Chapter 1:

Introduction
INTRODUCTION:-
Working capital management is concerned with the problems arise in
attempting to manage the current assets, the current liabilities and the inter
relationship that exist between them. The term current assets refers to those assets
which in ordinary course of business can be or will be turned into cash within one
year without undergoing a diminution in value and without disrupting the operation of
the firm. The major current assets are cash, marketable securities, account receivable
and inventory. Current liabilities ware those liabilities which intended at their
inception to be paid in ordinary course of business, within a year, out of the current
assets or earnings of the concern. The basic current liabilities are account payable, bill
payable, bank over-draft, and outstanding expenses. The goal of working capital
management is to manage the firm’s current assets and current liabilities in such way
that the satisfactory level of working capital is mentioned.

LITERATURE REVIEW:-
• Gitman (2003) explained working capital as follows: “Current assets, commonly called
working capital, represent the portion of investment that circulates from one from to another in the
ordinary conduct of business.”
• Filbeck and Krueger (2005) define working capital management as follows: “It is the
different between resources in cash or readily convertible into cash (Current Assets) and
organizational commitments for which cash soon will be required (Current Liabilities).”
• Wild, Subramanyam and Halsey (2004 P519) as follows: “It is important in measure of
liquid assets that proved a safety cushion to creditors. It is also important in measuring the liquid
reserve available to meet contingencies and the uncertainties surrounding a company’s balance of
cash and outflows”.

1
OBJECTIVES OF THE STUDY:-
 The objective of the research is to study and analyze the working capital
management of Tata Steel Ltd.

 To know the increase or decrease in different assets of Tata Steel Ltd which has
affected its working Capital.

 To know the increase or decrease in different liabilities of Tata Steel Ltd which has
affected its working Capital.

 To find out the changes occurred in last 5 years in the Profit and Loss of the Tata
Steel Ltd.

 To know the performance levels of Tata Steel Ltd. in the present market.

 This study provides a proper investigation for logical and reasonable comparison
of Working Capital of different years.

 To find out what should be done to improve present scenario of Tata Steel Ltd.

This study aims at tracking changes of working capital management of Tata

Steel Ltd. An attempt has also been made to differentiate between different factors of
working capital, to collect, interpret and analyse the elements of working capital from
the Balance Sheet and Profit and Loss Account of Tata Steel Ltd. Efforts have also
been made to show it by tables and charts in the best possible manner.

RESEARCH METHODOLOGY:-
Research Design:A research design is the detailed blue print used to guide a research
study towards its Objective. It helps to collect, measure and analysis of data. The
study undertaken is of Descriptive Historical Research Method. Descriptive research
is those which are connected with describing the characteristics of the particular topic.

Secondary Data:Secondary data is collected through Magazine, Reference Books,

Company’s Annual Reports, Articles, and Websites etc.

I have collected data through Balance Sheet of the company, website of the
company and theoretical part from the reference books.

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Chapter 2:
ConceptualFramework
WORKING CAPITAL:-
Working capital is the excess of current assets over current liabilities.If current
assets are equal to current liabilities then working capital will be zero and in Case
current liabilities are more than current assets; the working capital will be called
negative working capital.
The working capital emphasis on how much current assets have been financed out of
long Term funds.

Working Capital = Current Assets − Current Liabilities

DEFINITION:-
According to Park &Gladson- The excess of current assets of a business(i.e.
cash, accounts receivables, inventories) over current items owned to employees and
others(such as salaries & wages payable, accounts payable, taxes owned to
government).

In business two types of assets are used: -

1. Fixed assets
2. Current Assets

ASSETS AND LIABILITIES:-

3
 Fixed Assets:These are used in business for a long period and they are not
purchased for the Purpose of selling them to earn profit.

Current Assets:Theseare used for day-to-day operation of business. Current

assets include cash, bank, stock, debtors, bill receivables, marketable securities etc.
The capital employed in these assets is called working capital.

Hence in any business there should be proper balance between fixed capital and
Working capital for efficient operation of business.

Current Liabilities:These are those liabilities, which are to be paid in short

period i.e. one year or within normal operating cycle. These include creditors, bills
payable, bank overdraft, short-term loans, and outstanding expenses.

CONCEPT OF WORKING
CAPITAL:-
Working capital managementis concerned with the problems that arise in
attempting to manage the current assets, current liabilities and the inter-relationship
that exists between them. The needs & problems for every business are different but
generally the following factors must be considered while determining the requirement
of working capital: -

1. Nature of business
2. Business fluctuations
3. Production policy
4. Credit policy
5. Availability of raw material and bank credit
6. Turnover of inventories
7. Operating efficiency

So, the main objective of working capital management is to manage current

assets and current liabilities so that: -
 There should be full utilization of fixed assets.
 There is an increase in Debt capacity and Goodwill.
 There is the advantage of favorable opportunities.

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NEED OF WORKING CAPITAL
MANAGEMENT:-
The need for working capital gross or current assets cannot be over
emphasized. As already observed, the objective of financial decision making is to
maximize the shareholders wealth. To achieve this, it is necessary to generate
sufficient profits can be earned will naturally depend upon the magnitude of the sales
among other things but sales cannot convert into cash. There is a need for working
capital in the form of current assets to deal with the problem arising out of lack of
immediate realization of cash against goods sold. Therefore sufficient working capital
is necessary to sustain sales activity. Technically this cash cycle. If the company has
certain amount of cash, it using the raw material may be available on credit basis.
Then the company has to spend some amount for labor and factory overhead to
convert the raw material in work in progress, and ultimately finished goods. These
finished goods convert in to sales on credit basis in the form of sundry debtors.
Sundry debtors are converting into cash after expiry of credit period. Thus some
amount of cash is blocked in raw materials, WIP, finished goods, and sundry debtors
and day to day cash requirements. However some part of current assets may be
financed by the current liabilities also. The amount required to be invested in this
current assets is always higher than the funds available from current liabilities. This is
the precise reason why the needs for working capital arise.

CLASSIFICATION OF WORKING
CAPITAL:-
5
 The concepts of working capital management are as follows:-

1.Gross working capital:Gross working capital refers to the firm’s investment I

current assets. Current assets are the assets which can be convert in to cash within
year includes cash, short term securities, debtors, bills receivable and inventory.

2. Net working capital:Net working capital refers to the difference between current
assets and current liabilities. Current liabilities are those claims of outsiders which are
expected to mature for payment within an accounting year and include creditors, bills
payable and outstanding expenses. Net working capital can be positive or negative
efficient working capital management requires that firms should operate with some
amount of net working capital, the exact amount varying from firm to firm and
depending, among other things; on the nature of industries.net working capital is
necessary because the cash outflows and inflows do not coincide. The cash outflows
resulting from payment of current liabilities are relatively predictable. The cash inflow
are however difficult to predict. The more predictable the cash inflows are, the less net
working capital will be required. The concept of working capital was, first evolved by
Karl Marx; Marx used the term variable capital means outlays for payrolls advanced
to workers before the completion of work. He compared this with constant capital
which according to him is nothing but dead labor. This variable capital is
nothingwage fund which remains blocked in terms of financial management, in
work-in-process along with other operating expenses until it is released through sale
of finished goods.

3. Fixed Working Capital: Fixed working capital represent s that part of capital
which locked up in current assets to carry out the business smoothly throughout the
year.

4. Variable working capital: Variable working capital is a capital which is not

permanent. It represents that part of total working capital which is required over and
above the fixed working capital

6
 Classification of Working
Capital

On the basis of concept On the basis of time

Gross Working Net Working

Capital Capital

Variable Working Capital Fixed Working Capital

Regular Working Capital Reserve Working Capital

Seasonal Special
Working Working
Capital Capital

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FACTORs DETERMINING
WORKING CAPITAL:-
The following are the factors which determine working capital:-

1. Nature of business:The working capital requirement of a company basically

depends upon the nature of business. According to the nature of business, companies
may be categorized as Manufacturing Concern, Trading Concern, Financial
Institution, Service or Public Utility Organization etc. manufacturing Concern may
require more working capital than Trading Concern as the nature of business is big
than the trading concern.

2. Volume of Sales: Volume of Sales affects the requirement of working capital to a

large extent. If the volume of sales increase, there is an increase in the investment of
working capital and vice versa in the case where volume of sales decreases.

3. Operating efficiency: The operating efficiency is also a vital type for determining
the level of working capital. It means the optimum utilization of recourses at
minimum costs as a result of which profitability increases. Thus it helps in increasing
generation of internal funds which reduces the pressure on working capital.

4. Credit policy: Credit policy refers to the terms &condition on which goods sold &
purchased. If long periods are allowed to customers, huge amounts of money would
remain blocked with customers. It’ll have very little impact on working capital.

5. Technological Development: Technological development relating to the

production process has a sharp effect on the need of working capital. A firm may be
able to cut down its production cycle by applying modern manufacturing process. As a
result of which the need for permanent working capital may come down.

6. Other Factors: Production Cycle, Accessibility to credit, Seasonal Variations, etc

also influence the requirement of working capital.

8
IMPORTANCE OF WORKING
CAPITAL MANAGEMENT:-
For smooth running an enterprise, adequate amount of working capital is very
essential. Efficiency in this area can help, to utilize fixed assets gainfully, to assure the
firm’s long- term success and to achieve the overall goal of maximization of the
shareholders, fund. Shortage or bad management of cash may result in loss of cash
discount and loss of reputation due to non-payment of obligation on due dates.
Insufficient inventories may be the main cause of production held up and it may
compel the enterprises to purchase raw materials at unfavorable rates.

Like-wise facility of credit sale is also very essential for sales promotions. It is
rightly observed that “many a times business failure takes place due to lack of
working capital.”Adequate working capital provides a cushion for bad days, as
concern can pass its period of depression without much difficulty.

“O’ Donnel et al”correctly explained thesignificance of adequate working

capital and mentioned that “to avoid interruption in the production schedule and
maintain sales, a concern requires funds to finance inventories and receivables.”

The adequacy of cash and current assets together with their efficient handling
virtually determines the survival or demise of a concern.an enterprise should maintain
adequate working capital for its smooth functioning. Both, excessive working capital
and inadequate working capital will impair the profitability and general health of a
concern.

The danger of excessive working capital is as follows:

1. Heavy investment in fixed assets: A concern may invest heavily in its fixed assets
which are not justified by actual sales. This may create situation of over capitalization.

2. Reckless purchase of materials:Inventory is purchased recklessly which results in

dormant slow moving and obsolete inventory. At the same time it may increase the
cost due to mishandling, waste, theft, etc.

3. Speculative tendencies:Speculative tendencies may increase and if profit is

increased dividend distribution will also increase. This will hamper the image of a
concern in future when speculative loss may start.

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4. Liberal credit:Due to liberal credit, size of accounts receivables will also increase.
Liberal credit facility can increase bad debts and wrong practices will start, regarding
delay in payments.
5. Carelessness: Excessive working capital will lead to carelessness about costs
which will adversely affect the profitability.

6. Paucity of working capital:Paucity of working capitalis also bad and has the
following dangers:

 Implementation of operating plans becomes difficult and a concern may not achieve
its profit target.
 It is difficult to pay dividend due to lack of funds.
 Bargaining capacity is reduced in credit purchases and cash discount could not be
availed.
 An enterprise loses its reputation when it becomes difficult even to meet day-to-
day commitments.
 Operating inefficiencies may creep in when a concern cannot meet it financial
promises.
 Stagnates growth as the funds are not available for new projects.
 A concern will have to borrow funds at an exorbitant rate of interest in case of need.
 Sometimes, a concern may be bound to sale its product at a very reduced rates to
collect funds which may harm its image.

Chapter 3:
10
ANALYSIS& FINDING
COMPANY OVERVIEW:-
Established in 1907, Tata Steel is among the top ten global steel companies
with an annual crude steel capacity of over 28 million tons per annum (mtpa). It is
now one of the world's most geographically-diversified steel producers, with
operations in 26 countries and a commercial presence in over 50 countries. The Tata
Steel Group, with a turnover of US$ 26.13 billion in FY 2011- 2012, has over 81,000
employees across five continents and is a Fortune 500 company. Tata Steel’s vision is
to be the world’s steel industry benchmark through the excellence of its people, its
innovative approach and overall conduct. Underpinning this vision is a performance
culture committed to aspiration targets, safety and social responsibility, continuous
improvement, openness and transparency.

Tata Steel’s larger production facilities include those in India, the UK, the
Netherlands, Thailand, Singapore, China and Australia. Operating companies within
the Group include Tata Steel Limited (India), Tata Steel Europe Limited (formerly
Corus), NatSteel, and Tata Steel Thailand (formerly Millennium Steel). Tata Steel, a steel
manufacturing company in India, was rated amongst top 3 best steel companies in the world by
World Steel Dynamics in the year 2004. It is one of the few companies that adopts the concept of
Economic Value Add and thereby achieved an incremental EVA of Rs. 516 cores in the year 2004.
The operations of the company have also increased in terms of turnover of its branded products by
84%. Thus, for a company having a high Net worth of Rs. 4360 crores, it is very essential to possess
a safe liquidity position. It should ensure that its money doesn’t remain blocked in the market and
there is constant flow of funds for operational, investment and financial activities.

A company of a turnover of Rs. 12070 Cores is expected to have a good management of its
Working Capital. Working Capital of a company is the difference between its current assets and the
current liabilities. It includes the company’s debtors, bank/cash, creditors, inventory, outstanding and
other miscellaneous expenses. Each of these needs to be managed separately so as to have a control
over the liquidity of business.

Management of Working Capital includes various sub-components at the operational level

of the company which directly affect the level of Working Capital. These include study of Letter of
Credit, Bill Discounting, Factoring through Receivable Purchases and O.E.Finance, Channel
Financing, Overdraft management. Proper Working Capital Management depends on how well

11
these sub-components are handled. The company needs to overcome the shortcomings in this
respect.

The customer base of Tata Steel is found in the construction, auto and auto ancillary, white
good appliance and the general engineering sector. Thus, in order to control the Working Capital of
the company, they need to control their exposure in terms of extending credit to its customers. They
need to reduce the customer’s days sales outstanding and manage the overdue that accrues to them.

12
RATIO ANALYSIS OF DATA
AND
ITS INTERPRETATION:-
1. CURRENT RATIO
Current Assets
Current Ratio =
Current Liabilities

(Rs. in Crores)

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

C.A. 36962.44 10285.09 12246.69 24212.30 12864.50
C.L. 6768.78 8974.05 8999.61 10995.81 16903.64
C.R. 5.46 1.15 1.36 2.20 0.76

Interpretation:- A current ratio of 2:1 or more is considered as satisfactory or of sound liquidity

position. In the year 2008-2009 compared to the previous year the current assets has decreased
but the current liabilities has increased so the current ratio decreased from 5.46 to 1.15.In the
year 2009-2010 and 2010-2011 compared to the previous year the current assets and current
liabilities both have increased. But the growth rate of current assets was higher than current
liabilities. So the current ratio increased from 1.15 to 1.36 and 1.36 to 2.2.In the year 2011-2012
compared to the previous year the current assets has decreased and current liabilities has
increased. So the ratio had declined from 2.2 to 0.76.

Comment:-The financial position of the company is not very sound as the ratio is below 2:1. It
indicates that the liquidity position of the company is not good. It is not a healthy position for the
company.

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2. quick RATIO
Quick Assets
Quick Ratio=
Quick Liabilities

(Rs. in Crores)

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

Q.A. 34915.13 7416.81 9792.70 20974.72 8005.51
Q.L. 6768.78 8974.05 8999.61 10995.81 16903.64
Q.R. 5.16 0.83 1.09 1.91 0.47

Interpretation:-A quick ratio of 1:1 or more is considered as satisfactory or of sound liquidity

position. In the year 2007-08 quick ratio was 5.16:1, that indicates the current assets was greater
than current liabilities. In the year 2008-09 the quick ratio was 0.83:1, it indicates that firm has
found difficult to meet its obligations because its quick assets are lesser than current liabilities. In
the year 2009-10 and 2010-11 the Quick Ratio was 1.09:1 and 1.91:1.In the year 2011-12 the
Quick ratio was 0.47:1.That means Quick Ratio was decrease.

Comment:- The immediate solvency position of the company is not good as the standard ratio is
1:1 for solvency but the quick ratio of the said company could not meet the standard ratio from
the last five years. So Company needs to improve its solvency position.

3. net working capital turnover RATIO

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 Net Sales
WorkingCapital Turnover Ratio=
Net Working Capital

(Rs. in Crores)

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

Net sales 19693.28 24315.77 25021.98 29396.35 33933.46
Net W.C. 30193.66 1311.04 3247.08 13216.49 (4039.14)
W.C.T.R. 0.65 18.55 7.71 2.22 (8.40)

Interpretation:- A high working capital turnover ratio indicates efficiency in

utilization of resources. In the year 2008-09 compared to the previous years the working capital
turnover ratio has increased and working capital has reduced which is considered as a positive
sign from the point view of the finance. In the year 2009-10 and 2010-11 compared to the
previous year the working capital turnover ratio decreased from 18.55 to 7.71 and 7.71 to 2.22.
In the year 2011-12 the working capital has the negative value. So the working capital turnover
ratio was also negative.

Comment:-A high working capital turnover ratio indicates efficiency in utilizationof resources.
Hence we can see that the year 2007-08to2008-09 the working capital turnover ratio has heavily
increased butin the year 2009-10 to 2010-11 the working capital turnover ratio has decreased and
in the year 2011-2012 the working capital turnover ratio has the negative value because the
working capital is negative which is considered as a negative sign from the point view of the
finance.

4. InVENTORY HOLDING PERIOD

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 365 days
Inventory Holding Period=
Inventory Turnover Ratio

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

I.T.R. 10.84 9.36 10.90 9.85 9.40
Period 365 365 365 365 365
(in Days)
I.H.P 34 39 33 37 39
(in Days)

Interpretation:-In the year 2008-09 compared to the previous year there was a decrease in
inventory turnover ratio from 10.84 to 9.36. So the inventory holding period has increased from
34 days to 39 days. In the year 2009-10 compared to the previous year there was an increase in
inventory turnover ratio from 9.36 to 10.90.This shows a decrease in inventory holding period
from 39 days to 33 days. In the year 2010-11 and 2011-2012 compared to the previous year there
was a decrease in inventory turnover ratio from 10.90 to 9.85 and 9.85 to 9.40, so the inventory
holding period has increase from 33 days to 37 days and 37 days to 39 days.

Comment:-The above results show that the company’s inventory holding period is fluctuating.
But the inventory holding period is normal. It is quite good from the view of finance.

5. debtors collection PERIOD

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 365 days
Debtors Collection Peri od=
Debtors Turnover Ratio

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

Period 365 365 365 365 365
(in Days)
D.T. Ratio 33.45 41.29 46.58 67.93 50.80
(No of Times)
D.C.P 11 9 8 5 7
(in Days)

Interpretation:- There was an increase in sales but debtors were fluctuating year by year. So the
debtors collection period has decreased from 2007-08 to 2010-11, from 11 days to 5 days. In the
year 2011-2012 compared to the previous year debtors’ collection period has increased from 5
days to 7 days.

Comment:-The above result shows that the receivable management system of the company is
good as the debtor’s collection period is good.

6. working capital
WorkingCapital=Current Assets−Current Liabilities
17
(Rs. in Crores)

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12

C.A. 36962.44 10285.09 12246.69 24212.30 12864.50
C.L. 6768.78 8974.05 8999.61 10995.81 16903.64
W.C. 30193.66 1311.04 3247.08 13216.49 (4039.14)
% of Growth -95.65% 147.67% 307.03% -130.56%
of W.C.

Interpretation:-Above graphical presentation and the table shows that the need of working
capital of Tata Steel is fluctuating. The year 2008-09 the growth rate of working capital shows
negative margin. But in the year 2009-10 and 2010-11 the growth rate has increased heavily. In
the year 2011-12 the growth rate again shown negative margin.

Comment:-Hence we can see that the component of working capital is Fluctuating but in the
year 2011-12 the working capital sign the negative value which is considered as a negative sign
from the point view of the finance.

FINDINGS:-

18
 The sales of the Tata Steel industries have increased from the last five years i.e.
2007-08 to 2011-12.

Standard current ratio is 2:1 but for the industry it is 0.76:1.Tata Steel
industries’ Current Ratio is not satisfactory.

Standard quick ratio is 1:1 but for the industry it is 0.47:1. It means the
company cannot currently pay back its current liabilities.

Debtors turnover ratio is improving from 2007-08 to 2010-11. Increase in ratio

is beneficial for the company because as ratio increases the Number of days of
collection for debtors decreases. But in the year 2011-12 Debtors turnover ratio is
decreased. So the number of days of collection for debtors increases.

Inventory turnover ratio is reduced from 2007-08 to 2008-09, but from the
financial year 2008-09 to 2009-10 the trend of inventory ratio is increasing. In the
financial year 2010-11 to 2011-12 the trend of inventory ratio is decreasing. Which
means inventory is used in bad way so it is not good for the company.

Working capital turnover ratio is quite impressive in the year 2008-09 that
shows increasing need of working capital. The ratio was decreasing in the year 2009-
10 and 2010-1. But the year 2011-2012 the working capital turnover ratio is negative.
That indicates it is not good for the industry.

CHAPTER 4:
Conclusion & Suggestion
19
CONCLUSION:-
This report is whole on the basis of financial analysis. The main object
of doing this study is to analysis the condition of organization. The tools
of financial are used to find out the soundness of the company. The year 2007 to
2010 the position of the company is normal. But the conditions of Tata Steel in the
year 2011-12 are not well. Liabilities of the company are very high. So the
company needs to reduce their liabilities as soon as possible. They have to
improving their product Quality and increase their sales. I hope the conditions of
TATA Steel will be improved soon.

SUGGESTIONS:-
It can be said that overall financial position of the company is not good. The
company is required to be improved from the point of view of Working capital.

 The debtor’s collection period is normal for the company.

 The Inventory Holding Period is not well for the company.

 Company should try to increase Volume based sales so as to stand in the

competition.

 There is a need to make improvements in current assets and current liabilities.

 There is a need to make improvement in quick assets and quick liability

20
LIMITATION OF THE STUDY:-
During the period of completing the project, there were some limitations, which
are as follows:-
1.Limited Data:This project has completed with annual reports of the company; it
just constitutes one part of data collection i.e. secondary. There were limitations for
primary data collection because of confidentiality.

2. Limited Period: This project is totally based on 5 years annual reports. Conclusion
and recommendation are based on such limited data. The trend of last five years may
or may not reflect the real working capital position of the company.

3. Limited Area: It was difficult to collect all the competitors and their financial
information. Recent industry figures were also difficult to get.

4.Limited Competitors: In this project a few important competitors of the company

are discussed, rests are left because of compatibility.

21
CHAPTER 5:
BIBLIOGRAPHY
MANAGEMENT BOOKS:-
 AN INTRODUCTION TO FINANCIAL MANAGEMENT;
MAZUMDAR-ALI-NESHA (ABS Publishing House)

 FINANACIAL MANAGEMENT- Prof. NABARUN

BHATTACHARYA and Prof. PRADEEP KUMAR CHANDRA

REPORTS AND JOURNALS:-

 Annual Reports of Tata Steel. 2007-08 to 2011-12

WEB SITES:-
 http://www.tatasteel.co.in/

 http://www.moneycontrol.com

 http://www.scribd.com

 http://www.google.co.in

…------…

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