Pavani Total(2)

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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 firm’s 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 firm’s 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 firm’s 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.

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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 firm’s 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 manager’s 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. For the purpose of raw materials, components and spares.

2. To pay wages and salaries

3. To incur day-to-day expenses and overhead costs.

4. To meet the selling costs as packing and advertising.

5. To provide credit facilities to the customer.

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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 capitalneed. 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 creamsetc. 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.

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(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, it’s 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

it’s not necessary to adopt special accounting system for them.

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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.

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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. The study is confined to the last 5 years.

2. The study mainly focuses on Global Insurance Services Pvt.Ltd.

3. The study mainly focuses on working capital management.

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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

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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 India’s 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-The-

Counter 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 single-

minded 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 owner’s 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 country’s 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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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

23



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.

24



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

25

http://en.wikipedia.org/wiki/Renting

http://en.wikipedia.org/wiki/Automobile

http://en.wikipedia.org/wiki/Fee

http://en.wikipedia.org/wiki/Rental_shop

http://en.wikipedia.org/wiki/Branch#Organizations

http://en.wikipedia.org/wiki/Airport

http://en.wikipedia.org/wiki/Computer_reservations_system


http://en.wikipedia.org/wiki/Auto_insurance

http://en.wikipedia.org/wiki/Moving_industry

http://en.wikipedia.org/wiki/Van

http://en.wikipedia.org/wiki/Truck

http://en.wikipedia.org/wiki/Global_positioning_satellite

http://en.wikipedia.org/wiki/GPS

http://en.wikipedia.org/wiki/Fleet_vehicles

http://en.wikipedia.org/wiki/Renting

http://en.wikipedia.org/wiki/Automobile

http://en.wikipedia.org/wiki/Fee

http://en.wikipedia.org/wiki/Rental_shop

http://en.wikipedia.org/wiki/Branch#Organizations

http://en.wikipedia.org/wiki/Airport

http://en.wikipedia.org/wiki/Computer_reservations_system


http://en.wikipedia.org/wiki/Auto_insurance

http://en.wikipedia.org/wiki/Moving_industry

http://en.wikipedia.org/wiki/Van

http://en.wikipedia.org/wiki/Truck

http://en.wikipedia.org/wiki/Global_positioning_satellite

http://en.wikipedia.org/wiki/GPS

http://en.wikipedia.org/wiki/Fleet_vehicles



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 manufacturer’s 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 insurance—discussed here—is 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

http://en.wikipedia.org/wiki/Manheim_Auctions






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 themost important of which is that the vessel is seaworthy.

27

http://en.wikipedia.org/wiki/Joint_and_several_liability

http://en.wikipedia.org/wiki/Condition

http://en.wikipedia.org/wiki/Warranty

http://en.wikipedia.org/wiki/Joint_and_several_liability

http://en.wikipedia.org/wiki/Condition

http://en.wikipedia.org/wiki/Warranty



STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2005-2006

(Rupees in lakh)

PARTICULARS 2004-05 2005-06

CHANGES IN WORKING

CAPITAL

Amount

(Rs)

Amount

(Rs) INCREASE(Rs) DECREASE(Rs)

1) CURRENT ASSETS

cash and bank balances 5,00,058 10,77,919 5,77,861Inventory 38,77,578 20,60,662 18,16,916

Advances and other assets 21,77,364 57,19,302 35,41,938

Total Current Assets 65,55,000 88,57,889

2)CURRENT

LIABILITIES

Current liabilities 32,77,666 83,09,360 50,31,694

Total current liabilities 32,77,666 83,09,360

Net Working Capital(1-2) 32,77,334 5,48,523

Decrease in Working

Capital 27,28,811 27,28,811

28



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.

29




(Rupees in lakh)


CHANGES IN WORKING

CAPITAL

Amount

(Rs)

Amount


1) CURRENT ASSETS

cash and bank balances 10,77,919 34,78,998 24,01,079

Inventory 20,60,662 12,22,444 8,38,218

Advances and other assets 57,19,302 79,64,165 22,44,863

Total Current Assets 88,57,883

1,26,65,60

7

2)CURRENT

LIABILITIES

Current liabilities 83,09,3601,24,70,072 41,60,712

Total current liabilities 83,09,360

1,24,70,07

2


Decrease in Working

Capital 3,52,988 3,52,988

TOTAL 5,48,523 5,48,523 49,98,930 49,98,930

30



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.

31




(Rupees in lakh)


CHANGES IN WORKING

CAPITAL

Amount

(Rs)

Amount


1) CURRENT ASSETS


Inventory 12,22,444 50,00,020 37,77,576

Advances and other assets 79,64,165 1,12,89,692 33,25,527

Total Current Assets 1,26,65,607 1,76,53,029

2)CURRENT

LIABILITIES

Current liabilities 1,24,70,072 1,73,62,211 48,92,139

Total current liabilities 1,24,70,072 1,73,62,211

NetWorking Capital(1-2) 1,95,535 2,90,818

Increase in Working

Capital 95,283 95,283

TOTAL 2,90,818 2,90,818 71,03,103 71,03,103

32






(Rupees in lakh)


CHANGES IN WORKING

CAPITAL

Amount

(Rs)Amount


1) CURRENT ASSETS


Inventory 50,00,020 61,11,343 11,11,323

Advances and other assets1,12,89,692

2,16,39,788 1,03,50,096

Total Current Assets

1,76,53,02

9

2,84,81,60

6

2)CURRENT

LIABILITIES

Current liabilities

1,73,62,21

1

2,79,84,45

6 1,06,22,245

Total current liabilities

1,73,62,21

1

2,79,84,45

6


Increase in Working

Capital 2,06,332 2,06,332

TOTAL 4,97,150 4,97,150 1,14,61,419 1,14,61,419

34



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.

35




(Rupees in lakh)


CHANGES IN WORKING

CAPITAL

Amount

(Rs)

Amount


1)CURRENT ASSETS


Inventory 61,11,343 68,44,000 7,32,657

Advances and other assets 2,16,39,788 2,68,82,323 52,42,535

Total Current Assets 2,84,81,606 3,65,88,921

2)CURRENTLIABILITIES

Current liabilities 2,79,84,456 3,62,78,850 82,94,394

Total current liabilities 2,79,84,456 3,62,78,850


Decrease in Working

Capital 1,87,079 1,87,079

TOTAL 4,97,150 4,97,150 82,94,394 82,94,394

36



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.

37



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

39



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

CURRENT

ASSETS (Rs)

CURRENT

LIABILITIES (Rs) RATIO

2005-06 8857883 8309360 1.066

2006-07 12665607 12470072 1.015

40



2007-08 17653029 17362211 1.016

2008-09 28481606 27984456 1.017

2009-10 36588921 36278850 1.008

Average 10,42,47,046 10,24,04,949 1.02

Graphical statement:

41



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 immediatelyavailable to pay the bills.

Standard Quick Ratio = 1:1

42



Formula:

Liquid Assets = Current Assets-stock + prepaid expenses

Liquid ratio table:

YEAR

LIQUID ASSETS

(Rs)

CURRENT

LIABILITIES

(Rs) RATIO

2005-06 67,97,221 83,09,360 0.81

2006-07 1,14,43,163 1,24,70,072 0.9

2007-08 1,71,53,009 1,73,62,211 0.98

2008-09 2,23,70,263 2,79,84,456 0.79

2009-10 2,97,44,921 3,62,78,850 0.81

Average 8,75,08,577 10,24,04,949 0.85

43





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) CURRENT RATIO

45



LIABILITIES

(Rs)

2005-06 10,77,919 83,09,360, 0.129

2006-07 34,78,998 1,24,70,072 0.278

2007-08 13,63,317 1,73,62,211 0.078

2008-09 7,30,475 2,79,84,456 0.026

2009-10 28,62,598 3,62,78,850 0.078

Average 95,13,307 10,24,04,949 0.092


46





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 Sales (Rs) Inventory (Rs) Ratio

2005-06 41,21,324 29,69,120 1.4

2006-07 24,44,888 16,41,553 1.5

2007-08 1,00,00,040 31,11,232 3.2

2008-09 1,22,22,686 55,55,682 2.2

2009-10 1,36,88,000 64,77,672 2.1

Average

4,24,76,93

8 1,97,55,259 2.15

48




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.

50



SUGGESTIONS

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

1. The company has to take proper measures to improve the funds in current assets.

2. The company has to manage it’s current liabilities properly.

3. The company has to make policies to improve its efficiency.

4. The company has to increase it’s working capital to meet it’s requirements.

5. The company has to improve it’s stock turnover position in order to increase stock

turnover ratio.

6. The company should increase it’s current assets to improve liquidity.

51



BIBLIOGRAPHY

1. Financial Management - M.Y.Khan & P.K.Jain

2. Theory of Financial Management - I.M.Panday

3. Fundamental of Financial Management - S.N.Maheshwari

4. Annual Reports of Global Insurance Services Pvt Limited.

WEBSITES

www.GIS.com

www.general insurance.com

Documents

Pavani Total(2)