A

PROJECT REPORT
ON

“A STUDY ON FINANCIAL ANALYSIS BETWEEN TWO COMPANIES

( MARUTI SUZUKI LTD & TATA MOTARS LTD)”

SEMESTER-VI
AS A PARTIAL FULFILMENT FOR THE DEGREE BACHELOR OF
ACCOUNTING & FINANCE

SUBMITTED BY:
Mr. ROHIT VILAS BHALERAO
ROLL NO. 2212081

UNDER THE GUIDANCE OF

PROF. SHRUTI BHOSALE

K V PENDHARKAR COLLEGE OF ARTS, SCIENCE AND

COMMERCE, OPPOSITE MIDC OFFICE, DOMBIVLI (E).

ACADEMIC YEAR
2022-2023
 K V PENDHARKAR COLLEGE OF ARTS, SCIENCE AND
COMMERCE, OPPOSITE MIDC OFFICE, DOMBIVLI (E).

DECLARATION BY LEARNER

I the undersigned Miss / Mr. Mr. ROHIT VILAS BHALERAO here by.
declare that the work embodied in this project work titled "A STUDY ON
FINANCIAL ANALYSIS BETWEEN TWO COMPANIES ( MARUTI
SUZUKI LTD & TATA MOTARS LTD)” forms my own contribution to the
research work carried out under the guidance of Name of the guiding teacher is
a result of my own research work and has not been previously submitted to any
other University for any other Degree/ Diploma to this or any other
University. Wherever reference has been made to previous works of others, it
has been clearly indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical conduct.

Name and Signature of the leamer

Certified by

Name and signature of the Guiding Teacher

 K V PENDHARKAR COLLEGE OF ARTS, SCIENCE AND
COMMERCE, OPPOSITE MIDC OFFICE, DOMBIVLI (E).

CERTIFICATE

This is to certify that Mr. ROHIT VILAS BHALERAO , and duly completed
her/his Project Work for the degree of Bachelor of Accounting & Finance has
worked Studies under the Faculty of Commerce in the subject of and her his
project is entitled, my supervision.
“A STUDY ON FINANCIAL ANALYSIS BETWEEN TWO COMPANIES
( MARUTI SUZUKI LTD & TATA MOTARS LTD)” under I farther certify
that the entire work has been done by the learner under my guidance and that no
part of it has been submitted previously for any Degree or Diploma of any
University. It is her his own work and facts reported by her/his personal
findings and investigations.

Seal of the College

Name and Signature of Guiding Teacher

External Examiner Sign

Date of submission:
 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the

depth is so enormous I would like to acknowledge the following as being

idealistic channels and fresh dimensions in the completion of this project. 1 take

this opportunity to thank the University of Mumbai for giving me chance to do

this project. I would like to thank my Principal, required for completion of this

project. I take this opportunity to thank our Coordinator support and guidance. 1

would also like to express my sincere gratitude towards my project guide whose

guidance and care made the project successful I would like to thank my College

Library, for having provided various reference books and magazines related to

my project. Lastly, I would like to thank each and every person who directly or

indirectly helped me in the completion of the project especially my Parents and

Peers who supported me throughout my project.

“A STUDY ON FINANCIAL ANALYSIS
BETWEEN TWO COMPANIES (MARUTI
SUZUKI LTD & TATA MOTARS LTD)”

1
 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

2
 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. .................................................................................................................................... B

IBLIOGRAOHY ................................................................................................................. 51-52

11. .................................................................................................................................... A

NNEXURE ................................................................................................................................ 53

3
Chapter-1 Introduction

4
Chapter-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.

1.1 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

5
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.

1.2 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

6
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.

7
Milestones:

2021: Maruti Suzuki India unveiled its much awaited sportier and stylish car, the all new

'Swift'. 2021: 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.

2020: Maruti Suzuki has been ranked India's most Trusted Brand in Automobile Sector by

India's leading Business newspaper The Economic Times.

2019 - 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-autocar- UTVi.

2018 - 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

launched- first 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.

8
  Maruti Suzuki wins 'Golden Peacock Eco-Innovation Award'

 Maruti Suzuki Ranks Highest in Automotive Customer

 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

1.3 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

2018-09. 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
9
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 2018. 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 2018, 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 2019. 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
10
thousands of families. The standard version has been priced at Rs.100, 000 (excluding VAT

and transportation cost).

In May 2019, 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.

11
 Subsidiaries of the Company

 Jaguar Land Rover.

 Tata Technologies Ltd. (TTL) and its subsidiaries.

 Telco Construction Equipment Co. Ltd. (Telcon).

 HV Axles Ltd. (HVAL).

 HV Transmissions Ltd. (HVTL).

 TAL Manufacturing Solutions Ltd. (TAL).

 Sheba Properties Ltd. (Sheba).

 Concorde Motors (India) Ltd. (Concorde).

 Tata Daewoo Commercial Vehicle Company Ltd (TDWCV).

 Hispano Carrocera S. A. (HC).

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

 Tata Motors European Technical Centre plc.

 Tata Motors Finance Limited.

 Tata Motors Thailand.

 Tata Marcopolo Motors Ltd (TMML).

 Tata Motors (SA) Proprietary Ltd (TMSA).

 TML Distribution Company Ltd (TDCL).

12
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.

 Tata Motors bags the NDTV Profit Business Leadership Award 2018

 Tata Motors awarded the Top Exporter Trophy by EEPC

 CVBU Pune wins Rajiv Gandhi National Quality Award for 2007.

 PCBU bags Handa Golden Key Award.

 Tata Motors receives Uptime Champion Award 2007

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

 'NDTV Profit' Business Leadership Award

 Tata Motors bags National Award for Excellence in Cost Management.

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

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

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

 TNS Voice of the Customer Award for Indica Diesel. .

 Tata Motors CVBU Pune wins National Energy Award.

 Tata Motors receives all India trophies for Top Exporters

 Golden Peacock Environment Management Award - 2003

 Industry and Technology Award, 2002

13
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

14
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.

15
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?

16
Chapter-2

Literature

Review

17
 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 (2020)): 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 (2019): has conducted a research study entitle “Financial Statement Analysis: A Case

Study on Cement Company”, Dubai, UAE(United Arab Emirates), on three cement

18
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 (2019): 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.

19
 Chapter-3

Research Methodology and Research Design

20
 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.

21
3.2 Scope of the study:

The study has covered the period of five (5) years starting from March, 2018 to March, 2022.

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.

22
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, 2018 to Mar, 2022. 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.

23
 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

24
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

25
Chapter-4

THEORITICAL BACKGROUND

26
 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

27
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

28
 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

certainextent, 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
29
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.

30
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.

31
 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

32
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.

2.1BALANCE 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

33
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:

IITangible assets

IIIntangible assets

Tangible Assets

34
 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

IIFixed assets.

IICurrent 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:

IICash and Cash Equivalents

It is the most liquid asset, which includes currency, deposit accounts, and negotiable

instruments (e.g., money orders, cheque, bank drafts).

IIShort-term Investments

It includes securities bought and held for sale in the near future to generate income on

35
short term price differences (trading securities).

IIReceivables

It is usually reported as net of allowance for uncollectable accounts.

IIInventory

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.

IIPrepaid 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

36
• 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

IIHouse building advance

IICar, scooter, computer etc. advance

IIMulti purpose advance

IITransfer travelling allowance advance

IITour travelling allowance advance

V. Reserves

IISubsidy Received From the Govt.

IIIssue of Shares at Premium

IIGeneral 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.

37
It includes:

IIAccrued expenses as wages, taxes, and interest payments not yet paid

IIAccounts payable

IIShort-term notes

IICash dividends and

IIRevenues 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:

IINotes payable- debt issued to a single investor.

IIBonds payable – debt issued to general public or group of investors.

IIMortgages payable.

IICapital lease obligations – contract to pay rent for the use of plant, property or

equipments.

IIdeferred income taxes payable, and

IIpensions 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

38
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.

2.2PROFIT & 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
39
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:

40
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

41
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.

42
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.

43
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 turned-

over into sales. Some of the important activity ratios are: Debtors 'turnover ratio,

44
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.

45
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
46
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.

47
Chapter-5

LIQUIDITY POSITION

48
 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.

Current assets

Current ratio =
Current liabilities

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.
49
 Current Ratio
2

1.5 1.51 1.47

1.13
0.92
1 0.92 Muruti Suzuki
0.76 1.03
0.5 0.88 0.59 Tata Motors
0.48
0

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 1st year (2018) was 0.88, but in the 2nd

year (2019) 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 2022 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.
50
 Quick assets
Acid − test ratio
=
Quick liabilities

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
1.27 1.14
1.2 1.17
1 1.03
0.8 0.72
0.72 Muruti Suzuki
0.6 0.67
0.64 0.69 0.75
0.4 Tata Motors
0.2
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

From the above chart it can be visible that acid-test ratio of Maruti Suzuki Ltd has fluctuating
51
trend i.e. continuous ups and down which indicate the volatile liquidity position of the
st nd
organization. Because, in the 1 year it was 0.67, in the 2 year it increases to 1.27 and fall in
rd th
3 year, it also increases in 4 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 2018 it was 1.17 and in 2019 it falls to 0.64

and increases little bit in subsequent two years, lastly in the last year (2022) 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 1st and 3rd year. But in case of Tata
st
Motors Ltd apart from 1 year it has not been able to maintain the standard.

52
Chapter-6

MANAGERIAL EFFICIENCY

53
 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

Inventory turnover ratio =

Average inventory

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

54
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 30.47 30.61 33.35
30
22.94
25
20 21.79
Muruti Suzuki
15 12.79
8.25 8.60 9.21 Tata Motors
10 9.37
5
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

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 2018 to 2021. But in the last year

i.e. in 2022 it falls. On the other hand, in case Tata Motors Ltd the same has declined in the

year 2019 and after that it increases steadily over the periods up to 2022. So, by summing up,

we can say that, the ratio in the year 2018 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.

55
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.

sales

Fixed Assets Turnover ratio =

Fixed assets

56
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 3.07
2.87 2.78
3 2.44
2.33
2.5

2 2.45 2.34
2.08 Muruti Suzuki
1.5
Tata Motors
1 1.72
1.37
0.5
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

From the above chart it is visible that in the 1st year (2018) fixed assets turnover ratio of

nd
Maruti and Tata was 2.45 and 2.87 respectively but in the 2 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

(2018) in which it was reverse position than the subsequent years.

6.3 Debtors turnover Ratio: This ratio shows how quickly debtors are converted into

57
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.

Credit sales

Debtors turnover ratio =

Average debtors

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.

58
 Debtors turnover Ratio
50 42.60
40
37.93
30 25.20 25.98 33.70

20 21.90

18.82 20.88
10 17.48
15.29
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

Muruti Suzuki 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 1st 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.

59
Chapter-7

LONG-TERM SOLVENCY

POSITION

60
 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.

Long-term Debt
Debt − Equity Ratio
=
Shareholders′Equity

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
61
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 1.15 1.18
Muruti Suzuki
1
0.72 Tata Motors
0.5
0.06 0.07 0.03 0.02 0.01
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

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

62
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.

EBIT

Interest Coverage Ratio =

Interest

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.

63
 Interest Coverage Ratio
140
126.99
120
108.48
100
80
Muruti Suzuki
60
34.75 42.13
40 Tata Motors
35.82
20 5.82 5.87 1.91 0.56
0 4.83
1 2 3 4 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 2nd 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.

64
Chapter-8

PROFITABILITY RATIOS

65
 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.

Gross Profit ratio = Gross Profit

× 100

Net Sales

66
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 10.07
9.64 9.88
10
8.93
8
9.13 4.27
6 Muruti Suzuki
4 Tata Motors
3.14 4.90 3.77
2
1.51
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

From the above chart it can be understand that G/P Ratio in Maruti Suzuki Ltd has fluctuating

trend because in the 1st 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 2nd 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
67
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.

Net Profit ratio = Earning Before Interest and Taxes(EBIT)

× 100

Net Sales

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.

68
 Net Profit Ratio
12
9.60
10
8.62 7.48 8.13
8
6
6.06 5.68 6.29 4.55
4 Muruti Suzuki
2 2.76
Tata Motors
0
-2 Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022
-4
-6 -3.49

From the above chart it is visible that in the year 2018 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 3rd 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

69
returns to pay for its cost of capital.

EBIT
Rerurn On Capital Employed ×100
=
Capital employed

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 25.24
25 26.35
24.29
20
17.72 17.26 21.19
15
13.02
10
9.37
5
2.70
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

Muruti Suzuki Tata Motors

The above Chart shows us that Return on Capital Employed Ratio for Maruti Suzuki Ltd in

70
the year 2018 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
th
year ratio is increasing up to 4 year and fall in last year for Tata but in case of Maruti it is
th
reducing from the 4 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:

Operating profit ratio =

Operating profit

×100

Net sales

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.

71
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
12.82 13.67 13.47
14
11.79
12
10 7.72
11.34 7.72
8 Muruti Suzuki
7.38
6 Tata Motors
7.00
4
5.01
2
0
Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

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

2022 from 12.82 which was in 2018, on the other hand in case of Tata Motors Ltd it is
st
increases to 13.47 in the last year ( 2022) from 11.34 in the 1 year(2018).

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
72
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.

Return On Equity = Profit after tax-Preference dividend

× 100

Net worth

73
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 48.74
31.3 41.33
40
25.01
12.83 16.64
20
21.54 10.72 Muruti Suzuki
20.74
0
Tata Motors
-20 Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022

-40
-49.05
-60

From the above chart it is visible that, in case of Tata Motors Ltd this ratio in the first year

(2018) was 25.01, but in the next year (2019) 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 2020, 2021, and 2022 is 31.30, 48.74, and 41.33
nd
respectively. So, we can say that although there was a huge fall in 2 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 2nd year it has reduced to 12.83 and in the 3rd 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.

74
Chapter-9

CONCLUSION

75
 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
76
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
nd rd
employed ratio is satisfactory in both the companies except in 2 and 3 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.

77
CHAPTER 10:
Bibliography

78
 Chapter-10

Bibliography

Books:

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India, 2005.

2) Basu, B. K. Management Accounting(Principles, System, and Practice). Kolkata: New Central

Book Agency Pvt. Ltd., January, 2018.

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 McGraw-

Hill, 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.

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Global Vision Publishing House, 2020.

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1) http://www.eagletraders.com/.../financial_statements_analysis.htm.

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11) http://www.apexcpe.com/publications/171016.pdf

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13) http://www.daneprairie.com

81
 ANNEXURE

LIST OF RATIOS
Sl. Name of
Name of Ratios
No. Organizations Mar,2018 Mar,2019 Mar,2020 Mar,2021 Mar,2022
Muruti Suzuki Ltd. 0.92 1.51 0.92 1.47 1.13

Current ratio Tata Motors Ltd. 0.88 0.48 0.59 0.76 1.03

1 Muruti Suzuki Ltd. 0.67 1.27 0.69 1.14 1.03

Acid-test ratio Tata Motors Ltd. 1.17 0.64 0.72 0.75 0.72

2 Muruti Suzuki Ltd. 22.94 30.47 30.61 33.35 21.79

Inventory turnover
Tata Motors Ltd. 12.79 8.25 8.6 9.21 9.37
ratio
3 Muruti Suzuki Ltd. 2.45 2.33 2.78 3.07 2.44
Fixed assets turnover
Tata Motors Ltd. 2.87 1.37 1.72 2.08 2.34
ratio
4 Muruti Suzuki Ltd. 25.2 25.98 33.7 42.6 37.93
Debtors Turnover
Tata Motors Ltd. 18.82 20.88 15.29 17.48 21.9
ratio
5 Muruti Suzuki Ltd. 9.64 4.27 8.93 4.9 93.37

Gross Profit ratio Tata Motors Ltd. 9.13 1.51 3.14 9.88 63.72

6 Muruti Suzuki Ltd. 9.6 5.68 8.62 6.29 4.55

Net Profit ratio Tata Motors Ltd. 6.06 -3.49 2.76 7.48 8.13

7 Muruti Suzuki Ltd. 12.82 7.72 11.79 7.72 7

Operating Profit ratio Tata Motors Ltd. 11.34 5.01 7.38 13.67 13.47

8 Muruti Suzuki Ltd. 20.74 12.83 21.54 16.64 10.72

Return On Equity
Tata Motors Ltd. 25.01 -49.05 31.3 48.74 41.33
ratio
9 Muruti Suzuki Ltd. 26.35 17.26 27.94 21.19 13.02
Return On Capital
Tata Motors Ltd. 17.72 2.7 9.37 25.24 24.29
Employed
10 Muruti Suzuki Ltd. 0.06 0.07 0.03 0.02 0.01

Debt-Equity ratio Tata Motors Ltd. 0.72 1.88 2.06 1.15 1.18

11 Muruti Suzuki Ltd. 35.82 126.99 108.48 34.75 42.13

Interest Coverage
Tata Motors Ltd. 5.82 5.87 1.91 0.56 4.83
Ratio
12

82