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 ASSIGNMENT
ON RATIO ANALYSIS OF
TATA MOTORS FOR 2007 AND 2008.
INCOME STATEMENT OF TATA MOTORS

(currency in million Rs.)

(2007) (2008)
Revenues 323,612.0 356,514.8
Other Revenues 19.6 65.0
TOTAL REVENUES 325,143.8 358,086.0
Cost of Goods Sold 234,753.6 254,571.5
GROSS PROFIT 90,390.2 103,514.5
Selling General & Admin Expenses, Total 30,811.0 35,136.3
R&D Expenses 850.2 659.5
Depreciation & Amortization, Total 6,880.9 7,820.7
Other Operating Expenses 17,508.5 24,046.6
OTHER OPERATING EXPENSES, TOTAL 56,050.6 67,663.1
OPERATING INCOME 34,339.6 35,851.4
Interest Expense -4,650.6 -9,127.2
Interest and Investment Income 592.5 1,696.6
NET INTEREST EXPENSE -4,058.1 -7,430.6
Income (Loss) on Equity Investments 394.2 652.0
Currency Exchange Gains (Loss) 652.1 1,376.1
Other Non-Operating Income (Expenses) -1.4 -0.6
EBT, EXCLUDING UNUSUAL ITEMS 31,326.4 30,448.3
Gain (Loss) on Sale of Assets -- 1,103.6
Other Unusual Items, Total -52.2 -37.0
EBT, INCLUDING UNUSUAL ITEMS 31,274.2 31,514.9
Income Tax Expense 8,832.1 8,515.4
Minority Interest in Earnings -742.2 -1,322.5
Earnings from Continuing Operations 21,699.9 21,677.0
NET INCOME 21,699.9 21,677.0
BALANCE SHEET OF TATA MOTORS
(2007) (2008)
ASSETS (currency in millions Rs.)
Cash and Equivalents 11,542.7 38,331.7
TOTAL CASH AND SHORT TERM INVESTMENTS 11,542.7 38,331.7
Accounts Receivable 17,022.2 20,605.1
Notes Receivable 84,553. 76,938.9
Other Receivables 62.7 11.9
TOTAL RECEIVABLES 101,638.5 97,555.9
Inventory 31,669.0 32,946.4
Prepaid Expenses 1,247.3 3,334.8
Other Current Assets 16,681.7 20,504.7
TOTAL CURRENT ASSETS 162,779.2 192,673.5
Gross Property Plant and Equipment 129,408.3 182,484.4
Accumulated Depreciation -54,266.5 -57,652.4
NET PROPERTY PLANT AND EQUIPMENT 75,141.8 124,832.0
Goodwill 4,430.1 5,661.6
Long-Term Investments 11,745.9 26,658.3
Deferred Charges, Long Term 119.3 2,442.1
Other Intangibles -- 1,429.6
Other Long-Term Assets -- --
TOTAL ASSETS 254,216.3 353,697.1
LIABILITIES & EQUITY
Accounts Payable 48,723.3 67,832.8
Accrued Expenses 4,704.9 5,389.3
Short-Term Borrowings 34,325. 52,503.2
Current Income Taxes Payable 1,084.2 901.4
Other Current Liabilities, Total 38,789.2 62,104.1
Unearned Revenue, Current 6.7 218.0
TOTAL CURRENT LIABILITIES 127,633.7 188,948.8
long-Term Debt 38,693.6 63,345.5
Capital Leases -- --
Minority Interest 2,499.6 4,683.1
Deferred Tax Liability Non-Current 8,172.7 9,744.5
TOTAL LIABILITIES 176,999.6 266,721.9
Common Stock 3,853.6 3,854.9
Additional Paid in Capital 19,364.0 15,372.2
Retained Earnings 44,087.8 58,523.7
Comprehensive Income and Other 9,911.3 9,224.4
TOTAL COMMON EQUITY 77,216.7 86,975.2
TOTAL LIABILITIES AND EQUITY 254,216.3 353,697.1
LIQUIDITY RATIOS:

Liquidity or short term solvency means ability of the business to pay its short term
liabilities.Inability to pay off short term liabilities affects its creditability as well as its credit
rating.Continuous default on the part of business leads to bankruptcy.Eventually bankruptcy
leads to sickness and liquidation.Cash position ratios may be supplemented for liquidity
appraisal.Liquidity ratio consists of current ratios and liquid ratio also called quick ratio.

1.CURRENT RATIO: It indicates the availability of current assets to pay off current
liabilities.Higher the ratio better the coverage.2:1 is treated as the standard value.It varies from
industry to industry as well as with its policy.It is also called as working capital or solvency
ratio.

2.LIQUID RATIO: It indicates the availability of quick assets to honour its immediate
claims.Higher the ratio better the coverage.1:1 is the standard ratio.Ratio differs from industry to
industry as well as with policy.Also known as acid test ratio.

For the given case:

1.Current ratio = Current assets/Current liability

Current Ratio(2008) = 192,673.5/188,948.8 = 1.01

Current Ratio(2007) = 162,779.2/127,633.7 = 1.27

2. Quick Ratio = (Current Assets-Inventory)/liabilities

Quick Ratio(2008) = (192,673.5-32,946.4)/188,948.8 = 0.85

Quick Ratio(2007) = (162,779.2-31,669.0)/127,633.7 = 1.02

CAPITAL STRUCTURE RATIO:

The capital structure ratios are claasified into two categories.

1.Leverage Ratio(Indicates long term solvency position of the firm.)

2.Coverage Ratio(Fixed commitment charge solvency of the firm.)

Leverage ratios are further divided into

 Debt Equity Ratio

 Total Debt Equity ratio
 Capital Equity Ratio

1.DEBT EQUITY RATIO: This ratio expresses the relationship between the ownership funds
and the outsiders funds.The ideal norm is 1:2 which means that every one rupee of debt finance
is coverd by two rupees of shareholders fund.

2.TOTAL DEBT EQUITY RATIO: The ultimate purpose of the ratio is to express the
relationship between total volume of debt irrespective of nature and shareholders funds.If the
owners contribution is lesser in volume in general it leads to worse situation in recovering the
amount of outsiders contribution during the moment of liquidation.

3.CAPITAL EQUITY RATIO: This is the ratio between capital employed and net worth.

For the above case:

1.Debt Equity Ratio = Net worth/Total debt

For 2008 = 86975.2/63,345.5 = 1.37

For 2007 = 77,216.7/38,693.6 = 1.99

2. Total debt ratio = Total debt / capital employed

For 2008
Total debt = 63,345.5

Capital employed = Net worth + borrowing

Or Share capital + debt.
=86,975.2+ 63,345.5= 150320.7

Hence total debt equity ratio=63,345.5 / 150320.7 = 0.42

For 2007
Total debt = 38,693.6

Capital employed = 77,216.7 + 38,693.6= 115910.3

Hence total debt equity ratio = 38,693.6 / 115910.3 = .33

3.Capital Equity Ratio = Capital employed/ net worth

For 2008 = 150,320.7/86,975.2 = 1.73

For 2007 = 115910.3/77,216.7 = 1.50

Coverage ratios can be classified into

 Interest Coverage Ratio
 Dividend Ratio
1.INTEREST COVERAGE RATIO: This ratio facilitates the prospective lender to study the
strength of the enterprise in making the payment of interest regularly out of total income.Greater
the ratio means better the capacity of the firm in making the payment of interest as well as
greater safety and vice versa.

1.Interest coverage ratio = (EBIT+depreciation)/Interest

For 2008
Earning before tax + interest=30,448.3 +9127.2 = 39575.5
Hence ratio = 39,575.5/9127.2 = 5.19

For 2007
Earning before tax + interest=31,326.4+6,880.6 = 35,977
Hence ratio = 35,977/6,880.6 = 9.21

In 2008, the long term financial position getting strong than 2008. Capability of
paying long term debt. is increases. As we seen, debt ratio increases. And the
contribution of debt is increases in 2008 than 2007. and the part of share capital is
also increases in total capital employed than 2007. it means, company is increasing
its capital through shares.