PROJECT REPORT ON WORKING CAPITAL MANAGEMENT OF STATE BANK OF HYDERABAD.

SUBMITTED IN PARTIAL FULFILLMENT FOR THE DEGREE IN MASTER OF BUSINESS ADMINISTRATION BY M. SAI PRASAD M.B.A (FINANCE) REG NO: 130598076 R

AFFILIATED TO (SRI VENKATESWARA UNIVERSITY) TIRUPATHI-A.P. 2004 - 2006

DECLARATION

I hereby declare that this project work titled Working Capital Management In State Bank Of Hyderabad has been completed by me under the guidance of Dr. G.L. NARAYANAPPA M.Com., Ph.D., I further declare that this project is my original work submitted to Sri Venkateswara University for the partial fulfillment of the M.B.A degree course. Date:

(M. SAI PRASAD)

Date: 25-07-2005

CERTIFICATE

This is to certify that Shri M.SAI PRASAD a student of M.B.A (Finance) in KANDULA SCHOOL OF MANAGEMENT as completed his project work on WORKING CAPITAL MANAGEMENT in STATE BANK OF HYDERABAD under my guidance from May to July 2005. We wish him a success in his endeavors.

CERTIFICATE

This is to certify that Mr.SAI PRASAD is bonafied student of KANDULA SCHOOL OF MANAGEMENT has successfully completed his project report, which is in partial fulfillment for the award of MASTER OF BUSINESS ADMINISTRATION course for the academic year 2004-2006. This project is genuine and hereby approved by me. I wish him all the success in his future endeavors.

PRINCIPAL

ACKNOWLEDGEMENT

It gives me immense pleasure to express my gratitude towards Mr.Ramtek, dynamic manager, M.B.A (Finance) for having given me the opportunity to work in State Bank Of Hyderabad. I would also like to express my thanks to all the staff of State Bank Of Hyderabad for their co-operation. My special thanks to Mr.G.L.NARAYANAPPA, project guide, of KANDULA SCHOOL OF MANAGEMENT who helped me during the preparation of this project report.

Date:

M.SAI PRASAD

CONTENTS
PARTICULARS SBH PROFILE BANKING AN INTRODUCTION OBJECTIVES OF THE STUDY SCOPE OF THE STUDY INTRODUCTION TO WORKING CAPITAL COMPONENTS OF WORKING CAPITAL ANALASYS AND INTERPRETATION LIMITATION OF THE STUDY CONCLUSSION & SUGGESTIONS BIBLIOGRAPHY PAGE NUMBERS 07-18 19-20 21-22 23-24 25-29 30-36 37-48 49-50 51-52 53-54

SBH PROFILE

SBH PROFILE
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Our Mission
"To achieve pre-eminence in banking and financial sectors with commitment to excellence in customer satisfaction, profit maximization and continued emphasis on developmental banking through a skilled and committed work force by providing training facilities and technological up gradation"

Overview
State Bank of Hyderabad was constituted as Hyderabad State Bank on 8.8.1941 under Hyderabad State Bank Act, 1941. The Bank started with the unique distinction of being the central bank of the erstwhile State of Hyderabad, covering present-day Telangana region of Andhra Pradesh, Hyderabad-Karnataka of Karnataka and Marathwada of Maharashtra, to manage its currency - Osmania Sikka and public debt apart from the functions of commercial banking. The first branch of the Bank was opened at Gunfoundry, Hyderabad on 5th April 1942. In 1953, the Bank took over the assets and liabilities of the Hyderabad Mercantile Bank Ltd. In the same year, the Bank started conducting Government and Treasury business as agent of Reserve Bank of India. In 1956, the Bank was taken over by Reserve Bank of India as its first subsidiary and its name was changed from Hyderabad State Bank to State Bank of Hyderabad. The Bank became a subsidiary of the State Bank of India on the 1st October 1959 and is now the largest Associate Bank of State Bank of India.

Organization
Board of Directors, Chairmen, manages the bank; SBI is the ex-officio chairman of board of other directors comprises experts in various fields, e.g. agriculture, business industry, management etc. and the representatives of workmen/officers association beside nominees of government of India, RBI and SBI. The chief elective officer, managing director is appointed by the SBI in consultation with the Banks Board and with the approval of RBI. The management team consists of the managing director, chief general manager and five general managers. There are separate senior functionaries to look after various functional and development activities.

Network
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As on 31st March 2003, The Banks network comprise of 878 branches of which, 531 branches are in A.P., 166 in Maharashtra and, 113 in Karnataka. The remaining branches are spread over 11 states and 2 union territories. With 107 extension counters operating under these branches there are total 985 business outlets. Bank has 24 agriculture development branches and 23 other specialized branches, NRI branch and capital market service branch to cater to the needs of different customer segments.

Traditional area
The bank traditional area comprised telengana in A.P., Karnataka region in Karnataka and Marathwada region in Maharashtra with 616 of the 878 branches located in the traditional area, the bank has being playing a significant role in the development of these regions through financing of trade and commerce, industry and agriculture and making investments in developmental projects of these states. As at the end of March 2003 the outstanding advances in the traditional area stood at Rupees 4174.55 corers. Another Rs.501.08 corers was deployed as investment.

Role in Andhra Pradesh

Banks coverage in Andhra Pradesh is extensive and accounts for 61 percent of the network and 58 percent of the total business as at March 31st 2003. A Bank holds lead responsibilities in 6 districts of Telengana besides Hyderabad Metropolitan under the lead bank scheme of RBI and plays a vital role along with other Banks, Financial institution and government department in the economic developments of these districts through preparation /implementation of the annual district credit plans. As at March 31st, 2003, the total advances in A.P. amounted to Rs.3338.25 corers. The investment in the state stood at Rs.32.55 corers.

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Trade and industry

With 55.59% of Banks lend able funds channeled into trade and industry comprising large, medium, small scale sectors, the advances portfolio of the bank comprised financing infrastructure (Rs.67 corers), power (Rs.157 crores), textiles (Rs.242 crores) Cement (Rs.14 corers), engineering goods (Rs.273 crores), Fertilizers (RS.94 crores), pharmaceutical industry (Rs.141 crores) besides other traditional industries like Rice milling, cotton ginning, food processing.

International banking
The bank has over the years developed expertise in conducting international trade and offers comprehensive facilities to exporters, importers, NRIs and others through its 66 authorized branches, a full-fledged foreign department at Chennai, 2 dealing rooms at Delhi and Mumbai and large network of correspondence through out the world.

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SOCIAL BANKING
PRIORITY BANKING
The bank is alive to its development role and actively participates in meeting need based requirements of SSI, Agriculture and small business etc. it has consistently met the benchmarks for priority sector advances stipulated from time to time. Banks priority sector advances stood at Rs.291.24 crores and constituted 43.66% if net credit. Benchmark-40%.

SMALL SCALE INDUSTRY

The bank attaches priority to this vital sector and encourage techno crafts and women entrepreneurs. Banks Technical cell assist to the small units of techno economic feasibility of their projects. As at the end of March 31st, 2003. The banks advances to small-scale industry stood at Rs.824.29 crores spread over 58772 units.

AGRICULTURE
The bank caters to the needs of farmers through its 554 rural and semi urban branches. 24 ADBs are totally dedicated to the agriculture advances. The bank has also encourages allied activities such as Dairy, poultry piggery, fishery, horticulture, etc. farm mechanization and agro based industries are also given due attention. The outstanding finance to agriculture segment stood at Rs.214.30 crores, 592700 beneficiaries. And constituted 18.19% of net bank credit benchmark-18%. The disbursements under agriculture segment during the year increased to Rs.654.91 crore. Reflecting an increase of 28.05% vis--vis RBIs expectation of 25%. Under kisan credit cards scheme, 94724 krishi credit cards with total credit limit of Rs.143.57 crores. Where issued to the farmers to purchase agriculture inputs and meets other productive needs.

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RURAL DEVELOPMENT
LEAD BANK
The hold leads responsibilities in 6 districts i.e. Adilabad, Karimnagar, Nalgonda, Nizamabad and Rangareddy districts. In Andhra Pradesh, besides Hyderabad Metropolitan and two districts in Karnataka, viz, Raichur and Koppam under the lead bank scheme of reserve bank of India. A detailed annual credit plan for each district is prepared and implemented with the help of other banks and financial institutions operating in the districts and Government Departments. Under the annual credit plan 2001-02, the bank achieved 86% of its share in the total outlay against all financial institutions achievement of 73%.

SELF HELP GROUPS

The concept of self-help groups is being actively pursued to inculcate financial disciplinary among the weaker sections of the society. Having linkage to 12248 SHGs with the total membership of Rs.1.81 lack, the bank has been instrumental in putting the state of Andhra Pradesh at Number one position in the country with regard to promotion of self help groups and for the year 2001-02, the bank was adjusted by NABARD, the best commercial bank in the state of Andhra Pradesh.

REGIONAL RURAL BANKS

The bank has sponsored four Regional Rural Banks in its lead districts viz, Sri Rama Grameena Bank, Sri satavahan Grameena Bank Nizamabad and Golconada Grameena Bank. Rangareddy .the four RRBs have a combined network of 169 branches and had mobilizd Rs.523.67 crore deposit and extended financial assistance of Rs.288.75 crore and earned a profit of Rs7.88 crore.

COMMUNITY SERVICE BANKING

During the year amount of Rs.40 lakhs was donated to the prime minister relief fund and Rs.20 lack to chief minister relief fund, besides the contribution of Rs.55 lacks from the employees of the bank to prime ministers relief fund for the welfare of the Gujarat earth quake victims. Other activities include financial assistance to health camps, education pollution control measures, and charities. Etc.

CUSTOMER NEEDS
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TECHNOLOGY
Customer occupies pivotal place at SBH. With a view to provide efficient service through translating technology. The bank has computerized 310 branches of which 117 are fully computerized branches and installed 13 ATMs. Customer terminals have been provided to 28 corporate customers and tele banking. Facility is made available at all important branches. The bank has introduced electronic funds, transfer scheme (EFTS) and electronic clearing services scheme (ECS), for debit/credit transaction were implemented at all the four metro centers. A VSAT has been installed for the banks communications with RBI as a member of INFINET. Internet banking facility has been introduced at 7 branches initially providing facility for enabling the customer to access his account information and communicate through e-mail at an time from any where in the world.

NEW PRODUCTS
Multi options deposit schemes (MODS), which combines the features of both current/saving account and term/special term deposits accounts and provides liquidity and high return was implemented 61 computerized master branches. An assets side, a new trade finance scheme styled as SBHs total package for financing traders (TPFT) and two new products namely, SBHDOCFIN and SBHPROFFIN For medical practitioners/qualified professionals were introduced during the year.

CITIZENS CHARTED
The bank presented the citizens charter to its customers the character contains two parts. Governing principle and information various service being offered b the bank and is a reiteration of its commitment to the society to provide timely and sufficient customer services.

FEEDBACK
For the convenience of the customers to ascertain information and large their complaints/grievances, the bank has setup a toll free telephone facility. (NO. 160033-4099) at the head office.

BANKS OPERATION
Deposits

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14 The bank aggregate deposits/rupees 14000 crore marks as at march 31st 2003. And stood at Rs.14161.33 crore achieving a growth of 18.52% higher than ASCB growth rate of 16.78%. Its market share include at 1.47% to 1.45% in March 2002.

Advances
The bank advances grow by 16.62% to Rs.7091.49 crore from Rs.6080.91 crore in March 2002.

Business Financial Indicators

The bank has uninterrupted profits since inception net profit during 2003 amounted Rs.150.22 crore. The bank capital fund stood at Rs.934.22 crore and capital adequacy ratio was at 12.28 earning per share and book value respectively stood at Rs.841 and Rs.4416 the bank declared a dividend of 35% for 2003. The business per employee improved by 31% and reached Rs.165 lacks. Endorsing the bank financial soundness, ICRA as given highest rating A+ for it certificate of deposit and MAAA for its fixed deposit.

OTHER OPERATIONS
1. Export finance 2. Industrial rehabilitation 3. Priority sector advances 4. Investments 5. Agricultural finance 6. Finance to small scale industries 7. Small business firms 8. Education and housing finance 9. Financial assistance to weaker sections 10. Social banking 11. Integrated rural development programme 12. Prime minister rozgar yojana 13. Credit to women beneficiary 14. Financial assistance to sc/st 15. Assistance to minority communities 16. Capital adequacy 17. Profit
18. Non performing assets

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PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2004
(Rs.in thousands)

Schedule I. Income Interest earned Other Income Total II. Expenditure Interest expended Operating Expenses Provisions and contingencies Total III. Profit/Loss Net profit for the year Profit brought forward Total IV. Appropriations Transfer to Statutory Reserves Transfer to Other reserves Transfer to/from Investment Fluctuation Reserve Proposed Dividend {*} Balance carried over to the balance sheet Total

Year ended 31 st March 2004 22,12,93,70 7,07,42,99 29,20,36,69 13,71,58,90 5,34,56,89 6,33,00,74 25,39,16,53 3,81,20,16 7 3,81,20,23 95,30,05 0 2,27,52,09 58,38,04 5 3,81,20,23

Year ended 31 st March 2003 20,67,26,73 4,61,58,30 25,28,85,03 13,19,50,67 4,51,39,66 4,56,55,10 22,27,45,43 3,01,39,60 7 3,01,39,67 90,41,89 51,51,70 1,40,00,00 19,46,01 7 3,01,39,67

13 14 15 16

{*} Dividend includes Corporate Dividend Tax

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BALANCE SHEET AS ON 31st MARCH 2004

(Rs. in thousands)
Schedule CAPITAL & LIABILITIES Capital Reserves & Surplus Deposits Borrowings Other Liabilities and Provisions Total ASSETS Cash and balances with Reserve Bank of India Balances with Banks and money at call and short notice Investments Advances Fixed Assets Other Assets Total Contingent Liabilities Bills for Collection Notes on accounts 1 2 3 4 5 Year ended Year ended 31 st March 2004 31 st March 2003 17,25,00 15,56,51,57 2,42,57,85,12 8,25,41,46 39,89,07,05 3,06,46,10,20 18,18,20,17 2,99,74,72 1,50,17,04,68 1,18,13,67,93 1,65,29,03 15,32,13,67 3,06,46,10,20 86,76,78,06 10,56,63,26 17,25,00 12,33,69,46 2,05,98,93,53 4,16,42,15 38,65,24,24 2,61,31,54,38 18,27,11,91 1,32,46,63 1,25,18,66,56 96,62,59,98 1,15,31,40 18,75,37,90 2,61,31,54,38 1,05,75,55,98 9,00,13,90

6 7 8 9 10 11 12 17

BOARD OF DIRECTORS
NAME DESIGNATION
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17 A.K.PURWAR A.G.KALMANKAR K.S.V.KRISHNAMACHARI P.KRISHNA MURTHY A.R.SAMAJHDAR M.N.RAO SANJAY TANDON UMA GHURKA S.RAJA KUTTY RMESH CHAND S.SURYANARAYANA K.N.THIGALE SUBBA RAO CHAIRMAN MANAGING DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR

MANAGEMENT COMMITTEE

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NAME
A.G.KLAMANKAR P.DINAKAR RAO J.S.SUBBA RAO M.RAMASWAM A.BHATTACHARA A.K.JAGANATHAN R.KRISHNA MURTHY

DESIGNATION
MANAGING DIRECTOR CHIEF GENERAL MANAGER GENERAL MANAGER (OP) GENERAL MANAGER (P&D) GENERAL MANAGER (TREA) GENERAL MANAGER (C&IB) GENERAL MANAGER (IN, CV)

BRACH EXPANSION POPULATION GROUP

No of branches Specialized branches Computerized branches Rural Semi-urban Urban Metropolitan

MARCH 2005
878 23 310 285 269 176 148

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TOTAL NO. OF BRANCHES IN DIFFERENT POPULATION GROUPS

POPULATION GROUP Metro Urban Semi-urban Rural 148 176 269 285

NO OF BRANCH ES

% OF TOTAL N/W 17 20 31 32

POPULATION GROWTH WISE % OF BRANCHES IN THE YEAR 2005

17% 32% 20% Metro Urban Semi-urban Rural 31%

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BANKING AN INTRODUCTION
BANK
A bank is a profit seeking business firm, dealing in, money and credit. It is a financial institution dealing in money in the sense that it accepts deposits of money from public to keep them in its custody for safety. So also, it deals in credit by making advances out of the funds received as deposits to needy people. It thus functions as a mobilized of savings in the economy. A bank is, therefore, like a reservoir into which flow the savings the idle surplus money of households, and from which loans are given on interest to others who need them for investment or productive uses.

DEFINITION OF BANK
A bank or banker or banking business is one which is engaged in trading in money depositing and lending and serving the society at large in achieving the goal of economic progress and social well being. A banking company in India has been identified in the banking companies act 1949 as one which transacts the business of banking which means the accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able b cheque, draft, order or otherwise.

Kinds of banks
Different types of banks have been instituted to cater to the varying needs of the community. Banks are classified into the following major forms Commercial banks Co-operative banks Specialized banks Central bank

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Commercial banks
A commercial may be defined may as a financial institution that accepts chequeable Deposits of money from the public and also uses the money with it for lending. The most the public, which are chequable i.e., withdraw able by means of cheques. Commercial banks usually give short-term loans and advances. They occupy a dominant place in the money market.

Co-operative banks
Co-operative banks are a group of financial institution organized under the provision of the co-operative societies act of the states. These banks are essentially co-operative credit society organized by the members to meet their short term and medium term financial requirements. The main object of co-operative banks is to provide cheap credit to their members.

Specialized banks
These are specialized forms of banks catering to some special needs with these unique natures of activities. Three are this Foreign exchange banks Industrial banks Land development banks Agriculture refinance and development corporate Export-import bank of India

Central banks
A central bank is the apex financial institution in banking and financial system of a country. It is regard as the highest monetary authority in the country. It acts as the lender of the money market. It surprises controls and regulates the activities of the commercial banks. Indias central bank is the reserve bank of India, established in 1935. RBI was started as a shareholders organization in 1935, which however, was nationalized after independence in 1947.

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OBJECTIVES

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OBJECTIVE FOR THE STUDY

The main objective of the study is to analyze the financial position of the company, which is helpful in decision-making. For the study I have collected the data from the financial statements namely, balance sheet and staff and profit & loss Account statement and other related sources. The period covered under the study is three financial years i.e., 2001-02 to 2003-04. For analyzing the data the following techniques are used: Analysis of working capital management Comparative Balance Sheet Trend percentage analysis.

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SCOPE OF STUDY

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SCOPE OF THE STUDY

The scope of study is limited with reference to the financial performance appraisal of State Bank Of Hyderabad is done based on the financial information mainly form report and accounts of the company of past few years i.e., 2003-05. The interpretation of the Working Capital Management can help in understanding some crucial implication of financial decision-making.

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INTRODUCTION TO WORKING CAPITAL MANAGEMENT

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INTRODUCTION
MEANING:
The working capital of any business is the capital required to fund its current assets. Current assets are defined as either cash or those assets that can be converted into cash with in the current fiscal year, including marketable securities, account receivables and inventories. The management and control of working capital is of vital importance to companies and firms and major load function of finance personnels besides all other factors. It is the capital, which is required to meet the day-to-day operations to the business. It is also a very essential feature and task of finance manager to maintain an appropriate level of working capital i.e., an appropriate level of current assets to meet the current liabilities. The inadequacy of working capital may lead the company into difficulties in meeting its regular day-to-day operations smoothly. Essential outlays may have to be postponed for want of funds. Operating plans will go out of hand and there by not able to accomplish the companies overall objectives. There is a danger of extinction of the external sources like suppliers and creditors because they may have to wait for longer period for collection of their payments and in case of default by the company the creditors may not extend further credit to the company. On the hand excess holding of capitals is an indication of the companys lack of boldness id expanding and diversifying the business. This redundant working capital is in turn due to the excessive, unchecked accumulation of inventories, too liberal credit policy and slack collection procedures. Thus it is a primary requirement of finance manager to manager the working capital efficiently for successful working of business concern.

CONCEPTS
There are two concepts of working capital.

GROSS WORKING CAPITAL

The term gross working capital, also reffered to as working capital, means the current assets, which can be converted into cash within an accounting year and include cash, shortterm securities, debtors, bill receivable and stock. The gross working capital concept focuses attention on two aspects of current assets management: A. Optimum investment in current assets. B. Financing current assets.

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NET WORKING CAPITAL

The net working refers to the difference between the currents and current liabilities. It is a qualitative concept. A. It indicates the liability position of the firm. B. It suggests the extent to which working capital needs may be financed by permanent sources of funds.

WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES

1. 2. 3. 4. An increase in currents assets increases working capital An increase in currents liabilities decreases working capital A decrease in currents assets decreases working capital A decrease in currents liabilities increases working capital

The change in the amount of any current assets or current liability in the current balance sheet as compared to that of previous balance sheet either result in increase or decrease in working capital. Therefore, the statement of changes in financial position based on changes in working capital position is a useful tool for highlighted the changes that have occurred in the financial operation between two balance sheet dates.

KINDS OF WORKING CAPITAL

The operating cycle is a continuous process and, therefore, the need for current assets is felt constantly. But the magnitude of current assets needed is not always the same, it increases and decreases over time.

PERMANENT WORKING CAPITAL

There is always a minimum level of current assets, which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent or fixed working capital. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital will fluctuate.

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TEMPORARY WORKING CAPITAL

The extra working capital, needed to support the changing production sales activities is called fluctuating, or temporary working capital. Both kinds of working capitals are necessary to facilitate production and sale through the operating cycle, but the firm to meet liquidity requirements that will last only temporarily working capital.

NEED
Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There are time gaps in purchase of raw materials and production, production and sales and realizations of cash.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

The working capital requirement of a concern depends on a large number of factors. These factors affect different enterprises differently. They also vary from time to time. The following are important factors generally influencing the working capital requirements. 1. Nature and size of industry. 2. Operating efficiency. 3. Accessibility with money market. 4. Business fluctuation. 5. Manufacturing cycle. 6. Production police. 7. Credit policy. 8. Credit terms available from suppliers 9. Growth and expansion proposals. 10. Profit margin. 11. Price level changes 12. Tax liability 13. Retention policy and dividend policy. 14. Depreciation policy.

Thus in working capital planning a financial executive should take into account the different influencing factors. To obtain an optimum level of working capital.

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Composition of working capital There are two aspect involved in working capital. Current assets and current liabilities. The composition of current assets and current liabilities are CURRENT ASSETS
Current assets, sometimes called liquid assets, are those resources of a firm which are either held in the form of cash or are expected to be a converted in cash within the accounting period or in the operating cycle of business. The accounting period is of one-year duration. Cash Stock of Inventory :It is the most liquid current asset. :It includes raw materials, working-in-progress, finished goods, and factory supplies, packing, shipment

. Marketable Securities :It includes the temporary, or short-term investment in shares, debentures, bonds, and other securities. Accounts Receivables :These are the amounts due from the debtors (customers). Bills Receivables Loans & Advances :It represents the promises made in writing by the debtors to pay definite amount of money after some specific period of time. :Dues from the employees or associates advance for current supplies. Prepaid, expenses and accrued incomes Bank balances etc.

CURRENT LIABILITIES
Current liabilities are debts payable with in a accounting period. Current assets are converted in to cash to pay current liabilities. Account Payable Bills Payable Provisions : It represents the current liability towards suppliers from whom the firm has purchased raw materials on credit. : The promises made by the firm in writing to make payment of a specified sum to creditors at specific date. : These includes provisions for taxation, dividends and other Borrowing, Expenses payable or outstanding expenses, Income received in Advance, Installments of long-term loans, Deposits from the public etc .

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COMPONENTS OF WORKING CAPITAL

1. 2. 3.

CASH MANAGEMENT INVENTORY MANAGEMENT CREDIT MANAGEMENT

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MANAGEMENT OF CASH

Cash is the item, which influences the solvency, liquidity and profitability of a company. Cash management is one of the key areas of working capital management. It is the important current asset for the operation of the business. The firm should keep sufficient cash, neither more nor less. If the company has got a greater proportion of cash in the current assets, the company is said to be highly liquid, as a company has got sufficient funds, its solvency position is considered to e good. On the other hand, a company holding more cash implies that it is loosing the opportunity cost of investing that cash in the profitable investment categories. The basic objectives of cash management are to reconcile two mutually contradictory and conflicting tasks: 1) To meet the payment schedule and 2) To minimize funds committed to cash balances. The factors that are concerned with the management of cash are as follows. 1) Cash flows into and out of the firm. 2) Cash flows within the firm and 3) Cash balances held by the firm at a point of time by financing deficit or investing surplus cash.

CASH MANAGEMENT CYCLE:

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Sales generate cash, which has to be disbursed. The surplus cash as to be invested while deficit as to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and control. Therefore the aim of cash management is to maintain adequate control over cash position to keep the form sufficiently liquid and to use excess cash in some profitable way. In order to resolve the uncertainty about cash flow prediction and lack of synchronization between cash receipts and payments, the firm should develop appropriate strategies of cash management.

CASH PLANNING:
Cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget should be prepared for this purpose.

MANAGING THE CASH FLOW:

The flow of cash should be properly managed. The inflows should be accelerated while, as for as possible devaluating the cash.

OPTIMUM CASH LEVEL:

The firm should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balance.

INVESTING SURPLUS CASH:

The surplus cash balances should be properly invested to earn profits. The firm should decide about the division of such cash balance between bank deposits, Marketable securities and inter corporate lending.

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MANAGEMENT OF INVENTORY
Inventory is the third major component of current assets. Inventories are stock of the product a company is manufacturing for sale and components that make up the product. every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. The various forms in which inventories exists in a manufacturing company are raw materials, work-in-progress and finished goods. RAW MATERIALS: Raw material inventories are those units, which have been purchased for converting into finished product through the manufacturing process. WORK-IN-PROGRESS: They are semi-manufactured products. There represent products that need more work before they become finished product for sale. It includes raw materials, subcontracting costs and various manufacturing costs. FINISHED GOODS: They are those inventories, which are completely manufactured products, ready for sale.

OBJECTIVES:

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35 The main objectives of Inventory Management are operational and financial. The operational objectives means that the materials and spares should be available in sufficient quantity so that work is not interrupted for want of Inventory. The financial objectives means that investments in Inventories should not remain idle and minimum working capital should be locked in it. The following are objectives of Inventory Management: 1. To ensure continuous supply of materials, spares and finished goods. 2. To avoid both overstocking and under stocking of inventory. 3. To maintain investments in inventories at the optimum level as required by the operational and sales activities. 4. To keep materials cost under control. 5. To eliminate duplication in ordering or replenishing stocks. 6. To design proper organization for inventory Management. 7. To minimize loses through deterioration, pilferage, wastages and damages. 8. To ensure right quality goods at reasonable prices. 9. To ensure perpetual inventory control so that materials shown in stock leaders should be actually lying in the stocks. 10. To facilitate furnishing of data for short term and long term planning and control of inventory.

INVENTORY MANAGEMENT TECHNIQUES:

In order to have a proper control over the management of the areas of problems that comprise the heart of inventory are to be identified. They are classified as follows:

SELECTIVE INVENTORY CONTROL (ABC ANALYSIS):

Under ABC analysis the materials are divided into there categories viz; A, B and C. It measures the significance of each item of inventories in terms of its value. The high value items are classified as A items and would be under the highest control. C items represent relatively least value and would be under the lightest control. B items fall in between these two categories.

ECONOMIC ORDER QUANTITY:

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A decision about how much to order has great significance in inventory management. The quantity to be purchased should neither be small nor big. Determining the optimum inventory level involves two types of costs; (a) Ordering cost and (b) carrying cost. The economic order quantity is that inventory level, which minimizes the total of ordering and carrying, cost. The EOQ technique is calculated by the following formula, EOQ Where A S I = (2AS/I)

= annual consumption in rupees = cost of placing an order = inventory carrying cost of one unit.

RE-ORDER POINT:
The basic problem of inventory is to decide the re-order point. This point indicates when an order should be placed. The reorder point is determined with the help of (a) average consumption rate, (b) duration of lead-time and (c) EOQ.

SAFETY STOCK:
Safety stock is a buffer to meet an unanticipated increase in usage resulting from a unusually high demand. The demand for material may fluctuate from day to day or from week to week. If the actual usage increases or the delivery of inventory is delayed, the firm can face a stock-out situation. The firm would therefore keep a sufficient safety margin by having additional inventory to guard against stock-out situations. Such stocks are called safety stocks.

CREDIT MANAGEMENT

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The term receivable is defined, as debt owed of the firm by arising from sale of goods or services in the ordinary course of business .The sales of goods on credit is an essential part of modern competitive economics system in fact, credit sales and, therefore, receivables are treated as marketing tools aid the sale of goods. Credit management deals with the formulation and implementation of credit and collection policy. The management of credit involves crucial decision in three areas. Credit terms Credit standards Collection policy The objective of receivable management is to between the benefits and costs associated with the extension of credit.

TERMS OF PAYMENT:
Terms of payment very widely in practice. At the end, if the seller has financial news if may extend liberal credit to the buyers till it converts goods bought into cash. At the other end, the buyer may pay cash in advance to the seller and finance the entire trade cycle. Most commonly, however, some in-between arrangement is chosen wherein the trade cycle is financed partly by the seller, party by the buyer and party by some financial intermediary. The major terms of payments are discussed below. Cash Terms: When goods are sold on cash terms, the payment is received either before the goods are shipped or when the goods are delivered. Open Account: Credit sales are generally on open account this means that the seller first ships the goods and then the invoice. The credit terms are stated in the invoice, which is acknowledged by buyer. There is no formal acknowledgement of the indebtedness by the buyer. Consignment: When goods are sent on consignment, they are merely shipped but not sold to the consignee. The consignee acts as the agent of the seller. The seller retains the title of the goods till the consignee to the party sells them. Periodically, the consignee to seller limits sales proceeds. Draft: Whether goods are sipped on open account or consignment, the seller does not have strong evidence of the buyers obligation. So, a more secure arrangement, usually in the format of draft represents an unconditional order issued by the seller asking the buyer to pay on demand or at a certain future date (time draft), the amount specified on it.

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ANALYSIS & INTERPRETATIONS

1. WORKING CAPITAL 2. COMPARATIVE BALANCE SHEET 3. TREND PERCENTAGES

ANALYSIS OF WORKING CAPITAL MANAGEMENT STATE BANK OF HYDERABAD

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PARTICULARS Current Assets Cash with RBI Cash with Bank Advances Other C.A

2001-2002

2002-2003

2003-2004

2004-2005

13,12,34,51 10,68,96,07 84,22,58,50 13,86,35,42

18,27,11,91 5,81,27,73 96,62,59,98 14,26,56,80

18,18,20,17 7,84,74,72 1,18,13,67,93 15,32,13,67

13,90,71,58 16,85,64,04 1,55,99,73,90 15,14,53,54

Gross Working Capital Current Liabilities Borrowing Other liabilities & provisions B N.W.C (A-B) Incre/Decre W.C

12,19,02,450

13,49,75,642

15,94,87,649

20,19,06,306

7,79,097 36,41,72,02 3,71,96,299 8,47,06,151

4,16,42,15 38,65,24,24 4,28,16,639 9,21,59,003 74,52,852

8,25,41,46 29,36,20,15 3,76,16,161 12,18,71,488 2,97,12,485

8,16,16,84 34,10,95,39 4,22,71,223 15,96,35,083 3,77,63,595

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ANALYSIS OF WORKING CAPITAL

2001-2002:
Gross Working Capital is Rs. 12,19,02,450/-. The major part that is constituted by advances. Current Liabilities and provisions are Rs.3, 71,96,299. The Net Working Capital is Rs. 8,47,06,151.

2002-2003
Gross Working Capital is Rs. 13,15,43,219. The major part that is constituted by advances. Current Liabilities and provisions are Rs. 4,28,16,639. The Net Working Capital is Rs. 4020429. There has been an increase in working capital comparing to the last preceding year of Rs. 4020429.

2003-2004

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41 Gross Working Capital is Rs. 15,80,70,072. The major part that is constituted by advances. Current Liabilities and provisions are Rs. 4,81,44,851. The Net Working Capital is Rs. 10,99,25,221. There has been an increase in working capital comparing to the last preceding year of Rs. 21198641.

2004-2005
Gross Working Capital is Rs. 20,19,06,306. The major part that is constituted by advances. Current Liabilities and provisions are Rs. 4,22,71,223. The Net Working Capital is Rs. 15,96,35,083. There has been an increase in working capital comparing to the last preceding year of Rs. 3,77,63,595.

COMPARATIVE BALANCE SHEET STATEMENT

This statement is prepared on two or more dates can be used for comparing assets and liabilities and to find out any increase or decrease in these items. This facilities the comparison of figures of two or more periods and provides necessary information which may be useful informing an option regarding the financial condition as well as progressive outlook of the concern of a company is to prepare comparative statement Comparative financial statement will contain items at least for two periods. Increase and decrease in income statement and balance sheet over period can be shown in two ways i.e. Aggregate changes Proportional changes

Recording percentages calculated in relation to a common base in special columns on the other hand shows relative or proportional changes. For example in the case of p/l statement. and statements prepared in terms of common based percentage are called common size statement. This kind of analysis is called vertical analysis.

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BALANCE SHEET AS ON 31st MARCH 2004

(Rs. in thousands) Increase/ Schedule Year ended 31 st March 2004 CAPITAL & LIABILITIES Capital Deposits Borrowings Other Liabilities and Provisions Total ASSETS Cash and balances with Reserve Bank of India Balances with 1 2 3 4 5 17,25,00 15,56,51,57 2,53,10,72,02 8,25,41,46 29,36,20,15 3,06,46,10,20 Year ended (Decrease) 31 st March 2003 17,25,00 12,33,69,46 2,05,98,93,53 4,16,42,15 38,65,24,24 2,61,31,54,38

32,28,211 4,71,17,849 40,89,931 (92,90,409) 4,5145,582

6 7

18,18,20,17 7,84,74,72

18,27,11,91 1,32,46,63

89174

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Banks and money at call and short notice Investments 8 Advances 9 Fixed Assets 10 Other Assets 11 Total Contingent 12 Liabilities Bills for Collection Notes on 17 CAPITAL & accounts LIABILITIES Capital Reserves & Surplus Deposits Borrowings Other Liabilities and Provisions Total ASSETS Cash and balances with Reserve Bank of India Balances with Banks and money at call and short notice Investments Advances Fixed Assets Other Assets Total Contingent Liabilities Bills for Collection Notes on accounts 65,22,809 1,45,32,04,68 1,25,18,66,56 2,01,33,812 1,18,13,67,93 96,62,59,98 2,15,10,795 1,65,29,03 1,15,31,40 4,99,763 15,32,13,67 18,75,37,90 (34,32,423) 3,06,46,10,20 2,61,31,54,38 4,51,45,582 Increase/ 86,76,78,06 1,05,75,55,98 (1,89,87,792) Schedule Year ended Year ended 10,56,63,26 9,00,13,90 15,64,936 (Decrease) 31 st March 31 st March 2003 2002 1 2 3 4 5 17,25,00 12,33,69,46 2,05,98 ,93,53 4,16, 42,15 39,89,07,05 2,61,31,54,38 17,25,00

9811629 174,02,75,48 77,90,97 36,41,72,02 221,20,79,76 131,234,51

25,25,317 3,19,61,805 33,85,118 34,73,503 4,01,07,462

18,27,11,91

51,47,740 (93,64,944)

7 8 9 10 11 12

1,32,46,63 1,25,18,66,56 96,62,59,98 1,15,31,40 18,75,37,90 2,61,31,54,38 1,05,75,55,98 9,00,13,90

10,68,96,07 98,27,89,24 84,22,58,50 1,02,66,02 13,86,35,42 221,20,79,76 89,34,87,01 29,56,90,16 2,69,07,732 1,24,00,148 1,26,438 48,90,248 4,01,07,462 1,64,06,897 (2,05,67,626)

17

BALANCE SHEET AS ON 31ST

(Rs. in thousands)

MARCH 2003

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TREND PERCENTA

TREND PERCENTAGES
This analysis is an important tool of horizontal financial analysis. This method is immensely helpful in making a comparative study of the financial statement of several years. Under this method trend percentage are calculated for each year item of the financial statement taking the figure of base year as 100. The starting year is usually taken as the base year. The trend percentage can also be the relation of each item with its percentage years percentage. This percentage can also be presented in the form of index numbers showing relative change in the financial data of certain period. This will exhibit the direction to which the company is proceeding. While calculated the trend percentage the following steps should be followed. The accounting principle and practices must be followed constantly over the period for which the analysis is made. The base year selected should be normal and representative year.

Trend percentage should be carefully studied after considering the absolute figure on which these are based. Otherwise they may give misleading conclusion. To make the comparison meaningful, the trend percentage of the current year should be adjusted in the light of price level changes are compared to the base year.

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TREND PERCENTAGE DURING THE PERIOD 2001-2004

PARTICULARS Current Assets Cash with RBI Cash with Bank Advances Other C.A TOTAL

2001-2002

2002-2003

2003-2004

, 02 , 03 , 04 % % % 100 139 138 100 12 73

13,12,34,51 10,68,96,07 84,22,58,50 13,86,35,42

18,27,11,91 1,32,46,63 96,62,59,98 18,75,37,90

18,18,20,17 7,84,74,72 1,18,13,67,93 15,32,13,67

100 115 140 100 135 110 100 111 131 100 127 148 100 112 161 100 127 148

12,19,02,450 13,49,75,642 15,94,87,649 98,27,89,24 1,02,66,02 9,93,05,526 125,18,66,56 1,45,32,04,68 1,15,31,40 1,65,29,03

Fixed Assets
Investments Other F.A TOTAL

12,63,39,796 14,69,73,371

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Current Liabilities Borrowing

7,79,097 36,41,72,02 3,71,96,299

4,16,42,15 38,65,24,24 4,28,16,639

8,25,41,46 29,36,20,15 3,76,16,161

100 534 106 100 106 81 100 115 101 100 100 100

Other Liabilities & proviso. TOTAL Fixed Liabilities

Capital Reserve & Surplus

17,25,00 98,11,629

17,25,00 12,33,69,46 1,25,09,446

17,25,00 100 126 159 15,56,51,57 1,57,37,657 100 125 158

TOTAL

99,84,129

Graphical Representation Of Current Assets

Current Assets

140 120 100

Trend %

80 60 40 20 0 01-02 02-03 years 100 111

131

03-04

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Executive Summery:
The current assets value has shown in the graph increasing trend percentage Increasing year by year. The major part of current assets is constituted by Advances and other Current Assets.

Graphical Representation Of Fixed Assets

Fixed Assets

160 140 120 100 Trend % 80 60 40 20 0

100

127

148

01-02

02-03 years

03-04

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Executive Summery:
The value of Fixed Assets has shown in the graph an increasing trend percentage year by year. The major part of Fixed Assets is constituted by Investment.

Graphical Representation Of Current Liabilities

Current Liabilities
120 100 80 Trend% 60 40 20 0 01--02 02--03 Years 03--04 100 115 101

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49 Executive Summery: There is an increasing trend in Current Liabilities in the year 2001-2002 to 2002-2003 and decreasing trend in Current Liabilities in the year 2002-2003 to 2003-2004. There is decrease in Current Liabilities Rs.52, 00,478 comparing to the last preceding year of Rs.3, 72,16,161

Graphical Representation Of Fixed Liabilities

Fixed Liabilities

160 140 120 100 Trend% 80 60 40 20 0 01--02 02--03 years 03--04 100 158 125

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Executive Summery:
There is an increasing trend in Fixed Liabilities in the year 2001-2002 to 2003-2004. There is increase in Fixed Liabilities Rs.32, 28,211 comparing to the last preceding year of Rs. 1,57,37,657.

LIMITATION OF THE STUDY

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LIMITATION OF THE STUDY

The study is conducted with the available data from the annual reports of State Bank Of Hyderabad and analysis was accordingly The study may not be detailed in all aspects These statements do not give a real and correct report about the worth of the assets and their losses of value. The study is conducted in a short period during the limited time. The data provided by the company is not accurate it is rounded of to the nearest figure. As the every branch will not maintain a written material of branch history so, it is impossible to maintain the complete profile of the branch.

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CONCLUSION & SUGGESTIONS

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CONCLUSION AND SUGGESTION

This study is conducted at State Bank of Hyderabad for analyzing the financial performance of the company by using working capital management technique, which leads to the following suggestions. SBH should give adequate training programs to staff members to facilitate efficient operations. Current assets have constituted major part of the total net assets in the selected undertaking. Composition of current assets revealed that the major part is constituted by in all the financial years i.e., 2001-2004 The bank is moving in right direction by maintaining low amount of current liabilities and provisions. Therefore the bank is suggested to maintain these standards in future activities. Increasing in working capital year by year. This shows the bank is effectively utilizing its working capital techniques. SBH should introduce more number of ATMs to attract more number of customers.

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All branches of SBH should be computerized so as to save the time and to handle more number of customers.

BIBLIOGRAPHY

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BIBLIOGRAPHY

BOOK
FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT BANKING THEORY & PRACTICE

AUTHOR
I.M.PANDEY KHAN & JAIN D.M.MITHANI, E.GORDON

WEBSITES:

SBH PROFILE ANNUAL REPORTS PROFILE 2005

www.sbhyd.com www.sbhyd.com

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