FINANCIAL ACCOUNTING II

Tata Steel Limited

Financial Statement analysis
(Group 7)
Group Members:
Gokulnath K.S (055)
Mahesh Murugesh M (076)
Rajitha (084)
Saradha Kishore (118)
Sriram K (141)
Tadi Sai Praveen (147)
 OBJECTIVE
Analyze Financial history
Future Growth
Financial Stability for next two years
Growth prospect in
1. Net Income
2. Sales Revenue
3. Operating Income
4. Assets
5. Other various and significant factors
 RESEARCH METHODOLOGY

Financial Analysis is based on the following

factors

Evaluating company and industry from various

sources
Common-size statement
Comparing with its competitor JSW and SAIL and
numerous graph to support the analysis.
 FY 2015-16 saw the surge in Capital
Current & Non Current work in progress which was valued
Assets at 26,953.90. The company relatively
had lesser working capital in FY
NON CURRENT & CURRENT ASSETS
2012-13. This shows a good
improvement in the internal capital
Capital work-in-progress
allocation.

Tangible assets
The company maintained an average
level of 21,965.99 on the tangible
Cash and bank balances
assets, however 2013-14 saw a
reduction to 11,142.36.
Inventories
Inventories were stocked at 8,042 in
Trade receivables the year 2014-15 which saw a
reduction of 958 in the following
Current investments year 2015-16
0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00

2011-12 2012-13 2013-14 2014-15 2015-16

Investments in 2015-16 amounted to
4,320.17 which was closely 4 times
the investment made in 2011-12
 ASSET GROWTH

Growth in Total Assets

2011- 2012- 2013- 2014-
Years 2015-16
12 13 14 15
Growth (%) 6.36 8.99 4.18 6.49 5.93
Total Assets at The End of Each FY

Years 2011-12 2012-13 2013-14 2014-15 2015-16

Growth (In crores) 101,876.9 111,040.4 115,677.1

95,786.16 3 1 2 123,179.68
 ASSET STRUCTURE
Total asset value has increased at 29.16 % in
2014 & 2015 with a majority of investments.
As s et s tructure common s ize The company now has a total asset value of
7
2011-12 2012-13 2013-14 2014-15 2015-16
123,179.68.
6
5
4 Investments are in form of tangible assets
3 which are to be valued at 24,901.24 for the
2
FY 2015-16 contrasting to 11,142.36. The
1
0
principal components of this net increase
Current
were cash generated by operating activities.
Investments Inventories Trade Cash & Bank Tangible Other Current
Balances
Receivables Assets Assets
Reduction in Inventories for FY 2015-16
which was valued at 7,083.81. Contrasting to
8,042.00 in FY 2014-15

The companys existing cash balances, cash

equivalents, and short-term investments will
be sufficient to meet its working capital
needs, capital expenditures and other liquidity
requirements in the near future.
 Equity and Liabilities growth
80,000.00

70,000.00

60,000.00

50,000.00 payables
current liabilities
Long-term borrowings
40,000.00 equity
retained earnings

30,000.00

20,000.00

10,000.00

0.00
2011-12 2012-13 2013-14 2014-15 2015-16
 The total liabilities has increased over the years
from 2011-12 till 2015-16 which is around
1,23,208.15 cr in 2015-16.

Growth in Liabilities
10.00%

9.00%

8.00%

7.00%

6.00%
Growth in Liabilities
5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2011-12 2012-13 2013-14 2014-15 2015-16
Equity growth:

Retained earnings of Tata steel analyzed from the

companys report shows a decline of 22% .
5733.73 cr in FY 2015-16 compared to the previous
FY which had a retained earnings of about 7331.06 cr
 Tata Steel is financing its operations mainly from
the common equity from shareholders which is
stable around 6% of the total liabilities. The
company has very less outstanding debt of 6.51%
in the current year.
Economic stability of the company is maintained
through equity and hence company has less risk
than the industry aggregate.
Finanical structure
70

60
Account payables
50 current liabilities
40 Total liabilities
Long-term borrowings
30 common equity
20

10

0
2011-12 2012-13 2013-14 2014-15 2015-16
 Income Statement Analysis

Income Growth
45,000.00
40,000.00
35,000.00
Revenues/Net sales
30,000.00

(in crores)
COGS
25,000.00
Gross Income
20,000.00
15,000.00
10,000.00
5,000.00
0.00
2011 2012 2013 2014 2015 2016

Revenues: During the analysed period the amount of Total Revenues

increased successively, and by the end of 2016 it doubled since 2011. That
shows a strong positive trend. In 2016 alone, Net Sales grew by 41%
Cost of Goods Sold: 2016 the growth of Tata Steels COGS was 76% which
was higher compared to the industrys 12%.
Gross Income: The Gross Income also increased simultaneously to the Net
Sales and represents a positive trend. In 2016, Tata steel outperformed its
rivals with a Gross Income growth of 27%
 Income Growth
8000

7000

6000 Selling, General and Administrator

5000 Expenses

In crores
Income Tax
4000 Net Income
3000

2000

1000

0
2011 2012 2013 2014 2015 2016

Selling, General and Administrative Expenses: According to the overall growth these expenses also
increased during the analysed period - from INR 1650.18 crores in 2011 to INR 3177.66 in 2016, which
is a total increase of 92%.
EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization increased tremendously
during the last five years.
Income Taxes successively increased by 85% in 2011-2012 and then gradually decreased by 40% in
2015-2016.
Net Income: For the last five years Tata Steels Net Income decreased from a high of INR 6865.69
crores in 2011 to a low of INR 4900.95 in 2016. The growth rate in 2016 declined by 24%.
CASH FLOW ANALYSIS

The net cash flow from

operating activities has
decreased by 26.22%
from Rs.10256 crore to
Rs.7567 crore
Net cash flow from
financing activities has
been decreasing for all the
five years.
Net cash flow from
investing activities is
increasing and then
increasing and decreasing
from the last two years.
CASH FLOW ANALYSIS

Operating cash flow is positive..

Investing activities cash flow is negative.

Financing activities cash flow is negative.

What does this mean?

 The operational cash flow clearly shows whether the way a company creates and manages its
earnings provides it with sufficient cash to cover all operational expenses.

Having a negative cash flow from investing activities is not always bad and needs further
evaluation before decisions are made on a company's investing activities

For example if a growing company is investing in long term fixed assets makes cash flow
negative. But this in the long run generates profits.

On the other hand, if a company has a negative cash flow from investing activities because it has
made poor asset-purchasing decisions, then it's possible that the negative cash flow from investing
activities signals that the company is a poor performer.

Negative numbers in financing can mean the company is servicing debt, but can also mean the
company is retiring debt or making dividend payments and stock repurchases, which investors
might be glad to see.
 FINANCIAL STATEMENT RATIOS
Liquidity Ratios:
These ratios show the cash levels of a company and the ability to turn
other assets into cash to pay off liabilities and other current obligations.
Both ratios were below the industry 2

average current ratio 1.19 & quick ratio 0.65.1.6

1.8

It is a negative sign, meaning that 1.4

1.2
Tata Steel had problem meeting its 1
Current
ratio
Quick
short-term obligations. 0.8
ratio
0.6

0.4

0.2

0
2011 2012 2013 2014 2015
 ASSET MANAGEMENT RATIOS:
Inventory Turnover:
Low inventory turnover ratioindicates poor liquidity, possible overstocking, and obsolescence
Days Sales Outstanding (DSO):
The lower this number, the more efficient the business
is at collecting payment from its customers.
Fixed Asset Turnover:
The business is doing an effective job of generating
sales with a relatively small amount offixed assets.
Total Asset Turnover:
This ratio measures a company's ability to generate sales
from itsassetsby comparing net sales with average
total assets.
 DEBT MANAGEMENT
RATIOS:
Debt ratio:
A low percentagemeansthat the company
Is less dependent on leverage.
Debt equity ratio:
It indicates how muchdebta company
is using to finance its assets relative to the
amount of value represented in
shareholders'equity
Equity Multiplier:
This measures the amount of a firm's assets that are financed by its shareholders
by comparing total assets with total shareholder'sequity. It is better to have a low
equity multiplier, because a company uses less debt to finance its assets.
 PROFITABILITY RATIOS:

Gross Profit Margin:

This ratio is steady during the analyzed period. This is a strong indicator that
Tata
steel is a well profitable company, and it outperforms its rivals.
Return on Assets (ROA): 80

Compared to its rivals, Tata steels ROA is 70

60
above their values, which speaks for the efficient50
Gross profit

manner it is using its assets to generate earnings40 margin

Return on
Asset
30
Return on Equity (ROE): Return on
Equity
20

It declined from 2011 (12.72%) to 2015 (6.95%).10

0
But Tata steel is very much better than the 2011 2012 2013 2014 2015

competitors.
 MARKET VALUE RATIOS:
EPS:
Tata steel earnings per share is very much better. A company with ahigh earnings
per share ratiois capable of generating a significant dividend
for investors.
Book value per share:
Book value per share compares the amount
of stockholders' equity to the number of shares
outstanding. this measure is a possible indicator of
the value of a company's stock.
Cash flow per share:
It is a better measure of a company's ability to
generate profits than earnings per share. Tata steel
has a negative cash flow per share, it means that the company is using its venture capital
to pay overhead expenses.
 MARKET VALUE RATIOS:

Current Price to Earnings Ratio

Tata steels P/E ratio was steady but much higher than competitors. This is an indicator
for its positive growth prospects. 25

Price to Cash Flow Ratio: 20

15
A negative number indicates that the 10
5
company is burning cash and buying shares of
0

suchcompanies could result in many -5

Current
-10 P/E
investing mistakes. -15
Price to
CF
ratio
Cash flow per share: -20
Market
-25 to
book
It is a better measure of a company's ability -30 ratio
2011 2012 2013 2014 2015
to generate profits than earnings per share. Tata
steel has a negative cash flow per share, it means that the company is using its venture
capital to pay overhead expenses.
OTHER IMPORTANT VALUES:

Tax Rate WACC

EIR: 20% Rate - the company

Differs from has to pay on
Statutory Income average to all its
Tax Rate of 34.6% security holders to
Due to certain finance its assets.
undistributed 7.00% to 15.50% in
foreign earnings the year 2015
11.09% as per
recent trends
 Started to decrease from 2011 till 2013 and raises till 2014 and
again decreases till 2015 and then it continues to raise again.
Stock has been both bearish and bullish period from 2011 to till
date and is volatile.
Current stock price (on 18/11/2016) points to 382.75.
 MACRO ECONOMIC VARIABLES:
Growth in USA fell to 1.4% due to weak exports, lower domestic demand and decline
in the non-residential investments.
Growth in Japan fell significantly due to sharp drop in private consumption.
Brazil, Middle-East and sub-Saharan Africa too fell short of expectations due to
sharp fall in oil prices, decline in other commodity prices (especially metals) and geo-
political/domestic conflicts.
Fall in oil prices and geo-political disturbances have also affected Russia, which is
already under recession.
The continuous rebalancing of the Chinese economy has depressed the
manufacturing sector, particularly related to metal products.
Owing to difficult macroeconomic conditions, sharp decline in commodity prices, volatile
capital flows, uncertainties and risks of instability of the financial system.
During the year, the Company has recognized a non-cash write down of fixed assets and
inventory of Rs.9,720.59 crore due to the external economic environment and
macroeconomic conditions
 CONCLUSION:
Tata Steel has taken timely non-cash impairment charges,
sold non-core assets and even refinanced its loans. The
company has suffered almost a decade of losses amid poor
demand and cheap Chinese imports.
Operating profits have been on a roller-coaster ride, leading
the company into losses in some quarters.
Based on the facts presented above, it may be concluded
that Tata steel is performing better than the industry
average, including JSW steel and SAIL.
THANK YOU!!!!