TATA STEEL

Behaviour of return on equity and compare it with return on assets and return on sales
Calculate and analyse the tax rate
Analyse how the financial behaviour changes over the 10 years

 Earnings per share (EPS) is an important measure of corporate performance for

shareholders and potential investors.
 EPS numbers are the focus of prospectuses, media discussions, and analyst reports.
 EPS is reported only for equity share capital. The computation of EPS depends on a
company’s capital structure.
 Basic earnings per share are computed by dividing the net profit or loss for the period
attributable to equity shareholders by the weighted average number of equity shares
outstanding during the period
 Basic EPS provides a measure of the interest of each equity share in the performance
of the entity in a period.
 For Tata Stell, Basic EPS started from Rs.6.06 in 2011, reducing to Rs3.9 in 2012,
and kept on reducing till the year of 2018 to -3.05
 In the next year of 2019, EPS increased to 5.94
 In the next year of 2020, EPS decreased to -21.06
 Return on assets (ROA), also known as return on investment (ROI), is a measure of
profitability from a given level of investment.
 It is an excellent indicator of a company’s overall performance.
 We note that the lower ROA came from a larger investment, suggesting that the
additional investment was probably less profitable
 DuPont financial analysis clearly brings out the effect of these two drivers on the
ROA.
 It shows how profit margin and asset turnover interact to produce ROA.
 A. Level 1 is the return on equity, which we will consider shortly. Look at Level 2 –
return on assets, and Level 3 – its drivers.
 It is possible to produce a certain ROA by varying margin and turnover.
 Return on equity (ROE) is a measure of profitability from the shareholders’
standpoint.
 It measures the efficiency in the use of shareholders’ funds.
 In order to moderate the influence of share issue and buyback and change in retained
earnings, analysts generally use the average of beginning and ending amounts for the
year
 We are not surprised that the ROE follows the downward movement noticed in the
other profitability measures.
 Competitors try and replicate a firm’s special advantages in product offerings, cost
efficiencies, innovation, technology, distribution network, and brands.
 This adversely affects a firm’s ability to maintain a supernormal ROE.
 As a result, the ROE tends to revert towards the industry mean over time.
 The decrease in the ROE in 2016 was caused by the lower ROA.
 Shareholders expect the ROE to be higher than the cost of equity, their expected rate
of return.
 When the ROA is more than the interest rate on debt, shareholders benefit.
 Leveraging, or trading on the equity, is the use of debt finance to acquire assets in
order to earn a higher ROE.
 The flip side of debt financing is that, when the ROA falls below the interest rate,
shareholders lose
 The return on Equity is -39.64 in the year 2020.
 The return on Equity is the lowest in the year 2020 in a span of 10 years
 The return on Equity is the highest in the year 2019 in a span of 10 years
 The return on Equity is 9.11 in the year 2019 in a span of 10 years
 Effective tax rate is the rate at which an enterprise pays tax on its profit.
 It is measured as the ratio of income tax expense to accounting profit.
 It tells us about an enterprise’s tax burden.
 A taxable temporary difference may arise even when a gain is not recognized in the
statement of profit and loss.
 Gain on revaluation is an example.
 Revaluation increases the carrying amount of an asset. However, the tax authorities do
not allow higher depreciation because of revaluation.
 So the tax base of an asset is not increased by the difference between an asset’s fair
value and carrying amount.
 But this difference represents future benefits from either using or disposing of the
asset and these benefits are taxable. As a result, revaluation gives rise to a deferred tax
liability
 The effective tax rate is the average tax rate paid by an individual or a corporation.
 The effective tax rate for individuals is the average rate at which their earned income,
such as wages, and unearned income, such as stock dividends, are taxed.
 The effective tax rate for a corporation is the average rate at which its pre-tax profits
are taxed, while the statutory tax rate is the legal percentage established by law.

 Effective tax rate represents the percentage of their taxable income that individuals
have to pay in taxes.
 For corporations, the effective corporate tax rate is the rate they pay on their pre-tax
profits.
 Effective tax rate typically refers only to federal income tax, but it can be computed to
reflect an individual's or a company's total tax burden.
 The effective tax rate typically refers only to federal income taxes and doesn't take
into account state and local income taxes, sales taxes, property taxes, or other types of
taxes an individual might pay.
 To determine their overall effective tax rate, individuals can add up their total tax
burden and divide that by their taxable income.
 This calculation can be useful when trying to compare the effective tax rates of two or
more individuals, or what a particular individual might pay in taxes if they lived in a
 high-tax vs. a low-tax state—a consideration for many people thinking about
relocating in retirement.
 The effective tax rate is a more accurate representation of a person's or corporation's
overall tax liability than their marginal tax rate, and it is typically lower.
 When considering a marginal versus an effective tax rate, bear in mind that the
marginal tax rate refers to the highest tax bracket into which their income falls.
 In a graduated or progressive income-tax system, like the one in the United States,
income is taxed at differing rates that rise as income hits certain thresholds.
 Two individuals or companies with income in the same upper marginal tax bracket
may end up with very different effective tax rates, depending on how much of their
income was in the top bracket.
 Revenues are probably your business's main source of cash.
 The quantity, quality and timing of revenues can determine long-term success.
 Revenue growth (revenue this period - revenue last period) ÷ revenue last period. 

 When calculating revenue growth, don't include one-time revenues, which can distort
the analysis.
 Revenue concentration (revenue from client ÷ total revenue). If a single customer
generates a high percentage of your revenues, you could face financial difficulty if
that customer stops buying.
 No client should represent more than 10 percent of your total revenues.
 Revenue per employee (revenue ÷ average number of employees). This ratio
measures your business's productivity.
 The higher the ratio, the better. Many highly successful companies achieve over $1
million in annual revenue per employee.