FM

ASSIGNMENT
AMRUTHA SAJEEVFM-
1951MBA, BATCH-18

amruthasajeev@outlook.sg
[Company Name]
SIGNIFICANCE OF WCM

Working capital management is essential for long-term success. When a company runs
out of cash to fulfil its daily expenses, it must stop producing goods and services. In such
instances, the business will be unable to serve its current customers and, as a result, will
be unable to attract new ones. The company will then re-start production using
corporate funds. While this strategy may provide a short-term respite, it will jeopardise
asset and equipment acquisition and maintenance, jeopardising long-term stability.
Since a result, having a working capital management system in place is crucial, as it
allows managers and business owners to realistically assess the company's working
capital needs, giving them enough time to find a solution. Working capital management
also helps businesses streamline procedures, reduce overhead costs, and avoid theft
and fraud.

Factors requiring consideration while estimating working capital

 The average credit period expected to be allowed by suppliers.

 Total costs incurred on material, wages.
 The length of time for which raw material are to remain in stores before they are
issued for production.
 The length of the production cycle (or) work in process.
 The length of sales cycle during which finished goods are to be kept waiting for
sales.
 The average period of credit allowed to customers.
 The amount of cash required to make advance payment.

NEED OF WORKING CAPITAL MANAGEMENT

The objective of financial decision making is to maximize the shareholders wealth. To

achieve this, it is necessary to generate sufficient profits can be earned will naturally
depend upon the magnitude of the sales among other things but sales cannot convert
into cash. There is a need for working capital in the form of current assets to deal with
the problem arising out of lack of immediate realization of cash against goods sold.
Therefore, sufficient working capital is necessary to sustain sales activity. Technically,
this refers to operating or cash cycle. If the company has certain amount of cash, it will
be required for purchasing the raw material may be available on credit basis. Then the
company has to spend some amount for labour and factory overhead to convert the raw
material in work in progress, and ultimately finished goods. These finished goods
convert in to sales on credit basis in the form of sundry debtors. Sundry debtors are
converting into cash after expiry of credit period. Thus, some amount of cash is blocked
in raw materials, WIP, finished goods, and sundry debtors and day to day cash
requirements. However some part of current assets may be financed by the current
liabilities also. The amount required to be invested in this current assets is always
higher than the funds available from current liabilities. This is the precise reason why
the needs for working capital arise.

ABOUT THE COMPANY

Tata Iron and Steel Company (TISCO) was founded by Jamsetji Tata and established
by Dorabji Tata on 26 August 1907. TISCO started pig iron production in 1911 and
began producing steel in 1912 as a branch of Jamsetji's Tata Group. The first steel ingot
was manufactured on 16 February 1912. During the First World War (1914-1918), the
company made rapid progress. By 1939, it operated the largest steel plant in the British
Empire. The company launched a major modernization and expansion program in 1951.
Later, in 1958, the program was upgraded to 2 million metric tonnes per annum
(MTPA) project. By 1970, the company employed around 40,000 people at Jamshedpur,
and a further 20,000 in the neighbouring coal mines. In 1971 and 1979, there were
unsuccessful attempts to nationalise the company. In 1990, the company began to
expand, and established its subsidiary, Tata Inc., in New York. The company changed its
name from TISCO to Tata Steel Ltd. in 2005.

Tata Steel on Thursday, 12 February 2015 announced buying three strip product
services centres in Sweden, Finland and Norway from SSAB to strengthen its offering
in Nordic region. The company, however, did not disclose the value of the transactions.
In September 2017, ThyssenKrupp of Germany and Tata Steel announced plans to
combine their European steel-making businesses. The deal will structure the European
assets as Thyssenkrupp Tata Steel, an equal joint venture. The announcement estimated
that the company would be Europe's second-largest steelmaker, and listed future
headquarters in Amsterdam.

It is an Indian multinational steel-making company based in Jamshedpur, Jharkhand,

and is headquartered in Mumbai, Maharashtra, India. It is a subsidiary of the Tata
Group.

Formerly known as Tata Iron and Steel Company Limited (TISCO), Tata Steel is among
the top steel producing companies in the world with an annual crude steel capacity of
34 million tonnes per annum. It is one of the world's most geographically-diversified
steel producers, with operations and commercial presence across the world. The group
(excluding SEA operations) recorded a consolidated turnover of US$19.7 billion in the
financial year ending 31 March 2020. It is the second largest steel company in India
(measured by domestic production) with an annual capacity of 13 million tonnes
after SAIL.

Tata Steel operates in 26 countries with key operations in India, Netherlands and United
Kingdom, and employs around 80,500 people. [4] Its largest plant (10 MTPA capacity) is
located in Jamshedpur, Jharkhand. In 2007, Tata Steel acquired the UK-based steel
maker Corus. It was ranked 486th in the 2014 Fortune Global 500 ranking of the
world's biggest corporations. It was the seventh most valuable Indian brand of 2013
according to Brand Finance.[7][8][9]

In July 2019 Tata Steel Kalinganagar (TSK) was included in the list of the World
Economic Forum's (WEF's) Global Lighthouse Network, showing leadership in
applying Fourth Industrial Revolution technologies to drive financial and operational
impact

WORKING CAPITAL MANAGEMENT OF THE COMPANY:

In 2009-10, net working capital increased by 147% compared to previous year. It is
because of increase in cash and bank balances and loans and advances in current assets
side. But there is no significant increase in current liability side. Also Tata steel reduced
the proposed dividend to Rs. 709.77 Cr. from Rs. 1,278.40 Cr. of Previous Year. During
FY 10, inventory decreased by 14% compared to FY 09. Purchase of finished and
semifinished products was much lower compared to previous year as requirements of
Agrico and Wires Division were fully met from steel works in the FY 10 as against
partial purchases from outside suppliers/imports in the previous year. Non purchase of
sponge iron also contributed to lower value of purchase of finished and semi-finished
products.

While the stock of stores and spares as on 31st March, 2010 remained almost at the
same level as on 31st March, 2009, the inventories of finished, semi-finished goods,
scrap and raw materials was lower by 14% than that of last year. The raw materials
inventory was also lower due to lower prices of coal and coke along with lower volume
of coke. The raw material Stocks in The Company’s Ferro Alloys & Minerals division was
also lower than the last year level. Debtors as on 31st March, 2010 was lower by 32% as
compared to 31st March, 2009 primarily due to stringent credit control measures and
lower exports. The increase of Rs. 939 cr. in loans and advances represents increase in
advance against equity (to Centennial Steel) and advances to subsidiary companies (to
Tata Steel KZN) partly offset by reduction in the amount receivable against forward
covers.

o The current ratio of a bank has a standard position only in the year of 2018 to 2019,
because as per rule, the current ratio of 2:1 (or) more indicates highly solvent
position of firm.

o The Company is having good liquidity position i.e.0.97 in the year of 2014 to 2016. 
The quick ratio of 1:1 indicates satisfactory position of the firm.

o The inventory turnover ratio of the Company is satisfactory because the ratio is
going on increasing year by year from 2014-2015 to 2018-2019.
o From the above table ratio increases in the year 2014-15 is at 1.59, which decreases
to 1.23 in the year 2015.16. But in the year 2016-17 to 2017-18, it increases to 1.58,
2.16, and 2.44. It indicates that debts are being collected more promptly.

o The total asset turnover ratio is high i.e.0.4499 (in the year of 2014-15), when
compared with remaining years (i.e., 2015-16, 2016-17, 2017-18, 2018-19). In the
beginning the Company was in good in using asset efficiency, later it was quite
normal and negligible. 

o The working capital turnover ratio is high in the year 2018-19 is at 5.29. But in the
years of 2014-15, 2015-16 and 2016-17 it decreases to 4.63, 4.37 and 3.63. But it is
quite normal and it is negligible. This ratio indicates that working capital has been
effectively utilized.
o The gross profit was high in the year 2015-16, when compared to remaining years
(i.e., 2014-15, 2016-17, 2017-18, and 2018-19). A high gross profit
margin indicates that the Company can make a reasonable profit, as long as it keeps
the overhead cost in control. A low margin indicates that the business is unable to
control its production cost.

o The net profit margin is high in the year 2018-19, when compared to previous years.
So it’s shows that higher the margin is, the more effective the Company is in
converting revenue into actual profit.

CONCLUSION
At the end it is stated that the working capital management is a part of money invested
in the business. Working capital may be regarded as lifeblood of a business. Its effective
provision can do much to ensure the success of a business.

The Working Capital Management contributes much in the overall management of the
organization affairs, efficiency of organization operations depend on how it manages its
short term business dealings. Working Capital management contributes for the firm
efficiency as well as the finance manager is proper utilizing the available wealth and
maintaining the required liquidity.     
On the basis of data analysis on working capital management in TATA STEEL PVT. LTD.
the following conclusions arrived.

o The company has gross profit for the past five years (2014-15, 2015-16, 2016-17,
2017-18, 2018-19) in positive gaining at a constant rate and the current liabilities
are increasing, in comparison to current assets position in the year 2014-15, 2015-
16, 2016-17, 2017-18, 2018-19. Hence, it is an alarming sign for the smooth working
capital management.

o The Tata Steel Pvt. Ltd.  Manage the liquidity position of the company. The liquidity
position was in a good condition and in 2014-15, it was also satisfactory. But, in the
year 2015-16, 2017-18 & the ratio was lowest in year 2018-19. The situation of
liquidity position was alarming due to increase in total current liabilities and
decrease in total current assets which led to the decrease in the net working capital
of the company. Still company maintains the liquidity ratio above 1:1 in all year.

o During the year 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 the company’s liquid
assets were not satisfactory.

o The average collection period of the company during the year 2014-15 was 58 days,
it is reduced to 53 days in 2013-2014 and again it reduced to 45 days in 2015-2016,
the average collection period standing at the satisfactory level in the year 2017-86
to 34 day.

o There is also satisfactory net cash flow from the operating, investing and financing
activities of the organization.
o Though the net working capital of the company is decreased, in 3 out of 5 years still
the company is in a better manageable position and the company’s present status of
maintaining current assets and current liabilities are satisfactory.

o They are able to manage their cash, funds and debts.

o By adapting better management practices, the company may attain a sound financial
position in future and able to manage its working capital efficiently.

o The working capital turnover ratio of Tata Steel Pvt. Ltd. company is showing ideal
ratio is proved to be false because the ratio is 4.87, 5.01, 3.83, 4.71, 4.14  for the year
2014-15, 2015-16, 2016-17, 2017-18, 2018-19 respectively & it is not match with
the ratio 2:1. Hence it is rejected.