tata motors summer training

7/30/2019 Tata Motors Summer Training

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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 OFMANAGEMENT

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

E-mail: [email protected] Website: www.ndimedu.com
mailto:[email protected]://www.ndimedu.com/mailto:[email protected]://www.ndimedu.com/


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SUMMER TRAINING REPORT ON

Financial analysis

For

Tata Motors

Under the supervision

Of

Mr. K. Kumar Jha

Submitted By-Submitted to-

Sheetal BadesraProf. Sayanti

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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 STUDY12

6. INTRODUCTION OF THE COMPANY16

a. INDUSTRY & COMPANY PROFILE

b. BACKGROUND OF THE PROBLEM

7. REVIEW OF LITERATURE 23

8. LIMITATION OF STUDY/PROBLEMS FACED. 26

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9. CALCULATION & ANALYSIS 29

10. OBSERVATION, ANALYSIS & CONCLUSION47

11. CONCLUSION56

12. BIBLOGRAPHY57

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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 respondentswho participated for supporting me in the successfulcompletion 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 todays 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

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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

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 industrystandards. 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

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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 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 FACTORSThough 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.

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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 companys ability to meet its short term

and long term obligations

Determine companys ability to generate profits

To know companys liquidity position to meet its

current obligations when they become due.

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 ishelpful 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.

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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 todays highly competitive environments,

improving consumers' loyalty to brands permits marketers

to maintain a comfortable and lasting position in the

marketplace.

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

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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 plansand 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.

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.

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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.

OBJECTIVE OF STUDY

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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 anoverall 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.

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Comparative analysis of the company by taking data of

two years and analyzing the reasons for the changes.

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 tofinance 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

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ii. SECONDARY DATA: Collected through past records of

company, newspapers, trade journals, Internet,

textbooks etc.

STEP 3:

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 STATEMENTo 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:

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Observations are made from above calculations.

STEP 6:

Conclusion was made from above observations.

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.

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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.

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

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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 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,

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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 incommercial 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, supported by

nation-wide dealers, sales, services and spare partsnetwork comprising over 2,000 touchpoints.

Tata Motors, the first company from India's engineering

sector to be listed in the New York Stock Exchange

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(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 isalso 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

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components for automotive and computer applications,

and automotive retailing and service operations.

True to the tradition of the Tata Group, Tata Motors iscommitted in letter and spirit to Corporate Social

Responsibility. It is a signatory to 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.

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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

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 INDICAand 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.

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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 statements of a

business enterprise. This does not provide refined orcomparative 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 firms past,

present and future financial conditions through financial

analysis. Tata is analysis & also find firms financial

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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.

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-

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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 theresult of such investments can be made with support of

financial statements.

Lenders

Banks, financial institutions and other lenders would

willingly part with their money only if they are assured ofthe 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

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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 andprofitable operations of the organization in which they work.

Financial statements can be used as important source for

obtaining information regarding the current and future

profitability and solvency. Sometimes, contracts tying

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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

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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 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 watchInvestors Return on Capital

EmployedLenders Financial leverage

ratiosManagers Profitability ratios

Employees Return on Capital

EmployedSuppliers and other trade

creditors

Liquidity

Customers ProfitabilityGovernments and their

agencies

Profitability

Local Community This could be a longand interesting list

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LIMITATION OF STUDY

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

Depreciationo Costs of warranties

o Contingent losses

To the extent that these estimates are inaccurate, the

financial ratios and percentages are also inaccurate.

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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.

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:

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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 years results.

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 ofresults over a number of years.

o There may be impact of seasons on trading i.e.

businesses which are affected by the seasons can

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choose the best time to produce financial

statement so as to show better results.

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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 compareits 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.

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The main concern of liquidity ratio is to measure the

ability of the firms to meet their short-term maturing

obligations.

CURRENT RATIO

The Current Ratio expresses the relationship between the

firms current assets and its current liabilities.

CURRENT RATIO = CURRENT ASSETS / CURRENT

LIABILITIES

PARTICULARS 2011 (in corers) 2012 (in corers)Current Assets 19.08 33.75Current Liabilities 7.64 21.66Currant 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-

Inventories

8.69 9.08

Current Liabilities 7.64 21.66Quick 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

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to which company can pay current liabilities without relying

on current the sale on the inventory. Generally ratio of 1:1

is considered satisfactory.

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 ifnot, overtrading occurs.

AVERAGE COLLECTION PERIOD

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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

firms 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.

AVERAGE COLLECTION PERIOD = 360 / AVERAGE

ACCOUNTS RECEIVABLE

TURNOVER

Where Average Accounts Receivable Turnover = Net Sales/

Average Receivables

PARTICULARS 2011 2012Average Accounts

Receivable

Turnover

6.54 8.69

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

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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 2012Inventory 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.

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

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which the firm uses all its assets to generate sales. It is

calculated by dividing the firms 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 41.69Total Assets Turnover 1.58 1.41

Generally, the higher the firms total asset turnover, themore 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

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

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PARTICULARS 2011 (in corers) 2012 (in corers)Sales 40.56 58.75Net 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 fixed interest payments and

repayment of the loan and legal action can be taken if any

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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 37.11Total Assets 26.04 41.68Debt 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 companys

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 15.45Total Equity 3.65 4.58Debt 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

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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.

TIMES INTEREST EARNED RATIO=EBIT / INTEREST CHARGES

PARTICULARS 2011 2012EBIT 14.75 15.45Interest Charges 1.80 2.70

Times Interest Earned

Ratio

8.19 5.72

The companys 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

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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 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 2012Gross Profit 3.99 5.87Net Sales 40.56 58.75Gross Profit Margin 9.84 9.99

This shows that gross profit margin ratio is increasing itmeans there is a decrease of non operating expenses whichleads to increase in the profits.

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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 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 2012Net Profit 0.16 0.45Net Sales 40.56 58.75Net 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.

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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 2012EBIT 14.75 15.45

Total Assets 26.05 41.69ROI 56.62 37.06

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:

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RETURN ON EQUITY = PROFIT AFTER TAX / SHARE

HOLDERS EQUITY

PARTICULARS 2011 2012

PAT 0.16 0.45Share Holders Equity 0.35 0.35Return on Equity 0.45 1.28Return on Equity has increasing because of both PAT &

equity share capital.

EARNINGS PER SHARE

Whatever income remains in the business after all priorclaims, 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.

EARNINGS PER SHARE = NET INCOME AFTER TAX -

PREFERENCE DIVIDEND / NO. OF

ISSUED ORDINARY SHARES

PARTICULARS 2011 2012EPS 0.45 1.28

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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 firms 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 firms 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 2012Dividend per Share ---N.A--- --N.A.--Stock Price --N.A.--- --N.A.--Dividend Yield Ratio --N.A.--- --N.A.--

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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 / EPSWhere, EPS = Net Profit / Total no. Of Equity Shares

PARTICULARS 2011 2012Market Price per

Share

10 10

EPS 0.45 1.28P/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.

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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 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 2012EPS 0.45 1.28Dividend per Share --N.A. NADividend 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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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 ended31st 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

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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 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.

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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 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 of81.9% 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

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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.

Another thing also seen when I analyzed the balance sheet

of the company, is that cash in hand & at bank is reducingby 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

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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

companys financial position, viz. liquidity, solvency, and

profitability and funds-flow ratios. In the absence of industryaverage figures, my appraisal is based only upon standard

norms of these ratios, working capital, profit and loss

account, balance sheet etc.

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.

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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 companys efficient management of

funds.

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

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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 theefficiency of staff in dealing with investments. This could

be the reason for not providing for provision for

diminution in value of investment, which was 6.75 lakh

last year. In spite of good results

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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.

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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 customersleading 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.

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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 inearnings 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.

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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.

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.

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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%.

Lastly company is up growing & will come a dominant

player in near future.

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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

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Automobile Magazine

tata motors summer training

Documents