L&T Ratios

Topics: Inventory, Working capital, Inventory turnover Pages: 2 (565 words) Published: September 11, 2011
L&T Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory| 2011| 2010| 2009| 2008|
19.14| 17.91| 10.89| 6.86|
The inventory turnover ratio indicates the rapidity with which the inventory is converted to receivables through sales. The ratio has increased steadily from about 6.86 times in 2008 to 19.14 times in 2011.The higher ratio indicates that the company’s inventory management is efficient. This is especially true if compared to its peers whose ratios hover around 3 times the average inventory. While the higher ratio is a positive indicator, it could be due to a low level of inventory and stock outs or it might also be the result of too many small orders for inventory replacement. Either of these may be more costly to the firm than carrying a larger inventory. However, given that L&T operates in the heavy engineering industry and the size of the company this looks unlikely.Also, the restructuring of the business into 9 verticals will help the company maintain the high level of inventory management.| |

Debtors Turnover Ratio = Net Credit Sales/Average Debtors| 2011| 2010| 2009| 2008|
3.89| 3.69| 4.15| 4.16|
The Debtors turnover ratio indicates the slowness of receivables. This ratio has decreased over the last four years to 3.89 times. The lower ratio indicates that it is taking longer for the company to convert its debtors to cash. This may indicate a more liberal credit policy and would not be a major problem if the receivables in the books are of prime quality. However, in case of L&T while the total debtors have increased by 76%, those that are outstanding for more than 6 months have increased by 107% and the amount of bad debts by 89%.However, given that the company is operating in the heavy Engineering industry the ratio is still pretty high as compared to some of its peers like BHEL and BEML.| |

Fixed Assets Turnover Ratio = Gross Sales/Fixed Assets|
2011| 2010| 2009| 2008|
6.3| 6.4| 7.7...
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