Comparative financial statements analysis

Comparative Financial Statements Analysis(A case study of Maruti Suzuki Ltd and Tata Motors Ltd)

A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Commerce Submitted By Sri Pranesh Debnath M.com Fourth Semester, 2013 Registration No. 000374 of 2008-09 Roll No. CM/IV/M/35/11

Under the Supervision of Prof. P. Debnath, Department of Commerce, Tripura University (A Central University)

DEPARTMENT OF COMMERCE, TRIPURA UNIVERSITY (A CENTRAL UNIVERSITY) SURYAMANINAGAR TRIPURA-799022 2013

Department of Commerce Telephone: 0381-2379060/9064(0) E-mail: [email protected]

Tripura University (A Central University) Suryamaninagar, Tripura Phone: (0381) 237-4801/4802 E-mail: [email protected] Website: www.tripurauniversity.in

TO WHOM IT MAY CONCERN This is to certify that Sri Pranesh Debnath, a student of M.Com Final Semester, Roll:CM/IV/M No.35/11, Registration No.000374 of 2008-09, of Tripura University, has completed this dissertation report entitled “ Comparative Financial Statement Analysis(a case study of Maruti Suzuki Ltd and Tata Motors Ltd” for the degree of Master of Commerce, under my supervision and guidance.

Prof. P. K .Halder H.O.D Department of Commerce Tripura University

Prof. P. Debnath Department of Commerce Tripura University

© TRIPURA UNIVERSITY, 2013 ALL RIGHTS RESERVED

DECLARATION Thesis Title: Comparative Financial Statement Analysis Degree for which the Thesis is submitted: Master of Commerce

I, Sri Pranesh Debnath, a student of M.Com Fourth Semester, Tripura University do hereby declare that the presented thesis represents largely my own ideas and work in my own words. Where others ideas or words have been included, I have adequately cited and listed in the reference materials. The thesis has been prepared without resorting to plagiarism. I have adhered to all principles of academic honesty and integrity. No falsified or fabricated data have been presented in the thesis. I understand that any violation of the above will cause for disciplinary action by the Institute, including revoking the conferred degree, if conferred, and can also evoke penal action from the sources which have not been properly cited or from whom proper permission has not been taken.

……………………………… (SRI PRANESH DEBNATH) Registration No. 000374 of 2008-09 M.Com Fourth Semester, 2013 Roll No. CM/IV/M/35/11

Dated: Suryamaninagar, June 26, 2013

ACKNOWLEDGEMENT I wish to express my warm gratification and indebtedness to my supervisor, Prof. P. Debnath, Department of Commerce, Tripura University, for his invaluable guidance, co-operative attitude and dynamic efforts during the course of the project. He provided me assistance; suggestion and instruction whenever needed that has been instrumental in successful completion of this project. I am grateful and wish to express my sincere thanks to Prof. P.K.Halder, H.O.D., Department of Commerce; Dr. Chinmoy Roy, Sri S.K.Sen, Sri Joy Das and Sri Rajat Deb, Department of Commerce, Tripura University for their valuable comments, suggestion, instruction, and constant encouragement about the preparation of project. The generosity of Librarian, Tripura University, deserves a special mention for the substantial help they render during the course of the project. I wish to express my gratitude to Tripura University for giving me an opportunity to be a part of it, to enhance my knowledge and also for the facilities provided for the successful completion of the project. Finally, I must thankful to my family, friends and my well-wishers for their constant support and best wishes for the successful completion of the project work.

Date: 26/06/2013

Pranesh Debnath Student of M.Com Final Semester Department of Commerce Tripura University (A Central University) Suryamaninagar, Tripura

Contents

Page number

1.INTRODUCTION .............................................................................................................. 1-9 1.1 Introduction ....................................................................................................................... 1 1.2 Overview of automobile industry ................................................................................... 1-2 1.3 Profile of Maruti Suzuki Ltd .......................................................................................... 2-4 1.4 Profile of Tata Motors Ltd ............................................................................................ 4-7 1.5 Statement of the Problem ................................................................................................... 8 1.2 Research questions ............................................................................................................. 9 2.LITERATURE REVIEW ............................................................................................... 10-11 3.RESEARCH METHODOLOGY ................................................................................... 12-15 3.1 Objectives of the study..................................................................................................... 12 3.2 Scope of the study............................................................................................................ 12 3.3 Methodology and Data ..................................................................................................... 13 3.4 Hypotheses ...................................................................................................................... 13 3.5 Limitations of the study .............................................................................................. 13-14 3.6 Plan of the study ......................................................................................................... 14-15 4.THEORITICAL BACKGROUND ................................................................................. 16-30 5.LIQUIDITY RATIO ....................................................................................................... 31-33 5.1 Current Ratio .............................................................................................................. 31-32 5.2 Acid Test Ratio ........................................................................................................... 32-33 6.MANAGERIAL EFFICIENCY...................................................................................... 34-37 6.1 Inventory turnover Ratio ............................................................................................. 34-35 6.2 Fixed Assets Turnover Ratio ....................................................................................... 35-36 6.3 Debtors turnover Ratio ................................................................................................ 36-37 7.LONG TERM SOLVENCY POSITION ........................................................................ 38-41 7.1 Debt-Equity Ratio ....................................................................................................... 38-39 7.2 Interest Coverage Ratio ............................................................................................... 39-41 8.PROFITABILITY RATIO ............................................................................................. 42-48 8.1 Gross Profit Ratio ....................................................................................................... 42-43 8.2 Net Profit Ratio ........................................................................................................... 43-44 8.3 Return on Capital Employed Ratio .............................................................................. 44-45 8.4 Operating Profit Ratio .................................................................................................46-47 8.5 Return on Equity Ratio ............................................................................................... 47-48 9.CONCLUSION................................................................................................................ 49-50 10.BIBLIOGRAOHY ......................................................................................................... 51-52 11.ANNEXURE ....................................................................................................................... 53

Chapter-1 Introduction 1.1 Introduction: Financial statements are records that provide an indication of the organization’s financial status. It quantitatively describes the financial health of the company. It helps in the evaluation of Company’s prospects and risks for the purpose of making business decisions. The objective of financial statements analysis is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements should be understandable, relevant, reliable and comparable. They give an accurate picture of a company’s condition and operating results in a condensed form. Reported assets, liabilities and equity are directly related to an organization's financial position whereas reported income and expenses are directly related to an organization's financial performance. Analysis and interpretation of financial statements helps in determining the liquidity position, long term solvency, financial viability, profitability and soundness of a firm. There are four basic types of financial statements: balance sheet, income statements, cash flow statements, and statements of retained earnings.

1.2 Overview of Automobile Industry: The automotive industry in India is ranked as one of the largest market globally. Indian market before independence was seen as market for imported vehicles while assembling of cars manufactured by General motors and other brands was the order of the day. Indian automobile industry mainly focused on servicing, dealership, financing and maintenance of vehicles. Latter only after a decade from independence manufacturing started. India’s transportation requirements were met by Indian railways playing an important role till the 1950s. Since, independence the Indian automobile industry faced several challenges and road blocks like manufacturing capability was restricted by the rule of license and could not be increased but still it lead to growth and success it has achieved today. The Indian Automotive industry has emerged as a ‘sunrise sector’ in the Indian economy. The industry is one of key drivers of economic growth of the nation. The sector is divided into four segments viz; Two wheelers (mopeds, scooters, motorcycles, electronic two wheelers), Passenger vehicles (passenger car, utility vehicles, multi-purpose vehicles), Commercial vehicles (light, medium and heavy vehicles), and Three wheelers (passenger and goods carriers). India is being deemed as one of the world’s fastest growing passenger car

market and second largest two wheeler manufacturer. And it is also home for largest motorcycle manufacturer and fifth largest commercial vehicles manufacturer. The majority of India’s car manufacturing industry is based around three clusters in the south, west, and north. The southern cluster consisting of Chennai is the biggest with 35% of the revenue shares. The western hub near Mumbai and Pune contributes to 33% of the market and the northern cluster around the national capital region contributes 32%. India is the largest base to export compact cars to Europe and Asia’s fourth largest exporter of automobiles, behind Japan, South Korea and Thailand. Moreover, hybrid and electronic vehicles new developments in automobile industry and India is one of the key market for them. Global and Indian manufacturer focusing their efforts to developing innovative products such as vehicles based on alternative fuel, technologies, and supply chains. The share of automobile industry in the last decade in the Indian economy was around 5% of Gross Domestic Product (GDP). Moreover, India today is well known as a potential emerging automobile markets and jobs in the automobile industry are rising. The economic progress of this industry is indicated by the amount of goods and services produced which gives the capacity for transportation and boost the sale of vehicles.

1.3 Profile of Maruti Suzuki Ltd: Maruti Suzuki India Limited (MSIL), formerly known as Maruti Udyog Limited, a subsidiary of Suzuki Motor Corporation of Japan, is India's largest passenger car company, accounting for over 50 per cent of the domestic car market. Maruti Udyog Limited was incorporated in 1981 under the provisions of Indian Companies Act 1956 and the government of India selected Suzuki Motor Corporation as the joint venture partner for the company. In 1982 a JV was signed between Government of India and Suzuki Motor Corporation. It was in 1983 that the India’s first affordable car, Maruti 800, a 796 cc hatch back was launched as the company went into production in a record time of 13 month. More than half the number of cars sold in India wears a Maruti Suzuki badge. They are a subsidiary of Suzuki Motor Corporation Japan. The company offer full range of cars- from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. Since inception, the company has produced and sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries.

Milestones: 2011: Maruti Suzuki India unveiled its much awaited sportier and stylish car, the all new 'Swift'. 2011: On march 15, Maruti Suzuki India rolled out its 1 Crore (ten millionth) car.The historic 1 Crore car, a Metallic Breeze Blue coloured WagonR VXi (Chassis No 243899) rolled out from the Company's Gurgaon plant. 2010: Maruti Suzuki has been ranked India's most Trusted Brand in Automobile Sector by India's leading Business newspaper The Economic Times. 2009 - MSIL adopts voluntary fuel disclosure.First shipment of A-star leaves Mundra Port-jan 10.A-star bags, “Zigwheel car of the year award” A-star rated best small car of the year-autocarUTVi. 2008 - World Premiere of concept A-star at 9th Auto Expo, New Delhi. 2007 - Swift diesel launched. New car plant and the diesel engine facility commences operations during 2006-07 at manesar,Haryana.SX4-Luxury Sedan Launched with the tag line “Men are black”.Maruti launches Grand Vitara. 2006-J.D.Power Survey award for the sixth year. MSIL has changed its EMS from ISO 14001:1996 version to ISO 14001:2004 version w.e.f.1st july,2006. 2005- MSIL was re-certified in 2005 as per ISO 14001:2004 standards. 2004 - A new esteem launched –second successful facelift by maruti engineers. 2003 - Maruti gets listed on BSE and NSE.IPO(issue oversubscribed 11.2 times)New zen launchedfirst facelift by maruti engineers. Achievements/ recognition: 

The company takes great pride in sharing that customers have rated Maruti Suzuki first once again in Customer Satisfaction Survey conducted by independent body, J.D.Power Asia Pacific. It is 9th time in a row.

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Maruti Suzuki wins 'Golden Peacock Eco-Innovation Award'

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Maruti Suzuki Ranks Highest in Automotive Customer

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Satisfaction in India For Ninth Consecutive Year. Maruti Suzuki becomes the first Indian car company to export half a million cars

Management Details: Chairperson - Rc Bhargava MD - Kenichi Ayukawa Directors - Amal Ganguli, Davinder Singh, Davinder Singh Brar, Hirofumi Nagao, Kazuhiko Ayabe, Keiichi Asai, Kenichi Ayukawa, Kinji Saito, Manvinder Singh Banga, Osamu Suzuki, Pallavi Shroff, R C Bhargava, Rc Bhargava, RP Singh, S Nakanishi, S Ravi Aiyar, Shinzo Nakanishi, Shuji Oishi, Tsunea Ohashi, Tsuneo Ohashi. Company Secretary: S Ravi Aiyar Auditors: Price Waterhouse & Co

1.4 Profile of Tata Motors Ltd: Tata Motors has emerged as key player in Indian automobile industry and its share in Commercial Vehicles has 63.94%, Passenger Vehicles 16.45%. Tata Motors Limited is India’s largest automobile Company. It was established in 1945 as Tata Engineering and Locomotive Co. Ltd. to manufacture locomotives and other engineering products. It is India's largest automobile company, with standalone revenues of Rs. 25,660.79 crores (USD 5.5 billion) in 2008-09. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer. The company's 23,000 employees are guided by the vision to be 'best in the manner in which they operate best in the products they deliver and best in their value system and ethics.' Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has launched several new products in the Korean market, while also exporting these products to several international markets. Today two-thirds of

heavy commercial vehicle exports out of South Korea are from Tata Daewoo. Tata Motors is also expanding its international footprint, established through exports since 1961. The company's commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia and Senegal. In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which India and the world have been looking forward to. The Tata Nano has been subsequently launched, as planned, in India in March 2009. A development, which signifies a first for the global automobile industry, the Nano brings the comfort and safety of a car within the reach of thousands of families. The standard version has been priced at Rs.100, 000 (excluding VAT and transportation cost). In May 2009, Tata Motors ushered in a new era in the Indian automobile industry, in keeping with its pioneering tradition, by unveiling its new range of world standard trucks. In their power, speed, carrying capacity, operating economy and trims, they will introduce new benchmarks in India and match the best in the world in performance at a lower life-cycle cost. Tata Motors is committed in letter and spirit to Corporate Social Responsibility. It is a signatory to the United Nations Global Compact, and is engaged in community and social initiatives on labour and environment standards in compliance with the principles of the Global Compact. In accordance with this, it plays an active role in community development, serving rural communities adjacent to its manufacturing locations. Product range of the company includes 

Passenger Cars: Indica Vista, Indica V2, indica V2 Turbo, Indica V2 Xeta, Indica V2 Dicor. Indigo XL, Indigo, Indigo Marina Indigo CS. Nano. Fiat Cars. Utility Vehicles: Safari Dicor. Sumo Grande. Sumo. Xenon XT

Truks: Medium & Heavy Comm. Vehicles, Tata Novus. Intermediate Comm. Vehicles.

Subsidiaries of the Company 

Jaguar Land Rover.



Tata Technologies Ltd. (TTL) and its subsidiaries.



Telco Construction Equipment Co. Ltd. (Telcon).



HV Axles Ltd. (HVAL).

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HV Transmissions Ltd. (HVTL).

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TAL Manufacturing Solutions Ltd. (TAL).

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Sheba Properties Ltd. (Sheba).

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Concorde Motors (India) Ltd. (Concorde).

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Tata Daewoo Commercial Vehicle Company Ltd (TDWCV).

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Hispano Carrocera S. A. (HC).

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Tata Motors Insurance Broking & Advisory Services Ltd (TMIBASL).

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Tata Motors European Technical Centre plc.

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Tata Motors Finance Limited.

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Tata Motors Thailand.

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Tata Marcopolo Motors Ltd (TMML).

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Tata Motors (SA) Proprietary Ltd (TMSA).

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TML Distribution Company Ltd (TDCL).

Achievements/ recognition: 

Tata Motors among India’s most Trusted Brand in cars



Tata Motors wins award at the Bangkok International Motor Expo



Tata Motors - Investor Relations ranked first in India



Nirmal Gram Puraskar awarded to Potka panchayat.

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Tata Motors bags the NDTV Profit Business Leadership Award 2008

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Tata Motors awarded the Top Exporter Trophy by EEPC

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CVBU Pune wins Rajiv Gandhi National Quality Award for 2007.

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PCBU bags Handa Golden Key Award.

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Tata Motors receives Uptime Champion Award 2007

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Aggregates Business, CVBU, bags 'Best Supplier Award' from ECEL

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'NDTV Profit' Business Leadership Award

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Tata Motors bags National Award for Excellence in Cost Management.

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Tata Motors' TRAKIT bags silver award for 'Excellence in Design'

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Tata Motors Pune - CVBU has bagged the 'Golden Peacock National Quality Award

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Tata Motors is 'Commercial Vehicle Manufacturer of the Year'.

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TNS Voice of the Customer Award for Indica Diesel. .

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Tata Motors CVBU Pune wins National Energy Award.

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Tata Motors receives all India trophies for Top Exporters

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Golden Peacock Environment Management Award - 2003

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Industry and Technology Award, 2002 Corporate Address : Bombay House,24, Homi Mody Street, Mumbai-400001, Maharashtra www.tatamotors.com Management Details : Chairperson - Cyrus P Mistry MD - Karl Slym Directors - Carl-peter Forster, Cyrus P Mistry, H K Sethna, J J Irani, N A Soonawala, N Munjee, N N Wadia, Nasser Munjee, P M Telang, R A Mashelkar, R Gopalakrishnan, R Sen, Ralf Speth, Ranendra Sen, Ratan N Tata, Ravi Kant, Ravindra Pisharody, S Bhargava, S M Palia, Satish Borwankar, Subodh Bhargava, V K Jairath, V R Mehta Company Secretary : H K Sethna Auditors : Deloittee Haskins & Sells

1.5. Statement of the problem: India is growing at a rapid speed only China and Indonesia are growing faster than India. And if India grows at its same rate than it will go to the top and it can be possible only when the entire sector works at their level best. During the last four decades the automobile sector has contributed a lots in overall development of the country, anyone can easily understand that by looking at the growth and expansion of this sector. In the post independent period only one and two companies were there for production of automobiles in the country but during the last two or three decades number of companies has increased at a rapidly. And they are now on a race and are competing with each other to go first and increase the market share. We can easily understand this by looking at the national and international statistics published by recognized institution and market share of Indian automobile industry in the international market. In India we have various companies who were producing and marketing, and due to the increasing competition between different automobile companies and also due to the effect of globalization they are conducting Research & Development (R&D) in order to keep pace with the competitive market by providing the product at lower and affordable price. Despite the economic slowdown, Indian automobile sector has shown high growth. The economic sustainability and increasing living standard and purchasing power of the Indian customer’s has a bright coming future. The industry is recording increasing growth rate in sale, but still there are some loop holes in the automobile industry and these needs to be considered by the industry to overcome.

1.6 Research questions: a. How the companies in the industry are performing in comparison to each other? b. What is the profitability situation of the companies because of increasing competition? c. What is the liquidity and solvency position of the companies because of continuous changing business environment? d. What is the efficiency position of management, because of continuous external pressure?

Chapter-2 Literature Review Shetti (2007): has conducted a project work entitle “An Analysis and Comparative Study of Financial Statements” on Kalyani Steel Ltd, Pune. The main objective of this work was to obtain a true insight into financial position of this company and compare over the period of three years. He has collected data from primary as well as secondary sources. The major findings of the work were healthy Liquidity, Profitability and Long-term solvency of the firm.

Delta Publishing Company Ltd (2006): has conducted a research study entitle “Analysis and Use of Financial Statements” on Alfa Laval(India) Ltd, Pune with the object to study various ratios to determine the relationship of different factors which have impact on the financial position of the company and to assess profitability, Liquidity and Operating efficiency of this Company. For this purpose, the Delta Publishing Company Ltd has used the required data from both primary and secondary sources. The major findings were the overall performance of the company is good and there is a continuous flow of project business. The company is continuing its drive for volume with continued focus on profitability.

Das (2010)): has conducted a research study entitle “Analysis and Interpretation of Financial Statements: Case Study” Rourkela. Objectives of this study were to understand, analyze and interpret the basic concepts of financial statements of different mining companies and also to Interpretation of financial ratios and their significance. This project mainly focuses on the basics of different types of financial statements. Balance Sheet and Profit & Loss statements of five different coal and non coal mining companies have been studied.

Mehta (2009): has conducted a research study entitle “Financial Statement Analysis: A Case Study on Cement Company”, Dubai, UAE(United Arab Emirates), on three cement company(i.e. Gulf Cement Company, Union Cement Company and Ras AI Khaimas Cement Company). He made a comparative study of Financial Statements of these companies as a result he founds that downturn and worldwide recession badly hitting UAE Real Estate Industry. Since the cement growth is influenced by real estate growth, so the cement industry is also deeply affected. The cancellation and delay of many big projects have affected the overall growth and revenue of cement industry.

Misch and Galantine (2009): Jointly conducted a research work entitles “A Financial Statement Analysis” is a project for introductory financial accounting, USA. The main objective of this study was to develop students’ technical, analytical, critical thinking to analyze key aspects of company’s financial disclosure; evaluate a company’s financial decision; discuss non-financial items that affect a company’s ability to be successful; and compare one company to another in the same industry etc. In nutshell, this project gives the students a richer understanding on the importance of accounting information and usefulness of accounting disclosure in the decision making process.

Chapter-3 Research Methodology and Research Design The word “Research” is the combination of two words – first is ‘Re’ which means ‘a new return to previous stage’ and the second is ‘Search’ means ‘to find’. So in simple word it is defined as the process of gaining new knowledge from previous/old work in a systematic manner. In other words, Research is a scientific and systematic search for pertinent information on specific topic. The term methodology means it is a way to scientifically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. The chapter research methodology describes the methods which will be used for the present

study.

3.1 Objectives of the study: The following are the main objectives of the study is ; To know the Liquidity position of Maruti Suzuki Ltd and Tata Motors Ltd and compare between themselves; To know the profitability of said companies; To know the long-term solvency of these companies; and To know about their Management efficiency.

3.2Scope of the study: The study has covered the period of five (5) years starting from March, 2008 to March, 2012. In the present study two Automobile companies have been selected out of many companies are presents in the industry. Maruti Suzuki Ltd and Tata Motors Ltd have been taken in the study to give an overall picture the industry. The automobile sector has revolutionized the life of common people. The automobiles are now the part and parcel of our lives without which it is nearly impossible to survive. This sector has contributed to the national exchequer as well as increased the economic activities as well in the form of providing jobs to the people. Financial Statements Analysis of such industry will help the society how this industry is utilizing their funds for economic benefits as well as for improving the living standard of the society.

3.3 Methodology and Data: The study is an exploratory one and is mainly based on secondary data. For secondary data the researcher relied primarily on the published financial statements of respective companies. To know the liquidity position of these firms Current Ratio and Liquidity Ratio has been used. To gain the knowledge about profitability position Gross profit Ratio, Net profit Ratio, Operating profit Ratio, Return on equity Ratio, and Return on Capital employed Ratio has been Calculated. To know about solvency position Debt-Equity Ratio and Interest coverage Ratio has been used. Finally, for management efficiency, Inventory turnover Ratio, Fixed Asset turnover Ratio and Debtors turnover Ratio has been calculated.

3.4 HYPOTHESES: The major hypotheses guiding the study are:i.

There is no significant difference in the profitability position of Tata Motors Ltd and Maruti Suzuki Ltd

ii.

There is no significant difference in the liquidity condition of both the companies Tata Motors Ltd and Maruti Suzuki Ltd

iii.

There is no significant difference in the solvency position Tata Motors Ltd and Maruti Suzuki Ltd

iv.

There is no significant difference in the efficiency of management Tata Motors Ltd and Maruti Suzuki Ltd

3.5 Limitations of the study: Despite of knowing as onward profit –making company, the study is not free from certain limitations: An analysis and interpretation have been done on the basis of data collected from secondary sources. The data was collected from published financial statements available on the internet from their website. Analysis has been done depending upon the data for a particular time period of five (5) years i.e.

from Mar, 2008 to Mar, 2012. The result may be different if the same study is based on ten/fifteen years. Comparative study has been made between two automobile companies. Among the numerous automobile industry in India only Tata Motors Ltd and Maruti Suzuki Ltd has been taken into consideration. For analyzing the Financial Statements only “Ratio Analysis” technique has been used. But, there are so many statistical techniques are ignored in this study. Non-financial information and inflation factor has not been considered for analysis, but there are numerous non-financial factors (e.g. management efficiency) are there which greatly influence the company’s profitability. Therefore, It is suggested for further research in this domain in future may take care of the aforesaid problems along with suitable justification.

3.6 Plan of the study: The study has been written and organized according to the following chapter scheme Chapter-1: Introduction of Automobile companies in India. Chapter-2: Review of literature which provides review of various past work related to this study. Chapter-3: Research Methodology and Research Design- which specifies the objectives, scope of the

study, limitations of the study and specific methodology adopted for conducting the work.

Chapter-4: Theoretical background Chapter-5: Data analysis through liquidity ratios to measure the liquidity position of Maruti Suzuki Ltd and Tata Motors Ltd. Chapter-6: Data analysis through Managerial Efficiency ratios to measure managerial efficiency position of Maruti Suzuki Ltd and Tata Motors Ltd. Chapter-7: Data analysis through solvency ratios to measure the long-term solvency position of Maruti Suzuki Ltd and Tata Motors Ltd. Chapter-8: Data analysis through profitability ratios to measure the profit earning capacity of

Maruti Suzuki Ltd and Tata Motors Ltd. Chapter-9: Conclusion consisting of findings and suggestions. Chapter-10: Annexure

Chapter-4 THEORITICAL BACKGROUND Definition of 'Financial Statement Analysis: The process of reviewing and evaluating a company's financial statements (such as the balance sheet or profit and loss statement, and Cash Flow statement), thereby gaining an understanding of the financial health of the company and enabling more effective decision making. Financial statements record financial data; however, this information must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers and other interested parties. Financial statement analysis is an evaluative method of determining the past, current and projected performance of a company. Several techniques are commonly used as part of financial statement analysis including horizontal analysis, which compares two or more years of financial data in both dollar and percentage form; vertical analysis, where each category of accounts on the balance sheet is shown as a percentage of the total account; and ratio analysis, which calculates statistical relationships between data.

Significance and purpose of Financial Statement Analysis: Financial Statement Analysis performs the essential function of converting mass data into useful information. Such analysis serves many and varied purpose as described below: 1. Judging profitability: Profitability is a measure of efficiency and success of business enterprises. The potential investors analyze the Financial Statement

to judge the

profitability and earning capacity of a company so as to decide whether to in a company or not. 2. Judging liquidity: Liquidity of business refers to its ability to pay its short-term liabilities when they became due. Short term creditors like trade creditors and bankers make an assessment of liquidity before granting credit to the company. 3. Judging solvency: Solvency refers to the ability of company to meet its long term

debts. Long term creditors like debenture holders and financial institutions judge the solvency of a company before any lending decisions. They analyze company's profitability over a number of years and its ability to generate sufficient cash to be able to repay their claims at the due time. 4. Judging the efficiency of the management: Performance and efficiency of Management of company can be easily judge by analyzing Financial Statements. Profitability of the company is not the only measure of company's managerial efficiency. There are number of other ways to judge the operational efficiency of Management. Financial analysis tells whether the resource of the business is being used in most effective and efficient way. 5. Inter-Firm comparison: A comparative study of financial and operating efficiency of different firms is possible only after proper analysis of Financial Statements. For this purpose it is also necessary that the Financial Statements are kept on a uniform basis so that financial data of various firm are comparable. 6. Forecasting and budgeting: Financial analysis is the starting point for making plans by forecasting and preparing budgets. Analysis of a Financial Statements of the past years helps a great deal in forecasting for the future.

Limitations of Financial Statements: It is a general impression that Financial Statements are precise, exact and final product of accounting. But sometimes these statements conceal some very important information. AS such they suffer from certain limitations. These are discussed below: 1. Effect on accounting concepts and conventions: Various concepts and conventions of accounting affect the values of assets and liabilities as shown in the balance sheet. Similarly profit or loss disclosed by Profit and loss account is also affected by these concepts and conventions. For example, on account of going concern concept and convention of conservatism, the balance sheet does not show current economic values of assets and liabilities. 2. Effect of personal judgement: The Financial Statements are influenced to certain

extent, by the personal judgement of accountant. For example, amount of provision for bad and doubtful debts depends entirely on the judgement of past experience of the accountant. Similarly, an accountant has also to make judgement about the method and rate of depreciation of fixed assets. The quality of Financial Statements thus depends upon the competence and integrity of those who are responsible for preparing these statements. 3. Recording only monetary transaction: Financial Statements records only those transactions which can be express in terms of money. But there are many factors which are qualitative in nature and cannot be express in monetary terms. These non-monetary factors do not find any place in the Financial Statements. For example, efficiency and loyalty of workers, personal reputation and integrity of managing director of the company etc. are not capable of being express in monetary terms and thus find no place in Financial Statements even though they materially affect the profitability of business. 4. Historical in nature: Financial Statements disclose data which is basically historical in nature i.e. it tells what happened in the past. These statements do not give future projection. 5. Ignores human resources: No business can prosper without an efficient work force. But Financial Statements do not include human resources which is a very important asset for a business. 6. Ignores social costs: Apart from earning a fair return on investments, a business has certain social responsibilities. Financial Statements do not make any attempt to show the social cost of its activities. Examples of social cost of manufacturing company are air pollution, water pollution, occupational diseases of employees, work injuries etc.

Techniques of Financial Statement Analysis: Various techniques are used in the analysis of financial data to emphasis the comparative and relative importance of data presented and to evaluate the position of firm. These techniques of financial analysis are as follows : 1. Horizontal Analysis: Horizontal analysis is the comparison of financial information

over a series of reporting periods. That is horizontal analysis is the review of the results of multiple time periods. 2. Vertical Analysis: Vertical analysis is the proportional analysis of a financial statement, where each line item on a financial statement is listed as a percentage of another item. Typically, this means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a percentage of total assets. That is vertical analysis is the review of the proportion of accounts to each other within a single period. 3. Ratio Analysis: The third method for analyzing financial statements is the use of many kinds of ratios. We use ratios to calculate the relative size of one number in relation to another. After you calculate a ratio, you can then compare it to the same ratio calculated for a prior period, or that is based on an industry average, to see if the company is performing in accordance with expectations. In a typical financial statement analysis, most ratios will be within expectations, while a small number will flag potential problems that will attract the attention of the reviewer.

Interested Parties Involve in Financial Statements Analysis The analysis of financial figures contained in the company's profit and loss account and balance sheet by employing appropriate technique is known a financial statement analysis. Financial statement analysis is useful to different parties to obtain the required information about the organization. Following are the parties interested in financial statement analysis. 1. Shareholders: Shareholders are interested in financial statement analysis to know the profitability of the organization. Profitability shows the growth potentiality of an organization and safety of investment of shareholders. 2. Employees: Employees also need these reports in making collective bargaining agreements with the management, in the case of labour unions or for individuals in discussing their compensation, promotion and rankings. 3. Management: Management is interested to analyze the financial statement for measuring the effectiveness of its policies and decisions. It analyze the financial statements to know short term and long term solvency position, profitability, liquidity position and return on investment from the business.

4. Investors and Lenders: Investors and lenders are interested to know the solvency position of an organization. They analyze the financial statement position to know about the safety of their investment and ability to pay interest and repayment of principle amount on due date. 5. Creditors: Creditors are interested in analyzing the financial statements in order to know the short term liquidity position of an organization. Creditors analyse the financial statement to know either the organization is enable to pay the amount of short term liabilities on due date. 6. Government: Government is interested to analyze the financial position in determining the amount of tax liability. It also helps for formulating effective plans and policies for economic growth.

FINANCIAL STATEMENTS Financial statements (or financial reports) are formal records of the financial activities of a business, person, or other entity. Financial statements provide an overview of a business or person's financial condition in both short and long term. All the relevant financial information of a business enterprise, presented in a structured manner and in a form easy to understand is called the financial statements. There are four basic financial statements: 1. Balance sheet: It is also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and Ownership equity as of a given point in time. 2. Income statement: It is also referred to as Profit and Loss statement (or "P&L"), reports on a company's income, expenses, and profits over a period of time. Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. 4. Cash Flow Statement: It reports on a company's cash flow activities, particularly its operating, investing and financing activities. 2.1 BALANCE SHEET In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances of assets and liabilities at the end of financial year. A balance sheet is often described as a snapshot of a company's financial condition. It summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company

owns and owes, as well as the amount invested by the shareholders. Out of these three basic financial statements, the balance sheet is the only statement which applies to a single point in time. A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company. It's called a balance sheet because the two sides balance out. A typical format of the balance sheet has been given below:

Assets = Liabilities + Shareholders’ Equity

CONTENTS OF BALANCE SHEET (A) Assets In business and accounting, assets are economic resources owned by business or company. Any property or object of value that one possesses, usually considered as applicable to the payment of one's debts is considered an asset. Simplistically stated, assets are things of value that can be readily converted into cash. The balance sheet of a firm records the monetary value of the assets owned by the firm. It is money and other valuables belonging to an individual or business. Types of Assets Two major types: Tangible assets Intangible assets Tangible Assets Tangible assets are those have a physical substance, such as equipment and real estate. Intangible Assets Intangible assets lack physical substance and usually are very hard to evaluate. Assets which do not possess any material value. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. Types of Tangible Assets Fixed assets. Current assets.

Fixed Assets This group includes land, buildings, machinery, vehicles, furniture, tools, and certain wasting resources e.g., timberland and minerals. It is also referred to as PPE (property, plant, and equipment), these are purchased for continued and long-term use in earning profit in a business. Current Assets Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets: Cash and Cash Equivalents It is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts). Short-term Investments It includes securities bought and held for sale in the near future to generate income on short term price differences (trading securities). Receivables It is usually reported as net of allowance for uncollectable accounts. Inventory The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Prepaid Expenses These are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). The phrase net current assets (also called working capital) is often used and refers to the total of current assets less the total of current liabilities. I. Gross Block Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is inclusive of the depreciation that is to be charged on each asset. Net block is the gross block less accumulated depreciation on assets. Net block is actually what the asset are worth to the company. II. Capital Work in Progress Work that has not been completed but has already incurred a capital investment from the

company. This is usually recorded as an asset on the balance sheet. Work in progress indicates any good that is not considered to be a final product, but must still be accounted for because funds have been invested toward its production. III. Investments • Shares and Securities, such as bonds, common stock, or long-term notes • Associate Companies • Fixed deposits with banks/finance companies • Investments in special funds (e.g., sinking funds or pension funds). • Investments in fixed assets not used in operations (e.g., land held for sale). Remark: While fixed deposits with banks are considered as fixed assets, the investments in associate concerns are treated as non-current assets. IV. Loans and Advances include House building advance Car, scooter, computer etc. advance Multi purpose advance Transfer travelling allowance advance Tour travelling allowance advance V. Reserves Subsidy Received From the Govt. Issue of Shares at Premium General Reserves (B) Liability A liability is a debt assumed by a business entity as a result of its borrowing activities or other fiscal obligations (such as funding pension plans for its employees). Liabilities are debts and obligations of the business they represent creditors claim on business assets. Types of Liabilities Current Liabilities Current liabilities are short-term financial obligations that are paid off within one year or one current operating cycle. These liabilities are reasonably expected to be liquidated within a year. It includes: Accrued expenses as wages, taxes, and interest payments not yet paid Accounts payable

Short-term notes Cash dividends and Revenues collected in advance of actual delivery of goods or services. Long-Term Liabilities Liabilities that are not paid off within a year, or within a business's operating cycle, are known as long-term or non-current liabilities. Such liabilities often involve large sums of money necessary to undertake opening of a business, major expansion of a business, replace assets, or make a purchase of significant assets. These liabilities are reasonably expected not to be liquidated within a year. It includes: Notes payable- debt issued to a single investor. Bonds payable – debt issued to general public or group of investors. Mortgages payable. Capital lease obligations – contract to pay rent for the use of plant, property or equipments. deferred income taxes payable, and pensions and other post-retirement benefits. Contingent Liabilities A third kind of liability accrued by companies is known as a contingent liability. The term refers to instances in which a company reports that there is a possible liability for an event, transaction, or incident that has already taken place; the company, however, does not yet know whether a financial drain on its resources will result. It also is often uncertain of the size of the financial obligation or the exact time that the obligation might have to be paid. Fixed Liability The liability which is to be paid off at the time of dissolution of firm is called fixed liability. Examples are Capital, Reserve and Surplus. Secured Loans A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. Unsecured Loans An unsecured loan is a loan that is not backed by collateral. Also known as signature loan or personal loan. Unsecured loans are based solely upon the borrower's credit rating.

An unsecured loan is considered much cheaper and carries less risk to the borrower. However, when an unsecured loan is granted, it does not necessarily have to be based on a credit score.

2.2 PROFIT & LOSS STATEMENT Income statement, also called profit and loss statement (P&L) and Statement of Operations is financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time.

CASH FLOW STATEMENT: It is a statement, which measures inflows and outflows of cash on account of any type of business activity. The cash flow statement also explains reasons for such inflows and outflows of cash so it is a report on a company's cash flow activities, particularly its operating, investing and financing activities.

FINANCIAL RATIOS The importance of ratio analysis lies in the fact that it presents data on a comparative basis and enables the drawing of inferences regarding the performance of the firm. Ratio analysis helps in concluding the following aspects: Liquidity Position: Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to have the ability to meet its current obligations when they become due. It is measured with the help of liquidity ratios. Long- Term Solvency: Ratio analysis helps in assessing the long term financial viability of a firm. Long- term solvency measured by leverage/capital structure and profitability ratios. Operating Efficiency: Ratio analysis determines the degree of efficiency of management and utilization of assets. It is measured by the activity ratios. Over-All Profitability: The management of the firm is concerned about the overall profitability of the firm which ensures a reasonable return to its owners and optimum utilization of its assets. This is possible if an integrated view is taken and all the ratios are considered together. Inter- firm Comparison: Ratio analysis helps in comparing the various aspects of one firm with the other.

ADVANTAGES:

Ratio analysis is an important and age-old technique of financial analysis. The following are some of the advantages of ratio analysis:

1.Simplifies financial statements: It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business. 2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, overvalued and undervalued firms.

3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its basic functions of forecasting. Planning, co-ordination, control and communications. 4.Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. 5. Help in investment decisions: It helps in investment decisions in the case of investors and lending decisions in the case of bankers etc.

LIMITATIONS: The ratios analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations.

1. Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example, non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a very great extent by accounting conventions and concepts. Personal judgment plays a great part in determining the figures for financial statements. 2. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations. 3. Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios. 4. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There

are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult. 5. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision. 6. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to interpret and different people may interpret the same ratio in different way. 7. Incomparable: Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading.

Functional classification of ratio: According to needs of users of Financial Statements, the ratio are classified as : 1. Liquidity ratios: Liquidity ratios ate those which measure the short-term liquidity and solvency position of a firm. In short, it measures the relationship between short-term liabilities and current assets i.e. firm are short-term capacity to meet its short-term obligations when they became due. Some of the important liquidity ratios are : current ratio, quick ratio, and inventory turnover ratio etc. 2. Profitability ratios: These ratios measure the relationship between operating profit to sales and operating profit to investments. They measure also the rate of earnings or rate of return on capital employed for the various users of Financial Statements. These ratios help the users to know the rate of return and reason of such occurrences. Some profitability ratios in relating to sales are: Gross Profit ratio, Net profit ratio, and Operating profit ratio etc. Whereas, in relation to investment: Rate of return on capital employed and Earning Per Share (EPS) etc. 3. Activity ratios: These ratios are also known as turnover ratios as they measure the efficiency by which the resources of the firm are utilised, i.e., whether the assets have properly been used or not. They inform us the speed at which the assets have been turnedover into sales. Some of the important activity ratios are: Debtors 'turnover ratio,

Creditors' turnover ratio etc. 4. Leverage ratios: Leverage ratio or Long-term solvency ratio measure the ability of the firm to meet the cost of interest and re-payment capacity of its long-term loans, e.g. Debt-Equity ratios, Interest coverage ratios etc. In short, these ratios measure the relationship between debt financing and equity financing or contribution made by outsiders and equity share holders. Leverage ratios further classified as: Financial leverage, Operating leverage, and Composite leverage. The leverage ratios help the financial analyst to obtain some important information about the financial health of an enterprise.

Which Ratio for whom: As before mentioned there are varieties of people interested to know and read these information and analyses, however different people for different needs. And it is because each of these groups have different type of questions that could be answered by a specific number and ratio. Therefore we can say there are different ratios for different groups, these groups with the ratio that suits them is listed below:

1. Investors: These are people who already have shares in the business or they are willing to be part of it. So they need to determine whether they should buy shares in the business, hold on to the shares they already have or sell the shares they already own. They also want to assess the ability of the business to pay dividends. As a result the Return on Capital Employed Ratio(ROCE) is the one for this group. 2. Lenders: This group consists of people who have given loans to the company so they want to be sure that their loans and also the interests will be paid and on the due time. Gearing Ratios will suit this group. 3. Managers: Managers might need segmental and total information to see how they fit into the overall picture of the company which they are ruling. And Profitability Ratios can show them what they need to know. 4. Employees: The employees are always concerned about the ability of the business to provide remuneration, retirement benefits and employment opportunities for them, therefore these information must be find out from the stability and profitability of their

employers who are responsible to provide the employees their need. Return on Capital Employed Ratio is the measurement that can help them. . 5. Suppliers and other trade creditors: Businesses supplying goods and materials to other businesses will definitely read their accounts to see that they don't have problems, after all, any supplier wants to know if his customers are going to pay them back and they will study the Liquidity Ratio of the companies. 6. Customers: are interested to know the Profitability Ratio of the business with which they are going to have a long term involvement and are dependent on the continuance of presence of that. 7. Governments and their agencies: are concerned with the allocation of resources and, the activities of businesses. To regulate the activities of them, determine taxation policies and as the basis for national income and similar statistics, they calculate the Profitability Ratio of businesses. 8. Local community: Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the business and the range of its activities as they affect their area so they are interested in lots of ratios. 9. Financial analysts: they need to know various matters, for example, the accounting concepts employed for inventories, depreciation, bad debts and so on. Therefore they are interested in possibly all the ratios. 10. Researchers: researchers' demands cover a very wide range of lines of enquiry ranging from detailed statistical analysis of the income statement and balance sheet data extending over many years to the qualitative analysis of the wording of the statements depending on their nature of research.

Chapter-5 LIQUIDITY POSITION Liquidity ratios: Liquidity ratios ate those which measure the short-term liquidity and solvency position of a firm. In short, it measures the relationship between short-term liabilities and a current asset i.e. firm’s capacity to meet its short-term obligations when they became due. Some of the important liquidity ratios are:

5.1 Current Ratio: Current ratio is used to evaluate the short term solvency of a firm i.e. its ability to discharge the short term obligations. The higher the current ratio, larger is the amount of current assets available for current liabilities. Generally, standard current ratio is taken as 2:1. But in case of finance from banking institution current ratio may be taken as 1.33:1, though there is no hard and fast rule to maintain this ratio. However, a very high current ratio is also not desirable for the firms because high investment in current assets results in reduction in overall profitability of the firm.

= Comment for Current Year: In case of Maruti Suzuki Ltd Current ratio is 1.13. It implies that, for every rupee of Current liabilities, available Current asset is only Rs. 1.13. On the other hand in Tata Motor’s Current ratio is 1.03 which means Current assets are 103 % of its Current liabilities. Therefore in case of both the company’s Current ratio is too much low than the standard. So short term solvency of these companies is not sound and therefore, may face the problems in discharging their short-term obligations.

Current Ratio 2 1.5 1 0.5

1.51

1.47

1.13

0.92 0.92 0.88

1.03

0.76

0.59

Muruti Suzuki Tata Motors

0.48

0 Mar,2008

Mar,2009

Mar,2010

Mar,2011

Mar,2012

From the above chart it is clear that Current Ratio of Maruti Suzuki Ltd over the five (5) years does not indicate any specific trends (i.e. increasing or decreasing), rather it shows the fluctuating trends which signifies the unstable short-term liquidity position of the firm. On the other hand in case of Tata Motors Ltd same ratio in the 1 st year (2008) was 0.88, but in the 2nd year (2009) it has been fall to 0.48 and after that it starts to increase and it remains increasing trend and reaches to 1.03 in the year 2012 which implies the improvement in short-term liquidity position. From the above analysis we can sum up that in case of Tata Motors Ltd the current ratio is in increasing trend, where as for Maruti Suzuki Ltd same is in fluctuating trend. Furthermore, none of these two companies have been able to maintain the standard ratio of 2:1through out the period of five years.

5.2 Acid-test Ratio: Acid-test ratio is the rigorous measure of firm's ability to discharge very short term obligations. In addition to Current ratio acid-test ratio is most necessary because, in Current ratio a rupee of cash is considered as equivalent to a rupee of inventory or receivables. But in reality it is not so. A rupee of cash is more readily available to meet current obligations than a rupee of inventory or receivables. Generally speaking quick ratio of 1:1 is considered as satisfactory as firm can easily meet its short term liabilities.

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Quick assets = Current assets - pre-paid expenses and Inventory. Quick liabilities = Current liabilities - creditors.

Comment for the current year: In our example Maruti Suzuki Ltd (Current ratio 1.13) and Tata Motors Ltd (Current ratio 1.03) have acid-test ratio of 1.03 and 0.72 respectively. That is, in case of both these companies’ quick ratio is lower than their Current ratio. The interpretation is that a large part of Current assets of these firms are tied up in slow moving and unsalable inventories and/or slow paying debtors. Moreover, the former company has satisfactory level of capacity to discharge its short-term obligations when they became due since its Quick ratio is above the general standard. But on the other hand, in case of Tata Motors Ltd the same ratio is below the standard level. Therefore, Tata Motors Ltd will unable to pay-off its short-term liabilities.

Acid-test Ratio 1.4 1.2 1 0.8 0.6 0.4 0.2 0

1.17

1.14

1.27

1.03 0.72 0.72

0.67

Mar,2008

0.64

Mar,2009

0.69

Mar,2010

0.75

Mar,2011

Muruti Suzuki Tata Motors

Mar,2012

From the above chart it can be visible that acid-test ratio of Maruti Suzuki Ltd has fluctuating trend i.e. continuous ups and down which indicate the volatile liquidity position of the organization. Because, in the 1 st year it was 0.67, in the 2 nd year it increases to 1.27 and fall in 3rd year, it also increases in 4th year and ultimately fall in last year to 1.03. On the other hand the same in case of Tata Motors Ltd in the year 2008 it was 1.17 and in 2009 it falls to 0.64 and increases little bit in subsequent two years, lastly in the last year (2012) again it falls to 0.72. Therefore, from overall observation it is clear that in case of Maruti Suzuki Ltd in spite of having fluctuating trend it maintains the standard except 1 st and 3 rd year. But in case of Tata Motors Ltd apart from 1 st year it has not been able to maintain the standard.

Chapter-6 MANAGERIAL EFFICIENCY Management Efficiency Ratio: These ratios are also known as Activity ratios as they measure the efficiency by which the resources of the firm are utilise, i.e., whether the assets have properly been used or not. They inform us the speed at which the assets have been turned-over into sales. Some of the important activity ratios are:

6.1 Inventory turnover Ratio: Inventory (stock) turnover ratio indicates the number of times inventory is replaced i.e. how quickly the inventory is sold. It is a test of efficient inventory management. It measures the relationship between costs of goods sold and inventory level. In general, a high inventory turnover ratio is better than a low ratio. A high ratio implies good inventory Management. Yet, a very high ratio may be indicative of underinvestment in or very low level of inventory. A very low level of inventory will adversely affect the ability to meet customers' demand resulting a high stock out cost. Similarly, a very low inventory turnover ratio signifies excessive inventory or over investment in inventory which eventually results in unexpected carrying/holding cost.

= Cost of goods sold = opening stocks + purchases - closing stocks Average inventory = (opening stocks + closing stocks) /2 Comment for Current Year: In case of Maruti Suzuki Ltd inventory turnover ratio is 21.79 and in case of Tata Motors Ltd is 9.37. So compared to later, the former company (i.e. Maruti Suzuki Ltd) has good inventory management system i.e. there is a large amount of investment in inventory in Tata Motors Ltd which will adversely affect in long-term profitability. By the similar time Maruti Suzuki Ltd having high inventory turnover ratio should look into matter that very high inventory ratio may harmful to the organization because it indicates very low level of inventory in store or low investment in inventory which ultimately results in incurrence of high stock-out cost and eventually permanent loss of market share.

Inventory Turnover Ratio 40 35 30 25 20 15 10 5 0

30.47

30.61

33.35

22.94 21.79 12.79

8.25

8.60

9.21 9.37

Mar,2008

Mar,2009

Mar,2010

Mar,2011

Muruti Suzuki Tata Motors

Mar,2012

From the above chart it is visible that Inventory Turnover ratio in case of Maruti Suzuki Ltd has continuously increases over the first four year i.e. from 2008 to 2011. But in the last year i.e. in 2012 it falls. On the other hand, in case Tata Motors Ltd the same has declined in the year 2009 and after that it increases steadily over the periods up to 2012. So, by summing up, we can say that, the ratio in the year 2008 was 22.94 for Maruti Suzuki Ltd and 12.79 for Tata Motors Ltd but in the next year ratio of two company moves opposite from each other i.e. increases in case of Maruti Suzuki Ltd and reduces in Tata Motors Ltd. From the third year it starts slowly to increase for both companies except in last year for Maruti. Moreover, forgetting the trend and fluctuation the ratio Maruti was always in better position compared to Tata Motors Ltd throughout the five years.

6.2 Fixed Assets Turnover Ratio: This ratio measures the degree of efficiency in utilising the Fixed Assets. Higher the ratio better is the utilization of Fixed Assets. In other words, it indicates how much money is investment in Fixed Assets to generate sales. A High fixed asset turnover ratio indicates the capability of the firm to earn maximum sales with the minimum investing in fixed assets. So it shows the company’s efficiency in utilising its fixed assets to generate sales revenue. Therefore, higher the ratio better is the company’s fixed assets utilization efficiency and vice-versa.

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Comment for Current Year: Fixed assets turnover ratio in Maruti Suzuki Ltd and Tata Motors Ltd are 2.44 and 2.34 respectively. It indicates that for each rupee of Fixed Assets there is a sale revenue of Rs. 2.44 in Maruti Suzuki Ltd and Rs. 2.34 in case of Tata Motors Ltd. So it is needless to say that, this ratio does not indicates so good signal because the amount of sales turnover is around two and half fold of their fixed assets. Moreover, former one is little bit efficient in Fixed Assets utilisation compared to later one.

Fixed assets turnover Ratio 3.5 3

3.07 2.87

2.44

2.33

2.5 2

2.78

2.45

2.34 2.08

1.5 1

1.37

Muruti Suzuki Tata Motors

1.72

0.5 0 Mar,2008

Mar,2009

Mar,2010

Mar,2011

Mar,2012

From the above chart it is visible that in the 1 st year (2008) fixed assets turnover ratio of Maruti and Tata was 2.45 and 2.87 respectively but in the 2nd year the ratio falls in both company i.e. 2.33 and 1.37 for Maruti and Tata respectively and in the subsequent years it starts to increase. However, in the last year it has fall in case of Maruti and for Tata it remains in increasing mode. By comparing the ratio for last five years it is found that the Maruti Suzuki Ltd is always in better position in compare to Tata Motors Ltd except the 2nd year (2008) in which it was reverse position than the subsequent years.

6.3 Debtors turnover Ratio: This ratio shows how quickly debtors are converted into cash. In other words, we can say that it is test of liquidity of the debtors of the firm. Thus it is an indicative of the efficiency of trade credit management. The higher the debtors turnover ratio and shorter the average collection period, better is the trade credit management and better is the liquidity of the debtors. On the other hand, low turnover ratio and long collection period reflect delayed payment by debtors. Therefore, in general, higher turnover ratio (short

collection period) is preferable than the low turnover ratio.

= Comment for Current Year: Debtors turnover ratio in Maruti Suzuki Ltd is 37.93 which signifies that debtors of this company are get converted into cash approximately 40 times in a year. Therefore, collection period will be Nine (9) days [360 days/40 times]. The same ratio in case of Tata Motors Ltd is 21.9 i.e.22 which implies debtors are converted into cash 22 times in a year and collection period is sixteen(16) days [360 days/22 times]. So, with regard to this ratio debtor of former company is more liquid compared to later one. And thereby requirement of investment in debtors will be more in Tata Motors Ltd compared to Maruti Suzuki Ltd.

Debtors turnover Ratio 50

42.60

40 30

37.93 25.20

25.98

33.70 21.90

20 10

18.82

20.88

17.48

15.29

0 Mar,2008

Mar,2009

Mar,2010

Muruti Suzuki

Mar,2011

Mar,2012

Tata Motors

From the above chart it is visible that, in case of Maruti Suzuki Ltd the ratio indicating the increasing trend as from the very beginning year the ratio has been increases throughout period except in the last year in which it falls down. On the other hand, in case of Tata Motors Ltd it increases in 2nd year to 20.88 from 18.82 which was in 1 st year. In the 3rd year it falls to 15.29 and increases afterword and reaches to 21.90 in the last year. Therefore, after evaluating the five years ratio of both the companies it is found that so far their trend and position is concern Maruti Suzuki Ltd remains always in a better position compared to Tata Motors Ltd and there is a huge improvement in Maruti Suzuki Ltd for a five years compared to Tata Motors Ltd which reflects slight improvement.

Chapter-7 LONG-TERM SOLVENCY POSITION Long-term solvency ratio: Long-term solvency ratios measure the long-term that is, firm’s capability to meet the long-term obligation according to their due date. For instance, redemption of debenture, redemption of redeemable preference share and the ability of the firm to meet the cost of interest etc.

7.1 Debt-Equity Ratio: This ratio reflects the relative claims of creditors and share holders against the assets of the firm, debt equity ratios establish relationship between borrowed funds and owner capital to measure the long term financial solvency of the firm. The ratio indicates the relative proportions of debt and equity in financing the assets of the firm. A high ratio shows a large share of financing by creditors of the firm; a low ratio implies a smaller claim of creditors i.e. it indicates the margin of safety to the creditors. Lower the debt equity ratio, the higher the degree of protection enjoyed by the creditors. Because, in case of firm having high D/E ratio owners are putting up relatively less money of their own and if the project fails in future creditors would lose heavily.

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=

′

Comment for Current Year: Debt/Equity ratio in Maruti Suzuki Ltd is 0.01 and in Tata Motors Ltd is 1.18. Therefore, in case of Maruti Suzuki Ltd the ratio is too much low compared to general norms though there are no hard and first rules for debt-equity ratio. As a result of this low debt in capital structure return to Equity share holders will low because company is taking no risk and will not be able to avail the benefits of trading on equity. On the other hand, in Tata Motors Ltd as it bearing the high risk of debt its share holder will get the benefits of trading on equity and maximize their returns as a fruits of bearing risk of debt capital because of tax benefits on cost of debt capital which is absent in equity.

Debt-Equity Ratio 2.5 2.06

2 1.88

1.5 1 0.5

1.18

1.15

0.72

Muruti Suzuki Tata Motors

0.06

0.07

Mar,2008

Mar,2009

0.02

0.01

Mar,2011

Mar,2012

0.03

0 Mar,2010

So far above chart is concern it can be easily understood that, Debt-Equity ratio in Maruti Suzuki Ltd is very low throughout the five years and also it is in declining trend. On the other hand, in case of Tata Motors Ltd there is much more debt capital in its capital structure and such ratio was in increasing trend in 1st three years and falls in 4th year to 1.15 and again it increase little bit in the last year. Therefore, by summing up we can say that the ratio in Maruti Suzuki Ltd is very negligible and it is tending towards zero which signifies that the company is avoiding debt capital. On the other hand, Tata Motors Ltd’s ratio is increasing which implies it its dependency on debt capital in order to avail the benefits of trading on equity.

7.2 Interest Coverage Ratio: This ratio reflects the relative claims of creditors and share holders against the assets of the firm, debt equity ratios establish relationship between borrowed funds and owner capital to measure the long term financial solvency of the firm. The ratio indicates the relative proportions of debt and equity in financing the assets of the firm. A high ratio shows a large share of financing by creditors of the firm; a low ratio implies a smaller claim of creditors i.e. it indicates the margin of safety to the creditors. Lower the debt equity ratio, the higher the degree of protection enjoyed by the creditors. Because, in case of firm having high D/E ratio owners are putting up relatively less money of their own and if the project fails in future creditors would lose heavily.

= Where, EBIT stands for Earnings Before Interest and Taxes.

The coverage ratios measure the relationship between what is normally available from operation of the firms and the claims of outsiders. Interest coverage ratio assesses the debt serving capacity of a firm insofar as fixed interest on long-term loan is concerned. From the point of view of creditors, the larger is the coverage, the greater is the ability of firm to handle fixed-charged liabilities and the more assured is the payment of interest to the creditors. However, too high ratio may imply unused debt capacity. In contrast, a low ratio is a danger signal that the firm is using excessive debt and does not have the ability to offer assured payment of interest to the creditors. Comment for Current Year: Interest coverage ratio in Maruti Suzuki Ltd is 35.82 and in Tata Motors Ltd it is only 5.82. Both the companies are not in a satisfactory zone rather they stay in two opposite extreme side i.e. former one is too high and later is too low. Because, in general higher is the interest coverage ratio better is the company’s debt serving capacity. However, too high ratio may imply unused debt capacity and low ratio indicate the weak debt serving capacity of the firm neither of which is desirable in the company.

Interest Coverage Ratio 140 120 100 80 60 40 20 0

126.99 108.48 Muruti Suzuki 42.13

34.75 35.82 5.82 1

1.91

5.87 2

3

0.56 4

Tata Motors

4.83 5

From the above chart it is clear that in case of Tata Motors Ltd the ratio is too low throughout the five years and it is again almost in declining trend except 2 nd and last year in which it shows slight improvement. On the other hand, in Maruti Suzuki Ltd the same is too high in comparison to Tata Motors Ltd. But it also shows huge ups and down in its life line, because in 2nd year it shows huge improvement and decreases in subsequent two years and eventually it increases in last year. Therefore, it can be conclude that in Maruti Suzuki Ltd is a

little portion of debt capital in its capital structure(i.e. low geared capital structure) and Tata Motors Ltd is using much more debt capital in its capital structure(i.e. high geared capital structure). So, obviously the EPS of Tata Motors Ltd will greater than the Maruti Suzuki Ltd because of absence of gearing facility.

Chapter-8 PROFITABILITY RATIOS Profitability ratios: This ratio measures the profit earnings capacity of the firms on their turnover and investments etc.

8.1 Gross Profit Ratio: This ratio measures the relationship between net sales and gross profit. Since gross profit is the difference between selling price and cost of goods sold the higher be the profit, better will be the financial performance. This ratio indicates the relation between production cost and sales and the efficiency with which goods are produced or purchased. It is highly significant and important since the earning capacity of business can be ascertain by taking the margin between the sales and cost of goods sold. If it has a very high gross profit ratio it may indicate that the organization is able to produce or purchase at a relatively lower cost.

=

× 100

Net sales = Gross sales - Return inward - cash discount allowed. Comment for Current Year: In case of Maruti Suzuki Ltd the Gross profit is 3.77 and in Tata Motors Ltd it is 10.07. Both companies’ Gross profit ratio is very low which indicate that margin between sales and cost of goods sold is low and same may be the result of high cost of production or low price of sales. Therefore, the firms should scrutinize about their production technique in order to reduce the cost of production, otherwise after deducting the selling and distribution expenses there will remain very low amount for cost of long-term capital or may be net loss also.

Gross Profit Ratio 12 10 8 6

9.88

9.64

10.07

8.93 4.27

9.13

4

Muruti Suzuki 3.14

2

4.90

3.77

1.51

0 Mar,2008

Mar,2009

Mar,2010

Mar,2011

Mar,2012

Tata Motors

From the above chart it can be understand that G/P Ratio in Maruti Suzuki Ltd has fluctuating trend because in the 1 st time it was decreased than increases than again decreases. But if we observe throughout the years it is reported that the ratio has reduced more or less by 60%. On the other hand in case of Tata Motors Ltd in the 2 nd year it falls to 1.51 from 9.13 which was the first year position, therefore it was a huge fall no doubt. However, in the subsequent years the same has increases instantaneously and recovered its past situation itself.

8.2 Net Profit Ratio: This ratio reflects the net profit margin on the sales after deducting all expenses but before deducting interest and taxes. This ratio measures the efficiency of operation of the organization. This ratio is very significant as if it is found be very low, many problems may arise such as dividend may not be paid and on the other hand high ratio ensure adequate return to the owners as well as enable firm to withstand adverse economic condition selling price is declining and cost of production is increasing. Moreover, Gross profit margin and Net profit margin should be jointly evaluated. The need for joint analysis arises because the two ratios may show different trends. For example, the gross margin may show a substantial increase over a period of time but Net profit margin may remain constant or may actually have decline or may not have increase as fast as gross margin. It may be due to the fact that the increase in the operating expenses individually may behave abnormally. On the other hand, if either as a whole or individual items of operating expenses decline subsequently, a decrease in gross margin may be associated with an improvement in the net profit margin.

=

(

)

× 100

Comment for Current Year: The Net profit ratio of Maruti Suzuki Ltd and Tata Motors Ltd are 4.55 and 8.13 respectively i.e. in case of Maruti Suzuki Ltd there remain little portion of money as EBIT after adjusting all expenses other than interest on long-term loan and taxes for which company may face the problems of net loss if the financial charges increases by little amount.

Net Profit Ratio 12

9.60

10 8 6 4 2 0 -2 -4 -6

8.62 6.06

5.68

7.48 6.29

8.13 4.55

Muruti Suzuki

2.76

Mar,2008

Mar,2009

Mar,2010

Tata Motors Mar,2011

Mar,2012

-3.49

From the above chart it is visible that in the year 2008 the ratio for Maruti was 9.60 and for Tata it was 6.06 and in the second year it was reduces for both companies in case of Tata it was -3.49 and in case of Maruti it was 5.68. In the 3 rd year it starts to increase and for Tata Motors it remains increasing up to last year, but in case of Maruti Suzuki it is again falling from 4th year. By summing up, we can say that, in spite of negative figure Tata company has started recovering from such worse situation and remain in increasing motion up to last year. In case of Maruti Suzuki Ltd on the other hand has shows reducing trend for last two years

8.3 Return on Capital Employed Ratio: Return on Capital Employed (ROCE) ratio indicates the relationship between profit before interest and taxes and long-term funds invested in the business. This ratio is also called Return on Investment (ROI). It reflects the overall efficiency with which capital is used. A measure of the return that a company is realizing from its capital employed. The ratio can also be seen as representing the efficiency with which capital is being utilized to generate revenue. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.

=

× 100

Capital Employed = Equity Capital + Preference Capital + Reserves and Surplus + Long

Term Debt- Fictitious Assets Comment for Current Year: In our example, Return on Capital Employed ratio of Maruti Suzuki Ltd is 13.02 and in Tata Motors Ltd it is 24.29. Since ROCE ratio is the indicator of overall profitability of firm, higher the ratio, better the firm producing the return from efficient utilisation of long-term funds. Therefore, latter company has more profitability and generating return from long-term funds than at what rate produced by former company.

Return on capital employed 30

27.94

26.35

25

25.24 24.29

20

17.72

15

17.26

21.19 13.02

10 9.37

5 2.70

0 Mar,2008

Mar,2009

Mar,2010

Muruti Suzuki

Mar,2011

Mar,2012

Tata Motors

The above Chart shows us that Return on Capital Employed Ratio for Maruti Suzuki Ltd in the year 2008 was 26.35 and for Tata was 17.72; however, it was decreases in the 2nd year to 17.26 in Maruti and 2.70 in Tata. In the third year for both it is improved, in the subsequent year ratio is increasing up to 4th year and fall in last year for Tata but in case of Maruti it is reducing from the 4th year itself. Eventually the ratio for Maruti Suzuki Ltd it was reduces in the last year from the initial year but in Tata Motors Ltd it was increase in the last year from initial year.

8.4 Operating Profit Ratio: This ratio establishes the relation between the net sales and the operating net profit. The concept of operating net profit is different from the concept of net profits; operating net profit is the profit arising out of business operations only. This is calculated as follows:

=

×100

Operating net profit = Net Profit + Non-operating expenses – non operating income. Alternatively, this profit can also be calculated by deducting only operating expenses from the gross profit. This ratio reveals the margin remains after adjusting the cost of goods sold plus operating expenses with the sales. Higher the ratio higher is the profitability and better is the efficiency of management. Comment for Current Year: In Maruti Suzuki Ltd Operating profit ratio is 7 and in case of Tata Motors Ltd it is 13.47. That is, from the given data it is clear that latter company has much better operating profit ratio compared to former one. Therefore, Tata Motors Ltd has better profit earning and efficient management capability than the Maruti Suzuki Ltd.

Operating Profit Ratio 16 14

13.67

12.82 11.79

12 10 8

13.47

11.34

7.72

7.72

Muruti Suzuki

7.38

6

7.00

4

5.01

2 0 Mar,2008

Mar,2009

Mar,2010

Mar,2011

Mar,2012

Tata Motors

From the above line chart it is visible that, operating profit ratio in the both companies has in a fluctuating trend. However, in case of Maruti Suzuki Ltd it is eventually reduced to 7 in 2012 from 12.82 which was in 2008, on the other hand in case of Tata Motors Ltd it is increases to 13.47 in the last year ( 2012) from 11.34 in the 1 st year(2008).

8.5 Return on Equity Ratio: This ratio measures the return on the total equity funds of ordinary share holders i.e. it indicates the productivity of the owned funds employed in the firm. Probably, it is the single most important ratio to judge whether the firm has earned a satisfactory returns for its real owners who bear all the risk and uncertainty involve in the business. Its adequacy can be judge by comparing it with the past record of the same firm or inter-firm comparison or comparison with the overall industry average. This ratio plays an important role in making decision by equity share holder whether to continue with their investment in the company or not.

=

× 100

Net Worth = Equity capital + Reserve and surplus – Accumulated loss Comment for Current Year: In Maruti Suzuki Ltd Return on equity ratio is 10.72 and in Tata Motors Ltd the same is 41.33 which signifies that former organization is generating rewards for its equity share holders is 10.72% on their total investment including reserve and surplus and latter is 41.33%. Therefore, Tata Motors Ltd generates return for its equity share holders by more than double fold than what generates by Maruti Suzuki Ltd. So it is needless to say that investors of latter one is more profitable than the investors of former company.

Return on Equity Ratio 60 40

25.01

20 0 -20

48.74

31.3

Mar,2008

16.64

12.83 21.54

20.74 Mar,2009

41.33

Mar,2010

10.72 Mar,2011

Mar,2012

Muruti Suzuki Tata Motors

-40 -49.05 -60

From the above chart it is visible that, in case of Tata Motors Ltd this ratio in the first year (2008) was 25.01, but in the next year (2009) it becomes in negative i.e. -49.05 which implies the loss suffered by the equity share holders and in the subsequent year it starts recovering in a rapid speed and corresponding figure in 2010, 2011, and 2012 is 31.30, 48.74, and 41.33 respectively. So, we can say that although there was a huge fall in 2 nd year the company has produced good return in the subsequent year. On the other hand, in case of Maruti Suzuki Ltd in the 1st year it was 20.74, in 2 nd year it has reduced to 12.83 and in the 3 rd year it increases to 21.54 and again it starts decreasing and eventually it stood at 10.72 in last year. Therefore, the return on equity capital in Maruti is in declining trend may be for the reason of declining trend in Debt-Equity ratio throughout the years.

Chapter-9 CONCLUSION Analysis and interpretation of financial statements is an important tool in assessing company’s performance. It reveals the strengths and weaknesses of a firm. It helps the clients to decide in which firm the risk is less or in which one they should invest so that maximum benefit can be earned. It is known that investing in any company involves a lot of risk. So before putting up money in any company one must have thorough knowledge about its past records and performances. Based on the data available the trend of the company can be predicted in near future. Even though, the volatility in the financial market is also a major concern. Investors must take into account the business cycle for investment in any company, which is not predictable.

FINDINGS: From ratio analysis of Balance Sheet and Profit & Loss Statement it is found that Liquidity Ratio (i.e. Current Ratio and Quick Ratio) in case of both the companies are not good enough. Because, in most of the year it is found that they have not been able to maintain the standard limit i.e. 2:1 in case of Current Ratio and 1:1 in case of Quick Ratio. So far solvency position is concern, Debt-Equity ratio of Maruti Suzuki Ltd and Tata Motors Ltd is too low, which signifies that they are not utilizing the cheapest sources of funds. On the other hand, Interest Coverage Ratio in case of Maruti Suzuki Ltd is too high which imply unused debt capacity, and in case of Tata Motors Ltd it is too low which indicates a danger signal that the firm does not have the ability to offer assured payment of interest to the creditors. In case of Management efficiency Ratio both the companies are in a satisfactory position except Fixed Assets Turnover Ratio is little bit low which signifies the firm’s inefficiency in fixed assets utilization or over investment in Fixed Assets. Gross Profit and Net Profit ratio for both the companies are not satisfactory. Return on capital employed ratio is satisfactory in both the companies except in 2nd and 3 rd year in Tata Motors Ltd in those years the return was low. Return on equity ratio is also good except in 2nd year in Tata Motors Ltd there was negative figure. And finally we can say that Operating ratio is also

good throughout the five years.

SUGGESTIONS: From the above analysis it may be suggested to both the companies that to increase the adequate investment in current assets so that they can maintain standard ratio as well as sound liquidity position which will immensely help in profitability. Despite of the opposite relation between profitability and liquidity, in practical business field initially up to a certain level profitability and liquidity are complementary to each other. So far Solvency Ratio is concerned, of both Tata Motors Ltd and Maruti Suzuki Ltd , it is also to be recommend to Maruti Suzuki Ltd that to improve the leverage in the capital structure in order to maximise the wealth of their share holders by reducing the overall cost of capital. This is only because of tax advantage available on the interest on debt capital for which effective cost of debt capital is always lower than its nominal costs. Fixed assets turnover ratio is not satisfactory in case of both the companies. So it is advisable to the management of these companies to take care of new investment on fixed assets and to revise the existing policy as prevailed in both the companies.

Chapter-10 Bibliography Books: 1) Banerjee, Bhabatosh. Financial Policy and Management Accounting. New Delhi: Prentice-Hall India, 2005. 2) Basu, B. K. Management Accounting(Principles, System, and Practice). Kolkata: New Central Book Agency Pvt. Ltd., January, 2008. 3) Bodhanwala, Ruzbeh J. Understanding and Analysing Balancesheet with Eccel . New Delhi: Prentice-Hall India, March, 2005. 4) Chandra, Prasanna. Financial Management(Theory and Practice). New Delhi: Tata McGrawHill, 2004. 5) Foster, George. Financial Statement Analysis. New Delhi: Pearson Publication Ltd., 2005. 6) Khan, M. Y., and P. K. Jain. Financial Management(Text, Problems, and Cases). New Delhi: Tata McGraw-Hill, 2004. 7) Khan, M. Y., and P. K. Jain.Management Accounting. New Delhi: Tata McGraw-Hill, 2000. 8) Lal, Jawahar. Essentials of Management Accounting. New Delhi: Himalaya Publishing House, 2005. 9) Maheshwari, S. N. Financial Management. New Delhi: Sultan Chand and Sons, 2005. 10) Pandey, I. M. Financial Management. New Delhi: Vikas Publication House Pvt. Ltd., 2003. 11) Madan, Pankaj, Vageesh Paliwal, and Rajul Bhardwaj. Research Methodology. New Delhi: Global Vision Publishing House, 2010.

Websites: 1) http://www.eagletraders.com/.../financial_statements_analysis.htm. 2) http://www.financialexpress.com. 3) http://www.ehow.com/about_6633754_significance-financial.. 4) http://www.ehow.com/about_6633754_significance-financial... 5) http://www.en.wikipedia.org/wiki/Financial analysis 6) http://www.highered.mcgraw-hill.com/sites/0073526819/student_view0/...

7) http://web.bryant.edu/~gpae/Vol6/A%20Financial%20Statement%20Anlysis%20Project.pdf 8) http://i.investopedia.com/inv/pdf/tutorials/financialstatements.pdf 9) http://ethesis.nitrkl.ac.in/1953/1/10605038.pdf 10) http://sirwinston.dsbn.org/BAT4M1/Financial%20Statement%20Analysis%20Project.pdf 11) http://www.apexcpe.com/publications/171016.pdf 12) http://library.imtdubai.ac.ae/Faculty%20Publication/mehta/Anupam%20Mehta.pdf 13) http://www.daneprairie.com

ANNEXURE LIST OF RATIOS Sl. No.

Name of Ratios

Name of Organizations

Mar,2008

Mar,2009

Mar,2010

Mar,2011

Mar,2012

Muruti Suzuki Ltd.

0.92

1.51

0.92

1.47

1.13

Tata Motors Ltd.

0.88

0.48

0.59

0.76

1.03

Muruti Suzuki Ltd.

0.67

1.27

0.69

1.14

1.03

Tata Motors Ltd.

1.17

0.64

0.72

0.75

0.72

Current ratio 1 Acid-test ratio 2

Muruti Suzuki Ltd.

22.94

30.47

30.61

33.35

21.79

3

Inventory turnover ratio

Tata Motors Ltd.

12.79

8.25

8.6

9.21

9.37

Muruti Suzuki Ltd.

2.45

2.33

2.78

3.07

2.44

4

Fixed assets turnover ratio

Tata Motors Ltd.

2.87

1.37

1.72

2.08

2.34

Muruti Suzuki Ltd.

25.2

25.98

33.7

42.6

37.93

5

Debtors Turnover ratio

18.82

20.88

15.29

17.48

21.9

Muruti Suzuki Ltd.

9.64

4.27

8.93

4.9

93.37

Tata Motors Ltd.

9.13

1.51

3.14

9.88

63.72

9.6

5.68

8.62

6.29

4.55

6.06

-3.49

2.76

7.48

8.13

Muruti Suzuki Ltd.

12.82

7.72

11.79

7.72

7

Tata Motors Ltd.

11.34

5.01

7.38

13.67

13.47

Muruti Suzuki Ltd.

20.74

12.83

21.54

16.64

10.72

9

Return On Equity ratio

Tata Motors Ltd.

25.01

-49.05

31.3

48.74

41.33

Muruti Suzuki Ltd.

26.35

17.26

27.94

21.19

13.02

10

Return On Capital Employed

Tata Motors Ltd.

17.72

2.7

9.37

25.24

24.29

Muruti Suzuki Ltd.

0.06

0.07

0.03

0.02

0.01

Tata Motors Ltd.

0.72

1.88

2.06

1.15

1.18

35.82

126.99

108.48

34.75

42.13

5.82

5.87

1.91

0.56

4.83

Tata Motors Ltd.

Gross Profit ratio 6

Muruti Suzuki Ltd. Net Profit ratio 7

Tata Motors Ltd. Operating Profit ratio

8

Debt-Equity ratio 11

12

Interest Coverage Ratio

Muruti Suzuki Ltd. Tata Motors Ltd.