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Ratio Analysis

Presented By:
Ajay Banka
Tata Motors
 Industry : Automobile Company.
 Established : 1945 .
 Founder : JRD Tata.
 Chairman : Ratan Tata
 Headquarter : Mumbai (India).
 Revenues : Rs.70,938.85 crores
(2008-09)
 Employees : 23,000.
Cont….
 It’s a Dual Listed Company (BSE &
NYSE).
 Manufacturing and Assembly Plant at
Jamshedpur, Pantnagar, Lucknow,
Ahmedabad and Pune in India.
 Also in, Argentina, South Africa and
Thailand.
Products
 Cars and utility vehicles
 Concept vehicles
 Commercial vehicles
 Military vehicles
Liquidity ratio
Current ratio = Current assets / Current liability
2008 2007
 Current Assets 192,673.5 162,779.2

 Current Liability 188,948.8 127,633.7

 Current Ratio (2008) 192,673.5/ 188,948.8 = 1.01

 Current Ratio (2007) 162,779.2/ 127,633.7 = 1.27

Quick Ratio C.A. - Invent. / C.L.

Quick Ratio (2008) 192,673.5 - 32,946.4 / 188,948.8 = .85

Quick Ratio (2007) 162,779.2- 31,669.0/127,633.7 = 1.02
Cont…
 Interval measure = Current assets-inven. / avg. daily cash oper. Exp

For 2008 :
 Avg. daily cash oper. Exp.- Total cash exp./ 365
67,663.1/ 365 = 185.3
 Interval measure - 192,673.5 - 32,946.4 / 185.3 = 862 days

For 2007 :
 Avg. daily cash oper. Exp - 56,050.6/ 365 = 153.5
 Interval measure - 162,779.2- 31,669.0 / 153.5 = 854 days

In liquidity ratio, we observe that current ratio in 2008 is less in comparison of
2007. it means companies efficiency decreases in paying current liability. And in
quick ratio, it also decreases. In 2008, regular cash meet was 862 days in
comparison of 854 of 2007. It means firms ability to pay its daily exp. Increases.
Leverage Ratio
 Total debt ratio : Total debt / capital employed

 For 2008

 Total debt : 63,345.5
 Capital employed : Net worth + borrowing
Or Share capital + debt.
86,975.2+ 63,345.5= 150320.7
63,345.5 / 150320.7 = .42
 For 2007
 Total debt : 38,693.6
 Capital employed : 77,216.7 + 38,693.6= 115910.3
(shr. cap) (debt)
38,693.6 / 115910.3 = .33
Cont…
 Debt equity ratio - Net worth / total debt
Net worth = share cap.
 For 2008 86,975.2/63,345.5 = 1.37
 For 2007 77,216.7 /38,693.6 = 1.99

 Capital equity ratio - Capital employed / net worth

 For 2008 150320.7 / 86,975.2= 1.73
 For 2007 115910.3 / 77,216.7 = 1.50

Interest coverage ratio – EBIT + depreciation / Intere

2008 2007
 Earning before tax 30,448.3 31,326.4
 Add- Interest 9,127.2 4,650.6
 Total 39575.5 35977
Cont….
 For 2008 : 39575.5 + 7,820.7/9,127.2 =
5.19

 For 2007 : 35977 + 6,880.9 / 4,650.6=
9.21

 In 2008, the long term financial position getting strong than
2008. Capability of
 paying long term debt. is increases. As we seen, debt ratio
increases. And the
 contribution of debt is increases in 2008 than 2007. and the
part of share capital is
 Also increases in total capital employed than 2007. it means,
company is increasing
 Its capital through shares.
Activity Ratio
Inventory Turnover Ratio = Cost of goods sold / Inventory

(2008) (2007)

 Cost of goods sold : 254,571.5
234,753.6
 Inventory : 32,946.4 31,669.0

 For 2008 : 254,571.5 / 32,946.4 = 7.72

 For 2007 : 234,753.6 / 31,669.0 =
7.41
Cont…
Debtor Turnover Ratio = Sales / debtor

 For 2008 : 358,086.0 (sales) / 97,555.9 (debtor) = 3.67

 For 2007 : 325,143.8 (sales) / 101,638.5 (debtor) = 3.20

 Average collection period (2008) = 360 / 3.67 = 98 days

 Average collection period (2007) = 360 / 3.20 = 112 days

 Assets Turnover Ratio : Sales / Net assets or capital employed

 For 2008 : 358,086.0 (sales) / 150320.7 (c.e.) = 2.38

 For 2007 : 325,143.8 (sales) / 115910.3 (c.e.) = 2.80
Cont…
Working Capital Turnover Ratio = Sales / Net working capital

 Net Working Capital = Current assets – Current liability

 For 2008 : = 192,673.5 - 188,948.8 = 3724.7
 For 2007 : = 162,779.2 - 127,633.7 = 35145.5

 For 2008 : 358,086.0 (sales) / 3724.7 (N.W.C.) = 96.13

 For 2007 : 325,143.8 (sales) / 35145.5 (N.W.C) = 09.25

As we seen, company’s efficiency of using its assets is increasing in 2008 than
2007. The inventory turnover ratio which shows its efficiency of selling product is
increasing. Average collection period is decreasing means company is selling its
product more on cash basis in 2008 than 2007. but company’s assets turnover
ratio is decreasing means sales is not growing according to its capital employed
and working capital.
Profitability Ratio
 Gross Margin = Gross profit / Sales
 Gross Margin (2008) = 103,514.5 / 358,086.0
= .29
 Gross Margin (2007) = 90,390.2 / 325,143.8
= .28
 EBIT Ratio = PAT / EBIT
 For 2008 = 21,677.0 / 37878.9 = .57
 For 2007 = 21,699.9 / 35384.5 = .61
 Return on investment= EBIT / Capital employed
 For 2008 = 39575.5 / 150320.7 = .26
 For 2007 = 35977 / 115910.3 = .31
Cont….
 Return on equity = PAT / Net worth

 For 2008 = 21,677.0 / 86,975.2 =
.25
 For 2007 = 21,699.9 / 77,216.7 = .28

In profitability ratio, the gross profit ratio is increasing in 2008 than 2007.
it
means its profit is growing in sales. But company’s EBIT ratio is
decreasing means
interest on capital and tax rate is increased in 2008 than 2007 which is
responsible
in decreasing its PAT. And company’s return on investment is decreased
that
indicates that its earning on capital employed is decreased in 2008 than
2007. and
its ROE is also decreases means its PAT on its share capital is decreased.
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