RATIO ANALISES OF TATA STEEL

Balance sheet & Income Statement of Tata Steel

BALANCE SHEET TATA STEEL

2006-2007 2005-2006 2004-2005
Capital 7,277.30 5,536.70 5,543.70
Reserves 133,684.20 92,016.30 68,763.10
LTL 115,013.50 48,618.60 56,967.70
CL 54,536.60 38,087.20 45,752.30
Total 310,511.60 184,258.80 177,026.80
Fixed Assets 110,405.60 98,650.50 98,189.20
Investments 61,061.80 40,699.60 25,941.80
CA 139,044.20 44,908.70 52,902.10
Total 310,511.60 184,258.80 177,033.10
INCOME STATEMENT TATA STEEL
2006-2007 2006-2007 2006-2007
Sales 175,520.20 202,444.30 159,986.10
COGS 91,713.90 67,057.60 41,648.30
Operating Expenses 10,606.90 69,771.50 55,413.80
Depreciation 8,843.90 8,910.10 6,518.30
PBIT 64,355.50 56,705.10 56,405.70
Interest 1,739.00 1,555.30 1,981.30
PBT 62,616.50 55,149.80 54,424.40
Tax 20,395.00 17,939.10 18,712.40
PAT 42,221.50 37,210.70 35,712.00
 Ratio Analysis

Liquidity Ratios:

Ability of the firm to meet short term obligation comes from holding of
liquid assets which are readily convertible into cash. It is the
responsibility of the treasury manager to maintain the right balance
between investments and liabilities to get the maximum liquidity. It
involves constant monitoring of cash flow position. We will analyze the
two popular measures of the liquidity of the company.

Current Ratio:
Current Ratio = Current Assets / Current Liabilities

Quick ratio:
Quick ratio = (Current assets - Inventories) / Current Liabilities.

Also known as the acid test ratio, it is a stringent test that indicates if a
firm has enough short-term assets (without selling inventory) to cover its
immediate liabilities. It is similar but a more strenuous version of the
"working capital" ratio, indicating whether liabilities could be paid
without selling inventory. It s more reliable then current ratio because it
considers only the most liquid assets and does not include the hidden
factors like window dressing that may skew the actual scenario

2007 2006 2005

CA 139044.20 44908.70 52902.10
CL 54536.60 38087.20 45752.30
Debtors 6316.30 12187.20 13240.70
Inventories 38881.30 27733.10 24899.00
Current Ratio 2.55 1.18 1.16
Liquid Ratio 1.84 0.45 0.61
Absolute Cash Ratio 1.72 0.13 0.32

There has been a substantial increase in cash items in Current Assets for
the year 2006-2007. This accounts for almost 80% of the increase in
Current Assets. This has led to the substantial increase in Liquidity ratios
for the year 2006-2007
Working Capital:
Working Capital = Current Assets – Current Liabilities

2007 2006 2005

CA 139044.20 44908.70 52902.10
CL 54536.60 38087.20 45752.30
WC 84507.60 6821.50 7149.80
Working Capital is showing a significant rise during the year due to
borrowings to the tune of Rs. 80436 million.

Efficiency ratios:
It measures the quality of a business' receivables and how efficiently it
uses and controls its assets, how effectively the firm is paying suppliers,
and whether the business is overtrading or under trading on its equity
(using borrowed funds).

Debtor Days:
(Total Debtors/Total Sales) * 365

This ratio actually indicates the no. of days of sales that are on the
balance sheet of the company as debtors. This ratio is expressed in no. of
days. A higher debtor day s ratio signifies general problems in the
collection of funds faced by the company or the financial position of the
debtors.

2007 2006 2005

Debt 6316.30 12187.20 13240.70
Sales 175520.20 202444.30 159986.10
Debtor Days 13.13 21.97 30.21

Creditor Days:
(Total No. of Creditors/Total Purchases)*365

This ratio indicates the no. of days of purchases that are on the
balance sheet of the company as creditors. Expressed as no. of days, a
lower creditor day s ratio signifies that the company is liberal in paying
its creditors and follows a policy of paying them at a faster rate.
 2007 2006 2005
Creditors 17915.90 11076.60 10703.20
Purchases per day 62.00 47.62 35.31
Creditor Days 288.96 232.61 303.09

Solvency Ratios:
It’s the company’s ability to meet long term liability. Also called the
capital structure it is one of the major financing decisions for the
company. A proper mix of equity and debt is said to be always beneficial
for the company rather than pure equity. Existence of debts disciplines
management to some extent. We will have a look at few of the solvency
ratios for Tata Steel.

DER: Debt to Equity Ratio

DER = Long-term debt / Shareholders Equity

2007 2006 2005

Debt 93953.30 21917.40 30434.80
Equity 140961.50 97553.00 74306.80
DER 0.68 0.26 0.45

Interest Coverage Ratio

ICR = (PBIT) / Interest

2007 2006 2005

PBIT 64355.50 56705.10 56405.70
Interest 1739.00 1555.30 1981.30
ICR 64355.50 56705.10 56405.70

Profitability Ratios:
Profitability Ratios show how successful a company is in terms of
generating returns or profits on the Investment that it has made in the
business i.e. the Profitability ratios speak about the profitability of the
company. The higher these ratios the better it is for the company.

Operating Profit Margin ratio

Profit Before Interest and Tax (PBIT) / Net Sales x 100%

2007 2006 2005

Sales 175520.20 202444.30 159986.10
PBIT 64355.50 56705.10 56405.70
Operating profit margin 36.67 28.01 35.26
ratio (%)

Net Profit Margin ratio

Profit After Tax (PAT) / Net Sales x 100%

Particulars Year1 Year2 Year3

Sales 175520.20 202444.30 159986.10
PAT 42221.50 37210.70 35712.00
Net Profit Margin Ratio(%) 24.06 18.38 22.32

Return on Total Assets (ROTA) ratio:

Profit Before Interest and Tax (PBIT) / Total Assets x 100%

tells us how well management is performing on all the firm's resources.

However, it does not tell how well they are performing for the
stockholders. The ROTA of a company determines its ability to utilize
the Assets employed in the company efficiently and effectively to earn a
good return. The ratio measures the percentage of profits earned per
Rupee of Asset and thus is a measure of efficiency of the company in
generating profits on its Assets.

Particulars 2007 2006 2005

PBIT 64355.50 56705.10 56405.70
Total Assets 310511.60 184258.80 177033.10
ROTA(%) 0.21 0.31 0.32
Return on Capital Employed (ROCE) ratio:

Profit Before Interest and Tax (PBIT) / Capital

Employed x 100%

explains the overall utilization of funds by a business enterprise. It says

how much profits we earn from the amount invested by the Shareholders.
Capital Employed means the long-term funds employed in the business
and includes the shareholder s fund, debentures and long-term loans.
Profit before Interest and Tax is considered for computation of this ratio
to make numerator and denominator consistent.

Where, Capital Employed = Owner s Fund (Share Capital plus Reserves

& Surplus) + Long-term Debt.

Particulars 2007 2006 2005

PBIT 64355.50 56705.10 56405.70
Net worth 138936.20 95020.30 68451.00
Capital Employed 253949.70 143638.90 119284.80
ROCE 0.25 0.39 0.47

Return on Net worth(RONW)

=PAT/ Net worth
it is also known as shareholders fund. Net worth funds are also referred
to as net assets. It is the excess of the book value of assets of an enterprise
over its liabilities. Alternatively, it includes share capital, reserves and
surplus. It is also the proprietors net capital employed. The return shall be
calculated with reference to profit after interest and tax.
Particulars 2007 2006 2005
PAT 42221.50 37210.70 35712.00
Net worth 138936.20 95020.30 68451.00
Return On Networth(%) 0.30 0.39 0.52