WORKING CAPITAL Management
WORKING CAPITAL Management
WORKING CAPITAL Management
S.N PARTICULARS
O
1. INTRODUCTION OF THE TOPIC
2. BANKING HISTORY
3. COMPANY PROFILE
4. RESEARCH METHODOLOGY
5. DATA ANALYSIS AND
INTERPRETATION
6. FINDINGS
7 SUGGESTION
8 LIMITATIONS
9 BIBLIOGRAPHY
1
PREFACE
Working and fixed capital are necessary financial requirement to run any industrial or
service enterprise through their relative share and importance varies according to the
nature of the industry. In heavy capital intensive industries like Banking fixed capital
requirement is much more than working or floating funds. But over the years with
inflation in the prices of inputs, the share of working capital in total assets has gone up
and gradually problem of resources is becoming more serious than ever before.
In order to properly understand the working capital needs of Banking industry and it s
management, this study has selected certain companies whose main activity is
manufacture of Banking. The major components of working capital are cash and bank
balances, sundry creditors or receivables, inventory and miscellaneous current assets
(which in many cases had been found of larger significance than others). The study
reveals that there are wide year to year fluctuations in all component of working capital.
These variations have not dependent merely upon economic factors but have been greatly
influenced by indifferent management of current assets. It appears from the study that
most of the matters have been left to chance. Modern techniques of management which
call for detailed evaluation of cost benefit analysis is not often employed in decision-
making for various components of working capital.
The management of cash requires reduction and lowering cash current ratio to 2 to 4 per
cent and proper utilization of surplus cash to earn interest by investing them in short-term
profitable securities. There is also great scope to economise in cash balances by more
accurate forecast of inflows and outflows and timely receipt of funds due from sundry
debtors.
Working capital may be regarded as the most important factor of a business, its effective
provision and utilization can do much to ensure the success of a business.
The term working capital stands for that form of capital which is required for the financially
of working or current need of the company it is usually invested in raw material work in
progress, finished goods, accounts receivable and salable securities.
Management of working capital usually involves planning and controlling current assets,
namely cash and marketable securities, assets receivable and inventories and also
administration of current liabilities. Working capital or current assets management is one of
the most important aspects of the overall financial management. It is concerned with the
problem that arises in attempting to manage the current assets. The current liabilities and the
inter relationships that exist between them. Current assets are the assets which can be
converted into cash with in an Accounting year and includes cash short term securities,
debtors, bill receivable and inventories current liabilities are those claims of outside which
are expected to mature for payment with in an Accounting year and includes creditors bill
payable and outstanding expenses.
The goal of working capital management is to manger the firms current assets and current
liabilities in such a way enough to cover its current liabilities in order to ensure that they are
obtained and used in the best possible way.
The presence of social capital improves the effectiveness of development projects; and
Through select donor-supported interventions, it is possible to stimulate the accumulation of
social capital.
The studies that constitute the empirical center of the Social Capital Initiative have been
classified in four categories, among which there is some degree of overlap. They examine,
using a wide variety of qualitative and quantitative methods, the role that social capital can
play in the provision of goods and services, the reconstruction or revitalization of social
capital after conflict or political transition, rural development efforts, and enterprise
development.
Growing body of evidence indicates that the size and density of social networks and institutions,
and the nature of interpersonal interactions, significantly affect the efficiency and sustainability of
development programs. Yet the exact channels through which social capital impacts
developmental outcomes have only begun to be explored, and the lessons to be drawn from these
observations for program design and implementation remain to be formulated.
To help advance the theoretical understanding and the practical relevance of this concept, the
Government of Denmark provided the World Bank with resources of about US $1.0 million to
support operations which promote and strengthen social capital, and to develop indicators and
methodologies to learn from this experience. Started in October 1996 and located in the Social
Development Department of the World Bank, this Social Capital Initiative (SCI) includes 12
original research projects, a conceptual framework, literature reviews, annotated bibliographies,
and associated activities.
The Social Capital Initiative was started in October 1996 with a triple goal:
2. to demonstrate that outside assistance can help in the process of social capital formation;
3. and to contribute to the development of indicators for monitoring social capital and
methodologies for measuring its impact on development.
HISTORY OF BANKING IN INDIA
Banking in India, in the modern sense, originated in the last decades of the 18th century. Among
the first banks were the Bank of Hindustan, which was established in 1770 and liquidated in
182932; and the General Bank of India, established in 1786 but failed in 1791.
The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It originated
as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was
one of the three banks funded by a presidency government, the other two were the Bank of
Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial
Bank of India, which upon India's independence, became the State Bank of India in 1955. For
many years the presidency banks had acted as quasi-central banks, as did their successors, until
the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks under the State
Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969 the
Indian government nationalised 14 major private banks. In 1980, 6 more private banks were
nationalised. These nationalised banks are the majority of lenders in the Indian economy. They
dominate the banking sector because of their large size and widespread networks.
The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks.
The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act,
1934. The scheduled banks are further classified into: nationalised banks; State Bank of India and
its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector
banks.[7] The term commercial banks refers to both scheduled and non-scheduled commercial
banks regulated under the Banking Regulation Act, 1949.
Generally banking in India is fairly mature in terms of supply, product range and reach-even
though reach in rural India and to the poor still remains a challenge. The government has
developed initiatives to address this through the State Bank of India expanding its branch network
and through the National Bank for Agriculture and Rural Development (NBARD) with facilities
like microfinance.
COMPANY PROFILE
History
The bank was founded by a group of visionaries led by the late V. G. Kale and the late D. K.
Sathe and registered as a banking company on 16 September 1935 at Pune.
The bank was registered on 16 September 1935 with an authorised capital of 1 million, and
began business on 8 February 1936. Bank's financial assistance to small units has given birth to
many of today's industrial houses. After nationalization in 1969, the bank expanded rapidly.
Shri Narendra Singh who had assumed the office of Chairman and Managing Director from 1
February 2012, left his office on 30 September 2013 on attaining superannuation. Shri Sushil
Muhnot was the Chairman and Managing Director before Ravindra Prabhakar Marathe. Ravindra
Prabhakar Marathe is the current MD and CEO.
The bank attained autonomous status in 1998. As a result, the bank has limited interference of
Government bureaucracy in its decision making process and internal affairs.
1.1.1.1.1 Know your Bank
Registered on 16-16-1935
Steadily to spread its business operations all over Maharashtra and as opportunity allows,
outside that area offering varied services to the general public while trying to be useful to
trade , commerce and industry consistently with high standards of safety and efficiency
193 : Second branch of the bank was opened in 1938 at Fort, Bombay.
8
6 Formed fully owned subsidiary, The Maharashtra Executor & Trustee Company.
First branch outside Maharashtra opened in Hubli (Mysore Starte, Now Karnataka).
To be a vibrant, forward looking, techno-savvy, customer centric bank serving diverse sections of
the society, enhancing shareholders and employees value while moving towards global presence.
The Deepmal
With its many lights rising to greater heights.
The Pillar
Our institution- Symbolising strength.
The Diyas
Our Branches- Symbolising service.
The basis of concepts, Working Capital is classified as gross Working Capital and net Working
Capital.
Permanent or fixed Working Capital: It is the minimum amount, which is required to ensure
effective utilization of fixed facilities and for maintaining the circulation of Current Assets there
is always a minimum level of Current Assets, which continuously required by the enterprise to
carry out its normal business operation.
As the business grants the requirement of permanent we also increase due to increase in Current
Assets from cash to inventories from inventories to receivables and from receivables to cash and
so on.
Temporary or Variable Working Capital: It is the amount of Working Capital, which is required
to meet the seasonal demands, and some special emergencies, variable Working capital can
further be classified seasonal Working Capital and special Working Capital. The capital required
to meet the seasonal needs of the enterprise is called seasonal Working Capital special Working
Capital is that part of Working Capital which is required to meet the special exigencies such as
launching of extensive marketing campaigns for conduction research etc.
IMPORTANCE OF ADEQUATE WORKING CAPITAL
WC is the life blood, just as circulation of blood is essential in the human for maintaining life,
WC is very essential to maintain to smooth running of a business no business can run successfully
wit out an adequate of WC. The main advantages of maintaining adequate amount of WC are as
follows:
3. Easy loans: A concern having a WC, high solvency and good credit standing can
arrange the loans from banks and other on easy and favorable term.
4. Cash discount: Adequate WC also enables a concern to avail cash discounts on the
purchase and hence it reduced cost.
7. Quick and regular return on investment: Every investor wants a quick and regular
return on his investments sufficiency of WC enables a concern to pay quick and
regular dividends to its investors as then may no be much pressure to plough back
projects. This gains the confidence of its investors and creates a favorable market to
raise additional funds in the future.
Working capital needs of MAHARASHTRA BANK .. are related to its sales and demand
conditions. Being a leading exporter of leather and leather products, the sales in
MAHARASHTRA BANK .. are dependent on the demand in the foreign market.
Operating Cycle
As mentioned earlier, operating cycle is the time duration required to convert sales into cash, after
the conversion of resources into inventories. The operating cycle of involves 3 stages:
3) Sale of product either for cash or on credit. Credit sales create account receivable for
collection.
These 3 phases affect cash flows, which is totally uncertain. Cash inflows are not certain because
sales and collections, which give rise to cash inflows, are difficult to forecast. Cash outflows, on
the contrary, are relatively certain. Therefore, it becomes indispensable for manufacturing firms
like TIL to invest in current assets for a smooth, uninterrupted flow of cash.
TIL, needs to purchase raw material and pay expenses such as wages and salaries, other
manufacturing, administration and selling expenses and taxes as there is hardly a matching
between cash inflows and outflows.
Balance Sheet Particulars 2011-12 2010-04
Loan Funds
1. Secured Loans 9585.78 5126.59
2. Unsecured Loans _ _
Research Methodology is a way to systematically solve the research problem, which is a science
of study how research is done scientifically. Thus research methodology encompasses the
research methods or techniques; the research is capable of being evaluated either by the
researcher himself or by others.
The secondary data was collected from the finance department of the company pertaining
to five financial years 2010-2011 to 2015-2016.
Other details of the research data were collected from annual reports, profile of the
company and through the references from different books dealing with working capital for
the above financial years.
The data from these reports have been analyzed by using various tools and techniques
(accounting and statistical ) with a view to evaluating of working capital and its various
components
Annual report published, by company discloses true and fair statement because these are
guided by auditors as per rules and regulations stated under the law.
DATA COLLECTION:
The Secondary data is to be collected from the finance department of the company
pertaining to the last five years. Certified accounts by internal audit copy.
LIMITATION:
Support from the management side may be limited due to their pre-occupied
works.
AREA OF STUDY
The uses of funds of a concern can be divided into two parts namely long-
term funds and short-term funds. The long term investment may be termed
as fixed investment. A major part of the long-term funds is invested in the
fixed assets. These fixed assets are retained in the business to earn profits
during the life of the fixed assets. To run the business operations shortterm
assets are also required.
WORKING HYPOTHESIS
At one given time both the current assets and current liabilities exist in the business. The current
assets and current liabilities are flowing round in a business like an electric current. However,
The working capital plays the same role in the business as the role of heart in human body.
Working capital funds are generated and these funds are circulated in the business. As and when
this circulation stops, the business becomes lifeless. It is because of this reason that he working
capital is known as the circulating capital as it circulates in the business just like blood in the
human body
SAMPLING
Sampling may be Sample defined as the selection of some parts of an agreement or totality for the
purpose of study. All the items in any field of inquiry constitute a universe or population, a
complete enumeration of all the items in the population is known as Census inquiry. But when the
field of inquiry is large this method becomes difficult to adopt because of the limited no. of
resources involved in the case sample survey method is chosen under which units are selected in
such a way that they represent the entire universe.
SAMPLING DESIGN
CENSUS METHOD: - All the items in any field of inquiry constitute a Universe or
Population. A complete enumeration of all the items in the
Population is known as a Census inquiry. It can be presumed that in such an inquiry, when all
items are covered, no element of chance is left and highest accuracy is obtained. But in practical it
is not true in all cases. This type of inquiry involves a great deal of time, money and energy.
Therefore, when the field of inquiry is large, this method becomes difficult to adopt because of
the resources involved.
SAMPLING METHOD:- When field studies are undertaken in practical life, consideration
of time and cost almost invariably lead to a selection of respondents i.e. selection of only few
items. The respondent selected should be as representative of total population. These respondents
constitute what is technically called a Sample and the selection process is called Sampling
Technique. The survey so conducted is known as Sample Survey.
OBJECTIVE OF STUDY
4The study is mainly conducted to know the working capital management of the firm. The
working capital management is concerned with the firm current assets and liabilities. It is
important and integral part of financial management as short term survival to long term
success.
Ratio Analysis
Ratio Analysis is widely used tool for financial analysis. It is the systematic use of ratio to
interpret the financial statement so that the strength and weakness of a firm as well as its historical
performances and current financial position can be determined. This relationship expressed as
percentage fractions, proportion of numbers, these alternative methods of expressing item, which
are related to, each other are for purpose of financial analysis.
Ratio Analysis is a technique of analysis and interpretation of financial statement. It is the process
of establishing and interpreting various ratios for helping in making certain decision. The
suppliers of goods on credit, banks, financial institutions, investors, share holders and
management make use of ratio analysis as a tool in evaluation the financial positions and
performance of a firm for granting credit providing loans and making investments in the firms.
A single ratio in itself does not convey much of sense. Evaluation may be done by comparing
present rations and past ratios as this indicates the direction of changes and whether the firms
performance and financial positions has improved, deteriorated or remained constant over a
period of time.
I have studied the following Ratios in analyzing the working capital management.
Current Ratio
Current Assets
Current Liabilities
(Rs. in Lakhs)
Interpretation:
Current ratio MAHARASHTRA BANK International in 2014-15 3.39 but in 2015-16 the current
ratio is 3.84. Here increasing the current ratio due to increase in current assets.
Quick Ratio
Quick assets
Current liabilities
(Rs. In Lakhs)
Interpretation:
The quick ratio of MAHARASHTRA BANK . has show slight changes the quick ratio in 2012-
13 3.02 but it decreased in 2013-14 as 2.26. And again it increased to 2.45 in 2014-15 and 2.80
in 2015-16. This is due to increase and decrease in quick asset.
20000
18000
16000
14000
12000
10000 QUICK ASSETS CURRENT LIABILITIES
8000
6000
4000
2000
0
2011-12 2012-13 2013-14 2014-15 2015-16
QUICK RATIO
Working Capital Turnover Ratio
Net Sales
Working Capital
(Rs. in Lakhs)
Interpretation:
45000
40000
35000
30000
25000
SALES WORKING CAPITAL
20000
15000
10000
5000
0
2011-12 2012-13 2013-14 2014-15 2015-16
The working capital turnover
ratio of MAHARASHTRA BANK . has shown slight changes are there if we consider the ratios
in 2011-12, 2012-13 slight changes that is increase in 2013-14 to compare 2014-15 due to
increase in sales and W.C but in 2015-16 it was decreased to 2.2%.
Net Sales
Average Inventory
(Rs. in Lakhs)
Interpretation:
The inventory turnover ratio of MAHARASHTRA BANK . in 2015-16 6.22 is greater than of
6.12 in 2014-15 due to sales is increased and inventory is also increased.
45000
40000
35000
30000
25000
20000 SALES AVG.INVENTORY
15000
10000
5000
0
2011-12 2012-13 2013-14 2014-15 2015-16
INVENTORY
TURN OVER RATIO
Fixed Asset Ratio
Sales
Fixed assets
(Rs. in Lakhs)
Interpretation:
The fixed assets turnover ratio in MAHARASHTRA BANK has decreased form 2.76 to 2.73
during the period 2012-13 due to decrease in sales. The ratio then decreased to 2.29 due to
increase in fixed assets then the ratio increased to 3.41 during the period 2014-15 and 2015-16
due to increase in sales.
45000
40000
35000
30000
25000
20000 SALES FIXED ASSETS
15000
10000
5000
0
2011-12 2012-13 2013-14 2014-15 2015-16
FIXED ASSET
RATIO
Debtors Turnover Ratio
Credit Sales
Average Debtors
(Rs. In Lakhs)
Interpretation:
45000
40000
35000
30000
25000
20000 CREDITSALES AVG.DEBTORS
15000
10000
5000
0
2011-12 2012-13 2013-14 2014-15 2015-16
Inventory Management
Inventories constitute a major part of the working capital, Inventories are approximately 60% of
current assets in Public Limited Companies, it is therefore absolutely imperative to manage
inventories efficiency and effectively.
Nature of Inventories
The work-in-progress inventory consists of items currently being used in the production process.
There are normally partially or semi-finished goods. Finished goods inventory represent final on
completed products, which are available to sale.
1) Transaction Motive:
2) PRECAUTIONALY MOTIVE:
Precautionary motive which influences the decision to increase or decrease inventory level
to take advantage of price fluctuations.
3) SPECULATIVE MOTIVE:
Speculative motive which influences the decision to increase or decrease inventory level
to take advantage of price fluctuations.
The company should aim at an optimum level of inventory on the basis of trade-off between cost
and benefit to maximize companys wealth. Efficiently controlled inventories make the firm
flexible.
This involves fixing a define maximum and minimum reorder levels. These levels should
not be allowed to the static. They must be revised to such circumstances.
2. ABC ANALYSIS:
All items in the inventory are not equally important. Emphasis of control should vary
depending upon the importance use and value of item. For that purpose the inventories
are categorized into 3 classes. A, B and C based on their usage value are quantity.
A 5%-10% 70%-80%
B 15%-20% 15%-20%
C 70%-75% 5%-10%
Under this system of control, two bins are maintained for each item of inventory. The first
bin contains stock, which is sufficient for usage which occurs between receipts of an order
and placing of next order. The second bin contains a reserve stock, which will be sufficient
for consumption from the date of order to delivery date and reserve stock. As soon as the
first bin is empty, a requisition for supply is placed and second bin is used in the mean
time.
There are 3 major cash involved with inventories. They are carrying costs, ordering costs
and stock out cost.
a) CARRYING COST: These cost all increased for maintaining or carrying inventory.
Some of the carrying costs are storage cost. I.e. Tax, depreciation, insurance, insurance of
inventory etc., they may be 30% of investment in inventor.
b) ORDERING COST: These costs are also known as acquisition or setup costs. They
are related to processing and generating an order and connected paperwork. They consist
of salaries, to purchasing staff, telex, telegrams.
c) STOCK OUT COSTS: They are invisible and important; these costs are incurred by
the company. It there is a stock-out-resulting in loss of production. They may be loss of
profit on lost production, loss of goodwill, impact on future stock.
The question how much to order, relates to the problem of determining levels of
inventories. Bulk buying reduces the frequency of ordering and hence ordering cash. The
determination of EOQ is to balance ordering cost and carrying cost.
Where,
A = Annual Consumption
O = Ordering cost per unit
C = Carrying cost per unit
c. To utilize available storage space and prevent stock from exceeding space
availability.
e. To provide a perpetual inventory value and a consistent and reliable basis for
preparing financial statements.
FINDINGS
It was found that, current ratio of MAHARASHTRA BANK increased from 2012 to 2013,
due to decrease in current assets and current liabilities. Then in decreased to next year and
again it increased to fluctuations in current assets.
It was found that, debtors turnover ratio in MAHARASHTRA BANK has increased from
2014 to 2015, this is due to the increase in sales and decrease in debtors. The ratio
decreased from 2016 to 2017, this is due to increase in average debtors, and again it
increased in 2015.
It was found that, the inventory turnover ratio in MAHARASHTRA BANK has increased
from 2014-15 due to the increasing sales. The ratio then increased to 6.12 during the
period 2009-10, due to the increase in sales. It further increased in 2011.
It was found that, the working capital turnover ratio in MAHARASHTRA BANK has
shown increasing trend during the period 2014-2015. It has increased from 2.27 to 2.41.
This is due to increase in net working capital. It was decreased in 2012 to 2.28.
It was found that, the fixed asset turnover ratio in MAHARASHTRA BANK has
decreasing from 2.76 to 2.29 during the period 2015 to 2010, due to decrease in sales. The
ratio then increased to 3.41 during the period 2014-15, due to increase in sales. It was
Constant in 2016 also.
It was found that, fixed assets in 2012 are 6346.23 and it increased to 7422.87 in year
2015. This is due to the increase in net block. Current assets increased in 2016 against
2014. This is due to increase in all current assets.
LIMITATIONS
4. Changes in accounting procedures by firm may often make working capital management
5. Time constraint
Some amount of expenditure authority has also to be passed on the lower level.
If authority is passed on the lower level it will increase responsibility in them, which
will help in motivating them.
Company should try to control its expenditures by reducing Administration and Repairs
& Maintenance expenditure.
Net current assets should be maintained at a steady level by keeping a fixed level of
inventories.
Company should try to improve total income and other incomes by increasing product
sales.
Company should try to improve its current ratio either by increasing current assets or
decreasing current liabilities.
EPS should be maintained constant or a study growth by improving net profit margin.
The profit before tax was up by 64.8% at Rs. 68,236 crores at against Rs. 41,400 crores in
the previous year. The cash earning of the company improved substantially to Rs. 58,821 crores as
against Rs.26, 760 crores in the last financial year.
With the increase in capacity on account of expansion projects being undertaken by the
company, it is expected that the company would be in a position to maintain the growth in future
years.
BIBLIOGRAPHY
BOOK
of Financial Instruments
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o WWW.MAHARASHTRA BANK.COM
o WWW.MAHARASHTRA BANKGROUP.COM
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