A PROJECT REPORT ON RATIO ANALYSIS OF PREPARED BY EKTA K PATEL. •CLASS: M.B.A. SEM. -1 •Roll No: 38 •COLLEGE : PARUL INSTITUTE OF MANAGEMENT •SUBMITTED TO : PARUL INSTITUTE OF MANAGEMENT • GUIDED BY: PROFESSOR PRIYANKA V. MOHILE
GENERAL INFORAMATION LG Electronics is a global electronics and telecommunications company headquartered in Yeouido, Seoul, South Korea. The company operates itsbusiness through five divisions: mobile communications, home entertainment,home appliance, air conditioning and business solution. LG Electronics is the worlds second-largest manufacturer of television sets] and third-largestproducer of mobile phones. It is a flagship subsidiary company of LG Group, one of the worlds largest electronic conglomerates. The company has 75 subsidiaries worldwide that design and manufacturetelevisions, home appliances, and telecommunications devices. LG Electronics owns Zenith Electronics and controls 37.91 percent of LG Display. Its mobile communications division provides mobile communication terminals, personal computers and communication devices. The home entertainment division offers liquid crystal display (LCD) televisions (TVs), plasma display panel (PDP) TVs, PDP modules, and audio, video and storage devices. Thehome appliance division provides refrigerators, washing machines, microwave ovens, cleaners, compressors, motors and others. The air conditioning division provides air conditioners and solar cells. Its business solution division provides integrated solutions of hardware, software, network, contents and systems.
COMPANY PROFILE:Type: PublicTraded as: KRX: 066570 LSE: LGLD Consumer electronicsIndustry: Home appliances TelecommunicationsFounded: 1958Headquarters: Seoul, South KoreaArea served: Worldwide Koo Bon-joonKey people: (Vice Chairman and CEO) Computer monitors Flash memory Televisions Smartphones Tablets Mobile phones DVD players Blu-ray playersProduct:s Home Cinema systems Movie projectors Laptops CD and DVD drives Refrigerators Washing machines Vacuum cleaners Air conditionersRevenue: US$ 48.2 billion (2010)Net income: US$ 1.1 billion (2010)Employees: 82,772Parent: LG Group www.lge.comWebsite www.lg.com
VISION & MISSION:LG Electronics will focus its management efforts on stakeholder value creation by connecting theessence of corporate management with the principles, strategies, and tools of CSM.
• Lenders’ need it for carrying out the following• Technical Appraisal• Commercial Appraisal• Financial Appraisal• Economic Appraisal• Management Appraisal
It’s a tool which enables the banker or lender to arrive at the following factors :• Liquidity position• Profitability• Solvency• Financial Stability• Quality of the Management• Safety & Security of the loans & advances to be or already been provided
As Percentage - such as 25% or 50% . For example if net profit is Rs.25,000/- and the sales is Rs.1,00,000/- then the net profit can be said to be 25% of the sales.As Proportion - The above figures may be expressed in terms of the relationship between net profit to sales as 1 : 4.As Pure Number /Times - The same can also be expressed in an alternatively way such as the sale is 4 times of the net profit or profit is 1/4th of the sales.
Balance Sheet P&L Ratio or Balance Sheet Ratio Income/Revenue and Profit & Statement Ratio Loss Ratio Financial Ratio Operating Ratio Composite RatioCurrent Ratio Gross Profit Ratio Fixed AssetQuick Asset Operating Ratio Turnover Ratio,Ratio Expense Ratio Return on TotalProprietary Ratio Net profit Ratio Resources Ratio,Debt Equity Ratio Stock Turnover Return on Own Ratio Funds Ratio, Earning per Share Ratio, Debtors’ Turnover Ratio,
LIABILITIES ASSETSNET WORTH/EQUITY/OWNED FUNDS FIXED ASSETS : LAND & BUILDING,Share Capital/Partner’s Capital/Paid up PLANT & MACHINERIESCapital/ Owners Funds Original Value Less DepreciationReserves ( General, Capital, Revaluation & Net Value or Book Value or Written downOther Reserves) valueCredit Balance in P&L A/cLONG TERM LIABILITIES/BORROWED NON CURRENT ASSETSFUNDS : Term Loans (Banks & Investments in quoted shares & securitiesInstitutions) Old stocks or old/disputed book debtsDebentures/Bonds, Unsecured Loans, Long Term Security DepositsFixed Deposits, Other Long Term Other Misc. assets which are not currentLiabilities or fixed in natureCURRENT LIABILTIES CURRENT ASSETS : Cash & BankBank Working Capital Limits such as Balance, Marketable/quoted Govt. orCC/OD/Bills/Export Credit other securities, Book Debts/SundrySundry /Trade Creditors/Creditors/Bills Debtors, Bills Receivables, Stocks &Payable, Short duration loans or deposits inventory (RM,SIP,FG) Stores & Spares,Expenses payable & provisions against Advance Payment of Taxes, Prepaidvarious items expenses, Loans and Advances recoverable within 12 months INTANGIBLE ASSETS
• Liabilities have Credit balance and Assets have Debit balance• Current Liabilities are those which have either become due for payment or shall fall due for payment within 12 months from the date of Balance Sheet• Current Assets are those which undergo change in their shape/form within 12 months. These are also called Working Capital or Gross Working Capital• Net Worth & Long Term Liabilities are also called
• Assets other than Current Assets are Long Term Use of Funds• Installments of Term Loan Payable in 12 months are to be taken as Current Liability only for Calculation of Current Ratio & Quick Ratio.• If there is profit it shall become part of Net Worth under the head Reserves and if there is loss it will become part of Intangible Assets• Investments in Govt. Securities to be treated current only if these are marketable and due. Investments in other securities are to be treated Current if they are quoted. Investments in allied/associate/sister units or firms to be treated as Non-current.
1. Current Ratio : It is the relationship between the current assets and current liabilities of a concern. Current Ratio = Current Assets/Current Liabilities If the Current Assets and Current Liabilities of a concern are Rs.4,00,000 and Rs.2,00,000 respectively, then the Current Ratio will be : Rs.4,00,000/Rs.2,00,000 = 2 : 1 The ideal Current Ratio preferred by Banks is 1.33 : 12. Net Working Capital : This is worked out as surplus of Long Term Sources over Long Tern Uses, alternatively it is the difference of Current Assets and Current Liabilities. NWC = Current Assets – Current Liabilities
3. ACID TEST or QUICK RATIO : It is the ratio between Quick CurrentAssets and Current Liabilities.Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months +Quickly realizable securities such as Govt. Securities or quickly marketable/quotedshares and Bank Fixed Deposits Acid Test or Quick Ratio = Quick Current Assets/Current LiabilitiesExample :Cash 50,000Debtors 1,00,000Inventories 1,50,000 Current Liabilities 1,00,000Total Current Assets 3,00,000Current Ratio = > 3,00,000/1,00,000 = 3:1Quick Ratio => 1,50,000/1,00,000 = 1.5 : 1
4. DEBT EQUITY RATIO : It is the relationship between borrower’s fund (Debt) and Owner’s Capital (Equity). Long Term Outside Liabilities / Tangible Net Worth Liabilities of Long Term Nature Total of Capital and Reserves & Surplus Less Intangible Assets For instance, if the Firm is having the following : Capital = Rs. 200 Lacs Free Reserves & Surplus = Rs. 300 Lacs Long Term Loans/Liabilities = Rs. 800 Lacs Debt Equity Ratio will be => 800/500 i.e. 1.6 : 1
5. PROPRIETARY RATIO : This ratio indicates the extent to which Tangible Assets are financed by Owner’s Fund. Proprietary Ratio = (Tangible Net Worth/Total Tangible Assets) x 100 The ratio will be 100% when there is no Borrowing for purchasing of Assets.6. GROSS PROFIT RATIO : By comparing Gross Profit percentage to Net Sales we can arrive at the Gross Profit Ratio which indicates the manufacturing efficiency as well as the pricing policy of the concern. Gross Profit Ratio = (Gross Profit / Net Sales ) x 100 Alternatively , since Gross Profit is equal to Sales minus Cost of Goods Sold, it can also be interpreted as below : Gross Profit Ratio = [ (Sales – Cost of goods sold)/ Net Sales] x 100 A higher Gross Profit Ratio indicates efficiency in production of the unit.
7. OPERATING PROFIT RATIO : It is expressed as => (Operating Profit / Net Sales ) x 100 Higher the ratio indicates operational efficiency8. NET PROFIT RATIO : It is expressed as => ( Net Profit / Net Sales ) x 100 It measures overall profitability.
9. STOCK/INVENTORY TURNOVER RATIO : (Average Inventory/Sales) x 365 for days (Average Inventory/Sales) x 52 for weeks (Average Inventory/Sales) x 12 for months Average Inventory or Stocks = (Opening Stock + Closing Stock) ----------------------------------------- 2. This ratio indicates the number of times the inventory is rotated during the relevant accounting period
10. DEBTORS TURNOVER RATIO : This is also called DebtorsVelocity or Average Collection Period or Period of Credit given .(Average Debtors/Sales ) x 365 for days (52 for weeks & 12 for months) 11. ASSET TRUNOVER RATIO : Net Sales/Tangible Assets 12. FIXED ASSET TURNOVER RATIO : Net Sales /Fixed Assets 13. CURRENT ASSET TURNOVER RATIO : Net Sales / Current Assets 14. CREDITORS TURNOVER RATIO : This is also called CreditorsVelocity Ratio, which determines the creditor payment period.(Average Creditors/Purchases)x365 for days (52 for weeks & 12 for months)
15. RETRUN ON ASSETS : Net Profit after Taxes/Total Assets16. RETRUN ON CAPITAL EMPLOYED : ( Net Profit before Interest & Tax / Average Capital Employed) x 100 Average Capital Employed is the average of the equity share capital and long term funds provided by the owners and the creditors of the firm at the beginning and end of the accounting period.
Composite Ratio17. RETRUN ON EQUITY CAPITAL (ROE) : Net Profit after Taxes / Tangible Net Worth18. EARNING PER SHARE : EPS indicates the quantum of net profit of the year that would be ranking for dividend for each share of the company being held by the equity share holders. Net profit after Taxes and Preference Dividend/ No. of Equity Shares19. PRICE EARNING RATIO : PE Ratio indicates the number of times the Earning Per Share is covered by its market price. Market Price Per Equity Share/Earning Per Share
20. DEBT SERVICE COVERAGE RATIO : This ratio is one of the most important one which indicates the ability of an enterprise to meet its liabilities by way of payment of installments of Term Loans and Interest thereon from out of the cash accruals and forms the basis for fixation of the repayment schedule in respect of the Term Loans raised for a project. (The Ideal DSCR Ratio is considered to be 2 ) PAT + Depr. + Annual Interest on Long Term Loans & Liabilities --------------------------------------------------------------------------------- Annual interest on Long Term Loans & Liabilities + Annual Installments payable on Long Term Loans & Liabilities ( Where PAT is Profit after Tax and Depr. is Depreciation)