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financial statement analysis
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) Maruti(in Cr Rs.) Mar'12 Mar'11 Mar'12 Mar'11 Current Asset 13712.92 10971.66 11079 9620.2 Current Liability 22177.47 19000.27 6547.6 4018.7 Quick Current Asset 4275.05 4586.19 2436.1 2508.5 Current Ratio 0.618327 0.577448 1.69207 2.393859 Net Working Capital -8464.55 -8028.61 4531.4 5601.5 Quick Ratio 0.192765 0.241375 0.37206 0.624207 Long Term Outside Liabilities 8004.5 9679.42 96.6 234.9 Tangible Net Worth 19626.01 20013.3 14977.5 13820 Total Tangible Asset 13656.71 12631.82 7922.2 6346.2 Debt Equity Ratio 0.407852 0.483649 0.00645 0.016997 Proprietary Ratio 143.7096 158.4356 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 it’s in the healthy range. Quick ratio for both the companies has decreased (from .2 in Mar’11 to .1 in Mar’12 for Tata and from .6 in Mar’11 to .3 in Mar’12 for Maruti) which is not a good sign for investors. There’s 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) Maruti(in Cr Rs.) Mar'12 Mar'11 Mar'12 Mar'11 Fixed Asset 13656.71 12631.82 8132.1 6391.9 Total Asset 54519.28 54190.45 22302.2 18425.1 Gross Profit 13977.79 12666.84 8026.6 8763.3 Net Sales 54306.56 47088.44 34705.9 35849 Operating Profit 3144.89 3727.34 2091 3083.8 Net Profit 1242.23 1811.82 6466.4 7429.1 Gross Profit Ratio 25.73868 26.90011 23.12748 24.44503 Operating Profit Ratio 5.790995 7.915616 6.024912 8.602193 Net Profit Ratio 2.28744 3.847696 18.63199 20.72331 Average Inventory 4588.23 3891.39 1605.75 1311.9 Sales 40328.77 34421.6 28239.5 28419.9 Stock/Inventory Turnover Ratio(in Days) 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 Tata’s(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 Tata’s 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) Maruti(in million Rs.) Mar'12 Mar'11 Mar'12 Mar'11 Average Debtors 2708.32 2602.88 9376 8245 Average Creditors 8744.83 8817.27 33499 26083 Purchases 40328.77 34421.6 281083 283639 Debtors Turnover Ratio(in Days) 24.51195 27.60044 12.11863 10.58915 Asset Turnover Ratio 3.976548 3.727764 4.380841 5.648892 Fixed Asset Turnover Ratio 3.976548 3.727764 4.267766 5.608505 Current Asset Turnover Ratio 3.960248 4.291825 3.132584 3.72643 Creditors Turnover Ratio(in Days) 79.14605 93.49663 43.50009 33.56483 Net Profit After Taxes 1242.23 1811.82 16352 22886 Net profit Before interest & tax 2559.65 3580.22 22014 31338 Average Capital Employed 32341.81 35190.18 157546 144064 Return On Assets 0.022785 0.033434 0.07332 0.124211 Return On Capital Employed 7.914368 10.17392 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 Mar’12). 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) Maruti(in Cr Rs.) Mar'12 Mar'11 Mar'12 Mar'11 Number of Equity Shares 317.35 317.35 28.891 28.891 Market Price Per Equity Share(in Rs.) 275.7 249.5 134.91 126.355 Earning Per Share 3.914385 5.709217 56.59894 79.21498 Price Earning Ratio 70.43252 43.70126 2.383614 1.59509 PAT+Depr.+Annual Interest on Long Term Loans & Liabilities 3695.858 4024.55 2775.1 3304.9 Annual Interest on Long Term Loans & Liabilities + Annual Instalments Payable on Long term Loans & Liabilities 1564.195 956.98 47.83333 95.46667 Debt Service Coverage Ratio 2.362786 4.205469 58.01603 34.61837 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 Maruti’s Mar’12 figures it shows that Maruti can pay its obligation as compared to Tata Mar’12 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, Maruti’s 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. Maruti’s Mar’12 figures it shows that Maruti can pay its obligation as compared to Tata Mar’12. Also , Maruti’s 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 Auditor’s Report For Tata Motors According to the auditor’s opinion, proper books of account as required by law have been kept by the Company, the Balance Sheet, the Profit and Loss Statement and the Cash Flow Statement dealt with by this report are in agreement with the books of account and the Balance Sheet, the Profit and Loss Statement and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956; 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 Company’s 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 paid- up 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 Company’s 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 re- appointment. 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 [...]... 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 . FINANCIAL STATEMENT ANALYSIS Section B Ruchika Sharma (112) S. Priya Industry: Automobile Companies taken: Tata Motors & Maruti Suzuki Financial Analysis Liquidity. Loss Statement and the Cash Flow Statement dealt with by this report are in agreement with the books of account and the Balance Sheet, the Profit and Loss Statement and the Cash Flow Statement. 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