TATA MOTORS.

LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its short-term financial obligations whenand as they fall due.The main concern of liquidity ratio is to measure the ability of the firms to meettheir short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.Common liquidity ratios include the current ratio, the quick ratio and theoperating cash flow ratio.

Current Ratio :
The current ratio is a popular financial ratio used to test acompany's liquidity (also referred to as its current or working capital position) byderiving the proportion of current assets available to cover current liabilities.The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables andinventory) are readily available to pay off its short-term liabilities (notes payable,current portion of term debt, payables, accrued expenses and taxes). In theory,the higher the current ratio, the better.Current assets normally includes cash, marketable securities, accountsreceivable and inventories. Current liabilities consist of accounts payable, shortterm notes payable, short-term loans, current maturities of long term debt,accrued income taxes and other accrued expenses (wages). Interpretation 1.Relatively high ratio values mean that the business is liquid, but cash is notworking. 2.If the current ratio is greater than 1.0, the business is liquid. 3.If the current ratio is less than 1.0, the business is illiquid.

Quick ratio : The quick ratio -the quick assets ratio or the acid-test ratio -is aliquidity indicator that further refines the current ratio by measuring the amountof the most liquid current assets there are to cover current liabilities. The quickratio is more conservative than the current ratio because it

excludes inventoryand other current assets, which are more difficult to turn into cash. Therefore, ahigher ratio means a more liquid current position. Interpretation 1.Relatively high ratio values mean that the business is liquid, but cash isnot working. .2If the current ratio is greater than 1.0, the business is liquid. 3.If the current ratio is less than 1.0, the business is illiquid.

LEVERAGE RATIO
The ratios indicate the degree to which the activities of a firm are supported by creditors funds as opposed to owners.The relationship of owners equity to borrowed fun ds is an important indicator . The debt requires fixed interest payments and repayment of the loan and legalaction can be taken if any amounts due are not paid at the appointed time. A relativelyhigh proportion of funds contributed by the owners indicates a cushion (surplus) whichshields creditors against possible losses from default in payment.Note: The greater the proportion of equity funds, the greater the degree of financialstrength. Financial leverage will be to the advantage of the ordinary shareholders aslong as the rate of earnings on capital employed is greater than the rate payable onborrowed funds.

Debt Ratio :
The debt ratio compares a company's total debt to its totalassets, which is used to gain a general idea as to the amount of leverage beingused by a company. A low percentage means that the company is less dependenton leverage, i.e., money borrowed from and/or owed to others. The lower thepercentage, the less leverage a company is using and the stronger its equityposition. In general, the higher the ratio, the more risk that company isconsidered to have taken on.A debt ratio of greater than 1 indicates that a company has more debtthan assets,

meanwhile, a debt ratio of less than 1 indicates that a company hasmore assets than debt. Used in conjunction with other measures of financialhealth, the debt ratio can help investors determine a company's level of risk.

Debt-Equity Ratio :
The debt-equity ratio is another leverage ratio thatcompares a company's total liabilities to its total shareholders' equity. This is ameasurement of how much suppliers, lenders, creditors and obligors havecommitted to the company versus what the shareholders have committed.To a large degree, the debt equity ratio provides another vantage point on acompany's leverage position, in this case, comparing total liabilities toshareholders' equity, as opposed to total assets in the debt ratio. Similar to thedebt ratio, a lower the percentage means that a company is using less leverageand has a stronger equity position.

Interest Coverage Ratio

: This ratio measures the debt servicing capacityof a firm as fixed interest on long term loan is concerned. It is determined bydividing the operating profits or earnings before interest and taxes (EBIT) by thefixed interest charges on loans. Thus, interest 45 coverage = EBIT / Interest Fromthe point of view of the creditors, the larger the coverage, the greater is theability of the firm to handle fixed charge capabilities and the more assured is thepayment of interest to the creditors. However, too high a ratio may imply unuseddebt capacity.
The lower the ratio, the more the company is burdened by debt expense.When a company's interest coverage ratio is 1.5 or lower, its ability to meetinterest expenses may be questionable. An interest coverage ratio below 1indicates the company is not generating sufficient revenues to satisfy interestexpenses.Present and prospective loan creditors such as bondholders, are vitallyinterested to know how adequate the interest payments on their loans arecovered by the earnings available for such payments.Owners, managers and directors are also interested in the ability of thebusiness to service the fixed interest charges on outstanding debt .

Financial Leverage Ratio

: Financial leverage refers to presence of fixedcharge in the income statement of the firm. Interest amount does not changewith PBIT, whereas the residual profits available to shareholders is affected by achange in PBIT. Thus the ratio measures the relationship between PBIT and PBT.

ACTIVITY RATIO
Accounting ratios that measure a firm's ability to convert different accountswithin their balance sheets into cash or sales. Companies will typically try to turntheir production into cash or sales as fast as possible because this will generallylead to higher revenues.Such ratios are frequently used when performing fundamental analysis ondifferent companies. The asset turnover ratio and inventory turnover ratio aregood examples of activity ratios. Inventory Turnover Ratio : Inventory Turnover Ratio indicates how fastinventory is sold. A high ratio is good from the viewpoint of liquidity and viceversa. A low ratio would signify that inventory does not sell fast and stays on theshelf or in the warehouse for a long time.

Days Of Inventory Holding

: The number of days inventory is also known as average inventory period andinventory holding period.

A high number of days inventory indicates that their is a lack of demand for theproduct being sold.A low days inventory ratio (inventory holding period) may indicate that thecompany is not keeping enough stock on hand to meet demands.

Fixed Asset Turnover Ratio

: This ratio is a rough measure of theproductivity of a company's fixed assets (property, plant and equipment or PP&E)with respect to generating sales. For most companies, their investment in fixedassets represents the single largest component of their total assets. This annualturnover ratio is designed to reflect a company's efficiency in managing thesesignificant assets. Simply the higher the yearly turnover rate, the better.It represents a multiplicity of management decisions on capital expenditures.

Total Assets Turnover Ratio

: This ratio is also known as the investmentturnover ratio. It is based on the relationship between the cost of goods sold andassets/ investments of a firm as reflected in its earning power. Depending uponthe different concepts of assets employed, there are many variants of this ratio.

Profitability Ratios
Profit margin analysis uses the percentage calculation to provide a comprehensivemeasure of a company's profitability on a historical basis (3-5 years) and incomparison to peer companies and industry benchmarks.Basically, it is the amount of profit (at the gross, operating, pretax or netincome level) generated by the company as a percent of the sales generated. Theobjective of margin analysis is to detect consistency or positive/negative trends ina company's earnings. Positive profit margin analysis translates into positiveinvestment quality. To a large degree, it is the quality, and growth, of a company'searnings that drive its stock price.

EBIDTA
: A company's cost of sales, or cost of goods sold, represents theexpense related to labour, raw materials and manufacturing overhead involved inits production process. This expense is deducted from the company's netsales/revenue, which results in a company's first level of profit, or gross profit.The gross profit margin is used to analyze how efficiently a company is using itsraw materials, labour and manufacturing-related fixed assets to generate profits.A higher margin percentage is a favorable profit indicator.

Net Profit Margin

: Often referred to simply as a company's profit margin,the so-called bottom line is the most often mentioned when discussing acompany's profitability. While undeniably an important number, investors caneasily see from a complete profit margin analysis that there are several incomeand expense operating elements in an income statement that determine a netprofit margin. It behooves investors to take a comprehensive look at a company'sprofit margins on a systematic basis.

Return On Equity
: This ratio indicates how profitable a company is bycomparing its net income to its average shareholders' equity. The return onequity ratio (ROE) measures how much the shareholders earned for theirinvestment in the company. The higher the ratio percentage, the more efficientmanagement is in utilizing its equity base and the better return is to investors.
Widely used by investors, the ROE ratio is an important measure of acompany's earnings performance. The ROE tells common shareholders howeffectively their money is being employed. Peer company, industry and overallmarket comparisons are appropriate; however, it should be recognized that thereare variations in ROEs among some types of businesses .

Return On Investment
: In finance, rate of return (ROR), also known asreturn on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relativeto the amount of money invested. The amount of money gained or lost may bereferred to as interest, profit/loss, gain/loss, or net income/loss. The moneyinvested may be referred to as the asset, capital, principal, or the cost basis of theinvestment. ROI is usually expressed as a percentage rather than a fraction.
Return on investment is a very popular metric because of its versatility andsimplicity. That is, if an investment does not have a positive ROI, or if there areother opportunities with a higher ROI, then the investment should be not beundertaken.

Earnings Per Share -EPS

: The portion of a company's profit allocated toeach outstanding share of common stock. Earnings per share serves as anindicator of a company's profitability.Calculated as

When calculating, it is more accurate to use a weighted average number of sharesoutstanding over the reporting term, because the number of shares outstandingcan change over time. However, data sources sometimes simplify the calculationby using the number of shares outstanding at the end of the period.Earnings per share is generally considered to be the single most importantvariable in determining a share's price. It is also a major component used tocalculate the price-to-earnings valuation ratio.

WORKING CAPITAL
Working capital, also known as net working capital, is a financial metric whichrepresents operating liquidity available to a business. Along with fixed assets suchas plant and equipment, working capital is considered a part of operating capital.It is calculated as current assets minus current liabilities. If current assets are lessthan current liabilities, an entity has a working capital deficiency, also called aworking capital deficit.A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive workingcapital is required to ensure that a firm is able to continue its operations and thatit has sufficient funds to satisfy both maturing short-term debt and upcomingoperational expenses. The management of working capital involves managinginventories, accounts receivable and payable and cash.An increase in working capital indicates that the business has eitherincreased current assets (that is received cash, or other current assets) or hasdecreased current liabilities, for example has paid off some short-term creditors.

Gross Working Capital : Total current assets.

Net Working Capital : Current assets -Current liabilities.

Net operating working capital (NOWC)

: Operating CA Operating CL =(Cash + Inv. + A/R) (Accruals + A/P) WORKING CAPITAL Working capital, also known as net working capital, is a financial metric whichrepresents operating liquidity available to a business. Along with fixed assets suchas plant and equipment, working capital is considered a part of operating capital.It is calculated as current assets minus current liabilities. If current assets are lessthan current liabilities, an entity has a working capital deficiency, also called aworking capital deficit.A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive workingcapital is required to ensure that a firm is able to continue its operations and thatit has sufficient funds to satisfy both maturing short-term debt and upcomingoperational expenses. The management of working capital involves managinginventories, accounts receivable and payable and cash.An increase in working capital indicates that the business has eitherincreased current assets (that is received cash, or other current assets) or hasdecreased current liabilities, for example has paid off some short-term creditors.

Gross Working Capital : Total current assets.

Net Working Capital : Current assets -Current liabilities.

Net operating working capital (NOWC) : Operating CA Operating CL =(Cash + Inv. + A/R) (Accruals + A/P).