ABOUT THE COMPANY

Reliance General Insurance Company Limited is an Indian insurance company, a part of

Reliance Capital Ltd. of the Reliance Anil Dhirubhai Ambani Group. The firm is amongst the
leading general insurance companies in India, with a private sector market share of over 8%.
It had a distribution network composed of 127 branches and over 12,000 intermediaries at the
end of June 2013. The Gross Written Premium for the quarter ended June 30, 2013 was Rs.
706 crore (US$126 million). The Gross Written Premium for the year ended March 31, 2013
was Rs. 2,036 crore(US$374 million).Reliance General Insurance (RGI) offers insurance
solutions for auto, health, home, property, travel, marine, commercial and other speciality
products.
Reliance General was incorporated on 17 August 2000, and received the license to conduct
the business of insurance in India from the Insurance Regulatory Development Authority on
23rdOctober 2000. Unlike most competitors, who have foreign partners, the firm is promoted
solely by Reliance Capital, which is an Indian company. However, media reports suggest
Reliance Capital is on the lookout for an eligible partner who can add value to Reliance
General. Reliance Capital Chief Executive Officer Sam Ghosh in an interview to Business
Standard said may sell stake in its general insurance arm by end of December 2013.Reliance
Capital has already sold minor stakes in its life insurance and asset management business to
Nippon Life of Japan.

Reliance General Insurance.svg

Type
Public Listed Company
Industry

Insurance

Founded

2001

HeadquartersMumbai, India
Key people
Rakesh Jain Executive director & CEO
Products
General insurance, Vehicle Insurance, Health Insurance, Travel Insurance,
Home insurance
Parent Anil Dhirubhai Ambani Group
Website

www.reliancegeneral.co.in

WORKING CAPITAL:
Introduction:
Financial management looks after two types of capital need: for fixed capital to
invest it tings such as buildings, plants &equipments and working capital
principally to pay for stock and to cover the amount of credit extended to
customers. Fixed capital, as the name implies, tends not vary in the short but to
move up or down in jumps when major investment decisions are made (or assets
sold). Working capital on the other hand, is much more fluid and fluctuates with
level of business.
Working capital is a furnish investment in short term assets. Working capital is
the firms investment in short term assets cash, short term securities. Account
receivables and inventories.
Working capital management is the important branch of the financial
management which gives answers the questions such as:
1

How much should we invest in each category of current assets?

How should we finance this investment in current assets i.e. appropriate

mix of short and long term sources to finance?

In most business, funds are deployed in assets which are in the form of cash or
bank deposits or will be turned into cash in a relatively short period as part of
normal business activities. In short the working capital is the sources of financing
current assets and it includes short as well as long term financing.
The management of the funds of business can be described as financial
management. Financial management is mainly concerned with two aspects.
Firstly, Fixed assets and fixed liabilities, in other words, long term investment and
sources of funds. Secondly, current assets and current liabilities. Both of these
types of funds play a vital role in business finance.
Management of working capital usually involves management or administration
of current assets, namely cash, marketable securities, account receivables and
inventories and also the administration of current liabilities such as creditors,
account payable, notes and bills payables, bank overdraft, outstanding expenses,
temporary loans and provisions. A firm should always maintain the right cash
balance so that flow of funds is maintained at a desirable speed not allowing
slowdowns or stoppage. Thus, the enterprises can have a balance between
liquidity and profitability.
The term working capital is often used to refer the firms current assets like
primarily cash, marketable securities, account receivables and inventories.
Working capital refers to the fact that most of its components have their impact
over weeks and month rather than years. For this reason, working capital
management is often referred to as short-term finance. The term working capital
is closely related to the term funds and has two common meaning. It is used to
mean current assets of current assets means current liabilities.

Working capital management is concerned with the problems that arise in

attempting to manage the current assets. The term current assets refers to those
assets which is ordinary course of business can be or will be turned into cash
within one year without undergoing a diminution in value and with our disrupting
the operations of the firm. The major current assets are cash, marketable
securities, account receivables and inventory.
Current liabilities are those liabilities, which are intended at their inception to be
paid in the ordinary course of business within a year, out of the current assets of
earnings of the concern. The basis current liabilities are accounts payable, bank
overdraft and outstanding expenses. The goal of working capital management is
to management the firms current assets and current liabilities in such a way that
a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintainto satisfactory level of working
capital, it is likely to become insolvent and may be forced into bankruptcy. The
current assets should be large enough to cover its current liabilities in order to
ensure a reasonable margin of safety. Each of the current assets must manage
efficiently in order to maintain the liquidity of the firm while not keeping too high
level of any of them. Each of the short-team sources of financing must be
continuously managed to ensure that they are abstained and used in the best
possible way. The interaction between current assets and current liabilities is,
therefore, the main theme of the theory of working capital management.
Working capital may be defined more particularly as the assets held for current
use within a business less the amount due to those who await settlement in short
term in whatever form. Working capital is an important aspect manufacturing
compares that have so far developed country. Among all available options proper
management of working capital is the only best possible option to improve their
operational viability. Working capital is the financial management practice in
manufacturing enterprises. Working capital represents portion that circulates
from one form to another in the ordinary conduct of business. This idea
embraces recurring transaction from cash to inventories to receivable to cash
that forms the conventional chain of business operations.
Fund deployed for short term are mainly for working capital or operational
purpose. Towards the day-to-day operation, a firm will have to provide money
towards the purchase of raw materials, payment of wage and salaries to extend
credit to buyers of goods as well as to meet other day to day operations.
By analyzing about the working capital, we concluded that, all the corporations.
Weather public or private, manufacturing or non-manufacturing have just
adequate working capital to serve in competitive market. It is because excessive
or inadequate working capital is dangerous from the firms point of view.
Excessive investment on working capital affects a firms profitability just idle
investment, yields nothing. In the same way, inadequate investment on working
capital affects the liquidity position of the company and leads to financial
embarrassment and failure of the company.
It is therefore, recognized fact that any mistake made in management of working
capital can lead to adverse effects in business and reduced the liquidity,
turnover, profitability and increases the cost of financing of the enterprises.

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital:

1) Working capital is the difference between the inflow and outflow of funds. In
other words it is the net cash inflow.

2) Working capital represents the total of all current assets. In other words it is
the Gross working capital, it is also known as Circulating capital or Current capital
for current assets are rotating in their nature.
3) Working capital is defined as The excess of current assets over current
liabilities and provisions. In other words it is the Net Current Assets or Net
Working Capital

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital:- gross & net. Gross working capital,
simply called working capital, refers to the firms investment in current assets.
Current assets are the assets which can be converted into cash within an
accounting period (or operating cycle)and cash, short-term securities,
receivables, debtors and stock (inventory) are included in current assets. Net
working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders, which are expected to
mature for payment within an accounting periodand include creditors, bills
payableand outstanding expenses.
1 Gross working capital:
According to this concept, total current assets are working capital which presents
both owned capital as well as loan capital used for financing current assets. It
includes cash, short-term securities and receivables inventories. These assets
can be converted into cash within a year. Generally, when it comes to current
assets, cash is the most valuable element because it is immediately available to
settle bills and debtors are more value than stock which is nearer to being turned
into cash. The gross concept of working capital refers to the amount funds
invested in short-term assets that are employed in the enterprise. Gross working
capital is the firms total current asset and net working capital is current assets
minus current liabilities.
Another name of gross working capital is circulating capital. Circulating capital
means circular flow of cash. This is also called operating cycle in case of
manufacturing firm. This cycle starts with which is used to pay for raw materials.
Raw materials are converted into work-in progress which is again converted into
finished goods. When it is ready for sale, it is a circular cash-flow from cash into
inventories to receivables and back to cash, this cycle will be repeat again for the
whole life of the firm.
The value represented by current assets circulates from one working capital to
another working capital from purchase accounts to goods manufacturing

CASH

accounts. From inventory accounts to sales accounts, from sales accounts to

cash accounts, this is described as circulating nature of current assets of in other
work working capital has circulating nature. The speed of circulating of working
capital of the turnover of current assets is an indicator of degree of efficiency of
the management. The faster the turnover shows the higher degree of efficiency.
The working capital cycle can be presented in the diagram as:
CREDITORS

COLLECTION

PAYMENTS

RAW MATERIALS

DEBTORS

SALES
PRODUCTION
FINISHED GOODS

WORK-IN-PROGRESS

VALUE ADDED CONVERSION

Figure: 4.1 The working capital cycle of manufacturing firms.
If the business is profitable the firms assets at the end of each cycle will be
greater than the original investment. In this manner, each cycle will produce a
gross profit, and the amount of net earnings for the year will depend. In part, on
number of times the cycle occurs or how measured by the ratio of sales to
current assets. The higher the ratio, the more efficiency the operations, fewer
current assets are needed to support each dollar of sales.
The flow of working capital does not always proceeds as it is pre- planned when
it moves through different stage of cash cycle, for example, sales may decline
due to can in consumer taste, slow economy and receivable become more
difficult to collect the working capital cycle will be interrupted. This leads to
decline in profitability and firm could suffer bankruptcy if this adverse situation
prevails for sometimes.
There is also a much shorter cycle of activity where in goods and materials are
held for manufacture and sale, and credit is advanced to customers for rapid
conversion into cash to provide the funds with which to continue in business and
to make a profit distribution possible.
The working capital cycle shown in figure 4.1 is theoperating cycle for nonmanufacturing firm where, cash is required to purchase raw materials which are
needed to convert into work-in- progress, which is again converted into finished
goods. Are sold for cash and credit and ultimately debtors will be realized.

The non manufacturing firms such as wholesalers and retailers do not

manufacture goods. So, they have the direct conversion of cash into stock of
finished goods into debtors and then into cash. This can be shown graphically as:
CASH

DEBTORS

STOCK OF FINISHED GOODS

Figure: 4.2 Operation cycle of non-manufacturing firms.

Sometimes service and financial concerns may not have any inventory. In this
case the operations cycle will be shortest as follows:

DEBTORS

CASH

Figure: 4.3 Operating cycle of service and financial firms.

The gross capital working capital focuses on two aspects of current assets
management:
a

Optimum investment in current assets: As state earlier, both excessive

and inadequate investment is harmful for the business. This aspectsthus,
emphasis on the optimum adequate level of current assets, working
capital depends upon the business activated. It also changes with the
change in business activities. This may cause excess or shortage of
working capital frequently. The management should be active and alert to
correct the imbalance.

Financing of current assets: This aspect focus on the need of arranging

funds to finance current assets when more working capital is required due
to the increase in business activities. Then the arrangement should be
made quickly. Similarly, when surplus funds arise, then they should be
invested in short term securities.

2 Net working capital:

Net working capital comprises short term net assets: stock, debtors and cash
less creditors. Working capital management then is to do with management of all

aspects of both current assets and current liabilities, so as to minimize the risk of
insolvency while maximizing return on assets.
Net working capital represents the excess of total current assets over total
current liabilities. It is a qualitative concept which shows the financial soundness
of current financial position. Net working capital may be positive or negative
according to the size of current assets and current liabilities. Current assets
should be sufficiently in excess of current liabilities for the positive working
capital. This concept lives idea about the case and cost of raising working capital
to the management.
Not only for the management, is it also a major importance to investors and
lenders. They always like a company to maintain current assets should be two
fold of current liabilities and these concepts is measured by the current ratio via
current assets current liabilities. Which should be 4:1. A large ratio indicates
greater solvency and makes it unsafe and unsound. A negative working capital
denotes negative liquidity which is also dangerous for the company.
Management should always be alert to improve the imbalance in the liquidity
position of the firm. Mathematically, it is presented as:
Net working capital Current assets Current liabilities
An alternatives definition of net working capital is that portion of a firms current
assets financed with long term funds.
For every firm today, minimum portion of working capital is financed with the
permanent sources of funds such as owners capital, debentures, long-term debt,
and preference capital or retained earnings; this portion of working capital which
is financed with long term funds is called permanent working capital.
Management must therefore, decide the extent to which current assets should be
financed with equity capital or/ and borrowed capital.
Both the concepts of working capital, gross and net, are not mutually exclusive,
however. They are equally important from the management point of view in the
gross concept points out two important aspects of current assets: (i) Optimum
investment in each of the component of current assets and (ii)Financing of these
current assets; while the net concept indicates (i) The liquidity position and (ii)
The extent to which working capital may be financed by permanent sources of
funds. Both the concepts have their own advantages and disadvantages, which
concept to choose depend upon the purpose of the firm. The concept of gross
capital is a financial concept where as that of net concept is an accounting
concept. Management is interested in current assets to operate the business with
efficiency. To evaluate the efficiency, gross concept is appropriate. On the other
hand interest of investors and lenders is in concept of net working capital
because it helps in the judgment if liquidity position of the enterprise.

4.3) Objective of Working capital:

Even profitability companies fail if they have inadequate cash flow. Liabilities
dare settled with cash and net profits. The primary objective of working capital
management is to ensure that sufficient cash is available to:

Meet day to day cash flow needs;

Pay wages and salaries when they fall due;

Pay creditors to ensure continued suppliers of goods and services;

Pay government taxation and providers of cash dividends; and

Ensure the long term survival of the business entity.

4.4) IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without

insufficient working capital, any business organization cannot run smoothly or
successfully.

In the business the Working capital is comparable to the blood of the human
body. Therefore the study of working capital is of major importance to the
internal and external analysis because of its close relationship with the current
day to day operations of a business. The inadequacy or
mismanagement of working capital is the leading cause of business failures.

To meet the current requirements of a business enterprise such as the purchases

of services, raw materials etc. working capital is essential. It is also pointed out
that workings.

Growth and Expansion Activities

As a company grows, logically, larger amount of working capital will be needed,
though it is difficult to state any firm rules regarding the relationship between
growth in the volume of a firm's business and its working capital needs. The fact
to recognize is that the need for increased working capital funds may precede
the growth in business activities, rather than following it. The shift in composition
of working capital in a company may be observed with changes in economic
circumstances and corporate practices. Growing industries require more working
capital than those that are static.
Operating Efficiency
Operating efficiency means optimum utilization of resources. The firm can
minimize its need for working capital by efficiently controlling its operating costs.
With in-creased operating efficiency the use of working capital is improved and

pace of cash cycle is accelerated. Better utilization of resources improves

profitability and helps in relieving the pressure on working capital.
Price Level Changes
Generally, rising price level requires a higher investment in working capital. With
increasing prices the same levels of current assets need enhanced investment.
However, firms which can immediately revise prices of their products upwards
may not face a severe working capital problem in periods of rising levels. The
effects of increasing price level may, however, be felt differently by different
firms due to variations in individual prices. It is possible that some companies
may not be affected by the rising prices, whereas others may be badly hit by it.

Other Factors
There are some other factors, which affect the determination of the need for
working capital. A high net profit margin contributes towards the working
capital pool. The net profit is a source of working capital to the extent it has been
earned in cash. The cash inflow can be calculated by adjusting non-cash items
such as depreciation, out-standing expenses, losses written off, etc, from the net
profit, (as discussed in Unit 6).
The firm's appropriation policy, that is, the policy to retain or distribute profits
also has a bearing on working capital. Payment of dividend consumes cash
resources and thus reduces the firm ',s working capital to that extent. If the
profits are retained in the business, the firm 's working capital position will be
strengthened.
In general, working capital needs also depend upon the means of transport and
communication. If they are not well developed, the industries will have to keep
huge stocks of raw materials, spares, finished goods, etc. at places of production,
as well as at distribution outlets.
4.5) Determinants of working capital:
There are no hard and fast rules or certain formulae to determine the working
capital requirement of the firm. The importance of efficient working capital
management is an aspect of overall financial management. Thus a firm plans its
operations with adequate working capital requirement or it should have neither
too excess nor too inadequate working capital. A number of factors affect the
working capital. Generally, the following factors affect the working capital
requirement of the firm.
i)Nature and size of business:
The working capital requirement of a firm is basically related size and nature of
the business. If the size of the firm is bigger, then or requires more working
capital whereas small firm needs less working capital relatively to public utilities.

ii) Manufacturing Cycle:

Working capital requirement of an enterprise are also influenced by the

manufacturing or production cycle. It refers to the time involved to make finished
goods from the raw materials. During the process of manufacturing cycle funds
are tied up longer the manufacturing cycle, the larger will be working capital
requirement and vice-versa.
iii) Production Policy:
Working capital requirement is also determined by its production policy. If a firm
produces seasonal foods, the its production and sales volume fluctuate with
different seasons. This type of fluctuating policy affects the working capital policy
of the firm.
iv) Credit Policy:
Credit policy affects the working capital of a firm. Working capital requirement
depends on terms of sales. Different term may be followed by different
customers according to their credit worthiness. If the firm follows the liberal
credit policy, then it requires more working capital. Conversely, if a firm follows
the stringent policy, it requires less working capital.
v) Availability of Credit:
Availability of credit facility is another factor that affects the working capital
requirement. If the creditors avail a liberal credit terms then the firm will need
less working capital and vice-versa. In other works, the firm can get credit facility
easily on favorable conditions. Thus, it requires less working capital to run the
firm otherwise more working capital is required to operate the firm smoothly.
vi) Growth and Expansion:
Growth and expansion also affects the working capital requirement of firm.
However, it is difficult to precise; determine the relationship between the growth
and expansion of the firm and working capital needs, however, the other things
being the same growing firms needs more working capital than those static ones.
vii) Price level Change:
Price level change also affects the working capital requirement of a firm.
Generally, a firm requires maintaining the higher amount of working capital, if
the price level rises. Because the same level of current assets needs more due to
the increasing price. In conclusion, the implications of changing price level of
working capital position will vary from firm to firm depending on the nature and
another relevant consideration of the operation of the conserned firm.
viii) Operating Efficiency:
Operating efficiency is also an important factor, which influences the working
capital requirements of the firm. It refers to the efficient utilization of available
resources at minimum cost. Thus, financial manager can contribute to strong
working capital position through operating efficiency. If a firm has strong
operation efficiency then it needs lesser amount of working capital and viceversa.
ix) Profit Margin:

The level of profit margin differs from firm to firm. It depends upon the nature
and quality of product has a sound marketing management and enjoy the
monopoly power in the market then it earns quite high profit and vice-versa.
Profit is sources of working capital because it contributes towards the working
capital as a pol by generating more internal funds.
x) Level of Taxes
The level of taxes also influences working capital requirement of firm. The
amount of taxes to be paid in advances is determined by the prevailing tax
regulations. But the firms profit is not constant, or can note be predetermined.
Tax liability in asense of short-term liquidity is payable in cash. Therefore, the
provision for tax amount is one of the important aspects of working capital
planning. If tax liability increase, it needs to increase the working capital and
vice-versa.
4.6) Financing of Working Capital:
The firms working capital assets policy is never set in a vacuum; it is always
established in conjunction with the firms working capital policy. Every
manufacturing concern of industry requires additional assets whether they are
instable or growing conditions. The most important function of financial manager
is to determine the level of working capital and to decide how it is to financed.
Financial of any assets is concerned with two major factors- cost and risk.
Therefore, the financial manager must determine an appropriate financing mix,
or decide how current liabilities should be used to finance current assets.
However, a number of financing mixes are available to the financial manager. He
can resort generally there kinds of financing.

Long-term financing:

Long-term financing has high liquidity and low profitability, Ordinary share,
Debenture, Preference share; retained earnings and long-term debt of financial
institution are major sources of long-term finance.
ii) Short-term financing:
A firm must arrange its short-term credit in advance. The sources of short-term
financing of working capital are trade credit and bank borrowing.
Bank credit: Bank credit is the primary institutional sources for working capital
financing for the purpose of bank credit, amount of working capital requirement
has to be estimated by the borrowers and banks areapproached with the
necessary supporting data.
After availability of this data, bank determines the maximum credit based on the
margin requirements of the security. The types of loan provided by commercial
banks are loan arrangement, overdraft arrangement, commercial paper etc.

4.7) APPROACHES TO MANAGING WORKING CAPITAL

Two approaches are generally followed for the management of working capital:
(i) the conventional approach, and (ii) the operating cycle approach.
The Conventional Approach
This approach implies managing the individual components of working capital
(i.e. inventory, receivables, payables, etc.) efficiently and economically so that
there are neither idle funds nor paucity of funds. Techniques have been evolved
for the management of each of these components. In India, more emphasis is
given to the management of debtors because they generally constitute the
largest share of the investment in working capital. On the other hand, inventory
control has not yet been practised on a wide scale perhaps due to scarcity of
goods (or commodities) and ever rising prices.
The Operating Cycle Approach
This approach views working capital as a function of the volume of operating
expenses. Under this approach the working capital is determined by the duration
of the operating cycle and the operating expenses needed for completing the
cycle. The duration of the operating cycle is the number of day involved in the
various stages, commencing with acquisition of raw materials to the realization
of proceeds from debtors. The credit period allowed by creditors will have to be
set off in the process. The optimum level of working capital will be the
requirement of operating expenses for an operating cycle, calculated on the
basis of operating expenses required for a year.
In India, most of the organizations use to follow the conventional approach
earlier, but now the practice is shifting in favour of the operating cycle approach.
The banks usually apply this approach while granting credit facilities to their
clients.

ADEQUACY OF WORKING CAPITAL

The firm should maintain a sound working capital position. It should

haveadequate working capital to run its business operations. Both excessive
aswell as inadequate working capital positions are dangerous from the firms
point of view. Excessive working capital not only impairs the firmsprofitability but
also result in production interruptions and inefficiencies.

The dangers of excessive working capital are as follows:

It results in unnecessary accumulation of inventories. Thus, chances of

inventory mishandling, waste, theft and losses increase.

 It is an indication of defective credit policy slack collections period.

Consequently, higher incidence of bad debts results, which adversely
affects profits.
Excessive working capital makes management complacent which
degenerates into managerial inefficiency.
Tendencies of accumulating inventories tend to make speculative
profits grow. This may tend to make dividend policy liberal and difficult
to cope with in future when the firm is unable to make speculative
profits.
Inadequate working capital is also bad and has the following dangers:

It stagnates growth. It becomes difficult for the firm to undertake

profitable projects for non- availability of working capital funds.
It becomes difficult to implement operating plans and achieve the firm s
profit target.
Operating inefficiencies creep in when it becomes difficult even to meet
day commitments.
Fixed assets are not efficiently utilized for the lack of working capital
funds. Thus, the firm s profitability would deteriorate.
Paucity of working capital funds render the firm unable to avail
attractive credit opportunities etc.
The firm loses its reputation when it is not in a position to honor its
short-term obligations.
An enlightened management should, therefore, maintain the right amount of
working capital on a continuous basis. Only then a proper functioning of business
operations will be ensured. Sound financial and statistical techniques, supported
by judgment, should be used to predict the quantum of working capital needed
at different time periods.

A firm s net working capital position is not only important as an index of liquidity
but it is also used as a measure of the firms risk.
Risk in this regard means chances of the firm being unable to meet its
obligations on due date. The lender considers a positive net working as a
measure of safety. All other things being equal, the more the net working capital

a firm has, the less likely that it will default in meeting its current financial
obligations. Lenders such as commercial banks insist that the firmshould
maintain a minimum net working capital position.

In this study four years data ( 2011 to 2015 have been presented and analyzed.
It covers to analyze the ratio as well trend and composition of working capital,
which means current assets, current liabilities, liquidity, turnover, leverage and
profitability of RELIANCE INSURANCE.
5.1) Components of current assets:
For the day to day business operation different types of current assets are
required. Current assets refer those assets that are cash or can be converted into
cash within a year. The composition of current assets or the main components of
current assets at RELIANCE INSURANCE are cash and bank balance, loan and
advances and government securities. Miscellaneous current assets are also a
component of current assets. Prepaid expenses, outstanding income like interest
receivable and other current assets are also included in miscellaneous current
assets. The following table shows the amount of cash and bank balance, money
at call or short notice, loan and advanced government securities and other
current assets of Bajaj Allianz Life Insurance Company Pvt. Ltd.

Table 1 :
Current Assets
Fiscal
Year

Sundry
Debtors

Cash and Bank

balance

Loan and
advance

Other C.A

Total

2011/12

639,948

3,515,993

76,970

1,148,475

5,381,386

2012/13

1,089,070

2,186,908

130,275

2,022,560

5,298,538

2013/14

1,341,359

4,285,098

147,078

2,344,020

8,217,555

2014/15

1,223,706

4,520,165

170,660

3,832,457

9,746,988

Source:- Annual Report of RELIANCE INSURANCE From 2008/09 to 2012/13

Assets of Company was amounted to Rs. 5,460,356 which included Rs. 3,552963
of cash and bank balance, Rs. 76,970 of loan and advance, Rs. 1,828,423 of
miscellaneous current assets. Current assets of the company increase in all four
years.
12,000,000
10,000,000
8,000,000
Cash&Bank balance
Loan&advance

6,000,000

Other C.A
Total

4,000,000
2,000,000
0
2011/13

2012/13

2013/14

2014/2015

INTERPRETATION 1 :
As stated in above figure the current assets of RELIANCE INSURANCE increases
all the four year from FY 2011/12 t0 2014/15. In the cash of FY 2013/14, the
increasing trend is low from FY 2011/12. But the overall increasing trend of
current assets is higher.

5.2) Component of Current Liabilities:

Current liabilities is a short-term obligation which is payable within a year. The
composition of current liabilities or the main components of current liabilities. Tax
provision, staff bonus, proposed dividend payable and other liabilities are
included in other current liabilities. The following table shows the amount of
deposit and other accounts, short term loan, bills payable and other current
liabilities of RELIANCE INSURANCE.
Table 2 :
Current Liabilities
Fiscal Year

Creditors

Deposit

Bills
Payable

Other C.L

Total

2011/12

2,249,357

3,318,900

2012/13

3,701,079

4,129,900

2013/14

3,281,079

2014/15

4,246,449

87,607

2,396,492

8,052,356

196,168

2,491,564

10,518711

4,430,900

98,372

1,690,564

9,500,915

4,142,491

97,087

2,368,827

10,654,854

In the above table, the component of current liabilities which consists

deposits.Source annual report of company.

INTERPRETATION 2 :

Current Liabilities
6000000
5000000
4000000
3000000
2000000
1000000
0

2011/12

2012/13
Deposits

Other C.L

2013/14

2014/15

Total

In the above figure shows that the current liabilities of the company is increasing
In fiscal year 2008/09 the total amount of current liabilities Rs. 8,052,356 for the
increasing impact of deposits and other current liabilities. In all four year
deposits and other current liabilities are increased.
5.3) Working capital of RELIANCE INSURANCE:
Working capital is required to run business smoothly and efficiently in the
context of set objectives. It is no doubt that no organization can achieve its goal
without proper use of working capital. It means money invested on working
capital should be neither more nor less because both the position of working
capital affects not only liquidity but also profitability of the organization. The
investment decision should be made on any type of current assets by
considering their role in company and determining which one is more beneficial
to the company and which is not. The following table shows the amount of
working capital of RELIANCE INSURANCE of the study period.

Table 3 :

Working capital of Company

Fiscal Year

Total C.A

Total C.L

WC= CA-CL

2011/12

5,381,386

8,052,356

4,470,970

2012/13

5,298,538

9,500,915

4,202,377

2013/14

8,217,555

10,518,711

2,301,156

2014/15

9,746,988

10,654,854

907,866

Sources: Annual Report of company.

working capital
12000000
10000000
8000000
6000000
4000000
2000000
0

2011/12

2012/13

2013/14

2011/12

INTERPRETATION3:
In the above figure we clearly show the current assets, current liabilities and
working capital condition of RELIANCE INSURANCE from fiscal year 2011/12 to
2014/15. Working capital condition of the company is at satisfactory level. All the
year of the study period the working capital of the company is negative.

Liquidity Ratio:

Liquidity ratios measures ability of the firms to meet its short-term obligations.
Liquidity of any business organization is directly related with working capital or

current assets and current liabilities of that organization. In other words, one of
the main objectives of working capital management is keeping sound liquidity
position. Company is a different organization which is engaged in Mobilization of
funds. So, without sound liquidity position of ability to meet its short-term
obligation various liquidity ratios are calculated and to know the trend of liquidity
are trend analysis of major liquidity ratios have been considered.

5.4) Current Ratio:

This ratio indicates the short-term solvency position of bank. In other words
current ratio indicates better liquidity position. It is calculated as follows:

Current assets (CA)

Current liabilities (CL)

The following table shows the current ratio to compare the following capital
management of
RELIANCE INSURANCE.
Table 4 :
Current ratio
Fiscal Year

Total CA

Total CL

Current ratio

2011/12

5,381,386

8,052,356

0.67

2012/13

5,298,538

10,518,711

0.50

2013/14

8,217,555

9,500,915

0.86

2014/15

9,746,988

10,654,854

0.91
Average=0.74

Sources: Annual Report of RELIANCE INSURANCE from 2011/12 to 2015.

Current Ratio of RELIANCE INSURANCE

Ratio %
1
0.9
0.86

0.8

0.91

0.7
0.6

0.67

0.5

0.5

0.4
0.3
0.2
0.1
0

2011/12

2012/13

2013/14

2011/12

INTERPRETATION4 :
The above table shows the CA, CL and current ratio of the RELIANCE INSURANCE.
The current ratio of the RELIANCE INSURANCE is fluctuating over the year. The
highest current ratio is in fiscal year 2014/15 0.91. And in all year it is increasing.
The average ratio is 0.74.
5.6) Cash and bank balance to Current Assets:
The cash and bank balance is almost liquids from the current assets, this ratio
shows the percentage of readily available fund within the banks. It can be
calculated by dividing cash and bank balance by current assets, which is given
below.

Cash and bank balance

Current assets
This ratio shows that the percentage of current assets cover cash and bank
balance. The following table and figure shows the cash and bank balance to
current assets ratio of RELIANCE INSURANCE over the study period.

Table 5 :
Cash and Bank to Current Assets Ratio of RELIANCE INSURANCE
Fiscal Year

Cash& Bank
Balance

Current Assets

Ratio (%)

2011/12

3,552,963

5,381,386

0.67

2012/13

2,186,908

5,298,538

0.41

2013/14

4,385,098

8,217,555

0.53

2014/15

4,382.396

9,746,988

0.44

Sources: Annual Report of Company

Ratio %
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011/12

2012/13

2013/14

2014/15

INTERPRETATION5 :
Cash and Bank balance to current assets ratio of the company is in 2012/13
decreased and in 2013/14 it increased and again in 2014/15 is decreased.

5.7) Cash and Bank Balance to Total deposit:

The ratio shows the ability of bank immediate funds to cover their deposits. It
can be calculated by dividing cash and bank balance by deposits. The ratio can
be expressed as:
The following table and figure shows the cash and bank balance to total deposits
ratio of the RELIANCE INSURANCE over the study period.
Table 6 :
Cash and Bank balance to total Deposit Ratio of RELIANCE INSURANCE
Fiscal Year

Cash & bank

Total deposit

Ratio

2011/12

3,552,963

2,318,900

1.53

2012/13

2,186,908

2,123,900

1.03

2013/14

4,385,098

2,899,500

1.51

2014/15

4,382.396

3,857,000

1.14

Sources: Annual report of Company

Ratio%
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

2011/12

2012/13

2013/14

2014/15

INTERPRETATION6 :
The above figure depicts that the cash and bank balance to total deposit of
RELIANCE INSURANCE has been slightly decreasing in FY 2012/13, 2013/14,
2014/15.
5.8) Net Profit to Total Assets:

This ratio is very much crucial for measuring the profitability of funds invested in
the bank assets. It measures the return on assets it computed by using the
following formula.

Net profit after tax

Total assets

Table 7
Net Profit to Total assets Ratio of RELIANCE INSURANCE
Fiscal Year

Net Profit

Total assets

Ratio(%)

2011/12

5,605,846

5,336,042

1.05

2012/13

6,182,978

5,298,538

1.17

2013/14

10,387,412

8,217,555

1.26

2014/15

23,499,431

9,746,988

2.41

Sources: Annual Report of company

Ratio
2.41

1.05

2011/12

1.17

1.26

2012/13

2013/14

2014/15

INTERPRETATION7:
Net Profit to total asset ratio in 2011/12 1.05 and it increasing slightly in financial
year 2012/13, 2013/14 and 2014/15.

5.9) Debtors Turnover Ratio:

Concept: -

Debtors are expected to be converted into cash over a short period

of time and therefore are included in current assets. It shows how many times
debtors are converted into cash in a year.

Debtors Turnover Ratio = Net credit sales

Average Debtors
Table 8 :
Debtors Turnover Ratio
Year

Credit sales

Average
Debtors

Ratio

2011/12

102,199,181

19,080,194

5.35

2012/13

132,858,985

27,192,101

4.88

2013/14

171,671,451

36,302,837

4.72

2014/15

221,246,824

42,584,634

5.19

Diagram:-

Debtors Turnover Ratio

5.4
5.2
5
4.8
4.6
4.4
2011/12

2012/13

2013/14

2014/15

INTERPRETATION8 :
The debtors turnover ratio was very less in the year 2013/14 at
4.72 times, but them it has increased to 5.19, 5.66 times in the year 2011/12
and 2014-15. This shows that the company is making all the offers to speed up
the collection process.
5.9) Creditors Turnover Ratio:
Concept: Creditors turnover ratio establishes relationship between not credit
purchases and average trade creditors and accounts payable. The ratio indicates
the velocity with which the creditors are turned over in relation to purchases.

Creditors Turnover Ratio = Net Credit Purchases

Average creditors

Table 9 :
Creditors Turnover Ratio
Year

Credit Purchases

Average
Creditors

Ratio

2011/12

96,724,469

82,074,994

1.17

2012/13

127,553,879

112,554,635

1.13

2013/14

165,680,148

146,617,013

1.13

2014/15

213,323,185

189,501,666

1.12

Creditors Turnover Ratio

1.18
1.17
1.16
1.15
1.14
1.13
1.12
1.11
1.1
1.09
2011/12

2012/13

2013/14

2014/15

INTERPRETATION9 :
The creditors turnover ratio was 1.17 times in the year 2011/12 & it decreased to
1.13 times in the year 2012-2013 but creditor turnover will be remain same two
year 2013/14 and 2014/15.
5.10)Working Capital Turnover Ratio:It is taken as one of the primary
indicators of the short-term solvency of the business. It establishes the
relationship with the net sales. It measures the efficiency with which the working
capital is being used by the firm.
WORKING CAPITAL TURNOVER RATIO =

Net Sales
Net

Working Capital

Table 10 :
Year

Net Sales

Net Working
Capital

Ratio

2011/12

102,199,181

20,229,751

5.05

2012/13

132,858,985

23,244,807

5.72

2013/14

171,671,451

36,879,727

4.65

2014/15

221,246,824

32,265,850

6.86

Source: Annual report of RELIANCE INSURANCE

Working Capital Turnover Ratio

8
7
6
5
4
3
2
1
0

2011/12

2012/13

2013/14

2014/15

CONCLUSION: Thus the working capital of reliance insurance company have been
calculated and ratio analysis has been done.