TERM PAPER

On
FINANCIAL STATEMENT ANALYSIS

VJIM Hyderabad

SUBMITTED BY

Ashutosh Anand (09105)

Himaja Kota (09114)
Manoj Sharma (09124)
Raj Vardhan( 09134)
A.Shashank(09144)
V.Raghu Ram(09154)

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 TATA MOTORS
Introduction
Tata motors limited is India’s largest automobile company with revenues of Rs 70,938,85
crores(USD 14 Billion) in the year 2008-09. Tata Motors is one of the premier car
manufacturing companies in India. It continuous dominated to the car manufacturing sector
in India. It accounts for revenues of more than 35000 crores in the year 2007-08.Tata motors
in addition to cars also manufactures trucks, buses where it is one of the largest
manufacturers of trucks and buses. It is the world’s fourth largest truck manufacturer and
second largest bus manufacturer.

BRIEF HISTORY:

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Tata Motors established in the year 1945 by JRD TATA. The firm was initially known by the
name of TELCO, TATA ENGINNERING and LOCOMATIVE COMPANY. In the year
1954 it operationlised its activities in the commercialize sector with the celebration
agreement with DAIMLER Benz of Germany. In year 1966 with 2000 engineers and scientist
the company started its engineering research center. In the year 1954 Tata launched its first
Mercedes Benz diesel truck. In the year 1977 Tata manufactured its commercial vehicle at its
plant in Pune. In 1986 Tata launched its first light commercial vehicle from Telco. In 1992
Tata introduced second passenger vehicle. In the year 1994 it released its multi-utility car,
Tata Sumo. After this there was no stopping in the journey of Tata motors. In the year 1998
Tata motors produced SUV, Tata safari, which was the first SUV to be designed developed
and manufacture entirely in India. In 2002 Tata introduced India’s most competitive
indigenous sedan, the indigo. Tata Engineer formally changes to Tata Motors in the year
2003. Tata motors acquired DAEWOO commercial vehicle Company of South Korea. Where
the first range of Tata naves vehicles were launched soon after. The most-awaited car NANO
worth of one lakh came out, this is popularly known as people’s car. It is the next big step to
the company in the journey that began with Indica.

Expansion of The Company: The manufacturing base of the company in India is spread
across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar
(Uttarakhand) and Dharwad (Karnataka). Following a strategic alliance with Fiat in 2005, it
has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon
(Maharashtra) to produce both Fiat and Tata cars and Fiat power trains. The company is
establishing a new plant at Sanand (Gujarat). Tata motors expanded globally and now has
significant present in major countries of the world like South Korea, Thiland, South Africa
and Argentina.

Tata Motors is also expanding its international footprint since 1961. The company's
commercial and passenger vehicles are marketed already in several countries in Europe,
Africa, the Middle East, South East Asia, South Asia and South America.
In the year 2004, company acquired the Daewoo Commercial Vehicles Company, which is
South Korea's second largest truck maker. Today two-thirds of heavy commercial vehicle
exports out of South Korea are from Tata Daewoo. In 2006, Tata Motors formed a joint
venture with the Brazil-based Marco polo, a global leader in body-building for buses and
coaches to manufacture fully-built buses and coaches for India and select international
markets. In 2006, Tata Motors entered into joint venture with Thonburi Automotive
Assembly Plant Company of Thailand to manufacture and market the company's pickup
vehicles in Thailand. The new plant of Tata Motors (Thailand) began its production of the
Xenon pickup truck, with the Xenon having been launched in Thailand in 2008.

SHARE HOLDING PATTERN IN TATA MOTORS:

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 Category No. of Shares Percentage of share holders

1) Indian Promoters 54082644 84.27%

2) Banks, Financial Institution 8196838 12.77%

Insurances

3) Foreign Institutional 55450 0.09%

Investments

4) Private Corporate Bodies 1455819 2.27%

5) NRI’S/OCB;S/Other Foreign 11155 0.02%

countries

6) Directors/Employees 23736 0.04%

7) Others 18

8) General public 349995 0.55%

GRAND TOTAL 64175655 100%

PROMOTERS:
Tata motors have many promoters but main one promoter is Tata sons. Tata Sons is a
promoter of the key companies of the Tata Group and holds the bulk of shareholding in these
companies. About 66 per cent of the equity capital of Tata Sons is held by philanthropic
trusts endowed by members of the Tata family. Others promoters are TISCO, TATA
INVESTMENT CORPORATION LIMITED, TATA CHEMICALS LIMITED, TATA TEA
COMPANY, TATA AIG LIFE INSURANCE, SRI DORABJI TATA TRUST.

CONTENTS OF ANNUAL REPORT:

CHAIRMAN’S STATEMENT
Collapse of global financial sector, lack of access to credit working capital, rise in the prices
of commodities, fossil fuel had an unprecedented devastating effect on global automotive
sector.2008-09 was a difficult year faced by the automotive sector. Spread of economic
done turn of the western countries affected business environment in India as well. Despite of
the challenges from domestic and over seas Market Company successfully completed the
acquisition of Jaguar Land Rover and launched Tata Nano.

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Tata Motors continued to be the largest Auto motive company in India in terms of Revenue
though it’s turn over fell declined by 28599 cr.( 13.6%)World wide car sales was down by
5% as compared to the previous year. Sale of new cars in Europe, Us .Japan have declined by
16%. Currency volatility high interest cost resulted in PBT decline by 60-70%and PAT
declined by 50.7%over the last year.
CORPORATE GOVERNANCE

The Company's philosophy on Corporate Governance is founded upon a rich legacy of fair,
ethical and transparent governance practices. The Company is in full compliance with the
requirements of Corporate Governance under Clause 49 of the Listing Agreement with the
Indian Stock Exchanges (“the Listing Agreement”). The Corporate Governance philosophy
has been further strengthened with the implementation, a few years ago, by the Company of
the Tata Business Excellence Model, the Tata Code of Conduct applicable to the Company,
its subsidiaries, directors and employees. The Company is in full compliance with the
requirements of Corporate Governance under Clause 49 of the Listing Agreement with the
Indian Stock Exchanges (“the Listing Agreement”). The Company's Depository Programmed
being listed on the New York Stock Exchange, the Company also complies with US
regulations as applicable to Foreign Private Issuers (non-US listed companies) which cast
upon the Board of Directors and the Audit Committee, onerous responsibilities to improve
the Company's operating efficiencies. Risk management and internal control functions have
been geared up to meet the progressive governance standards.

BOARD OF DIRECTORS

The Board of Directors along with its Committees provide leadership and guidance to the
Company ’management and directs, supervises and controls the performance of the
Company. All the Directors have made necessary disclosures regarding Committee positions
held by them in other companies and do not hold the office of Director in more than 15
public companies. None of the Directors of the Company are related to each other. All Non
Executive Directors are liable to retire by rotation. The appointment of the Managing
Director and the Executive Director(s), including the tenure and terms of remuneration are
also approved by the members.

AUDITOR’S REPORT

Auditors have audited the attached Balance Sheet of TATA MOTORS LIMITED as at
March 31, 2009, and also the Profit and Loss Account and the Cash Flow Statement for the
year ended on that date both annexed there to. These financial statements are the
responsibility of the Company’s Management. Auditor’s responsibility is to express an
opinion on these financial statements based on their audit.

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The Company has maintained proper records showing full particulars including quantitative
details and situation of fixed assets. The Company has taken loan from two parties covered in
the register maintained under Section 301 of the Companies Act, 1956. The maximum
amount involved during the year was Rs.13.6 crores and the year-end balance of the loans
taken from such parties was Rs.13.6 crores.

BALANCE SHEET
• Balance sheet is in vertical form where sources of funds and application of funds are
considered.
• Sources of funds increased by 75% from 31st march,2008 to 31st march,2009 due to
increase in reserves and surplus and loan funds.
• Fixed assets increased by 28% compared to previous year due to purchase of plant &
machinery and equipment.
• It is observed that 320% decrease in net current assets due to increase in investments
by 264% when compared to previous year.

INCOME STATEMENT
• The company’s turnover decreased by 14% compared to previous year.
• Earnings before tax decreased by 39.3% compared to previous year due to increase in
depreciation, interest and discounting charges.
• A drastic decrease of 50% was observed in PAT compared to previous year.
• The proposed dividends was 311.61(Rs in crores) from 578.43(Rs in crores) in
previous year.

CASH FLOW STATEMENT

• Cash from operating activities decreased by 79% due to decrease in PAT and Trade &
other payables.
• Cash from investing activities decreased by 85.9% due to investments in subsidiary
companies.
• Cash from financial activities increased by nearly 8 times that of the previous year.
• Cash and cash equivalent generated from all the activities decreased by 52%
compared to previous year due to decrease in cash from operating and investing
activities.
NOTES TO ACCOUNTS

Notes to Balance Sheet

1 I. The Issued and subscribed capital includes:
(a) Ordinary Shares allotted as fully paid up shares for consideration other than cash:
- 753470 Ordinary Shares allotted to Daimler – Benz AG in consideration of materials
supplied to the Company in the financial year 1956-57.3,00,000 Ordinary Shares allotted to
the Shareholders of erstwhile Invest Machine Tools and Engineering Company Limited in

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terms of the Scheme of Amalgamation sanctioned by the Bombay High Court in the financial
year 1966-67.

DISCLOSURES

The Company has complied with various rules and regulations prescribed by Stock
Exchanges, Securities and Exchange Board of India for the past three years and no penalties
are being laid on the company. The Audit Committee and the Board have adopted a Whistle-
Blower Policy which provides al mechanism for all employees to approach the Management
of the Company and make protective disclosures about unethical behavior, suspected fraud or
violation of the Company’s Code of Conduct or ethics policy.

FINANCIAL RATIOS FOR WALL MART

1) Liquidity Ratios
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 a) Current ratio

The current ratio shows the liquidity of the organization. The ideal ratio is 2:1, if the ratio
is less than two then it means that the firm does not enjoy adequate liquidity, at the same time
if the current ratio is more than 3 then it shows that the business is having more idle funds
which are not being invested.

Current ratio=current assets/current liabilities

Particulars 2005 2006

Current assets 38854 43824

Current liabilities 43182 48826

Current ratio 0.899773054 0.897554582

In case of Wal-Mart we see that there is not much of difference between the current ratios of
two years although the ratio is less than the desired level.

b) Quick ratio

The quick ratio measures a company's ability to meet its short-term obligations
with its most liquid assets. A quick ratio of 1 is ideal, any business having quick ratio less
than one is an indication of inadequate liquidity. A high quick ratio is also not good as it
shows that funds are not properly employed.

Quick ratio=quick assets/current liabilities

Particulars 2005 2006

Quick assets 7203 9076

Current liability 43182 48826

Quick ratio 0.1668056135 0.1858845697

In case of Wal-Mart quick ratio is around 0.17 far below the ideal ratio, which means the
company cannot meet its current obligations immediately in the near future.

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 c) Absolute Liquid Ratio
This ratio is the best measure of how well the company is covering its short-term
obligations. A ratio of 0.5:1 is ideal, any business having quick ratio less than one is an
indication of inadequate liquidity. A high absolute liquid ratio is also not good as it shows
that funds are not properly employed.

Absolute Liquid Ratio= (cash balance+ bank balance+ marketable securities)/ current liabilities

Particulars 2005 2006

Cash and cash equivalent 5488 6414

Current liability 43182 48826

Absolute liquid ratio 0.127089991 0.131364437

In case of Wal-Mart, cash equivalents are not matching with the ideal requirement to meet
with current obligations. This fact is clearly is observed based on the absolute liquid ratio
which is around 0.1 far below the expected ideal ratio.

Comparative analysis of liquid ratios

Particulars 2005 2006

Current ratio 0.899773054 0.897554582
Quick ratio 0.1668056135 0.1858845697
Absolute liquid ratio 0.127089991 0.131364437

Overall the company is facing the severe liquidity crunch where it cannot maintain the liquidity
required to run business effectively. The vast difference between the ideal ratios and the ratios
calculated above show that the company is facing difficulties in paying its short term obligations.

2) ASSET UTILIZATION RATIOS

a) Cash Turnover Ratio

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 Indicates a firm’s efficiency in its use of cash for generation of sales Revenue. It is the
inverse of cash-to-sales ratio.
Cash turnover ratio = net sales/cash and cash equivalents.

Particulars 2005 2006

Net sales 285222 312427

cash equivalents 5488 6414

cash turnover ratio 51.97193878 48.71016526

Decrease in the cash turnover ratio shows that company failed in utilizing its cash to generate
sales.
b) Inventory Turnover Ratio

This ratio indicates the total number of times the stock has turned over into sales in a year. A
high stock turnover ratio is an indication of fast moving stocks and getting converted into
sales quickly. It could also be on account of low stock holding and replenishing stocks in
larger number of installments.

Inventory turn over ratio = cost of goods sold/ average inventory.

Stock turn over ratio = cost of goods sold/ Average stock
Here inventory in present year is the average inventory because there is no opening and
closing inventory.

Particulars 2005 2006

Cost of goods sold 219793 240391

Inventory 29762 32191

Inventory turn over ratio 7.385021168 7.467646237

Here in case of Wal-Mart the days to convert the stock into cash almost remained constant
for two years.

c).Debtor’s turnover ratio

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Debtor’s turnover ratio indicates the credit period the company offers its customers or how
fast it can realize its credit sales.

Debtors turn over ratio = Net credit sales/ average debtors.

Collection period = Net credit sales/ Debtors turnover
ratio
NOTE: If there are no credit sales we take net sales as
credit sales.

Particulars 2005 2006

Credit sales 285222 312427
Average debtor’s 1715 2662
DTR=credit sales/average debtor’s
DTR 166.3102041 117.3655147
Average collection period=365/DTR
Average collection period ( in days) 2.194693958 3.109942483
The increase in collection period indicates that the company is unable to collect efficiently from
debtors, if this increase continues further down the years this will hinder the cash flow and
further effect the operational activities.
d) Creditor’s turnover ratio

Creditor’s turnover ratio indicates the period within which the company meets its outstanding
obligations to their creditors.

Particulars 2005 2006

Purchases = COGs - opening stock + closing stock
Cost of goods sold 219793 240391
Opening stock 0 29762
Closing stock 29762 32191
Purchases 249555 242820
Average creditors 21987 25373
CTR = credit purchases / average creditors
CTR 11.35012 9.570015
Average payment period = 365 / CTR
Average payment period (in days) 32.15826 38.13996

The drastic increase of 6 days is observed by which a company extended its period of cash
cycle, this helps the organization to maintain balancing of purchase of raw material and
realization of sales.
e) Working capital Turnover Ratio

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This ratio shows how effectively a firm utilizes its funds. A high working capital turnover
ratio is desirable since it shows that the business is utilizing its funds efficiently. However if
its too high then it may be resulting in over-trading which is not desirable.
Working capital turn over ratio = sales/ Working capital.
Working capital = Current assets - current liabilities.

Particulars 2005 2006

Sales 285222 312427
Current assets 38854 43824
Current liabilities 43182 48826
Working capital (4328) (5002)
Working capital turnover ratio (65.90157116) (62.46041583)

A negative WC turnover ratio indicates that the company has lower current assets than
current liabilities and incapable of generating income from working capital.

f) Fixed Assets Turnover Ratio

This ratio shows how well does a firm utilizes its fixed assets. This can be interpreted as the
number of rupees in sales generated by each rupee of fixed assets. A high fixed assets ratio
indicates that the firm utilizes its fixed assets efficiently.
Fixed assets turn over ratio = Net sales/ Fixed assets.

Particulars 2005 2006

Sales 285222 312427

Fixed assets 78921 91478

Fixed asset turn over ratio 3.614019082 3.415323903

The fall in fixed asset turnover ratio suggest that the company is not efficiently in using its
fixed assets to maximize its sales revenue.

g) Total Assets Turnover Ratio

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It can be interpreted as number of rupees in sales is generated by each rupee spent on total
assets. The higher the total assets turnover ratio is, it shows that the firm has a greater ability
to utilize the investments in business.
Total assets turn over ratio= Net sales/ Total Assets.
Particulars 2005 2006
Sales 285222 312427
Total assets 120154 138187
Total assets turnover ratio 2.373803619 2.260900085

In case of Wal-Mart we can see that a fall in the total asset turnover ratio which suggests the
firm’s inefficiency in using its assets to generate sales or revenue.

Comparative analysis of asset utilization ratios

Particulars 2005 2006

Cash turnover ratio 51.97193878 48.71016526
Inventory turnover ratio 7.385021168 7.467646237
Average collection period 2.194693958 3.109942483
Average payment period 32.15826 38.13996
Working capital turnover ratio (65.90157116) (62.46041583)
Fixed asset turn over 3.614019082 3.415323903
Total assets turnover 2.373803619 2.260900085

Overall the assets of the company are not utilized efficiently by the management so as to
achieve the optimum sales.

3) Profitability

a) Gross Profit Ratio

Gross profit ratio is the result of trading operations of business. The greater the gross profit
ratio, the better it is for the business. In order to measure the efficiency of gross profit ratio, a
firm must compare its current year’s ratio with previous year’s ratios.
Gross profit ratio = Gross profit / Net sales * 100.

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 Gross profit = Net sales + other income - cost of goods
sold.

Particulars 2005 2006

Sales 285222 312427
Cost of sales 219793 240391
Gross profit 65429 72036
Gross profit 22.93967506 23.05690609

In case of Walmart Gross profit ratio has increased from 22.94% to 23.05% due to the
increase in sales by Rs. 27, 205 while the net profit ratio has remained constant for the two
years.
b) Operating Profit Ratio

It establishes the relationship between the operating profit and sales. The more the ratio the
better it is for the business. Any business always desires for a high operating profit ratio.
Operating Profit Ratio = (operating profit /net sales)*100.
Particulars 2005 2006
operating profit 17091 18530
Sales 285222 312427
operating profit ratio 5.992174517 5.930985478

In case of Wal-Mart Operating profit has shown a slight decline because of increase in
operating expenses by Rs.5, 485.

c) Pre-tax profit Ratio

Pre Tax profit ratio is derived by dividing net profit before taxes by net sales. Companies
usually access a variety of tax-management techniques, which allow it to manipulate the
timing and magnitude of its taxable income.

Pre-tax profit ratio = (profit before tax/net sales) * 100

Particulars 2005 2006

EBT 16105 17358
Sales 285222 312427
Pretax profit ratio 5.646478883 5.555857848

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Pretax profit has also declined by 0.09% because of increase in interest payments. Operating
expense and financial expenses ratios show a slight increase which has resulted in the
decrease of operating profit and pretax profit ratios.

d) Net Profit Ratio

Net profit ratio tells us about the overall profitability of the business. The higher the net profit
ratio, the better it is for the business. A firm must also look at the factors contributing to net
profit.

Net profit ratio= (Net income/ Net sales) * 100.

Particulars 2005 2006

Net profit 10267 11231
Sales 285222 312427
Net profit 3.599652201 3.594759736

e) Operating expense ratio

Operating expense ratio which is expressed as a percentage of sales is usually viewed as a

measurement of management efficiency. When viewed over time, the operating expense ratio
can tell you if management can expand operations without dramatically increasing expenses.

Operating expense ratio=operating expenses/sales*100

Particulars 2005 2006

Operating expense 51248 56733
Sales 285222 312427
Operating expense ratio 17.96775845 18.1588019
A significant portion of sales is covered by operating expenses for Wal-Mart. It has further
increased in 2006.

f) Return on Sales

Return on Sales is widely used to evaluate a firm’s operational efficiency. The Return on
sales provides an indication as to how well costs are managed. The higher the return on sales
the better prepared the company is to face competitive price pressures and escalating costs.

Return on sales = Net income / sales*100

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 Particulars 2005 2006
Net income 10267 11231
Sales 285222 312427
Return on sales ratio 3.599652201 3.594759736

ROS has remained the same (3.59) for both years, that is one rupee of sales generates 3.59
paisa of profit for both years.

g) Return on Assets

Return on Assets gives an idea as to how efficient management is at using its assets to
generate earnings. This ratio speaks about number of rupees of sales generated for every 1
rupee of assets.

Return on assets = Net income /Assets*100

Particulars 2005 2006

Net income 10267 11231
Assets 120154 138187
8.12739259
Return on assets ratio 8.54486742 1

ROA shows a slight decline from 2005 to 2006.This shows that the contribution of net assets
towards the net income has decreased.

h) Return on Equity

Return on Equity reveals the amount of income an investor earns by investing a sum in the
company. A ROE of 15% of more is considered as a good sign for the company.

Return on equity = Net income /Equity*100

Particulars 2005 2006
Net income 10267 11231
Equity 49396 53171
Return on equity = Net income /Equity*100
Return on Equity ratio 20.78508381 21.12241635

ROE is well above the 15% mark which is a good sign for the investors of the company as
which indicates an increasing in earning per rupee of investment.

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Comparative analysis of profitability ratios

Particulars 2005(%) 2006(%)

Gross profit ratio 22.93967506 23.05690609
Operating profit ratio 5.992174517 5.930985478
Pre-tax profit ratio 5.6464 5.5558
Net profit ratio 3.599652201 3.594759736

From above observations we can see a slight increase in gross profit but the net profit
remained same from 2005 to 2006 it indicates that even though cost of production decreased,
other expenses increased. Overall profitability of the company has by and large remained the
same.

4) Leverage ratios
a) Debt ratio
A ratio that indicates what proportion of debt a company has relative to its assets. The
measure gives an idea to the leverage of the company along with the potential risks the
company faces in terms of its debt-load.

Debt ratio=total liabilities / total assets.

Particulars 2005 2006

Total liabilities 70758 85016
Total assets 120154 138187
Debt ratio 0.588894252 0.615224298

Wall Mart’s debt ratio increased from 2005 to 2006 which states that the company is having
more debts in 2006 when compared to 2005.It will become a problem for the company to get
credit if it is having more liabilities.

b) Debt to equity ratio

A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the

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company is using to finance its assets.A ratio greater than one means assets are mainly
financed with debt, less than one means equity provides a majority of the financing. If the
ratio is high (financed more with debt) then the company is in a risky position - especially if
interest rates are on the rise.
Debt to equity ratio = total debt / share holders equity.
Particulars 2005 2006
Total liabilities 70758 85016
Equity 49369 53171
Debt to equity ratio 1.433247585 1.598916703

The debt to equity ratio increased from 2005 to 2006 which states that the company is in a
risky position.

c ) Long term debt to equity

Long term debt to equity = long term debt / equity

Particulars 2005 2006

Long term debt 20087 26429
Equity 49396 53171
Long term debt to equity 0.4066 0.49705
ratio
The long term debt ratio decreased from 2005 to 2006 in the case of Wall Mart which states
that the company is meetings its long term liabilities on time.

d) Asset to equity ratio

The asset to equity ratio shows the relationship of the total assets of the firm to the portion
owned by shareholders, also known as owner’s equity. The asset/equity ratio indicates a
company's leverage, the amount of debt used to finance the firm. A company's asset/equity
ratio depends importantly on the industry in which it operates, its size, economic conditions,
and other factors. There is no ideal asset/equity ratio.

Asset to equity ratio=total assets / equity

Particulars 2005 2006
Assets 120154 138187
Equity 49396 53171

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 Assets to equity 2.4324 2.5989
In the case of Wall Mart the assets to equity ratio increased from 2005 to 2006 which clearly
states that the firm made good use of the debt to finance the firm when compared to the
previous year.

e) Times interest earned ratio

Times interest earned ratio indicates the extent of which earnings are available to meet
interest payments. A lower times interest earned ratio means less earnings are available to
meet interest payments.
Times interest earned ratio= earnings before income tax / interest
Particulars 2005 2006
EBIT 17091 18530
Interest 986 1172
Times Interest earned ratio 17.3336714 15.8105802
In the case of Wall Mart the Times Interest Earned Ratio decreased from 2005 to 2006 which
states that the company was not able to meet debt obligations in 2006.
Comparative analysis of leverage ratios
Particulars 2005 2006
Debt ratio 0.5888 0.6152
Debt to equity ratio 1.4324 1.5989
Longterm debt to equity ratio 0.4066 0.49705
Assets to equity 2.4324 2.5989
Times interest earned 17.3336 15.8105
Overall the leverage ratio shows that the company is more dependent on outside debt which
may become riskier in future.

Overall analysis of Wal-Mart

The overall position of Wal-Mart is not very good. Most of the ratios show modest changes
from 2005 to 2006. This indicates that the company is not doing much to improve its current
state. The company needs to take heed of its situation in terms of profitability and asset
utilization.

Strengths of Wal-Mart

• ROE is above 15%, this creates good impression among investors and creditors.

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 • Collection Period is less than the payment Period which shows company are
managing the cash cycle efficiently.

• Assets to equity ratio increased from 2005 to 2006 which clearly states that the firm
made good use of the debt to finance the firm when compared to the previous year.

• Gross profit ratio has increased as a result of better management of direct expenses.

Weaknesses of Wal-Mart

• The net profit ratio has decreased drastically from the gross profit ratio, indicating
that the operating and non-operating expenses of the company are huge.
• The liquidity position of a company is also not good because all the ratios in liquidity
are under ideal ratios which means the company cannot able to meet its current
liabilities properly and quickly.
• The profitability ratio of the company also not good because there is no much
difference in the ratios for both years which means the company is not able to
generate more income or profit from year to year’s

Overall the performance of Wal-Mart is satisfactory as we can see the times interest ratio
and ROE shows good sign. But the company has to maintain balance in all ratios which is
lacking in this case. So for a investor who wants to invest in Wal-Mart it is better to
consider the balanced and consistent performance of a company. Based on the given facts
on ROE and the reputation of it we suggest it would be safe enough to invest in the
company in long run.

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