SUMMER INTERNSHIP PROJECT REPORT

On

FINANCIAL ANALYSIS AT TATA MOTORS

SUBMITTED FOR PARTIAL FULFILMENT OF REQUIREMENT FOR THE AWARD OF DEGREE

Of

MASTER OF BUSINESS ADMINISTRATION

UNDER THE GUIDANCE OF
MISS REVA VIG
SUBMITTED BY
NIVESH GURUNG
ROLL NO. 20MBA0001
DEV BHOOMI INSTITUTE OF TECHNOLOGY

CHAKRATA ROAD , NAVGOAN , MANDUWALA, DEHRADUN UTTARAKHAND

 DECLARATION

I hereby declare that this project work entitled FINANCIAL ANALYSIS AT

TATA MOTORS . is my work, carried out under the guidance of my faculty guide
This report neither full nor in part has ever been submitted for award of any other
degree of either this university or any other university.

NIVESH GURUNG
 CERTIFICATE BY GUIDE

I have the pleasure in certifying that NIVESH GURUNG is a student of Dev Bhoomi Institute of
Technology . His University Roll No

He has completed his project work Title as “ FINANCIAL ANALYSIS AT TATA MOTORS

I certify that this is his original effort & has not been copied from any other source. This
project has also not been submitted in any other University for the purpose of award of
any Degree.
This project fulfils the requirement of the curriculum prescribed by DBIT University,
Dehradun, for the said course.
I recommend this project work for evaluation & consideration for the award of Degree to
the student.

Signature :

Name of the Guide

 TABLE OF CONTENTS

SNO. INDEX PAGE NO.

1 INTRODUCTION
2 REVIEW OF

LITERATURE
3 RESEARCH

METHDOLOGY
4 DATA ANLAYSIS AND

INTERPRETATION
5 RESEARCH FINDINGS
6 CONCLUSION AND

SUGGESITON
7 REFERENCES

4
 CHAPTER-1

EXECUTIVE SUMMARY

Financial statements provide summarized view of the financial position and Operation of the
company. Therefore, now a day it is necessary to all companies to know as well as to show the
financial soundness i.e. position and operation of Company to their stakeholders. It is also
necessary to company to know their financial position and operation of the company.

5
INTRODUCITON

The financial statement provides the basic data for financial performance analysis. The financial statements
provide a summarized view of the financial position and operations of a firm. Financial analysis (also
referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability,
stability and profitability of a business. The analyst first identifies the information relevant to the decision
under consideration from the total information contained in the financial statements. The analysis of
financial statements is an important aid to financial analysis. They provide information on how the firm has
performed in the past and what is its current financial position. Financial analysis is the process of
identifying the financial strengths and weakness of the firm from the available accounting data and
financial statements. The focus of financial analysis is on key figures in the financial statements and the
significant relationship that exists between them. The analysis of financial statements is a process of
evaluating relationship between component parts of financial statements to obtain a better understanding of
the firm’s position and performance. This study aims at analyzing the overall financial status of the TATA
MOTORS by using various financial tools. TATA MOTORS LTD is located at Bombay House, 24 Horni
Mody St, Mumbai 400 001.

The study of financial statement is prepared for the purpose of presenting a

periodical review or report by the management of and deal with the state of investment in
business and result achieved during the period under review. They reflect the financial
position and operating strengths or weaknesses of the concern by properly establishing
relationship between the items of the balance sheet and remove statements.

Financial statement analysis can be under taken either by the management of the firm
or by the outside parties. The nature of analysis defers depending upon the purpose of the
analysis. The analyst is able to say how well the firm could utilize the resource of the
society in generating goods and services. Turnover ratios are the best tools in deciding these
aspects.

Hence it is overall responsibility of the management to see that the resource of the

6
firm is used most efficiently and effectively and that the firm’s financial position is good.
Financial statement analysis does indicate what can be expected in future from the firm.

Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an enterprise.

They report profitability and the financial position of the business at the end of accounting period. The

team financial statement includes at least two statements which the accountant prepares at the end of an

accounting period. The two statements are: -

 The Balance Sheet

 Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the financial

position on a particular date in terms of the structure of assets, liabilities and owners equity, and so on and

the Profit and Loss account shows the results of operations during a certain period of time in terms of the

revenues obtained and the cost incurred during the year. Thus the financial statement provides a

summarized view of financial position and operations of a firm

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision under consideration

to the total information contained in the financial statement. The second step is to arrange the information

in a way to highlight significant relationship. The final step is interpretation and drawing of inference and

conclusions. Financial statement is the process of selection, relation and evaluation.

7
Features of Financial Analysis

 To present a complex data contained in the financial statement in simple and understandable form.

 To classify the items contained in the financial statement inconvenient and rational groups.

 To make comparison between various groups to draw various

conclusions.

Purpose of Analysis of financial statements

 To know the earning capacity or profitability.

 To know the solvency.

 To know the financial strengths.

 To know the capability of payment of interest & dividends.

 To make comparative study with other firms.

 To know the trend of business.

 To know the efficiency of mgt.

 To provide useful information to mgt

8
Procedure of Financial Statement Analysis

 The following procedure is adopted for the analysis and interpretation of financial statements:-

 The analyst should acquaint himself with principles and postulated of accounting. He should know

the plans and policies of the managements that he may be able to find out whether these plans are

properly executed or not.

 The extent of analysis should be determined so that the sphere of work may be decided. If the aim

is find out. Earning capacity of the enterprise then analysis of income statement will be undertaken.

On the other hand, if financial position is to be studied then balance sheet analysis will be

necessary.

 The financial data be given in statement should be recognized and rearranged. It will involve the

grouping similar data under same heads. Breaking down of individual components of statement

according to nature. The data is reduced to a standard form. A relationship is established among

financial statements with the help of tools & techniques of analysis such as ratios, trends, common

size, fund flow etc.

 The information is interpreted in a simple and understandable way. The significance and utility of

financial data is explained for help indecision making.

 The conclusions drawn from interpretation are presented to the management in the form of reports.

9
Analyzing financial statements involves evaluating three characteristics of a company: its liquidity, its
profitability, and its insolvency. A short-term creditor, such as a bank, is primarily interested in the ability
of the borrower to pay obligations when they come due. The liquidity of the borrower is extremely
important in evaluating the safety of a loan. A long-term creditor, such as a bondholder, however, looks to
profitability and solvency measures that indicate the company’s ability to survive over a long period of
time. Long-term creditors consider such measures as the amount of debt in the company’s capital structure
and its ability to meet interest payments. Similarly, stockholders are interested in the profitability and
solvency of the company. They want to assess the likelihood of dividends and the growth potential of the
stock.

Comparison can be made on a number of different bases.

Following are the three illustrations:
1. Intra-company basis.
This basis compares an item or financial relationship within a company in the current year with the same
item or relationship in one or more prior years. For example, Sears, Roebuck and Co. can compare its cash
balance at the end of the current year with last year’s balance to find the amount of the increase or
decrease. Likewise, Sears can compare the percentage of cash to current assets at the end of the current
year with the percentage in one or more prior years. Intra-company comparisons are useful in detecting
changes in financial relationships and significant trends.

2. Industry averages.

This basis compares an item or financial relationship of a company with industry averages (or norms)
published by financial ratings organizations such as Dun & Bradstreet, Moody’s and Standard & Poor’s.
For example, Sears’s net income can be compared with the average net income of all companies in the
retail chain-store industry. Comparisons with industry averages provide information as to a company’s
relative performance within the industry.

3. Intercompany basis.
This basis compares an item or financial relationship of one company with the same item or relationship in
one or more competing companies. The comparisons are made on the basis of the published financial
statements of the individual companies. For example, Sears’s total sales for the year can be compared with
the total sales of its major competitors such as Kmart and Wal-Mart. Intercompany comparisons are useful
in determining a company’s competitive position.
10
Tools of Financial Statement Analysis
Various tools are used to evaluate the significance of financial statement data. Three commonly used tools
are these:
 Ratio Analysis
 Funds Flow Analysis
 Cash Flow Analysis

Ratio Analysis:

 Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors

of a company. The other side considers tangible and measurable factors (quantitative). This means

crunching and analyzing numbers from the financial statements. If used in conjunction with other

methods, quantitative analysis can produce excellent results.

 Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and

cash flow statement. It's comparing the number against previous years, other companies, the

industry, or even the economy in general. Ratios look at the relationships between individual values

and relate them to how a company has performed in the past, and might perform in the future.

Meaning of Ratio:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the

relationship two figures, which are related to each other and mutually interdependent. Ratio is express by

dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another.
11
It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio

or in absolute figures as “so many times”. As accounting ratio is an expression relating two figures or

accounts or two sets of account heads or group contain in the financial statements.

Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of items in the financial

statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and

profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are

several ratios at the disposal of an analyst but their group of ratio he would prefer depends on the purpose

and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a
technique, which is easy to use. It can provide you with a valuable investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares financial ratios of

several companies from the same industry. Ratio analysis can provide valuable information about a

company's financial health. A financial ratio measures a company's performance in a specific area. For

example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By

comparing the leverage ratios of two companies, you can determine which company uses greater debt in

the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt

per equity. You can use this information to make a judgment as to which company is a better investment

risk.

However, you must be careful not to place too much importance on one ratio. You obtain a better

indication of the direction in which a company is moving when several ratios are taken as a group.

12
 Objective of Ratios:

Ratios are worked out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

STEPS IN RATIO ANALYSIS:

 The first task of the financial analysis is to select the information relevant to the decision under
consideration from the statements and calculates appropriate ratios.

 To compare the calculated ratios with the ratios of the same firm relating to the pas6t or with the
industry ratios. It facilitates in assessing success or failure of the firm.

 Third step is to interpretation, drawing of inferences and report writing conclusions are drawn after
comparison in the shape of report or recommended courses of action.

 Third step is to interpretation, drawing of inferences and report writing conclusions are drawn after
comparison in the shape of report or recommended courses of action.

Pre-Requisites to Ratio Analysis:

13
 In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-requisites,
which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for
meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but
meaningful & correct interpretation & conclusion can be arrived at only if the following points are well
considered.

1) The dates of different financial statements from where data is taken must be same.

2) If possible, only audited financial statements should be considered, otherwise there must be

sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross section analysis

otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be

preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio must

be related to each other, otherwise there is no purpose of calculating a ratio.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS:

The calculation of ratios may not be a difficult task but their use is not easy. Following
guidelines or factors may be kept in mind while interpreting various ratios are

 Accuracy of financial statements

 Objective or purpose of analysis

 Selection of ratios

 Use of standards

 Caliber of the analysis

14
Importance of Ratio Analysis:

As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies

in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the

performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the

following aspects:

1] Liquidity position
2] Long-term solvency
3] Operating efficiency
4] Overall profitability
5] Inter firm comparison
6] Trend analysis.

1] Liquidity position: -

With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The

liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they

become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid

funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal.

This ability is reflected in the liquidity ratio of a firm. The liquidity ratio is particularly useful in credit

analysis by bank & other suppliers of short term loans.

15
2] Long-term solvency: -
Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the
financial position of a borrower is of concern to the long-term creditors, security analyst & the present &
potential owners of a business. The long-term solvency is measured by the leverage/ capital structure &
profitability ratio Ratio analysis s that focus on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance,
will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily
loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability
ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the
risk involved.

3] Operating efficiency:

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is

that it throws light on the degree of efficiency in management & utilization of its assets. The various

activity ratios measure this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate

analysis, dependent upon the sales revenues generated by the use of its assets- total as well as its

components.

4] Overall profitability:

Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the

management is constantly concerned about overall profitability of the enterprise. That is, they are

concerned about the ability of the firm to meets its short term as well as long term obligations to its

creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm.

This is possible if an integrated view is taken & all the ratios are considered together.

5] Inter firm comparison:

Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to

remedial measures. This is made possible due to inter firm comparison & comparison with the industry

16
 averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm.

One of the popular techniques is to compare the ratios of a firm with the industry average. It should be

reasonably expected that the performance of a firm should be in broad conformity with that of the industry

to which it belongs. An inter firm comparison would demonstrate the firms position vice-versa its

competitors. If the results are at variance either with the industry average or with those of the competitors,

the firm can seek to identify the probable reasons & in light, take remedial measures.

6] Trend analysis:
Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the

financial position of a firm is improving or deteriorating over the years. This is made possible by the use

of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know

the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the

ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the

present level may be satisfactory but the trend may be a declining one.

Advantages of Ratio Analysis:

Financial ratios are essentially concerned with the identification of significant accounting data

relationships, which give the decision-maker insights into the financial performance of a company. The

advantages of ratio analysis can be summarized as follows:

 Ratios facilitate conducting trend analysis, which is important for decision making and

forecasting.

 Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and

solvency of a firm.

 Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.

 The comparison of actual ratios with base year ratios or standard ratios helps the management

analyze the financial performance of the firm.

17
18
 COMPANY PROFILE

Tata Motors Group, a USD 42 billion organisation, is a leading automobile manufacturer with a
portfolio that includes a wide range of cars, sports vehicles, trucks, buses and defence vehicles.
Our marque can be found on and off-road in over 175 countries around the globe.

Part of the USD100 billion Tata group founded by Jamsetji Tata in 1868, Tata Motors is among
the world’s leading manufacturers of automobiles. They are India's largest automobile
manufacturer, and continue to take the lead in shaping the Indian commercial vehicle landscape,
with the introduction of leading-edge powertrains and electric solutions packaged for power
performances and user comfort at the lowest life-cycle costs. Their new passenger cars and
utility vehicles are based on Impact Design and offer a superior blend of performance,
driveability and connectivity.

19
NEED OF STUDIES
 The financial performance of the company is known by calculating financial statement
and ratio.
 To know the organizational activity.
 To know the societies contribution to build the industry and also organization .

OBJECTIVES OF STUDY
 To find out the financial performance of the organization for last 5 years through ratio
analysis.
 To know the utilization of financial resources.

20
CHAPTER-2

INTRODUCTION TO THE STUDY

The study paper on the topic “a study financial Ratio Analysis at TATA MOTORS” is partial
fulfillment of requirement of BBA course .

It was an opportunity to learn practical aspects of Motors. I have chosen this topic because
“ratios are use to interpret the financial statements so that strengths and weakness of a firm as
well as to know its historical performance and current financial condition can be determined.”

My study covers the calculation of ratios for TATA MOTORS and to know their financial
performance.

RATIO ANALYSIS

When we observed the financial statements comprising the balance sheet and profit or loss
account is that they do not give all the information related to financial operations of a firm, they
can provide some extremely useful information to the extent that the balance sheet, shows the
financial position on a particular date in terms of structure of assets, liabilities and owners equity
and profit or loss account shows the results of operation during the year. Thus the financial
statements will provide a summarized view of the firm. There fore in order to learn about the
firm the careful examination of in valuable reports and statements through financial analysis or
ratios is required.

MEANING AND DEFINITION

Ratio analysis is one of the powerful techniques which is widely used for interpreting financial
statements. This technique serves as a tool for assessing the financial soundness of the business.

The idea of ratio analysis was introduced by Alexander wall for the first time in 1919. Ratios are
quantitative relationship between two or more variables taken from financial statements.

Ratio analysis is defined as, “The systematic use of ratio to interpret the financial statement so
that the strength and weakness of the firm as well as its historical performance and current
21
financial condition can be determined. In the financial statements we can find many items are
co-related with each other For example current assets and current liabilities, capital and long
term debt, gross profit and net profit purchase and sales etc.

To take managerial decision the ratio of such items reveals the soundness of financial position.
Such information will be useful for creditors, shareholders management and all other people who
deal with company.

IMPORTANCE

As a tool of financial management ratio are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis and enables the drawing
inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects:

 Liquidity position Long term solvency Operating efficiency Overall profitability

Inter firm comparison Trend analysis.

Liquidity Position:

With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a
firm would be satisfactory if it is able to meet its current obligations when it become due. A firm
can be said to have the ability to meet its short term liabilities if it has sufficient liquid funds to
pay the interest on its short maturing debt usually within a year as well as to repay the principal.
This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are particularly useful
in credit analysis by banks and other suppliers of short term loans.

Long term solvency:

Ratio analysis is equally useful for assessing the long term financial viability of a firm. This
aspect of the financial position of a borrower is of concern to the long term creditors, security
analysts and the present and potential owners of a business. The long term solvency is measured
by the leverage/capital structure and profitability ratios which focus on earning power and
operating efficiency. Ratio analysis reveals the strengths and weakness of a firm in this respect.
The leverage ratio for instance, will indicate whether a firm has reasonable proportion of

22
various sources of finance or if it is heavily loaded with debt in which case its solvency is
exposed to serious strain. Similarly the various profitability ratios would reveal whether or not
the firm is able to offer adequate return to its owners consistent with the risk involved.

Operating Efficiency:

Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of
management, is that it throws light on the degree of efficiency in the management and utilization
of its assets. The various activity ratios measure this kind of operational efficiency. In fact, the
solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by
the use of its assets total as well as its components.

Overall Profitability:

Unlike the outside parties which are interested in one aspect of the financial position of a firm,
the management is constantly concerned about the overall profitability of the enterprise. That is,
they are concerned about the ability of the firm to meet its short term as well as long term
obligations to its creditors, to ensure a reasonable return to its owners and secure optimum
utilization of the assets of the firm. This is possible if an integrated view is taken and all the
ratios are considered together.

Inter firm Comparison:

Ratio analysis not only throws light on the financial position of a firm but also serves as a
stepping stone to remedial measures. This is made possible due to inter firm comparison and
comparison with industry averages. A single figure of a particular ratio is meaningless unless it
is related to some standard or norm. one of the popular techniques is to compare the ratios of a
firm with the industry average. It should be reasonably expected that the performance of a firm
should be in broad conformity with that of the industry to which it belongs. An interfere
comparison would demonstrate the firm’s position vis-à-vis its competitors. If the results are at
variance either with the industry average or with those of the competitors, the firm can seek to
identify the probable reasons and, in that light, take remedial measures.

Trend Analysis:

Finally, ratio analysis enables a firm to take the time dimension into account. In other words,
23
whether the financial position of a firm is improving or deteriorating over the years. This is
made possible by the use of trend analysis. The significance of a trend analysis of ratios lies in
the fact that the analysts can know the direction of movement, that is, whether the movement is
favorable or unfavorable. For example, the ratio may be low as compared to the norm but the
trend may be upward. On the other hand, though the present level may be satisfactory but the
trend may be a declining one.

Limitations:

Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from various
limitations.The operational implication of this is that while using ratios, the conclusions should
not be taken on their face value. Some of the limitations which characterise ratio analysis are

i) Difficulty in comparison
ii) Impact of inflation, and
iii) Conceptual diversity.

Difficulty in Comparison:

One serious limitation of ratio analysis arises out of the difficulty associated with their
comparisons are vitiated by different procedures adopted by various firms. The differences may
relate to:

Differences in the basis of inventory valuation (e.g. last in first out, first in first out,

 average cost and cost); Different depreciation methods (i.e. straight line vs. written
down basis)

 Estimated working life of assets, particularly of plant and equipment;

 Amortization of intangible assets like good will, patents and so on;

 Amortization of deferred revenue expenditure such as preliminary expenditure and

 Discount on issue of shares; Capitalization of lease;

24
 Treatment of extraordinary items of income and expenditure; and so on.

Secondly, apart from different accounting procedures, companies may have different accounting
periods, implying differences in the composition of the assets, particularly current assets. For
these reasons, the ratios of two firms may not be strictly comparable.

Another basis of comparison is the industry average. This presupposes the availability, on a
comprehensive scale, of various ratios for each industry group over a period of time. If,
however as is likely such information is not compiled and available, the utility of ratio analysis
would be limited.

Impact of Inflation:

The second major limitation of the ratio analysis as a tool of financial analysis is associated with
price level changes. This, in fact, is a weakness of the traditional financial statements which are
based on historical costs. An implication of this feature of the financial statements as regards ratio
analysis is that assets acquired at different periods are, in effect, shown at different prices in the
balance sheet, as they are not adjusted for changes in the price level. As a result, ratio analysis
will not yield strictly comparable and, therefore, dependable results. To illustrate, there are two
firms which have identical rates of returns on investments, say 15%. But one of these had
acquired its fixed assets when prices were relatively low,

While the other one had purchased them when prices were high. As a result, the book value of
the fixed assets of the former type of firm would be lower, while that of the latter higher. From
the point of view of profitability, the return on the investment of the firm with a lower book
value would be overstated. Obviously, identical rates of returns on investment are not indicative
of equal profitability of the two firms. This is a limitation of ratios.

Conceptual diversity:

Yet another factor which influences the usefulness of ratios is that there is difference of opinion
regarding the various concepts used to compute the ratios. There is always room for diversity of
opinion as to what constitutes shareholders equity, debt, assets, and profit and so on. Different
firms may use these terms in different senses or the same firm may use them to mean different
things at different times.

25
Tata on a single ratio, for a particular purpose may not be a conclusive indicator. For instance,
the current ratio alone is not a as adequate measure of short term financial strength; it should be
supplemented by the acid test ratio, debtors turnover ratio and inventory turnover ratio to have
real insight into the liquidity aspect.

Finally, ratios are only a post mortem analysis of what has happened between two balance sheet
dates. For one thing, the position in the interim period us bit revealed by ratio analysis.
Moreover, they give no clue about the future.

Liquidity Ratios:
The importance of adequate liquidity in the sense of the ability of a firm to meet current/short
term obligations when they become due for payment can hardly be overstressed. In fact, liquidity
is a prerequisite for the very survival of a firm. The short term creditors of the firm are interested
in the short term solvency or liquidity of a firm. But liquidity implies, from the viewpoint of
utilization of the funds of the firm that funds are idle or they earn very little. A proper balance
between the two contradictory requirements, that is, liquidity and profitability
is required for efficient financial management. The liquidity ratios measure the ability of firm to
meet its short term obligations and reflect the short term financial solvency of a firm.

Long –term Solvency Ratio:

The second category of financial ratios is leverage or capital structure ratios. The long term
creditors would judge the soundness of a firm on the basis of the long term financial strength
measured in terms of its ability to pay the interest regularly as well as repay the installment of the
principal on due dates or in one lump sum at the time of maturity. The long term solvency ratio
of a firm can be examined by using leverage or capital structure ratios. The leverage or capital
structure ratios may be defined as financial ratios which throw light on the long term solvency of
a firm as reflected in its ability to assure the long term creditors with regard to: (1) Periodic
payment of interest During the period of the loan and (2) Repayment of principal on maturity or
in pre determined installments at due dates.

Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset management. These ratios
are also called efficiency ratios or assets utilization ratios. The efficiency with which the assets

26
are used would be reflected in the speed and rapidity with which assets are converted into sales.
The greater is the rate of turnover or conversion, the more efficient is the
utilization/management, other things being equal. For this reason, such ratios are also
designated as turnover ratios. Turnover is the primary mode for measuring the extent of efficient
employment of assets by relating the assets to sales. An activity ratio may, therefore, be defined
as a test of the relationship between sales and the various assets of a firm.

Profitability Ratios:
We know that the net operating result ,i.e. operating net profit, is not the sole criterion of
the firm although the same is the primary objevtives of all business enterprises
.Because, profit is needed for extension and development also. Moreover, various
interested groups consider it from their own interest. For example , an investor is
interested in higher returns, creditors want better security, workers want higher wages
etc. All these problems can be solved if the concern earns adequate profits and naturally
profit is the yardstick of measuring the overall efficiency of firm.Profits are the margin of
safety to a creditor, test of efficiency and control to the management , worth of investments to
the owners , measure of tax paying capacity to a government etc. Thus, profits are the index
of economic progress of a country , as a whole. For this purpose profitability ratios are
calculated in order to measure the overall efficiency of a firm. Profitability ratios are usually
expressed in terms of percentage.

27
Profitability ratios are, again, of following two types:

a)General Profitability Ratio b)Overall Profitability

Ratio (In terms of sales) (In terms of investment)
1)Gross Profit Ratio 1)Return on Capital Employed

2 ) Net Profit Ratio 2)Return on Ordinary Share capital

3) Operating Profit 3)Return on Total Resources

4) Operating Profit Ratio 4)Return on proprietor’s

Fund

5) Profit Cover Ratios

5)Dividend Yeild
Ratio 6)Dividend Pay-out
Ratio 7)Dividend Per
share 8)Earning Price
Ratio 9)Earning Per
Share 10)Price Earning
Ratio 11)Assets Cover
12)Capital Turnover
Ratio
13) Turnover to Proprietor’s Fund Ratio

14) Turnover to Fixed Assets Ratio

15) Turnover to Assets and Liabilities

Ratio

16) Net Profit to Total Assets Ratio

17) Net Profit to Fixed Assets Ratio

18) Assets to Proprietorship Ratio

28
General Profitability Ratios:
(1 )Gross Profit Ratio

This is the ratio of Gross Profit to Net Sales and expressed as a percentage. It is also
called Turnover Ratio. It reveals the amount of Gross Profit for each rupee of sale. It is
highly significant and important since the earning capacity of the business can be
ascertained by taking the margin between cost of goods and sales. The higher the ratio,
the greater will be the margin, and this is why it is called Margin Ratio. Management is
always interested in a high margin in order to cover the operating expenses and
sufficient return on the Proprietor ‘s Fund. It is very useful as a test of profitability and
management efficiency . 20% to 30% Gross profit Ratio may be considered normal:

Gross Profit Ratio= Gross Profit/Net Sales

*100 INTERPRETATION AND SIGNIFICANCE
This ratio reveals the efficiency of the firm about the goods produced.Since gross profit
is the difference between selling price and cost of goods sold the higher the profit, better
will be the financial performances.

NET PROFIT RATIO

This is the ratio of Net Profit to Net Sales and is also expressed as a percentage. It indicates
the amount of sales left for shareholders after all costs and expenses have been met.

The higher the ratio, the greater will be profitability---and the higher the return to the
shareholders. 5% to 10% may be considered the normal. It is a very useful tool to
control the cost of production as well as to increase sales:

Net Profit Ratio=Net Profit /Net Sales*100

This ratio measures the overall efficiency of the management. Practically ,it measures the firm’s
overall profitability. It is the difference between Gross Profit and operating and
non-operating income minus operating and non-operating expenses after deduction of tax.
This ratio is very significant as, if it is found to be very low, many problems may arise,
dividend may not be paid, operating expenses may not be paid etc. Moreover,
29
higher profit earning capacity protects a firm against many financial hindrances(e.g.
adverse economic condition) and, naturally, higher the ratio, the better will be the
profitability.

OPERATING RATIO

This is the ratio of operating expenses or operating cost of sales. It may be expressed
as a percentage and it reveals the amount of sales required to cover the cost of goods sold
plus operating expenses. The lower the ratio the higher is the profitability and the better is
the management efficiency. 80% to 90% may be considered as normal.

Operating Ratio= Cost of goods sold+Operating Expenses/Sales *100

Operating Expenses consist of (i)Office and Administrative expenses, and (ii) Selling and
Distribution expenses and the two components of this ratio are Operating Expenses and Net
Sales.

INTERPRETATION AND SIGNIFICANCE

The primary purpose of this ratio is to compare the different cost components in order to
ascertain any change in cost composition, i.e. increase or decrease and to see which element of
cost has increased and which one decreased. Moreover, there is no standard or norm about
this ratio since it varies from firm to firm---depending on the nature and type of the firm
and its capital structure. For a better performance, a trend analysis of the ratios for some
consecutive years many present a valuable information. If non- operating expenses are
considered by mistake, the same may present a wrong information.

OPERATING PROFIT RATIO

It is a modified version of Net Profit to Sales Ratio. Here, the non-operating incomes and
expenses are to be adjusted (i.e. to be excluded) with the net profit in order to find out the
amount of operating net profit. It indicates the amount of profit earned for each rupee of
sales after dividing Operating Net Profit by Net Sales. It is also expressed as a percentage:

30
 Operating Profit Ratio= Operating Net Profit/Net Sales*100

Here, Operating Net Profit=Net Profit-Income from external securities and others (i.e. non-
trading incomes)+Non-operating expenses(i.e. Interest on Debentures etc.).
(I) DIVIDEND COVERAGE RATIOS

a) Preference Shareholders’ Coverage Ratio

It indicates the number of times the Preference Dividends are covered by the Net
Profit (i.e.,

Net Profit after Interest and Tax but before Equity Dividend). The higher the coverage
the better will be the financial strength. It reveals the safety margin available to the Preference
Shareholders:

Prefernce Shareholders’ Coverage Raito

= Net Profit( after Interest and Tax but before Equity Dividend) /Preference
Dividend

(ii)Equity Shareholders’ Coverage Ratio

It indicates the number of times the equity dividends are covered by the Net Profit (i.e.
Net Profit after Interest, Tax and Pref. Dividend).The higher the coverage, the better will
be the financial stenghth and the fairer the return for the shareholder since maintenance of
dividend is assured.

Equity Shareholders’ Coverage Ratio

= Net Profit(after Interest, Tax and Pref. Dividend)/ Equity Dividend

(b) INTEREST COVERAGE RATIO

31
It indicates the number of times the fixed interest charges (Debenture Interest, Interest on
Loans etc.) are covered by the Net Profit (i.e. Net Profit before Interst and Tax).

Net Profit (before Tax and Interest)(EBIT)

Interest Coverage Ratio=

Fixed Interest and Charges

(c) TOTAL COVERAGE RATIO

The coverage ratio is a measure of a company's ability to meet its financial obligations. In broad
terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its
obligations to its lenders. The trend of coverage ratios over time is also studied by analysts and
investors to ascertain the change in a company's financial position.

(d) OVERALL PROFITABILITY RATIO

i) Return on Capital Employed/Return on Investment

Return on capital employed (ROCE) is a financial ratio that measures a company's

profitability and the efficiency with which its capital is employed. ROCE is calculated as:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.

Return on Investment (ROI) is a performance measure, used to evaluate the efficiency of an

investment or compare the efficiency of a number of different investments. ROI measures the
amount of return on an investment, relative to the investment’s cost. To calculate ROI, the
benefit (or return) of an investment is divided by the cost of the investment. The result is
expressed as a percentage or a ratio.

ii) Return on Equity

32
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders
equity. Return on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.

iii) Return on Common Equity

Return on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. Net income is for the full fiscal year
(before dividends paid to common stock holders but after dividends to preferred stock.)

iv) Return on Assets

Return on Assets (ROA) is an indicator of how profitable a company is relative to its

total assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA
is displayed as a percentage.

v) Cash return on Asset

Definition. Cash ROA (TTM) is the amount of cashflow from operations (CFO) over a firm's
total assets. Typically, a ROA compares net income (NI) to a firm's total assets. The difference
between using CFO and NI is that CFO is harder to manipulate than NI, thus a better indicator
of true return.

vi) Return on Proprietor’s Fund/Earning Ratio

Return on shareholders' investment ratio is a measure of overall profitability of the business and
is computed by dividing the net income after interest and tax by average stockholders' equity. ...
The ratio is usually expressed in percentage.

vii)Return on Ordinary Shareholder’s Equity

33
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders
equity. Return on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.

viii) Net profit to Fixed Asset ratio:- This is the ratio of Net Profit to Fixed Assets which
indicates whether or not the fixed assets have been effectively utilized in the business.

ix)Net Profit to Total Assets:- This is the ratio of net profit to total assets. It also indicates
whether the total assets of the business have been properly used or not. If not properly used, it
proves inefficiency on part of the management. It also helps to measure the profitability of the
firm.

x) Price Earning Ratio:- It is the ratio which relates to the market price of the shares to earning
per equity shares. A high ratio satisfies the investors and indicates the share prices that are
comparatively lower in relation to recent earning per share.

xi)Earning Price Ratio/Earning Yield:- Yield is expressed in terms of market value per share.
This ratio is calculated by dividing earning per share by the market price per share.

xii)Earning Per Share:- This is calculated by dividing the net profit (after tax and
pref.dividend) available to the share holders by the number of ordinary share. It indicates the
profit available to the ordinary share holders on per share basis.

xiii) Dividend Yield Ratio:- It is calculated by cash dividend per share by the market value
per share. It is very important to the new investors.

xiv)Dividends Payout Ratio:- The dividend payout ratio is the amount of dividends paid to
stockholders relative to the amount of total net income of a company. The amount that is not
paid out in dividends to stockholders is held by the company for growth. The amount that is
kept by the company is called retained earnings.

xv) Dividend per share:- Dividend per share (DPS) is the sum of declared dividends issued by a
company for every ordinary share outstanding. The figure is calculated by dividing the

34
total dividends paid out by a business, including interim dividends, over a period of time by the
number of outstanding ordinary shares issued.

xvi)Capital Turnover Ratio:- The working capital turnover ratio is also referred to as net sales
to working capital. It indicates a company's effectiveness in using its working capital. The
working capital turnover ratio is calculated as follows: net annual sales divided by the average
amount of working capital during the same 12 month period.

xvii) Turnover to Proprietors fund Ratio:- 1) Ratio of fixed assets

to shareholders or proprietors' funds. 2) Ratio of current assets
to shareholders or proprietors' funds.

xviii) Assets to Proprietorship Ratio:- Proprietary ratio. Equity ratio. The proprietary
ratio (also known as the equity ratio) is the proportion of shareholders' equity to total assets,
and as such provides a rough estimate of the amount of capitalization currently used to
support a business.

xix)Price-book Ratio:- The price-to-book ratio (P/B Ratio) is a ratio used to compare a stock's
market value to its book value. It is calculated by dividing the current closing price of the stock
by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is
undervalued.

xx) Market price per share:- The Price-Earnings Ratio is calculated by dividing the
current market price per share of the stock by earnings per share (EPS). (Earnings per
share are calculated by dividing net income by the number of shares outstanding.)

xxi)Book-value per share:- The book value per share formula is used to calculate the per
share value of a company based on its equity available to common shareholders. The term
"book value" is a company's assets minus its liabilities and is sometimes referred to as
stockholder's equity, owner's equity, shareholder's equity, or simply equity.

35
FORMULAS:-
i) Return on Capital Employed = Net profit(after tax) / Capital employed
ii) Return on Equity = Net Income / Avg. Shareholders ( including
pref. shareholders fund)
iii) Return on Common Equity = Earning after Tax-Pref. Div /
Equity Shareholder’s Fund * 100
iv) Return on Assets = Earning before interest and tax / Total Assets * 100
v) Cash Return on Assets = Cash flows from Operating activities / Total Assets
* 100
vi) Return on proprietors fund/earning ratio=net profit(after tax) / propreitors
fund
vii) Return on ordinary share holders equity (ROE)=net profit (after tax and pref.
dividend)/proprietors equality(less Pref. share capital)
viii) Net profit to fixed assets ratio= Net profit / Fixed Assets
ix) Net Profit to Total Assets Ratio= Net Profit/ Total Assets
x) Price Earning Ratio= Market Price of Share / Earning per Share
xi) Earning price Ratio/Earning Yield = Earning per share / Market price
per Share
xii) Earning Per Share = Net Profit available to Ord. Shareholders / No.
of Ordinary Shares
xiii) Dividend Yield Ratio = Dividend per Share / Earnings per Share
xiv) Dividend Pay-out Ratio= Dividend per Share / Earnings Per share
xv) Dividend Per Share = Dividend paid to Ordinary Shareholders / No.
of Ordinary shares
xvi) Capital Turnover Ratio= Sales( Turnover) / Average Capital Employed
xvii) Turnover to Proprietor’s Fund Ratio= Sales( Turnover) / Proprietor’s Fund
xviii) Assets to Proprietorship Ratio= Total Assets / Proprietor’s Fund
xix) Price-Book Value Ratio= MPS / Book Value Per Share

36
REVIEW OF LITERATURE

Horne and Wachowicz, (2000) Working capital is an important tool for growth and
profitability for corporations. If the levels of working capital are not enough, it could lead
to shortages and problems with the day-to-day operations.

Lazard’s and Tryfonidis (2006) investigated the relationship of corporate profitability and
working capital management for firms listed at Athens Stock Exchange. They reported that
there is statistically significant relationship between profitability measured by gross
operating profit And the Cash Conversion Cycle. Furthermore, Managers can create profit
by correctly handling the individual components of working capital to an optimal level.

Shah and Sana (2006) used Avery small sample of 7 oil and gas sector firms to investigate
this relationship for period 2001-2005.The results suggested that managers can generate
positive return for the shareholders by effectively managing working capital.

Ganesan (2007) selected telecommunication equipment industry to study the effectiveness

of working capital management. The sample included for his research paper included
443annual financial statements of 349telecommunication equipment companies covering
the period 2001 to 2007. The statistical tests used included correlation, regression analyses
and Analysis of variance (ANOVA). The results showed those days of the working capital
negatively affects the profitability of these firms but in reality it does not affect the
transportability of firms in telecommunication equipment industry.

Sen. M (2009) examined the ISE (Istanbul Stock Exchange) listed firms and checked out
the relationship with the working capital. According to them there is negative 23
relationship among variables. His research uncovered the importance of the finance
directors who act as moderators or catalysts to increase the productivity of the firm in other
words they positively affect the firm’s performance.

Juliet D’Souza and William L.Megginson (1999) 10 have studied the financial
and operating performance of privatized firms during the 1990s. This study compares the

37
pre and post privatization financial and operating performance of 85 companies from 28
industrialized countries that were privatized through public share offerings for the period
from 1990 through 1996. The significant increases in profitability, output, operating
efficiency, dividend payments and significant decreases in leverage ratios for the full
sample of firms after privatization were noticed. Capital expenditures increase
significantly in absolute terms, but not relative to sales. Employment declines, but
insignificantly. The findings of the study strongly suggest that privatization yields
significant performance improvements.

Rupa Rege Nitsure and Mathew Joseph (1999)11 in their study entitled,
“Liberalisation and the Behaviour of Indian Industry (A Corporate - Sector Analysis
based on Capacity Utilisation) examined the impact of economic reform on productive
capacity creation and utilization across various Motors in the nineties. The results
suggest that although substantial achievements occurred initially in creation and
utilization of capacities in the various Motors, there is significant room for further
improvement in utilization. It analyzed the determinants of capacity use such as credit
flows, import liberalization, fiscal consolidation and demand conditions, using pane data
for 802 firms for the period 1993-98 to suggest an optimum combination of policies that
is critical for realizing the unused capacity.

Rajeswari (2000)12 studied the Liquidity Management of Tamil Nadu Cement

Corporation Ltd. Alangulam-A Case Study. It can be concluded from the analysis, the
liquidity position of TANCEM is not stable. Regarding liquidity ratios, there was too
much of liquidity in the first two years of the study period. A very high degree of
liquidity is also bad as idle assets earn nothing and affects profitability. It can be
concluded that the liquidity management of TANCEM is poor and is not satisfactory.

Dabasish Sur, Joydeep Biswas and Prasenjit Ganguly (2001)13 studied the
Liquidity Management in Indian Private Sector Enterprises - A case study of Indian
Primary Aluminum industry. From the analysis, it may be summarized that the overall
performance regarding liquidity management at INDAL was better in terms of efficient
utilization of short term funds, whereas HINDALCO was unable to do so. A very high
degree of positive correlation between liquidity and profitability in case of both the
38
companies was a notable feature, reflecting the favorable effect of liquidity on
profitability.

Aggarwal and Singla (2001)14 in their study developed a single index of financial
performance through the technique of Multiple Discriminant Analysis (MDA), They
attempt to identity from among the 11 ratios, used as inputs, those ratios, which are
relevant in distinguish between profit making units and loss making units in Indian paper
industry. The study indicates that model has correctly classified 82.14 percent of units
selected as profit making and loss marking. The study also shows that inventory turnover
ratio, interest coverage ratio, net profit to total assets and earning per share are the most
important indicators of financial performance. The study also suggests that the results
of MDA can be used as predictor of future profitability / sickness.

Joanne Loundes (2001)15 in the study „The Financial performance of Australian

Government Trading Enterprises Pre-and Post-Reform‟ revealed that during the 1990's
there were several measures introduced to improve the efficiency and financial
performance of government trading enterprises in Australia. The purpose of this study
was to discover whether there had been any change in the financial performance of
government trading enterprises operating in electricity, gas, water, railways and ports
Motors as a result of these changes. The study reveals that it does not appear to have been
a noticeable enhancement in the financial performance of most of this business, although
railways have improved slightly, from a low base.

Mark Rogers (2001)16 in his research the effect of diversification on firm

performance analyses the association between diversification and firm performance in a
sample of up to 1449 large Australian firms (1994 to 1997). Firm performance is
measured by profitability and, for quoted firms, market value. Results from the full
sample shows that more focused firms have higher profitability. This result controls for
firm specific effects and other determinants of profitability. However, this association is
not found in sub- sample regressions for listed firms. This is true both when either
profitability or market value is used as a performance measure. The results may indicate
that listed firms may be under closer scrutiny and competitive pressures that ensure, on
average, that these firms are at their optimal degree of diversification.

39
 Dabasish Sur (2001)17 studied the Liquidity Management: An overview of four
companies in Indian Power Sector. In this study a comparative analysis regarding the
liquidity management in Electricity generation and distribution industry has been made
for the period 1987-88 to 1996-97. The study reveals that the overall liquidity should be
managed in such a way that not only it should not hamper profitability but also its
contribution towards increase in profitability should be positive.

Derek Bosworth and Joanne Loundes (2002)18 in his study entitled the
Dynamic performance of Australian Enterprises investigate the interaction of
discretionary investments (R&D, capital investment, training and advertising),
innovation, productivity and profitability within a dynamic framework of firm
performance. A dynamic and closed model of firm performance is set up, and the
resulting empirical model is tested as a series of recursive equations, using a four-year
balanced panel data set of Australian firms drawn from the Business Longitudinal
Survey. The results indicate that current economic profit has an important role to play in
enabling firms to invest, and the findings indicate which of these investments are
complements and which are substitutes. The study explores the impact of these discretionary
investments on innovation and total factor productivity performance. Finally, the impact
of past discretionary investments both directly and indirectly (that is, via innovation and
productivity performance) on current profitability is examined. Past values of these
investments have a significant influence on current profit, effectively closing the model.

Mansur A. Mulla (2002)19 in „Use of „Z‟ score analysis for evaluation of financial
health of textile mills - A case study‟ has been made an insight into the financial health of
Shri Venkatesh Co-operative Textile Mills Ltd., Arunageri of Dharwad District. The „Z‟
score analysis has been applied to evaluate the general trend in financial health of a firm
over a period by using many of the accounting ratios. From the study it was concluded
that the textiles mill under study was just on the verge of financial collapse. On the
one hand, current assets declined because of the negative profitability performance,
whereas on the other hand, the current liabilities were on the increase because of poor
liquidity performance of the mill.

40
 Wolfgang Aussenegg and Ranko Jelic (2002) 20 examine operating
performance of 154 Polish, Hungarian and Czech companies that were fully or
partially privatized between January 1990 and December 1998. The study reveals
that privatized firms in the sample did not manage to increase profitability, and
significantly reduced efficiency and output in the post privatization period.
Enterprises privatized through mass privatization programs (Czech SOEs) achieved
lower profitability in the post-privatization period compared to their counterparts
privatized through case- by - case method. Czech companies have also maintained
much higher bank borrowings after privatizations than their polish and Hungarian
counterparts. The study further reveals that private sector IPOs underperforms their
privatization counterparts in terms of profitability, efficiency, capital investments
and output. Finally firm‟s size does not seem to influence key performance
measures in selected countries.

Sudarsana Reddy (2003)21 studied the Financial Performance of Paper industry

in AP. The main objectives set for the study are to evaluate the financing methods and
practices to analyze the investment pattern and utilization of fixed assets, to ascertain the
working capital condition, to review the profitability performance and to suggest
measures to improve the profitability. The data collected have been examined through
ratios, trend, common size, comparative financial statement analysis and statistical tests
have been applied in appropriate context. The main findings of the study are that A.P
paper industry needs the introduction of additional funds along with restructuring of
finances and modernization of technology for better operating performance.

RBI Corporate Studies Division (2003)22 has made an attempt to study the
performance of corporate business sector during the first half of 2002-2003. The results
of 146 private companies of various sectors were analyzed on the various parameters of
performance. Aggregation and comparison of the results of the first two quarters were
done on these performance parameters. It was concluded that the performance of the
private sector was better when compared with the first half of the previous year

41
(2001-2002). This was indicated by the following parameters viz., higher sales, reduced
interest payments and ultimately improved profitability. Sector- industry wise analysis of
performance has been done to highlight those areas where the performance has been
better vis-à-vis sectors, which have lagged behind in performance.

Ram Kumar Kakani, Biswatosh Saha and Reddy (2003) 23 attempts to provide
an empirical validation of the widely held existing theories on the determinants of firm
performance in the Indian context. The study uses financial statements and capital market
data of 566 large Indian firms over a time frame of eight years divided into two sub-
periods (1992-96 and 1996-2000) and to study Indian firm‟s financial performance
across various dimensions viz., shareholder value, accounting profitability and its
components, growth and risk of the sample firms. The study found that size, marketing
expenditure and international diversification had a positive relation with a firm‟s market
valuation. The study also found that a firm‟s ownership compositions, particularly the
level of equity ownership by domestic financial institution and dispersed public
shareholders, and the leverage of the firm were important factors affecting its financial
performance.

Laurent Weill (2004)24 in his study leverage and corporate performance-a

frontier efficiency analysis provides new empirical evidence on a major corporate
governance issue: the relationship between leverage and corporate performance. His
study provides two major importance‟s to this literature by applying frontier efficiency
techniques to obtain performance measures for companies from several countries (France,
Germany and Italy). The study proceeds to regressions of corporate performance on a
various set of variables including leverage. The study found mixed evidence
depending on the country; while significantly negative in Italy, the relationship between
leverage and corporate performance is significantly positive in France and

42
Germany. This tends to support the influence of some institution
characteristics on this link.

Petia Topalova (2004)25 in his study uses firm level data to examine the
performance of India‟s non financial corporate sector since 1989 and evaluate its
financial vulnerabilities. The study shows promising trends in liquidity, profitability and
leverage of the sector emerged in the early 1990s, they experienced a reversal after 1996.
Nevertheless, most indicators were still at comfortable levels, and there is evidence of
improvement in 2002. The study also reveals that a number of firms still face problems
servicing their debt obligations, posing a risk to lenders. The study of aggregate interest
coverage of the corporate sector indicates that potential non-performing loans of the
corporate sector remain high. This underscores the need of the corporate sector remain
high. This underscores the need for close monitoring of the corporate sector in the future.

Raghunatha Reddy and Padma (2005)26 in their study, an attempt has been
made to study the impact of mergers on corporate performance. It compares the pre and
post merger operating performance of the corporations involved in merger to identify
their financial characteristics. Empirical research on share price performance suggests
that acquiring firm generally earns positive returns prior to announcement, but less than
the market portfolio in the post liberalisations period in general and analysis of the pre
and post merger operating performance of the acquiring firm.

Santimoy Patra (2005)27 the impact of liquidity on profitability is analysed in his

study considering the case Tata Iron & Steel Company Limited. The study of the impact
of liquidity ratios on profitability showed both negative and positive association. Out of
seven liquidity ratios selected for this study, four ratios namely current ratio, acid test
ratio, current assets to total assets ratio and inventory turnover ratio showed negative
correlation

43
with profitability ratio. However, these correlation co-efficient were not statistically
significant. The remaining three ratios namely working capital turnover ratio, receivable
turnover ratio and cash turnover ratio have shown positive association with the
profitability ratio, all of which are statistically significant at 5% level of significance. The
result of all the correlation co- efficient is as desirable except correlation co-efficient
between inventory turnover ratio and ROI. However this undesirable sign between ITR
and ROI is not supported by the multiple regression analysis, which shows the positive
association between these two variables. There is increasing profitability which depends
upon many factors including liquidity.

RBI Bulletin (2005)28 Finance of Foreign Direct Investment companies, 2002-03.

An attempt has been made to assesses financial performance of 490 selected non-
Government non financial foreign direct investment (FDI) companies for the period 2001
based on their audited annual accounts. The financial results of the selected company
should improved performance in terms of higher growth in sales, value of production,
manufacturing expenses and gross profit during 2002-03 compared with the respective
growth rates in the previous year. The profitability ratios like profit margin, return on
network increased during the year under review company having major portion of FDF
from UK, USA, Switzerland and Mouritius registered net flow of foreign companies in
all the three years.

S.P.Singh (2006)29 in his study performance of sugar mills in Uttar Pradesh by

ownership, size and location. Performance assessment of the sugar industry and setting
targets for the relatively inefficient mill to improve their efficiency and productivity is
crucial, as the interest of various stakeholders are largely dependent on its performance.
The performance of the mills is found to vary significantly across sector, plant size and
region. The private sector mills achieve the highest efficiency scores, followed by the
cooperative sector. It has also been observed that the mills with bigger plant size
attain

44
relatively higher efficiency scores, moreover, the mills located in the WK found better
performer as compared to their counter parts of other regions. Labour and energy inputs
are found highly underutilized in almost all the inefficient mills.

Debasish Sur and Kaushik Chakraborty (2006)30 in his study financial

performance of Indian Pharmaceutical industry : The Indian Pharmaceutical industry has
been playing a very significant role in increasing the life expectancy and in decreasing
the mortality rate. It is the 5th largest in terms of volume and the 14th largest in value
terms in the world. The comparative analysis the financial performance of Indian
Pharmaceutical industry for the period 1993 to 2002 by selecting six notable companies
of the industry. The comparison has been made from almost all points of view regarding
financial performance using relevant statistical tools.

Kapil Choudhary (2007)31 in his study performance of the common stocks under
alternative investment strategies .While the efficient market hypothesis denies the
possibility of earning abnormal returns, the fundamental analysts assert that investment
strategies based on the accounting numbers may be indicators of feature investment
performance. The present study examines the relationship between investment
performance of equity securities and alternative investment strategies based on their
market capitalization, P/E ratio and earning per share. During the period from January
1997 to December 2005, the low market capitalization, P/E ratio, and earning per share
portfolios on average earned higher absolute rate of return than the high market
capitalization, P/V ratio, and earning per share portfolios respectively. Among the three
investment strategies the low market capitalization investment strategy was found
superior to both low P/E ratio and low earning per share investment strategies in terms of
absolute and risk adjusted rate of return.

45
 P.Janaki Ramudu and S.Durga Rovo (2007)32 in his study Receivables
management in the commercial vehicles industry in India. This paper examines the
efficiency of receivables management of the Indian commercial vehicles industry. This
study reveals that the industry as a whole had managed receivables efficiently, where as a
few individual companies had for less satisfactory scores in this respect. The study
reveals that the level of investment in receivables as a percentage of sales across the
industry was reasonable less. When benchmarked against the industry average, Ashok
Leyland and Swaraj Mazda had recorded poor performance in the receivables
management, where as a Tata Motors, Bajaj Tempo, and Eicher Motors, did well.

Monicor Singhania (2007)33 in his study Dividend policy of India companies.

The analysis revealed that while the percentage of companies declaring dividend declined
over the years, the average dividend per share increased by nearly eight times . This
implies that those companies declare dividend, increasingly per higher dividends over the
years. Average dividend payout ratio ranged between 25% and 68% during 1992-2004.
However average dividend yield showed a consistent upward trend throughout the period
of study-increasing from 0.75% in 1992 to 10% in 2004. One possible reason for the
increase in dividend payout may be the change in tax regime. According to tax preference
or trade-off theory, favorable dividends tax should lead to higher payouts.

S.K.Srivastorva (2007)34 in his study Role of Organizational management and

managerial Effectiveness in promoting performance and production. Management is a
universal Phenomenon. It is present in virtually all walks of life. Management is not
confined merely to a factory or an office. Skillful management is needed in clubs,
families, Schools, Sports, teams and social functions like marriages, Picnics parties and
so on. Lack of proper management invariable results in chaos, wastage of time, money
and effort. Although management is needed in various activities, it has special

46
significance with respect to business enterprises in the public as well as private sectors.
The productive efficiency of business firm depends a great deal on the Quality of
management. Also effectiveness of management is a major factor determining the growth
and prosperity of a business on which rests the process of economic growth.

T.Vanniarajan and C.Samuel Joseph (2007)35 in his study An Application of

Dupont control chart in Analyzing the financial performance of Banks. The liberalization
of the finance sector in India is exposing Indian banks to a new economic environment
that is characterized by increased competition and new regulatory requirements. Indian
and foreign banks are exploring growth opportunities in India by introducing new
products for different customer segments, many of which were not conventionally viewed
as customer for the banking industry. Many Banks have, in the last ten years, witnessed
new shareholders. All banks are in a position to evaluate its performance compared to
others. In general, the performance of the banks may be viewed on three dimensions
namely structural, operational and efficiency factors are suggested By India Bank
Association.

Adolphus J. Toby, Ph.D. (2007)36 in his study, Financial management modeling

of the performance of Nigerian Quoted Small and medium-sized Enterprises. It is
conceptualized that sustained growth, adequate liquidity and requisine profitability in the
SME sector is significantly related to their investment and financing decisions. The
empirical results show a significantly inverse relationship between current ratio and the
gross profit margin, holding the working capital gap constant. The quoted SMES current
assets ratio are significantly sensitive to commercial Banks „liquidity ratio, cash reserve
requirements, and loan-to-deposit ratio. Overall, over model results confirm that the SME
sector in Nigeria is still limited by the liquidity-profitability dilemma, efficiency
constraints, Pecking order reversals, stringent monetary policy regimes and a risk-over
banking system.

47
 Review of empirical studies on profitability analysis

Rao (1985)37 in his work entitled „Impact of Debt-Equity Ratio on Profitability-

An Exploratory Study of Engineering Industry‟, observes if the earning ability i.e.,
profitability, has any impact on the debt-equity ratio in engineering companies. The study
based on the impact of profitability on the debt-equity ratio has revealed a negative
association i.e., high debt-equity ratios meant low profitability due to large interest
payments, whereas low debt-equity ratio caused high profitability because of low interest
payments. The operating efficiency of the firm and reasonable rate of return on owner‟s
capital ultimately depend on the profits earned by it. Thus, profits are necessary to run the
firm in a healthy atmosphere of present day cut throat competitions and defend it from
business rivalry.

Deepak Chawola (1986)38 studied an empirical analysis of the profitability of the

Indian man-made fibres industry. This study examines and explains the trends in the
profitability of the Indian man-made fibres industry. The relevant data for the study is
obtained from 17 firms found in BSE Official Directory for the period 1963-64 to 1977-
78. An increase in the excise duty of man-made fibres seems to be associated with the
decline in profitability of the industry. Both concentration and vertical integration
influence the profitability. However, their impact differs for cellulose and petro-chemical
based group of fibres.

Nagarajan and Burthwal (1990)39 in their research work entitled “profitability

and structure: A firm level study of Indian Pharmaceutical Industry”, intensively
examined the relationship between profitability and structure, using a sample of thirty-
eight pharmaceutical firms in India for the period 1970-1982. Two measures of
profitability i.e., ratio of net profit to total sales revenue and the ratio of net profits to
total assets have been used to

48
find out the determination of profitability. The analysis demonstrated that under the
condition of price controls the most significant determinant of the profitability of the
firms in this industry is vertical integration. Size and advertising intensity did not appear
to be major determinants. This was perhaps due to the inability of firms to translate their
market power into prices, because of controls. The coefficient of growth rate of sales
was positive and significant, suggesting that factors on the demand side of a firm had a
greater impact on profitability than on the supply side.

Conyon and Machin (1991)40 in „The Determinants of Profit Margins in U. K.

Manufacturing‟, made an attempt to find the causes of inter-industry variations in profit
margins for 90 U.K. Manufacturing Motors over the period 1983 to 1986. Labour-market
characteristics (such as trade union coverage and unemployment), import intensity,
concentration and capital stock were taken as independent variables. The study revealed
that the union coverage and unemployment had a negative impact on profit margins. On
the other hand, import intensity, concentration and capital stock were significant in
explaining inter-firm variations in profit margins.

Krishnaveni (1991)41 in her study evaluated the impact of policy changes since
1982-92 on profitability and growth of firms in the industry using Tobin‟s q as a measure
of profitability. The study finds no evidence to show that firms have made supernormal
profits. Profitability is found to be explained mainly by age of the firms, vertical
integration, diversification and industry policy dummy variables. Important determinants
of the growth of firms are found as diversification, industry policy dummy variable, gross
retained profits and expansion of capacities. Results also reveal differences in
performance between car and non-car sectors as well as within the sectors of the industry.

49
 Chandrasekaran (1993)42 in „Determinants of profitability in Cement Industry‟ has studied the
determinants of profitability in cement industry. The objective of this study was to examine determinants
of profitability in cement industry. The study aims at drawing inference on impact of policy measures
which led to change in price and distribution polices relevant for cement industry. Determinants of
profitability are analysed using the technique of ordinary least squares. Based on existing theories and
relevant econometric empirical works, variables are selected. The study concluded that efficiency in
inventory management and efficient management of current assets were important to improve
profitability.

50
RESEARCH METHODOLOGY

Research In Common Parlance Refers To Search For Knowledge. Data had been collected by primary and
secondary methods. Research Methodology is a way to systematically solve the research problem. It may
be understood as a science of studying how research is done scientifically. The study of research
methodology gives the student the necessary training in gathering material and arranging them.
According to Hudson Maxim, “All progress is born of inquiry. Doubt is often better than overconfidence,
for it leads to inquiry, and inquiry leads to invention”.
Research is an academic activity and as such the term should be used in technical sense. Research is, thus
an original contribution to the existing stock of knowledge making for its

DATA COLLECTION

The task of data collection begins after a research problem has been defined and research design/ plan
chalked out. While deciding about the method of data collection to be used for the study, the researcher
should keep in mind two types of data.
Secondary data
My study is based on secondary data.
Collection of secondary data

These are those data which have been already collected by someone else and which have already
been passed through the statistical process. When the researcher utilizes secondary data, then he has to look
into various sources from where they can obtain them. Secondary data may either be published data or
unpublished data.

Published data are available in: -

a) Various publications of the central, state and local govt.

b) Books magazines and newspapers
c) Reports and publications of various associations connected with Business and industry, banks,
stock exchanges.
d) Reports prepared by research scholars, universities, economist etc, in different fields.
51
Unpublished data are available from: -

Dairies, letters, unpublished biographies and autobiographies and also may be available with scholars and
research workers, trade associations, labour bureaus and other public/ private individuals and
organizations.

Here Secondary data was collected through: -

Secondary data was collected through annual report 2017-2020

Consider.

52
 CHAPTER-3

DATA ANALYSIS AND INTERPRETATION

Calculation and Interpretation of Ratios

1] Current Ratio:
Formula:
Current assets
Current ratio =
Current liabilities

YEAR 2017 2018 2019 2020

Current assets 24,696.15 30,210.99 44,743.86 56,298.09
Current liabilities 21,547.00 25,858.06 32,221.16 45,675.71
Current ratio 1.14 1.16 1.38 1.23

60000

50000

40000
YEAR
30000 Current assets
Current liabilities
Current ratio
20000

10000

0
1 2 3 4

Comments:

In Tata Motors Ltd. the current ratio is 1.23:1 in 2018-2019. It means that for one rupee of current liabilities,

the current assets are 1.23 rupee is available to the them. In other words the current assets are 1.23 times the

current liabilities.

Almost 4 years current ratio is same but current ratio in 2017-2018 is bit higher, which makes company sounder.

53
The consistency increase in the value of current assets will increase the ability of the company to meets its

obligations & therefore from the point of view of creditors the company is less risky.

Thus, the current ratio throws light on the company’s ability to pay its current liabilities out of its current assets. The

Tata Motors Ltd. has a goody current ratio.

54
2] Liquid Ratio:
Formula:
Quick assets
Liquid ratio =

Quick liabilities

YEAR 2017 2018 2019 2020

Quick assets 14,576.33 18,674.48 24,227.75 36029.91
Quick liabilities 21,547.00 25,858.06 32,221.16 45,675.71
Liquid ratio 0.67 0.69 0.75 0.78
50000
45000
40000
35000
30000
YEAR
25000 Quick assets
Quick liabilities
20000
Liquid ratio
15000
10000
5000
0
1 2 3 4

Comments:

The liquid or quick ratio indicates the liquid financial position of an enterprise. Almost in all 4 years the

liquid ratio is same, which is better for the company to meet the urgency. The liquid ratio of the Tata Motors

Ltd. has increased from 0.67 to 0.78 in 2018-20!9 which shows that company follow low liquidity position to

achieve high profitability.

This indicates that the dependence on the long-term liabilities & creditors are more & the company is

following an aggressive working capital policy.

55
Liquid ratio of Company is not favorable because the quick assets of the company are less than the quick

liabilities. The liquid ratio shows the company’s ability to meet its immediate obligations promptly.

56
3] Proprietary Ratio:
Formula:
Proprietary fund
Proprietary ratio = OR

Total fund

Shareholders fund
Proprietary ratio =
Fixed assets + current liabilities

YEAR 2017 2087 2019 2020

Proprietary fund 49,804.26 63,967.13 81,448.60 126,372.97
Total fund 68,520.72 87,439.93 105,405.58 189,655.07
Proprietary ratio 0.72 0.73 0.77 0.66
q
200000
180000
160000
140000
120000
YEAR
100000 Proprietary fund
Total fund
80000
Proprietary ratio
60000
40000
20000
0
1 2 3 4

Comments:

The Proprietary ratio of the company is 0.66 in the year 2018-20!9. It means that the for every one rupee of

total assets contribution of 66 paisa has come from owners fund & remaining balance 34 paisa is contributed

by the outside creditors. This shows that the contribution by owners to total assets is more than the

contribution by outside creditors. As the Proprietary ratio is very favorable of the company. The Company’s

long-term solvency position is very sound.

57
58
4] Stock Working Capital Ratio:
Formula:
Stock
Stock working capital ratio =
Working Capital
YEAR 2016 2017 2018 2019
Stock 10,119.82 12,136.51 14,247.54 14,836.72
Working Capital 3149.15 4352.93 12,522.70 10,622.38
Stock working capital 3.21 2.78 1.13 1.39

ratio

16000

14000

12000

10000
YEAR
8000 Stock
Working Capital
6000 Stock working capital ratio

4000

2000

0
1 2 3 4

Comments:

This ratio shows that extend of funds blocked in stock. The amount of stock is decreasing from the year 2015-

2016 to 2018-2019. However in the year 20!8-20!9 it has increased a little to. In the year 2007-2008 the sale is

increased which affects decrease in stock that effected in increase in working capital in 2017-20!8.

59
It shows that the solvency position of the company is sound.

60
5] Capital Gearing Ratio:
Formula:

Preference capital+ secured loan

Capital gearing ratio =
Equity capital & reserve & surplus

YEAR 2016 2017 2018 2019

Secured loan 7,664.90 9,569.12 6,600.17 10,697.92
Equity capital & 49,804.26 63,967.13 81,448.60 126,372.97
reserves & surplus
Capital gearing ratio 16% 15% 8.2% 8.5%

140000

120000

100000

80000 YEAR
Secured loan
Equity capital & reserves &
60000 surplus
Capital gearing ratio
40000

20000

0
1 2 3 4
Comments:

Gearing means the process of increasing the equity shareholders return through the use of debt. Capital

gearing ratio is a leverage ratio, which indicates the proportion of debt & equity in the financing of assets of a

company.

For the last 2 years [i.e.20!7-2018 TO 2018-20!9] Capital gearing ratio is all most same which indicates,

near about 8.5% of the fund covering the secured loan position. But in the year 2015-2016 the Capital-

gearing ratio is 16%. It means that during the year 2005-2006 company has borrowed more secured loans
61
for the company’s expansion.

62
 BIBLIOGRAPHY

1. FINANCIAL MANAGEMENT-III ; S Kr PAUL ; CHANDRANI PAUL

Chapter Name- Classification of Ratios; Page no.- 3.28
2. https://en.wikipedia.org/wiki/Tata_Motors

3. https://money.rediff.com/companies/Tata-Motors- Ltd/10510008?
srchword=Tata+Motors+Ltd.&snssrc=sugg

63
 ANNEXURE

Balance sheet (rs crore)

Mar ' 20 Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16
Sources of funds
Owner's fund
Equity share capital 679.22 679.18 643.78 643.78 638.07
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 20,129.93 22,582.93 14,195.94 18,510.00 18,496.77
Loan funds
Secured loans 3,124.12 3,925.63 4,803.26 4,450.01 5,877.72
Unsecured loans 15,937.49 10,329.05 15,277.71 10,065.52 8,390.97
Total 39,870.76 37,516.79 34,920.69 33,669.31 33,403.53
Uses of funds
Fixed assets
Gross block 35,863.28 35,050.15 27,973.79 26,130.82 25,190.73
Less : revaluation reserve - - 22.87 22.87 -
Less : accumulated
depreciation 15,625.73 13,974.34 12,190.56 10,890.25 9,734.99
Net block 20,237.55 21,075.81 15,760.36 15,217.70 15,455.74
Capital work-in-progress 7,236.96 5,686.53 6,040.79 6,355.07 4,752.80
Investments 17,708.16 16,963.32 16,987.17 18,458.42 19,934.39
64
Net current assets
Current assets, loans &
advances 13,353.93 12,950.34 11,131.98 9,680.36 12,041.84
Less : current liabilities &
provisions 18,665.84 19,159.21 14,999.61 16,042.24 18,781.24

65
 Mar ' 20 Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16
Total net current assets -5,311.91 -6,208.87 -3,867.63 -6,361.88 -6,739.40
Miscellaneous expenses
not written - - - - -
Total 39,870.76 37,516.79 34,920.69 33,669.31 33,403.53
Notes:
Book value of unquoted
investments 2,711.11 2,056.03 16,633.67 18,104.92 19,580.89
Market value of quoted
investments 218.18 144.34 275.36 253.07 204.82
Contingent liabilities 4,438.92 3,931.64 9,882.65 13,036.73 14,981.11
Number of equity shares
outstanding (Lacs) 33958.51 33956.80 32186.80 32186.80 31901.16

66
Profit loss account (rs crore)

Mar ' 20 Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16
Income
Operating income 44,364.00 42,845.47 36,294.74 34,288.11 44,765.72
Expenses
Material consumed 31,928.03 29,628.79 27,489.01 26,412.31 33,620.80
Manufacturing expenses 894.51 849.04 833.35 820.83 910.42
Personnel expenses 3,558.52 3,188.97 3,091.46 2,877.69 2,837.00
Selling expenses 848.36 670.01 - - -
Adminstrative expenses 5,888.39 5,562.10 6,118.40 5,088.43 5,679.52
Expenses capitalised - - - - -
Cost of sales 43,117.81 39,898.91 37,532.22 35,199.26 43,047.74
Operating profit 1,246.19 2,946.56 -1,237.48 -911.15 1,717.98
Other recurring income 978.84 1,402.31 1,881.41 3,833.03 2,088.20
Adjusted PBDIT 2,225.03 4,348.87 643.93 2,921.88 3,806.18
Financial expenses 1,590.15 1,592.00 1,611.68 1,337.52 1,387.76
Depreciation 2,969.39 2,329.22 2,603.22 2,070.30 1,817.62
Other write offs - - - - -
Adjusted PBT -2,334.51 427.65 -3,570.97 -485.94 600.80
Tax charges 59.22 -4.80 764.23 -1,360.32 -126.88
Adjusted PAT -2,393.73 432.45 -4,335.20 874.38 727.68
Non recurring items -79.87 -481.17 -403.75 -539.86 -425.87
Other non cash
adjustments - - - - -
Reported net profit -2,473.60 -48.72 -4,738.95 334.52 301.81
Earnigs before
appropriation -50.95 1,685.91 -3,761.36 1,677.31 1,965.72
Equity dividend 49.00 - - 555.16 566.17

67
 Mar ' 20 Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16
Preference dividend - - - - -
Dividend tax 12.00 - - 93.40 79.03
Retained earnings -111.95 1,685.91 -3,761.36 1,028.75 1,320.52

68
 Tata Motors Ltd. Company Financial Ratios
Analysis
Mar 31, Mar 31, Mar 31, Mar 31, Mar 31,
(Rs in Cr.)
2020 2019 2018 2017 2016

PER SHARE RATIOS

Adjusted EPS (Rs.) -13.28 6.55 -0.20 -6.16 1.27

Adjusted Cash EPS (Rs.) -3.90 15.67 8.93 2.79 8.13

Reported EPS (Rs.) -20.26 5.95 -3.05 -7.15 -0.18

Reported Cash EPS (Rs.) -10.88 15.07 6.09 1.79 6.68

Dividend Per Share 0.00 0.00 0.00 0.00 0.20

Operating Profit Per Share (Rs.) -1.81 14.55 9.74 4.74 8.68
Book Value (Excl Rev Res) Per Share
48.70 65.26 59.40 62.32 68.50
(Rs.)
Book Value (Incl Rev Res) Per Share
48.70 65.26 59.40 62.32 68.50
(Rs.)
Net Operating Income Per Share (Rs.) 122.11 203.79 173.24 130.50 126.18

Free Reserves Per Share (Rs.) 0.00 0.00 0.00 0.00 0.00

PROFITABILITY RATIOS

Operating Margin (%) -1.48 7.13 5.62 3.63 6.87

Adjusted Cash Margin (%) -3.09 7.41 5.02 2.08 6.24

Adjusted Return On Net Worth (%) -27.27 10.03 -0.33 -9.88 1.85

Reported Return On Net Worth (%) -41.60 9.11 -5.13 -11.48 -0.26

Return On long Term Funds (%) -8.18 12.18 5.29 -1.27 5.96

LEVERAGE RATIOS

Long Term Debt / Equity 0.84 0.63 0.65 0.65 0.46

Owners fund as % of total Source 45.60 55.83 55.37 52.89 62.00

69
Fixed Assets Turnover Ratio 1.11 1.82 1.54 1.14 1.18

LIQUIDITY RATIOS

Current Ratio 0.70 0.73 0.69 0.72 0.68

Current Ratio (Inc. ST Loans) 0.46 0.54 0.57 0.53 0.51

Quick Ratio 0.53 0.51 0.44 0.42 0.41

Fixed Assets Turnover Ratio 1.11 1.82 1.54 1.14 1.18

PAYOUT RATIOS

Dividend payout Ratio (Net Profit) 0.00 0.00 0.00 0.00 0.00

Dividend payout Ratio (Cash Profit) 0.00 0.00 0.00 0.00 0.00

Earning Retention Ratio 100.00 100.00 100.00 100.00 100.00

Cash Earnings Retention Ratio 0.00 100.00 100.00 100.00 100.00

COVERAGE RATIOS

Adjusted Cash Flow Time Total Debt 0.00 3.29 5.36 19.92 5.16

Financial Charges Coverage Ratio 0.37 4.18 2.79 1.65 2.73

Fin. Charges Cov.Ratio (Post Tax) -0.98 3.85 2.18 1.39 2.42

COMPONENT RATIOS

Material Cost Component(% earnings) 73.55 73.82 72.21 72.77 69.12

Selling Cost Component 1.92 1.06 1.22 1.91 1.56

Exports as percent of Total Sales 7.15 0.00 9.21 0.00 0.00

Import Comp. in Raw Mat. Consumed 0.00 0.00 0.00 0.00 0.00

Long term assets / Total Assets 0.71 0.73 0.72 0.76 0.76
Bonus Component In Equity Capital
15.46 16.38 16.38 16.38 16.38
(%)

70