Project Report on Working Capital Management at Tata Steel Ltd.

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A Report on Working Capital Management at Tata Steel Ltd. Submitted To : Prof. C.V. Kumar IBS-Hyderabad Submitted By : Ankit Agrawal Roll No. : 10ESPHH010007 Executive MBA (2010-11) IBS-Hyderabad Table of Contents 1. Tata Steel Ltd. : Brief Profile 2. Macroeconomic Changes affecting Indian Steel Industry ..1 ..2 3. Working Capital Management of Tata Steel Ltd. .........................2 (i)Estimation of Working Capital....................................................3 (ii)Working Cycle
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    AReport onWorking Capital Management atTata Steel Ltd. Submitted To : Submitted By : Prof. C.V. Kumar Ankit AgrawalIBS-Hyderabad Roll No. : 10ESPHH010007Executive MBA (2010-11)IBS-Hyderabad    Table of Contents 1.   Tata Steel Ltd. : Brief Profile ..12.   Macroeconomic Changes affecting Indian Steel Industry ..23.   Working Capital Management of Tata Steel Ltd..........................2(i)Estimation of Working Capital....................................................3(ii)Working Cycle & Turnover Ratios ...34.   Analysis(i)Effectiveness of Working Capital Management 4(ii)Inventory and Receivables Management 4(iii)Impact of changes in Working Capital on Sales ........................ 55.   References ..6    Tata Steel Ltd. : Brief Profile The Tata Steel Group has always believed that mutual benefit of countries, corporations andcommunities is the most effective route to growth. Tata Steel has not limited its operations and businesses within India but has built an imposing presence around the globe as well. With theacquisition of Corus in 2007 leading to commencement of Tata Steel's European operations, theCompany today, is among the top ten steel producers in the world with an existing annual crudesteel production capacity of around 30 million tonnes per annum and employee strength of above80,000 across five continents. The Group recorded a turnover of Rs.147,329 crore (US$ 28,962million) in 2008 - 2009. The Company has always had significant impact on the economicdevelopment in India and now seeks to strengthen its position of pre-eminence in internationaldomain by continuing to lead by example of responsibility and trust. R  aw Material Sourcing : Tata Steel¶s Indian operations are self-sufficient in iron ore through itscaptive mines. The mines and collieries in India give the Company a distinct advantage in rawmaterial sourcing. It is 60% self sufficient for coking coal and the rest is procured mostlythrough imports. However, for Corus operations, the Company needs to source raw materialsthrough contracts with mining companies in UK and the Netherlands. Tata Steel is also strivingtowards raw materials security through joint ventures in Thailand, Australia, Mozambique, IvoryCoast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of IndiaLimited to establish a 50:50 joint venture company for coal mining in India. Also, it has bought19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining. Exploration of opportunities for titanium dioxide in Tamil Nadu, commissioning a Ferro-chrome plant in SouthAfrica and setting up of a deep-sea port in coastal Orissa are on for meeting the Company'sobjectives of growth and globalization Macroeconomic Changes affecting Indian SteelIndustry Steel is a deregulated sector and the Government does not directly make investments in the steelindustry In order to promote the domestic steel industry, the Government has framed the National Steel Policy, 2005 and constituted an Inter-Ministerial Group (IMG), under thechairmanship of Secretary (Steel) in 2007, to monitor and coordinate the issues concerning major steel investments in the country related to infrastructure, raw material supply, environmentalclearance and other resource constraints. In the National Steel Policy 2005, a target has been keptfor increasing the per capita steel consumption in rural areas from 2 Kg per capita per annum to 4Kg per capita per annum by 2019-20 through active focus on opening of new rural sales outletsalong with promotional efforts to increase demand.    A Gross Budgetary Support (GBS) of Rs.118.00 crore has been provided for promotion of Research and Development (R&D) in the Iron and Steel Sector during the Eleventh Five Year Plan. Government implements various fiscal measures in the form of duties and taxes, from timeto time with an overall view to regulate economy and boost the industry. However, on theaftermath of global economic slowdown the following economic stimulus measures wereinitiated by the Government during October 2008 to February 2009 : y   Export Duty on steel items (except melting scrap) withdrawn with effect from 31.10.2008 y   Duty Entitled Pass Book (DEPB) on steel items restored with effect from 14.11.2008 y   Import Duty on iron and non-alloy steel items re-imposed at 5% with effect from18.11.2008 y   Central Value Added Tax (CENVAT) on steel items reduced to 8% with effect from24.02.2009 ; and y   Countervailing duty (CVD) on Thermo Mechanically Treated (TMT) bars and structuralwere reintroduced with effect from 02.01.2009. Working Capital Management at Tata Steel Ltd. Firms need money to pay for their day to day activities. They have to pay salaries, bills, suppliers& so on. The funds available to do this, is known as the firms working capital. Managing theworking capital needs of the organization is important, because shortage of funds could disruptthe day to day operations where as by holding excess funds the interest burden of the firm startsmounting & eating into its profits. There are two concepts of Working Capital, Gross WorkingCapital & Net Working Capital. Gross working capital is the sum total of all Current Assets,Inventories, Debtors, Loans & Advances & Cash & Bank balances. Net Working Capital is thedifference between Current Assets & Current Liabilities & Net working capital is a qualitativeconcept. It indicates the liquidity position of the firm and suggests the extent to which workingcapital needs may be financed by permanent sources of funds. Current assets should besufficiently in excess of current liabilities to constitute a margin or buffer for maturingobligations within the ordinary operating cycle of a business. In order to protect their interests,short-lived creditors always like a company to maintain its current assets to maintain at higher level than current liabilities.A firm needs to invest in Current assets to ensure Smooth andUninterrupted Operations. How much the firm invests will depend on its operating cycle. Cashflows in a cycle into, around and out of a business. It is the life blood of the business and it is the primary responsibility of the management to keep it flowing to generate profits.
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