CHAPTER- 3: ANALYSIS AND

INTERPRETATIONS

1) STATEMENT OF CHANGES IN WORKING CAPITAL

PARITCULARS MAR’23 MAR’22 MAR’21 MAR’20 MAR’19

[A] CURRENT (in crores) (in crores) (in crores) (in crores) (in crores)
ASSETS
Inventories 40,755.39 35,240.34 36,088.59 37,456.88 39,013.73

Sundry Debtors 15,737.97 12,442.12 12,679.08 11,172.69 18,996.17

Cash and Bank 37,015.56 40,669.19 46,792.46 33,726.97 32,648.82

Balance
Short Term Loans 2,302.84 1,671.93 1,749.40 935.25 1,268.70
and Advances
Total of A (gross 95,811.76 90,023.58 97,309.53 83,291.79 91,927.42
working cap.)

[B] CURRENT (in crores) (in crores) (in crores) (in crores) (in crores)
LIABILITIES
Short Term 36,964.66 41,917.87 21,662.79 16,362.53 20,150.26
Borrowings
Sundry Creditors 72,055.77 59,970.38 68,179.84 63,626.88 68,513.53

Other Current 34,196.24 38,028.25 55,058.52 50,135.60 46,596.89

Liabilities
Short Term 11,810.66 10,766.31 12,848.03 10,329.04 10,196.75
Provisions
Total of B 1,55,027.33 1,50,682.81 2,73,385.18 1,40,454.05 1,25,457.43

NET WORKING -59,215.57 -60,659.23 -1,76,075.65 -57,162.26 -33,530.01

CAPITAL(A-B)

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OBSERVATIONS- This above table highlights the Current Assets and Current
Liabilities which were there from the Financial years 2019 to 2023. After
subtracting the Total Current Assets from the Total Current Liabilities, we get the
Net Working Capital. The Net Working Capital for the year 2019 was 33,530.01
crores in negative, for 2020 it was 57262.26 crores in negative, for 2021 it was
1,76,075.65 in negative which shows the highest difference between the assets and
liabilities, for 2022 it came to 60,659.23 crores in negative, and for 2023 it was
59,215.57 crores in negative which showed a constant ratio maintained. Altho ugh
there were some years where the ratios were very disproportionate but still Tata
Motors maintains its constant ratio for assets and liabilities and Working Capital

The above given graph is plotted to show the last 5 years working capital sales of
Tata Motors plotted against the sales.

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2) TREND ANALYSIS OF TATA MOTORS

OBSERVATIONS- The above graph shows the Trend Analysis of Tata Motors
Limited. Trend analysis of Tata Motors Limited reveals several notable patterns in
recent years. With a keen focus on innovation and sustainability, Tata Motors has
embraced electric and hybrid vehicle technology, reflecting the global shift
towards greener transportation solutions. This strategic move aligns with evolving
consumer preferences and regulatory requirements, positioning the company as a
leader in the automotive industry's sustainable future. Additionally, Tata Motors
has shown resilience amidst market fluctuations, leveraging its diverse product
portfolio and geographical presence to mitigate risks.

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3)ANALYSIS OF CURRENT ASSETS AND CURRENT
LIABILITIES OF TATA MOTORS LIMITED

Table showing the Current Assets of Tata Motors Limited.

OBSERVATIONS- Tata Motors' current assets encompass a diverse range of

resources that facilitate its day-to-day operations and strategic initiatives. These
assets typically include cash and cash equivalents, short -term investments,
accounts receivable, inventory, and other liquid assets. With a global presence
spanning various automotive segments, including commercial vehicles, passenger
cars, and electric vehicles, Tata Motors strategically manages its current assets to
ensure liquidity and operational efficiency. Moreover, as the automotive industry
undergoes rapid technological advancements and market fluctuations, Tata Motors
may also allocate resources towards research and development to stay ahead of
emerging trends and consumer demands. By effectively managing its current
assets, Tata Motors can sustain its operational momentum, drive innovation , and
capitalize on growth opportunities in both domestic and international markets.

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T

The above graph shows the change in the Current Assets over the five financial
years.

Table showing Current Liabilities of Tata Motors Limited

OBSERVATIONS- Tata Motors' current liabilities represent the financial

obligations that the company must settle within a relatively short timeframe,

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typically within one year. These liabilities include accounts payable, short -term
borrowings, accrued expenses, and other obligations arising from the normal
course of business operations. Efficient management of current liabilities is crucial
for Tata Motors to ensure smooth cash flow and operational stability. By
strategically balancing its short-term obligations with its current assets, Tata
Motors can optimize its working capital and liquidity position. Additionally, the
company may utilize various financial instruments and strategies to manage its
current liabilities effectively, such as renegotiating payment terms with suppliers or
optimizing its debt structure. Overall, prudent management of current liabilities is
essential for Tata Motors to sustain its financial health and support its long-term
growth objectives.

The above graph shows the change in Current Liabilities of Tata Motors Limited
for previous financial years.

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3) WORKING CAPITAL RATIOS ANALYSIS:

Analyzing working capital ratios provides insights into Tata Motors' short -term
financial health and efficiency in managing its current assets and liabilities. The
key ratios commonly used for this analysis are Efficiency Ratios and Quick Ratios.

A) EFFICIENCY RATIOS:

Efficiency ratios, also known as activity ratios, are used by analysts to measure the
performance of a company's short-term or current performance. All these ratios use
numbers in a company's current assets or current liabilities, quantifying the
operations of the business.

An efficiency ratio measures a company's ability to use its assets to generate

income. For example, an efficiency ratio often looks at various aspects of the
company, such as the time it takes to collect cash from customers or the amount of
time it takes to convert inventory to cash. This makes efficiency ratios important,
because an improvement in the efficiency ratios usually translates to improved
profitability.

The four Efficiency Ratios used for analysis of financial statements and working
capital of Tata Motors Limited are:

• Working Capital Turnover Ratio

• Inventory Turnover Ratio
• Receivable Turnover Ratio
• Current Asset Turnover Ratio

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The Table Shown Below Highlights the Efficiency Ratios for the Previous
Fnancial Years

1)WORKING CAPITAL TURNOVER RATIO:

The working capital turnover ratio is a financial metric used to measure how
efficiently a company utilizes its working capital to generate sales revenue. It
indicates the amount of sales generated for each unit of working capital employed
by the company.

The formula for calculating the working capital turnover ratio is:

Working Capital Turnover Ratio= Net Sales/Average Working Capital

Where:
- Net Sales refers to the total revenue generated from sales after deducting any sales
returns, allowances, and discounts.

- Average Working Capital is the average amount of working capital available to

the company during a specific period. It is calculated as the average of the
beginning and ending working capital over the period.

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A higher working capital turnover ratio indicates that the company efficiently
utilizes its working capital to generate sales revenue, while a lower ratio suggests
inefficiency in utilizing working capital resources. Comparing the working capital
turnover ratio with industry benchmarks and historical performance can help assess
the company's operational efficiency and financial health.

2) INVENTORY TURNOVER RATIO:

The inventory turnover ratio is a financial metric used to evaluate how efficiently a
company manages its inventory by measuring the number of times inventory is sold
and replaced during a specific period, typically a year. It indicates how quickly a
company's inventory is being sold and replenished.

The formula for calculating the inventory turnover ratio is:

Inventory Turnover Ratio=Cost of Goods Sold/ Average Inventory

Where:

- Cost of Goods Sold (COGS) represents the direct costs associated with
producing goods or services that have been sold during a specific period.
- Average Inventory is the average amount of inventory held by the company
during the period, calculated as the average of the beginning and ending
inventory levels.

A higher inventory turnover ratio indicates that a company is selling its inventory
quickly and efficiently, which may suggest strong demand for its products,
effective inventory management practices, and minimized carrying costs.

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3) TRADE RECEIVABLES TURNOVER RATIO:

The receivables turnover ratio is a financial metric used to assess how efficiently a
company manages its accounts receivable by measuring the number of times
receivables are collected during a specific period, usually a year. It indicates how
quickly a company converts its credit sales into cash or cash equivalents.

The formula for calculating the receivables turnover ratio is:

Receivables Turnover Ratio= Net Credit Sales/ Average Accounts Receivable

Where:

- Net Credit Sales refers to the total sales revenue generated from credit sales
after deducting any sales returns, allowances, and discounts.
- Average Accounts Receivable is the average amount of accounts receivable
held by the company during the period, calculated as the average of the
beginning and ending accounts receivable balances.

A higher receivables turnover ratio suggests that a company collects its accounts
receivable more quickly, which may indicate effective credit management
practices, timely collection efforts, and minimized credit risk exposure.
Conversely, a lower ratio may indicate slower collection of receivables, potential
liquidity issues, or difficulties in collecting outstanding payments from customers.
Comparing the turnover receivable ratio with industry benchmarks and historical
performance can help assess a company's effectiveness in managing its accounts
receivable and cash flow.

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4)CURRENT ASSETS TURNOVER RATIO:

The current assets turnover ratio is a financial metric that evaluates how efficiently
a company utilizes its current assets to generate sales revenue. It measures the
company's ability to generate sales in relation to its current assets, which include
assets that are expected to be converted into cash or used up within a year.

The formula for calculating the current assets turnover ratio is:

Current Assets Turnover Ratio= Net Sales/ Average Current Assets

Where:

- Net Sales refers to the total revenue generated from sales after deducting any
sales returns, allowances, and discounts.

- Average Current Assets represent the average number of current assets held by
the company during a specific period, typically calculated as the average of the
beginning and ending current asset balances.

B) LIQUIDITY RATIOS:

Liquidity ratios are financial metrics used to evaluate a company's ability to meet
its short-term financial obligations promptly and efficiently. These ratios assess the
company's ability to convert its assets into cash to cover its liabilities as they come
due Liquidity ratios provide valuable insights into a company's ability to manage

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its short-term financial commitments, withstand financial downturns, and seize
opportunities for growth. They are essential tools for investors, creditors, and other
stakeholders in assessing a company's financial stability and risk profile. The two
primarily used Liquidity Ratios are Current Ratio and Quick Ratio.

The table shown below highlights the Liquidity Ratios of Tata Motors Limited for
the previous financial years.

1) CURRENT RATIO:

The current ratio compares a company's current assets to its current liabilities. It
measures the company's ability to meet its short-term obligations using its short-
term assets. A higher current ratio indicates better liquidity, as it suggests that the
company has more current assets than current liabilities.

Formula for Current ratio= Current Assets/ Current Liabilities

2) QUICK RATIO (OR ACID TEST RATIO):

The quick ratio is a more stringent measure of liquidity as it excludes inventory

from current assets. It assesses whether a company can meet its short -term

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obligations using its most liquid assets. Like the current ratio, a higher quick ratio
indicates better liquidity.

Formula for Quick Ratio= (Current Assets- Inventory)/ Current Liabilities

INTERPRETATIONS AND SIGNIFICANCE OF WORKING CAPITAL

MANAGEMENT FOR TATA MOTORS LIMITED:

Analyzing the working capital ratio for Tata Motors Ltd. provides insights into the
company's short-term financial health and operational efficiency. The working
capital ratio, also known as the current ratio, is calculated by dividing current assets
by current liabilities. Here are some interpretations:

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1. Liquidity Assessment: A higher working capital ratio indicates that Tata
Motors has more current assets than current liabilities, suggesting strong
liquidity. This implies that the company can meet its short-term obligations
without difficulty. Conversely, a lower ratio might signal potential liquidity
issues.

2. Operational Efficiency: Consistently high or improving working capital

ratios could suggest effective management of inventory, receivables, and
payables by Tata Motors. It implies that the company is efficiently utilizing
its resources to generate revenue and manage its day-to-day operations.

3. Risk Management: A very high working capital ratio might indicate an

overly conservative approach, with excessive funds tied up in low-yield
assets. Conversely, a very low ratio may suggest that the company could
face difficulties in meeting short-term obligations, which could lead to
liquidity problems or even insolvency.

4. Comparison with Industry Standards: Analyzing Tata Motors' working

capital ratio in comparison to industry benchmarks can provide insights into
its competitiveness and efficiency relative to its peers. If Tata Motors' ratio is
higher or lower than industry averages, it's important to under stand the
reasons behind the variance.

5. Trend Analysis: Monitoring changes in Tata Motors' working capital ratio

over time is crucial. A consistent upward trend may indicate improving

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 financial health, while a declining trend might raise concerns about the
company's ability to manage its short-term obligations effectively.

6. Investor Perception: Investors often consider the working capital ratio when
assessing Tata Motors' financial stability and investment potential. A healthy
ratio could enhance investor confidence, while a weak ratio might deter
investors or signal underlying financial challenges.

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