RATIO ANALYSIS

CONTENTS
y About Tata Steel y Tata Steel- Its Acquisitions y Vision y Mission y Liquidity Ratios y Turnover Ratios y Profitability Ratios y Leverage Ratios y Conclusion

ABOUT: TATA STEEL
y One of the World s top ten steel producers y Combined presence in nearly 50 countries y Tata Steel includes Corus Steel, Tata Steel

Thailand, and Nat Steel Asia which are its acquisitions. y Comprises of 80,000 employees across 5 continents y 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

y Achievement of above through high technology. y Honesty and Integrity to be regarded essential ingredients of a strong and stable enterprise. . and productivity consistent with modern management practices.MISSION y To strengthen India s industrial base through effective utilization of staff and material.

Ratio Analysis: TATA STEEL RATIO ANALYSIS LIQUIDITY RATIOS TURNOVER RATIOS PROFITABILITY RATIOS LEVERAGE RATIOS .

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

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

5 1 0.) As per Balance Sheet as on 31st March 2009 and 2010.95 12003.. YEAR 2008-2009 2009-2010 CURRENT ASSETS 11591.27 CURRENT LIABILITIES 11899.66 13425.02 CURRENT RATIOS 0.CURRENT RATIOS ( Contd.5 0 2008-2009 2009-2010 current ratios .91 1.12 current ratios 1.

INVENTORYPREPAID EXPENSES)/CURRENT LIABILITIES . y This ratio can be calculated as follows: QUICK RATIO= (CURRENT ASSET. y The ratio is calculated on pre-assumption that all the current assets are of same level of liquidity.QUICK RATIOS y This ratio is calculated to get a real picture of liquidity.

95 12003.76 Quick ratio 0.19 10347.6 0.57 0.8 0.52 CURRENT LIABILITIES 11899.2 0 2008-2009 2009-2010 Quick ratio .QUICK RATIOS As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 QUICK ASSETS 8111.02 QUICK RATIO 0.4 0.

y 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 TURNOVER RATIOS STOCK T/O RATIO DEBTORS T/O RATIO CREDITORS T/O RATIO .TURNOVER RATIOS y These ratios determine how quickly certain assets are converted into cash y It measures the ability of the firm to manage its assets and convert into cash.

y The turning over of an asset is basically utilization of assets. y The ratio is calculated as follows: TOTAL ASSETS TURNOVER RATIO= NET SALES/TOTAL ASSETS .Total assets turnover ratio = Net sales/ Total Assets TOTAL ASSETS TURNOVER RATIO y This ratio is calculated to find the relationship between all assets and sales.

40 times 2008-2009 2009-2010 Total Assets Turnover Ratios 0.95 TOTAL ASSSETS T/O RATIO .42 times .TOTAL ASSETS TURNOVER RATIO As per Balance Sheet as on 31st March 2009 and 2010 YEAR NET SALES 24348.43 0.65 TOTAL ASSETS 56650.42 0.39 2008-2009 2009-2010 Total Assets Turnover Ratios .4 0.32 24940.41 0.78 62407.

y It indicates the efficiency of utilization of fixed assets.FIXED ASSETS TURNOVER RATIO y The fixed asset turnover ratio measures a company s ability to generate sales from fixed assets investments mainly plant & machinery. equipment. y The ratio can be calculated as follows: FIXED ASSETS TURNOVER RATIO= NET SALES/ FIXED ASSETS . y This ratio gives relationship between net fixed assets and sales.

6 1.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 NET SALES 24348..32 24940.22 16006.65 FIXED ASSETS 14482.55 times FIXED ASSETS TURNOVER RATIO 1.7 1.FIXED ASSETS TURNOVER RATIO(Contd.68 times 1.03 FIXED ASSETS T/O RATIO 1.4 2008-2009 2009-2010 FIXED ASSETS TURNOVER RATIO .5 1.

y The ratio can be calculated as follows: STOCK TURNOVER RATIO=COST OF GOODS SOLD/AVERAGE INVENTORY . y 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.STOCK TURNOVER RATIOS y The ratio indicates the level of inventory on an average throughout the year as compared to cost of goods sold. y It indicates whether investment in stock is within proper limit or not.

2 3.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR COGS AVERAGE INVENTORY 3042.STOCK TURNOVER RATIOS( Contd.42 times 3.72 3279.1 3 2.9 2008-2009 2009-2010 STOCK TURNOVER RATIO .42 STOCK TURNOVER RATIO 3.4 3.11 10284.5 3.11 STOCK TURNOVER RATIO 3.3 3.13 times 2008-2009 2009-2010 10413..

DEBTORS TURNOVER RATIO y Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm y It indicates the number of times average debtors are turned over during a year. y This ratio can be calculated as follows: DEBTORS TURNOVER RATIO= NET SALES/ AVERAGE DEBTORS .

65 DEBTORS TURNOVER RATIO 80 60 40 20 0 2008-2009 2009-2010 DEBTORS TURNOVER RATIO .35 times 2008-2009 2009-2010 24348..32 24940.83 DEBTORS TURNOVER RATIO 38.DEBTORS TURNOVER RATIO( Contd.28 times 57.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR NET SALES AVERAGE DEBTORS 635.98 434.

the average collection period of accounts receivable is the number of days required to convert receivables into cash.AVERAGE COLLECTION PERIOD y 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. y The ratio can be calculated as follows: AVERAGE COLLECTION PERIOD=365/DEBTORS TURNOVER RATIO OR AVERAGE COLLECTION PERIOD= 12/DEBTORS TURNOVER RATIO . y In other words.

OF DAYS DEBTORS TURNOVER RATIO 38..) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR No. OF MONTHS 12 12 2008-2009 2009-2010 .53 days 6.28 57.36 days AVERAGE COLLECTION PERIOD .28 57.AVERAGE COLLEON PERIOD(Contd.35 AVERAGE COLLECTION PERIOD 9.31 months .20 months 2008-2009 2009-2010 YEAR 365 365 No.35 DEBTORS TURNOVER RATIO 38.

y It compares creditors with credit purchases. y The ratio can be calculated as follows: CREDITORS TURNOVER RATIO=CREDIT PURCHASE/AVERAGE CREDITORS .CREDITORS TURNOVER RATIO y This ratio signifies the credit period enjoyed by the firm in paying creditors. y This ratio is similar to debtors turnover ratio.

.CREDITORS TURNOVER RATIO(Contd.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR CREDIT PURCAHSE AVERAGE CREDITORS CREDITORS TURNOVER RATIO 2008-2009 2009-2010 .

y As the average payment period increases.AVERAGE PAYMENT PERIOD y This ratio indicates the number of days a company takes to pay off credit purchases. y This ratio can be calculated as follows: AVERAGE PAYMENT PERIOD=365/CREDITORS TURNOVER RATIO OR AVERAGE PAYMENT PERIOD=12/CREDITORS TURNOVER RATIO . cash should increase as well but working capital remains the same.

22 2.AVERAGE PAYMENT PERIOD(Contd ) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR MONTHS CREDITORS TURNOVER RATIO 2.04 AVERAGE PAYMENT PEIOD 5.40 months 5.04 AVERAGE PAYMENT PERIOD 164.92 days 2008-2009 2009-2010 365 365 .14 days 178.88 months 2008-2009 2009-2010 12 12 YEAR DAYS CREDITORS TURNOVER RATIO 2.22 2.

y 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 . y In other words the profitability ratio reflects a company s operating performance.PROFITABILITY RATIO y This ratio shows a company s effectiveness on generating profit.

y The ratio can be calculated as follows: GROSS PROFIT RATIO= (GROSS PROFIT/ NET SALES)*100 . y The Gross profit ratio is the ratio of Gross profit to the Sales.Cost of Goods Sold.GROSS PROFIT RATIO y Gross Profit is defined as Sales.

04% 51.30% 51.65 12780.00% 50.24% GROSS PROFIT RATIO 51.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 GROSS PROFIT 12429.90% 2008-2009 2009-2010 GROSS PROFIT RATIO .20% 51.65 GROSS PROFIT SALES 51.348.32 24.GROSS PROFIT RATIO( Contd.10% 51.87 SALES 24.940..

general and administrative expenses. interest & taxes. selling. y The ratio can be calculated as follows: NET PROFIT RATIO= (NET PROFIT/ SALES)*100 .NET PROFIT RATIO y It relates the firms net profit and the firm s sales level y It indicates that percentage of every rupee of sales the firm was able to transform into the Net Profit. y 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. depreciation.

80 SALES 24.50% 2008-2009 2009-2010 NET PROFIT RATIO .50% 21.23% NET PROFIT RATIO 21.32 24.NET PROFIT RATIO( Contd.65 NET PROFIT RATIO 21.00% 20.00% 19.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 NET PROFIT 5201..74 5046.348.940.50% 20.36% 20.

EXPENSE RATIO( SELLING AND ADMINISTRATION) y Expense ratio is the calculation of expenditure made by the company in terms of the net sales. y This ratio can be calculated as follows: EXPENSE RATIO= (EXPENSES/ SALES)*100 . y This ratio helps to keep a track on the expenditure incurred by the company and lower the ratio better it is.

EXPENSE RATIO( SELLING AND ADMINISTRATION) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 EXPENSES 400.65 EXPENSE RATIO 1.90 SALES 24348.64% 1.32 24940.24 417.62% 2008-2009 2009-2010 EXPENSE RATIO .68% 1.67% EXPENSE RATIO 1.66% 1.64% 1.

PROFITABILITY RATIO.II RETURN ON CAPITAL EMPLOYEED RETURN ON INVESTMENT PROFITABILITY RATIOS BASED ON INVESTMENT RETURN ON NETWORTH EARNINGS PER SHARE DIVIDEND PER SHARE .

TAX AND DIVIDEND)/ CAPITAL EMPLOYEED . y 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.RETURN ON CAPITAL EMPLOYEED y This ratio reflects the overall profitability of the business. y The ratio can be calculated as follows: RETURN ON CAPITAL EMPLOYEED=(PROFIT BEFORE INTEREST. y . It is calculated by comparing the profit earned and the capital employed to earn it.

67 RETURN ON CAPITAL EMPLOYEED 18.RETURN ON CAPITAL EMPLOYEED( Contd.00% 16.78 62407.95 RETURN ON CAPITAL EMPLOYEED 17.00% 15.51 10146..00% 2008-2009 2009-2010 RETURN ON CAPITAL EMPLOYEED .26% 16.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR PBIDT CAPITAL EMPLOYEED 56650.25% 2008-2009 2009-2010 9779.00% 17.

y In short. y This ratio can be calculated as follows: RETURN ON INVESTMENT=INTEREST/ INVESTMENT*100 . this ratio tells the owner whether or not all the effort put into the business has been worthwhile. y The ROI is perhaps the most important ratio of all.RETURN ON INVESTMENT y It is the percentage of return on funds invested in the business by its owners.

67 RETURN ON INVESTMENT 3.80% 3.20% 2008-2009 2009-2010 RETURN ON INVESTMENT .) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 INTEREST 1.78 44.19 INVESTMENT 42.489.979.20% 4..50 1.51% 4.60% 3.371.RETURN ON INVESTMENT(Contd.848.00% 3.11% RETURN ON INVESTMENT 4.40% 3.

RETURN ON NETWORTH y 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. y Generally a return of 10% would be desirable to provide dividends to owners & have funds for future growth of the company. y The ratio can be calculated as follows: RETURN ON NETWORTH=PROFIT AFTER TAX/ PROPREITORS FUNDS*100 .

51% 13.00% 5.75 RETURN ON NETWORTH 17.60 37168.00% 15..00% 0.00% 2008-2009 2009-2010 RETURN ON NETWORTH .00% 10.RETURN ON NETWORTH(Contd.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 PAT 5201.74 5046.80 PROPRIETORS FUNDS 29704.57% RETURN ON NETWORTH 20.

investors are always extremely interested in knowing the earnings per share. y The ratio can be calculated as follows: EARNINGS PER SHARE=(NPAT-PREFERNCE DIVIDEND)/NUMBER OF ORDINARY 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.EARNINGS PER SHARE y The shareholders invest their money with the expectation of getting dividends and capital appreciation on the shares.

EARNINGS PER SHARE y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 EARNINGS PER SHARE 69.70 56.37 EARNINGS PER SHARE 80 60 40 20 0 2008-2009 2009-2010 EARNINGS PER SHARE .

DIVIDEND PER SHARE y 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 y The ratio can be calculated as follows: DIVIDEND PER SHARE=TOTAL DIVIDEND/TOTAL NUMBER SHARES .

51 DIVIDEND PER SHARE 20 15 10 5 0 2008-2009 2009-2010 DIVIDEND PER SHARE .DIVIDEND PER SHARE y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 DIVIDEND PER SHARE 17.49 8.

but the main factors looked at include debt. assets and interest expenses. DEBT EQUITY RATIOS LEVERAGE RATIOS RETURN ON EQUITY RATIOS . equity.LEVERAGE RATIOS y 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. y There are several different ratios.

y Also known as the Personal Debt/Equity Ratio. y A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. this ratio can be applied to personal financial statements as well as corporate ones.DEBT-EQUITY RATIO y It indicates what proportion of equity and debt the company is using to finance its assets. y The ratio can be calculated as follows: DEBT-EQUITY RATIO= TOTAL DEBT/ EQUITY SHARE CAPITAL*100 .

20 EQUITY SHARE CAPITAL 730.239.00% 1.18 25.DEBT-EQUITY RATIO( Contd.41 DEBT-EQUITY RATIO 3.) y As per Balance Sheet as on 31st March 2009 and 2010 YEAR 2008-2009 2009-2010 TOTAL DEBT 26.00% 2008-2009 2009-2010 DEBT-EQUITY RATIO ..84% DEBT-EQUITY RATIO 4.00% 3.00% 0.00% 2.69% 2.946.79 887.

y Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.PREFERNCE DIVIDEND)/EQUITY SHARE CAPITAL .RETURN ON EQUITY y Return on Equity is the amount of net income returned as a percentage of shareholders equity. y The ratio can be calculated as follows: RETURN ON EQUITY= (NPAT.

63 2008-2009 2009-2010 RETURN ON EQUITY 8 6 4 2 0 2008-2009 2009-2010 RETURN ON EQUITY .29 5000.41 RETURN ON EQUITY 6.RETURN ON EQUITY y As per Balance Sheet as on 31st March 2009 and 2010 YEAR NPATPREFERNCE DIVIDEND 5092.96 5.92 EQUITY SHARE CAPITAL 730.79 887.

Profitability. Leverage. y The owner may thus determine the business's relative strengths and weaknesses. 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. .CONCLUSION y These Liquidity. y 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: .

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