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FINANCIAL -

MANAGEMENT

A
PROJECT
ON THE FINANCIAL
POSITION OF THE TATA MOTORS

SUBMITTED TO :- SUBMITTED BY:-


AYUSH KUMAR SINGH
ROLL NO- 108109
SECTION- A-I
DATE- SEMESTER-II
MANAGEMENT EDUCATION &
RESEARCH INSTITUTE
COMPARATIVE BALANCE SHEET OF TATA MOTORS
For the year ended 31st march ‘2008’

(Rs in crores)

Long term source of funds 2008 2007 Absolute % change


change
A .Shareholders fund
i) share capital 385.54 385.41 00.13 00.03
ii) reserve and surplus 7453.96 6484.34 969.62 14.95
Internal equity 7839.50 6869.75 969.75 14.12

B .Loan funds
i)secured 2461.99 2022.04 439.95 21.76
ii)unsecured 3818.53 1987.10 1831.43 92.17
External equity 6280.52 4009.14 2271.38 56.66

C .Deferred Tax Liability (net) 975.72 786.83 188.89 24.00

D .Total Fund Employed 15095.74 11665.72 3430.02 29.40

Application of funds
Long term investments (x)
E . Fixed assets
i) Gross Block 10830.83 8775.80 2055.03 23.42
ii)less- depreciation 5443.52 4894.54 548.98 11.22
iii) Net Block 5387.31 3881.26 1506.05 38.80
iv)Capital work in progress 5064.96 2513.32 2551.64 101.52
10452.27 6394.58 4057.69 63.46

F .Investments 4910.27 2477.00 2433.27 98.23


15362.54 8871.58 6490.96 73.17

Short term investment


(working capital=CA-CL)

G. Current assets
i) Interest accrued on invest- 0.86 5.94 (5.08) (85.52)
ments.
ii) Inventories 2421.83 2500.95 (79.12) (03.16)
iii) Sundry debtors 1130.73 782.18 348.55 44.56
iv) Cash and bank balance 2397.31 826.76 1570.55 189.96
v) loans and advance 4433.05 6396.22 (1963.17) (30.70)
10383.78 10512.05 (128.27) (01.22)
H. Current Liabilities
i) Sundry creditors 8667.20 6363.6 2303.52 36.20
ii) Provisions 1989.43 1364.3 625.11 45.82
10656.63 7728.00 2928.63 37.90

I. Net current assets(G-H) (272.85) 2784.05 (3056.90) (109.80)

J. Miscellaneous expenditure 6.05 10.09 (04.04) (40.04)

TOTAL ASSETS (NET) 15095.74 11665.72 3430.02 29.40


(X+I+J)

COMMENTS ON THE FINANCIAL SOUNDNESS OF THE TATA MOTORS BY


ANALYIZING THE COMPARATIVE BALANCE SHEET OF THE COMPANY
I) It was observed from the comparative balance sheet that internal equity is
comprised of Share capital and reserve & surplus ,in which increment was noticed by
14.12%. The major increment was seen in reserve & surplus by 14.95% and share
capital was marginally increased by 00.03% as compared to the previous financial
year.
II) It was also observed that the company has increased the external equity by
56.66%. The company has raised secured loan by 21.76% and unsecured loan by
92.17% as compared to the previous financial year. Overall the company has
increased its capital structure position by 70.78% as compared to previous financial
year , which is a good indication for the company as the company is increasing its
investment and expanding the business.
III) Deferred tax liability was increased by 24.00% as compared to the previous
financial year, the company should try to reduce the deferred tax liability as we know
that it is the obligation for the company to pay. So , the company should not increase
the fund by blocking deferred tax liability. which is not a good policy of the company.

IV) It was observed that total fund employed by the company was increased by
29.40% as compared to the previous financial year. In the current year (07-08), the
company has increased the employable fund by 29.40% which is a good sign of
growth of the company.

V) Investment in the fixed assets was noticed by 63.46% and in investment by


98.23% as compared to the previous financial year. It was noticed that the total long
term investment of the company has registered an increment of 73.17% , which
indicate that the company is having a good opportunity of growth and by investing in
long term , the company is intelligently grapping the opportunity.

VI) The working capital of the company was decreased by 109.80% as compared to
the previous financial year , which is not a good sign for the company. The company
is not able to manage the working capital sufficiently .the company should take
special care to manage the working capital of the company as we know that the
working capital is the blood of the company ,without proper working capital the
company will not manage to run its operation successfully.

COMPARATIVE PROFIT & LOSS ACCOUNT OF TATA MOTORS


For the year ended 31st march ,2008

(Rs in
crores)

2008 2007 Absolute % change


change

A. Gross revenue
Sale of product and other 33093.93 31819.48 1274.45 04.00
income from operation
Less – Excise Duty 4363.11 4349.45 13.66 00.31
B. Net revenue 28730.82 27470.03 1260.79 04.59
C. Cost of goods sold
Raw materials/components 24093.93 22789.57 1304.36 05.72
Manuf. And other expenses.
Employee cost 1544.57 1368.09 176.48 12.90
25638.50 24157.66 1480.84 06.13
D. Operating profit(B-C) 3092.32 3312.37 (220.05) (06.64)
E. Dividend and other Incomes 483.18 245.19 237.99 97.06
F. Profit before depreciation, 3575.50 3557.56 17.94 00.51
Interest and tax
G. Less :-
Product development exp. 64.35 85.02 (20.67) (24.31)
Depreciation 652.31 586.29 66.02 11.26
Interest 282.37 313.07 (30.70) (09.81)
H. Profit before Tax 2576.47 2573.18 3.29 00.13
(A-B)
I. Tax: Current (146.01) (482.50)
Deferred (401.54) (177.22)
(547.55) (659.72) (112.17) (17.00)
J. Profit after Tax:- 2028.92 1913.46 115.46 06.03
K. Balance brought forward 1013.83 776.76 237.07 30.52
from Previous year

L. Balance available for 3042.75 2690.22 352.53 13.10


appropriation

M. Appropriations
i) Proposed Dividends 578.43 578.07 00.36 00.06
ii) Tax on proposed dividends 81.25 98.25 (17.00) (17.30)
iii) Residual dividend paid for -- 00.07 (00.07) (100.00)
the year 2005-06.
iv) General reserve 1000.00 1000.00 -- --
v) Balance carried to Balance 1383.07 1013.83 369.24 36.42
sheet.
3042.75 2690.22 352.53 13.10

COMMENTS ON THE FINANCIAL CONDITION OF THE TATA MOTORS


BY ANALYZING THE COMPARATIVE PROFIT & LOSS ACCOUNT OF
THE COMPANY

I) It was observed that the sales revenue was increased by 04.00% and in terms of
absolute figure by Rs 1274.45 crores as compared to the previous financial year.
Respectively, excise duty was increased by 00.31% as compared to the previous
financial year.

II) The net revenue of the company was noticed an increment of 04.59% as compared
to the previous financial year and in terms of absolute figure by Rs 1260.79 crores .
But the cost of good sold by the company was increased by 06.13% , which was
around Rs 1480.84 crores in absolute figures. Which also cause to decrease the
operating profit of the company by 06.64% as compared to the previous financial
year. The company should put special attention to check out its direct cost (cost of
goods sold ) as it was judged from the comparative P/L A/C that the increment in the
direct expense by the company is excess than the increment in the net revenue of the
company.

III) The increment in the dividend and other incomes was noticed by 97.06% as
compared to the previous financial year. which increases the PBIT (Profit before
interest and tax) by 00.51% and in terms of absolute figure by Rs 237.99 crores .

IV) The profit before tax (PBT) was noticed an increment of 00.13%, whereas profit
after tax (PAT) was increased by 06.03% as compared to previous financial year. The
huge increment in the PAT was noticed despite of having less increment in PBT due to
decrease in the payment of tax by 17.00% as compared to the previous financial year,
which approximately realised Rs 115.46 crores in the hand of the company.

V) It was also noticed that balance brought forward by the company was increased by
30.52% , which means that in the previous financial year the company have a good
surplus amount left in their hand after appropriating the available funds . which
increases the bottom line balance by 13.10%.
COMMAN SIZE BALANCE SHEET OF TATA MOTORS
For the year ended 31st march , 2008

(Rs in
crores)
Long term source of funds 2008 % 2007 %

A .Shareholders fund
i) share capital 385.54 02.55 385.41 03.30
ii) reserve and surplus 7453.96 49.38 6484.34 55.58
7839.50 51.93 6869.75 58.89

B .Loan funds
i)secured 2461.99 16.31 2022.04 17.33
ii)unsecured 3818.53 25.30 1987.10 17.03
6280.52 41.60 4009.14 34.37

C .Deferred Tax Liability(net) 975.72 06.46 786.83 06.74

D .Total Fund Employed 15095.74 100 11665.72 100

Application of funds
Long term investments (x)
E . Fixed assets
i) Gross Block 10830.83 71.75 8775.80 75.23
ii)less- depreciation 5443.52 36.06 4894.54 41.96
iii) Net Block 5387.31 35.69 3881.26 33.27
iv)Capital work in progress 5064.96 33.55 2513.32 21.54
10452.27 69.24 6394.58 54.82

F .Investments 4910.27 32.53 2477.00 21.23


15362.54 101.77 8871.58 76.05

Short term investment


( working capital = CA-CL )

G. Current assets
i) Interest accrued on invest- 0.86 00.01 5.94 00.05
ments.
ii) Inventories 2421.83 16.04 2500.95 21.44
iii) Sundry debtors 1130.73 07.49 782.18 06.70
iv) Cash and bank balance 2397.31 15.88 826.76 07.08
v) loans and advance 4433.05 29.36 6396.22 54.83
10383.78 68.79 10512.05 90.11

H. Current Liabilities
i) Sundry creditors 8667.20 57.41 6363.68 54.55
ii) Provisions 1989.43 13.18 1364.32 11.70
10656.63 70.59 7728.00 66.25

I. Net current assets(G-H) (272.85) (01.80) 2784.05 23.87

J. Miscellaneous expenditure 6.05 00.04 10.09 00.09

TOTAL ASSETS (NET) 15095.74 100 11665.72 100


(X+I+J)

COMMAN – SIZE STATEMENT OF CAPITAL STRUCTURE


COMPONENTS OF TATA MOTORS WITH REFERENCE TO PIE -CHART

SHARE CAPITAL

RESERVE
&SURPLUS
SECURED LOAN

UNSECURED LOAN

DEFERRED TAX
LIABILITY

.
(FINANCIAL YEAR 2007-2008)
SHARE CAPITAL

RESERVE
&SURPLUS
SECURED LOAN

UNSECURED
LOAN
DEFERRED TAX
LIABILITY

(FINANCIAL YEAR 2006-2007)

COMMENTS ON THE FINANCIAL POSITION OF THE TATA MOTORS BY


ANALYIZING THE COMMAN BALANCE SHEET.

I ) It is observed from the above presentation of pie chart that internal equity of the
Tata motors is 51.93% of the total source of finance in the financial year 2007-2008
and it was 58.89 % in the previous financial year. which indicates that the company has
increased the external equity by raising loan able funds in the current financial year,
which stands to around 41.60% in the financial year 2007-2008 and it was 34.37% in
the previous financial year. So , the increment in external fund was noted by 7.23% as
compared to previous financial year. The company should try to increase the internal
equity in its capital structure composition. Which will strengthen the financial
position of the company, the shareholders and Investors will not hesitates to invest in
the company.

II ) In the current financial year the deferred tax liability stood at 6.46% and it was
6.74% of the total fund employed ,in the previous financial year. Reduction of 0.28%
is noted in the deferred tax liability of the company ,as compared to previous financial
year.

III) The company’s investment on fixed assets stood at 69.24% in the current financial
year(07-08) ,which was 54.82% in the previous financial year. The increment of
14.42% is noted in the fixed assets of the company.

IV) The investment made by the company in the current financial year stood at
32.53% of the total application of fund, whereas the investment in the previous
financial year was around 21.23% of the total application of fund by the company.
which means the company is expanding its structure ,which is a good indication of
growth.
V ) The current assets of the company stood at 68.79% in the current financial year.
Whereas position of current assets in the previous financial year was 90.11%.which
shows that there was decrease in the current assets by 21.32% .The company is
efficiently and effectively utilizing its current source of fund by funding in the current
assets. The current liability for the current financial year stood at 70.59% whereas
Current assets were 68.79% , which means that company is financing its short term
expenses from short term fund ,which is quite good principle of the company. The
company should try to finance the long term expenditures from long term source and
short term expenditure from short term fund.

COMMAN SIZE PROFIT& LOSS ACCOUNT OF TATA MOTORS


For year ended 31st march, 2008

(Rs in crores)
2008 (%) 2007 (%)

A. Gross revenue
Sale of product and other 33093.93 100.00 31819.48 100.00
income from operation
Less – Excise Duty 4363.11 13.18 4349.45 13.67
B. Net revenue 28730.82 86.82 27470.03 86.33
C. Cost of goods sold
Raw materials/components 24093.93 72.80 22789.57 71.62
Manuf. And other expenses.
Employee cost 1544.57 04.67 1368.09 04.30
25638.50 77.47 24157.66 75.92
D. Operating profit (B – C) 3092.32 09.34 3312.37 10.41
E. Dividend and other Incomes 483.18 1.46 245.19 0.77
F. Profit before depreciation, 3575.50 10.80 3557.56 11.18
interest and tax
G. Less :-
Product development expense 64.35 00.19 85.02 00.27
Depreciation 652.31 01.97 586.29 01.84
Interest 282.37 00.85 313.07 00.98
H. Profit before Tax 2576.47 07.79 2573.18 08.09
(A-B)
I. Tax: Current (146.01) (00.44) (482.50) (01.52)
Deferred (401.54) (01.21) (177.22) (00.56)

J. Profit after Tax: - 2028.92 06.13 1913.46 06.01


K. Balance brought forward 1013.83 03.63 776.76 02.44
from Previous year

L. Balance available for 3042.75 09.19 2690.22 08.45


Appropriation

H. Appropriations
i) Proposed Dividends 578.43 01.75 578.07 01.81
ii) Tax on proposed dividends 81.25 00.25 98.25 00.81
iii) Residual dividend paid for -- 00.00 0.07 00.001
the year 2005-06.
iv) General reserve 1000.00 03.02 1000.00 03.14
v) Balance carried to Balance 1383.07 04.18 1013.83 03.19
sheet.
3042.75 09.19 2690.22 08.45

COMMENTS ON THE FINANCIAL POSITION OF THE TATA MOTORS


BY ANALYIZING THE COMMAN SIZE PROFIT & LOSS ACCOUNT

I ) The net revenue of the company was 86.82% in the current financial year and it
was 86.33% in the previous financial year. The increment in net revenue was noted by
0.49% in the current financial year whereas, there was increment of Rs 1260.79
crores .

II ) The cost of good sold stood at 77.47% in the current financial year whereas it was
75.92% in the previous financial year. The increment of 1.55% was noticed in the cost
of good sold and in terms of absolute figure , it was increased by Rs 1480.84 crores.

III ) The Operating profit of the company was decreased by Rs 220.05 crores as
compared to the previous financial year. The decrease in the Operating profit was
noticed due to increase in the direct expenses by the company. As the cost of good
sold was increased by Rs 1480.84 crores whereas, the increment in the net revenue
was noticed to Rs 1260.79 crores only, which is not a good sign for the company .The
company should pay special attention to reduce direct operating expense.

IV ) It was observed that there were increase in the dividend and other incomes of the
company by Rs 237.99 crores ,which is a good sign for the company. The increment
also lead to increase the profit before interest and tax (PBIT) by RS 17.94 crores as
compared to the previous financial year.

V ) The profit after tax (PAT) was increased by RS 115.46 Cr. as compared to the
previous financial year. The increment in the PAT was noticed due to less tax paid in
the current financial year as compared to the previous financial year, which may be
due certain change in the tax structure by the government.
VI) Finally, the increment in the appropriation balance was noticed to RS 352.53 cr.
which was due to increase in the previous year balance by Rs 237.07 crores. The
Company is constantly increasing its retained earning which is good policy adopted
by the company ,which will increase the soundness of the capital structure of the
company.

COMMENTS ON THE FINANCIAL POSITION OF THE TATA MOTORS


WITH THE HELP OF RATIO ANALYSIS

A) LIQUIDITY RATIO

I) CURRENT RATIO = current assets / current liabilities.

= 10383.78 / 8667.20
=1.20

Current ratio = 1.20 : 1

This ratio is analysed to test the solvency position of the company. The Current ratio
reveals the firms ability to meet its current liabilities out of current source of fund.
The standard ratio is 2: 1, but in practically the standard ratio is assumed to be 1.5:1.
The company is having current ratio of 1.20:1, which means that for every Re. 1 of
current liabilities, the company have Re. 1.2 of current assets, which is satisfactory
position but the company should try to increase the current ratio to at least 1.5:1.

II) ACID TEST RATIO = current assets – Inventories / current liabilities - bank O/D

= 10383.78 – 2421.83 / 8667.20 - NIL

= 7961.95 / 8667.20

= 0.92

Acid test ratio = 0.92:1

This ratio is also used to know the solvency of the company. This ratio reveals the
actual financial ability of the company to pay off its immediate impending liabilities.
The standard ratio is 1:1 but in practically it is accepted to be 0.8:1. The company is
having 0.92:1 quick ratio which is quite satisfactory. Which means that for every Re.1
of CL the company can pay immediately Re.0.92.

B) PROFITABILITY RATIO

I) GROSS PROFIT RATIO(GPR) = Gross profit / sales × 100

=3092.32 /33093.93 × 100

= 9.35%

Gross profit ratio = 09.35%

This ratio indicates the relationship between the gross profit and the sales of the
company. this ratio gives the information about the movement of stock and also
earning capacity of the company. The more the ratio , greater is the earning capacity
of the company. The company is having 09.35% of gross profit ratio which is not so
satisfactory for the company as the standard ratio of gross profit is 25% .The
Company should try to minimize its direct and operating cost and side by side it
should put extra effort to increase its revenue by selling more output in the market.

II) NET PROFIT RATIO (NPR) = Net profit / turnover × 100

= 2028.92 / 33093.93 × 100

= 6.14%

Net Profit Ratio =06.14%

This ratio indicates the ratio of net profit to net sales/turnover. This ratio reveals the
amount of fund left for the proprietor of the company. Net profit ratio is useful to
measure the operational efficiency of the management of the company. The net profit
ratio is 06.14% , which is below standard .The standard ratio is 15%, the company
should try to increase its net profit to increase the ratio.

III) RETURN ON INVESTMENT = Net profit /capital employed × 100


(ROI)
= 2028.92 / 15095.74 × 100

= 13.45%

Return on Investment = 13.45%

Return on investment indicates the profit earning capacity /profitability as compare to


capital employed by the company. In clear terms it indicates the rate of return on the
capital employed by the company. The ROI is a very good indicator of judging the
utilisation of resources and capital of the company .The standard ratio is 20%,
whereas the company’s return on investment is 13.45%.There is no practical norm or
standard of this ratio. It depends on the objective, efficiency and capacity of the
company. However, the company should try to maintain this ratio at a level over and
above the standard Bank Interest Rate to cover the risk involved in the business. The
Company should try to increase this ratio gradually.

IV) OPERATING RATIO = cost of goods sold + operating expenses /net sales × 100

= 25638.50+64.35+652.31+282.37 / 33093.93 × 100

= 26637.53 / 33093.93 × 100

= 80.50%

Operating ratio = 80.5%

This ratio shows the relationship between the operating cost and net sales of the
company. The ratio indicates the managerial efficiency to minimize the operating cost.
The lower the ratio, the greater is the management efficiency. The company is having
80.5% operating ratio. The company should try to minimize the ratio ,so that the
portion of profit can be increased.

C. LEVERAGE / SOLEVENCY RATIO

I) DEBT EQUITY RATIO = Long term debt / shareholders equity

= 2461.99 + 3818.53/ 385.41 + 6484.34

= 6380.52 / 7839.50

= 81.4:100

This ratio reveals the relation between the long term debt and Proprietors’ fund of the
concern, it also shows the efficiency of the management in financial planning. The
debt equity ratio is 81.40:100, which means that for every Rs 100 of the Proprietors’
fund, the long term debt stands to Rs 81.40.The standard ratio in this case is 0.33 .this
means that for every Re. 1 of the proprietors fund, the long term debt should be 0.33
paise. It is assumed that the position of the creditor is uncomfortable if the ratio is
higher than this.

II) PROPRIETARY RATIO = Shareholders Equity / Total Assets.

=Share capital + general reserve / fixed + current assets

= 2461.99 + 3818.53 / 5387.31 + 10383.78

=6280.52 / 15771.09
= 0.4

Proprietary ratio = 0.4:1

This ratio explains the relation between the total assets and the proprietary fund of the
company. This shows that how much proprietary fund is engaged in the business
while financing the total assets of the company. Here the company has engaged 40%
of the proprietary fund for financing its assets. This ratio also shows that how much
the company is dependent on external equity while financing its total assets. Here the
company is dependent on external equity to the extent of 60%.The company should
gradually try to decrease the ratio of dependent on the external equity. This will in
turn increase the share of profit of the company.

D. ACTIVITY RATIO / TURNOVER RATIO

I) INVENTORY TURNOVER RATIO = Cost of goods sold / average inventory

=25638.50 / ( 2421.83 + 2500.95 / 2)

= 25638.50 / 2461.39

= 10.42 times

This ratio indicates the relation between the inventory and sales of the company.
Which provide us the information about the velocity of stock during the year. High
ratio is always desirable by the company; the high ratio indicates a good position of
the company. The company’s inventory turnover ratio is 10.42 times, which means the
movement of stock is approximately 10.5 times in a year.

II) FIXED ASSETS TURNOVER RATIO = Sales / Fixed Assets.

= 33093.93 / 5387.31

= 6.14 times

Fixed assets turnover ratio = 6.14 times.

This ratio establish a relation with the fixed assets and sales of the company. Which
indicates, how many times the fixed assets is utilised to achieve the sales of the
company. Here the company is utilising 6.14 times of its fixed assets to achieve the
sales of the company. The company should try to increase this ratio, which will
increase the production and ultimately the sales of the company.
III) CURRENT ASSETS TURNOVER RATIO = Sales / current assets

= 33093.93 / 10383.78

= 3.2 times

Current assets turnover ratio = 3.2 times.

This ratio establish a relation between the current assets and sales of the company
.This ratio indicates that how many times the current assets in being utilised to
achieve the sales by the company. The current turnover ratio of the company is 3.2
times, which means that the company is utilising 3.2 times its current assets for
achieving its sales.