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Larsen and toubro

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  • 1. PRESENTED BY : • ROHITVERMA 111268 • SHUBHI JAIN 111338 • SHUBHAM DWIVEDEE 111339 • ANKIT SAHA 111340 1
  • 2. 2
  • 3. 3 Larsen & Toubro Limited (L&T) is amongst one of the India’s largest technology, engineering construction and manufacturing conglomerate. • L&T is considered to be the "bellwether of India's engineering sector“, and was recognized as the company of the year in 2010. • L&T’s business structure has a dominant presence in India's infrastructure, power, hydrocarbon, machinery, shipbuilding and railway sectors. • L&T has an international presence.The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support. • With more than a seven decades of dedicated customer-focused service and continuous quest for world class quality have established them as the leader of the E&C sector in India.
  • 4. 4 The evolution of L&T into the country's largest engineering and construction organization is among the most remarkable success stories in Indian industry. • L&T was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro. Both of them were strongly committed to developing India's engineering capabilities to meet the demands of industry. • In the year 1950, L&T became a Public Company with a paid-up capital of Rs.2 million and a sales turnover of Rs.10.9 million that year. And now, In 2012 the company generated a total revenue of US $13.5 billion.
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  • 8. 8 RATIO ANALYSIS LIQUIDITY RATIOS LEVERAGE RATIOS TURNOVER RATIOS PROFITABILITY RATIOS VALUATION RATIOS
  • 9. Current Ratio Quick Ratio Can they meet their current obligations?? 9
  • 10. 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2006 2007 2008 2009 2010 2011 CR CR It is a measure of the firm’s short term solvency i.e., it indicates the availability of current assets in rupees for every one rupee of current liability. It represents a margin of safety for the creditors of the firm. CR (times) YEAR 1.10 2006 1.03 2007 0.92 2008 1.18 2009 1.02 2010 1.02 2011 10
  • 11. 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 2006 2007 2008 2009 2010 2011 QR QR Quick Ratio a.k.a. Acid-Test Ratio establishes relationship between quick assets and current liabilities,where quick assets refer to those assets which can be converted into cash immediately or reasonably soon without loss of value. QR (times) YEAR 0.79 2006 0.71 2007 0.61 2008 0.86 2009 0.69 2010 0.60 2011 11
  • 12. 12 Liquidity refers to the readiness of assets to be converted to cash.They give a general idea of the firm's ability to pay its short-term debts. Ideally the current ratio should be greater than 1.5.Though there can be exceptions, some good companies can have less than 1 or even a negative current ratio when they receive money faster from their customers than they have to pay to their vendors. So, we can say that L&T will not be able to meet its current obligations as long as they do not use their inventories efficiently as its inventories form a large part of their current assets. ANALYSIS: (LIQUDITY RATIOS)
  • 13. Financial Leverage Ratios • Debt Ratio • Debt-Equity Ratio • Debt-Asset Ratio Coverage Ratios • Interest Coverage Ratio 13 What debt- equity mix do they prefer ??
  • 14. DR (times) YEAR 15.88 2006 17.91 2007 22.63 2008 25.67 2009 23.53 2010 19.33 2011 1414 0.00 5.00 10.00 15.00 20.00 25.00 30.00 2006 2007 2008 2009 2010 2011 DR DR It tells us about the proportion of the interest-bearing debt in the capital structure of the firm.Total debt will include short & long-term borrowings from financial institutions, debentures/bonds, deferred payment arrangements , bank borrowings, public deposits, etc. DEBT RATIO
  • 15. DER (times) YEAR 0.32 2006 0.36 2007 0.38 2008 0.53 2009 0.37 2010 0.33 2011 1515 0.00 0.10 0.20 0.30 0.40 0.50 0.60 2006 2007 2008 2009 2010 2011 DER DER This ratio describes the lender’s contribution for each rupee of the owner’s contribution. DEBT-EQUITY RATIO
  • 16. DAR (times) YEAR 10.83 2006 11.79 2007 13.06 2008 17.40 2009 14.06 2010 12.05 2011 16 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 2006 2007 2008 2009 2010 2011 DAR DAR DEBT-ASSET RATIO It measures the extent to which borrowed funds i.e., debt support the firm’s assets. It indicates the proportion of debt invested in getting assets for the firm.
  • 17. 17 ANALYSIS: (FINANCIAL LEVERAGES) Financial leverage indicates the reliability of a business on its debts in order to operate. Lower value of debt ratio is favorable and a higher value indicates that higher portion of company's assets are claimed by it creditors which means higher risk in operation. In case debt ratio is less than 0.5.This indicates that company’s assets are financed through equity and less of debt, lower values of debt-to-equity ratio are favorable indicating less risk.Thus, the company is less riskier. L&T has low proportion of debt in its capital structure and thus the assets supported by them and cost of debt against a rupee of equity show a similar trend.
  • 18. ICR (times) YEAR 12.47 2006 24.29 2007 28.63 2008 12.94 2009 13.47 2010 10.90 2011 18 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 2006 2007 2008 2009 2010 2011 ICR ICR INTEREST COVERAGE RATIO ICR a.k.a. times-interest-earned is used to test the firm’s debt servicing capacity. It shows the number of times the interest charges are covered by funds that are ordinarily available for their payment.
  • 19. 19 ANALYSIS: (COVERAGE RATIOS) The higher the coverage ratios the less a company is burdened by debt. If a company has no debt or the loan interest is being paid by interest income from investments or other activities the ratio is zero which of course is excellent. A negative ratio tells us that the company cannot even pay its interest on loans from its operating income, stay far away from such companies. In case of L&T the ratios are comparatively moderate.
  • 20. Inventory Turnover Ratio Debtors Turnover Ratio Average Collection Period Asset Turnover Ratios • Days of Inventory Holding • Total Assets Turnover Ratio 20 What do the turnovers depict??
  • 21. ITR (times) YEAR 6.80 2006 5.99 2007 5.88 2008 5.92 2009 4.84 2010 3.54 2011 21 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2006 2007 2008 2009 2010 2011 ITR ITR INVENTORY TURNOVER RATIO It indicates the efficiency of the firm in producing and selling its product. It shows how rapidly the inventory is turning into receivables through sales.
  • 22. DIH (days) YEAR 53 2006 60 2007 61 2008 61 2009 74 2010 102 2011 22 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 2006 2007 2008 2009 2010 2011 DIH DIH Days of Inventory Holding It gives us an idea of the stock management of the company.
  • 23. DTR (times) YEAR 2.98 2006 2.61 2007 1.96 2008 1.11 2009 1.05 2010 0.93 2011 23 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 2006 2007 2008 2009 2010 2011 DTR DTR DEBTORS TURNOVER RATIO The debtors turnover ratio is the is the relationship between net sales and average debtors. It is also called account receivable turnover ratio because we debtor and bill receivables' total is used for calculation.
  • 24. ACP (months) YEAR 4.02 2006 4.59 2007 6.11 2008 10.84 2009 11.38 2010 12.91 2011 24 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2006 2007 2008 2009 2010 2011 ACP ACP AVERAGE COLLECTION PERIOD The average collection period is the ratio of the number of days in a period and the inventory turnover ratio.
  • 25. ATR (times) YEAR 1.12 2006 0.85 2007 0.55 2008 0.40 2009 0.31 2010 0.25 2011 25 0.00 0.20 0.40 0.60 0.80 1.00 1.20 2006 2007 2008 2009 2010 2011 ATR ATR ASSET TURNOVER RATIO The asset turnover ratio is the measure of the ability of a company or a firm to use its assets efficiently in order to generate sales.
  • 26. 26 ANALYSIS: (TURNOVER RATIOS) A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. From the year 2006 to 2008 the ratio is high but for the latter part the ratio is low. Debtors turnover indicates the velocity of debt collection of a firm. Lower debtor turnover ratio is bad because it means, slowly, money is being collected and liquidity position will become weak. Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Thus, the company has high profit margins.
  • 27. • Gross Profit Margin Ratio • Net Profit Margin Ratio • Expenses Ratio Profit Margin Ratios • Return on Investment • Return on Equity • Earnings per Share • Dividend per Share • Dividend-Payout Ratio Rate of Return Ratios • Operating Expenses Ratio 27 How are the profits shaping up?
  • 28. GPM (%) YEAR 9.20 2006 11.15 2007 12.56 2008 13.56 2009 15.76 2010 13.13 2011 28 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 2006 2007 2008 2009 2010 2011 GPM GPM GROSS PROFIT MARGIN RATIO The gross profit margin reflects the efficiency with which management produces each unit of product. It implies how cost efficiently a firm can produce its goods.
  • 29. NPM (%) YEAR 6.73 2006 7.80 2007 8.59 2008 10.13 2009 11.70 2010 8.93 2011 29 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2006 2007 2008 2009 2010 2011 NPM NPM NET PROFIT MARGIN RATIO It establishes a relationship between net profit and sales and indicates the firms efficiency in manufacturing, administering and selling its products.
  • 30. OER (%) YEAR 90.44 2006 89.98 2007 91.21 2008 87.88 2009 85.57 2010 87.70 2011 30 82.00 83.00 84.00 85.00 86.00 87.00 88.00 89.00 90.00 91.00 92.00 2006 2007 2008 2009 2010 2011 OER OER OPERATING EXPENSES RATIO It indicates the operating expenses incurred by the company in its production and working.
  • 31. 31 ANALYSIS: (PROFIT MARGIN RATIOS) Since the profitability ratios are high, it indicates that the company has an efficient management. It also indicates that the cost of goods sold remains constant and there is an increase in the proportionate volume of higher margin items. The company has increasing profits till the year 2010 after which there is a slight depreciation which can be a result of the global economic slowdown.
  • 32. 32 ROI ROTA RONA Return on Investment
  • 33. ROTA (%) YEAR 7.54 2006 7.95 2007 7.92 2008 9.24 2009 9.04 2010 6.66 2011 33 0.00 2.00 4.00 6.00 8.00 10.00 2006 2007 2008 2009 2010 2011 ROTA ROTA Return on Total Assets ROTA tells us about the how effectively the investment in the firm i.e., pool of funds supplied by shareholders and lenders is being used in terms of total assets.
  • 34. RONA (%) YEAR 76.73 2006 79.97 2007 74.53 2008 84.62 2009 79.67 2010 59.56 2011 34 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 2006 2007 2008 2009 2010 2011 RONA RONA Return on Net Assets RONA tells us about the how effectively the investment in the firm i.e., pool of funds supplied by shareholders and lenders is being used in terms of net assets.
  • 35. ROE (%) YEAR 22.04 2006 24.47 2007 22.81 2008 28.00 2009 23.92 2010 18.13 2011 35 0.00 5.00 10.00 15.00 20.00 25.00 30.00 2006 2007 2008 2009 2010 2011 ROE ROE Return on Equity ROE indicates how well the firm has used the resources of owners. It is calculated to see the profitability of owner’s investment in the firm.
  • 36. 36 ANALYSIS: (ROTA, RONA, ROE) ROTA-Higher values of return on assets show that business is more profitable. RONA- . An improving trend in this ratio indicates that the institution is increasing its net assets and is likely to be able to set aside financial resources to strengthen its future financial flexibility. ROE-Higher values are generally favorable meaning that the company is efficient in generating income on new investment.The company follows a favorable outcome as values are generally increasing till 2010. Overall, the company’s return on investment and equity is considerably good till the year 2009.After that the company’s position deteriorates to a little extent.
  • 37. EPS (Rs.) YEAR 7.36 2006 4.95 2007 7.43 2008 5.94 2009 7.27 2010 6.50 2011 37 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2006 2007 2008 2009 2010 2011 EPS EPS Earnings Per Share This is the amount of income that the common stockholders are entitled to receive (per share of stock owned). This income may be paid out in the form of dividends, retained and reinvested by the company, or a combination of both.
  • 38. DPS (Rs.) YEAR 1.17 2006 0.66 2007 0.63 2008 0.57 2009 0.64 2010 0.65 2011 38 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2006 2007 2008 2009 2010 2011 DPS DPS Dividend Per Share Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.
  • 39. DPR YEAR 0.16 2006 0.13 2007 0.09 2008 0.10 2009 0.09 2010 0.19 2011 39 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20 2006 2007 2008 2009 2010 2011 DPR DPR Dividend-Payout Ratio The percentage of earnings paid to shareholders in dividends.
  • 40. 40 ANALYSIS: (EPS, DPS, D/P) Having a growing in the dividend per share can be a sign that the company's management believes that the growth can be sustained. More mature companies tend to have a higher payout ratio. A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors.Thus, the company is stable.
  • 41. Price-Earnings Ratio Is the value of shares rising? 41
  • 42. 0.00 1.00 2.00 3.00 4.00 5.00 6.00 2006 2007 2008 2009 2010 2011 PER PER PER (times) YEAR 4.54 2006 4.09 2007 4.39 2008 3.57 2009 4.18 2010 5.51 2011 42 The P/E ratio reflects the price currently being paid by the market for each rupee of currently reported EPS. It is widely used by the security analysts to analyze the firm’s performance as expected by the investors.
  • 43. 43 ANALYSIS: (VALUATION RATIOS) Valuation ratio measures different ways of looking at the relative value of a company's stock. A high P/E ratio may signify that the company is overvalued, which means that eventually market forces will drive the price down. On the other hand, a high P/E could indicate great earning power and the possibility that profitability will increase over time, justifying the higher price.Thus, the company has high earning power.
  • 44. 44
  • 45. 45 The analysis of a company's financial statements by comparing current data with that of a previous year, or base year. Base-year analysis allows for comparison between current performance and historical performance.
  • 46. YEAR 2006 2007 2008 2009 2010 2011 Net Fixed Assets 100 132.99 221.18 312.05 416.51 503.94 Investments 100 153.20 344.64 376.06 754.16 808.48 Deferred Tax Assets 100 124.28 138.07 291.82 235.96 216.04 Current Assets 100 125.74 164.96 273.45 298.86 388.06 Loans & Advances 100 126.23 204.78 169.19 165.90 272.39 Total Assets 100 131.35 204.38 280.70 360.38 442.89 46
  • 47. 47 YEAR 2006 2007 2008 2009 2010 2011 Net Worth 100 124.88 207.59 270.98 398.54 475.59 Borrowings 100 142.94 246.56 451.03 467.87 492.66 Current Liabilities & Provisions 100 134.56 197.35 256.02 321.25 419.86 Deferred Tax Liability 100 97.66 116.46 207.43 185.55 262.04 Total Liabilities 100 131.35 204.38 280.70 360.38 442.89
  • 48. 48 YEAR 2006 2007 2008 2009 2010 2011 Sales 100 118.54 166.33 232.65 252.95 293.39 EBDITA 100 138.76 215.74 330.43 418.04 433.48 EBDTA 100 144.65 226.36 331.48 420.74 428.03 EBT 100 144.92 229.95 336.89 426.13 420.56 PAT 100 138.62 214.84 344.17 432.50 391.19 EPS 100 67.26 101.01 80.77 98.71 88.31
  • 49. 49 FINDINGS: Index analysis of a company's financial statements is important to be able to determine whether a company is growing or shrinking. The positive inter-annual trends in the income statement components, both income and expense, have lifted the company's profit margins. In the case of L&T, it experienced a major increase in sales for the period reviewed and was also able to control the expense side of its business. That's a sign of a very efficient management.
  • 50. 50
  • 51. 51 Financial statement analysis displays all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company.
  • 52. YEAR 2006 2007 2008 2009 2010 2011 Net Fixed Assets 9.82 9.94 10.63 10.91 11.35 11.17 Investments 15.10 17.62 25.47 20.23 31.61 27.57 Deferred Tax Assets 0.98 0.93 0.66 1.02 0.64 0.48 Current Assets 58.36 55.86 47.10 56.85 48.39 51.13 Loans & Advances 13.42 12.90 13.45 8.09 6.18 8.25 Total Assets 100 100 100 100 100 100 52
  • 53. 53 YEAR 2006 2007 2008 2009 2010 2011 Net Worth 34.19 32.50 34.73 33.00 37.81 36.71 Borrowings 10.83 11.79 13.06 17.40 14.06 12.05 Current Liabilities & Provisions 53.04 54.33 51.21 48.37 47.28 50.28 Deferred Tax Liability 1.56 1.16 0.89 1.15 0.80 0.92 Total Liabilities 100 100 100 100 100 100
  • 54. 54 YEAR 2006 2007 2008 2009 2010 2011 Sales 100 100 100 100 100 100 EBDITA 10.39 12.16 13.48 14.75 17.17 15.35 EBDTA 9.55 11.66 13.01 13.61 15.89 13.94 EBT 8.82 10.79 12.21 12.78 14.87 12.65 PAT 6.46 7.55 8.34 9.55 11.04 8.61 EPS 0.05 0.03 0.03 0.02 0.02 0.01
  • 55. 55 FINDINGS: Formatting financial statements in this way reduces the bias that can occur when analyzing companies of differing sizes. It also allows for the analysis of a company over various time periods, revealing, for example, what percentage of sales is cost of goods sold and how that value has changed over time. In this case, the sales had been considerably good till 2010 and then from the year 2010 to 2011 the income or the earnings of the company decreased.
  • 56. 56
  • 57. 57 • L&T has successfully outperformed its rival companies (HCC, NCC, Punj Lloyd) due to superior product performance. • An awesome brand image, being India’s largest E&C company. • L&T has great infrastructure spending plans that build a strong business prospect. • Lower response time with effective and efficient service that ensures a high degree of customer satisfaction. • L&T has a dedicated workforce of over 45000 employees, aiming at making a long-term career in the company.
  • 58. 58 • In spite of L&T’s global presence, it is not very popular in the international market. • The customer service staff still needs training specially in the delivery and help desk areas, that threaten inviting new clients. • Sectoral growth is constrained due to low unemployment levels and competition for staff. • There are some gaps in range for certain sectors like global delivery management, processes and systems, that somehow have management issues.
  • 59. 59 • Demand of its services in Middle East, Europe and South-East Asia. • L&T is good at converting adversities into opportunities and continue it’s march of progress . • The end-users respond positively to new ideas, so there exists a great possibility that L&T could extend to overseas broadly. • Mainframe management capabilities will give opportunity to L&T-Ites to go for large infrastructure deals and hosting biz.
  • 60. 60 • Legislation could make an impact over L&T’s business proceedings. • In spite of being among the most dominant conglomerate in the country, L&T may be vulnerable to reactive attack by its major competitors. • Lack of infrastructure in rural areas could constrain investment. • The high volume/low cost market is intensely competitive.
  • 61. 61 Overall, the company is in a fairly good position till the year 2010.Although 2010 to 2011 period saw a downfall in the performance but this can be due to global economic slowdown. The company’s profit ratios indicate that is has high profit margins and thus it is safe to invest in this company. Other analysis techniques also reveal that sales of the company have been considerably good. Thus, the company is worth of the appreciation it has received.
  • 62. 62
  • 63. 63 • Wikipedia • www.larsentoubro.com • www.moneycontrol.com • www.cnbc.com • Financial Management by I M Pandey
  • 64. so much for bearing us for the past 20 minutes.. 64