This document provides an analysis of key financial ratios for Larsen & Toubro Limited (L&T), one of India's largest engineering and construction companies. It summarizes that L&T has low debt levels and good interest coverage, indicating low risk. Profit margins have increased over time but declined slightly in recent years. Asset turnover and returns on assets, equity, and net assets have generally decreased from 2006-2011, suggesting declining efficiency. Overall, the analysis finds that L&T has a relatively low-risk capital structure and has historically been profitable, though efficiency appears to have decreased in recent years.

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.

5. 5

6. 6

7. 7

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