Cash Ratio Analysis of Indian Steel Industries: A Case Study of TATA Steel Ltd. and JSW Steel Ltd.

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1 Analysis of Indian Steel Industries: A Case Study of TATA Steel Ltd. and JSW Steel Ltd. Dr. Vineet Singh 1 and Nand Kishore Bhardwaj 2 1 (Assistant Professor, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Bilaspur, C.G., India) 2 (Research Scholar, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Bilaspur, C.G., India) Abstract: Cash ratio is an important tool which measures ability of an enterprise to pay off its current liabilities immediately. It is calculated by dividing total cash and bank balance with total current liabilities of a firm. An ideal cash ratio is considered to be 1:1. A cash ratio of more than 1:1 indicates the fact that a portion of company s cash and bank balance is laying ideal which earns no return. This paper is an attempt to analyse cash ratio of Tata Steel Ltd. and JSW Steel Ltd. from to Keywords: Tata Steel Ltd., JSW Steel Ltd.,. I. INTRODUCTION Cash is the money which the firm can expend straightway without any constraint. The term cash includes coins, currency and cheques held by the firm, and balances in bank accounts. Sometimes, near cash items, such as marketable securities or bank time- deposits, are also include in cash. The basic characteristics of near cash assets are that they can readily be converted in to cash. Generally, when a firm has excess cash, it invests it in marketable securities. This kind of investment contributes some profit to the firm. Cash management is an organizational process of collecting and managing cash to ensuring financial stability and solvency. The objectives of cash management are straightforward maximise liquidity and control cash flows and maximise the value of funds while minimising the cost of funds. The strategies for meeting such objectives include varying degrees of long-term planning requirements. Cash management assistance to reduce the length of account receivables, increase collection rates, select appropriate short-term investment vehicles and increase cash-in-hand to improve cash position and profitability. 1 The steel industry of India became operational in real sense with the establishment of Tata Iron and Steel Company (TISCO) on 26 th August in the year 1907 which changed its name to Tata Steel in the year Tata steel is the Asia s first integrated steel company and after the completion of its successful 100 years operations it is the world`s second most geographically diversified steel producer and a Fortune 500 Company. With the experience of more than 100 glorious years in steel making, the company is the world s 6 th largest steel company with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA). 2 Today Tata Steel is the world s second most diversified steel producer with operations in 26 countries and commercial presence in over 50 countries. They are the 11 th largest steel player globally; producing 25.9 Million ton finished steel and employing 77,000 people. JSW Steel Ltd. is one of the India's leading integrated steel manufacturers with a capacity of 18 MTPA owned by the JSW Group based in Mumbai, Maharashtra. It is one of the fastest growing companies in India with a footprint in over 140 countries. JSW Steel Ltd. is the first Indian company which produce one crore tonne of steel per annum and having corex technology. The JSW Group s foray into steel manufacturing began in 1982, Founded by Sajjan Jindal when it set up the Jindal Iron and Steel Company with its first steel plant at Vasind near Mumbai. The journey that started in 1982 with the commissioning of a 20 high cold rolling mill has turned into a full-fledged complex with cold rolling, hot rolling, galvanizing and colour coating facilities. Galvanized steel producing at Vasind plant is a market leader in both domestic and international markets. The unit exports mainly to the USA, Europe and Middle East Asia and South African Continent. JSW Steel is a pioneer in the use of innovative technology that keeps them ahead of the competition. Not only do they offer the widest product portfolio in India and also further leverage its capability to customise offerings to match customer expectations. Objectives of the Study In order to analyse cash ratio of Tata Steel Ltd. and JSW Steel Ltd. the following objectives have been framed: To calculate and compare cash and bank balances of Tata Steel Ltd. and JSW Steel Ltd. from to To calculate and compare current liabilities of Tata Steel Ltd. and JSW Steel Ltd. from to Page 1

2 To calculate and compare cash ratio of both the companies. Hypothesis of the Study In addition to above mentioned objectives, the following hypothesis has also been integrated in the study: H 0 : There is no significant difference between Cash ratios of Tata Steel Ltd. and JSW Steel Ltd. H a : There is a significant difference between Tata Steel Ltd. and JSW Steel Ltd. II. RESEARCH METHODOLOGY The current study focuses on ten years time period i.e. from to and is mainly based on secondary data. The relevant information in this regard has been collected from articles, annual reports, journals etc. Various statistical tools such as average, t-test etc. have also been applied, in order to give a meaningful conclusion to the study. III. ANALYSIS AND INTERPRETATION Cash and current liability figures of TATA Steel Ltd. and JSW Steel Ltd. has been examined with the help of table and graphical representation, followed by t-test. Table 1.1 Total Cash and Bank Balance (Tata Steel Ltd. and JSW Steel Ltd.) Total Cash and Bank Balance (Tata Steel Ltd.) Average Total Cash and Bank Balance (JSW Steel Ltd.) Figure 1.1 Total Cash and Bank Balance (Tata Steel Ltd. and JSW Steel Ltd.) Above table and figure exposes Total Cash and Bank Balance of Tata Steel Ltd. and JSW Steel Ltd. which stood at an average of Rs crores and Rs crores respectively during the study period. Total Cash and Bank Balance of both companies have shown a mixed trend of increase and decrease during the Page 2

3 study period. Total Cash and Bank Balance of Tata Steel Ltd. was highest in at Rs crores and lowest in at Rs crores whereas, Total Cash and Bank Balance of JSW Steel Ltd. was highest in at Rs crores and lowest in at Rs crores. Table 1.2 Current Liabilities (Tata Steel Ltd. and JSW Steel Ltd.) Current Liabilities (Tata Steel Ltd.) Average Current Liabilities (JSW Steel Ltd.) Figure 1.2 Current Liabilities (Tata Steel Ltd. and JSW Steel Ltd.) Current Liabilities position of Tata Steel Ltd. and JSW Steel Ltd. from to is revealed by table 1.2 and figure 1.2. Current Liabilities of Tata Steel Ltd. and JSW Steel Ltd. stood at an average of Rs crores and Rs crores respectively. In Current Liabilities of Tata Steel Ltd. stood at Rs crores which increased to Rs crores in Similarly, in Current Liabilities of JSW Steel Ltd. stood at Rs crores which increased to Rs crores in During the study period Current Liabilities of Tata Steel Ltd. as well as JSW Steel Ltd. were highest in and lowest in Page 3

4 Table 1.3 (Tata Steel Ltd.) Cash and Bank Current Liabilities () () Average Figure 1.3 (Tata Steel Ltd.) The above table illuminates of Tata Steel Ltd. from the year to the year In the year Total Cash and Bank balance of Tata Steel Ltd. mounted Rs crores, Liabilities mounted Rs crores which resulted in of 0.07:1. of Tata Steel Ltd. has shown a mixed trend of increase and decrease during the study period. From to , has shown an increasing trend and a decreasing trend thereafter till In stood at 0.05:1 which again declined to 0.04:1 in of Tata Steel Ltd. stood at an average of 0.15:1 during the study period. Table 1.4 (JSW Steel Ltd.) Cash and Bank () Current Liabilities () Page 4

5 Average Figure 1.4 (JSW Steel Ltd.) The above table light up the Cash and Bank Balance, Liabilities and of JSW Steel Ltd. from the year to the year of JSW Steel has shown a mixed tend of increase and decrease during the study period. of JSW Steel was highest in and stood at 0.19:1. The lowest Cash Ratio of 0.02:1 was observed in Cash and Bank Balance of JSW Steel stood at an average of Rs crores, Current Liabilities stood at an average of Rs crores and of the company stood at an average of 0.08:1 during the study period. Table 1.5 (Tata Steel Ltd. and JSW Steel Ltd.) (Tata Steel Ltd.) (JSW Steel Ltd.) Average Page 5

6 Figure 1.5 (Tata Steel Ltd. and JSW Steel Ltd.) The above table comprises s of Tata Steel Ltd. and s of JSW Steel Ltd. during the study period to of Tata Steel Ltd. continuously increases from to from 0.07:1 to 0.38:1 but of JSW Steel Ltd. has shown a declining trend from to of Tata Steel Ltd. and JSW Steel were highest in at 0.38:1 and 0.19:1 respectively. Cash Ratio of Tata Steel was lowest in at 0.03:1 whereas, of JSW Steel was lowest in at 0.02:1. In the year the s of Tata Steel Ltd. and JSW Steel Ltd. stood equally at 0.04:1. On the basis of above table and diagram, it can be concluded that both the companies are maintaining lesser cash reserves than required to pay off its current liabilities. Hypothesis Testing on (TATA Steel Ltd. and JSW Steel Ltd.) To test whether there is a significant difference between cash ratio of TATA Steel Ltd. and JSW Steel Ltd., the following hypothesis is framed and is tested through t-test at 95% confidence level. H 0 : There is no significant difference between Cash ratios of Tata Steel Ltd. and JSW Steel Ltd. H a : There is a significant difference between Tata Steel Ltd. and JSW Steel Ltd. Table 1.6 t-test: Two-Sample Assuming Equal Variances t-test: Two-Sample Assuming Equal Variances Parameters TATA Steel Ltd. JSW Steel Ltd. Mean Variance Observations Pooled Variance Hypothesized Mean Difference 0 df 18 t Stat P(T<=t) one-tail t Critical one-tail P(T<=t) two-tail t Critical two-tail Since the calculated value of t two tail at 5% level of significance is less than table value of t, alternate hypothesis is rejected and null hypothesis is accepted. Hence, it can be concluded that there is no significant difference between, cash ratio of TATA Steel Ltd. and JSW Steel Ltd. Page 6

7 IV. CONCLUSION Cash ratio of TATA Steel Ltd. and JSW Steel Ltd. stood at an average of 0.15:1 and 0.08:1 during the study period. On the basis of above study, it can be concluded that both the companies under study are maintaining lesser cash reserves than required to pay off its current liabilities. Maintaining a lower cash reserve reveals the fact that, both the companies are investing their ideal cash in order to earn some return in the form of interest. In addition, the hypothesis testing in the above study also divulges the fact that, there is no significant difference between, cash ratio of TATA Steel Ltd. and JSW Steel Ltd. V. REFERENCES [1] Investopedia/cash management/(04/01/2018). [2] retrieved on 8/12/2017. [3] Shashi K. Gupta, R.K. Sharma (2005); Financial Management, Kalyani Publishers, ISBN [4] S.P. Gupta (2005); Statistical Methods, Sultan Chand & Sons, Page 7