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IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 4, No.4, August 2015

A STUDY ON FINANCIAL ANALYSIS OF TATA MOTORS B.SUREKHA1, K.RAMA KRISHNAIAH2 1 2

Assistant professor, Department of H&S, VTA, Kavali, Nellore District, A.P

Professor, Department of Commerce, Management & Computer Science, S V University, Tirupati.

Abstract: The primary objective of the Tata Motors

organization has efficient workers or not.

is to earn profit for the surviving and growth

Finally, organization can identify its progress, profits and growth. Profit is important for any

of the company. The profit is earned with the

business. For surviving, growth, expansion

help of money invested in the business. It is

and diversification it is necessary. Profit is

essential to observe how much profit has been

important to satisfy the investors, to repay the

earned. This is possible by using Profitability

debt or loans, to pay wages and salaries to

ratios. These ratios are the most important and

staff and other day-to-day expenses. Profit is

reliable indicators to measure the financial performance of Tata Motors. These ratios

the most useful measure of overall efficiency

check the current operating performance of the Tata Motors, and are very helpful for the

This study aims at analyzing the overall financial study of the Tata Motors by using

management to take remedial measures if

various financial tools. The study is based on

there is a declining trend.

the accounting information of Tata Motors.

of a business.

In this paper, analysis reveals the

This study covers a period of 2010 to 2014,

prosperity of Tata Motors from 2010 to 2014.

for analyzing the financial statements such as

Prosperity can be examined by using profitability ratios, statistical tools and growth

income statements and balance sheet. The

chart. keywords: Net profit, PBDIT, PBT, PAT,

account for the study. The performance is compared with in those periods.

RONW

Objectives of the study

data of the past five years are taken into

1. To know the Financial position of the 1. INTRODUCTION: To study the progress is very important. Through

this

study,

2. To calculate the growth of Tata Motors.

can

3. To provide suggestions for improving the

recognize its strengths and weaknesses, so that they can be properly analyzed. Profitability analysis helps to the organization

overall financial position of the Tata Motors. 2. LITERATURE REVIEW “Rakhi Hotwani” reveals in his study

to identify whether investment is sufficient or

‘Profitability Analysis of Tata Motors that

not,

company has created significant wealth for its

management

is

organization

company for the past 5 years.

capable

or

not,

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IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 4, No.4, August 2015

stakeholders and provided hand some return

complete secondary data. This data is taken

on investment[1]. Companies’ profit margins

from the published annual reports of Money

have fluctuations. Return on net worth has

Control. Profitability ratios and statistical

been below 10% in 2 years. Any way inner strength of the company is remarkable.

techniques will be used to analyze the data.

Company can further improve its profitability and

Financial Analysis of Tata Motors For financial analysis, some profitability

reduction in administration and financial

ratios are to be calculated to assess the

expenses.

financial position of the company. The basic

through

optimum

capital

gearing

aim of this analysis is to reveal financial “Daniel Moses Joshuva” stated in his

position is increasing or decreasing.

study ‘Financial Status of Tata Motors LTD ‘that company has stable growth and also

PBDIT Ratio:- PBDIT is an indicator of a

suggested to reduce the expenditure[2].

company’s financial performance which is

Decrease in expenses will increase the

calculated

profitability. He also suggested that company

calculation.

in

the

following

PBDIT

should utilize its working capital efficiency. PBDIT = Revenue - Expenses ( excluding “Patel Vivek indicated in his study on ‘Financial Performance of Tata Motors ‘that the company has issued equity capital rather

depreciation, interest, tax ) This ratio tells us the net operating income after deducting operating expenses.

than going for performance share which means the company’s dividend will not be

Table 1. PBDIT Ratio of Tata Motors ( Rs.

fixed but the company has provided a good

Crores ) (In % )

amount of dividend to share holders[3].

Years

Despite of having large reserves, company has opted for loan funds. The company had a good operating income which shows that the company has a sustainable growth. Financial analysis of Tata motors was carried out by Rakhi, Daniel & Patel up to the financial year 2009-10. The methodology adopted by each author is different. Here in

Net Sales

PBDIT

2009 – 10 2010 – 11

35,373.29 47,088.44

5,253.69 4,940.99

PBDIT Ratio 14.85 10.49

2011 – 12 2012 – 13 2013 – 14

54,306.56 44,765.72 34,319.28

4,166.39 3,380.31 2,382.02

7.67 7.55 6.94

Average Std Deviation

43,170.66 8,382.23

4,024.68 1,170.87

9.50 3.29

Co-efficient of Variance

19.42

29.09

34.63

this paper, analysis was carried out from the financial analysis from 2009 to 2015.

Source: Money control.com published annual reports

3. METHODOLOGY The study consists of 5 years data of Tata

This ratio assumes great importance to

Motors from 2009-10 to 2013-14. This is 1225

IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 4, No.4, August 2015

money lenders and financiers as it reveals the

depreciation expenses to that tune.

cash availability of the firm for payment of

Highest PBT is recorded by the company

interest to the creditors. Tata Motors has

in FY 2009 - 10. Next years it will be reduced.

grown highest PBDIT in FY 2009 - 10 at 5,253.69 crores. Compared to 2010 to 2014,

However, standard deviation and co-efficient of variance are 4.17 and 166.40 respectively,

2010 is the best year. 2010 - 11 earnings are

indicating stability in Profit Before Tax of the

also very good. Average ratio of the company

company. Company earnings will be reduced

is 9.50%. Standard deviation and C0-efficient

in FY 2012 - 2013 and 2013 - 14. FY 2011 -

of variance are 3.29 and 34.63 respectively,

12 has also been below par for the company in

indicating stability of the performance of the

terms of PBT ratio. PAT Ratio:- This ratio represents the

company. PBT Ratio This ratio measures combines all of the

relationship between Net Profit of the company and its Net Sales. Difference

company’s profit before tax, including

between net profit ratio ( PAT Ratio ) and

operating,

continuing

PBT ratio reflects tax provisions made by the

operations and non-continuing operations.

company. It may also include items of extra

PBT exists because tax expense is constantly

ordinary nature. In net profit ratio the net

changing and taking it out helps to give an

amount earned by a business after all taxation,

investor a good idea of changes in a

related expenses have been deducted. The

company’s profit or earnings from year to year.

profit after tax is often a better assessment of what a business is really earning and hence

non-operating,

can use in its operations than its total Table 2. Profit before tax ratio of Tata Motors

Table 3. Profit after tax ratio of Tata Motors

(Rs. Crores ) ( In% ) Years 2009 – 10 2010 – 11 2011 – 12 2012 – 13 2013 – 14 Average Std Deviation Co-efficient of Variance

Net Sales 35,373.29 47,088.44 54,306.56 44,765.72 34,319.28 43,170.66 8,382.23 19.42

PBT 2,829.54 2,196.52 1,341.03 174.93 -1,025.80 1,103.24 1,551.33 140.62

revenues.

PBT Ratio 7.99 4.66 2.47 0.39 -2.99 2.51 4.17 166.40

Source: Money control.com published annual reports Company’s PBT ratio is mostly in line

( Rs.Crores ) (In% ) Years

Net Sales

PAT

2009 - 10

35,373.29

2,240.08

PAT Ratio 6.33

2010 - 11

47,088.44

1,811.82

3.85

2011 - 12

54,306.56

1,242.23

2.29

2012 - 13 2013 - 14 Average Std Deviation Co-efficient of Variance

44,765.72 34,319.28 43,170.66 8,382.23 19.42

301.81 334.52 1,186.09 867.86 73.17

0.67 0.98 2.82 2.33 82.54

with the PBDIT ratio above. Average PBT ratio for the company is 2.51% as against average PBDIT ratio of 9.50%. Difference

Source:

Money

control.com

published

information

between these ratios indicates interest and

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IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 4, No.4, August 2015

We have seen that FY 2009 - 10 has been the

to be the minimum bench mark return for any

best year for the company as it has recorded

investment. One can safely earn the return

highest PBDIT and PBT in that year. This

without risk.

ratio indicates that company witnessed its highest net profit in FY 2009 - 10. 2010 - 11 is

This ratio reveals that poor performance of the company as average ratio stands at

also good. On an average, company’s net

6.77% which is considerably below the bench

profit ratio stands at 2.82%. Standard

mark level. FY 2009 - 10 emerges as the best

deviation and Co-efficient of Variance is high

year for the company in terms of return on net

at 2.33 and 82.54 respectively.

worth. Company’s position is good in the first years and shows poor in the last two years.

RONW Ratio:- Return on Net Worth is also

Standard deviation and Co-efficient of

known as Return on Equity ( ROE ). The amount of net income returned as a

variance are 5.66 and 83.60. Table 5.Percentage increase in profits in

percentage of share holders equity is called RONW. RONW ratio measures a corporations

proportion to percentage increase in sales Years

profitability by revealing how much profit a company

generates

with

the

money

shareholders have invested. Table 4. Return on Net Worth ratio of Tata Motors ( Rs.Crores ) (In% ) Years

Net Worth

PAT

2009 – 10

14,779.15

2010 – 11

2009 - 10 2010 - 11 2011 - 12 2012 - 13 2013 - 14

Percentage increase In Sales 33.12 15.33 - 17.57 - 23.34

Percentage increase In Profits - 19.12 - 31.44 - 75.70 10.84

2,240.08

RONW Ratio 15.16

This table shows the comparison of increase

20,013.30

1,811.82

9.05

in sales with increase in profits. In the FY

2011 – 12

19,626.01

1,242.23

6.33

2012 – 13

19,134.84

301.81

1.58

2010 - 11, it found to be highest percentage decrease in sales among all and the FY 2013 -

2013 – 14

19,176.65

334.52

1.74

14 shows the lowest. The reasons for the

Average

18,545.99

1,186.09

6.77

variation may be due to high tax, high

Std Deviation

2,172.55

867.86

5.66

borrowed funds, high depreciation cost etc.

Co-efficient of Variance

11.71

73.17

83.60

In FY 2013 - 14 the percentage increase in profits is found to be highest when compared to the remaining periods. (negative

Source:

Money

control.com

published

information Stake holders of the company are most concerned with this ratio as it indicates return on amount invested by them in the firm. Normally, a return of more than 8% or the rate offered by the bank on deposits is considered

sign indicates the decreasing pattern of the profits). In FY 2012 - 13 the percentage decrease in profits is found to be more significant than the other financial years. 4. RESULTS Table 6. Profitability ratios of Tata Motors Years

PBDIT Ratio

PBT Ratio

PAT Ratio

RONW Ratio

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IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 4, No.4, August 2015

2009 – 10

14.85

8.00

6.33

15.16

3. High depreciation cost

2010 – 11

10.49

4.66

3.85

9.05

4. High expenses etc.

2011 – 12

7.67

2.47

2.29

6.33

Which can be modified by implementing

2012 – 13

7.55

0.39

0.67

1.58

2013 – 14

6.94

- 2.99

0.98

1.74

Average

9.50

2.51

2.82

6.77

Std Deviation Co-efficient of Variance

3.29

4.17

2.33

5.66

34.63

166.4

82.54

83.60

Source: Money control.com Annual reports This table shows considerable growth attained by the company in last five years. 2009-10 is the best financial year.

proper financial management concepts. Thus it can be concluded that inner strength of the company is remarkable. Company can further improve its profitability through optimum capital

gearing

and

reduction

in

Administration and Financial expenses. REFERENCES [1]. K. Rajeswara Rao and G. Prasad, “Accounting and Finance” Jai Bharat Publications, 10th Edition, 2008, pp.20.1 - 20.26. [2]. Dr.S.N.Maheswari - Financial Management Principles and practice, S.Chand & Company Ltd,

CONCLUSION I would like to conclude that the prosperity of Tata Motors Ltd., is wealthy for the last 5 years period. It was found to be in a gradual increasing manner regarding the Net Sales and the Net Profits of the company since 2009 onwards. These changes in the profits might have occurred due to: 1. High taxation 2. High cost of borrowed funds

9th edition, 2004. [3]. Hotwani, Rakhi. "PROFITABILITY ANALYSIS OF TATA MOTORS." Ratio2.8918.06 (2001): 763-35. [4]. Bagavathi R.S.N.Pillai - Management Accounting, S.Chand and Company Ltd., 4th edition, 1997. [5]. Annual reports of Tata Motors. [6]. Sharma R.K. and Gupta Shashi K., “Financial Management”, Kalyani Publisher, New Delhi, 2008.

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