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com

AN ANALYSIS OF THE FINANCIAL PERFORMANCE OF

LARSEN & TOUBRO LIMITED: CRITICAL EVALUATION
OF THE VARIOUS FINANCIAL RATIOS OF THE COMPANY

Authors

Dr.R.Umarani
Associate Professor
Department of Decision and Computing Sciences
Coimbatore Institute of Technology
Coimbatore.
Mail id: [email protected]
Phone No.: 9894021265

Dr.D.Manju
Assistant Professor
Department of Decision and Computing Sciences
Coimbatore Institute of Technology
Coimbatore.
Mail id: [email protected]
Phone No.: 9865229679

V.Radhamani
Assistant Professor
Department of Decision and Computing Sciences
Coimbatore Institute of Technology
Coimbatore.
Mail id: [email protected]
Phone No.: 9994314741

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1. Introduction:

In Larsen & Toubro limited critical evaluation of the various financial ratios of

the company has been performed. Ratio analysis is a procedure to gain insight into the

performance, liquidity, revenue, and profitability of a business by analyzing the

financial statements and records of the organization. Ratio analysis is a very important

element that will help in performing an analysis of equity fundamentals. Here the Larsen

& Toubro limited company’s five-year financial statement is taken to perform various

analysis (working capital, ratio analysis, DuPont analysis, cash analysis etc.,) and

interpret the functioning of the company. From the previous financial years data, the

statement is forecasted for the year 2021.

2. About Larsen & Toubro Limited:

Larsen & Toubro is an Indian multinational engaged in EPC Projects, Hi-Tech

Manufacturing and Services. It operates in over 50 countries worldwide. A strong,

customer-focused approach and the constant quest for top-class quality have enabled

L&T to attain and sustain leadership in its major lines of business for over eight

decades. They are engaged in core; high impact sectors of the economy and our

integrated capabilities span the entire spectrum of ‘design to delivery’. Every aspect of

L&T's businesses is characterized by professionalism and high standards of corporate

governance. Sustainability is embedded into our long-term strategy for growth. The

Company’s manufacturing footprint extends across eight countries in addition to India.

L&T has several international offices and a supply chain that extends around the globe.

3. Statement of the Problem:

The role of financial reporting by companies is to provide information about

their performance, financial position and changes in the financial position that is useful

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to a wide range of users in making economic decisions. The role of financial statement

analysis is to take financial reports prepared by companies, combined with other

information, to evaluate the past, current and prospective performance and financial

position of a company for the purpose of making investment, credit and other economic

decisions. The group is expected to grow significantly in coming years as the future

outlook of various vertical industry segments like new technologies to save costs,

improve productivity and efficiency, and reduce execution time.

4.Objectives of the Study:

The following were the objectives of the present study:

1) To conduct the financial statement analysis to understand the

● Working Capital Position

● Profitability Position

● Measure returns

● Efficiency in managing assets

● Liquidity

2) To analyze the quality of the financial statements

5. Methodology:

5.1 Research Design:

The Research Design adopted in the present study is Analytical Research

Design.

5.2 Sources of Data:

The data required for the present study is collected from the Annual reports of

L&T from 2017 to 2020.

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5.3 Period of the Study:

A Period of five years is taken for the analysis purpose from 2017 to 2020.

5.4 Tools used for analysis:

The following tools were used for analysis of financial performance:

● Ratio Analysis

● Du-Pont Analysis

6.Financial Statement Analysis:

6.1 Working Capital Analysis:

Working Capital is required to run the day-to-day business activities. It is the

amount to be funded for the business operations. Every business firm require working

capital; indeed, firms differ in their requirements of the working capital. A firm should

maintain a sound working capital position. It should have adequate working capital to

run its business operations. Both excessive as well as inadequate working capital

positions are dangerous from the point of view of a firm. A firm’s working capital

position is not only important as an index of liquidity but it also used as a measure of the

firm’s risk.

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Analysis of Working Capital as a Percentage of Sales

(Rs. in crore)

Factor FY 21 FY 20 FY 19 FY 18 FY 17

Non-Cash Current 147714.10 154872.36 141119.03 118741.46 102235.07

Assets

Current Liabilities 137408.01 144729.21 133802.31 109273.22 89525.12

Working Capital
10,306.09 10,143.15 7,316.72 9,468.24 12,709.95

Sales 135979.03 145452.36 135220.29 119683.16 109311.81

Working Capital as
a percentage of 7.58% 6.97% 5.41% 7.91% 11.63%
Sales

Source : Annual Report of L and T Ltd

Working Capital is the amount that is to be funded for day-to-day operations of the

company. The Working Capital Requirement of the firm changes with sales. In L&T

also, the working capital needed to be funded for day-to-day operations changes

according to the proportion of sales except in the year 2019. The working capital

requirement in other years has not changed with the sales due to two reasons:

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✓ Considerable decrease in the debtors as the company has been efficient in

collecting its receivables in year 2018 – 2015.

✓ Raising short term loan from banks.

Working Capital as a percentage of sales is not stable. The working capital clearly

indicates that the suppliers are not willing to extend the payment period and it will

have an adverse effect on the stock price of the company.

Analysis Inventory, Receivables and Payables

(Rs. in crore)
Factor 2021 2020 2019 2018 2017 CAGR

Inventory 5820.54 5746.65 6413.93 4847.8 4139.74 6.3%

Receivables 42229.78 40731.52 36845.87 34654.08 28688.97 8.8%

Payables 45504.61 43643.93 42994.81 37794.96 30294.86 9.9%

Source : Annual Report of L and T Ltd

Money is stocked in inventory for minimum number of days. Receivable days are long,

and the company is not efficient in collecting its dues on time. The company can discuss

with suppliers for extending the payments. In 2021-12 and 2018-15 inventory increased

as L&T proposed to increase the production capacity. Receivables increased in L&T in

the 2021-12 due to dues of public sector undertakings like Bharat Heavy Electricals Ltd,

again increased in 2019-14 on account of increase in debtors and decreased in 2018-15

as L&T has taken effective measures to collect the receivables and in turn reduced its

debtors.

6.2 Cash Analysis:

Cash is the basic input needed to keep the business running on a continuous

basis. It is also the ultimate output expected to be realized by selling the service or

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product manufactured by the firm. The firm should maintain a sufficient amount of cash.

Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will

simply remain idle, without contributing anything towards the firm’s profitability. Thus,

a major function of the financial manager is to maintain a sound cash position.

Days of funding in different components

(Rs. in crore)

Ratio 2021 2020 2019 2018 2017

Inventory Turnover
23.36 25.31 21.08 24.69 26.41
Ratio

Receivables
3.22 3.57 3.67 3.45 3.81
Turnover Ratio

Payables Turnover
Ratio 2.99 3.33 3.15 3.17 3.61

Inventory Days 16 14 17 15 14

Receivables Days
113
102 99 106 96

Payables Days
122
116 115 101
110

Average Inventory 15 days

Period

Average Collection 103 days

Period

Average Payment 112 days

Period

Source : Annual Report of L and T Ltd

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On an average L&T requires 15 days to recover the amount stuck as inventory,103

days to receive the amount out of credit sales from the debtors and 112 days to pay the

amount for purchases to the suppliers. From the above analysis it is clear that the company is

promptly paying the suppliers and also suppliers are not willing to increase the payment

period. Due to the above the company has taken effective steps to reduce the receivable days

and has considerable reduced the amount held up in receivables in the year 2018 – 15.

2021 2020 2019 2018 2017

Inventory Days
16
14 17 15 14

Receivables Days
113 102 99 106 96

Payables Days
122 110 116 115 101

Cash Conversions
Days 7 7 1 5 8

Cash Conversion Cycle (In Days)

Source : Annual Report of L and T Ltd

Cash Conversion Cycle talks about the number of days the company has to fund the business

for smooth operation. From the above analysis it is evident that L&T requires on an average

for 128 days funds to be supplied for the business on account of inventory, receivables and

payables as the average cash conversion cycle for L&T is 128 days.

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Cash Flow Statement Analysis

(Rs. In Crores)

2021 2020 2019 2018 2017

Cash from Operating Activities 6655.2

22844.14 6693.88 -4755.83 -10031.02 6

Cash from Investing Activities -

9795.9
-5428.84 -8256.27 -11022.8 3914.5 4

Cash from Financing Activities - 2895.9

15274.38 6371.55 15440.17 9370.46 3

Net Cash Flow 2,140.92 4,809.16 -338.46 3,253.94 -244.75

PAT
9,668
4,669 10,168 8,435 6,879

Source : Annual Report of L and T Ltd

Cash from Operating activities is on increasing trend up to 2019-2018, the

increase is at a higher rate in the year 2019-2018 due to increase in the sales. Cash

from operating activities is not going in line with profit after taxes due to working

capital mismanagement in the company.

Cash from investing activities of L&T is negative from the year 2019 to 2017

due to huge amount of capital expenditures made by the company for modernization

and expansion activities.

Cash from financing activities of L&T is in fluctuating trend as the long term

borrowings increased in all the years and short term borrowings increased in the

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company in the last two years. The company has also paid an interim dividend of

17.5% in the year 2018-2017.

The net cash flow available in L&T for the usage has drastically reduced in the

year 2020-13 and continues in the declining trend due to the working capital

mismanagement by raising short term loans and increasing the current liabilities and

increasing the short-term provisions to meet with the interest.

6.3 Analysis of Cash Per Share:

Cash per Share is calculated by the formula, total cash and cash equivalent and

divide by the number of shares outstanding. Cash and Cash equivalents are eliminated

in the working capital analysis as this will cause error in the calculation of working

capital; hence this is to be taken separately for evaluation purpose as it is having a

direct impact on the share prices. This analysis will also exactly tell us about the cash

available in the company for dispensable.

(Rs In Crores)

2021 2020 2019 2018 2017

Cash and Cash

Equivalent 47252.73 27817.53 25672.41 17496.78 19606.18

Debts 131481.6 139603.09 125555.17 92246.61 83875.05

Advance
Received 13717.71 13780.04 14593.57 14070.34 12640.03

Cash Available
for Business 220525 217251 194756 167629 147735

Market Prices
per share 1089.104 931.7216 1614.508 1237.52 683.3792

Source : Annual Report of L and T Ltd

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The Net Cash available for the business is increasing and the rate of increase is slow

between 2020-2021 due to pandemic. The company has also received advances from its

customers which is not dispensable cash. L&T has got cash balances but the dispensable part

of the cash is very less which clearly indicates the mismanagement of the cash.

The Market price of the share of L&T is has also come down from Rs. 1614.508 to

Rs. 931.7216 due to the poor working capital position of the company which is due to the

pandemic.

6.4 Profitability Analysis:

The primary objective of a business undertaking is to earn profits. A business needs

profits not only for its existence but also for expansion and diversification. The investors

want an adequate return on their investments, workers want higher wages, creditors want

higher security for their interest and loan and so on. Profits are, thus a useful measure of

overall efficiency of a business.

(Rs.in Crore)
Ratio 2021 2020 2019 2018 2017

EBITDA Margin 8.9% 11.2% 11.6% 11.4% 10.3%

EBIT Margin 6.7% 9.5% 10.1% 9.8% 8.1%

PAT Margin 3.4% 7.0% 7.1% 7.0% 6.3%

Source : Annual Report of L and T Ltd

In 2021 Net profit has come down due to increase in manpower ramp-up in IT&TS

segment (Employee expenses), higher credit cost reflecting the effect of the pandemic (Other

expenses) and decrease in slowdown of project execution and manufacturing activity,

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affected due to lockdown-related disruptions in the first quarter of the year (revenue from

operation). The CAGR of EBITA and EBIT margin is showing a decline in the growth trend

of the company on profits. L&T is on the safer side has it has enough profits to meet its fixed

interest commitment. PAT margin when compared to EBITA margin is very less due to the

depreciation expenses as the company has spent lot of the amount on fixed assets in the last

three years. The company has also increased its short term and long-term borrowings in the

last three years which increased the interest expenses. Overall, the Profitable position of the

company is improving which is good for the company.

6.5 Analysis of Returns:

The profitability and efficiency of the business is measured to find out the return

that the firm has earned by employing capital and assets. This analysis measures

the efficiency by comparing the capital employed and it return at various stages.

This analysis is considered to be much important as its gives the percentage of

returns earned by employing capital and Assets.

(Rs. In Crore)

Ratio 2021 2020 2019 2018 2017

Return on equity 4.3% 13.0% 13.4% 14.1% 12.9%

Return on Asset 2.9% 4.5% 4.9% 4.8% 4.2%

Return on Capital
5.39% 8.74% 9.57% 8.77% 7.34%
Employed

Source : Annual Report of L and T Ltd

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The ROE of the company is showing a declining trend in the years 2021, but it has

increased in the year 2018.This clearly depicts that the returns available to equity

shareholders is improving. Hence the profitability and efficiency of the company is

improving. The ROA of the company is showing a declining trend in the years 2021

due to huge spread of pandemic, but it shows stability in the remaining years. Therefore,

ROA shows an improving trend. The High ROCE in the year 2019 indicates That the

Investment’s Gains Compare Favorably to Its Cost and Its Efficient Use of The Capital

Employed. The Low ROCE Of Indicates Its Inefficient Use of The Capital Employed.

Overall, the profitability and efficiency of the firm in increasing, its returns are

improving other than the year 2021.

6.6 Leverage Analysis:

The long-term solvency of the firms is found using leverage analysis. Solvency

refers to the ability of the firm to meet its long-term obligations. The long-term creditors

of a firm are primarily interested in knowing the firm’s ability to pay regularly interest

on long term borrowings, repayment of the principal amount at the maturity and the

security of their loans. The leverage analysis indicates the firm’s ability to meet the

fixed interest and costs and repayment schedules associated with its long-term

borrowings.

(Rs.in Crore)
Ratio 2021 2020 2019 2018 2017

Interest Coverage
2.34 4.96 7.60 7.64 6.63
Ratio

Debt Equity Ratio 1.71 2.05 2.02 1.66 1.68

Debt Asset Ratio 0.42 0.45 0.45 0.38 0.40

Source : Annual Report of L and T Ltd

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The significant change in the Interest Coverage Ratio for FY 2020-21 has been due to full

commissioning of the L&T Hyderabad Metro Rail leading to cessation of capitalization of

interest on borrowing done hitherto coupled with under-utilization of the metro services. The

Interest coverage ratio shows that the company is having enough earnings to pay its interest

for debts. The interest coverage position of the company was on a comfortable zone in the

years 2017, 2018, 2019 and 2020 as the ratio is above 3. In the years 2021 the interest

coverage has declined below 3 which is mainly due to the pandemic. Hence the company has

to be caution in this issue and try to improve its efficiency in using its assets, reducing

expenses and improving profitability to have comfortable earnings to meet its interest

expense. Debt equity ratio of the company is above 1 which indicates that the portion of

assets provided by creditors is greater than the portion of assets provided by stockholders.

The debt equity position of the company is considerably good. Debt Assets ratio is stable in

the company which clearly indicates that the company has effectively used its borrowings to

its assets. Overall, the company has taken steps in improving its long-term efficiency in the

year 2021-2017.

6.7 Efficiency Analysis:

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly affects the volume of sales. The better the

management of assets, the larger is the number of sales and the profits. Turnover ratios

measure the efficiency and effectiveness with which the firm manages its assets.

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Ratio 2021 2020 2019 2018 2017

Inventory
Turnover
23.36 25.31 21.08 24.69 26.41
Ratio
(Times)

Receivables

Turnover
3.22 3.57 3.67 3.45 3.81
Ratio(Times
)

Payables
Turnover
Ratio(Times 2.99 3.33 3.15 3.17 3.61
)

Asset
Turnover 0.44 0.47 0.49 0.49 0.52
Ratio(%)

Fixed Assets
Turnover 3.70 3.73 4.06 3.93 3.83
Ratio

(Rs. in crore)

Source : Annual Report of L and T Ltd

Inventory turnover ratio indicates the number of times the stock has been turned over

during the period. Higher the ratio better efficient management of inventory. Inventory ratio

indicates how fast the inventory of the company is sold. The ratio is high, which signifies

more profit to the firm and efficient management of inventory, indicating that stocks have

been sold frequently. The ratio is low in the year 2019 which shows that the inventory has not

been fast moving. Receivables turnover ratio of the company is maintained in stable

indicating good management of receivables. Payable turnover ratio has increased in the year

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2017 which is not good signal for the company. Lower the ratio better in managing the

payables, higher ratio indicates that the company is delaying the payment to its suppliers

which is not good. Suppliers will not be willing to provide goods to the concerns that squeeze

them too much by delaying the payment. In the year 2021 the ratio has reduced indicating the

good sign of the company in making payments to its suppliers. Asset turnover ratio of the

company shows a decreasing trend for L&T which Indicates that the assets were not properly

utilized in the company to the fullest capacity to increase the profitability position of the

company. The higher the assets turnover rate, the better the firm is using its assets to generate

sales. In other words, the larger the total assets turnover, the larger will be the income on each

(naira) invested in the assets of the busing.

Fixed assets turnover ratio of the company is on decreasing trend for L&T which

clearly depicts that the company has not efficiently used its fixed assets in improving its

profitability.

Fixed assets turnover (fat) measures the capacity of fixed assets in producing sales. It

shows the relationship between fixed assets and sales. The ratio is appropriate in industries

where significant equipment is required to be business. A lower fat or a reducing sale being

generated from each investment in fixed assets may indicate over capacity, poorer performing

equipment, or underutilization of fixed assets. Overall L&T is inefficient in managing its

assets efficiently.

6.8 Liquidity Analysis:

Liquidity refers to the ability of a company to meet its current obligations as when

those become due.

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(Rs. In Crore)

Ratio 2021 2020 2019 2018 2017

Current Ratio 1.42 1.26 1.25 1.25 1.36

Quick Ratio 0.65 0.47 0.47 0.48 0.54

Source : Annual Report of L and T Ltd

The above table shows that the current ratio for L&T is 1.42.the company ratio is above the

standard value 1. It indicates the ability of a concern to meet its current obligations as and

when they are due for payment. This ratio measures the short-term solvency of the firm. The

ideal current ratio of a company is 2:1; it implies that for every one rupee of current liability,

current assets of two rupees are available to meet them. The above table shows that the quick

ratio for L&T is 0.5(on an average). The ratio is less than the standard value 1. It is clear that

L&T don’t have the immediate ability to meet the short – term obligations without relying on

the level or sales of inventory. Overall, the company is inefficient in managing its working

capital.

6.9 Du-Pont Analysis:

A system of management control designed by an American company named Du-Pont

Company is popularly called Du-Pont Control Chart. This analysis is done based on net

profit, assets and capital employed. Profitability is measured using Net profit by sales,

efficiency is measured by sales by assets and leverage is measured by assets by equity.

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(Rs. in crore)

Ratio 2021 2020 2019 2018 2017

NPM 3.4% 7.0% 7.1% 7.0% 6.3%

Asset Turnover
0.44 0.47 0.49 0.49 0.52

Leverage (Gearing)
4.04 4.52 4.47 4.42 4.24

ROE 6.06% 14.92% 15.54% 15.20% 13.74%

Source : Annual Report of L and T Ltd

The net profit margin measures the percentage of sales rupee remaining after all

the costs and expenses including interest and taxes have been deducted. It is an

indication of how effective the company is at cost control. Since the ratio is low, the

company’s performance has come down. Hence it shows that the company was less

efficient in converting sales into actual profits. Asset turnover ratio of the company

shows a decreasing trend for L&T which indicates that the assets were not properly

utilized in the company to the fullest capacity to increase the profitability position of the

company.

The Leverage ratio is similar to ratio but the only difference is that it measures

the size of long-term liabilities or fixed-interest debts in comparison with the

stockholders’ or owners’ equity. The standard for this ratio is 1:1. L&T with high

leverage ratio is said to be highly geared and such makes the firm to be financially

because high interest charges will reduce the profitability of the business as well as

dividends payable to shareholders, especially in times of economic downturns or

fluctuations in earnings. In practice, a gearing ratio greater than 0.6:1 is often regarded

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as high while the one that is less than 0.2:1 is regarded as low. The lower the gearing,

the better and more secure the company is to settle long-term debts.

The ROE of the company is showing a declining trend in the years 2021, but it

has increased in the year 2018.This clearly depicts that the returns available to equity

shareholders is improving. Hence the profitability and efficiency of the company is

improving.

6.10 Analysis of Quality of Earnings:

The analysis of quality of earnings is very important because the exact earnings

presented in the financial statements might have some exaggerated information or

cooked information which will give a wrong result on the analysis made. Hence, we

need to dig deeper into the statements to look at the data that is cooked in the statements.

Certain items in the financial statement should catch the eye of the financial analysts to

check with the quality of earnings. The intangible assets of the company will give a

substantially fair bit of information on it. If the intangible assets of the company are very

high and if it continues that has to checked for genuineness. This analysis the following

items has to be carefully noted into:

- Booking sales early

- Booking Sales late

- Capitalizing expenses

- Non-recurring income shown as operating income

- Operating cost shown as non-recurring cost

- High proportion of unsecured loans

- Discretionary use of depreciation policies

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- Use of reserves for off-setting loans

- Substantial goodwill

Ratio 2021 2020 2019 2018 2017

Cash
97178.6 107081.74 100210.95 86441.11 81966.95
Collected

Cash
Collectio
71% 74% 74% 72% 75%
n to Sales
Ratio

Unsecure
d Loan to
13% 16% 30% 25% 35%
Total
Loan

Interest
3913.44 2796.66 1802.55 1538.52 1338.73
Cost

Unsecured
Loan 3001.96 4022.14 3026.51 2676.46 3683.34

Total
23808.71 25785.3 10191.57 10561 10558
Loan

Source : Annual Report of L and T Ltd

The above analysis clearly states that Cash earned in proportion is fairly good for

the company as they were able to collect their receivables efficiently in the year 2020,

2019 and 2017 as the cash collection to sales ratio is somewhat nearer to 100% which is

not of much problem. Hence the quality of earnings in terms of sales is good for the

company.

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The percentage of unsecured loans is considerably high for L&T as the huge

junk of loans they have received by way of unsecured loans that too by way for foreign

currency loans which is a red flag in the financial statements.

7. Findings, Suggestion and Conclusions:

7.1 Findings:

1. The global economy, already buffeted by various factors like trade tensions, political

instability, Brexit and low crude prices, etc., was further stressed as the virus raged

across large swathes of the world. In addition to introducing healthcare measures, most

countries have opted for benevolent fiscal and monetary policies to support growth.

Under-utilization of manufacturing capacities across the world due to lower demand and

decelerated global trade has become a recurring phenomenon. Increasingly, countries

are resorting to a protectionist stance in an attempt to safeguard their own economies.

The coronavirus pandemic has continued to wreak havoc on world economies through

2020. With the launch of vaccinations across the globe, the outlook appeared to be

picking up, which again is expected to be marred slightly by the emergence of more

virulent strains of the virus. Through the struggle, technology has turned out to be a

lifeline, changing the way individuals work, learn, shop, and entertain themselves.

2. The onset of the Covid-19 pandemic led the entire global economy into a recession

that is unprecedented. Growth suffered broad-based deterioration with a decline in

global trade and marked slowing down in the manufacturing and services sectors across

the globe. Contact-based services were majorly affected and, with travel restrictions

imposed to contain the spread of the virus, service sectors like airlines, tourism,

hospitality, etc. were the worst hit. On a positive note, the accelerated progress in

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vaccination efforts and generous fiscal support is ensuring that many of the developed

nations regain ground and bring the economy back on the growth track.

3. The year 2020-21 has been an unprecedented one. The Covid-19 pandemic is the

severest global health crisis of this century, endangering the whole of humanity and

resulting in a substantial weakening of most economies. The Indian economy witnessed

its first ever technical recession in the year FY 2020-21, with gross domestic product

(GDP) growth remaining in the negative territory for two consecutive quarters.

Lockdowns and travel restrictions imposed significant supply-side constraints on the

economy, drastically reducing output and employment. The Government announced

multiple financial measures and structural reforms at different stages of the pandemic

towards calibrated fiscal support during lockdown and to boost demand during the

unlock phase. With an aim to speed up the economic normalization, the Government

accelerated the public investment in the key infrastructure sector. The wheels of India’s

capex cycle were set in motion with a strong revival in investment-led growth supported

by the ‘Atmanirbhar Bharat Mission’ and a massive boost to infrastructure and capital

expenditure provided for in the Union Budget 2021.

4. The Whistle Blower policy is an effective method available to employees to report

without fear any wrong practices, unethical behavior or noncompliance which may have

a detrimental effect on the organization, including financial damage and impact on

brand image. During 2020-21, a total of 48 complaints were received through the

whistle-blower mechanism, all of which were scrutinized and addressed in accordance

with L&T’s protocol. 46 complaints were resolved and 2 complaint is in the process of

being resolved. The Whistle Blower investigation committee and management maintain

the anonymity of the whistle-blower at all times. The stakeholder complaints are

included in the Director’s Report section of the Annual Report.

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5. The SWOT analysis clearly depicts that the industry is facing very little threats which

can be easily overcome by the strengths of the industry. Government of India has

announced lot of schemes for the development of infrastructure facilities in India in the

five-year plan and budget. Hence there are lot of opportunity of the industry to still

increase the performance level. The companies operating under this industry has to take

necessary steps to overcome the weakness and grab the opportunity and improve its

strength which will lead to the economic development in many ways and ultimately the

real GDP growth rate will increase as the contribution of this sector towards the GDP is

more in India.

6. Citizen safety remains a major concern for the Government. Specific allocations for

citizen safety under different State and Central Government programmes have presented

an increase in the opportunity landscape for the business. While smart and safe cities

and digital programmes continue to get focus from the Central and State Governments,

the year saw slow progress in key project decisions and implementation, and many of

the key projects were postponed or deferred due to Covid-19.

7. The global economy, which was already on a weak growth momentum owing to

various factors such as trade tensions, political instability, Brexit, low crude prices, etc.,

got further accentuated with the Covid-19 pandemic’s affecting many countries.

8. Deferred payment contracts result in increase in working capital requirements, the

business has been relentlessly following up with Government authorities for better

payment terms and has been successful in the majority of cases.

9. With the business conditions improving progressively in the 2nd half of FY 2020-21,

till the onset of the second wave, the Company ended the year with significant liquidity

on the balance sheet, aided by the divestment and lower working capital. Low gearing

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levels and high cash balances will equip the Company to deal with business uncertainty

in the face of the ongoing second wave of Covid-19.

10. The analysis clearly depicts that the profitability and efficiency of the company is on

a declining trend up to 2018-2019. L&T has taken necessary steps to improve the

profitability and efficiency of the firm by expansion, modernization and capacity

utilization.

11. ROE is fluctuating and it increased and decreased because of Net Profit Margin.

This clearly depicts that the returns available to equity shareholders is improving. Hence

the profitability and efficiency of the company is improving. It states that the company

has taken effective steps to use its assets efficiently to improve the earnings of the

company. Therefore, ROA shows an improving trend.

7.2 Suggestions:

1. Working Capital Management:

From the analysis it is found that the working capital of the company is not

managed properly. Money is stocked in inventory for a small amount of days.

Receivable days are long, efficiency of collections department and market power must

be analyzed and improved. The company must work on increasing the payable days.

They also have to reduce the debtor’s level as the average collection period is more than

the average payment period.

2. Cash Management:

From the above analysis it is evident that L&T requires on an average for 6 days

funds to be supplied for the business on account of inventory, receivables and payables

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as the average cash conversion cycle for L&T is 6 days. Hence, L&T is good in the cash

conversion cycle.

3. Improve Profitability:

L&T is unable to maintain good distribution and manufacturing efficiency

during its production process. This shows that the company has a poor profitability. The

company has to take steps to repay the borrowings which will reduce the fixed burden

that the company has by way of interest and ultimately increase the profit margin of the

company.

4. Increasing Returns:

The ROCE, ROA and ROE is fluctuating and it increased and decreased because

of Net Profit Margin. This clearly depicts that the returns available to equity

shareholders is improving. Hence the profitability and efficiency of the company is

improving. It states that the company has taken effective steps to use its assets

efficiently to improve the earnings of the company. Therefore, ROA shows an

improving trend.

5. Improve solvency Position:

The interest coverage ratio shows a declining trend which indicates that the

company had to be caution in improving its interest coverage position. The company can

improve this situation by reducing its expenses and utilizing its assets effectively.

6. Efficient Usage of Assets:

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The analysis of the turnover ratios indicates the company is not efficient in

utilizing its assets. The company has to utilize the assets to the fullest capacity possible

and dispose those which are idle which no way contributes to the profits.

7. Increase Capacity Utilization:

The government has decided to improve the infrastructure facilities in India and

designed policies for the same. Hence the demand for steel may increase. L&T has to

use this situation by increasing its production capacity by fullest capacity utilization.

7.3 Conclusion:

From the present study, analyzing the financial performance of L&T it is

concluded that the company is not financially sound and in the last year there is a slight

decrement. L&T to meet their challenging opportunities they should be financially

sound for which they need to concentrate in maintaining proper assets, strengthen the

degree of liquidity, profitability and long – term solvency position. They should have

adequate EBIT which will improve the operating efficiency which in turn will lead to

financial soundness.

References:

1. Annual Reports of L&T

2. Web sites of L&T

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