1. 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

2. GENERAL INFORAMATION
LG Electronics is a global electronics and telecommunications company
headquartered in Yeouido, Seoul, South Korea. The company operates its
business through five divisions: mobile communications, home entertainment,
home appliance, air conditioning and business solution. LG Electronics is the
world's second-largest manufacturer of television sets] and third-largest
producer of mobile phones. It is a flagship subsidiary company of LG Group,
one of the world's largest electronic
conglomerates.
The company has 75 subsidiaries worldwide that design and manufacture
televisions, 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. The
home 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.

3. COMPANY PROFILE:
Type: Public
Traded as: KRX: 066570 LSE: LGLD
Consumer electronics
Industry: Home appliances
Telecommunications
Founded: 1958
Headquarters: Seoul, South Korea
Area served: Worldwide
Koo Bon-joon
Key people:
(Vice Chairman and CEO)
Computer monitors
Flash memory
Televisions
Smartphones
Tablets
Mobile phones
DVD players
Blu-ray players
Product:s
Home Cinema systems
Movie projectors
Laptops
CD and DVD drives
Refrigerators
Washing machines
Vacuum cleaners
Air conditioners
Revenue: US$ 48.2 billion (2010)
Net income: US$ 1.1 billion (2010)
Employees: 82,772
Parent: LG Group
www.lge.com
Website
www.lg.com

4. VISION & MISSION:
LG Electronics will focus its management efforts on stakeholder value creation by connecting the
essence of corporate management with the principles, strategies, and tools of CSM.

6. • Lenders’ need it for carrying out the
following
• Technical Appraisal
• Commercial Appraisal
• Financial Appraisal
• Economic Appraisal
• Management Appraisal

7. 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

8. 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.

9. Balance Sheet P&L Ratio or Balance Sheet
Ratio Income/Revenue and Profit &
Statement Ratio Loss Ratio
Financial Ratio Operating Ratio Composite Ratio
Current Ratio Gross Profit Ratio Fixed Asset
Quick Asset Operating Ratio Turnover Ratio,
Ratio Expense Ratio Return on Total
Proprietary Ratio Net profit Ratio Resources Ratio,
Debt Equity Ratio Stock Turnover Return on Own
Ratio Funds Ratio,
Earning per Share
Ratio, Debtors’
Turnover Ratio,

10. LIABILITIES ASSETS
NET WORTH/EQUITY/OWNED FUNDS FIXED ASSETS : LAND & BUILDING,
Share Capital/Partner’s Capital/Paid up PLANT & MACHINERIES
Capital/ Owners Funds Original Value Less Depreciation
Reserves ( General, Capital, Revaluation & Net Value or Book Value or Written down
Other Reserves) value
Credit Balance in P&L A/c
LONG TERM LIABILITIES/BORROWED NON CURRENT ASSETS
FUNDS : Term Loans (Banks & Investments in quoted shares & securities
Institutions) Old stocks or old/disputed book debts
Debentures/Bonds, Unsecured Loans, Long Term Security Deposits
Fixed Deposits, Other Long Term Other Misc. assets which are not current
Liabilities or fixed in nature
CURRENT LIABILTIES CURRENT ASSETS : Cash & Bank
Bank Working Capital Limits such as Balance, Marketable/quoted Govt. or
CC/OD/Bills/Export Credit other securities, Book Debts/Sundry
Sundry /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, Prepaid
various items expenses, Loans and Advances recoverable
within 12 months
INTANGIBLE ASSETS

11. • 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

12. • 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.

13. 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 : 1
2. 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

14. 3. ACID TEST or QUICK RATIO : It is the ratio between Quick Current
Assets and Current Liabilities.
Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months +
Quickly realizable securities such as Govt. Securities or quickly marketable/quoted
shares and Bank Fixed Deposits
Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities
Example :
Cash 50,000
Debtors 1,00,000
Inventories 1,50,000 Current Liabilities 1,00,000
Total Current Assets 3,00,000
Current Ratio = > 3,00,000/1,00,000 = 3:1
Quick Ratio => 1,50,000/1,00,000 = 1.5 : 1

15. 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

16. 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.

17. 7. OPERATING PROFIT RATIO :
It is expressed as => (Operating Profit / Net Sales ) x 100
Higher the ratio indicates operational efficiency
8. NET PROFIT RATIO :
It is expressed as => ( Net Profit / Net Sales ) x 100
It measures overall profitability.

18. 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

19. 10. DEBTORS TURNOVER RATIO : This is also called Debtors
Velocity 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 Creditors
Velocity Ratio, which determines the creditor payment period.
(Average Creditors/Purchases)x365 for days
(52 for weeks & 12 for months)

20. 15. RETRUN ON ASSETS : Net Profit after Taxes/Total Assets
16. 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.

21. Composite Ratio
17. RETRUN ON EQUITY CAPITAL (ROE) :
Net Profit after Taxes / Tangible Net Worth
18. 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
Shares
19. 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

22. 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)