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FINANCIAL ANALYSIS OF

TATA STEEL
RATIO ANALYSIS ( GROUP 5- GLC- IB)
CONTENTS
About Tata Steel
Tata Steel- Its Acquisitions
Vision
Mission
Liquidity Ratios
Turnover Ratios
Profitability Ratios
Leverage Ratios
Conclusion
ABOUT: TATA STEEL
One of the World’s top ten steel producers
Combined presence in nearly 50 countries
Tata Steel includes Corus Steel, Tata Steel
Thailand, and Nat Steel Asia which are its
acquisitions.
Comprises of 80,000 employees across 5
continents
Has crude steel production capability of 28
million tones.
TATA STEEL- ITS ACQUISITIONS
VISION

“ We aspire to be the global industry benchmark for


Value Creation and Corporate Citizenship”
MISSION
To strengthen India’s industrial base through
effective utilization of staff and material.
Achievement of above through high technology,
and productivity consistent with modern
management practices.
Honesty and Integrity to be regarded essential
ingredients of a strong and stable enterprise.
Ratio Analysis: TATA STEEL
RATIO ANALYSIS

LIQUIDITY TURNOVER PROFITABILITY LEVERAGE


RATIOS RATIOS RATIOS RATIOS
LIQUIDITY RATIOS
Liquidity ratios measures the ability of the firm to
meet its short term obligations. It also reflect the
firm’s ability to meet financial contingencies that
might arise.
CURRENT
RATIOS

LIQUIDITY RATIOS

QUICK RATIOS
CURRENT RATIOS
This Ratio indicates the firm’s ability to meet its current
liabilities.
This ratio is of very high importance to the suppliers of short
term funds like the bankers and trade creditors
This will ensure sufficient amount of working capital. If the
ratio is too low or negative that means there is working
capital crisis.
The ratio can be calculated as follows:

Current Ratio= Current Assets/ Current Liabilities


CURRENT RATIOS ( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010.
YEAR CURRENT CURRENT CURRENT
ASSETS LIABILITIES RATIOS
2008-2009 11591.66 11899.95 0.91

2009-2010 13425.27 12003.02 1.12

current ratios
1.2
1
0.8 current ratios
0.6
0.4
0.2
0
2008-2009 2009-2010
QUICK RATIOS
This ratio is calculated to get a real picture of liquidity.
The ratio is calculated on pre-assumption that all the
current assets are of same level of liquidity.
This ratio can be calculated as follows:

QUICK RATIO= (CURRENT ASSET- INVENTORY-


PREPAID EXPENSES)/CURRENT LIABILITIES
QUICK RATIOS
As per Balance Sheet as on 31st March 2009 and 2010
YEAR QUICK ASSETS CURRENT QUICK RATIO
LIABILITIES
2008-2009 8111.19 11899.95 0.57

2009-2010 10347.52 12003.02 0.76

Quick ratio
0.8
0.7
0.6
0.5
0.4 Quick ratio
0.3
0.2
0.1
0
2008-2009 2009-2010
TURNOVER RATIOS
These ratios determine how quickly certain assets are
converted into cash
It measures the ability of the firm to manage its assets and
convert into cash.
High turnover ratios are usually associated with good asset
management and low turnover ratios with poor asset
management.
TOTAL ASSETS T/O RATIO

FIXED ASSETS T/O RATIO

STOCK T/O RATIO


TURNOVER RATIOS
DEBTORS T/O RATIO

CREDITORS T/O RATIO


Total assets turnover ratio = Net sales/ Total Assets

TOTAL ASSETS TURNOVER RATIO


This ratio is calculated to find the relationship
between all assets and sales.
The turning over of an asset is basically utilization of
assets.
The ratio is calculated as follows:

TOTAL ASSETS TURNOVER RATIO= NET SALES/TOTAL ASSETS


TOTAL ASSETS TURNOVER RATIO
As per Balance Sheet as on 31st March 2009 and 2010
YEAR NET SALES TOTAL ASSETS TOTAL ASSSETS
T/O RATIO

2008-2009 24348.32 56650.78 .42 times


2009-2010 24940.65 62407.95 .40 times

Total Assets Turnover Ratios


0.43
0.42
0.42
Total Assets
0.41 Turnover Ratios
0.41
0.4
0.4
0.39
2008-2009 2009-2010
FIXED ASSETS TURNOVER
RATIO
The fixed asset turnover ratio measures a company’s
ability to generate sales from fixed assets investments
mainly plant & machinery, equipment.
This ratio gives relationship between net fixed assets
and sales.
It indicates the efficiency of utilization of fixed assets.
The ratio can be calculated as follows:

FIXED ASSETS TURNOVER RATIO= NET SALES/ FIXED ASSETS


FIXED ASSETS TURNOVER
RATIO(Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR NET SALES FIXED ASSETS FIXED ASSETS
T/O RATIO
2008-2009 24348.32 14482.22 1.68 times

2009-2010 24940.65 16006.03 1.55 times

FIXED ASSETS TURNOVER RATIO


1.7
1.65 FIXED ASSETS
1.6 TURNOVER
1.55 RATIO
1.5
1.45
2008-2009 2009-2010
STOCK TURNOVER RATIOS
The ratio indicates the level of inventory on an average
throughout the year as compared to cost of goods sold.
This ratio shows 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
inventory.
It indicates whether investment in stock is within
proper limit or not.
The ratio can be calculated as follows:

STOCK TURNOVER RATIO=COST OF GOODS SOLD/AVERAGE


INVENTORY
STOCK TURNOVER RATIOS( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR COGS AVERAGE STOCK
INVENTORY TURNOVER
RATIO
2008-2009 10413.11 3042.72 3.42 times
2009-2010 10284.42 3279.11 3.13 times

STOCK TURNOVER RATIO


3.5
3.4
3.3 STOCK TURNOVER
3.2 RATIO
3.1
3
2.9
2008-2009 2009-2010
DEBTORS TURNOVER RATIO
Debtors turnover ratio or accounts receivable turnover
ratio indicates the velocity of debt collection of a firm
It indicates the number of times average debtors are
turned over during a year.
This ratio can be calculated as follows:

DEBTORS TURNOVER RATIO= NET SALES/ AVERAGE


DEBTORS
DEBTORS TURNOVER RATIO( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR NET SALES AVERAGE DEBTORS
DEBTORS TURNOVER
RATIO
2008-2009 24348.32 635.98 38.28 times
2009-2010 24940.65 434.83 57.35 times

DEBTORS TURNOVER RATIO


70
60
50 DEBTORS
40 TURNOVER
30 RATIO
20
10
0
2008-2009 2009-2010
AVERAGE COLLECTION PERIOD
It simply means the approximate amount of time that
it takes for a business to receive payments owed, in
terms of receivables, from its customers and its clients.
In other words, the average collection period of
accounts receivable is the number of days required to
convert receivables into cash.
The ratio can be calculated as follows:
AVERAGE COLLECTION PERIOD=365/DEBTORS TURNOVER RATIO
OR

AVERAGE COLLECTION PERIOD= 12/DEBTORS TURNOVER RATIO


AVERAGE COLLEON PERIOD(Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR No. OF DAYS DEBTORS AVERAGE
TURNOVER COLLECTION
RATIO PERIOD
2008-2009 365 38.28 9.53 days
2009-2010 365 57.35 6.36 days

YEAR No. OF DEBTORS AVERAGE


MONTHS TURNOVER COLLECTION
RATIO PERIOD
2008-2009 12 38.28 .31 months
2009-2010 12 57.35 .20 months
CREDITORS TURNOVER RATIO
This ratio signifies the credit period enjoyed by the
firm in paying creditors.
This ratio is similar to debtors turnover ratio.
It compares creditors with credit purchases.
The ratio can be calculated as follows:

CREDITORS TURNOVER RATIO=CREDIT PURCHASE/AVERAGE


CREDITORS
CREDITORS TURNOVER RATIO(Contd..)
As per Balance Sheet as on 31st March 2009 and 2010

YEAR CREDIT AVERAGE CREDITORS


PURCAHSE CREDITORS TURNOVER
RATIO
2008-2009
2009-2010
AVERAGE PAYMENT PERIOD
This ratio indicates the number of days a company
takes to pay off credit purchases.
As the average payment period increases, cash should
increase as well but working capital remains the same.
This ratio can be calculated as follows:
AVERAGE PAYMENT PERIOD=365/CREDITORS TURNOVER RATIO

OR
AVERAGE PAYMENT PERIOD=12/CREDITORS TURNOVER RATIO
AVERAGE PAYMENT PERIOD(Contd…)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR MONTHS CREDITORS AVERAGE
TURNOVER PAYMENT
RATIO PEIOD
2008-2009 12 2.22 5.40 months
2009-2010 12 2.04 5.88 months

YEAR DAYS CREDITORS AVERAGE


TURNOVER PAYMENT
RATIO PERIOD
2008-2009 365 2.22 164.14 days
2009-2010 365 2.04 178.92 days
PROFITABILITY RATIO
This ratio shows a company’s effectiveness on
generating profit.
In other words the profitability ratio reflects a
company’s operating performance.
Profitability Ratio can be determined on the basis of
either sales or investment into business.
GROSS PROFIT RATIO

PROFITABILITY RATIO
ON BASIS OF SALES NET PROFIT RATIO

EXPENSE RATIO
GROSS PROFIT RATIO
Gross Profit is defined as Sales- Cost of Goods Sold.
The Gross profit ratio is the ratio of Gross profit to the
Sales.
The ratio can be calculated as follows:

GROSS PROFIT RATIO= (GROSS PROFIT/ NET SALES)*100


GROSS PROFIT RATIO( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR GROSS SALES GROSS
PROFIT PROFIT SALES
2008-2009 12429.65 24,348.32 51.04%
2009-2010 12780.87 24,940.65 51.24%

GROSS PROFIT RATIO


51.30%
51.20% GROSS PROFIT
51.10% RATIO
51.00%
50.90%
2008-2009 2009-2010
NET PROFIT RATIO
It relates the firms net profit and the firm’s sales level
It indicates that percentage of every rupee of sales the
firm was able to transform into the Net Profit.
The net profit margin measures the profit that is
available from each rupee of sales after all expenses
have been paid including cost of goods sold, selling,
general and administrative expenses, depreciation,
interest & taxes.
The ratio can be calculated as follows:

NET PROFIT RATIO= (NET PROFIT/ SALES)*100


NET PROFIT RATIO( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR NET PROFIT SALES NET PROFIT
RATIO
2008-2009 5201.74 24,348.32 21.36%

2009-2010 5046.80 24,940.65 20.23%

NET PROFIT RATIO


21.50%
21.00% NET PROFIT
20.50% RATIO
20.00%
19.50%
2008-2009 2009-2010
EXPENSE RATIO( SELLING AND
ADMINISTRATION)
Expense ratio is the calculation of expenditure made
by the company in terms of the net sales.
This ratio helps to keep a track on the expenditure
incurred by the company and lower the ratio better it
is.
This ratio can be calculated as follows:

EXPENSE RATIO= (EXPENSES/ SALES)*100


EXPENSE RATIO( SELLING AND
ADMINISTRATION)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR EXPENSES SALES EXPENSE
RATIO
2008-2009 400.24 24348.32 1.64%

2009-2010 417.90 24940.65 1.67%

EXPENSE RATIO
1.68%
1.66% EXPENSE RATIO
1.64%

1.62%
2008-2009 2009-2010
PROFITABILITY RATIO- II
RETURN ON CAPITAL
EMPLOYEED

RETURN ON INVESTMENT
PROFITABILITY RATIOS
BASED ON INVESTMENT
RETURN ON NETWORTH

EARNINGS PER SHARE

DIVIDEND PER SHARE


RETURN ON CAPITAL EMPLOYEED
This ratio reflects the overall profitability of the
business.
The Return on Capital Employed Ratio( ROCE) tells
us how much profit we can earn from the investment
the shareholders have made in their company.
. It is calculated by comparing the profit earned and
the capital employed to earn it.
The ratio can be calculated as follows:

RETURN ON CAPITAL EMPLOYEED=(PROFIT BEFORE


INTEREST, TAX AND DIVIDEND)/ CAPITAL EMPLOYEED
RETURN ON CAPITAL EMPLOYEED( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR PBIDT CAPITAL RETURN ON
EMPLOYEED CAPITAL
EMPLOYEED
2008-2009 9779.51 56650.78 17.26%
2009-2010 10146.67 62407.95 16.25%

RETURN ON CAPITAL EMPLOYEED


17.50%
17.00% RETURN ON
CAPITAL
16.50% EMPLOYEED
16.00%
15.50%
2008-2009 2009-2010
RETURN ON INVESTMENT
It is the percentage of return on funds invested in the
business by its owners.
The ROI is perhaps the most important ratio of all.
In short, this ratio tells the owner whether or not all
the effort put into the business has been worthwhile.
This ratio can be calculated as follows:

RETURN ON INVESTMENT=INTEREST/ INVESTMENT*100


RETURN ON INVESTMENT(Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR INTEREST INVESTMENT RETURN ON
INVESTMENT
2008-2009 1,489.50 42,371.78 3.51%

2009-2010 1,848.19 44,979.67 4.11%

RETURN ON INVESTMENT
4.20%
4.00%
3.80% RETURN ON
INVESTMENT
3.60%
3.40%
3.20%
2008-2009 2009-2010
RETURN ON NETWORTH
The Return on Net worth of a company measures the
ability of the management of the company to generate
adequate returns for the capital invested by the owners
of a company.
Generally a return of 10% would be desirable to
provide dividends to owners & have funds for future
growth of the company.
The ratio can be calculated as follows:

RETURN ON NETWORTH=PROFIT AFTER TAX/


PROPREITORS FUNDS*100
RETURN ON NETWORTH(Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR PAT PROPRIETORS RETURN ON
FUNDS NETWORTH
2008-2009 5201.74 29704.60 17.51%

2009-2010 5046.80 37168.75 13.57%

RETURN ON NETWORTH
20.00%
15.00% RETURN ON
10.00% NETWORTH
5.00%
0.00%
2008-2009 2009-2010
EARNINGS PER SHARE
The shareholders invest their money with the
expectation of getting dividends and capital
appreciation on the shares. Since the earnings form
the basis for dividend payments as well as a basis for
any future increase in the market price of the shares,
investors are always extremely interested in knowing
the earnings per share.
The ratio can be calculated as follows:

EARNINGS PER SHARE=(NPAT-PREFERNCE


DIVIDEND)/NUMBER OF ORDINARY SHARES
EARNINGS PER SHARE
As per Balance Sheet as on 31st March 2009 and 2010

YEAR EARNINGS PER SHARE


2008-2009 69.70
2009-2010 56.37

EARNINGS PER SHARE


80
60
EARNINGS PER
40 SHARE

20
0
2008-2009 2009-2010
DIVIDEND PER SHARE
Dividend per share (DPS) is the total dividends paid
out over an entire year (including interim dividends
but not including special dividends) divided by the
number of outstanding ordinary shares issued
The ratio can be calculated as follows:

DIVIDEND PER SHARE=TOTAL DIVIDEND/TOTAL NUMBER


SHARES
DIVIDEND PER SHARE
As per Balance Sheet as on 31st March 2009 and 2010
YEAR DIVIDEND PER SHARE
2008-2009 17.49
2009-2010 8.51

DIVIDEND PER SHARE


20
15 DIVIDEND PER
10 SHARE
5
0
2008-2009 2009-2010
LEVERAGE RATIOS
 Leverage Ratio can be defined as any ratio used to
calculate the financial leverage of a company to get an
idea of the company's methods of financing or to
measure its ability to meet financial obligations.
There are several different ratios, but the main factors
looked at include debt, equity, assets and interest
expenses.
DEBT EQUITY RATIOS

LEVERAGE RATIOS
RETURN ON EQUITY
RATIOS
DEBT-EQUITY RATIO
It indicates what proportion of equity and debt the
company is using to finance its assets.
A measure of a company's financial leverage calculated
by dividing its total liabilities by stockholders' equity.
Also known as the Personal Debt/Equity Ratio, this
ratio can be applied to personal financial statements as
well as corporate ones.
The ratio can be calculated as follows:

DEBT-EQUITY RATIO= TOTAL DEBT/ EQUITY SHARE


CAPITAL*100
DEBT-EQUITY RATIO( Contd..)
As per Balance Sheet as on 31st March 2009 and 2010
YEAR TOTAL DEBT EQUITY SHARE DEBT-EQUITY
CAPITAL RATIO
2008-2009 26,946.18 730.79 3.69%
2009-2010 25,239.20 887.41 2.84%

DEBT-EQUITY RATIO
4.00%
3.50%
3.00%
2.50% DEBT-EQUITY
2.00% RATIO
1.50%
1.00%
0.50%
0.00%
2008-2009 2009-2010
RETURN ON EQUITY
 Return on Equity is the amount of net
income returned as a percentage of shareholders
equity.
Return on equity measures a corporation's
profitability by revealing how much profit a company
generates with the money shareholders have invested.
The ratio can be calculated as follows:

RETURN ON EQUITY= (NPAT- PREFERNCE


DIVIDEND)/EQUITY SHARE CAPITAL
RETURN ON EQUITY
As per Balance Sheet as on 31st March 2009 and 2010
YEAR NPAT- EQUITY RETURN ON
PREFERNCE SHARE EQUITY
DIVIDEND CAPITAL
2008-2009 5092.29 730.79 6.96
2009-2010 5000.92 887.41 5.63

RETURN ON EQUITY
8
6
RETURN ON
4 EQUITY

2
0
2008-2009 2009-2010
CONCLUSION
These Liquidity, Leverage, Profitability, and
Management Ratios allow the business owner to
identify trends in a business and to compare its
progress with the performance of others through data
published by various sources.
The owner may thus determine the business's relative
strengths and weaknesses.
Therefore Ratio Analysis plays a major role in an
organization for doing major business decisions as
well as knowing the growth of the organization.
PRESENTED BY:
Komal Nerlekar
Aditi Lala
Sayak Mazumdar
Mohamad Aftab
Hitesh Wadhwani
Yogita Sharma

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