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A STUDY OF WORKING CAPITAL MANAGEMENT WITH RESPECT TO TATA STEEL PVT. LTD.

Khushbu Daf

Student, Department of Business Management,

Jhulelal Institute of Technology.

Prof. Geetika Bhutani

Assistant Professor, Department of Business Management,

Jhulelal Institute of Technology, Nagpur

Abstract:

 Efficient management of Working Capital is very important for the success of an enterprise. In present time greater importance is given to Working Capital. So, here an attempt is made by me to study the working capital management of the selected unit i.e. TATA STEEL PVT. LTD. From the financial management point of view, capital in broader sense can be divided into two main categories- fixed capital and working capital. Here I am going to study the concept of working capital. After this study the research finds that the working capital position of the Tata Steel Ltd. is not satisfactory.

Keywords: Tata Steel Ltd., Working Capital Management, Current Ratio.

INTRODUCTION

Efficient management of Working Capital is very important for the success of an enterprise. In present time greater importance is given to Working Capital. So, here an attempt is made by me to study the working capital management of the selected unit i.e. TATA STEEL LTD. Concept of Working Capital Analysis From the financial management point of view, capital in broader sense can be divided into two main categories- fixed capital and working capital. Here I am going to study the concept of working capital. The term working capital generally is used in two senses – ‘Gross working capital’ which denotes total current asset and ‘Net working Capital’ which denotes the excess of current assets over current liabilities. Both the concepts have their own significance and relevance. In common parlance, working capital is that part of capital, which is in working or which is used to meet day-to-day expenses. To understand the exact meaning of the term ‘Working Capital’, it will be appropriate to understand its two components – current assets and current liabilities. The current assets are those assets, which can be converted into cash within a short period of time, say not more than one year during the operating cycle of business or without affecting normal business operations. Current liabilities are such liabilities as are to be paid within the normal business cycle a within the course of an accounting year out of current assets.

Gross working Capital Concept According to the gross concept, working capital means total of all the current assets of a business. It is also called gross working capital.

Gross working Capital = Total Current Assets

 Net Working Capital Concepts The concepts of Net Working Capital refer to the excess of current assets over current liabilities. It indicates the surplus value of current assets. Since, all the current liabilities are met out of current assets and after meeting the current liabilities what remains in the enterprise is called net working capital. Net working capital will exist only in that case when long-term funds, to some extent, are invested in current assets and comparatively less amount of short term funds are involved in current assets.

OBJECTIVES OF THE STUDY

  • To study working capital management of Tata Steel Pvt. Ltd.
  • To analysis the change in current assets and current Liabilities.
  • To study of impact of effective working capital management of financial gain.
  • To study the working capital turnover ratio.
  • To analyze the change in current ratio of the company.

RESEARCH METHODOLOGY

Research Methodology

Research comprises defining and redefining problems, formulating hypothesis or suggested solution; collecting, organizing and evaluating data; making deductions and reaching conclusion; and at last carefully testing the conclusion to determine whether they fit the formulating hypothesis.

METHODS OF DATA COLLECTION:-

Data collection is the most important activity or process in research. Data collection plays a crucial role in finding the actual problem and solution to that problem. Generally there are two methods for finding the data:-

  1. Primary Data
  2. Secondary Data

Only Secondary data has been used for the study

Secondary Data:- 

Secondary data is that data which is already exist in books, internet, Company website, Company officials /employee, Company data base, Company journals. So, this data is collected through these available sources.

FINDINGS

  • 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.
  • 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.
  • 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.
  • 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.
  • 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. 
  • 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.
  • 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 marginindicates that the business is unable to control its production cost.
  • From the above table 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.

  • 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.
  • 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.
  • During the year 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 the company’s liquid assets were not satisfactory.
  • 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.
  • There is also satisfactory net cash flow from the operating, investing and financing activities of the organization.
  • 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.
  • They are able to manage their cash, funds and debts.
  • By adapting better management practices, the company may attain a sound financial position in future and able to manage its working capital efficiently.
  • “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.

BIBLIOGRAPHY

  • www.moneycontrol.com
  • www.tatasteel.com
  • www.workingcapital.com
  • www.wikipedia.org
  • www.capitalmarket.com

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