“A Comparative Evaluation of Financial Performance and

Market Value of Maruti and Tata Company”

*Dr S.M.Tariq Zafar
Is M.Com, PGDMM, PhD (Social Sector Investment)
Director, Charak Institute of Business Management, Lucknow, U.P
smtz2007@gmail.com, mobile 09368953434

**S.M.Khalid
Is PGDM from All India Management Association (AIMA)
And working as a Independent Financial Consultant
Ibneysayeed1966@gmail.com,

Abstract
Financial ratios are an excellent and scientific way to analyze firm’s financial position. They are
important indicators and are widely used to summarize the information in a company's financial
statements in assessing and evaluating its financial health. Indian automobile industry moving
on cyclical growth and showing the reflection of economic dynamics has been playing an imperative
role in this radical phase and thus invite investigative analysis for smooth future. With regard to
automobile industry there are various factors which affect the performance of the company as
well as shareholders' return. A genuine investor prefers to invest in that company which may
endow maximum return with low degree of risk to them. Keeping sector complexities in mind this
study is carried out and it is focused on analyzing the financial performance of Maruti Suzuki
and Tata Motors in automobile industry. Its core aim is to evaluate the past performance,
profitability position and the expected future performance of the companies along with
recognizing the effect of various financial ratios on company’s future. For the purpose
performance of two Indian automobile companies Maruti Suzuki and Tata Motors have been
analyzed on the basis of their financial ratios, further their SD and CV, the Sum of Mean Values
and Average score are calculated. In last concluding remark has been given.

Key Words: Liquidity Analysis, Profitability Analysis, Efficiency Analysis, Leverage Analysis,
Market Value Analysis
JEL Classifications: M4, G10, G17, G19, G31, G32, G39,

Introduction:
In modern era of globalization where investment avenues, risk and return change at rapid pace
and leave no time for promoters, investors and other interested parties to go through firms
balance sheet and other financial statements in order to make an analysis of firms performance
for future course of action. Evolution of financial ratios provided solution to this problem and
proven effective and a very powerful analytical tool useful for measuring performance of an
organization, they are quotient of two numbers and the relation expressed between two
accounting figure is known as financial and accounting ratios. Its analysis is a systematic process
of comparison of one figure against another, which makes a ratio, and its analysis is extremely
helpful in providing valuable insight into a company’s picture. It is used to describe significant
relationships which exit between figure shown in balance sheet, in profit and loss account, in
budgetary control system or in any other part of the financial and accounting organization. It
concentrates on the interrelationship among the figures appearing in the financial statements.

The accounting and financial ratios are important indicators’ of the company’s health and
indicate a quantitative relationship which help management to analyze the past performance of
the firm and to make further projections and decisions. It normally identify and project business
firm’s strength and weakness in two ways, firstly it provide an easy and effective way to make
comparative study of present performance with past, secondly it identify and depict the areas in
which a particular business is competitively advantaged or disadvantaged through comparing
ratios to those of other business of the same size within the same industry. They are also used for
inter firm and intra firm comparison and will also be used in financial planning and decision
making. They are helpful in deciding upon the right investment strategy in a particular sector
through analysis of economy, industry and company. But they will be effective only when they
are compared with ratios of the base period or which standards or with the industry ratios.

The appraisal of the ratio will make scientific and judicious analysis about the strength and
weakness of the firms operations, it helps concerned parties to assess strength and make
evaluation of certain aspects of the firm’s performance. Shareholders and prospective investors
like to analyze ratios for taking investment and disinvestment decisions. Bankers’ who are back
bone of working capital will like to analyze ratios for appraising the creditworthiness of the
concerned firms. Financial institutions who are main source of long term debt would like to
analyze ratios of project appraisal and debt servicing capacity of the firms. The financial analysts
will analyze ratios for making inter and intra firm comparative study and recommending to the
investing public. Credit rating agencies analyze ratios of a firm to give them rank according to
their performance and strength. Government agencies analyze ratios of a firm to review its
performance and projections. The management of a company analyzes the ratio in order to
determine the financial health and its profitability. Ratios are also used for inter firm and intra
firm comparison and will also be used in financial planning and decision making

The calculations of ratios are mathematical and relatively very easy and simple but analysis and
interpretation requires expertise and can be carried out by the skilled analyst. While interpreting
the financial information’s, limitations imposed by the accounting concepts and methods have to
be importantly recognized by the analyst. Information and non information nature will be taken
into consideration before a meaningful analysis is made. They will be effective only when they
are compared with ratios of the base period or which standards or with the industry ratios.

Indian Automobile Industry:

History of Indian automobile industry shows that it has grown with leaps and bounds since 1898,
a time when a car had touched the Indian streets for the first time. But now India is in verge to
rewrite history in different conditions as it is home to 40 million passenger vehicles and Indian
manufactured cars and other automobile products are touching other nation roads. Presently
Indian automobile industry is regarded as largest and second fastest growing industry after China
in the world with annual production of over 3.9 million units. Its passenger cars and commercial
vehicle manufacturing industry ranked sixth largest in the world. One of the best things happen
for the Indian automobile market in the recent years was its improvement in the export sector. In
the year 2003-04 for the first time in Indian history vehicle worth more than 1 billion USD were
exported with the growth rate of 56%. In the year 2009 India emerged fourth largest exporter of
passenger cars, in 2010 with the production of more than 3.7 million automotive vehicles with an
increase of 33.9% India became third largest exporter of passenger cars. It contributes 4% of the
national GDP and accounts for 5% of the Indian industrial output. With employing 13 million
people directly or indirectly it has become one of the major employment generators in the
country, with the present growth trend it is expected that employment will double by 2016.

The key factor behind this upswing and even growth of auto industry is liberalization of
government norms supportive policies measures for foreign investment, relaxation of foreign
exchange and equity regulations, reduced tariffs on imports, technology import, banking
liberalization and convenient EMI. These supportive environments fueled the Indian automobile
industry and it grew at a compound annual growth rate (CAGR) of 22 percent between 1992 and
1997. In 2003-04 it grew at the rate of 15.1%, in 2006-07 it grew at a rate of 16.07 %. In 2007-08
cumulative growth of the passenger vehicles was 12.17 percent. Passenger cars grew by 11.79 %,
Utility vehicles by 10.57 % and multipurpose vehicle grew by 21.39 %. During the period
automobile export registered growth of 22.30% in which commercial vehicle and passenger
vehicle export grew by 19.10% and 9.37% respectively (Society of Indian automobile
Manufacturer). With a number of foreign brands joining ranks with domestic manufacturers, the
Indian consumer is now flooded with choice. Further market demand of heavy commercial
vehicles and improved overall vehicle export bolstered healthy rise in its sales and consolidated
2nd rank of auto component industry in the world. In 2009-10 Indian auto industry produced
overall 4,200,556 vehicles, exported 505,920 vehicles and sold 4,188,932 vehicles.

The increasing Indian car export facilities Indian automobile industry in two ways. Firstly it
promoted economic growth of the industry and secondly it lifted image of Indian automobile
industry and its manufacturing infrastructure and capability at global level which boosted
confidence among foreign giants to open their manufacturing units in India and ultimately
contributed direct employment. At present Indian auto industry has significant number of
companies with quality certifications & recognition like ISO 9000: 552, TS 16949: 438, QS
9000: 33, ISO 14001: 204, OHSAS 18001: 95, JIPM: 3, Deming Award: 11, TPM Award: 15,
Japan Quality Medal:1, Shingo Silver Medallion: 1 and have ACMA membership of more than
600. The auto component Industry turnover also have upward trend in growth, in 2004-05
(29%), in 2005-06 (38 %), 2006-07 (25%), 2007-08 (20%), 2008-09 (2%), 2009-10 (20%). It
registered growth in export which in 2004-05 were (34%), in 2005-06 (46 %), 2006-07 (8%),
2007-08 (32%), 2008-09 (8%), 2009-10 (NA). In import growth rate in 2004-05 were (33%), in
2005-06 (30%), 2006-07 (45%), 2007-08 (45%), 2008-09 (30%), 2009-10 (20%). In Investment
growth rate in 2004-05 were (21%), in 2005-06 (17%), 2006-07 (23%), 2007-08 (33%), 2008-09
(1%), 2009-10 (23%). According to the prediction of Society of Indian Automobile
Manufacturers that by 2015 annual vehicle sales will increase to 5 million and more than 9
million by 2020. By 2050 with approximately 611 million vehicles India will be having largest
number of cars in the world.
With increasing export and domestic market Indian automobile industry is riding high on
success. But success has to solve many existing complexities and challenges which are
hampering its growth to a great extent. Indian poor road conditions, heavy pollution, increasing
road accidents, political unrest, and industrial and workers rights are some serious impediments
in the way of its growth and need improvement and with permanent solution for better future and
overall growth.

However, despite the presence of foreign brands, the domestic companies are dominating force
and are the biggest, Maruti Udyog and Tata vehicles share the top honors for passenger and
commercial vehicles respectively. In this study detailed analysis of Indian automobile industry is
carried out by using financial analysis tools. In order to better understand the performance of the
industry we have made comparative analysis to two players Maruti Suzuki and Tata Motors. The
study is divided into five segments. The first segment deals with abstract and introduction. The
second segment deals with objective, methodology, applied tools and techniques of the study.
The third segment deals with literature review. The forth segment deals with analysis and
interpretation and fifth segment deals with conclusion, recommendation and references.

Objectives of the Study:

The core objective of the study in changing business environment is to understand and analyze
qualitative and quantitative performance of Maruti &Tata company and to investigate their risk
and returns factors, their market position, their collective impact on profitability and to come up
with the best and worst performing company by using modern performance evaluating
techniques and later ranking them according to their achieved performance. Further, for better
future growth, will suggest rational and scientific approach for companies to assess and analyze
their intrinsic value, practical risk, exposure and to visualize competitive and comparative
efficiency and their profitability position which can be considered as a judicious
recommendation for improvements of their performance.

Methodology:

The study is done with special reference to two most preferred and trusted Indian private sector
company “they are Maruti Suzuki Ltd. and Tata Motors Ltd. For the purpose secondary data are
used for the period of 2006-2010 and the data for the same have been collected from the
published reports, magazines, annual report and websites of the companies

Modern Tools and Techniques:

In this study, for interpreting the results modern financial analysis have been carried out which
minutely evaluates and examine relevant components for companies smooth functioning ‘like’
Liquidity Analysis in which Current Ratio, Liquidity Ratio are tested, in Profitability Analysis in
Relation to Sales G. P Ratio, N. P Ratio, O. P Ratio are tested and in Relation to Investment
Return on Equity, Return on Assets, Return on Investment are tested, in Efficiency Analysis:
Fixed Assets Turnover Ratio, Stock Turnover Ratio, Debtor Turnover Ratio are tested, in
Leverage Analysis: Capital Gearing Ratio, Debt Equity Ratio, Interest Coverage Ratios are
tested, in Market Value Analysis, Earnings Per Share, Price Earnings Ratio, Book Value Per
Share are tested further, SD and CV, the Sum of Mean Values and Average score are calculated.
After judicious evaluation of all performance parameters companies are ranked according to their
performance. The outcome of the study depends on the selected period by the researchers which
may differ from other analysis.

Selected Automobile Companies:

Maruti Suzuki Ltd:

Maruti Suzuki is a joint venture between Government of India and Suzuki Motors Corporation,
Japan. It have a distinction of country’s largest car manufacturing company and command the
car industry market with a market share of over 80%. To capitalize growing demand world giant
automobile manufacturers have entered Indian market with confidence and posing threat to a
market leader Maruti Suzuki.
Tata Motors:
Tata Motors Limited is India’s largest company and command distinction of world’s fifth largest
medium and heavy bus manufacturer. It is leader in commercial vehicles in each segment and
holds the status of second largest in the passenger vehicles market with wining products in the
compact, midsize car and utility vehicle segments.

Literature Review:
Financial ratios are important indicators of the company’s health and are widely used by the
investors and financial analysts to evaluate companies’ financial conditions. With passing time
various types of ratios have been developed and used by the scholars and financial economists to
analyze data and extract useful information for their decision making. However, most of these
ratios are developed and devised by the developed and developing countries financial economists
and are used efficiently to make a comparative study of the financial statement of an industry
including automobile sector. It is been found that very few ratios are developed in developing
and underdeveloped nation and very few comparative analyses have been done on automobile
industry. It is also found that the studies carried out in Indian sub continent also lag behind in
justifying the authenticity and validity of financial ratio especially in automobile sector and thus
invite study to reveal the truth and to set a trend for future. Therefore, keeping futuristic
development in view this study is humble initiative and is designed to investigate financial ratios
minutely which are relevantly required in automobile industry. In particular study will examine
and justify the differences in financial ratios between the two segments. The outcome of the
study will provide insights regarding financial characteristics of companies to financial
information users in the two segments of the automobile industry and will also explore new
dimensions and will set new parameters to be followed by others.

Historically, many studies have been carried out to compare the financial characteristics of
automobile sector and different groups of organizations. Most notable are, Mecimore (1968) in
his study by using descriptive statistical measures observes cross-sectional non-normality and
positive skewness for twenty ratios in a sample of randomly selected forty-four Fortune-500
firms, Deakin (1976) in his study using chi-square rejected the normality of eleven ratios. He
observed that there are less extreme deviations from normality after applying square root and
logarithmic transformations; he also found that normality was not supported as it should be,
Bougen and Drury (1980) in their study suggested non normality based on cross section of 700
UK firms. The results projecting non- normality of financial ratio distributions have invoked
researchers to find or develop systematic method of restoring normality to warrant standard
parametric statistical analyses, Chen and Shimerda (1981) in their study noted that there are 41
different financial ratios which were earlier used sufficiently in studies and conclude that it is
difficult to select ratio with the approximate and absolute factors loading as the representative
financial ratio for the observed factors, Schmidgall (1989) in his study boldly stated that financial
ratios are the most meaningful information in financial statements to automobile executives and
managers, Virtanen and Yli-Olli (1989) in their study tested the temporal behavior of financial
ratio distributions and found that business cycle affects the cross sectional financial ratio
distributions, Tippett (1990) in his study examined models financial ratio in terms of stochastic
processes and reveled that in general inference normality will be the exception rather than the
rule, Andrew and Schmidgall (1993) in their study classified financial ratios into five categories
“liquidity ratios, solvency ratios, activity ratios, profitability ratios, and operating ratios”. They
indicated that financial ratios themselves do not provide valuable information about a firm’s
performance, Andrew (1993) in his study conducted on automobile industry investigated the
leverage ratio of companies and suggested that a value-maximizing capital structure, Hitchings
(1999), in his study realized that ratio analysis is a sensitive and valuable tool in credit
assessment which is to forecast the ability of a borrower to meet its debt obligations, Zopounidis
(2000) in his study proposed methodological framework based on financial ratio analyses for
estimating small and medium size enterprises performance, Hsieh and Wang (2001) in their
study examined and stressed the need of selecting relevant financial ratios for the purpose of
analysis. They proposed new approach for finding useful financial ratio and also emphasized that
industry differs in product, in size and have its own unique business practices and internal and
external environment thus financial ratio analysis should be according to industry which suit it
the most, Dr. Sugan C. Jain (2002) in his study examined the performance of automobile
industry. He used composite index approach to analyze the operational efficiency and
profitability and suggested to strengthening the soundness, profitability improvisation, working
capital and in the performance of fixed assets, Harrision (2003) conducted study and argued that
financial ratio analyses are very useful. During his study he found that financial ratios analysis
are also effective in automobile industry, it guide governing body to determine effective and
efficient strategies and identify the weak areas which need attention, Ben McClure (2004) revealed
that each industry has differences in terms of its customer base, market share among firms, industry wide
growth, competition, regulation and business cycles, You-Shyang Chen (2007) study explains the
forecasts revenue growth rate (RGR) of firms in stock trading systems using rough set theory. It is a very
important instrument for investors that correctly predict future growing firms from data of fundamental
analysis in trading systems; Dr S.M.Tariq Zafar (2009) in his study examined automobile industry and
concluded that industry is in upward swing and will grow with decent pace and recommended that
fundamental of industry have to be truly adjudicated in order to consolidate investors sentiment for long
run.

Data Analysis and Interpretation

1) Liquidity Analysis:
 Table: 1 Liquidity Ratios of the Companies

Current 2006 2007 2008 2009 2010 Avg. SD CV

Ratio
Maruti 1.77 1.4 0.91 1.51 0.91 1.3 0.3805 29.271
Tata 1.07 0.86 0.64 0.44 0.44 0.69 0.2742 39.742
Liquidity
Ratio
Maruti 1.31 1.13 0.66 1.26 0.68 1.008 0.3155 31.304
Tata 0.97 0.92 0.66 0.58 0.44 0.714 0.2257 31.622

Table 1.1 Comparisons On The Basis Of Mean Values

Liquidity Ratios Maruti Tata

Current ratio 1.3 0.69
Liquid ratio 1.008 0.714
Sum of Mean Values 2.308 1.404
Avg. score 1.154 0.702
Ranking 1 2

Interpretation: From the above table.1.1 it has been found that the average current ratio of
Maruti and Tata are 1.3 and 0.69 respectively. The study revealed that the current ratio of Maruti
in the year 2008 and 2010 were below than the average current ratio and in year 2006 and 2009 it
was above than the average current ratio, whereas in year 2007 it was near to the average current
ratio. And for Tata the current ratio in the year 2009 and 2010 were below than the average
current ratio and in year 2006 and 2007 it was above than the average current ratio, whereas in
year 2008 it was near to the average current ratio.
Further the study revealed that the average liquid ratio of Maruti and Tata are 1.008 and 0.714
respectively. It has been found that the liquid ratio of Maruti in the year 2008 and 2010 were
below than the average liquid ratio and in year 2006, 2007 and 2009 it was above than the
average liquid ratio. And for Tata the liquid ratio in the year 2008, 2009 and 2010 were below
than the average liquid ratio and in year 2006 and 2007 it was above than the average liquid
ratio.
It is evident from the table.1.1 that Maruti leads in the liquidity analysis as compared to Tata.
Maruti’s liquidity score is 1.154 whereas Tata’s liquidity score is 0.702. It can also be inferred
that the comparative variability of Maruti is lesser than that of Tata motors.

Implications:

The main objective of the liquidity ratio is to measures the liquidity of the firm and its ability to
meet its maturing short term obligation, it is also recognized as the ability of a firm to realize
value in money, the most liquid of assets among all assets. It is good for the company to have
sound liquidity, but the implication of excess liquidity have drastic impact on company’s
economy, though it is guarantor of solvency. High liquidity reflects lower profitability,
deterioration in managerial efficiency, increased speculation and unjustified expansion,
extension of too liberal credit and dividend policies. On other hand too little liquidity create
financial panic and lead to frustration, business objections, and reduced rate of return, missing of
profitable business opportunities and weakening of morale. The outcome of the liquidity analysis
of Maruti Suzuki company shows that it is having better solvency position due to higher
liquidity and is in safe position, even its liquidity position is not so high which may create risk in
coming future. But company is meeting out its short term quantitative obligations like quantum,
structure and utilization of liquid assets efficiently and qualitative obligations like meeting all
present and potential demands on cash in a manner that minimize the cost and maximize the
value of the firm. Tata comparatively having low liquidity and is bit prone toward risk. It has to
maintain its liquid position in order to meet out its quantitative and qualitative obligations safely
for better future.

2) Profitability Analysis:
Table: 2 Profitability Ratios of the Companies (Percentage) in Relation to Sales

G. P Ratio 2006 2007 2008 2009 2010 Avg. SD CV

Maruti 12.95 13.05 10.97 5.77 9.93 10.534 2.97565 28.248
Tata 8.09 7.5 8.26 3.3 8.47 7.124 2.16793 30.431
N. P Ratio
Maruti 9.53 10.29 9.34 5.72 8.34 8.644 1.7763 20.549
Tata 7.35 6.94 6.96 3.77 6.26 6.256 1.444 23.081
O. P Ratio
Maruti 15.29 14.88 14.12 9.18 12.74 13.242 2.46982 18.651
Tata 10.68 9.7 10.53 6.71 11.4 9.804 1.83203 18.686

Table: 2.2 Comparisons on the Basis of Mean Values of Ratios

Profitability Analysis Maruti Tata

Gross Profit Ratio 10.534 7.124
Net Profit Ratio 8.644 6.256
Operating Profit Ratio 13.242 9.804
Sum of Mean Value 32.42 23.184
Avg. Score 10.80667 7.728
Ranking 1 2

Interpretation: From the above table.2.2 it has been found that the average gross profit ratio of
Maruti and Tata are 10.534 and 7.124 respectively. The study revealed that the gross profit ratio
of Maruti in the year 2009 and 2010 were below than the average gross profit ratio and in year
2006, 2007 and 2008 it was above than the average gross profit ratio. And for Tata the gross
profit ratio in the year 2009 was below than the average gross profit ratio and in year 2006, 2007,
2008 and 2010 it was above than the average gross profit ratio.
Further study revealed that the average net profit ratio of Maruti and Tata are 8.644 and 6.256
respectively. The study found that the net profit ratio of Maruti in the year 2009 and 2010 were
below than the average net profit ratio and in year 2006, 2007 and 2008 it was above than the
average net profit ratio. And for Tata the net profit ratio in the year 2008, 2009 and 2010 were
below than the average net profit ratio and in year 2006 and 2007 it was above than the average
net profit ratio.
The study also found that the average operating profit ratio of Maruti and Tata are 13.242 and
9.804 respectively. It has been revealed that the operating profit ratio of Maruti in the year 2009
and 2010 were below than the average operating profit ratio and in year 2006, 2007 and 2008 it
was above than the average operating profit ratio. And for Tata the operating profit ratio in the
year 2007 and 2009 was below than the average operating profit ratio in year 2006, 2008 and
2010 it was above than the average operating profit ratio.
It is evident from the table.2.2 that Maruti leads in the profitability analysis as compared to Tata.
Maruti’s profitability score is 10.8066 whereas Tata’s profitability liquidity score is 7.728. It can
also be inferred that the comparative variability of Maruti is lesser than that of Tata motors.

Table: 3 Profitability Ratios of the Companies (Percentage) in Relation to Investment

Return On 2006 2007 2008 2009 2010 Avg. SD CV

Equity
Maruti 24.19 25.38 22.67 13.72 23.58 21.908 4.68193 21.370
Tata 31.97 31.04 27.71 10.01 16.51 23.448 9.710089 41.411
Return On
Assets
Maruti 23.29 24.01 20.6 12.59 22 20.498 4.607936 22.479
Tata 20.28 19.77 16.23 5.05 7.84 13.834 6.993113 50.550
Return On
Investment
Maruti 34.68 35.63 30.51 17.84 31.95 30.122 7.166817 23.792
Tata 31.3 30.52 24.08 9.21 14.28 21.878 9.829991 44.930

Table: 3.3 Comparison of the mean values of the ratios

Profitability Analysis Maruti Tata

Return on Equity 21.908 23.448
Return on Assets 20.498 13.834
Return on Investment 30.122 21.878
Sum of Mean Value 72.528 59.16
Avg. Score 24.176 19.72
Ranking 1 2

Interpretation: From the above table.3.3 it is found that the average return on equity of Maruti
and Tata are 21.908 and 23.448 respectively. The study revealed that the return on equity of
Maruti in the year 2009 was below than the average return on equity and in year 2006, 2007,
2008 and 2010 it was above than the average return on equity. And for Tata the return on equity
in the year 2009 and 2010 were below than the average return on equity and in year 2006, 2007
and 2008 it was above than the average return on equity.
During the period it has been found that the average return on assets of Maruti and Tata are
20.498 and 13.834 respectively. It has been found that the return on assets of Maruti in the year
2009 was below than the average return on assets and in year 2006, 2007, 2008 and 2010 it was
above than the average return on assets. And for Tata the return on assets in the year 2009 and
2010 were below than the average return on assets and in year 2006, 2007 and 2008 it was above
than the average return on assets.
Further it has been revealed that the average return on investment of Maruti and Tata are 30.122
and 21.878 respectively. During the study period it has been found that the return on investment
of Maruti in the year 2009 was below than the average return on investment and in year 2006,
2007, 2008 and 2010 it was above than the average return on investment. And for Tata the return
on investment in the year 2009 and 2010 was below than the average return on investment, in
year 2006, 2007 and 2008 it was above than the average return on investment.
It is evident from the table.3.3 that Maruti leads in the profitability analysis (in relation to
investment) as compared to Tata. Maruti’ profitability score is 24.176 whereas Tata’s liquidity
score is 19.72. It can also be inferred that the comparative variability of Maruti is lesser than that
of Tata motors.
Implications:

The study and analysis of profitability ratios is important for a company as it help it in assessing
the adequacy of the profits earned and it also help company to discover the growth and decline of
the profitability. The profitability of the firm is the net result of a large number of policies and
decisions. It is found that the profitability ratios of the Maruti are in better position than its
competitor Tata. It is having positive combined effects of liquidity, asset management and debt
management on operating results in comparison to Tata. Due to favorable ratio it will not be
exposed to risk in recession and with growing profitability it can diversify its risk through
expansion and diversification. Tata in comparison to Maruti is not in good position, though it is
not in risk but will be in critical position in recession. To avoid declining circumstances it has to
stable its gross, net and operating ratio and has to maintain margin, any variation from it will
require immediate investigation of price cuts, cost increase, change in mix, and valuation in
stock. If not then its ROE, ROA and ROI will decline rapidly.

3) Efficiency Analysis:

Table: 4 Efficiency Ratios of the company’s

Fixed Assets 2006 2007 2008 2009 2010 Avg. SD CV

Turnover Ratio
Maruti 6.59 6.32 2.48 2.38 2.82 4.118 2.141733 52.009
Tata 5 5.01 2.69 1.88 1.93 3.302 1.58741 48.074
Stock Turnover Ratio
Maruti 14.15 21.27 22.93 30.46 30.47 23.856 6.875848 28.822
 Tata 10.32 11.02 14.44 13.47 13.07 12.464 1.729575 13.876
Debtor Turnover Ratio
Maruti 19.45 21.12 25.76 26.33 33.92 25.316 5.640712 22.281
Tata 26.31 35.6 30.08 19.11 18.02 25.824 7.414515 28.711

Table: 4.4 Comparisons of the Mean Vales of the Companies

Efficiency Analysis Maruti Tata

Fixed Assets Turnover Ratio 4.118 3.302
Stock Turnover Ratio 23.856 12.464
Debtor Turnover Ratio 25.316 25.824
Sum of mean values 53.29 41.59
Avg. score 17.76333 13.86333
Ranking 1 2

Interpretation: From the above table.4.4 it has been revealed that the average fixed assets
turnover ratio of Maruti and Tata are 4.118 and 3.302 respectively. The study revealed that the
fixed assets turnover ratio of Maruti in the year 2008, 2009 and 2010 were below than the
average fixed assets turnover ratio and in year 2006 and 2007 it was above than the average fixed
assets turnover ratio. And for Tata the fixed assets turnover ratio in the year 2008, 2009 and 2010
were below than the average fixed assets turnover ratio and in year 2006 and 2007 it was above
than the average fixed assets turnover ratio.
During the study period it has been found that the average stock turnover ratio of Maruti and
Tata are 23.856 and 12.464 respectively. It has been found that the stock turnover ratio of Maruti
in the year 2006, 2007 and 2008 was below than the average stock turnover ratio and in year
2009 and 2010 it was above than the average stock turnover ratio. And for Tata the stock
turnover ratio in the year 2006 and 2007 were below than the average stock turnover ratio and in
year 2008, 2009 and 2010 it was above than the average stock turnover ratio.
Further study revealed that the average debtor turnover ratio of Maruti and Tata are 25.316 and
25.824 respectively. It means that for Maruti the stock turnover ratio in the year 2006 and 2007
was below than the average stock turnover ratio and in year 2008, 2009 and 2010 it was above
than the average stock turnover ratio. And for Tata the stock turnover ratio in the year 2009 and
2010 was below than the average stock turnover ratio in year 2006, 2007 and 2008 it was above
than the average stock turnover ratio.
It is evident from the table.4.4 that Maruti leads in the efficiency analysis as compared to Tata.
Maruti’s efficiency scores 17.763 whereas Tata’s efficiency score is 13.863. It can also be
inferred that the comparative variability of Maruti is higher than that of Tata motors.
Implication:
Efficiency analysis measures how efficiently the firm employs its resources. The study revealed
that Maruti Suzuki Company is having better speed of converting various accounts into sales or
cash in comparison to Tata motors. Though, Maruti Company is in better position but Tata is
also not far behind. Both companies have employed their resources with efficiency and has
maintained balance speed in fixed assets turnover ratio, stock turnovers ratio, debtor turnover
ratio and thus do not have any lingering assets which may impact liquidity of the company. The
fluctuation in stock turnover ratio is minute and does not impacted companies’ economy. But in
recession condition will be strained for Tata due to low stock turnover ratio which will impact its
liquidity to a great extent.

4) Leverage Analysis:
Table: 5 Leverage ratios of Companies (Times)

Capital 2006 2007 2008 2009 2010 Avg. SD CV

Gearing Ratio
Maruti 76.05 10.87 9.35 13.37 14.4 24.808 28.71461 115.747
Tata 1.87 1.7 1.24 0.939 0.9 1.3298 0.439995 33.087
Debt Equity Ratio
Maruti 0.01 0.09 0.11 0.07 0.07 0.07 0.037417 53.452
Tata 0.53 0.59 0.8 1.06 1.11 0.818 0.26414 32.290
Interest Coverage Ratio
Maruti 90.62 61.01 40.93 34.21 105.39 66.432 30.90628 46.523
Tata 7.62 7.19 6.28 2.43 2.77 5.258 2.477089 47.110

Table: 5.5 Comparisons on the basis of Mean Value of Ratios

Leverages Analysis Maruti Tata

Capital Gearing Ratio 24.808 1.3298
Debt Equity Ratio 0.07 0.818
Interest Coverage Ratio 66.432 5.258
Sum of mean value 91.31 7.4058
Avg. score 30.43667 2.4686
Ranking 1 2

Interpretation: From the above table.5.5 it has been revealed that the average capital gearing
ratio of Maruti and Tata are 24.808 and 1.3298 respectively. The study revealed that the capital
gearing ratio of Maruti in the year 2007, 2008, 2009 and 2010 were below than the average
capital gearing ratio and in year 2006 it was above than the average capital gearing ratio. And for
Tata the capital gearing ratio in the year 2008, 2009 and 2010 were below than the average
capital gearing ratio and in year 2006 and 2007 it was above than the average capital gearing
ratio.
Further the study revealed that the average debtor turnover ratio of Maruti and Tata are 0.07 and
0.818 respectively and it has been found that the debtor turnover ratio of Maruti in the year 2006
was below than the average debtor turnover ratio and in year 2007 and 2008 it was above than
the average debtor turnover ratio. And for Tata the debtor turnover ratio in the year 2006 and
2007 were below than the average debtor turnover ratio and in year 2008, 2009 and 2010 it was
above than the average debtor turnover ratio.
The study also found that the average interest coverage ratio of Maruti and Tata are 66.432 and
5.258 respectively. It reflects that the interest coverage ratio of Maruti in the year 2007, 2008 and
2009 was below than the average interest coverage ratio and in year 2006 and 2010 it was above
than the average interest coverage ratio. And for Tata the interest coverage ratio in the year 2009
and 2010 was below than the average interest coverage ratio in year 2006, 2007 and 2008 it was
above than the average interest coverage ratio.
It is evident from the table.10 that Maruti leads in the leverage analysis as compared to Tata.
Maruti’s leverage scores 30.43 whereas Tata’s leverage score is 2.46. It can also be inferred that
the comparative variability of Maruti is higher than that of Tata motors.
Implications:
The long term financial stability of the firm may be considered as dependent upon its ability to
meet all the liabilities, including those not currently payable. According to the revelation of the
study it is found that Tata motors is not having protected ratio. It has to maintain it financial
strength in order to avoid difficulties. If not then it will be in trouble during recession and if it
continued for a long run then it will hamper the ordinary shareholder base and company also
have to face difficulty while raising new funds for its futuristic development and growth. On
other hand Maruti Suzuki is having sound financial strength which is good for shareholders,
investors and other interested parties who are influenced by company’s growth and performance
and in future would prefer to invest in company. Difficulties for Moruti Suziki Company will
arise when its massive retained earning fund and other financial resources lay idol and company
does not have any effective development and expansion program to invest them. The idol
resource will reduce its earning and will increase liability of shareholders. So Maruti Company
has to concentrate on this matter for better future and growth.

6) Market Value Analysis:

Table: 6 Market Value Ratios of Companies

Earnings 2006 2007 2008 2009 2010 Avg. SD CV

Per Share
Maruti 41.16 54.07 59.91 42.18 86.45 56.754 18.40238 32.424
Tata 39.94 49.65 52.63 19.48 39.26 40.192 12.98149 32.298
Price Earnings Ratio
Maruti 21.25 15.17 13.85 18.38 16.39 17.008 2.89871 17.043
Tata 22.61 14.19 11.34 9.26 19.25 15.33 5.532391 36.088
Book Value Per Share
Maruti 188.73 237.23 291.28 323.45 409.65 290.068 84.37554 29.088
Tata 143.94 177.59 202.7 240.64 262.3 205.434 47.53283 23.137

Table: 6.6 Comparisons on the basis of Mean Value of Ratio

Market Value Analysis Maruti Tata

Earnings Per Share 56.754 40.192
 Price Earnings Ratio 17.008 15.33
Book Value Per Share 290.068 205.434
Sum of Mean Values 363.83 260.956
Avg. score 121.2767 86.98533
Ranking 1 2

Interpretation: From the above table.6.6 it has been revealed that the average earning per share
of Maruti and Tata are 56.754 and 40.192 respectively. The study produced that the earning per
share of Maruti in the year 2006, 2007 and 2009 were below than the average earning per share
and in year 2008 and 2010 it was above than the average earning per share. And for Tata the
earning per share in the year 2006, 2009 and 2010 were below than the average earning per share
and in year 2007 and 2008 it was above than the average earning per share.
Further it has been found that the average price earnings ratio of Maruti and Tata are 17.008 and
15.33 respectively and it has been revealed that the price earnings ratio of Maruti in the year
2007, 2008 and 2009 was below than the average price earnings ratio and in year 2006 and 2010
it was above than the average price earnings ratio. And for Tata the price earnings ratio in the
year 2007, 2008 and 2009 were below than the average price earnings ratio and in year 2006 and
2010 it was above than the average price earnings ratio.
The study also found that the average book value per share of Maruti and Tata are 290.068 and
205.434 respectively. It is also found that the book value per share of Maruti in the year 2006
and 2007 was below than the average book value per share and in year 2008, 2009 and 2010 it
was above than the average book value per share. And for Tata the book value per share in the
year 2006, 2007 and 2008 was below than the average book value per share in year 2009 and
2010 it was above than the average book value per share.
It is evident from the table.6.6 that Maruti leads in the market value analysis as compared to
Tata. Maruti’s market values score 121.27 whereas Tata’s market value score is 86.98. It can
also be inferred that the comparative variability of Maruti is higher than that of Tata motors.
Implications:
Market value analysis indicates the firm’s stock price to its earnings and book value per share.
These ratios are indicator of investor’s evaluation of companies past performance and future
prospects and their likeness and dislikes in regard to the firm. In the study it has been found that
Maruti Suziki Company has sound market value and it has better EPS, PER & BVPS ratios
which reflect Maruti Suzuki company’s better capital productivity, its track record and
distribution policy, speculative trading, state of economy, efficiency of management. If company
kept this market momentum then during recession it will not be in trouble but will gain more
confidence among the investors. On contrary, Tata Motors have to improve in the entire market
based ratio. It’s EPS, PER and BVPS lag behind Maruti Suzuki which in recession will impact
its market value to a great extent. In absence of sound return market sentiment and investor’s
sentiment will drive away to others better option in the same segment.

Ranking:
Particulars Maruti Maruti Tata Tata
Rank Point Rank Point
Liquidity analysis First 2 Second 1
Profitability analysis (sales) First 2 Second 1
Profitability analysis (Investment) First 2 Second 1
Efficiency analysis First 2 Second 1
Leverage analysis First 2 Second 1
Market valuation First 2 Second 1
Total Points 12 6

After calculating ratio analysis of Maruti and Tata companies it has been found that Maruti have
secured first rank in Liquidity analysis, Profitability analysis, Efficiency analysis, Leverage
analysis and in Market Value Analyses. In order to calculate point in study, 2 point has been
awarded to first rank and 1 point to second rank. According to the finding of the ranking table
Maruti has secured 12 point as it has secured first rank in all the concerned ratio analysis and
Tata has secured 6 point as it has secured second rank in all the respective analysis. Thus, it can
be considered that Maruti is strategically in better position and is satisfactory in most of the
analysis in comparison to Tata who has secured second position in all the analysis.

Findings:

The study found that Maruti has performed better and leads in the liquidity analysis. It has
outperformed Tata in all liquidity ratios and secured first rank. It has current ratio of 1.3, Liquid
ratio of 1.008, sum of mean value 2.308 and over all average score 1.154 which is better than
Tata current ratio of 0.69, Liquid ratio of 0.714, sum of mean value 1.404 and over all average
score 0.702. Higher the liquidity ratio higher the margin of the company to cover the short term
debts therefore Maruti is in better position than Tata in terms of covering short term debts.

Thy study found that Maruti outperformed Tata in both aspect of profitability analysis i.e. in
relation to sales and in relation to investment and secured fist comparative rank in both. In
relation to sales it has GPR of 10.534, NPR of 8.644, OPR of 13.242, Sum of Mean Value 32.42,
overall average score of 10.80667 which are better than Tata GPR of 7.124, NPR of 6.256, OPR
of 9.804, Sum of Mean Value 23.184, overall average score of 7.728. In relation to investment it
has ROE of 21.908, ROA of 20.498, ROI of 30.122, Sum of Mean Value 72.528 and Average
Score of 24.176 which are better than Tata ROE of 23.448, ROA of 13.834, ROI of 21.878, and
Sum of Mean Value 59.16 and Average Score of 19.72. This reflects Maruti has better ability of
utilizing its potential and assets to optimum level in comparison to Tata and thus have higher
profitability ratio.
The study found that in efficiency analysis Maruti has outperformed Tata and secured first
comparative rank. Higher efficiency ratio of Maruti reflects that it has performed better than Tata
in terms of usage of internal assets and liabilities. It has FATR of 4.118, STR of 23.856, DTR of
25.316, Sum of Mean Values of 53.29 and Average Score of 17.76333 which are comparatively
better than Tata Company FATR of 3.302, STR of 12.464, Sum of Mean Values of 41.59 and
Average Score of 13.86333, accept it lag behind Tata DTR of 25.824.

Thy study found that in leverage analysis Maruti has outperformed Tata and secured first
comparative rank. It has better long term solvency position than Tata and has capacity to pay its
long term creditors on time. It has CGR of 24.808, DER of 0.07, ICR of 66.432, and Sum of
mean value of 91.31 and Average Score 30.43667 which are far better than CGR of 1.3298, DER
of 0.818, ICR of 5.258, and Sum of mean value of 7.4058and Average Score 2.4686 of Tata.
The study found that Maruti Company has better market value analyses than Tata. It indicates
that it has outperformed Tata and successfully secured first rank. It has EPS of 56.754, PER of
17.008, BV per Share of 290.068, Sum of Mean Values of 363.83 and Average score 121.2767
which are far better then it competitor Tata which have EPS of 40.192, PER of 15.33, BV per
Share of 205.434, Sum of Mean Values of 260.956 and Average score of 86.98533.
Overall analysis of a company’s found that performances have a deep impact on market value of
the respective companies share price. Market value analysis of companies indicates that share
price of Maruti and Tata will move up if certain strategic correction might carried out in the
market. It is been witnessed that share price of Tata motors moves according to the movement of
SENSEX. It fluctuates according to prevailing market sentiments with quick recovery.

Conclusions:
The study explored the truth that ratios by themselves mean nothing. It is found that ratios are
calculated from the financial statements’ which are prepared as desired by the management and
policies adopted on depreciation and stock values and thus produce only a collection of facts
expressed in monetary term and cannot produce complete and authentic picture of the business
and also may not highlight other factors which affects performance. It is also found that to
control manager’s management often overuse ratio and concentrate more on improving the
ratios. It is also known fact that ratio is simple comparison of numerator and a denominator and
in comparing ratios it become difficult to adjudicate whether differences are due to change in the
numerator or denominator or in both. It is also found that ratios are interconnected but are often
treated by management in isolation. It is also found that analysis of ratios lack authenticity as
data used in calculation are not accurate but manipulated presentation by the promoters. It is also
found that different firms follow different accounting policies like depreciation allowance;
valuation of inventory etc. and often management ignore these differences while making inter-
firm comparison. It is known fact that ratios are calculated from past records and have no
indicator of future and are also not compared according to standard. It is also found that change
in price levels due to inflation is also not properly considered by management.

In the shadow of above revelation and fact the study conclude that Maruti have better strategic
position in comparison to its competitor in all the respective ratios. It has secured top position in
Liquidity analysis, in profitability analysis in relation to sales and in relation to investment, in
efficiency analysis, in leverage analysis, in market valuation and has secured first rank. Tata on
other hand with almost second rank in all the respective analysis has secured second position.

Suggestions:
By analyzing the current trend of Indian economy and automobile industry we can say that future
of automobile industry is bright and still it has to cross many levels. Industry is booming and
investing in automobile industry will be prudent. Investing in Maruti Suzuki for long period
could be good and investing in Tata motors need correction, as it has already moved at upper
level in short period of time and thus holding for long period will be better.

While using ratios great degree of carefulness has to be exercised and must be compared with
norm or set target, with previous ratios in order to asses trends and with achieved ratios of other
comparable companies. In order to get relevant and judicious analysis companies have to use
accurate data and also have to consider other factors which affect performance including non-
financial performance measures. Companies have to concentrate not on improving the ratio but
on significant issues like improving the ROCE by reducing assets rather than increasing profit.
Companies must have complete knowledge of ratios advantage, limitations, policy and standards
of different industry along with ability to make comparative analysis in order to use them
effectively to investigate adverse trend or deviation thoroughly and take corrective measures
accordingly. In order to avoid meaninglessness and calculative confusion company must exercise
proper care in studying such figures which have cause and effect relationship. Companies have
to be vigilant about the inflation in order to avoid error and loss. In order to get meaningful ratio
it should be compared against the standard and past performance of a company may not be
considered as a benchmark when change due to circumstances are possible.

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Declaration

Dear \Sir \ Madam

With deep regard and faith in your jurisdiction I “Dr S.M.Tariq Zafar “submitting research
paper, title: “A Comparative Evaluation of Financial Performance and Market Value of
Maruti and Tata Company” in your esteemed research journal. It is a joint study of Dr
S.M.Tariq Zafar and S.M.Khalid. I hereby solemnly declare that research work is original in all
regard and has not been submitted to any journal for publication.

In Absence of Acknowledgement, further information and complementary copy after publication

authors have a complete right of their paper and can present \ submit to any journal for publication.