This project work reflects the combination of my knowledge with the practical experience on working at GDIC as an intern. Hopefully, it will help the reader to learn about the working capital policies and practice.

3. Executive Summary
Introduction
Objectives and Scope
Company Overview
WCM-at a Glance
Literature Review
Analysis with Findings
Recommendations & Conclusion

5. Rationale:
GDIC Authority
Researcher
Students

6. Specific Objectives

7. The theories, we have studied in the books
may not be applicable in all the situations.
The scenario may different in practice.
It is limited within some questions rather
covering all the areas of working capital
management
Financial term used in an insurance company is
slightly different from conventional term that
we have studied on the books

8. Evolution of insurance industry in Bangladesh
Insurance business gained momentum in East Pakistan in1947-1971
49 insurance companies and organizations transacting insurance business in the country
were placed in the public sector under five corporations.
14 May 1973 , in place of five corporations the government formed two: the Sadharan
Bima Corporation and Jiban Bima Corporation
The Insurance Corporations Act 1973 was amended in 1984
Now it has been launched 76 (30 Life and 46 non-life ) insurance companies under the
Sadharon and Jibon Bima Corporation

9. Cont…

10. Mission Statement
Providing customer with innovative products & services that best respond to their needs.
Building trust and fostering strong relationships are their essence along with an aim to
cover insurance for everyone.
Strength:
Constant pursuit of suitable strategies has made the company as the leading insurer of
Bangladesh for over two decades.
Vision
To maximize shareholders’ value through customer’s Complete Satisfaction and
employee’s commitment to excellence
Cont…

11. Core
Values
Organizat
ion above
Self
Customer
First
Always
Spirit of
Adventure
Trust
Respect
for
Diversity
High
Standards
Core Values of GDIC:
Cont…

12. Department & Functions
Personal Observation
Recommendation
Confession

13. Nature and Importance of working capital:
Atrill (2006) said , “Working capital represents a net investment in short term assets.
These assets are continually flowing or circulating into and out of the business and
are essential for day-to-day operations.
Van Horne and Wachowicz (2004) state that, the main objective of working capital
management is to maintain an optimal balance between current assets and current
liabilities.
Jarvis et al (1996) state that the success of a firm depends ultimately, on its ability to
generate cash receipts in excess of disbursements. Working capital management is
concerned with the problems that arise in attempting to manage the current assets,
the current liabilities and the interrelations that exist between them.

14. Review of related literature:
Mao Jingmeng (Feb,2014) on his article “A Study on Working Capital Management
System based on Performance” constructs a management system based on the
modifying cycle of working capital management performance.
Pedro Juan Garcı´a-Teruel and Pedro Martı´nez-Solano (2007) on their article “Effects
of working capital management on SME profitability” founds that, shortening the
cash conversion cycle –one prime factor of working capital improves the firm’s
profitability
Herbert J. Weinraub and Sue Visscher (1998) on their article “Industry Practice Relating
To Aggressive Conservative Working Capital Policies” found a high and significant
negative correlation between industry asset and liability policies.
Cont…

15. According to Deloof (2003) the way that working capital is managed has a significant
impact on profitability of firms. It has also been proved that by minimizing the amount
of funds tied up in current assets; firms can reduce financing costs and/or increase the
funds available for expansion.
Islam and Rahman (1994) had article on “Working capital Trends of the Selected
Enterprises in Bangladesh". They found that, optimum working capital enables a
business to have its credit standing and permits the debts payments on the date of its
maturity and helps to keep itself fairly in liquid position which enables the business to
attract borrowing from the banks.
As stated by Siddiquee and Khan (2009), it has been observed that, firms which are better
at managing working capital are found to be able to make counter cyclical moves to
build competitive advantage.
Cont…

16. Working Capital Management: at a glance

17. Meaning of Working Capital
Total
funds
Daily
Operations
Daily
operations
Current
Assets
Current
Liabilities
Finance Managers
Production Managers
Accountants
“Working capital refers to a firm investment in short term assets, cash, short term
securities, accounts receivable and inventories”-Weston and Brigham

18. Component of
Working Capital
Stock
stocks of raw materials,
partly completed
production and finished
goods awaiting sale
Debtors
amounts owed to the
company, mainly from
customers in respect
of sales made on credit
Creditors
amounts owed BY the
company, mainly to
suppliers of raw
materials, services
Cash
bank balances, cash
holdings and short-
term investments
Transaction
Analyses
Focus
Components of Working Capital
Scope of Working Capital Management

19. Types of Assets
Fixed Assets
Regular Working Capital
Reserve Working Capital
Special Working Capital
Seasonal Working Capital
Permanent CA
Temporary CA

20. Working Capital Financing Policy
Conservative Working Capital Policy
Aggressive Working Capital Policy
Hedging/Matching Principle

22. Data Analysis

23. Gross Working Capital Net Working Capital
1887619008
1604342354
2068495919
2123379909
2250819160
0
500000000
1E+09
1.5E+09
2E+09
2.5E+09
2011 2012 2013 2014 2015
-3389569
-37043608
411783327
582631285
441580750
-1E+08
0
100000000
200000000
300000000
400000000
500000000
600000000
700000000
2011 2012 2013 2014 2015

24. Current Ratio Cash Ratio
37.76%
57.27%
58.04%
55.64%
48.07%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
2011 2012 2013 2014 2015
Cont…
1.00
0.98
1.25
1.38
1.24
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2011 2012 2013 2014 2015

25. 42.28%
28.74%
32.81%
32.18% 29.38%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
2011 2012 2013 2014 2015
Total CA to Total Assets
Cont…

26. Net income ROA
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
2011 2012
2013
2014
2015
3.00%
4.26%
3.94%
3.63%
3.01%
0
50000000
100000000
150000000
200000000
250000000
2011
2012
2013
2014
2015
134006754
237676034 248707387
239255720
230297617

27. ROE ROI
0%
2%
4%
6%
8%
10%
12%
2011 2012 2013
2014
2015
6%
12%
11%
10%
7%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2011 2012 2013 2014
2015
5.34%
6.16%
5.62%
4.93%
4.05%
Cont…

28. 0
1E+09
2E+09
3E+09
4E+09
5E+09
6E+09
7E+09
8E+09
9E+09
2011 2012 2013 2014 2015
Temporary Current
Assets
Permanent Current
Assets
Fixed Assets
Deployment of various assets of GDIC

29. Year Fixed Assets Permanent
Current
Assets
Temporary
Current Assets
Short-term
Liability
Long-term
Liability
Equity capital Working
Capital
Policy
Remarks
1 2576593099 700000000 1187619008 1891008577 62876816 2510326714 Aggressive
principle
TCA and PCA are financed
by STF
2 3977263597 700000000 904342354 1641385962 81867599 3858352390 Do Do
3 4236830589 700000000 1368495919 1656712592 226197377 4422416539
Do
TCA and a part of PCA are
financed by STF and the
remaining are financed by
the LTF
4 4475976166 700000000 1423379909 1540748624 205684810 4852922641 Do Do
5 5409649809 700000000 1550819160 1809238410 159001768 5692228791 Aggressive
principle
Do
Cont…

30. Particulars
Actual Figures for
2015
% of Revenues Estimate for 2016
Revenues 3015634962 100 3074978343
Total Current Assets (x) 2250819160 74.64% 2295112060
Total Current Liabilities (y) 1809238410 60.00% 1844841633
working Capital (x-y) 441580750 14.64% 450270427
Under Percentage of Revenue Method:

31. Table: Descriptive Statistics
Mean Std. Deviation N
NWC
279112437 281017453.665 5
Revenue
2653024720.2 238366528.332 5
Table: Correlations
NWC Revenue
Pearson
Correlation
NWC
1.000 .609
Revenue
.609 1.000
Sig. (1-tailed) NWC
. .138
Revenue
.138 .
Under Regression Analysis:
Cont…

32. Table : Model Summary b
M
o
d
e
l R
R
Squ
are
Adjuste
d R
Square
Std. Error
of the
Estimate
Change Statistics
R
Square
Change
F
Cha
nge df1 df2
Sig.
F
Cha
nge
1
.609a .371 .161
257343004
.8
.371 1.77 1 3 .275
a. Predictors: (Constant), Revenue
b. Dependent Variable: NWC
Table: ANOVA
Model Sum of Squares df Mean Square F Sig.
1 Regression
117206970647888
496
1
11720697064788
8496
1.77 .275
Residual
198676266409882
784
3
66225422136627
592
Total
315883237057771
200
4
Cont…
Under Regression Analysis:

33. Table: Coefficients
Model
Unstandardized
Coefficients
Standardize
d
Coefficients
t Sig.
99.0% Confidence
Interval for B
B Std. Error Beta
Lower
Bound
Upper
Bound
1 (Constant)
-1626097115 1436733523 -1.132 .340
-
10017927325
6765733094
Revenue .718 .540 .609 1.330 .275 -2.435 3.871
a. Dependent Variable: NWC
If we denote the Revenue as X and Net Working Capital as Y
Then, regression equation Y on X will be-
“Y= -1626097115 + .718 X”
Equation
Cont…
Under Regression Analysis:

35. Liquidity-Profitability Trade off:
Liquidity:
Gross Working Capital, Net Working Capital and Current Ratio indicate to
the moderate liquidity position of the GDIC. Situation worst in 2012,
although it has been recovered afterwards.
Cash ratio depicts a satisfactory level of holdings of cash and cash
equivalent as current asset.
Current Assets to Total Assets ratio indicates that GDIC has a tendency of
concentrating more on fixed asset rather than current assets.
GDIC is in a risky situation because of low or negative Net Working Capital

36. Profitability:
Considering the Net income GDIC has able to maintain a comparatively
stable trend, it is a positive aspects although the amount is not highly
satisfactory.
Return on the total asset is not at a satisfactory level.
Because of lower level of liquidity GDIC have faced higher profitability in
2012.
Return on Equity depicts a very good return of the shareholders
investment.
ROI was very good in the year 2012, 2013, 2014 respectively but the
situation became worse in 2015.
“In spite of having some liquidity problems, GDIC enabled to maintain a good
trade off between liquidity and profitability”.
Cont…

37. Working Capital Management policy:
GDIC followed Aggressive Working Capital Policy over the years
Aggressive policy is the best among the three policies until and unless it
hampers the profitability of the company
Working Capital Management Policy was not efficient enough during the
period of 2011-2012. They were burdened with more risk at this period
Because of adopting aggressive policy they have experienced an increase
both of at risk and return. Risk increases because of fluctuating interest
rate and the return increases because of generally low cost financing.
Cont…

38. Estimation of Working Capital:
Under Percentage of Revenue Method
“GDIC should hold 74.64% of revenue as gross working capital and
14.64% as net working capital”
Under Regression Analysis
Regression equation for estimating the requirement of Net Working Capital
is “Y= -162,60,97,115 + .718 X”
GDIC moderately stepped forward with the working capital management practice
Cont…

39.  Concentration on holding of current assets specially on
maintaining net premium
 Managing working capital to enhance profitability by
adequate planning and control measures
 Efficiency in adopting working capital policy to bypass the
insolvency risk associated with using aggressive policy over
the year.
 Monitoring daily operations thereby maximizing
shareholders wealth
 Investing more on profit generating activities to increase
reserves