FINANCIAL MANAGEMENT
A PROJECT ON THE FINANCIAL POSITION OF THE TATA MOTORS
SUBMITTED TO :-
SUBMITTED BY:AYUSH KUMAR SINGH ROLL NO- 108109 SECTION- A-I
DATE-
SEMESTER-II
MANAGEMENT EDUCATION & RESEARCH INSTITUTE COMPARATIVE BALANCE SHEET OF TATA MOTORS For the year ended 31st march ‘2008’
(Rs in crores) Long term source of funds
A .Shareholders fund i) share capital ii) reserve and surplus Internal equity
2008
385.54 7453.96 7839.50
B .Loan funds i)secured ii)unsecured External equity
2461.99 3818.53 6280.52
C .Deferred Tax Liability (net)
975.72
D .Total Fund Employed
15095.74
Application of funds Long term investments (x) E . Fixed assets i) Gross Block 10830.83 ii)less- depreciation 5443.52 iii) Net Block 5387.31 iv)Capital work in progress 5064.96 10452.27
F .Investments
2007
385.41 6484.34 6869.75
Absolute change 00.13 969.62 969.75
2022.04 439.95 1987.10 1831.43 4009.14 2271.38 786.83
188.89
11665.72 3430.02
% change
00.03 14.95 14.12
21.76 92.17 56.66 24.00 29.40
8775.80 2055.03 23.42 4894.54 5 48.98 11.22 3881.26 1506.05 38.80 2513.32 2551.64 101.52 6394.58 4057.69 63.46
4910.27 15362.54
2477.00 8871.58
2433.27 6490.96
98.23 73.17
0.86
5.94
(5.08)
(85.52)
2421.83
2500.95
(79.12)
(03.16)
Short term investment (working capital=CA-CL)
G. Current assets i) Interest accrued on investments. ii) Inventories
iii) Sundry debtors iv) Cash and bank balance v) loans and advance H. Current Liabilities i) Sundry creditors ii) Provisions
I. Net current assets(G-H)
J. Miscellaneous expenditure
TOTAL ASSETS (NET) (X+I+J)
1130.73 2397.31 4433.05 10383.78
782.18 348.55 44.56 826.76 1570.55 189.96 6396.22 (1963.17) (30.70) 10512.05 (128.27) (01.22)
8667.20 1989.43 10656.63
6363.6 1364.3 7728.00
(272.85)
6.05
15095.74
2303.52 36.20 625.11 45.82 2928.63 37.90
2784.05
(3056.90)
(109.80)
10.09
(04.04)
(40.04)
3430.02
29.40
11665.72
COMMENTS ON THE FINANCIAL SOUNDNESS OF THE TATA MOTORS BY ANALYIZING THE COMPARATIVE BALANCE SHEET OF THE COMPANY I) It was observed from the comparative balance sheet that internal equity is comprised of Share capital and reserve & surplus ,in which increment was noticed by 14.12%. The major increment was seen in reserve & surplus by 14.95% and share capital was marginally increased by 00.03% as compared to the previous financial year. II) It was also observed that the company has increased the external equity by 56.66%. The company has raised secured loan by 21.76% and unsecured loan by 92.17% as compared to the previous financial year. Overall the company has increased its capital structure position by 70.78% as compared to previous financial year , which is a good indication for the company as the company is increasing its investment and expanding the business. III) Deferred tax liability was increased by 24.00% as compared to the previous financial year, the company should try to reduce the deferred tax liability as we know that it is the obligation for the company to pay. So , the company should not increase the fund by blocking deferred tax liability. which is not a good policy of the company.
IV) It was observed that total fund employed by the company was increased by 29.40% as compared to the previous financial year. In the current year (07-08), the company has increased the employable fund by 29.40% which is a good sign of growth of the company. V) Investment in the fixed assets was noticed by 63.46% and in investment by 98.23% as compared to the previous financial year. It was noticed that the total long term investment of the company has registered an increment of 73.17% , which indicate that the company is having a good opportunity of growth and by investing in long term , the company is intelligently grapping the opportunity. VI) The working capital of the company was decreased by 109.80% as compared to the previous financial year , which is not a good sign for the company. The company
is not able to manage the working capital sufficiently .the company should take special care to manage the working capital of the company as we know that the working capital is the blood of the company ,without proper working capital the company will not manage to run its operation successfully. COMPARATIVE PROFIT & LOSS ACCOUNT OF TATA MOTORS For the year ended 31st march ,2008 (Rs
in
crores) 2008
A. Gross revenue Sale of product and other income from operation – Duty Less Excise B. Net revenue C. Cost of goods sold Raw materials/components Manuf. And other expenses. Employee cost
2007
33093.93
31819.48
4363.11 28730.82
4349.45 27470.03
Absolute change
% change
1274.45
04.00
13.66 1260.79
00.31 04.59
24093.93
22789.57
1304.36
05.72
1544.57 25638.50 3092.32
1368.09 24157.66 3312.37
176.48 1480.84 (220.05)
12.90 06.13 (06.64)
E. Profit Dividend and other Incomes 3575.50 483.18 F. before depreciation, Interest and tax G. Less :Product development exp. 64.35 Depreciation 652.31 Interest 282.37 H. Profit before Tax 2576.47 (A-B) I. Tax: Current (146.01) Deferred (401.54) (547.55) J. Profit after Tax:2028.92 K. Balance brought forward 1013.83 from Previous year
245.19 3557.56
237.99 17.94
97.06 00.51
85.02 586.29 313.07 2573.18
(20.67) 66.02 (30.70) 3.29
(24.31) 11.26 (09.81) 00.13
(482.50) (177.22) (659.72) 1913.46 776.76
(112.17) 115.46 237.07
(17.00) 06.03 30.52
2690.22
352.53
13.10
578.07 98.25 00.07
00.36 (17.00) (00.07)
00.06 (17.30) (100.00)
D. Operating profit(B-C)
L. Balance available for appropriation
3042.75
M. Appropriations i) Proposed Dividends 578.43 ii) Tax on proposed dividends 81.25 iii) Residual dividend paid for -the year 2005-06. iv) General reserve 1000.00
1000.00
--
--
v) Balance carried to Balance sheet.
1383.07
1013.83
369.24
36.42
3042.75
2690.22
352.53
13.10
COMMENTS ON THE FINANCIAL CONDITION OF THE TATA MOTORS BY ANALYZING THE COMPARATIVE PROFIT & LOSS ACCOUNT OF THE COMPANY
I) It was observed that the sales revenue was increased by 04.00% and in terms of absolute figure by Rs 1274.45 crores as compared to the previous financial year. Respectively, excise duty was increased by 00.31% as compared to the previous financial year.
II) The net revenue of the company was noticed an increment of 04.59% as compared to the previous financial year and in terms of absolute figure by Rs 1260.79 crores . But the cost of good sold by the company was increased by 06.13% , which was around Rs 1480.84 crores in absolute figures. Which also cause to decrease the operating profit of the company by 06.64% as compared to the previous financial year. The company should put special attention to check out its direct cost (cost of goods sold ) as it was judged from the comparative P/L A/C that the increment in the direct expense by the company is excess than the increment in the net revenue of the company.
III) The increment in the dividend and other incomes was noticed by 97.06% as compared to the previous financial year. which increases the PBIT (Profit before interest and tax) by 00.51% and in terms of absolute figure by Rs 237.99 crores .
IV) The profit before tax (PBT) was noticed an increment of 00.13%, whereas profit after tax (PAT) was increased by 06.03% as compared to previous financial year. The huge increment in the PAT was noticed despite of having less increment in PBT due to decrease in the payment of tax by 17.00% as compared to the previous financial year, which approximately realised Rs 115.46 crores in the hand of the company.
V) It was also noticed that balance brought forward by the company was increased by 30.52% , which means that in the previous financial year the company have a good surplus amount left in their hand after appropriating the available funds . which increases the bottom line balance by 13.10%.
COMMAN SIZE BALANCE SHEET OF TATA MOTORS For the year ended 31st march , 2008
(Rs
crores) Long term source of funds
A .Shareholders fund i) share capital ii) reserve and surplus
B .Loan funds i)secured ii)unsecured
C .Deferred Tax Liability(net)
D .Total Fund Employed
2008
%
%
385.54 7453.96 7839.50
02.55 49.38 51.93
385.41 6484.34 6869.75
03.30 55.58 58.89
2461.99 3818.53 6280.52
16.31 25.30 41.60
2022.04 1987.10 4009.14
17.33 17.03 34.37
975.72
06.46
786.83
06.74
15095.74
100
11665.72
100
8775.80 4894.54 3881.26 2513.32 6394.58
75.23 41.96 33.27 21.54 54.82
Application of funds Long term investments (x) E . Fixed assets i) Gross Block 10830.83 71.75 ii)less- depreciation 5443.52 36.06 iii) Net Block 5387.31 35.69 iv)Capital work in progress 5064.96 33.55 10452.27 69.24
F .Investments
2007
in
4910.27
32.53
2477.00
21.23
15362.54
101.77
8871.58
76.05
Short term investment ( working capital = CA-CL )
G. Current assets i) Interest accrued on investments. ii) Inventories
0.86
00.01
5.94
00.05
2421.83
16.04
2500.95
21.44
iii) Sundry debtors iv) Cash and bank balance v) loans and advance
1130.73 2397.31 4433.05 10383.78
H. Current Liabilities i) Sundry creditors ii) Provisions
I. Net current assets(G-H)
J. Miscellaneous expenditure
TOTAL ASSETS (NET) (X+I+J)
07.49 15.88 29.36 68.79
8667.20 57.41 1989.43 13.18 10656.63 70.59
782.18 826.76 6396.22 10512.05
6363.68 1364.32 7728.00
54.55 11.70 66.25
2784.05
23.87
10.09
00.09
(272.85) (01.80)
6.05
15095.74
00.04
100
06.70 07.08 54.83 90.11
11665.72
100
COMMAN – SIZE STATEMENT OF CAPITAL STRUCTURE COMPONENTS OF TATA MOTORS WITH REFERENCE TO PIE -CHART
SHARE CAPITAL
RESERVE &SURPLUS SECURED LOAN
UNSECURE D LOAN
DEFERRED TAX LIABILITY
. (FINANCIAL YEAR 2007-2008)
SHARE CAPITAL
RESERVE &SURPLUS SECURED LOAN
UNSECURED LOAN DEFERRED TAX LIABILITY
(FINANCIAL YEAR 2006-2007)
COMMENTS ON THE FINANCIAL POSITION OF THE TATA MOTORS BY ANALYIZING THE COMMAN BALANCE SHEET.
I ) It is observed from the above presentation of pie chart that internal equity of the Tata motors is 51.93% of the total source of finance in the financial year 2007-2008 and it was 58.89 % in the previous financial year. which indicates that the company has increased the external equity by raising loan able funds in the current financial year, which stands to around 41.60% in the financial year 2007-2008 and it was 34.37% in the previous financial year. So , the increment in external fund was noted by 7.23% as compared to previous financial year. The company should try to increase the internal equity in its capital structure composition. Which will strengthen the financial position of the company, the shareholders and Investors will not hesitates to invest in the company.
II ) In the current financial year the deferred tax liability stood at 6.46% and it was 6.74% of the total fund employed ,in the previous financial year. Reduction of 0.28% is noted in the deferred tax liability of the company ,as compared to previous financial year.
III) The company’s investment on fixed assets stood at 69.24% in the current financial year(07-08) ,which was 54.82% in the previous financial year. The increment of 14.42% is noted in the fixed assets of the company.
IV) The investment made by the company in the current financial year stood at 32.53% of the total application of fund, whereas the investment in the previous financial year was around 21.23% of the total application of fund by the company. which means the company is expanding its structure ,which is a good indication of growth.
V ) The current assets of the company stood at 68.79% in the current financial year. Whereas position of current assets in the previous financial year was 90.11%.which shows that there was decrease in the current assets by 21.32% .The company is efficiently and effectively utilizing its current source of fund by funding in the current assets. The current liability for the current financial year stood at 70.59% whereas Current assets were 68.79% , which means that company is financing its short term expenses from short term fund ,which is quite good principle of the company. The company should try to finance the long term expenditures from long term source and short term expenditure from short term fund.
COMMAN SIZE PROFIT& LOSS ACCOUNT OF TATA MOTORS For year ended 31st march, 2008 (Rs
2008
A. Gross revenue Sale of product and other income from operation Less – Excise Duty B. Net revenue C. Cost of goods sold Raw materials/components Manuf. And other expenses. Employee cost
(%)
in crores)
(%)
33093.93
100.00
31819.48
100.00
4363.11 28730.82
13.18 86.82
4349.45 27470.03
13.67 86.33
24093.93
72.80
1544.57 25638.50 D. Operating profit (B – C) 3092.32 E. Dividend and other Incomes 483.18 F. Profit before depreciation, 3575.50 interest and tax G. Less :Product development expense 64.35 Depreciation 652.31 Interest 282.37 H. Profit before Tax 2576.47
04.67 77.47 09.34 1.46 10.80
(A-B) I. Tax: Current Deferred
2007
00.19 01.97 00.85 07.79
(146.01) (401.54)
(00.44) (01.21)
J. Profit after Tax: K. Balance brought forward from Previous year
2028.92 1013.83
06.13 03.63
L. Balance available for
3042.75
09.19
22789.57
71.62
1368.09 0 4.30 2 4157.66 75.92 3312.37 10.41 245.19 0.77 3557.56 11.18
85.02 586.29 313.07 2573.18
00.27 01.84 00.98 08.09
(482.50) (01.52) (177.22) (00.56) 1913.46 776.76
06.01 02.44
2690.22
08.45
Appropriation
H. Appropriations i) Proposed Dividends 578.43 ii) Tax on proposed dividends 81.25 iii) Residual dividend paid for -the year 2005-06. iv) General reserve 1000.00 v) Balance carried to Balance 1383.07 sheet. 3042.75
01.75 00.25 00.00
578.07 98.25 0.07
01.81 00.81 00.001
03.02 04.18
1000.00 1013.83
03.14 03.19
09.19
2690.22
08.45
COMMENTS ON THE FINANCIAL POSITION OF THE TATA MOTORS BY ANALYIZING THE COMMAN SIZE PROFIT & LOSS ACCOUNT
I ) The net revenue of the company was 86.82% in the current financial year and it was 86.33% in the previous financial year. The increment in net revenue was noted by 0.49% in the current financial year whereas, there was increment of Rs 1260.79 crores . II ) The cost of good sold stood at 77.47% in the current financial year whereas it was 75.92% in the previous financial year. The increment of 1.55% was noticed in the cost of good sold and in terms of absolute figure , it was increased by Rs 1480.84 crores. III ) The Operating profit of the company was decreased by Rs 220.05 crores as compared to the previous financial year. The decrease in the Operating profit was noticed due to increase in the direct expenses by the company. As the cost of good sold was increased by Rs 1480.84 crores whereas, the increment in the net revenue was noticed to Rs 1260.79 crores only, which is not a good sign for the company .The company should pay special attention to reduce direct operating expense.
IV ) It was observed that there were increase in the dividend and other incomes of the company by Rs 237.99 crores ,which is a good sign for the company. The increment also lead to increase the profit before interest and tax (PBIT) by RS 17.94 crores as compared to the previous financial year. V ) The profit after tax (PAT) was increased by RS 115.46 Cr. as compared to the previous financial year. The increment in the PAT was noticed due to less tax paid in the current financial year as compared to the previous financial year, which may be due certain change in the tax structure by the government.
VI) Finally, the increment in the appropriation balance was noticed to RS 352.53 cr. which was due to increase in the previous year balance by Rs 237.07 crores. The Company is constantly increasing its retained earning which is good policy adopted by the company ,which will increase the soundness of the capital structure of the company.
COMMENTS ON THE FINANCIAL POSITION OF THE TATA MOTORS WITH THE HELP OF RATIO ANALYSIS
A) LIQUIDITY RATIO I) CURRENT RATIO = current assets = 10383.78 =1.20
/
current liabilities.
/ 8667.20
Current ratio = 1.20 : 1 This ratio is analysed to test the solvency position of the company. The Current ratio reveals the firms ability to meet its current liabilities out of current source of fund. The standard ratio is 2: 1, but in practically the standard ratio is assumed to be 1.5:1. The company is having current ratio of 1.20:1, which means that for every Re. 1 of current liabilities, the company have Re. 1.2 of current assets, which is satisfactory position but the company should try to increase the current ratio to at least 1.5:1. II) ACID TEST RATIO = current assets – Inventories / current liabilities - bank O/D = 10383.78 – 2421.83 / 8667.20 - NIL = 7961.95 / 8667.20 = 0.92 Acid test ratio = 0.92:1 This ratio is also used to know the solvency of the company. This ratio reveals the actual financial ability of the company to pay off its immediate impending liabilities.
The standard ratio is 1:1 but in practically it is accepted to be 0.8:1. The company is having 0.92:1 quick ratio which is quite satisfactory. Which means that for every Re.1 of CL the company can pay immediately Re.0.92. B) PROFITABILITY RATIO I) GROSS PROFIT RATIO(GPR) = Gross profit / sales × 100 =3092.32 /33093.93 × 100 = 9.35% Gross profit ratio = 09.35% This ratio indicates the relationship between the gross profit and the sales of the company. this ratio gives the information about the movement of stock and also earning capacity of the company. The more the ratio , greater is the earning capacity of the company. The company is having 09.35% of gross profit ratio which is not so satisfactory for the company as the standard ratio of gross profit is 25% .The Company should try to minimize its direct and operating cost and side by side it should put extra effort to increase its revenue by selling more output in the market. II) NET PROFIT RATIO (NPR) = Net profit / turnover × 100 = 2028.92 / 33093.93 × 100 = 6.14% Net Profit Ratio =06.14% This ratio indicates the ratio of net profit to net sales/turnover. This ratio reveals the amount of fund left for the proprietor of the company. Net profit ratio is useful to measure the operational efficiency of the management of the company. The net profit ratio is 06.14% , which is below standard .The standard ratio is 15%, the company should try to increase its net profit to increase the ratio.
III) RETURN ON INVESTMENT = Net profit /capital employed × 100 (ROI) = 2028.92 / 15095.74 × 100 = 13.45% Return on Investment = 13.45% Return on investment indicates the profit earning capacity /profitability as compare to capital employed by the company. In clear terms it indicates the rate of return on the capital employed by the company. The ROI is a very good indicator of judging the utilisation of resources and capital of the company .The standard ratio is 20%, whereas the company’s return on investment is 13.45%.There is no practical norm or
standard of this ratio. It depends on the objective, efficiency and capacity of the company. However, the company should try to maintain this ratio at a level over and above the standard Bank Interest Rate to cover the risk involved in the business. The Company should try to increase this ratio gradually. IV) OPERATING RATIO = cost of goods sold + operating expenses /net sales × 100 = 25638.50+64.35+652.31+282.37 / 33093.93 × 100 = 26637.53 / 33093.93 × 100 = 80.50% Operating ratio = 80.5% This ratio shows the relationship between the operating cost and net sales of the company. The ratio indicates the managerial efficiency to minimize the operating cost. The lower the ratio, the greater is the management efficiency. The company is having 80.5% operating ratio. The company should try to minimize the ratio ,so that the portion of profit can be increased.
C. LEVERAGE / SOLEVENCY RATIO
I) DEBT EQUITY RATIO = Long term debt / shareholders equity = 2461.99 + 3818.53/ 385.41 + 6484.34 = 6380.52 / 7839.50 = 81.4:100 This ratio reveals the relation between the long term debt and Proprietors’ fund of the concern, it also shows the efficiency of the management in financial planning. The debt equity ratio is 81.40:100, which means that for every Rs 100 of the Proprietors’ fund, the long term debt stands to Rs 81.40.The standard ratio in this case is 0.33 .this means that for every Re. 1 of the proprietors fund, the long term debt should be 0.33 paise. It is assumed that the position of the creditor is uncomfortable if the ratio is higher than this.
II) PROPRIETARY RATIO = Shareholders Equity / Total Assets. =Share capital + general reserve / fixed + current assets = 2461.99 + 3818.53 / 5387.31 + 10383.78 =6280.52 / 15771.09
= 0.4 Proprietary ratio = 0.4:1
This ratio explains the relation between the total assets and the proprietary fund of the company. This shows that how much proprietary fund is engaged in the business while financing the total assets of the company. Here the company has engaged 40% of the proprietary fund for financing its assets. This ratio also shows that how much the company is dependent on external equity while financing its total assets. Here the company is dependent on external equity to the extent of 60%.The company should gradually try to decrease the ratio of dependent on the external equity. This will in turn increase the share of profit of the company.
D. ACTIVITY RATIO / TURNOVER RATIO I) INVENTORY TURNOVER RATIO = Cost of goods sold / average inventory =25638.50 / ( 2421.83 + 2500.95 / 2) = 25638.50 / 2461.39 = 10.42 times
This ratio indicates the relation between the inventory and sales of the company. Which provide us the information about the velocity of stock during the year. High ratio is always desirable by the company; the high ratio indicates a good position of the company. The company’s inventory turnover ratio is 10.42 times, which means the movement of stock is approximately 10.5 times in a year.
II) FIXED ASSETS TURNOVER RATIO = Sales / Fixed Assets. = 33093.93 / 5387.31 = 6.14 times Fixed assets turnover ratio = 6.14 times.
This ratio establish a relation with the fixed assets and sales of the company. Which indicates, how many times the fixed assets is utilised to achieve the sales of the company. Here the company is utilising 6.14 times of its fixed assets to achieve the sales of the company. The company should try to increase this ratio, which will increase the production and ultimately the sales of the company.
III) CURRENT ASSETS TURNOVER RATIO = Sales / current assets = 33093.93 / 10383.78 = 3.2 times Current assets turnover ratio = 3.2 times.
This ratio establish a relation between the current assets and sales of the company .This ratio indicates that how many times the current assets in being utilised to achieve the sales by the company. The current turnover ratio of the company is 3.2 times, which means that the company is utilising 3.2 times its current assets for achieving its sales.
