Tata Steel

Analysis of financial ratios and assessment of financial health

1. Profitability analysis
 The company saw a significant decline in profitability, with Return on Equity (ROE) plummeting from 26.32% in
2022 to 11.5% in 2023.
 Similarly, both Return on Capital Employed (ROCE) and Return on Total Assets (ROTA) experienced significant
drops, declining from 28.03% to 13.91% and 21.23% to 10.95%, respectively.
These declines suggest that the company's ability to generate profits from its investments and assets decreased notably
over the one-year period.

2. Asset and inventory management

 In addition to the profitability dip in 2023, Total Asset Turnover Ratio also worsened, Specifically, there was a
notable decrease in the Current Asset Turnover Ratio from 4.12 to 3.8, indicating a reduction in the efficiency of
utilizing current assets to generate revenue.
 However, the Fixed Asset Turnover Ratio experienced a slight improvement, increasing from 1.37 to 1.41, suggesting
a marginal enhancement in the utilization of fixed assets to generate sales.
Overall, these changes suggest challenges in efficiently deploying current assets while showing a modest
improvement in leveraging fixed assets for revenue generation during the specified period.
 In 2023, there was a notable improvement in the Inventory Turnover Ratio, which increased from 3.91 to 4.87. This
suggests that the company managed its inventory more efficiently, with goods being sold and replaced more
frequently during the year.
 Furthermore, the decrease in Inventory Days from 93 days in 2022 to 75 days in 2023 indicates that the company
reduced the average number of days it held inventory before selling it. This reduction suggests improved inventory
management efficiency and a quicker turnover of goods.
 However, the Receivables Turnover Ratio experienced a slight decline from 39.33 to 38.49, indicating a small
decrease in the speed at which receivables were collected.
 Receivables Days remained consistent at 9 days in both 2022 and 2023, indicating that the company maintained a
stable average collection period for receivables over the two years.

3. Solvency and Liquidity ratios

 In 2023, the Current Ratio improved significantly from 0.58 to 0.73, indicating a healthier liquidity position compared
to the previous year.
 Similarly, the Quick Ratio also showed improvement, increasing from 0.21 to 0.28. These increases suggest that the
company had a better ability to cover its short-term liabilities with its most liquid assets in 2023 compared to 2022.
 The slight increase in the Debt to Equity Ratio from 0.34 to 0.36 suggests that the company relied more on debt
financing relative to equity in 2023 compared to 2022, indicating heightened leverage.
 Additionally, the significant decline in the Interest Coverage Ratio from 16.88 to 6.75 reflects increased difficulty in
covering interest expenses with operating earnings in 2023, indicating potentially strained financial health and an
increased risk of default.

4. Cost Structure
 The significant increase in the Raw Materials to Sales ratio from 30.5% in 2022 to 47.66% in 2023 indicates a higher
proportion of sales revenue being consumed by raw material costs, possibly due to increased material prices or
inefficient procurement practices.
 While the Employee Cost to Sales ratio increased slightly from 4.93% to 5.13%, suggesting a minor rise in the portion
of sales revenue allocated to employee expenses, the stability of Other Expenses to Sales around 26% and
Depreciation to Sales around 4.2% indicates consistency in these cost components relative to sales revenue between
the two years.

5. Tax and Leverage Impact

 The Impact of Leverage decreased notably from 7.3% in 2022 to 2.26% in 2023, suggesting a reduced influence of
financial leverage on the company's returns.
 Similarly, the Impact of Tax Planning declined from 1.16% to 0.62%, indicating a decrease in the effectiveness of tax
planning strategies in enhancing returns after accounting for the applicable tax rate.

Additional Ratios and Effects

  Payable Days: Decreased from 196 to 107 days, implying quicker settlement of payables.
 Long-term Debt to Total Capital: Increased from 19.32% to 22.48%, indicating an increase in reliance on long-term
debt financing.
 Interest Bearing Liabilities: Increased from INR 42,636 crores to INR 49,172crores, reflecting higher borrowing
levels.
 Non-Interest Bearing Liabilities: Decreased from INR 53,915 crores to INR 49,820 crores, indicating improved
financial stability.
 ROCE (PBIT/Non-interest bearing liabilities): Declined from 28.03% to 13.91%, indicating lower efficiency in
generating profits from non-interest bearing liabilities.
 Debt/Equity (Interest Bearing Liabilities/Equity): Increased from 0.3399 to 0.3648, reflecting increased financial
leverage.
 Impact of Leverage (ROCE - Cost of Debt) * (D/E): Dropped from 7.30% to 2.26%, indicating reduced benefits
from leveraging.

Summary: In summary, Tata Steel's financial performance in 2023 reflects a company grappling with a more challenging
economic landscape, characterized by reduced profitability, heightened costs, and increased leverage. While some
improvements in asset management were observed, the overall financial health and capacity to meet financial obligations have
weakened compared to 2022. Stakeholders should closely monitor these trends for potential future implications on the
company's financial viability.