tata motors summer training
TRANSCRIPT
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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