SUMMER TRAINING REPORT ON

Financial analysis

Tata Motors
BY RAHUL SINGH B-51
In partial fulfillment for the award of the degree Post Graduate Diploma In Management 2011-2013

For

NEW DELHI

SUMMER TRAINING REPORT ON

Financial analysis
For

Tata Motors

Under the supervision Of

Mr. K. Kumar Jha

Submitted BySubmitted toSheetal Badesra Prof. Sayanti

Roll Number B-51

Table of Content PARTICULARS PAGE NO. 1. CERTIFICATE FROM THE COMPANY. 2. ACKNOWLEDGEMENT 3. EXECUTIVE SUMMARY 4. RATIONALE AND SCOPE OF RESEARCH 5. OBJECTIVE OF THE STUDY 12 6. INTRODUCTION OF THE COMPANY 16 a. INDUSTRY & COMPANY PROFILE b. BACKGROUND OF THE PROBLEM 7. REVIEW OF LITERATURE 8. LIMITATION OF STUDY/PROBLEMS FACED. 23 26 5 6 7 9

9. CALCULATION & ANALYSIS 10. OBSERVATION, ANALYSIS & CONCLUSION 47 11. CONCLUSION 56 12. BIBLOGRAPHY 57

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ACKNOWLEDGEMENT

THE GREATER OUR INVOLVEMENT THE MORE WE LEARN LITTLE OF WHAT WE PASSIVELY LISTEN IS REMEMBERED

This kind of project plays a very important role not only in the partial successful completion of management

qualification but also to get practical knowledge and experiences. This project has been under the guidance of our project guide Mr. K.Kumar Jha, without whose help and inputs it would have been very difficult for us to not only complete the project in time but also help us to learn and understand the important aspects of financial management, which shall have helpful when we embark towards our management career.

I would also like to thank our friends and all the respondents who participated for supporting me in the successful completion of the project
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EXECUTIVE SUMMARY India now is ready for substantial change. Rising incomes, thanks to robust economic development, accompanied by changing lifestyle auger well for across the Automobile sector in the coming year. Now the Indian Companies even think to export its products due to industrialization and globalization. When we look at the performance of the TATA MOTERS Limited at the end of financial year especially in Auto components sector it can be hard to believe on the growth and expansion. Broadly speaking, company is expanding and growing with the needs of the market. Company has a joint venture with other companies of Indian & foreign, but it has also opened its other subsidiary companies to serve market needs and demand. In todays competitive market, where there is difficult to survive, due to influence of advanced technologies. TATA MOTERS has collaboration with Japanese company, to implement Kaizen, TPM, and JIT to minimize defects occurring due to technological disadvantages. An examination of the statement of changes in financial

position reveals that the company is relying largely on funds from business operations (profit after tax plus depreciation). The management should realize that the policy relating to collection of debt is not sound as reflected in the declining trend of receivables turnover. The emerging liquidity position of the company appears to be satisfactory. The delay in collection of receivables would mean that, apart from the interest involved in maintaining a higher level of debtors, the liquidity position of the firm would be adversely affected. Employee Cost increased by 19.2% during the year to Rs. 1367.83 crores from Rs.1147.17 crores registered in the previous year. The Company restructured the salaries of its employees during the year to align the same to the industry standards. However, increase in productivity helped the Company reduces its Employee cost as a percentage of net turnovers to 4.29%, as compared to 4.77% in 2010-11. Though the EPS of the company has increase for 39.67 to 49.64 per share. This is quite good & shows the sound position of the company. Company has sufficient working capital with in. But this is not true company is depending more on debt. Low debt to
9

equity ratio has reduced the benefit of

leverage for equity

investors. It may be said that from the point of view of all parties the overall performance of the company is very satisfactory. It should improve its position on the cost and profitability. So in the last I would say that the company is having good financial position and with this status, it can go for expansion. We should remember that the recommendation puts on a company will affect its decisions very quickly and can become relevant. This is because analysis shows the true picture of the company performance.

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RATIONALE OF THE STUDY This project is taken by me, to analyze financial statement of the company and know how to do following things: 1) DETERMINATION OF THE FACTORS Though their can be many factors which may influence the financial position of the company. But to simplify the things, I have taken two main factors, which help the company to implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage a) Analysis of Financial Statements b) Ratio Analysis Here we are mainly discussing those factors on which company has a control.
11

2) FACTORS INFLUENCE DECISION MAKING After the determination of these factors, we need to analyze them under various conditions. Then further it can be used in decision-making. The company is mainly concerned to know: Determine companys ability to meet its short term and long term obligations Determine companys ability to generate profits To know companys liquidity position to meet its current obligations when they become due. It helps in accessing solvency position with the help of leverage and profitability ratios in a long run It helps in planning, controlling and forecasting Throw light on degree of efficiency in management and utilization of its assets Draw conclusions regarding financial requirement and the capabilities of business limits

3) INFLUENCING THE MANAGEMENT POLICIES An understanding of determinations of share price is helpful in the formulation of management policies relating to dividend payment, bonus declaration; right issues etc. investors can also form better judgments and make intelligent and rational investment decisions.
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4) EXPAND THE CURRENT CUSTOMER BASE: The business unit must also try to attract new customer having different requirements in term of product use. In case of Tata, it has tried to increase the number of operational manufacturing units, broadened the distribution network. This means all these strategies will help the organization to retain its market share in domestic market and increase it globally. In todays highly competitive environments, improving consumers' loyalty to brands permits marketers to maintain a comfortable and lasting position in the marketplace.

SCOPE SCOPE FOR COMPANY Decision-making requires critical analysis and careful interpretation of the published financial statements. In general, the common tools used by the management to facilitate the analysis of income statement and balance sheet is Ratio Analysis, Fund Flow Statement, and Cash flow Statement. Financial Analysis is done for the purpose of presenting a periodical review or report on progress by management and deal with the status of investment in the
13

business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting conventions and personal judgments and convention applied after them materially. The soundness of the judgment necessarily depends on the competence and integrity of those who make them on their adherence to the Generally Accepted Accounting Principles and Conventions. The analysis of the financial statements brought out many facts, which will help the company to know its financial position in a better way and take appropriate decisions based on it. The results of the analysis brought out many facts which company might have not taken into consideration. The analysis will also help for further study and decision-making. This project will also help Tata to make investment plans and take other decisions management. Various of the company. Ratio analysis is techniques and strategies are used to identify working capital areas, which require closer available for managing specific working capital items. Debtors, creditors, cash and in some cases inventories are the areas most likely to be relevant to departments. By taking these initiatives Tata can maintain its leadership in domestic market and expand its business.

14

SCOPE FOR STUDENT This report can be useful for students to know about various factors that affect an automobile components manufacturing firm for its expansion based on its financial analysis. To have proper understanding of working capital management, profitability, liquidity of the firm, financial leverage, market value and Asset Management help us to initially take steps to prevent the adverse situations, which can effect the financial position of the company.

OBJECTIVE OF STUDY

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PRIMARY OBJECTIVE The study may help the company to take many financial decisions. But the main and primary objective of the project undertaken is: To analyze the true financial position to establish an overall picture of the company and present a better platform for decision making SECONDARY OBJECTIVE In order to achieve the primary objective following objectives are to be undertaken: Study the factors, which help TATA MOTORS to reduce the period of working capital cycle. Identify and discuss the factors that influence the cash flows. Calculate the financial ratios like o Liquidity Ratios o Asset Management/Activity Ratios o Financial leverage (Gearing) Ratios o Profitability Ratios o Market Value Ratios And draw conclusions based on them.

16

 Comparative analysis of the company by taking data of two years and analyzing the reasons for the changes. Analysis of balance sheet and profit & loss account.

METHODOLOGY STEP 1: The first step was to understand exactly which issues have the greatest impact on financial position and sales of the company. Accordingly methodology to achieve it was decided. Finally the topic was decided to be Financial Analysis of Tata motors limited as the company is aggressive growth in private vehicle sector and thus it will help the company to finance itself and take appropriate steps to improve its financial position. STEP 2: Method of Data Collection: i. PRIMARY DATA: a. Interaction with people of company. b. Previous Researches made on the company

17

ii.

SECONDARY DATA: Collected through past records of company, newspapers, trade journals, Internet, textbooks etc.

STEP 3: The balance sheet and income statement are traditional basic financial statements of a business enterprise. This does not provide refined or comparative data and provide no conclusions directly. So under financial analysis, I took company data and tried to analyze it from different point of views, considering different financial angles. Under this I have covered the following topics: 1. ANALYSIS OF FINANCIAL STATEMENT o Profit and Loss Account o Balance sheet 2. RATIO ANALYSIS STEP 4: Calculations are done for all the methodologies adopted and then the analysis is done for individual components (ratio Analysis and financial statement analysis). STEP 5:
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Observations are made from above calculations. STEP 6: Conclusion was made from above observations.

INTRODUCTION OF THE COMPANY

AUTOMOBILE INDUSTRY On the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and is capable of being the driver of economic growth. A sound transportation system plays a pivotal role in the country's rapid economic and industrial development. The well-developed Indian automotive industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc.

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The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective of the economic resilience of the country. With 4% contribution to the GDP and nearly 5% of the total industrial output, the automotive sector has become a significant contributor to the exchequer. Continuous economic liberalization over the years by the government of India has resulted in making India as one of the prime business destination for many global automotive players. The automobile industry witnessed a growth of 19.35 percent in April July 2010 when compared to April July 2011. The Indian automobile Industry has a mix of large domestic private players such as Tata, Mahindra, Ashok Leyland, Bajaj, Hero Honda and major international players including GM, TATA, Ford, Daimler Chrysler, Toyota, Suzuki, Honda, Hyundai and Volvo. Advantage India India holds huge potential in the automobile sector including the automobile component sector owing to its technological, cost and manpower advantage. Further, India has a Well-developed, globally competitive Auto Ancillary Industry and established automobile testing and R&D centre. The country enjoys natural advantage and is among the lowest cost producers of steel in the world. The Indian automobile
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industry today boasts of being the Second largest two Wheelers manufacturers in the world, World largest Motorcycle manufacturer is in India, Second Largest tractor manufacturer in the world, fifth largest commercial vehicle manufacturer in the world and Fourth largest Car market in Asia. Today India is the world's second largest manufacturer of two wheelers and fifth largest manufacturer of commercial vehicles. The country offers fourth largest passenger car market in Asia today. A supplier driven market, having no more than a handful of vehicular models two decades ago, now offers more than 150 models and variants by way of customer options. The industry provides direct employment to 4.5 lacks and generates indirect employment of 1 crore. The contribution of the automotive industry to GDP has risen from 2.77% in 1992-93 to 6% in 2010-11. This industry currently accounts for nearly 17% 0f the indirect tax revenue.

COMPANY PROFILE: TATA MOTERS LIMITED

Tata Motors Limited is India's largest automobile company,

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with

revenues

of

Rs.

36987

crores in 2011-12 (a growth of 36% compared to Rs.27263.73 crores in 2010-11). It is the leader by far in
commercial vehicles in each segment, and the second largest in the passenger vehicles market with winning products in the compact, midsize car and utility vehicle segments. The company is the world's fifth largest medium and heavy commercial vehicle manufacturer. The company's 22,000 employees are guided by the vision to be best in the manner in which we operate, best in the products we deliver and best in our value system and ethics. Established in 1945, Tata Motors' presence indeed cuts across the length and breadth of India. Close to 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company's manufacturing base is spread across Jamshedpur, Pune and Lucknow, supported by nation-wide dealers, sales, services and spare parts network comprising over 2,000 touchpoints. Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange

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(September

2004),

has

also

emerged

as

global

automotive company. In 2004, it acquired the Daewoo Commercial Vehicles Company, Korea's second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has already begun to launch new products. Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, with an option to acquire the remaining stake as well. Hispano's presence is being expanded in other markets. It has formed a joint venture with the Brazil-based Marcopolo, a global leader in bodybuilding for buses and coaches, to manufacture and assemble fully-built buses and coaches. Tata Motors and the Fiat Group have recently signed a memorandum of understanding to establish an industrial joint venture in India to manufacture passenger vehicles, engines and transmissions for the Indian and overseas markets; Tata Motors already distributes and markets Fiat branded cars in India. These acquisitions will further extend Tata Motors' global footprint, established through exports since 1961. The company's commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia. It has assembly operations in Malaysia, Kenya, Bangladesh, Ukraine, Russia and Senegal.
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he foundation of the company's growth over the last 50 years is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D. With 1,400 engineers and scientists, the company's Engineering Research Centre, established in 1966, has enabled pioneering technologies and products. The company today has R&D centres in Pune, Jamshedpur, Lucknow, in India, and in South Korea, Spain, and the UK. The pace of new product development has quickened. In 2005, Tata Motors created a new segment by launching the Tata Ace, India's first indigenously developed minitruck. The years to come will see the introduction of several other innovative vehicles, all rooted in emerging customer needs. Besides product development, R&D is also focussing on environment-friendly technologies in emissions and alternative fuels. Through its subsidiaries, the company is engaged in engineering equipment vehicle and automotive solutions, finance, construction automotive chain manufacturing, auto

components manufacturing and supply tooling and plastic and

activities, machine tools and factory automation solutions, high-precision electronic

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components for automotive and computer applications, and automotive retailing and service operations. True to the tradition of the Tata Group, Tata Motors is committed in letter and spirit to Corporate Social Responsibility. It is a signatory to the United Nations Global Compact, and is engaged in community and social initiatives on human rights, labour and environment standards in compliance with the principles of the Global Compact. Simultaneously, it also plays an active role in community development, serving rural communities adjacent to its manufacturing locations. With the foundation of its rich heritage, Tata Motors today is etching a refulgent future.

INTRODUCTION TO PROBLEM Automobiles depend heavily on consumer trends and tastes. While car companies do sell a large proportion of vehicles to businesses and car rental companies, consumer sales is the largest source of revenue. For this reason, taking consumer and business confidence into account is for you a higher priority than considering the regular factors like earnings growth, debt load, etc. Companies cannot afford to loose their market given the kind of cutthroat competition existing in India today.
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Extensive research and development, option of alternate fuels, clean technologies and quality control to oversee adherence to product conformance will shape the future of automobile sector in India. Talking on similar lines, TATA MOTERS LIMITED has recently gone under an extensive research by some experts. They have some of the ongoing projects that the TATA R&D team is involved in include the development of the 'World Engine' in association with DAEWOO Research provides the much-needed inspiration for the birth of new ideas, which in turn breathes new life into products. World-class automotive research and development are key factors that contribute to the leadership of the Company. That the efforts of the TATA MOTERS R&D team has paid great dividends to the company is evident from the fact that the company's newly engineered products like the INDICA and the INDICA MARINA have made waves in the global automotive markets and the 'US Consumer Reports' magazine has ranked TATA MOTERS cars in level with that of Honda in its recent quality rankings. The Research Centre at Jamshedpur regularly upgrades components and aggregates. A well-equipped torture track enables rigorous and exhaustive testing of modifications before they are used as regular fitments.

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The Engineering Research Centre in Pune was setup in 1966 and is among the finest in the country. It has been honored with two prestigious awards - 'The DSIR National Award for R&D Effort in Industry - 1999' and 'National Award for Successful Commercialization of Indigenous Technology by an Industrial Concern - 2000 For parts suppliers, the life span of an automobile is very important. The longer a car stays operational, the more there is a need for replacement parts. On the other hand, new parts are lasting longer, which is great for consumers, but not good news for parts makers. As a student of finance, I want to analyze the position of the company to know its position and plan for further development accordingly. The balance sheet and income statement are traditional basic financial statements of a business enterprise. This does not provide refined or comparative data and provide no conclusions directly to draw inferences from financial statements. Tata motors may be emerging as a global source for auto components. The main challenges are high volume high scale, fragmentation, adequate R&D/technology support, higher productivity levels, limited resources for international marketing and establishment of an efficient supply chain. For all these reasons, Tata want to access the firms past, present and future financial conditions through financial analysis. Tata is analysis & also find firms financial
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strengths and weaknesses. It also wants to assess of Future potential and related Risk Financial Analysis will help the company to take decisions like investment planning, financing planning, expansion planning based on the analysis. So it is important to study factors which affect these decisions to be taken by Tata before further expansion.

REVIEW OF LITERATURE USERS OF ANALYSIS OF FINANCIAL STATEMENTS Management In a company form of organization the owners or the shareholders elect a group of people to manage the day-to28

day affairs of the company. Since the managers are ultimately responsible for the financial performance, they must periodically compile and interpret the financial statements. Shareholders, Security Analyst and Investors As the major users of financial statements of business they range from individuals with limited shareholding to institutions like insurance companies and mutual funds, which have high volume of funds at their disposal. The focus of this class of users is either on investment or stewardship. The shareholders through the financial statements know the financial position of the company, which states the profit gained or loss suffered and the measure of its assets and liabilities. A realistic estimation of the safety of the intended investment and the return expected to be earned as the result of such investments can be made with support of financial statements. Lenders Banks, financial institutions and other lenders would willingly part with their money only if they are assured of the profitability and long-term solvency of the business in which they are asked to invest. The lenders to judge for themselves the profitability and liquidity of the business and

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to assure themselves of the security available for the monies lent normally use financial statements. Suppliers/Creditors Suppliers of raw material, etc. to the company also would be interested in the short-term liquidity of the company. The financial statements facilitate the creditors in ascertaining the capacity of the organization, to pay on time the consideration for the goods/services to be supplied. The primary documents for estimating the health of the firm is derived from such statements. Customers Legal association associated with guarantees, warranties and after sales a service contract tends to be establishing long-term relationships between a business and its customers. The customers to draw inferences about the long-term viability of the firm may use the financial statements. Employees Employees have a vested interest in the continued and profitable operations of the organization in which they work. Financial statements can be used as important source for obtaining information regarding the current and future profitability and solvency. Sometimes, contracts tying
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remuneration to profits or payments of incentives based on certain financial measure would tend to magnify this interest. Government and Regulatory Agencies The correct assessment of income tax, sales tax, excise duty, etc. requires a close scrutiny of the financial statements of an organization especially to detect tax evasion, if any. When contracts are made with the government, the business needs to supply all the financial information to the former. Government, as the guardian of public interest, must also keep a close watch over the various business firms to detect profiteering and creation of monopolies. A lot of information in this regard can be gathered from a scrutiny of the financial statements of business enterprise. National income accounting used in macroeconomics analysis derives its fundamental inputs from financial statements. The tax payable by the enterprise as well as the compilation of countrywide statistics is discerned using the financial statements. Research Scholars undertaking research into management science covering diverse facets of business practices look into the financial statements for the information eventually used for
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analysis. Such statements serve as mirrors of the entity represented by them and thus are of great value to persons searching for company specific information. Diverse persons such as academicians, researchers and analysts may approach business firms for information regarding their financial performance. To draw proper conclusions, these persons would have to study the financial statements in depth. Which ratios will each of these groups be interested in? Interest Group Investors Lenders Managers Employees Suppliers and other trade creditors Customers Governments and their agencies Local Community Ratios to watch Return on Capital Employed Financial leverage ratios Profitability ratios Return on Capital Employed Liquidity Profitability Profitability This could be a long and interesting list

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LIMITATION OF STUDY SCOPE: Since the topic is very vast, financial practices in it are just like an ocean. It includes every thing related to finance like risk management, cash flow statement, ratio analysis, working capital management etc. so one of the limitations of this project is that it is deals only with the factors which influence the financial position of TATA MOTORS LIMITED.

ESTIMATES: estimates.

Financial

statements

are

based

on

o Allowance for uncollectible accounts o Depreciation o Costs of warranties o Contingent losses To the extent that these estimates are inaccurate, the financial ratios and percentages are also inaccurate.
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 COST: o Traditional financial statements are based on historical cost and are not adjusted for price level changes. o Comparisons of unadjusted financial data from different periods may be rendered invalid by significant inflation or deflation.

ALTERNATIVE ACCOUNTING METHODS: o One company may use the FIFO method, while another company in the same industry may use LIFO. o If the inventory is significant for both companies, it is unlikely that their current ratios are comparable. o In addition to differences in inventory costing methods, differences also exist in reporting such items as depreciation, depletion, and amortization. FAILURE TO UNDERSTAND TRENDS:

34

There is some chances that the person makes a mistake in understanding the trends in which different factors are moving or there may be lots of fluctuations or the analysts takes a wrong assumption. RATIO ANALYSIS: o Ratios need to be interpreted carefully. Ratios are not definitive measures, as it requires some quantitative information for an informed analysis to be made. o Outdated information in financial statement may give wrong indications. o Where Historical cost convention is used, asset valuations misleading o Ratios are based on the summarized year-end information which may not be a true reflection of the over all years results. o Change in prices (inflation) may create difference between calculated ratios and current market prices, which may lead to wrong interpretations. o Change in accounting standards may affect the reporting of an enterprise and its comparisons of results over a number of years. o There may be impact of seasons on trading i.e. businesses which are affected by the seasons can in the balance sheet could be

35

choose

the

best

time

to

produce

financial

statement so as to show better results.

36

37

RATIO ANALYSIS The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. We apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before they destroy your business.

LIQUIDITY RATIOS The business should not only provide information on its profitability, but also to provide information that indicates whether or not the business will be able to pay its creditors, expenses, loans falling due at correct times. Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due.

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 The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations.

CURRENT RATIO The Current Ratio expresses the relationship between the firms current assets and its current liabilities. CURRENT LIABILITIES PARTICULARS Current Assets Current Liabilities Currant Ratio 2011 (in corers) 19.08 7.64 2.50 2012 (in corers) 33.75 21.66 1.56 RATIO = CURRENT ASSETS / CURRENT

The rule of thumb says that the current ratio should be at least 1.33 so that the current assets should meet current liabilities at least twice. In 2012, the company had 1.56 worth of current assets for every rupee of liabilities. However the company is able to support its short-term debt from its currents assets. A generally acceptable current ratio is 1.33 to 1. 1:1 current ratio means; company has Re 1.00 in current assets to cover each Re 1.00 in current liabilities.

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 QUICK RATIO Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g. inventories. QUICK RATIO = (CURRENT ASSETS-INVENTORIES) 2012 (in corers) 9.08 21.66 0.42 / CURRENT LIABILITIES PARTICULARS 2011 (in corers) Current Assets- 8.69 Inventories Current Liabilities Quick Ratio 7.64 1.14

Clearly this ratio will be lower than the current ratio, but the difference between the two (the gap) will indicate the extent to which current assets consist of stock. The ratio shows an increasing trend on liquidity. This indicates extend
40

to which company can pay current liabilities without relying on current the sale on the inventory. Generally ratio of 1:1 is considered satisfactory.

ASSET MANAGEMENT/ACTIVITY RATIOS If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. These ratios are therefore used to assess how active various assets are in the business. Note: Increased turnover can be just as dangerous as reduced turnover if the business does not have the working capital to support the turnover increase. As turnover increases more working capital and cash is required and if not, overtrading occurs.
AVERAGE COLLECTION PERIOD

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The average collection period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors. Delay in collection of cash impairs the firms liquidity. On the other hand, too low a collection period is not necessarily favorable, rather it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit. AVERAGE COLLECTION PERIOD = 360 / AVERAGE ACCOUNTS TURNOVER Where Average Accounts Receivable Turnover = Net Sales/ Average Receivables PARTICULARS 2011 Average Accounts 6.54 Receivable Turnover Average collection 55.04 period This ratio simply indicates average account is outstanding for 9 days approx. It indicates that the company is efficient in collecting money due you from their customers. If this indicates that payments are taking a long time to collect, then collection/billing procedures should be reviewed. On the other hand, too short a period could cause customers to
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RECEIVABLE

2012 8.69

41.42

move to another supplier that has more reasonable collection policies.

INVENTORY TURNOVER This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. INVENTORY TURNOVER =COST OF GOODS SOLD / AVERAGE INVENTORY PARTICULARS Inventory Turnover 2011 3.51 2012 2.14

The ratio shows a relatively high stock turnover which would seem to suggest that the business deals in fast moving consumer goods.

The high stock turnover ratio would also tend to indicate that there was little chance of the firm holding damaged or obsolete stock.

TOTAL ASSETS TURNOVER Asset turnover is the relationship between sales and assets. The firm should manage its assets efficiently to maximize sales. The total asset turnover indicates the efficiency with
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which the firm uses all its assets to generate sales. It is calculated by dividing the firms sales by its total assets. Total assets include current assets, fixed assets and investments. TOTAL ASSET TURNOVER = SALES / TOTAL ASSETS PARTICULARS Sales Total assets Total Assets Turnover 2011 (in corers) 40.56 26.05 1.58 2012 (in corers) 58.75 41.69 1.41

Generally, the higher the firms total asset turnover, the more efficiently, its assets have been utilized. From the above calculations: It appears that the activity of the business is relatively constant, with a slight upward trend. The ratio also confirms that in 2011 the company has utilized its assets more efficiently.

FIXED ASSETS TURNOVER

The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed assets to generate sales. FIXED ASSETS TURNOVER = SALES / NET FIXED ASSETS

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PARTICULARS Sales Net fixed Assets

2011 (in corers) 40.56 6.95

2012 (in corers) 58.75 7.28 8.07

Fixed Assets Turnover 5.83

Generally, high fixed assets turnovers are preferred since they indicate a better efficiency in fixed assets utilization. As net fixed assets has grown rapidly. Thus the ratio shows a increase in fixed assets turnover, which confirms that the business places a less reliance on working capital than it does on the fixed assets.

FINANCIAL LEVERAGE (GEARING) RATIOS The ratios indicate the degree to which the activities of a firm are supported by creditors funds as opposed to owners. The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any
45

amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicate a cushion (surplus) which shields creditors against possible losses from default in payment. The following ratios can be used to identify the financial strength and risk of the business. DEBT RATIO This is the measure of financial strength that reflects the proportion of capital, which has been funded by debt, including preference shares. This ratio is calculated as follows: DEBT RATIO = TOTAL DEBT / TOTAL ASSETS Where, Total Debt = Secured Loans + Current Liabilities PARTICULARS Total Debt Total Assets Debt Ratio 2011 (in corers) 22.39 26.04 0.86 2012 (in corers) 37.11 41.68 0.89

With higher debt ratio (low equity ratio), a very small cushion has developed thus not giving creditors the security they require. The company would therefore find it relatively difficult to raise additional financial support from external sources if it wished to take that route. The higher the debt ratio the more difficult it becomes for the firm to raise debt.

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 DEBT TO EQUITY RATIO This ratio indicates the extent to which debt is covered by shareholders funds. It reflects the relative position of the equity holders and the lenders and indicates the companys policy on the mix of capital funds. The debt to equity ratio is calculated as follows: DEBT TO EQUITY RATIO = TOTAL DEBT / TOTAL EQUITY PARTICULARS Total Debt Total Equity Debt to Equity Ratio 2011 14.75 3.65 4.04 2012 15.45 4.58 3.37

The debt to equity ratio shows that for every 1 rupee of shareholders funds in 2012 there is 3.37 rupees of debt, compared to 4.04 rupees in 2011. This ratio is low and indicates the financial strength of the business. The higher the ratio reflects the greater the risk to present or future creditors. Look for a debt to equity ratio in the range of 1:1 to 4:1. Too much debt can put your business at risk... TIME INTEREST EARNED RATIO This measure the extent to which earnings can decline without causing financial losses to the firm and creating an inability to meet the interest cost. The times interest earned shows how many times the business can pay its interest
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bills from profit earned. Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt.

TIMES INTEREST EARNED RATIO=EBIT / INTEREST CHARGES PARTICULARS EBIT Interest Charges Times Interest Earned Ratio The companys major form of credit is non-interest bearing (Trade Creditors) which results in business enjoying very healthy interest coverage rates. In 2012 the company could pay their interest 5.72 times from EBIT. However this is a decrease from 2011. 2011 14.75 1.80 8.19 2012 15.45 2.70 5.72

PROFITABILITY RATIO Profitability is the ability of a business to earn profit over a period of time. Although the profit figure is the starting
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point for any calculation of cash flow, as already pointed out, profitable companies can still fail for a lack of cash. Profitability is a result of a larger number of policies and decisions. The profitability ratios show the combined effects of liquidity, asset management (activity) and debt management (gearing) on operating results. The overall measure of success of a business is the profitability which results from the effective use of its resources. GROSS PROFIT MARGIN Normally the gross profit has to rise proportionately with sales. It can also be useful to compare the gross profit margin across similar businesses although there will often be good reasons for any disparity. GROSS PROFIT MARGIN = GROSS PROFIT / NET SALES * 100 Here, Net sales = Sales Excise Duty And Gross Profit = Sales - COGS PARTICULARS Gross Profit Net Sales Gross Profit Margin 2011 3.99 40.56 9.84 2012 5.87 58.75 9.99

This shows that gross profit margin ratio is increasing it means there is a decrease of non operating expenses which leads to increase in the profits.

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 NET PROFIT MARGIN This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and low margins, for examples supermarkets and motorcar dealers. NET PROFIT MARGIN = NET PROFIT / NET SALES * 100 PARTICULARS Net Profit Net Sales Net Profit Margin 2011 0.16 40.56 0.0039 2012 0.45 58.75 0.0076

The Net Margin Ratio shows that the Margin is fairly stable over time with slight change. The net profit and sales increased to stabilize the fluctuation. However, to know how well the firm is performing one has to compare this ratio with the industry average or a firm dealing in a similar business.

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 RETURN ON INVESTMENT (ROI) Income is earned by using the assets of a business productively. The more efficient the production, the more profitable will be the business. Investors have placed funds with the managers of the business. The managers used the funds to purchase assets, which will be used to generate returns. If the return is not better than the investors can achieve elsewhere, they will instruct the managers to sell the assets and they will invest elsewhere. ROI = EBIT / TOTAL ASSETS *100 PARTICULARS EBIT Total Assets ROI 2011 14.75 26.05 56.62 2012 15.45 41.69 37.06

ROI shows the amount of income for every rupee tied up in assets. Here ratio indicates from 56.62 in 2011 falls to 37.06 in 2012. RETURN ON EQUITY This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. The stockholders equity includes share capital, share premium, distributable and nondistributable reserves. The ratio is calculated as follows:

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RETURN ON EQUITY = PROFIT AFTER TAX / SHARE HOLDERS EQUITY PARTICULARS 2011 2012 PAT 0.16 0.45 Share Holders Equity 0.35 0.35 Return on Equity 0.45 1.28 Return on Equity has increasing because of both PAT & equity share capital. EARNINGS PER SHARE Whatever income remains in the business after all prior claims, other than owners claims (i.e. ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a decision as to how much of this income they wish to remove from the business in the form of a dividend, and how much they wish to retain in the business. The shareholders are particularly interested in knowing how much has been earned during the financial year on each of the shares held by them. For this reason, an earning per share figure must be calculated. EARNINGS PER SHARE = NET INCOME AFTER TAX PREFERENCE PARTICULARS EPS 2011 0.45 DIVIDEND / NO. OF 2012 1.28 ISSUED ORDINARY SHARES

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There is sharp increase in EPS, which is generally good for the company & for investors also.

MARKET VALUE RATIO These ratios indicate the relationship of the firms share price to dividends and earnings. Note that when we refer to the share price, we are talking about the Market value and not the Nominal value as indicated by the par value. Market value ratios are strong indicators of what investors think of the firms past performance and future prospects. DIVIDEND YIELD RATIO The dividend yield ratio indicates the return that investors are obtaining on their investment in the form of dividends. This yield is usually fairly low as the investors are also receiving capital growth on their investment in the form of an increased share price. DIVIDEND YIELD RATIO = DIVIDEND PER SHARE / STOCK PRICE PARTICULARS Dividend per Share Stock Price Dividend Yield Ratio 2011 ---N.A----N.A.----N.A.--2012 --N.A.---N.A.---N.A.--

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Normally a very high dividend yield signals potential financial difficulties and possible dividend payout cut. The dividend per share is merely the total dividend divided by the number of shares issued. The price per share is the market price of the share at the end of the financial year. PRICE EARNING RATIO ( P/E Ratio) P/E ratio is a useful indicator of what premium or discount investors are prepared to pay or receive for the investment. The higher the price in relation to earnings, the higher the P/E ratio which indicates the higher the premium an investor is prepared to pay for the share. This occurs because the investor is extremely confident of the potential growth and earnings of the share. P/E RATIO = MARKET PRICE PER SHARE / EPS Where, EPS = Net Profit / Total no. Of Equity Shares PARTICULARS Market Price Share EPS P/E RATIO 0.45 22.22 1.28 7.81 2011 per 10 2012 10

High P/E generally reflects lower risk and/or higher growth prospects for earnings. The above ratio shows that the shares were traded at a much higher premium in 2011 than were in 2012.
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 DIVIDENT COVER RATIO This ratio measures the extent of earnings that are being paid out in the form of dividends, i.e. how many times the dividends paid are covered by earnings (similar to times interest earned ratio discussed above). A higher cover would indicate that a larger percentage of earnings are being retained and re-invested in the business while a lower dividend cover would indicate the converse. DIVIDENT COVER RATIO = EARNING PER SHARE / DIVIDENT PER SHARE PARTICULARS EPS Dividend per Share Dividend Cover Ratio 2011 0.45 --N.A. 0.45 2012 1.28 NA 1.28

It shows little increase in dividend cover ratio, which means not much but still large amount of earnings are being retained for re-investment into the business.

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ANALYSIS OF FINANCIAL STATEMENTS Income Statement and Balance Sheet of TATA MOTERS LIMITED As we know financial statements are traditional methods of analyzing the data but it reveals many facts about the company. As we can see in the annexure income statement, balance sheet, cash flow statement and working capital calculated for the company are attached. Now further we analyze all of them one by one. As we can see in profit and loss account of the year ended 31st march 2012 shows that, there was an outstanding year for the Company, which recorded peak performance on all major financial parameters. Overall Sales volume at Rs 40.56 Crores and turnover at Rs.36.98 Crores were higher at 28% and 36%, respectively than in FY 2010-11 and the Company retained its position as the largest Indian automobile company in terms of revenue EBIT at Rs15.45 Crores was higher by 27.3% achieved in FY 2010-11. In spite of the significant pressures of cost
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increase the Company maintained its operating margin at 12.5% through its continuous cost reduction drive. The Profit before Tax was Rs.5.87 Crores, higher by 31% as against Rs. 3.99Crores in FY 2010-11. After providing for current and deferred taxes, the Profit after Tax was Rs.0.45 Crores (FY 2005-06 Rs.0.16Crores), an increase of 26% over the previous year. Net Raw Material consumption inclusive of processing charges increased by 33.8% to Rs.24200.42 crores in 201011, from Rs.18077.81 crores in 2011-12. This was largely a result of high steel prices during the first quarter of the year and sharp increase in the prices of other commodities like aluminum, copper and rubber and production volume increased by 28 %.

Balance sheet of TATA MOTORS LIMITED as on 31 st march 2012 It shows that company has kept the share capital same as previous year. It does not seem correct for a company to increase its reserve and surplus very much without increasing share capital. But there is a supporting reason for this that the company is keeping more reserves to meet its coming expenses due to planning of introduction of new car (of Rs.1Lac) next year.
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Balance Sheet size of the Company increased to Rs 41.69crores in 2011-12from Rs 26.05 crores in 2010-11.This increase is attributed to significant capital expenditure insured by the company for its New Product Introduction Programs and substantial increase in our vehicle financing business. As on March 31, 2012, the Ordinary Share Capital of the Company stood at Rs. 385.41 crores as compared to Rs. 382.87 crores as on 31st March 2011. This was on account of allotment of Ordinary Shares of the Company to the shareholders of the erstwhile Tata Finance Limited (TFL) consequent upon its amalgamation with the Company and the conversion of 1% Convertible Notes (USD 100 mn due 2008) to the extent of 91.4% and the Zero Coupon Convertible Notes (USD 100 mn due 2009) to the extent of 81.9% during the year.

After considering the impact of the working capital changes and the deployment in vehicle financing business, the net cash used in operations was Rs. 221.03 Crores as compared to net cash generated from operations Rs. 1,250.49 crores
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in the previous year. During the year under review, the Company expanded its vehicle financing business significantly with the merger of Tata Finance Limited, effective April 1, 2012 and Rs.1, 995.80 crores of cash generated from operations was used in this business. We see that the company also increased its unsecured loans but double its secured loans. In this case the company raised the additional amount from the bank i.e. fixed payment source but not raised capital from the shares etc. it is because of legality or tax exemption purposes that company might done. Another thing also seen when I analyzed the balance sheet of the company, is that cash in hand & at bank is reducing by 44%. It is because of the increase in the inventory or materials (it is one of the backbone of the manufacturing company around 47 % of the revenue is spend on this) in addition the company also increases the provisions, which is quite large in comparison of last year. The Company continued pursuing aggressive cost reduction, productivity improvement and aesthetic/visual quality improvement programs during the year. The Company established a new assembly factory for the TATA Novus
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vehicles at Jamshedpur. The Company is also undertaking an expansion programme to increase the manufacturing capacity of the TATA ACE to meet the growing demand in the domestic and international markets.

I am interested in the examining all the aspects of the companys financial position, viz. liquidity, solvency, and profitability and funds-flow ratios. In the absence of industry average figures, my appraisal is based only upon standard norms of these ratios, working capital, profit and loss account, balance sheet etc.

FUNDING An examination of the statement of changes in financial position reveals that the company is relying largely on funds from business operations (profit after tax plus depreciation) to finance its major expansion programmes will going to be launched. Company is repaying its long-term borrowings and also short-term borrowings have been reduced in comparison to last year.

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Equity to total assets ratio has reduced from 4.04% to 3.37%, which shows co. is not relying on equity funds from funding fixed assets. This can also be proved from reduced debt ratio of 0.86 to 0.89%. It has increased the chances of leverage for equity holders, which can be seen from increased return on investment and return on equity. The ratio of current assets to total assets of the company has decreased from 33.83 to 29.97%, which shows the company is investing more in fixed assets, & stocks, which is help in producing cars. Decreased Net working capital can also be an indicator above policy. Decrease Net working capital also shows companys efficient management of funds.

PROFITABILITY EBIT was higher by 15.45% achieved in FY 2010-11. In spite of the significant cost increased pressure the Company maintained its operating margin at 12.5% through its continuous cost reduction drive. The Profit before Tax was
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Rs.5.87 crores, higher by 25.3% as against Rs.3.99 crores in FY 2010-11. After providing for current and deferred taxes, the Profit after Tax was Rs.0.45crores (FY 2010-11 Rs.0.16 crores), an increase of 25.15% over the previous year. The reason for lower profitability in spite of increased sales can be Increase in cost of material Increase in lab our charges Increase in excise duty paid by company Lowering the prices The major part for increase in profit is because of the increase in sales, and the major expenditure which company faces because of the raw martial & employee cost. Company deals frequently in purchase and sale of fixed assets and investments. Sale of investment has also resulted in a loss but has been considerably reduced. This clearly shows the efficiency of staff in dealing with investments. This could be the reason for not providing for provision for diminution in value of investment, which was 6.75 lakh last year. In spite of good results
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company has reduced its activities in sale and purchase of investments which has resulted in lesser dividend received. Net Raw Material consumption inclusive of processing charges increased by 35% to Rs.22853 crores in 201112, from Rs.16930 crores in 2010-11. This was largely a result of high steel prices during the first quarter of the year and sharp increase in the prices of other commodities like aluminum, copper and rubber. However, the Company managed to maintain its ratio of net raw material consumption to net turnover at 70% in 2011-12 on account of the on going cost reduction programme. As a part of the cost reduction programme, the Company initiated global sourcing, vendor rationalization and value engineering during 2011-12.

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LIQUIDITY The emerging liquidity position of the company appears to be not so satisfactory. The current ratio has decreased from 2.50 times in year 2011 to 1.56 times in the year 2012. The company is unlikely to encounter a serious difficulty in paying the short-term obligations as and when they become due for payment. However, the management should realize that the policy relating to collection of debt is not sound as reflected in the declining trend of receivables turnover from41.42 in year 2011 to 55.04 in the year 2012. There is carelessness either (1) in collecting the payments from debtors, or (2) in extending credit sales to customers leading to an increase in bed debts and thereby an increase in the expenses ratio. The excessive investment in current assets seems to be affecting the rate of return. The delay in collection of receivables would mean that, apart from the interest involved in maintaining a higher level of debtors, the liquidity position of the firm would be adversely affected.

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POSITION FROM THE INVESTORS POINT OF VIEW An investor is primarily concerned with three things Earning per share Dividend per share Prospects of growth in the market value of the share. The analysis of the financial data of TATA MOTERS LIMITED indicates upward trend in all these respects. The EPS has gone up from 0.45% in year 2011 to Rs. 1.28% in year 2012. The dividend cover has also goes up from Rs. 0.45 to 1.28% during the same period. The rate of return on equity investment has gone up from 4.00 to 4.96. Dividend cover ratio of the company has also increase from 0.45to 1.28% which shows the company has given same amount of dividend in spite of reduction in earnings this can be good from the investors side but the retained earnings of the company have also increase in the year 2012, which may require funding from outsider.
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Another view can be that company has sufficient working capital with in. The company is not depending more on debt, which can be seen from its debt to equity ratio, which has gone down from 4.04 in the year 2011to 3.37% in the year 2012. So debt to equity ratio has increased the benefit of leverage for equity investors. CONCLUSION In conclusion, it may be said that from the point of view of all parties the overall performance of the company is very satisfactory. It should improve its position on the cost and profitability because these are the two main criteria on which a company is going to be judge. Like

other income contributes very highly to the overall income of the company which is Rs.245 crores in the year 2011 and Rs.289 crores in the year of 2012 though the percentage is decreased but still company relies highly on it.
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An investor is primarily concerned with three things Earning per share Dividend per share Prospects of growth in the market value of the share. The analysis of the financial data of TATA MOTERS LIMITED indicates upward trend in all these respects. The EPS has gone up from Rs. 39.67 in year 2006 to Rs. 49.64 in year 2007. The dividend cover has also goes up from Rs. 3.07 to 3.03 during the same period. The rate of return on equity investment has gone up from 0.45 to 1.28%. Lastly company is up growing & will come a dominant player in near future.

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BIBLIOGRAPHY

Annual Report of JBML Text Books References: Financial Management by M Y Khan & P K Jain Financial Management by I M Pandey Financial management by S.C. Chandra Web sites Referred: www.tatamotors.com www.google.com www.nseindia.com www.economictimes.com www.autoindia.com www.marutiudyog.com www.investopedia.com Magazines Referred Auto Week
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 Automobile Magazine

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