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Financial Statement Analysis

AN OVERVIEW & STUDY

Mohit P. Sharma (Roll No. 261) | Vishwas Gowrinathan (Roll No. 298) | 05 April, 2017
Introduction

As we sat over for coffee post office, we wondered Where do we


start? The task at hand looked intimidating! It said, Every group has
to prepare a report on analysis of Financial Statements of the selected
company out of BSE/NSE/NIFTY-50 (Atleast 5 years data).

Having chosen Tata Motors (We still dont know why) as our company
for analysis, we started brainstorming on various analytical parameters
as sought. The core crux of this analysis is based on the KISS (Keep it
Simple Sweetheart) principle where both the maker (we) and the
checker (you) can be on the same page of understanding.

This report analyses Tata Motors performance over the last 15 years
(Yes! Under promise, Over Deliver) and tries to review and analyse its
financial statements to make better economic decisions as potential
investors.

We examine the companys Balance Sheet, Income Statement, Cash


Flow and its various ratios in the form of graphical and theoretical
data.

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INDEX

1. Common-Size Balance Sheet and Income Statement

2. Liquidity & Solvency

3. Profitability

4. Economic Value Added (EVA)

5. Market Value & Efficiency Analysis

6. Debt Investors Perspective (Leverage Ratios)

7. Equity Investors Perspective

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1. COMMON-SIZE BALANCE SHEET & INCOME STATEMENT

A Common-Size Financial Statement is expressed in terms of % values instead of amounts.


This makes the analysis easy to comprehend.

Here we will now look at graphical representations which compares

Current Assets Vs Current Liabilities (Balance Sheet)


Liabilities Vs Equity (Balance Sheet)
Liabilities Equity Proportion (Balance Sheet)
Sales Vs Expense (Income Statement)

We also will look at the actual common statements

Current Assets Vs Current Liabilities (Balance Sheet)

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Liabilities Vs Equity (Balance Sheet)

Liabilities Equity Proportion (Balance Sheet)

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Sales Vs Expense (Income Statement)

Actual Statements as extracted from Thomas Reuters Eikon

20 Yrs Balance 20 Yrs Income


Sheet_Thomas Reuters Eikon.xls Statement_Thomas Reuters Eikon.xls

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2. LIQUIDITY AND SOLVENCY

Liquidity in simple terms means the degree to which an asset can be quickly bought or
sold in the market and convert it to cash.

Solvency is the ability of a company to meet its long-term financial obligations.

A higher ratio implies a healthier short term liquidity level. If we look at the below bar
diagram, for Tata Motors, the current ratio is at 1.04 and quick ratio at 0.74. This indicates
that the company will be able to meet all its long-term and short-term financial
obligations respectively.

Current Ratio = Current Assets / Current Liabilities


Quick Ratio = (Cash + Securities + Receivables) / Current Liabilities

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3. PROFITABILITY

Profitability is measured relative to costs & expenses. In simple terms, there are certain
ratios (Profitability Ratios) that assesses an entitys capabilities to generate earnings as
compared to its expense.

From the Management effectiveness percentage, we can understand that Return on Assets
(ROA) is 16% which is considered to be good as per industry standards. Return on Equity at
57% shows that Tata motors generates profit from its shareholders investment.

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4. ECONOMIC VALUE ADDED (EVA)

Economic Value Added [EVA] is a performance measures developed by Stern Steward &
that attempt to measure the true economic profit produced by a company. A metric is
useful for investors who wish to determine how well a company has produced value for its
investors.

Here is how Tata Motors has performed in this aspect.

Source: http://www.attainix.com/ICTrackerDetail.aspx?stockcode=TATAMOTORS.IN

From the above data table and graph we can observe that EVA for Tata motors is in
negative since the operating profits is less than the capital employed in the business.
Thereby, indicating reduced efficiency.

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5. MARKET VALUE AND EFFICIENCY ANALYSIS

Below is a trend on how Tata Motors has performed in the NSE for the past 52 weeks.

From the above graph we can infer that the company hit the 52-week high of Rs. 598.40 on
7th Sep 2016 and went to 52-week low of Rs. 363.05 on 29th March 2016.

The change in price percentage for 52-week is as below-

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6. DEBT INVESTORS PERSPECTIVE (LEVERAGE RATIOS)

Debt to Equity Ratio = Interest Bearing Debt / Equity

The Leverage ratio of Tata Motors is at 87.23%. This indicates that the company is facing a
high financial risk, which suggest that the company is not fully utilizing the cheaper
source of finance (i.e. Debt).

Financial Strength

Parameter LFY

LT Debt/Total Equity: 64.22

LT Debt/Total Assets: 19.26

Tot Debt/Total Equity: 87.23

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7. EQUITY INVESTORS PERSPECTIVE

Below is an excerpt taken from Tata Motors Financial Statement for FY 2015 2016

During the year, the free cash flows for Tata Motors Group were Rs. 6,543 crores,
post spend on capex, design and development of Rs. 32,623 crores. Tata Motors
Group's borrowing as at March 31, 2016 stood at Rs. 70,468 crores (as at March 31,
2015: Rs. 73,610 crores). Cash and bank balances and investments in mutual funds
stood at Rs. 52,091 crores (as at March 31, 2015: Rs. 46,174 crores). With healthy
profitability and cash flow generation, the Consolidated Net Automotive Debt to
Equity Ratio stood at (0.01) as at March 31, 2016 as compared to 0.19 as at March 31,
2015.

The Cash flows from operations were positive Rs. 2,346 crores for standalone
operations of the Company. Spend on capex, design and development were Rs. 2,982
crores (net). The borrowings of the Company as at March 31, 2016 stood at Rs. 15,887
crores (as at March 31, 2015: Rs. 21,134 crores). Cash and bank balances including
mutual funds stood at Rs. 2,188 crores (as at March 31, 2015: Rs. 945 crores).

The valuation below confirms the above. Hence the stock is a good investment from a
long term perspective.

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8. REFERENCES

1. www.capitaline.com

2. www.moneycontrol.com

3. www.wikipedia.com

4. Thomas Reuters Eikon Database

5. http://www.attainix.com/ICTrackerDetail.aspx?stockcode=TATAMOTORS.
IN

6. http://www.tatamotors.com/investors/financials/71-ar-html/boards-
report2.com

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