A PROJECT REPORT ONWORKING CAPITAL MANAGEMENT ICICI BANK LTD

SUBMITTED TO SUBMITTED BY

PROF. S.R. PRASAD KUNWAR SINGH PGDM (2011-13) REG – T 81

CONTENT

Sr.

No

PARTICULAR

I Acknowledgement

II Executive summary

III Objective of study

1 GENERAL INFORMATION

1.1 Introduction

1.2 History & development

1.3 Company at glance

1.4 Management body of ICICI Bank Ltd.

2 DATA ANALYSIS

2.1 Study of P/L

2.2 Study of Balance Sheet

3 FINANCIAL ANALYSES OF

WORKING CAPITAL & FINANCING

3.1 Introduction

3.2 Concept of working capital

3.3 Types of working capital

3.4 Determinant of working capital

3.5 Need for working capital

3.6 Financing working capital

3.7 Sources of working capital

4 RATIO RELATED TO WORKING

CAPITAL

4 ANNEXURE

4.1 Profit and loss Account

4.2 Balance Sheet

4.3 Annual Results

4.4 Cash Flow

5 Conclusion and Suggestions

6 BIBLIOGRAFHY

ACKNOWLEDGEMENT

"Accomplishment of any task necessarily depends upon the willingness and enthusiastic contribution of time and energy of many people."From the starting till the completion of this project, there are many people without whose assistance all my efforts would have been fruitless. I, therefore, acknowledge all who generously helped me by sharing their t ime, experience and knowledge with me without which this project would have never been accomplished. Words can’t express my sincere thanks to the faculty of f inance MR. S.R. PRASAD Who had been a constant source of guidance throughout my project period.  

M R . S . R . P R A S A D( M y   p r o j e c t   g u i d e )   w h o s e   p e r c e p t i v e guidance, constant encouragement, constructive criticism and affection w e r e t h e l i g h t o f g u i d a n c e d u r i n g m y t e n u r e o f m y work. Finally, I would like to state that the project not only fulfilled an academic requirement, but would also help me in future endeavors in the years to come.

KUNWAR SINGH

REG – T 81

PGDM (2011-13)

EXECUTIVE SUMMARY

In any organization, the two important financial statements are the Balance sheet & Profit and loss account of the business . Balance sheet is a statement of the financial position of an enterprise at a particular point of time. Profit and loss account shows the net profit or net loss of a company for a specified period of time. When these statements of the last few year of any organization are studied and analyzed, significant conclusions may be arrived regarding the changes in the financial position, the important policies followed and trends in profit and loss etc. Analysis and interpretation of the financial statement has now become an important technique of credit appraisal. The investors, financial experts, management executives and the bankers all analyze these statements. Though the basic technique of appraisal remains the same in all the cases butt h e   a p p r o a c h   a n d   t h e   e m p h a s i s   i n   a n a l y s i s   v a r y .   A  b a n k e r   i n t e r p r e t s   t h e financial statement so as to evaluate the financial soundness and stability, the liquidity position and the profitability or the earning capacity of borrowing c o n c e r n .   A n a l y s i s   o f   f i n a n c i a l   s t a t e m e n t   i s   n e c e s s a r y  b e c a u s e   i t   h e l p   i n depicting the f inancial  position on the basis  of  past  and current  records.A n a l y s i s   o f   f i n a n c i a l   s t a t e m en t   h e l p s   i n   m a k i n g   t h e   f u t u r e   d e c i s i o n   a n d strategies. Therefore, it is very necessary for every organization whether it is a financial or manufacturing etc. to make financial statement and to analyze it.

OBJECTIVE OF STUDY

The main objectives of this project are the following:

1) To study about ICICI BANK and its related aspects like its p r o d u c t s   &   s e r v i c e s ,   h i s t o r y ,   o r g a n i z a t i o n a l   s t r u c t u r e , subsidiary companies etc.

2) To analyze the f inancial statement i .e P&L account and Balance sheet of ICICI BANK.

3) T o l e a r n a b o u t P & L A c c o u n t , B a l a n c e - s h e e t a n d different  type of Assets& Liabilities.

4) To understanding the meaning and need of Balance Sheet and profit and loss account.

5) The purpose is to portray the f inancial position of ICICI BANK with the help of Balance sheet and profit and loss account.

6) To evaluate the financial soundness , stability and liquidity of ICICI BANK.

GENERAL INFORMATION

OF

ICICI BANK LTD

INTRODUCTION OF ICICI BANK LTD

ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The Bank has a network of 2,586 branches and 8,003 ATMs in India, and has a presence in 19 countries, including india. 

ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking life and non-life insurance, venture capital and asset management. 

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. 

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

HISTORY AND BACKGROUND

ICICI Bank was originally promoted in 1994 by ICICI Limited, an

Indian financial institution, and was its wholly-owned subsidiary. ICICI's

shareholding in ICICI Bank was reduced to 46% through a public offering

of shares in India in fiscal 1998, an equity offering in the form of ADRs

listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of

Madura Limited in an all-stock amalgamation in fiscal 2001, and

secondary market sales by ICICI to institutional investors in fiscal 2001

and fiscal 2002. ICICI was formed in 1955 at the initiative of the World

Bank, the Government of India and representatives of Indian industry. The

principal objective was to create a development financial institution for

providing medium-term and long-term project financing to Indian

businesses. 

In the 1990s, ICICI transformed its business from a development financial

institution offering only project finance to a diversified financial services

group offering a wide variety of products and services, both directly and

through a number of subsidiaries and affiliates like ICICI Bank. In 1999,

ICICI become the first Indian company and the first bank or financial

institution from non-Japan Asia to be listed on the NYSE. 

After consideration of various corporate structuring alternatives in the

context of the emerging competitive scenario in the Indian banking

industry, and the move towards universal banking, the managements of

ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI

Bank would be the optimal strategic alternative for both entities, and

would create the optimal legal structure for the ICICI group's universal

banking strategy. The merger would enhance value for ICICI shareholders

through the merged entity's access to low-cost deposits, greater

opportunities for earning fee-based income and the ability to participate

in the payments system and provide transaction-banking services. The

merger would enhance value for ICICI Bank shareholders through a large

capital base and scale of operations, seamless access to ICICI's strong

corporate relationships built up over five decades, entry into new

business segments, higher market share in various business segments,

particularly fee-based services, and access to the vast talent pool of ICICI

and its subsdiaries.  

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved

the merger of ICICI and two of its wholly-owned retail finance

subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital

Services Limited, with ICICI Bank. The merger was approved by

shareholders of ICICI and ICICI Bank in January 2002, by the High Court of

Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature

at Mumbai and the Reserve Bank of India in April 2002. Consequent to the

merger, the ICICI group's financing and banking operations, both

wholesale and retail, have been integrated in a single entity.

A view of the ICICI Bank building in Mumbai.

KEY GROUP COMPANIES

1) ICICI PRUDENTIAL INSURANCE COMPANY

ICICI Life continued to maintain its market leadership among private sector life insurance companies with a market share of 12.71% on the basis of weighted received premium. Life insurance companies worldwide make losses in the initial years, in view of business set-up and customer acquisition costs in the initial  years as well  as  reserving for  actuarial   l iabil ity .  While  the growing operations of ICICI Life had a negative impact of Rs. 10.31 bil l ion on the Bank’s consolidated profit after tax in FY 2008 on account of the above reasons, the company’s unaudited New Business Achieved Profit (NBAP) for FY2008 was Rs. 12.54 billion as compared to Rs. 8.81 billion in fiscal 2007. 

2) ICICI LOMBARD GENERAL INSURANCE COMPANY

ICICI Lombard General Insurance Company (ICICI General) enhanced its leadership position with a market share of about 29.8% among private sector general insurance companies and an overall market share of about 11.9% during fiscal 2008. ICICI General’s gross written premium grew by 11.4% from Rs. 30.03 billion in fiscal 2007 to Rs. 33.45 billion in fiscal 2008. ICICI General is required to expense upfront, on origination of a policy, all sticking expenses related to the policy. While ICICI General’s profit after tax for Rs. 1.03 billion in fiscal 2008,a growth of 50.5% over fiscal 2007.The combined ratio is the sum of net claims and expenses as a percentage of premiums and indicates the surplus generated on an annualized basis from the business written during a period (excluding investment income).

ICICI PRUDENTIAL AMC & TRUST  

ICICI Prudential Asset Management Company (ICICI AMC) was the secondl a r g e s t   a s s e t   m a n a g e m e n t   c o m p a n y   i n   I n d i a   w i t h  a v e r a g e   a s s e t s   u n d e r   management of Rs. 543.55 billion for March 2008. ICICI AMC achieved a profit after tax of Rs. 0.82 billion in fiscal 2008, a growth of 69.7% over fiscal2007.

ICICI SECURITIES LIMITED

The securities and primary dealership business of the ICICI group have been reorganized. ICICI Securities Limited has been renamed as ICICI Securities Primary Dealership Limited. ICICI  Brokerage Services  Limited has been renamed as ICICI Securities Limited and has become a direct subsidiary of  ICICI Bank. ICICI Securities achieved a profit after tax of Rs. 1.50 billion and ICICI Securities Primary Dealership achieved a profit after tax of Rs. 1.40 billion, in fiscal 2008.

ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED

ICICI  Venture Funds Management Company Limited (ICICI  Venture)  strengthened its leadership position in private equity in India, with funds under management of about Rs.95.50 billion at year-end fiscal 2008. ICICI Venture achieved a profit after tax of Rs. 0.90 billion in fiscal 2008 compared to Rs. 0.70 billion in fiscal 2007.

MANAGEMENT BODY OF ICICI BANK LTD

Board Members

1) Mr. K. V. Kamath, Chairman

2) Mr. Sridar Iyengar

3) Dr. Swati Piramal

4) Mr. Homi R. Khusrokhan

5) Mr. Arvind Kumar

6) Mr. M.S. Ramachandran

7) Dr. Tushaar Shah

8) Mr. V. Sridar

Managing Director & CEO Executive Director & CFO

Ms. Chanda Kochhar Mr. N. S. Kannan

Executive Director Mr. K. Ramkumar

Mr. Rajiv Sabharwal

DATA

ANALYSIS

STUDY OF PROFIT& LOSS A/C

MEANING: I t is a f inancial statement, which shows net loss of a company for a specified period. The accounting year means calendar year of 12months or less or more than 12 months.

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

FORMAT: The Companies act does not provide any specific format for this account. However it is required to be prepared on the basis of the instructions given in part ii of schedule (vi) of the companies act.

MAIN ITEMS OF PROFIT AND LOSS ACCOUNT

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

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

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

Miscellaneous expenses: In this head items such as rates and taxes, insurance premium etc., must be stated separately.

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

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

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

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

Final dividend as an item of the trial balance :  This is  shown in the debit side of the appropriation section of the profit and loss account.

P r o p o s e d   d i v i d e n d   o r   f i n a l   d i v i d e n d   p r o p o s e d : S i n c e   i t   i s   a n adjustment item, it has to be shown at two places- In the debit side of the profit and loss appropriation account and on the liabilities side of the balance sheet under the head ‘current liabilities and provisions’

Political donations: It must be shown as a separate item in the profit and loss account.

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

Payment to auditors: It must be stated separately. This will include consultancy fee, auditing fees management services etc.

Managerial remuneration:T h i s   i n c l u d e s   t h e   p a y m e n t s  m a d e   t o managerial remuneration director’s fee, pension, other allowances and commission.

STUDY OF BALANCE SHEET

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

ANALYSIS OF FINANCIAL STATEMENT

OF

ICICI BANK LTD

FINANCIAL STATEMENT ANALYSIS

MEANING : Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant   information.   It   is  a  valuable  tool  used by investors   and creditors, financial analysts, and others in their decision-making processes related tostocks, bonds, and other financial instruments. With a great understanding of the balance sheet & P & L account and how it is constructed, we can look at some techniques to analyze the information contained within the balance sheet & P & L account.

PURPOSE

The main purpose of analyzing the financial statement are the following :-

1) To assess past performance and current financial position.

2) To make predictions about the future performance of a company.

TOOLS FOR ANALYSING

1. PERCENTAGE CALCULATION

There are two popular methods by which we can analyze the financial statement by calculating percentage as taking a common base.

Horizontal Analysis

When an analyst compares financial information for two or more years for a single company, the process is referred to as horizontal analysis, since the analyst is reading across the page to compare any single line item, such as sales revenues. In addition to comparing dollar amounts, the analyst computes percentage changes from year to year for all financials t a t e m e n t   b a l a n c e s ,   s u c h   a s   c a s h   a n d   i n v e n t o r y .  A l t e r n a t i v e l y ,   i n comparing financial statements for a number of years, the analyst may prefer to use a variation of horizontal analysiscalledTrendanalysis.Trend analysis   involves  calculating each year's   f inancial  statement balances as percentages of the first year, also known as the base year. When expressed as percentages, the base year figures are always 100 percent, and percentage changes from the base year can be determined. If we want to calculate % change in sales then we apply the following formula: Percentage = change in sales /Base Year Sales*100

Vertical Analysis

When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a

financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies. If we want to calculate % change of current assets then we apply the following formula : Percentage: current assets/total assets*100

RATIO ANALYSIS

Financial ratio analysis uses formulas to gain insight into the company and its operations. For the balance sheet, using financial ratios  c a n   s h o w   y o u   a   b e t t e r   i d e a   o f   t h e   c o m p a n y ’ s financial condition along with its operational efficiency. It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement. Ratio analysis facilitates inter-firm and intra-firm comparison. Ratios are often classified using the following terms :

LIQUIDITY RATIO: Liquidity ratios are measures of the short-term ability of the company to pay its debts when they come due and to meet unexpected needs for cash.

CURRENT RATIO: The current ratio is a rough indication of a firm ability to service its current obligations. Generally, the higher the current ratio, the greater the cushion between current obligations and a firm ability to pay them. The stronger ratio reflects a numerical superiority of current assets over current liabilities Current ratio is calculated as follows:

Current ratio= Current Assets/Current Liabilities

QUICK RATIO: It is also known as the “acid test” ratio; this is a refinement of the current ratio and is a more conservative measure of liquidity. The quick ratio expresses the degree to which a company’s current liabilities are recovered by the most liquid current assets. quick ratio is calculated as follows:

Quick ratio= (cash + marketable securities +Receivables)/current liabilities

SOLVENCY RATIO: Solvency ratios indicate the ability of the company to meet its long-term obligations on a continuing basis and thus to survive over a long period of time

Debt/Worth Ratio: This ratio expresses the relationship between capital contributed by creditors and that contributed by owners. It expresses the degree of protection provided by the owners for the creditors.The higher the ratio, the greater the risk being assumed by creditors. The lower the ratio,   the  greater   the  long term financial  safety.  A f irm with a  low debt/worth ratio usually has

a greater flexibility to borrow in the future. Amore highly leveraged company has a more limited debt capacity.

Debt/worth ratio=Total Liabilities / Tangible Net Worth

PROFITABILITY RATIO: Profitability ratios are gauges of the company's operating success for a given period of time.

Return on assets: Return on assets is a measure of how effectively the f irm’s assets are being used to generate profit . It is calculated as follows:

Return On Assets= Net Income/Total Assets

Return on equity: Return on equity is the bottom line measure for the shareholders, measuring for the profits earned for each rupee invested in business. It is calculated as follows:

Return on Equity= Net income/shareholder’s equity

FIXED/WORTH RATIO: This ratio measures the extent to which owner’s equity (capital) has been invested in plant and equipment (fixed assets). A lower ratio indicates a proportionately smaller investment in fixed assets in relation to net worth and a better cushion for creditors in case of   liquidation. Similarly, a higher ratio would indicate the opposite situation. The presence of substantial leased f ixed assets  (not shown on the balance-sheet ) may deceptively lower this ratio. Fixed Worth Ratio=Net Fixed Assets/ Tangible Net Worth

INTRODUCTION

Business capital is broadly divided into two groups: fixed capital and

working capital. Fixed capital refers to the funds investment in such fixed

or permanent asset as land, building machinery etc. while working capital

refers to funds loc ked up in materials, work-in-progress, finished goods,

receivable and cash etc..since these asset are known as current assets in

very simple term “working capital may be defined as capital invested in

current assets”

“working capital management is concerned with the problems that

arises in attempting to manage the current assets, current liabilities and

the interrelationship that exists between them”.

The term current assets refers to those assets which in the ordinary

coerce of business can be turned in to cash with in one year without

distrusting the firm’s operations and consist of cash. Inventory receivables

and marketable securities.

The term current liability are those which are intended at their

inception to paid in the ordinary course of business, within a year out of

CA or earning of the firm and consists of account payables, bank OD & out

standing expenses.

The working capital management is thus concerned with

maintaining a trade off between profitability and risk associated within a

firm’s level of CA & CL.

The basic goal of working capital is to manage the firm’s CA & CL so

as to achieve a satisfaction level of working capital it is. Necessary because

if the firm is not able to maintain these level it is likely to because in

solvent and may even be forced into bankruptcy.

CONCEPT OF WORKING CAPITAL

There are two concept of working capital.

Gross working capital

Networking capital

1) Gross working capital: -

Gross working capital simply called as working capital, refers to the firm’s

investment in current Assets. Current Assets which can be converted into

cash within an accounting year and include cash short-term security,

debtors, bills receivables and stock investment.

2) Networking capital: -

Net working capital refers to the difference between current assets and current liabilities net working capital can be positive or negative, A positive net working capital will arise when current assets exceeds current liabilities. A negative net working capital occurs when current liabilities are in excess of current Assets.

TYPES OF WORKING CAPITAL

Basically two types of working capital are needed in business:

Permanent working capital, which is permanently blocked in

business and variable working capital, which varies the requirement of

business.

1) PERMANENT WORKING CAPITAL: -

It is the type of W.C. which is permanently locked up in current

assets some cash is required to maintain stocks of raw materials &

Finished good at their normal level & also far paying wages & salaries

regularly. Permanent

Working capital is of kinds.

(a) Initial Working capital: -

In the initial period of its operation a company must have enough

money to pay certain expenses before the business yields a cash receipt. In

the initial year, bank may not grant loans or overdrafts, sales may have to

be made on credit & it may be necessary to make payment to the creditors

immediately. Hence the turns will have to be supplied by owners

themselves in the initial year.

(b) Regular working capital: -

It is the W.C. required to continue the regular. It is required to

maintain regular stocks of raw materials & W.I.P. & also of the finished

gods, which must be maintained permanently at a definite level. Regular

working capital is the excess of current assets over current liabilities. It

ensures a smooth operations of the business.

2) VARIABLE WORKING CAPITAL: -

It is that part of W.C., which is required to meet the seasonal, needs

as well as special needs of the business. It is therefore, subdivided into

two part: -

(a) Seasonal Working capital: -

Some business enterprise requires additional W.C. during a

particular season. For example, the Sugar Mills have to purchase

sugarcane in a particular requirement by providing additional for a

temporary.

(b) Special Working Capital: -

In all enterprise, some an foreseen events do occur when extra

funds are needed to tied over such situation some of these events are:

Sudden increase in demand for the final product (when a war breaks out,

for example) downward movement of prices and sales during depression

necessitating extra working funds considerable rise in prices of raw

material so more funds will be needed to maintain their stock at the

normal level and strikes or natural calamities which also force the

management to provide for additional funds.

DETERMINANTS OF WORKING CAPITAL

There are number of factor which determine the amount of

working capital requirement in business.

1. NATURE & VOLUME OF BUSINESS:-

There natural of business is an important factor in deciding the amount of

working capital for example the amount of working capital is generally

more in trading concerns & in service units as compared to the

manufacturing units. The retail trading units have also to invest large

funds in working capital. In some manufacturing anis also the working

capital holds a significant place. On the other hand, public utilities require

less working capital. Other manufacturing units need mare working

capital as compared to public utilities.

2. LENGTH OF MANUFACTURING CYCLE:-

The longer the period a manufacturing cycle takes the larger is the amount

of working capital required, because the fund get locked op in production

process for a longer period of time. It is in view of this that when

alternative method of production are available, the method with the

shortest manufacturing cycle should be choice is made care is taken to see

that the manufacturing cycle is taken to see that the manufacturing cycle

is completed within a specified period Any delay in production to increase

the requirement of working capital.

3. BUSINESS FLUCTUATIONS:-

Business fluctuations are of two types: seasonal fluctuation which arise

out of seasonal change in demand for the product and cyclical fluctuations

which occur due to ups and down of economic activities in the country as

a whole.

If demand for the product is seasonal production will have to be

increased during the season & it will have to be reduced during the off-

season corresponclingly, there will be fluctuations in the requirement of

working capital.

The cyclical fluctuations are made up of period of prosperity and

depression. The sales & prices increase during prosperity necessitating

more working capital in the form of inventories and book- debts.

4. PRODUCTION POLICY:-

If the policy of constant production is adopted. There are two possible

effects. Policy help in reducing working capital requirement to the lowest

level. But it demand for the product is seasonal, this policy raises the level

of inventory during off-season and thereby increases the working capital

requirement.

5. CREDIT POLICY:-

In the present-day circumstances almost all units have to sell good on

credit. The nature of credit policy is an important consideration in

deciding the amount of working capital requirement the larger the volume

of credit sales. The collection of payment takes, the greater will be the

requirement of working capital.

6. AVAILABILITY OF CREDIT:-

The amount of credit that a firm can obtain as also the length of the credit

period significantly attests the working capital requirement. The greater

the prospects of getting credit the smaller will be its requirement of

working capital because it can purchase it can easily purchase raw

materials and other requirement on credit.

7. GROWTH AND EXPASION:-

The working capital requirement increase as companies sales increase it

is difficult to precisely determine the relationship between volume of sales

and working capital requirement A growing firm may need to invest funds

in FA in order to sustain its growing production and sales. Other thing

being more working capital then others Advance planning of working

capital for growing concern.

8. PROFIT AND ITS DISTRIBUTION:-

The level of profit also determines the level working capital requirement.

The availability of internal funds for working capital requirement is

determined not merely by profit margin but also on the manner of

appropriations for taxation. Dividends, reserves & depreciation.

9. PRICE LEVEL CHANES:-

The increasing shift in the make function manager more difficult. He

should anticipate the effect of price level changes on working capital of the

firm. Generally rising price level will require a firm to maintain higher

amount of working capital. However companies, which can immediately

revise their product prices with rising price level, will not face any

problem.

10. PRICE LEVEL CHANGES:-

The operating efficiency of the firm relates to the optimum utilization of

resources at the rate of minimum cost. The firm will be effectively

contributing to its working capital. If it is efficiency in controlling

operating cost. Better utilization of resources improves profitability and

thus help in releasing the pressure on working capital.

NEED FOR WORKING CAPITAL

The need for working capital to run the day today business activities

can not day over emphasized. In its endeavourer to maximize the

shareholder wealth a firm should earn sufficient return from its operation.

Earning a steady amount of profit require a steady amount of profit

require successful sales activity. The firm has to invest enough funds in

current assent for the success of sales activity. Current asset are needed

because sales do not convert into cash spontaneously. There is always an

operating cycle involved in the conversion of sales into cash.

OPRATING CYCLE:

Operating cycle is the time duration required to convert sales, after

the conversion of resources into inventories into cash. The operating cycle

of a firm begins with the acquisition of raw material and ends with the

collection of receivable. It may be divided into 4 stages.

1. Raw material and stares storage stage.

2. Work in process stage.

3. Finished good inventory stage.

4. Debtor’s collection stage.

These stages after cash how’s which most of the time are neither

synchronized (because cash outflows usually occurs before cash inflows.)

nor certain (because and collection which generates cash inflows are not

forested accurately.) The firm is therefore required to invest in current

asset for a smooth and uninterrupted functioning and to material and

pay expenses.

Cash is also held to meet any future exigencies.

Stocks of raw material and work in process are kept to

ensure smooth production.

Stocks of finished goods to meet the demand of

customers on continuous basis and some times sudden

demand.

Book debt i.e. ALC receivables are created because

good are sold for credit for marketing and competitive

reasons.

SOURCES OF WORKING CAPITAL

1. SHARES AND DEBENTURES:-

The funds for working capital can be obtained through the issue

of shares to meet the initial requirement or to expand business or to make

up the sudden and unexpected decline in working capital. The fund for

w.c. can also be obtained through the issue of debentures. The retain

profit can also be used as working capital.

2. RETAINED PROFIT:-

A part of the sales revenue is used up to meet cost of

production. Only the net sales process in available for this purpose of

profit & loss account. Working capital can be obtained also by providing

for deprecation. Because to the extent, depreciation is provided, profit is

retained with the company and it can be used as working capital.

3. COMMERCIAL BANKS:-

Commercial Banks are an important sources of working capital

for the business. They provide current finance and short-term fund to the

business enterprise. Majority of the Indian enterprises rely on commercial

bank to meet their capital needs.

1) TRADE CREDITORS:-

Trade creditors provide working capital to the industries

indirectly. The suppliers provide raw materials or equipment immediately

in cash. They make payments after a definite period of time, which may be

one month or two month or more. So that extent the pressure of w.c.

requirement is lessened, Thus to the extent trade credit is available, the

requirements of w.c. in industrial unit are reduced. The relation between

two parties plays on important role because the period of credit on this

relationship.

2)PUBLIC DEPOSITS:-

Public deposits are an important sources of w.c. for the business.

Under this system, people deposit their saving with the business unit for a

duration of six months to maximum of three years. The rate of interest to

paid on these deposits various from 10 to 15 percent per year. This

system was popular in the textile industry of Mumbai and Ahmedabad as

also in the tea plantation of Assam & Bengal in the 19th century. In the last

two year however, this system has spread to almost all industries in India

and most of the companies rely on public deposits to meet the long term

and short term capital requirement and easy methods of lower than that

one-bank loans.

3)INDIGENOUS BANKERS:-

Indigenous Bankers provide very short-term finance to the business units.

Most of their loans are for the period of a week or a month. If they have

enough resources they may provide cash credit for a period of one year

also. Personal relationship between the money tenders and barrowers

play a decisive role in this system of financing.

Profit loss account

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Income

Operating income 32,369.69 32,747.36 38,250.39 39,467.92 28,457.13

Expenses

Material consumed - - - - -

Manufacturing expenses - - - - -

Personnel expenses 2,816.93 1,925.79 1,971.70 2,078.90 1,616.75

Selling expenses 305.79 236.28 669.21 1,750.60 1,741.63

Administrative expenses 4,909.00 7,440.42 7,475.63 6,447.32 4,946.69

Expenses capitalized - - - - -

Cost of sales 8,031.72 9,602.49 10,116.54 10,276.82 8,305.07

Operating profit 7,380.82 5,552.30 5,407.91 5,706.85 3,793.56

Other recurring income 7.26 305.36 330.64 65.58 309.17

Adjusted PBDIT 7,388.08 5,857.66 5,738.55 5,772.43 4,102.73

Financial expenses 16,957.15 17,592.57 22,725.93 23,484.24 16,358.50

Depreciation 562.44 619.50 678.60 578.35 544.78

Other write offs - - - - -

Adjusted PBT -10,131.51 -12,354.42 -17,665.98 5,194.08 3,557.95

Tax charges 1,609.33 1,600.78 1,830.51 1,611.73 984.25

Adjusted PAT 5,110.21 3,890.47 3,740.62 4,092.12 2,995.00

Non recurring items 41.17 134.52 17.51 65.61 115.22

Other non cash adjustments -2.17 - -0.58 - -

Reported net profit 5,149.21 4,024.98 3,757.55 4,157.73 3,110.22

Earnings before appropriation 8,613.59 6,834.63 6,193.87 5,156.00 3,403.66

Equity dividend 1,612.58 1,337.95 1,224.58 1,227.70 901.17

Preference dividend - - - - -

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Dividend tax 202.28 164.04 151.21 149.67 153.10

Retained earnings 6,798.73 5,332.63 4,818.07 3,778.63 2,349.39

Balance Sheet of ICICI Bank ------------------- in Rs. Cr. -------------------Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths

Capital and Liabilities:Total Share Capital 1,151.82 1,114.89 1,463.29 1,462.68 1,249.34Equity Share Capital 1,151.82 1,114.89 1,113.29 1,112.68 899.34Share Application Money 0.29 0.00 0.00 0.00 0.00Preference Share Capital 0.00 0.00 350.00 350.00 350.00Reserves 53,938.82 50,503.48 48,419.73 45,357.53 23,413.92Revaluation Reserves 0.00 0.00 0.00 0.00 0.00Net Worth 55,090.93 51,618.37 49,883.02 46,820.21 24,663.26Deposits 225,602.11 202,016.60 218,347.82 244,431.05 230,510.19Borrowings 109,554.28 94,263.57 67,323.69 65,648.43 51,256.03Total Debt 335,156.39 296,280.17 285,671.51 310,079.48 281,766.22Other Liabilities & Provisions 15,986.35 15,501.18 43,746.43 42,895.39 38,228.64Total Liabilities 406,233.67 363,399.72 379,300.96 399,795.08 344,658.12

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths

AssetsCash & Balances with RBI 20,906.97 27,514.29 17,536.33 29,377.53 18,706.88Balance with Banks, Money at Call 13,183.11 11,359.40 12,430.23 8,663.60 18,414.45Advances 216,365.90 181,205.60 218,310.85 225,616.08 195,865.60Investments 134,685.96 120,892.80 103,058.31 111,454.34 91,257.84Gross Block 9,107.47 7,114.12 7,443.71 7,036.00 6,298.56Accumulated Depreciation 4,363.21 3,901.43 3,642.09 2,927.11 2,375.14Net Block 4,744.26 3,212.69 3,801.62 4,108.89 3,923.42Capital Work In Progress 0.00 0.00 0.00 0.00 189.66Other Assets 16,347.47 19,214.93 24,163.62 20,574.63 16,300.26Total Assets 406,233.67 363,399.71 379,300.96 399,795.07 344,658.11

Contingent Liabilities 883,774.77 694,948.84 803,991.92 371,737.36 177,054.18Bills for collection 47,864.06 38,597.36 36,678.71 29,377.55 22,717.23Book Value (Rs) 478.31 463.01 444.94 417.64 270.37

Annual results in briefMar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sales 25,974.05 25,706.93 31,092.55 30,788.34 22,994.29

Operating profit 17,069.96 15,460.24 20,239.18 19,729.57 14,077.37

Interest 16,957.15 17,592.57 22,725.93 23,484.24 16,358.50

Gross profit 9,047.55 9,732.18 8,925.23 7,960.69 5,874.40

EPS (Rs) 44.72 36.10 33.76 37.37 34.58

Annual results in detailsMar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Other income 6,647.90 7,477.65 7,603.72 8,810.77 5,929.17

Stock adjustment - - - - -

Raw material - - - - -

Power and fuel - - - - -

Employee expenses 2,816.94 1,925.79 1,971.70 2,078.90 1,616.75

Excise - - - - -

Admin and selling expenses - - - - -

Research and development expenses - - - - -

Expenses capitalised - - - - -

Other expenses 3,800.31 3,934.04 5,073.41 6,075.28 5,073.81

Provisions made 2,286.84 4,386.86 3,808.26 2,904.59 2,226.36

Depreciation - - - - -

Taxation 1,609.33 1,320.34 1,358.84 898.37 537.82

Net profit / loss 5,151.38 4,024.98 3,758.13 4,157.73 3,110.22

Extra ordinary item - - - - -

Prior year adjustments - - - - -

Equity capital 1,151.82 1,114.89 1,113.29 1,112.68 899.34

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Equity dividend rate - - - - -

Agg. of non-prom. shares (Lacs) 11517.72 11148.45 11132.51 11126.87 8992.67

Agg. of non promote Holding (%) 100.00 100.00 100.00 100.00 100.00

OPM (%) 65.72 60.14 65.09 64.08 61.22

GPM (%) 27.73 29.33 23.06 20.10 20.31

NPM (%) 15.79 12.13 9.71 10.50 10.75

Cash flowMar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Profit before tax 6,760.70 5,345.32 5,116.97 5,056.10 3,648.04

Net cash flow-operating activity -6,908.92 1,869.21

-14,188.49

-11,631.15 23,061.95

Net cash used in investing activity -2,108.82 6,150.73 3,857.88

-17,561.11

-18,362.67

Net cash used in fin. activity 4,283.20 1,382.62 1,625.36 29,964.82 15,414.58

Net inc/dec in cash and equivlnt -4,783.61 8,907.13 -8,074.57 683.55 20,081.10

Cash and equivalnt begin of year 38,873.69 29,966.56 38,041.13 37,357.58 17,040.22

Cash and equivalnt end of year 34,090.08 38,873.69 29,966.56 38,041.13 37,121.32

RATIO RELATED TO WORKING CAPITAL

Current ratio

Liquid ratio

Current asset to fixed asset ratio

Net working capital ratio

Ave collection period

Current asset turnover ratio

Net current asset turnover ratio

Current ratio

particular 2010-11 2009-10 2008-09

Current assets 1637975035 2040733210 1220975919

Current liability 1091581121 1097712024 832482514

Current ratio = Current assets

Current liability

2010-11 2009-10 2008-09

1637975035 2040733210 1220975919

1091581121 1097712024 832482514

=1.50:1 1.86:1 1.47:1

0

0.5

1

1.5

21.5

1.86

1.47

CURRENT RATIO

RATIO

YEAR

RA

TIO

This ratio indicates that the current ratio decreases because the

current assets exceeds than current liability.

Liquid ratio

Particular 2010-11 2009-10 2008-09

Liquid asset 777064680 919781305 931166865

Liquid liability 956108452 960146202 832482514

Liquid ratio = liquid assets

Liquid liability

2010-11 2009-10 2008-09

777064680 919781305 931166865

956108452 960146202 832482514

0.81: 1 0.95: 1 1.12: 1

0

0.2

0.4

0.6

0.8

1

1.2

0.81

0.950000000000001

1.12

LIQUID RATIO

RATIO

YEAR

RA

TIO

Current assets to fixed asset ratio

Particular 2010-11 2009-10 2008-09

current asset 1637975035 2040733210 1220975919

Fixed assets 616567088 608338839 690642060

Ratio of w. c. = current asset

Fixed asset

2010-11 2009-10 2008-09

1637975035 2040733210 1220975919

616567088 608338839 690642060

= 2.66 =3.35 =1.77

00.51

1.52

2.53

3.54

2.66

3.35

1.77

CURRENT ASSETS TO FIXED ASSETS RATIO

RATIO

YEAR

RA

TIO

Net working capital ratio

particular 2010-11 2009-10 2008-09

Net w.c 546393914 943021186 832482514

Net Asset 564070078 555841829 640645050

Net Working capital ratio = Net working Capital

Net Assets

2010-11 2009-10 2008-09

546393914 943021186 832482514

564070078 555841829 640645050

= 0.97:1 =1.69:1 =1.29:1

0

0.5

1

1.5

2

0.970000000000001

1.69

1.29

NETWORKING CAPITAL RATIO

RATIO

YEAR

RA

TIO

Debtors Turnover ratio

Particular 2010-11 2009-10 2008-09

Sales 7681799111 5974268884 5468894893

Debtor 1832696385 140251114 119492970

Debtors Turnover Ratio = Sales

Debtors

2010-11 2009-10 2008-09

7681799111 5974268884 5468894893

1832696385 140251114 119492970

= 4.19:1 = 4.26:1 = 4.58:1

3.94

4.14.24.34.44.54.64.7

4.194.26

4.58

DEBTOR TURNOVER RATIO

RATIO

YEAR

RA

TIO

Ave Collection Period

Ave Collection period = 365 Day

Debtor Turnover

Particular 2010-11 2009-10 2008-09

Ave collection Period =365 =365 =365

4.19 4.26 4.58

=87 Day =86Day =80 Day

76

78

80

82

84

86

88 8786

80

AVERAGE COLLECTION PERIOD

RATIO

YEAR

DA

Y

Current asset turnover ratio

PARTICULAR 2010-11 2009-10 2008-09

SALES 7681799111 5974268884 5468894893

CRRENT ASSET 1637975035 2040733210 1220975919

Current asset turnover ratio = sales

Current assets

2010-11 2009-10 2008-09

7681799111 597426884 5468894893

163795035 2040733210 1220975919

= 4.69 times = 2.92 times = 4.47 times

0

1

2

3

4

5 4.69

2.92

4.47

CURRENT ASSETS TURNOVER RATIO

RATIO

YEAR

RA

TIO

Net current asset turnover ratio

PARTICULA

R

2010-11 2009-10 2008-09

SALES 768179911 597426884 5468894893

NET C.A. 546393914 735147353 438490415

Net current asset turnover ratio = sales

Net current asset

2010-11 2009-10 2008-09

768179911 597426884 5468894893

546393914 735147353 438490415

= 14.06 = 8.12 =12.47

0

5

10

15 14.06

8.12

12.47

NET CURRENT ASSETS TURNOVER RATIO RATIO

RATIO

YEAR

RA

TIO

CONCLUSION

AND

SUGGESTIONS

CONCLUSION

The balance-sheet along with the income statement is an important tool for investors and many other parties who are interested in it to gain insight into a company and its operation. The balance sheet is a snapshot at a single point of time of the company’s accounts- covering its assets, liabilities and shareholder’s e q u i t y .   T h e   p u r p o s e   o f   t h e   b a l a n c e - s h e e t   i s   t o   g i v e   u s e r s  a n   i d e a   o f   t h e company’s financial position along with displaying what the company owns and owes. I t is important that al l investors know how to use, analyze and read  balance-sheet. P & L account tells the net profit and net loss of a company and its appropriation. In the case of ICICI Bank, during fiscal 2008, the bank continued to grow and diversify its assets base and revenue streams. Bank maintained its leadership in all main areas such as retail credit, wholesale business, international operation, insurance, mutual fund, rural banking etc. Continuous increase in the number of   branches, ATM and electronic channels shows the growth take place in bank. Trend analysis of profit & loss account and balance sheet shows the % change in items of p & l a/c and balance sheet i.e. % change in 2006 from 2005 and %change in 2007 from 2006. It shows that all items are increased mostly but increase in this year is less than as compared to increase in previous year. In p& l a/c, all items like interest income, non-interest income, interest expenses, operating expenses, operating profit, profit before tax and after tax is increased but in mostly cases it is less than from previous year but in some items like interest income, interest expenses, provision % increase is more. Some items like tax, depreciation, lease income is decreased. Similarly in balance sheet all items like advances, cash, liabilities, deposits is increased except borrowings which is decreased. % increase in some item is more than previous year and in some items it is less.Ratio analysis of financial statement shows that bank’s current ratio is better than the quick ratio and fixed/worth ratio. It means bank has invested more in current assets than the fixed assets and liquid assets. Bank

have given more advances to its customer and they have less cash in their hand. Profitability ratio of bank is lower than as compared to previous year. Return on equity is better than the return on assets.T h e   c a s h   f l o w   s t a t e m e n t   s h o w s   t h a t   n e t   i n c r e a s e   i n  c a s h   g e n e r a t e d   f r o m operating and financing activities is much more than the previous year but cash generated from investing activities is negative in both year. There is increase of 159,708,479 thousand RS. in Increase in cash & cash equivalents from previous year. Therefore analysis of cash flow statement shows that cash inflow is more than the cash outflow in ICICI Bank. Thus, the ratio analysis and trend analysis and analysis of cash flow statementshows that  ICICI Bank’s  f inancial  posit ion is  good.  Bank’s  profi tabil i ty   is increasing but not at high rate. Bank’s liquidity position is fair but not good because bank invests more in current assets than the liquid assets. As we all know that ICICI Bank is on the first position among all the private sector bank of India in all areas but it should pay attention on its profitability and liquidity. Bank’s position is stable.

SUGGESTIONS

Some of the recommendation and suggestion are as follows:

1) The attention is required on the areas of growth, profitability service level and building talent.

2) To increase  the profi t  of  bank,  bank should decrease  their  operating expenses and increase their income.

3) To increase its liquidity, bank should keep some more cash in its hand instead of giving more and more advances.

4) Introduce quality consciousness and standardization of the work system and procedures.

5) Make manager competitive and introduce spirit of market-orientation and culture of working for customer satisfaction.

6) There is need to build the knowledge and skill base among the employees in the context of technology.

7) P e r f o r m a n c e   m e a s u r e   s h o u l d   n o t   o n l y   c o v e r   f i n a n c i a l  a s p e c t s   i . e . quantitatively aspects but also the qualitative aspects.

8) It is high time to focus on work than the work-achieved.

9) Bank should increase its retail portfolio.

10) Bank should manage its all risk such as credit, market and operational risk properly and should be managed by a person who are highly skilled and qualified.

11) Bank should pay at tention on i ts  subsidiary “ICICI Prudential  LifeInsurance Company Limited”.

BIBLIOGRAPHY

I have referred following books and used following websites for

the preparation of this project report on working capital management

of ICICI Bank Ltd.

1) FINANCIAL MANAGEMENT

2) www.google.com

3) www.icici.co.in