Professional Documents
Culture Documents
ON
WORKING CAPITAL AND INVENTORY MANAGEMENT OF TATA
STEEL
Submitted To
RAJEEV GANDHI COLLEGE OF MANAGEMENT STUDIES
(PLOT NO.1, SECTOR 8, GHANSOLI, NAVI MUMBAI)
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DECLARATION
DATE-:
------------------------------
ROLL NO: 86
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DECLARATION
------------------------- ---------------------------
Dr. ANIL MATKARDR. ANIL MATKAR
(PROJECT GUIDE) (DIRECTOR)
DATE:
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ACKNOWLEDGEMENT
DATE :
(PRANALI KAILAS SALVE)
(Roll No.86)
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INDEX
1 EXECUTIVE SUMMARY 6
3 8
RESEARCH METHODOLOGY-: SOURCES OF PRIMARY
DATA AND SECONDARY DATA
6 LIMITATION 60
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EXECUTIVE SUMMARY
The TATA Iron and STEEL Company, formerly known as TISCO, began its production in
1911. It was the vision and foresight of Mr. Jamshedji Nusserwanji Tata, that on 27th February,
1908, the first stake was driven into the soil of Sakchi. His vision helped Tata steel overcome
several period of adversity and strive to improve against all odd. He untiringly strove to create
an organization that could provide India with the strength to stand on its own feet. Tata Steel is
the worlds sixth largest steel company, with an annual crude steel capacity of 30 million
tonnes per annum. 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.
This project gives a complete picture of inventory management and working capital
management at TATA STEEL. Inventory management is a great problem at TATA STEEL .As it
is manufacturing firm, delay or other issues related to stock, poses serious problems and huge
losses. Inventory management is a part of financial accounts of an organization. Hence the
project underlines the relationship of inventory with financial accounts and all other important
aspect of inventory management at TATA STEEL.
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OBJECTIVES OF THE RESEARCH
To study and understand the Working capital & inventory management of Tata Steel and its
comparison with other steel companies.
To study the modern techniques used for inventory management.
To determine the efficiency of the organization with the help of various working capital
ratio.
To analysis different technique to maintain optimum inventory by the management.
RESEARCH METHODOLOGY
This study is based on descriptive and applied research .The accounting as well as planning in
control in inventory is thoroughly studied by using consumption pattern and ratio analysis .The
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result of control mechanism has summarized which helps in identifying the effectiveness of the
system under preview, hence ratio analysis has been used to assure of a conclusion.
For the purpose of project data is very much required which works as a food for process which
will ultimately give output in the form of information. So before mentioning the source of data
for the project I would like to mention that what type of data I have collected for the purpose of
project and what it is exactly.
PRIMARY DATA
Primary data is basically the live data which I collected on field while talking with the
Employees. In some cases I got no response from their side and then on the basis of my
Experiences I filled those fields.
SECONDRY DATA
Secondary data is already published data. It is the data which is funded or collected by
someone else before and presently used by further research work. Secondary data for the base
of the project I collected from annual report of bank, bank pamphlets and internet etc.
SOURCES OF DATA
Secondary Source
Companies record
Annual reports
Websites
Intranet of Tata Steel ltd.
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INTRODUCTION
WORKING CAPITAL
Working capital is the amount of funds necessary to cover the operating cost of the
enterprise. It is calculated by the following formula:
Net working capital= current asset-current liabilities.
Working capital management is concerned with the problems that arise in attempting to
manage the current assets, current liabilities and the interrelationship that exists between them.
In other words, working capital management refers to all aspects of administration of both
current assets and current liabilities.
Capital required for a business can be classified under two main categories:
1) Fixed Capital
2) Working Capital
Every business needs funds for two purposes for its establishment and to carry out its day-to-
day operations. Long terms funds are required to create production facilities through purchase
of fixed assets such as plant& machinery, land, building, etc. Investments in these assets
represent that part of firm's capital which is blocked on permanent or fixed basis and is called
fixed capital. Funds are also needed for short-term purpose for the purchase of raw material,
payment of wages and other day-to-day expenses etc.
These funds are known as working capital. In simple terms, working capital refers to that part
of the firm's capital which is required for financing short-term of current assets such as cash,
marketable securities, debtors & inventories. Funds, thus, invested in current assets keep
revolving fast and are being constantly converted into cash and this cash flow out again in
exchange for other current assets. Hence, it is also known as revolving or circulating capital or
short term capital.
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CONSTITUTENTS OF WORKING CAPITAL
1) Cash in hand and at dank
2) Bills Receivables
3) Sundry Debtors
4) Short term loans and advances
5) Inventories of stock
6) Temporary investment of surplus funds.
7) Prepaid expenses
8) Accrued incomes
9) Marketable securities
In a narrow sense, the term working capital refers to the net working. Net working capital is the
excess of current assets over current liability.
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which the sales are affected. A firm having a high rate of stock turnover will need lower
amount of working capital as compared to a firm having a low rate of turnover.
CREDIT POLICY: The credit policy of a concern in its dealings with debtors and
creditors influence considerably the requirements of working capital. Concerns that
purchase its requirements on credit and amount of working capital.
PRICE LEVEL CHANGE: Changes in the price level also affects the working capital
requirements. Generally the raising price will require the firm to maintain larger amount
of working capital as more funds will be required to maintain the same current assets.
EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning
capacity. Such firms with high earning capacity may generate cash profit from
operations and contribute to their working capital. Moreover, a firm that maintains a
steady high rate of cash dividend irrespective of its generation of profits needs more
working capital.
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PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY
The following are the general principles of a sound working capital management policy:
1) PRINCIPLE OF RISK VARIATION:Risk here refers to the inability of a firm to meet its
obligations as and when they become due for payments. Larger investments in current assets
with less dependence on short term borrowing increases liquidity, reduces dependence on short
term borrowings increases liquidity, reduces risk and there by decreases the opportunity for
gain or loss. On other hand less investment in current assets with greater dependence on short
term borrowings, reduces liquidity and increases profitability.
2) PRINCIPLE OF COST OF CAPITAL: The variation source of raising working capital
finance has different cost of capital and the degree of risk involved. Generally, higher the risk
lower is the cost and lower the risk higher is the cost. A sound working capital management
should always try to achieve a proper balance these two.
3) PRINCIPLE OF EQUITY POSITION: This principle is concerned with planning the total
investment in current assets. According to this principle the amount of working capital invested
in each component should be adequately justified by a firm equity position. Every rupee
invested in the current assets should contribute to net worth of the firm. The level of current
assets may be measured with the help of two ratios: (a) current assets as a percentage of total
assets. (b) current assets as a percentage of total sales.
4) PRINCIPLE OF MATURITY OF PAYMENT: This principle is concerned with planning
the source of finance for working capital. According to this principle a firm should make every
effort to relate maturities of payment to its flow of internally generated fund. Maturity pattern
of various current obligations is an important factor in risk assumptions and risk assessment.
Generally, shorter the maturity schedule of current liabilities in relation to expected cash
inflows, the greater the inability to meet its obligation in time.
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FINANCING WORKING CAPITAL
Financing Working capital is an important part of working capital planning. They are:
Long term financing
Short term financing
Spontaneous financing
Mix of these.
SPONTANEOUS FINANCING:
They are cost free financing source. Therefore a firm would like to finance as much as
possible.
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THE CONCEPT OF ZERO WORKING CAPITAL
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INVENTORY
Inventory refers to goods and materials that held available in stock by a business. In
accounting inventory is considered an Asset. Inventory is most expensive Asset of a company,
representing as much as 40% of total invested capital.
INVENTORY MANAGEMENT
Inventory management is primarily about specifying the size and placement of stocked
goods. Inventory management is required at different locations within a facility or within
multiple locations of a supply network to protect the regular and planned course of
production against the random disturbance or uncertainties of running out of materials or
goods. Balancing these competing requirements leads to optimal inventory levels, which
is an on-going process as the business needs shift and react to the wider environment.
Inventory management is the process of efficiently overseeing the constant flow of units
into and out of an existing inventory. This process usually involves controlling the
transfer in of units in order to prevent the inventory from becoming too high, or
dwindling to levels that could put the operation of the company into jeopardy.
Competent inventory management also seeks to control the costs associated with the
inventory, both from the perspective of the total value of the goods included and the tax
burden generated by the cumulative value of the inventory.
FUNCTIONS OF INVENTORY
To maintain certain amount of inventory to prevent the time lag present in the supply
chain, from supplier to user at every stage.
Economies of scale-Idea condition of one unit at a time at a place where user needs it,
principle tends to incur lots of cost in terms of logistics. So bulk buying, movement and
storing brings in economies of scale thus inventory.
To separate production from the distribution. For example if product demand is high
only during the summer, a firm may build up stock during the winter and thus avoid the
costs of shortage and stock out during the summer.
To protect against any shortage that can occur due to weather, suppliers shortages,
quality problems or improper deliveries.
To take advantage of quantity discount, since purchase in larger quantities can reduce
the cost of goods.
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To protect against any shortages that can occur due to weather, suppliers shortages,
quality problems or improper deliveries.
TYPES OF INVENTORIES
RAW MATERIAL
Raw materials are inventory items that are used in the manufactures conversion process to
produce components, sub assemblies, or finished products. These inventory items may be
commodities or extracted materials that the firm or its subsidiary has produced or extracted.
They also may be objects or elements that the firm has purchased from outside organisation.
Even if the item is partially assembled or is considered as finished goods to the suppliers, the
purchaser may consider it as raw material if his firm has no input into its production.
Typically , raw materials are commodities such as ore, paper, wood, paint, steel, food items,
minerals, chemicals, grains etc. However ,items such as nut & bolts, ball bearings, key stock,
casters, seats and even engines may be regarded as raw materials if they are purchased from
outside firm.
WORK IN PROGRESS
Work in process or In-process inventory includes the set at large of unfinished items for
products in a production process. These items are not yet completed but either just being
fabricated or waiting in a queue for further processing or in a buffer storage. The term is used
in production and Supply chain management.
SPARE PARTS
This category includes those products, which are accessories to main products produced for the
purpose of sale. Example of spare items are bolts, nuts, clamps, screws etc.
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GENERAL POLICIES FOR EFFECTIVE INVENTORY MANAGEMENT
Each company must adopt and follow the following internal control policies for inventory:
a) Segregation of duties must exist between record keeping and custodial function.
b) Adequate accounting control over inventory must be established and maintained.
c) Inventory should be stored where loss form fire, theft, temperature, humidity or other
elements is minimized.
d) Store keeper must compare quantities received against receiving reports.
e) Materials may be released form storerooms only on the basis of approved requisition.
f) Access to storeroom must be controlled.
g) An annual physical inventory must be performed regardless of which inventory system
is used.
h) If perpetual inventory system is used, then periodic testing of items in the inventory
must be performed to verify the accuracy of the perpetual inventory records.
METHOD OF VALUATION
Usually closing stock is value at lower of the historical cost and net realizable value.
Historical cost means cost of purchase, cost of conversion and other cost incurred in a normal
course of business in bringing the inventories up to their present location and condition. Net
realizable order to make sale. There is no unique formula for determining historical cost of
inventories.
Several methods are used for pricing inventories used in production but there are three basic
approaches to value inventory that are followed by GAAP:
1. First in, First out(FIFO)
2. Last in, First out(LIFO)
3. Weighted Average
Weighted Average
Under this method, material issues are priced at the weighted average cost of material in the
stock. Under this both inventory and cost of goods sold are based upon the average cost of all
units bought during the period. When inventory turns over rapidly this approach will more
closely resemble FIFO and LIFO.
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In accounting, an inventory distribution method in which the inventory with highest cost of
purchase is the first to be used or taken out of stock. This will impact the companys books
such that for any given period of time, the inventory expenses will be the highest possible.
Standard Price Method
Materials are price based on standard cost which is predetermined. When the material is
purchased the stock account will be debited with standard price. The difference between the
purchased price and standard price will be carried into a variance account.
REPLACEMENT/CURRENT PRICE METHOD
In this method the material is priced at the value that is realizable at the time of issue.
The valuation of the work in progress and finished goods inventory depends to a certain
extend on the method of pricing the raw materials and to a large extent on the method of
costing that is used. Direct costing and absorption costing are the two techniques used for
allocation of costs to the inventory.
RAW MATERIALS:
Tata Steel consumes different types of raw materials .A raw is classified into different types
and they are recognized by name of place from they used to obtain and accounting is done
accordingly. For example cooking coal is classified into indigenous and imported. Indigenous
is further classified as Jamadoba, bhetland , West bokaroetc..ie.name of place from where
they use to obtain and records are maintained accordingly.
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FLAT PRODUCT
Hot strip Mill Works material yard
Domestic yard Export yard
LONG PRODUCT
M.Mill no. 1 and no.2 M .I and S.Mill
AT STOCKYARD
Flat
Long
EXPORTS
Flat
Long
Tubes Divison
Finished tubes at plant W.I.P
Steel from works Non steel external
Scrap at branches and plant By-products
TSSL
CRM SISSODRA Scrap
At works WRM west
In transit At works
Stockyards In transit
EPAs
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Cold rolling complex east (flat product)
Stockyard / consignment agent
With EPAs(Re rollers)
In proces at works
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COAL MINES
Tata Steel has two collieries in West Bokaro and Jharia ,in the state of Jharkhand. While
West Bokaro unit is open cast mines, the Jharia unit is underground. The coal mines are
about 150 kms from steel plant at Jamshedpur and produce superior grades of clean
coal. Tata Steel collieries use SURPAC, a state of the art software that estimates the
volume of coal in every seam. This software is coupled with qualitative detailing that
focuses on output consistenvy.To maximize the productivity and utilization, a voice and
data equipped Global Positioning System is used which helps to supervise mining
activity for machine movement and engine status. The collieries division is equipped
with in house washeries, which use the beneficial process to separate coal from
impurities. The dense Media Cyclone process utilized over here refines coal particles
smaller than 13mm while froth Floatation cells processes coal below 0.5mm.
Iron ore mining is integral part of steel making in Tata Steel Limited. It began with
discovery of iron ore in 1903.Since then, it has been a long odyssey for Tata Steel
mines division. The iron ore units are located in Noamundi , Joda and Katamandi in the
state of Jharkhand and Orissa .The mineral ore is crushed, right sized and washed in-
house at the site and transported to the steel works in Jamshedpur and to other
customers.
MINING PRACTICES
Streamlined Processing:
Over the years several modern methods of mining have been initiated here resulting in
operational excellence. Some of these are:
Roof bolts as the main roof support system in underground operations.
Introduction of universal drilling machines for face and roof drilling.
Underground usage of Compressed Air drills for Roof bolting operations.
Use of Roof Convergence Monitors for Strata control.
Use of Screen Bowl centrifuges for dewatering of Fine Clean Coal.
Use of PLC based washeries control system.
Use of solid bowl centrifuges for dewatering of Tailing.
Maximizing Efficiency
The West Bokaro Collieries have introduced several innovative practices to improve
their operational efficiency. Some of these are:
Processing of weathered coal.
Ripper to extract thin Seam.
Raw Materials are life blood for Tata-Steel. As we know that every organization wants
to reduce their inventory level because there are number of costs which are directly or
indirectly associated with level of inventory. As the level of inventory increases the
associated cost like carrying cost, storage cost, maintenance cost etc, also increase and
vice-versa.
The current global steel industry is in its best position in comparison to last decades. The
price has been rising continuously. The demand expectations for steel products are
rapidly growing for coming years. The shares of steel industries are also in a high pace.
The steel industry is enjoying its 6th consecutive years of growth in supply and demand.
And there is many more merger and acquisitions which overall buoyed the industry and
showed some good results.
The subprime crisis has lead to the recession in economy of different countries, which
may lead to have a negative effect on whole steel industry in coming years. However
steel production and consumption will be supported by continuous economic growth.
COMPANY PROFILE
The TATA Iron and STEEL Company, formerly known as TISCO, began its production
in 1911. It was the vision and foresight of Mr. JamshedjiNusserwanjiTata, that on 27th
February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata
steel overcome several period of adversity and strive to improve against all odd. He
untiringly strove to create an organization that could provide India with the strength to
stand on its own feet. Tata Steel is the worlds sixth largest steel company, with an
annual crude steel capacity of 30 million tonnes per annum. It is the second largest
private sector steel company in India in terms of domestic production. Ranked 315 th on
fortune global 500, it is based in Jamshedpur, Jharkhand, India.
It is part of TATA Group of companies in private sector with consolidated revenues of
Rs.1,32,110 cores and the net profit of over Rs12,350 cores, during the ended March
31st ,2008. Its main plant is located at Jamshedpur in Jharkhand with its acquisition of
Corus, Nat steel and Millennium Steel it has become a multinational company with
operations in various countries
The registered office of TATA STEEL is in Mumbai.
Tata steel Jamshedpur (India) works has a crude steel production capacity of 6.8 MTPA
which is slate to increase to10MTPA by 2011. The company also has proposed three
Greenfield steel project in the state of Jharkhand, Orissa and Chhattisgarh in India with
additional capacity of 23 MTPA and a Greenfield project in Vietnam.
Through investments in Corus , millennium steel (renamed Tata steel Thailand ) and
Nat steel holdings, Singapore , Tata steel has created a manufacturing marketing
network in Europe , south east Asia and the pacific rim countries. Corus, which
manufactured over 20 MTPA of steel in 2008, has operations in the Netherlands,
Germany, France, Norway and Belgium.
TATA STEEL Thailand is the largest producer of long steel products in Thailand, with a
manufacturing capacity of 1.7 MTPA. Tata steel has proposed a 0.5 MTPA mini blast
furnace project in Thailand. Natsteel holdings produce about 2MTPA of steel products
across its regional operations in seven countries.
Tata steel has lined up a series of Greenfield projects in India and outside which
includes:
a) 6 million tonnes plant in Orissa
b) 12 million tonnes plant in Jharkhand
c) 5 million tonnes plant in Chhattisgarh
d) 3 million tonnes plant in Iran
e) 6.8 million tonnes capacity expansion at Jamshedpur.
f) 4.5 million plant in Vietnam.
TATA STEEL, through its joint venture with Tata Blue Scope Steel ltd., has also entered
the steel building and construction applications market.
The iron ore mines and collieries in India give the company a distinct advantage in raw
material sourcing. Tata Steel is also striving towards raw materials security through
joint venture in Thailand, Australia, Mozambique, Ivory Coast and Oman. Tata Steel
has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint
venture company for coal mining in India. Also Tata Steel has brought 19.9% stake in
New Millennium Capital Corporation, Canada for iron ore mining.
Vision:-
We aspire to be the global steel industry benchmark for
Value Creation and Corporate Citizenship.
Mission:-
Consistent with the vision and values of the founder,
Jamshetji Tata, Tata Steel strives to strengthen Indias industrial
base through the effective utilization of staff and materials, the
means envisaged to achieved 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 fears, and
thereby reaffirms its faith in democratic value
TYPES OF PRODUCT
AGRICULTURAL IMPLEMENTS
TATA STEEL manufactures superior quality agricultural implements through its Agrico
division from TATA high carbon Steel, after using a single piece by forging. The high
quality of the product makes them the 1 st choice in agricultural equipment procurement
both in public and in private sector.
BEARING
A wide variety of bearing and auto assemblies are manufactured at TATA STEEL at its
bearing division with a production capacity of 30 million bearing division with a
production capacity of 30 million bearing numbers per annum. TATA bearing and auto
components happen to be the preferred choice of the key players in the targeted industry
segment.
FLAT PRODUCT
Galvanized corrugated sheets under brand name TATA Shaktee has been consistently
delivering on its promises of longevity and strength TATA STEELUM, another product of
the plant product division happens to be the worlds 1st branded cold rolled steel and has a
strong presence in the retail segment through exclusive shops called Selenium zones.
LONG PRODUCT
Thermo Mechanically Treated (TMT). Rebar from the long Product Division are
produced under the brand name Tiscon and are the 1st of its kind to have been introduced
in India Tiscon has been the 1st rebarin the country to be awarded the super brand status
in the constant rebar category.
RAW MATERIALS
With a century of experience in sourcing raw material through scientific research and
development and sustainable mining, TATA STEELs three main areas of raw material,
operation are iron- ore, chromites and coal. The companys long term strategy has been
designed to have greater control over raw material.
TURBO
Pipes manufactured by the companys strategy business unit TATA TUBES, is the most
prominent brand in the industry today which is retailed through a wide distribution
network. A deeply thought out branding exercise was under taken in order to unleash the
power of the TATA PIPES brand in the welded steel.
WIRES:
Steel wires under the brand name TATA Wiron compromise 30% of market share of the
organized wire market in India. A wide range of wires manufactured by TATA STEELs
wire division cater to the needs of the various industry segments such as automobiles,
infrastructure, power and general engineering.
Fig.13.TATA wires (Source: Internet)
TECHNOLOGY
A collaborative approach, cross-fertilization of better practices and technology
absorption through integration of processes have led to measurable results in the Tata
Steel Groups performance in the direction of continuous improvement.
EAF process uses predominantly scrap. DRI is used when the scrap is not available.
A new process, which is known as CONARC has been developed by SMS- DEMAG.
It employs hot metal, scrap and DRI to different proportions as per their availability.
BUSINESSS AREAS
The activities of the enterprises promoted by TATAs are classified into 12 sectors:
Metal and associated industries
Automobiles
Energy
Engineering
Chemical and Pharmaceuticals
Consumer products
Services
Agro industries
Information technical and communication
Exports and overseas operations
Finance
Constructions.
COMPANY STRATERGY
Despite the current slowdown in consolidation within the global steel industry, mergers
and acquisitions remain a critically important business strategy for most corporate. Steel
analysts are expecting new wave of consolidation to take place in the next three years.
Global giants are re focusing on positive markets by applying their resources to the core
business where they are most needed. This creates opportunities to gain more market share
from competitors who diversify and spilt their focus. Acquisition and strategic alliances are
also critical to strengthen, refocus and position companies for increased growth and
profitability. The Tata Steel group is strongly pursuing its long term strategy for acquiring
and developing mining projects for its raw material security for iron ore and coking coal.
The group has been concentrating in the geographies that are logistically favourable with
respect to its plan in Europe and Asia.
CORPORATE OBJECTIVES
EVA positive core business
Sustainable growth
Invest in attractive new business
Dives, merge, acquire
Move from commodities to brand
Value creating partnership with customers.
Value creating partnership with suppliers.
Continue to be the lowest cost producer of steel
Outsourcing strategically
Excel at TBEM
Manage knowledge
Improve the quality of life of employees.
Improve the quality of life of the communities we serve.
SWOT ANALYSIS
Strengths:-
LOW COST AND EFFICIENT LABOUR FORCE
STRONG MANAGERIL CAPABILITIES.
STRONGLY GLOBLISED INDUSTRY AND EMERGING GLOBAL
COMPETITIVENESS.
MODERN NEW PLANT.
STABLE BALABCE SHEET.
EXPERINCE OF TATA GROUP IN DOING.
WEAKNESS:-
HIGH COST OF ENERGY.
HIGHER DUTIES AND TAXES.
DEPENDENCE ON IMPORTS FOR SALE.
MANUFACTURING EQUIPMENTS AND TECHNOLOGY.
OPPORTNITIES:-
HUGE INFRASTRUCTURE DEMAND.
RAPID URBANIZATION.
INCREASING DEMAND FOR CONSUMERS DURABLES.
UNTAPPED RURAL DEMAND.
CONSILIDATION TREND IN STEEL INDUSTRY TO GET EXPOSED TO
THE GLOBAL STEEL MARKET.
THREATS:-
SLOW GROTH IN INFRASTRUCTURE DEVELOPMENT.
MARKET FLUCTATION.
GLOBAL ECONOMY SLOW DOWN
THRETS TO HOSTILE TAKEOVER BY ITS COMPETITOR
COMPETITORS
JINDAL,
GallanttIspat ltd,
4000 2889.39
2697.83
2000 1021.93
1 2 3 4 5
0
-702.5
-2000
INTERPRETATION
Net working capital refers to the excess of current asset over the current liabilities. In the five
years, we can see highly fluctuating figures of net working capital. In the year 2012the net
working capital is moderately low but positive. But in the year 2013, the figure falls and becomes
negative. This is because of fall in the amount of loans and advances by almost 500 crores. In the
subsequent years, the net working capital becomes positive and also improves. In 2016 the net
working capital increases to 8610.19 which is a good sign for the company. The increase is
majorly due to increase in inventories, loans and advances and cash and bank balances.
CURRENT LIABILITY
Sundry creditors 3.096958 18.47926 6.346187 15.52421
subsidiary companies 12.79602 1073.423 11.49972 12.99412
interest accrued but not due 390.4479 119.2945 33.5478 0.391629
advances received from the customer 13.99536 31.56218 12.65091 -12.2839
liability towards investor education &prot fund 33.58439 -10.5331 15.98396 5.062979
provision for retiring gratuities -100 0 0 0
provision for employee benefits 80.46747 34.71139 -1.36298 42.06208
provision for taxes 90.50103 -42.2105 2.668286 56.03297
provision for fringe benefits 4.082744 0 -88.9121 83.01887
proposed dividends 26.19 7.327557 -44.4798 62.17366
TOTAL(B) 24.11445 32.58534 0.280798 22.18096
300.000
200.000 Net working capital
100.000
28.200
3.000 4.000
0.000 1.000 2.000
-100.000
-168.742
-200.000
-252.750
-300.000
INTERPRETATION
The net working capital of TATA STEEL falls in the year 2013 and 2014 by around
49%. This indicates poor working capital management of the company. The fall is
basically due to increase in the provisions in the two years. In the year 2014, the net
working capital increases and becomes positive indicating improved working capital
management. 2016 shows high raise in the net working capital. The raise is due to
increase in inventories, cash and bank balances and loans and advances. This is a
indication of improved working capital management strategies of TATA STEEL.
( incrores)
2 2
0 0
201 1 20 1
PARTICULARS 2016 5 4 13 2
1
0 6
0 4
4 7
7 5
103 . 606 .
1802 75. 4 6.2 5
CURRENT ASSET 4.44 29 8 8 9
8 5
9 4
7 5
4 3
899 . 676 .
CURRENT 1099 9.6 4 8.7 6
LIABILITY 5.81 1 1 8 6
1 1
. .
CURRENT 1.1 1 0.9 1
RATIO 1.64 5 2 0 9
6.00
5.00
4.00 CURRENT RATIO
5.00
3.00 4.00
3.00
2.00 2.00
1.00
1.00
1.12 1.15 1.12 0.90 1.19
0.00
INTERPRETATION
As per the conventional rule, the current ratio of 2:1 is said to be ideal for any company.
In2012-2013, it has decreased by 24.36% due to decrease in current assets as well as
increase in current liabilities, which is not a good sign. Contrary to this, the ratio
increased by 24.4% in 2013-2014 2.67% in the year 2014-2015 and by 42.60 % in2015-
2016.this shows that the company is trying to get upto the standard of 2:1 ratio and is
achieving a good position.
Table 3: ABSOLUTE RATIO:
( incrores)
2 2
0 0
PARTICULA 20 1 20 1
RS 2016 15 4 13 2
8
9 5
7 4
4 5
899 . 67 3.
CURRENT 10995. 9.6 4 68. 6
LIABILITY 81 1 1 78 6
1 7
5 6
9 8
323 0 46 1.
CASH AND 4141.5 4.1 . 5.0 3
BANK 4 4 6 4 5
0
. 1.
ABSOLUTE 0.3 1 0. 4
RATIO 0.38 6 8 07 1
ABSOLUTE RATIO
8.00
7.00
6.00
5.00
5.00 ABSOLUTE RATIO
4.00
3.00
INTERPRETATION
Absolute liquid ratio was quite high in the year 2011-2012 but in the following years
the ratio decreased considerably. The fall was due to increase in current liability as well
as decrease in fall in cash balance of TATA STEEL, which indicates that the company
maintains low cash balance for the company.
( incrores)
2
0
PARTICULA 201 1 20
RS 2016 5 4 2013 12
8
9
7
4
. 545
CURRENT 10995 899 4 6768. 3.6
LIABILITY .81 9.61 1 78 6
1
5
9
0 768
CASH AND 4141. 323 . 465.0 1.3
BANK 54 4.14 6 4 5
0
.
ACID TEST 0.3 1 1.4
RATIO 0.38 6 8 0.07 1
6.00
5.00
INTERPRETATION
A quick ratio of 1:1 is considered favorable for a company. TATA STEEL
In 2012-2013quick ratio has decreased by 30.58% which is not a favorable condition
as compared to the previous year. In2013-2014 the ratio has increased by 35.59%, 10%
in 2014-2015 and by 52.2% in the year 2015-2016. In 2015-2016the ratio has crossed
the standard of 1:1 which is a good sign for the company. This increase in quick ratio
was due to increase in liquid assets and the reason behind this increase was increase in
value of stock as compared to previous year.
( incrores)
20 20
PARTICULARS 2016 2015 14 2013 12
6
9
3
88 0.
11085. 9121. 54. 8244.6 6
GROSS PROFIT 6 89 62 8 4
1
7
5
24 5
31 2.
29396. 25021 5.7 19693. 0
NET SALES 35 .98 7 28 2
G.P RATIO 37.71 36.46 36 41.87 3
.4 9.
4
2 9
INTERPRETATION
The years2011-2012, 2012-2013shows high gross profit a ratio which falls in the
following years. In the year 2012-2013, the increase is by 6.02% .where as in the year
the ratio falls by 13.04% and continues to be low in the following years. In spite of
increase in the gross profit, the ratio falls because the total amount of sales also
increases.
( incrores)
PARTICULA 201 201 20 201
RS 6 5 14 2013 2
520
686 504 1.7 4687 422
NET PROFIT 5.69 6.8 4 .03 2.15
293 250 243 175
96.3 21. 15. 1969 52.0
NET SALES 5 98 77 3.28 2
23. 20. 21. 23.8 24.
N.P RATIO 36 17 39 0 06
19.00
18.00
INTERPRETATION
The net profit ratio decreases by 1.08% in the2012-2013, by 10.1% in 2013-2014and by
5.70% in2014-2015. But in the year 2015-2016 the ratio increases by 15.81% which
indicates a high proportionate increase in net profit as compared to the last 4 years.
( incrores)
20
4
15 O.P RATIO
1 3
10 2 5
15.70
5 11.64 10.83
9.29 7.24
0
INTERPRETATION
The operating profit ratio increases by 6.27% in the year 2012-2013, but it falls by
9.84% in 2013-2014, by 5.69% in the year 2014-15. There is a positive change
(increase) in the year 2015-2016 by 6.77%. Although the sales are increasing, the
proportionate increase in operating profit is much more in 2015-2016.
TURNOVER RATIO
Table 8: DEBTORS TURNOVER RATIO
( incrores)
2
0
PARTICULAR 201 1 201
S 2016 5 4 2013 2
2
4
3
1
5
. 175
29396. 2502 7 19693 52.
NET SALES 35 1.98 7 .28 02
5
8
9
. 577
535. 7 587.5 .02
AVG DEBTORS 431.43 41 3 6 2
4
1
Debtors .
Turnover 46.7 2 30.
Ratio 68.14 3 3 33.52 42
INTERPRETATION
This ratio finds out how faster debts are being collected, so higher the ratio better is the
debtor turnover. The above chart and table of Tata steel ltd. shows that the debtors
turnover ratio is constantly increasing over the years by 13.3%, 20.5%, 14.6%, 44.6%
in the year 2012-13,2013-14,2014-15,2015-16 respectively. In 2010-11, the sales has
increased but the debtor has decreased, this shows that Tata Steel has concentrated more
on cash sales and this has resulted in an increase in the ratio, which is very good sign
for further short term investment or for purchasing stocks.
( incrores)
201 20 20 20 20
PARTICULARS 6 15 14 13 12
93 95 68
106 46 81 52 64
NET CREDIT 06. .3 .4 .4 17.
PURCHASE 47 3 6 9 97
23 27
285 95 30 31 28
AVERAGE 6.2 .4 .7 94 40.
CREDITORS 3 8 2 .7 01
CREDITORS
TURNOVER 3.7 3. 3. 2. 2.
RATIO 1 90 51 14 26
INTERPRETATION
Any business firm purchases raw materials on credit from its suppliers.
Creditors turnover ratio denotes that in how quickly a company is able pay back its
suppliers. So higher the Creditors turnover ratio better it is for the manufacturing
company as well as the supplier, as they can maintain a better relationship between
them. The above chart and table shows that Tata steel maintains a poor creditors
turnover ratio. This means that companys credit worthiness is not favorable. But on the
contrary we can say that Tata steel is taking full advantage of the credit facilities given
to them by their suppliers. At the same time being a huge brand they have also
maintained a healthy relationship with their suppliers.
FIXED ASSETS TURNOVER RATIO= (NET SALES/ FIXED ASSETS)
Table 10:FIXED ASSET TURNOVER RATIO
( incrores)
PARTICULAR 20 201
S 2016 2015 14 3 2012
24
31 196
29,39 2502 5. 93.2 17552
NET SALES 6.35 1.98 77 8 .02
14
48 126
1877 1600 2. 23.5 11040
FIXED ASSET 4.48 6.03 22 6 .56
F.A
TURNOVER 1. 1.5
RATIO 1.57 1.56 68 6 1.59
1.65
F.A TURNOVER RATIO
1.6 1.59
1.57
1.56 1.56
1.55
1.5
1.45
INTERPRETATION
This ratio shows how effectively company uses its fixed asset to
generate sales. The above chart and table of Tata steel ltd. showsthat
fixed asset ratio is decreased in the year 2012-13 by 1.88%, then
increased in the year 2013-14 by 7.69%,then decreased in 2014-15
by 7.14% and in the year 2015-16 it increase by 0.64%.Though there
is fluctuation in the ratio but there is slight changes every year. We
can see from the table that there is increase in net sales as well as
fixed assets. Inspite of this increase in sales is not in proportion to the
increase in fixed assets.
( incrores)
10.00 22.66
18.19 17.17
1.00
4.18 4.00 WORKING CAPITAL
0.00
TURNOVER RATIO
-10.00
-28.03
-20.00
-30.00
-40.00
INTERPRETATION
This ratio indicates the velocity of the utilization of net working. In 2011-2012 the ratio
is 17.17 times which is good. But in 2012-13 there is a decrease of 263.25% due to
negative net working capital. But in 2013-14 it has increased by180.4% due to increase
in cash, stocks and loans and advance. But again in 2014-15 the ratio has decreased by
19.72%, while the sales and working capital both have increased as compared to
previous year. In 2015-16 the ratio falls greatly by 77.02% but remains positive. This
indicates that Tata steel needs to pay attention towards its working capital management.
( incrores)
1 1
0.5
0
INTERPRETATION
This ratio shows how effectively company uses its current asset to generate sales. The
above chart and table shows that there is increase in current asset ratio by 19.93% in the
year 2012-2013.In the year 2015-14 we can see in the table that there is increase in both
net sales as well as current asset but still there is decrease in the ratio by 25.54% due to
inefficient use of current asset to generate sales. In the year 2014-15 there is no change
in current ratio. Again in 2015-16 there is decrease in the ratio by 32.37%.this indicates
that Tata Steel need to pay attention to its current ratio.
( incrores)
6.00
-2.91
-2.00
-4.00
INTERPRETATION
In orderto ascertain that there is no over stocking, the ratio of inventory to working
capital is calculated. According to the standard norm Inventory to working capital ratio
is 1:1. There has been irregular rise and fall in the ratio. The major reason behind this is
sporadic changes in the working capital of Tata steel.
( incrores)
2 2 2 2 2
0 0 0 0 0
1 1 1 1 1
PARTICULARS 6 5 4 3 2
1
7 4 4 1 1
1 9 8 4 3
4 5 5 9 6
1 3 9 2 4
. . . . .
3 3 9 8 9
ABSOLUTE LIQUID ASSETS 3 7 3 8 2
1 2
1 8 4 1 1
. . . . .
PROJECTED DAILY CASH 5 9 4 2 3
REQUIREMENT 0 8 2 9 4
DEFENSIVE INTERVAL 6 5 1 1 5
RATIO 2 5 0 1 3
0 1 9 5 2
. . 9 5 .
. .
7 3 9 6 6
5 7 5 8 4
INTERPRETATION:-
The defensive interval ratio is quite good throughout the five years. TATA STEEL has
high absolute liquid asset and moderate daily projected cash requirement due to which
the company is able to maintain high defensive interval ratio.
( incrores)
2
0
20 20 20 20 1
PARTICULARS 16 15 14 13 2
1
7
5
5
25 24 19 2
293 02 31 69 .
96. 1. 5. 3. 0
NET SALES 35 98 77 28 2
TOTAL ASSETS 785 64 58 47 2
55. 23 74 07 5
91 2. 1. 5. 5
78 77 52 9
7
.
5
0
0
.
TOTAL ASSETS 0.3 0. 0. 0. 6
TURNOVER RATIO 7 39 41 42 9
Graph 16: TOTAL ASSETS TURNOVER RATIO
4
TOTAL ASSETS
TURNOVER RATIO
3
0
INTERPRETATION
The Total assets turnover ratio examines how efficient a company uses its assets to
generate sales. There has been a fall in the ratio in the five years which is not a good
sign. There are been a constant increase in the Total Assets of the company throughout
the year. But Net sales do not increase in the same proportion.
INVENTORY RATIOS
( incrores)
Graph 17: INVENTORY CONVERSION PERIOD
INTERPRETATION
The inventory conversion period shows how efficiently inventory is converted into
sales. Smaller the Inventory Conversion Period better is the companys performance. In
2012-2013,it has decreased by 0.16% further In 2013-2014 it has increased 13.47% ,in
the year 2014-2015 decreased by 16.86% and in 2015-2016 increased by 12.2%,.This
ratio establishes the relationship between sales with average stock. Therefore the
company should make an attempt to increase its sales in order to minimize its inventory
conversion cost.
Stores and spare part index
This ratio shows the index of spare parts, which are used to fixed assets.
Table 17: STORES AND SPARES PART INDEX
( incrores)
SPARES =
PART INDEX
(STORES & SPARE PARTS/NET BLOCK FIXED ASSET)*100
PARTICULARS
2016 2015 2014 2013 2012
STORES & SPARE PARTS 716.18 623.76 612.19 442.66 505.44
NET BLOCK FIXED ASSET 18774.48
16006.03 14482.22 9865.05 11040
STORES AND SPARES PART INDEX
3.81 3.90 4.23 4.49 4.58
Graph 18: STORES AND SPARES PART INDEX
10
8
5 SPARES PART INDEX
4
6 3
2
4 1
INTERPRETATION
The ratio shows the index of spare parts, which are used for fixed asset. . The ratio is
quite high in 2011-2012. But it falls over the 5 years, which is a good sign. The
company should try to maintain the ratio below 4 times. The company should always
make an attempt to reduce the use of Fixed Asset so that the expense is reduced. In
2015-2016 it has been decreased by 2.05% as compared to 7.81% in 2014-2015.
( incrores)
10
4 5
3
8 2
1 STOCK TURNOVER RATIO
6
4
6.89 6.69 6.92 6.52 6.34
2
INTERPRETATION
A low ratio indicates speedy conversion of stocks to cost of goods sold or sale. From
the above table, we can see that there has been almost a consistent increase in the stock
turnover ratio of TATA STEEL. This is a good sign for the company as it indicates that
high conversion period leads increased sales and thus increases the profitability of the
firm.
( incrores)
20 4 5
FINISHED GOODS TO CURRENT ASSET
15 3
2
10
1 17.71 16.65
13.55
5 11
7.73
INTERPRETATION
Ratio of current asset with finished goods has reduced over the years because of
increase in sales of the company. The amount received from the sales was used to make
day to day investment in the firm to carry out the operation process. It is a good sign for
the company. It has shown increase in 2012-2013 by 6.36%, in 2015-16 it has reduced
by 29.72% and in all the years the graph showed the downward movement.
This ratio indicates the percentage of raw material in the current asset of the
Company.
Table 20: RAW MATERIAL TO CURRENT ASSET
( incrores)
0.08
0.06
0.04
0.02
0.00
INTERPRETATION
The Ratio Raw Material to Current Assets has been reduced over years because of
increase in sales of the company. The raw material gets converted into finished goods
and these finished goods are sold immediately. So the amount received from the sales is
used to make day to day investment in the firm to carry out the operation process. It is a
good sign for the company. It has shown increase in 2012-2013 by 33.5%, in 2015-16 it
has reduced by 12.01% and in all the years the graph has shown downward movement.
( incrores)
RMCPERIOD=
AVG STOCK OF RAW MATERIAL/TOTAL RAW MATERIAL CONSUMED*365
74.63
72.00
64.00
INTERPRETATION
From the above table we can see that raw material conversion period of TATA STEEL
is quite high throughout the five years. Although the conversion period falls in the year
2014-2015, it increases further in the preceding years. This is not a good sign as the raw
material conversion period increases, the storing cost also increases. Hence the
company should try to reduce the raw material conversion period.
The raw material holding period is the lowest in the year 2013-14. The reason is the
huge increase in the amount of raw materials consumed. This 70% increase is mainly
due to higher prices of coal and coke and also due to higher production resulting from
the commissioning of H Blast furnace as well as other facilities and operational
improvements. Increase in the prices of Ferro alloys also contributed to the increase in
raw materials consumed. There is a sudden decrease in the amount of raw material
consumed driven primarily by non-usage of imported coke, which led to increase in the
raw material holding period.
( incrores)
NISHED GOODS CONVERSION PERIOD=AVG STOCK OF FINISHED GOOD/
PARTICULARS 2016 2015 2014 2013 2012
OPENING STOCK 1141.4 1361.85 1074.27 1078.08 1000.6
5
0
INTERPRETATION
The finished goods holding period is the highest in the year 2015-16. It is the signal of
inefficiency. There is poor sales and liquidity position whereas the finished goods
holding period is the lowest in the year 2012-13 due to efficient sales policies adopted
by the company and the demand is met efficiently. It signifies better liquidity position
of the company in 2012-13 as compared to 2015-2016.
( incrores)
WORK IN PROGRESS CONVERSION PERIOD
=(AVG STOCK OF WIP*365)/COP
PARTICULARS 2016 2015 2014 2013 2012
OPENING STOCK 158.65 73.17 71.48 28.94 23.93
CLOSING STOCK 81.19 158.65 73.17 71.48 28.93
AVG STOCK OF WIP 119.92 115.91 72.325 50.21 26.44
COST OF PRODUCTION 19189.5917412.0116428.4412414.1811555.46
WIP CONVERSION PERIOD
2.28 2.43 1.61 1.48 0.84
Graph 24: WORK IN PROGRESS CONVERSION PERIOD
1 2.28 2.43
1.61 1.48
0.84
0
INTERPRETATION
In the year 2012, we can see that the WIP conversion period is less than a day. Which is
a good sign indicating that the Work in progress is converted to finished goods is less
time. Over the five years, the conversion period increases. This is not a good sign and
indicates reduced efficiency of the company. The major reason can be increase in stock
of finished goods.
The work in progress is the lowest in the year 2011-2012 which shows that there is lot
of increase in the demand of steel products( long and flat products)in India due to
increase in the infrastructure activities. Huge amount of raw materials are processed
into the finished goods.
OPERATING CYCLE
Table 24:OPERATING CYCLE
( incrores
CREDITORS 365*Average
Creditors
CONVERSION PERIOD= Net Credit Purchases
OPERATING CYCLE
The operating cycle consists of the time period between procurement of inventory and
the collection of receivables. Quicker the operating cycle less the amount of investment
in working capital is needed and it improves the profitability. The duration of the
operating cycle depends on the nature of industry and the efficiency in working capital
management.
4
14
2
1 3
2
11
INTERPRETATION
The operating cycle is the highest in the year 2011-2012, so there is the highest need of
working capital in this year, whereas the operating cycle is the lowest. It shows that
there is less need for the working capital. This year shows the favorable situation.
INTERPRETATION
Net Operating Cycle was negative earlier but with the increase in year it is becoming
positive because it is TATA STEELs policy to pay back to its creditors on time and if it
does any delay in paying back the company gives back both the principle and interest
and thus maintain its creditworthiness.
Finished and semi finished products produced and purchased by the company are
carried at lower of cost and Net Realizable value.
LIMITATIONS
Time constraints.
Gap between theoretical and practical application in the system.
Ratios alone cannot show weather performance is good or bad.
The study is based on the comparison across companies. Every company follows
different accounting policies; hence accurate comparison is not possible.
The study is limited to the scope of data publicly available.
SCOPE OF THE STUDY
Each and every project study along with its certain objectives also has scope for future.
And this scope in future gives to new researches a new need to research a new project
with a new scope. Scope of the study not only consist one or two future business plan
but sometime it also gives idea about a new business which becomes much more
profitable for the researches then the older one. The scope of this research is as follows:
To carry out critical, comparative and statistical analysis at Tata Steel Ltd . (Steel
Division inventory management).
To find out area of weakness in the existing inventory control mechanism.
Data analysis related to the total stock in trade, stores and spares.
To find other steel companies ratio and compare with Tata Steel Ltd.
TATA STEEL could go for other techniques for inventory control. For example it
follows ABC Analysis for inventory and VED for spare parts inventory; similarly it can
go for other methods for raw material inventories, different for W.I.P and finished
goods.
Company should try to reduce the Raw material conversion period and should produce
according to demand, so that the cost associated with it can be reduced.
CONCLUSION
This project studies the inventory management of TATA STEEL, which is one of the
most important aspects of any organization, as it deals in managing the entire stock of
raw materials, stores and spares and finished and semi- finished goods .inventory
management is a difficult task at TATA STEEL as it is a manufacturing company and
needs huge stocks at all point of time to avoid lag time and delay in production.
The inventory ratio is a key figure in financial management of TATA STEEL. It
characterizes how much stocks are required at a point of time and and how much time
does the stock takes to be converted into finished goods and sales. The core objective is
to maintain the lowest inventory in order to reduce inventory holding cost. Further the
increased inventory also locks up short term funds of the company. For that reason the
directors of TATA STEEL set standards for each subsidiary which it is obliged to
follow.
BIBLIOGRAPHY
ANNUAL REPORTS
TATA STEEL
JINDAL STEEL
SAIL
WEBSITES
www.moneycontrol.com
www.tatasteel.com
www.jpsindainsteel.com
www.ibef.org