A PROJECT REPORT ON WORKING CAPITAL MANAGEMENT ICICI BANK LTD

SUBMITTED TO
PROF. S.R. PRASAD

SUBMITTED BY
KUNWAR SINGH PGDM (2011-13) REG T 81

CONTENT

Sr. No I II III 1 1.1 1.2 1.3 1.4 2 2.1 2.2

PARTICULAR

Acknowledgement Executive summary Objective of study GENERAL INFORMATION Introduction History & development Company at glance Management body of ICICI Bank Ltd. DATA ANALYSIS Study of P/L Study of Balance Sheet

FINANCIAL ANALYSES OF WORKING CAPITAL & FINANCING

3.1 3.2 3.3

Introduction Concept of working capital Types of working capital

3.4 3.5 3.6 3.7 4

Determinant of working capital Need for working capital Financing working capital Sources of working capital RATIO RELATED TO WORKING CAPITAL

4 4.1 4.2 4.3 4.4 5 6

ANNEXURE Profit and loss Account Balance Sheet Annual Results Cash Flow Conclusion and Suggestions BIBLIOGRAFHY

ACKNOWLEDGEMENT "Acco mplishment o f any task necessarily depends upo n the willingness and enthusiastic contribution of time and energy of many people."From the starting till the completion of this project, there are many people without whose assistance all my efforts would have been fruitless. I, therefore, acknowledge all who genero usly helped me by sharing their time, experience and knowledge with me without which this project would have never been accomplished. Words cant express my sincere thanks to the faculty of finance MR. S.R. PRASAD Who had been a constant source of guidance throughout my project period. MR.S.R. PRASAD (My project guide) whose perceptive guidance, constant encouragement, constructive criticism and affection w e r e t h e l i g h t o f g u i d a n c e d u r i n g m y t e n u r e o f m y work. Finally, I would like to state that the project not only fulfilled an academic requirement, but would also help me in future endeavors in the years to come.

KUNWAR SINGH REG T 81 PGDM (2011-13)

EXECUTIVE SUMMARY

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

OBJECTIVE OF STUDY
The main objectives of this project are the following: 1) To study about ICICI BANK and its related aspects like its products & services, history, organizational s t r u c t u r e , subsidiary companies etc. 2) To analyze the financial statement i.e P &L acco unt and Balance sheet of ICICI BANK. 3) T o l e a r n a b o u t P & L A c c o u n t , different type of Assets& Liabilities. Balance-sheet and

4) To understanding the meaning and need of Balance Sheet and profit and loss account. 5) The purpose is to portray the financial po sitio n o f ICICI BANK with the help of Balance sheet and pro fit and lo ss account. 6) To evaluate the financial soundness , stability and liquidity of ICICI BANK.

GENERAL INFORMATION

OF

ICICI BANK LTD

INTRODUCTION OF ICICI BANK LTD

ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The Bank has a network of 2,586 branches and 8,003 ATMs in India, and has a presence in 19 countries, including india. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

HISTORY AND BACKGROUND

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsdiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature

at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity.

A view of the ICICI Bank building in Mumbai.

KEY GROUP COMPANIES

1) ICICI PRUDENTIAL INSURANCE COMPANY ICICI Life continued to maintain its market leadership among private sector life insurance companies with a market share of 12.71% on the basis of weighted received premium. Life insurance companies worldwide make losses in the initial years, in view of business set-up and customer acquisition costs in the initial years as well as reserving fo r actuarial liability. W hile the gro wing operatio ns o f ICICI Life had a negative impact o f R s. 10.31 billio n o n the Banks consolidated profit after tax in FY 2008 on account of the above reasons, the companys unaudited New Business Achieved Profit (NBAP) for FY2008 was Rs. 12.54 billion as compared to Rs. 8.81 billion in fiscal 2007. 2) ICICI LOMBARD GENERAL INSURANCE COMPANY ICICI Lombard General Insurance Company (ICICI General) enhanc ed its leadership position with a market share of about 29.8% among private sector general insurance companies and an overall market share of about 11.9% during fiscal 2008. ICICI Generals gross written premium grew by 11.4% from Rs. 30.03 billion in fiscal 2007 to Rs. 33.45 billion in fiscal 2008. ICICI General is required to expense upfront, on origination of a policy, all sticking expenses related to the policy. While ICICI Generals profit after tax for Rs. 1.03 billion in fiscal 2008,a growth of 50.5% over fiscal 2007.The combined ratio is the sum of net claims and expenses as a percentage o f premiums and indicates the surplus generated on an annualized basis from the business written during a period (excluding investment income).

ICICI PRUDENTIAL AMC & TRUST ICICI Prudential Asset Management Company (ICICI AMC) was the secondl a r g e s t a s s e t m a n a g e m e n t c o m p a n y i n I n d i a w i t h a v e r a g e a s s e t s u n d e r management of Rs. 543.55 billion for March 2008. ICICI AMC achieved a profit after tax of Rs. 0.82 billion in fiscal 2008, a growth of 69.7% over fiscal2007. ICICI SECURITIES LIMITED The securities and primary dealership business of the ICICI group have been reorganized. ICICI Securities Limited has been renamed as ICICI Securities P rimary Dealership Limited. ICICI Brokerage Services Limit ed has been renamed as ICICI Securities Limited and has become a direct subsidiary of ICICI Bank. ICICI Securities achieved a profit after tax of Rs. 1.50 billion and ICICI Securities Primary Dealership achieved a profit after tax of Rs. 1.40 billion, in fiscal 2008. ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED ICICI Venture Funds Management Co mpany Limited (ICICI Ve nture) strengthened its leadership po sition in private equity in India, with funds under management o f abo ut R s. 95.50 billion at year-end fiscal 2008. ICICI Venture achieved a profit after tax of Rs. 0.90 billion in fiscal 2008 compared to Rs. 0.70 billion in fiscal 2007.

MANAGEMENT BODY OF ICICI BANK LTD

Board Members 1) Mr. K. V. Kamath, Chairman 2) Mr. Sridar Iyengar 3) Dr. Swati Piramal 4) Mr. Homi R. Khusrokhan 5) Mr. Arvind Kumar 6) Mr. M.S. Ramachandran 7) Dr. Tushaar Shah 8) Mr. V. Sridar

Managing Director & CEO

Executive Director & CFO

Ms. Chanda Kochhar

Mr. N. S. Kannan

Executive Director Mr. K. Ramkumar Mr. Rajiv Sabharwal

DATA ANALYSIS

STUDY OF PROFIT& LOSS A/C

MEANING: It is a financial statement, which sho ws net loss o f a company for a specified period. The accounting year means calendar year of 12months or less or more than 12 months.

CONTENTS: This presents the revenues and expenses of a company and shows the excess of revenues over expenses for profit and vice versa for a loss. FORMAT: The Companies act does not provide any specific format for this acco unt. Ho wever it is required to be prepa red o n the basis o f the instructions given in part ii of schedule (vi) of the companies act.

MAIN ITEMS OF PROFIT AND LOSS ACCOUNT Turnover or sales : The aggregate amount of sales and connected items with the sales such as commission paid to sole-selling agents and other selling agents and brokerage and discounts on sales other than usual trade discount. Depreciation : The amount of depreciation of fixed assets and the arrears of depreciation as per section 205(2) shall be disclosed by way of footnote.

Interest on loans and debentures: Interest on loans and debentures has to be stated separately. It will include the amount of interest paid as well as outstanding. Miscellaneous expenses: In this head items such as rates and taxes, insurance premium etc., must be stated separately. Preliminary expenses: Such expenses include the costs of formation of a company and since their amount is usually large, it is not desirable to write off them in one year. Provision for taxation: The profit and loss account of a company must be debited with the estimated liabilities for tax on the current profits at current rates of taxation. Unclaimed dividends: It is shown on the liabilities side of the balance sheet under the heading current liabilities . Interim dividends: It is an item of appropriation. It is transferred to the debit side of the Profit and loss appropriation account. Final div idend as an ite m of t he trial b alance : This is sho wn in the debit side of the appropriation section of the profit and loss account. Proposed dividend or final dividend proposed: Since i t i s a n adjustment item, it has to be shown at two places- In the debit side of the profit and loss appropriation account and on the liabilities side of the balance sheet under the head current liabilities and provisions Political donations: It must be shown as a separate item in the profit and loss account.

Dividend on interest income: This item is transferred to the credit side of the profit and loss account. Payment to auditors: It must be stated separately. This will include consultancy fee, auditing fees management services etc. Managerial remuneration:T h i s i n c l u d e s t h e p a y m e n t s m a d e t o managerial remuneration directors fee, pension, other allowances and commission.

STUDY OF BALANCE SHEET

The balance sheet is a financial snapshot of a company's condition at a single point in time. A balance sheet contains a listing of theco mpany' s asset, liability and Capital acco unts. W hen so m eone, whether a creditor or investor, asks you how your company is doing, you'll want to have the answer ready and documented. The way to show off the success of your company is a balance sheet. A balance sheet is a documented report of your company's assets and obligations, as wellas the residual owne rship claims against your equity at any given point in time. It is a cumulative record that reflects the result of all recorded accounting transactions since your enterprise was formed. You need a balance sheet to specifically kn o w w h a t y o u r company's net worth is on any given date. With a properly prepared balance sheet, you can look at a balance sheet at the end of each accounting period and know if your business has more or less value, if your debts are higher or lower, and if your working capital is higher or lower. By analyzing your balance sheet investo rs, credito rs and o thers can assess yo ur ability to mee t short -term obligations and solvency, as well as your ability to pay all current and long-term debts as they come due. The balance sheet also shows the composition of assets and liabilities, the relative proportions of debt and equity financing and the amount of earnings that you have had to retain. Collectively, external parties to help assess your companys financial status, which is required by both lending institutions and investors before they allot any money towards your business, will use this information.

ANALYSIS OF FINANCIAL STATEMENT

OF

ICICI BANK LTD

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

PURPOSE The main purpose of analyzing the financial statement are the following :1) To assess past performance and current financial position. 2) To make predictions about the future performance of a company.

TOOLS FOR ANALYSING 1. PERCENTAGE CALCULATION There are two popular methods by which we can analyze the financial statement by calculating percentage as taking a common base. Horizontal Analysis When an analyst compares financial information for two or more years for a single company, the process is referred to as horizontal analysis, since the analyst is reading across the page to compare any single line item, such as sales revenues. In addition to comparing dollar amounts, the analyst computes percentage changes from year to year for all financials t a t e m e n t b a l a n c e s , s u c h a s c a s h a n d i n v e n t o r y . A l t e r n a t i v e l y , i n comparing financial statements for a number of years, the analyst may prefer to use a variation of horizontal analysiscalledTrendanalysis.T rend analysis invo lves calculatin g each year' s financial statement balances as percentages of the first year, also known as the base year. When expressed as percentages, the base year figures are always 100 percent, and percentage changes from the base year can be determined. If we want to calculate % change in sales then we apply the following formula: Percentage = change in sales /Base Year Sales*100

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

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

RATIO ANALYSIS Financial ratio analysis uses formulas to gain insight into the company and its operations. For the balance sheet, using financial ratios c a n s h o w y o u a b e t t e r i d e a o f t h e c o m p a n y s financial condition along with its operational efficiency. It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement. Ratio analysis facilitates interfirm and intra-firm comparison. Ratios are often classified using the following terms :

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

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

QUICK RATIO: It is also known as the acid test ratio; this is a refinement of the current ratio and is a more conservative measure of liquidity. The quick ratio expresses the degree to which a companys current liabilities are recovered by the most liquid current assets. quick ratio is calculated as follows: Quick ratio= (cash + marketable securities +Receivables)/current liabilities

SOLVENCY RATIO: Solvency ratios indicate the ability of the company to meet its long-term obligations on a continuing basis and thus to survive over a long period of time Debt/Worth Ratio: This ratio expresses the relationship between capital contributed by creditors and that contributed by owners. It expresses the degree of protection provided by the owners for the creditors.The higher the ratio, the greater the risk being assumed by cr editors. The lower the ratio, the greater the lo ng term financial safety. A firm with a lo w debt/worth ratio usually has

a greater flexibility to borrow in the future. Amore highly leveraged company has a more limited debt capacity. Debt/worth ratio=Total Liabilities / Tangible Net Worth

PROFITABILITY RATIO: Profitability ratios are gauges of the company's operating success for a given period of time. Return on assets: Return on assets is a measure of how effectively the firms assets are being used to generate pro fit. It is calculated as follows: Return On Assets= Net Income/Total Assets Return on equity: Return on equity is the bottom line measure for the shareho lders, measuring fo r the pro fits earned fo r each rupee invested in business. It is calculated as follows: Return on Equity= Net income/shareholders equity FIXED/WORTH RATIO: This ratio measures the extent to which owners equity (capital) has been invested in plant and equipment (fixed assets). A lower ratio indicates a proportionately smaller investment in fixed assets in relatio n to net worth and a better cushio n fo r credito rs in case o f liquidation. Similarly, a higher ratio would indicate the opposite situation. The presence of substantial leased fixed assets (no t sho wn o n the balance-sheet ) may deceptively lower this ratio. Fixed Worth Ratio=Net Fixed Assets/ Tangible Net Worth

INTRODUCTION Business capital is broadly divided into two groups: fixed capital and working capital. Fixed capital refers to the funds investment in such fixed or permanent asset as land, building machinery etc. while working capital refers to funds loc ked up in materials, work-in-progress, finished goods, receivable and cash etc..since these asset are known as current assets in very simple term working capital may be defined as capital invested in current assets working capital management is concerned with the problems that arises in attempting to manage the current assets, current liabilities and the interrelationship that exists between them. The term current assets refers to those assets which in the ordinary coerce of business can be turned in to cash with in one year without distrusting the firms operations and consist of cash. Inventory receivables and marketable securities. The term current liability are those which are intended at their inception to paid in the ordinary course of business, within a year out of CA or earning of the firm and consists of account payables, bank OD & out standing expenses.

The working capital management is thus concerned with maintaining a trade off between profitability and risk associated within a firms level of CA & CL. The basic goal of working capital is to manage the firms CA & CL so as to achieve a satisfaction level of working capital it is. Necessary because if the firm is not able to maintain these level it is likely to because in solvent and may even be forced into bankruptcy.

CONCEPT OF WORKING CAPITAL There are two concept of working capital. Gross working capital Networking capital 1) Gross working capital: Gross working capital simply called as working capital, refers to the firms investment in current Assets. Current Assets which can be converted into cash within an accounting year and include cash short-term security, debtors, bills receivables and stock investment.

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

TYPES OF WORKING CAPITAL Basically two types of working capital are needed in business: Permanent working capital, which is permanently blocked in business and variable working capital, which varies the requirement of business.

working capital

permanent

variable

initial w.c

regular w.c

seasonal w.c

special w.c

1) PERMANENT WORKING CAPITAL: It is the type of W.C. which is permanently locked up in current assets some cash is required to maintain stocks of raw materials & Finished good at their normal level & also far paying wages & salaries regularly. Permanent Working capital is of kinds.

(a) Initial Working capital: In the initial period of its operation a company must have enough money to pay certain expenses before the business yields a cash receipt. In the initial year, bank may not grant loans or overdrafts, sales may have to be made on credit & it may be necessary to make payment to the creditors immediately. Hence the turns will have to be supplied by owners themselves in the initial year. (b) Regular working capital: It is the W.C. required to continue the regular. It is required to maintain regular stocks of raw materials & W.I.P. & also of the finished gods, which must be maintained permanently at a definite level. Regular working capital is the excess of current assets over current liabilities. It ensures a smooth operations of the business. 2) VARIABLE WORKING CAPITAL: It is that part of W.C., which is required to meet the seasonal, needs as well as special needs of the business. It is therefore, subdivided into two part: -

(a) Seasonal Working capital: Some business enterprise requires additional W.C. during a particular season. For example, the Sugar Mills have to purchase sugarcane in a particular requirement by providing additional for a temporary.

(b) Special Working Capital: In all enterprise, some an foreseen events do occur when extra funds are needed to tied over such situation some of these events are: Sudden increase in demand for the final product (when a war breaks out, for example) downward movement of prices and sales during depression necessitating extra working funds considerable rise in prices of raw material so more funds will be needed to maintain their stock at the normal level and strikes or natural calamities which also force the management to provide for additional funds.

DETERMINANTS OF WORKING CAPITAL There are number of factor which determine the amount of working capital requirement in business. 1. NATURE & VOLUME OF BUSINESS:There natural of business is an important factor in deciding the amount of working capital for example the amount of working capital is generally more in trading concerns & in service units as compared to the manufacturing units. The retail trading units have also to invest large funds in working capital. In some manufacturing anis also the working capital holds a significant place. On the other hand, public utilities require less working capital. Other manufacturing units need mare working capital as compared to public utilities. 2. LENGTH OF MANUFACTURING CYCLE:The longer the period a manufacturing cycle takes the larger is the amount of working capital required, because the fund get locked op in production process for a longer period of time. It is in view of this that when alternative method of production are available, the method with the shortest manufacturing cycle should be choice is made care is taken to see

that the manufacturing cycle is taken to see that the manufacturing cycle is completed within a specified period Any delay in production to increase the requirement of working capital. 3. BUSINESS FLUCTUATIONS:Business fluctuations are of two types: seasonal fluctuation which arise out of seasonal change in demand for the product and cyclical fluctuations which occur due to ups and down of economic activities in the country as a whole. If demand for the product is seasonal production will have to be increased during the season & it will have to be reduced during the offseason corresponclingly, there will be fluctuations in the requirement of working capital. The cyclical fluctuations are made up of period of prosperity and depression. The sales & prices increase during prosperity necessitating more working capital in the form of inventories and book- debts. 4. PRODUCTION POLICY:If the policy of constant production is adopted. There are two possible effects. Policy help in reducing working capital requirement to the lowest level. But it demand for the product is seasonal, this policy raises the level

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

5. CREDIT POLICY:In the present-day circumstances almost all units have to sell good on credit. The nature of credit policy is an important consideration in deciding the amount of working capital requirement the larger the volume of credit sales. The collection of payment takes, the greater will be the requirement of working capital.

6. AVAILABILITY OF CREDIT:The amount of credit that a firm can obtain as also the length of the credit period significantly attests the working capital requirement. The greater the prospects of getting credit the smaller will be its requirement of working capital because it can purchase it can easily purchase raw materials and other requirement on credit.

7. GROWTH AND EXPASION:The working capital requirement increase as companies sales increase it is difficult to precisely determine the relationship between volume of sales and working capital requirement A growing firm may need to invest funds in FA in order to sustain its growing production and sales. Other thing being more working capital then others Advance planning of working capital for growing concern.

8. PROFIT AND ITS DISTRIBUTION:The level of profit also determines the level working capital requirement. The availability of internal funds for working capital requirement is determined not merely by profit margin but also on the manner of appropriations for taxation. Dividends, reserves & depreciation. 9. PRICE LEVEL CHANES:The increasing shift in the make function manager more difficult. He should anticipate the effect of price level changes on working capital of the firm. Generally rising price level will require a firm to maintain higher amount of working capital. However companies, which can immediately

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

10.

PRICE LEVEL CHANGES:-

The operating efficiency of the firm relates to the optimum utilization of resources at the rate of minimum cost. The firm will be effectively contributing to its working capital. If it is efficiency in controlling operating cost. Better utilization of resources improves profitability and thus help in releasing the pressure on working capital.

NEED FOR WORKING CAPITAL The need for working capital to run the day today business activities can not day over emphasized. In its endeavourer to maximize the shareholder wealth a firm should earn sufficient return from its operation. Earning a steady amount of profit require a steady amount of profit require successful sales activity. The firm has to invest enough funds in current assent for the success of sales activity. Current asset are needed because sales do not convert into cash spontaneously. There is always an operating cycle involved in the conversion of sales into cash. OPRATING CYCLE: Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories into cash. The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivable. It may be divided into 4 stages. 1. Raw material and stares storage stage. 2. Work in process stage. 3. Finished good inventory stage. 4. Debtors collection stage.

These stages after cash hows which most of the time are neither synchronized (because cash outflows usually occurs before cash inflows.) nor certain (because and collection which generates cash inflows are not forested accurately.) The firm is therefore required to invest in current asset for a smooth and uninterrupted pay expenses. Cash is also held to meet any future exigencies. Stocks of raw material and work in process are kept to ensure smooth production. Stocks of finished goods to meet the demand of customers on continuous basis and some times sudden demand. Book debt i.e. ALC receivables are created because good are sold for credit for marketing and competitive reasons. functioning and to material and

SOURCES OF WORKING CAPITAL

1. SHARES AND DEBENTURES:The funds for working capital can be obtained through the issue of shares to meet the initial requirement or to expand business or to make up the sudden and unexpected decline in working capital. The fund for w.c. can also be obtained through the issue of debentures. The retain profit can also be used as working capital. 2. RETAINED PROFIT:A part of the sales revenue is used up to meet cost of production. Only the net sales process in available for this purpose of profit & loss account. Working capital can be obtained also by providing for deprecation. Because to the extent, depreciation is provided, profit is retained with the company and it can be used as working capital. 3. COMMERCIAL BANKS:Commercial Banks are an important sources of working capital for the business. They provide current finance and short-term fund to the

business enterprise. Majority of the Indian enterprises rely on commercial bank to meet their capital needs.

1) TRADE CREDITORS:Trade creditors provide working capital to the industries indirectly. The suppliers provide raw materials or equipment immediately in cash. They make payments after a definite period of time, which may be one month or two month or more. So that extent the pressure of w.c. requirement is lessened, Thus to the extent trade credit is available, the requirements of w.c. in industrial unit are reduced. The relation between two parties plays on important role because the period of credit on this relationship. 2)PUBLIC DEPOSITS:Public deposits are an important sources of w.c. for the business. Under this system, people deposit their saving with the business unit for a duration of six months to maximum of three years. The rate of interest to paid on these deposits various from 10 to 15 percent per year. This system was popular in the textile industry of Mumbai and Ahmedabad as also in the tea plantation of Assam & Bengal in the 19th century. In the last

two year however, this system has spread to almost all industries in India and most of the companies rely on public deposits to meet the long term and short term capital requirement and easy methods of lower than that one-bank loans.

3)INDIGENOUS BANKERS:Indigenous Bankers provide very short-term finance to the business units. Most of their loans are for the period of a week or a month. If they have enough resources they may provide cash credit for a period of one year also. Personal relationship between the money tenders and barrowers play a decisive role in this system of financing.

Profit loss account Mar ' 11 Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Preference dividend Dividend tax 2,816.93 305.79 4,909.00 8,031.72 7,380.82 7.26 7,388.08 16,957.15 562.44 -10,131.51 1,609.33 5,110.21 41.17 -2.17 5,149.21 8,613.59 1,612.58 202.28 1,925.79 236.28 7,440.42 9,602.49 5,552.30 305.36 5,857.66 17,592.57 619.50 -12,354.42 1,600.78 3,890.47 134.52 4,024.98 6,834.63 1,337.95 164.04 1,971.70 669.21 7,475.63 10,116.54 5,407.91 330.64 5,738.55 22,725.93 678.60 -17,665.98 1,830.51 3,740.62 17.51 -0.58 3,757.55 6,193.87 1,224.58 151.21 2,078.90 1,750.60 6,447.32 10,276.82 5,706.85 65.58 5,772.43 23,484.24 578.35 5,194.08 1,611.73 4,092.12 65.61 4,157.73 5,156.00 1,227.70 149.67 1,616.75 1,741.63 4,946.69 8,305.07 3,793.56 309.17 4,102.73 16,358.50 544.78 3,557.95 984.25 2,995.00 115.22 3,110.22 3,403.66 901.17 153.10 32,369.69 32,747.36 38,250.39 39,467.92 28,457.13 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Mar ' 11 Retained earnings 6,798.73

Mar ' 10 5,332.63

Mar ' 09 4,818.07

Mar ' 08 3,778.63

Mar ' 07 2,349.39

Balance Sheet of ICICI Bank

------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities 1,151.82 1,151.82 0.29 0.00 53,938.82 0.00 55,090.93 225,602.11 109,554.28 335,156.39 15,986.35 406,233.67 Mar '11 12 mths Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value (Rs) 20,906.97 13,183.11 216,365.90 134,685.96 9,107.47 4,363.21 4,744.26 0.00 16,347.47 406,233.67

12 mths 1,114.89 1,114.89 0.00 0.00 50,503.48 0.00 51,618.37 202,016.60 94,263.57 296,280.17 15,501.18 363,399.72 Mar '10 12 mths 27,514.29 11,359.40 181,205.60 120,892.80 7,114.12 3,901.43 3,212.69 0.00 19,214.93 363,399.71

12 mths 1,463.29 1,113.29 0.00 350.00 48,419.73 0.00 49,883.02 218,347.82 67,323.69 285,671.51 43,746.43 379,300.96 Mar '09 12 mths 17,536.33 12,430.23 218,310.85 103,058.31 7,443.71 3,642.09 3,801.62 0.00 24,163.62 379,300.96

12 mths 1,462.68 1,112.68 0.00 350.00 45,357.53 0.00 46,820.21 244,431.05 65,648.43 310,079.48 42,895.39 399,795.08 Mar '08 12 mths 29,377.53 8,663.60 225,616.08 111,454.34 7,036.00 2,927.11 4,108.89 0.00 20,574.63 399,795.07

12 mths 1,249.34 899.34 0.00 350.00 23,413.92 0.00 24,663.26 230,510.19 51,256.03 281,766.22 38,228.64 344,658.12 Mar '07 12 mths 18,706.88 18,414.45 195,865.60 91,257.84 6,298.56 2,375.14 3,923.42 189.66 16,300.26 344,658.11

883,774.77 694,948.84 803,991.92 371,737.36 177,054.18 47,864.06 38,597.36 36,678.71 29,377.55 22,717.23 478.31 463.01 444.94 417.64 270.37

Annual results in brief

Mar ' 11 Sales Operating profit Interest Gross profit EPS (Rs) 25,974.05 17,069.96 16,957.15 9,047.55 44.72 Mar ' 10 25,706.93 15,460.24 17,592.57 9,732.18 36.10 Mar ' 11 Other income Stock adjustment Raw material Power and fuel Employee expenses Excise Admin and selling expenses Research and development expenses Expenses capitalised Other expenses Provisions made Depreciation Taxation Net profit / loss Extra ordinary item Prior year adjustments Equity capital Equity dividend rate Agg. of non-prom. shares (Lacs) 6,647.90 2,816.94 3,800.31 2,286.84 1,609.33 5,151.38 1,151.82 11517.72 Mar ' 09 31,092.55 20,239.18 22,725.93 8,925.23 33.76 Mar ' 10 7,477.65 1,925.79 3,934.04 4,386.86 1,320.34 4,024.98 1,114.89 11148.45 Mar ' 08 30,788.34 19,729.57 23,484.24 7,960.69 37.37 Mar ' 09 7,603.72 1,971.70 5,073.41 3,808.26 1,358.84 3,758.13 1,113.29 11132.51 Mar ' 07 22,994.29 14,077.37 16,358.50 5,874.40 34.58 Mar ' 08 8,810.77 2,078.90 6,075.28 2,904.59 898.37 4,157.73 1,112.68 11126.87 Mar ' 07 5,929.17 1,616.75 5,073.81 2,226.36 537.82 3,110.22 899.34 8992.67

Annual results in details

Mar ' 11 Agg. of non promote Holding (%) OPM (%) GPM (%) NPM (%) 100.00 65.72 27.73 15.79

Mar ' 10 100.00 60.14 29.33 12.13

Mar ' 09 100.00 65.09 23.06 9.71

Mar ' 08 100.00 64.08 20.10 10.50

Mar ' 07 100.00 61.22 20.31 10.75

Cash flow
Mar ' 11 Profit before tax 6,760.70 Mar ' 10 5,345.32 Mar ' 09 5,116.97 Mar ' 08 5,056.10 Mar ' 07 3,648.04

Net cash flowoperating activity -6,908.92 1,869.21 Net cash used investing activity in -2,108.82 6,150.73 1,382.62

14,188.49 11,631.15 23,061.95 3,857.88 1,625.36 -8,074.57 17,561.11 18,362.67 29,964.82 15,414.58 683.55 20,081.10

Net cash used in fin. activity 4,283.20

Net inc/dec in cash and equivlnt -4,783.61 8,907.13

Cash and equivalnt begin of year 38,873.69 29,966.56 38,041.13 37,357.58 17,040.22 Cash and equivalnt end of year 34,090.08 38,873.69 29,966.56 38,041.13 37,121.32

RATIO RELATED TO WORKING CAPITAL

Current ratio Liquid ratio Current asset to fixed asset ratio Net working capital ratio Ave collection period Current asset turnover ratio Net current asset turnover ratio

 Current ratio
particular Current assets Current liability 2010-11 1637975035 1091581121 2009-10 2040733210 1097712024 2008-09 1220975919 832482514

Current ratio =

Current assets Current liability

2010-11

2009-10

2008-09

1637975035 1091581121

2040733210 1097712024

1220975919 832482514

=1.50:1

1.86:1

1.47:1

CURRENT RATIO
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1.86 1.5 1.47
RATIO

RATIO

YEAR

This ratio indicates that the current ratio decreases because the current assets exceeds than current liability.

 Liquid ratio
Particular Liquid asset Liquid liability 2010-11 777064680 956108452 2009-10 919781305 960146202 2008-09 931166865 832482514

Liquid ratio =

liquid assets Liquid liability

2010-11

2009-10

2008-09

777064680 956108452

919781305 960146202

931166865 832482514

0.81: 1

0.95: 1

1.12: 1

LIQUID RATIO
1.2 1 0.8 0.6 0.4 0.2 0 1.12 0.95 0.81
RATIO

RATIO

YEAR

Current assets to fixed asset ratio

Particular current asset Fixed assets

2010-11 1637975035 616567088

2009-10 2040733210 608338839

2008-09 1220975919 690642060

Ratio of w. c. = current asset Fixed asset

2010-11

2009-10

2008-09

1637975035 616567088

2040733210 608338839

1220975919 690642060

= 2.66

=3.35

=1.77

CURRENT ASSETS TO FIXED ASSETS RATIO

4 3.5 3 2.5 2 1.5 1 0.5 0

3.35 2.66 1.77

RATIO

RATIO

YEAR

Net working capital ratio

particular Net w.c Net Asset

2010-11 546393914 564070078

2009-10 943021186 555841829

2008-09 832482514 640645050

Net Working capital ratio = Net working Capital Net Assets 2010-11 546393914 564070078 = 0.97:1
NETWORKING CAPITAL RATIO
1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1.69 1.29 0.97
RATIO

2009-10 943021186 555841829 =1.69:1

2008-09 832482514 640645050 =1.29:1

RATIO

YEAR

Debtors Turnover ratio Particular Sales Debtor 2010-11 7681799111 1832696385 2009-10 5974268884 140251114 2008-09 5468894893 119492970

Debtors Turnover Ratio = Sales Debtors

2010-11

2009-10

2008-09

7681799111 1832696385

5974268884 140251114

5468894893 119492970

= 4.19:1

= 4.26:1
DEBTOR TURNOVER RATIO
4.7 4.6 4.5 4.4 4.3 4.2 4.1 4 3.9

= 4.58:1

4.58

RATIO

4.19

4.26

RATIO

YEAR

Ave Collection Period

Ave Collection period = 365 Day Debtor Turnover

Particular Ave collection Period =365 4.19 =87 Day

2010-11 =365 4.26 =86Day

2009-10 =365 4.58 =80 Day

2008-09

AVERAGE COLLECTION PERIOD

88 86 84 82 80 78 76 87

86

DAY

80

RATIO

YEAR

Current asset turnover ratio

PARTICULAR SALES CRRENT ASSET

2010-11 7681799111 1637975035

2009-10 5974268884 2040733210

2008-09 5468894893 1220975919

Current asset turnover ratio =

sales Current assets

2010-11

2009-10

2008-09

7681799111 163795035

597426884 2040733210

5468894893 1220975919

= 4.69 times

= 2.92 times

= 4.47 times

CURRENT ASSETS TURNOVER RATIO

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 4.69 2.92
RATIO

4.47

RATIO

YEAR

Net current asset turnover ratio

PARTICULAR 2010-11 SALES NET C.A. 768179911 546393914

2009-10 597426884 735147353

2008-09 5468894893 438490415

Net current asset turnover ratio

sales Net current asset

2010-11

2009-10

2008-09

768179911 546393914

597426884 735147353

5468894893 438490415

= 14.06

= 8.12

=12.47

NET CURRENT ASSETS TURNOVER RATIO RATIO

16 14 12 10 8 6 4 2 0 14.06 8.12
RATIO

12.47

RATIO

YEAR

CONCLUSION

AND

SUGGESTIONS

CONCLUSION

The balance-sheet along with the income statement is an important tool for investors and many other parties who are interested in it to gain insight into a company and its operation. The balance sheet is a snapshot at a single point of time of the companys accounts- covering its assets, liabilities and shareholders equity. The purpose of the balances h e e t i s t o g i v e u s e r s a n i d e a o f t h e companys financial position along with displaying what the company owns and o wes. It is imp o rta nt that all investors kno w h ow to u se, an alyze and read balance-sheet. P & L account tells the net profit and net loss of a company and its appropriation. In the case of ICICI Bank, during fiscal 2008, the bank continued to grow and diversify its assets base and revenue streams. Bank maintained its leadership in all main areas such as retail credit, wholesale business, international operation, insurance, mutual fund, rural banking etc. Continuous increase in the number of branches, ATM and electronic channels shows the growth take place in bank. Trend analysis of profit & loss account and balance sheet shows the % change in items of p & l a/c and balance sheet i.e. % change in 2006 from 2005 and %change in 2007 from 2006. It shows that all items are i ncreased mostly but increase in this year is less than as compared to increase in previous year. In p& l a/c, all items like interest income, non-interest income, interest expenses, operating expenses, operating profit, profit before tax and after tax is increased but in mostly cases it is less than from previous year but in some items like interest income, interest expenses, provision % increase is more. Some items like tax, depreciation, lease income is decreased. Similarly in balance sheet all items like advances, cash, liabilities, deposits is increased except borrowings which is decreased. % increase in some item is more than previous year and in some items it is less. Ratio analysis of financial statement shows that banks current ratio is better than the quick ratio and fixed/worth ratio. It means bank has invested more in current assets than the fixed assets and liquid assets. Bank

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

SUGGESTIONS

Some of the recommendation and suggestion are as follows:

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

2) To increase th e p rof it of b ank , b ank sh ould decrease th eir o p erating expenses and increase their income.

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

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

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

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

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

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

9) Bank should increase its retail portfolio.

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

11) Bank shou ld p ay attention on its su bsidiary ICICI Pru d en tial Life Insurance Company Limited.

BIBLIOGRAPHY

I have referred following books and used following websites for the preparation of this project report on working capital management of ICICI Bank Ltd.

1) FINANCIAL MANAGEMENT 2) www.google.com 3) www.icici.co.in