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1 20 and 25-31

  1. 1. Introduction • Larsen & Toubro Limited, also known as L&T, is an Indian multinational conglomerate headquartered in Mumbai, India.[2] The company has business interests in engineering, construction, manufacturing goods, information technology and financial services. • Larsen & Toubro Limited is India's largest engineering and construction conglomerate with constant quest for top-class quality have enabled the Company to attain and sustain leadership position for over six decades. • L&T has pioneered spectacular achievements in Indian industry. Many of the engineering projects executed by L&T have set new benchmarks in terms of scale, sophistication and speed. So do many buildings, highways, bridges and civil structures around the country which are widely regarded as landmarks. In line with its policy of aligning capabilities to meet emerging trends, L&T initiated a mega- transformation process internally. This will ensure that the Company rapidly emerges as a knowledge-based, premium conglomerate with a global reach. • Larsen & Toubro Infotech Limited (L&T Infotech), a 100 subsidiary of the US 3.5 billion Forbes Global 2000 technology-driven engineering and construction major, Larsen & Toubro Limited, offers comprehensive, end-to-end software solutions and services. Leveraging the heritage and domain expertise of the parent company, its services encompass a broad technology spectrum, catering to leading international companies across the globe. [Type text] Page 1
  2. 2. Aims • Larsen & Toubro (L&T), which has teamed with four major global nuclear power (NP) equipment vendors, aims to earn annual revenue of Rs 4,000-6,000 crore from the business once India’s ambitious 60,000 Mw nuclear capacity addition plan is launched within the next 12-18 months. • The company plans to become a major exporter of NP equipment, including forgings and reactors, while emerging as one of the most integrated makers in the business, K V Kotwal, whole-time director and senior executive vice president, heavy engineering, L&T, told Business Standard. • “This 60,000-Mw capacity addition plan spans till 2032 and we expect to earn an average Rs 4,000-6,000 crore every year from the nuclear business. We expect the government to start placing orders with vendors in the next 12-18 months,” he said. • Over six months, L&T signed co-operation agreements with four of the five major advanced reactor makers — GE Hitachi of the US; Atomstroyexport (ASE), part of Rosatom of Russia; Toshiba Westinghouse of the US and Atomic Energy of Canada (AEC). L&T will undertake construction of nuclear power plants, including supply of reactor equipment and systems, valves, electrical and instrumentation products. • L&T has experience in equipment manufacture, construction, project maintenance and other support services for indigenously developed pressurised water reactor (PWR) programmes in India, starting with the Tarapur reactor in 1974. It also has a major role in construction, piping and erection services for the first two Russian technology nuclear reactors coming up at Kudankulam in Tamil Nadu. • Kotwal said the company had asked the government to give domestic companies such as L&T more role in the civil nuclear programme. Its nuclear equipment forging shop coming up at Hazira in Gujarat at an investment of Rs 1,500 crore will be ready by 2011, he said. • “At Hazira, we will be able to manufacture 200-250 tonne big forgings initially and our ultimate aim is to make full nuclear reactors and emerge as a global player,” he said. • India’s plans are to add 8x700 Mw pressurised heavy water reactors (PHWR), 3x500 fast breeder reactors, 1x300 Mw advanced heavy water (thorium) and 10x1,000 Mw light water reactors. Vendors such as GE Hitachi, Toshiba Westighouse, Areva and Rostam will provide [Type text] Page 2
  3. 3. light water reactors of 1,000 Mw and above, which will come up in four to six nuclear parks, with six to eight reactors in a single location, with each having the same technology. • L&T also announced that it had bagged a repeat order for design, manufacture and supply of four steam generators for 700 MWe PHWRs for the 7th and 8th units of the Rajasthan Atomic Power Plant from the Nuclear Power Corporation of India Ltd. These will be the largest steam generators built in India so far, said L&T. • The company also won a ‘technology development’ order from the Department of Atomic Energy for welded grid plate for the core assembly of a fast breeder reactor, which is part of India’s next stage NP programme. With this, L&T’s NP equipment business unit has won orders worth Rs 405 crore over the past week, said a company statement. [Type text] Page 3
  4. 4. Horizontal Analysis Profit and Loss Account Year End Mar-12 Mar-11 Comparative Absolute % Gross Sales 53737.78 44296.11 9441.67 21.3149 Less: Excise 567.26 390.24 177.02 45.36183 Net Sales 53170.52 43905.87 9264.65 21.10 Other Income 1377.77 1253.57 124.20 9.91 Total Income 54548.29 45159.44 9388.85 20.79045 EXPENDITURE : Increase/Decrease in Stock -523.50 -524.04 0.54 -0.10 Raw Materials Consumed 24988.94 20089.98 4898.96 24.39 Power & Fuel Cost 687.89 457.63 230.26 50.31576 Employee Cost 3663.45 2830.08 833.37 29.45 Other Manufacturing Expenses 14031.71 11976.53 2055.18 17.16 General and Administration Expenses 2733.21 2237.24 495.97 22.17 Selling and Distribution Expenses 181.50 216.35 -34.85 -16.1082 Miscellaneous Expenses 1062.99 988.51 74.48 7.53 Less: Pre-operative Expenses Capitalised 0.00 0.00 Total Expenditure 46826.19 38272.28 8553.91 22.35 PBIDT (Excl OI) 6344.33 5633.59 710.74 12.62 Operating Profit 7722.10 6887.16 834.94 12.12 Interest 767.31 719.38 47.93 6.662682 PBDT 6954.79 6167.78 787.01 12.76002 Depreciation 699.46 599.22 100.24 16.72841 Profit Before Taxation & Exceptional Items 6255.33 5568.56 686.77 12.33299 Exceptional Income / Expenses 55.00 332.91 -277.91 -83.479 Profit Before Tax 6310.33 5901.47 408.86 6.928104 Provision for Tax 1853.83 1943.58 -89.75 -4.61777 PAT 4456.50 3957.89 498.61 12.60 Extra items 0.00 0.00 Appropriations 4562.18 4065.18 497.00 12.23 Dividend(%) 825.00 725.00 100.00 13.79 EPS 72.77 65.01 7.76 11.94 Book Value 404.24 352.27 51.97 14.75 [Type text] Page 4
  5. 5. Interpretation • The sales increased by 21.1% which resulted in improved gross profit. • During the year all the selling and administration expense have increased which the company should reduce. • The Operating profit have improved by 12% which is good for the company. • Company’s dividend has increased by 13% which shows that company has increased its profit. [Type text] Page 5
  6. 6. Balance Sheet DESCRIPTION Mar-12 Mar-11 Comparative Analysis of Balance Sheet for 2012 and 2011 Absolute % SOURCES OF FUNDS: Shareholder Funds Share Capital 122.48 121.77 0.71 0.58 Share Warrants & Outstandings 431.94 368.31 63.63 17.28 Total Reserves 24668.60 21356.18 3312.42 15.51 Shareholder's Funds(A) 25223.02 21846.26 3376.76 15.46 Loan Funds Secured Loans 900.00 900.00 0.00 0.00 Unsecured Loans 5081.13 4799.90 281.23 5.86 Total Debts(B) 5981.13 5699.90 281.23 4.93 Total Liabilities(A) + (B) 31204.15 27546.16 3657.99 13.28 APPLICATION OF FUNDS : Gross Block 10557.59 8956.67 1600.92 17.87 Less: Accumulated Depreciation 2942.61 2302.48 640.13 27.80 Less: Impairment of Assets 6.93 6.93 0.00 0.00 Net Block (A) 7608.05 6647.26 960.79 14.45 Lease Adjustment A/c (B) -3.07 -3.07 0.00 0.00 Capital Work in Progress (C.) 758.68 771.34 -12.66 -1.64 Pre-operative Expenses pending Assets in transit Investments (D) 20027.77 17994.81 2032.96 11.30 Current Assets, Loans & Advances Inventories 1776.62 1577.15 199.47 12.65 Sundry Debtors 18729.84 12427.61 6302.23 50.71 Cash and Bank 1778.12 1729.55 48.57 2.81 Other Current Assets 11922.74 11054.77 867.97 7.85 Loans and Advances 8499.50 4902.71 3596.79 73.36 Total Current Assets 42706.82 31691.79 11015.03 34.76 Less: Current Liabilities and Provisions Current Liabilities 34243.76 27298.27 6945.49 25.44 Provisions 5531.40 2002.10 3529.30 176.28 Total Current Liabilities 39775.16 29300.37 10474.79 35.75 Net Current Assets (E) 2931.66 2391.42 540.24 22.59 [Type text] Page 6
  7. 7. Miscellaneous Expenses not written off (F) 14.07 7.87 6.20 78.78 Deferred Tax Assets / Liabilities (G) -133.01 -263.47 130.46 -49.52 Total Assets(A) + (B) +(C.) + (D) + (E) + (F) + ( G ) 31204.15 27546.16 3657.99 13.28 Contingent Liabilities 2102.63 1247.34 Book Value 404.24 352.27 Adjusted Book Value 404.24 352.27 Interpretation • If compared with the previous year, many major changes can be seen in the balance sheet statement. It has increassed its provision, loans and advances, current assets, current liacbilities, debtors and reserves by huge amounts. No major changes over the previous structure can be noted(other than the one mentioned previously). Percentage change wise huge change can be noted in debtors, loans and advances and provisions. • Expenditures(especially fuel cost) have increased at an increasing rate as compared to the income growth rate. In absolute figure changes high changes can be noted in sales, raw materials consumed and other manufacturing expenses. [Type text] Page 7
  8. 8. Vertical Analysis Profit and Loss Account Year End Mar-12 % Mar-11 % Gross Sales 53737.78 98.51 44296.11 98.09 Less: Excise 567.26 1.04 390.24 0.86 Net Sales 53170.52 97.47 43905.87 97.22 Other Income 1377.77 2.53 1253.57 2.78 Total Income 54548.29 1oo 45159.44 1oo EXPENDITURE : Increase/Decrease in Stock -523.50 -0.96 -524.04 -1.16 Raw Materials Consumed 24988.94 45.81 20089.98 44.49 Power & Fuel Cost 687.89 1.26 457.63 1.01 Employee Cost 3663.45 6.72 2830.08 6.27 Other Manufacturing Expenses 14031.71 25.72 11976.53 26.52 General and Administration Expenses 2733.21 5.01 2237.24 4.95 Selling and Distribution Expenses 181.50 0.33 216.35 0.48 Miscellaneous Expenses 1062.99 1.95 988.51 2.19 Less: Pre-operative Expenses Capitalised 0.00 0.00 0.00 0.00 Total Expenditure 46826.19 85.84 38272.28 84.75 PBIDT (Excl OI) 6344.33 11.63 5633.59 12.47 Operating Profit(PBDIT+other Income 7722.10 14.16 6887.16 15.25 Interest 767.31 1.41 719.38 1.59 PBDT 6954.79 12.75 6167.78 13.66 Depreciation 699.46 1.28 599.22 1.33 Profit Before Taxation & Exceptional Items 6255.33 11.47 5568.56 12.33 Exceptional Income / Expenses 55.00 0.10 332.91 0.74 Profit Before Tax 6310.33 11.57 5901.47 13.07 Provision for Tax 1853.83 3.40 1943.58 4.30 PAT 4456.50 8.17 3957.89 8.76 Extra items 0.00 0.00 0.00 0.00 Appropriations 4562.18 8.36 4065.18 9.00 Dividend(%) 825.00 1.51 725.00 1.61 EPS 72.77 0.13 65.01 0.14 Book Value 404.24 0.74 352.27 0.78 [Type text] Page 8
  9. 9. Interpretation • In profit and loss a/c , each items are expressed as percentage of total sales. By looking at percentage values of income it can be made out that there has been a minor increase in sales and minor decrease in income from other sources over the past year. Thus, total income has gradually increased over a past year. • Expenses like raw material consumed, power fuel cost, employee’s cost, manufacturing and administrative expenses have increased from the past year except selling and distribution expenses. • But overall company is able to manage, because its operating profit has increased from the past year. But at the same time, now it forms only 14% of sales as compared to 15% last year. Same is the case with ‘Profit After Tax’. • Thus, overall we can conlude that co. is performing well in terms of maintaining profit. But it should try to control its expenses as far as possible. [Type text] Page 9
  10. 10. DESCRIPTION Mar-12 % Mar-11 % SOURCES OF FUNDS: Shareholder Funds Share Capital 122.48 0.39 121.77 0.44 Share Warrants & Outstandings 431.94 1.38 368.31 1.34 Total Reserves 24668.60 79.06 21356.18 77.53 Shareholder's Funds(A) 25223.02 80.83 21846.26 79.31 Loan Funds Secured Loans 900.00 2.88 900.00 3.27 Unsecured Loans 5081.13 16.28 4799.90 17.42 Total Debts(B) 5981.13 19.17 5699.90 20.69 Total Liabilities(A) + (B) 31204.15 100.00 27546.16 100.00 APPLICATION OF FUNDS : Gross Block 10557.59 33.83 8956.67 32.52 Less: Accumulated Depreciation 2942.61 9.43 2302.48 8.36 Less: Impairment of Assets 6.93 0.02 6.93 0.03 Net Block (A) 7608.05 24.38 6647.26 24.13 Lease Adjustment A/c (B) -3.07 -0.01 -3.07 -0.01 Capital Work in Progress (C.) 758.68 2.43 771.34 2.80 Pre-operative Expenses pending Assets in transit Investments (D) 20027.77 64.18 17994.81 65.33 Current Assets, Loans & Advances Inventories 1776.62 5.69 1577.15 5.73 Sundry Debtors 18729.84 60.02 12427.61 45.12 Cash and Bank 1778.12 5.70 1729.55 6.28 Other Current Assets 11922.74 38.21 11054.77 40.13 Loans and Advances 8499.50 27.24 4902.71 17.80 Total Current Assets 42706.82 136.86 31691.79 115.05 Less: Current Liabilities and Provisions Current Liabilities 34243.76 109.74 27298.27 99.10 Provisions 5531.40 17.73 2002.10 7.26 Total Current Liabilities 39775.16 127.46 29300.37 106.36 Net Current Assets (E) 2931.66 9.40 2391.42 8.68 Miscellaneous Expenses not written off (F) 14.07 0.05 7.87 0.03 Deferred Tax Assets / Liabilities (G) -133.01 -0.43 -263.47 -0.96 Total Assets(A) + (B) +(C.) + (D) + (E) + (F) + ( G )31204.15 100.00 27546.16 100.00 Contingent Liabilities 2102.63 1247.34 Book Value 404.24 352.27 Adjusted Book Value 404.24 352.27 Balance sheet [Type text] Page 10
  11. 11. Interpretation • In Balance sheet , each items are expressed as percentage of total assets. • As owners funds forms more than 80% of its total sources of funds, company has strong financial position. • Debtors are now forming huge proportion of total assets i.e. 60% which is not a good sign for company, as it reduces cash flow of company. So, company should act strict upon it by making appropriate changes in receivables collection period. • Company’s current liabilities are also forming huge proportion of total assets which shows company is not making the payments on time or is taking advantage of liberal credit terms in market. So, company should start making payments on time to maintain its image in market. [Type text] Page 11
  12. 12. Ratio Analysis Ratio analysis: Liquidity ratio: 1. Current Ratio = Current Assets/Current Liabilities 1.0737058 1.081617399 current asset 42706.82 31691.79 current liabilities 39775.16 29300.37 2. Quick Ratio or Acid Test Ratio = Quick Assets/ Quick Liabilities 1.1952601 1.103170274 current asset 42706.82 31691.79 Inventories 1776.62 1577.15 current liabilities 39775.16 29300.37 Provisions 5531.4 2002.1 3. Debtors Turnover Ratio = Sales/Average Debtors 3.449433763 3.756142213 GROSS SALES 53737.78 44296.11 AVG DEBTORS 18729.84 12427.61 4. Average Debt Collection Period= (Average Debtors/Sales)*360 104.3649552 95.84301646 Current Ratio: • Current ratio is balance-sheet financial performance measure of company liquidity. Current ratio indicates a company's ability to meet short-term debt obligations. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. • Current ratios have not deviated much from the past year. As the ideal established standard of current ratio is 2:1, the same cannot be said to be holding true for the company. But the company is not showing any weakness in short term liquidity. Quick Ratio: [Type text] Page 12
  13. 13. • The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Quick ratio is viewed as sign of a company's financial strength or weakness; it gives information about a company’s short term liquidity. The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice. • Quick ratio is high as compared to current ratio which states that company has sufficient funds to pay off its liability in very short span of time. Debtors Turnover Ratio: • Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. As credit sales amount is not available, gross sales is taken. The ratio seems to be comparatively very low. Average debt collection period: • The Debtors/Receivable Turnover ratio when calculated in terms of days is known as Average Collection Period or Debtors Collection Period Ratio. • The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. • Average debt collection period is more than 3 months. Capital structure ratio: 1. Equity To Total Fund Ratio 0.808322611 0.793078237 [Type text] Page 13
  14. 14. share holder's fund 25223.02 21846.26 long term borrowed funds 5981.13 5699.9 equity share capital 25223.02 21846.26 2. debt equity ratio 0.286298242 0.315062712 long term borrowings 18956.07 19543.8 shareholder's fund 66210.92 62031.46 Debt Equity Ratio: • The Debt-Equity ratio indicates the relative contribution of total debt and owner’s equity in the capital structure of the company; the relative contribution of each to finance the company’s assets. • The capital structure seems to be stable. As the share holder's funds are more, company has the option of raising its fund, by increasing its debt, open. [Type text] Page 14
  15. 15. Profitability ratios based on sales: [Type text] Page 15
  16. 16. 1. Profit Margin or Return on Scale = (Profit After Tax/Sales) *100 8.381524198 9.014489407 PAT 4456.5 3957.89 NET SALES 53170.52 43905.87 2. Asset Turnover Ratio= (Sales/Average Total Assets) 1.810050704 1.667565981 NET SALES 53170.52 43905.87 AVG TOTAL 31204.15 27546.16 3. Return on Assets= (Profit After Tax/Average Total Assets)*100 15.17098378 15.03225587 PAT 4456.5 3957.89 AVG TOTAL 31204.15 27546.16 4. Return on Equity or Return on Net Worth = (Profit After Tax/Average Shareholder's Equity)*100 18.93591744 16.8172957 PAT 4456.5 3957.89 SHARE FUND 25223.02 21846.26 AVG. share holder's fund 23534.64 20078.95 5. Expense ratio 0.880679557 0.871689366 expense 46826.19 38272.28 net sales 53170.52 43905.87 6. Earning per Share(EPS) = (PAT-Preference Dividend)/No. of Equity Share 72.8019721 PAT 4456.5 3957.89 no. of shares 61.2140011 Return on assets : • An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". Earning per share : [Type text] Page 16
  17. 17. • The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. 'Expense Ratio': • A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets and lower the return to a fund's investors. It is also known as "management expense ratio" (MER). Return On Equity - ROE' • The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. 'Asset Turnover' • The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Return On Sales - ROS' • A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". asset turnover seems to be comparatively low, other ratio seems good, profit margin of the company seem to high(as company is in heavy engineering works this may be prevalent in the industry). Capital Market ratio 1. Price Earning Ratio = Average Stock Price/ Earning per Share 20.60383746 [Type text] Page 17
  18. 18. Avg stock Price(assumed) 1500 PE Ratios 23.44 2. Price to Book Ratio = Market Price per Share/ Book Value per Share 3.64192585 book value 411.87 avg stock price (assumed) 1500 Price-Earnings Ratio - P/E Ratio' • A valuation ratio of a company's current share price compared to its per-share earnings. Price-To-Book Ratio - P/B Ratio' • A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. • Also known as the "price-equity ratio" • As a company has a very good brand name it enjoys a high market price owning to speculation of its growth over the next years.The high market price of share of the company shows faith of investors of the company. Solvency ratio 1. Debt to Equity Ratio = Secured Loans+Unsecured Loans/ Equity 2. Interest Cover = Profit before Interest and Tax/ Interest Expense PBIDT LESS: DEP PBIT INTEREST: [Type text] Page 18
  19. 19. Debt/Equity Ratio' • A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Interest Coverage Ratio' • A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period: • company can pay its interest cost 9.15 times i.e. 8.15 times. Which can definetly assure company's lendors about interest on the loans provided by them. [Type text] Page 19
  20. 20. TREND ANALYSIS Break up of Liabilities % Share Capital 0.39 Share Warrants & Outstandings 1.38 Total Reserves 79.06 Secured Loans 2.88 Unsecured Loans 16.28 Total Liabilities 100.00 [Type text] Page 20
  21. 21. Break up of Assets % Net Block 24.38 Lease Adjustment A/c -0.01 Capital Work in Progress 2.43 Investments 64.18 Net Current Assets 9.40 Miscellaneous Expenses not written off 0.05 Deferred Tax Assets / Liabilities -0.43 Total Liabilities 100.00 [Type text] Page 21
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  26. 26. Interpretation of Profit and Loss:- • Here in this analysis we have focused on main components of profit and loss. Like Net Sales has increased over the period of 5 years. Net sales had gone from Rs 25,009.43 to Rs 53,170.52 which means there has been 112.60 % which is almost twice the sales as it was before. Increase in Sale is always a positive sign but sales on cash is healthier than sales on credit as it provides liquidity to Company. • Even General and Administration Expenses had also increased over the period of 5 years from Rs. 1302.47 to Rs. 2733.21. This also means it had increased to 109.85 %. As the size of company has doubled then the expenses would also be doubled due to increase in operations over the years and changing economy effect. • Selling and Distribution Expenses has also the same story as General and Administrative expenses had but in opposite direction. The expenses have gone declining from Rs. 325.19 to Rs. 181.50. In percentage if we say then they had decreased to 55.81 %. • If we look at the total expenditure then it has also doubled from Rs. 21989.11 to Rs. 46826.19 which means 112.95 % increase over the period of 5 years. • Also Profit before tax has gone up almost 2 times. It had gone from Rs. 3155.47 to Rs. 6310.33. In percentage, it is 99.98 %. • Hence, it can be said that company's performance is very good, due to the constant steady increase in sales of the company over the 5 years. Operation of the company has increased more than double over the 5 years, which shows a very good trend over the previous year. • Company has not deviated from its growth rate due to any adverse external factors and stability of the company can be assured by analysing the growing trend of the company. [Type text] Page 26
  27. 27. Interpretation of balance sheet:- Liability Trend: High increase in the sources of the funds can be noted from all the sources. All have increased more than double except unsecured debts. Strong financial structure than previous years can be observed as there is more increase in shareholder's fund as compared to total debts. As secured debts has increased and unsecured has increased at a lower rate (comparatively), it can be presumed that the company is trying to lower the risk factor. Asset trend: other current assets have increased significantly showing unusual trend in its growth rate. The company is investing heavily. High growth trend in assets, investment, debtors, Current Assets and Current liabilities can be noted. Hence it can be stated that company's operations are also increasing (due to high increase in investments in fixed assets). [Type text] Page 27
  28. 28. Suggestions and Recommendations • Though we concluded that Current ratio is not near to the standard set by the industry. But this doesn’t mean this company is insolvent or won’t be able to pay off the liabilities in near future. The reason we are saying this is because of the capital structure of the company is more bent towards owner’s fund. Almost 80% of the fund is from owners. Hence, obligations for the company are low. • Lasern & Tubro Ltd. should review the debtor’s policy of payment. As in 104 days is too much for any company to get the amount that is being blocked in stock. Hence, cash cycle of the company would be taking too many days to complete. • We suggest company should raise their funds from debts instruments in near future to take various advantages like getting benefit in Taxation. Return on equity of the company is increased from 15.17 to 18.93 by taking the advantage of low cost of debt as compared to the cost of Equity share. But this step should be carefully analyzed and then should be opted as it also brings compulsory obligation to pay. • Even the Profitability Ratio is even very low as near as 8% which says there are high operating expense inefficiencies existing. • Major changes has been seen in current year (Mar 2012) provision, loans and advances, current assets, current liabilities, debtors and reserves by huge amounts. Hence, it has lead to increase in operating cycle as it has blocked a lot of amount in stocks in form of debtors. [Type text] Page 28
  29. 29. • Expenditures (especially fuel cost) have increased at an increasing rate as compared to the income growth rate. In absolute figure changes high changes can be noted in Sales, raw materials consumed and other manufacturing expenses. Hence, it is indicating the future operating inefficiencies that could affect the company badly. Limitations In spite of many advantages, there are certain limitations of the ratio analysis techniques and they should be kept in mind while using them in interpreting financial statements. The following are the main limitations of the report: 1. Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm cannot always be compared with the ratio of other firm. Some firms may value the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there may be difference in providing depreciation of fixed assets or certain of provision for doubtful debts etc. 2. False Results: Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct. 3. Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price-level changes before any comparison. 4. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, [Type text] Page 29
  30. 30. average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis. 5. Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way. 6. Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms is same but the magnitude of their business is quite different. [Type text] Page 30
  31. 31. BIBLIOGRAPHY http://info.shine.com/Article/Engineering/Engineering-industry- overview/4469/cid937.aspx http://stockshastra.moneyworks4me.com/company-shastra-19-2/ http://www.ibef.org/download/Larsen_%26_Toubro.pdf http://www.ibef.org/download/Larsen_%26_Toubro.pdf http://www.moneycontrol.com/company- article/larsentoubro/news/LT http://www.moneycontrol.com/news/recommendations/accumulat e-lt-target-rs-1525-icicidirectcom_687781.html http://www.aceanalyzer.com/Analyser.aspx?MenuTab=C [Type text] Page 31
  32. 32. ANNEXURE [Type text] Page 32