Guidelines for Financial Accounting Assignment

EGMP -18

The objective of the assignment is to improve your knowledge on assessing the financial
health of the company using financial statements. Please go through the following points
in preparing the assignment.

1. It is a group assignment. For each group take a company of your choice (no
duplication please ). Data is to be downloaded for 4 years. You have to download
the data from capitaline database. (www.capitaline.com) or from the company
website .Analysis is to be done for 3 years (2 years annual report)

2. Please go through the book (Financial Statement Analysis) before doing the
analysis.

3. Analysis should include the following”

• Strategy analysis : (Strategy: Industry Analysis, Market share, Products, Key

inputs, Main suppliers and Customers, Technology advantages, Major corporate issues
Market share, Key changes in Management, Products, Mergers) and any major
economic event that would impact the corporation (Keep it brief not more than ½ -1
page)

• Accounting analysis
Highlight the Major changes in accounting policy or Unusual accounting
treatments and any accounting issues you observe.
• Also re –organize the PL and Balance sheet to show current and non -
current (See item 4)

• Financial Analysis
(This is not exhaustive list; you can improvise or add your own)

Key Financial highlights.

Common-sizing, Growth Trends

Ratios and their interpretation etc and Comparing with the competitors
performance over the last 3 years
Profitability Ratios
Liquidity ‘
Asset Management
Long term solvency
Market Ratios
Compute and interpret.

4. After working out the ratios answer the following questions:

 (a) What are the strong and weak areas of operations of the company based on
the analysis?
(b) Analyze the liquidity position
(c) Any other insights into the workings
(d) SWOT analysis
(e) What are your learning’s from the project

5. Here are some instructions about the presentation style.

(a) Your main report should not be more than 8/10 pages
(b) You can give up to 6 Annexes containing the workings including the for items
The balance sheet and P and L should be the reorganised format as given in
Appendix 1. (Figures Upto 2 Decimal places only.)
(c) Your report should be submitted in hardcopy on the announced date
(d) The font for the main report should be Times New Roman, size 12. The page
set up should be 1 inch on all four sides.
(e) The title page of the report should contain all your names with your
Registration No. (given in you ID Card), along with the name of the company
and industry name for which you are doing the analysis.

6. There are no sample reports. Use your own style of writing reports. Additional
marks for important insights.

Appendix 1
Reorganised balance sheet should have only the following main details

1. Assets:
a) Fixed assets (Net Fixed Assets) Ignore revaluation of assets
b) Current assets:
1. Inventory
2. Sundry Debtors
3. Other current assets (Cash, etc)
4. Investments (Mutual funds and others current in nature)

c) Other Assets that are not FA and not CA like :

Investments in group/associates
Deferred tax asset if any
Total of a+ b+c

2. Sources of Finance
Shareholder’s Funds/ Net Worth = (Share capital + reserves and surplus
1. Borrowings = (Segregate between long term and Short term based on your
understanding)
2. Current Liabilities and provisions including the short-term debts from above
Total liabilities = 1+2+3
Total Assets = Total Liabilities (DON’T LOOSE YOUR BALANCE)
Summary

Tata Steel is engaged in mining, production and distribution of steel and steel products in several
countries across the world. The company owns mining assets and operations in Ivory Coast,
Mozambique, Oman and India. Its steel making operations are located in Europe, India and
Southeast Asia. The company also operates 17 distribution and commercial centers around the
world. The company’s operations are segmented on the basis of its holding and subsidiary
companies operations including: Tata Steel, Corus Group, NatSteel, Tata Steel Thailand and
Tata Metaliks Limited. The Tata Steel operations include Steel division, which produces Hot
metal, Crude Steel and Saleable Steel.

Global Markets Direct, the leading business information provider, presents an in-depth business,
strategic and financial analysis of Tata Steel. The report provides a comprehensive insight into
the company, including business structure and operations, executive biographies and key
competitors. The hallmark of the report is the detailed strategic analysis and Global Markets
Direct’s views on the company.

Scope

The company’s strengths and weaknesses and areas of development or decline are analyzed.
Financial, strategic and operational factors are considered.
The opportunities open to the company are considered and its growth potential assessed.
Competitive or technological threats are highlighted.
The report contains critical company information – business structure and operations, the
company history, major products and services, key competitors, key employees and executive
biographies, different locations and important subsidiaries.
It provides detailed financial ratios for the past five years as well as interim ratios for the last four
quarters.
Financial ratios include profitability, margins and returns, liquidity and leverage, financial position
and efficiency ratios.

Reasons to buy

A quick “one-stop-shop” to understand the company.

Enhance business/sales activities by understanding customers’ businesses better.
Get detailed information and financial & strategic analysis on companies operating in your
industry.
Identify prospective partners and suppliers – with key data on their businesses and locations.
Capitalize on competitors’ weaknesses and target the market opportunities available to them.
Compare your company’s financial trends with those of your peers / competitors.
Scout for potential acquisition targets, with detailed insight into the companies’ strategic, financial
and operational performance.

Key Financial Ratios of Tata Steel ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 M

Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00
Dividend Per Share 13.00 15.50 16.00 16.00
Operating Profit Per Share (Rs) 106.31 119.11 112.85 125.60
Net Operating Profit Per Share (Rs) 273.40 300.66 269.02 333.27
Free Reserves Per Share (Rs) 147.23 213.24 275.25 309.18
Bonus in Equity Capital 45.68 43.56 34.61 34.61
Profitability Ratios
Operating Profit Margin(%) 38.88 39.61 41.94 37.68
Profit Before Interest And Tax Margin(%) 33.19 33.97 37.04 33.27
Gross Profit Margin(%) 38.81 39.84 37.70 33.69
Cash Profit Margin(%) 27.82 28.10 26.41 23.83
Adjusted Cash Margin(%) 27.54 28.47 26.41 23.83
Net Profit Margin(%) 22.78 23.53 23.43 21.09
Adjusted Net Profit Margin(%) 22.50 23.90 23.43 21.09
Return On Capital Employed(%) 43.72 27.71 17.11 15.01
Return On Net Worth(%) 35.94 29.95 21.52 21.10
Adjusted Return on Net Worth(%) 36.44 31.19 20.42 19.87
Return on Assets Excluding Revaluations 18.28 13.19 296.65 330.24
Return on Assets Including Revaluations 18.28 13.19 296.65 330.24
Return on Long Term Funds(%) 43.93 28.11 17.16 15.21
Liquidity And Solvency Ratios
Current Ratio 0.71 1.69 3.81 0.91
Quick Ratio 0.30 1.37 3.52 0.57
Debt Equity Ratio 0.26 0.69 1.08 1.34
Long Term Debt Equity Ratio 0.25 0.68 1.07 1.31
Debt Coverage Ratios
Interest Cover 31.86 26.19 8.35 5.71
Total Debt to Owners Fund 0.26 0.69 1.08 1.34
Financial Charges Coverage Ratio 36.46 29.45 9.25 6.37
Financial Charges Coverage Ratio Post Tax 26.42 21.07 6.94 5.15
Management Efficiency Ratios
Inventory Turnover Ratio 7.08 7.69 10.84 9.36
Debtors Turnover Ratio 26.99 29.81 33.45 41.29
Investments Turnover Ratio 9.89 10.81 10.84 9.36
Fixed Assets Turnover Ratio 1.60 1.68 1.20 1.22
Total Assets Turnover Ratio 1.24 0.74 0.43 0.43
Asset Turnover Ratio 0.98 1.09 1.20 1.22

Average Raw Material Holding 75.52 61.19 71.68 74.12

Average Finished Goods Held 35.61 33.58 29.45 27.88
Number of Days In Working Capital -45.60 131.85 520.93 -4.56
Profit & Loss Account Ratios
Material Cost Composition 31.49 33.01 30.85 35.19
Imported Composition of Raw Materials 40.42 48.93 50.51 68.85
Consumed
Selling Distribution Cost Composition 0.53 0.37 0.26 0.25
Expenses as Composition of Total Sales 13.94 12.05 11.64 13.85
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 23.39 26.15 29.39 27.15
Dividend Payout Ratio Cash Profit 19.16 21.90 24.93 22.80
Earning Retention Ratio 76.32 74.25 69.02 71.16
Cash Earning Retention Ratio 80.65 78.38 73.94 76.03
AdjustedCash Flow Times 0.59 1.89 3.41 4.58

Mar '06 Mar '07 Mar '08 Mar '09 M

Earnings Per Share 63.35 72.74 63.85 69.70

Book Value 176.26 240.31 298.78 331.68