LG
Electronics
Table Of Content
Sr. No.
Index
Page No.
1.
Acknowledgement
2.
Executive Summary
3.
Industry Overview
4.
Company Overview
5.
Liquidity Ratios
6.
Turnover Ratios
7.
Solvency Ratios
13
8.
Profit Ratios
16
9.
ROI Ratios
19
8.
Conclusion
26
10.
Bibliography
27
11.
Annexure
28
Acknowledgement
Financial Accounting
LG Electronics
I take this opportunity to express my profound gratitude and deep regards to my guide Mrs.
Meghna Dangi for her exemplary guidance, monitoring and constant encouragement throughout
the project.
I am obliged to my batch mates for the valuable information provided by them in their respective
fields. I am grateful for their cooperation during the period of my assignment.
Executive Summary
Financial
Accounting
2
XZZV33D
LG
Electronics
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.
Industry Overview
Financial Accounting
LG Electronics
The consumer electronics market is ever evolving with new products being made available on a
frequent basis. Also, the evolution of existing products serves to re-invent what is an already fully
functional product and gives the consumer the feeling that new technology is the new norm. For
example, televisions are entering a new era with the unveiling of the new curved television which
gives the viewer a more immersive experience. This may re-invigorate what may be considered a
stagnating segment within the consumer electronics market and lead to an increase in revenues.
Another interesting development within the market is the re-introduction of game consoles in
China. In 2000, the Chinese government placed a ban on the sale of foreign game consoles due to
their perception on the effect they have on the mental health of young people. The ban was finally
lifted in 2014, which means that retailers have the opportunity to enter a market, which was not
previously an option and will also have an overall positive effect on the consumer electronics
market as a whole.
Online retailing is also a major trend, which is becoming more prevalent within the industry.
Consumer electronics were traditionally purchased within electrical retailer showrooms so that the
consumer would have the opportunity to try the product before purchase. However, some retailers
have struggled to close the deal with sites such as Amazon being able to offer the same product at
a significantly lower price. In recent years, traditional retailers have struggled with this threat of
competition and have led to them placing higher importance on their own online arm.
The global consumer electronics market had total revenues of $253.9bn in 2013, representing a
compound annual growth rate (CAGR) of 0.8% between 2009 and 2013.The Eastern European
markets showed particularly strong growth with CAGRs of 8.5% in comparison to Western Europe
which showed strong decline with compound annual rates of change (CARCs) of -7.8% over the
same period. The United States had the largest consumer electronic retail market in the world with
revenues of $90.5bn in 2013.
Company Overview
LG is the brand that is Delightfully Smart. "Life's Good" slogan, and futuristic logo are a great
Financial
Accounting
4
XZZV55D
LG
Electronics
Ratio Analysis
Liquidity Ratios:
Financial Accounting
LG Electronics
It is the ratio that measures a companys ability to fulfill its short-term debt obligations or the
ability of a company to pay off its short-term liability, if and when they take a fall.
In case of Liquidity Ration, higher the ratio, higher is the margin of safety to pay off its current
liabilities and other short-term borrowings. Liquidity ration greater than 1, signposts its sound
financial health.
The liquidity ratios are an outcome of dividing cash and other liquid assets (current assets) by the
short-term borrowings (current liabilities). They show the number of times the short-term debt
obligations are covered by the cash and liquid assets. If the value is superior to 1, it means the
short-term obligations are abundantly covered.
The most common Liquidity Ratios are Current Ratio and Acid Test Ratio/Quick Ratio. Short-term
creditors, bankers, government agencies, Bankruptcy analysts and mortgage originators are readily
using the aforementioned ratios. Using these ratios they analyze and forecast the financial
wellbeing of a company and determine their stand accordingly.
Current Ratio:
It is the ratio that measures a companys ability to meet its debts over the period of next 12
months, by comparing the companys current assets and current liabilities.
Financial
Accounting
6
XZZV77D
LG
Electronics
Current asset
Current
2013
25396.44
4913.45
2012
20916.28
3399.19
2011
12643.26
1760.69
2010
8820.90
1521.48
2009
7641.68
1444.55
liability
Current ratio
5.168
6.153
7.408
5.797
5.290
CURRENT RATIO
8
7
6
5
CURRENT RATIO
4
3
2
1
0
2013.0
2012.0
2011.0
2010.0
2009.0
Interpretation:
Financial Accounting
LG Electronics
The current ratio shows the companys ability to pay back its short term liabilities with is available
assets. Higher the ratio better is the safety level and payback condition of the company. The above
ratios show the gradual increase but after 2011 it decreases which is not a good sign and show that
the companys capability has decreased. It is a negative sign.
Quick Ratio:
It is the ratio that indicates the companys ability to cover all its current liabilities using its current
or short-term assets, without selling its inventory. Ideally, the Quick Ratio should be 1:1, however,
it differs from sector to sector. Quick ratio specifies whether the assets that can be quickly
converted into cash are sufficient to cover current liabilities.
Quick Ratio = Liquid Assets / Liquid Liabilities
Quick asset
Current
2013
23238.94
4913.45
2012
18835.57
3399.19
2011
10603.12
1760.69
2010
7057.41
1521.48
2009
6072.82
1444.55
liabilities
Quick ratio
4.729
5.541
6.022
4.638
4.203
QUICK RATIO
7
6
5
QUICK RATIO
4
3
2
1
0
2013.0
2012.0
Financial
Accounting
8
2011.0
2010.0
2009.0
XZZV99D
LG
Electronics
Interpretation:
Quick ratio is of more impact than current ratio, as inventory may not be immediately converted
into cash. The decreasing quick ratio is not good for the company. If the liquid ratio is very less
than the current ratio than it means that the current asset are highly dependent on the inventory.
Turnover Ratios:
Turnover ratios are also acknowledged as activity or efficiency ratios. It often refers to the
companys ability to translate different accounts within their balance sheets into cash or sales.
Companies will normally try to turn their manufacture into cash or sales as fast as possible because
this will, in general, lead to greater revenues. Such ratios are frequently used when performing
fundamental analysis of the company.
There are various types of Turnover Ratios, namely: o Inventory turnover ratio
o Debtors turnover ratio
o Average collection period
o Total assets turnover ratio
o Fixed assets turnover ratio
Financial Accounting
LG Electronics
2013
2012
2011
2010
2009
Net sales
18157.28
12650.72
14409.69
9163.04
9753.65
Fixed assets
12095.96
13028.42
14568.28
11533.81
7177.71
F.A.T ratio
1.50
0.97
0.98
0.79
1.36
Financial
Accounting
10
XZZV1111D
LG
Electronics
0.8
0.6
0.4
0.2
0
2013.0
2012.0
2011.0
2010.0
2009.0
Interpretation:
The higher fixed asset turn over ratio indicates the ability of the firm to achieve maximum sales
with the least investment in shares.as shown above it was high in 2009 fluctuated over the years
but is maximum in 2013.
Working Capital Turnover Ratio:
It is a metric equating the reduction of working capital to generate of sales over a given period.
This provides some useful information as to how effectively a company is using its working
capital to generate sales. A company utilizes its working capital to fund operations and acquire
Financial Accounting
11
LG Electronics
inventory. These operations and inventory are then converted into sales revenue for the company.
The working capital turnover ratio is used to analyze the relationship between the money used to
fund operations and the sales generated from these operations.
Working Capital turnover Ratio = Net Sales / Working Capital
Net sales
Working capital
W.C.T ratio
2013
15157.28
20482.99
0.739
2012
12650.72
17517.09
0.722
2011
14409.69
10936.57
1.317
2010
9163.04
7299.42
1.255
WORKING CAPITAL
TURNOVER RATIO
1
0.8
0.6
0.4
0.2
0
2013.0
2012.0
Financial
Accounting
12
2011.0
2010.0
2009.0
2009
9753.65
6197.13
1.573
XZZV1313D
LG
Electronics
Interpretation:
The aforementioned graph shows an uneven working capital turnover ratio as recorded by the
company. In comparison to its immediate competitor, Mahindra & Mahindra, the company has a
fairly low value for its working capital turnover ratio.
Capital Employed Turnover Ratio:
The capital employed turnover ratio reveals the association between the shareholders' investment
in the business and the turnover that the management has been able to generate from it. A high
capital turnover ratio designates the ability of the organization to achieve supreme sales with least
amount of capital employed. Higher the capital turnover ratio better it is.
Capital Employed Turnover Ratio = Net Sales / Capital Employed
Net sales
Capital
2013
15157.28
32015.71
2012
12650.72
28609
2011
14409.69
21207.64
2010
9163.04
16384.59
2009
9753.65
14819.39
employed
C.E.T ratio
0.47
0.44
0.68
0.60
0.66
0.5
0.4
0.3
0.2
0.1
0
2013.0
2012.0
Financial Accounting
2011.0
2010.0
2009.0
13
LG Electronics
Interpretation:
The aforementioned graph shows a steady performance of the company in terms of Capital
Employed Turnover Ratio, and after year 2011 there is a growth of capital employed ratio, which
is a better sign for the company.
Solvency Ratios
They measure the capacity of a company to compensate its long-term debt and the interest on it.
Solvency ratios help the business owner conclude the chances of the firm's long-term survival.
These ratios are of interest to long-term creditors and shareholders. These groups are concerned
with the long-term health and survival of business firms. Solvency ratios have to attest that
business can service their debt or pay the interest on their debt as well as pay the principal when
the debt matures.
Financial
Accounting
14
XZZV1515D
LG
Electronics
Debt-Equity Ratio:
It is the ratio of total liabilities of a business to its shareholders' equity. It is a leverage ratio and
measures the degree to which the assets of the business are financed by the debts and the
shareholders' equity of a business.
Debt-Equity Ratio = Total Debts / Shareholders Fund
Debt
Shareholders
2013
21897.72
10117.99
2012
18656.02
9952.98
2011
11773.76
9433.88
2010
9084.55
7300.04
2009
8005.59
6810.80
fund
D.E Ratio
2.16
1.87
1.25
1.24
1.18
Financial Accounting
15
LG Electronics
DEBT-EQUITY RATIO
2.5
2
DEBT-EQUITY RATIO
1.5
1
0.5
0
2013.0
2012.0
2011.0
2010.0
2009.0
Interpretation:
The lower the value of debt equity ratio, the better it is since it a figure highlighting the amount of
assets provided by the shareholders and creditors. Thus it indicates the soundness of long-term
financial policies of the company. And as the company debt equity ratio is 2.16 for 2013,
increasing over years, it is not good indication.
Proprietary Ratio:
Also known as Equity Ratio or the Net Worth to Total Assets Ratio, it is the ratio of shareholders'
funds to total assets. A high ratio indicates that the firm has adequate amount of equity to upkeep
Financial
Accounting
16
XZZV1717D
LG
Electronics
Proprietors
2013
10117.99
2012
9952.98
2011
9433.88
2010
7300.04
2009
6810.80
fund
Total asset
Proprietary
32015.71
3.16
28609.00
2.87
21207.64
2.25
16384.59
2.24
14819.39
2.18
ratio
PROPRIETARY RATIO
3.5
3
2.5
PROPRIETARY RATIO
2
1.5
1
0.5
0
2013.0
2012.0
2011.0
2010.0
2009.0
Interpretation:
The Proprietary Ratio for LG is good and it indicates the company is performing good.
Financial Accounting
17
LG Electronics
Profitability Ratios
It is a measure of profitability, which measures a company's performance. Profitability is the
ability to make a profit, and a profit is what is left over from income earned after the company has
deducted all costs and expenses related to earning the income
Types of Profitability Ratios:
Common profitability ratios used in analyzing a company's performance include gross profit
margin (GPM), operating margin (OM), return on assets (ROA), return on equity (ROE), return on
sales (ROS), and return on investment (ROI).
Financial
Accounting
18
XZZV1919D
LG
Electronics
2012
2483.90
12650.72
19.63
2011
2852.2
14409.69
19.79
2010
1873.97
9163.04
20.45
2009
2392.25
9753.65
24.52
ratio
15
10
5
0
2013.0 2012.0 2011.0 2010.0 2009.0
Financial Accounting
19
LG Electronics
Interpretation:
A business's ultimate goal is to raise its profit margins. But in this case as we see the ratio
decreases over the time of period as 24.52% in 2009 and 19.83% in 2013, i.e decrease of 4.69%,
which is not a good indication.
Net Profit Ratio:
It is the ratio of after-tax profits to net sales. It discloses the remaining profit after all costs of
production, administration, and financing have been subtracted from sales, and income taxes
documented. As such, it is one of the finest measures of the overall performance of a firm,
particularly when shared with an evaluation of how well it is spending its working capital.
Net Profit Ratio = Net Profit / Net Sales
Net
2013
profit -71.63
after tax
Net sales
15157.28
Net
profit -0.47
ratio
Financial
Accounting
20
2012
545.56
2011
744.69
2010
400.66
2009
982.10
12650.72
4.31
14409.69
5.17
9163.04
4.37
9753.65
10.07
XZZV2121D
LG
Electronics
6
4
2
0
2013.0
-2
2012.0
2011.0
2010.0
2009.0
Interpretation:
The net profit ratio is the ultimate goal of an organization, but here the goal seems to be
unachieved as company is making losses in 2013 due to various factors, which they need to solve
in order to make profit in coming years.
Financial Accounting
21
LG Electronics
objective of calculating this ratio is to find out how efficiently the long term funds supplied by the
creditors and the shareholders have been used.
Return On Assets:
It is the ratio of annual net income to total assets of a business during a financial year. It processes
efficiency of the business in using its assets to produce net income. It is an indicator of how
profitable a company is relative to its total assets. ROA gives an idea as to how efficient
Financial
Accounting
22
XZZV2323D
LG
Electronics
Net
after tax
Assets
Return
2013
profit -71.63
32015.71
on -0.22
2012
545.56
2011
744.69
2010
400.66
2009
982.10
28609
1.91
21207.64
3.51
16384.59
2.45
14819.39
6.63
assets
RETURN ON ASSETS
8
7
6
5
RETURN ON ASSETS
4
3
2
1
0
2013.0
-1
2012.0
2011.0
2010.0
2009.0
Interpretation:
Financial Accounting
23
LG Electronics
The aforementioned graph shows that the Return on Assets has constantly gown down since 2009
to 2013. It was mainly because of the fact that the net income of the company fell substantially.
N.P.B.I.T
Capital
2013
2600.30
32015.71
2012
1948.75
28609
2011
2178.65
21207.64
2010
1324.22
16384.59
2009
1803.97
14819.39
employed
ROCE
8.12
6.81
10.27
8.08
12.17
ROCE
14
12
10
ROCE
8
6
4
2
0
2013.0
2012.0
Financial
Accounting
24
2011.0
2010.0
2009.0
XZZV2525D
LG
Electronics
Return On Equity:
This ratio determines the amount of net income reverted as a percentage of shareholders equity.
Return on equity processes a corporation's profitability by enlightening how much profit a
company creates with the money shareholders have invested.
ROE = (NPAT Preference Dividend) / Equity Shareholders Fund
N.P.A.T-
2013
-74.4
2012
542.18
2011
740.08
2010
396.98
2009
978.42
10117.99
9952.98
9433.88
7300.04
6810.80
-0.74
5.45
7.84
5.44
14.36
Preference
dividend
Equity
shareholders
fund
ROE
Financial Accounting
25
LG Electronics
ROE
16
14
12
10
ROE
8
6
4
2
0
2013.0
-2
2012.0
2011.0
2010.0
2009.0
Interpretation:
The aforementioned graph depicts that the ROE of the company has come down substantially,
showing no signs of taking off again in the near future. The predominant reason behind this is the
dropping profits of the company, spearheaded by the prolonged economic depression and setback
of the Indian stock markets.
Earning Per Share:
EPS (Earning per Share) measures the profit earned per share by the shareholders. It is the portion
of a company's profit allotted to each outstanding share of common stock. Earnings per share
serves as a pointer of a company's profitability. Higher the value of EPS, higher is the
attractiveness of the stock to the investors.
EPS = (NPAT Preference Dividend) / Total No. of Equity Shares Outstanding
Financial
Accounting
26
XZZV2727D
LG
Electronics
2013
-74.4
2012
672.42
2011
917.75
2010
477.10
2009
1055.75
dividend
No. of equity 49.6
37.35
46.51
27.30
24.66
shares o/s
EPS
18
19.73
17.47
42.80
N.P.ATpreference
-1.50
EPS
50
40
30
EPS
20
10
0
2013.0
-10
2012.0
2011.0
2010.0
2009.0
Interpretation:
From the aforementioned graph, it can be concluded that the EPS has come down from 42.8 to -1.3
since 2009 to 2013. There could be two possible reasons for decrease in the EPS of a company,
namely, drop in the profit levels or increase in the average number of equity shares outstanding.
Financial Accounting
27
LG Electronics
2012
2011
2010
2009
D.P.S
2.77
3.38
4.61
3.68
3.68
E.P.S
-1.50
18
19.73
17.47
42.80
18.77
23.36
21.06
8.59
Dividend
pay -184.66
out ratio
2012.0
2011.0
-50
-100
-150
-200
Financial
Accounting
28
2010.0
2009.0
DIVIDEND PAYOUT
RATIO
XZZV2929D
LG
Electronics
Interpretation:
From the graph we can see that DPS of the company is falling over years, like 8.59 in 2009 to
-184.66 in 2013, which is not the good indication for the company. The company needs to
overcome this as to gain the confidence of the shareholder so they could invest in the company.
Particulars
2013
2012
2011
2010
2009
Current ratio
Quick ratio
5.168
4.729
6.153
5.541
7.408
6.022
5.797
4.638
5.290
4.203
1.50
0.97
0.98
0.79
1.36
0.60
1.139
1.038
1.276
0.722
1.317
1.255
1.573
turn 0.47
0.44
0.68
0.60
0.66
2.16
1.87
1.25
1.24
1.18
Propriety ratio
3.16
2.87
2.25
2.24
2.18
19.83
-0.47
19.83
19.63
4.31
19.63
19.79
5.17
19.79
20.45
4.37
20.45
24.52
10.07
24.52
-0.22
1.91
3.51
2.45
6.63
6.81
10.27
8.08
12.17
ratio
Working capital turnover 0.739
ratio
Capital
employed
over ratio
Return
on
capital 8.12
employed
Return on equity
-0.74
5.45
7.84
5.44
14.36
-1.50
18
19.73
17.47
42.80
Financial Accounting
29
LG Electronics
-184.66
18.77
23.36
21.06
8.59
Conclusion
LG Electronics pursues its 21st century vision of becoming a true global digital leader who can
make its customers worldwide happy through its innovative digital products and services. LG
Electronics sets its ultimate vision to rank among the top 3 global companies in electronics,
information, and telecommunication firms in the world by 2010.
LG embraces the philosophy of Great Company, Great People, where as only great people can
create a great company, and pursue two growth strategies involving fast innovation and fast
growth. They seek to find their three core capabilities: product leadership, market leadership, and
people-centered leadership. LG Electronics has essentially built their company into a battleship,
conquering their business strategy and technological operations. They have built an exceptionally
strong foundation for future growth and promise.
Financial
Accounting
30
XZZV3131D
LG
Electronics
References
http://www.lg.com/global/investor-relations/financial-info
http://www.moneycontrol.com/news-topic/lg-electronics-india/
http://www.lg.com/global/investor-relations/reports/financial-statements
http://www.lg.com/global/investor-relations/reports/annual-reports
Financial Accounting
31
LG Electronics
Annexures
2013
2012
2011
2010
2009
18 Months
12 Months
15 Months
12 Months
12 Months
334.09
333.94
347.96
370.42
275.31
9783.90
9619.04
9085.92
6929.62
6538.49
Net Worth
10118.00
9952.98
9433.88
7300.04
6813.80
Secured Loan
18575.73
9835.64
5937.60
6735.04
4401.25
3321.99
8820.38
5836.16
2349.51
3604.34
32015.71
28609.00
21207.64
16384.59
14819.39
11317.42
10246.63
9536.60
9004.95
8947.78
5389.10
5142.52
4804.07
4298.83
4310.63
Net Block
5928.32
5104.11
4732.52
4706.12
4637.15
667.46
1244.09
1270.58
1314.15
1289.52
Investments
4936.94
4743.71
4267.96
3064.90
2695.59
Inventories
2157.90
2080.71
2040.14
1763.49
1568.86
Sundry Debtors
2832.70
2750.44
2647.33
1708.11
1582.89
485.83
504.55
1316.43
498.51
388.28
19920.02
15580.58
6639.36
4850.78
4101.65
25396.44
20916.28
12643.26
8820.90
7641.68
4671.37
3298.72
1588.71
1391.29
1292.58
242.07
100.47
117.98
130.19
151.97
Share Capital
Reserves & Surplus
Unsecured Loan
TOTAL LIABILITIES
Assets
Gross Block
Current Liabilities
Provisions
Financial
Accounting
32
XZZV3333D
LG
Electronics
4913.45
3399.19
1706.69
1521.48
1444.55
20483.00
17517.09
10936.57
7299.42
6197.13
.00
.00
.00
.00
.00
32015.71
28609.00
21207.64
16384.59
14819.39
Misc. Expenses
TOTAL ASSETS (A+B+C+D+E)
Financial Accounting
33
LG Electronics
Jun'13
Dec'11
Dec'10
Sep'09
2010
Sep'08
2013
2012
2011
2009
18157.28
12919.47
14675.93
9381.27
10105.13
.00
269.25
266.24
218.23
351.47
18157.28
12650.22
14409.69
9163.04
9753.65
18575.54
12722.64
14449.10
9190.43
9825.58
1408.95
976.10
887.49
773.74
1285.85
Material Consumed
11520.02
7892.44
9112.32
5614.40
5291.05
Personal Expenses
397.99
225.35
228.01
126.42
115.82
.00
862.40
996.81
550.04
505.07
1823.93
210.04
332.87
224.47
163.62
Expenses Capitalised
.00
.00
.00
.00
.00
Provisions Made
.00
.00
.00
.00
.00
15150.89
10166.32
11557.49
7289.07
7361.40
Operating Profit
3006.39
2483.90
2852.20
1873.97
2392.25
EBITDA
3424.65
2556.31
2891.61
1901.37
2464.18
824.35
607.56
712.96
577.15
660.21
.00
.00
.00
.00
.00
EBIT
2600.30
1948.75
2178.65
1324.22
1803.97
Interest
2714.82
1045.14
950.54
665.75
431.86
EBT
-114.52
903.61
1228.11
658.46
1372.11
Taxes
-42.88
227.81
305.75
177.68
312.67
-71.63
675.80
922.36
480.78
1059.43
.00
-130.24
-177.67
-80.12
-205.14
INCOME:
Sales Turnover
Excise Duty
NET SALES
Other Income
TOTAL INCOME
EXPENDITURE:
Manufacturing Expenses
Selling Expenses
Administrative Expenses
TOTAL EXPENDITURE
Depreciation
Other Write-offs
Financial
Accounting
34
XZZV3535D
LG
Electronics
.00
-5.65
-5.78
73.68
.72
Other Adjustments
.00
5.65
5.78
-73.68
127.10
-71.63
545.56
744.69
400.66
982.10
2.77
3.38
4.61
3.68
3.68
16.03
12.81
30.20
46.25
22.94
5.02
4.22
10.00
20.16
10.00
3187.72
3030.22
3019.64
2294.07
2294.51
-1.50
18.00
19.73
17.47
42.80
REPORTED PAT
KEY ITEMS
Preference Dividend
Equity Dividend
Equity Dividend (%)
Financial Accounting
35