Analysing The Financial Performance Of Tata Motors Finance Essay

Introduction

Following India ‘s turning openness, the reaching of new and bing theoretical accounts, easy handiness of finance at comparatively low rate of involvement and monetary value price reductions offered by theA traders and makers all have stirred the demand for vehicles and a strong growing of the IndianA car industry. So I feel that it is a wise determination to do an investing in car sector.

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I am be aftering to put in Tata Motors Ltd as it is the largest commercial vehicle maker in India and one of the top three participants in the rider vehicles section. It was established in 1945 to fabricate steam engines and have a diverse merchandise scope now.

As a possible investor, I would wish to analyze the fiscal public presentation of Tata motors before taking the concluding determination.

Mahindra & A ; Mahindra Ltd, Maruti Suzuki India Ltd, Force motors Ltd, Eicher motors Ltd & A ; Hindustan motors Ltd are the other major participants in the Indian car industry. So as to put a benchmark to compare the public presentation of Tata motors Ltd with, I had to choose a company from this equal group.

When comparing the gross revenues turn over and net net income, Tata motors Ltd & A ; Maruti Suzuki India Ltd are standing really near with figures of 35,593.05 & A ; 2,240.08 for Tata motors Ltd and 29,623.01 & A ; 2,497.62 for Maruti Suzuki India Ltd. All the other car houses considered in the equal group has really low gross revenues turn over and net net income, below 15,000.00 & A ; 1000.00 severally.

So I ‘m taking Maruti Suzuki India Ltd as the benchmark house, and is traveling to make the fiscal analysis of Tata motors in comparing with the public presentation of Maruti Suzuki India Ltd.

Common size Balance sheet

A common-size balance sheet is a balance sheet where every point in that has been restated to be a per centum of entire assets. Typically common size balance sheets are presented in mention to entire assets. This format allows the investor to compare the capital construction over clip and across companies. In fact, making such a presentation allows an investor to compare two companies even if they use different currencies, as both size and currency exchange issues are negated with the transition to common size.

Knowing the accounting equation assets-liabilities=owner ‘s equity, makes reading the common size balance sheet much easier. If you want to cognize if a company is booming, the common size balance sheet makes for easy analysis when comparing one company to another. Table 1 shows the common size balance sheet for Tata motors Ltd & A ; Maruti Suzuki India Ltd for the old ages 2007, 2008 and 2009.

Table 1: Common Size Balance Sheets of Tata Motors & A ; Maruti Suzuki India

A

Tata Motors

Maruti Suzuki India

A

Mar ’07

Mar ’08

Mar ’09

Mar ’07

Mar ’08

Mar ’09

Beginnings Of Fundss

A

A

A

A

A

A

Entire Share Capital

3.54 %

2.73 %

2.01 %

1.93 %

1.55 %

1.44 %

Equity Share Capital

3.54 %

2.73 %

2.01 %

1.93 %

1.55 %

1.44 %

Militias

59.37 %

52.61 %

46.38 %

89.64 %

88.79 %

91.60 %

Reappraisal Militias

0.24 %

0.18 %

0.10 %

0.00 %

0.00 %

0.00 %

Net worth

63.15 %

55.52 %

48.49 %

91.57 %

90.34 %

93.04 %

Secured Loans

18.59 %

17.44 %

20.55 %

0.85 %

0.00 %

0.00 %

Unbarred Loans

18.27 %

27.04 %

30.96 %

7.58 %

9.66 %

6.96 %

Entire Debt

36.85 %

44.48 %

51.51 %

8.43 %

9.66 %

6.96 %

Entire Liabilitiess

100.00 %

100.00 %

100.00 %

100.00 %

100.00 %

100.00 %

A

A

A

A

A

A

A

A

Mar ’07

Mar ’08

Mar ’09

Mar ’07

Mar ’08

Mar ’09

Application Of Fundss

A

A

A

A

A

Gross Block

80.67 %

76.71 %

54.40 %

82.12 %

78.21 %

86.83 %

Less: Accum. Depreciation

44.99 %

38.55 %

24.49 %

46.59 %

42.82 %

46.30 %

Net Block

35.68 %

38.15 %

29.91 %

35.54 %

35.39 %

40.53 %

Capital Work in Advancement

23.10 %

35.87 %

27.21 %

3.19 %

7.90 %

8.58 %

Investings

22.77 %

34.78 %

50.74 %

45.55 %

55.61 %

31.59 %

Inventories

22.99 %

17.15 %

8.72 %

9.53 %

11.14 %

8.98 %

Assorted Debtors

7.19 %

8.01 %

6.08 %

9.99 %

7.04 %

9.15 %

Cash and Bank Balance

4.92 %

5.31 %

2.50 %

1.53 %

3.48 %

2.38 %

Entire Current Assets

35.10 %

30.47 %

17.31 %

21.05 %

21.66 %

20.51 %

Loans and Progresss

57.07 %

34.22 %

23.12 %

14.33 %

12.59 %

18.02 %

Fixed Deposits

2.67 %

11.67 %

1.97 %

17.48 %

0.00 %

16.93 %

Entire CA, Loans & A ; Progresss

94.85 %

76.35 %

42.40 %

52.85 %

34.25 %

55.46 %

Deferred Recognition

0.00 %

0.00 %

0.00 %

0.00 %

0.00 %

0.00 %

Current Liabilitiess

63.95 %

71.11 %

42.91 %

30.58 %

29.19 %

32.37 %

Commissariats

12.54 %

14.09 %

7.34 %

6.55 %

3.97 %

3.79 %

Entire CL & A ; Commissariats

76.49 %

85.20 %

50.26 %

37.13 %

33.15 %

36.16 %

Net Current Assetss

18.36 %

-8.84 %

-7.86 %

15.72 %

1.10 %

19.30 %

Assorted Expenses

0.09 %

0.04 %

0.01 %

0.00 %

0.00 %

0.00 %

Entire Assetss

100.00 %

100.00 %

100.00 %

100.00 %

100.00 %

100.00 %

Common size Income statement

Common size income statement refers to an income statement in which each history is expressed as a per centum ofA theA value of gross revenues. This type of fiscal statement can be used to let for easy analysis between companies or between clip periods of a company.

Common size income statement analysis allows an analyst to find how the assorted constituents of the income statement affect a company ‘s net income. Table 2 shows the common size income statement for Tata motors Ltd & A ; Maruti Suzuki India Ltd for the old ages 2007, 2008 and 2009.

Table 2: Common Size Income Statement of Tata motors & A ; Maruti Suzuki India

A

Tata Motors

Maruti suzuki India

A

Net income & A ; Loss history

Net income & A ; Loss history

A

Mar ’07

Mar ’08

Mar ’09

Mar ’07

Mar ’08

Mar ’09

Income

A

A

A

A

A

A

Gross saless Employee turnover

100.00 %

100.00 %

100.00 %

100.00 %

100.00 %

100.00 %

Excise Duty

14.23 %

13.15 %

10.08 %

14.70 %

14.78 %

11.34 %

Net Gross saless

85.77 %

86.85 %

89.92 %

85.30 %

85.22 %

88.66 %

Other Income

3.58 %

2.22 %

3.23 %

1.95 %

2.33 %

2.10 %

Stock Adjustments

1.12 %

-0.12 %

-0.83 %

-1.16 %

1.59 %

-1.53 %

Entire Income

90.47 %

88.94 %

92.31 %

86.09 %

89.14 %

89.24 %

Outgo

A

A

A

A

A

A

Natural Materials

63.94 %

63.07 %

65.88 %

62.58 %

65.84 %

68.36 %

Power & A ; Fuel Cost

1.05 %

0.98 %

1.07 %

0.56 %

0.69 %

0.83 %

Employee Cost

4.40 %

4.66 %

5.44 %

1.66 %

1.68 %

2.01 %

Other Fabrication Expenses

2.81 %

2.73 %

3.04 %

2.26 %

2.47 %

3.06 %

Selling and Admin Expenses

4.84 %

6.63 %

5.79 %

2.78 %

2.46 %

3.21 %

Assorted Expenses

3.38 %

2.91 %

5.04 %

1.38 %

1.36 %

1.30 %

Preoperative Exp Capitalised

-1.86 %

-3.42 %

-3.21 %

-0.08 %

-0.09 %

-0.10 %

Entire Expenses

78.57 %

77.58 %

83.04 %

71.14 %

74.41 %

78.68 %

A

A

A

A

A

A

A

Operating Net income

8.32 %

9.15 %

6.04 %

13.00 %

12.40 %

8.45 %

PBDIT

11.90 %

11.37 %

9.27 %

14.94 %

14.73 %

10.56 %

Interest

1.47 %

1.42 %

2.47 %

0.22 %

0.28 %

0.22 %

PBDT

10.44 %

9.94 %

6.80 %

14.73 %

14.45 %

10.34 %

Depreciation

1.89 %

1.97 %

3.06 %

1.56 %

2.68 %

3.02 %

Other Written Off

0.27 %

0.19 %

0.18 %

0.00 %

0.00 %

0.00 %

Net income Before Tax

8.28 %

7.78 %

3.55 %

13.16 %

11.77 %

7.32 %

Extra-ordinary points

0.00 %

0.00 %

0.05 %

0.19 %

0.36 %

0.16 %

PBT ( Post Extra-ord Items )

8.28 %

7.78 %

3.61 %

13.36 %

12.13 %

7.48 %

Tax

2.12 %

1.65 %

0.04 %

4.06 %

3.60 %

1.95 %

Reported Net Net income

6.15 %

6.13 %

3.51 %

9.00 %

8.16 %

5.21 %

Entire Value Addition

14.63 %

14.51 %

17.16 %

8.56 %

8.57 %

10.32 %

Preference Dividend

0.00 %

0.00 %

0.00 %

0.00 %

0.00 %

0.00 %

Equity Dividend

1.86 %

1.75 %

1.09 %

0.75 %

0.68 %

0.43 %

Corporate Dividend Tax

0.32 %

0.25 %

0.12 %

0.13 %

0.12 %

0.07 %

Per portion informations ( annualised )

A

A

A

A

A

A

Shares in issue ( hundred thousand )

12.40 %

11.64 %

18.01 %

16.64 %

13.63 %

12.36 %

Gaining Per Share ( Rs )

0.16 %

0.16 %

0.07 %

0.31 %

0.28 %

0.18 %

Equity Dividend ( % )

0.48 %

0.45 %

0.21 %

0.52 %

0.47 %

0.30 %

Book Value ( Rs )

0.57 %

0.61 %

0.84 %

1.37 %

1.37 %

1.38 %

Ratio Analysis

Financial ratio analysis is the computation and comparing of ratios which are derived from the information in a company ‘s fiscal statements. The degree and historical tendencies of these ratios can be used to do illations about a company ‘s fiscal status, its operations and attraction as an investing. Fiscal ratios are calculated from one or more pieces of information from a company ‘s fiscal statements.

In isolation, a fiscal ratio is a useless piece of information. In context, nevertheless, a fiscal ratio can give a fiscal analyst an first-class image of a company ‘s state of affairs and the tendencies that are developing.

Table 3: Fiscal Ratios of Tata motors and Maruti Suzuki India

A

Key Financial Ratios of Tata Motors

Key Financial Ratios of Maruti Suzuki India

Mar’07

Mar’08

Mar’09

Mar’07

Mar’08

Mar’09

Profitability Ratios

Operating Net income Ratio ( % )

9.7

10.53

6.71

14.88

14.12

9.18

Net Net income Ratio ( % )

6.94

6.96

3.77

10.29

9.34

5.72

Tax return On Capital Employed ( % )

25.82

18.96

6.41

30.65

26.18

17.37

Return On Net Worth ( % )

27.96

25.98

8.09

22.79

20.56

13.04

Tax return on Assetss

9.98

7.77

241.09

15.22

13.95

Liquid And Solvency Ratios

Current Ratio

0.86

0.64

0.44

1.4

0.91

1.51

Quick Ratio

0.92

0.66

0.58

1.13

0.66

1.26

Debt Equity Ratio

0.59

0.8

1.06

0.09

0.11

0.07

Debt Coverage Ratios

Interest Screen

7.19

6.28

2.43

61.01

40.93

34.21

Management Efficiency Ratios

Debtors Turnover Ratio

35.6

30.08

19.11

21.12

25.76

26.33

Asset Turnover Ratio

3.08

2.69

1.88

2.41

2.48

2.38

Interpretations of the fiscal ratios

Profitability ratios

Profitability ratios represent the concern ‘s ability to generateA net incomes as compared toA its disbursals and other relevant costs incurred during a specific period of clip.

Operating Net income Ratio

TheA Operating ProfitA Ratio illustrates how expeditiously the houses are usingA concern operationsA to bring forth net income. This ratio besides shows the success rate of these houses. The expression forA Operating ProfitA Margin is:

Operating ProfitA Margin = Net incomes before Interest & amp ; Taxes / Net Gross saless * 100

The Operating net income ratio for Tata motors for the twelvemonth 2007, 2008 and 2009 are 9.7 % , 10.53 % and 6.71 % severally, and for Maruti Suzuki India the operating net income ratios are 14.88 % , 14.12 % and 9.18 % for the old ages 2007, 2008 and 2009.

The lessening in operating net income ratio in 2009 can be accounted to the diminution in the operating net income from 3,030.52 in 2008 to1,723.10 in 2009. For Maruti Suzuki India besides, runing net income has dropped from 2,628.70 in 2008 to 1,976.60 in 2009. The form shows that there was ruin in the car industry in the period 2008-2009.

Net Net income Ratio

Net Net income Ratio represents precisely how the directors and operations of a concern are executing. Net Net income Ratio compares the net net income of a house with entire gross revenues achieved. The expression for Net Net income Ratio is:

Net Net income RatioA = Net Profit / Net Gross saless * 100

The Net net income ratio of Tata Motors has been decreased from 6.94 % in 2007 to 3.77 % in 2009, because of the ruin in the operating net income. The same ground has caused the diminution of Net net income ratio of Maruti Suzuki India to come down from 10.29 % in 2007 to 5.72 % in 2009. This dowfalls can be accounted to the lessening in the operating net income for the houses.

Tax return On Capital Employed

Tax return on Capital Employed ( ROCE ) is a mensurating tool that measures the efficiency and profitableness of capitalA investmentsA undertaken by a company. Return on Capital Employed ratio besides indicates whether the company is gaining sufficient grosss and net incomes in order to do the best usage of its capital assets. It is expressed in the signifier of a per centum, and the higher the per centum, the better.

The expression for Return on Capital Employed ( ROCE ) is:

ROCE = Operating Profit/ Shareholder ‘s Equity

Tata Motors was holding a good ROCE of 25.82 % in 2007, but has dropped to 6.41 % in 2009. For Maruti Suzuki India besides, there is a downtrend in the ROCE from 30.65 % in 2007 to 17.37 % in 2009. This indicates that both these companies were non investor friendly in the clip frame considered.

Return On Net worth

Tax return on Equity or Net Worth of a company measures the ability of the direction of the company to bring forth equal returns for the capital invested by the proprietors of the company. By and large a return of 10 % would be desirable to supply dividends to proprietors and have financess for future growing of the company.

The expression for Return on Net Worth ( RONW ) is:

RONW = Net Net income / Net Worth * 100

RONW of Tata Motors have decreased from 27.96 % in 2007 to 8.09 % in 2009, where RONW of Maruti Suzuki India has decreased from 22.79 % in 2007 to 13.04 % in 2009.

Tax return On Total Assetss

The Return on Assets of a company determines its ability to use the Assets employed in the company expeditiously and efficaciously to gain a good return. The ratio measures the per centum of net incomes earned per dollar of Asset and therefore is a step of efficiency of the company in bring forthing net incomes on its Assetss.

The expression for Return on Total Assets ( ROTA ) is:

ROTA= ( Net Net income / Total Assets ) x 100

For Tata motors, ROTA has increased from 9.98 in 2007 to 241 in 2009. This implies that there was a lessening in the net plus of Tata Motors.

Liquid and Solvency ratios

Current Ratio

A The Current ratio is considered as a trial of liquidness for a company. It expresses the ‘working capital ‘ relationship of current assets available to run into the company ‘s current liabilities.

The expression for Current Ratio is:

Current Ratio = Total Current Assets/ Total Current Liabilities

Current ratio for Tata motors of bit by bit decreased from 0.86 in 2007 to 0.44 in 2009. For Maruti Suzuki India, it has increased from 1.4 in 2007 to 1.51 in 2009, even though it had dropped to 0.91 in 2008.

From the Current ratio, we can deduce that Tata motors does n’t hold sufficient financess to refund the current liabilities where as Maruti Suzuki India has surplus fund to cover its current liabilities.

Quick Ratio

Sometimes a company will be holding a heavy stock list as portion of its current assets, which might be disused or slow moving. So Current ratio may non be able to supply the exact state of affairs of the company. Quick ratio is measured by extinguishing stock list from current assets and so making the liquidness trial. The ratio is regarded as an acerb trial of liquidness for a company. It expresses the true ‘working capital ‘ relationship of its resources available to run into the company ‘s current duties.

The expression for Quick Ratio is:

Current Ratio = ( Total Current Assets – Inventory ) / Entire Current Liabilitiess

The Quick ratios for Tata motors were 0.92 in 2007, 0.66 in 2008 and 0.58in 2009 while the same for Maruti Suzuki India were 1.13in 2007, 0.66 in 2008 and 1.26 in 2009. From this information, it can be observed that Maruti Suzuki India had adequate resources apart from the stock list to pay off its current liabilities. But Tata Motors is holding a deficit in speedy assets to settle the current liabilities.

Debt Equity Ratio

Debt to equity ratioA is basically a company ‘s entire liabilities divided by its stockholders’A equity. It gives an indicant of a company ‘s proportionate usage of debt and equity for financing its assets. A If the liabilities exceed the net worth so in that instance the creditors have more interest than the stockholders.

The expression for Debt Equity Ratio is:

Debt to Equity Ratio = Total Liabilities / Owners Equity or Net Worth

Tata motors were holding a Debt equity ratio of 0.59 in 2007 which increased to 1.06 in 2009. For Maruti Suzuki India, the Debt equity ratios were 0.09 in 2007, 0.11 in 2008 and 0.07 in 2009. This means Tata motors has employed a higher sum of external financess for its operations, while Maruti Suzuki India has employed merely a nominal sum of external fund.

Debt Coverage Ratios

Interest Coverage Ratio

The involvement coverage ratio is a step of the figure of times a company could do the involvement payments on its debt with its net incomes before involvement and revenue enhancements, besides known as EBIT. The lower the involvement coverage ratio, the higher the company ‘s debt load and the greater the possibility of bankruptcy.

The expression for Interest coverage ratio is:

Interest Coverage Ratio = PBIT/Interest

The Interest coverage ratio for Tata motors decreased bit by bit from 7.19 in 2007 to 2.43 in 2009. This is because of the decrease in net income and the addition in the borrowed capital. For Maruti Suzuki India besides, Interest coverage ratio decreased from 61.01 in 2007 to 34.21 in 2009. This is chiefly because of the bead in net income, as Maruti Suzuki India is non using much borrowed capital for the operations.

Management Efficiency Ratios

Debtors turnover Ratio

Debtors turnover ratio indicates the speed of debt aggregation of a house. In simple words it indicates the figure of times mean debitors ( receivable ) are turned over during a twelvemonth.

The expression for Debtors turnover ratio is:

Debtors turnover ratio = ( Average Debtors/Sales ) x 365 for yearss

The debitors turnover ratio for Tata motors decreased from 35.6 in 2007 to 19.11 in 2009, where the same for Maruti Suzuki India has increased from 21.12 in 2007 to 26.33 in 2009.

Asset turnover Ratio

The entire plus turnover ratio measures the ability of a company to utilize its assets to bring forth gross revenues. The entire plus turnover ratio considers all assets includingA fixed assets, like works and equipment, every bit good asA inventoryA andA histories receivable.

The expression for theA entire plus turnover ratioA is:

Asset Turnover Ratio = Net Sales/Total Assetss

Asset turnover ratio of Tata motors had dropped from 3.08 in 2007 to 1.88 in 2009. For Maruti Suzuki India, it had been about at a changeless degree with 2.41 in 2007, 2.48 in 2008 and 2.38 in 2009. From the plus turnover ratio, we can detect that the net gross revenues for Tata motors were worsening in the specified period and the house was non able to utilize the assets optimally to bring forth gross revenues.

Inference from the Analysis

From the results of the ratio analysis, it can be seen that there was a general downtrend in the Indian car industry from the twelvemonth 2007 to 2009, which may be accounted to Global recession that happened from 2008. Sing the profitableness ratio, both Tata motors and Maruti Suzuki India had a autumn in operating net income and there was a bead in returns from both the houses.

While sing the Liquidity ratios, Maruti Suzuki India is at a stronger place compared to Tata motors, because of their higher per centum of proprietor ‘s capital in the entire plus. Besides the debt equity ratio is in the favor of Maruti Suzuki India as it has surplus current assets to settle the short term liabilities whereas Tata motors has a deficit in financess available to settle the current duties.

Decision

From the fiscal analysis conducted,

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