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CONTENTS

Financial analysis is the process of identifying the financial

strengths and weakness of the firm by properly establishing the relations

ship between the items of the balance sheet and profit loss account.

Financial analysis can be undertaken by management of the firm, or by

parties outside the firm, viz. owners, creditors, investors and others. The

nature of analysis will differ depending on the purpose of analyst.

Management, creditors, investors and others to form

judgment about the operating performance and financial position of the

firm use the information contained in this statements can get further

insight about the financial strengths and weakness of the firm to make

their best use and to be able to spot out financial weakness of the firm to

take suitable corrective actions.

Thus financial analysis is the starting point for making

plans, before using any sophisticated forecasting and planning

procedures. Understanding the past is a prerequisite for anticipating

future.

FINANCIAL MANAGEMENT

In our present day economy, finance is defined as the provision of

money at the time when it is required. Every enterprise, whether big, medium of

small, needs finance to carry its operations and to achieve its targets. In fact,

finance is so indispensable today that it is rightly said to be the lifeblood of an

enterprise. Without adequate finance, no enterprise can possibly accomplish its

objectives.

Financial management is applicable to every type of organization,

irrespective of its size kind of nature. It is as useful to a small concern as to a big

unit. A trading concern gets the same utility from its application as a

manufacturing unit may expect. This subject is important and useful for all types of

ownership organizations. Every management aims to utilize its funds in a best

possible and profitable way. So this subject is acquiring a universal applicability.

It is indispensable in any organization as helps in:

(I) Financial planning and successful promotion of an enterprise;

(II) Acquisition of funds as and when required at the minimum possible

cost;

(III) Proper use and allocation of funds;

(IV) Taking sound financial decisions ;

(V) Improving the profitability through financial controls;

(VI) Increasing the wealth of the investors and the nation; and

(vii) Promoting and mobilizing individual and corporate savings.

OBJECTIVES OF FINANCIAL MANAGEMENT

Financial management is concerned with procurement and use of

funds. Its main aim is to use business funds in such a way that the firm’s

value/earnings are maximized. There are various alternatives available for using

business funds. Each alternative course has to be evaluated in detail.

The pros and cons of various decisions have to look into before

making a final selection. The decisions will have take into consideration the

commercial strategy of the business. Financial management provides a framework

for selecting a proper course of action and deciding a viable commercial strategy.

The main objective of a business is to maximize the owner’s economic welfare.

This objective can be achieved by:

1. Profit Maximization

2. Wealth maximization

1. Profit maximization:

Profit earning is the main aim of every economic activity. A business

being an economic institution must earn profit to cover its costs and provide funds

for growth. No business can service without earning profit. Profits are a measure of

efficiency of a business enterprise. Profits also serve as a protection against risks

which cannot be ensured. The accumulated profits enable a business to face risks

like fall in prices, competition from other units, adverse government policies etc.

Thus, profit maximization is considered as the main objective of business:

(i) When profit – earning is the aim of business then profit maximization should

be the obvious objective.

(ii) Profitability is a barometer for measuring efficiency and economic prosperity

of a business enterprise, thus, profit maximization is justified on the grounds

of rationality.

(iii) Economic and business conditions do not remain same at all the times. There

may be adverse business conditions like recession, depression, severe

competition etc. A business will be able to service under unfavorable situation

only if it has some past earnings to rely upon. Therefore a business should try

to earn more and more when situation is favorable.

(iv) Profits are the main sources of finance for the growth of a business. So, a

business should aim at maximization of profits for enabling its growth and

development.

(v) Profitability is essential for fulfilling social goals also. A firm by pursuing the

objective of profit maximization also maximizes socio- economic welfare.

2. Wealth maximization

Wealth maximization is the appropriate objective of an enterprise

financial theory asserts that wealth maximization is the single substitute for

stockholder’s utility. When the firm maximizes the stockholder’s wealth, the

individual stockholder can use this wealth to maximize his individual utility. It

means that by maximizing stockholder’s wealth firm is operating consistently

towards maximizing stockholder’s utility.

OBJECTIVES OF STUDY

1. To study the Gross Profit Ratio of Tata Motors for 3 assessment years.

2. To study the Net Profit Ratio of Tata Motors for 3 assessment years.

3. To study the Expense Ratio of Tata Motors for 3 assessment years.

4. To study the Return on Capital Employed for 3 assessment years.

RESEARCH METHODOLOGY

The research design refers to preplanning of what a researcher does in

his study. The design adopted in the study comes under exploratory and

evaluatory research. Since the data collected from the financial statements of the

company is analyzed under various financial and tactical tools.

Modes of Data collection;

The study is based on one type data , obtained from the Tata Motors

ltd.,

They are:

Secondary data

Secondary Data;

Secondary data is based on the past data i.e. [three years Annual Reports

2011-2014]

Sampling –

Sample area : Tata Motors

Tools for Data Analysis

& Interpretation : Percentage

method

Tools for Data Presentation : I have

used tools like table , bargraph & chart for

presenting my data regarding the topic.

COMPANY PROFILE

Tata VEHICLEs Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) is an Indian multinational automotive manufacturing company headquartered in Mumbai, Maharashtra, 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 seventeenth-largest VEHICLE vehicle manufacturing company, fourth-largest truck manufacturer and second-largest bus manufacturer by volume.[7]

Tata VEHICLEs has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad and Pune in India, as well as in Argentina, South Africa, Thailand and the United Kingdom. It has research and development centres in Pune, Jamshedpur, Lucknow and Dharwad, India, and in South Korea, Spain, and the United Kingdom. Tata VEHICLEs' principal subsidiaries include the British premium car maker Jaguar Land Rover (the maker of Jaguar, Land Rover and Range Rover cars) and the South Korean commercial vehicle manufactuer Tata Daewoo. Tata VEHICLEs has a bus manufacturing joint venture with Marcopolo S.A. (Tata Marcopolo), a construction equipment manufacturing joint venture with Hitachi (Tata Hitachi Construction Machinery), and a joint venture with Fiat which manufactures automotive components and Fiat and Tata branded vehicles.

Founded in 1945 as a manufacturer of locomotives, the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969. Tata VEHICLEs entered the passenger vehicle market in 1991 with the launch of the Tata Sierra,

becoming the first Indian manufacturer to achieve the capability of developing a competitive indigenous automobile.[8] In 1998, Tata launched the first fully indigenous Indian passenger car, the Indica, and in 2008 launched the Tata Nano, the world's most affordable car. Tata VEHICLEs acquired the South Korean truck manufacturer Daewoo Commercial Vehicles Company in 2004 and purchased Jaguar Land Rover from Ford in 2008.

Tata VEHICLEs is listed on the Bombay Stock Exchange, where it is a constituent of the BSE SENSEX index, the National Stock Exchange of India and the New York Stock Exchange. Tata VEHICLEs is ranked 314th in the 2012 Fortune Global 500 ranking of the world's biggest corporations

ANALYSIS AND

INTERPRETATION

Gross Profit Ratio :Of Assessment Year 2011-12

Gross profit ratio = Gross profit / Sales *100

=8.99/ 488.70 8 100 = 1.83

Of Assessment Year 2012-13 Gross profit ratio = 37.88/629.45 * 100 = 6.01

Of Assessment Year 2013-14Gross profit ratio = 60.19/816.83 * 100 = 7.36

NET PROFIT :Of Assessment Year 2011-12Net profit ratio = Net profit / Sales * 100

=4.13 /488.70 * 100 =0.84

Of Assessment Year 2012-13Net Profit Ratio = 20.67/629.45 * 100 = 3.28

Of Assessment Year 2013-14Net profit ratio = 40.76/816.83 * 100 =4.99

EXPENSE RATIO :Of Assessment Year 2011-12 Expense Ratio = Expense / Sales * 100 =438.78/488.70*100 = 89.78

Of Assessment Year 2012-13

Expense ratio =553.87/629.45 * 100 =87.99

Of Assessment Year 2013-14Expense ratio = 731.76/816.83*100 = 89.58

RETURN ON CAPITAL EMPLOYED :Of Assessment Year 2011-12Return on Capital Employed = Profit before interest & tax / capital employed *100 =8.99/100*100 =8.99

Of Assessment Year 2012-13Return on capital employed = 37.88/100 * 100 =37.88

Of Assessment Year 2013-14 Return on capital employed = 60.19/100 *100 =60.19

INTRODUCTION TO FINANCIAL STATEMENTS

A financial statement is a collection of data organized according to logical and

consistent accounting procedures. Its purpose is to convey an understanding of

some financial aspects of a business firm. It may show a position at a movement

in time, as in the case of balance sheet, or may reveal a series of activities over

a given period of time, as in the case of an income statement.

Objectives of financial statements:

Financial statements are the sources of information on the basis of which

conclusions are drawn about the profitability and financial position of a

concern. They are the major means employed by firms to present their financial

situation of owners, creditors and the general public. The primary objective of

financial statements is to assist in decision making. The Accounting Principles

Board of America (APB) states the following objectives of financial statements:

(i) To provide reliable financial information about economic resources and

obligations of business firm.

(ii) To provide other needed information about changes in such economic

resources and obligations.

(iii) To provide reliable information about changes in net resources (resources less

obligations) arising out of business activities.

(iv) To provide financial information that assists in estimating the earning

potentials of business.

(v) To disclose, to the extent possible, other information related to the financial

statements that is relevant to the needs of the users of these statements.

FINANCIAL STATEMENT ANALYSIS

Financial analysis is the process of determining financial strengths

and weakness of the firm by establishing strategic relationship between the items

of the items of the balance sheet, profit and loss account and other operative data.

In the words of Myers, “financial statements analysis is largely a study of

relationship among various financial factors in a business as disclosed by a single

set of statements, and a study of the trend of these factors as shown in series of

statements

4. PROFITABILITY RATIO:

An ability to earn maximum from maximum use of available resources by the business concerns is known as ‘Profitability’. The status of profitability depends upon the quantum of sales,nature of costs and proper use of financial resources. The profitability ratios are used to calculate the efficiency of

operating of the company. Profits are ultimate goal of every company and it should be continuously evaluated in terms of profits. Profitability analysis comprises the stydy of sales , analysis of cost of goods sold , analysis of gross margin on sales , analysis of operating expenses , analysis of operating profit & analysis of profit in relation to sales and capital. Generally four major profits are calculated, they are

i. Gross profit ratio

ii. Net profit ratio

iii. Expense ratio

iv. Return on capital employed

i.Gross profit ratio:The first profitability ratio in relation to sales reflects the efficiency

with which management produces each unit of product. The Gross profit ratio may

be interpreted by comparing the ratio of the same concern over a period of time or

comparing the ratio of the two similar concerns or by comparing the ratio of a year

with some standard fixed by management . Normally , a higher ratio is always

considered good & serves as a index of higher profitability. It is calculated by

dividing the Gross Profit with Sales.

Gross profitGross Profit ratio = x 100

Sales

ii. Net profit ratio:

It is also called as Net Profit to Sales Ratio. Net profit ratio explains

the net profit of the company after paying taxes of particular period. It establishes

relation between net profit and sales & as such expressed as percentage to sales.

Net Profit Net profit ratio= Sales

Expense ratio: EACH EXPENSE IS RELATED TO SALES & EXPRESSED AS PERCENTAGE TO SALES. ITS FORMULA IS :-

Expense/sales X100

Return on capital employed:This is also known as Return on Investments or simply as Rate of

Return .Sufficient profit as compared to sales is not enough, unless sales itself is adequate with refernce to capital employed . This brings forth the need for calculating Return on Capital Employed which measures the adequacy or

otherwise of profit in relation to capital employed. It is calculated as :- Profit before interest and tax/capital employed x100

COMPARITIVE INCOME STATEMENT

Source: Annual Reports of TML.

Interpretation:

From the above table it can be interpreted that sales and cost of goods sold were decreased so gross loss also decreased, and there was high decrease in miscellaneous income (i.e. 82.75%) loss increased due to lack of operational efficiency.

Comparative income statement of tata VEHICLEs ltd., 2012-2013

Particulars 31-3-2012 31-3-2013 changePercentag

eSales 130517437 96920394-33597043 -25.74%

Less: Cost of goods sold 155574480 102243876-53330604 -34.28%

Gross profit/loss -25057043 -5323482 19733561 -78.75%

Less: Operating expenses 10532587 11133862 601275 5.71%

Operating profit/loss -35589630 -16457344 19132286 -53.76%

Add: Other income

Miscellaneous income 1639130 4383327 2744197 167.42%

Interest received 129866 143577 13711 10.56%

Profit/loss before interest -33820634 -11930440 21890194 -64.72%

Less: Interest paid 28813070 23326176 -5486894 -19.04%

Profit/loss after interest -62633704 -35256616 27377088 -43.71%

Less: Loss up to last year 299213004 361846708 62633704 20.93%

Net loss cumulative -361846708-397103324-35256616 9.74%

Source: Annual Reports of TML.

Interpretation:

From the above table it can be interpreted that the percentage decrease in cost of goods sold is more than the decrease in sales so gross loss also decreased due to reduce in the cost of raw materials. Even though increase in operating expenses operating loss decreased due to effective control of raw material cost.

Comparative income statement of tata VEHICLEs ltd., 2013-2014

Particulars 31-3-2013 31-3-2014 changePercentag

eSales 96920394 124629657 27709263 28.59%

Less: Cost of goods sold 102243876 72877770-29366106 -28.72%

Gross profit/loss -5323482 51751887 57075369 -1072.14%

Less: Operating expenses 11133862 35468649 24334787 218.57%

Operating profit/loss -16457344 16283238 32740582 -198.94%

Add: Other income

Miscellaneous income 4383327 4664988 281661 6.43%

Interest received 143577 172981 29404 20.48%

Profit/loss before interest -11930440 21121207 33051647 -277.04%

Less: Interest paid 23326176 29320178 5994002 25.70%

Profit/loss after interest -35256616 -8198971 27057645 -76.74%

Less: Loss up to last year 361846708 397103324 35256616 9.74%

Net loss cumulative -397103324-405302295 -8198971 2.06%

Source: Annual Reports of TML.

Interpretation:

From the above table it can be interpreted that sales percentage increased and at the same time cost of goods sold decreased so the firm earned gross profit due to high control in purchase of raw materials. Due to increase in operating expenses loss increased (2.06%) the firm has no control over the operating activities.

RATIO ANALYSIS

PROFITABILITY RATIOS

Table1: Gross profit ratio

Years Gross profit/loss Sales Ratio2011-12 -37645558 201486573 -18.68%2012-13 -25057043 130517437 -19.20%2013-14 -5323482 96920394 -5.49%

Interpretation:

In the above graph , years are taken on x-axis & Gross Profit Ratio is

taken on y-axis. From the given data it can be interpreted that gross profit ratio

was negative for most of the years except the year 2006 it is due to inefficiency in

producing goods.

Table2: Net profit ratio

Years Net profit/loss Sales Ratio

2011-12 -67413729 201486573 -33.46%

2012-13 -62633704 130517437 -47.99%

2013-14 -35256615 96920394 -36.38%Source: Annual Reports of TML

Interpretation:

From the above graph it was analyzed that in all the years the net profit ratio is negative due to over all inefficiency in the firm.

Balance sheet

FINDINGS

Operating loss decreased up to the year 2014 . The tata motors ltd. earned net profit in all the years. It had been maintaining high inventory levels for all the years. In most of the years debtor’s collection period was very high. The funds were also raised through debts with high interest rates. Some funds are lost in operations.

Suggestions

TML should adopt cost control measures by drawing inspiration from prospering VEHICLE factories.

TML should reduce operating and administrative expenses, it will increase overall efficiency of the firm.

A high level of debt introduces inflexibility in the firms operations due to increasing interference and pressures from creditors. A high debt company is able to borrow funds on very restrictive terms and conditions. So, it should raise owners funds.

Conclusion

1. There was a continuous increase in the Gross profit ratio from the financial year 2011-12 to 2013-14.

2. There was a continuous increase in the Net profit ratio from the financial year 2011-12 to 2013-14.

3. There was some decrease in the manufacturing expenses in the financial year 2012-13 but it again increased by 2% in the next financial year 2013-14.

4. There was a continuous increase in the Return on capital employed from the financial year 2011-12 to 2013-14.

LIMITATIONS

1. Time was the major constraint.

2. It was a tedious task to get the current annual reports or exact financial position of the firm.

3. It was expensive to get the data & prepare the project report.

BIBLIOGRAPH

BOOKS

Financial Management

Dr. S.P. GUPTA

2009

Sahitya Bhawan Publications

Financial Management Theory and Practice

Prasanna Chandra

Sixth Edition

Tata Mc Graw Hill Publishing company.

Management Accounting Principles and Practice

R. K. Sharma Sahashi K. Gupta

Eight edition

kalyani publishers.

WEBSITES

www.google.com

www.financial-education.com

www. Wikkipedia.in

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