new project of j&k bank
TRANSCRIPT
A Summer Training Report on
Working capital management
In
JAMMU AND KASHMIR BANK LIMITED
SRINAGAR
Submitted in partial fulfilment of Requirement for the degree of Masters of Business Administration in Finance to
PUNJAB TECHNICAL UNIVERSITY
2010-2012
Submitted by
Manzoor ahmad
M.BA-3rd Sem
100222243668
C.T.Institutions of management Studies
Shahpur Campus,Jalandhar1
CT INSTITUTIONS OF MANAGEMENT STUDIES
SHAHPUR CAMPUS,JALANDHAR
STUDENT’S DECLARATION
I hereby certify that the work which is being presented in this report entitled by “”WORKING CAPITAL MANAGEMENT”” by Manzoor ahmad (university roll no 100222243668) in partial fulfillment of the requirement for the award of degree of MASTER’S OF BUSINESS ADMINISTRATION in the department of CT INSTITUTION OF MANAGEMENT STUDIES,SHAHPUR CAMPUS,JALANDHAR under the PUNJAB TECHNICAL UNIVERSITY , JALANDHAR is an authentic record of my own work carried out during the period from 22nd june to 7th auguest in 2011. The matter presented in this project is accurate and authentic.
(Manzoor)
This is certify that the above statement made by the student is
correct the best of my knowledge.
Lect. SUPREET KAUR
Management department
CT institution shahpur, Jalandhar.
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ACKNOWLEDGEMENTThis report would not have been possible without the help of certain people unstinting support of J&K Bank.
We offer our gratitude to all those who have spent their precious time, expressed keen interest and given continued encouragement through the study enabled the successful completion of my project.
Practical training in Jammu and Kashmir Zonal Office, M.A. road Srinagar was very valuable to us and our special thanks are due to our project co-ordinator
Mr. Mohammad Ashraf (Executive Officer) for his inspiring guidance, valuable help and angelic support for the completion of my project in “”WORKING CAPITAL””.
In the J&K Bank, we would like to extend my gratitude to the management and staff of J&K Zonal Office for their co-operation during our training.
MANZOOR AHMAD
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PREFACE
On the job training in business organisation infuses among students a sense of critical analysis to apply of real managerial situation to which they are exposed. It gives them an opportunity to apply their conceptual, theoretical and imaginative skills to the real life situation and to evaluate the results thereafter.
I was lucky to have got an opportunity to work at J&K Bank to get the project of my interest. I visited the concern for six weeks and prepared my project “Working capital management”. I also got the practical experience in the field of management.
This report is written account of what I learnt, experienced and explored during my summer training.
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CONTENTSINTRODUCTION 6
HISTORY OF BANKS 8
J&k BANK PROFILE 11
HISTORY OF J&K BANK 12
MISSION AND VISSION 14
ACHIEVEMENTS 15
ORGANISATIONAL STRUCTURE 17
WORKING CAPITAL MANAGEMENT 18
RESEARCH METHOLOGY 22
OBJECTIVES 23
FINANCIAL ANALYSIS 39
SWOT ANALYSIS 47
CONCLUSION 47
RECOMMENDATIONS AND SUGGESTIONS 48
BALANCE SHEET 49
PROFIT AND LOSS STATEMENT 51
BIBLOGRAPHY 53
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Introduction to Banking Sector
The banking system in India is significantly different from that of other Asian nations because of the country’s unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban and rural centers. The country’s economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the “exportled growth” of other Asian economies, with
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emphasis on self-reliance through import substitution. These features are reflected in the structure, size, and diversity of the country’s banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive fiveyear development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry. I order for the banking industry to serve as an instrument of state policy, it was subjected to various nationalization schemes in different phases (1955, 1969,and 1980). As a result, banking remained internationally isolated (few Indian banks had presence abroad in international financial centers) because of preoccupations with domestic priorities, especially massive branch expansion and attracting more people to the system. Moreover, the sector has been assigned the role of providing support to other economic sectors such as agriculture, small-scale indus tries, exports, and banking activities in the developed commercial centers (i.e., metro, urban, and a limited number of semi-urban centers).
The banking system’s international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad. These features have
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left the Indian banking sector with weaknesses and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalise, given the increase in nonperforming assets (NPAs), as their Government dominated ownership structure has reduced the conflicts of interest that private banks would face.
HISTORY OF BANKS IN INDIA
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Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honour belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking centre.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to
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the present and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a
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leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".
During the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918.
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BRIEF PROFILE OF JAMMU AND KASHMIR BANK
NAMES DESIGNATION
MUSHTAQ AHMAD CHAIRMAN
Mohammad Ibrahim Shahdad EXECUTIVE DIRECTOR
Arnab Roy DIRECTOR
Sudhanshu Pandey DIRECTOR
NISAR ALI DIRECTOR
Abdul Majid Matto NON-EXECUTIVE DIRECTOR
HISTORY OF J&K BANK
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The origin of Jammu and Kashmir Bank Limited, more commonly referred to as J&K Bank, can be traced back to the year 1938, when it was established as the first state-owned bank in India. The bank was incorporated on 1st October 1938 and it was in the following year (more precisely on 4th July 1939) that it commenced its business, in Kashmir (India). It was initially set up as a semi-State Bank, with its capital being contributed by State as well as the public under the control=of=state=government.
Jammu and Kashmir Bank had to face serious problems in 1947 i.e. at the time of independence. With the partition of Pakistan, two out of the total ten branches of the bank, namely the ones in Muzaffarabad and Mirpur, fell to the other side of the line of control (now Pak Occupied Kashmir), along with cash and other assets. At that point of time, in keeping with the extended Central laws of the state, J&K Bank was categorized as a Government Company, as per the provisions of Indian Companies Act 1956.
It was in the year 1971 that Jammu and Kashmir Bank was granted the status of a 'Scheduled Bank'. Five years later, it was declared as "A" Class Bank, by the Reserve Bank of India (RBI). As the years passed on, the bank started achieving more and more success. Today, it boasts of more than 500 branches across the country. It was only recently that Jammu and Kashmir Bank became a billion dollar company. Governed by the Companies Act and Banking Regulation Act of India, it is regulated by RBI and SEBI. It finds a listing on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) as well.
Unique Characteristics & Services
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J&K Bank carries out banking business of the Central Government
Inspite of a government equity holding of 53 per cent, Jammu & Kashmir Bank (J&K Bank) is regarded as a private sector bank
J&K Bank is the one and only banker and lender of last resort to the Government of J&K
Plan and non-plan funds, taxes and non-tax revenues are routed through the J&K Bank
J&K Bank claims the distinction of being the only private sector bank that has been designated as agent of RBI for banking
The services of J&K Bank are utilized for the purposes of disbursing the salaries of Government officials
J&K Bank collects taxes pertaining to Central Board of Direct Taxes, in Jammu & Kashmir
Products+&+services
Support Services
Anywhere Banking Internet Banking SMS Banking ATM Services Debit Cards Credit Cards Merchant Acquiring
Depository Services
Demat Account Other Services
Third Party Services
Mutual Funds Insurance Services - Life & Non Life Remittance Services
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Cash Management Services
Real Time Gross Settlement (RTGS) National Electronic Fund Transfer (NEFT)
MISSION AND VISION OF J&K BANK
“To catalyse economic transformation and capitalise on growth.” Our vision is to engender and catalyse economic transformation of Jammu and Kashmir and capitalise from the growth induced financial prosperity thus engineered. Bank aspires to make Jammu and Kashmir the most prosperous state in the country, by helping create a new financial architecture for the J&K economy, at the centre of which will be the J&K Bank.
The Jammu Central Co-operative Bank dedicates itself to all round of growth of PACS by providing required credit to them. It also swears to serve the general public by extending improved banking services and enhanced credit dispersal better than any other banking channel.
As a corporate process, the uniqueness and distinct culture of the Jammu Central Co-operative Bank is our experience
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specialisation in the field of agricultural credit and vast clientele base. Therefore, as a corporate mission, our focus would be agricultural finance and needs of the rural people. In light of above, the corporate mission would be to double the flow of Agriculture Credit during the next three years.
The organisational mission would be to inculcate sense of belongingness by bringing professionalization in true sense to introduce and upgrade technology based skill with human face and strengthen its resource base by broadening its customer base.
ACHIEVEMENTS
Emerging as topper, the J&K Bank has disbursed Rs 631.76 crore out of the total credit of Rs 914.73 crore extended by the banks operating in J&K during Q1 of FY 2011-12.
J&K Bank has been awarded as the best Bank in the prestigious ‘Dun & Bradstreet (D&B) – Polaris Software Banking Awards 2011. The award was conferred in the category for “Rural Reach- Private Sector”. The award was presented by R Bandyopadhyay, IAS (Retd.), Former Secretary, Ministry of Corporate Affairs, Government of India. J&K Bank Zonal Head (Mumbai) Surjeet Singh Sehgal received the award on Bank’s behalf in presence of Mohan
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Ramaswamy, Chief Operating Officer, Dun & Bradstreet – India and Subhash Chand Aggarwal, Chairman & Managing Director, SMC Global Securities Limited. at a function held at ITC Maratha in Andheri (E) Mumbai that also marked the launch of the fifth edition of D&B India’s study on India’s Top Banks 2011.
J&K Bank has been awarded as the best Bank in the prestigious ‘Dun & Bradstreet (D&B) – Polaris Software Banking Awards 2011. The award was conferred in the category for “Rural Reach- Private Sector”.
J&K Bank’s Annual Report 2008-09 has won three awards at the prestigious LACP 2009 Vision Awards – the world’s largest award programme for Annual Reports, organised by California-based League of American Communications Professionals (LACP), USA.
IDENTITY
The new identity for J&K Bank is a visual representation
of the Bank’s philosophy and business strategy. The
three colored squares represent the regions of Jammu,
Kashmir and Ladakh. The counter-form created by the
interaction of the squares is a falcon with outstretched
wings – a symbol of power and empowerment.
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The synergy between the
three regions propels the bank
towards new horizons. Green signifies growth and
renewal, blue conveys stability and unity, and red
represents energy and power. All these attributes are
integrated and assimilated in the white counter-form.
Organizational structure of J&k bank
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Chairman & CEO
Executive Director
(Chief Financial Officer) Executive Director
(Chief Operating Officer)
President (Bus. Supt/Tech)
President (Comp.Sec.)
President (Adv.& asset plng )
President (Fin. Services)
President (Strategy & Bus .Sup.)
Sr. President (HRD/Reg.)
President (CTC)
Human Resources
Law & Regulatory
TreasurySupervision & Controls
Financial Services
Company Secretary
Advances & Asset
Deposits & Liability
Strategy & Business
Finance & Risk Mgmtt
Business Support
Technology & Information
WORKING CAPITAL MANAGEMENT
Every business needs finance for two purposes – for its establishment and to carry out its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land & building, furniture etc. funds are also needed for short term purposes : for purchase of raw material , payment of wages and other day to day expenses etc. These funds are known as working capital. In simple terms working capital refers to that part of firm’s capital which is required for financing short term or current assets such as such as cash, marketable securities, debtors and inventories etc. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and these cash flows out again in exchange for
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Departments
Departments Departments
Departments
Departments
Departments Departments
Departments
Departments
Departments
Departments
Departments
Concurrent Audit
Credit Audit
Depository Services
Distribution
Empanelment Of Valuers
IS Audit
Insurance
RBI Internal Audit
Stock Audit
Asset Monitori-ng &
Inform –ation
Corporate Credit
Financial Inclusion
Micro Credit & Priority sector
Retail Credit
Small & Medium
Depository Services
Distribution Insurance
ATM Switch
Call Centre
Connectivity
Database
E-Banking
Finacle Hardware
Information Technology
Management & Information System
Network
Card Issuing & Acquiring
Corporate
communic-ation
Data Mining
Financial Products
Macro Economics Policy Plng
Marketing
Corporate Deposit
Retail Deposit
Zonal Office Kmr (Central)
Company SecretaryEstates &
Engineering
General
Public Relations & Customer Care
R & D
Security
Stationery
ALM Balance sheet
Branches Credit Risk Financial Reporting
IBR Risk Mgmtt Portfolio Rating
Rem. & St. Structured Risk
Taxation
CDW Personal Training Recruitment Terminal Benefits Placements
I & V KYC Law Lead Bank RBI Comp & Regulatory Matters
Sponsored Banks
Debit
Forex Money
Derivative
other assets. Hence it is also known as revolving or circulating capital or short term capital.
KINDS OF WORKING CAPITAL
Working capital may be classified into two ways:
On the basis of concept. On the basis of time.
On the basis of concept, working capital is classified as Gross Working capital and Net Working capital. On the basis of time, working capital is classified as permanent or fixed working capital and temporary and variable working capital.
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Gross working : It represents the amount of funds invested in current assets. Thus the Gross working capital is the capital invested in the total current assets of the enterprise. Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of normally one accounting year.
Examples of current assets are:1. Cash in hand and bank balance.2. Bills receivables3. Sundry debtors(less provision for bad debts).4. Short term loans and advances.5. Inventories of stock.6. Temporary investment in surplus goods.7. Prepaid expenses.8. Accrued incomes.
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Net working capital: It is the excess of current assets over current liabilities. Net working capital may positive or negative. When the current assets exceed the current liabilities, the working capital is positive and the negative working capital results when the current liabilities are then the current assets. Current liabilities are those liabilities which are intended to paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business.
Examples of current liabilities are:
1. Bills payables2. Sundry creditors.3. Accrued or outstanding expenses.4. Dividend payable.5. Bank overdraft.6. Provision for taxation, if it does not amount to
appropriate to profits.
Net working capital = current assets – current liabilities.
Permanent working capital: It is the minimum amount which is required to ensure effective utilisation of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw material, work in
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progress, finished goods and cash balance. The minimum level of current assets is called fixed or permanent working capital as this part of working capital is permanently blocked in current assets. As the business grows, the requirement of permanent working capital also increases de to the increase in current assets. The permanent working capital can further be classified as regular working capital and reserve working capital.
Temporary or Variable working capital: it is that amount of working capital which is required to meet the seasonal demand and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. Most of the enterprise have to provide additional working capital to meet seasonal and special needs. The capital requirement to meet the seasonal needs of the enterprise is called seasonal working capital. Special working capital is that part o working capital which is required to meet the special exigencies such as launching of extensive marketing campaigns for conducting research.
IMPORTANCE OF WORKING CAPITAL
The working capital is the life-blood and nerve centre of a business firm. The sufficiency of working capital assists in raising credit standing of a business because of better terms on goods bought, lesser cost of
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manufacturing due to the acceptance of cash discounts, favorable rates of interest etc.No business can run effectively without a sufficient quantity of working capital. It is crucial to retain right level of working capital. Finance manager is required to decide the amount of accurate working capital.A business enterprise with ample working capital is always in a position to avail advantages of any favorable opportunity either to buy raw materials or to implement a special order or to wait for enhanced market status.Cash is needed to carry out day-to-day workings and buy inventories etc. The shortage of cash may badly affect the position of a business concern. The receivables management is related to the volume of production and sales. For escalating sales there may be a need to offer additional credit facilities. While sales may ascend but the danger of bad debts and cost involved in it may have to be considered against the benefits.Inventory control is also a significant constituent in working capital management. The deficiency of inventory may cause work stoppage. On the other hand, surplus inventory may result in blocking of money in stocks.The overall success of the company depends upon its working capital position. So, it should be handled properly because it shows the efficiency and financial strength of company.
Research Methodology
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In order to learn and observe the practical applicability and feasibility of various theories and concepts, the following sources are being used:
Primary Sources of Information
Discussions with the project guide and staff members.
Discussions with various other department head.
Secondary Sources of Information
RBI guidelines regulating the activities of the banks Banks Credit policy and related circulars and
guidelines issued by the bank. Research papers, power point presentations and
PDF files prepared by the bank and its related officials.
Study of proposals and manuals Website of Jammu and Kashmir bank and other net
sources
Analysis of data
The information gathered are the policies and practices regarding management of the working capital. Analysis is done in terms of the theoretical concepts. Analysis of the working capital performance is done with the help of percentages by showing graphs, ratios and operating cycles etc.
OBJECTIVES OF THE STUDY
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To analyze the trend in various components of working capital.
Evaluation of working capital management.
To study the operating cycle of J&K Bank.
To know the future requirements of the working capital.
To give the suggestions regarding the proper management of working capital to the company.
COMPOSITION AND LEVEL OF CURRENT ASSETS
The level of current assets is measured with the help of ratio i.e., current assets as a percentage of total assets.
INVENTORY (Rs in ‘’000’’)YEARS INVENTORY
(IN RS)TOTAL ASSETS
INVENTORYIN % AGE
2008 3597158 15814404 22.75
2009 4646596 16540326 28.09
2010 2456396 17871565 32.02
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Inventory of total assets
200720082009
2007 2008 20090
5
10
15
20
25
30
35
Inventory in %age
Inventory in %age
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ANALYSIS The percentage of inventory is clearly depicted in the table from the year 2008 to 2010. From 2008 to 2009 the percentage of the total inventory to total assets has increased from 22.7% to 28.09% and this has been further increased to 30.02%.
INTERPRETATION:-
The level of inventory is continuously increasing in the J&K Bank because of bank’s successful marketable strategies and its continuous increased market base.
DEBTORS (Rs in ‘000’)
YEARS DEBTORS(IN RS)
TOTALASSETS
DEBTORS IN%AGE
2008 879660 15814404 5.56
2009 1122564 165403326 6.78
2010 1314231 17871565 8.84
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DEBTORS IN %AGE
200820092010
2008 2009 20100
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
20000000
DEBTORS TO TOTAL SSETS
DEBTORS TO TOTAL SSETS
ANALYSIS:-
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From the above table it is very evident that the debtors are increasing from 2008 to 2010. In 2008 debtors are 5.58% and in 2009 it is 6.78% and in 2009 %age of debtors to total assets has increased to 8.84%.
INTREPRETATION:-
In the year 2010, debtors have increased from 1122564 thousand to 1314231 thousand indicating an increase from 6.78% to 8.84% of total assets. Such increase has been gained by bank due to increase in sales followed by expansion activities in spinning, weaving and processing units respectively.
CASH BALANCEYEARS CASH TOTAL
ASSETSCASH BALANCE %AGE
2008 2124541 15814404 13.43
2009 1176715 16540326 7.11
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2010 1331970 17871565 10.95
CASH BALANCE %AGE
200820092010
2008 2009 20100
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
20000000
CASH BALANCE TOTAL ASSETS
LOANS AND ADVANCES31
YEAR LOANS AND ADVANCES
TOTAL ASSETS
LOANS AND ADVANCES %AGE
2008 40,247.62 8,334.12 20.7
2009 35626.96 10,418.42 29.24
2010 30,902.19 13676.39 44.25
200822%
200931%
201047%
LOANS AND ADVANCES %AGE
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2008 2009 20100
5000
10000
15000
20000
25000
30000
35000
40000
45000
LOANS AND ADVANCES TO TOTAL ASSETS
LOANS AND ADVANCESTOTAL ASSETS
ANALYSIS
From the above table it is clear that the loans and advances are continuously decreasing but consecutively its total assets are increasing. It is due to the reason that bank is using conservative mode of issuing loans and advances and is recovery the loans and advances by the effective means.
INTERPRETATION
From the table since loans and advance to total assets is consecutively increasing from 20.7% in 2008, 29.24% in 2009 and 42.25% in 2010, it means bank’s are optimally using their assets to gain the maximum profits and is relatively trying to attracting the more customers.
COMPOSITION AND LEVEL OF CURRENT LIABILITIES:-
PARTICULAR 2008 2009 2010
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SCurrent liabilities
Amt. % Amt. % Amt. %
Sundry creditors
206132 1.95 346960 3.06 338128
3.72
Security deposits
3329 .0315
42160 .0372
42999 .473
Int. accrued 2596 .0245
2039 .0180
426 .0045
Adv. From customers
18382 .174 5211114
4.600
11369 .125
Stat liabilities 90155 .853 74619 .658 57720 .635
Other liabilities
214454 2.02 359291 3.172
342748
3.77
Unclaimed dividend
214454 2.029
3592691
3.172
342748
3.77
Provisions 46838 .4432
46838 .4135
46838 .515
Total 584686
5.533
1398012
12.34
847318
9.329
Total liabilities
10567023
11326723
9082216
ANALYSIS:-
The above table shows the composition and level of current liabilities. The position of creditors of J&K Bank is revealed from the table. The creditors remain fluctuating in 2008, the creditors are of Rs 206132 and company has projected increase in creditor
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level in 2009 are 346960, in 2010 creditors are 338128. Advances from the customers have been increased immensely from 2008 to 2010.
INTERPRETATION:-
The table shows that the creditors have been increased in 2009 with rise in inventory level. And in the year 2010, the level of inventory is decreased due to less prominent schemes.
COMPUTATION OF GROSS WORKING CAPITAL:-
PARTICULARS
2008 2009 2010
Inventory 3597158 4646596 5456396
(+) sundry debtors
879660 1122564 1314231
.(+) cash balance
2124541 1176715 2331970
(+) loans and advances
1462490 1208673 1814990
GROSS WORKING CAPITAL
8063849 8154548 10917587
INTERPRETATION:-
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From the table it is evident that the gross working capital is constantly increasing in J&K Bank, this increase is due to the fact that in every successive year the J&K Bank has introduced or updated the new schemes for its customers and has efficiently improve the their service for customers. It is clear that in 2008 the GWC was 8063849, in 2009 it was 8154548 and in 2010 it has drastically increased to 10917587.
COMPUTATION OF NET WORKING CAPITAL:-
PARTICULARS
2008 2009 2010
Total current assets
8088407 8168078 8229289
(-) Total current liabilities
584689 1398012 847318
Net working capital
7503718
6770066
7381971
INTERPRETATION:-
Net working capital is the excess of current assets over the current liabilities. And from the table it is clear that in 2008, the NWC was 7503718 and it decreased to
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6770066 in 2009 and again increased to 7381971 in 2010. The reason for this increase is the bank’s intervention in different financial fields (mutual funds, insurance, etc) and the profound customer base infra-structure.
OPERATING CYCLE AND CASH CYCLE
All business firms aim at maximizing the wealth of the
shareholder for which they need to earn sufficient
return on their operations. To earn sufficient profits
they need to do enough sales, which further
necessitates investment in current assets like raw
materiel etc. There is always an operating cycle
involved in the conversion of sales into cash.
The duration of time required to complete the following
sequences of events in case of a manufacturing firm is
called the operating cycle:-
1.Conversion of cash into raw material
2.Conversion of raw material into WIP
3.Conversion of WIP into FG
4.Conversion of FG into debtors and bills
receivable through sales
5.Conversion of debtors and bills receivable
into cash
Each component of working capital namely
inventory, receivables and payables has two
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dimensions time and money. When it comes to
managing working capital - Time Is Money. Therefore,
if cash is tight, consider other ways of financing capital
investment - loans, equity, leasing etc. Similarly, if you
pay dividends or increase drawings, these are cash
outflows remove liquidity from the business.
Operating Cycle Of Non Manufacturing Firms /
Operating Cycle Of Service And Financial Firms
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DEBTORS
If you ....... Then ...... Collect receivables
(debtors) faster You release cash from the cycle
Collect receivables (debtors) slower
Your receivables soak up cash
Get better credit from suppliers
You increase your cash resources
Shift inventory (stocks) faster
You free up cash
Move inventory (stocks) slower
You consume more cash
Operating cycle of non-manufacturing firm like the
wholesaler and retail includes conversion of cash into
stock of finished goods, stock of finished goods into
debtors and debtors into cash. Also the operating cycle
of financial and service firms involves conversion of
cash into debtors and debtors into cash.
Thus we can say that the time that elapses
between the purchase of raw material and
collection of cash for sales is called operating
cycle whereas time length between the payment
for raw material purchases and the collection of
cash for sales is referred to as cash cycle. The
operating cycle is the sum of the inventory period and
the accounts receivables period, whereas the cash
cycle is equal to the operating cycle less the accounts
payable period.
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CASH
STOCK OF FINISHED GOODS
DEBTORSCASH
STOCK ARRIVES CASH RECD.
DEBTORS COLLECTION PERIOD:-
2008 2009 2010
SALES 9077526 8792218 100317765
SALES PER
DAY
25215 24423 27866
BOOK
DEBTS
879660 1122564 1314231
DCP 35 DAYS 46 DAYS 47 DAYS
ANALYSIS:
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ORDER PLACED INV. PERIOD
CASH Pd. FOR MATERIALS
OPERATING CYCLE
FIRM REC. INVOICE
A/C’S Pay. Period
A/C’S REC. PERIOD
CASH CYCLE
In the year 2008 the DCP is 35 days which
increases to 45 days in 2009. In 2009 there has been
slight increase in DCP and it rises to 47 days.
INTERPRETATION:
In the year 2008 bank is able to
maintain its satisfactory debtor’s collection period but
in the year 2009 and 2010, debtor’s collection period
has been increased to 46 days and further to 47 days in
2010. This shows the bank is not able to maintain its
debt collection policy. However bank enjoys its good
debtor status.
FINANCIAL ANALYSIS:
Financial analysis is the process of identifying
the financial strength & weakness of the firm by
establishing relationship between the items of the
balance sheet & profit & loss account. The purpose of
financial analysis is to diagnose the information
contained in financial statements so as to judge the
profitability and financial soundness of the firm.
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Financial statements involve:
Study of financial statements Analysis of data given in the financial statements. Interpretation of financial statements.
Financial analysis of J&K Bank is as follows:
Financial analysis is done on the basis of the published balance sheet and profit and loss account.
Ratio analysis and Trend analysis is done to know the financial position of the company.
COMPARATIVE BALANCE SHEET
For the period of 2009-2010
PARTICULARS
2009 2010 CHANGE
%CHANGE
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LIABILITIES
Share capital 48.49 48.490 -- --
Reserve 2,574.37 2,961.97 387.6 15.5
Long term
Liabilities
552.34 714.95 162.61 29.44
Current
liabilities
1,069.67 1,198.97 129.3 12.05
TOTAL 4245.12
4924.38
679.26 16.01
ASSETS
Current assets
552.34 714.95 162.61 29.44
Fixed assets 517.94 561.35 43.41 8.38
Investment 10,736.33 13,956.25 3219.19 29.98
Misc. expenses
10,080.96 12,091.51 2010.55 19.9
TOTAL 21887.57
27324.06
5436.49
24.38
RATIO ANALYSIS:
A ratio is the simple arithmetic expression of the relationship of one number to another. Ratio analysis is a technique
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of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for the helping in making certain decisions.
Following ratios are calculated for the 2009-2010.
Liquidity ratios:
These ratios are used to measure the firm’s ability to meet its short term obligations.
LIQUIDITY RATIOS:
1. Current ratio = current assets / current liabilities.
PARTICULARS 2008 2009 2010TOTAL CURRENT
ASSETS486.47 552.34 714.95
TOTAL CURRENT
LIABLITIES
1,102.02 1,069.67 1,198.97
CURRENT RATIO 0.44 : 1 0.5 : 1 0.59 : 1
ANALYSIS:
The current ratio is consecutively increasing from the year 2008 to 2010. In 2008 it was 0.44 :1 , in 2009 it went up to 0.5 : 1 and in 2010 it reached to 0.59 : 1.
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INTERPRETATION:
As a rule 2:1 ratio is referred to as banker’s thumb rule. Since the current ratio of the firm for the past 3 years is more than 2:1, therefore the firm has been in good liquid position. So, this implies that the funds of the company since last 3 years have been decreased to pay off liabilities.
LIQUID ASSETS RATIO = LIQUID ASSETS / CURRENT LIABILITIES.
PARTICULARS 2008 2009 2010Total liquid assets
4231077 3084654 4023228
Total current assets
584689 1398012 847318
Liquid Ratio 7.20:1 2.20:1 4.70:1
ANALYSIS:
In the year 2008 the liquidity ratio is 7.20:1 which has decreased in the 2009. And in the year 2010 the ratio is increased to 4.70:1
INTERPRETATION:
As a convention ratio of 1:1 is considered satisfactory, hence company is enjoying satisfactory liquidity position. In the year 2009 ratio has been decreased to 2.20:1 from
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7.20:1. This is due to the decreasing cash balance and increasing debtors
PARTICULARS 2008 2009 2010
Sales 9077576 8792218 10031765
OC 7653262 7944110 9491037
OR 84.30% 90.35% 94.60%
OPERATING RATIOS = Operating cost / Net sales*100
ANALYSIS:
From the above table it shows that in 2008 the OR was 84.30% and in 2009 OR has been increased to 90.35. in year 2010 it reached to 94.60
INTERPRETATION:
As the above table shows that the operating cost of the bank increased over three years,
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this is mainly due to increasing sales of schemes and term loans.
Profitability ratio:-
Gross profit ratio:- Gross profit / net sales * 100
Particulars 2008 2009 2010
Sales 9077576 8792218 10031765
(-)COGS 6943782 7076586 8589141
GP 2133794 1715632 1442624
GPR 23.50% 19.51% 14.38%
ANALYSIS:-
From the above table it shows that the GP ratio was 23.50% in 2008 and it decreases to 19.51% in 2009. In 2010 GPR has been further decreased to 14.38.
Net profit ratio= Net profit / net sales * 100
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Particulars 2008 2009 2010
SALES 9077576 8792218 10031765
NP 678633 23664 42875
NPR 1% 1.03% 1.04%
ANALYSIS:-
In the year 2008 the NP ratio of the company is 1% but in the year 2009 the company’s NP has increased immensely to 1.03% and in 2010 it reached to 1.04%
INTERPRETATION:-
The company’s increasing NP ratio is due to its strong support and easy providence of term loans to the different class of customers.
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TREND ANALYSIS:-
The financial statements may be analysed by computing trend series information. The method determines the direction upward and downward and involves the computation of the percentage relationship that each statement item bears to the same in the base year. The information for the number of years has been taken up and one year generally 1st year is taken as the base year. The figures of the base year have been taken as 100 and trend ratios for the other years are calculated on the basis of the base year. The analysis is able to see the trend of figures, whether upward or downward.
SALES TREND
YEARS SALES IN RS TREND IN %AGE
2008 9090163 1002009 8837285
97
2010 10067849 110.7
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SWOT ANALYSIS
Strength
1. Resources and capabilities.2. Strong brand name.3. Good reputation among customers.4. Good quality schemes.5. Latest machines and advanced technology.
Weakness
1. Lack of stress on research and development.2. Lack of innovation.3. Lack of commercial schemes.
Opportunities
1. Arrival of new technology.2. New market.3. J&K Bank is not stressing on its advertising for
attracting the customers.
Threats
1. Cut-throat competition in industry.2. The other banks because of their large financial
base, better technology are threat to the J&K banking sector.
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CONCLUSION
Most of the banking companies make substantial investments in current assets so proper management of working capital in a large concern assumes importance as it reflects the sound financial health of the corporation. Achieving budgeted growth rate and excelling past performance n sales turnover do not necessarily indicate the proper management of working capital as even a highly working capital as even a highly profitable company may be having a poor cash position. A thorough analysis of the working capital position, drawing of appropriate action plans for improvement, thorough revamping of existing system.
From the study of working capital management of J&K Bank , it concluded that:
The level of inventory is increased in 2009 from 22.75% to 28.09% due to huge disbursement of loans. And in the year 2010, the level of inventory is decreased to 16.51% due to less production and that is why there is an excess of opening stock in 2010 and bank try to sell to the maximum.
In the year 2010 debtors have been increased from 1122564 thousands to 1314231 thousands indicating an increase from 6.78% to 8.84% of total assets, such increase has been gained by bank due to increase in sales followed by expansion activities in mutual funds, term loans, etc.
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Net working capital is the excess of current assets over the current liabilities. It indicates the financial strength of the company. In 2008 net working capital of the bank decreased because of increase in the current liabilities of the bank. But in year 2010 the net working capital of the bank decreased due to substantial decrease in the inventory of the bank which resulted in decrease in the overall current assets of the bank.
RECOMMENDATIONS AND SUGGESTIONS
The following are the recommendations and suggestions for the efficient working of J&K bank
Year 2009 has revealed an increase of cash and balance of the Bank from 3.43% to 7.11% of total of the company as huge amount of the cash has been diverted to higher loan disbarments and mortgage loans. In the year 2010 the bank was able to gain an increase of liquidity position by 2.84% of the total assets as the major expansion activities have already been implemented in the year 2008.
The company should also made remarkable stress on the advertisement so as to attract the customers of all the sectors. The bank’s growing profitability is sound for the activities of the management but the bank should try to attract new customers by different schemes.
The J&K Bank should also take an edge in the other states as we can see that there is a cut-
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throat competition at the national level but there is also a chance of huge profitability and expansion of bank in terms of monetary and customers.
The J&K Bank should consistently increase the numbers of branches in different states and also in the home state and should adopt new means to attract new customers by its attractive loans schemes.
BALANCE SHEET
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
Sources of funds
Owner's fund
Equity share capital 48.49 48.49 48.49 48.49 48.49
Share application money - - - 28.10 -
Preference share capital - - - - -
Reserves & surplus3,430.
192,961.
972,574.
372,232.
341,960.
24
Loan funds
53
BALANCE SHEET
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
Secured loans - - - - -
Unsecured loans44,675
.9437,237
.1633,004
.1028,593
.2625,194
.29
Total48,154
.6240,247
.6235,626
.9630,902
.1927,203
.03
Uses of funds
Fixed assets
Gross block 788.10 561.35 517.90 471.32 433.63
Less : revaluation reserve - - - - -
Less : accumulated depreciation 396.47 358.54 321.61 289.10 256.94
Net block 391.64 202.81 196.29 182.22 176.69
Capital work-in-progress 2.13 1.32 3.13 9.79 6.76
Investments19,695
.7713,956
.2510,736
.338,757.
667,392.
19
Net current assets
Current assets, loans & advances 676.17 714.95 552.34 486.47 377.19
Less : current liabilities & 1,248. 1,198. 1,069. 1,102. 823.31
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BALANCE SHEET
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
provisions 88 97 67 02
Total net current assets-
572.71-
484.01-
517.33-
615.55-
446.12
Miscellaneous expenses not written - - - - -
Total19,516
.8313,676
.3710,418
.428,334.
127,129.
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Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities26,979
.3412,091
.5110,080
.9611,892
.973,840.
87
Number of equity shares outstanding (Lakhs) 484.78 484.78 484.78 484.78 484.78
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INCOME STATEMENT
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
Income
Operating income3,936.
633,418.
033,133.
642,603.
502,002.
79
Expenses
Material consumed - - - - -
Manufacturing expenses - - - - -
Personnel expenses 523.61 366.36278.7
7 225.77 220.07
Selling expenses 5.99 6.23 7.36 7.72 4.94
Adminstrative expenses 321.40 317.84208.0
1 167.96 185.86
Expenses capitalised - - - - -
Cost of sales 851.01 690.43494.1
5 401.45 410.87
Operating profit 916.15 790.05651.6
3 578.25 460.44
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INCOME STATEMENT
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
Other recurring income 100.23 93.90 57.45 56.51 38.62
Adjusted PBDIT1,016.
38 883.95709.0
8 634.76 499.06
Financial expenses2,169.
471,937.
541,987.
861,623.
791,131.
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Depreciation 37.93 36.93 32.51 32.16 33.14
Other write offs - - - - -
Adjusted PBT
-1,191.
01 847.01676.5
7 602.60 465.92
Tax charges 329.54 280.45222.2
6 218.16 140.71
Adjusted PAT 615.20 512.38409.8
4 360.00 274.49
Nonrecurring items - - - - -
Other non cash adjustments - - - - -
Reported net profit 615.20 512.38409.8
4 360.00 274.49
Earnigs before appropriation 615.20 512.38 409.8 360.00 274.49
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INCOME STATEMENT
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
4
Equity dividend 126.04 106.65 81.97 75.14 55.75
Preference dividend - - - - -
Dividend tax 20.94 18.13 13.93 12.77 9.47
Retained earnings 468.22 387.60313.9
4 272.09 209.26
BIBLIOGRAPHY
BOOKS
KHAN, M.Y. JAIN, P.K, Financial management, TATA MCGRAW HILL PUBLISHERS, I/e, 20000
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Shashi k gupta, Neeti gupta, Financial management, Kalyani publishers / lyall bk depot 2008
Mir Geelani and Afsal khan financial outlook, MAMTA PUBLISHERS.
Showkat Rah and Abdul Rahim, banking, MAMATA PUBLISHERS.
COMPANY ANNUAL REPORTS
Balance sheet
Profit and Loss Account
Notes and Accounts.
WEBLINKSWWW.JKBANK.COM
www.jkbankonline.com
jkbmail.com
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