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A Comparative Study on Working Capital

Management of Selected Steel Companies of
India
Article July 2012
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AJRBEM
Volume2,Issue7(July,2012)ISSN:22497307
A Peer Reviewed International

Journal of Asian Research
Consortium
AJRBEM:
ASIAN JOURNAL OF
RESEARCH IN BUSINESS
ECONOMICS AND
MANAGEMENT
A COMPARATIVE STUDY ON WORKING CAPITAL MANAGEMENT
OF SELECTED STEEL COMPANIES OF INDIA
PROF. KALPESH P PRAJAPATI*; PROF. RITESH J. PATEL**
*Assistant Professor,
S.V Institute of Management,
Kadi-382715, Gujarat, India.
**Assistant Professor,
S.V Institute of Management,
Kadi-382715, Gujarat, India.
JournalofAsianResearchConsortium235
http://www.aijsh.org
ABSTRACT
The study is done on five steel companies namely, Steel Authority of India Ltd.,
Tata Steel Ltd., JSW Steel Ltd., Essar Steel Ltd. & Jindal Steel & Power Ltd. The
study was done to know the comparative position of steel companies in working
capital management and applying various analyses such as size- wise analysis,
ratio analysis & operating cycle analysis by taking data from year 2006 to 2011.
The study reveals that Tata steel ltd has highest growth of net working capital
during holding period followed by Jindal steel ltd & it is negative with JSW steel.
Average gross operating cycle is highest with Essar steel ltd i.e 92.36 days
followed by SAIL i.e 88.38 and Jindal steel i.e 69.50 days. Net operating cycle of
Jindal steel and Tata steel is negative in each year that shows there is a very
good working capital management in these companies.
KEY WORDS: Working capital, Operating Cycle, Size-wise analysis.
___________________________________________________________________________
INTRODUCTION
Indian steel industry plays a significant role in the countrys economic growth. The major
contribution directs the attention that steel is having a stronghold in the traditional sectors,
such as infrastructure & constructions, automobile, transportation, industrial applications etc.
The liberalization of industrial policy and other initiatives taken by the Government have
given a definite impetus for entry, participation and growth of the private sector in the steel
industry. While the existing units are being modernized/ expanded, a large number of new
Electronic copy available at: http://ssrn.com/abstract=2103073
AJRBEM
steel plants have also come up in different parts of the country based on modern, cost
effective, state of-the-art technologies. In the last few years, the rapid and stable growth of
the demand side has also prompted domestic entrepreneurs to set. At present, crude steel
making capacity is 84 mt and India, the 4th largest producer1 of crude steel in the world, has
to its credit, the capability to produce a variety of grades and that too, of international quality
standards up fresh green field projects in different states of the country.
Management of working capital is an important component of corporate financial

management because it directly affects the profitability of the firms. Net working capital
trend is one of the devices for measuring liquidity. Net working capital trend analysis is
highly relevant as it presents the composite reflection of the trend analysis of current assets
and current liabilities. The direction of change in working capital position over the period of
time is an indication of the effectiveness or ineffectiveness of the working capital
management. The study has been done on the basis of published annual reports of operating
five steel companies in India for a period of six years starting from 2006 and ending on 2011.
Company may have an optimal level of working capital that maximizes their value. Large
inventory and generous trade credit policy may lead to high sales. The larger inventory also
reduces the risk of a stock-out. Trade credit may stimulate sales because it allows a firm to
access product quality before paying. Another component of working capital is accounts
payables delaying payment of accounts payable to suppliers allows firms to access the
liquidity. A popular measure of working capital management is the net operating cycle, that
is, the time span between the expenditure for the purchases of raw materials and the
collection of sales of finished goods. Longer the time lag, the larger the investment in
working capital. A long net operating cycle might increase profitability because it leads to
higher sales. However, corporate profitability might decrease with the net operating cycle, if
the costs of higher investment in working capital rise faster than the benefits of holding more
inventories and/or granting more trade credit to customers. The present work aims to examine
the working capital management of steel companies in India
REVIEW OF PREVIOUS STUDIES
Herbert & Sue (1998), has Undertaken one study on Industry practice relating to aggressive
conservative working capital policies. The study looked at ten diverse industry groups over
an extended time period to examine the relative relationship between aggressive and
conservative working capital practices. Results strongly show that the industries had
significantly different current asset management policies. Additionally, the relative industry
ranking of the aggressive/conservative asset policies exhibited remarkable stability over time.
Industry policies concerning relative aggressive/conservative liability management were also
significantly different. Kesseven Padachi (2006) has undertaken a study on trends in working
capital management and its impact on firms performance by analyzing mauritian small
manufacturing firms. The study was undertaken by taking data from 1998- 2003 for 58 firms.
The key variables used in the analysis were inventory days, accounts receivable days,
accounts payable days and cash conversion cycle. A strong significant relationship between
working capital management and profitability has been found in previous empirical work. An
analysis of the liquidity, profitability and operational efficiency of the five industries shows
significant changes and how best practices in the paper industry have contributed to
performance. The findings also reveal an increasing trend in the short-term component of
An overview of steel sector of India report by Ministry of steel, government of India, 2012
Electronic copy available at: http://ssrn.com/abstract=2103073
AJRBEM
working capital financing. Abdul & Mohamed (2007) has elucidated that there is significant
negative relationship between debt used by the firm and its profitability. Swaran Singh &
S.K.bansal (2010) had done a comparative study on management of working capital in
IFFCO & KRIBHCO. The study was done by taking data for the year 1999-00 to till 200607. The study was done using various analytical tools such as ratio analysis, operating cycle
analysis & T-Test. The study has finally concluded that management of working capital at
IFFCO is better as compare to KRIBHCO.
OBJECTIVES OF THE STUDY
1. To study the structure of the working capital of selected steel companies.
2. To study the management of working capital components by steel companies
3. To know the comparative position of steel companies in working capital management.
HYPOTHESIS FORMULATED FOR THE STUDY
H0:- There is no significant difference between the working capital ratios of selected steel
companies in India
METHODOLOGY OF THE STUDY
To compare the key working capital components and ratios of selected companies, the
exploratory and analytical research design is used for the calculation of gross operating cycle,
net operating cycle and ratios with the help of balance sheet and profit and loss account
during April 2006 to March 2011.
ANALYSIS AND DISCUSSION

The analysis of working capital management of selected companies is arranged in the
following parts:
1. Size- wise analysis
2. Ratio analysis
3. Operating cycle analysis
(i) SOURCES OF DATA: The basic data for this current study has been collected from the
Internet, Books, Journals and Electronic database Ace Equity provided by Accord Fintech
Pvt. Ltd. an ISO 9001:2000 certified company.
(II) SELECTION OF SAMPLE: Non-probability judgmental sampling technique has been
used to select samples. Top five steel companies by sales as on 31st march 2011 have been
selected for the study. The list is as follows:
1.
Steel Authority of India Ltd.
2.
Tata Steel Ltd.
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3.
JSW Steel Ltd.
4.
Essar Steel Ltd.
5.
Jindal Steel & Power Ltd.
(III) STATISTICAL TOOLS AND TECHNIQUES

Analysis was done through Excel software & Statistical tools like Average, Standard
deviation, Variance and ANOVA are used in the study.
DATA ANALYSIS AND INTERPRETATION
Information found in published financial statements is often not enough to form conclusive
judgments about companys performance, financial statements do provide important clues
about what needs to be examined in greater detail. Analysis of financial statements is of
interest to lenders, investors, security analysts, managers, regulators and others. Financial
statement analysis may be done through various techniques like horizontal analysis, vertical
analysis etc. but ratio analysis is a widely used tool for analysis. It enables the stakeholders to
mark trends in a business and to compare its performance with competitors. This research
uses a ratio analysis and operating cycle analysis to examine working capital position and
management of steel companies in India.

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TABLE 1: SIZE WISE ANALYSIS OF WORKING CAPITAL COMPONENTS OF ESSAR STEEL LTD.
% of
GWC
Other
Current
Assets
% of
GWC
Loans
and
Advances
% of
GWC
Total
GWC
Total
Current
Liabilities
&
Provisions
Net
Working
Capital
Year
Inventory
% of
GWC
Sundry
Debtors
% of
GWC
Cash
and
Bank
2006
1485
38
540
14
726
19
249
873
23
3874
2497
1377
2007
2329
53
547
12
433
10
250
838
19
4397
3489
909
2008
2108
54
360
399
10
94
973
25
3935
3377
558
2009
2158
45
407
508
11
126
1588
33
4787
2928
1859
2010
2633
32
471
1771
22
1056
13
2280
28
8212
5017
3196
2011
5223
47
515
921
1130
10
3258
29
11045
6272
4774
Mean
2656
45
473
793
13
484
1635
26
6042
3930
2112
S. D.
1313
76
518
476
970
2938
1430
1595
Min.
1485
32
360
399
94
838
19
3874
2497
558
Max.
5223
54
547
14
1771
22
1130
13
3258
33
11045
6272
4774
INFERENCE: Inventory holds major portion in total current assets of Essar Steel Ltd. On an average, Inventory holds 45% in total current
assets whereas, Sundry Debtors & cash and bank balance hold 9% & 13% portion respectively. Other current assets holding were 7% portion in

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total current assets. Loans & advances holds 26% portion in total current assets. Total Current assets was of Rs. 6041.81, on an average, where
as current liabilities were of Rs. 3929.94. Net working capital was of Rs. 2111.88.
TABLE 2: SIZE WISE ANALYSIS OF JINDAL STEEL & POWER LTD.
Sundry
Debtors
% of
GWC
Cash
and
Bank
% of
GWC
Other
Current
Assets
% of
GWC
Loans
and
Advances
% of
GWC
Total
GWC
Total
Current
Liabilities
&
Provisions
Net
Working
Capital
Year
Inventory
% of
GWC
2006
569
38
300
20
31
64
527
35
1490
898
592
2007
642
36
320
18
53
60
726
40
1802
1180
621
2008
981
30
287
578
18
83
1370
42
3300
1621
1679
2009
1210
24
391
309
3199
63
5109
3432
1677
2010
1329
23
622
11
60
3866
66
5877
4242
1635
2011
2204
27
737
52
5105
63
8098
4707
3391
Mean
1156
30
443
12
181
35
2466
51
4279
2680
1599
S. D.
595
190
221
39
1868
14
2557
1653
1019
Min.
569
23
287
31
527
35
1490
898
592
Max.
2204
38
737
20
578
18
83
5105
66
8098
4707
3391

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INFERENCE: Among all current assets of Jindal steel & power Ltd, Loans & advances holds major portion of 51%. Inventory holds a portion
of 30% in total current assets. On an average, Sundry debtors & Cash and bank balance are holding 12% & 5% portion in total current assets,
respectively. Other current assets holds negligible portion of 2% in total current assets. Total Current assets was of Rs. 4279, on an average,
where as current liabilities were of Rs. 2680. Net Working capital was of Rs. 1599.
TABLE 3: SIZE WISE ANALYSIS OF JSW STEEL LTD.

Cash
% of Sundry % of and
GWC Debtors GWC Bank
Other
% of Current
GWC Assets
% of
GWC
Loans
and
Advance
% of
GWC
Total
GWC
Total
Current
Liabilitie &
Provisions
Net
Working
Capital
Year
Inventory
2006
924
36
241
99
896
35
408
16
2568
2143
425
2007
1011
41
245
10
338
14
592
24
293
12
2479
2279
200
2008
1549
50
337
11
339
11
375
12
485
16
3086
4102
-1015
2009
2051
44
398
420
298
1464
32
4632
7557
-2925
2010
2586
47
563
10
287
83
2040
37
5560
7622
-2062
2011
4138
41
839
1887
19
129
3195
31
10188
10065
124
Mean
2043
43
437
10
562
10
396
13
1314
24
4752
5628
-876
S. D.
1204
230
658
306
13
1152
11
2930
3258
1377
Min.
924
36
241
99
83
293
12
2479
2143
-2925
Max.
4138
50
839
11
1887
19
896
35
3195
37
10188
10065
425

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INFERENCE: In total current assets of JSW steel ltd, Inventory holds major portion of 43%. Sundry Debtors & cash and bank balance hold
10% portion. Other current assets are holding 13% portion where as Loans & advances are holding 24% portion in total current assets. Total
Current assets was of Rs. 4752, on an average where as current liabilities were of Rs. 5628. Net Working capital was of Rs. -876.
TABLE 4: SIZE WISE ANALYSIS OF STEEL AUTHORITY OF INDIA LTD
Sundry
Debtors
% of
GWC
Cash
and
Bank
% of
GWC
Other
Current
Assets
% of
GWC
Loans
and
Advances
% of Total
GWC GWC
Total
Current
Liabilities &
Provisions
Net
Working
Capital
Year
Inventory
% of
GWC
2006
6210
40
1882
12
6173
39
564
803
15631
10675
4956
2007
6651
33
2315
11
9610
47
883
919
20379
10911
9467
2008
6857
26
3048
12
13759
52
1111
1542
26318
13199
13119
2009
10161
29
3028
18265
53
1992
1231
34676
17139
17536
2010
9027
23
3494
22436
57
2272
1924
39154
17149
22006
2011
11303
30
4161
11
17479
46
2391
2757
38090
17357
20733
Mean
8368
30
2988
11
14620
49
1536
1529
29041
14405
14636
S. D.
2105
814
5996
779
728
9779
3203
6673
Min.
6210
23
1882
6173
39
564
803
15631
10675
4956
Max.
11303
40
4161
12
22436
57
2391
2757
39154
17357
22006

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INFERENCE: Among all current assets, cash and bank balance is holding maximum portion of 49%. On an average, Inventory has hold 30%
in total current assets. On an average, Sundry Debtors & Other current assets are holding 11% & 5% portion, respectively. Loans & advances
holds 7% portion in total current assets. On average, total Current assets was of Rs. 29041, where as current liabilities were of Rs. 14405 during
2006 to 2011. Net Working capital was of Rs. 14636.
TABLE 5: SIZE WISE ANALYSIS OF TATA STEEL LTD
Year Inventory
2006
2175
2007
2333
2008
2605
2009
3480
2010
3078
2011
3954
Mean
2938
S. D.
693
Min.
2175
Max.
3954
% of
GWC
51
17
7
32
25
16
25
16
7
51
Sundry
Debtors
539
632
543
636
435
428
536
91
428
636
% of
GWC
13
5
1
6
4
2
5
4
1
13
Cash
and
Bank
288
7681
465
1591
3234
4142
2900
2792
288
7681
% of
GWC
7
56
1
15
26
17
20
19
1
56
Other
Current
Assets
0
0
0
472
0
0
79
193
0
472
% of
GWC
0
0
0
4
0
0
1
2
0
4
Loans
and
Advances
1235
3056
33349
4561
5504
15689
10566
12251
1235
33349
% of
GWC
29
22
90
42
45
65
49
25
22
90
Total
GWC
4238
13702
36962
10740
12251
24212
17018
11713
4238
36962
Total
Current
Liabilities
&
Provisions
5197
6561
7840
8957
9004
10996
8093
2040
5197
10996
Net
Working
Capital
-960
7141
29122
1783
3247
13216
8925
11050
-960
29122
INFERENCE: Loans & advances hold a major portion of 49% in total current assets during 2006-2011. On an average, Inventory has hold
25% in total current assets, Sundry Debtors & cash and bank balance are holding 5% & 20% portion, respectively. Other current assets are
holding very negligible portion of 1% in total current assets. Total Current assets was of Rs. 17017. Net Working capital was of Rs. 8925.
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TABLE 6: AVERAGE GROWTH OF WORKING CAPITAL COMPONENTS DURING

HOLDING PERIOD 2006-2011
Components
Jindal
Essar Steel Ltd.
Steel &
Power Ltd
JSW
Steel
Steel
Authority
Of India
Ltd
Tata
Steel
Ltd.
Inventories
25.146
27.082
29.986
11.978
11.952
Sundry Debtors
-0.964
17.974
24.948
15.868
-4.612
Cash and Bank
4.764
10.346
58.954
20.816
53.32
Other Current Assets
30.266
5.2
-38.762
28.89
20
Loans and Advances
26.328
45.414
41.162
24.668
50.836
Total Current Assets
20.956
33.856
27.56
17.812
34.854
Current Liabilities
16.734
30.04
32.348
15.86
19.312
Provisions
81.304
38.832
11.446
1.402
8.144
Total Current Liabilities
18.422
33.132
30.936
9.724
14.99
Net Working Capital
24.866
34.906
-101.268
28.622
181.08
INFERENCE: Tata steel ltd has highest growth of NWC during holding period followed by
Jindal steel ltd. It is negative with JSW steel. Average growth rate of current liabilities is highest
with Jindal steel followed by JSW steel. It is low with SAIL and Tata steel compared to others.
Total current assets are growing at more than 30 percent with Jindal steel and Tata steel, while it
is only 17.81 percent with SAIL. Sundry debtors growth is negative with Essar steel and Tata
steel that shows good position in credit management.

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TABLE 7: GROSS & NET OPERATING CYCLE OF SELECTED COMPANIES

Essar Steel
Ltd.
Year
Jindal Steel &

Power Ltd.
2011
GOC
120.9
NOC
52.4
GOC
73.43
2010
88.28
29.8
75.42
2009
72.31
31.4
58.33
2008
2007
2006
Average
81.88
99.38
91.38
92.36
28.4
29.9
30.6
33.8
60.37
77.05
72.39
69.50
Rank
NOC
43.57
56.76
12.74
-1.72
-3.44
-5.28
20.59
2
JSW Steel
Ltd
Steel Authority
Of India Ltd.
Tata Steel Ltd.
GOC NOC
59.0 26.3
GOC
106.95
NOC
52.21
GOC
45.1
NOC
-44.31
52.5
12.9
104.99
48.15
52.0
-39.93
52.1
8.55
85.55
52.42
49.3
-34.97
45.4
47.5
58.3
52.5
9.97
11.7
13.4
13.8
74.80
78.62
79.35
88.38
42.54
44.86
45.08
47.55
50.2
52.4
55.0
50.7
-52.00
-43.93
-38.99
-42.35
INFERENCE: For all companies, GOC is showing fluctuating trend over the study period.
Average GOC is highest with Essar steel ltd i.e 92.36 days followed by SAIL i.e 88.38 and
Jindal steel i.e 69.50 days. NOC of Jindal steel and Tata steel is negative in each year that shows
very good management of working capital.
TABLE 8: WORKING CAPITAL RATIO ANALYSIS OF JINDAL STEEL & POWER
LTD.
Ratio
2011
2010
2009
2008
2007
2006
Inventory Turnover
6.9
6.8
8.2
8.3
7.2
Debtors Turnover
17.9
17.0
26.4
22.1
Sales/Working Capital
3.6
5.3
5.4
Receivable days
20.4
21.5
Inventory Days
53.0
Payable days
Current Ratio
Quick Ratio
7.9
Mean
7.5
S.D.
0.7
Min
6.8
Max
8.3
14.0
13.9
18.5
4.9
13.9
26.4
4.0
7.0
5.5
5.1
1.2
3.6
7.0
13.8
16.4
26.1
26.3
20.8
5.1
13.8
26.3
53.9
44.5
43.9
51.0
46.1
48.7
4.4
43.9
53.9
117.0
132.1
71.0
62.1
80.5
77.7
90.1
27.9
62.1
132
1.7
1.4
1.5
2.0
1.5
1.7
1.6
0.2
1.4
2.0
1.3
1.1
1.1
1.4
1.0
1.0
1.2
0.2
1.0
1.4
Creditors turn over
3.1
2.8
5.1
5.9
4.5
4.7
4.4
1.2
2.8
5.9
Total Assets to working capital
6.1
9.3
6.2
4.5
9.7
7.8
7.3
2.0
4.5
9.7
INFERENCE: Average inventory turnover ratio of Jindal Steel & Power Ltd., is 7.5 during six
years. It is highest in the year 2008 and lowest in the year 2010 while average sales to WC ratio
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of the company are 5.1. It is highest in the year 2007 and lowest in the year 2011. Receivable
days shows fluctuating trend during study period and it is highest in the year 2007 and lowest in
the year 2009. Inventory period also shows fluctuating trend and it remain on an average 48.7
days in last six years. Average payable days are 90.1 days during the study period. Average
current ratio of the company is 1.6 during the study period that shows very good liquidity
position of the company.
TABLE 9: WORKING CAPITAL RATIO ANALYSIS OF JSW STEEL LTD.
Ratio
Inventory Turnover
Debtors Turnover
Receivable days
Inventory Days
Payable days
Current Ratio
Quick Ratio
Creditors turn over
Total Assets to working
capital
2011
7.5
35.9
203.
3
10.2
48.8
32.7
1.0
0.6
11.2
236.
0
201 200 200

0
9
8
8.4 8.4 9.8
40.5 41.3 43.3
-9.4 -5.2 12.4
9.0 8.8 8.4
43.5 43.3 37.0
39.6 43.6 35.4
0.7 0.6 0.8
0.4 0.3 0.4
9.2 8.4 10.3
10.3 -6.6 14.9
200 200 Mea

7
6
n
9.6 8.2
8.6
38.2 26.8 37.7
46.5
9.6
38.0
35.8
1.1
0.6
10.2
16.0
13.6
44.8
45.0
1.2
0.8
8.1
39.8
9.9
42.6
38.7
0.9
0.5
9.6
48.9 19.9
45.5
S.D
.
Min Max
0.9 7.5
9.8
5.9 26.8 43.3
83.
203.
1
12.4
3
1.9 8.4 13.6
4.4 37.0 48.8
4.9 32.7 45.0
0.2 0.6
1.2
0.2 0.3
0.8
1.2 8.1 11.2
96.
236.
4
14.9
0
INFERENCE: Average inventory turnover ratio of JSW steel is 8.6 during six years. It is
highest in the year 2008 and lowest in the year 2011 while average sales to WC ratio of the
company is 39.8, It is highest in the year 2011 and lowest in the year 2008. Receivable days
shows fluctuating trend during study period and it is highest in the year 2006 and lowest in the
year 2008. Inventory period also shows fluctuating trend and it has reached to 48.8 days in the
year 2011. Average payable days are 38.7 days during the study period. Average current ratio of
the company is 0.9 during the study period that shows the company has maintained lesser assets
than liabilities.
AJRBEM
TABLE 10: WORKING CAPITAL RATIO ANALYSIS OF STEEL AUTHORITY OF

INDIA LTD
Ratio
201
1
201
0
200
9
200
8
200
7
200
6
Mea
n
S.D
.
Mi
n
Ma
x
Inventory Turnover
4.7
4.7
5.8
6.8
6.2
6.3
5.7
0.9
4.7
6.8
Debtors Turnover
12.5 13.7
16.2
17.2
18.9
17.3
16.0
2.4
12
18.9
2.3
2.0
2.8
3.5
4.2
6.6
3.6
1.7
2.0
6.6
Receivable days
29.3
26.6
22.5
21.3
19.3
21.2
23.4
3.8
19
29.3
Inventory Days
77.7
78.4
63.0
53.5
59.3
58.2
65.0
10
53
78.4
Payable days
54.7
56.8
33.1
32.3
33.8
34.3
40.8
11
32
56.8
Current Ratio
2.2
2.3
2.0
2.0
1.9
1.5
2.0
0.3
1.5
2.3
Quick Ratio
1.5
1.8
1.4
1.5
1.3
0.9
1.4
0.3
0.9
1.8
Creditors turn over
6.7
6.4
11.0
11.3
10.8
10.7
9.5
2.3
6.4
11.3
Total Assets to working

capital
2.8
2.3
2.0
2.0
2.3
3.4
2.5
0.5
2.0
3.4
INFERENCE: Average inventory turnover ratio of SAIL is 5.7 during six years. It is highest in
the year 2008 and lowest in the year 2011 while average sales to WC ratio of the company is 3.6,
It is highest in the year 2006 and lowest in the year 2010. Receivable days shows fluctuating
trend during study period and it is highest in the year 2011 and lowest in the year 2007.
Inventory period also shows fluctuating trend and it has reached to 77.7 days in the year 2011.
Average payable days are 40.8 days during the study period. Average current ratio of the
company is 2 during the study period that shows very good liquidity position of the company.
AJRBEM
TABLE 11: WORKING CAPITAL RATIO ANALYSIS OF TATA STEEL LTD.

2011
2010
2009
2008
2007
2006
Mea
n
S.D.
Min
Max
9.10
8.20
8.80
9.00
8.80
8.50
8.73 0.33
8.20
9.10
74.00
50.0
0
45.5
0
45.2 15.8
30.6
74.0
0
1.90 11.0
17.9
15.1
0
4.90
11.9
0
40.2
44.7
0
Ratio
Inventory Turnover
Debtors Turnover
Sales/Working
Capital
2.40
8.20
15.1
37.80
0.80
33.80
30.6
2.80
17.9
Receivable days
4.90
7.30
8.00
40.20
44.7
0
41.4
0
89.50
92.0
0
84.4
0
102.3
96.40
94.0
93.1 6.10
84.4
102.
3
Current Ratio
2.20
1.40
1.20
4.70
2.10
0.80
2.07 1.40
0.80
4.70
Quick Ratio
1.80
1.00
0.80
4.40
1.70
0.40
1.68 1.43
0.40
4.40
Creditors turn over
4.00
3.90
4.20
3.50
3.70
3.80
3.85 0.24
3.50
4.20
5.90
19.5
0
32.6
0
3.30
12.8
8.35 15.7
12.8
32.6
0
Inventory Days
Payable days
Total Assets to
working capital
9.70
40.60
1.60
10.80
41.60
11.9
43.1
8.77 2.55
41.9 1.68
INFERENCE: Average inventory turnover ratio of Tata steel is 8.7 during six years. It is
highest in the year 2011 and lowest in the year 2010 while an average sale to WC ratio of the
company is 1.9. It is highest in the year 2009 and lowest in the year 2006. Receivable days
shows fluctuating trend during study period and it is highest in the year 2006 and lowest in the
year 2011. Inventory period also shows fluctuating trend and it was on an average remain 41.93
days in last 6 years. Average payable days are 93.10 days during the study period. Average
current ratio of the company is 2.07 during the study period that shows very good liquidity
position of the company.
AJRBEM
TABLE 12: WORKING CAPITAL RATIO ANALYSIS OF ESSAR STEEL LTD.

Ratio
2011
2010
2009
2008
2007
2006
Mean S.D.
Min
Max
Inventory Turnover
3.4
4.9
6.0
5.4
4.7
5.7
5.0
0.9
3.4
6.0
Debtors Turnover
27.1
26.7
33.1
26.3
16.6
13.6
23.9
7.3
13.6
33.1
Sales/Working
Capital
2.8
3.7
6.8
21.4
9.9
5.0
8.3
6.9
2.8
21.4
Receivable days
13.5
13.7
11.0
13.9
22.0
27.0
16.9
6.2
11.0
27.0
Inventory Days
107.4
74.6
61.3
68.0
77.3
64.4
75.5
16.8
61.3
107
Payable days
68.5
58.5
40.8
53.5
69.4
60.8
58.6
10.6
40.8
69.4
Current Ratio
1.8
1.6
1.6
1.2
1.3
1.6
1.5
0.2
1.2
1.8
Quick Ratio
0.9
1.1
0.9
0.5
0.6
1.0
0.8
0.2
0.5
1.1
Creditors turn over
5.3
6.2
8.9
6.8
5.3
6.0
6.4
1.4
5.3
8.9
Total Assets to
working capital
6.9
8.6
6.6
19.5
12.7
8.2
10.4
5.0
6.6
19.5
INFERENCE: Average inventory turnover ratio of Essar steel is 5 during six years. It is highest
in the year 2009 and lowest in the year 2011 while average sales to WC ratio of the company is
8.3, It is highest in the year 2008 and lowest in the year 2011. Receivable days shows fluctuating
trend during study period and it is highest in the year 2006 and lowest in the year 2009.
Inventory period also shows fluctuating trend and it has reached to 107.4 days in the year 2011.
Average payable days are 58.6 days during the study period. Average current ratio of the
company is 1.5 during the study period that the company has maintained fewer assets than
liabilities.
AJRBEM
TABLE 13: COMPARATIVE ANALYSES OF AVERAGE RATIOS OF SELECTED

COMPANIES DURING SIX YEARS
Jindal Steel
& Power Ltd.
JSW Steel
Ltd.
Inventory Turnover
7.54
8.65
5.73
8.71
Debtors Turnover
18.56
37.66
15.95
45.26
23.87
Sales/Working
Capital
5.12
39.78
3.57
1.9
8.25
Receivable days
20.77
9.94
23.36
8.78
16.85
Inventory Days
48.73
42.56
65.02
41.94
75.51
Payable days
90.08
38.67
40.83
93.07
58.56
Current Ratio
1.64
0.9
1.97
2.06
1.5
Quick Ratio
1.15
0.52
1.39
1.7
0.84
Creditors turn over
4.35
9.56
9.48
3.84
6.44
Total Assets to
working capital
7.25
45.47
2.46
8.35
10.42
Ratio
Steel Authority Tata Steel

Of India Ltd.
Ltd.
Essar
Steel Ltd.
INFERENCE: Tata steel is in top position in inventory turnover with 8.71 followed by JSW
steel i.e 8.65 and Jindal still with 7.54. Debtors turnover ratio is highest with Tata steel i.e 45.26
followed by JSW steel with 37.66 and Essar steel with 23.87. SAIL is in top position in
receivable days with 23.36 days followed by Jindal steel with 20.77; it is lowest with Tata steel.
Inventory days are highest with Essar steel i.e 75.54 days followed by SAIL i.e 65.02. All
companies have maintained current ratio less than 2:1 except Tata steel i.e 2.06. Creditors
turnover is lowest with Tata steel followed by Jindal steel i.e 4.35.
ANALYSIS THROUGH TESTING THE HYPOTHESIS USING ONE WAY ANOVA
Testing of the following Hypothesis:
H0:- There is no significant difference between the working capital ratios of selected steel
companies in India
AJRBEM
H1:- There is significant difference between the working capital ratios of selected steel
companies in India
ANOVA RATIO OF SELECTED STEEL COMPANIES
ANOVA
Source of Variation
SS
df
MS
Between Groups
219.6221911
Within Groups
27330.55049
40 683.2637622
Total
27550.17268
44
P-value
F crit
4 54.90554778 0.080357763 0.987932 2.605975
Tabulated Value: 3.83 at 4, 40 degree of freedom

INFERENCE
Calculated value of F ratio (0.0803) is less than the Tabulated value (3.83). Therefore the Null
Hypothesis is true which means there is no significant difference between working capital ratios
of selected Steel companies in India.
CONCLUSION
Tata steel ltd has highest growth of NWC during holding period followed by Jindal steel ltd & it
is negative with JSW steel. For all companies, GOC was fluctuating over the study period.
Average GOC is highest with Essar steel ltd i.e 92.36 days followed by SAIL i.e 88.38 and
Jindal steel i.e 69.50 days. NOC of Jindal steel and Tata steel is negative in each year that shows
there is a very good management of working capital. Tata steel is in top position in inventory
turnover with 8.71 followed by JSW steel i.e 8.65 and Jindal steel with 7.54. Debtors turnover
ratio is highest with Tata steel i.e 45.26 followed by JSW steel with 37.66 and Essar steel with
23.87. SAIL is in top position in receivable days with 23.36 days followed by Jindal steel with
20.77; it is lowest with Tata steel. Inventory days are highest with Essar steel i.e 75.54 days
followed by SAIL i.e 65.02. All companies have maintained current ratio less than 2:1 except
Tata steel i.e 2.06. Creditors turnover is lowest with Tata steel followed by Jindal steel i.e 4.35.
REFERENCES
Indian Steel Industry Outlook 2012
Narayanswamy, R. (2008). Finacial accounting: A managerial Perspective. Delhi: PHI
Publication Ltd.
AJRBEM
Nasr, A. r. (2007). Working capital Management & Profitability -Case of Pakistani Firms.
International Review of Business Research papers , 279-300.
Pandey, I. M. (2007). Financial Management. Delhi: Vikas Publication Pvt.Ltd.
Singh, D. &. (2010). Management of Working capital in IFFCO & KRIBHKO-A Comparative
Study. Indian journal of finance , 8-14.
Visscher, H. J. (1998). Industry Practice relating to Aggressive Conservative Working capital
Policies. Journal of Finance & Strategic Decisions , 11-18.
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A Comparative Study on Working Capital

A Peer Reviewed International

Electronic copy available at: http://ssrn.com/abstract=2103073

Management of working capital is an important component of corporate financial

Electronic copy available at: http://ssrn.com/abstract=2103073

ANALYSIS AND DISCUSSION

Steel Authority of India Ltd.

Tata Steel Ltd.

JSW Steel Ltd.

Essar Steel Ltd.

Jindal Steel & Power Ltd.

(III) STATISTICAL TOOLS AND TECHNIQUES

TABLE 2: SIZE WISE ANALYSIS OF JINDAL STEEL & POWER LTD.

TABLE 3: SIZE WISE ANALYSIS OF JSW STEEL LTD.

TABLE 4: SIZE WISE ANALYSIS OF STEEL AUTHORITY OF INDIA LTD

TABLE 5: SIZE WISE ANALYSIS OF TATA STEEL LTD

TABLE 6: AVERAGE GROWTH OF WORKING CAPITAL COMPONENTS DURING

Cash and Bank

Other Current Assets

Loans and Advances

Total Current Assets

Total Current Liabilities

Net Working Capital

TABLE 7: GROSS & NET OPERATING CYCLE OF SELECTED COMPANIES

Jindal Steel &

Tata Steel Ltd.

Creditors turn over

Total Assets to working capital

201 200 200

200 200 Mea

TABLE 10: WORKING CAPITAL RATIO ANALYSIS OF STEEL AUTHORITY OF

Creditors turn over

Total Assets to working

TABLE 11: WORKING CAPITAL RATIO ANALYSIS OF TATA STEEL LTD.

Creditors turn over

TABLE 12: WORKING CAPITAL RATIO ANALYSIS OF ESSAR STEEL LTD.

Creditors turn over

TABLE 13: COMPARATIVE ANALYSES OF AVERAGE RATIOS OF SELECTED

Creditors turn over

Steel Authority Tata Steel

4 54.90554778 0.080357763 0.987932 2.605975

Tabulated Value: 3.83 at 4, 40 degree of freedom

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