A FINANCIAL RATIO ANALYSIS OF

TATA STEEL


Group 9 Section A
Sai Bharath Uddadi(39)
Harjot Singh Chance (18)
Chinmaya Kumar Gupta
(14)
Pardeep Kumar(31)
Udit Srivastava(44)

INTRODUCTION
Financial ratios highlight the strengths and weaknesses of a business. Keeping track of these ratios over a
period of time can make us understand how the business has been performed in that duration. For
example, if there have been unusual fluctuations in the ratios, the business owner can get a holistic view of
what went wrong and take corrective steps to bring them back on track. These ratios are also very
important to investors who can get an idea of the general trend of a business and can then decide whether
to invest or not.
Before interpreting the financial ratios, it is very important to keep in mind that these ratios are not of
much use by themselves. Only when we compare them with some factors do they make sense. These ratios
can be benchmarked against the industry norm, the aggregate economy, or the companys historical
performance.
When we mark them against the industry norm, we compare the ratios with their counterparts in other
companies in the industry and can then get an idea of how the company is performing relatively and also
how the company fares against the average in the industry. When we view them with respect to the
aggregate economy, we consider the organizations performance over the period of a full economic cycle.
This will help explain the fluctuation of the ratios when economic conditions are not conducive for the
business. And finally these ratios need to be looked at alongside the companys past data. This will help us
identify the trends the ratios have been following and may help in predicting their future course.
In our project, we have chosen to analyze the financial ratios of Tata Steel from the steel industry over a
period of 5 years. We have chosen 3 others competitors from the steel industry namely JSW Steel, Steel
Authority of India Ltd. (SAIL), and Visa Steel.
We have presented various profitability and the solvency ratios that we feel are important to judge the
performance of the company. Following that, we have given an analysis of Tata Steels performance in the
chosen period and shown it in light of the performances of its competitors.

TATA STEEL
TATA STEEL





FY ' 13 -14 FY'12-13 FY '11-12 FY '10-11 FY '09-10
26.10 24.83 30.60 35.16 31.36
30.72 29.12 33.99 39.06 35.70
25.62 24.25 29.82 34.54 30.95
22.85 0.20 0.28 0.32 0.28
15.08 12.94 19.23 22.94 19.96
14.68 13.71 15.12 15.70 14.27
7.34 6.24 8.77 9.39 8.09
11.05 9.46 13.56 16.40 16.40
0.43 0.43 0.40 0.39 0.38
0.47 0.47 0.45 0.40 0.39
0.16 0.12 0.11 0.16 0.19
67.48 59.08 63.69 64.82 46.12
10.00 8.00 12.00 12.00 8.00
-6.33 -8.49 -9.21 6.36 5.39
0.57 0.86 0.93 1.53 1.12
0.32 0.61 0.69 1.31 0.76
59.06 49.72 55.72 74.33 50.00
44.40 43.63 43.46 40.22 44.73
92.07 82.11 86.90 85.54 91.73
0.73 0.91 0.57 0.48 0.47
6.34 5.18 6.12 6.63 4.90
Ratio
Profitability
Margin On
Sales
Gross Profit Margin(%)
Operating Profit Margin(%)
Earnings Before Interest and Tax
Profit Before Tax(%)
Net Profit Margin(%)
Return on
Investment
Operating Profit to Operating Assets(%)
Indicators
Net Income to Total Assets(%)
Return on Equity(%)
Efficiency
Total Asset Turnover
Operating Asset Turnover
Working Capital Turnover
Solvency
Short Term
Net Working Capital/Sales
Current Ratio
Quick Ratio
Accounts Recievable Turnover
Inventory Days
Payable Days
Long Term
Total Debt to Total Capital
Interest Cover
Return per
Share
Earnings Per Share()
Dividends Per Share()


JSW STEEL

SAIL

FY ' 13 -14 FY'12-13 FY '11-12 FY '10-11 FY '09-10
13.37 12.21 12.09 14.11 17.33
19.38 17.77 17.42 20.08 23.52
13.27 12.12 12.02 14.01 17.28
4.43 7.04 6.59 11.52 15.08
3.02 5.07 5.12 8.36 10.81
16.36 17.24 17.88 17.88 13.95
2.49 4.92 5.21 6.05 7.89
6.20 9.55 9.43 15.65 23.86
0.80 0.74 0.75 0.70 0.66
0.84 0.97 1.03 0.69 0.71
11.51 3.18 9.52 14.77 9.53
54.05 79.48 71.62 88.87 106.59
11.00 10.00 7.50 12.25 9.50
8.69 31.41 10.50 6.77 15.17
0.73 0.92 0.81 0.70 0.76
0.43 0.61 0.51 0.38 0.42
14.39 20.96 27.80 29.68 34.61
40.71 46.85 48.97 48.44 43.50
24.84 24.47 21.15 26.77 39.55
1.12 0.90 0.86 0.72 1.20
1.71 2.45 2.77 4.25 4.13
Return on Equity(%)
Indicators
Earnings Before Interest and Tax
Profit Before Tax(%)
Net Profit Margin(%)
Operating Profit to Operating Assets(%)
Net Income to Total Assets(%)
Payable Days
Total Debt to Total Capital
Total Asset Turnover
Operating Asset Turnover
Working Capital Turnover
Earnings Per Share()
Dividends Per Share()
Net Working Capital/Sales
Long Term
Solvency
Profitability
Ratio
Interest Cover
Gross Profit Margin(%)
Operating Profit Margin(%)
Margin On Sales
Return on
Investment
Efficiency
Return per
Share
Short Term
Current Ratio
Quick Ratio
Accounts Recievable Turnover
Inventory Days
FY ' 13 -14 FY'12-13 FY '11-12 FY '10-11 FY '09-10
7.20 9.66 12.88 19.40 17.48
34.20 13.04 16.37 22.69 20.41
7.04 9.33 12.33 18.35 16.61
6.75 10.75 15.65 16.08 19.84
4.58 7.48 10.65 16.08 12.95
7.04 10.81 12.17 18.49 25.17
3.31 6.58 8.57 13.55 17.38
5.37 9.22 13.94 21.98 24.13
0.62 0.67 0.66 0.73 1.04
0.68 0.83 0.74 0.81 0.89
0.10 0.19 0.26 0.49 0.36
5.25 8.58 11.87 16.35 14.94
2.00 2.00 2.40 3.30 2.60
9.78 5.47 3.85 2.03 2.81
1.23 1.51 1.51 2.28 2.02
0.52 0.76 1.04 1.76 1.43
9.58 9.58 10.34 11.54 12.91
249.65 245.58 166.47 169.69 203.28
56.20 58.23 61.65 102.33 110.52
0.84 0.42 0.28 0.16 0.19
5.33 8.60 16.15 26.20 37.23
Ratio
Profitability
Margin On Sales
Gross Profit Margin(%)
Operating Profit Margin(%)
Earnings Before Interest and Tax
Profit Before Tax(%)
Net Profit Margin(%)
Return on
Investment
Operating Profit to Operating Assets(%)
Indicators
Net Income to Total Assets(%)
Return on Equity(%)
Efficiency
Total Asset Turnover
Operating Asset Turnover
Working Capital Turnover
Solvency
Short Term
Net Working Capital/Sales
Current Ratio
Quick Ratio
Accounts Recievable Turnover
Inventory Days
Payable Days
Long Term
Total Debt to Total Capital
Interest Cover
Return per
Share
Earnings Per Share()
Dividends Per Share()

VISA STEEL:

PROFITABILITY
GROSS PROFI T MARGI N:
Its the surplus available out of sales revenue after subtracting the cost of goods sold

=
100

It measures the company's manufacturing and distribution efficiency during the production process. Tata
Steels Gross Profit Margin has been steadily decreasing over the years.
This indicates that Tata Steel has been able to make a reasonable profit, but struggled to keep its
overhead costs in control.
JSW Steel has similarly struggled to maintain its gross profit margin consistent.
SAIL showed a brief spurt of increase for FY 10-11 but its gross profit margin has been steadily
declining since.
VISA Steel has had two good years FY10-11 and a relatively less encouraging FY11-12 but its gross
profit margin has steeply declined over the past two years. For FY13-14 its Cost of goods sold
have exceeded the Net Sales. It has to reduce its cost of production to remain profitable.
So, looking at the performance of the industry as a whole, Tata Steel has fared reasonably well.
FY ' 13 -14 FY'12-13 FY '11-12 FY '10-11 FY '09-10
-18.98 2.10 11.70 13.20 5.89
-8.81 5.84 15.41 17.25 8.84
-18.38 2.07 11.41 12.97 5.80
-17.65 14.33 6.66 7.40 -9.59
-17.65 -8.67 3.96 4.10 -6.41
-1.09 -1.85 -0.80 -0.90 -1.50
6.60 23.00 22.00 22.82 21.55
-11.94 18.93 15.44 16.15 -21.76
0.16 0.27 0.52 0.56 0.59
1.27 2.15 1.91 1.75 1.59
-0.82 -1.78 -0.61 -0.13 -0.17
-4.09 5.06 4.67 4.31 -6.07
0.00 0.00 1.00 1.00 0.00
-1.22 -0.56 -1.64 -7.55 -5.87
0.48 0.30 0.45 0.81 0.78
0.31 0.13 0.19 0.39 0.36
8.58 26.83 27.02 17.80 12.69
165.50 161.02 99.09 106.34 109.69
494.51 345.71 204.09 268.82 233.30
4.75 1.93 2.82 2.45 4.36
0.64 0.85 1.84 1.94 -0.78
Ratio
Profitability
Margin On Sales
Gross Profit Margin(%)
Operating Profit Margin(%)
Earnings Before Interest and Tax
Profit Before Tax(%)
Net Profit Margin(%)
Return on
Investment
Operating Profit to Operating Assets(%)
Indicators
Net Income to Total Assets(%)
Return on Equity(%)
Efficiency
Total Asset Turnover
Operating Asset Turnover
Working Capital Turnover
Solvency
Short Term
Net Working Capital/Sales
Current Ratio
Quick Ratio
Accounts Recievable Turnover
Inventory Days
Payable Days
Long Term
Total Debt to Total Capital
Interest Cover
Return per
Share
Earnings Per Share()
Dividends Per Share()


OPERATI NG PROFI T MARGI N:
It is a reflection of the operations of an organization; hence its a reflection of the performance of the
managers.
=
X 100

While Operating Profit Margin has steadily declined over the years, for the last two years Tata
Steel has been able to maintain a level of consistency.
JSW steel and SAIL have exceeded Tata Steel in relative volume of sales, but VISA Steel has
struggled to show a decent Operating Profit Margin in FY13-14
EARNI NGS BEFORE I NTEREST AND TAX:
It measures the profitability of the organization without taking into justification its cost of capital or tax
implications. It enables one to analyze operating profitability as a singular measure of performance
Tata Steels Earnings before Interest and Tax have over the years declined but there has been a
slight positive bump in FY13-14 as with JSW steel. This is an indication of good performance.
SAIL has struggled to maintain the industry average and VISA Steel has sunk to a negative index
in FY13-14
PROFI T BEFORE TAX:
Profit before tax removes all expenditures from revenue including interest expenses and operating
expenses, excluding tax. Since taxes change every year, PBT gives stakeholders a good idea about the
establishments profits every year.
Tata Steel has shown a remarkable PBT for FY13-14. However as its margin declines in EBIT, this
indicates there is a lot of debt on which interest has to be paid.
Its competitors have struggled to maintain the same level of PBT as Tata Steel with VISA Steel
showing negative even in PBT.
NET PROFI T MARGI N:
It is the indicator of overall profitability of the company.
=
X 100

NPM for Tata Steel has declined over the years but a steady increase for FY13-14.
JSW Steel and SAIL and VISA Steel have continued declining over till FY13-14.
OPERATI NG PROFI T TO OPERATI NG ASSETS (ROA):
It is an indicator of how profitably a company is able to use its assets.
=
X 100


Tata Steel has managed to maintain a near consistent ROA. Similarly for JSW Steel and VISA Steel but for
SAIL which has declined over the years.
NET I NCOME TO TOTAL ASSETS (ROTA):
It is the rate of profit the company is able to earn after meeting the cost of financing a portion of the total
assets.
=
X 100


Tata Steel has been fluctuating near 9-7 over the years to maintain a ROTA. For JSW steel, VISA steel and
SAIL, there has been a steady decline, but they have never managed to come close to Tata Steel.
RETURN ON EQUI TY (ROE):
It measures the net income as a percentage of the shareholders investment.
=
X 100


Tata Steels ROE has declined till it reached a low of 9.46 but it showed some improvement to grow to
11.05 in FY13-14.
TOTAL ASSET TURNOVER:
It measures how efficiently a company is able to use its assets to generate sales.
=



Tata Steel has maintained a consistent asset turnover ratio of 0.4. This however is very less compared to
JSW Steel and SAIL. VISA Steel has a very low ratio of 0.16 in FY13-14
OPERATI NG ASSET TURNOVER:
It relates sales to the operating assets used.
=



Tata Steel has maintained a consistent asset turnover ratio of 0.4. This however is very less compared to
JSW Steel (0.84) and SAIL (0.68). VISA Steel has a very high ratio of 1.27 in FY13-14



WORKI NG CAPI TAL TURNOVER:
It is an efficiency ratio intended at evaluating the efficiency of the use of working capital.
=



Tata Steel has a very low working capital of 0.16 when compared to JSW Steel, SAIL and VISA Steel.
EARNI NGS PER SHARE:
The portion of a company's profit allocated to each outstanding share of common stock.
=



EPS for Tata Steel is 67.48 which is way above any of its competitors. Over the years it has remained
nearly the same, which would make it quite an attractive instrument of earning for shareholders.
DI VI DENDS PER SHARE:
Dividend per share is the total dividends paid out over an entire year (including interim dividends but not
including special dividends) divided by the number of outstanding ordinary shares issued.
=

D = Sum of dividends over a period (usually 1 year)
SD = Special, one time dividends
S = Shares outstanding for the period
Dividends are a form of profit distribution to the shareholder. Having a growing dividend per share can be
a sign that the company's management believes that the growth can be sustained.Tata Steel has a DPS of
10.00, when compared to 11.00 of JSW Steel. SAIL has a low DPS of 2.
SOLVENCY:
NET WORKI NG CAPI TAL/SALES:
Current assets are referred to as working capital and the excess of current assets is referred to as net
working capital. It is financed by long-term sources of funds and provides a cushion of liquidity.
Tata Steels working capital turned negative and reached a bottom in 2012 and then rose upward but is
still negative which indicates increasing amount of current assets available but still less than desired.
The competitors have a better ratio than Tata Steel. Most of them have positive ratios indicating greater
sources of funds as compared to expenditure for them.
CURRENT RATI O:
It measures the relationship of current assets with current liabilities.
Current Ratio = Current Assets / Current Liabilities
Tata Steels current ratio has been steadily declining over the past few years and is now below 1 which
means in the short term, it has less sources of revenue than sources of expenditure.
SAIL is the best performer here and has maintained it at levels above 1 consistently indicating higher
avenues for revenue and lower expenditure. Others performance is not very different from that of Tata
Steel.
QUI CK RATI O:
It measures the relationship of quick assets (which is generally current assets minus the inventories) with
current liabilities.
Quick Ratio = (Current Assets Inventories) / Current Liabilities
Tata Steels quick ratio reached a peak of greater than 1 and then started declining to below 1 which
indicates decreasing sources of revenue as compared to expenditure.
Most companies have similar ratios here. Visa Steel has a little poorer performance on average. (This
means SAILs high current ratios were accounted for mostly by its high inventory levels.)
ACCOUNTS RECEI VABLE TURNOVER:
It measures the relationship of the sales with the accounts receivable and gives us the velocity of
circulation of the receivables.
Accounts Receivable Turnover = Sales / Average Accounts
Receivable
An accounts receivable turnover of 59 indicates that the cycle of credit sales and its collection occurred 59
times over the year. Tata Steel has maintained this at fairly similar levels over the years.
Tata Steel has performed better than its competitors in this aspect and has a big lead over all of them.
I NVENTORY DAYS:
It gives a measure of how long it takes a company to turn its inventory into sales. The lower the ratio, the
better it is.
Tata Steel has maintained this at a similar level over the years.
Tata Steel and JSW Steel have a similar performance level here. SAIL has performed the poorest with it
taking a long time for its inventory to get converted into sales. Visa Steels performance is also not good.
PAYABLE DAYS:
It tells how long it takes a company to pay its invoices from trade creditors, for e.g. suppliers. The
company must strike a delicate balance in the number of days payable. It should not be too high or too low.
Most companies maintain it at 30 days.
Tata Steel has maintained it at roughly 90 days over the years. It is a bit on the higher side. While it allows
itself to keep funds for a longer period of time, it might lead to unhappiness of the suppliers.
JSW Steel has kept it at decent levels, assuming most companies keep it at roughly 30 days. Tata Steel and
SAIL have kept it at higher levels. Visa Steel has kept it at a very high level and might lead to loss of faith
from the supplier.
TOTAL DEBT TO TOTAL CAPI TAL
It gives a measure of how much part of the capital is debt against how much is equity. Too much debt is
not very good for the company neither is too little debt good, so it is advisable to maintain low levels.
Generally, a ratio of 2 is considered to be good.
Tata Steel has maintained this ratio lower than 1 which means a majority portion of its capital is
represented by equity.
Most companies have kept is at a level of around 1 or lower, meaning they have largely more equity than
debt. For Visa Steel, this level is generally on the higher side indicating it has more debt.
I NTEREST COVER:
It determines how conveniently a company can pay interest on outstanding debt. The higher the ratio, the
better it is. A low ratio indicates it is more difficult for a company to meet interest expenses.
Interest Cover = EBIT / Interest Expense
Tata Steel has maintained a sufficiently high ratio over the past few years.
SAIL has historically performed best here but Tata Steel has caught up with it in the latest figures. JSW
Steel and Visa Steel have performed very poorly.

CONCLUSION
Tata Steel has a healthy financial structure when compared to its rivals like JSW Steel and VISA Steel. It
has the second largest steel production in India after SAIL but it inches forward on SAIL on many
indicators, especially the Solvency indicators, which makes it one of the most valuable investment in the
Steel Industry