Financial

Statement
Analysis
Under the Guidance of CMA Nandita
Mishra
GROUP 9
Adarsh Kumar Agarwal
Ayushman Singh Ratnu
Arnav Mahajan
Anwesh Raajan
Mohit Jain
Rahul Pruthi
 About the Company
Founded in 1945 as a manufacturer of locomotives, the company manufactured its
first commercial vehicle in 1954. Tata Motors has auto manufacturing and assembly
plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad, and Pune in India, as
well as in Argentina, South Africa, Great Britain, and Thailand. Tata Motors is listed
on the (BSE) Bombay Stock Exchange, where it is a constituent of the BSE SENSEX
index, the National Stock Exchange of India, and the New York Stock Exchange. The
company is ranked 265th on the Fortune Global 500 list of the world's biggest
corporations as of 2019.
Tata Motors is one of the leading automobile manufacturers in the world, providing
mobility solutions to over 175 countries. Our portfolio includes a wide range of cars,
utility vehicles, trucks, and buses. We have a strong global network of 134
subsidiaries, associate companies and joint ventures, including the Jaguar Land
Rover in the UK and the Tata Daewoo in South Korea.
By 2024, Tata Motors Finance targets to have Assets Under Management (AUM)
worth Rs.75,000 crore and a Return On Equity (ROE) of 20%, while maintaining
Gross Non-Performing Assets (GNPA) at 2.5%.

Mahindra
Mahindra & Mahindra Limited is an Indian multinational vehicle manufacturing
corporation headquartered in Mumbai, Maharashtra, in 1945. In April 2020, the
company ended its joint venture with Renault, with Mahindra & Mahindra buying
out Renault's stake. Renault continues to license and supply key components such as
engines and transmissions to Mahindra & Mahindra.

As Mahindra and Mahindra has a diverse portfolio like TATA motors, i.e. they are
into CV, PV LMV and HMV we have decide to choose this company as a competitor
and assuming it to be industry average.

2
Ratio Analysis of TATA Motors
 Ratio Analysis
Liquidity Ratio

Liquidty Ratio 1. Curr

19-20 18-19 Industry ent
1.380

1.070
0.577
0.526

0.386
0.373

0.369

0.137

0.057
Cur r ent R a t io L iquid R a t io Ca s h R a t io

Ratio:
This ratio reflects the number of times short-term assets cover short-term
liabilities and is a fairly accurate indication of a company's ability to service its
current obligations. A higher number is preferred because it indicates a strong
ability to service short-term obligations.
Here we can see the current ration of the company is 0.526 which is less than
the ideal ratio and also has shown a downward trend which shows the
company is not in good position to pay short term obligation. Comparing it
with the industry average which has a current ratio of 1.380 shows that
company has performed bad in this year.

2. Cash Ratio:
This ratio measures immediate liquidity - the number of times cash and
marketable securities cover short-term obligations. A higher number is
preferred because it suggests a company has a strong ability to service short-
term obligations.
Here we see the quick ratio of company is 0.137 which is also less than the
ideal ratio which shows the company is not in good position to pay short term
obligation. Comparing it with the industry average which has a current ratio of
0.386 shows that company has performed bad in this year.

3. Liquid Ratio:
Liquid Ratio analysis ratios show the cash levels of a company and the ability
to turn other assets into cash to pay off liabilities and other current

3
Ratio Analysis of TATA Motors
 obligations. It is also a measure of how easy it will be for the company to raise
enough cash or convert assets.
Here the company’s liquid ratio is 0.373 which is way below the ideal ratio and
which shows the company is not doing good.Comparing it with the industry
average which has a current ratio of 1.070 shows that company has performed
bad in this year.

Solvency Ratio
SOLVENCY RATIOS
3.000

2.500 2.393

2.000

1.500
1.210
0.974
1.000 0.804
0.628
0.500 0.236 0.228
0.059 0.040
0.000
Debt to Equity Ratio Debt to Assets Ratio Proprietary Ratio

19-20 18-19 Industry

1. Debt to Equity Ratio:

Debt to equity ratio helps us in analysing the financing strategy of a
company. This ratio helps us describe whether the company is using equity
financing or debt financing for its operations. A high debt equity ratio means
that the company is under a higher risk. This means that the company is using
borrowings to finance the operations. A low debt equity ratio means that
equity finance is enough and doesn’t need to borrow from the outsiders for
operations.
Now in case of our company tata motors the debt to equity ratio is .8:1 which
means that the amount of debt that the company has risk involved but not too
much and it just has under the ideal ratio required. The market average on the
other hands suggest a total of only .05 which is extremely low and has no risk
involved.

2. Debt to Assets Ratio:

This ratio represents the amount of debt that has been taken to purchase and
own all the assets that the company possesses. This is used by the creditors to
check whether more loans should or shouldn’t be lent to the company,
whether assets will be able to cove the loan amount. If the ratio is more than 1
this means that the debt surpasses the assets and it is highly risky to lend to

4
Ratio Analysis of TATA Motors
 this particular company, and if it is lower than 1 then that means that the
company has enough assets to cover all the debt and it is less risky to lend.
In the case of our company, the debt to asset ratio is 0.236:1 which means it is
well clear for receiving any further loans than it may desire. But the market
avg is shown to be 0.040:1 which is almost 1/6th less than the chosen
company.

3. Proprietary Ratio:
The proprietary ratio shows the contribution of stockholders’ in total capital of
the company. A high proprietary ratio, therefore, indicates a strong financial
position of the company and greater security for creditors. A low ratio
indicates that the company is already heavily depending on debts for its operations.
A large portion of debts in the total capital may reduce creditors interest, increase
interest expenses and also the risk of bankruptcy.
The ratio for the TATA motors is 0.98 which is at a lower level than the ideal required
which when compared to the industry average of 2.39 is extremely low and this
concludes that the company is debt based.

4. Interest coverage ratio:

INTREST COVERAGE RATIO The interest coverage ratio indicates
35 the ability of the company to be able
30 to pay the outstanding interest on
25 various loans and advances. This is
20 another ratio that is used by the
Axis Title

15 lenders, creditors, and investors to

10 check whether the company is risky
5 to lend or invest money to. A high
0 ratio indicates that the company has
Interest Coverage Ratio the ability to pay for the interest
-5
many times over and that there is
less risk of investing, if the ratio is
less than 1 that means that it won’t be able to fully repay the interest amount
in this period with the profit.

In case of Tata motors this ratio is -2.612 which indicates a loss on the part of
the company in comparison to the 28.575 for industry comparison. This
indicates the fact Tata is not in a very healthy state and providing loss would
be risky.

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Ratio Analysis of TATA Motors
 PROFITABLITY RATIOS
30.000

20.000

10.000

0.000
s) in
g tio ti o CE et
s ty re re tio
os ui ha ha
Axis Title

g r rat ra Ra n t/ A ss q S S t ra
( T t E
-10.000 ti o pe EB fi e
on on Pe
r
Pe
r ou
(o ro tm y-
Ra ti o P e s rn n
ng
s d a
A et v
et
u ur en P
IT Ra N In R R et r ni v id e nd
D T n a i
-20.000 I o E id
EB EB ur
n D
D
iv
t
Re
-30.000

-40.000

-50.000

Profitability Ratio
1. Gross Profit Ratio:
Gross profit ratio shows that the relationship between gross profit and total
net sales revenue. It is a popular tool to evaluate the operational performance
of the business. The ratio is computed by dividing the gross profit figure by net
sales.
Gross profit is very important for any business. It should be sufficient to cover
all expenses and provide for profit. Generally, a higher ratio is considered
better.
TATA Motors has incurred a loss therefore the Gross Profit Ratio shows
negative Ratio and as compared to the industry ratio which has a positive
11.562 shows the company had performed bad comparatively.

2. Operating Profit:
The operating margin ratio, is a profitability ratio that measures what
percentage of total revenues is made up by operating income. Conversely, this
ratio shows what proportion of revenues is available to cover non-operating
costs like interest expense.
TATA Motors has a negative operating ratio of – 11.734 % which shows which
h bad sign for the company, and when we compare it with the competitors
which has a +7% ratio clearly shows that company had not performed well in
this year.

3. Net Profit Ratio:

The net profit margin is equal to how much net income or profit is generated
as a percentage of revenue. Net profit margin is the ratio of net profits to
6
Ratio Analysis of TATA Motors
 revenues for a company or business segment. The net profit margin illustrates
how much of each rupee in revenue collected by a company translates into
profit.
Here we see that in the current year company had incurred a loss and
therefore the net profit margin is -16.594 which is very bad and when
compared to industry average showing positive ratio, gives a clear sign that
company is not in good position.

4. Return on Investment/ Capital Employed

ROCE is a metric for analysing profitability, and potentially comparing
profitability levels across companies in terms of capital. 
As you can see, TATA Motors is a much larger business, with higher revenue,
EBIT, and total assets. However, when using the ROCE ratio, you can see that
company is not efficiently generating loss and shoe the ratio is negative. Major
thing to see is that this ration has declined 121% on YOY. Seeing the industry
average also which has h positive ROCE show that company is not performing
well.

5. Return on Assets:
Return on Assets (ROA) is an indicator of how well a company utilizes its
assets, by determining how profitable a company is relative to its total assets.
Since the had a loss this year Return on assets shows negative -11.64. YOY
decline of 136% and comparing with industry average shows that company did
not perform good at all.

6. Return on Equity:
As with return on capital, a ROE is a measure of management's ability to
generate income from the equity available to it. Since the had a loss this year
Return on assets shows negative -39.64. YOY decline of 123% and comparing
with industry average shows that company did not perform good at all.

7. Earnings per Share:

Earnings per share or EPS is an important financial measure, which indicates
the profitability of a company. It is calculated by dividing the company's net
income with its total number of outstanding shares, As the company had
incurred a loss of 7289 so the company shoes a negative EPS and as compared
industry average shows that the company has not performed well compared to
industry.

8. Dividend Per Share

As the company incurred a loss and so did not give any dividend the Dividend
per share is 0. Comparing with the industry average which gave a dividend per
share of 2.350 shows the company is in bad position.

9. Dividend Pay Out ratio

As the company incurred a loss and so did not give any dividend the Dividend
pay-out is 0. Comparing with the industry average which gave a dividend per
share of 0.211 shows the company is in bad position.

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Ratio Analysis of TATA Motors
 TURNOVER RATIOS
25.000

20.000

15.000
Axis Title

10.000

5.000

0.000
Asset Turnover Ratio Inventory Turnover Debtor Turnover Creditor Turnover
Ratio Ratio Ratio

Turnover Ratios
1. Asset Turnover Ratio:
The asset turnover ratio measures the value of a company’s sales or revenues
relative to the value of its assets. The asset turnover ratio can be used as an
indicator of the efficiency with which a company is using its assets to generate
revenue. The higher the turnover ratio the higher the efficiency the company
has. If the asset turnover ratio is low then the company is not using its assets
to the fullest.
If we see the asset turnover ratio for TATA motors has dropped since last year
drastically to 0.701 which indicates the company is unable to use the assets up
to the maximum, whereas if we look at the market analysis, we can clearly
observe that companies have the Asset turnover close to 1 which means full
utilization.

2. Inventory Turnover Ratio:

Inventory turnover is a ratio showing how many times a company has sold
and replaced inventory during a given period. A company can then divide the
days in the period by the inventory turnover formula to calculate the days it
takes to sell the inventory on hand. Calculating inventory turnover can help
businesses make better decisions on pricing, manufacturing, marketing and
purchasing new inventory. A higher ratio implies either strong sales or
insufficient inventory. A low ratio means either high inventory and/or weak
sales.
In the inventory turnover ratio, we can see that TATA motors have a ratio of
11.43 times which converts to 32 days of average age of inventory which is
close to the inventory average of 28 days which means that the stock is being
converted and sold at quite a pace.

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Ratio Analysis of TATA Motors
 3. Debtor Turnover Ratio:
The debtor turnover ratio represents how efficiently the company collects on
its receivables or the credit it has extended to its customers. The ratio also
measures how many times a company & receivables are converted to cash in a
period. From investment point of view, if one company has an exceptionally
high debtor turnover ratio, it is safer to invest in it. If the ratio is high that
means that the debtor collection is efficient and also the company has quality
customers. If the ratio is low which could mean that the collection policy of the
company is not that good or the customers are not financially viable.
In case of TATA motors, the debtor turnover ratio is 16.80 which convert to
almost 22 days average collection period which is even better than the
industry average of 26 days. This implies that the collection policy of the
company is excellent.

4. Creditor Turnover Ratio:

Credit Turnover Ratio is short-term debt that a company owes to its suppliers
and creditors. The accounts payable turnover ratio shows how efficient a
company is at paying its suppliers and short-term debts. If this turnover ratio
is high this indicates that the suppliers are collecting funds at a much higher
rate and if the ratio is low then there is good credit time period being given to
the company for the repayment.
In case of TATA motors, the credit turnover ratio is 3.44 times which equates
to 106 days which is higher than the debtor turnover period which means that
the company has a high reputation and this is also represented in the industry
average of 96 days.

Conclusion
a. From the profitability ratios we can conclude that the company has bearded
severe losses in the current financial year and also when we look at the
industry average, we can see that the other companies have flourished
massively due to which a warning sign has to be taken from this analysis. Also,
the fact that they couldn’t even convert the operating profit is what is the most
concerning.

b. From the liquidity ratios we can clearly see that that the company does not
have enough current assets and the majority of the asset share is invested in
the fixed assets. This also represents that the cash in hand with the company
is very low such that it cannot even fulfil all the current liabilities. But the
credit period allowed to the company is very high which means it can afford to
have lower cash in hand.

c. The solvency ratio is generally average in comparison to the industry

standards but the interest coverage shows a massive decline from last year
which is due to the losses that the company has had to bear this year. Also, the
company has majority of its financing from the shares which means that the
risk is less for the company but still the little debt that it does have, the
interest cannot be paid in full for it.

9
Ratio Analysis of TATA Motors
 d. Turnover Ratios are the best maintained ratios in this company with matching
the industry standards and even having more credit period than the
competitors in some cases. Also, the fact that the debt recovery period is also
better than a lot. The Assets are not being utilized to the fullest which is a
concern for the company and it should look to fuller utilization by either
having more inventory or more machinery and manpower.

So, we finally conclude that TATA Motors had incurred a loss for continuous 5 years
from the year 2013-2017 and then had a positive report for two years but now have
struck another hefty loss due to which the bank has decided not to sanction a loan.
This is majorly based on the fact the average profit for the last five years have been
negative and comparing it with industry average which has a positive report for
majority of this period.

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Ratio Analysis of TATA Motors