TITLE - STUDY OF WORKING CAPITAL MANAGEMENT AT TATA STEEL

TITLE - STUDY OF WORKING CAPITAL MANAGEMENT AT TATA STEEL

INTRODUCTION

Working capital is an important issue during financial decision making since its being a part of investment in asset that requires appropriate financing investment. However, working capital always being ignored in financial decision making since it involve investment and financing in short term period. Further, also act as a restrain in financial performance, since it does not contribute to return on equity. Though, it should be critical for to a firm to sustain their short term investment since it will ensure the ability of firm in longer period. The crucial part in managing working capital is required maintaining its liquidity in day-to-day operation to ensure its smooth running and meets its obligation. However, this is not a simple task since managers must make sure that business operation is running in efficient and profitable manner. There are the possibilities of mismatch of current asset and current liability during this process. If this happens and firm’s manager cannot manage it properly then it will affect firm’s growth and profitability. This will further escort to financial distress and finally firms can go bankrupt.

 Liquidity management is of crucial importance in financial management decision. The optimal of liquidity management is could be achieve by company that manage the trade-off between profitability and liquidity management. Steel Industry, which will single out from investigation in the present study, is indeed the backbone of economic growth in any country. A thick relationship has been found between the level of economic growth and the quantum of steel consumption in developed as well as developing countries. A steel industry, through its forward and backward linkages, provides the maximum stimulus to growth in comparison with other industry. Since independence, to ensure rapid economic development, it was deemed essential that a sound steel production programmer on a formidable basis be formulated. The priority given by the country failed to some extent owing to inefficient utilization of production capacity, poor consumption and inefficient financial performances of the Indian steel industry.

Thus, it is felt that there is a need to manage various components of working capital in such a way that an adequate amount of working capital is to maintaining for smooth running of the wheel of an enterprise for the fulfillment of twin objectives of liquidity and profitability with the volatility of various components of working capital in the firm’s operating environment. The emphasis of the my  study will to measure & analyze the operating risk, financial risk, and total risk by way of computing the Degree of Operating Leverage (DOL), Degree Of Financial Leverage (DFL), and Degree Of Total Leverage (DTL) of the selected company viz. Tata Steel for the accounting period from 2000-01 to 2009-10

Rationale of the study

This research will call for a full diagnosis of the malady, that is, identification, analysis and quantification of the interfering constraints in achieving full utilization of the capacities, thus opens a vast field for research and enquiry. In my study, therefore, an attempt will be make to examine and evaluate the liquidity management efficiency and its effects on profitability as a factor accountable for poor financial performance in the steel company of India.

Here in this study we will take help of correlation coefficient reveals that out of eight ratios and we will find out the profitability of company during year2001-10 as well as about the basic proposition of both the leverages and associated risk.

OBJECTIVES OF THE STUDY:

1. i) To measure, test and evaluate the liquidity position of Tata Steel.
2. ii) To determine the profitability position of Tata Steel.
3. iii) To find out the degree of association between liquidity and profitability, being two key determinants of financial performance, of the company under study.
4. iv) To establish the linear relationship between liquidity and profitability.    
5. ) To assess the degree of association between the various leverage ratios with the well-known profitability indicator viz. ROE of Tata Steel during the period under study.

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