59966620 group3 working capital management at tata steel ppt
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Submitted To: Group # 3
Prof.Arthi Rakesh Soni 062 Suvrat Sajjan 069
Ravi Jhawar 080 Manan Zaveri 085
Deepali Kunjeer 113 Ramchand 120
Working Capital Management
About Tata SteelThe world’s 10th largest steel company.The world’s 2nd most geographically diversified steel
producer.A balanced global presence in over 50 markets and
manufacturing operations in 26 countries.One of the world’s lowest cost producers of steel.A shareholder base of over 800 k people.An employee strength over 81k across 5 continents.
Working CapitalFirms need money to pay for their day to day activities. The funds available to do this, is known as the firms
working capital.Managing the working capital needs of the organization is
important, because shortage of funds could disrupt the day to day operations
But holding excess funds the interest burden of the firm starts mounting & eating into its profits.
Working Capital
There are two concepts of Working CapitalGross working capital: Gross working capital is the sum
total of all the current assets.Net working capital: Net working capital is the difference
between current assets and current liabilities.
Current Assets Current Liabilities
Bank or cash balances Outstanding expenses
Marketable securities Bank over draft
Debtors Short term loans
Inventory Creditors
Working capital management at Tata Steel
The two most important elements in the business cycle that absorbs cash are inventory and Debtors
Tata Steel endeavor to shorten the cyclei. By collecting money from debtors’ quicker ii. By reducing inventory levels relative to sales
The aim is to reduce the interest burden and free additional funds to support growth in its Operations and Sales
Working capital management at Tata Steel
Working capital management includes the following at Tata Steel:
Debtors ManagementBank / Cash ManagementInventory Management
Debtors ManagementCredit worthiness1. Ability to pay2. Willingness to pay
Credit management department1. Process2. Debtors control3. Interest collection
•Gross Realization – Excise – Freight = Net Realization
We deduct –•Sales Commission•Handling Charges •Cost of Rejection •Cost of Credit •Establishment cost of Marketing Division •Inventory carrying costs = Net of Net Realization•Net of Net Realization – Cost of production = Net Profitability of the customer
CALCULATION OF CUSTOMER PROFITABILITY AT TATA STEEL
This module is very exhaustive• It begins by capturing the essential information relating to sales like :
•Products to be purchased by the customer•Tonnage on cash•Tonnage on credit•Invoice price (Rs. / MT)•Credit period (Days)•Proposed credit (Rs. Lacs)•Total tonnage•Future expected Monthly lifting potential (MT)
CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES)
•A customer might already have an account with Tata Steel.
•In such cases the accounts status of the customer as on the date when credit sales is being made are also entered into Lotus Notes. •These includes the amounts of outstanding and overdue as on a particular date, Cheque payment history, existing credit limit, interest free credit period, Guarantee provided, level of secured and unsecured credit.
CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES)
•It also mentions whether the customer’s company has been rated by a credit rating agency or not, its relationship with Tata Steel level of Management Quality. referred to the BIFR.
•All details of relevant financial figures of the current financial year and the past two years are recorded in Lotus Notes. •On the basis of these financial figures the credit management group calculates the Z-score of the customer which forms the Corporate Bankruptcy Prediction.
CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES)
ProcessZERO SCORE FORMULA
Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0EWhere Z = scoreA = Working capital / Total AssetsB = Retained earnings / Total AssetsC = Earnings before interest & tax / Total AssetsD = Market Value of Equity / Total LiabilitiesE = Sales / Total Assets
Debtors control Factoringi. Recievable purchasesii. Channel finance
Letter of credit
Interest collectionTata Steel charges an interest to its customers if the payment
made is late after the due date.The details on interest payment are mentioned at the time of
credit sales in the Sales Order or the MOU.However, these need to be accepted by the customer.All the transactions are recorded in the SAP system which acts
as a database and which is kept updated.When the credit sales are made, all information like invoice
date, interest free credit period, money receipt date, etc. are all recorded in SAP with respect to separate transaction.
Thus, SAP automatically calculates the interest that has to be charged to each customer for every delay in payment.
Working Capital Management at Tata Steel
Over-Draft Management
Two of its main banks that constitute more than 90% of the operational activities are State Bank of India and the Central Bank of India.
About Tata Steel
Ratios
FY 10 FY 09Inventory Turnover Ratio
10.90 9.36
Debtor Turnover Ratio
46.58 41.29
Average R.M Holding
60.63 74.12
Average F.G Held
21.78 27.88
About Tata Steel
Net Working Capital ComparisonFY 10 FY 09 FY 08 FY 07
Current Asset (in Cr)
6747.01 5707.05 3,613.70 10,646.16
Current Liabilities (in Cr)
6653.09 6039.86 3,855.26 3,523.20
Net Working Capital(in Cr)
93.92 -332.81 -241.56 7122.96
Year
About Tata Steel
WORKING CAPITAL TURNOVER RATIO Net sales
Net working capital
Particulars FY 10 FY 09
Net Sales(Cr) 25755.52 25945.45
Working Capital 93.92 -332.81
Ratio 274.23 -77.96
THANK YOU
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