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.

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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

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.

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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.

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Horizontal Analysis

Profit and Loss AccountYear End Mar-12 Mar-11 Comparative Absolute % Gross Sales 53737.78 44296.11 9441.67 21.3149Less: Excise 567.26 390.24 177.02 45.36183Net Sales 53170.52 43905.87 9264.65 21.10Other Income 1377.77 1253.57 124.20 9.91Total Income 54548.29 45159.44 9388.85 20.79045 EXPENDITURE : Increase/Decrease in Stock -523.50 -524.04 0.54 -0.10Raw Materials Consumed 24988.94 20089.98 4898.96 24.39Power & Fuel Cost 687.89 457.63 230.26 50.31576Employee Cost 3663.45 2830.08 833.37 29.45Other Manufacturing Expenses 14031.71 11976.53 2055.18 17.16General and Administration Expenses 2733.21 2237.24 495.97 22.17Selling and Distribution Expenses 181.50 216.35 -34.85 -16.1082Miscellaneous Expenses 1062.99 988.51 74.48 7.53Less: 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 12.62Operating Profit 7722.10 6887.16 834.94 12.12Interest 767.31 719.38 47.93 6.662682PBDT 6954.79 6167.78 787.01 12.76002Depreciation 699.46 599.22 100.24 16.72841Profit Before Taxation & Exceptional Items 6255.33 5568.56 686.77 12.33299Exceptional Income / Expenses 55.00 332.91 -277.91 -83.479Profit Before Tax 6310.33 5901.47 408.86 6.928104Provision for Tax 1853.83 1943.58 -89.75 -4.61777PAT 4456.50 3957.89 498.61 12.60Extra items 0.00 0.00 Appropriations 4562.18 4065.18 497.00 12.23Dividend(%) 825.00 725.00 100.00 13.79EPS 72.77 65.01 7.76 11.94Book Value 404.24 352.27 51.97 14.75

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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.

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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 0.58Share Warrants & Outstandings 431.94 368.31 63.63 17.28Total Reserves 24668.60 21356.18 3312.42 15.51Shareholder's Funds(A) 25223.02 21846.26 3376.76 15.46Loan Funds Secured Loans 900.00 900.00 0.00 0.00Unsecured Loans 5081.13 4799.90 281.23 5.86Total 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 17.87Less: Accumulated Depreciation 2942.61 2302.48 640.13 27.80Less: Impairment of Assets 6.93 6.93 0.00 0.00Net Block (A) 7608.05 6647.26 960.79 14.45Lease Adjustment A/c (B) -3.07 -3.07 0.00 0.00Capital Work in Progress (C.) 758.68 771.34 -12.66 -1.64Pre-operative Expenses pending Assets in transit Investments (D) 20027.77 17994.81 2032.96 11.30Current Assets, Loans & Advances Inventories 1776.62 1577.15 199.47 12.65Sundry Debtors 18729.84 12427.61 6302.23 50.71Cash and Bank 1778.12 1729.55 48.57 2.81Other Current Assets 11922.74 11054.77 867.97 7.85Loans and Advances 8499.50 4902.71 3596.79 73.36Total Current Assets 42706.82 31691.79 11015.03 34.76Less: Current Liabilities and Provisions Current Liabilities 34243.76 27298.27 6945.49 25.44Provisions 5531.40 2002.10 3529.30 176.28Total Current Liabilities 39775.16 29300.37 10474.79 35.75Net Current Assets (E) 2931.66 2391.42 540.24 22.59Miscellaneous Expenses not written off (F) 14.07 7.87 6.20 78.78

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Deferred Tax Assets / Liabilities (G) -133.01 -263.47 130.46 -49.52Total Assets(A) + (B) +(C.) + (D) + (E) + (F) + ( G ) 31204.15 27546.16 3657.99 13.28Contingent 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.

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Vertical Analysis

Profit and Loss AccountYear End Mar-12 % Mar-11 % Gross Sales 53737.78 98.51 44296.11 98.09Less: Excise 567.26 1.04 390.24 0.86Net Sales 53170.52 97.47 43905.87 97.22Other Income 1377.77 2.53 1253.57 2.78Total Income 54548.29 1oo 45159.44 1oo EXPENDITURE : Increase/Decrease in Stock -523.50 -0.96 -524.04 -1.16Raw Materials Consumed 24988.94 45.81 20089.98 44.49Power & Fuel Cost 687.89 1.26 457.63 1.01Employee Cost 3663.45 6.72 2830.08 6.27Other Manufacturing Expenses 14031.71 25.72 11976.53 26.52General and Administration Expenses 2733.21 5.01 2237.24 4.95Selling and Distribution Expenses 181.50 0.33 216.35 0.48Miscellaneous Expenses 1062.99 1.95 988.51 2.19Less: Pre-operative Expenses Capitalised 0.00 0.00 0.00 0.00Total Expenditure 46826.19 85.84 38272.28 84.75 PBIDT (Excl OI) 6344.33 11.63 5633.59 12.47Operating Profit(PBDIT+other Income 7722.10 14.16 6887.16 15.25Interest 767.31 1.41 719.38 1.59PBDT 6954.79 12.75 6167.78 13.66Depreciation 699.46 1.28 599.22 1.33Profit Before Taxation & Exceptional Items 6255.33 11.47 5568.56 12.33Exceptional Income / Expenses 55.00 0.10 332.91 0.74Profit Before Tax 6310.33 11.57 5901.47 13.07Provision for Tax 1853.83 3.40 1943.58 4.30PAT 4456.50 8.17 3957.89 8.76Extra items 0.00 0.00 0.00 0.00Appropriations 4562.18 8.36 4065.18 9.00Dividend(%) 825.00 1.51 725.00 1.61EPS 72.77 0.13 65.01 0.14Book Value 404.24 0.74 352.27 0.78

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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.

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DESCRIPTION Mar-12 % Mar-11 %

SOURCES OF FUNDS:Shareholder FundsShare Capital 122.48 0.39 121.77 0.44Share Warrants & Outstandings 431.94 1.38 368.31 1.34Total Reserves 24668.60 79.06 21356.18 77.53Shareholder's Funds(A) 25223.02 80.83 21846.26 79.31Loan Funds Secured Loans 900.00 2.88 900.00 3.27Unsecured Loans 5081.13 16.28 4799.90 17.42Total 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 32.52Less: Accumulated Depreciation 2942.61 9.43 2302.48 8.36Less: Impairment of Assets 6.93 0.02 6.93 0.03Net Block (A) 7608.05 24.38 6647.26 24.13Lease Adjustment A/c (B) -3.07 -0.01 -3.07 -0.01Capital Work in Progress (C.) 758.68 2.43 771.34 2.80Pre-operative Expenses pendingAssets in transitInvestments (D) 20027.77 64.18 17994.81 65.33Current Assets, Loans & AdvancesInventories 1776.62 5.69 1577.15 5.73Sundry Debtors 18729.84 60.02 12427.61 45.12Cash and Bank 1778.12 5.70 1729.55 6.28Other Current Assets 11922.74 38.21 11054.77 40.13Loans and Advances 8499.50 27.24 4902.71 17.80Total Current Assets 42706.82 136.86 31691.79 115.05Less: Current Liabilities and ProvisionsCurrent Liabilities 34243.76 109.74 27298.27 99.10Provisions 5531.40 17.73 2002.10 7.26Total Current Liabilities 39775.16 127.46 29300.37 106.36Net Current Assets (E) 2931.66 9.40 2391.42 8.68Miscellaneous Expenses not written off (F) 14.07 0.05 7.87 0.03Deferred Tax Assets / Liabilities (G) -133.01 -0.43 -263.47 -0.96Total Assets(A) + (B) +(C.) + (D) + (E) + (F) + ( G )31204.15 100.00 27546.16 100.00Contingent Liabilities 2102.63 1247.34Book Value 404.24 352.27Adjusted Book Value 404.24 352.27

Balance sheet

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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.

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Ratio Analysis

Ratio analysis: Liquidity ratio: 1. Current Ratio = Current Assets/Current Liabilities 1.0737058 1.081617399 current asset 42706.82 31691.79current liabilities 39775.16 29300.37 2. Quick Ratio or Acid Test Ratio = Quick Assets/ Quick Liabilities 1.1952601 1.103170274current asset 42706.82 31691.79Inventories 1776.62 1577.15 current liabilities 39775.16 29300.37Provisions 5531.4 2002.1 3. Debtors Turnover Ratio = Sales/Average Debtors 3.449433763 3.756142213GROSS 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:

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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

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share holder's fund 25223.02 21846.26 long term borrowed funds 5981.13 5699.9equity share capital 25223.02 21846.26 2. debt equity ratio 0.286298242 0.315062712long term borrowings 18956.07 19543.8shareholder'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.

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Profitability ratios based on sales: 1. Profit Margin or Return on Scale = (Profit After Tax/Sales) *100 8.381524198

9.014489407

PAT 4456.5 3957.89NET SALES 53170.52 43905.87

2. Asset Turnover Ratio= (Sales/Average Total Assets) 1.8100507041.667565981

NET SALES 53170.52 43905.87 AVG TOTAL 31204.15 27546.16

3. Return on Assets= (Profit After Tax/Average Total Assets)*100 15.1709837815.03225587

PAT 4456.5 3957.89AVG TOTAL 31204.15 27546.16 4. Return on Equity or Return on Net Worth = (Profit After Tax/Average Shareholder's Equity)*100 18.93591744 16.8172957PAT 4456.5 3957.89SHARE FUND 25223.02 21846.26AVG. share holder's fund 23534.64 20078.95

5. Expense ratio 0.8806795570.871689366

expense 46826.19 38272.28net sales 53170.52 43905.87 6. Earning per Share(EPS) = (PAT-Preference Dividend)/No. of Equity Share 72.8019721 PAT 4456.5 3957.89no. 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".

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Earning per share :

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).

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Capital Market ratio 1. Price Earning Ratio = Average Stock Price/ Earning per Share 20.60383746Avg stock Price(assumed) 1500PE Ratios 23.44 2. Price to Book Ratio = Market Price per Share/ Book Value per Share 3.64192585book value 411.87avg 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 ratio1. Debt to Equity Ratio = Secured Loans+Unsecured Loans/ Equity 2. Interest Cover = Profit before Interest and Tax/ Interest ExpensePBIDTLESS: DEPPBITINTEREST:

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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.

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TREND ANALYSIS

Break up of Liabilities %Share Capital 0.39Share Warrants & Outstandings 1.38Total Reserves 79.06Secured Loans 2.88Unsecured Loans 16.28Total Liabilities 100.00

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Break up of Assets %Net Block 24.38Lease Adjustment A/c -0.01Capital Work in Progress 2.43Investments 64.18Net Current Assets 9.40

Miscellaneous Expenses not written off 0.05

Deferred Tax Assets / Liabilities -0.43

Total Liabilities 100.00

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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.

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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).

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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.

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.

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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,

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.

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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.

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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/accumulate-lt-target-rs-1525-icicidirectcom_687781.html

http://www.aceanalyzer.com/Analyser.aspx?MenuTab=C

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ANNEXURE

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