FINANCIAL ACCOUNTING

Ratio Analysis of Tata Motors

Tata Motors

Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs.70,938.85 crores (USD 14 billion) in 2008-09. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer.

Established in 1945, Tata Motors' presence indeed cuts across the length and breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company's manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand) and Dharwad (Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat powertrains. The company is establishing a new plant at Sanand (Gujarat). The company’s dealership, sales, services and spare parts network comprises over 3500 touch points; Tata Motors also distributes and markets Fiat branded cars in India.

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 an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. It was Tata Motors, which developed the first indigenously developed Light Commercial Vehicle, India’s first Sports Utility Vehicle and, in 1998, the Tata Indica, India's first fully indigenous passenger car. In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which India and the world have been looking forward to. The Tata Nano has been subsequently launched, as planned, in India in March 2009. A development, which signifies a first for the global automobile industry, the Nano brings the comfort and safety of a car within the reach of thousands of families. The standard version has been priced at Rs.1 lac.

Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, 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. With the foundation of its rich heritage, Tata Motors today is etching a refulgent future.

Balance Sheet for Tata Motors

Balance Sheet of Tata Motors ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Sources Of Funds

Total Share Capital 361.79 382.87 385.41 385.54 514.05

Equity Share Capital 361.79 382.87 385.41 385.54 514.05

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 3,749.60 5,127.81 6,458.39 7,428.45 11,855.15

Revaluation Reserves 0.00 26.39 25.95 25.51 25.07

Networth 4,111.39 5,537.07 6,869.75 7,839.50 12,394.27

Secured Loans 489.81 822.76 2,022.04 2,461.99 5,251.65

Unsecured Loans 2,005.61 2,114.08 1,987.10 3,818.53 7,913.91

Total Debt 2,495.42 2,936.84 4,009.14 6,280.52 13,165.56

Total Liabilities 6,606.81 8,473.91 10,878.89 14,120.02 25,559.83

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Application Of Funds

Gross Block 6,611.95 7,971.55 8,775.80 10,830.83 13,905.17

Less: Accum. Depreciation 3,454.28 4,401.51 4,894.54 5,443.52 6,259.90

Net Block 3,157.67 3,570.04 3,881.26 5,387.31 7,645.27

Capital Work in Progress 538.84 951.19 2,513.32 5,064.96 6,954.04

Investments 2,912.06 2,015.15 2,477.00 4,910.27 12,968.13

Inventories 1,601.36 2,012.24 2,500.95 2,421.83 2,229.81

Sundry Debtors 811.32 715.78 782.18 1,130.73 1,555.20

Cash and Bank Balance 345.26 327.66 535.78 750.14 638.17

Total Current Assets 2,757.94 3,055.68 3,818.91 4,302.70 4,423.18

Loans and Advances 2,831.16 5,964.61 6,208.53 4,831.36 5,909.75

Fixed Deposits 1,659.78 791.77 290.98 1,647.17 503.65

Total CA, Loans & Advances 7,248.88 9,812.06 10,318.42 10,781.23 10,836.58

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 6,142.74 6,673.61 6,956.88 10,040.37 10,968.95

Provisions 1,126.06 1,215.04 1,364.32 1,989.43 1,877.26

Total CL & Provisions 7,268.80 7,888.65 8,321.20 12,029.80 12,846.21

Net Current Assets -19.92 1,923.41 1,997.22 -1,248.57 -2,009.63

Miscellaneous Expenses 18.16 14.12 10.09 6.05 2.02

Total Assets 6,606.81 8,473.91 10,878.89 14,120.02 25,559.83

Contingent Liabilities 1,450.32 2,185.63 5,196.07 5,590.83 5,433.07

Book Value (Rs) 113.65 143.94 177.59 202.70 240.64

Profit and Loss account for Tata Motors

Profit & Loss account of Tata Motors ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Income

Sales Turnover 20,262.61 23,490.55 31,089.69 33,123.54 28,538.20

Excise Duty 3,063.44 3,401.92 4,425.44 4,355.63 2,877.53

Net Sales 17,199.17 20,088.63 26,664.25 28,767.91 25,660.67

Other Income 403.98 852.41 1,114.38 734.17 921.29

Stock Adjustments 144.00 256.91 349.68 -40.48 -238.04

Total Income 17,747.15 21,197.95 28,128.31 29,461.60 26,343.92

Expenditure

Raw Materials 12,245.28 14,633.02 19,879.56 20,891.33 18,801.37

Power & Fuel Cost 237.81 258.51 327.41 325.19 304.94

Employee Cost 1,039.34 1,143.13 1,367.83 1,544.57 1,551.39

Other Manufacturing Expenses 592.64 671.31 872.95 904.95 866.65

Selling and Admin Expenses 890.21 1,061.07 1,505.23 2,197.49 1,652.31

Miscellaneous Expenses 620.27 740.99 1,051.49 964.78 1,438.89

Preoperative Exp Capitalised -282.43 -308.85 -577.05 -1,131.40 -916.02

Total Expenses 15,343.12 18,199.18 24,427.42 25,696.91 23,699.53

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

Operating Profit 2,000.05 2,146.36 2,586.51 3,030.52 1,723.10

PBDIT 2,404.03 2,998.77 3,700.89 3,764.69 2,644.39

Interest 234.30 350.24 455.75 471.56 704.92

PBDT 2,169.73 2,648.53 3,245.14 3,293.13 1,939.47

Depreciation 450.16 520.94 586.29 652.31 874.54

Other Written Off 67.12 73.78 85.02 64.35 51.17

Profit Before Tax 1,652.45 2,053.81 2,573.83 2,576.47 1,013.76

Extra-ordinary items -1.54 0.00 -0.07 0.00 15.29

PBT (Post Extra-ord Items) 1,650.91 2,053.81 2,573.76 2,576.47 1,029.05

Tax 415.50 524.93 660.37 547.55 12.50

Reported Net Profit 1,236.95 1,528.88 1,913.46 2,028.92 1,001.26

Total Value Addition 3,097.84 3,566.16 4,547.86 4,805.58 4,898.16

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 452.19 497.94 578.07 578.43 311.61

Corporate Dividend Tax 63.42 69.84 98.25 81.25 34.09

Per share data (annualised)

Shares in issue (lakhs) 3,617.52 3,828.34 3,853.74 3,855.04 5,140.08

Earning Per Share (Rs) 34.19 39.94 49.65 52.63 19.48

Equity Dividend (%) 125.00 130.00 150.00 150.00 125.00

Book Value (Rs) 113.65 143.94 177.59 202.70 240.64

RATIO ANALYSIS

Sr.No. Ratios Formula

Year EndedMar08

Year endedMar09

Explanation

1. Current ratioCurrent Assets/

Current Liabilities0.64 0.44

Higher the current ratio better is the situation and the ideal value is 2:1. Tata Motors’ current ratio is less than 1 which indicates more liabilities than assets.

2. Liquid ratioLiquid assets/liquid

liabilities0.66 0.58

A higher liquid ratio indicates that there are sufficient assets available with the organisation which can be converted in the form of cash almost immediately to pay off those liabilities which are to be paid off almost immediately.

3.Fixed Assets

turnover ratio

Net sales/ fixed assets

2.69 1.88

It indicates the capability of organisation to achieve maximum sales with the minimum investment in fixed assets. Higher the ratio, the better.

4.

Current assets

turnover ratio

Net sales/ current assets

6.68 5.8

It indicates the capability of organisation to achieve maximum sales with the minimum investment in current assets. Higher the ratio, the better.

5.

Working capital

turnover ratio

Net sales/ working capital

5.68 3.68

It indicates the capability of organisation to achieve maximum sales with the minimum investment in working capital. Higher the ratio, the better.

6.

Inventory/Stock

turnover ratio

Net sales/Closing inventory

3.52 4.60

It indicates the capability of organisation to achieve maximum sales with the minimum investment in

inventory. Higher the ratio, the better.

7.

Capital turnover

ratio

Sales/capital employed

0.76 0.60

It indicates the efficiency of the organisation with which the capital employed is being utilized. Higher the ratio, the better.

8.Proprietary

ratioFixed assets/ owners’ fund

0.54 0.60

Both these figures indicate that the owners’ funds are exceeding the fixed assets which indicate that a part of owners’ funds is invested in the current assets also.

9.

Fixed Assets/Capital employed

ratio

Fixed assets*100/capital

employed32% 26%

A low value of this ratio in both cases indicates that a major portion of the long term funds are invested in current assets as compared to fixed assets.

10.Interest

Coverage ratio

Profits before interest and taxes/ Interest charges

10.70 7.84

A high ratio as indicted by the 2 figures is favorable as it indicates the protection available to the lenders of long term capital in the form of funds available to pay the interest charges.

11.Debt service

Coverage ratio

(Net profit after taxes +

Depreciation + Interest on term

loans)/(Interest on term loans +

Installments of term loans

0.47 0.35

It gives indication about the capability of Tata Motors to meet the obligations of long term borrowing. A very low value of ratio means insufficient earning capacity of organisation to meet the obligations of long term borrowing.

12.Gross profit

ratioGross profit * 100/net sales

15.28% 16.10%

A low value shown by the 2 figures indicates that this organisation is not able to produce or purchase at a low cost. It can be increased by either adjusting the sales price or production cost or by increasing volume of products having high gross profit margin.It indicates that portion of

13.Net profit

ratio

(Net profit after taxes) * 100/net

sales15.14% 12.40%

sales available to the owner after considering all types of expenses and costs. The lower figures alongside indicate lower profitability of the business.

14.Operating

ratio

(Manufacturing cost of goods sold+

operating expenses)*100/Net

sales

83.52% 81.16%

A high ratio as seen alongside indicates that only a small margin of sales is available to meet the expenses in the form of interest, dividend and other non-operating expenses. A lower value is generally desirable.

15.Return on

AssetNet profit * 100

/assets36.13% 26.87%

It measures profitability of investments in the firm. Higher value is preferred which is not the case as per figures shown.

16.Return on

capital employed

(Net profit + Interest on long

term sources)/capital

employed

0.73 0.57

It measures profitability of capital employed in the firm. Higher value is preferred and the situation of Mar08 was much better than Mar09.

17.Return on

Shareholders’ funds

Net profit after taxes * 100/ Total

shareholders’ funds0.14 0.08

It measures if the firm has earned sufficient returns for its shareholders or not. Higher the ratio, the better the situation which is not the case for Tata Motors in both the years.

18.Earnings per

share

(Net profit after taxes- preference

dividend)/ Number of equity shares

outstanding

52.63 19.48

It measures the profits available to the equity shareholders on a per share basis.

19.Capital to

non-current assets ratio

Owners equity/ Non-current assets

3.51 4.22

A higher capital to non-current assets ratio indicates that it is easier to meet the business' debt and creditor commitments.

20.Fixed costs

to total assets

Fixed costs/ Total assets

1.09 1.06

An increase in the fixed costs to total assets ratio may indicate higher fixed charges, possibly resulting in greater

instability in operations and earnings.