Bajaj Alliance Project

8/20/2019 Bajaj Alliance Project

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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!"##$"#

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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.

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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.

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E8ECUTIVE SUMMARY



$)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<ation. The capital re:uirement during this time lag is maintained ,y the

operating cycle concept.

This study gi(es in detail the working capital management practices in BAIC.

Management of each current asset' namely cash management' accounts

recei(a,le management is studied permanent to BAIC. Similarly

management of accounts paya,le' deposit are studied to understand the

managing of current lia,ilities. A part from this concept of operating cycle is

studied.

The research methodology adopted for this study is mainly from secondary

source of data which include annual reports of BAIC' and we,site of the

company. The use of primary sources is limited to inter(iews with few of the

employees in credit department.

The study of working capital management has shown that BAIC has a strong

working capital position. The Company is also enjoying reasona,le profits.





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<ed for operating costs that are in(ol(ed in the e(eryday life of

,usiness. $(en (ery successful ,usiness owners may need working capital funds when the

une)pected circumstances arise.

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

stakeholders. 7hen working capital is managed improperly' allocating more than enough of

it will render management non;efficient - reduce the ,enefits of short term in(estments. 3n

the other hand' if working capital is too low' the company may miss a lot of profita,le

in(estment opportunities or suffer short term li:uidity crises' leading to degradation of

company credit' as it cannot respond effecti(ely to temporary capital re:uirements.

1



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<e profita,ility' li:uidity - working capital position

of the company.

SCOPE

The management of working capital helps us to maintain the working

capital at asatisfactory le(el ,y managing the current assets and current

lia,ilities. It also helps tomaintain proper ,alance ,etween profita,ility'

risk and li:uidity of the ,usinesssignificantly.

By managing the working capital' current lia,ilities are paid in time. If

the firm makespayment to it creditors for raw material in time' it can

ha(e the a(aila,ility of rawmaterial regularly' which does not cause any

o,stacles in production process. Ade:uateworking capital increases

paying capacity of the ,usiness ,ut the e)cess working capitalcauses

more in(entory' increases the possi,ility of delay in reali<ation of

de,ts.3n the other hand' a,sence of ade:uate working capital leads to

2



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' maga<ines

and ,ooks etc.

@. The study follows with specific tools financial ratio analysis.

. The lack of sufficient time and resources is another limitation of

the study. The study is fully ,ased on the student>s 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



BAJAJ ALLIANZ LIFE INSURANCE

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

!ame4 Bajaj Allian< ife Insurance Company

Address4 8$ *la<a' Airport &oad' 2erawada' *une

G??H

Tel4 F? @ HH@H

#a) 4 F? @ HH@HDF

$;mail 4 we,saleslifeK,ajajallian<.co.in

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Bajaj Allian< ife Insurance is a union ,etween Allian< S$' one of the

largest Insurance Company and Bajaj #inser(.

4



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 customi<ed products' supported ,y the

,est technology.

V1+14-

To ,e the first choice insurer for customers

To ,e the preferred employer for staff in the insurance

industry

To ,e the num,er one insurer for creating shareholder

(alue

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As a responsi,le' customer focused market leader' we will stri(e to

understand the insurance needs of the consumers and translate it into

afforda,le products that deli(er (alue for money.

O* A301)')6)-7+

Bajaj Allian< has recei(ed IAAA rating' #rom IC&A imited' an

associate of Moody>s In(estors Ser(ice' for Claims *aying a,ility. This

rating indicates highest claims paying a,ility and a fundamentally

strong position.

5



A&*+

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

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

S03C+ #inancial Inclusion;3rgani<ation of the year @?.

Best ife Insurance *ro(ider /&unner up1 at the 3utlook Money

Award @?@.

Best In(estor $ducation and Category $nhancement.

Best utili<ation of Information Technology.

S03C+ #inancial Inclusion Award.

M)6)* 1- B4&* 45 D1*)374*

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6



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 @?

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<+ead office *une' India

"7orld7ide 7e, Address www.,ajajallian<.com

Toll free num,er ?D;@F;DD

Brand Statement JiyoBefikar

Chairman Mr. Sanji( Bajaj

>M - 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

@?; 3rgani<ation of the 2ea

@.S03C+ #inancial Inclusion

for Micro Insurance initiati(es

following categories4• Micro Insurance Initia

Securing the %nsecure

• Setting the Claims at

!ominee>s 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- <#+7 M&*30 %$#<

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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<ed ,y glo,al presence with a local focus and dri(en ,y

customer orientation to esta,lish high earnings potential and financial

strength' Bajaj Allian< ife Insurance Co. td. was incorporated on

?@th March @?. The company recei(ed the Insurance &egulatory and

e(elopment Authority /I&A1 certificate of &egistration /&1 !o ??H

on rd August @? to conduct ife Insurance ,usiness in India.

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H)&70 I-+*&-3) T*&') I-+*&-3)

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Channel Partner:

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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<ing and interpretation

data.

+owe(er primary data is also collected ,y o,ser(ation

discussing with company officials. This primary data is used to fill in

the gaps while preparing this report and to know the latest procedures

adopted ,y the company. This has helped to draw inferences and

conclusions.

S4*3)+ 45 &7&

This study is ,ased on Secondary data4;

The secondary data are those' which ha(e ,een collected

,y some other and which ha(e ,een processed. 8enerally speaking

secondary data are information' which ha(e ,een pre(iously

collected ,y some organi<ation to satisfy his own need. But the

department under reference for an entirely different reason is using

it.

#or this project secondary sources used are4

?. Annual reports of the company.

@. Company we,site

. Books

G. 3ther company documents

10



SAMPLING DESIGN

Sampling unit 4 #inancial Statements - Audit

&eports

? Sampling Si<e 4ast four years financial

statements

WORKING CAPITAL

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#inancial management looks after two types of capital need4 for fi)ed

capital to in(est it tings such as ,uildings' plants -e:uipments and

working capital principally to pay for stock and to co(er the amount of

credit e)tended to customers. #i)ed capital' as the name implies' tends

not (ary in the short ,ut to mo(e up or down in jumps when major

in(estment decisions are made /or assets sold1. 7orking capital on the

other hand' is much more fluid and fluctuates with le(el of ,usiness.

7orking capital is a furnish in(estment in short term assets. 7orking

capital is the firm>s 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



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



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



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<ing a,out the working capital' we concluded that' all the

corporations. 7eather pu,lic or pri(ate' manufacturing or non;

manufacturing ha(e just ade:uate working capital to ser(e in

competiti(e market. It is ,ecause e)cessi(e or inade:uate working

capital is dangerous from the firm>s point of (iew. $)cessi(e

in(estment on working capital affects a firms> profita,ility just idle

in(estment' yields nothing. In the same way' inade:uate in(estment on

working capital affects the li:uidity position of the company and leads

to financial em,arrassment and failure of the company.

It is therefore' recogni<ed fact that any mistake made in management of

working capital can lead to ad(erse effects in ,usiness and reduced the

li:uidity' turno(er' profita,ility and increases the cost of financing of

the enterprises.

DEFINITIONS OF WORKING CAPITAL

The following are the most important definitions of 7orking capital4

?1 7orking capital is the difference ,etween the inflow and outflow of

funds. In other words it is the net cash inflow.

14



@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



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)

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16



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#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

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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<ed.

The non manufacturing firms such as wholesalers and retailers do not

manufacture goods. So' they ha(e the direct con(ersion of cash into

stock of finished goods into de,tors and then into cash. This can ,e

shown graphically as4

CAS+

#igure4 G.@ 3peration cycle of non;manufacturing

firms.

Sometimes ser(ice and financial concerns may not ha(e any in(entory.

In this case the operations cycle will ,e shortest as follows4

18

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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<e the risk of insol(ency while

ma)imi<ing return on assets.

19

$BT3&S



!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 si<e of current

assets and current lia,ilities. Current assets should ,e sufficiently in

e)cess of current lia,ilities for the positi(e working capital. This

concept li(es idea a,out the case and cost of raising working capital

to the management.

!ot only for the management' is it also a major importance to

in(estors and lenders. They always like a company to maintain

current assets should ,e two fold of current lia,ilities and these

concepts is measured ,y the current ratio (ia current assets

Ocurrent lia,ilities. 7hich should ,e G4?. A large ratio indicates

greater sol(ency and makes it unsafe and unsound. A negati(e

working capital denotes negati(e li:uidity which is also dangerous

for the company.

Management should always ,e alert to impro(e the im,alance in

the li:uidity position of the firm. Mathematically' it is presented as4

!et working capital Current assets˭ N Current lia,ilities

An alternati(es definition of net working capital is that portion of a

firm>s 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



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.

".< O/)371') 45 W4*@1-2 3&917&

$(en profita,ility companies fail if they ha(e inade:uate cash flow.

ia,ilities dare settled with cash and net profits. The primary

o,jecti(e of working capital management is to ensure that sufficient

cash is a(aila,le to4

• Meet day to day cash flow needsP

• *ay wages and salaries when they fall dueP

• *ay creditors to ensure continued suppliers of goods and

ser(icesP

• *ay go(ernment ta)ation and pro(iders of cash di(idendsP and

• $nsure the long term sur(i(al of the ,usiness entity.

21



"." IMPORTANCE OF WORKING CAPITAL

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

7ithout insufficient working capital' any ,usiness organi<ation cannotrun smoothly or successfully.

In the ,usiness the 7orking capital is compara,le to the ,lood of the

human ,ody. Therefore the study of working capital is of major

importance to the internal and e)ternal analysis ,ecause of its close

relationship with the current day to day operations of a ,usiness. The

inade:uacy or

mismanagement of working capital is the leading cause of ,usiness

failures.

To meet the current re:uirements of a ,usiness enterprise such as the

purchases of ser(ices' raw materials etc. working capital is essential. It

is also pointed out that workings.

G*470 &- E:9&-+14- A371'171)+

As a company grows' logically' larger amount of working capital will

,e needed' though it is difficult to state any firm rules regarding the

relationship ,etween growth in the (olume of a firmQs ,usiness and its

working capital needs. The fact to recogni<e is that the need for

increased working capital funds may precede the growth in ,usiness

acti(ities' rather than following it. The shift in composition of working

capital in a company may ,e o,ser(ed with changes in economic

circumstances and corporate practices. 8rowing industries re:uire

more working capital than those that are static.

O9)*&71-2 E55131)-3;

22



3perating efficiency means optimum utili<ation of resources. The firm

can minimi<e its need for working capital ,y efficiently controlling its

operating costs. 7ith in;creased operating efficiency the use of

working capital is impro(ed and pace of cash cycle is accelerated.

Better utili<ation of resources impro(es profita,ility and helps in

relie(ing the pressure on working capital.

P*13) L)') C0&-2)+

8enerally' rising price le(el re:uires a higher in(estment in working

capital. 7ith increasing prices the same le(els of current assets need

enhanced in(estment. +owe(er' firms which can immediately re(ise

prices of their products upwards may not face a se(ere working capital

pro,lem in periods of rising le(els. The effects of increasing price le(el

may' howe(er' ,e felt differently ,y different firms due to (ariations in

indi(idual prices. It is possi,le that some companies may not ,e

affected ,y the rising prices' whereas others may ,e ,adly hit ,y it.

O70)* F&374*+

There are some other factors' which affect the determination of the

need for working capital. A high net 9*4517 6&*21- contri,utes towards

the working capital pool. The net profit is a source of working capital

to the e)tent it has ,een earned in cash. The cash inflow can ,e

calculated ,y adjusting non;cash items such as depreciation' out;

standing e)penses' losses written off' etc' from the net profit' /as

discussed in %nit H1.

The firmQs appropriation policy' that is' the policy to retain or distri,ute

profits also has a ,earing on working capital. *ayment of di(idend

consumes cash resources and thus reduces the firm Q's working capital

to that e)tent. If the profits are retained in the ,usiness' the firm Qs

working capital position will ,e strengthened.

23



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<e of ,usiness4

The working capital re:uirement of a firm is ,asically related si<e and

nature of the ,usiness. If the si<e of the firm is ,igger' then or re:uires

more working capital whereas small firm needs less working capital

relati(ely to pu,lic utilities.

ii1 Manufacturing Cycle4

7orking capital re:uirement of an enterprise are also influenced ,y the

manufacturing or production cycle. It refers to the time in(ol(ed to

make finished goods from the raw materials. uring the process of

manufacturing cycle funds are tied up longer the manufacturing cycle'

the larger will ,e working capital re:uirement and (ice;(ersa.

iii1 *roduction *olicy4

24



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



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<ation of a(aila,le resources at minimum cost. Thus' financial

manager can contri,ute to strong working capital position through

operating efficiency. If a firm has strong operation efficiency then it

needs lesser amount of working capital and (ice;(ersa.

i)1 *rofit Margin4

The le(el of profit margin differs from firm to firm. It depends upon

the nature and :uality of product has a sound marketing management

and enjoy the monopoly power in the market then it earns :uite high

profit and (ice;(ersa. *rofit is sources of working capital ,ecause it

contri,utes towards the working capital as a pol ,y generating more

internal funds.

)1 e(el of Ta)es

The le(el of ta)es also influences working capital re:uirement of firm.

The amount of ta)es to ,e paid in ad(ances is determined ,y the

pre(ailing ta) regulations. But the firm>s profit is not constant' or can

note ,e predetermined. Ta) lia,ility in asense of short;term li:uidity is

paya,le in cash. Therefore' the pro(ision for ta) amount is one of the

important aspects of working capital planning. If ta) lia,ility increase'

it needs to increase the working capital and (ice;(ersa.

". F1-&-31-2 45 W4*@1-2 C&917&

The firm>s working capital assets policy is ne(er set in a (acuumP it is

always esta,lished in conjunction with the firm>s working capital

policy. $(ery manufacturing concern of industry re:uires additional

26



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

27



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<ation of

proceeds from de,tors. The credit period allowed ,y creditors will ha(e

to ,e set off in the process. The optimum le(el of working capital will

,e the re:uirement of operating e)penses for an operating cycle'

calculated on the ,asis of operating e)penses re:uired for a year.

In India' most of the organi<ations use to follow the con(entional

approach earlier' ,ut now the practice is shifting in fa(our of the

operating cycle approach. The ,anks usually apply this approach while

granting credit facilities to their clients.

28



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)*+

29



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<ed for the lack of working

capitalfunds. Thus' the firm s profita,ility would deteriorate.

*aucity of working capital funds render the firm una,le to a(ail

attracti(e credit opportunities etc.

The firm loses its reputation when it is not in a position to

honor its

short;term o,ligations.

An enlightened management should' therefore' maintain the right

amount of working capital on a continuous ,asis. 3nly then a proper

functioning of ,usiness operations will ,e ensured. Sound financial and

statistical techni:ues' supported ,y judgment' should ,e used to predict

the :uantum of working capital needed at different time periods.

A firm s net working capital position is not only important as an inde)

of li:uidity ,ut it is also used as a measure of the firm>s risk.

&isk in this regard means chances of the firm ,eing una,le to meet its

o,ligations on due date. The lender considers a positi(e net working as

a measure of safety. All other things ,eing e:ual' the more the net

working capital a firm has' the less likely that it will default in meeting

its current financial o,ligations. enders such as commercial ,anks

insist that the firmshould maintain a minimum net working capital

position.

30



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

analy<ed. It co(ers to analy<e the ratio as well trend and composition

of working capital' which means current assets' current lia,ilities'

li:uidity' turno(er' le(erage and profita,ility of BAIC.

.# C4694-)-7+ 45 3**)-7 &++)7+

#or the day to day ,usiness operation different types of current assets

are re:uired. Current assets refer those assets that are cash or can ,e

con(erted into cash within a year. The composition of current assets or

the main components of current assets at BAIC are cash and ,ank

,alance' loan and ad(ances and go(ernment securities. Miscellaneous

current assets are also a component of current assets. *repaid e)penses'outstanding income like interest recei(a,le and other current assets are

also included in miscellaneous current assets. The following ta,le

shows the amount of cash and ,ank ,alance' money at call or short

notice' loan and ad(anced go(ernment securities and other current

assets of Bajaj Allian< ife Insurance Company *(t. td.

Ta,le ? 4

Current Assets

F1+3& Y)&* S-*;

D)74*+

C&+0 &- B&-@

&&-3)

L4&- &-

&'&-3)

O70)* C.A T47

%$$>$? HF'FGD '?'FF H'F ?'?GD'G 'D

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

31



%$#$## ?'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

32



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.

.< W4*@1-2 3&917& 45 BALIC

33



7orking capital is re:uired to run ,usiness smoothly and efficiently in

the conte)t of set o,jecti(es. It is no dou,t that no organi<ation can

achie(e its goal without proper use of working capital. It means money

in(ested on working capital should ,e neither more nor less ,ecause

,oth the position of working capital affects not only li:uidity ,ut also profita,ility of the organi<ation. The in(estment decision should ,e

made on any type of current assets ,y considering their role in

company and determining which one is more ,eneficial to the company

and which is not. The following ta,le shows the amount of working

capital of BAIC of the study period.

Ta,le 4

7orking capital of Company

F1+3& Y)&* T47& C.A T47& C.L WC CA!CL

%$$>$? 'D?'DH D'@'H G'G'F

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

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

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

Sources4 Annual &eport of company.

INTERPRETATION<

34



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<ation is

directly related with working capital or current assets and

current lia,ilities of that organi<ation. In other words' one of the

main o,jecti(es of working capital management is keeping

sound li:uidity position. Company is a different organi<ation

which is engaged in Mo,ili<ation of funds. So' without sound

li:uidity position of a,ility to meet its short;term o,ligation(arious li:uidity ratios are calculated and to know the trend of

li:uidity are trend analysis of major li:uidity ratios ha(e ,een

considered.

." C**)-7 R&714

This ratio indicates the short;term sol(ency position of ,ank. In

other words current ratio indicates ,etter li:uidity position. It is

calculated as follows4

Current assets /CA1

Current lia,ilities /C1

The following ta,le shows the current ratio to compare the following

capital management of BAIC.

Ta,le G 4

Current ratio

F1+3& Y)&* T47& CA T47& CL C**)-7 *&714

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

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

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

35



%$###% 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.

36



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.

37



. 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

38



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 ?.?

39



%$#$## ?'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

40



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

%$$?#$ ?@'DD'FD @'?F@'?? ".>>

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

%$###% %%#,%",>%" "%,>",<" .#?

D1&2*&6-

INTERPRETATION>

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.

.? C*)174*+ T*-4')* R&714

C4-3)97 !

Creditors> turno(er ratio esta,lishes relationship

,etween not credit purchases and a(erage trade creditors and accounts

paya,le. The ratio indicates the (elocity with which the creditors are

turned o(er in relation to purchases.

Creditors Turno(er &atio R !et Credit *urchases

A(erage creditors

41



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

42



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&*+ <#!<!%$$? <#!<!%$#$ I-3*)&+) D)3*)&+)

43



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

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

C&+0 &-@ &&-3) <,#,??< %,#>,?$> #,<,$

L4&- &'&-3) ,?$ #<$,% <,<#$

O70)* C.A #,#">," %,$%%,$ ><",$>

T47& ,<>#,<> ,%?>,<> #,<<,# #,<,$

C**)-7 L1&1171)+

S-*; 3*)174*+ %,%"?,< <,$#,$? #,"#,%% !

D)94+17 <,<#>,?$$ ",#%?,?$$ >##,$$$ !

B1+ 9&;&) >,$ #?,#> #$>,# !

O70)* C.L %,<?,"?% %,"?#," ?,$% !

T47& >,$%,< #$,#>,## %,",<

INTERPRETATION ##

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 @'GHH'.and ,y putting formula /7.CR C.A;

C.1working capital of the company for year @FE? is

G'G'F. +ere working capital of company is increasing that

means profita,ility of company also increasing.

T&) #%

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

44



P&*713&*+ <#!<!%$#$ <#!<!%$## I-3*)&+) D)3*)&+)

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

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

C&+0 &-@ &&-3) %,#>,?$> ",%>,$?> %,#?>,#?$

L4&- &'&-3) #<$,% #",$> #,>$<

O70)* C.A %,$%%,$ %,<"",$%$ ">,<>

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

C**)-7 L1&1171)+

S-*; 3*)174*+ <,$#,$? <,%>#,$? "%$,$$$

D)94+17 ",#%?,?$$ ","<$,?$$ <$#,$$$

B1+ P&;&) #?,#> ?>,<% ?,?

O70)* C.L %,"?#," #,?$," >$#,$$$

T47& #$,#>,## ?,$$,?# <$#,$$$ #,<#>,?

INTERPRETATION#%

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

45



T&) #<

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

P&*713&*+ <#!<!%$## <#!<!%$#% I-3*)&+) D)3*)&+)

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

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

C&+0 &-@ &&-3) ",%>,$?> ",%$,# %<,$

L4&- &'&-3) #",$> #$,$ %<,>%

O70)* C.A %,<"",$%$ <,><%," #,">>,"<

T47& >,%#, ?,",?>> #,",$> ##,<

C**)-7 1&1171)+

S-*; 3*)174*+ <,%>#,$? ",%",""? ,<$

D)94+17 ","<$,?$$ ",#"%,"?# ! %>>,"$?

B1+ 9&;&) ?>,<% ?,$> #,%>

O70)* C.L #,?$," %,<>,>% >,%<

T47& ?,$$,?# #$,",>" #,""<,<< %>?,?"

INTERPRETATION#<

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.

46



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

47



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.

48



CONCLUSION

At the end it is stated that the working capital management is a part of

money in(ested in the ,usiness.7orking capital may ,e regarded as

life,lood of a ,usiness. Its effecti(e pro(ision can do much to ensure

the success of a ,usiness.

The 7orking Capital Management contri,utes much in the o(er all

management of the organi<ation affairs' efficiency of organi<ation

operations depend on how it manages its short term ,usiness dealings.

7orking Capital management contri,utes for the firm efficiency as

well as the finance manager is proper utili<ing the a(aila,le wealth and

maintaining the re:uired li:uidity.

7orking capital is considered to ,e an important tool for

progress. 7orking capital management techni:ues are playing

significant role in assisting the management for decision making. The

study of working capital management at Bajaj Allian< ife Insurance

*(t. td.Is found to ,e (ery effecti(e. The working capital contains the

management of Cash' e,tors' and creditors. The Bajaj Allian< ife

Insurance *(t. td has profit oriented company .The profit of the

company will ,e increases e(ery year .The company has a,le to the

repay the amount of the creditor. The company has more working

capital and also sale has increases year to year.

49



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.

Bajaj Alliance Project

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