and optimum utilization of the resources. The management must make sure that
they maintain a good amount of balance between debt and equity considering the
profitability of the organisation.

• The overall analysis reveals the improving performance of COLGATE PALMOLIVE

INDIA LTD. year on year basis. The company has efficiently managed to keep the
profitability moving ahead despite of unfavorable condition. It has a satisfactory fixed asset
and working capital is effectively utilized for increase in sales. Also, it has good rate of
returns on investments made by the shareholders of the company, and is satisfactory.

• On overall basis COLGATE PALMOLIVE INDIA LTD. Company have a good future
prospects and investors are likely to consider that company has good investment avenues.
The overall data of COLGATE PALMOLIVE INDIA LTD, is satisfactory. They haven't
incurred loss from past five years.

• From the ratio analysis, we can conclude that the overall the profitability and financial
position of the company is satisfactory and it is striving to sustain in the current competitive
market condition.

• Keeping the above suggestion in mind COLGATE PALMOLIVE INDIA LTD Company
can improve their performance in future and the booming of FMCG sector will help the
growth of
COLGATE PALMOLIVE INDIA LTD.
BIBLIOGRAPHY
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