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A

PROJECT REPORT

ON

“EVALUATION OF WORKING CAPITAL MANAGEMENT IN

BAJAJ ALLIANZ LIFE INSURANCE”

SUBMITTED TO UNIVERSITY OF PUNE

IN PARTIAL FULLFILMENT OF THE REQUIREMENT FOR THE

AWARD OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

BY

SURESH KUMAR

UNDER THE GUIDANCE OF

PROF. SHALAKA SAKHREKAR

S.K.N. SINHGAD SCHOOL OF BUSINESS MANAGEMENT,

AMBEGAON (BK., PUNE!"##$"#

%$#%!#"


2/57

ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me during thecompletion of project.

My deep sense of gratitude to Mr.Santosh Singh Chief Branch Manager for support and

guidance. Thanks and appreciation to the helpful people at BAJAJ AIA!" I#$

I!S%&A!C$' for their support.

I would like to take this opportunity as pri(ilege to e)press my deep senseof gratitude to

*rofessor M. N. N&'&)' +onora,le #ounder *resident' and D*. (M*+. S-&-&. M. N&'&),

Secretary' Sinhgad Technical $ducation Society' *une -D*.R&/&+0*))S01-), irector S.K.N.

S1-02& S3044 45 B+1-)++ M&-&2)6)-7,Am,egaon /B01' *une for their continuous

encouragement' in(alua,le guidance and help for completing the present research work. They

ha(e ,een a source of inspiration to means I am inde,ted to them for initiating me in the field of

research.

My deepest thanks to Mrs. 2ogita0adam' Mrs. Sadhana3gale and Mrs. ShalakaSakhrekar the

guide of the project for guiding and correcting (arious documents of mine with attention and

care.She has taken pain to go through the project and make necessary correction as and when

needed.

I would also thanks my institution and my faculty mem,ers without whom this project would

ha(e ,een a distant reality. I also e)tend my heartfelt thanks to my family and well wishers.

*AC$4 *%!$S%&$S+ 0%MA&


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DECLARATION

I here ,y declare that the project work entitled 5 $6A%ATI3! 3# 73&0I!8 CA*ITA

MA!A8$M$!T I! BAJAJ AIA!" I#$ I!S%&A!C$9 su,mitted to the *une uni(ersity'

is a record of an original work done ,y me under the guidance of S+AA0A SA0+&$0A&'

faculty mem,er' from S0! SI!+8A SC+33 3# B%SI!$SS MA!A8$M$!T' *%!$

I further declare that this project is the result of my own efforts.

*lace4 *une S%&$S+ 0%MA&

ate4


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INDE8

C0&97)* N4. P&*713&*+ P&2) N4.

E:)371') S66&*;

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E8ECUTIVE SUMMARY


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$)ecuti(e Summary4

7orking Capital is the re:uired for maintenance of day to day ,usiness

operations. The present day competiti(e market en(ironment calls for an

efficient management of working capital. The reason for this is attri,uted to

the fact that an ineffecti(e working capital management mat force the form to

stop its ,usiness operations' may e(en lead to ,ankruptcy. +ence the goal of

working capital management is not just concerned with the management of

current assets and current lia,ilities ,ut also in maintaining a satisfactory le(el

of working capital.

+olding current assets in su,stantial amount strengthens the li:uidity position

and reduces the riskiness ,ut only at the e)pense of profita,ility. Therefore

achie(ing risk;return tradeoff is significant in holding of current assets. 7hile

cash outflows are predicta,le it runs contrary in case of case of cash inflows.

Sales program of any ,usiness concern does not ,ring ,ack cash immediately.

There is a time lag that e)ists ,etween sale of goods of ser(ices and sales

reali


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INTRODUCTION

The o(erall success of the company depends upon its working capital position. So it should

,e handled properly ,ecause it shows the efficiency - financial strength of a company.

7CM is highly important in firms as it is used to generate further returns for the

stakeholders.

7orking Capital Management is a (ery important fact of financialmanagement due to4

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 geared:uickly to change sales.

The working capital is the life ,lood - ner(e center of a ,usiness firm. The importance of

working capital in any industry needs no special emphasis. !o ,usiness can run effecti(ely

without a sufficient :uantity of working capital.

It is crucial to retain right le(el of working capital. 7CM is one of the most important

functions of corporate management. A ,usiness enterprises with ample working capital is

always in a position to a(ail ad(antages of any fa(ora,le opportunity either to ,uy raw

material or to implement a special order or to wait for enhanced market status.

7orking capital can ,e utili


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Some the points to ,e studied under this topic are4

+ow much cash should a firm hold=

7hat should ,e the firm>s credit policy=

+ow to - when to pay the creditors of the firm=

OBJECTIVES

The o,jecti(es of project on e(aluation of working capital are as

follows4

?. To study concept of working capital - components of

working capital.

@. To study change of working capital.

. To analy


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decrease in return onin(estment. The goodwill of the firm is also

ad(ersely affected due to the ina,ility to paycurrent lia,ilities in time.

+ence' the management of working capital helps to manage all the

factors affecting theworking capital in the most profita,le manner.

L1617&714- 45 70) +7;

The scope of the present study has ,een limited interns of period of

study as well as sources and nature of data. The period co(ered ,y the

study e)tends o(er years from #.2 @DEF to @??E?@. At the time of

study' the data could ,e a(aila,le up to @??E?@. The limitations of this

study are as follows4

?. The study is mainly on secondary data. It is cone mostly on the

,asis of and pu,lished financial documents' like ,alance sheet'

profit and loss account and other related journals' magas financial

resources and is to ,e completed within limited time. The report

has taken only ;years data for the study from year @DEF to

@?@E?.

G. The study is limited from the point of (iew of su,mission on

partial fulfillment of the re:uirement for the Master degree in

Business Administration/MBA1.

3


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BAJAJ ALLIANZ LIFE INSURANCE

N&6) &- 43&714- 45 70) C469&-;

!ame4 Bajaj Allian< ife Insurance Company

Address4 8$ *la


12/57

Allian< S$ is a leading insurance conglomerate glo,ally and one of the

largest asset managers in the world' managing assets worth o(er a

Trillion /3(er I!&. ''Crores1. Allian< S$ has o(er ??F years of

financial e)perience and is present in o(er countries around the

world.

At Bajaj Allian< ife Insurance' customer delight is our guiding

principle. 3ur ,usiness philosophy is to ensure e)cellent insurance and

in(estment solutions ,y offering customis In(estors Ser(ice' for Claims *aying a,ility. This

rating indicates highest claims paying a,ility and a fundamentally

strong position.

5


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A&*+

Best Insurance Company in *ri(ate sector at the I*$ Banking

#inancial Ser(ice and Insurance /B#SI1 @?.

S03C+ #inancial Inclusion;3rgani


14/57

D1*)374*+

!iraj Bajaj

Sanji( Bajaj

S.+ 0han

&anjit 8upta

Sanjay Asher

Suraj Mehta

Manu Tandon

FACTSHEET

#D&7) 45 I-34*94*&714- #%70 M&*30 %$$#

%Started 3peration on rd August @?

7


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<+ead office *une' India

"7orld7ide 7e, Address www.,ajajallianM - C$3 Mr.6.*hilip

?Total assets under Management D' croreL

#$Sol(ency ratio HG.?LL

##Claim Settlement &atio !3* F?.HLL

#%Total no. of li(es co(ered ?.HcroreLL

#<Total no. of office FF@L

#"atest Award 7on ?.S03C+ #inancial Inclusion

@?; 3rganis doorsteps

• Insurance Awareness

$ducation

• Micro Insurance &ene

*ersistency Managem

#

Sour product cater to all the financial needs like N *rotection' Sa(ings' &etirements' In

- +ealth for Indi(iduals and 8roups

N47) T0) '&) &*) &+ 4-


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8rowing at a ,reakneck pace with a strong pan Indian

presence Bajaj Allian< has emerged as a strong player in

India...

Bajaj Allian< ife Insurance Company imited is a joint (enture

,etween two leading conglomerates Allian< A8 and Bajaj Auto

imited.

Characteri


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The data in this project is ena,ling in secondary in nature.

#inancial reports' company records were referred for data analysis. The

study has ,een undertaken ,y collecting rele(ant data from the ,alance

sheet' profit and loss aEc' annul report - Audit report of the BAIC the

company is used financial tools for the analy


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SAMPLING DESIGN

Sampling unit 4 #inancial Statements - Audit

&eports

? Sampling Sis in(estment in short term assets cash' short term

securities. Account recei(a,les and in(entories.

7orking capital management is the important ,ranch of the financial

management which gi(es answers the :uestions such as4

?. +ow much should we in(est in each category of current assets=

@. +ow should we finance this in(estment in current assets i.e.

appropriate mi) of short and long term sources to finance=

11


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In most ,usiness' funds are deployed in assets which are in the form of

cash or ,ank deposits or will ,e turned into cash in a relati(ely short

period as part of normal ,usiness acti(ities. In short the working capital

is the sources of financing current assets and it includes short as well as

long term financing.

The management of the funds of ,usiness can ,e descri,ed as financial

management. #inancial management is mainly concerned with two

aspects. #irstly' #i)ed assets and fi)ed lia,ilities' in other words' long

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 finance.

Management of working capital usually in(ol(es management or

administration of current assets' namely cash' marketa,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' ,ank o(erdraft' outstanding e)penses' temporary loans and

pro(isions. A firm should always maintain the right cash ,alance so

that flow of funds is maintained at a desira,le speed not allowing

slowdowns or stoppage. Thus' the enterprises can ha(e a ,alance

,etween li:uidity and profita,ility.

The term working capital is often used to refer the firm>s current assets

like primarily cash' marketa,le securities' account recei(a,les and

in(entories. 7orking capital refers to the fact that most of its

components ha(e their impact o(er weeks and month rather than years.

#or this reason' working capital management is often referred to as

short;term finance. The term working capital is closely related to the

term funds and has two common meaning. It is used to mean current

assets of current assets means current lia,ilities.

7orking capital management is concerned with the pro,lems that arise

in attempting to manage the current assets. The term current assets

12


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refers to those assets which is ordinary course of ,usiness can ,e or

will ,e turned into cash within one year without undergoing a

diminution in (alue and with our disrupting the operations of the firm.

The major current assets are cash' marketa,le securities' account

recei(a,les and in(entory.

Current lia,ilities are those lia,ilities' which are intended at their

inception to ,e paid in the ordinary course of ,usiness within a year'

out of the current assets of earnings of the concern. The ,asis current

lia,ilities are accounts paya,le' ,ank o(erdraft and outstanding

e)penses. The goal of working capital management is to management

the firm>s current assets and current lia,ilities in such a way that a

satisfactory le(el of working capital is maintained.

This is so ,ecause if the firm cannot maintainto satisfactory le(el of

working capital' it is likely to ,ecome insol(ent and may ,e forced into

,ankruptcy. The current assets should ,e large enough to co(er its

current lia,ilities in order to ensure a reasona,le margin of safety. $ach

of the current assets must manage efficiently in order to maintain the

li:uidity of the firm while not keeping too high le(el of any of them.

$ach of the short;team sources of financing must ,e continuously

managed to ensure that they are a,stained and used in the ,est possi,le

way. The interaction ,etween current assets and current lia,ilities is'

therefore' the main theme of the theory of working capital

management.

7orking capital may ,e defined more particularly as the assets held for

current use within a ,usiness less the amount due to those who await

settlement in short term in whate(er form. 7orking capital is an

important aspect manufacturing compares that ha(e so far de(eloped

country. Among all a(aila,le options proper management of working

capital is the only ,est possi,le option to impro(e their operational

(ia,ility. 7orking capital is the financial management practice in

manufacturing enterprises. 7orking capital represents portion that

13


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circulates from one form to another in the ordinary conduct of ,usiness.

This idea em,races recurring transaction from cash to in(entories to

recei(a,le to cash that forms the con(entional chain of ,usiness

operations.

#und deployed for short term are mainly for working capital or

operational purpose. Towards the day;to;day operation' a firm will

ha(e to pro(ide money towards the purchase of raw materials' payment

of wage and salaries to e)tend credit to ,uyers of goods as well as to

meet other day to day operations.

By analy


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@1 7orking capital represents the total of all current assets. In other

words it is the 8ross working capital' it is also known as Circulating

capital or Current capital for current assets are rotating in their nature.

1 7orking capital is defined as The e)cess of current assets o(er

current lia,ilities and pro(isions. In other words it is the !et Current

Assets or !et 7orking Capital

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital4; gross - net. 8ross

working capital' simply called working capital' refers to the firm>sin(estment in current assets. Current assets are the assets which can ,e

con(erted into cash within an accounting period /or operating

cycle1and cash' short;term securities' recei(a,les' de,tors and stock

/in(entory1 are included in current assets. !et working capital refers to

the difference ,etween current assets and current lia,ilities. Current

lia,ilities are those claims of outsiders' which are e)pected to mature

for payment within an accounting periodand include creditors' ,ills

paya,leand outstanding e)penses.

1) G*4++ 4*@1-2 3&917&

According to this concept' total current assets are working capital

which presents ,oth owned capital as well as loan capital used for

financing current assets. It includes cash' short;term securities and

recei(a,les in(entories. These assets can ,e con(erted into cash within

a year. 8enerally' when it comes to current 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 stock which is nearer to ,eing turned into

cash. The gross concept of working capital refers to the amount funds

in(ested in short;term assets that are employed in the enterprise. 8ross

working capital is the firm>s total current asset and net working capital

is current assets minus current lia,ilities.

15


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Another name of gross working capital is circulating capital.

Circulating capital means circular flow of cash. This is also called

operating cycle in case of manufacturing firm. This cycle starts with

which is used to pay for raw materials. &aw materials are con(erted

into work;in progress which is again con(erted into finished goods.

7hen it is ready for sale' it is a circular cash;flow from cash into

in(entories to recei(a,les and ,ack to cash' this cycle will ,e repeat

again for the whole life of the firm.

The (alue represented ,y current assets circulates from one working

capital to another working capital from purchase accounts to goods

manufacturing accounts. #rom in(entory accounts to sales accounts'

from sales accounts to cash accounts' this is descri,ed as circulating

nature of current assets of in other work working capital has circulating

nature. The speed of circulating of working capital of the turno(er of

current assets is an indicator of degree of efficiency of the

management. The faster the turno(er shows the higher degree of

efficiency.

T0) 4*@1-2 3&917& 3;3) 3&- ) 9*)+)-7) 1- 70)

1&2*&6 &+

16


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C3$CTI3! *A2M$!TS

$BT3&S

SA$S

*&3%CTI3!

6A%$ A$ C3!6$&SI3!

#igure4 G.? The working capital cycle of manufacturing firms.

If the ,usiness is profita,le the firm>s assets at the end of each cycle will ,e

greater than the original in(estment. In this manner' each cycle will

produce a gross profit' and the amount of net earnings for the year will

depend. In part' on num,er of times the cycle occurs or how measured

,y the ratio of sales to current assets. The higher the ratio' the more

efficiency the operations' fewer current assets are needed to support

each dollar of sales.

The flow of working capital does not always proceeds as it is pre;

planned when it mo(es through different stage of cash cycle' for

e)ample' sales may decline due to can in consumer taste' slow

economy and recei(a,le ,ecome more difficult to collect the working

capital cycle will ,e interrupted. This leads to decline in profita,ility

and firm could suffer ,ankruptcy if this ad(erse situation pre(ails for

sometimes.

17

C&$IT3&SCAS+

&A7 MAT$&IAS

#I!IS+$ 833S 73&0;I!;

*&38&$SS


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There is also a much shorter cycle of acti(ity where in goods 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 with

which to continue in ,usiness and to make a profit distri,ution

possi,le.

The working capital cycle shown in figure G.? is theoperating cycle for

non; manufacturing firm where' cash is re:uired to purchase raw

materials which are needed to con(ert into work;in; progress' which is

again con(erted into finished goods. Are sold for cash and credit and

ultimately de,tors will ,e reali


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CAS+

#igure4 G. 3perating cycle of ser(ice and financial

firms.

The gross capital working capital focuses on two aspects of

current assets management4

a1 3ptimum in(estment in current assets4 As state earlier' ,oth

e)cessi(e and inade:uate in(estment is harmful for the

,usiness. This aspectsthus' emphasis on the optimum ade:uate

le(el of current assets' working capital depends upon the

,usiness acti(ated. It also changes with the change in ,usiness

acti(ities. This may cause e)cess or shortage of working capital

fre:uently. The management should ,e acti(e and alert to

correct the im,alance.

,1 #inancing of current assets4 This aspect focus on the need of

arranging funds to finance current assets when more working

capital is re:uired due to the increase in ,usiness acti(ities.

Then the arrangement should ,e made :uickly. Similarly' when

surplus funds arise' then they should ,e in(ested in short term

securities.

% N)7 4*@1-2 3&917&

!et working capital comprises short term net assets4 stock' de,tors

and cash less creditors. 7orking capital management then is to do

with management of all aspects of ,oth current assets and current

lia,ilities' so as to minimi


27/57

!et working capital represents the e)cess of total current assets

o(er total current lia,ilities. It is a :ualitati(e concept which shows

the financial soundness of current financial position. !et working

capital may ,e positi(e or negati(e according to the sis current assets financed with long term funds.

#or e(ery firm today' minimum portion of working capital is

financed with the permanent sources of funds such as owners>capital' de,entures' long;term de,t' and preference capital or

retained earningsP this portion of working capital which is financed

with long term funds is called permanent working capital.

Management must therefore' decide the e)tent to which current

assets should ,e financed with e:uity capital orE and ,orrowed

capital.

20


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Both the concepts of working capital' gross and net' are not

mutually e)clusi(e' howe(er. They are e:ually important from the

management point of (iew in the gross concept points out two

important aspects of current assets4 /i1 3ptimum in(estment in each

of the component of current assets and /ii1#inancing of these

current assetsP while the net concept indicates /i1 The li:uidity

position and /ii1 The e)tent to which working capital may ,e

financed ,y permanent sources of funds. Both the concepts ha(e

their own ad(antages and disad(antages' which concept to choose

depend upon the purpose of the firm. The concept of gross capital is

a financial concept where as that of net concept is an accounting

concept. Management is interested in current assets to operate the

,usiness with efficiency. To e(aluate the efficiency' gross concept is

appropriate. 3n the other hand interest of in(estors and lenders is in

concept of net working capital ,ecause it helps in the judgment if

li:uidity position of the enterprise.

".


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"." IMPORTANCE OF WORKING CAPITAL

7orking capital may ,e regarded as the life,lood of the ,usiness.

7ithout insufficient working capital' any ,usiness organi


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3perating efficiency means optimum utili


31/57

In general' working capital needs also depend upon the means of

transport and communication. If they are not well de(eloped' the

industries will ha(e to keep huge stocks of raw materials' spares'

finished goods' etc. at places of production' as well as at distri,ution

outlets.

". D)7)*61-&-7+ 45 4*@1-2 3&917&

There are no hard and fast rules or certain formulae to determine the

working capital re:uirement of the firm. The importance of efficient

working capital management is an aspect of o(erall financial

management. Thus a firm plans its operations with ade:uate working

capital re:uirement or it should ha(e neither too e)cess nor too

inade:uate working capital. A num,er of factors affect the working

capital. 8enerally' the following factors affect the working capital

re:uirement of the firm.

i1!ature and si


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7orking capital re:uirement is also determined ,y its production

policy. If a firm produces seasonal foods' the its production and sales

(olume fluctuate with different seasons. This type of fluctuating policy

affects the working capital policy of the firm.

i(1 Credit *olicy4

Credit policy affects the working capital of a firm. 7orking capital

re:uirement depends on terms of sales. ifferent term may ,e followed

,y different customers according to their credit worthiness. If the firm

follows the li,eral credit policy' then it re:uires more working capital.

Con(ersely' if a firm follows the stringent policy' it re:uires less

working capital.

(1 A(aila,ility of Credit4

A(aila,ility of credit facility is another factor that affects the working

capital re:uirement. If the creditors a(ail a li,eral credit terms then the

firm will need less working capital and (ice;(ersa. In other works' the

firm can get credit facility easily on fa(ora,le conditions. Thus' it

re:uires less working capital to run the firm otherwise more working

capital is re:uired to operate the firm smoothly.

(i1 8rowth and $)pansion4

8rowth and e)pansion also affects the working capital re:uirement of

firm. +owe(er' it is difficult to preciseP determine the relationship

,etween the growth and e)pansion of the firm and working capital

needs' howe(er' the other things ,eing the same growing firms needs

more working capital than those static ones.

(ii1 *rice le(el Change4

*rice le(el change also affects the working capital re:uirement of a

firm. 8enerally' a firm re:uires maintaining the higher amount of

working capital' if the price le(el rises. Because the same le(el of

current assets needs more due to the increasing price. In conclusion' the

25


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implications of changing price le(el of working capital position will

(ary from firm to firm depending on the nature and another rele(ant

consideration of the operation of the conserned firm.

(iii1 3perating $fficiency4

3perating efficiency is also an important factor' which influences the

working capital re:uirements of the firm. It refers to the efficient

utili


34/57

assets whether they are insta,le or growing conditions. The most

important function of financial manager is to determine the le(el of

working capital and to decide how it is to financed. #inancial of any

assets is concerned with two major factors; cost and risk. Therefore' the

financial manager must determine an appropriate financing mi)' or

decide how current lia,ilities should ,e used to finance current assets.

+owe(er' a num,er of financing mi)es are a(aila,le to the financial

manager. +e can resort generally there kinds of financing.

i1 ong;term financing4

ong;term financing has high li:uidity and low profita,ility'

3rdinary share' e,enture' *reference shareP retained earnings and

long;term de,t of financial institution are major sources of long;

term finance.

ii1 Short;term financing4

A firm must arrange its short;term credit in ad(ance. The sources of

short;term financing of working capital are trade credit and ,ank

,orrowing.

Bank credit4 Bank credit is the primary institutional sources for

working capital financing for the purpose of ,ank credit' amount of

working capital re:uirement has to ,e estimated ,y the ,orrowers

and ,anks areapproached with the necessary supporting data.

After a(aila,ility of this data' ,ank determines the ma)imum credit

,ased on the margin re:uirements of the security. The types of loan

pro(ided ,y commercial ,anks are loan arrangement' o(erdraft

arrangement' commercial paper etc.

". APPROACHES TO MANAGING WORKING CAPITAL

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Two approaches are generally followed for the management of working

capital4 /i1 the con(entional approach' and /ii1 the operating cycle

approach.

T0) C4-')-714-& A99*4&30

This approach implies managing the indi(idual components of working

capital /i.e. in(entory' recei(a,les' paya,les' etc.1 efficiently and

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

Techni:ues ha(e ,een e(ol(ed for the management of each of these

components. In India' more emphasis is gi(en to the management of

de,tors ,ecause they generally constitute the largest share of the

in(estment in working capital. 3n the other hand' in(entory control has

not yet ,een practised on a wide scale perhaps due to scarcity of goods

/or commodities1 and e(er rising prices.

T0) O9)*&71-2 C;3) A99*4&30

This approach (iews working capital as a function of the (olume of

operating e)penses. %nder this approach the working capital is

determined ,y the duration of the operating cycle and the operating

e)penses needed for completing the cycle. The duration of the

operating cycle is the num,er of day in(ol(ed in the (arious stages'

commencing with ac:uisition of raw materials to the reali


36/57

ADEQUACY OF WORKING CAPITAL

The firm should maintain a sound working capital position. It should

ha(eade:uate working capital to run its ,usiness operations. Both

e)cessi(e aswell as inade:uate working capital positions are dangerous

from the firms point of (iew. $)cessi(e working capital not only

impairs the firmsprofita,ility ,ut also result in production interruptions

and inefficiencies.

T0) &-2)*+ 45 ):3)++1') 4*@1-2 3&917& &*) &+ 544+

It results in unnecessary accumulation of in(entories. Thus'

chances of

in(entory mishandling' waste' theft and losses increase.

It is an indication of defecti(e credit policy slack collections

period.

Conse:uently' higher incidence of ,ad de,ts results' which ad(ersely

affects profits.

$)cessi(e working capital makes management complacent

which

degenerates into managerial inefficiency.

Tendencies of accumulating in(entories tend to make

speculati(e

profits grow. This may tend to make di(idend policy li,eral and

difficult

to cope with in future when the firm is una,le to make speculati(e

profits.

I-&)&7) 4*@1-2 3&917& 1+ &+4 & &- 0&+ 70) 5441-2

&-2)*+

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It stagnates growth. It ,ecomes difficult for the firm to

undertake

profita,le projects for non; a(aila,ility of working capital funds.

It ,ecomes difficult to implement operating plans and achie(ethe firm s

profit target.

3perating inefficiencies creep in when it ,ecomes difficult e(en

to meet

day commitments.

#i)ed assets are not efficiently utili


38/57

In this study four years data / @D to @?@ ha(e ,een presented and

analy$? HF'FGD '?'FF H'F ?'?GD'G 'D

%$$?#$ ?'DF' @'?DH'FD ?'@ @'@@'H '@F

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%$#$## ?'G?'F G'@D'FD ?G'D @'GG'@ D'@?

%$###% ?'@@'H G'@'?H ?'HH 'D@'G F'G

Source4; Annual &eport of BAIC #rom @DEF to @?@E?

Assets of Company was amounted to &s. 'GH'H which

included &s. '@FH of cash and ,ank ,alance' &s. H'F of

loan and ad(ance' &s. ?'D@D'G@ of miscellaneous current assets.

Current assets of the company increase in all four years.

INTERPRETATION #

As stated in a,o(e figure the current assets of BAIC increases

all the four year from #2 @DEF t @??E?@. In the cash of #2

@FE?' the increasing trend is low from #2 @DEF. But the

o(erall increasing trend of current assets is higher.

.% C4694-)-7 45 C**)-7 L1&1171)+

Current lia,ilities is a short;term o,ligation which is paya,le within a

year. The composition of current lia,ilities or the main components of

current lia,ilities. Ta) pro(ision' staff ,onus' proposed di(idend

paya,le and other lia,ilities are included in other current lia,ilities. The

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following ta,le shows the amount of deposit and other accounts' short

term loan' ,ills paya,le and other current lia,ilities of BAIC.

Ta,le @ 4

Current ia,ilities

F1+3& Y)&* C*)174*+ D)94+17 B1+ P&;&) O70)* C.L T47&

%$$>$? @'@GF' '?D'F D'H @'FH'GF@ D'@'H

%$$?#$ '?'F G'?@F'F ?FH'?HD @'GF?'HG ?'?D??

%$#$## '@D?'F G'G'F FD'@ ?'HF'HG F''F?

%$###% G'@GH'GGF G'?G@'GF? F'D @'HD'D@ ?'HG'D

In the a,o(e ta,le' the component of current lia,ilities which consists

deposits.Source annual report of company.

INTERPRETATION %

In the a,o(e figure shows that the current lia,ilities of the company is

increasing In fiscal year @DEF the total amount of current lia,ilities

&s. D'@'H for the increasing impact of deposits and other current

lia,ilities. In all four year deposits and other current lia,ilities are

increased.

.


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In the a,o(e figure we clearly show the current assets' current

lia,ilities and working capital condition of BAIC from fiscal year

@DEF to @??E?@. 7orking capital condition of the company is at

satisfactory le(el. All the year of the study period the working capital

of the company is negati(e.

• L1117; R&714

i:uidity ratios measures a,ility of the firms to meet its short;

term o,ligations. i:uidity of any ,usiness organi


43/57

%$###% F'GH'FDD ?'HG'DG .F?

A(erageR.G

Sources4 Annual &eport of BAIC from @DEF to @?@.

C**)-7 R&714 45 BALIC

INTERPRETATION"

The a,o(e ta,le shows the CA' C and current ratio of the BAIC. The

current ratio of the BAIC is fluctuating o(er the year. The highest

current ratio is in fiscal year @??E?@ .F?. And in all year it is

increasing. The a(erage ratio is .G.

. C&+0 &- &-@ &&-3) 74 C**)-7 A++)7+

The cash and ,ank ,alance is almost li:uids from the current assets'

this ratio shows the percentage of readily a(aila,le fund within the

,anks. It can ,e calculated ,y di(iding cash and ,ank ,alance ,y

current assets' which is gi(en ,elow.

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Cash and ,ank ,alance

Current assets

This ratio shows that the percentage of current assets co(er cash and

,ank ,alance. The following ta,le and figure shows the cash and ,ank ,alance to current assets ratio of BAIC o(er the study period.

Ta,le 4

Cash and Bank to Current Assets &atio of BAIC

F1+3& Y)&* C&+0 B&-@

B&&-3)

C**)-7 A++)7+ R&714 (

%$$>$? '@'FH 'D?'DH .H

%$$?#$ @'?DH'FD '@FD'D .G?

%$#$## G'D'FD D'@?' .

%$###% G'[email protected] F'GH'FDD .GG

Sources4 Annual &eport of Company

INTERPRETATION

Cash and Bank ,alance to current assets ratio of the company is in

@FE? decreased and in @?E?? it increased and again in @??E?@ is

decreased.

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. C&+0 &- B&-@ B&&-3) 74 T47& )94+17

The ratio shows the a,ility of ,ank immediate funds to co(er their

deposits. It can ,e calculated ,y di(iding cash and ,ank ,alance ,y

deposits. The ratio can ,e e)pressed as4

The following ta,le and figure shows the cash and ,ank ,alance to total

deposits ratio of the BAIC o(er the study period.

Ta,le H 4

Cash and Bank ,alance to total eposit &atio of BAIC

F1+3& Y)&* C&+0 &-@ T47& )94+17 R&714

%$$>$? '@'FH @'?D'F ?.

%$$?#$ @'?DH'FD @'?@'F ?.

%$#$## G'D'FD @'DFF' ?.?

%$###% G'[email protected] 'D' ?.?G

Sources4 Annual report of Company

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INTERPRETATION

The a,o(e figure depicts that the cash and ,ank ,alance to total deposit

of BAIC has ,een slightly decreasing in #2 @FE?' @?E??'

@??E?@.

.> N)7 P*4517 74 T47& A++)7+

This ratio is (ery much crucial for measuring the profita,ility of funds

in(ested in the ,ank assets. It measures the return on assets it

computed ,y using the following formula.

!et profit after ta)

Total assets

Ta,le

!et *rofit to Total assets &atio of BAIC

F1+3& Y)&* N)7 P*4517 T47& &++)7+ R&714(

%$$>$? 'H'DGH 'H'G@ ?.

%$$?#$ H'?D@'FD '@FD'D ?.?

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%$#$## ?'D'G?@ D'@?' ?.@H

%$###% @'GFF'G? F'GH'FDD @.G?

Sources4 Annual &eport of company

INTERPRETATION

!et *rofit to total asset ratio in @DEF ?. and it increasing slightly

in financial year @FE?' @?E?? and @??E?@.

.? D)74*+ T*-4')* R&714

C4-3)97 !

e,tors are e)pected to ,e con(erted into cash o(er a

short period of time and therefore are included in current assets. It

shows how many times de,tors are con(erted into cash in a year.

e,tors Turno(er &atio R !et credit sales

A(erage e,tors

Ta,le D 4

e,tors Turno(er &atio

Y)&* C*)17 +&)+ A')*&2) D)74*+ R&714

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%$$>$? ?@'?FF'?D? ?F'D'?FG .


49/57

Ta,le F 4

Creditors Turno(er &atio

Y)&* C*)17 P*30&+)+ A')*&2) C*)174*+ R&714

%$$>$? FH'@G'GHF D@'G'FFG #.#

%$$?#$ ?@''DF ??@'G'H #.#<

%$#$## ?H'HD'?GD ?GH'H?'? #.#<

%$###% @?'@'?D ?DF'?'HHH #.#%

INTERPRETATION?

The creditors turno(er ratio was ?.? times in the year @DEF- it

decreased to ?.? times in the year @F;@? ,ut creditor turno(er

will ,e remain same two year @FE? and @??E?@.

.#$W4*@1-2 C&917& T*-4')* R&714!

It is taken as one of the

primary indicators of the short;term sol(ency of the ,usiness. It

esta,lishes the relationship with the net sales. It measures the

efficiency with which the working capital is ,eing used ,y the firm.

73&0I!8 CA*ITA T%&!36$& &ATI3 R !et Sales

!et 7orking

Capital

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Ta,le ? 4

Y)&* N)7 S&)+ N)7 W4*@1-2 C&917& R&714

%$$>$? ?@'?FF'?D? @'@@F'? .$

%$$?#$ ?@'DD'FD @'@GG'D .%

%$#$## ??'H?'G? H'DF'@ ".

%$###% %%#,%",>%" $ .>

Source4 Annual report of BAIC

INTERPRETATION#$

In The year @DEF working capital tEo ratio was. time '.@ time

in the year @FE?. In the year @FE? the working capital has

increases. And in financial year @?E?? it decreased and again in

financial year @??E?@ it increased.

T&) ##

S7&7)6)-7 45 30&-2)+ 1- 4*@1-2 C&917& 54* 70) ;)&* %$$?#$

P&*713&*+ 43


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C**)-7 &++)7+

S-*; )74*+


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P&*713&*+ C**)-7 &++)7+

S-*; )74*+ #,$>?,$$ #,,$?> %,#?>,#?$

L4&- &'&-3) #,

T47& ,%?>, >,%#, %,?>%,#

C**)-7 L1&1171)+

S-*; 3*)174*+


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T&) #<

S7&7)6)-7 45 30&-2)+ 1- 4*@1-2 C&917& 54* 70) ;)&* %$###%

P&*713&*+ C**)-7 &++)7+

S-*; )74*+ #,,$?> ",%$,# %


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FINDINGS

?. Current assets for the year @FE? is decreases and its

application for the company and current lia,ilities of the

company is increased ,y @'GHH'.and ,y putting formula/7.CR C.A; C.1working capital of the company for year

@FE? is G'G'F.

@. Current assets for the year @FE? is increases and it is good

condition for the company and current lia,ilities of the

company is decreased ,y ?'?'FH that>s shows the working

capital of the company is increased. +ere de,tors increased

means cash ,alance of company decreased.

. Current assets for the year @FE? is increases and it is good

condition for the company and current lia,ilities of the

company is increased ,y ?'?'FF that>s shows working

capital of company decreased. +ere de,tors decreased that>s

good for company it shows cash of company increased.

G. Current ratio /C.&1 of fiscal year @DEF to @??E?@ showed

slightly increase i.e. .H to .F?. But in fiscal year @FE?

C.& decreased comparati(ely in deposits and in fiscal year

@?E?? C.& is again increase .DH due to increase in factors

which influence it.

. Cash and Bank ,alance to current assets ratio of the company is

in @FE? decreased and in @?E?? it increased and again in

@??E?@ is decreased.

H. The a,o(e figure depicts that the cash and ,ank ,alance to total

deposit of BAIC has ,een slightly decreasing in #2 @FE?'

@?E??' @??E?@.

. !et profit to total asset ratio in @DEF ?. and it increasing

slightly in financial year @FE?' @?E?? and @??E?@.

D. The de,tor>s turno(er ratio was (ery less in the year @?E?? at

G.@ times' ,ut them it has increased to .?F' .HH times in the

year @??E?@ and @D;F. This shows that the company is

making all the offers to speed up the collection process.

F. The creditors turno(er ratio was ?.? times in the year

@DEF- decreased to ?.? times in the year @F;@? ,ut

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creditor turno(er will ,e remain same two year @FE? and

@??E?@.

?. In The year @DEF working capital tEo ratio was. time '

.@ time in the year @FE?. In the year @FE? the working

capital has increases. And in financial year @?E?? decreased

and again in financial year @??E?@ increased.

SUGGESTION

3n the ,asis of the analysis and o,ser(ation an attempt made to

present some suggestions.

?. In the year @F;@? the current assets of the company has

declined and current lia,ility of the company has increases

therefore the net working capital declined. There for the current

ratio has declined. The net working capital of the company has

increased remaining year.

@. The company has a,le to repay the lia,ility of the creditors ,ecause the profit of the company has increased e(ery year.

. Because of the current assets has declined in the year @?;

@?? ,ut profit of the company has increased in the year @D;

@F. There for the return on current assets is high.

4. Company has a,le to full fill the standard le(el of current ratio

i.e. @4? .There for the company has a,le to repay the lia,ility

and loan of company.

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LIMITATIONS

?. The analysis is limited to three years of data study /for the year

@DEF to @??E?@ 1 for financial analysis.

@. The estimation and e)pectation made in the financial statements

may differ from actual performance due to (arious economic

conditions' go(ernment policies and other related factors.

. All the data accumulated and presented in this project is procured

from secondary sources which may ha(e ,een su,ject to stealthy

,iased nature.

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