A Project Report

on

“A FINANCIAL ANALYSIS OF TATA STEEL BY MEANS OF RATIO

ANALYSIS”

Project Report submitted to Brihan Maharashtra College of Commerce, Pune in

partial fulfillment of the requirement for the award of the Degree of

MASTER OF COMMERCE

Submitted by:

MR.VEDANT PRADEEP SHINDE

Roll no: A155

Under the guidance

of Prof. Yashodhan Mahajan

THROUGH:

Deccan Education Society’s

THE BRIHAN MAHARASHTRA

COLLEGE OF COMMERCE
845, Shivajinagar, Pune, Maharashtra 411004

1
 DECLARATION

I the undersigned solemnly declare that the project report “A financial analysis of Tata

Steel by means of ratio analysis ” is based on my own work carried out during the

course of our study under the supervision of Prof. Yasodhan Mahajan.

I assert the statements made and conclusions drawn are an outcome of my research work. I

further certify that; The work contained in the report is original and has been done by me

under the general supervision of my supervisor. We have followed the guidelines provided by

the university in writing the report.

The project work is written and submitted by me to the Brihan Maharashtra College of

Commerce, Pune in partial fulfillment of the requirements for the award of the degree of

Master of Commerce under the guidance of Prof. Yashodhan Mahajan.

Place: Pune

Date : Vedant Pradeep Shinde

2
 &44CRe-accredited
Seniocolleg
r e (I.D,N 4 ]-Juniocolleg
O Pu/Pn/C/010[19 r e No11-11-007
,

CERTIFICATE

This is to certify that Vedant Pradeep Shinde has been successfully completed
his / her project report entitled A FINANCIAL ANALYSIS OF TATA
STEEL BY MEANS OF RATIO ANALYSIS. In the partial fulfillment of the
degree of Master of Commerce (M. Com.) for the academicyear 2021-2022

Signature

Project Guide

3
 PREFACE

In any organization, the two important financial statements are the Balance Sheet
and Profit &Loss Account of the business. Balance Sheet is a statement of financial
position of an enterprise at a particular point of time. Profit & Loss account shows
the net profit or net loss of a company for a specified period of time.
When these statements of the last few year of any organization are studied and
analyzed, significant conclusions may be arrived regarding the changes in the
financial position, the important policies followed and trends in profit and loss etc.
Analysis and interpretation of financial statement has now become an important
technique of credit appraisal.
The investors, financial experts, management executives and the bankers all analyse
these statements. Though the basic technique of appraisal remains the same in all
the cases but the approach and the emphasis in the analysis vary.
A banker interprets the financial statement so as to evaluate the financial soundness
and stability, the liquidity position and the profitability or the earning capacity of
borrowing concern.
Analysis of financial statements is necessary because it helps in depicting the
financial position on the basis of past and current records. Analysis of financial
statements helps in making the future decisions and strategies.
Therefore it is very necessary for every organization whether it is a financial or
manufacturing, to make financial statement and to analyse it.

4
 ACKNOWLEDGEMENT

“Acknowledging the debt is not easy for us we are indebted to so many people”.

I take this opportunity in expressing the fact that this project report is the result of incredible
amount of encouragement, co-operation, and moral support that I have received from others.

Words alone cannot express my deep sense of gratitude to “Prof. Yasodhan Mahajan.”,
who provided me an opportunity to do a project on “A FINANCIAL ANALYSIS OF TATA
STEEL BY MEANS OF RATIO ANALYSIS”. His valuable
guidance & support made this project work an enlightening educational experience. His
consistent support and co-operation showed the way towards the successful completion of
project.

I would like to express my deep sense of gratitude to all the member, who directly or indirectly
helped me during my project work.

Place: Pune

Date: Vedant Pradeep Shinde

5
 TABLE OF CONTENT

Chapter Content Page no.

I Introduction to the topic 7

II Company Profile 11

III Scope of project work 17

IV Objective of the project work 18

V Research Methodology 19

1. Methodology 19

2. Primary Data 19

3. Secondary Data 19

VI Information 20

VII Analysis and Findings 31

VII Observations 38

IX Suggestions 39

X Bibliography 40

XI Annexure 41

6
 I.) INTRODUCTION

Financial analysis is the process of examining a company’s performance in the

context of its industry and economic environment in order to arrive at a decision or
recommendation. Often, the decisions and recommendations addressed by financial
analysts pertain to providing capital to companies—specifically, whether to invest in
the company’s debt or equity securities and at what price. An investor in debt
securities is concerned about the company’s ability to pay interest and to repay the
principal lent. An investor in equity securities is an owner with a residual interest in
the company and is concerned about the company’s ability to pay dividends and the
likelihood that its share price will increase.

Overall, a central focus of financial analysis is evaluating the company’s ability to

earn a return on its capital that is at least equal to the cost of that capital, to profitably
grow its operations, and to generate enough cash to meet obligations and pursue
opportunities.

Fundamental financial analysis starts with the information found in a company’s

financial reports. These financial reports include audited financial statements,
additional disclosures required by regulatory authorities, and any accompanying
(unaudited) commentary by management. Basic financial statement analysis provides
a foundation that enables the analyst to better understand other information gathered
from research beyond the financial reports.

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Introduction to Steel Industry in India:

● India is currently the world’s 2nd largest producer of crude steel in January-
December, 2019, producing 111.245 Million tonnes (MT) (provisional) crude steel
with growth rate 1.8% over the corresponding period last year (CPLY).

● India is the largest producer of Direct Reduced Iron (DRI) or Sponge Iron in the
world in January – December, 2019, producing 36.86 Million Tonnes Sponge Iron
with growth rate 7.7% over the corresponding period last year (CPLY).

● The country is also likely to become the 2nd largest consumer of finished steel in
2019, preceded by China as the largest steel consumer (2019: 900mt) as per the
Short-range Outlook, October, 2019 edition of World Steel Association

● Capacity for domestic crude steel production expanded from 109.85 Million Tonnes
Per Annum (MTPA) in 2014-15 to 142.24 MTPA in 2018-19, Compounded Annual
Growth Rate (CAGR) of 6.8% during this five-year period.

● Crude steel production grew at 7.6% annually (CAGR) from 88.98 MTPA in 2014-
15 to 110.92 MTPA in 2018-19.

● During April – December, 2019 (provisional; source: JPC), the following is the
industry scenario as compared to same period of last year:

o Production of crude steel was at 82.192 Million Tonnes, up by 0.4%. SAIL,

RINL, TSL, Essar, JSWL & JSPL together produced 46.752 Million Tonnes
with a share of 57% and down by 0.4%. The rest 35.44 Million Tonnes came
from the Other Producers, up by 1.5%.

o With an 81% share, the Private Sector, producing 66.85 Million Tonnes, (up
by 1.2%) led crude steel production compared to the 19% contribution of the
PSUs.

o Pig iron production was 4.314 Million Tonnes, down by 14.3%. The Private
Sector accounted for 88% of the same, the rest 12% being the share of the
Public Sector

8
● Ministry of Steel has set up a Project Development Cell to facilitate and attract
investment in the steel sector. PDC will act as a single point of contact for
prospective investors. PDC will also focus on reaching out to prospective
investors and facilitate the investors during the various stages of investment
process. Smt Rasika Choube, Additional Secretary in the Ministry of Steel is the
Nodal Officer of PDC.

● The Union Cabinet has given its approval for National Steel Policy (NSP) 2017 on
08.05.2017. The new Steel Policy enshrines the long term vision of the Government
to give impetus to the steel sector. It seeks to enhance domestic steel consumption
and ensure high quality steel production and create a technologically advanced and
globally competitive steel industry. The policy projects crude steel capacity of 300
million tonnes (MT), production of 255 MT and seeks to increase per capita steel
consumption to the level of 160 Kgs by 2030 from existing level of around 60 Kg
and major segments of consumptions are infrastructure, automobiles and housing
sectors.

● The policy also envisages to domestically meet the entire demand of high grade
automotive steel, electrical steel, special steels and alloys for strategic applications
and increase domestic availability of washed coking coal so as to reduce import
dependence on coking coal from about 85% to around 65% by 2030-31.

● A Mega Conclave held on ‘Capital Goods for Steel Sector: Manufacture in

India’ in Bhubaneswar on Oct 23rd, 2018 involving relevant Central Ministries and
State Govts, Global technology providers & World Steel Association, Indian Capital
goods manufacturers and major Indian Steel Companies, R&D institution/ IIT, with
MECON as the knowledge partner to promote domestic manufacturing of capital
goods for steel sector in India in the wake of opportunities emanating from NSP-

2017. Several MoUs were signed for technology collaboration in various areas of

9
 Iron & Steel industry and also for manufacture of capital goods for the steel sector in
India
● The Union Cabinet has approved the policy for providing preference to domestically
manufactured iron & steel products on Government procurement in 2017.

● The policy has been revised on 29th May 2019 and subsequently revised on
31.12.2020. This policy provides preference to Domestically produced Iron & Steel
in Government procurement where procurement value of iron and steel products
exceeds Rs 5 lakh.

● The minimum domestic value addition of 20% to 50% has been made mandatory for
notified iron and steel products which are covered under preferential procurement.
The policy is also applicable to purchase of iron & steel products by private agencies
for fulfilling an EPC contract and capital goods required for manufacturing iron &
steel products.

● This policy is expected to give impetus to indigenous manufacturing through

widening of manufacturing base, sharing of know-how, product development as well
as technological transfer by way of multi-lateral collaboration.

● This will also encourage foreign technology providers and critical steel plant
manufacturers to set up manufacturing facilities in India.

10
I COMPANY PROFILE

11
 II COMPANY PROFILE

● Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is an
Indian multinational steel-making company headquartered in Mumbai,
Maharashtra, India, and a subsidiary of the Tata Group.

● It is one of the top steel producing companies globally with annual crude steel
deliveries of 27.5 million tonnes (in FY17), and the second largest steel company
in India (measured by domestic production) with an annual capacity of 13 million
tonnes after SAIL.

● Tata Steel has manufacturing operations in 26 countries, including Australia, China,

India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs
around 80,500 people. Its largest plant located in Jamshedpur, Jharkhand. In 2007
Tata Steel acquired the UK-based steel maker Corus.

● It was ranked 486th in the 2014 Fortune Global 500 ranking of the world's biggest
corporations. It was the seventh most valuable Indian brand of 2013 as per Brand
Finance.

● Tata Steel is headquartered in Mumbai, Maharashtra, India and has its marketing
headquarters at the Tata Centre in Kolkata, West Bengal. It has a presence in around
50 countries with manufacturing operations in 26 countries including: India,
Malaysia, Vietnam, Thailand, UAE, Ivory Coast, Mozambique, South Africa,
Australia, United Kingdom, The Netherlands, France and Canada.
● Tata Steel primarily serves customers in the automotive, construction,
consumer goods, engineering, packaging, lifting and excavating, energy
and power, aerospace, shipbuilding, rail and defence and security sectors.

● Tata Iron and Steel Company was founded by Jamshedji Tata and
established by Dorabji Tata on 26 August 1907, as part of his father
Jamshetji's Tata Group. The company changed its name from TISCO to
Tata Steel in 2005.

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 HERITAGE

Jamsetji Nusserwanji Tata (1839 – 1904)

The foundation of what would grow to become the Tata

group was laid in 1868 by Jamsetji Nusserwanji Tata – then
a 29-year-old who had learned the ropes of business while
working in his father’s banking firm
– when he established a trading company in Bombay.

A visionary entrepreneur, an avowed nationalist and a

committed philanthropist, Jamsetji Tata helped pave the path
to industrialisation in India by seeding pioneering businesses
in sectors such as steel, energy, textiles and hospitality.

Ratan Tata (1937)

Mr Ratan Naval Tata is the Emeritus Chairman of Tata Sons,

Tata Industries, Tata Motors, Tata Steel and Tata Chemicals.
He has been the Chairman of Tata Steel, Tata Motors, Tata
Steel, Tata Consultancy Services, Tata Power, Tata Global
Beverages, Tata Chemicals, Taj Group and Tata Teleservices.
During his tenure, the Tata Group’s revenues grew
manifold, totalling over $100 billion in 2011-12.

Mr Tata joined the Tata Group in 1962. After serving in

various companies, he was appointed Director-in-Charge of
the National Radio Electronics Company Limited in 1971. In
1981, he was named Chairman of Tata Industries and was
responsible for transforming it into a group strategy think-tank,
and a promoter of new ventures in high technology businesses.

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Mr Natarajan Chandrasekaran is the Chairman of Tata Sons
Limited and the former CEO and MD of Tata Consultancy
Services (TCS). Under his leadership, TCS became the largest
private sector employer and was rated as the world's most
powerful brand in IT services in 2015. TCS was also
recognised as a Global Top Employer by the Top Employers
Institute across 24 countries.

Mr Chandrasekaran has played an active role in Indo-US and

India-UK CEO Forums and is part of India’s business
taskforces for Australia, Brazil, Canada, China, Japan and
Malaysia. He served as the Executive Chairman of
NASSCOM, India’s apex trade body for IT services firms, in
2012-13 and continues to be a member of its governing
executive council.

His appointment as chairman followed a 30-year business career at TCS, which he joined
from university. Chandra rose through the ranks at TCS to become CEO and managing
director of the leading global IT solutions and consulting firm.

Mission Statement

Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to
strengthen India’s industrial base through effective utilization of staff and materials. The
means envisaged to achieve this are best technology and high productivity, consistent with
modern management practices.

Tata Steel recognizes that while honesty and integrity are essential ingredients of a strong
and stable enterprise, profitability provides the main spark for economic activity.
Overall, the Company seeks to scale the heights of excellence in all it does in an
atmosphere free from fear, and thereby reaffirms its faith in democratic values.
Improving quality of life of our communities

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● Engaged with 1.9 million+ lives through our CSR program.
● Spent more than Rs.1,350 crores1 since FY17 on Signature programmes at regional scale
as well as programmes for Communities proximate to their operations.

● COVID health screenings of 42,000+ employees and contract employees for early
detection of high-risk cases
● Organized ‘Healthy Heart Campaign’ to beat cardiovascular diseases; covering 3,500+
employees
● Launched safety campaign on ‘Slip/Trip/Fall’ to improve awareness among the workforce
● 24%YoY reduction in First Aid Cases
● more than 80,000 tons Liquid Medical Oxygen supplied till 31st October 2021
● helped the local administrations across our areas of operations with infrastructure support
for setting up COVID-19 hospitals.

PRODUCTS AND BRANDS

15
 Tata Steel’s products include hot and cold rolled coils and sheets, galvanised sheets, tubes,
wire rods, constructions re-bars, rings and bearings. The products are targeted at
automobiles, white goods, construction and infrastructure markets. In an effort to de-
commoditise steel, the company has introduced brands like.

● Tata Wiron (wire rods for farming and fencing segment),

● Tata Steelium (cold rolled steel for auto ancillaries and the general
engineering segments),
● Tata Shaktee (corrugated galvanised sheets for rural house builder
segments),
● Tata Tiscon (re-bars for individual house-builder semi-urban segment)

● Tata Pipes (pipes for individual house builder and farming segments),

● Tata Bearings (bearings for Original equipment manufacturer and

replacement market) and

● Tata Agrico (agricultural equipment for farming and construction

segment).

The company has focused on increasing the sale of its branded products and the sale of its
branded products and the sales of these products as a proportion of its total sales has shown
a constant increase over the last few years.

16
 III. SCOPE OF PROJECT WORK

● The present study is confined to TATA STEEL.

● The study covers a period of five years from FY 20216-2017 to 2020-
2021.
● This period is enough to cover both the short and medium terms
fluctuations and to set reliability.
● The study mainly attempts to analyze the financial performance of the
company selected for the study.
● The financial authorities can use this for evaluating their performance in
future, which will help to analyze financial statements and help to apply
the resources of the company properly for the development of the company
and its employees to bring overall growth.
● There can be forecasting to evaluate the overall performance of the Tata
Steel Limited in future.

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 IV.) OBJECTIVE OF PROJECT WORK

The present study “A COMPARATIVE FINANCIAL PERFORMANCE ANALYSIS TATA STEEL BY

MEANS OF RATIOS.”

Has been designed to achieve the following objectives:-

● To study the financial performance of Tata steel.

● Assess the operating efficiency of the business.
● Analyze the profitability of the business.
● To study various ratios.
● To comment on the financial ratios of Tata Steel.
● To assess the earning capacity or profitability of the firm.
● To assess the operational efficiency and managerial effectiveness.
● To assess the short term as well as long term solvency position of the firm.
● To identify the reasons for change in profitability and financial position of
the firm.
● To make inter-firm comparison.
● To make forecasts about future prospects of the firm.
● To assess the progress of the firm over a period of time.

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 V. RESEARCH METHODOLOGY

The proposed study is carried with the help of secondary source of data. The study
is done using various articles, research papers, reports, etc. The study is done using
the descriptive research design as secondary data is used.

2) PRIMARY DATA

The primary data is collected by interacting with the finance manager and other
concerned executives at the administrative office of the company.

3) SECONDARY DATA

All the secondary data used for the study has been extracted from the annual
reports, manuals and other published material of the company

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 VI. INFORMATION.

INTRODUCTION

Finance is life blood of the business. The financial management is the study about the process of
procuring and judicious use of financial resources is a view to maximize the value of the firm.
There by the value of the owners i.e. the example of equity shareholders in a company is
maximized. The traditional view of financial management looks into the following function that a
finance manager of a business firm will perform.

1. Arrangement of short-term and long-term funds from the financial institutions.

2. Mobilization of funds through financial instruments like equity shares, bond Preference
shares, debentures etc.
3. Orientation of finance with the accounting function and compliance of legal provisions
relating to funds procurement, use and distribution. With increase in complexity of modern
business situation, the role of the financial manager is not just confirmed to procurement
of funds, but his area of functioning is extended to judicious and efficient use of funds
available to the firm, keeping in view the objectives of the firm and expectations of
providers of funds.

Definition:
Financial Management has been defined differently by different scholars.
1. Howard and Upton: - “Financial Management is the application of the planning and
control function to the finance functions”

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RATIO

A ratio is a number expressed in terms of another. It is a fraction whose numerator is the

antecedent and denominator is the consequent. A ratio indicates the quantitative relationship
between two figures. It may be expressed in different forms like –
1. Pure Ratio
2. Rates
3. Percentage

FINANCIAL RATIO

It is a ratio between two accounting figures or data expressing the relationship between the two.
It is an expression of the relation between different relevant accounting variables.
The Financial statements of a business comprise of (1) the Revenue Statement or the Profit & Loss
Account and (2) The Balance Sheet. These include a mass of figures which make it difficult to
deduce any inference or decision. An accounting ratio is used to gauge the financial solvency and
profitability of the business. It is computed from the basic financial statements periodically
published by the business and it highlights in arithmetical terms, the relationships that exist
between various items from the financial statements.

FINANCIAL RATIO ANALYSIS

It is an analytical tool used for financial analysis. It is a process of determination and interpretation
of the numerical relationships between the financial data published by business in periodical
statement. It aims at facilitating comparisons with the positions of other business firms as well as
of the same business firm over a number of financial periods. It is done mainly for the following
groups:

1. The Management – which, for internal use, wants to ascertain the profitability and solvency
of the business. The extended areas over which the Management becomes interested are
over or under-trading, over or under-investments, over or under-capitalisation and useful
credit policy.

2. The outsiders who are interested in the solvency, liquidity and profitability of a business.
Outsiders include creditors, debenture holders, employees, Government and useful credit

21
 policy.

3. Others like Distress Analysts, Credit Rating Agencies and Auditors also used as financial
ratios.

IMPORTANCE OF FINANCIAL RATIO ANALYSIS

1. It helps the management to gauge the efficiency of performance and assess the
financial health of the business.
2. It is an essential tool for checking the efficiency with which the working capital is
being used and managed.
3. Comparative ratio analysis injects trend analysis. The improvement or deterioration
of a business is clearly disclosed by ratio analysis.
4. It helps to make financial forecasts.
5. It is an integral part of introduction of standard costing and budgetary control.
6. Its inherent feature ‘easiness’ is its greatest advantage. Ratio analysis can be easily
made and easily understood.
7. It helps to make inter-firm comparisons, that is, to know the relative position of a
firm vis-à-vis its competitors.
8. The ability of a firm to pay its short debts denotes its liquidity positions.
9. it presents facts on a comparative basis and enables drawing of inferences regarding
the performance of a firm.

LIMITATIONS OF RATIO/RATIO ANALYSIS

1. The result expressed by the application of a ratio may be misleading. Accounting

data may remain over or understated in financial statements.

2. Differences in accounting policies can make accounting data of two firms non-
comparable as also the accounting ratios.
3. The ratio becomes misleading where inconsistent methods are applied for
valuations of stock, etc.
4. It is difficult to set up any standard or Ideal Ratio as the basis of comparison.

22
5. The same ratio may bear different interpretations for two separate business or even,
for the same business, in separate years.
6. Ratio analysis is mainly based on past performances. So, its application for the
future may lead to erroneous decisions.
7. Many businesses operate a large number of divisions in quite different industries.
In such cases ratios calculated on the basis of aggregate data cannot be used for
inter-firm comparisons.
8. Historical cost values may be substantially different from true values. Such
distortions of financial data are also carried in the financial ratios.
9. Financial ratios provide clues but not conclusions. These are tools only in the hands
of experts because there is no standard ready-made interpretation of financial ratios.

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CLASSIFICATION OF ACCOUNTING RATIOS

Accounting Ratios may be classified or grouped in different ways depending on the results
or information expected. But the widely used classifications are made as –
1. Classification on the basis of source; and
2. Classification on the basis of purposes or economic aspects or operations of the firm.
Source wise classification refers to the sources from which the accounting figures used in
the ratio have been derived. Such classification may be made as –
A. Balance Sheet Ratios [between accounting figures taken from the Balance sheet]
B. Revenue Statement (Profit & Loss Account) Ratios [between accounting figures
taken from the Profit & Loss Account]
C. Mixed Ratios [between accounting figures taken both Profit & Loss Account and
Balance Sheet]
Purpose or aspect wise classification refers to the purpose of computing a ratio. It generally
involves information about particular economic aspects of the operations of a firm.
Such classification may be made to know –

1. Short-term solvency ratio, also known as Liquidity ratios:

Liquidity or short-term solvency means ability of the business to pay its shortterm
liabilities. Inability to pay-off short-term liabilities affects its credibility as
well as its credit rating

2. Long-run solvency ratio, also known as the Leverage ratios which include the capital
structure ratios and coverage ratios:
The leverage ratios may be defined as those financial ratios which measure the long-
term stability and capital structure of the firm. These ratios indicate the mix of funds
provided by owners and lenders and assure the lenders of the long-term funds with
regard to:
(i) Periodic payment of interest during the period of the loan and
(ii) Repayment of principal amount on maturity.

24
3. Efficiency / turnover / activity / performance ratio:
These ratios are employed to evaluate the efficiency with which the firm manages
and utilises its assets. For this reason, they are often called ‘Asset management
ratios’. These ratios usually indicate the frequency of sales with respect to its assets.

4. Profitability ratios:
The profitability ratios measure the profitability or the operational efficiency of the
firm. These ratios reflect the final results of business operations. They are some of
the most closely watched and widely quoted ratios. Management attempts to
maximize these ratios to maximize the firm’s value

25
BALANCE SHEET RATIOS

1. Current Ratio:
The Current Ratio is one of the best known measures of short-term solvency. It
is the most common measure of short-term liquidity.The main question this ratio
addresses is: "Does your business have enough current assets to meet the payment
schedule of its current debts with a margin of safety for possible losses in current
assets?" In other words, current ratio measures whether a firm has enough
resources to meet its current obligations.
It is calculated as under.

Current ratio = Current Assets / Current Liabilities

2. Quick Ratio/ Acid test Ratio:

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best
measures of liquidity. The Quick Ratio is a much more conservative measure of
short-term liquidity than the Current Ratio. It helps answer the question: "If all
sales revenues should disappear, could my business meet its current obligations
with the readily convertible quick funds on hand?"
It is calculated as follows:

Quick Ratio = Quick Assets/Current Liability.

Where,
Quick Assets = Current Assets − Inventories − Prepaid expenses

3. Net Working Capital Ratio:

Net working capital is more a measure of cash flow than a ratio. The result of this
calculation must be a positive number .However, in certain business models it
may be negative. Bankers look at Net Working Capital over time to determine a
company's ability to weather financial crises. Loans are often tied to minimum
working capital requirements.It is calculated as shown below:

Net Working Capital Ratio = Current Assets - Current Liabilities

26
4. Equity Ratio:
This ratio indicates proportion of owners’ fund to total fund invested in the business.
Traditionally, it is believed that higher the proportion of owners’ fund lower is the degree
of risk for potential lenders.
Equity Ratio = Shareholder’s Equity/ Net Assets

5. Debt Ratio:
Total debt or total outside liabilities includes short and long term borrowings from
financial institutions, debentures/bonds, deferred payment arrangements for buying
capital equipment, bank borrowings, public deposits and any other interest bearing loan.
Debt Ratio = Total Debt / Net Assets.

6. Debt Equity Ratio:

(a) This ratio is used to ascertain the respective claims of the outsiders and the
owners like Equity Shareholders within the assets of a firm.
(b) A high debt to equity ratio here means less protection for creditors, a low
ratio, on the other hand, indicates a wider safety cushion (i.e., creditors feel
the owner's funds can help absorb possible losses of income and capital). This
ratio indicates the proportion of debt fund in relation to equity. This ratio is
very often used for making capital structure decisions such as issue of shares
and/ or debentures. Lenders are also very keen to know this ratio since it
shows relative weights of debt and equity. Debt equity ratio is the indicator
of firm’s financial leverage.
(c) It is calculated as under.
Debt Equity Ratio = Total Outside Liabilities / Shareholders Equity.

7. Debt to Total Assets Ratio:

This ratio measures the proportion of total assets financed with debt and,
therefore, the extent of financial leverage. Higher the ratio, indicates that assets
are less backed up by equity and hence higher the financial leverage. It is
calculated as under.
Debt to Total Assets Ratio = Total Debt / Total Assets

27
8. Capital Gearing Ratio:
In addition to debt-equity ratio, sometimes capital gearing ratio is also calculated
to show the proportion of fixed interest (dividend) bearing capital to funds
belonging to equity shareholders i.e. equity funds or net worth. Again, higher
ratio may indicate more risk. It is calculated as under.

Capital Gearing Ratio = ((Preference Share Capital + Debentures + Other

Borrowed funds) / (Equity Share Capital + Reserves & Surplus - Losses)

9. Proprietary Ratio:
It indicates the proportion of total assets financed by shareholders. Higher the
ratio, less risky scenario it shall be. This ratio is computed as:

Proprietary Ratio = Proprietary Fund / Total Assets

10. Interest Coverage Ratio:

This ratio also known as “times interest earned ratio” indicates the firm’s ability
to meet interest (and other fixed-charges) obligations. Earnings before interest
and taxes are used in the numerator of this ratio because the ability to pay interest
is not affected by tax burden as interest on debt funds is deductible expense.
It measures how many times a company can cover its current interest payment
with its available earnings. In other words, it reflects the margin of safety a
company has for paying interest on its debt during a given period.
A high interest coverage ratio means that an enterprise can easily meet its interest
obligations even if earnings before interest and taxes suffer a considerable
decline.
A lower ratio indicates excessive use of debt or inefficient operations. This ratio
is computed as:

Interest Coverage Ratio = Earnings before interest and taxes(EBIT) / Interest

28
11. Gross Profit (G.P) Ratio:
It measures the percentage of each sale in rupees remaining after payment for the
goods sold. Gross profit margin depends on the relationship between sales price,
volume and costs. A high Gross Profit Margin is a favourable sign of good
management.

Gross Profit Ratio = Gross Profit / Sales * 100

12. Net Profit Ratio:

It measures the relationship between net profit and sales of the business. Net
Profit ratio finds the proportion of revenue that finds its way into profits after
meeting all expenses. A high net profit ratio indicates positive returns from the
business. Depending on the concept of net profit it can be calculated as.

i) Net Profit Ratio = Net Profit / Sales

ii) Pre-tax Profit Ratio = Earnings before taxes (EBT) / Sales

13. Operating Profit Ratio:

Operating profit ratio is also calculated to evaluate operating performance of
business. Operating profit ratio measures the percentage of each sale in rupees
that remains after the payment of all costs and expenses except for interest and
taxes.
This ratio is followed closely by analysts because it focuses on operating
results. Operating profit is often referred to as earnings before interest and taxes
or EBIT. It is calculated as follows.
Operating Profit Ratio = Operating Profit / Sales *100
OR
Operating Profit Ratio = Earnings before interest and taxes (EBIT) / Sales *100

14. Earnings per Share (EPS):

The profitability of a firm from the point of view of ordinary shareholders can be
measured in terms of earnings n per share basis. This is known as Earnings per
share. It is calculated as follows:

29
 Earnings per Share (EPS) = Net profit available to equity shareholders /
Number of equity shares outstanding

15. Dividend per Share (DPS):

Earnings per share as stated above reflects the profitability of a firm per share; it
does not reflect how much profit is paid as dividend and how much is retained
by the business. Dividend per share ratio indicates the amount of profit
distributed to equity shareholders per share. It is calculated as.

Dividend per Share (DPS) = Total Dividend paid to equity shareholders /

Number of equity shares outstanding

16. Dividend Pay-out Ratio (DP):

This ratio measures the dividend paid in relation to net earnings. It is determined
to see to how much extent earnings per share have been retained by the
management for the business. It is computed as:

Dividend pay-out Ratio = Dividend per equity share(DPS) / Earning Per

Share(EPS)

17. Other Ratios:

a. Debt to Capital Employed Ratio = Total Debt / Total Capital Employed
Owners prefer high debts ratio, but creditors like low debt ratio.

b. Current Assets to Fixed Assets = Current Assets / Fixed Assets

Helps to locate position of storage of stock, trend of collection from debtors,
etc.

c. Inventory to Working Capital = Inventory / Working Capital

It shows the portion of working blocked within working capital and the nature
of movement of stock.

30
 VII. DATA ANALYSIS, OBSERVATION & FINDINGS

1. Gross Profit Ratio: Gross Profit /Net Sales * 100

Gross profit = Sales – Material Consumed – Manufacturing Expense

TATA STEEL LTD

March' 21 March' 20 March' 19 March' 18 March' 17
YEAR
49,854.35 41,465.84 48,962.78 42,994.53 39,883.00
GROSS
PROFIT

64,869.00 60,435.97 70,610.92 60,519.37 53,260.96

NET
SALES
63.16% 57.76% 60.13% 63.42% 61.97%
GROSS
PROFIT
RATIO

The graphical representation of the above data is as follows:

Gross Profit Ratio

80.00%
70.00%
60.00% 63.16% 63.42% 61.97%
57.76% 60.13%
50.00%
40.00%
30.00%
Gross Profit

20.00%
10.00%
0.00%

20212020 2019 2018 2017

Year

INTERPRETATION
From the above presented data is can be observed that the gross profit ratio is
31
increased in 2018 as compared to 2017 but since then it has shown a decreasing trend for the
next two years i.e. 2019 and 2020. Gross profit ratio has increased in 2021 as compared to
the previous years. The major reason for the fluctuations being fluctuating manufacturing
costs.

2. Operating profit Ratio = Operating Profit / Net Sales *100

Operating profit Ratio =Revenue - Operating Costs - Cost of Goods Sold (COGS) –
Other Day-to-Day Expenses

TATA STEEL LTD

March' 21 March' 20 March' 19 March' 18 March' 17
YEAR
20,444.11 14,861.57 20,562.94 15,105.64 11,875.95
OPERATING
PROFIT

64,869.00 60,435.97 70,610.92 60,519.37 53,260.96

NET SALES

OPERATING 31.52% 24.59% 29.12% 24.96% 22.30%

PROFIT
RATIO

The graphical representation of the above data is as follows:

Operating Profit Ratio

35.00
31.52
29.12
30.00
24.59 24.96
25.00 22.30

20.00

15.00

10.00

5.00

0.00
March' 21 March' 20 March' 19 March' 18 March' 17

32
INTERPRETATION
This ratio is used to measure the operational efficiency of the management. Operating Profit ratio
is increased In the year 2018 and 2019. Further is decreased to 24.59% in the year 2020.
Further it is increased to 31.52% in the year 2021.
3. Net Profit Ratio

Net Profit Ratio = Profit After Tax / Sales *100

Profit After Taxes = Profit Before Taxes – Tax.

TATA STEEL LTD

March' 21 March' 20 March' 19 March' 18 March' 17
YEAR

PROFIT 13,606.62 6,743.80 10,533.19 4,169.55 3,444.55

AFTER
TAX
64,869.00 60,435.97 70,610.92 60,519.37 53,260.96
NET SALES

NET PROFIT 20.98% 11.16% 14.92% 6.89% 6.47%

RATIO

The graphical representation of the above data is as follows:

Chart Title
25.00%
20.98%
20.00%

14.92%
15.00%
11.16%
10.00%
6.89% 6.47%

5.00%

0.00%
March' 21 March' 20 March' 19 March' 18 March' 17

INTERPRETATION

We can see a upward trend in the Net Profit ratio in the years 2018 and 2019 as
compared to the year 2017. Net profit ratio is decreased from 14.92% in 2019 to 11.16% in

33
2020. There is a sharp rise in the net profit ratio in the year 2021. Net profit increased from
11.16% in 2020 to 20.98% in the year 2021.

4. Return on Capital Employed

Return on Capital Employed = Profit before depreciation interest and tax(PBDIT) –

Depreciation / Capital Employed *100

Capital Employed = Total assets - Current liabilities.

TATA STEEL LTD

March' 21 March' 20 March' 19 March' 18 March' 17
YEAR
22,403.24 17,271.30 22,968.02 16,542.62 12,290.41
PBDIT

3987.32 3920.12 3802.96 3727.46 3541.55

DEPRECIATION

135722.67 119521.26 111904.71 99507 88409.08

CAPITAL
EMPLOYE
D
13.56 11.17 17.12 12.87 9.89
RETURN ON
CAPITAL
EMPLOYED

The graphical representation of the above data is as follows:

34
 ROCE
17.13
18.00
16.00
14.00
12.00 13.57 12.88
10.00
8.00 11.17 9.90
6.00
4.00
2.00
0.00

March' 21March' 20March' 19March' 18March' 17

INTERPRETATION
There is a rise in return on capital employed in the years 2018 and 2019 as compared
to 2017. Then is has decreased to 11.17% in the year 2020 and further it has increased to
13.57% as per the latest financials i.e. 2021.

5. Asset Turnover Ratio

The asset turnover ratio measures the value of a company's sales or revenues relative to
the value of its assets. The asset turnover ratio can be used as an indicator of the efficiency
with which a company is using its assets to generate revenue.
It is calculated as follows.

Assets Turnover Ratio =Total Sales/(Opening Assets + Closing Assets)/2

Particulars
March March March March March
2021 2020 2019 2018 2017

Ratio 61% 60% 72% 60% 64%

The graphical representation of the above data is as follows:

35
 Asset Turnover Ratio
100%
90%
80%
70% 72%
60%
64%
50% 60% 60% 61%
40%
30%
20%
10%
0%

Jan-17Jan-18Jan-19Jan-20Jan-21

INTERPRETATION
There is a decline in the asset turnover ratio in 2018 as compared to 2017, further it has
increased to 72% in the year 2019 as compared to 60% in the year 2018. In later years is
has dipped to 60% and has rised to 61% as per latest financials i.e. 2021.

6. Return on Long Term Fund

Return on Long Term Fund = PBIT – Depreciation / Secured Loan + Unsecured Loans

TATA STEEL LTD

March' 21 March' 20 March' 19 March' 18 March' 17
YEAR
22,403.24 17,271.3 22,968.02 16,542.62 12,290.41
PBDIT

3,987.32 3,920.12 3,802.96 3,727.46 3,541.55

DEPRECIATION

5,394.81 5,575.11 2,572.19 2,528.86 2,551.77

SECURED LOAN

UNSECURE 21,918.99 25,806.85 27,698.64 26,152.95 26,277.91

D LOAN

36
 67.42% 42.54% 63.31% 44.68% 30.35%
RETURN ON
LONG TERM
FUND

The graphical representation of the above data is as follows:

Return on Long term fund

80.00%
70.00%
67.42%
60.00% 63.31%

50.00% 44.68%
42.54%
40.00%
30.35%
30.00%
20.00%
10.00%
0.00%

March' 21 March' 20 March' 19 March' 18 March' 17

INTERPRETATION
Return on long term fund showed an increasing trend in the financial year end 2018 and
2019. It suffered a sharp fall in the year 2020 followed by a sharp rise in the year 2021.
Lot of fluctuations are observed in this ratio.

37
 VIII. OBSERVATIONS

• The Tata Steel Ltd is in sound solvency position.

• Gross profit ratio is increased during the period of 2021, which indicates that firm’s

efficient management in manufacturing and trading operations.

• Operating profit ratio are increased during the period of 2018,2019 & 2021 and decreased

during the 2020 which indicates the operating efficiency of company.

• Net profit ratio is increased substantially in the year 2021 which is a good sign for the

company.

• Return on capital employed are increased during the period of 2017-2019 and decreased

during the period of 2020-2021 in Tata Steel Ltd. The ratio is low as in the last two years

of the study as preceding compared to previous three years.

• Return on long term fund is fluctuating during the period of which indicates the investment

made by the debenture holders and long term debt is used in the business.

38
 IX. SUGGESTION

• All operational and related activities should be performed efficiently and effectively.

• Both company have to utilize their capital assets in a proper way that they have to
purchase less capital assets in coming year.

• The stability of the Tata Steel Ltd has been fluctuating from base year 2017 to current
year 2021.

• Tata Steel Ltd have sound solvency position but the company have to avail on the

benefit of trading on equity and has to use cheaper debt capital.

● The should take full advantage of the government intervention in promoting

‘Make in India’ in acquiring new projects and expanding their activities.

39
 X. BIBLIOGRAPHY

Following books are referred for carrying out the project:-

1. Financial Management Module.
2. Annual reports of Tata Steel.

Following websites are referred:-

1. https://steel.gov.in/
2.https://www.tatasteel.com/
3.https://www.wikipedia.org/
5.https://studynotesexpert.com/ratio-analysis/

40
 XI. ANNEXURE

Balance Sheet of Tata Steel Ltd

( Rs.in Crore)
ASSETS March '21 March '20 March '19 March '18 March '17
EQUITY
(a)Equity Share Capital 1,198.78 1,146.12 1,146.12 1146.12 971.41
(b) Hybrid Perpetual Securities 775.00 2275 2275 2275 2275
(c) Reserves and surplus 73,416.99 69,308.59 60368.72 48687.6
89,293.33

Non current liabilities

(a) Financial liabilities
1.Borrowings 27,313.80 31,381.96 26,651.19 24568.95 24694.37
2.Other 484.86 416.14 184.89 89.86 197.55
(b) Provisions 2,543.94 2,113.56 1,918.18 1961.21 2024.74
(c) Retirement benefit 2,087.86 2,224.44 1,430.35 1247.73 1484.21
obligations
(d) Deferred income 747.23 1365.61 1885.19
(e) Deferred tax liabilities 6,111.70 5,862.28 7,807.00 6259.09 6111.27
(net)
(f) Other liabilities 5,913.40 684.76 436.16 224.71 77.74

Current Liabilities
(a) Financial liabilities
1.Borrowings 7,857.27 8.09 669.88 3239.67
2. Trade payables 10638.59 10600.96 10969.56 11242.75 10717.44
3. Derivative liabilities 69.39 81.69 139.57 16.41 270.17
4. Other financial 5,274.11 5,401.55 6,872.35 6541.40 4062.35
liabilities
(b) Provisions 1,074.43 663.86 778.23 735.28 700.60
(c) Retirement benefit 116.10 106.61 102.12 90.50 56.58
obligations

41
 (d) Income tax liabilities (net) 4,093.26 277.26 358.14 454.06 465.72
(e) Other liabilities 8047.44 5882.1 6,365.59 5857.06 3543.80

TOTAL 1,65,035.99 1,50,392.56 1,37,498.36 125114.34 111465.41

ASSETS
Non current assets
(a) Property, plant and 64,032.32 66,392.35 70,416.82 70,942.90 71,778.97
equipment
(b) Capital WIP 10,057.18 8,070.41 5,686.02 5,641.50 6,125.35
(c) Intangible assets 4745.3 4841.03 805.2 786.18 788.18
(d) Intangible assets 408.79 176.64 110.27 31.77 38.61
under development
(e) Investments in 28,444.61 26,578.41 4,437.76 3,666.24 3,397.83
subsidiaries, associates
and joint ventures
(f) Financial assets
(i) Investments 22,621.66 20,282.50 34,491.49 5,970.32 4,958.07
(ii) Loans 7,509.33 199.26 231.16 213.5 211.97
(iii) Derivative assets 42.52 162.46 9.05 12.13 0.12
(iv) Other financial 91.66 60.42 310.65 21.21 79.49
assets
(g) Income tax assets 1,645.10 1,557.82 1,428.38 1,043.84 867.75
(net)
(h) Other assets 1,681.22 2,062.07 2,535.98 2,140.84 3,108.67

Current Assets
(a) Inventories 8,603.79 10,716.66 11,255.34 11,023.41 10,236.85
(b) Financial assets
(i) Investments 6,404.46 3,235.16 477.47 14,640.37 5,309.81
(ii) Trade receivables 3,863.31 1,016.73 1,363.04 1,875.63 2,006.52
(iii) Cash and cash 1,501.71 993.64 544.85 4,588.89 905.21
equivalents
(iv) Other balances 170 233.23 173.26 107.85 65.1
with bank

42
 (v) Loans 1,555.95 1,607.32 55.92 74.13 27.14
(vi) Derivative assets 66.93 209.96 14.96 30.07 6.26
vii) Other financial 351.54 230.41 940.76 480.62 315.06
assets
(c) Other assets 854.99 1,766.08 2,209.98 1,822.94 1,238.45

1,65,035.99 1,50,392.56 1,37,498.36 1,25,114.34 1,11,465.41

TOTAL

Profit loss account of Tata Steel Ltd (Rs.in Crore)

Particulars March' 21 March' 20 March' 19 March' 18 March' 17
I. Revenue from Operations 64,869.00 60,435.97 70,610.92 60,519.37 53,260.96
II. Other Income 637.89 404.12 2,405.08 763.66 414.46
III. Total Income. 65,506.89 60,840.09 73,016.00 61,283.03 53,675.42
IV. Expenses:
a. Material / Manufacturing 15,014.65 18,970.13 21,648.14 17,524.84 13,377.96
Expenses
b. Change in stock of FG/WIP. 1,464.12 (564.40) (554.33) 545.36 (1,329.65)
c. Employee benefit Expenses 5,198.82 5,036.62 5,131.06 4,828.85 4,605.13
d. Finance cost 3,393.84 5,036.62 2,823.58 2,810.62 2,688.55
e. Depreciation & amortization 3,987.32 3,920.12 3,802.96 3,727.46 3,541.55
Expenses.
f. Other Expenses 22,747.30 22,132.05 23,823.11 22,514.68 24,731.57
21,426.06 52,525.53 56,674.52 51,278.49 47615.11
V. Profit before exceptional items 15,022.08 8,314.56 16,341.48 10,004.54 6060.31
and tax (III-IV)
VI. Exceptional items
Profit on sale of Non-current 1,084.85 - 262.28 - -
investments
Provision for impairment of 149.74 (1,149.80) (12.53) (62.92) (170.87)
investments/doubtful advances
Provision for demands and claims - (196.41) (328.64) (3,213.68) (218.25)
Employee separation (443.55) (107.37) (35.34) (89.69) (178.68)
compensation

Restructuring and other provisions 1,982.01 (250.00) - - (135.58)

43
Total Exceptional Items 2,773.05 (1,703.58) (114.23) (3,366.29) (703.38)
VII. Profit before Tax (VI+VII) 17,795.13 6,610.98 16,227.25 6,638.25 5356.93
VIII. Tax Expenses
a. Current Tax 3,949.05 1,787.95 16,227.25 1,586.78 1,400.54
b. Deferred Tax 239.46 1,920.77) (603.05) 881.92 511.84
Total Tax Expenses 4,188.51 (132.82) 5,694.06 2,468.70 1912.38
IX. Profit after Tax (VII-VIII) 13,606.62 6,743.80 10,533.19 4,169.55 3,444.55
Dividend 2,996.60 1,145.93 1795.87 1,381.47 1,168.93
Retained earnings 44,308.96 32,106.96 27,694.90 18,700.25 12,280.91

44