A PROJECT REPORT ON RATIO ANALYSIS OF

PREPARED BY EKTA K PATEL.

•CLASS: M.B.A. SEM. -1•Roll No: 38•COLLEGE : PARUL INSTITUTE OF MANAGEMENT•SUBMITTED TO : PARUL INSTITUTE OF MANAGEMENT • GUIDED BY: PROFESSOR PRIYANKA V. MOHILE

GENERAL INFORAMATION

LG Electronics is a global electronics and telecommunications company headquartered in Yeouido, Seoul, South Korea. The

company operates its business through five divisions: mobile communications, home entertainment, home appliance, air

conditioning and business solution. LG Electronics is the world's second-largest manufacturer of television sets] and third-largest producer of mobile phones. It is a flagship subsidiary company of

LG Group, one of the world's largest electronic

conglomerates.

The company has 75 subsidiaries worldwide that design and manufacture televisions, home appliances, and

telecommunications devices. LG Electronics owns Zenith Electronics and controls 37.91 percent of LG Display. Its mobile

communications division provides mobile communication terminals, personal computers and communication devices. The home entertainment division offers liquid crystal display (LCD)

televisions (TVs), plasma display panel (PDP) TVs, PDP modules, and audio, video and storage devices. The home appliance

division provides refrigerators, washing machines, microwave ovens, cleaners, compressors, motors and others. The air

conditioning division provides air conditioners and solar cells. Its business solution division provides integrated solutions of

hardware, software, network, contents and systems.

Type: Public

Traded as: KRX: 066570 LSE: LGLD

Industry:Consumer electronicsHome appliancesTelecommunications

Founded: 1958

Headquarters: Seoul, South Korea

Area served: Worldwide

Key people: Koo Bon-joon(Vice Chairman and CEO)

Product:s

Computer monitorsFlash memoryTelevisionsSmartphonesTabletsMobile phonesDVD playersBlu-ray playersHome Cinema systemsMovie projectorsLaptopsCD and DVD drivesRefrigeratorsWashing machinesVacuum cleanersAir conditioners

Revenue: US$ 48.2 billion (2010)

Net income: US$ 1.1 billion (2010)

Employees: 82,772

Parent: LG Group

Website www.lge.comwww.lg.com

COMPANY PROFILE:

VISION & MISSION:LG Electronics will focus its management efforts on stakeholder value creation by connecting the

essence of corporate management with the principles, strategies, and tools of CSM.

• Lenders’ need it for carrying out the following

• Technical Appraisal• Commercial Appraisal• Financial Appraisal• Economic Appraisal• Management Appraisal

It’s a tool which enables the banker or lender to arrive at the following factors :

• Liquidity position• Profitability• Solvency• Financial Stability• Quality of the Management• Safety & Security of the loans & advances to

be or already been provided

As Percentage - such as 25% or 50% . For example if net profit is Rs.25,000/- and the sales is Rs.1,00,000/- then the net profit can be said to be 25% of the sales.

As Proportion - The above figures may be expressed in terms of the relationship between net profit to sales as 1 : 4.

As Pure Number /Times - The same can also be expressed in an alternatively way such as the sale is 4 times of the net profit or profit is 1/4th of the sales.

Balance Sheet Ratio

P&L Ratio or Income/Revenue Statement

Ratio

Balance Sheet and Profit & Loss Ratio

Financial Ratio Operating Ratio Composite Ratio

Current RatioQuick Asset RatioProprietary RatioDebt Equity Ratio

Gross Profit RatioOperating RatioExpense RatioNet profit RatioStock Turnover Ratio

Fixed Asset Turnover Ratio, Return on Total Resources Ratio, Return on Own Funds Ratio, Earning per Share Ratio, Debtors’ Turnover Ratio,

LIABILITIES ASSETS

NET WORTH/EQUITY/OWNED FUNDSShare Capital/Partner’s Capital/Paid up Capital/ Owners FundsReserves ( General, Capital, Revaluation & Other Reserves) Credit Balance in P&L A/c

FIXED ASSETS : LAND & BUILDING, PLANT & MACHINERIES Original Value Less DepreciationNet Value or Book Value or Written down value

LONG TERM LIABILITIES/BORROWED FUNDS : Term Loans (Banks & Institutions)Debentures/Bonds, Unsecured Loans, Fixed Deposits, Other Long Term Liabilities

NON CURRENT ASSETSInvestments in quoted shares & securitiesOld stocks or old/disputed book debtsLong Term Security DepositsOther Misc. assets which are not current or fixed in nature

CURRENT LIABILTIESBank Working Capital Limits such as CC/OD/Bills/Export CreditSundry /Trade Creditors/Creditors/Bills Payable, Short duration loans or depositsExpenses payable & provisions against various items

CURRENT ASSETS : Cash & Bank Balance, Marketable/quoted Govt. or other securities, Book Debts/Sundry Debtors, Bills Receivables, Stocks & inventory (RM,SIP,FG) Stores & Spares, Advance Payment of Taxes, Prepaid expenses, Loans and Advances recoverable within 12 months

INTANGIBLE ASSETSPatent, Goodwill, Debit balance in P&L A/c, Preliminary or Preoperative expenses

• Liabilities have Credit balance and Assets have Debit balance

• Current Liabilities are those which have either become due for payment or shall fall due for payment within 12 months from the date of Balance Sheet

• Current Assets are those which undergo change in their shape/form within 12 months. These are also called Working Capital or Gross Working Capital

• Net Worth & Long Term Liabilities are also called

• Assets other than Current Assets are Long Term Use of Funds • Installments of Term Loan Payable in 12 months are to be taken as

Current Liability only for Calculation of Current Ratio & Quick Ratio.• If there is profit it shall become part of Net Worth under the

head Reserves and if there is loss it will become part of Intangible Assets

• Investments in Govt. Securities to be treated current only if these are marketable and due. Investments in other securities are to be treated Current if they are quoted. Investments in allied/associate/sister units or firms to be treated as Non-current.

• Bonus Shares as issued by capitalization of General reserves and as such do not affect the Net Worth. With Rights Issue, change takes place in Net Worth and Current Ratio.

1. Current Ratio : It is the relationship between the current assets and current liabilities of a concern.

Current Ratio = Current Assets/Current Liabilities

If the Current Assets and Current Liabilities of a concern are Rs.4,00,000 and Rs.2,00,000 respectively, then the Current Ratio will be : Rs.4,00,000/Rs.2,00,000 = 2 : 1

The ideal Current Ratio preferred by Banks is 1.33 : 1

2. Net Working Capital : This is worked out as surplus of Long Term Sources over Long Tern Uses, alternatively it is the difference of Current Assets and Current Liabilities.

NWC = Current Assets – Current Liabilities

3. ACID TEST or QUICK RATIO : It is the ratio between Quick Current Assets and Current Liabilities.

Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months + Quickly realizable securities such as Govt. Securities or quickly marketable/quoted shares and Bank Fixed Deposits

Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities

Example : Cash 50,000Debtors 1,00,000Inventories 1,50,000 Current Liabilities 1,00,000Total Current Assets 3,00,000

Current Ratio = > 3,00,000/1,00,000 = 3 : 1Quick Ratio = > 1,50,000/1,00,000 = 1.5 : 1

4. DEBT EQUITY RATIO : It is the relationship between borrower’s fund (Debt) and Owner’s Capital (Equity).

Long Term Outside Liabilities / Tangible Net Worth

Liabilities of Long Term Nature

Total of Capital and Reserves & Surplus Less Intangible Assets

For instance, if the Firm is having the following :

Capital = Rs. 200 Lacs Free Reserves & Surplus = Rs. 300 Lacs Long Term Loans/Liabilities = Rs. 800 Lacs

Debt Equity Ratio will be => 800/500 i.e. 1.6 : 1

5. PROPRIETARY RATIO : This ratio indicates the extent to which Tangible Assets are financed by Owner’s Fund.Proprietary Ratio = (Tangible Net Worth/Total Tangible Assets) x 100

The ratio will be 100% when there is no Borrowing for purchasing of Assets.

6. GROSS PROFIT RATIO : By comparing Gross Profit percentage to Net Sales we can arrive at the Gross Profit Ratio which indicates the manufacturing efficiency as well as the pricing policy of the concern.

Gross Profit Ratio = (Gross Profit / Net Sales ) x 100

Alternatively , since Gross Profit is equal to Sales minus Cost of Goods Sold, it can also be interpreted as below :

Gross Profit Ratio = [ (Sales – Cost of goods

sold)/ Net Sales] x 100 A higher Gross Profit Ratio indicates efficiency in production of

the unit.

7. OPERATING PROFIT RATIO : It is expressed as => (Operating Profit / Net

Sales ) x 100

Higher the ratio indicates operational efficiency

8. NET PROFIT RATIO :

It is expressed as => ( Net Profit / Net Sales ) x 100

It measures overall profitability.

9. STOCK/INVENTORY TURNOVER RATIO :

(Average Inventory/Sales) x 365 for days (Average Inventory/Sales) x 52 for weeks

(Average Inventory/Sales) x 12 for months

Average Inventory or Stocks = (Opening Stock + Closing Stock)

-----------------------------------------

2

. This ratio indicates the number of times the

inventory is rotated during the relevant accounting period

10. DEBTORS TURNOVER RATIO : This is also called Debtors

Velocity or Average Collection Period or Period of Credit given .

(Average Debtors/Sales ) x 365 for days (52 for weeks & 12 for months)

11. ASSET TRUNOVER RATIO : Net Sales/Tangible Assets

12. FIXED ASSET TURNOVER RATIO : Net Sales /Fixed Assets

13. CURRENT ASSET TURNOVER RATIO : Net Sales / Current Assets

14. CREDITORS TURNOVER RATIO : This is also called Creditors Velocity Ratio, which determines the creditor payment period.

(Average Creditors/Purchases)x365 for days (52 for weeks & 12 for months)

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

( Net Profit before Interest & Tax / Average Capital Employed) x 100 Average Capital Employed is the average of the equity share

capital and long term funds provided by the owners and the creditors of the firm at the beginning and end of the accounting period.

Composite Ratio

17. RETRUN ON EQUITY CAPITAL (ROE) : Net Profit after Taxes / Tangible Net Worth

18. EARNING PER SHARE : EPS indicates the quantum of net profit of the year that would be ranking for dividend for each share of the company being held by the equity share holders.

Net profit after Taxes and Preference Dividend/ No. of Equity Shares

19. PRICE EARNING RATIO : PE Ratio indicates the number of times the Earning Per Share is covered by its market price.

Market Price Per Equity Share/Earning Per Share

20. DEBT SERVICE COVERAGE RATIO : This ratio is one of the most

important one which indicates the ability of an enterprise to meet its liabilities by way of payment of installments of Term Loans and Interest thereon from out of the cash accruals and forms the basis for fixation of the repayment schedule in respect of the Term Loans raised for a project. (The Ideal DSCR Ratio is considered to be 2 )

PAT + Depr. + Annual Interest on Long Term Loans & Liabilities

--------------------------------------------------------------------------------- Annual interest on Long Term Loans & Liabilities + Annual

Installments payable on Long Term Loans & Liabilities ( Where PAT is Profit after Tax and Depr. is Depreciation)