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A

REPORT
ON
WORKING
CAPITAL
MANAGE
MENT AT

SRI BHAGAWAN
MAHAVEER JAIN
COLLEGE

SUBMITTED BY: V.RAVI


KISHOR

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 1


I. PREFACE
II. ACKNOWLEDGEMENT
III. EXECUTIVE SUMMARY
IV. DECLEARATION

TABLE OF CONTENTS

Ser no. Contents Page no.

Chapter 1 Introduction- Industry overview 07-15


1.1 Global steel industry 07
1.2 Indian steel industry 10

Chapter 2 Company Profile 16-30

2.1 Background of TATA STEEL 16


2.2 Strategic business units 20
2.3 Vision and Mission of Tata steel 21
2.4 Global ranking 23
2.5 Products of Tata steel 24
2.6 Subsidiaries of Tata steel 26
2.7 Swot Analysis 29

Chapter 3 Working Capital Management 31-45

3.1 Meaning of Working Capital 31

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3.2 Kinds of Working Capital 31
3.3 Need for Working Capital 35
3.4 Factors determining the Working Capital 37
Requirements
3.5 Working Capital Cycle 41
3.6 Different aspects of Working Capital 42

3.7 Working Capital Management of Tata Steel 46-65


3.8 Working Capital Management of Sail 66-81
3.9 Working Capital Management of Essar Steel 82-96
3.10 Working Capital Management of Jindal Steel 97-104
3.11 Comparative analysis 105-109

Chapter 4 Conclusions 110


Chapter 5 Recommendations 111
Chapter 6 Bibliography 112

PREFACE

The summer project has been really a great learning experience for me. The training has
enriched my knowledge regarding the corporate culture and how different types of works are
carried out in a big organization like Tata steel ltd. The summer internship has helped me to
become a more mature individual, prepared to take challenges of the corporate world.

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This report has helped me to understand the nuances of working capital and significance in the
day operation of the company. The project also helped me to imbibe qualities like team spirit,
goal achievement and punctuality. The plant visit helped me to actually see the whole production
process and visits to various departments helped me to understand how different departments co-
ordinate their activities.

I will be ever grateful to tata steel for giving me this golden opportunity to be a part of this
highly reputed organization and helping me throughout in understanding some of the important
facts concerned with this organization.

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ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to my guide Mr.
INDRAJIT ROY ,Head Financial Accounts Tata steel for his exemplary guidance, monitoring and
constant encouragement throughout the course of this project work. The blessing, help and
guidance given by them time to time shall carry me a long way in my journey of life on which I
am about to embark.

Sincere appreciation is extended to Mr. IMTIAZ AHMED, for his immense help during the
course of this work. In those moments, when things used to turn dark, his presence had a
soothing effect.

I am grateful to Mrs.Nisha Kuwait, Professor SBMJC Bangalore, for guiding me during the
course of my project.

Last but not the least I would express my heartfelt gratitude to Mr.N.R.SAIFI for allowing me
to do this project at TATA STEEL.

My several well-wishers helped me directly or indirectly; I virtually fall short of words to


express my gratefulness to them. Therefore I am leaving this acknowledgement incomplete in
their reminiscence.

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EXECUTIVE SUMMARY

The project on working capital management has been a very good experience. Every
manufacturing company faces the problem of working capital management in their day to day
processes. An organization’s cost can be reduced and the profit can be increased only if it is able
to manage its working capital efficiently. At the same time the company can provide customer
satisfaction and hence can improve their overall productivity and profitability.

This project is a sincere effort to study and analyze the working capital management of TATA
steel. This project was focused on making a financial overview of the company by conducting a
time series analysis of TATA steel for the years 2004-05 to 2008-09 and a comparative analysis
of TATA steel with its domestic competitors – SAIL, Jindal and Essar emphasizing on working
capital and financial ratios.

The internship is a bridge between the institute and the organization. This made me to be
involved in a project that helped me to employ my theoretical knowledge about the fascinating
facets of finance. The experience that I gathered over the past one & half months has certainly
provided the orientation which I believe will help me in shouldering any responsibility in future.

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DECLARATION

I, V.Ravi kishor, a bonafide student of ‘’SRI BHAGAWAN MAHAVEER JAIN


COLLEGE’’, BANGALORE, would like to declare that the project entitled
“WORKING CAPITAL MANAGEMENT OF TATA STEEL” is submitted in
partial fulfillment of ”Post Graduate Diploma in Business Management” and is my
original work.

Place: jamshedpur V. Ravi kishor

Date… (Signature of Student)

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1. INDUSTRY OVERVIEW
1.1. Global Steel industry
The current global steel industry is in its best position in comparison to last decades. The price
has been rising continuously. The demand expectations for steel products are rapidly growing for
coming years. The shares of steel industries are also in a high pace. The steel industry is
enjoying its 6th consecutive years of growth in supply and demand. And there is many more
merger and acquisitions which overall buoyed the industry and showed some good results. The
subprime crisis has lead to the recession in economy of different countries, which may lead to
have a negative effect on whole steel industry in coming years. However steel production and
consumption will be supported by continuous economic growth. The countries like China, Japan,
India and South Korea are in the top of the above in steel production in Asian countries. China
accounts for one third of total production i.e. 419m ton, Japan accounts for 9% i.e. 118m ton,
India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes
more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major
chunk of the whole growth.

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Figure 2.1.Global Steel Production
The world steel industry outlook is promising with production seen rising to 1.5 billion tonnes in
2009, up from 1.4 billion tones, in 2008. The future outlook for the worldwide steel industry is
very good. Demand is also seen growing with apparent steel use expected to total 1.282 billion
tonnes this year, up 6.7 percent from 2007, according to data from the International Iron and
Steel Institute (IISI). Brazil, Russia, India and China (BRIC) were leading growth with an
expected increase of 11.1 per cent for 2008 and 10.3 percent for 2009. China's apparent steel use
is expected to grow by over 10 percent in 2008 and by 10 percent in 2009. China accounted for
35 percent of the world total this year. In the European Union a total of 210 million tonnes of
steel were produced in 2007, up 1.6 percent from the previous year. World steel production
capacity is seen increasing by nearly 19 percent between 2007 and 2010. The steel industry has
undergone a few structural changes in the past 3-4 years. So, the outlook for the next few years
is likely to be driven by the kind of consolidation that has taken place in the past few years. The
other factor that is likely to affect outlook is the extent of demand emerging from BRIC
countries. In addition to these two major factors, a cost-push is coming from raw material

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suppliers. Hence, steel manufacturers have to contend with strong demand on one hand, and
cost-push on the other. The outlook for the domestic industry looks bright, since India has good
iron ore deposits, skilled manpower and growing demand for steel. There is an apprehension that
if China slows down, it may dump its surplus steel into India. An analysis of global data shows
that even if an economy slows down, steel consumption does not fall dramatically.

In the case of China, a slowdown can mean that the growth rate may fall from 19-20% to a lower
level. But that doesn‘t mean growth will not take place. China produced around 470 million
tonnes (mt) of steel last year, out of which, 66 mt was exported and the rest was consumed
within the country. The measures undertaken by the Chinese government recently will reduce
exports significantly in the current year. There is also a change in the consumption pattern. For
instance, if construction activity slows down, the consumption of white goods will pick up and
demand for flat steel products will go up. The new capacities coming up in China are on the flat
products side and not on the long products side. Overall, the impact on the supply side will be
less. Similarly, the cost of production is very high — it costs around $500 per ton to produce
more than 100 mt of steel in China. Since the cost of production is very high and exports are not
allowed, many of these plants will be closed down by ‘09-10.This will reduce the supply of
steel. There‘s a feeling that India doesn‘t have much iron ore, considering the recent capacity
expansion plans of domestic and foreign steel companies in India.
There is a possibility that if we continue exporting iron ore, we may run out of reserves.
Currently, we export 90-100 mt every year and this is steadily increasing. Ideally, we should
increase our steel production capacity — we are a net importer of steel — so that rather than
exporting iron ore, we can add value to it. India should also look at investing in exploring new
mines.

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Figure 2.3. World Steel Consumption

1.2. Indian Steel Industry-An Overview


India has traditionally been one of the major producers of steel in the world. Till the 1990s the
steel industry of India was regulated and controlled by government policies. After the economic
reforms of the early 1990s, the Indian steel industry has evolved significantly to conform to
global standards. India has set a vision to be an economically developed nation by 2020. The
steel industry is expected to play a major role in India's economic development in the coming
years. The steel industry of India has a very high growth potential and is expected to register

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significant growth in the coming decades. India is expected to emerge as a strong force in the
global steel market in coming years. The two major aspects that are expected to play a
significant role in the growth of the steel industry in India are -
• Abundant availability of iron ore in the country
• The country as well established facilities for steel production. Steel production in India
has grown from 17 MT in 1990 to 36 MT in 2003. It is expected that by 2011, the steel
production in India will grow to 66 MT.
The major sectors where consumption of steel is expected to grow in the coming years are -
• Construction.
• Housing.
• Ground transportation.
• Hi-tech engineering industries such as power generation, petrochemicals, fertilizers
The current scenario of the Indian steel industry indicates that there is huge growth potential in
this industry. The per capita-consumption of steel in India, according to latest available
estimates, is only 29 kg. This is much less compared to the global average of 140kg. The per
capita consumption level of developed nations like the United States of America is 400kg. In this
respect, one of the major initiatives that need to be taken is to focus on increasing the
consumption of steel in the rural areas of India. The potential for the growth of consumption of
steel in the rural areas of India for purposes like rural housing, rural infrastructure, etc is high
which needs to be tapped efficiently. In order to realize the growth potential in the steel industry
of India, it is essential to ensure that the industry can remain competitive. One of the major
aspects in this regard is the availability of inputs. Shortage of inputs like coke has led to increase
in costs earlier. Moreover proper infrastructure facilities like transport infrastructure, power etc
are of prime importance in maintaining the competitiveness of the industry. Most developed
countries have regulations that are aimed to protect the domestic steel industry. The Indian steel
industry has comparatively much lesser protection through regulations. Proper regulatory
measures should be adopted by the government to protect the domestic steel industry. The
performance of the Indian steel industry has been quite satisfactory over the last decade. Aided
by the cutting-edge technology, the steel industry in Asia has made advancements in all areas of

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operation. There has been a substantial increase in demand for Indian steel products in the global
market in the recent times. This has helped in the growth of Indian steel industry. The industry
recorded the highest growth rate in the period from 2004-2005, when the growth rate of the steel
sector was 4%. The increased consumption of the finished steel products in the domestic market
acted as a positive catalyst in the growth process of the Indian steel industry. The favorable
market condition has helped the companies operating in Indian steel industry to expand their
operations and earn huge profit.
India continually posts phenomenal growth records in steel production. In 1992, India produced
14.33 million tones of finished carbon steels and 1.59 million tones of pig iron. Furthermore,
the steel production capacity of the country has increased rapidly since 1991 – in 2008, India
produced nearly 46.575 million tones of finished steels and 4.393 million tones of pig iron.
Figure 2.4. Steel Production in India Both primary and secondary producers contributed
their share to this phenomenal development, while these increases have pushed up the demand
for finished steel at a very stable rate.

In 1991, a substantial number of economic reforms were introduced by the Indian government.
These reforms boosted the development process of a number of industries – the steel industry in
India in particular – which has subsequently developed quite rapidly. In 1992, the total
consumption of finished steel was 14.84 million tones. In 2008, the total amount of domestic
steel consumption was 43.925 million tones. With the increased demand in the national market,
a huge part of the international market is also served by this industry. Today, India is in seventh
position among all the crude steel producing countries. The top companies of the Indian steel
sector mostly operate in four different forms like producers of pig iron, producers of stainless
steel, producers of finished steel products, and producers of semi-finished steel. The companies
functional in the steel industry of India are both public sector companies and private sector
companies. Some of the leading companies in Indian steel industry are as follows:
• Bokaro Steel Plant: Steel manufacturer.

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• Essar Steel: Producer of sponge iron, steel and iron ore pellets.
• Jindal Iron & Steel: Producer of galvanized steel products.
• Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron.
• Steel Authority of India: Manufacturer of steel and iron.
• Tata Steel: Producer and supplier of wire rods, bars, and steel flats.
• Vizag Steel: Producer of pig iron and steel.
The rate of production of steel in India has been going up at a steady rate in the last few years. In
the recent times Orissa and Jharkhand have been identified as the potential steel destinations of
India - the ones that would provide the Indian steel industry with its necessary raw material.
There are also a number of steel companies in India like Tata and Arcelor-Mittal that are either
coming up or have established themselves as prominent forces in the world steel scenario. In the
recent times a lot of foreign direct investment is being made in the Indian steel industry. In fact
the rate of investment has increased in the last few years and, to a certain extent, this increase
has been contributed to by the growth potential of the steel industry of India that is thought of as
being impressive in the international steel circle. In the recent years a number of major steel
corporations of the world have come flocking to India to avail the benefits of the flourishing
steel industry of India. The number of steel projects in India has increased as well and this
implies that the number of companies lining up to participate in these projects would be
increasing too.

Sector structure/Market size

The steel industry in India has been moving from strength to strength and according to the
Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth largest producer
of steel in the world and is likely to become the second largest producer of crude steel by 2015-
16.

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Recently, Steel Minister, Mr Virbhadra Singh said that India will become the world's second-
largest steel producer by 2012, more than doubling its capacity to 124 million tonnes (MT) as
part of the push being given to assist overall infrastructure development.

Production

Steel production rose 4.2 per cent to reach 60 MT in 2009-2010, according to the Ministry of
Steel.

The National Steel Policy 2005 had projected an annual steel consumption growth of 7 per cent
based on GDP growth rate of 7-7.5 per cent and production of 110 MT of crude steel by 2019-
2020. Nonetheless, with the current rate of ongoing greenfield and brownfield projects, the
Ministry of Steel has projected that these growth trends are likely to be exceeded and it is
envisaged that in the next five years demand will grow at higher annual average growth rate of
over 10 per cent as compared to around 7 per cent growth achieved between 1991-92 and 2005-
06.

Moreover, according to the ministry, the crude steel production capacity in the country by 2011-
12 will be nearly 124 MT.

According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have been
signed with various states for planned capacity of around 276 MT. Major investment plans are in
Orissa, Jharkhand, Chattisgarh, West Bengal, Karnataka, Gujarat and Maharashtra.

According to the Annual Report 2009-10 by the Ministry of Steel, domestic crude steel
production grew at a compounded annual growth rate of 8.6 per cent during 2004-05 and 2008-
09.

Consumption

India's steel consumption rose 8 per cent in the year ended March 2010, over the same period a
year ago on account of improved demand from sectors like automobile, infrastructure and
housing. The country’s steel consumption increased to 56.3 MT in the 12 months to March 2010
from 52.3 MT in the previous year, as per the Ministry of Steel.

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Investments

A host of steel companies have lined up major investment proposals. Furthermore, with an
expanding consumer market, the Indian steel industry is likely to receive huge domestic and
foreign investments.

The domestic steel sector has attracted a staggering investment of about US$ 238 billion,
according to the Minister of State for Steel, Mr A. Sai Prathap.

This consists of nearly 222 MoUs signed between the investors and various state governments
mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal.

• SAIL is planning to set up a 12-million tonne plant in Jharkhand.

• In December, India’s largest engineering conglomerate Larsen & Toubro (L&T) and
state-owned Nuclear Power Corporation of India Limited (NPCIL) formed a US$ 373.2
million joint venture for specialised steel and forging products.

• Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ 171.8
million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.

• Tata Steel has entered into a joint venture with Japan’s Nippon Steel for production and
sales of automotive cold-rolled flat products at Jamshedpur. The JV is expected to invest
US$ 400 million to set up an automobile venture in India.

• Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for 2010-11 and plans
to increase capacity of its Bellary plant in Karnataka from 7 MT to 10 MT by end of
2010-11.

Government Initiative

As per the Press Information Bureau, during 2009, the government took a number of fiscal and
administrative steps to contain steel prices. Central value added tax (CENVAT) on steel items
was reduced from 14 per cent to 10 per cent with effect from February 2009.

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Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4 billion to the
infrastructure sector and has increased the allocation for road transport by 13 per cent to US$ 4.3
billion which will further promote the steel industry.

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2. Company Profile - TATA STEEL

2.1. Background
Tata Steel, formerly known as TISCO and Tata Iron and Steel Company limited, is the world‘s
sixth largest steel company, with an annual crude steel capacity of 30 Million Tonnes Per
Annum (MTPA). It is the second largest private sector steel company in India in terms of
domestic production. Ranked 315th on Fortune Global 500, it is based in Jamshedpur, Jharkhand,
India. It is part of Tata Group of companies in private sector with consolidated revenues of
Rs.1,32,110 crore and the net profit of over Rs.12,350 crore, during the year ended March 31st,
2008. Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisition; the
company has become a multinational with operations in various countries. The registered office
of Tata Steel is in Mumbai. The company was also recognized as the world‘s best steel producer
by the World Steel Dynamics in 2005. The company is listed on Bombay Stock Exchange (BSE)
and National Stock Exchange (NSE), and employs about 36000 people (as of 2007). Tata Steel
is backed by 100 glorious years of experience in steel making. Established in 1907, it is the first
integrated steel plant in Asia and is now the world`s second most geographically diversified steel
producer and a Fortune 500 Company. It was the vision of the founder; Jamsetji Nusserwanji
Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision
helped Tata Steel overcome several periods of adversity and strive to improve against all odds.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA
which is slated to increase to 10 MTPA by 2010. The Company also has proposed three
Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with
additional capacity of 23 MTPA and a Greenfield project in Vietnam. Through investments in
Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata

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Steel has created a manufacturing and marketing network in Europe, South East Asia and the
pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has
operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel
Thailand is the largest producer of long steel products in Thailand, with a manufacturing
capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in
Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional
operations in seven countries.
Tata Steel has lined up a series of Greenfield projects in India and outside which includes:
a) 6 million tonne plant in Orissa (India).
b) 12 million tonne plant in Jharkhand (India).
c) 5 million tonne plant in Chhattisgarh (India).
d) 3 million tonne plant in Iran.
e) 5 million tonne capacity expansion at
Jamshedpur (India).
f) 4.5 million Plant in Vietnam (feasibility study underway).
The iron ore mines and collieries in India give the Company a distinct advantage in raw material
sourcing. Tata Steel is also striving towards raw materials security through joint ventures in
Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed
an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company
for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital
Corporation, Canada for iron ore mining.

HERITAGE

THE FOUNDER

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JAMSHEDJI NUSSERWANJI TATA (1839-1904)
At the age of 43, Jamshedji Nusserwanji Tata read a report by a
German geologist, Ritter Von Schwartz on the, availability of iron ore in
Chanda district in the central Provinces, which gave him the idea of
giving India a steel plant. Jamshedji Nusserwanji Tata formed the Tata
Iron and Steel Company Limited in 1907 at Mumbai

SIR DORABJI TATA

J.N. Tata had exhorted to his sons to pursue and develop his life’s work
his elder son, through his endeavours in setting up Tata Steel and Tata
power, Sir Dorabji Tata was instrumental in transforming his father’s
grand vision into reality. He was the first chairman of
the gigantic Tata.

Sir Ratan Tata:


Jamsetji Tata's younger son had a personality that reflected his sensitivity
to the struggles of ordinary people and his desire to utilize his
considerable wealth to enhance the quality of public life. A philanthropist
all his life, he created a trust fund for "the advancement of learning and
for the relief of human suffering and other works of public utility".

JEHANGIR RATANJI DADABHAI TATA

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India's first pilot; established Air India International as India's first international airline;
Chairman of Tata & Sons for 50 years; recipient of Bharat Ratna in 1992. Enterprising,
indomitable and undaunted – JRD Tata is the pioneer who was driven by the spirit of the skies.
Representing an exalted idea of Indian-ness: progressive, benevolent, ethical and compassionate,
JRD Tata is recognized as the most enterprising Indian entrepreneurs of all times. Recognised as
the fourth Chairman of the Tata Group at the young age of 34 only, JRD is credited with placing
the Tata Group on the international map.

Ratan N. Tata
He is the present chairman of TATA STEEL. With his efficient
leadership TATA is soaring new heights.Tata Steel is India's largest
integrated private sector steel company. Established in 1907, its steel
plant at Jamshedpur produces four million tonnes of hot and cold rolled
flat and long products.
The company is backward integrated with owned iron ore mines and
collieries. With its competitive advantage in raw materials, efficient operations and the benefits
of a recently-completed $2.3 billion programme of modernization, Tata Steel is among the
lowest cost steel producers in the world.

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2.2. Strategic Business Units

Apart from the main steel division, Tata Steel's operations are grouped under the following
strategic business units.

➢ Bearings Divisions: Manufactures ball bearings, double row self-aligning bearings,


clutch release bearings and tapped roller bearing for two wheelers, fans, water pumps,
etc.

➢ Ferro Alloys and Minerals Division: Operates chrome mines and has unit for making
ferro chrome and ferro manganese. Its one of the largest players in the Rings and Agrico
Division global ferro chrome market.

1. Tata Agrico is the first organized manufacturer in India of hand tools and implements for
application in agriculture.
2. Tata Growth Shop (TGS): Has designed, developed, manufactured, erected and commissioned
thousands of tonnes of equipments ranging from overhead cranes to high precision components,
including a rocket launch pad for the Indian Space and Research Organization.

➢ Wire Division: A pioneer in the manufacture of steel wires in India, it produces coated
and uncoated wires, branded as Tata Wiron. The division also operates a wholly owned
subsidiary SriLanka.

➢ Tubes Division: The biggest steel tube manufacturer with the largest market share in the
country, it aspires to strengthen its market presence by expanding and modernizing its
commercial and precision tube manufacturing capacity.

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2.3. VISION AND GOALS OF TATA STEEL

We aspire to be the global steel industry benchmark for


Value Creation and Corporate Citizenship.

We make the difference through:

Our People, by fostering team work, nurturing talent, enhancing leadership capability and acting
with pace, pride and passion.

Our Offer, by becoming the supplier of choice, delivering premium products and services and
creating value for our customers.

Our Innovative approach, by developing leading edge solutions in technology, processes and
products.

Our Conduct, by providing a safe working place, respecting the environment, caring for our
communities and demonstrating high ethical standards.

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Value Creation Action

To increase earnings from current operations by optimizing assets; differentiation in the


marketplace; continuous improvement; and achieving synergies across all Business Units.
To achieve strategic growth through capacity expansion; mining projects; enhanced Research
and Development and innovation; in the area of construction and automotive; and new
territories.

Safety Action

• Focus on high hazard facilities


• Increase occupational safety
• Focus on overall health

Environment Action

• Continuous process improvements


• Technology breakthroughs
• Responsible product development
• Employee engagement
• Proactive role in global steel sector initiatives

Employer of Choice Action

• Embed a performance driven culture


• Build leadership capability
• Nurture talent
• A continuous quest for global talent
• Build and enhance technical capability

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2.4. Global Rankings

This is a list of countries by steel production in 2007 and 2008, based on data
provided by the World Steel Association, accessed in May 2009.

Crude steel production (million tons):

Rank Country/Region 2007 2008


- World 1,351.3 1326.5
1 People's Republic of 494.9 500.5
China
- European Union 209.7 198.0
2 Japan 120.2 118.7
3 United States 98.1 91.4
4 Russia 72.4 68.5
5 India 53.1 55.2
6 South Korea 51.5 53.6
7 Germany 48.6 45.8
8 Ukraine 42.8 37.1
9 Brazil 33.8 33.7
10 Italy 31.6 30.6

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2.5. PRODUCTS OF TATA STEEL

Long Products Wire Rods, Rebars


Flat Products Hot and Cold Rolled Sheets, Hot and Cold Rolled
Coils, Galvanized Coils and Sheets, Hot Rolled Plates

Semi Finished Steel Billets and Slabs


Products
Tubes Standard Pipes, ERW Precision Tubes, Cold
Structural Bearing Wires, Rolled Rings, Forged Rings,
Machine Rings, Bearings, Plain and Coated Steel
Wires
Minerals Concentrate Coal and Coke, Iron Ore, Dolomite, Chrome Ore,
Chrome
Others Ferro Alloys, Agricultural Implements, Services like
Project Studies, Design and Engineering, personnel
and Technical Training, Automation, Information
Technology, Power and Water.
Branded Products Branded products include Tata Shaktee GC Sheets,
Tata Steelium Cold Rolled Steel, and Tata Tiscon
construction rods, Tata Pipes, Tata Bearings, Tata
Wiron and Tata Agrico.

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BRANDS OF TATA STEEL

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2.6. SUBSIDIARY/ ASSOCIATIONS/ JOINT VENTURES OF TATA
STEEL

CORUS: Corus is Europe’s second largest steel maker with operation in the UK and mainland
Europe and over 40,000 employees worldwide. The long and strip products of Corus cater to the
Construction, automotive, packaging, engineering and other markets worldwide. On January 31,
2007 Tata Steel limited acquired the Anglo Dutch steel producer Corus for US $ 12.11 billion.
This acquisition was te biggest overseas acquisition by an Indian company. Tata Steel emerged
as the fifth largest steel producer in the world after the acquisition. The acquisition gave Tata
Steel access to Corus’ strong distribution network in Europe. Corus’ expertise in making the
grades of steel used in automobiles and in aerospace could be used to boost Tata Steel’s supplies
to the automobile market. Corus in turn was expected to benefit from Tata Steel’s expertise in

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low cost manufacturing of steel. However, some financial experts claimed that the price paid by
Tata Steel for the acquisition was too high.

Tinplate Company of India Limited (TCIL): With a market share of over 35%, it is the
industry leader in India. It has the capability to supply all tinning line product including
electrolytic tinplate / tin-free steel and cold-rolled products.

Tayo Rolls Limited: The country's leading roll manufacturer and supplier, the company
produces rolls which find application in integrated steel plants, the paper, textile and food
processing sectors, and the government mint. It also produces special castings for use in
power plants.

Tata Ryerson Limited (TRYL): Is in the business of steel processing and distribution. It
offers hot and cold rolled flat steel products in customized sizes and quantities through
processing services. It also provides materials management services.

Tata Refractories Limited (TRL): Produces High Alumina Refractory, Basic


Refractory, Dolomite Refractory, Silica and Monolithic Refractoriness. It is one of the
fewcompanies worldwide to produce silica refractory for coke ovens and the glass
industry.TRL offers Total Refractory Solutions, which include design, procurement, re-
liningapplications etc. (www.tataeref.com)

Tata Sponge Iron Limited (TSIL): Has the first Indian sponge iron plant based
onindigenously developed Direct Reduction Technology. Its major product lines are
spongeiron lumps and fines.(www.tatasponge.com)

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Tata Metaliks: Is among the top wealth creating companies (measured in terms of EVA)in
the country. Tata Metaliks is engaged in the business of manufacturing and sellingfoundry
grade pig iron (www.tatametaliks.com)

Tata Pigments Limited: Its range of products includes synthetic iron oxide pigmentsused to
lend colour to paints, emulsions, cement floors, plastics etc. Its three mainproducts Tata Red,
Tata Yellow and Cemplus enjoy premium positioning.

Jamshedpur Injection Powder Limited (Jamipol): Manufactures carbide andmagnesium-


based de-sulphurising compounds which are used for de-sulphurising hot metal for the
production of low-sulphur, high-quality steel.

TM International Logistics Limited (TMILL): Provides material handling and


portoperation services at Haldia and Paradip Ports in addition to freight forwarding and
chartering services to Tata Group companies and other enterprises.

MetalJunction.com Private Limited (MJ): A joint venture company between SAIL and
Tata Steel, it is in the business of providing e-business services and solutions to Indian
industry. MJ has two divisions--metaljunction.com (e-selling business unit) and
commercejunction.com (e-procurement business unit). It also offers complete e-sourcing
services

TRF Limited: It is one of India's leading companies in the business of design,


manufacture, supply, installation and commissioning of engineered-to-order equipment and
systems in the areas of bulk material handling, loading and unloading, processing, reclaiming
and blending of bulk materials. With world-class technical associates, TRFhas also made its
mark in the fields of coke oven equipment, coal dust injection systems for blast furnace and
coal beneficiation systems.

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Jamshedpur Utility and Service Company Limited (JUSCO): Re-engineered out of Tata
Steel's town services, JUSCO a wholly owned subsidiary of Tata Steel and is the country's
first enterprise that provides municipal and civic services for townships. JUSCO is the only
EMS 14001 civic services provider in the country.

The Indian Steel and Wire Products Limited (ISWP): Recently acquired by Tata Steel,
ISWP has two units-a wire unit comprising wire drawing mills, wire rod mills and fastener
division and a steel roll manufacturing unit named Jamshedpur Engineering and Machining
Company (JEMCO).

Lanka Special Steel Limited: The only unit in Sri Lanka manufacturing galvanized wires.

SilaEasten Company Limited: Established to develop limestone mines in Thailand,mainly


for the captive use of Tata Steel.

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2.7. SWOT ANALYSIS

STRENGTHS:
• TataSteel is the largest Steel player in India and 6th largest in the world.
• Brown field expansion in Jamshedpur and Greenfield project at Kalingangar to meet
increasing demand in future.
• It is one of the lowest cost producer and most efficient steel plant in the world.
• TSL has formed a Global Minerals Group, in-order to explore various opportunities to
secure access to iron ore and coal in various geographies.
• The company has strong clientele base, which includes all major players in user
industries like automobiles, consumer durables and engineering.

WEAKNESSES:
• High Inventory Cost.
• With Corus acquisition, raw material self- sufficiency has decreased from 80% to 17%.
• TSL’s bottom line will be affected to increase in Interest cost, due to long term debt
raised by the company for Corus acquisition.

OPPORTUNITIES:
• Strong Economy growth (second fastest growing Economy after China).
• The amount allocated for development of infrastructure for 11th Five year plans amounts
to
• USD 320 bn. As a result, the domestic steel consumption is expected to increase to 65
mn. Tones by FY 10 and over 125 mn. tonnes by FY 15.
• Strong demand in automobile sector, consumer durables sector and engineering goods
sector.

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• Low per capita steel consumption offers a higher growth
• Low labor cost and high productivity.

THREATS:
• Increase in imported raw material prices may affect the operating margins of the
companies.
• Change in economic environment.
• High cost of Energy.
• Threat of increased production in China and its ability to export.
Bureaucratic nature of Government - Socio - Political interventions (in leasing mines).

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3. WORKING CAPITAL - OVERALL VIEW

3.1. MEANING:
Working Capital management is the management of assets that are current in nature. Current
assets, by accounting definition are the assets normally converted in to cash in a period of one
year. Hence working capital management can be considered as the management of cash, market
securities receivable, inventories and current liabilities. In fact, the management of current assets
is similar to that of fixed assets the sense that is both in cases the firm analyses their effect on its
profitability and risk factors, hence they differ on three major aspects:
1. In managing fixed assets, time is an important factor discounting and compounding
aspects of time play an important role in capital budgeting and a minor part in the
management of current assets.
2. The large holdings of current assets, especially cash, may strengthen the firm’s liquidity
position, but is bound to reduce profitability of the firm as ideal car yield nothing.
3. The level of fixed assets as well as current assets depends upon the expected sales, but it
is only current assets that add fluctuation in the short run to a business.

3.2. KINDS OF WORKING CAPITAL


To understand working capital better we should have basic knowledge about the various aspects
of working capital. To start with, there are two concepts of working capital:

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 Gross Working Capital
 Net working Capital

Gross Working Capital:-Gross working capital, which is also simply known as working
capital, refers to the firm’s investment in current assets: Another aspect of gross working capital
points out the need of arranging funds to finance the current assets. The gross working capital
concept focuses attention on two aspects of current assets management, firstly optimum
investment in current assets and secondly in financing the current assets. These two aspects will
help in remaining away from the two danger points of excessive or inadequate investment in
current assets. Whenever a need of working capital funds arises due to increase in level of
business activity or for any other reason the arrangement should be made quickly, and similarly
if some surpluses are available, they should not be allowed to lie ideal but should be put to some
effective use.

Net Working Capital:-The term net working capital refers to the difference between the current
assets and current liabilities. Net working capital can be positive as well as negative. Positive
working capital refers to the situation where current assets exceed current liabilities and negative
working capital refers to the situation where current liabilities exceed current assets. The net
working capital helps in comparing the liquidity of the same firm over time. For purposes of the
working capital management, therefore Working Capital can be said to measure the liquidity of
the firm. In other words, the goal of working capital management is to manage the current assets
and liabilities in such a way that a acceptable level of net working capital is maintained.

On the basis of time working capital may be classified as :


 Permanent or fixed working capital
 Temporary or variable working capital.

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Permanent or fixed capital :- permanent or fixed capital is the minimum amount which is
required to ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets. There is always a minimum level of current asset which is continuously required
by the enterprise to materials, work in process, finished goods and cash balance. This minimum
level of current assets is called permanent or fixed working capital as this part of capital is
permanently blocked in current assets. The permanent working capital can further be classified
as regular working capital and reserve working capital required to ensure circulation of current
assets from cash to inventories.

Temporary or variable working capital:- Temporary or variable working capital is the amount
of working capital which is required to meet the seasonal demands and some special exigencies.
Variable working capital can be further classified as seasonal working capital and special
working capital. Most of the enterprise have to meet the seasonal needs of the enterprise is called
seasonal working capital. Special working capital is the part of working capital which is required
to meet special exigencies such as launching of extensive marketing campaigns for conducting
research. temporary working capital differs from permanent working capital is the sense that it is
required for short periods and cannot be permanently employed gainfully in the business.

Permanent Temporary
Working Capital Working Capital
The amount of current assets required to The amount of current assets that varies
DOLLAR AMOUNT
DOLLAR AMOUNT

meet a firm’s long -term minimum needs. withseasonal requirements.

Temporary current assets

Permanent current assets Permanent current assets

TIME TIME

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IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Management of working capital is very much important for the success of the business. It has
been emphasized that a business should maintain sound working capital position and also that
there should not be an excessive level of investment in the working capital components. As
pointed out by Ralph Kennedy and Stewart MC Muller, “the inadequacy or mis-management of
working capital is one of a few leading causes of business failure.
Current assets, in fact, account for a very large portion of the total investment of the firm.

It can be visualized from the table that in the first year of our study i.e. 2004 it was 31% which
was reduced to 26% in the next year and in 2006 it is 35% shows fluctuating trend.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

�Growth may be stunted. It may become difficult for the enterprise to undertake profitable
projects due to non-availability of working capital.

� Implementation of operating plans may become difficult and consequently the profit goals
may not be achieved.

� Cash crisis may emerge due to paucity of working funds.

� Optimum capacity utilisation of fixed assets may not be achieved due to non-availability of
the working capital.

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� The business may fail to honour its commitment in time, thereby adversely affecting its
credibility. This situation may lead to business closure.

� The business may be compelled to buy raw materials on credit and sell finished goods on
cash. In the process it may end up with increasing cost of purchases and reducing selling prices
by offering discounts. Both these situations would affect profitability adversely.

� Non-availability of stocks due to non-availability of funds may result in production stoppage.

� While underassessment of working capital has disastrous implications on business,


overassessment of working capital also has its own dangers.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL

� Excess of working capital may result in unnecessary accumulation of inventories.

� It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash
management.

� It may make management complacent leading to its inefficiency.

� Over-investment in working capital makes capital less productive and may reduce return on
investment.

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Working capital is very essential for success of a business and, therefore, needs efficient
management and control. Each of the components of the working capital needs proper
management to optimize profit.

3.3. WORKING CAPITAL NEEDS OF BUSINESS


Different industries have different optimum working capital profiles, reflecting their methods of
doing business and what they are selling.

• Businesses with a lot of cash sales and few credit sales should have minimal trade debtors.
Supermarkets are good examples of such businesses;

• Businesses that exist to trade in completed products will only have finished goods in stock.
Compare this with manufacturers who will also have to maintain stocks of raw materials and
work-in-progress.

• Some finished goods, notably foodstuffs, have to be sold within a limited period because of
their perishable nature.

• Larger companies may be able to use their bargaining strength as customers to obtain more
favourable, extended credit terms from suppliers. By contrast, smaller companies, particularly
those that have recently started trading (and do not have a track record of credit worthiness) may
be required to pay their suppliers immediately.

• Some businesses will receive their monies at certain times of the year, although they may incur
expenses throughout the year at a fairly consistent level. This is often known as “seasonality” of
cash flow. For example, travel agents have peak sales in the weeks immediately following
Christmas.

Working capital needs also fluctuate during the year

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The amount of funds tied up in working capital would not typically be a constant figure
throughout the year.

Only in the most unusual of businesses would there be a constant need for working capital
funding. For most businesses there would be weekly fluctuations.

Many businesses operate in industries that have seasonal changes in demand. This means that
sales, stocks, debtors, etc. would be at higher levels at some predictable times of the year than at
others.

In principle, the working capital need can be separated into two parts:

• A fixed part, and

• A fluctuating part

The fixed part is probably defined in amount as the minimum working capital requirement for
the year. It is widely advocated that the firm should be funded in the way shown in the diagram
below:

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The more permanent needs (fixed assets and the fixed element of working capital) should be
financed from fairly permanent sources (e.g. equity and loan stocks); the fluctuating element
should be financed from a short-term source (e.g. a bank overdraft), which can be drawn on and
repaid easily and at short notice.

3.4. DETERMINANTS OF WORKING CAPITAL:

There are not set rules or formulae to determine the working capital requirements of firms. A
large number of factors, each having a different importance, influence working capital needs of
firms. The importance of factors also changes for a firm over time. Therefore, an analysis of
relevant factors should be made in order to determine total investment in working capital. The

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following is the description of factors which generally influence the working capital
requirements of firms.

Nature of business

Working capital requirements of a firm are basically influenced by the nature of its business.
Trading and financial firms have a very small investment in fixed assests,but require a large sum
of money to be invested in working capital. Retail stores, for example, must carry large stocks of
a variety of goods to satisfy varied and continuous demands of their customers. A large
departmental store like wal-mart maycarry, say, over 20,000 items. Some manufacturing
businesses, such as tobacco manufacturers and construction firms, also have to invest
substantially in working capital and a nominal amount in fixed assests. In contrast, public
utilities may have limited need for working capital and have to invest abundantly in fixed
assests.

Market and demand conditions

The working capital needs of a firm are related to its sales. However, it is difficult to precisely
determine the relationship between volumes of sales and working capital needs. in practice,
current assets will have to be employed before growth takes place. it is,therefore,necessary to
make advance planning of working capital for a growing firm on continuous basis.

Growing firms may need to invest funds in fixed assets in order to sustain growing production
and sales. this will, in turn, increase investment in current assets to support enlarged scale of
operations. growing firms need funds continuously. They use external sources as well as internal
sources to meet increasing needs of funds. These firms face further problems when they retain
substantial portion of profits, as they will not be able to Pay dividends to shareholders. It

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is ,therefore, imperative that such firms do proper planning to finance their increasing needs of
working capital.

Technology and manufacturing policy

The manufacturing cycle comprise of the purchase and use of raw materials and the production
of finished goods. Longer the manufacturing cycle ,larger will be the firms working capital
requirements.therefore the technological process with the shortest manufacturing cycle may be
chosen.once a manufacturing technology has been selected, it should be ensured that
manufacturing cycle must be completed within the specified period. This nees proper planning
and coordination at all levels of activity.any delay in the manufacturing process will result in the
accumulation of WIP and waste of time. In order to minimize their investment in working
capital, some firms ,specifically those manufacturing industrial products,have a policy of asking
for advance payments from their customers. Non manufacturing firms,services and financial
enterprises do not have a manufacturing cycle.

Credit policy

The credit policy of the firm affects the working capital by influencing the level of debtors. The
credit terms to be granted to customers may depend upon the norms of the industry to which the
firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of
industry norms and practices. The firm should use discretion in granting credit terms to its
customers. Depending upon the individual case, different terms may be given to different
customers. A liberal credit policy, without rating the credit worthiness of customers, will be
detrimental to the firm and will create a problem of collection later on. The firm should be
prompt in making collections. A high collection period will mean tie up of large funds in
debtors. Slack collection procedures can increase the chance of bad debts. In order to ensure that
unnecessary funds are not tied up in debtors, the firm should follow a rationalized credit policy
based on the credit standing of customers and other relevant factors. The firm should evaluate

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the credit standing of new customers and periodically review the credit worthiness of the
existing customers. The case of delayed payments should be thoroughly investigated.

Availability of credit from suppliers

The working capital requirements of a firm are also affected by credit terms granted by its
suppliers. A firm will needless working capital if liberal credit terms are available to it from
suppliers. Suppliers’ credit finances the firm’s inventories and reduces the cash conversion
cycle. In the absence of suppliers’ credit the firm will borrow funds for bank.

The availability of credit at reasonable cost from banks is crucial. It influences the working
capital policy of the firm. A firm without the suppliers’ credit, but which can get bank credit
easily on favourable conditions, will be able to finance its inventories and debtors without much
difficulty.

Operating efficiency

The operating efficiency of the firm relates to the optimum utilization of all its resources at
minimum costs. The efficiency in controlling operating costs and utilizing fixed and current
assests leads to operating efficiency. The use of working capital is improved and pace of cash
conversion cycle is accelerated with operating efficiency. Better utilization of resources
improves profitability and thus,helps in releasing the pressure on working capital. Although it
may not be possible for a firm to control prices of materials or wages of labour,it can certainly
ensure efficient and effective utilization of materials ,labour and other resources.

Price level changes

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The increasing shift in price level make functions of financial manager difficult. He should
anticipate the effect of price level changes on working capital requirement of the firm.
Generally,rising price levels will require a firm to maintain a higher amount of working capital.
Same levels of current assests will need increased investment when prices are increasing.
However, companies that can immediately revise their product prices with rising price levels
will not face a severe working capital problem. Further,

Firms will feel effects of increasing general price level differently as prices of individual
Products move differently. Thus,it is possible that some companies may not be affected by rising
prices while others may be badly hit.

3.5. WORKING CAPITAL CYCLE

The way working capital moves around the business is modelled by the working capital cycle.
This shows the cash coming into the business, what happens to it while the business has it and
then where it goes. A simple working capital cycle may look something like:-

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Between each stage of this working capital cycle there is a time delay. For some businesses this
will be very long where it takes them a long time to make and sell the product. They will need a
substantial amount of working capital to survive. Others though may receive their cash very
quickly after paying out for raw materials etc... (perhaps even before they've paid their bills?) -
they will need less working capital.

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3.6. Different Aspects of Working Capital
Management:
➢ Management of Inventory.
➢ Management of Receivables/Debtors.
➢ Management of Cash.
➢ Management of Payables/Creditors.

MANAGEMENT OF INVENTORY
Meaning of Inventory and Inventory Management:

Inventory

Meaning of the Term Inventory Meaning of the Term Inventory Magt

Inventory means Tangible property which is Inventory Management means:


held:
For Sale in the ordinary course of Business OR; An Optimum Investment in the Inventories
In the process of Production (i.e. WIP) for Sale Striking balance between Adequate Stock &
OR; Investment
For Consumption in the production of good & Maintain Adequate Stock and that too by
services which will be used for sale in the keeping Investment at Minimum Level. It is
ordinary course of Business also known as Optimum Level of Inventory
Inventory Includes Raw-Material, FG, WIP, Maintaining Inventory at the Optimum
Spares, Consumables etc. Level is called Inventory Magt.

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MANAGEMENT OF RECEIVABLES

Meaning of Receivables and Receivables Management:

Receivables

Meaning of the Receivables Meaning of the Term Receivables Magt.


It is amount/Debt which is receivable for the goods or Maintain Receivables at a level at which there is a
Services provided on Credit trade-off between
Also known as Trade, Debtors, Sundry Debtors, Trade profitability & Cost
Receivables, Book Debts
This is called Optimum Level of Receivables
Three Aspects of Managing Accounts Receivables

Characteristics Objectives Costs of Maintaining

It Involves an Element of Risk It Involves an Element of Risk It Involves an Element of Risk


It is based on Economic Value Increase in Profit (Volume) Administrative Cost
Cash Payment will be made Increase & Margin Increase) Collection Costs
in Future Strategy to Face Competition

Establishing Credit Policy Establishing Collection Policy of Concern Control of the


Account Receivables
Determining the Level of Credit Sales Determining Policy & Procedures to followed it means maintaining of
Determining the credit standards for the collection of the account the account receivable
Determining the credit terms receivables. at minimum possible
level.

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MANAGEMENT OF CASH
Meaning & Importance of Cash & Cash Management:

Cash & Cash Management

-Cash means Liquid Assets that a Business Owns. It includes Cheques, Money Orders & Bank
Drafts
- Cash Management means efficient Collection & Disbursement of cash and any Temporary
Investment of Cash (Maintaining Optimum Level of Cash in an Organization is called Cash
Management).

Objectives of Cash Management Motives of Holding Importance of Cash


Management
-To meet cash disbursement as per Transaction motive Most significance & least
payment schedule. productive asset.
-To meet cash collection as per Speculative motive Difficult to predict cash
flows.
Repayment schedule (cash inflow or outflow)
-To minimize funds locked up as Precautionary motive Cash planning.
Cash balance by maintaining Cash forecasting.
Optimum cash balance.

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SOURCES OF WORKING CAPITAL FINANCE

Various Sources of securing Working Capital Finance:

Sources of Finance

Long Term Sources Other Sources Short Term Sources


(Regular Working Capital) (Seasonal Working Capital)

Internal Sources External Sources Internal Sources External


Retained Earnings - Issue of Equity Shares Sources
(Profit & Loss A/c) - Issue of Preference Accrual Accounts - Trade Credit
Shares (Provision for Tax) (Open Acct/
Sale of FA’s - Issue of Debentures Acceptance)
- Loans from FI’s Depreciation Funds - Public Deposit
- Security from - Customer
Employees Advances
-Security from - Credit Papers.
Customers. - Indigenous
Bankers.
- Govt.
Assistance.
- Bank Credit.

- Commercial Papers
- Zero Coupon Bonds
- Factoring
(Recourse & Non Recourse)

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3.7

WORKING CAPITAL
MANAGEMENT OF TATA
STEEL

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BALANCE SHEET OF TATA STEEL LTD. FROM 2004-05 TO 2008-09
PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09
FUNDS EMPLOYED:
Share capital & Share 553.67 553.67 727.73 6203.30 6203.45
Warrants
Reserves & surplus 6506.25 9201.63 13368.42 21097.43 23972.81
Total shareholder’s fund 7059.92 9755.30 14096.15 27300.73 30176.26
Loan Amount:
Secured 2468.18 2191.74 3758.92 3520.58 3913.05
Unsecured 271.52 324.41 5886.41 14501.11 23033.13
Total Loans 2739.70 2516.15 9645.33 18021.69 26946.18
Deferred Tax Liability(Net) 829.42 957.00 748.94 681.80 585.73
Provision for Employee 1514.26 1388.71 1107.08 1071.30 1033.60
separation compensation
TOTAL FUNDS
EMPLOYED(NET) 12143.30 14617.16 25597.50 47075.52 58741.77
APPLICATION OF FUNDS:
Fixed Assets:
Gross Block 15055.25 16564.90 18526.93 20847.04 23544.69
(-)Impairment (97.52) (94.19) (100.41) (100.47) (100.47)
(-)Depreciation (5845.49) (6605.66) (7385.96) (8123.01) (8962.00)
Net Block (FA) 9112.24 9865.05 11040.56 12623.56 14482.22
Investments 2432.65 4069.96 6106.18 4103.19 42371.78
Foreign currency
Trans. OR Goodwill ------- -------- ------- ------- 471.66
Current Assets:
Stores & Spare Parts 349.06 442.66 505.44 557.67 612.19
Stock-in-Trade 1523.34 1732.09 1827.54 2047.31 2868.28
Sundry Debtors 581.82 539.40 631.63 543.48 635.98
Interest accrued on 0.20 0.20 0.20 0.20 -----
Investments
Cash & Bank Balances 246.72 288.39 7681.35 465.04 1590.60
2701.14 3002.74 10646.16 3613.70 5707.04
Loans & Advances 1382.44 1234.86 3055.73 3348.74 4578.04
Total Current Assets 4083.58 4237.60 13701.89 36962.44 10285.09
(-)Current Liabilities (2689.83) (2835.99) (3523.20) (3855.26) (6039.86)
(-)Provisions (1010.16) (972.73) (1930.46) (2913.52) (2934.19)
(-)Total Current Liabilities
3699.99 3808.72 5453.66 6768.78 8974.05
Net Current Assets(TCA-TCL)

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383.59 428.88 8248.23 30193.66 1311.04
Misc. Expenses 214.82 253.27 202.53 155.11 105.07
Total Asset(NET) 12143.3 14617.1 25597.5 47075.5 58741.7
0 6 0 2 7

PROFIT AND LOSS ACCOUNT OF TATA STEEL LTD. FOR FIVE


YEARS
PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09
Income:
Sales & other operating 15876.87 17144.22 19762.57 22191.80 26843.73
income
(-)Excise duty (1377.92) (2004.83) (2210.55) (2498.52) (2527.96)
Other income 148.03 254.76 433.67 335.00 308.27
14646.98 15394.15 17985.69 20028.28 24624.04
Expenditure:
Manf. & other Expenses 8658.41 9320.50 10814.77 11645.24 15525.99
Depreciation 618.78 775.10 819.29 834.61 973.40
(-)Expenditure (other than
interest) transferred to cap.
a/c (204.82) (112.62) (236.02) (175.50) (343.65)
Interest 186.80 118.44 173.90 878.70 1152.69
9259.17 10101.42 11571.94 13183.05 17308.43
PBT & Exceptional item 5387.81 5292.73 6413.75 6845.23 7315.61
(-)Employee separation (119.11) (52.77) (152.10) (226.18) -------
scheme
(-)Contribution for sports ------- ------- ------- (150.00) -------
Exchange gain ------- ------- ------- 597.31 -------
Profit before taxes 5297.28 5239.96 6261.65 7066.36 7315.61
Taxes:
Current Tax 1797.17 1579.00 2076.01 2252.00 2173.00
Deferred Tax (10.54) 127.58 (52.51) 108.33 (75.13)
Fringe benefit Tax ------- 27.00 16.00 19.00 16.00
Education cuss on I.T. 36.49 ------- ------- ------- -------
1823.12 1733.58 2039.50 2379.33 2113.87
Profit after tax 3474.16 3506.38 4222.15 4687.03 5201.74
Balance brought
forward from last year 637.42 1790.21 2976.16 4593.98 6387.46
Amount available for
Appropriations 4111.58 5296.59 7198.31 9281.01 11589.20
Appropriations:
Proposed dividends 719.51 719.51 943.91 1168.93 1168.95
Dividends on

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conv.Pref. Shares ------- ------- ------- 22.19 109.45
Tax on Dividend 101.86 100.92 160.42 202.43 214.10
General Reserve 1500.00 1500.00 1500.00 1500.00 600.00
Balance Carried To
Balance Sheet 1790.21 2976.16 4593.98 6387.46 9496.70

COST OF PRODUCTION AND COST OF GOODS OF TATA STEEL

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


Raw Material Consumed 292.82 603.70 707.54 720.52 901.56
+ Opening Stock Of R.M 1288.95 1710.01 2263.01 2352.80 4266.89
+ Purchase 737.07 761.79 871.43 1256.76 1974.56
+ Own Production 603.70 707.54 720.54 901.56 1433.26
(-) Closing Stock Of R.M 1715.14 2368.30 3121.46 3429.52 5709.91

Employee Cost 1059.46 1180.00 1236.32 1390.69 2015.60


Wages 231.45 171.51 218.43 199.08 290.75
Contribution to P.F. 936.68 1004.32 1117.45 1098.19 1251.23
Freight And Handling 2227.68 2355.83 2572.28 2687.96 3557.04

Direct Cost 150.03 169.39 176.08 171.91 227.67


Royalty 89.38 55.65 56.66 151.18 202.02
Rates 13.12 20.60 29.23 25.37 25.54
Insurance 252.53 245.64 261.97 256.13 455.23

Prime Cost 4195.35 4969.77 5955.41 6373.61 9722.18


Factory overheads
Stores 621.33 737.74 1072.91 936.11 1248.70
Fuel 66.30 78.40 106.15 115.33 131.11
Repairs to Building 35.98 55.49 41.77 48.88 47.37
Repairs To Machinery 636.97 624.27 587.18 739.21 809.62
Relining 24.07 32.65 52.98 30.14 48.69
Conversion Charges 629.65 640.52 745.16 856.86 1041.50
Power 712.00 819.17 921.69 932.78 1041.50
Rent 19.95 13.63 10.86 10.75 11.95
Deprecation 618.78 775.10 819.29 834.61 973.45
Excise duty 93.63 38.50 (32.75)
3365.03 3776.97 4451.62 4543.25 5370.96

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Works cost 7560.38 8746.74 10407.03 10916.86 15093.14
(+) opening WIP 9.28 32.42 23.93 28.94 71.48
(-) closing WIP 32.42 23.93 28.94 71.84 73.17

Cost Of Production 7537.24 8746.23 10407.02 10874.32 15091.45


+ opening Stock Finished 620.81 887.22 1000.62 1087.08 1074.27
Goods
+ purchase of finished goods 1305.28 656.08 450.60 446.95 358.87
(-) Closing Stock Of Finished 887.22 1000.62 1078.08 1074.27 1361.85
Goods
Cost Of Goods Sold 8576.11 9297.91 10775.16 11325.08 15162.74
+ Selling Exp And 86.18 80.75 64.71 52.53 61.49
Commission
Cost Of Sales 8662.29 9378.66 10839.87 11377.61 15224.23
Profit 5836.66 5760.73 6712.15 8315.67 9091.54
Sales 14498.95 15139.39 17552.02 19693.28 24315.7

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METHOD OF CALCULATION

Particulars Explanation
Raw material conversion period
Raw material consumed The value of raw material consumption is
taken from schedule 4 of the profit and loss
account
Raw material consumption per day The value of raw material consumption per day
is taken by dividing raw material consumption
by 360 days
Average Raw material inventory The opening and closing raw material
inventory is taken from schedule G of the
balance sheet. The schedule G contains the
breakup of entire inventories. The last year
closing balance is consider as the opening for
the current year and the average is calculated
Raw material conversion period Holding days are calculated by dividing raw
material inventory by raw material
consumption per day.
Work in progress conversion period
Cost of Production The value of cost of production is taken from
schedule 4 of profit and loss account under
manufacturing expenses. The entire

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manufacturing is given in the cost sheet format.
The end value is taken as the cost of
production
Cost of production per day The value of cost of process per day is
calculated by dividing cost of production by
360 days
Average Work in progress inventory The opening and closing value of work in
progress inventory is taken from schedule G of
the balance sheet. The schedule G contains
breakup of entire inventories. The last year
closing balance is considered as the opening
for the current year and the average is
calculated.
Work in progress conversion period Holding days are calculated by dividing work
in progress inventory by cost of process per
day.

Finished goods conversion period


Cost of goods sold The value of cost of goods sold is calculated by
subtracting profit before taxation from net
sales. The net sales are taken from profit and
loss account as well as profit before taxation.
Then the result is calculated
Cost of goods sold per day The value is calculated by dividing cost of
goods sold by 360 days
Average Finished goods inventory The opening and closing value of finished
goods inventory is taken from schedule G of
the balance sheet. The schedule G contains the
breakup of entire inventories. The last year
closing balance is consider as the opening for
the current year and the average is calculated
Finished goods conversion period The value is calculated by dividing finished
goods inventory by cost of goods sold per day.
Debtors Collection period
Credit sales The value of entire net sales from profit and
loss account is taken as the credit sales for the
particular year. The entire net sales is
considered as the credit sales
Credit Sales per day The value is calculated by dividing the entire

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credit sales by 360 days.
Average Debtors The value of debtors is taken from the balance
sheet. Debtors comes under the head of current
assets in the balance sheet
Debtors collection period The value of outstanding days is calculated is
calculated by dividing debtors by sales per day.
Creditors deferral period
Credit purchase For the year 2008-2009, no purchases is shown
Therefore we have calculated the percentage
from raw material consumed and then the
entire calculation is done.
Credit Purchase per day The value is calculated by dividing the entire
credit purchase by 360 days
Average Creditors The value of creditors is taken from the
schedules of current liabilities and
provision(schedule k)
Creditors collection period The value of deferral period is calculated by
dividing creditors by purchase per day.

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OPERATING CYCLE OF TATA STEEL
PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09
Raw Material Conversion Period
Raw material consumed 1715.14 2368.30 3121.46 3429.52 5709.91
Raw material consumed per day 4.76 6.58 8.67 9.53 15.86
Average raw material inventory 448.26 655.62 714.03 811.04 1167.41
RMCP 94.17 99.64 82.35 85.10 73.61
Work In Progress Conversion
Period
Cost of production 7537.24 8755.23 10402.02 10874.32 15091.45
Cost of production per day 20.93 24.32 28.89 30.21 41.92
Average work in progress inventory 20.85 28.18 26.44 50.21 72.33
WIPCP 0.99 1.16 0.92 1.66 1.73
Finished Goods Conversion
Period
cost of goods sold 8576.11 9297.91 10775.16 11325.08 15162.74
Cost of goods sold per day 23.82 25.83 29.93 31.46 42.12
Average finished goods inventory 754.02 943.92 1039.35 1076.18 1218.06
FGCP 31.65 36.54 34.73 34.21 28.92
Debtors Collection Period
Credit sales 14498.95 15139.39 17552.02 19693.28 24315.77
Credit sales per day 40.27 42.05 48.75 54.70 67.54
Average debtors 581.82 539.40 631.63 543.48 635.98
DCP 14.44 12.82 12.95 9.93 9.41
Creditors deferral period
Credit purchase 6660.53 4715.64 5527.82 6059.09 8974.36
Credit purchase per day 18.50 13.09 15.35 16.83 24.92
Average creditors 2374.98 2534.03 3145.99 3243.42 3842.78
CDP 128.32 193.58 204.95 192.71 154.20

GROSS OPERATING CYCLE 141.25 150.16 130.95 130.9 113.67


(GOC)

NET OPERATING CYCLE 12.93 (43.42) ( 74) (61.81) (40.53)


(NOC)

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SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 62
NET WORKING CAPITAL OF TATA STEEL

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


CURRENT ASSETS
Stores and spares 349.06 442.66 505.44 557.67 612.19
Stock in trade 1523.34 1732.09 1827.54 2047.31 2868.28
Sundry debtors 581.82 539.4 631.63 543.48 635.98
Interest accrued on investment 0.2 0.2 0.2 0.2 0
Cash and bank 246.72 288.39 7681.35 465.04 1590.60
Loans and advances 1382.44 1234.86 3055.73 33348.74 4578.04
TOTAL(CA) 4083.58 4237.6 13701.89 36962.44 10285.09

CURRENT LIABILITIES
Sundry creditors 2319.96 2534.03 3145.99 3243.42 3842.78
Subsidiary companies 58.1 62.37 102.61 115.74 1358.1
Interest accrued but not due 85.15 24.29 47.11 231.05 506.68
Advances received from 199.51 185.07 198.28 226.03 297.37
customers
Liability towards investors edu 27.11 30.23 29.21 39.02 34.91
and pro fund
Provision for retiring gratuities 6.77 .81 0 0 0
Provision for employee benefits 0 0 519.5 848.54 1143.0
Provision for taxation 283.88 250.04 448.68 854.74 493.59
Provision for fringe benefits 0 2.37 18.37 19.12 19.12
Proposed dividend 719.51 719.51 943.91 1191.12 1278.4
TOTAL(CL) 3699.99 3808.72 5453.66 6768.78 8973.95

NET WORKING 383.59 428.88 8248.23 30193.66 1311.14


CAPITAL(A-B)

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PERCENTAGE CHANGE IN WORKING CAPITAL
OF TATA STEEL

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


CURRENT ASSETS
Stores and spares 6.55 21.14 12.42 9.37 8.90
Stock in trade 39.41 12.05 5.22 10.73 28.62
Sundry debtors -11.94 -7.86 14.60 -16.21 14.54
Interest accrued on investment 0.00 0.00 0.00 0.00 0.00
Cash and bank -1.62 14.44 96.24 -1551.76 70.78
Loans and advances -39.73 -11.95 59.58 -90.83 -628.45
TOTAL(CA) -7.33 27.82 188.06 -1638.7 -505.61

CURRENT LIABILITIES
Sundry creditors 14.11 8.44 19.45 3.00 15.59
Subsidiary companies 61.65 6.84 39.21 11.34 91.47
Interest accrued but not due 48.66 -250.55 48.43 79.61 54.39
Advances received from customers 33.04 -7.80 6.66 12.27 23.99
Liability towards investors edu 3.13 10.32 -3.49 25.14 -11.77
and pro fund
Provision for retiring gratuities 17.72 -735.80 0 0 0
Provision for employee benefits 0 0 100 38.77719 25.76202
Provision for taxation 395.23 -13.53 44.27 47.50 -73.16
Provision for fringe benefits 0 100 87.09 3.92 0
Proposed dividend 48.71 0 23.77 20.75 6.82
TOTAL(CL) 622.25 -892.4 365.42 242.33 127.17

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RATIOS ANALYSIS OF TATA STEEL
• WORKING CAPITAL TURNOVER RATIO:

Formula: Net sales / net working capital

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Net Sales 14498.95 15139.39 17552.02 19693.28 24315.77


Net Working Capital 383.59 428.88 8248.23 30193.66 1311.14
WCTR 37.79 35.29 2.12 0.65 18.54

INTERPRETATION:

The above graph shows the need of the net current asset as compared to sales. The reciprocal of
WCTR (37.79) for year 2004-05 is 0.026. this indicate that for every one rupees of sales it needs
only 0.026 of net current asset but during the year 2006-08, the need of current assets is
increased in getting the sale due to low industry performance due to recession.

This gap will be met from borrowings and long-term sources of funds. In 2008-09 working
capital turnover ratio is 18.54 and in 2007-08, 0.65 which is much more than current year. There
has been much more improvement in utilization of fixed asset and current assets.

• CURRENT RATIO:

Formula: Current Asset / Current Liability

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Current Assets 4083.58 4237.6 13701.89 36962.44 10285.09
Current Liabilities 3699.99 3808.72 5453.66 6768.78 8973.95
CURRENT RATIO 1.1036 1.1126 2.51242 5.460724 1.1461051

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INTERPRETATION:

Current ratio mainly indicates how fast the firm provides liquidation. Current asset represent the
payment that will be made by the firm in future and this also include current liabilities. Current
ratio estimates short term solvency of the firm. As a conventional rule current ratio of 2:1
represents the satisfactory condition of the firm. Current ratio of 2006-07 is 2.51and 2007-08
5.46 represents the satisfactory condition of the firm and rest of the year it is not satisfactory.

• QUICK RATIO:

Formula: Quick assets / Current liability

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Current asset-inventory 2560.24 2505.51 11874.35 34915.13 7416.81


Current liabilities 3699.99 3808.72 5453.66 6768.78 8973.95
QUICK RATIO 0.6919586 0.657835 2.1773176 5.1582604 .826482

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INTERPRETATION:

Quick ratio of 1 to 1 is considered to represent the satisfactory condition. Quick ratio is better to
measure liquidity of firm. It is also not necessary that 1 to 1 imply sound liquidity position in
2008-09 quick ratios is 0.82.quick asset is 0.82 times greater than current liabilities.

• DEBTORS TURNOVER RATIO:

Formula: Net Sales / Average debtors

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Average debtors 581.82 539.40 631.63 543.48 635.98


Net sales 14498.95 15139.39 17552.02 19693.28 24315.77
DTR 24.91 28.06 27.78 36.23 38.23

INTERPRETATION:

Debtors’ turnover indicates number of times debtors turn over each year higher the value of
debtors turn over the more efficient will be the credit of the management debtors turnover
represents how fast debtors provide liquidity higher the value of debtors turnover the more
efficient will be the management of the credit. In 2008-09 DTR are 38.23 which are much
higher than as we compare with previous year.

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PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Cost of goods sold 8576.11 9297.91 10775.16 11325.08 15162.74


Average stock 754.01 943.61 1039.35 1080.67 1218.06
STR 11.37 9.85 10.36 10.47 12.44

• STOCK TURNOVER RATIO:

Formula: Cost of goods sold / average stock

INTERPRETATION:

This ratio evaluates the efficiency of the firm in selling its product This ratio indicates the
number of times inventory has been converted into sales during the year. In manufacturing
company inventory of finished goods is used to calculate inventory turnover.in2008-09 Tata
steel is turning inventory of finished goods into sales 12.44 times in a year which is marginally
higher than compare to previous year.

• CREDITORS TURNOVER RATIO:

Formula: Net Purchases / Average Creditors

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Average Creditors 2374.98 2534.03 3145.99 3243.42 3842.78


Net Purchases 6660.53 4715.64 5527.82 6059.09 8974.36

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CTR 2.80 1.86 1.75 1.86 2.33

INTERPRETATION

Creditor’s turnover ratio of sail was high in the year 2004-2005i.e 2.8 which meant that the sail
collected its payment from its creditors 2.8 times in that financial year. The high liquidity of the
creditors is beneficial for SAIL in carrying out its business. Increase in net purchases
continuously also increased the average creditors which automatically increased the creditor’s
turnover ratio in year 2008-2009.

• CASH RATIO:

Cash +Marketable securities / Current liabilities

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Cash+ marketable securities 1814.02 3359.13 11373.88 1598.78 4859.93


Current liabilities 3699.99 3808.72 5453.66 6768.78 8973.95
CASH RATIO 0.49 0.88 2.08 0.23 0.54

INTERPRETATION

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Cash ratio is the most liquid asset. Ratio of cash ratio is equivalent of current liabilities. Trade
investment and marketable securities are equivalent to cash therefore they may be included in
cash ratio. The company in 2008-09 carries 0.54 cash. which is not a big amount but there is
nothing to worry about because company can easily borrow cash from banks.

• NO. OF DAYS INVENTORY:

360 Days / Inventory Turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Inventory Turnover 11.37 9.85 10.36 10.47 12.44
NO.OF DAYS INVENTORY 63.8 56.07 52.63 52.47 51.13

INTERPRETATION

The above graph indicates a decline in the inventory holding days in Tata steel. As shown above
for year 2004-05 , it was 63.8 days but it has been constantly in following financial years which
means that Tata Steel has been successful in decreasing the warehousing cost as inferred from
the current year days of inventory holding i.e. 51.13 days.

• DEBTORS COLLECTION PERIOD:

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360 / Debtors turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Debtors Turnover 24.91 28.06 27.78 36.23 38.23
DCP 14.45 12.86 12.95 9.93 9.41

INTERPRETATION

Debtors collection period indicates quality of debtors. The shorter will be the collection period
the higher will be the quality of debtors. In 2008-09 the debtors collection period is 9.41 which
is the shortest collection period from 2004-05 and which represent the better quality of debtors.
In 2004-05 the collection period is more which indicates the quality of debtors is not
satisfactory.

• CURRENT ASSETS TURNOVER RATIOS:

Formula: Sales / Current assets

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Sales 14498.95 15139.39 17552.02 19693.28 24315.77


Current assets 4083.58 4237.6 13701.89 36962.44 10285.09
CATR 3.55 3.57 1.28 .053 2.36

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INTERPRETATION

As per the graph the current asset turnover ratio for the year 2004 and 2005 is more or less same
but during the year 2006-08, it has decreased due to recession in getting the sales form current
assets. But during current financial year 2008-09, it has shown a positive recovery i.e. 2.36.

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3.8

WORKING CAPITAL
MANAGEMENT OF SAIL
(STEEL AUTHORITY OF
INDIA LIMITED)

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SAIL

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a
fully integrated iron and steel maker, producing both basic and special steels for domestic
construction, engineering, power, railway, automotive and defence industries and for sale in
export markets.

Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL
manufactures and sells a broad range of steel products, including hot and cold rolled sheets and
coils, galvanized sheets, electrical sheets, structurals, railway products, plates, bars and rods,
stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and
three special steel plants, located principally in the eastern and central regions of India and
situated close to domestic sources of raw materials, including the Company's iron ore, limestone
and dolomite mines. The company has the distinction of being India’s second largest producer of
iron ore and of having the country’s second largest mines network. This gives SAIL a
competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are
inputs for steel making.

SAIL's wide range of long and flat steel products are much in demand in the domestic as well as
the international market. This vital responsibility is carried out by SAIL's own Central Marketing
Organization (CMO) that transacts business through its network of 37 Branch Sales Offices
spread across the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27
Customer Contact Offices. CMO’s domestic marketing effort is supplemented by its ever
widening network of rural dealers who meet the demands of the smallest customers in the
remotest corners of the country. With the total number of dealers over 2000, SAIL's wide
marketing spread ensures availability of quality steel in virtually all the districts of the country.
SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of
CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five integrated steel
plants. With technical and managerial expertise and know-how in steel making gained over four

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decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and
consultancy to clients world-wide.
NET 0PERATING CYCLE (SAIL)

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ITEMS 2004- 2005- 2006- 2007- 2008-
05 06 07 08 09
Raw material
conversion period
Raw material consumed 9351.46 12325.6 13274.9 13960. 20076.
3 1 14 92
Raw material consumption 25.97 34.23 36.87 38.77 55.76
per day
Average raw material 649.65 1013.17 1167.65 980.3 1147.2
inventory 15
RMCP 25.00 29.59 31.66 25.27 20.57
Work in progress
conversion period
Cost of production 21088.6 25027.8 27907.4 11467. 9399.6
7 3 8 44 7
Cost of production per day 58.57 69.52 77.52 31.85 26.11
Average Work in progress 374.34 562.21 996.99 1794.0 4466.8
inventory 3 9
WICP 6.39 8.08 12.86 56.32 171.07
Finished goods
conversion period
Cost of goods sold 18979.5 22131.8 24500.5 28039. 36975.
5 3 72 87
Cost of goods sold per day 52.72 61.47 68.05 77.88 102.71
Average Finished goods 1765.14 2586.91 3369.39 3726.8 4881.4
inventory 3 0
FGCP 33.48 42.07 49.50 47.84 47.52
Debtors Collection
period
Credit sales 28344.9 27837.5 33923.1 39508. 43150.
7 2 45 08
Credit Sales per day 78.73 77.32 94.23 109.74 119.86
Average Debtor 1908.45 1881.73 2314.75 3048.1 3024.3
2 6
DCP 24.23 24.33 24.56 27.77 25.23
Creditors deferral
period
Credit purchase 9837.86 12566.2 13343.2 13517. 20853.
7 3 12 77
Credit Purchase per day 27.32 34.90 37.06 37.54 57.92
Average Creditors 2207.5 2427.36 2545.07 2985.2 4150.8

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NET WORKING CAPITAL (SAIL)

CURRENT 2004- 2005-06 2006-07 2007-08 2008-


ASSETS 05 09

Inventories 4220.69 6210.06 6651.47 6857.23 10121.4


5
Sundry debtors 1908.45 1881.73 2314.75 3048.12 3024.36
Cash and bank 6132.12 6172.64 9609.83 13759.4 18228.5
balance 4 3
Interest receivable 142.18 85.48 152.56 273.08 1014.47
Loans and advances 1930.19 3033.82 1650.01 2379.75 2122.06
TOTAL(A) 14333. 17383.7 20378.6 26317.6 34510.
6 2 87

CURRENT 2004- 2005- 2006- 2007- 2008-


LIABILITIES 05 06 07 08 09

Sundry creditors 2207.5 2427.36 2545.07 2985.24 4156.7


7
Advances 524.47 536.26 631.68 643.49 565.64
Security deposits 209.67 232.3 257.76 243.09 431.2
Interest accrued but not 527.75 375.82 198.79 115.64 95.58
due on loans
Unpaid dividend 0.19 3.27 4.3 5.88 7.55
Unclaimed matured 11.03 5.14 2.19 1.8 1.6
deposits
Unclaimed matured bonds 0.83 0.6 0.2 0.55 0.25
Interest accrued on 4.37 2.59 0.74 0.66 0.63
unclaimed deposits
Other liabilities 1293.11 1608.36 1757.47 2404.57 2454.1

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7
Provision for gratuity 1851.19 2289.75 1718.2 718.16 573.17
Provision for accrued 1013.37 1223.82 1371.43 1346.7 1602.0
leave 8
Provision for taxation 748.06 1939.75 736.26 832.06 1048.7
5
Provision for pollution 84.23 86.44 44.32 38.18 364.01
control
Provision for exchange 0 13.95 83.11 89.05 99.73
fluctuation
Provision for proposed 743.47 309.78 0 743.47 536.95
dividend
Provision for tax on 104.27 43.45 619.56 125.54 91.26
dividend
Provision for voluntary 114.19 84.29 105.29 40.15 21.43
retirement
Provision for employees 170.2 201.68 58.92 0 0
family benefit scheme
Provision for post 479.93 490.33 512.58 0 0
retirement medical
benefits
Provision for wages 0 342.52 223.96 2459.66 4552.9
revision 4
Others 78.24 210.68 77.15 404.86 517.89
TOTAL(B) 10166. 12428. 10949 13198. 17121
1 1 75 .6

NET WORKING CAPITAL 4167.56 4955.5 9429.6 13118. 17389


9 4 87 .27

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RATIO ANALYSIS OF SAIL

• WORKING CAPITAL TURNOVER RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09

Net sales 28344.9 27837.6 33923.1 39508.5 43150.1


Net working capital 4167.56 4955.59 9429.64 13118.9 17389.3

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Working capital 6.80 5.61 3.59 3.01 2.48
turnover ratio

INTERPRETATION

The above graph shows the working capital turnover ratio of sail. The decreasing trend of the
graph shows that sail has been failure in managing the gap between net current asset and sales.
For the financial year 2004-05 it needed 0.14 times of net current for its sales whereas it needed
0.4 times of net current assets for its sales.

• CURRENT RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09

Current asset 14333.6 17383.7 20378.6 26317.6 34510.9


Current liability 10166.1 12428.1 10949 13198.8 17121.6

CURRENT RATIO 1.40 1.39 1.86 1.99 2.01

INTERPRETATION:

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 80


In the past four financial years SAIL has shown an increase in the current ratio from 1.4 in 2004-
2005, to 2.01 in 2008-2009. This means that it has constantly been working on its obligation.

• QUICK RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


Current Assets- 10112.9 11173.7 13727.2 19460.4 24389.4
inventory
Current liability 10166.1 12428.1 10949 13198.8 17121.6

Quick ratio 0.99 0.89 1.25 1.47 1.42

INTERPRETATION:
The above graph shows the quick ratio of sail. It clearly shows that it has improved its quick
assets to meet its obligation. In the year 2004-05 it was 0.99 which is a good number and it has
constantly increased its quick assets to pay back the current liabilities by not relying on its
inventories.

• DEBTORS TURNOVER RATIO

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 81


PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09
Average debtors 1908.45 1881.73 2314.75 3048.12 3024.3
6
Net sales 28344.9 27837.6 33923.1 39508.5 43150.1
Debtors turnover 14.85 14.79 14.66 12.96 14.27
ratio

INTERPRETATION

The above graph shows that the debtors in SAIL can be converted to cash 14.85 times in year
2004-2005.But in the following 3 financial years it has shown a fall in the ability to convert
debtors into cash readily, which was made up in the year 2008-2009 by increasing the DTR to
14.27 again.

• STOCK TURNOVER RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


Cost of goods sold 18979.6 22131.8 24500.5 28039.7 36975.9
Average stock 3638.88 5215.38 6430.77 6754.35 8489.34

Stock turnover ratio 5.21 4.24 3.80 4.15 4.35

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 82


INTERPRETATION

SAIL had a very effective stock turnover ratio in year 2004-2005 where it turned its inventory to
cash about 5.21 times a year. In year 2005-2008 there has been a decline in the frequency of
changing raw materials into finished goods and thus to cash. This situation was regained in the
year 2008-2009 by bringing the STR at 4.35

• CREDITORS TURNOVER RATIO:

Formula: Net Purchases / Average Creditors

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Average Creditors 2207.5 2427.36 2545.07 2985.24 4150.85


Net Purchases 9837.86 12566.2 13343.2 13517.1 20853.7
7 3 2 7
CTR 4.45 5.17 5.24 4.52 5.02

INTERPRETATION

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 83


The CTR of SAIL shows fluctuations. There is no steadiness in the collection of the money
from the creditors in SAIL. It can hinder the working of its operations if it is not corrected.

• CASH RATIO:

Formula: Cash +Marketable securities / Current liabilities

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Cash+ marketable securities 6132.12 6172.64 9609.83 13759.4 18228.5


4 3
Current liabilities 10166.1 12428.1 10949 13198.7 17121.6
5
CASH RATIO 0.60 0.49 0.87 1.04 1.06

INTERPRETATION:

The above graph shows the Cash ratio of SAIL. Cash is the most liquid asset therefore it is
important in analyzing the health of the firm. The company in 2008-09 carries 1.06% cash. As
compared to its current liabilities.which is not a big amount but there is nothing to worry about
because company can easily borrow cash from banks.

• NO. OF DAYS INVENTORY:

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 84


Formula: 360 Days / Inventory Turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Inventory Turnover 5.21 4.24 3.80 4.15 4.35
NO.OF DAYS INVENTORY 69.09 84.90 94.73 86.74 82.75

INTERPRETATION:

The above graph indicates an increase and then decline in the inventory holding days in SAIL.
As shown above for year 2004-05 , it was 69.09 days and it has been constantly increasing in
following 2 financial years which means that SAIL has been successful in decreasing the storage
cost but it showed a decline in the inventory holding days in year 2008-2009

• DEBTORS COLLECTION PERIOD:

Formula: 360 / Debtors turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Debtors Turnover 16.39 14.68 16.16 14.73 14.21
DCP 21.96 24.52 22.27 24.43 25.33

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 85


INTERPRETATION:

The DCP of SAIL is almost consistent throughout the 5 financial years. There have been
slight ups and downs in the collection period which means that SAIL has quality in
collecting the cash made from sales done. But in the current year 2008-2009 the DCP has
increased which should be avoided for the smooth running of the company.

• CREDITORS COLLECTION PERIOD:

Formula: 360 / Creditors turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Creditors Turnover 4.45 5.17 5.24 4.52 5.02
CCP 80.89 69.63 68.70 79.64 71.71

INTERPRETATION:

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 86


The CCP in SAIL was efficient during the year 2004-2005 at 80.90, but it showed
a decline in the year 2005-2007 and then again an increase is seen in year 2007-
2008 at 79.65. The payment period when is large helps the company in managing
the cash for making the payment.

• CURRENT ASSETS TURNOVER RATIOS:

Formula: Sales / Current assets

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Sales 28344.9 27837.5 33923.1 39508.4 43150.0


7 2 5 8
Current assets 14333.6 17383.7 20378.6 26317.6 34510.8
2 7
CATR 1.97 1.60 1.66 1.50 1.25

INTERPRETATION:

As per the graph the current asset turnover ratio for the year 2004 is 1.98 but during the year
2005 there has been a decrease, and after a slight increase in year 2006 it fell again to 1.25 in
year 2008.

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 87


3.9

WORKING CAPITAL
MANAGEMENT OF ESSAR
STEEL LTD

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 88


ESSAR STEEL LTD

COMPANY PROFILE

Essar Steel is a global producer of steel with a footprint covering India, Canada, USA, and Asia.
It is a fully integrated flat carbon steel manufacturer—from iron ore to ready-to-market products.
Essar Steel has a current capacity of 9 million tonnes per annum (MTPA). With its aggressive
expansion plans in India as well as Asia and the Americas, its capacity will go up to 20 to 25
MTPA. Its products find wide acceptance in highly discerning consumer sectors, such as
automotive, white goods, construction, engineering and shipbuilding.

No wonder we are India's largest exporter of flat products, selling almost one-third of our
production to the highly demanding US and European markets, and to the growing markets of
South East Asia and the Middle East. A number of major client companies have approved our
steel for their use, including Caterpillar, Hyundai, Swaraj Mazda, the Konkan Railway and
Maruti Suzuki. Essar Steel has acquired extensive quality accreditations. Our lean team gives us
one of the highest productivities and lowest manpower costs among steel plants internationally.

A major strategic advantage is our high level of forward and backward integration. We are
totally integrated - from raw material to finished products, adding value at every stage of the
manufacturing process.

Our steel complex at Hazira, Gujarat, houses a 5.0 MTPA sponge iron plant, the world's largest
gas-based HBI producer. The plant provides raw materials for our state-of-the-art 4.6 MTPA hot
rolled coil (HRC) plant, the first and largest of India's new generation steel mills. This plant is
fed with inputs from three electric arc furnaces and three casters. The complex's sophisticated
infrastructure includes independent water supply and power, oxygen and lime plants, a township

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 89


and a captive port capable of handling up to 8 MTPA of cargo with modern handling equipment
like barges and floating cranes.

NET OPERATING CYCLE (EASSAR)

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 90


ITEMS 2004- 2005- 2006- 2007- 2008-
05 06 07 08 09
Raw material
conversion period
Raw material consumed 3100.27 3725.28 5747.74 6750.84 7662.8
3
Raw material 8.61 10.34 15.96 18.75 21.28
consumption per day
Average raw material 341.78 496.82 590.35 412.29 279.06
inventory
RMCP 39.68 48.01 36.97 21.98 13.11
Work in progress
conversion period
Cost of production 577.84 601.33 746.04 859.39 982.16
Cost of production per 1.60 1.67 2.07 2.38 2.72
day
Average Work in progress 40.33 66.9 385.59 618.86 596.83
inventory
WICP 25.12 40.05 186.06 259.244 218.76
Finished goods
conversion period
Cost of goods sold 5322.61 5486.6 7510.89 9911.92 11503.
1
Cost of goods sold per day 14.78 15.24 20.86 27.53 31.95
Average Finished goods 194.28 216.48 382.89 501.59 519.48
inventory
FGCP 13.14 14.20 18.35 18.21 16.25
Debtors Collection
period
Credit sales 6116.71 6182.58 8194.35 10743.3 11688.
30
Credit Sales per day 16.99 17.17 22.76 29.84 32.46
Average Debtor 471.3 540.16 546.85 360.4 411.63
DCP 27.73 31.45 24.02 12.07 12.67
Creditors deferral
period
Credit purchase 3442.05 4035.37 5624.71 6517.74 7629.4
8
Credit Purchase per day 9.56 11.2 15.62 18.10 21.19
Average Creditors 625.41 1071.99 1566.53 1074.41 1165.2
6

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 91


NET WORKING CAPITAL (ESSAR)

CURRENT 2004- 2005-06 2006-07 2007-08 2008-


ASSETS 05 09

Inventories 2157.52 2108.11 2328.77 1485.34 933.22


Sundry debtors 411.63 360.4 546.85 540.16 471.3
Cash and bank 508.16 399.49 432.86 725.79 251.29
balance
Loans and advances 1381.19 953.55 1084.42 1117.71 735.36
Interest accrued on 0 4.51 4.51 4.51 4.51
investment
Other current assets 121.62 120.67 0 0 0

TOTAL(A) 4580.1 3935.19 4397.41 3873.51 2395.6


2 8

CURRENT 2004- 2005- 2006- 2007- 2008-


LIABILITIES 05 06 07 08 09
Acceptances 861.66 1307.83 1136.27 1033.95 46.99
Sundry creditors 1165.26 1074.41 1566.53 1071.99 625.41
Subsidiary companies 155.84 464.13 112.94 0 0
Interest accrued but not 20.37 17.38 19.92 19.12 101.89
due
Advances received from 135.93 131.05 282.88 209.95 60.38
the customers
Others 206.76 256.2 334.73 152.68 123.36

TOTAL(B) 2545.8 3240.8 3453.2 2487.6 958.0


2 9 7 9 3

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 92


NET WORKING 2034.3 694.3 944.14 1385.8 1437.
CAPITAL 2 65
(A-B)

RATIO ANALYSIS OF ESSAR STEEL

• WORKING CAPITAL TURNOVER RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


Net sales 6116.71 6182.58 8194.35 10743.3 11688.3
2 0
Net working capital 2034.3 694.3 944.14 1385.82 1437.65
Working capital 5.74 15.47 8.67 4.46 4.25
turnover ratio

INTERPRETATION:

The graph shows the working capital turnover ratio over ESSAR STEEL ltd. As the per the
graph ratios states that there was a quiet imbalance in the company in managing their current
asset. Currently they need 0.23 rupees net current asset for every one rupee of sales.

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 93


• CURRENT RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09

Current asset 4580.12 3935.19 4397.41 3873.51 2395.68


Current liability 2545.82 3240.89 3453.27 2487.69 958.03

CURRENT RATIO 1.79 1.21 1.27 1.55 2.50

INTERPRETATION:

ESSAR has shown a steep fall in the current ratio in year 2005-2006 i. e 1.21 from 1.79 in year
2004-2005. But gradually it has risen to maintain a standard current ratio of 2.50 in current year
2008-2009.

• QUICK RATIO

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 94


PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09

Current inventory 2422.6 1827.08 2086.64 2388.17 1462.46


Current liability 2545.82 3240.89 3453.27 2487.69 958.03

Quick ratio 0.95 0.56 0.59 0.95 1.52

INTERPRETATION:

The above graph shows the quick ratio of ESSAR STEEL Ltd. The company has very less quick
assets in the year 2005-07 i.e. 0.56 & 0.59 respectively to pay back the current liabilities but
after that it has shown a positive growth to attend a 1.52 figure in the year 2008-09, which
indicates its increased ability to pay back the current liability.

• DEBTORS TURNOVER RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09

Average debtors 471.3 540.16 546.85 360.4 411.63


Net sales 6116.71 6182.58 8194.35 10743.32 11688.3
0
Debtors turnover 12.98 11.45 14.98 29.81 28.40
ratio

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 95


INTERPRETATION:

The above graph shows that the debtors in ESSAR Steel can be converted to cash 16.39 times in
year 2004-2005.But in the following 3 financial years it has shown a fall in the ability to convert
debtors into cash readily, which was made even down in the year 2008-2009 by decreasing the
DTR to 14.21 again.

• STOCK TURNOVER RATIO

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


Cost of goods sold 5322.61 5486.6 7510.89 9911.92 11503.1
Average stock 2132.81 2218.44 1907.05 1209.28 933.22
Stock turnover ratio 2.50 2.47 3.94 8.20 12.33

INTERPRETATION:

ESSAR Steel had a very effective stock turnover ratio . In during the year 2004-2008 it has
increased its capacity to convert the inventory into finished goods. The graph clearly shows a
increasing trend in stock turnover ratio. Currently it has a STR ratio of 12.33 which is good ratio
for manufacturing companies.

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 96


• CREDITORS TURNOVER RATIO:

Formula: Net Purchases / Average Creditors

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Average Creditors 625.41 1071.99 1566.53 1074.41 1165.26


Net Purchases 3442.05 4035.37 5624.71 6517.74 7629.48
CTR 5.50 3.76 3.59 6.07 6.55

INTERPRETATION:

Creditor’s turnover ratio of sail was high in the year 2004-2005i.e 5.50 which meant that the sail
collected its payment from its creditors 5.5 times in that financial year. The high liquidity of the
creditors is beneficial for SAIL in carrying out its business. Increase in net purchases
continuously also increased the average creditors which automatically increased the creditor’s
turnover ratio in year 2008-2009 , which is 6.55.

• CASH RATIO:

Formula: Cash +Marketable securities / Current liabilities

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 97


Cash+ marketable securities 508.16 399.49 432.86 725.79 251.29
Current liabilities 2545.82 3240.89 3453.27 2487.69 958.03
CASH RATIO 0.20 0.12 0.13 0.29 0.26

INTERPRETATION:

The above graph shows the Cash ratio of ESSAR STEEL Ltd. As the graph shows that from the
starting only it holds very less cash, though it is increased during the year 2007-08 by 0.16 but is
not a major concern for the company. The company in 2008-09 carries 0.29% cash as compared
to its current liabilities.

• NO. OF DAYS INVENTORY:

Formula: 360 Days / Inventory Turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Inventory Turnover 5.39 4.46 3.93 4.53 5.70
NO.OF DAYS INVENTORY 66.79 80.72 91.62 79.47 63.16

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 98


INTERPRETATION:

The above graph indicates an increase and then decline in the inventory holding days in ESSAR
Steel. As shown above for year 2004-05 , it was 66.79 days and it has been constantly increasing
in following 2 financial years which means that Essar has been successful in decreasing the
storage cost but it showed a decline in the inventory holding days in year 2008-2009, which
came to 62.16 now.

• DEBTORS COLLECTION PERIOD:

Formula: 360 / Debtors turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Debtors Turnover 30.27 23.68 15.07 12.22 12.97
DCP 11.89 15.20 23.89 29.46 27.76

INTERPRETATION:

The DCP of ESSAR Steel is increased throughout the 5 financial years. There have been
slight down in the collection period in the year 08-09, which means that Essar has not
quality in collecting the cash made from sales done. In the current year 2008-2009 the
DCP has decreased which is good for the smooth running of the company.

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 99


• CREDITORS COLLECTION PERIOD:

Formula: 360 / Creditors turnover

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of days 360 360 360 360 360


Creditors Turnover 5.50 3.76 3.59 6.07 6.55
CCP 65.45 95.74 100.28 59.31 54.96

INTERPRETATION:

The CCP of ESSAR Steel is inconsistent throughout the 5 financial years. There have
been slight ups and downs in the collection period, which means that Essar has not
quality in collecting the cash made from sales done. In the current year 2008-2009 the
CCP has decreased which is not good for the smooth running of the company.

• CURRENT ASSETS TURNOVER RATIOS:

Formula: Sales / Current assets

PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 100


Sales 6116.71 6182.58 8194.35 10743.3 11688.3
0
Current assets 4580.12 3935.19 4397.41 3873.51 2395.68
CATR 1.34 1.57 1.86 2.77 4.88

INTERPRETATION:

As per the graph the current asset turnover ratio for the year 2004 is 1.34 but during the year
2005-09 it increased rapidly to attend a ratio of 4.88 in the financial year 2008-09.

3.10

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 101


WORKING CAPITAL
MANAGEMENT OF
JINDAL STEEL

OPERATING CYCLE OF JINDAL STEEL

PARTICULARS 2004-05 2005-06 2006-07 2007-08 2008-09


Raw Material Conversion Period
Raw material consumed 2887.97 3119.11 3964 5883.53 8735.70
Raw material consumed per day 8.02 8.66 11.01 16.34 24.27
Average raw material inventory 466.12 473.88 546.54 715 810
RMCP 58.10 54.69 49.63 43.74 33.38
Work In Progress Conversion
Period
Cost of production 1376.42 1349.73 1572.20 2097.57 2429.29
Cost of production per day 3.82 3.75 4.63 5.83 6.75
Average work in progress inventory 54.88 80.27 51.17 41.51 88.08
WIPCP 14.35 21.41 11.72 7.12 13.05
Finished Goods Conversion Period
cost of goods sold 5206.75 4913.64 6679.26 9040.77 12533.5

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 102


Cost of goods sold per day 14.46 13.65 18.55 25.11 34.82
Average finished goods inventory 106.54 150.8 216.28 315.57 612.19
FGCP 7.37 11.05 11.66 12.57 17.58
Debtors Collection Period
Credit sales 6679.36 6215.33 8594.44 11420.00 14001.3
Credit sales per day 18.55 17.26 23.87 31.72 38.89
Average debtors 266.6 241.26 245.16 539.06 399.05
DCP 14.37 13.97 10.27 16.99 10.26
Creditors deferral period
Credit purchase 3354.09 3134.62 4093.81 6090.65 8718.57
Credit purchase per day 9.32 8.71 11.37 16.92 24.22
Average creditors 490.95 699.57 509.41 1786.75 1497.11
CDP 52.69 80.31 44.80 105.61 61.82

GROSS OPERATING CYCLE 94.19 101.12 83.28 80.42 74.28


(GOC)

NET OPERATING CYCLE 41.50 20.82 38.48 -25.18 12.45


(NOC)

NET WORKING CAPITAL OF JINDAL STEEL

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 103


PARTICULAR 2004-05 2005-06 2006-07 2007-08 2008-2009
CURRENTASSETS
Inventory 743.41 924.23 1012.11 2,181.74 2924.56
sundarydebtors 266.6 229.19 245.96 539.06 399.05
cash and bank balance 122.49 98.87 339.46 471.48 509.3
Loan and Advances 761.5 979.42 546.24 908.6 1242.79
other current assets 0 513.7 342.04 19.81 17.24

TOTAL(CA) 1894 2745.41 2485.81 4120.69 5092.94

CURRENTLIABILITIES
Acceptances 667.02 1027.33 1478 2103.48 5455.25
Sundarycrediters 490.95 612.78 510.87 1497.11 1786.75
Rentsand Deposits 0 0 0 20.46 43.43
Advants framthe custmers 17.95 38.04 40.48 74.83 164.96
Interest accrued but not due on loan 102.31 125.59 142.25 245.13 182.6
Other liabilities 91.27 115.19 28.26 310.97 340.4
Premiumpayable on redemption of
FCCB'S&perference shares 0 0 0 72.3 188.16

Funds shall be credited by @unclaimed


Debentures redemption instalments 3.52 3.22 1.8 2.46 2.5
Unclaimed Deenture interest 2.1 3.22 1.8 2.46 2.5
Unclaimed Dividend 0.83 3.06 4.9 6.93 9.65
Proceeds of fractional share 0 0 3.88 3.85 3.83
Paovision for income tax 125.77 213.51 31.5 0 1.54
provision for wealth tax 1.15 1.5 0.41 0.55 0.4
Provision for fringe Benefit 0 3.24 0.27 0.82 0.97
Provision for employee benefits 0 0 0 24.46 24.22
Proposed Dividend on preference shares 27.9 27.9 27.9 29.06 28.99
Proposed Dividend on Equityshares 64.52 125.58 0 261.87 18.71
Corporate TaxDividend 0 0 4.74 49.44 8.11
taxon equitypreference Dividend 12.97 21.53 0 0 0
Provision for Leave Encashment 0 0 10.46 0 0

TOTAL(CL) 1608.26 2320.12 2287.51 4706.42 8262.82


SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 104
NETWORKINGCAPITRAL 285.74 425.29 198.3 -585.73 -3169.88
RATIO ANALYSIS OF JINDAL STEEL

• WORKING CAPITAL TURNOVER RATIO:

PARTICULAR 2004-05 2005-06 2006-07 2007-08 2008-09


NET SALES 6679.00 6215.30 8594.44 11420 14001.3
NET WORKING CAPITAL 285.74 425.33 198.3 -585.73 -3169.9
WORKING CAPITAL TURNOVER 23.38 14.61 43.34 -19.50 -4.42
RATIO

INTERPRETATION:

The above graph shows the working capital ratio of jindal steel. During the financial years 2007-
09 the company has faced a major problems in managing the net current assets to get the sales.
They needed about R.s-0.22 of net current asset to get one rupees of sales. That mean they have
lack of current assets.

• CURRENT RATIO:

particular 2004-05 2005-06 2006-07 2007-08 2008-09


current assets 1894 2745.41 2485.81 4120.69 5092.94
current liability 1608.26 2320.12 2287.51 4706.42 8262.82
current ratio 1.18 1.17 1.09 0.88 0.62

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 105


INTERPRETATION:

JINDAL steel has shown a deep fall in the current ratio from 1.18 in year 2004-2005 to .62 in
year 2008-2009.It needs to work upon its current assets so that it can maintain the margin of
safety for its creditors or else it will result in the loss of the creditworthiness of the company.

• QUICK RATIO

Particular 2004-05 2005-06 2006-07 2007-08 2008-09


quick assets 1150.59 1821.88 1437.7 1938.95 2168.32
current liability 1608.26 2320.12 2287.51 4706.42 8262.82
quick ratio 0.72 0.78 0.63 0.41 0.26

INTERPRETATION:

The above graph shows the quick ratio of jindal steel ltd. The graph clearly indicates negative
trend of company in paying back the obligation due to lack of quick assets. In the year 2004-05
it was 0.72, which now become 0.26 in the year of 2008-09, which is shows the weak ability of
the company to pay back the current liability.

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 106


• DEBTORS TURNOVER RATIO

Particular 2004-05 2005-06 2006-07 2007-08 2008-09


Average debtors 266.6 247.9 392.51 392.11 469.05
Net sales 6679.00 6215.30 8594.44 11420 14001.3
Debtors turnover ratio 25.05 25.07 21.90 29.13 29.85

INTERPRETATION:
The above graph shows that the debtors in JINDAL Steel can be converted to cash 20.05 times
in year 2004-2005 and in the following 3 financial years it has shown a up, in the ability to
convert debtors into cash readily, which was made up in the year 2008-2009 by increasing the
DTR to 29.85 again.

• INVENTORY TURNOVER RATIO

Particular 2004-05 2005-06 2006-07 2007-08 2008-09


Cost of goods sold 5206.8 4913.6 6679.3 9040.8 12533

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 107


Average stock 106.54 150.8 216.28 315.57 612.19
Inventory turnover ratio 48.87 32.58 30.83 28.64 20.47

INTERPRETATION:

JINDAL Steel had very weak stock turnover ratio . In during the year 2004-2008 it has
decreased its capacity to convert the inventory into finished goods constantly. The graph clearly
shows a decreasing trend in stock turnover ratio. Currently it has a STR ratio of 20.47 which is
good ratio for manufacturing companies.

COMPARAITIVE ANALYSIS
COMPARISON OF FINANCIAL RATIOS FOR THE YEAR 2008-09

COMPANY Working capital Current Quick Debtors Inventory


turnover ratio ratio ratio turnover ratio turnover ratio
Tata steel 18.54 1.14 .82 38.23 12.44

Sail 2.48 2.01 1.42 14.27 4.35

SRI BHAGAWAN MAHAVEER JAIN COLLEGE Page 108


Essar 4.25 2.50 1.52 28.40 12.33

Jindal 4.42 .62 .26 29.85 20.47

COMPANY Current creditors Debtors No of days Creditors Cash


assets collection collection inventory turnover ratio
turnover period period ratio
ratios:

Tata steel 2.36 154.50 9.41 51.13 2.33 0.54

Sail 1.25 71.71 25.33 82.75 5.02 1.06

Essar 4.88 54.96 27.76 63.16 6.55 0.26

Jindal 2.74 61.85 12.06 17.58 5.82 0.06

COMPARISON OF OPERATING CYCLE FOR THE


YEAR2008-09

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ICP= RMCP+ WIPCP+ FGCP

Current ratio:

Company RMCP WIPCP FGCP ICP DCP CDP


Tata steel 73.61 1.73 28.92 104.26 9.41 154.20

Sail 20.57 119.89 47.53 187.99 25.23 71.66


Essar 13.11 218.76 16.26 248.13 12.68 54.98

Jindal 33.38 13.05 17.58 64.01 10.26 61.82

it measures a company’s ability to pay short-term obligations. Also known as “liquidity ratio”,
“cash asset ratio” and “cash ratio”. A current ratio of assets to liabilities of 2:1 is usually
considered to be acceptable.
Therefore in case of above data ESSAR steel ltd has its current ratio as 2.5 that mean it has
rs.2.50 current asset for every Re 1 liabilibity. JSWL with 0.62 indicate that a firm may have
difficulty meeting current obligations.
Low values, however, do not indicate a critical problem. If an organization have good long-term
prospects, it may be able to borrow against those prospects to meet current obligations. Some
types of business usually operate with a current ratio less than one. For e.g if inventory turnover
much more rapidly than the accounts payable become due, then the current ratio will be less than
one. This can allow a firm to operate with a low current ratio.

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Quick ratio:
In finance, the acid test ratio or quick ratio or liquid ratio measures the ability of a company to
use its near cash or quick assets to immediately extinguish or retire its current liabilities. Quick
assets include those current assets that presumably can be quickly converted to cash at close to
their book values.
Therefore ESSAR steel ltd with quick ratio as 1.53 is best compare to others. JSWL 0.26 is the
lowest among all.

Debtor turnover ratio:


It indicates the velocity of debt collection of a firm. In simple words it indicates the number of
times average debtors are turned over during a year.
From the above data we can observe that the debtor turnover ratio of Tata steel is highest with
41.23 and Essar steel limited being the lowest with 12.98

Working capital turnover ratio:


It is a measurement comparing the depletion of working capital to the generation of sales over a
given period this provides some useful information as to how effectively a company is using its
working capital to generate sales.

From the above data it can be observed that Tata steel has 22.65 working capital turnover ratio,
which is good for the company because the higher working capital turnover, the better because it
means the company is generating a lot of sales compared to the money it uses to fund the sales.
JSWL being the lowest with (4.65) is beneficial for the company.

Inventory turnover ratio:


The ratio of a company’s annual sales to its inventory. Low turnover is a sign of inefficiency
since inventory usually has a rate of return of zero.

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JSWL with inventory turnover ratio of 20.47 and SAIL being lowest with 4.36, which means
there is a huge blockage of inventory in sail comparative to JSWL and TATA STEEL.

CONCLUSION

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We have identified and examined the main elements of working capital. We have seen that the
management of working capital requires an evaluation of both the cost and the benefits
associated with each element. Some of these costs and benefits may be hard to quantify in
practice. Some assessment must be in order to try and optimize the use of funds within a
business. We have examined various techniques for management of working capital. These
techniques vary in their sophistication; some rely heavily on management judgment, while other
adopts a more objectives, quantitative approach.
Tata Steel maintains a sound position in terms of working capital. Its efficiency in receivables
and deferral management is reflected in the constantly decreasing operating cycle. The company
has primarily been operating on cash drawn from the market and reaping full benefits of its
brand name. Inventory which constitutes an important component of working capital in a steel
manufacturing company has also been managed well. This is evident from the high inventory
turnover in comparison to the industry average. However, the conversion period of raw material
needs to be worked upon. The company has a well built supply chain and all its processes of
inventory maintenance are SAP linked. It has a competent control system in place for managing
stores, spares and finished goods. Nevertheless there is scope for improvements in raw materials
management.

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RECOMMENDATIONS

• There should be a proper co-ordination between working capital group and


its related department i.e. debtors, creditors, inventory etc.

• New and advanced concept must be introduced in inventory control


management.

• Adequate planning is required for procurement of store items.

• Details of working capital should be available at the department level, so


that efficiency can be analyzed at departmental level.

• Advance payments should be avoided. If at all advance payments are


required, it should be against securities like banks guarantee etc.

• The essence of effective working capital management is proper cash flow


forecasting. This should take into account the impact of unforeseen events,
market cycles, loss of a prime customer and actions by competitors. So the
effect of unforeseen demands of working capital should be factored in.

• Inventories should be managed on a line-by-line basis using the 80/20 rule.

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BIBLOGRAPHY

• B P RADHAKRISHAN, 2009. Boom in India’s Iron and steel industry, Current Science
Vol 92, No.9.
• I M PANDEY, 2007. Financial Management. New Delhi: Vikas Publishing house Pvt
Ltd.
• BREALEY MYERS 2003. Principles of corporate finance. New Delhi: Tata McGraw
Hill Publishing house.
• http://www.tatasteel.com/investors/annual-report-2008-09/index.html
• http://www.jindalsteelpower.com/investors/annual-reports.aspx
• http://www.sail.co.in/aboutus.php?tag=company-background
• http://en.wikipedia.org/wiki/Jindal_Steel_and_Power_Limited
• http://www.sail.co.in/investor.php?tag=investor_financials
• http://www.moneycontrol.com
• www.marti-tech.com
• http://www.accountancy.com.pk/articles_students.asp?id=77

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