TERM PAPER ON

Financial analysis of

L&T Info-tech

SUBMITTED TO: SUBMITTED BY:

Ms. Shelly Mam Reg no. 11002347

Roll no. B39

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ACKNOWLEDGEMENTACKNOWLEDGEMENT

I am thankful to Ms. Shelly mam who provided me with the opportunity and guided me in successful

completion of my term paper. Under her valuable guidance, constant interest and encouragement, who

have devoted their ever-precious time from their busy schedule and helped me in completing the term

paper.

Special, continual assistance while completing the term paper was provided by the friends. I wish to

acknowledge my special thanks to them for their help and cooperation in order to complete this

project.

I am also thankful to those who have helped me intellectually in preparation of this term paper

directly or indirectly. I am deeply indebted to the various sources of information from relevant sites

from internet and books.

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TABLE OF CONTENTS

SR. NO. PARTICULARS PAGE NO.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

Introduction to company L&T Info-tech

Balance sheet of the company

Profit and loss account of the company

Ratio analysis

Interpretation on the basis of ratio analysis

Comparative balance sheet

Comparative income statement

Common size balance sheet

Common size income statement

Trend analysis

Cash flow statement

Fund flow statement

Cost analysis

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4-5

5-6

6-20

21-22

23-24

24-25

25-26

26-27

27-28

29-32

32-34

34-35

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L&T Info techLarsen & Toubro Info tech Ltd. (L&T Info tech), one of the fastest growing IT Services companies, is ranked 11th by NASSCOM among the top (Indian) software and services exporters from India in 2009. A wholly owned subsidiary of the $9.5 billion Larsen & Toubro, India's Best Managed Company (as per the survey conducted by Business Standard in 2010) L&T Info tech is differentiated by its unique Business-to-IT Connect. L&T Info tech was one the top ten software companies in India as of 2008.

Originally founded as L&T Information Technology Ltd, a wholly-owned subsidiary of Larsen & Toubro Ltd (L&T),the company changed its name to L&T Info tech. In December 2006, L&T Info tech acquired GDA Technologies (a privately held electronic design firm based in California, USA) and all of its design centers in USA and India

Balance Sheet of L&T Info-tech

Particulars Mar ' 10 Mar ' 09 Mar ' 08

Sources of fundsOwner's fundEquity share capital 120.44 117.14 58.47Share application money 25.09 - -Preference share capital - - -

Reserves & surplus18,142.8

212,317.9

6 9,470.71

Loan fundsSecured loans 955.73 1,102.38 308.53Unsecured loans 5,845.10 5,453.65 3,275.46

Total25,089.1

818,991.1

313,113.1

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Uses of fundsFixed assets

4

Gross block 7,235.78 5,575.00 4,188.91Less : revaluation reserve 23.29 24.59 25.9

Less : accumulated depreciation 1,727.68 1,421.39 1,242.47Net block 5,484.81 4,129.02 2,920.54Capital work-in-progress 857.66 1,040.99 699

Investments13,705.3

5 8,263.72 6,922.26

Net current assetsCurrent assets, loans & advances

26,673.49

23,834.71

16,496.48

Less : current liabilities & provisions

21,632.13

18,277.57

13,928.17

Total net current assets 5,041.36 5,557.14 2,568.31

Miscellaneous expenses not written - 0.26 3.06

Total25,089.1

818,991.1

313,113.1

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Notes:Book value of unquoted investments

11,771.54 7,793.04 6,642.82

Market value of quoted investments 2,033.61 1,258.81 1,403.92Contingent liabilities 1,719.39 1,371.86 1,013.51

Number of equity sharesoutstanding (Lacs) 6021.95 5856.88 2923.27

Profit and Loss account

ParticularsMar '

10Mar '

09Mar '

08

Income

Operating income36,870.1

933,856.5

424,946.1

1

Expenses

Material consumed10,016.5

2 9,211.27 7,510.29

Manufacturing expenses 17,247.3

916,115.5

610,998.0

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Personnel expenses 2,379.14 1,998.02 1,535.44

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Selling expenses 306.22 312.1 320.12

Administrative expenses 1,873.59 2,102.05 1,354.37

Expenses capitalized -36.25 -24.48 -11.42

Cost of sales31,786.6

129,714.5

221,706.8

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Operating profit 5,083.58 4,142.02 3,239.23

Other recurring income 974.59 748.8 477.1

Adjusted PBDIT 6,058.17 4,890.82 3,716.33

Financial expenses 995.37 770 501.83

Depreciation  383.65 284.83 195.94

Other write offs 30.95 21.16 15.66

Adjusted PBT 4,648.20 3,814.83 3,002.90

Tax charges  1,577.02 1,176.19 982.05

Adjusted PAT 3,071.18 2,638.64 2,020.85

Non- recurring items 1,347.08 863.78 139.59Other non cash adjustments -45.13 -21.09 12.21

Reported net profit 4,373.13 3,481.33 2,172.65Earnings before appropriation 4,473.63 3,585.64 2,250.89

Equity dividend 752.75 614.97 495.32

Preference dividend - - -

Dividend tax 110.25 101.83 76.26

Retained earnings 3,610.63 2,868.84 1,679.31

RATIO ANALYSIS

Ratio Analysis can be defined as the study and interpretation of relationships between various financial variables, by investor or lenders. It is a quantitative investment technique used for comparing a company’s financial performance to the market in general. A change in these ratios helps to bring about a change in the way a company works. It helps to identify areas where the management needs change.

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1. Liquidity Ratios: These ratios are calculated just to analyze the short term

financial position of the company. An important concern about any company is its liquidity or to meet its current obligations.

Liquidity exists when the company satisfy its maturing short debts. Liquidity is important in carrying out a business. Liquidity ratios are of following types:

Current ratio: It is used to appraise the ability of the company to satisfy its current debts out of the current assets. Generally, 2 to 1 current ratio is considered the satisfactory minimum.

Current ratio= current assets/current liabilities

Quick ratio/Acid test ratio: The quick ratio is the stringent test to liquidity. It is founded by dividing the most liquid current assets by current liabilities. Inventory is not included since the length of time needed to convert to cash is long. Prepaid expenses are also not an element since they are not convertible in cash. General acceptable ratio is 1 to 1. Quick ratio=quick assets/current liabilities Quick assets=current assets-stock-prepaid expenses

Absolute liquid ratio: Ratios based on cash flow from operations give a more direct indication of a company’s ability to generate sufficient cash to satisfy cash to satisfy predicate cash requirements. General acceptable ratio is 0.5 to 1 Absolute liquid ratio=absolute liquid assets/current liabilities Absolute liquid assets=quick assets-debtors-bills receivable

2. Efficiency Ratios: These are those ratios that are typically used to analyze how

well a company uses its assets and liabilities internally. These ratios look at the internal working of the company. In other words efficiency ratios measure the quality of a business' receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the business is overtrading or under trading on its equity (using borrowed funds).Efficiency ratios are of following types:

Inventory turnover ratio: This ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is

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within proper limit or not. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Inventory turnover ratio= Cost of goods sold / Average inventory

Inventory conversion period: It measures the number of days or months a company required to convert its stock into sales. Inventory conversion period=365/ Inventory turnover ratio

Debtors turnover ratio: It 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. Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors. Debtors Turnover Ratio = Net Credit Sales /Average Debtors

Average collection period: 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 collection period=365/ Debtors Turnover Ratio

Creditors turnover ratio: It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as debtors turnover ratio, creditors turnover ratio can be calculated in two forms, creditors turnover ratio and average payment period.

Creditors Turnover Ratio = Credit Purchase / Average Trade Creditors

Average payment period: It gives the average credit period enjoyed from the creditors. It can be calculated using the following formula: Average Payment Period =365/ creditors turnover ratio

Working capital turnover ratio: It indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows:

Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital

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3. Solvency ratios: Solvency ratios are measures to assess a company’s ability to

meet its long-term obligations and thereby remain solvent and avoid bankruptcy. It is a measure of a company's ability to service debts, expressed as a percentage. A high solvency ratio indicates a healthy company, while a low ratio indicates the opposite. A low solvency ratio further indicates likelihood of default. Different industries have different standards as to what qualifies as an acceptable solvency ratio, but, in general, a ratio of 20% or higher is considered healthy. Potential lenders may take the solvency ratio into account when considering making further loans.

Debt-to-equity ratio: It is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. The Debt to Equity Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company's total debt and dividing it by the amount of owner's equity. Debt to Equity Ratio= debt/shareholder’s equity

Debt=long term loans + debentures

Funded debt to total capitalisation ratio: It evaluates percentage of debts in the total funds.

Funded debt to total capitalisation ratio=debt/long term loans + equity

Proprietary ratio: This ratio indicates the long-term or future solvency position of the business. It shows the relationship between equity and total assets.

Proprietary ratio=equity/total assets

Solvency ratio: This ratio shows the relationship between total outsider’s liabilities and total assets.

Solvency ratio= total outsider’s liabilities/ total assetsOr

Solvency ratio= 1- Proprietary ratio

Fixed assets to shareholder’s funds: This ratio finds the relationship between fixed assets and shareholder’s funds. Fixed assets to shareholder’s funds.

Fixed assets to shareholder’s funds= fixed assets/ shareholder’s funds

Interest coverage ratio: This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges.

Interest Coverage Ratio = Net Profit before Interest and Tax / Fixed Interest Charges

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4. Profitability ratios: Profitability ratios are used to assess a business' ability to

generate earnings as compared to expenses over a specified time period. These tutorials define the ratios and walk you through the calculations, including where on the financial statements the numbers can be found. These ratios broadly can be categorised in two types:

o General profitability ratios :

Gross profit ratio: The gross profit ratio indicates how much of each sale available to meet expenses and profits after merely paying for the goods that were sold. This interactive tutorial explains the gross profit ratio by walking you through the steps, including where Sales and Cost of Goods Sold are on the Income Statement. It lets you use your own numbers -- great for checking homework answers!

The gross profit ratio= (Gross profit / Net sales) * 100

Operating profit ratio: This ratio shows the relationship between operating profit and net sales.

Operating profit ratio= (operating profit/ net sales)*100

Net profit ratio: This ratio finds the relationship between net sales and net profit.

Net profit ratio= (net profit/ net sales)*100

Operating Ratio: A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account.

Operating ratio= (operating cost/net sales)*100

Operating cost= operating expenses+ cost of goods sold

o Overall profitability ratios:

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Return on investment: It is the ratio of net profit to share holder's investment. It is the relationship between net profit (after interest and tax) and share holder's/proprietor's fund. This ratio establishes the profitability from the share holders' point of view. The ratio is generally calculated in percentage.

Return on investment (ROI) = Net Profit / Shareholder’s funds * 100

Return on Equity (ROE): In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company. Return on equity capital which is the relationship between profits of a company and its equity.

Return on Equity = (Net profit – preference dividend)/Equity Shareholders Fund * 100

Return on Capital employed: The prime objective of making investments in any business is to obtain satisfactory return on capital invested. Hence, the return on capital employed is used as a measure of success of a business in realizing this objective. Return on capital employed establishes the relationship between the profit and the capital employed. It indicates the percentage of return on capital employed in the business and it can be used to show the overall profitability and efficiency of the business.

Return on capital employed = (Adjusted NP/ Capital Employed)*100

Adjusted net profit = PBIT + Non operating expenses – Non operating income

Capital employed = Current assets + Fixed assets + Investment inside business

RATIO ANALYSIS

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1. Liquidity Ratios

Current Ratio:

Current ratio= current assets/current liabilities

Year 201026361.61/21242.86=1.240

Year 200922324.39/16718.78=1.335

Quick Ratio:

Quick ratio=quick assets/current liabilities Quick assets=current assets-stock-prepaid expenses Year 2010

15197.91/21242.86=0.7154 Year 2009

12421.26/16718.78=0.7429

Absolute Liquid Ratio: Absolute liquid ratio=absolute liquid assets/current liabilities Absolute liquid assets=quick assets-debtors-bills receivable Year 2010

13766.04/21242.86=0.648 Year 2009 11645.97/16718.78=0.696

INTERPRETATION ON THE BASIS OF LIQUIDITY RATIOS

In the company L&T info tech the company’s current ratio for both the years 2010 and 2009 is less than the standard ratio of 2:1. In year 2010 it was 1.240 and in 2009 it was 1.335. At the same time current ratio decline in year 2010 as compared to year 2009.

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Further in quick ratio test again company’s ratios in both the years are lesser than the standard generally accepted ratio. In year 2010 and 2009 it was around 0.7154 and 0.7429 respectively.

Finally in acid test ratio company’ position is again declining as in both the years ratio is falling.So in the end we can say that company’s short term financial position is declining because all its liquidity ratios are below than the standard acceptable ratios. Moreover in year 2010 its more less as compared 2009. So company should make proper efforts to solid its position to satisfy short term debts.

2. Efficiency Ratios:

Inventory Turnover RatioInventory turnover ratio= Cost of goods sold / Average inventory

Year 2010

COGS=28453.55Average stock= (opening stock + closing stock)/2=1585.265Inventory turnover ratio=28453.55/1585.265=17.948

Year 2009COGS=26271.62Average stock=1744.205Inventory turnover ratio=26271.62/1744.205=15.062

Inventory Conversion PeriodInventory conversion period=365/ Inventory turnover ratio

Year 2010Inventory conversion period=365/17.948=20.33=21 days

Year 2009Inventory conversion period=365/15.062=24.23=25 days

Debtors Turnover Ratio:L&T info tech has not made any credit sale. So it is impossible to find Debtors

Turnover ratio.

Average Collection Period:

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Because there is no credit sales so there will be no average collection period.

Working Capital Turnover Ratio:Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital

Year 2010 COGS=28453.55

Working capital=5118.75 Working Capital Turnover Ratio=28453.55/5118.75=5.558

Year 2009COGS=26271.62Working capital=5605.61Working Capital Turnover Ratio=26271.62/5605.61=4.686

INTERPRETATION ON THE BASISOF EFFICIENCY RATIOS

L&T info tech has improved its position in converting its inventory to sales. This ratio in year in 2009 was approximately 25 days which reduced to 21 days in year 2010. Further working capital turnover ratio of the company has also increased. It indicates that company is efficiently using its working capital. Which depicts that company is utilizing its assets in a efficient manner.

3. Solvency Ratios:

Debt-to-equity Ratio:Debt to Equity Ratio= debt/shareholder’s equityDebt=long term loans + debentures

Year 2010 Debt=6035.29 Shareholder’s equity=18311.64 Debt to Equity Ratio=6035.29/18311.64=0.329

Year 2009 Debt=5449.44 Shareholder’s equity=12459.69

Debt to Equity Ratio=5449.44/12459.69=0.437

Funded Debt To Total Capitalisation Ratio:Funded debt to total capitalisation ratio=debt/long term loans + equity

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Year 2010Debt=6035.29Long term loan + equity=6035.29 +18311.64 =24346.93Funded debt to total capitalisation ratio=6035.29/24346.93=0.237

Year 2009Debt=5449.44

Long term loan + equity=5449.44 + 12459.69=17909.13Funded debt to total capitalisation ratio=5449.44/17909.13=0.304

Proprietary Ratio:Proprietary ratio=equity/total assets

Year 2010Equity= 18311.64Total assets=32727.37Proprietary ratio=18311.64 /32727.37=0.559

Year 2009Equity=12459.69Total assets=27518.99Proprietary ratio=12459.69/27518.99=0.452

Solvency Ratio:Solvency ratio= total outsider’s liabilities/ total assets

OrSolvency ratio= 1- Proprietary ratio

Year 2010Solvency ratio= 1-0.559=0.441

Year 2009Solvency ratio= 1-0.452=0.547

Fixed assets to Shareholder’s Funds:Fixed assets to shareholder’s funds= fixed assets/ shareholder’s funds

Year 2010Fixed assets=6365.76Shareholder’s funds=18311.64Fixed assets to shareholder’s funds=6365.76/18311.64=0.346

Year 2009Fixed assets=5194.40Shareholder’s funds=12459.69Fixed assets to shareholder’s funds=5194.40/12459.69=0.416

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Interest Coverage Ratio:Interest Coverage Ratio = Net Profit before Interest and Tax / Fixed Interest Charges

Year 2010Net Profit before Interest and Tax=1640.87Fixed Interest Charges=505.31Interest Coverage Ratio =1640.87/505.31=3.247

Year 2009Net Profit before Interest and Tax=1231.21Fixed Interest Charges=415.56Interest Coverage Ratio =1231.21/415.56=2.962

4. Profitability Ratios:

o General Profitability Ratios:

Gross Profit Ratio: Gross profit ratio= (Gross profit / Net sales) * 100

Year 2010

Gross profit=36995.93

Net sales=36675.15

The gross profit ratio= (36995.93/36675.15)*100=100.87

Year 2009

Gross profit=34045.04

Net sales=33646.57

The gross profit ratio= (34045.04/33646.57)*100=101.18

Operating Profit Ratio:Operating profit ratio= (operating profit/ net sales)*100

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Year 2010

Operating profit = net sales – operating expenses

=36675.15-32295.43=4379.72

Net sales=36675.15

Operating profit ratio= (4379.72/36675.15)*100=11.941

Year 2009

Operating profit=33646.57-30040.84=3605.73

Net sales=33646.57

Operating profit ratio= (3605.73/33646.57)*100=10.716

Net profit ratio:

Net profit ratio= (net profit/ net sales)*100

Year 2010

Net sales=36675.15

Net profit=4375.52

Net profit ratio= (4375.52/36675.15)*100=11.9304

Year 2009

Net sales=33646.57

Net profit=3481.66

Net profit ratio= (3481.66/33646.57)*100=10.347

Operating Ratio:

Operating ratio= (operating cost/net sales)*100

Operating cost= operating expenses + cost of goods sold

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Year 2010

Operating cost =32295.43 + 28453.55=60748.98

Net sales=36675.15

Operating ratio= (60748.98/36675.15)*100=165.640

Year 2009

Operating cost=30040.84 + 26271.62=56312.46

Net sales=33646.57

Operating ratio = (56312.46/33646.57)*100= 167.364

o Overall Profitability Ratios:

Return on Investment:

Return on investment (ROI) = Net Profit / Shareholder’s funds * 100

Year 2010

Net profit=4375.52

Shareholder’s funds=18311.64

Return on investment (ROI) = (4375.52/18311.64)*100=23.894

Year 2009

Net profit=3481.66

Shareholder’s funds=12459.69

Return on investment (ROI) = (3481.66/12459.69)*100=27.943

Return on Equity (ROE):

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Return on Equity = (Net profit – preference dividend)/Equity Shareholders Fund * 100

Year 2010

Net profit= 4375.52

Shareholder’s funds=18311.64

Preference dividend=0.00

Return on Equity = (4375.52-0.00)/ 18311.64*100=23.894

Year 2009

Net profit=3481.66

Shareholder’s funds=12459.69

Preference dividend=0.00

Return on Equity = (3481.66-0.00)/12459.69*100=27.943

Return on capital employed:Return on capital employed = (Adjusted NP/ Capital Employed)*100Capital employed = Current assets + Fixed assets + Investment inside business

Adjusted net profit = PBIT + Non operating expenses – Non operating income

Year 2010

Adjusted net profit=1640.87 + 921.21 – 2024.96=537.12Capital employed = 20364.16 + 6223.08 + 16884.92=43472.16Return on capital employed = (537.12/43472.16)*100= 1.235

Year 2009

Adjusted net profit=1231.21 + 722.86 – 739.78=1214.29Capital employed = 16505.03 + 5053.78 + 10745.84=23204.65Return on capital employed = (1214.29/23204.65)*100=5.232

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Ratio analysis

RATIO 2010 2009

Liquidity ratiosCurrent ratio 1.240 1.335Quick ratio 0.7154 0.7429Absolute quick ratio 0.648 0.696

Profitability ratiosGross profit ratio 100.87 101.18Operating profit ratio 11.941 10.716Net profit ratio 11.9304 10.347Operating ratio 165.640 167.364Return on investment 23.894 27.943Return on equity 23.894 27.943Return on capital employed 1.235 5.232

Turnover ratios or efficiency ratiosInventory turnover ratio 17.948 15.062Inventory conversion period 21 days 25 daysDebtors turnover ratio ---- ----Average collection period ----- -----Creditors turnover ratio ----- -----Average payment period ----- -----Working capital turnover ratio 5.558 4.686

Solvency ratiosDebt Equity ratio 0.329 0.437Interest coverage ratio 3.247 2.962Funded debt to total capitalization 0.237 0.304Proprietary ratio 0.559 0.452Solvency ratio 0.441 0.547

Fixed assets to shareholders’ funds 0.346 0.416

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INTERPRETATION ON THE BASIS OF RATIO ANALYSIS

Interpretation of the ratios calculated from financial statements is a tool used to draw comparative and significant conclusions which can be helpful in decision making.

Interpretation of different ratios of L&T info tech signifies various facts about company.

From the Liquidity ratios of the company it seems that company is not having a lot many current assets. Company’s Current and Quick ratio are below the standard. But it’s absolute quick ratio meets the standard in both years. Further if we compare the current ratio of 2010 and 2009, company’s current assets have further declined. So Liquidity position of company was not so strong in 2009 and it further deteriorated in 2010.

Interpretation of Profitability ratios of company shows that profit percentage of the company increased from 2009 to 2010 but decreased in gross profit ratio. Increase in the profits percentage is not very high. Gross profit has decreased from 101.18% to 100.87%. Net profit has increased from 11.93% to 10.71%. Return on investment and equity have increased from 2009 to 2010. However there is high fall in the return on capital employed. The profits and total income of the company are also increasing. This means that expenses of the company might have decreased. But operating ratio of the company is increasing. It is almost above 85% in both years which is not favourable for company.

Turnover ratios of the company are showing very good performance of the company. Inventory turnover ratio of the company has increased from 15.06271 to 17.948. A lower Inventory ratio means less efficient conversion of stocks. Similarly Inventory conversion period of the company decreased from 25 days in 2009 to 21 days in 2010.

Working capital turnover ratio of company has increased. Higher WCTR indicates efficient utilization of working capital. Whereas declining WCTR means inefficient management. WCTR of the company has increased to 5.558 from 4.686 times.

Even the solvency ratios of the company show an improving performance of the company from 2009 to 2010. Interest coverage ratio of the company has increased to 3.247 from 2.962.So this much increase in Interest coverage ratio means less and less risk for long-term creditors. Company’s long term debt is decreasing as compared to the total capital. Even, its total liabilities has not increased much as compared to its total assets. As performance of the company is improving so investors can invest money in this company with more assurance. The solvency has increased from 2009 to 2010.

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So, overall analysis of the financial statements of L&T info tech using ratio analysis indicates that performance of the company is good and is Improving. It’s Liquidity, solvency, efficiency and profitability all are improving relatively.

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1. Comparative Statement: A statement which compares financial data from different periods of time. The comparative statement lines up a section of the income statement, balance sheet or cash flow statement with its corresponding section from a previous period. It can also be used to compare financial data from different companies over time, thus revealing the trend in the financials.

Comparative balance sheet

Rs. Crore Rs. CroreRs. Crore

Particulars Mar ' 10 Mar ' 09absolute change

%age change

Sources of fundsOwner's fundEquity share capital 120.44 117.14 3.3 2.817142Share application money 25.09 - 25.09Preference share capital - -Reserves & surplus 18,142.82 12,317.96 5824.86 47.28754

Loan fundsSecured loans 955.73 1,102.38 -146.65 -13.303Unsecured loans 5,845.10 5,453.65 391.45 7.177762Total 25,089.18 18,991.13 6098.05 32.10999

Uses of fundsFixed assetsGross block 7,235.78 5,575.00 1660.78 29.78978Less : revaluation reserve 23.29 24.59 -1.3 -5.2867Less : accumulated depreciation 1,727.68 1,421.39 306.29 21.54862Net block 5,484.81 4,129.02 1355.79 32.83564Capital work-in-progress 857.66 1,040.99 -183.33 -17.6111Investments 13,705.35 8,263.72 5441.63 65.84964

Net current assetsCurrent assets, loans & advances 26,673.49 23,834.71 2838.78 11.91028Less : current liabilities & provisions 21,632.13 18,277.57 3354.56 18.35342Total net current assets 5,041.36 5,557.14 -515.78 -9.28139Miscellaneous expenses not written - 0.26 -0.26 -100Total 25,089.18 18,991.13 6098.05 32.10999

Notes:Book value of unquoted investments 11,771.54 7,793.04 3978.5 51.05196Market value of quoted investments 2,033.61 1,258.81 774.8 61.55019Contingent liabilities 1,719.39 1,371.86 347.53 25.33276Number of equity shares outstanding (Lacs) 6021.95 5856.88 165.07 2.818395

INTERPRETATION ON THE BASIS OF COPARATIVE BALANCE SHEET

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From the comparative balance sheet of the company the net worth of the company is decreasing over the given period. We find that both sources of funds and loans increased in year as compared to year 2009 means total debts of the company is increasing over the period. Investments are also increasing over the same period. Current assets of the firm increased by approximately 12%. Total assets increased by approximately 33%. So we can say that position of the company is satisfactory. The overall profitability of the concern is going good and the company seems to be financially strong.

Comparative Income Statement

Rs. Crore

Rs. Crore

Rs. Crore

Particulars Mar ' 10 Mar ' 09absolut

e change

%age change

Income

Operating income36,870.1

933,856.5

43,013.6

58.90123

4Expenses

Material consumed10,016.5

2 9,211.27 805.258.74200

8

Manufacturing expenses 17,247.3

916,115.5

61,131.8

37.02321

2

Personnel expenses 2,379.14 1,998.02 381.1219.0748

8

Selling expenses 306.22 312.1 -5.88-

1.88401

Adminstrative expenses 1,873.59 2,102.05 -228.46-

10.8684

Expenses capitalized -36.25 -24.48 -11.7748.0800

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Cost of sales31,786.6

129,714.5

22,072.0

96.97332

5Operating profit 5,083.58 4,142.02 941.56 22.7319

Other recurring income 974.59 748.8 225.7930.1535

8

Adjusted PBDIT 6,058.17 4,890.821,167.3

523.8681

9

Financial expenses 995.37 770 225.3729.2688

3

Depreciation  383.65 284.83 98.8234.6943

8

Other write offs 30.95 21.16 9.7946.2665

4

Adjusted PBT 4,648.20 3,814.83 833.3721.8455

3

Tax charges  1,577.02 1,176.19 400.8334.0786

8Adjusted PAT 3,071.18 2,638.64 432.54 16.3925

24

4

Non-recurring items 1,347.08 863.78 483.3055.9517

5

Other non cash adjustments -45.13 -21.09 -24.04113.987

7

Reported net profit 4,373.13 3,481.33 891.8025.6166

5

Earnigs before appropriation 4,473.63 3,585.64 887.9924.7651

7

Equity dividend 752.75 614.97 137.7822.4043

4Preference dividend - -

Dividend tax 110.25 101.83 8.428.26868

3

Retained earnings 3,610.63 2,868.84 741.7925.8567

9

INTERPRETATION ON BASIS OF COMPARATIVE INCOME STATEMENT

From the comparative income statement of the company it is clear that operating income of the company increased by approximately 9% in year 2010 as compared to 2009. We also noticed that expenses are also increasing. Retained earnings of the company also increased by 25.856%. This means that working well in its operating activities. So in end we can say that company is enjoying good financial position.

Common Size Financial Statement: A company’s financial statement that 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. In balance sheet we take total liabilities or total assets as a base and in income statement we take net sales as a common base.

Common Size Balance Sheet

Rs. Crore Rs. Crore Rs. Crore

Particulars Mar ' 10 Mar ' 09 Mar ' 08%age

change in 2010

%age change in 2009

%age change in 2008

Sources of fundsOwner's fundEquity share capital 120.44 117.14 58.47 0.480048 0.616814 0.445888Share application money 25.09 - - 0.100003

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Preference share capital - - -Reserves & surplus 18,142.82 12,317.96 9,470.71 72.31332 64.86165 72.22289Loan fundsSecured loans 955.73 1,102.38 308.53 3.809331 5.80471 2.352825Unsecured loans 5,845.10 5,453.65 3,275.46 23.29729 28.71683 24.9784Total 25,089.18 18,991.13 13,113.17 100 100 100Uses of fundsFixed assetsGross block 7,235.78 5,575.00 4,188.91 28.84024 29.35581 31.9443Less : revaluation reserve 23.29 24.59 25.9 0.092829 0.129482 0.197511Less : accumulated depreciation 1,727.68 1,421.39 1,242.47 6.886156 7.484494 9.474978Net block 5,484.81 4,129.02 2,920.54 21.86126 21.74183 22.27181Capital work-in-progress 857.66 1,040.99 699 3.418446 5.481454 5.330519Investments 13,705.35 8,263.72 6,922.26 54.62654 43.51358 52.78861Net current assetsCurrent assets, loans & advances 26,673.49 23,834.71 16,496.48 106.3147 125.5044 125.8009

Less : current liabilities & provisions 21,632.13 18,277.57 13,928.17 86.22095 96.24267 106.2151Total net current assets 5,041.36 5,557.14 2,568.31 20.09376 29.26177 19.58573

Miscellaneous expenses not written - 0.26 3.06 0.001369 0.023335Total 25,089.18 18,991.13 13,113.17 100 100 100

Notes:

Book value of unquoted investments 11,771.54 7,793.04 6,642.82 46.91879 41.03516 50.65762

Market value of quoted investments 2,033.61 1,258.81 1,403.92 8.105526 6.62841 10.70618Contingent liabilities 1,719.39 1,371.86 1,013.51 6.853114 7.223688 7.728947

Number of equity shares outstanding (Lacs) 6021.95 5856.88 2923.27 24.00218 30.84008 22.29263

INTERPRETATION ON THE BASIS OF COMMON SIZE BALANCE SHEET

From the common size balance sheet of the company we find that sources of funds and loans of the company are increasing every year. In 2010 it is 25,089.18 which was 13,113.17 in year 2009.Here we see that proportion of reserves and surplus is increasing in total liabilities. So company is ensuring its future at large. However percentage changes are fluctuating. Assets of the company are also increasing. Current liabilities are also increasing. So we can say that company is working well.

Common Size Income Statement

Rs. Crore Rs. Crore

Particulars Mar ' 10 Mar ' 09%age

change in 2010

%age change in 2009

Income

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Operating income 36,870.19 33,856.54 100.5318 100.624

ExpensesMaterial consumed 10,016.52 9,211.27 27.31146 27.37655Manufacturing expenses  17,247.39 16,115.56 47.02746 47.89659Personnel expenses 2,379.14 1,998.02 6.487063 5.938258Selling expenses 306.22 312.1 0.834952 0.927583Administrative expenses 1,873.59 2,102.05 5.108609 6.247442Expenses capitalized -36.25 -24.48 -0.09884 -0.07276

Cost of sales 31,786.61 29,714.52 86.6707 88.31367Operating profit 5,083.58 4,142.02 13.8611 12.31038Other recurring income 974.59 748.8 2.657358 2.225487Adjusted PBDIT 6,058.17 4,890.82 16.51846 14.53587Financial expenses 995.37 770 2.714018 2.288495Depreciation  383.65 284.83 1.046076 0.846535Other write offs 30.95 21.16 0.08439 0.062889Adjusted PBT 4,648.20 3,814.83 12.67398 11.33795Tax charges  1,577.02 1,176.19 4.299969 3.49572Adjusted PAT 3,071.18 2,638.64 8.374008 7.842226Non- recurring items 1,347.08 863.78 3.673005 2.567216Other non cash adjustments -45.13 -21.09 -0.12305 -0.06268Reported net profit 4,373.13 3,481.33 11.92396 10.34676Earnings before appropriation 4,473.63 3,585.64 12.19799 10.65678Equity dividend 752.75 614.97 2.05248 1.827735Preference dividend - -Dividend tax 110.25 101.83 0.300612 0.302646Retained earnings 3,610.63 2,868.84 9.844895 8.526397

INTERPRETATION ON THE BASIS OF COMMON SIZE INCOME STATEMENT

In common size income statement we find that change in operating income has declined from 100.624 to 100.5318. There is negligible change in material consumed and manufacturing expenses. It means has not increased its consumption of material to be consumed so this leads 6to same manufacturing expenses. Almost company is trying to decrease its all the expenses. Because of this profit of the company has increased and company stores more of its funds to reduce the future uncertainties.

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Trend Analysis Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. Trend analysis tries to predict a trend like a bull market run and ride that trend until data suggests a trend reversal (e.g. bull to bear market). Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor.

Trend Analysis of Income StatementRs. Crore Rs. Crore Rs. Crore

Particulars Mar ' 10 Mar ' 09 Mar ' 08trend %’10

trend %’09

trend %’08

Incomenet sales 36675.15 33646.57 33222.45 100 100 100

Operating income 36,870.19 33,856.54 24,946.11 100.5318 100.624 75.08811

ExpensesMaterial consumed 10,016.52 9,211.27 7,510.29 27.31146 27.37655 22.60607

Manufacturing expenses  17,247.39 16,115.56 10,998.08 47.02746 47.89659 33.10436

Personnel expenses 2,379.14 1,998.02 1,535.44 6.487063 5.938258 4.621694

Selling expenses 306.22 312.1 320.12 0.834952 0.927583 0.963565

Adminstrative expenses 1,873.59 2,102.05 1,354.37 5.108609 6.247442 4.076671

Expenses capitalized -36.25 -24.48 -11.42 -0.09884 -0.07276 -0.03437

Cost of sales 31,786.61 29,714.52 21,706.88 86.6707 88.31367 65.33799

Operating profit 5,083.58 4,142.02 3,239.23 13.8611 12.31038 9.750124

Other recurring income 974.59 748.8 477.1 2.657358 2.225487 1.436077

Adjusted PBDIT 6,058.17 4,890.82 3,716.33 16.51846 14.53587 11.1862

Financial expenses 995.37 770 501.83 2.714018 2.288495 1.510515

Depreciation  383.65 284.83 195.94 1.046076 0.846535 0.589782

Other write offs 30.95 21.16 15.66 0.08439 0.062889 0.047137

Adjusted PBT 4,648.20 3,814.83 3,002.90 12.67398 11.33795 9.038767

Tax charges  1,577.02 1,176.19 982.05 4.299969 3.49572 2.955983

Adjusted PAT 3,071.18 2,638.64 2,020.85 8.374008 7.842226 6.082784

Non recurring items 1,347.08 863.78 139.59 3.673005 2.567216 0.420168

Other non cash adjustments -45.13 -21.09 12.21 -0.12305 -0.06268 0.036752

Reported net profit 4,373.13 3,481.33 2,172.65 11.92396 10.34676 6.539704

Earnigs before appropriation 4,473.63 3,585.64 2,250.89 12.19799 10.65678 6.775208

Equity dividend 752.75 614.97 495.32 2.05248 1.827735 1.49092

Preference dividend - - -

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Dividend tax 110.25 101.83 76.26 0.300612 0.302646 0.229544

Retained earnings 3,610.63 2,868.84 1,679.31 9.844895 8.526397 5.054745

INTERPRETATION ON THE BASIS OF TREND ANALYSIS

Sales of the concern have continuously increased over the period of two years. Overall expenses of the company are increasing continuously. Retained earnings has increased by approximately 10% in 2010 compared to previous

year.

Cash Flow Statement The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. Profitable companies can fail to adequately manage their cash flow, which is why the cash flow statement is importantIt helps investors see if a company is having trouble with cash.

Cash Flow StatementRs. Crore

cash from operating activitiesProfit before tax 5,880.67add non-cash/non-operating expensesdepreciation and amortization 414.6interest expenses 505.31exchange difference on items grouped under financing activity 7.04discount forming part of staff expenses 162.98provision for diminution in value of investments 47.1less non cash/non-operating incomedividend received 414.6interest income 128.39profit on sale of fixed assets 4.02profit on sale of investments 1254.44operating profit before change in working capital 5243.82Adddecrease in inventories 34.47decrease in other expenditures 0.26

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increase in current liabilities 4697.83Lessincrease in trade and in other receivables 2974.35cash generated from operations 7002.03less: direct taxes refund 1519.28A net cash from operating activities 5482.75

cash from investing activitiesadd sale of fixed assets 12.13disinvestment of stake 130.34sale of long term investments 1381.89interest received 104.8dividend received from subsidiaries 88.91dividend received from investments 298.12Lesspurchase of fixed assets 1571.89Investments 2140.62purchase of long term investments 488.06loans/deposits 494.74purchase of current investments 3043.22advances towards equity commitment 478.46cash used in investing activities 6200.8less extraordinary items 129.07B net cash used in investing activities 6071.73

cash from financing activitiesAddissue of share capital 2132.74proceed from long term borrowings 1255.88loans from subsidiary 20Lessrepayment of long term borrowings 587.91repayment of other borrowings 324.42dividend paid 617.01additional tax on dividend 102.18interest paid 531.54C net cash from financing activities 1245.56net increase in cash and cash equivalent=(A+B+C) 656.58 cash and cash equivalent at the beginning of the year 775.29 cash and cash equivalent at the end of the year 1431.87

30

Interpretations:

They are getting more dividend from last years. They sell some of their fixed assets &

investments. Profits on fixed assets are less as compared to last year, but the profit on

investment is more. Cash flow statement depicts that the receivables are increased but as

compared to last month it is 50% decreasing so that is why L& T sales their fixed assets to

earn income & revenues.

Cash flow from operating activities:

Cash flow from operating activities is 73% more in 2009-2010 i.e Rs 5482.75

crore & in 2008-2009 is Rs 1478 crore it is just because of profit of sale of investment is

approximately more than 100% in 2008-2009 its 94.6 crore but in 2009-2010 its Rs 1254

crore.

Cash used in investing activities:

Cash used in investing activities in 09-10 Rs 6200 as compared to 2008-2009 i.e

Rs 4429 it is because of more investment in subsidiaries & Joint Venture as well as

purchase of long term investment is maximum i.e Rs 488 crore in 2009-2010 Rs 3043

Crore invested in purchase of current investment it is approximately 500 times more in

09-10

The reason behind cash flow used in investing activity rather than cash flow from

investing activity is:

1) Dividend received from other investment is approx. 6% less than previous year.

2) Interest received on loan & advances is also less it is 20% less than last year i.e 08-09

Cash flow from financing activities:

Cash flow from financing activities is Rs 1245 crore it is because of fresh

issue of share capital including ESOP schemes to his employees L& T raise Rs 2132

crore from this scheme . L& T also repay almost Rs 587 crore of long term borrowing

thats why their cash flow from financing activity in 09-10 is less than as compared to

08-09.

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As well as dividend paid to shareholder is more than last year. In 09-10 is Rs

617 crore dividends paid but in 08-09 L&T paid Rs 438 crore approx. 41% dividend

paid in 09-10. Finally the cash & cash equivalent at the end of the 09-10 is Rs 1431

crore is just because the L&T has Rs 775 Cash & Cash equivalent in the beginning of

the year.

FUND FLOW STATEMENTSIntroduction:

The fund flow statement is a statement which shows the movement of funds and is a report of the financial operations of the business undertakings. It indicates various means by which funds were obtained during a particular period and the ways in which these funds were employed. In simple words it is a statement of sources and application of funds. It identifies the forces from which the funds were generated in the business as well as used for different purposes. The technique of fund flow analysis is widely used by the financial analyst, credit granting institutions and financial managers in performance of their jobs.

Schedule of change in working capital:

Particular 2010Rs(in mn)

2009Rs(in mn)

Effect on WC Effect on WC

Increase Decrease

Current assets

Inventories1415.37 1470.51 55.14

Sundry debtors 11163.70 9903.13 1260.57Cash and bank balance 1431.87 775.29 656.58

32

Other current assets 6353.22 4356.10 1997.12

Loans and advances 5997.45 5819.36 178.09TOTAL 26361.61 22324.39 4037.22Current liabilitiesCurrent liabilities 19054.50 14776.15 4278.35Provisions 2188.36 1942.63 245.73TOTAL 21242.86 16718.78 4524.08Working capital 5118.75 5605.61Net decrease in working capital 486.86 486.86

5605.61 5605.61 4524.08 4524.08

STATEMENT OF FUNDS FROM OPERATIONS

Particulars details AmountClosing balance of profit and loss account 107.29Add: non-fund/non-operating expensesDepreciation 384.95Amortisation 30.95Transfer to general reserves 3460.00Transfer to debenture redemption reserve 43.34Total (A) 3919.24Less: non-operating/non-fund incomeProfit on sale of fixed assets 4.02Profit on sale of investments 1252.44Dividend received 387.03Total (B) 1654.49Funds from operations A-B 2381.04

FUNDS FLOW STATEMENT

Sources of funds 2010 Application of funds 2010

Sale of Fixed assets 12.13 Purchase of Fixed assets 1571.89

Sale of investments 488.06 Repayment of short term borrowings

661

Interest received 104.80 Repayments of long term borrowings

587.91

33

Dividend received from subsidiaries 88.91 Interest paid 633.72Dividend received from investments 298.12 Dividend paid 531.54Short term Borrowings 130.34

Funds from operations 2381.04

Net decrease in working capital 486.86

TOTAL 3990.26 TOTAL 3990.26

INTERPRETATION ON THE BASIS OF FUND FLOW STATEMENT

With the analysis of the profit and loss and balance sheet of L&T we came to know that Company is earned Rs 107.29 Crore in 2009-2010 and in 2008-2009 it earned Rs 100.50 crore. In 2009-2010 L&T got approx. 7% hike in their profits.

Co raise source (Finance) from share capital. As compared to last year it raises Rs 120.44 crore from shareholders. This time they are laos provide the scheme of ESOP to their mployees and raise Rs25 crore with this scheme. They put Rs 12106 crore in resrve and surplus in 2008-2009, but in 2009-2010 they increased the amount it is RS 17882 crore. CO also raise the funds through loans. They raise less from secured loans in 2009-2010 only Rs 955.73 crore is raised as compared to 2008-2009 it is Rs 1102.38 crore.

Now let us see where this source has been used. Company is purchasing fixed assets. In 2008-2009 Fixed assets is Rs5434 crore in2009-2010 it is Rs 7093 crore.

The Invetories is Rs 1415 Crore in 2009-2010 and in 2008-2009 it is Rs 1470.51 it means there is decrease in inventories portion. Rest of the current assets is increased from the last year. Sundry debtors Rs 11163 crore in 2009-2010 and in 2008-2009 it is Rs9903.13 this shows that the company recovered from their debtors on frequent basis. Cash and bank balance is increased from Rs 775 crore to Rs 1431 crore in 2008-2009 ,2009-2010 resp. Company provides Rs 5997.45 crore loans and advances to the parties or outsiders.

This shows that the working capital position of the company is fair as compared to last year because the last year liabilities is less its just Rs 14776 crore but this time liability increased to Rs 19054. due to that net working capital in 2009-2010 is just Rs 5118 crore as in 2008-2009 it was Rs 5605.

The Liquidity and solvency position of the company is satisfactory.

Cost sheetCost sheet is a statement of cost. In other words, when costing information is set out in the form of a statement, it is called cost sheet. It is usually adopted when there is only one product is produced and all costs are incurred for that product only. Cost sheet may be

34

prepared for a week, monthly, quarterly or yearly indicating various components of cost as prime cost, works cost, cost of production, cost of goods sold, total cost and also profitability on a production.

COST SHEET

Particulars 2009-10 2008-09

Details Amount Details Amount

Direct materials 6863.16 7056.22Direct Labour 1922.50 1605.20Direct expenses 28453.55 26271.62Prime cost 37239.21 34933.04Add: Factory overheadsDepreciation 384.95 286.14Amortisation 30.95 21.16TOTAL FACTORY OVERHEADS

41.59 41.59 307.30

Factory cost 37280.8 35240.34Add: Administrative expensesPower and fuel 334.08 456.39Insurance 162.72 74.99Rent 146.63 127.58Repairs to buildings 5.50 8.45General repairs and maintenance

118.88 98.09

Director’s fees 0.18 0.22Telephone postage and telegrams

65.51 68.93

Stationary and printing 32.52 34.68Total administrative expenses

866.02 869.33

Cost of production 38146.82 36109.67Add: S&D expensesPackaging and forwarding

116.45 161.04

Travelling and conveyance

133.08 172.41

Advertising and publicity 65.51 68.93Commission:Distributors and agents 27.89 37.59

35

Other 45.66 9.99Total S&D overheads 388.59 449.96TOTAL COST 38535.41 36559.63Profit/loss -1860.26 -2913.06

INTERPRETATION ON THE BASIS OF COST SHEET

Here we see that prime cost of the company increased by 2306.17 in 2009-2010 as compared 2008-2009. Factory cost also increased to 37280.80 from 35240.34. All other costs are also increasing. However these changes are not very high like cost of production increased to 38146.82 from 36109.67 and total cost increased to 38535.41 from 36559.63. However in the end we find that loss in 2009-2010 is Rs. 1860.26 which was more in 2008-2009. So we can say that in year 2009-2010 company performed well and it become successful in decreasing its losses. So we can say that company is improving.

References http://money.rediff.com/companies/larsen-and-toubro-ltd/17010013/balance-

sheet

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