A Study on Cash Management-karthi-088001614028

A STUDY ON CASH MANAGEMENT WITH SPECIAL REFERENCE TO RHYTHM FASHION PRIVATE LIMITED, TIRUPUR, TAMILNADU PROJECT REPORT Submitted by

K.KARTHI Register No: 088001614028 in partial fulfillment for the award of the degree Of

MASTER OF BUSINESS ADMINISTRATION in

DEPARTMENT OF MANAGEMENT STUDIES

SSM COLLEGE OF ENGINEERING KOMARAPALAYAM-638183 MAY 2010

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SSM COLLEGE OF ENGINEERING KOMARAPALAYAM-638183 Department of Management studies PROJECT WORK PHASE II MAY 2010

This is to certify that the project entitled A STUDY ON CASH MANAGEMENT WITH SPECIAL REFERENCE TO RHYTHM FASHION PRIVATE LIMITED, TIRUPUR, TAMILNADU is the bonafide record of project work done by K.KARTHI Register No: 088001614028 of MBA (DEPARTMENT OF MANAGEMENT STUDIES) during the year 2009-2010. ---------------------

Project Guide

-------------------------

Head of the Department

Submitted for the Project Viva-Voce examination held on__________ --------------------------Internal Examiner

---------------External Examiner

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DECLARATION I affirm that the project work title A STUDY ON CASH MANAGEMENT WITH SPECIAL REFERENCE TO RHYTHM FASHION PRIVATE LIMITED, TIRUPUR, TAMILNADU being submitted in partial fulfillment for the award of MASTER OF BUSINESS ADMINISTRATION is the original work carried out by me. It has not formed the part of any other project work submitted for award of any degree or diploma, either in this or any other University.

K.KARTHI 088001614028

I certify that the declaration made above by the candidate is true

Mrs. J. Esther Gnanapoo, MBA, M.Phil, Ph.D Professor, Department of MBA, SSM College of Engineering.

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ACKNOWLEDGEMENT With great pleasure, I am presenting this project entitled “A Study on Cash Management with Special reference to Rhythm Fashion Pvt. Ltd., Tirupur, Tamil Nadu”. A project of this dimension would not have been possible without the sincere help and earnest support provided to me from all sources that was approached. I

feel

great

pleasure

to

thank

our

beloved

‘CAVALIER’

Dr.M.S.MATHIVANAN, M.A, M.Com, M.Phil, F.T.A., HGDM (Lon), AIBM, PhD, Chairman S.S.M. College of Engineering, Komarapalayam, for the encouragement he rendered me in doing the project well. Words are insufficient when we endeavor to express our heartfelt thankfulness to Dr. A. SUBRAMANIYAN Ph.D., Principal, who provides us all facilities during the course of study. I express a deep sense of gratitude and hearty thanks to Mr. P.KRISHNA KUMAR, B.E., MBA, MCSD, M.Phil., Ph.D Director of MBA Department, S.S.M.College of Engineering, Komarapalayam for making all necessary arrangements for the successful completion of this project. The project has been made possible by the greatest efforts and dedicated support extended to me by my guide Mrs. J. Esther Gnanapoo, MBA, M.Phil, Ph.D Head of MBA Department, SSM College of Engineering. I would also like to express my gratitude towards Mr.Vijayan , Accountant and other staffs of Oushadhi Pharmaseuticals Ltd Thrissur, Kerala for the guidance and constant support for completing the project. Above all, I thank, God Almighty for his entire blessings. K.KARTHI

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CONTENTS

Chapter

Description

Page No.

No List of Tables List of Charts Abstract Introduction 1

2

3 4

vi vii viii 1 to 14

1.1 Introduction of the study

1

1.2 About the study

2

1.3 About the Industry

8

1.4 About the company Main theme of the project

10 15 to 20

2.1 Objectives of the study

15

2.2 Scope of the study

15

2.3 Limitations of the study

16

2.4 Research Methodology

16

2.5 Review of Literature Analysis & Interpretation Findings, Recommendations and Conclusion

19 21 to 49 50 to 59

4.1 Findings

50

4.2 Recommendations

58

4.3 Conclusion Appendices Bibliography

59

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LIST OF TABLES

Table

Particulars

No.

PAGE No.

Common size Balance Sheet statement from the year 3.1.1

2003-04 to 2009-10

22

Common size Profit and Loss account statement from 3.1.2

the year 2003-04 to 2009-10

25

3.2.1

Liquidity ratio from the year 2003-04 to 2009-10

35

3.2.2

Turn over ratio from the year 2003-04 to 2009-10 Average Payment & Average Receipts period from the

38

3.2.3

year 2003-04 to 2009-10

40

3.3 3.4

Cash flow statement from the year 2004-2009 Optimum cash balance from the year 2003-04 to 2009-

43 46

3.5

10 Correlation test from the year 2003-04 to 2009-10

49

LIST OF CHARTS

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Table No.

Particulars

PAGE No.

3.1.2

Common size Receipts statement from the year 2003-

28

04 to 2009-10 3.1.2

Common size Payments statement from the year 2003-

30

04 to 2009-10 Liquidity ratio from the year 2003-04 to 2009-10 36

3.2.1 Turn over ratio from the year 2003-04 to 2009-10

39

3.2.2 Average Payment & Average Receipts period from the 3.2.3 3.4

year 2003-04 to 2009-10 Optimum cash balance from the year 2003-04 to 2009-

41 47

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SYNOPSIS The study deals with the CASH MANAGEMENT in RHYTHM FASHION Private Ltd. Garments at Tirupur. This study highlights the concepts of cash management, its components and the trend and the cash management based on past six years data. This study also points out the problem faced by the company at the time of maintaining a proper cash management level. This study also helps the

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company to analyze the financial strength and weakness and to take proper corrective measures. The study was carried out using various tools such as common size statement, Ratio analysis, cash flow statement, Correlation test and optimum cash balance taking into account the past seven years from 2003-04 to 2009-10. The duration of the study was seven years. First chapter includes the introduction to the study, needs for the study of cash management, Industry profile, company profile, objective of the study, Limitation of the study, scope of the study and its significance in the introduction to cash management. The company profile explains the various features of the company like its present status in the market, the history and product details. The second chapter includes objectives, research methodology and analysis. The study is conducted for some specific purpose termed as objectives. This chapter contains the scope and limitations of the study. The research methodology part contains the research design and the tools used for analysis. The research is of analytical type with the secondary data as data type. The analysis and interpretation part contains the five accounting and statistical tools. The secondary data collected are analyzed using the above tools and meaningful conclusions are drawn. To analyses the cash management in the company, common size statement, cash flow statement, optimum cash balance, ratio analysis and correlation test analysis has been calculated.

The information was collected through both primary and secondary source. The Primary data’s are collected from personal interview secondary data’s are collected from the company’s financial records, net etc., To study helpful to maintain effective cash management, useful to know about the liquidity position of the firm, to know the current financial position of the company, to suggest measures for improving the cash management of the firm effectively.

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CHEPTER 1 INTRODUCTION 1.1 INTRODUCTION OF THE STUDY Cash, the most liquid asset, is of vital importance to the daily operations of business firms. Efficient cash management processes are pre-requisites to execute

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payments, collect receivables and manage liquidity. Managing the channels of collections, payments and accounting information efficiently becomes imperative with growth in business transaction volumes. Cash is the most important factor in financial management and current asset for the operations of the business. Every activity in an enterprise revolves round the cash. Sound financial management means knowing the firms cash flow, forecasting cash needs, planning to borrow at the appropriate time and substantiating the firm’s payable ability. The term cash includes coins, currency and cheque held by the firm and balances in its bank accounts. Sometimes near-cash item also included. Cash management refers to the flow of cash into and out of a business over a period of time. The outflow of cash is measured by the money you pay every month to salaries, suppliers, and creditors. The inflows are the cash you receive from customers, lenders, and investors. Cash is the important current asset for the operation of the business. Cash is the basic input needed to keep the business running on a continuous basis: it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing operation while excessive cash will simply remind idle without contributing anything toward the firm’s profitability. Thus, a major function of the financial manager is to maintain a sound cash position. Cash is the money which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheque held by the firm, and balances in its bank accounts. Sometimes near-cash items, such as marketable securities or bank times deposits, are also includes in cash. The basic characteristic of near-cash assets is that they can readily be converted into cash. Generally, when a firm has excess cash, it in marketable securities. This kind of investment contributes some profit to the firm. Cash management with the managing of cash flow into and out of the firm, cash flow within the firm, and cash balances held by the firm at a point of times by financing deficit or investing surplus cash. Sales generated cash which has to be disbursed out.

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The surplus cash which has to be invested while deficit has to be borrowed. Cash management assumed more important than other current assets because it is used to pay the firm’s obligations. However, cash is unproductive. Unlike fixed assets or inventories, it does not produce well for sales. Therefore, the aim of cash management is to maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitability way. This study on cash management in Rhythm Fashion private limited will helpful to the firm to cash planning, managing the cash flows, optimum cash level and investing surplus cash. 1.2 ABOUT THE STUDY Cash is money that is easily accessible either in the bank or in the business. It is not inventory, it is not accounts receivable, and it is not property. These might be converted to cash at some point in time, but it takes cash on hand or in the bank to pay suppliers, to pay the rent, and to meet the payroll. Profit growth does not always mean more cash. Cash management involves managing the money of the firm in order to maximize cash availability and interest income on any idle funds. Cash management is concerned with the managing of cash flows into and out of the firm, cash flows within the and cash balances held by the firm at a point of time by financing deficit or investing surplus cash.

CASH MANAGEMENT MEANS •

Knowing when, where, and how your cash needs will occur,

•

Knowing what the best sources are for meeting additional cash needs; and,

•

Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors. The starting point for avoiding a cash crisis is to develop a cash flow projection.

Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash

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flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to gain an understanding about where all the money went. Profit is the amount of money you expect to make if all customers paid on time and if your expenses were spread out evenly over the time period being measured. However, it is not your day-to-day reality. Cash is what you must have to keep the doors of your business open. Over time, a company's profits are of little value if they are not accompanied by positive net cash flow. You can't spend profit; you can only spend cash. Cash Flow refers to the flow of cash into and out of a business over a period of time. The outflow of cash is measured by the money you pay every month to salaries, suppliers, and creditors. The inflows are the cash you receive from customers, lenders, and investors. Positive Cash Flow management If the cash coming into the business is more than the cash going out of the business, the company has a positive cash flow. A positive cash flow is very good and the only concern here is managing the excess cash prudently. Negative Cash Flow management If the cash going out of the business is more than the cash coming into the business, the company has a negative cash flow. A negative cash flow can be caused by a number of problems that result in a shortage of cash, such as too much or obsolete inventory, or poor collections on accounts receivable. If the company doesn't have money in the bank or can't borrow additional cash at this point, it may be in serious trouble. A Cash Flow Statement is typically divided into three components so that you can see and understand both the internal and external sources and uses of cash. 1. Operating Cash Flow (Internal) Operating cash flow, often referred to as working capital, is the cash flow generated from internal operations. It is the cash generated from sales of the

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product or service of your business. Because it is generated internally, it is under your control. 2. Investing Cash Flow (Internal) Investing cash flow is generated internally from non-operating activities. This component would include investments in plant and equipment or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash outside of normal operations. 3. Financing Cash Flow (External) Financing cash flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock and the payment of dividend are some of the activities that would be included in this section of the cash flow statement. Cash flow shortages are a challenge for many small businesses. One way to relieve the pressure for cash is through better management of company receivables. Here are some ways to tighten control of your cash. Cash Decision made by a firm are Determining when cash should be obtained, sources from which cash can be obtained and determining whether marketable securities are to be purchased.

1.2.1 GOOD CASH MANAGEMENT Knowing when, where and how company’s cash needs will occur. Knowing the best sources for meeting additional cash needs. Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors. The starting point for good cash flow management is developing a cash flow projection. Facets of cash management  Cash planning : Cash inflows and outflows should be planned to project cash surplus or deficit for each period of planning Period.

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 Managing the cash flows : The flow of cash should be properly managed. The cash inflows should be accelerated while, as far as possible, the cash outflows should be decelerated.  Optimum cash level : The firm should decide about the appropriate level of cash balances. the cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.  Investing surplus cash : The surplus cash balances should be properly invested to earn profits. The firm should decide about the division of the such cash balance between alternative short-term investment opportunities such as bank deposits, marketable securities or interoperate lending.

1.2.2 CASH MANAGEMENT

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1.2.4 CASH MANAGEMENT CYCLE

CASH COLLECTIONS

BUSINESS OPERATIONS

INFORMATION & CONTROL

DEFICIT SURPLUS SURPLUS

BORRO Investment INVEST

CASH & PAYMENTS

1.3 ABOUT THE INDSUTRY

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Textile Industry place an important role in the national economy. The word “Textile” is derived from the

latin word “texture” meaning “to weave”. Textile

industry is one of the oldest India’s of the country. The Indian cotton textile industry has recorded history of 150 years. The Indian cotton textiles were would famous from the immemorial. India holds second place among the countries of the world in cloth production. The birth of the industry dates back of 1818 when first cotton mill was established at fort gloster near Calcutta. During early period of history, people had the knowledge of converting stapple cotton in to yarn. Bombay and Ahamadahad were largest cotton textile centers in India in the early 1920. Bombay was known as the Manchester of India. Today cotton textile industry is spread practically all over India. In India there are lot of private organized textile mills producing variety of items. Amongst than national textile corporation plays a vital role to manufacture quality cloths in a bulk quantity and so the competition in the textile market is not small. In Indian context due to the high competition some mills are falling down but some are going up. At present, there are hundreds of mills in India of which 75% mills are concentrate to four states Gujarat, Maharastra, Tamil Nadu and West Bengal. The cotton textile units are suffering from increasing raw material prices and other global competition. THE TEXTILE INDUSTRY New innovations in clothing production, manufacture and design came during the Industrial Revolution – these new wheels, looms, and spinning processes changed clothing manufacture forever. There were various stages – from a historical perspective – where the textile industry evolved from being a domestic small-scale industry, to the status of supremacy it currently holds. The ‘cottage stage’ was the first stage in its history where textiles were produced on a domestic basis. During this period cloth was made from materials including wool, flax and cotton. The material depended on the area where the cloth was being produced, and the time they were being made. In the later half of the medieval period in the northern parts of Europe, cotton came to be regarded as an imported fiber. During the later phases of

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the 16th century cotton was grown in the warmer climes of America and Asia. When the Romans ruled, wool, leather and linen were the materials used for making clothing in Europe, while flax was the primary material used in the northern parts of Europe. During this era, excess cloth was bought by the merchants who visited various areas to procure these left-over pieces. A variety of processes and innovations were implemented for the purpose of making clothing during this time. These processes were dependent on the material being used, but there were three basic steps commonly employed in making clothing. These steps included preparing material fibers for the

purpose

of

spinning,

knitting

and

weaving.

During the Industrial Revolution, new machines such as spinning wheels and handlooms came into the picture. Making clothing material quickly became an organized industry – as compared to the domesticated activity it had been associated with before. A number of new innovations led to the industrialization of the textile industry in Great Britain. Clothing manufactured during the Industrial Revolution formed a big part of the exports made by Great Britain. They accounted for almost 25% of the total exports made at that time, doubling in the period between 1701 and 1770. The center of the cotton industry in Great Britain was Lancashire – and the amount exported from 1701 to 1770 had grown ten times. However, wool was the major export item at this point of time. In the Industrial Revolution era, a lot of effort was made to increase the speed of the production through inventions such as the flying shuttle in 1733, the flyer-andbobbin system, and the Roller Spinning machine by John Wyatt and Lewis Paul in 1738. Today, modern techniques, electronics and innovation have led to a competitive, low-priced textile industry offering almost any type of cloth or design a person could desire. With its low cost labour base, China has come to dominate the global textile industry The history of development in World Textile industry was started in Britain as the spinning and weaving machines were invented in that country. High production of wool, cotton and silk over the world has boosted the industry in recent years. Though the industry was started in UK, still in 19th Century

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the textile production passed to Europe and North America after mechanization process in

those

areas.

The World Trade Organization (WTO) has taken so many steps for uplifting this sector. In the year 1995, WTO had renewed its MFA and adopted Agreement on Textiles and Clothing (ATC), which states that all quotas on textile and clothing will be removed among WTO member countries. However the level of exports in textiles from developing countries is increasing even if in presence of high tariffs and quantitative restrictions by economically

developed

countries.

1.4 ABOUT THE COMPANY Introduction about the Company: RHYTHM fashion Pvt. Ltd., a concern dealt in purchase and sale of variety of yarns such as Filament dyed Yarn, Spun Viscose, Polyester Viscose blender Yarn, Cotton Acrylic blended Yarn, Corespun Yyra Yarn, 100% Spun Polyester Yarn, Cotton slub Yarn, Milange Yarn, Polyester Cotton Yarn, and all type of T-shirts etc., was estrablised on april 2003 and now it achieved a worthwhile turnover. It is managed and run by the partners Nataraj.M chairman, A.K.Saminathan, founder. First they started the business with small level of Capital. Located in 28, K.G. LAY-OUT, 2 nd Street, Tripur-641607, Tamil Nadu. Product exporting to United States, Canada and United Kingdom. The Rhythm Fashion Established In April 2003 and the plant was setup at Tirupur in TamilNadu in 2003. Since it has more dealers in TamilNadu and other state also. The Rhythm Fashion authorized main dealers in 2004. PRESENT BANKERS : 1) UNION BANK OF INDIA, New Market Street, Tirupur. (Current a/c) 2) INDUS IND BANK (Current a/c) 3) STATE BANK OF INDIA Tripur (current account)

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THE PRODUCTS DEALT IN : i) Melkay Industries Ltd., Bhiwondi Agreement : For 10 years (to be signed) Product : Filament Dyed Yarns (various denier) ii) S.R.V. Polytex, Mumbai Agreement : For 10 years (to be signed) Product : Grey Filament Yarn (various denier) iii) Pallipalayam spinners (p) Ltd., Selam. Agreement : For 3 years (to be signed) Product : Spun Viscose, Polyester Viscose blender Yarn. TRADERS FOR : 1) P.K.P.N. Mills (P)Ltd., Pallipalayam Product : Spun Viscose, Cotton Acrylic Blend Yarn, Corespun Iyara Yarn. 2) Rohit Spinners (P)Ltd., Pallipalayam Product : 100% Spun Polyester Yarn, 3) Thambi Modern Spinning Mills (P)Ltd., Selam. Product : Cotton Slub Yarn, Milange Yarn, PC Yarn. 4) Paranthaman Spinning Mills (P)Ltd., Tiruchengode. Product : PC word blended yarn.

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Finance Requirement In order to meet ever increasing yarn requirement and increase in price also, the company keep stock to the turn of Rs.22 Lakes, to meet the market demand. To Cope with this market the company need financial assistance of Rs.15 Lakes.Still the growth of turnover is going very fast and achieved a turnover of Rs.8.07 core for the period April-2006 to Dec-2009. This turnover was achieved without any finance from any person or authorities such as Bank etc., DEMAND & SUPPLY POSITION: The total demand for garments in the world market is ever growing one and the share of India in this prime market is 2% and on the uptrend since India is having a very good opportunity to develop this market especially after the phasing out of quakes under WTO treaty. To feed the export market, the company dealt in Raw material requirement part, which is no doubt, ever increasing. Expansion Plan Expansion and modernization of Textile is presently on. The plan envisages installation of raw materials and Continuous process facilities to produce large production. Along with, expansion of all department , enhancing the capacity of yarn Products produce with high quality with reasonable price and capture the market. •

The Rhythm Fashion is the largest dealers in Tirupur and surrounding area.

Management and company plans •

Today, modern techniques, electronics and innovation

has implement in concern, so our textile industry offering almost any type of cloth or design a person could desire. With its low cost labour base, possible in our concern because of new innovation. •

The company has strong Research and Development center enabling it to develop superior products matching customized needs.

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•

Need strong financial position to meet unexpected expenses and losses. Due to the historical legacy the manpower cost in the company is higher than its competitors.

Core Values •

Good Employee relationship

•

Mutual trust and respect

•

Close relationship with our suppliers and debtors

•

Customer satisfaction

•

Clear goals and objectives

•

Quality control

•

Professional ethics Financial requirement are a challenge for many small businesses. One way to

relieve the pressure for cash is through better management of company receivables. Here are some ways to tighten control of your cash. In Rethym fashion follow the ethics and maintaining effective cash management.

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1.4.1 ORAGANISATION CHART

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CHAPTER II MAIN THEME OF THE STUDY 2.1 MAIN OBJECTIVES OF THE STUDY The main objectives of the study are, 1. To study the cash position and financial position of the company. 2. To know the liquidity position of the firm. 3. To analyze the cash sales, credit sales, cash payments and cash disbursements made by the company. 4. To determine the cash inflows and outflows of the company. 5. To know about the optimum cash balance of the company. 2.2 SCOPE OF THE STUDY: This Study on Cash Management with Special Reference to RHYTHM FASHION Private Limited, Tripur, Tamil nadu, was for a Period of 7 years from the year 2003 to 2009.

• This study will help the firm in making some financial decisions for future years.

• This study will help the management to decide the cash position in order to increase the profitability and the value of the firm.

• The study clearly explains about at what areas they have to improve their performance.

• It helps in making some reference for its past performance.

2.3 LIMITATIONS OF THE STUDY The data was obtained from the annual reports of the company so the



reliability of the study depends on the accuracy of information found in the annual reports. 24

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The data used in this study has been taken from published annual reports

 only.

As per the requirement and necessity, data has been grouped and sub

 grouped

The data taken for analysis is historical in nature. The time value of money



is not considered. 2.4 RESEARCH METHODOLOGY Research methodology is a way to systematically solve a research problem. In research methodology we study the various steps that are generally adopted by a researcher in studying his research problem along with logic behind them. Research Methodology has many dimensions and research method does constitute a part of research methodology. 2.4.1 RESEARCH DESIGN A research design is the arrangement of condition for the collection and analysis of the data in a manner that aims to combine relevance to the research purpose with economy in producer. It is the conceptual structure within the research is constituted. It constitutes the blue print for the collection, measurement and analysis of data. 2.4.2 ANALYTICAL RESEARCH This study is based on analytical research. In analytical research, the researcher has to use facts or information already available and analyze these to make a critical evaluation of the study. As the study concerned with the evaluation of the expost facts analytical method of research will be suitable. 2.4.3 SOURCE OF DATA USED  Primary data  Secondary data a) Primary Data

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The data directly collected by the researcher, with respect to the problem under study, is called as primary data. It is also known as raw data. The methods used to collect primary data was, direct personal Interview. b) Secondary Data Secondary data mainly used in this study. It means the data that are already collected and analyzed by someone else such as annual reports, internal records, journals, magazines and newspapers. The study depends mainly on company’s annual reports and company profile etc. It will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, balance sheets, books etc. This project is based on primary data collected through personal interview of head of account department, head of Finance department and other concerned staff members. But primary data collection had limitations such as matter confidential information thus project is based on secondary information collected through seven years annual report of the company, supported by various books and internet sides. The data collection was aimed at study of cash management of the company. 2.4.4 TOOLS FOR ANALYSIS The main tools used for the study are  Common size statement.  Ratio Analysis  Cash flow statement.  Optimum cash balance (Bamoul Model)  Correlation.

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Common size statement Financial statement when read with read with absolute figures is not easily understandable. They are even misleading. Each item of assets is converted into percentage to total assets and each item of capital and liabilities is expressed to total liabilities and capital fund. Ratio Analysis Ratio analysis is one of the powerful tools of financial analysis. It indicates a quantitative relationship between the figures and group of figures which are used for evaluation and decision-making. An analysis of financial statement ratios is imperative. Cash flow statement Cash flow statement can be defined as a statement which summaries sources of cash inflows and uses of cash outflows of the firm during a particular period of time say as month or year. Optimum cash balance It is determination of optimum level of each of a company; Economic order quantity is used in the standard inventory situation.

Correlation Correlation analysis is the statistical tool that describes the degree to which the variables linearly related to other variables. Two or more variables are said to be correlated if change in the value of appears to be related as linked with change in the other correlation.

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2.5 REVIEW OF LITERATURE Kesseven Padachi is about the cash management meets the short-term financial requirements of a business enterprise. It is a trading capital, not retained in the business in a particular form for longer than a year. The money invested in it changes form and substance during the normal course of business operations. The need for maintaining an adequate working capital can hardly be questioned. Just as circulation of blood is very necessary in the human body to maintain life, the flow of funds is very necessary to maintain business. If it becomes weak, the business can hardly prosper and survive. Cash management starvation is generally credited as a major cause if not the major cause of small business failure in many developed and developing countries (Rafuse, 1996). The success of a firm depends ultimately, on its ability to generate cash receipts in excess of disbursements. The cash flow problems of many small businesses are exacerbated by poor financial management and in particular the lack of planning cash requirements (Jarvis et al, 1996). While the performance levels of small businesses have traditionally been attributed to general managerial factors such as manufacturing, marketing and operations, cash management may have a consequent impact on small business survival and growth (Kargar and Blumenthal, 1994). The Journal of Nepalese Business Studies Extensive research works on working capital management have been done in both public and private sectors including

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Multinational Companies in Bangladesh. Mohiuddin (1983) had conducted a study on cash budget. Islam and Rahman (1994) had article on "cash management Trends of the Selected Enterprises in Bangladesh". 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. It also helps to

maintain all-round efficiency in operations. Of all aspects of financial management, working capital management is the vital one. A study on cash management of Sakthivelu poly pack, Pollachi in 2003 was done by Ms.S.Selvanayaki. The main objective was to present the conceptual framework for working capital and to find out the working capital employed. It is suggested that the ability of the firm to meet its short-term liabilities is normal and this practice may be adopted in the future also. Cash management analysis was done by S.Meena in Palai Andavar Cotton And Synthetics Ltd., in1990. The main objective was to analyse the cash management and to highlight the various changes that have been taken place in the management of cash. Findings of the study were the growth in the cash of the concern and good liquidity position.

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CHAPTER – III ANALYSIS AND INTERPRETATION Analysis is the process of critically examining in detail accounting information given in financial statement. For the purpose of analysis individual items are studied, their interpretation with other related figures are established. The data is sometimes rearranged to have better understanding of the information with the help of the different techniques or tools for the purpose. Analysis financial statements is a process of evaluating relationship between component parts of financial statements to obtain understanding the firms position and performance. Interpretation is not possible without analysis and without analysis, interpretation have no value. Various account balances appear in the financial statements. These account balances do not represent homogenous data so its difficult to interpret them and draw conclusions. This requires analysis of data in the financial statements. Interpretation is thus drawing inference and stating what the figures in the financial statements really mean. In the words of Kennedy and Memullar,” the analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statements data so that a forecast may be made to the prospects for the future earnings, ability to pay interest and debt maturities and profitability of a sound dividend policy”. 3.1 COMMON SIZE STATEMENT Financial statement when read with read with absolute figures is not easily understandable. They are even misleading. Each item of assets is converted into percentage to total assets and each item of capital and liabilities is expressed to total liabilities and capital fund. Thus the whole balance sheet is converted into percentage

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form. Such converted balance sheet is known as common size statement. Here we are going to anglicizing the common size statement of profit and loss account and common size statement of balance sheet. TABLE 3.1.1 COMMON SIZE STATEMENT SHOWING BALANCE SHEET FROM THE YEAR 2003-2009 (Rs. in %) 200304

200405

200506

200607

200708

200809

200910

4%

2%

2%

2%

2%

1%

1%

Land

16%

9%

7%

6%

5%

4%

4%

Plant & Machinery

28%

47%

45%

45%

48%

48%

48%

Furniture

2%

1%

1%

1%

1%

1%

1%

Investment

2%

1%

1%

1%

1%

1%

1%

Cash in Hand & Bank

5%

3%

2%

2%

2%

2%

2%

Int. rec. &acc. income

1%

1%

3%

3%

3%

2%

2%

Bills receivables

1%

1%

1%

1%

1%

1%

1%

Debtors

25%

22%

27%

30%

29%

31%

32%

Inventories

17%

12%

10%

10%

9%

9%

8%

100%

100%

100%

100%

100%

100%

100%

Share capital

43%

31%

30%

26%

31%

32%

33%

Reserve & Surplus

13%

12%

12%

13%

15%

14%

13%

Loans & Advances

16%

24%

24%

26%

20%

17%

13%

Provision for Taxation

2%

2%

4%

6%

4%

4%

4%

Bills Payables

1%

1%

1%

1%

1%

2%

1%

Outstanding Exp.

0%

0%

0%

0%

0%

0%

0%

Creditors

14%

19%

20%

23%

23%

27%

30%

P & L account

10%

11%

9%

6%

6%

5%

7%

Year ASSETS Building

TOTAL ASSETS LIABILITIES

31

32

TOTAL LIABILITES

100%

100%

100%

100%

100%

100%

Interpretation: From the above table it was interpreted that Assets •

Buildings cover a minor portion of total assets. It shows a decreasing trend from the year 2003-04 to 2009-10, it was 4 % to 1%. From the year 2004-05 to 200709 value was stable, it was 2%. From the2008-09 to 2009-10 value was stable, it was 1%.

•

Land covers a small portion of total assets it shows a decreasing trend from the year 2003-04 to 2009-10; it was 16% to 4%. From the year 2008-09 to 2009-10 value was stable, it was 4%.

•

Plant and Machinery covers major portion of the total assets. It shows an increasing trend from the year 2003-04 to 2009-10, it was 28% to 48%. It covers almost 50% of total assets.

•

Furniture and Investment covers a 1% of the total assets. It shows decreasing trend from the year 2003-04 to 2009-10, it was 2% to 1%. From the year 200405 to 2009-10 value was contend it 1%.

•

Cash in hand covers a tiny portion of the total assets. It shows a decreasing trend from the year 2003-04 to 2009-10, it was 5% to 2%. From the year 200506 to 2009 value was stable, it was 2%.

•

Interest received and accrued income covers a small portion of the total assets. It shows an increasing trend from the year 2003-04 to 2009-10, it was 1% to 2%. From the year 2005-06 to 2007-08 shows increasing trend and also stable, it was 3%. From the year 2008-09 to 2009-10 it shows decreasing trend and value also constant, it was 2%

•

Bills receivable shows a stable trend from the year 2003-04 to 2009-10, it was 1% for all the years.

32

100%

33

•

Debtor’s covers a second major portion of the total assets. It shows an increasing trend from the year 2003-04 to 2009-10, it was 25% to 32%.

•

An inventory shows a decreasing trend from the year 2003-04 to 2009, it was 17% to 8%. Value was stable in the year 2005-06 to 2006-07, it was 10%. 9% value stable in the year 2007-08 to 2009-10.

Liabilities •

Share capital covers major portion of the total liabilities. It shows a decreasing trend from the year 2003-04 to 2009-10, it was 43% to 33%. From the year 2003-04 to 2006-07 shows decreasing trend, it was 43% to 26%. From the year 2007-08 to 2009-10 it shows increasing trend, it was 31% to 33%.

•

Reserve and surplus shows a fluctuating trend. From the year 2003-04 to 200910, it was 13% to 13%. From the year 2003-04 to 2004-05 it shows decreasing trend it was 13% to 12%. Again it shows increasing trend in the year 2006-07 to 2007-08, it was 15%. Again it shows decreasing trend next years.

•

Loans and advances show a fluctuating trend. From the year 2003-04 to 200607 shows increasing trend, it was 16% to 26%. From the year 2007-08 to 200910 shows decreasing trend 20% to 13%.

•

Provision and taxation shows an increasing trend from the year 2003-04 to 2009-10, it was 2% to 4%. From the year 2006-07 to 2007-08 shows decreasing trend it was 6% to 4%. From the year 2007-08 to 2009-10 value was constant it was 4%.

•

Bills payable shows a stable value for all years. From the year 2003-04 to 200708 value stable, it was 1%. From the year 2007-08 to 2008-09 shows increasing trend, it was 1% to 2%. Again it decreased 1% to remaining years.

•

Creditor’s covers a second major portion of the total liabilities. From the year 2003-04 to 2009-10 it shows increasing trend, it was 14% to 30%.

33

34

•

Profit and loss of the concern shows a decreasing trend from the year 2003 to 2009 it was 10% to 7%. From the year 2006-07 to 2007-08 stable value was 6%. 3.1.2 COMMON SIZE STATEMENT SHOWING PROFIT AND LOSS ACCOUNT FROM THE YEAR 2003-2009 (Rs. In %)

Year

2003-

2004-

2005-

2006-

2007-

2008-

2009-

04

05

06

07

08

09

10

8% 63% 24% 3% 2% 100%

9% 72% 16% 2% 1% 100%

10% 76% 11% 1% 2% 100%

8% 80% 10% 1% 1% 100%

11% 80% 7% 1% 1% 100%

10% 81% 7% 1% 1% 100%

11% 81% 6% 1% 1% 100%

2% 24% nil 26% 9% 12% 1% 8% 1% 4% 13% 100%

3% 37% 13% 3% 11% 10% 0% 6% 0% 4% 13% 100%

4% 38% 9% 14% 9% 9% 0% 4% 0% 3% 10% 100%

5% 40% 8% 10% 6% 9% 0% 3% 0% 3% 16% 100%

4% 39% 7% 5% 6% 8% 0% 3% 0% 2% 26% 100%

5% 39% 6% 6% 10% 9% 0% 3% 0% 2% 20% 100%

5% 38% 6% 6% 10% 8% 0% 3% 0% 2% 22% 100%

20%

18%

12%

6%

5%

5%

6%

Particulars Receipts Cash sales Credit sales Closing stock Interest received Commission received Total receipts Particulars Payments Cash purchase Credit purchase Opening stock consumed Raw material in store Staff expenses Power and fuel Interest and bank charges Administrative Exp. Other expenses Depreciation Tax paid Total Expenses Net profit after tax (from sales) Interpretation: Receipts •

Cash sales shows an increasing trend from the year 2003-04 to 2005-06, it was 8% to 10%. It shows a decreasing trend in the year 2005-06 to 2006-07, it was

34

35

10% to 8%. From the year 2006-07 to 2007-08 it shows increasing trend it was 8% to 11%. In the year 2008-09 again shows it a decreasing trend to 10%. From the year 2003-04 to 2009-10 shows an increasing trend it was 8% to 11%. •

Credit sales shows an increasing trend from the year 2003-04 to 2009-10 it was 63% to 81%. A credit sale covers major portion of total receipts.

•

Closing stock shows a decreasing trend from the year 2003-04 to 2009-10 it was 24% to 6%. In the year 2007-08 to 2008-09 it posses a stable value of 7%.

•

Interest received shows decreasing trend from the year 2003-04 to 2009-10 it was 3% to 1%. From the year 2005-06 to 2009-10 stable value it has 1%.

•

Commission received shows a decreasing value from the year 2003-04 to 200405 it was 2% to 1%. Next year it shows an increasing trend it was 2%. Again it was decreasing trend in the year 2006-07 it was 1%. From the year 2006-07 to 2009-10 value was stable it was 1%.

Payments •

Cash purchase shows increasing trend from the year 2003-04 to 2009-10 it was 2% to 5%. Decreasing trend from the year 2006-07 to 2007-08 it was 5% to 4%. Again it was increasing trend from the year 2007-08 to 2008-09 it was 4% to 5%. Stable value from the year 2008-08 to 2009-10 it was 5%.

•

Credit purchase shows an increasing trend from the year 2003-04 to 2006-07, it was 24% to 40%. Showing decreasing trend from the year 2007-08 to 2009-10 it was 39% to 38%.

•

Opening stock consumed shows a decreasing trend from the year 2003-04 to 2009-10 it was 13% to 6%. From the year 2008-09 to 2009-10 stable value it was 6%.

•

Raw material in store shows a decreasing trend from the year 2003-04 to 200405 it was 26%to 3%. Increasing trend in the year 2004-05 to 2005-06 it was 3% to 14%. Again it shows a decreasing trend from the year 2005-06 to 2009-10 it was 14% to 6%.

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36

•

Staff expenses shows an increasing trend from the year 2003-04 to 2004-05 it was 9% to 11%. From the year 2005-06 to 2007-08 shows a decreasing trend it was 9% to 6%. Again it was increasing trend from the year next two years also stable vale from the year 2008-09 to 2009-10 it was 10%.

•

Power and fuel shows decreasing trend from the year 2003-04 to 2009-10 it was 12% to 8%.

•

Interest and bank charges and other expenses for the year 2003-04 1%. Remaining years it was zero.

•

Administrative expenses show a decreasing trend from the year 2003-04 to 2009-10 it was 8% to 3%. From the year 2006-07 to 2009-10 it was stable value of 3%.

•

Depreciation shows decreasing trend from the year 2003-04 to 2009-10 it was 4% to 2%. From the year 2003-04 to 2004-05 value shows constant it was 4%. From the year 2005-06 to 2006-07 stable value it was 3%. Remaining years from 2007-08 to 2009-10 shows stable value of 2%.

•

Tax paid shows stable value from the year 2003-04 to 2004-05 it was 13%. Decreasing trend from the year 2004-05 to 2005-06 it was 13% to 10%. Increasing trend from the year 2005-06 to 2009-10 it was 10% to 22%.

•

Net profit from the sales shows decreasing trend from the year 2003-04 to 200809 it was 20% to5%. It shows increasing trend from the year 2008-09 to 200910 it was 5% to 6%. 3.1.2 CHART SHOWS COMMON SIZE STATEMENT RECEIPTS FROM THE YEAR 2003-2009

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37

RECEIPTS2003-04 Commisionreceived 2%

Cashsales 8%

Interest received 3% Closingstock 24%

Credit sales 63%

RECEIPTS2004-05 Commisionreceived 1% Cashsales 9%

Interest received 2%

Closingstock 16%

Credit sales 72%

RECEIPTS2005-06

Interest received 1%

Commision received 2%

Cash sales 10%

Closing stock 11%

Credit sales 76%

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38

RECEIPTS2006-07

Interest received 1%

Commision received 1%

Cash sales 8%

Closing stock 10%

Credit sales 80%

RECEIPTS 2007-08 Interest received 1%

Commision received 1%

Cash sales 11%

Closing stock 7%

Credit sales 80%

RECEIPTS 2008-09 Commision received 1% Interest received 1%

Cash sales 10%

Closing stock 7%

Credit sales 81%

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39

RECEIPTS2009-10 Interest received 1%

Commisionreceived 1%

Cashsales 11%

Closingstock 6%

Credit sales 81%

3.1.2 CHART SHOWS COMMON SIZE STATEMENT PAYMENTS FROM THE YEAR 2003-2009

39

40

PAYMENTS2003-04

Tax paid 18% Rawmaterial in store 36%

Deperciation 5% Other expenxes 1% AdministrativeExp. 11% Interest andbank charges 1%

Staff expenses 12%

Power andfuel 16%

PAYMENTS2004-05 Deperciation 4% Other expenxes 0%

Tax paid 13%

Cashpurchase 3%

AdministrativeExp. 6% Interest andbank charges 0%

Credit purchase 37%

Power andfuel 10%

Staff expenses 11% Rawmaterial in store 3%

Openigstock consumed 13%

40

41

Deperciation 3%

PAYMENTS2005-06

Tax paid 10%

Other expenxes 0%

Cash purchase 4%

Administrative Exp. 4% Interest and bank charges 0% Power and fuel 9%

Credit purchase 38% Staff expenses 9%

Rawmaterial in store 14%

Openig stock consumed 9%

PA Y M ENTS2006-07

D eperciation 3%

T axpaid 16%

O ther expenxes 0%

C ashpurchase 5%

Adm inistrative Exp. 3% Interest and bankcharges 0%

C redit purchase 40%

Pow er andfuel 9%

Staff expenses 6% O penigstock consum ed 8%

R awm aterial in store 10%

PAYMENTS2007-08 Deperciation 2%

Other expenxes 0%

Cashpurchase 4% Tax paid 26%

Administrative Exp. 3%

Credit purchase 39%

Interest and bank charges 0% Power andfuel 8% Staff expenses 6%

Rawmaterial in store 5%

Openigstock consumed 7%

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42

PAYMENTS2008-09 Deperciation 2%

Tax paid 20%

Cash purchase 5%

Other expenxes 0% Administrative Exp. 3% Interest and bank charges 0% Power and fuel 9%

Credit purchase 39%

Staff expenses 10%

Rawmaterial in store 6%

Openig stock consumed 6%

PAYMENTS2009-10 Deperciation 2%

Cash purchase 5%

Tax paid 22%

Other expenxes 0% Administrative Exp. Interest and 3% bank charges 0%

Power and fuel 8%

Staff expenses 10%

Credit purchase 38%

Rawmaterial in store 6%

Openig stock consumed 6%

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43

3.2 RATIO ANALYSIS Ratio is powerful tool of working capital management analysis. Ratio is the numerical of arithmetical relationship between two figures. It is expressed when one figure is dividend by others. It summarizes large quantities of financial data and to make quality judgment about firms financial performance. In financial analysis a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting reports do not provide a meaningful understanding in the performance of the firm. It helps in measuring firms liquidity and its ability to meet current obligations. It reflects a quantitative relationship in forms of quality judgment. In this study for assessing the performance of the working capital position, the technique of ratio analysis has been used. The various ratios used in this study are 3.2.1 LIQUIDITY RATIOS •

Current ratio Current ratio is a measure of firms short terms solvency. It indicates the availability if current assets in rupees for every one rupees of current liabilities. Current Assets Current ratio =

------------------------------------Current Liabilities

•

Quick ratio It establishes a relationship between liquid assets and current liabilities where an assets can be converted into cash reasonably with out a lose of value.

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44

Current asset – Inventories Quick ratio = ------------------------------------------Current liabilities •

Absolute Liquidity Ratio (or) Cash position Ratio It is a variation of quick ratio. When liquidity is highly restricted in terms of cash and cash equivalents, this ratio calculated. Liquidity relationship between cash and near cash items on the one hand and immediately obligation on the others. Absolute liquid asset (cash) Absolute Liquidity Ratio = ---------------------------------------Liquid Liabilities

•

Current Asset to Liquidity Asset Ratio It relationship between current asset and liquid assets purpose of this ratio to know about the current asset to liquid assets level. Current Asset Current Asset to Liquidity Asset Ratio = ---------------------------Liquid Asset

TABLE 3.2.1 LIQUIDITY RATIOS FROM THE YEAR 2003-04 TO 2009-10 (In times) 2003Liquidity Ratio 04

2004-

2005-

2006-

2007-

2008-

2009-

05

06

07

08

09

10

Current asset ratio Quick ratio Absolute Liquidity Ratio Current Asset to Liquidity Asset

1.979 2.118 0.333

1.245 1.305 0.145

1.441 1.439 0.113

1.532 1.379 0.088

1.481 1.359 0.07

1.317 1.187 0.08

1.188 1.13 0.055

Ratio

1.588

1.511

1.441

1.393

1.355

1.322

1.284

Interpretation From the above table was interpreted that

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45

•

Current ratio from the year 2003-04 to 2005-06 it shows decreasing trend it was 1.979 to 1.441. From the year 2005-06 to 2006-07 increasing trend it was 1.441 to 1.532. Again it was decreasing trend from the year 2006-07 to 2009-10 it was shows from 1.532 to 1.188. This is less than standard norm of 2:1. Less than 2:1 ratio indicates concern is not a sound position.

•

Quick ratio shows a decreasing trend from the year 2003-04 to 2009-10 it was 2.118 to 1.13. Standard norms 1:1. More than 1:1 indicates sound financial position. Here our firm quick ratio gives better picture of firm’s ability to meet its short term debt out of short term assets. Companies were shows sound financial position.

•

Liquidity ratio shows decreasing trend from the year 2003-04 to 2009-10 it was 0.333 to 0.055. This is less than standard norm of 0.75:1. It shows concern is not a sound position.

•

Current asset to liquidity asset ratio was showing decreasing trend from the year 2003-04 to 2009-10 it was 1.588 to 1.284. Less than standard norms shows firm hasn’t enough cash on hand.

3.2.1 CHART SHOWS LIQUIDITY RATIOS FROM THE YEAR 2003-04 TO 2009-10

3.2.2 TURN OVER RATIO & ASSETS RATIO

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46

These ratios are very important for a concern to judge how well the disposal of the concern is being used or to use the effectiveness with which a concern uses its resources at its disposal. Higher the ratio better the profitability and use of capital. •

Debtor Turnover Ratio This ratio shows whether the debts are properly collected or not. A business concern generally adopts different methods of sales. One of them is selling in credit. Goods are sold in credit based on credit policy adopted by the firm. The ratio calculated as follows Net Sales

Debtor Turnover Ratio = ----------------------------Average debtors •

Creditors Turn Over Ratio A Business concern usually purchases raw materials, services and goods Credit the quantum of payable of a business concern depends upon its purchase policy, the quality of purchases and suppliers credit policy. creditors turnover ratio indicates the number of times the payables rotates in a year. The ratio is calculated as follows:Net Credit Purchase

Creditors Turn Over Ratio =

---------------------------------------------Average creditors

•

Fixed Assets Turnover Ratio:The fixed assets turnover ratio is important in the case of manufacturing concerns because sales are produced but also by amount invested in fixed assets. The higher the ratio the better is the performance. On the other hand, a low ratio indicates that fixed assets are not being efficiency utilized. The ratio reveals that in the earliest years the fixed assets cab be efficiently utilized. But now a days the fixed assets cannot properly utilized. So the fixed asset turnover ratio is decreased every year. Net Sales Fixed Assets Turnover Ratio =

--------------------------------Fixed assets

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47

•

Total Asset Turn Over Ratio This ratio is calculated by dividing the net sales by the value of total assets. A high ratio is an indicator of over trading of total assets while a low ratio is an indicator of over trading of total assets while a low ratio reveals idle capacity, The traditional standard for the ratio is two times. Net Sales Total Asset Turn Over Ratio =

-----------------------------Total Assets

TABLE 3.2.2 TURNOVER RATIO FORM THE YEAR 2003-04 TO 2009-10 (In times) 2003Turn over ratio 04

2004-

2005-

2006-

2007-

2008-

2009-

05

06

07

08

09

10

Debtor Turnover Ratio Creditors Turn Over Ratio Fixed Assets Turnover Ratio

1.661 0.972 0.939

2.326 1.189 0.994

2.394 1.399 1.339

2.735 1.67 1.684

3.224 1.931 1.956

3.115 1.59 2.047

3.123 1.498 2.168

Total Asset Turn Over Ratio

0.481

0.606

0.752

0.918

1.108

1.122

1.191

Interpretation: From the above table was interpreted that •

Debtor turnover ratio shows increasing trend from the year 2003-04 to 2007-08 it was 1.661 to 3.224. Then it shows decreasing trend from the year 2007-08 to 2008-09 it was 3.224 to 3.115. Thereafter again it was increasing trend from 2008-09 to 2009-10 it was 3.115 to 3.123 so during this period debtors level was increased it has good for concern.

•

Creditor turnover ratio shows increasing trend from the year 2003-04 to 200708 it was 0.972 to 1.932. Then it shows decreasing trend from the year 2007-08 to 2009-10 it was 1.59 to 1.498 so during this period creditor’s level was increased it shows firm stock consuming level was appreciated.

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48

•

Fixed asset turnover ratio shows increasing trend from the 2003-04 to 2009-10 it was 0.939 to 2.168. So it shows net sales level was to be increased than compare to fixed asset.

•

From the above table it has been inferred that Total asset turnover ratio shows increasing trend from the 2003-04 to 2009-10 it was 0.481 to 1.191. So it shows net sales level was to be increased than compare to total asset.

•

From the above table it has been inferred that fixed asset to current asset ratio shows increasing trend from the 2003-04 to 2009-10 it was 0.481 to 1.191. So it shows net sales level was to be increased than compare to total asset.

3.2.2 CHART SHOWS TURNOVER RATIO FORM THE YEAR 2003-04 TO 2009-10

3.5

TURNOVERRATIOFROMTHEYEAR 2003-10

3

Debtor Turnover Ratio

RATIO

2.5 Creditors Turn Over Ratio

2

Fixed Assets Turnover Ratio

1.5 1

Total Asset Turn Over Ratio

0.5 0 2003- 2004- 2005- 2006- 2007- 2008- 200904 05 06 07 08 09 10 YEAR

3.2.3 AVERAGE COLLECTION & PAYMENT PERIOD •

Average Payment Period

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49

It relationship between account payable and net credit purchase multiply with total number of month or total number of days in the year. Account Payable Average payment period = -----------------------------*12month Net credit purchase •

Average Collection Period It relationship between account receivables and net credit sales its multiply with total number of month or total number of days in the year Account Receivables Average collection period = ------------------------------ *12 month Net credit sales

TABLE 3.2.3 AVERAGE COLLECTION & PAYMENT PERIOD FORM THE YEAR 2003-04 TO 2009-10 (In months) Avg. period

Avg.

payment

period

2003-

2004-

2005-

2006-

2007-

2008-

2009-

04

05

06

07

08

09

10

(in

months) Avg. collection period (in

8.4

10.1

8.6

7.2

6.2

7.5

8.01

months)

7.2

5.2

5.01

4.4

3.72

3.9

3.8

Interpretation: From the above table was interpreted that •

Average payment period shows increasing trend from the 2003-04 to 2004-05 it was 8.4 months to 10.1 months. Then it shows decreasing trend from the year 2004-05 to 2007-08 it was 10.1 months to 6.2 months. Thereafter again it was shows increasing trend from the year 2007-08 to 2009-10 it was 6.2 months to 8.01 months. High payment period was 10.1 months. Low period month was 6.2 months. The shorter average payment period good for the concern.

49

50

•

Average collection period shows decreasing trend from the 2003-04 to 2009-10 it was 7.2 month to 3.8 month. Collecting with in short period is good for concern. Shorter average collection period better for the concern.

3.2.3 CHART SHOWS AVERAGE COLLECTION & PAYMENT PERIOD FORM THE YEAR 2003-04 TO 2009-10

AVERAGE PAYMENT AND RECEIPT PERIOD 12 10

RATIO

8

Avg. payment period (in months)

6

Avg. collectio period (in months)

4 2 0 2003- 2004- 2005- 2006- 2007- 2008- 200904 05 06 07 08 09 10 YEAR

3.3 CASH FLOW STATEMENT A Cash flow statement can be defined as a statement which summaries sources of cash inflows and uses of cash outflows of the firm during a particular period of time say as month or year. A Cash flow statement is a statement depicting change in cash position from one period to another. The cash flow statement explains the reasons for such inflows or outflows of cash, as the case may be. It helps management in making plans for the

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51

immediate future. A projected cash flow statement will help the management in ascertaining how much cash will be available to meet obligations to trade creditors, to pay bank loans and to pay dividend to the shareholders. A cash flow statement is useful for short term planning. Its advantages are as follows 1) Cash flow analysis helps in evaluating financial policies and cash position 2) Cash flow analysis provides information about funds which will be available from operations. 3) It discloses the complete story of cash movement.

TABLE 3.3

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52

CASH FLOW STATEMENT FROM THE YEAR 2004-2009 (Rs. in ‘000)

CASH FLOW STATEMENT FOR THE YEAR 2003 to 2010 2004 2005 2006 2007 2008 2009 Amount Amount Amount Amount Amount Amount Application (cash out flow) To Cash (Purchase of building) To Cash (Purchase of machinery) To Cash (Purchase of P & Mac.) To Cash (Purchase of Furniture) To cash (investment) To repayment of loan Closing Balance

117 842 25786 267 324 2245

328 1156 18445 325 439 2898

458 839 14548 113 421 3247

487 321 21229 122 243 1472 3127

366 239 19795 288 179 5343

304 220 18462 122 274 4829 4583

Total

29581

23592

19626

27000

25910

28794

1933 6780 11941 8926

2245 12210 11299 50 -2212

2898 4000 10001 2727

3247 17835 5919

3127 15276 802 102 6604

5343 15289 8161

29581

23592

19626

27000

25910

28794

Sources (cash in flow) By Opening Balance By Capital Appreciation By loans & advances By cash (sale of machinery) By cash (Sale of Furniture) By Cash From Operation Total Interpretation: •

Purchase of building shows increasing trend from the year 2004 to 2007 it was Rs.117 to Rs.487. Then it shows Decreasing trend from the year 2007 to 2009 it was Rs.487 to Rs.304. It shows total value of building increased every year.

•

Purchase of machinery shows increasing trend from the year 2004 to 2006 it was Rs.842 to Rs.1156. Then it shows Decreasing trend from the year 2006 to 2009 it was Rs.839 to Rs.220. It shows total value of machinery increased every year.

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53

•

Purchase of Plant and Machine shows decreasing trend from the year 2004 to 2006 it was Rs.25786 to Rs.14548. Then it shows increasing trend from the year 2006 to 2007 it was Rs.14548 to Rs.21229. There after again it was decreasing trend from the year 2007 to 2009 it was Rs.21229 to Rs.18462. It shows total value of plant and machine increased every year.

•

Investment in cash shows increasing trend from the year 2004 to 2005 it was Rs.324 to Rs.439. Then it shows Decreasing trend from the year 2005 to 2008 it was Rs.439 to Rs179. There after again it was increasing trend from the year 2008 to 2009 it was Rs.179 to Rs.274. It shows total value of investment increased every year.

•

Repayment of loan happened during the year 2007 and 2009 it was Rs.1472 and Rs.4829.

•

Closing balance of the concern was increasing trend from the year 2004 to 2009 it was Rs.2245 to Rs.4583.

•

Opening balance of the concern was increasing trend from the year 2004 to 2009 it was Rs.1933 to Rs.5343.

•

Capital appreciation shows increasing trend from the year 2004 to 2005 it was Rs.6780 to Rs.12210. Then it shows decreasing trend from the year 2005 to 2006 it was Rs.12210 to Rs.4000. There after again it was increasing trend from the year 2006 to 2007 it was Rs.4000 to Rs.17835. decreasing trend from the year 2007 to 2009 it was Rs.17835 to Rs.5343. It shows total value of capital appreciation increased every year.

•

Loans and advances received decreasing trend from the year 2004 to 2006 it was Rs.11941 to Rs.10001. For the year 2007 and 2009 loan was repaid. In the year loan received it was Rs.802

•

Sale of machinery happened in the year 2005 it was Rs.50. Sale of furniture happened in the year 2008 it was Rs.102.

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•

Cash from operation shows decreasing trend from the year 2004 to 2004 it was Rs.8926 to –Rs.2212. It was increasing trend from the year 2004 to 2009 it was –Rs.2212 to Rs.8161 it shows firm generating profit successfully.

3.4. OPTIMUM CASH BALANCE (WILLIAM J. BAUMOL MODEL) It is determination of optimum level of each of a company; Economic order quantity is used in the standard inventory situation. According to this model, optimum cash balance level is that level of cash where the carrying costs and transaction costs are minimum in the other words , the optimum level of cash is one at which cost of carrying the inventory of cash and cost going to the marketable securities.

C=

2 UP / S

C= Optimum cash balance U= Monthly cash disbursement P= Fixed cost per transaction S= Opportunity cost of one Re. P.a.

TABLE – 3.4 THE TABLE SHOWS OPTIMUM CASH BALANCE FROM THE YEAR 2003-04 to 2009-10 (Rs. In ‘000 000) Year

U= Monthly cash

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

disbursement 1946087 4116850 7996970 12686477 18361900 22781512 27332462

P= Fixed cost per

S= Opportunity cost

C= Optimum

transaction 92 105 112 124 134 144 153

of one Re. P.a. 0.01 0.012 0.013 0.013 0.013 0.014 0.014

cash balance 189230 268412 371206 491954 615254 684579 772923

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INTERPRETATION •

Optimum cash balance increasing trend from the year 2003-04 to 2009-10 it was Rs.189230 to Rs.772923 From year 2003-04 to 2009-10 cash balance is increased frequently. Highest optimum cash balance in the year of 2008 it was Rs.7, 72,923. Lowest optimum cash balance in the year of 2003. Over all optimum cash balance shows increasing trend.

3.4 THE CHART SHOWS OPTIMUM CASH BALANCE FROM THE YEAR 2003-04 to 2009-10

Op tim u m C as h B ala n ce F ro m th e ye ar 2 00 3 -0 9

900000 800000 700000 Cash balance

600000 500000 400000 300000 200000 100000 0 1

2

3

4

5

6

7

ye a r

55

56

3.5 CORRELATION TEST Correlation analysis is the statistical tool that describes the degree to which the variables linearly related to other variables. Two or more variables are said to be correlated if change in the value of appears to be related as linked with change in the other variables. It does not tell anything cause and effect relationship if there is a high degree of correlation between two variables. We cannot say which the cause is and which effect is. Correlation co-efficient is another measure designed to indicate the similarity or dissimilarity in the behavior of two variables. The total variables consist of explained variation as well as unexplained variation.

•

It lies always between +1 and -1.

•

When r=+1.0, there is perfect positive correlation the correlation co-efficient would be +1.0 if an upward movement in the security is accompanied by an upward movement of another security.

•

When r=-1.0, there is perfect negative correlation. The correlation co-efficient would be -1.0 if an upward movement in one security is by down ward movement of another security.

56

57

•

When r=0 there is no correlation. The correlation coefficient would be 0 if two securities are independent of each other.

•

When r lies between 0.7 to 0.999 (-0.7 to -0.999), there is high degree of positive (or negative) correlation.

•

When r lies between 0.5 to 0.699 there is moderate degree of correlation.

•

When r is less than 0.5, there is low degree of correlation.

Formula ∑ X.Y Correlation (r) = √ ∑ (X) 2 *

√ ∑ (Y) 2

TABLE 3.5 THE TABLE SHOWS CORRELATION TEST FROM THE YEAR 2003-04 to 2009-10

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58

(Rs. In ''000 Correlation Test X= (x-x Y=(y-y Year

x=Payments

y=Receipts

bar)

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

10.2 20.9 34.7 59.2 93.7 126.7 156.2

3.5 7.3 13.1 15.7 29.4 34 45.5

-61.46 20.90 34.70 59.20 93.70 126.70 156.20

502

149

430

X*Y

(X)2

-17.71 7.30 13.10 15.70 29.40 34.00 45.50

1088.67 152.57 454.57 929.44 2754.78 4307.80 7107.10

3777 437 1204 3505 8780 16053 24398

314 53 172 246 864 1156 2070

127

16795

58154

16202

bar)

000'')

= 16795 / (241.2*127.3) = 16795 / 30704.8 = 0.55

Correlation (r) = 0.55

INTERPRETATION ( Rs. In ‘000 000) •

Receipts and payments show moderate correlation. Overall payment of the concern leads than compare to overall receipts. The total payment of the concern was 502. The total receipt of the concern was 149. Correlation was to be r=s0.55. The range of correlation is should be in between of -1 to +1. When r lies between 0.5 to 0.699 there is moderate degree of correlation. Here our calculated correlation was moderate.

CHAPTER – 4 FINDINGS, SUGGESTIONS AND CONCLUSION 4.1 FINDINGS The main finding of the study are Common size balance sheet

58

(Y)2

59

•

Buildings covers minor portion of total assets. It shows decreasing trend from the year 2003-04 to 2009-10, it was 4 % to 1%.

•

Land covers a small portion of total assets it shows decreasing trend from the year 2003-04 to 2009-10,it was 16% to 4%. From the year 2008-09 to 2009-10 value was stable, it was 4%.

•

Plant and Machinery covers a major portion of the total assets. It shows an increasing trend from the year 2003-04 to 2009-10, it was 28% to 48%. It covers almost 50% of total assets.

•

Furniture and Investment covers a 1% of the total assets. It shows a decreasing trend from the year 2003-04 to 2009-10, it was 2% to 1%. From the year 200405 to 2009-10 value was contend it was 1%.

•

Cash in hand covers a small portion of the total assets. It shows a decreasing trend from the year 2003-04 to 2009-10, it was 5% to 2%. From the year 200506 to 2009 value was stable, it was 2%.

•

Interest received and accrued income covers small portion of the total assets. It shows an increasing trend from the year 2003-04 to 2009-10, it was 1% to 2%. From the year 2005-06 to 2007-08 shows increasing trend and also stable, it was 3%. From the year 2008-09 to 2009-10 it shows decreasing trend and value also constant, it was 2%

•

Bills receivable shows stable trend from the year 2003-04 to 2009-10, it was 1% for all the years.

•

Debtor’s covers a second major portion of the total assets. It shows increasing trend from the year 2003-04 to 2009-10, it was 25% to 32%.

•

An inventory shows a decreasing trend from the year 2003-04 to 2009, it was 17% to 8%. Value was stable in the year 2005-06 to 2006-07, it was 10%. 9% value stable from the year 2007-08 to 2009-10.

•

Share capital covers a major portion of the total liabilities. It shows decreasing trend from the year 2003-04 to 2009-10, it was 43% to 33%. From the year

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60

2003-04 to 2006-07 shows decreasing trend, it was 43% to 26%. From the year 2007-08 to 2009-10 it shows increasing trend, it was 31% to 33%. •

Reserve and surplus shows fluctuating trend. From the year 2003-04 to 200910, it was 13% to 13%. From the year 2003-04 to 2004-05 it shows decreasing trend it was 13% to 12%. Again it shows increasing trend in the year 2006-07 to 2007-08, it was 15%. Again it shows decreasing trend next years.

•

Loans and advances shows fluctuating trend. From the year 2003-04 to 2006-07 shows increasing trend, it was 16% to 26%. From the year 2007-08 to 2009-10 shows decreasing trend 20% to 13%.

•

Provision and taxation shows increasing trend from the year 2003-04 to 200910, it was 2% to 4%. From the year 2006-07 to 2007-08 shows decreasing trend it was 6% to 4%. From the year 2007-08 to 2009-10 value was constant it was 4%.

•

Bills payable shows stable value for all years. From the year 2003-04 to 200708 value stable, it was 1%. From the year 2007-08 to 2008-09 shows increasing trend, it was 1% to 2%. Again it decreased 1% to remaining years.

•

Creditor’s covers second major portion of the total liabilities. From the year 2003-04 to 2009-10 it shows increasing trend, it was 14% to 30%.

•

Profit and loss of the concern shows decreasing trend from the year 2003-04 to 2009-10 it was 10% to 7%. From the year 2006-07 to 2007-08 stable value it was 6%.

Common size Receipts & Payments •

Cash sales shows an increasing trend from the year 2003-04 to 2005-06, it was 8% to 10%. It was decreasing trend in the year 2005-06 to 2006-07, it was 10% to 8%. From the year 2006-07 to 2007-08 it shows increasing trend it was 8% to 11%. Next year 2008-09 Again it shows decreasing trend it was 10%. From the year 2003-04 to 2009-10 shows increasing trend it was 8% to 11%.

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61

•

Credit sales shows an increasing trend from the year 2003-04 to 2009-10 it was 63% to 81%. Credit sales cover a major portion of total receipts it was almost above 62% for all years.

•

Closing stock shows a decreasing trend from the year 2003-04 to 2009-10 it was 24% to 6%. In the year 2007-08 to 2008-09 stable value it was 7%.

•

Interest received shows a decreasing trend from the year 2003-04 to 2009-10 it was 2% to 1%. From the year 2005-06 to 2009-10 stable value it has 1%.

•

Commission received shows decreasing value from the year 2003-04 to 200405 it was 2% to 1%. Next year it was shows increasing trend it was 2%. Again it was decreasing trend in the year 2006-07 it was 1%. From the year 2006-07 to 2009-10 value was stable it was 1%.

•

Cash purchase shows increasing trend from the year 2003-04 to 2009-10 it was 2% to 5%. Decreasing trend from the year 2006-07 to 2007-08 it was 5% to 4%. Again it was increasing trend from the year 2007-08 to 2008-09 it was 4% to 5%. Stable value from the year 2008-08 to 2009-10 it was 5%.

•

Credit purchase increasing trend from the year 2003-04 to 2006-07, it was 24% to 40%. Showing decreasing trend from the year 2007-08 to 2009-10 it was 39% to 38%.

•

Opening stock consumed shows a decreasing trend from the year 2003-04 to 2009-10 it was 13% to 6%. From the year 2008-09 to 2009-10 stable value it was 6%.

•

Raw material shows a decreasing trend from the year 2003-04 to 2004-05 it was 26%to 3%. Increasing trend in the year 2004-05 to 2005-06 it was 3% to 14%. Again it was decreasing trend from the year 2005-06 to 2009-10 it was 14% to 6%.

•

Staff expenses increasing trend from the year 2003-04 to 2004-05 it was 9% to 11%. Decreasing trend from the year 2005-06 to 2007-08 it was 9% to 6%.

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Again it was increasing trend from the year next two years also stable vale from the year 2008-09 to 2009-10 it was 10%. •

Power and fuel shows decreasing trend from the year 2003-04 to 2009-10 it was 12% to 8%.

•

Interest and bank charges and other expenses for the first year 1%. Remaining years it was zero.

•

Administrative expenses shows decreasing trend from the year 2003-04 to 2009-10 it was 8% to 3%. From the year 2006-07 to 2009-10 it was stable value of 3%.

•

Depreciation shows decreasing trend from the year 2003-04 to 2009-10 it was 4% to 2%. First two years value is to stable it was 4%. From the year 2005-06 to 2006-07 stable value it was 3%. Remaining years from 2007-08 to 2009-10 it was stable value of 2%.

•

Tax paid shows stable value for first two years it was 13%. Decreasing trend from the year 2004-05 to 2005-06 it was 13% to 10%. Increasing trend from the year 2005-06 to 2009-10 it was 10% to 22%.

•

Net profit from the sales shows decreasing trend from the year 2003-04 to 200809 it was 20% to5%. It was increasing trend from the year 2008-09 to 2009-10 it was 5% to 6%. Ratio analysis

•

Current ratio from the year 2003-04 to 2005-06 it shows decreasing trend it was 1.979 to 1.441. From the year 2005-06 to 2006-07 increasing trend it was 1.441 to 1.532. Again it was decreasing trend from the year 2006-07 to 2009-10 it was shows from 1.532 to 1.188. This is less than standard norm of 2:1. Less than 2:1 ratio indicates concern is not a sound position.

•

Quick ratio shows a decreasing trend from the year 2003-04 to 2009-10 it was 2.118 to 1.13. Standard norms 1:1. More than 1:1 indicates sound financial position. Here our firm quick ratio gives better picture of firm’s ability to meet 62

63

its short term debt out of short term assets. Quick ratio shows sound financial position of a firm. •

Liquidity ratio shows decreasing trend from the year 2003-04 to 2009-10 it was 0.333 to 0.055. This is less than standard norm of 0.75:1. It shows concern has not a sound position.

•

Current asset to liquidity asset ratio was showing decreasing trend from the year 2003-04 to 2009-10 it was 1.588 to 1.284. Less than standard norms shows firm hasn’t enough cash on hand.

•

Debtor turnover ratio shows increasing trend from the year 2003-04 to 2007-08 it was 1.661 to 3.224. Then it shows decreasing trend from the year 2007-08 to 2008-09 it was 3.224 to 3.115. Thereafter again it was increasing trend from 2008-09 to 2009-10 it was 3.115 to 3.123 so during this period debtors level was increased it has good for concern.

•

Creditor turnover ratio shows increasing trend from the year 2003-04 to 200708 it was 0.972 to 1.932. Then it shows decreasing trend from the year 2007-08 to 2009-10 it was 1.59 to 1.498 so during this period creditor’s level was increased it shows firm stock consuming level was appreciated.

•

Fixed asset turnover ratio shows increasing trend from the 2003-04 to 2009-10 it was 0.939 to 2.168. So it shows net sales level was to be increased than compare to fixed asset.

•

From the above table it has been inferred that Total asset turnover ratio shows increasing trend from the 2003-04 to 2009-10 it was 0.481 to 1.191. So it shows net sales level was to be increased than compare to total asset.

•

From the above table it has been inferred that fixed asset to current asset ratio shows increasing trend from the 2003-04 to 2009-10 it was 0.481 to 1.191. So it shows net sales level was to be increased than compare to total asset.

•

Average payment period shows increasing trend from the 2003-04 to 2004-05 it was 8.4 months to 10.1 months. Then it shows decreasing trend from the year 2004-05 to 2007-08 it was 10.1 months to 6.2 months. Thereafter again it was 63

64

shows increasing trend from the year 2007-08 to 2009-10 it was 6.2 months to 8.01 months. High payment period was 10.1 months. Low period month was 6.2 months. The shorter average payment period good for the concern. •

Average collection period shows decreasing trend from the 2003-04 to 2009-10 it was 7.2 month to 3.8 month. Collecting with in short period is good for concern. Shorter average collection period better for the concern. Cash flow statement

•

Cash Purchase of building shows increasing trend from the year 2004 to 2007 it was Rs.117 to Rs.487. Then it shows Decreasing trend from the year 2007 to 2009 it was Rs.487 to Rs.304. It shows total value of building increased every year.

•

Cash Purchase of machinery shows increasing trend from the year 2004 to 2006 it was Rs.842 to Rs.1156. Then it shows Decreasing trend from the year 2006 to 2009 it was Rs.839 to Rs.220. It shows total value of machinery increased every year.

•

Cash purchase of Plant and Machine shows decreasing trend from the year 2004 to 2006 it was Rs.25786 to Rs.14548. Then it shows increasing trend from the year 2006 to 2007 it was Rs.14548 to Rs.21229. There after again it was decreasing trend from the year 2007 to 2009 it was Rs.21229 to Rs.18462. It shows total value of plant and machine increased every year.

•

Cash Investment shows increasing trend from the year 2004 to 2005 it was Rs.324 to Rs.439. Then it shows Decreasing trend from the year 2005 to 2008 it was Rs.439 to Rs.179. There after again it was increasing trend from the year 2008 to 2009 it was Rs.179 to Rs.274. It shows total value of investment increased every year.

•

Repayment of loan happened during the year 2007 and 2009 it was Rs.1472 and Rs.4829.

64

65

•

Closing balance of the concern was increasing trend from the year 2004 to 2009 it was Rs.2245 to Rs.4583.

•

Opening balance of the concern was increasing trend from the year 2004 to 2009 it was Rs.1933 to Rs.5343.

•

Capital appreciation shows increasing trend from the year 2004 to 2005 it was Rs.6780 to Rs.12210. Then it shows decreasing trend from the year 2005 to 2006 it was Rs.12210 to Rs.4000. There after again it was increasing trend from the year 2006 to 2007 it was Rs.4000 to Rs.17835. decreasing trend from the year 2007 to 2009 it was Rs. 17835 to Rs.5343. It shows total value of capital appreciation increased every year.

•

Loans and advances received decreasing trend from the year 2004 to 2006 it was Rs.11941 to Rs.10001. For the year 2007 and 2009 loan was repaid. In the year loan received it was Rs.802

•

Sale of machinery happened in the year 2005 it was Rs.50. Sale of furniture happened in the year 2008 it was Rs.102.

•

Sash from operation shows decreasing trend from the year 2004 to 2004 it was Rs.8926 to –Rs.2212. It was increasing trend from the year 2004 to 2009 it was –Rs.2212 to Rs.8161 it shows firm generating profit successfully.

Optimum cash balance •

Optimum cash balance increasing trend from the year 2003-04 to 2009-10 it was Rs.189230 to Rs.772923 From year 2003-04 to 2009-10 cash balance is increased frequently. Highest optimum cash balance in the year of 2008 it was Rs.7, 72,923. Lowest optimum cash balance in the year of 2003. Over all optimum cash balance shows increasing trend.

Correlation test •

It found that receipts and payments. The overall payment of the concern higher than overall receipts. The total payment of the concern was 502. The total receipt of the concern was 149. Correlation was to be r=s0.55. The range of correlation is should be in between of -1 to +1. When r lies between 0.5 to

65

66

0.699 there is moderate degree of correlation. Here our calculated correlation was moderate.

4.2 SUGGESTIONS

•

The firm should increase the investment in current asset as the current asset ratio is not up to the mark. Steps to be take to increase the current assets of the company to achieve of standard norms.

•

The concern should concentrate to appreciate the liquidity and absolute liquidity cash position to meet the firm requirement.

•

It is necessary that a firm should have sufficient cash for paying its bills on the due dates to take advantage of trade discounts offered by the suppliers and to maintain its credit standing.

•

The company can make necessary steps to accelerate the cash collection. It can be done by reducing the float involved in conversion of payments into cash.

•

The company should concentrate to repay the loans and dues to their concerned parties and banks. Maintaining the decreasing trend of the loans and advance

66

67

•

The company should make use of credit period to the fullest extent and should pay only on due date.

•

Knowing when, where, and how company cash needs will occur, knowing what the best sources are for meeting additional cash needs and being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors.

4.3 CONCLUSION The study conducted at Rhythm EXPORTS entitled “CASH MANAGEMENT OF RHYTHM FASHION” gives a view of analysis and evaluation of liquidity position of the company.

The project done at Rhythm

fashion Pvt. Ltd., Tirupur on “Analysis of cash Management” was very helpful and Informative. To improve the performance of the company needs to implement new policies. The cash management analysis refers to the management of individuals current assets. Sufficiently liquidity is important and must be achieved and maintained to provide that funds to pay-off obligation as they arise or mature. The adequacy of cash and other current assets together with their efficient handling virtually determine the survival or demise of the company. This analysis and statements are useful to the concern to maintain the cash position control the shortage of cash and to know about the financial performance of the company each year. This study useful to the concern to control the cash flows.. Thus the overall performance of the company in the area of cash management is satisfactory. The company should enhance its performance for meeting challenges and exploiting opportunities in the future.

67

68

68

69

APPENDIX PROFIT & LOSS ACCOUNT Particulars

2003-04

2004-05

19243672

47528562

Closing stock

6612178

other income

2005-06

2006-07

2007-08

2008-09

2009-10

91683185

142877561

209776689

261527577

318976518

9068781

12291874

15343678

16221591

20049914

21143165

1415519

1589562

3151172

3096682

4837415

4273388

5842365

27271369

58186905

107126231

161317921

230835695

285850879

345962048

Opening stock

6056729

6612178

9068781

12291874

15343678

16221591

20049914

Raw material consumed

4541183

19351928

40163522

68512121

95841518

118727512

139842981

Store consumed

1612878

1663191

13291688

14874347

10193836

17384948

20014462

Staff expenses

2048162

5469569

8753676

9436827

11696927

27256728

33352728

Power and fuel Interest and bank charges

2918597

4971911

8259668

12969527

18093418

24953921

27838122

201136

162233

172414

156581

222928

310518

353591

Administrative Exp.

1862182

2826924

3981419

5291171

6541599

7918672

9251728

Other expenses

145628

205529

293588

398878

476911

577210

683071

Depreciation

912621

1841562

2839455

3953472

5010979

6179518

7250472

3053928

6297129

9139411

24352929

56921039

53847528

69352470

23353044

49402154

95963622

152237727

220342833

273378146

327989539

3918325

8784751

11162609

9080194

10492862

12472733

17972509

27271369

58186905

107126231

161317921

230835695

285850879

345962048

INCOME Sales

Total Inc. EXPENDITURE

Tax paid

Total exp. Profit & Loss account

Total

69

70

BALANCE SHEET FROM THE YEAR 2003-2009 2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Building Land Plant & Machinery Furniture Investment

1493916 6226328 11187981 806791 783942

1611128 7068691 36973668 1073768 1107893

1939247 8224906 55368164 1398813 1546882

2397389 9063551 69916671 1511665 1967781

2883911 9384779 91145451 1633497 2210977

2949898 9623412 110897892 1921782 2389899

3253436 9843687 129359498 2043667 2663468

Total Fixes Assets CURRENT ASSETS

20498958

47835148

68478012

84857057

107258615

127782883

147163756

1933412

2244685

2897982

3246897

3126675

5343463

4583498

459623 643978 9866471 6612178

1096174 1053819 17113588 9068781

3863781 869126 33456178 12291874

4356065 1484648 46425518 15343678

4913189 2119743 55719462 16221591

5382160 2237442 72358177 20049914

5246873 3048438 86572571 21143165

19515662

30577047

53378941

70856806

82100660

105371156

120594545

4001462 0

7841219 5

12185695 3

15571386 3

18935927 5

23315403 9

26775830 1

17353933 5313511 6571820

24133789 9248139 18513153

36343510 14332412 29812133

40343521 20151622 39813411

58178143 29067818 38341568

73453921 32367142 39143110

88743288 33741522 34313628

913466

1953918

4332415

9152626

8343528

8163518

9451119

30152730

53848999

84820470

109461180

133931057

153127691

166249557

502046 5441519 3918325

1038698 14739747 8784751

340422 25533452 11162609

1309067 35863422 9080194

2253189 42682167 10492862

3941528 63612087 12472733

4351928 79184307 17972509

9861890

24563196

37036483

46252683

55428218

80026348

101508744

4001462 0

7841219 5

12185695 3

15571386 3

18935927 5

23315403 9

26775830 1

ASSETS FIXED ASSETS

Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

70

71

BALANCE SHEET FROM THE YEAR 2003-04 to 2004-05 Particulars

2003-04

2004-05

ASSETS FIXED ASSETS Building Land Plant & Machinery Furniture Investment Total Fixes Assets

1493916 6226328 11187981 806791 783942

1611128 7068691 36973668 1073768 1107893

20498958

47835148

1933412 459623 643978 9866471 6612178

2244685 1096174 1053819 17113588 9068781

19515662

30577047

40014620

78412195

17353933 5313511 6571820 913466

24133789 9248139 18513153 1953918

30152730

53848999

502046 5441519 3918325

1038698 14739747 8784751

9861890

24563196

40014620

78412195

CURRENT ASSETS Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

71

72

BALANCE SHEET FROM THE YEAR 2004-05 to 2005-06

2004-05

2005-06

ASSETS FIXED ASSETS Building Land Plant & Machinery Furniture Investment Total Fixes Assets

1611128 7068691 36973668 1073768 1107893

1939247 8224906 55368164 1398813 1546882

47835148

68478012

2244685 1096174 1053819 17113588 9068781

2897982 3863781 869126 33456178 12291874

30577047

53378941

78412195

121856953

24133789 9248139 18513153 1953918

36343510 14332412 29812133 4332415

53848999

84820470

1038698 14739747 8784751

340422 25533452 11162609

24563196

37036483

78412195

121856953

CURRENT ASSETS Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

BALANCE SHEET FROM THE YEAR 2005-06 to 2006-07

72

73

Particulars

2005-06

2006-07

ASSETS FIXED ASSETS Building Land Plant & Machinery Furniture Investment Total Fixes Assets

1939247 8224906 55368164 1398813 1546882

2397389 9063551 69916671 1511665 1967781

68478012

84857057

2897982 3863781 869126 33456178 12291874

3246897 4356065 1484648 46425518 15343678

53378941

70856806

121856953

155713863

36343510 14332412 29812133 4332415

40343521 20151622 39813411 9152626

84820470

109461180

340422 25533452 11162609

1309067 35863422 9080194

37036483

46252683

121856953

155713863

CURRENT ASSETS Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

BALANCE SHEET FROM THE YEAR 2006-07 to 2007-08

73

74

Particulars

2006-07

2007-08

74

75

ASSETS FIXED ASSETS Building Land Plant & Machinery Furniture Investment Total Fixes Assets

2397389 9063551 69916671 1511665 1967781

2883911 9384779 91145451 1633497 2210977

84857057

107258615

3246897 4356065 1484648 46425518 15343678

3126675 4913189 2119743 55719462 16221591

70856806

82100660

155713863

189359275

40343521 20151622 39813411 9152626

58178143 29067818 38341568 8343528

109461180

133931057

1309067 35863422 9080194

2253189 42682167 10492862

46252683

55428218

155713863

189359275

CURRENT ASSETS Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

BALANCE SHEET FROM THE YEAR 2007-08 to 2008-09

Particulars

2007-08

2008-09

ASSETS

75

76

FIXED ASSETS Building Land Plant & Machinery Furniture Investment Total Fixes Assets

2883911 9384779 91145451 1633497 2210977

2949898 9623412 110897892 1921782 2389899

107258615

127782883

3126675 4913189 2119743 55719462 16221591

5343463 5382160 2237442 72358177 20049914

82100660

105371156

189359275

233154039

58178143 29067818 38341568 8343528

73453921 32367142 39143110 8163518

133931057

153127691

2253189 42682167 10492862

3941528 63612087 12472733

55428218

80026348

189359275

233154039

CURRENT ASSETS Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

BALANCE SHEET FROM THE YEAR 2008-09 to 2009-10 Particulars

2008-09

2009-10

ASSETS FIXED ASSETS Building

2949898

3253436

76

77

Land Plant & Machinery Furniture Investment

9623412 110897892 1921782 2389899

9843687 129359498 2043667 2663468

127782883

147163756

5343463 5382160 2237442 72358177 20049914

4583498 5246873 3048438 86572571 21143165

105371156

120594545

233154039

267758301

73453921 32367142 39143110 8163518

88743288 33741522 34313628 9451119

153127691

166249557

3941528 63612087 12472733

4351928 79184307 17972509

80026348

101508744

233154039

267758301

Total Fixes Assets CURRENT ASSETS Cash in Hand & Bank Interest received & acc. income Other Cur. asset Debtors Inventories Total Current Assets

TOTAL ASSETS LIABILITIES Share capital Reserve & Surplus Loans & Advances Provision for Taxation Total Fixed Lib. CURRENT LIABILITIES Other cur. liabilities Creditors P & L account Total current Lib.

TOTAL LIABILITES

BIBLIOGRAPHY

SL. No.

Authors Name

Book Name & Publications

1.

SHARMA R.K.

“Management Accounting” Principles

SHASHI K. GUPTA

and Practices, Kalyani Publishers,

77

78

Seventh Revised Edition, 1996. 2.

PANDEY I.M.

“Financial Management”, Vikas Publishing house Pvt Ltd., Eighth Edition, 1997.

3.

KHAN M.Y.

“Financial Management” Tata Mc

JAIN P.K.

Graw – Hill Publishing Company Ltd., New Delhi, 1997.

4.

KOTHARI C.R.

“Research Methodology methods Techniques”, Wishwa Prakashan, New Delhi, Second Edition.

5.

PILLAI & BHAGAVATHI R.S.N.

“Management Accounting” Sultan chand & Sons, Second Edition, 2000.

6.

PARASANNA CHANDRA

“FINANCIAL MANAGEMENT” Second Edition.

78