Submitted To: Group # 3

Prof.Arthi Rakesh Soni 062 Suvrat Sajjan 069

Ravi Jhawar 080 Manan Zaveri 085

Deepali Kunjeer 113 Ramchand 120

Working Capital Management

About Tata SteelThe world’s 10th largest steel company.The world’s 2nd most geographically diversified steel

producer.A balanced global presence in over 50 markets and

manufacturing operations in 26 countries.One of the world’s lowest cost producers of steel.A shareholder base of over 800 k people.An employee strength over 81k across 5 continents.

Working CapitalFirms need money to pay for their day to day activities. The funds available to do this, is known as the firms

working capital.Managing the working capital needs of the organization is

important, because shortage of funds could disrupt the day to day operations

But holding excess funds the interest burden of the firm starts mounting & eating into its profits.

Working Capital

There are two concepts of Working CapitalGross working capital: Gross working capital is the sum

total of all the current assets.Net working capital: Net working capital is the difference

between current assets and current liabilities.

Current Assets Current Liabilities

Bank or cash balances Outstanding expenses

Marketable securities Bank over draft

Debtors Short term loans

Inventory Creditors

Working capital management at Tata Steel

The two most important elements in the business cycle that absorbs cash are inventory and Debtors

Tata Steel endeavor to shorten the cyclei. By collecting money from debtors’ quicker ii. By reducing inventory levels relative to sales

The aim is to reduce the interest burden and free additional funds to support growth in its Operations and Sales

Working capital management at Tata Steel

Working capital management includes the following at Tata Steel:

Debtors ManagementBank / Cash ManagementInventory Management

Debtors ManagementCredit worthiness1. Ability to pay2. Willingness to pay

Credit management department1. Process2. Debtors control3. Interest collection

•Gross Realization – Excise – Freight = Net Realization

We deduct –•Sales Commission•Handling Charges •Cost of Rejection •Cost of Credit •Establishment cost of Marketing Division •Inventory carrying costs = Net of Net Realization•Net of Net Realization – Cost of production = Net Profitability of the customer

CALCULATION OF CUSTOMER PROFITABILITY AT TATA STEEL

This module is very exhaustive• It begins by capturing the essential information relating to sales like :

•Products to be purchased by the customer•Tonnage on cash•Tonnage on credit•Invoice price (Rs. / MT)•Credit period (Days)•Proposed credit (Rs. Lacs)•Total tonnage•Future expected Monthly lifting potential (MT)

CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES)

•A customer might already have an account with Tata Steel.

•In such cases the accounts status of the customer as on the date when credit sales is being made are also entered into Lotus Notes. •These includes the amounts of outstanding and overdue as on a particular date, Cheque payment history, existing credit limit, interest free credit period, Guarantee provided, level of secured and unsecured credit.

CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES)

•It also mentions whether the customer’s company has been rated by a credit rating agency or not, its relationship with Tata Steel level of Management Quality. referred to the BIFR.

•All details of relevant financial figures of the current financial year and the past two years are recorded in Lotus Notes. •On the basis of these financial figures the credit management group calculates the Z-score of the customer which forms the Corporate Bankruptcy Prediction.

CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES)

ProcessZERO SCORE FORMULA

Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0EWhere Z = scoreA = Working capital / Total AssetsB = Retained earnings / Total AssetsC = Earnings before interest & tax / Total AssetsD = Market Value of Equity / Total LiabilitiesE = Sales / Total Assets

Debtors control Factoringi. Recievable purchasesii. Channel finance

Letter of credit

Interest collectionTata Steel charges an interest to its customers if the payment

made is late after the due date.The details on interest payment are mentioned at the time of

credit sales in the Sales Order or the MOU.However, these need to be accepted by the customer.All the transactions are recorded in the SAP system which acts

as a database and which is kept updated.When the credit sales are made, all information like invoice

date, interest free credit period, money receipt date, etc. are all recorded in SAP with respect to separate transaction.

Thus, SAP automatically calculates the interest that has to be charged to each customer for every delay in payment.

Working Capital Management at Tata Steel

Over-Draft Management

Two of its main banks that constitute more than 90% of the operational activities are State Bank of India and the Central Bank of India.

About Tata Steel

Ratios

FY 10 FY 09Inventory Turnover Ratio

10.90 9.36

Debtor Turnover Ratio

46.58 41.29

Average R.M Holding

60.63 74.12

Average F.G Held

21.78 27.88

About Tata Steel

Net Working Capital ComparisonFY 10 FY 09 FY 08 FY 07

Current Asset (in Cr)

6747.01 5707.05 3,613.70 10,646.16

Current Liabilities (in Cr)

6653.09 6039.86 3,855.26 3,523.20

Net Working Capital(in Cr)

93.92 -332.81 -241.56 7122.96

Year

About Tata Steel

WORKING CAPITAL TURNOVER RATIO Net sales

Net working capital

Particulars FY 10 FY 09

Net Sales(Cr) 25755.52 25945.45

Working Capital 93.92 -332.81

Ratio 274.23 -77.96

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