A PROJECT REPORT

ON

OPEATIONAL EXCELLANCE OF WORKING CAPITAL MANAGEMENT

IN HDFC BANK
Submitted to the University OF Kashmir In partial fulfillment for the award of the degree of:

MASTER OF BUSINESS ADMINISTRATION (MBA)

Submitted By

MARYAMA AHAD

ENROLLMENT NO. : 22036114010

REGISTRATION NO. : 19250-kc-2017

IQBAL INSTITUDE OF TECHONOLOGY & MANAGEMENT

Laloo Sheshgari Bagh Srinager.

AFFILATED TO

UNIVERSITY OF KASHMIR

BATCH 2022-24
 A PROJECT ON

OPERATIONAL EXCELLANCE OF WORKING CAPITAL

MANAGEMENT IN HDFC BANK

Submitted to the University Of Kashmir in the partial fulfillment of the requirement for

The award of the Degree of

MASTER’S OF BUSINESS ADMINISTRATION (MBA)

IQBAL INSTITUDE OF UNIVERSITY OF

TECHONOLOGY AND MANAGEMENT KASHMIR

Submitted By

MARYAMA AHAD

REGISTRATION NO: - 19250-KC-2017

ENROLLMENT NO : - 22036114010

Under The Guidance Of

Mr. Mohd Rafiq Bhat Mr. Adil Mehraj

Branch Manager Assistant Professor

HDFC BANK Department of Management Studies

IITM
 DECLEARATION
I hereby declare that the project entitled “EXCELLANCE OF WORKING
CAPITAL MANAGEMENT IN HDFC BANK” has been pen-locked by me
during my winter internship programme at “ HDFC Bank “under the valuable
guidance of “Mr. Adil Mehraj and under the external supervisor of ‘Mr.
Mohd Rafiq Bhat ”in the partial fulfillment for the degree of MBA from
University of Kashmir”

I also declare that this project report is the result of my own efforts and has
not submitted to any other university or organization before.

MARYAMA AHAD

ENROLLMENT NO: - 222036114010

 CERTIFICATE

This is to certify that MARYAMA AHAD the student of Department Of Management

Studies, Iqbal Institute of Technology & Management has carried out a Project entitled
“Operational Excellence Of Working Capital Management In HDFC Bank” undertaken
at HDFC Bank.

This has been performed in the partial fulfillment of her Master’s Degree in Business
Administration from University of Kashmir .the project finds less scope for duplication and
has not been submitted for any other degree, diploma or course in any university or
institute .the study has been completed within the time schedule as prescribed under the
University Status.

We wish her all the success in her future.

Place: -Srinagar Dr Asma Gulzar

Date Head, Department of Management Studies

IITM
 ACKNOWLEDGEMENT

First and foremost, I would like to thank Almighty ALLAH who gave me each and every
devise pf uplifting myself that I ever desired.

I would like to express gratitude for venerated “HDFC BANK” for providing all the
indispensable requirements that I need in order to carry my project. I would also feel a deep
sense of gratitude to my beloved and highly esteemed Department of Management Studies,
IITM for growing me into true connoisseurs.

It is my privilege to thank “ADIL MEHRAJ “for his immense support throughout my study. I
wish to thank “Mohd. Rafiq Bhat’ for his support and encouragement throughout the Project.
I’m very much obliged to “Adil Mehraj” for guiding and allowing me to carry out the project
in the organization.

PLACE: - Srinagar Maryam Ahad

Date:-
S NO CONTENTS Page no.

CHAPTER 1 INTRODUCTION 1-3

CHAPTER 2 COMPANY PROFILE 4-6

OPERATIONAL EXCELLANCANCE
CHAPTER 3 7-17
OF WORKING CAPITAL IN HDFC

CHAPTER 4 RESEARCH METHODOLOGY 18-19

CHAPTER 5 WORKING CAPITAL MANAGEMENT 20-28

CHAPTER 6 WORKING CAPITAL ASSESSEMENT 29-38

CHAPTER 7 RATIO ANALYSIS 39-52

FINDINGS SUGGESTIONS &

CHAPTER 8 53-55
CONCLUSION

CHAPTER 9 LIMITATIONS 56

CHAPTER 10 BIBLIOGRAPHY 57
 CHAPTER 1
INTRODUCTION
INTRODUCTION

Banking is nearly as old as civilization. The history of banking could be said to have started
with the appearance of money. The first record of minted metal coins was in Mesopotamia in
about 2500B.C. the first European banknotes, which was handwritten appeared in1661, in
Sweden. Cheque and printed paper money appeared in the 1700’s and 1800’s, with many
banks created to deal with increasing trade.

The history of banking in each country runs in lines with the development of trade and
industry, and with the level of political confidence and stability. The ancient Romans
developed an advanced banking system to serve their vast trade network, which extended
throughout Europe, Asia and Africa.

Modern banking began in Venice. The word bank comes from the Italian word “ban co”,
meaning bench, because moneylenders worked on benches in market places. The bank of
Venice was established in 1171 to help the government raise finance for a war.

At the same time, in England merchant started to ask goldsmiths to hold gold and silver in
their safes in return for a fee. Receipts given to the Merchant were sometimes used to buy or
sell, with the metal itself staying under lock and key. The goldsmith realized that they could
lend out some of the gold and silver that they had and charge interest, as not all of the
merchants would ask for the gold and silver back at the same time. Eventually, instead of
charging the merchants, the goldsmiths paid them to deposit their gold and silver.

The bank of England was formed in 1694 to borrow money from the public for the
government to finance the war of Augsburg against France. By 1709, goldsmith were using
bank of England notes of their own receipts.

New technology transformed the banking industry in the 1900’s round the world, banks
merged into larger and fewer groups and expanded into other country.
BANKING STRUCTURE IN INDIA

In today’s dynamic world banks are inevitable for the development of a country. Banks play a
pivotal role in enhancing each and every sector. They have helped bring a draw of
development on the world’s horizon and developing country like India is no exception.

Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle for
moving finance from those who have surplus money to (however temporarily) those who
have deficit. In everyday branch terms the banks channel funds from depositors whose
accounts are in credit to borrowers who are in debit.

Without the intermediary of the banks both their depositors and their borrowers would have
to contact each other directly. This can and does happen of course. This is what has lead to
the very foundation of financial institution like banks.

Before few decades there existed some influential people who used to land money. But a
substantially high rate of interest was charged which made borrowing of money out of the
reach of the majority of the people so there arose a need for a financial intermediate.

The Bank have developed their roles to such an extent that a direct contact between the
depositors and borrowers in now known as disintermediation.

Banking industry has always revolved around the traditional function of taking deposits,
money transfer and making advances. Those three are closely related to each other, the
objective being to lend money, which is the profitable activity of the three. Taking deposits
generates funds for lending and money transfer services are necessary for the attention of
deposits. The Bank have introduced progressively more sophisticated versions of these
services and have diversified introduction in numerable areas of activity not directly relating
to this tradition.

MAJOR PLAYERS IN INDIA

 HDFC BANK LTD

 ICICI BANK LTD

 STATE BANK OF INDIA LTD

 PUNJAB NATOINAL BANK LTD

 BANK OF BARODA LTD

 FEDERAL BANK LTD & AXIS BANK

INDIAN BANKING SYSTEM

Reserve Bank of India

Schedule Banks
Non-Schedule Banks

Central co-op
State co-op Commercial Banks and Commercial Banks
Banks Banks Primary Cr.
Societies

Indian Foreign

Public Sector
Banks Private Sector HDFC,
Banks ICICI etc.

State Bank of India Other Nationalized Regional Rural

and its Subsidiaries Banks Banks
 CHAPTER 2
COMPANY PROFILE
INTRODUCTION
HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to remain the
market leader in HDFC has developed significant expertise in retail mortgage loans to
different market segments and also has a large corporate client base for its housing related
credit facilities. With its experience in the financial markets, a strong market reputation,
large shareholder base and unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment.

HDFC Bank began operations in 1995 with a simple mission: to be a “World Class Indian
Bank.” They realized that only a single minded focus on product quality and service
excellence would help us get there. Today, we are proud to say that we are well on our
way towards that goal.

HDFC Ltd has the objective to enhance residential housing stock and promote home
ownership. Their offerings range from hassle-free home loans and deposit products, to
property related services and a training facility. They also offer specialized financial services
to the customer base through partnerships with some of the best financial institutions
worldwide.

HDFC Bank is a young and dynamic bank, with a youthful and enthusiastic team determined
to accomplish the vision of becominss Indian bank.

Our business philosophy is based on four core values - Customer Focus, Operational
Excellence, Product Leadership and People. We believe that the ultimate identity and success
of our bank will reside in the exceptional quality of our people and their extraordinary efforts.
For this reason, we are committed to hiring, developing, motivating and retaining the best
people in the industry.

HDFC Bank specializes in the provision of banking and other financial services to corporate
and institutional clients. The company’s services include commercial, transactional and
electronic banking products. It also provides treasury services, retail banking and capital
markets infrastructure. The company primarily operates in India. HDFC Bank is
headquartered in Mumbai, India and employs about 14,900 people. The company recorded
revenues of INR 396.1 billion during the fiscal year ended March 2023, an increase 95%
over year. The net profit was INR 16512 crore in fiscal year 2023, an increase of 33% over
year

Business Group HDFC Group

Incorporation Date 30/08/1994

Founder Hasmukbhai Parekh

Headquarter Mumbai,Maharastra India

Area served India

Company/Business Registration No INE040A01018

CEO Sashidar Jagdishan (2024)

Timeline of HDFC Bank

HDFC Bank was incorporated in the year of 1994 by Housing Development Finance
Corporation Limited (HDFC), India's premier housing finance company. It was among the
first companies to receive an 'in principle' approval from the Reserve Bank of India (RBI) to
set up a bank in the private sector. The Bank commenced its operations as a Scheduled
Commercial Bank in January 1995 with the help of RBI's liberalization policies.

In a milestone transaction in the Indian banking industry, Times Bank Limited (promoted by
Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., in 2000. This
was the first merger of two private banks in India. As per the scheme of amalgamation
approved by the shareholders of both banks and the Reserve Bank of India, shareholders of
Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

In 2009 HDFC Bank acquired Centurian bank of Punjab taking its total branches to more
than 1,000. The amalgamated bank emerged with a strong deposit base of around Rs. 1,
22,000 crore and net advances of around Rs. 89,000 crore. The balance sheet size of the
combined entity is over Rs. 1, 63,000 crore. The amalgamation added significant value to
HDFC Bank in terms of increased branch network, geographic reach, and customer base, and
a bigger pool of skilled manpower.

HDFC is India's premier housing finance company and enjoys an impeccable track record in
India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC
has developed significant expertise in retail mortgage loans to different market segments and
also has a large corporate client base for its housing related credit facilities. With its
experience in the financial markets, a strong market reputation, large shareholder base and
unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian
environment.

VISION

“Become the undisputed market leader in providing housing related finances, to realize the
dream of shelter for all in Sri lanka”

MISSION

To customer- provide a caring service by anticipating their requirement and innovatively

satisfying them beyond expectations.

To our staff-we identify their multi-faceted talents, develop, motivate, recognize, and reward
them towards fulfillment of the institutional and national housing vision

To the national economy and the industry regulator –we are the key driver and thought
leaders shaping and financing the national housing policy.

To our shareholder- we focus on optimizing returns.

To our natural environment-we enforce sustainable practices across all our activities.
 CHAPTER3
OPERATIONAL EXCELLANCE OF WC
MANAGEMENT IN HDFC BANK
OPERATIONAL EXCELLANCE OF WORKING CAPITAL
MANAGEMENT

Operational excellence is the goal of driving business performance through efficient and
transparent practices to reduce costs and risk and deliver higher service quality.

Operational excellence in working capital means using resources like time, people,
equipment, inventory and money in an optimized way to serve the business. Efficient
companies are agile and more profitable.

HDFC OPERATIONAL EXCELLANCE OF WORKING CAPITAL

Mission of HDFC is to be "a World Class Indian Bank", benchmarking themselves against
international standards and best practices in terms of product offerings, technology, service
levels, risk management and audit & compliance. The objective is to build sound customer
franchises across distinct businesses so as to be a preferred provider of banking services for
target retail and wholesale customer segments, and to achieve a healthy growth in
profitability, consistent with the Bank's risk appetite. They are committed to do this while
ensuring the highest levels of ethical standards, professional integrity, corporate governance
and regulatory compliance.

WORKING CAPITAL LOANS:- Bank provides services like short-term financing options
like working capital loans provide customers business with necessary funds to meet day to
day expenses, cover temporary cash shortfalls, invest in growth opportunity. Banks offers
various working capital loans such as overdraft facilities, invoice discounts which can
tailored to meet different needs.

MONITOR RECEIVABLES: - The primary objective of HDFC is to maintain ideal balance

of working capital- not too high nor too low. HDFC regularly review accounts receivables
and follow up on overdue payment to minimize risk of bad debts and improves cash flow.

NEGOTIATE FAVOURABLE PAYMENTS TERMS:- working capital management

seeks to guarantee that a business has enough liquidity to continue operations without
disruption.HDFC ensures to work with suppliers to negotiate favourable payments like
increase credit periods or discounts for early payment.

OPTIMIZE INVENTORY MANAGEMENT: - HDFC streamline their inventory

management to minimize holding costs and avoid stock out or over stocking .It ensures to
guarantee that a business has enough liquidity to continue operations without disruption.

CASH MANAGEMENT SERVICES: - Bank provide cash management services that can
help to optimize cash flow by efficiently managing collections, payments and liquidity. These
services include automated clearing house (ACH) transactions, lockbox service and remote
deposit capture. These can streamline cash inflow and outflow, reduces time and improve
overall working capital management.

TRADE FINANACE SOLUTIONS: - If your business is involved in international trade you

can benefit from trade finance solutions offered by bank, including letter of credit, bank
guarantee and export and import financing. These services can help in managing the risk,
improve cash flow and enhance its working capital management.

TREASURY MANAGEMENT SERVICES: - HDFC provide treasury management service

which can help you manage your company’s financial risk, optimize your investment
portfolio and improve cash flow forecasting.

SUPPLY CHAIN FINANCING: - Bank offers supply chain financing solutions to help
customers to manage their working capital efficiently across entire supply chain. Serves like
reverse factoring and supplier finance, enable customers to optimize payment terms, and
maintain healthy working capital level.
 .

COMPARATIVE BALANCE SHEET OF FINANCIAL YEAR Mar 2019-2020

PARTICULARS Mar 2019 Mar 2020 Percentage of

increase/decrease

Capital and Liabilities

Total share capital 519.02 544.66 4.94

Equity share capital 519.02 544.66 4.94

Reserves 105,775.98 148661.69 40.54

NET WORTH 106295.00 149206.35 40.37

Deposits 788770.64 923140.93 17.04

Borrowings 123104.97 117085.12 -4..89

TOTAL DEBT 911875.61 1040226.05 14.08

Other liabilities and 45763.72 55108.29 20.42

provisions

Total liabilities 106934.33 1244540.60 16.98

ASSESTS

Cash & Bal with RBI 104670.47 46763.62 -55.32

Bal with bank, 18244.61 34584.02 89.56

Money at call

ADVANCES 658333.09 819401.22 24.47

Investments 242200.24 290,587.88 19.98

Gross block 3607.20 4030.00 11.72

Net block 3607.20 4030.00 11.72

Other assets 36878.70 49,173.95 33.34

Total assets 1063934.31 1244,540.69 16.98

INTERPRETATION: During the financial year 2019-20 borrowings decreased by 4.89

% cash and Balance with RBI decreased by 55.32. While banks’ deposit increased by 17.04%
and advances increased by 24.47%. The fixed asset is11.72%. HDFC bank has to increase the
cash and balance with RBI. The borrowing of bank has been decreased by -4.89%.
 Comparative balance sheet of financial year 2020-2021

PARTICULARS Mar 2020 Mar 2021 Percentage of

increase/decrease

CAPITAL &
LIABILITIES

Total share capital 544.66 548.33 0.67

Equity share capital 544.66 548.33 0.67

Reserves 148,661.69 170,437.70 14.65

NET WORTH 149,206.35 170,986.03 14.60

Deposits 923,140.93 1147,502.29 24.30

Borrowings 117,085.12 144,628.54 23.52

TOTAL DEBT 1040,226.05 1292,130.83 24.22

Other liabilities 55108.29 67,394.40 22.29

&provisions

TOTAL 1,244,540.69 1530,511.26 22.98

LIABILITIES

ASSESTS

Cash & Bal with RBI 46,763.62 72,205.12 54.40

Bal with bank, money 34,584.02 14,413.60 -58.32

call

Advances 819,401.22 993,702.88 21.27

 Investments 290,587.88 391,826.66 34.84

Gross block 4030.00 4,413.92 9.97

Net block 4030.00 4,413.92 9.97

Other assets 49173.95 53,931.09 9.67

TOTAL ASSESTS 1,244,540.69 1,530,511.27 22.98

INTERPRETATION: During the financial year 2019-2020 Balance with other banks
decreased by 58.32 and banks advance, investments and deposit increased. Which is good for
the bank due to this bank ca
 Comparative balance sheet of financial year 2021-2022

PARTICULARS Mar 2021 Mar 2022 Percentage of

increase/decrease

CAPITAL &
LIABILITIES

Total share capital 548.33 551.28 0.54

Equity share capital 548.33 551.28 0.54

Reservers 170,437.70 203,169.55 19.20

NET WORTH 170,986.03 203,720.83 19.14

Deposits 1,147,502.29 1,33060.22 16.34

Borrowings 144,628.54 135,487.32 -6.32

TOTAL DEBT 1,292,130.83 1,470,547.54 13.81

Other liabilities & 67,394.40 72,602.15 7.73

provisions

TOTAL 1,530,511.26 1,746,870.52 14.14

LIABILITIES

ASSESTS

Cash & Bal with RBI 72,205.12 97,340.74 34.81

Bal with bank, 14,413.60 22,129.66 53.53

Money at call
ADVANCES 993,702.88 1,1132,836.63 14.00

Investments 391,826.66 443,728.29 13.25

Gross block 4,421.92 4,909.32 10.77

NET BLOCK 4,431.92 4,909.32 10.77

Other assests 53,931.09 45,925.89 -14.84

TOTAL ASSESTS 1,530,511.27 1,746,870.53 14.14

INTERPRETATION: During the financial year 2021-2022 borrowings is

decreased by 6.32% and other assets decreased by 14.84 and deposit,
investments, advances is increased.
 Comparative balance sheet of financial year 2022-2023

PARTICULARS Mar 2022 Mar 2023 Percentage of increase/

decrease

CAPITAL &
LIABILITIES

Total share capital 551.28 554.55 0.59

Equity share capital 551.28 554.55 0.59

Reserves 203,169.55 239,538.38 17.90

NET WORTH 203,720.83 240,092.93 17.85

Deposits 1,335,060.22 1,559,217.44 16.79

Borrowings 135,487.32 184,817.21 36.41

TOTAL DEBT 1,470,547.54 1,744,034.65 18.60

Other liabilities & 72,602.15 84,407.46 16.26

Provision

TOTAL LIABILITIES 1746,870.52 2,068,535.04 18.41

ASSESTS

Cash & Bal with RBI 97,340.74 129,995.64 33.55

Bal with banks 22129.66 22,331.29 0.91

Money at call

ADVANCES 1,132,836.63 1,368,820.93 20.83

 Investments 443728.29 455,535.69 2.66

Gross block 4,909.32 6,083.67 23.92

NET BLOCK 4909.32 6,083.67 23.92

Other assets 45925.89 85,767.83 86.75

TOTAL ASSESTS 1746870.53 2,068,535.05 18.41

INTERPRETATION: During the financial year 2022-2023 borrowings has

been increase by 36.41%. All the assets like cash and balance with RBI is
33.555, Balances with Other Banks is 0.91%, Investments is 2.66%, Advances
is 20.83%, Fixed Assets is 23.92 and Other Assets is 86.75% increase in 2021-
2022
CONCLUSION;-
HDFC Bank appears to be in a good financial position, with healthy profitability and a decent
current ratio. The financial analysis of HDFC Bank reveals both strengths and concerns.
Positively, the bank shows strong profitability, with an impressive rise in Return on Equity
(ROE) over the last four years, and a slight improvement in Return on Assets (ROA),
indicating effective asset management. An examination of HDFC BANK's financial
outcomes reveals that the institution maintains a commendable profitability level.

In the financial year 2018-19 the fixed assets of the bank increased by 11.72 % from the
previous year. There was only 59.32 % increase in the capital of the bank in 2022-2023

The bank deposits increased by 16.79 % and the advances provided increased by 20.83 %.
During the financial year 2021-2022 the cash balance has been increased by 34.81%.

During the financial year 2018-2019 the fixed asset decreased by .54 % and also other asset
and other liability and provision decreases, the bank borrowings is increased by 66.29 % and
investment is increased by 12.93 %.

The other liabilities have been decreased by 19.3 %. The bank has to focus on increasing
fixed assets. During the financial year 2021-2022 borrowings has been increase by 36.41%.
All the assets like cash and balance with RBI is 33.555, Balances with Other Banks is 0.91%,
Investments is 2.66%, Advances is 20.83%.
 CHAPTER 4
RESEARCH METHOLOGY
RESEARCH DESIGN

A research design is a detailed blueprint used to guide a research study towards its
objective .It helps to collect, measure and analyze the data. The research design for the study
is descriptive one. It is mostly qualitative in nature. The main objective of the study is to
analyze and acquire knowledge about the bank.

Sources of Data

Data are the material in which research works. Data collected for the study are classified into
primary data and secondary data

Primary source of data

1} Discussion with project guide and staff members

2} Discussion with other branch members

Secondary source of data

1} RBI guidelines regulating the activities of banks.

2} Research papers, financial statement prepared by bank and its related officials

3} Bank credit policy and related circulars and guidelines issued by bank

OBJECTIVES OF THE STUDY

The objective of our study is to study working capital management of HDFC bank. The scope
of the study are

 To study the different components of working capital and its impact on the
performance of the firm.

 To analyze how HDFC finances working capital requirements.

 To assess the policies, formulated with regard to Profitability and Liquidity in HDFC.
Scope of the study

Scope of the study was confirmed to internal environment the study is based on secondary
data collected from annual ,journals ,magazines, website etc. .

Financial statement analysis is the process of identifying the financial position of the
company. The data of the study has been provided by bank and is authentic.

Another tool for using for studying the case provided by bank is Ratio Analysis. A ratio is a
simple arithmetic expression of the relationship of one number to another. Ratio analysis is a
technique of analysis and interpretation of financial statement .It is the process of establishing
and interpreting various ratios for making certain decisions.
 CHAPTER 4
WORKING CAPITAL
MANAGEMENT
INTRODUCTION
Working capital may be regarded as the life blood of business. It means the part of the total
assets of the business that can change from one form to another form in the ordinary course
of business operations. It is of great importance to internal and external analysis because of
its close relation with the current day to day operations of a business. Every business need
funds for two purposes.

 Long term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, buildings etc.

 Short term funds are required for the purchase of raw materials, payment of wages
and other day to day expenses. Its also known as revolving or circulating capital.

It is nothing but the difference between current assets and current labilities I, e.

Working capital = Current assets - current Labilities.

OPERTING CYCLE OF WORKING CAPITAL

The working capital requirement of a firm depends, to a great extent upon the operating
cycle of the firm. The operating cycle may be defined as the time duration starting from the
procurement of goods or raw material and ending with the sales of realization.

The length and nature of the operating cycle may differ from one firm to another depending
upon the size and nature of the firm. In a trading concern, there is a series of activities starting
from procurement of goods (saleable goods) and ending with the realization of sales revenue
(at the time of sale itself in the case of cash sales and at the time of debtors realization in case
of credit sales).similarly in case of manufacturing concern, this series starts from the
procurement of raw materials and ending with the sales realization of finished goods. In both
the cases, however, there is a time gap between the happening of the first event and the
happening of the last event. This time gap is called the operating cycle.

Thus, the operating cycle of a firm consists of the time required for the completion of the
chronological sequences of some or all of the following:

1. Procurement of raw material and services.

2. Conversion of raw material into work-in-progress.

3. Conversion of work-in-progress into finished goods.

4. Sale of finished goods (cash or credit)

5. Conversion of receivable into cash.

Operating cycle period

The length of time duration of the operating cycle of any firm can be defined as the sum of its
inventory conversion period and the receivable conversion period.

Inventory conversion period: It is the time required for the conversion of raw material into
finished goods sales. In a manufacturing firm the inventory conversion period is consisting of
raw material conversion period (RMCP), work-in-progress conversion period (WPCP) and
finished goods conversion period (FGCP).

Raw material conversion period refers to the period for which the raw material is generally
kept in stores before it is issued to the production department.

The work-in-progress conversion period (WPCP) refers to the period for which the raw
material remains in the production process before it is taken out as finished units.

The finished goods conversion period refers to the period for which finished units remains
in stores before being sold a customer.
1:- Receivable conversion period (RCP):

It is the time required to convert the credit sales into cash realization. It refers to the period
between the occurrence of credit sales and collection from debtors. The total of Inventory
conversion period (ICP) and Receivable conversion period (RCP) is also known as total
operating cycle period (TOCP).the firm might be getting some credit facilities from supplier
of raw material, wages earners etc.This period for which the payment to these parties are
deferred or delayed is known as deferred period (DP).the net operating cycle (NOC) of the
firm is arrived at by deducting the DP from TOCP.

NOC =TOCP-DP

=ICP+RCP-DP

For calculating total operating cycle period (TOCP) and net operating cycle (NOC), the
following formula is being used:

RMCP = Average Raw material stock × 365

Total Raw material consumption

WPCP = Average Work-in-progress × 365

Total cost of production

FGCP = Average Finished Goods × 365

Total Cost of goods s

Time and Money concept in Working Capital Cycle

Each component of working capital (namely inventory, receivables and payables) has two
dimensions .TIME and MONEY, when it comes to managing working capital.

Time is Money:

If we can get money to move faster around the cycle (e.g. collect money due from debtors
more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to
sales), the business will generate more cash or it will need to borrow less money to fund
working capital. As a consequence, we can reduce the cost of bank interest or will have
additional free money available to support additional sales growth or investment. Similarly,
we can also negotiate the improved terms with suppliers.

E.g. get longer credit or an increased credit limit; we effectively create free finance to help
future sales.

TYPE OF WORKING CAPITAL

On the basis of Concept
Gross working capital: the gross working capital refers to the firm’s investment in all
the assets taken together. The total of investment in all the individual current assets is the
gross working capital.

For example: if a firm has a cash balance of Rs. 50,000 ,debtors of Rs.70,000 and inventory
of raw material and finished goods has been assessed at Rs.1,00,000,then the gross working
capital of the firm is Rs.2,20,000 (i.e. ,Rs 50,000+Rs.70,000+Rs.1,00,000).

Net working capital: The term net working capital may be defined as the excess of total
current assets over total current liabilities. Current liabilities refer to those liabilities which
are payable within a period of 1 year. The net working capital may either be positive or
negative. If the total current assets are more than total current liabilities, then the difference is
known as positive net working capital, otherwise the difference is known as negative net
working capital. The net working capital measures the firm’s liquidity. The greater the
margin, the better will be the liquidity of the firm.

Net working capital= total current assets – total current liabilities

A financial manager must consider both (gross and net working capital) because they
provide different interpretation. The gross working capital denotes the total working capital
or the total investment in current assets. This will help avoiding 1.the unnecessarily stoppage
of work or chance of liquidation due to insufficient working capital, and 2.effects on
profitability (over flowing working capital implies cost).The gross working capital also gives
an idea of total funds required for maintaining current assets.

On the other hand, net working capital refers to the amount of funds that must be

Invested by firm, more or less are regularly in current assets. The net working capital also
denotes the net liquidity being maintained by the firm.

On the basis of time

1. Permanent /fixed working capital: Permanent working capital may be defined as

the minimum level of current assets, which is required by a firm to carry on its business
operations. Every firm has to maintain a minimum level of raw materials, work-in-progress,
finished goods and cash balances. For example-extra inventory of finished goods will have to
be maintained to support the peak periods of sale. Permanent working capital is permanently
needed for the business and therefore, it should be financed out of long term funds.

Fluctuating /variable working capital: It is the extra working capital needed to support the
changing production and sales activities of the firm. The amount of temporary working
capital keeps on fluctuating on time to time on the basis of business activity. Both kind of
working capital – permanent and fluctuating (temporary) are necessary to facilitate
production and sales through the operating cycle. The amount over and above permanent
working capital is temporarily variable or fluctuating.

SOURCES OF WORKING CAPITAL

The company can choose to finance its current assets by

1. Long term sources

2. Short term sources

3. A combination of them.

Long term source of working capital:- include equity and preference shares, retained
earnings, debentures and other long term debts from public deposits and financial institution.
The long term working capital needs should meet through long term means of financing.
Financing through long term means provides stability, reduces risk or payment. And
increases liquidity of the business concern. Various types of long term sources of working
capital are summarized as follow:

1. Issue of shares:

It is the primary and most important sources of regular or permanent working capital. Issuing
equity shares as it does not create and burden on the income of the concern. Nor the concern
is obliged to refund capital should preferably raise permanent working capital.

Retained earnings:

Retain earning accumulated profits are a permanent sources of regular working capital. It is
regular and cheapest. It creates not charge on future profits of the enterprises.

Issue of debentures:

It creates a fixed charge on future earnings of the company. Company is obliged to pay
interest. Management should make wise choice in procuring funds by issue of debentures.
2. Long term debt: Company can raise fund from accepting public deposits, debts
from financial institution like banks, corporations etc. the cost is higher than the other
financial tools.

3. Other sources:

Sale of idle fixed assets, securities received from employees and customers are examples of
other sources of finance.

Short term sources of temporary working capital

Temporary working capital is required to meet the day to day business expenditures. The
variable working capital would finance from short term sources of funds. And only the period
needed. It has the benefits of, low cost and establishes closer relationships with banker. Some
sources of temporary working capital are given below:

A} Commercial bank:

A commercial bank constitutes significant sources for short term or temporary working
capital. This will be in the form of short term loans, cash credit, and overdraft and though
discounting the bills of exchanges.

B} Public deposits: Most of the companies in recent years depend on this source to meet
their short term working capital requirements ranging from six month to three years.

C] Various credits: Trade credit, business credit papers and customer credit are other
sources of short term working capital. Credit from suppliers, advances from customers, bills
of exchanges, etc helps to raise temporary working capital.

D} Reserves and other funds: Various funds of the company like depreciation fund.
Provision for tax and other provisions kept with the company can be used as temporary
working capital. The company should meet its working capital needs through both long term
and short term funds.

It will be appropriate to meet at least 2/3 of the permanent working capital equipments form
long term sources, whereas the variables working capital should be financed from short term
sources. The working capital financing mix should be designed in such a way that the overall
cost of working capital is the lowest, and the funds are available on time and for the period
they are really required.
SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following-

1. Existing cash reserves

2. Profits (when you secure it as cash)

3. Payables (credit from suppliers)

4. New equity or loans from shareholder

5. Bank overdrafts line of credit

6. Long term loans

If we have insufficient working capital and try to increase sales, we can easily over stretch
the financial resources of the business. This is called overtrading. Early warning signs include

1. Pressure on existing cash

2. Exceptional cash generating activities. Offering high discounts for clear cash payment

3. Bank overdraft exceeds authorized limit

4. Seeking greater overdrafts or lines of credit

5. Part paying suppliers or there creditor.

6. Management pre occupation with surviving rather than managing.

TRADE OFF BETWEEN PROFITABILITY AND RISK

In evaluating the firm’s working capital position an important consideration is the trade-off
between profitability and risk. In other words, the level of NWC has a bearing on profitability
and risk. The term profitability used in this context is measured by profit after expenses.

The term risk is defined as the profitability that a firm will become technically insolvent so
that it will not be able to meet its obligation when they become due for payment. It is assured
that greater amount of NWC, the less risk prone the firm is, or greater the NWC, the more
liquid is the firm, and therefore the less likely it is to become technically insolvent.
Conversely lower level of NWC and liquidity are associated with increasing level of risk.

A firm must have adequate WC. It should neither be excessive nor inadequate. Excessive WC
means the firms has idle funds, which are in no profit for the firm. This situation decreases
both risk and profitability of the firm. Inadequate WC means the firm doesn’t have sufficient
funds for running its operation which ultimately results in production interruption, and
lowering down the profitability.

The Lower level of WC increases the risk but has the potentiality of increasing the
profitability also.

The above principle is based on the following assumption:

1. There is direct relationship between profitability and risk.

2. Current assets are less profitable than fixed assets

3. Short term funds are less expensive than long term funds.

Effect of level of CA on Profitability-Risk Trade Off

The effect of level of CA’s on profitability risk trade-off can be shown using the ratio of CA
to TA. This ratio indicates the percentages of TA’s that are in form of CAs. An increase in
the ratio will lead to decline in profitability because CAs is less profitable than FAs. It would
also increase risk of technical insolvency because increase in CA assuming no change in CL
will increase NWC. Conversely a decrease in ratio will result in increase in profitability as
well as risk.

Effect of level of CL on risk profitability trade-off:

The effect of CL can be demonstrated by using the ratio of CL to TAs. This portion of the
short term financing is which is less expensive as compared to long term financing. These
will therefore, be a decline in cost and corresponding rise in profitability.

The increased ratio will also increase risk because assuming no change in CA, this would
decrease in NWC. The consequence of decrease in the ratio is exactly opposite to the result of
an increase. Thus it will lead to decrease in profitability and risk.
 CHAPTER: 5
WORKING CAPITAL
ASSESSEMENT OF HDFC
BANK
INTRODUCTION OF FINANCIAL STATEMENTS

Financial statements are statements that serve as a means of communication between the
organization and different users of financial statements regarding the financial position and
probability of the business at the end of financial year. Financial statement of an organization
also help them in different analysis such as Credit analysis, Debt analysis, security analysis
and general business analysis. To ensure the reliability and accuracy of the financial
statements company’s, accounts, firms etc. audit the statements.

Objectives of financial statements

1. The first objective of financial statement is to present an organizations true and fair picture
of its financial performance.

2. The second objective is to provide detailed information to different users of the financial
statements about resources of the company.

3. The last objective of preparing financial statements is to help the owners and management
of an organization in the decision making process.

WORKING CAPITAL ASSESSEMENT OF HDFC

The amount of funds required for financing short term assets such as cash etc. to enable
business to operate at the expected level. It defines working capital as the amount by which
current assets exceeds current liabilities and includes items like cash ,inventory and accounts
receivable as current assets and accounts payable as current liabilities. It is assessed for one
year. It typically involves analyzing various financial metrics, ratios and performance
indicators to assess the efficiency, liquidity and financial health of organization.

The assessment of working capital may involve two aspects

1) The level of current assets required to held by any unit which is adequate for its day to
day functioning

2) The mode of financing of these current assets.

 Statement showing working capital requirement (Rs. in lakhs)

PARTICULARS 2022-23 2021-22 2020-21 2019-2020 2018-19

CURRENT ASSETS,

LOANS AND ADVANCES

(A) Current Assets :

(I) Stock of Stores, Loose Tools,

Dies Mechanical, Electrical and
Electronic Spares (as taken, valued
1,461.36 1,272.71 1,185.70 760.21 577.14
and certified by the Management)
at lower of cost or net realizable
value

(II) Stock-in-Trade (as taken,

valued and Certified by the
Management)

(i) Raw Materials (at lower of

14,317.94 10,226.30 6,784.72 6,784.72 4,732.51
cost or net realisable value)

(ii) Semi-Finished Goods (at lower

21,378.85 12,282.45 8,136.52 5,980.13 5,152.96
of cost or net realisable value)

(iii) Finished Goods (at lower of

2,758.11 1,304.87 740.80 1,926.75 994.98
cost or net realisable value)

(iv) Goods-in-Transit (at Cost) 158.40 174.04 48.00 1,080.36 537.96

(v) Land as Stock in Trade (For

---------- --------- --------- ----------- ---------
Wind Mill)

(III) Sundry Debtors (Unsecured,

 Considered Good) :

(i) Outstanding for a period

11,959.53 13,965.12 6,312.86 3,714.84 3,162.09
Exceeding six month

(ii) Others 35,214.05 35,266.49 32,485.74 17,702.75 8,234.66

(IV) Cash and Bank Balances

(a) Cash on Hand 5.40 7.48 7.19 7.30 7.83

(b) Balance with Scheduled Banks:

(1) In Current Account 745.24 468.52 532.18 563.10 544.17

(2) Bank Deposit 5,322.64 255.68 717.00 1,890.00 285.59

(3) Unpaid Dividend Bank

32.59 20.56 19.53 10.29 9 .59
Account

(B) Loans and Advances

(Unsecured Considered Good)

(1) Loans to Staff 11.47 17.08 15.73 14.86 8.82

(2) Advances recoverable in Cash

or in Kind or for value to be 4,503.31 3,671.86 3117.02 2255.11 2014.95
received

(3) Balance with Collector of

1,938.34 1,834.06 830.88 792.41 516.81
Custom, Port Trust, Excise etc.

(4) Advance Payment of Income

1,038.67 196.48 ------------ -------------- --------------
Tax (Net of Provision)

TOTAL of Current Assets (A) 100,845.9 80,963.70 60,871.21 43,341.26 36,780.06

 CURRENT LIABILITIES

AND PROVISIONS

(A) Current Liabilities

(1) Sundry Creditors

28,167.81 27,526.23 20,395.53 15,281.09 10,369.10

(2) Advance from Customer 12,569.49 5,185.15 4,544.00 5,874.94 4,951.02

(3) Dividend Warrants issued

32.59 20.56 19.53 11.56 9.59
but not encashed (Unpaid)

(4) Interest accrued but not due

97.16 162.85 57.19 55.27 62.15

(B) Provisions

(1)Provision for Gratuity 680.58 479.20 ----------- 98.06 287.61

(2)Proposed Dividend 1,392.92 1,392.92 4 63.86 306.52 141.19

(3)Tax on Proposed Dividend 236.73 236.73 78.83 42.99 19.80

TOTAL Current Liabilities (B) 43,177.28 35,003.64 25,558.94 21,670.43 15,840.46

W.C required (A-B) 57,668.62 45,960.06 35,312.27 21,670.83 10939.60

WORKING CAPITAL ANALYSIS

1 Working capital is the funding that a company needs to support its accounts receivable and
inventory, and is offset by the amount of funding it obtains from its suppliers through accounts
payable.

2. Working capital can have a much greater impact on a company’s cash flows than the
results of its operations. One of the best ways to positively impact the amount of cash flow
that a company spins off is to take tight control of its working capital and eliminate much of
the investment in this area.

3. After analysis the 5 year data we can conclude that the Working Capital requirement is
increasing year by year. We are looking increasing pattern in working capital.

The company is managing working capital very precisely as we know that HDFC bank
Engineering is high working capital oriented organization. The sale is increasing year by year
which results into increase in working capital requirement. HDFC bank is getting new order
at regular interval as it gives importance to quality.
INVENTORIES

2022-23 2021-22 2020-21 2019-20 2018-19

PARTICULARS

Raw materials [net 14317.94 10226.30 6784.72 6784.72 4732.51

realize value]

Semi-finished 21378.85 12282.45 8136.52 5980.13 5152.96

goods [at lower
cost]

Finished goods [at 2758.11 130.87 740.80 1926.75 994.98

lower of cost ]

Goods in transit 158.40 174.04 48.00 1080.36 537.96

[at cost

TOTAL 38613.29 23987.66 15710.40 15627.39 11418.41

Interpretation:

In the first category, raw materials, an inventory increase can be caused by over purchasing by a company, the
elimination of a finished good that used to require specific raw materials, or deliberate over purchasing by a
company because of a very low level of inventory accuracy that requires a company to keep excessive stocks on
hand in order to avoid stock-out problems.

By analyzing 5 year data we can about inventories we can say that the levels of inventories are increasing year

by year. There is an increasing trend in the inventory level. As compare d the market and HDFC bank is
having in great demand when quality comes first than other things. From other point of view
we to last year the level of inventory has been increased by 60 % which indicates the growth of the company in
engineering sector. It is fact that the company uses more inventories when there is demand in can say
SUNDRY DEBTORS

PARTICULARS 2022-23 2021-22 2020-21 2019-20 2018-19

Outstanding for a period 11959.53 13965.12 6312.86 3714.86 3162.08

Exceeding six months

Others 35214.05 35266.49 32485.74 17702.75 8234.66

TOTAL 47173.58 49229.61 38798.60 21417.59 11396.75

INTREPETATION

From the table of 5 years of current assets we can say that there is increasing trend in current assets as the
business is of such nature there is increase in blockage of money in current assets more as compared to fixed
assets. The level of CA has been increased by 23% as compared to last year which is good symptom of growth
SUNDRY CREDITORS

PARTICULARS 2022-23 2021-22 2020-21 2019-20 2018-19

Sundry creditors 28167.81 27525.23 20395.53 15281.09 10369.10

Advances from 12569.49 5185.15 4544.00 5874.94 4951.02

Customers

Dividend 32.59 20.56 19.53 11.56 9.59

warrant issued
but not paid

Interest accured 97.16 162.85 57.19 55.27 62.15

but not due

TOTAL 40867.05 32894.79 25016.25 21222.86 15391.86

INTREPETATION:- The obligations are such as deferred dividend, trade credit, and unpaid taxes, arising
in the normal course of a business and due for payment within a year.

If we analyze the above table we can say that each and every item in the current liabilities reveals uneven trend.
But at aggregate level it shows an increasing trend hdfc bank is charging 50 % of advance from the customer
which increases the current liabilities of the company. In 2022-23 current liabilities has been increased by 24%
the main reason behind that is increase in advances from the customer. It indicates change in sales policy .While
in increased because of increase in other liabilities by 32%. The company having minimum liability has good
prestige in the market.
 PROVISIONS

PARTICULARS 2022-23 2021-22 2020-21 2019-20 2018-19

Provision for Gratuity 680.58 479.20 --------- 98.06 287.61

Proposed dividend 1392.92 1392.92 463.86 306.52 141.19

Tax on proposed 236.73 236.73 78.83 42.99 19.80

dividend

TOTAL 2310.23 2108.85 542.69 447.57 448.60

Interpretation:

Above table indicates that company is making provision of only 3 things i.e. gratuity,
dividend and dividend tax. Company is continuously paying dividend to its shareholders each
and every year. Company is also providing more emphasis on paying gratuity to their
employees it shows company‘s awareness.

The provisions increases with increases in time span. The provisions are increased by 10% in
2022-23 while it increased by nearly 300% which indicates the company’s presence in the
market by providing regular dividend.
CONCLUSION

1) The amount of debtors is increasing in the firm with each passing year.
There is an increase of more than 24% from last 5 years.

2) By analyzing 5 year data we can about inventories we can say that the levels of
inventories are increasing year by year. There is an increasing trend in the inventory
level. The level of inventory has been increased by 60 % which indicates the growth
of the company.

3) The cash and bank balance is improving every year due to effective cash
management.

4) Company is continuously paying dividend to its shareholders each and every year.
Company is also providing more emphasis on paying gratuity to their employees it
shows company‘s awareness. The provisions increases with increases in time span.
The provisions are increased by 10% in 2022-23.

5) From the above analysis it is clear that company’s advances payments and loans to
staff is increasing which ultimately increases total assets.
 CHAPTER 7
RATIO ANALYSIS
RATIO ANALYSIS WORKING CAPITAL

As we know working capital is the life blood and the centre of a business. Adequate amount
of working capital is very much essential for the smooth running of the business. And the
most important part is the efficient management of working capital in right time. The
liquidity position of the firm is totally effected by the management of working capital. So, a
study of changes in the uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business. This involves the need
of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1. RATIO ANALYSIS

2. FUND FLOW STATEMENT

3. BUDGETING

RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or working capital position of a
firm. The following ratios can be calculated for these purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit and commercial
banks short-term loans are primarily interested to know the ability of a firm to meet its
obligations in time.

The short term obligations of a firm can be met in time only when it is having sufficient
liquid assets. So to with the confidence of investors, creditors, the smooth functioning of the
firm and the efficient use of fixed assets the liquid position of the firm must be strong but a
very high degree of liquidity of the firm being tied – up in current assets.

Therefore, it is important proper balance in regard to the liquidity of the firm. Two types of
ratios can be calculated for measuring short-term financial position or short-term solvency
position of the firm.

1. Liquidity ratios.

2. Current assets movements ‘ratios.

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current, floating
or circulating assts. The current assets should either be liquid or near about liquidity. These
should be convertible in cash for paying obligations of short-term nature. The sufficiency or
insufficiency of current assets should be assessed by comparing them with short-term
liabilities. If current assets can pay off the current liabilities then the liquidity position is
satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets
then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can
be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

 1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and its
most widely used to make the analysis of short-term financial position or liquidity of a firm.
It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors,
inventories and work-in-progresses. Current liabilities include outstanding expenses, bill
payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay
its current obligations in time. On the hand a low current ratio represents that the liquidity
position of the firm is not good and the firm shall not be able to pay its current liabilities in
time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current
liabilities is considered to be satisfactory.
CALCULATION OF CURRENT RATIO

(Rupees in lacs)

YEAR 2022-23 2021-2022 2020-2021 2019-2020 2018-2019

CURRENT 100,845.90 80,963.70 60,871.21 43,341.26 36,780.06

ASSETS

CURRENT 43,177.28 35,003.64 25,558.94 21,670.43 15,840.46

LIABILITIE
S

CURRENT 2.33 2.31 2.38 2.00 2.32

RATIO

Interpretation:-

A conventional rule is that a current ratio of 2:1 or more is considered satisfactory. The
current ratio of Hdfc bank is more than 2:1.So it is sufficient and good for Hdfc bank.
It has more current asset then current claim so unit is able to meet current obligation in full
and it can be said that its liquidity position is sound.
1. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined
as the relationship between quick/liquid assets and current or liquid liabilities. An asset is
said to be liquid if it can be converted into cash with a short period without loss of value. It
measures the firms’ capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS / CURRENT LIABILITES

Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors

A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms’ liquidity
position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick
assets are equal to the current liabilities, then the concern may be able to meet its short-term
obligations.

However, a firm having high quick ratio may not have a satisfactory liquidity position if it
has slow paid debtors. On the other hand, a firm having a low liquidity position if it has fast
moving inventories.
CALCULATION OF QUICK RATIO

(Rupees in lacs)

YEAR 2023 2022 2021 2020 2019

QUICK 60929.64 57055.93 45239.32 27738.15 15365.24

ASSETS

CURRENT 43,177.28 35,003.64 25,558.94 21,670.43 15,840.46

LIABILITIES

QUICK 1.41 1.63 1.77 1.28 0.97

RATIO

Interpretation:

Generally quick – ratio of 1:1 is considered to represent a satisfactory to current financial condition and this
ratio is sufficient. Hdfc bank has ability to pay its current claim quickly. So, Hdfc bank has sufficient current
assets which convert in the cash immediately.
B] CURRENT ASSESTS MOVEMENT RATIO

Funds are invested in various assets in business to make sales and earn profits. The efficiency
with which assets are managed directly affects the volume of sales. The better the
management of assets, large is the amount of sales and profits. Current assets movement
ratios measure the efficiency with which a firm manages its resources. These ratios are called
turnover ratios because they indicate the speed with which assets are converted or turned over
into sales. Depending upon the purpose, a number of turnover ratios can be calculated.

These are:

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high amount
of debtors due to slow credit collections and moreover if the assets include high amount of
slow moving inventories. As both the ratios ignore the movement of current assets, it is
important to calculate the turnover ratio.

1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO:

Every firm has to maintain a certain amount of inventory of finished goods so as to meet the
requirements of the business. But the level of inventory should neither be too high nor too
low. Because it is harmful to hold more inventory as some amount of capital is blocked in it
and some cost is involved in it. It will therefore be advisable to dispose the inventory as soon
as possible.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which the stock is converted into sales.
Usually a high inventory ratio indicates an efficient management of inventory because more
frequently the stocks are sold; the lesser amount of money is required to finance the
inventory. Whereas the low inventory turnover ratio indicates the inefficient management of
inventory. A low inventory turnover implies over investment in inventories, dull business,
poor quality of goods, stock accumulations and slow moving goods and low profits as
compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

(Rupees in lacs)

YEAR 2022-2023 2021-2022 2020-2021 2019-2020 2018-2019

COGS 6397.72 5543.69 4903.67 2393.83 1763.28

AVERAGE 1367.035 1229.20 972.95 668.67 532.715

INVENTORY

INVENTORY 4.68 Times 4.51 Times 5.04 Times 3.58 Times 3.31 Times
TURNOVER
RATIO

Interpretation: This ratio shows how rapidly the inventory is turning into receivable
through sales. In 2021 the company has high inventory turnover ratio but in 2022 and 2023 it
has reduced. This shows that the company’s inventory management technique is less efficient
as compare to last year.
2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

YEAR 2022-2023 2021-2022 2020-2021 2019-2020 2018-2019

DAYS 365 365 365 365 365

INVENTORY 4.68 4.51 5.04 3.58 3.31

TURNOVER
RATIO

INVENTORY 78 Days 81 Days 72 Days 102 Days 110 Days

CONVERSION
PERIOD

INTREPETATION:-Inventory conversion period shows that how many days inventories

takes to convert from raw material to finished goods. In the company inventory conversion
period is decreasing. This shows the efficiency of management to convert the inventory into
cash.

3.DEBTORS TURNOVER RATIO:-A concern may sell its goods on cash as

well as on credit to increase its sales and a liberal credit policy may result in
tying up substantial funds of a firm in the form of trade debtors. Trade debtors
are expected to be converted into cash within a short period and are included in
current assets. So liquidity position of a concern also depends upon the quality
of trade debtors. Two types of ratio can be calculated to evaluate the quality of
debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS

Debtor’s velocity indicates the number of times the debtors are turned over during a year. Generally
higher the value of debtor’s turnover ratio the more efficient is the management of debtors/sales or more liquid
are the debtors. Where as a low debtors turnover ratio indicates poor management of debtors/sales and less
liquid debtors. This ratio should be compared with ratios of other firms doing the same business and a trend may
be found to make a better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

2

YEAR 2022-2023 2021-2022 2020-2021 2019-2020 2018-2019

SALES 283913.25 252646.67 136690.75 84496.92 47530.35

Average Debtors 48202.59 44015.10 30108.095 16407.17 11316.75

Debtors turnover 5.89 Times 5.74 Times 4.54 Times 5.15 Times 4.20 Times
ratio

Interpretation: This ratio indicates the speed with which debtors are being converted or
turnover into sales the higher the values or turnover into sales. The higher the values of
debtors turnover, the more efficient is the management of credit. But in the company the
debtor turnover ratio is decreasing year to years. This shows that company is not utilizing its
debtor’s efficiency. Now their credit policy becomes liberal as compare to previous

AVERAGE COLLECTION PERIOD:

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the average number of days for which a firm has to wait before its
receivables are converted into cash. It measures the quality of debtors. Generally, shorter the average collection
period the better is the quality of debtors as a short collection period implies quick payment by debtors and vice-
versa.

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

YEAR 2022-2023 2021-2022 2020-2021 2019-2020 2018-2019

DAYS 365 365 365 365 365

DEBTORS 5.89 5.74 4.54 5.15 4.20

TURNOVER
RATIO

AVERAGE 62 Days 64 Days 80 Days 71 Days 87 Days

COLLECTION
PERIOD

INTREPETATION:- The average collection period measures the quality of debtors and it
helps in analyzing the efficiency of collection efforts. It also helps to analysis the credit
 policy adopted by company. In the firm the average collection period is increasing year to
year. It shows that the firm has Liberal Credit policy. These changes in policy are due to
competitor’s credit policy

WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the
number of times the working capital is turned over in the course of the year. This ratio measures the efficiency
with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working
capital and a low ratio indicates otherwise. But a very high working capital turnover is not a good situation for
any firm.

Working Capital Turnover Ratio = Cost of Sales

Net Working Capital

YEAR 2022-2023 22021-022 2020-2021 2019-2020 2018-2019

SALES 177619.34 110304.14 57912.12 34239.91 16846.98

NET WORKING CAPITAL 57,668.62 45,960.06 35,312.27 21,670.83 10939.60

WORKING CAPITAL 3.08 2.4 1.64 1.58 1.54

TURNOVER RATIO

Interpretation:
This ratio indicates low much net working capital requires for sales. In 2021. the reciprocal of
this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the company requires 60 paisa as
working capital. Thus, this ratio is helpful to forecast the working capital requirement on the
basis of sales.

CONCLUSION

1) A conventional rule is that a current ratio of 2:1 or more is considered satisfactory.

The current ratio of Hdfc bank is more than 2:1.So it is sufficient and good for Hdfc
bank.

2) This ratio shows how rapidly the inventory is turning into receivable through sales. In
2021 the company has high inventory turnover ratio but in 2022 and 2023 it has
reduced. This shows that the company’s inventory management technique is less
efficient as compare to last year.

3) This ratio shows how rapidly the inventory is turning into receivable through sales. In
2021 the company has high inventory turnover ratio but in 2022 and 2023 it has
reduced. This shows that the company’s inventory management technique is less
efficient as compare to last year.

4) Inventory conversion period shows that how many days’ inventories takes to convert
from raw material to finished goods. In the company inventory conversion period is
decreasing from 110 Days to 78 Days. This shows the efficiency of management to
convert the inventory into cash.

5) The average collection period measures the quality of debtors and it helps in
analyzing the efficiency of collection. The average collection period helps to analyze
the credit policy adopted by company. In the firm the average collection period is
decreasing year to year. It shows that the firm has Liberal Credit policy.
 CHAPTER 8
FINDINGS, SUGGESTIONS
&
CONCLUSIONS
FINDINGS

1) Company is targeting to increase foreign exchange transactions and also trying to avoid
hedging risk.
2) The total assets has been increased from 36780.06 to 100845.9 from 2018-19 to
2022-2023

3 The amount of debtors is increasing in the firm with each passing year.
There is an increase of more than 24% from last 5 years.

4 By analyzing 5 year data we can about inventories we can say that the levels of
inventories are increasing year by year. There is an increasing trend in the inventory level.
The level of inventory has been increased by 60 % which indicates the growth of the
company.

5 The cash and bank balance is is improving every year due to effective cash management.

6 Company is continuously paying dividend to its shareholders each and every year.

Company is also providing more emphasis on paying gratuity to their employees it shows

company‘s awareness. The provisions increases with increases in time span. The
provisions are increased by 10% in 2022-23.

7 From the above analysis it is clear that company’s advances payments and loans to staff is
increasing which ultimately increases total assets.

8 Company’s working capital is enough to maintain company’s sales and other

operations easily. Due to high goodwill the company is not getting any problem in getting
short term finance.
SUGGESTIONS

The following are the recommendations and suggestions for efficient working capital of
HDFC Bank

1) The bank should raise funds through shorter sources of funds which is comparatively
economical to long term funds.

2) Bank should suggest its customers to take control of debtor’s collection period which
is major part of current assets.

3) Monitoring and inspecting the activities of stocks of borrowers from time to time.
This will avoid misuse of working capital.

4) Bank should take control on cash balance because cash is not earning any return and
is increasing cost of funds and opportunity costs.

5) The bank should maintain maximum working capital so that over and under
capitalization of working capital should be minimized.

6) This ratio shows how rapidly the inventory is turning into receivable through sales. In
2021 the company has high inventory turnover ratio but in 2022 and 2023 it has
reduced. This shows that the company’s inventory management technique is less
efficient as compare to last year. The management should manage inventory
effectively and efficiently to increase ultimate performance of company.
CONCLUSION

It is financially very sound organization. The requirement of working is increasing

continuously. In most of the cases hypothecation are used to create securities for the bank.

Bank has their own credit rating procedures to rate the clients (Borrowers). After doing
assessment of financial indicators it is up to judgment of top management of the bank to
sanction such loan.

Achieving budgeted growth and excelling past performance and sales turnover do not
necessarily indicate the proper management of working capital, as even a highly profitable
company may be having poor cash position.

The performance of the HDFC Bank has been reasonably good. Due to constant work on the
quality, better concentration on the material usage and fair interest the HDFC bank could
improve maximum its performance

Almost all major players have announced substantial increase in capacity which results into
increase in sales of Hdfc bank.

Net working capital is the excess of current assets over the current liabilities. In 2018 Net
working capital was 10939.60 lakhs but it 2023 it is increased up to 57668.62 lakhs. It
indicates that it is performing well.

The bank also have good liquidity position and have sufficient funds to repay liabilities.
 CHAPTER 9
LIMITATIONS

LIMITATIONS OF THE STUDY

1) The analysis is mainly based on secondary data.

2) The study covers only for six weeks.

3) The study was not based on certain assumptions that may lead to
inaccurate conclusion.

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CHAPTER10
BIBLIOGRAPHY
BIBLIOGRAPHY

 www.hdfc bank.com

 www.netmba.com

 Working Capital Management – R P Rustagi

 Financial Management – I.M. Pandey

 Financial Management – Prasanna Chandra

 Financial Statement Analysis – Dr. Anjan Bhattacharya

 Annual Reports of Hdfc bank of last years

 Research paper on working capital management

Nimalathasan Balasundaram University of Jaffna