I N T E R N A T I O N A L S C H O O L O F B U S I N E S S & M E D I A ; K O L K A T A P a g e | 2
FINANCIAL RATIO ANALYSIS OF TATA STEEL
1. Liquidity Ratios:-
Liquidity Ratios measures the ability of the firm to meet its short term obligations.
They also reflect the firm’s ability to meet financial contingencies that might arise.
(A) Current Ratio: - This ratio indicates the firm’s ability to meet its current liabilities. This ratio is of very high importance to the suppliers of short term funds like the bankers and trade creditors.
It is measured by: - Current Ratio = Current Assets / Current Liabilities.
As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Current Asset Current Liabilities Current Ratio
2008 3,613.70 3,855.26 0.94
2009 5,707.05 6,039.86 0.94
Analysis: - The industry norm value of current ratio is 2:1. However it does not mean so that higher current ratio means good company profile. It may signify higher unused cash, inventory which again may result in inventory carrying cost.
In both the years the Current ratio for Tata Steel is same. However it does not mean any increase or decrease in current ratio of any company gives the growth profile of the company. P a g e | 3
(B) Quick Ratio:- This ratio is calculated on pre assumption that all the current assets are of same level of liquidity. But this is not the reality. Cash in Hand is more liquid that the same cash equivalent of inventory. So to get a real picture of liquidity we calculate Liquid Ratio. It is calculated by (Current Asset-
Inventory – Prepaid Expense / Current Liability)
