Ratio Analysis of Wal Mart

Table of Content

Contents Larsen & Toubro Limited (L&T) Read the annual report of one of the Sensex Companies and prepare a note covering the following topics: Brief History Shareholding Pattern Promoters Contents of Annual Report Brief History The evolution of L&T into the country’s largest engineering and construction organization is among the most remarkable success stories in Indian industry. L was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro. Both of them were strongly committed to developing India’s engineering capabilities to meet the demands of industry.

Beginning with the import of machinery from Europe, L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets global engineering benchmarks in terms of scale and complexity. Early Days 😉 In 1938, Henning Holck-Larsen and Soren Kristian Toubro decided to forgo the comforts of working in Europe, and started their own operation in India. All they had was a dream and the courage to dare. Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office at a time!

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In the early years, they represented Danish manufacturers of dairy equipment for a modest retainer. But with the start of the Second World War in 1939, imports were restricted, compelling them to start a small work-shop to undertake jobs and provide service facilities. Germany’s invasion of Denmark in 1940 stopped supplies of Danish products. This crisis forced the partners to stand on their own feet and innovate. They started manufacturing dairy equipment indigenously. These products proved to be a success, and L came to be recognized as a reliable fabricator with high standards.

The war-time need to repair and refit ships offered L an opportunity, and led to the formation of a new company, Hilda Ltd. , to handle these operations. L also started two repair and fabrication shops – the Company had begun to expand. Again, the sudden internment of German engineers (because of the War) who were to put up a soda ash plant for the Tata’s, gave L a chance to enter the field of installation – an area where their capability became well respected. The Journey ;%20) In 1944, ECC was incorporated. Around then, L decided to build a portfolio of foreign collaborations.

By 1945, the Company represented British manufacturers of equipment used to manufacture products such as hydrogenated oils, biscuits, soaps and glass. In 1945, L signed an agreement with Caterpillar Tractor Company, USA, for marketing earthmoving equipment. At the end of the war, large numbers of war-surplus Caterpillar equipment were available at attractive prices, but the finances required were beyond the capacity of the partners. This prompted them to raise additional equity capital, and on 7th February 1946, Larsen & Toubro Private Limited was born.

Independence and the subsequent demand for technology and expertise offered L the opportunity to consolidate and expand. Offices were set up in Kolkata (Calcutta), Chennai (Madras) and New Delhi. In 1948, fifty-five acres of undeveloped marsh and jungle was acquired in Powai. Today, Powai stands as a tribute to the vision of the men who transformed this uninhabitable swamp into a manufacturing landmark. Public Limited Company 😉 In December 1950, L became a Public Company with a paid-up capital of Rs. 2 million. The sales turnover in that year was Rs. 10. million. Prestigious orders executed by the Company during this period included the Amul Dairy at Anand and Blast Furnaces at Rourkela Steel Plant. With the successful completion of these jobs, L emerged as the largest erection contractor in the country. In 1956, a major part of the company’s Bombay office moved to ICI House in Ballard Estate. A decade later this imposing grey-stone building was purchased by L&T, and renamed as L&T House – the Corporate Office. The sixties saw a significant change at L&T – S. K. Toubro retired from active management in 1962.

The sixties were also a decade of rapid growth for the company, and witnessed the formation of many new ventures: UTMAL (set up in 1960), Audco India Limited (1961), Eutectic Welding Alloys (1962) and TENGL (1963). Expanding Horizons 😉 By 1964, L&T had widened its capabilities to include some of the best technologies in the world. In the decade that followed, the company grew rapidly, and by 1973 had become one of the Top-25 Indian companies. In 1976, Holck-Larsen was awarded the Magsaysay Award for International Understanding in recognition of his contribution to India’s industrial development.

He retired as Chairman in 1978. In the decades that followed, the company grew into an engineering major under the guidance of leaders like N. M. Desai, U. V. Rao, S. D. Kulkarni and A. M. Naik. Today, L is one of India’s biggest and best known industrial organizations with a reputation for technological excellence, high quality of products and services, and strong customer orientation. It is also taking steps to grow its international presence. For an institution that has grown to legendary proportions, there cannot and must not be an ‘end’.

Unlike other stories, the L&T saga continues… Share Holding Pattern as on 31st March 2008 {draw:frame} Promoters According to Investopedia, an individual or company that, for a fee, helps raise money for some type of investment activity. Most often, promoters raise money for a company through offering investment vehicles other than traditional stocks and bonds, such as limited partnerships and direct investment activities. Often times, these promoters are paid in company stock or free entrance into the investment activity as compensation for their work in raising funds from others.

While there are plenty of legitimate investment promoters out there, but due to the fact that many of the investments promoted by these individuals are not formally registered with the Securities and Exchange Commission, an investment area plagued with fraud, professional promoters have been linked to an inordinately high number of investment scams and litigation. In L&T, the promoters were, Henning Holck-Larsen and Soren Kristian Toubro who are now dead had 0% shareholding. This can be proved with the help of the above pie diagram where none of the shares were held by the promoters of the company.

Contents of Annual Report The annual report dated 2007-2008 of Larsen & Turbo Ltd contains certain regular items that form a part of any annual report and also certain items that specially belong to L&T. Design & Engineering L&T has critical engineering and design capabilities in each of its major businesses. In fact, engineering and the capability to leverage advanced technology constitute a key differential in L&T’s offerings across all its businesses. Thermal Engineering Mechanical Technologies & Analytical Engineering Engineering Services Construction Equipment Manufacturing Technology services

International Operations L&T is globalizing its operations, with increasing focus on international business opportunities. Over the years, L&T has outgrown its national barriers and extended its activities into the outstretched arms of the Indian Ocean Rim countries. L&T’s international presence is increasing, with worksites in 20 countries that encompass South Asia, South East Asia, the Middle East, Russia, CIS countries including African countries. Corporate Social Responsibility L&T believes that the true and full measure of growth, success and progress lies beyond balance sheets or conventional economic indices.

It is best reflected in the difference that business and industry make to the lives of people. Through its social investments, L&T addresses the needs of communities residing in the vicinity of its facilities, taking sustainable initiatives in the areas of heath, education, environment conservation, infrastructure and community development. The company proactively provides assistance in situations such as natural calamities and assists victims of nature’s fury or social neglect. Many social initiatives are undertaken in partnership with government agencies and NGOs. Director’s Report

The directors of the company present the Annual Report and Accounts for year ended 31st March 2008. The gross sales, other income and interest income for the financial year under review were Rs,25,863 Cr as against Rs18,423 registering and increase of 40% as against previous year. The profit before tax improved by 57% and the profit after tax 55%. Awards Amity Corporate Excellence Award was conferred for research in 2006 by Amity International Business School. Engineering Export Promotion Council of Kolkata awarded ‘National Top Exporters Trophy’ to L in 2006.

ECC division of L Limited was awarded IMC Ramakrishna Bajaj National Quality Award in 2005. L’s signature of excellence is evident on: India’s first indigenous hydrocracker reactor Oil and gas platform projects executed to global benchmarks The world’s largest continuous catalyst regeneration reactor The simultaneous execution of clean fuel projects at eight refineries around India The world’s biggest fluid catalytic cracking regenerator The world’s longest product splitter Asia’s highest viaduct – built for the Konkan Railway The world’s longest LPG pipeline

The world’s longest cross country conveyor Building an international class football stadium in 260 days Auditor’s Report Wal Mart Compute appropriate financial ratios to enable you to comment upon the following aspects of the firm: Profitability Asset Utilization Leverage Liquidity A fund manager asks you for your overall impression of Wal Mart’s strengths and weaknesses as revealed by the financial statements. What advice do you give her? Profitability Ratios Interpretation Profitability ratios helps to assess the profits generated in relation to the resources utilized.

An increase in the gross profit ratio from yr 2005 to 2006 shows that there has been a reduction in the cost of production. Whereas the net profit ratio remains the same which shows that there was an increase in the expenses which offset the increase in the gross profit. Strong gross profitability combined with weak net profitability may indicate a problem with indirect operating expenses or non-operating items, such as interest expense. From the profitability ratios it can be concluded that more or less the profit generating capacity of the firm remains the same over the 2 years. Assets Utilization Ratios

Interpretation Asset utilization ratios help the firms to assess the activity generated in relation to the resources utilized. By assessing a company’s use of credit, inventory, and assets, efficiency ratios can help small business owners and managers conduct business better. These ratios can show how quickly the company is collecting money for its credit sales or how many times inventory turns over in a given time period. This information can help management decide whether the company’s credit terms are appropriate and whether its purchasing efforts are handled in an efficient manner.

This company’s overall efficiency in utilizing the assets is good. Leverage Ratios Interpretation The leverage ratios measure the financial health of the company. The increase in the assets to equity ratio indicates investment in assets that yield profits. The debt ratio implies how much better the external liability can be financed by the assets. For debt equity ratio, higher the ratio, the riskier it is, thus a slight increase is alarming. It is considered the higher the interest coverage ratio the better it is as it is the company’s ability to meet its interest obligations.

The operating and financial leverages both measure of how efficiently the company can meet its financial obligations. The higher the ratio, the better it is. The operating leverage is decreasing which is not a very good sign. But the financial leverage has a slight change which implies that the interest has hardly any effect on the earnings for the years. Liquidity Ratios Interpretation From the liquidity ratios we can assess the firm’s ability to meet short term obligations. In this company the current ratio is around 0. 89, whereas, the ideal is 2. Same is the case with quick ratio which is 0. 7 when the ideal is 1 and absolute quick ratio is 0. 13 whereas the ideal suggests 0. 5. As we compare the liquidity ratios of this firm with the ideal ratios we can analyze that the firm’s liquidity position is not good. The vast difference between the ideal ratios and the ratios calculated above show that the company is facing difficulties in paying its short term obligations. The company is also unable to convert its current assets into cash and its equivalents. Our Observations of Wal Mart We have analyzed the company with the help of various well-established analysis tools.

These tools take a look at the various perspectives of the company. DuPont Analysis To begin with, the DuPont Analysis helps analyze the company’s strengths and weaknesses, mainly in the areas of, profitability, efficiency and leverage. The analysis proves that the company is functioning well since the ROE is above 15% consistently, which is considered ideal. The strength of the company can be attributed to the leverage ratio. And the weakest area according to the DuPont analysis is the efficiency ratio which is declining from the previous fiscal year.

The profitability ratio remains more or less the same. Altman’s Z Score The next analysis that we take up is the Altman’s Z score which will help us ascertain whether this company is in distress or not. According to the Altman’s Z score analysis, when the Z score lies between 1. 1 and 2. 6 for a non-manufacturing and service firm, which Wal Mart is, the firm is said to be in ‘gray zone’. This means that the firm is facing problems or difficulties in meeting its obligations. This may have detrimental effect on both debt and equity holders. Market Ratios

Finally, we use the market ratios to determine the company’s perception in the eyes of the stakeholders. The price earnings ratio is the market’s perception of future earnings. It is the measure of the degree to which market has capitalized on its earnings. A declining figure shows the firm is capitalizing to a less extent on it’s earnings as compared from 2005 in 2006. Whereas, the earnings yield ratio reveals the investor’s expectations about the firm’s future earning capacity. An increasing ratio shows a good future. The dividend yield ratio determines the actual rate of return on the money invested by the investors.

The more the ratio, more attractive is the share. So on analyzing these above ratios, we can say that for investors it is showing a positive sign for investing in the firm. Though the firm is facing major problem in meeting its short term obligations, the firm is comfortably able to meet its long term obligation (interest and dividends payments) as can be supported by the times interest earned ratio and dividends yield ratio. So our advice to the fund manager would to go ahead in and invest in the firm as the firm is able to meet investor’s expectations.

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Ratio Analysis of Wal Mart. (2018, Feb 25). Retrieved from


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