A COMPARATIVE STUDY ON

WORKING CAPITAL MANAGEMENT

OF
TATA STEEL LTD. AND STEEL AUTHORITY OF INDIA
SUBMITTED BY

Manoj Kumar nayak

(ROLL NO. 8117B254)
UNDER THE GUIDANCE OF

DR.RAMASHA CHANDRA DAS

(ASST. PROFESSOR)

PG DEPARTMENT OF COMMERCE,
BHADRAK AUTONOMUS COLLEGE, BHADRAK
SESSION: 2017-2020
1.1 INTRODUCTION :

“ working capital means the part of the total asset of the business that change
from one from to another form in ordinary course of business operation”

First we can understand the meaning of the word -working or capital .The
word working mean day to day operation of the business ,whereas the word capital
means monetary value of all assets of the business .

Working capital may be regarded as the life blood of business .working

capital is major importance to internal and external analysis because its close relationship
with current day to day operations of a business .every business needs funds for two
propose:-
(1) long term funds are required to create production facilities through purchase
of fixed asset.
(2) short term funds are required for purchase of raw material ,payment of
wages and other day to day expenses.

Working capital=current asset – current liability.

Net working capital = Current assets – Current liabilities.

working capital management is consideration with the problem that arise in

attempting to manage the current asset, current liability and the inter-relationship the
exists between them .
1.1.1 CONCEPT OF WORKING CAPITAL:
There are two concept of working capital :
(A) Balance sheet concept
(B) Operating cycle or Circular flow concept

(A) Balance sheet concept – There are two interpretation of working capital
under the balance sheet concept. (i) gross working capital and (ii) Net working
capital.
In the broad sense, The term working capital refers to the gross working
capital and represents amount of funds invested in current assets. So, the gross
working capital is the capital invested in total current assets of the enterprise.
Gross working capital = Total current assets.
In the narrow sense, the term working capital refers to the net working capital.
Net working capital is the excess of current assets over current liabilities.
Net working capital = Current assets – Current liabilities.
Net working capital may be positive or negative. When current assets exceeds the
current liabilities the working capital is positive and when the current liabilities are
more than the current assets is negative
Net working capital may be positive or negative. When current assets exceeds the
current liabilities the working capital is positive and when the current liabilities are
more then the current asset is negative .
(b)Operating cycle or Circular flow Concept- The circular flow concept of
working capital is based upon the operating or working capital cycle of a firm. The
cycle starts with the purchase of raw material and other sources and ends with the
realisation of cash from sale of finished goods. It involves purchase of raw material
and stores, it is converted into finished goods through work in progress with
progressive increment of labour and service costs, conversion of finished stock into
sales, debtors and receivables and ultimately realisation of cash and this cycle
continues again from cash to purchase of raw material and so on.
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1.1.1 Operating Cycle

1.1.2 COMPONENTS OF WORKING CAPITAL:-

The working capital consists of two components i.e. current assets and current liabilities.

Current assets- current assets are those assets which in the ordinary course of business can
be converted into cash within short period normally one accounting year.

Current liabilities- current liabilities are those liabilities which are intended to be paid in the
ordinary course of the business within short period of normally one accounting year.

Examples of current assets and current liabilities :

Srl.no CURRENT ASSETS CURRENT LIABILITIES

1 Cash in hand and bank balances.
2 Bills receivable.
3 Sundry debtors.
4 Inventories.
5 Short term loans and advances.
6 Prepaid expenses and accrued
income etc

1.1.3 WORKING CAPITAL MANAGEMENT :-

Working capital management is significance in financial management. It plays a vital role in

keeping the wheel of the business running. It is promoted the business activities. The working
capital management concerned with the problems that arise in to manage the current assets
and current liabilities and the interrelationship between current assets and current liabilities.
The goal of working capital management is to manage a firms current assets and current
liabilities in such a way that the working capital is maintained a satisfactory level. The
interaction between current assets and current liabilities are the main them of working capital
management. Effective working capital management can ensure the success of the business
while its inefficient management can lead not only loss but also the ultimate downfall of the
concern. Its live example is failure of a 8000 crore net worth company i.e. café coffee day
(CCD). Working capital management is one of the important facts of a firms financial
management.

1.1.4 COMPANY PROFILE :-

The iron and steel industry are among the most important industries in india. During 2014-
2016,india was the third largest producer of raw material/steel and the largest producer of
sponge iron in the world .the industry producing 82.68 million tones of total finished steel
and 9.7million tons of raw iron .most irone and steel in india is produced from ironore.

Current steel plant in india:-there are morethen 50 steel industry in india. given below are
majore plants.

S/ Name Location Operation

N
1. Jindal steel and power Raigara,Chhattisgarh. JSPL
ltd.
2. Jindal steel and power Angul,Odisha.
ltd.
3. TATA steel ltd. Jamshedpur,jhakhand` TATA steel
4. TATAsteel ltd. Kalingangar, Odisha. TATA steel
5. Visvesvaraya iron and Bhadravati, SAIL(steel authority
steel plant. Karnataka. of india ltd)
6. Durgapur steel plant. Durgapur,west Bengal. SAIL
7. Bhilai steel plant. Bhilai steel city,chhatisgarh SAIL
8. Bokaro steel plant. Jharkhand SAIL
9. Chandrapur ferro alloy Chandrapur,maharastra. SAIL
plant.
10. IISCO steel plant Asansol,west bengal SAIL
11. Salem steel plant Tamil nadu SAIL
12. Rourkela steel plant. Odisha SAIL
13. JSW steel Hospet,bellary karnataka JSW steel
14. Vizag steel Visakhapatnam, Rashtriya,ispat
nigam ltd.
15. Essar steel india. Hazira,Gujarat
16. JSW steel Tarapura,Boisar JSW steel
17. JSW steel Dolvi,maharastra JSW steel

(I).TATA STEEL LTD :-

Tata steel limited, formerly known as Tata Iron and Steel Company Limited (TISCO).
It is an indian multinational steel making company. It was founded by Jamshetji tata
and establish by Dorabji Tata on 26 th august 1907. Its head quarter established at the
 tata centre in Kolkata, west Bengal. Now it has a presence in around 50 countries with
manufacturing operations doing in 26 countries.
It is one of the top steel producing companies globally with annual
27.5 million tones cured steel deliver and second largest steel company in india with
annual capacity of 13 mittion tonnes after sail.
TATA STEEL LTD

Name TATA iron and steel company ltd.

Industry Steel and iron.
Founder Jamshetji tata.
Head quater Kolkata, west Bengal, india.
Area service World wide.
Product Steel and long steel product, structural steel, wire product, steel
casing pipes, household goods, etc.
Operating income 29,384 crore.
Revenue 1,57,668 crore.
Net income 10,218 crore.
Total assets 137,498 crore.
Total equity 72729 crore
Number of employes 32,984 (According to 2019 report).
Website www.tatasteel.com

(II).STEEL AUTHORITY OF INDIA (SAIL) :

SAIL traces its origin to the Hindustan steel limited (HSL) which was set up on 19th January
1954. It is an Indian state-owned steel making company. Based in new Delhi. It is a public
sector undertaking, owned and operated by the govt of india with an annual turnover ruppes
66,265(US$9.32 billion). It was incorporated on 24th January 1974. SAIL is the 20th largest
steel producer in the world and the 3rd largest in India.SAIL is one of indian,faster growing
public sector unit.

STEEL AUTHORITY OF INDIA

Native name Hindustan steel limited.

Oragnisation and Central govt.organisation and public sector undertakeing in
undertakeing india.
Industry Steel.
Founded 19 january 1954(66 years ago)|
Head quaters New delhi,india.
Current chareman Anil Kumar Chaudhary.
Revenue 2,703 crore
Net income 2703 crore
 Total asset 79585 crore
owner Indian governance(74.9%)
Numbae of employees 69,808(1 feb 2020)
Website www.sail.co.in

1.2 LITERATURE REVIEW :

Many researchers have studies working capital from different views and in different
environments. The following are the studies an useful for our research.

1.2.1 YOGES KUMAR(2017), “A comparative study of working capital management in

steel authority of India ltd and Tata steel ltd”. Its main objective is study the efficiency of
working capital management through financial ratios and comparative study of working
capital management between SAIL and Tata steel ltd recommended ways and means to
improve present condition. the period is taken for this study 2006-07 to 2015-16 annual
report. The study shows the additional funds raised are invested in fixed assets intended of
providing necessary working capital. This study also shows the working capital turn over
ratio is not satisfactory in both the companies.so, the management may resort to effective
utilisation of cash and ban balances in attractive investments or to pay back in short term
liabilities.

1.2.2 NISHA YASMIN(2016), “A study on working capital management at a steel plant”.

The objective of the study is to find out the day to day finance, efficiency and trend of
working capital over the last five year of XYZ. The data is collected mainly from company
balance sheet and profit and loss account for past 5 years i.e. 2010-11 to 2015-16. The study
analyses the company decides about increment in the number of days or exceeds the number
of days of a debtor to make a payment of credit sales which is basically depends on the
working capital financing policy. i.e. if the return from short term borrowing is more than the
working capital then company have no issue of increase in the date of debtors. On the other
hands if the return from short term borrowing is less than the working capital, then company
want money from debtors itself.

1.2.3 P.MOHAN REDDY(2016), “An analysis of working capital management in SAIL and
RINL”. The main objective of this study is to analysis the efficiency of working capital
management through financial ratios and comparative study of working capital management
between SAIL and RINL recommended ways and means to improve present condition. the
present study taken the period of 2006-07 to 2015-16 annual reports. This study indicates that
the inventory was ineffectively turned into sales, consequently, there is a high risk of loss due
to unsalable stock. selective inventory control shall be carried out for the components of
inventory.

1.2.4 SINGH(2013), “A study on working capital management of TATA steel ltd.” The
objective of this study is to analyses and evaluate the overall working capital management
and the trends in working capital of the selected unit. For the completion of the study mainly
annual report is taken for 2009 to 2013. The study analyses the working capital management
of the TATA steel ltd which is not much better during the period of the study. It is due to the
reason the current liabilities of the company shows increasing trend during the period of the
study, which is not considered better from the financial point of view. Where as the current
assets of the company shows almost constant trend. So, the management of the company
should try to control this position efficiently.

1.2.5 RITESH PATEL(2012), “A comparative study on working capital management of

selected steel companies of India”. The main objective of the study is o analyses the structure
of working capital and management of working capital components by selected steel
companies and also analyses the comparative position of working capital management. the
exploratory and analytical research design is used for the calculation of gross operating cycle,
net operating cycle and ratios with the help of balance sheet and profit and loss account
during April 2006 to march 2011. The study shows TATA steel ltd has highest growth of
NWC during holding period followed by Jindal steel ltd and it is negative with JSW Steel.

1.3 OBJETIVE OF THE STUDY :

The present study “A Comparative study of working capital management of TATA STEEL
LTD and STEEL AUTHORITY OF INDIA LTD”, has been designed to achieve the
following objective.

(A)To make a comparative study of working capital management of SAIL and TATA Steel
ltd.

(B) To study the efficiency of working capital in TATA steel ltd and SAIL through financial
ratios.
1.4 SCOPE OF THE STUDY :

Each and every study has it own scope. The study is on working capital management of Tata
steel ltd and SAIL. The study furnishes the management idea about the performance of
working capital of the company. This project intends to study the working capital position of
Tata steel ltd and SAIL. This study helps to identify the areas that could be improved. Further
suggestions were quoted which the company could use it in the future programme to
enhancing better utilisation of all resources.

1.5 DATA COLLECTION :

This type of research is descriptive in nature and the study relies on data which is already
available.

1.5.1 SOURCE OF INFORMATION- Secondary data collected from the organisation.

These data may either be published data or unpublished. Published data includes: annual
reports, periodical, journals and magazines, financial statement and other related documents.
Unpublished data includes: data available in the system, financial ledgers, journals, document
received along with scholars. For the completion of my study the data has been collected
mainly from company balance sheet and profit and loss account for the past 3 years. The
study covers the period from 2016-17 to 2018-19.

1.5.2 TOOLS AND TECHNIQUES USED FOR ANALYSIS- Various tools and
techniques have been used to fulfil the aforesaid objective. A study of the organisation has
been along with in depth study of functioning of finance and account department of TATA
Steel ltd and SAIL. Further the analysis of working capital management, study of working
capital cycle has been made. Therefore, analysis of working capital has been done by taking
into consideration of past 3 years current assets and current liabilities. After the component
wise analysis has been made, ratio analysis tools has been used for the evaluation of
inventory, cash management and receivable management of TATA steel ltd and SAIL. For
the better analysis diagrams are taken into consideration.

1.6 LIMITATION OF THE STUDY :

(I) The finding of study are based on the information retrieved by the annual report.
(II) The study is limited to analysis of the working capital management of the companies.

(III)The study is focused on the analysis of steel sector only.

(IV)The study has picked up only 2 companies in the steel industry.

(V) The study duration 3 years.

1.7 ANALYSIS AND INTERPRETATION :

The data analysis has been done in this study is given below:

1.7.1 COMPARATIVE STATEMENT ANALYSIS :

“ Evaluating the financial performance of Tata steel ltd and SAIL”

(I)Comparative statements of Tata steel limited :-

Table No – 1. Schedule showing changes in working capital for the financial years 2017-
2018(Rs. In crore) : Calculation of gross working capital

PARTICULARS 31st MARCH 31st MARCH INCREASE % OF

2017 2018 OR INCREASE/
DECREASE DECREASE
CURRENT ASSETS
Inventories 10236.85 11023.41 786.56 7.683613612
Investments 5309.81 14640.37 9330.56 175.7230485
Trade receivable 2006.52 1875.63 -130.89 -6.523234256
Cash and cash equivalent 970.31 4696.74 3726.43 384.0453051
Short term loans and 348.46 584.82
236.36 67.82988004
advances
Other current assets 1225.48 1822.94 597.46 48.75314163
Total Current Assets 20097.43 34643.91 14546.48 72.3798018
CURRENT LIABILITIES
Short term borrowings 3239.67 669.88 -2569.79 -79.32258533
Trade payable 10717.44 11242.75 525.31 4.901450346
Short term provisions 700.60 735.28 34.68 4.95004282
Other financial liabilities 4332.52 6557.81 2225.29 51.3624865
Retirement benefit and 56.58 90.5
33.92 59.95051255
obligation
Current tax liabilities (Net) 465.58 454.06 -11.52 -2.47433309
Other current liabilities 3543.80 5857.06 2313.26 65.27625713
Total Current Liabilities 23056.30 25607.34 2551.04 11.06439455
Working capital (current (2458.87) 9036.57 11495.44 -467.509059
 assets – current liabilities)
*Source: Annual report

Interpretations

As in the above table shows that in the year 2017 current assets decreased with compared
current liabilities but in 2018 current assets increased by compared with current liabilities.
The above 2 year working capital has increased 11495.44 crores.

Table No – 2. Schedule showing changes in working capital for the financial years 2018-
2019(Rs. In crore) :

PARTICULARS 31st MARCH 31st MARCH INCREASE % OF

2018 2019 OR INCREASE/
DECREASE DECREASE
CURRENT ASSETS
Inventories 11023.41 11255.34 231.93 2.1039769
Investments 14640.37 477.47 -14162.9 -96.73867532
Trade receivable 1875.63 1363.04 -512.59 -27.32895081
Cash and cash equivalent 4696.74 718.11 -3978.63 -84.71045874
Short term loans and 584.82 1011.64
426.82 72.98314011
advances
Other current assets 1822.94 2209.98 387.04 21.23163681
Total Current Assets 34643.91 17035.58 -17608.33 -50.82662436
CURRENT LIABILITIES
Short term borrowings 669.88 8.09 -661.79 -98.79232101
Trade payable 11242.75 10969.56 -273.19 -2.429921505
Short term provisions 735.28 778.23 42.95 5.841312153
Other financial liabilities 6557.81 7011.92 454.11 6.924720295
Retirement benefit and 90.5 102.12
11.62 12.83977901
obligation
Current tax liabilities (Net) 454.06 358.14 -95.92 -21.12496146
Other current liabilities 5857.06 6365.59 508.53 8.682342336
Total Current Liabilities 25607.34 25593.65 -13.69 -0.053461234
Working capital (current 9036.57 -8558.07
-17594.64 -194.7048493
assets – current liabilities)
*Source: Annual report

Interpretations - As in the above table shows that in the year 2018 current assets increased
with compared current liabilities but in 2019 current assets decreased by compared with
current liabilities. The above 2 year working capital has decreased 17594.64 crores.

(II)Comparative statement of steel authority of India(SAIL) :-

Table No – 3. Schedule showing changes in working capital for the financial years 2017-
2018(Rs. In crore) : Calculation of gross working capital

PARTICULARS 31st MARCH 31st MARCH INCREASE % OF

2017 2018 OR INCREASE/
DECREASE DECREASE
CURRENT ASSETS
Inventories 15711.35 16996.67 1285.32 8.18083742
Trade receivable 2921.69 3869.94 948.25 32.45553087
Cash and cash equivalent 289.09 254.06 -35.03 -12.1173337
Short term loans and 2329.32 2850.61
521.29 22.37949273
advances
Other current assets 4299.16 5634.42 1335.26 31.05862541
Assets as hold for sale 11.94 32.50 20.56 172.1943049
Total Current Assets 25562.55 29338.2 3775.65 14.77024006
CURRENT LIABILITIES
Short term borrowings 19813.04 12244.32 -7568.72 -38.20070014
Trade payable 5219.20 7540.50 2321.3 44.47616493
Other financial liabilities 12765.62 14170.20 1404.58 11.00283417
Other current liabilities 5607.26 7142.42 1535.16 27.37807771
Short term provision 2914.77 2304.18 -610.59 -20.94813656
Current tax liabilities (Net) 4.52 0 -4.52 -100
Total Current Liabilities 46324.41 43401.62 -2922.79 -6.309394982
Working capital (current -20761.86 -14063.42
6698.44 -32.263198
assets – current liabilities)
*Source: Annual report

Interpretations

As the above table it shows that the current assets has shown a decreasing trend, when
compared with current liabilities, but when compared to year 2017 the net working capital
has increased to 6698.44 crores.

Table No – 4. Schedule showing changes in working capital for the financial years 2018-
2019(Rs. In crore) :

PARTICULARS 31st MARCH 31st MARCH INCREASE % OF

2018 2019 OR INCREASE/
DECREASE DECREASE
CURRENT ASSETS
Inventories 16996.67 19441.80 2445.13 14.3859356
Trade receivable 3869.94 4495.05 625.11 16.15296361
 Cash and cash equivalent 254.06 219.42 -34.64 -13.63457451
Short term loans and 2850.61 2214.12
-636.49 -22.32820344
advances
Other current assets 5634.42 5867.41 232.99 4.135119498
Asset as hold for sale 32.50 11.47 -21.03 -64.70769231
Total Current Assets 29338.2 32249.27 2911.07 9.922456047
CURRENT LIABILITIES    
Short term borrowings 12244.32 10631.22 -1613.1 -13.17427183
Trade payable 7540.50 7257.99 -282.51 -3.74656853
Other financial liabilities 14170.20 14693.31 523.11 3.691620443
Other current liabilities 7142.42 6706.17 -436.25 -6.107873802
Short term provisions 2304.18 2308.77 4.59 0.199203187
Current tax liabilities (Net) 0 0 0 0
Total Current Liabilities 43401.62 41597.46 -1804.16 -4.156895526
Working capital (current -14063.42 -9348.19
4715.23 -33.52833095
assets – current liabilities)
*Source: Annual report

Interpretations

As the above table it shows that the current assets has shown a decreasing trend, when
compared with current liabilities, but when compared to year 2018 the net working capital
has increased to 4715.23 crores.

1.7.2 RATIO ANALYSIS :-

A. Introduction

The financial statement of a company contains a lot of information about the financial
performance of the company. Financial statements mainly consist of the Balance Sheet and
Profit and Loss Accounts. These statements give the overall picture of the company, but to
analyses each aspect of business extensively, financial ratios are used. The Balance Sheet and
the Statement of Income are essential, but they are only the starting point for successful
financial management. Financial Ratio Analysis derived from Financial Statements analyses
the success, failure, and progress of business.
Ratio Analysis is a very powerful analytical tool useful for measuring the performance of an
organization. The ratio analysis concentrates on the interrelationship among the figures
appearing in the mentioned financial statements. The ratio analysis helps the management to
analyses the past performance of the firm and to make further projections

B. Various working capital ratios is used for analyses:

 Liquidity ratios

 Profitability ratios

 Activity ratios

1. Liquidity Ratio - Liquidity ratio measures the ability of the firm to meet its current
obligation (liabilities). In fact analysis of liquidity needs the preparation of cash budget and
cash and fund flow statement but liquidity ratio, by establishing a relationship between cash
and other current asset to current obligation, to provide a quick measure of liquidity. A firm
should ensure that it doesn’t suffer lack of liquidity and also that it does not have excess
liquidity. The common liquidity ratios are:-

a. Current Ratio - Current ratio may be defined as the relationship between quick or liquid
asset and current liabilities. This is a measure of general liquidity & is most widely used to
make analysis of short-turn financial position or liquidity of firm. It is calculated by dividing
the total current assets by total current liabilities.

Current Ratio = Current Assets/Current Liabilities

Table 1

Year Current ratio of Tata Current ratio of steel

steel Ltd authority of India
2016-17 0.87 0.55
2017-18 1.35 0.67
2018-19 0.67 0.77
 CURRENT RATIO
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016-17 2017-18 2018-19

Current ratio of Tata steel Ltd Current ratio of steel authority of India

Interpretations

An arbitrary standard of current ratio is 2:1 indicates that for every one rupee of current
liability two rupee of current assets is available. The above analysis shows both the company
tata steel ltd and steel authority of India current ratio are very low. Which indicates the firms
shall not be able to pay its current liabilities in time without facing difficulties.

b. Quick Ratio/Acid Test Ratio

Quick ratio establishes relationship between quick or liquid assets & current liabilities. It is
also known as acid test ratio. An asset is said to be liquid if it can be converted into case
within short period of time without loss of value. The prepaid expenses and stock were
excluded.

Quick ratio = Quick asset / Current Liabilities

Table 2

Year Quick ratio of Tata Quick ratio of steel

steel Ltd authority of India
2016-17 0.43 0.21
2017-18 0.92 0.28
2018-19 0.22 0.31
 QUICK RATIO
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2016-17 2017-18 2018-19

Quick ratio of Tata steel Ltd Quick ratio of steel authority of India

Interpretations

A standard of quick ratio is 1:1. In year 2017-18 tata steel ltd makes satisfactory condition of
quick ratio. In other years both the company quick ratio is very low which indicates
inventories are not absolutely non liquid. The above analysis reflects the liquid position of
tata steel ltd is satisfactory as compared to steel authority of India.

c. Absolute liquid ratio / Cash ratio.

Cash ratio is a liquidity ratio that measures the relationship between net cash provided by
operating activities and the current liabilities of the company. It indicates the ability of the
business to pay its current liabilities from its operations.

Cash ratio = Absolute liquid assets / Current liabilities

Table 3

Year Cash ratio of Tata Cash ratio of steel

steel Ltd authority of India
2016-17 0.049 0.006
2017-18 0.18 0.006
2018-19 0.028 0.005
 CASH RATIO
0.2
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
2016-17 2017-18 2018-19

Cash ratio of Tata steel Ltd Cash ratio of steel authority of India

Interpretations

The acceptable norms of cash ratio is 50% or 0.5. the analysis shows both the companies cash
ratio are not satisfactory. But in some point of view tata steel ltd cash ratio is better than the
steel authority of India.

d. Inventory turnover ratio or stock turnover ratio.

Inventory turnover is also known as stock velocity is normally calculated as sales/average

inventory or cost of goods sold /average inventory. It would be indicates whether inventory
has been efficient use or not. The purpose is to see whether only the required minimum funds
have been locked up in inventory. Inventory turnover ratio indicates the number of times the
stock has been turned over during the period and evaluates the efficiency with which a firm is
able to manage its inventory.

Inventory turnover ratio= cost of revenue from operations/ average inventory at cost

Table 4

Year Inventory turnover Inventory turnover

ratio of Tata steel ratio of steel
Ltd authority of India
2016-17 5.20 3.17
2017-18 5.49 3.53
2018-19 6.27 3.44
 INVENTORY TURNOVER RATIO
7

0
2016-17 2017-18 2018-19

Inventory turnover ratio of Tata steel Ltd

Inventory turnover ratio of steel authority of India

Interpretations

The above analysis shows, Inventory turnover of tata steel ltd is very good as compared to the
steel authority of India. It shows the efficient management of inventory of the firms. Hence
the tata steel ltd has satisfactory inventory turnover ratio.

e. Debtors/Receivable turnover ratio or Debtor velocity

Debtors turnover ratio indicates the velocity of debt collection of firm. In simple words, it
indicates the number of times average debtors are turned over during a year, thus :

Debtors turnover ratio= credit revenue from operation / average trade receivables

Table 5

Year Debtors turnover Debtors turnover

ratio of Tata steel ratio of steel
Ltd authority of India
2016-17 26.54 17.03
2017-18 32.26 15.23
2018-19 51.80 14.90
 DEBTOR TURNOVER RATIO
60

50

40

30

20

10

0
2016-17 2017-18 2018-19

Debtors turnover ratio of Tata steel Ltd

Debtors turnover ratio of steel authority of India

Interpretations

Debtor velocity indicates the number of times the debtors are turned over during a year. The
above analysis shows debtors turnover ratio of tata steel ltd is more efficient as compared to
the ratio of steel authority of India. which reflects inefficient management of debtors/sales
and les liquid debtors of steel authority of India.

f. creditors/payable turnover ratio or creditor velocity

The analysis for creditors turnover is basically the same as of debtors turnover ratio except
that in place of trade debtors, the trade creditors are taken as one of the ratio and in place of
average daily sales, average daily purchases are taken as the other components of the ratio.

Creditors/payable turnover ratio= net credit annual purchases/ average trade payable

Table 6

Year Creditors turnover Creditors turnover

ratio of Tata steel ratio of steel
Ltd authority of India
2016-17 1.37 4.02
2017-18 1.51 3.39
2018-19 2.02 4.82
 CREDITORS TURNOVER RATIO
6

0
2016-17 2017-18 2018-19

Creditors turnover ratio of Tata steel Ltd

Creditors turnover ratio of steel authority of India

Interpretations

The payable turnover ratio represents the average number of days taken by the firm to pay its
creditors. Generally, less debtors turnover ratio is good for the firm. The above analysis
shows that tata steel ltd payable turnover ratio is less than as compared to the payable
turnover ratio of steel authority of India. It reflects the liquidity position of the tata steel ltd is
better and satisfactory as compared to SAIL.

g. working capital turnover ratio /current assets turnover ratio

Working capital of a concern is directly related to sales(revenue from operations), the current
assets like debtors, bills receivables, cash, stock etc. change with the increase or decrease in
sale. The working capital is taken as :

Working capital= current assets – current liabilities

Working capital turnover ratio indicates the velocity of the utilisation of net working
capital. this ratio indicates the number of time the working capital is turned over in the course
of a year.

Working capital turnover ratio= cost of revenue from operations/ average working capital

Or, working capital turnover ratio = cost of sales/net working capital

Table 7

Year Working capital Working capital

turnover ratio of turnover ratio of
Tata steel Ltd steel authority of
India
2016-17 -18 -2.4
2017-18 6.69 -4.19
2018-19 -8.25 -7.16

WORKING CAPITAL TURNOVER RATIO

10

0
2016-17 2017-18 2018-19
-5

-10

-15

-20

Working capital turnover ratio of Tata steel Ltd

Working capital turnover ratio of steel authority of India

Interpretations

This ratio measures the efficiency with which the working capital being used by a firm. In
year 2017-18 tata steel ltd working capital turnover ratio is positive which indicates efficient
utilisation of working capital but in overall both the companies are not maintained their
working capital efficiently.so, the firms needs to increase the liquid assets and decrease the
short term debts.

1.8 CONCLUSION :