Working capital management on TATA

STEEL

Bachelor of Business Administration By

S.RAVI RAJ SANTHOSH

K.RAKESH

P.PRATHAP REDDY

DEPARTMENT OF BUSINESS ADMINISTRATION

EMERALDS DEGREE & PG COLLEGE

RAMACHANDRAPURAM CAMPUS

AUGEST 2021

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 CERTIFICATE

This is to certify that S.RAVI RAJ SANTHOSH a student of B.B.A. of EMERALDS DEGREE & PG
COLLEGE has worked under my supervision and guidance for his project report with the title Working
capital management on TATA STEELwith reference to DANIELI INDIA. Ltd”. The project report which
he is submitting is his/her genuine and original working to the best of my knowledge

Place:

Date:

GUIDE HEAD OF THE

DEPARTMENT

INTERNAL EXAMINER EXTERNAL

EXAMINER

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 DECLARATION

I hereby declare that the project work with the title “WORKING CAPITAL MANAGEMENT ON
TATA STEEL with reference to DANIELI INDIA. Ltd” submitted by me for partial fulfillment of the
degree of Bachelor of Business Administration under the Faculty of management department ,
EMERALDS DEGREE & PG COLLEGE is my original work and has not been submitted earlier to any
other university/institution for the any course of study.

Place:

Date:
Signature

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 ACKNOWLEDGEMENT
I express my deep sense of gratitude to the Pro VC Dr. R.BALASUBRAMANIAN, Director (Academic)
Dr.Subburam, and Associate Dean Dr.AnanthaPadmanaban for their wholehearted support and
encouragement.

I am very much obliged and indebted to the Dr.S.Naresh and Dr.V.Venkatraman for his valuable
suggestions to take up the project.

I am ineffably indebted to Mr.Shiva his continuous guidance and encouragement to accomplish this
project report successfully.

I am also thankful to all the faculty members of Department of Business Administration for their support
and suggestions.

I also acknowledge with a deep sense of reverence, my gratitude towards my parents and members of my
family who has always supported me morally as well as economically.

Last but not the least gratitude goes to all of my friends who directly or indirectly helped me to complete
this project report.

TABLE OF CONTENTS
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 Chapters Contents Page Number
Chapter I Introduction

Chapter 2 Review of Literature

Chapter 3 Company Profile

Chapter 4 Data analysis and interpretation

Chapter 5 Findings, suggestion and

conclusion

Bibliography

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CHAPTER-I

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 CHAPTER -1.1
INTRODUCTION
Definition: Working Capital Management means, a firm’s investment
in short-term assets like cash, inventory and accounts receivables.

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITES

Capital required for conducting business i.e; purchase of raw

materials & conversion thereof into finished goods on a daily basis is
termed as working capital
The present day competitive market environment calls for an efficient
management of working capital. The reason for this is attributed to the
fact that an ineffective working capital management may force the firm
to stop its business operations, may even lead to bankruptcy. Hence
the goal of working capital management is not just concerned with the
management of current assets & current liabilities but also in
maintaining a satisfactory level of working capital. Holding of current
assets in substantial amount strengthens the liquidity position &
reduces the riskiness but only at the expense of profitability. Therefore
achieving risk-return trade off is significant in holding of current assets.
While cash outflows are predictable it runs contrary in case of cash
inflows. Sales program of any business concern does not bring back
cash immediately. There is a time lag that exists between sale of goods
& sales realization. The capital requirement during this time lag is
maintained by working capital in the form of current assets. The whole
process of this conversion is explained by the operating cycle concept.

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OBJECTIVES OF THE STUDY:
 Working capital management is one of the
key areas of financial management must
see that an excessive investment in current
assets should protect the company from
the problems of stock-out.

 Attempt to understand as to how the

company manages the working capital has
been done.

 The study is trying to identify the various

liquidity, profitability, solvency and the
turnover positions of the company as a
tool of performance which will lead us to
identify the financial soundness of the
company.

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 SCOPE OF THE STUDY

 The study focus on analysis of working

capital management with the help of ratios &
other techniques in TATA STEEL LTD.
 The study is conducted by using 5 years
of secondary data i.e. from 2015-2020 for the
analysis of the study.

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 OBJECTIVES

 To study the changes in net working capital

of TATA STEEL LTD Ltd.
 To study the liquidity position of the TATA
STEEL LTD Ltd.
 To study the operational efficiency of the
TATA STEEL LTD Ltd.
 To study the profitability of the TATA
STEEL LTD Ltd.

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RESEARCH METHODOLOGY
The study will be based on the QUANTATIVE and QUALITATIVE approach of
the working capital management model at TATA STEEL needs a thorough
study. With the help of RATIO ANALYSIS & TREND ANALYSIS the result of
the control mechanism can be summarized which will help in identifying
the effectiveness of the system under the preview. The data for the
companies under analysis has been taken from their respective websites of
the companies. `MICROSOFT EXCEL has been used as a tool for different
calculation purposes and developing the charts.

COLLECTION OF DATA:

The data has been collected from the secondary sources:

i) Secondary data
(1) Annual reports
(2) Journals and magazines
(3) Websites of TATA STEEL and other steel companies

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 CHAPTER: - 2 COMPANY PROFILE

The Tata Group of Companies has always believed strongly in the concept of collaborative
growth, and this vision has seen it emerge as one of India's and the world's most respected and
successful business conglomerates. The Tata Group has traced a route of growth that spans
through six continents and embraces diverse cultures. The total revenue of Tata companies, taken
together, was 67.4 billion USD (around Rs319,534 crore) in 2009-10, with 57 per cent of this
coming from business outside India. In the face of trying economic challenges in recent times,
the Tata Group has steered India’s ascent in the global map through its unwavering focus on
sustainable development. Over 395,000 people worldwide are currently employed in the seven
business sectors in which the Tata Group Companies operate. It is the largest employer in India
in the Private Sector and continues to lead with the same commitment towards social and
community responsibilities that it has shown in the past.
 
The Tata Group of Companies has business operations (114 companies and subsidiaries) in
seven defined sectors – Materials, Engineering, Information Technology and Communications,
Energy, Services, Consumer Products and Chemicals. Tata Steel with its acquisition of Corus has
secured a place among the top ten steel manufacturers in the world and it is the Tata Group’s
flagship Company. Other Group Companies in the different sectors are – Tata Motors, Tata
Consultancy Services (TCS), Tata Communications, Tata Power, Indian Hotels, Tata Global
Beverages and Tata Chemicals.

TOP COMPETITORS OF TATA STEEL

 Jindal Steel
 SAIL
 Essar steel

SOME OTHER MAJOR PLAYER IN THIS INDUSTRY

 Saw pipes
 Uttam steel Ltd
 Ispat industry Ltd

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SWOT ANALYSIS

STRENGTH:

 Strong brand name like Tata Steel & Corus

 Indian operation capable of meeting its own requirement
 Strong supply chain for raw material leading sales & distribution
 Low cost, high skilled labor.

WEAKNESS:

 Low R & D Investment

 Unscientific mining method
 Technologically backward
 Low productivity

OPPURTUNITY:

 Unexplored rural markets

 Growing domestic market
 Growing global market
 Carbon trade
 High investment in infrastructure sector

THREATS:

 Major player entering Indian market

 China set to become a net exporter
 High duties and taxes from the government
 Environmental concerns & laws
 Global slowdown

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 CHAPTER.3. WORKING CAPITAL MANAGEMENT

WHAT IS WORKING CAPITAL?

Working capital is the cash needed to pay for the day to day operation of the business. Working
capital is a financial metric which represents operating liquidity available to a business,
organization or other entity, including governmental entity. Along with fixed assets such as plant
and equipment, working capital is considered a part of operating capital. Net working capital is
calculated as current assets minus current liabilities.. It is a derivation of working capital, that is
commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets
are less than current liabilities, an entity has a working capital deficiency, also called a working
capital deficit.

A company can be endowed with assets and profitabilitybut short of liquidity if its assets cannot

readily be converted into cash. Positive working capital is required to ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both maturing short-term
debt and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable, and cash.

Working capital management is a very important component of corporate finance

because it directly affects the liquidity and profitability of the company. It involves the decision
of the amount and composition of current assets and the financing of these assets. Efficient
working capital management involves planning and controlling current assets and current
liabilities in a manner that eliminates the risk of inability to meet due short term obligations on
the one hand and avoid excessive investment in these assets on the other hand.

“Working capital” means that part of the total assets of the business that change from
one form to another form in the ordinary course of business operations.” Also known as
revolving or circulating capital or short-term financial management it is nothing but the
difference between current assets and current liabilities. The word “working capital” is made of
two words- Working & Capital. The word „working‟ means day to day operation of the
business, whereas the word „capital‟ means monetary value of all assets of the business.

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Working capital is of major importance to internal and external analysis because of its close
relationship with the current day-to- day operations of a business.

Every business needs funds for two purposes.

 Long term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, lands, building, etc.
 Short term funds are required for the purchase of raw materials, payment of wages, and
other day-to-day expenses.

Working capital management deals with the management of these short term funds.
The constituents of current assets & current liabilities is as follows-

CURRENT ASSETS CURRENT LIABILITIES

1. INVENTORY 1. SUNDRY CREDITORS
a) RAW MATERIAL 2. TRADE ADVANCES
b)WORK-IN-PROGRESS 3. BORROWINGS (short term)
c) FINISHED GOODS a) COMMERCIAL BANKS
d) OTHERS b) OTHERS
2. TRADE CREDITORS 4. PROVISIONS
3. LOANS AND ADVANCES  
4.CASH AND BANK BALANCE  

WORKING CAPITAL COMPRISES OF THE FOLLOWING:-

1. Cash and cash equivalents: - This most liquid form of working capital requires constant
supervision. A good cash budgeting and forecasting system provides answers to key
questions such as:

 Is the cash level adequate to meet current expenses as they come due?
 What is the timing relationship between cash inflow and outflow?

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  When would cash need occur?
 When and how much bank borrowing will be needed to meet any cash shortfalls?
 When will repayment be expected and will the cash flow cover it?

2. Accounts receivables: - Many businesses extend credit to their customers.

 If you do, is the amount of accounts receivable reasonable relative to sales?

 How rapidly are receivables being collected?
 Which customers are slow to pay and what should be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so

naturally it requires continual scrutiny.

 Is the inventory level reasonable compared with sales and the nature of your business?
 What's the rate of inventory turnover compared with other companies in your type of
business?

4. Accounts payable: - Financing by suppliers is common in small business; it is one of the major
sources of funds for entrepreneurs.

 Is the amount of money owed suppliers reasonable relative to what you purchase?
 What is your firm's payment policy doing to enhance or detract from your credit rating?

5. Accrued expenses and taxes payable: - These are obligations of your company at any given time
and represent a future outflow of cash.

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THERE ARE TWO DIFFERENT CONCEPTS OF WORKING CAPITAL:-

1. Balance sheet or Traditional concept - It shows the position of the firm at certain point of time. It is
calculated in the basis of balance sheet prepared at a specific date. In this method there are two types
of working capital:-

a) Gross working capital - It refers to the firm’s investment in current assets. The sum of the current
assets is the working capital of the business. The sum of the current assets is a quantitative aspect of
working capital. Which emphasizes more on quantity than its quality, but it fails to reveal the true
financial position of the firm because every increase in current liabilities will decrease the gross working
capital.

b) Net working capital - It is the difference between current assets and current liabilities or the excess of
total current assets over total current liabilities. It is also can defined as that part of a firm’s current
assets which is financed with long term funds. It may be either positive or negative. When the current
assets exceed the current liability, the working capital is positive and vice versa.

2. Operating cycle concept - The duration or time required to complete the sequence of events right
from purchase of raw material for cash to the realization of sales in cash is called the operating cycle or
working capital cycle

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 Oper
The investment in working capital is influenced by four key events in the production & sales
cycle of the firm:

ng cy
 Purchase of raw materials.
 Payment of raw materials.
 Sale of finished goods.
 Collection of cash for sales.

The firm begins with the purchase of raw materials which are paid after a delay which represents
the “accounts payable period”. The raw materials are then converted into finished goods which are
then sold. The time lag between the purchase of raw materials and the sale of finished goods is called
the “inventory period”. The time lag between the date of sales & the date of collection of receivables is
the “accounts receivable period”. The time lag between purchase of raw materials & the collection of
cash for sales is referred to as “operating cycle.” The time lag between payment for raw material
purchases & the collection of cash for sales is referred to as “cash cycle”.

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O
n
r
e
p
c
g
y
 IMPORTANCE OF WORKING CAPITAL
The advantages of working capital or adequate working capital may be enumerated as below: -
 
1. Cash Discount:
If a proper cash balance is maintained, the business can avail the advantage of cash discount by
paying cash for the purchase of raw materials and merchandise. It will result in reducing the cost
of production.
 
2. It creates a Feeling of Security and Confidence:
The proprietor or officials or management of a concern are quite carefree, if they have proper
working capital arrangements because they need not worry for the payment of business
expenditure or creditors. Adequate working capital creates a sense of security, confidence and
loyalty, not only throughout the business itself, but also among its customers, creditors and
business associates.
 
 
3. ‘Must’ for Maintaining Solvency and Continuing Production:
 In order to maintain the solvency of the business, it is but essential that the sufficient amount t
of fund is available to make all the payments in time as and when they are due. Without ample
working capital, production will suffer, particularly in the era of cut throat competition, and a
business can never flourish in the absence of adequate working capital.
 
4. Sound Goodwill and Debt Capacity:
It is common experience of all prudent businessmen that promptness of payment in business
creates goodwill and increases the debt of the capacity of the business. A firm can raise funds
from the market, purchase goods on credit and borrow short-term funds from bank, etc.  If the
investor and borrowers are confident that they will get their due interest and payment of
principal in time.
 
5. Easy Loans from the Banks:
An adequate working capital i.e. excess of current assets over current liabilities helps the
company to borrow unsecured loans from the bank because the excess provides a good security
to the unsecured loans, Banks favour in granting seasonal loans, if business has a good credit
standing and trade reputation.

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6.      Distribution of Dividend:
If company is short of working capital, it cannot distribute the good dividend to its shareholders
in spite of sufficient profits. Profits are to be retained in the business to make up the deficiency
of working capital. On the other contrary, if working capital is sufficient, ample dividend can be
declared and distributed. It increases the market value of shares.
 
7. Exploitation of Good Opportunity:
In case of adequacy of capital in a concern, good opportunities can be exploited e.g., company
may make off-season purchases resulting in substantial savings or it can fetch big supply orders
resulting in good profits.
 
8. Meeting Unseen Contingency:
Depression shoots the demand of working capital because sock piling of finished goods become
necessary. Certain other unseen contingencies e.g., financial crisis due to heavy losses, business
oscillations, etc. can easily be overcome, if company maintains adequate working capital.
 
9. High Morale:
The provision of adequate working capital improves the morale of the executive because they
have an environment of certainty, security and confidence, which is a great psychological, factor
in improving the overall efficiency of the business and of the person who is at the hell of fairs in
the company.
 
10. Increased Production Efficiency:
A continuous supply of raw material, research programme, innovations and technical
development and expansion programmes can successfully be carried out if adequate working
capital is maintained in the business. It will increase the production efficiency, which will, in turn
increases the efficiency and morale of the employees and lower costs and create image among
the community.
 

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DISADVANTAGES OF EXCESSIVE WORKING CAPITAL

E v e r y   b u s i n e s s   c o n c e r n   s h o u l d   h a v e   a d e q u a t e   w o r k i n g   c a p i t a l   t o   r u n   i t s business
operations. It should have neither redundant or excessive working capital nor inadequate
nor shortage of working capital. Both excessive as well as short working capital positions are
bad for any business.

1. Excessive working capital means idle funds which earn no profits for the business and hence the
business cannot earn a proper rate of return on its investments.

2. When there is redundant working capital, it may lead to unnecessary purchasing and accumulation of

inventories causing more chances of theft waste and losses. 

3. Excessive working capital implies excessive debtors and defective credit Policy which may cause
higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is an excessive working capital relation with the banks and other financial institutions
may not be maintained.

6. Due to low rate of return on investments the value of shares may also fall

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

1) A concern, which has inadequate working capital, canno t pay its short-term liabilities
in time. Thus it will loose its reputation and shall not be able to get good credit facilities.

2 )   T h e fi r m   c a n n o t p a y   d a y - t o - d a y   e x p e n s e s   o f i t s   o p e r a ti o n s a n d   i t c r e a t e s
inefficiencies, increases costs and reduces the profits of the business.

3 )   I t   b e c o m e s   i m p o s s i b l e   t o   u t i l i z e   e ff i c i e n t l y   t h e   fi x e d   a s s e t s   d u e   t o  
n o n - availability of liquid funds.

4) The rate of return on investments also falls with the shortage of working

capital.

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 COMPARITIVE ANALYSIS OF
“TATA STEEL & JSW”
JSW
JSW Group is one of the fastest growing business conglomerates with a strong presence in the core
economic sector. This Sajjan Jindal led enterprise has grown from a steel rolling mill in 1982 to a multi
business conglomerate worth US $ 9 billion within a short span of time.
As part of the US $ 15 billion O. P. Jindal Group, JSW Group has diversified interests in Steel, Energy,
Minerals and Mining, Aluminium, Infrastructure and Logistics, Cement and Information Technology. 
On its road to growth and expansion, the Group is also conscious about its responsibility towards
environment and social development. Eco-efficiency is a matter of principle. Preventive measures for
damage to the environment are taken into account at the planning stage of production and growth.

JSW Foundation, an integral part of the Group, is the CSR wing, with a vision to create socio economic
difference in the fields of Education, Health and Sports, Community Relationship/Propagation as well as
Art, Culture and Heritage.

JSW Foundation plans and implements social development activities of the JSW group of companies. It is
an independent institution and is governed by a Board of Trustees who is drawn from the senior
management of the JSW group of companies. The Foundation is headed by Mrs Sangita Jindal while the
executive is headed by Shri Jugal Tandon in his capacity as CEO, Corporate Sustainability. A team of
social development professionals is based in Mumbai and at every location where JSW has its operations
and undertake community based activity in consultation with their respective managements. An
Advisory Board comprising of eminent NGO leaders has been constituted recently to render advice on
social processes and participatory planning and execution of projects.

A social development policy has been accepted by the group. JSW cherishes people and believes in
inclusive growth to facilitate creation of a value based and empowered society through continuous and
purposeful engagement of all stakeholders. In partnership with external development agencies, JSW
would strive toachieve sustainable development in all spheres of life including integrated community
development, promotion of arts and culture, environment protection and sports .

As a responsible corporate, JSW would integrate its environment, HR and ethical business policies with
appropriate community engagement and gender equity. JSW is committed to allocation of 1.5% of its
PAT to pursue its CSR policy. In tune with this, JSW Foundation works closely with village communities
and creates synergies with other verticals of the JSW group to assimilate their intervention in a social
development framework.

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 TOOLS AND TECHNIQUES

1.Changes in net working capital statement.

2.Liquidity ratios.
3.Turnover ratios.
4.Profitability ratios.
5.Tables and bar chats.

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 LIMITATIONS OF THE STUDY
 The study is conducted in only TATA STEEL
LTD Ltd.
 The study is conducted only by using 5 years
of data i.e. from 2015-2020 for the analysis of
the study.

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RATIO ANALYSIS

WHAT IS RATIO ANALYSIS???

A tool used by individuals to conduct a quantitative analysis of information in a company's financial

statements. Ratios are calculated from current year numbers and are then compared to previous years,
other companies, the industry, or even the economy to judge the performance of the company. Ratio
analysis is predominately used by proponents of fundamental analysis.
Single most important technique of financial analysis in which quantities are converted into ratios for
meaningful comparisons, with past ratios and ratios of other firms in the same or different industries.
Ratio analysis determines trends and exposes strengthsor weaknesses of a firm.

Ratios can be found out by dividing one number by another number. Ratios show how one number is
related to another. It may be expressed in the form of co-efficient, percentage, proportion, or rate. For
example the current assets and current liabilities of a business on a particular date are $200,000 and
$100,000 respectively. The ratio of current assets and current liabilities could be expressed as 2 (i.e.
200,000 / 100,000) or 200 percent or it can be expressed as 2:1 i.e., the current assets are two times the
current liabilities. Ratio sometimes is expressed in the form of rate. For instance, the ratio between two
numerical facts, usually over a period of time, e.g. stock turnover is three times a year.

Classification of Accounting Ratios:

Ratios may be classified in a number of ways to suit any particular purpose. Different kinds of
ratios are selected for different types of situations. Mostly, the purpose for which the ratios are
used and the kind of data available determine the nature of analysis. The various
accounting ratios can be classified as follows:
 

Classification of Accounting Ratios / Financial Ratios

(B)
(A) (C)
Functional Classification or
Traditional Classification or Significance Ratios or Ratios
Classification According to
Statement Ratios According to Importance
Tests
 Profit and loss account  Profitability ratios  Primary ratios
ratios or revenue/income  Liquidity ratios  Secondary ratios
statement ratios  Activity ratios
 Balance sheet ratios or  Leverage ratios or long  
position statement ratios term solvency ratios

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  Composite/mixed ratios
or inter statement ratios  

Advantages of Ratios Analysis:

Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages / Benefits of ratio analysis:

1. Simplifies financial statements:  It simplifies the comprehension of financial statements. Ratios

tell the whole story of changes in the financial condition of the business
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios highlight the
factors associated with successful and unsuccessful firm. They also reveal strong firms and weak
firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its basic
functions of forecasting. Planning, co-ordination, control and communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the
performance of different divisions of the firm. The ratios are helpful in deciding about their
efficiency or otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the case of investors and
lending decisions in the case of bankers etc.

Limitations of Ratios Analysis:

The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.

1.  Ratios are based only on the information which has been recorded in the financial
statements. Financial statements themselves are subject to several limitations. Thus ratios
derived, there from, are also subject to those limitations. For example, non-financial changes
though important for the business are not relevant by the financial statements. Financial
statements are affected to a very great extent by accounting conventions and concepts.
Personaljudgment plays a great part in determining the figures for financial statements.
2. Comparative study required:  Ratios are useful in judging the efficiency of the business only
when they are compared with past results of the business. However, such a comparison only
provide glimpse of the past performance and forecasts for future may not prove correct since
several other factors like market conditions, management policies, etc. may affect the future
operations.
3. Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final
regarding good or bad financial position of the business. Other things have also to be seen.
4. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly indicate
the trend in solvency and profitability of the company. The financial statements, therefore, be

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 adjusted keeping in view the price level changes if a meaningful comparison is to be made
through accounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no well
accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders
interpretation of the ratios difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a
better interpretation, a number of ratios have to be calculated which is likely to confuse the
analyst than help him in making any good decision.
7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to
interpreted and different people may interpret the same ratio in different way.
8. Incomparable: Not only industries differ in their nature, but also the firms of the similar business
widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult
and misleading.

FINANCIAL RATIOS
1. NET DEBT TO EQUITY
Debt is the borrowed funds and Equity is the owned funds of an organization. This ratio is calculated
to measure the extent to which debt financing has been used in a business. A ratio of 1:1 is
considered to be satisfactory. This ratio is also known as External-Internal ratio as it indicates the
relationship between the external equities or the outsider’s funds and the internal equities or the
shareholders funds.

FORMULA = NET DEBT

SHAREHOLDER’S FUND

NET DEBT= SECURED LOANS+ UNSECURED LOANS- CASH AND BANK BALANCE- CURRENT
INVESTMENTS

EQUITY= SHAREHOLDER’S FUND- MISCELLANOUS EXPENSES

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RECOMMENDATION:

 Tata steel should try to improve its solvency so that at the time of crisis they don’t have to sell of
their inventory to pay off debts.
 They should maintain quick ratio above or equal to 1.0.
 Fluctuations in operating cycle should be reduced.
 TATA STEEL must keep eye on its WIP conversion period.
 TATA STEEL should try to minimize its inventory conversion period and also try to minimize the
average age of stock to reduce the cost of inventories.
 As sale price per unit is lesser than the competitors it must keep trend increasing mode of sales
to reduce the blockage of its price in its inventory.
 Try to generate more revenue from other country.
 TATA STEEL should try for acquisition of more mines in India to reduce the raw material
outsourcing or import cost.
 There should be a proper balance between the current assets and the currents liabilities. The
working capital became negative due to an improper balance.

 It should not allow its net debt to become negative. A negative net debt indicates more cash and
less debt which means that the company is not investing enough in its growth.

 New and advanced concept must be introduced in inventory control management.

 Adequate planning is required for procurement of store items.

 Advance payments should be avoided. If at all advance payments are required, it should be
against securities like bank guarantees etc.

 The essence of effective working capital management is proper cash flow forecasting. This
should take into account the unforeseen events, market cycles, sudden fall in demand, fall in
selling price, loss in prime customers etc. This is a very important factor that has to be taken into
account.

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 CONCLUSION

Tata Steel has been analyzed in terms of financial aspects especially working capital and financial ratios.
A comparison has been made with JSW and SAIL to see the position of Tata Steel Ltd. in the industry.

Working capital management is a very crucial part of any organization. It needs to maintain its working
capital efficiently for its day to day operations to take place. An organization needs proper liquidity to
meet its obligations on time.

Ratio analysis is also a very important part of a business. It is a platform to judge a company based on
liquidity, profitability etc. It is very crucial for banks, investors, creditors etc. It also makes comparisons
easier.

Tata Steel has been able to maintain a good liquidity position throughout. It has been able to pay back
its liabilities on time and also has been able to give dividends on time to its shareholders. It has also
maintained a good level of EPS. The inventory turnover has been maintained efficiently which we can
see from the high inventory turnover ratio.

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BIBLIOGRAPHY

 Gerald I. White, Ashwinpaul C. Sondhi & Dov Fried (2011). The Analysis And Use Of Financial
Statements- Third edition.

 M Y Khan & P K Jain (2010). Management Accounting- Fifth Edition.

 http://www.tatasteel.com/about-us/company-profile.asp

 http://www.ey.com/Publication/vwLUAssets/Global_Steel_Report_2010-2011/$FILE/Global
%20Steel%20Report%202010-2011%20FULL%20REPORT.pdf

 zenithresearch.org.in/images/stories/pdf/2012/Jan/ZIJMR/13 SURESH VADDE Steel_paper.pdf

 http://www.zacks.com/stock/news/49743/steel-industry-outlook-%96-march-2011

 Research and Markets: Analyzing the Indian Steel Industry – 2012 Edition is Completed with An
Analysis of the Major Players in the Indian Steel Sector | Japan Metal Bulletin

 Top Indian Steel Companies Performance | News From Business, Finance, Share Market Real Estate

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