SUMMER TRAINING PROJECT REPORT ON RATIO ANALYSIS OF L.G LTD.

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE MASTERS DEGREE IN BUSINESS ADMINISTRATION OF UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUN

SUBMITTED TO: INTERNAL GUIDE DR.ATUL AGGARWAL Professors IMS Dehradun EXTERNAL GUIDE RUPAM PANDEY Assistant manager L.G. LTD. SELAQUI

SUBMITTED BY AKSHAYPANWAR (MB11B32)

INSTITUTE OF MANAGEMENT STUDIES, DEHRADUN BATCH (2011-13)

ACKNOWLEDGEMENT

This project has been made possible through the direct and indirect cooperation of various persons for whom I wish to express my appreciation and gratitude. I express my deep sense of thankful to the various sources both known and unknown from where I obtained information, help, cooperation and support carrying out and completing this project. My acknowledgement will not be complete if I do not express my sincere thanks to all my friends for their suggestion and encouragement in carrying out this report.

AKSHAY PANWAR

EXECUTIVE SUMMARY LG Electronics brand recognition in the global consumer electronics market has increased exponentially in the past two years. The company successfully achieved Global Top 3 status in almost every business area in the first quarter of this year. Much of this success can be attributed to LG Electronics commitment to drive Innovation and Globalization. LG Electronics is re-inventing its global procurement organization from highly decentralized to center-led, establishing streamline procurement leadership across five business units (companies) and eight regions. LGEs procurement is currently comprised of 2,200 staff who are part of an 84,000-strong workforce in 115 operations globally, managing US$26 billion direct spend and US$10 billion general spend, led by Tom Linton, Executive Vice President and Chief Procurement Officer. The profitability of LG Electronics is heavily dependent on procurements performance and efficiency since its spend represents 80 percent of revenues. LG Electronics procurement is repositioning the organization to a new level while maintaining its focus on high quality manufacturing and becoming a global top brand.

INDEX
TITLE PAGE ACKNOWLEDGEMT EXECUTIVE SUMMARY INTRODUCTION TO THE STUDY REAEARCH METHODOLOGY COMPANY PROFILE OBJECTIVE OF THE STUDY REVIEW OF LITERATURE FINANCIAL ANALYSIS AND FINDINGS FINDINGS SUGGESTIONS BIBLOGRAPHY

OBJECTIVE OF THE STUDY

To analyze the financial performance of LG Electronics India Ltd. Projection of financial performance of the company for the last five years To measure the overall performance and effectiveness of LG Electronics India Ltd. Using Profitability Ratios. To measure the efficiency of LG Electronics India Ltd. Through Activity ratios To measure the LG Electronics India Ltd. Ability to meet the interest cost and repayments schedules of its long term obligations using Solvency ratios To measure the contribution of financing by owners as compared to Financing by outsiders using ratios of Capital Structure.

INTRODUCTION TO THE STUDY

Notable study of the RATIO ANALYSIS OF LG ELECTRONICS INDIA LIMITED is an attemt being made to find out the the soundness of the firm in dealing with present market competition and in getting a view how the performance is going on for the last five years. The ultimate aim of every business undertaking is to maximize the wealth of the shareholder. The study begins with framing the objective of the study and then devising a methodology for the the fulfillment of the objective. In the present study vertical analysis of the balance sheet, comparison of profit and loss account of last five year from 20007-12 has been done.Besides ratios have been introduced to find the quantitative relationship between figure and group of figures. Following are the four steps involved in the ratio analysis: Selection of relevant data from the financial statement depending upon the objective of the analysis. Calculation of appropriate ratios from the above data. Comparison of calculated ratios with the ratios of the same firm in the past. Interpretation of the ratio The relationship between two accounting figures expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firms financial performance. For example, consider current ratio. It is calculated by dividing current assets by current liabilities; the ratio indicates a

relationship- a quantified relationship between current assets and current liabilities. This relationship is an index or yardstick, which permits a quantitative judgment to be formed about the firms liquidity and vice versa. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios.

Standards of comparison:
The ration analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of: Past ratios, i.e. ratios calculated form the past financial statements of the same firm; Competitors ratios, i.e., of some selected firms, especially the most progressive and successful competitor, at the same pint in time; Industry ratios, i.e. ratios of the industry to which the firm belongs; and Protected ratios, i.e., developed using the protected or proforma, financial statements of the same firm.In this project calculating the past financial statements of the same firm does ratio analysis.

1.1 Theoretical background:

1.1.1 Use and significance of ratio analysis:The ratio is one of the most powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. Ratio analysis stands for the process of determining and presenting the relationship of items and groups of items in the financial statements. It is an important technique of the financial analysis. It is the way by which financial stability and health of the concern

can be judged. Thus ratios have wide applications and are of immense use today. The following are the main points of importance of ratio analysis:

a) Managerial uses of ratio analysis:1. Helps in decision making:Financial statements are prepared primarily for decision-making. Ratio analysis helps in making decision from the information provided in these financial Statements. 2. Helps in financial forecasting and planning:Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years a work as a guide for the future. Thus, ratio analysis helps in forecasting and planning. 3. Helps in communicating:The financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios. Thus, ratios help in communication and enhance the value of the financial statements. 4. Helps in co-ordination:Ratios even help in co-ordination, which is of at most importance in effective business management. Better communication of efficiency and weakness of an enterprise result in better co-ordination in the enterprise 5. Helps in control:Ratio analysis even helps in making effective control of business.The weaknesses are otherwise, if any, come to the knowledge of the managerial, which helps, in effective control of the business.

b) Utility to shareholders/investors:-

An investor in the company will like to assess the financial position of the concern where he is going to invest. His first interest will be the security of his investment and then a return in form of dividend or interest. Ratio analysis will b useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.

C) Utility to creditors: The creditors or suppliers extent short-term credit to the concern. They are invested to know whether financial position of the concern warrants their payments at a specified time or not.

d) Utility to employees:The employees are also interested in the financial position of the concern especially profitability. Their wage increases and amount of fringe benefits are related to the volume of profits earned by the concern.

e) Utility to government:Government is interested to know overall strength of the industry. Various financial statement published by industrial units are used to calculate ratios for determining short term, long-term and overall financial position of the concerns.

f) Tax audit requirements:Sec44AB was inserted in the income tax act by financial act; 1984.Caluse 32 of the income tax act requires that the following accounting ratios should be given: 1. Gross profit/turnover. 2. Net profit/turnover. 3. Stock in trade/turnover. 4. Material consumed/finished goods produced.

Further, it is advisable to compare the accounting ratios for the year under consideration with the accounting ratios for earlier two years so that the auditor can make necessary enquiries, if there is any major variation in the accounting ratios.

1.1.2 Limitations:
Ratio analysis is very important in revealing the financial position and soundness of the business. But, inspite of its advantages, it has some limitations which restrict its use. These limitations should be kept in mind while making use of ratio analysis for interpreting the financial the financial statements. The following are the main limitations of ratio analysis: 1. False results:Ratios are based upon the financial statement. In case financial statement are in correct or the data of on which ratios are based is in correct, ratios calculated will all so false and defective. The accounting system it self suffers from many inherent weaknesses the ratios based upon it cannot be said to be always reliable. 2. Limited comparability:The ratio of the one firm cannot always be compare with the performance of other firm, if uniform accounting policies are not adopted by them. The difference in the methods of calculation of stock or the methods used to record the deprecation on assets will not provide identical data, so they cannot be compared. 3. Absence of standard universally accepted terminology:Different meanings are given to a particular term, egg. Some firms take profit before interest and tax; others may take profit after interest and tax. A bank overdraft is taken as current liability but some firms may take it as non-current liability. The ratios can be comparable only when all the firms adapt uniform terminology. 4. Price level changes affect ratios:-

The comparability of ratios suffers, if the prices of the commodities in two different years are not the same. Change in price effect the cost of production, sale and also the value of assets. It means that the ratio will be meaningful for comparison, if the prices do not change. 5. Ignoring qualitative factors:Ratio analysis is the quantitative measurement of the performance of the business. It ignores qualitative aspect of the firm, how so ever important it may be. It shoes that ratio is only a one sided approach to measure the efficiency of the business. 6. Personal bias:Ratios are only means of financial analysis and an end in it self. The ratio has to be interpreted and different people may interpret the same ratio in different ways. 7. Window dressing:Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to be very carefully in making a decision from ratios calculated from such financial statements. 8. Absolute figures distortive:Ratios devoid of absolute figures may prove distortive, as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

1.1.3 Classification of ratios:

Several ratios, calculated from the accounting data can be grouped into various classes according to financial activity or function to be evaluated. Mangement is interested in evaluating every aspect of the firms performance. They have to protect the interests of all parties and see that the firm grows profitably.In view of thee reqirement of the various users of ratios, ratios are classified into following four important categories: Liquidity ratios Leverage ratios Profitability ratios - short-term financial strength - long-term financial strength - long term earning power

 Activity ratios

- term of investment utilization

Liquidity ratios measure the firms ability to meet current obligations; Leverage ratios show the proportions of debt and equity in financing the firms assets; Activity ratios reflect the firms efficiency in utilizing its assets; Profitability ratios measure overall performance and effectiveness of the firm It is difficult to give exhaustive list of accounting ratios. However, a list of common, relevant and important ratios can definitely be attempted. Moreover, these ratios these ratios can be grouped on the basis of some or other common feature. Therefore, the ratios can be studied by classifying into following groups: (a) The Liquidity Ratio 1. Current ratio 2. Quick Ratio (b) The Activity Ratio 1. Debtors Turnover Ratio 2. Fixed Asset Turnover Ratio 3. Current Asset Turnover Ratio 4. Total Asset Turnover Ratio 5. Working Capital Turnover Ratio (c) The Leverage Ratio 1. Debt Equity Ratio 2. Proprietary Ratio 3. Solvency Ratio 4. Interest Coverage Ratio 5. Fixed Asset To Net Worth (d) The Profitability Ratio 1. Gross Profit Ratio

2. Net Profit Ratio 3. Operating Margin Ratio 4. Earning Per Share 5. Dividend Per share 6. Dividend Payout Ratio

THE LIQUIDITY RATIO

The liquidity refers to maintenance of cash, bank balance, which are easily convertible into cash in order to meet the liabilities as and when arising. So the liquidity ratio study the firms short term solvency and its ability to pay of its liabilities. It should be intuitive to observe that a firm, no matter how profitable it is, cannot continue to exist unless it is able to meet its obligations as they arise. The day to day problems of financial management consists of highly important task of finding sufficient cash to meet current obligations. To the extent that a firm has to make payments to its suppliers before it is paid to for the goods and services it provides, a cash short fall has to be met, usually through the short-term borrowings. The liquidity ratios are devised to keep a track on the extent of the firms exposure to the risk that it will meet its shortterm obligation These ratios as a group are intended to provide information about a firms liquidity and the primary concern is the firms ability to pay its current liabilities. The liquidity ratios provide a quick measure of liquidity of the firm by establishing relationship between its current assets and current liabilities. If a firm does not have sufficient liquidity, it may not be in a position to meet its commitments and thereby loose its credit worthiness.

THE ACTIVITY RATIO

The Activity Ratios are also called the Turnover Ratios or Performance Ratios as they highlight the ability of management to convert or turn over assets of the firm into Sales. Activity Ratios measure the efficiency of a firm in employing the available resources. Such ratio reflects the degree of effectiveness of fund utilization in the business activity. A Turnover Ratio or an Activity Ratio is a measure of movement and thus indicates as to how frequently an account has moved/turned over a period. These Ratios make a comparative study of the level of sales and the investment into various assets accounts. A sharp rise in this ratio may indicate that a company is expanding too quickly, and is allowing sales to increase more rapidly then the underlying asset base. Conversely a reduction in the ratio can indicate a decline in efficiency or fall in demand for the firms product. These ratios are usually calculated with reference to sales/cost of goods sold and are expressed in terms of rate or times.

THE LEVERAGE RATIO

The financial position of a company can be studied and analyzed on two perspective i.e. the Short-Term financial position and the Long Term financial position. The Short-Term financial, which is also known as the Short-Term Liquidity position or simply the Liquidity of the Firm has already been discussed with the help of Liquidity Ratio. Leverage Ratio deals with LongTerm financial position, its composition and implications. Leverage indicates of the use a company makes of the borrowed funds to increase the return on

Owners Equity. Leverage ratios measures the contribution of financing by owners compared with financing provided by firms Creditors. The proportion of debt capital to the total capital of the firm is usually referred to as Leverage or Trading on the Equity. Since the debt involves firms commitment to pay interest over the long run and eventually to repay the principal amount, the financial analyst, the debtlender, the preference shareholders, the equity shareholders and management will pay close attention to the degree of indebtedness and the capacity of the firm to serve the debt. The more the debt a firm uses, the higher is the probability that the firm may be unable to fulfill its commitments towards its debtlender The ability to obtain and to repay a Long-Term debt often depends on the firms ability to obtain capital from shareholders. Therefore the relation between shareholders equity and creditors equity is evaluated.

THE PROFITABILITY RATIOS

The last group of financial ratios and probably the most often used group of ratios are the Profitability Ratios. The Profitability Ratios measure the Operational efficiency of the firm. There are two groups of persons who are may be specifically interested in the analysis of the profitability of the firm. The management which is interested in overall profitability The Shareholders who are interested in ultimate return available to them. The performance of the firm can be evaluated in terms of its earnings with reference to a given level of assets or sales or owners interest etc. Profitability ratios based on Sales of the Firm

Profits are a factor of sales and are earned indirectly as a part of sales revenue. So whenever a firm makes sales, it earns profit. But how much? How is the total sales revenue is going to be used for meeting the cost of goods sold, indirect expenses and return to shareholders etc. All this aspect can be analyzed with the help of Profitability Ratio Profitability ratios based on Assets/Investments A financial analyst can employ another set of financial ratios to find out how efficiently the firm is using its assets because the profitability of a firm can be analyzed with reference to assets employed to earn a return. Normally, the more the assets employed, greater should be the profits and vice-versa. Profitability analysis from point of view of Owners Ultimately the profits of the firm belong to the owners who have invested their funds in the form of equity capital or preference share capital or retained earnings.

LIQUIDITY RATIOS:
It is extremely essential for a firm to be able to meet the obligations as they become due. Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities). The liquidity ratios reflect the short-term financial strength and solvency of a firm. In fact, analysis of liquidity needs the preparation of cash budgets and cash and funds flow statements; but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not have excess liquidity. The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor credit worthiness, loss of credit worthiness, loss of creditors confidence, or even in legal tangles resulting in the closure of the company. A very high degree of liquidity is

also bad; idle assets earn nothing. The firms funds will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most common ratios which indicate the extent of liquidity are lack of it, are: (i) Current ratio (ii) Quick ratio. (iii)Cash ratio and (iv)Networking capital ratio.

1.2 RESEARCH METHODOLOGY

1.2.1Need for the study:
The problems, which are common to most of the public sectors under taking, are materials scarcity. Capacity utilization and mainly working capital requirements and Eswar rubber Pvt.Ltd. are no exception. Thus the importance of the study reveals as to how efficiently the working cap[ital has been used so far in the organization. 1.2.2 SCOPE OF THE STUDY: The scope of the study is limited to collecting financial data published in the annual reports of the company every year. The analysis is done to suggest the possible solutions. The study is carried out for 5years(2007-12). 1.2.3 Objectives of the study:

To examine the financial performance of the LG LTD. for the period of 2007 to 2012. To analyses interpret and to suggest the operational efficiency of the LG LTD by comparing the balance sheet& profit & loss A\c

To critically analyses the financial performance of the LG LTD With Help of the ratios. 1.2.4 Data sources: The study is based on secondary data. However the primary data is also collected to fill the gap in the information..

Primary data will be through regular interaction with the officials of LG LTD

Secondary data collected from annual reports and also existing manuals and like company records balance sheet and necessary records.

1.2.5 LIMITATIONS: The study is based on only secondary data. The period of study was 2007-12 financial years only.

COMPANYS PROFILE
A better life with Digital is LG Electronics Digital Appliance Companys (DAC) mission. LGE DAC has been making ceaseless efforts to create a new culture in our daily life to present convenience to all its customers all over the world.

In the midst of the revolutionary era never experience before, LG has taken the initiative to be at the forefront. For instance, LGE DAC introduced the world first internet home network products among many other market innovative products in the global appliance market last year. A futuristic life you have only dreamed about is now available to you.

This and many more is attributed to LGE DACs product leadership and innovative activities, LGE DAC is achieving rapid growth to become the leading global home appliance company. LG DAC is recognized in the market along the world for its innovative home appliances.

LGE DACs success is based on their Fast Innovative activity, which in tern is based on LGE DACs management philosophy of Great Company, Great people (GCGP). It believes that a great company produce great people and great people makes a great company and this synergistic relationship is the foundation of their success. Gearing Up To Become the Global Digital Leader

At LGE, there have been innovators of technology and products that can break into new marketplace for the four decades since the LGE foundation day in 1958. At present, 5300 employee of 72 domestic and overseas establishments lead the way in the global electronics industry.

LG ELECTRONICS INDIA LIMITED (LG EIL) is a wholly owned subsidiary of LG Electronics, South Korea. The company started its operation in Delhi, in May 1997 and within a short span of thirty months, LGEIL had achieved a turnover of approximately 1,900 crores. LGEIL has introduced its wide range of products to the Indian Consumers and has successfully carved a niche for itself. LGEIL success story is a result of its investment in cutting-edge technology and its relentless efforts to bring home the smiling face.

The all-out efforts guided by digital LG, the 21 st century vision announced in 1999, have resulted in flourishing product and technological innovations that combined with the corporate resources and that enriched the LGE digital culture.

As their Digital LG Vision has progressed, they have reached a place where they are now, setting new standards worldwide in the digital technologies and products. For instance, their internet-featured home appliance digital TVs, next generation mobile handsets and other digital products are on the global leading edge.

As for the future business cores, LGE have directed their energies in Research and Development for the home network technologies and introduced the worlds first home network appliances. Extraordinary Innovation Activities At DAC, Total Productivity control, 3 by 3 and 6sigma have been the vehicles driving the innovation activities which made them the pioneers in the digital world.

DAC VISION AND PHILOSOPHY One of the Global Majors At the Digital Appliance Company (DAC), one of the LGs three-holding companies, the mid-term goal is becoming a global major player in the digital appliance field by 2005. To this end, DAC is refocusing on global management, strategic alliances, innovations and employee performance-based activities, along with Great Company Great People (GCGP) initiatives and Fast Innovation Management.

Fast Innovation High-powered management is indispensable to accelerating towards our goal of becoming the major global player in the time of hyper competition. DACs Fast Innovation has functioned as a competitive-empowering strategy and groundbreaking technology three years ahead of others. The Fast Innovation aims at solidifying lowcost and high efficiency business structure while speeding up overall innovations 30% faster than those of competitors. Great Company Great People (GCGP) A great company is built by encouraging great aspirations. The dedicated employees at DAC are devoted to achieve professional growth and amplifying the corporate resources. Our great people meet the challenges to help build DAC into a strong presence.

In the Lead of Digital-Ware

Since the 1960s, DACs full-scale global markets in 160 countries and establish manufacturing plants, sales and branch offices in key global locations today.

Welcoming the revolution from home appliances and internet-featured appliances to diverse home appliances, DAC is in the lead in the digital appliance industry.

CORE VALUES
Ownership: This is our company. We accept personal responsibility, and accountability to meet business needs Passion For Winning: We all are leaders in our area of responsibility, with a deep commitment to deliver results. We are determined to be the best at doing what matters most People Development: People are our most important asset. We add value through result driven training, and we encourage & reward excellence Consumer Focus: We have superior understanding of consumer needs and develop products to fulfill them better Team Work: We work together on the principle of mutual trust & transparency in a boundary-less organization. We are intellectually honest in advocating proposals, including recognizing risks Innovation: Continuous innovation in products & processes is the basis of our success Integrity: We are committed to the achievement of business success with integrity. We are honest with consumers, with business partners and with each other

HUMAN RESOURCE

Today the organisation draws its strength from the highly motivated workforce which consists of qualified, trained and experienced Managers, Engineers, Supervisors and Workmen, ever willing to meet the exacting and changing demands of the enlightened customers, and wholly committed to working towards the companys vision of leadership in the Transformer Industry. While the Workmen and Supervisors undergo the induction training, the Graduate Engineers undergo a vigorous one-year training programme to gain skill, knowledge and competence, in order that they can measure upto the challenging tasks and assume higher responsibilities. For achieving Managerial excellence, individuals identified for taking up vital Managerial position undergo long-term training in the reputed Premier Management Institutes of the country. Employees at various levels and from diverse functions are exposed to various Technical and Behavioral training programmes based on the identified needs for selfdevelopment and for the enhancement of organisational effectiveness.

Review of literature:

Financial statements have two major uses in financial analysis .first, they are used to present a historical recover of the firms financial development. Second, they are used for a course of action for the firm. A performance financial statement is prepared for a future period. It is the financial managers estimate of the firms future performance. The operation and performance of a business depends on many individuals are collective decisions that are continually made by its management team. Every one of these decisions ultimately causes a financial impact, for better or works on the condition and the periodic results of the business. In essence, the process of managing involves a series of economic choices that activates moments of financial resources connected with the business. Some of the decisions made by management one will be the major, such as investment in a new facility, raising large amounts of debts or adding a new line of products or services. Most other decisions are part of the day to day process in which every functional area of the business is managed. The combine of effect of all decisions can be observed periodically when the performance of the business is judged through various financial statements and special analysis. These changes have profoundly affected all our lives and it is important for corporate managers, share holders, tenders, customers and suppliers to investment and the performance of the corporations on which then relay. All who depend on a corporation for products, services, or a job must be med about their companys ability to meet their demands time and in this changing world. The growth and development of the corporate enterprises is reflected in their financial statement.

LIQUIDITY AND PROFITABILITY:

Liquidity and profitability are two important demanders in determining the soundness of an enterprise. Liquidity means ability of a firm to meet its current obligations when they become due for payment. It has two aspects quantitative and qualitative. Qualitative aspect implies the quantum of current assets a firm possesses irrespective of making any difference b/w various types of current assets such as inventories, cash and so on. Qualitative aspect reforms the quality of current in terms of their realization in to cash considering time dimension involved in maturing different components of current assets. Profitability is the capacity of earning profits and due most important measure of performance of affirms. It is generally assumed that there is negative relationship b/w liquidity and profitability i.e. higher liquidity results in lower profitability and viceversa.

The objectives of the study: To study the growth and development of the company. To study the behavior of liquidity and profitability of the companies. To analyze the factors determining the liquidity and profitability. To comparative study of selected companies on the basis of selected ratios.

Statement of the problem:

Development of industries depends on several factors such as financial personnel, technology, and quality of the product and marketing art of these. Financial aspects assume a significant role in determining the growth of industries. All of the companys operations virtually affect its need for cash. Most of these data covering operations areas are however outside the direct responsibility of the financial executives. Values top management appreciates the value of good financial executives to know the profitability and liquidity of the concern. The firm whose present operations are inherently difficult should try to makes its financial analysis to enable its management to stay on top of its working position. In this context the researcher is interested in undertaking an analysis of the financial performance of companies to examine and to understand how management of fianc plays a crucial role of the financial performance analysis of selected companies in India has been undertaken.

(a) LIQUIDITY RATIOS

1. CURRENT RATIO = CURRENT ASSET/CURRENT LIABILITIES The ratio is the indicator of the firms commitment to meet its short-term liabilities. It is an index of the concerns financial stability since it shows the extent to which the Current Asset exceeds Current Liabilities. A very high ratio is not desirable which means less efficient use of funds, slow moving stock, and increase in debtors, Cash and Bank balance lying idle. It also means excessive dependence on long-term sources of fund, which are costlier than Current Liabilities and can results in lowering down the profitability of the concern. A very low ratio can mean that the concern is not maintaining adequate Cash balances that can result in Bad Credit Image, loss of Creditors confidence. An ideal ratio is 2:1,which means creditors will be able to get their payment in full. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 CURRENT ASSET 273.57 331.58 300.37 300.27 332.89 CURRENT LIB. 70.79 85.09 112.85 129.42 159.86 C.RATIO 3.86 3.89 2.66 2.32 2.08

In 2007-2008 &2008-09 ratio was high at 3.86 & 3.89 resp. that means that company has an extensive investment in current asset that does not provide a significant return. In 2009-10 positioned improved & current ratio was at 2.66 mainly because of significant decrease in Cash/Bank, from 69.10crore in 2008-09 to 23.43crore in 2009-10.In 2011-12 the ratio was most satisfactory and was at 2.08.

CURRENT RATIO

2. QUICK RATIO= LIQUID ASSET/CURRENT LIABILITIES LIQUIDASSET=S.DEBTORS+CASH+BANK

This ratio is also termed as Acid Test Ratio or Liquidity ratio. This ratio is ascertained by comparing the Liquid asset to Current Liabilities. Prepaid Expenses and Inventories are not taken as Liquid Asset. The ideal Ratio is 1:1. In LG Electronics the Ratio somewhat less than 1 is also acceptable.

YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

LIQUID ASSET 146.12 187.28 161.12 141.73 154.24

CURRENT LIB. 70.79 85.09 112.85 129.42 159.86

Q.RATIO 2.06 2.20 1.42 1.09 0.96

Represent a similar position as of Current Ratio in 2008-09 it was high at 2.20 which was reduced to 1.42 in 2009-10 and further to 1.09 in 2010-11 mainly due to decrease in Debtors. In 2011-12 it was at 0.96. The ratio was initially high, as deposits in form of Cash/Bank were high. It is advisable to decrease the amount of liabilities, as liabilities from 2010-2011 to 2011-2012 increased by 23%. Which in the year 2008-2009 to 2009-2010 increased by only 15%.

QUICK RATIO

(b) ACTIVITY RATIO

1.DEBTORS TURNOVER RATIO=CREDIT SALES/AVG.DEBTORS AVG.DEBTORS = OPENING DEBTORS+CLOSING DEBTORS 2 Debtors constitute an important constituent of Current Assets and therefore the quality of Debtors to a great extent determines firms Liquidity. Sales to Account Receivable Ratio indicate the efficiency of the staff entrusted with collection of book debts. The higher the ratio the better it is, since it would indicate that debts are being collected more promptly. The ratio helps in cash budgeting since the flow of cash can be worked out on the basis of sales. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 CREDIT SALES 914.77 1042.58 1166.46 1163.19 1232.29 AVG. DEBTOR 109.27 103.79 127.93 128.88 118.31 D.T.R. 8.37 10.05 9.12 9.02 10.41

It was low in year 2007-08 and was at 8.37, which increased to 10.05 in 2008-09 as a result of increase in Credit Sales but Avg. Debtors remaining somewhat constant. In 2009-10 & 2010-11 Debtors Turnover Ratio reduced to 9.12 & 9.02 resp. mainly due to increase in the amount of Avg. Debtors by 23%, while sales increased by only 12%. In 2011-12 the positioned improved as Sales increased while Avg. Debtors declined and was at 10.41There is no ideal ratio. In LG Electronics the policy they follow is that the Credit given to Debtors should be less than the Credit given by the Creditors to the Company. Since the ratio is on increase it is Positive sign for the company.

2. FIXED ASSET TURNOVER RATIO=NET SALES/FIXED ASSET The ratio indicates the extent to which the investments in fixed assets contribute towards sales. If compared with previous periods, it indicates whether the investment in fixed assets has been judicious or not. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 FIXED ASSET 238.51 250.83 242.86 244.42 204.65 FA.T.R. 3.84 4.15 4.80 4.75 6.02

In 2007-08 Fixed Asset Turnover Ratio was 3.84, which increased to 4.15 as with the application of only 5% increase in Fixed Asset, sales increase by 14% In year 2010-2011 there was a slight decline of in the ratio as with the increase in Fixed Asset the sale revenue declined. In the year 2011-12 Fixed Asset Turnover Ratio increased significantly and was 6.02 as sales increased but Fixed Asset declined as in the year 2011-12 there was a decline in BUILDING, PLANT, FURNITURE and OFFICE EQUIPMENTS by 23%, and depreciation increased by 20% The increasing ratio is a good sign for LG Electronics . LG Electronics per rupee sales generated by per rupee of tangible asset maintained by the firm is increasing.

3. CURRENT ASSET TURNOVER RATIO =NETSALES/CURRENTASSET This ratio measures the per rupee sales generated by per rupee of current asset being maintained. An increasing ratio is a good sign for the company. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 CURRENT ASSET 273.57 331.58 300.37 300.27 332.89 CA.T.R 3.34 3.14 3.88 3.87 3.70

In 2007-08 Current Asset Turnover Ratio was 3.34 which reduced in 2008-09 to 3.14 as CA increased by 21% while Sales increased by only 14% Current Asset increased as a result of increase in Sundry Debtors and Cash & Bank Balance. In 2009-10/2010-11 there was an increase in the ratio as current asset decreased while Sales increased, decrease in Current Asset. was mainly due to decrease in Cash & Bank Balance. In 2011-12 Current Asset again increased mainly due to the increase in Inventories. So there was a fall in the ratio. So it is a bit of concern for the company. It is suggested that the level of inventories should be brought down, as there was increase in inventories by 12% while sales increased by only 6%. The company was not producing keeping in view the sales prospects.

4. TOTAL ASSET TURNOVER RATIO=SALES/TOTAL ASSET The ratio measures the per rupee sales generated by per rupee of total assets being maintained by the company YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 TOTAL ASSET 512.08 582.41 543.24 544.69 537.54 TA.T.R 1.78 1.79 2.15 2.14 2.29

There is no ideal ratio, it should be compared with the ratio of previous years of the same firm if the ratio is increasing it is a good sign for the company. In 2007-08/2008-09 the ratio was 1.78 & 1.79 resp. In 2009-10 it increased to 2.15 which was mainly due to the fall in Current asset, which forms a part of total asset. In 2010-11 the ratio decreased due to fall in sales revenue. In 2011-12 the ratio increased due to fall in total asset and increase in Net Sales. Since the ratio has increased it is a good sign for LG Electronics as it indicates that sale as a percentage of total assets have increased.

5. WORKING CAPITAL TURNOVER RATIO =SALES/NET WORKING CAP. NET WORKING CAPITAL=CURRENT ASSET- CURRENT LIABILITIES This is also known as Working Capital Leverage Ratio. This ratio indicates whether or not Working Capital has been effectively utilized in making sales. In case a company can achieve higher volume of sales with relatively small amount of working capital, it is an indication of the operating efficiency of the company. The higher the Working Capital Turnover ratio, the lower is the investment in the working capital and higher would the profitability. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 NET WORKING CAP 202.78 246.48 187.51 171.02 173.02 WC.T.R 4.51 4.22 6.22 6.80 7.12

In the year 2007-08 the ratio was 4.51 which reduced to 4.22 as a result of increase in Net Working Capital, which was mainly due to substantial increase in Current Asset in comparison with Current Liabilities. In year 2009-10 the ratio improved to 6.22 which was due to decrease in net working capital by 24% while sales increase by 12%.

In 2011-12 the ratio was 7.12%, as a result of increase in sales. Working capital ratio of LG Electronics is increasing which is a positive sign for the company. The sales of the company have increased with less investment in working capital.

(c) LEVERAGE RATIO

1. DEBT- EQUITY RATIO=TOTAL DEBT/TOTAL OWNERS EQUITY TOTAL DEBT=LOAN+LIABILITIES OWNERS EQUITY=SHAREHLDERS FUND-MISC. EXPENDITURE The DE ratio is the basic and the most common measure of studying the indebtedness of the firm, it indicates the percentage of funds being financed through borrowings. The Debt-Equity ratio is determined to ascertain the soundness of the long-term financial policies of the company. The ratio indicates the proportion of owners stake in business. Excessive liabilities tend to cause insolvency. The ratio indicates the extent to which the firm depends upon outsiders for its existence. It tells the owners the extent to which they can gain benefits or maintain control with a limited investment. The greater the ratio higher is the risk to the lenders and vice versa. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 TOTAL DEBT 365.72 374.11 308.95 342.41 269.87 OWNER EQUITY 251.66 312.99 354.81 396.89 408.69 RATIO 1.45 1.19 0.87 0.86 0.66

In 2007-08 the ratio was 1.45 which continuously declined for all the above period and was at 0.66 in the year 2011-12. Decrease in the ratio is mainly due assets being financed more by shareholders funds then by external equities. Total debt decreased

by 21% from 2009-10 to 2011-12 while owners equity increased in the same period leading to fall in debt equity ratio by 23%. The larger the ratio, the more is the amount of risk assumed by creditors, and the claims of the creditors against the assets of the firm. As the ratio has decreased in case of LG Electronics it is a good sign for the company.

2. PROPRIETORY RATIO=OWNERS EQUITY/TOTAL ASSET It establishes relationship between the proprietors funds and the total tangible assets. It measures the conservatism of capital structure and shows the extent of shareholders funds in total assets employed in the business. The ratio focuses the attention on the general financial strength of the enterprise. The ratio is of particular importance to the creditors who can find out the proportion of shareholders fund in the total asset employed in the business. A high ratio will indicate a relatively little danger to the creditors etc. in case of winding up of the business. A low proprietary ratio indicates greater risk to the creditors since in the event of losses a part of their money may be lost. A ratio below 50% may be alarming for the creditors. YEAR OWNER EQUITY TOTAL ASSET RATIO 2007-2008 251.66 512.08 0.49 2008-2009 312.99 582.41 0.53 2009-2010 354.81 543.24 0.65 2010-2011 396.89 544.69 0.72 2011-2012 408.69 537.54 0.76 In 2007-08 the ratio was 0.49 which increased continuously and was at 0.76 in the year 2011-12 The increase in the ratio was due to increase in owners equity as a result of increase in Reserves & Surplus. The positioned has improved which means relatively higher degree of security for the company. An enterprise is considered financially weak if it has relatively small investment in firm in comparison to creditors. A low proprietary ratio would indicate a relatively larger degree of security for the company. For LG Electronics owners equity in total asset has increased. It is a good sign for the Company

3. SOLVENCY RATIO=EXTERNAL EQUITY/TOTAL ASSET The ratio of external equity to total asset is a variant of the proprietary ratio. This ratio measures the proportion of the firms assets that are financed by creditors. To the creditors, a low ratio would ensure greater security for extending credit to the firm. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 EXTERNAL EQUITY 365.72 374.11 308.95 342.41 269.87 TOTAL ASSET 512.08 582.41 543.24 544.69 537.54 RATIO 0.71 0.64 0.56 0.62 0.50

In 2007-08 the solvency ratio was at .71, which reduced in 2008-09/2009-2010 In 2010-11 the ratio increased to .62 from .56 in 2009-10 due to increase in the amount of External debt by 11% while total asset increased marginally In 2011-12 the ratio was .50 reduced from .62 as the external debt reduced by 21% while total asset reduced by only 1%. External equity in total asset has decreased. A high ratio indicates high risk to lenders and vice versa. Since the ratio has decreased it is a good sign for the company.

4. FIXED ASSET TO NET WORTH= FIXED ASSET/NET WORTH

Fixed asset to net worth indicates the percentage contributed by owners to the value of fixed assets. The financial experts are of the opinion that in manufacturing concerns, the investment in Plant should be made out of equity rather than borrowed capital, therefore a ratio of 1:1 is considered desirable. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 FIXED ASSET 238.51 250.83 242.86 244.42 204.65 NET WORTH 251.66 312.99 354.81 396.89 408.69 RATIO 0.94 0.80 0.68 0.61 0.50

In the year 2007-08 the ratio was .94, which decreased to .80 mainly due to increase in Net Worth as a result of increase in PAT from 50.10crore to 73.43crore a rise of 55%. An ideal ratio is considered to be1: 1 LG Electronics has achieved this ideal ratio. It is a good sign for the company.

5. INTEREST COVERAGE RATIO=EBIT/FIXED INTEREST CHARGES This ratio is also called times interest earned ratio and it measures the ability of the firm to pay the fixed interest liabilities. The higher the ratio, better it is both for the firm and for the lenders. For the firm the probability of committing defaults is reduced and for the lenders the firm is considered less risky. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 EBIT 84.07 106.40 114.77 99.47 112.62 FIX.INT.CHARGES 32.47 25.11 29.66 23.94 17.08 RATIO 2.58 4.23 3.86 4.15 6.59

In the year 2007-08 the ratio was 2.58, which increased to 4.23 as a result of decrease in Fixed Interest Charges which reduced to 3.86 due to rise in the fixed interest charges from 25.11crore to 29.66crore. For the next two years the ratio increased as a result of fall in the interest charges and was at 6.59 in the year 201112. As the ratio in case of LG Electronics has increased it is a good sign for the company. Loan funds 2007-08 =294.93 2008-09 =289.02 2009-10 =196.09 2010-11 =213.16 2011-12 = 110 It is seen that though the loan funds had decreased from 289crore in 2011-2012 to 196crore in 2009-2010 the Fixed interest charges has increased from 25.11crore to 29.66crore. This is due to the fact that a debt burden was paid off in the month of March for which interest was paid for the whole year.

(d) PROFITABILITY RATIOS

1.GROSS PROFIT RATIO= (GROSS PROFIT/NET SALES) *100 It is also called as average mark up ratio. The Gross Profit is the difference between sales revenue and the cost of generating those sales. Therefore, the gross profit amount and the gross profit ratio depend upon the relationship between selling price and cost of production including direct expenses. The gross profit ratio reflects the efficiency with which it produces/purchases goods. The gross profit ratio should be analyzed and studied as a time series. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 G.PROFIT 419.70 485.61 558.44 573.91 616.35 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 RATIO 45.88 46.57 47.87 49.33 50.01

The Gross profit ratio for the company is on an increase mainly due to the continuous increase in the Gross profit, which is mainly due to the increase in sales as a percentage of direct expenses is more. A gross profit ratio of 50% means that on every 1-rupee sale, the firm is earning a gross profit of 50paise. This ratio indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm.

NET PROFIT RATIO=(NET PROFIT/NET SALES)*100 Net profit is the revenue over expenses in a particular accounting year. It is the net result of the working of the company during a particular year. This ratio is widely used as measure of overall profitability and is very useful to proprietors. It measures the efficiency of management in generating additional revenue over and above the total cost of operations. It measures the overall efficiency in manufacturing, administrative, selling and distributing the product.

YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

N.PROFIT 50.10 77.43 77.92 64.44 85.10

NET SALES 914.77 1042.58 1166.46 1163.19 1232.29

RATIO 5.47 7.42 6.67 5.53 6.90

Net profit ratio in the year 2007-08 was 5.47, which increased to 7.42 in the year 2008-09 because of 54% increase in Net Profit In 2009-10 the ratio fell to 6.67 because Net profit increase by less than 1% while sales increased by 12% In 2010-11 the ratio further fell to 5.53 as a result of decrease in net profit by 17% In 2011-12 the ratio increased because of rise in net profit by 32% Since the ratio has increased it is considered a good sign for the company.

3. OPERATIN MARGIN=PBDIT/SALES PBDIT-OTHER INCOME

The Operating Profit refers to the pure operating profits of the firm i.e. the profit generated by the operation of the firm and hence is calculated before considering any financial charges, non operating income/loss and tax liability etc. The OP ratio shows the percentage of pure profit earned on every 1 rupee of sale made. OP ratio would be less than the Gross Profit ratio as Selling and Administrative Expenses, Financial Expenses; Depreciation charges are deduced to arrive at OP. The OP ratio in conjunction with the gross profit ratio depicts whether changes in the profitability of the firm are caused by changes in the manufacturing efficiency or administrative efficiency. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 PBDIT 80.23 93.51 118.42 106.58 126.35 SALES 914.77 1042.58 1166.46 1163.19 1232.29 OPERATING MARGIN 8.77 8.96 10.15 9.16 10.25

In the year 2007-08 and 2008-09 the operating margin improved marginally But in the year 2004-05 the margin rose to 10.15 from 8.96 in 2008-09 due to increase in PBDIT The margin declined to 9.16 in the year 2010-11 due to fall in PBDIT The margin again improved in 2011-12 to 10.25 due to better figure of PBDIT.

4. EARNING PER SHARE=PAT/NO. OF SHARES This is a well-known and widely used indicator of the profitability because it can be easily compared to the previous EPS figures and the EPS figures of other

companies. The aim of every company should be wealth maximization or to increase the earnings of the shareholders. The EPS helps in determining the Market Price of the Equity Share of the Company. A comparison of EPS of the company with another will also help in deciding whether the equity share capital is being effectively used or not. It also helps in estimating the companys capacity to pay dividend to its equity shareholders. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 PAT 50.10 77.43 77.92 64.44 85.10 NO. OF SHARES 28,50,89,501 28,52,14,832 28,52,14,832 28,53,66,429 28,56,62,514 EPS 1.76 2.71 2.73 2.26 2.98

The EPS has increased from the year 2007-08 to 2008-09 but in the year 2010-11 the EPS Fell from 2.73 in 2010-11 to 2.26 due to fall in the PAT In 2011-12 the EPS increased to 2.98 due to increase in PAT by 32%. The increase in the EPS is a good sign for any company as it increases the confidence of the equity shareholders on the company. It is a good sign for LG Electronics .

5. DIVIDEND PER SHARE (DPS) = TOTAL PROFITS DISTRIBUTED NUMBER OF SHARES

Sometimes the equity shareholders may not be interested in the EPS but in the return, which they are actually receiving from the firm in form of dividends. The amount of profits distributed to share holders per share is known as DPS. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 DIVIDEND DECLARED 1425.45 2851.28 2852.14 1427.47 4000.52 NO. OF SHARES 28,50,89,501 28,52,14,832 28,52,14,832 28,53,66,429 28,56,62,514 DPS 0.5 1.0 1.0 0.5 1.4

Dividend per share in 2007-2008 was Rs.5, which was increased to Rs.10 in the year 2008-09 and remained same for the next year In the year 2010-11 the DPS fell to Rs.5 as PAT reduced during this period In 2011-12 the DPS was again at Rs.14 due to increase in PAT. It is a good sign for the company as well as for the shareholders as the DPS have increased.

6. DIVIDENED PAYOUT RATIO = DPS/EPS This is the ratio between the DPS and the EPS of the firm, i.e. it refers to the proportion of EPS that has been distributed by the company as dividend. YEAR DPS EPS RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

0.5 1.0 1.0 0.5 1.4

1.76 2.71 2.73 2.26 2.98

28.4 36.9 36.6 22.2 46.9

As the percentage of DP ratio has increased it is a good sign for the shareholders, whose earnings are increasing.

EXPENSES RATIO
The expense ratios are the measure of cost control and are computed by establishing relationship between different expense items and the sales. In a firm total expense can of operations can be subdivided into. (A) Cost of Goods Sold (B) Total Material Cost (C) Selling and Administrative Expenses (D) Advertisement Expenses (E) Employee cost ratio (F) Return on owners equity (G) Return on capital employed

(A) COST OF GOOD SOLD RATIO =(CST.OF GOODS SOLD/NET SALES)*100 This ratio measures the percentage of sales that is being spent on the producing the goods for sale. It takes into account the Direct Expenses. YEAR 2007-2008 2008-2009 2009-2010 CST OF GOODS SOLD NET SALES 495.07 914.77 556.97 1042.58 608.02 1166.46 RATIO 54.11 53.44 52.12

2010-2011 2011-2012

589.28 624.22

1163.19 1232.29

50.66 50.65

The cost of goods sold ratio has decreased continuously from 54.11 in 2007-08 To 50.65 in 2011-12. The company is spending less on direct expenses but still the sales are increasing which is good for the company. It is complimentary of gross profit ratio. If cost of goods sold were 50%, gross profit would be 50%. (B) TOTAL MATERIAL COST RATIO = (MATERIAL COST/NET SALES)*100 It measures the amount spent on material (Direct) for producing goods, that is contributing to Sales. YEAR MATERIAL COST 2007-2008 458.49 2008-2009 526.94 2009-2010 538.47 2010-2011 515.61 2011-2012 521.18 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 RATIO 50.10 50.54 46.16 44.32 42.29

As the ratio is on a fall, it is a very good sign for the company, as the sales are increasing more in relation to the amount spent on Material. (C) SELLING & ADMINISTRATIVE RATIO = (SELLING & ADMINISTRATIVE RATIO/NETSALES)*100 It measures the amount that the company is spending on selling its product. It takes into account all the indirect expenses.

YEAR

EXPENSES

NET SALES

RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

258.95 292.08 339.72 364.57 386.27

914.77 1042.58 1166.46 1163.19 1232.29

28.30 28.01 29.11 31.34 31.34

The ratio is showing an increasing trend, which is not good for the company. The company is spending more on selling and administration but the returns in form of sales are not increasing in relation to the spending. The company should have a check on the indirect expenses, it has to find out the item of expenses which is not given returns in a Positive manner.

(D) ADVERTISEMENT EXPENSES RATIO = (ADVERTISEMENT COST/NET SALES)*100 This ratio measure the amount spent on advertisement and publicity and the percentage it is contributing to sales. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 ADV. EXP. 114.34 120.01 146.07 154.45 159.96 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 RATIO 12.49 11.51 12.52 13.27 12.98

Since the ratio has decreased it is considered a good sign for the company as, though the advertisement expenditure has increased by 4%. Advertisement expenses as a percentage of sales have decreased.

However the company has to keep a check on this expense as out of total selling and administrative expense the company is spending around 40% on Advertisement expenses. (E) EMPLOYEE COST RATIO = (EMPLOYEE COST/NET SALES)*100 This ratio measure the amount spent on Employees wages and salaries and the percentage it is contributing to sales. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 EMP. COST 54.88 63.13 77.69 84.48 93.81 NET SALES 914.77 1042.58 1166.46 1163.19 1232.29 RATIO 5.91 6.05 6.66 7.26 7.61

As the ratio is increasing it is a good sign for the company as it is looking after the employees welfare by increasing their salaries. Also it would motivate the employees. (F) RETURN ON OWNERS EQUITY=(PAT/OWNERS EQUITY)*100 (RETURN ON NET WORTH) The ROE examines profitability from the perspective of the equity investors by relating profits available for the equity shareholders with the book value of the equity investment. The ROE indicates as to how the firm has used well the funds of the owners. YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 PAT 50.10 77.43 77.92 64.44 85.10 OWNERS EQUITY 251.66 312.99 354.81 396.89 408.69 RATIO 19.90 24.73 21.96 16.23 20.82

In the year 2007-08 the ratio was 19.90 that rose to 24.73 in the year 2008-09 due to increase in the amount of PAT by 35%. In the year 2009-10 the ratio decreased as PAT increased by only 0.49 Crore while owners equity rose by 44 Crore In 2010-11 the ratio further declined mainly due to decrease in PAT, by 17% In 2011-12 the ratio improved due to increase in PAT by 32%.

(G)

RETURN ON CAPITALEMPLOYED/ASSET =PAT + INTEREST / CAPITAL EMPLOYED

One of the most widely used ratios is the return on Capital Employed/Assets. Since assets are used to generate income, the higher the income, the more productive assets were during the period. The return on Capital Invested is a concept that measures the Profit that a firm earns on investing a Unit of Capital. The inclusion of interest is conceptually sound because total assets have been financed from the pool of funds supplied by creditors and owners.

YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

PAT + INT. 82.57 102.54 107.58 88.38 102.18

CAP. EMPLOYED 556.43 609.05 558.30 613.53 521.09

RATIO 14.8 16.8 19.2 14.4 19.6

Return on capital employed is the Testimony of a Companies continuous effort to effectively utilize its Assets. There was a continuous improvement in this ratio for LG Electronics, but during the year 2010-11 due to fall in PAT and investment in Capital Employed increased, the Ratio fell to 14.4 from 19.2 The ratio improved as investment in Capital Employed decreased from 613.53 to 521.09 mainly because the company was able to decrease the amount of loan funds by around 50%. The increase in the Ratio is a good sign for the Company.

FINDINGS
After interpretation of financial ratios of 5 years of LG the project can be summarized as follows: 1. The corporation operates very efficiently as it can be seen from the various ratios as calculated above like Net profit ratio, Return on equity , Book value per share and so on. 2. LG has got a very sound working capital management particular cash and debtors. 3. The liquidity position of the corporation is very safe which can be easily judged from the interpretation of liquidity ratios like current ratio, quick ratio and absolute ratio. This means that LG is in a quite credit worthy position. 4. LG has a sound capital and asset base which also indicates that it is in a position to clear all its current liabilities. Infact it has become a debt free company. 5. LG has no short term securities during the past five years. 6. Liquidity ratios have continuously gone under various fluctuations in the last five years. How ever the ratios are more than the industry standard. This indicates excess cash is maintained in the organization. 7. Turnover ratios are also in line with the standards.

Suggestions
The company has a good record of quality of goods in the market with best of my enquiry and investigations. They should see that the debtors should be collected with in a specified time by the company. So, that they can discharge some of its creditors or current liabilities and avoid payment of interest. Ratio analysis are immensely helpful in making a comparative of the financial statement for several years. The company financial position is very secure. It is observed that most of the ratios are as per the industry standard. Company adopts proper inventory control techniques to properly management inventory.

BIBLIOGRAPHY

FINANCIAL MANAGEMENT

CHANDRA PRASANNA

FINANCIAL AND COST ACCOUNTING DR. S.N.MAHESHWARI

MANAGEMENT ACCOUNTING

M.A. SAHAF

NON EXECUTIVE FINANCE ANALYSIS

P CHANDRA

ANNUAL REPORTS OF LG ELECTRONICS INDIA LTD. INTERNET