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WORKING MANAGEMENT AND RATIO

ANALYSIS OF TATA STEEL

Working Management and Ratio Analysis at


Tata Steel

A project report submitted in partial fulfilment of the


requirements for the degree of Master of Business
Administration of Sikkim Manipal University, India.

SUBMITTED BY

PRADNYA.B.SHETTY

REG.NO: 1505006420

UNDER THE GUIDANCE OF

RAMCHANDRA KUMBHAR

REG.NO. MBAMH0034

SIKKIM MANIPAL UNIVERSITY (SMU)

DIRECTORATE OF DISTANCE
EDUCTION

MAY 2017
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

BONAFIDE
CERTIFICATE

Certified that this project report titled Working Capital


Management and Ratio Analysis of Tata steel is the bonafide
work of Pradnya B Shetty who carried out the project work
under my supervision in the partial fulfilment of the requirements
for the award of the MBA degree.

Name of Guide:
Ramchandra Kumar

Reg. No: MBAMH0034


WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

DECLARATION BY THE STUDENT

I Pradnya.B.Shetty bearing Reg. No 1505006420

Hereby declare that this project report entitled Working capital management and Ratio
analysis of TATA steel has been prepared by me towards the partial fulfilment of the
requirement for the award of the

Master of Business Administration (MBA) Degree under the guidance of Ramchandra


Kumbhar I also declare that this project report is my original work and has not been
previously submitted for the award of any Degree, Diploma, Fellowship, or other
similar titles.

Place: Mumbai Pradnya Bhujanga


Shetty

Date: 11th May 2017 Reg. no:


1505006420
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

ACKNOWLEDGEMENT

I hereby acknowledge all those who directly or


indirectly helped me to draft the project report. It would not have
been possible for me to complete the task without their help and
guidance.

First of all I would like to thank the Sikkim Manipal


University for offering the project in the syllabus. I am very much
obliged of Mr Ramchandra Kumbhar for giving guidance for
completing the project.

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 cooperation, valuable information and feedback
during my project.
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

TABLE OF CONTENTS

CHAPTE CHAPTER NAME CONTENTS PAGE


R NUMBER
NUMBER
1 INTRODUCTION TO SCOPE OF THE STUDY 1
THE STUDY
OBJECTIVES OF THE STUDY 2
LIMITATIONS OF THE STUDY 2
METHODOLOGY OF THE STUDY 3
REVIEW OF THE LITERATURE 4-5
2 INTRODUCTION OF COMPANY PROFILE 6-8
COMPANY PROFILE
FOUNDERS OF TATA STEEL 9-10
AWARDS AND RECOGNITIONS 11
SWOT ANALYSIS 12
3 WORKING CAPITAL CONCEPT OF WORKING CAPITAL 13-15
MANAGEMENT
IMPORTNACE OF WORKING 15-17
CAPITAL RATIOS
DETERMINANTS OF WORKING 17-18
CAPITAL
NEED OF WORKING CAPITAL 19-20
MANAGEMENT
TYPES OF WORKING CAPITAL 20-21
4 RATIO ANALYSIS CONCEPT OF RATIO ANALYSIS 22-23
ADVANTAGES OF RATIOS 23
ANALSIS
LIMITATION OF RATIOS 24-25
ANALYSIS
5 RESEARCH RESEARCH INTRODUCTION 26
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

METHODOLOGY
RESEARCH HYPOTHESIS 27
RESEARCH DESIGN AND 27-28
COLLECTION OF DATA
RESEARCH PROCEDURE 29
6 DATA ANALYSIS AND DATA ANALYSIS AND
INTERPETATION INTERPRETATION OF W.C 30-41
DATA ANALYSIS AND 42-52
INTERPRETATION OF TATA
STEEL, SAIL AND JSW
DATA ANALYSIS AND 53-84
INTERPRETATION OF RATIO
ANALYSIS
7 FINDINGS AND LIMITATION AND SCOPE FOR 85
ANALYSIS FUTURE
SUGGESTIONS AND 86-87
RECOMMENDATION
CONCLUSION 87
BIBLIOGRAPHY 88

LIST OF TABLES

TABLE TITLE PAGE


NUMBER NUMBER
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

1 NET WORKING CAPITAL 31-32


2 PERCENTAGE IN NET WORKING CAPITAL 33-34
3 WORKING CAPITAL TURNOVER RATIO 35
4 CURRENT RATIO 36
5 QUICK RATIO 37
6 DEBTORS TURNOVER RATIO 38
7 DEBT COLLECTION PERIOD 39
8 STOCK TURNOVER RATIO 40
9 PAYABLES TURNOVER RATIO 41
10 WORKING CAPITAL TURNOVER RATIO BETWEEN 46
TATA STEEL, SAIL AND JSW
11 CURRENT RATIO 47
12 QUICK RATIO 48
13 DEBTORS TURNOVER RATIO 49
14 DEBT COLLECTION PERIOD 50
15 STOCK TURNOVER RATIO 51
16 PAYABLE TURNOVER RATIO 52
17 NET DEBT TO EQUITY RATIO ANALYSIS 53-54
18 SHAREHOLDER EQUITY RATIO 55-56
19 DEBT TO NET WORTH RATIO 57-58
20 FIXED ASSETS TO LONG TERM RATIO 59-60
21 PROPERITORY RATIO 61-62
22 INTEREST RATIO 63-64
23 DIVIDEND OVER RATIO 65-66
24 EBITDA TO TURNOVER RATIO 67-68
25 EARNING PER SHARE 69-70
26 GROSS PROFIT MARGIN 71-72
27 NET PROFIT MARGIN 73-74
28 CASH PROFIT RATIO 75-76
29 RETURN ON ASSETS 77-78
30 RETURN ON AVERAGE NET WORTH 79-80
31 RETURN ON AVERAGE CAPITAL EMPLOYED 81-82
32 DIVIDEND PAYOUT RATIO 83-84
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

TABLE OF FIGURES

TABLE TITLE PAGE


NUMBER NUMBER
1 WORKING CAPITAL TURNOVER RATIO 35
2 CURRENT RATIO 36
3 QUICK RATIO 37
4 DEBTORS TURNOVER RATIO 38
5 DEBT COLLECTION PERIOD 39
6 STOCK TURNOVER RATIO 40
7 PAYABLES TURNOVER RATIO 41
8 WORKING CAPITAL TURNOVER RATIO 46
BETWEEN TATA STEEL, SAIL AND JSW
9 CURRENT RATIO 47
10 QUICK RATIO 48
11 DEBTORS TURNOVER RATIO 49
12 DEBT COLLECTION PERIOD 50
13 STOCK TURNOVER RATIO 51
14 PAYABLE TURNOVER RATIO 52
15 NET DEBT TO EQUITY RATIO ANALYSIS 53-54
16 SHAREHOLDER EQUITY RATIO 55-56
17 DEBT TO NET WORTH RATIO 57-58
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

18 FIXED ASSETS TO LONG TERM RATIO 59-60


19 PROPERITORY RATIO 61-62
20 INTEREST RATIO 63-64
21 DIVIDEND OVER RATIO 65-66
22 EBITDA TO TURNOVER RATIO 67-68
23 EARNING PER SHARE 69-70
24 GROSS PROFIT MARGIN 71-72
25 NET PROFIT MARGIN 73-74
26 CASH PROFIT RATIO 75-76
27 RETURN ON ASSETS 77-78
28 RETURN ON AVERAGE NET WORTH 79-80
29 RETURN ON AVERAGE CAPITAL 81-82
EMPLOYED
30 DIVIDEND PAYOUT RATIO 83-84
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

CHAPTER 1

INTRODUCTION TO THE STUDY

1.1 SCOPE OF THE STUDY


1.2 OBJECTIVE OF THE STUDY
1.3 LIMITATIONS OF THE STUDY
1.4 METHODOLOGY OF THE STUDY
1.5 REVIEW OF LITERATURE

1.1 SCOPE OF THE STUDY

This is an attempt to have a micro level imperial analysis in the financial progress
and performance of Tata Steel Limited. The findings and suggestions throw light on the guidelines
for future policy formulation and implementation for the effective functioning of Steel industries in
other districts of the state and the country also. Every effort has been made to conclude relevantly
and suggest for the best performance in the most adoptable way, keeping in view the market and
production level.

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1.2 OBJECTIVE OF THE STUDY

1. To Study the efficiency of the organization through ratios.


2. To recommend ways and means to improve present condition.
3. To analyse overall performance of the company.
4. To study the profitability, liquidity, solvency position of the organization.
5. To study the Working Capital Management of TATA STEEL Pvt Ltd.
6. To study the optimum level of current assets and current liabilities of the company
7. To study the liquidity position through various working capital related ratios.
8. To study the working capital components such as receivables accounts, such as management,
Inventory positions.
9. To study the way and the means of working capital finance of the TATA STEEL Pvt Ltd.
10. To estimate the working capital requirement of the TATA STEEL Pvt Ltd.
11. To study the operating and cash cycle of the company.

1.3 LIMITATIONS OF THE STUDY

This study is based on only secondary data; the essential limitations of the
secondary data would have affected the study. Ratios are computed on the basis of financial
statements of the Industry. Hence, future performance of the manufacturing units not reflected. The
financial statements are subject to window dressing. It will affect the results in the process of
analysis. The absolute figures may prove decorative as ratio analysis is primarily quantitative
analysis and not qualitative analysis. Many people may interpret the results in different ways as ratio
is not an end by itself.

1.4 METHODOLOGY OF THE STUDY

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The methodology adopted for the present study regarding source of data, sample
size, period of study, data analysis and research tools & techniques. Source of the data is mainly
based on the secondary data. They were collected from company annual reports, journals, magazines
and newspapers. Sample Size of this study data collected for five years of Tata steel industries.
Research tools and techniques are used ratio analysis in the year period of the study 2010-
2011to2014-2015.

The data has been collected from the primary and secondary sources:

i) Primary data
(1) Department visit- discussion with the concerned person and interviewing officers in
accounts and finance sector.
(2) Observation method.

ii) Secondary data


(1) Annual reports
(2) Journals and magazines
(3) Study of files and office documents

Websites of TATA STEEL and other steel companies.

1.5 REVIEW OF THE LITERATURE

Many researchers have studied working capital from different views and in different
environments. The following study was very interesting and useful for our research:

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ANALYSIS OF TATA STEEL

Abdul Raheman and Mohamed Nasr (2004) In this paper made an attempt to examine the Working
Capital Management And Profitability Case Of 94 Pakistani Firms selected a sample of 94
Pakistani firms listed on Karachi Stock Exchange for a period of 6 years from 1999 2004, Found
that there is a significant negative relationship between liquidity and profitability. That there is a
significant positive relationship between size of the firm and its profitability. There is also a
significant negative relationship between debt used by the firm and its profitability.

K. Madhavi studied Working Capital Management of Paper Mills during the period from 2002-
2003 to 2010-2011 with the help of accounting tools and statistical techniques. From the study
analyse that, the management of Andhra Pradesh Paper Mills Ltd (APPML) must initiate necessary
steps to utilize its idle cash and bank balances in attractive investments or to pay back in short term
liabilities.(current ratio).The low quick ratio may also have liquidity position, if it has fast moving
inventories and is more satisfactory in Seshasayee Paper Boards Ltd (SSPBL) with APPML. Cash
ratio is not satisfactory in APPML as compared to SSPBL and it needs the attention of the
management to induce effective utilization of cash and bank balances.

B Bagchi and B Khamrui (2010) In this study, Selected a sample of 10 FMCG (Fast Moving
Consumer Goods) companies in India from CMIE database covering a period of 10 years from
200001 to 200910. Profitability has been measured in terms of return on assets (ROA).Cash
conversion cycle (CCC), interest coverage ratio, age of inventory, age of creditors, age of debtors and
debt-equity ratio have been used as explanatory variables. Pearsons correlation and pooled ordinary
least squares regression analysis are used in the study. The study results confirm that there is a strong
negative relationship between variables of the working capital management and profitability of the
firm. As the CCC increases, profitability of the firm decreases, and managers can create a positive
value for the shareholders by reducing the CCC to a possible minimum level. There is also a stumpy
negative relationship between debt used by the firm and its profitability.

Mr. N.Suresh Babu and Prof. G.V.Chalam (2014) Suggest that managers can create value for their
shareholders by reducing the number of days accounts receivable and increasing the account
payment period and inventories to a reasonable maximum and also suggests that managers of these
firms should spend more time to manage cash conversion cycle of their firms and make strategies of
efficient management of working capital.

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Daniel Mogaka Makori1and Ambrose Jagongo (2013) Concluded that the management of a firm
can create value for their shareholders by reducing the number of days accounts receivable. The
management can also create value for their shareholders by increasing their inventories to a
reasonable level. Firms can also take long to pay their creditors in as far as they do not strain their
relationships with these creditors. Firms are capable of gaining sustainable competitive advantage by
means of effective and efficient utilization of the resources of the organization through a careful
reduction of the cash conversion cycle to its minimum. In so doing, the profitability of the firms is
expected to increase.

CHAPTER 2

INTRODUCTION TO COMPANY PROFILE

2.1 INTRODUCTION
2.2 FOUNDERS OF TATA STEEL5
2.3 AWARDS AND RECOGNITIONS
2.4 SWOT ANALYSIS
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

2.1 INTRODUCTION

The Tata Group of Companies has always believed strongly in the concept of collaborative
growth, and this vision has seen it emerge as one of India's and the world's most respected and
successful business conglomerates. The Tata Group has traced a route of growth that spans through
six continents and embraces diverse cultures. The total revenue of Tata companies, taken together,
was 67.4 billion USD (around Rs319,534 crore) in 2009-10, with 57 per cent of this coming from
business outside India. In the face of trying economic challenges in recent times, the Tata Group has
steered Indias ascent in the global map through its unwavering focus on sustainable development.
Over 395,000 people worldwide are currently employed in the seven business sectors in which the
Tata Group Companies operate. It is the largest employer in India in the Private Sector and continues
to lead with the same commitment towards social and community responsibilities that it has shown in
the past.

The Tata Group of Companies has business operations (114 companies and subsidiaries) in
seven defined sectors Materials, Engineering, Information Technology and Communications,
Energy, Services, Consumer Products and Chemicals. Tata Steel with its acquisition of Corus has
secured a place among the top ten steel manufacturers in the world and it is the Tata Groups flagship
Company. Other Group Companies in the different sectors are Tata Motors, Tata Consultancy
Services (TCS), Tata Communications, Tata Power, Indian Hotels, Tata Global Beverages and Tata
Chemicals.

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Tata Motors is Indias largest automobile company by revenue and is among the top five
commercial vehicle manufacturers in the world. Jaguar and Land rover are now part of Tata Motors
portfolio.

Tata Consultancy Services (TCS) is an integrated software solutions provider with delivery centres
in more than 18 countries. It ranked fifth overall, and topped the list for IT services, in Bloomberg
Business week's 12th annual 'Tech 100', a ranking of the world's best performing tech companies.

Tata Power has pioneered hydro-power generation in India and is the largest power generator
(production capacity of 2300 MW) in India in the private sector.

Indian Hotels Company (Taj Hotels, resorts and palaces) happens to be the leading chain of hotels
in India and one of the largest hospitality groups in Asia. It has a presence in 12 countries in 5
continents.

Tata Global Beverages (formerly Tata Tea), with its major acquisitions like Tetley and Good Earth
is at present the second largest global branded tea operation.

When Jamshedji Tata gave shape to his vision of nation building by forming what was to become the
Tata Group in 1868, he had envisaged India as an independent strength politically, economically
and socially. In order to become a force that the world has to reckon with, the Tata Group has always
ventured into path breaking territory and pioneered developments in industries of national
importance.

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As a policy, the Tata Group Companies promote and encourage economic, social and educational
development in the community, returning wealth to the society they serve. Two-thirds of the equity of
Tata Sons is held in philanthropic trusts that take care of endowments towards improvement
programmes in these spheres.

Through the years, the Tata Group has been amongst the most prestigious corporate presences in the
world governed by its principles of business ethics. Its foray into international business has been
recognised by various bodies and institutions. Brand Finance, a UK based consultancy firm after a
recent valuation of the Tata brand at $11.22 billion has ranked it 65 th among the world's top 100
brands. In Business Week magazine's list of the 25 most innovative companies the Tata name appears
13th and The Reputation Institute, USA has evaluated the Tata Group as the 11th in a global study of
the most reputed companies.

In the road ahead, the Tata Group is focusing on integration of new technologies in its operations and
breaking new grounds in product development. The Eka supercomputer had been ranked the worlds
fourth fastest in 2008 and the launch of the Nano has been a benchmark for the auto industry
specifically and the economy in general.

With a holistic approach in all its business operations, a loyal and dedicated workforce and its rooted
belief in value creation and corporate citizenship, the Tata Group is always ready to realise its vision
and objectives. The challenges of the future will only help to enhance the Groups performance and
transform newer dreams to reality.

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2.2 FOUNDERS OT TATA STEEL

JAMSEDJI NUSSERWANJI TATA (1839 1904)


He was a visionary behind Tata Steel .He realized that Indias 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 lifes
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.

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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 (1904 1993)

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 countrys highest civilian honor, 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,
Indias 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.

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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.

2.3 AWARDS AND RECOGNITIONS

CORPORATE AWARDS

The Business world Most Respected Company Award 2011 in the Metals category.

Recognised as Indias Most Admired Knowledge Enterprise (MAKE) Award Winner 2010 at
the CII KM India Summit 2010.

Awarded Asia MAKE (Most Admired Knowledge Enterprise) Award 2010. This is the
seventh time that the Company was conferred with this honour.

Tata Steel Europe awarded the Lifecycle Analysis Leadership Award 2010.

Awarded Steel Industry Website of the Year 2010 by the World Steel Association.

Tata Steel won the following awards at Asias Best Employer Awards hosted by the Employer
Branding Institute in Singapore in July 2010: the Award for Talent Management, the Award for
Best HR Strategy in line with Business and the Award for Excellence in Training.

Tata Steel Processing and Distribution Limited won the JIPM Award for 2009, awarded by
the Japan Institute of Plant Management, for excellence in TPM in plant operations.

FE-EVI Green Business Leadership Award 2009-2010.

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AWARDS FOR EXCELLENCE IN CORPORATE SOCIAL RESPONSIBILITY

Conferred with the Safety and Health Excellence Recognition Award 2010 by the World Steel
Association.

Awarded the Rashtriya Khel Protsahan Puruskar for the second consecutive year.

Recognised in six of the seven categories at the annual awards function organised by the Joint
Committee on Safety, Health and Environment in Steel Industry (JCSSI).

Awarded the CSR Excellence Award 2010 by ASSOCHAM, National CSR Committee and
CSR Organising Committee.

Awarded the Business world-FICCI-SEDF Corporate Social Responsibility Award 2009.

Awarded the Best Corporate Social Responsibility Practice at the 6th Social and Corporate
Governance Awards 2010 by the Bombay Stock Exchange.

2.4 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:

Low R & D Investment


Unscientific mining method
Technologically backward
Low productivity

OPPURTUNITY:

Unexplored rural markets


Growing domestic market
Growing global market

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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

CHAPTER 3

INTRODUCTION TO WORKING CAPITAL MANAGEMENT

3.1 CONCEPT OF WORKING CAPITAL


3.2 IMPORTANCE OF WORKING CAPITAL RATIOS
3.3 DETERMINANTS OF WORKING CAPITAL
3.4 NEED OF WORKING CAPITAL MANAGEMENT
3.5 TYPES OF WORKING CAPITAL

3.1 CONCEPT OF WORKING CAPITAL

Working capital means the part of the total assets of the business that change from one form to

another form in ordinary course of business operations.

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Concept of Working Capital: -

The word working capital is made of two words

1. Working

2. Capital

The word working means day to day operation of the business, whereas the word capital means
monetary value of all assets of the business.

Working Capital: - Working capital may be regarded as the life blood of business. Working capital is
of major importance to internal and external analysis because of its close relationship with the
current day today operations of a business. Every business needs funds for two purposes.

Long term funds are required to create production facilities through purchase of fixed assets
such as plants, machineries, lands, buildings & etc.
Short term funds are required for the purchase of raw materials, payment of wages, and other
day-to-day expenses. It is otherwise known as revolving or circulating capital It is nothing but
the difference between current assets and current liabilities i.e

Working Capital = Current assets Current Liabilities

Businesses use capital for construction, renovation, furniture, software, equipment, or machinery. It
is also commonly used to purchase inventory, or to make payroll. Capital is also used often by
businesses to put a down payment down on a piece of commercial real estate. Working capital is
essential for any business to succeed. It is becoming increasingly important to have access to more
working capital when we need it.

Concept of Working Capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current Liability

Current Assets Current Liabilities


Cash in hand/ at bank Bill payable
Bills receivable Sundry Creditors
Sundry Debtors Outstanding Expenses

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Short term loans Accrued Expenses


Investors/ Stock Bank Overdraft
Temporary Investment
Prepaid Expenses
Accrued Income

Capital Working Capital In Terms Of Five Components:

1. Cash And Equivalents: - This most liquid form of working capital requires constant supervision.
A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash
level adequate to meet current expenses as they come due? What is the timing relationship between
cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing
will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow
cover it?

2. Accounts Receivable: - Many businesses extend credit to their customers. If you do, is the amount
of accounts receivable reasonable relative to sales? How rapidly are receivables being collected?
Which customers are slow to pay and what should be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so naturally it


requires continual scrutiny. Is the inventory level reasonable compared with sales and the nature of
your business? What's the rate of inventory turnover compared with other companies in your type of
business?

4. Accounts Payable :- Financing by suppliers is common in small business; it is one of the major
sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to
what you purchase? What is your firm's payment policy doing to enhance or detract from your credit
ratings?

5. Accrued expenses and taxes payable: - These are obligations of your company at any given time
and represent a future outflow of cash.

3.2 IMPORTANCE OF WORKING CAPITAL

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The advantages of working capital or adequate working capital may be enumerated as below: -

1. Cash Discount:

If a proper cash balance is maintained, the business can avail the advantage of
cash discount by paying cash for the purchase of raw materials and merchandise. It will result in
reducing the cost of production.

2. It creates a Feeling of Security and Confidence:

The proprietor or officials or management of a concern are quite carefree, if they


have proper working capital arrangements because they need not worry for the payment of business
expenditure or creditors. Adequate working capital creates a sense of security, confidence and
loyalty, not only throughout the business itself, but also among its customers, creditors and business
associates.

3. Must for Maintaining Solvency and Continuing Production:

In order to maintain the solvency of the business, it is but essential that the sufficient
amount t of fund is available to make all the payments in time as and when they are due. Without
ample working capital, production will suffer, particularly in the era of cut throat competition, and a
business can never flourish in the absence of adequate working capital.

4. Sound Goodwill and Debt Capacity:

It is common experience of all prudent businessmen that promptness of payment


in business creates goodwill and increases the debt of the capacity of the business. A firm can raise
funds from the market, purchase goods on credit and borrow short-term funds from bank, etc. If the
investor and borrowers are confident that they will get their due interest and payment of principal in
time.

5. Easy Loans from the Banks:

An adequate working capital i.e. excess of current assets over current liabilities
helps the company to borrow unsecured loans from the bank because the excess provides a good

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security to the unsecured loans, Banks favour in granting seasonal loans, if business has a good credit
standing and trade reputation.

6. Distribution of Dividend:

If company is short of working capital, it cannot distribute the good dividend to its
shareholders in spite of sufficient profits. Profits are to be retained in the business to make up the
deficiency of working capital. On the other contrary, if working capital is sufficient, ample dividend
can be declared and distributed. It increases the market value of shares.

7. Exploitation of Good Opportunity:

In case of adequacy of capital in a concern, good opportunities can be exploited


e.g., company may make off-season purchases resulting in substantial savings or it can fetch big
supply orders resulting in good profits.

8. Meeting Unseen Contingency:

Depression shoots the demand of working capital because stock piling of finished
goods becomes necessary. Certain other unseen contingencies e.g., financial crisis due to heavy
losses, business oscillations, etc. can easily be overcome, if company maintains adequate working
capital.

9. High Morale:

The provision of adequate working capital improves the morale of the executive
because they have an environment of certainty, security and confidence, which is a great
psychological, factor in improving the overall efficiency of the business and of the person who is at
the hell of fairs in the company.

10. Increased Production Efficiency:

A continuous supply of raw material, research programme, innovations and


technical development and expansion programmes can successfully be carried out if adequate
working capital is maintained in the business. It will increase the production efficiency, which will,
in turn increases the efficiency and morale of the employees and lower costs and create image among
the community.

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

3.3 DETERMINANTS OF WORKING CAPITAL

The amount of working capital is depends upon following factors:-

1. Nature Of Business: Some businesses are such, due to their very nature, that their requirement of
fixed capital is more rather than working capital. These businesses sell services and not the
commodities and that too on cash basis. As such, no founds are blocked in piling inventories and also
no funds are blocked in receivables. E.g. public utility services like railways, infrastructure oriented
project etc. there requirement of working capital is less. On the other hand, there are some businesses
like trading activity, where requirement of fixed capital is less but more money is blocked in
inventories and debtors

2. Length Of Production Cycle: In some business like machine tools industry, the time gap between
the Acquisition of raw material till the end of final production of finished products itself is quite high.
As such amount may be blocked either in raw material or work in progress or finished goods or even
in debtors. Naturally there need of working capital is high.

3. Size And Growth Of Business: In very small company the working capital requirement is quit
high due to high overhead, higher buying and selling cost etc. as such medium size business
positively has edge over the small companies. But if the business start growing after certain limit, the
working capital requirements may adversely affect by the increasing size.

4. Business/ Trade Cycle: If the company is the operating in the time of boom, the working capital
requirement may be more as the company may like to buy more raw material, may increase the
production and sales to take the benefit of favourable market, due to increase in the sales, there may
more and more amount of funds blocked in stock and debtors etc. similarly in the case of depressions
also, working capital may be high as the sales terms of value and quantity may be reducing, there
may be unnecessary piling up of stack without getting sold, the receivable may not be recovered in
time etc

5. Terms of Purchase And Sales: Some time due to competition or custom, it may be necessary for
the company to extend more and more credit to customers, as result which more and more amount is
locked up in debtors or bills receivables which increase the working capital requirement. On the
other hand, in the case of purchase, if the credit is offered by suppliers of goods and services, a part

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

of working capital requirement may be financed by them, but it is necessary to purchase on cash
basis, the working capital requirement will be higher.

6. Profitability: The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability will positively reduce the
strain on working capital requirement of the company, because the profits to the extent that they
earned in cash may be used to meet the working capital requirement of the company.

7.Operating Efficiency: If the business is carried on more efficiently, it can operate in profits which
may reduce the strain on working capital; it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc.

3.4 NEED OF WORKING CAPITAL

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

GROSS WORKING CAPITAL AND NET WORKING CAPITAL

There are two concepts of working capital management

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

1. Gross Working Capital: Gross working capital refers to the firms 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 labour. This variable capital is
nothing wage fund which remains blocked in terms of financial management, in working-process
along with other operating expenses until it is released through sale of finished goods. Although
Marx did not mentioned that workers also gave credit to the firm by accepting periodical payment of
wages which funded a portioned of W.I.P, the concept of working capital, as we understand today
was embedded in his variable capital.

3.5 TYPES OF WORKING CAPITAL

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

Types of working capital On the basis of concept

Generally there are two concepts of working capital. They are gross working capital and net working
capital. But they are defined by different names. They are explained below:

1) In broad sense: working capital refers to gross working capital. It is also defined as financial
concept or going concern concept. It means the capital invested in the current assets of the firm.
Current assets mean the assets which can be converted into cash easily or within one accounting
period. It helps in determining the return on investment in working capital and providing correct
amount of working capital at right time.

2) in narrow sense: working capital refers to net working capital. It is also defined as accounting
concept. It means excess of current assets over current liabilities. It helps in finding out firms
capability to meet short term liabilities as well as indicates the financial soundness of the enterprise.

Net working capital = current assets current liabilities

Net working capital can be +ve or ve. When current assets are more than the current liabilities than
working capital is +ve and when current assets are less than the current liabilities than working
capital is ve.

At the end we can say, that both the working capital are important but according to the suitability
gross working capital is suitable for companies having separate ownership or management while net
working capital is suitable for sole trader companies or partnership firms.

Types of working capital on the basis of time

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

1) Permanent working capital: it is also called fixed working capital. It means to carry on the day
to day expenses the firm is required to maintain the minimum amount of working capital. For
example the firm is required to maintain the minimum level of raw material, finished goods or cash
balance etc.

a) Regular working capital- it means the minimum amount which the firm has to keep with itself to
carry on the day to day operation.

b) Reserve working capital- it means the excess amount over the regular working capital for
uncertain circumstances like strike, lock out, depression etc.

2) Temporary working capital: it is also called variable working capital, which is required to meet
the seasonal demands as well as for special purposes.

a) Seasonal working capital- it is required to meet the seasonal needs of the enterprise.

b) Special working capital- it is required for some special purposes of the enterprise. For example
advertising the product of the firm requires special working capital.

Temporary working capital is for short period and fluctuates while permanent working capital is
stable and fixed.

CHAPTER 4

INTRODUCTION TO RATIO ANALYSIS

4.1 CONCEPT OF RATIO ANALYSIS


4.2 ADVANTAGES OF RATIO ANALYSIS
4.3 LIMITATIONS OF RATIO ANALYSIS

4.1 CONCEPT OF RATIO ANALYSIS

A tool used by individuals to conduct a quantitative analysis of information in a


company's financial statements. Ratios are calculated from current year numbers and are then
compared to previous years, other companies, the industry, or even the economy to judge the

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

performance of the company. Ratio analysis is predominately used by proponents of fundamental


analysis. Single most important technique of financial analysis in which quantities are converted into
ratios for meaningful comparisons, with past ratios and ratios of other firms in the same or
different industries. Ratio analysis determines trends and exposes strengths or weaknesses of a firm.

Ratios can be found out by dividing one number by another number. Ratios show how one number is
related to another. It may be expressed in the form of co-efficient, percentage, proportion, or rate. For
example the current assets and current liabilities of a business on a particular date are $200,000 and
$100,000 respectively. The ratio of current assets and current liabilities could be expressed as 2 (i.e.
200,000 / 100,000) or 200 percent or it can be expressed as 2:1 i.e., the current assets are two times
the current liabilities. Ratio sometimes is expressed in the form of rate. For instance, the ratio
between two numerical facts, usually over a period of time, e.g. stock turnover is three times a year.

Classification of Accounting Ratios:

Ratios may be classified in a number of ways to suit any particular purpose. Different kinds of ratios
are selected for different types of situations. Mostly, the purpose for which the ratios are used and the
kind of data available determine the nature of analysis. The various accounting ratios can be
classified as follows:

Classification of Accounting Ratios / Financial Ratios

(A) (B) (C)


Traditional Classification or Functional Classification or Significance Ratios or Ratios
Statement Ratios Classification According to Tests According to Importance

Profit and loss account Profitability ratios Primary ratios


ratios or revenue/income
statement ratios Liquidity ratios Secondary ratios

Balance sheet ratios or Activity ratios


position statement ratios
Leverage ratios or long
Composite/mixed ratios term solvency ratios
or inter statement ratios

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

4.2 ADVANTAGES OF RATIO ANALYSIS

Ratio analysis is an important and age-old technique of financial analysis. The following are some of
the advantages / Benefits of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.


Ratios tell the whole story of changes in the financial condition of the business

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios highlight
the factors associated with successful and unsuccessful firm. They also reveal strong firms
and weak firms, overvalued and undervalued firms.

3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its
basic functions of forecasting. Planning, co-ordination, control and communications.

4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the
performance of different divisions of the firm. The ratios are helpful in deciding about their
efficiency or otherwise in the past and likely performance in the future.

Help in investment decisions: It helps in investment decisions in the case of investors and lending
decisions in the case of bankers etc.

4.3 LIMITATIONS OF RATIO ANALYSIS

The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.

1. Ratios are based only on the information which has been recorded in the financial
statements. Financial statements themselves are subject to several limitations. Thus ratios
derived, there from, are also subject to those limitations. For example, non-financial changes
though important for the business are not relevant by the financial statements. Financial

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

statements are affected to a very great extent by accounting conventions and concepts.
Personal judgment plays a great part in determining the figures for financial statements.

2. Comparative study required: Ratios are useful in judging the efficiency of the business only
when they are compared with past results of the business. However, such a comparison only
provide glimpse of the past performance and forecasts for future may not prove correct since
several other factors like market conditions, management policies, etc. may affect the future
operations.

3. Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final
regarding good or bad financial position of the business. Other things have also to be seen.

4. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly indicate
the trend in solvency and profitability of the company. The financial statements, therefore, be
adjusted keeping in view the price level changes if a meaningful comparison is to be made
through accounting ratios.

5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no
well accepted standards or rule of thumb for all ratios which can be accepted as norm. It
renders interpretation of the ratios difficult.

6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To
make a better interpretation, a number of ratios have to be calculated which is likely to
confuse the analyst than help him in making any good decision.

7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have
to interpreted and different people may interpret the same ratio in different way.

8. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison of
ratios difficult and misleading.

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

CHAPTER 5

RESEARCH METHODOLOGY

5.1 RESEARCH INTRODUCTION


5.2 RESEARCH HYPOTHESIS
5.3 RESEARCH DESIGN
5.4 RESEARCH PROCEDURE

5.1 RESEARCH INTRODUCTION


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WORKING MANAGEMENT AND RATIO
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Research in a layman language means a search for acknowledges. One can


also define research as a scientific and systematic search for potential information on a specific topic.
Infect research is an art of scientific investigation. The dictionary meaning of research is a careful
investigation or inquiry especially through search for new facts in any branch defines research as a
systematized effort to gain new knowledge. Some people consider research as a movement from
known to unknown. Research is an academic activity and as such the term must be used in a
technical sense. Research is an original contribution to the existing stock of the knowledge making
for its advancement. It is pursuit of truth with the help of study, observation, and experiment. The
purpose of research is to discover answers to questions through the application of
systematic procedure. The main aim of research is to find out the truth, which has not been
discovered yet.

Its a well-known fact that no business can exit without customers. In the business of Website design,
its important to work closely with your customers to make sure the site or system you create for
them is as close to their requirements as you can manage. What follows are a selection of tips that
will make your clients feel valued, wanted and loved.

5.2 RESEARCH HYPOTHESIS

A hypothesis is a special proposition formulated to be tested in a certain given situation as a


part of research which states what the researcher as looking for. In the research study, two
hypotheses have been tested.

There are as under: -

4.10.1 Null Hypothesis Ho: The variance arose in the several ratios over the years and among the
various companies did not differ significantly

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

4.10.2 Alternative Hypothesis H1: The variance arose in the several ratios over the years and among
the various companies differs significantly. If the, Null Hypothesis is accepted, the Alternative.
Hypothesis will be rejected or vice versa.

5.3 RESEARCH DESIGN AND COLLECTION OF DATA

Research design or model indicates a plan of action to be carried out in connection with a
proposed research work. It provides a guideline for the researcher to enable him to keep track of his
actions and to know that he is moving in the right direction in order to achieve his goal.

The purpose of research is to provide information that will aid in management decision making

TYPES OF RESEARCH DESIGN:

On the basis of the objectives of the marketing research can be classified into:-

Exploratory Research

Conclusive Research

The research design for exploratory research is best characterized by its lack of structure and
flexibility. It is generally used for the development of hypothesis regarding potential opportunities
and problems.

Exploratory research is further subdivided into

- Search of secondary data

- Case study

- Survey of experts

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

Conclusive research which is use to provide information for the evaluation of the alternative courses
of action can be sub-divided into

- Descriptive research.

- Causal or experimental research.

COLLECTION OF DATA:-

The task of data collection begins after a research problem has been defined and research design/plan
chalked out. The collection of data is done to support tour findings and interest the result whether the
result you have found in according to your hypothesis or not. The data can be collected by various
methods. These are broadly classified into two ways, as follows:

PRIMARY DATA

SECONDARY DATA

PRIMARY DATA:-

The primary data are those which are collected a fresh and for the first time and thus happen to be
original in character. We collect primary data during the course of doing experiments in an
experimental research. It is the first hand data and nobody else has collected this before. There are
various ways of collecting primary data, these are as follows:

1). Observation method

2). Interview method

3). Questionnaires

4). Schedules

5). other methods

SECONDARY DATA:-

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

1. from Internet

2. Magazines and News Papers

3. Government Publications

5.4 RESEARCH PROCEDURE

RESEARCH USED

In this project Exploratory research design has been used. Flexibility and creativity characterize
exploratory research study.

SAMPLING PROCEDURE

I decided to study the Working capital management and Ratio Analysis of Tata Steel

SAMPLING UNIT: WORKING CAPITAL AND RATIO ANALYSIS

SAMPLE SIZE: FIVE YEARS OF STATEMENT

CHAPTER 6

6.1 DATA ANALYSIS AND INTERPRETATION OF WORKING CAPITAL


6.2 COMPARATIVE ANALYSIS OF TATA STEEL, SAIL & JSW
6.3 DATA ANALYSIS AND INTERPRETATION OF RATIO ANALYSIS

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

6.1 DATA ANALYSIS AND INTERPRETATION OF WORKING CAPITAL

The success or failure of a business is heavily dependent on that business' ability to use its
assets effectively. An asset is an item that a business owns, such as cash in a bank account, amounts
due from customers, and equipment. When a business uses its assets effectively, it is able to produce
income to further increase its assets and pay its liabilities. A liability is an item that a business owes,
such as an outstanding bill from a vendor or a mortgage or loan. A business can determine its ability
to pay its liabilities as they become due by calculating net working capital.

Net working capital is a financial measure that determines if a business has enough liquid assets to
pay its bills that are due in one year or less. Assets are liquid if they can quickly be converted to
cash. Examples include cash, amounts due from customers, short-term investments and marketable
securities, and inventory.

FORMULA: CURRENT ASSETS CURRENT LIABILTY= NET WORKING CAPITAL

CURRENT ASSETS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


STORES AND SPARE 505.44 557.67 612.19 623.76 716.18
PARTS
STOCK-IN-TRADE 1827.54 2047.31 2868.28 2453.99 3237.58
SUNDRY DEBTORS 631.63 543.48 635.98 434.83 428.03
INTREST ACCRUED 0.20 0.20 0.00 0.29 0.00
AND INVESTMENTS
CASH AND BANK 455.41 465.04 1590.60 3234.14 4141.54
LOANS AND 3055.73 2452.78 4330.43 3628.28 9553.19
ADVANCES
TOTAL(A) 6475.95 6066.28 10037.48 10375.29 18076.52

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

CURRENT 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


LIABILITIES
SUNDRY 3145.99 3243.42 3842.78 4086.65 4721.07
CREDITORS
SUBSIDIARY 102.61 115.74 1358.12 1514.30 1711.07
COMPANIES
INTEREST ACCRUED 47.11 231.05 506.68 676.66 679.31
BUT NOT DUE
ADVANCE 198.28 226.03 297.37 334.99 293.84
RECEIVED FROM
THE CUSTOMER
UNCLAIMED 0.00 0.02 0.01 0.00 0.00
MATURED
DEPOSITS(DUE)
INTEREST ACCRUED 0.03 0.08 0.07 0.00 0.00
ON UNPAID
DIVIDENDS AND
UNCLAIMED
MATURED
DIVIDENDS(DUE)
UNPAID DIVIDENDS 23.37 29.33 33.08 39.44 41.26
APPLICATION 0.01 5.65 0.24 0.14 0.61
MONEY PENDING
REFUND
UNPAID MATURED 0.00 0.00 0.00 0.73 0.54
DIVIDENDS
UNPAID MATURED 2.59 1.73 1.03 0.00 0.00
DEPOSITS
UNPAID MATURED 1.76 1.79 0.14 0.00 0.00
DEBENTURES
INTEREST ACCRUED 1.45 0.42 0.34 0.18 0.13
ON UNPAID
DIVIDENDS AND
MATURED
DIVIDENDS
PROVISION FOR 49.31 0.00 0.00 0.00 0.00
RETIRING
GRATUITIES
PROVISION FOR 470.19 848.54 1143.08 1127.50 1601.75
EMPLOYEE
BENEFITS
PROVISION FOR 448.68 854.74 493.59 507.13 791.29
TAXATION
PROVISION FOR 18.37 19.12 19.12 2.12 3.88
FRINGE BENEFITS

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

PROPOSED 943.91 1278.40 1278.40 709.77 1151.06


DIVIDEND
TOTAL(B) 5453.66 6768.78 8974.05 8999.61 10995.81

NET WORKING 1022.29 (702.5) 1063.43 1375.68 7080.71


CAPITAL

PERCENTAGE CHANGE IN NET WORKING CAPITAL

FORMULA: CURRENT ASSET- CURRENT LIABILITY

CURRENT ASSETS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


STORES AND 14.18 10.33 9.78 1.89 14.81
SPARE PARTS
STOCK-IN-TRADE 5.51 12.03 40.10 -14.44 31.93
SUNDRY DEBTORS 17.10 -13.96 17.02 -31.63 -1.56
CASH AND BANK 57.91 2.11 242.04 103.33 28.06
LOANS AND 147.46 -19.73 76.55 -16.21 163.30
ADVANCES
TOTAL(A) 242.16 -9.22 385.49 42.98 236.54

CURRENT 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


LIABILITIES
SUNDRY 24.15 3.10 18.48 6.35 15.52
CREDITORS
SUBSIDIARY 64.52 12.80 1073.42 11.50 12.99
COMPANIES
INTEREST 93.95 390.45 119.29 33.55 0.39
ACCRUED BUT NOT
DUE
ADVANCE 7.14 14.00 31.56 12.65 -12.28
RECEIVED FROM
THE CUSTOMER
PROVISION FOR 5987.65 0.00 0.00 0.00 0.00
RETIRING
GRATUITIES
PROVISION FOR 0.00 63.34 34.71 0.014 42.06
EMPLOYEE
BENEFITS
PROVISION FOR 79.44 90.50 -42.25 2.74 56.03
TAXATION
PROVISION FOR 675.11 4.08 0.00 -88.91 83.01

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FRINGE BENEFITS
PROPOSED 31.19 26.19 7.33 -44.48 62.17
DIVIDEND
TOTAL(B) 6959.78 638.04 1232.01 -50.61 264.96

PERCENTAGE -6717.62 -647.26 -846.52 93.59 -28.42


CHANGE OF NET
WORKING
CAPITAL
(A-B)

FINANCIAL RATIOS

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

1. WORKING CAPITAL TURNOVER RATIO

It is a ratio that reflects the amount of working capital needed to maintain a given level of sales. A
high ratio indicates the firm is in a good liquidity position and vice-versa.

FORMULA = NET SALES


NET WORKING CAPITAL

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


NET SALES 17551.09 19693.28 24315.77 25021.98 29396.35
NET WORKING 1022.29 (702.5) 1063.43 1375.68 7080.71
CAPITAL
WORKING CAPITAL 17.17 -28.03 22.87 18.19 4.15
TUNRNOVER
RATIO

working capital turnover ratio


40
20 17.17 22.87 18.19
0 4.15
2006-1007 2007-2008 2008-2009 2009-2010 2010-2011
-20
-28.03
-40

INTERPRETATION:

The net working capital of TATA STEEL Ltd. has been fluctuating over the years. A sharp decrease
in the working capital in the year 2007-2008, where the working capital was negative was mainly
because of a decrease in current assets.

As compared to the year 2009-2010 where the working capital ratio was 18.19, the ratio this year has
fallen down to 4.15. The reason for decrease can be accredited to the increase in the current assets
such as inventory, cash & bank balances and loans and advances that has increased tremendously this
year. There has been an increase in the sales and the production capacity this year. The raw materials
consumption has also increased by 13.64%.

2. CURRENT RATIO

The current ratio is used to evaluate a companys overall short term liquidity position. It tells
us whether a company is in a position to meet its obligations.

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FORMULA = CURRENT ASSETS


CURRENT LIABILITIES

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-1011


CURRENT 6475.95 6066.28 10037.48 10375.29 18076.52
ASSESTS
CURRENT 5453.66 6768.78 8974.05 8999.61 10995.81
LIABILITIES
CURRENT RATIO 1.19 0.90 1.12 1.15 1.64

current ratio
1.8
1.6 1.64
1.4
1.2 1.19 1.15
1.12 current ratio
1
0.9
0.8
0.6
0.4
0.2
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

The ideal current ratio is considered to be 2:1. The current ratio has been increasing steadily over the
years. As compared to the previous year in 2009-2010 the ratio has increased to 1.64 in the year
2010-2011. The reason for increase might be continuous investments in the current assets over the
years.

3. QUICK RATIO

Quick ratio / Liquid ratio is an indicator of a companys short term solvency or liquidity
position. It is the relationship between liquid assets and liabilities. An asset is said to be liquid if it
can be converted into cash within a short period without loss of value.

FORMULA = CURRENT ASSETS INVENTORY

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

CURRENT LIABILITIES

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


CURRENT ASSETS 6475.95 6066.28 10037.48 10375.29 18076.52
INVENTORY 1827.54 2047.31 2868.28 2453.99 3237.58
CURRENT 4648.41 4018.97 7169.2 7921.3 14838.94
ASSETS-
INVENTORY
CURRENT 5453.66 6768.78 8957.05 8999.61 10995.81
LIABILTY
QUICK RATIO 0.85 0.59 0.80 0.88 1.34

QUICK RATIO
1.6
1.4 1.34
1.2
1
0.8 0.85 0.8 0.88
QUICK RATIO
0.6 0.59
0.4
0.2
0
07

08

09

10

11
20

20

20

20
20

-
-

-
06

07

08

09

10
20
20

20

20

20

INTERPRETATION:
The ideal standard in case of quick ratio is 1:1. And if it is more it is considered to
be better. The idea behind this is that for every rupee of current liabilities, there should be at least one
rupee of liquid asset.

Quick ratio is thus a rigorous test of liquidity and gives a better picture of short term financial
position of the firm. As shown in the graph above, we can see that after a steep fall in the quick ratio
from the year 2006-2007 to 2007-2008 there has been a steady increase in the quick ratio and for the
year 2010-2011 the ratio is 1.34 which signifies that the liquidity position of the firm has improved
and this is because of increase in the cash that is lying with the firm.

4. DEBTORS TURNOVER RATIO

Debtors Turnover Ratio or Receivables Turnover Ratio indicates the relationship


between net sales and average debtors. It shows the rate at which cash is generated by the turnover of
debtors.

FORMULA = AVERAGE DEBTORS

37
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

NET SALES

AVERAGE DEBTORS= (OPENING DEBTORS + CLOSING DEBTORS) / 2

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


AVERAGE 585.515 587.55 589.73 535.40 431.43
DEBTORS
NET SALES 17551.09 19693.28 24315.77 25021.98 29396.35
DEBTORS 29.98 33.52 41.23 46.73 68.13
TURNOVER
RATIO

DEBTORS TURNOVER RATIO


80
70 68.13
60
50 46.73
40 41.23 DEBTORS TURNOVER
30 29.98 33.52 RATIO
20
10
0
07

08

09

10

11
20

20

20
20

20
-

-
06

07

08

09

10
20

20

20

20

20

INTERPRETATION:

Debtors turnover ratio indicates the speed with which the amount is being collected
from the debtors. The higher the ratio the better it is, since it indicates the amount from the debtors is
being collected more quickly. The more quickly the debtors pay, the less risk from bad debts, and so
lower is the expenses of collection and increase in the liquidity of the firm. By comparing the
debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales
policy of the management is efficient or not.

5. DEBT COLLECTION PERIOD

Days Sales Outstanding is a short term (operating) Activity ratio which tells us about
the debtors holding time. The more the holding period the more risky it becomes for the company. A

38
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

high debt collection period indicates that the company is taking time to collect cash from its debtors.
The cash is not being collected on time which is not a good sign for the company, it is a red flag.

FORMULA = 365/ DEBTORS TURNOVER RATIO

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


DEBTORS 29.98 33.52 41.23 46.73 68.13
TURNOVER
RATIO
NO. OF DAYS 365 365 365 365 365
DEBT 12 11 9 8 5
COLLECTION
PERIOD

DEBT COLLECTION PERIOD


12
10
8
12 11 DEBT COLLECTION
6
9 8 PERIOD
4
5
2
0
07

08

09

10

11
20

20

20
20

20
-

-
06

07

08

09

10
20

20

20

20

20

INTERPRETATION:

Debt collection period means the average number of days that the debtors take to get converted to
cash. In other words, credit sales are locked up in debtors for the number of days.

As we can see here, the debt collection period has come down from 12 days to 5 days which
means that the debtors get converted to cash in 5 days. An increase in the ratio indicates excessive
blockage of funds with the debtors which increases the chances of bad debts. In this case as we can
see that there is a decrease in the average collection period which indicates prompt payment by
debtors which reduces the chances of bad debts.

Therefore, from the above data it can be concluded that the company is in a better position and is
improving as compared to its previous years.

6. STOCK TURNOVER RATIO

39
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

The Inventory Turnover Ratio measures the efficiency of the firms


inventory management. A higher ratio indicates that inventory does not remain in warehouses or on
the shelves but rather turns over rapidly from the time of acquisition to sales. A lower inventory
turnover ratio means accumulation of inventories, over investment in inventory or unsalable goods.

FORMULA = COST OF GOODS SOLD


AVERAGE STOCK

AVERAGE STOCK= (OPENING STOCK+CLOSING STOCK)/2

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


COST OF 10174.97 11155.5 14928.65 15730.67 17471.83
GOODS SOLD
AVERAGE 1779.82 1937.43 2457.8 2661.14 2845.78
STOCK
STOCK 5.72 5.76 6.07 5.91 6.13
TURNOVER
RATIO
.

STOCK TURNOVER RATIO


6.2
6.1 6.13
6.07
6
5.9 5.91
STOCK TURNOVER RATIO
5.8
5.76
5.7 5.72
5.6
5.5
07

08

09

10

11
20

20

20
20

20
-

-
06

07

08

09

10
20

20

20

20

20

INTERPRETATION:

This ratio indicates the relationship between the cost of goods sold during the year and average stock
kept during that year. The ratio indicates whether the stock has been efficiently used or not. It shows
the speed with which the stock is turned into sales during the year. The graph above shows that after
an increase in the ratio from the year 2007-2008 to 2008-2009 (5.76-6.07) there in the year 2009-
2010(5.91) after which again a rise in the ratio in the year 2010-2011(6.13). A high ratio is indicative
that the stock is selling quickly.

40
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

7. PAYABLES TURNOVER RATIO

Although accounts payable are liabilities rather than assets, their trend is
significant as they represent an important source of financing for operating activities. The creditors
turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by
relying on suppliers credit. This shows the relationship between credit purchases and average
accounts payable. Higher ratio shows that accounts are to be settled rapidly whereas, low ratio
reflects liberal credit terms granted by suppliers.

FORMULA- NET CREDIT PURCHASE


AVERAGE CREDITORS

AVERAGE CREDITORS= (OPENING CREDITORS+CLOSING


CREDITORS)/2

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


NET CREDIT 2263.01 2353.80 6241.61 5215.42 6853.95
PURCHASE
AVERAGE 2840.01 3194.70 3543.10 3964.72 4383.86
CREDITORS
PAYABLES 0.79 0.73 1.76 1.31 1.56
TURNOVER
RATIO

PAYABLES TURNOVER RATIO


2
1.5 1.31
1.76
1.56
10.79 0.73 PAYABLES
0.5 TURNOVER RATIO
0
07

08

09

10

11
20

20

20
20

20
-
-

-
06

07

08

09

10
20
20

20

20

20

INTERPRETATION:

The ratio indicates the speed with which the amount is being paid to the creditors. A higher ratio is
better since it would indicate that the creditors are being paid more quickly and this increases the
credit worthiness of the firm. Here, the graph above shows a steep fall in the ratio from the year
2008-2009(1.76) to 2009-2010(1.31) and then again a rise to the year 2010-2011(1.56). The reason
for the fall can be attributed to a decrease in the net credit purchases in the year 2009-2010.

41
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

6.2 COMPARATIVE ANALYSIS OF TATA STEEL, SAIL AND JSW

SAIL

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully
integrated iron and steel maker, producing both basic and
special steels for domestic construction, engineering,
power, railway, automotive and defence industries and
for sale in export markets. SAIL is also among the five
Maharatnas of the country's Central Public Sector
Enterprises.

SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and
coils, galvanised sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless
steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special
steel plants, located principally in the eastern and central regions of India and situated close to
domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines.
The company has the distinction of being Indias second largest producer of iron ore and of having
the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive
availability of iron ore, limestone, and dolomite which are inputs for steel making.

SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the
international market. This vital responsibility is carried out by SAIL's own Central Marketing
Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread
across the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer
Contact Offices. CMOs domestic marketing effort is supplemented by its ever widening network of
rural dealers who meet the demands of the smallest customers in the remotest corners of the country.
With the total number of dealers over 2000 , SAIL's wide marketing spread ensures availability of
quality steel in virtually all the districts of the country.

SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of
CMO, undertakes exports of Mild Steel products and Pig Iron from SAILs five integrated steel
plants.

42
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

With technical and managerial expertise and know-how in steel making gained over four decades,
SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients
world-wide.

SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi
which helps to produce quality steel and develop new technologies for the steel industry. Besides,
SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training
Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of the
Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of
SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO
Certified.

BACKGROUND & HISTORY

The Precursor

SAIL traces its origin to the formative years of an emerging nation - India. After independence the
builders of modern India worked with a vision - to lay the infrastructure for rapid industrialisaton of
the country. The steel sector was to propel the economic growth. Hindustan Steel Private Limited
was set up on January 19, 1954.

Expanding Horizon (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only one plant that was coming up at
Rourkela. For Bhilai and Durgapur Steel Plants, the preliminary work was done by the Iron and Steel
Ministry. From April 1957, the supervision and control of these two steel plants were also transferred
to Hindustan Steel. The registered office was originally in New Delhi. It moved to Calcutta in July
1956, and ultimately to Ranchi in December 1959.

The 1 MT phases of Bhilai and Rourkela Steel Plants were completed by the end of December 1961.
The 1 MT phase of Durgapur Steel Plant was completed in January 1962 after commissioning of the
Wheel and Axle plant. The crude steel production of HSL went up from .158 MT (1959-60) to 1.6
MT. A new steel company, Bokaro Steel Limited, was incorporated in January 1964 to construct and

43
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

operate the steel plant at Bokaro.The second phase of Bhilai Steel Plant was completed in September
1967 after commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of Rourkela - the
Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage of Durgapur Steel Plant
was completed in August 1969 after commissioning of the Furnace in SMS. Thus, with the
completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur, the total
crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to 4MT in
1972-73.

Holding Company

The Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing
industry. The policy statement was presented to the Parliament on December 2, 1972. On this basis
the concept of creating a holding company to manage inputs and outputs under one umbrella was
mooted. This led to the formation of Steel Authority of India Ltd. The company, incorporated on
January 24, 1973 with an authorized capital of Rs. 2000 crore, was made responsible for managing
five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant
and the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.

Since its inception, SAIL has been instrumental in laying a sound infrastructure for the industrial
development of the country. Besides, it has immensely contributed to the development of technical
and managerial expertise. It has triggered the secondary and tertiary waves of economic growth by
continuously providing the inputs for the consuming industry.

JSW
JSW Group is one of the fastest growing business conglomerates with a strong presence in the core
economic sector. This Sajjan Jindal led enterprise has grown from a steel rolling mill in 1982 to a

44
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

multi business conglomerate worth US $ 9 billion within a short span of time.


As part of the US $ 15 billion O. P. Jindal Group, JSW Group has diversified interests in Steel,
Energy, Minerals and Mining, Aluminium, Infrastructure and Logistics, Cement and Information
Technology. On its road to growth and expansion, the Group is also conscious about its
responsibility towards environment and social development. Eco-efficiency is a matter of principle.
Preventive measures for damage to the environment are taken into account at the planning stage of
production and growth.

JSW Foundation, an integral part of the Group, is the CSR wing, with a vision to create socio
economic difference in the fields of Education, Health and Sports, Community
Relationship/Propagation as well as Art, Culture and Heritage.

JSW Foundation plans and implements social development activities of the JSW group of companies.
It is an independent institution and is governed by a Board of Trustees who is drawn from the senior
management of the JSW group of companies. The Foundation is headed by Mrs Sangita Jindal while
the executive is headed by Shri Jugal Tandon in his capacity as CEO, Corporate Sustainability. A
team of social development professionals is based in Mumbai and at every location where JSW has
its operations and undertake community based activity in consultation with their respective
managements. An Advisory Board comprising of eminent NGO leaders has been constituted recently
to render advice on social processes and participatory planning and execution of projects.

A social development policy has been accepted by the group. JSW cherishes people and believes in
inclusive growth to facilitate creation of a value based and empowered society through continuous
and purposeful engagement of all stakeholders. In partnership with external development agencies,
JSW would strive to achieve sustainable development in all spheres of life including integrated
community development, promotion of arts and culture, environment protection and sports.

As a responsible corporate, JSW would integrate its environment, HR and ethical business policies
with appropriate community engagement and gender equity. JSW is committed to allocation of 1.5%
of its PAT to pursue its CSR policy. In tune with this, JSW Foundation works closely with village
communities and creates synergies with other verticals of the JSW group to assimilate their
intervention in a social development framework.

DATA ANALYSIS AND INTERPRETATION OF TATA STEEL, SAIL AND JSW


1. WORKING CAPITAL RATIO

45
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

It is a ratio that reflects the amount of working capital needed to maintain a given level of
sales. A high ratio indicates the firm is in a good liquidity position and vice-versa.

FORMULA = NET SALES


NET WORKING CAPITAL

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 17.17 -28.03 22.87 18.19 4.15
SAIL 3.63 3.01 2.48 1.85 2.06
JINDAL 42.79 -10.49 -4.78 -8.82 187.34

200

150

100
TATA STEEL
SAIL
50 JINDAL

0
07

08

09

10

11
20

20

20

20

20

-50
-

-
06

07

08

09

10
20

20

20

20

20

INTERPRETATION:

The working capital ratio of TATA STEEL has been fluctuating over the years. The reason for
negative working capital for the year 2007-2008 can be attributed to the decrease in current assets
whereas a sharp decrease in working capital for the year 2010-2011 is because of the increase in
current assets such as cash and bank balances, loans and advances and also because of an increase in
the raw material consumption.

The working capital ratio of SAIL Ltd. has been falling constantly from the year
2006-2007 to the year 2009-2010 after which there was an increase in the ratio.

The working capital of JSW has shown a sharp decrease from the year 2006-2007
to 2007-2008 where the working capital ratio remained constantly negative for three consecutive
years and after that there was an increase in the ratio. The reason for the increase in the ratio is an
increase in the current assets, loans and advances.

2. CURRENT RATIO

The current ratio is used to evaluate a companys overall short term liquidity
position. It tells us whether a company is in a position to meet its obligations.

46
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FORMULA = CURRENT ASSETS

CURRENT LIABILITIES

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 1.19 0.90 1.12 1.15 1.64
SAIL 1.86 1.99 2.02 1.78 1.84
JINDAL 1.08 0.74 0.61 0.73 1.01

2.5

2 1.99 2.02
1.78 1.84
1.64 1.64
1.5
1.19 1.12 1.15 TATA STEEL
1 1.08 1.01
0.9
0.74 0.73 SAIL
0.61
0.5 JINDAL
0
07

08

09

10

11
20

20

20

20

20
-

-
06

07

08

09

10
20

20

20

20

20

INTERPRETATION:

The current ratio of TATA STEEL has been rising from the year 2007-2008and it has shown a
positive graph. The reason for the constantly rising graph since 2007-2008 has been investment in the
current assets, i.e. inventories, debtors, loans and advances and the liquid cash and bank balances.

SAIL has a fluctuating current ratio over the years with various rises and falls
over the time. The reason for the fall in the ratio from the year 2008-2009 to the year 2009-2010 was
the decrease in the current assets.

JSW had witnessed a steep downfall till the year 2008-2009 after which there
was a rise in the ratio till 2010-2011. The reason for decrease in the ratio from the year 2007-2008 to
the year 2008-2009 was because of the increase in current liabilities and again a rise in the year
2009-2010 was because of the increase in the current assets.

Current ratio should therefore be maintained around its ideal standard and for achieving this the
companys should therefore maintain its current assets and current liabilities in the right proportion.

3. QUICK RATIO

Quick ratio OR Liquid ratio is an indicator of a companys short term solvency or


liquidity position. It is the relationship between liquid assets and liabilities. An asset is said to be
liquid if it can be converted into cash within a short period without loss of value.

47
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FORMULA = CURRENT ASSETS INVENTORY


CURRENT LIABILITIES

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 0.85 0.59 0.80 0.88 1.34
SAIL 1.25 1.47 1.42 1.37 1.29
JINDAL 0.64 0.36 0.34 0.39 0.60

2.5 2.4
2
TATA STEEL
1.5 1.47 1.42 1.37 1.29 SAIL
1 1.34 JINDAL
0.85 0.8 0.88
0.64 0.59 0.6
0.5
0.36 0.34 0.39
0
2006-2007 2007-2008 2008-2009 2009-2010

INTERPRETATION:

The quick ratio of TATA STEEL has been rising since 2007-2008 and the investments should be
made enough in the current assets so as to maintain the ratio of current assets and current liabilities as
1:1.

The quick ratio of SAIL had declined from 2006-2007(2.4) to 2007-2008(1.47) and
thereafter the ratio has been declining throughout but the company has maintained the ratio above the
ideal standard.

The ratio of JSW had fallen from the year 2007-2008(0.36) to 2008-2009(0.34)
negligibly and thereafter it rose to 0.39 in 2008-2009 and finally to 0.60 in 2010-2011. The reason for
the increase in the ratio in 2010-2011 was increase in the cash and bank balances maintained with the
company.

4. DEBTORS TURNOVER RATIO

48
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

Debtors Turnover Ratio or Receivables Turnover Ratio indicates the relationship


between net sales and average debtors. It shows the rate at which cash is generated by the turnover of
debtors

FORMULA = AVERAGE DEBTORS


NET SALES

AVERAGE DEBTORS= (OPENING DEBTORS + CLOSING DEBTORS) / 2

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 29.98 33.52 41.23 46.73 68.13
SAIL 16.31 14.73 14.21 12.44 11.16
JINDAL - 33.83 38.07 37.87 33.05

80
70 68.13
60
50 46.73
40 41.23
33.52
30 29.98 38.07 TATA STEEL
33.8
20 16.31 33.05 SAIL
14.73 14.21 12.44 11.16
10 JSW
0 7.87
07

08

09

10

11
20

20

20
20

20
-

-
06

07

08

09

10
20

20

20

20

20

INTERPRETATION:

The debtors turnover ratio has shown a positive rising graph throughout which is very good for the
company since it shows the speed with which the money is being recovered from the debtors. And
rising graph throughout shows that the sales management is quite efficient in recovering the money
from the debtors.

SAIL has a declining graph throughout which is not a good sign and therefore
it means that credit sales have been made to the debtors who do not deserve so much of credit and
therefore the company must revise its sales policy.

JSW has a fluctuating graph and after a steep fall in the year 2009-2010 the
ratio rose to 33.5 in the year 2010-2011. The debtors and the sales figures have risen for the year
2010-2011 and the reason for the rise in the ratio can be efficient sales management and a sound sales
policy.

49
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

5. DEBT COLLECTION PERIOD

Days Sales Outstanding is a short term (operating) Activity ratio which tells us
about the debtors holding time. The more the holding period the more risky it becomes for the
company. A high debt collection period indicates that the company is taking time to collect cash from
its debtors. The cash is not being collected on time which is not a good sign for the company, it is a
red flag.

FORMULA = 365/ DEBTORS TURNOVER RATIO

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 12 11 9 8 5
SAIL 22 24 26 29 33
JINDAL 10 9 9 11

35
30
25
20
15 TATA STEEL
10 SAIL
5 JSW
0
06

07

08

09

10
20

20

20
20

20
-

-
-

-
05

06

07

08

09
20

20
20

20

20

INTERPRETATION:

The lower the debt collection period the lesser the chances of bad debts and thus is better for the
firm. TATA STEEL has a sound sale policy and the average collection period has been decreasing
over the years and finally the debtors are converted to cash in 5 days as in the year 2010-2011 and
lesser is the collection period shorter is the operating cycle.

SAILs average collection period has been increasing in the number of days which
means that they have a liberal sales policy and the credit period is thus extended for the debtors. A
higher debt collection period generally increases the chances of bad debts and reduces the chances of
recovery of money from the debtors.

JSW has maintained its collection period at more or less a constant platform. The
debtors are converted to cash in 11 days (2010-2011). Here we can conclude that TATA STEEL is in

50
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

a better position as compared to the other two firms. SAIL should make some serious efforts to
reduce its debt collection period

6. STOCK TURNOVER RATIO

The Inventory Turnover Ratio measures the efficiency of the firms inventory
management. A higher ratio indicates that inventory does not remain in warehouses or on the shelves
but rather turns over rapidly from the time of acquisition to sales. A lower inventory turnover ratio
means accumulation of inventories, over investment in inventory or unsalable goods.

FORMULA = COST OF GOODS SOLD


AVERAGE STOCK

AVERAGE STOCK= (OPENING STOCK+CLOSING STOCK)/2

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 5.72 5.76 6.07 5.91 6.13
SAIL 4.22 4.68 4.68 3.62 4.09
JINDAL 5.87 5.89 5.74 5.29

7 5.89 6.07 5.91 6.13


5.72 5.76
6
55.87 4.68 5.74
4.68 5.29
4 4.22 4.09
3.62
3 TATA STEEL
2 SAIL
1 JSW
0
07

08

09

10

11
20

20
20

20

20
-
-

-
06

07

08

09

10
20
20

20

20

20

INTERPRETATION:

The stock turnover ratio of TATA STEEL has been rising throughout and the cost of goods sold has
also been rising with a rise in the average stock maintained with the company. A higher stock ratio
turnover is indicative that the stock is selling quickly, that is reflected with the higher sales.

SAIL has fluctuating ratio throughout.

51
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

JSW has a declining ratio, though the cost of goods sold and the average debtors
has been rising but certain items which have to be excluded from the cost of goods sold have been
rising over the time.

7. PAYABLES TURNOVER RATIO

Although accounts payable are liabilities rather than assets, their trend is
significant as they represent an important source of financing for operating activities. The creditors
turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by
relying on suppliers credit. This shows the relationship between credit purchases and average
accounts payable. Higher ratio shows that accounts are to be settled rapidly whereas, low ratio
reflects liberal credit terms granted by suppliers.

FORMULA- NET CREDIT PURCHASE


AVERAGE CREDITORS

AVERAGE CREDITORS= (OPENING CREDITORS+CLOSING CREDITORS)/2

PARTICULARS 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


TATA STEEL 0.79 0.73 1.76 1.31 1.56
SAIL 5.46 5.21 6.14 3.13 3.82
JINDAL 7.17 6.28 6.51 8.57

9 8.57

87.17
7 6.28 6.51

6 6.14
5.46 5.21
5 TATA STEEL
4 SAIL
3.82
3.13 JSW
3
2 1.76
1.31 1.56
1 0.79 0.73
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

52
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

The payables turnover ratio means the speed with which the creditors are being paid. TATA STEEL
has a rising graph which indicates that the creditors of the firm are being paid on time and quite
frequently and this helps in increasing the credit worthiness of the firm.

SAIL has had a fall in the ratio drastically from the year 2008-2009 to the
year 2009-2010.

JSW is quite efficient in paying off its creditors. A ratio of 8.57 times mans that
the speed with which the company pays to its creditors is quite high.

6.3 DATA ANALYSIS AND INTERPRETATION OF RATIO ANALYSIS

1. NET DEBT TO EQUITY

Debt is the borrowed funds and Equity is the owned funds of an organization. This ratio is
calculated to measure the extent to which debt financing has been used in a business. A ratio of 1:1 is
considered to be satisfactory. This ratio is also known as External-Internal ratio as it indicates the
relationship between the external equities or the outsiders funds and the internal equities or the
shareholders funds.

FORMULA = NET DEBT


SHAREHOLDERS FUND

NET DEBT= SECURED LOANS+ UNSECURED LOANS- CASH AND BANK


BALANCE- CURRENT INVESTMENTS

EQUITY= SHAREHOLDERS FUND- MISCELLANOUS EXPENSES

FINANCIAL YEAR 2006-2007

COMPANY NET DEBT SHAREHOLDERS DEBT- EQUITY


FUND RATIO
TATA STEEL (1728.55) 15108.68 (0.12)

SAIL (5454.57) 17184 (0.32)


JSW 3642.29 5788.92 0.63

FINANCIAL YEAR 2007-2008

COMPANY NET DEBT SHAREHOLDERS DEBT- EQUITY


FUND RATIO
TATA STEEL 16519.85 27455.84 0.61
SAIL (10737.77) 23004.09 (0.47)
JSW 6283.78 7677.25 0.82

53
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FINANCIAL YEAR 2008-2009

COMPANY NET DEBT SHAREHOLDERS DEBT-EQUITY


FUND RATIO
TATA STEEL 22086.25 30281.33 0.73
SAIL (10714.20) 0.79841 (0.38)
JSW 9602.56 7959.25 1.21

FINANCIAL YEAR 2009-2010

COMPANY NET DEBT SHAREHOLDERS DEBT- EQUITY


FUND RATIO
TATA STEEL 20285.83 36961.80 0.55
SAIL (5925.12) 33316.70 (0.18)
JSW 9529.64 9706.34 0.98

FINANCIAL YEAR 2010-2011

COMPANY NET DEBT SHAREHOLDERS DEBT-EQUITY


FUND RATIO
TATA STEEL 21159.81 46944.63 0.45
SAIL 2638.56 37069.47 0.07
JSW 5965.65 17225.27 0.35

1.4
1.21
1.2
0.98
1
0.82
0.8 0.73
0.63 0.61
0.6 0.55
0.45
0.4 TATA STEEL SAIL JSW 0.35

0.2 0.07
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
-0.2 -0.12
-0.18
-0.4 -0.32
-0.38
-0.6 -0.47

INTERPRETATION:

54
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

The debt-equity ratio is calculated to assess the firms ability to meet its long term liabilities.
Generally, a ratio of 2:1 is considered to be safe for the long term lenders and a ratio below 2:1
provides sufficient protection to the long term lenders and thus they are more secure and a higher
ratio thus would indicate a more risky financial position of the firm.

The debt- equity ratio for all the year and of all the three companies has been less than 2:1 and this
is indicative of a sound financial position of the firm.

2. SHAREHOLDERS EQUITY RATIO

This ratio helps to determine how much shareholders would receive in the event of a
company-wide liquidation. It represents the amount of assets on which shareholders have a residual
claim. The higher the ratio the more shareholders may receive and vice-versa.

FORMULA= SHAREHOLDRES EQUITY

TOTAL ASSETS

FINANCIAL YEAR 2006-2007

COMPANY SHAREHOLDERS TOTAL SHAREHOLDERS


EQUITY ASSETS(TANGIBLE) EQUITY RATIO
TATA STEEL 580.67 25597.50 0.023
SAIL 4130.40 22906.33 0.18
JSW 525.80 10779.74 0.049

FINANCIAL YEAR 2007-2008

COMPANY SHAREHOLDERS TOTAL SHAREHOLDERS


EQUITY ASSETS(TANGIBLE) EQUITY RATIO
TATA STEEL 6203.30 47075.52 0.132
SAIL 4130.40 27677.41 0.15
JSW 537.01 16475.62 0.032

FINANCIAL YEAR 2008-2009

COMPANY SHAREHOLDERS TOTAL SHAREHOLDERS


EQUITY ASSETS(TANGIBLE) EQUITY RATIO
TATA STEEL 6203.45 58741.77 0.11
SAIL 4130.40 36855.04 0.11
JSW 537.01 20653.04 0.03

55
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FINANCIAL YEAR 2009-2010

COMAPNY SHAREHOLDERS TOTAL SHAREHOLDERS


EQUITY ASSETS(TANGIBLE) EQUITY RATIO
TATA STEEL 887.41 64232.78 0.014
SAIL 4130.40 51242.87 0.08
JSW 527.11 23256.39 0.023

FINANCIAL YEAR 2010-2011

COMPANY SHAREHOLDERS TOTAL SHAREHOLDERS


EQUITY ASSETS(TANGIBLE) EQUITY RATIO
TATA STEEL 959.41 78555.91 0.012
SAIL 4130.40 58726.03 0.07
JSW 563.18 31493.65 0.018

0.2
0.18
0.18

0.16 0.15

0.14 0.13

0.12 0.11
0.11
TATA STEEL
0.1
SAIL
0.08
0.08 0.07 JSW

0.06 0.05

0.04 0.03 0.03


0.02 0.02
0.02
0.02 0.01 0.01

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

A ratio used to help determine how much shareholders would receive in the event of a company-wide
liquidation. The ratio is calculated by dividing total shareholders' equity by total assets of the firm,
and it represents the amount of assets on which shareholders have a residual claim.

56
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

If we consider as in the case of TATA STEEL, the ratio for the year 2006-2007
is 0.023 so this means that the shareholders would have a claim of 2.3% on the assets in the event of
the wind up of the company.

The lower the ratio, the better it is for the company since the company would be
then able to pay off to its shareholders in case of liquidation without any burden.

TATA STEEL has made efforts to lower the ratio and finally succeeded to do so.
If we consider the ratios for the year 2010-2011, we can see that TATA ATEEL is in a better position
than the other two companies.

3. DEBT TO NET WORTH RATIO

The net debt to net worth ratio has significance to lenders, analysts and business
managers. If affects the ability of a company to borrow money and to finance its growth. A business
owner needs to know the optimal debt to net worth ratio for the benefit of its company. The net debt
should never be higher than the net worth; it is a bad sign for the company.

FORMULA = LONG TERM DEBT


NET WORTH

LONG TERM DEBT = SECURED LOANS + UNSECURED LOANS CASH & BANK
CURRENT INVESTMENTS

NET WORTH= EQUITY SHARE CAPITAL + PREFERENCE SHARE CAPITAL+


RESERVES & SURPLUS MISCELLANOUS EXPENSES TO THE EXTENT NOT
WRITTEN OFF.

FINANCIAL YEAR 2006-2007

COMPANY LONG TERM NET WORTH DEBT- NET


DEBT WORTH RATIO
TATA STEEL (1728.55) 13893.62 (0.125)
SAIL (5454.57) 17184 (0.32)
JSW 3642.29 5399.18 0.67

FINANCIAL YEAR 2007-2008

COMPANY LONG TERM DEBT NET WORTH DEBT- NET


WORTH RATIO
TATA STEEL 16519.85 27145.62 0.61
SAIL (10737.77) 23004.09 (0.47)
JSW 6283.78 7677.25 0.82

FINANCIAL YEAR 2008-2009

COMPANY LONG TERM DEBT NET WORTH DEBT- NET

57
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

WORTH RATIO
TATA STEEL 22086.25 30071.19 0.73
SAIL (10714.20) 27984.10 (0.38)
JSW 9602.56 7959.25 1.21

FINANCIAL YEAR 2009-2010

COMPANY LONG TERM DEBT NET WORTH DEBT- NET


WORTH RATIO
TATA STEEL 20285.83 36961.80 0.55
SAIL (5925.12) 33316.70 (0.18)
JSW 9529.64 9706.34 0.98

FINANCIAL YEAR 2010-2011

COMPANY LONG TERM DEBT NET WORTH DEBT- NET


WORTH RATIO
TATA STEEL 21159.81 46944.63 0.45
SAIL 2638.56 37069.47 0.07
JSW 5965.65 16695.89 0.36

1.4
1.21
1.2
0.98
1
0.82
0.8 0.73
0.67
0.61
0.6 0.55
0.45 TATA S TEEL
0.4 0.36 S AIL
JS W
0.2
0.07

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
-0.2 -0.13
-0.18

-0.4 -0.32
-0.38
-0.47
-0.6

INTERPRETATION:

This ratio is used in the analysis of financial statements to show the amount of protection available to
creditors. A high ratio usually indicates that the business has a lot of risk because it must meet
principal and interest on its obligations.

58
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

TATA STEEL has a fluctuating ratio throughout the five years. But anyhow it has tried to maintain its
position by reducing the debts and increasing the net worth of the company.

SAIL has a negative ratio but in the year 2010-2011 it has finally achieved a positive ratio.

JSW has a fluctuating graph throughout the five years but in the year 2010-2011, it has been able to
lower the ratio and thus reduce the risk involved in the business.

4) FIXED ASSETS TO LONG TERM RATIO

This ratio indicates the proportion of long-term funds deployed in fixed assets. The higher the ratio,
the safer will be the funds available in case of liquidation. It also indicates the proportion of funds
that is invested in working capital.

It indicates the level of fixed assets owned by a company in relation to the long-term debts of the
company. The higher the ratio the better it is for a company and the assets which are debt free and
fully owned by the company.

FORMULA = FIXED ASSETS

LONG TERM LOANS

FIXED ASSETS = GROSS FIXED ASSETS DEPRICIATION

LONG TERM LOANS = SHARE CAPITAL+ RESERVES+ LONG TERM LOANS

FINANCIAL YEAR 2006-2007

COMPANY FIXED ASSETS LONG TERM FUNDS FIXED ASSTES TO


LONG TERM RATIO
TATA STEEL 11040.56 23594.42 0.47
SAIL 11597.71 21493.67 0.54
JSW 8189.10 9767.08 0.84

FINANCIAL YEAR 2007-2008

COMPANY FIXED ASSETS LONG TERM FUNDS FIXED ASSTES TO


LONG TERM RATIO
TATA STEEL 12623.56 45322.42 0.28
SAIL 11571.31 26108.81 0.44
JSW 10955.49 15223.78 0.72

FINANCIAL YEAR 2008-2009

59
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

COMPANY FIXED ASSETS LONG TERM FUNDS FIXED ASSTES TO


LONG TERM RATIO
TATA STEEL 14482.22 57122.44 0.25
SAIL 12268.83 35522.89 0.35
JSW 13086.44 19231.88 0.68

FINANCIAL YEAR 2009-2010

COMPANY FIXED ASSETS LONG TERM FUNDS FIXED ASSTES TO


LONG TERM RATIO
TATA STEEL 16006.03 62201 0.26
SAIL 13615.28 49827.95 0.27
JSW 16866.14 21291.44 0.79

FINANCIAL YEAR 2010-2011

COMPANY FIXED ASSETS LONG TERM FUNDS FIXED ASSTES TO


LONG TERM RATIO
TATA STEEL 18774.48 75067.57 0.25
SAIL 15082.66 57234.96 0.26
JSW 21102.15 28647.23 0.74

0.9
0.84
0.79
0.8
0.74
0.72
0.7 0.68

0.6
0.54

0.5 0.47 TATA STEEL


0.44

0.4 SAIL
0.35
JSW
0.28 0.26
0.27
0.3 0.25 0.25
0.26

0.2

0.1

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

60
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

This is a difficult set of ratios to interpret as asset values are based on the historical cost. An increase
in the fixed asset figure may result from the replacement of an asset at an increased price or the
purchase of an additional asset intended to increase the production capacity.

A latter transaction might be expected to result in increased sales.

5. PROPERITARY RATIO

This ratio indicates the proportion of long-term funds deployed in fixed assets. The
higher the ratio, the safer will be the funds available in case of liquidation. It also indicates the
proportion of funds that is invested in working capital.

It indicates the level of fixed assets owned by a company in relation to the long-term debts of the
company. The higher the ratio the better it is for a company and the assets which are debt free and
fully owned by the company.

FORMULA = NET WORTH


TOTAL ASSETS

NET WORTH = EQUITY SHARE CAPITAL + PREFERENCE SHARE CAPITAL+


RESERVES & SURPLUS MISCELLANOUS EXPENSES TO THE EXTENT NOT
WRITTEN OFF.

TOTAL ASSETS = FIXED ASSETS + CURRENT ASSETS

FINANCIAL YEAR 2006-2007

COMPANY NET WORTH TOTAL ASSETS PROPERITARY


RATIO
TATA STEEL 13893.62 25597.50 0.54
SAIL 17184 22906.33 0.75
JSW 5399.18 10779.74 0.50

FINANCIAL YEAR 2007-2008

COMPANY NET WORTH TOTAL ASSETS PROPERITARY


RATIO
TATA STEEL 27145.62 47075.52 0.57
SAIL 23004.09 27677.41 0.83
JSW 7677.25 16475.62 0.47

FINANCIAL YEAR 2008-2009

COMPANY NET WORTH TOTAL ASSETS PROPERITARY


RATIO

61
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

TATA STEEL 30071.19 58741.77 0.52


SAIL 27984.10 36855.04 0.76
JSW 7959.25 20653.04 0.39

FINANCIAL YEAR 2009-2010

COMPANY NET WORTH TOTAL ASSETS PROPERITARY


RATIO
TATA STEEL 36961.80 64232.78 0.58
SAIL 33316.70 51242.87 0.65
JSW 9706.34 23256.39 0.42
FIANANCIAL YEAR 2010-2011

COMPANY NET WORTH TOTAL ASSETS PROPERITARY


RATIO
TATA STEEL 46944.63 78555.91 0.60
SAIL 37069.47 58726.03 0.63
JSW 17225.27 31493.65 0.55

0.9
0.83
0.8 0.75 0.76

0.7 0.65
0.63
0.6
0.6 0.57 0.58
0.54 0.55
0.52
0.5
0.5 0.47
TATA S TEEL
0.42
0.39 S AIL
0.4
JS W
0.3

0.2

0.1

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

Proprietary ratio indicates the proportion of total assets funded by owners or shareholders. A higher
proprietary ratio is an indicator of sound financial position from the long term point of view because
it means a large proportion of total assets are provided by equity and hence the firm is thus less
dependent on the external sources of finance. A lower proprietary ratio is a danger signal for long
term lenders as it indicates a lower margin of safety available to them.

62
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

TATA STEEL has maintained an overall consistent ratio throughout as in the five year time.

The proprietary ratio of SAIL has been declining since the year 2007-2008. The proprietary ratio of
JSW has been increasing since 2008-2009.

TATA STEEL has been improving over the years and though SAIL has a declining ratio throughout
but anyhow it is in a better position than the other companies.

6. INTEREST COVER

This ratio is also known as time interest - earned ratio. It measures the firms ability
to make contractual interest payments. This ratio measures the debt servicing capacity of a firm
insofar as fixed interest on long term loan is concerned. It indicates the extent to which a fall in EBIT
is tolerable in that the ability of the firm to service its interest payments would not be adversely
affected. For instance, coverage of five times would indicate that a fall in operating earnings only to
up to one-fifth level can be tolerated.

The higher the ratio the greater is the ability of the firm to handle fixed charge
liabilities and the more assured is the payment of interest to them. However, too high a ratio would
imply unused debt capacity. A low ratio is danger signal that the firm is using excessive debt and
does not have the ability to offer assured payment of interest to the lenders.

FORMULA = PBIT
INTEREST

FINANCIAL YEAR 2006-2007

COMPANY PBIT INTEREST INTEREST COVER


TATA STEEL 6435.55 173.90 37.01
SAIL 9754.75 332.13 29.37
JSW 2314.72 399.54 5.79

FINANCIAL YEAR 2007-2008

COMPANY PBIT INTEREST INTEREST COVER


TATA STEEL 7945.06 878.70 9.04
SAIL 11719.67 250.94 46.70
JSW 2924.56 440.44 6.64

FINANCIAL YEAR 2008-2009

COMPANY PBIT INTEREST INTEREST COVER


TATA STEEL 8468.30 1152.69 7.35
SAIL 9656.69 253.24 38.13
JSW 1474.88 797.25 1.85

63
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FINANCIAL YEAR 2009-2010

COMPANY PBIT INTEREST INTEREST COVER


TATA STEEL 8722.70 1508.40 5.78
SAIL 10534.04 402.01 26.20
JSW 3678.57 858.92 4.28

FINANCIAL YEAR 2010-2011

COMPANY PBIT INTEREST INTEREST COVER


TATA STEEL 11077.34 1300.49 8.52
SAIL 7669.26 474.95 16.15
JSW 3477.46 695.18 5.00

50 46.7

45
38.13
40 37.01

35
29.37
30 26.2
TATA S TEEL
25
S AIL
20 16.15 JS W

15
9.04 8.52
6.64 7.35
10 5.79 5.78 5
4.28
5 1.85

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

The interest cover ratio is used to determine how easily a company can be relieved of its burden to
pay interest expenses on outstanding debt. The lower the ratio, the more the company is burdened by
debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet
interest expenses may be questionable.

TATA STEEL has had a steep fall in the ratio from the year 2006-2007(37.01) to the
year 2007-2008(9.04) and this was mainly because the interest expenses had risen by leaps and
bounds. And thereafter the interest expenses continued to rise.

64
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

SAIL has a fluctuating ratio. The rise in the ratio was because of the reduction in the
interest expenses and a sudden fall was when the interest expenses were high.

JSW has witnessed a ratio of 1.85 for the year 2008-2009 because this year the profit
before interest and tax was 1474.88 which was quite less as compared to the previous year and the
interest expenses were 797.25 which had risen by 1.8 times as compared to the previous year.

7. DIVIDEND COVER RATIO

It measures the ability of a firm to pay dividend on preference shares which carry a stated
rate of return. This ratio is the ratio of net profits after taxes (EAT) and the amount of preference
dividend. The higher the coverage the better it is and vice versa

FORMULA = NET PROFIT AFTER TAX


DIVIDEND

FINANCIAL YEAR 2006-2007

COMPANY PROFIT AFTER TAX DIVIDEND DIVIDEND COVER


TATA STEEL 4222.15 1104.33 3.82
SAIL 6202.29 1478.40 4.20
JSW 1292 199.39 6.48

FINANCIAL YEAR 2007-2008

COMPANY PROFIT AFTER TAX DIVIDEND DIVIDEND COVER


TATA STEEL 4687.03 1393.55 3.36
SAIL 7536.78 1787.16 4.22
JSW 1728.19 241.49 7.16

FINANCIAL YEAR 2008-2009

COMPANY PROFIT AFTER TAX DIVIDEND DIVIDEND COVER


TATA STEEL 5201.74 1492.5 3.49
SAIL 6174.81 1255.16 4.92
JSW 958.50 55.41 17.30

FINANCIAL YEAR 2009-2010

COMPANY PROFIT AFTER TAX DIVIDEND DIVIDEND COVER


TATA STEEL 5046.80 878.45 5.75
SAIL 6754.37 1590.55 4.25
JSW 2022.74 240.93 8.40

FINANCIAL YEAR 2010-2011

COMPANY PROFIT AFTER TAX DIVIDEND DIVIDEND COVER

65
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

TATA STEEL 6865.69 1307.77 5.25


SAIL 4904.74 1152.45 4.26
JSW 2010.67 350.09 5.74

20

18 17.3

16

14

12
TATA S TEEL
10
8.4 S AIL
8 7.16 JS W
6.48
5.75 5.74
6 4.92 5.25
4.2 4.22 4.25 4.26
3.82 3.49
4 3.36

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

The dividend cover ratio means that how easily the company can be relieved of its burden of paying
the dividends to the company.

TATA STEEL has been paying off its dividends at a consistent rate. And it seems that it has been
following a conservative approach.

JSW had paid a very high dividend for the year 2008-2009, which means that the company had
declared a large part of its profit as dividend and thus following a liberal approach for paying the
dividends.

66
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

8. EBIDTA TO TURNOVER RATIO

This ratio is used to assess a companys profitability by comparing its turnover and
earnings. Since EBITDA is derived from revenue this would indicate the percentage of a company
remaining after operating expenses.

Generally a higher ratio would indicate that the company is


able to keep its earnings at a good level through efficient processes that have kept certain expenses
low.

FORMULA = EARNING BEFORE INTEREST, TAX AND DEPRICIATION


TURNOVER

FINANCIAL YEAR 2006-2007

COMPANY EBIDTA TURNOVER EBIDTA TO


TURNOVER RATIO
TATA STEEL 7254.84 17984.76 0.40
SAIL 10966.23 35924.07 0.31
JSW 2812.95 8699.59 0.32

FINANCIAL YEAR 2007-2008

COMPANY EBIDTA TURNOVER EBIDTA TO


TURNOVER RATIO
TATA STEEL 8779.67 20028.28 0.44
SAIL 12955.15 41890.91 0.31
JSW 3611.74 11677.14 0.31

FINANCIAL YEAR 2008-2009

COMPANY EBIDTA TURNOVER EBIDTA TO


TURNOVER RATIO
TATA STEEL 9441.70 24624.04 0.38
SAIL 10941.81 46248.61 0.24
JSW 2302.54 14260.81 0.16

FINANCIAL YEAR 2009-2010

COMPANY EBIDTA TURNOVER EBIDTA TO


TURNOVER RATIO
TATA STEEL 9805.88 25875.77 0.38
SAIL 11871.28 43319.61 0.27

67
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

JSW 4801.98 18735.32 0.26

FINANCIAL YEAR 2010-2011

COMPANY EBIDTA TURNOVER EBIDTA TO


TURNOVER RATIO
TATA STEEL 12223.53 30187.02 0.40
SAIL 9155.06 44918.67 0.20
JSW 4856.17 23445.88 0.21

0.5
0.44
0.45
0.4 0.4
0.4 0.38 0.38

0.35 0.32
0.31 0.31
0.31
0.3 0.27
0.24 TATA S TEEL
0.25
S AIL
0.20.21
0.2 JS W
0.16
0.15

0.1

0.05

0
0.26
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

EBIDTA to turnover ratio signifies that higher the ratio the better it is. Since it means that earnings
before interest, depreciation and taxation.

TATA STEEL has maintained a positive rising graph throughout. And it has a ratio better than the
other two companies.

68
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

9. EARNING PER SHARE

This ratio measures the profitability on a per share basis i.e. the amount that they can
get on every share held. The higher the ratio the more amounts the equity shareholders receive.

FORMULA = PROFIT ATTRIBUTABLE TO SHAREHOLDERS


WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES FOR BASIC EPS

FINANCIAL YEAR 2006-2007

COMPANY PROFIT O WEIGHTED EARNING PER


ATTRIBUTABLE AVERAGE NO. OF SHARE
SHAREHOLDERS ORDINARY SHARES
TATA STEEL 4222.15 646823122 73.76
SAIL 6202.29 4130400545 15.02
JSW 1259.35 157208820 80.11

FINANCIAL YEAR 2007-2008

COMPANY PROFIT WEIGHTED EARNING PER


ATTRIBUTABLE TO AVEARGE NO. OF SHARE
SHAREHOLDERS ORDINARY SHARES
TATA STEEL 4687.03 697748601 67.17
SAIL 7536.78 4130400545 18.25
JSW 1694.19 177855318 95.26

FINANCIAL YEAR 2008-2009

COMPANY PROFIT WEIGHTED EARNING PER


ATTRIBUTABLE TO AVEARGE NO. OF SHARE
SHAREHOLDERS ORDINARY SHARES
TATA STEEL 5073.69 730584834 69.45
SAIL 6174.81 4130400545 14.95
JSW 424.58 187048666 22.70

FINANCIAL YEAR 2009-2010

COMPANY PROFIT WEIGHTED EARNING PER


ATTRIBUTABLE TO AVEARGE NO. OF SHARE
SHAREHOLDERS ORDINARY SHARES
TATA STEEL 4993.12 828550811 60.26
SAIL 6754.37 4130400545 16.35
JSW 1989.01 187048682 106.34

FINANCIAL YEAR 2010-2011

COMPANY PROFIT WEIGHTED EARNING PER


ATTRIBUTABLE TO AVEARGE NO. OF SHARE

69
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

SHAREHOLDERS ORDINARY SHARES


TATA STEEL 6861.15 907252572 75.63
SAIL 4904.74 4130400545 11.87
JSW 1978.24 203595864 97.17

97.17
2010-2011 11.87
75.63

106.34
2009-2010 16.35
60.26

22.7
TATA S TEEL
2008-2009 14.95
69.45 S AIL
JS W
95.26
2007-2008 18.25
67.17

80.11
2006-2007 15.02
73.76

0 20 40 60 80 100 120

INTERPRETATION:

The ratio is helpful in the determination of the market price of the equity share of the company. The
ratio is also helpful in estimating the capacity of company to declare dividends on equity shares.

Higher the EPS the better is the capital productivity. It is an important measure of the economic
performance of a corporate entity.

JSW has the highest EPS as compared to the other two firms. And TATA STEEL has been quite
consistent in maintaining its ratio throughout.

10. GROSS PROFIT MARGIN

The ratio measures the margin of profit available on sales. The higher the ratio the
better it is for the company. It reflects the efficiency with which a firm produces its products.

70
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FORMULA = GROSS PROFIT * 100


SALES
FINANCIAL YEAR 2006-2007

COMPANY GROSS PROFIT SALES GROSS PROFIT


MARGIN
TATA STEEL 6153.98 17551.09 35.06
SAIL 8656.19 34223.92 25.29
JSW 2169.49 8554.36 25.36

FINANCIAL YEAR 2007-2008

COMPANY GROSS PROFIT SALES GROSS PROFIT


MARGIN
TATA STEEL 7388.93 19693.28 37.52
SAIL 10057.87 39508.45 25.46
JSW 2667.42 11420.00 23.35

FINANCIAL YEAR 2008-2009

COMPANY GROSS PROFIT SALES GROSS PROFIT


MARGIN
TATA STEEL 8160.03 24315.77 33.55
SAIL 8040.59 43150.08 18.63
JSW 2005.45 14001.25 14.32

FINANCIAL YEAR 2009-2010

COMPANY GROSS PROFIT SALES GROSS PROFIT


MARGIN
TATA STEEL 7868.91 25021.98 31.44
SAIL 8190.83 40551.38 20.20
JSW 3149.49 18202.48 17.30

FINANCIAL YEAR 2010-2011

COMPANY GROSS PROFIT SALES GROSS PROFIT


MARGIN
TATA STEEL 10286.67 29396.35 34.99
SAIL 5304.80 42718.71 12.42
JSW 3194.82 23163.24 13.79

71
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

40 37.52
35.06 34.99
35 33.55
31.44
30
25.36
25.29 25.46
25 23.35
20.2 TATA S TEEL
20 18.63
17.3 S AIL
14.32 13.79 JS W
15
12.42

10

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTEPRETATION:

The ratio measures the margin of profit available on sales. The higher the ratio the better it is. The
ratio of TATA STEEL has been fluctuating but it has been on a constant platform. The sales figures
have been rising so the fluctuations in the ratio can be attributed to the difference in the prices of the
raw materials, freights and wages.

The gross profit ratio of SAIL has been falling and which is again because of the rise in the prices of
the raw materials, wages and freight which have ultimately reduced the margin of the gross profit.

The gross profit margin of JSW has also decreased since the selling prices have not risen in the same
proportion to the increase in the cost of the raw materials and other expenses.

TATA STEEL has a much favourable ratio as compared to the other two companies. SAIL can take
some measures such as procure raw materials at a cheaper price or to increase the selling price in
order to improve its gross profit margin.

72
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

11. NET PROFIT MARGIN

This ratio measures the relationship between EBIT to sales. It indicates the
efficiency of the management in manufacturing, selling, administration and other activities of the
firm. It is the overall measure of a firms profitability. It is represented as a percentage.

A high net profit margin would ensure adequate returns to the owners as well as enable a firm to
withstand adverse economic conditions when selling price is declining, cost of production is rising
and demand for product id falling. A low net profit margin has the opposite implication.

FORMULA = NET PROFIT BEFORE INTEREST AND TAX * 100


SALES

FINANCIAL YEAR 2006-2007

COMPANY NPBIT SALES NET PROFIT


MARGIN
TATA STEEL 6435.55 17551.09 36.67
SAIL 9754.75 34223.92 28.50
JSW 2314.72 8554.36 27.06

FINANCIAL YEAR 2007-2008

COMPANY NPBIT SALES NET PROFIT


MARGIN
TATA STEEL 7945.06 19693.28 40.34
SAIL 11719.67 39508.45 29.66
JSW 2924.56 11420.00 25.60

FINANCIAL YEAR 2008-2009

COMPANY NPBIT SALES NET PROFIT


MARGIN
TATA STEEL 8468.30 24315.77 34.82
SAIL 9656.69 43150.08 22.38
JSW 1474.88 14001.25 10.53

FINANCIAL YEAR 2009-2010

COMPANY NPBIT SALES NET PROFIT


MARGIN
TATA STEEL 8722.70 25021.98 34.86
SAIL 10534.04 40551.38 25.98
JSW 3678.57 18202.48 20.21

73
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FINANCIAL YEAR 2010-2011

COMPANY NPBIT SALES NET PROFIT


MARGIN
TATA STEEL 11077.34 29396.35 37.68
SAIL 7669.26 42718.71 17.95
JSW 3477.46 23163.248 15.01

45 40.34
37.82
40 36.67
34.82 34.86
35
29.66
28.5
30 27.06
25.6 25.98
22.38
25 TATA S TEEL
20.21
17.95 S AIL
20
15.01 JS W
15 10.53

10

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

Net profit ratio reflects the net profit margin on the total sales after deducting all the expenses but
before deducting the interest and taxation. This ratio measures the efficiency of the operation of the
company.

The trend of the graph of the net profit ratio is quite similar to that of the gross profit
margin ratio. Higher the ratio the better it is. TATA STEEL has been quite efficient in managing the
operating expenses of the firm.

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WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

12. CASH PROFIT RATIO

The Cash Ratio is the most conservative of all these measures of cash resources, as only
actual cash and securities easily convertible to cash are used to measure cash resources. The short-
term liquidity of a company may be measured through cash ratio.

FORMULA = CASH PROFIT


SALES

CASH PROFIT= NET PROFIT+ DEPRICIATION

FINANCIAL YEAR 2006-2007

COMPANY CASH PROFIT SALES CASH PROFIT


RATIO
TATA STEEL 5041.44 17551.09 28.72
SAIL 7413.77 34223.92 21.85
JSW 1790.23 8554.36 20.93

FINANCIAL YEAR 2007-2008

COMPANY CASH PROFIT SALES CASH PROFIT


RATIO
TATA STEEL 5521.64 19693.28 28.38
SAIL 8772.26 39508.45 22.20
JSW 2415.37 11420.00 21.15

FINANCIAL YEAR 2008-2009

COMPANY CASH PROFIT SALES CASH PROFIT


RATIO
TATA STEEL 6175.14 24315.77 25.40
SAIL 7459.93 43150.08 17.29
JSW 1313.16 14001.25 9.38

FINANCIAL YEAR 2009-2010

COMPANY CASH PROFIT SALES CASH PROFIT


RATIO
TATA STEEL 6129.98 25021.98 24.50
SAIL 8091.61 40551.38 19.95
JSW 3146.15 18202.48 17.28

FINANCIAL YEAR 2010-2011

COMPANY CASH PROFIT SALES CASH PROFIT

75
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

RATIO
TATA STEEL 8011.88 29396.35 27.25
SAIL 6890.54 42718.71 14.95
JSW 3389.38 23163.25 14.63

28.72 28.38
30 27.25
25.4
24.5
25 21.85 22.2
20.93 21.15
19.95

20 17.29 17.28
14.95
14.63
TATA S TEEL
15
S AIL
9.38 JS W
10

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

The ratio measures the cash generation in the business as a result of the operation expressed in terms
of sales. The cash profit ratio is more reliable indicator of performance where there are sharp
fluctuations in profit before tax and the net profit from year to year owing to the difference in
depreciation.

It facilitates the inter firm comparison of performance since different methods of depreciation may
be adopted by different companies.

TATA STEEL is ahead of the other two companies and has a better graph as compared to SAIL and
JSW.

76
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

13. RETURN ON ASSETS

Here the profitability is measured in terms of the relationship between net


profits and assets. The ROA may be also called as profit-to-asset ratio. It can be interpreted in
two ways. First, it measures managements ability and efficiency in using the firms assets to
generate (operating) profits. Second, it reports the total return accruing to all providers of capital
(debt and equity), independent of the source of capital.

FORMULA = EBIT
AVERAGE TOTAL ASSETS

FINANCIAL YEAR 2006-2007

COMPANY EBIT AVERAGE TOTAL RETURN ON ASSETS


ASSETS
TATA STEEL 6435.55 20107.33 0.32
SAIL 9754.75 20644.91 0.47
JSW 2314.72

FINANCILA YEAR 2007-2008

COMPANY EBIT AVERAGE TOTAL RETURN ON ASSETS


ASSETS
TATA STEEL 7945.06 36336.51 0.22
SAIL 11719.67 25291.87 0.46
JSW 2924.56 13627.68 0.21

FINANCIAL YEAR 2008-2009

COMPANY EBIT AVERAGE TOTAL RETURN ON ASSETS


ASSETS
TATA STEEL 8468.30 52908.65 0.16
SAIL 9656.69 32266.23 0.30
JSW 1474.88 18564.33 0.08

FINANCIAL YEAR 2009-2010

COMPANY EBIT AVERAGE TOTAL RETURN ON ASSETS


ASSETS
TATA STEEL 8722.70 61487.28 0.14
SAIL 10534.04 44143.57 0.24
JSW 3678.57 21954.72 0.17

77
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

FINANCIAL YEAR 2010-2011

COMPANY EBIT AVERAGE TOTAL RETURN ON ASSETS


ASSETS
TATA STEEL 11077.34 71394.35 0.11
SAIL 7669.26 54984.45 0.14
JSW 3477.46 27375.02 0.13

0.5 0.47 0.46


0.45

0.4

0.35 0.32
0.3
0.3
0.24 TATA S TEEL
0.25
0.21 0.21 S AIL
0.2 JS W
0.16 0.17 0.15
0.14 0.13 0.14
0.15

0.1 0.08

0.05

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

The ratio indicates how profitable a company is relative to its total assets. The ratio illustrates how
well management is employing companys total assets to make a profit. The higher the return, the
more efficient management is in utilizing the assets base.

Here we can conclude that SAIL has not been utilizing its asset base efficiently and so the graph has
taken a downward trend.

TATA STEEL has also not been very efficient in utilizing the asset base of the company.

78
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

14. RETURN ON AVERAGE NET WORTH

This ratio measures the return on the total equity funds of ordinary shares. From
this ratio it can be judged whether the firm has earned a satisfactory return for its shareholders or not.
The higher the ratio, the better it is for the shareholders.

FORMULA= PROFIT AFTER TAX


AVERAGE NET WORTH

FINANCIAL YEAR 2006-2007

COMPANY PROFIT AFTER TAX AVERAGE NET RETURN ON


WORTH AVEARGE NET
WORTH
TATA STEEL 4222.15 11697.83 0.36
SAIL 6202.29 14784.80 0.42
JSW 1292

FINANCIAL YEAR 2007-2008

COMPANY PROFIT AFTER TAX AVERAGE NET RETURN ON


WORTH AVEARGE NET
WORTH
TATA STEEL 4687.03 20519.62 0.23
SAIL 7536.78 20094.05 0.38
JSW 1728.19 6538.22 0.26

FINANCIAL YEAR 2008-2009

COMPANY PROFIT AFTER TAX AVERAGE NET RETURN ON


WORTH AVEARGE NET
WORTH
TATA STEEL 5201.74 28608.41 0.18
SAIL 6174.81 25494.10 0.24
JSW 958.50 7827.25 0.12

FINANCIAL YEAR 2009-2010

COMPANY PROFIT AFTER TAX AVERAGE NET RETURN ON


WORTH AVEARGE NET
WORTH
TATA STEEL 5046.80 33516.50 0.15
SAIL 6754.37 30650.40 0.22
JSW 2022.74 8832.80 0.23

FINANCIAL YEAR 2010-2011

79
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

COMPANY PROFIT AFTER TAX AVERAGE NET RETURN ON


WORTH AVEARGE NET
WORTH
TATA STEEL 6865.69 41953.22 0.16
SAIL 4904.74 35193.09 0.14
JSW 2010.67 13465.81 0.15

0.45 0.42

0.38
0.4 0.36

0.35

0.3 0.26
0.24
0.23 0.23
0.25 0.22 TATA S TEEL
0.18 S AIL
0.2 0.16
0.15 0.15 JS W
0.14
0.15 0.12

0.1

0.05

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

It expresses the net profit in terms of equity shareholders fund. It is an important yardstick of
performance for equity shareholders since it indicates the return on funds employed by them.
However this measure is based on the historical net worth and will be high for old plants and low for
new plants.

The factor which motivates the shareholders to invest in a company is the expectations of an
adequate rate of return on their funds, they will want to assess the rate of return in order to decide
whether to continue their investments or not.

80
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

15. RETURN ON AVERAGE CAPITAL EMPLOYED

Return on average capital employed is a profitability ratio. The term capital employed
refers to long-term funds supplied by the lenders and owners of the firm. Capital employed basis
provides a test of profitability related to the sources of long-term funds. It is an insight into how
efficiently the long-term funds of owners and lenders are being used. The higher the ratio, the more
efficient is the use of capital employed.

CAPITAL EMPLOYED = TOTAL FUNDS EMPLOYED MISCELLANOUS


EXPENSES TO THE EXTENT NOT WRITTEN OFF

COMPANY EBIT AVERAGE CAPITAL RETURN ON


EMPLOYED AVERAGE CAPITAL
EMPLOYED
TATA STEEL 6435.55 19879.43 0.32
SAIL 9754.75 20601.58 0.47
JSW 2314.72

COMPANY EBIT AVERAGE CAPITAL RETURN ON


EMPLOYED AVERAGE CAPITAL
EMPLOYED
TATA STEEL 7945.06 36157.69 0.22
SAIL 11719.67 25326.71 0.46
JSW 2924.56 13530.25 0.22

COMPANY EBIT AVERAGE CAPITAL RETURN ON


EMPLOYED AVERAGE CAPITAL
EMPLOYED
TATA STEEL 8468.30 52778.56 0.16
SAIL 9656.69 32236.49 0.30
JSW 1474.88 18564.33 0.08

COMPANY EBIT AVERAGE CAPITAL RETURN ON


EMPLOYED AVERAGE CAPITAL
EMPLOYED
TATA STEEL 8722.70 61434.74 0.14
SAIL 10534.04 44048.96 0.24
JSW 3678.57 21954.72 0.17

COMPANY EBIT AVERAGE CAPITAL RETURN ON

81
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

EMPLOYED AVERAGE CAPITAL


EMPLOYED
TATA STEEL 11077.34 71394.35 0.16
SAIL 7669.26 54984.45 0.14
JSW 3477.46 27375.02 0.13

0.5
0.47 0.46
0.45

0.4

0.35 0.32
0.3
0.3

0.24 TATA S TEEL


0.25 0.22 0.22 S AIL
0.2 JS W
0.17
0.16 0.16
0.14 0.13 0.14
0.15

0.1 0.08

0.05

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

Return on average capital employed ratio narrows the focus to gain a better understanding of a
company's ability to generate returns from its available capital base.

By comparing net income to the sum of a company's debt and equity capital, investors can get a
clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider
the ROCE measurement to be a more comprehensive profitability indicator because it gauges
management's ability to generate earnings from a company's total pool of capital.

16. DIVIDEND PAYOUT RATIO

82
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

This ratio indicates the percentage PAT distributed as dividends to equity


shareholders. It is also known as pay-out ratio. For instance PAT are Rs. 500000 and the dividend is
Rs. 300000 then the dividend pay -out ratio would be 60%. This implies that 40% of the profits of
the firm are retained (retention ratio) and 60% distributed as dividends. Therefore, the higher the
ratio the more dividends can be received.

FORMULA = DIVIDEND (EQUITY)/ PROFIT AFTER TAX

FINANCIAL YEAR 2006-2007

COMPANY DIVIDEND(EQUITY) PROFIT AFTER DIVIDEND PAYOUT


TAX RATIO
TATA STEEL 1104.33 4222.15 26.16
SAIL 1478.40 6202.29 23.89
JSW 199.39 1292 15.43

FINANCIAL YEAR 2007-2008

COMPANY DIVIDEND(EQUITY) PROFIT AFTER DIVIDEND PAYOUT


TAX RATIO
TATA STEEL 1393.55 4687.03 29.73
SAIL 1787.16 7536.78 23.71
JSW 241.49 1728.19 13.97

FINANCIAL YEAR 2008-2009

COMPANY DIVIDEND(EQUITY) PROFIT AFTER DIVIDEND PAYOUT


TAX RATIO
TATA STEEL 1492.5 5201.74 28.69
SAIL 1255.16 6174.81 20.33
JSW 55.41 958.50 5.78

FINANCIAL YEAR 2009-2010

COMPANY DIVIDEND(EQUITY) PROFIT AFTER DIVIDEND PAYOUT


TAX RATIO
TATA STEEL 878.45 5046.80 17.41
SAIL 1590.55 6754.37 23.55
JSW 240.93 2022.74 11.91

FINANCIAL YEAR 2010-2011

COMPANY DIVIDEND(EQUITY) PROFIT AFTER DIVIDEND PAYOUT


TAX RATIO
TATA STEEL 1307.77 6865.69 19.05
SAIL 1152.45 4904.74 23.50
JSW 350.09 2010.67 17.41

83
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

35

29.73
30 28.69
26.16
25 23.89 23.71 23.55 23.5

20.3
20 19.05
17.41 17.41 TATA S TEEL
15.43 S AIL
15 13.97
11.97 JS W

10
5.78
5

0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

INTERPRETATION:

This ratio identifies the percentage of earnings (net income) per common share allocated to paying
cash dividends to shareholders. The dividend pay-out ratio is an indicator of how well earnings
support the dividend payment.

It indicates the extent to the net profit distributed to the shareholders as dividend. A high
pay-out signifies a liberal distribution policy and a low pay out reflects conservative distribution
policy.

84
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

CHAPTER 7

7.1 LIMITATION AND SCOPE FOR FUTURE


7.2 SUGGESTIONS AND RECOMMENDATION
7.3 CONCLUSION
7.4 BIBLIOGRAPHY

7.1 LIMITATION AND SCOPE FOR FUTURE

Following limitations were encountered while preparing this project:

1) Limited Data: - This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection because of
confidentiality.

2) Limited Period: - This project is based on three year annual reports. Conclusions and
recommendations are based on such limited data. The trend of last three year may or may not reflect
the real working capital position of the company

3) Limited Area: - Also it was difficult to collect the data regarding the competitors and their
financial information. Industry figures were also difficult to get.

4) Type Data Used for This Project: - This project is completely based on secondary data collected
from various sources like internet, books etc.

DIRECTION FOR FUTURE RESEARCH

The present study is limited to the extent of a single company. Hence, further research may be
conducted to reflect the overall view of working capital management in the Indian Steel industry.

85
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

7.2 SUGGESTIONS AND RECOMMENDATION

Suggestion can be used by the firm for the betterment increased of the firm after study and
analysis of project report on Working Capital Management and Ratio Analysis of Tata Steel. I would
like to recommend.

1. Company should raise funds through short term sources for short term requirement of funds,
which comparatively economical as compare to long term funds.

2. Company should take control on debtors collection period which is major part of current assets.

3. Company has to take control on cash balance because cash is nonearning assets and increasing
cost of funds.

RECOMMENDATION:

Tata steel should try to improve its solvency so that at the time of crisis they dont have to sell
of their inventory to pay off debts.
They should maintain quick ratio above or equal to 1.0.
Fluctuations in operating cycle should be reduced.
TATA STEEL must keep eye on its WIP conversion period.
TATA STEEL should try to minimize its inventory conversion period and also try to
minimize the average age of stock to reduce the cost of inventories.
As sale price per unit is lesser than the competitors it must keep trend increasing mode of
sales to reduce the blockage of its price in its inventory.
Try to generate more revenue from other country.
TATA STEEL should try for acquisition of more mines in India to reduce the raw material
outsourcing or import cost.
There should be a proper balance between the current assets and the currents liabilities. The
working capital became negative due to an improper balance.

It should not allow its net debt to become negative. A negative net debt indicates more cash
and less debt which means that the company is not investing enough in its growth.

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

Adequate planning is required for procurement of store items.

86
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

Advance payments should be avoided. If at all advance payments are required, it should be
against securities like bank guarantees etc.

The essence of effective working capital management is proper cash flow forecasting. This
should take into account the unforeseen events, market cycles, sudden fall in demand, fall in
selling price, loss in prime customers etc. This is a very important factor that has to be taken
into account.

7.3 CONCLUSION

Tata Steel has been analyzed in terms of financial aspects especially working capital and financial
ratios. A comparison has been made with JSW and SAIL to see the position of Tata Steel Ltd. in the
industry.

Working capital management is a very crucial part of any organization. It needs to maintain its
working capital efficiently for its day to day operations to take place. An organization needs proper
liquidity to meet its obligations on time.

Ratio analysis is also a very important part of a business. It is a platform to judge a company based
on liquidity, profitability etc. It is very crucial for banks, investors, creditors etc. It also makes
comparisons easier.

Tata Steel has been able to maintain a good liquidity position throughout. It has been able to pay
back its liabilities on time and also has been able to give dividends on time to its shareholders. It has
also maintained a good level of EPS. The inventory turnover has been maintained efficiently which
we can see from the high inventory turnover ratio.

7.4 BIBLIOGRAPHY

87
WORKING MANAGEMENT AND RATIO
ANALYSIS OF TATA STEEL

Gerald I. White, Ashwinpaul C. Sondhi & Dov Fried (2011). The Analysis And Use Of Financial
Statements- Third edition.

M Y Khan & P K Jain (2010). Management Accounting- Fifth Edition.

http://www.tatasteel.com/about-us/company-profile.asp

http://www.ey.com/Publication/vwLUAssets/Global_Steel_Report_2010-2011/$FILE/Global
%20Steel%20Report%202010-2011%20FULL%20REPORT.pdf

zenithresearch.org.in/images/stories/pdf/2012/Jan/ZIJMR/13 SURESH VADDE Steel_paper.pdf

http://www.zacks.com/stock/news/49743/steel-industry-outlook-%96-march-2011

Research and Markets: Analyzing the Indian Steel Industry 2012 Edition is Completed with An
Analysis of the Major Players in the Indian Steel Sector | Japan Metal Bulletin

Top Indian Steel Companies Performance | News From Business, Finance, Share Market Real
Estate

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