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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 ACKNOWLEDGEMENT

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. Introduction to company L&T Info-tech 4

2. Balance sheet of the company 4-5

3. Profit and loss account of the company 5-6

4. Ratio analysis 6-20

5. Interpretation on the basis of ratio analysis 21-22

6. Comparative balance sheet 23-24

7. Comparative income statement 24-25

8. Common size balance sheet 25-26

9. Common size income statement 26-27

10. Trend analysis 27-28

11. Cash flow statement 29-32

12. Fund flow statement 32-34

13. Cost analysis 34-35

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 L&T Info tech
Larsen & 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 funds
Owner's fund
Equity share capital 120.44 117.14 58.47
Share application money 25.09 - -
Preference share capital - - -
18,142.8 12,317.9
Reserves & surplus 2 6 9,470.71

Loan funds
Secured loans 955.73 1,102.38 308.53
Unsecured loans 5,845.10 5,453.65 3,275.46
25,089.1 18,991.1 13,113.1
Total 8 3 7

Uses of funds
Fixed assets
Gross block 7,235.78 5,575.00 4,188.91
Less : revaluation reserve 23.29 24.59 25.9

Less : accumulated 1,727.68 1,421.39 1,242.47

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depreciation
Net block 5,484.81 4,129.02 2,920.54
Capital work-in-progress 857.66 1,040.99 699
13,705.3
Investments 5 8,263.72 6,922.26
Net current assets
Current assets, loans & 26,673.4 23,834.7 16,496.4
advances 9 1 8
Less : current liabilities & 21,632.1 18,277.5 13,928.1
provisions 3 7 7
Total net current assets 5,041.36 5,557.14 2,568.31
Miscellaneous expenses not
written - 0.26 3.06
25,089.1 18,991.1 13,113.1
Total 8 3 7
Notes:
Book value of unquoted 11,771.5
investments 4 7,793.04 6,642.82
Market value of quoted
investments 2,033.61 1,258.81 1,403.92
Contingent 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

Mar ' Mar '
Particulars Mar ' 08
10 09
Income
36,870.1 33,856.5 24,946.1
Operating income 9 4 1

Expenses
10,016.5
Material consumed 2 9,211.27 7,510.29
17,247.3 16,115.5 10,998.0
Manufacturing expenses  9 6 8
Personnel expenses 2,379.14 1,998.02 1,535.44
Selling expenses 306.22 312.1 320.12

Administrative expenses 1,873.59 2,102.05 1,354.37

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 Expenses capitalized -36.25 -24.48 -11.42
31,786.6 29,714.5 21,706.8
Cost of sales 1 2 8

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 1,347.08 863.78 139.59
Other non cash
adjustments -45.13 -21.09 12.21
Reported net profit 4,373.13 3,481.33 2,172.65
Earnings 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 assets
Or
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.

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

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

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 o Overall profitability ratios:

 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

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 RATIO ANALYSIS

1. Liquidity Ratios

 Current Ratio:

Current ratio= current assets/current liabilities

Year 2010
26361.61/21242.86=1.240
Year 2009
22324.39/16718.78=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

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 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.

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 Ratio

Inventory turnover ratio= Cost of goods sold / Average inventory

Year 2010
COGS=28453.55
Average stock= (opening stock + closing stock)/2=1585.265
Inventory turnover ratio=28453.55/1585.265=17.948
Year 2009
COGS=26271.62
Average stock=1744.205
Inventory turnover ratio=26271.62/1744.205=15.062

 Inventory Conversion Period

Inventory conversion period=365/ Inventory turnover ratio
Year 2010
Inventory conversion period=365/17.948=20.33=21 days
Year 2009
Inventory conversion period=365/15.062=24.23=25 days

 Debtors Turnover Ratio:

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

 Average Collection Period:

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

INTERPRETATION ON THE BASIS

OF 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 equity
Debt=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

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 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

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

Year 2009
Debt=5449.44
Long term loan + equity=5449.44 + 12459.69=17909.13
Funded debt to total capitalisation ratio=5449.44/17909.13=0.304

 Proprietary Ratio:
Proprietary ratio=equity/total assets

Year 2010
Equity= 18311.64
Total assets=32727.37
Proprietary ratio=18311.64 /32727.37=0.559
Year 2009
Equity=12459.69
Total assets=27518.99
Proprietary ratio=12459.69/27518.99=0.452

 Solvency Ratio:
Solvency ratio= total outsider’s liabilities/ total assets
Or
Solvency ratio= 1- Proprietary ratio
Year 2010
Solvency ratio= 1-0.559=0.441
Year 2009
Solvency ratio= 1-0.452=0.547
 Fixed assets to Shareholder’s Funds:
Fixed assets to shareholder’s funds= fixed assets/ shareholder’s funds
Year 2010
Fixed assets=6365.76
Shareholder’s funds=18311.64
Fixed assets to shareholder’s funds=6365.76/18311.64=0.346

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

 Interest Coverage Ratio:

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

Year 2009
Net Profit before Interest and Tax=1231.21
Fixed Interest Charges=415.56
Interest 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

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

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

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  Operating Ratio:

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

Operating cost= operating expenses + cost of goods sold

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

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  Return on Equity (ROE):
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)*100
Capital 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=537.12

Capital employed = 20364.16 + 6223.08 + 16884.92=43472.16
Return on capital employed = (537.12/43472.16)*100= 1.235

Year 2009

Adjusted net profit=1231.21 + 722.86 – 739.78=1214.29

Capital employed = 16505.03 + 5053.78 + 10745.84=23204.65
Return on capital employed = (1214.29/23204.65)*100=5.232

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 Ratio analysis

RATIO 2010 2009

Liquidity ratios
Current ratio 1.240 1.335
Quick ratio 0.7154 0.7429
Absolute quick ratio 0.648 0.696

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

Turnover ratios or efficiency ratios

Inventory turnover ratio 17.948 15.062
Inventory conversion period 21 days 25 days
Debtors turnover ratio ---- ----
Average collection period ----- -----
Creditors turnover ratio ----- -----
Average payment period ----- -----
Working capital turnover ratio 5.558 4.686

Solvency ratios
Debt Equity ratio 0.329 0.437
Interest coverage ratio 3.247 2.962
Funded debt to total capitalization 0.237 0.304
Proprietary ratio 0.559 0.452
Solvency 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

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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.

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.
Rs. Crore Rs. Crore Crore
absolute %age
Particulars Mar ' 10 Mar ' 09
change change
Sources of funds
Owner's fund
Equity share capital 120.44 117.14 3.3 2.817142
Share application money 25.09 - 25.09
Preference share capital - -
Reserves & surplus 18,142.82 12,317.96 5824.86 47.28754

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

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

Net current assets

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

Notes:

23
 Book value of unquoted investments 11,771.54 7,793.04 3978.5 51.05196
Market value of quoted investments 2,033.61 1,258.81 774.8 61.55019
Contingent liabilities 1,719.39 1,371.86 347.53 25.33276
Number of equity shares outstanding (Lacs) 6021.95 5856.88 165.07 2.818395
INTERPRETATION ON THE BASIS OF COPARATIVE BALANCE SHEET
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. Rs. Rs.
Crore Crore Crore
absolut
%age
Particulars Mar ' 10 Mar ' 09 e
change
change

Income
36,870.1 33,856.5 3,013.6 8.90123
Operating income 9 4 5 4
Expenses
10,016.5 8.74200
Material consumed 2 9,211.27 805.25 8
17,247.3 16,115.5 1,131.8 7.02321
Manufacturing expenses  9 6 3 2
19.0748
Personnel expenses 2,379.14 1,998.02 381.12 8
-
Selling expenses 306.22 312.1 -5.88 1.88401
-
Adminstrative expenses 1,873.59 2,102.05 -228.46 10.8684
48.0800
Expenses capitalized -36.25 -24.48 -11.77 7
31,786.6 29,714.5 2,072.0 6.97332
Cost of sales 1 2 9 5
Operating profit 5,083.58 4,142.02 941.56 22.7319
30.1535
Other recurring income 974.59 748.8 225.79 8
1,167.3 23.8681
Adjusted PBDIT 6,058.17 4,890.82 5 9
29.2688
Financial expenses 995.37 770 225.37 3
34.6943
Depreciation  383.65 284.83 98.82 8

24
 46.2665
Other write offs 30.95 21.16 9.79 4
21.8455
Adjusted PBT 4,648.20 3,814.83 833.37 3
34.0786
Tax charges  1,577.02 1,176.19 400.83 8
16.3925
Adjusted PAT 3,071.18 2,638.64 432.54 4
55.9517
Non-recurring items 1,347.08 863.78 483.30 5
113.987
Other non cash adjustments -45.13 -21.09 -24.04 7
25.6166
Reported net profit 4,373.13 3,481.33 891.80 5
24.7651
Earnigs before appropriation 4,473.63 3,585.64 887.99 7
22.4043
Equity dividend 752.75 614.97 137.78 4
Preference dividend - -
8.26868
Dividend tax 110.25 101.83 8.42 3
25.8567
Retained earnings 3,610.63 2,868.84 741.79 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

25
 %age %age %age
Particulars Mar ' 10 Mar ' 09 Mar ' 08 change change change
in 2010 in 2009 in 2008

Sources of funds
Owner's fund
Equity share capital 120.44 117.14 58.47 0.480048 0.616814 0.445888
Share application money 25.09 - - 0.100003
Preference share capital - - -
Reserves & surplus 18,142.82 12,317.96 9,470.71 72.31332 64.86165 72.22289
Loan funds
Secured loans 955.73 1,102.38 308.53 3.809331 5.80471 2.352825
Unsecured loans 5,845.10 5,453.65 3,275.46 23.29729 28.71683 24.9784
Total 25,089.18 18,991.13 13,113.17 100 100 100
Uses of funds
Fixed assets
Gross block 7,235.78 5,575.00 4,188.91 28.84024 29.35581 31.9443
Less : revaluation reserve 23.29 24.59 25.9 0.092829 0.129482 0.197511
Less : accumulated depreciation 1,727.68 1,421.39 1,242.47 6.886156 7.484494 9.474978
Net block 5,484.81 4,129.02 2,920.54 21.86126 21.74183 22.27181
Capital work-in-progress 857.66 1,040.99 699 3.418446 5.481454 5.330519
Investments 13,705.35 8,263.72 6,922.26 54.62654 43.51358 52.78861
Net current assets
Current 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 106.2151
Total 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 0.023335
Total 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 10.70618
Contingent 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.

26
 Common Size Income Statement
Rs. Crore Rs. Crore
%age %age
Particulars Mar ' 10 Mar ' 09 change change
in 2010 in 2009

Income
Operating income 36,870.19 33,856.54 100.5318 100.624

Expenses
Material consumed 10,016.52 9,211.27 27.31146 27.37655
Manufacturing expenses  17,247.39 16,115.56 47.02746 47.89659
Personnel expenses 2,379.14 1,998.02 6.487063 5.938258
Selling expenses 306.22 312.1 0.834952 0.927583
Administrative expenses 1,873.59 2,102.05 5.108609 6.247442
Expenses capitalized -36.25 -24.48 -0.09884 -0.07276
Cost of sales 31,786.61 29,714.52 86.6707 88.31367
Operating profit 5,083.58 4,142.02 13.8611 12.31038
Other recurring income 974.59 748.8 2.657358 2.225487
Adjusted PBDIT 6,058.17 4,890.82 16.51846 14.53587
Financial expenses 995.37 770 2.714018 2.288495
Depreciation  383.65 284.83 1.046076 0.846535
Other write offs 30.95 21.16 0.08439 0.062889
Adjusted PBT 4,648.20 3,814.83 12.67398 11.33795
Tax charges  1,577.02 1,176.19 4.299969 3.49572
Adjusted PAT 3,071.18 2,638.64 8.374008 7.842226
Non- recurring items 1,347.08 863.78 3.673005 2.567216
Other non cash adjustments -45.13 -21.09 -0.12305 -0.06268
Reported net profit 4,373.13 3,481.33 11.92396 10.34676
Earnings before appropriation 4,473.63 3,585.64 12.19799 10.65678
Equity dividend 752.75 614.97 2.05248 1.827735
Preference dividend - -
Dividend tax 110.25 101.83 0.300612 0.302646
Retained 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.

27
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 Statement

Rs. Crore Rs. Crore Rs. Crore
trend trend trend
Particulars Mar ' 10 Mar ' 09 Mar ' 08
%’10 %’09 %’08
Income
net 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

Expenses
Material 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

28
 Equity dividend 752.75 614.97 495.32 2.05248 1.827735 1.49092
Preference dividend - - -
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 Statement

Rs. Crore
cash from operating activities
Profit before tax 5,880.67
add non-cash/non-operating expenses
depreciation and amortization 414.6
interest expenses 505.31
exchange difference on items grouped under financing activity 7.04
discount forming part of staff expenses 162.98
provision for diminution in value of investments 47.1
less non cash/non-operating income
dividend received 414.6
interest income 128.39
profit on sale of fixed assets 4.02
profit on sale of investments 1254.44
operating profit before change in working capital 5243.82

29
Add
decrease in inventories 34.47
decrease in other expenditures 0.26
increase in current liabilities 4697.83
Less
increase in trade and in other receivables 2974.35
cash generated from operations 7002.03
less: direct taxes refund 1519.28
A net cash from operating activities 5482.75

cash from investing activities

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

cash from financing activities

Add
issue of share capital 2132.74
proceed from long term borrowings 1255.88
loans from subsidiary 20
Less
repayment of long term borrowings 587.91
repayment of other borrowings 324.42
dividend paid 617.01
additional tax on dividend 102.18
interest paid 531.54
C net cash from financing activities 1245.56
net 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

31
thats why their cash flow from financing activity in 09-10 is less than as compared to
08-09.
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 STATEMENTS

Introduction:
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 2010 2009 Effect on WC Effect on WC
Rs(in mn) Rs(in mn)
Increase Decrease

Current assets

Inventories
1415.37 1470.51 55.14

32
 Sundry debtors 11163.70 9903.13 1260.57
Cash and bank balance 1431.87 775.29 656.58
Other current assets 6353.22 4356.10 1997.12

Loans and advances 5997.45 5819.36 178.09

TOTAL 26361.61 22324.39 4037.22
Current liabilities
Current liabilities 19054.50 14776.15 4278.35
Provisions 2188.36 1942.63 245.73
TOTAL 21242.86 16718.78 4524.08
Working capital 5118.75 5605.61
Net decrease in
working capital 486.86 486.86
5605.61 5605.61 4524.08 4524.08

STATEMENT OF FUNDS FROM OPERATIONS

Particulars details Amount
Closing balance of profit and loss account 107.29
Add: non-fund/non-operating expenses
Depreciation 384.95
Amortisation 30.95
Transfer to general reserves 3460.00
Transfer to debenture redemption reserve 43.34
Total (A) 3919.24
Less: non-operating/non-fund income
Profit on sale of fixed assets 4.02
Profit on sale of investments 1252.44
Dividend received 387.03
Total (B) 1654.49
Funds 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 661

33
 borrowings
Interest received 104.80 Repayments of long term 587.91
borrowings
Dividend received from subsidiaries 88.91 Interest paid 633.72
Dividend received from investments 298.12 Dividend paid 531.54
Short 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 sheet

34
Cost 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
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 7056.22

Direct Labour 1922.50 1605.20
Direct expenses 28453.55 26271.62
Prime cost 37239.21 34933.04
Add: Factory overheads
Depreciation 384.95 286.14
Amortisation 30.95 21.16
TOTAL FACTORY 41.59 41.59 307.30
OVERHEADS
Factory cost 37280.8 35240.34
Add: Administrative
expenses
Power and fuel 334.08 456.39
Insurance 162.72 74.99
Rent 146.63 127.58
Repairs to buildings 5.50 8.45
General repairs and 118.88 98.09
maintenance
Director’s fees 0.18 0.22
Telephone postage and 65.51 68.93
telegrams
Stationary and printing 32.52 34.68
Total administrative 866.02 869.33
expenses
Cost of production 38146.82 36109.67
Add: S&D expenses
Packaging and 116.45 161.04
forwarding
Travelling and 133.08 172.41
conveyance

35
 Advertising and publicity 65.51 68.93
Commission:
Distributors and agents 27.89 37.59
Other 45.66 9.99
Total S&D overheads 388.59 449.96
TOTAL COST 38535.41 36559.63
Profit/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

36