1PROJECT_REPORT on Working Capital Management - Copy (Autosaved)

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Working Capital Management of Bharti AXA Life Insurance Ltd.

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CHAPTER-1

INTRODUCTION


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EXECUTIVE SUMMARY

This project is done with the objective to Study The working capital management of

Bharti AXA Insurance Ltd. by identifying how many times clients ask for the suggestion

and do listen to the suggestion of the painter before selecting the brand.

The first section of the report is a study of past and present scenario of the Indian

insurance industry, company profile of Bharti AXA, organization structure, products and

services offered by the company, study of the financial statement and various ratio

analysis of the company.

In the second part questionnaire is prepared for respondents. Questionnaire includes both

general information and specific information and framed in accordance to further analysis

& interpretation.

INTRODUCTION TO WORKING CAPITAL

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, hence they

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 firms

liquidity position, but is bound to reduce profitability of the firm.


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

sales, but it is only current assets that add fluctuation in the short run to 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 firms 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 arrangementshould 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 exceed 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


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way that a acceptable level of net working capital is maintained.

Importance of working capital management:

Management of working capital is very much important for the success of the business. It

has been emphasized that a business should maintain sound working capital position and

also that there should not be an excessive level of investment in the working capital

components. As pointed out by Ralph Kennedy and Stewart MC Muller, the inadequacy

or mis-management of working capital is one of a few leading causes of business failure.

Current assets, in fact, account for a very large portion of the total investment of the firm.

Determinants of Working Capital:

There is no specific method to determine working capital requirement for a business.

There are a number of factors affecting the working capital requirement. These factors

have different importance in different businesses and at different times. So a thorough

analysis of all these factors should be made before trying to estimate the amount of

working capital needed. Some of the different factors are mentioned here below:-

1. Nature of business: Nature of business is an important factor in determining the

working capital requirements. There are some businesses which require a very

nominal amount to be invested in fixed assets but a large chunk of the total

investment is in the form of working capital. There businesses, for example, are of

the trading and financing type. There are businesses which require large

investment in fixed assets and normal investment in the form of working capital.

2. Size of business: It is another important factor in determining the working capital

requirements of a business. Size is usually measured in terms of scale of operating

cycle. The amount of working capital needed is directly proportional to the scale

of operating cycle i.e. the larger the scale of operating cycle the large will be the


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amount working capital and vice versa.

3. Business Fluctuations: Most business experience cyclical and seasonal

fluctuations in demand for their goods and services. These fluctuations affect the

business with respect to working capital because during the time of boom, due to

an increase in business activity the amount of working capital requirement

increases and the reverse is true in the case of recession. Financial arrangement

for seasonal working capital requirements are to be made in advance.

4. Production Policy: As stated above, every business has to cope with different

types of fluctuations. Hence it is but obvious that production policy has to be

planned well in advance with respect to fluctuation. No two companies can have

similar production policy in all respects because it depends upon the

circumstances of an individual company.

5. Firms Credit Policy: The credit policy of a firm affects working capital by

influencing the level of book debts. The credit term is fairly constant in an

industry but individuals also have their role in framing their credit policy. A

liberal credit policy will lead to more amount being committed to working capital

requirements whereas a stern credit policy may decrease the amount of workingcapital requirement appreciably but the repercussions of the two are not simple.

Hence a firm should always frame a rational credit policy based on the credit

worthiness of the customer.

6. Availability of Credit: The terms on which a company is able to avail credit

from its suppliers of goods and devices credit/also affects the working capital

requirement. If a company in a position to get credit on liberal terms and in a

short span of time then it will be in a position to work with less amount of

working capital. Hence the amount of working capital needed will depend upon

the terms a firm is granted credit by its creditors.

7. Growth and Expansion activities: The working capital needs of a firm increases

as it grows in term of sale or fixed assets. There is no precise way to determine

the relation between the amount of sales and working capital requirement but one


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thing is sure that an increase in sales never precedes the increase in working

capital but it is always the other way round. So in case of growth or expansion the

aspect of working capital needs to be planned in advance.

8. Price Level Changes: Generally increase in price level makes the commodities

dearer. Hence with increase in price level the working capital requirements also

increases. The companies which are in a position to alter the price of these

commodities in accordance with the price level changes will face fewer problems

as compared to others. The changes in price level may not affect all the firms in

same way. The reactions of all firms with regards to price level changes will be

different from one other.

ELEMENTS OF WORKING CAPITAL

CASH MANAGEMENT

Cash is the important current asset for the operations of the business. Cash is the

basic input needed to keep the business running on a continuous basis. It is also the

ultimate output expected to be realized by selling the service or product manufactured bythe firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will

disrupt the firms operations while excessive cash will simply remain idle, without

contributing anything towards the firms profitability. Thus a major function of the

Financial Manager is to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without any restriction. The

term cash includes currency and cheques held by the firm and balances in its bank

accounts. Sometimes near cash items, such as marketable securities or bank time deposits

are also included in cash. The basic characteristics of near cash assets are that they can

readily be converted into cash. Cash management is concerned with managing of:

i) Cash flows in and out of the firm

ii) Cash flows within the firm


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iii) Cash balances held by the firm at a point of time by financing deficit or inverting

surplus cash.

In order to resolve the uncertainty about cash flow prediction and lack of synchronization

between cash receipts and payments, the firm should develop appropriate strategies

regarding the following four facets of cash management.

1. Cash Planning: - Cash inflows and cash outflows should be planned to project cash

surplus or deficit for each period of the planning period. Cash budget should prepared

for this purpose.

2. Managing the cash flows: - The flow of cash should be properly managed. The cash

inflows should be accelerated while, as far as possible decelerating the cash outflows.

3. Optimum cash level: - The firm should decide about the appropriate level of cash

balances. The cost of excess cash and danger of cash deficiency should be matched to

determine the optimum level of cash balances.

4. Investing surplus cash: - The surplus cash balance should be properly invested to

earn profits. The firm should decide about the division of such cash balance between

bank deposits, marketable securities and inter corporate lending.

The ideal Cash Management system will depend on the firms products, organisation

structure, competition, culture and options available. The task is complex and decision

taken can effect important areas of the firm.

MANAGEMENT OF RECEIVABLES

Trade credit, the tool which as a bridge for movement of goods through

production and distribution stages to customer, is a force in the present day business and

a essential device. Trade credit is granted with a motive of protecting the sale from ones,

competitors and attaching more of the potential customers. Trade credit is said to be


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extended to a customer when a firm sell its services or goods and does not receive the

payment for them immediately. Thus trade credit creates receivable which refer to the

amount which a firm is expected to collect in near future.

The book debt or receivable which arise a result of trade credit have the following

features:

It involves a element of risk and hence should never to be fiddled with. As credit sale

leave a sum to be recovered in future and future can never be the certainty, hence it is

risky.

It is based on economic value, while for the buyer, the economic value in goods

passes immediately at the time of purchase, while the seller expects an equivalent

value to be received later on.

It represents futurity. The cash payments for the goods or services received by the

buyer will be made in future.

The management of receivable gain more importance in the view of the fact that more

than one third of the total current assets is blocked in the form of trade debtors. The

interval between the date of sale and the date of payment is financed by working capital.Thus trade debtors represents the investment. As substantial amount are tied up as trade

credit hence it requires careful analysis and proper management.

MANAGEMENT OF PAYABLES

A substantial part of purchase of goods and services in business are on credit

terms rather than against cash payment. While the supplier of goods and services tends to

perceive credit as a lever for enhancing sales or as a form of non-price instrument of

competition, the buyer tends to look upon it as a loaning of goods or inventory. The

suppliers credit is referred to as Accounts payable, Trade Credit, Trade Bill, Trade


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Acceptance, commercial drafts of bills payable depending on the nature of the credit. The

extent to which this buy-now, pay- later facility is provided will depend upon a variety

of factors such as the nature, quality and volumes of items to be purchased, the prevalent

practices in the trade, the degree of competition and the financial status of the parties

concerned. Trade credits or Payables constitutes a major segment of current liabilities in

many business enterprises. And they primarily finance inventories which form a major

components of current assets in many cases.

FINANCING OF WORKING CAPITAL

WORKING CAPITAL FINANCE

Funds available for a period of one year or less are called short-term finance. In

India, short-term funds are used to finance working capital the sources of finance that are

used to finance current assets are as follows.

BANK FINANCE AND MARGIN REQUIREMENT

The Bank finances only that portion of the asset which are not financed by the

creditors, Banker finances the working capital requirement after taking the net current

assets into consideration. The bank will not finance the net working capital to the extent

of 100% of net current assets. It will like the company and the rest of the amount put in

that some amount o the asset may be financed by the bank.

The term margin money for working capital will imply the pos ition of the current assets

which are to be financed by the promoter / company. The Tandon and Chore committee

are two notes worthy committees which had made important and significant

recommendations in this regard .The prime importance of the margin money is that the

amount to some extent should be brought in by the promoter to see that the current assets

are not double financed. Thus the actual bank borrowings are, say 75% of the net current


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assets. The balance 25% of the contribution is to be brought in by the promoter company.

Following steps are involved on financing working capital

1. Receiving applications

2. Brief assessment of requirement as per application.

3. Processing of applicationwhich involve:

(a) Assessment of financial parameters

(b)Assessment of need (on the basis of site visit)

(c) Assessment of creditworthiness of party

(d)Assessment of economic viability

(e) Assessment of technical feasibility

(f) Assessment on managerial competency.

4. Securitywhich involves

(a) Scrutiny of securities

(b) Valuation of stocks and securities

(c) Obtaining legal opinion

(d) Assessment of personal guarantors.5. Forming opinion about the proposal

6. Sanction of credit

7. Documentationwhich involves inspecting and acquiescing all legal document.

8. Release of credit

9. Follow up

ASSESSMENT OF WORKING CAPITAL

Recognizing the need for making the loan policy of the bank responsive, at the

same time ensuring that it affords a comprehensive credit risk management, observing

accepted prudential norms and exposure guidelines with regard to assessment of working

capital requirements of the borrowers has to be followed by banks. The following method

has been in effect since January 1998 and. may change with new guideline from RBI. But


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before new guidelines from RBI banks will follow these methods for assessing working

capital requirements of borrowers.

ASSESSMENT OF WORKING CAPITAL FINANCE: METHODLOGIES

The following methods has been adopted, depending on the quantum of finance

requested for assessing working capital requirements of the borrowers

Quantum of limits requested

(Rs in lacs)

1. Upto Rs. 200 from the banking system Turnover method

2. Rs. 200 and above from the banking system But upto and inclusive of Rs 200000

lacs from the bank. Eligible working capital Limit.

3. For limits above Rs 2OO lacs EWCL or cash budget method may be decided by

the bank.

BASIC FINANCIAL PARAMETERS

The steadfast adherence to stipulated current ratios under the erstwhile MPBF

system as mandated by RBI had rendered the system inflexible to the needs of theborrowers and at the same time did not afford any scope for the lending banker to

exercise credit judgment. The raised assessment methodology envisages adoptions of a

basket of basic financial parameters with broad bands to facilitate better risk management

and to imbibe requisite flexibility in credit dispensation.

The following are the basic financial parameters to be observed in case of borrower

assessment

.

1. LIQUIDITY

The liquidity of any borrower is reflected in his current ratio and lowers the

current ratio, tighter the liquidity is indicating a lower net working capital (NWC) in the

business.

If other basic financial parameters are satisfactory, the bank may make available full


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sanctioned limits at lower than assessed NWC provided the resulting current ratio

semained within the band fixed by the bank. The bank may on merits of the case make

available additional finance either in the form of a short term loan or additional OD limit,

provided other basic financial parameters are satisfactory and at the same time

commensurate collateral security cover is available to the extent of 1.5 times of the value

of credit facilities availed by the borrower.

2. INDEBTEDNESS

The ratio of total outside liability to tangible net worth (TOL TNW) is reflective

of total in debtender of a borrower. A higher TOL : TNW ratio is cridicative of a higher

level of indebtedness on the part of the borrower generally on TOL : TNW ratio upto 5:1

to 10:1 may be accepted as reasonable. But sanctioning authority is vested with necessary

discretion to decide the ratio on a case to case basis.

3. SECURITY

The security coverage vis--vis the credit facilities enjoyed by a particular

borrower shall not be less than the value of advance. This is a minimum requirement anda stronger security position should be tried for wherever possible for the purpose of

arriving at security courage ratio, the value of the second change should be reckoned with

after adjusting the quantum of first / prior charges. The value of primary security plus

collateral security shall be taken into account to determine whether an advance is secured

or clean

.

4. PROFITABILITY

While sanctioning any credit proposal the minimum requirement shall be that the

business is making profit and not incurring loss. However, exception may be made

wherever a borrower suffers a temporary set back leading to an operating loss during a

particular year. The credit proposals of used / sick units will however remain subjected to

relevant guidelines mandated by RBI.


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CHAPTER-2

INDUSTRY PROFILE


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INSURANCE COMPANIES IN INDIA

The Indian Life Insurance Company has seen a remarkable shift since the time

ofestablishment of the first company, Oriental Life Insurance Company in 1823. At the

time of Independence and thereafter, there were more than 200 companies operating in India

and not all of them on sound ethical principles. Many factors combined together to prompt

the then Government to nationalize the life insurance industry in 1956 to form the Life

Insurance Corporation of India.

Insurance sector was once a monopoly, with LIC as the only company, a public sector

enterprise. But nowadays the market opened up and there are many private players

competing in the market. There are more than thirteen private life insurance companies

who have entered the industry.

HISTORY OF INSURANCE

History of insurance refers to the development of a modern laws and market

in insurance against risks. In some sense we can say that insurance appears simultaneously

with the appearance of human society. We know of two types of economies in human

societies: money economies and non-money or natural economies. The second type is a

more ancient form than the first. In such an economy and community, we can see

insurance in the form of people helping each other. For example, if a house burns down,

the members of the community help build a new one. Should the same thing happen to

one's neighbor, the other neighbors must help. Otherwise, neighbors will not receive help

in the future. This type of insurance has survived to the present day in some countries

where modern money economy with its financial instruments is not widespread.


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Turning to insurance in the modern sense early methods of transferring or distributing

risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd

millennia BC, respectively. Chinese merchants travelling treacherous river rapids would

redistribute their wares across many vessels to limit the loss due to any single vessel's

capsizing. The Babylonians developed a system which was recorded in the famous Code

of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a

merchant received a loan to fund his shipment, he would pay the lender an additional sum

in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

Iran were the first to insure their people and made it official by registering the insuringprocess in governmental notary offices. The insurance tradition was performed each year

in the beginning of the Iranian New Year; the heads of different ethnic groups as well as

others willing to take part, presented gifts to the monarch. The most important gift was

presented during a special ceremony. When a gift was worth more than 10,000 Derrik

(Achaemenian gold coin) the issue was registered in a special office. This was

advantageous to those who presented such special gifts. For others, the presents were

fairly assessed by the confidants of the court. Then the assessment was registered in

special offices.

The purpose of registering was that whenever the person who presented the gift

registered by the court was in trouble, the monarch and the court would help him. Jahez,

a historian and writer, writes in one of his books on ancient Iran: "whenever the owner of

the present is in trouble or wants to construct a building, set up a feast, have his children

married, etc. the one in charge of this in the court would check the registration. If the

registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice

as much."

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD

when they organized guilds called "benevolent societies" which cared for the families and

paid funeral expenses of members upon death. Guilds in the middle Ages served a similar
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purpose. The Talmud deals with several aspects of insuring goods. Before insurance was

established in the late 17th century, "friendly societies" existed in England, in which

people donated amounts of money to a general sum that could be used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other

kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools

backed by pledges of landed estates. These new insurance contracts allowed insurance to

be separated from investment, a separation of roles that first proved useful in marine

insurance. Insurance became far more sophisticated in post-Renaissance Europe, and

specialized varieties developed.

.Insurance as we know it today can be traced to the Great Fire of London, which in 1666

devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an

office to insure buildings. In 1680, he established England's first fire insurance company,

"The Fire Office," to insure brick and frame homes.

The first insurance company in the United States underwrote fire insurance and was

formed in Charles Town (modern-day Charleston), South Carolina, in 1732. BenjaminFranklin helped to popularize and make standard the practice of insurance, particularly

against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia

Contribution ship for the Insurance of Houses from Loss by Fire. Franklin's company was

the first to make contributions toward fire prevention. Not only did his company warn

against certain fire hazards, it refused to insure certain buildings where the risk of fire

was too great, such as all wooden houses. In the United States, regulation of the insurance

industry is highly Balkanized, with primary responsibility assumed by individual state

insurance departments. Whereas insurance markets have become centralized nationally

and internationally, state insurance commissioners operate individually, though at times

in concert through a national insurance commissioners' organization. In recent years,

some have called for a dual state and federal regulatory system for insurance similar to

that which oversees state banks and national banks.
http://en.wikipedia.org/wiki/Talmudhttp://en.wikipedia.org/wiki/Good_%28economics%29http://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Great_Fire_of_Londonhttp://en.wikipedia.org/wiki/Nicholas_Barbonhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Charleston,_South_Carolinahttp://en.wikipedia.org/wiki/South_Carolinahttp://en.wikipedia.org/wiki/Benjamin_Franklinhttp://en.wikipedia.org/wiki/Benjamin_Franklinhttp://en.wikipedia.org/wiki/Firehttp://en.wikipedia.org/wiki/Perpetual_Insurancehttp://en.wikipedia.org/wiki/Philadelphia_Contributionship_for_the_Insurance_of_Houses_from_Loss_by_Firehttp://en.wikipedia.org/wiki/Philadelphia_Contributionship_for_the_Insurance_of_Houses_from_Loss_by_Firehttp://en.wikipedia.org/wiki/Fire_hazardshttp://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/Balkanizationhttp://en.wikipedia.org/wiki/U.S._statehttp://en.wikipedia.org/wiki/National_Association_of_Insurance_Commissionershttp://en.wikipedia.org/wiki/National_Association_of_Insurance_Commissionershttp://en.wikipedia.org/wiki/U.S._statehttp://en.wikipedia.org/wiki/Balkanizationhttp://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/Fire_hazardshttp://en.wikipedia.org/wiki/Philadelphia_Contributionship_for_the_Insurance_of_Houses_from_Loss_by_Firehttp://en.wikipedia.org/wiki/Philadelphia_Contributionship_for_the_Insurance_of_Houses_from_Loss_by_Firehttp://en.wikipedia.org/wiki/Perpetual_Insurancehttp://en.wikipedia.org/wiki/Firehttp://en.wikipedia.org/wiki/Benjamin_Franklinhttp://en.wikipedia.org/wiki/Benjamin_Franklinhttp://en.wikipedia.org/wiki/South_Carolinahttp://en.wikipedia.org/wiki/Charleston,_South_Carolinahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Nicholas_Barbonhttp://en.wikipedia.org/wiki/Great_Fire_of_Londonhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Good_%28economics%29http://en.wikipedia.org/wiki/Talmud


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PRESENT CONDITION OF INSURANCE MARKET

State Insurers Continue To Dominate: There may be room for many more

players in a large underinsured market like India with a population of over one

billion. But the reality is that the intense competition in the last five years has

made it difficult for new entrants to keep pace with the leaders and thereby failing

to make any impact in the market.

Reaching Out To Customers: No doubt, the customer profile in the insurance

industry is changing with the introduction of large number of divergent

intermediaries such as brokers, corporate agents, and banc assurance. The

industry now deals with customers who know what they want and when, and are

more demanding in terms of better service and speedier responses. With the

industry all set to move to a detariffed regime by 2007, there will be considerable

improvement in customer service levels, product innovation and newer standards

of underwriting.

Intense Competition: In a de-tariffed environment, competition will manifest

itself in prices, products, underwriting criteria, innovative sales methods and

creditworthiness. Insurance companies will vie with each other to capture market

share through better pricing and client segmentation.

Global Standards: While the world is eyeing India for growth and expansion,

Indian companies are becoming increasingly world class. Take the case of LIC,

which has set its sight on becoming a major global player following a Rs280-

crore investment from the Indian government.


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THE VARIOUS LIFE INSURANCE COMPANIES IN INDIA

Tata AIG Insurance Solutions

AVIVA Life Insurance

Life insurance company

Bharti axa

Met Life

ING Vysya Life Insurance

Birla Sun Life Financial Services

MAX New York Life Aditya Birla Group

MARKET SHARE OF INDIAN INSURANCE INDUSTRY

The introduction of private players in the industry has added value to the industry. The

initiatives taken by the private players are very competitive and have given immense

competition to the on time monopoly of the market LIC. Since the advent of the private

players in the market the industry has seen new and innovative steps taken by the players

in this sector. The new players have improved the service quality of the insurance. As a

result LIC down the years have seen the declining phase in its career. The market share

was distributed among the private players. Though LIC still holds the 75% of the

insurance sector but the upcoming natures of these private players are enough to give

more competition to LIC in the near future. LIC market share has decreased from 95%

(2002-03) to 81 %( 2004-05).The following companies has the rest of the market share of

the insurance industry. Table 3 shows the mane of the player in the market.


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Types of insurance contracts

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may

give rise to claims are known as "perils". An insurance policy will set out in details which

perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the

many different types of insurance that exist.

Business insurance

Business insurance can be any kind of insurance that protects businesses

against risks. Some principal subtypes of business insurance are (a) the various

kinds of professional liability insurance, also called professional indemnity

insurance, which are discussed below under that name; and (b) the business

owner's policy (BOP), which bundles into one policy many of the kinds of

coverage that a business owner needs, in a way analogous to how homeowners

insurance bundles the coverage that a homeowner needs.

Auto insurance

Auto insurance protects you against financial loss if you have an accident. It is a contract

between you and the insurance company. You agree to pay the premium and the

insurance company agrees to pay your losses as defined in your policy. Auto insurance

provides property, liability and medical coverage: (1) Property coverage pays for damage

to or theft of your car. (2) Liability coverage pays for your legal responsibility to others

for bodily injury or property damage. And (3) Medical coverage pays for the cost of

treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

Home insurance
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Home insurance provides compensation for damage or destruction of a home

from disasters. In some geographical areas, the standard insurances exclude

certain types of disasters, such as flood and earthquakes that require additional

coverage.

Health

Almost all developed countries have government-supplied insurance for health

Health insurance policies by theNational Health Servicein theUnited Kingdom(NHS)

or other publicly-funded health programs will cover the cost of medicaltreatments. Dental insurance, like medical insurance, is coverage for individuals

to protect them against dental costs. In the U.S., dental insurance is often part of

an employer's benefits package, along with health insurance. Most countries rely

on public funding to ensure that all citizens haveuniversal access to health care.

Disability

1. Disability insurance policies provide financial support in the event the policyholder

is unable to work because of disabling illness or injury. It provides monthly support

to help pay such obligations as mortgages and credit cards.

2. Disability overhead insurance allows business owners to cover the overhead

expenses of their business while they are unable to work.

3. Total permanent disability insurance provides benefits when a person is

permanently disabled and can no longer work in their profession, often taken as an

adjunct to life insurance.

4. Workers' compensation insurance replaces all or part of a worker's wages lost and

accompanying medical expenses incurred because of a job-related injury.

Casualty
http://en.wikipedia.org/wiki/National_Health_Servicehttp://en.wikipedia.org/wiki/National_Health_Servicehttp://en.wikipedia.org/wiki/National_Health_Servicehttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Universal_health_carehttp://en.wikipedia.org/wiki/Universal_health_carehttp://en.wikipedia.org/wiki/Universal_health_carehttp://en.wikipedia.org/wiki/Disability_insurancehttp://en.wikipedia.org/wiki/Mortgagehttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Business_overhead_expense_disability_insurancehttp://en.wikipedia.org/wiki/Total_permanent_disability_insurancehttp://en.wikipedia.org/wiki/Workers%27_compensationhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Workers%27_compensationhttp://en.wikipedia.org/wiki/Total_permanent_disability_insurancehttp://en.wikipedia.org/wiki/Business_overhead_expense_disability_insurancehttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Mortgagehttp://en.wikipedia.org/wiki/Disability_insurancehttp://en.wikipedia.org/wiki/Universal_health_carehttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/National_Health_Service


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Casualty insurance insures against accidents, not necessarily tied to any specific

property.

Crime insurance is a form of casualty insurance that covers the policyholder

against losses arising from the criminal acts of third parties. For example, a

company can obtain crime insurance to cover losses arising from theft or

embezzlement.

Political risk insurance is a form of casualty insurance that can be taken out by

businesses with operations in countries in which there is a risk that revolution or

other political conditions will result in a loss.

Life

A. Life insurance provides a monetary benefit to a decedent's family or other

designated beneficiary, and may specifically provide for income to an insured

person's family, burial, funeral and other final expenses. Life insurance policies

often allow the option of having the proceeds paid to the beneficiary either in a

lump sum cash payment or an annuity.

B. Annuities provide a stream of payments and are generally classified as insurance

because they are issued by insurance companies and regulated as insurance and

require the same kinds of actuarial and investment management expertise that life

insurance requires. Annuities and pensions that pay a benefit for life are

sometimes regarded as insurance against the possibility that a retiree will outlive

his or her financial resources. In that sense, they are the complement of life

insurance and, from an underwriting perspective, are the mirror image of life

insurance.

Property
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This tornado damage to an Illinois home would be considered an "Act of God" for

insurance purposes. Property insurance provides protection against risks to property, such

as fire, theft or weather Damage. This includes specialized forms of insurance such as fire

insurance, flood insurance, earthquake insurance, home insurance, inland marine

insurance or boiler insurance.

Automobile insurance, known in the UK as motor insurance, is probably the most

common form of insurance and may cover both legal liability claims against the

driver and loss of or damage to the insured's vehicle itself.

Aviation insurance insures against hull, spares, deductibles, hull wear and liabilityrisks.

Boiler insurance (also known as boiler and machinery insurance or equipment

breakdown insurance) insures against accidental physical damage to equipment or

machinery.

Builder's risk insurance insures against the risk of physical loss or damage to

property during construction. Builder's risk insurance is typically written on an

"all risk" basis covering damage due to any cause (including the negligence of the

insured) not otherwise expressly excluded.

Crop insurance "Farmers use crop insurance to reduce or manage various risks

associated with growing crops. Such risks include crop loss or damage caused by

weather, hail, drought, frost damage, insects, or disease, for instance."

Earthquake insurance is a form of property insurance that pays the policyholder

in the event of an earthquake that causes damage to the property. Most ordinary

homeowners insurance policies do not cover earthquake damage. Most

earthquake insurance policies feature a high deductible. Rates depend on location

and the probability of an earthquake, as well as the construction of the home.

A fidelity bond is a form of casualty insurance that covers policyholders for losses

that they incur as a result of fraudulent acts by specified individuals. It usually

insures a business for losses caused by the dishonest acts of its employees.
http://en.wikipedia.org/wiki/Tornadohttp://en.wikipedia.org/wiki/Illinoishttp://en.wikipedia.org/wiki/Act_of_Godhttp://en.wikipedia.org/wiki/Thefthttp://en.wikipedia.org/wiki/Weatherhttp://en.wikipedia.org/wiki/Fire_insurancehttp://en.wikipedia.org/wiki/Fire_insurancehttp://en.wikipedia.org/wiki/Flood_insurancehttp://en.wikipedia.org/wiki/Earthquake_insurancehttp://en.wikipedia.org/wiki/Home_insurancehttp://en.wikipedia.org/wiki/Boiler_insurancehttp://en.wikipedia.org/wiki/Auto_insurancehttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Liability#In_lawhttp://en.wikipedia.org/wiki/Drivinghttp://en.wikipedia.org/wiki/Vehiclehttp://en.wikipedia.org/wiki/Aviation_insurancehttp://en.wikipedia.org/wiki/Boiler_insurancehttp://en.wikipedia.org/wiki/Builder%27s_risk_insurancehttp://en.wikipedia.org/wiki/Crop_insurancehttp://en.wikipedia.org/wiki/Earthquake_insurancehttp://en.wikipedia.org/wiki/Earthquakehttp://en.wikipedia.org/wiki/Homeowners_insurancehttp://en.wikipedia.org/wiki/Homeowners_insurancehttp://en.wikipedia.org/wiki/Deductiblehttp://en.wikipedia.org/wiki/Earthquake_engineeringhttp://en.wikipedia.org/wiki/Fidelity_bondhttp://en.wikipedia.org/wiki/Fidelity_bondhttp://en.wikipedia.org/wiki/Earthquake_engineeringhttp://en.wikipedia.org/wiki/Deductiblehttp://en.wikipedia.org/wiki/Homeowners_insurancehttp://en.wikipedia.org/wiki/Earthquakehttp://en.wikipedia.org/wiki/Earthquake_insurancehttp://en.wikipedia.org/wiki/Crop_insurancehttp://en.wikipedia.org/wiki/Builder%27s_risk_insurancehttp://en.wikipedia.org/wiki/Boiler_insurancehttp://en.wikipedia.org/wiki/Aviation_insurancehttp://en.wikipedia.org/wiki/Vehiclehttp://en.wikipedia.org/wiki/Drivinghttp://en.wikipedia.org/wiki/Liability#In_lawhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Auto_insurancehttp://en.wikipedia.org/wiki/Boiler_insurancehttp://en.wikipedia.org/wiki/Home_insurancehttp://en.wikipedia.org/wiki/Earthquake_insurancehttp://en.wikipedia.org/wiki/Flood_insurancehttp://en.wikipedia.org/wiki/Fire_insurancehttp://en.wikipedia.org/wiki/Fire_insurancehttp://en.wikipedia.org/wiki/Weatherhttp://en.wikipedia.org/wiki/Thefthttp://en.wikipedia.org/wiki/Act_of_Godhttp://en.wikipedia.org/wiki/Illinoishttp://en.wikipedia.org/wiki/Tornado


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Flood insurance protects against property loss due to flooding. Many insurers in

the U.S. do not provide flood insurance in some portions of the country. In

response to this, the federal government created the National Flood Insurance

Program which serves as the insurer of last resort.

Landlord insurance is specifically designed for people who own properties which

they rent out. Most house insurance cover in the U.K will not be valid if the

property is rented out therefore landlords must take out this specialist form of

home insurance.

Marine insurance and marine cargo insurance cover the loss or damage of ships at

sea or on inland waterways, and of the cargo that may be on them. When the

owner of the cargo and the carrier are separate corporations, marine cargo

insurance typically compensates the owner of cargo for losses sustained from fire,

shipwreck, etc., but excludes losses that can be recovered from the carrier or the

carrier's insurance

Controversies

Insurance insulates too much

By creating a "security blanket" for its insureds, an insurance company may

inadvertently find that its insureds may not be as risk-averse as they might otherwise be

(since, by definition, the insured has transferred the risk to the insurer). This problem is

known to the insurance industry as moral hazard. To reduce their own financial exposure,

insurance companies have contractual clauses that mitigate their obligation to providecoverage if the insured engages in behavior that grossly magnifies their risk of loss or

liability.
http://en.wikipedia.org/wiki/Flood_insurancehttp://en.wikipedia.org/wiki/National_Flood_Insurance_Programhttp://en.wikipedia.org/wiki/National_Flood_Insurance_Programhttp://en.wikipedia.org/wiki/Landlord_insurancehttp://en.wikipedia.org/wiki/Marine_insurancehttp://en.wikipedia.org/wiki/Moral_hazardhttp://en.wikipedia.org/wiki/Moral_hazardhttp://en.wikipedia.org/wiki/Marine_insurancehttp://en.wikipedia.org/wiki/Landlord_insurancehttp://en.wikipedia.org/wiki/National_Flood_Insurance_Programhttp://en.wikipedia.org/wiki/National_Flood_Insurance_Programhttp://en.wikipedia.org/wiki/Flood_insurance


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Complexity of insurance policy contracts

Insurance policies can be complex and some policyholders may not understand all the

fees and coverages included in a policy. As a result, people may buy policies on

unfavorable terms. In response to these issues, many countries have enacted detailed

statutory and regulatory regimes governing every aspect of the insurance business,

including minimum standards for policies and the ways in which they may be advertised

and sold.

Insurance may also be purchased through an agent. Unlike a broker, who represents the

policyholder, an agent represents the insurance company from whom the policyholder

buys. An agent can represent more than one company.

An independent insurance consultant advises insureds on a fee-for-service retainer,

similar to an attorney, and thus offers completely independent advice, free of the

financial conflict of interest of brokers and/or agents. However, such a consultant must

still work through brokers and/or agents in order to secure coverage for their clients.

Redlining

Redlining is the practice of denying insurance coverage in specific geographic areas,

supposedly because of a high likelihood of loss, while the alleged motivation is unlawful

discrimination. Racial profiling or redlining has a long history in the property insurance

industry in the United States. From a review of industry underwriting and marketing

materials, court documents, and research by government agencies, industry and

community groups, and academics, it is clear that race has long affected and continues toaffect the policies and practices of the insurance industry.

Insurance patents

New insurance products can now be protected from copying with a business method
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patent in the United States.

A recent example of a new insurance product that is patented is Usage Based auto

insurance. Early versions were independently invented and patented by a major U.S. auto

insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134 ) and a Spanish

independent inventor, Salvador Minguijon Perez (EP patent 0700009).

Criticism of insurance companies

Some people believe that modern insurance companies are money-making businesses

which have little interest in insurance. They argue that the purpose of insurance is to

spread risk so the reluctance of insurance companies to take on high-risk cases (e.g.

houses in areas subject to flooding, or young drivers) runs counter to the principle of

insurance.

Other criticisms include:

Insurance policies contain too many exclusion clauses. For example, some house

insurance policies do not cover damage to garden walls.

Many insurance companies now use call centers and staff attempt to answer

questions by reading from a script. It is difficult to speak to anybody with expert

knowledge. While policyholders find their premium payments decrease when

dealing with companies who sacrifice the use of trained insurance agents, they

also risk greater financial loss due to inadequate coverage protection. Those

companies who invest in educated insurance agents provide a valued service to

the community. Policyholders who work with knowledgeable insurance agents aremore likely to identify needs, evaluate options, purchase sufficient insurance

protection, and minimize the risk of heavy financial loss for themselves and their

family.
http://en.wikipedia.org/wiki/Business_method_patenthttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Usage_based_insurancehttp://en.wikipedia.org/wiki/Auto_insurancehttp://en.wikipedia.org/wiki/Auto_insurancehttp://en.wikipedia.org/wiki/Progressive_Corporationhttp://patft.uspto.gov/netacgi/nph-Parser?patentnumber=5797134http://v3.espacenet.com/textdoc?DB=EPODOC&IDX=EP0700009http://en.wikipedia.org/wiki/Exclusion_clausehttp://en.wikipedia.org/wiki/Call_centrehttp://en.wikipedia.org/wiki/Insurance_agentshttp://en.wikipedia.org/wiki/Insurance_agentshttp://en.wikipedia.org/wiki/Insurance_agentshttp://en.wikipedia.org/wiki/Insurance_agentshttp://en.wikipedia.org/wiki/Call_centrehttp://en.wikipedia.org/wiki/Exclusion_clausehttp://v3.espacenet.com/textdoc?DB=EPODOC&IDX=EP0700009http://patft.uspto.gov/netacgi/nph-Parser?patentnumber=5797134http://patft.uspto.gov/netacgi/nph-Parser?patentnumber=5797134http://en.wikipedia.org/wiki/Progressive_Corporationhttp://en.wikipedia.org/wiki/Auto_insurancehttp://en.wikipedia.org/wiki/Auto_insurancehttp://en.wikipedia.org/wiki/Usage_based_insurancehttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Business_method_patent


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CHAPTER 3

COMPANY PROFILE


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Bharti AXA Life Insurance is a joint venture between Bharti, one of Indias

leading business groups with interests in telecom, agro business and retail, and AXA,

world leader in financial protection and wealth management. The joint venture

company has a 74% stake from Bharti and 26% stake of AXA. The company launched

national operations in December 2006. Today, we have over 5200 employees across

over 12 states in the country. Our business philosophy is built around the promise of

making people "Life Confident". As we expand our presence across the country to cater

to your insurance and wealth management needs with our product and service offerings,

we continue to bring 'life confidence' to customers spread across India. Whatever your

plans in life, you can be confident that Bharti AXA Life will offer the right financial

solutions to help you achieve them.


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VISION, VALUES & STRATEGY

VISION

The vision of Bharti AXALife Insurance Company Limited is to become the preferred life

insurance company in India. This vision extends to their recruitment philosophy as well. Both the

Bharti Group in India and AXA globally enjoy the status of being a very employee focused

organization.

At Bharti AXA Life Insurance, they are determined to achieve their vision through talent who are

empowered, focused on customer service, and champions of strategic and operational excellence.

VALUES

Professionalism

Innovation

Team Spirit

Pragmatism

Integrity

STRATEGY

To achieve a top 5 market position in India through a multi-distribution, multi-productplatform

To adapt AXA's best practice blueprints as a sound platform for profitable growth

To leverage Bharti's local knowledge, infrastructure and customer base

To deliver high levels of shareholder return
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To build long term value with our business partners by enhancing the proposition to their

customers

To be the employer of choice to attract and retain the best talent in India

To be recognized as being close and qualified by our customers.

STRATEGIC DIFFERENTIATORS

Strong partner Bharti - provides access to customer base of more than 20 million

Multi channel execution capability

Current Asia product range which is a strong match to products sold to the mass and mass

affluent

Global scale providing cost effective and speedy re-use of systems, products and business

capability

Strong AXA and Bharti brands which can be leveraged to attract and retain a high quality

management team

The guiding HR principles at Bharti Axa

Clearly define scope of responsibilities and empower people to deliver.

Provide people with the means to develop their competencies.

Consider individual training and development a priority investment.

Build organizations that are conducive to teamwork and that involve everyone.

Promote ongoing dialogue between managers and the people who report to them.

Make cultural difference a key source of strength.

PROMOTERS


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Bharti Enterprises

Bharti Enterprises is one of Indias leading business groups with interests in telecom, agri business,

insurance and retail. Bharti has been a pioneering force in the telecom sector with many firsts and

innovations to credit Bharti Airtel Limited, a group company, is one of Indias leading private

sector providers of telecommunications services with an aggregate of 60 million customers,

spanning mobile, fixed line broadband and enterprise services. Bharti Airtel was ranked amongst

the best performing companies in the world in the Business Week IT 100 list 2007. Bharti Teletech

is the countrys largest manufacture and exporter of telephone terminals. Bharti has a joint venture

with ELRo Holdings India Ltd.FieldFr

Foods Pvt. Ltd - for global distribution of fresh fruits and vegetables. Bharti also has a joint

Venture - Bharti AXA Life Insurance Company Ltd. - with AXA, world leader in financial

protection and wealth management. Bharti has recently forayed into the retail business under a

company called Bharti Retail Pvtltd is also has a joint ventureBharti Wal-Mart Private Limited

with Wal-Mart, for wholesale cash-and-carry and back-end supply chain management operations

AXA

AXA Group is a worldwide leader in Financial Protection. AXA's operations are diverse

geographically, With major operations in Western Europe, North America and the Asia/Pacific

area. AXA had Euro 1,315 billion in assets under management as of December 31, 2006. For full

year 2006, IFRS revenues amounted to Euro 79 billion, IFRS underlying earnings amounted to

Euro 4,010 million and IFRS adjusted earnings to Euro 5140 million

The AXA ordinary shares is listed and trades under the symbol AXA on the Paris Stock Exchange.

The AXA American Depository Share is also listed on the NYSE under the ticker symbol AXA.

AXA Asia Pacific Holdings

AXA Asia Pacific Holdings Ltd (AXA APH) is listed on the Australian stock exchange and is


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52.3% owned is responsible for AXA life insurance and wealth management businesses in Asia-

Pacific region. It has operations in Australia, New Zealand, Hong Kong, Singapore, Indonesia,

Philippines, Thailand, China, India and Malaysia. AXA APH had A$106.4 billion in total funds

under management & administration at 30 July 2007 and reported a profit after tax before non-

recurring items of A$374.0 million.

PRODUCTS PROFILE

One would like to live life and prepare for the future with complete confidence. At Bharti

AXA Insurance design solutions which will protect you and your family and help you realize

your dreams. Its endeavor is to bring to you products & service to help you lead a confident life.

At Bharti AXA Life, we want to take care of your responsibilities in the same way as you

do for your loved ones, with a range of life insurance services. Through our life insurance

products, you can trust us to take care of your family at all times. You can select the most

suitable plan from our host of plans and make buying life insurance simple and convenient. Each

of the plans, right from traditional life insurance to unit linked life insurance, fall in specified

segments and fulfill your specific objectives. You can learn more about the segment and specific

plans within the segment by clicking on the type of plan.


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Protect your loved ones against financial contingencies at a nominal costs

You love your family and feel responsible towards them in every way. But life can be uncertain

and unforeseen contingencies can meet you anytime. At such times, life insurance comes to your

rescue. As someone who wants only the best for their family, we understand your need to

safeguard your family against any crises. Our protection plans offer you high life cover at

nominal costs so that you can fulfill your responsibility with ease and your family never has to

face financial constraints.

Bharti AXA Life Elite Secure

Bharti AXA Life Secure Confident

Bharti AXA Life Family Income SecureBharti AXA Life Protect Plus
http://www.bharti-axalife.com/life-insurance-policies/Elite-Secure.aspxhttp://www.bharti-axalife.com/life-insurance-policies/SecureConfident.aspxhttp://www.bharti-axalife.com/life-insurance-policies/LifeFamily-IncomeSecure.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Life-Protect-Plus.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Life-Protect-Plus.aspxhttp://www.bharti-axalife.com/life-insurance-policies/LifeFamily-IncomeSecure.aspxhttp://www.bharti-axalife.com/life-insurance-policies/SecureConfident.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Elite-Secure.aspx


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Investments for your good health

Given the fast pace of our lives, we always run the risk of acquiring lifestyle diseases - be it high

blood pressure or various heart diseases. Add to this the rising medical costs because of which,

we end up spending increasingly large amounts of money. Bharti AXA Life offers you Health

Plans that ensure freedom from stress when it comes to your health expenses and let you enjoy

your life without any worries.


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Make the golden years of your life truly comfortable.

Retirement plans are the best way to systematically plan for your golden years. Our flexible

retirement plans ensure you live your dream retirement. By investing in these long-term plans by

paying life insurance premium, you can earn a regular income even after you've stopped

working. Without having to depend on anyone else or worry about rising costs, you can go

ahead and lead a comfortable retirement.

Bharti AXA Life Wonder Years Retirement Plan

Retirement
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Ensure your family's security as you maximize your savings

You can make your money work harder with our Wealth Creation with Protection plans. These

plans come with the double advantage of:

Complete peace of mind as your family is financially protected and Good investment option that

ensures long-term financial goals are met.

Whether it is a bigger home, a dream vacation or even a comfortable future, these life insurance

plans are the best solutions along with the surety of financial protection. Our life insurance

coverage plans include 'traditional' plans that give guaranteed money on maturity. While, we

also offer market-linked plans that give you the benefit of good market performance to

maximise your savings.

Bharti AXA Life Child Plans

Bharti AXA Life Guaranteed Plans

Wealth creation with protection
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With Bharti AXA Life insurance products, provide financial security and protection to your

loved ones. Simple, affordable plans to safeguard your family from life's uncertainties.

Bharti AXA Life Shield

Bharti AXA Life Sanjeevani
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With Bharti AXA Life Credit Protection Plans you can ensure that your family enjoys a good

lifestyle and at the same time is protected from the uncertainties of life.

Bharti AXA Life Credit Secure

Bharti AXA Life Mortgage Credit Shield

Bharti AXA Life Credit Shield
http://www.bharti-axalife.com/life-insurance-policies/CreditSecure.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Mortgage-Credit-Shield.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Credit-Shield.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Credit-Shield.aspxhttp://www.bharti-axalife.com/life-insurance-policies/Mortgage-Credit-Shield.aspxhttp://www.bharti-axalife.com/life-insurance-policies/CreditSecure.aspx


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CHAPTER-3

RESEARCH

METHODOLOGY


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TITLE OF THE PROJECT:

A comprehensive study on the working capital management of Bharti Axa life

insurance ltd.

STATEMENT OF PROBLEM:

Working capital is an important requirement for any business, without which no

business can survive. Every activity of the business is related to the availability of the

working capital. That is, arranging short-term financing, negotiating favorable credit

terms, controlling the movement of cash, administering the account receivable and

monitoring the investment in inventories. All this consumes a great deal of time of

finance managers. Also the obstacles inhabiting the effective working capital

management throws open challenges to the finance managers in managing working

capital.

This project aims at knowing the working capital position of Bharti AXA with

respect to Indian insurance market.

OBJECTIVES OF STUDY:

The study was conducted mainly to understand and analyze the issue of working

capital management, being practically employed in Bharti AXA Life Insurance.

To understand the practical difficulties faced in managing the working capital.

To analyze the various external and internal factors effecting working capital

management in the company.

To ascertain the liquidity position of the company.

To study the different components of working capital and its impact on the

performance of the firm.

To offer suggestions for the improvement of the Working Capital Management.


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SOURCES OF DATA

The research involved gathering Secondary data as well as Primary data. For the purpose

two types of survey was conducted by me to collect the data -

Customer survey and

Consumer survey

Primary Data

Consumer survey was done to know their purchasing behaviour because they are the one

who constitute the market and are the target of the business . In Insurance Industry untill

and unless we have the knowledge of the consumer behaviour and factor which influence

them to buy a paticular brand ,companies cannot focus upon the target market. Hence a

consumer survey was done to know their wants, purchasing power, and buying habits in

order to segment the market , and based on this consumer profile was identified.

Secondary Data

Secondary data regarding sales figures, promotional expenses and other related expenses

was collected from the companys own record to analyse the impact on sales due to the

running schemes and make cost benefit analysis.

SAMPLING DESIGN

Sample Size

The size of the sample taken is 50 people.

Data Collection:

Data has been collected through both primary and secondary approach. A questionnaire

has been prepared for the purpose also.


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Limitation of the Study

The present study is limited to one Co., i.e. Bharti Axa Life Insurance Ltd.,

Covers a period from 2008 and 2010 due to limitation of time and accessibility to

data base.

The authenticity of the suggestions and recommendations depend upon the rationality

of the data provided to me.

Have to rely upon the data supplied.

Executives were not ready to part with the information beyond a limit.

size of the sample taken was less, due non availability of much time.


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CHAPTER 5

DATA ANALYSIS


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Table showing Current assets as percentage of Total assets

Year Percentage

2008 31%

2009 26%

2010 35%

It can be visualized from the table that in the first year of our study i.e. 2008 it was 31%

which was reduced to 26% in the next year and in 2010 it is 35% shows fluctuating trend.

0

5

10

15

2025

30

35

40

2008 2009 2010


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Table showing Current Assets Turnover Ratio

Year Ratio (in times)

2008 1.78

2009 2.98

2010 1.98

Average: 2.24

The ratio average is 2.24 times in the study period of 3 years. In 2009 current assets

turnover ratio is highest one i.e. 2.98 during the 3 year study. Reasons being during this

year company has achieved sales growth 44.36% over the previous year and additional

activity needs more funds.

0

0.5

1

1.5

2

2.5

3

3.5

2008 2009 2010


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Ratios useful to analyze working capital management

(A) Efficiency Ratios 2008 2009 2010 Ideal Ratio

1. Working Capital Turnover (times) 4.84 10.23 5.71 -

2. Current Assets Turnover (times) 1.78 2.98 1.97 -

3. Inventory turnover (times) 9.49 9.20 7.88 -

(B) Liquidity Ratio

1. Current Ratio 2.12 1.80 2.41 2.0

2.AcidTestRatio 1.15 0.98 1.03 1.0

3. Cash Ratio 0.57 0.08 0.05 0.5

(C) Structural Health of Working Capital

Ratio/Year 2008 2009 2010

1. CA 0.31 0.26 0.35

2. CL 0.15 0.14 0.14

3. Cash to CA 0.27 .04 0.02

4. Receivables to CA 0.27 0.50 0.40

5. Loans and Advances to CA 0.15 0.19 0.15

6. Inventory to CA 0.42 0.38 0.50

7. RM to Inventory 0.44 0.46 0.30

8. Stock spares to inventory 0.12 0.14 0.11

9. WIP to inventory 0.06 0.08 0.03

10. Finished Goods to Inventory 0.38 0.32 0.56


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Interpretation (Ratio Analysis)

The utilization rate of net working capital as depicted by working capital turnover

ratio is fluctuating during the period. It shows that working capital has not been

effectively used over the period of years except in the year 2009.

As shown by current assets turnover ratio, the utilization of current assets in terms

of sales has shown a decreasing trend which shows that current assets has been

effectively used to achieve sales.

Again if we look at the efficiency with which individual elements of working

capital have been utilized, the picture of inventory turnover is not very bright.

Receivables turnover also shows a declining trend. Generally such a situation

does not suit the company.

As we look at the extent of liquidity of working capital, we notice that the ratio

shows an increasing trend. This indicates improvement on the liquidity front.

If we analyze the structural health of working capital, the proportion of current

assets to total assets has been appropriate during this period.

Such a higher proportion of current asset in the assets portfolio of Bharti Axa LifeInsurance Ltd. is quite acceptable.

Our analysis above indicates the areas of concern to management in making best possible

use of resources. Decreasing efficiency in the use of current assets hints of the possibility

of problems in working capital management.

On further analysis, inventory constitutes a major proportion of total current assets.

Among its various components, raw materials, stocks, spared and finished goods in

particular need further analysis as here stand out to the problem areas.


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Cash Flow Statement (2009-10)

Sources Amount A

( in Lacs)

Application Amount B

(in Lacs)

Proceeds from

borrowings

162.37 Loss from operation 185.27

Sale of assets 27.34 Change in cash 5.01

Total 190.28 190.28

Summary of Cash Flow Analysis

a) Cash from operation to total cash available

= 185.27/190.28 = 97.38%

b) Cash from long term sources to total cash available

= 162.37/190.28 = 85.33%

c) Proceeds from sale of non-current assets to total cash

= 171.4/190.28 = 0.90%


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Schedule of Changes in Working Capital

Particulars Amount

(in lacs)

Changes in Working

Capital

Dec2009 Dec2010 Increase

(Debit)

Decrease

(Credit)

Current Assets

Inventories 93.87 146.36 52.48 -

Sundry Debtors 123.22 114.71 - 8.51

Cash and Bank

Balances

10.64 5.63 - 5.01

Other current assets 20.14

247.87

21.66

288.36

1.52 -

Current Liabilities 137.02 116.07 20.95 -

Working capital (CA-CL) 110.85 172.29

Increase in Working Capital 61.44 - 61.44

172.29 172.29

74.96 74.96


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Fund Flow Statement (2009-10)

Sources Amount A

(in lacs)

Application Amount B

(in Lacs)

Increase in loan 162.37 Increase in working capital 61.44

Sale of asset 22.94 Loss from operation 123.87

Total 185.31 185.31

Summary of Fund Flow Analysis

1. Increase in net working capital61.44

2. Funds from operations to finance permanent address (123.87)

3. Ratio of fund flow from operations to total funds in the business (-) 123.87/85.31

= (66.85)

Interpretation (Fund Flow Statement)

1. Networking capital has been increased over the years, which has increased

liquidity

2. Company should take corrective actions to covert loss from operation to funds

from operation.


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EVALUATION OF CASH MANAGEMENT PERFORMANCES

To assess the cash management performance this phase is divided as follows:

a) Size of Cash

b) Liquidity and Adequacy of cash

c) Control of cash

A) Size of cash: The quantum of cash held by BHARTI AXA during the study period

is presented in the table. The trend percentage also calculated and shown in the

table:

Size of cash balance (Rs. in Crores)

Year Cash (In Lacs) Trend

2008 82.20 100

2009 10.64 -87.832010 5.63 -93.15

Source : Annual report

82.2

10.64 5.63

100

-87.83 -93.15

2008 2009 2010

Chart Title

Cash Trend


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Size of sales (Rs. in Lacs)

Year

Sales Trend

2008 785.65 100

2009 1134.23 44.36

2010 903.92 15.05

Source Annual Reports

0

200

400

600

800

1000

1200

1400

2008 2009 2010

AxisTitle

Chart Title

Trend

Sales


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(B) Liquidity and Adequacy of Cash:

One of the most important jobs of the Finance Manager is to maintain sufficient liquidity

to enable the firm to pay off its obligations when they fall due. To test a firms liquidity

and solvency we commonly use current and quick ratios. Traditionally 2:1 current ratio

and 1:1 quick ratio are taken as satisfactory standards for the purpose. The former

indicates the extent of the soundness of the current financial position of a firm and the

degree of safety provided to the creditors, the later signifies the ability of a firm to settle

all its current obligations on a particular date.

Current ratio and quick ratio

Year Current ratio Quick ratio

2008 2.12 1.51

2009 1.80 0.97

2010 2.41 1.03

Source: Annual Reports

0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010

Quick Ratio

Current


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Our analysis clearly shows that the company has very sound position regarding liquidity

and solvency. Further, all the ratios fluctuate throughout the period.

(C) Control of Cash:

One of the major objectives of cash management from the stand point of increasing return

on investment is to economize on the cash holding without impairing the overall liquidity

requirements of the firms. This is possible by effecting tighter controls over cash flows.

The following ratio has been applied to assess the efficiency of cash control:

Cash to Current Assets ratio

Cash turnover ratio

Cash to current liabilities ratio

Cash to Current assets ratio

Year Cash to CA Ratio

2008 26.89

2009 4.29

2010 1.95Average : 9.43

Source : Annual Reports

0

5

10

15

20

25

30

2008 2009 2010


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Inference: It can be inferred from the above table that cash to current assets ratio is

decreasing which shows dark position of liquidity, which ultimately affect the operational

efficiency of the firm.

Cash to Current Liability Ratio (%)

Year Cash to CL ratio

2008 57.21

2009 7.76

2010 4.85

Average: 23.27

Source: Annual Reports

Inference:

Cash to current liability ratio shows the cash balance maintained by company at a certain

point of time for meeting its current liabilities. The lesser the ratio, proves the efficiency

of the company for maintaining liquidity at a minimum level of cash balance. It is

reducing during the study period and is at the minimum level of 4.85% in the year 2010.

0

10

20

30

40

50

60

1 2 3 4

Series1


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MANAGEMENT OF RECEIVABLES

AVERAGE COLLECTION PERIOD

Average collection period explains how many days of credit, a company is allowing to

the customer, a higher collection period indicates towards a liberal and inefficient credit

and collection performances shorter the collection period the better the credit

management and liquidity of accounts receivable.

Average collection period

Year Days

2008 38

2009 40

2010 46

Average : 41 days

0

5

10

15

20

25

30

35

40

45

50

2008 2009 2010


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Inference: The receivable collection period at an average level is for 41 days during five

years of study. The period is increasing

DEBTORS TURNOVER RATIO

This ratio is calculated the effective utilisation of funds involved in receivable. An

effective credit management result in a higher turnover of accounts receivable.

Year Debtors Turnover Ratio Average collection period

(in days)

2008 9.49 38

2009 9.20 40

2010 7.88 46

0

5

10

15

20

25

30

35

40

45

50

2008 2009 2010

Debtors Turnover Ratio


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Inference: The debtors turnover ratio i

Documents

1PROJECT_REPORT on Working Capital Management - Copy (Autosaved)