WORKING CAPITAL

Every business needs funds for two purposes, for its establishment and to carry outs its day-to-day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked in a permanent or fixed basis funds are also needed for short-term purposes for the purchase of raw materials, payment of wages and other day-to-day expenses, etc. these funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. In the words of SHUBIN, Working capital is the amount of funds necessary to cover the cost of operating the enterprise. According to GENE STENBERG, Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, from cash to inventories, inventories to receivables, receivables into cash.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital 1. Gross working capital 2. Net working capital While the former refers to the firms investment in current assets, the later refers to the difference between current assets and current liabilities. Net working capital can be positive or negative. The two concepts of working capital have equal significance from point of view of the management. The gross working capital concept focuses on aspects of current assets management. 1. Optimum investment in current assets. 2. Financing of current assets.

The investment in current assets should be just adequate, not more not less, to the needs of the business firm. Excessive investment in current assets should be avoided because it impairs the firms profitability, as idle investment earns nothing. On the other hand inadequate amount of working capital can threaten the solvency of the firm, if it fails to meet its current obligations. Another aspect of gross working capital point to the need of arranging funds to finance assets. Whenever a need for working capital funds arise due to increasing level of the business activity or for any other reason, the arrangement should be made quickly similarly if suddenly surplus funds arise they should not be alone to remain idle, but should be invested in short term securities. Thus a finance manager should have knowledge of the sources of working capital as well as the investment avenues.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Working capital management includes a number of aspect that make it especially important for the financial managers time is devoted to the day to day operations of the firm which fall under the heading of working capital management. Current assets represent the largest proportion i.e. if total assets forms 100% then current assets are generally above 67% of total proportion. Moreover current assets fluctuate with sales vary over time. Thus managing current assets is the dynamic process and it requires the financial manager to closely monitor sales and production levels. Working capital management is important, particularly for small firms.

OBJECTIVES OF WORKING CAPITAL

The following are the objective of working capital as follows: 1. 2. 3. 4. 5. For the purpose of raw materials, components and spares. To pay wages and salaries To incur day-to-day expenses and overhead costs. To meet the selling costs as packing and advertising. To provide credit facilities to the customer.
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6.

To maintain the inventory of raw material, work-in-progress, stores and spares and finished stock.

NEED FOR WORKING CAPITAL

The need for working capital to run the day-to-day business activities cannot be over emphasized. The objective of financial decision-making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits. The extent to which profits can be earned will depend upon the magnitude of the sales among other things. A successful sales program is necessary for earning for any business enterprise. However, sales also do not convert in to cash instantly; there is invariably a time lag between the sale of goods and receipt of cash. Therefore, a need for working capital in the firm of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital necessary to sales activity. Technically, this is referred to as operating or cash cycle.

COMPONENTS OF WORKING CAPITAL

Form the accounting point of view, working capital is the difference between current assets and current liabilities. Working capital= Current Assets - Current Liabilities CURRENT ASSETS Cash is required to pay salaries, office expenses and to pay creditors for purchases stock of raw materials quantities to ensure uninterrupted production. Stock of finished goods in sufficient quantities to meet the demand from customers. Debtors that is people to whom we sell goods on credit basis for increased sales. A prepaid expense, that is the expenses paid in advance such as insurances, rent, and salaries and so on.

Bills receivable these are the bills of exchange received for the money lent or to be received for a short period. CURRENT LIABILITIES: Creditors that are the people from whom we purchase on credit sales. Accruals are those expenses in respect of which, the liability has arisen. In other words, the expenses have fallen due and hence to be incurred, such as interest, salaries, taxes and so on. Bills payables these are the bills of exchange against which money is to be paid with in short period.

FACTORS OF WORKING CAPITAL

Nature of business: - Working capital requirement of a firm basically influenced by the nature of its business trading and financial forms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. Retails stores, for example must carry large stock of a verity of good to satisfy varied and continuous demand of their customer. Market and demand condition: - The working company related to its sales. It is difficult to precisely determine the relationship between the volume of sales and working capital need. Current assets will have to be employed before growth takes place. Then necessary to make planning of working capital for a growing firm on a continuous basis. Technology and manufacturing policy: - The manufacturing cycle comprise of the purchase and use of raw material and the production of finished goods. Longer the manufacture cycle, larger will be the firm's working capital requirement. For example, the manufacturing cycle in the case of a boiler, depending on its size, may range between six to twenty four month. On the other hand the manufacturing cycle of product such as detergent powder, soap, ice creams etc. maybe a few hours extend product take a large time. Credit Policy: - The credit policy of the firm affects the working capital by influencing the level of debtor. The credit term to be guaranteed to customer may depend upon the norm of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy
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within the constraint of industry norms and practice. The firm should use discretion in granting credit term to us customer. Operating efficiency: - The operating efficiency of the firm relates to the optimum utilization of all its resource at minimum costs. The efficiency in controlling operating cost and utilizing fixed and current assets leads to operating efficiency. The use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency. Better utilization improves profitability and helps the releasing on working capital. Conditions of supply: - The inventory of raw material, spares and stores depends on the conditions of supply. If the supply is prompt and adequate, the firm can manage with small inventory. However, if the supply is unpredictable and scant then the firm, to ensure continuity of production, a similar policy may have to be followed when the raw material is available only seasonally and production operations are carried out round the year. THE FEATURES OF WORKING CAPITAL (1) Short term Needs: - Working capital is used to acquire current assets which get converted into cash in a short period. In this respect it differs from fixed capital which represents funds locked in long term assets. The duration of the working capital depends on the length of production process, the time that elapses in the sale and the waiting period of the cash receipt. (2) Circular Movement: - Working capital is constantly converted into cash which again turns into working capital. This process of conversion goes on continuously. The cash is used to purchase current assets and when the goods are produced and sold out those current assets are transformed into cash. Thus it moves in a circular away. That is why working capital is also described as circulating capital. (3) An Element of Permanency: - Though working capital is a short term capital, it is required always and forever. As stated before, working capital is necessary to continue the productive activity of the enterprise. Hence so long as production continues, the enterprise will constantly remain in need of working capital. The working capital that is required permanently is called permanent or regular working capital.

(4) An Element of Fluctuation: - Though the requirement of working capital is felt permanently, its requirement fluctuates more widely than that of fixed capital. The requirement of working capital varies directly with the level of production. It varies with the variation of the purchase and sale policy, price level and the level of demand also. The portion of working capital that changes with production, sale, price etc. is called variable working capital. (5) Liquidity: - Working capital is more liquid than fixed capital. If need arises, working capital can be converted into cash within a short period and without much loss. A company in need of cash can get it through the conversion of its working capital by insisting on quick recovery of its bills receivable and by expediting sales of its product. It is due to this trait of working capital that the companies with a larger amount of working capital feel more secure. (6) Less Risky: - Funds invested in fixed assets get locked up for a long period of time and cannot be recovered easily. There is also a danger of fixed assets like machinery getting obsolete due to technological innovations. Hence investment in fixed capital is comparatively more risky. As against this, investment in current assets is less risky as it is a short term investment. Working capital involves more of physical risk and financial or economic risk to a much less extent because the variations of product prices are less severe generally. Moreover, working capital gets converted into cash again and again; therefore, its free from the risk arising out of technological changes. (7) Special Accounting System not needed: - Since fixed capital is invested in long term assets, it becomes necessary to adopt various systems of estimating depreciation. On the other hand working capital is invested in short term assets which last for one year only. Hence its not necessary to adopt special accounting system for them.

RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically, in various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them. It is important for the researcher to know not only the research method but also know methodology. The procedures by which researcher does the work of describing, explaining and predicting phenomenon are called methodology. Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology differs from problem to problem. Data collection is important step in any project and success of any project will largely depend upon how much accurate the collected data is and how much time, money and effort is expended while collecting necessary data. Data collection plays an important role in research work. Without proper data available for analysis you cannot do the research work accurately. \Research design of the study: The design of study is as follows: 1. Streamlining of cash inputs. 2. Forecast of material requirements. 3. Computerized bill passing system and customer payment schedule. 4. Keeping track of system of centralize cash collection.

OBJECTIVES OF THE STUDY:

The main objectives of the study are 1. To know the sources of working capital. 2. To study the determination of working capital. 3. To analyze the working capital requirements. 4. To know the liquidity position of the company. 5. To study the importance of working capital management at Global Insurance Services pvt.Ltd.Hyderabad. 6. To give suggestions for better working capital management.

SCOPE OF THE STUDY:

1. 2.
3.

The study is confined to the last 5 years. The study mainly focuses on Global Insurance Services Pvt.Ltd. The study mainly focuses on working capital management.

LIMITATION OF THE STUDY:

Though the study is very comprehensive, it is having its own limitations are as follows:

1. The study is mainly carried out based on the secondary data provided in the financial statements. 2. There are some fractional differences in the calculated ratios. 3. As the study period is short the analysis may not give a correct view about the financial performance

COLLECTION OF DATA
There are two types of data collection methods available. 1. Primary data collection 2. Secondary data collection Primary data: The primary data is that which is collected fresh hand, and for first time which is original in nature. Primary data is collected through personal interview, questionnaire etc, to support the secondary data. The primary data is collected by interacting with the manager and other concerned executives at the administrative office of the company Secondary data: The secondary data is that data which has already been collected and stored, the sources of secondary data are records, journals, annual reports of the company, which it will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, balance sheets, books etc. Secondary data are those, which are collected by someone else for their purpose and could be helpful to our analysis up to a certain level. The secondary data has been collected from published sources such as 1. Annual reports of Global Insurance Services Pvt.Ltd. 2. Internal records and financial statement of the company. 3. The books relating to financial management.

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COMPANY PROFILE
Global Insurance services Pvt.Ltd (GIS Pvt Ltd) is one of Indias leading private insurance companies with over customized insurance products catering to the corporate, SME and individual customers. The Company has also launched innovative products like Over-TheCounter health & home insurance policies. Global Insurance Pvt Ltd has an extended network of over 13 offices spread across the country, a wide distribution channel network, and 24x7 customer service assistance. Global Insurance Services Pvt Ltd Insurance partners with corporate and its employees to manage their risk and uncertainty. GIS is a pioneer in the field of insurance broking in India and is one of the first companies to get a license from Insurance Regulatory and Development Authority (IRDA). Helios is focused on providing reliable and trustworthy insurance solutions to all its customers.

Vision:
To be an insurer of World Standards and the most preferred choice for clientele at the domestic and global level.

Mission:
Our Mission is to keep the customer satisfaction as focal point of all our operations, adopt the best international practices in underwriting, claims and customer service, be the most innovative in product development, establish presence all over India, ensure sustained value addition to all stake holders and to uphold Corporate Value & Corporate Governance.

Goals:

Make affordable insurance accessible to all Keep customer as focal point for all operations Protect policy holders interests Adopt best international practices in claims, underwriting and policy servicing Be the most innovative in product development Establish Pan India presence

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Quality:
At Global Insurance services Pvt Ltd we identify Quality and Customer-focus as our key strategic initiatives. Our Quality roadmap, strictly aligned with our business priorities, is benchmarked to the best contemporary global practices, and is designed to support our singleminded objective of maintaining world-class quality standards. Our quality system deployment, defined from the point of the view of our customers, is to enhance customer experience at all the touch points. As part of this initiative, every business process in the organization is identified, documented, automated and deployed. These processes are further monitored continuously through their compliance scores and dashboard measures and reviewed by the Senior Management team within the organization.

Global Insurance services:

Life Insurance The purchase of Life Insurance is the most unselfish financial gift that can be made. The cost is paid during the lifetime of the insured, but the financial benefit may never be realized. What a shame it is when such a gift evaporates due to uncontrollable changes. Yet this financial tragedy occurs every day to many policy owners. Changes in interest rates, medical advances, changes in policy design and the financial situations of the life insurance company are all factors that must be evaluated to assure that life insurance coverage remains as stable as it was intended. As experts in this field, we have developed a comprehensive "Life Insurance Review" program that examines every aspect associated with a life insurance policy. The result is an objective analysis of a given policy along with alternatives that can prolong or even guarantee coverage.

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Types of life insurance:

Life insurance may be divided into two basic classes temporary and permanent or following subclasses term, universal, whole life and endowment life insurance. Term Insurance Term assurance provides life insurance coverage for a specified term of years in exchange for a specified premium. The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else. There are three key factors to be considered in term insurance: 1. Face amount (protection or death benefit), 2. Premium to be paid (cost to the insured), and 3. Length of coverage (term). Various insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. Common types of term insurance include Level, Annual Renewable and Mortgage insurance." Level Term policy has the premium fixed for a period of time longer than a year. These terms are commonly 5, 10, 15, 20, 25, 30 and even 35 years. Level term is often used for long term planning and asset management because premiums remain consistent year to year and can be budgeted long term. At the end of the term, some policies contain a renewal or conversion option. Guaranteed Renewal, the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Some companies however do not guarantee renewal, and require proof of insurability to mitigate their risk and decline renewing higher risk clients (for instance those that may be terminal). Renewal that requires proof of insurability often includes a conversion options that allows the insured to convert the term program to a permanent one that the insurance
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company makes available. This can force clients into a more expensive permanent program because of anti selection if they need to continue coverage. Renewal and conversion options can be very important when selecting a program. Annual renewable term is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance, which is usually a level premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owners residence so the mortgage will be paid if the insured dies. A policy holder insures his life for a specified term. If he dies before that specified term is up (with the exception of suicide see below), his estate or named beneficiary receives a payout. If he does not die before the term is up, he receives nothing. However, in some European countries (notably Serbia), insurance policy is such that the policy holder receives the amount he has insured himself to, or the amount he has paid to the insurance company in the past years. Suicide used to be excluded from ALL insurance policies however, after a number of court judgments against the industry, payouts do occur on death by suicide (presumably except for in the unlikely case that it can be shown that the suicide was just to benefit from the policy). Generally, if an insured person commits suicide within the first two policy years, the insurer will return the premiums paid. However, a death benefit will usually be paid if the suicide occurs after the two year period. Permanent Life Insurance Permanent life insurance is life insurance that remains in force (in-line) until the policy matures (pays out), unless the owner fails to pay the premium when due (the policy expires OR policies lapse). The policy cannot be canceled by the insurer for any reason except fraud in the application, and that cancellation must occur within a period of time defined by law (usually two years). Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time. This means that a policy with a million dollar face value can be relatively expensive to a 70 year old. The owner can access the money in
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the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. The four basic types of permanent insurance are whole life, universal life, limited pay and endowment. Health Insurance In light of the recently enacted Patient Protection and Affordable Care Act (PPACA) the health insurance marketplace is changing on a daily basis and we know that staying on top of those changes can be overwhelming. We have dedicated resources in place to assist you with answering many of the questions that are most important to you. Whether you are and individual looking for answers about Medicare and Health Insurance options for you and your family or an Employer looking for solutions to your Employee Benefits challenges we are here to assist you in those tasks. Please contact us today to schedule a Health Insurance Review and Consultation Auto & Home Insurance for Everyone We represent the countrys best and largest car and home insurance carriers. We offer many choices, options, and pricing plans for you to choose from. Our agents are professional and live in the communities we serve. Unlike company-employed agents, independent insurance agents represent more than one insurance company, so they can offer clients a wider choice of insurance options to satisfy individual needs. Unlike the direct writers, who respond from telemarketing centers and offshore locations, independent agents are down the street, in your community, familiar with you and your risks. You know where to find them and can sit down and talk with them.

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Business Insurance We specialize in coverage for all forms of business, both for profit and non-profit entities. Many of our clients have insured with us for over 50 years. We have been named #1 for Business Insurance by readers of Northwest Indiana Business Magazine 6 years in a row. Our products include General Liability, Property, Equipment, Fleet, Workers Compensation, Umbrella, Board of Directors, and all forms of bonding. Our life and health department provides comprehensive employee benefit programs for hundreds of local employers. We can also arrange for risk management consultations and self insurance programs. Effects of Insurance Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage. On one hand it can increase fraud, on the other it can help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies. Insurance can influence the probability of losses through moral hazard, insurance fraud, and preventive steps by the insurance company. Insurance scholars have typically used moral hazard to refer to the increased loss due to unintentional carelessness and moral hazard to refer to increased risk due to intentional carelessness or indifference. Insurers attempt to address carelessness through inspections, policy provisions requiring certain types of maintenance, and possible discounts for loss mitigation efforts. While in theory insurers could encourage investment in loss reduction, some commentators have argued that in practice insurers had historically not aggressively pursued loss control measures - particularly to prevent disaster losses such as hurricanes - because of concerns over rate reductions and legal battles. However, since about 1996 insurers began to take a more active role in loss mitigation, such as through building codes. Supplemental natural disaster insurance

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The insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed. Liability insurance Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of willful or intentional acts by the insured. TRAVEL INSURANCE: Travel insurance is insurance that is intended to cover medical expenses, financial default of travel suppliers, and other losses incurred while traveling, either within one's own country, or internationally. Temporary travel insurance can usually be arranged at the time of the booking of a trip to cover exactly the duration of that trip, or a more extensive, continuous insurance can be purchased from travel insurance companies, travel agents or directly from travel suppliers, such as cruise lines or tour operators. However, travel insurance purchased from travel suppliers tends to be less inclusive than insurance offered by insurance companies. Travel insurance often offers coverage for a variety of travelers. Student travel, business travel, leisure travel, adventure travel, cruise travel, and international travel are all various options that can be insured.

Coverage types:
The most common risks that are covered by travel insurance are:

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Medical/dental expenses Emergency evacuation/repatriation of remains Return of a minor child Trip cancellation/interruption Accidental death, injury or disablement benefit Overseas funeral expenses Curtailment Delayed departure, missed connection Lost, stolen or damaged baggage, personal effects or travel documents Delayed baggage (and emergency replacement of essential items) Legal assistance Trip Cancellation Flight Connection was missed due to airline schedule Travel Delays due to weather Medical Emergency and hospital care (Accident or Sickness)

HOME INSURANCE: Home insurance, also commonly called hazard insurance or homeowner's insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory. It requires that at least one of the named insured occupies the home. The dwelling policy (DP) is similar, but used for residences which don't qualify for various reasons, such as vacancy/non-occupancy, seasonal/secondary residence, or age.

Our services include:

Risk management advisory. Specialized healthcare / health insurance advisory.
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Obtain the best possible quotations and risk coverage. Risk assessment. Risk inspection prior to underwriting. Insurance portfolio analysis. 24-hour help-line access. Assistance in organizing claims inspection. Assistance in filing claims and settlement. Assistance in paying insurance premium. Reminders for insurance payments before due dates.

Insurance business model:

Underwriting and investing The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation: Profit = earned premium + investment income - incurred loss underwriting expenses. Insurers make money in two ways:
1. Through underwriting, the process by which insurers select the risks to insure and decide

how much in premiums to charge for accepting those risks;

2. By investing the premiums they collect from insured parties.

The most complicated aspect of the insurance business is the actuarial science of ratemaking (price-setting) of policies, which uses statistics and probability to approximate the rate of future

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claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process. At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value, and comparing these prior losses to the premium collected in order to assess rate adequacy. Loss ratios and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities" - a policy with twice as money policies would therefore be charged twice as much. However, more complex multivariate analyses through generalized linear modeling are sometimes used when multiple characteristics are involved and a unvaried analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses. Upon termination of a given policy, the amount of premium collected and the investment gains thereon, minus the amount paid out in claims is the insurer's underwriting profit on that policy. An insurer's underwriting performance is measured in its combined ratio. This is the ratio of losses and expenses to earned premiums. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless.

Claims:
Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insured directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD. Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the
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insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment. The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim.

Marketing:
GIS will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. Commissions to agents represent a significant portion of an insurance cost and insurers such as State Farm that sell policies directly via mass marketing campaigns can offer lower prices. The existence and success of companies using insurance agents (with higher prices) is likely due to improved and personalized service. We undertook an in-depth analysis wherein we identified the notion of preference was totally related to the trust granted to various names in insurance and financial services. The level of trust is very inadequate today, regardless of the brand considered. This is because the perception of consumers is that we are all evolving only in "a world of promises." And this is what we have to redefine.

Beyond promises... proof

We don't want to make promises any more. Instead, we want to demonstrate our ability to respond to client needs with real and tangible proof and, in so doing, to establish an authentic relationship of trust with our clients. These are the three attitudes that clients most expect from an insurance and financial services company in exchange for their vote of confidence. These three attitudes stood out from

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the others in the consumer research we conducted across markets, regardless of their level of maturity. They are at the heart of our actions and our commitments to clients. Attentive Reliable Available

Insurance companies:
Insurance companies may be classified into two groups:

Life insurance companies: Insurance companies which sell life insurance, annuities and pensions products. Non-life insurance companies: Insurance companies general, or property/casualty insurance companies, which sell other types of insurance.

Standard lines General insurance companies can be further divided into these sub categories.

Standard lines Excess lines In most countries, life and non-life insurers are subject to different regulatory regimes

and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year. Excess line insurance companies (also known as Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance

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placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers not to be available through standard licensed insurers. Insurance companies are generally classified as either mutual or stock companies. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century. Other possible forms for an insurance company include reciprocals, in which policyholders reciprocate in sharing risks, and Lloyd's organizations. Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products. Reinsurance companies: The companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well. Captive insurance companies: Captive insurance may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of
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a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices. The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance. Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

Heavy and increasing premium costs in almost every line of coverage; Difficulties in insuring certain types of fortuitous risk; Differential coverage standards in various parts of the world; Rating structures which reflect market trends rather than individual loss experience; Insufficient credit for deductibles and/or loss control efforts. There are also companies known as 'insurance consultants'. Like a mortgage broker, these

companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client. Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claim handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

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The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government backed insurance pool or other arrangement with less attractive payouts for losses).

HIRE INSURANCE: A car rental or car hire agency is a company that rents automobiles for short periods of time (generally ranging from a few hours to a few weeks) for a fee. It is an elaborate form of a rental shop, often organized with numerous local branches (which allow a user to return a vehicle to a different location), and primarily located near airports or busy city areas and often complemented by a website allowing online reservations. Car rental agencies primarily serve people who have a car that is temporarily out of reach or out of service, for example travelers who are out of town or owners of damaged or destroyed vehicles who are awaiting repair or insurance compensation. Because of the variety of sizes of their vehicles, car rental agencies may also serve the self-moving industry needs, by renting vans or trucks, and in certain markets other types of vehicles such as motorcycles or scooters may also be offered. Alongside the basic rental of a vehicle, car rental agencies typically also offer extra products such as insurance, global positioning satellite (GPS) navigation systems, entertainment systems, and even such things as mobile phones. Car rental companies operate by purchasing or leasing a number of fleet vehicles and renting them to their customers for a fee. Rental fleets can be structured in several ways they
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can be owned outright (these are known as risk vehicles because the car rental operator is taking a risk on how much the vehicle will be sold for when it is removed from service), they can be leased, or they can be owned under a guaranteed buy-back program arranged directly through a manufacturer or manufacturers financial arm (these are known as repurchase vehicles because the manufacturer outlines the exact price of original sale and of repurchase at the end of a defined term). At the end of a rental vehicle's useful life, rental companies will often sell them into the used car market to dealers across the country via several methods, including direct-to-dealer and via specialized wholesale auctions companies (such as Manheim Auctions in the USA). Dealers generally will go through an inspection of the vehicles to make sure they comply with the safety standards of that dealership and then sell the car to the public. Many of these are known as program vehicles in the representation by the selling deals. MARINE INSURANCE: Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. Cargo insurancediscussed hereis a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability The Marine Insurance Act includes, as a schedule, a standard policy (known as the 'SG form'), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording known as the MAR 91 form and using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically each clause

26

will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses. Because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another in legal terms, liability under the policy is several and not joint; i.e. The underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder is not liable to pick his share of the claim. Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as 'Hull and Machinery' (H&M). A more restricted form of cover is 'Total Loss Only' (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss. Cover may be on either a 'voyage' or 'time' basis. The 'voyage' basis covers transit between the ports set out in the policy; the 'time' basis covers a period of time, typically one year, and is more common.

Warranties and conditions of marine insurance:

A peculiarity of marine insurance and insurance law generally, is the use of the terms condition and warranty. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, whilst giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Thus, the Marine Insurance Act 1906 refers to implied warranties, one of the most important of which is that the vessel is seaworthy.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2005-2006 (Rupees in lakh) PARTICULARS 2004-05 Amount (Rs) 2005-06 Amount (Rs) CHANGES IN WORKING CAPITAL INCREASE(Rs) DECREASE(Rs)

1) CURRENT ASSETS cash and bank balances Inventory Advances and other assets Total Current Assets 2)CURRENT LIABILITIES Current liabilities Total current liabilities Net Working Capital(1-2) Decrease Capital in Working 27,28,811 27,28,811
28

5,00,058

10,77,919 5,77,861 18,16,916

38,77,578 20,60,662 21,77,364 57,19,302 35,41,938 65,55,000 88,57,889

32,77,666 83,09,360 32,77,666 83,09,360 32,77,334 5,48,523

50,31,694

TOTAL

32,77,334 32,77,334 68,48,610

68,48,610

Interpretation:
1. Cash and bank balances were increased by Rs. 5,77,861, because of more policies has

been sold.
2. Inventory has decreased by Rs.18,16,916, because decrease in sale of life fund. 3. Advances and other assets increased by Rs.35,41,938, because the company received

more advances from customers.

4. Current liabilities decreased by Rs.50,31,694, because the company paid to pending

claims.
5. Working capital has been decreased by Rs.27,28,811, due to increase of current

liabilities.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2006-2007 (Rupees in lakh) PARTICULARS 2005-06 Amount (Rs) 2006-07 Amount (Rs) CHANGES IN WORKING CAPITAL INCREASE(Rs) DECREASE(Rs)

1) CURRENT ASSETS cash and bank balances Inventory Advances and other assets Total Current Assets 2)CURRENT LIABILITIES Current liabilities Total current liabilities Net Working Capital(1-2) Decrease Capital TOTAL in Working 3,52,988 5,48,523 5,48,523
30

10,77,919 34,78,998 20,60,662 12,22,444 57,19,302 79,64,165 1,26,65,60 88,57,883 7

24,01,079 8,38,218 22,44,863

1,24,70,07 83,09,360 2 1,24,70,07 83,09,360 2 5,48,523 1,95,535 3,52,988 49,98,930

41,60,712

49,98,930

Interpretation:
1. Cash and bank balances were increased by Rs. 24,01,079, because of more policies

has been sold.

2. Inventory has decreased by Rs.8,38,218, because decrease in sale of life fund. 3. Advances and other assets increased by Rs. 22,44,863,

because the company

received more advances from customers.

4. Current liabilities decreased Rs. 41,60,712, because the company paid to pending

claims.
5. Working capital has been decreased by Rs. 3,52,988, due to increase of current

liabilities.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2007-2008 (Rupees in lakh) PARTICULARS 2006-07 Amount (Rs) 2007-08 Amount (Rs) CHANGES IN WORKING CAPITAL INCREASE(Rs) DECREASE(Rs)

1) CURRENT ASSETS cash and bank balances Inventory Advances and other assets Total Current Assets 2)CURRENT LIABILITIES Current liabilities Total current liabilities NetWorking Capital(1-2) Increase Capital TOTAL in Working 95,283 2,90,818 2,90,818 71,03,103 95,283 71,03,103 1,24,70,072 1,73,62,211 1,24,70,072 1,73,62,211 1,95,535 2,90,818 48,92,139 34,78,998 12,22,444 79,64,165 13,63,317 50,00,020 1,12,89,692 37,77,576 33,25,527 21,15,681

1,26,65,607 1,76,53,029

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Interpretation:
1. Cash and bank balances were decreased by Rs. 21, 15,681 because of less policy has

been sold.
2. Inventory has increased of Rs. 37, 77,576 because increase in sale of life fund. 3. Advances and other assets increased by Rs. 33, 25,527 because the company received

more advances from customers.

4. Current liabilities decreased by Rs. 48,92,139 because the company paid to pending

Claims.
5. Working capital has been increased by Rs. 95,283 due to decrease of current

liabilities.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2008-2009 (Rupees in lakh) PARTICULARS 2007-08 Amount (Rs) 2008-09 Amount (Rs) CHANGES IN WORKING CAPITAL INCREASE(Rs) DECREASE(Rs)

1) CURRENT ASSETS cash and bank balances Inventory Advances and other assets Total Current Assets 2)CURRENT LIABILITIES Current liabilities Total current liabilities Net Working Capital(1-2) Increase Capital TOTAL in Working 2,06,332 4,97,150 4,97,150 1,14,61,419 2,06,332 1,14,61,419 1,73,62,21 1 1,73,62,21 1 2,90,818 2,79,84,45 6 2,79,84,45 6 4,97,150 1,06,22,245 13,63,317 50,00,020 1,12,89,69 2 1,76,53,02 9 7,30,475 61,11,343 2,16,39,78 8 2,84,81,60 6 11,11,323 1,03,50,096 6,32,842

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Interpretation:
1. Cash and bank balances were decreased by Rs. 6, 32,842 because of less policy has

been sold.
2. Inventory has increased of Rs. 11, 11,323 because increase in sale of life fund. 3. Advances and other assets increased by Rs. 1,03,50,096

because the company

received more advances from customers.

4. Current liabilities decreased Rs.1,06,22,245 because the company paid to pending

claims.
5. Working capital has been increased by Rs. 2,06,332 due to decrease of current

liabilities.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2009-2010 (Rupees in lakh) PARTICULARS 2008-09 Amount (Rs) 2009-10 Amount (Rs) CHANGES IN WORKING CAPITAL INCREASE(Rs) DECREASE(Rs)

1)CURRENT ASSETS cash and bank balances Inventory Advances and other assets Total Current Assets 2)CURRENT LIABILITIES Current liabilities Total current liabilities Net Working Capital(1-2) Decrease Capital TOTAL in Working 1,87,079 4,97,150 4,97,150 1,87,079 82,94,394 82,94,394 2,79,84,456 2,79,84,456 4,97,150 3,62,78,850 3,62,78,850 3,10,071 82,94,394 7,30,475 61,11,343 2,16,39,788 2,84,81,606 28,62,598 68,44,000 21,32,123 7,32,657

2,68,82,323 52,42,535 3,65,88,921

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Interpretation:
1. Cash and bank balances were increased by Rs. 21, 32,123 because of more policies

has been sold.

2. Inventory has increased of Rs. 7, 32,657 because increase in sale of life fund. 3. Advances and other assets increased by Rs. 52, 42,535 because the company received

more advances from customers.

4. Current liabilities decreased by Rs. 82,94,394, because the company paid to pending

claims.
5. Working capital has been decreased by Rs.1,87,079, due to increase of current

liabilities.

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RATIO ANALYSIS
A ratio is simple mathematical expression. It is the number expressed in terms of another number, expressing the quantitative relationship between the two numbers Ratio Analysis is the technique of interpretation of financial statements with help of various meaning ratios. Ratios do not add any information that is already available, but they show the relationship between two items in a more meaningful way. They help us to draw certain conclusions. Comparison with related facts is the basis of ratio analysis. Ratio may be used for comparison in any of the following ways. 1. Comparison of a firm with its own performance in the past. 2. Comparison of one firm with another firm in the industry. 3. Comparison of one firm with the industry as a whole. 4. Comparison of an achieved performance with pre-determined standards. 5. Comparison of one department of a concern with other departments.

CLASSIFICATION OF RATIOS:
Several Ratios calculated from the accounting data, can be grouped into various classes according to the financial activity or function to be evaluated. In view of the requirements of the various users of ratios, they are classified into the following four important categories. 1. Liquidity Ratios 2. Leverage or Solvency Ratios
38

3. Efficiency or Activity Ratios 4. Profitability Ratios

LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations of short-term nature. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liabilities may not be easily met out of current assets them liquidity position will be bad. The bankers, suppliers of goods and other short-term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations. A very high degree of liquidity is not good for a firm because such a situation represent excessive funds of firm being tied in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most common ratios, which measure the liquidity of the firm, are as follows: 1. Current Ratio 2. Quick Ratio 3. Cash Ratio

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LIQUDITY RATIOS:

1. Current ratio:
It is the relationship between current assets and current liabilities. This ratio is widely used as a measure of the pool of funds available to pay short-term obligations. It is a general and quick measure of liquidity of a firm.

Standard current ratio: 2:1

Formula:

Current ratio table: YEAR 2005-06 2006-07 CURRENT ASSETS (Rs) 8857883 12665607 CURRENT LIABILITIES (Rs) 8309360 12470072 RATIO 1.066 1.015

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2007-08 2008-09 2009-10 Average

17653029 28481606 36588921 10,42,47,046

17362211 27984456 36278850 10,24,04,949

1.016 1.017 1.008 1.02

Graphical statement:

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Interpretation:

1. The current ratio during 2005-06 is highest i.e. 1.066:1. 2. The current ratio during 2009-10 is lowest i.e. 1.008:1.
3. The average current ratio is 1.02:1 during study period. The average current ratio

is less than 2:1; Hence the company liquidity position is not good.

2. Quick ratio:

Quick ratio is more rigorous test of liquidity than the current ratio. Quick assets comprise of cash and receivables. The most liquid items on the balance sheet, cash is immediately available to pay the bills.

Standard Quick Ratio = 1:1

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Formula:

Liquid Assets = Current Assets-stock + prepaid expenses

Liquid ratio table: LIQUID ASSETS (Rs) 67,97,221 1,14,43,163 1,71,53,009 2,23,70,263 2,97,44,921 8,75,08,577 CURRENT LIABILITIES (Rs) 83,09,360 1,24,70,072 1,73,62,211 2,79,84,456 3,62,78,850 10,24,04,949

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 Average

RATIO 0.81 0.9 0.98 0.79 0.81 0.85

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Graphical statement:

Interpretation:

1. In the year 2006-07 the quick ratio is 0.9:1, because of increasing in current

liabilities. 2. In the year 2005-06 the quick ratio is 0.81:1, because of the increasing in current assets.
3. In the year 2007-08 the quick ratio position is satisfactory. 4. The average quick ratio of the five years was 0.85, which is less than the standard

ratio, so the companys liquidity position is not satisfactory.

44

3. Cash ratio:
Although receivables debtors and bills receivables are generally more liquid than inventories. There may be doubts regarding their realization in to cash immediately or in time. Absolute liquid assets include cash in hand cash at bank and marketable securities and temporary investment. The acceptable norm for this ratio is 50% or 0.5 i.e. rupees 1 worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventors.

Formula:

Cash ratio table: YEAR CASH (Rs)

45

CURRENT

RATIO

LIABILITIES (Rs) 2005-06 2006-07 2007-08 2008-09 2009-10 Average 10,77,919 34,78,998 13,63,317 7,30,475 28,62,598 95,13,307 83,09,360, 1,24,70,072 1,73,62,211 2,79,84,456 3,62,78,850 10,24,04,949 0.129 0.278 0.078 0.026 0.078 0.092

Graphical statement:

46

Interpretation:

1. In the year 2005-06 the cash ratio 0.129, due to less cash balances. 2. In the year 2006-07 the cash ratio is high. 3. In the year 2008-09 the cash ratio 0.026, due to less cash balances. 4. The overall cash position of the company is not good.

INVENTORY TURNOVER RATIO

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. Its measures the relationship between the costs of goods sold and inventory level. It is
47

calculated by dividing by the cost of goods sold by the average inventory. We can get cost of goods sold by adding Opening Stock plus Manufacturing cost plus purchases minus Closing Stock. The average inventory is the average of opening and closing balances of inventory.

Formula:

Stock turnover ratio: Year 2005-06 2006-07 2007-08 2008-09 2009-10 Average Sales (Rs) 41,21,324 24,44,888 1,00,00,040 1,22,22,686 1,36,88,000 4,24,76,93 8 Inventory (Rs) 29,69,120 16,41,553 31,11,232 55,55,682 64,77,672
1,97,55,259

Ratio 1.4 1.5 3.2 2.2 2.1

2.15

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Graphical statement:

Interpretation:

1. The stock turnover ratio during 2007-08 is highest i.e. 3.2. 2. The stock turnover ratio during 2005-06 is lowest i.e.1.4. 3. The average stock turnover ratio is 2.15 during the study period.

49

CONCLUSIONS

The following are the conclusions I would like to give by the above study and observation.

1. Current liabilities decreased during the study period due to payment of pending claims to policy holder. 2. During the study period except 2007-08 and 2008-09 every year cash balances has been increased.
3. Advances and other assets are increased due to received advances from policy

holder. 4. The average current ratio is 1.02:1 during the study period. 5. The average quick ratio is 0.85:1 during the study period.
6. The average cash ratio is 0.092:1 during the study period.

7. The average stock turnover ratio is 2.15 during the study period.

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SUGGESTIONS

The following are the suggestions I would like to give by the above study and observation.

1.
2. 3.

The company has to take proper measures to improve the funds in current assets. The company has to manage its current liabilities properly. The company has to make policies to improve its efficiency. The company has to increase its working capital to meet its requirements. The company has to improve its stock turnover position in order to increase stock turnover ratio. The company should increase its current assets to improve liquidity.

4.
5.

6.

51

BIBLIOGRAPHY

1. Financial Management

M.Y.Khan & P.K.Jain I.M.Panday S.N.Maheshwari

2. Theory of Financial Management 3. Fundamental of Financial Management

4. Annual Reports of Global Insurance Services Pvt Limited. WEBSITES www.GIS.com www.general insurance.com

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