Project Report On Analysis of Working Capital.

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad
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PROJECT REPORT ON
Analysis of Working Capital in Banking (J&K) SUBMITTED IN PARTIAL FULFILMENT OF Degree of Master of Business Administration (2011-2013) Submitted by: Shameem Ahamad
Under Supervision of: Mr.Syed Nadeem-Ul Haque [Assttnt.Prof. JHU] Department of Management Studies JAMIA HAMDARD UNIVERSITY,NEW DELHI
CONTENTS
Chapter Acknowledgement Declaration Executive Summary Research statement Objective & Methodology Literature Review Chapter-1 Introduction to the Organization i. ii. iii. Overview of the Industry Profile of the Organization Product & Services of J & K Bank
Chapter-2 Conceptual Discussions i. ii. iii. iv. Introduction to Working Capital Method of Working Capital Finance Classification of Working Capital Managing of Working Capital
Chapter-3 Financial of Working Capital of J&K Bank Chapter-4 Analysis of Working Capital of J&K Bank i) ii) iii) Ratio Analysis Funds Flow Analysis Budgeting
Summary, Conclusion, Suggestion and Limitation and References & Bibliography
ACKNOWLEDGEMENT
Concentration, dedication and application are necessary but not sufficient to achieve any goal. These must be awarded by guidance, assistance and co-operation of many people to make it enable. And I am thankful to God that I got them all. I am extremely grateful and remain indebted to my guide Mr. Syde Nadeem -Ul Haque (Assistant Professor in JAMIA HAMDAR UNIVERSITY) for his invaluable guidance and constant support throughout this project. I am thankful to his for valuable suggestions, which have benefited me a lot while developing this project. I am even grateful to the employees of J&K Bank for supporting me towards making this study meaningful. I also express my sincere gratitude to my guide Mrs. MUGDHA GUPTA, Advance Manager in J&K Bank G.K.1 and Branch Head Mr. K.S. SAMYAL (Highly Thankful) for taking keen interest in my training/project work and giving me valuable guidance at every stage.
Finally I acknowledge with deep gratitude, the immense support I received from my parents and my brothers who have encouraged me, have been a source of inspiration and helped me in continuing my effort.
This project was a great source of learning and value addition for me.
STUDENT DECLARATION
The project on Analysis of Working Capital is exclusively done by me at J&K Bank, Greater Kailash-1, Branch, New Delhi and I assure that it is not submitted in any other institute.
Shameem Ahamad MBA (G) Session-2011-2013
Executive Summary
I did my summer training programmed in J&K Bank. My project was based on the procedure of ANALYSIS OF WORKING CAPITAL IN INDIAN BANKING. I got the exposure of banking sector which is a very important sector of the Indian economy. The sector has made a marked improvement in the liberalization period.
The Jammu and Kashmir Bank Limited was incorporated on 1st October, 1938 and commenced its business from 4th July, 1939 at in Kashmir (India). The Bank was the first in the country as a State owned bank. According to the extended Central laws of the state, Jammu & Kashmir Bank was defined as a government. Company as per the provision of Indian companies act 1956.In the year 1971, the Bank received the status of scheduled bank. It was declared as A Class bank by RBI in 1976. Today the bank has more than 500 branches across the country and has recently become a billion Dollar company. The total business turnover at the end of December 2012 was Rs 79000 Crores, an increase of 21.5% over the previous fiscal year. The Net Profit of the bank almost doubled during the said period as it increased from Rs 309 Crores to nearly Rs 600 Crores. Notably, Mustaq Ahmad, who is known as prudent banker having almost 40 years of experience at his back, was appointed chairman and chief executive officer of the bank in October 2010.Soon after assuming the charge; he revisited certain business areas of the bank and renewed the strategy for achieving solid growth in the fundamentals of the bank. My project is concerned with Working Capital in Indian banking. Firstly I would like to give an introduction to working capitalWorking capital is critical for daily management of cash flows to settle bills, wages and other variable cost. The working capital cycle is the period of time which elapses between the point at which cash begins to be expended on the production of a product and the collection of cash from sale of the product to its customers. Working capital requirements can be financed from both internally generated resources (selling current assets) and externally acquired alternatives (borrowing and securing current assets). In the Indian context of banking, a major
part of the working capital requirements are met by bank credit. As critical part of this project report is three cases of working capital has been taken which are comprehensive enough to cover all the aspects of working capital.
Literature Review
The purpose of this chapter is to present a review of literature of relating to the working capital management. Although working capital is an important ingredient in the smooth working of business entities, it has not attracted much attention of scholars. Whatever studies have conducted, those have exercised profound influence on the understanding of working capital management good number of these studies which pioneered in this area have been conducted. The size and composition of working capital can vary between industries (Atrill P, 2006). For some types of business, the investment in working capital can be substantial. For example, a manufacturer will invest heavily in raw materials, work-in-progress and finished good and it will often sell its goods on credit, thereby generating trade debtors. A retailer, on the other hand, will hold only one form of stock (finished goods) and will usually sell goods for cash. Working capital represents a net investment in short-term assets. These assets are continually flowing into and out of a business and are essential for day-to-day operation. Further Atrill P, 2006 believe that the various elements of working capital are interrelated and can be seen as part of a short-term cycle. According to Richard pike and Bill Neale "working capital refers to current assets less current liabilities - hence its alternative name of net current asset. Current assets include cash, marketable securities, debtors, and stocks. Current liabilities are obligations that are expected to be repaid within the year". Long term investment and financing decisions give rise to future cash flows which, when discounted by an appropriate cost of capital, determine the market value of a company. However, such long term decision will only result in the expected benefits for a company if attention is also paid to short term decision regarding current assets and liabilities. Current assets and liabilities, that are assets and liabilities with maturities of less than one year, need to be carefully managed. Net working capital is the term given to the difference between current assets and current liabilities. Watson D and Head A, 2007 argued that "maintaining adequate working capital is not just important in the short term. Adequate liquidity is needed to ensure the survival of the business in the long term". Even a profitable company may fail without adequate cash flow to
meet its liabilities. It can be argue as according to ACCA paper 2.4, 2005, "an excessively conservative approach to working capital management resulting in high-level of cash holdings will harm profits because the opportunity make a return on the assets tied up as cash will have been missed". Therefore, in short, working capital is money used to pay short-term obligations such as creditors, to purchase stock, for paying wages etc - costs that are used to make and sell your product or deliver your service and will ultimately be recovered from sales. Basically working capital represents the funds that are required to operate a business on a day to day basis. The management of working capital is an essential part of a business's short-term planning process. It is necessary for managers to decide how much of each element should be held. Watson D and Head A, 2007 have noted that there are costs associated with holding both too much and too little of each element. Managers must be aware of these costs in order to manage effectively. They must also be aware that there may be other, more profitable uses for the funds of the business. Hence the potential benefits must be weighed against the likely costs in order to achieve the optimum investment. Level/scale of working capital According to Meade, N & Gormley , F. 2006 the working capital needs of a particular business are likely to change over time as a result of change in the commercial environment. This means that working capital decisions are rarely one-off decisions. Managers must try to identify changes in an attempt to ensure the level of investment in working capital is appropriate. In addition to changes in the external environment, changes arising within the business such as changes in production methods (resulting, perhaps, in a need to hold less stock) and changes in the level of risk that managers are prepared to take could alter the required level of investment in working capital. Peter April, 2006 has also tried to explain the level of working capital in total investment. Several factors motivate an understanding of the basics of investment analysis. First, the professional manager - regardless of functional specialty - benefits from a practical knowledge of the important elements of analyzing and selecting capital projects. Second, a
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well-executed analysis often requires estimates best provided by those with functional area expertise and experience. For example, from the view point of working capital, the analyst may call on the marketer to estimate sales levels at various prices and trade discounts which affect debtors (customers) or the production specialist which affect creditors of raw material and up to some extent stocks and accountant to estimate variable costs of production, cash management and receivables. (Steven S et al, 1997) The level of working capital required is also affected by the following factors:
The nature of business, for e.g. manufacturing companies need more inventory than service companies.
Uncertainty in supplier deliveries, uncertainty would mean that extra inventory needs to be carried in order to cover fluctuations.
The overall level of activity of the business, as output increases, receivables, inventory, etc. all tends to increase.
The company's credit policy, the tighter the company's policy the lower the level of receivables.
The length of the operating cycle. The longer it takes to convert material into finished goods into cash the greater the investment in working capital.
The credit policy of suppliers. The less credit the company is allowed to take, the lower the level of payables and the higher the net investment in working capital (ACCA- F9, 2007/08). The investment of a business in working capital can be expressed in terms of time taken to move from cash ready for investment back to cash again. As Alan Pizzey, 1998 stated in his book that the working capital cycle starts with an order to supplier of raw material, which is delivered and waits in stock until requisitioned for use in the factory. This cost is combined with labour and overheads as work in progress during the production process, and then becomes finished goods stock awaiting sale. Once, sold the stock is transformed into a debtor and when the credit period has elapsed the debtor is changed into cash. Somewhere in this cycle, the supplier (a trade creditor) is paid for the material. A good manager will be able to reduce the time lag by increasing the velocity of circulation in the cycle, and making the funds invested work harder. The cash budget is a useful tool in this exercise.
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The consequences of insufficient working capital: The disadvantages suffered by a business which does not have sufficient working capital underline its importance. According to White, Get all 2001 operations may be prejudiced and growth stunted if there is not enough investment to finance stock and debtors. The major disadvantages are as follows:
Inability to adapt or respond to opportunities - without cash in the bank or unused overdraft facilities a manager cannot buy a cheap line of raw material as a special offer, or reorganize production to include a new product.
Trade discounts - all purchasing officers know that a large order can be used to negotiate a low price, but once the order is placed, the customer must take delivery and make payment. If there is not enough working capital to finance large stocks, large orders cannot be placed at favorable prices.
Cash discounts - suppliers may offer a cash discount for early payment. If a company has insufficient working capital it will not be able to take advantage of it.
Overtrading: A company which tries to finance a certain volume of trade with insufficient working capital is said to be overtrading. Soufani, K. 2000 explains that expansion means more funds tied up in stock and debtors, and without capital available in the business this can only be accomplished by taking longer to pay trade creditors or by increasing the overdraft up to and even beyond the agreed limit. The working capital ratio may fall below 1:1, and the acid test ratio and debt to equity ratio will show signs of financial distress. If the trade creditors and/or the bank and/or the Inland Revenue withdraw their support, liquidation may be the result. Good working capital management means that the business will always have a reserve of liquid resources for use if the payment situation deteriorates. An overtrading business often needs only the slightest upset to its expected cash receipts to overbalance the fragile structure
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of other people's money which it is using to finance its operation. Major parameters of working capital: Inventory: Another name of stocks is inventory. Inventory, or stock, may be classified into the following:

Pre-production inventory of raw materials and bought in parts. In process inventory - work in progress at various stages of the production process. Finished goods inventory - manufactured goods ready for sale.
In most cases, finished goods will convert most rapidly into cash, but where customer tastes change rapidly, such as in the fashion trade, this stock can also be the most risky. Inventory is the least liquid of current assets. It is therefore vital to manage it in such a way that it can be converted from raw material to work in progress and finished goods as quickly as possible. (Pike R, Neale B, 1999). The form of inventory level varies from one firm to another. For a construction firm it may consist of bricks, timber and unsold houses, while for a retailer it is goods bought in for sale but as yet unsold. The level of inventory held is determined by factors such as the predictability of sales and production (more instability may call for more safety stocks), the length of time it takes to produce and the nature of the product. On the last point, note that a dairy company is likely to have low stock levels relative to sales because of the danger of deterioration, whereas a jeweler will have large inventories to offer greater choice to the customer. Manufacturers with lengthy production cycles such as shipbuilders will have proportionately higher inventories than, say, a fast food chain (Arnold G, 2005). Further, significant amounts of working capital can be invested in stocks of raw material, work in progress and finished goods. Stocks of raw material and work in progress can act as a buffer between different stages of the production process, ensuring its smooth operation. Stocks of finished goods allow the sales department to satisfy customer demand without unreasonable delay and potential loss of sales. These benefits of holding stock must be weighed against any costs incurred, however, if optimal stock levels are to be determined.
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Investments which may be incurred in holding stocks include:

holding costs, such as insurance, rent and utility charges replacement costs, including the cost of obsolete stock the cost of the stock itself The opportunity cost of cash tied up in stock. (Watson D and Head A, 2007)
Firms have the difficult task of balancing the costs of holding inventories against the costs which arise from having low inventory levels. The cost of holding inventories include the lost interest on the money tied up in stocks as well as additional storage cost (for e.g. rent, secure and temperature-controlled warehouses), insurance cost and the risk of obsolescence. The cost of holding low stocks levels fall into two categories.
A low stock level calls for frequent recording. Each order involves administration cost and the physical handling of the goods.
In a world on uncertainty there is a risk of stock out when production is halted for want of raw material or WIP and /or sales are lost because of inadequate stocks of finished goods. Stock out cost can be considerable; in the short term sales and profits fall, and in the long run customer goodwill is lost. (Arnold G, 2005).
Furthermore, other costs, such as lost sales or the opportunity cost of tying up funds will not be directly recorded by the accounting system. This lack of information concerning the cost of holding particular levels of stock makes the management of stock more difficult. (Atrill P, 2006) Stock is carried for two reasons: 1. Business is uncertain: consumer demand and production requirements are difficult to forecast, and suppliers may not always be reliable in meeting delivery requirements. The cost of being out of stock, in terms of lost sales, profits and goodwill, is generally very high. 2. Economics in ordering: each business needs to determine its economic order quantity for its main stock items.
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Inventory control is an important topic for both production management and financial management, which should work closely to establish an inventory policy that meets customer requirement while operating at optimum stock levels. Overstocking results in the following:

An unduly high level of working capital investment. Additional storage space requirements and greater handling and insurance costs. Possible deterioration and increased obsolescence risk.
Under stocking reduces the working capital required, but can lead to out of stock situation with orders unfulfilled, idle machines and underemployed workers. In the past, carrying higher than necessary stocks has been a way of compensation for inefficient production and distribution or poor forecasting. But in today's highly competitive global markets, with Japanese and other overseas businesses operating efficient production schedules and minimal stock levels, European companies have been forced to examine their inventory management processed more closely (Pike R, Neale B, 1999). P.L. Primrose, 1992 noted that "despite the almost universal belief to the contrary, inventory reduction should not be a major objective for investing in advanced manufacturing technology because the financial benefits from it can be relatively small compared with other benefits. High inventory levels are only a symptom of other problems;" if these problems are not first identified and solved, inventory reductions can be counterproductive. Further, according to Martin Smith and Chris Poole, 2007 "it may seem obvious that if you do not have products on the shelf, then business will be lost. What is not obvious, however, is the extent to which this can destroy value for retailers and manufacturers. For the manufacturer, 46 per cent of the time the shopper will either substitute for another brand or not buy at all, according to recent research for ECR (Efficient Consumer Response) Europe. For the retailer, the biggest risks are that products are not bought at all, or that the shopper will buy the product from a competing store. When they have no stock, this happens 30 per cent of the time."
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Research Statement
How management of Working Capital does take place in corporate banking?
Objective of the study

The study will try to achieve the following aims: To understand meaning of working capital in terms of RBI guidelines. To study different ways of classification of working capital. To study how working capital affects overall profitability of banks. To study RBI guidelines on sale or purchase of working capital. To analyze current trend of working capital in banking context. To understand finance to the working capital.
Methodology
The study includes descriptive research and based on the secondary data.
Sources of data
Entire information is collected through a secondary source i.e. through a data, which have been gathered for some other purposes. Some of the sources of secondary data are;
Books on working capital and handbook on banking information etc. Information collected from various sites on internet. Articles from Magazines like Business World, Financial Express etc. Information collected from J&K Bank staff at G.K.1 New Delhi. Information collected from investerWords.com.
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CHAPTER-1 INTRODUCTION TO THE ORGANISATION
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1.1 OVERVIEW OF THE INDUSTRY AS A WHOLE Banking in India

The economic reforms undertaken in the last 15 years have brought about a considerable improvement in the health of banks and financial institutions in India. The banking sector is a very important sector of the Indian economy. The sector has made marked improvements in the liberalization period. There has been extraordinary progress in the financial health of the commercial banks with respect to capital adequacy, profitability assets quality and risk management. Deregulation has opened new doors for banks to increase revenues by entering into to investment banking, insurance, credit cards, depository services, mortgage, securitization etc. Currently, banking in India is generally fairly mature in terms of supply, product range and reach even through reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheet relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the bank of Indian Rupee is to manage volatility but without any fixed exchange rate and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time especially in its services sector the demand for banking services are expected to be strong. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.
Currently, India has 96 scheduled commercial banks (SCBs) 31 private sector banks and 27 are public sector banks and 38 foreign banks. They have a combined network of over 53000 branches and 49000 ATMs. According to a report by ICRA Limited, a rating agency, the
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public sector banks hold over 75 percent of total assets of the banking industry with the private and foreign banks holding 18.2% and 6.5% is just say.
Liberalization and globalization have created a more challenging environment in banking sector as well as the other segments of the financial sector such as mutual funds, non-banking finance companies, post offices, capital market, venture capitalist etc. Now the challenge faced by the sector would be gaining profitability, reinforcing technology, maintaining global standards, corporate governance, risk management and the most important of all, to establish customer intimacy.
1.2 PROFILE OF THE ORGANISATION Brief History of the Bank

Jammu and Kashmir Bank Limited was incorporated on 1st October, 1938 and commenced its business from 4th July 1939 at in Kashmir (India). The bank was the first in the country as a state owned bank.
In my opinion the bank should be an organ of public interest and not an instrument for the government or the shareholders to achieve their own end. (Maharaja Hari Singh)
According to the extended central laws of the state, Jammu and Kashmir Bank was defined as a government company as per the provision of Indian companies act 1956. In the year 1971, the bank received the status of scheduled bank. It was declared as A class bank by RBI in 1976.
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Today the bank has more than 500 branches across the country and has recently become a billion dollar company.
o Incorporated in 1938 as a limited company. o Governed by the companies act and banking regulation bank of India. o Regulated by the Reserve Bank of India and SEBI. o Listed on the NSE and BSE. o 53 percent owned by the government of J&K.
Unique characteristics of the bank

o Private sector bank deposit government holding 53 percent of equity. o Sole banker and lender of last resort to the government of J&K. o Plan and non-plan fund, taxes and non-taxes revenues routed through the bank. o Salaries of government officials disbursed by the Bank.
Mission Statement:
Our mission is two- fold: To provide the people of J&K international quality financial service and solutions and to be a super specialist bank in the rest of the country. The two together will makes the most profitable bank in the country.
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Vision Statement:
To catalyze economic transformation and capitalize on growth.
Board of Directors of J&K Bank

Mushtaq Ahmad (Chairman and CEO)
Past Performance
o The bank has delivered a strong performance in 2011. o The bank strategy of consolidation re-engineering, re-pricing and re-organization has resulted in productive and efficient growth, robust balance sheet top notch assets book and substantial provision. o The bank aggregate business crossed yet another psychological mark and stood Rs70869.57 crores at the end of financial year 2010-2011. o The bank total business increased by Rs 10575.18 crores from the previous figure of 60294.39 Crores, registering a growth of 17.54%. o The bank continued its prudent approach in expanding quality credit assets in line with its policy on credit risk management. Its net advance increased by Rs 3136.41 Crores. o The Banks performance in the recovery of NPAs during the year continued to be good. o Investment portfolio increased by Rs 5,739.52 Crores from 13956.25 and 19695.77 as on 2011. o The Bank has earned an income of Rs 26.14 crores from the Insurance business. In life insurance mobilized a business of Rs 103.02 crores and in non-life segment Rs 59.36 crores was mobilized during the year.
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o The gross profit for the financial year 2010-11 stood at Rs 1149.49 crores. o The highest ever net profit of Rs 615.2 crores.
Area Metro Urban Semi-Urban Rural Total
Branches 39 168 118 223 548
Future Planning and Turnover

To build a global brand we need to do two things- go global physically and second more importantly, have a unique business model product offering and services standards, all of which are globally recognized. We have taken initial step to achieve the first. As of today, after the state government. Our second largest shareholders are foreign institutional investors with a combined stake of almost 36%.
The total turnover increased 60294.39 crores to 70869.57 is 10575.18 crores. This growth is registered of 17.54%.
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1.3 Products and Services

Financial Products o Personal finance o Specialized finance o Agriculture and Allied Finances o Business Loan o Micro finance.
Deposit Products o Savings Banks Account o Current Deposit o Term Deposit. o Depositors Pension
Technology based financial service o Anywhere Banking o Internet Banking o ATM Services o Debit and Credit Cards o Merchant acquiring
Depository services o Dematerializations o Stock broking Services through investment o Depository Participant of NSDL and CDSL.
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Meaning and Conceptual Frame

Working capital means the total amount of circulating funds and current assets. It requires a specified minimum level of current assets namely raw materials, stock in progress and finished goods and receivables apart from reasonable cash in hand and certain other current assets. Working capital is also known as MPBF(Maximum Permissible Bank Finance).
Particulars Working capital
Classification Current assets such as cash,stocks,book-debts,other current assets
Net WC
Current assets current liabilities or long term sources long term uses
Working capital gap
CA CL
WC limits
Bank facilities needed to purchase current assets. The facilities are cash credit, overdraft, bills purchase etc.
The working capital comprises; Amount of raw material of various kinds in store or in transportation. Amount of consumable stores and other material required for production process. Value of stock in process. Value of all finished goods including in transit.
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Amount of receivables or sundry debtors.
Mean to Finance to working capital are;

Credit available for suppliers on purchases. Surplus of long term funds over the long term uses.[i.e.Net Working Capital] Short term bank borrowing. Other current liabilities.
Concept of Net Working Capital

Generally net working capital refers current assets minus current liabilities. Working capital measures how much in liquid assets a company has available to build its business. The number can be positive or negative, depending on how much debt the company in carrying. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies with negative working capital may lack the funds necessary for growth. Net working capital also called liquid surplus, net current assets or current capital.
Meaning of Net Working Capital

Working capital refers to the funds required for financing the minimum total current assets. Liquid surplus or net working capital refers to the surplus long term sources over long term uses. It is desirable, that the net working capital should be positive which would signify liquidity and availability of adequate working funds. If in a particular case, the net working capital is negative, the difference will be called as net working capital deficit.
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Constituents of Current assets

1) Cash at bank 2) Cash in hand 3) Bills receivables 4) Sundry debtors 5) Inventories of stock as; a) Raw material b) Work in progress c) Stores and spares d) Finished goods 6) Temporary investment of surplus fund 7) Prepaid expenses 8) Accrued income 9) Marketable securities
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Constituents of current liabilities

1) Accrued or outstanding expenses 2) Short term loan and advances 3) Dividends payable 4) Bank overdraft 5) Provision and Taxation 6) Bills payables 7) Sundry credit
The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits. The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. 2. It enables the enterprise to provide correct amount of working capital at correct time. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. 3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons:
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It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities.
It indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds of working capital.
Classification of working capital

Working capital may be classified in two ways; 1) 2) On the basis of concept On the basis of time
On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as: Permanent or fixed working capital Temporary or variable working capital Seasonal working capital Adhoc working capital Working capital term loan Working capital gap
Permanent/fixed working capital

Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, workin-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the
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requirements of working capital also increases due to increase in current assets.
Temporary/ Variable working capital

Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.
Seasonal working capital

Seasonal working capital requirement for additional current assets due to seasonal nature of the industry say rice sheller, fan manufacturing etc.
Adhoc working capital

Adhoc working capital means requirement of additional current assets for meeting the needs arising out of special circumstances such as execution of special orders.
Working capital term loan

Working capital term loan is not used to buy long term assets or investment. Instead it is used to clear up accounts payable, wages etc. A loan whose purpose is to finance everyday operations of a company.
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Managing of Working Capital

1) Working capital cycle 2) Sources of working capital 3) Handling of receivables (debtors) 4) Managing of payable 5) Inventory management 6) Key working capital ratio 7) Introducing plan ware 8) Copyright and legal stuff (creditors)
Working capital cycle

Working capital is the cash needed to pay for the day to day operations of the business. In other words, working capital is needed by the business to: Pay suppliers and other creditors Pay employees Pay for stock Allow for customer who is allowed to buy now, but pay later so called trade debtors. Cash in
Goods sold
Payment to suppliers /employers
Goods purchased
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2)
Sources of working capital
Net Income Long term loans Sale of capital assets Injection of funds by stockholders Customers Trade vendors Commercial banks Short term loans Short term assets(Inventories, loans and advances, drs ,investment,cash and bank balance) Short term liabilities(Creditors, Trade advances, borrowings and provisions)
These sources are main sources of working capital. All these sources play a very important role in collecting working capital. Without these sources any business cannot stand in the world. Therefore we can say that commencing of any business is totally depending on working capital management. Working capital is the life blood of most small businesses. Access to working capital provides the ability to support and grow a healthy cash flow for your business. So lets take a look at just a few easy sources of working capital. First did you know that your credit card receipts can be a source of working capital? There are many small business lenders that will know now purchase amount of your future credit card receipts and in return you get working capital. If your business has account receivables with other businesses that too can be a quick and easy source of working capital. With this source of working capital your business sells the outstanding receivables to the lender and the lender gives your business cash for working capital now. Does your business own equipment? Owned equipment can be turned in to working capital through a small business loan called a sale and leaseback. Your business sells your equipment to the lender for cash you then lease the equipment back from the
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lender for a monthly payment ,and at the end of lease your owns the equipment again.
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Method of Working Capital

There are four methods of financing working capital gap. In order to explain the methods we took an example of projected financial results of ABC traders this is as follows:
(Resin Lacks)
Liabilities
Capital
Amount
4.00
Assets
Fixed Assets
Amount
1.00
Unsecured Loans
2.00
Cash in hand
1.25
Sundry Creditors
3.25
Stocks
10.00
C/C Limit
10.00
Sundry Debtors
7.00
Total
19.25
Total
19.25
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Sales
: Rs 60 Laces
Purchases
: Rs 59.15 Lacs
Cost of Sales
:Rs 60 Lacs
Gross Profit
: Rs 4 Lacs
Net Profit
: Rs 1.5 Lacs
CA
: Rs 18.25 Lacs
(Assets which are realizable within one year)
CL
: Rs 13.25 Lacs
(Liabilities which are payable within one year)
NWC = CA-CL =5.00 Lacs
Current Ratio = CA/CL =18.25/13.25 = 1.37:1
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Holding Periods:
Stocks = stock*365/Cost of Sales = 65 Days
Debtors
= Debtors*365/Sales = 43 Days
Creditors
= Creditors*365/Purchases = 20 Days
A.
Traditional Method
Particulars
Stocks
Holding Periods
Amount
Margin%
Margin Amt
MPBF
65 Sundry Debtors 43
10
25
2.5
7.5
50
3.5
3.5
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Working Expenses 0.25 Total 17.25 Less Creditors 20 Amount Sectioned 7075 3025 6.25 11 100 0.25 Nil
Deficit in NWC = Rs 2.25 Lacs
B. First Method of Finance
S.No. A
Particulars
Current Assets Stock
Holding Period
Amount
65 S. Debtors 43 Others
10 7 0.25
Total 17.25
Current Liabilities S. Creditors 20 3.25
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Others Nil Total 3.25 Nil
C. D. E. F.
Working Capital Gap Stipulated margin
A-B 14.00 @ 25% in SSI and 40 % in trading units of A 4.31
Projected NWC 4.00 MPBF C-(D or E whichever is higher) 9.69
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C. Second Method of Finance

S. No. A. Particulars
Current Assets Stock in Trade 65 Days S. Debtors 43 Days Others 0.25 Total 17.25 7.00 10.00
Holding Period
Amount
B.
Current Liabilities S. Creditors 20 days Others Nil Total 3.25 3.25
C. D. E. F.
Working Capital Gap (A-B) 14.00 Stipulated Margin @ 25% Projected NWC 4.00 MPBF C-(D or E whichever is higher) 10.00 25% of WCG 3.50
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D. Turnover Method
S. No. A.
Accepted sales 60.00 Lacs
Particulars
Amount
B.
Working Capital Requirement @ 25% of A 15.00 Lacs
C.
Margin @ 5% of A 3.00 Lacs
D.
Projected NWC 4.00 Lacs
E.
Permissible Limit = B-( C or D whichever is higher) 11.00 Lacs
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CHAPTER- 3 CASES OF WORKING CAPITAL OF J&K
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Balance Sheet of Jammu and Kashmir Bank ------------------- in Rs. Cr. -------------------
Mar '11 Mar '10
Mar '09
Mar '08
Mar '07
12 mths 12 mths
12 mths
12 mths
12 mths
Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities 48.49 48.49 0.00 0.00 48.49 48.49 0.00 0.00 48.49 48.49 0.00 0.00 2,574.37 0.00 2,622.86 33,004.10 996.63 34,000.73 1,069.67 37,693.26 Mar '09 48.49 48.49 28.10 0.00 2,232.34 0.00 2,308.93 28,593.26 751.79 29,345.05 1,102.02 32,756.00 Mar '08 48.49 48.49 0.00 0.00
3,430.19 2,961.97 0.00 0.00
1,960.24 0.00
3,478.68 3,010.46 44,675.9437,237.16 1,104.65 1,100.21 45,780.5938,337.37 1,248.88 1,198.97 50,508.1542,546.80 Mar '11 Mar '10
2,008.73
25,194.2 620.19
25,814.4 823.31
28,646.5 Mar '07
12 mths 12 mths
12 mths
12 mths
12 mths
Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances 2,974.96 2,744.73 573.85 1,869.51 2,302.95 2,971.81 20,930.41 3,219.97 1,217.27 18,882.61
1,854.77
1,758.99
26,193.64 23,057.23
17,079.9
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Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets
19,695.77 13,956.25 788.10 396.47 391.63 2.13 676.17 561.35 358.54 202.81 1.32 714.95
10,736.33 517.90 321.61 196.29 3.13 552.34 37,693.26
8,757.66 471.32 289.10 182.22 9.79 486.47 32,755.99
7,392.19 433.63 256.94 176.69 6.76 377.19
50,508.15 42,546.80
28,646.5
Contingent Liabilities Bills for collection Book Value (Rs)
18,189.26 8,291.77 8,790.08 717.58 3,799.74 621.00
6,578.22 3,502.74 541.04
7,959.21 3,933.76 470.49
1,844.39
1,996.48 414.36
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Financials of J&K Bank (B/S as on 2010-011)

PARTICULARS Capital and liabilities Capital Reserve and Surplus Deposit Borrowings Other liabilities and provision TOTAL ASSETS Cash and balance with RBI Balance with Banks Investment Advances Fixed Assets Other assets 29,749,638 5,738,477 196,957,679 261,936,350 3,937,702 6,761,688 505,081,534 TOTAL Contingent liabilities 255,176,641 114,992,485 27,447,263 18,695,109 139,562,473 230,572,250 2,041,332 7,149,521 425,467,948 484,922 34,301,946 446,759,350 11,046,502 12,488,814 505,081,534 484,922 29,619,706 372,371,604 11,002,064 11,989,652 425,467,948 AMOUNT(2010) AMOUNT(2011)
BALANCE SHEET AS ON 31ST March 2009-2010
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PARTICULARS
AMOUNT AS ON 31ST MARCH 2009 (000omitted)
AMOUNT AS ON 31ST MARCH 2010 (000omitted)
Capital and Current liabilities Capital Equity share capital Reserve and surplus Deposit Borrowings Other liabilities and provisions TOTAL Assets Cash and Balance with RBI Balance with Banks Investment Advances Fixed Assets Other Assets TOTAL Contingent liabilities Bills for Collection \ 23,029,505 27,718,115 107,363,347 209,304,113 1,994,143 5,523,395 376,932,318 91,409,177 9,490,429 32,199,667 12,172,743 87,576,631 188,826,118 1,920,015 4,864,697 327,559,871 112,644,286 6,285,380 484,922 25,743,684 330,041,036 9,966,265 10,696,711 376,932,618 484,922 280,950 22,323,351 285,932,630 7.517,861 11,020,157 327,559,871
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CHAPTER- 4 ANALYSIS OF WORKING CAPITAL
49
50
ANALYSIS OF WORKING CAPITAL

The analysis of working capital can be conducted through a number of devices, such as: 1. Ratio analysis. 2. Fund flow analysis. 3. Budgeting. 1. RATIO ANALYSIS A ratio is a simple arithmetical expression one number to another.
The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios can be calculated for these purposes: 1. Current ratio. 2. Quick ratio 3. Gross Profit Ratio 4. Fixed Assets turnover ratio 5. Receivables turnover. 6. Payable turnover ratio. 7. Working capital turnover ratio. 8. Net Profit Ratio 9. Ratio of current liabilities to tangible net worth. 10. Total assets turnover ratio. 2. FUND FLOW ANALYSIS Fund flow analysis is a technical device designated to the
study the source from which additional funds were derived and the use to which these sources were put. The funds flow analysis consists of a. Preparing schedule of changes of working capital b. Statement of sources and application of funds.
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It is an effective management tool to study the changes in financial position (working capital) business enterprise between beginning and ending of the financial dates.
3. WORKING CAPITAL BUDGETING
A budget is a financial and / or quantitative
expression of business plans and polices to be pursued in the future period time. Working capital budget as a part of the total budge ting process of a business is prepared estimating future long term and short term working capital needs and sources to finance them, and then comparing the budgeted figures with actual performance for calculating the variances, if any, so that corrective actions may be taken in future. He objective working capital budget is to ensure availability of funds as and needed, and to ensure effective utilization of these resources. The successful implementation of working capital budget involves the preparing of separate budget for each element of working capital, such as, cash, inventories and receivables etc.
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Calculation of Ratios
1. Current Ratio: - Current ratio is calculated by current assets upon current liabilities. It measures short term paying ability of the firm. Year Current Assets Current Liabilities Current Ratio 2009 37371.65 36623.6 1.02 2010 42343.9 41347.8 1.02 2011 50116.52 49259.3 1.01
Significance: - An ideal current ratio is 2:1. This ratio is used for short term paying ability of the firm. Approximate of 1 of current ratio the creditors will be able to get their payment in full. 2. Quick Ratio: - This ratio is also known as liquid ratio. It measures short term paying ability by measuring short term liquidity.
Year Liquid assets Current liabilities Liquid Ratio .
2009 37371.65 36623.6 1.024
2010 42343.9 41347.8 1.02
2011 50116.52 49259.3 1.01
Significance: - This ratio is able to payment for its creditors. This ideal figure is 1.
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3. Gross profit ratio: - Gross profit ratio indicates the efficiency of the production or operation of trading. It expresses relation between gross profit and net sales. G.P. Ratio= Gross profit/net sales* 100 Year Gross profit Net Sales G.P.R. 2009 774.45 53934.51 14.3% 2010 958.21 60294.39 15.8% 2011 1149.49 70869.57 16.2%
Significance:- This ratio indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm. If there is continuous increment in gross profit ratio then it means the selling price of goods is increasing day by day. 4. Net Profit Ratio: - Net profit ratio indicates efficiency of P&L A/C of the firm. It intends relation between net profit and net sales. Net Profit Ratio= N.P. /Net sales*100 Year Net Profit Net sales N.P.R 2009 409.84 53934.51 7.5% 2010 512.38 60294.39 8.4% 2011 615.2 70869.57 8.6%
\\Significance: - Net profit ratio indicates net margin on sales. This margin is continuously increasing year to year.
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5. Fixed assets Turnover Ratio: - It indicates the investment in fixed assets has been judicious or not. It calculated by the following formula; FATOR = Net sales /Net fixed assets Net fixed assets = Fixed assets depreciation Year Net sales Net fixed assets FATOR 2009 53934.51 1,994,1.43 2.7 Times 2010 60294.39 3,937,7.02 1.53 Times 2011 70869.57 1,920,0.15 3.69 Times
Significance: - It indicates the extent to which the investment in fixed assets contributes towards sales. It compared with the previous period, it indicates whether the investment in fixed assets has been judicious or not. 6. Working capital Turnover Ratio: - Working capital ratio is talking about utilization of working capital for the firm. Working capital turnover ratios express the relation between net sales and working capital. It is calculate by the following formula; WCTOR = Net Sales/Working capital Year Net Sales Working capital WCTOR 2009 53934.51 37371.65 1.44 Times 2010 60294.39 42343.9 1.42 Times 2011 70869.57 50116.52 1.41 Times
7. Total assets turnover ratio: - Total assets turnover ratio intends to the total assets to total turnover. It indicates to efficiency of total assets and total turnover. This ratio is very important for estimate the position of the firm. This ratio is calculated by the following formula;
55
TATOR = Total assets/total turnover Year Total assets Turnover TATOR 2009 376,932,318 53934.51 69% 2010 327,559,871 60294.39 54% 2011 425,467,948 70869.57 60%
Significance;-
The Banks aggregate business crossed yet another psychological mark and stood at ` 70,869.57 Crores at the end of the financial year 2010-11. The Banks total business increased by ` 10,575.18 Crores from the previous years figure of ` 60,294.39 Crores, registering a growth of 17.54%
The above parameters are used for critical analysis of financial position. With the evaluation of each component, the financial position from different angles is tried to be presented in well and systematic manner. By critical analysis with the help of different tools, it becomes clear how the financial manager handles the finance matters in profitable manner in the critical challenging atmosphere, there commendation are made which would suggest the organization in formulation of a healthy and strong position financially with proper management system. I sincerely hope, through the evaluation of various percentage, ratios and comparative analysis, the organization would be able to conquer its in efficiencies and makes the desired changes.
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ANALYSIS OF FINANCIAL STATEMENTS: Financial statement is a collection of data organized according to logical and consistent accounting procedure to convey an under-standing of some financial aspects of a business firm. It may show position at a moment in time, as in the case of balance sheet or may reveal a series of activities over a given period of time, as in the case of an income statement. Thus, the term financial statements generally refers to the two statements (1) The position statement or Balance sheet. (2) The income statement or the profit and loss Account. OBJECTIVES OF FINANCIAL STATEMENTS: According to accounting Principal Board of America (APB) states. The following objectives of financial statements: 1. To provide reliable financial information about economic resources and obligation of a business firm. 2. To provide other needed information about charges in such economic resources and obligation. 3. To provide reliable information about change in net resources (recourses less obligations) missing out of business activities. 4. To provide financial information those assets in estimating the learning potential of the business. LIMITATIONS OF FINANCIAL STATEMENTS: Though financial statements are relevant and useful for a concern, still they do not present a final picture a final picture of a concern. The utility of these statements is dependent upon a number of factors. The analysis and interpretation of these statements must be done carefully otherwise misleading conclusion may be drawn. Financial statements suffer from the following limitations: 1. Financial statements do not given a final picture of the concern. The data given in these statements is only approximate. The actual value can only be determined when the business is sold or liquidated.
57
2. Financial statements have been prepared for different accounting periods, generally one year, during the life of a concern. The costs and incomes are apportioned to different periods with a view to determine profits etc. The allocation of expenses and income depends upon the personal judgment of the accountant. The existence of contingent assets and liabilities also make the statements imprecise. So the financial statements are at the most interim reports rather than the final picture of the firm. 3. The financial statements are expressed in monetary value, so they appear to give final and accurate position. The value of fixed assets in the balance sheet neither represent the value for which fixed assets can be sold nor the amount which will be required to replace these assets. The balance sheet is prepared on the presumption of a going concern. The concern is expected to continue in future. So, the fixed assets are shown at cost less accumulated depreciation. Moreover, there are certain assets in the balance sheet which will realize nothing at the time of liquidation but they are shown in the balance sheets. 4. The financial statements are prepared on the basis of historical costs or original costs. The value of assets decreases with the passage of time current price changes are not taken into account. The statements are not prepared with the keeping in view the economic conditions. The balance sheet loses the significance of being an index of current economic realities. Similarly, the profitability shown by the income statements may be representing the earning capacity of the concern. 5. There are certain factors which have a bearing on the financial position and operating result of the business but they do not become a part of these statements because they cannot be measured in monetary terms. The basic limitation of the traditional financial statements comprising the balance sheet, profit & loss A/c is that they do not give all the information regarding the financial operation of the firm. Nevertheless, they provide some extremely useful information to the extent the balance sheet mirrors the financial position on a particular data in lines of the structure of the basis of assets, liabilities etc. and the profit & loss A/c shows the result of operation during a certain period in terms revenue obtained and cost incurred during the year.
58
FINANCIAL STATEMENT ANALYSIS : - It is the process of identifying the financial strength and weakness of a firm from the available accounting data and financial statements. The analysis is done CALCULATIONS OF RATIOS. Ratios are relationship expressed in mathematical terms between figures, which are connected with each other in some manner.
59
CONCLUSION
Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for two purposes.
* Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, buildings & etc
* Short term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses. . It is otherwise known as revolving or circulating capital It is nothing but the difference between current assets and current liabilities. i.e. Working Capital = Current Asset Current Liability. Businesses use capital for construction, renovation, furniture, software, equipment, or machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is also used often by businesses to put a down payment down on a piece of commercial real estate. Working capital is essential for any business to succeed. It is becoming increasingly important to have access to more working capital when we need it. Importance of Adequate Working Capital A business firm must maintain an adequate level of working capital in order to run its business smoothly. It is worthy to note that both excessive and inadequate working capital positions are harmful. Working capital is just like the heart of business. If it becomes weak, the business can hardly prosper and survive. No business can run successfully without an adequate amount of working capital. Danger of inadequate working capital When working capital is inadequate, a firm faces the following problems. Fixed Assets cannot efficiently and effectively be utilized on account of lack of sufficient working capital. Low liquidity position may lead to liquidation of firm. When a firm is unable to meets its debts at maturity, there is an unsound position. Credit worthiness of the
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firm may be damaged because of lack of liquidity. Thus it will lose its reputation. There by, a firm may not be able to get credit facilities. It may not be able to take advantages of cash discount.
It is helpful for us, as a business owner, to think of working capital in terms of five components:
1. Cash and equivalents. This most liquid form of working capital requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet current expenses as they come due? What is the timing relationship between cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?
2. Accounts receivable. Many businesses extend credit to their customers. If you do, is the amount of accounts receivable reasonable relative to sales? How rapidly are receivables being collected? Which customers are slow to pay and what should be done about them?
3. Inventory. Inventory is often as much as 50 percent of a firm's current assets, so naturally it requires continual scrutiny. Is the inventory level reasonable compared with sales and the nature of your business? What's the rate of inventory turnover compared with other companies in your type of business?
4. Accounts payable. Financing by suppliers is common in small business; it is one of the major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to what you purchase? What is your firm's payment policy doing to enhance or detract from your credit rating?
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5. Accrued expenses and taxes payable. These are obligations of your company at any given time and represent a future outflow of cash.
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FINDINGS
Ratio analysis can be used by financial executives to check upon the efficiency with which working capital is being used in the enterprise. The following are the important ratios to measure the efficiency of working capital. The following, easily calculated, ratios are important measures of working capital utilization. Ratio ` Formulae Average Stock * 365/ Cost of Goods Sold Result = x days Interpretation On average, you turn over the value of your entire stock every x days. You may need to break this down into product groups for effective stock management. Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days. Receivables Debtors * 365/ Ratio (in days) Sales = x days It takes you on average x days to collect monies due to you. If youre official credit terms are 45 day and it takes you 65 days... why? One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days. Payables Ratio (in days) Creditors * 365/ Cost of Sales (or Purchases) = x days On average, you pay your suppliers every x days. If you negotiate better credit terms this will increase. If you pay earlier, say, to get a discount this will decline. If you simply defer paying your suppliers (without agreement) this will also increase - but your reputation, the quality of service and any flexibility provided by your suppliers may suffer.
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Current Ratio
Total Current Assets/ Total Current Liabilities
= x times Current Assets are assets that you can readily turn in to cash or will do so within 12 months in the course of business. Current Liabilities are amount you are due to pay within the coming 12 months. For example, 1.5 times means that you should be able to lay your hands on $1.50 for every $1.00 you owe. Less than 1 time e.g. 0.75 means that you could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.
Quick Ratio (Total Current Assets Inventory)/ Total Current Liabilities Working Capital Ratio (Inventory + Receivables Payables)/ Sales
= x times Similar to the Current Ratio but takes account of the fact that it may take time to convert inventory into cash.
As % Sales
A high percentage means that working capital needs are high relative to your sales.
Other working capital measures include the following:
Bad debts expressed as a percentage of sales. Cost of bank loans, lines of credit, invoice discounting etc. Debtor concentration - degree of dependency on a limited number of customers. Once ratios have been established for our business, it is important to track them over time and to compare them with ratios for other comparable businesses or industry sectors.
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65
SUMMARY
Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands, the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and workin-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.
Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME ......... and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales.
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CONCLUSION
Any change in the working capital will have an effect on a business's cash flows. A positive change in working capital indicates that the business has paid out cash, for example in purchasing or converting inventory, paying creditors etc. Hence, an increase in working capital will have a negative effect on the business's cash holding. However, a negative change in working capital indicates lower funds to pay off short term liabilities (current liabilities), which may have bad repercussions to the future of the company. If you would like to get a better understanding of financial statements or budgeting contact nkavithamba@yahoo.co.in. Therefore we can say that working capital plays a very important role in Corporate Banking. o Without working capital any business cannot run. The bank aggregate business crossed yet another psychological mark and stood Rs70869.57 crores at the end of financial year 2010-2011. o The bank total business increased by Rs 10575.18 crores from the previous figure of 60294.39 Crores, registering a growth of 17.54%. o The bank continued its prudent approach in expanding quality credit assets in line with its policy on credit risk management. Its net advance increased by Rs 3136.41 Crores. o The Banks performance in the recovery of NPAs during the year continued to be good. o Investment portfolio increased by Rs 5,739.52 Crores from 13956.25 and 19695.77 as on 2011. o The Bank has earned an income of Rs 26.14 crores from the Insurance business. In life insurance mobilized a business of Rs 103.02 crores and in non-life segment Rs 59.36 crores was mobilized during the year. o The gross profit for the financial year 2010-11 stood at Rs 1149.49 crores. o The highest ever net profit of Rs 615.2 crores.
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SUGGESTION
After a lot of research of working capital, I am able to say that there should be more liquid surplus for smooth running of any business. But under the corporate banking this is more prominent requirement. Because in banking, working capital is more exchangeable as compare other organization. When we provide term loan to our customer as per RBI guidelines. Loan can be short term or long term. Profitability of the bank is also affect by working capital. Generally, all things are affected by working capital under in a house. The J&K Bank is the only private sector bank in the country assigned with the responsibility of convening State Level Bankers Committee meetings. The bank continued to discharge its lead bank responsibility in 12 out of 22 districts of J&K State satisfactory.
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REFERENCES AND BIBLIOGRAPHY

During the completion of this project work I have taken references from various sources which include:
Annual report of The Jammu and Kashmir Bank ltd. Magazines such as Business Economics, Newspaper such as Greater Kashmir, Bank Dairy, Bank Catalogue, Bank magazine etc. Yearly journals of the Jammu and Kashmir Bank Ltd. Website of the bank;
www.jkbank.net www.jkbank.com www.rbi.org.in Circulars of J&K Bank
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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Summary, Conclusion, Suggestion and Limitation and References & Bibliography

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Shameem Ahamad MBA (G) Session-2011-2013

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Investments which may be incurred in holding stocks include:

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Project Made on Analysis of Working Capital in Banking (J&K) by Shameem Ahamad

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Objective of the study

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CHAPTER-1 INTRODUCTION TO THE ORGANISATION

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1.1 OVERVIEW OF THE INDUSTRY AS A WHOLE Banking in India

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1.2 PROFILE OF THE ORGANISATION Brief History of the Bank

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Unique characteristics of the bank

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Board of Directors of J&K Bank

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Area Metro Urban Semi-Urban Rural Total

Branches 39 168 118 223 548

Future Planning and Turnover

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1.3 Products and Services

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Meaning and Conceptual Frame