A PROJECT REPORT ON

“STUDY OF WORKING CAPITAL MANAGEMENT OF

TATA STEEL AND COMPARATIVE ANALYSIS OF
TATA STEEL TUBES DIVISION WITH APL APOLLO
TUBES.”

SUBMITTED BY:

PUJA SINGH

ROLL NO-MM1618184

PGDM FINANCE

(2016-2018)

1
PLACE –JAMSHEDPUR

CERTIFICATE FROM COMPANY / ORGANISATION

This is to certify that Ms. PUJA SINGH, student of Two Year Full Time Post
Graduate Programme in Management – PGDM (Finance) of Balaji Institute of
Modern Management, Pune – 411033 has completed Summer Project Report titled
“STUDY OF WORKING CAPITAL MANAGEMENT OF TATA STEEL AND
COMPARATIVE ANALYSIS OF TATA STEEL TUBES WITH APPOLO
TUBES” with us from 5th May, 2016 to 30th June, 2017.

She has completed the Project work to our satisfaction.

Place: Signature of Official Seal of the

Company
Date: Name & Designation of Official

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 DECLARATION

I, Puja Singh, student of Balaji Institute of Modern Management, Pune hereby declare
that the project entitled as “Study of Working Capital Management of Tata Steel and
Comparative Analysis of Tata Steel Tubes Division and Apollo Tubes”, completed
under the guidance of “Mr. Pranav Mishra and Ms. Neeru Saggu, Senior Manager-
Tata Steel, and submitted to “BALAJI INSTITUTE OF MODERN MANAGEMENT,
PUNE” as an integral part of the Post Graduate Diploma in Management, is
exclusively a bona fide and original work done by me during academic year 2016-
2018. No part of this report has been submitted to anyone at any time before.

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 ACKNOWLEDGEMENT

It was a great privilege for gaining Summer Training (May-June’17) experience with
TATA STEEL Ltd. However, it would not have been possible without the kind
support and help of many individuals and organizations. I would like to extend my
sincere thanks to all of them. I am also grateful to Tata Steel Limited for providing me
expertise, and technical support in completion of project. Without their superior
knowledge and experience, this Project would not be possible, and thus their support
has been essential.

I would like to thank Mr. Pranav Mishra and Ms. Neeru Saggu for guiding me on
various aspects and adding valuable inputs useful for the project and showing the
right path to its completion.

I would also like to express my heartfelt regards to my parents, my friends and

company mentor & staff of Tata Steel Ltd and others who directly or indirectly helped
me for the successful completion of my project report.

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 TABLE OF CONTENTS

CHAPTER NO. TITLE PAGES

Executive summary 6

Chapter I Introduction

1.1 Background 7-8

1.2 Objectives 9

1.3 Scope 9

Chapter II. Literature Review 10-11

Chapter III. Industry and Company Profile 12-21

Chapter IV. Objectives Of The Study 22

4.1 Limitations 22

Chapter V. Research Methodology 23

Chapter VI. Data Analysis, Interpretation & Findings

6.1 Working Capital Management of Tata Steel. 24-39

6.2 Comparison of Tata Steel with SAIL. 40-48

Impact of GST on Working Capital
6.3 Management. 49-51

Comparison of Tata Steel Tubes SBU with

6.4 Appolo Tubes. 52-56

6.5 Findings 57

Chapter VII Recommendations & Conclusions 58-59

Bibliography 60

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 EXECUTIVE SUMMARY

Every manufacturing company faces the problem of working capital management in

their day to day processes. An organizational cost can be reduced and profits can be
increased only if it is able to manage its working capital efficiently.

Management of working capital is important because it has a direct impact on the

financials resources of the organization.

Excess investment on the part of inventory is not viable because the funds then will be
held up in inventories and will not be available for other important segment of the
business. Less investment is also detrimental because the company might face a huge
problem in fulfilling the requirement of the business. Therefore proper working
capital is very essential for the organization. The project explains in details working
capital management and various ratio analysis have been taken out on the basis of
secondary data provided so as to find the trends of working capital requirements in
Tata Steel Limited, a leading manufacturer of steel in the world as well as the impact
of GST on the working capital of Tata Steel. A brief study and comparison of working
capital of Tata Steel with its closest competitors in the steel industry has also been
done.

Further Tubes in Tata Steel forms a small yet essential part of the whole company
since it is the Strategic Business Unit, hence a comparative analysis of the production
and sales of Tata Tubes SBU with its closest competitor which is Appolo Tubes has
also been done.

This project is a sincere effort to study and analyze the working capital management
of Tata Steel and comparison of Tata Steel Tubes SBU with Appolo Tubes.

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 CHAPTER I

INTRODUCTION

1.1 BACKGROUND

Working capital management refers to the administration of all components of

working capital-cash, marketable securities, debtors and stock and creditors. Working
capital is one of the powerful measurements of the financial position. The words of H.
G. Guttmann clearly explain the importance of working capital. “Working Capital is
the life-blood and nerve centre of the business. The goal of working capital
management is to manage the firm’s current assets and current liabilities in such a
way that a satisfactory level of working capital is maintained. In several units there is
adequate working capital but the mismanagement of working capital increases the
costs and reduces the rate of return. The efficient management of working capital
minimizes the cost and can do much more for the success of the business.

Indian steel industry plays a significant role in the country’s economic growth. The
major contribution directs the attention that steel is having a stronghold in the
traditional sectors, such as infrastructure & constructions, automobile, transportation,
industrial applications etc. The liberalization of industrial policy and other initiatives
taken by the Government have given a definite impetus for entry, participation and
growth of the private sector in the steel industry. While the existing units are being
modernized/ expanded, a large number of new steel plants have also come up in
different parts of the country based on modern, cost effective, state of-the-art
technologies. In the last few years, the rapid and stable growth of the demand side has
also prompted domestic entrepreneurs to set. At present, crude steel making capacity
is 84 and India, the 4th largest producer of crude steel in the world, has to its credit,
the capability to produce a variety of grades and that too, of international quality
standards up fresh green field projects in different states of the country. Management
of working capital is an important component of corporate financial management
because it directly affects the profitability of the firms. Net working capital trend is
one of the devices for measuring liquidity. Net working capital trend analysis is
highly relevant as it presents the composite reflection of the trend analysis of current
assets and current liabilities. The direction of change in working capital position over

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the period of time is an indication of the effectiveness or ineffectiveness of the
working capital management. The study has been done on the basis of published
annual reports of Tata Steel for a period of five years starting from 2012 and ending
on 2016.Company may have an optimal level of working capital that maximizes their
value. Large inventory and generous trade credit policy may lead to high sales. The
larger inventory also reduces the risk of a stock-out. Trade credit may stimulate sales
because it allows a firm to access product quality before paying. Another component
of working capital is accounts payables delaying payment of accounts payable to
suppliers allows firms to access the liquidity. A popular measure of working capital
management is the net operating cycle, that is, the time span between the expenditure
for the purchases of raw materials and the collection of sales of finished goods.
Longer the time lag, the larger the investment in working capital. A long net operating
cycle might increase profitability because it leads to higher sales. However, corporate
profitability might decrease with the net operating cycle, if the costs of higher
investment in working capital rise faster than the benefits of holding more inventories
and/or granting more trade credit to customers.

Further a new dimension in steel tube technology opened up in India in the early 50’s
– with the establishment of the Indian Tube Company (ITC), on 17th December 1954.
It was the outcome of a joint venture between Tata Steel Ltd. and Stewarts & Lloyds
of UK. In 1985, the Indian Tube Company merged with Tata Steel Ltd. to form Tata
Steel -Tubes SBU (Strategic Business Unit). The Tubes SBU today is a leading
manufacturer of welded pipes and tubes in the country with an annual production
capacity of around 4, 00,000 tonnes and expansion plans on the anvil.

An analysis of Tata Steel Tubes SBU has also been done. Tubes SBU constitutes a
small part of the whole Tata Steel but smallest things make a vast difference.

The present work aims to examine the working capital management of Tata Steel Ltd
as well as compare Tata Steel Tubes division with Apollo Tubes.

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1.2 OBJECTIVE
• To examine the working capital efficiency of Tata Steel.
• To study the liquidity position through various working capital related
ratios.
• To analyze overall performance of the company.
• To study and analyze Tata Steel Tubes SBU and APL Apollo Tubes Ltd
which is considered as its strongest competitor.
• To recommend ways and means to improve present condition.

1.3 SCOPE
• This is an attempt to analyze the financial progress and performance of
Tata Steel Limited.
• An attempt has also been made to compare the Tata Steel Tubes SBU and
Apollo Tubes Ltd.
• The findings and suggestions throw light on the guidelines for future
policy formulation.
• 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 levels.

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 CHAPTER II

LITERATURE REVIEW

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

 Mr. N.Suresh Babu and Prof. G.V.Chalam (2014) Suggest that managers
can create value for their shareholders by reducing the number of day’s
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.
 Daniel Mogaka Makori and Ambrose Jagongo (2013) Suggest that the
management of a firm can create value for their shareholders by reducing the
number of day’s 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.
 Bhunia Amalendu (2007) analyses the working capital management of public
sector iron and steel enterprises. The level of working capital is found to be
lower. Liquidity position was poor and the management of inventory and
accounts receivable was found to be inefficient. It has been suggested that
steps should be taken for the improvement of the same.
 Patra Santimoy (2005) analyses the impact of liquidity on profitability
considering the case of Tata Iron and Steel Company Ltd liquidity and
profitability are two important dimensions in determining the soundness of an
enterprise. The paper has covered the following objectives:
1. To examine the impact of liquidity on profitability between ROI and each
of the selected ratios.

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 2. To assess the joint effect of the above ratios upon the profitability. The
study of the impact of liquidity ratios on profitability showed both positive
and negative association. The hypothesis that there is an adverse effect of
liquidity on profitability is true in case of TISCO Ltd. Now regarding
profitability of the company under the study, though there is no standard
norm of profitability which depends upon the management policy of the
company, still it appears to be too little.
 Hyderabad R. L. (1999) focuses on current assets financing policies. He
further states that a proper evaluation of the assets - liquidity and financial
structure liquidity is „quiet essence‟ for sound working capital. The author
firmly believes that the considerations of working capital investment and
financing are very crucial and should be given due significance by the
management for framing the overall working capital policy.

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 CHAPTER III

INDUSTRY PROFILE

STEEL INDUSTRY IN INDIA

 Steel is everywhere in life. No major country has become rich without a

significant steel industry, even when it is not endowed with key raw materials
such as coal and iron ore. If India is to become a high-income country, the
steel industry must play its role.
 To assess the role of the steel industry in the Indian growth story, we focus on
the ‘peaking level’ of steel production. Developed India will require steel
capacity of at least 700 million tonnes and steel consumption of at least 600
million tonnes by the year 2050. These numbers are, of course, subject to a
wide range of variation. But the central theme of the report and the policy
recommendations remain valid for a wide band of possible outcomes.
 The expansion potential of 600 million tonnes of steel use even with plus or
minus 20 per cent will be unmatched by any other country. India will be the
place to be in for producers of steel machinery and suppliers of raw materials
at the margin. India is the new China in steel-making.
 For India, it will be a great opportunity to leapfrog to the latest and best global
practices in steel. This calls for a basic change from the mentality of a poor
developing country to that of a resurgent country. India will have the luxury of
prevention, while others are struggling with the cure.

 The level of per capita consumption of steel is treated as an important index of

the level of socio-economic development and living standards of the people in
any country. It is a product of a large and technologically complex industry
having strong forward and backward linkages in terms of material flows and
income generation. All major industrial economies are characterized by the
existence of a strong steel industry and the growth of many of these economies
has been largely shaped by the strength of their steel industries in their initial
stages of development.

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KEY PLAYERS IN THE STEEL INDUSTRY

The steel industry is nearly a century old, with Tata Iron & Steel Co (Tata Steel) as
the first integrated steel plant to be set up in 1907. It was the first core sector to be
completely freed from the licensing regime (in 1990-91) and the pricing and
distribution controls. The steel industry is expanding worldwide. For a number of
years it has been benefiting from the exceptionally buoyant Asian economies (mainly
India and China). The economic modernization processes in these countries are
driving the sharp rise in demand for steel. The New Industrial policy adopted by the
Government of India has opened up the iron and steel sector for private investment by
removing it from the list of industries reserved for public sector and exempting it from
compulsory licensing. Imports of foreign technology as well as foreign direct
investment are freely permitted up to certain limits under an automatic route. This,
along with the other initiatives taken by the Government has given a definite impetus
for entry, participation, and growth of the private sector in the steel industry. While
the existing units are being modernized/ expanded, a large number of new/green-field
steel plants have also come up in different parts of the country based on modern, cost
effective, state of-the-art technologies. Soaring demand by sectors like infrastructure,
real estate, and automobiles, at home and abroad, has put India's steel industry on the
world map.

Dominating the Indian horizon is steel giant Tata Steel, whose takeover of the UK-
Dutch steel company Corus is the country's biggest buyout. Meanwhile, the LN
Mittal-owned Mittal Steel acquired French steel company Arcelor to create the
world's number one steel company, Arcelor Mittal; and Korean steel giant POSCO is
pumping money into mines and steel plants in Orissa to emerge as one of the biggest
steel plants in the state.

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STEEL MARKET DEVELOPMENTS

 Recent macroeconomic indicators suggest a positive change in growth

momentum in some economies. Although the world economy continues to
face uncertainty, lower oil prices could boost economic growth particularly in
oil importing economies

 Major steel-consuming industries are expected to register modest output

growth in 2015 and 2016.

 Global steel intensity (the amount of steel used to produce one unit of GDP) is
likely to decline during 2015-2016. China’s steel intensity is expected to
continue to decline as its economy undergoes structural change. After three
decades of extraordinary economic development, China is now shifting to a
lower but still rapid and likely more sustainable growth path. Chinese steel
demand and production might have already reached their peaks and are likely
to stabilise in the coming years.

 In response to weak market conditions, many steel producers are cutting

production. At the same time, several crude steelmaking investment projects
have been completed, and production has been started at these plants in recent
months. Regions that are currently net importers of steel products are
continuing to add new capacities.

 Prices of key raw materials have been declining and are likely to remain low
amid weak steel demand.

 Steel prices have been decreasing together with excess steelmaking capacity
and falling raw material prices. The recent drop in oil prices has affected steel
prices, particularly in the segment of steel tubes and pipes. Weak earnings
have led to a decline in the industry’s profitability over the last few years, with
little recovery expected in the near future.

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GOVERNMENT INITIATIVES

Some of the other recent government initiatives in this sector are as follows:
 Steel industry is likely to benefit from the new GST rate for steel which has
been finalized at 18% --also the slab that includes most number of items. With
key inputs like coal, iron ore pegged at 5%, which is the lowest slab under
GST, steel companies like JSW Steel BSE -0.51 %, JSPL, Tata Steel BSE -
0.04 %, SAILBSE 0.98 % etc., could be looking at lower input costs.
Together, with a substantial slash in transport costs due to unified and standard
tax rate under GST, this is likely to help steel.
 Metal Scrap Trade Corporation (MSTC) Limited and the Ministry of Steel
have jointly launched an e-platform called 'MSTC Metal Mandi' under the
'Digital India' initiative, which will facilitate sale of finished and semi-finished
steel products.
 The Minister of Steel & Mines, Mr Narendra Singh Tomar, has reiterated
commitment of Central Government to support the steel industry to reach a
production target of 300 Million Tonne Per Annum (MTPA) in 2025.
 The Ministry of Steel is facilitating setting up of an industry driven Steel
Research and Technology Mission of India (SRTMI) in association with the
public and private sector steel companies to spearhead research and
development activities in the iron and steel industry at an initial corpus of Rs
200 crore (US$ 30 million).
 The Central Board of Excise and Customs (CBEC) has issued a notification
announcing zero export duty on iron ore pellets, which will help the domestic
industry to become more competitive in the international market.
 Government has planned Special Purpose Vehicles (SPVs) with four iron ore
rich states i.e., Karnataka, Jharkhand, Orissa, and Chhattisgarh to set up plants
having capacity between 3 to 6 MTPA.

ROAD AHEAD
At present steel contributes 2% to GDP and employs nearly six lakh people with per
capita consumption of steel at 61 kg in FY16. India, now the 3rd largest producer and
is tipped to emerge as 2nd largest producer soon.

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 COMPANY PROFILE

TATA STEEL LTD

Tata Steel has in its lineage some of the world’s most pioneering and respected
entities – the Tata Group itself, British Steel, Koninklijke Hoogovens and NatSteel.
What binds together every member of the global Tata Steel family is a shared
corporate culture, shaped by value-based guiding principles that underpin every
business decision.

ABOUT TATA STEEL

 Established in 1907 as Asia's first integrated private sector steel company,

Tata Steel Group is among the top-ten global steel companies with an annual
crude steel capacity of over 29 million tonnes per annum. It is now the world's
second-most geographically-diversified steel producer, with operations in 26
countries and a commercial presence in over 50 countries. The Tata Steel
Group, with a turnover of Rs. 1.17 trillion in FY 16-17, has over 80,000
employees across five continents and is a Fortune 500 company.

 Tata Steel’s larger production facilities comprise those in India, the UK, the
Netherlands, Thailand, Singapore, China and Australia. Operating companies
within the Group include Tata Steel Limited (India), Tata Steel Europe
Limited (formerly Corus), Tata Steel Singapore and Tata Steel Thailand.

 The Tata Steel Group’s vision is to be the world’s steel industry benchmark in
“Value Creation” and “Corporate Citizenship” through the excellence of its
people, its innovative approach and overall conduct. Underpinning this vision

16
 is a performance culture committed to aspiration targets, safety and social
responsibility, continuous improvement, openness and transparency.
 In 2008, Tata Steel India became the first integrated steel plant in the world,
outside Japan, to be awarded the Deming Application Prize 2008 for
excellence in Total Quality Management. In 2012, Tata Steel became the first
integrated steel company in the world, outside Japan, to win the Deming
Grand Prize 2012 instituted by the Japanese Union of Scientists and
Engineers.

 The long journey of Tata Steel has seen the Company re-define its
performance parameters in a number of ways to become the global steel
industry benchmark for value creation and corporate citizenship. It ensures a
total commitment to its ethical business practices and a people oriented vision.

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VISION

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

Diversity enriches any large organization and enhances its collective capabilities. A
clear, shared vision is a key requisite for successful diversity management.
Tata Steel aims at achieving vision through:
 Our People
By fostering teamwork, nurturing talent, enhancing leadership capability and acting
with pace, pride and passion.
 Our Innovative Approach
By developing leading edge solutions in technology, processes and products.
 Our Conduct
By providing a safe workplace, respecting the environment, caring for our
communities and demonstrating high ethical standards.

MISSION
 Achieve sustainable, profitable growth in steel and related businesses.
 Create differential value for our customers through innovative offerings.
 Continuous improvement of business processes and technologies.
 Foster partnership with key stake holders.
 Enhance employees' competencies to create a high performing and innovative
organization. Be a responsible corporate citizen and enhance the quality of life
of employees and key community.

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ABOUT TATA STEEL AND STP (SEGMENTATION, TARGETING AND
POSITIONING)

Tata Steel
Parent
Company Tata Group

Category Iron & steel

Sector Industrial products

Tagline/
Slogan Values stronger than steel

The top ten global steel companies with an annual crude steel
USP capacity of over 28 million tonnes per annum

STP
Strip & long Steel products, Iron ore mining, Agricultural
Segment implements

Target Group Construction, automotive, infrastructure, capital goods

The global steel industry benchmark for value creation and
Positioning corporate citizenship

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 SWOT ANALYSIS OF TATA STEEL

STRENGTHS

 Operations in 26 countries and commercial presence in over 50 countries

 Pioneer of steel business in India
 Brand equity
 Advantage of value-chain efficiency because of multiple companies under the
same banner
 World’s second-most geographically diversified steel producer

WEAKNESSES

 Increasing Debt/Equity ratio i.e. Most assets are financed by Debt

 Largely dependent on European markets (52% of its total revenue)

OPPORTUNITY

 Government’s thrust on development of core industries like housing and

infrastructure should boost steel demand
 Newer technologies that are adapted by Tata steel due to its acquisitions is
likely to benefit them

THREATS

 Clampdown on iron ore mining and controversy surrounding allocation of coal

blocks could hurt its domestic business
 Competition from international players like Arcelor Mittal, Posco is likely to
eat into its market share

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 COMPETITORS ANALYSIS
 The steel industry is quite crowded consisting of more than 8 players in the
large scale sector and many medium size firms. Thus, competition does exist.
But the intensity is far too low due to very large demand supply gap. The
amount of investment that exists and will exist in the long run is huge and this
will serve as the exit barrier and further increasing rivalry. Thus, the profit
potential of Steel Industry in the short run is high but it may be reduced in the
long run owing to better bargaining power of buyer for reasons stated earlier.
 Tata steel is the largest company in terms of market capitalization in the BSE
in the Steel-Large sector. The market capitalization as of 24th May 2017 is
close to Rs.46905 Cr. JSW Steel, with market capitalization of
around Rs.46592 Cr. , is its closest competitor. Other companies in the Steel-
Large sector are SAIL, Steel Exchange.
 Market capitalization as of 24th May 2017 in Steel-Large sector-

Company Market Capitalization (in Rs Cr)

Tata Steel 46905
JSW Steel 46592
SAIL 23565

RELATIVE MARKET CAPITALIZATION (in %)

Tata Steel JSW Steel SAIL

20.13%
40.07%

39.80%

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 CHAPTER IV

OBJECTIVE OF THE STUDY

 To examine the working capital efficiency of Tata Steel.

 To study the liquidity position through various working capital related ratios.
 To analyze overall performance of the company.
 To study and analyze Tata Steel Tubes SBU and APL Apollo Tubes Ltd which
is considered as its strongest competitor.
 To recommend ways and means to improve present condition and compete
with APL Apollo Tubes Ltd.

LIMITATIONS

The project is a collection of study, observation, and practical experience during my

internship.
I tried to perform this project in best possible manner to avoid any lacuna. In spite of
all my efforts in this regard but due to the far stretching activities conducted at Tata
Steel Ltd, my project lacks in some of the following heads.

Where there is a chance of further elaborating study on the same subject.

 Some information being very sensitive as far as organization is concerned is

left untouched and not mentioned in any way.
 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 Company.
Hence, future performance of the manufacturing units not reflected.
 Due to Time Constraints some information, vital to the project, could not be
made available.
 The analysis is based only on the data for the year 2012-16.
 Comparison of Tata Tubes has been done only on the basis of Production and
Sales as rest data was not provided being confidential in nature.

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 CHAPTER V

RESEARCH METHODOLOGY

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 2011-2012 to 2015-2016.
 Annual Reports of Apollo Tubes was also used for the purpose of comparison
between Tata Tubes and Apollo Tubes.

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 CHAPTER VI

DATA ANALYSIS, INTERPRETATION AND FINDINGS

DATA ANALYSIS AND INTERPRETATION

The gathered data is analyzed through ratio analysis and only important tables are
used for data discussion as per research need and which are taken for data analysis.

 WORKING CAPITAL MANAGEMENT AT TATA STEEL

Firm needs money to pay for their day to day activities. They have to pay salaries,
bills, suppliers and so on. The funds available to do this, is known as the firms
working capital. Managing the working capital needs of the organization is
important, because shortage of funds could disrupt the day to day operations
whereas by holding excess funds the interest burden of the firm starts mounting
and eating into its profits.

There are two concepts of Working Capital:

 Gross Working Capital

 Net Working Capital

GROSS WORKING CAPITAl

The gross working capital is the sum total of all current assets, Inventories, Debtors,
Loans and Advances, Cash and Bank Balances.

NET WORKING CAPITAL

Net working capital refers to the difference between current assets and current
liabilities.

It indicates the liquidity position of the firm and suggests the extent to which working
capital needs maybe financed by permanent sources of funds.

Current Assets should be sufficiently in excess of Current Liabilities to constitute a

margin or buffer for maturing obligations within the ordinary operating cycle of a
business.

24
In order to protect their interests, short lived creditors always like a company to
maintain its current assets to maintain at higher level than current liabilities.

A firm needs to invest in current assets to ensure smooth and uninterrupted

operations. How much the firm invests will depend on its Operating Cycle.

Cash flows in a cycle into, around and out of a business. It is the life blood of a
business and it is the primary responsibility of the management to keep it flowing to
generate profits.

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COMPONENTS OF CURRENT ASSETS OF TATA STEEL

CURRENT ASSETS
1. Current Investments
2. Inventories
3. Trade Receivable
4. Cash in hand & at Bank
5. Short term loans and Advances
6. Other Current Assets

1. CURRENT INVESTMENTS
Short-term investments are part of the account in the current assets section of a
company's balance sheet. This account contains any investments that a
company has made that are expected to be converted into cash within one
year.
Current Investments of Tata Steel are as below:

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2. Inventories
Inventory is the raw materials, work-in-process products and finished goods
that are considered to be the portion of a business's assets that are ready or will
be ready for sale.
The below are included for calculation of total inventories in Tata Steel.

3. Trade Receivables
Trade receivables are amounts billed by a business to its customers when it
delivers goods or services to them in the ordinary course of business.
These billings are typically documented on formal invoices, which are
summarized in an accounts receivable aging report. This report is
commonly used by the collections staff to collect overdue payments from
customers. In the general ledger, trade receivables are recorded in a
separate accounts receivable account, and are classified as current assets
on the balance sheet if you expect to receive payment from customers
within one year.

4. Cash and Bank Balances

The sum of all coins, currency and other unrestricted liquid funds that have
been placed on deposit with a financial institution. Cash at bank is considered
a highly liquid form of current asset, and when reported on a
business' balance sheet, it is combined with cash in hand for accounting
purposes.

27
5. Short Term Loans and Advances
A loan scheduled to be repaid in less than a year . When your business doesn't
qualify for a line of credit from a bank, you might still have success in
obtaining money from then in the form of a one-time, short-term loan (less
than a year) to finance your temporary working capital needs. 'Advance' on the
other hand, is a 'credit facility' granted by the bank.

6. Other Current Assets

A firm's assets that do not include cash, securities, receivables, inventory and
prepaid assets, and can be convertible into cash within one business cycle,
which is usually one year. Other current assets are listed on a firm's balance
sheet, and are a component of a firm's total assets.
Part of other current assets for Tata Steel includes:
(a) Interest accrued on investments
(b) Interest accrued on deposits, loans and advances

COMPONENTS OF CURRENT LIABILITIES OF TATA STEEL

CURRENT LIABILITIES&PROVISIONS
Trade Payable
Other Current Liabilities
Short Term Provisions

1. Trade Payable
A trade payable is an amount billed to a company by its suppliers for
goods delivered to or services consumed by the company in the ordinary
course of business.

2. Other Current Liabilities

28
 Other current liabilities is a balance sheet entry used by companies to
group together current liabilities that are not assigned to
common liabilities such as debt obligations or accounts payable.
The below are included as other current liabilities for Tata Steel.

3. Short Term Provisions

In financial accounting, a provision is an account which records a present
liability of an entity.
It further includes the below mentioned :

29
6.1 ESTIMATION OF WORKING CAPITAL OF TATA STEEL LTD FOR
THE FINANCIAL YEARS 2012-2016

ESTIMATION OF WORKING CAPITAL (In Crores)

A. CURRENT ASSETS FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Current Investments 1204.17 434.00 2343.24 1000.08 4320.17
Inventories 4858.99 5257.94 6007.81 8042.00 7083.81
Trade Receivable 904.08 796.92 770.81 491.46 632.80
Cash in hand & at Bank 3946.99 2192.36 961.16 478.59 1014.67
Short term loans and Advances 1828.09 2207.83 1299.20 1781.77 1243.48
Other Current Assets 122.18 615.80 182.38 55.27 126.56
TOTAL CURRENT
ASSETS/GROSS WORKING
CAPITAL (A) 12864.50 11504.85 11564.60 11849.17 14421.49
CURRENT
B. LIABILITIES&PROVISIONS
Trade Payable 5973.23 6363.66 8263.61 5801.98 7706.13
Other Current Liabilities 2066.24 8509.79 8671.67 9256.91 6115.81
Short Term Provisions 8798.55 1544.26 1902.81 1675.41 2005.03
TOTAL 16838.02 16417.71 18838.09 16734.30 15826.97
LESS-CURRENT MATURITY FOR
LONG TERM BORROWING 4753.43 3871.28 4065.48 4263.19 924.37
TOTAL CURRENT LIABILITIES (B) 12084.59 12546.43 14772.61 12471.11 14902.60
C. WORKING CAPITAL(A-B) 779.91 -1041.58 -3208.01 -621.94 -481.11

CURRENT ASSETS,CURRENT LIABILITIES AND

NET WORKING CAPITAL
16000
14000
12000
10000
8000
6000 CURRENT ASSETS
4000 CURRENT LIABILITIES
2000 NET WORKING CAPITAL
0
-2000 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-4000
-6000
Years

30
INTERPRETATION

The above graph shows the decreasing trend of working capital.

 As we can see in 2011-2012, there is a positive working capital that means the
company has ability to pay current liabilities. But from 2013 to 2016 the graph
shows negative working capital which is bad for the company because
company’s current liabilities are more than its current assets.
 This means that the liabilities that need to be paid within one year exceed the
current assets that are monetizable over the same period.
 Few reasons are like spending too much on purchasing land, building, plant
and machinery.
 External factors also contributed to the depletion or deterioration of working
capital like drastic increase in raw material prices, higher labour costs due to
strong union backing and others.
 Tata Steel is growing quickly, this calls for large changes in working capital
from month to month, as the business must invest in more and more accounts
receivable and inventory. There is a major use of cash as well.
 Moreover negative working cycle is not necessarily bad. This also shows it
enjoys a good credit and saves cost in form of interest payments as they have
to pay interest in using short term funds. It shows the company’s goodwill
also.

Hence there is negative working capital of Tata Steel.

31
 CONCEPT OF GROSS AND NET WORKING CAPITAL

 GROSS AND NET WORKING CAPITAL

GROSS WORKING CAPITAL (In NET WORKING CAPITAL (In

Years Crores) Crores)
2011-2012 12864.50 779.91
2012-2013 11504.85 -1041.58
2013-2014 11564.60 -3208.01
2014-2015 11849.17 -621.94
2015-2016 14421.49 -481.11

GROSS AND NET WORKING CAPITAL

20000

15000

10000
GROSS WORKING CAPITAL
5000 (In Crores)
NET WORKING CAPITAL
0 (In Crores)
2012 2013 2014 2015 2016
-5000

-10000
YEARS

INTERPRETATION

Gross working capital includes all current assets whereas Net Working Capital is
Current Assets minus Current Liabilities.

Gross working capital is positive throughout whereas net working capital as we see is
positive only in the year 2012 and thereafter it is negative and needs to be monitored.

32
FINANCIAL RATIOS

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.
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.

WORKING CAPITAL TURNOVER RATIO

Net Working Net Sales(In Working Capital Turnover
Years Capital (In Crores) Crores) Ratio
2011-2012 779.91 33933.00 43.51
2012-2013 -1041.58 38199.00 -36.67
2013-2014 -3208.01 41711.00 -13.00
2014-2015 -621.94 41785.00 -67.18
2015-2016 -481.11 38210.00 -79.42

Working Capital Turnover Ratio

60.00
40.00
20.00
0.00
2012 2013 2014 2015 2016 Working Capital Turnover
-20.00
Ratio
-40.00
-60.00
-80.00
-100.00

33
INTERPRETATION

 A company's working capital turnover ratio can be negative when a

company's current liabilities exceed its current assets. The working capital
turnover is calculated by taking a company's net sales and dividing them by its
working capital. Since net sales cannot be negative, the turnover ratio can turn
negative when a company has a negative working capital.
 Working Capital turnover ratio of the company is not satisfactory except in the
year 2011-2012. Additional funds raised are invested in fixed asset instead of
providing necessary working capital; as a result the company may not be in a
position to meet its obligations in time and is not efficiently using their
working capital to generate revenue.

34
 2. CURRENT RATIO
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio also known as working capital ratio is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial
position or liquidity of a firm. It calculated by dividing the total of current assets by
total of the current liabilities.
Current Ratio = Current Assets/Current Liabilities or Current Assets: Current
Liabilities
The statistical data relating to calculation of current ratio was computed through the
financial statements referred in their respective annual reports of Tata Steel Limited
for the study period from 2011-12 to 2015-16 are depicted in the below table.

CURRENT RATIO
Current Assets(In Current Liabilities(In Current Ratio (In
Years Crores) Crores) Times)
2011-2012 11660.33 12084.59 0.96
2012-2013 11070.85 12546.43 0.88
2013-2014 9221.36 14772.61 0.62
2014-2015 10849.09 12471.11 0.87
2015-2016 10101.32 14902.60 0.68

CURRENT RATIO
16000 1.20
14000
1.00
12000
0.80
10000 Current Assets (In
Crores)
8000 0.60
Current Liabilities (In
6000
0.40 Crores)
4000
Current Ratio
0.20
2000
0 0.00
2012 2013 2014 2015 2016
YEARS

INTERPRETATION

35
 As a conventional rule, a current ratio of 2:1 is considered satisfactory. This
rule of thumb should not blindly be followed because, low current ratio
indicates that the unit may not be having sufficient funds to pay off liabilities
or it may be trading beyond its capacity.
 Higher current ratio may not be favorable because of slow moving stocks,
stocks may pile up due to poor sale, debt collection may not be satisfactory,
cash and bank balances may be lying idle because of insufficient investment
opportunities.
 Current ratio gives an idea of company's operating efficiency. A high ratio
indicates "safe" liquidity, but also it can be a signal that the company has
problems getting paid on its receivable or have long inventory turnover, both
symptoms that the company may not be efficiently using its current assets.
 This ratio is below the accepted standard norm in Tata Steel limited in the
entire study period.
 However, in the year 2014 the current ratio was 0.62 but later increased to
0.88 in the year 2015 and decreased to 0.68 in 2016. The current ratio had
gone down because they are making one project in Kalinganagar, Orissa. They
had invested money on that project. This does not affect the liquidity position
of the company because the credit worthiness of the company is good.
 The management must initiate necessary steps to utilize its idle cash and bank
balances in attractive investments or to pay back its short term liabilities.

36
 3. QUICK RATIO
Quick ratio is also called Acid-test ratio because it is the acid test of a
concern`s financial soundness. It is the relationship between quick assets and
quick liabilities. Quick assets are those assets which are readily converted into
cash. They include cash and bank balances, bills receivable, debtors, short
term investments. Quick liabilities include creditors, bills payable, outstanding
expenses.
Quick ratio = Quick Assets/Quick Liabilities
Quick Assets = Current assets- (Stock +Prepaid expenses)
Quick Liabilities = Current Liabilities –Bank Overdraft.
A quick ratio of 1:1 is considered satisfactory. The quick ratio supplements
current ratio.

QUICK RATIO
Quick Assets (In Current Liabilities(In
Years Crores) Crores) Quick Ratio
2011-2012 6801.34 12084.59 0.56
2012-2013 5812.91 12546.43 0.46
2013-2014 3213.55 14772.61 0.22
2014-2015 2807.09 12471.11 0.23
2015-2016 3017.51 14902.60 0.20

Quick Ratio
0.60

0.50

0.40
TIMES

0.30

0.20 Quick Ratio

0.10

0.00
2012 2013 2014 2015 2016
YEARS

37
INTERPRETATION

 A quick ratio of 1:1 is considered to represent a satisfactory current financial

condition.
 A quick ratio of 1:1 does not necessarily mean satisfactory liquidity position,
if all debtors cannot be realized and cash is needed immediately to meet
current obligations.
 A low quick ratio does not necessarily mean a bad liquidity position as
inventories are not an absolutely non-liquid.
 A higher ratio is safer than a lower one because you have excess cash. The
drawback of maintaining a high quick ratio is that you may not be making
effective use of your cash to grow your business. Companies sometimes keep
cash safety nets when they can't get short-term loans.
 A low quick ratio is generally a more risky position since you don't have
adequate current assets, without inventory, to cover near-term debt. This also
means you rely heavily on efficient inventory turnover to keep you afloat in
the short-term.
 It is observed from the above data that the quick ratio is less than the accepted
norm from 2011-12 to 2015-16 that shoes that the firm has to suffer problem
of meeting its current obligations.

38
 4. DEBTORS TURNOVER RATIO AND DEBT COLLECTION PERIOD

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.

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.

Debt collection period means the average number of days that the debtors take to get
converted to cash.

DEBTORS TURNOVER RATIO

Net Average Debtors
sales(In Debtors(In Turnover Ratio Debt Collection
Year Crores) Crores) (Times) Period (Days)
2011-2012 33933.00 664.00 51.10 7
2012-2013 38199.43 851.50 44.91 8
2013-2014 41711.03 784.00 53.20 7
2014-2015 41785.00 631.00 66.22 6
2015-2016 38210.34 562.00 67.99 5

DEBTORS TURNOVER RATIO AND COLLECTION PERIOD

80.00
70.00
60.00
50.00
40.00 Debtors Turnover Ratio (In
times)
30.00
Debt Collection Period (In
20.00
Days)
10.00
0.00
2012 2013 2014 2015 2016
YEARS

39
INTERPRETATION

 Debtors turnover ratio indicates the speed with which the amount is being
collected from the debtors.
 Ideally a higher debtor’s turnover ratio and lower collection period are
what a company would want. A lower collection period would mean faster
conversion of credit sales to cash. One can say that lower the average
collection period higher the efficiency of the company in managing its
credit sales and vice versa.
 Higher debtor’s turnover ratio indicates faster turnaround and reflects
positively on the liquidity of the company. The faster collection would
keep the company having cash to pay off its creditors and thereby reduce
the working capital cycle for a better working capital management.

 A higher debtor’s turnover ratio is one of the key considerations among

others when companies look to avail working capital loans from banks. A
faster cash conversion will facilitate banks with comfort while lending to
companies with lower collection period.

 As shown in the graph above, there has been an increase in the ratio from
2011-2012 to2015-2016 from 51.10 to 67.99 times which shows that the
sales management of the company is quite efficient.

 The debt collection period has come down from 8 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.
 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.

40
 5. INVENTORY TURNOVER RATIO

The Inventory Turnover Ratio measures the efficiency of the firm’s 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.

or unsalable goods.

INVENTORY TURNOVER RATIO

Net Average Inventory
sales(In Inventory(In Turnover Ratio Inventory
Year Crores) Crores) (times) Period (Days)
2011-2012 33933.00 4406.37 7.70 47
2012-2013 38199.43 5058.46 7.55 48
2013-2014 41711.03 5632.87 7.40 49
2014-2015 41785.00 7024.90 5.95 61
2015-2016 38210.34 7562.90 5.05 72

INVENTORY TURNOVER RATIO AND INVENTORY PERIOD

80.00
70.00
60.00
50.00
Inventory Turnover Ratio
40.00 (times)

30.00 Inventory Period (Days)

20.00
10.00
0.00
2012 2013 2014 2015 2016

41
INTERPRETATION

 This ratio indicates the relationship between the sales 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.
 Low inventory turnover ratio is a signal of inefficiency, since inventory
usually has a rate of return of zero. It also implies either poor sales or excess
inventory. A low turnover rate can indicate poor liquidity, possible
overstocking, and obsolescence, but it may also reflect a planned inventory
buildup in the case of material shortages or in anticipation of rapidly rising
prices.
 High inventory turnover ratio implies either strong sales or ineffective buying
(the company buys too often in small quantities, therefore the buying price is
higher).A high inventory turnover ratio can indicate better liquidity, but it can
also indicate a shortage or inadequate inventory levels, which may lead to a
loss in business.
 The graph above shows decrease in the ratio from the year 2011-2012, 7.70
times to 5.05 times in the year 2016.

 If the number of days of inventory increases, the company may face a decline
in sales or it increased its inventory faster than the sales growth.

 If the number of days decreases, the company may face future lost of sales due
to stock-outs if the level of inventory is too low.

 From the above graph, we can see that in all the three years i.e., from 2014
to2016, Tata steel has the less holding period of inventory. It is a good
indicator as the company is efficient in converting the finished goods to sales.
However in 2015 to 2016 it has increased which needs to be monitored.

42
 6. TOTAL ASSETS TURNOVER RATIO
The asset turnover ratio is an efficiency ratio that measures a company's ability
to generate sales from its assets by comparing net sales with average total
assets. In other words, this ratio shows how efficiently a company can use its
assets to generate sales.

TOTAL ASSETS TURNOVER RATIO

Net Sales Net Total Total Assets Turnover
Years (In Crores) Assets(In Crores) Ratio (Times)
2011-2012 33933.00 75406.67 0.45
2012-2013 38199.43 81274.47 0.47
2013-2014 41711.03 86897.92 0.48
2014-2015 41785.00 92855.56 0.45
2015-2016 38210.34 100552.63 0.38

Total Asset Turnover Ratio (In Times)

0.60

0.50

0.40
TIMES

0.30
Total Asset Turnover
0.20 Ratio (In Times)
0.10

0.00
2012 2013 2014 2015 2016
YEARS

INTERPRETATION

 Higher turnover ratios mean the company is using its assets more efficiently.
Lower ratios mean that the company isn't using its assets efficiently and most
likely have management or production problems. Hence Tata Steel is under
utilizing the assets.

43
 7. CASH RATIO

Cash is the most liquid asset. The relationship between cash including cash at bank and short
term marketable securities with current liabilities is examined to know the immediate
solvency. Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in
given time. The formula to calculate the cash ratio is as under.

Cash Ratio = Cash* + Marketable Securities / Current Liabilities.

* Cash means, cash in hand and cash at bank.

* Cash means, cash in hand and cash at bank.

CASH RATIO
Cash and Bank
Years Balance Current Liabilities Cash Ratio
2011-2012 3946.99 12084.59 0.33
2012-2013 2192.36 12546.43 0.17
2013-2014 961.16 14772.61 0.07
2014-2015 478.59 12471.11 0.04
2015-2016 1014.67 14902.6 0.07

Cash Ratio
0.35
0.30
0.25
0.20
0.15
0.10 Cash Ratio
0.05
0.00
2012 2013 2014 2015 2016
YEARS

44
INTERPRETATION

 The cash ratio shows how well a company can pay off its current liabilities
with only cash and cash equivalents. This ratio shows cash and equivalents as
a percentage of current liabilities.

 A ratio of 1 means that the company has the same amount of cash and
equivalents as it has current debt. In other words, in order to pay off its current
debt, the company would have to use all of its cash and equivalents.
 A ratio above 1 means that all the current liabilities can be paid with cash and
equivalents.
 A ratio below 1 means that the company needs more than just its cash reserves
to pay off its current debt.
 As with most liquidity ratios, a higher cash ratio means that the company is
more liquid and can more easily fund its debt. Creditors are particularly
interested in this ratio because they want to make sure their loans will be
repaid. Any ratio above 1 is considered to be a good liquidity measure.

 The ideal cash ratio is 1:2 or 0.5 or 50 percent. This ratio is less than the
standard and not encouraging for the entire study period i.e. 2011-12 to 2015-
16. It has been decreasing throughout.

45
COMPARISON OF FINANCIAL
RATIOS OF TATA STEEL
WITH STEEL AUTHORITY OF
INDIA LTD. AND JINDAL
STEEL.

46
 1. NET WORKING CAPITAL

NET WORKING CAPITAL (In Crores)

Years TATA STEEL SAIL JINDAL STEEL
2011-2012 779.91 16206.00 1988.77
2012-2013 -1041.58 14604.50 5448.63
2013-2014 -3208.01 11679.09 4902.04
2014-2015 -621.94 12144.65 5979.11
2015-2016 -481.11 3382.83 535.89

NET WORKING CAPITAL (In Crores)

20000

15000

10000
TATA STEEL
SAIL
5000
JINDAL STEEL

0
2012 2013 2014 2015 2016
-5000
YEARS

INTERPRETATION

SAIL has highest positive working capital and Tata Steel’s working capital is negative
compared to its competitors which shows it enjoys good credit and saves a lot of cost
in form of interest payments as they have to pay interest on using short term funds. It
also shows Tata Steel enjoys a goodwill.

47
2.WORKING CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO (TIMES)

Years TATA STEEL SAIL JINDAL
2011-2012 43.51 3.10 6.64
2012-2013 -36.67 3.40 2.72
2013-2014 -13.00 4.40 2.94
2014-2015 -67.18 4.20 2.22
2015-2016 -79.42 12.80 23.36

WORKING CAPITAL TURNOVER RATIO (In Times)

60
40
20
0
TATA STEEL
-20 2012 2013 2014 2015 2016
SAIL
-40
JINDAL
-60
-80
-100
YEARS

INTERPRETATION

In the above graph the working capital turnover ratio is positive for Jindal and SAIL
throughout in fact it has increased whereas Tata Steel shows decreasing working
capital turnover ratio.

The working capital turnover is calculated by taking a company's net sales and
dividing them by its working capital. Since net sales cannot be negative, the turnover
ratio can turn negative when a company has a negative working capital.

48
3.CURRENT RATIO

CURRENT RATIO
Years TATA STEEL SAIL JINDAL STEEL
2011-2012 0.96 0.62 0.69
2012-2013 0.88 0.68 0.76
2013-2014 0.62 0.79 0.71
2014-2015 0.87 1.01 0.74
2015-2016 0.68 1.22 0.44

CURRENT RATIO
1.40
1.20
1.00
0.80
TIMES

TATA STEEL
0.60
SAIL
0.40
JINDAL STEEL
0.20
0.00
2012 2013 2014 2015 2016
YEARS

INTERPRETATION
In the year 2016 SAIL has highest current ratio followed by Tata Steel and
then Jindal.
Current ratio gives an idea of company's operating efficiency. A high ratio
indicates "safe" liquidity, but also it can be a signal that the company has
problems getting paid on its receivable or have long inventory turnover, both
symptoms that the company may not be efficiently using its current assets.

49
4.QUICK RATIO

QUICK RATIO
Years TATA STEEL SAIL JINDAL STEEL
2011-2012 0.56 0.44 0.85
2012-2013 0.46 0.55 1.16
2013-2014 0.22 0.62 1.05
2014-2015 0.23 0.68 1.22
2015-2016 0.20 0.82 0.86

QUICK RATIO
1.40
1.20
1.00
0.80
TIMES

TATA STEEL
0.60
SAIL
0.40
JINDAL STEEL
0.20
0.00
2012 2013 2014 2015 2016
YEARS

INTERPRETATION

It is clear from the above table and graph it is clear that Jindal has highest quick ratio
followed by SAIL and Tata Steel.

Quick ratio of Tata Steel is decreasing throughout. A higher ratio is safer than a
lower one because you have excess cash. The drawback of maintaining a high quick
ratio is that you may not be making effective use of your cash to grow your business.
Companies sometimes keep cash safety nets when they can't get short-term loans.

50
INVENTORY TURNOVER RATIO

Inventory Turnover Ratio (times)

Years TATA STEEL SAIL JINDAL STEEL
2012 7.70 2.9 4.37
2013 7.55 2.88 4.69
2014 7.40 3.45 4.15
2015 5.95 2.79 3.94
2016 5.05 3.37 5.73

INVENTORY TURNOVER RATIO

9.00
8.00
7.00
6.00
TIMES

5.00
TATA STEEL
4.00
3.00 SAIL
2.00 JINDAL STEEL
1.00
0.00
2012 2013 2014 2015 2016
YEARS

INTERPRETATION

This ratio indicates whether stock has been efficiently used or not. It shows the speed
with the stock is rotated into sales or the number of times the stock is turned into sales
during the year. Above chart & graph shows that inventory turnover ratio of SAIL is
2.9 times in the year 2012 & 3.37 times in the year 2016 it is very low and Jindal’s
inventory turnover was 5.73 in the year 2016. On the other hand the Tata Steel. is 7.7
times in the year 2012 and it is 5.05 in the last year of the study i.e. 2016.In the term
of Inventory turnover ratio the Jindal’s financial position is better followed by Tata
Steel and then SAIL.

51
DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

Years TATA STEEL SAIL JINDAL STEEL
2011-2012 51.10 12.97 16.24
2012-2013 44.91 10.54 12.83
2013-2014 53.20 9.43 10.08
2014-2015 66.22 9.71 9.63
2015-2016 67.99 10.39 11.66

DEBTORS TURNOVER RATIO

80.00
70.00
60.00
50.00
TIMES

40.00 TATA STEEL

30.00 SAIL
20.00 JINDAL STEEL
10.00
0.00
2012 2013 2014 2015 2016
YEARS

INTERPRETATION

Ideally a higher debtor’s turnover ratio and lower collection period are what a
company would want.

From the graph above it is crystal clear the SAIL and Jindal is not practically in a
comparable position with the Tata Steel ltd. Tata Steel ltd. is more efficient in
collection of its outstanding debtors. However, it has been seen that during the study
period Tata Steel ltd. becomes liberal in its credit collection policy as in the year
2012-13 it decreases to 44.91. Overall if we see Tata Steel is in a better position
compared to SAIL and Jindal.

52
6. TOTAL ASSET TURNOVER RATIO
TOTAL ASSETS TURNOVER RATIO
Years TATA STEEL SAIL JINDAL
2011-2012 0.45 0.85 0.36
2012-2013 0.47 0.73 0.35
2013-2014 0.48 0.71 0.41
2014-2015 0.45 0.65 0.47
2015-2016 0.38 0.56 0.53

TOTAL ASSETS TURNOVER RATIO

0.9
0.8
0.7
0.6
TIMES

0.5
TATA STEEL
0.4
0.3 SAIL
0.2 JINDAL
0.1
0
2012 2013 2014 2015 2016
YEARS

INTERPRETATION
The higher the ratio, the better is the utilization of total assets in the firm. This shows
that a firm is able to generate revenues with the minimum amount of total assets
without raising an additional capital.
Lower ratios mean that the company isn't using its assets efficiently and most likely
have management or production problems. Hence Tata Steel is under utilizing the
assets. In the year 2012 the ratio of SAIL was 0.85 times and it decreased to 0.56
times in the year 2016. Further the ratio of Tata Steel was 0.38 times in the year 2016
and Jindal was 0.53 times in 2016. Hence SAIL is better compared to Tata Steel and
Jindal.

53
CASH RATIO

CASH RATIO
Years TATA STEEL SAIL JINDAL
2011-2012 0.330 0.348 0.004
2012-2013 0.170 0.171 0.006
2013-2014 0.070 0.101 0.091
2014-2015 0.040 0.067 0.052
2015-2016 0.070 0.008 0.038

CASH RATIO
0.400
0.350
0.300
0.250
TIMES

0.200 TATA STEEL

0.150 SAIL
0.100 JINDAL
0.050
0.000
2012 2013 2014 2015 2016
YEARS

INTERPRETATION

The ideal cash ratio is 1:2 or 0.5. The ratio is less than standard for all the companies.
However Tata Steel is still better compared to SAIL and Jindal in the year 2016.

54
6.3 IMPACT OF GST ON WORKING CAPITAL MANAGEMENT

The impact on working capital could be significant as all transactions, including stock
transfers, will be subjected to GST. A company pays excise when it manufactures and
ships its goods, and VAT when it sells them. When GST comes, it will have to be
paid as soon as there is a stock transfer. But the company will be able to claim credit
on the tax paid only when it finally sells the goods, which could take months. The
company’s money will be blocked in this period.

 Increased working capital

Impact on working capital may be significant for the manufacturing sector. Under the
current regime, stock transfers are not subject to tax. However, under the GST
regime, stock transfers are deemed to be supplies and are subject to GST. Though
GST paid at this stage would be available as credit, realization of this GST would
only occur when the final supply is concluded. This would likely result in cash flow
blockages and therefore companies would have to rethink their supply chain
management strategies to minimize this impact on their cash flows.

 GST is taxed during the sale of goods and services

Under GST, tax is levied upon the transfer of stock, so businesses can’t claim their tax
credits until the shipped goods are sold. This can sometimes take months, during
which the paid tax money won’t reach the business.The standard GST rate of 18%
could also increase costs for businesses that procure a majority of their raw materials
from other countries

On the other hand, GST can be beneficial when it comes to the concept of input tax
credit. Under the current taxation structure, input tax credit will be available only on
items that are linked to a taxable output. But under the GST regime, you can claim
input tax credit even on the tax paid for services that help facilitate your business such
as advertising and marketing costs..

55
  Free movement of goods
Many businesses currently manage multiple warehouses across the country to avoid
paying extra taxes for shipping goods across state borders. Each of these warehouses
has to comply with the tax laws and rates of the state in which it’s located. This
burden of tax compliance adds to the cost of running each warehouse, increasing the
company’s operational costs and therefore its working capital needs.

Under GST, companies won’t need to comply with CST, Octroi, or entry taxes, so it
will be simpler and more affordable to move goods across the country. This will help
businesses operate their warehouses more efficiently and locate them where it makes
the best business sense.

Let’s look at an example where a company manufactures its product at a facility in

Gujarat and transports it to all the warehouses in bulk. It has to pay a Central Sales
Tax (CST) of 2% at every state border, and an Octroi or entry tax of 1% when the
goods enter the state where they will be sold. All of these taxes add to the price of the
product, but the company isn’t given the chance to claim any tax credit for them.

Each warehouse supplies goods based on the demand it receives in its own state, so
the company’s operating costs are high because it’s managing so many separate
warehouses. Having a minimal number of warehouses instead isn’t an option, because
it would force the company to pay CST and entry taxes every time their goods are
transported to another state for sale.

Either way, the company needs a lot of working capital to manage their day-to-day
operations.

Under GST, the company can strategically set up 4 or 5 warehouses to fulfill their
demand across all the states as they would not have to pay CST and entry taxes at
every state border. Even though this arrangement might look expensive, the company
will still save a lot of money by not managing twenty different warehouses. This will
help them save big on working capital.

56
Hence Steel industry is likely to benefit from the new GST rate for steel which has
been finalized at 18% --also the slab that includes most number of items. With key
inputs like coal, iron ore pegged at 5%, which is the lowest slab under GST Tata Steel
could be looking at lower input costs. Together, with a substantial slash in transport
costs due to unified and standard tax rate under GST, this is likely to help Tata Steel.

57
6.4 COMPARISON OF TATA STEEL TUBES SBU WITH APPOLO TUBES

ABOUT TATA TUBES

17th December 1954. An important day in the history of Indian tube technology.
It was on this day that the India Tube Company – a joint venture between Tata Steel
and Stewarts & Lloyds of UK – begun operations. In 1985, the India Tube Company
merged with Tata Steel to form the Tata Steel-Tubes Division.
Today, Tubes SBU is a leading manufacturer of pipes and tubes in the country with an
annual production capacity of around 500,000 metric tonnes.

BUSINESS SEGMENTS AT TATA STEEL TUBES DIVISION

CONVEYANCE PRECISION TUBES

TUBES

STRUCTURAL TUBES

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ABOUT APPOLO TUBES

Established in 1986, APL Apollo is the fastest growing steel tube manufacturer in
India, and has attained pole position in this category. The company is headquartered
in Delhi NCR, and has six manufacturing facilities that are located inSikandrabad(3
units) (Uttar Pradesh), Bangalore (Karnataka), Hosur (Tamil Nadu) and Murbad
(Maharashtra). The Company’s vast distribution network is spread all across India,
with warehouses cum- branch offices in 20 cities.

The company’s product basket today boasts of over 400 products. The company
believes that developing new and innovative products is a key driver to profitable
growth. These products find widespread use in structural applications in urban
infrastructures, housing, irrigation, solar plants, greenhouses and engineering
applications.

APL Apollo has prominently emerged as a ‘one-stop shop’ for a wide spectrum of
steel tubes, and attained a paramount market position in the segment.

Today, the company is globally recognized as one of the lowest cost producers!

Unassumingly, at APL Apollo, there are ‘Tubes for Every Reason’.

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 PRODUCTION AND SALES OF TATA STEEL TUBES SBU

TATA TUBES PRODUCTION & SALES

Years Production (LTPA) Sales (in crores)
FY 2011 3.7 1616
FY 2012 3.8 1783
FY 2013 3.9 1790
FY 2014 4.2 1937
FY 2015 4.4 2167
FY 2016 4.6 1907

Sales/Volume
2500 5.0
4.5
2000 4.0
3.5

PRODUCTION
1500 3.0
SALES

2.5
1000 2.0 Sales (in crores)
1.5 Production (LTPA)
500 1.0
0.5
0 0.0
FY FY FY FY FY FY
2011 2012 2013 2014 2015 2016
YEARS

ANALYSIS

 Tata Steel Tubes SBU production has increased over the years fro, 3.7 Lakh
tones per annum to 4.6 lakh tonne per annum in 2016 whereas the sales has
reduced from 2015 to 1907 crores in 2016.
 During 2015-2016 the division focused on new business areas like services
and solutions, general engineering, fire resistant etc, which led to steady
growth in production in spite of falling steel prices.

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 COMPARISON OF PRODUCTION WITH APPOLO TUBES

PRODUCTION (LTPA*) (Lakh Tonne Per Annum)

Years TATA STEEL TUBES SBU APPOLO TUBES

FY 2011 3.7 2.0
FY 2012 3.8 2.9
FY 2013 3.9 4.6
FY 2014 4.2 5.7
FY 2015 4.4 7.0
FY 2016 4.6 9.0

PRODUCTION (LTPA)
10.0
P 9.0
R 8.0
O 7.0
D 6.0
U
5.0
C TATA STEEL TUBES SBU
4.0
T APPOLO TUBES
I 3.0
O 2.0
N 1.0
0.0
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
YEARS

ANALYSIS

The production of Appolo Tubes is high as compared to to Tata Steel Tubes SBU.The
reason being that Appolo Tubes has a competitive edge by producing various Tubes
products whereas Tata Tubes SBU specializes in producing only 3 tubes segments
that is Tata Structura, Tata Pipes and Tata Precision Tubes.

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 COMPARISON OF SALES WITH APPOLO TUBES

SALES (In crores)

Years TATA TUBES SBU APPOLO TUBES
FY 2011 1616 905
FY 2012 1783 1392
FY 2013 1790 2008
FY 2014 1937 2569
FY 2015 2167 3138
FY 2016 1907 4214

SALES (In crore)

4500
4000
3500
S 3000
A 2500
L
2000 TATA TUBES SBU
E
S 1500 APPOLO TUBES
1000
500
0
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
YEARS

ANALYSIS

Sales of Appolo Tubes are also high compared to Tata Precision Tubes. This is
obvious since the Production of Appolo Tubes is high. Further the sales of Tata Tubes
SBU have decreased from 2015 to 2016 as well.

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6.5 FINDINGS

 The ideal current ratio is 2:1 and as for Tata Steel it has improved over the
years and is able to meet the standard.
 The ideal quick ratio is 1:1. In the year 2015-2016 the ratio is 0.35 which
shows the company keeps a lot of buffer stock with itself since the production
process is very long and also clears off its expenses it advance.
 Tata Steel is also following good strategy of blocking its funds for a longer
period of time when it comes for payment.
 Working Capital turnover ratio is negative which shows that the credit
worthiness of the company is good.
 The company has primarily been on cash drawn from the market and reaping
full benefits of its brand name and makes full utilization of its funds before
making payment to outsiders.
 Further Tata Tubes SBU should expand its product base so as to compete with
Appolo Tubes and gain the largest market share.

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 CHAPTER VII
RECOMMENDATIONS AND CONCLUSION
Recommendations are as follows:

1. There should be a proper co-ordination between working capital group and its
related departments i.e., debtors, inventory and others.
2. New and advanced concept must be introduced in inventory control
management.
3. Adequate planning is required for procurement of store items.
4. Details of working capital should be made available at the departmental level,
so that efficiency can be analyzed at the departmental level.
5. Advance payments should be avoided. If at all advance payments are required,
it should be against securities like bank guarantee.
6. The essence of effective working capital management is proper cash flow
forecasting. This should take into account the impact of unforeseen events,
market cycles, loss of a prime customer and actions by competitors. So the
effect of unforeseen demands of working capital should be factored in.
7. Inventories should be managed on a line by line basis using the 80/20 rule.
8. More product segments should be initiated and started by Tata Steel Tubes
SBU so as to compete with Appolo Tubes.

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 CONCLUSION
We have identified and examined the main elements of working capital as well as
production and sales analysis of Tata Steel Tubes SBU and Appolo Tubes.

For improvement of organization’s profitability, much emphasis is needed to improve

the working capital management of the company by reducing the current liabilities
and decreasing the unplanned overhead expenses.

Further cash ratio is less than the standard and not encouraging for the entire study
period i.e. 2011-12 to 2012-16. Though the additional funds raised are invested in
fixed assets instead of providing necessary working capital, the Working Capital
turnover ratio is not satisfactory. Accordingly, the management may resort to
effective utilization of cash and bank balances in attractive investments or to pay back
in short term liabilities.

After the analysis of various data, it is clear that working capital and profitability
more or less depends upon the better utilization of resources, cut-off expenses and
quality of management function in the products, customer services and to manpower
and goodwill and market share. It is worthwhile to increase production capacity and
use advance technology to cut down cost of production and wage cost in order to
increase profitability, not only against the investment, but also for investor’s return
point of view.

Tata Steel Tubes SBU should also gear up and introduce new product segments so as
to level up with Appolo Tubes which is ahead of Tata Steel Tubes SBU in terms of
both production and sales.

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 CHAPTER VII
BIBLIOGRAPHY
As my complete analysis was based on the secondary data basis, I have mostly
gone through various web-sites on the internet and the annual reports of
TATA STEEL Ltd. The names of the web-sites are:

1. http://www.tatasteel.com/
2. http://www.tatasteel.com/products-and-processes/flat-
products/tubes.asp
3. http://www.aplapollo.com/
4. http://www.moneycontrol.com/
5. http://www.investopedia.com/terms/w/workingcapital.asp
6. http://economictimes.indiatimes.com/

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