Working Capital of Commercial Bank

LETTER OF TRANSMITTAL

25th July, 2017

To

Mr. Naheem Mahtab

Lecturer, School of Business

Independent University, Bangladesh (IUB)

Subject: Submission of Research Report.

Dear Sir,

It was a great pleasure and privilege to present the report on working capital management and its effect on profitability of Bangladeshi banks. This has been assigned to us as part of our course. We are very happy to submit this report on the topic you provided us. During preparing this report, we have gathered extended knowledge on working procedure of identifying the relationship between dependent and independent variables. This report is based on secondary data from banks annual report.

We would work hard to prepare this report’s we would highly oblige, if the content of the report has been acceptable to you. We have tried our best to preparing the report.

We hope that the report will worthy of your consideration. However, had any clarification required we would be glad providing them as best as we can.

Sincerely yours,

Anik Farhan Shahriyar                            1430024

Md.Moinul Hasan                             1421673

Tahmina Akter                                 1321117

Sazia Ivin Shayna                             1310506

ACKNOWLEDGEMENT

The Research on working capital management and its effect on profitability of Bangladeshi banks has been assigned to us as part of our course. This research paper is made possible through the help and support.

First, we would like to thank God for giving as assistance in the way of life. Second, we would like to thanks our honorable faculty and group members. The super vision and support that they gave truly help the progression and smoothness of the report. A lot of effort and study have been put in to make this report a reality. This would not have been possible without help and support.

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EXECUTIVE SUMMARY

The main objective of this study is to find out the relationship between working capital management and profitability of Bangladeshi banks. We find out the impact of Bangladeshi banks performance. This study focused on CPA, DCP, CCC, CCP, GROWTH, PR, LEV, BAGE & SIZE.

The annual reports of all the five banks for the period of five years are taken from the Dhaka stock exchange used for the source of data. Regression model was used for identifying the relationship between dependent and independent variable. This study shows that there is no significant positive relation between working capital management and profitability of banks in Bangladesh.

Table of Content

Introduction

A financial manager should take three key decisions such as financing decision, investment decision and dividend decision. Among these the most important decision is financing decision. Here financing and investment decision includes both long-term and short-term decision. The management of short term assets and liabilities refers to management of Working Capital (Khan, 2002).

In a narrow sense working capital is the difference between current assets and current liabilities of a firm. Working capital management is important part in firm financial management decision. An optimal working capital management is expected to contribute positively to the creation of firm shareholders value during the normal course of business. Firms try to keep an optimal level of working capital that maximizes their value (Deloof, 2003).

Working Capital Management includes maintaining optimum balance of working capital components: receivable, inventory and payables and using the cash efficiently for day-to-day operations. Optimization of working capital balance means minimizing the working capital requirement and realizing maximum possible revenues (Ganesan, 2007). The term profitability refers to the ability of a firm to earn profit. Profit is determined by matching revenue against cost associated with it (Salauddin, 2001)

However, the organizations can minimize risk and improve the overall performance by understanding the role and drivers of working capital management to maximize their profit. As a result, most successful businesses keep the working capital ratio as low as possible and keep cash circulating, to maximize profit.

Problem Statement

Working capital is an indicator for measuring the liquidity which is defined as adequacy of cash for doing firm’s obligations. Firm with proper situation of liquidity has enough cash for the payment of bills. On the other hand, companies with improper situation cannot pay their bills on the maturity date. One of the main purposes of any firm is maximize the profit. But, maintaining liquidity of the firm also is an important objective. The problem is that at the cost of liquidity can bring serious problems to firm.