RETURN ON AVERAGE NET WORTH - This ratio measures the return on the total equity funds of ordinary shares. From this ratio it can be judged whether the firm has earned a satisfactory return for its

shareholders or not. The higher the ratio, the better it is for the shareholders.

FORMULA= PROFIT AFTER TAX

79 INTERPRETATION:

It expresses the net profit in terms of equity shareholders fund. It is an important yardstick of performance for equity shareholders since it indicates the return on funds employed by them. However this measure is based on the historical net worth and will be high for old plants and low for new plants.

The factor which motivates the shareholders to invest in a company is the

expectations of an adequate rate of return on their funds, they will want to assess the rate of return in order to decide whether to continue their investments or not.

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15. RETURN ON AVERAGE CAPITAL EMPLOYED - Return on average capital employed is a profitability ratio. The term capital employed refers to long-term funds supplied by the lenders and owners of the firm. Capital employed basis provides a test of profitability related to the sources of long-term funds. It is an insight into how efficiently the long-long-term funds of owners and lenders are being used.

The higher the ratio, the more efficient is the use of capital employed.

CAPITAL EMPLOYED = TOTAL FUNDS EMPLOYED – MISCELLANOUS EXPENSES TO THE EXTENT NOT WRITTEN OFF

COMPANY EBIT AVERAGE CAPITAL

EMPLOYED

COMPANY EBIT AVERAGE CAPITAL

EMPLOYED

COMPANY EBIT AVERAGE CAPITAL

EMPLOYED

COMPANY EBIT AVERAGE CAPITAL

EMPLOYED

COMPANY EBIT AVERAGE CAPITAL

EMPLOYED

81 INTERPRETATION:

Return on average capital employed ratio narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base.

By comparing net income to the sum of a company's debt and equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability.

Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital.

0.32

82

16. DIVIDEND PAYOUT RATIO - This ratio indicates the percentage PAT distributed as dividends to equity shareholders. It is also known as pay-out ratio. For instance PAT are Rs. 500000 and the dividend is Rs. 300000 then the dividend pay -out ratio would be 60%. This implies that 40% of the profits of the firm are retained (retention ratio) and 60% distributed as dividends. Therefore, the higher the ratio the more dividends can be received.

= DIVIDEND (EQUITY)/ PROFIT AFTER TAX FINANCIAL YEAR 2006-2007

COMPANY DIVIDEND(EQUITY) PROFIT AFTER

TAX

COMPANY DIVIDEND(EQUITY) PROFIT AFTER

TAX

COMPANY DIVIDEND(EQUITY) PROFIT AFTER

TAX

COMPANY DIVIDEND(EQUITY) PROFIT AFTER

TAX

COMPANY DIVIDEND(EQUITY) PROFIT AFTER

TAX

83 INTERPRETATION:

This ratio identifies the percentage of earnings (net income) per common share allocated to paying

cash dividends to shareholders. The dividend payout ratio is an indicator of how well earnings support the dividend payment.

It indicates the extent to the net profit distributed to the shareholders as dividend. A high payout signifies a liberal distribution policy and a low payout reflects conservative distribution policy,

26.16

29.73

28.69

17.41

19.05 23.89 23.71

20.3

23.55 23.5

15.43

13.97

5.78

11.97

17.41

0 5 10 15 20 25 30 35

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

TATA STEEL SAIL JSW

84

RECOMMENDATION:

 Tata steel should try to improve its solvency so that at the time of crisis they don’t have to sell of their inventory to pay off debts.

 They should maintain quick ratio above or equal to 1.0.

 Fluctuations in operating cycle should be reduced.

 TATA STEEL must keep eye on its WIP conversion period.

 TATA STEEL should try to minimize its inventory conversion period and also try to minimize the average age of stock to reduce the cost of inventories.

 As sale price per unit is lesser than the competitors it must keep trend increasing mode of sales to reduce the blockage of its price in its inventory.

 Try to generate more revenue from other country.

 TATA STEEL should try for acquisition of more mines in India to reduce the raw material outsourcing or import cost.

 There should be a proper balance between the current assets and the currents liabilities. The working capital became negative due to an improper balance.

 It should not allow its net debt to become negative. A negative net debt indicates more cash and less debt which means that the company is not investing enough in its growth.

 New and advanced concept must be introduced in inventory control management.

 Adequate planning is required for procurement of store items.

 Advance payments should be avoided. If at all advance payments are required, it should be against securities like bank guarantees etc.

 The essence of effective working capital management is proper cash flow forecasting. This should take into account the unforeseen events, market cycles, sudden fall in demand, fall in selling price, loss in prime customers etc. This is a very important factor that has to be taken into account.

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CONCLUSION

Tata Steel has been analyzed in terms of financial aspects especially working capital and financial ratios. A comparison has been made with JSW and SAIL to see the position of Tata Steel Ltd. in the industry.

Working capital management is a very crucial part of any organization. It needs to maintain its working capital efficiently for its day to day operations to take place. An organization needs proper liquidity to meet its obligations on time.

Ratio analysis is also a very important part of a business. It is a platform to judge a company based on liquidity, profitability etc. It is very crucial for banks, investors, creditors etc. It also makes comparisons easier.

Tata Steel has been able to maintain a good liquidity position throughout. It has been able to pay back its liabilities on time and also has been able to give dividends on time to its shareholders. It has also maintained a good level of EPS. The inventory turnover has been maintained efficiently which we can see from the high inventory turnover ratio.

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BIBLIOGRAPHY

 Gerald I. White, Ashwinpaul C. Sondhi & Dov Fried (2011). The Analysis And Use Of Financial Statements- Third edition.

 M Y Khan & P K Jain (2010). Management Accounting- Fifth Edition.

 http://www.tatasteel.com/about-us/company-profile.asp



http://www.ey.com/Publication/vwLUAssets/Global_Steel_Report_2010-2011/$FILE/Global%20Steel%20Report%202010-2011%20FULL%20REPORT.pdf

 zenithresearch.org.in/images/stories/pdf/2012/Jan/ZIJMR/13 SURESH VADDE Steel_paper.pdf

 http://www.zacks.com/stock/news/49743/steel-industry-outlook-%96-march-2011

 Research and Markets: Analyzing the Indian Steel Industry – 2012 Edition is Completed with An Analysis of the Major Players in the Indian Steel Sector | Japan Metal Bulletin

 Top Indian Steel Companies Performance | News From Business, Finance, Share Market Real Estate