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Cash is the lifeline of a company. If this lifeline deteriorates, the company's ability to fund
operations, reinvest and meet capital requirements and payments also deteriorate.
Understanding a company's cash flow health is essential for making investment decisions. A
good way to judge a company's cash flow prospects is to look at its working capital
management (WCM).
Working capital of a company reveals more about the financial condition of a business than
almost any other calculation. It tells you what would be left if a company raised all of its short
term resources, and used them to pay off its short term liabilities. The more working capital,
the less financial strain a company experiences. Working capital also gives investors an idea of
the company's underlying operational efficiency. Money that is tied up in inventory or
money that customers still owe to the company can't be used to pay off any of its obligations.
So, if a company is not operating in the most efficient manner (slow collection) it will show up
in the working capital. This can be seen by comparing the working capital from one period of
time to another; slow collection may signal an underlying problem in the company's operations.

The definition of working capital is that it is the difference between an organization’s current
assets and its current liabilities. Of more importance is its function which is primarily to support
the day-to-day financial operations of an organization, including the purchase of stock, the
payment of salaries, wages and other business expenses, and the financing of credit sales. It’s a
measure of both a company's efficiency and its short-term financial health.
The better a company manages its working capital, the less the company needs to borrow. Even
companies with cash surpluses need to manage working capital to ensure that those surpluses
are invested in ways that will generate suitable returns for investors.
There are two concepts of working capital.

They are
→ Gross working capital and
→ Net working capital.
The term gross working capital, also referred to as working capital means the total current
asset. The term net working capital can be defined in two ways:
 The most common definition of net working capital is the difference between the
current assets and the current liabilities.
 The alternate definition of NWC is that portion of current assets which is financed with
long term funds. Since the current liabilities represent the sources of short term funds,
as long as current assets exceed current liabilities, the excess must be financed with
long term funds.
The net working capital, as a measure of liquidity is quite useful for internal control. The net
working capital helps in comparing the liquidity of the same firm over time.
Current Assets - Current Liabilities = Working Capital
A positive working capital means that the company is able to pay off its short-term liabilities. A
negative working capital means that a company currently is unable to meet its short-term
liabilities with its current assets (cash, accounts receivable, inventory).Management must
ensure that a business has sufficient working capital. Too little of the working capital will result
in cash flow problems highlighted by an organization exceeding its agreed overdraft limit, failing
to pay suppliers on time, and being unable to claim discounts for prompt payment. In the long
run, a business with insufficient working capital will be unable to meet its current obligations
and will be forced to cease trading even if it remains profitable on paper.
On the other hand, if an organization ties up too much of its resources in working capital it will
earn a lower than expected rate of return on capital employed. Again this is not a desirable
situation. As it is said that working capital is the difference between the current assets and the
current liabilities, the management of the company has to manage their current assets and
current liabilities.

Working capital management is one of the key areas of financial decision-making. It is

significant because, the management must see that an excessive investment in current assets

should protect the company from the problems of stock-out. Current assets will also determine

the liquidity position of the firm.

The goal of working capital management is to manage the firm current assets and current

liabilities in such a way that a satisfactory level of working capital is maintained. If the firm

cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may

be even forced into bankruptcy.


A study of the Working capital involves an examination of long term as well as short term

sources that a company taps in order to meet its requirements of finance. Working Capital

scope is very wide concerning with the problems of managing current assets and current

liabilities because managing them is not an easy task. The scope of the study is confined to the

sources that Kotak Mahindra Group tapped over the years under study i.e. 2010-15.


 To study the existing working capital management system of Kotak Mahindra Group.

(Formerly Kotak Mahindra bank Ltd.).

 To find the liquidity position of the current assets and current liabilities of the company.

 To examine feasibility of present system of managing working capital.

 To understand how the company finances its working capital

 To analyze the financial performance of the company with reference to working capital.

 To give some suggestions to the management based on the information studied.

 Investigate the relationship between corporate performance and WCM.

 To investigate the impact of different factors affecting the working capital on net

liquidity balance and working capital requirement.


 Due to the busy schedule of the executives in the company, all the required primary data could

not be collected, which might affect the results of the study

 Recommendations of the study are only personal opinions. Hence the judgments may be biased

and could not be considered as ultimate and standard solutions

 Short period of time is one of the limitations, due to which a detailed study could not be

conducted on the topic.

 You can’t expand, can’t pay your staff, can’t pay yourself and can’t pay your suppliers.

So in a nutshell, no cash flow, or working capital, no viable business.

 It leads to excessive debtors.

 Firm fails to maintain the relationship with the banks due to non requirement of fun.


The study of Working Capital management is based on primary as well as secondary data.
Data relating to. Has been collected through
Data observed or collected directly from first-hand experience. It is original research data in its raw
form, without any analysis or processing

 Detailed discussions with Vice-President.

 Discussions with the Finance manager and other members of the Finance department.

Secondary data is the data that have been already collected by and readily available from other sources.
Such data are cheaper and more quickly obtainable than the primary data.
 Published annual reports of the company for the year 2008-12.

The collected data has been processed using the tools of
 Ratio analysis
 Graphical analysis
 Year-year analysis

These tools access in the interpretation and understanding of the Existing scenario of the
Capital Structure.
 The primary data was gathered through personal interaction with the director of the
 The secondary data was collected from company’s annual reports from 2010-11 to 2014-
15, various books and Internet.

A bank is a financial institution that accepts deposits and channels those deposits into lending
activities. Banks primarily provide financial services to customers while enriching investors.
Government restrictions on financial activities by banks vary over time and location. Banks are
important players in financial markets and offer services such as investment funds and loans.
In some countries such as Germany, banks have historically owned major stakes in industrial
corporations while in other countries such as the United States banks are prohibited from
owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding
entity known as the keiretsu. In France, bancassurance is prevalent, as most banks offer
insurance services (and now real estate services) to their clients. The level of government
regulation of the banking industry varies widely, with countries such as Iceland, having
relatively light regulation of the banking sector, and countries such as China having a wide
variety of regulations but no systematic process that can be followed typical of a communist
system. The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena,
Italy, which has been operating continuously since 1472.

Origin of the word:

The name bank derives from the Italian word banco "desk/bench", used during the Renaissance
by Jewish Florentine bankers, who used to make their transactions above a desk covered by a
green tablecloth. However, there are traces of banking activity even in ancient times, which
indicates that the word 'bank' might not necessarily come from the word 'banco'.In fact, the
word traces its origins back to the Ancient Roman Empire, where moneylenders would set up
their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu,
from which the words banco and bank are derived. As a moneychanger, the merchant at the
bancu did not so much invest money as merely convert the foreign currency into the only legal
tender in Rome—that of the Imperial Mint. The earliest evidence of money-changing activity is
depicted on a silver drachm coin from ancient Hellenic colony Trapezus on the Black Sea,
modern Trabzon, c. 350–325 BC, presented in the British Museum in London.

The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city.In
fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a bank.

Traditional banking activities:

Banks act as payment agents by conducting checking or current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to customers'
current accounts. Banks also enable customer payments via other payment methods such as
telegraphic transfer, EFTPOS, and ATM.Banks borrow money by accepting funds deposited on
current accounts, by accepting term deposits, and by issuing debt securities such as banknotes
and bonds. Banks lend money by making advances to customers on current accounts, by
making installment loans, and by investing in marketable debt securities and other forms of
money lending.Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.

Entry regulation:
Currently in most jurisdictions commercial banks are regulated by government entities and
require a special bank licence to operate.Usually the definition of the business of banking for
the purposes of regulation is extended to include acceptance of deposits, even if they are not
repayable to the customer's order—although money lending, by itself, is generally not included
in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the
market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly
on the business of issuing banknotes. However, in some countries this is not the case. In the UK,
for example, the Financial Services Authority licences banks, and some commercial banks (such
as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of
England, the UK government's central bank.

The definition of a bank varies from country to country. Under English common law, a banker is
defined as a person who carries on the business of banking, which is specified as:
 conducting current accounts for his customers
 paying cheques drawn on him, and
 Collecting cheques for his customers.
In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law in
relation to negotiable instruments, including cheques, and this Act contains a statutory
definition of the term banker: banker includes a body of persons, whether incorporated or not,
who carry on the business of banking' (Section 2, Interpretation). Although this definition seems
circular, it is actually functional, because it ensures that the legal basis for bank transactions
such as cheques do not depend on how the bank is organized or regulated.
The business of banking is in many English common law countries not defined by statute but by
common law, the definition above. In other English common law jurisdictions there are
statutory definitions of the business of banking or banking business. When looking at these
definitions it is important to keep in minds that they are defining the business of banking for
the purposes of the legislation, and not necessarily in general. In particular, most of the
definitions are from legislation that has the purposes of entry regulating and supervising banks
rather than regulating the actual business of banking. However, in many cases the statutory
definition closely mirrors the common law one. Examples of statutory definitions:
 "banking business" means the business of receiving money on current or deposit account,
paying and collecting cheques drawn by or paid in by customers, the making of advances to
customers, and includes such other business as the Authority may prescribe for the
purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).
 "banking business" means the business of either or both of the following:
1. Receiving from the general public money on current, deposit, savings or other similar
account repayable on demand or within less than [3 months] ... or with a period of call or
notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers.

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct
debit and internet banking, the cheque has lost its primacy in most banking systems as a
payment instrument. This has led legal theorists to suggest that the cheque based definition
should be broadened to include financial institutions that conduct current accounts for
customers and enable customers to pay and be paid by third parties, even if they do not pay
and collect cheques.

Accounting for bank accounts:

Bank statements are accounting records produced by banks under the various accounting
standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit.
Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses.
This means you credit a credit account to increase its balance, and you debit a debit account to
decrease its balance.
This also means you debit your savings account every time you deposit money into it (and the
account is normally in deficit), while you credit your credit card account every time you spend
money from it (and the account is normally in credit).
However, if you read your bank statement, it will say the opposite—that you credit your
account when you deposit money and you debit it when you withdraw funds. If you have cash
in your account, you have a positive (or credit) balance; if you are overdrawn, you have a
negative (or deficit) balance.
The reason for this is that the bank, and not you, has produced the bank statement. Your
savings might be your assets, but the bank's liability, so they are credit accounts (which should
have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they
are debit accounts (which should also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below, they are done so
from the viewpoint of the account holder—which is traditionally what most people are used to

Economic functions:
1. Issue of money, in the form of banknotes and current accounts subject to cheque or
payment at the customer's order. These claims on banks can act as money because they
are negotiable and/or repayable on demand, and hence valued at par. They are
effectively transferable by mere delivery, in the case of banknotes, or by drawing a
cheque that the payee may bank or cash.
2. Netting and settlement of payments – banks act as both collection and paying agents for
customers, participating in interbank clearing and settlement systems to collect,
present, be presented with, and pay payment instruments. This enables banks to
economies on reserves held for settlement of payments, since inward and outward
payments offset each other. It also enables the offsetting of payment flows between
geographical areas, reducing the cost of settlement between them.
3. Credit intermediation – banks borrow and lend back-to-back on their own account as
middle men.
4. Credit quality improvement – banks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement
comes from diversification of the bank's assets and capital which provides a buffer to
absorb losses without defaulting on its obligations. However, banknotes and deposits
are generally unsecured; if the bank gets into difficulty and pledges assets as security, to
rise the funding it needs to continue to operate, this puts the note holders and
depositors in an economically subordinated position.
5. Maturity transformation – banks borrow more on demand debt and short term debt,
but provide more long term loans. In other words, they borrow short and lend long.
With a stronger credit quality than most other borrowers, banks can do this by
aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g.
withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in
marketable securities that can be readily converted to cash if needed, and raising
replacement funding as needed from various sources (e.g. wholesale cash markets and
securities markets).

Law of banking:
Banking law is based on a contractual analysis of the relationship between the bank (defined
above) and the customer—defined as any entity for which the bank agrees to conduct an
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank and the customer:
when the account is in credit, the bank owes the balance to the customer; when the
account is overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit
of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the
customer, e.g. a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as
the customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that
the customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—
unless the customer consents, there is a public duty to disclose, the bank's interests
require it, or the law demands it.
8. The bank must not close a customer's account without reasonable notice, since cheques
are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer
and the bank. The statutes and regulations in force within a particular jurisdiction may also
modify the above terms and/or create new rights, obligations or limitations relevant to the
bank-customer relationship.

The requirements for the issue of a bank license vary between jurisdictions but typically
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior
4. Approval of the bank's business plan as being sufficiently prudent and plausible.

Types of banks:
Banks' activities can be divided into retail banking, dealing directly with individuals and small
businesses; business banking, providing services to mid-market business; corporate banking,
directed at large business entities; private banking, providing wealth management services to
high net worth individuals and families; and investment banking, relating to activities on the
financial markets. Most banks are profit-making, private enterprises. However, some are
owned by government, or are non-profit organizations.
Central banks are normally government-owned and charged with quasi-regulatory
responsibilities, such as supervising commercial banks, or controlling the cash interest rate.
They generally provide liquidity to the banking system and act as the lender of last resort in
event of a crisis.

Types of retail banks:

 Commercial bank: the term used for a normal bank to distinguish it from an investment
bank. After the Great Depression, the U.S. Congress required that banks only engage in
banking activities, whereas investment banks were limited to capital market activities.
Since the two no longer have to be under separate ownership, some use the term
"commercial bank" to refer to a bank or a division of a bank that mostly deals with
deposits and loans from corporations or large businesses.
 Community Banks: locally operated financial institutions that empower employees to
make local decisions to serve their customers and the partners.

 Community development banks: regulated banks that provide financial services and
credit to under-served markets or populations.
 Postal savings banks: savings banks associated with national postal systems.
 Private Banks: banks that manage the assets of high net worth individuals.
 Offshore banks: banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.
 Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even
18th century. Their original objective was to provide easily accessible savings products
to all strata of the population. In some countries, savings banks were created on public
initiative; in others, socially committed individuals created foundations to put in place
the necessary infrastructure. Nowadays, European savings banks have kept their focus
on retail banking: payments, savings products, credits and insurances for individuals or
small and medium-sized enterprises. Building societies and Landesbanks: institutions
that conduct retail banking.
 Ethical banks: banks that prioritize the transparency of all operations and make only
what they consider to be socially-responsible investments.
 Islamic banks: Banks that transact according to Islamic principles.

Types of investment banks:

 Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for
their own accounts, make markets, and advise corporations on capital market activities
such as mergers and acquisitions.
 Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of shares
rather than loans. Unlike venture capital firms, they tend not to invest in new

Both combined:
 Universal banks, more commonly known as financial services companies, engage in
several of these activities. These big banks are very diversified groups that, among other
services, also distribute insurance— hence the term bancassurance, a portmanteau
word combining "banque or bank" and "assurance", signifying that both banking and
insurance are provided by the same corporate entity.


Kotak Mahindra Bank Ltd

 Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank offers
personal finance solutions of every kind from savings accounts to credit cards,
distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers
transaction banking, operates lending verticals, manages IPOs and provides working
capital loans. Kotak has one of the largest and most respected Wealth Management
teams in India, providing the widest range of solutions to high net worth individuals,
entrepreneurs, business families and employed professionals.
For more information, please visit the Kotak Mahindra Bank website

Kotak Mahindra Old Mutual Life Insurance Ltd

 Kotak Mahindra Old Mutual Life Insurance Ltd is a 74:26 joint venture between Kotak
Mahindra Bank Ltd., its affiliates and Old Mutual plc. A Company that combines its
international strengths and local advantages to offer its customers a wide range of
innovative life insurance products, helping them take important financial decisions at
every stage in life and stay financially independent. The company covers over 3 million
lives and is one of the fastest growing insurance companies in India.

Kotak Securities Ltd
 Kotak Securities is one of the largest broking houses in India with a wide geographical
reach. Kotak Securities operations include stock broking and distribution of various
financial products including private and secondary placement of debt, equity and
mutual funds.
Kotak Securities operate in five main areas of business:
o Stock Broking (retail and institutional).
o Depository Services.
o Portfolio Management Services.
o Distribution of Mutual Funds.
o Distribution of Kotak Mahindra Old Mutual Life Insurance Ltd products.

Kotak Mahindra Capital Company (KMCC)

 Kotak Investment Banking (KMCC) is a full-service investment bank in India offering a

wide suite of capital market and advisory solutions to leading domestic and
multinational corporations, banks, financial institutions and government companies.
Our services encompass Equity & Debt Capital Markets, M&A Advisory, Private Equity
Advisory, Restructuring and Recapitalization services, Structured Finance services and
Infrastructure Advisory & Fund Mobilization.

Kotak Mahindra Prime Ltd (KMPL)

 Kotak Mahindra Prime Ltd is among India's largest dedicated passenger vehicle finance
companies. KMPL offers loans for the entire range of passenger cars, multi-utility
vehicles and pre-owned cars. Also on offer are inventory funding and infrastructure
funding to car dealers with strategic arrangements via various car manufacturers in
India as their preferred financier.
For more information, please visit the KMPL website http://carloan.kotak.com

Kotak International Business

 Kotak International Business specialises in providing a range of services to overseas

customers seeking to invest in India. For institutions and high net worth individuals
outside India, Kotak International Business offers asset management through a range of
offshore funds with specific advisory and discretionary investment management
For more information, please visit the Kotak Mahindra International Business website

Kotak Mahindra Asset Management Company Ltd (KMAMC)

 Kotak Mahindra Asset Management Company offers a complete bouquet of asset

management products and services that are designed to suit the diverse risk return
profiles of each and every type of investor. KMAMC and Kotak Mahindra Bank are the
sponsors of Kotak Mahindra Pension Fund Ltd, which has been appointed as one of six
fund managers to manage pension funds under the New Pension Scheme (NPS).

Kotak Private Equity Group (KPEG)

 Kotak Private Equity Group helps nurture emerging businesses and mid-size enterprises
to evolve into tomorrow's industry leaders. With a proven track record of helping build
companies, KPEG also offers expertise with a combination of equity capital, strategic
support and value added services. What differentiates KPEG is not merely funding
companies, but also having a close involvement in their growth as board members,
advisors, strategists and fund-raisers.
For more information, please visit the KPEG website www.privateequityfund.kotak.com

Kotak Realty Fund

 Kotak Realty Fund deals with equity investments covering sectors such as hotels, IT
parks, residential townships, shopping centers, industrial real estate, health care, retail,
education and property management. The investment focus here is on development
projects and enterprise level investments, both in real estate intensive businesses.

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a
steady and confident journey leading to growth and success. The milestones of the group
growth story are listed below year wise.

To be the most trusted Global Indian Financial Services brand and the most preferred financial
services employer with focus on creating value.

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a
steady and confident journey leading to growth and success. The milestones of the group growth
story are listed below year wise.

Kotak Mahindra is one of India's leading banking and financial services group, offering a wide
range of financial services that encompass every sphere of life.
 Kotak Mahindra Old Mutual Life Insurance Ltd
 Kotak Securities Ltd
 Kotak Mahindra Capital Company (KMCC)
 Kotak Mahindra Prime Ltd (KMPL)
 Kotak International Business
 Kotak Mahindra Asset Management Company Ltd (KMAMC)
 Kotak Private Equity Group (KPEG)
 Kotak Realty Fund

2015  Uday Kotak - 'Transformational Business Leader Award' at the AIMA Managing
India Awards 2014.
Uday Kotak - 'Entrepreneur of the Decade' by Bombay Management Association
2014 . Ranked among top 5 Best Ranked Companies for Corporate Governance Practices in
IR Global Ranking

2013  Best Managed Board by Aon Hewitt-Mint Study 2012.

Best Bank Award in New Private Sector Bank category by Financial Express.

2012 . Uday Kotak, Executive Vice Chairman & Managing Director, Kotak Mahindra Bank

was presented with the Financial Leadership Award at NDTV Profit Biz Excellence Award.

2011 .Kotak Mahindra Bank and Cisco won the Asian Banker Award for the Best Contact
Center Deployment

2010 .Ahmedabad Derivatives and Commodities Exchange, a Kotak anchored enterprise,

became operational as a national commodity exchange.

 Kotak Mahindra Bank Ltd. opened a representative office in Dubai

 Entered Ahmedabad Commodity Exchange as anchor investor.

2008  Launched a Pension Fund under the New Pension System.

 Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital
Company and Kotak Securities.

 Kotak Group realigned joint venture in Ford Credit; their stake in Kotak Mahindra
Prime was bought out (formerly known as Kotak Mahindra Primus Ltd) and Kotak
group’s stake in Ford credit Kotak Mahindra was sold.
 Launched a real estate fund.

2004  Launched India Growth Fund, a private equity fund.

 Kotak Mahindra Finance Ltd. converted into a commercial bank - the first Indian
company to do so.

 Matrix sold to Friday Corporation.

 Launched Insurance Services.
 Kotak Securities Ltd. was incorporated

 Kotak Mahindra tied up with Old Mutual plc. for the Life Insurance business.
 Kotak Securities launched its on-line broking site.
 Commencement of private equity activity through setting up of Kotak Mahindra
Venture Capital Fund.

 Entered the mutual fund market with the launch of Kotak Mahindra Asset

1998 Management Company.

 The Auto Finance Business is hived off into a separate company - Kotak
Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited).
Kotak Mahindra takes a significant stake in Ford Credit Kotak
 Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information
Services Limited marks the Group's entry into information distribution.

 Brokerage and Distribution businesses incorporated into a separate company -

Securities. Investment banking division incorporated into a separate company -
Kotak Mahindra Capital Company

1992  Entered the Funds Syndication sector

 The Investment Banking Division was started. Took over FICOM, one of India's
largest financial retail marketing networks

1990  The Auto Finance division was started

1987  Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market

1986  Kotak Mahindra Finance Ltd started the activity of Bill Discounting

Recent achievements
At Kotak Mahindra Group we take a client-centric view and constantly innovate to provide you
with the best of services and infrastructure. We have regularly received accolades that stand
testimony to our success in this endeavour. Some of our recent achievements are:
 ICAI Award
Excellence in Financial Reporting under Category 1 - Banking Sector for the year ending
31st March, 2014.
 Asiamoney
Best Local Cash Management Bank 2014.
 IDG India
Kotak won the CIO 100 'The Agile 100' award 2013.
Banking Technology Excellence Awards Best Bank Award in IT Framework and
Governance Among Other Banks' – 2009.
Banking Technology Award for IT Governance and Value Delivery, 2008.

 IR Global Rankings
Best Corporate Governance Practices - Ranked among the top 5 companies in Asia
Pacific, 2009.
 FinanceAsia
Best Private Bank in India, for Wealth Management business, 2009.
 Kotak Royal Signature Credit Card
Was chosen "Product of the Year" in a survey conducted by Nielsen in 2009.
 IBA Banking Technology Awards
Best Customer Relationship Achievement - Winner 2008 & 2009.
Best overall winner, 2007.
Best IT Team of the Year, 4 years in a row from 2006 to 2009.
Best IT Security Policies & Practices, 2007.
 Euromoney
Best Private Banking Services (overall), 2009.
 Emerson Uptime Champion Awards
Technology Senate Emerson Uptime Championship Award in the BFSI category, 2008.

 Best Local Trade Bank in India
The UK based Trade & Forfaiting Review awarded Kotak Mahindra Bank Ltd. the Bronze
Award in the category of Best Local Trade Bank in India at the TFR Awards 2011.
 LACP Vision Awards 2010 for Annual Report 2010-11
Platinum Award - Best among Banking Category, APAC.
Gold Award - Most Creative Report, APAC.
Ranked No. 21 among Top 50 Reports, APAC.
Ranked No. 87 among the World's Top 100 Annual Reports.
 Businessworld
'Most Valuable CEO' overall, 2010 awarded to Mr. Uday Kotak, Executive Vice Chairman
& Managing Director.

'Best Performing CFO in the Banking/Financial Services sector by CNBCTV 18 CFO
Awards 2010 awarded to Mr. Jaimin Bhatt.
GIREM awarded Kotak Realty Funds Group, the "Investor of the Year" Award for 2009.
 IBA Banking Technology Awards
Best Use of Business Intelligence - up, 2008.
Best Enterprise Risk Management - Runner up, 2008.
 The Great Places to Work Institute, India
Best Workplaces in India, 2008.
 Hewitt
10th Best Employer in India, 2007, 2008 & 2009.
 Financial Insights Innovation Award
Best Innovation in Enterprise Security Management in the Asia Pacific Region, 2009.
 Frost & Sullivan
Best Passenger Vehicle Finance Company in India, 2006.
 CNBC TV 18
Indian Business Leader of the Year, 2008 awarded to Uday Kotak, Executive Vice
Chairman & Managing Director.

Banking information
The Bank publishes the standalone and consolidated results on a quarterly basis. The
standalone results is subjected to "Limited Review" by the auditors of the Bank. The same are
also reviewed by the Audit Committee before submission to the Board. Along with the
quarterly results, an earnings update is also prepared and posted on the website of the Bank.
Every quarter, the Executive Vice-Chairman and Managing Director and the Executive
Director(s) participate on a call with the analysts / shareholders, the transcripts of which are
posted on the website of the Bank. The Bank also has dedicated personnel to respond to
queries from investors.

Financial Calendar: For each calendar quarter, the financial results are reviewed and taken
on record by the Board during the last week of the month subsequent to the quarter ending.
The audited annual accounts as at 31st March are approved by the Board, after a review
thereof by the Audit Committee. The Annual General Meeting to consider such annual accounts
is held in the second quarter of the financial year.
Stock Exchanges on which listed:

Trading of shares to be in compulsorily dematerialized form: The equity shares of

the Bank have been activated for dematerialization with the National Securities Depository
Limited and with the Central Depository Services (India) Limited vide ISIN INE237A01028.

Share Transfer System: Applications for transfers, transmission and transposition are
received by the Bank at its Registered Office or at the office(s) of its Registrars & Share Transfer
Agents. As the shares of the Bank are in dematerialized form, the transfers are duly processed
by NSDL/CDSL in electronic form through the respective depository participants. Shares which
are in physical form are processed by the Registrars & Share Transfer Agents, Karvy
Computershare Private Limited, on a regular basis and the certificates dispatched directly to the

Investor Helpdesk: Share transfers, dividend payments and all other investor related
activities are attended to and processed at the office of our Registrars & Share Transfer Agents.
For lodgment of Transfer Deeds and any other documents or for any grievances/complaints,
kindly contact Karvy Computershare Private Limited, contact details of which are provided
elsewhere in the Report.
For the convenience of the investors, transfers and complaints from the investors are accepted
at the Registered Office between 9:30 a.m. to 5:30 p.m. from Monday to Friday except on bank

Corporate Responsibility
Community investment and development
Kotak Mahindra views Corporate Social Responsibility as an investment in society and in its own
future. Kotak uses the power of its human and financial capital to help in transforming
communities into vibrant, desirable places for people to live. The group leverages its core
competencies in three areas:

 Sustainability
An integral part of all Kotak Mahindra Group activities is to be consistently responsible
to shareholders, clients, employees, society and the environment.

 Economic Development
By helping people achieve their financial goals, Kotak strengthens the fabric of
communities and helps them overcome unemployment and poverty to help them shape
their future.

 Doing My Bit
A growing number of employees are committed to civic leadership and responsibility
with the support and encouragement of the Kotak Group. A number of employees have
been involved in strengthening communities through voluntary work, payroll giving and
management inputs.

For any CSR related queries, please contact:

Group CSR
Kotak Mahindra Bank Ltd
Tel. Board +91 22 6720 6720
Email: cr@kotak.com

Senior Management
Mr. Uday S. Kotak
Executive Vice Chairman and Managing Director
Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of the Bank, and its
principal founder and promoter. Mr. Kotak is an alumnus of Jamnalal Bajaj Institute of
Management Studies.
In 1985, when he was still in his early twenties, Mr Kotak thought of setting up a bank when
private Indian banks were not even seen in the game. First Kotak Capital Management Finance
Ltd (which later became Kotak Mahindra Finance Ltd), and then with Kotak Mahindra Finance
Ltd, Kotak became the first non-banking finance company in India's corporate history to be
converted into a bank. Over the years, Kotak Mahindra Group grew into several areas like stock
broking and investment banking to car finance, life insurance and mutual funds.
Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of the Year Award
in 2006 and the Ernst & Young Entrepreneur of the Year Award in 2003.
He was featured as one of the Global Leaders for Tomorrow at the World Economic Forum's
annual meet at Davos in 1996. He was also featured among the Top Financial Leaders for the
21st Century by Euromoney magazine. He was named as CNBC TV18 India Business Leader of
the Year 2008 and as the most valued CEO by businessworld in 2010.

Mr. C Jayaram
Joint Managing Director
Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in charge of the Wealth
Management Business of the Kotak Group. An alumnus of IIM Kolkata, he has been with the
Kotak Group since 1990 and member of the Kotak board in October 1999. He also oversees the
international subsidiaries and the alternate asset management business of the group. He is the
Director of the Financial Planning Standards Board, India. He has varied experience of over 25
years in many areas of finance and business, has built numerous businesses for the Group and
was CEO of Kotak Securities Ltd. An avid player and follower of tennis, he also has a keen
interest in psephology.

Mr. Dipak Gupta
Joint Managing Director
An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has been with the Kotak
Group since 1992 and joined the board in October 1999.
He heads commercial banking, retail asset businesses and looks after group HR function. Early
on, he headed the finance function and was instrumental in the joint venture between Kotak
Mahindra and Ford Credit International.

He was the first CEO of the resulting entity, Kotak Mahindra Primus Ltd.

Sr.No Name & Address of Stock Exchange Market Scrip Code

The Bombay Stock Exchange Limited

Phiroze Jeejeebhoy Towers
1 500247
Dalal Street, Fort,
Mumbai 400 023

National Stock Exchange of India Limited

Exchange Plaza, 5th Floor,
Bandra-Kurla Complex,
Bandra, Mumbai 400 051

3 Luxembourg Stock Exchange BP 165, L-2011 Luxembourg

Management of working capital plays a very important role in the financial management of a
company because maintaining a balance of income to debt can be difficult and owners must be
diligent to assure that it is kept. Sometimes it takes a little assistance to maintain levels of
fluidity or make major purchases.
If working capital dips too low, a business risks running out of cash. Even very profitable
businesses can run into trouble if they lose the ability to meet their short-term obligations.
Working capital financing can be used as a fast cash option to cushion the periods when the
flow is not ideal or readily available. Even when owners are meticulous in managing working
capital, finding the right levels to remain comfortable and competitive can be difficult.

The Importance of Good Working Capital Management

Working capital constitutes part of the Company’s investment in a department. Associated with
this is an opportunity cost to the company. (Money invested in one area may "cost"
opportunities for investment in other areas.) If a department is operating with more working
capital than is necessary, this over-investment represents an unnecessary cost to the Company
From a department's point of view, excess working capital means operating inefficiencies. In
addition, unnecessary working capital increases the amount of the capital charge which
departments are required to meet


 Describe the risk-return trade-off involved in managing a firm's working capital.
 Explain the determinants of net working capital.
 Calculate the effective cost of short-term credit.
 List and describe the basic sources of short-term credit.
 Describe the special problems encountered by multinational firms in managing working

Working capital management takes place on two levels:
 Ratio analysis can be used to monitor overall trends in working capital and to identify
areas requiring closer management
 The individual components of working capital can be effectively managed by using
various techniques and strategies
When considering these techniques and strategies, departments need to recognize that each
department has a unique mix of working capital components. The emphasis that needs to be
placed on each component varies according to department.
Furthermore, working capital management is not an end in itself. It is an integral part of the
department's overall management. The needs of efficient working capital management must be
considered in relation to other aspects of the department's financial and non-financial

Working Capital Ratio=Current Assets /Current Liabilities:

The working capital ratio (or current ratio) attempts to measure the level of liquidity, that is,
the level of safety provided by the excess of current assets over current liabilities.
The "quick ratio" a derivative, excludes inventories from the current assets, considering only
those assets most swiftly realizable. There are also other possible refinements.
There is no particular benchmark value or range that can be recommended as suitable for all
government departments. However, if a department tracks its own working capital ratio over a
period of time, the trends-the way in which the liquidity is changing-will become apparent.

Current assets:
The term current assets refer to those assets which in the ordinary course of business can be,
or will be, converted into cash within one year without under going any diminution in the value
and without disrupting the operations of the firm. The major current assets are cash, cash
equivalent, marketable securities, accounts receivable, inventory, prepaid expenses and other
short term investments.

Debtors are people or other firms who owe money to the firm. This will usually happen where
the firm has sold goods with a period of credit. The firm sells the good or service but allows the
purchaser a period of credit to pay - usually a month. During this month the purchaser owes the
firm the money and is therefore a debtor.
If the firm has debts these are considered an asset, because when the debtors pay the firm will
have converted the debt into cash in the bank. Because most debts are relatively short-term
they are considered current assets the amount of debtors a firm has depends on the line of
business they are in.

In a business the term cash may have a broader meaning. Cash is an asset to the business and is
usually considered to be one of the current assets. Under the heading cash on the balance
sheet may be included a number of items of varying liquidity. A small amount may actually be
cash (or readies) held in tills or as petty cash, but the majority is likely to be held in various bank
accounts. However, since money in current accounts rarely earns interest, if a business has a
surplus of cash it may invest it in various ways. Some will have to be in very liquid accounts so
that if necessary they can get at it very quickly, but some may be tied up for longer periods of

Inventory is also a current asset which can be either raw materials, finished items available for
sale, or goods in the process of being manufactured. Inventory is recorded as an asset on a
company's balance sheet.

Raw material
An item used to produce something else is called a "raw material." Some raw materials are easy
to spot, but many require detective work.

Raw material of a company may be imported or indigenous. Raw material should be managed
in such a way that flow of production is not interrupted. Reordering quantity and time should
be estimated in a proper manner.

Work in process
An operation is composed of processes designed to add value by transforming inputs into useful
outputs. Inputs may be materials, labor, energy, and capital equipment. Outputs may be a
physical product (possibly used as an input to another process) or a service. Processes can have
a significant impact on the performance of a business, and process improvement can improve a
firm's competitiveness.

Finished Goods
Definition: Commodities that will not undergo further processing and are ready for sale to the
final demand user, either an individual consumer or business firm. This includes unprocessed
foods such as eggs and fresh vegetables, as well as processed foods such as bakery products
and meats.
This also includes durable goods such as automobiles, household furniture and appliances, and
Nondurable goods such as apparel and home heating oil.

Prepaid Expenses
In the course of every day operations, businesses will have to pay for goods or services before
they actually receive the product sometimes companies decide to prepay taxes, salaries, utility
bills, rent, or the interest on their debt. These would all be pooled together and put on the
balance sheet under the heading prepaid expenses. By their very nature, Prepaid Expenses are
a small part of the balance sheet.

Current liabilities
The term current liabilities are those liabilities which are intended at the time of their inception,
to be paid in the ordinary course of business, within a year, out of the current assets or
earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank
overdraft and outstanding expenses and other short term debts.

Creditors (Accounts Payable) are suppliers whose invoices for goods or services have been
processed but who have not yet been paid.
In other words, creditors are people to whom the company owes the money.
The term creditor is frequently used in the financial world, especially in reference to short term
loans, long term bonds, and mortgages.
The term creditor derives from the notion of credit. In modern America, credit refers to a rating
which indicates the ability of a borrower and likelihood to pay back his or her loan. In earlier
times, credit also referred to reputation or trustworthiness.

Classification of Current Assets and Current Liabilities

The current classification applies to those assets that will be realized in cash, sold, or consumed
within one year (or operating cycle, if longer), and those liabilities that will be discharged by use
of current assets or the creation of additional current liabilities within one year (or operating
cycle, if longer). The current liability section of a balance sheet is also intended to include
obligations that are due on demand or will be due on demand within one year from the balance
sheet date, even though liquidation may not be expected within that period. Short-term
obligations shall be excluded from current liabilities only if the enterprise intends to refinance
the obligation on a long-term basis and has the demonstrated ability to consummate the
The ordinary operations of a business involve a circulation of capital within the current asset
group. Cash is expended for materials, labor, operating expenses, and other services, and such

cash expenditures are included in the inventory value. Upon sale of the products or
performance of services, the accumulated expenditures are converted into receivables and
ultimately into cash again. The average period of time intervening between the cash-to-cash
conversion is the operating cycle of the business. When the business has no clear operating
cycle, or when the operating cycle is shorter than 12 months, a 12-month period should be
used to segregate current assets.
This concept of the nature of current assets would exclude from that classification such
resources as 1) cash and claims to cash that are restricted as to withdrawal or other use for
current operations; 2) investments in securities (whether marketable or not) or advances that
have been made for the purpose of control, affiliation, or other business advantage; 3) cash
surrender value of life insurance; 4) depreciable assets; 5) long-term receivables; and 6) land.
For analytical purposes, specific recommendations of the FFSC are:
1. Principal debt due within 12 months, even on notes with monthly payments, should be
included as a current liability.
2. Capital leases should be accounted for on the balance sheet, with the current portion of
the principal due and the accrued interest shown as a current liability.
3. Cash value of life insurance should be a non-current asset.
4. Loans to family members should be treated based on the characteristics of the notes.
(The amount of these loans should be separately disclosed, if material.)
5. PIK certificates should be treated as current assets.
6. Retirement accounts should be shown as non-current assets.
The current portion of both deferred tax assets and deferred tax liabilities are to be recorded as
current assets or current liabilities.

Good cash management can have a major impact on overall working capital management.
The key elements of cash management are:
 Cash forecasting;
 Balance management;
 Administration;
 Internal control.

Cash Forecasting:
Good cash management requires regular forecasts. In order for these to be materially accurate,
they must be based on information provided by those managers responsible for the amounts
and timing of expenditure. Capital expenditure and operating expenditure must be taken into
account. It is also necessary to collect information about impending cash transactions from
other financial systems, such as creditors and payroll.

Balance Management: Those responsible for balance management must make decisions
about how much cash should at any time be on call in the Departmental Bank Account and how
much should be on term deposit at the various terms available.
There are various types of mathematical model that can be used. One type is analogous to the
ERQ inventory model. Linear programming models have been developed for cash management,
subject to certain constraints. There are also more sophisticated techniques.

Administration: Cash receipts should be processed and banked as quickly as possible

 They cannot earn interest or reduce overdraft until they are banked;
 Information about the existence and amounts of cash receipts is usually not available
until they are processed.

Where possible, cash floats (mainly petty cash and advances) should be avoided. If, on review,
the only reason that can be put forward for their existence is that "we've always had them",
they should be discontinued. There may be situations where they are useful, however. For
example, it may be desirable for peripheral parts of departments to meet urgent local needs
from cash floats rather than local bank accounts.

Internal Control:
Cash and cash management is part of a department's overall internal control system. The main
internal cash control is invariably the bank reconciliation. This provides assurance that the cash
balances recorded in the accounting systems are consistent with the actual bank balances. It
requires regular clearing of reconciling items.
The key to successful cash management is milestones:
o Capital is provided to execute a business plan
o Cash use must track growth in enterprise value
o Enterprise value is measured by milestones, not the fiscal calendar
Cash management is not cost control
o Cost control is a reactive measure using crude tools e.g. % cuts
o Cost control often depletes value (e.g. by using people as accounting chips)

Creditors are the businesses or people who provide goods and services in credit terms. That is,
they allow us time to pay rather than paying in cash.
There are good reasons why we allow people to pay on credit even though literally it doesn't
make sense! If we allow people time to pay their bills, they are more likely to buy from your
business than from another business that doesn't give credit. The length of credit period
allowed is also a factor that can help a potential customer deciding whether to buy from a
company or not: the longer the better.
Creditors will need to optimize their credit control policies in exactly the same way as the
debtors' turnover ratio.


Average Creditors
Creditors' Turnover =
(Cost of Sales/365)

As with the stock turnover ratio, creditor values relate to the costs of raw materials, goods and

The objective of debtor management is to minimize the time-lapse between completion of
sales and receipt of payment. The costs of having debtors are:
 Opportunity costs (cash is not available for other purposes);
 Bad debts.
Debtor management includes both pre-sale and debt collection strategies.

Pre-sale strategies include:

 Offering cash discounts for early payment and/or imposing penalties for late payment;
 Agreeing payment terms in advance;
 Requiring cash before delivery;
 Setting credit limits;
 Setting criteria for obtaining credit;
 Billing as early as possible;
 Requiring deposits and/or progress payments.

Post-sale strategies include:

 Placing the responsibility for collecting the debt upon the center that made the sale;
 Identifying long overdue balances and doubtful debts by regular analytical reviews;
 Having an established procedure for late collections, such as

- a reminder;
- a letter;
- cancellation of further credit;
- telephone calls;
- use of a collection agency;
- legal action.
Objectives of Receivables management:
 To maintain an optimum level of investment in receivables.
 To maintain optimum volume of sales.
 To control the cost of credit allowed & to keep it at the minimum possible level.
 To keep down the average collection period.
 To obtain benefit from the investment in debtors at optimum level.

Debt Control and Debt Collection Period

Debt control is an important part of business activity because although a debt is an asset, it is
not as liquid an asset as cash in the bank. Firms have to ensure they collect their debts as
efficiently as possible within the terms they have set for the debt.
The only way we can consider how efficient the firm's debt control has been is to use a ratio.
This ratio is known as the debt collection period.

debt turnover ratio

The figure measures (in number of days) how long on average it has taken the firm to collect its
debts. The higher the figure the longer it has taken. However, the normal period for collecting
debts will differ between industries. For example, a figure of 10 days may sound very
impressive, but if this was the figure for a chain of supermarkets it would be high. Therefore no
debt is incurred and retail firms will tend to have very few debtors and a low debt collection
period. Firms who do a lot of business on credit though will have much higher debt collection

Debtors' Turnover:
Debtors control is a vital aspect of working capital management. Many businesses need to sell
their goods on credit, otherwise they might find it difficult to survive if their competitors
provide such credit facilities; this could mean losing customers to the opposition.
The formula for debtors' turnover is:

Net credit sales

Debtors' Turnover =
Average debtors

Working Capital Cycle:

The way working capital moves around the business is modeled by the working capital cycle.
This shows the cash coming into the business, what happens to it while the business has it and
then where it goes.
The working capital cycle shows the movement of cash into and out of the business. The
components of working capital cycle are the debtors, creditors, raw materials and cash.
The cycle starts with buying of raw materials on credit from the suppliers. These suppliers
become the creditors of the company. The raw materials undergo through different value
addition stages and are converted into finished goods. The finished goods are sold to the
customers on credit who become the debtors of the company. At the end of the credit period
the company gets the cash from the debtors whom they pay to the creditors and the cycle goes
It is must for any company to have an ideal working capital cycle. It should neither be too long
nor too short. If the cycle is too long the funds get stuck up with the debtors and prompt
payment to the creditors cannot be made.
A simple working capital cycle may look something like:




Sales Production

Value added conversion

Banks are the main institutional sources of working capital finance in India. After trade credit
bank credit is the most important source of working capital requirement of firms in India. A
bank considers a firm’s sales and production plans and the desirable levels of current assets in
determining its working capital requirements. The amount approved by the bank for the firm’s
working capital is called credit limit.


A firm can draw funds from its banks within the maximum credit limit sanctioned. It can draw
funds in the following forms.
→ Overdrafts
→ Cash credit
→ Bills purchasing or discounting
→ Working capital loan
→ Letter of credit

Like many other activities of the banks, method and quantum of short-term
finance that can be granted to a corporate was mandated by the Reserve Bank of
India till 1994. This control was exercised on the lines suggested by the
recommendations of a study group headed by Shri Prakash Tandon.
The study group headed by Shri Prakash Tandon, the then Chairman of Punjab
National Bank, was constituted by the RBI in July 1974 with eminent personalities
drawn from leading banks, financial institutions and a wide cross-section of the
Industry with a view to study the entire gamut of Bank's finance for working
capital and suggest ways for optimum utilization of Bank credit. This was the first
elaborate attempt by the central bank to organize the Bank credit. The report of
this group is widely known as Tandon Committee report.

Most banks in India even today continue to look at the needs of the corporate in
the light of methodology recommended by the Group.
As per the recommendations of Tandon Committee, the corporate should be
discouraged from accumulating too much of stocks of current assets and should
move towards very lean inventories and receivable levels.

First Method of Lending:

Banks can work out the working capital gap, i.e. total current assets less current liabilities
other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and
finance a maximum of 75 per cent of the gap; the balance to come out of long-term
funds, i.e., owned funds and term borrowings. This approach was considered suitable
only for very small borrowers i.e. where the requirements of credit were less than Rs.10
lacs. This method will give a minimum current ratio of 1:1

Second Method of Lending:

Under this method, it was thought that the borrower should provide for a
minimum of 25% of total current assets out of long-term funds i.e., owned funds plus
term borrowings. A certain level of credit for purchases and other current liabilities will
be available to fund the buildup of current assets and the bank will provide the balance
(MPBF). Consequently, total current liabilities inclusive of bank borrowings could not
exceed 75% of current assets. RBI stipulated that the working capital needs of all
borrowers enjoying fund based credit facilities of more than Rs. 10 lacs should be
appraised (calculated) under this method this method will give a current ratio of 1.3:1.

Working Capital assessment on the formula prescribed by the Tandon
Working Capital Requirement (WCR) = [Current assets i.e. CA (as per industry norms) – Current
Liabilities i.e. CL]
Permissible Bank Financing [PBF} = WCR – Promoter’s Margin Money i.e. PMM (to be brought in
by the promoter)
As per Formula 1: PMM = 25% of [CA – CL] and thereby PBF = 75% of [CA – CL]
As per Formula 2: PMM = 25% of CA and thereby PBF = 75%[CA] – CL
As is apparent Formula 2 requires a higher level of PMM as compared to Formula 1. Formula 2
is generally adopted in case of bank financing. In cases of sick units where the promoter is
unable to bring in PMM to the extent required under Formula 2, the difference in PMM
between Formulae 1 and 2 may be provided as a Working Capital Term Loan repayable in
installments over a period of time.


1st method 2nd method

(a) Current 100 100

(b) Current 20 20
(c) Working capital 80 80
gap (CA-CL)(a-b)
(d) Borrower’s 20(25% of c) 25(25% 0f a)
(e) Permissible bank 60 55

The main factors used in the estimation of working capital requirement:
 The nature of business and sector-wise norms
 Factors such as seasonality of raw materials or of demand may require a high level of
inventory being maintained by the company. Similarly, industry norms of credit allowed
to buyers determine the level of debtors of the company in the normal course of
 The level of activity of the business Inventories and receivables are normally expressed
as a multiple of a day’s production or sale. Hence, higher the level of activity, higher the
quantum of inventory, receivables and thereby working capital requirement of the
business. So in order to arrive at the working capital requirement of the business for the
year, it is essential to determine the level of production that the business would
achieve. In case of well-established businesses, the previous year’s actual and the
management projections for the year provide good indicators. The problems arise
mainly in the case of determining the limit for the first time or in the initial few years of
the business. Banks often adopt industry standard norms for capacity utilization in the
initial years.

Steps involved in arriving at the level of working capital requirement:

 Based on the level of activity decided and the unit cost and sales price projections, the
banks calculate at the annual sales and cost of production.
 The quantum of current assets (CA) in the form of Raw Materials, Work-in-progress,
Finished goods and Receivables is estimated as a multiple of the average daily turnover.
The multiple for each of the current assets is determined generally based on the
industry norms.
 The current liabilities (CL) in the form of credit availed by the business from its creditors
or on its manufacturing expenses are deducted from the current assets (CA) to arrive at
the Working Capital Requirement (WCR).

 The issue of computation of working capital requirement has aroused considerable
debate and attention in this country over the past few decades. A directed credit
approach was adopted by the Reserve Bank of ensuring the flow of credit to the priority
sectors for fulfillment of the growth objectives laid down by the planners. Consequently,
the quantum of bank credit required for achieving the requisite growth in Industry was
to be assessed. Various committees such as the Tandon Committee and the Chore
Committee were constituted and studied the problem at length.
 Norms were fixed regarding the quantum of various current assets for different
industries (as multiples of the average daily output) and the Maximum Permissible Bank
Financing (MPBF) was capped at a certain percentage of the working capital
requirement thus arrived at.

Negative Working Capital:

Some companies can generate cash so quickly they actually have a negative working capital.
This is generally true of companies in the restaurant business (McDonalds had a negative
working capital of $698.5 million between 1999 and 2000). Amazon.com is another example.
This happens because customers pay upfront and so rapidly, the business has no problems
raising cash. In these companies, products are delivered and sold to the customer before the
company ever pays for them.
A negative working capital is a sign of managerial efficiency in a business with low inventory
and accounts receivable (which means they operate on an almost strictly cash basis). In any
other situation, it is a sign a company may be facing bankruptcy or serious financial trouble

Ratio Analysis:
The ratio analysis is one of the most powerful tools of financial analysis. it is the process of
establishing and interpreting various ratios (Quantities relationship between figures and groups
of figures).it is with the help of ratios that the financial statements can be analysis more clearly
and decision are made from such analyses.

A ratio is simple arithmetic expression of the relationship of one to another. According to
accountants Handbooks by Ixen and Bedford a ratio is an expression of the quantities
relationship between two numbers.

Types of Ratios:
i. Liquidity Ratios
ii. Leverage Ratios
iii. Profitability Ratios
iv. Activity Ratios
i. Liquidity Ratio
Current ratio= current assets/current liabilities
Quick ratio= quick assets/current liabilities
Measures firms ability to meet its obligation; leverage ratios show the proportions of
the debt equity in financing the firm’s assets; activity ratios reflect the firm efficiency in
utilizing its assets, and profitability ratios measure overall performance and
effectiveness of the firm.

ii. Leverage Ratio

Leverage ratio= debt/equity ratio
The short-term creditors, like bankers and suppliers of raw materials, are more
concerned with the forms current debt paying ability. On the other hand, long term
creditors like debenture holder’s financial institution etc. are more concerned with the
firm’s long term financial strength. A firm should have strong short as well as long-term
financial position.

iii. Profitability Ratio
Profitability refers to net result of business operation two types of ratios are used to
measure profitability. These are profit margin ratios rate of return ratios.While profit
margin ratios shows the relationship between profit and investment.

The important profit margin ratios are:

 Gross profit Ratio= gross profit/sales*100
 Operating profit ratio=operating expenses/net sales*100
 Net profit Ratio=PAT/netsales*100

The important rate of return ratios are:

Return on assets Return of capital employed,
Return on shareholders’ equity,
Return on equity share capital.

iv. Activity Ratio

 Fixed assets turnover ratio=net sales/fixed assets
 Current assets turnover ratio= net sales/current assets
 Debtors turnover ratio=net credit sales/ average debtors

These ratios are also referred to activity ratios asset management ratios. They measure
how efficiency a firm employs the assets. They are based on the relationship between
level of activity and levels of various assets. The important turnover ratios are inventory
turnover ratio, debtors’ turnover ratio, creditors’ turnover ratio, fixed turnover ratio,
total assets turnover ratio.

Comparative balance sheet:
The comparative balance sheet analysis is the study of the trend of the same items, group of
items and computed items in two or more balance sheets of the same enterprise on different
dates. The changes in periodic observed by comparison of the balance sheet at the end of a
period and these changes can help in informing an opinion about the progress of and
While interpreting comparative balance sheet the interpreter is expected to study the following
1. Current interpreting comparative and liquidity position
2. Long term financial position
3. Profitability of the concern


Size and growth of current assets and liabilities and Net working capital of Kotak Mahindra
during the period 2010-11 to 2014-15.
Year Current Growth Current Growth Rate (%) Net W.C
Assets Rate (%) Liabilities
2010-11 17701.69 100 12844.57 100 4857.12
2011-12 17766.01 100.3634 15064.09 117.2798 2701.92
2012-13 23075.31 129.8846 24270.24 161.1132 -1194.93
2013-14 31800.29 137.8109 23803.06 98.07509 7997.23
2014-15 41713.78 131.1742 29197.75 122.6639 12516.03

30000 2010-11
25000 2011-12
20000 2012-13
15000 2013-14
10000 2014-15

The Current assets and the current liabilities of Kotak Mahindra are in the increasing stage but
at the financial year 2014-2015 it is in the decreasing stage because of increasing in the current
liabilities and the growth rate is 131.17. The net working capital is also in the increasing stage.

(All amounts are in Cr)
Sales(Income) Networking Capital Ratio

2010-11 2845.84 4857.12 0.585911

2011-12 3222.70 2701.92 1.192744
2012-13 3676.54 -1194.93 -3.07678
2013-14 4811.12 7997.23 0.601598
2014-15 7028.66 12516.03 0.561573



6000 2012-13


The Net working capital of Kotak Mahindra are In the increasing stage but at the financial year
2014-2015 it is in the decreasing stage because of increasing in the sales and the growth rate is
131.17. The net working capital is also in the increasing stage.

Debtors Turnover Ratio expresses the relationship between debtors and sales. A high Debtors
Turnover Ratio or low Debt collection period is indicative of sound credit management policy.

Table shows Debtors Turnover Ratio of Kotak Mahindra. During 2010-11 to

2014-15.(All amounts are in Cr)
Year Net Credit Sales(Income) Avg. Debt Ratio
2010-11 2845.84 21542.90 0.132101
2011-12 3222.70 21549.00 0.149552
2012-13 3676.54 30026.98 0.122441
2013-14 4811.12 40984.92 0.117388
2014-15 7028.66 55132.04 0.127488






From the above table, it is observed that the Kotak Mahindra debtor’s turnover ratio shows a

good sigh. The company noted a maximum ratio of 14.95 in the year 2011-12 and the maximum

ratio in the year of 2014-15 is 12.74.

If we observed the above table the ratio is increasing the year 2010--11 is 13.21 to 14.95 in the

year 2011-12 in the year but it is decreased to 12.74 in the year 2014-15. It shows a good sign

for the company.

Current Ratio:
It is the ratio of the current assets current liabilities this ratio is used to know the company’s
ability to meet its current obligations. The standard norm for the current ratio is 2:1
Current ratio = current Assets / Current liabilities.
Table showing current ratio of Kotak Mahindra Ltd during the period 2010-11 to 2014-15

(All amounts are in Cr)

Year Current Assets Current Liabilities Ratio

2010-11 17701.69 12844.57

2011-12 17766.01 15064.09
2012-13 23075.31 24270.24
2013-14 31800.29 23803.06
2014-15 41713.78 29197.75

30000 2010-11
25000 2011-12

20000 2012-13

15000 2013-14

It is observed that the Kotak Mahindra current rationing a increasing trend; the company’s

liquidity position is satisfactory. The current ratio increased slightly up to 2011-12 is 1.33. But in

2012-13 it declined because of increase in current liabilities, and then it started to decreased

further in 2012-13 as 0.95.If the company maintains to increase the ratio it can meet


Quick Ratio:
Quick ratio is relation between quick assets and current liabilities. The term quick assets, which
can be converted into cash with a short notice. This category also includes cash bank balances
short – term investments and receivables.
Quick ratio = Quick Assets / current liabilities
Table showing quick ratio of Kotak Mahindra during the period 2010-11 to 2014-15.
(All amounts are in Cr)
Year Quick Assets Current Liabilities Ratio
2010-11 17701.69 12844.57 1.378146
2011-12 17766.01 15064.09 1.179362
2012-13 23075.31 24270.24 0.950766
2013-14 31800.29 23803.06 1.335975
2014-15 41713.78 29197.75 1.428664

30000 2010-11
25000 2011-12

20000 2012-13

15000 2013-14

It is observed that the Kotak Mahindra current rationing a increasing trend; the company’s

liquidity position is satisfactory.

The current ratio increased slightly up to 2011-12 is 1.33. But in 2012-13 it declined because of

increase in current liabilities, and then it started to decrease further in 2012-13 as 0.95. If the

company maintains to increase the ratio it can meet obligations.

Composition of current Assets:
(All the amounts are in Cr)
Particulars 2010-11 2011-12 2012-13 2013-14 2014-15 Avg.

Sundry Debtors 21542.90 21549.00 30026.98 40984.92 55132.04 338.47

Cash and Balance 1710.29 995.35 2085.67 2107.72 2016.49 178.39

with RBI
Advances 15552.22 16625.34 20775.05 29329.31 39079.23 242.72

Balance with bank 439.18 145.32 214.59 363.26 618.06 35.60

Total 39244.6 39315 53102.3 72785.2 96845.8



40000 2010-11
20000 2013-14


The income statement is also called as income statement, it is considered to be the most useful
of all financial statements. It prepared by a business concern in order to know the profit
earned and loss sustained during a specified period. It explains what has happened to a
business as a result of operations between two balance sheet dates. For this purpose it matches
the revenues and cost incurred in the process of earning revenues and shows the net profit
earned or loss suffered during a particular period.
The nature of Income which is a focus of the income statement can be well understood if
business is taken as an organization that uses “Input” to produce “Output”. The output of the
goods and services that the business provides to its customers. The values of these outputs are
the goods and services that the business provides to its customers. The values of these outputs
art the amounts paid by the customers for them. These amounts are called “revenues” in the
accounting. The inputs are the economic resources used by the business in providing these
goods and services. These are termed “expenses” in accounting.
The comparative balance sheet analysis is the study of the same items, group of items and
computed items in two or more balance sheets of the same enterprise on different dates. The
changes in periodic balance sheet items reflect the conduct of a business. The changes can be
observed by comparison of the balance sheet at the beginning and at the end of a period and
these changes can help in informing an opinion about the progress of and enterprise.

Working capital turnover ratio Of Kotak Mahindra limited:
Implementing an effective working capital management system is an excellent way for many
companies to improve their earnings. The two main aspects of working capital management are
ratio analysis and management of individual components of working capital.

Working capital turnover ratio 2015

Working capital turnover ratio 2014 2015
Total current Assets
Sundry Debtors 40984.92 55132.04
Cash and Balances with RBI 2107.72 2016.49
Balance with Bank 363.26 618.06
Advances 29329.31 39079.23

Total 72785.21 96845.82

Total Current Liabilities

Borrowings 11723.95 16595.52

Other Liabilities 3032.36 2553.67
Contingent Liabilities 12291.30 17319.52

Total 27047.61 36468.71

Net working capital 45737.6 60377.11

Increase\decrease in net working capital 14639.51







The networking capital of Kotak Mahindra has been increased to 60377.11 Cr the financial
position i.e. the performance of Kotak Mahindra has increased and the current assets defects
its current liability.

Working capital turnover ratio 2014

Working capital turnover ratio 2014

Working capital turnover ratio 2013 2014
Total current Assets
Sundry Debtors 30026.98 40984.92
Cash and Balances with RBI 2085.67 2107.72
Balance with Bank 214.59 363.26
Advances 20775.05 29329.31

Total 53102.29 72785.21

Total Current Liabilities

Borrowings 6140.51 11723.95

Other Liabilities 2869.42 3032.36
Contingent Liabilities 4156.15 12291.30

Total 13166.08 27047.61

Net working capital 39936.21 45737.6

Increase\decrease in net working capital 5801.39









The networking capital of Kotak Mahindra has been increased to 45737.60 Cr the financial
position i.e. the performance of Kotak Mahindra has increased and the current assets defects
its current liability.

Working capital turnover ratio 2013

Working capital turnover ratio 2013

Working capital turnover ratio 2012 2013
Total current Assets
Sundry Debtors 21549.00 30026.98
Cash and Balances with RBI 995.35 2085.67
Balance with Bank 145.32 214.59
Advances 16625.34 20775.05

Total 39315.01 53102.29

Total Current Liabilities

Borrowings 5904.07 6140.51

Other Liabilities 3257.34 2869.42
Contingent Liabilities 4486.28 4156.15

Total 13647.69 13166.08

Net working capital 25667.32 39936.21

Increase\decrease in net working capital 14268.89







The networking capital of Kotak Mahindra has been increased to 39936.21Cr the financial
position i.e. the performance of Kotak Mahindra has increased and the current assets defects
its current liability.

Working capital turnover ratio 2012

Working capital turnover ratio 2012

Working capital turnover ratio 2011 2012
Total current Assets
Sundry Debtors 21542.90 21549.00
Cash and Balances with RBI 1710.29 995.35
Balance with Bank 439.18 145.32
Advances 15552.22 16625.34

Total 39244.59 39315.01

Total Current Liabilities

Borrowings 5119.25 5904.07

Other Liabilities 3175.75 3257.34
Contingent Liabilities 7172.79 4486.28

Total 15467.79 13647.69

Net working capital 23776.80 25667.32

Increase\decrease in net working capital 1890.52










The networking capital of Kotak Mahindra has been increased to 25667.32 Cr the financial
position i.e. the performance of Kotak Mahindra has increased and the current assets defects
its current liability.


1. The Kotak Mahindra net working capital is satisfactory between the years 2012-13, since
it shows decreasing trend but after that it is in declining position.

2. The current ratio of Kotak Mahindra is satisfactory during the period of study 2010-11 to
2014-15. It is increased but after that it is declining.

3. The average quick ratio of Kotak Mahindra is not good though the quick ratio is showing
maximum value of 1.24 in the year 2010-11 and then it is declining.

4. Fixed assets turnover ratio of Kotak Mahindra has been increased. And the company has
to maintain this.

5. Inventory turnover ratio of Kotak Mahindra is also increased gradually, without any fit
falls up to 2010-11. In the year 2010-11 it is inclined, and again it has increased in the
year 2014-15. Good inventory management is good sign for efficient management.

6. Total Assets turnover ratio of Kotak Mahindra is not satisfactory because it is always
below one, except in the year 2014-15 having a value of 2.14.

7. Return on investment is not satisfactory. This indicates that the company’s funds are not
being utilized in a better way.


1. position of funds should be utilized properly.

2. Better Awareness to increase the sales is suggested.

3. Cost cut down mechanics can be employed.

4. Better production technique can be employed.

5. The investment on raw material should be made as per the requirement. Unnecessary

investment may block up the funds.

6. Neither too high nor too low inventory turnover ratios may reduce profit and liquidity

position of the industry. So, proper balance should be made to increase profits and to

ensure liquidity.

7. The raw material should be acquired from the right source at right quality and at right


8. The process that was being used by Kotak Mahindra Group with the purchasing

department should undergo changes; so that, it enhances the delivery of a product

without compromising its quality by improving the utilization of materials, labor and



1. The Kotak Mahindra Net Profit Ratio is showing negative profit in the year 2010--11.

These event is an expected one because since from the previous two years it is showing

the decline stage in Net Profit Ratio.

2. Profit Margin of Kotak Mahindra is decreasing and showing negative profit because

there is increase in the price of copper.

3. The Kotak Mahindra Net Working Capital Ratio is satisfactory.

4. The Kotak Mahindra return on Total Assets ratio shows a negative sign in the year 2010-


5. The Operating Ratio of Kotak Mahindra increased in the year 2010-11.

6. The Operating Ratio of Kotak Mahindra satisfactory. Due to increase in cost of

production, this ratio is decreasing. So the has to reduce its office administration



Financial Management Written By M.Y. Khan & P.K. Jain
Financial Management Written By Prasanna Chandra
Financial Management Written By I. M. Pandey
Financial Management Written By S. N. Maheswari