RATIO ANALYSIS ( GROUP 5- GLC- IB)

CONTENTSy About Tata Steel y Tata Steel- Its Acquisitions y Vision y Mission y Liquidity Ratios y Turnover Ratios y Profitability Ratios y Leverage Ratios y Conclusion

ABOUT: TATA STEELy One of the World s top ten steel producers y Combined presence in nearly 50 countries y Tata Steel includes Corus Steel, Tata Steel

Thailand, and Nat Steel Asia which are its acquisitions. y Comprises of 80,000 employees across 5 continents y Has crude steel production capability of 28 million tones.

TATA STEEL- ITS ACQUISITIONS

VISIONWe aspire to be the global industry benchmark for Value Creation and Corporate Citizenship

MISSIONy To strengthen India s industrial base through

effective utilization of staff and material. y Achievement of above through high technology, and productivity consistent with modern management practices. y Honesty and Integrity to be regarded essential ingredients of a strong and stable enterprise.

Ratio Analysis: TATA STEELRATIO ANALYSIS

LIQUIDITY RATIOS

TURNOVER RATIOS

PROFITABILITY RATIOS

LEVERAGE RATIOS

LIQUIDITY RATIOSy Liquidity ratios measures the ability of the firm to

meet its short term obligations. It also reflect the firm s ability to meet financial contingencies that might arise.CURRENT RATIOS LIQUIDITY RATIOS

QUICK RATIOS

CURRENT RATIOSy This Ratio indicates the firm s ability to meet its current liabilities. y This ratio is of very high importance to the suppliers of short term funds like the bankers and trade creditors y This will ensure sufficient amount of working capital. If the ratio is too low or negative that means there is working capital crisis. y The ratio can be calculated as follows:

Current Ratio= Current Assets/ Current Liabilities

CURRENT RATIOS ( Contd..)As per Balance Sheet as on 31st March 2009 and 2010.YEAR 2008-2009 2009-2010 CURRENT ASSETS 11591.66 13425.27 CURRENT LIABILITIES 11899.95 12003.02 CURRENT RATIOS 0.91 1.12

current ratios1.5 1 0.5 0 2008-2009 2009-2010 current ratios

QUICK RATIOSy This ratio is calculated to get a real picture of liquidity. y The ratio is calculated on pre-assumption that all the

current assets are of same level of liquidity. y This ratio can be calculated as follows:QUICK RATIO= (CURRENT ASSET- INVENTORYPREPAID EXPENSES)/CURRENT LIABILITIES

QUICK RATIOSAs per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 QUICK ASSETS 8111.19 10347.52 CURRENT LIABILITIES 11899.95 12003.02 QUICK RATIO 0.57 0.76

Quick ratio0.8 0.6 0.4 0.2 0 2008-2009 2009-2010 Quick ratio

TURNOVER RATIOSy These ratios determine how quickly certain assets are converted into cash y It measures the ability of the firm to manage its assets and convert into cash. y High turnover ratios are usually associated with good asset management and low turnover ratios with poor asset management.TOTAL ASSETS T/O RATIO FIXED ASSETS T/O RATIO TURNOVER RATIOS STOCK T/O RATIO DEBTORS T/O RATIO CREDITORS T/O RATIO

Total assets turnover ratio = Net sales/ Total Assets

TOTAL ASSETS TURNOVER RATIOy This ratio is calculated to find the relationship

between all assets and sales. y The turning over of an asset is basically utilization of assets. y The ratio is calculated as follows:TOTAL ASSETS TURNOVER RATIO= NET SALES/TOTAL ASSETS

TOTAL ASSETS TURNOVER RATIOAs per Balance Sheet as on 31st March 2009 and 2010YEAR NET SALES 24348.32 24940.65 TOTAL ASSETS 56650.78 62407.95 TOTAL ASSSETS T/O RATIO .42 times .40 times

2008-2009 2009-2010

Total Assets Turnover Ratios0.43 0.42 0.41 0.4 0.39 2008-2009 2009-2010 Total Assets Turnover Ratios

FIXED ASSETS TURNOVER RATIOy The fixed asset turnover ratio measures a company s

ability to generate sales from fixed assets investments mainly plant & machinery, equipment. y This ratio gives relationship between net fixed assets and sales. y It indicates the efficiency of utilization of fixed assets. y The ratio can be calculated as follows:FIXED ASSETS TURNOVER RATIO= NET SALES/ FIXED ASSETS

FIXED ASSETS TURNOVER RATIO(Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 NET SALES 24348.32 24940.65 FIXED ASSETS 14482.22 16006.03 FIXED ASSETS T/O RATIO 1.68 times 1.55 times

FIXED ASSETS TURNOVER RATIO1.7 1.6 1.5 1.4 2008-2009 2009-2010 FIXED ASSETS TURNOVER RATIO

STOCK TURNOVER RATIOSy The ratio indicates the level of inventory on an average

throughout the year as compared to cost of goods sold. y This ratio shows the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage inventory. y It indicates whether investment in stock is within proper limit or not. y The ratio can be calculated as follows:STOCK TURNOVER RATIO=COST OF GOODS SOLD/AVERAGE INVENTORY

STOCK TURNOVER RATIOS( Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR COGS AVERAGE INVENTORY 3042.72 3279.11 STOCK TURNOVER RATIO 3.42 times 3.13 times

2008-2009 2009-2010

10413.11 10284.42

STOCK TURNOVER RATIO3.5 3.4 3.3 3.2 3.1 3 2.9 2008-2009 2009-2010

STOCK TURNOVER RATIO

DEBTORS TURNOVER RATIOy Debtors turnover ratio or accounts receivable turnover

ratio indicates the velocity of debt collection of a firm y It indicates the number of times average debtors are turned over during a year. y This ratio can be calculated as follows:DEBTORS TURNOVER RATIO= NET SALES/ AVERAGE DEBTORS

DEBTORS TURNOVER RATIO( Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR NET SALES AVERAGE DEBTORS 635.98 434.83 DEBTORS TURNOVER RATIO 38.28 times 57.35 times

2008-2009 2009-2010

24348.32 24940.65

DEBTORS TURNOVER RATIO80 60 40 20 0 2008-2009 2009-2010 DEBTORS TURNOVER RATIO

AVERAGE COLLECTION PERIODy It simply means the approximate amount of time that

it takes for a business to receive payments owed, in terms of receivables, from its customers and its clients. y In other words, the average collection period of accounts receivable is the number of days required to convert receivables into cash. y The ratio can be calculated as follows:AVERAGE COLLECTION PERIOD=365/DEBTORS TURNOVER RATIO

ORAVERAGE COLLECTION PERIOD= 12/DEBTORS TURNOVER RATIO

AVERAGE COLLEON PERIOD(Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR No. OF DAYS DEBTORS TURNOVER RATIO 38.28 57.35 DEBTORS TURNOVER RATIO 38.28 57.35 AVERAGE COLLECTION PERIOD 9.53 days 6.36 days AVERAGE COLLECTION PERIOD .31 months .20 months

2008-2009 2009-2010 YEAR

365 365 No. OF MONTHS 12 12

2008-2009 2009-2010

CREDITORS TURNOVER RATIOy This ratio signifies the credit period enjoyed by the

firm in paying creditors. y This ratio is similar to debtors turnover ratio. y It compares creditors with credit purchases. y The ratio can be calculated as follows:CREDITORS TURNOVER RATIO=CREDIT PURCHASE/AVERAGE CREDITORS

CREDITORS TURNOVER RATIO(Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR CREDIT PURCAHSE AVERAGE CREDITORS CREDITORS TURNOVER RATIO

2008-2009 2009-2010

AVERAGE PAYMENT PERIODy This ratio indicates the number of days a company

takes to pay off credit purchases. y As the average payment period increases, cash should increase as well but working capital remains the same. y This ratio can be calculated as follows:AVERAGE PAYMENT PERIOD=365/CREDITORS TURNOVER RATIO

ORAVERAGE PAYMENT PERIOD=12/CREDITORS TURNOVER RATIO

AVERAGE PAYMENT PERIOD(Contd )y As per Balance Sheet as on 31st March 2009 and 2010YEAR MONTHS CREDITORS TURNOVER RATIO 2.22 2.04 AVERAGE PAYMENT PEIOD 5.40 months 5.88 months

2008-2009 2009-2010

12 12

YEAR

DAYS

CREDITORS TURNOVER RATIO 2.22 2.04

AVERAGE PAYMENT PERIOD 164.14 days 178.92 days

2008-2009 2009-2010

365 365

PROFITABILITY RATIOy This ratio shows a company s effectiveness on

generating profit. y In other words the profitability ratio reflects a company s operating performance. y Profitability Ratio can be determined on the basis of either sales or investment into business.GROSS PROFIT RATIO PROFITABILITY RATIO ON BASIS OF SALES NET PROFIT RATIO

EXPENSE RATIO

GROSS PROFIT RATIOy Gross Profit is defined as Sales- Cost of Goods Sold. y The Gross profit ratio is the ratio of Gross profit to the

Sales. y The ratio can be calculated as follows:GROSS PROFIT RATIO= (GROSS PROFIT/ NET SALES)*100

GROSS PROFIT RATIO( Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 GROSS PROFIT 12429.65 12780.87 SALES 24,348.32 24,940.65 GROSS PROFIT SALES 51.04% 51.24%

GROSS PROFIT RATIO51.30% 51.20% 51.10% 51.00% 50.90% 2008-2009 2009-2010

GROSS PROFIT RATIO

NET PROFIT RATIOy It relates the firms net profit and the firm s sales level y It indicates that percentage of every rupee of sales the

firm was able to transform into the Net Profit. y The net profit margin measures the profit that is available from each rupee of sales after all expenses have been paid including cost of goods sold, selling, general and administrative expenses, depreciation, interest & taxes. y The ratio can be calculated as follows:NET PROFIT RATIO= (NET PROFIT/ SALES)*100

NET PROFIT RATIO( Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 NET PROFIT 5201.74 5046.80 SALES 24,348.32 24,940.65 NET PROFIT RATIO 21.36% 20.23%

NET PROFIT RATIO21.50% 21.00% 20.50% 20.00% 19.50% 2008-2009 2009-2010

NET PROFIT RATIO

EXPENSE RATIO( SELLING AND ADMINISTRATION)y Expense ratio is the calculation of expenditure made

by the company in terms of the net sales. y This ratio helps to keep a track on the expenditure incurred by the company and lower the ratio better it is. y This ratio can be calculated as follows:EXPENSE RATIO= (EXPENSES/ SALES)*100

EXPENSE RATIO( SELLING AND ADMINISTRATION)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 EXPENSES 400.24 417.90 SALES 24348.32 24940.65 EXPENSE RATIO 1.64% 1.67%

EXPENSE RATIO1.68% 1.66% 1.64% 1.62% 2008-2009 2009-2010 EXPENSE RATIO

PROFITABILITY RATIO- IIRETURN ON CAPITAL EMPLOYEED RETURN ON INVESTMENT PROFITABILITY RATIOS BASED ON INVESTMENT RETURN ON NETWORTH

EARNINGS PER SHARE

DIVIDEND PER SHARE

RETURN ON CAPITAL EMPLOYEEDy This ratio reflects the overall profitability of the

business. y The Return on Capital Employed Ratio( ROCE) tells us how much profit we can earn from the investment the shareholders have made in their company. y . It is calculated by comparing the profit earned and the capital employed to earn it. y The ratio can be calculated as follows:RETURN ON CAPITAL EMPLOYEED=(PROFIT BEFORE INTEREST, TAX AND DIVIDEND)/ CAPITAL EMPLOYEED

RETURN ON CAPITAL EMPLOYEED( Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR PBIDT CAPITAL EMPLOYEED 56650.78 62407.95 RETURN ON CAPITAL EMPLOYEED 17.26% 16.25%

2008-2009 2009-2010

9779.51 10146.67

RETURN ON CAPITAL EMPLOYEED18.00% 17.00% 16.00% 15.00% 2008-2009 2009-2010 RETURN ON CAPITAL EMPLOYEED

RETURN ON INVESTMENTy It is the percentage of return on funds invested in the

business by its owners. y The ROI is perhaps the most important ratio of all. y In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. y This ratio can be calculated as follows:RETURN ON INVESTMENT=INTEREST/ INVESTMENT*100

RETURN ON INVESTMENT(Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 INTEREST 1,489.50 1,848.19 INVESTMENT 42,371.78 44,979.67 RETURN ON INVESTMENT 3.51% 4.11%

RETURN ON INVESTMENT4.20% 4.00% 3.80% 3.60% 3.40% 3.20% 2008-2009 2009-2010

RETURN ON INVESTMENT

RETURN ON NETWORTHy The Return on Net worth of a company measures the

ability of the management of the company to generate adequate returns for the capital invested by the owners of a company. y Generally a return of 10% would be desirable to provide dividends to owners & have funds for future growth of the company. y The ratio can be calculated as follows:RETURN ON NETWORTH=PROFIT AFTER TAX/ PROPREITORS FUNDS*100

RETURN ON NETWORTH(Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 PAT 5201.74 5046.80 PROPRIETORS FUNDS 29704.60 37168.75 RETURN ON NETWORTH 17.51% 13.57%

RETURN ON NETWORTH20.00% 15.00% 10.00% 5.00% 0.00% 2008-2009 2009-2010 RETURN ON NETWORTH

EARNINGS PER SHAREy The shareholders invest their money with the

expectation of getting dividends and capital appreciation on the shares. Since the earnings form the basis for dividend payments as well as a basis for any future increase in the market price of the shares, investors are always extremely interested in knowing the earnings per share. y The ratio can be calculated as follows:EARNINGS PER SHARE=(NPAT-PREFERNCE DIVIDEND)/NUMBER OF ORDINARY SHARES

EARNINGS PER SHAREy As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 EARNINGS PER SHARE 69.70 56.37

EARNINGS PER SHARE80 60 40 20 0 2008-2009 2009-2010 EARNINGS PER SHARE

DIVIDEND PER SHAREy Dividend per share (DPS) is the total dividends paid

out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued y The ratio can be calculated as follows:DIVIDEND PER SHARE=TOTAL DIVIDEND/TOTAL NUMBER SHARES

DIVIDEND PER SHAREy As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 DIVIDEND PER SHARE 17.49 8.51

DIVIDEND PER SHARE20 15 10 5 0 2008-2009 2009-2010

DIVIDEND PER SHARE

LEVERAGE RATIOSy Leverage Ratio can be defined as any ratio used to

calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. y There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.DEBT EQUITY RATIOS LEVERAGE RATIOS RETURN ON EQUITY RATIOS

DEBT-EQUITY RATIOy It indicates what proportion of equity and debt the

company is using to finance its assets. y A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. y Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones. y The ratio can be calculated as follows:DEBT-EQUITY RATIO= TOTAL DEBT/ EQUITY SHARE CAPITAL*100

DEBT-EQUITY RATIO( Contd..)y As per Balance Sheet as on 31st March 2009 and 2010YEAR 2008-2009 2009-2010 TOTAL DEBT 26,946.18 25,239.20 EQUITY SHARE CAPITAL 730.79 887.41 DEBT-EQUITY RATIO 3.69% 2.84%

DEBT-EQUITY RATIO4.00% 3.00% 2.00% 1.00% 0.00% 2008-2009 2009-2010 DEBT-EQUITY RATIO

RETURN ON EQUITYy Return on Equity is the amount of net

income returned as a percentage of shareholders equity. y Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. y The ratio can be calculated as follows:RETURN ON EQUITY= (NPAT- PREFERNCE DIVIDEND)/EQUITY SHARE CAPITAL

RETURN ON EQUITYy As per Balance Sheet as on 31st March 2009 and 2010YEAR NPATPREFERNCE DIVIDEND 5092.29 5000.92 EQUITY SHARE CAPITAL 730.79 887.41 RETURN ON EQUITY 6.96 5.63

2008-2009 2009-2010

RETURN ON EQUITY8 6 4 2 0 2008-2009 2009-2010 RETURN ON EQUITY

CONCLUSIONy These Liquidity, Leverage, Profitability, and

Management Ratios allow the business owner to identify trends in a business and to compare its progress with the performance of others through data published by various sources. y The owner may thus determine the business's relative strengths and weaknesses. y Therefore Ratio Analysis plays a major role in an organization for doing major business decisions as well as knowing the growth of the organization.

PRESENTED BY:y Komal Nerlekar y Aditi Lala y Sayak Mazumdar y Mohamad Aftab y Hitesh Wadhwani y Yogita Sharma