Cash Management

PROJECT ON CASH MANAGEMENT
CASH MANAGEMENT
A case study of
HDFC LIMITED
Dissertation submit In partial fulfillment for s the award of the degree of
MASTERS BUSINESS ADMINNISTARTION
S P R COLLEGE OF ENGINEERING AND TECHNOLOGY (Affiliated to JNTU UNIVERSITY) 2009-2011
DECLARATION

I Chandra. Rajesh hereby declare that this project work is entitled CASH MENAGEMENT with reference to HDFC LIMITED in partial fulfillment of MASTER OF BUSINESS ADMINISTRATION, JNTU University Hyderabad. Is entirely original work and has not been submitted earlier by any one for any degree or diploma.
Place: Hyderabad. Date:
CERTIFICATE BY THE GUIDE

This is to certify that the project report entitled CASH MANAGEMENT in M/s.HDFC LIMITED is bonafide work done by Chandra. Rajesh
Date: Place: - Hyderabad
ACKNOWLEDGEMENT
I owe my deep sense of gratitude to my guide Mrs. ___________________ lecturer in commerce without whose guidance and encouragement research would have been a dream in my

life. I am also thankful to Mr.Ravikanth Lecturer in commerce for her necessary help. I owe my special thanks to Vice-principal of College ________________ for the support extended during the study. I also owe my thanks to HDFC LIMITED management who has been kind enough in permitting me to carry on the study their organization. I am specially thankful to who in spite of being busy could spare sometime in giving necessary information for study.
I am also thankful to my parents . I also thank my dear friends support and co-operation extended during my study.
CONTENTS
CHAPTER-1 Introduction Need of the study
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Objective of the study Methodology of the study Limitations of the study Chapterisation of the study
CHAPTER-2 Cash Management Function of cash management Objectives of the cash management Problems of the cash management Cash planning Managing the cash flows Determining the optimum cash balance CHAPTER-3 Company profile CHAPTER-4 Analysis of the company CHAPTER-5 Conclusions Suggestions Bibliography.
CHAPTER-1
CASH MANAGEMENT
Cash is the important current asset for the operation of business. It is main component of working capital working capital management. A firms working capital consists of its investment in current assets, which include short-term assets such as cash and bank balance inventories, receivables and marketable securities. Cash management refers to management of cash balance and bank balance and also includes the short terms deposits. The cash is obviously the most important current assets, as it is the most liquid and can be used to make immediate payments. A financial manger is required to manage the cash flows arising out of the operations of the firm for this he will have to forecast the cash inflows form sales and out flows for costs etc. Cash is the money, which a firm, can disburse immediately without any restrictions the cash include coins currency, Bank balances and cheques held by the firm. According to Upton cash is the life blood of a business enterprise its steady and healthy circle through out the entire business operation it is the basis of the business solvency.
NEED OF THE STUDY

Every company requires cash though they vary in magnitude. The need of cash cannot be over emphasized its like blood to the organization cash is the basic input needed to keep the business running on a continuous basis. It is also the ultimate out put expected, to be realized by selling the service or product Manu factored by the firm. Every business has to maintain a cash balance to meet needs that can be managed only with cash. The convenience and liquidity associated with deeming cash also carriage a cost however for cash does not earn a return for the business some business hold cash equivalents such as Treasury Bill which provide almost all of the convenience of cash but also earn return for the holder albeit one lower than earned by the business on real projects. 6

A financial manager is required to manage the cash flows arising out of the operation of the firm for this he will have to forecast he cash inflows from sales and out flows for costs etc. This will enable the financial manager to identify the timings as well as amount of future cash flows. Cash management close not end here, and financial manager my also be required to identify the sources from where cash may be procured on a short term basis or the outlets where excess cash may be invested for a short term. In most of the firms the financial manager who is responsible for cash management also controls the transactions that affect the firms investment in marketable securities. In case of excess cash marketable securities are purchased and in case of shortage of cash apart of the marketable securities is liquidated to produce enough cash all these issues are important to the financial manger for several reasons for Judicious management of cash near cash asserts and marketable securities allows the firm to hold the minimum amount of cash necessary to meet the firm obligations as and when they arise as a result the firm is not only able to meet its obligations but also is in a position to take advantage of the opportunity of carrying.
OBJECTIVE OF THE STUDY

The following are the objective of the study. 1. To examine cash management in HDFC LIMITED 2. To make necessary suggestions for improving the efficiency of cash management in HDFC LIMITED.
METHODOLOGYOF THE STUDY

The present study is case study of cash management the study cover & years from the source of study is manly secondary data obtained from annual reports & company web site HDFC LIMITED brief discussions were also under taken with executive of finance and Accounts Department for obtaining clarification wherever necessary. For analysis basically ratio analysis cash flow analysis and percentages have been used. Percentages were also calculated to facilitate better under standing of the comparison further whenever necessary tables and diagrams have been depicted. Lastly for under standing the four-year figures have been compared. The source of information for calculating the said percentage and ratio had been the annual reports obtained directly from the company.
LIMITATIONS OF THE STUDY

1. The study is based on ratios and percentages from information available in financial statements. 2. However the topic under the study may not be free from limitations due to certain factors. 3. The major limitation of the project under study was time since it was to be completed with in a short period exhaustive study was not possible. 4. Since only one company was studied the findings cannot be generalized.
CHAPTERIZATION OF THE STUDY

1. The study is divided in to five chapters the first being introduction. 2. Second chapter followed by detailed explanation of cash management. 3. The third chapter is company profile. 4. 5. The fourth chapter is analysis of cash management in HDFC LIMITED The fifth chapter is conclusions & suggestions.
CHAPTER-2
CASH MANAGEMENT
One of the most important factors for the failure of business firm is the financial distress, which is especially more among small firms. An efficient management of these current assets will not only reduce the risk of financial distress but can also make passive contribution to the profit of the firm. These current assets involve investment of scarce and costly resources at the firm and therefore it is appropriate to make careful analysis of investment in current assets. The present study concentrates on the matters relating to management of cash and marketable securities. Money is like much, not good except it be spread -FRANCE BACON. Cash is the important source for the operations of the business. Cash is the basic input needed to keep the business moving. A major function of the financial manager is to maintain sound cash position. Cash management refers to management of cash balance and bank balance and also includes the short-term deposits. Cash is most liquid and can be used to make immediate payments 10

with out any restriction. The term cash includes coins, currency and cheques held by the firm and in its bank balance. Cash management is concerned with the managing of (i) (ii) (iii) Cash flows in to and out of the firm Cash flows within the firm and. Cash balances held by the firm at a point of firm by financing deficit or investing surplus cash.
It can represent by cash COLLECTION INFORMATION CONTROL BOORROWER INVESTMENT
PAYMENTS Cash management cycle Management cycle as shown in figure2.1 ales generate cash, which has to disbursed out. The surplus has to invest while deficit has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same, it also seeks to achieve liquidity and control. Cash management assumes more importance than other current assets because; cash is the most significant and the least productive asset that a firm holds. It is significant because it is used to pay the firms obligations. However cash is unproductive unlike fined asset are inventories, it does not produce goods for sale. There fore the aim maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way.
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The management of cash is also important because it is difficult to predict cash flows accurately particularly the inflows and that there is no perfect coincidence between the inflows and out flows at cash during some periods cash out flows will exceed cash inflows because payment for taxes dividends or seasonal inventory build up. At other firms cash inflow will be more than cash payments cease there may be large cash sales and debtors may be realized in large sums promptly. Cash management is also important because cash constitutes the smallest portion of the total current assets yet managements been done in cash management techniques. An obvious aim at the firm now days is manage its cash in such a way as to keep cash balance at a minimum level and to invest the surplus cash funds in profitable opportunities. In order to resolve the uncertainty about cash flows predication and lack of synchronization between cash receipts and payments. The firm should evolve strategies regarding the following four faceless of cash management. Cash planning Cash inflow and out flows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget should be prepaid for this purpose. Managing the cash flow: The flow of cash should be properly managed. The cash inflow should be accelerated while as for as possible decelerating the cash out flows. Optimum cash level: The firm should decide about the appropriate level at cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balance. Investing the surplus cash: The surpluses cash balance should be invented for profits. The ideal of cash management system will depend on the firms products organization structure competition culture and available.
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FUNCTIONS OF CASH MANAGEMENT
The management of cash is particularly important because it brings into sharp focus the trade-off between risk and returns faced by a financial manager. If cash is not available to meet bills as they fall due, the ultimate risk is faced the risk of bankruptcy. Economic theory has now established that business firms or individuals have four primary motives for holding cash- the transaction motive, the precautionary motive the speculative motive and the compensation motive. Transaction motive: Business firms as well as individuals keep cash because they require it for meeting demand for cash arising out of day to day transactions. In order to meet the obligation for cash flows arising out of course of business, every firm has adequate cash balance. A firm requires for making payment for purchase of goods and services supplier of goods and all other operational expenses are paid in cash. Interest on borrowings taxes to government and dividends to share holders are also payable in cash. These cash flows are met out at cash in flows arising out of cash sales or recovery from the debtors. However, the inflows pay not always be equal to cash out flows when the necessity of keeping a minimum cash balance to meet payment obligations arising out of expected transaction is known as transaction motive for holding cash. In a normal situation both the inflows and out flows and hence also the net difference tend to increase or decrease in direct proportion to the level of sales. Precautionary motive: The precautionary motive for holding cash is based on the need to maintain sufficient cash to act as a cushion or butter against unexpected events. In spite of making best efforts, the future cash flows can not be ascertained with 100% accuracy. One never knows about the happening of natural calamities or sudden increase in the cost of raw materials or other facts. Such events may seriously interrupt even the best planned financial plan and thus may temporarily make the cash budget ineffective and non-assistant therefore a firm should maintain larger cash balance than required for day to day transactions in order to ovoid any unforeseen situation arising because of insufficient cash. The necessity of keeping a cash balance to meet any emergency situation. The amount of cash a firm must hold for transaction and precautionary depends upon. 13

(i) (ii) (iii) Degree of predictability of its cash flows. Its willingness and capacity to take risk of running short cash only. Available immediate borrowing powers.
Speculative motive: Cash may be held for speculative purposes in order to take advantage of potential profit making situations. A firm may come across an unexpected opportunity to make profit, which is not usually available in normal business routine. The firms desires to keep some cash balance to capitalize on opportunity of making an unexpected profit is known as speculative motive. The speculative motive provides a firm which sufficient liquidity to take advantage of unexpected profitable opportunities that may suddenly appear (and just as suddenly disappear if not capitalized immediately). Compensation motive: Commercial banks require that in every current account there should always be a minimum cash balance. Presently, this minimum cash balance various from Rs 3000 to Rs 5000. This amount remains as a permanent balance with bank so long as the current account is operative. It is become a sort of investment by the firm at bank in order to avail the convenience of Current Account, the minimum cash balance must be maintained by the firm and this provides the compensation motive for holding cash. Out of different motives the transaction motive is the most oblivious one and is formed in every firm. Even the precautionary motive is common and a firm maintains cash balance both for the transaction motive and the precautionary motive. OBJECTIVES OF CASH MANAGEMT There are two objectives of cash management. (i) (ii) To meet the cash disbursement needs as per the payment schedule. To minimize the amount locked up as cash balances.
As a matter of fact both the objectives are mutually contradictory and there fore. It is a challenging task for the finance manager to reside then and to have the best in this process.
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PROBLEMS OF CASH MANAGEMENT
Impact of Inflation on Cash flow Problems Of cash Management
Timing of Cash Flow
Environment
Managerial decisions Problems Of cash Management Impact of Inflation on Cash Flow: Inflation is growth in value terms and, therefore, in periods of rapid inflation, a firm should expect to find itself in a very unfavorable cash flow position, like that of the firm which is growing very fast. In the words of W.C.F. Hartley, In advance terms, it comes dangerously close to compounding a felony. Timing of Cash Flow: When business is of a seasonal nature, cash inflows may vary from one period to another. The above table indicates the variations during the different periods of three different firms with identical cash balances at the beginning and at the end of the year, but with vast differences of cash flow. Most amounts are two-dimensional, viz., a quantity multiplied by a price. Cash flow amounts possess the perverse third dimension of time; and indeed, it is the time dimension, which is at the root of the various problems created by accounting concepts. Therefore, in the long-term, profits are aimed at; but in the short-term, the cash flow is much more important. Environment: 15

There are environmental constraints, which create cash flow problems for a firm. Such problems may be created by the very nature of its operation, such as the location or seasonality of the market place. Every firm should, therefore, examine its own position in respect of its environment, which will affect its short-term flow. Managerial Decisions: A cash flow does not flow of its own accord. It is a direct consequence of management decision. The management procedures employed for maximizing the use of cash through the control of payables and related payments are: (i) (ii) (iii) (iv) (v) (vi) Timing payment to vendors so that bills are paid only as they fall due. Establishing procedures, which will prevent or minimize the loss of discounts? Centralizing payable and disbursement procedures. Reducing compensating balance: on deposit with banks. Improving control over inter-company transfer Utilizing facilities very efficiently
CASH PLANNING
Cash flows are inseparable parts of the business operations of all firms. The firm needs cash to invest in inventories receivable and fined assets and to make payment for operating expenses in order to maintain growth in sales and earnings. It is possible that a firm may be making adequate profits, but may suffer from the shortage of cash as its growing needs may be consuming cash very fast. The cash poor position at the firm can be corrected if its cash needs are planed in advance. At times a firm can have excess cash with it if its cash inflow exceed cash out flows such excess cash may remain idle. Again such excess cash flows can be anticipated and properly invested if cash planning is resorted to. Thus, cash planning can help to anticipate future cash flows and needs of the firm and reduces the possibility of idle cash balances and cash deficits. Cash planning is a technique to plan and control the use of cash: It protects the financial condition of the firm by developing a projected cash statement from a forecast of expected cash in flows and out flows for a given period. Therefore costs may be based 16

on the present operations or the anticipated future operations cash plans are very crucial in developing the overall operation plans of the firm. Cash planning may be done on daily, weekly or monthly basis. The period and frequency of cash planning generally depends upon the size of the firm and philosophy of management. Large firms prepare daily and weekly forecast, medium size firm usually prepare weekly and monthly forecasts. Small firms may not prepare formal cash forecasts because at the non-availability of information and small-scale operations. But if the small firms prepare cash projections, it is done on monthly basis. As a firm grows and business operations become complete cash planning becomes inevitable for its continuing success.
CASH FORECAST
Full utilization of money under corporate management focuses attention on their most economical use, their control and safekeeping on an assurance of adequate supply, and on the temporary investment of excess funds. In order to achieve the first objective the economical use of available cash it is necessary to devise a plan to measure the funds required to run a corporation. Such a plan is known as cash forecast. Types of Cash Forecasts: There are two types of cash forecasts:
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Types of Cash Forecasts
Short-term Cash Forecast
Long-term Cash Forecast
Methods Receipts Disbursement Method The Adjusted Income Method The Working Capital Differential Method
Methods The Cash Book Method of Analysis Cash Tank Method of Analysis
Figure 2.3 Types of cash Forecasts Short-term Cash Forecast: The short-term cash forecast if carefully designed and regularly revised, can be highly accurate and have many applications. Of the several use which the managers report of this type of forecast, the most important are: (a) determining operating cash requirements; (b) anticipating shortterm financing on and (c) managing money market investments. Receipts and Disbursements Method: This method is essentially as projection of the cash records wherein the forecast includes detailed listing of the sources of cash receipts and the nature of cash disbursements. This method is used by companies, which exercise a close control over cash because it traces the movements of cash through each item of income and expenditure. Receipts and disbursements forecasts are often shortrange forecasts. The preparation if reliable cash flow forecast under this method depends on proper budgeting of sales, manufacturing and financial expenses. Adjusted Income Method:
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This method consists of a forecast of net income and the correction of this figure by any other transactions that are necessary in order to adjust it to a cash basis. In most concerns, which use this method, the profit and loss budget constitutes the primary basis for the forecast; the data, however, are supplemented by forecasts of balance sheet items. The adjusted income method is based on differences between income and expenditure rather than on aggregate transactions. Working Capital Differentials Method: This method is based on a pre-determination of the working capital, which is available at various future dates, and the adjustment of these dates on a cash basis. In this case, the basic forecast covers the information appearing in the balance sheet and the supplementary data are taken from the profit and loss statement and other sources. This method is not common in actual use. The initial object of preparing short-term cash forecast is to reveal the forecast of cash and bank balances at the end of cash short-term control period, which may be a month throughout the planning period. Long-term Cash Forecast: Unlike the short-term cash forecast, which is highly detailed, the longterm cash forecast attempts only to give a rough sketch of a companys distant financing requirements. This forecast has many uses. It pinpoints a companys future money needs, especially in working capital requirements. If a firm experiences a serious cash drain, the forecast will give it some idea of how rapidly this is happening and why. Another use of the ling-term cash forecast is that it enables a firm to appraise its proposed capital projects. It shows not only how much cash a corporation would generate to support these projects; it also indicates how much finance, if any, would be required to complete them. The extended cash outlook thus enables senior executives to determine which proposals bearing on a companys expansion should be approved, deferred or abandoned. There are two methods for designing an appropriate framework for analysis. The Cash Book Method of Analysis: It is designed to measure the cash flow on the basis of the classified entries, which appear in the cashbook. When a firm receives or pays out cash or cheques in the course of the daily conduct of its business affairs, each receipt or payment if recorded in the cashbooks. Cash Tank Method of Analysis: It is designed to measure the cash flow not by an accounts classification but by the areas of management responsibility. These areas determine cash flows in the 19

first place. Cash is considered to be a vital content of the tank, which must not be allowed to run dry. It may be compared with any tank containing a valuable liquid, which must not be allowed to run dry. A rank is fitted with both inlet and outlet pipes, each provided with a control valve
CASH BUDGET
A cash budget is also referred to as a cash flow forecast. It is a method of predicting the amount of funds and the time when they would be required by an organization. In simple words, its basic idea is to predict when and in what quantity the receipts of cash would come into the firm and when and in what quantity the payments in cash would be made. A cash budget is a forecast of anticipated cash receipts and disbursements. The cash budget is one of the most important tools in the budgetary kit. Advantages of Cash Budget 1. The management can avoid the hazards of insolvency. 2. It is possible for a firm to predict future needs for a future period. 3. It helps a firm to attune itself to the changing conditions. 4. It is possible to develop important methods, both for the preparation of forecasts and for their interpretation. It provides a better basis for anybody to form his judgments about the financial health of a company. Difficulties in the Preparation of Cash Budget: (i) It is extremely difficult to get comprehensive and detailed planning data, which are essential for the preparation of a cash budget. A large part of the data covers operational areas, which are beyond the scope of the financial manager. The top managements support is absolutely indispensable for ensuing the flow of the information, which may be required in the process of a cash budget formulation. (ii) No forecast can ever be expected to prove exactly right. The reason is that in a large number of situations; a business has to operate in an atmosphere of change. Cash budgets are easily vulnerable to such changes. (iii) Some margin of error is always inherent in any cash forecast.
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Reducing Uncertainty in Cash Budget: 1. If a firm prepares several budgets based on optimistic, pessimistic and the most likely forecasts, an evaluation of such cash flows allows it to determine the amount of financing necessary to cover and adverse situation. 2. If it simulates the occurrence of sales and other uncertain events, a probability distribution of the firms cash month can be developed.
MANAGING THE CASH FLOWS

Once the cash budget has been prepared and appropriate net cash flow established, the financial manager should ensure that there does not exist a significant deviation between projected cash flows and actual cash flows. To achieve this cash management efficiency will have to be improved through a proper control of cash collection and disbursement. The twin objectives in managing the cash flows should be to accelerate cash collection as much as possible and to decelerate or delay cash disbursements as much as possible.
Accelerating Cash Collections: A firm can conserve cash and reduce are requirements for cash balances if it can speed up its cash collections. The first hurdle in accelerating the cash collection could be the firm It self it may take ling time to process the invoice. The days taken to get the invoice to the buyer is called order processing float is then so many floats that are buyer float, deposit float. An efficient financial manager will attempt to reduce the firms deposit float by speeding up the mailing, processing and collection times. Decentralized Collections: 21

A large firm operating over geographical areas can speed up its collections by following a decentralized collection procedure. A decentralized collection procedure, called concentration Banking in the USA is a system of operating through a member of collection centers in stead of a single collection center centralized at the firms head office. The basic purpose of the firm collections is to minimize the long between the mailing time from customers to the firm can make the use at funds under the decentralized collections, the firm will have a large number of bank accounts operate in the areas where the firm has its branches. All branches may not have the collection centers. The selection of the collection center will depend upon the volume of billing. The collection center will be required to collect cheques from customers and deposit in their local bank Accounts. Lock-box System: Another technique of speeding up the process thing and collection times which is quite popular in the USA and European countries is Lock-box system some foreign banks in India have started providing this service to firms in India. Incase of the concentration banking cheques are received by a collection center and after processing are deposited in the bank. There are two main advantages at the look-box systems these are first the bank handles remittances prior to deposit at a lower cost. Second the cheques are deposited immediately upon receipt of remittance and their collection process starts sooner than of the firm would have processed them for internal accounting purposes prior to their deposit. Instrument used for collection: The main instruments of collation used in India are. (i) (ii) (iii) (iv) (v) Cheques Drafts Documentary bills Trade bills and Letter of credit
Controlling Disbursements:
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The effective control of disbursement can also help the firm in conserving cash and reducing the financial requirements disbursement arise due to trade credit which in a sources funds, the firm should make payments using credit terms to the fullest enters. There is ra advantage in paying sooner than agreed by delaying payments as much as possible the firm makes maximum use of trade credit as a sources of funds a source, which is interest free.
DETERMING THE OPTIMUM CASH BALANCE

One at the primary responsibilities of the financial manage is to maintain a sound liquidity position of the firm so that dues may be settled in time. The firm needs cash not only purchase row material and pay wages but also payments of dividends interest tans and countless other purpose. The test of liquidly is rally the availability of cash to meet the firms obligations when they be come due. The Operating cash balance is maintained for transaction purposes and on additional amount may be maintained as a butter of safely locks. When firm runs out of cash it may have to sell. INVENTORY MODELS FOR CASH MANAGEMENT A business enter prices should not lose sight of maintaining sufficient liquidity while earning profits. In other words, profits are necessary but the maintenance of optimal level of cash balance should be cared for this optimality of cash can judged. (i) (ii) (iii) (iv) (v) (vi) (vii) Study of variations in cash balances. Relation ship of cash with the sales volume. Turnover of cash. Current ratio test. Quick ratio test. Cash in terry of number of days operational requirement. Coverage current liabilities etc.
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Various modes for the management of inventory have been applied to the management of cash. The primary purposes its marketable securities. If available or borrow this in valves from section costs. On other hand, If the firm maintains a high level of cash balance, It will have a sound liquidity position but forgot the opportunities to earn interests. The potential interest lost on holding large cash balance involves an opportunity cost to the firm. Thus the firm should maintain on optimum cash balance neither too small nor to too large. To find out the optimum cash balance the transaction costs and risk of too small a balance should be matched with the opportunity costs of too large a balance figure shows this trade off graphically. If the firm maintains larger cash balances, Its transactions costs would decline, but the opportunity costs would increase point the sun of the two costs it minimum. This is point of optimum cash balance which a firm should seek to achieve.
Y Total Cost
Minimum to Cost
Opportunity Cost
Transaction cost Optimum cash balance Fug 2.4 Optimum Cash Balance
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Of each model is to enable the management to maintain an optimum level of cash at all times for this purpose sophisticate models have been developed by William J. Baumol, Merton H, Daniel or James Tobin and stl.arches. WILLIAM BAUMOL MODELS One of the first inventory models for the management of cash is that William Boumals model has assumed that a firm of an individual obtains cash either by borrowing it or by with drawing from investments. Both alter natives carry particular interest rate cash is borrowed or with drawn in a lot size of a certain amount spaced out throughout a period. For each borrowing or with drawls there is a fixed cost, which is independent of the amount transferred. The purpose the model is to deter mine the optimal borrowing of with drawls of a lot-size of the amount Boumals model is given below.
C=
2bt 1
Where C = is the lot-size of optimal borrowing with drawls. b = is fixed cost. T = is the total transaction stream of volume transaction. i = is the interest rate per rupee during the period
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Figure 2.5 Baumols Model MILLER-ORR MODEL: Also known as Stochastic Model. Miller Orr (1966) has expanded the Baumols model, which is not applicable if the demand for cash is not steady. Where uncertainty over cash flows is large, the inventory type model cannot be used. If balances fluctuate randomly, then a stochastic, model cab be used to set control limits. The miller-Orr model argues that changes in cash balance over a given period are random in size as well as in direction. The cash balance of a firm may fluctuate irregularly over a period of time. The model assumes. (i) (ii) Out of the two assets i.e., cash and marketable securities, the latter has a marginal yield, and. Transfer of cash to marketable securities and vice-a-versa is possible without any delay but of course of at some cost. The model has specified two control limits for cash balance. An upper limit, H, beyond which cash balance need not be allowed to go and a lower limit, L, below which the cash level is not allowed to reduce. The cash balance should be allowed to move within these limits. If the cash level reaches the upper control limit, H, then at this point, a part of the cash should be invested in 26

marketable securities in such a way that the cash balance comes down to a pre-determined level called the return level, R. if the cash balance reaches the lower level, L then sufficient marketable securities should be sold to realize cash so that the cash balance is restored to the return level, R. no transaction between cash and marketable securities is undertaken so long as the cash balance is between the two limits of H and L. The Miller-Orr model has been presented in Figure 21.4.
Amount Of Cash Upper limit
Buy securities
Lower Limit
Miller- Orr Model
Time
The Mille-Orr model has superiority over the Baumols model. The latter assumes constant need and constant rate of use of funds, the Miller-Orr model, on the other hand, is more realistic and maintains that the actual cash balance may fluctuate between the higher and the lower limits. The model may be defined a Z Where T V i = = [3TV/4i]
= Transaction cost of conversion = Variance of daily cash flows and Daily % interest rate on investments,
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ADANTAGES OF CASH MANAGEMET (i) The availability of cash may be a matter of life or death. A sufficiency of cash cans deep an unsuccessful firm going despite losses. Conversely, this insufficiency can bring failure in the case of actual or prospective earning. (ii) An efficient cash management through a relevant and timely cash budget may enable a firm to obtain optimum working capital and ease the strains of cash shortage, facilitating temporary investment of cash and providing funds for normal growth. (iii) Cash may be said to be like the blood stream in a living body; for it is very much the lifeblood of business. It must be kept circulating around the arteries of the business because if the circulation gets clogged, sickness and death may occur, as they do when a clot forms in an artery. (iv) The first priority of any business is survival, and this cannot be assured, even in the short run, unless a company remains both liquid and solvent, that is, unless it is able to pay its debts as and when they fall due, both immediately and in the foreseeable future. (v) (vi) (vii) (viii) (ix) Cash management involves balance sheet changes and other cash flows that do not appear in the profit and loss account such as capital expenditure. It gives an inventory of the financial reserves which are available in the event of a recession. It yields a plan as an integral part of the procedure. It views problems in a dynamic context over a period of time. It yields a number of additional insights into the crucial task of framing a sound debt policy. The focus is on the solvency of the firm in adverse circumstances rather than on the effects of leverage in normal circumstances. (x) While a regularization of cash flows enables a management to achieve a more effective planning, sophistication in handling cash enables a firm to cut down on the amount that it mist deep in order to sustain any given level of operations. DISADVANTAGES OF CASH MANAGEMET (i) It may offer a solution of compensation, which is no justified on the basis of a concrete notion, particularly when the business economy operates in an uncertain world.
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(ii) It considers economic recession as the main source of uncertainty but ignores technological developments, shifts in consumer preferences, political changes etc. Moreover, recessions are not the only source of economic unhappiness.
CHAPTER-3
COMPANY PROFILE
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's
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business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People. Capital Structure As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550 crore. The paid-up capital as on said date is Rs. 455,23,65,640/- (45,52,36,564 equity shares of Rs. 10/- each). The HDFC Group holds 23.87 % of the Bank's equity and about 16.94 % of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). 27.46 % of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has about 4,58,683 shareholders. The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No US40415F2002. HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of 1,725 branches spread in 771 cities across India. All branches are linked on an online real-time basis. Customers in over 500 locations are also serviced through Telephone Banking. The Bank's expansion plans take into account the need to have a presence in all major industrial and commercial centres where its corporate customers are located as well as the need to build a strong retail customer base for both deposits and loan products. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centres where the NSE/BSE have a strong and active member base. The Bank also has 4,000 networked ATMs across these cities. Moreover, HDFC Bank's ATM network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders. Mr. Jagdish Kapoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in 30

public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength. HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs).
The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that our clients always get the finest services we offer. The Bank has prioritized its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. In each of its businesses, the Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share. HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: Wholesale Banking Services The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporate and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of 31

leading Indian corporate including multinationals, companies from the domestic business houses and prime public sector companies. It is recognized as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks. Retail Banking Services The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2009, the bank had a total card base (debit and credit cards) of over 13 million. The Bank is also one of the leading players in the merchant acquiring business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc. Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporates need more sophisticated risk management information,
32

advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio. Credit Rating The Bank has its deposit programs rated by two rating agencies - Credit Analysis & Research Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE, which represents instruments considered to be "of the best quality, carrying negligible investment risk". CARE has also rated the bank's Certificate of Deposit (CD) programme "PR 1+" which represents "superior capacity for repayment of short term promissory obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.) has assigned the "AAA ( ind )" rating to the Bank's deposit programme, with the outlook on the rating as "stable". This rating indicates "highest credit quality" where "protection factors are very high" The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by CARE and Fitch Ratings India Private Limited and its Tier I perpetual Bonds and Upper Tier II Bonds rated by CARE and CRISIL Ltd. CARE has assigned the rating of "CARE AAA" for the subordinated Tier II Bonds while Fitch Ratings India Pvt. Ltd. has assigned the rating "AAA (ind)" with the outlook on the rating as "stable". CARE has also assigned "CARE AAA [Triple A]" for the Banks Perpetual bond and Upper Tier II bond issues. CRISIL has assigned the rating "AAA / Stable" for the Bank's Perpetual Debt programme and Upper Tier II Bond issue. In each of the cases referred to above, the ratings awarded were the highest assigned by the rating agency for those instruments? Corporate Governance Rating The bank was one of the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entity's current performance and an expectation on its "balanced value creation and corporate governance practices" in future. The bank has been assigned a 'CRISIL GVC Level 1' rating which indicates that the bank's capability
33

with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest.
On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was formally approved by Reserve Bank of India to complete the statutory and regulatory approval process. As per the scheme of amalgamation, shareholders of CBoP received 1 share of HDFC Bank for every 29 shares of CBoP. The merged entity will have a strong deposit base of around Rs. 1,22,000 crore and net advances of around Rs. 89,000 crore. The balance sheet size of the combined entity would be over Rs. 1,63,000 crore. The amalgamation added significant value to HDFC Bank in terms of increased branch network, geographic reach, and customer base, and a bigger pool of skilled manpower. In a milestone transaction in the Indian banking industry, Times Bank Limited (another new private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks in the New Generation Private Sector Banks. As per the scheme of amalgamation approved by the shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank.
HDFC Bank Ltd. (BSE: 500180, NYSE: HDB) is a commercial bank of India, incorporated in August 1994, after the Reserve Bank of India allowed establishing private sector banks. The Bank was promoted by the Housing Development Finance Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank has 1,412 branches and over 3,295 ATMs, in 528 cities in India, and all branches of the bank are linked on an online real-time basis. As of September 30, 2008 the bank had total assets of INR 1006.82 billion. For the fiscal year 2008-09, the bank has reported net profit of Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09.
34
Business Focus HDFC Bank deals with three key business segments - WholesaleBanking Services, Retail Banking Services, Treasury. It has entered the bankingconsortia of over 50 corporates for providing working capital finance, tradeservices, corporate finance and merchant banking. It is also providingsophisticated product structures in areasof foreign exchange and derivatives, money markets and debt trading and equityresearch. Wholesale Banking Services The Bank's target m inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks. Retail Banking Services The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2009, the bank had a total card base (debit and credit cards) of over 13 million. The Bank is also one of the leading players in the merchant acquiring business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
35
Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. These services are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio. Distribution Network HDFC Bank is headquartered in Mumbai. The Bank has an network of 1,725 branches spread in 771 cities across India. All branches are linked on an online real-time basis. Customers in over 500 locations are also serviced through Telephone Banking. The Bank has a presence in all major industrial and commercial centres across the country. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centres where the NSE/BSE have a strong and active member base. The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC Bank's ATM network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders. Housing Development Finance Corporation Limited or HDFC (BSE: 500010), founded 1977 by Ravi Maurya and Hasmukhbhai Parekh, is an Indian NBFC, focusing on home mortgages. HDFC's distribution network spans 243 outlets that include 49 offices of HDFC's distribution company, HDFC Sales Private Limited. In addition, HDFC covers over 90 locations through its outreach programmes. HDFC's marketing efforts continue to be concentrated on developing a stronger distribution network. Home loans are also Sharcket through HDFC Sales, HDFC Bank Limited and other third party Direct Selling Agents (DSA).
36
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION:

37

STATEMENT OF SOURCE AND APPLICATION OF FUNDS FOR THE YEAR OF 20052006
38
Particular
Amount (laks)
77.71 (Total source Total application)
39
INTERPRETATION:
The above table shows that the sources and used of the funds during the period of 2004-05. It shows the total source of the funds during the year were Rs.716.13 Lac. The funds are mainly from the long term Funds Rs.675.12Lac and increase in share capital that Rs.9.00 Lac. The application of funds in this year was Rs.638042 Lac. They are mainly from long term advances Rs. 201.06 Lac and investment in bonds Rs.435.02 Lac. During these the company acquired from it business Rs. 25.01 Lac.
ADJUSTED PROFIT AND LOSS ACCOUNT FOR THE YEAR 2005-2006

Dr. (Rs. In lakhs) Cr.
Particular
To Balance B/F To Depreciation To Reserve
Amount
46.56 5.50 6.42
Particular
By Balance C/F By business funds
Amount
33.47 from 25.01
40

58.48 58.48
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2005-2006

Increase in working capital Decrease in working capital
Particular
2005
2006
41

CURRENT ASSETS Cash in hand Balance with COMPANY Short term advances Interest receivables Other current assets 65.01 70.27 90.26 25.11 29.57 69.56 36.76 202.68 24.12 23.36 33.51 0.99 6.21 4.55 112.42 -
CURRENT LIBILITIES
Short term Funds Interest payable creditors Other current liabilities Decrease in working capital 220.87 90.60 6.96 0.96 120.21 187.28 4.26 1.09 96.68 83.07 220.46 220.46 100.66 2.7 0.13
42
INTERPRETATION:
The above table shows that the schedule of changes in working capital from the year of 2005-2006. It shows the working capital was decrease Rs. 83.07 Lac. The current assets were some what increase Rs.6.21 Lac and short advance are also decrease Rs. 112.42 Lac. The current liabilities the short term Funds increase Rs. 100.66 Lac and the creditors was increase Rs.2.7 Lac. The other current liabilities was increased Rs. 0.13 Lac.
Statement of source and Application of Funds for the Year of 2006-2007
particulars
Amount
Sources of funds
Increase in share capital Sale of fixes Assets Funds from Business 5.23 4.71 45.62
TOTAL
55.56
Application of funds
Increase in investment Long term Loans Term Deposit 42.77 40.62 39.90
TOTAL 123.29 67.73
43
Decrease in working capital

(total sources total Application)
(Source: Annual report of INDIAINFOLINE LIMITED) Interpretation:The above table shows that the sources and used of the funds during the period of 20062007. It shows the total sources of the funds during the year were Rs.55.56sac the funds are mainly from the share capital Rs.5.23 lack. Fixes assets Rs.4.71 lack.
44

The application of the funds in this year Ts. 123.29lac. The funds are mainly coming in to Increase in Investment Rs.42.77Lac. Term loans Rs.40.62 and term Funds Rs.39.90 lack.
ADJUSTED PROFIT AND LOSS ACCOUNT FOR THE YEAR 2006-2007 Dr Cr

Particulars Amount particulars Amount
To Balance B/F To Depreciation
81.40 10.78
By Balance By Funds from business
46.06 46.12
92.18
92.18
45
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2006-2007
46

Increase in working capital Decrease in working capital
Particular CURRENT ASSETS

Cash in hand Balance with Company Short term advances Interest receivable Other current assets
2006
2007
81.84 52.78 125.68 20.09 24.06
65.01 70.27 90.26 25.11 29.57
16.83 35.42 -
17.54 5.02 5.51
CURRENT LIBILITIES
Short term advances Interest payable Creditors Other current liabilities ( Increase in working capital) 225.06 50.10 26.92 1.26 220.87 90.60 6.96 0.96 40.50 4.19 19.96 0.3 40.23
92.75
92.75
Interpretation:
47

The above table shows that the schedule of changes in working capital from the year of 2006-2007. It shows the working capital increase Rs.40.23lak, the current assets decrease 5.51lak, short term advances increase Rs.35.42. the interest receivable Rs.5.02lak. The current liabilities the short term Funds increase Ts. 4.19lak, Interest payable decrease Ts.40.50lak, creditors increase Rs. 19.96 lack and other current liabilities increase Rs.0.3lak
STATEMENT OF SOURCE AND APPLICATION OF FUNDS FOR 2007-2008

Particulars Amount
Sources of funds
Increase in share capital Sale of fixes assets Funds from business TOTAL 8.26 8.72 59.64 59.64
Total application of funds

Increase in investment Long term loans Term Funds TOTAL Decrease in working capital ( Total source total application) 20.04 70.06 20.90 111.00 51.36
(Source: annual report on INDIAINFOLINE LIMITED)
Interpretation:
48

The above table shows that the source and used off the funds during the period of 200607. It show the total source of the funds during the year was Rs.59.64. the funds are mainly from share capital Rs. 8.26lsk,the sale of field assets Rs. 8.72 lack and funds from business Rs. 42.66 rack. The total Application of the funds isRs.111.00 lack .the funds are mainly coming in to increase in investment Rs. 20.04lac. Long term loans Rs.70.06lac and term Funds are 20.90 lack,
ADJUSTED THE PROFIT AND LOSS ACCOUNT FOR THE YEAR OF 2006-07
Dr particulars Rs/Particulars Cr Rs/-
To Balances B/F
86.97
By Balance C/F By Depreciation
81.4 1.0 42.66
To Reserves
38.09
By Funds from business
125.06
125.06
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR OF 2006-07

INTERPRETATION:
49

The above table shows that the schedule of changes in working capital for the year of 20072008. It shows the working capital decrease Rs. 73.33lad.In the current assets cash in land was
particulars
2006
2007
Increase in working capital
Decrease in working capital
Current Assets
Cash on land Balance with Company Short term advances Interest receivable Other current assets
Current liabilities
106.24 130.27 132.68 30.90 24.06
81.84 52.73 125.68 20.09 24.06
24.40 77.54 7.00 10.81 -
Short term Funds Interest payable Creditors Other current liabilities 270.96 225.06 45.66 50.10 30.92 26.92 2.22
Decrease in working capital -
45.9 4.00 0.96 73.33
4.44
-
1.26
124.19 124.19 somewhat increase Rs. 24.40lac.Balance with the Company increase Rs.77.54 lad, Interest Revisable on Rs. 10.81 lack, and the other current assets are Both years is same. The current liabilities the short term Funds are decrease Rs.45.9 lad, Interest payable Increase Rs.4.44lac.creditors decrease Rs. 4 lack other current liabilities are decrease Rs.0.96 lack.
50
STATEMENT OF SOURCE AND APPLICATION OF FUNDS FOR THE YEAR 2007-08
Particulars Sources of funds

Long term Funds Increase in share capital Sale of fixes assets Funds from business
Amount
250.44 15.26 5.22 66.27 TOTAL 337.19
Applications of funds
Increase in Investment Long term loans
42.30 TOTAL 220.42

226.72 110.47
Decrease in working capital(total sources applications)
51
Interpretation:The above table shows that the sources and application of the funds during the period of2008-2009.It shows the total sources of the funds Rs. 337.19lacd. the funds are mainly from the long term Funds Rs .250.44lack, Increase in share capital Rs 15.26 lack ,sale of fixed assets Rs. 5.22 lack, Funds from business Rs.66.27lsck. The total applications of the funds are Rs.226.72lack. The applications are mainly increase in investment Rs.42.30lack, and long-term loans Rs.220.42lack It shows the decrease in working capital Rs.110.47lack.
ADJUSTED PROFIT AND LOSS ACCOUNT FOR 2007-08 Dr

particulars Amount particulars
Cr
Amount
52

To Balance B/F To Reserve 65.07 90.20 By Balance C/F By depreciation By Funds from Business 86.97 2.03 66.27
155.27
155.27
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR OF 2007-08

Particulars 2007 2006 Increase in working capital Decrease in working capital
53

Current assets
Cash on hand Balance in Company Short-Term advances Interest receivable Interest on loan Other current assets 100.27 90.22 127.22 42.19 3021.02 44.28 106.24 130.27 132.68 30.90 2050.28 24.06 11.29 970.74 20.22 5.97 40.05 5.46 -
Current liabilities
302.02 Short-Term Funds 30.06 Interest payable 40.02 Creditors 4.66 Other current liabilities 2.22 1017.85 923.77 1017.85 30.92 2.44 45.66 15.6 9.1 270.96 31.06
Decrease capital
in
working
INTREPREATION:
The above shows that the schedule of changes in working capital in the year of 2007-08.It shows the working capital in decrease Rs.923.77lac .In the current assets ,the cash on hand was decreased Rs.5.97lac,short term advances decreased Rs.5.46lac,intreast receivable was increased Rs.11.29lac, interest on loan increasers.970.74 The current liabilities the short term Funds are increased Rs.31.06lac, interest payable was decreased Rs.15.6lac, creditors increase Rs.901lac, other current liabilities are increased Rs.2.44lac. (Any the total statement the work capital was decreased Rs.923.477Lac) 54
PROJECT ON CASH MANAGEMENT STATEMENT OF SOURCES AND APPLICATIONS OF FUNDS FOR THE YEAR 2008-09 Particulars Amount
SOURCE OF FUNDS
Long term depositors Increase in share capital Sale of fixed assets Funds from business Total
142.08 13.02 5.09 62.99 223.18 40.26 150.92 191.18 Total
Applications of Funds
Increase in Investments Long term loans
(Decrease in working capital)
32.00
(Source of Annual reports of INDIAINFOLINE LIMITED)
INTREPRETATION:
The above table shows that that source and applications of the funds during the year of 200809.It shows the total sources of the funds Rs.223.18lac.The funds are mainly from the long term depositors Rs.142.08lac, Increase in share capital Rs. 13.02lacm Funds from business Rs.62.99lac. The total application of funds are Rs.191.18lac, the application are mainly Increase in Investment Rs.40.26las, long-term loans Rs.150.92lac. Totally the statement shows the decrease in working capital Rs.32.00lac. 55
ADJUST PROFIT AND LOSS ACCCOUNT FOR THE YEAR OF 2008-09 Dr Cr

Particulars Amount
33.66 97.82
particulars
By Balance C/F By Depreciation By funds from business
Amount
65.07 3.42 62.99
To Balance B/F To Reserve
131.48
131.48
56
SCHEDULES OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2009-2010

Increase in Decrease working in capital working capital
Particulars
2008
2007
Current assets
Cash on hand Balance in Company Short-term advances Interest receivable Interest on loan Other current assets 121.56 110.11 132.02 30.66 3027.01 46.28 100.27 90.22 127.22 42.19 3021.02 44.28 21.29 19.89 4.8 11.53 5.99 2.00 -
Current liabilities
Short term Funds Interest payable Creditors Other current liabilities 116.26 6.16 5 1.44 154.42
174.39
174.39 57
CREDIT DEPOSIT RATIO ANALYSIS

The credit deposit ratio[C-D Ratio] provide and Indication of the Extent of credit deployment for every unit of resource raised through Funds.
Credit Extends C-D Ratio = Funds Raised X 100
58
Interpretation:
The credit extended for the years 2005-2010 is follows 67%, 80%, 77%, 66% , 88%.
Year
Credit Extended
Funds Raises
C-D Ratio
2005-2006
1027.21
1532.61
FUNDS 1656.72
67%
LOANS AND ADVANCES 80%
2006-2007 YEAR1327.22 1262.72 2007-2008 2005-2006 1186.13 2008-2009 2006-2007 1472.45 2009-2010 2007-2008 2008-2009 2009-2010
1742.19 1642.89 1764.26 1794.34 1642.94 1672.34 1666.62 1786.49
1294.65 77% 1364.26 66% 1096.73 88% 1146.43 1225.27
GRAPHICAL REPRESENTATION
1. Growth of Funds and Advances
59

100 80 60 40 20 0 1s t Qtr 2ndQtr 3rdQtr 4thQtr E a s t Wes t North
INTREPRETATION:
The graph showing the Growth in Funds, which is requires and loans and advances, which are granted there is tremendous growth in the getting of Funds and providing loan and advances. In the 2005-06 Funds. Loans and advances were Rs. 1742.19 and 1294.65, and 2006-07 Funds, loans and advances were Rs.1764.26 and 1364.26 the 2008-2009 Funds, loans and advances were Rs.1642.94 and 1096.73 The 2008-09 Funds, loans and advances were rs.1666.62 and 1146.43, the 2009-2010 Funds, loans and advances were 1786.49 and 1225.
2. NET PROFIT
60
YEAR
NET PROFIT
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
35.56 38.49 43.62 54.27 78.20
100 80 60 40 20 0 1s t Qtr 2ndQtr 3rdQtr 4thQtr E a s t Wes t North
61
Interpretation:
The graph indicating the growth in net profit 2003- 04 to 2007 -08. The result of the net profit are very glad some, the following result achieved by the Indiainfoline limited. In 2005-06 Rs.35.56lakhs, 2006-07 Rs, 38.49, 2007-08 Rs45.62, 2007-08Rs54.27, 200910 Rs.78.20
The net profits for all year are good.
According to the result of audited reports are showing excellent. So that the Company is growing day by day.
3. WORKING CAPITAL YEAR CHANGE IN WORKING CAPITAL
62
PROJECT ON CASH MANAGEMENT 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 1915.00 1955.98 1842.68 1956.99 2090.27
100 80 60 40 20 0 1s t Qtr 2ndQtr 3rd Qtr 4thQtr E a s t Wes t N orth
Interpretation:
63

The graph is Indicating the growth in working capital from 2003-04 to 2007-08. The result of working capital is very glad some. The Company achieves the following result. In 20052006Rs.1915.002006-2007 Rs. 1955.98, 2008-2009 Rs. 1842.68,2008-2009 Rs.1956.99,2009-2010 Rs.2090.27
CHAPTER-V
64
PROJECT ON CASH MANAGEMENT FINDINGS AND SUGGESTIONS:

FINDINGS
In the year 2004-05, the total sources of the funds were Rs.716.13lakhs.the main source of the funds was long term Funds rs.675.12lakhs, the funds from business were Rs.25.01lakhs total application of the funds in the year 2005-2006 was Rs.638.42lakhs, the main application component was long-term advances s.201.06lakhs and Increase In Investment Rs.435.02lakhs. In the year of 2005-06 the total source of the funds were an Rs 55.56lakhs.The main source of the funds was increase in share capital Rs.5.23lakhs, Fixes assets rs.4.71lakhs and funds from business Rs.45.62lakhs. The total application of the funds were Rs.123.29lakhs, the main application funds are investment Rs.42.77lakhs, long-term loans Rs.40.62lakhs,and term Funds were Rs.39.90lakhs. In the year 2006-07 the total sources of the funds were Rs.59.64lakhs.The main sources of the funds were increase in share capital Rs.8.26lakhs, Fixed assets Rs.8.72lakhs.and funds from business were Rs 42.66lakhs. The total application of the funds was rs.111.00lakhs the main application funds are investment Rs.20.04lakhs, long-term long were Rs.70.06lakhswere Rs.220.42lakhs. .In the year 2007-08 the total sources of the funds were Rs.337.19lakhs.the main sources of the funds were long term Funds were Rs.250.44lakhs, Increase in share capital Rs.15.26lakhs, fixed assets were Rs.5.22lakhs, and funds from the business were rs.66.27lakhs. The total applications of the funds were Rs 226.72lakhs, the application funds mainly coming from investment Rs.42.30lakhs.and long tem long Bases on the annual reports of the Company during period 2004-05 to 2008-09 the funds flow has down according to the above statement, the following conclusions can be down, term Funds Rs.20.90lakhs. In the year of 2008-09.the total sources of the funds were Rs.142.08lakhs share capital were Rs.13.02lakhs and funds from business were Rs.62.99lakhs the total application of the funds were Rs.191.18lakhs, the main application of the funds were increase in investment were Rs.40.26lakhs and long-term long were Rs.150.92lakhs.
SUGGESTIONS
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The company has to follow the asset allocation approach to fund utilization, which says that the investment made in different types assets have to be directly related to the different sources from which funds are deriving by Financial Institutions. Thus the fundamental criterion, which must be followed in allocation funds for acquiring different type of assets is sources of supply of funds determines the appropriate turnover rate of different sources of supply of funds determines the appropriate maturity of the assets acquiring through fund utilization. For borrowing and paid of capital could be used to boy long dated high yield giving securities, could not be used to acquire relatively liquid assets like cash or money at can and short notice on which little or no return is made. The Company raises its funds from many sources viz., term Funds. long term borrowing and through capital but these sources were not employed to the extent required sometimes much fund were kept idle stocks in the from of cash and other liquid assets to increase the returns otherwise those idle assets earn nothing and also has to consider the liquidity position. It is suggested that the HDFC LTD should raise the funds to the extent required or It should invest all the available long term funds at a higher rate if return investment advances. Liquidity is mostly concerned to the Financial Institutions because they should be in a position to repay all it Funds at any time. So it has to maintain total liquidity regardless of the purposes of met in such liquidity so it has to maintain good liquidity ratio. The companies should improve as liquidity.
66
BIBLIOGRAPHY
R.K.SHARMA & SHASHIK.GUPTA, Management Accoonting, Kalyani
Publishers Ninth Revised Edition. S.N.MAHESHWARI, Financial Management, Sultan Chand & Sons, Third Revised Edition. P.V.KULKARNI, Financial Management, Himalaya Publishing House. Eleventh Revised Edition. R.P.RUSTAGI, Financial Management, Galgotia Publishing Company, Second Revised Edition. I.M.PANDEY, Financial Management, Vikas Publishing House Pvt Ltd, Ninth Edition.
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Cash Management

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PROJECT ON CASH MANAGEMENT

MASTERS BUSINESS ADMINNISTARTION

S P R COLLEGE OF ENGINEERING AND TECHNOLOGY (Affiliated to JNTU UNIVERSITY) 2009-2011

PROJECT ON CASH MANAGEMENT

Place: Hyderabad. Date:

CERTIFICATE BY THE GUIDE

PROJECT ON CASH MANAGEMENT

Date: Place: - Hyderabad

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

NEED OF THE STUDY

PROJECT ON CASH MANAGEMENT

OBJECTIVE OF THE STUDY

METHODOLOGYOF THE STUDY

PROJECT ON CASH MANAGEMENT

LIMITATIONS OF THE STUDY

PROJECT ON CASH MANAGEMENT

CHAPTERIZATION OF THE STUDY

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

It can represent by cash COLLECTION INFORMATION CONTROL BOORROWER INVESTMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROBLEMS OF CASH MANAGEMENT

Impact of Inflation on Cash flow Problems Of cash Management

Timing of Cash Flow

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

Types of Cash Forecasts

Short-term Cash Forecast

Long-term Cash Forecast

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

MANAGING THE CASH FLOWS

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

DETERMING THE OPTIMUM CASH BALANCE

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

Amount Of Cash Upper limit

Miller- Orr Model

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

DATA ANALYSIS AND INTERPRETATION:

PROJECT ON CASH MANAGEMENT

PROJECT ON CASH MANAGEMENT

77.71 (Total source Total application)

PROJECT ON CASH MANAGEMENT