CHAPTER I

CHAPTER I

INTRODUCTIONConcept of profitability Profitability means ability to make profit from all the business activities of an organization, company, firm or an enterprise. It shows how efficiently the management can make profit by using all the resources available in the market. According to Hardware & Upton, profitability is the ability of a given investment to earn a return from its use. However, the term Profitability is not synonymous to the term Efficiency. Profitability is an index of efficiency; and is regarded as a measure of efficiency and management guide to greater efficiency. Though, profitability is an important yardstick for measuring the efficiency, the extent of profitability cannot be taken as a final proof of efficiency. Sometimes satisfactory profits can mark inefficiency and conversely, a proper degree of efficiency can be accompanied by an absence of profit. The net profit figure simply reveals a satisfactory balance between the values receive and value given. The change in operational efficiency is merely one of the factors on which profitability of an enterprise largely depends. Moreover, there are many other factors besides efficiency, which affect the profitability.

In order to pin-point the causes which are responsible for low/high profitability, a financial manager should continuously evaluate the efficiency of a firm in terms of profit. The study of increase or decrease in retained earnings, various reserve and surplus will enable the financial manager to see whether the profitability has improved or not. An increase in the balance of these items is an indication of improvement in profitability, where as a decrease indicates a decline in profitability. Following ratios are calculated to analyses the profitability of GSRTC.

Finance is regarded as the life blood of a business enterprise. This is because in the modern money oriented environment, finance is one of the basis foundations of all kinds of economics activities. The term financial management can be defined as the management of flow of funds in a firm and it deals with the financial decision making of the firm. It encompasses the procurement of the funds in the most economic and prudent manner and employment of their funds in the most optimum way to maximize the return for the owner. Since realizing of funds and their best utilization is the key to the success of any business organization, the financial management as a financial area has got a place of prime relevance. It is concerned with overall managerial decision making in general and with the management of economic resources in particular.

Nowadays the financial manager is required to look into the financial implications of any decision in the firm. The function of finance manager is to manage the funds. Any act procedure, decision relating to funds comes under the preview of the financial manager. Every activity in business organizations whether it purchase, production, marketing or capital expenditure has a financial implications and it is inter linked with all other areas. In particular the finance manager has to focus his attention on

1. Acquiring sufficient funds

2. Proper utilization of funds

3. Increasing profitability

4. Maximizing the firms value

There are four functions of the finance manager encompassment of the financial events in any firm. Every finance manager is involved in financial decision making and financial planning in order to take right decisions at right time. He should be equipped with sufficient past and present information about the firm and its operations and how it is changing overtime and this information derived from the basic financial statements. This financial information contained in financial statement is therefore necessary step in the corporate financial management.RATIO ANALYSIS

MEANING Ratios are relationships expressed in mathematical terms between figures, which are connected with each other in some manner.

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique and interpretation of financial statements. It is the process of established and interpreting various ratios for helping in making certain decision. However, ratio analysis is not an end in itself. It is only a means of better understanding of financial strength and weakness of a firm. Calculation of mere ratios does not serve any purpose, unless several appropriated ratios are analysis and interpreted. There are number of ratios, which can be calculated from the information given to the financial statement, but the analyst has to select the appropriate data and calculates only a few appropriate ratios from the same keeping in mind the objectives of analysis.

The following are the four steps. Involved in the ratios analysis.

Selection of relevant data from the financial statements depending upon the objectives of the analysis.

Calculation of appropriate ratios from above data.

Comparison of the calculated ratios with the firm in the past, or the ratios of some other firms are the comparison with ratios of the industry to which firms belongs.

Interpretation of the ratio.SIGNIFICATION OF THE RATIO ANALYSIS

Ratio analysis helps in decision making from the information provided in those financial statements. Ratio analysis helps in financial forecasting and planning. The financial strength and weakness of the company are communicated in a more easy and understandable manner by the use of ratios. Ratio analysis even helps in making effective control of the business. Ratios even help in co-ordination, which is almost importance in effective business management.

LIMITATION OF RATIO ANALYSIS

The ratio analysis is one most powerful tool of financial managements. The ratio are simple calculate and easy to understand, they suffer from some serious limitations.

Ratio analysis are a primarily a quantitative analysis and not a qualitative analysis.

Ratios have to be interpreted and different people may interpret the same ratios in different ways. No fixed standards can be laid down.

Ratios are only indicators.

It is only a study of interim reports.

Ratio analysis is merely a tool of financial analysis.

CLASSIFICATION OF RATIO

Ratio can be classified into different categories depending upon the basis of classification.

1. Traditional Classification

The traditional classification can be on the basis of the financial statement to which are determinants of a ratio belong. On the basis ratio may be classified as follows.

Profit And Loss Accounts Ratio

The ratio calculated on the basis of the items on the profit and loss accounts only. The examples of profit and loss accounts are gross profit ratio, net profit ratio. By using these ratios, we calculate only profit and loss ratios in the annual report.

Balance Sheet Ratio

The ratio calculated on the figures of balance sheet only; current ratios, debtors ratios, turnover ratios, creditors ratio, are the example of balance sheet ratio. The Items, which are presented in balance in balance sheet, are to calculate only balance sheet ratios of the organization.

Composite Ratio

The ratio is calculated on the basis of figures of profit and loss accounts as well as balance sheet. Fixed assets, turnover ratio, overall profitability ratio. Are the examples for combination of profit & loss accounts and balance sheet.

2. Functional Classification

The traditional classification has been found to be too crude and unsuitable because analysis of balance sheet and income statement cannot be done in isolation. They have to be studied together in order to determine the profitability and solvency of the business. In order that ratio serves as for financial analysis. They are classified on the basis of their function or purpose as follows.

a) Liquidity ratio

b) Efficiency ratio

c) Long-term solvency ratio

d) Profitability ratio STATEMENT OF THE PROBLEM

The efficiency of the business measured by the amount of profit earned. The greater the profit, the more efficient is the business considered to be. The profit of a business may be measured by studying the profitability of investment in it. Profitability is referred to as earning or operating performance of the concerned investment. In the financial statement analysis literature, more important is paid on to financial ratios for assessing a firms financial performance and condition. Items of the income statement alone or along with the balance sheet items also can generate a number of profitability ratios. Hence an attempt has been made to study the profitability of TATA STEEL LTD.

OBJECTIVES OF THE STUDY

1. To analyze and interpret profitability of the company.

2. To analyze the proportions of incomes and expenses utilizes in financing the companys profit.

3. Identifying the obstacles and difficulties facing this company as regards to its profitability ratios.

NEED OF THE STUDY

Profit is one of the most important pre-requisites to run their company (or) any other industry. In fact it is the availability of profit that facilitates a company to expand their infrastructure, provide good customer service and high rate of interest, to ensure the objective of a company.

RESEARCH METHODOLOGY

Research methodology is a way to solve the research problem systematically. It may be under stood as a science how research is done scientifically.

Selection of the sample units

Collection of data Period of study Consolidation & processing of data Analysis of data

SELECTION OF THE SAMPLE UNIT

Purposive sample was selected for the study. Purposive sampling is a technique in which sample are taken based on the judgment of the researcher about the nature of the unit and purpose for the study. The sample unit selected was considered to be one of the successful units in the sector.

COLLECTION OF DATA

The study is based on secondary data. As the study relates to the analysis of profit soundness by way of assessing profitability, the data collected from the source of annual reports including profit & loss account and balance sheet.

PERIOD OF STUDY

The study aims at assessing the profitability of the company for the period of ten years i.e., from 2004-05 to2013-14.

CONSOLIDATION AND PROCESSING OF DATA

The data collected were recompiled as required for the study. The major tool used for the analysis of the data was the ratio & percentages analysis where ever necessary. Diagrammatic & graphical representation was made at appropriate places.

ANALYSIS OF DATA The collected data was analyzed with the uses of tools. To determine the relations (or) differences among the selected unit. Analyzed data was interpreted to draw the conclusion interpretation to data was made to implement suggestions to the selected unit.

LIMITATION OF THE STUDY

The study was subject to inherent limitations of accounting practices. The study was based on secondary data. The study period of the company is limited to ten years only.CHAPTER SCHEME

CHAPTER-I

Deals with Introduction, Objective, Need, Research methodology and Limitation.

CHAPTER-II

Deals with Review of Literature.

CHAPTER-III

Deals with Company Profile.CHAPTER-IV

Deals with Profit analysis and Interpretation.CHAPTER-V Deals with Finding, Conclusion.

CHAPTER-II

REVIEW OF LITERATURE

INTRODUCTION

The review of literature guides the researcher for getting better understanding of methodology used, limitation of various available estimation procedure and database and lucid interpretation and reconciliation of the conflicting results. Besides this the review empirical studies explore the avenues for future and presented research efforts related with the subject matter. In case of conflicting and unexpected results the researcher can take the advantages of other researchers simply though the medium of their published work.

Kulshrehta(1980) in his study stressed that corporate liquidity is a vital factor in business. Excess liquidity through a guarantor of solvency would reflect lower profitability, deterioration in managerial efficiency through complacency, increased speculation and unsatisfied expansion, extension of credit and dividend policies on the other hand, poor liquidity may lead to frustration of business objections, reduced rate of return, inability to grab business opportunities and weakening of morale. The control of liquidity requires active working capital management.

Bansal.S.C.(1984) Financial Measures of Performance in Public Enterprises, has tried to identify the financial measures of performance in public enterprises by constructing 91 different types of ratios. He has employed the factor analysis to consider different sets of variables to evaluate the profitability of public sector enterprises. He concluded that the profitability of Public Enterprises is good.

Kulshreshta.N.K.(1980), Corporate Liquidity X rayed, The Management Accountant, Vol.15, No.8, PP.331-334.

Bansal.S.C.(1984),Financial Measures of Performance in Public Enterprises, Indian Journal of Commerce, Vol.141, No.4, PP.107-130

George Paul(1985) in Financial Performance of diversified companies in India A case study of diversified and non-diversified companies revealed that diversifiers generally outperform non-diversification an indicators of growth, profitability, safety and market evaluation. However, an inter-industry difference in the benefits of diversification indicates that diversification in selectively useful.

Pandey(1985) has conducted a study on financial leverage in India and found that there was no definite structural relationship between the degree of financial leverage, on the one hand and profitability and growth on the other hand, though profitability and growth have proved over time and so had the degree of leverage. He also found out through his study that Indian companies follow a high leverage capital structures, the size of the companies are highly associated with leverage and as the leverage increased, the profitability and growth also increased.

Chandrasekaran.N(1989) had made a study on the performance of Cement Companies, measuring the profitability, efficiency and growth. He has also identified that the cash flow and external funds are key determining factors of investment in Cement Industry.

George Paul(1985), Financial Performance of diversified companies in India- A case study of diversified and non-diversified companies, Vikalpa,Vol. 10, No.2,PP.179-188.Pandey.I.M.(1985),The Financial Leverage in India- A study, Indian Management, PP.21-26.

Chandrasekaran.N, Market Structure and Financial Performance, Unpublished doctoral dissertation, University of Madras,1989.

Soenen (1993) investigated the relationship between the net trade cycle as a measure of working capital and return on investment in the US firms. The results of chi-square test indicated a negative relationship between the length of net trade cycle and return on assets. Furthermore, this inverse relationship was found different across industries depending on the type of industry. A significant relationship for about half of the industries studied indicated that results might vary from industry to industry.

Mester (1996) compared two different models of x- inefficienties in bank profitability. The first model constrained the cost frontier to be the same for all the banks in US while the second model allowed different frontiers and error terms across Federal Reserved districts. The results revealed that the distributions of one sided error terms were wider for the single cost function model. Ranking of districts by the level of x- inefficiency differed in two models.

Weinraub and Visscher (1998) examined the relationship between aggressive and conservative working capital practices for companies in different industries during the period of 1984-1993 and observed a high and significant negative correlation between industry asset and liability policies. In general it appeared that when relatively aggressive working capital asset policies are followed they are balanced by relatively conservative working capital liability policies.

Soenen .L.A(1993),Cash Conversion Cycle and Corporate Profitability Journal of Cash Management, vol.13,No.4,P.P.53-58.

Mester L.J. (1996), A study of Bank Efficiency taking into Account Risk-Preferences, Journal of Banking and Finance, Vol.20, No.6, P.P. 1025-1045.

Weinraub.H and Visscher.S(1998),Industry Practice Relating To Aggressive and Conservative Working Capital Policies, Journal of Financial and Strategic Decisions, Vol.11, P.P.11-18.

Sharma and Ho (2002) analyzed the operating performance of 36 Australian Companies involved in mergers. Applying various accrual cash flows measures, the study reported a decline in operating performance after mergers.

Filbeck and Krueger (2005) highlighted the importance of efficient working capital management by analyzing the working capital management policies of 32 non-financial industries in the U.S. according to their findings, significant differences exist among industries in working capital practices overtime. Moreover, these working capital practices, themselves, change significantly within industries overtime.

Rehman (2006) investigated the impact of working capital management on the Profitability of 94 Pakistani firms listed on Islamabad Stock Exchange(ISE) for the period of 1999-2004. He studied the impact of the different variables of working capital management, including average collection period, inventory turnover in days, average collection period and ccc on the net operating Profitability of firms. He concluded that there is a strong negative relationship between working capital ratios mentioned above and Profitability of firms.

Nadim Jahangir (2007) made an attempt to investigate relationship of banks market concentration, banks market size, banks risk, with bank return on equity in Bangladeshi banks between 2000 and 2005. The data was obtained from annual reports of individual banks listed in Dhaka Stock Exchange (DSE) and from the Bangladesh banks published statistics book (Scheduled Banks Statistics). Data analysis was done using correlation matrix and stepwise regression. It was found that market concentration and banks risk contribute very little to explain banks return on equity. Instead banks market size is the only major variable that explains banks return on equity in the context of Bangladesh.

Sharma D.S and Ho.J (2002),The impact of Acquisitions on Operating Performance: Some Australian Evidence, Journal of Business Finance & Accounting, Vol.29, No.1, P.P.155-200.

Filbeck.G and Krueger.T (2005),Industry Related Differences in Working Capital Management, Mid-American Journal of Business, vol.20, No.2, P.P 11-18.

Rehman. A (2006), Working Capital Management and Profitability: Case of Pakistani Firms (Unpublished Dissertation), COMSATS Institute of Information Technology(CIIT), Islamabad, Pakistan.

Nadim Jahangir (2007),An Empirical Investigation on Commercial Banks Profitability in Context of Bangladesh, Management & Change, vol.11, P.P.101-111.

Vishnani and Shah (2007) from their study of Indian Companies during the period 1994-2004 observed that working capital management practices indicators and profitability performance indicators were negatively associated.

Joshua (2008) examined the relationship between Capital Structure and Profitability of firms listed in Ghana Stock Exchange for a period of five years from 1998 to 2002. The author noticed negative relationship between long term debt and profitability.

Rafiu and Obafemi (2009) studied capital structure and profitability of the firms listed on Negerian Stock Exchange. They observed negative association between long term debt and profitability and suggested that top management should take interest in capital structure to improve profitability.

Vishnani.S and Shah.B (2007) ,Impact of Working Capital Management Policies on Corporate Performance An Empirical Study , Global Business Review, Vol.8, P.P.267-281.

Joshua.A (2008), The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Ghana, The Journal of Risk Finance, Vol.6, No.5, P.P.438-445.

Rafiu.S and Obafemi.A (2009),The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Nigeria, The International Journal of Business and Finance Research, Vol.3,No.2,P.P.121-129.

CHAPTER-III

PROFILE OF TATA STEEL LTD Established in 1907 as Asia's first integrated private sector steel company, Tata Steel Group is among the top-ten global steel companies with an annual crude steel capacity of over 29 million tonnes per annum. It is now the world's second-most geographically-diversified steel producer, with operations in 26 countries and a commercial presence in over 50 countries. The Tata Steel Group, with a turnover of Rs. 1, 48,614 crores in FY 14, has over 80,000 employees across five continents and is a Fortune 500 company.

Tata Steels larger production facilities comprise those in India, the UK, the Netherlands, Thailand, Singapore, China and Australia. Operating companies within the Group include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), Tata Steel Singapore and Tata Steel Thailand.

The Tata Steel Groups vision is to be the worlds steel industry benchmark in Value Creation and Corporate Citizenship through the excellence of its people, its innovative approach and overall conduct. Underpinning this vision is a performance culture committed to aspiration targets, safety and social responsibility, continuous improvement, openness and transparency.

In 2008, Tata Steel India became the first integrated steel plant in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management. In 2012, Tata Steel became the first integrated steel company in the world, outside Japan, to win the Deming Grand Prize 2012 instituted by the Japanese Union of Scientists and Engineers.

Tata Steel founded Indias first industrial city, now Jamshedpur, where it established Indias first integrated steel plant in 1907. The Jamshedpur Works currently comprises of a 9.7 mtpa crude steel production facility and a variety of finishing mills.

Two new Greenfield steel projects are planned in the states of Jharkhand and Chhattisgarh. Kalinganagar project is underway, it is set to augment production capacity by 3 MnTPA in the first phase.

Mines and collieries in India give the Company a distinct advantage in raw material sourcing. Iron Ore mines are located at Noamundi (Jharkhand) and Joda (Odisha) both located within a distance of 150 km from Jamshedpur. The Companys captive coal mines are located at Jharia and West Bokaro (Jharkhand).THE VISION

Vision is to be the global steel industry benchmark for value creation and corporate citizenship.ETHICS

The Tata Steel Group has built an enviable corporate reputation founded on ethical and transparent principles. It believes in adopting the best practices in terms of corporate governance that have continued to evolve over the years. Integrity, transparency and accountability are integral to the way the Group conducts its business in every sphere. Tata Steel is proud of the longstanding respect it has earned as a fair and caring employer, and respects all human rights both within and outside the workplace.

What binds together every member of the global Tata Steel family is a shared corporate culture shaped by the value-based guiding principles that underpin every business decision. All employees of Tata Steel have a personal responsibility to help preserve the human rights of everyone at work and in the larger community. Besides a Corporate Ethics Department responsible for the Management of Business Ethics, the Company drives inclusive growth and its agenda of common good through social agencies.

The Tata ethos, Company vision and goals serve as guiding philosophies for Tata Steel Limited, with the Tata Code of Conduct acting as its ethical roadmap.

HISTORY OF TATA STEEL LTD

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India, and a subsidiary of the Tata Group. It was the 11th largest steel producing company in the world in 2013, with an annual crude steel capacity of 25.3 million tons, and the second largest private-sector steel company in India (measured by domestic production) with an annual capacity of 9.7 million tons after SAIL. Tata Steel has manufacturing operations in 26 countries, including Australia, China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs around 80,500 people. Its largest plant is located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel maker Corus which was the largest international acquisition by an Indian company till that date. It was ranked 486th in the 2014 Fortune Global 500 ranking of the world's biggest corporations. It was the seventh most valuable Indian brand of 2013 as per Brand Finance.

On 16 February 2012 Tata Steel completed 100 years of steel making in India. Tata Iron and Steel Company was established by Dorabji Tata on 25 August 1907, as part of his father Jamsetji's Tata Group. By 1939 it operated the largest steel plant in the British Empire. The company launched a major modernization and expansion program in 1951. Later in 1958, the program was upgraded to 2 Million metric tonnes per annum (MTPA) project. By 1970, the company employed around 40,000 people at Jamshedpur, with a further 20,000 in the neighbouring coal mines. In 1971 and 1979, there were unsuccessful attempts to nationalize the company. In 1990, it started expansion plan and established its subsidiary Tata Inc. in New York. The company changed its name from TISCO to Tata Steel in 2005. Tata Steel on Thursday (12 Feb 2015) announced buying three strip product services centers in Sweden, Finland and Norway from SSAB to strengthen its offering in Nordic region. The company, however, did not disclose value of the transactions.Expansion plans Tata Steel has set a target of achieving an annual production capacity of 100 million tons by 2015; it is planning for capacity expansion to be balanced roughly 50:50 between greenfield developments and acquisitions. Overseas acquisitions have already added an additional 21.4 million tonnes of capacity, including Corus (18.2 million tonnes), NatSteel (2 million tonnes) and Millennium Steel (1.2 million tonnes). Tata plans to add another 29 million tonnes of capacity through acquisitions. Major green field steel plant expansion projects planned by Tata Steel include: A 6 million tonne per annum capacity plant in Kalinganagar, Odisha, India An expansion of the capacity of its plant in Jharkhand, India from 6.8 to 10 million tonnes per annum; A 5 million tonne per annum capacity plant in Chhattisgarh, India (Tata Steel signed a memorandum of understanding with the Chhattisgarh government in 2005; the plant is facing strong protest from tribal people); A 3 million tonne per annum capacity plant in Iran; A 2.4 million tonne per annum capacity plant in Bangladesh A 10.5 million tonne per annum capacity plant in Vietnam (feasibility studies are underway); and A 6 million tonne per annum capacity plant in Haveri, Karnataka.

SHARE HOLDINGAs on 31 March 2013, Tata Group held 31.35% shares in Tata Steel. Over 1 million individual shareholders hold approx. 21% of its shares. Life Insurance Corporation of India is the largest non-promoter shareholder in the company with 14.88% shareholding. ShareholdersShareholding

Promoters: Tata Group companies31.35%

Insurance Companies21.81%

Individual shareholders22.03%

Foreign Institutional Investors15.35%

GDRs02.41%

Others07.05%

Total100.0%

The equity shares of Tata Steel are listed on the Bombay Stock Exchange, where it is a constituent of the BSE SENSEX index, and the National Stock Exchange of India, where it is a constituent of the S&P CNX Nifty. Its Global Depository Receipts (GDRs) are listed on the London Stock Exchange and the Luxembourg Stock Exchange.CHAPTER-IV

ANALYSIS OF PROFITABILITY RATIOSClassification of profitability analysis

Profit Related to Sales Profit Related to Investment Profit Related to Activity Ratios

Gross Profit Ratio Return on Shareholders Fund Ratio Fixed Assets Turnover Ratio

Net Profit Ratio Return on Gross Capital Employed Total Assets Turnover Ratio

Operating Ratio Return on Net Capital Employed Current Assets Turnover

Operating Profit Return on Total Assets Ratio Ratio

Ratio Earning per Share

Expenses Ratio Capital Turnover Ratio

1. Profit Related to Sales

The following Profitability ratios are related to Sales:

(i) Gross Profit Ratio

(ii) Net Profit Ratio

(iii) Operating Ratio

(iv) Operating Profit Ratio

(v) Expenses Ratio

The above mentioned ratios are discussed as follows:

1. Gross Profit Ratio Gross profit ratio is the ratio of gross profit to net sales i.e., sales less sales returns. This ratio reflects the margin of profit that a concern is able to earn on its trading and manufacturing activity. It is employed for inter-firm and intra-firm comparison of trading results.

Following formula is used to calculated gross profit ratio (GP Ratio):

Gross Profit

Gross Profit Ratio = *100

Net Sales

Where Gross profit = Net sales Cost of goods sold

Cost of Goods Sold= Opening stock + Net purchases + Direct expenses Closing stock

TABLE 1

Gross Profit Ratio

(Rupees in crores)

YEARGROSS PROFITNET SALESRATIO (%)

2004-20055820.5114,489.7040.17

2005-20065872.7615,132.0938.81

2006-20076953.1417,452.6639.84

2007-20087409.7119,654.4137.70

2008-20098202.9524,348.3233.69

2009-20107821.3924,940.6531.36

2010-201110335.7629,396.3535.16

2011-201210383.6433,933.4630.60

2012-20139484.9238,199.4324.83

2013-201410886.5841,711.0326.10

Statistical Analysis

MEAN8317.1425,925.8133.83

SD1869.709648.575.529

CV22.4837.2216.347

The above table reveals that gross profit has been increased from Rs.5820.51 crores in 2004-05 to Rs.10886.58 crores in 2013-14. It has registered fluctuating trend during the study period. Net sales of the company has been increased from Rs.14489.70 crores in 2004-05 to Rs.41711.03 crores in 2013-14. Gross profit ratio of the company has been decreased from 40.17% in 2004-05 to 26.10% in 2013-14 due to increase in cost of production and cost of goods sold.

The average gross profit ratio of the company is 33.83%. The CV value of the company has shown that the gross profit of the company has not shown much fluctuation during the study period.2. Net profit ratio

Net profit ratio (NP ratio) expresses the relationship between net profit after taxes and sales. This ratio is a measure of the overall profitability Net Profit is arrived at after taking into accounts both the operating and non-operating items of incomes and expenses. This ratio indicates what portion of the net sales is left for the owners after all expenses have been met.

Following formula is used to calculate net profit ratio

Net ProfitNet Profit Ratio = *100 Net Sales

It is expressed in percentage. Higher the net profit ratio, higher is the profitability of the business.

TABLE 2

Net Profit Ratio

(Rupees in crores)

Year

Net profitNet salesRatio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-20143474.16

3506.38

4222.15

4687.03

5201.74

5046.80

6865.69

6696.42

5062.97

6412.1914489.70

15132.09

17452.66

19654.41

24348.32

24940.65

29396.35

33933.46

38199.43

41711.0323.98

23.17

24.19

23.85

21.36

20.24

23.36

19.73

13.25

15.37

Statistical AnalysisMEAN5,117.5525,925.8120.85

SD1225.829648.573.82

CV23.9537.2218.31

The above table reveals that net profit has been increased from Rs.3474.16 crores in 2004-05 to Rs. 6412.19 crores in 2013-14. It has registered fluctuating trend during the study period. Net sale of the company has been increased from Rs.14489.70 crores in 2004-05 to Rs.41711.03 crores in 2013-14. Net profit ratio of the company has been decreased from 23.98% in 2004-2005 to 15.37% in 2013-2014 on account of increasing in cost of production and cost of goods sold.

The average net profit of the company is 20.85%. The CV value of the company has shown that the net profit of the company has not shown much fluctuation during the study period.

3. Operating Ratio

Operating ratio established the relationship between cost of goods sold and other operating expenses on one hand and sales (total income) on other hand; its generally represented in percentage. It is calculated as follows.

Cost of Goods Sold + Operating Expenses

Operating Ratio = *100 Net sales

Cost of goods sold = Net Sales Gross Profit

Operating Expenses = Administrative expenses + Selling Expenses.

TABLE 3

Operating Ratio

(Rupees in crores)

YearOperating ExpensesNet salesRatio(%)

2004-20058534.3814,489.7058.90

2005-20069325.4215,132.0961.63

2006-200710635.1117,452.6660.94

2007-200811677.2519,654.4159.41

2008-200915188.7724,348.3262.38

2009-201016164.2224,940.6564.81

2010-201118173.8229,396.3561.82

2011-201222497.0033,933.4666.30

2012-201327204.1238,199.4371.22

2013-201428960.7541,711.0369.43

Statistical AnalysisMEAN16836.0825925.8163.68

SD7317.399648.574.16

CV43.4637.226.54

The above table reveals that operating expenses has been increased from Rs.8534.38 crores in 2004-05 to Rs.28960.75 crores in 2013-14. It has registered fluctuating trend during the study period. Net sales of the company has been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-14. Operating ratio of company has been decreased from 58.90% in 2004-05 to 69.43% in 2013-14.

The average operating ratio of the company is 63.68%. The CV value of the company has shown that the operating ratio of the company has not shown much fluctuation during the study period.

4. Operating Profit Ratio

Operating profit means profit earned by the concern from its business operation and not from the other sources. While calculating the net profit of the concern all incomes either they are not part of the business operation like Rent from tenants, Interest on Investment etc., are added and all non-operating expenses are deducted. So, while calculating operating profits these all are ignored and concern comes to know about its business income from its business operations. Operating net profit ratio is calculated by dividing the operating net profit by sales. This ratio helps in determining the ability of the management in running the business. Operating profit ratio is arrived by applying the following formula.

Operating profit

Operating profit ratio = * 100

Net sales

Operating profit = Gross profit Operating Expenses

TABLE 4

Operating Profit Ratio

(Rupees in crores)

YearOperating profitNet salesRatio

2004-20055,956.0214,489.7041.11

2005-20065,884.2215,132.0938.89

2006-20076,913.7517,452.6639.61

2007-20088,244.5419,654.4141.95

2008-20099,176.4424,348.3237.69

2009-20108,905.5924,940.6535.71

2010-201111,482.2929,396.3539.06

2011-201211,536.7733,933.4634.00

2012-201311,126.2438,199.4329.13

2013-201412,816.9041,711.0330.73

Statistical Analysis

MEAN9,204.2825,925.8136.79

SD2476.709648.574.32

CV26.9137.2211.74

The above table reveals that operating profit has been increased from Rs.5956.02 crores in 2004-05 to Rs.12816.90 crores in 2013-14. It has registered fluctuating trend during the study period. Net sales of the company has been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-14. Operating profit ratio of the company has been decreased from 41.11% in 2004-05 to 30.73% in 2013-14 due to increase in operating expenses.

The average operating profit ratio of the company is 36.79%. The CV value of the company has shown that the operating profit ratio of the company has not shown much fluctuation during the study period.

5. Selling and Distribution Expenses

The ratio can be calculated for each individual item of expenses or a group of items of a particular type of expenses, like cost of sales ratio. The lower the ratio, the greater is the profitability and higher the ratio, lower is the profitability. The selling and distribution expenses thus,

Selling and Distribution Expenses

Particular Expenses Ratio = * 100

Net Sales TABLE 5

Selling and Distribution Expenses (Rupees in crores)YearSelling and distributionNet salesRatio (%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-20141022.86

1085.07

1182.16

1193.16

1312.72

1439.44

1650.18

1832.40

2403.43

2919.0614489.70

15132.09

17452.66

19654.41

24348.32

24940.65

29396.35

33933.46

38199.43

41711.037.06

7.17

6.77

6.07

5.39

5.77

5.61

5.40

6.29

7.00

Statistical Analysis

MEAN1,604.0525,925.816.25

SD622.589,648.570.70

CV38.8137.2211.26

The above table reveals that selling and distribution expenses has been increased from Rs.1022.86 crores in 2004-05 to Rs.2919.06 crores in 2013-14. It has registered fluctuating trend during the study period. Net sales of the company has been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-14. Selling and distribution expenses ratio of the company has been decreased from 7.06% in 2004-05 to 7.00% in 2013-14.

The average expenses ratio of the company is 6.25%. The CV value of the company has shown that the Selling and Distribution Expenses ratio of the company has not shown much fluctuation during the study period.

2. Profit Related to Investment

Profit is the measure of overall efficiency of a business. The higher the profit more efficient is the business. Changes in total profit may although indicate changes in efficient but they will not indicate true state of efficiency of the business of profitability unless profits are related to size of investments. The following ratios are the profit related to investment ratios:

(vi) Return on Shareholders Fund Ratio

(vii) Return on Gross Capital Employed Ratio

(viii) Return on Net Capital Employed Ratio

(ix) Return on Total Assets Ratio

(x) Earnings Per Share

(xi) Capital Turnover Ratio

6. Return on Shareholders Fund Ratio

Return on shareholders fund is the relationship between net profits( after interest & tax) and the proprietors funds. Thus

Net Profit (after interest & tax)

Return on Shareholders Fund=

Shareholders Funds

The ratio is generally calculated as a percentage by multiplying the above with 100. The basic components of this ratio are net profits and shareholders funds. Shareholders funds include equity share capital, preference share capital, and free reserves such as share premium. Net profits are visualized from the viewpoint of owners.

TABLE 6Return on Shareholders Fund Ratio

(Rupees in crores)

Year

Net profitShareholders fund

Ratio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

3474.16

3506.38

4222.15

4687.03

5201.74

5046.80

6865.69

6696.42

5062.97

6412.197059.92

9755.30

14096.15

27300.73

30176.26

36961.80

48444.63

54896.36

57843.03

63699.74

49.21

35.94

29.95

17.17

17.24

13.65

14.17

12.20

8.75

10.07

Statistical analysis

MEAN

5,117.55

35,023.39

20.84

SD

1,225.82

20,718.77

13.23

CV

23.95

59.16

63.50

The above table revels that net profit has been increased from Rs.3474.16 crores in 2004-2005 to Rs.6412.19 crores in 2013-2014. It has registered fluctuating trend during the study period. Shareholders fund of the company has been increased from Rs.7059.92 crores in 2004-2005 to Rs. 63699.74 crores in 2013-2014. Return on shareholder fund ratio of the company has been decreased from 49.21% in 2004-2005 to 10.07% in 2013-2014.

The average return on shareholder fund ratio of the company is 20.84%. The CV value of the company has shown that the return on shareholder fund ratio of the company has not shown much fluctuation during the study period.7. Return on Gross Capital Employed

Return on capital employed establishes the relationship between profits and the capital employed. It is the primary ratio and is most widely used to measure the overall profitability and efficiency of a business. The term capital employed refers to the total investments made in a business and can be defined in a number of ways. Net ProfitReturn on gross capital employed = *100

Gross Capital Employed

Gross Capital Employed

The term gross capital employed usually comprises the total assets. Fixed as well as current assets used in a business.

Gross Capital Employed = Fixed Assets + Current Assets

TABLE 7

Return on Gross Capital Employed

(Rupees in crores)

year

Net profit

Gross capital employedRatio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

3474.16

3506.38

4222.15

4687.03

5201.74

5046.80

6865.69

6696.42

5062.97

6412.19

12802.74

14980.51

25937.54

46255.35

25003.62

26132.28

29918.12

24185.83

36379.90

35830.3527.14

23.41

16.28

10.13

20.80

19.31

22.95

27.69

13.92

17.90

Statistical Analysis

MEAN

5,117.55

27,742.62

19.95

SD

1225.829,997.47

5.62

CV

23.9536.04

28.16

The above table revels that net profit has been increased from Rs.3474.16 crores in 2004-2005 to Rs.6412.19 crores in 2013-2014. It has registered fluctuating trend during the study period. Gross capital employed of the company has been increased from Rs.12802.74 crores in 2004-2005 to Rs.35830.35 crores in 2013-2014. Return on gross capital employed ratio of the company has been decreased from 27.14% in 2004-2005 to 17.90% in 2013-2014.

The average return on gross capital employed ratio of the company is 19.95%. The CV value of the company has shown that the return on gross capital employed ratio of the company has not shown much fluctuation during the study period.8. Return on Net Capital Employed

The term Net Capital Employed comprises the total assets used in a business less its current liabilities.

Net Profit

Return on Net Capital Employed = *100

Net Capital Employed

Net Capital Employed = Total Assets Current Liabilities

TABLE 8Return on Net Capital Employed

(Rupees in crores)

Year

Net profit

Net capital employedRatio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-20143474.16

3506.38

4222.15

4687.03

5201.74

5046.80

6856.69

6696.42

5062.97

6412.1912143.30

14617.16

25597.50

47075.52

58741.77

64232.78

76455.83

79369.40

85746.63

92435.3828.61

23.99

16.49

9.96

8.86

7.86

8.98

8.44

5.90

6.94Statistical Analysis

MEAN

5,117.55

55,641.53

12.60

SD

1225.8229610.227.83

CV

23.9553.2262.15

The above table revels that net profit has been increased from Rs.3474.16 crores in 2004-2005 to Rs.6412.19 crores in 2013-2014. It has registered fluctuating trend during the study period. Net capital employed of the company has been increased from Rs.12143.30 crores in 2004-2005 to Rs.92435.38 crores in 2013-2014. Return on net capital employed ratio of the company has been decreased from 28.61% in 2004-2005 to 6.94% in 2013-2014.

The average return on net capital employed ratio of the company is 12.60%. The CV value of the company has shown that the return on net capital employed ratio of the company has not shown much fluctuation during the study period.9. Return on Total Assets Ratio Return on total assets established the relationship between profits and the total assets. It is most widely used to measure the return influence in the total assets. Net Profit

Return on Total Assets = *100

Total Assets

Total Assets = Fixed Assets Depreciation + Current Assets

TABLE 9

Return On Total Assets Ratio (Rupees in crores)

Year

Net profit

Total assets

Ratio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

3474.16

3506.38

4222.15

4687.03

5201.74

5046.80

6865.69

6696.42

5062.97

6412.19

15843.29

18425.88

31051.16

53844.30

67698.82

73236.31

89551.72

96207.89

102235.28

111317.16

21.93

19.03

13.60

8.70

7.68

6.89

7.67

6.96

4.95

5.76

Statistical AnalysisMEAN

5,117.55

65,941.18

10.32

SD

1225.8235019.415.87

CV

23.9553.1156.94

The above table revels that net profit has been increased from Rs.3474.16 crores in 2004-2005 to Rs.6412.19 crores in 2013-2014. It has registered fluctuating trend during the study period. Total Assets of the company has been increased from Rs.15843.29 crores in 2004-2005 to Rs.111317.16 crores in 2013-2014. Return on total assets ratio of the company has been decreased from 21.93% in 2004-2005 to 5.76% in 2013-2014.

The average return on total assets ratio of the company is 10.32%. The CV value of the company has shown that the return on total assets ratio of the company has not shown much fluctuation during the study period.10. Earnings Per Share

The earning per share is a good measure of profitability and when compared with E.P.S of similar other companies, it gives a view of the comparative earnings of earning power of a firm. Book Earning Per Share calculated for a number of years indicates whether or not earning power of the company has increased is calculated by dividing the net after taxes and preference dividend by the number of equity shares.

Net Profit after tax Preference dividend

E.P.S = *100

Number of Equity SharesTABLE 10

Earnings Per Share

(Rupees in crores)

YearNet ProfitNo of equity shareRatio(%)2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-20143474.16

3506.38

4222.15

4687.03

5201.74

5046.80

6865.69

6696.42

5062.97

6412.1955.35

55.35

58.05

73.41

74.63

88.72

95.92

97.12

97.12

97.1262.77

63.35

72.73

63.85

69.70

56.88

71.58

68.95

52.13

66.02Statistical Analysis

MEAN

5,117.55

79.28

64.80

SD

1225.82

18.17

6.51

CV

23.95

22.93

10.05

The above table revels that net profit has been increased from Rs.3474.16 crores in 2004-2005 to Rs.6412.19 crores in 2013-2014. It has registered fluctuating trend during the study period. No of equity share of the company has been increased from Rs.55.35 crores in 2004-2005 to Rs.97.12 crores in 2013-2014 due to redemption of shares of the company during the study period of the company has not made any fresh issue during whole study period. Earnings per share ratio of the company has been increased from 62.77% in 2004-2005 to 66.02% in 2013-2014.

The average earning per share ratio of the company is 64.80%. The CV value of the company has shown that the no of equity share of the company has not shown much fluctuation during the study period.11. Capital Turnover Ratio

The capital turnover ratio is the relationship between cost of goods sold or sales (when information about cost of goods sold is not available from the financial statements) and the capital employed.

The ratio is calculated to measure the efficiency or effectiveness with which a firm utilities its resources or the capital employed. As capital is invested in a business to make sales and earn profits, this ratio is a good indicator of overall profitability of concern. This can be calculated as,

Sales/Total income(Cost of Goods Sold)

Capital turnover ratio =

Capital Employed

Capital Employed = Fixed assets + Current assets (outside liabilities both long and short term)TABLE 11

Capital Turnover Ratio

(Rupees in crores)Year

Cost of goods sold

Capital employed

Ratio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

14489.70

15132.09

17452.66

19654.41

24348.32

24940.65

29396.35

33933.46

38199.43

41711.03

11099.06

13406.89

24646.03

46238.61

58050.97

63365.11

76745.75

80475.49

84844.87

91144.67

1.31

1.13

0.71

0.43

0.42

0.39

0.38

0.42

0.45

0.46

Statistical Analysis

MEAN

25,925.81

55,001.75

0.61

SD

9648.57

29914.17

0.34

CV

37.22

54.39

55.13

The above table revels that the cost of goods sold has been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-2014. It has registered fluctuating trend during the study period. Capital employed of the company has been increased from Rs.11099.06 crores in 2004-2005 to Rs.91144.67 crores in 2013-2014. Capital turnover ratio of the company has been decreased from 1.31% in 2004-2005 to 0.46% in 2013-2014.

The average capital turnover ratio of the company is 0.61%. The CV value of the company has shown that capital turnover ratio of the company has not shown much fluctuation during the study period.3. Profit Related to Activity Ratios

Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales,

(xii) Fixed Assets Turnover Ratio

(xiii) Total Assets Turnover Ratio

(xiv) Current Assets turnover Ratio

12. Fixed Assets Turnover Ratio

The ratio indicates the relationship between the net sales (total income) and fixed assets.

Net Sales

Fixed Assets Turnover Ratio =

Fixed AssetsTABLE 12

Fixed Assets Turnover Ratio (Rupees in crores)

Year

Net Sales

Fixed AssetsRatio(%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-201414489.70

15132.09

17452.66

19654.41

24348.32

24940.65

29396.35

33933.46

38199.43

41711.037236.25

8707.32

8543.12

8256.11

10994.54

12162.44

11805.10

11366.26

24875.05

24265.752.00

1.74

2.04

2.38

2.21

2.05

2.49

2.99

1.54

1.72Statistical Analysis

MEAN

25,925.81

12,821.19

2.12

SD

9648.57

6415.70

0.43

CV

37.22

50.04

20.15

The above table revels that net sales have been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-2014. It has registered fluctuating trend during the study period. Fixed Assets of the company has been increased from Rs.7236.25 crores in 2004-2005 to Rs.24265.75 crores in 2013-2014. The fixed assets turnover ratio of the company has been increased from 2.00% in 2004-2005 to 1.72% in 2013-2014.

The average Fixed Assets turnover ratio of the company is 2.12%. The CV value of the company has shown that Fixed Assets of the company has not shown much fluctuation during the study period.13. Total Assets Turnover Ratio

The total asset establishes the relationship between profits and the net sales divided by total assets. It is mostly used to measure the total assets.

Net Sales

Total Assets Turnover Ratio =

Total AssetsTABLE 13

Total Assets Turnover Ratio

(Rupees in crores)YearNet SalesTotal AssetsRatio (%)2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-201414489.70

15132.09

17452.66

19654.41

24348.32

24940.65

29396.35

33933.46

38199.43

41711.03

15843.29

18425.88

31051.16

53844.30

67698.82

73236.31

89551.72

96207.89

102235.28

111317.160.91

0.82

0.56

0.37

0.36

0.34

0.33

0.35

0.37

0.37

Statistical Analysis

MEAN25,925.8165,941.180.48

SD9648.5735019.410.22

CV37.2253.1145.12

The above table revels that Net sales of the company has been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-2014. It has registered fluctuating trend during the study period. A Total Assets of the company has been increased from Rs.15843.29 crores in 2004-2005 to Rs.111317.16 crores in 2013-2014. Total assets turnover ratio of the company has been decreased from 0.91% in 2004-2005 to 0.37% in 2013-2014.

The average Total Assets turnover ratio of the company is 0.48%. The CV value of the company has shown that the Total Assets Turnover ratio of the company has not shown much fluctuation during the study period.

14. Current Assets Turnover Ratio

Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, the larger is the amount of sales and the profits. Activity ratio measures the efficiency or effectiveness with which a firm manages its resources or assets. These ratios are also called turnover ratios because they indicate the speed with which assets are converted or turned over into sales.

Net Sales

Current Assets Turnover Ratio =

Current AssetsTABLE 14Current Assets Turnover Ratio

(Rupees in crores)YearNet salesCurrent AssetsRatio (%)

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-201414489.70

15132.09

17452.66

19654.41

24348.32

24940.65

29396.35

33933.46

38199.43

41711.035566.49

6273.19

17394.42

37999.24

14009.08

13969.84

18113.02

12819.57

11504.85

11564.602.60

2.41

1.00

0.52

1.74

1.79

1.62

2.65

3.32

3.61

Statistical Analysis

MEAN25,925.8114,921.432.13

SD9648.579069.430.98

CV37.2260.7845.90

The above table revels that Net sales has been increased from Rs.14489.70 crores in 2004-2005 to Rs.41711.03 crores in 2013-2014. It has registered fluctuating trend during the study period. A Current Assets of the company has been increased from Rs.5566.49 crores in 2004-2005 to Rs.11564.60 crores in 2013-2014. Current assets turnover ratio of the company has been increased from 2.60% in 2004-2005 to 3.61% in 2013-2014.

The average Current Assets turnover ratio of the company is 2.13%. The CV value of the company has shown that the Current Assets Turnover ratio of the company has not shown much fluctuation during the study period.

CHAPTER V

FINDINGS

The study entitled Profitability analysis of TATA STEEL LTD. A study was under taken to analysis the Profitability of TATA STEEL LTD. The study helps to make the analysis of the company these chapter summaries the finding of the study into the sections. They are profit related to investment, sales and equity shares.

1) Gross Profit Ratio

The ratio shows fluctuating trend and the ratio is satisfied over the period of study. 2) Net Profit Ratio

The ratio shows fluctuating and increasing trend the ratio is satisfied over the period of study.

3) Operating Ratio

Lower operating ratio indicates the higher operating profit. The operating ratio is satisfied over the period is study.

4) Operating Profit Ratio

The operating profit ratio is satisfied over the period of study.

5) Return on Shareholders Fund

Higher the ratio indicates fluctuating trend and the ratio is satisfied over the period of study.

6) Capital Turnover Ratio

The ratio shows fluctuating trend and the ratio is satisfied over the period of study.

7) Return on Gross Capital Employed

The return on capital gross employed ratio shows a fluctuating trend and it is satisfied over the period of study.

8) Return on Net Capital Employed

The return on capital net employed ratio shows a fluctuating trend and it is satisfied over the period of study.

9) Current Assets Turnover Ratio

The ratio shows fluctuating trend and the ratio is satisfied over the period of study.10) Fixed Assets Turnover Ratio Higher the ratio indicates the low profit. This ratio is satisfied over the period of study.

11) Total Assets Turnover Ratio

The ratio shows fluctuating trend and the ratio is satisfied over the period of study.

12) Return on Total Assets

The ratio shows an increasing trend and the ratio is satisfied over the period of study.

13) Selling and Distribution Expenses

The ratio shows a decreasing trend and the ratio is satisfied over the period of study.

14) Earnings Per Share

The earnings per share ratio shows a fluctuating trend and the ratio is satisfied over the period of study.

CONCLUSION

Profitability position of TATA STEEL LTD for ten financial years from 2004-2005 to 2013-2014 has been good and the percentage profits would make the shareholders more satisfied. Effective steps would help in maintaining the same in the coming years. Totally they have been moving without any big financial problem and managing the finance well during the study period.PROFITABILITY ANALYSIS

Profit Related to Activity Ratios

Profit Related to Sales

Profit Related to Investment

37