1.

1 Introduction
The project proposed is to study the Working Capital Management at Tinplate Company of India Limited
standalone. With an aim to learn how TCIL manage his working capital. How they arrange capital for day to
day operation. How much working capital required for production. Major part of working capital
requirement companies get from bank, so bank have to follow certain norms in granting working capital
finance to companies. The norms of working capital financing followed by bank since mid-70s. And these
norms are made by some committee recommendation to strength the procedures for working capital finance
by banks. Some of major committees are Daheija, Tandon, Chore committee. Project contains the credit
policy of TCIL and inventory management system taken by the company. The study is also covers how much
working capital demand affect the operation and are they facing time lag to get funds.

1.2 Research Methodology Adopted

The basic type of research used to prepare this project is descriptive. The study is mainly based on secondary
data which are already collected and available. These include internal sources within the company and
external sources like books and periodically published annual report of TCIL. Interaction with various
employees of costing department had a major source of information. The study is limited to five financial
year i.e. from 2011-2016. The data used in this study has taken from the financial statement and their
related schedules of TCIL Jamshedpur. Calculation of various ratios related to working capital (like current,
quick, debtor turnover, creditor turnover, cost sheet and net operating cycle) has done in this report to know
the liquidity position of the company and cash conversion cycle. Working capital requirement of TCIL for
next three year also projected in this report. Estimation of working capital for next three year is done
through CAGR method and also taken care of external factors (like; expansion plan of TCIL, raw material
availability and market study of steel sector).

1.3 Major Findings

These are some major finding i got to know during the study of working capital management at Tata steel.

1. TCIL takes working capital loan/cash credit from SBI, Union Bank of India, HSBC, and HDFC
and term loan from IDBI Bank Ltd, Union Bank of India, Allahabad Bank, State Bank of
Hyderabad, State Bank of Patiala.

2. TCIL uses Cash-Credit/Working Capital Term Loans facility and prefers it over short- term
loan. Cash-Credit Account is a primary method in which Banks lend money against the security
of commodities and debt. In TCIL, cash credit is secured by

1
 hypothecation of Raw Materials, Finished Goods, W.I.P, General stores and Book Debts.
3. Bank follows certain norms while funding companies for working capital. And these norms are
made by committee recommendation. There are several committee report (Tandon Committee,
Daheija Committee, Chore Committee) and companies are supposed to follow one of the
committee report.

4. TCIL purchase some part of raw material from credit basis and remaining part from cash basis and
they follow 45 Days creditor policy. But some time it’s varying creditor to creditor. Again for
debtor its vary debtor to debtor. The minimum time period is allowed by TCIL to its debtor is
30 Days.

5. TCIL do not use EOQ method for ordering raw material. EOQ i.e. economic order quantity is
not done by the management. It is a very important part of inventory which is ignored. EOQ
can give the company adequate or optimum level of inventory.

6. Company’s operating cycle/cash conversion cycle is 26days. It shows the credibility of company.
Company has a good relationship with its creditors so, that they give a huge time period to TCIL
for paying them.

1.4 Conclusion

Working capital is a vital part for keep running the production. And it’s important for all manufacturing
companies. And a company should maintain positive working capital, so that will be able to pay off its current
liabilities at any time. Last four year TCIL does not maintain idle ratio because the lots of loan but this year
TCIL maintaining an idle ratio of working capital. Because they pay the entire loan and the reducing raw
material price.TCIL cash conversion cycle is only 26 days, which is very less as compared to its
competitor.

2
INDIAN STEEL SECTOR

3
2.1 Introduction
The role of iron and steel industry in India GDP is very important for the development of the country. In
India the visionary Shri Jamshededji Tata set up the first iron and steel manufacturing unit called Tata
iron and steel company, at Jamshedpur in Jharkhand. Iron and steel are among the most important components
for the infrastructure development in the country. The Indian steel sector enjoys advantages of domestic
availability of raw materials and cheap labour. Iron ore is also available in abundant quantities. This provides
major cost advantage to the domestic steel industry.

2.2 Market Size

Steel production capacity of the country expanded from about 75 million tonnes per annum (MTPA) in 2009-
10 to about 101.02 million tonnes (MT) in 2013-14, when output was 81.7 MT. India produced 7.07 MT of
steel in January 2015 reporting the fourth highest production level globally which was 1.7 per cent higher
than the country's steel production in the same month last year. The steel sector in India contributes nearly
five per cent of the country’s gross domestic product (GDP) and employs over 600,000 people. The per capita
consumption of total finished steel in the country has risen from 51 Kg in 2009-10 to about 60 Kg in 2013-
14.

2.3 Growing at a Fast Pace

Total crude steel production rose at a CAGR of 7.9 per cent over the last five years to reach
81.54 MT in FY14. Finished steel production increased 8.3 per cent to 85.0 MT in FY14; analysts expect
production figures to improve rapidly. Over the next five years, with the Ministry of Steel forecasting
production levels at 115.3 MT by FY17. SAIL is the leader in India’s steel sector; in FY14, the
company accounted for 12 per cent of the country’s finished steel production and 16.7 per cent in the
country’s crude steel production. Tata Steel, another household name in the country, leads private sector
activity in the steel sector. During 2014, the firm accounted for 9 per cent of finished steel production and
11.2 per cent in the country’s crude steel production. India is the fourth-largest steel producer in the world,
and is expected to become the second largest by 2016. The government has stepped up infrastructure
spending from the current 5 per cent of GDP to 10 per cent by 2017, and the country is committed to
investing USD1 trillion in infrastructure during the 12th Five Year Plan. Considering 15 per cent as steel
component in the total investment, the initiative has a potential to generate an additional demand for steel
of 18.75mtpa.

4
THE TINPLATE COMPANY OF INDIA LIMITED
A TATA Enterprise

5
3.1 COMPANY PROFILE
TCIL is today the largest indigenous producer of tin coated and tin free steel sheets in India, enjoying 35-40%
market share and undoubtedly the industry Leader for more than 90 years. The company exports about 20-
25% of its production directly to end-users (canmakers) and its products are well accepted in the markets of
SE Asia, Middle East and some developed countries in Europe.

Headquarter in Kolkata; the Company’s Works is located at Jamshedpur, Jharkhand. There are presently 11
offices in India and a distribution network with 16 stocking points.

TCIL Works, situated at Golmuri, Jamshedpur has presently two Electrolytic Tinning Lines (ETLs) and Cold
Rolling Mills (CRMs).

The Company is in the business of manufacturing and supplying reliable, cost-effective, value-added tin mill
products. It manufactures various grades of Electrolytic tinplates, tin free steel sheets and Full Hard Cold
Rolled Sheets (FHCR) used for metal packaging.

In pursuit of its downstream agenda, the company has been bonding with food processors and fillers by way
of world class printing and lacquering facilities at the "Solution Centre".

3.2 COMPANY OVERVIEW

The company was incorporated in 1920 and the site chosen was Golmuri, Jamshedpur. The first steel plate of
Tinplate gauge was rolled on 18th Dec 1922 at the Hot Dip Plant (HDP) producing Hot Dip Tinplate,
from tin bars supplied by Tata Steel and this continued till 1979 albeit with capacity enhancements. For 50
years, TCIL thus almost singlehandedly built up the Indian Tinplate Industry.

To keep pace with technological developments, TCIL was the first to set up a combination line capable of
producing both Electrolytic Tinplate (ETP) and Tin Free Steel (TFS). This plant, the first of its kind in India,
was commissioned in 1978 and commenced production in January 1979. In 1982, Tata Steel bought the
shareholding of Burmah Oil, the then major shareholder and took over the management of the company.

In 1991-92, TCIL undertook backward integration to setup a Cold Rolling Mill (CRM) for production of
TMBP Coils, based on Hot Rolled Coil supplies from Tata Steel, which was also setting up its Hot Strip Mill
(HSM) at the same time. The CRM was thus a strategic fit for TCIL with Tata Steel. The Cold Rolling Mill
(CRM) was commissioned in 1996-97 but with heavy time and cost overruns, the company started incurring
severe losses. A turnaround strategy was developed focusing on:

 Operational Improvements

6
  Financial Restructuring

 Hot Dip Plant(HDP) phase out and downsizing

Since April 1998, TCIL operates under a conversion arrangement with Tata Steel for its business and
with its continuing yearn for quality and customer service, looks forward to the future with confidence.

Company Tinplate Company of India Ltd. (TCIL)

Established 1922
Chairman Mr. Koushik Chatterjee
Managing Director Mr. Tarun Daga
Industry Mining/Minerals/Metals
Headquarter 4, Bank shall Street, Kolkata
Works Golmuri, Jamshedpur, Jharkhand
Product Range Oil cans (OC)
Non-oil cans (NOC)
Open Top Sanitary Cans (OTC)
Tin-free Steel
Auditors Price Waterhouse (301112E)
BSE Code 504966
NSE Code TINPLATE
F.V. of Share Rs10

TINPLATE COMPANY of INDIA LIMITED

3.3 Introduction

Tinplate is a packaging substrate and is one of the most suitable substrate for processed foods owing to its
physical and metallurgical properties vis-à-vis other alternates (glass, paper, plastic, aluminum, tetra pack).
Tinplate, a value added flat steel product, evokes trust in steel since it is ideally suited for packaging
processed edibles: approx. 65-70% of global tinplate consumption is for processed foods and beverages.

The world is today grappling with environmental concerns and packaging waste is a major cause of concern.
Tinplate is the most eco-friendly packaging media and in the developed world has played a major role in
facilitating growth of processed foods and beverage industry, ensuring protection, improved shelf life and
aesthetics/ shelf appeal to promote brand equity of the product packed inside, better than any other media.

7
3.4 Global Tinplate Business

Worldwide packaging industry growth is dependent on the rate of economic growth of a region/country.
The growth at relatively higher rates in emerging economies of BRICS and ASEAN as compared to
developed economies (Europe, USA, and Japan) will ensure that Asian markets will be the prime driver of
growth. The global Tinplate market is estimated to be 15 million Tons. Although main consumers have been
developed nations in Europe, US, Japan (consuming nearly 73% of world Tinplate), off late,
increasing production/consumption is noticeable in developing economies like Brazil, India, China and
Mexico etc. Moreover increasing labor costs have put Europe, USA, and Japan in a comparatively
disadvantageous position as compared to the developing nations.

With Asia becoming the driver for growth, new capacities are coming up in the emerging economies like
China, India, and Thailand. Major producers in Europe/ USA/ Australia are rationalizing capacities or shifting
manufacturing facilities to cost advantageous regions.

With emergence of alternate substrata ( tetra pack, pet, plastics) especially for packaging edibles, the tinplate
industry globally, has had to address Substitution Threat and has been focusing on Light- weighting to
improve cost competitiveness (for example, it is estimated that beverage cans have become 35% lighter
over last two decades).

World-wide tinplate continues to have a strategic presence in portfolio businesses of major integrated flat
steel producers. For any integrated steel player, the Tinplate business balances the portfolio and offsets
the capacity with auto and construction businesses. Tinplate business, being dependent (70%) on foods/
beverages has lesser cyclicity when compared with auto and construction. Across the world, key players (CSN
Brazil, Corus, Arcelor Mittal, Bao Steel China) have also made strategic downstream investment in various
forms to defend and promote their leadership position in metal packaging.

3.5 Indian Tinplate Industry

Consumption of Tinplate in India is low i.e. approx. 0.42 kg/ capita compared to 10 kg/capita in many
developed nations, even a similar developing economy like China, consumes more than 1 kg/ capita. The
consumption in India is presently, estimated to be about 0.49 million tons.

Weak regulatory mechanism to enforce packaging laws has led to use of sub-standard imported tinplate
as also cans being re-cycled for multiple uses- example, in edible oils packaging, cans are used up to four
times and if as per existing laws only fresh tin cans were to be used, tinplate consumption would increase
manifold. Recognizing the weakness, the Government gazettes a Steel Quality control but later dropped its
implementation under pressure from can makers.

8
The Indian packaging industry is poised for growth. The rapidly growing GDP in India and changing
lifestyle in urban India is going to bring a boom in the packaging industry as a whole. Historical figures
comparing Packaging Spend per capita and GDP per capita shows that packaging spend grows rapidly once
the per capita income crosses the USD 4000 per annum and India is now around that threshold.

India has strong GDP growth and a strong correlation exist between the rates of packaging growth and
increasing income level / economic growth. Also India has vast potential and perfect credentials “to be the
food factory to the world”, being the largest producer in the world of many food items. The Government of
India has envisioned that by 2015, the processed food industry in India may grow by three times. The
demand of tinplate in India has reached approx. 490000 MT in FY 09-10.

3.6 Consumer Awareness

Today cans have become such an integral part of our lives that we use them almost unconsciously. In
Foods, Beverages, Toys, Chemicals, Gifts, Household items, and a huge number other common and everyday
items cans are indeed part of our lives today. Other advantages:

 Tin cans are ecofriendly.

 Offers highest shelf life hence preferred by retailers.
 Food products is best packed & preserved is OTS cans.
 Excellent printability.
 Aroma & flavor retention.

8 FRESHNES
0
S (%)
6
0

4
0

2
0
Ti Polythe Glas PE Tetrapa
0
n ne s T ck

Tin cans are ideal for packaging food products. The food is preserved, long-life (air tight packaging)
and fresh. The nutritive value remains.

9
 50
SAFETY (%)
40

30

20

10

0
Tin Polythene Glass PET Tetrapack

Tin cans are safer, and coatings prevent the food from bacteria and UV rays, packaging preserves the
taste and aroma of the food.

70
ATTRACTIVENESS (%)
60
50
40
30
20
10
0

Tin Polythene Glass PET Tetrapack

Tin cans are made attractive by engraving labels, lacquered and printed soft drink cans are popular among
youth.

10
3.7 SWOT Analysis of TCIL
SWOT analysis is an examination of the strength, weakness, opportunities and threats faced by a company
during its phase of operation. A SWOT analysis is important for TCIL to evaluate its current position
and formulate strategies to tackle its competitors.

Strength Weakness

HRC supplies from Tata Steel; Capabilities to 1. Low R&D capability as well as can-
manufacture all products categories; 25%+ of making, Inadequate downstream value chain
production consistently exported; Solution knowledge, relationship with food
development and downstream capability. processors/fillers.

2. Inadequate captive TMBP Capacity for

catering both ETL 1 & 2.

Inept regulatory mechanism: use of TFS

Light-weighting; Growing Indian food / TMBP / non-prime tinplate/ re-used cans for
processing industry; Low per capita tinplate food packaging, Drop in custom duty for non-
consumption; Growing market in India’s prime and non-prime imports continuing,
vicinity. Substitute packaging media.

Opportunity Threats

11
3.8 Tinplate Products

 Oil Can (OC)

 Non-Oil Can (NOC)
 Open Top Sanitary Can (OTSC)
 Tin Free Steel (TFS)
 Double reduced Tinplate sheet
 Crown Cork
 Cold rolled coils
 Printed and lacquered sheet

BROCHURES

12
24 | P a g e

13
14
3.9 TCIL’s process flow

15
 16

3.10 Manufacturing Process

16
17

17
3.11 Stages of Production

All tinplate originates as in the steel-making furnace (Tata Steel), where the proper chemistry for steel is
obtained to meet the specific needs of the end user. All tin mill products start their production process in
a Basic Oxygen Furnace (Tata Steel).

 Cold Rolling to produce TMBP Coils

 Electro- tinplating

CRM - Process Flow Diagram

Process Flow Diagram of Electrolytic Tinplating Plant

18

18
3.12 Awards/Recognition for TCIL
(2015-16)

 Silver Award" in CCQC-Kolkata 2015.

 Excellent Award” in NCQC 2015 at Chennai.

 Merit Awards for “Best Theme Paper”, “Poster Contest” And “English Slogan” at INSSAN
National Convention –2015.

(2014-15)

 QC Team “Akarshan” & “Pragati” got certificate of Appreciation in 26th QC Circle Convention
(CII-Jharkhand State Level) – Dec’14.

 INSSAN – 3rd Prize in Hindi Slogan – Dec’14, Merit Award in English slogan, Hindi Poem
and Best evaluator Of suggestion.

(2013-14)

 Best Associated Company (TIS Group) in Safety Performance in FY'13.

 Quality Circle Teams "ANVESHAN" bagged Excellent Award, in National Competition for Quality
Circle (NCQC2013) Dec'-2013.

 CII (ER) Productivity Award Certificate of Appreciation for Significant Improvement in TQM
Mar'14.

 INSSAN Merit Prize for Best Evaluator of Suggestion Feb'14.

(2012-13)

 TCIL ' ANVESHAN' bagged Excellent Award , in National Competition for Quality Circle (NCQC-
2013), held during 20-23 Dec. '2013 at Techno India College of Technology, Kolkata.

 TCIL Received Certificate of Appreciation from CII in recognition of commendable efforts towards
significant improvement in Safety, Health and Environment in SHE contest 2012-2013 in the
category of large scale companies.

 TCIL 'AKARSHAN' quality circle team from CRM (E&E) department won '3 STAR' (Gold) in
international Quality Circle Convention at Kuala Lumpur, Malaysia.14th to 19th Oct 2012.

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19

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 (2011-12)

 TCIL secured first position under 'Significant' category in CII Eastern Region Productivity
Awards 2011-2012.

 Quality Circle Teams "SUDHAR" and "AKARSHAN" bagged Par Excellence (Gold Medal), in
National Convention on Quality Circles (NCQC-2011), which was held during 09-12 December,
2011 at Hyderabad, organized by Quality Circle Forum of India, Hyderabad Chapter.

 TCIL received MERIT Prizes-INSAAN 2011

 Quality Circle Teams "SUDHAR" and "AKARSHAN" bagged Gold Medal, in Quality Circle
Competition (CCQC-2011) held on 20th September, 2011 at Taj Bengal, Kolkata organized by
Quality Circle Forum of India, Kolkata Chapter.

(2010-11)

 TCIL Commended “Certificate of Recognition” for CII(ER) Energy Conservation Award 2010-11.

 Quality Circle Team AKARSHAN bagged Excellent Award in 24th National Convention on Quality
Concept(NCQC-2010), which was held during 27-30 December, 2010, at the College of Engineering
(Autonomous Andhra University), Visakhapatnam (AP).

 TCIL has been conferred with the CII Exim Prize 2010.

 Quality Circle Team SUDHAR bagged SILVER Medal in the International Convention on Quality
Concept Circle Competition (ICQCC-2010) held on 12-15 October, 2010 at Hyderabad, organized
by Quality Circle Forum of India, Hyderabad.

 Quality Circle Team AKARSHAN bagged Gold Medal, (1st Position) in Quality Circle Competition
held on 21st September, 2010 at Taj Bengal, Kolkata organized by Quality Circle Forum of
India, Kolkata Chapter.

 TCIL received the recognition for sustained excellence.

 TCIL won the award in the Dare to try category TATA INNOVISTA 2010.

 TCIL certified under ISO: 22000 2005 Food Safety Management System.

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20

22
 TCIL bagged the 2nd position among Institutional Donors in Jharkhand during 2009- 10.
(2009-10)

 1st position in Regional "22nd CII CONVENTION ON QC CIRCLES" held ON 22.12.2009.

WILLIAMSON MEGAR HALL, KOLKATA.

 Certificate of appreciation for its sustained and unquestionable commitment to excellence 17th Dec
2009. New Delhi.

 3rd Position in Operation & Production Group CII-9th Supervisory Skills Competition held at
Kolkata.

 3rd Position in Turner Trade CII-22nd Work skills Competition held at Kolkata.

 2nd position in 22nd CONVENTION ON QC CIRCLES held on 8 December 2009 at Hotel

Green Horizon, Ranchi.

 MSDTCIL certified under ISO/IEC 27001:2005.

 Recognition to "SUDHAR" QC team Eastern Region Chapter Convention on Quality Circles-

CCQC-2009.

 Personal Achievement Bhagwati Devi wins GOLD medal at ASIAN POWERLIFTING

CHAMPIONSHIP 2009 held at Udaipur, Rajasthan.

(2009-10)

 1st Position in 8th CII (Eastern Region) Skills Competition held at Kolkata.

 TCIL wins CII-EXIM Bank Prize for Business Excellence.

 Tinplate Hospital: ISO 9001:2000 Accreditation.

 2nd Position in TURNER trade 21st Regional Work skills Competition, organized by CII Eastern
Region.

 TCIL won the CII Sustained High Overall Productivity Award 2007-08.

 TCIL bagged the 2nd position among Institutional Donors in Jharkhand during 2007- 08.

23
21

24
3.13 Vision, Mission and Strategic Goals of TCIL

Mission:

Service customer requirements of green packaging by offering reliable, cost-effective & value added tin mill
products.

Strategic Goals:

 Create and enhance value for the stakeholders through Growth and
Competitiveness.

 Reach status of supplier of choice for tin mill products in Asia.

 Establish as an exemplar in corporate sustainability.

 Create an exciting and safe work place for our employees.

22
25
3.14 TCIL’s Management Profile
Board of Directors as on 31st October 2015

Mr. Koushik Chatterjee Chairman

Mr. Anand Sen Nonexecutive Directors

Mr. Dipak Kumar Banerjee Independent Director

Mr. Ashok Kumar Basu Independent Director

Dr. Sougata Ray Independent Director

Mr. B N Samal Independent Director

Mrs. Atrayee Sanyal Nonexecutive Director

Mr. Tarun Daga Managing Director

Committees of the Board as on 31st October, 2015

Names of Committees Directors

Mr. Dipak Kumar Banerjee – Chairman Mr.

Audit Committee Ashok Kumar Basu
Dr Sougata Ray Ms
Atrayee Sanyal

Mr. Dipak Kumar Banerjee – Chairman Mr.

Nomination and Remuneration Koushik Chatterjee
Committee Mr. Ashok Kumar Basu

Mr. Ashok Kumar Basu – Chairman Mr.

Stakeholders Relationship Committee Anand Sen
Mr. B N Samal

Mr. Anand Sen – Chairman Dr

Corporate Social Responsibility Committee Sougata Ray
Mr. Tarun Kumar Daga

23

26
 Management as on 1st December 2015

Mr. Tarun Kumar Daga Managing Director

Mr. Chacko Joseph Chief Financial Officer

Mr. Santosh Antony Vice President Marketing & Sales

Mr. S Venkat Raman Deputy General Manager Works

Mr. Harjit Singh Chief (Corporate Services)

Dr. Atul Srivastava Chief (Medical Services)

Mr. Kaushik Seal Company Secretary

24
27
28
 3.15 Share Holding Pattern in TCIL

Category Shares held % of Shareholding

1. PROMOTERS HOLDING:
Tata Steel Ltd. 78,457,640 74.96

2. PUBLIC SHAREHOLDING

A.Institutions

Mutual Funds/UTI 9,317 0.01

87,339 0.08
Financial Institution/Banks
1,650 0.00
Insurance Companies
2, 50,823 0.24
Foreign Institutional Investors/FPIs
B.Non-Institution

Bodies Corporate 54, 34,597 5.19

Individuals-

Individual’s shareholders holding

Nominal share capital Up to Rs.1 lakh 1, 58, 05,334
15.11

Individual’s shareholders holding 46, 19,513

Nominal share capital in excess 4.41
Of Rs. 1lakh

Directors & their Relatives 1,000 0.00

Trusts 425 0.00

Total 10, 46, 67,638 100.00

25
29
Literature Review

30
Gilbert and Reichert (1995)
Find that accounts receivable management models are used in 59 percent of these firms to improve working
capital projects, while inventory management models were used in 60percent of the companies. More
recently Farrgher, Kleiman and sahu (1999) find that 55percent of the firms in the S&P industrial index
complete some form of a cash flow assessment, but did not present insights regarding accounts receivable
and inventory management, or the variation of any current asset accounts or liability accounts across
industries. Thus, mixed evidence exists concerning the use of working capital management techniques.
Theoretical determination of optimal trade credit limits are the subject of many articles over the years (e.g.
Schwartz 1974; Scherr 1996), with scant attention paid to actual accounts receivable management. Across a
limited sample,

Weinraub and Visscher (1998)

Observe a tendency of firms with low levels of current ratio to also have low levels of current liabilities.
Simultaneously investigating accounts receivable and payable issues, Hills, Sartoris, and Ferguson (1984) find
differences in the way payment dates are defined. Payees define the date of WCM insight across firms,
industries, and time can add to this body of research. Maness and Zietlow present two models of value
creation that incorporate effective short-term financial management activities. However, these models are
generic models and do not consider unique firm or industry influences. Maness and Zietlow discuss industry
influences in a short paragraph that includes the observation that, “An industry a company is located in may
have more influence on that company’s fortunes than overall GNP”

Eljelly (2004)

Elucidated that efficient liquidity management involves planning and controlling current assets and current
liabilities in such a manner that eliminates the risk of inability to meet due short-term the relation between
profitability and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on
a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found
that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that
affects profitability. The size variable was found to have significant effect on profitability at the industry
level. The results were stable and had important implications for liquidity management in various Saudi
companies. First, it was clear that there was a negative relationship between profitability and liquidity
indicator such as current ratio and cash gap in Saudi sample examined. Second, the study also revealed that
there was great variation among industries with respect to the significant measure of liquidity.

31
27

32
Bergami Robert (2007)

Analysis that international trade transactions carry inherently more risk than domestic trade transactions,
because of differences in culture, business processes, laws and regulation. It is therefore important for trade to
ensure that payment is received for good dispatched and that the goods received and paid for comply with the
contact for sale. One effective way of managing these risks has been for traders to rely on the letter of
credit as a payment method. However for exporters in particular, the letter of credit has presented difficulties
in meeting the compliance requirements the current rules that govern letter of credit transactions (UCP
500) have been review for the past three years and an updated set of rules (UCP 600) is expected to be
introduced on 1st July 2007. This paper focuses on the changes mooted for 2007 and compares these main
issues with the existing rules and other associated guidelines and regulations governing this method of
payment. This paper considers the implication to changes of letter of credit transactions and the sharing of
risk. Firstly the paper provides some background to letters of credit, then comments on existing literature and
models, and subsequently an analysis of the most important changes to the existing rules, before reaching a
conclusion. The conclusion is that the UCP 600 have not paid enough consideration to traders and service
providers and are likely to engender an environment of uncertainty for exporters in particular.

Singh and Pandey (2008)

Said that working capital management is the management of current assets and current liabilities. Maintaining
high inventory level reduce the cost of possible interruption in the production process or of loss of business
due to scarcity of product, reduce supply cost and protects against price fluctuations. Granting trade credit
favours the firm’s sales in various ways. Trade credit can act as an effective price cut and incentives to
customers to acquire merchandise at time of low demands.

De Loof (2003)

Discussed that most firms had large amount of cash invested in working capital. It can therefore be
expected that the way in which working capital is managed will have a significant impact on profitability
of those firms. Using correlation and regression tests he found a significant negative relationship between
gross income and the number of days, accounts receivable, inventories and accounts payable of Belgian
firms.

Shin and Soenen (1998)

Highlighted that efficient working capital management was very important for creating value to shareholders.
The way working capital was managed had a significant impact on both profitability and liquidity. The
relationship between the length of net trading cycle, corporate profitability and risk adjusted stock return was
examined using correlation and regression analysis, by industry and capital intensity.

33
Pradeep Singh (2008)

Empirically analysed that a firm’s working capital consists of investment in current assets, which includes
short term assets, cash and bank balance, inventories, receivable and marketable securities. Therefore,
the working capital management refers to the management of the levels of all these individual current
assets. On the other hand inventory which is one of the important elements of current assets, reflect the
investment of the firms fund.

Vellanki S. Kumar, Awad S. Hanna, Tersa Adams (2000)

Conducted research and examined that the systematic assessment of working capital requirement in
construction project deals with the analysis of various quantitative and qualitative factors in which
information is subjective and based on uncertainty. This paper presents a methodology to incorporate
linguistic variables into workable mathematical propositions for the assessment of working capital using
fuzzy set theory.

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WORKING CAPITAL

35
Working capital is the capital available for conducting the day-to-day operations of an organization;
normally the excess of current assets over current liabilities. Working capital management is the management
of all aspects of both current assets and current liabilities, to minimise the risk of insolvency while
maximising the return on assets. The main objective of working capital management is to get the balance of
current assets and current liabilities right.

Working capital management techniques such as intersection of carrying cost and shortage cost, working
capital financing policy, cash budgeting, EOQ and JIT are applied to manage different components of
working capital like cash, inventories, debtors, financing of working capital etc. These effective techniques
mainly manage different components of current assets.

Working capital management techniques are very effective tools in managing the working capital efficiently
and effectively. Working capital is the difference current assets and current liabilities of a business. Major
focus is on current assets because current liabilities arise due to current assets only. Therefore, controlling the
current assets can automatically control the current liabilities. Now, current assets include Inventories, Sundry
Debtors or Receivables, Loans and Advances, Cash and Bank Balance.

All working capital management techniques attempt to find optimum level of working capital because
both excess and shortage of working capital involves cost to the business. Excess working capital carries the
„carrying cost‟ or „interest cost‟ on the capital lying unutilized. Shortage of working capital carries
„shortage cost‟ which include disturbance in production plan, loss in revenue etc. Finding the optimum
level of working capital is the main goal or winning situation for any business manager.

There are certain techniques used for finding the optimum level of working capital or management of
different items of working capital.

Intersection of Carrying Cost and Shortage Cost: One of the important methods of finding the optimum level
of working capital is the point of intersection of carrying cost and shortage cost. The total of carrying and
shortage cost is minimum at this point. Here, the levels of current assets are optimum at the point where the
shortage and carrying costs are meeting or intersecting.

5.1 Working Capital Financing Policy

Working capital can be divided into two viz. Permanent and Temporary. Permanent working capital is the
level of working capital which is always required and maintained. Temporary working capital is the part of
working capital which keeps on fluctuating. It is high in good seasons and low in bad seasons. There are two
types of financing available. They are long term financing and short term financing. Three strategies are
possible with respect to financing of working capital. Efficient financing of working capital reduces carrying
cost of capital.

36
 1. Long term financing is used for both permanent and temporary WC.
2. Long term financing is used for permanent and some part of temporary WC. Remaining part of temporary
WC is financed through short term financing as and when required.
3. Long term financing is used for permanent and short term financing for temporary WC.

These strategies should be chosen so as to match the maturity of source of finance with the maturity of the asset.

5.2 Sources of Working Capital

Cash Budgeting

Cash budgeting is another important technique for working capital management which helps keeping
optimum level of cash in the business. Cash budgeting involves estimating the requirements of cash by
estimating all the fore coming receipts and payments. For effective management, a balance is needed between
both excess and shortage of cash. It is because both ends are costly. Speeding up of collection and getting
relaxed credit terms from the creditors can reduce the cash requirements.

37
Inventory Management

Inventory is an important component of working capital or current assets. Optimum level of inventory can
save on costs heavily.

EOQ
Economic Order Quantity (EOQ) model is a famous model for managing the inventories. It helps the
inventory manager know how to find the right quantity that should be ordered considering other factors
like cost of ordering, carrying costs, purchase price and annual sales. The formula used for finding EOQ is
as follows:

EOQ = √{ (2 * A * O) / (P * C)}

A – Annual Sales

O – Cost per Order

P – Purchase price per unit

C – Carrying Cost

Just-in-Time
Just-in-time is another very important technique which brought about paradigm shift in the management of
inventories. It did not reduce cost of inventory but it abolished it completely. Just-in-time means acquiring
raw material or manufacturing product at the time when it is required by the customer. This strategy is
very difficult to implement but if implemented can bring down inventory cost to minimum levels.

These are some important techniques discussed here. They are very effective in managing working capital.
Managing working capital means managing current assets. Current assets like cash can be managed using
cash budgeting; inventory can managed using inventory techniques like EOQ and JIT. Debtors and financing
of working capital can be managed using appropriate sources of finance.

The cash operating cycle is the length of time between the company's outlay on raw materials, wages and
other expenditures and the inflow of cash from the sale of goods. The faster a firm can 'push' items around the
cycle the lower its investment in working capital will be.

38
Calculation of Cash operating cycle
Raw material Holding period = (xxxx) Less;

Payment payable period = (xxxx) WIP Holding

period = (xxxx)

Finished Goods Holding period = (xxxx)

Receivable’s collection Period = (xxxx)

Working Capital Liquidity Ratio

Two key measures, the current ratio and the quick ratio, are used to assess short-term liquidity.
Generally a higher ratio indicates better liquidity.

Current ratio
Measures how much of the total current assets are financed by current liabilities.

Current Assets

Current Liability

A measure of 2:1 means that current liabilities can be paid twice over out of existing current assets.

Quick (acid test) ratio

The quick or acid test ratio measures how well current liabilities are covered by liquid assets. This ratio
is particularly useful where inventory holding periods are long.

Current Assets – Inventory

Current Liability

A measure of 1:1 means that the company is able to meet existing liabilities if they all fall due at once.

39
Working capital turnover
One final ratio that relates to working capital is the working capital turnover ratio and is calculated as:

Sales Revenue

Net Working Capital

This measures how efficiently management is utilising its investment in working capital to generate sales and
can be useful when assessing whether a company is overtrading. It must be interpreted in the light of the
other ratios used.

5.3 Net Working Capital Block (TCIL A/c):

NET WORKING
CAPITAL=CURRENT ASSTES-
CURRENT LIABILITY
Current Assets 2011-12 2012-13 2013-14 2014-15 2015-16
INVENTORIES 5255 6185 6592 6728 9071
DEBTORS 4049 8377 5903 3520 5090
CASH & BANK 138 157 81 179 476
OTHER C.A 4 8 0 1 501
LOAN & ADV 8340 2817 1799 2313 1998
TOTAL C.A (A) 17786 17544 14375 12741 17136
Current Liabilities 2011-12 2012-13 2013-14 2014-15 2015-16
CURRENT LIABILITIES 13486 16619 14833 14343 8298
PROVISIONS 7660 3062 3781 3142 3398
TOTAL C.L (B) 21146 19681 18614 17485 11696
Net working capital (A-B) -3360 -2137 -4239 -4744 5440

Net working capital (A-B)

6000

4000

2000

2011-12 2012-13 2013-14 2014-15 2015-16

-2000

-4000

-6000

40
INTERPRETATION:-
A measure of both a company’s efficiency and its short-term financial health. The working capital ratio
indicates whether a company has enough short term assets to cover its short term debt. Anything below 1
indicates negative working capital, while anything over 2 means that the company is not investing excess
assets. Most believe that a ratio between
1.2 and 2 is sufficient.

But in the case of TCIL, from FY2011-12 to FY2014-15 company’s net working capital is in negative figures.
If a company’s current assets do not exceed its current liability, then it may run into trouble paying back
creditors in the short term. But here creditors are not asking for their money, So company is getting a huge
time period to pay creditors and don’t required to maintain an idle working capital ratio. In the context of
current assets company is having a less amount of cash and bank balance. It doesn’t mean that company is
unable to pay its current obligations. Company just taking an advantage of allowed time by creditors and
FY2015-16 Company maintain an idle working capital ratio because of paying short- term loan.

5.4 Operating Cycle concept

The operating cycle is the average period of time required for a business to make an initial outlay of cash to
produce goods, sell the goods, and receive cash from customers in exchange for the goods. The operating
cycle is useful for estimating the amount of working capital that a company will need in order to maintain or
grow its business. A company with an extremely short operating cycle requires less cash, and so can still grow
while selling at relatively small margins.

41
Operating Cycle concept= DIO+DSO-DPO
Where: Days Inventory Outstanding (DIO) = 365/Inventory T.O ratio.

Days Sales Outstanding (DSO) = 365/Debtors T.O ratio. Days

Payable Outstanding (DPO) = 365/Payables T.O ratio

Days Inventory Outstanding is

calculated by:(Average
Inventory/COGS per day)
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Net Sales (A) 62703 87716 105907 91116 83385
EBIDT (B) 9336 13283 17303 15140 18400
COGS (A-B) 53367 74433 88604 75976 64985
COGS per day 146.21 203.92 242.75 208.15 178.04
Opening Inv. 4162 5255 6185 6592 6728
Closing Inv. 5255 6185 6592 6728 9071
Average Inv. 4708.5 5720 6388.5 6660 7899.5
DIO (days) 32.20 28.04 26.31 31.99 44.36

Days Sales Outstanding is

calculated by: (Average
Debtors/Sales per Day)
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Net Sales 62703 87716 105907 91116 83385
Sales per day 171.78 240.31 290.15 249.63 228.45
Opening Debt. 3130 5029 9327 6168 3739
Closing Debt. 4049 9327 6120 3740 5302
Avg. Debtors. 3589 7178 7723 4954 4520
DSO (days) 20.89 29.86 26.61 19.84 19.78

Days Payable outstanding is calculated by: (Average Payables/COGS per day)

Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
COGS per day 146.21 203.92 242.75 208.15 178.04
Opening Payables 2441 5199 5378 7180 7572
Closing Payable 4381 5378 6752 7418 6262
Average Payable 3411 5288.5 6065 7299 6917
DPO (days) 23.32 25.93 24.98 35.06 38.85

42
 Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
DIO (days) 32.20 28.04 26.31 31.99 44.36
DSO (days) 20.89 29.86 26.61 19.84 19.78
DPO (days) (23.32) (25.93) (24.98) (35.06) (38.85)
Operating Cycle (days) 29.76 31.98 27.95 16.77 25.30

INTERPRETATION:-
The operating cycle is the number of days from cash to inventory to accounts receivable to cash. The
operating cycle reveals how long cash is tied up in receivables and inventory. A long operating cycle means
that less cash is available to meet short term obligations.

Research methodology
6.1 Research design:
This study is based mostly on the applied and descriptive research. The study will focus on the efficiency and
efficacy of the working capital model of TCIL. Through ratio analysis the result of the controlled mechanism
can be summarised which will help in identifying the usefulness of the system under the preview. Hence the
ratio analysis will be used to arrive at the conclusion.

6.2 Tools and Techniques of Data Collection:

Data will be collected both from primary and secondary sources.

Primary Sources

1.Discussion with experts

2.Department visits
3.Data’s from accounts and finance department

Secondary Sources

1.Annual reports
2.Journals and books
3.Research articles
4.Websites
5.Intranet of TCIL

43
Statistical Tools:

The project report entitled “Report on Working Capital Management of TCIL” is purely based on annual
reports and other published reports. Therefore this study mainly consists of interpretation of financial
statement. The major tools of interpretation of the financial statement are

 Ratio analysis
 Tables
 Graphs
 Charts

6.3 Limitation of the study

 Time restriction was only two months of project work in the organization
 The study is limited to five financial year i.e. from 2011-2016.
 The data used in this study is taken from the financial statement and their related schedules of TCIL.
 The scope and the area of the study are limited to general office of TCIL Jamshedpur only.
 The companies which are taken for the purpose of comparison may or may not follow the same
accounting policies, which TCIL is currently following.

44
Data Analysis of TCIL

45
 7.1 LIQUIDITY MEASUREMENT RATIOS

7.1a Working Capital Turnover Ratio

It is a measurement comparing the depletion of working capital to the generation of sales over a given period.
This provides some useful information as to how effectively a company is using its working capital to
generate sales. A company uses working capital (current assets
- current liabilities) to fund operations and purchase inventory. These operations and inventory are then
converted into sales revenue for the company. The working capital turnover ratio is used to analyze the
relationship between the money used to fund operations and the sales generated from these operations. A
high ratio indicates the firm is in a good liquidity position and vice-versa.

WORKING CAPITAL TURNOVER RATIO= NET SALES/ NET

WORKING CAPITAL
PARTICULARS 2011-12 2012-13 2013-14 2014-15 2015-16
NET SALES 62702 87716 105907 91116 83385
NET WORKING CAPITAL -3360 -2137 -4239 -4744 5441
WORKING CAPITAL TURNOVER -18.66 -41.04 -24.98 -19.20 15.32
RATIO

WORKING CAPITAL TURNOVER RATIO

20

10

0
2011-12 2012-13 2013-14 2014-15 2015-16
-10

-20

-30

-40

-50

INTERPRETATION:-

A measurement comparing the depletion of working capital to the generation of sales over a given period.
This provides information as to how efficiently a company is using its working capital to generate sales. In a
general sense, the higher the ratio the better, because it means that the company is generating a lot of sales
compare to the money it uses to fund the sales. Working capital turnover ratio is good tool to take
decision to manage sales. It shows the use of working capital for sales. Both high and low working capital
turnover ratio is not good. Because low WCTR means low inefficient use of working capital in operation
and very high working capital turnover ratio does not show good position of company

46
because its shows company is operating with high short-term debt obligations. Ratio has been decreased to a
negative level from -18.66 in FY2011-12 to -19.20 in FY2014-2015 which is also harmful for any
organisation because if an organisation is not having ample funds then it could adversely affect its day to day
functioning which has a negative effect on the smooth functioning of the organisation. In FY2015-16 ratio is
increase due to increase in net working capital.

7.1b Current Ratio

The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current
or working capital position) by deriving the proportion of current assets available to cover current
liabilities. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash
equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term
liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory,
the higher the current ratio, the better.

Current ratio=Current assets/Current liability

Particular 2011-12 2012-13 2013-14 2014-15 2015-16
Current assets 17786 17544 14375 12741 17136
Current liabilities 21146 19681 18614 17485 11696
Current ratio 0.84 0.89 0.77 0.72 1.46

1.6
Current ratio
1.4
1.2
1
0.8
0.6
0.4
0.2
0

2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:-

A current ratio that measures a company’s ability to pay short term obligations, also known as „liquidity
ratio‟ „cash assets ratio‟ and „cash ratio‟. The ratio is mainly used to give an idea of the company’s ability to
pay back its shot term liability with its short term assets. The higher the ratio, the more capable the
company is of paying its obligation. A ratio under I

47
suggest that the company would be unable to pay off its obligations if they due at that point. Idle current
is 2:1.

In FY2011-12 to FY2015-16 It’s CL continuously declining. It means company has paying short-term loan.
TCIL always maintain below then idle ratio But it doesn’t mean that company is unable to pay off its
current liability. Company never keep cash ideally, it always keep short term investing. And a good
relationship with creditor allows paying off the obligation with company’s convenience.

7.1c Quick Ratio

The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity indicator that further refines the
current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities.
The quick ratio is more conservative than the current ratio because it excludes inventory and other current
assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current
position.

QUICK RATIO=CURRENT ASSETS – INVENTORY/CURRENT LIABILITY

Particular 2011-12 2012-13 2013-14 2014-15 2015-16
Current assets 17786 17544 14375 12741 17136
STOCK IN TRADE 5255 6185 6592 6728 9071
Current liabilities 21146 19681 18614 17485 11696
QUICK RATIO 0.59 0.57 0.41 0.34 0.68

QUICK RATIO
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

2011-12 2012-13 2013-14 2014-15 2015-16

48
INTERPRETATION:-

The quick ratio measure a company’s ability to meet its short term obligation with its most liquid assets. The
quick ratio is more conservative than the current ratio because it excludes inventories from current assets.
Generally companies should aim to maintain a quick ratio that provides sufficient leverage against liquidity
risk given the level of predictability and volatility in a specific business sector among other consideration.

The ideal standard in case of quick ratio is 1:1. And if it is more it is considered to be better. The idea
behind this is that for every rupee of current liabilities, there should be at least one rupee of liquid asset. Quick
ratio is thus a rigorous test of liquidity and gives a better picture of short term financial position of the firm.

7.1 d Stock turnover Ratio

STOCKTURNOVER RATIO= COST OF GOODS SOLD/ AVG

STOCK
PARTICULAR 2011-12 2012-13 2013-14 2014-15 2015-16
COST OF GOODS SOLD 53367 74433 88604 75976 64985
AVERAGE STOCK 4708 5720 6388 6660 7900
STOCKTURNOVER RATIO 11.33 13.01 13.86 11.40 8.22

16
STOCKTURNOVER RATIO
14
12
10
8
6
4
2
0

2011-122012-132013-142014-152015-16

INTERPRETATION:-

A ratio showing how many times a company’s inventory is sold and replaced over a period. This ratio should
be compared against industry average. A low turnover implies poor sales and therefore excess inventory. A
high ratio implies either strong sales or ineffectively buying. High inventory levels are unhealthy because
they represent an investment with a rate of return of zero. Here we can see a increasing trend in stock turnover
ratio in FY2011- 12 to 2013-14 and then after it decreasing in FY2014-15 to FY2015-16 and the highest ratio
in FY2013-14 is 13.86 it means company has a 26days inventory turnover period and the lowest ratio in
FY2015-16 is 8.2 it means company has a 44days inventory turnover period.

49
7.2 Debts Ratio

7.2a Debtors Turnover Ratio

Debtors Turnover Ratio or Receivables Turnover Ratio indicates the relationship between net sales and
average debtors. It shows the rate at which cash is generated by the turnover of debtors.

DEBTORS TURNOVER RATIO=NET SALES/AVERAGE DEBTOR

PARTICULARS 2011-12 2012-13 2013-14 2014-15 2015-16
NET SALES 62703 87716 105907 91116 83385
AVERAGE DEBTOR 3589.50 6212.68 7139.89 4734.15 4304.81
DEBTORS TURNOVER 17.46 14.11 14.83 19.24 19.37
RATIO

25 DEBTORS TURNOVER RATIO

20

15

10

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:-

The debtor turnover ratio is an activity ratio measuring how efficiently a firm uses its assets. Debtor turnover
is the number of times per year that a business collects its average accounts receivable. The ratio is
intended to evaluate the ability of a company to efficiently issue credit to its customer and collect funds from
them in a timely manner. A high turnover ratio indicates a combination of a conservative credit policy and an
aggressive collection department, as well as a number of high quality customers. TCIL has a good control
over its receivables. On FY 2015-16 the ratio was 19.37 means TCIL collect the cash immediately after
giving the delivery, i.e. 18.8 days after sale on an average. It show how efficiently company collects
money from its debtor and utilise it for further purchase of raw material.

50
 7.2b Debt Collection Period

The term Debtor Collection Period indicates the average time taken to collect trade debts. In other words, a
reducing period of time is an indicator of increasing efficiency. It enables the enterprise to compare the real
collection period with the granted/theoretical credit period. Days Sales Outstanding is a short – term
(operating) Activity ratio which tells us about the debtors holding time. The more the holding period the
more risky it becomes for the company. A high debt collection period indicates that the company is taking
time to collect cash from its debtors. The cash is not being collected on time which is not a good sign for
the company, it is a red flag.

Debt Collection Period= 365/ DEBTORS TURNOVER

RATIO
PARTICULARS 2011-12 2012-13 2013-14 2014-15 2015-16
DEBTORS TURNOVER RATIO 17.46 14.11 14.83 19.24 19.37
No of Days 365 365 365 365 365
Debt Period 20.89 25.85 24.60 18.96 18.84

30
Debt Collection Period
25

20

15

10

2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:-

Debt collection period means the average number of days that the debtors take to get converted to cash.
In other words, credit sales are locked up in debtors for the number of days. As we can see TCIL’s Debt
collection period is high, which is an indication of slow or late payments by debtors. TCIL was successful
in decreasing after FY2013-14 as because an unsecured but good debtor was reduced.

51
7.2 c Debt-Equity Ratio

Debt to equity ratio is also known as “external-internal equity ratio”. This ratio indicates the extent to which
debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders
and indicates the company’s policy on the mix of capital funds. The ratio measures how the company is
leveraging its debt against the capital employed by its owners. If the liabilities exceed the net worth then in
that case the creditors have more stake than the shareowners.

Debt-Equity Ratio=Total long term

debt/Shareholder's fund
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Share Capital 21713 20727 15110 10480 10480
Res & Surplus 38946 39492 42859 44416 49234
Equity 60659 60219 57969 54896 59714
Unsecured Loans 9941 11345 5183 785 0
Secured Loans 161 105 69 33 0
Total Debt 10102 11450 5252 818 0
Debt-Equity 0.16 0.19 0.09 0.01 0

0.2 Debt-Equity
0.15

0.1

0.05

0
2011-122012-132013-142014-152015-16

INTERPRETATION:-
A high debt/equity ratio generally means that a company has been aggressive in financing its growth with
debt. This can result in volatile earnings as a result of the additional interest expense.

52
7.3 Credit Ratio

7.3a Creditor Turnover Ratio

The creditors turnover ratio concerns with analysing the rapidity of creditors payment. It indicates the velocity
of creditors during concerned accounting year. This ratio is also known as creditor velocity ratio.

Creditor Turnover= Credit Purchase/ Avg Debtor

PARTICULARS 2011-12 2012-13 2013-14 2014-15 2015-16
Credit Purchase 11888 13793 15618 13550 9890
Avg Creditor 3410 5288 6065 7299 6917
Creditor Turnover 3.48 2.60 2.57 1.85 1.42

4 Creditor Turnover Ratio

3.5
3
2.5
2
1.5
1
0.5
0

2011-122012-132013-142014-152015-16

INTERPRETATIO

Accounts payable turnover is a ratio that measures the speed with which a company pays its supplier. If the
turnover ratio decline from one period to next period, this indicates that the company is paying its supplier
more slowly, and may be an indicator of worsening financial position. If a company is paying its supplier very
quickly, it may mean that the suppliers are demanding very fast payment terms or that the company is
taking advantage of early payment discount.

53
 7.3b Payables Outstanding Turnover Ratio

Payables Outstanding Turnover Ratio=Net

Sales/Trade Payables
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Net Sales 62703 87716 105907 91116 83385
Payables 4381 5378 6752 7418 6262
Payables T.O. 14.31 16.31 15.68 12.28 13.31

18
Payables T.O
16
14
12
10
8
6
4
2
0

2011-122012-132013-142014-152015-16

7.3 c Payables period in Days

Payables period in
Days=365/Payables T.O. Ratio
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Payables T.O. 14.31 16.31 15.68 12.28 13.31
No. of days 365 365 365 365 365
Payables period 25.50 22.37 23.27 29.71 27.41

35
Payables period
30
25
20
15
10
5
0

2011-122012-132013-142014-152015-16

54
7.4 Operating Performance Ratios

7.4a Total Asset Turnover

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue
- the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend
to have high asset turnover, while those with high profit margins have low asset turnover. This ratio offers
managers a measure of how well the firm is utilizing its assets in order to generate sales revenue. An
increasing Total Asset Turnover would be an indication that the firm is using its assets more productively. The
asset turnover ratio simply compares the turnover with the assets that the business has used to generate that
turnover. In its simplest terms, we are just saying that for every Rs.1 of assets, the turnover is Rs. X.

Total Asset Turnover Ratio=NET

SALES/TOTAL ASSET
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Net Sales 62703 87716 105907 91116 83385
Total Assets 99857 99754 94138 87085 85791
Asset T.O 0.62 0.87 1.12 1.04 0.97

1.2
Asset T.O
1

0.8

0.6

0.4

0.2

0
2011-122012-132013-142014-152015-16

INTERPRETATION:-

The Asset T.O ratio will be high only when Net Sales value will be higher than the Total Asset.

55
7.4b Inventory Turnover Ratio

The Inventory Turnover Ratio measures the efficiency of the firm’s inventory management. A higher ratio
indicates that inventory does not remain in warehouses or on the shelves but rather turns over rapidly from the
time of acquisition to sales. A lower inventory turnover ratio means accumulation of inventories, over
investment in inventory or unsalable goods.

Inventory Turnover Ratio=NET

SALES/INVENTORY
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Net Sales 62703 87716 105907 91116 83385
Inventory 5255 6185 6592 6728 9071
Inventory T.O 11.93 14.18 16.06 13.54 9.19

18
Inventory T.O
16
14
12
10
8
6
4
2
0

2011-122012-132013-142014-152015-16

INTERPRETATION:-

The ratio indicates whether the stock has been efficiently used or not. It shows the speed with which the
stock is turned into sales during the year. From the graph we can say that the firm is efficient in utilizing
its asset in order to generate sales, and it has maintained stability all the years.

7.4 c Inventory Turnover Days

Inventory Turnover
Days=365/INVENTORY T.O RATIO
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Inventory T.O 11.93 14.18 16.06 13.54 9.19
No. of days 365 365 365 365 365
T.O days 30.59 25.73 22.71 26.95 39.70

56
 45
Inventory T.O days
40
35
30
25
20
15
10
5
0

2011-122012-132013-142014-152015-16

INTERPRETATION:-

The ratio indicates whether the stock has been efficiently used or not. It shows the speed with which the
stock is turned into sales during the year.

7.5 Profitability Indicator

ratios 7.5a Operating Profit

Margin

Operating profit margin is a measurement of what proportion of a company's revenue is left over after paying
for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required
for a company to be able to pay for its fixed costs, such as interest on debt. Operating margin gives analysts an
idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at
operating margin to determine the quality of a company, it is best to look at the change in operating margin
over time and to compare the company's yearly or quarterly figures to those of its competitors. If a company's
margin is increasing, it is earning more per dollar of sales. A high margin is more preferable for a
company.

Operating Profit Margin=OPERATING

PROFIT/NET SALES
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
PBIT 7439 11144 14767 12385 16594
Net Sales 62703 87716 105907 91116 83385
Operating Margin (%) 0.11 0.12 0.13 0.13 0.19

57
 0.25
Operating Margin (%)

0.2

0.15

0.1

0.05

0
2011-122012-132013-142014-152015-16

INTERPRETATION:-

This profitability ratio is the percentage of operating profit on the net sales revenue of a business
concern. Operating profit margin ratio of 0.19% in FY2015-16 indicates that a net profit of Rs0.19 is made on
each Rs100 sales. Thus a higher value of operating margin ratio is favorable which indicates that more
proportion of revenue is converted to operating income. During FY2011-12, TCIL had the lowest operating
margin ratio of 0.11%, which means the company was able to generate only Rs0.11 on Rs100 sales.

7.5b Net Profit Margin Ratio

The net profit margin, also known as net margin, indicates how much net income a company makes with total
sales achieved. A higher net profit margin means that a company is more efficient at converting sales into
actual profit. Under gross profit, fixed costs are excluded from calculation. With net profit margin ratio all
costs are included to find the final benefit of the income of a business.

Net Profit Margin

Ratio=PAT/NET SALES
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
PAT 1655 2823 6280 4460 7338
Net Sales 62703 87716 105907 91116 83385
Net Profit ratio (%) 0.02 0.03 0.05 0.04 0.08

58
 Net Profit ratio (%)
0.1
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
2011-122012-132013-142014-152015-16

INTERPRETATION:-

For TCIL rising operating expenses is a major concern as it is eating up the profit to a huge extent. TCIL was
able to generate only Rs0.08 on Rs100 sales during FY2015-16 after meeting all the fixed and variable
expenses. TCIL has to be more cautious and efficient in managing their cost of sales, selling and
distribution and other fixed cost.

7.5c Return on Assets (ROA)

ROA gives an idea as to how efficient management is at using its assets to generate earnings. ROA tells
you what earnings were generated from invested capital (assets). Return on Assets shows how many rupees
of earnings result from each rupee of assets the company controls. Return on Assets ratio gives an idea of
how efficient management is at using its assets to generate profit. The assets of the company are comprised of
both debt and equity. Both of these types of financing are used to fund the operations of the company.
The ROA figure gives investors an idea of how effectively the company is converting the money. The
higher the ROA number, the better, because the company is earning more money on less investment.

Return on Assets
(ROA)=PAT/TOTAL ASSETS
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
PAT 1655 2823 6280 4460 7338
Total Assets 99857 99754 94138 87085 85791
ROA (%) 0.01 0.02 0.06 0.05 0.08

59
 0.09
ROA (%)
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0

2011-122012-132013-142014-152015-16

INTERPRETATION:-

There is no industry average for ROA, however for packaging and containers production CNN Fortune 500
says that 8.66% is economical. Looking at that average, TCIL is lagging behind and should manage its assets
efficiently; old and obsolete assets should be replaced with new assets. Since stakeholders invest in a
company with an intention to get higher returns, so TCIL should be more aggressive in converting the
assets into money.

7.5d Return on Equity (ROE)

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a
corporation's profitability by revealing how much profit a company generates with the money
shareholders have invested. The return on equity figure takes into account the retained earnings from previous
years, and tells investors how effectively their capital is being reinvested.

Return on Equity
(ROE)=PAT/SHAREHOLDERS
EQUITY
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
PAT 1655 2823 6280 4460 7338
Equity 60659 60219 57969 54896 59714
ROE (%) 0.02 0.04 0.10 0.08 0.12

60
 0.14 ROE (%)
0.12

0.1

0.08

0.06

0.04

0.02

0 2011-122012-132013-142014-152015-16

INTERPRETATION:-

In FY2015-16, 0.12% was the return that management was earning on shareholder’s equity. During the year
2015 Company’s operating performance improved significantly compared to the previous year, in terms of sales,
production and margin as well. It may be noted that the financial performance of the tinplate industry
worldwide had been declining till the previous year and the situation was expected to continue. However, in
the first half of the year, the general business environment became favorable with increase in demand and
prices, leading to healthier margins for the tinplate industry world-wide. Accordingly TCIL generated
significantly higher realizations over key input costs of hot rolled coils and tin, as compared to the previous
year. In addition, TCIL also commissioned its second tinning line having 3, 79,000 tons per annum
capacity, at its premises in Jamshedpur.

7.5 e Return on Capital Employed (ROCE)

Return on capital employed (ROCE) is the ratio of net operating profit of a company to its capital
employed. It measures the profitability of a company by expressing its operating profit as a percentage of its
capital employed.

Return on Capital Employed (ROCE)=(EBIT/CAPITAL EMPLOYED)*100

Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
EBIT 7439 11144 14767 12385 16594
Equity 60659 60219 57969 54896 59714
Total Debt 10102 11450 5252 818 0
Capital Employed 70761 71669 63221 55714 59714
ROCE (%) 10.51 15.54 23.35 22.22 27.78

61
 30 ROCE (%)
25
20
15
10
5
0

2011-12 2012-13 2013-14 2014-15 2015-16

ROCE (%) 10.51 15.54 23.35 22.22 27.78

INTERPRETATION:-

This ratio is an important profitability ratio to analyses the overall efficiency of a business enterprise. It is
most useful for inter-firm comparison in order to judge the comparative efficiency. This ratio concern
with establishing the relationship between the profit and the amount of capital employed in the business
concern.

7.6 Investment Valuation Ratio

7.6a Earnings per Share

Earnings per share are generally considered to be the single most important variable in determining a share's
price. This is the amount of income that the common stockholders are entitled to receive (per share of stock
owned). This income may be paid out in the form of dividends, retained and reinvested by the company, or a
combination of both. Growth in EPS is an important measure of management performance because it shows
how much money the company is making for its shareholders.

Earnings per Share=PAT ATTRIBUTABLE

/EQUITY SHARES OUTSTANDING
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Equity Shares 104667638 104916992 104916992 104916992 104916992
PAT 1655 2823 6280 4460 7338
(Pref. Div.) 955 899 815 393 0
(Tax on Pref. Div) 155 153 138 80 0
PAT attributable 545 1771 5327 3987 7338
Basic EPS 5.20 1.68 5.07 3.80 6.99
Face value of each Equity Share is Rs10.

62
INTERPRETATION:-

EPS was increasing significantly for TCIL in FY2015-16; the company was able to distribute Rs6.99 per
share. During FY2012-13 the company was able to distribute only Rs1.68 per share to its equity shareholders
because of decreasing profit after meeting every expense.

7.6 b EPS vs. ROE

Return on equity and earnings per share are profitability ratios. ROE measures the return shareholders are
getting on their investments. EPS measures the net earnings attributable to each share of common stock. ROE
indicates management's ability to generate a return for each dollar of common equity investment. EPS
measures the return on a per-share basis. A high ROE usually means market dominance and pricing power,
while a low ROE normally means that a combination of competitive forces and poor execution is
squeezing the bottom line.

Particulars 2011-12 2012-13 2013-14 2014-15 2015-16

Basic EPS 5.21 1.68 5.07 3.80 6.99
ROE (%) 0.027 0.046 0.108 0.081 0.122
All figures in %

INTERPRETATION:-

Equity and Shares Outstanding are not the same. ROE tells you how well the company is utilizing its
resources. EPS tells you how much income belongs to each share outstanding. Both are dependent on Net
Income, so that's why they appear to trend the same way.

63
 7.7 Net Operating Cycle

Particulars/ Year 2011-12 2012-13 2013-14 2014-15 2015-16

Raw Material Holding Period
Opening Raw Material 434 279 107 107 111
Closing Raw Material 279 107 107 111 109
Avg Of Raw Material 356 193 107 109 110
Consumption of Raw Material per day 3.94 0.51 0 2.06 0.07
Raw Material Holding Period (a) 90.48 378.43 0 52.91 1571.42
Stores and Spare parts Holding Period
Opening Stores and spares 2721 3667 4851 5272 5154
Closing Stores and spares 3667 4851 5272 5154 6759
Avg of Stores and spares 3194 4259 5061.5 5213 5956.5
Consumption of Stores and spare per day 12.16 14.28 16.53 14.99 13.53
Stores and spares Holding Period (b) 262.66 298.24 306.20 347.76 440.24

Finished Goods Holding Period

Opening of Finished Goods 1007 1308 1227 1212 1463
Closing of Finished Goods 1308 1227 1212 1463 2202
Avg of Finished Goods 1157 1267 1219 1337 1832
Cost of Goods Sold per day 146.21 203.92 242.75 208.15 178.04
Finished Goods Holding Period © 7.91 6.21 5.02 6.42 10.29
Receivable Collection Period
Opening of Trade Receivable 3130 5029 9327 6168 3739
Closing of Trade Receivable 4049 9327 6120 3740 5302
Avg of Trade Receivable 3589 7178 7723 4954 4520
Credit Sales 62702 87716 105907 91116 83385
Sales per day 171.78 240.31 290.15 249.63 228.45
Receivable Collection Period (d) 20.89 29.86 26.61 19.84 19.78

Gross Operating Cycle (a+b+c+d) 381.95 712.76 337.84 426.94 2041.7

Creditor Deferral Period
Opening of Trade payable 2441 5199 5378 7180 7572
Closing of Trade Payable 4381 5378 6752 7418 6262
Avg Trade Payable 3411 5288 6065 7299 6917
Net credit Purchase 11888 13793 15618 13550 9890
Net Credit Purchase Per Day 32.56 37.78 42.78 37.12 27.09
Creditor Deferral period € 104.72 139.94 141.74 196.61 255.27

Net Operating Cycle ((a+b+c+d)-e) 277.22 572.81 196.10 230.33 1786.4

64
NOTE:
 Average Raw Material Inventory = (Opening stock of raw material +
Closing stock of raw material) / 2

 Average Stores and Spares Consumed = (Opening stock of Stores and

Spares + Closing stock of Stores and Spares) / 2

 Average Finished goods inventory = (Opening stock of finished goods +

Closing stock of finished goods) / 2

 Average Debtors = (Opening stock of debtors + Closing stock of debtors)

/2

 Average Creditors = (Opening stock of creditors + Closing stock of

creditors) / 2

 Net Credit Purchase = Raw Materials (imported) + Components, Stores &

Spare Parts (D.G.)

FORMULAE:
 Raw-material holding period [RMHP] = Average Raw-Material
Inventory / Raw-material consumed per day

 Stores and spares holding period [SSHP] = Average Stores and spares
consumed / stores and spares consumed per day

 Finished goods holding period [FGHP] = Average Finished goods

Inventory / Cost of goods sold per day

 Debtors Collection Period [DCP] = Average debtors / Net credit sales per
day

 Creditors Deferral Period [CDP] = Average Creditors / Net credit

purchase per day

 Gross Operating Cycle [GOC] = RMHP + SSHP + FGHP + DCP

 Net Operating Cycle [NOC] = GOC – CDP

65
 7.8 Cost Sheet of TCIL

In Lacs
PARTICULARS / Year 2011-12 2012-13 2013-14 2014-15 2015-16

Raw material consumed 1441 187 0 755 27

Direct wages 8647 10581 11826 12256 11606

Prime cost 10088 10768 11826 13011 11633

FACTORY OVERHEAD
Depreciation 4803 5795 6106 6966 7100
Consumption of packing material 2408 3762 4878 4561 4056
Consumption of stores and spares 4442 5214 6036 5472 4940
Repairs to buildings 676 1036 997 931 1162
Repairs to Machinery 3400 4938 5762 6835 6827
Fuel oil consumed 4168 6019 5869 5019 3887
Purchase of power 4168 5367 5597 6223 7594
Conversion charges 72 0 0 0 0
Freight and handling 1762 3307 3878 3231 2642
Rent 150 169 198 219 212
Insurance 93 119 123 116 166

WORK COST 36230 46494 51270 52584 50219

Add: Opening stock of WIP 563 593 1017 1043 1278

Less: Closing stock of WIP 593 1017 1043 1278 964

NET WORKCOST 36200 46070 51244 52349 50533

ADMINISTRATIVE OVERHEAD
Amortisation 16 6 13 171 177
Rates and Taxes 78 114 150 158 396
Excise duty 152 159 170 183 111
Other expenses 2329 2803 2069 2668 2127
Less: Expenditure transfer to capital 0 0 120 0 0

NET ADMINISTRATIVE 2575 3082 2282 3180 2811

OVERHEAD

COST OF PRODUCTION 38775 49152 53526 55529 53344

66
Add: Purchase finished goods 21418 32783 43277 30305 21267
Add: Opening stock of finished goods 1007 1308 1227 1212 1463
Less: Closing stock of finished goods 1308 1227 1212 1463 2202

COST OF GOODS SOLD 59892 82016 96818 85583 73872

Commissions, discounts and rebates 166 323 323 232 204

COST OF SALES 60058 82339 97141 85815 74076

Profit 2645 5377 8766 5301 9309

Net Sales 62703 87716 105907 91116 83385

PARTICULARS / Year 2011-12 2012-13 2013-14 2014-15 2015-16

Reconciliation Statement
Profit as per cost sheet 2645 5377 8766 5301 9309
Add: Other income 1897 2138 2536 2755 1806
Less: Finance charges 1727 2528 2115 1221 605
Provision for wealth tax 3 10 3 3 0
Provision for doubtful debts and adv. 22 24 115 50 -8

Profit before exceptional items and tax 2790 4953 9069 6782 10518

67
 CASH MANAGEMENT

8.1 Introduction

Every organization must have adequate cash resources (including undrawn bank overdraft facilities) available
to meet the financial commitments of day-to-day trading (e.g. wages and taxation). Cash is also required to
meet contingencies, to take advantage of discounts and other opportunities available and to finance expansion.
Firms should avoid holding too much cash with the resulting underutilization of resources. The quality of
working capital management can make the difference between survival and failure, by ensuring that the firm
always has sufficient funds to pay what it owes and avoid liquidation. Time spent in credit control can
be as important as time spent developing new business.

8.2 Cash flow planning

To understand cash management we need to be aware of the difference between profits and cash flow. Profit
is the amount by which income exceeds expenditure when both are matched on a time basis. Cash flow,
however, is the actual flow of cash in and out of the organization with no adjustments made for
prepayments or accruals. A business which has insufficient cash may be forced into liquidation by its unpaid
creditors even if it is profitable. Profitability and liquidity are complementary, and are both crucial. While
planning and controlling the use of resources to achieve profitability is essential for a company’s long- term
success, planning and controlling the use of cash to achieve liquidity may be essential for the company’s
short-term survival.

In the short term this is done by cash flow budgeting, which can be daily, weekly, monthly or yearly, ensuring
that the organization has sufficient cash inflows to meet its outflows as they become due. Such budgets
should fit in with the overall budgetary scheme that the company operates. If a shortage is expected, then
the firm can arrange finance, perhaps by increasing its overdraft, accelerating cash inflows from debtors,
postponing cash outflows by delaying payment to creditors.

To help cash management of groups, a facility called ‘cash pooling’ may be requested from the group’s bank.
The process of cash pooling allows the offsetting of surplus and deficits held at the bank by the group’s
companies using a dummy account. The net balance is the one on which interest is payable or receivable
and the group can then decide how to allocate this cost or income.

68
8.3 Motivation for Holding Cash

There are three reasons why a firm holds cash:

 To meet its day-to-day needs.

 To compensate for the uncertainty associated with its cash flows.
 To satisfy bank requirements.

8.4 Cash management problems

There are several reasons why a business may encounter problems with its cash flow:

Overtrading: occurs when a company grows rapidly without an adequate increase in its long-term
capital to fund its increased working capital requirements.

Growth: a firm may need to finance new assets to replace old and obsolete ones.

Loss-making: if a business continually trades at a loss for a protracted period cash problems will
materialize.

Inflation: the replacement costs of stock will be at a higher price when there is inflation; however, competitive
pressure may prevent a corresponding increase in selling price.

Payment delays: either due to the business’s inefficiency or external delays.

Bad debts: a large customer going into liquidation can create severe problems with a company’s cash flow.

8.5 Cash management and Working Capital

Working capital and cash management are truly two sides of the same coin. Cash management is about
the logistics of cash, whereas working capital management is about the timing of the cash flow. Working
capital management is a proactive form of cash management and treasury needs to be involved.

8.6 Cash Ratios

Ratio analysis can help in cash management and serve as an indicator of the cash holding position. It only
looks at the most liquid short-term assets of the company, which are those that can be most easily used to
pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these
two accounts can be converted to cash in a timely matter to meet current liabilities.

69
 8.6a Cash Holding
This ratio indicates the proportion of current assets which are held as cash. Generally, the financial manager
will want to keep this figure at the safe minimum to be able to service immediate current outflows.

Cash Holding=(CASH/CURRENT
ASSET)*100
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Cash & Bank 138 157 81 179 476
Total C.A 17786 17544 14375 12741 17136
Cash Holding 0.77 0.89 0.56 1.40 2.77
(%)

10
Cash Holding (%)

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:-

An increasing level of cash in current assets could be caused by a reduction in the credit given by the
company’s suppliers or by too high cash balance. The first may be unavoidable; the second is not. During the
FY2015-16 the weightage of cash on Current Asset was 2.77% as compare of previous FY2014-15
(increase by 3.15).

70
Forecasting of Working Capital Requirement
For Next Three Years

71
 9.1 Sales Growth

Sales Growth
Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Net Sales 79218 62703 87716 105907 91116 83385
Growth on Net Sales 79.15 139.89 120.73 86.03 91.51

Sales Growth
160
140
120
100
80
60
40
20
0

2011-12 2012-13 2013-14 2014-15 2015-16

Sale is declining after FY2013-14, but still it’s growing up Before FY2014-15 because of increasing
production every year. And next year company runs is production unit on full capacity and produce more
than last year, its impact we are seeing on sales growth.

Sales Growth for next three FY (CAGR method (@10%)

2016-17 2017-18 2018-19

91723.5 100895.8 110985.4
110 110 110

As we can see company’s sales is declining last year by 5% but management is saying every year they are
touching new milestone of production and sales. So I assume that TCIL will grow with a steady growth
rate of 10 % for the next three year. I used CAGR (compounding

72
 annual growth rate) to calculate sales for the next three FY. And the results are above in the table.

But there are some constraints in production so company can’t produce more than its capacity. Right
now company’s tin production capacity is 3, 79,000tpa and there is no expansion plan for next three year.
Until company’s capacity is increased it can’t raise its sales drastically.

In FY 2015-16 company produce 3,13,552 tons per annum while its capacity was 3,79,000tpa, and
achieved an overall capacity utilization of 83%, if in FY2016-17 company runs with its full capacity then
also it can’t raise its sales by 10%.

9.2 Operational Cost

Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Operational cost 69420 53367 74433 88604 75976 64985
Growth 76.87 139.47 119.03 85.74 85.53

160 Operational cost

140
120
100
80
60
40
20
0

2011-122012-132013-142014-152015-16

As we can see operational cost was very volatile form last five year. In FY 2012-13 it grows by 39% up to
last year because of increase in raw material consumption. In FY 2013-14 operational costs goes up by
19%, but as compare of FY2012-13 is decreasing by 15% because in FY2013-14 raw material
consumption is zero. After FY2013-14 growth declining continuously because the shortage of raw
material.

73
Operational Cost requirement for next three FY (CAGR method @10%)

2016-17 2017-18 2018-19

71483.5 78631.8 86495.03
110 110 110

On FY 2015-16 company produce 3,13,552 tons per annum while its capacity was 3,79,000tpa, and
achieved an overall capacity utilization of 83%, if on FY2016-17 company runs with its full capacity then also
it can’t raise its sales by 10%. So I assume that TCIL will grow with a steady operational cost rate of 10 %
for the next three year. I used CAGR (compounding annual growth rate) to calculate sales for the next three
FY. And the results are above in the table. In FY2015-16 there is no short-term and long-term loan, it means
the company paying all the due and TCIL conservation of power installing VFD and installing LED light for
reducing electric units, so I think company will growing up in next three year.

74
 Major Findings

 Company’s has an aggressive credit policy. Debtor turnover ratio is 19.37, that
money to pay off its current obligations and invest remaining money in short term.

 Debtors are also paid attention in working capital. They are of two types
– domestic and export. The total inventory is then taken out by summing up all the raw
materials, work in process, total of finished goods, scrap stock, stores stock and the
advances for stores.

 Consist of all the goods produced in all the plants like ETP, CRM and Solution
center. Stocks consist of stock yards and port stocks. Advances for stores are
introduced in working capital recently. It deals with the advance payment done
for the goods.

 On an average, inventories are approximately 60 per cent of current assets in

public limited companies in India. Because of the large size of inventories
maintained by committed to them. It is, therefore, absolutely imperative to manage
inventories efficiently and effectively.

 The free cash flow from operation in India has been very robust and has funded their
growth opportunities.

 Well managed working capital is crucial to the running of a healthy and successful
business. Working capital is the cash available for the day to day running of business.

 Working capital is the life blood and nerve centers of business. And TCIL use
external source to funding working capital takes from SBI, Union Bank of India,
HSBC, and HDFC and term loan from IDBI Bank Ltd, Union Bank of India,
Allahabad Bank, State Bank of Hyderabad, State Bank of Patiala.

75
 Conclusion & Recommendation

The study has identified and examines the main elements of working capital. It has been
observed that the management of working capital requires an evaluation of both costs and
benefits associated with each element. Some of these costs and benefits may be hard to
quantify in practice. Some assessment must be in order to try and optimise the use of funds
within the business. The study has examined various techniques for management of working
capital. These techniques vary in their sophistication; some rely heavily on management
judgement while others adopt a major objective, quantitative approach.

TCIL maintains sound position interns for working capital. Its efficiency in receivables
and deferral management is reflected in the constantly decreasing operating cycle. The
company has primarily been operating on cash drawn from the market and reaping full
benefits of its brand name. Management of inventory which constitutes an important
component of working capital in a steel manufacturing company has to be improved. So, the
conversion period of raw material needs to be worked upon. The company has a well build
supply chain and all its process of inventory maintenance are SAP linked. It has a
competent control system in place for managing stores, spares and finished goods.
Nevertheless there is a scope for improvement in raw material management.

76
 Reference

Websites:
 https://www.google.co.in

 http://www.tatatinplate.com/

 https://www.wikipedia.org/

 http://www.investopedia.com/

 https://www.worldsteel.org/

 http://www.moneycontrol.com/

Books:
 I M Pandey 2013, Financial Management, 10th edition, Vikas Publishing House Pvt
Ltd

 Ravi M. Kishore, 2008, Financial Management, 6th edition, Taxman Allied

Services (p) Ltd

 Application for the TATA business excellence model

77