Profitabilty of Tata Motors by Vivek Patel

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A

Project Report

On

PROFITABILITY OF TATA MOTORS

(In Financial Term)

Of

The

Master of Business Administration

Submitted by

Vivek Patel

PAI International Centre For Management Excellence,

Pune

Session (2008-2010)


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APROJECT REPORT

ON

PROFITABILITY OF TATA MOTORS


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CERTIFICATE

This is to certify that Vivek Patel student of PAI international centre for managementexcellence, Maharashtra cosmopolitan society, pune has completed his project report on the

topic of Profitability of TATA Motors and has submitted the field work report in partialfulfilment of ..............................of the college for the academic year 2008-09.He has workedunder our guidance and direction. The said report is based on bonafide information

Project Guide Name Prof. R Ganesan

Designation

Date:-

Place: - Pune.


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PAI International Centre for Management ExcellenceMaharashtra Cosmopolitan Education Society

Declaration

I hereby declare that the project titled Profitability of TATA Motors is an original peaceof research work carried out by me under the guidance and supervision ofSaumya Mehta Theinformation has been collected from genuine and authentic sources .the work has beensubmitted in partial fulfilment of the requirement of ...................to our college

Place: Signature:Date: Name of the student:


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ACKNOWLEDGEMENT

I would like to express my gratitude to all those who gave me the possibility to

complete this Project. I am very thankful to my host company TATA Motors for giving me the

opportunity to do research in esteemed and reputed companies

I am very thankful of our esteemed director Prof. R Ganesan to help me during the

study of the Project and also would like to thank our Prof. Ashwin Kapoor for helping me in

the findings of the project.

My acknowledge would be incomplete without mentioning my internal guide Ms.

Saumya Mehta.

My former colleagues from the College who have supported me in my research work. Iwant to thank them for all their help, support, interest and valuable hints. Especially, I would

like to give my special thanks to my Parents whose love enabled me to complete this work.


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TABLE OF CONTENT

Sr. No. Content Page Nos.

1. Introduction

2. Objectives

3. Methodology

4. Companys Profile

5. Findings

5.1 Data Collection

5.2 Data analysis

6. Conclusion

7. Limitations

8. Recommendation

9. Bibliography


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INTRODUCTION

Profitability is expressed in terms of several popular numbers, which measure one oftwo generic types of performance: "how much they make with what they've got" and "howmuch they make from what they take in". The efficiency of a company or industry atgenerating earnings depends on various factors.

The profitability ratio can be determined o the basis of either sales or investments.TheProfitability measures the operating efficiency and the owners of the company invest theirfunds in the expectation of reasonable returns, which ensures adequate returns to theshareholders of the company. In other words the profitability ratios are designed to answer toquestions such as

Is the profit earned by the company adequate? What rate of return does it indicate? What is the rate of profit in various divisions of the company? What are the earnings per share? And so on.

The chart below illustrates how Tata companies in each of these sectors contribute, inpercentage terms, to the overall financial makeup of the Group. The table that follows showsthe Group's sector-wise financial performance. And in as you can very well see that the majorholding of 31% is by TATA MOTORS which shows that the profitability in this sector is morethan the other sector of the company.

NB: Group financials do not include Corus


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OBJECTIVES

To assess the financial position and profitability by deriving the various ratios andanalysing the different aspects of the organization.

To understand the key areas affecting the financial growth of the organization.

To know how the various ratios are derived and later how they are been put into test to

know the current position of the organization in the market. To study the important reasons which lead to a major achievement within the country

and also internationally with a constant and stable growth.


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RESEARCH METHODOLOGY

Research is defined as a systematic gathering, recording and analysis of the data

concerned with an objective. This whole activity is divided in to various parts & aftercompilation of that we reach at certain findings, which enable us to take financial decision. Itinvolves the diagnosis of information needed and the selection of relevant and interrelatedvariables.

Project Title: Profitability of TATA Motors

The project was conducted to examine and understand the concept of Profitability andto determine the various key factors which affects in the growth of a company due to thefinancial reason.

DATA COLLECTION:

Secondary Data:

Data was collected from books, magazines, web sites, going through the records of theorganisation, etc.It is the data which has been collected by individual or someone else for the

purpose of other than those of our particular research study. Or in other words we can say thatsecondary data is the data used previously for the analysis and the results are undertaken for thenext process.


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COMPANYS PROFILE

Leadership with trust

Founded by Jamsetji Tata in 1868, the Tata groups early years wereinspired by the spirit of nationalism. Established in 1945, Tata Motors is Indias largestautomobile company, with a portfolio of commercial, passenger and utility vehicles. TataMotors Limited is Indias largest automobile company, with revenues of Rs. 35651.48 crores(USD 8.8 billion) in 2007-08. It is the first Indian automobile company to list on the New YorkStock Exchange. Tata Motors is Indias largest commercial vehicle manufacturer. It ranksamong the worlds top five manufacturers of medium and heavy trucks and is the worldssecond largest medium and heavy bus manufacturer.

It is Indias second largest passenger vehicle player. Starting withcommercial vehicles in 1954, it entered the passenger vehicles segment in 1991. The Tata

Indica, Indias first indigenously designed car, was launched in 1998. In November 2007, thecompany rolled off the millionth car on the Indica platform. The company launched the Indigoin 2002, the Indigo Marina in 2004, and the Indigo XL in 2007. In January 2008, Tata Motorsalso launched the worlds least cost car, the Tata Nano. The Nano, Tata MotorsPeoples Car,designed with a family in mind, has a roomy passenger compartment with generous leg spaceand head room. It can comfortably seat four persons. Its mono-volume design will set a new

benchmark among small cars.

On January 3, 2008, Ford announced that it was committed to focusednegotiations at a more detailed level with Tata Motors concerning the potential sale of thecombined Jaguar Land Rover business. The statement added: There is still a considerableamount of work to do, and while no final decision has been made, we will proceed with furthersubstantive discussions with Tata Motors over the forthcoming weeks with a view to securing

an agreement that is in the best interests of all parties concerned. Tata Motors plants are atJamshedpur (Eastern India), Pune (West), Lucknow and Pantnagar (North).


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BOARD OF DIRECTORS

Mr. Ratan N Tata (Chairman) Mr. N A Soonawala Dr. J J Irani Mr. R Gopalakrishnan Mr. Nusli N Wadia Mr. S M Palia Dr. R A Mashelkar Mr. Nasser Munjee Mr. Subodh Bhargava Mr. Ravi Kant Mr. P M Telang

SENIOR MANAGEMENT

Mr. Ravi Kant - Managing Director Mr. P M Telang - Executive Director (Commercial Vehicles) Mr. Rajiv Dube - President (Passenger Cars) Mr. C Ramakrishnan - Chief Financial Officer Mr. S N Ambardekar - Plant Head (CVBU, Pune) Mr. S B Borwankar - Head (Jamshedpur - Plant) Mr. A M Mankad - Head (Car Plant) Mr. U K Mishra - Vice President (ADD and Materials-CVBU) Mr. S Krishnan - Vice President (Commercial - PCBU) Mr. P Y Gurav - Vice President (Corp. Finance - A/c and Taxation) Mr. S J Tambe - Vice President (Human Resources) Mr. R Pisharody - Vice President (Sales and Marketing - CVBU) Mr. A Gajendragadkar - Chief Internal Auditor


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MAJOR ACHIEVEMENTS

Tata Steel became the sixth largest steel maker in the world after it acquired Corus. Tata Motors is among the top five commercial vehicle manufacturers in the world andhas recently acquired Jaguar and Land Rover. TCS is a leading global software company, with delivery centres in the US, UK,

Hungary, Brazil, Uruguay and China, besides India. Tata Tea is the second largest branded tea company in the world, through its UK-based

subsidiary Tetley. Tata Chemicals is the worlds second la rgest manufacturer of sodaash.

Tata Communications is one of the worlds largest wholesale voice carriers. Brand Finance, a UK-based consultancy firm, recently valued the Tata brand at $11.4

billion and ranked it 57th amongst the Top 100 brands in the world. Business weekranked the group sixth amongst the Worlds Most Innovative Companies and the

Reputation Institute, USA, recently rated it as the Worlds Sixth Most Reputed Firm. Tata Motors acquired Daewoo Commercial Vehicles in 2004. The companys plant

employs 850 people in the city of Gunsan. Tata Motors now exports Korean-madetrucks to key markets such as South Africa.


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SERVICES

Legend has it that it all started in the early 1900s when an Indian took umbrage at notbeing allowed entry to a hotel because he had the wrong skin colour. Jamsetji Tata, the founderof the Tata Group, responded by creating Indias first luxury hotel, the Taj Mahal Palace and

Tower. Those following in his footsteps have built on the legacy with enterprises across theservices spectrum, including insurance and other financial services. At the Tata Group our

purpose is to improve the quality of life of the communities we serve.

The heritage of returning to society what we earn evokes trust among consumers,employees, shareholders and the community. This heritage will be continuously enriched byformalising the high standards of behaviour expected from employees and companies. TheTata name is a unique asset representing leadership with trust. Leveraging this asset to enhancegroup synergy and becoming globally competitive is the route to sustained growth and long-term success.


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DATA COLLECTION

Balance Sheet (Rs Crore)Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Source of fundOwners fund

Equity share capital 385.54 385.41 382.87 361.79 353.00

Share applicationmoney

- - - - 3.83

Preference sharecapital

- - - - -

Reserves & surplus 7,428.45 6,458.39 5,127.81 3,749.60 3,236.77

Loan funds

Secured loans 2,461.99 2,022.04 822.76 489.81 942.65

Unsecured loans 3,818.53 1,987.10 2,114.08 2,005.61 317.12

Total 14,094.51 10,852.94 8,447.52 6,606.81 4,853.37

Uses of funds

Fixed assets

Gross block 10,830.83 8,775.80 7,971.55 6,611.95 5,985.40

Less : revaluationreserve

25.51 25.95 26.39 - -

Less : accumulateddepreciation

5,443.52 4,894.54 4,401.51 3,454.28 3,023.69

Net block 5,361.80 3,855.31 3,543.65 3,157.67 2,961.71

Capital work-in-

progress

5,064.96 2,513.32 951.19 538.84 286.09

Investments 4,910.27 2,477.00 2,015.15 2,912.06 3,056.77

Net current assets

Current assets, loans& advances

10,781.23 10,318.42 9,812.06 7,248.88 3,835.78

Less : currentliabilities &

provisions

12,029.80 8,321.20 7,888.65 7,268.80 5,309.17

Total net currentassets

-1,248.57 1,997.22 1,923.41 -19.92 -1,473.39

Miscellaneous

expenses not written

6.05 10.09 14.12 18.16 22.19

Total 14,094.51 10,852.94 8,447.52 6,606.81 4,853.37

Notes:

Book value ofunquotedinvestments

4,145.82 2,117.86 1,648.57 2,480.15 2,778.87

Market value ofquoted investments

2,530.55 1,323.08 1,550.00 1,260.05 732.76

Contingent liabilities 5,590.83 5,196.07 2,185.63 1,450.32 896.07

Number of equity

shares outstanding(Lacs)

3855.04 3853.74 3828.34 3617.52 3529.58


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Profit and Loss Account (Rs Crore)Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Income:

Operating income 28,738.30 26,664.25 20,088.63 17,199.17 13,028.17

Expenses

Material consumed 20,931.81 19,529.88 14,376.11 12,101.28 8,720.10

Manufacturingexpenses

1,230.14 1,200.36 929.82 830.45 628.73

Personnel expenses 1,544.57 1,367.83 1,143.13 1,039.34 882.49

Selling expenses 1,179.48 1,068.56 759.54 598.75 455.56

Administrativeexpenses

1,982.79 1,488.16 1,042.52 911.73 758.90

Expenses capitalized -1,131.40 -577.05 -308.85 -282.43 -144.89

Cost of sales 25,737.39 24,077.74 17,942.27 15,199.12 11,300.89

Operating profit 3,000.91 2,586.51 2,146.36 2,000.05 1,727.28Other recurringincome 389.03 887.23 685.18 399.94 235.65

Adjusted PBDIT 3,389.94 3,473.74 2,831.54 2,399.99 1,962.93

Financial expenses 471.56 455.75 350.24 234.30 225.96

Depreciation 652.31 586.29 520.94 450.16 382.60

Other write offs 64.35 85.02 73.78 67.12 51.64

Adjusted PBT 2,201.72 2,346.68 1,886.58 1,648.41 1,302.73

Tax charges 547.55 660.37 524.93 415.50 482.55

Adjusted PAT 1,654.17 1,686.31 1,361.65 1,232.91 820.18

Nonrecurring items 374.75 227.15 167.23 4.04 -6.82Other non cashadjustments

- -0.07 - -1.54 -3.02

Reported net profit 2,028.92 1,913.39 1,528.88 1,235.41 810.34

Earnings beforeappropriation

3,042.75 2,690.15 2,094.54 1,601.21 934.05

Equity dividend 578.43 578.07 497.94 452.19 282.11

Preference dividend - - - - -

Dividend tax 81.25 98.25 69.84 63.42 36.14

Retained earnings 2,383.07 2,013.83 1,526.76 1,085.60 615.80


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Cash Flow (Rs Crore)Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Profit before tax 2,028.92 1,913.46 1,528.88 1,236.95 810.34

Net cash flow-operating activity 6,174.50 2,210.13 -221.03 1,249.82 2,717.53

Net cash used ininvesting activity -5,721.86 -2,805.10 -1.06 -956.57 -2,043.19

Net cash used in fin.Activity

1,132.46 303.58 -855.27 940.67 -149.20

Net income/dec incash and equivalent

1,585.10 -291.39 -1,077.36 1,233.92 525.14

Cash and equivalentbegin of year 806.21 1,118.15 2,196.79 771.12 245.35

Cash and equivalent

end of year 2,391.31 826.76 1,119.43 2,005.04 770.49

DividendYear Month Dividend (%)

2008 May 150

2007 May 150

2006 May 130

2005 May 125

2004 May 40

2004 January 402003 May 40

2002 June -

2001 June -

2000 May 25

1999 May 30

1998 June 55

1997 May 80

Bonus announcement

Year Month Ratio Ex Bonus Date1995 September 3:5 04/10/1995

1982 April 2:5 -

1979 April 2:5 -

1977 April 1:5 -


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Share holdingShare holding

pattern as on :31/12/2008 30/09/2008 30/06/2008

Face value 10.00 10.00 10.00

No. Of

Shares%

HoldingNo. Of

Shares%

HoldingNo. Of

Shares%

Holding

Promoter's holding

Indian Promoters 187933595 41.78 128579405 33.34 128779405 33.40

Sub total 187933595 41.78 128579405 33.34 128779405 33.40Non promoter's holding

Institutional investors

Banks Fin. Inst. andInsurance

68416618

15.21 62195620 16.13 59797758 15.51

FII's 41290737 9.18 57644717 14.95 58781935 15.24

Sub total 115540256 25.69 124779720 32.36 126130346 32.71Other investors

Private CorporateBodies

8871189 1.97 3085547 0.80 3335177 0.86

NRI's/OCB's/ForeignOthers

28452529 6.33 28465436 7.38 28790628 7.47

Directors/Employees 154995 0.03 131009 0.03 118787 0.03

Govt 407181 0.09 407181 0.11 407181 0.11

Others 60347623 13.42 58135967 15.07 56408669 14.63

Sub total 98233517 21.84 90224440 23.39 89059742 23.10

General public 48125291 10.70 42072714 10.91 41648530 10.80

Grand total 449832659 100.00 385656279 100.00 385618023 100.00

Report cardPE ratio 2.72 23/01/09

EPS (Rs) 49.65 Mar, 07

Sales (Rs crore) 7,078.85 Sep, 08

Face Value (Rs) 10

Net profit margin (%) 1.68 Mar, 99

Last bonus 3:5 28/09/95

Last dividend (%) 150 16/05/08

Return on average equity 3.22 Mar, 99


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Capital structure (Rs Crore)From

YearTo Year Class Of

ShareAuthorized

CapitalIssued

CapitalPaid Up

Shares

(Nos)

Paid Up

Face

Value

Paid Up

Capital

2007 2008 EquityShare

450.00 385.50 385503954 10 385.50


450.00 385.37 385373885 10 385.50


410.00 382.83 382834131 10 382.83


400.00 361.75 361751751 10 361.75


400.00 352.96 352958130 10 352.96


350.00 319.89 319784387 10 319.78


350.00 319.89 319782395 10 319.78


350.00 255.92 255856343 10 255.86

The Performance of the Companys Stock Price vis--vis

Sensex and Auto Index


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Ratios (Rs Crore)Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Per share ratios

Adjusted EPS (Rs) 42.91 43.76 35.57 34.08 23.24

Adjusted cash EPS(Rs)

61.50 61.18 51.10 48.38 35.54

Reported EPS (Rs) 52.63 49.65 39.94 34.19 22.96

Reported cash EPS(Rs)

71.22 67.07 55.47 48.49 35.26

Dividend per share 15.00 15.00 13.00 12.50 8.00

Operating profit pershare (Rs)

77.84 67.12 56.06 55.29 48.94

Book value (excl revres) per share (Rs)

202.54 177.33 143.58 113.15 101.08

Book value (incl revres) per share (Rs.)

203.20 178.00 144.26 113.15 101.08

Net operatingincome per share(Rs)

745.47 691.91 524.73 475.44 369.11

Free reserves pershare (Rs)

182.38 157.16 123.34 93.85 81.54

Profitability ratios

Operating margin(%)

10.44 9.70 10.68 11.62 13.25

Gross profit margin

(%)

8.17 7.50 8.09 9.01 10.32

Net profit margin(%)

6.96 6.94 7.35 7.02 6.10

Adjusted cashmargin (%)

8.13 8.55 9.41 9.94 9.45

Adjusted return onnet worth (%)

21.18 24.67 24.77 30.12 22.98

Reported return onnet worth (%)

25.98 28.00 27.81 30.21 22.71

Return on long term

funds (%)

22.73 31.18 28.65 28.72 32.21

Leverage ratios

Long term debt /Equity

0.50 0.31 0.41 0.59 0.32

Total debt/ Equity 0.80 0.58 0.53 0.60 0.35

Owners fund as % oftotal source

55.43 63.05 65.23 62.22 74.02

Fixed assetsturnover ratio

2.68 3.08 2.55 2.62 2.18

Liquidity ratios

Current ratio 0.89 1.24 1.24 0.99 0.72

Current ratio (inc. stloans)

0.64 0.85 1.07 0.98 0.69


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Quick ratio 0.66 0.91 0.96 0.76 0.47

Inventory turnoverratio

14.43 13.26 12.63 14.06 14.91

Payout ratios

Dividend payoutratio (net profit) 32.51 35.34 37.13 41.68 39.27

Dividend payoutratio (cash profit)

24.02 26.16 26.73 29.39 25.57

Earning retentionratio

60.13 59.90 58.31 58.18 61.20

Cash earningsretention ratio

72.18 71.32 70.98 70.54 74.63

Coverage ratiosAdjusted cash flowtime total debt

2.65 1.70 1.50 1.43 1.00

Financial chargescoverage ratio

7.19 7.62 8.08 10.24 8.69

Financial chargescoverage ratio (posttax)

6.82 6.67 7.06 8.49 6.51

Component ratiosMaterial costcomponent (%earnings)

72.69 74.55 72.84 71.19 65.84

Selling costComponent

4.10 4.00 3.78 3.48 3.49

Exports as percentof total sales

9.89 10.18 11.87 8.70 7.80

Import comp. in rawmat. consumed

4.60 3.88 4.64 2.30 2.43

Long term assets /total Assets

0.58 0.45 0.39 0.47 0.62

Bonus component inequity capital (%)

28.86 28.87 29.06 30.76 31.52


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Annual results in brief (Rs Crores)Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03

Sales 31,884.69 24,004.12 20,482.57 15,493.52 10,840.70

Operating profit 3,228.70 2,505.91 2,103.97 1,830.16 1,139.41

Interest 313.07 226.35 154.15 161.26 278.95

Gross profit 3,160.82 2,568.67 2,115.91 1,727.80 878.50

EPS (Rs) 49.65 39.93 34.19 22.71 9.39

Annual results in details (Rs Crores)Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03

Other income 245.19 289.11 166.09 58.90 18.04

Stockadjustment

-349.68 -256.91 -144.00 141.98 -119.74

Raw material 19,374.93 14,263.86 11,929.48 8,341.39 5,699.58

Power and fuel - - - - -

Employeeexpenses

1,367.83 1,143.13 1,039.34 882.49 720.37

Excise 4,349.45 3,401.92 3,063.44 2,270.30 1,743.79

Admin andselling expenses

- - - - -

Research anddevelopmentexpenses

- - - - -

Expenses

capitalized

- - - - -

Other expenses 3,913.46 2,946.21 2,490.34 2,027.20 1,657.29

Provisionsmade

- - - - -

Depreciation 586.29 520.94 450.16 382.60 362.13

Taxation 659.72 524.50 414.95 482.00 210.03

Net profit / loss 1,913.46 1,528.88 1,236.95 810.34 300.34

Extra ordinaryitem

-1.35 5.65 -13.85 -52.86 -6.00

Prior yearadjustments

- - - - -0.23

Equity capital 385.41 382.87 361.79 356.83 319.83Equity dividendrate

- - - - -

Agg. of non-prom. shares(Lacs)

2142.52 2539.98 2447.18 2352.40 2167.77

Agg. of nonpromoteHolding (%)

55.60 66.35 67.65 66.65 67.79

OPM (%) 10.13 10.44 10.27 11.81 10.51

GPM (%) 9.84 10.57 10.25 11.11 8.09NPM (%) 5.96 6.29 5.99 5.21 5.21


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DATA ANALYSIS

Financial analysis refers to an assessment of the viability, stability and profitability ofa business. Profitability is the ability to earn income and sustain growth in both short-term andlong-term. A company's degree of profitability is usually based on the income statements,which reports on the company's results of operations.

Four ratios are used to describe Profitability.

Return on Investment is also known as Return on Assets and Rate Earned on TotalAssets. It is defined as (Return on Investment = Net Profit / Total Assets). It measuresthe earning power of the company's assets and thus the effectiveness of its management.

Return on Sales is also known as Profit Margin. It is defined as (Return on Sales = NetProfit after Taxes / Net Sales). It measures the profit per dollar of sales. The higher this

ratio the better able the firm is able to weather adverse business condition such asfalling prices and rising costs.

Return on Equity also known as Rate Earned on Stockholders Equity and Return onNet Worth. It is defined as (Return on Equity = Net Profit / Equity). This ratio is asclose as one can get on the true performance of a business.

Return on Invested Capital is defined as (Return on Invested Capital = Net Profitafter Taxes/Long Term Debt + Equity).

The company has issued equity capital rather than going for preference share which means

the companys dividend will not be fixed but the company has provided a good amount ofdividend to the share holder which can be seen very well as in 1997 it was 80% which hasincreased up-to 150% in 2008. Even though the company had enough reserves and surplus butstill it has taken loan. The company had a good operating income which shows that thecompany has a sustainable growth. The company has more of loan funds and less of own fundswhich through secured and unsecured loan. The below chart shows the growth of the companyover a period of time were one can clearly see that there has been a tremendous growth interms of performance of the company in various sectors regarding profitability factor.


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The current asset of the firm, as already stated. It represents those assets which can be,in the ordinary course of business, converted into cash within a short period of time. The higherthe current ratio, the larger is the amount of rupees available per rupee of current liability, themore is the firms ability to meet current obligations and the greater is the safety of funds ofshort-term creditors, which could be very well seen in the chart above in the month March 05and March 06.

The turnover ratio is to determine how quick the current short asset can be converted incash by which the liquidity of the firm can be measure where the cost of goods sold meanssales minus gross profit. The ratio indicates how fast inventory is sold. A high ratio is goodfrom the view point of liquidity and vice versa. A low ratio would signify that inventory doesnot sell fast and stays on the shelf or in the warehouse for a long time. Thus, in the years March08, 07 and 04 the ratio is more and which shows that the company has enough liquidity of

cash in hand.


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Gross profit ratio is the relationship between prices, sales volume and cost. A change inthe gross margin can be brought about by changes in any of these factors. The gross marginrepresents the limit beyond which fall in sales prices are outside the tolerance limit. Further,the gross profit ratio can also be used in determining the extent of loss caused by theft,spoilage, damage, and so on in the case of those companies which follow the policy of fixedgross profit margin in pricing their products. A high ratio of grass profit to sales is a sign ofgood management as it implies that the cost of production of the firm is relatively low and a

relatively low gross margin is definitely a danger signal warranting a careful and detailedanalysis of the factors responsible for it. Where in the above chart we can see that in most ofthe year accept one the ratio is relatively high showing the sign of a good management in thecompany.

The above analysis show that the profitability of the company is very well maintainedas the amount of inventory, gross profit margin, current ratio and so on are in a healthy status

by way providing a good picture of the internal management of the company and giving aninvestor a feel free to invest without risk factor.


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CONCLUSION

From the above information we come to know that financial management is veryimportant as it is the life-blood of any organization as it deals with many issues such as forknowing the profitability and for future reference. Financial management has a closerelationship with the financial accounting. It can be done by comparing the balance sheet,deriving the different ratio, knowing the share holdings and capital structure of theorganization.

The financial projections are impossible to be 100% accurate but these projectionsserve a framework to analyse the companys operations in detail and thus understand reasons

for deviations from the forecast. It also reflects the financial strength and stability of theorganization in the market which in turn is helpful for the investors. It also, influences variousaspects such as nature of business, production and supply conditions and the standing in themarket among the other competitors.

The balance sheet shows a picture that the company has a lot of reserves and surplusbut still has the loans are increasing year by year, in most of the years it can be seen that thecurrent liability are more than the current assets. It is most important for the investors that thecompany ratios and the profitability are positive, so that they can invest their amount of sharein the company without having the risk of losing the amount they had invested.

These shows that for a company to proceed with an bright future should have a soundprofitability which reflects the true picture of the company and which would help the companynot only to have good investors investing in the company but also building up the organizationsemployees trust and building a better future for the company.


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LIMITATIONS OF THE STUDY

For me not being a professional, conducting such in-depth analyses is critical. It is hard tosay what percentage of profits represents a profitable firm, as profits depend on such factors as

the position of the company and its products on the competitive life cycle (for example profitswill be lower in the initial years when investment is high), on competitive conditions in theindustry, and on borrowing costs.

Further, it is hard to reach a definite conclusion when some of the ratios are favourable andsome are unfavourable. If a specific ratio is better than the average does not necessarily meanthat the company is doing well; it is quite possible rest of the industry is doing very poorly.Ratios are based on financial statements that reflect the past and not the future. Unless theratios are stable, it may be difficult to make reasonable projections about future trends.

The financial statements such as the balance sheet indicate the picture at one point in

time, and thus may not be representative of longer periods. Financial statements provide anassessment of the costs and not value. For example, fixed assets are usually shown on the

balance sheet as the cost of the assets less their accumulated depreciation, which may notreflect the actual current market value of those assets.


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RECOMMENDATIONS

The ratio analysis and industry analysis are very useful for individuals to instantly assess acompany or industry by making two basic types of comparisons.

First, the analyst can compare a present ratio with past (or expected) ratios for theorganization to determine if there has been an improvement or deterioration or no change overtime.

Second, the ratios of one organization may be compared with similar organizations or withindustry averages at the same point in time. This is a type of "benchmarking" so that one maydetermine whether the organization is "average" in performance or doing better or worse thanothers.


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BIBLIOGRAGHY

www.google.com http://money.rediff.com/money http://www.tatamotors.com/ http://www.tata.com/

Books Referred:- Financial Management by M Y KHAN and P K JAIN.
http://www.google.com/http://www.google.com/http://money.rediff.com/moneyhttp://money.rediff.com/moneyhttp://www.tatamotors.com/http://www.tatamotors.com/http://www.tata.com/http://www.tata.com/http://www.tata.com/http://www.tatamotors.com/http://money.rediff.com/moneyhttp://www.google.com/

Documents

Profitabilty of Tata Motors by Vivek Patel