Welcome to Presentation on

Working Capital Management of Private Scheduled Bank

- A Case Study of Prime Bank Limited

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Objectives of the Study

General Objective

To analyze the WCM system of Prime Bank Ltd.

Specific Objectives

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

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

(1) (2) To assess To understand the the liquidity (3) effect of the credit of the PBL To understand how policy on WC WC contributes profit maximization

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Methodology of the Study

Research Design
Objective Sampling Unit Sampling Area Sampling Size Sampling Technique Sources of information : : : : : : WCM of Prime Bank Ltd. WC of Prime Bank at all Product Prime Bank Ltd. Accounts of 2006 to 2011 Convenience Sampling

Secondary data have been used to prepare the report. It includes sources of existing/published data
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Analysis of the Study

Analysis of data :
Qualitative Analysis- WCM Analysis

Quantitative- Ratio Analysis

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PBL
Mission

Vision

Objectives

Goals
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Working Capital
Cash Mgt. & Environment

COLLECT FUNDS

BANKERS PERSPECTIVE

DISBURSE FUNDS

CUSTOMER ACCOUNT

TRACK TRANSACTIONS & BALANCES

MANAGE FUNDS EXCESS/ SHORTFALL

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Managing Liquidity by PBL

INVESTMENTS
REPAY INVEST
ACCELERATE

INFLOWS

OUTFLOWS

DECELERATE

BORROWING

REPAY

Source: Essentials of Managing Corporate Cash 18-Mar-13 01915810815

BORROW

Liquidity
THE CASH GENERATOR / ABSORBER

1. 2. 3. 4. 5. 6. 7.

Day to day transactions Protective balances Compensating balances Obtaining discounts Acid tests Favourable opportunities Overall avoiding bankruptcy!
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PROFIT?
Stock
40

Purchase s
20

Sales
8

80

CASH BALANCE? 01915810815

Method of Payment Cheque Clearing, UK

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Clearing House Automated Transfer System

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Sources of Working Capital & Working Capital Cycle

Accounts Payable
Sources of working capital Long term sources Short term sources

Value Addition

Owned sources

Borrowed sources

Internal sources

External sources

Raw Materials

WIP

Issue of shares

Debentures

Depreciation funds

Trade credit

Retained earnings

Long term debts

Provision for taxation

Bank credit

Cash

THE WORKING CAPITAL CYCLE (OPERATING CYCLE)

Finished Goods

Sale of fixed assets

Public deposits

Reserves

Advance from customers

Accounts Receivable
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SALES

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Classification of WC on the Basis of Time

The amount of Current Assets require to meet

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

Value

Permanent Current Asset Value

Temporary current assets

Time

Permanent Working Capital

0

Time
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Findings of the Study

Income Statement For the year ending 31-3-2011 (Tk. in millions) Sales Less cost of goods sold 1600 1310 290 Less Selling and Administrative expenses 40 250 Less Interest Earnings before Tax Less Tax paid 45 205 82
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Earnings After Tax

123

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

Liabilities
Paid up capital (40000 shares of Tk. 10 fully paid) Retained Earnings Debentures Creditor Tk. 400

Assets
Net Fixed assets Inventory Debtor Marketable securities Cash

Tk . 800

120 700 180

400 175 75

Bills Payable Other current liabilities

20 80 1500

50
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 firms financial position by calculating ratios useful for banks evaluation and problem areas suggested by ratio analysis.
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Ratio Analysis of PBL

Ratios 1. Liquidity position: a. Current ratio b. Quick ratio 2.Capitalization ratios: a. Funded debt/assets b. Funded debt/equity c. Total liabilities / equity 3. Profitable Ratios: a. Net profit/sales * 100 b. N/P / total sales * 100 c. N/P / capital employed * 100 Units ratios 700/280 =2.5 300/280 = 1.07 Business Ave. 2.4 1.5 Comment Satisfactory Low

700/1500 = 46.7% 700/520 = 1.3:1 980/520 = 1.9:1

40% N.A N.A

Rather high Satisfactory Good

123/1600 * 100 = 7.7% 123/1500 * 100 = 8.2% 123/1220 * 100 = 10.1%

7% 11% N.A

Satisfactory Low Satisfactory

4. Activity ratios: a. sales to inventory b. Ave. collection period: debtor /avg. daily sales

1600/400 = 4 175/4.4 = 40 days

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8 36 days
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Very low Marginally high

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Calculation of Working Capital Requirement

CURRENT ASSETS
(A) Stock Loan and Banking (2,60,000/52 *4) operation cost 20,000 39,616 59,616

TK.

TK.

Undergoing Loan activity (515,000/52*4) (B) WIP Undergoing Loan (2,60,000/52*2) Wages (1,95,000/52*2*0.5) Overheads (60,000/52 *2*0.5) (C) Debtor (6,50,000/52*7) (D) Cash TOTAL C.A. (-) CURRENT LIABILITIES (A) Creditor Undergoing Loan (2,60,000/52*6) (B) Wages (1,95,000/52*1.5) (C) Administration overheads Rent (48,000/52*8) Salary (36,000/52*4) Office expense (45,500/52*2) (D) Banking operational Cost (60,00/52*8) TOTAL C.L. WC reqd.(CA-CL)

10,000 3,750 1,154 14904 87,500 40,000 2,02,020

30,000 5,625

7,385 2,769 1,780

11,904 9,235 18-Mar-13 56,570 01915810815 1,45,260 16

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

This to rise to 20% of Prime Banks target price over the next 12 months is expected with banking and life Insurance being the key drivers.

a. The value accruing from subsidiaries to be 17% of Prime Banks Current market capitulation.

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.
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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 4. Increase in owners contribution 5. Separation of Normal, Non-Peak Level & Peak Level Requirements 6. Temporary Accommodation through loan 7. Penal Information 8. Info. Systems 18-Mar-13
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Question Answer Session.....

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