sana project

7/26/2019 Sana Project

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PROJECT WORK

JAMSHEDPUR WOMEN’S COLLEGE, JAMSHEDPUR

TITLE - “ROLE OF WORKING CAPITAL MANAGEMENT”

Submitt! "#$ -

N%m$ - SANA AFREEN

CLASS$ - "-COM

SEMESTER$ - &I

CLOEEGE ROLL NUM"ER$ - '()

SU"JECT$ - COMMERCE

E*AMS ROLL NUM"ER$ - +"COM(+(

SESSION$ - )(+-)(+.

REGISTRATION NO$ - +JWC(/)'



A

PROJECT REPORT

ON

“ROLE OF WORKING CAPITAL MANAGEMENT 0 CAPITAL

STRUCTURE IN

"AJAJ ALLIAN1 LIFE INSURANCE”

SU"MITTED TO KOLHAN UNI&ERSIT2

IN PARTIAL FULLFILMENT OF THE RE3UIREMENT FOR THE

AWARD OF DEGREE OF

"ACHELOR IN COMMERCE

"2

SANA AFREEN

UNDER THE GUIDANCE OF

PROF4 CHAGGAN

JAMSHEDPUR WOMEN COLLEGE

"ISTUPUR, JAMSHEDPUR- +((+

)(+-)(+.



CERTIFICATE

This is to certify that Mrs. Sana Afreen, B.Com, Semester VI,

Faculty of Commerce of Jamshedpur Womens Colle!e,

Jamshedpur, has completed her pro"ect, under super#ision. She

has ta$en proper care and utmost sincerity in completion of

pro"ect.

I certify that the pro"ect completed is as per the !uidelines.



…………………………

…………………………………………….

Signature of Guide

Signature of Head & Dean

Department of Commerce

DECLARATIO

This is to certify that the pro"ect %or$ titled &ole of Wor$in!

Capital Mana!ement has 'een su'mitted 'y Mrs. Sana Afreen

under the !uidance of !rof. C"aggan



……………………..

Si!nature of Student

(ate) *++++++.

AC#O$LEDGE%ET

I o%e a !reat many than$s to a !reat many people %ho helped and

supported me durin! the completion of pro"ect.

My deep sense of !ratitude to Mr.Santosh Sin!h Chief Branch Mana!er for

support and !uidance. Than$s and appreciation to the helpful people at

BAJAJ AIA- IF/ I-S0&A-C/, for their support.

I %ould li$e to ta$e this opportunity as pri#ile!e to e1press my deep sense

of !ratitude to for their continuous encoura!ement, in#alua'le !uidance and

help for completin! the present research %or$. They ha#e 'een a source of

inspiration to means I am inde'ted to them for initiatin! me in the 2eld of

research.

My deepest than$s to 3rof Cha!!an, the !uide of the pro"ect for !uidin! and

correctin! #arious documents of mine %ith attention and care. 4e has ta$en

pain to !o throu!h the pro"ect and ma$e necessary correction as and %hen

needed.

I %ould also than$ my institution and my faculty mem'ers %ithout %hom

this pro"ect %ould ha#e 'een a distant reality. I also e1tend my heartfelt

than$s to my family and %ell %ishers.



IDE

C"apter

o.

!articu'ar( !age o.

E)ecuti*e Summar+

,. Introduction ,-

/. !ro0'e of t"e organi1ation 2-3

. Re(earc" %et"odo'og+ 4

2. Conceptua' 5ac6ground ,7-/2

8. Data pre(entation and interpretation /8-4



9. Finding: Sugge(tion( and conc'u(ion 27-2/

;.Limitation( 2

5i<'iograp"+

Appendi)

EEC=TI>E S=%%AR?



/1ecuti#e Summary)

Wor$in! Capital is the re5uired for maintenance of day to day

'usiness operations. The present day competiti#e mar$et

en#ironment calls for an e6cient mana!ement of %or$in!

capital. The reason for this is attri'uted to the fact that an

ine7ecti#e %or$in! capital mana!ement mat force the form to

stop its 'usiness operations, may e#en lead to 'an$ruptcy.

4ence the !oal of %or$in! capital mana!ement is not "ust

concerned %ith the mana!ement of current assets and current

lia'ilities 'ut also in maintainin! a satisfactory le#el of %or$in!

capital.

4oldin! current assets in su'stantial amount stren!thens the

li5uidity position and reduces the ris$iness 'ut only at the

e1pense of pro2ta'ility. Therefore achie#in! ris$*return

tradeo7 is si!ni2cant in holdin! of current assets. While cash

out8o%s are predicta'le it runs contrary in case of case of

cash in8o%s. Sales pro!ram of any 'usiness concern does not'rin! 'ac$ cash immediately. There is a time la! that e1ists

'et%een sale of !oods of ser#ices and sales reali9ation. The

capital re5uirement durin! this time la! is maintained 'y the

operatin! cycle concept.

This study !i#es in detail the %or$in! capital mana!ement

practices in BAIC. Mana!ement of each current asset, namely

cash mana!ement, accounts recei#a'le mana!ement is

studied permanent to BAIC. Similarly mana!ement of

accounts paya'le, deposit are studied to understand the

mana!in! of current lia'ilities. A part from this concept of

operatin! cycle is studied.

The research methodolo!y adopted for this study is mainly

from secondary source of data %hich include annual reports of



BAIC, and %e'site of the company. The use of primary

sources is limited to inter#ie%s %ith fe% of the employees in

credit department.

The study of %or$in! capital mana!ement has sho%n that

BAIC has a stron! %or$in! capital position. The Company is

also en"oyin! reasona'le pro2ts.



ITROD=CTIO

The o#erall success of the company depends upon its %or$in! capital

position. So it should 'e handled properly 'ecause it sho%s the e6ciency: 2nancial stren!th of a company.

WCM is hi!hly important in 2rms as it is used to !enerate further returns

for the sta$eholders.

Wor$in! Capital Mana!ement is a #ery important fact of 2nancial

mana!ement due to)

In#estments in current assets represent a su'stantial portion of Total in#estment.

In#estment in current assets : the le#el of current lia'ilities ha#e

to'e !eared 5uic$ly to chan!e sales.

The %or$in! capital is the life 'lood : ner#e center of a 'usiness 2rm.

The importance of %or$in! capital in any industry needs no special

emphasis. -o 'usiness can run e7ecti#ely %ithout a su6cient 5uantity of %or$in! capital.

It is crucial to retain ri!ht le#el of %or$in! capital. WCM is one of the most

important functions of corporate mana!ement. A 'usiness enterprise %ith

ample %or$in! capital is al%ays in a position to a#ail ad#anta!es of any

fa#ora'le opportunity either to 'uy ra% material or to implement a

special order or to %ait for enhanced mar$et status.

Wor$in! capital can 'e utili9ed for operatin! costs that are in#ol#ed in thee#eryday life of 'usiness. /#en #ery successful 'usiness o%ners may

need %or$in! capital funds %hen the une1pected circumstances arise.

WCM is hi!hly important in 2rms as it is used to !enerate further return

for the sta$eholders. When %or$in! capital is mana!ed improperly,

allocatin! more than enou!h of it %ill render mana!ement non*e6cient :

reduce the 'ene2ts of short term in#estments. ;n the other hand, if

%or$in! capital is too lo%, the company may miss a lot of pro2ta'le

<



in#estment opportunities or su7er short term li5uidity crises, leadin! to

de!radation of company credit, as it cannot respond e7ecti#ely to

temporary capital re5uirement

Some the points to 'e studied under this topic are)

4o% much cash should a 2rm hold=What should 'e the 2rms credit policy=4o% to : %hen to pay the creditors of the 2rm=

O5@ECTI>ES

The o'"ecti#es of pro"ect on e#aluation of %or$in! capitalare as follo%s)

<. To study concept of %or$in! capital :

components of %or$in! capital.>. To study chan!e of %or$in! capital.?. To analy9e pro2ta'ility, li5uidity : %or$in!

capital position of the company.

SCO!E

The mana!ement of %or$in! capital helps us to maintain

the %or$in! capital at satisfactory le#el 'y mana!in! the

current assets and current lia'ilities. It also helps to

maintain proper 'alance 'et%een pro2ta'ility, ris$ and

li5uidity of the 'usiness si!ni2cantly.

By mana!in! the %or$in! capital, current lia'ilities are

paid in time. If the 2rm ma$es payment to it creditors for

ra% material in time, it can ha#e the a#aila'ility of ra%

material re!ularly, %hich does not cause any o'stacles

in production process. Ade5uate %or$in! capital

increases payin! capacity of the 'usiness 'ut the e1cess

%or$in! capital causes more in#entory, increases the

>



possi'ility of delay in reali9ation of de'ts. ;n the other

hand, a'sence of ade5uate %or$in! capital leads to

decrease in return on in#estment. The !ood%ill of the

2rm is also ad#ersely a7ected due to the ina'ility to paycurrent lia'ilities in time.

4ence, the mana!ement of %or$in! capital helps to

mana!e all the factors a7ectin! the %or$in! capital in

the most pro2ta'le manner.

Limitation of t"e (tud+

The scope of the present study has 'een limited interns

of period of study as %ell as sources and nature of data.

The period co#ered 'y the study e1tends o#er @ years

from F. ><<< to ><@<D. At the time of study, the

data could 'e a#aila'le up to ><@<D. The limitations of

this study are as follo%s)

<. The study is mainly on secondary data. It is cone

mostly on the 'asis of and pu'lished 2nancial

documents, li$e 'alance sheet, pro2t and loss

account and other related "ournals, ma!a9ines and

'oo$s etc.>. The study follo%s %ith speci2c tools 2nancial ratio

analysis.?. The lac$ of su6cient time and resources is another

limitation of the study. The study is fully 'ased on

?



the students 2nancial resources and is to 'e

completed %ithin limited time. The report has

ta$en only @*years data for the study from year

>E to ><><?.G. The study is limited from the point of #ie% of

su'mission on partial ful2llment of the

re5uirement for the Master de!ree in Business

AdministrationHMBA.

5A@A@ ALLIAB LIFE IS=RACE

ame and 'ocation of t"e Compan+

-ame) Ba"a" Allian9 ife Insurance Company

Address) / 3la9a, Airport &oad, era%ada, 3une

G<<D

Tel) K< > DD>DLLL

G



Fa1) K< > DD>DLE

/*mail) %e'saleslife'a"a"allian9.co.in

Introduction

Ba"a" Allian9 ife Insurance is a union 'et%een Allian9 S/,

one of the lar!est Insurance Company and Ba"a" Finser#.

Allian9 S/ is a leadin! insurance con!lomerate !lo'ally

and one of the lar!est asset mana!ers in the %orld,

mana!in! assets %orth o#er a Trillion H;#er I-&. @@,

,Crores. Allian9 S/ has o#er << years of 2nancial

e1perience and is present in o#er L countries around

the %orld.

At Ba"a" Allian9 ife Insurance, customer deli!ht is our

!uidin! principle. ;ur 'usiness philosophy is to ensure

e1cellent insurance and in#estment solutions 'y o7erin!

customi9ed products, supported 'y the 'est technolo!y.

>i(ion

To 'e the 2rst choice insurer for customers To 'e the preferred employer for sta7 in the

insurance industry To 'e the num'er one insurer for creatin!

shareholder #alue

%i((ion

As a responsi'le, customer focused mar$et leader, %e

%ill stri#e to understand the insurance needs of the

consumers and translate it into a7orda'le products that

deli#er #alue for money.

Our Ac"ie*ement(

@



Ba"a" Allian9 has recei#ed IAAA ratin!, From IC&A

imited, an associate of Moodys In#estors Ser#ice, for

Claims 3ayin! a'ility. This ratin! indicates hi!hest claims

payin! a'ility and a fundamentally stron! position.

Aard(

Best Insurance Company in 3ri#ate sector at the

I3/ Ban$in! Financial Ser#ice and Insurance HBFSI

><?. SN;C4 Financial Inclusion*;r!ani9ation of the year

><?. Best ife Insurance 3ro#ider H&unner up at the

;utloo$ Money A%ard ><>. Best In#estor /ducation and Cate!ory

/nhancement. Best utili9ation of Information Technolo!y. SN;C4 Financial Inclusion A%ard.

%em<er in 5oard of Director

D



C"airman Ra"u' 5aa

Director(

-ira" Ba"a"

San"i# Ba"a"

S.4 Nhan

&an"it upta

San"ay Asher

Sura" Mehta

Manu Tandon

FACTSHEET

,Date of Incorporation ,/t" %arc" /77,

L



/Started ;peration on ?rd Au!ust ><

4ead o6ce 3une, India

2

World%ide We' Address %%%.'a"a"allian9.com

8 Toll free num'er <E*>*@E@E

9Brand Statement Jiyo Be2$ar

;Chairman Mr. San"i# Ba"a"

3M( : C/; Mr.V.3hilip

4 Total assets under Mana!ement ?E,? croreO

,7Sol#ency ratio DG?.?<POO

,,Claim Settlement &atio -;3 <.@DPOO

,/ Total no. of li#es co#ered <.@DcroreOO

, Total no. of o6ce >O

,2atest A%ard Won <.SN;C4 Financial Inclu

A%ard ><?* ;r!ani9ati

the ear>.SN;C4 Financial IncluA%ard for Micro Insuraninitiati#es in the follo%incate!ories)

• Micro Insurance InQ Securin! the0nsecured

• Settin! the Claim-ominees doorst

•

Insurance A%aren/ducation• Micro Insurance

&ene%als : 3ersisMana!ement

,8Sour product cater to all the 2nancial needs li$e Q 3rotection, Sa#in!s,&etirements, In#estment : 4ealth for Indi#iduals and roups

ote T"e *a'ue( are a( on ,(t %arc" /7,9

E



T"e *a'ue( are for F? /7,8-,9

ro%in! at a 'rea$nec$ pace %ith a stron! pan

Indian presence Ba"a" Allian9 has emer!ed as a

stron! player in India...

Ba"a" Allian9 ife Insurance Company imited is a "oint #enture

'et%een t%o leadin! con!lomerates Allian9 A and Ba"a Auto

td. Characteri9ed 'y !lo'al presence %ith a local focus and

dri#en 'y customer orientation to esta'lish hi!h

earnin!s potential and 2nancial stren!th, Ba"a" Allian9

ife Insurance Co. td. %as incorporated on <>th March

><. The company recei#ed the Insurance &e!ulatory

and (e#elopment Authority HI&(A certi2cate of

&e!istration H&? -o <<D on ?rd Au!ust >< to conduct

ife Insurance 'usiness in India.

!roduct

Life In(urance

%otor In(urance

Hea't" In(urance

Tra*e' In(urance

Home In(urance

C"anne' !artner

1. Standard C"artered 5an6

2. D"an'a)mi 5an6



3. Team Life Care Co. India Ltd.

The data in this pro"ect is ena'lin! in secondary in

nature. Financial reports, company records %ere referred

for data analysis. The study has 'een underta$en 'y

collectin! rele#ant data from the 'alance sheet, pro2t

and loss ac, annul report : Audit report of the BAIC the

company is used 2nancial tools for the analy9in! and

interpretation data.

4o%e#er primary data is also collected 'y

o'ser#ation discussin! %ith company o6cials. This

primary data is used to 2ll in the !aps %hile preparin!this report and to $no% the latest procedures adopted 'y

the company. This has helped to dra% inferences and

conclusions.

Source( of data

This study is 'ased on Secondary data)*

The secondary data are those, %hich ha#e

'een collected 'y some other and %hich ha#e 'een

processed. enerally spea$in! secondary data are

information, %hich ha#e 'een pre#iously collected 'y

some or!ani9ation to satisfy his o%n need. But the

<



department under reference for an entirely di7erent

reason is usin! it.

For this pro"ect secondary sources used are)

<. Annual reports of the company.

>. Company %e'site

?. Boo$s

G. ;ther company documents

SA%!LIG DESIG

Samplin! unit ) Financial Statements

: Audit &eports

< Samplin! Si9e )ast four years

2nancial statements

$OR#IG CA!ITAL

Introduction

Financial mana!ement loo$s after t%o types of capital

need) for 21ed capital to in#est it tin!s such as 'uildin!s,

plants :e5uipments and %or$in! capital principally topay for stoc$ and to co#er the amount of credit

e1tended to customers. Fi1ed capital, as the name

implies, tends not #ary in the short 'ut to mo#e up or

do%n in "umps %hen ma"or in#estment decisions are

made Hor assets sold. Wor$in! capital on the other

hand, is much more 8uid and 8uctuates %ith le#el of

'usiness.

<<



Wor$in! capital is a furnish in#estment in short term

assets. Wor$in! capital is the 2rms in#estment in short

term assets cash, short term securities. Account

recei#a'les and in#entories.

Wor$in! capital mana!ement is the important 'ranch of

the 2nancial mana!ement %hich !i#es ans%ers the

5uestions such as)

<. 4o% much should %e in#est in each cate!ory of

current assets=

>. 4o% should %e 2nance this in#estment in currentassets i.e. appropriate mi1 of short and lon! term

sources to 2nance=

In most 'usiness, funds are deployed in assets %hich are

in the form of cash or 'an$ deposits or %ill 'e turned

into cash in a relati#ely short period as part of normal

'usiness acti#ities. In short the %or$in! capital is thesources of 2nancin! current assets and it includes short

as %ell as lon! term 2nancin!.

The mana!ement of the funds of 'usiness can 'e

descri'ed as 2nancial mana!ement. Financial

mana!ement is mainly concerned %ith t%o aspects.

Firstly, Fi1ed assets and 21ed lia'ilities, in other %ords,

lon! term in#estment and sources of funds. Secondly,

current assets and current lia'ilities. Both of these types

of funds play a #ital role in 'usiness 2nance.

Mana!ement of %or$in! capital usually in#ol#es

mana!ement or administration of current assets, namely

cash, mar$eta'le securities, account recei#a'les and

in#entories and also the administration of current

<>



lia'ilities such as creditors, account paya'le, notes and

'ills paya'les, 'an$ o#erdraft, outstandin! e1penses,

temporary loans and pro#isions. A 2rm should al%ays

maintain the ri!ht cash 'alance so that 8o% of funds ismaintained at a desira'le speed not allo%in! slo%do%ns

or stoppa!e. Thus, the enterprises can ha#e a 'alance

'et%een li5uidity and pro2ta'ility.

The term %or$in! capital is often used to refer the 2rms

current assets li$e primarily cash, mar$eta'le securities,

account recei#a'les and in#entories. Wor$in! capital

refers to the fact that most of its components ha#e their

impact o#er %ee$s and month rather than years. For this

reason, %or$in! capital mana!ement is often referred to

as short*term 2nance. The term %or$in! capital is

closely related to the term funds and has t%o common

meanin!. It is used to mean current assets of current

assets means current lia'ilities.

Wor$in! capital mana!ement is concerned %ith the

pro'lems that arise in attemptin! to mana!e the current

assets. The term current assets refers to those assets

%hich is ordinary course of 'usiness can 'e or %ill 'e

turned into cash %ithin one year %ithout under!oin! a

diminution in #alue and %ith our disruptin! the

operations of the 2rm. The ma"or current assets are

cash, mar$eta'le securities, account recei#a'les and

in#entory.

Current lia'ilities are those lia'ilities, %hich are intended

at their inception to 'e paid in the ordinary course of

'usiness %ithin a year, out of the current assets of

earnin!s of the concern. The 'asis current lia'ilities are

<?



accounts paya'le, 'an$ o#erdraft and outstandin!

e1penses. The !oal of %or$in! capital mana!ement is to

mana!ement the 2rms current assets and current

lia'ilities in such a %ay that a satisfactory le#el of %or$in! capital is maintained.

This is so 'ecause if the 2rm cannot maintain to

satisfactory le#el of %or$in! capital, it is li$ely to

'ecome insol#ent and may 'e forced into 'an$ruptcy.

The current assets should 'e lar!e enou!h to co#er its

current lia'ilities in order to ensure a reasona'le mar!in

of safety. /ach of the current assets must mana!e

e6ciently in order to maintain the li5uidity of the 2rm

%hile not $eepin! too hi!h le#el of any of them. /ach of

the short*team sources of 2nancin! must 'e

continuously mana!ed to ensure that they are a'stained

and used in the 'est possi'le %ay. The interaction

'et%een current assets and current lia'ilities is,

therefore, the main theme of the theory of %or$in!

capital mana!ement.

Wor$in! capital may 'e de2ned more particularly as the

assets held for current use %ithin a 'usiness less the

amount due to those %ho a%ait settlement in short term

in %hate#er form. Wor$in! capital is an important aspect

manufacturin! compares that ha#e so far de#eloped

country. Amon! all a#aila'le options proper

mana!ement of %or$in! capital is the only 'est possi'le

option to impro#e their operational #ia'ility. Wor$in!

capital is the 2nancial mana!ement practice in

manufacturin! enterprises. Wor$in! capital represents

portion that circulates from one form to another in the

ordinary conduct of 'usiness. This idea em'races

<G



recurrin! transaction from cash to in#entories to

recei#a'le to cash that forms the con#entional chain of

'usiness operations.

Fund deployed for short term are mainly for %or$in!

capital or operational purpose. To%ards the day*to*day

operation, a 2rm %ill ha#e to pro#ide money to%ards the

purchase of ra% materials, payment of %a!e and

salaries to e1tend credit to 'uyers of !oods as %ell as to

meet other day to day operations.

By analy9in! a'out the %or$in! capital, %e concluded

that, all the corporations. Weather pu'lic or pri#ate,

manufacturin! or non*manufacturin! ha#e "ust ade5uate

%or$in! capital to ser#e in competiti#e mar$et. It is

'ecause e1cessi#e or inade5uate %or$in! capital is

dan!erous from the 2rms point of #ie%. /1cessi#e

in#estment on %or$in! capital a7ects a 2rms

pro2ta'ility "ust idle in#estment, yields nothin!. In the

same %ay, inade5uate in#estment on %or$in! capital

a7ects the li5uidity position of the company and leads to

2nancial em'arrassment and failure of the company.

It is therefore, reco!ni9ed fact that any mista$e made in

mana!ement of %or$in! capital can lead to ad#erse

e7ects in 'usiness and reduced the li5uidity, turno#er,

pro2ta'ility and increases the cost of 2nancin! of theenterprises.

DEFIITIOS OF $OR#IG CA!ITAL

The follo%in! are the most important de2nitions of

Wor$in! capital)

<@



< Wor$in! capital is the di7erence 'et%een the in8o%

and out8o% of funds. In other %ords it is the net cash

in8o%.

> Wor$in! capital represents the total of all currentassets. In other %ords it is the ross %or$in! capital, it is

also $no%n as Circulatin! capital or Current capital for

current assets are rotatin! in their nature.

? Wor$in! capital is de2ned as The e1cess of current

assets o#er current lia'ilities and pro#isions. In other

%ords it is the -et Current Assets or -et Wor$in! Capital

COCE!TS OF $OR#IG CA!ITAL

There are t%o concepts of %or$in! capital)* !ross : net.

ross %or$in! capital, simply called %or$in! capital,

refers to the 2rms in#estment in current assets. Current

assets are the assets %hich can 'e con#erted into cash

%ithin an accountin! period Hor operatin! cycleand

cash, short*term securities, recei#a'les, de'tors and

stoc$ Hin#entory are included in current assets. -et

%or$in! capital refers to the di7erence 'et%een current

assets and current lia'ilities. Current lia'ilities are those

claims of outsiders, %hich are e1pected to mature for

payment %ithin an accountin! period and include

creditors, 'ills paya'le and outstandin! e1penses.

,Gro(( or6ing capita'

Accordin! to this concept, total current assets are

%or$in! capital %hich presents 'oth o%ned capital as

%ell as loan capital used for 2nancin! current assets. It

includes cash, short*term securities and recei#a'les

in#entories. These assets can 'e con#erted into cash

%ithin a year. enerally, %hen it comes to current

<D



assets, cash is the most #alua'le element 'ecause it is

immediately a#aila'le to settle 'ills and de'tors are

more #alue than stoc$ %hich is nearer to 'ein! turned

into cash. The !ross concept of %or$in! capital refers tothe amount funds in#ested in short*term assets that are

employed in the enterprise. ross %or$in! capital is the

2rms total current asset and net %or$in! capital is

current assets minus current lia'ilities.

Another name of !ross %or$in! capital is circulatin!

capital. Circulatin! capital means circular 8o% of cash.

This is also called operatin! cycle in case of

manufacturin! 2rm. This cycle starts %ith %hich is used

to pay for ra% materials. &a% materials are con#erted

into %or$*in pro!ress %hich is a!ain con#erted into

2nished !oods. When it is ready for sale, it is a circular

cash*8o% from cash into in#entories to recei#a'les and

'ac$ to cash, this cycle %ill 'e repeat a!ain for the

%hole life of the 2rm.

The #alue represented 'y current assets circulates from

one %or$in! capital to another %or$in! capital from

purchase accounts to !oods manufacturin! accounts.

From in#entory accounts to sales accounts, from sales

accounts to cash accounts, this is descri'ed as

circulatin! nature of current assets of in other %or$

%or$in! capital has circulatin! nature. The speed of

circulatin! of %or$in! capital of the turno#er of current

assets is an indicator of de!ree of e6ciency of the

mana!ement. The faster the turno#er sho%s the hi!her

de!ree of e6ciency.

<L



T"e or6ing capita' c+c'e can <e pre(ented

in t"e diagram a(

C;/CTI;- 3AM/-TS

(/BT;&S

SA/S

3&;(0CTI;-

<E

C&/(IT;&SCAS4

&AW MAT/&IAS

W;&N*I-*

3&;&/SS



VA0/ A((/( C;-V/&SI;-

Fi!ure) G.< the %or$in! capital cycle of manufacturin!

2rms.

If the 'usiness is pro2ta'le the 2rms assets at the end of each

cycle %ill 'e !reater than the ori!inal in#estment. In this

manner, each cycle %ill produce a !ross pro2t, and the

amount of net earnin!s for the year %ill depend. In part,

on num'er of times the cycle occurs or ho% measured

'y the ratio of sales to current assets. The hi!her the

ratio, the more e6ciency the operations, fe%er current

assets are needed to support each dollar of sales.

The 8o% of %or$in! capital does not al%ays proceeds as

it is pre* planned %hen it mo#es throu!h di7erent sta!e

of cash cycle, for e1ample, sales may decline due to can

in consumer taste, slo% economy and recei#a'le

'ecome more di6cult to collect the %or$in! capital cycle

<

FI-IS4/( ;;(S



%ill 'e interrupted. This leads to decline in pro2ta'ility

and 2rm could su7er 'an$ruptcy if this ad#erse situation

pre#ails for sometimes.

There is also a much shorter cycle of acti#ity %here in

!oods and materials are held for manufacture and sale,

and credit is ad#anced to customers for rapid

con#ersion into cash to pro#ide the funds %ith %hich to

continue in 'usiness and to ma$e a pro2t distri'ution

possi'le.

The %or$in! capital cycle sho%n in 2!ure G.< is the

operatin! cycle for non* manufacturin! 2rm %here, cash

is re5uired to purchase ra% materials %hich are needed

to con#ert into %or$*in* pro!ress, %hich is a!ain

con#erted into 2nished !oods. Are sold for cash and

credit and ultimately de'tors %ill 'e reali9ed.

The non manufacturin! 2rms such as %holesalers and

retailers do not manufacture !oods. So, they ha#e thedirect con#ersion of cash into stoc$ of 2nished !oods

into de'tors and then into cash. This can 'e sho%n

!raphically as)

CAS4

>

(/BT;&S ST;CN ;F FI-IS4/( ;;(S



Fi!ure) G.> ;peration cycle of non*

manufacturin! 2rms.

Sometimes ser#ice and 2nancial concerns may not ha#e

any in#entory. In this case the operations cycle %ill 'e

shortest as follo%s)

Fi!ure) G.? ;peratin! cycles of ser#ice and 2nancial2rms.

The !ross capital %or$in! capital focuses on t%o

aspects of current assets mana!ement)

a ;ptimum in#estment in current assets) As state

earlier, 'oth e1cessi#e and inade5uate in#estment

is harmful for the 'usiness. This aspects thus,emphasis on the optimum ade5uate le#el of

current assets, %or$in! capital depends upon the

'usiness acti#ated. It also chan!es %ith the

chan!e in 'usiness acti#ities. This may cause

e1cess or shorta!e of %or$in! capital fre5uently.

The mana!ement should 'e acti#e and alert to

correct the im'alance.' Financin! of current assets) This aspect focus on

the need of arran!in! funds to 2nance current

assets %hen more %or$in! capital is re5uired due

to the increase in 'usiness acti#ities. Then the

arran!ement should 'e made 5uic$ly. Similarly,

%hen surplus funds arise, then they should 'e

in#ested in short term securities.

><

CAS4 (/BT;&S



/et or6ing capita'

-et %or$in! capital comprises short term net assets)

stoc$, de'tors and cash less creditors. Wor$in!capital mana!ement then is to do %ith mana!ement

of all aspects of 'oth current assets and current

lia'ilities, so as to minimi9e the ris$ of insol#ency

%hile ma1imi9in! return on assets.

-et %or$in! capital represents the e1cess of total

current assets o#er total current lia'ilities. It is a

5ualitati#e concept %hich sho%s the 2nancial

soundness of current 2nancial position. -et %or$in!

capital may 'e positi#e or ne!ati#e accordin! to the

si9e of current assets and current lia'ilities. Current

assets should 'e su6ciently in e1cess of current

lia'ilities for the positi#e %or$in! capital. This

concept li#es idea a'out the case and cost of raisin!

%or$in! capital to the mana!ement.

-ot only for the mana!ement, is it also a ma"or

importance to in#estors and lenders. They al%ays li$e

a company to maintain current assets should 'e t%o

fold of current lia'ilities and these concepts is

measured 'y the current ratio #ia current assets

Rcurrent lia'ilities. Which should 'e G)<. A lar!e ratioindicates !reater sol#ency and ma$es it unsafe and

unsound. A ne!ati#e %or$in! capital denotes

ne!ati#e li5uidity %hich is also dan!erous for the

company.

>>



Mana!ement should al%ays 'e alert to impro#e the

im'alance in the li5uidity position of the 2rm.

Mathematically, it is presented as)

-et %or$in! capital Current assets Q Current

lia'ilities

An alternati#es de2nition of net %or$in! capital is

that portion of a 2rms current assets 2nanced %ith

lon! term funds.

For e#ery 2rm today, minimum portion of %or$in!

capital is 2nanced %ith the permanent sources of

funds such as o%ners capital, de'entures, lon!*term

de't, and preference capital or retained earnin!s this

portion of %or$in! capital %hich is 2nanced %ith lon!

term funds is called permanent %or$in! capital.

Mana!ement must therefore, decide the e1tent to

%hich current assets should 'e 2nanced %ith e5uity

capital or and 'orro%ed capital.

Both the concepts of %or$in! capital, !ross and net,

are not mutually e1clusi#e, ho%e#er. They are e5ually

important from the mana!ement point of #ie% in the

!ross concept points out t%o important aspects of

current assets) Hi ;ptimum in#estment in each of the

component of current assets and Hii Financin! of

these current assets %hile the net concept indicates

Hi The li5uidity position and Hii The e1tent to %hich

%or$in! capital may 'e 2nanced 'y permanent

sources of funds. Both the concepts ha#e their o%n

ad#anta!es and disad#anta!es, %hich concept to

choose depend upon the purpose of the 2rm. The

concept of !ross capital is a 2nancial concept %here

>?



as that of net concept is an accountin! concept.

Mana!ement is interested in current assets to

operate the 'usiness %ith e6ciency. To e#aluate the

e6ciency, !ross concept is appropriate. ;n the otherhand interest of in#estors and lenders is in concept of

net %or$in! capital 'ecause it helps in the "ud!ment

if li5uidity position of the enterprise.

2. O<ecti*e of $or6ing capita'

/#en pro2ta'ility companies fail if they ha#e

inade5uate cash 8o%. ia'ilities dare settled %ith

cash and net pro2ts. The primary o'"ecti#e of %or$in!

capital mana!ement is to ensure that su6cient cash

is a#aila'le to)

• Meet day to day cash 8o% needs

• 3ay %a!es and salaries %hen they fall due

• 3ay creditors to ensure continued suppliers of

!oods and ser#ices• 3ay !o#ernment ta1ation and pro#iders of cash

di#idends and• /nsure the lon! term sur#i#al of the 'usiness

entity.

2.2 I%!ORTACE OF $OR#IG CA!ITAL

Wor$in! capital may 'e re!arded as the life'lood of the

'usiness. Without insu6cient %or$in! capital, any

>G



'usiness or!ani9ation cannot run smoothly or

successfully.

In the 'usiness the Wor$in! capital is compara'le to the'lood of the human 'ody. Therefore the study of %or$in!

capital is of ma"or importance to the internal and

e1ternal analysis 'ecause of its close relationship %ith

the current day to day operations of a 'usiness. The

inade5uacy or

mismana!ement of %or$in! capital is the leadin! cause

of 'usiness failures.

To meet the current re5uirements of a 'usiness

enterprise such as the purchases of ser#ices, ra%

materials etc. %or$in! capital is essential. It is also

pointed out that %or$in!s.

Grot" and E)pan(ion Acti*itie(

As a company !ro%s, lo!ically, lar!er amount of %or$in!

capital %ill 'e needed, thou!h it is di6cult to state any

2rm rules re!ardin! the relationship 'et%een !ro%th in

the #olume of a 2rmUs 'usiness and its %or$in! capital

needs. The fact to reco!ni9e is that the need for

increased %or$in! capital funds may precede the !ro%thin 'usiness acti#ities, rather than follo%in! it. The shift in

composition of %or$in! capital in a company may 'e

o'ser#ed %ith chan!es in economic circumstances and

corporate practices. ro%in! industries re5uire more

%or$in! capital than those that are static.

Operating Ecienc+

>@



;peratin! e6ciency means optimum utili9ation of

resources. The 2rm can minimi9e its need for %or$in!

capital 'y e6ciently controllin! its operatin! costs. With

in*creased operatin! e6ciency the use of %or$in!capital is impro#ed and pace of cash cycle is

accelerated. Better utili9ation of resources impro#es

pro2ta'ility and helps in relie#in! the pressure on

%or$in! capital.

!rice Le*e' C"ange(

enerally, risin! price le#el re5uires a hi!her in#estment

in %or$in! capital. With increasin! prices the same

le#els of current assets need enhanced in#estment.

4o%e#er, 2rms %hich can immediately re#ise prices of

their products up%ards may not face a se#ere %or$in!

capital pro'lem in periods of risin! le#els. The e7ects of

increasin! price le#el may, ho%e#er, 'e felt di7erently

'y di7erent 2rms due to #ariations in indi#idual prices. It

is possi'le that some companies may not 'e a7ected 'y

the risin! prices, %hereas others may 'e 'adly hit 'y it.

Ot"er Factor(

There are some other factors, %hich a7ect the

determination of the need for %or$in! capital. A hi!h net

pro0t margin contri'utes to%ards the %or$in! capital

pool. The net pro2t is a source of %or$in! capital to the

e1tent it has 'een earned in cash. The cash in8o% can

'e calculated 'y ad"ustin! non*cash items such as

depreciation, out*standin! e1penses, losses %ritten o7,

etc, from the net pro2t, Has discussed in 0nit D.

>D



The 2rmUs appropriation policy, that is, the policy to

retain or distri'ute pro2ts also has a 'earin! on %or$in!

capital. 3ayment of di#idend consumes cash resources

and thus reduces the 2rm U,s %or$in! capital to thate1tent. If the pro2ts are retained in the 'usiness, the

2rmUs %or$in! capital position %ill 'e stren!thened.

In !eneral, %or$in! capital needs also depend upon the

means of transport and communication. If they are not

%ell de#eloped, the industries %ill ha#e to $eep hu!e

stoc$s of ra% materials, spares, 2nished !oods, etc. at

places of production, as %ell as at distri'ution outlets.

2.8 Determinant( of or6ing capita'

There are no hard and fast rules or certain formulae to

determine the %or$in! capital re5uirement of the 2rm.

The importance of e6cient %or$in! capital mana!ement

is an aspect of o#erall 2nancial mana!ement. Thus a

2rm plans its operations %ith ade5uate %or$in! capitalre5uirement or it should ha#e neither too e1cess nor too

inade5uate %or$in! capital. A num'er of factors a7ect

the %or$in! capital. enerally, the follo%in! factors

a7ect the %or$in! capital re5uirement of the 2rm.

i-ature and si9e of 'usiness)

The %or$in! capital re5uirement of a 2rm is 'asicallyrelated si9e and nature of the 'usiness. If the si9e of the

2rm is 'i!!er, then or re5uires more %or$in! capital

%hereas small 2rm needs less %or$in! capital relati#ely

to pu'lic utilities.

ii Manufacturin! Cycle)

>L



Wor$in! capital re5uirement of an enterprise are also

in8uenced 'y the manufacturin! or production cycle. It

refers to the time in#ol#ed to ma$e 2nished !oods from

the ra% materials. (urin! the process of manufacturin!cycle funds are tied up lon!er the manufacturin! cycle,

the lar!er %ill 'e %or$in! capital re5uirement and #ice*

#ersa.

iii 3roduction 3olicy)

Wor$in! capital re5uirement is also determined 'y its

production policy. If a 2rm produces seasonal foods, the

its production and sales #olume 8uctuate %ith di7erent

seasons. This type of 8uctuatin! policy a7ects the

%or$in! capital policy of the 2rm.

i# Credit 3olicy)

Credit policy a7ects the %or$in! capital of a 2rm.

Wor$in! capital re5uirement depends on terms of sales.

(i7erent term may 'e follo%ed 'y di7erent customers

accordin! to their credit %orthiness. If the 2rm follo%s

the li'eral credit policy, then it re5uires more %or$in!

capital. Con#ersely, if a 2rm follo%s the strin!ent policy,

it re5uires less %or$in! capital.

# A#aila'ility of Credit)

A#aila'ility of credit facility is another factor that a7ects

the %or$in! capital re5uirement. If the creditors a#ail a

li'eral credit terms then the 2rm %ill need less %or$in!

capital and #ice*#ersa. In other %or$s, the 2rm can !et

credit facility easily on fa#ora'le conditions. Thus, it

re5uires less %or$in! capital to run the 2rm other%ise

>E



more %or$in! capital is re5uired to operate the 2rm

smoothly.

#i ro%th and /1pansion)

ro%th and e1pansion also a7ects the %or$in! capital

re5uirement of 2rm. 4o%e#er, it is di6cult to precise

determine the relationship 'et%een the !ro%th and

e1pansion of the 2rm and %or$in! capital needs,

ho%e#er, the other thin!s 'ein! the same !ro%in! 2rms

needs more %or$in! capital than those static ones.

#ii 3rice le#el Chan!e)

3rice le#el chan!e also a7ects the %or$in! capital

re5uirement of a 2rm. enerally, a 2rm re5uires

maintainin! the hi!her amount of %or$in! capital, if the

price le#el rises. Because the same le#el of current

assets needs more due to the increasin! price. In

conclusion, the implications of chan!in! price le#el of

%or$in! capital position %ill #ary from 2rm to 2rm

dependin! on the nature and another rele#ant

consideration of the operation of the concerned 2rm.

#iii ;peratin! /6ciency)

;peratin! e6ciency is also an important factor, %hich

in8uences the %or$in! capital re5uirements of the 2rm.

It refers to the e6cient utili9ation of a#aila'le resources

at minimum cost. Thus, 2nancial mana!er can

contri'ute to stron! %or$in! capital position throu!h

operatin! e6ciency. If a 2rm has stron! operation

e6ciency then it needs lesser amount of %or$in! capital

and #ice*#ersa.

i1 3ro2t Mar!in)

>



The le#el of pro2t mar!in di7ers from 2rm to 2rm. It

depends upon the nature and 5ualities of product ha#e a

sound mar$etin! mana!ement and en"oy the monopoly

po%er in the mar$et then it earns 5uite hi!h pro2t and#ice*#ersa. 3ro2t is sources of %or$in! capital 'ecause it

contri'utes to%ards the %or$in! capital as a poll 'y

!eneratin! more internal funds.

1 e#el of Ta1es

The le#el of ta1es also in8uences %or$in! capital

re5uirement of 2rm. The amount of ta1es to 'e paid in

ad#ances is determined 'y the pre#ailin! ta1

re!ulations. But the 2rms pro2t is not constant, or can

note 'e predetermined. Ta1 lia'ility in asense of short*

term li5uidity is paya'le in cash. Therefore, the pro#ision

for ta1 amount is one of the important aspects of

%or$in! capital plannin!. If ta1 lia'ility increase, it needs

to increase the %or$in! capital and #ice*#ersa.

2.9 Financing of $or6ing Capita'

The 2rms %or$in! capital assets policy is ne#er set in a

#acuum it is al%ays esta'lished in con"unction %ith the

2rms %or$in! capital policy. /#ery manufacturin!

concern of industry re5uires additional assets %hether

they are insta'le or !ro%in! conditions. The most

important function of 2nancial mana!er is to determine

the le#el of %or$in! capital and to decide ho% it is to

2nanced. Financial of any assets is concerned %ith t%o

ma"or factors* cost and ris$. Therefore, the 2nancial

mana!er must determine an appropriate 2nancin! mi1,

or decide ho% current lia'ilities should 'e used to

2nance current assets. 4o%e#er, a num'er of 2nancin!

?



mi1es are a#aila'le to the 2nancial mana!er. 4e can

resort !enerally there $inds of 2nancin!.

i on!*term 2nancin!)

on!*term 2nancin! has hi!h li5uidity and lo%

pro2ta'ility, ;rdinary share, (e'enture, 3reference

share retained earnin!s and lon!*term de't of

2nancial institution are ma"or sources of lon!*term

2nance.

ii Short*term 2nancin!)

A 2rm must arran!e its short*term credit in ad#ance.

The sources of short*term 2nancin! of %or$in! capital

are trade credit and 'an$ 'orro%in!.

Ban$ credit) Ban$ credit is the primary institutional

sources for %or$in! capital 2nancin! for the purposeof 'an$ credit, amount of %or$in! capital re5uirement

has to 'e estimated 'y the 'orro%ers and 'an$s are

approached %ith the necessary supportin! data.

After a#aila'ility of this data, 'an$ determines the

ma1imum credit 'ased on the mar!in re5uirements of

the security. The types of loan pro#ided 'y

commercial 'an$s are loan arran!ement, o#erdraft

arran!ement, commercial paper etc.

2.; A!!ROACHES TO %AAGIG $OR#IG

CA!ITAL

?<



T%o approaches are !enerally follo%ed for the

mana!ement of %or$in! capital) Hi the con#entional

approach, and Hii the operatin! cycle approach.

T"e Con*entiona' Approac"

This approach implies mana!in! the indi#idual

components of %or$in! capital Hi.e. in#entory,

recei#a'les, paya'les, etc. e6ciently and economically

so that there are neither idle funds nor paucity of funds.

Techni5ues ha#e 'een e#ol#ed for the mana!ement of

each of these components. In India, more emphasis is

!i#en to the mana!ement of de'tors 'ecause they

!enerally constitute the lar!est share of the in#estment

in %or$in! capital. ;n the other hand, in#entory control

has not yet 'een practiced on a %ide scale perhaps due

to scarcity of !oods Hor commodities and e#er risin!

prices.

T"e Operating C+c'e Approac"

This approach #ie%s %or$in! capital as a function of the

#olume of operatin! e1penses. 0nder this approach the

%or$in! capital is determined 'y the duration of the

operatin! cycle and the operatin! e1penses needed for

completin! the cycle. The duration of the operatin!cycle is the num'er of day in#ol#ed in the #arious

sta!es, commencin! %ith ac5uisition of ra% materials to

the reali9ation of proceeds from de'tors. The credit

period allo%ed 'y creditors %ill ha#e to 'e set o7 in the

process. The optimum le#el of %or$in! capital %ill 'e the

re5uirement of operatin! e1penses for an operatin!

?>



cycle, calculated on the 'asis of operatin! e1penses

re5uired for a year.

In India, most of the or!ani9ations use to follo% the

con#entional approach earlier, 'ut no% the practice isshiftin! in fa#or of the operatin! cycle approach. The

'an$s usually apply this approach %hile !rantin! credit

facilities to their clients.

ADE=AC? OF $OR#IG CA!ITAL

The 2rm should maintain a sound %or$in! capitalposition. It should ha#e ade5uate %or$in! capital to run

its 'usiness operations. Both e1cessi#e as %ell as

inade5uate %or$in! capital positions are dan!erous from

the 2rms point of #ie%. /1cessi#e %or$in! capital not

only impairs the 2rms pro2ta'ility 'ut also result in

production interruptions and ine6ciencies.

T"e danger( of e)ce((i*e or6ing capita' are a(

fo''o(

It results in unnecessary accumulation of

in#entories. Thus, chances of

In#entory mishandlin!, %aste, theft and losses increase.

It is an indication of defecti#e credit policy slac$collections period.

Conse5uently, hi!her incidence of 'ad de'ts results,

%hich ad#ersely

A7ects pro2ts.

/1cessi#e %or$in! capital ma$es mana!ement

complacent %hich

(e!enerates into mana!erial ine6ciency.

??



Tendencies of accumulatin! in#entories tend to

ma$e speculati#e

3ro2ts !ro%. This may tend to ma$e di#idend policy

li'eral and di6cult To cope %ith in future %hen the 2rm is una'le to ma$e

speculati#e

3ro2ts.

Inadeuate or6ing capita' i( a'(o <ad and "a(

t"e fo''oing danger(

It sta!nates !ro%th. It 'ecomes di6cult for the

2rm to underta$e

3ro2ta'le pro"ects for non* a#aila'ility of %or$in! capital

funds.

It 'ecomes di6cult to implement operatin! plans

and achie#e the 2rm s

3ro2t tar!et.

;peratin! ine6ciencies creep in %hen it 'ecomes

di6cult e#en to meet

(ay commitments.

Fi1ed assets are not e6ciently utili9ed for the lac$

of %or$in! capital

Funds. Thus, the 2rm s pro2ta'ility %ould deteriorate.

3aucity of %or$in! capital funds render the 2rm

una'le to a#ailAttracti#e credit opportunities etc.

The 2rm loses its reputation %hen it is not in a

position to honor its

Short*term o'li!ations.

An enli!htened mana!ement should, therefore, maintain

the ri!ht amount of %or$in! capital on a continuous

'asis. ;nly then a proper functionin! of 'usiness

?G



operations %ill 'e ensured. Sound 2nancial and

statistical techni5ues, supported 'y "ud!ment, should 'e

used to predict the 5uantum of %or$in! capital needed

at di7erent time periods.

A 2rm s net %or$in! capital position is not only

important as an inde1 of li5uidity 'ut it is also used as a

measure of the 2rms ris$.

&is$ in this re!ard means chances of the 2rm 'ein!

una'le to meet its o'li!ations on due date. The lender

considers a positi#e net %or$in! as a measure of safety.

All other thin!s 'ein! e5ual, the more the net %or$in!

capital a 2rm has, the less li$ely that it %ill default in

meetin! its current 2nancial o'li!ations. enders such as

commercial 'an$s insist that the 2rm should maintain a

minimum net %or$in! capital position.

In this study four years data H ><> to ><D ha#e 'een

presented and analy9ed. It co#ers to analy9e the ratio as

%ell trend and composition of %or$in! capital, %hichmeans current assets, current lia'ilities, li5uidity,

turno#er, le#era!e and pro2ta'ility of BAIC.

8., Component( of current a((et(

For the day to day 'usiness operation di7erent types of

current assets are re5uired. Current assets refer those

assets that are cash or can 'e con#erted into cash %ithin

a year. The composition of current assets or the main

components of current assets at BAIC are cash and'an$ 'alance, loan and ad#ances and !o#ernment

securities. Miscellaneous current assets are also a

component of current assets. 3repaid e1penses,

outstandin! income li$e interest recei#a'le and other

current assets are also included in miscellaneous current

assets. The follo%in! ta'le sho%s the amount of cash

and 'an$ 'alance, money at call or short notice, loan

?@



and ad#anced !o#ernment securities and other current

assets of Ba"a" Allian9 ife Insurance Company 3#t. td.

Ta'le < )

Current Assets

Fi(ca' ?ear

Sundr+De<tor(

Ca(" and5an6 <a'ance

Loan andad*ance

Ot"er C.A Tot

/7,/J, D?,GE ?,@<@,? LD,L <,<GE,GL@ @,?

/7,J,2 <,E,L >,<ED,E <?,>L@ >,>>,@D @,>

/7,2J,8 <,?G<,?@ G,>E@,E <GL,LE >,?GG,> E,>

/7,8J,9 <,>>?,LD G,@>,<D@ <L,DD ?,E?>,G@L ,L

Source) * Annual &eport of BAIC From ><><? to

><@<D

An asset of Company %as amounted to &s.

@,GD,?@D %hich included &s. ?,@@>D? of cash and

'an$ 'alance, &s. LD,L of loan and ad#ance, &s.

<,E>E,G>? of miscellaneous current assets. Current

assets of the company increase in all four years.

ITER!RETATIO ,

?D



As stated in a'o#e 2!ure the current assets of BAIC

increases all the four year from F >E t

><<<>. In the cash of F ><, the increasin!

trend is lo% from F >E. But the o#erall

increasin! trend of current assets is hi!her.

8./ Component of Current Lia<i'itie(

Current lia'ilities is a short*term o'li!ation %hich is

paya'le %ithin a year. The composition of current

lia'ilities or the main components of current lia'ilities.

Ta1 pro#ision, sta7 'onus, proposed di#idend paya'le

and other lia'ilities are included in other current

lia'ilities. The follo%in! ta'le sho%s the amount of

deposit and other accounts, short term loan, 'illspaya'le and other current lia'ilities of BAIC.

Ta'le > )

Current ia'ilities

Fi(ca' ?ear

Creditor( Depo(it 5i''(!a+a<'e

Ot"er C.L Tota'

/7,/J, >,>G,?@L ?,?<E, EL,DL >,?D,G> E,@>,?

/7,J,2 ?,L<,L G,<>, <D,<DE >,G<,@DG <,@<EL

/7,2J,8 ?,>E<,L G,G?, E,?L> <,D,@DG ,@,

/7,8J,9 G,>GD,GG G,<G>,G< L,EL >,?DE,E>L <,D@G,

In the a'o#e ta'le, the component of current lia'ilities

%hich consists deposits. Source annual report of

company.

?L



Interpretation > ) *

In the a'o#e 2!ure sho%s that the current lia'ilities of

the company is increasin! In 2scal year >E the

total amount of current lia'ilities &s. E,@>,?@D for the

increasin! impact of deposits and other current

lia'ilities. In all four year deposits and other current

lia'ilities are increased.

8. $or6ing capita' of 5ALIC

?E



Wor$in! capital is re5uired to run 'usiness smoothly and

e6ciently in the conte1t of set o'"ecti#es. It is no dou't

that no or!ani9ation can achie#e its !oal %ithout proper

use of %or$in! capital. It means money in#ested on

%or$in! capital should 'e neither more nor less 'ecause'oth the position of %or$in! capital a7ects not only

li5uidity 'ut also pro2ta'ility of the or!ani9ation. The

in#estment decision should 'e made on any type of

current assets 'y considerin! their role in company and

determinin! %hich one is more 'ene2cial to the

company and %hich is not. The follo%in! ta'le sho%s the

amount of %or$in! capital of BAIC of the study period.

Ta'le ? )

Wor$in! capital of Company

?



Sources) Annual &eport of company.

ITER!RETATIO

In the a'o#e 2!ure %e clearly sho% the current assets,

current lia'ilities and %or$in! capital condition of BAIC

from 2scal year >E to ><<<>. Wor$in! capital

condition of the company is at satisfactory le#el. All theyear of the study period the %or$in! capital of the

company is ne!ati#e.

• Liuidit+ Ratioi5uidity ratios measures a'ility of the 2rms to

meet its short*term o'li!ations. i5uidity of any

'usiness or!ani9ation is directly related %ith

%or$in! capital or current assets and current

lia'ilities of that or!ani9ation. In other %ords, one

of the main o'"ecti#es of %or$in! capital

mana!ement is $eepin! sound li5uidity position.

Company is a di7erent or!ani9ation %hich is

en!a!ed in Mo'ili9ation of funds. So, %ithout

sound li5uidity position of a'ility to meet its short*

term o'li!ation #arious li5uidity ratios are

calculated and to $no% the trend of li5uidity are

trend analysis of ma"or li5uidity ratios ha#e 'een

considered.

G



8.2 Current Ratio This ratio indicates the short*term sol#ency

position of 'an$. In other %ords current ratio

indicates 'etter li5uidity position. It is calculatedas follo%s)

Current assets HCA

Current lia'ilities HC

The follo%in! ta'le sho%s the current ratio to compare

the follo%in! capital mana!ement of BAIC.

Ta'le G )

Current ratio

Fi(ca' ?ear Tota' CA Tota' CL Current ratio

/7,/J, @,?E<,?ED E,@>,?@D .DL

/7,J,2 @,>E,@?E <,@<E,L<< .@

/7,2J,8 E,><L,@@@ ,@,<@ .ED

/7,8J,9 ,LGD,EE <,D@G,E@G .<A#era!e.LG

Sources) Annual &eport of BAIC from ><><?to ><D.

G<



Current Ratio of 5ALIC

ITER!RETATIO2

The a'o#e ta'le sho%s the CA, C and current ratio of

the BAIC. The current ratio of the BAIC is 8uctuatin!

o#er the year. The hi!hest current ratio is in 2scal year

><<<> .<. And in all year it is increasin!. The

a#era!e ratio is .LG.

8.9 Ca(" and <an6 <a'ance to Current A((et(

The cash and 'an$ 'alance is almost li5uids from the

current assets, this ratio sho%s the percenta!e of readily

a#aila'le fund %ithin the 'an$s. It can 'e calculated 'y

di#idin! cash and 'an$ 'alance 'y current assets, %hich

is !i#en 'elo%.

Cash and 'an$ 'alance

Current assets

G>



This ratio sho%s that the percenta!e of current assets

co#er cash and 'an$ 'alance. The follo%in! ta'le and

2!ure sho%s the cash and 'an$ 'alance to current

assets ratio of BAIC o#er the study period.

Ta'le @ )

Cash and Ban$ to Current Assets &atio of BAIC

Fi(ca' ?ear Ca("& 5an6 5a'ance

Current A((et( Ratio K

/7,/J, ?,@@>,D? @,?E<,?ED .DL

/7,J,2 >,<ED,E @,>E,@?E .G<

/7,2J,8 G,?E@,E E,><L,@@@ .@?

/7,8J,9 G,?E>.?D ,LGD,EE .GG

Sources) Annual &eport of Company

ITER!RETATIO8

Cash and Ban$ 'alance to current assets ratio of the

company is in >< decreased and in ><><? it

increased and a!ain in ><?<G is decreased.

G?



8.; Ca(" and 5an6 5a'ance to Tota' depo(it

The ratio sho%s the a'ility of 'an$ immediate funds to

co#er their deposits. It can 'e calculated 'y di#idin!

cash and 'an$ 'alance 'y deposits. The ratio can 'ee1pressed as)

The follo%in! ta'le and 2!ure sho%s the cash and 'an$

'alance to total deposits ratio of the BAIC o#er the

study period.

Ta'le D )

Cash and Ban$ 'alance to total (eposit &atio of BAIC

Fi(ca' ?ear Ca(" & <an6 Tota' depo(it Ratio

/7,/J, ?,@@>,D? >,?<E, <.@?

/7,J,2 >,<ED,E >,<>?, <.?

/7,2J,8 G,?E@,E >,E,@ <.@<

/7,8J,9 G,?E>.?D ?,E@L, <.<G

Sources) Annual report of Company

GG



ITER!RETATIO9

The a'o#e 2!ure depicts that the cash and 'an$ 'alance

to total deposit of BAIC has 'een sli!htly decreasin! in

F ><, ><<<, ><<<>.

8.3 et !ro0t to Tota' A((et(

This ratio is #ery much crucial for measurin! the

pro2ta'ility of funds in#ested in the 'an$ assets. It

measures the return on assets it computed 'y usin! the

follo%in! formula.

-et pro2t after ta1

Total assets

Ta'le L

-et 3ro2t to Total assets &atio of BAIC

Fi(ca' ?ear et !ro0t Tota' a((et( RatioK

G@



/7,/J, @,D@,EGD @,??D,G> <.@

/7,J,2 D,<E>,LE @,>E,@?E <.<L

/7,2J,8 <,?EL,G<> E,><L,@@@ <.>D

/7,8J,9 >?,G,G?< ,LGD,EE >.G<

Sources) Annual &eport of company

ITER!RETATIO;

-et 3ro2t to total asset ratio in >E <.@ and it

increasin! sli!htly in 2nancial year ><, ><<<

and ><<<>.

8.4 De<tor( Turno*er Ratio

Concept -

(e'tors are e1pected to 'e con#erted into

cash o#er a short period of time and therefore areincluded in current assets. It sho%s ho% many times

de'tors are con#erted into cash in a year.

(e'tors Turno#er &atio -et credit sales

A#era!e (e'tors

Ta'le E )

GD



(e'tors Turno#er &atio

?ear Credit (a'e( A*erageDe<tor(

Ratio

/7,/J, <>,<,<E< <,E,<G 8.8

/7,J,2 <?>,E@E,E@ >L,<>,<< 2.33

/7,2J,8 <L<,DL<,G@< ?D,?>,E?L 2.;/

/7,8J,9 //,:/29:3/2 2/:832:92 8.,4

Diagram-

ITER!RETATIO3

The de'tors turno#er ratio %as #ery less inthe year ><<< at G.L> times, 'ut them it has

increased to @.<, @.DD times in the year ><<<> and

>E*. This sho%s that the company is ma$in! all the

o7ers to speed up the collection process.

8.4 Creditor( Turno*er Ratio

Concept -

GL



Creditors turno#er ratio esta'lishes

relationship 'et%een not credit purchases and a#era!e

trade creditors and accounts paya'le. The ratio indicates

the #elocity %ith %hich the creditors are turned o#er inrelation to purchases.

Creditors Turno#er &atio -et Credit 3urchases

A#era!e creditors

Ta'le )

Creditors Turno#er &atio

?ear Credit !urc"a(e( A*erageCreditor(

Ratio

/7,/J, D,L>G,GD E>,LG,G ,.,;

/7,J,2 <>L,@@?,EL <<>,@@G,D?@ ,.,

/7,2J,8 <D@,DE,<GE <GD,D<L,<? ,.,

/7,8J,9 ><?,?>?,<E@ <E,@<,DDD ,.,/

ITER!RETATIO4

The creditors turno#er ratio %as <.<L times in the year

>E: it decreased to <.<? times in the year ><?*

><G 'ut creditor turno#er %ill 'e remain same t%o year

><G<@ and ><@<D.

8.,7 $or6ing Capita' Turno*er Ratio-

GE



It is ta$en as

one of the primary indicators of the short*term

sol#ency of the 'usiness. It esta'lishes the

relationship %ith the net sales. It measures thee6ciency %ith %hich the %or$in! capital is 'ein!

used 'y the 2rm.

W;&NI- CA3ITA T0&-;V/& &ATI;

-et Sales

-et Wor$in! Capital

Ta'le < )

?ear et Sa'e( et $or6ingCapita'

Ratio

/7,/J, <>,<,<E< >,>>,L@< 8.78

/7,J,2 <?>,E@E,E@ >?,>GG,EL 8.;/

/7,2J,8 <L<,DL<,G@< ?D,EL,L>L 2.98

/7,8J,9 //,:/29:3/2 /:/98:387 9.39

Source) Annual report of BAIC

ITER!RETATIO,7

G



In The year ><><? %or$in! capital to ratio %as@.@

time ,@.L> time in the year ><?<G. In the year ><?<G

the %or$in! capital has increases. And in 2nancial year

><G<@ it decreased and a!ain in 2nancial year >G<@

it increased.

Ta<'e ,,

Statement of c"ange( in or6ing Capita' for t"e

+ear /774J,7

!articu'ar( ,--/7,2 ,--/7,8 Increa(e Decrea(e

Current a((et(

Sundr+ de<tor( 94:423 ,:734:7;7 224:,//

Ca("& <an6 <a'ance

:8,8:44 /:,39:473 ,:99:788

Loan& ad*ance ;9:4;7 ,7:/;8 8:,7

Ot"er C.A ,:,23:2;8 /:7//:897 32:738

Tota' 8:3,:39 8:/43:83 ,:9:8,; ,:99:788

CurrentLia<i'itie(

Sundr+ creditor( /:/24:8; :;7,:7;4 ,:28,:;// -

Depo(it :,3:477 2:,/4:477 3,,:777 -

5i''( pa+a<'e 3;:97; ,49:,93 ,73:89, -

Ot"er C.L /:49:24/ /:24,:892 48:7;/ -

@



Tota' 3:78/:89 ,7:8,3:;,, /:299:88

ITER!RETATIO ,,

Current assets for the year >< is increases and it is!ood condition for the company and current

lia'ilities of the company is increased 'y

>,GDD,?@@.and 'y puttin! formula HW.C C.A*

C.%or$in! capital of the company for year

><G<@ is G,GL,L. 4ere %or$in! capital of

company is increasin! that means pro2ta'ility of

company also increasin!.

Ta<'e ,/


+ear /m: /7,2J,8

!articu'ar( ,--/7,2 ,--/7,8 Increa(e Decrea(e

Current a((et(

Sundr+ de<tor( ,:734:7;7 ,:2,:84 /43:387

Ca("& <an6 <a'ance

/:,39:473 2:/38:743 /:,43:,47

Loan& ad*ance ,7:/;8 ,2;:7;3 ,9:37

Ot"er C.A /:7//:897 /:22:7/7 293:83

Tota' 8:/43:83 3:/,;:888 /:43/:3,

CurrentLia<i'itie(

Sundr+ creditor( :;7,:7;4 :/3,:7;4 2/7:777

Depo(it 2:,/4:477 2:27:477 7,:777

@<



5i''( !a+a<'e ,49:,93 43:;/ 4;:;49

Ot"er C.L /:24,:892 ,:947:892 37,:777

Tota' ,7:8,3:;,, 4:877:4,8 7,:777 ,:,3:;49

ITER!RETATIO,/

Current assets for the year ><G<@ is increases and it is

!ood condition for the company and current lia'ilities of

the company is decreased 'y <,<L,LD thats sho%s the

%or$in! capital of the company is increased. 4ere

de'tors increased means cash 'alance of company

decreased.

Ta<'e ,


+ear /7,8J,9

!articu'ar( ,--/7,, ,--/7,/ Increa(e Decrea(e

Current a((et(

Sundr+ de<tor( ,:2,:84 ,://:;79 ,,;:98

Ca("& <an6 <a'ance

2:/38:743 2:8/7:,98 /8:79;

Loan& ad*ance ,2;:7;3 ,;7:997 /:83/

Ot"er C.A /:22:7/7 :3/:28; ,:233:2;

Tota' 3:/,;:888 4:;29:433 ,:;2;:739 ,,;:98

Current'ia<i'itie(

@>



Sundr+creditor(

:/3,:7;4 2:/29:224 ;98:;7

Depo(it 2:27:477 2:,2/:24, - /33:274

5i''( pa+a<'e 43:;/ 4;:73; ,:/38

Ot"er C.L ,:947:892 /:93:3/; 9;3:/9

Tota' 4:877:4,8 ,7:982:382 ,:22:9 /34:942

ITER!RETATIO,

Current assets for the year ><G<@ is increases and it is

!ood condition for the company and current lia'ilities of

the company is increased 'y <,<@?,? thats sho%s

%or$in! capital of company decreased. 4ere de'tors

decreased thats !ood for company it sho%s cash of

company increased.

@?



FIDIGS

<. Current assets for the year ><?<G is decreases

and its application for the company and current

lia'ilities of the company is increased 'y

>,GDD,?@@.and 'y puttin! formula HW.C C.A* C.

%or$in! capital of the company for year ><?<G is

G,GL,L.

>. Current assets for the year >< is increases

and it is !ood condition for the company and

current lia'ilities of the company is decreased 'y

<,<L,LD thats sho%s the %or$in! capital of the

company is increased. 4ere de'tors increased

means cash 'alance of company decreased.

?. Current assets for the year ><?<G is increases

and it is !ood condition for the company andcurrent lia'ilities of the company is increased 'y

<,<@?,? thats sho%s %or$in! capital of

company decreased. 4ere de'tors decreased

thats !ood for company it sho%s cash of company

increased.

G. Current ratio HC.& of 2scal year ><><? to

><?<G sho%ed sli!htly increase i.e. .DL to .<.

But in 2scal year ><G<@ C.& decreased

@G



comparati#ely in deposits and in 2scal year

><<< C.& is a!ain increase .ED due to increase

in factors %hich in8uence it.

@. Cash and Ban$ 'alance to current assets ratio of

the company is in ><?<G decreased and in

><G<@ it increased and a!ain in ><@<D is

decreased.

D. The a'o#e 2!ure depicts that the cash and 'an$

'alance to total deposit of BAIC has 'een sli!htly

decreasin! in F ><?<G, ><G<@, ><@<D.

L. -et pro2t to total asset ratio in ><><? <.@ and it

increasin! sli!htly in 2nancial year ><?<G,><G<@ and ><@<D.

E. The de'tors turno#er ratio %as #ery less in the

year ><G<@ at G.L> times, 'ut them it has

increased to @.<, @.DD times in the year ><?<G

and ><>*<?. This sho%s that the company is

ma$in! all the o7ers to speed up the collection

process.. The creditors turno#er ratio %as <.<L times in the

year ><><?: decreased to <.<? times in the year

><?*><G 'ut creditor turno#er %ill 'e remain

same t%o year ><G<@ and ><@<D.

<. In The year ><><? %or$in! capital to ratio

%as@.@ time, @.L> time in the year ><?<G. In

the year ><><? the %or$in! capital has

increases. And in 2nancial year ><G<@ decreased

and a!ain in 2nancial year ><@<D increased.

@@



S=GGESTIO

;n the 'asis of the analysis and o'ser#ation anattempt made to present some su!!estions.

<. In the year ><?*><G the current assets of the

company has declined and current lia'ility of the

company has increases therefore the net %or$in!

capital declined. There for the current ratio has

@D



declined. The net %or$in! capital of the company

has increased remainin! year.

>. The company has a'le to repay the lia'ility of the

creditors 'ecause the pro2t of the company has

increased e#ery year.

?. Because of the current assets has declined in the

year ><*><< 'ut pro2t of the company has

increased in the year ><>*><?. There for the

return on current assets is hi!h.

G. Company has a'le to full 2ll the standard le#el of

current ratio i.e. >)< .There for the company has

a'le to repay the lia'ility and loan of company.

COCL=SIO

At the end it is stated that the %or$in! capital

mana!ement is a part of money in#ested in the

'usiness. Wor$in! capital may 'e re!arded as life'lood

@L



of a 'usiness. Its e7ecti#e pro#ision can do much to

ensure the success of a 'usiness.

The Wor$in! Capital Mana!ement contri'utes much in

the o#erall mana!ement of the or!ani9ation a7airs,

e6ciency of or!ani9ation operations depend on ho% it

mana!es its short term 'usiness dealin!s. Wor$in!

Capital mana!ement contri'utes for the 2rm e6ciency

as %ell as the 2nance mana!er is proper utili9in! the

a#aila'le %ealth and maintainin! the re5uired li5uidity.

Wor$in! capital is considered to 'e an

important tool for pro!ress. Wor$in! capital

mana!ement techni5ues are playin! si!ni2cant role in

assistin! the mana!ement for decision ma$in!. The

study of %or$in! capital mana!ement at Ba"a" Allian9

ife Insurance 3#t. td.Is found to 'e #ery e7ecti#e. The

%or$in! capital contains the mana!ement of Cash,

(e'tors, and creditors. The Ba"a" Allian9 ife Insurance

3#t. td has pro2t oriented company .The pro2t of the

company %ill 'e increases e#ery year .The company has

a'le to the repay the amount of the creditor. The

company has more %or$in! capital and also sale has

increases year to year.

@E



LI%ITATIOS

<. The analysis is limited to three years of data study

Hfor the year ><><? to ><@<D for 2nancial

analysis.

>. The estimation and e1pectation made in the

2nancial statements may di7er from actual

performance due to #arious economic conditions,

!o#ernment policies and other related factors.

?. All the data accumulated and presented in this

pro"ect is procured from secondary sources %hich

may ha#e 'een su'"ect to stealthy 'iased nature.

sana project

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