What is the balance sheet? and How to calculate the working capital requirement?

The balance sheet is a snapshot of a company's financial condition. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. The balance sheet shows if company's activity is mainly financed by:

• owners’ equity: capital stock, retained earnings, reserve,
• liabilities: accounts payable, loans payable, tax payable.

The higher the part of owners’ equity is high in comparison with debts, the more the company is financially autonomous, therefore creditworthiness.

In the opposite way, more debts part is high more the company depends on them to fund its activity, which can continue only if suppliers and banks credit lines are maintained and raised proportionately with business growth.

What is the balance sheet?

Assets are divided into two parts :

• current assets: accounts receivables, inventory, work in process, cash, etc., that are constantly flowing in and out of a firm in the normal course of its business, as cash is converted into goods and then back into cash,
• fixed assets: land, buildings, equipment, machinery, vehicles, leasehold improvements, and other such items. Fixed assets are not consumed or sold during the normal course of a business but their owner uses them to carry on its operations.

 If we look to the company's financial resources (owners’ equity + liabilities) and the assets, we can determine the part of the owner’s equity which finances the current assets; in other words the business activity of the business. This is the working capital.

If working capital is weak, working capital requirements is financed by the liabilities. In this case, the company is financialy weak and depends on its creditors (banking, suppliers) to maintain and develop its activity.

This situation can be problematic because the company is dependent on short-term cash credit. Rhe renewal of these credit is not sure. Therefore, the risk of failure increases with this dependence! It may be normal to have recourse to bank credit, but in reasonable proportions.

Dynamic view of the balance sheet: the working capital and the working capital requirements

How to calculate the working capital requirement?

Working capital: equity- fixed assets.
The WC must be positive and large enough to cover the WCR.

If the WC is negative, that means that equity is not sufficient to finance fixed assets and the company has recourse to the short-term bank loan (whose renewal is not guaranteed) to finance it. The default risk is maximal!

Working capital requirement: Operating assets (inventories + accounts receivables) - operating liabilities(payables).
The WCR represents the need to finance the operation. It depends strongly on the sector of activity. For example, industrial companies generally have a higher WCR while the major retailers have a negative working capital (they are paid by their customers before they pay their suppliers).

Net cash: WC - WCR.
The Net cash is the remaining of WC after absorption of WCR. If the WC covers WCR, the net cash is positive. This amount is reflected in cash (excess cash on a bank account).

If the WC does not cover the WCR, net cash is negative. Stable financial resources are insufficient to finance the activity and the company has recourse to the short-term bank loan or credit suppliers to finance the operating cycle.

This situation is problematic because the company is dependent on credit given by suppliers or / and short term loans which renewal is not assured. The risk of failure is high even if many businesses are in this case!

 Be careful with companies having an unbalanced financial structure with an even negative WC and a high WCR. This is a consequence of a bad management or a too light financing. These situations make these companies very risky whatever is the good will of the leaders to respect their commitments.
Tensions of treasury are almost systematic and the risk of delays of payment or unpaid invoices is very high. A turnover decrease, an unpaid invoice or a disengagement from a creditor (banks, supplier) can be fatal and lead the company to the bankruptcy.

 Analyze the financial structure as a whole and in a dynamic way.

Each case is particular and the evaluation of the assessment depends intrinsically on the company business sector and of the financial need which results from this.
Thus, a simple trade has to finance mainly its stock when an iron and steel company must finance very heavy fixed assets (equipment, grounds. .etc), stock and credits allowed to customers.

The interpretation of the balance sheet must be done in parallel with an understanding of the activity of the company, its operating mode, its profitability, its operating cycle, etc. It is taking into account all of the reality of business which makes possible to deduce its solvency, its sustainability and the level of credit limit that can be granted to this company.

Do you frequently use ATM card? Here are 5 good practices to follow while withdrawing cash from ATM

A lot depends on you while maintaining the security and privacy of your debit cards.Things like not writing your PIN or passwords on your ATMs, not sharing your password with anyone, are the most important things when it comes to using your card. However, there are a few more things that you should keep in mind while you are doing your debit card activity.

1. Though it is generally being advised that one should not count the money inside ATM machine. But if you do so with a little caution, it will be helpful for you. Some ATM users in the past had complained that the money dispensed was not similar to what they had punched for. Though you need not worry if it happens because you can always register your complaint at the bank and they will retrieve your amount. But a little caution always helps.

2. Many of us have this habit of finishing up the transaction and then quickly leaving the ATM. However, one should always press the 'cancel button' when the transaction is over. By doing this, you can be doubly sure that the person behind you will not be able to tamper with anything.

3. Many times you might have noticed that a few people stand near the ATM machine in such a way that you can actually track their finger movement. Don't do this mistake. Always cover the ATM password keys and the ATM machine screen with your body. Transactions are very personal, let them remain so.

4. Keep checking your mini statement balance from time to time. This will not only give you an idea of how much transaction you have done recently, but will also help you track any unfamiliar transactions.

5. Finally, as a good ATM user, don't occupy the ATM machine for long. If it is a busy area, there would be others waiting in the que eagerly.

Indian Bank Net profit 514.28 cr

*Indian Bank Q3* :

 *Net profit* : Rs 514.28 cr for Q3FY21 as against net loss of Rs 1,739 cr last year

 *Gross NPA* : 9.04% as against 12.69%, y-o-y.

 *Net NPA* : *2.35 %* !!! decreased from 4.22%  a reduction of 187 bps

 *Capital adequacy ratio* (CRAR) :14.06% as on Q3FY21 as against13.64 % last year.

 *Tier-I CRAR* : 11.18 %

12 AIBOC triennial conference rally

12 triennial conference of AIBOC at Saltlake Kolkata

RBI imposes Rs 2 crore penalty on Standard Chartered Bank

 The Reserve Bank on Thursday imposed a penalty of Rs 2 crore on Standard Chartered Bank-India for delays in reporting of frauds to it. The monetary penalty has been imposed on the bank for non-compliance with certain directions contained in the 'Reserve Bank of India (Frauds - Classification and Reporting by commercial banks and select FIs) Directions 2016'.

"The penalty has been imposed... for delays in reporting of frauds to RBI, revealed during the statutory inspection of the bank  with reference to its financial position as on March 31, 2018 and March 31, 2019," the central bank said in a statement.

A notice was issued to the Standard Chartered Bank-India advising it to show cause as to why penalty should not be imposed on it for such non-compliance with the directions.

"After considering the bank's reply to the notice and oral submissions made in the personal hearing, RBI concluded that the charge of non-compliance with aforesaid RBI directions was  substantiated and warranted imposition of monetary penalty," the statement said.

The central bank also noted that its action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank wit h its customers.

 

Investment limit of PPF, Senior Citizens Savings Scheme may increase in Budget

The Union Budget needs to encompass behavioural changes of digitization and increased financial savings of households, according to State Bank of India’s research report Ecowrap.

Referring to the significant behavioural changes across the world since the outbreak of the pandemic, the report observed that a logical corollary of such changes is that the country must take steps to inculcate such habits on a permanent basis.

To this end, the budget may just be the ideal opportunity to incentivise digital transactions, the report said. ¨

 Merchant payments

In this regard, Ecowrap suggested a variety of incentives including the Government prohibiting levy of any convenience fee and other charges on use of any digital mode for making payment to a merchant; and enabling credit cards as a payment option on UPI (Unified Payment Interface) platform for customers making payment to merchants (Peer to Merchant).

Further, it also recommended expediting the Gazette Notification to allow Aadhaar-based biometric authentication to non-bank entities. ¨

“Separately, to fulfil the Prime Minister’s vision of Atmanirbhar Bharat, why not make RuPay as a default card option for all the banks (including Public and Private Banks) operating in India?” the report, put together by SBI’s Economic Research Department (ERD), said.

Given that the per capita credit card and debit card transactions has jumped by up to 1.4 times compared to pre-covid levels, all Utilities/Municipal Corporations/Urban Local Bodies must also compulsorily offer digital payment options to citizens to make payments, especially in Tier-2 and Tier-3 Cities and further incentivise them, said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

This has been already implemented by oil marketing companies at fuel stations, he added.

Budget could levy two new cesses

Tax related suggestions

To incentivize jump in household financial savings, Ecowrap suggested increase in the investment limit of Public Provident Fund (PPF) Account, Sukanya Samriddhi Account, and Senior Citizens Savings Scheme (SCSS).

The report recommended increase in the investment limit of PPF Account and Sukanya Samriddhi Account from the existing ₹1.50 lakh per annum to ₹3 lakh per annum. For the latter, the tenure of the account may be increased from the current 21 years to 25 years since several girls are going in for higher studies before marriage.

SBI’s ERD said the ceiling of investment in SCSS should be considered for upward revision to Rs 30 lakh from Rs 15 lakh as retirement benefits have gone up manifold.

Moreover, there can be a provision for extending the scheme twice for a three-year block instead of once as is presently the case.

Bonds

The report says that Banks and Institutions should be allowed to raise tax free infrastructure bonds (preferred tenor 15-20 years) and the exclusive purpose of such resources should be for Infrastructure project finance.

It also recommended that infrastructure financing companies should be allowed to issue tax paid bonds to tap funding from retail investors, wherein the tax on interest income of such bonds will be paid by the Bond issuer (tax deducted at source -- 10 per cent under section 193 of the IT Act).

Such structure while being attractive to the retail investors, will also ensure that the Government. is not losing on its tax revenue, it added.

The ERD also suggested that the Government can consider issuing Infrastructure Bonds against the dues of the Government infrastructure financing companies (PFC, REC, IIFCL, IRFC, etc.) similar to Oil Bonds and fertilizer bonds and may be made part of statutory liquidity ratio (SLR) for banks.