RATIO ANALYSIS

1. A RATIO is a expression relating one number to another .

2. It can be expressed in decimal or fraction or pure ratio or as an absolute terms.

3. It is one of the powerful tool of financial analysis.

WHAT IS RATIO??

A ratio can be defined as ,” a fraction whose numerator is the antecedent and denominator is the consequent.” It is simply an expression of one number in terms of another.

OBJECTIVES OF RATIO ANALYSIS

SolvencyStabilityProfitabilityOperational efficiencyCredit standingStructural analysis

BENEFITS OF RATIO ANALYSIS

LIMITATIONS

STEPS OF RATIO ANALYSIS

Parties Interested In Ratio Analysis

Shareholders Investors And Lenders

Creditors ManagementGovernment

INTRODUCTION OF TATA COMPANY

Tata Iron and Steel Company was established by Dorabji Tata on August 26, 1907, as part of his father Jamsetji’s Tata Group

Tata Steel Limited)) is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India,

It is the 12th-largest steel producing company in the world,

Tata Steel is listed on the Bombay Stock Exchange, where it is a constituent of the BSE SENSEX index, and the National Stock Exchange of India

VERTICAL INCOME STATEMENTParticulars

2004 RS

2003 RS

Gross SalesLess : Sales return Net Sales

Less :COST OF GOODS SOLD : Opening StockAdd : PurchasesAdd : Depreciation on MachineryLess : Closing Stock COST OF GOODS SOLDGROSS PROFITLess :OPERATING EXPENSES ADMINISTRATIVE EXPENSES : salaries office rent total administration expenses SELLING AND DISTRIBUTION EXPENSES : sales expensesTotal operating expensesOperating net profitAdd : NON-OPERATING INCOME dividend received

3,47,000 5000

3,42,000

1,00,0001,98,000

8,000

62,000

2,44,000

98,000

28,000

16,000

44,000

4,000

48,000

50,000

12,000

2,71,450

10,050 2,61,400

99,0001,40,000 7,0001,00,0001,46,0001,15,000

22,000

14,000

36,000

6,000

42,000

73,400

9800

2004RS

2003RS

Profit on sale of land LESS : NON-OPERATING EXPENSES : loss in sale of plant loss by fire goodwill written off EBITLess :Interest on mortgage loanEBTLess : Tax provision EATLess : APPROPRIATIONS : preference dividend proposed equity dividend

9,000

71,000

4,200

2,800

10,000

54,000 9,000

45,000

22,000

23,000

3,000 20,000

-

-83,200

-

1,20010,000

72,000

10,000 62,000 28,000 34,000

4,000

30,000 -

VERTICAL BALANCE SHEETPARTICULARS

2004 2003

SOURCES OF FUNDS OWNERS FUNDS: equity share capital + profit and loss a/c equity share holders + preference capital

BORROWED FUNDS: mortgage loan

TOTAL CAPITAL EMPLOYEDAPPLICATION OF FUNDS FIXED ASSETS: goodwill machinery at cost - depreciation wdv machinery + land NET FIXED ASSETS

100000 3800013800030000

168000

80000248000

110000(28000)82000

100000182000

10000040000140000 40000180000

100000280000

10000100000(20000)80000100000190000

PARTICULARS YEAR

2004 2003

WORKING CAPITAL : CURRENT ASSETS QUICK ASSETS debtors Marketable securities cash NON QUICK ASSETS stock TOTAL CURRENT ASSETS - CURRENT LIABILITIES QUICK LIABILITIES creditors bills payable taxes payable TOTAL CURRENT LIABILITIES WORKING CAPITAL (CURRENT ASSETS-CURRENT LIABILITIES) TOTAL NET ASSET OWNED

80000200002000

62000164000

4200018000380009800066000

248000

600002000030000

100000210000

60000100005000012000090000

280000

BALANCE SHEET RATIOS

Current RatioQuick ratioStock To Working Capital

ratioProprietor’s Ratio

RATIOS FORMULAE YEAR

2004 2003

CURRENT RATIO

Current AssetsCurrent Liabilites

16400098000

=1.67

210000120000

=1.75

QUICK RATIO Quick AssetsQuick Liabilities

10200098000

=1.04

140000140000

=1

STOCK TO WORKING CAPITAL RATIO

Closing Stock × 100Working Capital

62000 ×100

66000

=93.94%

100000 × 100 90000

=111.11%

PROPRIETOR’S RATIO

Proprietors Funds ×100Total Assets

168000 ×100

346000

=48.55%

180000 ×100

400000

=45%

BALANCE SHEET RATIOS

Capital Gearing RatioDebt Equity Ratio

REVENUE STATEMENT RATIOS

Gross Profit Ratio Operating Ratio

RATIOS FORMULAE YEAR

2004

2003

CAPITAL GEARING RATIO

Fixed Interest Bearing SecuritiesNon-Fixed Interest Bearing Securities

1,10,0001,38,000

=0.8:1

1,40,0001,40,000 =1:1

DEBT EQUITY RATIO

Long Term DebtProprietors Equity

80,0001,68,000

=0.47

1,00,0001,80,000

=5.55

GROSS PROFIT Gross Profit × 100Net Sales

98,000 × 100 3,42,000

=28.65%

1,15,400 ×100 2,61,400

=44.14%OPERATING RATIO

Operating Profit×100Net Sales

50,000 ×100 3,42,000

=14.61%

73,400 ×100 2,61,400

=28.07

REVENUE STATMENTS RATIOS

Expenses RatioNet Profit RatioStock Turnover Ratio

COMPOSITE RATIOS Return On Capital

Employed

RATIOS FORMULAE YEAR2003 2004

EXPENSES RATIO

Operating Expenses × 100Net Sales

73400 ×100261400

=28.08%

50000 ×100 342000

14.26%

NET PROFIT RATIO

NAPT × 100 Net Sales

34000 × 100261400

=13%

23000×100342000

6.72%

STOCK TURNOVER RATIO

COGS Average Stock

14600099500

=1.46 tms

24400 081000

=3.01 tms

RETURN ON CAPITAL EMPLOYED

NPBIT ×100Capital Employed

72000 ×100280000

=25.71%

54000 ×100248000

=21.77%

COMPOSITE RATIOSReturn On Proprietor’s Funds

RatioEarnings Per Share RatioDebtors Turnover RatioCreditors Turnover Ratio

RATIOS FORMULAE YEAR2004 2003

RETURN ON PROPRIETOR’S FUNDS RATIO

NPAT PROPRIETORS *100FUND

13.7 % 18.9 %

EARNING PER SHARE RATIO

NPAT – PREFERENCE

DIVDENDNO. OF EQUITY

SHARES

RS. 2 PER SHARE

RS. 3 PER SHARE

DEBTORS TURNOVER RATIO

NET CREDIT SALES AVG. ASSET RECEIVABLES

4.8857 TIMES 4.36 TIMES

CREDITORS TURNOVER RATIO

NET CREDIT PURCHASES

AVG CREDITORS

3.05 TIMES 2 TIMES

conclusion

BIBLOGRAPHY Annual report of TATA www.tata.co.inhttp://www.moneycontrol.com/financials/tatasteel/profit-loss