TITLE - WORKING CAPITAL MANAGEMENT
Table of Content
Executive Summary …………………………………………………………………......
i
1) Mission..………………………………………………………………………………..1
2) Vision……………………………………………………………………….…………..2
3) Strategic Goals………………………………………………………………..………...3
4) Values…………………………………………………………………………………..3
5) Corporate Social
Responsibility………………………………………………...……...3
6) Quality Policy…………………………………………………………………….…….4
7) Research
Policy…………………………………………………………………….…..4
8) Environmental,
Occupational, Health
and Safety Policy……………………………....5
9) Human
Resource Policy…………………………………………………………..……6
10) The Steel Industry in India………………………...……………………………..…...7
11) Indian Steel Industry-A
SWOT Analysis……………………………………………10
12) Tata Iron and
Steel
Company………………………………………………………..11
13) Landmarks
of
Tata Steel…….……………………..………………………………...17
14) Organizational Structure of Tata Steel…………………………………………........19
15) Product
and Segment of Application………………………………………………..21
16) Strategic Challenges faced
by
Tata Steel….………………………..………………27
17) Risks
of the Company………………………………...………….….........................29
18) Working Capital Management…………………………………..………………......30
19) Credit Management Module…………………………………………………………38
20) Factoring or Bill
Discounting……………………………..…....……………………42
21) O.E.Finance……………………….………………………..………………………..42
22) Receivable Purchases.……………………………………………………….............47
23) Letter of Credit and Bill
Discounting……….…………..……...................................50
24) Overdraft
Management………………………………………………………………55
25) Reduction
of days sales outstanding for Flat Product..……………………………...57
26) Predictions
for
2010…………………………………………………………………71
27) Steel Industry-World…………………………………………………...………….73
28) Steel Industry-China..……………………………………………………………...74
29) Steel Industry-India……………………………………….
.....................................75
30) World Net
of China…………………………………………………….…………..79
31) BCG Matrix…………………………………………….………….……………….80
32) Conclusion……….…………………………………………………….…………...83
33) Equity Analysis …………………………………………………………………….84
34) Financial Analysis…………….……………………………………….…………...90
35) Information Technology Services…………………………………………….……94
36) Human
Resource Policy at Tata Steel………………………………………………96
37) Future Outlook…………………………………………………………………….100
Exhibits……………………………………………………………………...……… -a-
Bibliography…………………………………………………………………………….I
EXECUTIVE SUMMARY
Tata Steel, a steel manufacturing company
in India, was rated amongst top 3 best steel companies in the world by
World Steel Dynamics in the year 2004. It is one of the few
companies that adopts the concept of Economic Value Add and thereby achieved an incremental EVA of Rs. 516 crores in the year 2004. The operations
of the company have also increased in terms of turnover of its branded products by
84%. Thus, for a company
having a high Networth of Rs. 4360 crores, it is very
essential to possess a safe liquidity position. It should ensure that its money doesn’t remain blocked in the market and there
is constant flow of funds for operational,
investment and financial
activities.
A company
of a turnover of Rs. 12070 Crores is expected to have a good management of
its Working Capital. Working Capital of a company is the difference between its current
assets and the current liabilities. It includes the company’s debtors, bank/cash, creditors,
inventory, outstanding and other miscellaneous expenses. Each of these needs to be
managed
separately so as to
have a control over the liquidity of business.
Management of Working Capital includes various sub-components at the operational
level of the company
which directly affect the level of Working Capital. These include
study of Letter of Credit, Bill Discounting, Factoring through Receivable Purchases and
O.E.Finance, Channel Financing, Overdraft management. Proper Working
Capital Management depends on how well these sub-components are handled. The company needs
to overcome the shortcomings
in this respect.
The customer base of Tata Steel is found in the construction, auto and auto ancillary, white
good appliance and the general engineering
sector. Thus, in order to control the Working Capital
of
the
company,
they need
to control their
exposure in terms
of extending
credit to its customers. They
need
to reduce
the
customer’s day’s
sales outstanding and
manage the overdue that accrues
to them. Over the years, it has been observed that Tata Steel has shown a positive trend in its
Over the years, it has been observed that Tata Steel has shown a positive trend in its
Working Capital.
Tata Steel is known for its human resource
policies and it also has a well maintained and very efficient IT infrastructure. The entire functions of the company are well coordinated
on a national scale.
The objective of the company
now is to increase the scale of its business by
increasing its profits and the turnover and also by venturing into new line of business. It is now targeting to be the World Class Industrial Enterprise from a World Class Steel Company.
It is striving to have a huge global base.
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 programme 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.
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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.
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OBJECTIVES
OF THE STUDY:
- i) To measure, test and evaluate
the liquidity position of Tata Steel.
- ii) To determine the profitability
position of Tata Steel.
- iii) To find out the degree of
association between liquidity and profitability, being two key determinants
of financial performance, of the company under study.
- iv) To establish the linear
relationship between liquidity and profitability.
- ) 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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