FINANCIAL STATEMENT ANALYSIS

Section B Ruchika Sharma (112) S. Priya

Industry: Automobile Companies taken: Tata Motors & Maruti Suzuki Financial Analysis Liquidity Ratios
Tata(in Cr Rs) Mar'12 Mar'11 13712.92 10971.66 22177.47 19000.27 4275.05 4586.19 0.618327 0.577448 -8464.55 -8028.61 0.192765 0.241375 Maruti(in Cr Rs.) Mar'12 Mar'11 11079 9620.2 6547.6 4018.7 2436.1 2508.5 1.69207 2.393859 4531.4 5601.5 0.37206 0.624207

Current Asset Current Liability Quick Current Asset Current Ratio Net Working Capital Quick Ratio

Long Term Outside Liabilities Tangible Net Worth Total Tangible Asset Debt Equity Ratio Proprietary Ratio

8004.5 9679.42 19626.01 20013.3 13656.71 12631.82 0.407852 0.483649 143.7096 158.4356

96.6 14977.5 7922.2

234.9 13820 6346.2

0.00645 0.016997 1.890573 2.177681

For Tata, the current ratio is less than 1 indicating that the firm may have difficulty in meeting its current obligations. For Maruti, figures for current ratio has gone down compared to previous year but they are relatively better than that of Tata which indicates good short term financial strength and good working capital management though the ratio has decreased still its in the healthy range. Quick ratio for both the companies has decreased (from .2 in Mar11 to .1 in Mar12 for Tata and from .6 in Mar11 to .3 in Mar12 for Maruti) which is not a good sign for investors. Theres a huge difference between current ratio & quick ratio Tata is leveraging better when compared to Maruti as its Debt equity ratio is .4 for Mar 12.

Profitability Ratios
Tata(in Cr Rs) Mar'12 Mar'11 13656.71 12631.82 54519.28 54190.45 13977.79 12666.84 54306.56 47088.44 3144.89 3727.34 1242.23 1811.82 25.73868 26.90011 5.790995 7.915616 2.28744 3.847696 Maruti(in Cr Rs.) Mar'12 Mar'11 8132.1 6391.9 22302.2 18425.1 8026.6 8763.3 34705.9 35849 2091 3083.8 6466.4 7429.1 23.12748 24.44503 6.024912 8.602193 18.63199 20.72331

Fixed Asset Total Asset Gross Profit Net Sales Operating Profit Net Profit Gross Profit Ratio Operating Profit Ratio Net Profit Ratio

Average Inventory Sales Stock/Inventory Turnover Ratio(in Days)

4588.23 40328.77

3891.39 34421.6

1605.75 28239.5

1311.9 28419.9

41.52628 41.26355

20.75457 16.84888

For both Tata and Maruti, the profits have decreased when compared to previous year however, overall profitability of Maruti(18.6) is 9 times better than Tatas(2.3). Gross Profit went down to 25.7 from 26.9 for Tata Gross Profit Ratio indicates the manufacturing efficiency as well as the pricing policy of the concern. A higher Gross Profit Ratio indicates efficiency in production of the unit. Higher operating profit ratio indicates high operational efficiency. Tata is also slow in inventory turnover when compared to Maruti. Inventory Turnover for MAruti has increased from previous year to 20.7 while Tatas Inventory Turnover Ratio has not changed much if compared to the figures of previous year (41.26 in Mar 11 to 41.5 in Mar 12)

Leverage Ratios
Tata(in Cr Rupees) Mar'12 Mar'11 2708.32 2602.88 8744.83 8817.27 40328.77 34421.6 Maruti(in million Rs.) Mar'12 Mar'11 9376 8245 33499 26083 281083 283639

Average Debtors Average Creditors Purchases Debtors Turnover Ratio(in Days) Asset Turnover Ratio Fixed Asset Turnover Ratio Current Asset Turnover Ratio Creditors Turnover Ratio(in Days) Net Profit After Taxes Net profit Before interest & tax Average Capital Employed Return On Assets Return On Capital Employed

24.51195 27.60044 3.976548 3.727764 3.976548 3.727764 3.960248 4.291825 79.14605 93.49663 1242.23 1811.82

12.11863 10.58915 4.380841 5.648892 4.267766 5.608505 3.132584 3.72643

43.50009 33.56483 16352 22014 157546 22886 31338 144064

2559.65 3580.22 32341.81 35190.18 0.022785 0.033434 7.914368 10.17392

0.07332 0.124211 13.97306 21.75283

The debtors for Maruti are more liquid (12.11) when compared to Tata indicating that debt collection is fast for Maruti. Maruti is more credit worthy although the value has increased from precious year(33.5 in Mar 11 to 43.5 in Mar12). Asset turnover for Maruti has reduced from the previous year however for Tata the value has increased to 3.9 from 3.7. Current Asset Turnover Ratio for bot the companies has reduced when compared to previous year figures. Credit Turnover depicts that Maruti has increased the value from 33 in last year to 43 this year while Tata has reduced its credit turnover ratio. Return on Asset figures for both companies is low and has reduced from the previous years value and if we compare the figures, Maruti shows a better picture. ROCE has also reduced from previous year for both companies but Maruti has 13.9 for Mar 12 while Tata has 7.9 for Mar 12.

Activity Ratios
Tata(in Cr Rs) Mar'12 Mar'11 317.35 317.35 275.7 249.5 3.914385 5.709217 70.43252 43.70126 Maruti(in Cr Rs.) Mar'12 Mar'11 28.891 28.891 134.91 126.355 56.59894 79.21498 2.383614 1.59509

Number of Equity Shares Market Price Per Equity Share(in Rs.) Earning Per Share Price Earning Ratio PAT+Depr.+Annual Interest on Long Term Loans & Liabilities Annual Interest on Long Term Loans & Liabilities + Annual Instalments Payable on Long term Loans & Liabilities Debt Service Coverage Ratio

3695.858

4024.55

2775.1

3304.9

1564.195

956.98

47.83333 95.46667 58.01603 34.61837

2.362786 4.205469

EPS indicates the quantum of net profit of the year that would be ranking for dividend for each share of the company being held by the equity share holders. For Maruti, its 56 for the year Mar 12 decreased from 79.2 last year while for Tata its 3.9 in Mar 12 as compared to 5.7 in Mar 11. Price Earning Ratio for Tata is 70.4 for Mar 12 while for Maruti its 2.3 for Mar 12. Debt service coverage ratio is one of the most important one which indicates the ability of an enterprise to meet its liabilities by way of payment of installments of Term Loans and Interest thereon from out of the cash accruals and forms the basis for fixation of the repayment schedule in respect of the Term Loans raised for a project. DSCR for Tata decreased from 4.2 to 2.3 while for MAruti it was 34.6 in Mar 11 and increased to 58 in Mar 12.

Suggestion to Stakeholders: 1. Creditors They need to concentrate on Liquidity Ratios and Credit Turnover ratio. If we look at the Marutis Mar12 figures it shows that Maruti can pay its obligation as compared to Tata Mar12 value of .6. Also Quick ratio figure are better for Maruti when compared to Tata. 2. Banking and Financial Institute They need to look at the following ratios: Profitability Ratios including Gross Profit, Operating Profit and Net Profit Ratio. Operating Profit figures for Maruti and Tata are comparable but Net Profit Ratio for Maruti exceeds Tata by considerable margin. Also, Debtor Turnover Ratio and Creditor Turnover Ratio needs to be considered. Maruti takes 43 days while Tata takes 79 days. For both the companies, figures have improved from the last year but debtors and creditors days should not be stretched as per the industry standard or peer review. Debt Service Coverage Ratio: shows whether the company will have enough cash accrual to pay of its term loan instalments and interest payment. Liquidity Ratio: Mainly Current Ratio. As per bank standard, ideal CR is 1.33. Tata is less than 1 so the company is using its short term funds for long term purposes which is not a good sign & company should maintain a CR of atleast 1.33 hence, company should bring in more money to pay off its current liability. 3. Investor They will consider: Earning per share Price Earning Ratio If P/E is high, share is overpriced and if P/E is low share is underpriced. Values needs to be compared with the industry standards, Marutis Mar 12 figures at 2.3 are favourable. 4. Government They will consider: Liquidity Ratio

Leverage Ratio Government has to look whether the company is able to pay its obligations and need to keep a check on bankcrupty condition. 5. Management Ratios need to be looked upon by management are: Current Ratio Debt Equity Profitability Ratio Return on Capital Employed Return On Assets Management will check all the ratios as different ratios concern different departments and they have to satisfy various stakeholders too. Company must add value to the shareholder to maximise the return on investment. Marutis Mar12 figures it shows that Maruti can pay its obligation as compared to Tata Mar12. Also , Marutis profitability ratios shows a good picture for the company depicting that management is playing a vital role and managing activites inline with the requirements.

Key Highlights of Various Components of Annual Report

For Maruti Suzuki The fixed assets are physically verified by the Management according to a phased programme designed to cover all the items, except furniture and fixtures, office appliances and certain other assets having an aggregate net book value of Rs. 1,645 million, over a period of three years which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed off by the Company during the year. The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the rules framed there under. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

Management Discussions For Tata Motors Considering the Companys financial performance, the Directors recommended a dividend of 4/- per share (200%) on the capital of 2,70,77,31,241 Ordinary Shares of `2/- each (previous year: `20/- per

share (200%) on share of face value of `10/- each) and `4.10 per share (205%) on 48,19,59,190 A Ordinary Shares of `2/- each (previous year: `20.50 per share (205%) on share of face value of `10/- each) fully paidup for FY 2011-12 and will be paid on or after August 14, 2012. Tata Motors recorded a gross turnover of `59,221 crores, a growth of 15.7%, from `51,184 crores in the previous year. Cost reduction and value engineering continue to be areas of focus to improve operational efficiency. For Maruti Suzuki The total revenue (net of excise) was Rs. 364,139 million as against Rs. 371,272 million in the previous year showing a marginal decline of 1.92 per cent. The Company has again been awarded ISO :27001 certification by STQC Directorate (Standardisation, Testing and Quality Certificate), Ministry of Communications and Information Technology, Government of India after re-assessment. The Company is thus certified to meet international standards for maintaining information security. The Company's subsidiaries which were engaged in the business of insurance distribution in the past generated an investment income of Rs. 163.80 million including a dividend income of Rs. 28.65 million and long term capital gain of Rs. 129.13 million through mutual funds.

Corporate Governance Report For Tata Motor As part of the Tata group, the Companys philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behaviour. As a global organisation the Corporate Governance practices followed by the Company and its subsidiaries are compatible with international standards and best practices. Through the Governance mechanism in the Company, the Board along with its Committees undertake its fiduciary responsibilities

to all its stakeholders by ensuring transparency, fair play and independence in its decision making. As a good corporate governance practice, the Company has voluntarily undertaken an Audit by M/s Parikh & Associates, Practicing Company Secretaries, of the secretarial records and documents for the period under review in respect of compliance with the Companies Act, 1956, listing agreement with the Indian stock exchanges and the applicable regulations and guidelines issued by Securities and Exchange Board of India. For Maruti Suzuki

The auditors, M/s Price Waterhouse, Firm Registration Number FRN301112E, Chartered Accountants, hold office until the conclusion of the ensuing annual general meeting and are recommended for reappointment. The due date of filing the cost audit report for the financial year 2010-11 was 30th September 2011. This report was filed on 13th September 2011 with the Ministry of Corporate Affairs.

Improvement area for Tata Should improve upon its liquidity position as its current ratio and quick ratio are much below the industry standards. Should try to reduce its operating expenses by taking the benefit from economies of scale and reduce the interest cost so as to improve upon the profitability ratios. Once profitability will improve, ROE, ROA, EPS and P/E will improve automatically. Improvement area for Maruti Since the Current ratio is 1.7, hence there is a room for managing current asset in a better way without reducing the ratio below 1.33, which is considered good. Since quick ratio is very low as compared to current ratio it shows that there is a lot of dependence on inventory and other assets

which cannot be liquidated on an immediate manner and there is a scope of better current asset management. Company can plan some big expansion for which banks would more than willing to support since the company is having a very minimal debt on its books and has a very healthy cash accrual YOY basis. As per the facts and figures, Maruti should be rated higher than Tata. Different stakeholders will have different reasons to justify that like for banks Maruti is low leveraged or rather not leveraged, has a good liquidity position, has a better profitability, for investors Maruti has a better earnings per share and an under priced share as per the fundamental analysis likewise in almost all the parameter Maruti is in a better position than Tata.