Professional Documents
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Tata-Steel Working Capital Management
Tata-Steel Working Capital Management
REPORT
ON WORKING
CAPITAL
MANAGEMENT AT
TABLE OF CONTENTS
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
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.
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.
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.
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.
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
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.
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.
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.
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.
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 31 st, 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 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
HERITAGE
THE FOUNDER
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.
Apart from the main steel division, Tata Steel's operations are grouped under the following
strategic business units.
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.
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.
Safety Action
Environment Action
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.
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
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 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)
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.
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
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.
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 11 th 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.
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).
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.
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.
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
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.
Temporary
Working Capital
The amount of current assets that varies
DOLLAR AMOUNT
TIME
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.
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.
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.
Optimum capacity utilisation of fixed assets may not be achieved due to non-availability of
the working capital.
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.
It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash
management.
Over-investment in working capital makes capital less productive and may reduce return on
investment.
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.
Different industries have different optimum working capital profiles, reflecting their methods of
doing business and what they are selling.
• 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.
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 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:
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.
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.
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
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 the
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.
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.
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.
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:-
MANAGEMENT OF INVENTORY
Meaning of Inventory and Inventory Management:
Inventory
Receivables
-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).
Sources of Finance
- Commercial Papers
- Zero Coupon Bonds
- Factoring
(Recourse & Non Recourse)
WORKING CAPITAL
MANAGEMENT OF TATA
STEEL
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
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.
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
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
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.
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.
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.
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.
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.
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.
INTERPRETATION
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.
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.
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.
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.
WORKING CAPITAL
MANAGEMENT OF SAIL
(STEEL AUTHORITY OF
INDIA LIMITED)
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
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.
CURRENT RATIO
INTERPRETATION:
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.
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.
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.
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
INTERPRETATION
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.
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
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
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.
INTERPRETATION:
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.
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.
WORKING CAPITAL
MANAGEMENT OF 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
and a captive port capable of handling up to 8 MTPA of cargo with modern handling equipment
like barges and floating cranes.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
WORKING CAPITAL
MANAGEMENT OF
JINDAL STEEL
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:
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.
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.
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.
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.
Current ratio:
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.
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