SUMMER TRAINING REPORT ON

Financial analysis
For
Tata Motors

BY
SHEETAL BADESRA
B-51
In partial fulfillment for the award of the degree

Post Graduate Diploma In Management

2011-2013

NEW DELHI INSTITUTION OF MANAGEMENT

F-13,Okhla Industrial Area Phase-1 New Delhi-110020

E-mail: info@ndimedu.com Website: www.ndimedu.com

 SUMMER TRAINING REPORT ON

Financial analysis
For
Tata Motors

Under the supervision

Of

Mr. K. Kumar Jha

Submitted By- Submitted to-

Sheetal Badesra Prof. Sayanti

Roll Number B-51

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 Table of Content

PARTICULARS PAGE NO.

1. CERTIFICATE FROM THE COMPANY. 5

2. ACKNOWLEDGEMENT 6

3. EXECUTIVE SUMMARY 7

4. RATIONALE AND SCOPE OF RESEARCH 9

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 23

8. LIMITATION OF STUDY/PROBLEMS FACED. 26

9. CALCULATION & ANALYSIS 29

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 today’s 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

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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 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

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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.

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 company’s ability to meet its short term and long term
obligations
 Determine company’s ability to generate profits
 To know company’s liquidity position to meet its current
obligations when they become due.

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  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.

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 today’s
highly competitive environments, improving consumers' loyalty to
brands permits marketers to maintain a comfortable and lasting position
in the marketplace.

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 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 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 of the company. Ratio analysis is used to identify working
capital areas, which require closer management. Various techniques and
strategies are available for managing specific working capital items.

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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.

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.

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 OBJECTIVE OF STUDY

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.
 Comparative analysis of the company by taking data of two years
and analyzing the reasons for the changes.

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  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

ii. SECONDARY DATA: Collected through past records of company,

newspapers, trade journals, Internet, textbooks etc.

STEP 3:

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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:
Observations are made from above calculations.

STEP 6:
Conclusion was made from above observations.

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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.

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.

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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 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

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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, 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,

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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 (September 2004), has also
emerged as a 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 mini-truck. 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 and

automotive solutions, construction equipment manufacturing, auto
finance, automotive vehicle components manufacturing and supply
chain activities, machine tools and factory automation solutions, high-
precision tooling and plastic and electronic 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

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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. 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”

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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.
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

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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 firm’s past,
present and future financial conditions through financial analysis. Tata is
analysis & also find firm’s financial 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.

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 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-to-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.

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  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 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

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current and future profitability and solvency. Sometimes, contracts tying
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 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

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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 Ratios to watch

Investors Return on Capital
Employed
Lenders Financial leverage ratios
Managers Profitability ratios
Employees Return on Capital
Employed
Suppliers and other trade Liquidity
creditors
Customers Profitability
Governments and their agencies Profitability
Local Community This could be a long and
interesting list

LIMITATION OF STUDY

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 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: Financial statements are based on estimates.

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.

 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.

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 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:

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 in
the balance sheet could be misleading
o Ratios are based on the summarized year-end information
which may not be a true reflection of the over all year’s
results.

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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 choose the best time to
produce financial statement so as to show better results.

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33
 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.
 The main concern of liquidity ratio is to measure the ability of
the firms to meet their short-term maturing obligations.

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

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) / CURRENT LIABILITIES
PARTICULARS 2011 (in corers) 2012 (in corers)
Current Assets- 8.69 9.08
Inventories
Current Liabilities 7.64 21.66
Quick Ratio 1.14 0.42

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

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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

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 firm’s 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.

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AVERAGE COLLECTION PERIOD = 360 / AVERAGE ACCOUNTS
RECEIVABLE TURNOVER
Where Average Accounts Receivable Turnover = Net Sales/ Average
Receivables
PARTICULARS 2011 2012
Average Accounts 6.54 8.69
Receivable Turnover
Average collection period 55.04 41.42

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 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 2011 2012
Inventory Turnover 3.51 2.14

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

38
  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 which the firm uses all its assets to
generate sales. It is calculated by dividing the firm’s sales by its total
assets. Total assets include current assets, fixed assets and investments.
TOTAL ASSET TURNOVER = SALES / TOTAL ASSETS
PARTICULARS 2011 (in corers) 2012 (in corers)
Sales 40.56 58.75
Total assets 26.05 41.69
Total Assets Turnover 1.58 1.41

Generally, the higher the firm’s 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

39
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
PARTICULARS 2011 (in corers) 2012 (in corers)
Sales 40.56 58.75
Net fixed Assets 6.95 7.28
Fixed Assets Turnover 5.83 8.07

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

40
fixed interest payments and repayment of the loan and legal action can be
taken if any 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 2011 (in corers) 2012 (in corers)
Total Debt 22.39 37.11
Total Assets 26.04 41.68
Debt Ratio 0.86 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 company’s 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 2011 2012
Total Debt 14.75 15.45
Total Equity 3.65 4.58
Debt to Equity Ratio 4.04 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 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.

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TIMES INTEREST EARNED RATIO=EBIT / INTEREST CHARGES
PARTICULARS 2011 2012
EBIT 14.75 15.45
Interest Charges 1.80 2.70
Times Interest Earned 8.19 5.72
Ratio

The company’s 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.

PROFITABILITY RATIO
Profitability is the ability of a business to earn profit over a period of
time. Although the profit figure is the starting 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

43
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 2011 2012
Gross Profit 3.99 5.87
Net Sales 40.56 58.75
Gross Profit Margin 9.84 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.

 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

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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 2011 2012
Net Profit 0.16 0.45
Net Sales 40.56 58.75
Net Profit Margin 0.0039 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.

 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 2011 2012
EBIT 14.75 15.45
Total Assets 26.05 41.69
ROI 56.62 37.06

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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 non-
distributable reserves. The ratio is calculated as follows:
RETURN ON EQUITY = PROFIT AFTER TAX / SHARE HOLDER’S
EQUITY
PARTICULARS 2011 2012
PAT 0.16 0.45
Share Holder’s 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.

46
EARNINGS PER SHARE = NET INCOME AFTER TAX -
PREFERENCE DIVIDEND / NO. OF
ISSUED ORDINARY SHARES
PARTICULARS 2011 2012
EPS 0.45 1.28

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 firm’s 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 firm’s 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 2011 2012
Dividend per Share ---N.A--- --N.A.--
Stock Price --N.A.--- --N.A.--
Dividend Yield Ratio --N.A.--- --N.A.--

47
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 2011 2012
Market Price per Share 10 10
EPS 0.45 1.28
P/E RATIO 22.22 7.81

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.

 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

48
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 2011 2012
EPS 0.45 1.28
Dividend per Share --N.A. NA
Dividend Cover Ratio 0.45 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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50
 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 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

51
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 2010- 11, 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 31st 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.

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

52
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 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.

53
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 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 company’s 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.

54
 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.

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 company’s efficient management of funds.

55
 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 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

56
for provision for diminution in value of investment, which was 6.75
lakh last year. In spite of good results
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 2011- 12, 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.

57
 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.

58
 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.

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.

59
 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.

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%.

60
Lastly company is up growing & will come a dominant player in near
future.

61
 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
 Automobile Magazine

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