Imp Final Project

Working Capital Management comparative Analysis

WORKING CAPITAL MANAGEMENT

Name- Rahul Kumar Roll No- 32 BHU , Varanasi

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PROJECT TITLE

WORKING CAPITAL MANAGEMENTUNDER THE GUIDANCE OF

Mr. INDRAJIT ROYHEAD, FINANCE AND ACCOUNTS (DECISION SUPPORT) TATA STEEL JAMSHEDPUR

Submitted By: RAHUL KUMAR Roll No.: 032

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DECLARATIONI RAHUL KUMAR the undersigned, a student BANARAS HINDU UNIVERSITY, Varanasi , declare that project report titled Working capital management at TATA STEEL submitted in partial fulfillment of the requirement for the summer internship project during my Master in Financial Management programme . The project duration was from 15th May2011 to 15 thJuly 2011.The information collected by me is authentic and is done through data analysis and interpretation and I have a thorough knowledge of the project. The content of this report is based on the information collected from the Finance & Accounts division Tata Steel Ltd. , Jamshedpur & also from the annual report. All calculation are done as per methodology of Tata Steel . The findings and conclusions of this report are based on my personal study and experience, during the tenure of my summer internship.

Name : Rahul Kumar

Banaras Hindu University Varanasi

Signature:

Date: 15th July 2011 Place: TATA STEEL (Jamshedpur)

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ACKNOWLEDGEMENTI would like to extend my gratitude to Mr. Indrajit Roy (Head Financial Account) for giving me opportunity to work in such an important sphere and sharing his vision and experience. Mr. Imtiaz Ahmed for his continuous support and guidance; Mr.Gautam Ghosh (Manager, Tata Management Development Centre (TMDC) for providing me the opportunity to learn and complete my summer internship in this esteemed organization. I also take the opportunity to thanks my faculty professors for their guidance and invaluable inputs in the development of the project , and interims of managing the real time issues that we faced in the corporate world . Last but not the least I would like to extend my thanks to all the employees at finance department , my family and friends for their cooperation , valuable information and feedback during my project .

Rahul Kumar

Banaras Hindu University Varanasi

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PREFACE

It has been a fruitful summer project. The summer training has been a greater into the corporate culture and has enriched my knowledge about conducting my business. Having spent some mature individual ,prepared to take on the pressure of the business world. This report added immensely to my knowledge how a corporate world actually work as a team to achieve its goals ,the spirit and the enthusiasm of the leading ahead from its competitors and the above all true and fair view as the main motto and the most of all various techniques used to maximize efficiency and increase production.

I will be grateful to TATA STEEL for giving me the opportunity to be part of this repudiated organization and help me throughout in understanding some of the important facts concerned with this prestigious institution.

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EXECUTIVE SUMMARYThe project on working capital management has been a very good experience .Every manufacturing company faces the problem of working capital management in their day to day processes .An organizations cost can be reduced and the profits can be increased only if it is able to manage its working capital efficiently . At the same time the company can provide customer satisfaction and hence can improve their overall productivity and profitability. This project is a sincere effort to study and analyze the working capital management of TATA STEEL, SAIL and JINDAL. This project is focused on making a financial overview of the company by conducting at time series analysis of TATA STEEL for the years 2006-07,2007-08,2008-09,2009-10.and a comparative analysis of TATA STEEL with its domestic competitors SAIL & JINDAL, emphasizing on working capital and financial ratios . This internship is a bridge between the institute and the organization .This made me to be involved in a project that helped me to employ my theoretical knowledge about the fascinating facts of finance .The experience that I gathered over the past two months has certainly provided the orientation which I believe will help me in shouldering any responsibility in future.

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TABLE OF CONTENTSl.no1

ContentIntroduction Objective of the project Steel industry profile World Steel Graph SWOT analysis History of Tata Steel Founders of Tata Steel Some Major Brands An overview of the company Product Portfolio Awards ,Recognition & Certification Research Methodology Scope of the project Research Design Working Capital concept Data Analysis of Tata Steel Year wise Working Capital Percentage Change in Working Capital Operating Cycle Financial Ratios Data Analysis of JSW Year wise Working Capital Percentage Change in Working Capital Operating Cycle Financial Ratios Data Analysis of SAIL Year wise Working Capital Percentage Change in Working Capital Operating Cycle Financial Ratios Comparative Analysis Conclusion And Recommendations Bibliography Annexure

Pg. no.8

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40

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42 44

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59

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72

7 8 9 10

85 98 102 103

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OBJECTIVE OF THE PROJECT

1) To understand the concept of WORKING CAPITAL MANAGEMENT.

2) To understand the techniques and processes of WORKING CAPITAL MANAGEMENT at TATA STEEL.

3) To analyze the effectiveness and efficiency of the existing working capital Control system.

4) To compare the working capital position of TATA STEEL with other players in the market.

5) To find out areas of weakness, if any.

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TATA STEEL (Jamshedpur )

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STEEL INDUSTRY PROFILE

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World steel production graphGlobal Steel IndustryThe crude steel production for 66 countries reporting to the World Steel Association was 1220 million metric tonnes for calendar year 2009, lower by 8% against that of 2008. Hit by the economic downturn, the drop in production was nearly in all steel producing countries barring positive growth recorded in China, India and the Middle East. In most countries including the developed steel markets of the EU, the U.S.A., Japan, Brazil, CIS deterioration in the economy resulted in a sharp decline of demand in key steel using sectors. The following table shows the growth in terms of crude steel production for the top ten steel producing nations:

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Rank1 2 3 4 5 6 7 8 9 10

CountryChina Japan U.S. Russia India South Korea Germany Ukraine Brazil Turkey

2010626,654 109,600 80,594 67,021 66,848 58,453 43,815 33,559 32,820 29,002

2009

Change9.26% 25.21% 38.49% 11.68% 6.38% 20.34% 34.11% 12.41% 23.82% 14.61%

573,567 87,534 58,196 60,011 62,838 48,572 32,670 29,855 26,507 25,304

As a result of the strong growth in China in sharp contrast to the decline in major parts of the globe, the list of the top ten steel producing companies during 2009 was dominated by Chinese companies Rank Company Country 2010 Crude steel output per year in MT .1,03,300,000 37,500,000 35,400,000 34,700,000 33,300,000 33,000,000 27,700,000 24,400,000 23,300,000 23,200,000

1 2 3 4 5 6 7 8 9 10

Arcelor Mittal Nippon Steel Bao Steel POSCO Hebei Iron & Steel Group JFE Holdings Wuhan Steel (WISCO) Tata Steel (TISCO) Jaingsu Shagong Group US Steel

Luxemburg Japan China South Korea China Japan China India China USA

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SWOT ANALYSIS:

STRENGTH: Strong brand name like Tata Steel & Corus Indian operation capable of meeting its own requirement Strong supply chain for raw material leading sales & distribution Low cost, high skilled labour.

WEAKNESS: Low R & D Investment Low productivity

OPPURTUNITY:

THREATs: Major player entering Indian market China set to become a net exporter High duties and taxes from the government Environmental concerns & laws Global slowdown13 | P a g e

Unexplored rural markets Growing domestic market Growing global market Carbon trade High investment in infrastructure sector


MICHAEL PORTER ANAYLYSIS :Michael Porter had identified five competitive forces that shape every single industry and the market. These forces help in analyzing the industry from the intensity of competition to the probability and attractiveness of an industry.

Threat of new Entrants :The easier it is for new companies to enter the industry, the more cut-throat competition there will be. Steel industry is highly capital intensive and is estimated that to set up 1 MTPA capacity of integrated steel plant, it requires around Rs. 30 billion of investment depending upon the location of the plant and technology used. The government follows a favorable policy for steel manufacturers but certain discrepancies involved in allocation of iron ore mines and land acquisition in India.

Bargaining power of suppliers :If one supplier has large impact on the companys margin and volume then it holds substantial power. In the steel industry the bargaining power of supplier is very low because the big players in the industry have their own mines for major raw materials. However, still a few companies have to depend up on suppliers for the raw materials.

Bargaining power of Buyer :In the steel industry unlike the household goods market the buyers have a very low bargaining power. The only effort which can be done towards ensuring that the buyers are saved in the curb or ceiling laid by the

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government on the prices which can be charged by the companies on its product. However, most of the sale of steel is to the other industries or to through the distribution network and very less to the common man.

Competitive Rivalry :In India the steel industry is dominated by a major few players only and the degree of competitive rivalry is very low as the demand is always more than the supply or the production of the companies.

Threats of substitutes :The presence of substitute products increases the propensity of customers to switch to alternatives. The usage of aluminum has been constantly growing in the automobile sector which used to be the major customer of the steel industry. However, because of the durability and other features of the steel, aluminum does not stand as a threat in the market

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HISTORY OF TATA STEEL

Formerly known as Tata Iron and Steel Company Ltd. (TISCO), TATA STEEL was registered in Bombay( now Mumbai) on August 26, 1907.It had an initial capacity of 1,60,000 tones of ingot steel,70,000 tones of rails, beams and shapes and 20,000 tones of bars, hoops and rods. It also had a power house, auxiliary facilities and a laboratory. In 1917, the company increased its steel Capacity to 5,00,000 tonnes and introduced the Modern Duplex process of making steel. Since the company has continued to add new units and increase capacity. In the 1980s the company undertook in various phases an ambitious Modernization Programme:The first phase, between 1981and1985, involved a total project cost of Rs 223 crores. This phase, among others saw the installation of two 130 tonne LD converters, two 250 tonne a day Oxygen Plants, a bar forging

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machine, two vertical twin shaft lime kilns and a tar-dolo brick plant. Significantly, a six-strand billet caster and a 130-tonne vacuum arc-refining unit were installed that too in the integrated steel plant. The second phase (1985-1992) involved a project cost ofRs780crores. It saw for the first time in India coal injection in blast furnace and coke oven battery with 54 ovens using stamp-charging technology. The Third Phase A 0.3 MTPA 9million tonne per annum) wire rod mill, a 2.5mtpa sinter plant, a bedding and blending plant and a waste recycling plant of 1 MTPA were installed. This Four-Phase Modernization Programmed has enabled by Tata steel to be equipped with the most modern steelmaking facilities in the world. The Company recently commissioned its 1.2MT (million tone) capacity Cold rolling Mill Complex .At a project cost of Rs 1600 crores. As of today The Tata steel facility has a Hot Metal Capacity of 3.8 MTPA, corresponding to a saleable steel Capacity of 3.4 MTPA. In the fifth phase stress s laid on the utilization of the intellectual capabilities of the employees to generate sustainable value for the shareholders. Rather than create new personal assets, the focus has now shifted to how best to use those assets to get optimum value. The human resource management division of TATA STEEL has developed what is called the Mindset Programme. Which is designed to bring about an attitudinal change among the employees? The programme Seeks to inculcate in the employees self-awareness and a positive outlook. In 2005 Tata Steel acquired Singapore based steel company Nat Steel by subscribing to 100per cent equity of its subsidiary, NatSteel Asia. Tata Steel is rapidly expanding capacity and plans to produce 15MT of steel annually by 2010.It acquired Singapores NatSteel in August 2004. This has added 2 MT to its capacity. It is close to completing a 1 MT capacity expansion in its Jamshedpur plant. The expansion is scheduled to be completed by September 2005. In addition a 6 MT green field plant is to be developed in Kalinganagar, Orissa, India (to be commissioned in 2010) and another 2.4 MT capacity expansion will be taken up in Jamshedpur. After partnership with Corus Group, the combined entity will be the 6th largest steel producer and the 2nd most geographically diversified steel company in the World.

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TATA STEEL AND IRON COMPANY Ltd.

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FOUNDERS OF TATA STEELJamsedji Nusserwanji Tata (1839 1904)He was a visionary behind Tata Steel .He realized that Indias real freedom depended upon its self-sufficiency in scientific knowledge, power and steel, thus devoted the major part of his life, and his fortune to three great enterprises-The Indian institute of Science at Bangalore, the Hydroelectric schemes and the Iron & Steel Works at Jamshedpur .He envisaged and conceived a steel town to the very last detail, later to be named as Jamshedpur. J.N. Tata had exhorted to his sons to pursue and develop his lifes work ; his elder son, Sir Dorabji Tata(1859-1933) carried out the bequest with scrupulous zeal and distinction .Thus , even though it was Jamshedji Tata who had envisioned the mammoth projects, it was in fact Dorabji Tata who actually brought the ventures to existence and fruition. He was the first chairman of the gigantic Tata enterprises. It was in 1907 that the village of Sakchi was discovered at the confluence of two rivers, Subarnarekha and Kharkhai and the railways station of kalimati .The Tata Iron and Steel Company was floated.

Sir Dorabji Tata (1859 1933)Sir Dorabji Tata(1859-1933) carried out the bequest with scrupulous zeal and distinction. Thus , even though it was Jamshedji Tata who had envisioned the mammoth projects, it was in fact Dorabji Tata who actually brought the ventures to existence and fruition. He was the first chairman of the gigantic Tata enterprises.

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Bharat Ratna Jehangir Ratanji Dadabhai Tata (1904 1993)J.R.D.Tata has been one of the greatest builders and personalities of modern India in the twentieth century. He assumed Chairmanship of Tata Steel at the young age of 34, but his charismatic, disciplined and forward looking leadership over the next 50 years led the Tata Group to new height of achievement, expansion and modernization. His style of management was to pick the best person for the job at hand and let him have the latitude to carry out the job. He was never interested for Micro- Management. It was he who zeroed in on Sumant Moolgaokar, the engineering genius who successfully steered our company for many years. He was a visionary whose thinking was far ahead of his time, which helped Tata Group launching its own Airlines ,now known as Air India. He was awarded the countrys highest civilian honour, The Bharat Ratna in 199

RATAN NAVAL TATA Ratan Navel Tata was born on December 28, 1937, in Surat. He is thepresent Chairman of Tata Group, Indias largest conglomerate founded by jamshedji Tata and consolidated and expanded by later generation of his family. Tata was born into wealthy and famous family of Mumbai. Ratan Tata completed his degree in architecture with structural engineering from Cornell University in 1962, and the Advance management Program from Harvard Business School in 1975. He joined the Tata Group in December 1962 on the advice of JRD Tata. He was appointed the Director In Charge of The National Radio & Electronics Company Limited (Nelco) in 1971 and was successful in turning Nelco around.IN 1981, he became the chairman of Tata industries and was instrumental in ushering in a wide array of reforms. It was under his stewardship that Tata consultancy services went public and Tata Motors was listed in the New York stock Exchange. On the occasion of Indias 58th Republic day on 26 January, 2000, Ratan Tata was honoured with the padma Bhushan, . Hisrecent achievements have been the acquisition of Corus Group, and Anglo-Dutch steel and aluminium producer. This acquisition has made Tata steel the fifth largest producer of steel in the world.

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TATA STEEL: AN ORGANISATIONAL PROFILE

TYPE

:

Public (BSE: 500470) Steel 1907

INDUSTRY : FOUNDED :

HEADQUARTERS: Mumbai ,India (1) AREAS SERVED : KEY PEOPLE : Worldwide Ratan Tata (chairman) B. Muthuraman (vice Chairman) HM Nerurkar (MD) PRODUCTS : Hot and Cold rolled coils and sheets Wire and rods Construction bars Pipes REVENUE PROFIT : $21,582 billion (2010) : $-423.5 MILLION (2010) 81,296 (2010) Tata Group TataSteel.com

EMPLOYEES : PARENT WEBSITE : :

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GROWTH AND GLOBALISATION.

Jamshedpur, India5 million tones per annum, slated to reach 7 MTPA in 2008&10 MTPA by 2011.

Partnership with CorusOn partnership with Corus group, the combined entity will be the 6 th largest steel producer and the 2nd most geographically diversified steel company in the world.

Nat steel Asia Singapore2 million tonnes ; Singapore ,China ,Vietnam, Thailand and three other South East Asian countries.

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Tata Steel, Thailand1.7 million tonnes Limestone mining in Thailand. Low ash coal in Australia. Wire manufacturing unit in Sri Lanka known as Lanka special steel captive raw material resources in India give it a competitive advantage.

Other Projects: India1.2 MTPA Metcoke project in West Bengal Deep sea port in Dhamra, Orissa Titanium Dioxide project in Tamil Nadu Joint Venture with BlueScope Steel for metallic coating and painting steel unit

Overseas:Development of a source of low ash coal from Queensland, Australia Ferro Chrome production in Richards Bay, South Africa

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SOME MAJOR BRANDS

Tata Steelium: This is worlds first branded Cold Rolled Steel product.

Tata Shaktee: Galvanized corrugated sheets.

Tata Tiscon: Re-bars

Tata Pipes: It is the most valued brand in plumbing segment.

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Tata Agrico:

It caters to the equipment needs of the farming, mining &construction

Tata Bearings: It has made deep inroads in the highly competitive auto market.

Tata Wiron: It services requirements in a wide gamut of industries including automotive, agriculture, fencing and power.

Tata Galvano: Galvano is galvanized plain (GP) steel offering available in sheet & coil forms for allcustomer segments like white goods , panels, bus bodies etc. Galvano offers commitment to deliver high performances to meet diverse and stringent needs of the General Engineering Segment.

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Subsidiary / Associates / JVs

ASSOCIATES & SUBSIDIARIES- OverseasLanka Special Steel Limited :A wholly owned subsidiary it is the only unit in Sri Lanka manufacturing galvanized wires

Sila Eastern Company Limited: A 49% joint venture to undertake development of limestone mines in Thailand.

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NatSteel Asia Singapore: Presence in six countries in S E Asia and China, mainly long products.

Millennium Steel, Thailand: Long products rolling.

Corus: Now a part of Tata Steel Group. It manufactures processes and distributes metal productsas well as provides design, technology and consultancy services.

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COMPANY PROFILE

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An overview of the company

TATA Steel has been ranked at the top of the Nielsens corporate image monitor study followed by TATA Motors . The worlds most admirable companies 2011, published by Fortune Magazine, ranks TATA steel on 6th position in metal industry category. Tata Steel, formerly known as TISCOs (Tata Iron and Steel Company limited), is the worlds seventh largest steel company, with an annual crude steel capacity of 30 Million Tons Per Annum (MTPA). It is the second largest private sector steel company in India in terms of domestic production. Ranked 315th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies in private sector with consolidated turnover of Rs.102, 393 crores during the year ended March 31st, 2010. Its main plant is located at Jamshedpur in Jharkhand. With its acquisition of the Corus, Nat Steel and Millennium Steel it has become a multinational company with operations in various countries. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. It is the worlds second most geographically diversified steel producer. Also it is the worlds lowest cost producer of steel with shareholder base of 800,000 people and an employee strength over 81,000 across 5 continents. The registered office of Tata Steel is in Mumbai. The company is listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Tata Steel is backed by 100 glorious years of experience in steel making with its establishment in 1907.

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Performance after global economic downturn

Following two years of the worst global economic downturn, The growth rates in the economies of the developed world are still extremely moderate, while countries in the developing world have registered high levels of economic growth and some have become new centres of global capacity, demand and control over natural resources. In 2025, it is forecast that the BRIC countries will have 42% of the global population, will consume 60% of the global production and will have 70% of the global GDP. The steel industry has also been impacted by these global shifts. The requirement of steel is growing in Asia, where downstream user industries are experiencing high demand, whereas the markets for steel in the United Kingdom and Continental Europe have remained depressed.

Steel has been and will be, the basic foundation material for national growth and the industry will continue to be an important ingredient in a global economic recovery. Ratan N. Tata, Chairman

Through these difficult times, Tata Steel has struggled to adhere to its long-term strategies, both in India and overseas. There has nevertheless been need to re-schedule and re-prioritise investment strategies in consonance with market conditions during this period. In India, the Company has given top priority to the 2.9 million tone expansion programme at its Jamshedpur Works and its major greenfield 6 million tonne integrated steel plant in Orissa. Tata Steel Asia has steelmaking and finishing facilities in various Asian countries (including India) aggregating 10.5 million tonnes. Equal importance has been given to raw material security through the acquisition of iron ore and coal resources overseas to feed its UK and European plants, while rationalising capacities to make them viable in this period of slack demand. While Tata Steels Indian operations have remained profitable, albeit at a lower level than the previous year, Tata Steels European operations remained underutilised and hence unprofitable. However, with the rationalisation, the European operations have become In the coming years, Tata Steel expects to emerge as a global steel producer with a total annual output of between 40-50 million tonnes, with major manufacturing plants in India, several countries in Asia, the UK and Continental Europe, supported by integrated mining operations in several geographies.

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PRODUCT PORTFOLIO :Long products: Wire rod mill. Bar mill. Merchant mill.

Flat products: Hot strip mill. cold rolling mill

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Over the years, the Tata Steel Group has placed a continuous emphasis on improving processes, with a view to consistently increasing efficiencies, enhancing quality and thereby achieving better performance benchmarks in all areas. The Groups brand building endeavours have always been directed at building assurance, reliability and value creation for products in every segment.

ConstructionDesigning solutions to serve all sectors including residential, non-residential and infrastructure, including applications such as structural steelwork and building envelopes (cladding and roofing).

AutomotiveBody-in-white, closures, chassis and suspension, seating and interior, power train wheels and tyre bead wire.

AerospaceLanding gear, engine and rotor shafts, engine fan casings and blades, structural pylons, slat and flap tracks. High integrity gear steels for planes, helicopters and motor sport applications.

Consumer GoodsDomestic appliances, lighting, furniture and office equipment, racking and shelving, battery cases, bake-ware, enamel-coated applications, decorative pre-finished metals plus many others.

Materials HandlingConstruction and earth-moving, forklift trucks, mining (e.g. roof supports, drills, crushers, screeners and conveyors), cranes, trailers, forestry equipment and agricultural equipment.

Energy and PowerSubmerged arc-welded pipe for the global oil and gas industry, plate for use in wind turbines, structural systems for the solar power industry, plus a range of structural, electrical and specialty engineering steels used in power generation and transmission.

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RailRails for high-speed lines, conventional and heavy loaded tracks, special rails for metro and tramways, as well as for switches and crossings. Steel sleepers and track accessories, modular platforms and tuned dampers for noise reduction.

Engineering

General Engineering: Tata Steel manufactures a range of steel products, encompassing hot rolled and coldrolled sheets, wire rod and wire, sections, plate, bearings and tubes, which serve a multitude of small engineering companies in Europe, South Asia and South East Asia.

Agricultural Tools and Implements: Tata Steel manufactures a range of high quality agriculturalimplements making it the first choice in Indias rural markets. Its wire products find their way into farming, poultry and fencing applications.

Engineering Services, Plant and Equipment: A multi-disciplinary engineering approach for thedesign, manufacture and supply of high precision equipment is offered to various industry sectors. Services range from routine testing, erection and commissioning to full business consulting

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ShipbuildingWide range of vessels including cruise liners, off shore support vessels, ferries, container ships and aircraft carriers.

Packaging: Consumer: Light metal packaging for food and beverages cans as well as for paint and aerosols. Industrial: Steel for drums, industrial bulk containers and gas bottles .

Security and Defense:Blast protection structures, blast containment structures, physical perimeter security applications, redeployable vehicle barriers, bollards, walls and security solution designs.

AWARDS, RECOGNITIONS AND CERTIFICATIONSCorporate Awards The rating of being one of the worlds top ten Most Admired Companies by FORTUNE Magazine and the Hay Group in the Industry-Metal category. The Economic Times Company of the Year Award. The Best Establishment Award by the President of India, Mrs. Pratibha Devi Singh Patil. The Superbrand Award to Tata Tiscon. Company with Highest Corporate Image by Nielsen . Awards for Excellence in Knowledge The Most Admired Knowledge Enterprise (MAKE) Asia Award 2009 for the sixth time. The Fifth BML Munjal Award for Excellence in Learning & Development.

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Awards for Excellence in Corporate Social Responsibility (CSR) The Golden Peacock Global Award. The Significant Achievement in Sustainability certification from CII-ITC. The TERI CSR Award. The UKTI India Business Award. The Times of India CSR Award. The Rashtriya Khel Protsahan Puraskar. The Ispat Paryavaran Puraskar Special Award. The Xiamen City Top Employers Award to NatSteel Xiamen for the second time. The Outstanding Award for Employee Relations & Welfare 2009 to Siam Industrial Wires (SIW), Thailand. The Good Governance for Environment in the Factory and Enterprise Award to SIW. The Corporate Social Responsibility Department of Industrial Work Award to SIW. The Green Star Award from the Industrial Estate Authority of Thailand (IEAT) to Siam Construction Steel Company (SCSC).

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Subsidiaries 1) Tata Steel Europe (TSE) 2) Tata Steel Thailand (TSTH) 3) NatSteel Holdings Expansion Projects 1) Orissa Project 2) Chhattisgarh Project Raw Material Projects 1) 2) 3) 4) 5) Benga Coal Project, Mozambique Coal Mining Project in Australia (CDJV) Direct Shipping Ore Project in Canada (New Millennium Capital Corp) Ivory Cost Project Limestone Project in Oman

Mergers and Joint Ventures As a part of business restructuring exercise, Tata Steel merged Hooghly Met Coke and Power Company Ltd. (HMPCL) with itself with effect from 1st April, 2009. The Dhamra Port Company Limited, a 50:50 joint venture of Tata Steel Limited and Larsen & Toubro, is developing a deep-draught port under a concession agreement awarded by the Government of Orissa on Build, Own, Operate, Share and Transfer (BOOST) basis. As part of the drive to secure raw material sources for domestic operations, Tata Steel formed a 50:50 Joint Venture company, S&T Mining Co. with Steel Authority of India Limited (SAIL) in September, 2008.

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TATA STEEL - BUSINESS OBJECTIVE . Ensure safety and environment sustainability. Enthusiastic and happy employees. Improve the quality of life of the communities we serve. Be among the lowest cost producers in the world.

Be the dominant player in the selected market.

Focus on products having high growth and high returns.

Produce steel products of the international quality.

Sustainable growth Divest, merge, acquire. Encourage innovation.

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MANAGEMENT OF TATA STEEL

Board of DirectorsMr. Ratan N. Tata Mr. B. Muthuraman Mr. Nusli N. Wadia Dr. Jamshed J. Irani Mr. Andrew Robb Mr. S. M. Palia Mr. Ishaat Hussain Mr. Subodh Bhargava Mr. Jacobus Schraven Mr. Suresh Krishna Mr. Kirby Adams Mr. H.M. Nerurkar Chairman Vice Chairman Company Director Board Member Non-Executive Independent Director Company Director Board Member Board Member Non-Executive Independent Director Financial Institutions Nominee Managing Director & CEO, Tata Steel Europe Managing Director, Tata Steel Limited

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Tata Steel Group Senior ManagementH.M. Nerurkar Kirby Adams Dr. Karl,Ulrich Kohler Koushik Chatterjee Jean Sebastien Jacques Manzer Hussain Kees Gerretse Avneesh Gupta Dr. Debashish Bhattacharjee Andrew Page Dr. Paul Brooks Shreekant Mokashi Uday Chaturvedi Anand Sen Frank Royle AbanIndra M. Misra Theo Henrar Varun Jha Tor Farquhar Radhakrishnan Nair Adriaan Vollebergh Partha Sengupta Hridayeshwar Jha Alastair Altken N.K. Misra Dook van den Boer Sanjeev Paul Jon Bolton T.V. Narendran Rod Jones Bimlendra Jha V.S.N. Murty Laptawee Senavonge Vivek Kamra Sandip Biswas Lim Say Yan A. Anjeneyan Helen Matheson Dr. Shaun Doherty Managing Director, Tata Steel Limited Managing Director & CEO, Tata Steel Europe Chief Operating Officer, Tata Steel Europe Group Chief Financial Officer Group Director (Strategy) Group Director (Communication) Group Director (Procurement) Group Director (Total Quality Management) Director (Research, Development and Technology) Director (Health and Safety) Director (Environment) Chief (Group Information Services) Managing Director, Corus Strip Products UK, TSE Vice President (TQM and shared services) TSL Director (Finance) TSE Vice President (Coke, Sinterand Iron and IR) TSL Managing Director, Corus Strip Products I Jmuiden, TSE Vice President (Engineering and Chhattisgarh Project) TSL Director (Human Resource) TSE Chief Human Resource Officer, TSL Managing Director, Tata Steel International, TSE Vice President (Raw Material) TSL Vice President (Orissa Project) TSL Managing Director (Distribution, UK and Ireland) TSE Group Head (Mergers and Acquisitions) TSL Manufacturing Director (Corus Strip Products IJmuiden) TSE Vice President (Corporate Services) TSL Manufacturing Director (Corus Long Products) TSE Vice President (Safety and Flat Products) TSL Director (Corus Consulting) TSE Vice President (Long Products) TSL Chief Financial Controller (Corporate) TSL President, Tata Steel Thailand President and CEO, NatSteel Holdings Group Head(Corporate Finance, Treasury and Investor Relations,TSL) Group Head(Corporate Assurance and Risk Management) Company Secretary and Chief of Compliance, TSL Director Legal, TSE Executive Officer to the CEO,TSE

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Research Methodology

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SCOPE OF THE PROJECT:1) To carry out a critical analysis of the TATA STEEL Ltd. Working capital management. 2) To find out the area of the weakness in the existing working capital control mechanism. 3) To extrapolate the companys position with the steel industry

RESEARCH DESIGN :The study will be based on the based on the descriptive and applied research. The efficiency and efficacy of the working capital management model of the TATA STEEL Ltd. The accounting as well as the planning of the working capital needs a thorough study. By ratio analysis and trend analysis the result of the control mechanism can be summarized which will help in identifying the effectiveness of the system under the preview. Hence the ratio and the trend analysis will be used to arrive at the conclusion.

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WORKING CAPITAL CONCEPTDefinition :The cash available for day to day operation of an organization . Sources of Working Capital : 1 . Net Income 2 . Long Term Loan 3 . Sales of Capital Asset 4 . Injection of Fund by Stockholders .Classification of Working Capital :

Component :1 . Cash 2 . Marketable Securities 3 . Receivables 4 . Inventory

Time :1 . Permanent : The amount of current asset required to meet a firms Long term needs . 2 . Temporary : The amount of current assets that varies with seasonal requirements .

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FORMULA of WORKING CAPITAL :Working Capital = Current Asset Current Liability

Collection Of Data (Data Information Sources) :The whole project has been made by collecting data through primary and secondary sources .Primary source stands for that information i.e. collected by direct queries to concern Data will be collected from both the primary and secondary sources:

PRIMARY SOURCE OF DATA:

finance sector.

SECONDARY SOURCE OF DATA : Annual Report

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DATA ANALYSIS OF TATA STEEL

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Net Working CapitalCURRENT ASSETSStores and spares Stock in trade Sundry debtors Interest accrued on investments Cash and bank balances Loans and advances

2006-07505.44 1827.54 631.63 0.2 455.41 2679.15

2007-08557.67 2047.31 543.48 0.2 465.04 1972.2

2008-09612.19 2868.28 635.98 0 1590.6 4142.93

2009-10623.76 2453.99 434.83 0.29 3234.14 3126.49

TOTAL(A)

6099.373145.99 102.61 47.11 198.28 29.21 470.19 448.68 18.37 49.31 943.91

5585.93243.42 115.74 231.05 226.03 39.02 848.54 854.74 19.12 0 1191.12

9849.983842.78 1358.12 506.68 297.37 34.91 1143.08 493.59 2.12 0 1278.4

9873.54086.65 1514.3 676.66 334.99 40.49 1127.5 507.13 2.12 0 709.77

CURRENT LIABLITIESSundry creditors Subsidiary companies Interest accrued but not due Advance received from customers Liablities towards investors educationand protection fund Provision for employee benefits Provision for taxation Provision for fringe benefits Provision for retiring gratuities Proposed dividend

TOTAL(B) NET WORKING CAPITAL(A-B)

5453.66 645.71

6768.78 -1182.86

8957.05 892.93

8999.61 873.89

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Note 1. : For 2006-07:Loans and Advances are 3055.73 cr. Excludes Loans and Advances to Subsidiary Cos.-376.58 cannot be included in working capital calculation Note 2. : For 2007-08:Loans and Advances are 33348.74 cr. Excludes : Advances against Equity (i) Tata Steel Asia Holdings Pvt. Ltd -30,326.12 cr.

which

(ii) Others-570.04cr and Loans and Advances to Subsidiary Cos.- 480.38cr.for acquiring Corus which cannot be included in the calculation of working capital Note 3: For 2008-09:Loans and Advances are 4578.04 cr. Excludes Advances against equity (i)Tata Steel Asia Holdings Pvt. Ltd -237.61 cr. (ii)Others-10.00cr.And Loans and Advances to subsidiary cos.-187.50cr which cannot be included in the calculation of working capital. Note 4.: For 2009-10 :Loans and Advances are 5499.68 cr. Excludes Advances against Equity of 1871.40 cr. And Loans and Advances to Subsidiary cos. of 501.79 cr which cannot be included in the calculation of working capital. Note 5.: For 2006-07: the Cash and Bank balance is 7681.35Cr. Excludes 7225.94 Cr which has been used for some specific purposes but it has not been debited yet which will not be included in the calculation of working capital

Graph showing Current Assets, Current Liabilities and Net Working Capital

Net Working CapitalCURRENT ASSETS CURRENT LIABLITIES 11131 NET WORKING CAPITAL(A-B) 9874 10585

9850 6099 7111 646 2006-07 2007-08 -1182 5586 6796

893 2008-09

874 2009-10

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PERCENTAGE CHANGE IN WORKING CAPITALCurrent AssetsStores and spares Stock in Trade Sundry Debtors Cash and Bank balance Loans and Advances

2006-0714.18 5.51 17.1 57.91 147.46

2007-0810.33 12.02 -13.96 -93.9 -26.38

2008-099.77 40.11 17.02 242.04 110.06

2009-101.89 -14.44 -31.63 103.33 -24.53

Total (A) Curent LiabilitiesSundry Creditors Subsidiary companies Interest accrued but not due Advance received from customers Liabilities towards investors education and protection fund Provision for employee benefits Provision for Taxation Provision for fringe benefits Provision for retiring gratuities Proposed dividends

35.824.15 63.8 93.95 7.14 -3.37 0 79.44 675.11 5987.65 31.19

-58.083.1 12.8 390.45 14 33.58 80.47 90.5 4.08 0 26.19

76.3418.48 1073.42 119.29 31.56 -12.38 34.71 -42.25 0 0 7.33

0.236.35 11.5 33.55 12.65 18.43 -1.36 2.74 -88.91 0 -44.47

Total(B)

48

19.43

24.43

0.47

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FINANCIAL RATIOSWorking Capital Turnover Ratio :Ratio that shows the number of times the working capital is converted into revenue in an accounting period , or how efficiently the management is using its working capital to generate sales revenue .

Working Capital Turnover Ratio = Net Sales / Net Working Capital

WORKING CAPITAL TURNOVER RATIO PARTICULARS Net Sales Net Working Capital Working Capital Turnover Ratio Formula: Net Sales/Net Working Capital 2006-07 2007-08 2008-0917552 646 19693 -1183 24316 893

2009-1025022 874

27

-17

27

29

Working Capital Turnover RatioNet Sales Net Working Capital Working Capital Turnover Ratio 25022

24316 17552 19693

646 27 2006-07 -1183 2007-08 -17

893 27 2008-09

874 29 2009-10

Interpretation: The above graph shows the need of the net current ratio as compared to sales .the reciprocal of WCTR for the year 2006-07 is 27 which shows the efficient utilization of working capital. During the year 2007-08, the ratio is -17 which indicates that the working capital is not at all being used efficiently. In the year 2008-09 , the ratio increases to 27 showing efficient utilization of working capital .In the year 2009-10, working capital turnover ratio is the highest i.e 29 which means that there has been much more improvement in the utilization of fixed assets and current assets and shows good situation of the company.

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Current Ratio :A liquidity ratio that measures a companys ability to pay Short term obligations .

Current Ratio = Current Assets / Current Liabilities

CURRENT RATIO Formula: Current Assets/Current Liabilities PARTICULARS Current Assets Current Liabilities Current Ratio 2006-076099 5454

2007-085586 6769

2008-099850 8957

2009-109874 9000

1

1

1

1

Current RatioCurrent Assets Current Liabilities 9850 6769 6099 5454 1 2006-07 2007-08 5586 8957 Current Ratio 9874 9000

1 2008-09

1 2009-10

1

Interpretation : Current ratio mainly indicates how fast the firm provides liquidation. Current assets represent the payment that will be made by the firm in future and this also include current liabilities. Current ratio estimates short term solvency of the firm. As a conventional rule current ratio of 2:1 represents the satisfactory condition of the firm. Current ratio of 2006-07 is 1, 2007-08 is 1, 2008-09 and 2009-10 is 1 which represents the unsatisfactory condition of the firm according to the rule of thumb.

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Quick Ratio :An indicator of a companys Short term liquidity . The quick ratio measures a companys ability to meet its Short term obligations with its most liquid assets . The higher the Quick Ratio, the better the position of the company . Quick Ratio=(CurrentAssets-Inventory) / Current Liability

QUICK RATIOFormula: Current Assets-inventories/Current liabilities

PARTICULARSLiquid Assets Liquid liabilities Quick Ratio

2006-074272 5454

2007-083539 6769

2008-096982 8957

2009-107420 9000

1

1

1

1

Quick RatioLiquid Assets Liquid liabilities 8957 6769 4272 5454 3539 1 2006-07 2007-08 1 2008-09 1 2009-10 1 6981 7420 Quick Ratio 9000

Interpretation: Usually a high liquid ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firms liquidity position is good . As a convention , generally , a quick ratio of one to one (1:1) is considered to be satisfactory . From the above graph and table we can see that TATA STEEL does not reach the conventional rule . The decrease in the ratio means that the current liabilities are more quickly convertible into current assets . This is due to continuous decrease in current assets and increase in current liability. It is also seen that last year the liquid position of company was affected due to sufficient financing arrangement for CORUS acquisition .

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Stock Turnover Ratio :A ratio showing how many times a company inventory is sold or replaced over a period . Stock Turnover Ratio =Total Sales/Avg. stock Average Stock = Opening Stock + Closing Stock /2 STOCK/INVENTORY TURNOVER RATIO Formula: Avg Turnover/sales*365 PARTICULARS Avg Inventory Sale of product per day Stock/Inventory Turnover Ratio(in days) 2006-072254 19018

2007-082469 21395

2008-093043 25945

2009-103279 25756

43

42

43

46

Stock/Inventory Turnover RatioAvg Inventory Sale of product per day Stock/Inventory Turnover Ratio(in days) 213945

19018 2254 2006-07 43

2469

42

25945 3043 43 2008-09

25756 3279 2009-10 46

2007-08

Interpretation : Stock turnover ratio evaluates the efficiency of the firm in managing its inventory. This ratio indicates the number of times inventory has been converted into sales during the year. In manufacturing company inventory of finished goods is used to calculate inventory turnover. From the above table we come to know that 2009-10 has maximum stock turnover ratio which means that the efficiency of firm converting its finished stock into sales is commendable . This shows that the funds are not blocked into stock because they are easily converted into cash.

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Debtors turnover ratio:Debtor turnover ratio indicates the velocity of debt collection of firm . In simple words it indicates the number of times average debtors ( Receivable ) are turned over during year Debtor Turnover Ratio = Net Sales / Average Debtors Average Debtor = Opening Debtor +Closing Debtor / 2 DEBTORS TURNOVER RATIO(in days)Formula: Avg. Debtors/Turnover*365 PARTICULARS Average Debtors Turnover in days Debtors turnover ratio(in days) 2006-07 586 48 2007-08 588 54 2008-09 590 67 2009-10 535 69

12

11

9

8

Debtors Turnover RatioAverage Debtors 586 588 Turnover in days 590 Debtors turnover ratio(in days) 535

48 12 2006-07

54 11 2007-08

67 9 2008-09

69 8 2009-10

Interpretation:Debtors turnover ratio indicates number of times debtors turn over each year. Higher the value of debtors turnover the more efficient will be the credit of the management. Debtors turnover represents how fast debtors provide liquidity , higher the value of debtors turnover the more efficient will be the management of the credit. From the above graph we conclude that TATA STEEL is increasing the debtors turnover over the past years and has reached 46.73 times of sales as compared to the previous years and experiences higher value of debtors with more efficient and better management of company but still a proper attention should be taken over this area.

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Creditors Turnover Ratio : A short term liquidity measures used to quantify the rate at which a company pays off its suppliers . Accounts payable turnover ratio is calculated by taking total purchase made from suppliers and dividing it by the average account payable amount during the same period . Creditors turnover ratio= Net credit Purchase / Avg creditors Average Creditor = Opening creditor +Closing creditor / 2

PARTICULARS Net Credit Purchase Average Creditors

CREDITORS TURNOVER RATIO Formula: Net Credit Purchase/Avg. Creditors 2006-07 2007-08 2008-094993.95 2840.01 5394.29 3194.71 8110.97 3543.1

2009-108521.25 2395.48

Creditors turnover ratio

1.76

1.69

2.29

3.6

Creditors Turnover RatioNet Credit Purchase Average Creditors 8111 4994 2840 2 2006-07 2007-08 5394 3195 2 2008-09 3543 2 2009-10 2395 4 Creditors turnover ratio 8521

(Note*- All purchases are assumed as credit purchase. Iron ore is excluded as it is obtained from captive mines) Interpretation : Payables turnover ratio of Tata Steel is an exceptional case. It is just slightly greater than two times. This shows that they pay creditors only two times in a year. They manage this turnover for last five years. It helps them to keep the cash with them for a long period and it can be used for other activities. The study understands the liquidity strength of Tata Steel when the payables turnover is read along with debtor turnover. Debtors turnover is around 40 times in a year and payables turnover is only two times! It clearly shows the competitive advantage Tata Steel has over its suppliers and customer

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OPERATING CYCLEGross Operating Cycle (GOC) Net Operating Cycle (NOC) = RMCP + WIPCP + FGCP + DCP = GOC - CDP

2006-07 2007-08 2008-09 2009-10RAW MATERIAL CONVERSION PERIODRaw Material Consumed Raw Material Consumed per day Raw Material Inventory Raw Material Holding Period3121 9 714 84 3430 9 811 86 5710 16 1167 75 5495 15 1294 86

WORK IN PROGRESS CONVERSION PERIODCost of production Cost of process per day work in progress inventory WIP holding Period10452 29 26 1 11329 31 50 2 15187 42 72 2 16040 44 116 3

FINISHED GOODS CONVERSION PERIODCost Of Goods Sold Cost Of Goods Sold per day Finished Goods inventory Finished Goods holding period11634 32 1039 33 12480 34 1076 31 16499 45 1218 27 17479 48 1252 26

DEBTORS CONVERSION PERIODCredit Sale at cost Sales per day Debtors Debtors collection period17552 48 586 12 19693 54 588 11 24316 67 590 9 25022 69 535 8

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CREDITORS CONVERSION PERIODCredit Purchase Purchase per day Creditors Creditors deferral period4994 14 2646 208 5394 15 3347 216 8112 22 5352 159 8521 23 5868 170

GROSS OPERATING CYCLE NET OPERATING CYCLE

45371 37509

49716 40744

65040 51384

67529 52947

Note: creditors have been calculated by adding ( services/supplies+other liabilities+subsidiary co.+int. accrued+adv.recieved from customers) [schedule K]

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NOTE: GROSS OPERATING CYCLE=RMCP+WIPCP+FGCP+DCP NET OPERATING CYCLE=GOC-CCP1.a)Raw Material consumed per day : Raw Material Consumed /365 days b)Raw Material holding a period : RM Inventory/RM consumed per day 2.a)WIP consumed per day : WIP consumed /365days b)WIP holding Period: WIP inventory/WIP consumed per day. 3.a)FG consumed per day : FG consumed /365 days b)FG Holding period : FG inventory/FG consumed per day 4.a)Sales per day : Credit sale at cost/365 days b)Debtors collection period : Debtors/Sales per day 5.a)Purchase per day : Credit purchase/365 days b)Creditors deferral period : Creditors/purchase per day

Interpretation From 2006-07, Tata Steel has been reducing the Raw Material Holding Period. It is a clear indication of efficiency of inventory management techniques Tata Steel follows. RMHP was reduced from 222.03 days in 2005-06 to 145.08 days in 2009-10.Work in Progress Holding Period (WIPHP) is maintained below 2

days till 2008-09 which is very good. This shows that there were no stoppages in the production process. Increase in WIPHP in 2009-10 is because of the increase in work in progress.

Finished Goods Holding Period (FGHP) has been reducing constantly from FY 2006 to 2010. It is achieved by efficient supply chain management and good relationship with customers and dealers. Debtors Collection Period is also decreasing and it has come down to 7.70 days in FY 2010. It shows the prompt collection policy of Tata Steel from its customers. Creditors Deferral Period is at 169 days during FY 2010 which implies that company pays the creditors after 167 days of the purchase. The overall creditors value is Rs 8,521.25 crores while the purchase per day has also increased to Rs. 23.67 crores.

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Net Operating Cycle (NOC) is coming down to 12 days for the past five years. It is because of the increase in Creditors Deferral Period. Its a positive signal for the company because it implies that the cash is available for other uses such as investing in new capital, spending on equipments and infrastructure.

Methods Of Calculation: Raw Material conversion period : Raw material Consumption Raw Material Consumption per Day The value of raw material consumption is taken from schedule 4 of the profit & loss account. The value of raw material consumption per day is taken by dividing raw material consumption by 365 days. The opening and closing raw material is taken from schedule G contains the breakup of entire inventories. The last year closing is consider as the opening for the current year and average is calculated. Holding Days are calculated by the dividing raw material inventory by raw material consumption per day. The value of cost production is taken from schedule 4 of profit and loss account under manufacturing expenses. The entire manufacturing is given in the cost sheet format. The end value is taken as cost of production. The value of cost of process per day is calculated by dividing cost of production by 365 days. The opening and closing value of work in progress inventory is taken from schedule G of the balance sheet . The schedule G contain the break up of entire inventory . The last year closing balance is consider as opening of current year and average is calculated . Holding days are calculated by dividing work in progress inventory by cost of process per day .

Raw Material Inventory

Raw Material Holding Days

Work In Progress Conversion Period: Cost of production

Cost of Process per day

Works In Progress Inventory

Work in Progress Holding Days

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Finished Goods : Cost of Good Sold The value of cost of goods sold is calculated by substracting profit before taxation from net sales . The net sales is taken from profit and loss account as well as profit before taxation . Then the result is calculated . The value is calculated by dividing cost of good sold by 365 days . The opening and closing value of finished goods inventory is taken from schedule G of the balance sheet . The schedule G contain the break up of entire inventories . The last year closing balance is consider as opening for current year and average is calculated . The value is calculated by dividing finished goods sold per day.

Cost of Goods Sold Per Day Finished Goods Inventory

Finished Goods Holding Days

Collection Period : Credit Sales The value of entire net sales from profit and loss account is taken as credit sales for particular year . The entire net sales is consider as credit sales . The value is calculated by dividing the entire credit sales by 365 . The value of debtor is taken from balance sheet. Debtor comes under the head of current asset in the balance sheet . The value of outstanding days is calculated by dividing debtors by sales per day .

Sales Per Day Debtor

Debtor Outstanding Days

Creditor Deferral Period : Credit Purchase For the year 2008 2009 no purchase is shown . Therefore we have calculated the percentage from raw material consumed and then the entire calculation is done . The value is calculated by dividing the entire credit purchase by 360 days . The value of creditor is taken from the schedule of current liabilities and provision . The value of deferral period is calculated by dividing by purchase per day .

Purchase Per Day Creditors Creditors Deferral Period

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s

DATA ANALYSIS OF JSW STEEL59 | P a g e


NET WORKING CAPITALCURRENT ASSETS Inventories Sundry debtors Cash and Bank balance Loans and Advances Other current asset TOTAL (A) CURRENT LIABILITIES Acceptances Sundry creditors Rents and other deposits Advances from customers Interest accrued but not due on loans Other liabilities Premium payable on redemption of FCCBS and preference shares Investor education and protection fund Provision for income tax Provision for wealth tax Provision for fringe benefits Provision for employee benefits Proposed dividend on preference share Proposed dividend on equity share Corporate dividend tax Tax on equity preference dividend Provision for leave encashment TOTAL (B) NET WORKING CAPITAL (A-B)(All the figures are in Rs. Cr)

2006-07 1011.35 245.16 337.80 532.07 342.04 2468.42

2007-08 1549.16 337.39 339.22 814.95 18.62 3059.34

2008-09 2051.42 398.14 419.96 1739.31 17.24 4626.07

2009-10 2585.77 563.25 287.11 2102.35 0.00 5538.48

1478.00 510.87 0.00 40.40 142.25 28.26 0.00 12.17 31.50 0.41 0.27 0.00 27.90 0.00 4.74 0.00 10.46 2287.23 181.19

2060.26 1295.72 20.46 74.83 142.45 56.70 72.30 15.94 0.00 0.55 0.80 21.99 29.06 261.87 49.44 0.00 0.00 4102.37 -1043.03

5293.09 1652.17 43.43 164.29 65.14 51.67 188.16 18.33 0.00 0.40 0.95 23.77 28.99 18.71 8.11 0.00 0.00 7557.21 -2931.14

5047.75 1655.58 58.65 180.38 76.20 53.31 268.21 17.59 0.00 0.00 0.00 24.48 27.90 177.70 34.14 0.00 0.00 7621.89 -2083.41

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Graph showing Current Assets, Current Liabilities and Net Working Capital PARTICULARS CURRENT ASSETS CURRENT LIABILITIES NET WORKING CAPITAL (A-B) 2006-07 2468 2287 181 2007-08 3059 4102 -1043 2008-09 4626 7557 -2931 2009-10 5538 7622 -2083

Net Working Capital of JSWCURRENT ASSETS CURRENT LIABILITIES NET WORKING CAPITAL (A-B)

7557 4626 5538

7622

2468

3059 2287 181

4102

-1043 2007-2008

-2931 2008-2009

-2083 2009-2010

2006-2007

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PERCENTAGE CHANGE IN WORKING CAPITAL

CURRENT ASSETS Inventories Sundry debtors Cash and Bank balance Loans and Advances Other current asset TOTAL (A) CURRENT LIABILITIES Acceptances Sundry creditors Rents and other deposits Advances from customers Interest accrued but not due on loans Other liabilities Premium payable on redemption of FCCBS and preference shares Investor education and protection fund Provision for income tax Provision for wealth tax Provision for fringe benefits Provision for employee benefits Proposed dividend on preference share Proposed dividend on equity share Corporate dividend tax Tax on equity preference dividend TOTAL (B)

2006-07 9.43 6.97 241.66 -45.67 -33.42 -10.09

2007-08 53.18 37.62 0.42 53.17 -94.56 23.94

2008-09 32.42 18.01 23.80 113.43 -7.41 51.21

2009-10 26.05 41.47 -31.63 20.87 -100.00 19.72

43.87 -16.63 0.00 6.41 13.27 -75.47 0.00 53.47 -85.25 -72.67 -91.67 0.00 0.00 -100.00 0.00 -100.00 -1.41

39.40 153.63 0.00 84.86 0.14 100.64 0.00 30.98 -100.00 34.15 196.30 0.00 4.16 0.00 943.04 0.00 79.35

156.91 27.51 112.27 119.55 -54.27 -8.87 160.25 14.99 0.00 -27.27 18.75 8.09 -0.24 -92.86 -83.60 0.00 84.22

-4.64 0.21 35.04 9.79 16.98 3.17 42.54 -4.04 0.00 -100.00 -100.00 2.99 -3.76 849.76 320.96 0.00 0.86

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Interpretation: For past three years JSW Steel has a negative net working capital as the current liabilities are more than current assets. It is very important for a company to keep a ratio of 2 between current assets and current liabilities to meet its daily liquidity requirements. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers which occurred due to increase in the value of purchases/services on account of expansion projects. 2009-10 During 2009-10, inventory has been increased by 26% compared to previous year. Higher inventory of raw materials & spares is mainly due to commencement of new facilities. During same year debtors have been increased by 41% in connection with 30% increase in sales. 21% increase in loans and advances was mainly due to increase in entitlement of Minimum Alternative Tax credit of Rs. 259 crores. Current liabilities are almost same as previous year. It is mainly due to payment of project creditors relating to new 2.8 mtpa expansion project and other projects. . 2008-09 Inventories increased by 32% from Rs. 1,549 crores in 2007-08 to Rs. 2,051 crores in 2008-09. Increase in stores & spares was mainly due to commencement of new facilities. Increase of Finished Goods was mainly due to inventory (Rs. 101 crores) arising out of trial run production of 2.8 MTPA expansion project. Sundry debtors increased by 18% from Rs. 337 crores in 2007-08 to Rs. 398 crores in 2008-09. Loans and Advances increased by from Rs. 842 crores in 2007-08 to Rs. 1,744 crores in 2008-09. The increase was mainly due to a) Loans and advance given to JSW Steel (Netherlands) B.V. amounting to Rs. 664 crores. b) Minimum Alternative Tax credit entitlement of Rs. 95 crores. The current liabilities increased from Rs. 4,102 crores in 2007-08 to Rs. 7,557 crores in 2008-09. The increase was mainly due to increase in the value of purchases/services on account of expansion projects. 2007-08 The inventory increased to Rs. 1,549.16 crores as on 31 March 2008 from Rs. 1,011.35 crores as on 31 March 2007 a growth of about 53.18%. Even as debtors increased from Rs. 245.16 crores in 2006-07 to Rs. 337.39 crores in 2007-08, the debtors cycle remained at 9 days (of gross sales) to that of in 2006-07. 2006-07 Cash and Bank balances increased to Rs. 337 crores in 2006-07 from Rs. 98.87 crores during 2005-06. Net working capital decreased to Rs. 198 crores from Rs. 425 crores of previous year. Decrease in net working capital is because of the decrease in loans and advances and other current assets.

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FINANCIAL RATIOSWorking Capital Turnover Ratio :Ratio that shows the number of times the working capital is converted into revenue in an accounting period , or how efficiently the management is using its working capital to generate sales revenue . Working Capital Turnover Ratio = Net Sales / Net Working Capital

WORKING CAPITAL TURNOVER RATIO Formula:-Net sale/NWC PARTICULAR 2006-07 2007-08 2008-09 8594 11420 14001 Net sale 181 -1043 -2931 Net working capital 47 -11 -5 Working capital turnover ratio

2009-10 18202 -2082 -9

WORKING CAPITAL TURNOVER RATIO60 40 20 0 2006-07 -20 2007-08 2008-09 2009-2010

Interpretation: Working capital turnover ratio of JSW Steel is showing negative values for past three years. It is because their net working capital is negative. Also it is not showing any sign of improving as it is fluctuating between -5 and -10. It is really not good for a company to have a negative working capital turnover ratio. It will affect the daily liquidity requirements of the company. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers.

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Current Ratio :A liquidity ratio that measures a companys ability to pay Short term obligations . Current Ratio = Current Assets / Current Liabilities

CURRENT RATIO Formula:- Current asset/ Current liability PARTICULAR 2006-07 2007-08 2008-09 2009-10 Current Asset 2468 3059 4627 5538 Current Liability 2212 3739 7276 7358 Current ratio 1 1 1 1

CURRENT RATIO1 1 1 1 0 0 0 2006-07 2007-08 2008-09 2009-2010 2009-2010

Interpretation: The interpretations given for working capital turnover ratio suit current ratio also. Because of the negativity of net working capital, current ratio falls below one. Standard value for current ratio is 2 and JSW has to take the initiatives to increase the current ratio. Increase in current liabilities is because of increase in acceptances from subsidiary companies and customers as part of expansion projects.

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Quick Ratio :An indicator of a companys Short term liquidity . The quick ratio measures a companys ability to meet its Short term obligations with its most liquid assets . The higher the Quick Ratio, the better the position of the company . Quick Ratio = (Current Assets Inventories) / Current Liabilities

QUICK ASSET RATIO Formula:- Quick Asset/Current Liability Quick Asset= Current Asset-Inventory PARTICULAR 2006-07 2007-08 2008-09 2009-10 Quick Asset 1457 1510 2575 2953 Current Liability 2212 3739 7276 7358 Quick Ratio 1 0 0 0

QUICK ASSET RATIO1 1 1 0 0 0 0 0 2006-07 2007-08 2008-09 2009-2010

Interpretation The quick ratio has decreased over the last 5 years due to considerable increase in Current Liabilities which increased on account of increase in acceptances.

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Stock Turnover Ratio :A ratio showing how many times a company inventory is sold or replaced over a period. Stock Turnover Ratio = Cost of Goods Sold / Average Stock Average Stock =Opening stock +Closing stock / 2

PARTICULAR Cost of Goods Sold Average Stock Stock Turnover Ratio

STOCK TURNOVER RATIO Formula:- Cost of goods sold/ Avg. Stock 2006-07 2007-08 2008-096784 968 7 9193 1280 7 12793 1800 7

2009-1015916 2319 7

STOCK TURNOVER RATIO7 7 7 7 7 7 7 2006-07 2007-08 2008-09 2009-2010

Interpretation : Stock turnover ratio of JSW Steel is showing a steady trend at 7. In spite of the increase in inventory from Rs. 833 Cr in FY 2006 to Rs. 2318 Cr in FY 2010, they could manage the inventory turnover. Inventories were physically verified during the year by the management at reasonable intervals, except for inventories lying with third parties where confirmations have been received. As the Companys inventory of raw materials mostly comprises bulk materials such as coal, coke, pellets etc. requiring technical expertise for establishing the quality and the quantification thereof, the Company has hired independent agencies for physical verification of such stocks. The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. The Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification.

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Debtors Turnover Ratio :Debtor turnover ratio indicates the velocity of debt collection of firm . In simple words it indicates the number of times average debtors ( Receivable ) are turned over during year . Debtors Turnover Ratio= Net Sales/ Avg. Debtor Average Debtor = Opening Debtor +Closing Debtor /2

DEBTOR TURNOVER RATIO Formula:-Net Credit sale/Avg. Debtor PARTICULAR Net Credit Sale Average Debtor Debtor Turnover Ratio 2006-078594 243 35

2007-0811420 291 39

2008-0914001 368 38

2009-1018202 481 38

DEBTOR TURNOVER RATIO40 39 38 37 36 35 34 33 2006-07 2007-08 2008-09 2009-2010 2009-2010

Interpretation : Debtor turnover ratio has shown a steady trend over the last 3 years which shows the companys efficient policy of collection from customers. At the same time, companys sales and average debtors have increased drastically. It is a good indicator of companys capacity to increase the sales without compromising on its collection policies.

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Payables Turnover Ratio :A short term liquidity measures used to quantify the rate at which a company pays off its suppliers . Accounts payable turnover ratio is calculated by taking total purchase made from suppliers and dividing it by the average account payable amount during the same period .

Payables Turnover Ratio = Net Credit Purchase / Average Creditors Average Creditor = Opening Creditor +Closing Creditor / 2

PAYABLES TURNOVER RATIO Formula:- Net Credit purchase/Avg. Cre. PARTICULAR Net Credit purchase Average Creditor Payables Turnover ratio 2006-074377 604 7

2007-086495 868 7

2008-099382 1427 7

2009-1011386 1643 7

PAYABLE TURNOVER RATIO8 8 7 7 6 2006-07 2007-08 2008-09 2009-2010

Interpretation: JSW Steels payables turnover ratio is high as compared industry ratio. During 2008-09 it has come down to 6.58 which again increased to 6.93. It is mandatory to keep the payables turnover ratio as lower as possible as it will increase the availability of cash for day to day activities. The fact JSW has a negative working capital for last three years has to be read along with its high payables turnover ratio which will again reduce its liquidity.

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OPERATING CYCLEGOC=RMCP+WIPCP+FGCP+DCP NOC=GOC-CDP 2006-07 RAW MATERIAL CONVERSION PERIOD Raw material consumption Raw material consumption per day Raw material inventory(Average) RAW MATERIAL CONSUMPTION PERIOD WORK IN PROGRESS CONVERSION PERIOD Cost of production Cost of production per day Work in progress inventory(Average) WORK IN PROGRESS CONSUMPTION PERIOD FINISHED GOODS CONVERSION PERIOD Cost of good sold Cost of good sold per day Finished goods inventory(Average) FINISHED GOODS CONSUMPTION PERIOD DEBTORS CONVERSION PERIOD Credit sale at cost Sales per day Debtor(Average) DEBTOR PAYBACK PERIOD6784 19 216 12 9193 25 316 13 12793 35 561 16 15916 44 734 17 5778 16 51 3 8065 22 42 2 11168 31 88 3 13930 38 123 3 3964 11 968 89 5884 16 1280 79 8736 24 1800 75 10461 29 2319 81

2007-08

2008-09

2009-10

8594 24 243

11420 31 291

14001 38 368

18202 50 481

10

9

10

10

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CREDITOR CONVERSION PERIOD Credit purchase Purchase per day Creditor(Average) CREDITOR DEFERRAL PERIOD GROSS OPERATING CYCLE4377 12 604 50 114 6495 18 868 49 103 9382 26 1427 56 104 11386 31 1643 53 111 58

NET OPERATING CYCLE 64 54 48 (Note*: Finished goods of 2008-09 excludes Rs. 101.41 Cr which arising out of trial run production.) Interpretation :

Because of increase in raw material consumption per day, Raw Material Holding Period (RMHP) has come down to 79 days during FY 2010 from 96 days in FY 2006. It indicates company applies new inventory management techniques to efficiently utilize its inventory and reduce the stock of inventory. Work in Progress Holding Period (WIPHP) is only three days during 2009-10 which is a good figure. But it has increased in last three consecutive years. At the same time they reduce RMHP, they are not able to reduce WIPHP. The company has to implement some techniques to reduce WIPHP as they do for raw material. Finished Goods Holding Period (FGHP) is increasing constantly from FY 2006. It is 16 days for FY 2010 which is very less and good. It is shown in the profit and loss accounts that the sales is increasing in every year. Increase in FGHP may be because of increase in sales. If they can increase sales without increasing finished goods, it would be appreciable. Debtors Collection Period (DCP) stands at 9 days for last three years which is a good figure. It means that the company gets the payment within 9 days of the credit sales to customers. This satisfies the liquidity requirements of the company. Inspite of the increase in sales, they could maintain DCP. It shows companys efficient collection policy and its business relationship with customers. Creditors Deferral Period (CDP) stands around 50 days for last five years. Even though the credit purchase has increased in these years, there is no increase in CDP. The company should try to increase CDP as its purchases are increasing. It will increase the availability of cash for working capital. During FY 2010, Net Operating Cycle (NOC) has increased to 57 days from 47 days during FY 2009. It is because of decrease in CDP. So the company should increase CDP to reduce NOC.

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DATA ANALYSIS OF SAIL

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NET WORKING CAPITAL2006-07 CURRENT ASSETS Inventory Sundry debtors Cash and Bank balance Other Current assets Loans Claims recovered Contractors and suppliers Income tax paid in advance/recovered Export incentive receivable Other advances Deposit TOTAL(A) CURRENT LIABITITIES AND PROVISION Sundry creditors Advances Security deposit Interest accrued but not due on loans Liability towards investors education and protection fund Other liability PROVISIONS Gratuity Accrued leave Taxation Pollution control Exchange fluctuations Proposed dividend Tax on dividend Employee benefits Wage revision Mines closure/ afforestation Others TOTAL(B) NET WORKING CAPITAL(A-B) (All Figures are in Rs. Cr) 2007-08 2008-09 200910 9027.46 3493.90 22436.37 780.34 472.19 1416.06 104.67 140.84 41.00 433.52 700.03 39046.38

6651.47 2314.75 9609.83 152.56 306.83 623.50 116.56 10.50 107.07 350.95 134.60 20378.62

6857.23 3048.12 13759.40 273.08 372.67 760.33 158.99 11.62 58.56 464.16 534.49 26298.65

10121.50 3024.36 18228.50 1014.47 434.34 840.55 102.87 67.07 16.27 394.60 246.21 34490.74

2545.07 631.68 257.76 198.79 7.43 1757.47 1718.20 1371.43 44.32 83.11 0.00 619.56 105.29 795.18 223.96 223.96 77.15 10660.36 9718.26

2985.24 643.49 243.09 115.64 8.89 2404.57 718.16 1346.70 38.18 89.05 0.00 743.47 125.54 872.21 2459.66 351.05 53.81 13198.75 13099.90

4156.77 565.64 431.2 95.58 10.03 2454.17 573.17 1602.08 364.01 99.73 0.00 536.95 91.26 1070.18 4552.94 467.29 50.60 17121.60 17369.14

6232.36 699.28 517.08 401.12 11 3076.02 89.26 1979.71 2.71 112.92 16.43 702.17 116.62 1276.72 1243.22 607.01 64.90 17148.53 21897.85

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Note: #.Others in current assets include advances to other ,employees and subsidiary companies. #.Deposit in current asset consist of deposit less provision for doubtful loans and advances. #.Employee benefits includes Voluntary retirement, family and medical.

Graph showing Current Assets, Current Liabilities and Net Working Capital45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2006-2007 2007-2008 2008-2009 2009-2010 CURRENT ASSETS CURRENT LIABITITIES AND PROVISION NET WORKING CAPITAL(A-B)

Interpretation The graph clearly indicates that the Current Assets of SAIL has increased over the last five years following a linear trend. The Current Liabilities has also increased but the rate of increase of Current Liabilities is less than the increase in Current Assets. Net Working Capital also has increased consistently over the last five years. 2009-10 During this year inventory has been decreased by 10% compared to previous year. The inventories decreased mainly on account of reduction in semi/finished inventory by Rs.1157 crores and stores & spares inventory by Rs.22 crores. However, there was increase in raw material inventory by Rs.46 crores .The decrease in finished/semi-finished inventories by 20% was due to decrease in quantity and valuation rate on account of reduction in both cost of production or Net Sales Realization .The stores & spares inventory was reduced by 1% and raw material inventory had increased marginally by 2%.Increase in current liabilities by Rs.3248 crores was mainly on account of increase in sundry creditors for capital works, advances from customers, security deposits etc. The provisions were decreased by Rs.3239 crores mainly on account of decrease in provision for gratuity, taxation and wage revision.

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2008-09 The inventory has increased by 47%. Inventories increased mainly on account of increase in semi/finished inventory by Rs.1,873 crores, raw material inventory by Rs.1,183 crores and stores & spares inventory by Rs.209 crores. Increase in finished/semi-finished inventories was due to increase in quantity and valuation rate on account of increase in cost of production and Net Sales realization. Also, the sudden meltdown of world economy during the middle of the year resulted in lower sales and accumulation of stocks. Increase in stores & spares inventory was partly due to price escalations and partly due to procurement for major repairs to be carried out in various plant. Despite increase in sales turnover, there was marginal reduction in net debtors. Loans and Advances reduced by Rs.258 crores. The reduction was mainly on account of decrease in advances recoverable from contractors and suppliers, employees, deposits with port trust, excise authorities, railways, etc. Increase in current liabilities by Rs.1,312 crores was mainly on account of increase in sundry creditors for capital works, security deposits etc. The provisions were increased by Rs.2,610 crores mainly on account of increase in provision for accrued leave, taxation, wage revision. 2007-08 The inventory has increased by 3% this year. The increase in inventory of finished/semi-finished products by 12% was on account of valuation at increased cost of production. However, in terms of number of days of turnover, the inventory of finished/semi-finished products reduced to 32 days as on 31.03.2008 against 33 days as on 31.03.2007. Increase in stores & spares inventory by 10% was due to price escalations and procurement for major repairs to be carried out in various plants. In terms of number of days, stores and spares inventory was almost at the same level of 31.03.2007. Raw materials inventory was at 37 days consumption as on 31.03.2008 as against 49 days consumption as on 31.03.2007. The increase of Rs. 733 crores in net debtors was mainly on account of increase in turnover. In terms of number of days of turnover, the debtors increased from 22 days as on 31.03.2007 to 24 days as on 31.03.2008.Loans and Advances increased by Rs 730 crores. The increase was mainly on account of loans to employees and advances for operational supplies. Increase in current liabilities by Rs 1003 crores were mainly on account of increased level of operations and employees related year-end dues. While there were increase in provisions on account of mines afforestation / restoration / closure costs, wage revision, dividend and tax on dividend; overall increase was marginal due to reduction in provision for gratuity on account of transfer of Rs. 1250 crores to a separate Gratuity Fund constituted during the previous year. 2006-07 The increase of Rs. 433.02 crores in net debtors was mainly on account of increase in turnover. Loans and Advances increased by Rs 369.09 crores. The increase was mainly on account of loans to employees, export incentives recoverable, advances for operational supplies etc.

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PERCENTAGE CHANGE IN WORKING CAPITALCURRENT ASSETS Inventory Sundry debtors Cash and Bank balance Other Current assets Loans Claims recovered Contractors and suppliers Income tax paid in advance/recovered Export incentive receivable Other advances Deposit TOTAL(A) CURRENT LIABITITIES AND PROVISION Sundry creditors Advances Security deposit Interest accrued but not due on loans Liability towards investors education and protection fund Other liability PROVISIONS Gratuity Accrued leave Taxation Pollution control Exchange fluctuations Proposed dividend Tax on dividend Employee benefits Wage revision Mines closure/ afforestation Others TOTAL(B) 2006-07 7.11 23.01 55.68 78.47 20.73 36.85 1.20 -99.40 376.08 14.57 15.10 17.23 2007-08 3.09 31.68 43.18 79.00 21.46 21.95 36.40 10.67 -45.31 32.26 297.10 29.05 2008-09 47.60 -0.78 31.48 271.49 16.55 10.55 -35.40 477.19 -72.22 -14.99 -53.94 31.15 2009-10 -10.81 15.53 23.08 -23.08 8.71 68.47 1.75 109.99 152.00 9.86 184.32 13.24

4.85 17.79 10.96 -47.10 -35.95 9.27 -24.96 12.06 -97.72 -3.85 -100.00 100.00 142.32 2.45 -34.61 57.59 12.53 -11.90

17.30 1.87 -5.69 -41.83 19.65 36.82 -58.20 -1.80 -13.85 7.15 0.00 20.00 19.23 9.69 379.86 56.75 -30.25 20.55

39.24 -12.10 77.38 -17.35 12.82 2.06 -20.19 18.96 853.40 11.99 0.00 -27.73 -27.31 22.70 85.10 33.11 -5.97 29.72

49.93 23.63 19.92 319.67 9.67 25.34 -84.43 23.57 -99.26 13.23 100.00 30.77 27.79 19.30 -72.69 29.90 28.26 0.16

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FINANCIAL RATIOSWorking Capital Turnover Ratio :Ratio that shows the number of times the working capital is converted into revenue in an accounting period , or how efficiently the management is using its working capital to generate sales revenue .

Working Capital Turnover Ratio = Net Sales / Net Working Capital

WORKING CAPITAL TURNOVER RATIO Formula:-Net sale/NWC PARTICULAR Net sale Net working capital Working capital turnover ratio 2006-0733923 9430 4

2007-0839508 13010 3

2008-0943150 17369 2

2009-1040551 21898 2

WORKING CAPITAL TURNOVER RATIO4.00 3.00 2.00 1.00 0.00 2006-07 2007-08 2008-09 2009-2010

Interpretation : The graph clearly indicates that the working capital turnover ratio has decreased over the last five years. This means that the firm is not being efficient in employing its working capital. This is due to the drastic increase in net working capital which is a result of increase in current assets. It is an indication that the company is not utilizing its current assets in an efficient manner. There is also a piling up of cash and bank balanced which again shows company is not using its cash.

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Current Ratio :A liquidity ratio that measures a companys ability to pay Short term obligations . Current Ratio = Current Assets / Current Liabilities

CURRENT RATIO Formula:- Current asset/ Current liability PARTICULAR Current Asset Current Liability Current ratio 2006-0720379 5398 4

2007-0826299 6401 4

2008-0934491 7713 4

2009-1039046 10937 4

CURRENT RATIO5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-2010

Interpretation : The interpretations given for working capital turnover ratio suit current ratio also. Because of the negativity of net working capital, current ratio falls below one. Standard value for current ratio is 2 and in 2008 to 2009 SAIL is meeting with standard level of 2, so it is favorable for company but in 2009 to 2010 the ratio is increasing more than standard level to 2.28 so company may face problem to meet its obligations .

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Quick Asset Ratio :An indicator of a companys Short term liquidity. The quick ratio measures a companys ability to meet its Short term obligations with its most liquid assets. The higher the Quick Ratio, the better the position of the company .

Quick Ratio = (Current Assets Inventories) / Current Liabilities

QUICK ASSET RATIO Formula:- Quick Asset/Current Liability Quick Asset= Current Asset-Inventory PARTICULAR Quick Asset Current Liability Quick Ratio 2006-0713727 5398 3

2007-0819441 6401 3

2008-0924369 7713 3

2009-1030019 10937 3

QUICK ASSET RATIO4 3 3 2 2 1 1 0 2006-07 2007-08 2008-09 2009-2010

Interpretation : Quick ratio is also higher as net working capital is high. Interpretations for current ratio apply for quick ratio also. Quick ratio has increased to 1.75 during 2009-10 from 1.42 during 2008-09. It is observed that company is in position to meet its obligations Higher the ratio the better is the capacity of business to meet its current obligations.

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Stock Turnover Ratio :A ratio showing how many times a company inventory is sold or replaced over a period .

Stock Turnover Ratio = Cost of Goods Sold / Average Stock Average Stock = Opening Stock +Closing Stock / 2

STOCK TURNOVER RATIO Formula:- Cost of goods sold/ Avg. Stock PARTICULAR Cost of Goods Sold Average Stock Stock Turnover Ratio 2006-0727907 6431 4

2007-0832256 6754 5

2008-0938779 8489 5

2009-1035764 9594 4

STOCK TURNOVER RATIO6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-2010

Interpretation: Stock turnover ratio of SAIL is very less. It was around 4.5 times during the period of 2005-06 to 2008-09. During 2009-10, it has decreased to 3.73 times. It is a serious matter of concern. The company has to take some stringent actions to increase turnover. The sole reason for less stock turnover is high stock of inventory. It seems like the company is very conservative in its approach to stock of inventories. It is strongly recommended that the company has to decrease stock of inventory thereby increase its stock turnover. Company may improve the efficiency of its supply chain in this aspect.

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Debtors Turnover Ratio :Debtor turnover ratio indicates the velocity of debt collection of firm . In simple words it indicates the number of times average debtors (Receivable ) are turned over during year . Debtor Turnover Ratio = Net Sales / Average Debtors Average Debtor = Opening Debtor +Closing Debtor /2

DEBTOR TURNOVER RATIO Formula:-Net Credit sale/Avg. Debtor PARTICULAR Net Credit Sale Average Debtor Debtor Turnover Ratio 2006-0733923 2098 16

2007-0819508 2681 7

2008-0943150 3036 14

2009-1040551 3261 12

DEBTOR TURNOVER RATIO20 15 10 5 0 2006-07 2007-08 2008-09 2009-10

Interpretation : Debtor turnover ratio has been coming down since 2006-07. It was at 12.44 times during 2009-10. Debtor turnover of 12 times means that on an average company takes 30 days to collect payment from debtors. It is a good number, but in todays highly competitive industrial environment, companies are trying to collect its receivables fast. But in the case of SAIL debtor turnover is reducing year by year. Delay in collection shows a large number for sundry debtors in balance sheet, which in fact increase the current assets. It is also a reason for the high current ratio. So it is recommended that the company should tighten its collection policies and bring up the debtor turnover.

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Creditors Turnover Ratio :A short term liquidity measures used to quantify the rate at which a company pays off its suppliers . Accounts payable turnover ratio is calculated by taking total purchase made from suppliers and dividing it by the average account payable amount during the same period . Payables Turnover Ratio = Net Credit Purchase / Average Creditors Average Creditor =Opening Creditor +Closing Creditor / 2

CREDITOR TURNOVER RATIO Formula:- Net Credit purchase/Avg. Cre. PARTICULAR Net Credit purchase Average Creditor Creditor Turnover ratio 2006-0714764 2486 6

2007-0815532 2765 6

2008-0921829 3572 6

2009-1018662 5169 4

(Note*- All the purchases are assumed to be credit purchases.) (Note*-SAIL has captive mines for iron ore and coal. It procures iron ore from these mi

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