Sip Report on Working Capital

Summer project- 2010

A

PROJECT REPORT ON

WORKING CAPITAL

MANAGEMENT AT “TATA STEEL”

SUBMITTED BY:

MANISHA

REGIONAL COLLEGE OF MANAGEMENT [A], BHUBANESWAR

BATCH:-2010-11

UNDER GUIDANCE OF MR.I ROY

Working Capital Management-Comparative Analysis

DELCLARATION

I, Manisha, the undersigned, a student REGIONAL COLLEGE OF MANAGEMENT AUTONOMOUS, BHUBANESWAR, declare that project report titled “working capital management at TATA STEEL” submitted in partial fulfillment of the requirement for the summer internship project during the MBA, a prestigious Post graduate diploma awarded by Regional College of management. The project duration was from 20th may 2011 to 20th July 2011.

This is my original work and has not been submitted as part of another degree or diploma of other business school or university.

The findings and conclusions of this report are based on my personal study and experience, during the tenure of my summer internship.

Name: Manisha

Regional College of Management Autonomous

Bhubaneswar

Signature: DATE: 20th July 2011

PLACE: TATA STEEL (Jamshedpur)

ACKNOWLEDGEMENT

REGIONAL COLLEGE OF MANAGEMENT AUTONOMOUS, BHUBANESWAR Page 2


I would like to extend my gratitude to Mr. Indrajit Roy (Head Financial Account) for giving me opportunity to work in such an important sphere and sharing his vision and experience. Mr. Imtiaz Ahmed for his continuous support and guidance; Mr. Nr Saifi (Manager, Tata Management Development Centre (TMDC) for providing me the opportunity to learn and complete my summer internship in this esteemed organization.

I also take the opportunity to thanks Mr.Ashok Kumar Rath (Regional College of Management) for his guidance and invaluable inputs in the development of the project, and in terms of managing the real time issues that we faced in the corporate world.

Last but not the least I would like to extend my thanks to all the employees at finance department, my family and friends for their co-operation, valuable information and feedback during my project.

Manisha

Regional College of Management Autonomous

Bhubaneswar.

PREFACE

It has been a fruitful summer project. The summer training has been a greater into the corporate culture and has enriched my knowledge about



conducting my business. Having spent some mature individual, prepared to take on the pressure of the business world.

This report added immensely to my knowledge how a corporate world actually work as a team to achieve its goals ,the spirit and the enthusiasm of the leading ahead from its competitors and the above all true and fair view as the main motto and the most of all various techniques used to maximize efficiency and increase production.

I will be grateful to TATA STEEL for giving me the opportunity to be part of this repudiated organization and help me throughout in understanding some of the important facts concerned with this prestigious institution.

MANISHA

Regional college of Management [A], Bhubaneswar

Table of contents

Particulars Page No1. DECLARATION 22. ACKNOWLEDGEMENT 33. PREFACE 44. EXECUTIVE SUMMARY 7-8

Project Discretion 7



Scope of Project 7 Project Objectives 7 Limitations 7

5. RESEARCH METHODOLOGY 8-11

6. STEEL INDUSTRY PROFILE 12-207. INTRODUCTION OF TATA STEEL LTD. 21-49

HISTORY 21 Founders 23 Tata steel organizational profile 25 Company profile 35 Management of TATA Steel Ltd. 39

Vision, Mission, Value and Goal 41 Product Portfolio 44 Awards, Recognitions and Certifications 48

7. Working Capital Management 50-54 Definition 51 Need and Objectives of working capital 51 Type of Working Capital 52

Sources of working capital 52

Components of working capital 52 Importance of adequate working capital 53

Factors Influencing working capital 53

Principle of Working Capital 54

Excess or Inadequate working capital management 54

8. TATA Steel Ltd. – Data Analysis 55-68 Net Working capital 56 Percentage Change in Working Capital 57 Financial Ratio 59 Operating Cycle 67 Methods of calculations 68

9. SAIL – DATA ANALYSIS 69-82

Net Working Capital 70 Percentage Change In Working Capital 72 Financial Ratios 73 Operating cycle 80

10. JSW STEEL – DATA ANALYSIS 83-98

Net Working Capital 84 Percentage Change In Working Capital 86



Financial Ratios 87 Operating cycle 96

11. COMPARATIVE ANALYSIS 99-112 Operating Cycle 100 Financial Ratios 105

12. CONCLUSIONS 11313. RECOMMENDATIONS 11414. LIMITATIONS 11515. BIBLOGRAPHY 11616. ANNEXTURE 117-119

Cost Sheet- Last five yearBalance Sheet as on 2009-2010Profit And Loss as on 2009-2010

Executive Summary

Project description

To study the working capital management practices of TATA STEEL and compare with Indian firms SAIL and JSW STEEL.

Scope of the project

To carry out a critical analysis of the Tata steel Ltd. Working Capital Management.

To find out the area of the weakness in the existing Working Capital control mechanism.

To extrapolate the company’s position with the steel industry.

Project objective

To understand the concept of working capital management



To understand the technique and process of working capital management at Tata Steel.

To analyze the effectiveness and efficiency of existing working capital control system

To compare the working capital position of Tata Steel with other players in global and domestic market

To identify the areas of strength and improvement To suggest possible remedial measures

RESEARCH methodology

The study is based on the descriptive and applied research. The accounting as well as the planning of the Working Capital needs a thorough study. By ratio analysis and trend analysis the result of the control mechanism can be summarized which will help in identifying the effectiveness of the system under the preview. Hence the ratio and trend analysis will be used to arrive at the conclusion.

The whole project has been made by collecting data through primary and secondary sources. Primary source stands for that information i.e. collected by direct queries to concern.

Collection of Data (Data information source )

Data will be collected from both the primary and secondary sources.



Primary source of data

1. Observation method 2. Direct interview method 3. Indirect method4. Department visit: comprises of discussion with concern

persons and interviewing few officers in the account and finance department.

Secondary source of data

1. Annual report2. Journal and book3. Study of files and office documents4. Different records by the accounts and bills sections5. Company websites

Selection of Companies

Companies are selected based on their production capacity and availability of data. SAIL and JSW STEEL are the Indian companies selected and they are ranked in first and third respectively based on production capacity.

Purpose of study

The main aim of any firm is to maximize the wealth of shareholders. This can be achieved only by a steady flow of profits. Which in turn depend on successful sales activity? To generate sales, investment of sufficient funds in current assets is required. The need of current assets should be emphasized, as the sales don’t convert in to cash immediately but involved a cycle of operations, namely operation cycle.

Tata Steel Limited is multi product manufacturing unit with varying cycle for each product. The capital requirement for each department in an organization of Tata Steel Limited is REGIONAL COLLEGE OF MANAGEMENT AUTONOMOUS, BHUBANESWAR Page 8


large which (Depends on the product target for that particular year) calls for an effective working capital management the operation on cycle duration is an important aspect of working capital.

Some prominent issues that are to be addressed are:

Duration of raw material stage (depend on regularity of supply, transaction time).

Duration of work in progress (depends on length of manufacturing cycle, consistency in capacity of utilization).

Duration at the finished good state (depends on pattern of production and sales).

Thus a detail study regarding the working capital management in Tata Steel Limited is to be considering the effectiveness of working capital management, identify the short coming in management and to suggest for improvement in working capital management.

Limitations:-

1. The study of limited to the scope of the data available publically.

2. Ratio analysis cannot be taken as the same indicator of the financial performance the company.

3. The study is based on the comparison across company in the steel industry. However, the choice of different accounting policies and practices followed by these companies might distort the comparative analysis

4. The study is based on a very short time frame which may have impact on the

Scope of the project in terms of the detailed analysis of the aspects of working capital management, the topic being wide.



TATA STEEL (Jamshedpur)



STEEL INDUSTRY PROFILE

World steel production graph

The crude steel production for 66 countries reporting to the World Steel Association was 1220 million metric tons for calendar year 2009, lower by 8% against that of 2008. Hit

by the economic downturn, the drop in production was nearly in all steel producing countries barring positive growth recorded in China, India and the Middle East. In most countries including the developed steel markets of the EU, the U.S.A., Japan, Brazil, CIS deterioration in the economy resulted in a sharp decline of demand in key steel using sectors. The following table shows the growth in terms of crude steel production for the top ten steel producing nations:

Rank Country 2010 2009 Change

1 China 626,654 573,567 9.26%



2 Japan 109,600 87,534 25.21%

3 U.S. 80,594 58,196 38.49%

4 Russia 67,021 60,011 11.68%

5 India 66,848 62,838 6.38%

6 South Korea 58,453 48,572 20.34%

7 Germany 43,815 32,670 34.11%

8 Ukraine 33,559 29,855 12.41%

9 Brazil 32,820 26,507 23.82%

10 Turkey 29,002 25,304 14.61%

(Figures in Thousand Metric Tons)

As a result of the strong growth in China in sharp contrast to the decline in major parts of the globe, the list of the top ten steel producing companies during 2009 was dominated by Chinese companies.

Rank Company Country 2010Crude steel output per year in MT .

1 Arcelor Mittal Luxemburg 1,03,300,000

2 Nippon Steel Japan 37,500,000

3 Bao Steel China 35,400,000

4 POSCO South Korea 34,700,000

5 Hebei Iron & Steel Group China 33,300,000

6 JFE Holdings Japan 33,000,000

7 Wuhan Steel (WISCO)

China 27,700,000

8 Tata Steel(TISCO)

India 24,400,000

9 Jaingsu Shagong Group China 23,300,000

10 US Steel USA 23,200,000



(Figures in million metric tons)

Steel Industry in India

The efforts to develop the steel industry in India started during the first five year plan but the real developments started happening from 1980s onwards. Although the Indian steel industry increased its production, in the nineties India imported huge quantity of steel to meet the growing demand of steel in the country. This scenario was totally changed in 2004 when India stood at the ninth position in terms of crude steel production in the whole world and in 2006, India was at the seventh place among the crude steel producing companies.There are different factors that are responsible for this development. Firstly, the Indian government has taken some reformatory steps that have helped the Indian steel industry to grow at a good pace. The Indian government has set a target to increase the crude steel production and till 2019-20, the Indian steel industry is expected to produce nearly 110 million tons of crude steel.The production of flat products and long products of major Indian companies is estimated to have grown by around 12% and 8% respectively during the financial year 2009-10 when compared with the previous financial year. While the long products exports were almost at the same level as that in the last year, fl at products exports dipped by around 30% on account of the global slowdown. The imports on the other hand were higher for both fl at products as well as long products by around 17% and 35% respectively as the fl at products and long products segments experienced around 23% and 9% increase in steel consumption. In line with the fiscal stimulus package announced in the country, the Government of India removed export duty on all steel items, reintroduced import duty of 5% on steel, restored DEPB benefits, reduced excise duty to 8% for major part of the year, placed import of hot rolled coils on the ‘restricted list’ thus making them available to direct users only and withdrew countervailing duty on import of Thermo-Mechanically Treated (TMT) bars and structural. In order to ensure adequacy of availability of iron ore in domestic market, export duty on iron ore lumps has been increased from 5% to 10% and a 5% export duty has been imposed on iron ore fines to regulate the exports. The steel prices during the financial year 2009-10 have increased from the level prevailing in the quarter ended March 2009 driven primarily by the increase in the prices of input raw materials during the same period.

UK and European Steel Industry

In the EU, the apparent steel consumption dropped by around 35% during 2009. There was a decline of around 45% during the first half of 2009 driven by extremely weak activity in the steel using sectors and continuing sharp de-stocking. With the unprecedented drop in the activity levels, the production during 2009 reduced by around 20% over 2008 with sharp reduction experienced



particularly during the first half of the year. The market downturn began to level out in the second half of the year as business conditions began to improve slowly, supported by government stimulus measures and improvements in international trade. With imports dropping by around 47% as compared to 2008, stable and low level of stocks through the supply chain and reduced levels of domestic steel business, the EU steel market supply and demand became much better balanced by the quarter ending December 2009. The exports during 2009 are estimated to have reduced by around 9% and the EU was a net exporter in long products.

South East Asian Steel Industry

Preliminary assessment suggests that the steel consumption in the Association of South East Asian Nations (ASEAN) picked up significantly in the second half of 2009. However, the increase was not sufficient to offset the sharp drop in the consumption in the first half of the year. As a result, the ASEAN apparent steel demand for 2009 is around 42.3 million tones which is 8% lower than the last year.

Production of fl at products and long products during the year was stable at around 24.4 million tones. However imports and exports dropped significantly. Total imports reduced from 30 million tons in 2008 to 19.7 million tons in 2009 and exports dropped by 50% from 8 million tons in 2008 to 4 million tons in 2009.Consumption of Long Products recorded at 20.1 million tons in 2009, reduced by 4% as compared to 2008. The production declined to 16.4 million tons while exports dropped to 5.9 million tones. The demand for long products seemed to pick up fast and at 11.8 million tones in the second half of 2009, was close to the pre-crisis levels resulting in domestic producers benefitting from the demand growth.

SWOT ANALYSIS:



STRENGTH:

Strong brand name like Tata Steel & Corus Indian operation capable of meeting its own requirement Strong supply chain for raw material leading sales & distribution Low cost, high skilled labour

WEAKNESS:

To extrapolate the company’s position with the steel industry. Low R & D Investment Unscientific mining method Technologically backward Low productivity

OPPURTUNITY:

Unexplored rural markets Growing domestic market



Growing global market Carbon trade High investment in infrastructure sector

THREATS:

Major player entering Indian market China set to become a net exporter High duties and taxes from the government Environmental concerns & laws Global slowdown

MICHAEL PORTER ANAYLYSIS:Michael Porter had identified five competitive forces that shape every single industry and the market. These forces help in analyzing the industry from the intensity of competition to the probability and attractiveness of an industry.

Threat of new Entrants:

The easier it is for new companies to enter the industry, the more cut-throat competition there will be. Steel industry is highly capital intensive and is estimated that to set up 1 MTPA capacity of integrated steel plant, it requires around Rs. 30 billion of investment depending upon the location of the plant and technology used. The government follows a favorable policy for steel manufacturers but certain discrepancies involved in allocation of iron ore mines and land acquisition in India.

Bargaining power of suppliers:

If one supplier has large impact on the company’s margin and volume then it holds substantial power. In the steel industry the bargaining power of supplier is very low because the big players in the industry have their own mines for major raw materials. However, still a few companies have to depend up on suppliers for the raw materials.



Bargaining power of Buyer:

In the steel industry unlike the household goods market the buyers have a very low bargaining power. The only effort which can be done towards ensuring that the buyers are saved in the curb or ceiling laid by the government on the prices which can be charged by the companies on its product. However, most of the sale of steel is to the other industries or to through the distribution network and very less to the common man.

Competitive Rivalry:

In India the steel industry is dominated by a major few players only and the degree of competitive rivalry is very low as the demand is always more than the supply or the production of the companies. Threats of substitutes:

The presence of substitute products increases the propensity of customers to switch to alternatives. The usage of aluminum has been constantly growing in the automobile sector which used to be the major customer of the steel industry. However, because of the durability and other features of the steel, aluminum does not stand as a threat in the market

HISTORY OF TATA STEEL Formerly known as Tata Iron and Steel Ltd. (TISCO), TATA STEEL was registered in Bombay( now Mumbai) on August 26, 1907.It had an initial capacity of 1,60,000 tones of ingot steel,70,000 tones of rails, beams and shapes and 20,000 tones of bars, hoops and rods. It also had a power house, auxiliary facilities and a laboratory. In 1917, the company increased its steel Capacity to 5, 00,000 tons and introduced the Modern Duplex process of making steel. Since the company has continued to add new units and increase capacity.



In the 1980’s the company undertook in various phases an ambitious “Modernization Programme.”The first phase, betwee1981and1985, involved a total project cost of Rs 223 crores. This phase, among others saw the installation of two 130 ton LD converters, two 250 ton a day Oxygen Plants, a bar forging machine, two vertical twin shaft lime kilns and a tar-dolo brick plant. Significantly, a six-strand billet caster and a 130-tonne vacuum arc-refining unit were installed that too in the integrated steel plant.

The second phase (1985-1992) involved a project cost ofRs780crores. It saw for the first time in India coal injection in blast furnace and coke oven battery with 54 ovens using stamp-charging technology. A 0.3 MTPA 9million ton per annum) wire rod mill, a 2.5mtpa sinter plant, a bedding and blending plant and a waste recycling plant of 1 MTPA were installed.

The company recently commissioned its 1.2MT (million tone) capacity Cold rolling Mill Complex .At a project cost of Rs 1600 crores. This Four-Phase Modernization Programmed has enabled Tata steel to be equipped with the most modern steelmaking facilities in the world. As of today The Tata steel facility has a Hot Metal Capacity of 3.8MTPA, corresponding to a saleable steel Capacity of 3.4 MTPA.

In the fifth phase stress s laid on the utilization of the intellectual capabilities of the employees to generate sustainable value for the shareholders. Rather than create new personal assets, the focus has now shifted to how best to use those assets to get optimum value. The human resource management division of TATA STEEL has developed what is called the “mindset programme”.Which is designed to bring about an attitudinal change among the employees. The programme Seeks to inculcate in the employees self-awareness and a positive outlook.

In order to improve its performance further the company engaged the internationally reputed Consultants Mckinsey & Co, who suggested the Total Operational Performance(TOP) Enhancement Programme structured time bound, team-based programme, it uses the creativity and energy of the employees to increase output with the minimum investment and in the shortest possible time.

In 2005 Tata Steel acquired Singapore based steel company Nat Steel by subscribing to 100per cent equity of its subsidiary, NatSteel Asia. Tata Steel is rapidly expanding capacity and plans to produce 15MT of steel annually by 2010.It acquired Singapore’s NatSteel in August 2004. This has added 2 MT to its capacity. It is close to completing a 1 MT capacity expansion in its Jamshedpur plant. The expansion is scheduled to be completed by September 2005. In addition a 6 MT green field plant is to be developed in Kalinganagar, Orissa, India (to be commissioned in 2010) and another 2.4 MT capacity expansion will be taken up in Jamshedpur. After partnership with Corus Group, the combined entity will be the 6th largest steel producer and the 2nd most geographically diversified steel company in the World.



TATA IRON AND STEEL COMPANY LTD

FOUNDERS OF TATA STEEL

Jamshedji Nusserwanji Tata (1839 – 1904)

He was a visionary behind Tata Steel .He realized that India’s real freedom depended upon its self-sufficiency in scientific knowledge, power and steel, thus devoted the major part of his life, and his fortune to three great enterprises-The Indian institute of Science at Bangalore, the Hydro-electric schemes and the Iron & Steel Works at Jamshedpur .He envisaged and conceived a steel town to the very last detail, later to be named as Jamshedpur.

J.N. Tata had exhorted to his sons to pursue and develop his life’s work ; his elder son, Sir Dorabji Tata(1859-1933) carried out the bequest with scrupulous zeal and distinction .Thus , even though it



was Jamshedji Tata who had envisioned the mammoth projects, it was in fact Dorabji Tata who actually brought the ventures to existence and fruition. He was the first chairman of the gigantic Tata enterprises.

It was in 1907 that the village of Sakchi was discovered at the confluence of two rivers, Subarnarekha and Kharkhai and the railways station of kalimati .The Tata Iron and Steel Company was floated.

Sir Dorabji Tata (1859 – 1933)

Sir Dorabji Tata (1859-1933) carried out the bequest with scrupulous zeal and distinction.

Thus, even though it was Jamshedji Tata who had envisioned the mammoth projects, it was in fact Dorabji Tata who actually brought the ventures to existence and fruition. He was the first chairman of the gigantic Tata enterprises.

Bharat Ratna Jehangir Ratanji Dadabhai Tata (19041993)

J.R.D.Tata has been one of the greatest builders and personalities of modern India in the twentieth century.

He assumed Chairmanship of Tata Steel at the young age of 34, but his charismatic, disciplined and forward looking leadership over the next 50 years led the Tata Group to new height of achievement, expansion and modernization.

His style of management was to pick the best person for the job at hand and let him have the latitude to carry out the job. He was never interested for Micro- Management. It was he who zeroed in on Sumant Moolgaokar, the engineering genius who successfully steered our company for many years. He was a visionary whose thinking was far ahead of his time, which helped Tata Group launching its own



Airlines ,now known as Air India. He was awarded the country’s highest civilian honour, The Bharat Ratna in 1992.

RATAN NAVAL TATA

Ratan Navel Tata was born on December 28, 1937, in Surat. He is the present Chairman of Tata Group, India’s largest conglomerate founded by jamshedji Tata and consolidated and expanded by later generation of his family. He is one of the most well known and respected industrialists in India.

Tata was born into wealthy and famous family of Mumbai. His childhood was troubled as his parents separated in the mid 1940s, when he was about seven and his younger brother was five. His

mother moved out and both he and his brother were raised by his grandmother Lady Navarjbai.

Ratan Tata completed his degree in architecture with structural engineering from Cornell University in 1962, and the Advance management Program from Harvard Business School in 1975. He joined the Tata Group in December 1962 on the advice of JRD Tata. He was first sent to Jamshedpur to work at Tata steel. He worked on the floor with the other blue collar employees, shoveling limestone and handling the blast furnaces. He was appointed the Director In Charge of The National Radio & Electronics Company Limited (Nelco) in 1971 and was successful in turning Nelco around.

IN 1981, he became the chairmen of Tata industries and was instrumental in ushering in a wide array of reforms. It was under his stewardship that Tata consultancy services went public and Tata Motors was listed in the New York stock Exchange.

On the occasion of India’s 58th Republic day on 26 January, 2000, Ratan Tata was honoured with the padma Bhushan, the third highest decoration that might be awarded to a civilian.

His recent achievements have been the acquisition of Corus Group, and Anglo-Dutch steel and aluminium producer. This acquisition has made Tata steel the fifth largest producer of steel in the world.

TATA STEEL: AN ORGANISATIONAL PROFILE



Established in 1907, Tata Steel is Asia's first and India's largest private sector steel company. Tata Steel is among the lowest cost producers of steel in the world and one of the few select steel companies in the world that is EVA+ (Economic Value Added).

Tata Steel has operations in 10 countries and maintains a strategic presence in select Geographic’s through exports.

GROWTH AND GLOBALISATION

Jamshedpur, India -

5 million tons per annum, slated to reach 7 MTPA in 2008&10 MTPA by 2011.

Partnership with Corus

On partnership with Corus group, the combined entity will be the 6th largest steel producer and the 2nd most geographically diversified steel company in the world.


http://www.tatasteel.com/careers/profile.htm#TOP


Nat steel Asia Singapore

2 million tons; Singapore, China, Vietnam, Thailand and three other South East Asian countries.

Tata Steel, Thailand-

1.7 million tons Limestone mining in Thailand. Low ash coal in Australia.Wire manufacturing unit in Sri Lanka known as Lanka special steel captive raw material resources in India give it a competitive advantage.

Other Projects:

India

1.2 MTPA Metcoke project in West Bengal

Deep sea port in Dhamra, Orissa

Titanium Dioxide project in Tamil Nadu

Joint Venture with BlueScope Steel for metallic coating and painting steel unit

Overseas:

Development of a source of low ash coal from Queensland, Australia



Ferro Chrome production in Richards Bay, South Africa

SOME MAJOR BRANDS

Tata Steelium: This is world’s first branded Cold Rolled Steel product.

Tata Shaktee: Galvanized corrugated sheets.

Tata Tiscon: Re-bars

Tata Pipes: It is the most valued brand in plumbing segment.

Tata agrico: It caters to the equipment needs of the farming, mining &construction.



Agrico: Tata Agrico products are the most sought after hand tools and implements for agriculture and industrial application in the country.

Tata Bearings: It has made deep inroads in the highly competitive auto market.

Tata Wiron: It services requirements in a wide gamut of industries including automotive, agriculture, fencing and power.



Tata Galvano: Galvano is galvanized plain (GP) steel offering available in sheet & coil forms for all customer segments like white goods , panels, bus bodies etc. Galvano offers commitment to deliver high performances to meet diverse and stringent needs of the General Engineering Segment.

Subsidiary / Associates / JVs

The Tinplate Company of India Ltd: 35% market share in industry.

Tayo Rolls Ltd: Country's leading roll manufacturer and supplier

Tata Sponge Iron Ltd: Has an installed capacity of 240,000 tons



Tata Metalliks Ltd: Among the top wealth creators in the country.

Tata Pigments Ltd: Produces synthetic iron oxide pigments.

Jamshedpur Injection Powder Ltd: Produces 15,000 tonnes of desulphurising compounds per annum.

TM International Logistics Limited: Services include material handling and port operations.

Indian Steel and Wire Products: Comprises a wire unit and a steel rolling manufacturing unit



Metal junction.com: Provides e-business services and solutions to Indian Industry.

Dhamra Port : Deep drafted port project, a 50:50 JV between Tata Steel and L&T.

TRF Ltd: An engineered-to-order equipment and systems provider.

Jamshedpur Utility and Service Company :The country's first municipal and civic services enterprise.

Tata BlueScope : Metallic coating and painting facility.\

ASSOCIATES & SUBSIDIARIES- Overseas



Lanka Special Steel Limited: A wholly owned subsidiary it is the only unit in Sri Lanka manufacturing galvanized wires

Sila Eastern Company Limited: A 49% joint venture to undertake development of limestone mines in Thailand.

NatSteel Asia Singapore: Presence in six countries in S E Asia and China, mainly long products

Millennium Steel, Thailand: Long products rolling.

Tata NYK: A 50:50 JV for shipping dry, bulk and break bulk cargo.



Corus: Now a part of Tata Steel Group. It manufactures processes and distributes metal products as well as provides design, technology and consultancy services.

Introduction

OF



TATA STEEL LIMITED



COMPANY PROFILE

Type Private

Industry Conglomerate

Founded 1868

Founder(s) Jamsedji Tata

Headquarters Bombay HouseMumbai, India

Area served Worldwide

Key people Ratan Tata(Chairman)

Products SteelAutomobiles


http://en.wikipedia.org/wiki/File:Tata_logo.svg


TelecommunicationsPowerIT Services/ITESHotelsConsumer goodsRetailAgricultureFinancial servicesDefenseChemicalsHospitalityEngineeringBeveragesConstructionAerospacePharmacy

Revenue $67.4 billion (2009-10)

Profit $1.74 billion (2009-10)

Total assets $52.8 billion (2009-10)

Employees 396,517 (2009-10)

Subsidiaries Tata SteelTata Steel EuropeTata MotorsTata Consultancy ServicesTata TechnologiesTata TeaTitan IndustriesTata PowerTata Communications



Tata TeleservicesTaj HotelsTata ChemicalsTata Global Beverages

An overview of the company

TATA Steel has been ranked at the top of the Nielsen’s corporate image monitor study followed by TATA Motors.The world’s most admirable companies 2011, published by Fortune Magazine, ranks TATA steel on 6th position in metal industry category.

Tata Steel, formerly known as TISCO (Tata Iron and Steel Company limited), is the world’s seventh largest steel company, with an annual crude steel capacity of 30 Million Tons 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 turnover of Rs.102,393 crores during the year ended March 31st, 2010. Its main plant is located at Jamshedpur in Jharkhand. With its acquisition of the Corus, Nat Steel and Millennium Steel it has become a multinational company with operations in various countries. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. It is the world’s second most geographically diversified steel producer. Also it is the world’s lowest cost producer of steel with shareholder base of 800,000 people and an employee strength over 81,000 across 5 continents.

The registered office of Tata Steel is in Mumbai. The company is listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Tata Steel is backed by 100 glorious years of experience in steel making with its establishment in 1907.

Performance after global economic downturn

Following two years of the worst global economic downturn, The growth rates in the economies of the developed world are still extremely moderate, while countries in the developing world have registered high levels of economic growth and some have become new centres of global capacity, demand and control over natural resources. In 2025, it is forecast that the BRIC countries will have 42% of the global population, will consume 60% of the global production and will have 70% of the global GDP.



The steel industry has also been impacted by these global shifts. The requirement of steel is growing in Asia, where downstream user industries are experiencing high demand, whereas the markets for steel in the United Kingdom and Continental Europe have remained depressed.

Through these difficult times, Tata Steel has struggled to adhere to its long-term strategies, both in India and overseas. There has nevertheless been need to re-schedule and re-prioritise investment strategies in consonance with market conditions during this period. In India, the Company has given top priority to the 2.9 million tone expansion programme at its Jamshedpur Works and its major Greenfield 6 million tone integrated steel plant in Orissa. Tata Steel Asia has steelmaking and finishing facilities in various Asian countries (including India) aggregating 10.5 million tons. Equal importance has been given to raw material security through the acquisition of iron ore and coal resources overseas to feed its UK and European plants, while rationalizing capacities to make them viable in this period of slack demand.

While Tata Steel’s Indian operations have remained profitable, albeit at a lower level than the previous year, Tata Steel’s European operations remained underutilised and hence unprofitable. However, with the rationalization, the European operations have become EBITDA positive for the last two quarters of 2009-10. The benefits of the rationalization will of course be more evident in 2010-11.

In the coming years, Tata Steel expects to emerge as a global steel producer with a total annual output of between 40-50 million ton, with major manufacturing plants in India, several countries in Asia, the UK and Continental Europe, supported by integrated mining operations in several geographies.


“Steel has been and willbe, the basic foundation

material for nationalgrowth and the

industry will continueto be an important

ingredient in a globaleconomic recovery.”

Ratan N. Tata, Chairman


MANAGEMENT OF TATA STEEL

Board of DirectorsMr. Ratan N. Tata Chairman

Mr. B. Muthuraman Vice Chairman

Mr. Nusli N. Wadia Company Director

Mr. Iahaat Hussain Board Member

Mr. Subodh Bhargava Board Member

Mr. Jacobus Schraven Non-Executive Independent Director

Dr. Jamshed J. Irani Board Member

Mr. Andrew Robb Non-Executive Independent Director

Mr. S. M. Palia Company Director

Mr. Suresh Krishna Financial Institutions Nominee

Mr. Kirby Adams Managing Director & CEO, Tata Steel Europe

Mr. H.M. Nerurkar Managing Director, Tata Steel Limited

Tata Steel Group Senior ManagementH.M. Nerurkar Managing Director, Tata Steel Limited

Kirby Adams Managing Director & CEO, Tata Steel Europe

Dr. Karl,Ulrich Kohler Chief Operating Officer, Tata Steel Europe

Koushik Chatterjee Group Chief Financial Officer

Jean Sebastien Jacques Group Director (Strategy)

Manzer Hussain Group Director (Communication)

Kees Gerretse Group Director (Procurement)

Avneesh Gupta Group Director (Total Quality Management)

Dr. Debashish Bhattacharjee Director (Research, Development and Technology)

Andrew Page Director (Health and Safety)

Dr. Paul Brooks Director (Environment)



Shreekant Mokashi Chief (Group Information Services)

Uday Chaturvedi Managing Director, Corus Strip Products UK, TSE

Anand Sen Vice President (TQM and shared services) TSL

Frank Royle Director (Finance) TSE

AbanIndra M. Misra Vice President (Coke, Sinterand Iron and IR) TSL

Theo Henrar Managing Director, Corus Strip Products I Jmuiden, TSE

Varun Jha Vice President (Engineering and Chhattisgarh Project) TSL

Tor Farquhar Director (Human Resource) TSE

Radhakrishnan Nair Chief Human Resource Officer, TSL

Adriaan Vollebergh Managing Director, Tata Steel International, TSE

Partha Sengupta Vice President (Raw Material) TSL

Hridayeshwar Jha Vice President (Orissa Project) TSL

Alastair Altken Managing Director (Distribution, UK and Ireland) TSE

N.K. Misra Group Head (Mergers and Acquisitions) TSL

Dook van den Boer Manufacturing Director (Corus Strip Products IJmuiden) TSE

Sanjeev Paul Vice President (Corporate Services) TSL

Vision, Mission, Value and Goal

Our Vision

Our vision is to be the global steel industry benchmark for value creation and corporate citizenship.

We will achieve our vision through:

Our conduct By fostering teamwork, nurturing talent, enhancing leadership capability and working together with pace, pride and passionOur offer By developing leading-edge solutions in technology, processes and productsOur people By becoming the supplier of choice, delivering premium products and services, and creating value in close partnership with our customersOur innovation



By providing a safe and healthy workplace, respecting the environment, caring for our communities and demonstrating high ethical standards.

Our Mission

Consistent with the vision and values of the founder Jamshedji Tata, Tata Steel strives to strengthen India’s industrial base through the effective utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices.

Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.

Overall, the Company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear, and thereby reaffirms its faith in democratic values.

Our values

The Tata Group has always been driven by five core values:

Integrity

We must conduct our business fairly, with honesty and transparency.

Everything we do must stand the test of public scrutiny.

Understanding

We must be caring, show respect, compassion and humanity for our

colleagues and customers around the world, and always work for the

benefit of the communities we serve.

Excellence

We must constantly strive to achieve the highest possible standards in our

day-to-day work and in the quality of the goods and services we provide.

Unity



We must work cohesively with our colleagues across the group and with

our customers and partners around the world, building strong

relationships based on tolerance, understanding and mutual cooperation.

Responsibility

We must be responsible and responsive to the countries, communities and

environments in which we work, always ensuring that what comes from

the people goes back to the people many times over.

Our Goals

Move from commodities to brands

To beat the industry trend in a situation of over-supply they need to move away from selling commodities by converting them into brands.

EVA Positive Core Business

At the present level of investment, they require a PBT of Rs. 800 to 1000 Cr (at MAT level of taxation the PBT requirement is at Rs. 800 Cr ) to become EVA positive .they expect to complete this journey in about 3 year’s time.

Continue to be lowest cost producer of steel

They required the status of the lowest cost producer of steel in 2001.the world outside is, however, changing fast and the lowest cost status is constantly under threat from new technologies, currency depreciation in other countries, cost escalation of raw material inputs, energy and labour etc. Maintaining the world benchmark will be one of the greatest challenges for the core steel business.

Value creating partnership with customers and supplier.

They hope to build the new business models by forging alliances with their customers and supplier to strengthen the value chain helping them to reduce the system costs, improve service levels, reach and offer new products and services.



Enthused & Happy employees

They aim to accelerate their efforts to provide a work environment that will ensure a sense of purpose and personal growth for individual. They wish to see the smile on every face every day.

Sustainable Growth

They wish to grow but intend to temper their ambitions for growth with financial prudence to ensure a long-term sustainable future.

PRODUCT PORTFOLIO:

LONG PRODUCTS

Wire rod mill. Bar mill. Merchant mill



Flat products:

Hot strip mill. cold rolling mill



Over the years, the Tata Steel Group has placed a continuous emphasis on improving processes, with a view to consistently increasing efficiencies, enhancing quality and thereby achieving better performance benchmarks in all areas. The Group’s brand building endeavors have always been directed at building assurance, reliability and value creation for products in every segment.

ConstructionDesigning solutions to serve all sectors including residential, non-residential and infrastructure, including applications such as structural steelwork and building envelopes (cladding and roofing).

AutomotiveBody-in-white, closures, chassis and suspension, seating and interior, power train wheels and tyre bead wire.

AerospaceLanding gear, engine and rotor shafts, engine fan casings and blades, structural pylons, slat and flap tracks. High integrity gear steels for planes, helicopters and motor sport applications.

Consumer GoodsDomestic appliances, lighting, furniture and office equipment, racking and shelving, battery cases, bake-ware, enamel-coated applications, decorative pre-finished metals plus many others.

Materials Handling



Construction and earth-moving, forklift trucks, mining (e.g. roof supports, drills, crushers, screeners

and conveyors), cranes, trailers, forestry equipment and agricultural equipment.

Energy and PowerSubmerged arc-welded pipe for the global oil and gas industry, plate for use in wind turbines, structural systems for the solar power industry, plus a range of structural, electrical and specialty engineering steels used in power generation and transmission.

RailRails for high-speed lines, conventional and heavy loaded tracks, special rails for metro and tramways, as well as for switches and crossings. Steel sleepers and track accessories, modular platforms and tuned dampers for noise reduction.

Engineering :

General Engineering: Tata Steel manufactures a range of steel products, encompassing hot rolled and cold rolled sheets, wire rod and wire, sections, plate, bearings and tubes, which serve a multitude of small engineering companies in Europe, South Asia and South East Asia.



Agricultural Tools and Implements: Tata Steel manufactures a range of high quality agricultural implements making it the first choice in India’s rural markets. Its wire products find their way into farming, poultry and fencing applications.

Engineering Services, Plant and Equipment: A multi-disciplinary engineering approach for the design, manufacture and supply of high precision equipment is offered to various industry sectors. Services range from routine testing, erection and commissioning to full business consulting.

ShipbuildingWide range of vessels including cruise liners, off shore support vessels, ferries, container ships and aircraft carriers.

Packaging:Consumer: Light metal packaging for food and beverages cans as well as for paint and aerosols.

Industrial: Steel for drums, industrial bulk containers and gas bottles .

Security and Defense:Blast protection structures, blast containment structures, physical perimeter security applications, redeployable vehicle barriers, bollards, walls and security solution designs.

AWARDS, RECOGNITIONS AND CERTIFICATIONS

Corporate Awards The rating of being one of the world’s top ten “Most Admired Companies” by FORTUNE

Magazine and the Hay Group in the Industry-Metal category.



The Economic Times Company of the Year Award. The Best Establishment Award by the President of India, Mrs. Pratibha Devi Singh Patil. The Superbrand Award to Tata Tiscon. Company with Highest Corporate Image by Nielsen

.

Awards for Excellence in Knowledge The Most Admired Knowledge Enterprise (MAKE) Asia Award 2009 for the sixth time. The Fifth BML Munjal Award for Excellence in Learning & Development.

Awards for Excellence in Corporate Social Responsibility (CSR) The Golden Peacock Global Award. The Significant Achievement in Sustainability certification from CII-ITC. The TERI CSR Award. The UKTI India Business Award. The Times of India CSR Award. The Ashtray Khel Protsahan Puraskar. The Ispat Paryavaran Puraskar Special Award. The Xiamen City Top Employers’ Award to NatSteel Xiamen for the second time. The Outstanding Award for Employee Relations & Welfare 2009 to Siam Industrial Wires

(SIW), Thailand. The Good Governance for Environment in the Factory and Enterprise Award to SIW. The Corporate Social Responsibility – Department of Industrial Work Award to SIW.



The Green Star Award from the Industrial Estate Authority of Thailand (IEAT) to Siam Construction Steel Company (SCSC).

WORKING CAPITAL

MANAGEENT



WORKING CAPITAL MANGEMENTDefinition

“Working capital is an excess of current assets over current liabilities. In other words, the amount of current assets which is more than current liabilities is known as Working Capital. If current liabilities are nil then, working capital will equal to current assets. Working capital shows strength of business in short period of time. If a company have some amount in the form of working capital, it means Company have liquid assets, with this money company can face every crises position in market. "In other words it is also known as the cash available for the day to day operation of the organization.

FORMULA OF WORKING CAPITAL

Working Capital = Current Assets - Current Liabilities

Current AssetsCurrent assets are those assets which can be converted into cash within One year or less than one year . In current assets, we include cash, bank, debtors, bill receivables, prepaid expenses, outstanding incomes.

Current LiabilitiesCurrent Liabilities are those liabilities which can be paid to respective parties within one year or less than one year at their maturity. In current liabilities, we includes creditors, outstanding bills, bank overdraft, bills payable and short term loans, outstanding expenses, advance incomes .

NEED AND OBJECTIVES OF WORKING CAPITAL

For the purchase of raw materials To pay wages and salaries To ensure day to day overhead costs such as fuel ,power ,office and expenses. To meet selling costs such as packaging and advertising expenses. To provide credit facilities to the customers



To maintain the inventories of raw materials ,work in progress and finished goods

Type of Working Capital

There are following types of Working Capital are:1. Gross working capitalTotal or gross working capital is that working capital which is used for all the current assets. Total value of current assets will equal to gross working capital.2. Net Working CapitalNet working capital is the excess of current assets over current liabilities.Net Working Capital = Total Current Assets – Total Current Liabilities This amount shows that if we deduct total current liabilities from total current assets, then balance amount can be used for repayment of long term debts at any time.3.Permanent Working CapitalPermanent working capital is that amount of capital which must be in cash or current assets for continuing the activities of business.4. Temporary Working CapitalSometime, it may possible that we have to pay fixed liabilities, at that time we need working capital which is more than permanent working capital, then this excess amount will be temporary working capital. In normal working of business, we don’t need such capital.

Sources of Working Capital:

1. Net Income2. Long Term Loan 3. Sales of Capital Asset4. Injection of Fund by Stockholders .

Component: 1. Cash

2. Marketable Securities

3. Receivables


http://www.svtuition.org/2009/08/meaning-and-explanation-of-debt.html


4. Inventory

IMPORTANCE OF ADEQUATE WORKING CAPITAL

Solvency of the business Goodwill Cash discounts Regular supply of raw materials Ability to face crisis High morale Easy loans

FACTORS INFLUENCING WORKING CAPITAL

Nature of the business Size of the business Seasonality of operation Production policy Credit policy Working capital cycle/operation cycle Business cycle Price level changes Growth and expansion Scarce availability of raw materials

Principles of Working Capital

There are four principle of working Capital management. They are being depicted as follow:

1. Principle of Risk Variation: The goal of working capital management is to establish a suitable trade between profitability and risk. Risk here refers to a firm’s ability to honour its obligation as and when they become due for payment. Larger investment in current assets will lead to dependence. Short term borrowing increase liquidity, reduces risk and thereby decrease the opportunity for gain or loss. On the other hand the reverse situation will increase risk and profitability and reduce liquidity thus there is direct relationship between risk and profitability and inverse relationship between liquidity and risk.

2. Principle of cost capital: The various source of raising Working capital finance have different cost of capital and the degree of risk involved. Generally higher the cost lower the



risk, lower the risk higher the cost. A Working Capital Management Should always try to achieve the balance between these two.

3. Principle of equity position: The principle is considered with planning the total investment in current assets. As per the principle the amount of Working Capital investment in each component should be adequately justified by a firm equity position every rupee contributed current assets should contribute to the Net Worth of the firm level of current assets may be measured with help of two ratios.They are:Current Assets as a percentage of Total Assets.Current Assets as a percentage of total Sales.

4. Principle of Maturity Payment: This principle is considered with planning the source of finance for Working Capital. As per this principle a firm should make every effort to relate maturity of its flow of internally generated funds in other word it should plan its cash inflow in such way that it could easily cover its cash out flows or else it will fail to meet its obligation in time.

Excess or inadequate working capital management

Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant nor excess working capital or inadequate of working capital. Both excess as well as short working capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm.



DATA ANALYSIS OF TATA STEEL

NET WORKING CAPITALCURRENT ASSETS 2005-06 2006-07 2007-08 2008-09 2009-10

stores and spares 442.66 505.44 557.67 612.19 623.76

stock in trade 1,732.09 1,827.54 2,047.31 2,868.28 2,453.99



sundry debtors 539.40 631.63 543.48 635.98 434.83

interest accrued on investment 0.20 0.20 0.20 0.00 0.29cash and bank balances 288.39 455.41 465.04 1,590.60 3,234.14loans and advances 1,234.86 3,055.73 3,022.62 4340.43 3554.14

TOTAL (A) 4237.60 6475.95 6636.32 10047.5 10301.15

CURRENT LIABILITIES sundry creditors 2,534.03 3,145.99 3,243.42 3,842.78 4,086.65

subsidiary companies 62.37 102.61 115.74 1,358.12 1,514.30

interest accrued but not due 24.29 47.11 231.05 506.68 676.66

advances received from the customers

185.07 198.28 226.03 297.37 334.99

liability towards investors education and protection fund

30.23 29.21 39.02 34.91 40.49

provision for retiring gratuities 0.81 49.31 0.00 0.00 0.00

provision for employee benefits 0.00 470.19 848.54 1,143.08 1,127.50

provision for taxation 250.04 448.68 854.74 493.59 507.13provision for fringe benefits 2.37 18.37 19.12 19.12 2.12proposed dividend 719.51 943.91 1,191.12 1,278.40 709.77

TOTAL (B) 3,808.72 5,453.66 6,768.78 8,974.05 8,999.61

NET WORKING CAPITAL (A-B) 428.88 1,022.29 -132.46 1073.48 3,247.08(Figures are in Rs. Crores)

Net Working Capital = Current Assets-Current Liabilities

*Note: Current Assets for 2007-08, exclude the loan amount Rs. 3022.62 Cr. for the acquisition of Corus and cannot be used for day to day expenses, so it is excluded

Graph showing Current Assets, Current Liabilities and Net Working Capital



2005-06 2006-07 2007-08 2008-09 2009-10

Current Asset 4237.6 6475.95 6636.32 10047.5 10301.15

Current Liability 3808.72 5453.66 6768.78 8974.04999999998

8999.61

Net Working Capital 428.88 1,022.29 -132.46 1,073.48 3,247.08

-1000

1000

3000

5000

7000

9000

11000

428.881,022.29

-132.46

1,073.48

3,247.08

Net Working Capital

PERCENTAGE CHANGE IN WORKING CAPITAL

CURRENT ASSETS 2005-06 2006-07 2007-08 2008-09 2009-10

stores and spares 26.81 14.18 10.33 9.78 1.89

stock in trade 13.70 5.51 12.03 40.10 -14.44

sundry debtors -7.29 17.10 -13.96 17.02 -31.63

cash and bank balances 16.89 2,563.53 -93.95 242.04 103.33

loans and advances -10.68 147.46 1.08 -30.36 20.13

TOTAL (A) 3.77 223.34 -74.75 278.58 19.07

CURRENT LIABILITIES

sundry creditors 9.23 24.15 3.10 18.48 6.35subsidiary companies 7.35 64.52 12.80 1,073.42 11.50interest accrued but not due -71.47 93.95 390.45 119.29 33.55

advances received from the customers

-7.24 7.14 14.00 31.56 12.65

liability towards investors 11.51 -3.37 33.58 -10.53 15.98



education and protection fund provision for retiring gratuities -88.04 5,987.65 0.00 0.00 0.00

provision for employee benefits 0.00 0.00 63.34 34.71 .014

provision for taxation -11.92 79.44 90.50 -42.25 2.74

provision for fringe benefits 0.00 675.11 4.08 0.00 -88.91

proposed dividend 0.00 31.19 26.19 7.33 -44.48

TOTAL (B) 2.94 43.19 638.04 1232.01 -50.61

InterpretationIn 2009-10, net working capital increased by 147% compared to previous year. It is because of increase in cash and bank balances and loans and advances in current assets side. But there is no significant increase in current liability side. Also Tata steel reduced the proposed dividend to Rs. 709.77 Cr. from Rs. 1,278.40 Cr. of Previous Year.

During FY 10, inventory decreased by 14% compared to FY 09. Purchase of finished and semi-finished products was much lower compared to previous year as requirements of Agrico and Wires Division were fully met from steel works in the FY 10 as against partial purchases from outside suppliers/imports in the previous year. Non purchase of sponge iron also contributed to lower value of purchase of finished and semi-finished products.

While the stock of stores and spares as on 31st March, 2010 remained almost at the same level as on 31st March, 2009, the inventories of finished, semi-finished goods, scrap and raw materials was lower by 14% than that of last year. The raw materials inventory was also lower due to lower prices of coal and coke along with lower volume of coke. The raw material Stocks in The Company’s Ferro Alloys & Minerals division was also lower than the last year level.Debtors as on 31st March, 2010 was lower by 32% as compared to 31st March, 2009 primarily due to stringent credit control measures and lower exports.

The increase of Rs. 939 cr. in loans and advances represents increase in advance against equity (to Centennial Steel) and advances to subsidiary companies (to Tata Steel KZN) partly offset by reduction in the amount receivable against forward covers.

FINANCIAL RATIOSWorking Capital Turnover Ratio:



Ratio that shows the number of times the working capital is converted into revenue in an accounting period, or how efficiently the management is using its working capital to generate sales Revenue.

Working Capital Turnover Ratio = Net Sales / Net Working Capital.

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10NET SALES 15,139.39 17,552.02 19,693.28 24,315.77 25,021.98NET WORKING CAPITAL 428.88 1022.29 -132.46 1073.48 3,247.08WORKING CAPITAL TURNOVER RATIO 35.30 17.169 -148.67 22.65 7.71

2005-06 2006-07 2007-08 2008-09 2009-10

-160

-140

-120

-100

-80

-60

-40

-20

0

20

4035.3

17.169

-148.67

22.65 WORKING CAPITAL TURNOVER RATIO;

7.71

WORKING CAPITAL TURNOVER RATIO

Interpretation

Working capital turnover ratio has been decreased to 7.71 times in 2009-10 compared to 22.65 in 2008-09. Decrease in working capital turnover is because of the increase in net working capital. The reason for increase in net working capital is the increase in cash and bank balances and loans and advances. Reduction in working capital turnover is not a good sign. Tata Steel has a huge increase in working capital turnover in 2008-09 but could not keep the momentum to FY 10.

Current Ratio: A liquidity ratio that measures a company ability to pay Short term obligations.Current Ratio = Current Assets/Current Liabilities



PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

CURRENT ASSETS 4,237.60 6475.95 6636.32 10047.50 10301.15

CURRENT LIABILITIES 3,808.72 5453.66 6,768.78 8,974.05 8,999.61

Current Ratio 1.11 1.187 0.98 1.119 1.144

2005-06 2006-07 2007-08 2008-09 2009-100.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

1.11 1.187 0.98 1.119 1.14399999999999

Current Ratio

CURRENT ASSETS CURRENT LIABILITIESCurrent Ratio

Interpretation:

The Financial position is supposed to be very sound if the current ratio is more than 2:1 . In 2006 to 2007 Tata steel has improved its financial soundness as the current ratio is 1.18 which is higher as compared to previous years. It is observed that the company has met the crucial period during 2005 to 2006 when the current asset was almost equal to its current liability which is 1.11 this is because of low market and depression in the economy throughout the Country.

Quick Ratio: An indicator of company Short term liquidity. The quick ratio measures a company’s ability to meet its Short term obligations with its most liquid assets. The higher the Quick Ratio, the better the position of the company.Quick Ratio = (Current Assets - Inventory) / Current Liability



PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10CURRENT ASSETS 4,237.60 6475.95 6636.32 10047.5 10301.15

STOCK IN TRADE 1,732.09 1,827.54 2,047.31 2,868.28 2,453.99

CURRENT LIABILITIES 3,808.72 5,453.66 6,768.78 8,974.05 8,999.61QUICK RATIO 0.66 0.85 0.68 0.80 0.871

2005-06 2006-07 2007-08 2008-09 2009-10

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

0.660000000000006

0.850000000000001 0.68 0.8

0.871000000000005

Quick Ratio

CURRENT ASSETS STOCK IN TRADECURRENT LIABILITIESQUICK RATIO

Interpretation:

Higher the ratio the better is the capacity of business to meet its current obligations. In 2009 to 2010 the liquid ratio of Tata steel is 0.87 which is aprox to standard 1:1. In 2006 to 2007 the quick ratio is 0.85 which is also near to standard value 1 and hence during 2006 to 2007 and 2009 to 2010 company can meet with its short term obligations. It is also seen that 2005 to 2006 the liquid position of company was affected due to sufficient financing arrangement for CORUS acquisition.

Stock Turnover Ratio: A ratio showing how many times a company inventory is sold or replaced over a period.Stock Turnover Ratio = Cost of Goods Sold / Average StockAverage Stock = Opening Stock +Closing Stock /2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

COST OF GOODS SOLD 10,101.42 11,571.94 13,183.05 18759.7 17140.09



AVERAGE STOCK 1,627.72 1,779.82 1,937.43 2,457.80 2,661.14

STOCK TURNOVER RATIO 6.21 6.50 6.80 7.63 6.44

2005-06 2006-07 2007-08 2008-09 2009-100.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.00

20,000.00

6.21 6.5 6.8 7.63 6.44

Stock Turnover Ratio

COST OF GOODS SOLD AVERAGE STOCK STOCK TURNOVER RATIO

Interpretation:

Stock turnover ratio evaluates the efficiency of the firm in managing its inventory. This ratio indicates the number of times inventory has been converted into sales during the year. Tata Steel shows a constant increase in stock turnover till 2008-09. Stock turnover of 7.63 is good in terms of liquidity. It shows the efficient management of inventory. Turnover of 6.44 times in 2009-10 is also a good value as it is above 6, but it is less than 7.63.There is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, any major weakness has not been observed in such internal control system.

Debtors Turnover Ratio:-

Debtor turnover ratio indicates the velocity of debt collection of firm. In simple words it indicates the number of times average debtors (Receivable) are turned over during year.Debtor Turnover Ratio = Net Sales / Average DebtorsAverage Debtor = Opening Debtor +Closing Debtor /2



PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

NET SALES 15,139.39 17,552.02 19,693.28 24,315.77 25,021.98AVERAGE DEBTORS 560.61 585.52 587.56 589.73 535.41DEBTOR TURNOVER RATIO 27.01 29.98 33.52 41.23 46.73

2005-06 2006-07 2007-08 2008-09 2009-100.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

27.01 29.98 33.52 41.23 46.73

Debtor Turnover Ratio

NET SALES AVERAGE DEBTORS DEBTOR TURNOVER RATIO

Interpretation:-

Debtor turnover ratio indicates the time lag between credit sales and cash collection period. Debtor turnover ratio of 46.73 times in 2009-10 means Tata Steel collects the cash immediately after giving the delivery i.e., 7.8 days after the sales on an average. It is a marvelous turnover many companies dreaming to achieve. It increases the cash balance of the company and keeps the liquidity. Another fact is, debtor turnover ratio is increasing continuously last 5 years. It is an indication of stringent collection methods followed by Tata Steel. Also, they keep only a small portion that is around 4% as provision for bad debts.

Payables Turnover Ratio:

A short term liquidity measures used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking total purchase made from suppliers and dividing it by the average account payable amount during the same period.Payables Turnover Ratio = Net Credit Purchase / Average CreditorsAverage Creditor = Opening creditor +Closing creditor / 2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

NET CREDIT PURCHASE 3,953.06 4,993.95 4,971.88 8,110.97 8,521.25



AVERAGE CREDITORS 1,878.05 2,118.06 2,535.79 2,981.99 3,964.72PAYABLES TURNOVER RATIO 2.10 2.36 1.96 2.72 2.15

2005-062006-07

2007-082008-09

2009-10

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2.10 2.36

1.96

2.72

2.15

Payables Turnover Ratio


(Note*- All purchases are assumed as credit purchase. Iron ore is excluded as it is obtained from captive mines)Interpretation:

Payables turnover ratio of Tata Steel is an exceptional case. It is just slightly greater than two times. This shows that they pay creditors only two times in a year. They manage this turnover for last five years. It helps them to keep the cash with them for a long period and it can be used for other activities. The study understands the liquidity strength of Tata Steel when the payables turnover is read along with debtor turnover. Debtor turnover is around 40 times in a year and payables turnover is only two times! It clearly shows the competitive advantage Tata Steel has over its suppliers and customers.

OPERATING CYCLE

Gross Operating Cycle (GOC) = RMCP + WIPCP + FGCP + DCPNet Operating Cycle (NOC) = GOC - CDP

ITEMS 2005-06 2006-07 2007-08 2008-09 2009-10

raw material conversion period

raw material consumption 2,639.17 3,419.46 3,841.87 5709.91 5494.74

raw material consumption per day 7.33 9.50 10.67 15.86 15.26

raw material inventory 1,627.72 1,779.82 1,937.43 2868.28 2453.99RMCP ( Raw Material Conversion Period )

222.03 187.38 181.55 180.84 160.81



work in progress

cost of production 8,058.75 9,442.89 10,309.50 18698.21 17124.82

cost of process per day 22.39 26.23 28.64 51.93 47.56

work in progress inventory 28.18 26.44 50.21 73.17 158.65WIPHP ( Work in Progress Conversion Period )

1.26 1.01 1.75 1.40 3.33

finished goods

cost of goods sold 10,101.42 11,571.94 13,183.05 18759.7 17140.09

cost of goods sold per day 28.06 32.14 36.62 52.11 47.61finished goods inventory 943.92 1,039.35 1,076.18 1141.40 1361.85FGCP ( Finished goods Conversion Period )

33.64 32.33 29.39 21.90 28.60

collection period

credit sales at cost 15,139.39 17,552.02 19,693.28 24,315.77 25,021.98sales per day 42.05 48.76 54.70 67.54 69.51

debtors 560.61 585.52 587.56 589.73 535.41DCP ( Debtor Collection Period ) 13.33 12.01 10.74 8.73 7.70

creditors deferral period

credit purchase 3,953.06 4,993.95 4,971.88 8,110.97 8,521.25

purchase per day 10.98 13.87 13.81 22.53 23.67creditors 1,878.05 2,118.06 2,535.79 2,981.99 3,964.72CDP ( Creditor Deferral Period ) 171.03 152.69 183.61 132.35 167.50

GROSS OPERATING CYCLE 270.26 232.73 223.43 212.87 200.44NET WORKING CYCLE 99.23 80.05 39.82 80.52 32.94

Interpretation From 2005-06, Tata Steel has been reducing the Raw Material Holding Period. It is a clear

indication of efficiency of inventory management techniques Tata Steel follows. RMHP was reduced from 222.03 days in 2005-06 to 145.08 days in 2009-10.

Work in Progress Holding Period (WIPHP) is maintained below 2 days till 2008-09 which is very good. This shows that there were no stoppages in the production process. Increase in WIPHP in 2009-10 is because of the increase in work in progress.

Finished Goods Holding Period (FGHP) has been reducing constantly from FY 2006 to 2010. It is achieved by efficient supply chain management and good relationship with customers and dealers.

Debtors Collection Period is also decreasing and it has come down to 7.70 days in FY 2010. It shows the prompt collection policy of Tata Steel from its customers.



Creditors Deferral Period is at 167 days during FY 2010 which implies that company pays the creditors after 167 days of the purchase. The overall creditor’s value is Rs 8,521.25 crores while the purchase per day has also increased to Rs. 23.67 crores.

Net Operating Cycle (NOC) is coming down to 12 days for the past five years. It is because of the increase in Creditors Deferral Period. It’s a positive signal for the company because it implies

that the cash is available for other uses such as investing in new capital, spending on equipments and infrastructure, as well as preparing for possible share buybacks down the road.

Methods Of Calculation:

Raw Material conversion period:

Raw material Consumption The value of raw material consumption is taken from schedule 4 of the profit & 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.

Raw Material Inventory The opening and closing raw material is taken from schedule G contains the breakup of entire inventories. The last year closing is consider as the opining for the current year and average is calculated.

Raw Material Holding Days Holding Days are calculated by the dividing raw material inventory by raw material consumption per day.

Work In Progress Conversion Period:

Cost of production The value of cost 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 cost of production.

Cost of Process per day The value of cost of process per day is calculated by dividing cost of production by



360 days.Works 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 the breakup of entire inventory. The last year closing balance is considered as opening of current year and average is calculated.

Work in Progress Holding Days Holding days are calculated by dividing work in progress inventory by cost of process per day.

Finished Goods :-

Cost of Goods Sold The value of cost of goods sold is calculated by subtracting profit before taxation from net sales. The net sale is taken from profit and loss account as well as profit before taxation. Then the result is calculated.

Cost of Goods Sold Per Day The value is calculated by dividing cost of goods sold by 360 days.

Finished Goods Inventory The opening and closing value of finished goods inventory is taken from schedule G of the balance sheet. The schedule G contains the break up of entire inventories. The last year closing balance is considered as opening for current year and average is calculated.

Finished Goods Holding Days The value is calculated by dividing finished goods sold per day.

Collection Period:

Credit Sales The value of entire net sales from profit and loss account is taken as credit sales for particular year. The entire net sales are considered as credit sales.

Sales Per Day The value is calculated by dividing the entire credit sales by 360.

Debtor The value of debtor is taken from balance sheet. Debtor comes under the head of current asset in the balance sheet.



Debtor Outstanding Days The value of outstanding days is calculated by dividing debtors by sales per day.

Creditor Deferral Period:

Credit Purchase For the year 2008 – 2009 no purchase is shown. Therefore we have calculated the percentage from raw material consumed and then the entire calculation is done.

Purchase Per Day The value is calculated by dividing the entire credit purchase by 360 days.

Creditors The value of creditor is taken from the schedule of current liabilities and provision.

Creditors Deferral Period The value of deferral period is calculated by dividing by purchase per day.

DATA ANALYSIS OF JSW STEEL



NET WORKING CAPITAL

CURRENT ASSETS 2005-06 2006-07 2007-08 2008-09 2009-10

Inventories 924.23 1,011.35 1,549.16 2,051.42 2,585.77Sundry Debtors 229.19 245.16 337.39 398.14 563.25

Cash and Bank Balances 98.87 337.80 339.22 419.96 287.11Loans and Advances 979.42 549.28 842.15 1,744.88 2,123.39Other Current Assets 513.70 342.04 18.62 17.24 0.00TOTAL (A) 2,745.41 2,485.63 3,086.54 4,631.64 5,559.52

CURRENT LIABILITIESAcceptances 1,027.33 1,478.00 2,060.26 5,293.09 5,047.75Sundry Creditors 612.78 510.87 1,295.72 1,652.17 1,655.58Rents and Other Deposits 0.00 0.00 20.46 43.43 58.65Advances from the Customers 38.04 40.48 74.83 164.29 180.38Interest accrued but not due on loans 125.59 142.25 142.45 65.14 76.20

Other Liabilities 115.19 28.26 56.70 51.67 53.31Premium payable on redemption of FCCBs & Preference Shares

0.00 0.00 72.30 188.16 268.21

Investor Education and Protection Fund

7.93 12.17 15.94 18.33 17.59

Provision for Income Tax 213.51 31.50 0.00 0.00 0.00

Provision for Wealth Tax 1.50 0.41 0.55 0.40 0.00Provision for Fringe Benefits 3.24 0.27 0.80 0.95 0.00



Provision for Employee Benefits 0.00 0.00 21.99 23.77 24.48

Proposed Dividend on Preference Shares

27.90 27.90 29.06 28.99 27.90

Proposed Dividend on Equity Shares 125.58 0.00 261.87 18.71 177.70

Corporate Dividend Tax 0.00 4.74 49.44 8.11 34.14

Tax on Equity Preference Dividend 21.53 0.00 0.00 0.00 0.00

Provision for Leave Encashment 0.00 10.46 0.00 0.00 0.00

TOTAL (B) 2,320.12 2,287.31 4,102.37 7,557.21 7,621.89

NET WORKING CAPITAL (A-B) 425.29 198.32 -1,015.83 -2,925.57 -2,062.37

(All the figures are in Rs. Cr)


2005-06 2006-07 2007-08 2008-09 2009-10

-4000

-2000

0

2000

4000

6000

8000

425.289999999999198.320000000001

-1015.83

-2925.57

-2062.37

CURRENT ASSETS CURRENT LIABILIT-IESNET WORKING CAPITAL

2005-06

2006-07

2007-08

2008-09

2009-10

PERCENTAGE CHANGE IN WORKING CAPITAL

CURRENT ASSETS 2005-06 2006-07 2007-08 2008-09 2009-10

Inventories 24.32 9.43 53.18 32.42 26.05



Sundry Debtors -14.03 6.97 37.62 18.01 41.47

Cash and Bank Balances -19.28 241.66 0.42 23.80 -31.63

Loans and Advances 28.62 -43.92 53.32 107.19 21.69

Other Current Assets 0.00 -33.42 -94.56 -7.41 -100.00

TOTAL (A) 44.95 -9.46 24.18 50.06 20.03

CURRENT LIABILITIES

Acceptances 54.02 43.87 39.40 156.91 -4.64

Sundry Creditors 24.82 -16.63 153.63 27.51 0.21Rents and Other Deposits 0.00 0.00 0.00 112.27 35.04Advances from the Customers 111.92 6.41 84.86 119.55 9.79Interest accrued but not due on loans 22.75 13.27 0.14 -54.27 16.98

Other Liabilities 26.21 -75.47 100.64 -8.87 3.17Premium payable on redemption of FCCBs & Preference Shares

0.00 0.00 0.00 160.25 42.54

Investor Education and Protection Fund

22.95 53.47 30.98 14.99 -4.04

Provision for Income Tax 69.76 -85.25 -100.00 0.00 0.00

Provision for Wealth Tax 30.43 -72.67 34.15 -27.27 -100.00Provision for Fringe Benefits 0.00 -91.67 196.30 18.75 -100.00Provision for Employee Benefits 0.00 0.00 0.00 8.09 2.99

Proposed Dividend on Preference Shares

0.00 0.00 4.16 -0.24 -3.76

Proposed Dividend on Equity Shares 94.64 -100.00 0.00 -92.86 849.76

Corporate Dividend Tax 0.00 0.00 943.04 -83.60 320.96

Tax on Equity Preference Dividend 66.00 -100.00 0.00 0.00 0.00

TOTAL (B) 44.26 -1.41 79.35 84.22 0.86

Interpretation

For past three years JSW Steel has a negative net working capital as the current liabilities are more than current assets. It is very important for a company to keep a ratio of 2 between current assets and current liabilities to meet its daily liquidity requirements. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers which occurred due to increase in the value of purchases/services on account of expansion projects.



2009-10

During 2009-10, inventory has been increased by 26% compared to previous year. Higher inventory of raw materials & spares is mainly due to commencement of new facilities. During same year debtors have been increased by 41% in connection with 30% increase in sales. 21% increase in loans and advances was mainly due to increase in entitlement of Minimum Alternative Tax credit of Rs. 259 crores. Current liabilities are almost same as previous year. It is mainly due to payment of project creditors relating to new 2.8 mtpa expansion project and other projects.

2008-09

Inventories increased by 32% from Rs. 1,549 crores in 2007-08 to Rs. 2,051 crores in 2008-09. Increase in stores & spares were mainly due to commencement of new facilities. Increase of Finished Goods was mainly due to inventory (Rs. 101 crores) arising out of trial run production of 2.8 MTPA expansion project. Sundry debtors increased by 18% from Rs. 337 crores in 2007-08 to Rs. 398 crores in 2008-09. Loans and Advances increased by from Rs. 842 crores in 2007-08 to Rs. 1,744 crores in 2008-09. The increase was mainly due to a) Loans and advance given to JSW Steel (Netherlands) B.V. amounting to Rs. 664 crores. b) Minimum Alternative Tax credit entitlement of Rs. 95 crores. The current liabilities increased from Rs. 4,102 crores in 2007-08 to Rs. 7,557 crores in 2008-09. The increase was mainly due to increase in the value of purchases/services on account of expansion projects.

2007-08

The inventory increased to Rs. 1,549.16 crores as on 31 March 2008 from Rs. 1,011.35 crores as on 31 March 2007 a growth of about 53.18%. Even as debtors increased from Rs. 245.16 crores in 2006-07 to Rs. 337.39 crores in 2007-08, the debtors’ cycle remained at 9 days (of gross sales) to that of in 2006-07.

2006-07

Cash and Bank balances increased to Rs. 337 crores in 2006-07 from Rs. 98.87 crores during 2005-06. Net working capital decreased to Rs. 198 crores from Rs. 425 crores of previous year. Decrease in net working capital is because of the decrease in loans and advances and other current assets.



FINANCIAL RATIOS

Working Capital Turnover Ratio:

Ratio that shows the number of times the working capital is converted into revenue in an accounting period, or how efficiently the management is using its working capital to generate sales revenue .

Working Capital Turnover Ratio = Net Sales / Net Working Capital

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

NET SALES 6,180.10 8,594.44 11,420.00 14,001.25 18,202.48

NET WORKING CAPITAL 425.29 198.32 -1,015.83 -2,925.57 -2,062.37

WORKING CAPITAL TURNOVER RATIO 14.53 43.34 -11.24 -4.79 -8.83

2005-06 2006-07 2007-08 2008-09 2009-10-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

14.53

43.34

-11.24

-4.79-8.83

Working Capital Turnover Ratio



Interpretation

Working capital turnover ratio of JSW Steel is showing negative values for past three years. It is because their net working capital is negative. Also it is not showing any sign of improving as it is fluctuating between -5 and -10. It is really not good for a company to have a negative working capital turnover ratio. It will affect the daily liquidity requirements of the company. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers.

Current Ratio:

A liquidity ratio that measures a company’s ability to pay Short term obligations .Current Ratio = Current Assets / Current Liabilities

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10

CURRENT ASSETS 2,745.41 2,485.63 3,086.54 4,631.64 5,559.52

CURRENT LIABILITIES 2,320.12 2,287.31 4,102.37 7,557.21 7,621.89

CURRENT RATIO 1.18 1.09 0.75 0.61 0.73

2005-06 2006-07 2007-08 2008-09 2009-100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.183305173870351.08670446944227

0.75237972196560.61287697443899

9

0.729414882660338

Current Ratio

Interpretation



The interpretations given for working capital turnover ratio suit current ratio also. Because of the negativity of net working capital, current ratio falls below one. Standard value for current ratio is 2 and JSW has to take the initiatives to increase the current ratio. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers as part of expansion projects.

Quick Ratio:

An indicator of a company’s Short term liquidity . The quick ratio measures a company’s ability to meet its Short term obligations with its most liquid assets. The higher the Quick Ratio, the better the position of the company.

Quick Ratio = (Current Assets – Inventories) / Current Liabilities

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

CURRENT ASSETS 2,745.41 2,485.63 3,086.54 4,631.64 5,559.52INVENTORIES 924.23 1,011.35 1,549.16 2,051.42 2,585.77CURRENT LIABILITIES 2,320.12 2,287.31 4,102.37 7,557.21 7,621.89

QUICK RATIO 0.78 0.64 0.37 0.34 0.39

2005-06 2006-07 2007-08 2008-09 2009-100.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

0.78

0.64

0.370.34

0.39

Quick Ratio

Interpretation

The quick ratio has decreased over the last 5 years due to considerable increase in Current Liabilities which increased on account of increase in acceptances.



Stock Turnover Ratio:

A ratio showing how many times a company inventory is sold or replaced over a period.Stock Turnover Ratio = Cost of Goods Sold / Average StockAverage Stock =Opening stock +Closing stock / 2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

COST OF GOODS SOLD 5,261.92 6,784.41 9,193.02 12,793.05 15,915.67

AVERAGE STOCK 833.82 967.79 1,280.26 1,800.29 2,318.60


2005-06 2006-07 2007-08 2008-09 2009-105.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

7.40

6.31

7.01

7.187.11

6.86


Interpretation:

Stock turnover ratio of JSW Steel is showing a steady trend at 7. In spite of the increase in inventory from Rs. 833 Cr in FY 2006 to Rs. 2318 Cr in FY 2010, they could manage the inventory turnover. Inventories were physically verified during the year by the management at reasonable intervals, except for inventories lying with third parties where confirmations have been received. As the Company’s inventory of raw materials mostly comprises bulk materials such as coal, coke, pellets etc. requiring technical expertise for establishing the quality and the quantification thereof, the



Company has hired independent agencies for physical verification of such stocks. The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. The Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification.

Debtors Turnover Ratio:Debtor turnover ratio indicates the velocity of debt collection of firm. In simple words it indicates the number of times average debtors (Receivable) are turned over during year.Debtor Turnover Ratio = Net Sales / Average Debtors

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

NET SALES 6,180.10 8,594.44 11,420.00 14,001.25 18,202.48AVERAGE DEBTORS 247.90 243.21 291.28 367.77 480.70

DEBTOR TURNOVER RATIO 24.93 35.34 39.21 38.07 37.87

2005-06 2006-07 2007-08 2008-09 2009-100.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

24.93

35.34

39.21 38.07 37.87


Interpretation:

Debtor turnover ratio has shown a steady trend over the last 3 years which shows the company’s efficient policy of collection from customers. At the same time, company’s sales and average debtors have increased drastically. It is a good indicator of company’s capacity to increase the sales without compromising on its collection policies.




A short term liquidity measures used to quantify the rate at which a company pays off its suppliers . Accounts payable turnover ratio is calculated by taking total purchase made from suppliers and dividing it by the average account payable amount during the same period.Payables Turnover Ratio = Net Credit Purchase / Average CreditorsAverage Creditor = Opening Creditor +Closing Creditor / 2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10


AVERAGE CREDITORS 551.87 604.34 867.89 1,426.58 1,643.39

PAYABLES TURNOVER RATIO 6.39 7.24 7.48 6.58 6.93

2005-06 2006-07 2007-08 2008-09 2009-105.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

7.40

7.60

6.39

7.24

7.48

6.58

6.93


Interpretation:

JSW Steel’s payables turnover ratio is high as compared industry ratio. During 2008-09 it has come down to 6.58 which again increased to 6.93. It is mandatory to keep the payables turnover ratio as lower as possible as it will increase the availability of cash for day to day activities. The fact JSW has a negative working capital for last three years has to be read along with its high payables turnover ratio which will again reduce its liquidity.

OPERATING CYCLEGross Operating Cycle (GOC) = RMCP + WIPCP + FGCP + DCPNet Operating Cycle (NOC) = GOC – CDP



ITEMS 2005-06 2006-07 2007-08 2008-09 2009-10raw material conversion period

raw material consumption 3,112.05 3,964.00 5,883.53 8,735.70 10,460.82raw material consumption per day 8.64 11.01 16.34 24.27 29.06raw material inventory 833.82 967.79 1,280.26 1,800.29 2,318.60RMCP 96.46 87.89 78.34 74.19 79.79

work in progress

cost of production 4,433.99 5,777.62 8,065.40 11,168.14 13,929.58cost of process per day 12.32 16.05 22.40 31.02 38.69work in progress inventory 80.27 51.17 41.51 88.08 123.12WIPCP 6.52 3.19 1.85 2.84 3.18

finished goods cost of goods sold 5,261.92 6,784.41 9,193.02 12,793.05 15,915.67cost of goods sold per day 14.62 18.85 25.54 35.54 44.21

finished goods inventory 150.80 216.28 315.58 561.49 734.24FGCP 10.32 11.48 12.36 15.80 16.61

Collection period

credit sales at cost 6,180.10 8,594.44 11,420.00 14,001.25 18,202.48sales per day 17.17 23.87 31.72 38.89 50.56debtors 247.90 243.21 291.28 367.77 480.70DCP 14.44 10.19 9.18 9.46 9.51

creditors deferral period

credit purchase 3,527.81 4,377.23 6,495.21 9,381.51 11,386.28purchase per day 9.80 12.16 18.04 26.06 31.63

creditors 551.87 604.34 867.89 1,426.58 1,643.39CDP 56.32 49.70 48.10 54.74 51.96

GROSS OPERATING CYCLE 127.73 112.74 101.73 102.29 109.09NET WORKING CYCLE 71.41 63.04 53.63 47.54 57.13

(Note*: Finished goods of 2008-09 excludes Rs. 101.41 Cr which arising out of trial run production.)

Interpretation :

Because of increase in raw material consumption per day, Raw Material Holding Period (RMHP) has come down to 79 days during FY 2010 from 96 days in FY 2006. It indicates company applies new inventory management techniques to efficiently utilize its inventory and reduce the stock of inventory.

Work in Progress Holding Period (WIPHP) is only three days during 2009-10 which is a good number. But it has increased in last three consecutive years. At the same time they



reduce RMHP, they are not able to reduce WIPHP. The company has to implement some techniques to reduce WIPHP as they do for raw material.

Finished Goods Holding Period (FGHP) is increasing constantly from FY 2006. It is 16 days for FY 2010 which is very less and good. It is shown in the profit and loss accounts that the sales is increasing in every year. Increase in FGHP may be because of increase in sales. If they can increase sales without increasing finished goods, it would be appreciable.

Debtors Collection Period (DCP) stands at 9 days for last three years which is a good number. It means that the company gets the payment within 9 days of the credit sales to customers. This satisfies the liquidity requirements of the company. In spite of the increase in sales, they could maintain DCP. It shows company’s efficient collection policy and its business relationship with customers.

Creditor’s Deferral Period (CDP) stands around 50 days for last five years. Even though the credit purchase has increased in these years, there is no increase in CDP. The company should try to increase CDP as its purchases are increasing. It will increase the availability of cash for working capital.

During FY 2010, Net Operating Cycle (NOC) has increased to 57 days from 47 days during FY 2009. It is because of decrease in CDP. So the company should increase CDP to reduce NOC.



DATA ANALYSIS OF SAIL

NET WORKING CAPITAL

CURRENT ASSETS 2005-06 2006-07 2007-08 2008-09 2009-10

Inventories 6,210.06 6,651.47 6,857.23 10,121.45 9,027.46

Sundry Debtors 1,881.73 2,314.75 3,048.12 3,024.36 3,493.90Cash & Bank Balances 6,172.64 9,609.83 13,759.44 18,228.53 22,436.37

Interest Received / Accrued 85.48 152.56 273.08 1,014.47 780.34Loans 254.14 306.83 372.67 434.34 472.19Claims Recoverable 455.62 623.50 779.26 860.70 1,450.84

Contractors & Suppliers 115.18 116.56 158.99 102.87 104.67

Income Tax Paid in Advance / Recoverable

1,763.13 10.50 11.62 67.07 140.84

Export Incentive Receivable 22.49 107.07 58.56 16.27 41.00

Others 306.32 350.95 464.16 394.60 433.52



Deposits 116.94 134.60 534.49 246.21 700.03

TOTAL (A) 17,383.73 20,378.62 26,317.62 34,510.87 39,081.16

CURRENT LIABILITIES

Sundry Creditors 2,427.36 2,545.07 2,985.24 4,156.77 6,232.36

Advances 536.26 631.68 643.49 565.64 699.28

Security Deposits 232.30 257.76 243.09 431.20 517.08

Interest Accrued but not due 375.82 198.79 115.64 95.58 401.12

Liability Towards Investor Education and Protection Fund

11.60 7.43 8.89 10.03 11.00

Other Liabilities 1,608.36 1,757.47 2,404.57 2,454.17 3,076.02

PROVISIONS

Gratuity 2,289.75 1,718.20 718.16 573.17 89.26

Accrued Leave 1,223.82 1,371.43 1,346.70 1,602.08 1,979.71

Taxation 1,939.75 44.32 38.18 364.01 2.71

Pollution and Peripheral Development 86.44 83.11 89.05 99.73 112.92

Exchange Fluctuation 13.95 0.00 0.00 0.00 16.43

Proposed Dividend 309.78 619.56 743.47 536.95 702.17

Tax on Dividend 43.45 105.29 125.54 91.26 116.62

Employee Benefits 776.30 795.18 872.21 1,070.18 1,276.72

Wage Revision 342.52 512.58 2,459.66 4,552.94 1,243.22

Mines Closure / Afforestation 142.12 223.96 351.05 467.29 607.01

Others 68.56 77.15 53.81 50.60 64.90

TOTAL (B) 12,428.14 10,948.98 13,198.75 17,121.60 17,148.53

NET WORKING CAPITAL (A-B) 4,955.59 9,429.64 13,118.87 17,389.27 21,932.63

(All Figures are in Rs. Cr)




2005-06 2006-07 2007-08 2008-09 2009-100

5000

10000

15000

20000

25000

30000

35000

40000

45000

4955.59

9429.64000000001

13118.87

17389.27

21932.6299999999

CURRENT ASSETS CURRENT LIABILITIESNET WORKING CAP-ITAL

Interpretation

The graph clearly indicates that the Current Assets of SAIL has increased over the last five years following a linear trend. The Current Liabilities has also increased but the rate of increase of Current Liabilities is less than the increase in Current Assets. Net Working Capital also has increased consistently over the last five years.

2009-10

During this year inventory has been decreased by 10% compared to previous year. The inventories decreased mainly on account of reduction in semi/finished inventory by Rs.1157 crore and stores & spares inventory by Rs.22 crore. However, there was increase in raw material inventory by Rs.46 crore.The decrease in finished/semi-finished inventories by 20% was due to decrease in quantity and valuation rate on account of reduction in both cost of production or Net Sales Realisation.The stores & spares inventory was reduced by 1% and raw material inventory had increased marginally by 2%.

Increase in current liabilities by Rs.3248 crore was mainly on account of increase in sundry creditors for capital works, advances from customers, security deposits etc. The provisions were decreased by Rs.3239 crore mainly on account of decrease in provision for gratuity, taxation and wage revision.

2008-09

The inventory has increased by 47%. Inventories increased mainly on account of increase in semi/finished inventory by Rs.1,873 crore, raw material inventory by Rs.1,183 crore and stores &



spares inventory by Rs.209 crore. Increase in finished/semi-finished inventories was due to increase in quantity and valuation rate on account of increase in cost of production and Net Sales Realization. Also, the sudden meltdown of world economy during the middle of the year resulted in lower sales and accumulation of stocks. Increase in stores & spares inventory was partly due to price escalations and partly due to procurement for major repairs to be carried out in various plants.Despite increase in sales turnover, there was marginal reduction in net debtors.

Loans and Advances reduced by Rs.258 crore. The reduction was mainly on account of decrease in advances recoverable from contractors and suppliers, employees, deposits with port trust, excise authorities, railways, etc.

Increase in current liabilities by Rs.1,312 crore was mainly on account of increase in sundry creditors for capital works, security deposits etc. The provisions were increased by Rs.2,610 crore mainly on account of increase in provision for accrued leave, taxation, wage revision.

2007-08

The inventory has increased by 3% this year. The increase in inventory of finished/semi-finished products by 12% was on account of valuation at increased cost of production. However, in terms of number of days of turnover, the inventory of finished/semi-finished products reduced to 32 days as on 31.03.2008 against 33 days as on 31.03.2007. Increase in stores & spares inventory by 10% was due to price escalations and procurement for major repairs to be carried out in various plants. In terms of number of days, stores and spares inventory was almost at the same level of 31.03.2007. Raw materials inventory was at 37 days consumption as on 31.03.2008 as against 49 days consumption as on 31.03.2007. The increase of Rs. 733 crore in net debtors was mainly on account of increase in turnover. In terms of number of days of turnover, the debtors increased from 22 days as on 31.03.2007 to 24 days as on 31.03.2008.

Loans and Advances increased by Rs 730 crore. The increase was mainly on account of loans to employees and advances for operational supplies.

Increase in current liabilities by Rs 1003 crore were mainly on account of increased level of operations and employees related year-end dues. While there were increase in provisions on account of mines afforestation / restoration / closure costs, wage revision, dividend and tax on dividend; overall increase was marginal due to reduction in provision for gratuity on account of transfer of Rs. 1250 crore to a separate Gratuity Fund constituted during the previous year.



2006-07The increase of Rs. 433.02 crore in net debtors was mainly on account of increase in turnover. Loans and Advances increased by Rs 369.09 crore. The increase was mainly on account of loans to employees, export incentives recoverable, advances for operational supplies etc.

2005-06

Working capital has increased mainly due to increase in inventory by Rs. 1,989 crore. Inventory of Iron and Steel (including by-products) has increased by Rs. 1,276 crore, Raw Materials by Rs. 400 crore and Stores and Spares by Rs. 314 crore.PERCENTAGE CHANGE IN WORKING CAPITAL

CURRENT ASSETS 2005-06 2006-07 2007-08 2008-09 2009-10

Inventories 47.13 7.11 3.09 47.60 -10.81

Sundry Debtors -1.40 23.01 31.68 -0.78 15.53

Cash & Bank Balances 0.66 55.68 43.18 32.48 23.08

Interest Received / Accrued -39.88 78.47 79.00 271.49 -23.08

Loans 45.31 20.73 21.46 16.55 8.71

Claims Recoverable 4.59 36.85 24.98 10.45 68.57

Contractors & Suppliers 6.09 1.20 36.40 -35.30 1.75

Income Tax Paid in Advance / Recoverable

136.76 -99.40 10.67 477.19 109.99

Export Incentive Receivable -61.73 376.08 -45.31 -72.22 152.00

Others 44.97 14.57 32.26 -14.99 9.86

Deposits 133.23 15.10 297.10 -53.94 184.32

TOTAL (A) 22.53 17.23 29.14 31.13 13.24

CURRENT LIABILITIES

Sundry Creditors 9.96 4.85 17.30 39.24 49.93

Advances 2.20 17.79 1.87 -12.10 23.63

Security Deposits 16.05 10.96 -5.69 77.38 19.92



Interest Accrued but not due -28.79 -47.10 -41.83 -17.35 319.67

Liability Towards Investor Education and Protection Fund

-29.35 -35.95 19.65 12.82 9.67

Other Liabilities 23.30 9.27 36.82 2.06 25.34

PROVISIONS

Gratuity 23.69 -24.96 -58.20 -20.19 -84.43

Accrued Leave 20.77 12.06 -1.80 18.96 23.57

Taxation 159.30 -97.72 -13.85 853.40 -99.26

Pollution and Peripheral Development 2.62 -3.85 7.15 11.99 13.23

Proposed Dividend -58.33 100.00 20.00 -27.78 30.77Tax on Dividend -58.33 142.32 19.23 -27.31 27.79

Employee Benefits 1.57 2.43 9.69 22.70 19.30

Wage Revision 0.00 49.65 379.86 85.10 -72.69

Mines Closure / Afforestation 1,719.72 57.59 56.75 33.11 29.90

Others -0.17 12.53 -30.25 -5.97 28.26

TOTAL (B) 22.25 -11.90 20.55 29.72 0.16

NET WORKING CAPITAL (A-B) 23.24 90.28 39.12 32.55 26.13

FINANCIAL RATIOS

Working Capital Turnover Ratio:

Ratio that shows the number of times the working capital is converted into revenue in an accounting period , or how efficiently the management is using its working capital to generate sales revenue .

Working Capital Turnover Ratio = Net Sales / Net Working Capital

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

NET SALES 27,837.57 33,923.12 39,508.45 43,150.08 40,551.38

NET WORKING CAPITAL 4,955.59 9,429.64 13,118.87 17,389.27 21,932.63



WORKING CAPITAL TURNOVER RATIO 5.62 3.60 3.01 2.48 1.85

2005-06 2006-07 2007-08 2008-09 2009-100.00

1.00

2.00

3.00

4.00

5.00

6.00 5.62

3.60

3.01

2.48

1.85

Working Capital Turnover Ratio

Interpretation:

The graph clearly indicates that the working capital turnover ratio has decreased over the last five years. This means that the firm is not being efficient in employing its working capital. This is due to the drastic increase in net working capital which is a result of increase in current assets. It is an indication that the company is not utilizing its current assets in an efficient manner. There is also a piling up of cash and bank balanced which again shows company is not using its cash.

Current Ratio: A liquidity ratio that measures a company’s ability to pay Short term obligations.Current Ratio = Current Assets / Current Liabilities

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

CURRENT ASSETS 17,383.73 20,378.62 26,317.62 34,510.87 39,081.16CURRENT LIABILITIES 12,428.14 10,948.98 13,198.75 17,121.60 17,148.53

CURRENT RATIO 1.40 1.86 1.99 2.02 2.28



2005-06 2006-07 2007-08 2008-09 2009-100.00

0.50

1.00

1.50

2.00

2.50

1.40

1.861.99 2.02

2.28

Current Ratio

Interpretation:

The interpretations given for working capital turnover ratio suit current ratio also. Because of the negativity of net working capital, current ratio falls below one. Standard value for current ratio is 2 and in 2008 to 2009 SAIL is meeting with standard level of 2 , so it is favorable for company but in 2009 to 2010 the ratio is increasing more than standard level to 2.28 so company may face problem to meet its obligations .

Quick Ratio:

An indicator of a company’s Short term liquidity. The quick ratio measures a company’s ability to meet its Short term obligations with its most liquid assets. The higher the Quick Ratio, the better the position of the company.Quick Ratio = (Current Assets – Inventories) / Current Liabilities

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

CURRENT ASSETS 17,383.73 20,378.62 26,317.62 34,510.87 39,081.16INVENTORIES 6,210.06 6,651.47 6,857.23 10,121.45 9,027.46CURRENT LIABILITIES 12,428.14 10,948.98 13,198.75 17,121.60 17,148.53QUICK RATIO 0.90 1.25 1.47 1.42 1.75



2005-06 2006-07 2007-08 2008-09 2009-100.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

0.90

1.25

1.47 1.42

1.75

Quick Ratio

Interpretation:

Quick ratio is also higher as net working capital is high. Interpretations for current ratio apply for quick ratio also. Quick ratio has increased to 1.75 during 2009-10 from 1.42 during 2008-09. It is observed that company is in position to meet its obligations.Higher the ratio the better is the capacity of business to meet its current obligations

Stock Turnover Ratio:

A ratio showing how many times a company inventory is sold or replaced over a period.Stock Turnover Ratio = Cost of Goods Sold / Average StockAverage Stock = Opening Stock +Closing Stock / 2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

COST OF GOODS SOLD 25,027.83 27,907.48 32,255.69 38,779.34 35,764.07

AVERAGE STOCK 5,215.38 6,430.77 6,754.35 8,489.34 9,594.33




2005-06 2006-07 2007-08 2008-09 2009-100

1

2

3

4

5

6

4.798850706947534.33967938520599

4.77554316847661 4.56800410868218

3.72762558719578



Interpretation

Stock turnover ratio of SAIL is very less. It was around 4.5 times during the period of 2005-06 to 2008-09. During 2009-10, it has decreased to 3.73 times. It is a serious matter of concern. The company has to take some stringent actions to increase turnover. The sole reason for less stock turnover is high stock of inventory. It seems like the company is very conservative in its approach to stock of inventories. It is strongly recommended that the company has to decrease stock of inventory thereby increase its stock turnover. Company may improve the efficiency of its supply chain in this aspect.

Debtors Turnover Ratio:

Debtor turnover ratio indicates the velocity of debt collection of firm. In simple words it indicates the number of times average debtors (Receivable) are turned over during year.Debtor Turnover Ratio = Net Sales / Average DebtorsAverage Debtor = Opening Debtor +Closing Debtor /2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

NET SALES 27,837.57 33,923.12 39,508.45 43,150.08 40,551.38AVERAGE DEBTORS 1,895.09 2,098.24 2,681.44 3,036.24 3,260.84

DEBTOR TURNOVER RATIO 14.69 16.17 14.73 14.21 12.44



2005-06 2006-07 2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

18

14.6893129086218

16.167416501448814.7340421564532 14.2116828709193

12.4358692852149


Interpretation:

Debtor turnover ratio has been coming down since 2006-07. It was at 12.44 times during 2009-10. Debtor turnover of 12 times means that on an average company takes 30 days to collect payment from debtors. It is a good number, but in today’s highly competitive industrial environment, companies are trying to collect its receivables fast. But in the case of SAIL debtor turnover is reducing year by year. Delay in collection shows a large number for sundry debtors in balance sheet, which in fact increase the current assets. It is also a reason for the high current ratio. So it is recommended that the company should tighten its collection policies and bring up the debtor turnover.


A short term liquidity measures used to quantify the rate at which a company pays off its suppliers . Accounts payable turnover ratio is calculated by taking total purchase made from suppliers and dividing it by the average account payable amount during the same period.Payables Turnover Ratio = Net Credit Purchase / Average CreditorsAverage Creditor =Opening Creditor +Closing Creditor / 2

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10


AVERAGE CREDITORS 2,317.43 2,486.22 2,765.16 3,572.01 5,168.62



PAYABLES TURNOVER RATIO 5.91 5.94 5.62 6.11 3.61

2005-06 2006-07 2007-08 2008-09 2009-100.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

5.91 5.945.62

6.11

3.61



(Note*- All the purchases are assumed to be credit purchases.)

(Note*-SAIL has captive mines for iron ore and coal. It procures iron ore from these mines. But it is not completely dependent on its mines for coal and its imported. So iron ore purchased is excluded from net credit purchase.)

Interpretation

Payables turnover ratio has decreased to 3.61 times during 2009-10 from 6.11 times during 2008-09. It is very interesting that although the credit purchase has decreased, company could delay its payments to creditors thereby decreasing payables turnover. This may be due to the decrease in sales. If the company can keep this lower payables turnover, it would be appreciated.

OPERATING CYCLE

Gross Operating Cycle (GOC) = RMCP + WIPCP + FGCP + DCPNet Operating Cycle (NOC) = GOC – CDP

ITEMS 2005-06 2006-07 2007-08 2008-09 2009-10

Raw Material Holding Period



raw material consumption 12,325.63 13,274.91 13,960.14 20,076.92 17,340.18

raw material consumption per day 34.24 36.87 38.78 55.77 48.17

raw material inventory 5,215.38 6,430.77 6,754.35 8,489.34 9,594.33

RMHP 152.33 174.39 174.18 152.22 199.19

Work in Progress Holding Period

cost of production 21,210.39 24,275.46 28,476.38 34,119.23 31,337.09

cost of process per day 58.92 67.43 79.10 94.78 87.05

work in progress inventory 405.79 633.83 1,062.42 3,130.31 1,366.30

WIPHP 6.89 9.40 13.43 33.03 15.70

Finished Goods Holding Period

cost of goods sold 25,027.83 27,907.48 32,255.69 38,779.34 35,764.07

cost of goods sold per day 69.52 77.52 89.60 107.72 99.34

finished goods inventory 2,586.91 3,369.40 3,726.83 4,881.41 5,239.12FGCP 37.21 43.46 41.59 45.32 52.74

Debtors Collection Period

credit sales at cost 27,837.57 33,923.12 39,508.45 43,150.08 40,551.38sales per day 77.33 94.23 109.75 119.86 112.64

debtors 1,895.09 2,098.24 2,681.44 3,036.24 3,260.84DCP 24.51 22.27 24.43 25.33 28.95

Creditors Deferral Period credit purchase 13,698.86 14,763.97 15,532.29 21,828.64 18,662.04purchase per day 38.05 41.01 43.15 60.64 51.84creditors 2,317.43 2,486.22 2,765.16 3,572.01 5,168.62

CDP 60.90 60.62 64.09 58.91 99.71GROSS OPERATING CYCLE 220.93 249.53 253.64 255.90 296.57

NET WORKING CYCLE 160.03 188.90 189.55 196.99 196.86

Interpretation



Because of its large stock of inventory, Raw Material Holding Period (RMHP) of SAIL was at 199 days during 2009-10. It is the highest in last five years. It is again recommended to reduce the stock.

Since FY 2006, Work in Progress Holding Period (WIPHP) has increased to 33 days in during FY 2009. But it has decreased to half during FY 2010. The company has to reduce its further and make it a single digit number.

Finished Goods Holding Period (FGHP) is increasing year by year and stood at 52 days during 2009-10. It seems a very high number which means the company keeps its finished goods idle for 52 days after the production.

Debtors Collection Period (DCP) shows a steady trend for last five years. Despite of the decrease in credit sales during 2009-10, DCP has increased to 29 days. It shows that the company’s collection policies are not strong.

During FY 2010, Creditors Deferral Period has increased to 99 days from 59 days in FY 2009. It would be appreciated if the company can keep this momentum in future.

Net Operating Cycle (NOC) was 197 days during 2009-10. Despite the increase in CDP, NOC did not come down. It was because of the drastic increase in RMHP during this period. Comparing to other companies in steel industry, SAIL’s NOC is very high. A solution for all of these is to reduce the stock of inventory.



Comparative analysis

COMPARISON OF OPERATING CYCLE FOR THE YEAR 2009-10

PARTICULARS RMHP WIPHP FGCP DCP CDP ICP GOC NOCTATA STEEL 145.08 2.84 24.15 7.70 167.50 172.06 179.76 12.27JSW 79.79 3.18 16.61 9.51 51.96 99.58 109.09 57.13SAIL 199.19 15.70 52.74 28.95 99.71 267.62 296.57 196.86



RMHP WIPHP FGCP DCP CDP ICP GOC NOC0.00

50.00

100.00

150.00

200.00

250.00

300.00

TATA STEEL

JSW

SAIL

Interpretation:

Among Raw Material Holding Period (RMHP) of the three companies, JSW Steel has the lowest RMHP. Their RMHP is only 80 days compared to 145 days of Tata Steel and 199 days of SAIL. Lesser the holing period higher the turnover of inventory. RMHP of JSW indicates that the company has efficient inventory policies

They are successful in reducing RMHP to 80 days which was at 96 days during 2005-06. To a certain extent, Tata Steel also could achieve by the reduction of RMHP from 222 days to 145 days during the same period. SAIL is not showing a good RMHP. It had a RMHP of 152 days during FY 2006 and increased to 199 days.

Comparison between JSW Steel and Tata Steel shows that JSW Steel had consumed raw material of Rs. 29 crores per day during FY 2010. At the same period, Tata Steel consumed only Rs. 18 crores inventory per day. But JSW Steel’s average stock of raw material was less compared to Tata Steel. This helped them to achieve low RMHP.

Among the three companies, Tata steel keeps the lowest Work in Progress Holding Period (WIPHP). Tata steel’s WIPHP was slightly less than 3 days while JSW Steel’s value was 3.18. SAIL is far away from its competitors with a WIPHP of 16 days.

Tata Steel has the lowest work in progress inventory during FY 2010. Although its work in progress inventory has increased drastically during last five years, it keeps WIHP around 2. It is



an indication of company’s efficiency to convert its raw material into finished goods in a short period of time. JSW Steel had reduced WIPHP to 2 days during FY 2008 from 6.5 days during FY 2006. But it’s increasing last two years and reached 3 days during FY 2010. But Tata Steel does not face such a fluctuation in WIPHP.It is strongly recommended SAIL has to reduce its work in progress inventory stock thereby reduce WIPHP.

JSW Steel has the lowest Finished Goods Holding Period (FGHP) of 16 days followed by Tata steel at 24 days and SAIL at 52 days. The lowest FGHP indicates the efficiency of JSW’s supply chain.

FGHP of JSW Steel has increased from 10 days during FY 2006 to 16 days during FY 2010. But in the case of Tata Steel, it has decreased to 24 days from 33 days during the same period. It is a good indication to the implementation of efficient distribution activities. It helps them to decrease idle time of finished goods. So it may be concluded that Tata Steel is little better than JSW steel in FGHP.

During FY 2010, SAIL held its finished goods in its warehouses for 52 days which is increasing continually since FY 2006. They should reduce the idle time of its finished goods.

To ensure the availability of cash for the day to day activities, company should collect receivables as soon as possible. Companies should follow moderately strict collection policies so that it gets the payments in short period of time and reduce the bad debts.

Among the three companies analysed, Tata Steel and JSW Steel have comparatively less Debtors Collection Period(DCP). Tata Steel’s DCP is 7.7 days and that of JSW Steel’s is 9.5 days. SAIL’s DCP is very high at 28.9 days during 2009-10. The only reason for short DCP is the strict collection policies. It is evident that from the ratio of sales to debtors. For SAIL, this gap is 12 at the same time it is 47 and 38 for Tata Steel and JSW Steel respectively.

Creditors Deferral Period (CDP) is the time taken by the company to settle its payments to the creditors. The capacity of the company to make the payment late increases the cash availability of the company.

Among the three companies studied in this project, Tata Steel stands far beyond the other two companies. It has a CDP of 167 days which indicates the capacity of the company to use the creditors’ money for another purposes for 167 days. JSW Steel and SAIL pay its suppliers after



52 and 100 days respectively. A comparison between Tata Steel and JSW Steel shows that credit purchase of JSW Steel is higher than Tata Steel. But average creditors of JSW is less than Tata. It indicates Tata Steel pays its suppliers after longer period than JSW Steel after the purchase.Another noticeable factor is that the three companies are maintaining CDP around a particular time period. No high deviation from this period has been observed in the last five years performance of these companies.

Inventory Conversion Period (ICP) is the duration for which inventory is held in the company in any of its form. Analysis shows that JSW Steel has the best ICP (100 days) followed by TATA Steel (172 days) and SAIL (268 days).

Coming to Gross Operating Cycle (GOC), JSW Steel is the best with 109 days. But when comes to Net Operating Cycle (NOC), Tata Steel is the best with NOC of just 12 days.

It’s very difficult to keep a NOC near to a one digit. Tata achieve this by its higher CDP. Tata Steel could reduce NOC to 12 days from 99 days during 2005-06. So among the companies analysed, Tata Steel has the best NOC

COMPARISON OF FINANCIAL RATIOS FOR THE YEAR 2009-10

PARTICULARS WORKING CAPITAL

TURNOVER RATIO

CURRENT RATIO

QUICK RATIO STOCK TURNOVER

RATIO

DEBTOR TURNOVER

RATIO

PAYABLES TURNOVER

RATIO

TATA STEEL 7.71 1.144 .871 7.01 46.73 2.15

JSW -8.83 0.73 0.39 6.86 37.87 6.93

SAIL 1.85 2.28 1.75 3.73 12.44 3.61



Working C

apital Tu

rnover Ratio

Current R

atio

Quick Ratio

Stock

Turnover Ratio

Debtor Turnover

Ratio

Payable T

urnover Ratio-10

0

10

20

30

40

50

Comparision Chart

TATA STEEL JSWSAIL

Interpretation

Comparing the Working Capital Ratio of three companies, it was found that this ratio was maximum for Tata Steel at 18.5 and 7.7 times for last two consecutive years followed by SAIL and JSW Steel.

Tata Steel

Working capital turnover ratio has been decreased to 7.71 times in 2009-10 compared to 22.65 in 2008-09. Decrease in working capital turnover is because of the increase in net working capital. The reason for increase in net working capital is the increase in cash and bank balances and loans and advances. Reduction in working capital turnover is not a good sign. Tata Steel has a huge increase in working capital turnover in 2008-09 but could not keep the momentum to FY 10.



JSW Steel

Working capital turnover ratio of JSW Steel is showing negative values for past three years. It is because their net working capital is negative. Also it is not showing any sign of improving as it is fluctuating between -5 and -10. It is really not good for a company to have a negative working capital turnover ratio. It will affect the daily liquidity requirements of the company. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers.

SAIL

The working capital turnover ratio has decreased over the last five years. This means that the firm is not being efficient in employing its working capital. This is due to the drastic increase in net working capital which is a result of increase in current assets. It is an indication that the company is not utilizing its current assets in an efficient manner. There is also a piling up of cash and bank balanced which again shows company is not using its cash.

Current Ratio:

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

Tata Steel 1.11 1.18 0.98 1.119 1.144

JSW Steel 1.18 1.09 0.75 0.61 0.73

SAIL 1.40 1.86 1.99 2.02 2.28



2005-06 2006-07 2007-08 2008-09 2009-10

0

0.5

1

1.5

2

2.5

1.11 1.180000000000010.98

1.119 1.143999999999991.180000000000011.09

0.750000000000005 0.61000000000000

1

0.730000000000001

1.4

1.861.990000000000012.02

2.28

Current Ratio

Tata SteelJSW SteelSAIL

Interpretation

Among the three companies analyzed, Tata Steel has a current ratio of more than 1. JSW Steel’s current ratio is less than 1 for last three years. SAIL’s current ratio is matched with standard value of 2.

Tata Steel

Current ratio of Tata Steel is moving good as it is increasing from the year 2008-09 after its decrease in 2007-08. Current ratio in FY 2009 and 2010 are above 1. Decrease in current ratio to 0.98 was because of the decrease in current assets which resulted in a negative net working capital. The decrease in current assets is accounted to the decrease in cash and bank balances which was caused by the acquisition of Corus.

JSW Steel

Because of the negativity of net working capital, current ratio falls below one. JSW has to take the initiatives to increase the current ratio. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers as part of expansion projects.



SAIL

The current ratio has decreased to 2.28 during FY 2010. But during FY 2006 to 2009, it was increasing . As the company has a current ratio of more than 1.40 to 2.28 in last five years, it may be concluded that the company is not managing its working capital properly. It can deploy its current assets for investments, to increase production or for new developments. Or it may avail more current liabilities to reduce current ratio.

Quick Ratio:

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

Tata Steel 0.66 0.85 0.68 0.80 .871

JSW Steel 0.78 0.64 0.37 0.34 0.39

SAIL .90 1.25 1.47 1.42 1.75

2005-06 2006-07 2007-08 2008-09 2009-100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

0.660000000000006

0.850000000000001

0.680.80

0.8710000000000040.78

0.640000000000005

0.37 0.340.39000000000000

3

0.9

1.25

1.47 1.42

1.75

Quick Ratio


Interpretation



Tata Steel shows the best quick ratio among the companies analysed. For JSW Steel, quick ratio is too low and it’s too high for SAIL.

Tata Steel

Quick ratio follows the same path of current ratio with an increase in FYs 2009 and 2010 after a decrease in FY 2008. The reasons given above for the decrease in current ratio are applicable for quick ratio also. The only factor which can make a change in quick ratio from current ratio – inventory – does not show any drastic change in the past five years. In FY 2008, there is a 40% increase in inventory due to the increase in volume and prices.

JSW Steel

The quick ratio has decreased over the last 5 years due to considerable increase in Current Liabilities which increased on account of increase in acceptances.

SAIL

Quick ratio is also higher as net working capital is high. Interpretations for current ratio apply for quick ratio also. Quick ratio has increased to 1.75 during 2009-10 from 1.42 during 2008-09. It is observed that company is in position to meet its obligation.Higher the ratio the better is the capacity of business to meet its current obligations

Stock Turnover Ratio :

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

Tata Steel 6.21 6.50 6.80 7.04 7.01

JSW Steel 6.31 7.01 7.18 7.11 6.86

SAIL 4.80 4.34 4.78 4.57 3.73



2005-06 2006-07 2007-08 2008-09 2009-100

1

2

3

4

5

6

7

8

6.216.5

6.87.04 7.01

6.317.01 7.18

7.11 6.86

4.84.34

4.78 4.57

3.73



Interpretation:

Stock turnover ratio evaluates the efficiency of the firm in managing its inventory. This ratio indicates the number of times inventory has been converted into sales during the year.Both Tata Steel and JSW Steel have good stock turnover ratio around 7 times for last five years. It means they are able to convert their stock into sales 7 times in an year. SAIL has very low stock turnover around 4.

Tata Steel

Tata Steel shows a constant increase in stock turnover till 2008-09. Stock turnover of 7.04 is good in terms of liquidity. It shows the efficient management of inventory. Turnover of 7.01 times in 2009-10 is also a good value as it is above 7.There is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, any major weakness has not been observed in such internal control system.

JSW Steel



Stock turnover ratio of JSW Steel is showing a steady trend at 7. In spite of the increase in inventory from Rs. 833 Cr in FY 2006 to Rs. 2318 Cr in FY 2010, they could manage the inventory turnover.

JSW Steel physically verifies inventories during the year by the management at reasonable intervals, except for inventories lying with third parties where confirmations have been received. As the Company’s inventory of raw materials mostly comprises bulk materials such as coal, coke, pellets etc. requiring technical expertise for establishing the quality and the quantification thereof, the Company has hired independent agencies for physical verification of such stocks.

SAIL

Stock turnover ratio of SAIL is very less. It was around 4.5 times during the period of 2005-06 to 2008-09. During 2009-10, it has decreased to 3.73 times. The company has to take some stringent actions to increase turnover. The sole reason for less stock turnover is high stock of inventory. It is strongly recommended that the company has to decrease stock of inventory thereby increase its stock turnover. Company may improve the efficiency of its supply chain in this aspect.

Debtor Turnover Ratio:

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

Tata Steel 27.01 29.98 33.52 41.23 46.73

JSW Steel 24.93 35.34 39.21 38.07 37.87

SAIL 14.69 16.17 14.73 14.21 12.44



2005-06 2006-07 2007-08 2008-09 2009-100

5

10

15

20

25

30

35

40

45

50

27.0129.98

33.52

41.23

46.73

24.93

35.3439.21 38.07 37.87

14.69 16.17 14.73 14.2112.44



Interpretation:

Tata Steel has the best debtor turnover ratio among the three companies. This ratio tells us the number times the firm receives payments from its debtors.

Tata Steel

Debtor turnover ratio of 46.73 times in 2009-10 means Tata Steel collects the cash immediately after giving the delivery i.e., 7.8 days after the sales on an average. It is a marvelous turnover many companies dreaming to achieve. It increases the cash balance of the company and keeps the liquidity. Another fact is that debtor turnover ratio is increasing continuously last 5 years. It is an indication of stringent collection methods followed by Tata Steel. Also, they keep only a small portion that is around 4% as provision for bad debts.



JSW Steel

Debtor turnover ratio has shown a steady trend over the last 3 years which shows the company’s efficient policy of collection from customers. At the same time, company’s sales and average debtors have increased drastically. It is a good indicator of company’s capacity to increase the sales without compromising on its collection policies.

SAIL

Debtor turnover ratio has been coming down since 2006-07. It was at 12.44 times during 2009-10. Debtor turnover of 12 times means that on an average company takes 30 days to collect payment from debtors. It is a good number, but in today’s highly competitive industrial environment, companies are trying to collect its receivables fast. But in the case of SAIL debtor turnover is reducing year by year. Delay in collection shows a large number for sundry debtors in balance sheet, which in fact increase the current assets. It is also a reason for the high current ratio. So it is recommended that the company should tighten its collection policies and bring up the debtor turnover.


PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

Tata Steel 2.10 2.36 1.96 2.72 2.15

JSW Steel 6.39 7.24 7.48 6.58 6.93

SAIL 5.91 5.94 5.62 6.11 3.61



2005-06 2006-07 2007-08 2008-09 2009-100

1

2

3

4

5

6

7

8

2.12.36

1.96000000000001

2.722.15

6.39

7.24 7.48

6.586.93

5.91 5.945.62

6.11

3.61

Payable Turnover Ratio


Interpretation:

In payables turnover ratio also, Tata Steel is the bestwith a turnover just above 2 times for last five years. JSW Steel has a turnover around 6 times and SAIL has around 5 times, but it shows a sudden decrease to 3.61 times in FY 2010.

Tata Steel

Payables turnover ratio of Tata Steel is an exceptional case. It is just slightly greater than two times. This shows that they pay creditors only two times in a year. They manage this turnover for last five



years. It helps them to keep the cash with them for a long period and it can be used for other activities.

The study understands the liquidity strength of Tata Steel when the payables turnover is read along with debtor turnover. Debtor turnover is around 40 times in a year and payables turnover is only two times! It clearly shows the competitive advantage Tata Steel has over its suppliers and customers.

JSW Steel

JSW Steel’s payables turnover ratio is high as compared industry ratio. During 2008-09 it has come down to 6.58 which again increased to 6.93. It is mandatory to keep the payables turnover ratio as lower as possible as it will increase the availability of cash for day to day activities. The fact JSW has a negative working capital for last three years has to be read along with its high payables turnover ratio which will again reduce its liquidity.

SAIL

Payables turnover ratio has decreased to 3.61 times during 2009-10 from 6.11 times during 2008-09. It is very interesting that although the credit purchase has decreased, company could delay its payments to creditors thereby decreasing payables turnover. This may be due to the decrease in sales. If the company can keep this lower payables turnover, it would be appreciated.



CONCLUSIONAND

RECOMMENDATION

CONCLUSION

We have identified and examined the main elements of working capital. We have seen that the management of capital requires an evaluation of both the cost and the benefits associated with each element. Some of these costs and benefits may be hard to quantity in practice. Some assessment must be in order to try and optimize the user of funds within a business. We have examined various techniques for management of working capital. These techniques vary in their sophistication; some



really heavily on management judgments, while other adopts a more objective, quantitative approach.

Tata steel maintains sound position interns of working capital. Its efficiency in receivable and deferral management is reflected in the constantly decreasing operating cycle. The company has primarily been operating on cash drawn from the market and reaping full benefits of its brand name. inventory which constitutes an important component of working capital in a steel manufacturing company has also been managed well. This is evident from the high inventory turnover in comparison to the industry average. However, the conversion period of raw material need to be worked upon. The company has a well built supply chain and all its processes of inventory maintenance are SAP linked. It has a competent control system in place for managing stores, spares and finished goods. Nevertheless there is scope for improvements in raw material management.

RECOMMENDATIONS

1. There should be a proper co-ordination between working capital group and its related department i.e. debtors, inventory etc.

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

3. Adequate planning is required for procurement of store items.



4. Details of working capital should be available at the department level, so that efficiency can be analyzed at departmental level.

5. Advance payments should be avoided. If at all advance payments are required, it should be against securities like banks guarantee etc.

6. The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer and actions by competitors. So the effect of unforeseen demands of working capital should be factored in.

LIMITATIONS

Data Are Confined to Annual Report: -

The analysis of financial ratios is done on the basis of data available in the annual report of” TATA STEEL.”Hence, only a limited exposure is available to make the report.

Data Are Confidential:-

There are many data which are confidential and cant exposed to the public. These are not accessible for analysis. Hence a major part of important information is not available. This has avoided cent-percent accurate result.

Limited Coverage for the Company:-

Mostly data is from steel Producing Companies, and they are not calculating Industrial Average for the Year 2009-10. And only a few companies’ data are available like SAIL, JINDAL STEEL AND TATA STEEL. Therefore analysis was possible within the domestic industries.

Accounting Principle Are Different:-



It has been difficult to calculate and analyze the ratio of foreign companies, because their accounting policies are different compare to Indian financial accounting principles. The Indian companies follow the Indian “GAAP”where as Foreign Companies follow the US GAAP.

Limited Data Of The Year 2009-10:-

Since the annual report of the “TATA STEEL” For the Financial Year 2009-10, has not been made public. So only few ratios were been calculated as per the data available to us from the website.

BIBLIOGRAPHY

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: Vikash Publishing house Pvt Ltd. BREALEY MYERS 2003. Principles of cororate finance. New Delhi: Tata McGraw Hill

publishing house. http://www.tatasteel.com/investors/annual-report-2009-10/index.html http://www.jindalsteel.com/investors/annual-reports.aspx http://www.sail.co.in/aboutus.php?tag=company-background http://www.sail.co.in/investor.php?tag=investor http://www.moneycontrol.com www.marti-tech.com http://www.accountancy.com.pk/articles


http://www.accountancy.com.pk/articles

http://www.marti-tech.com/

http://www.moneycontrol.com/

http://www.sail.co.in/investor.php?tag=investor

http://www.sail.co.in/aboutus.php?tag=company-background

http://www.jindalsteel.com/investors/annual-reports.aspx

http://www.tatasteel.com/investors/annual-report-2009-10/index.html


www.azom.com/details.asp?articleID=3541

ANNEXTURE


http://www.azom.com/details.asp?articleID=3541


Cost Sheet of Tata Steel

Cost Sheet of TATA Steel

PARTICULARS2005-

062006-

072007-08 2008-09 2009-10

Raw material consumption

2368.33121.4

63429.52 5709.91

5,494.74

Salaries & Wages1351.5

11454.8

31589.77 2305.81

2,361.48

Freight & Handling charges

1004.32

1117.44

1098.19 1251.231,357.2

7

Depreciation 775.1 819.29 834.61 973.41,083.1

8

(+)Excise duty 0 93.63 38.5 -32.75 81.13

PRIME COST5499.2

36606.6

56990.59 10207.6

10,377.80

Operation & Expenses4038.7

14647.2

85068.88 6213.58

6,813.33

(-)Commission, discount & Rebate

-80.75 -64.71 -52.53 -61.49 -82.17

(-)Provision for wealth taxes

-0.8 -0.97 -0.95 -1 (1.00)

(+)O/S of WIP 32.42 23.93 28.94 71.48 73.17

(-)C/S of WIP -23.93 -28.94 -71.48 -73.17 (158.65)

FACTORY COST9464.8

811183.

2411963.4

516357

17,022.48

(+) O/S of FG 887.221000.6

21078.08 1074.27

1,361.85

(+)Purchases of FG 656.08 450.6 446.95 358.87 169.08

(-)C/S of FG - - - - (1,141.4



1000.62

1078.08

1074.27 1361.89 0)

COST OF PRODUCTION10007.

5611556.

3812414.2

116428.2

517,412.

01

(+)Commission to selling agents

80.75 64.71 52.53 61.49 82.17

COST OF GOODS SOLD10088.

3111621.

0912466.7

416489.7

417,494.

18

PROFIT5051.0

85930.9

37,226.5

47,826.0

37,527.8

0

SALES15139.

3917552.

0219,693.

2824,315.

7725,021.

98

NOT CONSIDERED IN COST SHEET

(+)Provision for wealth taxes

0.8 0.97 0.95 1 1.00

(+)Provision for D. debts and adv

6.49 11.99 12.16 8.61 -16

(+)INTEREST 118.44 173.9 878.7 1,152.69 1,508.40

(-)Expenditure -112.62 -236.02 -175.5 -343.65 -326.11

(-)Other income -254.76 -433.67 -335 -308.27 -853.79

TOTAL -241.65 -482.83 381.31 510.38 313.50

DIFFERENCE(PROFIT-TOTAL)

5292.73 6413.76 6,845.23 7,315.65 7,214.30


Date post:	17-Oct-2014
Category:	Documents
Upload:	kumari-manisha
View:	439 times
Download:	22 times

Sip Report on Working Capital

Documents