Financial Accounting & Analysis

FLOW OF PRESENTATION
Saumya Goel Suparna Rao Pranay Jain Somya Matta Rishabh Mulani Nikhil Nair Rushabh Gala Nitesh Dubal 208 210 209 364 365 366 308 307

COMPANY OVERVIEW
Larsen & Toubro Limited is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies in India's private sector. The company ranked #14 in the 2011 Fortune India 500 list of the largest Indian companies by total revenues.

Calculation of Ratios
1) Current Ratio : Current Asset (C.A.) / Current Liabilities (C.L.) = 46074.65 / 36355.8 = 1.26 2) Quick Ratio (Acid Test Ratio) : (C.A. Inventories & Prepaid Expenses) / C.L. = (46074.65-1776.2)/36355.8 = 1.21

3) Debt Ratio : Total Debts / Shareholders Fund = (5330.06+2936.72+33419.08)/25223.02 =1.44

4) Debt Ratio : Long Term Debt / Shareholders Fund = 5330.06/25223.02 = 0.21 5) Debt to Total Asset Ratio : Total Debt / Total Assets = (5330.06+2936.72+33419.08 ) / 67692.96 = 0.61

6) Proprietors Funds to Total Assets Ratio : = Proprietors Funds / Total Assets = 25223.02 / 67692.96 =0.37 7) Long Term Debt to Total Capitalization Ratio : = Long Term Debt / Total Capitalization = 6114.14 / (25223.02 + 6114.14) = 6114.14 / 31337.16 = 0.195

8) Capital Bearing Ratio : Variable cost Bearing Funds / Fixed cost Bearing Funds = (25223.02+36355.8) / 42469.94 = 1.44 9) Price Earning Ratio : Market Price per share / Earning per share = 1437.37 / 72.93 = 19.90

COVERAGE RATIOS
10) Interest Coverage Ratio : Earnings Before Interests & Taxes (EBIT) / Interest Expenses Interest Expense = 609.11 Other Borrowing Costs = 6.14 Exchange Loss = 55.85 Total = 666.10 = 6914.44 / 609.11 = 11.45

11) Dividend Coverage Ratio : Profit After Tax (PAT) / Preference Dividend

Note :
According to the Balance sheet of 2011-2012, the preference dividend value is quotes as Rs 0.00. Dividend Coverage Ratio is 0.

12.) Debt Service Coverage Ratio: = (PAT + Interest + Depreciation + Amortization) / (Principal + Interest + Lease Rentals)

13) Return on Investment (ROI) : Net Profit After Tax (NPAT) / Total Assets x 100 = 4456.50/67692.96 x 100 = 6.583% 14) Return on Equity (ROE) : NPAT / Shareholders Equity = 4456.50/25223.02 x 100 = 17.668%

Du Pont Approach
15) Earning Power (ROI) = Sales Profitability x Asset Efficiency Asset Efficiency = Net sales / Total Assets = 4456.50/53170.52 = 8.38 Sales Profitability = Total Assets / Turnover = 53170.52/67692.96 = 0.785 = 0.785 x 8.38 = 6.58

16) ROE : Net Profit Margin x Total Asset Turnover x Equity Fund = 8.38 x 0.785 x (67692.96/25223.02) = 17.66

Expenses Ratio
17) Cost of Goods Sold Ratio : Cost of Goods / Sales x 100 = 41020.18/53170.52 x 100 = 77.14%

18) Operating Expense Ratio : (Administrative Expense + Selling Expense) / Sales x 100 = 2223.03/53170.52 x 100 = 4.18%

19) Operating Ratio : (Cost of Goods sold + Operating Exp.) / Sales x 100 = (41020.18 + (6552.58 18.75) / 53170.52) x 100 = 89.436%

Profitability Ratios
20) Gross Profit Margin : (Net Sales Cost of Goods sold / Net sales) x 100 = ((53170.52-41020.18)/53170.52)x100 = 22.85%

Importance
Gross Profit Margin is used to measure the relationship between profit in relation to sales. It is the result of the relationship between prices sales volume and cost.

Comparisons
Profitability ratios for 2010-2011:Gross Profit Margin=((Net Sales Cost of Goods sold) /Net sales) x 100 =((43905.87 33468.17)/43905.87)x100 = 23.77 % Profitability ratios for 2011-2012:Gross Profit Margin : (Net Sales Cost of Goods sold / Net sales) x100 = ((53170.5241020.18)/53170.52)x100 = 22.85%

Comments
A high ratio of gross Profit to sales is a sign of good management. It implies that cost of production is relatively low. Indicative of higher sales price without an increase in cost of goods. The gross profit margin has decreased since the last year

20) Operating Profit Margin

EBIT(Earnings Before Interest and Taxes) Sales

Importance:
The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. It gives an idea of how much profit a company makes (before interest and taxes) on each dollar of sales. Operating margin ratio shows whether the fixed costs are too high for the production or sales volume. It is best to analyze the changes of operating margin over time and to compare company's figure to those of its competitors.

Comparision
Operating Profit Margin for the year 2011-12 = (EBIT / Sales)X100 = 8693.1/53170.52 = 16.34% Operating Profit Margin for the year 2010-11 = (5830.63/43905.82)X100 = 13.279%

Comments & Analysis

A high or increasing operating margin is preferred because an operating margin shows that the company is earning more per rupee of sales. The Operating profit margin has had a significant increase from last year, i.e. a growth of 3.06%. The Operating profit margin has increased since last year which shows that the earnings on per dollar of sales is more than last years. Hence, the company is quite profitable.

21) Pre-Tax Margin :

EBT (Earnings Before Tax) Sales

Comparision
Pre-tax Margin for the year 2011-12 = (EBT / Sales) x 100 = 6310.33/53170.52 = 11.86% Pre-tax Margin for the year 2010-11 = (EBT / Sales)X100 = (5901.47/43905.87)X100 = 13.44%

Importance:
The Pretax Margin measures how well a company can generate before-tax profits at the current level of sales. A high or increasing Pretax Margin is usually a positive sign, showing the company is able to keep its operations costs low, while being able to pull in strong earnings

Comments & Analysis

The higher the pre-tax profit margin, the more profitable the company. The Pre-Tax margin Ratio has decreased from last years ratio. The Pre-tax margin has significantly reduced in comparision to last year. This means that the company is although able to pull high earnings in while keeping the cost of operations the least, this rate has decreased. Hence, the ability of the company to pull high earnings while keeping operations cost is still good, but has significantly dipped down (by about 1.6%).

Net Profit Margin.

23) Year 2010 to 2011 Net Profit Margin= (NPAT / Sales) x 100 = (3957.89/43905.87)X100 = 9.014% Year - 2011-2012 Net Profit Margin : NPAT / Sales x 100 = 4456.50/53170.52 x 100 = 8.38%

Importance: Net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. it shows how good a company is at converting revenue into profits available for shareholders.

Analysis: The Net Profit Margin has decreased since last year which shows that a lesser amount of sales that last year is being converted to Profit.

Comments: This is used to see which are most effective at converting sales into profits. This ratio should also be high. The Net Profit Margin has decreased since last year.

24) Receivable to Turnover Ratio : Annual net credit sales / Average Receivables = 53170.52/15578.78 = 3.413 25) Receivable Turnover in days (Avg. collection period) : = Receivables x Days in year / Annual credit sales = 365/3.413 = 106.91 = 107 days

26) Payable Turnover Ratio : Annual net credit Purchases / Average Payables = 1776.62+2369.40-1577.15/(157572.8+12853.42/2) = 0.14 27) Payable Turnover in days : 365/0.14 = 2607 days

28) Inventory Turnover Ratio : Cost of Goods sold / Avg. Inventory = 41020.18/(1776.62+1577.15)/2 = 41020.18/1676.885 = 24.46 Days = 365/24.46 = 14.9 = 15 days 29) Operating Time : Inventory Turnover in days + Receivable Turnover in days = 15+107 = 122 days

30) Cash Cycle : Operating cycle Payable Turnover in days = 122-2607 = -2485 days 31) Total Asset Turnover : Net Sales / Total Assets = 53170.52/67692.96 = 0.785

32) Fixed Asset Turnover : Net Sales / Net Fixed Asset = 53170.52/8363.66 = 6.35 Capital Employed : Total Assets Current Liabilities = 67692.96-36355.80 = 31337.16 33) Total Capital Turnover : Net Sales/Capital Employed = 53170.52/31337.16 = 1.70

34) Working Capital Turnover Ratio : Net Sales / Working Capital = 53170.52/(46074.65-36355.80) = 53170.52/9718.85 = 5.47

THANK YOU !