1

1.1Background of the study

Simply, working capital management means excess of current assets over current liabilities. It
refers to the administration of all aspects of the current assets and current liabilities. To run day
to day operation on the business, amount invested in the form of raw materials, cash, semi-
finished goods, receivables, etc. put together is called working capital.

There are two concepts of working capital, net concept and gross concept.Net concept of the
working capital is the excess of the current assets over current liabilities. Gross concept is the
total of current assets. It is particularly useful for the new companies in deciding size of the
investment in each type of the current assets. So, with the increase and decrease in the business
activities, working capital needs also fluctuate from time to time. This aspect of working capital
management is equally applicable to the small as well as large scale enterprises.

“Working capital is therefore the size of investment in each type of current assess e.g. cash,
receivables and inventory. Decision regarding working capital affects the profitability of the firm
in the short run but it affects the very survival in the long run. Faster the turnover of cash into
raw material, raw material into semi-finished goods, semi-finished goods, into finished goods,
and finished goods into receivable and cash, greater would be the efficiency of the firm’s"
(Pandey; 1992).

Concept of Working Capital Management

Every business needs capital basically for two purposes. The first requires for long term purpose
which is called Fixed Capital. Such funds are required to create production facility. Investment in
plants, machinery, land, building etc. comes under production activity. Investment in these assets
represents that part of firm’s capital which is block on a permanent or fixed basis. Such assets are
not purchased with the objective of resale. 
To operate business, a firm also needs another type of capital which is known as Short Term
Capital or Working Capital. The funds required for purchased of raw material, payment of wages
and another day to day expenses etc. is called as Working Capital. Similarly, the investment
required for work-in-progress, raw material, finished goods, sundry debtors, bills receivable etc.
also comes under working capital. Working Capital refers to the resources of the firm that are
used to conduct day-to-day operation that makes business successful. In simple words working
 2

capital is the excess of current Assets over current liabilities. Working capital has ordinarily been
defined as the excess of current assets over current liabilities. Without cash, bills cannot be paid,
without receivable the firm cannot allow timing different between delivering goods to services
and collecting the money to pay for them, without inventories the firm cannot engage in
production nor can it stock goods to provide immediate deliveries.
The examples of current assets are cash in hand, cash at bank, bills receivable, sundry debtors,
inventory, prepayments loans and advances etc. Current liability is another part Concerned with
working capital. Those liabilities which are expected to have been paid within a short period are
known as Current Liabilities. The examples of current liabilities are bank overdraft, sundry
creditors, bills payables, and outstanding expenses; received in advance cash credit etc. The word
‘working’ means work at present. So, working capital is capital working at present. Technically,
working capital management is an integral part of overall financial management (Khan and
Jain; 1999:15.2).
It represents that part of fund that circulates from one form of current assets to another form in
ordinary course of business. For example, cash is used to purchase raw material which creates
stock of finished goods which, in turn, is sold for cash. Therefore, working capital management
is concerned with problems that arise within attempting to manage the current assets, current
liabilities and the interrelationship that exists between them (Kulkarni, 1990:374).
Classification of Working Capital

On the basis of concept and time the working capital has been categorized in four main types

Types of working capital

On the basis of Concept On the basis of Time

Gross Working Net Working Permanent Temporary

capital capital Working capital working capital
 3

i. Gross working capital

This thought says that total investment in current assets is the working capital of the
company. This concept does not consider current liabilities at all. Gross working capital = total
current assets
ii. Net Working Capital
It is narrow concept of working capital and according to these current assets minus
current liabilities forms of working capital. The excess of current assets over current liabilities is
called as working capital.
Net working capital = current assets-current liabilities
iii. Permanent (Fixed) Working Capital

Permanent working capital refers to that level of current assets, which is required on a
continuous basis over the entire year. A manufacturing concern cannot operate regular
production and sales function in the absence of this portion of working capital. Therefore, a
manufacturing concern holds certain minimum amount of working capital to ensure
uninterrupted sales function. This portion of working capital is directly related to the firm’s
expansion of operation capacity.

iv. Temporary (Fluctuating) Working Capital

Variable working capital represents the portion of working capital, which is required over
permanent working capital. Therefore, this portion of working capital depends upon the nature of
firm’s production, relation between labor and management. The firm’s which are seasonal in
character in their business need a large amount of capital for holding inventory during a peak
period. But, as soon as the peak period is over, their working capital becomes idle.

1.1 Profile of the organization

NMB Bank Limited licensed as an “A” class financial institution by Nepal Rastra Bank in May
2008, has been operating in the Nepalese financial market for over twenty years and is one of the
leading commercial banks in the banking industry.

The bank has a joint venture agreement with Nederlandse Financierings-Maatschappij

voor Ontwikkelingslanden (FMO), wherein FMO holds 20% of the bank’s shares and is the
 4

largest shareholder of the bank. In September 2016, the bank signed a joint venture agreement
with Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO), the Dutch
development bank following which FMO became the single largest shareholder of the bank. The
alliance with FMO positions the NMB Bank in becoming the market leader in managing
environmental and social risks and the leading player in renewable energy and agribusiness.

NMB Bank was awarded the 'Bank of the Year - 2017' by The Banker, Financial Times,
London.

The bank merged with these four financial institutions:

 Bhrikuti Development Bank

 Pathibhara Bikas Bank

 Prudential Finance Company

 Clean Energy Development Bank

1.2 ojectives of the study

The basic objectives of the present study are to examine working capital management and its
effectiveness in Nepalese commercial banks especially in NMB Bank Limited. The specific
objectives of this study are as follows:

1. To analyze the impact of working capital management.

2. To Analyze Employee's Satisfaction.
3. To analyze working capital position of the bank
1.3 Rationale of the study
Working capital is regarded as the lifeblood for any organization because it is needed for
sustaining the organization in daily operation. If the business cannot maintain a satisfactory level
of working capital, it is likely to become insolvent and may even push into bankruptcy. So, the
goal of working capital management is to manage assets and current liabilities in such a way that
a satisfactory level of working is maintained. “Survey indicates that the largest portion of most
financial manager's time is devoted to the day-to-day internal operations of the firm which fall
under the heading of working capital management.” From the research, survey and analysis it is
evident that no full-fledged academic research study on working capital management of NMB
Bank Limited has been carried out. The present study, therefore, bridges this long felt gap in the
 5

field of research. This is only a beginning and it could be further developed continued in this
field.

1.4 Review of the previous work

This chapter deals with the conceptual framework of the working capital management. It also
provides insight into the findings of earlier studies through the review of books journals,
publication and previous studies. This process of studying different materials, which are
concerned with the selected topics of the research, is known as review of literature. P. V. Young
argues “Review of literature is useful in research because it provides the insight and general
knowledge about the subject matter of research”. This chapter covers the following aspects:

Conceptual Review

The term “working capital management” is concerned with the management of current assets and
liabilities of the organization, which is necessary for day-to-day operation of the company. Every
company has variable and permanent working capital. The success and failure of any
organization depends on the proper management of working capital. “Working capital is the
amount of fund that is needed to finance the current assets of the firm. Since the current assets
are normally converted into cash within one year. Working capital helps revolving within one
year or less through different current assets. Once the fund is converted into current assets, it is
constantly converted into cash and cash out flow in exchange for other current assets”. (Weston,
J.F.; 1981) “Working capital is a furnish investment in short term assets”. (Poudel, Gautam,
Dahal and Rana; 2062) “Working capital is a firm’s investment in short term assets, cash,short
terms securities, account receivables and inventories”. (Weston, J.F.; 1984)

“Working capital involves deciding upon the account and consumption of current assets
and to finance these assets. The decisions involve the trade of between risk and profitability”
(Kuchhal; 1988).

The goal of working capital management is to manage the current assets and current
liabilities of the firm to keep at satisfactory level. It helps the organization to operate day to day
transaction and operation without any interruption. If the firm cannot maintain the satisfactory
level of working capital, it is likely to become insolvent and may even be forced into bankruptcy.
 6

1.5 Methodology
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. In it we study the various
steps that are generally adopted by researcher in studying his research problem along with the
logic behind them. The various objectives of this chapter are to show the financial relations from
which liquidity, structure of working capital and utilization of working capital of the factory can
be measured.

The study about selected listed manufacturing companies in Nepal has been already streamlined
to some extent in earlier chapter regarding their growth, objective, statement of problem, relevant
literature of concerning manufacture in companies have been reviewed in second chapter. This
chapter, the focus has been made on research design, nature of data, population and sample,
source of data, data collection techniques and tools used for data analysis.

1.6 Limitations of the study

In the context of Nepal, problem of reliable data is the major problem for research study. There
is considerable place for arguing about its accuracy and reliability. Every study has limitations
due to different factors of institutions, time-period taken, reliability of statistical data, tools and
variances. The following limitations are pointed out in this study.

 Because of the one- month time, it is different to make a study in depth.

 The study has not cover the other aspects of the bank.

 The main focus is given to the quantitative aspect rather qualitative aspect.

 The case study is mainly based on secondary data through annual report of bank brochure
and newspaper.