WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS AT TATA STEEL

Abstract

First of all, what is working capital, It is the fund that is required by the firm to operate its day-to-day activities. It is the difference between its current assets and its current liabilities. The features of working capital will differ based in the type of the business, some businesses can need it for maintaining inventory level, others can need it for the payment of their suppliers. For eg.,  Wholesalers generally buy or sell goods/products on credit. So, the flow of cash should be managed carefully. Also, such firms can rely on short-term loans and overdrafts.  Big supermarkets and retailers purchase goods/ products on credit and they generally made their sales in the form of cash and bank transactions. So, they have the significant cash holding, which they used for maintaining inventory level. The present competitive market environment necessitates good working capital management. This is because ineffective working capital management can force a firm to suspend operations and possibly lead to bankruptcy. As a result, the goal of working capital management is to maintain a sufficient amount of working capital in addition to managing current assets and current liabilities. Holding a significant number of current assets strengthens the liquidity position and minimises risk, but only at the expense of profitability. As a result, achieving a risk-return trade-off is crucial while keeping current assets. While cash outflows are predictable, cash inflows are not. Any company's sales efforts do not instantly create revenue. There is a temporal lag between the selling of things and the realising of sales. During this time lag, working capital in the form of current assets maintains capital demand. The concept of the operational cycle explains the complete conversion process. It is concerned with the relationship that exists between a company's short-term holding and short-term obligations. The goal of it is to ensure that a firm can continue to function and that it has enough cash to cover both maturing short-term debt and Keeping track of commodities, accounts receivable and payable, and cash is part of working capital management. Many ratios relating to a company's performance, activity, funding, and liquidity may be determined using financial documents. The p/e ratio, d/e ratio, EPS, inventory turnover, and working capital are all examples of typical ratios.