Relation between Cash Flow and Investment in Manufacturing Industries

This study explores the relation between cash flow and investment in manufacturing industries through a detailed analysis of Tata Steel and Boa-Steel. It includes an introduction, literature review, methodology, and analysis of cash flow position and investment decision of the two companies. The study aims to identify the resources required to increase the development of business operations and to identify the gaps in investment due to lack of cash flow. The study is based on secondary data obtained from various sources of journals, websites, and annual reports of the companies.

Running head: RELATION BETWEEN CASH FLOW AND INVESTMENT IN
MANUFACTURING INDUSTRIES
RELATION BETWEEN CASH FLOW AND INVESTMENT IN MANUFACTURING
INDUSTRIES
(TATA STEEL AND BOA-STEEL)
Name of the student
Course name
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Table of Contents
Chapter 1: Introduction..............................................................................................................3
1.1 Introduction..........................................................................................................................3
1.2 Aim of the project................................................................................................................3
1.3 Research objectives..............................................................................................................3
1.4 Research questions...............................................................................................................4
1.5 Rationale of the research......................................................................................................4
1.6 Summary..............................................................................................................................5
Chapter 2: Literature review......................................................................................................5
2.1 Concept of investment and cash flow..................................................................................5
2.2 Theories related to investment and cash flow......................................................................6
Chapter 3: Methodology............................................................................................................8
3.1 Methods of data collection...................................................................................................8
3.2 Research Onion....................................................................................................................8
3.3 Design of the study...............................................................................................................9
3.4 Research Approach..............................................................................................................9
Chapter 4: Analysis..................................................................................................................11
4.1 Introduction........................................................................................................................11
4.2 Findings and analysis:........................................................................................................11
4.3 Summary:...........................................................................................................................13

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Chapter 5: Recommendation & Conclusion............................................................................14
Reference list............................................................................................................................16

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Chapter 1: Introduction
1.1 Introduction
In the modern business world, especially in the manufacturing sectors, the
contribution of cash flow is superior urgent for making any kind of business decisions. In
order to thrive within the sustainable environment, it is important for the business
organisations in the form of Tata Steel and Boa Steel will require the swift flow in the cash in
order to take crucial decisions in the form of pricing, hiring and spending. This is important
for the study because of the fact that in order to increase the process of investment decisions,
the role played by cash flow is highly significantly.
1.2 Aim of the project
The main aim of the project is to identify the cash follow of the above-mentioned
companies that will help in the development of hiring and expansion of the business. On the
other hand, the aim of the project is to make use of the effective policies that will increase the
effectiveness of the cash flow into the company. The aim is to increase the ways of resource
capitalisation and resources distribution that will definitely increase the business operation.
1.3 Research objectives
 To identify the resources that are required to increase the development of business
operations.
 To identify the gaps in the investment that are happening mainly due to the lack of
cash flow within the manufacturing industry.

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1.4 Research questions
Q1: How the level of investment in Tata Steel and Boa Steel are having effects in the
cash flow?
Q2: What is the relation among the cash flow statement and level of investment in the
manufacturing industry?
Q3: What are the ways that will minimise the gaps among cash flow and level of
investment?
Q4: What is implications of these two variables in the long run?
1.5 Rationale of the research
The rationale of the study is important in the sense the manufacturing industry faces
huge struggles in the long run regarding the level of investment that are being made various
sectors of manufacturing industry. Now one of the main consequences that is being
associated with the lack of effective and smooth cash flow and lack of investment
opportunities will induce the managers and decision makers to take wrongful and unwise
decisions that will not only induce the business to face loss but will also result to failure in
the optimal economic production ability.
The cash flow statement of the Tata Steel in the year 2018 is claiming that profit that
the organisation earned without tax is Rs 6,638.25 crore and in the year 2017, the amount of
the profit without tax is Rs 5,356.93 crore. The net cash from the operation that has been
earned by the organisation in the year 2018 is more or less amounting to about Rs 11,791
crore and the same variable in the year 2017 is Rs 11,166 crore. The net cash flow that has
been earned by the company from the operation has not increased by huge margin.

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1.6 Summary
The study has shed light on how the development of cash flow statement that has
mainly shown the fact that it is important to consider the relationship that is prevailing among
the variables cash flow and the level of the investment that the company is willing to
incorporate in their business. Study has taken into account the research aims and objectives
that has pertained the development of investment and the cash flow of the company.
Chapter 2: Literature review
2.1 Concept of investment and cash flow
2.1.1 Cash flow
The cash flow statement of both company Tata Steel and Boa steel will be able to
identify the development of profit function ability of corporate variables. The cash flow
statement of any company will contain two main important segments. One is cash flow from
the operation activities and another one from the investment activities. The cash flow from
the operation activities will include depreciation and amortisation activities, income that has
been received from noncurrent investments, profit or loss that has been obtained by selling of
assets and other intangible assets will automatically increase in the development in the
company (Cremers et al. 2016). The Tata Steel Company has gained cash that has been
generated from operation accounted for about Rs 14,293 crore in the year 2018 and that was
about Rs 12,707 cores in the year 2017. The gap was around Rs 2000 crore in last one year
that is significantly claiming the fact that company has performed well in the net cash flow
from the operations (Bg.baosteel.com, 2019).
Considering the cash flow from the investment actions is having a different scenario.
The net cash flow that has been earned through investment in one year is showing huge level

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of difference in the last one year. On the other hand, through the development of cash flow
through the investment is basically signifies the level of the investment the company is doing
and the results they are getting. From the net cash that has been received from investment in
the year 2018 was about Rs 12,273 Cores and the same variable amounted to about Rs 3946
Cores in the year 2017. This is important in the sense that Tata Steel is performing better with
the investment and it is clear that increasing the level of investment will definitely increase
the production ability and the overall market share of the company.
2.1.2 Investment
The level of the investment is one of the important sense that through the use of
extensive level of investment, the companies like Tata Steel and Boa-Steel will be able to
bring more number of highly skilled and technology knowledge employees that will
definitely increase the overall production ability of the human and capital resources. The
positive amount of cash flow that has been generated through extensive amount of investment
will definitely help the company to undertake certain policies that are related with investment
level (. It is one of the important aspects in the sense that through the investment the company
will bring product differentiation and through this approach the company will be able to
improve their position in the market.
2.2 Theories related to investment and cash flow
2.2 Theory of cash flow
The theory of free flow of cash flow is going to increase the development of the
resources identification and the companies will be able to identify the financial variables that
will be enough to increase the development of the company. The free cash flow is definitely
going to increase the scope for the managers and decision makers regarding the investment
opportunity. It is important in the sense that through the proper level of decision of investing

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the company will be able to identify the areas the company needs to invest. It is one of the
important aspects that the company will be mainly looking to incorporate the development of
business. It is one of the important aspects in the sense that due to invention in the advanced
technologies will obviously allow the company to incur better level of production ability
(Peters & Taylor, 2017). Through the incorporation of better accessibility the company will
be mainly looking to indulge the development of policies that will help companies like Tata
Steel and Boa Steel in incorporating advanced level of the production.
Theory of investment
Taking into account the acceleration model of investment and the Solow growth
model of investment will automatically allow the incorporation of better development of the
company. Taking into account both of these theories into consideration, the companies will
be mainly dealing with better benefits and will be able to identify the resources that will be
feasible to increase the rate of production. On the other hand, this theory is important in the
sense that the above mentioned companies will be able to identify the pros and cons of the
various level of short term and long run level of investment.
Gaps that are found in investment and cash flow statement
It is important for the mentioned companies to identify the gaps that are being found
in the investment and the cash flow statement. In most of the annual reports, the auditors miss
out certain important variables like operating cash flow, revenue earned from each and every
variables of sales, assets and liabilities and sometimes the companies also do not disclose all
the variables in order to get rid from high level of taxation. This is important gaps in the
sense that in order to minimise the gaps, the companies will be able to improve the cash
outflow that will definitely allow the economic benefit to circulate within the shareholders.

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Most gaps in the investment comes mainly due to the communication between
managers and shareholders. It is important to minimise the communication gap in order to
increase the production ability of the steel manufacturing industries. Another gaps that are
being present while making decision to invest is the amount of money that will be invested.
On the other hand, using the better improvement of the technological up gradation will
definitely increase the level of future ways of using resources.
Chapter 3: Methodology
3.1 Methods of data collection
The study will be entirely based on the financial variables that are being obtained
from the annual report of the above mentioned companies. On the other hand, in order to
understand the trend in the data the study has taken the help of last 10 years data. The study is
entirely based on the secondary data obtained from various sources of journals, websites and
the annual report of the companies. In order to identify the problems that are faced by the two
companies can be easily identified from the development of resources and the level of
investments that will be required in order to increase the productivity and the level of
investments in the manufacturing sectors of the economy.
3.2 Research Onion
The research onion will show the various layers of economic activities that will help
the study in getting the desired level of the outcome. It is important for the study to increase
the development of required steps that will finally allow the companies to identify the
performances and efficiencies of the financial variables in the last 10 years.

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Figure 1: Research onion
(Source: Saunders et al.)
3.3 Design of the study
The design of the study will determine the development of resources that will increase
the outcome of the results. This is important in the sense that through the development of the
research design the study will be mainly willing to identify the development of better
activities. Design of the research will mainly induce the concepts like descriptive design,
correlative designs (Afrifa et al. 2016). Through the development of descriptive design of the
study, the study will include new findings into exiting theories that will give better insights.
On the other hand, using the correlative design of the study will try to relate with existing
theories and will find with the existing level of findings in order to identify the gaps in the
resources.
3.4 Research Approach
The research approach will tell the study will follow positivism that will increase the
rate of success for the company to increase the effectiveness. It is highly important for the
aspects of the company to bring in better improvement in design. It is important in the sense
that through the development of economic and financial variables. Development of economic
and financial variables will definitely indulge the improvement in the rate of investments and

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the functions of the cash flow statement that has enabled the importance of better
accessibility of resource development.

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Chapter 4: Analysis
4.1 Introduction
This chapter has provided a detailed analysis of the cash flow position and investment
decision of Tata Steel and Boa-Steel. For this, different cash flow ratios have been taken into
account and they have been evaluated in the context of the two chosen organisations.
Accordingly, the best performing organisation in terms of cash flow has been selected based
on which final investment decision has been undertaken.
4.2 Findings and analysis:
Cash flow analysis of Tata Steel for the years 2009-2018:

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Operating cash flow measures the adequacy of operating cash flows of an
organisation for settling its short-term obligations and dues. This is a significant indicator of
the liquidity of an organisation, which indicates the capability of settling short-term financial
obligations. This has to be taken into account with other liquidity ratios such as current ratio
and quick ratio. From the above table, it could be seen that Tata Steel has failed to maintain
steady operating cash flow over the ten-year period. This is because the ratio has fallen below
1 after 2011 and it remained below 1 in the remaining years. The similar trend could be
observed in case of Boa-Steel; however, the fluctuation is not as intense as Tata Steel. Hence,
in terms of operating cash flows, Boa-Steel is observed to be in better position compared to
Tata Steel.
Cash flow margin ratio assists in measuring the amount generated from each dollar of
sales made by the organisation. In the later years, this ratio has declined massively for Tata
Steel. However, for Boa-Steel, the ratio is observed to remain stable over the years and

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hence, in terms of this ratio, the position is found to be better for Boa-Steel compared to Tata
Steel.
Cash flows from operations/average total liabilities is defined as a ratio, which is
obtained by dividing operating cash flows by average total liabilities. The higher ratio is
always favourable from the business perspective. In terms of this ratio, it could be observed
that the position of Boa-Steel is found to be better than Tata Steel.
The other two ratios that have been considered include current ratio and quick ratio.
These two ratios assist in measuring the ability of a firm in generating cash flows in settling
its short-term dues with the existing asset base. The higher the ratio, the better it is for the
organisation. In this case, Boa-Steel is observed to be in a favourable position than Tata Steel,
as it possesses the ability of clearing its short-term dues with the available asset base.
4.3 Summary:
From the above discussion, it could be witnessed that in terms of operating cash
flows, Boa-Steel is observed to be in better position compared to Tata Steel. The similar trend
is observed in case of other ratios as well and hence, the cash flow position of Boa-Steel is
better than that of Tata Steel when it comes to undertaking investment decision.

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Chapter 5: Recommendation & Conclusion
From the analysis chapter it has been seen that Boa-Steel is performing better
compared to the Tata Steel. This is important in the sense that in order to increase the
improvement in the resource and investment. The second company is basically from China
and is having high rate of performances in the variables like operating cash flow. This is
important because of the fact that Boa-Steel are using their operation in a smooth and
efficient manner. On the other hand, the investment in the manufacturing industry mainly
depends on the rate of return that the company is getting in return. Through the improvement
in the operation of business will definitely increase the rate of return.
Apart from the cash flow from the operation activities, the performance of the current
assets are also performing alarmingly. On the other hand, using the current assets it is
important for the companies that has been mentioned will increase the future consideration of
assets that are increasing the resources utilisation. On the other hand, using the information
that has been received from the current assets will definitely increase the level of reduction of
costs. Now in order to include the development of policies will definitely increase the
resources channelization.
In order to increase the development of resources, the companies will be aiming to
increase the effectiveness of the policies so that they can increase the overall achievement
and the performances of the companies under consideration. This is important in the sense
that through the increased level of the current assets the companies will definitely increase
the level of loyalty that will increase the resources utilisation. This increase in current assets
will incorporate the companies to indulge the level of improvement in the economic
development. On the other hand, through the use of effective resources it will be highly
important in the sense that it will increase the resources and will definitely increase the

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improvement in the developing theories will incorporate better expansion in the business. On
the other hand, through the increased level of resources build-up it is important to improve
the level of resources. In order to increase the resources improvisation and resources
channelization, the companies are performing better.

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