Analyzing Financal Statements for Planning and Cost
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Analyzing Financal Statements for Planning and Cost
Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) is an
Indian multinational locomotive manufacturing company headquartered in India and a subsidiary of the Tata Group. Its products include passenger cars, trucks, vans, coaches, buses, construction equipment and military vehicles. It is the world's seventh largest automobile manufacturing company, fourth-largest truck manufacturer and second-largest bus manufacturer by volume. The company has vehicle assembly operations in India, UK, South Korea, Thailand, Spain and South Africa and its principle subsidiaries include Jaguar Land Rover, Tata Daewoo and Tata Hispano.
Tata Motors is listed in Bombay Stock Exchange, and New York Stock Exchange and it is among the
Fortune Global 500 biggest corporations in the world
The automobile industry in India is one of the largest markets in the world and also rated to be one of the fastest growing markets. Though recently it is experiencing flat to negative growth, it is expected to be the largest market by 2050 primarily driven by economic liberalization, policy relaxation and increased international expansion by domestic players like Tata Motors, Maruti and M&M
Below I have evaluated the financial performance of one of the leading automobile player, Tata
Motors, and have also made necessary recommendations for a sustainable growth going forward

Analyzing Financal Statements for Planning and Cost
Amount in INR Crores (except where stated otherwise)
Mar '14 Mar'13 Particulars
Sales Turnover
Excise Duty
Net Sales
Raw Materials (Cost of Goods Sold)
Gross Profit
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
Miscellaneous Expenses
Preoperative Exp Capitalized
Total Operating Expenses
Operating Profit
Other Income
Stock Adjustments
PBDIT
Interest
PBDT
Depreciation
Other Written Off
Profit Before Tax
Extra-ordinary items
PBT (Post Extra-ord Items)
Tax
Net Profit after Tax
Total Value Addition
Preference Dividend
Equity Dividend
Corporate Dividend Tax
44,765.72
0
44,765.72
33,764.40
11,001.32
484.66
2,837.00
425.76
0
5,679.52
0
9,426.94
1,574.38
1,662.33
143.60
3,380.31
1,387.76
1,992.55
1,817.62
0
174.93
0
174.93
-126.88
301.81
9,426.94
0
645.2
79.03
54,306.56
0
54,306.56
41,081.79
13,224.77
550.89
2,691.45
0
0
6,428.72
0
9,671.06
3,553.71
-11.16
623.84
4,166.39
1,218.62
2,947.77
1,606.74
0
1,341.03
0
1,341.03
98.8
1,242.23
9,671.06
0
1,280.70
183.02
Per share data (annualized)
Shares in issue (lakhs) 31,901.16
Earnings Per Share (Rs) 0.95
Equity Dividend (%)
Market Price per share (Rs)
Book Value (Rs)
100
202.4
59.98
31,735.47
3.91
200
152.75
61.84

Analyzing Financal Statements for Planning and Cost
Particulars Mar'14
Total Share Capital
Sources Of Funds
638.07
Equity Share Capital 638.07
Share Application Money
Preference Share Capital
Reserves
Revaluation Reserves
Net worth
0
0
Mar'13
634.75
634.75
18,496.77 18,991.26
0 0
0
0
19,134.84 19,626.01
Long Term Debt
Short Term Debt
Total Debt
Current Liabilities
8,036.63
6,232.06
8,046.66
2,964.97
14,268.69 11,011.63
16,580.47 20,280.82
Provisions
Total CL & Provisions
2,200.77 3,600.82
18,781.24 23,881.64
Total Liabilities 52,184.77 54,519.28
Application Of Funds
Gross Block
Less: Accum. Depreciation
25,190.73 23,676.46
9,734.99 8,656.94
Net Block 15,455.74 15,019.52
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash and Bank Balance
Total Current Assets
Loans and Advances
Fixed Deposits
Total CA, Loans & Advances
Deferred Credit
Miscellaneous Expenses
Total Assets
Contingent Liabilities
Book Value (Rs)
4,752.80
19934.39
4,455.03
1,818.04
462.86
6,735.93
5,305.91
0
0
0
4,036.67
20493.55
4,588.23
2,708.32
1,840.96
9,137.51
5,832.03
0
12,041.84 14,969.54
0
0
52,184.77 54,519.28
14,981.11
59.98
15,413.62
61.84

Analyzing Financal Statements for Planning and Cost
Ratio analysis is the quantitative analysis of a company’s financial statements in order to evaluate the operational and financial performance of a company. In the following section, I have evaluated the company’s efficiency, liquidity, profitability and solvency over a period of time and have also conducted a peer comparison/industry benchmarking. Below is a snapshot of all the key financial matrices for Tata Motors over the last 2 years:
Current Ratio
Particulars
Quick Ratio
Inventory Turnover Ratio
Total Assets Turnover Ratio
Total Debt Ratio
Total Debt to Equity Ratio
Gross Profit Ratio
Return on Total Assets
Return on Net Equity
Price Earnings ratio
2014
Tata Motors
0.41
0.14
10.05
0.86
0.27
0.75
24.6%
2.99%
1.58%
213.05
2013
0.45
0.22
11.84
1.00
0.20
0.56
24.4%
4.69%
6.33%
39.10
Industry Average
2014
0.62
0.29
14.88
1.34
0.21
0.62
21.27%
2.5%
4.5%
178.54
2013
0.51
0.18
Formulae Used
Current Assets/Current
Liabilities
(Current Assets-
Inventory)/Current
Liabilities
10.14 Sales Turnover/Inventory
1.22 Net Sales/Total Assets
0.25 Total Debt/Total Assets
0.48
Total Debt / Equity or Net
Worth
20.92% Gross Profit/Net Sales
3.80% PBIT/Total Assets
5.8% PAT/Net Worth
Earnings per share/Market
45.88 price per share
(a) Liquidity Ratio:
Liquidity ratio is used to determine a company’s ability to meet its short term obligations. The higher the ratio is, the better the company would be in meeting it’s near term debt obligations and hence seen to be more liquid. The typical matrices used are: Current ratio and Quick ratio
Current ratio indicates the short term financial soundness of the firm with a higher number indicating better capacity to meet current obligation. Further, Quick ratio is a more stringent measure of liquidity, which is based on those current assets, which are highly liquid and can be converted into cash quickly
We see that the Current as well as Quick ratio declined for Tata Motors over the previous year, which means that the liquidity for the firm took a hit over the last year. It is also lagging the industry average thus indicating that the peers are better off in meeting their short term liabilities more efficiently where-as Tata Motors is facing somewhat of a liquidity crunch

Analyzing Financal Statements for Planning and Cost
(b) Turnover Ratio:
A turnover ratio indicates how quickly a company is able to turn around its assets and convert it into cash. Inventory turnover ratio explains the ability of the company to convert its inventories to cash by selling and Assets turnover is the amount of sales the company is able to generate per dollar of its assets. These are the two widely used measure of operation efficiency for a corporate and higher the number, more efficient the company is
We see that the Inventory turnover of the company went down from 2013 to 2014. In 2013, the company was seen to be more efficient vis-à-vis its peers with the firm able to liquidate its inventory more efficiently than its peers. However, in 2014, the inventory turnover ratio saw a fall and is now lagging the industry average thus indicating that the inventory levels for the company has gone up and the firm is now having increased cash being blocked in the inventory. Further, this also indicates that the inventory management for the company has been less efficient and operational efficiency in terms of generating sales has come down for Tata Motors over the last year and also compared to its peers
(c) Solvency ratio
Solvency ratios are a financial metric used to measure the ability of a firm in meeting its long-term debt and other obligations. This indicates whether the cash flow of a company is sufficient enough to meet its debt obligations there-by hinting towards the financial stability of the firm
The two ratios evaluated here are Total Debt and Debt –Equity ratios. Debt ratio talks about the financial leverage of the firm i.e. the proportion of assets that are finance by debt. A higher number means increased leverage and a greater financial risk. Debt-Equity ratio also measures the financial leverage and indicates the proportion of equity and debt used to finance a company’s assets. Similar to the debt ratio, a lower number indicates a higher financial soundness
We see that the Debt ratio as well as the Debt-equity ratio has gone up for Tata Motors in 2014 compared to 2013. In 2013, the firm had a lower degree of financial leverage vis-à-vis its peers however this has increased in 2014 which means that the level of debt financing for the company has gone up. This can be attributed to the fact that the company raised additional debt for its international expansion, however this level should be looked upon going forward as a higher number will increase concerns among its lenders and investors

Analyzing Financal Statements for Planning and Cost
(d) Profitability ratio
A very important and most widely used financial metric, which is used to assess a firm’s ability to generate income as compared to its expenses. Higher the number is better it is for the company. Here we have evaluated the following profitability ratios: Gross Profit Margin, Return on Assets and
Return on Equity
Gross profit margin measures the financial health of a firm by comparing the revenues with its cost of goods sold. It indicates the percentage of revenues spent on procuring/producing the goods sold.
Return on Assets is a measure to see how efficiently a company uses its assets to generate earnings and is indicated by comparing the EBIT with Total Assets. Finally, Return on Equity is the profit/net income generated for the equity shareholders and measures the Net Income vis-à-vis the equity investments in the company
We see that the Gross profit margin has been somewhat consistent over the last year for Tata Motors and has been higher than the industry average. This indicated that Tata Motors has been highly efficient in managing its materials and labor flows along-with the direct cost incurred as opposed to its peers.
The Return on Assets for Tata Motors has seen a year-on-year fall however is still ahead of the industry average. This suggests that in 2014, Tata Motors wasn’t able to generate as much earnings as in 2013, proportionate to its assets. However, it has been successful enough to leverage its asset investments and generate earnings ahead of its competitors
However, despite of its quality performance on ROA and Gross profit margin, the company’s return on equity has seen a substantial fall over the last year and that too at a time when its peers were able to provide a substantially higher return. This indicates that the money invested by shareholders generated lesser return compared to its peers which can be attributed to the higher interest expenses that the firm had to bear on account of an increased debt level.
(e) Earnings Multiple
Earnings multiple indicates how much an investor is willing to pay for a company’s share in return of a $1 earning. The higher number indicates a bullish growth sentiment among the investors
We see that the P/E multiple for Tata Motors saw a significant uptick over the last year. Though, the industry average also shot-up, the proportionate increase for Tata Motors was much higher than its peers. This indicates that the investors are expecting a substantial growth in the Indian Automobile industry going forward and are particularly bullish on Tata Motors expecting a humongous growth driven by its international expansion

Analyzing Financal Statements for Planning and Cost
Tata Motors saw ~20% decline in its sales volume over the last year, primarily driven by the economic slowdown and higher interest rates. However, the operating expenses were somewhat constant to the last year there-by hurting the profit margin for the firm. Further, we see that the interest burden has increased on the company as a result of the rising debt levels which the company needs to monitor going forward. The company has been expanding its domestic as well as international operations, which is a big positive move and the investors are expecting a significant positive growth going forward. The company has been highly successful in generating an above average returns on total assets but the returns to the shareholders has taken a hit owing to the rising interest costs. The Indian Automobile industry is expected to see a substantial growth going forward driven by reduction in interest rates, overall economic recovery and increased spending power.
Tata Motors, with its existing market and growth trajectory, is expected to benefit the most of the recovering economy. However, there are certain areas where-in the company needs to focus in order to achieve the desirable growth.
Though the company has been able to deliver a consistent Gross profit margin, the net profit margins have shown fluctuations, which is a worrying factor. The fluctuations can be attributed to the higher borrowing costs, higher depreciation and increased operating expenses. Though the interest cost is expected to cool down as the international expansion starts getting operational, the company need to keep a close watch on its expenses.
Thus, it can be concluded that the inner strength of the company is remarkable; however it can work towards improving its profitability and liquidity through optimum capital gearing and reduction in operating expenses