SYNOPSIS

ON

WORKING CAPITAL MANAGEMENT

ON

SHRI RAM LIFE INSURANCE COMPANY LTD

Submitted by:

PGD HRM

ENROLMENT NO.

SESSION -2008-2010

INSTITUTE OF MANAGEMENT TECHNOLOGY

POST BOX NO. 137, RAJ NAGAR,

GHAZIABAD-201001

PROFORMA FOR SYNOPSIS OF PROJECT WORK

Name :

Address :

Enrolment No. :

Course : PGDBM

Submitted To : Institute of Management Technology,

Ghaziabad (UP)

Mobile No. :

Major Area of

Specialization

:

Questionnaire Attached : NO

Phone No. of the project

Guide

: +

Date Of Submission :

CHAPTERISATION SCHEME

Introduction

Company Profile

Statement About the Problem

Objectives and Scope of the Study

Methodology

Questionnaire

Guide’s CV & Consent Letter

Bibliography

INTRODUCTION

WORKING CAPITAL - OVERALL VIEW

Working Capital management is the management of assets that, are current

in nature. Current assets, by accounting definition are the assets normally

converted in to cash in a period of one year. Hence working capital

management can be considered as the management of cash, market

securities receivable, inventories and current liabilities. In fact, the

management of current assets is similar to that of fixed assets the sense

that is both in cases the firm analyses their effect on its profitability and risk

factors, H differ on three major aspects.

1. In managing fixed assets, time is an important factor discounting and

compounding aspects of time play an important role in capital

budgeting and a minor part in the management of current assets.

2. The large holdings of current assets, especially cash, may

strengthen the firm’s liquidity position, but is bound to reduce

profitability of the firm as ideal car yield nothing.

3. The level of fixed assets as well as current assets depends upon the

expected sales, but it is only current assets that are ad the

fluctuation in the short run u a business.

To understand working capital better we should have basic knowledge

about the various aspects of working capital. To start with, there are two

concepts of working capital:

Gross Working Capital

Net working Capital

Gross Working Capital: Gross working capital, which is also simply known

as working capital, refers to the firm’s investment in current assets: Another

aspect of gross working capital points out the need of arranging funds to

finance the current assets. The gross working capital concept focuses

attention on two aspects of current assets management, firstly optimum

investment in current assets and secondly in financing the current assets.

These two aspects will help in remaining away from the two danger points

of excessive or inadequate investment in current assets. Whenever a need

of working capital funds arises due to increase in level of business activity

or for any other reason the arrangement should be made quickly, and

similarly if some surpluses are available, they should not be allowed to lie

ideal but should be put to some effective use.

Net Working Capital : The term net working capital refers to the difference

between the current assets and current liabilities. Net working capital can

be positive as well as negative. Positive working capital refers to the

situation where current assets exceed current liabilities and negative

working capital refers to the situation where current liabilities exceeds

current assets. The net working capital helps in comparing the liquidity of

the same firm over time. For purposes of the working capital management,

therefore Working Capital can be said to measure the liquidity of the firm. In

other words, the goal of working capital management is to manage the

current assets and liabilities in such a way that a acceptable level of net

working capital is maintained.

COMPANY PROFILE

Shriram Life Insurance Company Ltd.

Shriram Life Insurance Company Ltd. is a joint venture of the Shriram

Group and Sanlam with South African firm holding 26 per cent strake,

maximum permissible ceiling for a foreign partner in a private insurance

company. (As of June 2009).

The Shriram Group is one of the largest and well-respected financial

services conglomerates in India. The Group’s main line of activities in

financial services include chit fund, truck financing, consumer durable

financing, stock broking, insurance broking and life insurance.

The Group has a customer base of 30 lacs chit subscribers and investors

and operates through a network of 630 offices all over the country. The

Group has the largest agency force in the private sector consisting of more

than 75,000 loyal and dedicated agents.

Shriram Life Insurance Co. Ltd. was launched in January 2006. India

currently accounts for 16% of the world’s population.70% of this population

is below 35 years of age. Between 2001 and 2006, Indian demography has

changed with the higher income classes (more than INR 70,000 per annum)

constituting about 79%. This represents huge market for insurance

products.

This is amply reflected in the growth of insurance industry in the last couple

of years. However, this growth has not really reach the Rural and Semi

Urban areas. Shriram Group with its network of branches particularly in

these areas enjoys a unique opportunity for reaching out to wider audience

and sustain the growth story of the insurance industry. Most of the products

of Shriram Life were designed by advisors working in the field and based on

need analysis done through Intense Market Research.

STATEMENT ABOUT THE PROBLEM

AS we were seen as a liability towards the organization since there was no

contribution from our side towards, nobody actually paid any attention towards

Working Capital.

It was very difficult to actually take out relevant information from the Comparative

Study with Axis Bank were very hesitant to let us meet the company.

If cash flows are predictable it is simply a problem of minimising the total

costs - the transaction cost and the opportunity cost.

transaction cost) against the cost of too much cash( opportunity cash)

Cash flows, in practice, are not completely predictable. At times they may

be completely random . Under such a situation, a different model based on

the technique of control theory is needed to solve the problem of

appropriate level of working cash balance.

A fire in a factory may burn everything and owner’s only source of earning

with investment of huge capital is finished but insurance will come to one’s

rescue if insurance is taken, all the operations can be started again.

OBJECTIVES AND SCOPE OF THE STUDY

UNDERSTANDING THE CONCEPT AND IMPORTANCE OF WORKING

CAPITAL MANAGEMENT

One of the major objectives of our project is to understand the concept of

Working capital management. Understanding the meaning of two terms i.e.

gross working capital and net working capital. To know the two types of

working capital i.e. permanent working capital and temporary working

capital. Working Capital Management policies have a great effect on a

firm’s profitability, liquidity and its structural health. A finance manager

should therefore, chalk out appropriate working capital management

policies in respect of each of the components of working capital so as to

ensure higher profitability, proper liquidity and sound structural health of the

organization.

NDERSTANDING VARIOUS STEPS OF OPERATING CYCLE SO WHICH

ARE INVOLVED IN WORKING CAPITAL MANAGEMENT

Steps of operating cycle which are necessary for proper working capital

management. These steps include

Management of cash :- It is the duty of the Finance Manager to provide

adequate cash to all segments of the organization. He has to ensure that no

funds blocked in idle cash since this will involve cost in terms of interest to

the business. A sound cash management scheme, therefore, maintains the

balance between the twin objectives of liquidity and cost.

• Management of Accounts Receivable and Payable:- Accounts

receivables constitute a significant portion of the total current assets of the

business next after inventories. They are a direct consequence of ‘trade

credit’ which has become an essential marketing tool in modern business.

Accounts payable constitute a significant portion of the total current

assets of the business. The objective in accounts payable is to slow down

the payments process as much as possible. Whereas the underlying

objective in accounts receivables is to maximize acceleration of the

collection process.

Management of inventories:- Inventories often constitute a major element of

the total working capital and hence it has been correctly observed, “good

inventory management is good financial management”.

UNDERSTANDING THE WORKING CAPITAL MANAGEMENTOF ASP

DIVISION OF SHRIRAM LIFE INSURANCE CO. LTD

Analyzing the data available with the help of various diagrams and

graphical tools of presentation like bar graphs, line graphs etc.

This would strengthen the theoretical knowledge that we have about

working capital management.

GETTING TO A CONCLUSION

Getting to a conclusion regarding the appropriate and inappropriateness of

the working capital management strategies of Shriram Life Insurance Co.

Ltd

GIVING SUGGETIONS AND RECOMMENDATIONS

Giving suggestions and recommendations based on your theoretical

knowledge and practical analysis of data to make the working capital

management of Shriram Life Insurance Co. Ltd. better.

This project report focuses on the working capital management of Auto

Suspension Products division of Shriram Life Insurance Co. Ltd and its

comparison with the industry and its competitors.

Chapter wise scope of the project is as follows-

Starting with the Company Profile which contains brief information about the

history, competitors, product range and the diverse fields in which the

company is operating. It creates an image of the company in the reader’s

mind which will further help the reader to understand the project properly.

The next chapter is Research Methodology which indicates the various

sources of data used to make the project report and the type of research

design which is used to make it more meaningful.

The research methodology is followed by an overview of working capital

management which gives the theoretical knowledge of working capital

management which in turn would help building a strong base for the

research ahead. Theory is accompanied by graphs and diagrams which

would help the reader to understand the project and the subject thoroughly.

Next is Presentation and Analysis of data. Analyzing the data available with

the help of various diagrams and graphical tools of presentation like bar

graphs, line graphs etc. This would strengthen the theoretical knowledge

that we have about working capital management.

The last chapter is Conclusion & Recommendations. This chapter contains

the critical evaluation of the presentation and analysis of data.

Recommendations include what should be done to make the situation

better.

The aim of the project is to learn the importance of working capital

management for the efficient utilization of funds and proper financial

management of the company. The non-ideal production technology and

imperfect market and distribution systems are responsible for the

generation of current assets, which block the funds of an enterprise.

Working Capital is needed to release such blockage of funds. However the

consideration of the level of investment in current assets should avoid two

danger points- excessive and inadequate investments in current assets.

The concerned unit is a manufacturing unit so a good management of

working capital is indispensable for the company. The content of the report

has a clear sequence which defines the present background of the

company and Sir Ram Life contribution to the market.

It discusses the method of comparison of financial statement of companies

like ratio analysis, working capital analysis and trend analysis etc. Various

ratios, which are required to be calculated, have been stated in the report.

The project deals with the study of working capital of the company and to

find method and solutions for achieving the most efficient level. It will also

look into the approach of risk return trade off in terms of the cost of

maintaining a particular level of current assets, which are:

1) The cost of liquidity and

2) The cost of profitability.

The project deals with analyzing the operating cycle of the company and

discusses the technique used by the company for its management

METHODOLOGY

DATA SOURCES & PRIMARY DATA

Appointments with different people who seem to be prospective Company.

Interview Method This method involves presentation of oral – verbal stimuli

and reply in terms of oral - verbal responses. This method can be used through

personal interviews and, if possible, through telephone interviews.

Once the sampling plan has determined, the question was how the subject

should be contacted, i.e. by telephone, mail or personal interviews. But the

single way to contact the subject was personal interviews

SECONDARY DATA

Secondary data means data which is already available i.e. we

refer to the data which has already been collected and

analyzed by someone else. Secondary data may be either

published data or unpublished data. In this project secondary

data collected from following sources. Usually published data

are available:

Telephone directory, which contains telephone number of

all residents of the area, companies and shops.

Newspapers, books and magazines.

Reports and publications of various associations

connected with business and industry.

APPENDICES

QUESTIONNAIRE

Hello. This is ____________________ Shriram Life Insurance Co. Ltd,

working here as a management trainee. I would appreciate it if you could

lend me just 2 minutes of your time for my project on Insurance Industry. I

would like to assess if you are interested in taking a business opportunity

available in the insurance sector which requires no investment of yours.

1. Name:

2. Occupation

3. Do you know about Insurance?

Yes

No

4. Have you ever opted for Insurance from any company?

Yes

No

5. If Yes,

Which company have you taken Insurance from?

LIC

SBI Insurance

HDFC Standard Life Insurance

Icici Pur

Max New York Life Insurance

Kotak Mahindra Old Mutual Life Insurance

TATA AIG life Insurance

6. How did you come to know about Insurance?

Advertisement

Word of Mouth

Referred by your company / Friend

7. What made you select a particular company for the Insurance?

EMI

Brand name

Procedures

Facilities

Policies

Advertisement

8. How do you like the Marketing strategy by different Insurance

Company?

Good

Average

Bad

9. What motivates you for selecting any Company for Insurance?

EMI

Brand name

Procedures

Facilities

Policies

10.Advantages or Comment about Insurances

11.Which Company would you prefer if you have never applied for

Insurance?

LIC

SBI Insurance

HDFC Standard Life Insurance

HDFC Pur

Max New York Life Insurance

Kotak Mahindra Old Mutual Life Insurance

TATA AIG life Insurance

BIBLIOGRAPHY

BOOKS

Board of Studies – The Institute of Chartered Accountants of India,

Financial Management, New Delhi, ICAI, December 2006.

Bolton S.E., Managerial Finance, (Boston) Houghton Miffin Co. 1976, Page

no. 388

‘Banking : The Network is the bank’, by Yogesh Sharma, Dataquest,

January 31, 2006

Hampton, John J., Financial Decision Making, 1977 ed., Page no. 154

Hrishikesh Bhattacharya, Working Capital Management – Strategies and

Techniques, New Delhi, Prentice Hall of India Private Limited, 2001.

‘Race will end in survival of the fittest’, The Financial Express, November

29, 2006.

Roy Chowdary, A.B., Working Capital Management: A work Book on

Corporate Liquidity, Calcutta: Management Technologists of 6 Southern

Avenue, 1987, Page no. 10.

The Times of India, 26 July, 2007.

‘The future is in e-banking’ by Mr. K.V. Kamath (Managing Director, ICICI),

April 14, 2002, Business Line.

‘RBI road map for banking’, The Indian Express, July 21,2009

Banking in India, by Dr A. K. Mishra (Professor & Chairman of Finance

Group at IIM Lucknow).

TABLE OF CONTENTS

Chapter No. Subject Page No.

1.0 Executive Summary

2.0 Introduction

a. Objectives

3.0 Industry Profile

a. Review of literature on the industry

b.Major Companies

c.Growth chart – past and projections for future

d .SWOT etc.

4.0 Company Profile

a. Review of literature on the company

b.Historical analysis

c.Growth Chart – past and projections for future

d.SWOT etc.

5.0 Issues and challenges facing the

organization

6.0 Reflections on what has been learned

during the placement experience

7.0 Recommendations

8.0 Bibliography

9.0 Annexure

10.0 Case Study