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BLACK BOOK Embossing Final Word
BLACK BOOK Embossing Final Word
SEMESTER VI (2022-2023)
By
DAAR-UL-REHMAT TRUST'S
A.E. KALSEKAR DEGREE COLLEGE
ARTS, COMMERCE, AND SCIENCE
(AFFILIATED TO UNIVERSITY OF MUMBAI)
KAUSA-MUMBRA DIST: THANE
ACCREDITED WITH B++ GRADE BY NAAC
March 2022-2023
A PROJECT REPORT ON
“A STUDY ON WORKING CAPITAL MANAGEMENT OF PUBLIC SECTOR
BANKS”
SUBMITTED TO
SEMESTER VI (2022-2023)
By
DAAR-UL-REHMAT TRUST'S
A.E. KALSEKAR DEGREE COLLEGE
ARTS, COMMERCE, AND SCIENCE
(AFFILIATED TO UNIVERSITY OF MUMBAI)
KAUSA-MUMBRA DIST: THANE
ACCREDITED WITH B++ GRADE BY NAAC
March 2022-2023
DECLARATION
I the undersigned MR. MOHAMMAD AFFAN MOHAMMAD RAFI SHAIKH here by, declare that the
work embodied in this project work titled “A STUDY ON WORKING CAPITAL MANAGEMENT OF
PUBLIC SECTOR BANKS” forms my own contribution to the research work carried out under the
Guidance of PROF. SANIYA RAFIQUE NACHAN is a result of my own research work and has not been
previously submitted to any other University for any other Degree/ Diploma to this or any other University.
Wherever reference has been made to previous work of others, it has been clearly indicated as such and
included in the bibliography.
I, hereby further declare that all information in this document has been obtained and presented in
accordance with academics’ rules and ethical conduct.
Certified by:
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me the chance to do
this project.
I would like to thank my Principal, Dr. Sajid Hundekar for providing the necessary
facilities required for completion of this project.
I take this opportunity to thank our Coordinator Dr. Zahid Husain Ansari for his
I would also like to express my sincere gratitude towards my project guide PROF. SANIYA
RAFIQUE NACHAN whose guidance and care made the project successful.
I would like to thank the College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and every person who directly and indirectly helped me in
the completion of the project especially my parents and peers who supported me throughout
my project.
SR.NO CONTENT PAGE.NO
- EXECUTIVE SUMMARY -
1 1.1 INTRODUCTION 1
1.2 MEANING AND DEFINATION 2
1.3 CLASSIFICATION OF WORKING CAPITAL 3
1.4 FACTORS INFLUENCING WORKING CAPITAL NEEDS: 4-7
-
1.5TECHNIQUES FOR ASSESSMENT OF WORKING 8-10
CAPITAL REQUIREMENTS: -
1.6 MANAMAGEMENT OF DIFFERENT COMPONENTS OF 11-13
WORKING CAPITAL:
1.7 RATIO ANALYSIS 14-34
1.8 BANK PROFILE
A) BANK OF MAHARASHTRA 35-39
B) STATE BANK OF INDIA
2 2.1 RESEARCH AND METHODOLOGY 48
2.2 OBJECTIVE OF STUDY 48
2.3 SCOPE AND LIMITATION OF STUDY 48-49
3 LITERATURE REVIEW. 50
4 DATA ANALYSIS AND INTERPREATATION
Basic knowledge about working capital and concept related to it Working capital
management refers to the administration of all aspects of current assets, namely cash,
marketable securities, debtors and stock (inventories) and current liabilities. The financial
manager must determine levels and composition of current assets. He must see that right
sources are tapped to finance current assets, and that current liabilities are paid in time. There
are many aspects of working capital management, which make it an important function of the
financial manager:
• Time: working capital management requires much of the financial manager’s time.
• Investment: working capital represents a large portion of the total investments in assets. •
Significance: working capital management has great significance for all firms but it is very
critical for small firms.
• Growth: the need for working capital is directly related to the firm’s growth.
Investment in current assets represents a very significant portion of the total investment in
assets. Working capital management is critical for all firms. A small firm may not have much
investment in fixed assets, but it has to invest to in current assets. Small firms in India face a
severe problem of collecting their debtors.
Banks have their own policies to assess the working capital of the firm to finance them with
the shortage. Bank of Maharashtra and State Bank of India (SBI) adopts certain method for
financing their customer’s working capital requirements. There are certain recommendations
from the committees for the banks to finance the working capital needs of their clients. It
may, thus, be concluded that all precautions should be taken for the effective and efficient
management of working capital. The finance manager should pay regular attention to the
levels of current assets and the financing of current asset
Chapter 1
1.1 Introduction
The concept of working capital was originally to ensure that obligations could be met in case
the firm went into liquidation. Holding sufficient short-term assets guaranteed that the firm
would be able to satisfy short-term creditors in the event of liquidation. Thus, the main
objective was to control business in a way that short-term assets matched short-term
liabilities.16 In practice, a one-year period was used to distinguish between the short and long
terms.
Working capital means the funds which are required to meet the daily transactions of the
business. In other words, it refers to that part of the firm’s capital which is required for
financing current assets such as cash, marketable securities, debtors and inventories. Thus,
working capital is very significant facet of financial management. Every business concern
should have adequate working capital to run its operations smoothly. It should have neither
excess working capital nor inadequate working capital because both of these have adverse
effects on firm’s profitability and liquidity positions. Therefore, business concerns should
maintain adequate working capital.
The basic objective of working capital is to manage the firm’s current assets and current
Liabilities in such a way that that a satisfactory level of working capital is maintained.
Working capital policies have a great effect on a firm’s liquidity and profitability. Therefore,
the working capital should be managed in such a way which will ensure higher profitability
and proper liquidity to the Business concern.
The significance of working capital management is to ensure that the organization maintains
a ‘good fit’ with the changing environment and strives to build the capability to cope with
challenges.
1
1.2 MEANING AND DEFINATION
“Working Capital is the Life-Blood and Controlling Nerve Centre of a business” The
working capital management precisely refers to management of current assets. A firm’s
working capital consists of its investment in current assets, which include short-term
assets such as:
2
WORKING CAPITAL = CURRENT ASSEST – CURRENT
LIABILITIES
Working capital is commonly defined as the difference between current assets and current
liabilities
3
Working Capital and Types of Working Capital
It refers to firm's investment in current assets. Current assets are the assets, which can be
converted into cash with in a financial year. For instance, liquid cash, inventory, account
receivables, marketable securities and short-term investments are a few examples of gross
working capital. The gross working capital points to the need of arranging funds to finance
current assets.
It refers to the difference between current assets and current liabilities. Net working capital
can be positive or negative. A positive net working capital will arise when current assets
exceed current liabilities. And vice-versa for negative net working capital. Net working
capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the
extent to which working capital needs may be financed by permanent sources of funds. Net
working capital also covers the question of judicious mix of long-term and short-term funds
for financing current assets.
4
2) ON THE BASIS OF CONCEPT
of cash, stock and other current assets, this minimum level of current assets, which must be
maintained by any firm all the times, is known as permanent working capital for that firm.
This amount of working capital is constantly and regularly required in the same way as fixed
assets are required. So, it may also be called fixed working capital.
It is the minimum amount of liquid capital required to keep up the circulation of the capital
from cash to inventories to receivables and back again to cash. This would include a
sufficient amount of cash to maintain reasonable quantities of raw materials for processing
into finished goods to ensure quick delivery etc.
It is extra capital required to meet unforeseen contingencies that may arise in future. These
contingencies may crop up on account of rise in prices, business depression, strikes, lock-
outs, fires and unexpected competition. It is needed over and above the regular working
capital requirements.
Any amount over and above the permanent level of working capital is temporary, fluctuating
or variable working capital. The position of the required working capital is needed to meet
fluctuations in demand consequent upon changes in production and sales as a result of
seasonal changes. The permanent level is constant while the temporary working capital is
fluctuating increasing and decreasing in accordance with seasonal demands as shown in the
figure.
5
In the case of an expanding firm, the permanent working capital line may not be horizontal.
This is because the demand for permanent current assets might be increasing (or decreasing)
to support a rising level of activity. In that case line would be rising.
It refers to liquid capital needed during the particular season. According to Gerstenberg,
“Beyond initial and regular working capital, most businesses will require at stated
intervals a large amount of current assets to fill the demands of the seasonal busy
periods”.
During the season, the business enterprises have to push up purchase of raw
materials (sugarcane by sugar mills, wool by Woollen mills) and employ more people to
convert them into finished goods and thus require large amount of working capital.
It is that part of the variable capital which is needed for financing special
operations such as the organization of special campaigns for increasing sales through
advertisement or other sale promotion activities for conducting research experiments or
execution of special orders of Government that will have to be financed by additional
working capital.
6
1.4 FACTORS INFLUENCING WORKING CAPITAL NEEDS: -
1. Nature of Business: - The amount of working capital is basically related to the nature
and volume of the business. In concerns, where the cost of raw materials to be used in the
manufacture of a product is very large in proportion to its total cost of manufacture the
requirements of working capital will be very large.
2. Size of Business Unit: - Size of the business unit is also a determining factor in
estimating the total amount of working capital. The general principle in this regard is that
the bigger the size the larger will be the amount of working capital required as because
the larger business units are required to maintain big inventories for the flow of the
business.
7
3. Seasonal Variations: - Strong seasonal movements create certain special problems of
working capital in controlling the internal financial swings. A great many companies
have to carry on seasonal business such as sugar mills, oil mills or woollen mills etc.
5. Turnover of Circulating Capital: - Turnover means the ratio of annual gross sales to
average working assets. In simple words, it means the speed with which circulating
capital completes its rounds or the number of times the amount invested.
6. Conversion of Current Assets into Cash: - The need of having cash in hand to meet the
day-to-day requirements payment of wages and salaries rent rates has an important
bearing in deciding the adequate amount of working capital.
7. Growth and Expansion of Business: - Growing concerns require more working capital
than those that are static. It is logical to expect larger amount of working capital in a
growing concern to meet its growing needs of funds for its expansion programmers
though it varies with economic condition and corporate practices.
9. Profit Margin and Profit Appropriation: - Some firms enjoy a dominant position in
the market due to quality product or good marketing management or monopoly power in
the market and therefore earn a high profit margin. On the other hand, form facing tough
competition earn low margin of profit.
8
11. Terms of Purchase and Sales: -The working capital requirements of a company
depends on its terms of purchase and sales:
a) If it makes a purchase on credit and sells on a cash basis, then it requires less working
capital.
b) Conversely, if it buys with cash and sells on credit, then it will need more working
capital.
12. Cash Requirements: -A company needs cash for paying salaries, rent, taxes, so on. If
the company's cash needs are high, then it requires more working capital. In other words,
higher the cash requirement, greater will be the working capital required and vice versa.
9
1.5TECHNIQUES FOR ASSESSMENT OF WORKING CAPITAL
REQUIREMENTS: -
10
c. It may be broadly classified into the following
The duration of the operating cycle for the purpose of estimating working capital
requirements is equivalent to the sum of the durations of each of these stages less the credit
period allowed by the suppliers of the firm.
Symbolically the duration of the working capital cycle can be put as follows:
O=R+W+F+D-C
Where
O=Duration of operating cycle;
R=Raw materials and stores storage period;
W=Work-in-progress period;
F=Finished stock storage period;
D=Debtor's collection period;
C=Creditor's payment period.
Each of the components of the operating cycle can be calculated as follows: -
R= Average stock of raw materials and stores
Average raw materials and stores consumptions per day
11
D= Average book debts
Average credit sales per day
After computing the period of one operating cycle, the total number of
operating cycles that can be computed during a year can be computed by dividing 365 days
with number of operating days in a cycle. The total expenditure in the year when year when
divided by the number of operating cycles in a year will give the average amount of the
working capital requirement.
12
1.6 MANAMAGEMENT OF DIFFERENT COMPONENTS OF
WORKING CAPITAL:
MANAGEMENT OF CASH
It is the duty of the finance manager to provide adequate cash to all segments of
the organization. He also has to ensure that no funds are blocked in idle cash since this will
involve cost in terms of interest to the business. A sound cash management scheme,
therefore, maintains the balance between the twin objectives of liquidity and cost.
Meaning
The term “cash” with reference to cash management is used in two senses. In a
narrower sense it includes coins, currency notes, cheques, bank drafts held by a firm with it
and the demand deposits held by it in banks. In a broader sense it also includes “near-cash
assets” such as, marketable securities and time deposits with banks. Such securities or
deposits can immediately be sold or converted into cash if the circumstances require. The
term cash management is generally used for management of both cash and near cash assets
1. Transaction motive
A firm enters into a variety of business transactions resulting in both inflows and
outflows. In order to meet the business obligation in such a situation, it is necessary to
maintain adequate cash balance. Thus, cash balance is kept by the firms with the motive
of meeting routine business payments.
13
2. Precautionary motive
A firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies such as floods, strikes, presentment of bills for payment earlier
than the expected date, unexpected slowing down of collection of accounts receivable,
sharp increase in prices of raw materials, etc. The more is the possibility of such
contingencies more is the cash kept by the firm for meeting them.
3. Speculative motive
A firm also keeps cash balance to take advantage of unexpected opportunities,
typically outside the normal course of the business. Such motive is, therefore, of purely a
speculative nature.
For example, A firm may like to take advantage of an opportunity
of purchasing raw materials at the reduced price on payment of immediate cash or delay
purchase of raw materials in anticipation of decline in prices.
4. Compensation motive
Banks provide certain services to their clients free of charge. They, therefore, usually
require clients to keep a minimum cash balance with them, which help them to earn
interest and thus compensate them for the free services so provided.
Business firms normally do not enter into speculative activities and
therefore, out of the four motives of holding cash balances, the two most important
motives are the compensation motive
OBJECTIVES OF CASH
There are two basic objectives of cash management:
The first basic objective of cash management is to meet the payments Schedule.
In other words, the firm should have sufficient cash to meet the various requirements of the
14
firm at different periods of times. The business has to make payment for purchase of raw
materials, wages, taxes, purchases of plant, etc.
The business activity may come to a grinding halt if the payment schedule is not maintained.
Cash has, therefore, been aptly described as the “oil to lubricate the ever-turning wheels of
the business, without it the process grinds to a stop.”
The second basic objective of cash management is to minimize the amount locked
up as cash balances. In the process of minimizing the cash balances, the finance manager is
confronted with two conflicting aspects. A higher cash balance ensures proper payment with
all its advantages. But this will result in a large balance of cash remaining idle. Low level of
cash balance may result in failure of the firm to meet the payment schedule.
The finance manager should, therefore, try to have an optimum amount of cash
balance keeping the above facts in view.
15
2. Controlling inflows of cash
Having prepared the cash budget, the finance manager should also ensure that there is
no significant deviation between the projected cash inflows and the projected cash
outflows. This requires controlling of both inflows as well as outflows of cash.
Speedier collection of cash can be made possible by adoption of the following
techniques, which have been found to be quite useful and effective.
i. Concentration Banking.
ii. Lock-box system.
16
CASH MANAGEMENT MODELS
Several types of cash management models have been recently designed to help in
determining optimum cash balance. These models are interesting and are beginning to be
used in practice.
1. BAUMOL MODEL: -
This model was suggested by William J Baumol. It is similar to one used
for determination of economic order quantity.
According to this model, optimum cash level is that level of cash where the carrying costs
and transactions costs are the minimum.
CARRYING COSTS
This refers to the cost of holding cash, namely, the interest foregone on marketable
securities. They may also be termed as opportunity cost of keeping cash balance.
TRANSACTION COSTS
This refers to the cost involved in getting the marketable securities converted into
cash. This happens when the firm falls short of cash and to sell the securities resulting in
clerical, brokerage, registration and other costs.
There is an inverse relationship between the two costs. When one increases, the
other decreases, the other decreases. Hence, optimum cash level will be at that point where
these two costs are equal.
The formula for determining optimum cash balance can be put as follows:
C= 2U x P
S
Where
C = Optimum cash balance
U = Annual (or monthly) cash disbursements
P = Fixed costs per transaction
S = Opportunity cost of one rupee p.a. (p.m.)
17
2. MILLER ORR-MODEL
Baumol model is not suitable in those circumstances when the demand for cash
is not steady and cannot be known in advance.
Miller-Orr model helps in determining the optimum level of cash in such
circumstances. It deals with cash management problem under the assumption of
stochastic or random cash flows by laying down control limits for cash balances.
These limits consist of an upper limit (h), lower limit (o) and return point (z). When
cash balance reaches the upper limit, a transfer of cash equal to “h-z” is affected to
marketable securities. When it touches the lower limit, a transfer equal to “z-o” from
marketable securities to cash is made. No transaction between cash to marketable
securities and marketable securities to cash is made during the period when the cash
balance stays between the high and low limits.
The model is illustrated in the form of the following chart:
The above chart shows that when cash balances reach the upper limit, an account equal to “h-z” is
invested in the marketable securities and cash balance comes
down to “z” level. When cash balance touches the lower limit marketable securities of the
value of “z-o” are sold and the cash balance again goes up to ‘z’ level.
The upper limit and lower limit are set on the basis of opportunity cost of holding
cash; degree of likely fluctuation in cash balances and the fixed costs associated with
securities transactions.
18
MANAGEMENT OF INVENTORIES
Inventories are good held for eventual sale by a firm. Inventories are thus one of the
major elements, which help the firm in obtaining the desired level of sales.
Kinds of inventories
(i) Raw materials: These are goods, which have not yet been committed to production in
a manufacturing firm. They may consist of basic raw materials or finished
components.
(ii) Work-in-progress: This includes those materials, which have been committed to
production process but have not yet been completed.
(iii) Finished goods:
These are completed products awaiting sale. They are the final output of
the production process in a manufacturing firm. In case of wholesalers and retailers,
they are generally referred to as merchandise inventory.
The levels of the above three kinds of inventories differ depending upon
the nature of the business.
19
BENEFITS OF HOLDING INVENTORIES
Holding of inventories helps a firm in separating the process of
purchasing, producing and selling. In case a firm does not hold sufficient stock of raw
materials, finished goods, etc., the purchasing would take place only when the firm
receives the order from a customer. It may result in delay in executing the order
because of
difficulties in obtaining/ procuring raw materials, finished goods, etc. thus inventories
provide cushion so that the purchasing, production and sales functions can proceed at
optimum speed.
The variable cost associated with individual orders, e.g., typing, checking,
approving and mailing the order, etc., can be reduced if a firm places a few large orders
than numerous small orders.
20
RISKS AND COST ASSOCIATED WITH INVENTORIES
Holding of inventories exposes the firm to a number of risks and costs. Risk of
holding inventories can be put as follows:
This may due to holding a product for too long a period or improper
storage conditions.
(iii) Obsolescence
a) Materials cost
This includes the cost of purchasing the goods, transportation and handling charges less any
discount allowed by the supplier of the goods.
b) Ordering cost
This includes the variable cost associated with placing an order for the goods. The fewer the
orders, the lower will be the ordering costs for the firm.
c) Carrying cost
This includes the expenses for storing the goods. It comprises storage costs, insurance costs,
spoilage costs, cost of funds tied up in inventories, etc.
21
MANAGEMENT OF INVENTORY
(i) Maintaining a sufficiently large size of inventory for efficient and smooth
production and sales operations;
(ii) Maintaining a minimum investment in inventories to minimize the direct-indirect
costs associated with holding inventories to maximize the profitability.
The objective of inventory management is, therefore, to determine and maintain the
optimum level of investment in inventories, which help in achieving the following
objectives:
22
TECHNIQUES OF INVENTORY MANAGEMENT
Effective inventory requires an effective control over inventories. Inventory control refers
to a system which ensures supply of required quantity and quality of inventories at the
required time and the same time prevent unnecessary investment in inventories.
Formula: Q= 2U x P
S
Where
23
S = Annual (monthly) cost of storage of one unit.
The EOQ model can be extended to production runs to determine the optimum
production quantity.
E= 2U x P
S
Where
24
MANAGEMENT OF ACCOUNTS RECEIVABLES
Accounts receivables (also properly termed as receivables) constitute a
significant portion of the total current assets of the business next after inventories. They are a
direct consequence of “trade credit” which has become an essential marketing tool in modern
business.
When a firm sells goods for cash, payments are received immediately
and, therefore, no receivables are credited. However, when a firm sells goods or services on
credit, the payments are postponed to future dates and receivables are created. Usually, the
credit sales are made on open account, which means that, no, formal acknowledgements of
debt obligations are taken from the buyers. The only documents evidencing the same are a
purchase order, shipping invoice or even a billing statement. The policy of open account sales
facilities business transactions and reduces to a great extent the paper work required in
connection with credit sales.
Meaning of receivables
Receivables are assets accounts representing amounts owed to the firm as a result
of sale of goods / services in the ordinary course of business.
They, therefore, represent the claims of a firm against its customers and are
carried to the “assets side” of the balance sheet under titles such as accounts receivables,
customer receivables or book debts. They are, as stated earlier, the result of extension of
credit facility to then customers a reasonable period of time in which they can pay for the
goods purchased by them.
Purpose of receivables
Accounts receivables are created because of credited sales. Hence the purpose of receivables
is directly connected with the objectives of making credited sales.
25
(ii) Increasing profits:
Increase in sales results in higher profits for the firm not only
because of increase in the volume of sales but also because of the firm charging a
higher margin of profit on credit sales as compared to cash sales.
(iii) Meeting competition:
A firm may have to resort to granting of credit facilities to its
customers because of similar facilities being granted by the competing firms to
avoid the loss of sales from customers who would buy elsewhere if they did not
receive the expected output.
The overall objective of committing funds to accounts
receivables is to generate a large flow of operating revenue and hence profit than
what would be achieved in the absence of no such commitment.
2. Administrative costs:
The firm has to incur additional administrative costs for maintaining accounts receivable
in the form of salaries to the staff kept for maintaining accounting records relating to
customers, cost of conducting investigation regarding potential credit customers to
determine their creditworthiness, etc.
26
3. Collection costs:
The firm has to incur costs for collecting the payments from its credit customers.
Sometimes, additional steps may have to be taken to recover money from defaulting
customers.
4. Defaulting costs:
Sometimes after making all serious efforts to collect money from defaulting customers, the
firm may not be able to recover the over dues because of the inability of the customers.
Such debts are treated as bad debts and have to be written off since they cannot be
realized.
The size of the receivable is determined by a number of factors. Some of the important factors are
as follows:
The term credit policy refers to those decision variables that influence the amount of trade
credit, i.e., the investment in receivables. These variables include the quantity of trade
accounts to be accepted, the length of the credit period to be extended, the cash discount
to be given and any special terms to be offered depending upon particular circumstances
of the firm and the customer. A firm’s credit policy, as a matter
of fact, determines the amount of risk the firm is willing to undertake in its sales activities. If
a firm has a lenient or a relatively liberal credit policy, it will experience a higher level of
receivables as compared to a firm with a more rigid or stringent credit policy.
27
This is because of two reasons:
(i) A lenient credit policy encourages even the financially strong customers to make
delays in payments resulting in increasing the size of the accounts receivables;
(ii) Lenient credit policy will result in greater defaults in payments by financially
weak customers thus resulting in increasing the size of receivables.
i. Credit period:
The term credit period refers to the time duration for which credit is extended to the
customers. It is generally expressed in terms of “net days”. For example, If a firm’s credit
terms are “net 15”, it means the customers are expected to pay within 15 days from the date
of credit sale.
Most firms offer cash discount to their customers for encouraging them to pay their dues
before the expiry of the credit period. The terms of the cash discounts indicate the rate of
discount as well as the period for which the discount has been offered.
28
MANAGEMENT OF ACCOUNT PAYABLE
The finance manager has, therefore, to ensure that the payments after
obtaining the best credit terms possible.
OVERTRADING:
29
loans, excessive drawings, dividend payments, purchase of fixed assets and excessive net
trading losses, etc.
Faulty financial policy can result in shortage of cash and overtrading in several
ways:
(iii) Over-expansion:
In national emergencies like war, natural calamities, etc., a firm may be
required to produce goods on a larger scale. Government may pressurize the
Manufacturers to increase the volume of production without providing for adequate
finances. Such pressure results in over-expansion of the business ignoring the
elementary rules of sound finance.
(iv) Inflation and rising prices: Inflation and rising prices make renewals and
replacements of assets costlier. The wages and material costs also rise. The
manufacturer, therefore, needs more money even to maintain the existing level of
activity.
(v) Excessive taxation: Heavy taxes result in depletion of cash resources at a scale
higher than what is justified. The cash position is further strained on account of
efforts of the company to maintain reasonable dividend rates for their shareholders.
30
CONSEQUENCES OF OVERTRADING
i. This is one of the most dangerous consequences of overtrading. Non-payments of
wages in time create a feeling of uncertainty, insecurity and dissatisfaction in all ranks
of the labour. Non-payments of taxes in time may result in bringing down the
reputation of the company considerably in the business and government circles.
a. Costly purchases:
ii. The company has to pay more for its purchases on account of its inability to have
proper bargaining, bulk buying and selecting proper source of supplying quality
materials.
a. Reduction in sales:
iii. The company may have to suffer in terms of sales because the pressure for cash
requirements may force it to offer liberal cash discounts to debtors for prompt
payments, as well as selling goods at throwaway prices.
a. Difficulties in making payments:
iv. The shortage of cash will force the company to persuade its creditors to extend credit
facilities to it. Worry, anxiety and fear will be the management’s constant
companions.
The situation of overtrading should be remedied at the earliest possible opportunity, i.e., as
soon as its first symptoms are visible. The symptoms can be put as follows:
(a) A higher increase in the number of creditors as compared to debtors. This is because of
firms’ inability to pay its creditors in time and exercising of undue pressure on debtors for
payments;
(b) Increased bank borrowing with corresponding increase in inventories; The cure for
overtrading is easier to prescribe but difficult to follow. The cure is simplereduce the business
or increase finance. Both are difficult.
31
UNDERTRADING:
It is the reverse of overtrading. It means improper and underutilization of funds lying at the
disposal of the undertaking. The basic cause of under trading is, therefore, underutilization of
the firm’s resources. Such underutilization may be due any one or more of the following
causes:
➢ non-availability or shortage of basic facilities necessary for production such as, raw
materials, power, labour, etc.;
➢ General depression in the market resulting in fall in the demand of company’s products;
I. The profits of the firm show a declining trend resulting in a lower return on capital
employed (ROI) in the business.
II. The value of the shares of the company on the stock exchange starts falling on
account of lower profitability;
III. There is loss to the reputation of the firm on account of lower profitability and
creation of impression in the minds of investors that the management is inefficient.
REMEDIES FOR UNDERTRADING
The condition of under trading is set in because of underutilization of the firm’s
resources. The situation can, therefore, be remedied by the management by adopting
a more dynamic and result-oriented approach. The firm may go for diversification
and undertaking new profitable jobs, projects, etc., resulting in a better and efficient
utilization of the firm’s resources
32
ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL
MANAGEMENT:
1. Working capital management requires must of the finance manager time as it represent
a large Position of investment is assets.
2. Working capital management requires much of the finance management time as it
represent larger position of investment in assets.
3. Action should be taken to curtail unnecessary investment in current assets.
4. All precautions should be taken for the effective and efficient management of working
capital.
5. Larger firms have to manage their current assets and current liabilities very carefully
and should see that the work should be done properly in order to achieve
predetermined organization goals.
6. The financial manager should pay special attention to the managements of current
assets on continuing basis.
33
1.7 RATIO ANALYSIS
Meaning of Ratio: -
A ratio is simple arithmetical expression of the relationship of one number to another. It may
be defined as the indicated quotient of two mathematical expressions. According to
Accountant’s Handbook by Wixom, Kell and Bedford, “a ratio is an expression of the
quantitative relationship between two numbers”.
Ratio Analysis: -
Ratio analysis is the process of determining and presenting the relationship of Items and
group of items in the statements. According to Batty J. Management Accounting “Ratio can
assist management in its basic functions of forecasting, planning coordination, control and
communication”. Ratio may be expressed in the following three ways:
It is expressed by the simple division of one number by another. For example, if the
current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the
ratio of ‘Current assets to current liabilities’ will be 2:1.
In this type, it is calculated how many times a figure is, in comparison to another figure.
For example, if a firm’s credit sales during the year are Rs. 200000
3. Percentage: - In this type, the relation between two figures is expressed in hundredth.
For Example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of
profit capital, in Term of percentage, is 200000/1000000*100 = 20%.
34
TYPES OF RATIOS
1) CURRENT RATIO:
Current Ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as working capital ratio, is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial position
or liquidity of a firm.
2) QUICK RATIO:
Quick ratio is a ratio of assets to quick liabilities. Quick assets are assets that can be
converted into cash very quickly without much loss. Quick liabilities one liabilities,
which have to be necessarily paid within one year.
The acid test ratio is a measure of liquidity designed to overcome of firm’s ability to convert
its current assets quickly into cash in order to meet its current liabilities. Thus, it is measure
of quick or acid liquidity.
35
3) CASH RATIO (SUPER QUICK RATIO):
Definition
Total dollar value of cash and marketable securities divided by current liabilities. For
a bank this is the cash held by the bank as a proportion of deposits in the bank. The
cash ratio measures the extent to which a corporation or other entity can quickly
liquidate assets and cover short-term liabilities, and therefore is of interest to short-
term creditors also called liquidity ratio or cash asset ratio.
Working capital of a concern is directly related to sales. The working capital is taken as:
36
The two basic components of the ratio are net credit annual sales and average
trade debtors. The trade debtors for the purpose of this ratio include the amount of
Trade Debtors & Bills Receivables. The average receivables are found by adding the
opening receivables and closing balance of receivables and dividing the total by two.
It should be noted that provision for bad and doubtful debts should not be
deducted since this may give an impression that some number of Receivables has
been collected. But when the information about opening and closing balances of trade
debtors and credit sales is not available, then the debtor’s turnover ratio can be
calculated by dividing the total sales by the balance of debtors (inclusive of bills
receivables) given. And formula can be written as follows.
Debtors Turnover Ratio = Total Sales / Debtors
The ratio is calculated by dividing the cost of goods sold by the amount of average stock at
cost.
Generally, the cost of goods sold may not be known from the published financial statements.
In such circumstances, the inventory turnover ratio may be calculated by dividing net sales by
average inventory at cost. If average inventory at cost is not known then inventory at selling
price may be taken as the denominator and where the opening inventory is also not known the
Closing inventory figure may be taken as the average inventory.
37
(a) Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost
(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost]
(c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price]
(d) [Inventory Turnover Ratio = Net Sales / Inventory]
a. It stages growth and become difficult for the firm to undertaken profitable projects for
no availability of working capital funds.
b. It becomes difficult to implement operating plans and achieve the firms profit target.
c. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments
d. Fixed assets are not efficiently utilized for the lack of working capital funds thus the
firm’s profitability would deteriorate. 5. Paucity of working capital funds renders the
firm unable to avail attractive credit opportunities etc. 6. The firm losses its reputation
when it is not in position to honour its short-term obligation as result the firm faces
tight credit terms
38
1.8 BANK PROFILE
INTRODUCTION
THE BIRTH
Registered on 16th Sept 1935 with an authorized capital of Rs 10.00 lakh and commenced
business on 8th Feb 1936.
THE CHILD
Known as a common man’s bank since inception, its initial helps to small units
have given birth. Too many of today's industrial houses. After nationalization in 1969, the
bank expanded rapidly. It now has 1276 branches (as of 31st March 2004) all over India. The
Bank has the largest network of branches by any public sector bank in the state of
Maharashtra.
THE ADULT
The bank has fine-tuned its services to cater to the needs of the common man and
incorporated the latest technology in banking offering a variety of services.
BANKS PHILOSOPHY
➢ Mobilization of Money
➢ Modernization of Methods and
➢ Motivation of Staff
39
BANK’S AIMS
The bank wishes to cater to all types of needs of the entire family, in the whole country. Its
dream is "One Family, One Bank, Maharashtra Bank".
THE AUTONOMY
The Bank attained autonomous status in 1998. It helps in giving more and more services with
simplified procedures without intervention of Government.
The bank excels in Social Banking, overlooking the profit aspect; it has a good share of
Priority sector lending having 46% of its branches in rural areas.
HISTORY
Bank of Maharashtra (BoM) was registered on September 16, 1935 with a capital of Rs10
Lakh. Today it has the largest network of 1,375 branches than any other public sector banks
in Maharashtra. It has a network of 345 ATMs.
It offers depository services and demat facilities at 131 branches. 38% of its branches are
located in rural areas. BoM has tie up LIC of India and United India Insurance Company.
BUSINESS
PERSONAL BANKING
NRI BANKING
It also offers products and services to NRI clients such as FCNR accounts,
remittance services, etc. The PSU bank also offers services to agricultural and SME sectors.
40
PRODUCT AND SERVICES OF THE BANK
2010 100% CBS of branches achieved Total Business crossed Rs One lakh crore.
Opened 76 branches in the Platinum Year taking the total to 1506.
2011 First SHG Branch opened in Pune. Bank sponsored Maharashtra Garmin Bank
achieved 100% CBS in record 77 days.
2012 Hon’ble Union Finance Minister Shri P Chidambaram inaugurates the Bank’s
1624th branch at Rajgambiram on 25.08.2012. Sept 2012: Bank’s total
business crossed Rs.1, 50,000 cr and reached the level of Rs. 1, 51,320 crores.
2013 Rupay card launch by Sonia Gandhi in Delhi 50 branches opened on 15th
August 2013 total business cross Rs.2.00 lakh crore
2015 26 new branches; Branch network reaches 1889 launched “Maha mobile”-
Mobile Banking application IOS 27001: 2013 certification for its data Centre,
DR Centre, PMO & HO-IT
2021 Bank crossed milestone business figure of Rs. 3.00 lakh crore Total number of
branches crossed 2000 landmark. Digital lending platforms for home, car, and
personal loans. Fintech tie-up for online MSME lending WhatsApp Banking
launched for convenient banking Housing finance branches opened across
major metro cities.
ATM Services, Credit Card, DEMAT Services, Bank assurance, Distribution of Mutual
Funds, Western Union Money Transfer facility, Capital Market Application (ASBA) ASBA
PLUS, Executors and Trustee Services, Maha bill Pay, RTGS/NEFT, MAHAeTRADE (On
line Share Trading Facility), Mahabank Swasthya Yojna, Maha Suraksha Yojana, E Payment
Taxes, New Pension Scheme, Govt Business, Maha–Double Deposit Scheme and Door Step
Banking.
MILESTONES
41
Bank Profile
THE BIRTH
An act was accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955.
THE CHILDHOOD
The bank descends from the Bank of Calcutta, founded in 1806 via the Imperial Bank of
India, making it the oldest commercial bank in the Indian Subcontinent. The Bank of Madras
merged into the other two presidency banks in British India, the Bank of Calcutta and the
Bank of Bombay, to form the Imperial Bank of India, which in turn became the State Bank of
India in 1955.
THE ADULT
The bank has fine-tuned its services to cater to the needs of the common man and
incorporated the latest technology in banking offering a variety of services.
VALUES
“To emerge as leading company offering a comprehension range of banking & finance
products at competitive prices, ensuring high standards customer satisfaction and world class
operating efficiency there by becoming a model banking sector in India in the post
liberalization period”
42
• We will take the easy way out.
• We will do everything we can, to contribute to the work in.
• We will nature pride in India.
BANK PHILOSPHY
Our goal is to be recognized for our commitment to listen to our clients and provide
personalized solutions. We will provide rewarding opportunities for our team members,
respect for diversity and culture, and value to our stakeholders and the communities we serve.
BANKS AIMS
The State Bank of India acts as an agent of the Reserve Bank in all those places
where the latter does not have its branches.
THE AUTONOMY
It is a government-owned corporation with its headquarters in Mumbai, Maharashtra.
BANK SOCIAL ASPECTS
The bank excels in Social Banking, overlooking the profit aspect; it has a good share
of Priority sector lending having 46% of its branches in rural areas.
HISTROY
The roots of State Bank of India lie in the first decade of the 19th century when the
Bank of Calcutta later renamed the Bank of Bengal, was established on 2 June 1806.
The Bank of Bengal was one of three Presidency banks, the other two being the Bank
43
of Bombay (Incorporated on 15 April 1840) and the Bank of Madras (Incorporated on
1 July 1843). All three Presidency banks were incorporated as joint stock companies
and were the result of royal charters. These three banks received the exclusive right to
issue paper currency till 1861 when, with the Paper Currency Act, the right was taken
over by the Government of India. The Presidency banks amalgamated on 27 January
1921, and the re-organized banking entity took as its name Imperial Bank of India.
The Imperial Bank of India remained a joint-stock company but without Government
participation.
Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank
of India, which is India's central bank, acquired a controlling interest in the Imperial
Bank of India. On 1 July 1955, the Imperial Bank of India became the State Bank of
India. In 2008, the Government of India acquired the Reserve Bank of India's stake in
SBI so as to remove any conflict of interest because the RBI is the country's banking
regulatory authority.
BUSINESS
PERSONAL BANKING
SBI offers several products and services in personal banking such as
deposits, savings, personal loans, educational loans, RTGS, demat services, credit
cards, etc.
NRI BANKING
It also offers products and services to NRI clients such as
FCNR accounts, remittance services, etc. The PSU bank also offers services to
agricultural and SME sectors.
PRODUCT AND SERVICES OF THE BANK
Payments/transfer, funds transfer, intra-bank transfer, RTGS/NEFT, Credit Card
(VISA), IMPS Payments, NRI EZ Trade Funds Transfer, E-TDR/ e-STDR under
income Tax savings scheme, SBI Flexi Deposit, E-Annuity Deposit scheme,
ERecurring deposit scheme, smart card, gift card, smart pay-out card, stare bank EZ
pay
card, State bank archiver card, state bank virtual card, VISA travel foreign travel
card, MasterCard foreign travel card, state bank collects, bill payment, NPS
contribution, Power Jyoti free collection (PUL) Loans against share, Apply SBI credit
card
44
2010 -State bank of India, with a debit card base of over 70 million,
comprising SBI Cash plus, SBI gold Debit card and SBI YUVA card,
has added chip and PIN-Based platinum Debit Card to its bouquet on
march 26.
State Bank of India (SBI) has signed a pact with unique identification
authority of India (UIDAI) to work as a registrar for the UID
registration of residents. It has become the first Bank to take up
registration work for the UIDAI projects. As a registrar, SBI will
capture through empanelled enrolment agencies, the biometrics
characters such as finger prints, iris and so on and send the
information to UIDAI.
-India’s largest public sector lender, State Bank of India (SBI) has
entered into an agreement with STARAGRI warehousing LTD
(STARAGRI), India’s leading agree-service & solution provider, for
45
warehousing Receipt Financing and collateral Management Services.
-SBI launched virtual debit cards to check online fraud and promote
ecommerce.
2013 -India’s leading public sector lender the state Bank of India (SBI) is
stepping up efforts to expand its presence in the world’s second
biggest economy with leader set to launch its second branch in China.
2014 -State Bank of India launches new digital online and self-services
banking solution with support from Accenture.
-State Bank of India has splits its face value from Rs 10/- to 1.
2015 -State Bank of India has launched a RUPAY platinum debit card in
association with national payment corporation of India (NPCI).
46
-SBI get deposits of RS. 83,702cr in five days following the
Government’s decision to demonetize the old RS 500 and 1,000 notes,
reported PTI.
2017 -SBI Acquired State Bank of Travancore, State Bank of Patiala, State
Bank of Hyderabad, State Bank of Bikaner & Jaipur, State Bank of
Mysore.
47
CHAPTER 2.
3) The project would also be an effective tool for credit policies of the companies
48
4) This will show different methods of holding inventory and dealing with cash and
receivables.
4) This will show the liquidity position of the company and also how do they maintain a
particular liquidity position.
5) The data used in this study have been given commercial Manager. As per the requirement
and necessary some data are grouped and sub grouped.
➢ Cash Discount:
If a proper cash balance is maintained, the business can avail the advantage of cash
discount by paying cash for the purchase of raw materials and merchandise. It will
result in reducing the cost of production.
49
CHAPTER 3
LITERATURE REVIEW
Working capital management of the company plays an important role in the finance position
of the company of the firm. The 3 components of the working capital management are the
cash management receivables management and inventory management. If the finance
manager maintains these three components of working capital management properly means
the priority can get dramatic improvement in their sales volume and additionally in the
business. The literature reveals that the working capital management shows impact on the
profitability and liquidity of the organization. Particularly in this organization current assets
are higher than the current liabilities. Thus, working capital flows into the organization is
incredibly effective, however the surplus amount invested in the working capital indicates the
unskillfulness of the financial management within the organization.
1. Verma (1989) – study examined the working capital management in Tata iron and steel
company ltd, Indian iron and steel company and steel authority of India ltd. during the period
of 1978-1979 to 1985-1986 there are using various financial and statistical techniques finally
concluded the three-firm use of bank borrowings to finance the working capital requirement.
2. Rakove and N. chintarao (1991)-the study focuses few public enterprises belongs to
manufacturing sector in Karnataka.in that evaluating the working capital efficiency of
business enterprises. The study revalued that investment upon working capital is highest to
compare the total investment as well as working capital planning and control was found to be
disorderly and effectively hence. The urgent need to full focus on working capital
management.
3. Majumdar (1992) - in this research analysed the pattern of financing the corporate
working capital in India. There are 20 companies analysed for that 10 company’s private
sector and another 10 companies are public sector. For the period of 1981 to 1990.this study
used various financial and statistical techniques. Finally concluded that share of working
capital finance is from borrowings and effect of cost on the selection of sources of working
capital is not at all significant finally the result of shows that
50
4. Refuse, Maynard (1996)-the study proposed enhancing working capital by getting
creditors was an effective strategy. The survey depends upon private business and small
business trade association stated that on an average the debtors account was paid more than
50 days beyond the agreed due date. the survey also revealed that the responsibility of such
control rests with the finance managers.
5. Vijay Kumar and A. Venkatachalam (1996) – the study focuses Tamil Nādu Sugar
Corporation for the period of 1985-86 to 1993-94. That indicate the corporation has maintain
moderate level of working capital.in that long term funds have been used for meeting short
term liability and excess liability. This period of study to as affected the profitability.
6. Beaumont and bargeman (1997)-this study said in this researcher in a company give a
good financial decision the working capital is important component. The optimal working
capital management through reached a trade of between profitability and liquidity. the study
aims to provide empirical evidence about the effect of working capital management on the
profitability of mall scale industries.
7. Kazmi Azar and Mohd. Amir khan (1999)-the study define working capital analysis
some used various tools like cash, management of account receivables and management of
inventory. The study only for short term period there may comparison based on the
international financial sector.so the study gets some importance of working capital enjoy full
of profit in competitive industry
51
CHAPTER 4 DATA ANALYSIS AND INTERPRETATION
4.1 PRIMARY DATA
The above asked question is regarding the age groups of the audience, following is the
percentage cut-down
87.8% of the respondents are from the age group of 20 to 30
52
The above question is regarding the bank preference of respondents.
59.1% of the respondents prefer State Bank of India
26.1% of the respondents prefer Bank of Maharashtra
The above question is regarding the methods to determine working capital requirements.
Following is the percentage cut-down of different available options selected.
33.9% respondents selected Over all budgeting method
29.6% respondents selected Cash forecasting
14.8% respondents selected Other
21.7% respondents selected Any mathematical/statistical method
Hence, most of the respondents believe Operating Cycle is the core method
53
The above question is regarding the span of time between calculation of 2 working capital of
Banks.
39.1% respondents selected Monthly
22.6% respondents selected Quarterly
20% respondents selected Yearly
18.3% respondents selected Weekly
Hence, most of the respondents believe Working Capital of Banks is calculated Monthly
The above question is regarding the important role played by working capital to increase one
or more of the following
37.7% respondents believe it increases Both (profitability & Liquidity)
36% respondents believe it increases profitability
26.3% respondents believe it increases Liquidity
Hence, most of the people selected Both ((profitability & Liquidity)
54
The above question is regarding the component used for optimization of working capital.
48.7% respondents selected All of These
23.5% respondents selected Managing Cash
14.8% respondents selected Managing Bills receivable and payable
13% respondents selected Managing Debtors and Creditors
Hence, most of the respondent believe every component in the option is important
55
The above question is regarding the sources of working capital, following is the percentage
cut-down
45.6% people believe All of the above given options are suitable sources of working
capital
28.1% people believe Loans and Advances from commercial bank is best source of
working capital
15.8% people believe Trade Credit is best, to use as a source of working capital
Among the respondents 115 people have witnessed excess working capital situations. They
have used different ways to utilize the surplus properly which are as follows
32.2% people have use temporary investment method
27% people invested in long term securities
25.2% people utilized the amount for repayment of their debts
15.7% people invested in fixed assests
Hence, most people selected temporary investment as best way to utilize excess working
capital
56
Above Question is regarding the help provided by good working capital.
37.7% people think Good Working Capital will help All of the given option
26.3% people think it will help managers to take financial responsibility
21.9% people think it will help to earn interest or will reduce interest payments
14% people think managers to measure performances
The above question is regarding the relationship between efficiency and profitability
48.7% respondent agree with the given statement
51.3% respondent don’t agree with the given statement
Hence, more than half people agree with the above statement regarding relationship
57
The above question is regarding the negative relationship between liquidity and profitability.
Among 115 respondents
67.5% selected Yes
32.5% selected No
Hence, most of them selected YES
58
The above question is regarding reviewing working capital norms.
39.% respondents selected Monthly
33.9% respondents selected Quarterly
27% respondents selected Yearly
Hence, All the options selected are closer to each other
59
The above question is regarding the major forms of financing working capital requirements.
22.6% respondents selected Cash Credit
20.9% respondents selected Current Liability
17.4% respondents selected Working Capital Loan from government
14.8% respondents selected Deferred Credit
12.2% respondents selected Equity long term loans
12.2% respondents selected Any Others
Hence most of the respondents selected Cash Credit
The Above is regarding the condition for good working capital management, i.e Current
assets are able to pay current liabilities. Following is the percantage breakdown regarding yes
or No for the above statement
80% selected Yes
20% selected No
Hence, more than 2/3 of the respondents agree with the given statement
60
The Above is regarding following any of the given ratios as working capital norm
28.7% respondents selected Current asset to fixed asset
27.8% respondents selected Current asset to current liability
23.5% respondents selected Net working Capital to total assets
20% respondents selected Net working capital to Net work
The Above is regarding negative impact on profitablity if large amount of cash is invested in
working capital
68.7% respondents selected Yes
31.3% respondents selected No
Hence, most of the respondents agree with the given statement
61
The above question is regarding shortage of working capital. Following is the percantage
break down of respondents.
63.5% respondents selected Yes
36.5% respondents selected No
Hence most of the respondents had experienced shortage of funds
The above question is connected with Qno.19, asking about the core reason of working
capital shortage. Following is the percentage bifurcation of different options selected.
34.8% respondents selected Price fluctuations as a core reason
20.9% respondents selected Shortfall in receipts from sale proceeds as a core reason
19.1% respondents selected Decrease in credit period for purchase of raw material
15.7% respondents selected Payment withheld by clients
9.6% respondents selected increase in duty on inventory holding
Hence, most of the respondents consider price fluctuation as core reason
62
PARTICULARS 2021
CURRENT ASSETS
1. Cash & bank balance 12,941.73
2. Advances 170,516.81
CURRENT LIABILITIES
1. Deposits 178,244.37
63
STATEMENT OF WORKING CAPITAL MANAGEMENT OF BANK OF
MAHARASHTRA
PARTICULARS 2020
CURRENT ASSETS
1. Cash & bank balance
10,353.68
2. Advances
144,612.5
3. Other assets
12,131.52
CURRENT LIABILITIES
3. Deposits 153,736.43
64
PARTICULARS 2019
CURRENT ASSETS
1. Cash & bank balance
9,154.91
2. Advances
142,363.26
3. Other assets
11,241.84
CURRENT LIABILITIES
1. Deposits 150,799.26
65
YEAR CURRENT CURRENT WORKING NET
ASSETS LIABILITIES CAPITAL WORKING
CAPITAL
INTERPRETATION:
• In the period of 2018-2019 In the period of 2018-2019 the networking capital is negative
because the current assets are low then current liabilities
INTERPRETATION:
• For the periods 2018-2019 there is no increase and decrease
• For the periods 2019-2020 and 2020-201 there is an increase in working capital leads to
major investments in fixed assets as well as capital expenditure
66
1. CALCULATION OF CURRENT RATIO
PRINCIPLE 2019 2020 2021
Current Ratio =
INTERPRETATION:
Variance of current ratio in the year 2018-2019 shows that increase in current assets.
And decrease in current liabilities.
For the year 2019-2020 the current ratio has increase in current assets and decrease in
current liabilities.
For the year of 2020-2021 the current ratio has increase in current assets and decrease
in current liabilities.
The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and 2020-
2021 the current ratio is above 1 hence it indicates that the firm has maintaining
sufficient current assets to meet current liabilities.
67
PRINCIPLE 2019 2020 2021
Quick Ratio =
INTERPRETATION:
• Variance of Quick ratio in the year 2018-2019 shows that is decrease in liquid assets an
increase in liquid liabilities.
• For the year 2019-2020 the Quick ratio has been declined due to increase in liquid
liabilities and decrease in liquid assets.
• And for the year 2020-2021 the quick ratio has been declined due to increase in liquid
liabilities and decrease in liquid assets.
• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and 2020-2021
the Quick ratio is below 1 hence it indicates that the firm has not maintaining sufficient liquid
assets to meet liquid liabilities.
68
PRINCIPLE 2019 2020 2021
Cash Ratio =
INTERPRETATION:
• Variance of cash ratio in the year 2018-2019 shows that decrease in cash and bank balance
and increase in current liabilities when compare to 2019-2020 figure
• For the year 2020-2021 the Cash ratio has been declined due to increase in current liabilities
and decrease in cash and bank balance.
• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and 2020-2021
the cash ratio is below 1 hence it indicates that the firm has not maintaining sufficient cash
and bank balances to meet current liabilities
69
STATEMENT OF WORKING CAPITAL MANAGEMENT OF STATE
BANK OF INDIA [SBI].
PARTICULARS 2021
CURRENT ASSETS
4. Cash & bank balance
343,038.71
5. Advances
3801203
6. Other assets
351768.68
CURRENT LIABILITIES
4,098,574.78
5. Deposits
181,979.66
6. Other liabilities.
4,280,554.44
TOTAL CURRENT LIBILITIES.
70
STATEMENT OF WORKING CAPITAL MANAGEMENT OF STATE
BANK OF INDIA [SBI].
PARTICULARS 2020
CURRENT ASSETS
1. Cash & bank balance
251,097.01
2. Advances
3,372,244.08
3. Other assets
289,613.55
CURRENT LIABILITIES
1. Deposits 3,556,276.38
71
PARTICULARS 2019
CURRENT ASSETS
4. Cash & bank balance
222,490.11
5. Advances
3,152,898,87
6. Other assets
266,327.70
CURRENT LIABILITIES
3. Deposits 3,314,403.13
72
YEAR CURRENT CURRENT WORKING NET
ASSETS LIABILITIES CAPITAL WORKING
CAPITAL
increase decrease
2019 3641716.68 3460000.43 1817017.51 - -
INTERPRETATION:
• In the period of 2018-2019 the networking capital is negative because the current assets are
low then current liabilities
• In the period of 2019-2020 the networking capital decreases due to fall in current assets and
the networking capital decreases by 1623449.35
2020 -1,623,449.35
2021 57,887.79
INTERPRETATION:
• For the periods 2018-2019 and 2019-2020 the net working capital is decreased due to lower
investments in acquisition of fixed assets and making less payments to the payables
• For the periods 2020-2021 increase in working capital leads to major investments in fixed
assets as well as capital expenditure.
73
PRINCIPLE 2019 2020 2021
Current Ratio =
INTERPRETATION:
Variance of current ratio in the year 2018-2019 shows that increase in current
assets. And decrease in current liabilities.
For the year 2019-2020 the current ratio has increase in current assets and
decrease in current liabilities. • For the year of 2020-2021 the current ratio has
increase in current assets and decrease in current liabilities.
The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and
2020-2021 the current ratio is above 1 hence it indicates that the firm has
maintaining sufficient current assets to meet current liabilities.
74
2. CALCULATION OF QUICK RATIO
Quick Ratio =
INTERPRETATION:
Variance of Quick ratio in the year 2018-2019 shows that is decrease in liquid
assets an increase in liquid liabilities.
For the year 2019-2020 the Quick ratio has been declined due to increase in liquid
liabilities and decrease in liquid assets.
And for the year 2020-2021 the quick ratio has been declined due to increase in
liquid liabilities and decrease in liquid assets.
The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and
2020-2021 the Quick ratio is below 1 hence it indicates that the firm has not
maintaining sufficient liquid assets to meet liquid liabilities.
75
3. CALCULATION OF CASH RATIO
Cash Ratio =
INTERPRETATION:
Variance of cash ratio in the year 2018-2019 shows that decrease in cash and bank
balance and increase in current liabilities when compare to 2019-2020 figure
For the year 2020-2021 the Cash ratio has been declined due to increase in current
liabilities and decrease in cash and bank balance.
The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and
2020-2021 the cash ratio is below 1 hence it indicates that the firm has not
maintaining sufficient cash and bank balances to meet current liabilities
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➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2022
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➢ PROFIT AND LOSS STATEMENT 31st March 2022
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➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2021
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➢ PROFIT AND LOSS STATEMENT 31st March 2021
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➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2020
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➢ PROFIT AND LOSS STATEMENT 31st March 2020
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➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2019
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➢ PROFIT AND LOSS STATEMENT 31st March 2019
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➢ BALANCE SHEET of STATE BANK OF INDIA on 31st March 2021
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➢ PROFIT AND LOSS STATEMENT 31st March 2021
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➢ BALANCE SHEET of STATE BANK OF INDIA on 31st March 2021
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➢ PROFIT AND LOSS STATEMENT 31st March 2021
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➢ BALANCE SHEET of STATE BANK OF INDIA on 31st March 2021
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➢ PROFIT AND LOSS STATEMENT 31st March 2021
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5.1 CHAPTER 5
FINDINGS
• In bank of Maharashtra there is a drastic improvement in profit from the year2019 -2020 &
2020-2020 where the profit is almost doubled. And in State Bank of India there is and
decrease in the profit in2019-2020. And in 2020- 2021 there is an improvement in the profit.
This indicates the good financial soundness of the banks.
• The depositors are depositing amount and that amount from deposits are liabilities for the
bank which increase the liabilities of the bank.
• The banks current assets are at present the cash and bank balance and balance with banks &
liabilities are deposits and other bills payables.
• It is obvious that as the net profit i.e., profit before tax is increased the tax paid are also
shown an increasing trend.
• In Bank of Maharashtra and State Bank of India the working capital for every year has
increased.
• This shows that more of cash transactions have taken place and cash if available in excess
is the least productive asset.
• Comparison of increase and decrease of working capital in Bank of Maharashtra has shown
that in 2019 -2020 and 2020-2021 has been increase. Comparison of increase and decrease of
working capital in State Bank of India has shown that there is an decreased in 2019-2020 and
increase in 2020-2021
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5.2 CONCLUSIONS
The basic objective of working capital management is to minimize cost to the
firm whether managing cash, receivables (Sunday debtors) or inventory or miscellaneous
current assets, minimize risk to the company on receivables, ensure just level of inventory to
operate full level of capacity with minimum inventory. It also implies that as far as possible
miscellaneous current assets should be utilized for banks operations. In other words, the
working capital management should aim to optimize production and sales with minimum risk
and cost.
The cash management is very faulty as a result of which cash ratio to total
current assets in bank of Maharashtra. With the above general observations one can draw
number of conclusions about the economic health of the banking industry and various aspects
of working capital.
Cash Management
One of the most important areas in the day-to-day management of the firms deals with the
management of working capital, which is defined as all the short-term assets used in daily
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operations. This consists primarily of cash, marketable securities, accounts receivable and
inventory. The balances in these accounts can be highly volatile as they respond very quickly
to changes in the firm’s operating environment.
In a financial sense, the term cash refers to all money items and sources that are immediately
available to help in paying firms bills. On the balance sheet, cash assets include deposits in
financial institutions and cash equivalent in money market funds or marketable securities. All
highly liquid short-term securities are treated as cash. Most government and corporate
securities are treated as cash because they may be liquidated through a telephone call.
Accounts receivable represent the amount due from customers (book debts) as a result of
selling goods on credit. The three characteristics of receivables the element of risk, economic
value, and futurity explain the basis and the need for efficient management of receivables.
Inventory Management
For purpose of our study, the term inventory comprises raw material, work-in-process,
finished goods and stores and spares. But for the bank the inventory is the service may be in
the form of fixed deposits, current deposit and saving deposits .the management of 3 deposits
are inventory for the bank. .
Inventory management is concerned with the determination of optimal level of investment for
each component of inventory and the inventory as a whole, the efficient use of the
components, and the operation of an effective control and review mechanism.
In inventory decisions management has to take into consideration factors like inventory
carrying costs, ordering costs, costs of stock-outs, the rate of return on the investment, and
the cost of capital.
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BIBLIOGRAPHY
www.statisticslaerd.com
https://www.academia.edu
https://www.slideshare.net
https://bankofmaharashtra.in/annual-reports
https://sbi.co.in/web/corporate-governance/annual-report
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