Professional Documents
Culture Documents
DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
JALANDHAR NEW DELHI GT ROAD
PHAGWARA
PUNJAB
DECLARATION
1
I declare that the project titled A study on working capital management in State Bank of
Patiala is an original project done by me under the guidance of Mr. Virender Singh, Chief
Manager, Sunam Main Branch, State Bank of Patiala.
I further declare that this project is the result of my own efforts and this report has
not been submitted to any other University.
ACKNOWLEDGEMENT
I take this opportunity to express my gratitude to Mr.Virender Singh, Chief Manager, Sunam
Main Branch, State Bank of Patiala, for providing me an opportunity to do the project under
his guidance despite his busy schedule. I also thankful to my training coordinator for guiding
me to do my work successfully.
Their support and suggestions were immense in enabling the successful completion of this
project.
THANK YOU
Amandeep Kaur
S.No.
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CONTENT
Executive Summary
Bank Profile
Introduction to working capital management
Objectives of the study
Literature Review
Research Methodology
Data Analysis and Interpretation
Findings
Recommendations
Conclusion
References
Annexure
Page No.
6-10
15-22
23-39
39
40-42
43
44-71
72-73
74
75
76-78
62
In 1850s- Foreign banks like Credit Lyonnais started their Calcutta operations .
In 1865- The first fully Indian owned bank was the Allahabad Bank, was established.
By the 1900s- The market expanded with the establishment of banks such as
Punjab National Bank,
In 1895 in Lahore and Bank of India, In 1906, In Mumbai both of which were
founded under private ownership. The Reserve Bank of India formally took on the
responsibility of regulating the Indian banking sector from 1935.
After Indias independence in 1947, the Reserve Bank was nationalized and given broader
powers.
As the banking institutions expand and become increasingly complex under the impact of
deregulation, innovation and technological upgradation, it is crucial to maintain balance
between efficiency and stability. During the last 30 years since Nationalization tremendous
changes have taken place in the financial markets as Well as in the banking industry due to
financial sector reforms. The banks have shed their traditional functions and have been
innovating, improving and coming out with new types of services to cater emerging needs of
their customers. Banks have been given greater freedom to frame their own policies.
The banking sector is broadly divided into two segments:
1. Commercial Banks
2. Co-operative Banks
Commercial Banks
The commercial banking structure in India consists of:
Scheduled Commercial Banks
Unscheduled Banks
Scheduled Commercial Banks constitute those banks which have been included in the second
Scheduled of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks
in this schedule which satisfy the criteria laid down vide section 42 (60) of the Act. Some cooperative banks are scheduled commercial banks albeit not all co-operative banks are. Being
a part of the second schedule confers some benefits to the bank in terms of access to
accommodation by RBI during the time of liquidity constraints. At the same time, however,
this status also subjects the bank to certain conditions and obligation towards the reserve
regulations of RBI. This sub sector can broadly be classified into:
Public sector
Private sector
Foreign banks
Public sector banks have either the Government of India or Reserve Bank of India as the
majority shareholder. This segment comprises of:
State Bank of India (SBI) and its subsidiaries;
Other nationalized banks
Co-operative banks
There are two main categories of the co-operative banks.
10
The rich heritage of State Bank of Patiala dates back to the year 1917, when it was founded
by Late His Highness Bhupinder Singh, Maharaja of erstwhile Patiala state, with one branch
by the name of 'Chowk Fort, Patiala' to begin with. The Bank, then known as the 'Patiala
State Bank' was state owned and setup for the explicit purpose of fostering growth of
agriculture, trade and industry. The constitution, scope and operations of the Bank underwent
a sea change with the formation of the Patiala and east Punjab States Union (PEPSU) in
1948.The Bank was then reorganized and brought under the control of Reserve Bank of India.
It was christened as the Bank of Patiala. Another milestone in history of the Bank was its
becoming a subsidiary of the State Bank of India on 1st April,1960 when it was named as the
State Bank of Patiala and since then it has grown significantly both in size and volume of
business. During these glorious years, the Bank has been playing an important role in
Banking sphere.
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3.2 LOGO
Togetherness is the theme of this corporate logo of SBI where the world of banking services
meet the ever changing customers needs and establishes a link that is like a circle, it indicates
complete services towards customers. The logo also denotes a bank that it has prepared to do
anything to go to any lengths, for customers.
The blue pointer represent the philosophy of the bank that is always looking for
the growth and newer, more challenging, more promising direction. The keyhole indicates safety
and security
3.3 VISION and MISSION
Vision:
To evolve and position the bank as a world class, progressive, cost-effective and customer
friendly institution providing comprehensive financial and related services.
Integrating frontiers of technology and serving various segments of society especially weaker
section.
Mission:
To provide excellent professional services and improve its position as a leader in financial
and related services.
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OPPORTUNITY
WEAKNESS
High gross NPA.
Slow down decision making due to
large hierarchy.
THREAT
Other services
Agriculture/Rural Banking
NRI Services
ATM Services
Demat Services
14
Corporate Banking
Internet Banking
15
Scheme
Purpose
Term Loan and Working capital (FB+NFB) facility for MSE & C&I Segment
Industrial and trading enterprises.
Eligibility
Loan Amount
Stock statement
Type of Security
Primary: - Hypothecation of stocks / machinery / equipment
Collateral: - Upto Rs. 10 lacs- Nil (eligible cases to be covered under CGTMSE)
Above Rs. 10 lacs- Min. 50% of loan amount
Repayment Period
Rate of Interest
Loan Amount
CASH CREDIT
TERM LOAN
Rs.5 lacs & < Rs.25 lacs 3.00% p.a. above Base 3.50 % p.a. above Base
Rate
Rate
Rs.25 lacs to Rs.50 lacs 3.50 % p.a. above Base 4.00 % p.a. above Base
Rate
Rate
17
4 INTRODUCTION
WORKING CAPITAL MANAGEMENT
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short-term
assets and its short-term liabilities. The goal of working capital management is to ensure that
the firm is able to continue its operations and that it has sufficient cash flow to satisfy both
maturing short-term debt and upcoming operational expenses.
4.1 INTRODUCTION OF WORKING CAPITAL
Working capital (abbreviated WC) is a financial metric which represents operating liquidity
available to a business, organization or other entity, including governmental entity. Along
with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. Net working capital is calculated as current assets minus current liabilities.
It is a derivation of working capital, that is commonly used in valuation techniques such as
DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has
a working capital deficiency, also called a working capital deficit.
A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a
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19
3. Production Policy
Production policy is also main determinant of working capital requirement. Different
company may different production policy. Some companies stop or decrease the production
level in off seasons, in that time, company may also reduce the number of employees or
decrease the purchasing of new raw material, so, it will certainly decrease the amount of
working capital but on the side, some company may continue their productions in off season,
in that case, they need definitely large amount of working capital.
4. Credit Policy
Credit policy is relating to purchasing and selling of goods on credit basis. If company
purchases all goods on credit and sells on cash basis or advance basis, then it is certainly
company need very low amount of working capital. But if in company, goods are purchased
on cash basis, and sold on credit basis, it means, our earned money will receive after
sometime and we require large amount of working capital for continuing our business.
5. Dividend Policy
Dividend policy also effect working capital requirement. Company can distribute major part
of net profit. But, if there is no reserve, we have to invest large amount in working capital
because, lacking of reserve will affect on adversely on fulfill our liabilities. In that case, we
have to yield working capital by taking short term loan for paying uncertain liability.
8. Operating efficiency
The operating efficiency of the firm relates to the optimum utilization of all its resource at
minimum costs. The efficiency in controlling operating cost and utilizing fixed and current
assets leads to operating efficiency. The use of working capital is improved and pace of cash
conversion cycle is accelerated with operating efficiency. Better utilization improves
profitability and helps the releasing on working capital.
9. Price Level Changes
If there is increasing trend of products prices, we need to store high amount of working
capital, because next time, it is precisely that we have to pay more for purchasing raw
material or other service expenses. Inflation and deflation are two major factors which decide
the next level of working capital in business.
10. Effect of External Business Environmental Factors
There are many external business environmental factors which affect the need of working
capital like fiscal policy, monetary policy and bank policies and facilities.
arrange loans from banks and other on easy and favorable terms.
Cash Discounts: Adequate working capital also enables a concern to avail cash
21
prices.
Ability To Face Crises: A concern can face the situation during the depression.
Quick And Regular Return On Investments: Sufficient working capital enables a
concern to pay quick and regular of dividends to its investors and gains confidence of
Excessive working capital means ideal funds which earn no profit for the firm
and business cannot earn the required rate of return on its investments.
2.
3.
Excessive working capital implies excessive debtors and defective credit policy
which causes higher incidence of bad debts.
4.
5.
If a firm is having excessive working capital then the relations with banks and
other financial institution may not be maintained.
6.
Due to lower rate of return n investments, the values of shares may also fall.
7.
To maintain the inventories of the raw material, work-in-progress, stores and spares
and finished stock.
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25
26
(A)Credit period
Credit period is the duration of time for which trade credit is extended. During this time the
overdue amount must be paid by the customers. A long period credit term may boost sales but
its also increase investment in receivables and lowers the quality of trade credit. While
determining a credit period a company is bound to take into consideration various factors like
buyer's rate of stock turnover, competitors approach, the nature of commodity, margin of
profit and availability of funds etc. The period of credit diners form industry to industry. In
practice, the firms of same industry grant varied credit period to different individuals. as most
of such firms decide upon the period of credit to be allowed to a customer on the basis of his
financial position in addition to the nature of commodity, quality involved in transaction, the
difference in the economic status of customer that may considerably influence the credit
period. The general way of expressing credit period of a firm is to coin it in terms of net date
that is, if a firm's credit terms are "Net 30", it means that the customer is expected to repay his
credit obligation within 30 days. Generally, a free credit period granted, to pay for the goods
purchased on accounts tends to be tailored in relation to the period required for the business
and in turn, to resale the goods and to collect payments for them. A firm may tighten its credit
period if it confronts fault cases too often and fears occurrence of bad debt losses. On the
other side, it may lengthen the credit period for enhancing operating profit through sales
expansion. Anyhow, the net operating profit would increase only if the cost of extending
credit period will be less than the incremental operating profit. But the increase in sales alone
with extended credit period would increase the investment in receivables too because of the
following two reasons: (i) Incremental sales result into incremental receivables,
(ii) The average collection period will get extended, as the customers will be granted more
time to repay credit obligation.
Determining the options credit period, therefore, involves locating the period where marginal
profit and increased sales are exactly off set by the cost of carrying the higher amount of
accounts receivables.
2. Credit Standards
Credit standards refers to the minimum criteria adopted by a firm for the purpose of short
listing its customers for extension of credit during a period of time. Credit rating, credit
reference, average payments periods a quantitative basis for establishing and enforcing credit
standards. The nature of credit standard followed by a firm can be directly linked to changes
in sales and receivables. In the opinion of Van Home, "There is the cost of additional
investment in receivables, resulting from increased sales and a slower average collection
period. A liberal credit standard always tends to push up the sales by luring customers into
dealings. The firm, as a consequence would have to expand receivables investment along
with sustaining costs of administering credit and bad-debt losses. As a more liberal extension
of credit may cause certain customers to the less conscientious in paying their bills on time.
Contrary, to these strict credit standards would mean extending credit to financially sound
customers only. This saves the firm from bad debt losses and the firm has to spend lesser by a
way of administrative credit cost. But, this reduces investment in receivables besides
depressing sales. In this way profit sacrificed by the firm on account of losing sales amounts
more than the cost saved by the firm.
Prudently, a firm should opt for lowering its credit standard only up to that level where
profitability arising through expansion in sales exceeds the various costs associated with it.
That way, optimum credit standards can be determined and maintained by inducing tradeoff
between incremental returns and incremental costs.
28
3. Collection Policy
All the above stated reasons compel a firm to formulate a collection programme to obtain
recovery or receivables from delinquent account. Such progarmme may consist of following
steps:
Monitoring the state of receivables,
Dispatch of letter to customer whose due date is near.
Telegraphic and telephone advice to customers around the due date.
Threat of legal action to overdue accounts, and
Legal action against overdue account.
Collection policy refers to the procedures adopted by a firm (creditor) collect the amount of
from its debtors when such amount becomes due after the expiry of credit period. R.K.
Mishra States, "A collection policy should always emphasize promptness, regulating and
systematization in collection efforts. It will have a psychological effect upon the customers,
in that; it will make them realize the obligation of the seller towards the obligations granted. "
The requirements of collection policy arises on account of the defaulters i.e. the customers
not making the payments of receivables in time. As a few turnouts to be slow payers and
some other non-payers. A collection policy shall be formulated with a whole and sole aim of
accelerating collection from bad-debt losses by ensuring prompt and regular collections.
Regular collection on one hand indicates collection efficiency through control of bad debts
and collection costs as well as by inducing velocity to working capital turnover. On the other
hand it keeps debtors alert in respect of prompt payments of their dues. A credit policy is
needed to be framed in context of various considerations like short-term operations,
determinations of level of authority, control procedures etc. Credit policy of an enterprise
shall be reviewed and evaluated periodically and if necessary amendments shall be made to
suit the changing requirements of the business. It should be designed in such a way that it coordinates activities of concerns departments to achieve the overall objective of the business
enterprises. finally, poor implementation of good credit policy will not produce optimal
results.
COLLECTION OF ACCOUNTS RECEIVABLES:
Despite of firm's best precautionary efforts in escaping the bad and doubtful debts, there
always exist certain number of unpaid accounts on the due date. Three-well-known causes of
failure of such payments on the part of debtors (i.e. firm's customer) can be sited as:
It may happen at times that the due date of payment slips from debtors mind and he delays
in making good the payments at the right time.
It may incidentally occur at the time of grant of credit that a firm fails to access and
interpret the character, capacity, capital, Collateral and conditions correctly and appropriately.
There may arise a considerable change in the financial position of a debtor after the credit
has been granted to him by the firm.
All the above stated reasons compel a firm to formulate a collection programme to obtain
recovery or receivables from delinquent account. Such progarmme may consist of following
steps:
Monitoring the state of receivables,
Dispatch of letters to customers whose due date is near.
Telegraphic and telephone advice to customers around the due date.
29
Effective inventory management is all about knowing what is on hand, where it is in use,
and how much finished product results.
Inventory management is the process of efficiently overseeing the constant flow of units into
and out of an existing inventory. This process usually involves controlling the transfer in of
units in order to prevent the inventory from becoming too high, or dwindling to levels that
could put the operation of the company into jeopardy. Competent inventory management also
seeks to control the costs associated with the inventory, both from the perspective of the total
value of the goods included and the tax burden generated by the cumulative value of the
inventory.
Balancing the various tasks of inventory management means paying attention to three key
aspects of any inventory. The first aspect has to do with time. In terms of materials acquired
for inclusion in the total inventory, this means understanding how long it takes for a supplier
to process an order and execute a delivery. Inventory management also demands that a solid
understanding of how long it will take for those materials to transfer out of the inventory be
established. Knowing these two important lead times makes it possible to know when to
place an order and how many units must be ordered to keep production running smoothly.
1) Transaction Motive : The Company may be required to hold the inventory in order to
facilitate the smooth and uninterrupted production and sale operations. It may not be possible
for the company to procure the raw material whenever necessary. There may be a time lag
between the demand for the material and its supply. Hence it is needed to hold the raw
material inventory. Similarly it may not be possible to produce the goods immediately after
they are demanded by the customers. Hence it is needed to hold the finished goods inventory.
They need to hold work in progress may arise due to production cycle.
30
2) Precaution Motives: In addition to the requirement to hold the inventory for routine
transactions, the company may like hold them to guard against risk of unpredictable changes
in demand and supply forces. Eg. The supply of raw material may get delayed due to factors
like strike, transport, disruption, short supply, lengthy processes involved in import of raw
material etc. hence the company should maintain sufficient level of inventory to take care of
such situations. Similarly, the demand for finished goods may suddenly increases (especially
in case of seasonal type of products) and if the company is unable to supply them, it may
mean gain of competition. Hence, company will like to maintain sufficient supply of finished
goods.
3) Speculative Motive: The Company may like to purchase and stock the inventory in the
quantity which is more than needed for production and sales purpose. This may be with the
intention to get advantage in term of quantity discounts connected with bulk purchasing or
anticipating price rise.
ordering costs
carrying costs
The EOQ is that level of inventory which MINIMIZES the total of ordering and carrying
costs.
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Reorder Point
The reorder point ("ROP") is the level of inventory when an order should be made with
suppliers to bring the inventory up by the Economic order quantity ("EOQ").
The reorder point for replenishment of stock occurs when the level of inventory drops down
to zero. In view of instantaneous replenishment of stock the level of inventory jumps to the
original level from zero level.
In real life situations one never encounters a zero lead time. There is always a time lag from
the date of placing an order for material and the date on which materials are received. As a
result the reorder point is always higher than zero, and if the firm places the order when the
inventory reaches the reorder point, the new goods will arrive before the firm runs out of
goods to sell. The decision on how much stock to hold is generally referred to as the order
point problem, that is, how low should the inventory be depleted before it is reordered.
The two factors that determine the appropriate order point are the delivery time stock which
is the Inventory needed during the lead time (i.e., the difference between the order date and
the receipt of the inventory ordered) and the safety stock which is the minimum level of
inventory that is held as a protection against shortages due to fluctuations in demand.
Therefore:
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6 LITERATURE REVIEW
Idowu and Ogundipe(2012) researched the relationship between working capital management
and value creation for shareholders. The standard measure for working capital management is
the cash conversion cycle (CCC). Cash conversion period reflects the time span between
disbursement and collection of cash. It is measured by estimating the inventory conversion
period and the receivable Conversion period, less the payables conversion period. Their
research found strong evidence of a negative relation between profitability and cash
conversion cycle meaning that shorter the days of working capital, higher the profitability.
Their findings also indicate a positive impact in the shareholders value.
Ngwenya Sam(2012) studied that the relationship between working capital management and
profitability of companies listed on the johannesburg stock exchange. Efficient working
capital management is an integral component of the overall corporate strategy to create
shareholders wealth. The researcher suggested that suggested that managers could increase
their companys profitability by effectively managing the CCC and its components.
Saswata Chatterjee (2010) focused on the importance of the fixed and current assets in the
successful running of any organization. It poses direct impacts on the profitability liquidity.
There have been a phenomenon observed in the business that most of the companies
increase the margin for the profits and losses because this act shrinks the size of working
capital relative to sales. But if the companies want to increase or improve its liquidity, then
it has to increase its working capital. In the response of this policy the organization has to
lower down its sales and hence the profitability will be affected due to this action.
Nazir & Afza(2009) studied that the concept of working capital management. In the present
environment of cut-throat competition, business does not have any other option than cutting
the cost of its operations in order to be competitive as well as financially viable. Customer
demands, competition, labour costs, and operating environment volatility have a negative
impact on the return on investment. For companies, in order to be competitive and to
maximize shareholders wealth, there is a need for effective working capital management. In
practice, working capital management has become one of the most important issues in
33
34
MARC
H
2009
AUD.
MARC
H
2010
AUD.
MARC
H
2011
AUD
701.86
660.21
720.24
883.04 1029.20
1 Net sales
701.86
660.21
720.24
883.04 1029.20
2 Operating profit
107.47
45.66
57.62
75.47
58.33
112.34
49.97
60.75
79.64
61.44
16.01%
7.57%
8.43%
9.02%
5.97%
31ST
FINANCIAL RATIOS
Domestic sales
MARC
H
2012
AUD
MARC
H
2013
AUD
Export sales
Oth.sales/income E.duty/Dis.
4 PBT/Net sales
35
110.00
46.93
57.28
75.53
56.66
6 Cash accruals
113.98
51.60
61.83
80.35
61.90
7 PBDIT
583.95
498.75
479.76
662.08
778.02
27.47
29.47
29.47
29.47
29.47
8 Paid up capital
9
1
0
1
1
1
2
1
3
1
4
TOL/TNW
19.81
18.96
18.94
19.15
18.69
TOL/Adjusted TNW
-5.53
-5.73
-6.77
-6.22
-6.37
Current ratio
0.81
0.82
0.85
0.83
0.84
1246.23 1292.44 1163.63 1550.33 1673.17
NWC
1 Income
Income is the consumption and savings opportunity gained by an entity within a specified
timeframe, which is generally expressed in monetary terms. However, for households and
individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents
and other forms of earnings received in a given period of time."
year
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
Income
701.86
660.21
720.24
883.04
1029.2
% Inc/Dec
-5.93%
9.09%
22.60%
16.55%
36
Income
1200
1029.2
1000
800
883.04
701.86
660.21
720.24
600
Income
400
200
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
Data Interpretation:
The above table shows that income of the bank increases every year. Increase in income
increases the funds of the firm. It is good sign for the firm. It represents of the firms liquidity
position.
2 Operating Profit
The profit earned from a firm's normal core business operations. This value does not include
any profit earned from the firm's investments (such as earnings from firms in which the
company has partial interest) and the effects of interest and taxes.
year
Operating
profit
% Inc/Dec
2008-2009
107.47
2009-2010
45.66
-57.51%
2010-2011
2011-2012
57.62
75.47
26.19%
30.98%
37
58.33
-22.71%
Operating profit
120
107.47
100
75.47
80
60
58.33
57.62
45.66
Operating profit
40
20
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
Data Interpretation:
The above table shows that operating profit decrease in 2010 by 57.51% as compared to
2009. After that it increases continuous two years and in 2013 it again decreases by 22.71%
due to increase in expenses. Operating profit shows the liquidity of the firm.
YEAR
PBT
PAT
38
112.34
2009-2010
49.97
2010-2011
60.75
2011-2012
79.64
2012-2013
61.44
120
110.00
46.93
57.28
75.53
56.66
112.34
110
100
79.64
75.53
80
60
49.97
46.93
61.44
56.66
60.75
57.28
PBT
PAT
40
20
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Data Interpretation:
The above table shows that In 2009 operating profit before and after tax 112.34 and 110.00
respectively. After that it decreases every year as compared to 2009. To maintain profit at
high level, decrease expenses so that profitability of the firm increases.
4 PBT/Net Sales
Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of
profitability. It is calculated by finding the net profit as a percentage of the revenue.
Net Profit before Tax equals sales revenue minus cost of goods sold and all expenses except
for taxes. It is also known as pre-tax book income (PTBI), net operating income before taxes
or simply pre-tax Income.
39
YEAR
%Inc/Dec
2008-2009
16.01%
2009-2010
7.57%
-52.72%
2010-2011
2011-2012
2012-2013
8.43%
9.02%
5.97%
11.36%
7.00%
-33.81%
PBT/Net sales
16.01%
20
13
PBT/Net sales
20
12
-
20
12
20
11
-
20
11
5.97%
20
10
-
20
10
20
09
-
20
08
-
9.02%
8.43%
7.57%
20
09
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Data Interpretation:
The above table shows that In 2009 this ratio is 16.01% and this ratio is less every year as
compared to 2009. This means profitability decreases. To increase it, decrease the selling and
administrative expense which increases every year.
5 PBDIT
PBDIT is an acronym for profit before depreciation, interest, and taxes. Earning before
depreciation, paying interest and tax is known as PBDIT.
40
YEAR
%
Inc/Dec
PBDIT
2008-2009 583.95
2009-2010 498.75
-14.59%
2010-2011 479.76
-3.81%
2011-2012 662.08
38.00%
2012-2013 778.02
17.51%
PBDIT
778.02
662.08
583.95
498.75
479.76
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
09
-
20
08
-
20
10
PBDIT
20
09
900
800
700
600
500
400
300
200
100
0
Data Interpretation:
The above table shows that In 2010 PBDIT decreases by 14.59%, in 2011 decreases by
3.81%, in 2012 increases by 38% and in 2013 increases by 17.51%. The percentage increase
in 2013 is less than as compared to 2012. We can increase PBDIT by decreasing selling and
administrative expenses. PBDIT shows the financial position of a firm.
6 Paid up Capital
Paid-up capital is money that a company has received from the sale of its shares, and
represents money that is not borrowed. A company that is fully paid-up has sold all available
shares, and thus cannot increase its capital unless it borrows money through debt or is
authorized to sell more shares.
41
YEAR
Paid up Capital
2008-2009
27.47
2009-2010
2010-2011
2011-2012
2012-2013
29.47
29.47
29.47
29.47
Paid up Capital
30
29.5
29
28.5
28
27.5
27
26.5
26
29.47
29.47
29.47
29.47
Paid up Capital
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
27.47
Data Interpretation:
The above table shows that in 2009 paid up capital of bank is 27.47 and increased in 2010
from 27.47 to 29.47. Banks capital remains same from last four years that means bank
doesnt borrow more money from RBI and has no more new accounts.
Tangible Net
Worth
335.64
381.48
407.49
489.27
Inc/Dec
45.84
26.01
81.78
42
552.07
62.8
489.27
500
400
335.64
552.07
381.48 407.49
300
200
100
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
Data Interpretation:
The above table shows that tangible net worth increases from the last five years. In 2010 it
was increased by 45.84, in 2011 by 26.01, in 2012 81.78 and in 2013 by 62.8 as compared to
previous years respectively. That means bank has more tangible assets so bank is in good
liquid position.
YEAR
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
Adj.Tangible Net
Worth
-1201.35
-1261.26
-1140.99
-1507.39
-1621.14
Inc/Dec
-59.91
120.27
-366.4
-113.75
43
20
12
-
20
12
20
10
20
11
20
11
-
-600
20
10
-
20
08
-
-400
20
09
-
-200
20
09
Adj.Tangible Net
Worth
-800
-1000
-1200
-1400
-1140.99
-1201.35
-1261.26
-1600
-1800
-1507.39
-1621.14
Data Interpretation:
The above table shows that adjusted tangible net worth decreases from last five years.
It means bank has very less tangible assets i.e. .cash, cars etc. As it represents true net worth,
bank has no net worth. Bank has no own source of income, it take money from RBI and from
customers deposits.
9 TOL/TNW
TOL/TNW is nothing but debt-equity ratio.
TOL represents Total outside Liability
TNW represents Total Net worth
%
Inc/Dec
YEAR
TOL/TNW
2008-2009
19.81
2009-2010
18.96
-4.29%
2010-2011
18.94
-0.11%
2011-2012
19.15
1.11%
2012-2013
18.69
-2.40%
44
TOL/TNW
20
19.8
19.6
19.4
19.2
19
18.8
18.6
18.4
18.2
18
19.81
18.96
19.15
18.94
20
13
TOL/TNW
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
18.69
Data Interpretation:
The above table shows that TOL/TNW ratio decreases from 2009 to 2010. That means
liabilities or debt of a bank are more than banks net worth. Too much debt is not good for the
firm. Although borrowing some money to grow the company is acceptable, we want to be
sure that a company has not taken on too much debt. Some businesses, such as banks have
total liabilities far in excess of their equity.
10 Current Ratio
A liquidity ratio that measure a company's ability to pay short-term obligations.
The Current Ratio formula is:
A current asset is an asset on the balance sheet which is expected to be sold or otherwise used
up in the near future, usually within one year, or one operating cycle whichever is longer.
Typical current assets includes, cash equivalents, accounts receivable, inventory, the portion
of prepaid accounts which will be used within a year, and short-term investments.
A company's debts or obligations that are due within one year. Current liabilities appear on
the company's balance sheet and include short term debt, accounts payable, accrued liabilities
and other debts.
YEAR
2008-2009
2009-2010
2010-2011
Current ratio
0.81
0.82
0.85
% Inc/Dec
1.23%
3.66%
45
0.83
0.84
-2.35%
1.20%
Current ratio
0.86
0.85
0.85
0.84
0.84
0.83
0.83
0.82
0.82
Current ratio
0.81
0.81
0.8
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
0.79
Data Interpretation:
The above table shows that current ratio increases from 2009 to 2011 then decrease in 2012
and then again increase in 2013. That means bank have enough cash or assets to pay off their
short term liabilities. Bank is in a quite liquid position as current ratio is a measurement of
liquidity of a company.
YEAR
NWC
% Inc/Dec
2008-2009
-1246.23
2009-2010
-1292.44
3.71%
2010-2011
-1163.63
-9.97%
2011-2012
-1550.33
33.23%
2012-2013
-1673.17
7.92%
46
NWC
20
13
20
12
-
20
12
20
10
20
11
20
11
-
-600
20
10
-
20
08
-
-400
20
09
-
-200
20
09
NWC
-800
-1000
-1200
-1400
-1246.23
-1292.44
-1163.63
-1600
-1550.33
-1800
-1673.17
Data Interpretation:
The above table shows that Bank have negative working capital every year. Its not a bad sign
for the bank since some companies with long investments often have negative working
capital. Another reason for negative working capital may be that Bank itself have no income
or fund, banks borrow money from RBI and invest in long term investment.
31ST
FUNDS FLOW
STATEMENT
SOURCES
USES
Long term
MARC
H
20092010
MARC
H
20102011
MARC
H
20112012
MARC
H
20122013
AUD.
79.86
107.56
-27.70
AUD
171.51
0.26
171.25
AUD
104.72
473.30
-368.58
AUD
105.48
193.32
-87.84
47
600
473.3
400
200
107.56
79.86
171.51
171.25
104.72
0.26
0
-200
193.32
105.48
USES
2009-2010
-27.7 2010-2011 2011-2012 2012-2013
-87.84
-400
SOURCES
Long term
surplus/deficit
-368.58
-600
Data Interpretation:
The above table shows that sources of funds i.e. inflow funds increase in 2011 and then
decrease in 2012, again increase in 2013. The uses of funds i.e. outflow funds decreases in
2011 and then increase in 2012, again decrease in 2013. That means in 2011 there is a long
term surplus due to decrease in assets or use of funds and there is long term deficit in 20112013 due to increase in fixed assets and other non-current assets.
-23.07%
-21.76%
-17.75%
-19.82%
-19.35%
5.75%
5.76%
7.77%
13.82%
10.22%
117.32%
116.00%
48
Assessed Bank
Finance
310.54
342.16
509.56
1080.99
884.06
YEAR
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
%
Inc/Dec
10.18%
48.92%
112.14%
-18.22%
1080.99
1000
884.06
800
400
Assessed Bank
Finance
509.56
600
310.54
342.16
200
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
Data Interpretation:
The above table shows that bank finance increases every year from 2009-2012 and decrease
in 2013 by 18.22%. It means short borrowings from other banks increases from 2009 to 2012
and decease in 2013. Increase in current liabilities every year is not good but after analysis
we find that bank has sufficient current assets to pay off their current liability.
2 NWC to total current assets
49
YEAR
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
-5.00%
20
09
0.00%
-10.00%
-15.00%
-17.75%
-19.82%-19.35%
-21.76%
-25.00% -23.07%
-20.00%
Data Interpretation:
The above table shows that NWC to total current assets decreases in 2010 and 2011 as
compared to 2009 and increase in 2012 and 2013 but not more than 2009. It means that
current liabilities increases rapidly every year as compared to current assets so there is
decrease in the ratio.
3 Bank finance to total current assets
Bank finance to total current assets ratio is defined as how much percentage of current assets
are required to pay off the bank finance (i.e. short-term borrowings from other banks).
50
YEAR
2008-2009
5.75%
2009-2010
5.76%
2010-2011
7.77%
2011-2012
13.82%
2012-2013
10.22%
13.82%
10.22%
7.77%
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
5.75% 5.76%
Data Interpretation:
The above table shows that bank finance to total current asset ratio increases i.e. from 5.75%
to 13.82% from 2009 to 2012 due to increase in borrowings from other banks and decrease in
2013 i.e. 10.22% due to decrease in borrowings from other banks this year. This ratio
represents how much current assets goes in paying the current liabilities i.e. bank finance.
4 Other CL to total CA
The other current liability to total current asset ratio is defined as how much current assets are
required to pay off their other current liability i.e. short-term borrowings from others
2008-2009
Other CL to total
CA
117.32%
2009-2010
2010-2011
116.00%
109.98%
YEAR
51
106.00%
109.13%
Other CL to total CA
20
13
Other CL to total CA
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
120.00%
117.32%
118.00%
116.00%
116.00%
114.00%
112.00%
109.98%
109.13%
110.00%
108.00%
106.00%
106.00%
104.00%
102.00%
100.00%
Data Interpretation:
The above table shows that ratio of other CL to total CA decreases from 117.32% to 106.00%
from 2009-2012 and then increases to 109.13% in 2013.
4 Efficiency Ratio
Ratios that are typically used to analyze how well a company uses its assets and liabilities
internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of
liabilities, the quantity and usage of equity and the general use of inventory and machinery.
31ST
1
2
3
4
EFFICIENCY
RATIOS
Net sales/TTA
PBT/TTA
Op.Costs/Net sales
Inv.+Recv./Net
sales(Days)
MARC
H
2009
MARC
H
2010
MARC
H
2011
MARC
H
2012
MARC
H
2013
AUD.
0.10
1.61%
18.06%
AUD.
0.09
0.66%
25.82%
AUD
0.09
0.75%
34.46%
AUD
0.09
0.81%
26.04%
AUD
0.09
0.57%
25.22%
2267
2562
2607
2601
2617
1 Net sales/TTA
Asset turnover ratio is the ratio of a company's sales to its assets. It is an efficiency ratio
which tells how successfully the company is using its assets to generate revenue.
Total Asset Turnover Ratio = Net Sales /Average Total Assets
52
YEAR
Net sales/TTA
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
0.10
0.09
0.09
0.09
0.09
Net sales/TTA
0.11
0.1
0.1
0.1
0.09
0.09
0.09
0.09
0.09
Net sales/TTA
0.09
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
0.08
Data Interpretation:
The above table shows that Asset turnover ratio, In 2009 is 0.10 and 0.09 in 2010-2013. It
means it decreases after 2009 year. If a company can generate more sales with fewer assets it
has a higher turnover ratio which tells it is a good company because it is using its assets
efficiently. A lower turnover ratio tells that the company is not using its assets optimal. Bank
has higher turnover ratio in 2009 so its a good position for bank.
2 PBT/TTA
This ratio measures the efficiency of the total assets in generating the net profit.
Formula:
Return on assets= PBT/Total Assets
YEAR
PBT/TTA
2008-2009
1.61%
2009-2010
0.66%
2010-2011
0.75%
2011-2012
0.81%
2012-2013
0.57%
53
PBT/TTA
2.00%
1.61%
1.50%
0.81%
0.66% 0.75%
0.57%
1.00%
PBT/TTA
0.50%
20
120
13
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
0.00%
Data Interpretation:
The above table shows that bank do not efficiently utilize their assets. The efficiency of the
bank decreases in 2010, increase in 2011-2012 and then again decrease in 2013. It means
bank is not able to efficiently use their assets to generate net profit.
3 Op. costs/Net sales
A ratio that shows the efficiency of a company's management by comparing operating
expense to net sales. Calculated as:
Operating expense/net sales
YEAR
OP.costs/Net sales
2008-2009
18.06%
2009-2010
25.82%
2010-2011
34.46%
2011-2012
26.04%
25.22%
2012-2013
OP.costs/Net sales
20
13
OP.costs/Net sales
20
12
-
20
11
20
10
-
20
08
-
20
09
40.00%
34.46%
35.00%
26.04%
25.82%
30.00%
25.22%
25.00% 18.06%
20.00%
15.00%
10.00%
5.00%
0.00%
54
4 Inv.+Recv./Net sales(Days)
This ratio represents Time it takes to collect accounts receivable. It shows the relationship
between unpaid sales and the total sales revenue. It is considered high if it is near to 1.0,
because that means a significant amount of cash is tied up with the slow paying customers.
Formula: Total accounts receivable (outstanding in an accounting period) sales revenue (in
the same period).
Inv.+Recv./Net
sales(Days)
2267
2562
2607
2601
2617
YEAR
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
Inv.+Recv./Net sales(Days)
2700
2607
2562
2600
2617
2601
2500
2400
Inv.+Recv./Net
sales(Days)
2267
2300
2200
2100
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
2000
Data Interpretation:
The above table shows that time taken to collect receivables increases every year. It means
that customers are very slow paying.
55
6.55%
5.90%
6.71%
7.16%
2267
2562
2607
2601
2617
1 Current Ratio
A liquidity ratio that measure a company's ability to pay short-term obligations.
The Current Ratio formula is:
Particular
2009
2010
2011
2012
2013
Current ratio
0.81
0.82
0.85
0.83
0.84
Data Interpretation:
A current ratio between 1.0 and 1.5 is average: less than 1.0 is a risk: over 1.5 is not a risk.
However, this is only one ratio: there are many ratios, some important, most are beyond the
requirement of small company credit sales.
The above table shows that current ratio is less than 1 so that this is a risky position for the
firm.
2 TOL/TNW
TOL/TNW is nothing but debt-equity ratio.
TOL represents Total outside Liability
TNW represents Total Net worth
56
2009
2010
2011
2012
2013
TOL/TNW
19.81
18.96
18.94
19.15
18.69
Data Interpretation:
If this ratio is less than 50% then company using their own money, if it is 50-90% then
company use both external funds and equity and if it is above 90% then company uses
external funds to support business.
3 PAT/Net Sales
The net profit margin ratio is the most commonly used profit margin ratio.
A low profit margin ratio indicates that low amount of earnings, required to pay fixed costs
and profits, are generated from revenues.
A low profit margin ratio indicates that the business is unable to control its production costs.
The profit margin ratio provides clues to the company's pricing, cost structure and production
efficiency.
The profit margin ratio is a good ratio to benchmark against competitors.
Particular
2009
PAT/Net
Sales
2010
15.67%
2011
7.11%
2012
7.95%
2013
8.55%
5.51%
Data Interpretation:
The above table shows that the profit margin ratio decreases every year till 2011 from 2009
and increase in 2012 and again decrease in 2013. A low profit margin ratio indicates that low
amount of earnings, required to pay fixed costs and profits, are generated from revenues.
4 PBDIT/Tot.capital emp.(ROCE)
Average Capital Employed is the average of the equity share capital and long term funds
provided by the owners and the creditors of the firm at the beginning and end of the
accounting period.
Particular
2009
PBDIT/Tot.capital
emp.(ROCE)
8.36%
2010
2011
6.55%
Data Interpretation:
57
5.90%
2012
6.71%
2013
7.16%
5 PBDIT/Intt.
This ratio indicates the proportion of interest paid out of the profit earned. Higher ratio
signifies a lesser amount of profit paid as interest and lower ratio signifies a higher amount of
profit paid as interest.
Particular
PBDIT/Intt.
2009
2010
1.25
2011
1.12
2012
1.16
2013
1.15
1.09
Data Interpretation:
The above table shows that 2010 to 2013 pays higher amount of profit as interest as
compared to 2009.
6 Inv./N.sales+Rec./Gr.sales(Days)
This ratio represents Time it takes to collect accounts receivable. It shows the relationship
between unpaid sales and the total sales revenue. It is considered high if it is near to 1.0,
because that means a significant amount of cash is tied up with the slow paying customers.
Formula: Total accounts receivable (outstanding in an accounting period) sales revenue (in
the same period).
Particular
2009
Inv./N.sales+Rec./Gr.sales(Days)
2010
2267
2562
2011
2607
2012
2601
2013
2617
Data Interpretation:
The above table shows that this ratio increases every year. The higher the ratio, higher the
companys ability to recover the sales revenue.
Analysis of financing working capital
1. Customer Evaluation
Type
Total
Percentage
Proprietorship
8
80%
Partnership
20%
Total
10
100%
58
12
10
10
8
Total
Percentage
4
2
100%
80%
20%
0
Properitorship Partnership
0 0%
company
Total
Data Interpretation
The above table shows that 80% clients are proprietorship, 20% clients are partnership.
Thus we can say that the clients of the bank , consist of smaller concerns which are
proprietorship, partnership in nature.
2.Nature of Business
Type
Manufacturing
Services
Trading
Total
s
Total
1
2
7
10
Percentage
10%
20%
70%
100%
12
10
10
7
8
6
2
20%
70%
Total
100%
Percentage
To
ta
l
M
an
uf
ac
tu
rin
g
1
10%
Se
rv
ic
es
Tr
ad
in
g
59
Data Interpretation
The above table shows that the nature of business carried by the clients. According to this
table, 70% clients are trading concerns, 20% are services and 10% are manufacturing firms.
Thus we can conclude that majority of the concerns are those engaged in trading.
3.Analysis of Working Capital and opinion for working capital financing by SBoP.
Opinion
Total no. of
companies
1
9
10
Reject
Accept
Total
Percentage
10%
90%
100%
12
10
10
8
Total
Percentage
4
2
0
100%
90%
10%
Reject
Accept
Total
Data Interpretation
This table shows that 10% cases are rejected whereas 90% cases are accepted for the working
capital financing. The rejection decision is taken due to the some reasons like in complete
documents, fraudness etc.
60
61
62
11 CONCLUSION
In the present study I have analyzed the working capital management of State Bank of
Patiala. The working capital of the bank is negative. The negative working capital shows that
liquidity position of the bank is not sound. If liquidity position is not sound then net profit of
the bank also decreases and ROCE also decreases. Bank s borrowings are more than total
assets of the bank. Due to this current ratio of the bank also decreases which is not a good
sign.
The positive working capital is a good sign for the bank. To make the working capital
positive, decrease the current liabilities and increase current assets. By doing this the liquidity
position of the bank becomes good, current ratio also increases, profit and ROCE also
increases.
Thus, Bank should adopt better Working Capital Management techniques for the sound
position of the bank.
63
12 REFERENCES
1. Azam and Haider(2011), Impact of Working Capital Management on Firms
Performance: Evidence from Non-Financial Institutions of KSE-30 index,
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN
BUSINESS, VOL 3, NO 5, pp. 481-484
2. Ganesan(2007), AN ANALYSIS OF WORKING CAPITAL MANAGEMENT
EFFICIENCY IN TELECOMMUNICATION EQUIPMENT INDUSTRY, RIVIER
ACADEMIC JOURNAL, VOLUME 3, NUMBER 2,PP. 2
3. http://ajjuhanji.weebly.com/uploads/5/4/9/0/5490518/project_report_on_working_cap
ital_assessment.pdf [viewed 3/06/13]
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5. http://en.wikipedia.org/wiki/Reorder_point [viewed 10s/06/13]
6. http://en.wikipedia.org/wiki/Working_capital [viewed 3/06/13]
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[viewed 3/06/13]
8. http://shodhganga.inflibnet.ac.in/bitstream/10603/723/11/11_chapter%206.pdf
[viewed 5/06/13]
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[viewed 8/06/13]
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11. http://www.blurtit.com/q605450.html [viewed 4/06/13]
12. http://www.investopedia.com/terms/i/inventory-management.asp [viewed 7/06/13]
13. http://www.lokad.com/economic-order-quantity-eoq-definition-and-formula
[viewed 9/06/13]
14. https://www.sbp.co.in/aboutus.asp [viewed 7/07/13]
15. http://www.sbp.co.in/sme/SBP%20EASY%20LOAN%20SCHEME.pdf
8/07/13]
[viewed
65
13 ANNEXURE
66