A STUDY ON

DEBTORS MANAGEMENT
AT

TATA STEEL & ITS COMPARISON WITH OTHER KEY PLAYERS

A Project Report submitted in partial fulfillment of the requirement for (Affiliated To Ch.Charan Singh University, Meerut)

BACHELOR OF BUSINESS ADMINISTRTION 2007-2010

UNDER THE GUIDANCE OF Internal Supervisior Mr.TUSHAR JINDAL(faculty) IMS Ghaziabad External Supervisior Mr. K S M MATHEW Submitted by Rahul 9351722

INSTITUTE OF MANAGEMENT STUDIES GHAZIABAD

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DECLARATION CERTIFICATE

This is to certify that the work presented in the project entitled DEBTORS MANAGEMENT in partial fulfilment of the requirement for the award of degree of BBA, INSTITUTE OF MANAGEMENT STUDIES,GHAZIABAD, is an authentic work carried out under my supervision and guidance. To the best of my knowledge, the content of this project does not form a basis for the award of any previous degree to anyone else.

Date: name &signature)

(Guides Department of Management BBA IMS, GHAZIABAD

CERTIFICATE OF APPROVAL
The foregoing thesis entitled DEBTORS MANAGEMENT at TATA
STEEL AND ITS COMPARISON WITH OTHER KEY PLAYERS, is hereby

approved as a creditable study and has been presented in satisfactory manner to warrant its acceptance as prerequisite to the degree for which it has been submitted. It is understood that by its approval, the undersigned do not necessarily endorse any conclusion drawn or opinion expressed therein, but approve the project for the purpose for which it is submitted.

Co-ordinator- BBA ordinator

Academic Co-

Director IMS-GZB.

Acknowledgement
It is my privilege to work on the project Debtors management at Tata Steel Ltd and its comparison with other key players. At the very outset, I am obliged to TATA STEEL for the permission to undertake training program and provide me with the basic infrastructure and facilities. I express my sincere sentiments of gratitude to Mr. K S M MATHEW (Head Sales & EPA A/c) who guided me throughout this project. I would also like to thank Mr. PRANAV JHA (Sr. Manager Sales & EPA A/c) for his continuous assistance without which this project would not have been a success. It is the spirit of being associated with the Finance and Accounts department particular and Tata Steel in general who inspired me to complete this project successfully. I am indebted to my mentor Mr. K B SINGH for extending his untiring guidance to me, by constantly discussing the project matter and helping me in clarifying my thinking in several pertinent issues and providing a meaning full insight into the subject. Last but not the least; I also thank Ms.VANDANA KHEMKA (Manager Sales & EPA A/c) & Ms. PADMA MOHANTY (Accountant) who has been a source of inspiration through their constant guidance, personal interest, encouragement and help
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& has made my stay in the company such a pleasant memory. In spite of their busy schedule they have always found time to guide me through the project. I am also grateful to them for reposing confidence in my abilities and giving me the freedom to work on my project. I owe my deep sense of gratitude and sincere thanks to all of them Thank you.

TABLE OF CONTENTS
EXECUTIVE SUMMARY 1

CHAPTER 1 INTRODUCTION
1.1.1 5 1.1.2 6 1.1.4 8 1.1.5 9 Determinants of size of receivables. Need for trade credit... Debtors management..... Account receivable-definition.........

1.1.6

Cost

&

benefits 11

associated

with

receivable

management.... 1.1.7 13 Company Profile 1.2.1 14 1.2.2 16

Expert view ....

History of steel.....

Indian Steel Industries ....

1.2.3 Company Overview ..... 19 1.2.4 Tata steel stand alone ..... 45 1.2.5 Overview of the finance division of Tata steel. . 57 1.2.6 Sundry debtors section...... 58

CHAPTER 2

RESEARCH METHODOLOGY
2.1 60 2.2 60 2.3 60 2.4 60 Sources of data collection. Scope of Study . Objective of the study.. Type of Research..

2.5 60

Sampling..

CHAPTER 3

CREDIT DECISION
3.1

Tata steels credit monitoring and control

65 3.2 Operational working 68 financing... at Tata steel for managing

debtors.. 3.3 70 Channel

3.4 Credit assessment modules.. 72 3.5 Understanding the debtors process system.....
84

CHAPTER 4
COMPARATIVE ANALYSIS OF TATA STEEL WITH OTHER STEEL COMPANY 4.1 89 4.2 95 4.3 99 CHAPTER 5 . Tata steel vs. Jindal steel & power ltd .. Tata steel vs. Arcelor Mittal (Mittal steel) Tata steel vs. Steel authority of India limited (sail).....

TATA STEEL & RECESSION

5.1 Tata steels game plan to beat recession... . 108 5.2 recession........................ 5.3 newspapers...... CHAPTER 6 CONCLUSION AND SUGESSTIONS
6.1 113 6.2 Limitation of the Study.. 114 6.3 SWOT analysis of debtors management process at Tata steel 115 Suggestion..

After 109 the

Articles 111

from

6.5 Views of debtor management expertise... 117 118

6.4Conclusion....

REFERENCE ANNEXURE - Bibliography

Executive Summary
The project deals in DEBTORS MANAGEMENT AT TATA STEEL & ITS COMPARISON WITH OTHER KEY PLAYERS. Receivable management is one of the most important aspects of the organization, as it deals with the management of the outstanding. The profit of the company mainly depends on the accounts receivables. Therefore it needs a careful analysis and proper management. Debtors occupy an important position in the structure of current assets of a firm. They are the outcome of rapid growth of trade credit granted by the firms to their customers. Trade credit is the most prominent force of modern business. It is considered as a marketing tool acting as a bridge for the movement of goods through production and distribution stages to customers. Till few years back, Tata Steel had a very strict policy of selling against advance payments. That was an era of controlled economy. However, with an increasing domestic and international competition, Tata Steel could no longer afford this policy, in order to maintain its premium position. Further in order to capture a greater amount of market share, it was compelled to go by the industry norms and thus it ushered into the new era of credit sales. This resulted in credit sales going up significantly. A credit limit was sanctioned to every customer. The customers were required to pay the outstanding amount on the due date.

INTRODUCTION

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1.1What is an account receivable?

Accounts receivable is an accounting transaction which deals with the billing of customer who owes money to a person, company or organization for goods and services that has been provided to the customers. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called credit or payment terms. An example of a common payment term is Net 30, meaning payment is due in the amount of the invoice 30 days from the date of invoice. Other common payment terms include Net 45 and Net 60 but could in reality be for any time period agreed upon by the vendor and the customer. On a company's balance sheet, accounts receivable is the amount that customers owe to that company. Sometimes called trade receivables, they are classified as current assets assuming that they are due within one year. To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account. When the customer pays off their accounts, one debits cash and credits the receivable in the journal entry. The ending balance on the trial balance sheet for accounts receivable is always debit. Accounts receivable departments use the sales ledger. Other types of accounting transactions include accounts payable, payroll, and trial balance.

BOOK KEEPING FOR ACCOUNTS RECEIVABLE

Companies have two methods available to them for measuring the net value of account receivables, which is computed by subtracting the balance of an allowance account from the accounts receivable account. The first method is the allowance method, which establishes a liability account, allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable. The amount of the bad debt provision can be computed in two ways either by reviewing each individual debt and deciding whether it is doubtful (a specific provision) or by providing for a fixed percentage, say 2%, of total debtors (a general provision). The change in the bad debt provision from year to year is posted to the bad debt expense account in the income statement. 11

The second method, known as the direct write-off method, is simpler than the allowance method in that it allows for one simple entry to reduce accounts receivable to its net realizable value. The entry would consist of debiting a bad debt expense account and crediting the respective account receivable in the sales ledger.

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1.2 Receivable management CONCEPT

The term receivable management is defined as debt owed to the firm by customer arising from the sale of goods/ services in the ordinary course of business. The receivable represents an important component of the current assets of the firm. Receivables may be known as accounts receivables, trade creditors or customer receivable. When a firm its products / services and does not receive cash for it immediately, the firm has said to be granted trade credit to the customers. Trade credit thus creates receivable / book debts, which the firm is expected to collect in near future. Accounts receivable are thus amounts due from customers, which bear no interest in essence, a company is providing no cost financing to the customer to encourage the purchase of the companys product/services. The extension of credit can be justified only if the increase in the sales and related cash collections (discounted for the time until collection) exceeds the amount otherwise cash generated under a cash only policy. These customer from whom receivable or book debt are to be collected in the future are called as trade debtors or simply as debtor and represents the firms claim on assets. Trade debtors are expected to be converted into cash within a short period and are included in the current assets. Since receivables often accounts for the significance portion of total assets, it requires careful attention and adequate management. It is skill demanding field because the customer has to be bestowed with trust along with a continuous vigilance.

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OBJECTIVE OF DEBTORS MANAGEMENT

It is not always possible to sell goods on cash basis only, sometimes other firms in that line might have establish a practice of selling goods on credit under these circumstances, it is not possible to avoid credit sales without adversely affecting the sales. Hence the firm is required to allow the credit sale in order to expand its sales volume. The increase in sales is also essential to increase profitability. The sales of goods have become an essential part of the modern competitive economic system. In fact credit sales and receivables are treated as a marketing tool to aid the sale of goods. Credit sale is generally made in an open account in the sense that there is no formal acknowledgement of debt obligation through a financial instrument. As a marketing tool they are indene to promote sales and thereby profits. However extension of credit involves risk and cost. Management should weigh the benefits as well as the costs to determine the goals of receivable management. Thus the objective of receivable management is: To promote sales and profit until that point is reached where the return on investment in further funding of receivable is less than the cost of funds raised to finance that additional credit(i.e. cost of capital)

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1.4 NEED FOR GRANTING TRADE CREDIT:

Trade credit is an important marketing tool. A policy of trade credit is followed nearly in all capital intensive industries either for sales expansion and /or sales retention. Under any circumstances investment in receivable is growth oriented.

Various factors that favours credit

Market factors

Customers requirement

Competition

Marketing Tool

Recessionary economic conditions

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 MARKET FACTOR: Market factors like price, forces accompany to grant credit. For example, TATA STEEL whose price is comparatively higher is forced to grant credit in order to maintain sale.

COMPETITION: In view of stiff competition from both domestic and international players, the company is left with no option then to grant credit. Competition is another vital factor, which affects the credit policy of a firm, and TATA STEEL is not an exception.

CUSTOMERS REQUIREMENT: As the market has changed to the buyers market, the customers have become kings. If the customer expects credit and is worthy of it, he gets it.

MARKETING TOOL: T o push up sales of slow moving products and encourage bulk purchase of fast moving products, credit plays an effective role in this context.

RESESSIONARY ECONOMIC CONDITIONS: Liquidity crunch forces the company to grant credit.

1.5 DETERMINANT OF SIZE OF RECIEVABLES

Beside sales, a number of factors also influence the size of receivables. The following factors directly or indirectly determine the size accounts receivables. Level of sales: The most important factor in determining the volume of receivable is the level of firms credit sales. With an increase in the size of the sales, it may bring about a proportional increase in the magnitude of receivable.

Credit policies: The firm with the liberal credit policy will have a higher level of receivable than with a conservative or rigid credit policy.

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Terms of trade: The size of receivables also depends upon the term of trade. The period of credit allowed and rates of discounts given are linked with receivables. If the credit period allowed is more, the receivable will also be more similarly if the rate of discount are reasonable, then also the size of the receivable will increase.

Profit: The level of receivables increases as a result of increase in sales. When sales increase beyond a certain level, the additional cost incurred are less than the increase in revenue. It will be beneficial to increase sales beyond a point because it will bring more profit. The increase in profit will be followed by an increase in the size of the receivable.

Market: It may be necessary for the firm to explore a new market for its products/services. One of the attractive way in which a firm enters a new market is by giving incentives to the customers in the form of credit facilities. In doing so, the size of receivable will increase.

Grant of credit: Size of the receivable depends upon the policies and practices of the firm in determining which customer are to be granted credit.

Paying habit of the customer: The paying habits of the customers also have a bearing on the size of receivables. The customers may be in habit of delaying payments even though they are financially sound. In such case, the firm should remain in constant touch with its customers.

Collection policies: The vigour with which affirm collects its dues from the customers also affects its receivables, for if the amounts due are not collected timely; a firm suffers some financial difficulties, if not losses.

Operating efficiency: The degree of operating efficiency in billing, record keeping and other function also exercise some influence on a firms credit policy which in turn influences its receivables.

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Credit collection: The collection of credit should be streamlined. Efficient credit collection machinery will reduce the size of receivable. Individual firm of tern set up their own well organised credit collection department.

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1.6 COSTS AND BENEFITS ASSOCIATED WITH receivable MANAGEMENT

COSTS COSTS
COLLECTIONCOST CAPITAL COST COLLECTIONCOST DELIQUENCY COST CAPITAL COST DEFAULT COST DELIQUENCY COST DEFAULT COST

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COSTS:
The major categories of cost associated with extension of credit and receivable are: Collection cost Capital cost Delinquency cost Default cost

COLLECTION COST: These costs are administrative cost incurred in collecting the receivable from the customers. This category includes: 1. Additional expenses on the creation and maintenance of a credit department with staff, accounting, records, stationary, postage and other related items. 2. Expenses involved in acquiring credit information either through outside

specialist agencies or by the staff of the firm itself. CAPITAL COST: Accounts receivables, being an investment in current assets, have to be financed involving a cost. There is a time lag between the sale of goods to, and the payment by, the customers. Meanwhile the firm has to pay employees and suppliers of raw material i.e. the firm should arrange for additional funds to meet its own obligations. Thus, the cost on the use of additional capital to support credit sales is therefore apart of the cost of extending credit. DELINQUENCY COST: This cost arises out of the failure of the customer to meet their obligations when payment on credit sales becomes due after the expiry of the period of credit. Such cost includes: Blocking up of funds for an extended period. Cost associated with steps that have to be initiated to collect the overdue, such

as reminders and other collection efforts, legal charges, where necessary , and so on. DEFAULT COST 20

In addition of the above cost the firm may not be able to recover the overdue because of inability of the customers. Such debts are treated as bad debts and have to be written off, as they cannot be realized. Though a concern may be able to reduce bad debts through efficient collection mechanism, one cannot altogether rule out the possibility of this cost.

BENEFITS:
Apart from the cost, another factor that has a bearing on accounts receivable is the benefit emanating from credit sales. The benefits are: The increased sale and thereby profits However, the benefits would depend upon the credit policy adopted by the firm, i.e., a conservative or liberal credit policy. The impact of liberal credit policy is likely to have two forms:i. ii. Sales expansion Sales retention

In sales expansion a firm may grant credit either to increase sales or to attract new customer. This motive is growth oriented; on the other hand the sales retention the firm may grant credit to protect its current sales against emerging competition. No matter whatever is the motive, the result the result of increased sales is the increase the profit of the firm.

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SOME BASIC DEFINITION

When the buying and selling process steps forward and the customer is not able to pay the total amount, the amount which they are not able to pay at the same time of buying the amount is known as DEBT. In the balance sheet of companies those customers are DEBTORS. In their balance sheet company is a CREDITOR. On the basis of market performance and credit rating company decides the time period of payback of the amount. This time period is known as CREDIT PERIOD. The total amount called as debt is called as OUTSATNDING. When this total outstanding is not paid within the credit period the amount remained to be collected is called as OVERDUE. The total overdue is divided in different parts such as overdue within 3months, from 3-6 months, 6-12 months, 1 to 2 yrs, 2-3 yrs, above 3yrs, and above 5 yrs. When the customer is not able to pay back the due after five years then this amount is known as BAD DEBTS. Tata Steel has kept some amount for this type of time of contingencies. This amount use for decreasing the effect of bad debts is called as PROVISION. CURRENT ASSETS are those assets which can be converted into cash within the period of 12 months starting from the companys financial year. CURRENT LIABILITIES are those liabilities which are repaid within 12 months starting from companys financial year.

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EXPERT VIEW
It is generally believed that credit policy stimulates sales as it helps in retaining existing customers and winning clients from rivals. Trade debtors represent amounts owed to the firm as a result of credit sale of goods or services in the ordinary course of business. The key function of credit management is to optimize the sales at the minimum possible cost of credit. According to Joseph, "The purpose of any commercial enterprise is the earning of profit. Credit in itself is utilized to increase sales, but sales must return a profit". The offer of trade credit should not only optimize sales but also lead to maximization of overall return on investment. Management of receivables, therefore, should be based on sound credit policies and practices.

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COMPAN Y PROFILE
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3.1 HISTORY OF STEEL

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that period in each and every part of life. But, with the change in time and technology, people were able to find an even stronger and harder material than iron that was steel. Using iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldnt do. The Chinese people invented steel as it was harder than iron and it could serve better if it is used in making weapons. One legend says that the sword of the first Han emperor was made of steel only. From China, the process of making steel from iron spread to its south and reached India. High quality steel was being produced in southern India in as early as 300 BC. Most of the steel then was exported from Asia only. Around 9th century AD, the smiths in the Middle East developed techniques to produce sharp and flexible steel blades. In the 17th century, smiths in Europe came to know about a new process of cementation to produce steel. Also, other new and improved technologies were gradually developed and steel soon became the key factor on which most of the economies of the world started depending.

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FIG: Stages in Global Production of Steel India is one of the worlds top ten steelmakers its domestic output is insufficient to Consumption of steel is very fast and as a consequence of the prospective dynamic Secondly, there is demand for high-quality products which India will not be able to

meet the demand in all segments. economic growth. supply in sufficient quantities for the foreseeable future.

3.2 THE GLOBAL STEEL INDUSTRY

The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results. The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth.

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CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan accounts for 9% i.e. 118 m ton, India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.

3.3 INDIAN STEEL INDUSTRIES

The challenges that confront Indian steel industry in the age of globalization are complex in nature. The secret of sustainable turnaround lies in how Indian steel industry faces the challenges and develops combative and anticipatory prowess. Problems and solutions may vary with organizations but there is more a commonality than initially meets the eye. A twostep strategy is suggested for the sustainable turnaround in the industry. These stages, aimed to ensure survival and growth have been termed survival strategy and growth strategy. The survival strategy provides a foundation upon which a potent growth strategy could be formulated. While the survival strategy would ensure the survival of the ailing steel industry, the growth strategy would simultaneously take care of its total transformation towards a better future. Both stages, to be implemented through an integrated plan, are essential to enable the industry overcome the present imbroglio. Indian steel industry is poised for rapid growth. Indias share in world production of crude steel increased from 1.5% in 1981 to around

7.3% in 2008.

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The private sector is considered engine of growth in the steel industry and

technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India.

SOME OF THE LEADING COMPANIES IN INDIAN STEEL INDUSTRY ARE AS FOLLOWS:

Tata Steel: Producer and supplier of wire rods, bars, and steel flats Steel Authority of India: Manufacturer of steel and iron Ambica Steel: Producer of carbon steel, alloy, and stainless steel Bokaro Steel Plant: Steel manufacturer Central Steel Corporation: Producer of alloy and tool steels Allied Ferromelt: Producer of non alloy and alloy steel Anchor Engineers' Files: Producer of steel files for engineers 28

 Essar Steel: Producer of sponge iron, steel and iron ore pellets ColdFab: Producer of pre-fabricated buildings of steel Hisar Metal: Producer of strips and stainless cold rolled steel coils Buyao Info: Producer of steel products and re-rolled iron Jindal Iron & Steel: Producer of galvanized steel products Kanoi Group: Dealer of corrugated sheets and steel coils Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron Metalman Industries: Producer of tubular and flat steel items

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3.3 Company overview

Backed by 100 glorious years of experience in steel making, Tata Steel is the worlds 6th largest steel company with an existing annual crude steel production capacity of 30 Million Tons Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries. Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the steel building and construction applications market. The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing. Tata Steel is also striving towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint

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venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining. Exploration of opportunities in titanium dioxide business in Tamil Nadu, Ferro-chrome plant in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and Globalisation objective of Tata Steel. Tata Steels vision is to be the global steel industry benchmark for Value Creation and Corporate Citizenship. Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

MILESTONes 1868 1874 1902

Jamshedji Nauserwanji TATA started a private trading firm, laying the foundation of the TATA Group.

The central INDIA spinning, weaving and manufacturing company is set up, marking the group entry into textiles.

The

Indians

hotels

company is incorporated to set up the Taj Mahal Palace and Tower, India's first luxury hotel, which opened in 1903.

1907

1910

1911

The TATA Iron and Steel Company (now TATA Steel)is established to set up India's first iron and steel plant in Jamshedpur.

The first of the three TATA Electric Companies, The Tata Hydro-Electric Power Supply Company, (now TATA Power) is set up.

The Indian Institute of Science is established in Bangalore to serve as a centre learning. 31 for advanced

1912

1917

1932

TATA Steel introduces eighthour working days, well before such a system was implemented by law in much of the West.

The

TATAs

entered

the

TATA airlines, a division of TATA sons, is established to opening up the aviation sector in India.

consumer goods industry, with the TATA Oil Mills Company being established to make soaps, detergents $ cooking oils.

1939

1945

1952

TATA Chemicals, now the largest producer of soda ash in the country, is established.

TATA TATA

engeneering MOTORS) to

and is

Jawahar lal Nehru Indias first Group prime the in to minster TATA India, requested cosmetics LAKME.

Locomotive (renamed as established products. manufacture

manufacture

locomotive and engeneering

leading to satting up the

1962

1968

1970

TATA finlat (now TATA consultancy services company is

TATA McGraw-Hill Publishing Company is created books. to publish educational and technical

TATA tea), one of the (TCS) Indias first software largest tea producers is services estblished. established. Today the company renamed as TATA export is TATA sons. established as a division of

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TATA International, is one of the leading export houses in india.

1984

1996

1998

TITAN Industries- a joint venture between TATA Group and Tamil Nado Industrial Development corporation is set up to manufacture watches.

TATA Teleservices (TTSL) is established to spearhead the Group's foray into the telecom sector.

TATA Indica India's first designed launched by indigenously and TATA

manufactured car is MOTORS, spearheading the Group's entry into the passenger car segment.

2002

2004

2005

The TATA Group

TATA MOTORS acquires the heavy vehicles unit of Daewoo Korea. Motors, South

TATA Steel acquires

acquires a controlling stake in VSNL, India's leading international telecommunications service provider. TATA Consultancy Services (TCS) becomes the first Indian software company to cross one billion dollars in revenues.

Singapore-based steel company NatSteel by subscribing to 100 per cent equity of its subsidiary, NatSteel Asia. VSNL acquired

TCS goes public in July 2004 in the largest private sector initial public offering (IPO) in the Indian market, raising nearly $1.2 billlion.

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 Titan launches Edge, the slimmest watch in the world. Idea Cellular, the cellular service born of a tie-up involving the TATA Group, the Birla Group and AT&T, is launched.
TATA Indicom, the

umbrella brand for telecom services from the TATA Teleservices stable, starts operations.

2007

2008

TATA steel acquires CORUS thus world. becoming the sixth largest steel maker of the

TATA Group acquires JAGUAR & LAND ROVER from FORD MOTERS.

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We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship.
We make the difference through:

Our people, by fostering team work, nurturing talent, enhancing leadership capability and Our offer, by becoming the supplier of choice, delivering premium products and services, Our innovative approach, by developing leading edge solutions in technology, processes

acting with pace, pride and passion.

and creating value with our customers.

and products.

Our conduct, by providing a safe working place, respecting the environment, caring for

our communities and demonstrating high ethical standards

.

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GROUP VISION
We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship. We make the difference through: Our PEOPLE, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion. Our OFFER, by becoming the supplier of choice, delivering premium products and services and creating value with our customers. Our INNOVATIVE APPROACH, by developing leading edge solution in technology, process and products. Our CONDUCT, by providing a safe working place respecting the environment, caring for our communities and demonstrating high ethical standards.

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Products
Tata Steel`s Jamshedpur Works produces hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rebars and bearings. In an attempt to 'decommoditise' steel, Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized wire products), Tata Pipes (pipes for construction) and Tata Structura (contemporary construction material).Apart from these product brands, the company also has in its folds a service brand called steel junction. Corus main operating divisions comprise Strip Products, Long Products and Distribution & Building Systems Division. The NatSteel group produces construction grade steel such as rebars, cut-and-bend cages for construction, mesh, precage bore pile, PC wires and PC strand. Tata Steel Thailand produces round bars and deformed bars for the construction industry.

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Corporate Sustainability
Regarded globally as a benchmark in corporate social responsibility, Tata Steel's commitment to the community remains the bedrock of its hundred years of sustainability. Its mammoth social outreach programme covers the company-managed city of Jamshedpur and over 800 villages in and around its manufacturing and raw materials operations through uplift initiatives in the areas of income generation, health and medical care, education, sports, and relief. The Company, fully conscious of its responsibilities to the future generations, has always taken pro-active measures to ensure optimum utilization of natural resources. This is reflected in the ISO-14001 certification that all its operations have achieved for environment management. The SA 8000 certification for work conditions and improvements in the workplace at the steel works in Jamshedpur, along with its Ferro Alloys and Minerals Division, is a reiteration of its commitment towards the Company's employees. Tata Steel has pioneered numerous employee welfare measures such as the 8 hours working day and the three tier joint consultation system of management which have been the platform for nearly 80 years of industrial harmony in its Steel Works in Jamshedpur.

INVESTMENTS OF TATA STEEL

In INDIA
12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur steel works became a 7 MTPA unit in 2008

OVERSEAS
VIETNAM SOUTH AFRICA AUSTRALIA

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MOZAMBIQUE IVORY COST OMAN

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AWARDS AND RECOGNITIONS

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Awards and Recognitions

Tata Steel India awarded the Deming Application Prize 2008 for excellence in Total

Quality Management. It is the first integrated steel company in the world, outside Japan to get this award.

World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two Tata Steel has been conferred the Prime Minister of India's Trophy for the Best It has been awarded Asia's Most Admired Knowledge Enterprise award five times in Conferred the prestigious Global Business Coalition Award for Business Excellence Tata Steel works has been conferred the prestigious social accountability (SA) 8000

consecutive years) in its annual listing in February 2006.

Integrated Steel Plant five times.

2003, 2004, 2006, 2007 and 2008.

in the Community in recognition of its pioneering work in the field of HIV/ AIDS awareness.

certification by social. Accountability international (SAI), USA. It is the first steel company in the world to receive this certificate.

Corporate Sustainability Report of Tata Steel hailed by United Nations Environment

Programme (UNEP) and Standard and poor as strongest, submitted by any corporate house from emerging economies.

Best governed company Award 2006 for setting high standards in governance

practices.

42

(As on 7th May, 2009)

Mr. B Muthuraman Mr. H M Nerurkar

Managing Director Executive Director, India and South East Asia Operations Vice President & Tata Steel Group Director, Global Mineral Resources Vice President, Engineering Services & Projects Group CFO, Tata Steel Vice President, Flat Products & TQM Vice President, Raw Materials & CSI Vice President, Chhattisgarh Project Vice President, Shared Services Chief Human Resource Officer Vice President, Corporate Services Vice President, Safety & Long Products Vice President & Tata Steel Group Head, M&A Vice President, Orissa Project Company Secretary

Mr. A D Baijal

Mr. R P Singh

Mr. Koushik Chatterjee Mr. Anand Sen Mr. Abanindra M. Misra Mr. Varun K Jha Mr. Om Narayan Mr. Radhakrishnan Nair Mr. Partha Sengupta Mr. H Jha

Mr. N K Misra

Mr. B K Singh Mr. J C Bham

43

44

45

46

47

Strategic Business Units OF TATA STEEL

48

Corus: Europes second largest steel

maker with operations in the UK and mainland Europe and over 40,000 employees worldwide. Its long and strip products cater to the construction, automotive, packaging, engineering and other markets worldwide. Corus is implementing major investments at its plants at IJmuiden, in the Netherlands and at Scunthorpe in the UK as part of its drive to strengthen product differentiation, improve operational efficiency and reinforce existing competitive position, particularly in the construction and automotive sectors, including the development of new advanced high strength steels.
(www.corusgroup.com)

Tinplate Company of India Limited (TCIL): With a market share of

over 35%, it is the industry leader in India. It has the capability to supply all tinning line products including electrolytic tinplate / tin-free steel and cold-rolled products.
(www.tatatinplate.com)

Tayo Rolls Limited: India's leading roll

manufacturer and supplier, the company produces rolls which find application in integrated steel plants, power plants, the paper, textile and food processing sectors, and the government mint.
(www.tayo.co.in)

Tata Ryerson Limited (TRYL):

TRYL Is in the business of steel processing and distribution. It offers hot and cold rolled flat steel products in customised sizes and quantities through processing services and materials management services.
(www.tataryerson.com)

49

Tata Refractories Limited (TRL): It

produces High Alumina, Basic, Dolomite, Silica and Monolithic Refractories and offers design, procurement and re-lining applications services. It is one of the few companies worldwide to produce silica refractories for coke ovens and the glass industry. The Company has a basic bricks manufacturing unit in China.
(www.tataref.com)

Tata Sponge Iron Limited (TSIL):

TSIL is the first Indian sponge iron plant based on Tata Steel's Direct Reduction Technology. Its major product lines are sponge iron lumps and fines.
(www.tatasponge.com)

Tata Metaliks: Amongst the top wealth

creating companies (EVA+) in the country, Tata Metaliks is engaged in the business of manufacturing and selling foundry grade pig iron.
(www.tatametaliks.com)

Tata Pigments Limited: TPL's range

of products includes oxides of iron, dry cement paint, exterior emulsion paint and distemper. Its products are used in paints, emulsion, cement floors, plastic etc.
(www.tatapigments.com)

Jamshedpur Injection Limited (Jamipol):

Powder

JAMIPOL manufactures carbide de-sulphurising compounds which are used for desulphurising hot metal for the production of low-sulphur, high-quality steel.
(www.jamipol.com)

50

TM International Logistics Limited (TMILL):TMILL provides material

handling and port operation services at Haldia and Paradip Ports in addition to providing freight forwarding and chartering services.
(www.tmilltd.com)

mjunction

: mjunction, operating at the cutting edge of Information Technology, is a 50:50 venture of SAIL and Tata Steel. It is India's largest eCommerce company and the world's largest eMarketplace for steel. Mjunction offers a wide range of selling, sourcing and knowledge services that empower businesses with greater process efficiencies.
(www.mjunction.in)

services

limited

TRF Limited

TRF, one of India's leading companies in the business of design, manufacture, supply, installation and commissioning of engineered-to-order equipment and systems in the areas of bulk material handling, processing, reclaiming and blending. TRF has also made its mark in the fields of coke oven equipment, coal dust injection systems for blast furnaces and coal beneficiation systems.
:

(www.trfltd.com)

Jamshedpur Utility and Service Company Limited (JUSCO) : Re-engineered out of Tata
Steel's town services, JUSCO is a wholly owned subsidiary of Tata Steel and is the country's first enterprise that provides municipal and civic services for townships. JUSCO is the only EMS 14001 civic services provider in the country.
(www.juscoltd.com)

51

The Indian Steel and Wire Products Limited (ISWP) : Recently acquired by
Tata Steel, ISWP has two units - a wire unit comprising wire drawing mills, wire rod mills and a fastener division and a steel roll manufacturing unit named Jamshedpur Engineering and Machining Company JEMCO.

Tata BlueScope Steel Limited: A joint

venture with BlueScope Steel Limited, Australia, Tata BlueScope Steel Limited offers a comprehensive range of branded steel products for building and construction applications. The Company is constructing a state-of-the-art metallic coating and painting facility at Jamshedpur.
(www.tatabluescopesteel.com)

Dhamra Port Company, Orissa: A JV

between Larsen & Toubro Ltd. and Tata Steel Ltd., the company will build a deepdraft (18 metres) all weather port on the east coast of India. The port will handle 80 million tonnes per annum of cargo.
(www.dhamraport.com)

Hooghly Met Coke & Power Company: A joint venture with West Bengal Industrial Development Corporation Ltd., HMC&PC envisages an annual met coke production capacity of 1.2 million tonnes and 90 MW of electric power.
(www.hooghlymetcoke.com)

Lanka Special Steel Limited: The only

unit in Sri Lanka manufacturing galvanised wires.

52

Sila Eastern Company Limited:

Established to develop limestone mines in Thailand, mainly for the captive use of Tata Steel.

NatSteel Holdings (NSH) : A leading

supplier of premium steel products for the construction industry. NatSteel Holdings became a 100% subsidiary of Tata Steel in February 2004. NSH produces about 2 MT of steel products annually across its regional operations in seven countries.
(www.natsteel.com.sg)

Tata Steel Thailand: The company is

the dominant steel producer in Thailand. The company has the capacity to produce 1.7 million tonnes of steel for the construction industry per year.
(www.tatasteelthailand.com)

Tata Steel KZN: Proposes to set up high

carbon ferrochrome plant in South Africa. The plant is slated to be commissioned by October 2007 with an annual production capacity of 135,000 tonnes during Phase 1.

Tata NYK: A joint venture with Nippon

Yusen Kabushiki Kaisha (NYK Line) for setting up a shipping company to cater to dry bulk and break bulk cargo. Tata Steel and NYK will each hold 50% stake in the joint venture company.

53

National Jharkhand Chhattisgarh Orissa Kalinganagar Port Tamil Nadu -

International Vietnam South Australia Mozambique Ivory Coast (West Africa) Oman Africa

- Dhamra

The Company has set itself the objective of expanding its capacities and becoming globally competitive in its business. as a part of its growth strategy, the Company believes in adopting the best practices that are followed in the area of Corporate Governance across various 54

geographies. The Company emphasises the need for full transparency and accountability in all its transactions, in order to protect the interests of its stakeholders. The Board considers itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for creation and safeguarding their wealth.

55

Tata groups Diversified area of business

Information systems and communications: The Tata group has well-established enterprises in the fields of software and other information systems, telecommunications and industrial automation. Engineering: The Tata group has a robust presence in engineering, with operations in automobiles and auto components and a variety of other engineering products and services. Materials: The Tata group is among the global leaders in this business sector, with operations in steel and composites. Services: The Tata group has widespread interests in the hospitality business, as also in insurance, realty and financial and other services. Energy: The Tata group is a significant player in power generation and is also involved in the oil and gas segment.

SOME OF WHICH ARE:

Tata Tele Services Tata Power Tata Consultancy Services Tata Chemicals Tata Assets Management Tata Motors Tata Capital Titan Industries Tanishq Taj Group of Hotels

56

Products of Tata group

57

TATA STEEL STAND ALONE

58

TREND OF SALES

YEARS SALES

FY 2003-04 11920.96

FY2004-05 15876.87

FY 2005-06 17144.22

FY 2006-07 19762.57

FY 2007-08 22191.8

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PRODUCT WISE NET SALES ARE AS FOLLOWS

Figures in Rs (crs)

FY 2006-07 STEEL TUBES FERRO ALLOYS AND MINERALS BEARINGS 14858 1099 1454 140

FY 2007-08 16541 1217 1808 127

Analysis: 60

The increase in the net sales of Tubes division was due to the increase in both the volume as well as prices. The Ferro Alloys and Minerals division of the company registered a growth of 24% in terms of value though there was a decline in terms of quantity due to the companys decision during the year to stop the sale of ores. There was a decline in the net sales of the Bearings division of the company mainly due to lower off -take by the automotive sector, which is a major customer sector of the division.

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TREND OF DEBTORS
YEARS DEBTORS FY 200304 756.06 FY200405 581.82 FY 200506 539.4 FY 200607 631.63 FY 200708 543.48

Analysis:
There has been decrease in the trend of debtors in last five years, from Rs.756.6crores to Rs.543.48 crores. This decrease in debtors shows a more profit to the company. The increase in the debtors during 2006-07year might be due to the acquisition of CORUS.

62

DIVISION/PROFIT CENTRE WISE DEBTORS IN TATA STEEL FOR FY 07-08

PROFIT CENTERS STEEL WIRE DIVISION TUBES BEARINGS F.A.M.D TOTAL DEBTORS For the FY 06-07 509.09 43.82 37.01 7.01 70.44 667.37 For the FY 07-08 397.84 33.30 31.13 7.29 107.59 577.15

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TRENDS OF DEBTORS IN TATA STEEL

Debtors FY 06-07 FY 07-08 Apr 614 694 May 688 687 Jun 756 662 Jul 663 683 Aug 658 669 Sep 753 767 Oct 680 733 Nov 670 636 Dec 731 677 Jan 709 691 Feb 774 716 Mar 667 577

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TREND OF CURRENT RATIO

YEARS CURRENT RATIO FY 2003-04 1.03 FY2004-05 1.1 FY 2005-06 1.1 FY 2006-07 2.18 FY 2007-08 0.9

ANALYSIS:
The ratio is constant. An ideal current ratio is 1:1. In the year 2006-07 the ratio is very high which is not desirable since it means there was less efficient use of funds which was lowering down the profitability of the concern. In year 2007-08, the ratio has quite improved to 0.9 from 1.03 in the year 2003-04 and is coming closer to the ideal ratio.

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TREND OF DEBTORS TURNOVER RATIO

YEARS Debtors Turnover Ratio FY 2003-04 13.38 FY2004-05 23.81 FY 2005-06 28.73 FY 2006-07 31.9 FY 2007-08 35.66

ANALYSIS:
Debtors' turnover rate indicates how quickly receivables or debtors are converted into cash. The liquidity of debtors, therefore, is measured through the debtors' turnover rate. A higher debtors turnover coupled with quick average collection of debtors enables the firm to transact a larger volume of business without corresponding rise in the investment in debtors. From the above chart it is clear that the debtors turnover has been kept on increasing from 2003-04, where it was 13.38times to 35.66 times in the year 2007-08.

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TREND OF AVERAGE COLLECTION PERIOD

YEARS AVERAGE COLLECTION PERIOD FY 2003-04 27.27 FY200405 15.33 FY 2005-06 12.7 FY 2006-07 11.44 FY 2007-08 10.23

ANALYSIS:
The turnover rate converted into average collection period is a significant measure of the collection activity of debtors. An average collection period is a measure of how long it takes from the time the sales is made to the time the cash is collected from the customers. Lesser the period better the situation for the company. In case of TATA STEEL there is a continuous fall in average collection period from 27.7 days in 2003-04 to 10.23 days in 200708, which is a good sign for the company.

67

TREND OF AVERAGE DEBTORS TO TURNOVER RATIO

YEARS FY 2003-04 Debtors Turnover Ratio FY2004-05 13.38 FY 2005-06 23.81 FY 2006-07 28.73 FY 2007-08 31.9 35.66

ANALYSIS:
The analysis of the trends in sales and trade debtors shows the effectiveness of the credit policy in activating sales. An uninterrupted upward trend in sales accompanied by downward trend in debtors indicates that the credit policy implemented by the company is very effective in stimulating more sales. This can be easily seen in case of TATA STEEL where the average debtors to turnover has been decreased from 6.75% in 2003-04 to 2.65% in 2007-08.Further, if the pace of increase in sales is more than the pace of increase in debtors, it is also a symptom of fairly favorable credit policy.

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PROVISION OF BAD DEBTS TO NET DEBTORS IN LAST FIVE YEARS

year

03-04
651 6 1

04-05
582 3 9

05-06
539 3 2

06-07
632 3 6

07-08
543 3 4

Debtors Provision for doubtful debt

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ASSET TURNOVER RATIO IN LAST FIVE YEARS

YEARS ASSET TURNOVER RATIO (%) FY 2003-04 100.78 FY2004-05 110.41 FY 2005-06 108.76 FY 2006-07 77.02 FY 2007-08 106.25

ANALYSIS:
This ratio indicates the extent to which the investments in fixed assets contribute towards sales. When compared with a previous period, asset turnover ratio indicates whether the investment in fixed assets has been judicious or not. There has been an increase in the Fixed Assets Turnover Ratio; this might be due to increase in net sales or due to the acquisition of CORUS during the year2007.

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1.2.5 OVERVIEW OF THE FINANCE DIVISION OF TATA STEEL

The whole finance and accounts department of Jamshedpur is divided in different groups and sections. These were:
1. 2. 3. 4. 5. CASH OFFICE FINANCE AND COSTS PAYROLL ACCOUNTS PURCHASE AND CAPITAL GROUP SALES AND INDIRECT TAXATION

This project is related to DEBTORS MANAGEMNET, which is dealt by sales and indirect taxation group. Everything related to debtors is termed as sundry debtors work.

Sales and indirect taxation group is responsible for accounting for activities such as:

FREIGHT- OUTWARD & INWARD (ROAD AND RAIL) INVOICE INDIRECT TAXATION MATTERS (EXCISE AND SALES)

It is also related to post sales activities like debtors and town accounting. It comprises of the following sections: EXCISE SECTION FREIGHT SECTION TOWN DEBTORS SECTION OUTWARD INVOICE SECTION 71

SUNDRY DEBTORS SECTION

72

SUNDRY DEBTORS SECTION

As the name suggests, this section is responsible for the consolidated reporting of all the debts due to the company and related information to the management. The section plays a major role in monitoring the movements of debts & advising recoveries from the bills of those vendors who are also the defaulting customer of the company. Notes are often put up to the concerned profit centres to highlight probable cases of default.

ACTIVITIES OF SUNDRY DEBTORS SECTION: 73

Inter office collection (on behalf of other divisions/ profit centres /sales offices).

Updating of debtors ledger and preparation of reviews for reconciliation of debtors ledger balances with the corresponding balances as per financial accounts Updating of advance ledger maintained for tender sales and for preparation of reviews of advance ledger Updating of auction ledger and preparation of monthly review foe auction ledger

Maintenance of security deposit ledger for the purpose of refund of security deposits and for payments of interest on security deposits. Preparation of reports:

Board note on debtors (Tata steel debtors) Associated companys outstanding debtors report. VP (F) Report (Gives the detailed outstanding of all major parties). Preparation of the outstanding report for secondary products, Rings, Agrico & town. Annual Business Plan Report

The Memorandum of understanding of sundry debtors section and continuous monitoring of the performance against targets set.

OTHER ACTIVITIES:

Inputs for the credit control meeting Preparation of the minutes of the CCCM. Updating the status of the minutes of the CCCM

74

RESEARCH METHODOLOGY
2.1 Type of Research
The study is descriptive in nature in the sense that it focuses basically on analyzing the debtors management at TATA STEEL.

2.2 OBJECTIVE OF THE STUDY

The process of debtors management in TATA STEEL how the outstanding debtors are accounted & what steps and actions are taken and should be taken to recover these dues on time. Comparison of Tata Steel with other key players with respect to the debtors. Position of debtors in different industries.

2.3 SCOPE OF THE STUDY

The scope of this study is limited to the study of Debtors Management at TATA STEEL. The scope encompassed with the debtors section of the company which is a part of finance and accounting department.

75

2.4 sources of data Collection

Primary data are collected by interviewing customers and employees of TATA Secondary data are collected by using internet, magazines and text books. STEEL.

2.5 Sampling
The study was done by using the age wise analysis of debtors.

CREDIT DECISION
PROCEDURE OF CREDIT DECISION

76

WHAT IS CREDIT POLICY?

The credit policy provides the yardstick for measurement of credit level of receivables and is the indentified and compared monthly, as per the requirements. The policy is influenced by the 77

nature of market and strength of the competition. The policy clearly defines the standard for target debtor level, which in turn is a significant influence both ion payment terms and on the whole of the credit control operation, since it determines how much tolerance, if any, is to be shown to slow paying customer.

CREDIT POLICY OF TATA STEEL

TATA STEEL has a body known as credit control committee, which formulates and gives the final approval for many credit policy matters. The credit guidelines as they have emerged today are combined efforts of finance and marketing department. The credit control committee is headed by Sr.V.P & E.D (F&A) and consists of all product and sales manager from various divisions along with G.M (F&A) and other concerned executives as its members. The committee meets at least in two months. The annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with other management officials. The committee then discusses in detail about the breakup of the above lump into the credit limits for different sales offices and also for various customers i.e. both regional and party wise credit limit is set by the body. Hence the basic purpose this committee is to set the standard and also have the overall control of the credit situation, thereby keeping the financing of the working capital cost effective and preventing any liquidity problems from arising. As a general rule, credit is allowed to customer who takes large and repeated orders. One time customers are not entertained for credit.

CREDIT TERMS
Credit terms refer to the terms and conditions on which the trade credit will be made available. Thus the stipulations under which the goods are sold on credit are referred to as credit terms. These relate to the repayment of the amount under the credit sale. These terms can be finalalized after the scrutiny of number of factors. The various factors which must be taken into account are:

The seller companys place in the market and the credit terms on which it is buying from its own suppliers.

The availability of the capital it needs to finance its own credit sales and whether this is to be borrowed and if so at what cost; also the availability of capital to finance the payment of other overheads. 78

The existence of buyer and sellers market The volume of sales planned and how these will be spread over the range of customers. The profit margin to be obtained. The competitive factors. The character of the market

A.

The period the buyer will have the goods i.e. the buying companys inventory turnover and average collection period will ultimately decide the selling companys credit terms.

B.

The condition of the customer finances and the degree of the credit risk, which the credit sale will involve.

CREDIT TERMS HAS THREE COMPONENTS i. ii. iii. Credit period Credit limit Cash discount

CREDIT PERIOD: is the duration of time for which trade credit is extended. During this period the customers must pay the overdue amount. CREDIT LIMIT: is decided by the top management and varies according to the market condition. This total amount is broken up into regional limits, which is further segregated into monthly limits within which the different parties have to accommodate. This function is performed by the credit control committee as discussed above. CASH DISCOUNT: is offered to induce the customers to make prompt payments. The customers can take advantage of discount if they pay the amount within the stipulated time. These credit terms usually written in abbreviation for e.g. 2/10net 30 where:

2 signifies the rate of cash discounts (2%)

79

10 represent the time duration (10days)within which a customer must pay to be entitled to the discount

30 represent the credit period.

Credit terms of Tata steel

The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as follows:

CREDIT PERIOD: the credit period is decided on the basis of the type of the product

and is generally of fixed nature. However, special customer may be allowed a variance in the set credit period depending upon the volume of sales and customer relationships.

INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A

every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of interest for unsecured credit is1% more than the corresponding rate under secured credit . there is a penal interest of 3% over the applicable rate of interest.

Time period After 30 days After 60 days After 90 days

Secured credit 18.5% 19.5% 20.5%

Unsecured credit 19.5% 20.5% 21.5%

CASH DISCOUNT: Cash discount of 2% has also been allowed for certain products in different division. The discounts had a positive response from certain customers who had working capital problems i.e. whose inventory turnover have also ignored the discounts and debtors turnover is low or whose operating cycle is long

80

COLLECTION EFFORT: A constant touch with the customers is the best way of reminding him about his payment schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total sale is done to keep a track on debtors and cash position. Tata steel s collection efforts were not up to the mark that is the reason why outstanding of greater than six months were increasing continuously which has now improved to a great extent.

4.1TATA STEELS CREDIT MONITORING AND CONTROL

As the most of the credit is unsecured, keeping a timely vigilance on the debtors is important from the safety and the liquidity position of the firm. This primarily requires an efficient collection process because slackness in the collection efforts lengthens the average collection period, and increase the % of bad debt, for monitoring the debtors TATA STEEL is using some steps. These steps are: Preparation of a ageing schedule Calculation of days sales o/s Calculation of ACP

With the help of these, monthly reports are generated and are sent for review to credit control committee chaired by V.P (F&A). In case of secured credit where Tata Steel is also a debtor of its customers, it uses its accounts payable as tool to realize its accounts receivables. In cases, which have the symptoms of becoming the bad, a reconciliation statement is prepared and the mutual agreement arrived at. However in the worst case legal action is pursued and bad debts are not written off before five year.

FOLLOW UP
Proper follow up is done for the timely collection of debts. A daily, weekly, monthly report regarding the sales is done to keep track on debtors and the cash position. Efficient and capable Customers Accounts Managers are appointed for this purpose. Customers Accounts

81

Managers is responsible for the collection of debts and follow up of the customers. Now TATA STEEL has adopted many ways to follow-ups: Phone Fax E-mail Letters Personal visit

TATA STEEL PROVISION POLICY

DEBTORS STATUS AS ON SUMMARY AS ON DEBTORS PROVISION GUIDELINE %Age Provisions required BIFR CASES Above three years Recoverable Non Recoverable Total Below three years Recoverable Non Recoverable Total Amount of Provision outstanding required

1) a) I. II. b) I. II. TOTAL

100% 100%

100% 100%

2) c) I.

LEGAL CASE Above three years Recoverable

100%

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II. d) I. II.

Non Recoverable Total Below three years Recoverable Non Recoverable Total

100%

100% 100%

TOTAL

3) GOVT./TOWN DUES 6 month-1 year Recoverable Non Recoverable Total f) 1-2 Years I. Recoverable II. Non Recoverable Total g) Above 2 years I. Recoverable II. Non Recoverable Total TOTAL I. II. e) 0% 100% 50% 100% 100% 100%

4)SUBSIDUARY COMPANIES 6 months-2 years I. Recoverable II. Non Recoverable Total i) Above 2 years I. Recoverable II. Non Recoverable Total TOTAL h) 0% 100%

100% 100%

83

5)OTHERS j) I. II. k) I. II. l) I. II. 6 months-three years Recoverable Non Recoverable Total 3 years-5 years Recoverable Non Recoverable Total Above 5 years Recoverable Non Recoverable Total 0% 100% 100% 100% 100% 100%

TOTAL GRAND TOTAL

4.3 OPERATIONAL WORKING AT TATA STEEL FOR MANAGING DEBTORS

OVERVIEW

Managing the debtors for Tata steel is an important and chief function of the sales accounts division of finance and accounts. All the transactions of commercial nature are dealt with by this department in a detailed outline frame of working. The debtors arise each month out of the sales made on credit and suitable feeding of the required figures has to be made once in a month. This function is very much a difficult task owing to the various subsidiaries and associate companies being controlled by TISCO itself.

84

The activities of each of the companies are diverse in operations and require different policy formulations and strategies for complying with the existing market requirements. But they are controlled in a centralized manner so that they give an actual overview of the standing of the company. The profitability of each of the above is equally important to arrive at a consensus for finding out the actual earnings and future prospects. As such each of the company under subsidiary and associate is incorporated under distinct centres as Profit Centre.

To flatten the organizational structure and developed authority and responsibility for the quicker responsiveness to changing market conditions and greater initiative in dealing with different target markets, Tata steel has brought in the concept of profit centre. For all practical purpose, each profit centre functions as a separate company within the hold of Tata steel. From the debtors management point of view also each profit centre has the responsibility of appraising and dealing with its customers. However the overall control is centralized and is in the hands of the finance department. The main function which lies at the hands of Tata steel, Jamshedpur is to report such standings of the actual debtors as on a particular date to the MD in the form of a monthly report. The figures thus arrived at give an overview of which profit centres contribute the most to the debtors standing and the specific reasons for the same. Being a steel manufacturing concern, Tata steel is mainly concerned with the actual debtors arising for the following profit centres: STEEL WIRE DIVISIONS FERRO ALLOYS AND MINERALS DIVISION TUBES DIVISION BEARINGS

Each of the above profit centers have debtors of their own which are handled and managed in a centralized manner. For an example, tubes division is one of the most important division which has the maximum contribution to the total sales taking together all the profit centers at 85

a point of time. It has various parties of its own as debtors such as ESSAR STEEL LIMITED, BLUE STAR LIMITED, TATA CHEMICALS LIMITED, MECHATRONICS and many debtors. A database relating to the different parties is maintained in a pre specified format which helps in understanding the actual standing of the debtor from the point of view of the actual sale being made to the party on credit till date. This format helps in maintaining the records in a form which helps in judging the actual ageing of the debtors and the amount being recovered from the total debt. By ageing we mean to give an actual definition to the debtors in terms of how old has the debt been to him and thereby categorizing him for the purpose. A same prescribed format is used by all the profit centers for managing their respective debtors.

EXPLANATION
Through this preparation we get to know the actual total debtors figures and the major parties that have contributed to the increase and decrease in the debtors as when compared with the previous financial period. It mainly emphasizes upon the total debtors figures and the overdue debtors and their major contributors in the form of party names and figures. It also gives all list of indications for the debtors whose standing are for periods beyond six months. This reporting is crucial for the reason that it gives the management the indicative areas for focus, the reasons for a rise in debtors and suitable control for future standing which is profitable to the company as a whole.

4.3 CHANNEL FINANCING

The core objective of channel financing is to provide integrated commercial and financial solutions to the supply and distribution channels of a given industry. Channel finance gives support to the commercial relationship between our clients and their suppliers and customers. The commercial aim of the channel finance is to add value supply and distribution channels by providing unique solutions that meet our customers demand.

86

By providing short term lending to clients utilizing qualified receivables as collateral, value is added to the client by way of working capital support, reduced account receivables and improved control of the sales/ distribution channels. In addition, payables discounting serves to add value by improving supplier relationships and enhancing cash flow management. Forward and backward linkages in a business organisation play a significant role in the success or failure of the business entity. For,(say) a manufacturing or trading firm, while the suppliers of the raw material are important as they provide input for production, equally important is the role of its distributors which sell products manufactured by the firm through retailers to the ultimate consumers. Channel financing relates to ensuring that integrated financial and commercial solutions are available to the entire chain of supply and distribution that could ensure health of the firm, financed by the bank.

How channel financing is different from conventional lending?

Channel financing is different from the conventional lending since in conventional lending the financing banks are generally not concerned as how the suppliers of the firm and dealers of teh product of the firm are financing their activity. The weak financials of the supplier(leading to delay in supply and non availability of market credit)or the dealers of the product (delay in receipt of payments leading to higher book debts) could adversely impact the top line sales and bottom line profits of the financed firms. In the channel financing, the financing bank may have to find the ways and means as to how the suppliers and the buyers(dealers of the product) can be financed through various instruments/facilities. Hence, the channel financing adds value to the transaction for all the parties concerned, be it the manufacturer/trader , the supplier of the inputs or the dealer/ buyer or the financing bank.

METHODOLOGY

Through channel financing the business firms can outsource a major part of their working capital needs thereby reducing their dependence on bank finance. For instance, it need not avail of credit from the bank to pay off the supplier, if the supplier gets the finance in his own name from the bank for raw materials supplied on credit in the form of say, drawee bills financing. The bank can also allow loan to the dealer for credit term that has been fixed 87

between the firm and the dealer in the form of receivable finance or finance against book debts or factoring of receivables. This enables the manufacturing firm to get the cash immediately for the finished goods supplied. This firm functions as the principal customer which suggests the names of its suppliers and dealers to the bank. Thereafter the bank makes the a due diligence assessment of the suppliers/dealers standing credit worthiness and decides to provide finance on merit.

BENEFITS TO THE FINANCED CONCERN, THE SUPPLIER AND THE DEALERS/BUYERS

The pre and post sale of working capital requirement of the manufacturing concern would be scaled down. Such firms can concentrate more on their core competence area of production and marketing their products besides saving time and costs involved in arranging creditors and monitoring recovery. As regards the suppliers and the dealers, the major benefit is that they get payments promptly, which improve their liquidity position and cost. This also helps them as well as bank to cut level of counter party risks.

GAINS TO BANKS

The bank also gain substantially from the process of channel financing which include increased customer base, effective due diligence and smoothness of lending activity and loan origination process. Besides, the banks will be able to ensure better credit discipline. Since the risk is diversified through finance to supplier, manufacturer and the dealers, the credit exposure norms are better observed. Hence the channel financing is a very convenient tool in managing their assets portfolio.

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Credit assessment modules Cam-1(solvency) Cam-2(financials) Cam-3(technology and commercial) Cam-4(quality and credibility)

4.4 Credit assessment policy

Credit management module (based on lotus notes)
Behind every credit decision there is an inherent potential for loss informed credit decision will minimize the risk, enhance the profitability and lead to better structuring of credit. For 89

credit appraisal and risk assessment customers are broadly classified into three groups namely ORGANISED SECTOR (public and private ltd, companies including govt. undertakings)

UNORGANISED SECTOR (traders, partnership firms, SIS units etc) GOVERNMENT DEPARTMENT (defence , irrigation, power , railways, PWD, CPWD)

Credit risk assessment of the customer is assessed based on the following parameters:

ABILITY TO PAY- It is easy to assess the ability of the customer to pay and is applicable to the organized sector Solvency Financial viability
Technological soundness

Commercial feasibility WILLINGNESS TO PAY- it is based on the judgement and is applicable to both organised and unorganised sectors. This is the only criterion adopted for assessing the customers in the unorganised sectors.

The assessment criteria are: Quality of management Credibility Past performance Health of group companies

CREDIT DECISION:
Risk classification of the entry i.e. low/medium/ high Should we extend credit to this entity? 90

 If yes, the recommended credit limit The structure of the credit i.e. Secured (%) Unsecured (%)
Recommend credit as per % of the net worth Sanctioned credit limit(specify the structure and the amount)

Individual firm / company wise credit limits(in case the entity has different firms or companies)

Sales centre wise allocation of the sub limits

The assessment criteria are: 1. 2. 3. 4. SOLVENCY FINANCIAL VIABILITY TECHNOLOGICAL SOUDNESS COMMERCIAL FEASIBILITY

Depending upon the above basis Tata steel have developed a module for assessing the risk associated with each and every accounts and to judiciously take a decision based on the information available This system is based on the lotus notes applications, which have been described as below:

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Credit assessment module-1

Solvency Corporate bankruptcy prediction (Z)
ratios description result Coefficient Z X1 Working capital/ total assets Retained earnings/ total assets EBIT/ total assets A1 Z 1 Z 2

X2

A2

X3

A3

Z 3

X4

Net worth/ total liabilities

A4

Z 4

TOTAL (Z1+Z2+Z3+Z4)

CREDIT DECISION (tick the appropriate column)

LOW RISK RISK NOTE: Z SCORE ABOVE4.00 TO BE CONSIDERED AS LOW RISK 92 MEDIUM RISK HIGH

Z SCORE BETWEEN 4.00 & 2.60 TO BE CONSIDERED AS MEDIUM RISK Z SCORES LESS THAN 2.60 TO BE CONSIDERED AS HIGH RISK Z SCORE LESS THAN 1.60 IS A SIGN OF BANKRUPTCY

CREDIT ASSESMENT MODULE -2

RATIOS DESCRIPTION

Structural ratio
Debt equity ratio interest coverage ratio Debt/ equity PBIT/interest on debt

Liquidity ratio Current ratio Acid test ratio

Current asset/ current liabilities Quick asset/ current liabilities

Turnover ratio
Assets turnover ratio Inventory turnover ratio Receivables turnover ratio Sales/ total assets Sales/ inventory Sales /receivables

Profitability ratio
Gross profit ratio Net profit ratio PBIT/sales PAT /sales

Credit decision (tick the appropriate column)

LOW RISK MEDIUM RISK HIGH RISK

Note: 1& 2 year are immediately preceding financial years

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 A high debt equity ratio and increasing trend of this ratio is a common trait among the failing companies. No ratio should be interpreted in isolation and the credit decision should be taken after reviewing the ratios in totality.

FINANCIAL VIABILITY: Understanding the ratio

CURRENT RATIO: Current ratio of the business concern indicates the availability of its current assets to meet its current liabilities. Higher the ratio better is the coverage. A relatively higher current ratio indicates that the firm is liquid and has the ability to fulfill its current obligation on time. An increase in the current ratio represents an improvement in the liquidity position and vice versa. A ratio equal to 1:1 is considered to be satisfactory. ACID TEST RATIO: high acid test ratio is an indication that the LiquidityA ratio firm is liquid and has ability to meet its current or liquid liabilitiesor inthe time and vicesolvency versa. As convection, athe ratio of 1:1 Liquidity short term means ability of is considered to short be satisfactory. business to pay its term liabilities. Inability to payoff short term liabilities affects its credibility as well as credit rating. Continuous default on the part of business leads to commercial bankruptcy. Eventually such commercial bankruptcy may lead to its sickness and dissolution. Creditors are very much interested to know its state of liquidity because of their financial stake.

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It measures the long term stability of the firm. These ratios indicate the mix off funds provided by owners and lenders and assures the lenders of the long term funds with regard to: Periodic payment of interest during the period of loan and Repayment of principal amount on maturity

DEBT EQUITY RATIO

dc

These ratios provide an insight into the financing technique used by the business and focus, as a consequence on the long term solvency position. This ratio indicates the proportion of debt fund in relation to equity. It indicates proportionate claim of owners and outsiders against the firms assets. Creditors are very keen to know this ratio since it shows the relative weight of debt and equity. A ratio of 1:1 is considered to be a satisfactory ratio. However the creditor would prefer the lower one. INTEREST COVERAGE RATIO It indicates the firms ability to interest obligations. Long term creditors of the firm are interested in knowing the firms ability to pay interest on long term borrowing. Generally, higher the ratio safer is the creditor because even if the earnings fall, the firm will be able to meet its commitment of fixed interest charge. A lower ratio indicates excessive use of debt and inefficient operations.

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TURNOVER RATIO

WORKING CAPITAL RATIO

DEBTORS TURNOVER RATIO

INVENTORY TURNOVER RATIO

WORKING CAPITAL RATIO: Working capital ratio establishes the relationship between

sales and working capital. It measures the efficiency of utilization of working capital. The higher is the ratio, lower is the investment in working capital & greater are the profits. DEBTORS TURNOVER RATIO: Indicates the relation between net credit sales &

average accounts receivables of the year. The ratio indicates the efficiency of the concern to collect the amount due from the debtors. Higher the ratio, better it is as it proves that debts are collected quickly. INVENTORY TURNOVER RATIO: It indicates that how fast inventory is used/ sold. It measures the efficiency of the firm in selling its products. A high ratio indicates efficient management of inventory because more is frequency of selling the stock. Low inventory turnover ratio indicates over investment in inventory, slow business, poor quality of good, stock accumulation, accumulation of obsolete slow moving stock and low profit compared to total investment. DEBT COLLECTION PERIOD: Indicates the average time taken to collect trade debts. In other words, a reducing period of time is an indicator of increasing efficiency. It enables the enterprise to compare the real collection period with the granted/theoretical credit period

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CREDIT ASSESSMENT MODULE -3

TECHNOLOGICAL AND COMMERCIAL
STRONG Technological Product quality Product mix Technological know how Power availability Process suitability Plant / equipment MEDIUM WEAK

Credit decision (tick the appropriate one) LOW RISK RISK MEDIUM RISK HIGH

CREDIT ASSESMENT MODULE -4

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Quality and credibility of management (Willingness to pay)

strong
Quality of management
Track record Market reputation Experience in field Ownership dispute Technical competence

medium

Weak

Credibility of management
Ethical in business dealings Commitment level Relationship with regulatory authorities Relation with bank Relation with competitors

Past performance with us

Length of sound dealing Promptness in payment Honouring commitments Payment patterns &

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adherence to credit terms Willingness s to furnish information Capacity to hold stocks Ability to absorb supply spikes Avoidance of over trading

Health of group companies

Financial soundness of group companies

Possible diversion of funds to new business ventures Bank rating

Credit decision (tick the appropriate column)

LOW RISK HIGH Risk

MEDIUM RISK

CREDIT DECISION MODULE

Module CAM-1 CAM-2 CAM-3 Criteria solvency Financials Technical & commercia 99 Low Risk Medium Risk High Risk

CAM-4

l Quality & credibility

Notes:
Maximum weight age should be given to criteria no 1 & 2 for customers in organised sector In case of a new company, financial datas may not be available and hence it is suggested that the promoters past record and performance of the group companies should be considered as guide. In case customers in organized sector, criteria 1 & 2 are relevant In case of government department past performance, repayment patterns and adherence to credit. Discipline should be considered as guide as others criteria are not relevant.

3.5 Understanding the debtors process system

During this project I got an opportunity to become a part of an ongoing project understanding the debtors process system &Recovery of Outstanding of TATA MAIN HOSPITAL (medical services provided by TATA STEEL to its employees and to its other associates). This project is basically to get in touch with the customers and finding out the reason for their default of payment. Four trainees. (Nidhi Kedia, Shital Verma, Abhinav Kumar, Binita Gupta) were selected as a part of this ongoing project at Tata steel, finance & A/c s dept, guided by Mr. K.S.M. Mathew (Head Sales & EPA a/c) TATA MAIN HOSPITAL (TMH) was introduced in 1908 and restructured in 1909 and as the days passed, TMH is now a days the biggest hospital in the city with most appropriate 100

and valuable services to the city. This hospital has the most sophisticated equipments for the investigation of medical purposes with well experienced Doctors, Specialists, Surgeons, Facilities & sufficient no. of Medical and non Medical Staff. TATA STEEL and its associates provide free services to their employees and their dependants through TATA MAIN HOSPITAL, for these services companies are paying to hospital. In this process TMH has accumulated a huge outstanding from its corporate customers, even after TATA STEELS reminder calls customers are not paying their outstandings. So TMH has stopped its services for a day, for that company whose books of accounts showed outstandings for a long period. The GURU MANTRA of the project was DMAIC (Determine, Measure, Analysis, Implementation and check/control). The whole process consisted of eight steps:
Step 1.Take out Customer wise Statement Step 2. Collect the Outstanding list Step 3. Reconcile and identify the bills pending Step 4. Take Print outs of Bills - As duplicate copy Step 5. Fix an appointment with the Customer Step 6.Finalise Reconciliation with customer Step 7. Collect Money Step 8.Make documents for write off proposals if required

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PROJECT ACTIVITY CHART

102

103

THREE MAJOR AREAS AND THEIR RESPECTIVE ACTIVITIES:

The project is still in progress and yet to complete the last three steps. The report submitted by our team was appreciated by everyone at TMH and TATA STEEL. We prepared a detailed report of our findings and made Management System Chart for all the organizations to show how their work flow is going on and who is responsible for any particular work done in concerned company related to medical services. A copy of detailed report we have submitted in the company. After this we are asked by our guide to give a presentation (related to customers complains and suggestions) before MANAGING DIRECTOR (Dr. Ray) of TMH and the management. On the basis of management system chart, which we had made, concerned persons of associated companies will be called for a meeting with all their records and TATA STEEL accounts and finance division also will be ready with their records to cross check the bills and records. When the cross check will be done a signature will be taken from the concerned person and dues will be collected. 104

Comparative analysis of Tata steel with other STEEL companies

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5.1 STEEL AUTHORITY OF INDIA LIMITED (SAIL)

Steel Authority of India Limited (SAIL) is a company registered under the Indian Companies Act, 1956 and is an enterprise of the Government of India. It has five integrated steel plants at Bhilai (Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro (Jharkhand) and Burnpur (West Bengal). SAIL has three special and alloy steel plants viz. Alloy Steels Plant at Durgapur (West Bengal), Salem Steel Plant at Salem (Tamil Nadu) and Visvesvaraya Iron & Steel Plant at Bhadravati (Karnataka). In addition, a Ferro Alloy producing plant Maharashtra Elektrosmelt Ltd. at Chandrapur is a subsidiary of SAIL. SAIL has Research & Development Centre for Iron & Steel (RDCIS), Centre for Engineering & Technology (CET), SAIL Safety Organisation (SSO) and Management Training Institute (MTI) all located at Ranchi; Central Coal Supply Organisation (CCSO) at Dhanbad; Raw Materials Division (RMD), Environment Management Division (EMD) and Growth Division (GD) at Kolkata. The Central Marketing Organisation (CMO), with its head quarters at Kolkata, coordinates the country-wide marketing and distribution network. SAILs steady ascent has been facilitated by all round improvement in performance. SAIL today presents a picture of dynamic and buoyant business entity moving ahead to maintain and Consolidate its leadership position in the fast growing Indian steel sector. SCOPE Gold Trophy for Excellence and Outstanding Contribution to the Public Sector Management institutional category for the year 2004-05,Businessworld-FICCISEDF Corporate Social Responsibility Award 2006, and several other awards to SAIL, bear testimony to the organizations efforts towards improving efficiencies.

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Tata steel vs. SAIL

OPERATING MARGIN
OPERATING MARGIN (%) YEARS TATA STEEL SAIL

FY 2003-04 32.47 20.71

FY2004-05 41.1 36.53

FY 2005-06 38.88 23.24

FY 2006-07 39.61 28.09

FY 2007-08 41.94 28.19

ANALYSIS: From the above graph, it is clear that TATA STEEL has been always in a better position in terms of operating margin profit (%) when compared to SAIL. From 32.47% in 2003-04 to 41.94% in 2007-08 TATA STEEL has proved itself. Whereas SAILs operating margin profit% has been just 20.71% in year 2003-04 to 28.19% in 2007-08.

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TREND OF CURRENT RATIO IN LAST FIVE YEARS

CURRENT RATIO YEARS TATA STEEL SAIL FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08 0.68 0.71 0.72 1.77 3.92 0.91 1.18 1.23 1.59 1.73

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ANALYSIS: An ideal current ratio is 1:1. When compared to SAIL, current ratio of TATA STEEL is not a desirable one. In the year 2007-08 the ratio is very high which is not desirable since it means

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there was less efficient use of funds which was lowering down the profitability of the concern. In case of SAIL the ratio is almost coming closer to the ideal ratio.

QUICK RATIO

QUICK RATIO YEARS TATA STEEL SAIL FY 2003-04 0.39 0.57 FY2004-05 0.33 0.76 FY 2005-06 0.29 0.72 FY 2006-07 1.37 1.01 FY 2007-08 3.52 1.23

ANALYSIS: Quick ratio shows short-term solvency of a business in a true manner. It is also called acidtest ratio and liquid ratio. It is calculated in order to know how quickly current liabilities can be paid with the help of quick assets. Quick assets mean those assets, which are quickly convertible into cash. While comparing TATA STEEL with SAIL it can be clearly seen that TATA STEEL is in a better position. SAILs ratio as on 2003-04 was 0.57 which increased to 1.23 in 2007-08. When compared to TATA STEEL it is clear that the increase in the ratio is more than that of SAIL. 110

DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO YEARS TATA STEEL SAIL FY 2003-04 12.47 13.64 FY2004-05 15.73 16.64 FY 2005-06 16.52 15.12 FY 2006-07 17.32 16.77 FY 2007-08 12.74 15.52

ANALYSIS:
Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. This ratio is also known as Debtors Velocity. This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio, better it 111

is as it proves that the debts are being collected very quickly. TATA STEEL and SAIL both has an increasing trend in debtors turnover ratio when compared to last five years.

TREND AVERAGE COLLECTION PERIOD IN LASTFIVE YEARS

AVERAGE COLLECTION PERIOD YEARS TATA STEEL SAIL FY 2003-04 29.24 26.75 FY2004-05 23.19 21.93 FY 2005-06 22.089 24.12 FY 2006-07 21.06 21.75 FY 2007-08 28.64 23.51

ANALYSIS:
This ratio indicates how quickly and efficiently the debts are collected. The shorter the period the better it is and longer the period more the chances of bad debts. Although no standard period is prescribed anywhere, it depends on the nature of the industry. In case of TATA 112

STEEL & SAIL, the average collection period has decreased when compared to 2003-04 to 2007-08, but SAIL has less chance of bad debt since its average collection is 23.51 days as& when compared to TATA STEELs average collection period of 28.64 days.

5.2 Arcelor Mittal

ArcelorMittal is the world's leading steel company, with operations in more than 60 countries. ArcelorMittal is the leader in all major global steel markets, including automotive, construction, household appliances and packaging, with leading R&D and technology, as well as sizeable captive supplies of raw materials and outstanding distribution networks. With an industrial presence in over 20 countries spanning four continents, the Company covers all of the key steel markets, from emerging to mature.Through its core values of sustainability, quality and leadership, ArcelorMittal commits to operating in a responsible way with respect to the health, safety and wellbeing of its employees, contractors and the communities in which it operates. It is also committed to the sustainable management of the environment and of finite resources. ArcelorMittal recognises that it has a significant responsibility to tackle the global climate change challenge; it takes a leading role in the industry's efforts to develop breakthrough steelmaking technologies and is actively researching and developing steel-based technologies and solutions that contribute to combat climate change. In 2008, ArcelorMittal had revenues of $124.9 billion and crude steel production of 103.3 million tonnes, representing approximately 10 per cent of world steel output. ArcelorMittal is listed on the stock exchanges of New York (MT), Amsterdam (MT), Paris (MT), Brussels (MT), Luxembourg (MT) and on the Spanish stock exchanges of Barcelona, Bilbao, Madrid and Valencia (MTS).

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Tata steel vs. ARCELOR MITTAL (MITTAL STEEL)

TREND OF CURRENT RATIO IN LAST FIVE YEARS
CURRENT RATIO YEARS TATA STEEL MITTAL STEEL FY 2003-04 0.68 1.54 FY2004-05 0.71 2.02 FY 2005-06 0.72 1.6 FY 2006-07 1.77 1.41 FY 2007-08 3.92 1.44

Analysis:
Current ratio shows the short-term financial position of the business. The current ratio of ARCELOR MITTAL is better when compared to TATA STEEL. The ideal current ratio is 1:1.this signifies the ability of the company to pay off its current liabilities. More the ratio indicates idleness of working capital. 114

DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

YEARS TATA STEEL MITTAL STEEL FY 2003-04 12.47 13.53 FY2004-05 15.73 11.71 FY 2005-06 16.52 10.04 FY 2006-07 17.32 10.99 FY 2007-08 12.74 14.64

Analysis:
Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. This ratio is also known as Debtors Velocity. This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio, better it is as it proves that the debts are being collected very quickly. TATA STEEL and ARCELOR MITTAL both have an increasing trend in debtors turnover ratio when compared to last five years. But MITTAL has a better turnover ratio than TATA STEEL.

AVERAGE COLLECTION PERIOD

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Average Collection Period YEARS TATA STEEL MITTAL STEEL FY 2003-04 29.24 26.97 FY2004-05 23.19 31.14 FY 2005-06 22.089 36.34 FY 2006-07 21.06 33.21 FY 2007-08 28.64 24.91

Analysis: This ratio indicates how quickly and efficiently the debts are collected. The shorter the period the better it is and longer the period more the chances of bad debts. Although no standard period is prescribed anywhere, it depends on the nature of the industry. In case of TATA STEEL & SAIL, the average collection period has decreased when compared to 2003-04 to 2007-08

4.3 JINDAL STEEL AND POWER LTD.

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It has been a momentous journey for the O P Jindal Group from its small beginnings to becoming one of the most respected business and industrial houses today. In 1952, O.P. Jindal wondered why steel pipes could not be made in India when he spotted one with foreign markings. He got working on the idea and started a small pipe unit at Liluah in Howrah district of West Bengal. No one at that point of time dreamt where this visionary would take this humble beginning. Today, O P Jindal Group is a US$ 10 billion conglomerate. Jindal Power Limited (JPL), a subsidiary of JSPL, has set up a 1000 MW power project at Raigarh, the first Mega Power Project of India in private sector. JPL has planned more hydro and thermal power projects and has an aggressive blueprint to increase domestic power production to help in contributing towards achieving Government of India's goal of 'affordable power for all by 2012'.

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TATA STEEL vs. JINDAL STEEL & POWER LTD

OPERATING MARGIN PROFIT
OPERATING MARGIN PROFIT (%) YEARS TATA STEEL LTD. JINDAL STEEL AND POWER LTD FY 2003-04 32.47 37.42 FY200405 41.1 40.65 FY 2005-06 38.88 40.26 FY 2006-07 39.61 40.01 FY 2007-08 41.94 42.76

Analysis:
The trend shows there is an almost stagnant range for JSP. From 37.42% in the year 200304,it increased to 42.76% in 2007-08. In case of TATA STEEL there was a steep increase in 2004-05 but then the operating margin profit decreased for two consecutive years and finally in the year 2007-08 it reached to 41.94%.from 32.47% in year 2003-04,it increased more than 9% till 2007-08.

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TREND OF SALES IN LAST FIVE YEARS

FY 200304 12372.53 1550.24 FY200405 17414.52 2775.32 FY 200506 22272.14 3273.93 FY 200607 FY 200708 134089.0 27437.29 2 4338.54 6822.42

SALES TATA STEEL JSPL

ANALYSIS:
The trend of sales of TATA STEEL AND JINDAL STEEL AND PWER LTD. has been increasing year after year, but when both are compared, the increase in sales of TATA STEEL is more than JINDAL. From Rs.12372.53 crores in year 2003-04, TATA STEEL sales has reached Rs.134089.02 crores in 2007-08.whereas in case of JINDAL STEEL AND POWER LTD. the sales wasRs.1550.24 crores in 2003-04 which increased only toRs.6822.42 crores.

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DEBTORS TREND IN LAST FIVE YEARS

DEBTORS TREND YEARS TATA STEEL JSPL FY 2003-04 810.23 212.65 FY200405 1402.94 174.67 FY 2005-06 1292.81 300.71 FY 2006-07 1874.55 324.34 FY 200708 19169.05 359.19

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TREND OF CURRENT RATIO

FY 200304 0.68 1.21 FY200405 0.71 1.35 FY 2005-06 0.72 1.26 FY FY 2006-07 2007-08 1.77 1.13 3.92 1.56

CURRENT RATIO TATA STEEL LTD. JINDAL STEEL AND POWER LTD

Analysis:
This ratio is also called working capital ratio. This ratio explains the relationship between current assets and current liabilities of a business, where current assets are those assets which are either in the form of cash or easily convertible into cash within a year. Similarly, liabilities, which are to be paid within an accounting year, are called current liabilities. Current ratio shows the short-term financial position of the business. This ratio measures the ability of the business to pay its current liabilities.

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DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO TATA STEEL LTD. JINDAL STEEL AND POWER LTD FY FY2004 FY 2005- FY 2006- FY 20072003-04 -05 06 07 08 12.47 15.73 16.52 17.32 12.74 8.19 14.33 13.77 13.87 19.96

Analysis:
Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. This ratio is also known as Debtors Velocity. This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio, better it is as it proves that the debts are being collected very quickly. TATA STEEL and JSPL both have an increasing trend in debtors turnover ratio when compared to last five years. But JSPL has shown a better performance in last five years.

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AVERAGE COLLECTION PERIOD

Average Collection Period YEARS TATA STEEL JSPL FY 2003- FY2004- FY 2005- FY 2006- FY 200704 05 06 07 08 29.24 23.19 22.089 21.06 28.64 44.55 25.46 26.49 26.3 18.28

ANALYSIS:
This ratio indicates how quickly and efficiently the debts are collected. The shorter the period the better it is and longer the period more the chances of bad debts. Although no standard period is prescribed anywhere, it depends on the nature of the industry. In case of TATA STEEL & JSPL, the average collection period has decreased when compared to 2003-04 to 2007-08.but Jindal has decreased more than half of the average period from 2003-04, which was 44.55days to 18.28 days in 2007-08. Whereas in case of TATA STEEL, the average collection period was 29.24 days in2003-04 which reduced to 28.64 days only in 2007-08.

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Recession is the economy shrinking for two consecutive quarters (=6 months) with a decrease in the GDP (=Gross Domestic Product). GDP = Value of all the reported goods and services produced by the people operating in the country. GDP is a good indicator of economy; other indicators could be; Unemployment Rate Consumption Rate Actual Personal Income etc...

If GDP is growing, then market is growing due to increased demand; In economics, a recession is a general slowdown in economic activity over a sustained period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way. A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment, investment, and corporate profits.

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A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different.

Tata steel & recession

The steel industry has not been spared with the impacts of the financial crises. The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth. Indias share in world production of crude steel increased from 1.5% in 1981 to around 7.3% in 2008. The private sector is considered engine of growth in the steel industry and technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India.

Recession will have a positive effect: Tata Steel MD

NewKerla.com reported that TATA Steel MD gave tips to defeat the deadly slowdown, which has created a slowdown in not only the Industrial sector but all walks of life. Mr. Muthuraman said that The year 2008 has been an unprecedented one in recent history starting on a very high note and ending with a deep and wide global economic downturn. The year 2009 will be a challenging one for all of us. I urge all of you to take the New Year as an opportunity rather than threat. World's sixth largest steelmaker Tata Steel Managing Director B Muthuraman claimed that despite global slowdown in the steel sector, the company in India would increase its total production this year. Talking to reporters here after participating in Dr. J J Irani award for excellence in education programme, Mr. Muthuraman said, ''The recession has a positive impact on us. We are going to increase our production this year. We are also going to pay more salary to our employees. '' Later, Tata Steel vice president (corporate-services) Partho Sengupta said the company was selling its products at premium rates and there was no order shortage. ''We are moving ahead with our expansion plans as scheduled. By the year-end, our production capacity in India will 126

increase to 6.4 MT from 5 MT. The recession is not a new thing to us. This time also, we will tide it over as we have done in the past. '' He said there was no plan for production cut or employee reduction due to slowdown.

5.1 Tata Steels game plan to beat recession

Beating the recessionary trends in the market, Tata Steel plans to make and sell 20 per cent more steel in the current fiscal, its Managing Director B. Muthuraman said. He said he was not happy with the steel prices, but he was hopeful of a marginal recovery in prices by the third quarter. Addressing a press meet, he said Europe and the U.S. were badly hit by the global meltdown and the companys operations in Europe had responded to the market place in a swift and efficient manner effecting cost-savings and tuning itself fast to customer requirements. The measures taken had translated into cost savings of 650 million pound in fiscal 2009, which were expected to increase to one billion pound in 2009-10, he said. Mr. Muthuraman also revealed the companys plans on securing raw material supplies for its European operations through partnerships in South Africa, Canada and Mozambique. Our strategy is to look at small mines so that major capital outlay is not required, he said. Mr. Muthuraman said the Rs. 15,000-crore Jamshedpur expansion plan, involving a new blast furnace, would be ready by April 2010, while work on the new project in Orissa would commence after the elections and as soon as it got iron ore allocation from State Government. He admitted that the project had been delayed by over two years but said that this was mainly because the company was waiting for iron ore allocation from the Government. In Seraikela in Jharkhand, the company was beginning to get land and had applied for iron ore allocation, although there seems to be little activity on that front. On the current years sales plan, the Managing Director said the company was planning capacity exploitation above its nameplate capacity and sales were being targeted at 6.4 million tonnes against 5.2 million tonnes in the previous year. Elaborating on the programme to develop overseas mines, he said there were three projects on the anvil A two million tonne iron ore project in South Africa, being developed through a partnership, a four million tonne 127

iron ore project in Canada and a coal block in Mozambique with estimated reserves of one billion tonnes. Production from these projects would commence between 2010 and 2011, he said.

5.2 RECESSION.!!!
26 June 2009,

AFTER

"The recession in world demand looks deeper than what we thought six months ago," Managing Director B.Muthuraman told a news conference. Global steel production has tumbled this year, as demand in key steel consuming sectors such as construction and automotive shrank, forcing steelmakers such as Arcelor Mittal to sharply reduce capacity. In April, the World Steel Association forecast steel demand would tumble 15 percent in 2009, its steepest fall since World War II. Tata Steel reported a net profit after minority interest and share of profit of associates of 49.5 billion rupees ($1.02 billion) in 2008/09, compared to a consolidated net profit of 123.5 billion rupees reported a year ago. Consolidated net sales for the year rose to 1.46 trillion rupees from 1.31 trillion rupees reported a year earlier. That compared with a forecast for net profit of 84.23 billion rupees, on net sales of 1.5 trillion in a Reuters poll of six brokerages. Tata Steel did not release quarterly figures. A Reuters calculation showed it suffered a consolidated loss of about 45.4 billion rupees in the January-March quarter. Nine month consolidated profit stood at 94.86 billion rupees, on net sales of 1.2 trillion.

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Tata Steel it took a restructuring and impairment charge of $805 million in the year for its Europe operations. It said profits would have been lower by 54.97 billion rupees had it charged changes in its actuarial valuations on its European employee pension plan to the profit and loss account instead of the reserves and surplus account. Tata Steel, which last month won approval from banks to ease conditions on 3.7 billion pounds of loan it took to buy Corus, said it had strong liquidity and no material repayment obligations or refinancing for the next 12 months. It said it had cash and equivalents of $2.1 billion on June 20 and an undrawn bank facility of $1.3 billion. Shares in Tata Steel ended down 2.1 percent at 397.95 rupees, ahead of the results, in a Mumbai market that fell 0.5 percent. The shares are up 85 percent so far in 2009 after tumbling 77 percent in 2008. Tata Steel it took a restructuring and impairment charge of $805 million in the year for its Europe operations. It said profits would have been lower by 54.97 billion rupees had it charged changes in its actuarial valuations on its European employee pension plan to the profit and loss account instead of the reserves and surplus account. Tata Steel, which last month won approval from banks to ease conditions on 3.7 billion pounds of loan it took to buy Corus, said it had strong liquidity and no material repayment obligations or refinancing for the next 12 months. It said it had cash and equivalents of $2.1 billion on June 20 and an undrawn bank facility of $1.3 billion. Shares in Tata Steel ended down 2.1 percent at 397.95 rupees, ahead of the results, in a Mumbai market that fell 0.5 percent. The shares are up 85 percent so far in 2009 after tumbling 77 percent in 2008. 129

Articles from the newspapers

India aiming to double steel production by 2011-12
Sunday, 14 December 2008

India is aiming to more than double its steel production to 124 million tonnes by 2011-12 and further raise it to 280 million tonnes by 2020, Steel Minister Ram Vilas Paswan told Rajya Sabha today. Replying to supplementary during Question Hour, Paswan said India ranked eighth in world steel production when UPA Government took office in 2004 and has today climbed to 5th spot with 54 million tonnes of annual steel production. "Our National Steel Policy had targeted 124 million tonnes of steel production by 2020. But we have now brought the target forward to 2011-12 and for 2020 we are aiming to raise production capacity to 280 million tonnes," he said. Steel Ministry, he said, was of the view that high quality iron ore, the reserves of which in the country are very limited, should not be exported or their export discouraged through high export duties. The exports cannot be fully stopped as iron ore mines employ some 500,000 people and their employment cannot be risked, he said adding export duty on iron ores has already been levied. The global economic slowdown has seen growth in steel consumption in the country fall to 1.75 per cent from a high of 13 per cent. Also, prices of steel products have fallen since June. Paswan said his Ministry has been holding consultations with the industry and recently the Government rolled back export duty on all categories of steel items, except melting sap, to help producers tide over fall in consumption levels in the country. STEEL IMPORT STRENGTHEN 70% IN NOV
(Source-economic times 13th December)

Indias steel imports jumped more than 70% to 1.4 mn tonnes last month against 8 lakh tonne in the same month a year ago. The sharp rise in imports was due to low-priced shipments 130

coming from China, Thailand and Ukraine into India at $450-500 per tonne, 25% cheaper than the international price, then ruling at $600-700 per tonne. The steel ministrys Joint Planning Committee that collects data on iron and steel on a monthly basis shows that steel imports dipped 10.7% to 5.25 million tonnes in April-October against 5.88 million tonnes in the corresponding period a year ago. Availability of low-priced imports from some countries resulted in huge imports in November. This happened when domestic steel makers were cutting production due to lower demand. Last month, the government imposed 5% import duty on steel products to protect domestic industry against cheap imports. But steel producers feel the move is insufficient to bring down imports as china as withdrawn export tax on some steel products to get rid of surplus stock. The government has also initiated investigation into dumping from China but steel firms feel its a lengthy process and will take at least 8-9 months to complete.

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SUGGESTIONS
1. Though SAP is implemented in the company, it is not fully implemented in town division, because of which lot of manual work is done. If SAP is implemented then this problem would be solved. 2. The state government & other government departments are another problem area in town division. The company must send frequent reminders, ex-once in 15 days that they have to pay their dues. The company must negotiate with the government about their repayment of dues. 3. The company is facing problem in collecting the medical bills from corporate customers. The company must make the list of defaulter in medical bills, which must be kept with the concern authority. The person in charge must see that the defaulter must not be entertained, even though it is an emergency case, until he pays his old dues. 4. The selection of customer must be done carefully, by properly checking the companys background, its repayment capacity etc. The company should rate the parties by seeing its past performances. These ratings must be updated every year. 5. Channel financing is a way through which problems of dues can be controlled to a great extent but it should be taken care that the company wont be liable for any default made by the middle person. 6. Now a day, it has become a normal practice of appointing a third party for collection of dues which should be taken into account as it removes the burden of collection for the company. Proper agreement between the third party and the company should be formulated in which all the terms and conditions must be mentioned. It should be without recourse and a third party should be legally appointed, thus not hampering the goodwill of the company and also taking care of the collection process.

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6.2 LIMITATION OF THE STUDY

1) The time horizon is very short, so in depth analysis could be done only of few schemes. The project is dependent on the relevance of the secondary data (e.g. Annual reports of various companies) collected from the internet which might not be correct. The study has been done on only a handful of data so it cannot be generalized to the entire industry.

2)

3)

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6.3 SWOT ANALYSIS OF DEBTORS MANAGEMENT PROCESS AT TATA STEEL

STRENGTHS:

With the implementation of ERP (enterprise resource planning) system SAP in

November 99 the credit control methodology at TATA STEEL, JAMSHEDPUR has become a centralized function which has given a several advantage to the company like, integrated work culture, accurate results, quick updates and many more. The most important of them is it facilitates better control over debtors.
The company has classified its customers into well defined categories and has laid

down guideline for evaluating their credit worthiness on an individual basis. The SAP integration helps the company n classifying each debtor into specific business areas for tracking the records of various parties regarding amounts due to them and receipts made from time to time. This facilitates the controlled and systematic process of evaluation of the current state of debtors. The entire debtors management process at TATA STEEL is aimed at finding out the state of affairs of debtors of steel products of the company including FAMD (FERRO ALLOYS AND MINERAL DIVISION) TUBES DIVISION, WIRE DIVISION AND BEARING DIVISION. This enables the reporting authorities in focussing their attention in one common direction and as such they strive to improve the performance in each category.
The reporting authorities at Tata Steel prepare a monthly report of the current debtors

standing to be presented to the higher officials. This enables the company to track the party status regarding the payments made, in a constant manner. This report is presented to the Chief Operating Officer and VPs of the related areas like flat and long products.

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 The credit management group does an in-depth analysis on the debtors arising. The company also has a well defined policy for provision for bad and doubtful debts and initiation of legal action. This enables the company to keep a better control on the overdue. The responsibility of reviewing the collection process lies with the credit management group. This reduces the burden of marketing executives.
The sales of the company have been increasing year by year while the debtors have

decreased as compared to it. The company has also been able to increase its receivable turnover ratio. All these practices indicate that the credit management at Tata steel is highly efficient and flexible enough to meet the future changes. The company tries all the possible options for recovery of the debt before initiating legal action. It adopts such policies of recovering the amounts, which otherwise would have not been possible had company gone for legal action. WEAKNESS: An entire transaction with a party is a combination of sales and credit period. The credit period is generally fixed but there are deviations in few cases. The parties to whom sales have been made on credit have to be given constant reminders although the financial state of the concern is sound to pay off the debt. As such the credit worthiness of the parties has to be judged rigours terms which affect the party concerned. In the current market scenario, when the demand for the steel is in a boom phase, credit sales form a major percentage of the total sales being made by Tata steel .Hence the company should formulate norms or policies which facilitate cash and carry business in this market situation to sustain a worthy competition. OPPORTUNITY Following the success story of Tata steel, its other divisions and subsidiaries are also following the process of credit evaluation similar to that of the steel division .But extreme level of competency is required to derive the maximum benefits as they are unable to exercise the same kind of control on the overdue.

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 The company should try to implement SAP in this division as well. This will highly benefit the performance of the entire company as a whole. The employees should be encouraged and motivated to contribute their ideas and suggestions towards using the system more effectively. The Company should make continuous efforts to increase their volume of exports because credit given in the international market is better secured and the risks too are minimal as compared to domestic market.

THREATS The company should ensure that the employees dont develop the feeling of complacency due to good performance in credit management after the implementation of SAP. They must be encouraged to keep themselves well informed about the practices being followed by the competitors and be receptive to new idea.

6.5 Views of Debtor Management Expertise

Paul Bailey, Managing Director Cash Flow Doctors Ltd Debtor management: Pauls top tips for a thriving business in 2009 1. Ask for payment. Its surprising how many people dont actually ask for the money. 2. If youre giving credit, have a written contract your Terms of Trade in place. 3. Use a third party for the right reasons. Your third party should be a normal part of your debtor management process rather than the collection means of last resort. 4. Take action early. When an account comes overdue move your company up the debtors priority list. The squeakiest wheel gets the most oil. 136

5. When you first sign up a new client always ask for their full name. We recommend you have some sort of form to capture these details. You are unable to list debtors as defaulters unless a full name is given. If you dont have a full name, it turns the big stick of the threat of an adverse credit rating into an ineffective twig. Professional, and unethical debtors are aware of listing requirements and will take full advantage of the fact that their full names are not known. 6. Use your diary or electronic calendar in Outlook to remind yourself to follow up on payments. 7. Register on the Personal Properties Securities Register. This is a government website that collects security interests onto a single register and allows you to retain a financial interest in goods you sell. 8. Keep records of debtor contacts. Whilst they need to be persistently and consistently recorded they dont need to be flash and fancy. They should be simple and practical enough for you to use every day.

Conclusion

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Working capital cycle, also known as the asset conversion cycle, operating cycle, cash conversion cycle or just cash cycle, is used in the financial analysis of a business. Each component of working capital (namely inventory, receivables and payables) has two dimensions TIME and MONEY. When it comes to managing working capital, TIME IS MONEY. If you can get money to move fester around the cycle (collect monies due from debtors more quickly) or reduce the amount of money tied up (i.e., reduce inventory level relative to sales). The business will generate more cash or it will need to borrow less money to fund working capital. In the same way that stock control is a vital aspect of working capital management, so too is debtors' control. Many businesses need to sell their goods on credit, otherwise they might find it difficult to survive if their competitors provide such credit facilities; this could mean losing customers to the opposition. Nevertheless, since industries do provide credit, they do so as optimally as possible. The word used is 'optimal' before and let me confirm that it doesn't necessarily mean the best possible, but the best possible under the circumstances. A key strategy in lowering bad debt is reducing the time to recover the invoiced amounts.Together with stock days; debtor and creditor days are a crucial link between the company's income statement, its balance sheet and its cash-flow. While in the income statement a company can book sales and profits to its heart's content, if it is slower than before at collecting its bills and suppliers demand faster payment, then cash

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receipts will not reflect the trend in profits. It is this divergence between profits and cash that is often the biggest and best signal that a company might be in trouble. As with some other ratios, the absolute level of debtor and creditor days is less important than the trend over time and how the company compares with its competitors, particular the leader in the industry. If a company's performance in this area is inferior to its competitors (that is, it collects its overdue invoices slower and is forced to pay its own debts faster) it is a sign of weakness. Deterioration in credit control over time is a worrying trend in any business. It merits closer monitoring by investors than it sometimes gets.

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BIBLIOGRAPHY
Websites www.tatasteel.com www.tatasteel100.com www.economywatch.com www.businesslink.gov.uk www.studyfinance.com www.financialexpress.com www.worldsteel.org/?action=programs&id=64 www.indianindustry.com http://steel.nic.in/ http://en.wikipedia.org/wiki/steel www.newssteel.com

Magazines TATA SEARCH, 2007, VOLUME-2 TATA REVIEW, MAY-2008 ECONOMIC TIMES, EXIM NEWSLETTER ANNUAL REPORT OF TATA STEEL Books Financial management KHAN & JAIN Working capital management HRISHIKES BHATTACHARYA

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