INTRODUCTION

1.1. INTRODUCTION Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential for the human body for maintaining life. Working capital is very essential to maintain the smooth running of a business. No business can run successfully without adequate amount of capital. In general practice, working capital refers to the excess of current assets over current liabilities. Management of working capital, therefore is concerned with the problems that arise in attempting o manage current assets, current liabilities and inter relationship that exists between them. Working capital management policies of a firm have great effort on its profitability, liquidity and structural health of the organization. IOB Bank is Indias first-rural bank with total assets of Rs. 219648.17 billion at March 31, 2012 and profit after tax Rs. 10.8 Billion for the year ended March 31, 2012. The Bank has a network of 2010 branches and about 1000 ATMs in India and presence in 18 counties. 1.2. RATIONALE OF THE STUDY Fund of working capital and funds management are of immense significance in the working of any organization. Without a well planned working capital system, the operation becomes very difficult. Large and more complex the organization is the more complicated the system becomes.
1

Profit is the most important measures of firms performance. An analysis of effort of various factors on profit is an essential step in the financial planning and decision making. This analysis can be used to determine the profit planning process of the firm. 1.3. 1. 2. 3. 4. 5. OBJECTIVES OF THE STUDY To find the liquidity position of IOB Bank. To find out the trend of working capital employed. To find out the long-term solvency position of the organization. To analysis the earning capacity of the organization. To study about the components of funds management or working capital management such as management of cash, management of receivable. 6. To make suggestions and recommendations on the basis of the stuffy to improve the working capital management of the company. 1.4. RESERCH METHODOLOGY The study is based on both primary data secondary data. Primary data Primary data is collected by discussions and interviews with managers, executives and other informants.

Secondary data Secondary data is obtained from annual reports and other published accounts of the company for a period of five year from 2007-2008 to 20112012. Besides this information has also been collected from various books and journals, MIS reports and circulars connected with the object. 1.5.
1)

EXPECTED CONTRIBUTION FROM THE STUDY This study will help to carry on the day to day operation of the

company successfully and economically adequate Working Capital every time. 2) Generally more than half of the total capital of the company is invested in current assets and this study will help to fix an optimum level of investment in various current assets.
3) Profitability position of the company. 4) This study enables us to determine an optimal mix of short-term

funds in relation to long term capital. 5) Rate of growth of business. 6) Short term financial solvency of the firm. 7) Optimal source of funds with less cost. 8) This study also enables us to study the increase and decrease in the current assets and current liabilities and its effect on the working capital position.

1.6.

LIMITATIONS OF THE STUDY

1. This study is mainly based on the companys annual report.

2. Time is another main constraint in the study and within the time

allowed, it is not possible to analyze in detail all document. 3. The data taken for comparison is only five years.
4. This study is based on a single branch only. But this company has lot

of another branches and head office all over the world.

5. The worked out ratios are compared only with the generally accepted

standard ratios of the previous year.

PROFILE AND HISTORY OF IOB BANK

2.1 COMPANY PROFILE IOB Bank is Indias first rural bank with total assets of Rs. 219648.17 billion at March 31, 2012 and profit after tax Rs. 10.8 Billion for the year ended March 31, 2012. The Bank has a network of 2010 branches and about 1000 ATMs in India and presence in 18 counties. IOB Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and assets management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, and Dubai International Finances Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. IOB Banks equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Deposit.
IOB launched retail finance car loans and loans for consumer

durables.
IOB becomes the first Indian Company to list on the NYSE through

an issue of American Depositary Shares.

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 IOB Banks pioneer in many fields banking, Insurance and Industry

with the twin objectives of specializing in foreign exchange business and overseas banking.

IOB Bank enters first three branch in Karaikudi and Chennai in India

and Rangoon in Burma (presently Myanmar) followed by a branch in Penang.

IOB Bank was one among the first to join Reserve Bank of Indias

negotiated dealing system for security dialing online.

In Pre-nationalization era (1947- 69), IOB expanded its domestic

activities and enlarged its international banking operations.

This led to creation of United Asian Bank Berhad in which IOB had

16.67% of the paid up capital.

The Bank sponsored 3 Regional Rural Banks viz. Puri Gramya Bank,

Pandyan Grama Bank and Dhenkanal Gramya Bank.

The Bank had setup a separate Computer Policy and Planning Department (CPPD) to implement the programme of computerizations, to develop software packages on its own and to impart training to staff members in this field.

Now the Banks has 14 STARS centres and one Controlling Centre for providing this service and in the same year started tapping the potential of Internet by enabling ABB cardholders in Delhi to pay their telephone bills by just logging on to MTNL web site and by authorising the Bank to
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debit towards the telephone bills.

Mobile banking under SMS technology was implemented in

Ahmedabad and Baroda. During May of the year 2007, Indian rating agency ICRA assigned an 'A1+' rating to the proposed 20 bln rupee certificates of deposit programme of Indian Overseas Bank, citing the bank's consistent and measured growth, the improvement in its asset quality through effective monitoring and collection systems, and improving core profitability. During June of the year 2008, IOB launched two new products namely IOB Gold' and IOB Silver' in savings account and IOB Classic' and IOB Super' under current account. IOB have a network of more than one thousand eight hundred branches all over India located in various metropolitan cities, urban, suburban and rural areas.

IOB plans to set up banking operations in Malaysia in a joint venture with two other India-based banks Bank of Baroda and Andhra Bank with a minimum capital investment of RM320 million (US$100 million). In year 2000, it came out with a pubic issue of 11,12,00,000 shares of Rs 10 each for cash at per aggregating Rs 111.20 crores. It also raised Rs 125 corers through bonds issue in year 2001. it gained the rating of AA for the issue. Being ranked as the best public sector bank in India in 2007, its key centre now include Singapore, Seoul, Hong Kong, Bangkok and Germany.

In 2006 total business of the bank crossed Rs. 1,00,000 crores where as the total net profit exceeded the same figure in 2007. as of September 2008, there were 1425 branches under Core Banking Solution, 525 branches under Total Branch Automation and a number of branches linked under services like NEFT and RTGS. IOB has been upgraded to BBB (long term) rating by Standard and Poors third bank in India after SBI and ICICI. Present Scenario IOB Bank has its equity shares listed in India on Bombay Stock Exchange and the National Stock Exchange of India limited. Overseas, its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As of December 31, 2012, IOB Bank is Indias first rural bank with total assets of Rs. 219648.17 billion at March 31, 2012 and profit after tax Rs. 10.8 Billion for the year ended March 31, 2012. Branches and ATMs The Bank has a network of 2010 branches and about 1000 ATMs in India and presence in 18 counties. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, and Dubai International Finances Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.

2.2

PRODUCT AND SERVICES

Products:
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Housing loans

Education loans Retail loans

Savings account

Services: NRI accounts Forex collections services Agri business consultancy Personal banking Corporate banking E- banking ATM Services Trading services Personal Banking Deposits Loans Cards Investments Insurance Demat Services Wealth Management

NRI Banking Money transfer Bank account Investments Property Solutions Insurance Loans Business Banking Corporate Net Banking Cash Management Trade Services FX Online SME Services Online Taxes Custodial Services

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THEORETICAL FRAMEWORK
A CRITIAL ANALYSIS OF WORKING CAPITAL MANAGEMENT OF IOB BANK 3.1 INTRODUCTION Working capital management involves the relationship between a firms short-term assets and short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves, accounts receivable, payable and cash. Working capital management policies of a firm have great effect on its profitability, liquidity and structural health of the organization. In this context, working capital management is three dimensional in nature.
1. Dimension1 is concerned with the formulation of policies with

regard to profitability, risk and liquidity.

2. Dimension2 is concerned with the decisions about the composition

and level of current assets.

3. Dimension3 is concerned with the decision about the composition

and level of current liabilities. The important financial statements, which are used for working capital analysis, are final accounts, cash flow and found flow statement etc.
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Final

accounts are the important source of information and these have to

be analyzed in detail to know financial position and organization. Final accounts consist of two parts; one is profit and loss account and the other in balance sheet. A balance sheet is a snapshot of a business financial condition at a specific movement in time, usually at the close of an accounting period. A balance sheet comprises assets, liabilities, and owners or stockholders equity. The profit & loss account (P&L) is a report of the companys profit on the sale of their service over a trading period, normally one year. The principle tool of financial analysis is financial ratio. Ratio simply means one figure expressed in term of another. Ratio analysis is the process of determining and interpreting the numerical relationship based on financial statement. Financial ratio analysis is the calculation and comparison of ratios, which are derived from the information in a companys financial statement. The level and historical trends of these ratios can be used to make inferences about a ratio companys financial condition, its operations and attractiveness as an investment. Another method for analyzing working capital position is fund flow statement. It represents an analysis changes in the working between two points of time, along with events causing such changes in working capital is prepared with the help of its current assets and current liabilities. The basic goal of working capital management is to mange the
12

current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained ie, neither inadequate nor excessive. Through this study it is indented to identify present problem associated with working capital management of IOB Bank and give valuable suggestions to rectify that problems. WORKING CAPITAL MANAGEMENT Nature Of Working Capital Working Capital Management is concerned with the problem that arise in attempting to mange the current assets, the current liabilities and the inter relationship that exists between them. The term current assets refers to those assets which in the ordinary course of business ca be, or will be, converted in to cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities, which are intended, at their inspection, to be earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank over drafts, and outstanding expenses. The goal of working capital management is to manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The current assets should be large
13

enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of the short-term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is, the main them of the theory of working capital management. The basic ingredients of the theory of working capital management may be said to include its definition, need, optimum level of current assets, the trade-off between profitability and risk which is associated with the level of current assets and liabilities, financing-mix strategies and so on.

3.2

CONCEPTS AND DEFINITIONS OF WORKING CAPITAL There are two concepts of working capital: Gross and net working

capital. The term Gross working capital, also referred to as working capital, means the total current assets. The term Net working capital can be defined in two ways:
(i)

The most common definition of net working capital (NWC) is the difference between current assets and

current liabilities; and

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(ii)

Alternate definition of NWC is that portion of current assets which is financed with long-term funds.

1.

On the Basic of Concepts On the basic of concepts working capital can be divided into: Gross working capital and net working capital. Gross working capital is represented by the total of current assets

and net working capital is the excess of current assets over current liabilities. Gross working capital = Total of current assets [Bank accounts, Cash in hand, Deposits, Loans and advances, Stock in hand, Sundry debtors etc.] Net working capital = current assets current liabilities [Duties and Taxes, Provisions, Sundry creditors etc.] 2. On the Basic of Periodic Under this classification, working capital can be classified into Permanent or fixed working capital and Temporary or Variable working capital. (i) Fixed or Permanent working capital It represents that part of working capital, which is permanently invested in the current assets to carry out the business smoothly. This investment in current assets is of permanent nature and will increase as the size of the business expands.
15

Examples of such investments are: - investment required maintaining the minimum sort of raw material, work in progress, finished products, loose tools etc (ii) Variable or Temporary working capital It changes with the increase or decrease in the volume of business. It may be divided into Seasonal and Special working capital. Need for working capital The need for working capital (gross) or current assets cannot be overemphasized. Given the objectives of financial decision making to maximize the shareholder, wealth, it is necessary to generate sufficient profits. The extent to which profits can be earned will naturally depend, among other things, upon the magnitude of the sales. A successful sales programmed is in other words, necessary for earning profits by any business enterprise. However sales do not convert into cash instantly; there is invariably a time-lag between the sales of good and the receipts of cash. There is, therefore, a need for working capital in the form of current assets to deal with the problem arising out of the Operating cycle Lack of immediate realization of cash goods sold. Therefore, sufficient working capital is necessary to sustain sales activity. Technically, this is referred to as the operating or cash cycle. The operating cycle can be said to be at the heart of the need for working capital. The continuing flow
16

from cash to suppliers, to inventory, to accounts receivable and back into cash is called the operating cycle. In other words, the term cash cycle to the length of time necessary to complete the following cycle of events:-

1. Conversion of cash into inventory; 2. Conversion of inventory into receivables; 3. Conversion of receivables into cash. The operating cycle, which is a continuous process, is shown below Phase 3
Receivables

Cash Inventory

Phase 1
Operating Cycle Cash Debtors (Receivables) Raw Material Finished Goods

Working in Progress The speed with which the working capital completes one cycle
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determines the requirement of working capital. Longer the period of cycle larger is the requirement of working capital. Management of Working Capital The basic goal of working capital management is to manage the current assets and current liabilities of a firm is such a way that a satisfactory level of working capital is maintained. Working capital management polices of affirm have a great effect on its profitability, liquidity and structural health of the organization. In this context working capital management is three dimensional in nature. Excess or inadequate working capital Every business concern should have adequate working capital to run its business operation. It should have excess working capital nor inadequate working capital both excess as well as short working capital positions are bad for any business. However, out of two it is the inadequacy of working capital which is more dangerous from the point of view of the firm. Disadvantages of excess working capital Excessive working capital means idle funds which earn which no profit for the business and hence the business cannot earn a proper rate of return on its investment. When there is excess working capital is may lead to unnecessary purchasing and accumulation of inventory causing more chance of theft waste and loss.
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 Excessive working capital implies excessive defective credit policy. It may result into overall in efficiency in the organization. When there is excessive working capital relation with banks and other financial institutions may not maintain. Due to low rate of return or investment the value of shares may also decrease.

The excess working capital leads to speculative transactions.

Disadvantage of inadequate working capital

A concern which has inadequate working capital cannot pay its short-term liabilities in time.

It cannot buy its requirements in bulk and avail of discount.

It becomes difficult to for the firm to exploit favorable market condition and undertake profitable project to lack or working capital.

The firm cannot pay day to day expenses of its operations and it creates inefficiencies, increases cost and reduce the profit of business.

It becomes impossible to utilize efficiently the fixed assets due to non availability of liquid fund.

The rate of return on investment also falls with the shortage of working capital.

3.3

FACTORS

DETERMINING
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WORKING

CAPITAL

MANAGEMENT 1) Nature or character of the Business 2) Size of Business/Scale of operation 3) Seasonal Variation 4) Working Capital Cycle 5) Credit Policy 6) Business Cycle 7) Rate of growth of business 8) Earning Capacity and Industrial Policy 9) Price Level changes 10)Monetary, Fiscal and Industrial Policies 3.4 TOOLS USED IN WORKING CAPITAL 1) Ratio Analysis
2) Schedule in changes in Working Capital Management

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ANALYSIS AND INTERPRETATION

4.1 BALANCE SHEET ANALYSIS

Analysis Of Balance Sheet The balance sheet is one of the important depicting the financial strength of the concern. It shows on the one hand the properties that utilizes and on other hand the sources of those properties. The balance sheet shows all assets owned by the concern and all the liabilities and claims it owners and outsiders. Balance sheet is prepared as on a certain data not for a period. The total of all assets must be equal to the total liabilities. Since capital is noting but the difference between assets and liabilities to others. Assets can be put in a balance sheet, in two ways-either in the order of liquidity or in the order of performance. The order of liquidity is generally used by sole trader, partnership firms and banks.

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SUMMARY OF BALANCE SHEET FIGURES FOR LAST FIVE YEARS SOURCE OF FUNDS (Figures in Crore) Equity Share Capital 544.80 544.80 544.80 618.75 797.90 Preference Share Capital Reserve & Surplus 4197.90 5396.59 5804.18 7546.19 9989.40 Unsecured Loans 84325.58 100115.89 110794.71 145228.75 178434.18

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Total 89068.28 106057.28 117143.69 153393.69 189220.58

The applications and sources of funds analysis can be made on the basis of data given above; graphical presentation of sources of funds can be analyzed. Analysis of the sources of funds The source of funds comprises an equal proportion Loan funds and Shareholders funds. The above analysis clearly indicated that the financing pattern of the patter IOB bank LTD has been during the last 5 year. The proportion of the shareholders funds over the period was same. Total amount of unsecured loan availed by the company over the 5 year is more than secured loans. The increased portion of unsecured loan may not be a burden for the company, since the company is going through
22

good business prospectus and continuous level of returns. This company is maintaining a fixed level of both shareholders funds and loan funds. As the company is maintaining a fixed proportion of equity, it will ensure a minimum returns to the equity holders and comparatively more value to the shares. Hence IOB bank is one of the companies, which are having adequate and moderate financing patterns.

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Table 4.1.1 CURRENT LIABILITIES & CURRENT ASSETS Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Liabilities 6323.84 7258.26 3794.90 4875.19 5672.50 Current Assets 2061.29 2340.93 2917.70 4641.08 5352.70

GRAPH SHOWS CURRENT ASSETS & CURRENT LABILITIES FOR THE 5 YEARS Chart 4.1.1

8000 7000 6000 5000 4000 3000 2000 1000 0

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Liabilities current assets

Current Liabilities for the last 5 year shows a phenomenal growth

24

during the all the 5 years, which is a similar resemblance of the current assets analysis. I.e. it means the trend of continuous growth of business prospects of the company. The breakup of current liabilities indicates that the three components / unearned interest, sundry creditors, other payable are also resembles a unique trend to that of the total current liabilities. The table given above shows that the total current liabilities increasing during the last 5 years. The above analysis is very accurate because of the fact that it is tune with the trend of other major variables under consideration and in the process of analysis.

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ASSETS Fixed Assets Fixed assets are those assets, which are employed permanently, or for a period of more than 6 months normally which regarded as the fundamental part of the asset base. Plant and Machinery, Land and Building, Furniture and Fixtures, Motor car etc are considered as fixed assets. Those assets are meant to increase production capacity of the business. They are not acquired for sale but are used for a considerable period of time. Current Assets According to Alexander Wall Current assets are such assets as in the ordinary and natural courses of business move onward through the various processes of production, distribution and payment of goods, until they become cash or its equivalent by which debts may be readily and immediately paid. Current assets represent the short term assets like cash in hand, bank account balance, stock on hire, account receivables etc. The table below shows current assets position of the company for the last 5 year as available form the balance sheet.

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Table 4.1.2 Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total Fixed Assets 28919.31 31715.73 38174.54 49131.57 56168.67 204109.82 Current Assets 10341.32 10921.90 9824.64 12018.66 16261.10 59367.62 Investment 28474.71 31215.44 37650.56 48610.45 55565.88 201517.04

Chart 4.1.2

60000 50000 40000 30000

t n u o m A

20000 10000 0 2007-08 2008-09 2009-10 Year 2010-11 2011-12

Investments

Fixed Assets

Current Assets

27

The above analytical figures shows that the resources of the company are applied mainly on current assets and it is obvious that the ratio of the current assets increased over the year which means the applications of funds in productive resources and which is a reason of the productivity of the company as can be seen from the analysis of balance sheet and profit and loss account.

28

TABLE SHOWING CURRENT ASSETS, CURRENT LIABILITIES AND NET CURRENT ASSETS Table 4.1.3 (Figures in Crore) Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Assets 2061.29 2340.93 2917.70 4641.08 5352.70 Current Liabilities 6323.84 7258.26 3794.90 4875.19 5672.50 Net Current Assets -4262.55 -4917.34 -877.20 -234.11 -319.80

Heavy investment in current assets means that the nature of the industry needs more working capital than usual business ventures. The outstanding figures of the loans and advances were showing an increasing trend over the 5 year. The loan gives more liquidity to the company.

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CHANGES IN CURRENT ASSETS / NET WORKING CAPITAL Table 4.1.4 (Figures in Crore) Total Current Assets 2061.29 2340.93 2917.70 4641.08 5352.70 Net Working Capital -4262.55 -4917.34 -877.20 -234.11 -319.80 Changes in TCA 329.18 279.64 576.77 1723.38 711.62 Changes in NWC 635.16 654.78 4040.13 643.09 85.69

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

The above figure shows that the changes in the total current assets for all the years. This depicts increase in total current assets. Changes in total current assets position as shows indicate that the company was in continuous growth all five year. The company won to not achieve a position working capital in the all five year. Because the percentage decrease in current assets are less than the percentage decrease in current liabilities.

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THE NET WORKING CAPITAL POSITION An analysis of the last five years net working capital shows that the companys working capital position as growing during all the years, and was in comfortable position. To be accurate net working capital maintained was almost sufficient with regard to the nature of business and volume of business transactions that is expected for the forthcoming years also, as can be seen the figure given above. The change in Net Working Capital position of the Company shows that the Net Working Capital was always positive, which means that the Net Working Capital segment exhibited a phenomenal growth during all the years expect for the years. The trend is an indicator of the good business prospects and business growth of the company during most of the years. A detailed scrutiny of the above figure gives us a picture of the normal business growth and cordial environment, free from the figures of the last five years.

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4.2

RATIO ANALYSIS

Ratio Analysis The term ratio simply means one number expressed in term of another. It describes in mathematical terms the quantitative relationship that exists between two numbers. Ratio analysis, simply defined, refers to the analysis and interpretation of financial statement through ratios. Now a day it is used by all business and industrial concerns in their financial analysis. Ratios are considered to be the best guides or the efficient execution of basic managerial functions like planning, forecasting, control etc. Accounting ratios are relationships expressed in mathematics terms between which are connected with each other in some manner. According to Sir Robert Antony, Ratio is simply nothing but one number expressed in terms of another. A ratio is a means of highlighting in arithmetical terms the relationship between two or more variables in the basic financial statement such as income statement or Position statement. A ratio as a financial analysis can be expressed as percentage, fraction or a stated comparison between numbers. A single figure by itself has no meaning, but when expressed in terms of related figure will yield significant inferences. Uses or Advantages of Ratio Analysis Simplification of mass of accounting data. An invaluable aid to management.
32

 Facilitates better coordination and control. A tool to assess important characteristics of business.

An effective tool of analysis for intra-firm and inter-firm comparisons.

Limitations of Ratio Analysis Limitations of Financial Statements. No fixed standards. Qualitative factors are ignored. Lack of Standards formulae. It is no substitute for personal judgments. Problems of price level changes. Financial statements can be analyzed with the help of Funds Flow/Cash Flow statements analysis on of balance sheet.

1.

ANALYSIS OF LIQUIDITY OR LIQUIDITY RATIOS Liquidity ratios play a key role in assessing the short-term financial

position of the business. Commercial banks and other short term creditors are generally interested in such an analysis. However managements can employ these ratios to ascertain how efficiently they utilize the working capital in the business. This type of ratios normally indicates the ability of the business to meet the maturing of current debts, the efficiency.

33

4.2.1 CURRENT RATIO Current Ratio = Current Assets / Current Liabilities Current Ratios may be defined as the ratio of current assets to current liabilities. It is also known as Working Capital Ratio or 2:1 Ratio. It shows the relationship between the total current assets and total current liabilities, expressed as formulae given below: Table 4.2.1 Current Ratio Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Assets 2061.29 2340.93 2917.70 4641.08 5352.70 Current Liabilities 6323.84 7258.26 3794.90 4875.19 5672.50 Current Ratio 0.325955432 0.322519446 0.768847664 0.951979307 0.943622741

Interpretation The Current Ratio of is said to be unfavorable in all the five years. This shows the liquidity position of the organization. So the companys overall position for the past five years is said to be unfavorable.

34

Chart 4.2.1

Curre nt Ratio
1 0.8 Ratio 0.6 0.4 0.2 0 2007-08 2008-09 2009-10 Ye a r 2010-11 2011-12 Quick Ratio

35

4.2.2 Cash Ratio The cash ratio shows the cash positions with respect to meet current liabilities Cash Ratio is found by the following method

Cash Ratio = Cash / Current Liabilities Table 4.2.2 CASH RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Cash 10341.32 10921.90 9824.64 12018.66 16261.10 Current Liabilities 6323.84 7258.26 3794.90 4875.19 5672.50 Cash Ratio 1.64 1.50 2.59 2.47 2.87

Interpretation The ratio of 0.75:1 is considered as the favorable cash ratio. The cash ratio of the firm is considered as unfavorable. The overall trend shows improvement in cash position of the company with respect to meet their current liabilities.

36

Chart 4.2.2

Cash Ratio
3 2.5 2 Ratio 1.5
Cash Ratio

1 0.5 0 2007-08 2008-09 2009-10 2010-11 2011-12 Year

37

4.2.3 Debt-Equity Ratio The term Debt-Equity is used to describe the relationship between debentures and long term loans to equity share capital, preference share capital and reserves and surplus. It shows the relationship between debt securities and share holders funds of an organization.

Debt-Equity Ratio = Total Long-term debt / Equity Shareholders Fund Table 4.2.3 DEBT-EQUITY RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Share Holder Fund 4856.67 7150.96 7524.58 9324.93 11927.66 Total Long Term Debts 90679.23 106664.17 119776.91 164584.15 202048.03 Debt-Equity Ratio 18.67 14.91 15.91 17.64 16.93

Interpretation The standard ratio of 1:1 is considered to be good but the company did not maintain their shareholder funds in a proper way in all the five year. The overall ratio for the five years shows an improvement in the debt equity position.
38

Chart 4.2.3

Debt-Equity Ratio
20 18 16 14 12 10 8 6 4 2 0 2007-08 2008-09 2009-10 year 2010-11 2011-12

Debt-Equity

o i t a R

39

4.2.4 Capital Gearing Ratio Capital gearing ratio shows the relation between fixed interest bearing securities and non fixed interest bearing securities. Fixed interest bearing securities include debentures, preference share capital and long term loans. Non fixed interest bearing securities include the equity share capital, reserves and surplus etc. Capital Gearing Ratio = Fixed interest bearing securities / Non fixed interest bearing securities Table 4.2.4 CAPITAL GEARING RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Fixed Interest Bearing Securities 6353.65 6548.28 8982.20 19355.40 23613.85 Non Fixed Capital Gearing Interest Bearing Ratio Securities 1.33966 4742.70 5941.39 6348.98 8164.94 10786.40 1.10214 1.41474 2.37055 2.18922

Interpretation In the year 2007-2008 the capital gearing ratio is 1.34 and it increasing in the next four year 2008-2012.

40

Chart 4.2.4

Capital Gearing Ratio

2.5 2 1.5
Capital Gearing Ratio

o i t a R

1 0.5 0 2007-08 2008-09 2009-10 2010-11 2011-12 Year

41

4.2.5 Return on Total Assets Ratio Return on total assets shows the relation between the net profit after interest and tax to total assets. Return on total assets = Net profit after interest and tax / Total assets Table 4.2.5 RETURN ON TOTAL ASSETS RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 EBIT 1724.62 2088.65 1043.57 1824.76 1889.86 Total Assets 101859.73 121073.40 131096.40 178784.27 219648.17 Return on total assets 1.693132 1.725110 0.976032 1.020649 0.860403

Interpretation In the year 2007-2008 the return on total assets ratio is 1.69. the ratio is maintain by the organization till 2011-2012.

42

Chart 4.2.5

Return on Total Assets Ratio

1.8 1.6 1.4 1.2 1 Ratio 0.8 0.6 0.4 0.2 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 Year
Return on Total Assets Ratio

43

4.2.6 Fixed Assets Turnover Ratio Fixed assets turnover ratio shows the relationship between net fixed assets after depreciation with net sales.
Sales Fixed Assets

Fixed Assets Turnover Ratio = Table 4.2.6

FIXED ASSETS TURNOVER RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Fixed Assets 28919.31 31715.73 38174.54 49131.57 56168.67 Net Earnings 7986.25 9641.40 10245.77 12101.47 17897.08 Fixed Assets Turnover Ratio 0.276 0.303 0.268 0.246 0.318

Interpretation In the year 2007-2008 the fixed assets turnover ratio is 0.28 and it gradually increased and reached at 0.32 in the year 2011-2012 and shows the better and efficient utilization of fixed assets.

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Chart 4.2.6

Fixed Assets Turnover Ratio

0.35 0.3 0.25 Ratio 0.2 0.15 0.1 0.05 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 year Assets Turnover Ratio Fixed

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4.2.7 Return on Capital Employed The profits are related to total capital employed. The capital employed refers to long term funds supplied by the lenders and owners of the firm. The capital employed is equal to concurrent liabilities plus owners equity. Alternatively it is equivalent to net working capital plus fixed assets. The higher the ratio the more efficient is the use of capital employed. Return on capital Employed =
EBIT X 100 Total Capital employed

Table 4.2.7

RETURN ON CAPITAL EMPLOYED Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 EBIT 1724.62 2088.65 1043.57 1824.76 1889.86 Total Capital Employed 89068.28 106057.28 117143.69 153393.69 189220.57 Return Capital Employed 1.936 1.969 0.890 1.189 0.998

Interpretation All the five year 2007-2008 to 2011-2012 the Return capital employed is maintain a steady rate.
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Chart 4.2.7

Return on Capital Employed

2 1.8 1.6 1.4 1.2 Ratio 1 0.8 0.6 0.4 0.2 0 200708 2008- 200909 Year 10 201011 201112
Return on Capital Employed

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4.2.8 Current Liability To Total Liability Ratio Formula to find out current Liability to Total Liability is Current Liabilities / Total Liabilities Table 4.2.8 CURRENT LIABILITY TO TOTAL LIABILITY RATIO Current Liability to Total Liability ratio 0.066 0.063 0.298 0.028 0.026

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Total Liabilities 95535.90 113815.14 127301.50 173909.09 213975.68

Current Liabilities 6323.84 7258.26 3794.90 4875.19 5672.50

Interpretation The current liability to total liability ratio is maintained a steady ratio throughout the five year. This shows the portion of current liability in total liability. The current liabilities are paid out of within a short period of time. The overall long term liabilities of the organization is said to be very high.

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Chart 4.2.8
Current Liability to Total Liability Ratio

0.3 0.25 0.2 Ratio 0.15 0.1 0.05 0 2007-08 2008-09 Year2009-10 2010-11 2011-12
Current Liability to Total Liability Ratio

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4.2.9 Current Assets To Total Assets Ratio The formula used to find out Current Assets to Total Assets Ratio is

Current Assets / Total Assets Table 4.2.9 CURRENT ASSETS TO TOTAL ASSETS RATIO Current Assets to Total Assets ratio 0.020 0.019 0.022 0.025 0.024

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Total Assets 101859.73 121073.40 131096.40 178784.27 219648.17

Current Assets 2061.29 2340.93 2917.70 4641.08 5352.70

Interpretation The current asset to total asset ratio is maintained a steady ratio throughout the whole five year 2007-2008 to 2011-2012. This ratio shows the portion of current assets in the total assets. The amount of current assets to total assets are said to be very low.

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Chart 4.2.9
C u rren t As se ts T o T o tal As se ts R atio
0.025 0.02 0.015 R atio 0.01 0.005 0 C urrent As s ets T o Total As s ets R atio

2007-082008-092009-102010-112011-12 Y e ar

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4.2.10 Operating Profit Ratio Every enterprise has a typical operating ratio. Operating ratio indicates the operating efficiency of the company. It depicts the cost picture or the debit aspect of the profit margin higher the operating ratio, given a level of sales, lower will be the profit margin or the net profit ratio. Operating Profit / Net Earnings X 100 Table 4.2.10 OPERATING PROFIT RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Operating Profit 6136.11 7130.29 6995.79 8342.73 12497.58 Net Earnings 7986.25 9641.40 10245.77 12101.47 17897.08 Operating Profit Ratio 76.83 73.95 68.28 68.94 69.83

Interpretation In the year 2007-2008 operating profit ratio is favorable than compare to another year, in the year 2007-2008 it reach 76.83 and other years comparatively low, but it is increased in the year 2011-2012 it reach 69.83.
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Chart 4.2.10
Operating Profit Ratio
78 76 74 72 Ratio 70 68 66 64 2007-08 2008-09 2009-10 2010-11 2011-12 Year
Operating Profit Ratio

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4.2.11 Net Profit Ratio Net Profit ratio measures the rate of net margin earned on sales. The profit is usually only the operating income i.e., income from non-trading assets and expenses, which do not relate to trading of manufacturing are not included, the higher the ratio, the better it is.

Net Profit Ratio =

Net Profit X 100 Net Earnings

Table 4.2.11 NET PROFIT RATIO Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Net Profit 1202.34 1325.79 706.96 1072.54 1050.13 Net Earnings 7986.25 9641.40 10245.77 12101.47 17897.08 Net Profit Ratio 15.06 13.75 6.90 8.86 5.87

Interpretation In the year 2007-2008 the net profit ratio is in a favorable position that is 15.06 but it is gradually deceased and in the year 2011-2012 it reach 5.87 it shows a decrease in trend.

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Chart 4.2.11

Net Profit Ratio

16 14 12 10 8

o i t a R

6 4 2 0 2007-08 2008-09 2009-10 Year 2010-11 2011-12

Net Profit Ratio

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PRESENT WORKING CAPITAL POSITION AND POLICIES Table 4.2.12 Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Current Assets 2061.29 2340.93 2917.70 4641.08 5352.70 Current Liabilities 6323.84 7258.26 3794.90 4875.19 5672.50 Net Current Assets -4262.55 -4917.34 -877.20 -234.11 -319.80

CURRENT ASSETS AND CURRENT LIABILITIES

8000 7000 6000 5000 4000

o i t a R

3000 2000 1000 0 2007-08 2008-09 Year

Current Assets Current Liabilities

2009-10

2010-11

2011-12

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Chart 4.2.12
Net Current Assets
0 -1000 -2000 Ratio -3000 -4000 -5000 2007-08 2008-09 2009-10 2010-11 2011-12 Year
Net Current Assets

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4.3

COMPARITIVE MANAGEMENT

STUDY

OF

WORKING

CAPITAL

Schedule of change in working capital 2008-2009 Particulars Current Assets Loans & Advances and other current assets 2061.29 Current Liabilities C.A C. 654.78 Working Capital 4917.33 4917.33 654.78 934.42 934.42 6323.84 4262.55 2340.93 7258.26 4917.33 934.42 279.64 2008 2009 Increase Decrease

Interpretation In 2008 the current assets is 2061.29 and in 2009 it is 2340.93 so current assets is increased by 279.64. And the current liability in 2008 is 6323.84 and in 2009 it is 7258.26 and it is increased by 934.42. Total working capital increased by 654.78 because of increase in current liability is more than current assets.

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Schedule of change in working capital 2009-2010 Particulars Current Assets Loans & Advances and other current assets 2009 2010 Increase Decrease

2340.93

2917.70

576.77

Current Liabilities C.A C.L Working Capital

7258.26 4917.33

3794.90 877.20 4040.13 3463.36 4040.13 4040.13 4040.13

4917.33

4917.33

Interpretation In 2009 the current assets is 2340.93 and in 2010 it is 2917.70 so current assets is increased by 576.77. And the current liability in 2009 is 7258.26 and in 2010 it is 3794.90 and it is increased by 3463.36. Total working capital decreased by 4040.13 because of increase in current liability is more than current assets.

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Schedule of change in working capital 2010-2011 Particulars Current Assets Loans & Advances and other current assets Current Liabilities C.A C.L Working Capital 2917.70 3794.90 877.20 877.20 Interpretation In 2010 the current assets is 2917.70 and in 2011 it is 4641.08 so current assets is increased by 1723.38. And the current liability in 2010 is 3794.90 and in 2011 it is 4875.19 and it is increased by 1080.29. Total working capital decreased by 643.09 because of increase in current liability is more than current assets. 4641.08 4875.19 234.11 643.09 877.20 1723.38 1080.29 643.09 1723.38 1723.38 2010 2011 Increase Decrease

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Schedule of change in working capital 2011-2012 Particulars Current Assets Loans & Advances and other current assets Current Liabilities 4641.08 5352.70 711.62 2011 2012 Increase Decrease

4875.19

5672.50

C.A C.L Working Capital

234.11 85.69

319.80 85.69

797.31

319.80

319.80

797.31

797.31

Interpretation In 2011 the current assets is 4641.08 and in 2012 it is 5352.70 so current assets is increased by 711.62. And the current liability in 2011 is 4875.19 and in 2012 it is 5672.50 and it is increased by 797.31. Total working capital increased by 85.69 because of increase in current liability is more than current assets.

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FINDINGS, SUGGESTIONS AND CONCLUSION

5.1

FINDINGS The Current Ratio of the company is said to be unfavorable in all the

five years but in last year the ratio reached at least nearer to the standard ratio. This shows the liquidity position of the organization. So the companys liquidity position is not at all favorable in all the five years.
The company wants to achieve the standard Quick Ratio. The ratio is

at most favorable.

The cash ratio of the firm is not considered as good. The five year the ratio shows a good management of cash. The overall trend shows improvement in cash position of the company with respect to meet their current liabilities.

Debt-Equity ratio of the organization is not constructive. The standard ratio of 1:1 is considered to be good but the company didnt maintain their shareholders funds in a proper way.

Fixed Assets Turnover Ratio is directly related with the effective utilization of fixed assets. A high ratio is said to be favorable, organization wants to maintain a poor ratio. The companys working capital is not favorable in all the five years.

Operating Profit Ratio of the company is satisfactory. The company

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gained a high amount of profit in the year 2011-2012. The Operating Profit Ratio of the company shows the level of operating expenses. A lower operating ratio is preferable by the organization because it shows a higher operating profit. The Net Profit Ratio of the company is not satisfactory. As per the capital gearing ratio the portfolio of fixed interest bearing securities are more than the non fixed interest bearing securities. This means the excess of outsider funds over owners fund. It shows the longterm solvency position of the organization and it is said to be favorable.

Return on capital employed shows the earning capacity of the organization. In 2011-12 the ratio shows a poor figure that means unconstructive earning by the company in that year. 5.2 SUGGESTIONS
The company must try to increase their current ratio by reducing

their short term liabilities The organization must maintain a proper cash management. The company can raise their funds through issuing non fixed interest securities to public so that organization can increase long-term solvency position.

By investing more funds in current assets or reducing the level of current liabilities the organization can achieve favorable working capital
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position.
The net profit of the organization should be increased by reducing

the cost of operation. The Return on investment such as return on capital employed and return on assets should be increased along with the net earning so that the companys overall profitability will be increased.
The organization should give priority to liquidity, solvency and

profitability so that they improve their operations. 5.3 CONCULSION The regular educational prospectus provides only the theoretical knowledge to the students but these kinds of project works are very helpful to them for acquiring knowledge regarding the operation, functions of a business unit about how an organization is working capital is the life blood and nerve centre of a business. Since the topic is finance, the collections of data are much related to the secondary sources. The study of working capital management provides the researcher with a lot of knowledge regarding how an organization collects the funds from various sources and its effective utilization. The ratio analysis is very helpful to obtain the liquidity and solvency position of an organization. In general practice, working capital refers to the excess of current assets over current liabilities. Management of working capital therefore is concerned with the problem that arises in attempting to manage current assets, current
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liabilities and inter relationship that exists between them. Working capital management policies of a firm have great effort on its profitability, liquidity and structural health of the organization.

BIBLIOGRAPHY
BOOKS
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V.K.Bhalla, Working Capital Management, Anmol Publications Pvt.Ltd

New Delhi, 9th edition 2008.

C.R.Kothari, Research Methodology, Viswaprakashan Publication, New Delhi, 1990.

Prasanna Chandra, Financial Management, Tata Mc Graw Hill Publishing Co, Ltd, New Delhi, 1997.

WEBSITES www.iobbank.com JOURNAL Annual Report of the IOB Bank.

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