Apr 11, 2023 01915810815 1

Welcome to Presentation

onWorking Capital Management of Private Scheduled Bank

- A Case Study of Prime Bank Limited

Prepared by:Md. Sharif Hossain

ID: M-121844 (40k)MBA (Finance and Banking)

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Objectives of the Study

To analyze the WCM system of Prime Bank Ltd.

Specific Objectives

General Objective

(3)To understand how WC contributes profit maximization

(2)To understand the effect of the credit policy on WC

(1) To assess the liquidity of the PBL

(5)To identify some problems related to its WC mgt. system

(4)To check the impact of cash flows on WC of the com.

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Methodology of the Study

Objective : WCM of Prime Bank Ltd.

Sampling Unit : WC of Prime Bank at all Product

Sampling Area : Prime Bank Ltd.

Sampling Size : Accounts of 2006 to 2011

Sampling Technique : Convenience Sampling

Sources of information :

Secondary data have been used to prepare the report. It includes sources of

existing/published data

Research Design

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Analysis of the StudyAnalysis of data :

Qualitative Analysis- WCM Analysis

Quantitative- Ratio Analysis

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PBL

Mission

Vision

Objectives

Goals

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Working Capital

The effective planning, monitoring and management of liquid / near liquid

resources including:

1. Day-to-day

cash control

2. Money at

the bank

3. Receipts

4. Payments

5. S-T investments

6. Borrowings

Cash Mgt. & Environment

MANAGE FUNDS

EXCESS/SHORTFALL

DISBURSEFUNDS

COLLECTFUNDS

TRACKTRANSACTIONS

& BALANCES

CUSTOMERACCOUNT

BANKER’S PERSPECTIVE

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INFLOWS OUTFLOWS

INVESTMENTS

BORROWING

REPAY

REPAY

INVEST

DECELERATEACCELERATE

BORROW

Source: Essentials of Managing Corporate Cash

Managing Liquidity by PBL

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1. Day to day transactions

2. Protective balances

3. Compensating balances

4. Obtaining discounts

5. Acid tests

6. Favourable opportunities

7. Overall avoiding bankruptcy!

THE CASH GENERATOR / ABSORBER

Stock

Sale

s

Pu

rch

ase

s

PROFIT?

CASH BALANCE?

£20

£20

£40

£80

Liquidity

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Method of Payment Cheque Clearing, UK

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Clearing House Automated Transfer System

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Sources of working capital

Long term sources

Owned sources

Issue of shares

Retained

earnings

Sale of fixed assets

Reserves

Borrowed sources

Debentures

Long term debts

Short term sources

Internal sources

Depreciation funds

Provision for taxatio

n

External sources

Trade credit

Bank credit

Public deposit

s

Advance from custom

ers

THE WORKING CAPITAL THE WORKING CAPITAL CYCLECYCLE

(OPERATING CYCLE)(OPERATING CYCLE)

Accounts Payable

Cash

RawMaterials

W I P

Finished Goods

Value Addition

AccountsReceivable

SALES

Sources of Working Capital & Working Capital Cycle

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The amount of Current Assets require to meet

X0 Time

Permanent Current Asset

Y

Value

The amount of Current Asset required to meet short term minimum needs

Temporary current assets

Permanent Working Capital

XTime

0

Value

Y

Classification of WC on the Basis of Time

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Findings of the Study

Income Statement For the year ending 31-3-2011 (Tk. in millions)

Sales 1600

Less cost of goods sold 1310

290

Less Selling and Administrative expenses 40

250

Less Interest 45

Earnings before Tax 205

Less Tax paid 82

Earnings After Tax 123

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Balance sheet As on 31-3-2011 (Tk. in millions)

Liabilities Tk. Assets Tk .

Paid up capital (40000 shares of Tk. 10 fully paid)

400 Net Fixed assets

800

Retained Earnings 120 Inventory 400

Debentures 700 Debtor 175

Creditor 180 Marketable securities

75

Bills Payable 20 Cash 50

Other current liabilities 80

1500 1500

The unit has approached the bank for credit limit of Tk. 5 millions against the security of stocks and debtor. Following is the evaluation of firm’s financial position by calculating ratios useful for bank’s evaluation and problem areas suggested by ratio analysis.

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Ratio Analysis of PBLRatios Unit’s ratios Business Ave. Comment

1. Liquidity position:

a. Current ratio 700/280 =2.5 2.4 Satisfactory b. Quick ratio 300/280 = 1.07 1.5 Low

2.Capitalization ratios:

a. Funded debt/assets 700/1500 = 46.7% 40% Rather high b. Funded debt/equity 700/520 = 1.3:1 N.A Satisfactory c. Total liabilities / equity 980/520 = 1.9:1 N.A Good

3. Profitable Ratios:

a. Net profit/sales * 100 123/1600 * 100 = 7.7% 7% Satisfactory b. N/P / total sales * 100 123/1500 * 100 = 8.2% 11% Low c. N/P / capital employed * 100 123/1220 * 100 = 10.1% N.A Satisfactory

4. Activity ratios:

a. sales to inventory 1600/400 = 4 8 Very low b. Ave. collection period: debtor /avg. daily sales

175/4.4 = 40 days 36 days Marginally high

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Calculation of Working Capital RequirementCURRENT ASSETS TK. TK.

(A) Stock

Loan and Banking operation cost (2,60,000/52 *4)

20,000

Undergoing Loan activity (515,000/52*4) 39,616 59,616

(B) WIP

Undergoing Loan (2,60,000/52*2) 10,000

Wages (1,95,000/52*2*0.5) 3,750

Overheads (60,000/52 *2*0.5) 1,154 14904

(C) Debtor (6,50,000/52*7) 87,500

(D) Cash 40,000

TOTAL C.A. 2,02,020

(-) CURRENT LIABILITIES

(A) Creditor

Undergoing Loan (2,60,000/52*6) 30,000

(B) Wages (1,95,000/52*1.5) 5,625

(C) Administration overheads

Rent (48,000/52*8) 7,385

Salary (36,000/52*4) 2,769Office expense (45,500/52*2) 1,780 11,904

(D) Banking operational Cost (60,00/52*8) 9,235

TOTAL C.L. 56,570

WC reqd.(CA-CL) 1,45,260

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Conclusion

1. Best play in a optimistic environment – Favorable macro, optimistic

2. Pricing power in consumer financing segment profitability against potential

shocks

3.In line with consensus, but we recommend buy PRIME BANK for growth Reasons and

not for the relative valuation appeal.

4. Increasing contribution from strategic investments – Yet another driver

b. The life insurance business of Prime Bank has been incurring losses On an

accounting basis due to continued investment in expanding The scale and scope of the business. The life insurance

business is Believed in creating wealth for its shareholders through market Share gains, increasing penetration of life insurance and

improving operating efficiency.

a. The value accruing from subsidiaries to be 17% of Prime Bank’s Current market capitulation. This to rise to 20% of Prime

Bank’s target price over the next 12 months is expected with banking and life Insurance

being the key drivers.

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Recommendation

1. System of lending cash credit/loans/ bills

2. Bifurcation of credit limits

3. Reduction in over dependence on bank finances

5. Separation of Normal, Non-Peak Level & Peak Level Requirements

6. Temporary Accommodation through loan

7. Penal Information

8. Info. Systems

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Question Answer Session.....

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