A STUDY ON WORKING CAPTITAL MANAGEMENT IN CENTRAL

CO-OPERATIVE BANK LTD,RAMANATHAPURAM.

PROJECT REPORT
Submitted by
M.VAITHEESH
REG. No. 1850053
In partial fulfilment for the award of the degree
of
MASTER OF BUSSINESS ADMINISTRATION

PSN COLLEGE OF ENGINEERING AND TECHNOLOGY

(An Autonomous Institution affiliated to Anna University,
Chennai)
Approved by AICITE, Recognized by UGC Under Section
2(f)&12(B)
An ISO 9001:2015 Certified institution
Accredited by NAAC
Melathediyoor, Thirunelveli – 627152

October - 2019

1
 PSN COLLEGE OF ENGINEERING AND TECHNOLOGY
(An Autonomous Institution affiliated to Anna University, Chennai)
Approved by AICTE, Recognised by UGC under Section 2(f)&12(B)
An ISO 9001:2015 Certified Institution
Accredited by NAAC
Melathediyoor, Tirunelveli 627152

CERTIFICATE

This is to certify that the Mini Project Report entitled “A STUDY ON WORKING
CAPTITAL MANAGEMENT IN CENTRAL CO-OPERATIVE BANK
LTD,RAMANATHAPURAM”. in partial fulfilment of the requirements for the award
of the Degree of MASTER OF BUSINESS ADMINISTRATION is a record of
original work undergone by M.VAITHEESH (1850053) during the year 2018-2020 of
his study in PSN College of Engineering and Technology(Autonomous), under my
supervision and the report has not formed the basis for the award of any
Degree/Fellowship or other similar title to any candidate of any University.

Place: Tirunelveli Name & Signature of Guide

Date: (V.P. VIGNESHKUMAR)

Countersigned

Head of the Department

Mr.V.P.Vigneshkumar

Submitted to the in PSN College of Engineering and Technology (Autonomous), for

the viva-voce examination held on_______________

INTERNAL EXAMINER EXTERNAL

EXAMINER
Name: Name:

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 PSN COLLEGE OF ENGINEERING AND TECHNOLOGY
(An Autonomous Institution affiliated to Anna University, Chennai)
Approved by AICTE, Recognised by UGC under Section 2(f)&12(B)
An ISO 9001:2015 Certified Institution
Accredited by NAAC
Melathediyoor, Tirunelveli 627152

DECLARATION

I, M.VAITHEESH, hereby declare that the project Report, entitled “A STUDY

ON WORKING CAPTITAL MANAGEMENT IN CENTRAL CO-OPERATIVE BANK
LTD,RAMANATHAPURAM” submitted to the in partial fulfilment of the requirements
for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION is a
record of original work undergone by me during the period on the month of December
to February under the supervision and guidance of PROF.V.P.VIGNESH KUMAR
M.COM., M.PHIL., M.B.A., M.B.M., PSN COLLEGE OF ENGINEERING AND
TECHNOLOGY(Autonomous) and it has not formed the basis for the award of any
Degree/Fellowship or other similar title to any candidate of any University.

Place: Signature of the Student

Date: (M.VAITHEESH)

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 ACKNOWLEDGEMENT

It gives pleasure to acknowledge the efforts of all those who have helped me in
finalizing this report. I thank GOD for having bestowed his blessing on me to complete
this project work.

First and foremost, I offer my sincerest gratitude to Dr. P.SUYAMBU Ph.D.,

Our Chairman, PSN Groups of Institutions, for his academic support and the facilities
provided to carry out the project work at the Institute. His wide vision and concern for
students have been in spirational.

I offer my sincerest gratitude to Er. S. JAYARAM Our Vice Chairman, PSN

Group of Institutions, for his academic support and the facilities provided to carry out
of the project work at the Institute. His support is very much encouragable.

I express my heartfelt thanks to our Dr. M. SIVAPRGASH Ph.D, Principal,

PSN College of Engineering und Technology (Autonomous), Tirunelveli, Who offered
me such a huge opportunity, incredible. Infrastructure and other support which made
the project work quite smooth.

I express my heartfelt thanks to our Dr.P.SELVA KUMAR Ph.D Vice

Principal, (Academic) PSN College of Engineering and Technology (Autonomous),
Tirunelveli, Who offered me such a huge opportunity, incredible.

I express my heartfelt thanks to our Dr.N.DANNI Ph.D, Vice Principal,

(Campus Development) PSN College of Engineering and Technology(Autonomous),
Tirunelveli, Who offered me such a huge opportunity, incredible.

I extend my heartily thankful to Dr S.THEODORE DAVID MANICKAM

Ph.D, Controller of Examination for his valuable support in completing my project,

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 I Wish to express my profound gratitude to my venerable
Dr.C.CHRISTOPER COLOUMBUS Ph.D Dean Academic PSN College of
Engineering and Technology (Autonomous), Tirunelveli, for his kindness and
encouragement.

I wish my express my profound gratitude to my venerable PROF.G.ANTONY

Institutional Development PSN College of Engineering and Technology
(Autonomous), Tirunelveli, for his encouragement.

I immensely thank to Prof. V.P.VIGNESHKUMAR, M.Com, M.Phil,

M.B.A, M.B.M, Head of the Department and my Project Guide, PSN College of
Engineering and Technology (Autonomous), Tirunelveli, for his cordial support,
valuable information and guidance, which helped me in completing this task through
various stages.

I am thankful for our Department faculty member, Class Teacher and project
co-ordinator Department of Management studies, PSN College of Engineering and
Technology (Autonomous), Tirunelveli, for his support and encouragement rendered
during all stages of my Project Report.

This acknowledgement would be incomplete with out expressing my whole

hearted thanks to my lovable parents and also my friends and all the others who
motivated and helped me directly or indirectly for the successful completion of this
project.
I am very thankful to ..............., Tirunelveli for his help in designing an completing this
project work.

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 LIST OF CONTENTS

CHAPTER PAGE
TITLE
NO. NO.
1 CHAPTER I

1.1 Introduction 09
1.2 Working capital management 10
1.3 Factors determining the working capital 10
requirements
1.4 Management of working capital 10
1.5 Objectives of working capital 11
1.6 Sources of working capital 12
1.7 Need for working capital 12-17
1.8 Scope of working capital management 17
1.9 Objectives of the study 17
1.10 Scope of the study 18

1.11 Limitation of study

II CHAPTER II

2.1 Industry Profile 20-24

2.2 Company Profile 24-28
2.3 Product Profile 28-34

III REVIEW OF LITERATURE 35-40

IV RESEARCH METHODOLOGY

4.1 Research Design 41

4.2.1Sampling Design 41
4.2.2 Sampling Unit 41
4.2.3 Sampling Size 41
4.3 Method of data collection 41
4.4 Pilot Study 41

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 4.5 Construction of tools 42-43

V DATA ANALYSIS AND INTERPRETATION 44

5.1 Percentage analysis 45-70
5.2 One Way ANOVA 71-72
5.3 Chi Square Test 73
VI FINDINGS, SUGGESTIONS AND CONCLUSION
6.1 Findings 74-75
6.2 Suggestions 75
6.3 Conclusion 76
VII BIBLIOGRAPHY 77
ANNEXURE

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 ABSTRACT

Co-operative bank, in a nutshell, provides financial assistance to the

people with small means to protect them from the debt trap of the
moneylenders. It is a part of vast and powerful structure of co-operative
institutions which are engaged in tasks of production, processing,
marketing, distribution, servicing and banking in India. A co-operative
bank is a financial entity which belongs to its members, who are at the
same time the owners and the customers of their bank. Co-operative banks
are often created by persons belonging to the same local or professional
community or sharing a common interest. These banks generally provide
their members with a wide range of banking and financial services (loans,
deposits, banking accounts…). Co-operative banks differ from stockholder
banks by their organization, their goals, their Values and their
governance.The Co-operative Banking System in India is characterized by
a relatively comprehensive network to the grass root level. This sector
mainly focuses on the local population and micro- banking among middle
and low income strata of the society. These banks operate mainly for the
benefit of rural areas, particularly the agricultural sector.

8
 CHAPTER-I
1.1 INTRODUCTION
Finance:
Finance is the major source for investment of funds in the business of production,
process of service so as to maximize the wealth position of any business entity.
Finance is the life blood of economic activity. A well-Knit financial system directly
contributes to the growth of the economy. An efficient financial system calls for the
effective performances of the financial institutions, financial instruments and financial
markets.
Financial Management:
According to Archer and Brosio Financial Management is the application of the
planning and control functions of the Finance function.
In the word Guthman and Dougall “Businessfinance may be defined as the
activity concerned with planning, raising controlling and administrating of the funds
used in the business”.
Financial Management is the specialized functions directly associated with the top
management. The significance of this function is not only seen in the line but also in
the capacity of “staff” in the overall administration of company.
Working capital management: Working capital management is concerned with the
problems that arise in attempting to manage the current assets, the current liabilities and
the interrelationship between them. Capital required for a business can be classified
into two main categories. They are:
(a) Fixed capital
(b) Working capital.
Fixed capital: Capital required for purchase of fixed assets like building, land, plant,
machinery, office equipment and furniture is called fixed capital.
Working capital: Capital required for purchase of raw materials and for meeting the
day-to-day expenditure on salaries, wages, rent, advertising etc is called working
capital.
Types of working capital: It can be classified into two ways. They are:
(a) Permanent or fixed working capital
(b) Temporary or variable working capital.
Permanent/Fixed working capital: It is the minimum amount of working capital
required to ensure effective utilization of fixed assets and support the normal operation
of business. There is always a minimum level of current assets which is continuously
required by the enterprise to carry out its normal business operations. Permanent or
fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every
firm has to maintain a minimum level of raw material, work- in-process, finished goods
and cash balance. This minimum level of current assts is called permanent or fixed
working capital as this part of working is permanently blocked in current assets. As the
business grow the requirements of working capital also increases due to increase in
current assets.
Temporary working capital: It is the amount of working capital which is required by
the business over and above the permanent working capital.
The amount of such working capital keeps on fluctuating from time to time on the basis
of business activities. It is intended to meet seasonal demands and some special

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 exigencies. Temporary or variable working capital is the amount of working capital
which is required to meet the seasonal demands and some special exigencies. Variable
working capital can further be classified as seasonal working capital and special
working capital. The capital required to meet the seasonal need of the enterprise is
called seasonal working capital. Special working capital is that part of working capital
which is required to meet special exigencies such as launching of extensive marketing
for conducting research, etc., Temporary working capital differs from permanent
working capital in the sense that is required for short periods and cannot be
permanently employed gainfully in the business. Working capital management ensures
a company has sufficient cash flow in order to meet its short-term debt obligations and
operating expenses.
The two main aspects of working capital management are
1. Ratio analysis and
2. Management of individual concepts of working capital

1. Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a
company's financial statements. There are many ratios that can be calculated from the
financial statements pertaining to a company's performance, activity, financing and
liquidity.
Some common ratios include:
 Current Ratio
 Liquid Ratio
 Absolute Liquid Ratio
 Working Capital.
 Working Capital turnover Ratio
 Gross Profit Ratio
 Net Profit Ratio
 Fixed Asset Turnover Ratio
 Fixed Asset Ratio
 Cash To Sales Ratio
 Cash Ratio
 Debtors Turnover Ratio
 Current Asset Turnover Ratio
 Cash Turnover Ratio
 Fixed Asset To Current Asset Ratio
2. Concepts of Working Capital
There are two types of working capital.
Gross working capital
Net working capital
Gross working capital (GWC):
It refers to the company’s investments in current assets. Current assets are the
assets which can be converted into cash within an accounting year and include cash,
short-term securities, debtors, bills receivable and stock. Assets which can convert in to

10
cash within a short period normally one accounting year.
CONSTITUENTS OF CURRENT ASSETS
 Cash in hand and cash at bank
 Bills receivables
 Sundry debtors
 Short term loans and advances.
Inventories of stock as:
 Raw material
 Work in process
 Stores and spares
 Finished goods
 Temporary investment of surplus funds.
 Prepaid expenses
 Accrued incomes.
 Marketable securities.
CONSTITUENTS OF CURRENT LIABILITIES
 Accrued or outstanding expenses.
 Short term loans, advances and deposits.
 Dividends payable.
 Bank overdraft.
 Provision for taxation
 Bills payable
Net working capital (NWC):
It refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders, which are expected to mature for payment
within an accounting year and include creditors, bills payable and outstanding
expenses. Net working capital can be positive or negative.
Positive working capital means that the company is able to pay off its short-term
liabilities.
Negative working capital means that a company currently is unable to meet its
short-term liabilities with its current assets (cash, accounts receivable and inventory).
Modern business enterprises produce goods in anticipation of demand. Goods
produced are not sold immediately cash for sales is also realized immediately from the
time of purchases of raw materials to the time of realizations of cash for sale made and
operating cycle is involved.
 Conversion of cash into raw material.
 Conversion of raw material into work in progress.
 Conversion of work in progress into finished goods.
 Conversion of finished goods into sales through debtors.
 Conversion of debtors into cash
FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS
 Nature Of Business: The requirements of working is very limited in
public utility undertakings such as electricity, water supply and railways

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 because they offer cash sale only and supply services not products, and
no funds are tied up in inventories and receivables. On the other hand
the trading and financial firms requires less investment in fixed assets
but have to invest large amt. of working capital along with fixed
investments.
 Size of the Business: Greater the size of the business, greater is the
requirement of working capital.
 Production Policy: If the policy is to keep production steady by
accumulating inventories it will require higher working capital.
 Length of Production Cycle: The longer the manufacturing time the
raw material and other supplies have to be carried for a longer in the
process with progressive increment of labor and service costs before the
final product is obtained. So working capital is directly proportional to
the length of the manufacturing process.
 Seasonal Variations: Generally, during the busy season, a firm requires
larger working capital than in slack season.
 Working Capital Cycle: The speed with which the working cycle
completes one cycle determines the requirements of working capital.
Longer the cycle larger is the requirement of working capital.
 Rate of Stock Turnover: There is an inverse co-relationship between
the question of working capital and the velocity or speed with which the
sales are affected. A firm having a high rate of stock turnover will needs
lower amt. of working capital as compared to a firm having a low rate of
turnover.
 Credit Policy: A concern that purchases its requirements on credit and
sales its product / services on cash requires lesser amt. of working
capital and vice-versa.
 Business Cycle: In period of boom, when the business is prosperous,
there is need for larger amt. of working capital due to rise in sales, rise
in prices, optimistic expansion of business, etc. On the contrary in time
of depression, the business contracts, sales decline, difficulties are faced
in collection from debtor and the firm may have a large amt. of working
capital.
 Rate of Growth of Business: In faster growing concern, we shall
require large amt. of working capital.
 Earning Capacity and Dividend Policy: Some firms have more
earning capacity than other due to quality of their products, monopoly
conditions, etc. Such firms may generate cash profits from operations
and contribute to their working capital. The dividend policy also affects
the requirement of working capital. A firm maintaining a steady high
rate of cash dividend irrespective of its profits needs working capital

12
 than the firm that retains larger part of its profits and does not pay so
high rate of cash dividend.
 Price Level Changes: Changes in the price level also affect the working
capital requirements. Generally rise in prices leads to increase in
working capital.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in
attempting to manage the current assets, current liabilities. The basic goal of working
capital management is to manage the current assets and current liabilities of a firm in
such a way that a satisfactory level of working capital is maintained, i.e. it is neither
adequate nor excessive as both the situations are bad for any firm. There should be no
shortage of funds and also no working capital should be ideal. Working Capital
Management Polices of a firm has a great on its probability, liquidity and structural
health of the organization.
So working capital management is three dimensional in nature as follows.
 It concerned with the formulation of policies with regard to profitability, liquidity
and . Risk.
 It is concerned with the decision about the composition and level of current
assets.
 It is concerned with the decision about the composition and level of current
liabilities.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

 Solvency of the Business: Adequate working capital helps in maintaining the
solvency of the business by providing uninterrupted of production.
 Goodwill: Sufficient amount of working capital enables a firm to make prompt
payments and makes and maintain the goodwill.
 Easy loans: Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favorable terms.
 Cash Discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence reduces cost.
 Regular Supply of Raw Material: Sufficient working capital ensures regular
supply of raw material and continuous production.
 Regular Payment of Salaries, Wages and Other Day TO Day
Commitments: It leads to the satisfaction of the employees and raises the
morale of its employees, increases their efficiency, reduces wastage and costs
and enhances production and profits.
 Ability to Face Crises: A concern can face the situation during the depression.
 Quick And Regular Return On Investments: Sufficient working capital
enables a concern to pay quick and regular of dividends to its investors and
gains confidence of the investors and can raise more funds in future.

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  High Morale: Adequate working capital brings an environment of securities,
confidence, high morale which results in overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run
its business operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working
capital positions are bad for any business. However, it is the inadequate working capital
which is more dangerous from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL

 Excessive working capital means ideal funds which earn no profit for the firm
and business cannot earn the required rate of return on its investments.
 Redundant working capital leads to unnecessary purchasing and accumulation
of inventories.
 Excessive working capital implies excessive debtors and defective credit policy
which causes higher incidence of bad debts.
 It may reduce the overall efficiency of the business.
 If a firm is having excessive working capital then the relations with banks and
other financial institution may not be maintained.
 Due to lower rate of return n investments, the values of shares may also fall.
 Working capital is commonly understood as the fund needed to meet the day-to-
day expenses of an enterprise. For a finance manager it is the fund locked up in
current assets and, therefore, he looks for liquidity support in net working
capital (NWC), which is equivalent to the excess of current assets over current
liabilities. A banker also looks at the size of NWC as the long-term stake of the
business in funding the current assets. But for a production manager, liquidity is
synonymous to uninterrupted supply of material inputs to the production lines.
Similarly for a marketing manager, if there is no production, his marketing
outlets dry up despite demand in the market. While the finance manager
discourages overstocking of inventory, the production manager and the
marketing manager dread of being out of stock. In this conflict the goal of the
organization often takes a back seat.
OBJECTIVES OF WORKING CAPITAL:
The main objective is to ensure the maintenance of satisfactory level of
working capital in such a way that it is neither inadequate nor excessive. It should not
only be sufficient to cover the current liabilities but ensure a reasonable margin of
safety also.
 To minimize the amount of capital employed in financing the current assets.
This also leads to an improvement in the “Return of Capital Employed”.

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  To manage the current assets in such a way that the marginal return on
investment in these assets is not less than the cost of capital acquired to finance
them. This will ensure the maximization of the value of the business
unit.
 To maintain the proper balance between the amount of current assets and the
current liabilities in such a way that the firm is always able to meet its financial
obligations, whenever due. This will ensure the smooth working of the unit
without any production held ups due to paucity of funds.

SOURCES OF WORKING CAPITAL:

The working capital necessary and what constitutes working capital have been
analyzed in depth. Now we look out what are the ways we can generate working
capital.
 Trade Credits
 Bank Credit
 Current provisions and non-bank short term borrowings: and
 Long term sources i.e., equity share capital, preference share capital.

Short term source of funds are generally available at comparatively lower costs
but theoretically these funds can be called back any moment and therefore it is more
appropriate to meet at least two thirds of the permanent working capital requirements
from the long term sources. The advantages of long term sources is, it reduces risk as
there is no need to repay the loans at frequent intervals and funds can be employed
gainfully and it increases liquidity.
NEED FOR WORKING CAPITAL:
The need for working capital cannot be over emphasized. Every business needs
amount of working capital. The need for working capital arises due to the time gap
between production and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps in purchase of raw
materials of cash. Thus, working capital is needed for the following purpose:
 For the purchase of raw materials, components and spares.
 To pay wages and salaries
 To incur day to day expenses and overhead costs such as fuel, power and
office expenses.
 To meet the selling costs as packing, advertising etc
 To provide credit facilities to the customers.
 To maintain the inventories of raw material, work-in-progress, stores
and spares and finished stock.
SCOPE OF WORKING CAPITALMANAGEMENT:
 Maintain an adequate level of working capital, always, to meet the rising
turnover this way, peak level needs can taken care of.
 Sufficient liquidity to meet short-term obligation as and when they arise: also to
avail market opportunities like purchase of raw materials etc at low. Price or at
attractive discount.

15
  Avoid holding surplus current assets of any kind by closely monitoring their
usage and turnover.
 Efficient policy making with reference to important current asset components
such as inventory, debtors or cash.
 Proper interdepartmental co-ordination to minimize working capital investment.
(e.g.) coordination between marketing and production department regarding
finished goods inventory etc.

1.2 OBJECTIVES OF THE STUDY

 To find out the Gross Working Capital position ofRDCC bank
 To know about the net working capital position of RDCC bank
 To appraise the working capital position of RDCC bank

1.3 SCOPE OF THE STUDY

 The scope of the study is confined to overview the performance and

functions of RDCC bank in Ramanathapuram.
 The study of working capital management mainly helps in the understanding the
various concepts of working capital like current asset and current liabilities. The
study also helps in analyzing of the working capital with the various tools of
analysis.
 It will help in deciding how much is required as borrowings from outside and
how much can be contributed from the internal sources.

1.4 LIMITATION OF STUDY

 Time is definitely the main Constraint. Time was not sufficient enough to assess
all processes and policies of an organization.
 The data is mostly secondary in nature.
 The procedure and policies of the company will not allow disclosing some
confidential financial information.

 The project is done on the basis of five years of annual report only.

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 CHAPTER 2
2.1 INDUSTRY PROFILE
2.1 WORLD SCENARIO

Cooperative banking is retail and commercial banking organized on a cooperative

basis. Cooperative banking institutions take deposits and lend money in most parts of
the world. Cooperative banking, as discussed here, includes retail banking carried out
by credit unions, mutual savings banks, building societies and cooperatives, as well as
commercial banking services provided by mutual organizations (such as cooperative
federations) to cooperative businesses.

CO-OPERATIVE BANKS
Larger institutions are often called cooperative banks. Some are tightly
integrated federations of credit unions, though those member credit unions may
not subscribe to all nine of the strict principles of the World Council of Credit
Unions (WOCCU).

Like credit unions, cooperative banks are owned by their customers and follow
the co-operative principle of one person, one vote. Unlike credit unions, however,
cooperative banks are often regulated under both banking and cooperative legislation.
They provide services such as savings and loans to non-members as well as to member
and some participate in the wholesale markets for bonds, money and even equities.
Many cooperative banks are traded on public stock markets, with the result that they
are partly owned by non-members. Member control is diluted by these outside stakes,
so they may be regarded as semi-cooperative.

Cooperative banking systems are also usually more integrated than credit union
systems. Local branches of cooperative banks select their own boards of directors and
manage their own operations, but most strategic decisions require approval from a
central office. Credit unions usually retain strategic decision-making at a local level,
though they share back-office functions, such as access to the global payments system,
by federating.

Some cooperative banks are criticized for diluting their cooperative principles.
Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to
require that members must control both the governance systems and capital of their
cooperatives. A cooperative bank that raises capital on public stock markets creates a
second class of shareholders who compete with the members for control. In some
circumstances, the members may lose control. This effectively means that the bank
ceases to be a cooperative. Accepting deposits from non-members may also lead to
dilution of member control.

17
2.2 NATIONAL SCENARIO
Co-operative banks in India:
Cooperative Banks in India have become an integral part of the success of Indian
Financial Inclusion story. They have achieved many landmarks since their creation and
have helped a normal rural Indian to feel empowered and secure. The story has not
been smooth and has its share of procedural glitches and woes placed at various
pockets.
History of Cooperative Banking in India
The historical roots of the Cooperative Movement in the world days back to days
of misery and distress in Europe faced by common people who had little or no access to
credit to fund their basic needs, in uncertain times. The idea spread when the continent
was faced with economic turmoil which led large populations to live at subsistence
level without any economic security. People were forced to poverty and deprivation. It
was the idea of Hermann Schulze (1808-83) and Friedrich Wilhelm Raiffeisen (1818-
88) which took shape as cooperative banks of today across the world. They started to
promote the idea of easy availability of credit to small businesses and for the poor
segment of society. It was similar to the many microfinance institutions which have
become highly popular in developing economies of today. Although this helped spread
cooperative movement in many parts of Europe, in British Isles it is came from the
revivalist Christian movement and found high acceptance with working class and lower
middle class segments of society. However, UK and Irish credit unions in 20th century
were inspired by US credit unions which in-turn owe their emergence to Canadian
adaptations of the German cooperative banking concept. These movements were
supported by governments of the respective countries. This success was achieved due
to the failure of the commercial banks to fund and support the needs of small business
owners and ordinary people who were outside the formal banking net. Cooperative
banks helped overcome the vital market imperfections and serviced the poorer layers of
society. Indian Cooperative Banks was also born out of distress prevalent in Indian
society.
1. The Cooperative Credit Societies Act, 1904 led to the formation of Cooperative
Credit Societies in both rural and urban areas. The act was based on
recommendations of Sir Frederick Nicholson (1899) and Sir Edward Law
(1901). Their ideas in turn were based on the pattern of Raiffeisen and Schulze
respectively.

2. The Cooperative Societies Act of 1912, further gave recognition to the

formation of non-credit societies and the central cooperative organizations.

3. In independent India, with the onset of planning, the cooperative organizations

gained more leverage and role with the continued governmental support.

4. Machlagan Committee in 1915 , highlighted the deficiencies of in cooperative

societies which seeped-in due to lack of proper education to the masses. He also

18
 laid down the importance of Central Assistance by the Government to support
the movement.

5. The Royal Commission on Agriculture 1928, enumerated the importance of

education of members/staff for effective implementation of cooperative
movement.

6. Saraiya Committee, in 1945, further recommended the setting up of a

Cooperative Training College in every state and a Cooperative Training
Institute for Advanced Study and Research at the Central level.

7. Central Committee for Cooperative Training in 1953, constituted by RBI for

establishing Regional Training Centres.

8. Rural Credit Survey Committee, 1954 was the first committee formed till then
to first delve into the problems of Rural credit and other financial issues of rural
society.

The cooperative movement and banking structures soon spread and

resonated with the unexpressed needs of the rural Indian and small scale businesses.
Since, 1950s, they have come a long way to support and provide assistance in activities
like credit, banking, production, processing, distribution/marketing, housing,
warehousing, irrigation, transport, textiles, dairy, sugar etc. to households.
Extent of Cooperative Banking
Indian cooperative structures are one of the largest such networks in the world with
more than 200 million members. It has about 67% penetration in villages and fund 46%
of the total rural credit. It also stands for 36% of the total distribution of rural fertilizers
and 28% of rural fair price shops.
Structure of Cooperative Banking in India
The structure of cooperative network in India can be divided into 2 broad segments
1. Urban Cooperative Banks
2. Rural Cooperatives

Urban Cooperatives
Urban Cooperatives can be further divided into scheduled and non-scheduled. Both the
categories are further divided into multi-state and single-state. Majority of these banks
fall in the non-scheduled and single-state category.
1. Banking activities of Urban Cooperative Banks are monitored by RBI.

2. Registration and Management activities are managed by Registrar of

Cooperative Societies (RCS). These RCS operate in single-state and Central
RCS (CRCS) operate in multiple state.

Rural Cooperatives
The rural cooperatives are further divided into short-term and long-term

19
structures. The short-term cooperative banks are three tiered operating in different
states. These are
1. State Cooperative Banks- They operate at the apex level in states

2. District Central Cooperative Banks-They operate at the district levels

3. Primary Agricultural Credit Societies-They operate at the village or grass-root

level.

Likewise, the long-term structures are further divided into –

1. State Cooperative Agriculture and Rural Development Banks (SCARDS)-
These operate at state-level.

2. Primary Cooperative Agriculture and Rural Development Banks (PCARDBS)-

They operate at district/block level.

The rural banking cooperatives have a complex

monitoring structure as they have a dual control which has led to many problems. A
Forum called State Level Task Force on Cooperative Urban Banks (TAFCUB) has
been set-up to look into issues related to duality in control.
1. All banking activities are regulated by a shared arrangement between RBI and
NABARD.

2. All management and registration activities are managed by RCS.

Cooperative Banks-Irritants and Future Trends

A cooperative bank is an institution which is
owned by its members. They are the culmination of efforts of people of same
professional or other community which have common and shared interests, problems
and aspirations. They cater to a services like loans, banking, deposits etc. like
commercial banks but widely differ in their values and governance structures. They are
usually democratic set-ups where the board of members are democratically elected with
each member entitled to one vote each. In India, they are supervised and controlled by
the official banking authorities and thus have to abide by the banking regulations
prevalent in the country.

The basic rules, regulations and values may differ amongst nations but they have
certain common features:
1. Customer-owned
2. Democratic structures
3. Profits are mainly pooled to form reserves while some amount is distributed to
members
4. Involved in community development

20
 5. Foster financial inclusion by bringing banking to the doorstep of the lowest
segment of society

These banks are small financial institutions which are governed by regulations like
Banking Regulations Act, 1949 and Banking Laws Cooperative Societies Act, 1965.
They operate both in urban and rural areas under different structural organizations.
Their functions are decided by the level at which they operate and the type of people
they cater to. They greatly differ from the commercial banking entities.
1. These are established under specific acts of cooperative societies operating in
different states unlike mainstream commercial banks which are mainly joint-
stock companies.

2. They have a tiered network with a bank at each level of state, district and rural.
The state-level bank forms the apex authority.

3. Not all sections of banking regulation act are applicable to cooperative banks

4. The ultimate motive is community participation, benefit and growth as against

profit-maximisation for commercial banks.

2.2 COMPANY PROFILE

THE RDCC BANK:
The present organization study deals with the profile. Origin and growth of the
Ramanathapuram District Central Co-operative Bank Limited in Tamilnadu. This study
sheets light on the origin growth development and objectives of the bank. This study
also gives vision and mission of the bank and features of the bank.
ORIGIN OF THE BANK:
Originally the bank was registered as Ramanathapuram District Central Co-
operative bank Limited NO-5016 on 31-03-1920 with the main subject of financing.
The primary of Ramanathapuram Co-operative societies in the district of
Ramanathapuram started in working 31-07-1920. Initial authorized capital was RS-
1,00,000 and 1000 shares of RS-100 each in the first of its working their 232
individuals 452 societies as members.

OBJECTIVES OF THE BANK:

1. To borrow funds from members and non members for granting loans to
members.

2. To provide banking facilities such as accepting deposits collection of bill

members.

3. To encourage their deposits self help and co-operative among people.

4. To finance all other co-operative societies in the district.

21
 5. To advise develop, assistant co-ordinate inspect the function.

VISION AND MISSON:

1. Protection of collected fund.

2. Useful investment of fund.

3. Better customer service.

4. Building transparency in all dealings.

FEATURES OF THE BANK:

1. The study growth in the deposit mobilization.

2. The bank plays a vital role in the development of agriculture.

3. The bank is playing a vital role in meeting the credit requirements

agriculture District.

4. In order help the workers section loan at 4% of interest is granted tailoring

and garments, making bakery, chair making, basket making, leather goods
manufacturing and oil crushing.

5. From the IRDP the bank is tribes by giving 25% subsidy in medium term
loan

charges only 4% interest.

COMPANY DETAILS

NAME OF THE COMPANY: Ramnad District Central Co-operative

Bank Ltd

LOCATION: A.5184, RDCC Bank Ltd,

265E, Vantikarath theru,
Ramanathapuram.

DATE OF COMMENCEMENT: 31.07.1920

NO OF BRANCHES: 28+1

FINANCIAL STATUS OF BANK IN 31.3.2014:

 OWN FINANCE: RS-14,630.54 Lacks

22
  DEPOSITS: RS-48,404.99 Lacks
 CURRENT INVESTMENT: RS-85,945.25 Lacks
 INVESTMENTS: RS-15,532.37 Lacks

TYPE OF THE ORGANIZATION: Public

INDUSTRY: Banking, Financial services

HEADQUARTERS: Shahjahanpur, India.

AREA SERVED: Rural India

NATURE OF ACTIVITY: Agriculture loans, Consumer banking,

Corporate
Banking, Finance and Insurance mortgage
loans.
OWNER: Government of India

TOTAL EMPLOYEES: 109 members

CURRENT YEAR NET PROFIT: RS-536.93 Lacks

TYPES OF SECTIONS IN THE BANK

23
 DEMAND
DEPOSIT LOAN
DRAFT

Savings deposit Gold loan

Recurring deposit Term loan

Small vendor
Fixed deposit
loan

Current deposit Perssonal loan

Housing loan

Mortgage loan

DEPOSIT:
1. A transaction involving a transfer of funds to another party for
safekeeping.

2. A portion of funds that is used as security or collateral for the

delivery of a good.

24
 Saving deposit

Recurring deposit

Fixed deposit

Current deposit

i. SAVING DEPOSIT:
Co-operative banks public sector banks and postal departments accept
deposits by way of opening saving bank account with them. The 'saving account' is
generally opened in bank by salaried persons or by the persons who have a fixed
regular income. This facility is also given to students, senior citizens, pensioners, and
so on. saving account can be opened by depositing at minimum of 1000 rupees. The
saving account holder is allowed to withdraw money from the account as and when
required. The interest which is given on saving accounts is sometime attractive, but
often nominal.

1. The main objective of saving account is to promote savings.

2. There is no restriction on the number and amount of deposits.

3. Withdrawals are allowed subject to certain restrictions.

4. The money can be withdrawn either by cheque or withdrawal slip of the

respective bank.
5. The rate of interest payable is very nominal on saving accounts. At
present the Rate of interest is 4.5% per 6 months.

6. For opening the Saving account 2 photos and ID proof is must.

ii. RECURRING DEPOSIT:

Recurring deposit account is generally opened for a

purpose to be served at a future date. Generally opened to finance pre-planned future
purposes like, wedding expenses of daughter, purchase of costly items like land, luxury

25
car, refrigerator or air conditioner, etc. Recurring deposit account is opened by those
who want to save regularly for a certain period of time and earn a higher interest rate.
In recurring deposit account certain fixed amount is accepted every month for a
specified period and the total amount is repaid with interest at the end of the particular
fixed period.

1. The main objective of recurring deposit account is to develop regular savings

habit among the public.

2. In India, minimum amount that can be deposited is Rs.10 at regular intervals.

3. The period of deposit is minimum six months and maximum ten years.

4. The rate of interest is 9.25% per year.

5. No withdrawals are allowed. However, the bank may allow to close the account
before the maturity period.

6. The bank provides the loan facility. The loan can be given upto 75% of the
amount standing to the credit of the account holder.

iii. FIXED DEPOSIT:

The account which is opened for a particular fixed period (time)
by depositing particular amount (money) is known as Fixed (Term) Deposit Account.
The term 'fixed deposit' means that the deposit is fixed and is repayable only after a
specific period is over. Under fixed deposit account, money is deposited for a fixed
period say six months, one year, five years or even ten years. The money deposited in
this account can not be withdrawn before the expiry of period.

1. The main purpose of fixed deposit account is to enable the individuals to earn a
higher rate of interest on their surplus funds (extra money).

2. A high interest rate is paid on fixed deposits. The rate of interest may vary as
per amount, period and from bank to bank.
3. Withdrawals are not allowed. However, in case of emergency, banks allow to
close the fixed account prior to maturity date. In such cases, the bank deducts
1% (deduction percentage many vary) from the interest payable as on that date.

Periods Rate of Interest

3o-46 Days 7%

26
 46-90 Days 7.5%

91-180 Days 8.5%

181-364 Days 8.75%

Above 1Year 9.25%

iv. CURRENT DEPOIT:

Current bank account is opened by businessmen who have a

higher number of regular transactions with the bank. It includes deposits, withdrawals,
and contra transactions. It is also known as Demand Deposit Account. Current account
can be opened in co-operative bank and commercial bank. In current account, amount
can be deposited and withdrawn at any time without giving any notice. It is also
suitable for making payments to creditors by using cheques. Cheques received from
customers can be deposited in this account for collection.

1. Current bank accounts are operated to run a business.

2. It is a non-interest bearing bank account.

3. It needs a higher minimum balance to be maintained as compared to the savings

account.

4. Penalty is charged if minimum balance is not maintained in the current account.

5. It charges interest on the short-term funds borrowed from the bank.

LOAN:

1. An amount of money that is given to someone for a period of time

with a promise that it will be paid back : an amount of money that is
borrowed.

2. Permission to use something for a period of time.

27
 Gold loan

Term loan

Small vendor loan

Personal loan

Housing loan

Mortage loan

i GOLD LOAN:
As the name suggests this is the loan given against gold. Many
nationalized banks, private banks and other financial companies offer this loan at
attractive rates. Many go for this loan for short period to meet the requirement of their
children’s education, marriage and other financial problems in the family. And others
think that instead of keeping the gold idle at home or locker, loan against gold is the
best option. Moreover with the rise in gold rates the demand from companies and banks
offering such loans
1. The maximum amount is allowed for Gold loan is RS-8,00,000 for
individual.

2. The Rate of Interest is 13% for per year.

3. In RDCC Bank gives 1,600 Rupees for per gram in gold.

4. This Rate is unstable and it is depend upon the market value of the gold.
ii TERM LOAN:
Term Loans are the counter parts of Fixed Deposits in the Bank. Banks
lend money in this mode when the repayment is sought to be made in fixed, pre-
determined installments. This type of loan is normally given to the borrowers for
acquiring long term assets i.e. assets which will benefit the borrower over a long period
(exceeding at least one year). Purchases of plant and machinery, constructing building
for factory, setting up new projects fall in this category. Financing for purchase of
automobiles, consumer durables, real estate and creation of infra structure also falls in

28
this category.
iii SMALL VENDOR LOAN:
Small business would include individuals and firms managing a
business enterprises established mainly for the purpose of providing any service other
than professional services whose original cost price of equipment used for the business.
Advance for the acquisition, construction, renovation of housing-boats and other tourist
accommodation will be include here. Distribution of mineral oils shall be include under
‘Small Business’. Advance o judicial stamp vendors and lottery ticket agents may also
be classified under this category.

1. To provide this loan for small vendors.

2. The limited days is 147 days.

3. The Rate of Interest is provide 12% and OD Interest is provide 15%.

4. For this loan the minimum amount of RS-10,000.

iii PERSONAL LOAN:

Personal Loans are unsecured loans provided by banks and non-
banking financial companies without taking any collateral, though some public sector
banks may insist on a guarantor. As the name suggest, Personal Loan can be availed for
any personal reason ranging from purchasing of lifestyle products, marriage,
holidaying, medical emergencies, etc. getting a personal loan is a very simple hassle
free process with easy documentation and generally sanctioned within 2-3 working
days on submission of all necessary documents. Personal Loan amount and interest rate
is dependent on borrower's income, the company for which the borrower is working
and his past repayment track record.

1. This Salary loan is based on the individual income certificate.

2. The Rate of Interest is 13% for 5 years.

3. And the OD Interest is 15%.

iv HOUSING LOAN:
Loan acquired from a financialinstitution to purchase a home.
Home loans consist of an adjustable or fixedinterest rate and paymentterms. Home
loans may also be referred to as mortgage loan.

1. To provide the housing loan is depends upon the Building value and Engineer
certificate.

2. For this loan the Rate of Interest is 14%.

29
 v MORTGAGE LOAN:
A mortgage is a loan in which property or real estate is used as
collateral. The borrower enters into an agreement with the lender (usually a bank)
wherein the borrower receives cash upfront then makes payments over a set time span
until he pays back the lender in full.

DEMAND DRAFT:

A method used by individuals to make transfer payments from one bank

account to another. Demand drafts are marketed as a relatively secure method for
cashing checks. The major difference between demand drafts and normal checks is that
demand drafts do not require a signature in order to be cashed.

Also known as "remotely created checks".

Demand drafts were originally designed to benefit legitimate

telemarketers who needed to withdraw funds from customer checking accounts.
However, the lack of a signature required to authorize the transfers have left demand
drafts open to fraudulent use. The only information needed to create a demand draft is a
bank account number and a bank routing number - this information is found on a
standard check.

In 2005, the Federal Reserve proposed new regulations over the

fraudulent use of demand drafts. The regulation increases a victim's ability to claim a
refund and makes banks more accountable for cashing fraudulent checks.

ORGANIZATION STRUCTURE

Explicit and implicit institutional rules and policies designed to provide a structure
where various work roles and responsibilities are delegated, controlled and coordinated.
Organizational structure also determines how information flows from level to level
within the company. In a centralized structure, decisions flow from the top down. In a

30
decentralized structure, the decisions are made at various different levels.

In RDCC Bank organization structure as follows.

Board of Members
(Chair Man)

Managing Director

General Manager

Assistant General Manager

Section Manager

Section Assistance

CHAPTER 3
3.1 REVIEW OF LITERATURE

Jonathon Hard castle (2006) analyzed the term working capital originated with the
old Yankee peddler, who would load up his wagon with goods and then go off on his
route to peddle his wares. The merchandise was called working capital because it was
what he actually sold, or "turned over", to produce his profits. The wagon and horse
were his fixed assets. He generally owned the horse and wagon, so they were financed
with "equity" capital, but he borrowed the funds to buy the merchandise. These

31
 borrowings were called working capital loans.

David Gass (2006)finds the measures to improve working capital management. The
essence of effective working capital management is proper cash flow forecasting. This
should take into account the impact of unforeseen events, market cycles, loss of a prime
customer, and actions by competitor’s Effective dispute management procedures in
relation to customers will go a long way in freeing up cash otherwise locked in due to
disputes. It will also improve customer service and free up time for legitimate activities
like sales, order entry, and cash collection. Overall, efficiency will increase due to
reduced operating costs. Collaborating with your customers instead of being focused
only on your own operations will also yield good results. If feasible, helping them to
plan their inventory requirements efficiently to match your production with their
consumption will help reduce inventory levels.

Patrick Buchman and Udo Jung (2002) estimated the importance of working capital
management as a lever for freeing up cash from inventory, accounts receivable, and
accounts payable. By effectively managing these components, companies can sharply
reduce their dependence on outside funding and can use the released cash for further
investments or acquisitions. This will not only lead to more financial flexibility, but
also create value and have a strong impact on a company’s enterprise value by reducing
capital employed and thus increasing asset productivity.

Navneeth Mehta (2009)the most important areas in the day to day management of the
firm, is the management of working capital. Working capital management is the
functional area of finance that covers all the current accounts of the firm. It is
concerned with management of the level of individual current assets as well as the
management of total working capital. Working capital management involves the
relationship between a firm’s short-term assets and its short-term liabilities. The goal of
working capital management is to ensure that a firm is able to continue its operations
and that it has sufficient ability to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.

T.S.Reddy & Y.Hari Prasad Reddy (2000)stated funds flow statement is generally
prepared and interpreted on the basis of net working capital.

Sanchez (1992) surveys over 8,000 firms and found that on average 25 percent of
receivables are delinquent at any given time. He also found that less than one percent of
delinquent receivables is ever written off as a loss. As a result, he views collections not
so much as enforcement of payment but more as "the process of completing the sale."
He argues that internal processes are critical to accounts receivable management.

Ricci (1999) surveys 200 randomly-selected credit managers on the topics of pre-sale
issues, post-sale issues, and reporting issues. Although Ricci finds that several methods

32
 were being used to identify creditworthy customers, using multiple methods did not
have an impact on the level of past due accounts. Furthermore, no relationship existed
between the amount of money spent on information and the percentage of sales turning
into bad debts.

Gilbert and Reichert (1995)find that about 60 percent of firms use the percentage-of-sales
model or an internally developed model to forecast receivables. As one might expect,
those firms that employed more methods to forecast and monitor receivables had a
lower level of past due accounts.

Barth, Cram, and Nelson (2001)investigate the role of accruals in predicting future cash
flows and show that each accrual component reflects different information relating to
future cash flows.
Hill and Sartoris (1992) note that from 1970 to 1990, receivables in typical
manufacturing corporations constituted almost 17 percent of total assets. Based on
annual survey data, CFO Magazine (Myers, 2006) notes overall improvements in the
related working capital variables such as accounts receivable and accounts payable over
the last several years. Thus, given the gains that have been made in working capital
management in the last 15 years, one might expect a smaller proportion today.

Bhattacharya Hrishikes (2002)Working capital is commonly understood as the fund

needed to meet the day-to-day expenses of an enterprise. For a finance manager it is the
fund locked up in current assets and, therefore, he looks for liquidity support in
working capital (NWC), which is equivalent to the excess of current assets over current
liabilities. A banker also looks at the size of NWC as the long-term stake of the
business in funding the current assets.

The management of working capital is defined as the “management of current assets

and current liabilities, and financing these current assets.” Working Capital
management is important for creating value for shareholders [7]. Management of
working capital management was found to have a significant impact on both
profitability and liquidity in studies in different countries.

Shin and Soenen [7] researched the relationship between working capital management
and value creation for shareholders. The standard measure for working capital
management is the cash conversion cycle (CCC). Cash conversion period reflects the
time span between disbursement and collection of cash. It is measured by estimating
the inventory conversion period and the receivable conversion period, less the payables
conversion period. In their study, Shin and Soenen [7] used net-trade cycle (NTC) as a
measure of working capital management. NTC is basically equal to the cash conversion
cycle (CCC) where all three components are expressing a percentage of sales. NTC
may be a proxy for additional working capital needs as a function of the projected sales
growth.
Ghosh and Maji [8, p. 1] attempted to examine the efficiency of working capital
management of Indian cement companies during1992 - 93 to 2001- 2002. They

33
calculated three index values - performance index, utilization index and overall
efficiency index to measure the efficiency of working capital management, instead of
using some common working capital management ratios.
Eljelly [9] empirically examined the relationship between profitability and liquidity, as
measured by current ratio and cash gap (cash conversion cycle) on a sample of 929
joint stock companies in Saudi Arabia. Using correlation and regression analysis,
Eljelly [9]found significant negative relationship between the firm's profitability and its
liquidity level, as measured by current ratio. This relationship is more pronounced for
firms with high current ratios and long cash conversion cycles. At the industry level,
however, he found that the cash conversion cycle or the cash gap is of more importance
as a measure of liquidity than current ratio that affects profitability. The firm size
variable was also found to have significant effect on profitability at the industry level.
Lazaridis and Tryfonidis [1, p. 26] conducted a cross sectional study by using a
sample of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004
and found statistically significant relationship between profitability, measured through
gross operating profit, and the cash conversion cycle and its components (accounts
receivables, accounts payables, and inventory). Basedon the results analysis of annual
data by using correlation and regression tests, they suggest that managers can create
profits for their companies by correctly handling the cash conversion cycle and by
keeping each component of the conversion cycle (accounts receivables, accounts
payables, and inventory) at an optimal level.
Raheman and Nasr [2, p. 279] studied the effect of different variables of working
capital management including average collection period, inventory turnover in days,
average payment period, cash conversion cycle, and current ratio on the net operating
profitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed on
Karachi Stock Exchange for a period of six years from 1999 - 2004 and found a strong
negative relationship between variables of working capital management and
profitability of the firm. They found that as the cash conversion cycle increases, it leads
to decreasing profitability of the firm and managers can create positive value for the
shareholders by reducing the cash conversion cycle to a possible minimum level.
Garcia-Teruel and Martinez-Solano [3, p. 164] collected a panel of 8,872 small to
medium-sized enterprises (SMEs) from Spain covering the period 1996 -2002. They
tested the effects of working capital management on SME profitability using the panel
data methodology. The results, which are robust to the presence of endogeneity,
demonstrated that managers could create value by reducing their inventories and the
number of days for which their accounts are outstanding. Moreover, shortening he cash
conversion cycle also improves the firm's profitability.
Falope and Ajilore [10, p. 73) used a sample of 50 Nigerian quoted non-financial
firms for the perished 1996 -2005. Their study utilized panel data econometrics in a
pooled regression, where time-series and cross-sectional observations were combined
and estimated. They found a significant negative relationship between net operating
profitability and the average collection period, inventory turnover in days, average
payment period and cash conversion cycle for a sample of fifty Nigerian firms listed on
the Nigerian Stock Exchange. Furthermore, they found no significant variations in the
effects of working capital management between large small firms.
Gopalakrisnan (1991) analyzed the performance of the company for at least 10 years
with regard to the liquidity, profitability and management of working capital. The study

34
ascertains the reason for light liquidity on low profitability. The study reveals that a
major part of working capital is blocked inventories in trade. The company has not
been able to maintain the desired stock level due to liquidity problem, which in turn has
affected the capability utilization of machine and louse quality production.
Bharathi (1996) studied the working capital management is concerned with the
management of current asset and current liabilities and the inter relationship that exits
between them. his main objective of the study is to determine the amount of working
capital.
Chris Conolly & Smith (2005) studied working capital is the money used to make
goods and attract sales. The less Working Capital used to attract sales, the higher is
likely to be the return on investment.

CHAPTER 4

4.1 RESEARCH METHODOLOGY

MEANING OF RESEARCH

Research in common parlance refers to a search for knowledge. Once can also
define research as a scientific and systematic search for pertinent information on a
specific topic. Research is an art of scientific investigation. It is to systematically solve
the research problem i.e. how research is done scientifically.
The research here in this study is to analyze the balance sheet and other financial
reports of RDCC bank in to determine the management of working capital in the
company. The methodology used in the study involves the collection of primary data as
well as secondary data. Mainly data will be collected from the annual report of the
company.
Research pays Attention to.
 Formulating the objectives of the study.
 Collection of data.
 Processing and analyzing data.
 Findings and report writing

DEFINITION
The Advanced Learner’s Dictionary of Current English lays down the meaning
of research as “a careful investigation or inquiry especially through search for new facts
in any branch of knowledge.” Redman and Mory define research as a “systematized
effort to gain new knowledge”.

35
 4.2 RESEARCH DESIGN
The research design adopted for the study is descriptive in nature. The study
describes the structure, size and working capital, length of operating cycle and also
analyses the efficiency with which working capital has been managed.

NEED FOR STUDY

Working capital is the most important weapon for any manufacturing business.
The business concern must decide in analyzing the needs of the business and then with
proper tools must decide the working capital needed for effective running of business.
The working capital is the decisive factor for the carrying out of the day to day
activities. To maintain a proper level of working capital, the firm must decide the
current asset and current liability level. The firm’s financial position is said to be
healthy when current asset level of the firm is greater than the current liability level.
Hence this study was conducted by the researcher to find out the financial position of
the organization by study its working capital management.

4.3 TYPE OF STUDY

 The project report was done using analytical research design.

 Data collected from all the available sources had been tabulated, analyzed,
interpreted and supported with relevant charts, ratios, tables, graphs, etc.,
where ever necessary and suggestions arising thereof has also been listed in the
project.
 The project report was done using analytical research design.

4.4 DATA COLLECTION

Data collection is a term used to describe a process of preparing and collecting
data. The purpose of data collection is to obtain information to keep on record, to make
decisions about important issues

4.5 SOURCES OF DATA

Sources of data can be classified into two types, they are:

4.5.1 Primary data

 Data observed or collected directly from first-hand experience is called primary
data.
 Primary data is not applicable in this study.
4.5.2 Secondary data.
 Published data and the data collected in the past or other parties are called
secondary data.
 Secondary data from published annual reports for 5 years in RDCC bank.
4.6 TOOLS USED IN THIS STUDY

The data collected were tabulated and sequenced. The tools and methods used for the

36
analysis are:
1. RATIO ANALYSIS

2. COMPARATIVE FINANCIAL STATEMENT

3. COMMON SIZE BALANCE SHEET

1. RATIO ANALYSIS:
 Current ratio
 Liquid ratio
 Absolute liquid ratio
 Working capital
 Working capital turnover ratio
 Gross profit ratio
 Net profit ratio
 Fixed asset turnover ratio
 Fixed asset ratio
 Cash to sales ratio
 Cash ratio
 Debtors turnover ratio
 Current asset turnover ratio
 Cash turnover ratio
 Fixed asset to current asset ratio
2. COMPARATIVE FINANCIAL STATEMENT

3. COMMON SIZE BALANCE SHEET

37
 CHAPTER-5
5.1 DATA ANALYSIS AND INTERPRETION

RATIO ANALYSIS
Ratio analysis is a tool used by individuals to conduct a quantitative analysis
of information in company’s financial statement. Ratios are calculated from current
year numbers and are then compared to previous years, other company’s the industry
or even economy to judge the performance of the company. Ratio analysis is
predominately used by proponents of fundamental analysis . The term ratio in it refers
to the relationship expressed in the mathematical terms between to individual figures or
group of figures connected with each other in some logical manner and are selected
from financial statement of the concern .The ratio analysis is based on the fact that a
single accounting figure by itself may not some other figurer’ it may definitely provide
some significant information. Tile relation ship between two or more accounting
figures or groups is called financial ratios. A financial ratio helps to expressed
relationship between the two accounting figures in such a way that users can draw
conclusions about the performance, strength and weakness of a firm.
Ratios can be expressed in any of the following three ways:
 Rate, which is the ratio between the numerical facts over a period of time.
 Pure ratios or proportions, which are arrived at by the simple division of one
number by another.
 Percentage with special type of rate expressing the relationship in hundred

Ratio analysis is based on different ratios, which are calculated from the accounting
data contained in the financial statements. Different ratios are used for different
purpose. Ratio analysis is an important method of financial analysis, because a
meaningful analysis of financial statement depend on the study of relationship among
various items of Statement and the relationship of one item to another can easily be
expressed as a ratio. These are widely used because simple to calculate and easy to
understand. Even a person having a little Knowledge of accounting , can make use of
ratios.
TYPES OF RATIOS
I. LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligation as they
fail due. Since liquidity is basic to continuous operation of the firm it is necessary to
determine the degree of liquidity of a firm. Following are the liquidity ratios;
CURRENT RATIO
Current assets normally mean assets convertible and meant to be converted in
to cash within a year. Current assets usually include cash in hand and bank debtors,
bills receivables, prepaid expenses, inventories, ratios materials, work in progress and
finished goods, marketable securities and short term high quality investments. Current
liabilities represent the liabilities which fail due for payment with in a year. Current
ratios establishes the relationship between the current assets and current liabilities.

38
Conventional rule, idle current ratio should be 2:1
CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES
Year Current Assets Current Liabilities Ratio

2011 -2012 2643.99 1090.68 2.42

2012 -2013 2306.08 978.67 2.36
2013 -2014 2180.34 1069.59 2.04
2014 -2015 1970.60 1160.61 1.70
2015 -2016 2203.96 1130.02 1.95
Table 2.1
Source: Annual Report

3000
2500
2000 2011-2012
1500 2012-2013
1000 2013-2014
500 2014-2015
0
Current
Current
AssetsLiabilities
Ratio

Chart 2.1 Current Ratio

Interpretation
Relatively high current ratio is an indication that the firm is liquid and has the ability to
pay its current obligation in times as than when it become due. Here the position of
current ratio of RDCC bank is the rage of 1.70 to 2.42 times over current liabilities .At
the outset current ratio of the firm is with in the range of manageable limit.
2 QUICK RATIO
This ratio is the measure of quick and acid liquidity. Acid test ratio is the
ratio between the quick assets and current liabilities and is calculated by dividing the
quick assets by the current liabilities .It comprises all Current assets except stock and
prepaid expenses .An acid test ratio of 1:1 is considered satisfactory a firm can easily
meet all its current liabilities .If the ratio is less than 1:1 then the financial position of
the concern shall be deemed to be unsound.

QUICK RATIO = QUICK ASSET / QUICK LIABILITES

Where, Quick Assets = Current Assets – Inventories

39
 Quick Liabilities = Current Assets – Bank Over Draft

Year Current Assets Quick Liabilities Ratio

2011 -2012 1107.60 1090.68 1.02

2012 -2013 824.64 978.67 .84
2013 -2014 775.81 1069.59 .73
2014 -2015 681.87 1160.61 .59
2015 -2016 832.17 1130.02 .74

Table 2.2

Source Annual Report

1200
1000
800 2011-2012
600 2012-2013
2013-2014
400
2014-2015
200 2015-2016
0
Current Assets Quick Ratio
Liabilities
Chart 2.2 Quick ratio
Interpretation
High quick ratio is an indication that the firm is liquid and has the ability to
meet its current or liquid liabilities in time. The quick ratio of RDCC bank is with the
range of 0.59 to 1.02 This shows that the quick ratio ofRDCC bank not sufficient to
meet its liabilities. The firms liquidity position has to be increased.
II. ACTIVITY RATIO OR TURN OVER RATIO

A) INVENTORY TURNOVER
Inventory turn over ratio indicates the efficiency of the firm in producing and selling its
receivable through sales.

INVENTORY TURNOVER = COST OF GOODS SOLD / AVERAGE

INVENTORY
The average inventory is the average opening and closing balance s of

40
inventory Generally, a high inventory turn over is inactive of good inventory
management . A low inventory turnover implies excessive inventory levels than
warranted by production and sales activities or a slow moving or obsolete inventory .

Year Cost of goods sold Average inventory Ratio

2011 -2012 2437.02 1536.39 1.59

2012 -2013 2858.91 1481.44 1.93

2013 -2014 2770.49 1404.53 1.97
2014 -2015 2632.09 1288.73 2.04
2015 -2016 2565.28 1371.79 1.87

3000

2500

2000 2011-2012

1500 2012-2013
2013-2014
1000
2014-2015
500 2015-2016

0
Cost of goods Average Ratio
sold inventory

Chart 2.3 Inventory turnover ratio

Interpretation
Inventory turnover ratio indicates the velocity of conversion of stock into
sales. Here the ratios range from 1.59 to 2.04 A high ratio indicates efficient
management of inventory because the stocks are sold frequently. A lower ratio
indicates that the firm is having over investment,dull business, poor quality of goods,
stock accumulation and low profit as compared to total investment
B) AVERAGE INVENTORY HOLDING PERIOD
The ratio indicates the average time taken for clearing stock. This period
is calculated by dividing the number of days by inventory turnover ratio

INVENTORY HOLDING PERIOD =

41
( 360 / INVENTORY TURNOVER RATIO )

Year Number of days Inventory turnover ratio Period

2011 -2012 360 1.59 226
2012 -2013 360 1.93 187
2013 -2014 360 1.97 183
2014 -2015 360 2.04 176
2015 -2016 360 1.87 193
Source annual report Table 2.4

100%
90%
80%
70%
60% 2015-2016

50% 2014-2015
40% 2013-2014
30% 2012-2013
20% 2011-2012
10%
0%
Number of days Inventory Period
turnover ratio

Chart 2.4 Average inventory holding period

Interpretation
The ratio shows that the inventories are converted into cash during the year ,
The bank should convert this stock an average of 200 days.

C FIXED ASSET TURNOVER RATIO

The fixed assets turnover ratio measures the company’s ability to generate net
sales from fixed assets investments – especially property, plant and machinery – net of
depreciation
FIXED ASSETS TURNOVER RATIO = NET SALES / NET FIXED ASSETS
Year Net sales Fixed asset Ratio
2011 -2012 3089.85 366.02 8.44
2012 -2013 2455.23 298.31 8.23
2013 -2014 2455.20 276.13 8.89
2014 -2015 2044.34 247.96 8.24
2015 -2016 2159.42 281.05 7.68
Source Annual Report Table 2.5

42
 3500
3000
2500 2011 -2012
2000 2012 -2013
2013 -2014
1500
2014 -2015
1000
2015 -2016
500
0
Net sales Fixed asset Ratio

Chart 2.5 Fixed asset turnover ratio.

Interpretation
In the study it is found that the company is trying to improve its fixed asset
turnover ratio In the year 2011 the ratio shows 8.44 lakh . It was decreasing in the next
year to 8.23 .In the year 2015 it grew down to 7.68 Through it has an increasing trend
the company must take necessary steps in improving the fixed assets turnover ratio.
D. DEBTORS TURNOVER RATIO
Debtors turnover ratio indicates the velocity of debt collection of firms. In simple
words it indicates the number of time the average debtors are turned over during a year.
DEBTORS TURNOVER RATIO = NET CREDIT SALES / AVERAGE DEBTOR
Year Net sales Debtors Ratio
2011 -2012 3089.85 981.88 3.15
2012 -2013 2455.23 714.24 3.44
2013 -2014 2455.20 649.92 3.78
2014 -2015 2044.34 599.20 3.41
2015 -2016 2159.42 552.03 3.91
Table 2.6
Source: Annual report

43
3500

3000

2500 2011 -2012

2012 -2013
2000
2013 -2014
1500 2014 -2015

1000 2015 -2016

500

Chart 2.6 Debtors turnover ratio

Interpretation
Generally the higher value of debtors turnover ratio indicates the firm is more efficient
in managing the debtors . But here the firm is lacking behind in this field of managing
the debtors.
E. CREDITORS TURNOVER RATIO
A supplier of goods is naturally interested in finding out how much time the firm is
likely to take in repaying its trade creditors.
CREDITORS TURNOVER RATIO = Cr PURCHASE / AVG ACCOUNTS
PAYABLE

Year Credit Purchase Average Account Ratio

Payable
2011 -2012 1619.54 821.83 1.97
2012 -2013 1121.62 668.06 1.68
2013 -2014 1309.02 717.07 1.83
2014 -2015 1207.27 778.60 1.55
2015 -2016 1318.97 725.99 1.82

Source: Annual Report Table 2.7

CREDITORS TURNOVER RATIO

44
 2.5
1.97
2 1.83 1.82
1.68
1.55
1.5

0.5

0
2011-2012 2012 -2013 2013 -2014 2014 -2015 2015 -2016
TEAR

Chart 2.7 Creditors turnover ratio

Interpretation
The ratio shows that the credit worthiness is going to be effected adversely
.The firm has to take proper action in controlling the creditors turnover ratio. The firms
credit turnover ratio is very low which an unsatisfactory condition.
F.WORKING CAPITAL TURNOVER RATIO
The working capital turnover ratio measures the efficiency with which the
working capital is being used by the firm. Working capital is the difference of current
assets and current liabilities which is available for the firm to meet its short term
obligation.
WORKING CAPITAL TURNOVER = NETSALES / NET WORKING CAPITAL

Year Net sales Net working capital Ratio

2011 -2012 3089.85 1553.30 1.99

2012 -2013 2455.23 1327.41 1.85

2013 -2014 2455.20 1110.75 2.21

2014 -2015 2044.34 809.99 2.25

2015 -2016 2159.42 1073.94 2.01

Source: Annual Report Table 2.8

45
 WORKING CAPITAL TURNOVER

2.5 2.25
2.21
1.99 2.01
2 1.85

RATIO
1.5

0.5

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
YEAR

Chart 2.8 Working capital turnover ratio

Interpretation
In the working capital turnover ratio of the firm is very low; the number of
time the working capital turnover in course of year is very low. The should work hard
in increasing the asset of the company and also decreasing the ability of the firm. Thus
it can bring some improvement in the working capital turnover ratio.
III. SOLVENCY RATIOS
The term solvency refers to the ability of a concern to meet its long term
obligations. Long term solvency ratios indicates a firm’s ability to meet the fixed
interest and repayment schedule associated with its long term borrowings The
following ratio serve the purpose of determining the solvency of a concern.
1. DEBT – EQUITY RATIO
A measure of a company’s financial leverage. Debt equity ratio is equal to
long term debt dividend by common shareholders equity. Typically the data from the
prior fiscal year is used Sin the calculation. Investing in a company with a higher debt
equity ratio may be riskier especially in times of rising interest dates , due to the
additional interest that has to be paid out for the debt.
DEBT- EQUITY RATIO = OUTSIDERS FUND / SHAREHOLDERS FUND

Year Outsiders fund Shareholders fund Ratios

2011 -2012 2217.75 264.73 8.34
2012 -2013 2302.51 264.73 8.70
2013 -2014 2054.22 575.73 3.57
2014 -2015 1982.04 575.73 3.44
2015 -2016 2108.16 805.75 2.62

Source: Annual Report Table 2.9

46
 10
DEBT-EQUITY-RATIO 8.7
9 8.34
8
7
6
5
4 3.57 3.44
2.62
3
2
1
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
YEAR

Chart 2.9 Debt equity ratio

Interpretation:
The ratio gives an idea about the cushion available to the outsiders on the liquidation of
the firm. But the study tells that the outsiders fund have dominated on the owners fund.
However the owner wants to do with the maximum of outsiders fund in order to take
lesser risk of their investment and to increase their earnings.
IV.PROPRIETARY RATIO
The ratio establishes the relationship between share holders fund to total
assets of the firm. The ratio of proprietors fund is an important ratio for determining
long term solvency of a firm. The components of this ratio are shareholders fund or
proprietors fund to total assets.
PROPRIETARY RATIO = SHAREHOLDERS FUND / TOTAL ASSETS
Year Total Assets Shareholders fund Ratio
2011 -2012 3342.51 264.73 .08
2012 -2013 2911.77 264.73 .09
2013 -2014 2746.57 575.73 .21
2014 -2015 2514.96 575.73 .23
2015 -2016 2779.33 805.75 .29
Source: Annual Report Table 2.10

47
 0.35
0.29
0.3
PROPRIETARY RATIO
0.25 0.23
0.21
0.2
0.15
0.08 0.09
0.1
0.05
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
YEAR

Chart 2.10 Proprietary ratio

Interpretation
As equity ratio represents the relationship of owners fund to total assets ,
higher the ratio of the share of the shareholders in the total capital of the company ,
better is the long term solvency position of the company . The ratio indicates the extent
to which the asset of the company can be lost without effecting the interest of the
creditors of the company.
V. PROFITABILITY RATIO
1. GROSS PROFIT RATIO

Gross profit ratio measure the relationship of gross profit to net sales
and is usually represented as a percentage .Thus it is calculated by dividing the gross
profit by sales.

Year Gross Profit Net Sales Ratio

2011 -2012 -652.68 3089.85 -21.13
2012 -2013 -403.68 2455.23 -16.44
2013 -2014 -315.29 2455.20 -12.84
2014 -2015 -249.59 2044.34 -12.21
2015 -2016 -60.24 2159.42 -2.79
Source: Annual Report Table 2.11

GROSS PROFIT RATIO = GROSS PROFIT / NETSALES * 100

48
 0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
GROSS PROFIT RATIO -2.79
-5

-10

-12.84 -12.21
-15
-16.44
-20
-21.13
-25
YEAR

Chart 2.11 Gross profit ratio

Interpretation
The ratio reflect how efficiently the firm is in producing its products. The
studies shows that the firm is inefficient in. During the year 2012 , it had a slight
improvement in the GP ratio .But the continuing year till 2009 it is again going to
negatives. So the company should take proper care in producing its product in the most
effective manner
2. NET PROFIT RATIO

Net profit margin establishes the relationship between net profit and sales
and indicates management ‘s efficiency in manufacturing , administrating and selling
the products . This ratio is the overall measure of the ability of the firm to turn each
rupee sales in to net profit Net profit is obtained when operating expenses , interest and
taxes are subtracted from the gross profit.
NET PROFIT RATIO = NET PROFIT / NET SALES * 100
Year Net profit Net Sales Ratio
2011 -2012 -232.17 3089.85 -7.51
2012 -2013 -706.13 2455.23 -28.76
2013 -2014 -1014.95 2455.20 -41.34
2014 -2015 -1263.40 2044.34 -61.80
2015 -2016 -1314.78 2159.42 -60.89
Source: Annual Report Table 2.12

49
 0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-10
NET PROFIT-7.51
RATIO
-20

-30
-28.76
-40
-41.34
-50

-60
-61.8 -60.89
-70
YEAR

Chart 2.12 Net profit ratio

Interpretation
When all the expenses including office expenses are included the net profit
ratio comes down to negative . So the firm has to take proper concentration in the
production of the products and thus make procedures for increasing the profit ratio
without which the firm can complete in the market.
VI. OPERATING RATIO
Operating ratio establishes the relationship between the cost of goods
sold and the operating expenses on the one hand and the sale of the other hand. It
excludes income and expense which can also be included .It is calculated by
OPERATING RATIO = 100 ---NET PROFIT RATIO

Year Net profit Ratio Ratio

2011 -2012 -7.51 107.51
2012 -2013 -28.76 128.76
0//2013 -2014 -41.34 141.34
2014 -2015 -61.80 161.80
2015 -2016 -60.89 160.89
Source: Annual Report Table 2.13

50
 180 161.8 160.89
160
OPERATING RATIO 141.34
140 128.76
120 107.51
100
80
60
40
20
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
YEAR

Chart 2.13 Operating ratio

Interpretation
Here the study shows the firm having a silent higher operating ratio which is
unfavourable .Normally 75 to 85 percentage may be considered to be a good ratio in
case of manufacturing undertaking . So the firm should try to reduce the operating
profit ratio as early possible.
VII. OVERALL PROFITABILITY
1. RETURN ON INVESTMENT

Return on shareholders investments, popularly known as ROI or Return on

Shareholders/ Proprietors Fund is the relationship between net profit (After interest and
tax ) and the proprietors fund.
RETURN ON INVESTMENT = NET PROFIT / SHAREHOLDERS FUND
Year Net profit Shareholders fund Return on Investment
2011 -2012 -232.17 264.73 -0.87
2012 -2013 -706.13 264.73 -2.67
2013 -2014 -1014.95 575.73 -1.76
2014 -2015 -1263.40 575.73 -2.19
2015 -2016 -1314.78 805.75 -1.63
Source: Annual Report Table 2.14

51
 RETURN ON INVESTMENT
0
2011--2012 2012-2013 2013-2014 2014-2015 2015-2016
-0.5

-1 -0.87

-1.5
-1.63
-2 -1.76

-2.19
-2.5
-2.67
-3
YEAR

Chart 2.15 Return on investment

Interpretation
The overall efficiency of the firm is very week. Its lying in negatives. As the
objective of business is to maximize its earnings, this ratio indicates the extent to which
this primary objective of business is achieved as this ratio reveals how well the resource
of the firm are being used, the higher the ratio better are the results.
5.2 WORKING CAPITAL OF RDCC BANK
WORKING CAPITAL = CURRENT ASSETS - CYRRENT LIABILITIES

Year Current Assets(Rs Current Liabilities(Rs in Working Capital

in Lakhs) Lakhs)
2011 -2012 2643.99 1090.68 1553.31

2012 -2013 2306.08 978.67 1327.41

2013 -2014 2180.34 1069.59 1110.76

2014 -2015 1970.60 1160.61 809.99

2015 -2016 2203.96 1130.02 1073.94

Source: Annual Report Table 2.16

52
 1600 1553.31 WORKING CAPITAL
1400 1327.41
1200 1110.76 1073.94
1000
809.99
800
600
400
200
0
2011 -2012 2012 -2013 2013 -2014 2014 -2015 2015 -2016
YEAR

Chart 2.16 Working capital

Interpretation
Current assets of RDCC bank consists of Inventories, Debtors, Cash and Bank
balance. Working capital gap can be analyzed by measuring net assets.Net assets
referred to current assets minus current liabilities .On an average for the past four years
, there is a decrease in working capital margin of RDCC bank . But in year 2015 –
2016 there is an increase in working capital.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2011 – 2012)

PARTICULARS 2011 2012 INCREASE DECREASE

CURRENT
ASSETS
a) Inventories 1603.28 1536.39 66.89
b) Sundry debtors 978.73 981.88 2.15
c) Cash and bank 146.25 125.72 20.53
Total 2729.26 2643.99
CURRENT
LIABILITIES
a) Current 841.71 837.86 3.85
liabilities
b) Provision 192.78 252.83 60.05
Total 1034.49 1090.69
NET WORKING 1694.77 1553.3
CAPITAL
Decrease in 141.47 141.47
Working Capital
1694.77 1694.77 147.77 147.77
Table 2.17
Interpretation

53
 The study reveals that the inventories ,sundry debtors , cash and bank balance ,
provision has decreased.
 Current liabilities have increased.
 The net working capital of the firm has decreased in the year 2011.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2012 – 2013)

PARTICULARS 2012 2013 INCREASE DECREASE

CURRENT
ASSETS
a) Inventories 1536.39 1481.44 54.95
b) Sundry debtors 981.88 714.24 267.64
c) Cash and bank 125.72 110.40 15.32
Total 2643.99 2306.08
CURRENT
LIABILITIES
a) Current 837.86 679.68 158.38
liabilities
b) Provision 252.83 299.19 46.36
Total 1090.68 978.67
NET WORKING 1553.30 1327.41
CAPITAL
Decrease in 225.89 225.89
Working Capital
1553.30 1553.30 384.27 384.27
Table 2.18
Interpretation
 The study reveals that the inventories ,sundry debtors , cash and bank balance ,
provision has decreased.
 Current liabilities have increased.
 The net working capital of the firm has decreased in the year 2012.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2013 – 2014)
PARTICULARS 2013 2014 INCREASE DECREASE
CURRENT
ASSETS
a) Inventories 1481.44 1404.53 76.91
b) Sundry debtors 714.24 649.92 64.32
c) Cash and bank 110.40 125.89 15.49
Total 2306.08 2180.34
CURRENT
LIABILITIES
a) Current 679.48 729.44 49.96
liabilities
b) Provision 299.19 340.15 40.96
Total 978.67 1069.59
NET WORKING 1327.41 1110.75
CAPITAL

54
Decrease in 216.66 216.66
Working Capital
1327.41 1327.41 232.15 232.15
Table 2.19
Interpretation
 In the year 2009, there is a steep decrease in inventories , sundry debtors.
 Cash and Bank balance has increased by 15.49 lakh.
 Total current liabilities and provision have to be decreased.
 Net working capital has reduced in the year.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2014– 2015)

PARTICULARS 2014 2015 INCREASE DECREASE

CURRENT
ASSETS
a) Inventories 1404.53 1288.73 115.80
b) Sundry debtors 649.92 599.20 50.72
c) Cash and bank 125.89 82.67 43.22
Total 2180.34 1970.60
CURRENT
LIABILITIES
a) Current 729.44 729.54 0.1
liabilities
b) Provision 340.15 369.07 28.92
Total 1069.59 1160.61
NET WORKING 1110.75 809.76
CAPITAL
Decrease in 300.76 300.76
Working Capital
1110.75 1110.75 300.76 300.76
Table 2.20

Interpretation
 In the year 2014 almost all current assets and current liabilities has decreased.
 Net working capital has reduced in the year.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2015– 2016)
PARTICULARS 2015 2016 INCREASE DECREASE
CURRENT
ASSETS

a) Inventories 1288.73 1371.79 83.06 76.91

b) Sundry 599.20 552.03 64.32
debtors

c) Cash and bank 82.67 280.14 197.47

55
Total 1970.60 2203.96
CURRENT
LIABILITIES

a) Current 791.54 737.73 53.81

liabilities

b) Provision 369.07 392.29 23.22

Total 1160.61 1130.02

NET WORKING 809.99 1073.94
CAPITAL

Increase in 263.95 263.95

Working Capital

1073.94 1073.94 334.34 334.34

Table 2.1
Interpretation
 The study reveals that the inventory, cash and bank balance , current liabilities has
increased.
 The sundry debtors, Provision has decreased.
 Net working capital has increased in this year.
CHAPTER 6
6.1 FINDINGS OF THE STUDY
The study of RDCC bank , during 2011 to 2016 revealed the following facts.
 The short term solvency of RDCC bank was satisfactory as the current ratio was
always greater than 1. But it has to be noted that the current assets of the bank
declined over the years whereas the current liability increased during this
period. This poses a threat to the short term solvency.
 The safety margin of RDCC is high in terms of short term solvency . But it
should be noted that the proportion of inventories is the highest whereas that of
the cash and bank balance is the lowest in the current asset .This indicates that
the inventories take time to realize into cash; It can adversely effect the
liquidity.
 The debt ratio shows the company relied more than 100 % on debt fund. This
has created inflexibility in its debt , excessive pressure by outsiders on
management ,decline of margin and large interest payment.
 Thebank is having a negative debt equity ratio for consecutive years; which
means that the company’s net worth is negative. The debt equity ratio of the
company shows that it has more debt than which can be compensated by its
assets
 The firms efficiency in inventory management is not satisfactory.

56
  In the case of RDCC bank the proportion of current assets is much higher than
fixed assets. In the current assets the proportion of inventories and debtors is the
highest. So the availability of working capital depends largely on high
efficiently the company can turn inventories and debtors in to cash.
 The working capital turn over ratio of the company being more than 1. shows an
availability of working capital for the bank . But it has to be remembered that
the company depend totally on borrowed funds for its functioning .Hence the
delay in getting borrowed funds on favourable terms can adversely effect the
ability of the company in fulfilling its short obligations and also in achieving
maximum productivity.
 The gross profit margin of the company is unsatisfactory level. The company is
trying to increase the gross profit ratio..
 The net profit margin of the company gives negative value for consecutive
years. It indicates the firm’s inefficiency to make profit out of sales. It
highlights that the firm will find it difficult to survive in adverse conditions like
falling prices , rising cost of production and decreasing demand.
 Normally the operating ratio is 75 to 85 .But in this bank it is more than 100.It
will effect negatively.
 The return on investment computed in terms of return on net assets and return
on total assets shows that the ROI has negative values for the company; which
indicates that the return on investment is nil.
 From the liquidity analysis it is found that the company is having a satisfactory
working capital. The liquidity position i.e. the ability to meet its short term
liability is satisfactory. But the firm has to take proper attention in improving its
standard ratio.
6.2 SUGGESTIONS

 RDCC bank should maintain adequate current assets to meet day to day
operations.

 RDCC bank should adopt inventory control technique and take good inventory
decisions for the positive effects for a better working capital position.

 RDCC bank must take effective measures to reduce the operating expense.

 The bank has to increase the investment in current assets, cash at bank and cash
in hand.

 The bank has a larger percentage of inventories and debtors as current assets .
The bank must reduce the inventory level by strictly adhering to modern
management technique such as ABC method for raw material inventory, FIFO
for finished goods inventory , JIT for production process whenever applicable,
as sluggish inventory is unfavorable for firm’s liquidity.

57
  The capacity utilization of RDCC is 100 % It is high time that the company
replaces old machines and introduce the state-of the –art machine which can
help to survive in a technologically driven market, so as to remain price
competitive and economical.

 The firm must keep operating profit with in the control so that the company can
make profit out of sales revenue.

 The bank has very low cash and bank balances .It has to maintain adequate
amount of cash balance to fulfil short term obligations as other components of
current assets are not always reliable.

 It would be beneficial to the company if it can reduce the contribution of

creditors to the maximum possible .In doing so , it can avoid excessive pressure
and unnecessary interference of outsiders on the management and the company
will have funds to participate in tenders and quoting for new orders.

CONCLUSION

The project work has been carryout to know the working capital management of
RDCC bank by using ratio analysis. With the help of ratio findings and suggestion has
been given.
The basic financial balance sheet and profit & loss account of the bank help in
finding out the various transaction that was conducted in the firm.
The study reveals that the long term solvency position of the company is not
good and it is not having that much capacity to pay back its long term debt. So the
company is forced to raise funds from non spontaneous, as the operating cycle of the
company is very lengthy. So the bank should take steps to improve its liquidity
position.

SCOPE FOR FUTURE WORK

In this study titled A study on working capital management of central co-
operative bank, Ramanathapuram. In the statistical tool used is mainly Ratio analysis
with the help of profit and loss account and balance sheet. So the accuracy of data may
not be perfectly correct. By using various other statistical tools we can get more data
and interpretation about this topic

58
 ANNEXURE
BALANCE SHEET AS AT MARCH 2012 TO 2016
1. SOURCES OF 31ST MARCH 31ST MARCH 31ST MARCH 31ST MARCH
FUNDS 31STMA 2013 2014 2015 2016
RCH
2012
1.Shareholders
Funds 5534544 55345445..08 55347569.07 24245115.42 56347337.08
a)Capital 5.08
b)Reserves & 2227605.12 25227605.12 2227605.12 2427507.90
Surplus 2227605.
12
5757305 57575050.20 80575174.19 26472720.54 58774844.98
0.20
2.Loan Funds
a)Secured 9903573 87626961.89 99174252.85 95069856.01 99232691.75s
Loan 5.36
b)Un secured 110576870.62 111642006.86 135181134.27 132345640.87
Loan 1063865
56.62

2054222 198203832.51 210816259.71 230250990.32 231578332.60

91.98
3.DefferedTax 6197352. 5998784.00S 5017097.00 7198799.00 6989717.65
Liability 00

TOTAL 2691926 261775666.71 296408530.90 263922509.83 297342895.20

94.18

11.APPLICATION
OF FUNDS
1. Fixed Assets
a) Gross Block 2314199 231503742.07 231789278.54 231081439.11 231697812.43
b) Less Dep 22.69
208916026.68 211689836.58 203521054.39 203250541..90
recitation
2059439 22587715.39 20099441.96 27560384.95 28447270.50

59
c)Net Block 56.60
d)Capital 2547556
Work in 6.09 70530.00 114630.00 133975.19 162555.08
Progress 2136860.45 2136860.45 2136860.45 216860.45
e)Dept Expenses
0.00
2136860.
45
2761282 24795105.84 28104875.73 29831220.59 28826686.03
6.54
2. Current
Assets Loans
&Advances
1404530 128872854.72 137178822.57 148144356.40 142435660.57
a) Inventories
66.55 59919960.43 55202972.51 71423589.81 87439851.67
b) Sundry Dr 6499166
c) Cash & Bank 1.02 8267497.51 28014243.90 11039793.76 11765987.12
balance
d) Loans & 1258918 29640484.41 29431929.60 30737768.99 32379806.50
Advances 8.96

2900980
0.36
2470437 226700797.07 249827968.58 261345509.0 274021305.80
16.89

Less Current
Liabilities &
Provision
a) Current
Liabilities 7294362 7915387.65 73773454.89 67948468.23 65123783.33
b) Provisions 2.84 36906776.0 39228702.00 29918468.00 2816884.00
3401478
6.00

Net Current 1400853 110640141.42 136825811.69 163478572.7 206080638.50

Assets 08.05

60
 3. Profit & Loss
Account 1014945 126340419.45 131477843.48 136340142.20 152610324.97
59.59

TOTAL 2691926 261775666.71 296408530.90 263922509.83 297342895.20

94.18

BIBLIOGRAPHY
REFERENCESBOOKS

1. Jain. S.P & Narang . K.L Financial Accounting and Analysis.

2. I.M. Pandey Financial Management.
3. Prasanna Chabdra Financial Management.
4. L.R. Potti Basic Tools for Economic Analysis
5. Kothary.C.R Research Methodology.

WEBSITES
1. www. google.com
2. www.central co-operative bank Ramanathapuram.com
3. www.co-operative bank.com

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