Chapter-1

INTRODUCTION

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1.1 General Introduction About The Sector

 STEEL INDUSTRY IN INDIA

India is the world’s third-largest producer of crude steel (up from eighth in 2003) and is expected
to become the second-largest producer by 2016. The growth in the Indian steel sector has been
driven by domestic availability of raw materials such as iron ore and cost-effective labor.
Consequently, the steel sector has been a major contributor to India’s manufacturing output.
The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for
continuous modernization and up-gradation of older plants and higher energy efficiency levels.
1.2 Industry Profile

 Origin and development of the industry

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior
to steel, iron was a very popular metal and it was used all over the globe. Even the time period of
around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that
period in each and every part of life. But, with the change in time and technology, people were
able to find an even stronger and harder material than iron that was steel. Using iron had some
disadvantages but this alloy of iron and carbon fulfilled all that iron couldn‘t do. The Chinese
people invented steel as it was harder than iron and it could serve better if it is used in making
weapons. One legend says that the sword of the first Han emperor was made of steel only. From
China, the process of making steel from iron spread to its south and reached India. High quality
steel was being produced in southern India in as early as 300 BC. Most of the steel then was
exported from Asia only. Around 9th century AD, the smiths in the Middle East developed
techniques to produce sharp and flexible steel 26 blades. In the 17th century, smiths in Europe
came to know about a new process of cementation to produce steel. Also, other new and
improved technologies were gradually developed and steel soon became the key factor on which
most of the economies of the world started depending.

 Growth and present status of the industry

Present status of the Indian Steel industry Steel is primarily a raw material based industry as for
the production of one tonne of steel; an integrated plant consumes 4 tonnes of raw materials.
India with its abundant availability of high grade Iron ore, the requisite technical base and cheap
skilled labor is thus well placed for the development of steel industry and to provide a strong
manufacturing base for the metallurgical industries. However, despite the recent euphoria the
industry could not make much headway in the past decade. India presently accounts for less than
5% of the global output of Finished Steel and 1% of global trade. The per capita consumption is
27 kg. Is also well below even the Asian average of 128 kg. China on the other hand shall

2
consume 280 million tonnes of Steel in 2003, including 30 million tonnes through imports
against the total consumption of 30 million tonnes by India.

Chinese Steel Association has projected that consumption of Steel shall rise to 300
million tonnes in the next five years. Chinese Steel and metallurgical industries have provided a
major thrust to the economic development, GDP growth and generation of massive employment
opportunities. The revival in the global demand and the prices since March 2002 has improved
the profitability of the integrated producers in India though the non-integrated or the secondary
producers accounting for over 50% output of the Finished Steel but without any captive mines
have not gained much due to the sharp rise in the prices of Melting scrap, Sponge Iron, Coke,
Iron Ore and other inputs. Besides, the growth has been mainly export based, boosted by the high
global prices and liberal export incentives.

The export of Finished steel rose by 36% in 2002-03 and 32% in April-Sept. 2003 vis-à-
vis the past year but the domestic consumption increased by only 6% and 3.4%, respectively.
The shortages and frequent and sharp hikes in the domestic prices also hit the value chain and
economic viability of a wide range of industries and the construction projects. The domestic
consumption of several key downstream products like Galvanized sheets, Cold Rolled Sheets,
Plates and Tinplate in fact consequently sharply declined during 2002-03 and April-Sept. 2003 as
market for the industrial and consumer products was unable to absorb the price hikes.

 Future of the industry

The Arcelor Mittal, which is the largest steelmaker in the world, has plans of establishing two
Greenfield steel projects with capacity of 12 million tonnes annually, in India.

 Acerinox SA, one of the important stainless steel manufacturers in collaboration with Nisshin
Steel, Japan is setting up a steel plant in India.

 The Tata Steel ranks 5th in the world steel production and the company have plans of
expanding its capacity by the year 2015.

 SAIL, India's biggest producer of steel has plans of increasing the production to 24.98 million
tonnes annually.

 Sino steel Corp, China is planning to invest US$ 4 billion to set up a 5 million tonnes capacity
Greenfield steel plant.

 The acquisition of the Corus, the Anglo-Dutch steel manufacturer by the Tata Steel.

 The Algoma Steel, Canada was acquired by Essar Global for US$ 1.63 billion.

3
Figure 1

4
 Chapter-2
PROFILE OF THE
ORGANISATION

5
2.1 Introduction
 TATA STEEL INDUSTRY IN INDIA

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is
an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India,
and a subsidiary of the Tata Group. It was the 11th largest steel producing company in the
world in 2013, with an annual crude steel capacity of 25.3 million tonnes, and the second largest
private-sector steel company in India (measured by domestic production) with an annual capacity
of 9.7 million tonnes after SAIL.

Tata Steel has manufacturing operations in 26 countries, including Australia, China, India, the
Netherlands, Singapore, Thailand and the United Kingdom, and employs around 80,500
people. Its largest plant is located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the
UK-based steel maker Corus which was the largest international acquisition by an Indian
company till that date.
It was ranked 471st in the 2013 Fortune Global 500 ranking of the world's biggest
corporations. It was the seventh most valuable Indian brand of 2013 as per Brand Finance.

On February 12, 2012 Tata Steel completed 100 years of steel making in India.

2.2Origin of the organization

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior
to steel, iron was a very popular metal and it was used all over the globe. Even the time period of
around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that
period in each and every part of life. But, with the change in time and technology, people were
able to find an even stronger and harder material than iron that was steel. Using iron had some
disadvantages but this alloy of iron and carbon fulfilled all that iron couldn‘t do. The Chinese
people invented steel as it was harder than iron and it could serve better if it is used in making
weapons. One legend says that the sword of the first Han emperor was made of steel only. From
China, the process of making steel from iron spread to its south and reached India. High quality
steel was being produced in southern India in as early as 300 BC. Most of the steel then was
exported from Asia only. Around 9th century AD, the smiths in the Middle East developed
techniques to produce sharp and flexible steel 26 blades. In the 17th century, smiths in Europe

6
came to know about a new process of cementation to produce steel. Also, other new and
improved technologies were gradually developed and steel soon became the key factor on which
most of the economies of the world started depending.

Tata Iron and Steel Company were established by Dorabji Tata on August 25, 1907, as part of
his father Jamsetji's Tata Group. By 1939 it operated the largest steel plant in the British Empire.
T h e company manufactures finished steel, both long and flat products like hot
and cold rolled coils and sheets, galvanized sheets,
t u b e s , w i r e r o d s , construction re-bars rings and bearings. The company markets its
products in brands like "Tata Steelium, Tata Tiscon, Tata Pipes, etc. The company is a m o n g
t h e l o w e s t c o s t p r o d u c e r s o f s t e e l i n t h e w o r l d . I t s m a i n p l a n t i s located in
Jamshedpur, having a manufacturing capacity of 5 MTPA (million tonne per annum) while it
processing units, captive iron ore and coal mines are located in the states of Orissa, Jharkhand,
Maharashtra, Gujarat and West B e n g a l . W i t h i t s h e a d o f f i c e l o c a t e d i n M u m b a i ,
t h e c o m p a n y f u n c t i o n s through a network consisting of trading arms and
operation and projects sites spread across countries in the continents of Asia, Europe and
America. A p a r t f r o m S t e e l t h e r e a r e s i x S t r a t e g i c B u s i n e s s U n i t s o r
d i v i s i o n s f o r Bearings, Ferro Alloys and Minerals, Rings and Agrico, Tata Growth Shop,
Tubes, and Wires.

Figure 2

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 2.3 Growth and development of the organization
NatSteel in 2004:
In August 2004, Tata Steel agreed to acquire the steelmaking operations of the Singapore based
NatSteel for $486.4 million in cash. NatSteel had ended 2003 with turnover of $1.4 billion and a
profit before tax of $47 million. The steel businesses of NatSteel would be run by the company
through a wholly owned subsidiary called NatSteel Asia Pvt. Ltd. The acquisition was completed
in February 2005. At the time of acquisition, NatSteel had a capacity of about 2 million tonnes
per annum of finished steel.

Millennium Steel in 2005:

Tata Steel acquired a majority stake in the Thailand-based steelmaker Millennium Steel for a
total cost of $130 million. It paid US$ 73 million to Siam Cement for a 40% stake and offered to
pay 1.13 baht per share for another 25% of the shares of other shareholders. For the year 2004,
Millennium Steel had revenues of US$406 million and a profit after tax of US$29 million. At the
time of acquisition, Millennium Steel was the largest steel company in Thailand with a capacity
of 1.7 million metric tonnes per annum, producing long products for construction and
engineering steel for auto industries. Millennium Steel has now been renamed to Tata Steel
Thailand and is headquartered in Bangkok. On March 31, 2013, it held approx. 68% shares in the
acquired company.

Corus in 2007:
On 20 October 2006, Tata Steel signed a deal with Anglo-Dutch company, Corus to buy 100%
stake at £4.3bn ($8.1 billion) at 455 pence per share. On 19 November 2006, the Brazilian steel
company Companhia Siderúrgica Nacional (CSN) launched a counter offer for Corus at 475
pence per share, valuing it at £4.5 billion. On 11 December 2006, Tata preemptively upped its
offer to 500 pence per share, which was within hours trumped by CSN's offer of 515 pence per
share, valuing the deal at £4.9 billion. The Corus board promptly recommended both the revised
offers to its shareholders. On 31 January 2007, Tata Steel won their bid for Corus after offering
608 pence per share, valuing Corus at £6.7 billion ($12 billion).
In 2005, Corus employed around 47,300 people worldwide, including 24,000 in the UK. At the
time of acquisition, Corus was four times larger than Tata Steel; in terms of annual steel
production. Corus was the world's 9th largest producer of Steel, whereas Tata Steel was at 56th
position. The acquisition made Tata Steel world's 5th largest producer of Steel.

8
Rolling mill companies in Vietnam in 2007:
Tata Steel through its wholly owned Singapore subsidiary, NatSteel Asia Pvt. Ltd, acquired
controlling stake in two rolling mill companies located in Vietnam: Structure Steel Engineering
Pvt. Ltd (100% stake) and Vinausteel Ltd. (70% stake). The enterprise value for the acquisition
was $41 million. With this acquisition, Tata Steel got hold of two rolling mills, a 250k tonnes per
year bar/wire rod mill operated by SSE Steel Ltd and a 180k tonnes per year reinforcing bar mill
operated by Vinausteel Ltd...

2.4 Present status of the organization

Tata Steel is headquartered in Mumbai, Maharashtra, India and has its marketing headquarters at
the Tata Centre in Kolkata, West Bengal. It has a presence in around 50 countries with
manufacturing operations in 26 countries including: India, Malaysia, Vietnam, Thailand, UAE,
Ivory Coast, Mozambique, South Africa, Australia, United Kingdom, The Netherlands, France
and Canada.
Tata Steel primarily serves customers in the automotive, construction, consumer goods,
engineering, packaging, lifting and excavating, energy and power, aerospace, shipbuilding, rail
and defense and security sectors.

Expansion plans
Tata Steel has set a target of achieving an annual production capacity of 100 million tons by
2015; it is planning for capacity expansion to be balanced roughly 50:50 between Greenfield
developments and acquisitions. Overseas acquisitions have already added an additional 21.4
million tonnes of capacity, including Corus (18.2 million tonnes), NatSteel (2 million tonnes)
and Millennium Steel (1.2 million tonnes). Tata plans to add another 29 million tonnes of
capacity through acquisitions.

Major Greenfield steel plant expansion projects planned by Tata Steel include:

 A 6 million tonne per annum capacity plant in Kalinganagar, Odisha, India;

 An expansion of the capacity of its plant in Jharkhand, India from 6.8 to 10 million tonnes
per annum;

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 A 5 million tonne per annum capacity plant in Chhattisgarh, India (Tata Steel signed a
memorandum of understanding with the Chhattisgarh government in 2005; the plant is facing
strong protest from tribal people);
 A 3 million tonne per annum capacity plant in Iran;
 A 2.4 million tonne per annum capacity plant in Bangladesh;
 A 10.5 million tonne per annum capacity plant in Vietnam (feasibility studies are underway);
and
 A 6 million tonne per annum capacity plant in Haveri, Karnataka.

1.4Product and Service profile of the Organization/Competitors

Tata Steel's major competitors include:

1. Arcelor Mittal
2. Essar Steel
3. JSW Steel
4. SAIL
5. VISA Steel.

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 Figure 3

2.4Functional Department of the Organization

The operations and successes of the Tata Steel Group are taken care of by its capable
management and Board of Directors. At the helm of affairs are the Company’s Directors, whose
profiles offer a brief introduction and help get acquainted with them.

Name Designation
Cyrus P Mistry Chairman
T V Narendran Managing Director
Andrew Robb Director
Nusli N Wadia Director
Karl-Ulrich Koehler Director
Subodh Bhargava Director
Director
Jacobus Schraven

Name Designation
B Muthuraman Vice Chairman
Koushik Chatterjee Executive Director
Mallika Srinivasan Director
D K Mehrotra Director
O P Bhatt Director
Ishaat Hussain Director

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2.5Organizational Chart

Figure 4

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 Chapter-3
Study of the
Research problem

13
3.1 Statement of the problem

To identify the area of financial strength and financial weakness of the steel industry in India by
analyzing the financial health in terms of the liquidity position, solvency position, efficiency
position and the profitability position of the company by using the technique of Ratio Analysis.

3.2 Statement of the Research Objectives

 To know the short term liquidity position of the major players in the Tata Steel Industry.
 To know the profitability position of the major players in the Tata Steel Industry.
 To know the solvency position of the major players in the Tata Steel Industry.
 To know the efficiency position of the major players in the Tata Steel Industry.

3.3 Research design and methodology

 Collection of Data
Basically the data for the study have been collected from secondary sources. The secondary
source is comprised, Annual reports of Tata steel limited, publication and research publications
relevant to the study. With the advancement of information technology, it was to gather wide
range of information through Internet. A number of websites are looked into for the study. Data
has been collected for a period of 3 years, i.e. from 2011-12 to 2013-14. Because of the
reluctance on the part of the company to part with information, in certain cases, data need of the
study has been curtailed.

 Method of study
Various tools and techniques have been used to fulfill the aforesaid objectives. A thorough study
of the organization has been along with in depth study of the functioning of finance Department
of Tata steel limited.

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  Universe of study
For the present study, the universe of study is Tata steel Ltd, which represents steel industry of
India.

 Period of study

The period of the present study is 3 years, from 2011-12 to 2013-14.

 Advantages of Ratio analysis

The advantages derived by an enterprise by the use of accounting ratios are:

1) Useful in analysis of financial statements: Bankers, investors, creditors, etc. analysis

balance sheets and profit and loss accounts by means of ratios.

2) Useful in simplifying accounting figures: Accounting ratio simplifies summarizes and

systematizes a long array of accounting figures to make them understandable. In the words of
Biramn and Dribin, “Financial ratios are useful because they summarize briefly the results of
detailed and complicated computation”

3) Useful in judging the operating efficiency of business: Accounting Ratio is also useful for
diagnosis of the financial health of the enterprise. This is done by evaluating liquidity, solvency,
profitability etc. Such an evaluation enables management to access financial requirements and
the capabilities of various business units.

4) Useful for forecasting: Helpful in business planning, forecasting. What should be the course
of action in the immediate future is decided on the basis of trend ratios, i.e., ratio calculated for
number of years.

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  Limitation of ratio analysis

1) False Results: If Financial Statements are not correct Financial Ratio Analysis will also be
correct.

2) Different meanings are put on different terms: Elements and sun-elements are not uniquely
defined. An enterprise may work out ratios on the basis of profit after Tax and interest while
others work on profit before interest and Tax .So, the Ratios will also be different so cannot be
compared. But before comparison is to be done the basis for calculation of ratio should be same.

3) Not comparable: If different firm’s follow different accounting Policies. Two enterprises
may follow different Policies like some enterprises may charge depreciation at straight line basis
while others charge at diminishing value. Such differences may adversely affect the comparison
of the financial statements.

4) Effect of Price level changes: Normally no consideration is given to price level changes in
the accounting variables from which ratios are computed. Changes in price level affect the
comparability of Ratios. This handicaps the utility of accounting ratios.

 Classification of Ratio Analysis

Ratio as a tool of analysis may be classified into the following four categories:
A. Liquidity Ratios
B. Solvency Ratios
C. Activity Ratios
D. Profitability Ratios

Ratios are further classified in these categories:

A. Liquidity Ratios
1. Current Ratio
2. Quick Ratio

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 B. Solvency Ratios
1. Debt-Equity Ratio
2. Total Asset to Debt Ratio
3. Proprietary Ratio
4. Interest Coverage Ratio

C. Activity Ratio
1. Stock Turnover Ratio
2. Debtors Turnover Ratio
3. Creditors Turnover Ratio
4. Working Turnover Ratio

D. Profitability Ratio
1. Gross Profit Ratio
2. Net Profit Ratio
3. Operating Ratio
4. Operating Profit Ratio
5. Return on Investment

Liquidity Ratio

1. Current Ratio
Current ratio = Current Assets
Current Liabilities
Objectives:

The objective of calculating Current Ratio is to assess the ability of the enterprise to meet its
short-term liabilities promptly. It shows the number of times the current assets can be converted
into cash to meet current liabilities. As a normal rule current assets should be twice the current
liabilities. Low ratio indicates inadequacy of the enterprise to meet its current liabilities and
inadequate working Capital. High Ratio is an indication of inefficient utilization of funds. An

17
enterprise should have a reasonable current ratio. Although there is no hard and fast rule yet a
current ratio of 2:1 is considered satisfactory.

2. Quick Ratio

Quick Ratio= Quick Assets

Current Liabilities

Objectives:

Liquid assets are the assets, which are either in the form of cash or cash equivalent or can be
converted into cash within a very short period. Liquid assets include cash, bills receivable,
marketable securities and debtors (excluding bad and Doubtful debts), etc. Stock is excluded
from liquid assets as it may take some time before it is converted into cash. Similarly prepaid
expenses do not provide cash at all and are thus excluded from liquid assets.

A quick ratio of 1:1 is usually considered favorable, since for every rupee of current liabilities,
there is a rupee of current assets.

Solvency Ratio

1. Debt-Equity Ratio

Debt-equity ratio= Total Debt

Total Equity

Objectives:

This ratio is significant to access the soundness of long –term financial position. It also indicates
the extent to which firm depends upon outsiders for its existence. It portrays the proportion of
total funds acquired by a firm by way of loans. Debt-Equity Ratio is 2:1 which means debt can
be twice the equity.

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 2. Total Assets to Debt Ratio

Total Assets to Debt Ratio= Total Liabilities

Total Assets

Objectives:

Ideal Ratio is 2:1.

It measures the safety margin available to the providers of long- term debts. A higher ratio
represents higher security to lenders for extending long-term loans to the business. On the other
hand, a low ratio represents a risky financial position as it means that the business depends
heavily on outside loans for its existence. In other words, investment by the proprietors is low.

3. Proprietary Ratio

Proprietary ratio= Proprietor’s funds or Shareholder’s funds

Total Assets(excluding fictitious assets)

Objectives:

It is to measure the proportion of total assets financed by Equity or Proprietor’s funds. This ratio
highlights the general financial position of the enterprise. This ratio is important for creditors
who can ascertain the proportion of shareholder’s funds in the total assets employed in the firm.
A high ratio indicates adequate safety for creditors, but a very high ratio indicates improper mix
of proprietor’s fund and loan funds, which results in lower return on investment. It is because on
loans funds, interest is deductible as an expense, thus the enterprise does not pay income tax
thereon. A low ratio indicates inadequacy or low safety cover for the creditors. It may lead to
unwillingness of creditors to extend credit to the enterprise.

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 3. Interest Coverage Ratio

Interest coverage ratio =Net Profit before Interest and Tax

Interest

Objective:

This ratio is very meaningful to debenture holders and lenders of long-term credit. The objective
of calculating this ratio is to ascertain the amount of profit available to cover the interest charge.
A high ratio is considered to be better for the lenders as it indicates higher safety margin for
them.

Activity Ratios

1. Stock Turnover Ratio

Stock turnover ratio = Cost of Goods Sold

Average Stock

Objectives:

It is to ascertain whether investment in stock has been judicious or not, i.e., that only the required amount
is invested in stock.

2. Debtor’s Turnover Ratio

Debtor’s turnover ratio = Net Credit Sales

Average Debtors

Objectives:

This ratio indicates the number of times the receivables are turned over in a year in relation to
sales. It shows how quickly debtors are converted into cash and thus, indicates the efficiency of
the staff entrusted with collection of amount due form debtors. A high ratio is better since it
would indicate that debts are being collected more promptly.

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 3. Creditors’ Turnover Ratio

Creditors turnover ratio = Net Credit Purchases

Average Payables

Objectives:

It is to establish the number of times the creditors are turned over in relation to purchases. A high
turnover ratio shows the availability of less credit or early payments. A high ratio also indicates
that the enterprise is not availing the full credit period. This boosts up the credit worthiness of the
firm. A very low turnover ratio implies the availability of more credit or delayed payments.

4. Working Capital Turnover Ratio

Working capital ratio = Net Sales

Working Capital

Objectives:

It is to ascertain whether or not working capital has been effectively utilized in making sales.

Higher the ratio, the better it is. But, a very high ratio may indicate overtrading-the working
capital being inadequate for the scale of operations.

Profitability Ratios

1. Gross Profit

Gross profit = Gross Profit *100

Net Sales

Objectives:

It is to determine the selling price so that there is adequate gross profit to cover the operating
expenses, fixed charges, dividends and building up reserves.

21
It is to determine how much the selling price per unit may decline without resulting in losses on
operations of the firms.

Gross profit ratio, when compared to earlier years, if significantly different is the reason for the
management to investigate the change.

2. Operating Ratio

Operating ratio = Cost of Goods Sold + Operating Expenses *100

Net Sales

Objectives:

It is the test of operational efficiency of the business. It is that it determines whether the cost of
sales has increased, decreased or has remained stagnant.

3. Operating Profit Ratio

Operating profit ratio= Operating Profit *100

Net Sales

Objectives:

It is to determine the operational efficiency of the management. An increase in the ratio over the
previous period shows improvement in the operational efficiency of the business. This ratio is
widely used as an effective measure to judge the profitability of the concern.

4. Net Profit

Net profit ratio = Net Profit *100

Net Sales

Objectives:

It is an indicator of overall efficiency of the business. Higher the net profit, better the business.
This ratio helps in determining the operational efficiency of the business. An increase in the ratio
over the previous shows improvement in the operational efficiency and decline means otherwise.

22
 ii. Cash Flow

Cash flow is the movement of money into or out of a business, project, or financial product.
It is usually measured during a specified, limited period of time. Measurement of cash flow can
be used for calculating other parameters that give information on a company's value and
situation. Cash flow can be used, for example, for calculating parameters: it discloses cash
movements over the period.

 To determine a project's rate of return or value. The time of cash flows into and out of
projects are used as inputs in financial models such as internal rate of return and net present
value.
 To determine problems with a business's liquidity. Being profitable does not necessarily
mean being liquid. A company can fail because of a shortage of cash even while profitable.
 As an alternative measure of a business's profits when it is believed that accrual
accounting concepts do not represent economic realities. For instance, a company may be
notionally profitable but generating little operational cash (as may be the case for a company
that barters its products rather than selling for cash). In such a case, the company may be
deriving additional operating cash by issuing shares or raising additional debt finance.
 Cash flow can be used to evaluate the 'quality' of income generated by accrual accounting.
When net income is composed of large non-cash items it is considered low quality.
 To evaluate the risks within a financial product, e.g., matching cash requirements, evaluating
default risk, re-investment requirements, etc.
Cash flow notion is based loosely on cash flow statement accounting standards. It's flexible as it
can refer to time intervals spanning over past-future. It can refer to the total of all flows involved
or a subset of those flows. Subset terms include net cash flow, operating cash flow and free cash
flow.

iii. Comparative Analysis

Comparative analysis means comparative study of components of financial statements(balance

sheet and profit and loss account) for two or more years or with that of other enterprises. As a
first step, each component of financial statements of two or more financial years is placed
alongside each other.

Comparative financial statement is the tool of financial analysis that depicts change in each item
of financial statement in absolute amount and in percentage terms, taking the amounts for the
preceding accounting period as the base.

23
The data and information that are compared are presented ina manner that there is no
dissimilarity between them since a comparison between dissimilar data would make the analysis
meaningless.

The item-by-item comparison of two or more comparable

lternatives, processes, products, qualifications, sets of data, systems, or the like. In accounting,
for example, changes in a financial statement's items over several accounting periods may be
presented together to detect the emerging trends in the company's operations and result.

iv. Trend Analysis

Trend Analysis is the practice of collecting information and attempting to spot a pattern,
or trend, in the information. In some fields of study, the term "trend analysis" has more formally
defined meanings.
Although trend analysis is often used to predict future events, it could be used to estimate
uncertain events in the past, such as how many ancient kings probably ruled between two dates,
based on data such as the average years which other known kings reigned.

24
 Chapter-4

FINANCIAL ANALYSIS

25
 1. Ratio Analysis
Current Ratio

Current ratio is a relationship of current assets to current liabilities and is computed to assets the
short-term financial position of the enterprise.

Current ratio = Current Assets

Current Liabilities

Year 2015 2014 2013

Current ratio 0.71 0.61 0.70

Source: Annual Report of Tata Steel Limited

current ratio

0.72

0.7

0.68

0.66

0.64 current ratio

0.62

0.6

0.58

0.56
2015 2014 2013

Graph 1

The current ratio is a financial ratio that measures whether or not the firm enough resources to
pay its debts over the next 12 months. It compares a firm’s current assets to its current liabilities.
Tata steel has a high amount of unutilized current assets. The company has a high level of
inventory or work in progress. Since the demand for steel has been reduced drastically the
company is having huge inventory and because of this liquid ratio is low.

26
 Debtors Turnover Ratio

Debtor’s Turnover ratio establishes the relationship between net credit sales and average debtors
of the year.

Debtor’s turnover ratio = Net Credit Sales

Average Debtors

Year 2015 2014 2013

Debtors turnover ratio 66.21 53.21 44.91

Source: Annual Report Of Tata Steel Limited

Debtors Turnover Ratio

70

60

50

40

30

20

10

0
2015 2014 2013

Graph 2

Debtor’s turnover ratio is a financial ratio that shows the relationship between net credit sales
and average debtors of the years. Debtors are converted into cash which shows the efficiency. A
ratio lower than the standard would indicate inefficiency in collection and more investment in
debtors.

27
 Interest coverage ratio

This ratio establishes the relationship between the net profit before and tax and interest payable
on long-term debts.

Interest coverage ratio =Net Profit before Interest and Tax

Interest

YEAR 2015 2014 2013

INTEREST 4.35 6.41 5.53
TURNOVER RATIO

Source: Annual Report of Tata Steel Limited

INTEREST COVERAGE RATIO

0
2015 2014 2013

Graph 3

Interest coverage ratio establishes the relationship between the net profit before interest and tax
and interest payable on long-term debts. This ratio is very meaningful to debenture holders and
lenders of long-term credit. A high ratio is considered to be better for the lenders as it indicates
higher safety margin for them.

28
 Stock Turnover Ratio/Inventory Turnover Ratio

This ratio establishes relationship between the cost of goods sold during a given period and the
average amount of inventory carried during that period.

Stock turnover ratio = Cost of Goods Sold

Average Stock

Year 2015 2014 2013

Stock turnover ratio 5.79 7.71 8.05

Source: Annual Report of Tata Steel Limited

Stock Turnover Ratio (in days)

9
8
7
6
5
Stock Turnover Ratio (in days)
4
3
2
1
0
2015 2014 2013

Graph 4

Stock turnover ratio establishes relationship between the cost of good sales during a given period
and average amount of inventory carried during that period. A high ratio indicates that more
sales are being produced by a rupee of investment in stocks. A very high ratio indicates
overtrading and it may lead to working capital shortage.

29
 Debt-Equity Ratio

Debt-Equity Ratio is computed to ascertain soundness of the long-term financial position of the
firm. This ratio expresses a relationship between debt (external equities) and the equity (internal
equalities).

Debt-equity ratio= Total Debt

Total Equity

Year 2015 2014 2013

Debt-Equity Ratio 0.39 0.43 0.47

Source: Annual Report of Tata Steel Limited

Debt-Equity Ratio

0.5
0.45
0.4
0.35
0.3
0.25 Debt-Equity Ratio
0.2
0.15
0.1
0.05
0
2015 2014 2013

Graph 5

Debt-Equity Ratio is computed to ascertain the soundness of the long-term financial position of
the firm. This ratio expresses a relationship between debt and equity. A higher ratio indicates a
risky financial position while a lower ratio indicates safer financial position. A low ratio implies
the use of more equity than debt which means a larger safer margin for creditors.

30
 Assets Turnover Ratio

Total Assets is the sum of all assets, current and fixed. The asset turnover ratio measures the
ability of a company to use its assets to efficiently generate sales. The higher the ratio indicates
that the company is utilizing all its assets efficiently to generate sales. Companies with low profit
margins tend to have high asset turnover.

Year 2015 2014 2013

Assets turnover ratio 0.46 0.50 0.49

Source: Annual Report of Tata Steel Limited

Earning Per Share

0.5

0.49

0.48

0.47 Earning Per Share

0.46

0.45

0.44
2015 2014 2013

Graph 6

31
 Dividend per share

The sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the
total dividends paid out over an entire year (including interim dividends but not including special
dividends) divided by the number of outstanding ordinary shares issued.

Dividend per Share (DPS) = Dividends paid to equity shareholders / Number of issued equity
shares

Year 2015 2014 2013

DPS 8.00 10.00 8.00

Source: Annual Report of Tata Steel Limited

Dividend per share

1000%
900%
800%
700%
600%
500% Dividend per share
400%
300%
200%
100%
0%
2015 2014 2013

Graph 7

Since investors want to see a steady stream of sustainable dividends from a company, the
dividend payout ratio analysis is important. A company that has a downward trend of payouts is
alarming to investors. For example, if a company's ratio has fallen a percentage each year for the
last five years might indicate that the company can no longer afford to pay such high dividends.
This could be an indication of poor operating performance.

32
RATIO ANALYSIS
Investment Valuation
2014 2013
ratios 2015
Face Value 10 10 10
Dividend Per Share 8 10 8
Operating Profit Per Share
103.05 131.97 114.56
(Rs)
Net Operating Profit Per
430.23 429.47 393.32
Share (Rs)
Free Reserves Per Share
-- -- --
(Rs)

Bonus in Equity Capital 26.04 26.04 26.04

Profitability Ratios

Operating Profit Margin(%) 23.95 30.72 29.12

Profit Before Interest And

18.9 25.62 24.25
Tax Margin(%)

Gross Profit Margin(%) 19.17 26.1 24.83

Cash Profit Margin(%) 15.45 19.95 18.86

Adjusted Cash Margin(%) 15.45 19.95 18.86

Net Profit Margin(%) 15.41 15.37 13.25

Adjusted Net Profit
15.19 15.08 12.94
Margin(%)
Return On Capital
9.25 13.37 12.8
Employed(%)

Return On Net Worth(%) 9.65 10.48 9.17

Adjusted Return on Net

6.82 10.71 10.39
Worth(%)

Return on Assets Excluding

686.4 629.6 568.46
Revaluations

Return on Assets Including

686.4 629.6 568.46
Revaluations

Return on Long Term

9.25 13.38 12.81
Funds(%)

Liquidity And Solvency Ratios

Current Ratio 0.62 0.57 0.86

Quick Ratio 0.27 0.32 0.61
Debt Equity Ratio 0.39 0.43 0.47
Long Term Debt Equity
0.39 0.43 0.47
Ratio
Debt Coverage Ratios

33
Interest Cover 4.35 6.41 5.53

Total Debt to Owners Fund 0.39 0.43 0.47

Financial Charges
5.36 7.47 6.41
Coverage Ratio

Financial Charges
5.27 5.58 4.57
Coverage Ratio Post Tax

Management Efficiency Ratios

Inventory Turnover Ratio 5.79 7.71 8.05

Debtors Turnover Ratio 66.21 53.21 44.91

Investments Turnover Ratio 5.79 7.71 8.05

Fixed Assets Turnover

1 1.07 1.01
Ratio

Total Assets Turnover Ratio 0.45 0.48 0.47

Asset Turnover Ratio 0.46 0.5 0.49

Average Raw Material

-- -- --
Holding
Average Finished Goods
-- -- --
Held
Number of Days In Working
-57.56 -75.3 -17.74
Capital

Profit & Loss Account Ratios

Material Cost Composition 35.18 30.3 32.51

Imported Composition of
58.86 53.5 57.76
Raw Materials Consumed

Selling Distribution Cost

-- -- --
Composition

Expenses as Composition
2.36 5.7 6.21
of Total Sales

Cash Flow Indicator Ratios

Dividend Payout Ratio Net

12.06 15.14 15.34
Profit
Dividend Payout Ratio Cash
9.2 11.64 11.59
Profit

Earning Retention Ratio 82.92 85.19 86.46

Cash Earning Retention

88.14 88.56 89.47
Ratio

Adjusted Cash Flow Times 4 3.08 3.51

34
CASH FLOW
Cash flow statement for the year ended 31st March 2015

35
TREND ANALYSIS

36
Chapter-5
Summary
And
Conclusion

37
 Summary

 Tata Steel has in its lineage some of the world’s most pioneering and respected entities –
the Tata Group itself, British Steel, Koninklijke Hoogovens and Natsteel.

 Sustainable development cannot be achieved by a single enterprise or even by the entire

business community in isolation. It is a pervasive philosophy to which every stakeholder
in society and participant in the global economy must willingly subscribe.

 When you are inspired by some great purpose, some extraordinary project, all your
thoughts break their bonds – your mind transcends limitations, your consciousness
expands in every direction, and you find yourself in a new, great, and wonderful world.
Dormant forces, faculties and talents become alive and you discover yourself to be a
greater person by far than you ever dreamed. - Patanjali

 The values of Tata Steel have been embedded integrally into the Group's century old
tradition and continue to be a pointer to the way the Company conducts all its business
activities.

 Tata Steel upholds the importance of a fair and transparent approach in everything it does
by adopting the highest standards of professionalism, honesty, integrity and ethical
behavior in all its business processes and transactions.

 "We do not claim to be more unselfish, more generous or more philanthropic than others,
but we think, we started on sound and straightforward business principles considering the
interest of the shareholders, our own health and welfare of our employees... the sure
foundation of our prosperity" – J.N. Tata

38
 Conclusion

 Tata steel ltd. grew revenue 10.32% from 1.347tn to 1.4861tn while net income improved
from a loss of 70.5762bn to a gain of 35.9486bn.

 Both dividend per share and earning per share excluding extraordinary items growth
increased 25.00% and 147.21% respectively. The positive trend in dividend payments in
noteworthy since only some companies in the iron and steel industry pay a dividend.
Additionally when measured on a five year annualized basis, both dividend per share and
earning per share growth ranked in line with the industry average relative to its peers.

 Tata Steel ltd. uses little or no debt in its capital structure.

39
Appendices

40
Profit & Loss Account / Balance Sheet:-

Tata Steel Ltd.

Balance sheet-

41
42
Profit & loss account-

43
44
Bibliography
 Wikipedia of Tata steel limited (en.wikipedia.org/wiki/Tata Steel)
 Financial analysis by S.N. Maheswari
 Annual Report of Tata steel limited
 http://www.moneycontrol.com
 https://en.wikipedia.org/wiki/Tata_Steel
 http://www.tatasteel.com/about-us/company-profile.asp


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