Financial

Accounting
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Comnny IrofIIo
Larsen & Toubro Limited (L&T) is a technology, engineering,
construction and manufacturing company. It is one of the
largest and most respected companies in India's private
sector.
More than seven decades of a strong, customer-focused
approach and the continuous quest for world-class quality
have enabled it to attain and sustain leadership in all its major
lines of business.
L&T has an international presence, with a global spread of
offices.
thrust on international business
has seen overseas earnings grow
significantly. It continues to grow
its overseas manufacturing
footprint, with facilities in China
and the Gulf region.
The company's businesses are
supported by a wide marketing
and distribution network, and have
established a reputation for strong
customer support.
L&T believes that progress must
be achieved in harmony with the
environment. commitment to
community welfare and
environmental protection are an
integral part of the corporate
vision.
nf Is nn AnnunI ConornI
!oorf
n annual report is a comprehensive report on a company's activities
throughout the preceding year. nnual reports are intended to
give shareholders and other interested people information about the
company's activities and financial performance.
Most jurisdictions require companies to prepare and disclose annual
reports, and many require the annual report to be filed at the company's
registry. Companies listed on a stock exchange are also required to
report at more frequent intervals (depending upon the rules of the stock
exchange involved).
TYPCALLY THE ANNUAL GENERAL
REPORT NCLUDES
Chalrman's SLaLemenL
ulrecLor's 8eporL
Company lnformaLlon
ManagemenL ulscusslon and Analysls
AudlLor's 8eporL on CorporaLe Covernance
AudlLor's 8eporL on Lhe llnanclal SLaLemenLs
llnanclal SLaLemenLs 8alance SheeL lncome SLaLemenL and Cash
llow SLaLemenL(ConsolldaLed SLand Alone)
CorporaLe Covernance SLaLemenL of Compllance
SlgnlflcanL AccounLlng ollcles and noLes on AccounLs
Schedules and noLes formlng parLs of Lhe AccounLs
CnIrmnn`s Sfnfomonf
AM NAIk
(Cha|rman Manag|ng D|rector)
Mr. M Naik talks about the performance of the firm in the beginning,
marking it as an impressive performance.
Order Inflows for the year, though volatile from quarter to quarter, recorded a
growth of 15%. Revenues, driven by a robust Order Book position in the
beginning of the year, registered a 19% growth for the year which was
commendable considering the challenging execution environment that all
sectors witnesses throughout the fiscal.
EBITD Margins, by and large, held up to FY10 levels despite higher input
prices which were mitigated through timely and cost efficient execution of
orders on hand.
The closing Order Book position at the end of FY11 recorded an impressive `
130,217 crore which is in excess of two years of backlog.
!rofit after Tax at ` 3,676 crore excluding
Exceptional and Extraordinary items, grew
15% during the year. Robust operating cash
flows contributed to the healthy financial
condition of the Company .The performance
of the Subsidiary & ssociate companies
during the year was also encouraging.
The Group total income for the year reached
` 52,089crore while the Group !rofit after
Tax excluding Exceptional and Extra
ordinary items, recorded an impressive
`4,238 crore, an increase of 12% year on
year.
n enhanced dividend of `14.50 per equity
share on a face value of `2per share for the
year was announced in the Chairman's
Statement.
The chairman talks about the following topics in his statement:
Gearing for Growth : The Company has taken a number of measures during the
year under review to ensure that it accelerates its growth momentum going
forward. Major steps include:
Restructuring
Business Integration
Capacity Expansion
Technology
Talent Management
Information Technology
Renewable Energy: The Company believes that the seeds of growth for
renewable energy planted now will, in time, bear fruit that will make these
ventures viable. It has embarked on multiple initiatives including projects in
Solar !hotovoltaic !ower and manufacture of engineered large size castings for
critical applications in wind power turbines.
Sustainable Environment: The company is one of the 28 Indian companies
whose Sustainability Reports are available in the public domain and is the first
Indian company in the Engineering & Construction Segment to publicly report on
its sustainability performance. The Company has reported on all Core
!erformance Indicators (49) under the 'Global Reporting Initiative' and there
ports have been externally assured for authenticity of the information presented.
The last report (2010) has been credited with a 'GRI Checked 'pplication Level
rating.
Irocfor`s !oorf
President, Heavy
Engineering
President, IT and
Eng Services
President, Power
CFO
Sr. EVP,
Construction
President,
Construction and
Engineering
Projects
nf Is Irocfor`s !oorf
Every year company directors have to prepare a report for the
company's members to explain what the company has been doing and its
plans for the future.
The report is typically prepared on a quarterly and annual basis. It
includes detailed items such as the accountant's financial analyses and
management recommendations.
The report is usually unaudited. statement by a company's directors in
its annual accounts giving the directors' opinion of the state of the
company, and how much should be paid to people owning shares in the
company.
The report is intended to report, to all interested stakeholders, the
directors' explanations and interpretations of the profit/loss, the state
of affairs of the group and any other matters which may be material for the
stakeholders' attention.
Year in Retrospect
Factor Current
Year
Previous
Year
Increase
Gross Sales 45,728 39,381 16%
PBT 5,571 4,806 16%
PBTE 3,676 3,185 15%
Depository System
Capital and Finance
Capital Expenditure
Deposits
Transfer to nvestor Education and Protection Fund
Subsidiary Company
CSR Voluntary Guidelines
Director's Statement
A!%!`S !II!%
@he prlmary purpose of an audlL ls Lo provlde assurance Lo Lhe users of Lhe
flnanclal sLaLemenLs LhaL Lhese sLaLemenLs are rellable AudlLors do noL express
an oplnlon on Lhe cllenLs accounLlng records @he audlLors lnvesLlgaLlon of
flnanclal sLaLemenL lLems lncludes reference Lo Lhe cllenLs accounLlng records
buL ls noL llmlLed Lo Lhese records @he audlLors examlnaLlon lncludes
observaLlon of Langlble asseLs lnspecLlon of such documenLs as purchase orders
and conLracLs and Lhe gaLherlng of evldence from ouLslders lncludlng banks
cusLomers and suppllers as well as analysls of Lhe cllenLs accounLlng records
@he audlLors producL ls Lhelr reporL lL ls a separaLe documenL from Lhe cllenLs
flnanclal sLaLemenLs alLhough Lhe Lwo are closely relaLed and LransmlLLed
LogeLher Lo sLockholders and Lo credlLors
8eporLlng hase of Lhe AudlL
llnanclal SLaLemenL ulsclosure
ueLecLlng MlssLaLemenLs
Section 227(1A), Companies Act 1956
4 Basis of Accounting
4 Revenue Recognition
4 Fixed Assets
4 Depreciation
4 Provisions, contingent liabilities
and contingent assets
nnngomonf IscussIon nnd AnnIysIs
The purpose of the MD& is to provide a narrative explanation, through
the eyes of management, of how an entity has performed in the past, its
financial condition, and its future prospects.
MD& typically describes the corporation's liquidity position, capital
resources, results of its operations, underlying causes of material changes
in financial statement items (such as asset impairment and restructuring
charges), events of unusual or infrequent nature (such as mergers and
acquisitions or share buybacks), positive and negative trends, effects
of inflation, domestic and international market risks, and significant
uncertainties.
mong other things, the MD& provides an overview of the previous year
of operations and how the company fared in that time period. Management
will usually also touch on the upcoming year, outlining future goals and
approaches to new projects.
The MD& is a very important section of an annual report, especially for
those analyzing the fundamentals, which include management and
management style.
Global Economic
Condition
Overview of ndian
Economy
Construction and
Turnkey Business
Projects
Business Challenges
Growth Strategies and
Thrust Areas
The Company believes that sound Corporate Governance is
critical for enhancing and retaining investor trust and the
Company always seeks to ensure that its performance goals are
met with integrity.
The Company has established systems and procedures to
ensure that its Board of Directors is well informed and well
equipped to fulfill its overall responsibilities and to provide
management with the strategic direction needed to create long
term shareholders value.
The Company has always worked towards building trust with
shareholders, employees, customers, suppliers and other
stakeholders based on the principles of good corporate
governance viz., integrity, equity, transparency, fairness,
disclosure, accountability and commitment to values.
Corporate Governance refers to a set of laws, regulations and good practices
that enable an organization to perform efficiently and ethically generate long
term wealth and create value for all its stakeholders.
%I C'I!ACI
S%!!C%!!I
The Company has four tiers of Corporate Governance structure, viz.:
(i) STRTEGIC SU!ERVISION - by the Board of Directors comprising the
Executive and Non-Executive Directors.
(ii) STRTEGY & O!ERTIONL MNGEMENT - by the Independent
Company Boards in each Independent Company (not legal entities) (IC)
comprising of representatives from the Company Board, Senior Executives
from the IC and Independent Members.
(iii) EXECUTIVE MNGEMENT - by the Executive Management comprising
of the CMD/Executive Directors and four Senior Managerial !ersonnel and two
dvisors to the Chairman.
(iv) O!ERTIONL MNGEMENT - by the Strategic Business Unit (SBU)
Heads.
The four-tier governance structure, besides ensuring greater management
accountability and credibility, facilitates increased autonomy of businesses,
performance discipline and development of business leaders, leading to
increased public confidence.
ACA! AA!YSS
AM : To find out various accounting ratios using the
financial accounts of Larsen and Tourbo Ltd. For the year
2010-11 and study the significance of such ratios in the
company's context.
%!S ! ACA!
AA!YSS
PROFIT AND LOSS A/C : A financial statement that summarizes the revenues,
costs and expenses incurred during a specific period of time - usually a fiscal quarter
or year. These records provide information that shows the ability of a company to
generate profit by increasing revenue and reducing costs.
ALANCESHEET : A financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time. These three balance
sheet segments give investors an idea as to what the company owns and owes, as
well as the amount invested by the shareholders.
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders' Equity
!A% AA!YSS
It is defined as the systematic use of ratio to interpret the financial statements so that
the strength and weaknesses of a firm as well as its historical performance and
current financial condition can be determined. The term ratio refers to the numerical or
quantitative relationship between two variables.
ADVANTAGES :
To workout the profitability
To workout the solvency
Helpful in analysis of financial statement
Helpful in comparative analysis of the performance
To simplify the accounting information
To workout the operating efficiency
To workout short-term financial position
Helpful for forecasting purposes
LIMITATIONS :
Limited Comparability
False Results
Effect of !rice Level Changes
Qualitative factors are ignored
Effect of window dressing
Costly Technique
Misleading Results
bsence of Standard university accepted terminology
I!I% %YIIS
!A%
LIQUIDITY RTIO :
CURRENT RATIO
QUICK RATIO
SOLVENCY RTIO :
TURNOVER RTIO:
VLUTION RTIO :
CURRENT RATIO
It is a measure of general liquidity and is most widely used to
make the analysis for short term financial position or liquidity of
a firm. It is calculated by dividing the total of the current
assets by total of the current liabilities.

CURRENT SSETS
CURRENT RTIO = ------------------------------
CURRENT LIBILITIES
Current assets = 34951.14
Current liabilities =25589.82
34951.14
Current ratio = -------------- = 1.365 : 1
25589.82
$IGNIFICANCE
This ratio is a general and quick measure of liquidity of a firm. It represents
the margin of safety or cushion available to the creditors. It is an index of the
firms financial stability. It is also an index of technical solvency and an index
of the strength of working capital.
relatively high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time and when they become due.
On the other hand, a relatively low current ratio represents that the liquidity
position of the firm is not good and the firm shall not be able to pay its
current liabilities in time without facing difficulties. n increase in the current
ratio represents improvement in the liquidity position of the firm while a
decrease in the current ratio represents that there has been a deterioration in
the liquidity position of the firm. ratio equal to or near 2 : 1 is considered as
a standard or normal or satisfactory. The idea of having double the current
assets as compared to current liabilities is to provide for the delays and losses
in the realization of current assets. However, the rule of 2 :1 should not be
blindly used while making interpretation of the ratio.
Firms having less than 2 : 1 ratio may be having a better liquidity than even
firms having more than 2 : 1 ratio. This is because of the reason that current
ratio measures the quantity of the current assets and not the quality of the
current assets. If a firm's current assets include debtors which are not
recoverable or stocks which are slow-moving or obsolete, the current ratio
may be high but it does not represent a good liquidity position.
"UICK RATIO
Liquid ratio is also termed as "Liquidity Ratio","cid Test
Ratio" or "Quick Ratio". It is the ratio of liquid assets to current
liabilities. The true liquidity refers to the ability of a firm to pay
its short term obligations as and when they become due.

QUICK SSETS
QUICK RTIO= ------------------------------
CURRENT LIBILITIES

QUICK SSETS = CURRENT SSETS - STOCK - !RE!ID

EX!ENSES

= 34951.14 - 1577.15
= 33373.99
33373.99
Quick ratio = ----------------- = 1.304 :1
25589.82
$IGNIFICANCE
The quick ratio/acid test ratio is very useful in measuring the liquidity
position of a firm. It measures the firm's capacity to pay off
current obligations immediately and is more rigorous test of liquidity than
the current ratio. It is used as a complementary ratio to the current ratio.
Liquid ratio is more rigorous test of liquidity than the current ratio because it
eliminates inventories and prepaid expenses as a part of current assets.
Usually a high liquid ratios an indication that the firm is liquid and has the
ability to meet its current or liquid liabilities in time and on the other hand a
low liquidity ratio represents that the firm's liquidity position is not good. s
a convention, generally, a quick ratio of "one to one" (1:1) is considered to
be satisfactory.
lthough liquidity ratio is more rigorous test of liquidity than the current
ratio , yet it should be used cautiously and 1:1 standard should not be used
blindly. liquid ratio of 1:1 does not necessarily mean satisfactory liquidity
position of the firm if all the debtors cannot be realized and cash is needed
immediately to meet the current obligations. In the same manner, a low
liquid ratio does not necessarily mean a bad liquidity position
as inventories are not absolutely non-liquid. Hence, a firm having a high
liquidity ratio may not have a satisfactory liquidity position if it has slow-
paying debtors. On the other hand, firm having a low liquid ratio may
have a good liquidity position if it has a fast moving inventories. Though this
ratio is definitely an improvement over current ratio, the interpretation of this
ratio also suffers from the same limitations as of current ratio.
NET WORKING CAPITAL RATIO
Net Working capital is more a measure of cash flow than a ratio. It is an
indication of short term financial health of a business. The result of this ratio or
measure is either a positive or a negative number. positive number indicates that
the company has enough liquid assets to pay off short term obligations. Working
capital ratio must be looked at over a period of time (several years). declining
ratio over several years may indicate that the company's financial position is not
sound. Banks generally look at net working capital over a period of time to
determine a company's financial strength. The eligibility of bank loans are also tied
to minimum working capital requirements.
NET WORKING C!ITL RTIO = NET WORKING C!ITL
-----------------------------------
TOTL SSETS
Net Working Capital = Current ssets - Current Liabilities
Net working capital = 34951.14 - 25589.82
= 9361.32
TOTL SSETS = 7458 14685 7128 34951.14
= 64222.14
9361.32
NET WORKING C!ITL RTIO = --------------------- = 0.145
64222.14
GRO$$ PROFIT RATIO
It is the ratio of gross profit to net sales i.e. sales less sales
returns. The ratio thus reflects the margin of profit that a concern is
able to earn on its trading and manufacturing activity. It is the most
commonly calculated ratio. It is employed for inter-firm and inter-firm
comparison of trading results.
Following formula is used to calculated gross profit ratio (G! Ratio):
Gross profit / (Net sales 100)
Where Gross profit = Net sales - Cost of goods sold
Cost of goods sold = Opening stock Net purchases Direct
expenses
-Closing Stock
Net sales = Sales - Returns inwards
GROSS !ROFIT = 43886
NET SLES = 43496

G! RTIO = 43886 / 43496 100

= 100.89
$IGNIFICANCE
Gross profit ratio may be indicated to what extent the selling prices
of goods per unit may be reduced without incurring losses on
operations. It reflects efficiency with which a firm produces its products.
s the gross profit is found by deducting cost of goods sold from net
sales, higher the gross profit better it is. There is no standard G! ratio
for evaluation. It may vary from business to business. However,
the gross profit earned should be sufficient to recover all
operating expenses and to build up reserves after paying all fixed
interest charges and dividends.
NET PROFIT RATIO
It expresses the relationship between net profit after taxes and
sales. This ratio is a measure of the overall profitability net profit is
arrived at after taking into accounts both the operating and non-
operating items of incomes and expenses. The ratio indicates what
portion of the net sales is left for the owners after all expenses have
been met.
Following formula is used to calculate net profit ratio:
Net profit ratio = (Net profit after tax / Net sales) 100
It is expressed in percentage. Higher the net profit ratio, higher is
the profitability of the business.
Net profit after tax = 3676
Net sales = 43496

Net profit ratio = (3676 / 43496 ) * 100

= 8.451 %

$IGNIFICANCE
N! ratio is used to measure the overall profitability and hence it is very
useful to proprietors. The ratio is very useful as if the net profit is not
sufficient, the firm shall not be able to achieve a satisfactory return on its
investment.
This ratio also indicates the firm's capacity to face adverse economic
conditions such as price competition, low demand, etc. Obviously, higher
the ratio the better is the profitability. But while interpreting the ratio it
should be kept in mind that the performance of profits also be seen in
relation to investments or capital of the firm and not only in relation to sales.
RETURN ON CAPITAL
EMPOLYED
The prime objective of making investments in any business is to obtain
satisfactory return on capital invested. Hence, the return
on capital employed is used as a measure of success of a business in
realizing this objective.
Return on capital employed establishes the relationship between the
profit and the capital employed. It indicates the percentage of return
on capital employed in the business and it can be used to show the
overall profitability and efficiency of the business.
Capital employed and operating profits are the main
items. Capital employed may be defined in a number of ways. However, two
widely accepted definitions are "gross capital employed" and
"net capital employed". Gross capital employed usually means the total
assets, fixed as well as current, used in business, while
net capital employed refers to total assets minus liabilities. On the other
hand, it refers to total of capital, capital reserves, revenue reserves
(including profit and loss account balance), debentures and long term loans.

ROCE = Net profit x 100

Capital employed
[Capital employed = Fixed ssets Current ssets - Current
$IGNIFICANCE
Return on capital employed ratio is considered to be the best measure
of profitability in order to assess the overall performance of the business. It
indicates how well the management has used the investment made by
owners and creditors into the business. It is commonly used as a basis for
various managerial decisions. s the primary objective of business is to
earn profit, higher the return on capital employed, the more efficient the firm
is in using its funds. The ratio can be found for a number of years so as to
find a trend as to whether the profitability of the company is improving or
otherwise.
RETURN ON PROPRIETER$>
FUND
RETURN ON !RO!RIETERS' FUND = !rofit after tax
!roprietor's funds

!ROFIT FTER TX = 3676

!RO!RIETOR'S FUNDS = 21846

RETURN ON !OR!RIETOR'S FUND = 3676 / 21846 = 0.168

$FA
This ratio is more meaningful to the equity shareholders who are
interested to know profits earned by the company and those profits
which can be made available to pay dividends to them. Interpretation of
the ratio is similar to the interpretation of return on shareholder's
investments and higher the ratio better is.
EARNING PER $ARE
Earnings per share ratio (E!S Ratio) is a small variation of return
on equity capital ratio and is calculated by dividing the net profit after
taxes and preference dividend by the total number of equity shares.
Earnings per share (E!S) Ratio = (Net profit after tax
!reference dividend)
No. of equity shares (common shares)
Net profit after tax = 3676cr
No. of equity shares = 60,88,52,126 shares of Rs 2 each
E!S = 3676 Cr / 60,88,52,126 = Rs 60.37
$FA
The earnings per share is a good measure of profitability and when
compared with E!S of similar companies, it gives a view of the
comparative earnings or earnings power of the firm. E!S ratio calculated
for a number of years indicates whether or not the earning power of the
company has increased.
PRICE EARNING RATIO
!rice earnings ratio (!/E ratio) is the ratio between market price per
equity share and earning per share.
The ratio is calculated to make an estimate of appreciation in the value
of a share of a company and is widely used by investors to decide
whether or not to buy shares in a particular company.
!rice Earnings Ratio = Market price per equity share
/ Earnings per share
Market price per share = 1413.25
Earning per share = 60.37
!rice earning ratio = 1413.25 / 60.37 = 23.04
$FA
!rice earnings ratio helps the investor in deciding whether to buy or not
to buy the shares of a particular company at a particular market price.
Generally, higher the price earning ratio the better it is. If the !/E ratio
falls, the management should look into the causes that have resulted
into the fall of this ratio.
$TOCK TURNOVER RATIO
Stock turn over ratio and inventory turn over ratio are the same. This ratio is a
relationship between the cost of goods sold during a particular period of time and the
cost of average inventory during a particular period. It is expressed in number of
times. Stock turn over ratio/Inventory turn over ratio indicates the number of time the
stock has been turned over during the period and evaluates the efficiency with which a
firm is able to manage its inventory. This ratio indicates whether investment in stock is
within proper limit or not.
COGS
STOCK TURNOVER RTIO = ----------------------------
VERGE STOCK
verage stock = opening stock closing stock /2
Opening stock = 1415.37
Closing stock = 1577.15
verage stock = 1415.371577.15/2 = 1492.26
Cogs = opening stock purchases - closing stock
= 1415.37 2064.98 - 1577.15
= 1903.2
1903.2
STR = ---------------- = 1.27 TIMES
1492.26
$IGNIFICANCE
Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a
high inventory turnover/stock velocity indicates efficient management
of inventory because more frequently the stocks are sold, the lesser amount of money is
required to finance the inventory. low inventory turnover ratio indicates an inefficient
management of inventory. low inventory turnover implies over-investment in
inventories, dull business, poor quality of goods, stock accumulation, accumulation of
obsolete and slow moving goods and low profits as compared to total investment.
The inventory turnover ratio is also an index of profitability, where a high ratio signifies
more profit, a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may
not be accompanied by relatively a high profits. Similarly a high turnover ratio may be due
to under-investment in inventories.
It may also be mentioned here that there are no rule of thumb or standard for interpreting
the inventory turnover ratio. The norms may be different for different firms depending
upon the nature of industry and business conditions. However the study of the
comparative or trend analysis of inventory turnover is still useful for financial analysis.
DEBTOR$ TURNOVER RATIO
Debtors turnover ratio or accounts receivabIe turnover ratio indicates the velocity of debt
collection of a firm. In simple words it indicates the number of times average debtors
(receivable) are turned over during a year.
Debtors Turnover Ratio = Net Credit Sales / verage Trade Debtors
Net credit sales = 45348.04
Debtors in the beginning = 12522.63
Debtors in the end = 14480.16
verage debtors = 12522.63 14480.16 = 13501.39
Debtors turnover ratio = 45348.04 / 13501.39 = 3.35 times
$IGNIFICANCE
ccounts receivable turnover ratio or debtors turnover ratio indicates the number of times the
debtors are turned over a year. The higher the value of debtors turnover the more efficient is
the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio
implies inefficient management of debtors or less liquid debtors. It is the reliable measure of
the time of cash flow from credit sales. There is no rule of thumb which may be used as a
norm to interpret the ratio as it may be different from firm to firm.
CREDITOR$ TURNOVER RATIO
It compares creditors with the total credit purchases.
It signifies the credit period enjoyed by the firm in paying creditors. ccounts payable include
both sundry creditors and bills payable. Same as debtors turnover ratio, creditors turnover
ratio can be calculated in two forms, creditors turnover ratio and average payment period.
Creditors Turnover Ratio = Credit !urchase / verage Trade Creditors
Credit purchases = 2064.98
Creditors in the beginning = 9544.71
Creditors at the end =13532.66
verage creditors = 9544.7113532.66/2 = 11536.68
Creditors turnover ratio = 2064.98 / 11538.68 = 0.178 times
$IGNIFICANCE
The average payment period ratio represents the number of days by the firm to pay its
creditors. high creditors turnover ratio or a lower credit period ratio signifies that the creditors
are being paid promptly. This situation enhances the credit worthiness of the company.
However a very favorable ratio to this effect also shows that the business is not taking the full
advantage of credit facilities allowed by the creditors.
WORKING CAPITAL TURNOVER RATIO
orking capitaI turnover ratio indicates the velocity of the utilization of net working capital.
This ratio represents the number of times the working capital is turned over in the course of
year
Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital
Cost of goods sold = 1903.2
Net working capital = 9361.32
Working capital turnover ratio= 1903.2
--------------- = 0.203 times
9361.32
$IGNIFICANCE
The working capital turnover ratio measure the efficiency with which the working capital is
being used by a firm. high ratio indicates efficient utilization of working capital and a low ratio
indicates otherwise. But a very high working capital turnover ratio may also mean lack of
sufficient working capital which is not a good situation.