CHAPTER -1

INTRODUCTION

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1.1 WORKING CAPITAL MANAGEMENT

Working capital management is significant in financial management. It plays a vital role in keeping the wheel of the business running. Every business requires capital, without it cant be promoted. Investment decisions is concerned with investment in current assets and fixed assets .working capital plays a key role in a business enterprise just as the role of heart in human body . it acts as grease to run the wheels of fixed assets .its effective provision can ensure the success of business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern . Efficiency of a business enterprise depends largely on its ability to its working capital .working capital management is one of the important facts of affirms overall financial management In a perfect world, there would be no necessity for current assets and liabilities because there would be no uncertainty, no transaction costs, information search costs, or production and technology constraints. The unit cost of production would not vary with the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product market shall be perfectly competitive and would reflect all available information, thus in such an environment, there would be no advantage for investing in short term assets. However the world we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, Market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowings and lending rates for investments and financings of equal risks .Similarly each organization is faced with its own limits on the production capacity and technologies it can employ there are fixed as well as variable costs associated with production goods. In other words, the markets in which real firm operated are not perfectly competitive.

In simple words working capital is the excess of current Assets over current Liabilities. Working capital has ordinarily been defined as the excess of current assets over current liabilities. Working capital is heart of the business If it is weak business cannot proper and
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survives. It is therefore said the fate of large scale investment in fixed assets is often determined by a relatively small amount of current assets. As the working capital is important to lifeline of company. If this lifeline deteriorates so that the company s ability to fund operation, re-invest do meet capital requirements and payment. Understanding company`s cash flow health is essential to making investment decision. A good way to judge a company`s cash flow prospects is to look at its working capital management. The company must have adequate working capital as much as needed by the company. It should neither be excessive or nor inadequate. Excessive working capital cuisses for idle funds lying with the firm without earning any profit, where as inadequate working capital shows the company doesnt have sufficient funds for financing its daily needs working capital management involves study of the relationship between firm`s current assets and current liabilities. The goal of working capital management is to ensure that a short term debt and upcoming operational expenses. The better a company managers its working capital, the less the company needs to borrow. Even companies with cash surpluses need to manage working capital to ensure those surpluses are invested in ways that will generate suitable returns for investors.

The primary objective of working capital management is to ensure that sufficient cash is available to

Meet day to day cash flow needs. Pay wages and salaries when they fall due. Pay creditors to ensure continued supplies of goods and services. Pay government taxation and provider of capital-dividends and Ensure the long term survival of the business entity

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1.2 CONCEPT OF WORKING CAPITAL:

The concept of working capital includes current assets and current liabilities both. There is two of working capital they are gross and net working capital.

1.2.1

Gross working capital: Gross working capital refers to the firms

investment in current assets .current assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short term securities, debtors (account receivables or book debts), bills receivables and stock (inventory).

1.2.2

Net working capital: Net working capital refers to the difference

between current assets and liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It includes creditors or accounts payables bills payable and outstanding expenses. Net working copulate can be positive or negative. A positive working capital will arise when current assets exceed current liabilities and vice versa.

1.3 NATURE OF WORKING CAPITAL:

Working capital management is concerned with the problems that arise In attempting to manage the current assets, the current liabilities and the Inter relationship that exists between them. The term current refers to those assets which in the ordinary course of business can be ,or will be converted into cash within one year without undergoing a diminution in value

and without disrupting the operation of the firm. the major current assets are: cash, marketable securities, accounts receivables and inventory. Current liabilities are those liabilities, which are intended at their inception ,to be paid in the ordinary course of business, within a year out of the current or the earning of the concern .The basic current liabilities are accounts payable ,bills payable ,bank overdrafts and outstanding expense. The goal of working management is to manage the firms assets and liabilities in such a way that a satisfactory level of working capital is maintain. This is because if the firms cannot maintain
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a satisfactory level of working capital ,it is likely to become insolvent and may even be forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable Margin of safety. Each of the short term source of financing must be continuously managed to ensure that they are obtained and used in the way. Interaction between current liabilities is therefore the main theme of the of management of working capital.

1.4 Working Capital Management

Working capital refers to a firms investment in short term assets-cash, short term securities, accounts receivable and inventories.

-Weston &Brigham

Working capital can be classified either on the basis of its concept or on the basis of periodicity of its requirement.

(I)On the basis of concepts there are two concepts of working capital:

1. Gross Working Capital 2. Net Working Capital

1.4.1

Gross Working Capital

Gross working capital refers to the firms investment in current assets. Current assets are assets that can be converted into cash within an accounting year. Current assets include cash and bank balance, Short-term securities, debtors ,bills receivables and inventory .The Gross Working Capital concept focuses attention on two aspects of current assets management (a) Optimum investment in current assets

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(b) Financing of current assets.

1.4.2

NET WORKING CAPITAL

Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year and include bills payable and outstanding expenses. Net working capacity indicates the liquidity position of the firm. Generally net working capacity is referred to as working capital.

(II) On the basis of requirement-

According Gestenberg the working capital can be classified into permanent or regular working capital and variable working capital.

1.5 Working Capital Cycle:

The working capital cycle can be defined as

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 a customer.

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 The diagram below illustrate the working capital cycle

EQUITY & LOANS

CASH PAYABLES

OVERHEADS

RECEIVABLE

INVENTORY

SALES

Each component of working capital (namely inventory, receivable and payables) has two dimensions TIME and Money. When they comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (collect monies due from debtors more quickly) or reduce the amount of money tied up (e., reduce inventory level relative to sales). The business will generate more cash or it will need to borrow less money to fund working capital.
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1.6 Types of Working Capital:

The operating cycle creates the need for current assets (working capital).However the need does not come to an end after the cycle is completed to explain this continuing need of current assets a destination should be drawn between permanent and temporary working capital.

1.6.1 Permanent working capital

The need for current assets arises, as already observed, because of the cash cycle. To carry on business certain minimum level of working capital is necessary on continues and uninterrupted basis. For all practical purpose, this requirement will have to be met permanent as with other fixed assets. This requirement refers to as permanent or fixed working capital

1.6.2 Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating or variable, working capital. This portion of the required working capital is needed to meet fluctuation in demand consequent upon changes in production and sales as result of seasonal changes Graph shows that the permanent level is fairly castanet; while temporary working capital is fluctuating in the case of an expanding firm the permanent working capital line may not be horizontal .This may be because of changes in demand for permanent current assets might be increasing to support a rising level of activity.

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1.7 Determinants of Working Capital:

The amount of working capital is depends upon a following factors

1.7.1 Nature of business

Some businesses are such, due to their very nature, that their requirement of fixed capital is more rather than working capital. These businesses sell services and not the commodities and that too on cash basis. As such, no founds are blocked in piling inventories and also no funds are blocked in receivables. E.g. public utility services like railways, infrastructure oriented project etc. there requirement of working capital is less. On the other hand, there are some businesses like trading activity, where requirement of fixed capital is less but more money is blocked in inventories and debtors

A. Length of production cycle

In some business like machine tools industry, the time gap between the acquisition of raw material till the end of final production of finished products itself is quite high. As such amount may be blocked either in raw material or work in progress or finished goods or even in debtors. Naturally there need of working capital is high.

B. Size and growth of business

In very small company the working capital requirement is quit high due to high overhead, higher buying and selling cost etc. as such medium size business positively has edge over the small companies. But if the business start growing after certain limit, the working capital requirements may adversely affect by the increasing size.

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C. Business/ Trade cycle

If the company is the operating in the time of boom, the working capital requirement may be more as the company may like to buy more raw material, may increase the production and sales to take the benefit of favorable market, due to increase in the sales, there may more and more amount of funds blocked in stock and debtors etc. similarly in the case of depressions also, working capital may be high as the sales terms of value and quantity may be reducing, there may be unnecessary piling up of stack without getting sold, the receivable may not be recovered in time etc.

D. Profitability
The profitability of the business may be vary in each and every individual case, which is in turn its depend on numerous factors, but high profitability will positively reduce the strain on working capital requirement of the company, because the profits to the extent that they earned in cash may be used to meet the working capital requirement of the company

E. Operating efficiency
If the business is carried on more efficiently, it can operate in profits which may reduce the strain on working capital; it may ensure proper utilization of existing resources by eliminating the waste and improved coordination etc.

1.8 SIGNIFICANCE OF THE STUDY:

The essence of the study is that the highest valued asset of a banking company is its working capital which constitutes the major part of total capital of the banking company .It helps to know the current condition of the bank, the total amount of its current assets, and the total amount of its current liabilities.

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CHAPTER- 2

ORGANIZATION PROFILE

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2.1

Brief History of Urban Cooperative Banks in India

The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today. These banks were traditionally centred around communities, localities work place groups. They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably.

The origins of the urban cooperative banking movement in India can be traced to the close of nineteenth century when, inspired by the success of the experiments related to the cooperative movement in Britain and the cooperative credit movement in Germany such societies were set up in India. Cooperative societies are based on the principles of cooperation, - mutual help, democratic decision making and open membership. Cooperatives represented a new and alternative approach to organization as against proprietary firms, partnership firms and joint stock companies which represent the dominant form of commercial organization.

2.1.1 The Beginnings

The first known mutual aid society in India was probably the Anyonya Sahakari Mandali organised in the erstwhile princely State of Baroda in 1889 under the guidance of Vithal Laxman also known as Bhausaheb Kavthekar. Urban co-operative credit societies, in their formative phase came to be organised on a community basis to meet the consumption oriented credit needs of their members. Salary earners societies inculcating habits of thrift and self help played a significant role in popularising the movement, especially amongst the middle class as well as organized labour. From its origins then to today, the thrust of UCBs, historically, has been to mobilise savings from the middle and low income urban groups and purvey credit to their members - many of which belonged to weaker sections. The enactment of Cooperative Credit Societies Act, 1904, however, gave the real impetus to the movement. The first urban cooperative credit society was registered in Canjeevaram (Kanjivaram) in the erstwhile Madras province in October, 1904. Amongst the prominent credit societies were the Pioneer Urban in Bombay
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(November 11, 1905), the No.1 Military Accounts Mutual Help Co-operative Credit Society in Poona (January 9, 1906). Cosmos in Poona (January 18, 1906), Gokak Urban (February 15, 1906) and Belgaum Pioneer (February 23, 1906) in the Belgaum district, the Kanakavli-Math Co-operative Credit Society and the Varavade Weavers Urban Credit Society (March 13, 1906) in the South Ratnagiri (now Sindhudurg) district. The most prominent amongst the early credit societies was the Bombay Urban Co-operative Credit Society, sponsored by Vithaldas Thackersey and Lallubhai Samaldas established on January 23, 1906... The Cooperative Credit Societies Act, 1904 was amended in 1912, with a view to broad basing it to enable organization of non-credit societies. The Maclagan Committee of 1915 was appointed to review their performance and suggest measures for strengthening them. The committee observed that such institutions were eminently suited to cater to the needs of the lower and middle income strata of society and would inculcate the principles of banking amongst the middle classes. The committee also felt that the urban cooperative credit movement was more viable than agricultural credit societies. The recommendations of the Committee went a long way in establishing the urban cooperative credit movement in its own right. In the present day context, it is of interest to recall that during the banking crisis of 1913-14, when no fewer than 57 joint stock banks collapsed, there was a there was a flight of deposits from joint stock banks to cooperative urban banks. Maclagan Committee chronicled this event thus: As a matter of fact, the crisis had a contrary effect, and in most provinces, there was a movement to withdraw deposits from non-cooperatives and place them in cooperative institutions, the distinction between two classes of security being well appreciated and a preference being given to the latter owing partly to the local character and publicity of cooperative institutions but mainly, we think, to the connection of Government with Cooperative movement.

2.1.2 Under State Purview

The constitutional reforms which led to the passing of the Government of India Act in 1919 transferred the subject of Cooperation from Government of India to the
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Provincial Governments. The Government of Bombay passed the first State Cooperative Societies Act in 1925 which not only gave the movement its size and shape but was a pace setter of cooperative activities and stressed the basic concept of thrift, self help and mutual aid. Other States followed. This marked the beginning of the second phase in the history of Cooperative Credit Institutions. There was the general realization that urban banks have an important role to play in economic construction. This was asserted by a host of committees. The Indian Central Banking Enquiry Committee (1931) felt that urban banks have a duty to help the small business and middle class people. The Mehta-Bhansali Committee (1939) recommended that those societies which had fulfilled the criteria of banking should be allowed to work as banks and recommended an Association for these banks. The Cooperative Planning Committee (1946) went on record to say that urban banks have been the best agencies for small people in whom Joint stock banks are not generally interested. The Rural Banking Enquiry Committee (1950), impressed by the low cost of establishment and operations recommended the establishment of such banks even in places smaller than taluka towns. The first study of Urban Co-operative Banks was taken up by RBI in the year 1958-59. The Report published in 1961 acknowledged the widespread and financially sound framework of urban co-operative banks; emphasized the need to establish primary urban cooperative banks in new centers and suggested that State Governments lend active support to their development. In 1963, Varde Committee recommended that such banks should be organized at all Urban Centres with a population of 1 lakh or more and not by any single community or caste. The committee introduced the concept of minimum capital requirement and the criteria of population for defining the urban centre where UCBs were incorporated.

2.1.3 Duality of Control

However, concerns regarding the professionalism of urban cooperative banks gave rise to the view that they should be better regulated. Large cooperative banks with paid-up share capital and reserves of Rs.1 lakh were brought under the perview of the Banking Regulation Act 1949 with effect from 1st March, 1966 and within the ambit of the Reserve Banks supervision. This marked the beginning of an era of
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duality of control over these banks. Banking related functions (viz. licensing, area of operations, interest rates etc.) were to be governed by RBI and registration, management, audit and liquidation, etc. governed by State Governments as per the provisions of respective State Acts. In 1968, UCBS were extended the benefits of Deposit Insurance. Towards the late 1960s there was much debate regarding the promotion of the small scale industries. UCBs came to be seen as important players in this context. The Working Group on Industrial Financing through Co-operative Banks, (1968 known as Damry Group) attempted to broaden the scope of activities of urban co-operative banks by recommending that these banks should finance the small and cottage industries. This was reiterated by the Banking Commisssion (1969). The Madhavdas Committee (1979) evaluated the role played by urban co-operative banks in greater details and drew a roadmap for their future role recommending support from RBI and Government in the establishment of such banks in backward areas and prescribing viability standards. The Hate Working Group (1981) desired better utilization of banks' surplus funds and that the percentage of the Cash Reserve Ratio (CRR) & the Statutory Liquidity Ratio (SLR) of these banks should be brought at par with commercial banks, in a phased manner. While the Marathe Committee (1992) redefined the viability norms and ushered in the era of liberalization, the Madhava Rao Committee (1999) focused on consolidation, control of sickness, better professional standards in urban co-operative banks and sought to align the urban banking movement with commercial banks. A feature of the urban banking movement has been its heterogeneous character and its uneven geographical spread with most banks concentrated in the states of Gujarat, Karnataka, Maharashtra, and Tamil Nadu. While most banks are unit banks without any branch network, some of the large banks have established their presence in many states when at their behest multi-state banking was allowed in 1985. Some of these banks are also Authorised Dealers in Foreign Exchange

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2.2 Company profile

The Sultans Battery Co-operative Urban Bank Ltd. was established in 1975 in Sulthan Bathery in Wayanad District of Kerala. The bank is controlled by a Board of Directors, elected by the members. There are eight branches- a main branch, an evening branch and six other branches, all in Sulthan Bathery Taluk. The Head Office of the bank is situated in Sulthan Bathery.

2.2.1 Registered office

The registered office of the Bank is situated at Sulthan Bathery in Sulthan Bathery Taluk of Wayanad District.

2.2.2 Area of operation

The area of operation is confined to the whole of Sulthan Bathery Taluk .

2.2.3 Objects
a. To encourage thrift, self-help and co-operation among members. b. To accept deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, for the purpose of lending or investment. c. To borrow or raise money. d. To lend or to advance money either upon or without security to members and others as permitted by the Registrar e. To draw, make, accept, discount, buy, sell, collect and deal in bills of exchange, hundies, promissory notes, coupons, drafts, bills of lading railway receipts, warrants, certificates, Scrips and other instruments and other securities whether transferable or negotiable or not. f. To grant and to issue letters of credit, travelers cheques and circular notes. g. To buy and to sell foreign exchange, including foreign bank notes.
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h. To acquire, to hold, to issue on commission, to underwrite and to deal in stocks, funds, shares, debentures, debenture stock, bonds, obligations, securities and investment of all kinds. i. To purchase and to sell bonds, scrips, or other forms of securities on behalf of the constituents. j. To receive all kinds of bonds, Scripps, valuables on deposit or for safe custody or otherwise. k. To provide safe deposit vaults. l. To collect and transmit money and securities. m. To negotiate loans and advances. n. To carry on and to transact every kind of guarantee and indemnity business on behalf of constituents. o. To effect, to insure, to guarantee, to under write, to participate in managing and carrying out any issue public or private, of state, Municipal or other loans or of shares, stocks debentures, debenture stock of any company, co-operative society, corporation or association and to lend money for the purpose of any such issue. p. To acquire, to construct, to maintain and to alter any building or works necessary or convenient for the purpose of the Bank. q. To manage, to sell and to realise any property which may come into the possession of the Bank in satisfaction or part satisfaction of any of its claims. r. To open branches, and pay office, with the permission of the Registrar and the Reserve Bank of India within the area of operation of the Bank so as to provide banking services to the public. s. To establish, to support, or to aid in establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit members, employee/ex-employees of the bank or the dependents or connections of such persons and to grant pensions. t. To prepare and to finance schemes for amelioration of the financial condition of members.
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u. To provide financial and technical assistance to self employed persons for setting up their own business. v. To enter into participation arrangement/arrangements with any other bank or banks or financial institutions with the object of making loans and advances. w. To do any other form of business as specified in clause(1) of section 6 of the Banking Regulation Act 1949 ( As Applicable to Co-operative Societies). x. To do all such other things as are incidental and conducive to the promotion or advancement of these objects and of the business of the Bank. y. To undertake any other form of business which the Central or State Government may specify as a form of business in which it is lawful for a cooperative banking institutions to engage. z. To conduct chit funds according to the sub rules approved by the Registrar aa. To organize and register self-help groups in the area of operation of the Bank.

2.2.4 Funds
Funds may be raised by the following means: a. Shares b. Entrance fee at the rate of Rs.2/- per share subject to a maximum of Rs.10/per member. c. Subscription d. Deposits e. Loans, cash credits, overdrafts and advances. f. Donation, grants and subsidies. g. Any other means approved by the Registrar.

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2.2.5 Maximum borrowing power

The maximum borrowing power of the Bank shall not exceed 50 times the paid up share capital and reserve minus the bad debts reserve and accumulated losses.

2.2.6 Shares
The authorized capital of the Bank for the present shall be Rs.500 lakhs made up of the following types of shares: a. 'A' class shares of Rs.25/- each by persons which should be paid in full on application. b. B' Class shares of Rs.1,000/- each by State Government and other body or persons approved by the Government.

2.2.7 Members
The existing members will be allowed time till the date of convening the next General Body to remit difference between the above value and the existing value of the shares held by them. No person shall be admitted as a member of the Bank except the following: a. Who has attained the age of 18 years. b. Who is not of unsound mind. c. Who is a resident within or is carrying on his profession in the area of operation of the Bank. d. Who is not a member of any Primary Co-operative Bank or a cooperative credit society.

The membership of the Bank shall be open to: a. Individuals residing or carrying his profession within the area of operation of the Bank.
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b. Any other person as defined under Bye-law 4(ix) having its registered office within the area of operation of the Bank, and conducting business within such area may be admitted as a member, provided that: i. The individual or person is not a member of any other primary co-operative bank or a co-operative credit society. ii. The individual or any partner of a partnership firm is not convicted of any criminal offence involving moral turpitude. iii. The individual or the person is not engaged in a business competing with or conflicting with the business of the Bank. iv. v. The individual is not an employee of the Bank. The individual or the person has subscribed to and fully paid for at least one share of the Bank and his application has been fully approved by the Board of Directors. c. Government of Kerala. d. The Kerala State Co-operative Bank Ltd. e. The Wayanad District Co-operative Bank Ltd. f. Self-help group & Kudumbasree ayalkoottam units registered with local bodies, and with the Bank.

No right of membership shall be exercisable until a person has made such payments to the Bank in respect of membership or acquired such interest in the Bank as may be prescribed by the Act or Rules or in the Bye-laws.

2.2.8 Loans and advances

Loans, cash credits and/or overdrafts on current accounts may be granted to members on security or securities mentioned below or other security or securities approved by the Board of Directors with or without security, subject to the directives issued by the Reserve Bank of India from time to time relating to loans and advances of the Bank. Loans and advances may be
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granted to the members of the staff also, according to the sub-rules approved by the Registrar.

a. Personal security and/or surety/sureties of other member/members. b. Collateral security of movable and immovable property. c. Industrial, mercantile, agricultural and other marketable commodities or machinery under pledge, hypothecation or charge of the Bank. d. Pledge of Government, trustee securities, shares of approved companies, debentures and fixed deposits with the Bank. e. Insurance Policies assigned to the Bank within the surrender value. f. Warehouse receipts. g. Gold and Silver ornaments. h. Any other tangible security. i. The Board may frame detailed loan regulations prescribing proportion and unsecured loans to total loans and advances, proper terms and conditions and the nature of securities acceptable for loans and advances for different purposes.

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CHAPTER-3

RESEARCH OBJECTIVE, SCOPE THE RESEARCH

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3.1 RESEARCH OBJECTIVE

Working capital is the most widely used and powerful technique of financial analysis. The main objective of the present study is to know the financial condition of the bank. To know the overall operational efficiently and performance of the Co-operative Urban Bank Ltd. To interpret the financial position of bank of is appropriate (or) not. To assess the long term financial viability of bank .To knows whether the management is constantly concerned about the overall profitability of the bank (or) not. To provide reliable financial information about economic resources and obligation of a banking enterprise. To disclose to the extent possible other information related to the financial statements users.

2.2 SCOPE OF THE RESEARCH

The area of the study was selected at urban Co-operative Bank Ltd., Head Office, sulthan bathery. The study was based on the Working Capital Management of the Bank. The study is limited to various statutory and non-statutory measures which are provided by the management.

The study adds on the practical knowledge experienced from the bank to the theories learned.

This study was confined to 1 month, based upon the primary data obtained from the bank interviews with the administration superintendent, employees of the bank and employees of WORKING CAPITAL Page 23

Joint Registrar of Co-operative Societies. bye law provided by the bank.

The secondary data include Annual reports and

2.2.1 The Problem Definition

Working capital management involves the relationship between a firms short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

Working capital is the amount of capital which readily available to an organization. That is, working capital is the difference between resources in cash or readily convertable into cash (Current Assets) and cash requirements (Current Liabilities). So the decisions relating to working capital are always current decisions, i.e., short term decisions.

The short term decisions of the firm are similar to those of long term in terms of risk and return, but they differ in many other ways like time factor, discounting considerations, liquidity etc. So these decisions are not taken on the basis as long as term decisions. These decisions have different criteria like cash flow and profitability.

The most important criterion for making short term decisions is cash flows. And the best measure of cash flow is net operating cycle or cash conversion cycle. It represents the time difference between the cash payment for raw materials and cash collection for sales. Another aspect of cash conversion cycle is gross operating cycle which is same as net operating cycle except the fact that it does not take into account the creditors deferral period. Cash conversion cycle indicates the firms ability to convert its resources into cash .

The most useful measure of profitability is Return On Capital(ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed: Return On Equity (ROE) shows this result for the firms shareholders. WORKING CAPITAL Page 24

Chapter- 4

Research Methodology and Limitation

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4.1

RESEARCH METHODOLOGY

This research concentrates on the working capital management i.e., current assets and current liability management of the bank. This analysis is based on the data provided by the bank authorities with their financial statements.

4.2

COLLECTION OF DATA

The data serves as the basis or the raw material for analysis. Without an analysis of factual data, on specific inference cant be drawn on the question under study. Inferences based on imagination or guess work cannot provide correct answers to research question. The relevance, adequacy and reliability of the data determine the quality of the findings of a study. Data form the basis for testing hypothesis formulated in the study. Data also provide the facts and figures required for constructing measurement scales and tables, which are analyzed with the statistical techniques. Inferences on the basis of statistical analysis and the test of significance provide the answer to the research question. Thus, the scientific process of measurement, analysis, testing and inferences depends on availability of relevant data and their accuracy.

The sources of data may be classified as:

4.2.1 Primary sources:

Collects the data that have not been previously collected for example the collecting of data directly by the researcher through interviewing some Primary sources are original sources from which the researcher directly employees in the bank, questionnaires and participant observation by visiting the bank.

4.2.1 Secondary sources:

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Secondary sources are sources containing data which have been collected and compiled for another purpose. The secondary sources consists of readily available information and already compiled statistical statements and reports whose data may be used by the researcher for the studies . ex; organizational profile through companys websites, vision, mission and objectives of the organization, study regarding the topic from various books,magazines, audit reports, annual reports etc. Though secondary sources are diverse and consist of all sorts of materials, they have certain common characteristics

First they are ready made and readily available and do not require the trouble of constructing tools and administering them. Second they consist of data on which researcher has no original control over collection and classification. Both the forms and content of secondary sources are shaped by others. Clearly, this is the feature that can limit the value of secondary sources. Finally, secondary sources are not limited in time and space. That is, the researchers using them need not have been present when and where they are gathered.

4.3

RESEARCH LIMITATIONS

4.3.1

As lack of time may be the biggest limiting factor, great attention towards intricate details could not be taken. Busy schedules of the managers and staffs may prevent lengthy discussions as they have only little time to spend.

4.3.2

The analysis is based on the opinion given by the respondent. Thus, accuracy of the report depends on the opinion given by the respondent.

4.3.3

Working capital management involves managing the relationship between a firms short-term assets and its short-term liabilities & to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing

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short-term debt and upcoming operational expenses. This is a very complex process to understand for an external person. 4.3.4 Unavailability of 2011-2012 profit and loss Statements, as it has not been published gives the result only up to the year 2011.

As a result of the above stated limitations, only a comprehensive outlook of working capital management could be projected. Here, Data is analyzed using Ratio Analysis.

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CHAPTER-5

DATA ANALYSIS AND INTERPRETATIONS

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5.1 STUDY OF PROFIT& LOSS A/C

5.1.1 MEANING :

I t i s a f i n a n c i a l s t a t e m e n t , w h i c h s h o w s n e t l o s s o f a company for a specified period. The accounting year means calendar year of 12months or less or more than 12 months.

5.1.2 CONTENTS:

This presents the revenues and expenses of a company and shows the excess of revenues over expenses for profit and vice versa for a loss.

5.1.3 FORMAT:

The Companies act does not provide any specific format f o r t h i s account. However it is required to be prepared on the basis of the instructions given in part ii of schedule (vi) of the companies act.

5.1.4

MAIN ITEMS OF PROFIT AND LOSS ACCOUNT

A.Turnover or sales :

The aggregate amount of sales and connected items with the sales such as commission paid to sole-selling agents and other selling agents and brokerage and discounts on sales other than usual trade discount.

B. Depreciation:

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The amount of depreciation of fixed assets and the arrears of depreciation as per section 205(2) shall be disclosed by way of foot-note.

C .Interest on loans and debentures: Interest on loans and debentures has to be stated separately. It will include the amount of interest paid as well as outstanding.

D. Miscellaneous expenses:

I n t h i s h e a d i t e m s s u c h a s r a t e s a n d t a x e s , insurance premium etc., must be stated separately.

E. Preliminary expenses:

Such expenses include the costs of formation of a company and since their amount is usually large, it is not desirable to write off them in one year.

E. Provision for taxation:

The profit and loss account of a company must be debited with the estimated liabilities for tax on the current profits at current rates of taxation.

G. Unclaimed dividends: It is shown on the liabilities side of the balance sheet under the heading current liabilities .

H. Interim dividends:

It is an item of appropriation. It is transferred to the debit side of the Profit and loss appropriation account.

I. Final dividend as an item of the trial balance :

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T h i s i s s h o w n i n t h e debit side of the appropriation section of the profit and loss account.

J. Pr o p o s e d d i v i d e n d o r f i n a l d i v i d e n d p r o p o s e d :

S i n c e

i t

i s

a n

adjustment item, it has to be shown at two places- In the

debit side of the profit and loss appropriation account and on the liabilities side of the balance sheet under the head current liabilities and provisions . K. Political donations: It must be shown as a separate item in the profit and loss account.

L. Dividend on interest income : This item is transferred to the credit side of the profit and loss account.

M. Payment to auditors:

It must be stated separately.

This will include consultancy fee, auditing fees management services etc.

N. Managerial remuneration:

T h i s i n c l u d e s t h e p a y m e n t s m a d e t o managerial remuneration directors fee, pension, other allowances and commission.

5.2 STUDY OF BALANCE SHEET

5.2.1MEANING:

The balance sheet is a financial snapshot of a company's condition at a single point in time. A balance sheet contains a listing of the c o m p a n y ' s a s s e t , l i a b i l i t y a n d C a p i t a l a c c o u n t s . W h e n s o m e o n e , w h e t h e r a creditor or investor, asks you how your company is doing, you'll want to have the answer ready
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and documented. The way to show off the success of your company is a balance sheet. A balance sheet is a documented report of your company's assets and obligations, as well as the residual ownership claims against your equity at any given point in time. It is a cumulative record that reflects the result of all recorded accounting transactions since your enterprise w a s f o r m e d . You need a balance sheet to specifically know what y o u r company's net worth is on any given date. With a properly prepared balance sheet, you can look at a balance sheet at the end of each accounting period and know if your business has more or less value, if your debts are higher or lower ,and if your working capital is higher or lower. By analyzing your balance sheet, i n v e s t o r s , c r e d i t o r s a n d o t h e r s c a n a s s e s s y o u r a b i l i t y t o m e e t s h o r t - t e r m obligations and solvency, as well as your ability to pay all current and long-term debts as they come due. The balance sheet also shows the composition of assets and liabilities, the relative proportions of debt and equity financing and the amount of earnings that you have had to retain. Collectively, external parties to help assess your companys financial status, which is required by both lending i n s t i t u t i o n s a n d i n v e s t o r s b e f o r e t h e y w i l l a l l o t a n y m o n e y t o w a r d y o u r business, will use this information.

5.3 RATIO ANAYSIS

Several ratios calculated from the accounting date, can be grouped into various classes according to financial activity or function to be evaluated. As stated earlier, the parties interested in financial analysis are short and short and long-term creditors, owners and management. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.

Short-term creditors main interest is in liquidity position or the short-term

solvency of the firm. Long-term creditors, on the other hand, and more interested in the longterm solvency and profitability of the firm. Similarly, owners concentrate on the firms profitability and financial conditions. Management is interested on in evaluating every aspect of the firms performance. They have to protect the interests of all parties and see that the
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firm grows profitably. In view of the requirements of the various users of ratio, we may classify them into the following four important categories.

5.3.1 TYPES OF RATIO: Liquidity ratios Leverage ratios Activity ratios Profitability ratios

According to the bank, they calculate working capital as;

Working Capital = Share capital + Deposits + Borrowings + Reserves - Fixed assets

5.3.2 ADVANTAGE OF RATIOS

Useful of evaluation performance in terms of profitability and financial stability. Useful for intra & inter firm comparison. Useful forecasting and budgeting. It is just in tabular form over a period of years indicated the trend of business. Smile to understand rather than the reading but the figures of financial statement. Key tool in the hand of modern financial management. Enable outside parties to assess the strength and weakness of the firm. Ratio analysis is very useful for ranking management decisions and also highlights the performance in the area of profitability financial stability and operational efficiency.
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CHAPTER- 6

FINDINGS, SUGGESTIONS AND CONCLUSION

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FINDINGS

The bank does not borrow money from NBFC (Non-bank financial companies) to give loans. Only members of the bank can apply for loan. The lead-time between the application and sanctioning of loan varies from one to three weeks. Net profit of the bank is decreasing . Majority of the customers of the bank belongs to agricultural background. Interest rates are fixed. All of Urban bank customers are satisfied with the services provided by the bank. The bank provides safety to customers accounts. Working capital of the bank was increasing and showing positive working capital per year. It shows good liquidity position. In the year 2005 the bank`s working capital has decrease to 3483.83(Lakh) Positive working capital indicates that bank has the ability of payments of short terms liabilities. Working capital increased because of increment in the current assets is more than increase in the current liabilities.

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SUGGESTIONS

Some of the recommendation and suggestion are as follows: The attention is required on the areas of growth, service level and building talent. To increase the profit of bank, bank should decrease their o p e r a t i n g expenses and increase their income. Loans have become a basic need and suppo rt in todays scenario s o t h e y should be disbursed as soon as possible i.e. less processing time. Introduce quality consciousness and standardization of the work system and procedures. Make manager competitive and introduce spirit of market-orientation and culture of working for customer satisfaction. There is need to build the knowledge and skill base among the employees . There should be no hidden charges, as it will increase the faith of the customer in bank The credit policy should be more flexible and simplified so that it requires minimum paper work. Bank should manage its all risk such as credit, market and operational r isk properly and should be managed by a person who are highly skilled and qualified.

The Net Working Capital should be in a balance condition it should not be fluctuate
excessively.

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CONCLUSION

Working capital management is important aspect of financial management. The study of working capital management of urban bank has revealed that the current ratio is in an increasing trend. The study has been conducted on working capital management which will help the company to manage its working capital efficiently and effectively.

Credit facilities are not a new concept in banking in todays scenario. Earlier people were relying more on Private Financers and NBFCs but now, the scene is being changing. People are trusting on banks for this service. Urban bank providing credit facilities at an attractive rate of interest giving customer a good margin.

However, customers are relying more on Nationalized Banks, Private Banks for such facilities but urban bank has made its different position in the field by satisfying its customers by giving Prompt and effective service, less processing charges and most important less rate of interest. It wont be an easy task for urban bank and if it wants its efforts to be fruitful, then need is not only to create some new and different marketing strategies, but to manipulate whats already up there in the mind, to retie the connections that already exist i.e. to touch base with reality which is in prospects mind. Thus if urban bank has to bridge this chasm between the chunk of opportunities which lie untapped in this market segment, it has to move with right competitive strategies on right time.

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CHAPTER-6

BIBLIOGRAPHY

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6.1 References:

Co - o p e r a t i v e u r b a n b a n k A n n u a l r e p o r t s

web site www.google.com www.scribd.com Brochures of urban bank

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