Himanshu Interim Report

7/26/2019 Himanshu Interim Report

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SVKMs Narsee Monjee Institute of Management Studies

Mukesh Patel School of Technology Management and

Engineering

INTERIM REPORT ON

Assessment of Working Capital Management

By

HIMANSHU CHAURASIA

Roll Number: M-066

Number:71209120007

Faculty Mentor

Mrs. Malti Hoskte

Industry Mentor

Mr. Piyush Bardhan


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Introduction:

Bank of India was founded on 7th September, 1906 by a group of eminent

businessmen from Mumbai. The Bank was under private ownership and control till July

1969 when it was nationalized along with 13 other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50

employees, the Bank has made a rapid growth over the years and blossomed into a

mighty institution with a strong national presence and sizable international operations.

In business volume, the Bank occupies a premier position among the nationalized

banks.

The Bank has 4963 branches in India spread over all states/ union territories including

specialized branches. These branches are controlled through 54 Zonal Offices. There

are 60 branches/ offices and 5 Subsidiaries and 1 joint venture abroad.

Work Profile of Credit Department of Bank of India:

Lending money is one of the main functions of a commercial bank. In the lending

process, selection of borrower is the most crucial and vital job for a banker. The credit

department collects and files every available bit of information concerning people or

firms that borrowmoney.This material consists of financial reports, press clippings,

personal interviews, and statements of condition and, in fact, every item that has even

a remote bearing upon the standing of borrowers.

It requires technical training of a high order properly to classify and analyze this data.

Before a customer enjoys credit facilities it is important that the applicant should

qualify for five Cs. The five Cs are: CharacterIntention to pay back the loan, Capacity

Borrowers competence in terms of utilizing the fund profitably and generate income,CapitalFinancial strength to cover the risk, Conditions -General business condition

between two parties, CollateralImplies additional securities.

In addition, objectives of the credit department are managing credit exposure of the

bank, maintaining credit risk, compliance of Central Bank Ltd, recovering or collecting

dues of retail loans or advances. If all this information is satisfactory, the capital factor

is studied in the borrower's financialstatement of condition,which balance sheet
http://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Money-Legal-Tender.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Daily-Trial-Balance-Or-Statement-Of-Condition.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Daily-Trial-Balance-Or-Statement-Of-Condition.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Money-Legal-Tender.html


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should be taken off at regular intervals. It must show a sufficiently "liquid" position to

satisfy the banker that hisloan can and will be repaid when due. To show this, there

must be an ample margin of quick assets (those readily convertible intocash)over

currentliabilities to enable the borrower, despite any natural shrinkage of values in

liquidation, readily to meet hisobligations..
http://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Debit-Balances.html#loanshttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Cash-11.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Overs-And-Shorts-45.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Liabilities-Or-Duties-Of-The-Principal.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Obligations-And-Rights-Of-Warehousemen.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Obligations-And-Rights-Of-Warehousemen.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Liabilities-Or-Duties-Of-The-Principal.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Overs-And-Shorts-45.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Cash-11.htmlhttp://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Debit-Balances.html#loans


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Project Description:

Working capital management involves the relationship between a firms short-termassets and its short-term liabilities. The goal of working capital management is to ensure

that a firm is able to continue its operation and that it has sufficient ability to satisfy

both maturing short-term debt and upcoming operational expenses. The management ofworking capital involves managing inventories, accounts receivable and payable, and

cash.

The Working Capital comprises of-

Amount for raw material of various kind;

Amount of stock in progress;

Amount for all finish goods in store and in transit;

Amount for receivables or sundry debtors;

Other routine expenses;

Means to finance the Working Capital is:

1. Credit available on purchase;

2. Short term borrowing;

3. Surplus of long term funds over the long term uses(Net working capital)

Factors which determines working capital:

1. Policies for production.

2. Manufacturing process.

3. Credit policy of the unit.

4.

Pace of turnover.

5. Seasonability.

Any enterprise whether industrial, trading or other acquires two types of assets to run itsbusiness as has already been emphasised time and again. It requires fixed assets which

are necessary for carrying on the production/business such as land and buildings, plant

and machinery, furniture and fixtures etc. For a going concern these assets are ofpermanent nature and are not to be sold. The other types of assets required for day to day

working of a unit are known as current assets which are floating in nature and keep

changing during the course of business. It is these 'current assets' which are generally

referred to as 'working capital'. We are by now already aware of the short-term nature ofthese assets which are classified as current assets. It may be noted here that there may not

be any fixed ratio between the fixed assets and floating assets for different projects as

their requirement would differ depending upon the nature of project. Big industrial

projects may require substantial investment in fixed assets and also large investment forworking capital. The trading units may not require heavy investment in fixed assets while

they may be carrying huge stocks in trade. The service units may hardly require any

working capital and all investment may be blocked in creation of fixed assets.


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A set financing pattern is evolved to meet the requirement of a unit for acquisition of

fixed assets and current assets. Fixed assets are to be financed by owned funds andlong-term liabilities raised by a unit while current assets are partly financed by long-term

liabilities and partly by current liabilities and other short-term loans arranged by the unit

from the bank. The balance sheet of a unit under such dispensation may be represented asin next page.

The total current assets with the firm may be taken as gross working capital whereas the

net working capital with the unit may be calculated as under:

Net Working Capital = Current Assets - Current Liabilities

(NWC) (GWC) (including bank borrowings)

This net working capital is also sometimes referred to as 'liquid surplus' with the firm and

has been margin available for working capital requirements of the unit. Financing of

working capital has been the exclusive domain of commercial banks while they also grantterm loans for creation of fixed assets either on their own or in consortium with State

level/All India financial institutions. The financial institutions are also now considering

sanction of working capital loans.

The current assets in the example given in the earlier paragraph are financed asunder:

Current Assets = Current liabilities + Working capital limits from banks + Marginfrom long-term liabilities


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.

Working Capital Management in Banks

After company proposes to the bank for finance through working capital, the bank asks

for its financial statement i.e. Balance sheet and Profit and Loss A/C for analysis.Financial analysis is helpful in assessing corporate excellence, judging credit

worthiness, forecasting bond ratings, predicating bankruptcy and assessing market risk.

It comprises of ratio analysis. Financial Ratio Analysis is study of ratio between various

items in financial statement.Numbers of ratios are there but following ratios are to be studied in working capital

finance:

I. Capitalization Ratio/Leverage Ratio:

1. Debt-Equity Ratio: Debt/Equity

The main purpose of this ratio is to ascertain the relative stakes of the creditors i.e. the

owners of an enterprise.

Favorable Ratio for

Term liabilities to net Worth=2:1

Total Liability to Net Worth=3:1

Overheads

CASH

Inventory

Sales

Debtors


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For the sake of taxation laws, it is cheaper to raise money by way of loans etc., instead

of raising money by way of equity.

2. Interest Coverage Ratio: EBIT/Interest

This ratio is widely used by lenders to assess a firms debt capacity. It is a major

determinant of bond rating. A high Interest Coverage ratio means that the firm caneasily meet its interest burden even if earnings before interest and taxes suffer aconsiderable decline.

II. Liquidity Ratio:

Its objective is to find out whether the company will have sufficient cash and other

resources to meet the liabilities as and when they arise.

The two ratios generally computed. They are;

1)

Current Ratio: Current Assets /Current Liabilities

This is an important liquidity ratio. It expresses the relationship between Current assets

and Current Liabilities. If the ratio is 1 or more than 1, it would mean that value of

current assets exceeds the Current Liabilities.

The acceptable minimum Current Ratio Under India Conditions=1.33;

If Current Ratio


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COMMENTS IN BRIEF ON FINANCIAL POSITION

Company has submitted CMA data based on audited balance sheet as on 31.03.15And Estimate & projection as at 31.03.16 and 31.03.17.Our comments are based on the

same.

PAID UP CAPITAL/TNW: The company is having paid up capital of Rs 23.16 lac

since 31.03.14 which is maintains and projected at same level. The company has

posted TNW of Rs 72.97lacs as on 31.03.14 and increased to Rs.93.14 lacs as on

31.03.15. TNW has estimated at Rs 154.10 lac and projected at 239.16lacs for the year2015-16 and 2016-17 respectively .The trend of increasing TNW is due to retention of

profit and surplus.

NET SALES: The company has posted sales of Rs 897.57 lacs during Financial year2013-14 which increased to Rs1022.50 lacs during FY 2014-15.( increase of 13.9%of

the previous financial year.) During the year 2015-16 the company has estimated sales

of Rs.1217.41 lacs.i.e19.06% increase .Keeping in the view of the estimated sales ofRs1377.69 lacs projected sales of Rs.1598.12 lacs (considering 13.13% growth) as at31.03.17 appears to be reasonable % achievable.

OTHER INCOME: Other income due to interest received on tax refund and otherinterest received on VAR refund around Rs.0.17lac as FY 2014-15 and as per

provisional it is at Rs1.18lac.Other income remain stagnant during estimate and

projected CMA of the firm.

PROFITS/PROFITABILITY: Profitability of the firm of Rs.0.24lac at FY2013-14

and increased to Rs.1.70lacs at FY2014-15.As per provisional figure the profitability

also increased to Rs.5.01lacs during FY2015-16.The same trend of increasing follow inthe estimate and projection year of the firm is Rs6.12 lac and Rs.6.22lac during the

FY2016-17 and FY2017-18 respectively.

CURRENT RATIO: Current ratio is posted at 1.11 as on 31.03.14 & 1.17 as on

31.03.15 and slightly increased to 1.37 as on 31.03.16.Considering finance given to

SME unit, CR at current level may be acceptable.CR is estimated at 1.54 as on FY

2016-17 and projected at 1.78 as on FY 2017-18.Hence acceptable .

DEBT EQUITY RATIO: DER is 6.38 as at 31.03.14 and decreased to 4.83 as at

31.03.15 .As per provisional the ratio also declined to 3.19 as at 31.03.16.The same

trend of decline is follow during the estimated FY 2016-17 is 2.01 and ProjectionFY2017-18 is 1.39.


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Outcome from the Project

In financial account in,a balance sheet or statement of financial position is a summary of

the financial balance of an individual or organization, whether its a soleproprietorshipbusiness partnership ,a corporation, Private limited company or other organization such

Government or not for profit entity .Assets ,liabilities and ownership equity are listed as

specific date, such as the end of its financial year.

A balance sheet is often described as a "snapshot of a company's financial

condition".[1]

Of the four basic financial statement, the balance sheet is the only

statement which applies to a single point in time of a business' calendar year.

Completed Tasks:

25

th

April to 30

nd

May -2016-Introduction of Banking

2nd

May to 7th

May 2016-Gained Basic Knowledge about banking sector

9th

May to 14th

May 2016-Analysis of Balance Sheet

15th

May to 21th May 2016- Analysis of Balance Sheet

23rd

May to 28th

May 2016-Reviewing Working Capital Limit

30th

May to 4th

June 2016- Reviewing Working Capital Limit

6th

June to 13th

June 2016-Reviewing working Capital Limit

Remaining Task

13th

June to 20th

June 2016-Making Proposal

20th

June to 24th

June 2016-Making Proposal
https://en.wikipedia.org/wiki/Balance_sheet#cite_note-1https://en.wikipedia.org/wiki/Balance_sheet#cite_note-1https://en.wikipedia.org/wiki/Balance_sheet#cite_note-1https://en.wikipedia.org/wiki/Balance_sheet#cite_note-1


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Refrence:

http://www.academia.edu/9871184/3.3_Functions_of_the_Credit_Department_of_Commercial_

Bank

http://www.bankofindia.co.in/english/history3.aspx

http://www.rushabhinfosoft.com/webpages/BHTML/CH-15.HTM

https://en.wikipedia.org/wiki/Balance_sheet

Guidance from the Book of Working Capital Management of the Bank.
http://www.academia.edu/9871184/3.3_Functions_of_the_Credit_Department_of_Commercial_Bankhttp://www.academia.edu/9871184/3.3_Functions_of_the_Credit_Department_of_Commercial_Bankhttp://www.academia.edu/9871184/3.3_Functions_of_the_Credit_Department_of_Commercial_Bankhttp://www.bankofindia.co.in/english/history3.aspxhttp://www.bankofindia.co.in/english/history3.aspxhttp://www.rushabhinfosoft.com/webpages/BHTML/CH-15.HTMhttp://www.rushabhinfosoft.com/webpages/BHTML/CH-15.HTMhttps://en.wikipedia.org/wiki/Balance_sheethttps://en.wikipedia.org/wiki/Balance_sheethttps://en.wikipedia.org/wiki/Balance_sheethttp://www.rushabhinfosoft.com/webpages/BHTML/CH-15.HTMhttp://www.bankofindia.co.in/english/history3.aspxhttp://www.academia.edu/9871184/3.3_Functions_of_the_Credit_Department_of_Commercial_Bankhttp://www.academia.edu/9871184/3.3_Functions_of_the_Credit_Department_of_Commercial_Bank

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