table 3 30 information on arihant ltd 610194

Tata Motors is the India”s largest automobile company. The company in 2008 acquired the Jaguar Land Rover business from Ford Motor Company for USD 2.3 billion cash. The acquisition was completed by June 2008. At the same time, the company launched the Nano—the world”s most economical car priced at INR 100,000. These initiatives resulted in huge cash outflows from the company. The company intended to raise funds for theses initiatives through loan and equity issues. However, the times turned out to be unfavourable for the company. By 2008, the world economy was under depression and witnessed a massive credit crunch. Fund raising became difficult for the company and by 2009 turned out to be an expensive activity. As the United States, the world”s strongest economy, went into recession, the global economy started feeling the demand crunch. Slow demand and rising cost took a toll on the company”s operating cash flows. Capital expenditure resulted in huge cash outflow from the company. As a result, global rating agencies, S&P and Moody”s, cut the ratings on Tata Motors. They further indicated more cuts in the ratings if the scenario did not improve. The company as on 2009 is on the watchlist of many analysts as the cash flow for the company became a critical factor. The company in February 2009 was banking on bailout package from the government to manage its liquidity crisis. The company is on the spree of spending through long-term investments. At the same time, the operating revenues have suffered setback due to global economic depression. This has put Tata Motors into a tight liquidity position. It will be interesting to watch how Tata Motors manages to generate funds in the troubled times.

Look at the Tata Motors’ cash flow statement for three consecutive years Then, answer the following questions:

1. How do you assess the cash flow position of the company for the next two years?
2. Do you think the company will go for financial restructuring in order to streamline its cash position?

Table 3.31 Tata Motors’ cash position for the years 2005–08