working capital management of tata steel
TRANSCRIPT
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PROJECT REPORT
“Working capital management of Tata
Steel LTD’’
Submitted to
Rashtrasant Tukdoji Maharaj
Nagpur University, Nagpur
In Partial Fulfilment of the requirement of the
“Bachelor of Business Administration”
Submitted by
VIVEK KUMAR SHARMA
Guidance by
Dr. Nirzar Kulkarni
Dr. Ambedkar Institute of Management Studies & Research,
Deeksha Bhoomi, Nagpur-440012
(2013-2014)
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CERTIFICATE
This is to certify that VIVKE KUMAR SHARMA has satisfactorily completed the
Project work entitled WORKINGCAPITAL MANAGEMENT TATA STEEL LTD in not less
than one academic session. This also certify that this Project work is the result of the
candidate’s own work and is of sufficiently high standard to warrant its presentation for
the BBA program.
To the best of my knowledge this project or its part has not been submitted to this
university or any other university for any Degree/Diploma.
Dr. Nirzar Kulkarni
Internal Examiner External Examiner
Place: Nagpur
Date:
Director
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ACKNOWLEDGEMENT
“Words have never expressed human sentiments. This is only an attempt to express my
deep gratitude which comes from my heart.”
It is a great pleasure for me to express my deep feeling of gratitude to my respected
guide Dr.Nirzar Kulkarni, Dean, Admission and Administration, DAIMSR) for his
invaluable guidance & supervision in completion of this project work.
I am grateful to the Dr.Sudhir.S.Fulzele, Director of Dr. Ambedkar Institute of
Management Studies & Research, Nagpur for making all facilities available for my work.
I am grateful to my parents for their lovable support. Last but not least I am thankful to
my friends other faculty Members for their direct & indirect help for completion of this
work..
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DECLARATION
I, VIVEK KUMAR SHRMA hereby declare that the project entitled
“WORKINGCAPITAL MANAGEMENT TATA STEEL LTD “ is the outcome of my own
research work based on personal study during academic session 2013 - 2014 and has not
been submitted previously for award of any degree or diploma to this university or any
other university.
Name: VIVEK KUMAR SHARMA
INDEX
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Particulars Page No.
1. Introduction 01
2. Company profile 13
3. Research Methodology 18
4. Objectives &Scope 26
5. AAnnaallyyssiiss FFiinnddiinnggss & Interpretation 27
6. Limitations 49
7. Conclusion and Suggestions 50
8. Bibliography 52
9. Annexure 53
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INTRODUCTION
INTRODUCTION
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“Working capital means the part of the total assets of the business that change from one
form to another form in ordinary course of business operations.”
Concept of Working Capital:-
The word working capital is made of two words
1. Working
2. 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.
Working Capital: -
Working capital may be regarded as the life blood of business. Working capital is of
major importance to internal and external analysis because of its close relationship with
the current day today 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, buildings & etc.
* Short term funds are required for the purchase of raw materials, payment of wages,
and other day-to-day expenses. It is otherwise known as revolving or circulating
capital It is nothing but the difference between current assets and current liabilities. i.e.
Working Capital = Current assets – Current Liabilities Working Capital = Current Asset – Current Liability.
Working Capital = Current Asset – Current Liability.
Working Capital = Current Asset – Current Liability.
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Businesses use capital for construction, renovation, furniture, software, equipment, or
machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is
also used often by businesses to put a down payment down on a piece of commercial real
estate. Working capital is essential for any business to succeed. It is becoming
increasingly important to have access to more working capital when we need it.
Concept of Working Capital
Working Capital In Terms Of Five Components:
Gross Working Capital = Total of Current Asset
Net Working Capital = Excess of Current Asset over Current Liability
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1. Cash And 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? When will peak cash needs 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 Receivable: -
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 ratings?
5. Accrued Expenses And Taxes Payable: -
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These are obligations of your company at any given time and represent a future
outflow of cash.
OPERATINGCYCLE
The need of working capital arrived because of time gap between production of goods
and their actual realization after sale. This time gap is called “Operating Cycle” or
“Working Capital Cycle”. The operating cycle of a company consist of time period
between procurement of inventory and the collection of cash from receivables. The
operatingcycle is the length of time between the company’s outlay on raw materials,
wages and other expanses and inflow of cash from sales of goods. Operating cycle is an
important concept in management of cash and management of cash working capital. The
operating cycle reveals the time that elapses between outlays of cash and inflow of cash.
Quicker the operating cycle less amount of investment in working capital is needed and it
improves profitability. The duration of the operating cycle depends on nature of
industries and efficiency in working capital management.
RAW MATERI
A
WORK IN
PROGRESS
FINISH GOODS
SALES
DEBTORS AND
RECEVIABLE
CASH
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SIGNIFICANCE OF WORKING CAPITAL:-
Factors requiring consideration while estimating working capital.
Factors Requiring Consideration While Estimating Working Capital.
SIGNIFICANCE OF
WORKING CAPITAL
PAYMENT TO
SUPPLIER
DIVIDEND DISTRUBTI
ON
INCREASE DEBT
CAPACITY
INCREASE IN FIXED ASSETS
INCREASE EFFECIENCY
EASY LOAN FORM BANK
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The average credit period expected to be allowed by suppliers.
Total costs incurred on material, wages.
The length of time for which raw material are to remain in stores before they are
issued for .
The length of the production cycle (or) work in process.
The length of sales cycle during which finished goods are to be kept waiting for
sales.
The average period of credit allowed to customers
The amount of cash required to make advance payment
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Determinants of Working Capital
The amount of working capital is depends upon following factors:-
1. Nature Of Business
Some businesses are such, due to their very nature, that their requirement of fixed capital
is more rather than working capital. These businesses sell services and not the
commodities and that too on cash basis. As such, no founds are blocked in piling
inventories and also no funds are blocked in receivables. E.g. public utility services like
railways, infrastructure oriented project etc. there requirement of working capital is less.
On the other hand, there are some businesses like trading activity, where requirement of
fixed capital is less but more money is blocked in inventories and debtors.
2. Length Of Production Cycle
In some business like machine tools industry, the time gap between the Acquisition of
raw material till the end of final production of finished products itself is quite high. As
such amount may be blocked either in raw material or work in progress or finished goods
or even in debtors. Naturally there need of working capital is high.
3. Size And Growth Of Business
In very small company the working capital requirement is quit high due to high overhead,
higher buying and selling cost etc. as such medium size business positively has edge over
the small companies. But if the business start growing after certain limit, the working
capital requirements may adversely affect by the increasing size.
4. Business/ Trade Cycle
If the company is the operating in the time of boom, the working capital requirement may
be more as the company may like to buy more raw material, may increase the production
and sales to take the benefit of favorable market, due to increase in the sales, there may
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more and more amount of funds blocked in stock and debtors etc. similarly in the case of
depressions also, working capital may be high as the sales terms of value and quantity
may be reducing, there may be unnecessary piling up of stack without getting sold, the
receivable may not be recovered in time etc.
5. Terms Of Purchase And Sales
Some time due to competition or custom, it may be necessary for the company to extend
more and more credit to customers, as result which more and more amount is locked up
in debtors or bills receivables which increase the working capital requirement. On the
other hand, in the case of purchase, if the credit is offered by suppliers of goods and
services, a part of working capital requirement may be financed by them, but it is
necessary to purchase on cash basis, the working capital requirement will be higher.
6. Profitability
The profitability of the business may be vary in each and every individual case, which is
in turn its depend on numerous factors, but high profitability will positively reduce the
strain on working capital requirement of the company, because the profits to the extend
that they earned in cash may be used to meet the working capital requirement of the
company.
7. Operating Efficiency
If the business is carried on more efficiently, it can operate in profits which may reduce
the strain on working capital; it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc.
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NEED OF WORKING CAPITAL MANAGEMENT
The need for working capital gross or current assets cannot be over emphasized. As
already observed, the objective of financial decision making is to maximize the
shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be
earned will naturally depend upon the magnitude of the sales among other things but
sales cannot convert into cash. There is a need for working capital in the form of current
assets to deal with the problem arising out of lack of immediate realization of cash
against goods sold. Therefore sufficient working capital is necessary to sustain sales
activity. Technically this is refers to operating or cash cycle. If the company has certain
amount of cash, it will be required for purchasing the raw material may be available on
credit basis. Then the company has to spend some amount for labour and factory
overhead to convert the raw material in work in progress, and ultimately finished goods.
These finished goods convert in to sales on credit basis in the form of sundry debtors.
Sundry debtors are converting into cash after expiry of credit period. Thus some amount
of cash is blocked in raw materials, WIP, finished goods, and sundry debtors and day to
day cash requirements. However some part of current assets may be financed by the
current liabilities also. The amount required to be invested in this current assets is always
higher than the funds available from current liabilities. This is the precise reason why the
needs for working capital arise
GROSS WORKING CAPITAL AND NET WORKING CAPITAL
There are two concepts of working capital management
1. Gross Working Capital
Gross working capital refers to the firm’s investment I current assets. Current assets are
the assets which can be convert in to cash
within year includes cash, short term securities, debtors, bills receivable and inventory
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2. Net Working Capital
Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders which are expected to mature for payment
within an accounting year and include creditors, bills payable and outstanding expenses.
Net working capital can be positive or negative Efficient working capital management
requires that firms should operate with some amount of net working capital, the exact
amount varying from firm to firm and depending, among other things; on the nature of
industries.net working capital is necessary because the cash outflows and inflows do not
coincide. The cash outflows resulting from payment of current liabilities are relatively
predictable. The cash inflow are however difficult to predict. The more predictable the
cash inflows are, the less net working capital will be required. The concept of working
capital was, first evolved by Karl Marx. Marx used the term ‘variable capital’ means
outlays for payrolls advanced to workers before the completion of work. He compared
this with ‘constant capital’ which according to him is nothing but ‘dead labour’. This
‘variable capital’ is nothing wage fund which remains blocked in terms of financial
management, in working-process along with other operating expenses until it is released
through sale of finished goods. Although Marx did not mentioned that workers also gave
credit to the firm by accepting periodical payment of wages which funded a portioned of
W.I.P, the concept of working capital, as we understand today was embedded in his
‘variable capital’
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COMPANY
PROFILE
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COMPANYPROFILE
TAT`ASTEELPVT.LTD.
TYPE - PRIVATE
INDUSTRY - STEEL
TRADED AS - NSE: TATA STEEL
BSE: 500470
BSE SENSEX CONSTITUENT
CNX NIFTY CONSTITUENT
FOUNDED - August 25, 1907
FOUNDER(S) - JAMSHEDJI TATA
HEADQUARTERS - MUMBAI, MAHARASHTRA, INDIA
KEY PEOPLE - CYRUS PALLONJI MISTRY
(Chairman)
T. V. Narendran
(Managing Director)
PRODUCTS - STEEL, FLAT STEEL PRODUCTS,
LONG STEEL PRODUCT , WIRE
PRODUCT , PLATES.
PARENTS - TATA GROUP
SUBSIDIARIES - TATA STEEL EUROPE
WEBSITE - www.tatasteel.com
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HISTORY
Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO) is
an Indian multinational steel-making company headquartered in Mumbai, Maharashtra,
India, and a subsidiary of the Tata Group. It was the world in 2012, with an annual crude
steel capacity of 28 million tonnes, and the largest private-sector steel company in India
measured by domestic production ltd.Tata Steel has manufacturing operations in 26
countries, including Australia, China, India, the Netherlands, Singapore, Thailand and the
United Kingdom, and employs around 80,500 people. Its largest plant is located
in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel maker Corus
which was the largest international acquisition by an Indian company till that date.
It was ranked471st in the 2013 Fortune Global 500 ranking of the world's biggest
corporations. It was the seventh most valuable Indian brand of 2013 as per Brand
Finance.
ACQUISITION BY TATA STEEL:
NatSteel in 2004: In August 2004, Tata Steel agreed to acquire the steel making
operations of the Singapore based NatSteel for S$486.4 million in cash.
Millennium Steel in 2005: Tata Steel acquired a majority stake in the Thailand-based
steelmaker Millennium Steel for a total cost of $130 million. It paid US$ 73 million to
Siam Cement for a 40% stake and offered to pay 1.13 baht per share for another 25% of
the shares of other shareholders. Millennium Steel has now been renamed to Tata Steel
Thailand and is headquartered in Bangkok.On March 31, 2013, it held approx. 68%
shares in the acquired company.
Corus in 2007:On 20 October 2006, Tata Steel signed a deal with Anglo-Dutch
company, Corus to buy 100% stake at £4.3bn ($8.1 billion) at 455 pence per share. On 19
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November 2006, the Brazilian steel company Companhia Siderúrgica Nacional (CSN)
launched a counter offer for Corus at 475 pence per share, valuing it at £4.5 billion. On
11 December 2006, Tata preemptively upped its offer to 500 pence per share, which was
within hours trumped by CSN's offer of 515 pence per share, valuing the deal at £4.9
billion. The Corus board promptly recommended both the revised offers to its
shareholders. On 31 January 2007, Tata Steel won their bid for Corus after offering 608
pence per share, valuing Corus at £6.7 billion ($12 billion).
Rolling Mill Companies In Vietnam in 2007: Tata Steel through its wholly
owned Singapore subsidiary, NatSteel Asia Pte Ltd, acquired controlling stake in two
rolling mill companies located in Vietnam: Structure Steel Engineering Pte Ltd (100%
stake) and Vinausteel Ltd (70% stake). The enterprise value for the acquisition was $41
million. With this acquisition, Tata Steel got hold of two rolling mills, a 250k tonnes per
year bar/wire rod mill operated by SSE Steel Ltd and a 180k tonnes per year reinforcing
bar mill operated by Vinausteel Ltd
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SHARE HOLDING:-
As on 31 March 2013, Tata Group held 31.35% shares in Tata Steel. Over 1 million
individual shareholders hold approx. 21% of its shares. Life Insurance Corporation of
India is the largest non-promoter shareholder in the company with 14.98% shareholding
Shareholders Shareholding
Promoters: Tata Group companies 31.35%
Insurance Companies 24.09%
+Individual shareholders 21.06%
Foreign Institutional Investors 14.36%
GDRs 01.86%
Others 07.28%
Total 100.0%
MAJAOR COMPETITOR:-
Tata Steel's major competitors include ArcelorMittal, Essar Steel, JSW
Steel, SAIL and VISA Steel
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Mr. Cyrus P. Mistry - Chairman Not – Independent
Non Executive Director
Mr. B. Muthuraman - Vice ChairmanNot – Independent
Non Executive Director
Mr. Nursil Neville Wadia - Not – Independent
Non Executive Director
Mr. Ishaat hussainNot – Independent
Non Executive Director
Mr. Subodh bhargava Independent
Non Executive Director
Mr. Jacobus scharven Independent
Non Executive Director
Mr. Andrew M. RobbNot - Independent
Non Executive Director
Dr. Kari Ulrich Koehler Independent
Non Executive Director
Ms. Malika srinivasanIndependent
Non Executive Director
Mr. D.K. Mehrotra Independent
Non Executive Director
Mr. O.P. Independent
Non Executive Director
Mr. Koushik Chatterjee Group Executive Director
(Finance &Corporate)
Mr. T.v. narendran Managing Director
(India & South East Asia)
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RESEARCH
METHODOLODY
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INTRODUCTION
Research methodology is a way to systematically solve the research problem.
It may be understood as a science of studying now research is done
systematically.
In that various steps, those are generally adopted by a researcher in studying
his problem along with the logic behind them.
It is important for research to know not only the research method but also
know methodology.
”The procedures by which researcher go about their work of describing,
explaining and predicting phenomenon are called methodology.” Methods
comprise the procedures used for generating, collecting and evaluating data.
All this means that it is necessary for the researcher to design his methodology
for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will
be largely depend upon now much accurate you will be able to collect and
howmuch time, money and effort will be required to collect that necessary
data, this is also important step.
Data collection plays an important role in research work. Without proper data
available for analysis you cannot do the research work accurately.
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DATA COLLECTION
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TYPES OF DATA COLLECTION
Data can be defined as the quantitative or qualitative values of a variable. Data is plural
of Datum which literally means to give or something given. Data is thought to be the
lowest unit of information from which other measurements and analysis can be done.
Data can be numbers, images, words, figures, facts or ideas. Data in itself cannot be
understood and to to get information from the data one must interpret it into meaningful
information. There are various methods of interpreting data. Data sources are broadly
classified into primary and secondary data.
IMPORTANCE OF DATA AND DATA COLLECTION:
Data is one of the most important and vital aspect of any research studies. Researches
conducted in different fields of study can be different in methodology but every research
is based on data which is analyzed and interpreted to get information.
Data is the basic unit in statistical studies. Statistical information like census, population
variables, health statistics, and road accidents records are all developed from data.
Data is important in computer science. Numbers, images and figures in computer are all
data.
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Types of Data
Primary Data:
Data that has been collected from first-hand-experience is known as primary data.
Primary data has not been published yet and is more reliable, authentic and objective.
Primary data has not been changed or altered by human beings, therefore its validity is
greater than secondary data.
Importance of Primary Data:
Importance of Primary data cannot be neglected. A research can be conducted without
secondary data but a research based on only secondary data is least reliable and may have
biases because secondary data has already been manipulated by human beings. In
statistical surveys it is necessary to get information from primary sources and work on
primary data: for example, the statistical records of female population in a country cannot
be based on newspaper, magazine and other printed sources. One such sources are old
and secondly they contain limited information as well as they can be misleading and
biased.
Validity: Validity is one of the major concerns in a research. Validity is the quality of a
research that makes it trustworthy and scientific. Validity is the use of scientific methods
in research to make it logical and acceptable. Using primary data in research can
improves the validity of research. First hand information obtained from a sample that is
representative of the target population will yield data that will be valid for the entire
target population.
Authenticity:Authenticity is the genuineness of the research. Authenticity can be at
stake if the researcher invests personal biases or uses misleading information int he
research. Primary research tools and data can become more authentic if the methods
chosen to analyze and interpret data are valid and reasonably suitable for the data type. .
Primary sources are more authentic because the facts have not been overdone. Primary
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source can be less authentic if the source hides information or alters facts due to some
personal reasons. Their are methods that can be employed to ensure factual yielding of
data from the source.
Reliability:Reliability is the certainty that the research is enough true to be trusted on.
For example, if a research study concludes that junk food consumption does not increase
the risk of cancer and heart diseases. This conclusion should have to be drawn from a
sample whose size, sampling technique and variability is not questionable. Reliability
improves with using primary data. In the similar research mentioned above if the
researcher uses experimental method and questionnaires the results will be highly
reliable. On the other hand, if he relies on the data available in books and on internet he
will collect information that does not represent the real facts.
Sources of Primary Data:
Sources for primary data are limited and at times it becomes difficult to obtain data from
primary source because of either scarcity of population or lack of cooperation. Regardless
of any difficulty one can face in collecting primary data; it is the most authentic and
reliable data source. Following are some of the sources of primary data.
Experiments:Experiments require an artificial or natural setting in which to perform
logical study to collect data. Experiments are more suitable for medicine, psychological
studies, nutrition and for other scientific studies. In experiments the experimenter has to
keep control over the influence of any extraneous variable on the results.
Survey: Survey is most commonly used method in social sciences, management,
marketing and psychology to some extent. Surveys can be conducted in different
methods.
Questionnaire: is the most commonly used method in survey. Questionnaires are a
list of questions either open-ended or close -ended for which the respondent give
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answers. Questionnaire can be conducted via telephone, mail, live in a public
area, or in an institute, through electronic mail or through fax and other methods.
Interview: Interview is a face-to-face conversation with the respondent. In
interview the main problem arises when the respondent deliberately hides
information otherwise it is an in depth source of information. The interviewer can
not only record the statements the interviewee speaks but he can observe the body
language, expressions and other reactions to the questions too. This enables the
interviewer to draw conclusions easily.
Observations: Observation can be done while letting the observing person know
that he is being observed or without letting him know. Observations can also be
made in natural settings as well as in artificially created environment.
SECONDARY DATA:
Data collected from a source that has already been published in any form is called as
secondary data. The review of literature in nay research is based on secondary data.
Mostly from books, journals and periodicals.
IMPORTANCE OF SECONDARY DATA:
Secondary data can be less valid but its importance is still there. Sometimes it is difficult
to obtain primary data; in these cases getting information from secondary sources is
easier and possible. Sometimes primary data does not exist in such situation one has to
confine the research on secondary data. Sometimes primary data is present but the
respondents are not willing to reveal it in such case too secondary data can suffice: for
example, if the research is on the psychology of transsexuals first it is difficult to find out
transsexuals and second they may not be willing to give information you want for your
research, so you can collect data from books or other published sources.
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Sources of Secondary Data:
Secondary data is often readily available. After the expense of electronic media and
internet the availability of secondary data has become much easier.
Published Printed Sources: There is variety of published printed sources. Their
credibility depends on many factors. For example, on the writer, publishing company and
time and date when published. New sources are preferred and old sources should be
avoided as new technology and researches bring new facts into light.
Books: Books are available today on any topic that you want to research. The use
of books start before even you have selected the topic. After selection of topics
books provide insight on how much work has already been done on the same
topic and you can prepare your literature review. Books are secondary source but
most authentic one in secondary sources.
Journals/periodicals: Journals and periodicals are becoming more important as far
as data collection is concerned. The reason is that journals provide up-to-date
information which at times books cannot and secondly, journals can give
information on the very specific topic on which you are researching rather talking
about more general topics.
Magazines/Newspapers: Magazines are also effective but not very reliable.
Newspaper on the other hand are more reliable and in some cases the information
can only be obtained from newspapers as in the case of some political studies.
Published Electronic Sources:As internet is becoming more advance, fast and
reachable to the masses; it has been seen that much information that is not available in
printed form is available on internet. In the past the credibility of internet was
questionable but today it is not. The reason is that in the past journals and books were
seldom published on internet but today almost every journal and book is available online.
Some are free and for others you have to pay the price.
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E-journals: e-journals are more commonly available than printed journals. Latest
journals are difficult to retrieve without subscription but if your university has an
e-library you can view any journal, print it and those that are not available you
can make an order for them.
General websites; Generally websites do not contain very reliable information so
their content should be checked for the reliability before quoting from them.
Weblogs: Weblogs are also becoming common. They are actually diaries written
by different people. These diaries are as reliable to use as personal written diaries.
Unpublished Personal Records: Some unpublished data may also be useful in some
cases.
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OBJECTIVE
35
OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company can not earn
profits and increase its turnover. With this primary objective of the study, the following
further objectives are framed for a depth analysis.
1. To study the working capital management of TATA STEEL Pvt. Ltd.
2. To study the optimum level of current assets and current liabilities of the company.
3. To study the liquidity position through various working capital related ratios.
4. To study the working capital components such as receivables accounts, cash
management, Inventory position.
5. To study the way and means of working capital finance of the of TATA STEEL Pvt.
Ltd.
6. To estimate the working capital requirement of TATA STEEL
Pvt. Ltd.
7. To study the operating and cash cycle of the company.
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RATIONAL OF THE STUDY
37
Rational of the Study
Working capital management implicates the administration of current assets as
well as current liabilities.
The scope of the study is identified after and during the study is conducted.
The study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage, operating cycle etc.
Further the study is based on last 3 years Annual Reports of TATA STEEL Pvt.
Ltd.
Even factors like competitor’s analysis, industry analysis were not considered
while preparing this project.
Firms with too few currents assets may incur shortages and difficulties in
maintaining smooth operations.
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DATA ANALYSIS &
FINDING
39
Statement Showing Changes in Working Capital
Statement 2010 - 2011
Particular
Mar 31st
2010
(in crore)
Mar 31st
2011
(in crore)
Working Capital
INC DEC
A) Current Asset:
Sundry Debtors
Cash & Bank Balance
Interest Accrued On Investment
Stores & Spare Parts
Stock –in– trade
11512.44
6815.11
7.63
1715.11
16971.53
14816.28
10892.66
9.83
1847.58
22213.66
3303.84
4077.55
2.2
132.47
5242.13
-
-
-
-
-
TOTAL CURRENT ASSET
37021.82
49780.01
12758.19
-
B) Current Liability:
Current Liability
Provisions
23392.49
6594.16
26671.06
7089.92
3278.57
495.76
-
-
TOTAL CURRENT LIABILITY
29956.65
33760.98
C) Working Capital
7065.17
16019.03
8953.86
D) Increase In Working
Capital
8953.86
8953.86
TOTAL
16019.03
16019.03
8953.86
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Current Assets & Current Liabilities forthe Year 2010 – 2011
Interpretation
The statement shows increase in working capital which enables a firm to avail cash
discount facilities offer to it by the suppliers. It also enables a firm to make prompt
payment. Making prompt payment is a base to create and maintain goodwill.
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2010
2011
7065.17
16019.03
Working Capital
41
Statement Showing Changes in Working Capital
Statement 2011 - 12
Particular
Mar 31st
2011
(in crore)
Mar 31st
2012
(in crore)
Working Capital
INC DEC
A) Current Asset:
Current investments
Cash & Bank Balance
Trade receviable
Short term Loan & Advances
Inventories
Other current assets
3159.28
10859.05
14811.92
3547.18
10591.30
56.29
1398.37
10801.58
14878.48
3868.73
8538.08
32.74
-
-
66.56
321.55
-
1760.91
57.47
-
-
2053.22
23.55
TOTAL CURRENT ASSET
43025.02
39517.98
B) Current Liability:
Current Liability
Provisions
Short term borrowings
Trade payable
15001.22
3395.25
3794.44
18547.48
18860.99
3370.05
4699.08
20617.86
3859.77
-
904.64
2070.38
-
25.2
-
-
TOTAL CURRENT LIABILITY
40738.4
47547.98
C) Working Capital
2286.63
8030
5743.37
D) Increse In Working Capital
5743.37
TOTAL
8030
8030
5743.37
42
Current Assets & Current Liabilities forthe Year
2011-2012
Interpretation
The statement shows decrease in working capital which signifies that company has to
rely less on cash credit limit to be taken from the bank for the purpose of meeting its working capital requirements
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2011
2012
2286.63
8030
Working Capital
43
Statement Showing Changes in Working Capital Statement 2012-13
Particular
Mar 31st
2012
(in crore)
Mar 31st
2013
(crore)
Working Capital
INC DEC
A) Current Asset:
Current investment
Cash & Bank Balance
Other current assets
Loan & Advances
Inventories
Trade receivable
1398.37
9859.67
417.25
3717.42
25598.00
14878.48
760.29
10798..81
1478.50
4060.54
24091.19
13993.96
-
939.14
1061.25
343.12
-
638.08
-
-
-
15068.81
880.52
TOTAL CURRENT ASSET
55869.19
55183.29
B) Current Liability:
Current Liability
Provisions
Short term borrowings
Trade payable
18779.01
3476.19
4699.08
20528.55
19942.36
2943.29
8114.56
21778.84
1163.35
-
3415.48
1250.28
-
532.9
- -
TOTAL CURRENT LIABILITY
47482.83
52779.05
C) Working Capital
8386.36
2404.24
D) Decrease In Working Capital
5982.12
5982.12
-
TOTAL
8386.36
8386.36
5982.12
44
Current Assets & Current Liabilities forthe Year 2012-2013
Interpretation
The statement shows increase in working capital which enables a firm to avail cash
discount facilities offer to it by the suppliers. It also enables a firm to make prompt
payment. Making prompt payment is a base to create and maintain goodwill.
44000
45000
46000
47000
48000
49000
50000
51000
52000
53000
2012
2013
47482.83
52779.05
Working Capital
45
COMPARISON OF WORKING CAPITAL FOR THE YEAR 2011 - 2013
2011 2012 2013
W.C. INC/D
EC
W.C. INC/
DEC
% W.C. INC
/DEC
%
16019.03 - 8030 5743.37 1.39 8386.36
5982.12
1.39
Interpretation
The working capital of the company is positive this is because the current assets of the
company are more than the current liabilities of the company. It was observed that in the year 2011 working capital was 16019.03, in 2012 it
was 8030.00& in 2013 it was 8386.36.
0
5000
10000
15000
20000
20112012
2013
16019.03
80308386.36
2011 2012 2013
46
CALCULATION OF WOKING CAPITAL FOR THE YEAR 2011 - 2013
Particulars 2011 2012 2013
CURRENT ASSET
Inventories 8538.08 24091.19
Stock –in– trade 22213.66
Sundry Debtors 14816.28
Cash & Bank 10892.66 10801.58 10798..81
OtherCurrent Assets 14878.48 1478.50
Stores & Spare Parts
1847.58
Current Investment 760.29
Loan & Advances 3868.73 4060.54
Interest Accrued
On Investment
9.83
Trade Receivable 14878.48 13993.96
Total Current Assets 49780.01 39517.98 55183.29
Current Liability
Current Liability 26671.06 18860.99 19942.36
Provisions 7089.92 3370.05 2943.29
Short term borrowing 8114.56 8114.56
Trade Payable 21778.84 21778.84
Total Current
Liability
33760.98 47547.98 52779.05
Working Capital 16019.03 -47547.98 12872.30
47
Interpretation
The working capital of the company is positive this is because the current assets of the company are more than the current liabilities of the company. It was observed that in the year 2011 working capital was 16019.03, in 2012 it was -
47547.98 & in 2013 it was 12872.30.
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2011 2012 2013
WORKING CAPITAL
WORKING CAPITAL
48
Calculation of Ratios:
1. Current Ratios:
Current Assets Current Ratio = -------------------
Current Liabilities
Current Assets 2011 2012 2013
Inventories 8538.08 24091.19
Stock –in– trade 22213.66
Sundry Debtors 14816.28
Cash & Bank 10892.66 10801.58 10798..81
Other Current Assets 14878.48 1478.50
Stores & Spare Parts
1847.58
Current Investment 760.29
Loan & Advances 3868.73 4060.54
Interest Accrued
On Investment
9.83
Trade Receivable 14878.48 13993.96
Total current Assets 17119.72 13991.72 17880.82
49
Current Liability 2011 2012 2013
Current Liability 26671.06 18860.99 19942.36
Provisions 7089.92 3370.05 2943.29
Short term borrowing 8114.56 8114.56
Trade Payable 21778.84 21778.84
Total Current
Liability
33760.98 47547.98 52779.05
Particular 2011 2012 2013
Current assets 17119.72 13991.72 17880.82
Current
liabilities
33760.98 47547.98 52779.05
Current ratio 5.07times 0.29 times 0.34 times
50
Interpretation
Current ratio indicates the availability of current assets in rupees for every rupee of
current liability. This ratio reflects the financial stability of the enterprise. The standard of
the normal ratio is 2:1. Now if we analyze the three years data it can be predicted that it
holds a declining position in the year 2011 - 2013 And it is seen that it holds a low
position than the standard one and the company is required to improve its position.
0
1
2
3
4
5
6
2011
2012
2013
Current Ratio
51
2. Working Capital Turnover Ratio:
Net Sales
Working Capital Turnover Ratio = ------------------ Working Capital
Particular 2011 2012 2013
Net sales 121345.75 132899.70 134711.54
Working capital 16019.03 47547.98 12872.30
W/c turnover ratio 0.13times 0.37times 0.09times
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2011 2012 2013
Working Capital Turnover Ratio
52
Interpretation
Here we can interpret that the working capital turnover ratio is increasing because current
assets are decreasing over the current liabilities therefore working capital decreasing from
2011 – 2013.
3. Current Assets Turnover Ratio:
Sales Current Assets Turnover Ratio = ----------------
Current Assets
Interpretation
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
2011 2012 2013
Current Assets Turnover Ratio
53
We observed that the current asset turnover ratio is increasing because of increase in
current assets and sales in 2011-13
Current Assets 2011 2012 2013
Inventories 8538.08 24091.19
Stock –in– trade 22213.66
Sundry Debtors 14816.28
Cash & Bank 10892.66 10801.58 10798..81
Other Current Assets 14878.48 1478.50
Stores & Spare Parts
1847.58
Current Investment 760.29
Loan & Advances 3868.73 4060.54
Interest Accrued
On Investment
9.83
Trade Receivable 14878.48 13993.96
Total current Assets 17119.72 13991.72 17880.82
Particulars 2011 2012 2013
Sales 121345.75 132899.70 134711.54
Current Assets 17119.72 13991.72 17880.82
Current Assets
Turnover Ratio
0.14times 0.10times 0.13times
54
4) Current Assets
Current Assets 2011 2012 2013
Inventories 8538.08 24091.19
Stock –in– trade 22213.66
Sundry Debtors 14816.28
Cash & Bank 10892.66 10801.58 10798..81
Other Current Assets 14878.48 1478.50
Stores & Spare Parts
1847.58
Current Investment 760.29
Loan & Advances 3868.73 4060.54
Interest Accrued
On Investment
9.83
Trade Receivable 14878.48 13993.96
Total current
Assets
17119.72 13991.72 17880.82
55
Interpretation
Here we observe that a current asset of the company is decreasing in the year 2012 And
increasing in the year 2013.
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20112012
2013
Current Assets
56
4. Current Liability
Current Liability 2011 2012 2013
Current Liability 26671.06 18860.99 19942.36
Provisions 7089.92 3370.05 2943.29
Short term borrowing 8114.56 8114.56
Trade Payable 21778.84 21778.84
Total Current
liability
33760.98 47547.98 52779.05
Interpretation
If we analyze the above table then we can see that it follow an uneven trend. The
important component of current liabilities is sundry creditors and other liabilities. This is
liability for company so this should be less. When companies have minimum liabilities it
0
10000
20000
30000
40000
50000
60000
20112012
2013
Current Liabilties
57
creates a better goodwill in market. High current liabilities indicate that company is using
credit facilities by creditors.
5. Debt Equity Ratio: Long term liabilities
Debt Equity Ratio = ----------------------------- Shareholders fund
Particular 2011 2012 2013
Long Term Debt 32079.04 45328.24 46857.62
Shareholder Equity 1136.74 43021.12 4172.24
Debt Equity ratio 0.03times 0.95times 0.08times
Long term liabilities
Long term liabilities 2011 2012 2013
Unsecured loan 32079.04 45328.24 46857.62
Total 32079.04 45328.24 46857.62
Shareholders’ Funds
Shareholders’ Funds 2011 2012 2013
Share capital 958.54 971.41 971.41
Adv against warrents 178.20 - -
Reserves and surplus - 42049.71 33200.83
Total 1136.74 43021.12 4172.24
58
Interpretation Debt equity ratio of the company is below 1 which is below the standard norms and
hence the company has good financial position and less of financial risk and insolvency...
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2011
2012
2013
Debt Equity Ratio
59
7. Debtors Turnover Ratio:
Credit sales Debtors Turnover Ratio = ---------------
Debtors
Particulars 2011 2012 2013
Credit Sales 121345.75 35975.56 1,38,821.14
Debtors 14816.28 14878.48 13,993.96
Debtors Turnover Ratio
0.12times 0.14times 0.10times
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
2011 2012 2013
Debtors Turnover Ratio
60
Abstract of Funds Flow :( 2010-11)
Observation
The above shows that there has been increase in working capital in the year 2010-11 because sources are increasing over uses of funds.
Abstract of Funds Flow :( 2011 - 2012)
Sources of funds Amount Application of funds
Amount
Increase in Working Capital
5743.37
Observation The above shows that there has been increase in working capital in the year
2011 - 20012 because sources are decreasing over uses of funds.
Abstract of Funds Flow :( 2012 - 2013)
Sources of
funds
Amount Application of funds Amount
Decrease in Working
Capital
5982.12
Observation The above shows that there has been increase in working capital in the year 2012 -
2013 because sources are decresing over uses of funds.
Sources of
funds
Amount Application of
funds
Amount
Increase in Working
Capital
8953.86
61
LIMITATION
62
LIMITATIONS OF THE STUDY:-
Following limitations were encountered while preparing this project:
1) Limited Data:-
This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection because of
confidentiality.
2) Limited Period:-
This project is based on three year annual reports. Conclusions and recommendations are
based on such limited data. The trend of last three year may or may not reflect the real
working capital position of the company
3) Limited Area:-
Also it was difficult to collect the data regarding the competitors and their financial
information. Industry figures were also difficult to get.
5) Type Data Used For This Project:-
This project is completely based on secondary data collected from various sources like
internet, books etc.
63
Conclusion &
Suggestion
64
Conclusion
Working capital management is important aspect of financial management. The study of
working capital management of TATA STEEL Pvt. Ltd. has revealed that the current
ratio was as per the standard industrial practice but the liquidity position of the company
showed an increasing trend. The study has been conducted on working capital ratio
analysis, working capital leverage, working capital components which helped the
company to manage its working capital efficiency and affectively.
1. Working capital of the company was increasing and showing positive Working
capital per year. It shows good liquidity position.
2. Positive working capital indicates that company has the ability of payments of
short terms liabilities.
3. Working capital increased because of increment in the current assets is more than
increase in the current liabilities.
4. Company’s current assets were always more than requirement it affect on
profitability of the company.
5. Current assets are more than current liabilities indicate that company used long
term funds for short term requirement, where long term funds are most costly then
short term funds.
6. Current assets components shows sundry debtors were the major part in current
assets it shows that the inefficient receivables collection management.
7. In the year 2010-11 working capital increased because decreased the expenses as
manufacturing expenses and decrease the price of raw material as increased in the
inflation rate.
65
Suggestion
Suggestion can be use by the firm for the betterment increased of the firm after study and
analysis of project report on study and analysis of working capital. I would like to
recommend.
1. Company should raise funds through short term sources for short term
requirement of funds, which comparatively economical as compare to long term
funds.
2. Company should take control on debtor’s collection period which is major part of
current assets.
3. Company has to take control on cash balance because cash is non earning assets
and increasing cost of funds.
66
Bibliography
67
BOOKS:-
1. FINANCIAL MANAGEMENT
BY. KHAN & JAIN
2. MANAGEMENT ACCOUNTING : 6TH EDITION
By M. Y. KHAN, P. K. JAIN
3. FINANCIAL ACCOUNTING FOR MANAGERS
By SANJAY DHAMIJA
WEBSITES:-
1. www.tatasteel.com
2. www.wikipedia.org
3. www.google.com
ANNUAL REPORT:-
1. TATA STEEL 2010- 2011
2. TATA STEEL 2011- 2012
3. TATA STEEL2012-2013
68
69