Cash Management
Content
A STUDY ON CASH MANAGEMENT ON THE FLAVORS INDIA (P) LTD,PUDUCHERRY
SUMMER PROJECT REPORT
Submitted by
J.SAKTHIPRIYA REGISTER NO: 27348335
Under the Guidance of
MRS.R.HEMALATHA M.B.A.
Faculty, Department Of Management Studies In partial fulfilment for the award of the degree Of
MASTER OF BUSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT STUDIES SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE PONDICHERRY UNIVERSITY PUDUCHERRY, INDIA SEPTEMBER – 2007
SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE PONDICHERRY UNIVERSITY DEPARTMENT OF MANAGEMENT STUDIES
BONAFIDE CERTIFICATE
This to certify that the project work entitle “A STUDY ON CASH
MANAGEMENT ON THE FLAVORS INDIA (P) LTD” is a bonafide work
done by J.SAKTHIPRIYA [REGISTER NO: 27348335] in partial fulfilment of the requirement for the award of Master Of Business Administration by Pondicherry University during the academic year 2007-2008.
GUIDE
HEAD OF THE DEPARTMENT
Submitted for the viva – voice Examination held on EXTERNAL EXAMINER
1 2
TABLE OF CONTENTS
CHAPTER
TITLE
PAGE NO
ACKNOWLEDGEMENT ABSTRACT LIST OF TABLE LIST OF CHART INTRODUCTION 1.1 Introduction of the Study 1.2 Profile of the Company REVIEW OF LITERATURE OBJECTIVE OF THE STUDY RESEARCH METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS OF THE STUDY SUGGESTION & RECOMMENDATION
I II III IV V
1 8 29 30 31
VI
54
VII
CONCLUSION
56
VIII
LIMITATION & SCOPE OF THE STUDY ANNEXURE BIBLOGRAPHIC
57
ACKNOWLEDGEMENT
I whole heatedly thank my respected chairman Mr. N. KESAVAN, vice chairman Mr. SUGUMARAN, and beloved M.D Mr. DHANASEKARAN who helped us in all our endeavors and for his blessings on us to make this project a successful one. I would like to express my profound gratitude to all those who have been instrumental on the preparation of the project report I wish to place on deep sense of gratitude to our principal Mr. V.S.K. VENKATACHALAPATHY the keen interest and affection towards as through out the course. I convey my sincere thanks to prof. Mr. S. JAYAKUMAR HOD, Department Of Management Studies for his interest towards us throughout the course. I am sincere thanks to my internal guide MRS. R. HEMALATHA M.B.A. Department Of Management Studies for her valuable guidance and inspiration extended all along the project. I am grateful to my company guide Mr. MURUGAVEL, Accounting Incharge for his valuable guidance and inspiration extended all along the project. I also wish my sincere thank to all the teacher and non-teaching staff of department of MBA, Sri Manakula Vinayagar Engineering College, without whose cooperation this project would not be a success. Lastly, I wish to thank my parents and friends who supported and helped me in completion of this project.
ABSTRACT
The project is titled as “A STUDY ON CASH MANAGEMENT ON THE FLAVORS INDIA (P) LTD”, the aim is to analyses cash position of the company by using the financial tool and techniques. These project is mainly concentrated on cash management is an important factor and it is one of the component of working capital cash can be regarded as a life blood of corporate. Cash either a hand or at bank is the most liquidity of all current assets. The cash and bank balance indicates high liquidity position of a company.
LIST OF TABLE
TABLE NO
2.1 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.1 5.11 5.12 5.13
LIST OF TABLE
CASH FLOW STATEMENT CASH FLOW STATEMENT(2001-02) CASH FLOW STATEMENT(2002-03) CASH FLOW STATEMENT (2003-04) CASH FLOW STATEMENT (2004-05) CASH FLOW STATEMENT (2005-06) CASH FLOW STATEMENT CASH BUDGET NET WORKING RATIO CURRENT RATIO QUICK TEST RATIO INVENTORY TURNOVER RATIO DEBTORS TURNOVER RATIO CREDITORS TURNOVER RATIO
PAGE NO
16 32 33 34 35 36 37 39 42 44 46 48 50 52
LIST OF CHART
TABLE NO
LIST OF TABLE
PAGE NO
5.1
CASH BUDGET
40
5.2
NET WORKING RATIO
43
5.3
CURRENT RATIO
45
5.4
QUICK TEST RATIO
47
5.5
INVENTORY TURNOVER RATIO
49
5.7
DEBTORS TURNOVER RATIO
51
5.8
CREDITORS TURNOVER RATIO
53
BIBLIOGRAPHY
Khan M.Y and P.K. Jani Financial Management, New Delhi, Tata Mc Graw Hill, 1992. Dr.S.N. Maheshwari, Principles of Management Accounting. Prasanna Chandra, Financial Management Theory and Practice
Websites:
www.flavorindia.com.
CHAPTER - I
INTRODUCTION
1.1 INTRODUCTION FOR THE STUDY:
This study aims in knowing the functions of the financial department of The Flavors India (p) ltd. • • • To know about the general functioning of the company.
To study the practical work and collect information from the concern. To compare the theoretical knowledge gained with practice in real life commercial situation. To analysis the balance sheet and profit & loss account of the year. To know the financial position of the company.
• •
1.2 PROFILE OF THE COMPANY
The Flavors India (p) Ltd is a well established and systematically organized company engaged in the manufacture of food flavours, food colours and caramel. The genesis of flavors India dates back to 1975 after an in-depth and intensive market survey to cater to the needs of high demand areas The promoter late shri R.Bramanandam and his team had the business acumen, professional background obtained after serving a long stint in flavors industry, sound business ethics, skills and had brought this to bear in the discipline and systems required to maintain and sustain quality in such a mass production. The Flavors India (p) Ltd operates from puducherry (India) previously a French colony and now the union territory capital, about 120kms from Chennai airport, south India. Garnering and utilizing the skilled low-cost manpower strength that puducherry offer, flavors India has staff strength of 100 personnel headed by the board of directors, who control the different divisions of the organization. 1.2.1Quality: For the Flavors India with 30 years of standing, quality is the day to success. Our plant has fully equipped quality control laboratories where the raw materials, in process and finished products are rigorously tested for their quality standards. Our qualified manufacturing and technical personnel deal with material handling, shop floor and production activities. We maintain stringent quality control measure and hygienic condition as per the specification of Bureau of India Standards. The research and development wing devotes its fulltime towards better product development, cost .effective methods and new products. The Flavors India (p) Ltd is an ISO 9001_2000 certified company ensuring the quality systems practiced .with a commitment towards safe
environment we have development an efficient Effluent Treatment Plant fulfilling the pollution control Board needs. 1.2.2 CUSTOMER BASE: Our motto being “customer is our Boss” a good amount of time and skill is put in and translated into action by formulating new products as demands by the customers. Our products command its reputation in the market for the past 3decades and more in leading food processing companies throughout the country and overseas. Our customer service is always prompt and sure as the” sun –rises and sun set” 1.2.3 AWARDS: The Flavors India (p) Ltd believes in the concepts of “the company as a family “and “working together towards the future” with various welfare programmes for the employees. It was a moment of pride when government of puducherry bestowed on us thrice the Good Industries Relations Award for the consecutive years 2001, 2002and 2003. We promise to march towards the future with the same zeal and motive.
1.2.4 OUR PRODUCTS
TOP SOFT DRINK CONCENTRATES, TOP MIST, TOP LIQUID PRESERVATIVE, TOP CONCENTRATED OILS, TOP FOOD COLOURS WITH ISI MARK, TOP FLAVORS, TOP DRY MIX POWDER FLAVORS, TOP LIQUOR FLAVORS, TOP CARAMEL WITH ISI MARK, TOP CULINARY FLAVORS, TOP FLAVORS, TOP DRY MIX POWDER FLAVORS, TOP ENCAPSULATED FLAVORS, TOP FLAVORS, TOP DUST-ON POWDER FLAVORS, TOP FLAVORS.
1.2.5 ORGANISATIONAL CHART
MANAGING DIRECTOR
FACTORY INCHARGE
PRODUCTION DEPARTMENT
QUALITY CONTROL
FINANCE DEPARTMENT
MARKETING DEPARTMENT
INCOME TAX
ACCOUNTS
SENIOR ASSISTANT
JUNIOR ASSISTANT
1.2.6 FINANCE DEPARTMENT:
The accounts department of The Flavors India (p) ltd functions so as to keep as a system record of the daily events of the business. It maintain records of all financial transaction to find out the profit and loss according during the year and to financial status of the company, which helps them to take quick and correct policy decision. 1.2.7 OBJECTIVE OF FINANCE DEPARTMENT: • To determine the financial status of the company balance sheet, profit and loss accounts. • To help the management to analyses the financial standard of the company so that they can take quick correct decision. • To provide useful information to management. • Analysis the cash flow of the company it will useful for new ventures. 1.2.8 SYSTEM OF ACCOUNTING: All the transaction in the company is enter into to the system. There is more lapse of time in the company to do the other work. The daily transaction of the company is registered under the computer. The invoice, Quotation etc are sending through the system. 1.2.9 FUNCTING FINANCE DEPARTMENT OF THE FIRM The work performed by the account department has follows. 1. Preparation of cash and bank vouchers ( both debtors and creditors) 2. Maintaining cash and bank book. 3. Bank reconciliation statement. 4. Preparing purchasing journal, salaries, wages etc. 5. Preparing debtors and creditors notes. 6. Posting journal to journal books. 7. Maintaining general ledger accounts. 8. Maintaining subsidiary books.
9. Preparing trial balance, profit and loss account and balance sheet. 10. Filling of return of income tax both company and employers to income tax departments
.
CHAPTER-II
REVIEW OF LITERATURE
2.1 CASH MANAGEMENT: Cash management is one of the key areas of working capital management. A part from the fact that it is the most liquid current assets, cash is the common denomination to which all current assets can be reduced because the other major liquid assets that are receivables and inventory get eventually converted into cash. 2.2 MOTICES FOR HOLDING CASH: The term cash with reference to cash management is used in the two senses. 2.2.1 NARROW SENSES: To cover currency and generally accepted equivalents of cash, such as cheque, drafts and demand deposits in bank. 2.2.2 BROAD SENSES: It includes near –cash, assets such as marketable securities and time deposits in bank. There are four primary motives for maintaining cash balances. • • • • Transaction motives. Precautionary motives. Speculative motives. Compensating motives.
A, TRANSACTION MOTIVES: An important reason for maintain cash balance is the transaction motive. This refers to the holding of cash to meet routine cash requirements to finance the transactions which a firm carries on the ordinary course of business.
B, PRECAUTIONARY MOTIVES:
It will clearly determine the cash inflows and outflows in the ordinary course of business, a firm may have to pay cash for purposes which cannot be predicted or anticipated. C, SEPCULATIVE MOTIVE: It refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business. D, COMPENSATIVE MOTIVE: Bank provides a variety of service of business firms, such as clearance of cheque, of credit information, transfer of funds. 2.3 OBJECTIVE OF CASH MANAGEMENT: The basic objective of cash management is two-fold. • • To meet the cash disbursement needs (payment schedule) and. To minimize funds committed to cash balance. Firms have to make payments of cash on a continuous and regular basis to suppliers of goods, employees. At the same time, there is a constant inflow of cash through collections from debtors. Minimizing funds committed to cash balance: In minimizing the cash balance 2.4 FACTORS DETERMING CASH MEEDS: The factors that determine the required cash balance are. A SYNCHRONIZATION OF CASH FLOWS. The need for maintaining cash balance arises from the non- synchronization of the inflows and outflows of cash. If the receipts and payments pf cash perfectly coincide or balance each other, there would be no need for cash balances. The first consideration in determining the cash need is, therefore, the extent of non – synchronization of cash receipts and disbursements.
Meet payments schedule:
For the purpose, the inflows and outflows have to be forecast over a period of time, depending upon the planning horizon which is typically a one-year period with each of the 12months B, SHORT COST. Another general factor to be considered in determining cash needs is the cost associated with a shortfall in the cash needs. The cash forecast presented in the cash budget would reveal periods of cash shortages. In addition, there, may be some unexpected shortfall. Every shortage of cash whether expected or unexpected- involves a cast depending upon the severity, duration and frequency of the shortfall and how the shortage is covered. TRANSACTION COSTS: Transaction costs are associated with raising cash to tide over the shortage. This is usually the brokerage incurred in relation to the sale of some short-tern near-cash assets such as marketable securities. BORROWING COSTS: Borrowing costs associated with borrowing to cover the shortage. These include items such as interest on loan, commitment charge and other expense relating to the loan. C LOST OF CASH –DISCOUNT: Lost of cash-discount a substantial loss because of a temporary shortage of cash. D, COST ASSOCIATED WITH DETERIORATION OF THE CREDIT RATING: Cost associated with deterioration of the credit rating which is reflected in shortage of cash charges on loans, stoppage of supplies, demands for cash payment, refusal to sell, loss of image and the attendant decline in sales and profits. E, PENALTY RATES: Penalty rates by banks to meet a shortfall in compensating balances. F, EXCESS CASH BALANCE COSTS:
The cost of having excessively large cash balances is known as the excess cash balances cost. If large funds are idle, the implication is that the firm has missed opportunities to invest those funds and has thereby lost interest which it would otherwise have earned. This loss of interest is primarily the excess cost. G, PROCUREMENT AND MANAGEMENT: These are the costs associated with establishing and operating cash management staff and activities. They are generally fixed and are mainly accounted for but salary, shortage, handling of securities and so on. H, UNCERTAINTY AND CASH MANAGEMENT: Finally, the impact of uncertainty on cash management strategy us also relevant as cash flows cannot be predicted with complete accuracy. The first requirement is a precautionary cushion to cope with irregularities in cash flows, unexpected delays in collections and disbursements, defaults and unexpected cash needs. The impact of uncertainty on cash management can, however, is mitigated through. • • Improved forecasting of tax payments, capital expenditure, dividends and so on. Increased ability to borrow through overdraft facility.
2.5 DETERMINE CASH NEED: There are two approaches to derive on optimal cash balances, namely • • Minimizing cost cash model, Cash budget.
2.5.1 CASH MANAGEMENT: The following are the analytical model for cash management • • • Baumol model Miller-orr model Orgler’s model.
A, BAUMOL MODEL: The purpose of this model is to determine the minimizing cost amount of cash that a financial manager can obtain by converting securities to cash. They are two elements • • Conversion cost Opportunity cost
CONVERSION COST: Conversion costs are incurred each time marketable securities are converted into cash.
Total conversion cost per period = Tb\c
Where, b = cost per conversion. T = total transaction cash need for the period. C = value of marketable security sold to each conversion. OPPORTUNITY COST: Opportunity cost is derived from the cost\forfeited interest rate (i) that could have been earned on the investment of cash balance.
I (c\2)
Where, c\2= the average cash balance (i)=interest rate that could have been earned. i(c\2)+(Tb\c) B, MILLER- ORR MODEL: To determine the optimum cash balance level which minimizes the cost of cash management.
C=bE (n)\t+iE (M)
Where, b = the fixed cost per conversion. E (M) = the expected average daily cash balance. E (N) = the expected number of conversion. t = the number of days in the period. (i) = the lost opportunity cost. C = total cash management costs C, ORGLER’S MODEL: According this model, an optimal cash management strategy can be determined through the use of a multiple linear programme model. The construction of the model comprises three sections • • • Selection of the appropriate planning horizon. Selection of the appropriate decision variables and Formulation of the cash management strategy itself.
The advantage of linear programming model is that it enables coordinates of the optimal cash management strategy with the other operations of the firm such as production and with less restriction on working capital balances. The model basically uses one year planning horizon with twelve monthly periods because of its simplicity. It has four basic sets of decisions variables which influence cash management of a firm and which must be incorporated into the linear programming model of the firm. These are • • • • Payment schedules. Short-term financing. Purchase and sale of marketable securities and Cash balance.
The formulation of the model requires the financial managers first specify an objective function and then specify a set of constraints.
Orgler’s objectives function is to minimize the horizon value to the net revenues from the cash budget over the entire planning period; using the assumption that all revenues generated are immediately re-invested and that any cost is immediately financed, the objective function represented the value of the net income from the cash budget at the horizon by adding the net returns over the planning period. Thus, the objective function recognizes each operation of the firm that generated cash inflow or cash outflows as adding pr subtracting profit opportunities for the firm from its cash management operations. In the objective function, decision variables which cause inflows, such as payments on receivables, have positive coefficient.
2.6 TECHNIQUES OR TOOLS OF CASH MANAGEMENT ANALYSIS: The most important techniques of analysis and interpretation of cash management are us follows. • • • CASH FLOW STATEMENT. CASH BUDGETING RATIO ANALYSIS.
1 CASH FLOW STATEMENT: A cash flow statement is used in conjunction with the other financial statements, provides information that enables users to evaluate the change in net assets of an enterprise, its financial structure (including its liquidity and solvency), and its ability to affect the amounts and timing of cash flow in order to adapt to changing circumstance and opportunities. Cash flow information is useful in assessing the ability of the enterprises to generate cash and cashequivalents and enables users to develop models to assess and compare the present value of the future cash flows of different enterprises. It also enhances the comparability of the reporting of operating performance by different because it eliminates the effects of using different accounting treatments for the same transactions and events 1.1 MEANING OF CASH STATEMENT: A cash flow statement is a statement depicting change in cash position from one period to another. A proper planning of the cash resource will enables the management to have cash available whenever needed and put it to some profitable or productive use in case there is surplus cash available. 1.2 UTILITY OF CASH FLOW ANALYSIS: A cash flow statement is useful for short-term planning. A business enterprise needs sufficient cash to meet its various obligations in the near future such as payment for purchase of fixed assets, payment of debts maturing in the near future, expenses of the business etc. a cash flow analysis is an important financial tool for the management. Its chief advantage is as follows. • • • • Helps in efficient cash management. Helps in internal financial management. Discloses the movement of cash. Discloses success or failure of cash.
1.3 LIMITATION OF CASH FLOW STATEMENT: • Cash flow analysis is a useful tool of financial analysis. However, it has its own limitation.
• • •
Cash flow statement cannot be equated with the income statement. The cash balance as disclosed by the cash flow statement may not represent the real liquid position of the business. Cash flow statement cannot replace the income statement or the fund flow statement. CASH FLOW STATEMENT TABLE NO 2.1 PARTICULARS
OPENING BALANCES Cash in Hand xxxxxx Xxxxx xxxx Xxxx Xxxx Xxxxx Xxxx Xxxx
SOURCE OF CASH
Income Tax Sale of Fixed Assets CASH FROM OPERATION Net Profit ADD Increase in Other Liabilities Decrease in Inventories LESS Decrease in Sundry Creditors Increase in Sundry Debtors
TOTAL CASH AVAILABLE APPLICATION OF CASH
Loans & Advance Secured Loan Unsecured Loan Central Excise
Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxx
CLOSING BALANCE
Cash in Hand
TOTAL APPLICATION AVAILABLE
2 RATIO ANALYSES: An analysis of financial statements based on ratios is known as ratio analysis. Ratio analysis involves the process of computing determining and resenting the relationship of items or group of items of financial statements. Ratio analysis is a widely – used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes. It is
defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items. 2.1 ADVANTAGE OF RATIO ANALYSIS: The advantages of ratio analysis are as follows. 1. Forecasting. 2. Managerial control. 3. Facilitates communications. 4. Measuring efficiency. 5. Facilitating investment decisions 6. Useful in measuring financial solvency. 7. Inter firm comparisons 2.2 STEPS IN RATIO ANALYSIS: • • • Selection of relevant information. Comparison of calculated ratios. Interpretation and reporting.
2.3 LIMITATION OF RATIO ANALYSIS: • • • • • The analyst should have a through knowledge and experience about the firm and industry. Ratios are not an end in themselves but they are means to achieve a particular purpose or end. Ratios are interred- related and therefore a single ratio cannot convey meaning. It has to be interpreted with reference to other related to draw meaningful conclusions. Ratio will be meaningful if they can be compared with standards or norms. Ratio analysis will be fruitful only if the conclusions are conveyed quickly to the management.
• •
Ratio analysis becomes redundant during periods of heavy price Fluctuations.
2.4 NET WORKING CAPITAL: MEANING: This ratio establishes the relationship between cost of sales and working capital. SIGNIFICANCE: Working capital measures the effective utilization of working capital. It also measures the smooth running of business. Net working capital represents the excess of current assets over current liabilities. The term current assets refers to assets which in the normal course of business get converted into cash without dimunition in value over a short period ,usually not exceeding one year or length of operation cycle whichever is more. The greater is the amount of net working capital, the greater is the liquidity of the firm, accordingly net working capital is a measure of liquidity, and inadequate working capital is the first sign of financial problem for a firm. COMPONENTS: The components of working capital ratio are current assets and current liabilities. FORMULA: This ratio is calculated with the help of the following formula.
Net Work capital = current assets - Current liabilities
2.5 CURRENT RATIO: MEANINGS: This ratio expresses the relationship between current assets and current liabilities.
SIGNIFICANCE: The liquidity position of any company is easily measured with the help of current ratio. The current ratio is the ratio of total current assets to total current liabilities. It’s calculated by divided current assets by current liabilities. The current assets of a firm, as already stated, represent that asset which can be, in the ordinary course of business, converted into cash within a short period of time normally not exceeding one year. COMPONENTS: The components of currents assets of the firm are cash at bank, deposits, sundry debtors and closing stock. The components of current liabilities are sundry creditors and provision for Income Tax. FORMULA:
Current ratio
=
Current assets
Current Liabilities
2.6 DEBTORS’ TURNOVER RATIO: MEANINGS: This ratio determines the debtors constitute of current assets and therefore the quality of debtors to great extent determines a firm’s liquidity.
SIGNIFICANCE: This ratio helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales. It is determine by dividing the net credit sales by average debtors outstanding during the year. Thus, net credit sales consist of gross credit sales minus returns, if
any, from customer’s average debtors is the simple average of debtors (including bills receivables) at the beginning and at the end of the year COMPONENTS: The components of Debtors Turnover Ratio are the Credit Sales and the Average Accounts Receivable. FORMULA:
Debtors’ turnover ratio =
Credit sales Average Accounts Receivables
2.7 STOCK TURNOVER RATIO: MEANINGS: This ratio indicates whether investment in inventory is efficiently used or not. It therefore, explains whether investments in inventories is within proper limits B SIGNIFICANCE: The ratio is measure to discover the possible trouble in the form of overstocking or overvaluation. The stock position is known as the graveyard of the balance sheet It is computed by divided the cost of good sold by the average inventory thus, the cost of good sold means sales minus gross profit. The average inventory refers to the simple average of the opening and closing inventory. The ratio indicated how fast inventory is sold.
COMPONENTS: The component of Stock Turnover Ratio is determined by the Cost of Goods Sold during the Year and the Average Inventory.
FORMULA:
Stock Turnover Ratio = Cost of Goods Sold During the Year Average Inventory
2.8 LIQUID RATIO: MEANING: The ratio expresses the relationship between liquid assets and current liabilities of the firm. It is otherwise known as absolute liquid ratio or quick ratio. SIGNIFICANCE: It is a measure of judging the immediate ability of the firm to pay – off its current obligations. The quick test ratio is the ratio between quick current ratio and current liabilities and is calculated by dividing the quick assets by the current liabilities. The term quick assets refers to current assets which can be converted into cash immediately or at a short notice without diminution of value COMPONENTS: All the components of current assets are included except stock and prepaid expenses and the various components of currents liabilities are same as the items included in current ratio.
FORMULA: Liquid ratio can be calculated as follows.
Liquid Ratio =
Liquid assets Current Liabilities
Liquid assets - (Stock + Prepaid Expenses) 2.9 CREDITOR’S TURNOVER RATIO: It indicates the speed with which the payment for credit purchase are made to the creditors A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that accounts are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit. The extent to which trade creditors are willing to wait for payment can be approximated by the creditor’s turnover ratio. It is a ratio between net credit purchase and the average amount of creditors outstanding during the year. A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that account are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit.
Creditors turnover ratio =
credit purchase Average account payable.
3 CASH BUDGETING: A firm is well advised to hold adequate cash balance but should avoid excessive balances. The firm has, therefore, to assess its need for cash properly. The cash budget is probably the most important tool in cash management. It is device to help a firm to plan and
control the use of cash. It is a statement showing the estimated cash inflows and cash outflows over the planning horizon. In the other words, the net cash position of a firm as it moves from one budgeting sub period to another is highlighted by the cash budget. The various purposes of cash budgets are • • • To coordinates the timings of cash needs. It identifies the periods when there might either be as shortage of cash or an abnormally large cash requirement. It pinpoints the periods when there is likely to be excess cash. It enables a firm which has sufficient cash to take advantage of cash discounts on its accounts payable, to pay help obligation when due, to formulate dividend policy, to plan financing of capital expansion and to help unify the production schedule during the year so that the firm can smooth out costly seasonal fluctuations. • It helps to arrange needs funds on the most favorable terms and percents the accumulation for excess funds. With adequate time to study his needs, the finance manage can select the best alternative avenues of financing, the management would be forced to accept the best terms offered in a difficult situation. These terms will not be as favorable, since the lack of planning indicates to the lender, that there is an organizational deficiency. The firm, therefore, represents a high risk. Cash budgeting or short-term cash forecasting is the principal tool of cash management. • • • • • • Estimating cash requirement Planning short-term financing Scheduling payments in connection with capital expenditure projects Planning purchase of materials Developing credit policies and Checking the accuracy of long term forecasting
Firms use multiple short-term forecasts of varying length and detail, suited to meet different needs. The commonly used design for short –term cash forecasts are • • One year divided into quarters or monthly. One quarter divided into months and
•
One month divided into weeks.
3. A RECEIPTS AND PAYMENTS METHODS: The cash budget prepared under this method shows the timing and magnitude of expected cash receipts and payments over the forecast period. It includes all expected receipts and payments irrespective of how they are classified in accounting. 3. B LONG –TERM CASH FORECASTING: Long-term cash forecasting are generally prepared for a period ranging from two to five years and serve to provide a broad brush picture of a firm’s financing needs and availability of invertible surplus in future. Such forecasts are helpful in planning capital investment methods outlays and long-term financing 3. C REPORTS FOR CONTROL: Cash reports, providing a comparison of actual developments with forecast figures, are helpful in controlling and revising cash forecasts on a continual basis. Several types of cash reports may be prepared the important ones are. DAILY CASH REPORT: The daily cash report shows the opening balance, receipts, payments and the closing balance on a daily basis. DAILY TREASURY REPORT: An amplification of the daily cash report, the daily treasury report provides a comprehensive picture of changes in cash, marketable securities, debtors and creditors.
MONTHLY CASH REPORT: This report shows the actual cash receipts and payments on a monthly basis. The actual are compared with the budgeted figures and variances calculated.
3. D CASH COLLECTION AND DISBURSEMENT: The cash balance shown by a firm on its books is called the book, or ledger, balance whereas the balance shown in its bank account is called the available, or collected, balance. The difference between the available balance and the ledger balance is referred to as the float. There are two kinds of float disbursement float and collection float, cheque issued by a firm create disbursement float. The net float is the sum of disbursement float and collection float. It is simply the difference between the firm’s available balance and its book balance. If the net float is positive (negative) it means that the available balance is greater (lesser) than the book balance.
2.7 BANK ORGANISATION Prior to the project, the billing process was distributed across different product processors like (those handling cross border transfer, non resident yen related, mass payments, through post
office etc). Wipro’s solution aims to implement a centralized billing system that maximizes automation. The transaction details would be pushed from the product processors to the billing system as an end of day offline process, which will then calculate the charges based on the transaction type and generate accounting entries. At the end of the billing cycle, customer invoices would be generated by the system and the customer account debits will take place in the bank host. Customer information and charge information (fixed, transaction and event based) are maintained in the billing system. For transactions that require immediate charge calculation, the billing system's pricing engine would provide the charges in real time.
2.8 CASH MANAGEMENT SYSTEM FOR A NATIONALIZED BANK MC De COM proposed a solution to facilitate information flow between various entities of the Cash Management system. This system enabled a complete Electronic Messaging Solution for their Branch Offices across the country. This project facilitated the Bank to exchange information between its CCC (Cheque Collection Centre), FCC (Fund Collection Centre) and FMC (Fund Management Centre) seamlessly without any delay. The Bank has its Corporate Office in Bangalore and International transaction center at Mumbai. The realization of cheque or any cash transactions required a couple of days. This delay leads to a situation where the Bank was not in a position to get at its head office the transaction happened at each of its branches or extension counters at. The head office and the International transaction office faced numerous problems in terms of managing the cash at various locations. The customers also could not really track the transaction especially if they are more than one transaction at different places. The Bank thought of an ambitious program of offering Cash Management Services to its customers across the country The Customer deposit their cheque at various Cheque Collection Center’s (CCC) across
the country and this information is processed and consolidated at the Fund Management Centre (FMC) located at Mumbai. The FMC will further communicate the processed information to various Fund Collection Centre (FCC). The Customers can contact directly the Fund Collection Centre (FCC) to obtain updated information about their funds position as required
CHAPTER-III
OBJECTIVE OF THE STUDY
• • • •
To determine the overall performance of cash in the concern. To know the credit worthiness of the concern.
To assess the liquidity and short term solvency position of the firm. To understand the relationship maintained with the trade creditors and the debtors of the firm. To identify the basic forces influencing the cash management of the firm.
•
CHAPTER-IV
RESEARCH METHODOLOGY
4.1 RESEARCH DESIGN: The research approach used for the study is descriptive. The form of the study is on the financial statement analysis in general and specific to the cash position. 4.2 DATA COLLECTION PRIMARY DATA: The primary data is collected from the personnel interview. SECONDARY DATA: The study has been made using secondary data, which are obtained from annual reports and statements of accounts. The study is period for the annual reports and statements of accounts extended form the year 2001-02 to 2005-06. 4.3 ANALYTICAL TOOLS FOR THE STUDY: The researcher for the purpose of analysis and interpretation of the following tools have been need • • • CASH FLOW STATEMENT RATIO ANALYSIS CASH BUDGETING
4.4 PERIOD OF STUDY: The study includes 5 years (2001-02 to 2005-06) financial rates of the firms. The study was conducted for 1 month’s period.
CHAPTER-V DATA ANALYSIS &INTERPRETATION
5.1 CASH FLOW STATEMENT: A cash flow statement is used in conjunction with the other financial statements, provides information that enables users to evaluate the change in net assets of an enterprise, its financial structure (including its liquidity and solvency), and its ability to affect the amounts and timing of cash flow in order to adapt to changing circumstance and opportunities. Cash flow information is useful in assessing the ability of the enterprises to generate cash and cash-equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different enterprises. It also enhances the comparability of the reporting of operating performance by different because it eliminates the effects of using different accounting treatments for the same transactions and events.
CASH FLOW STATEMENT (2001-02) TABLE NO: 5.1
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Central Excise Secured Loan CASHFROMOPERATION Net Profit ADD: Increase in Sundry Creditors Increase in Other Liabilities Less Increase in Inventories Increase in Sundry Debtors TOTALCASHAVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Income Tax CLOSING BALANCE Cash in Hand TOTALAPPLICATION AVAILABLE
31-03-2001
31-03-2002 61738
2151 3363880 247341 3363458 300217 7310787 2154425 16742259 744630 162581 77494
779 3406134 206964 3747384 300466 7466168 2473039 17600934 749327 194320 84556 40377 383926 249 155381 318614
1372 42254
-49443 55921 4697 31739 7062 12423
984705
1028203
55921
CASH FLOW STATEMENT (2002-03) TABLE NO-5.2
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Income Tax Sale of Fixed Assets CASH FROM OPERATION Net Profit ADD Increase Liabilities
31-03-2002
31-03-2003
12423
194320 726292
206000 749327
2650 23035
247341 in Other 300466
261547 379275 5698609 2470569 2651776 12417103
14206 78809 176755 9 127681 5 178737 405022 443130
Decrease in Inventories 7466168 LESS Decrease in Sundry Creditors 3747384 Increase in Sundry Debtors 2473039
TOTAL CASH AVAILABLE 15155010 APPLICATION OF CASH Loans & Advance Secured Loan Unsecured Loan Central Excise CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE 4856233 194320 3406134 1255000 779
206000 3135484 1105000 5313
11680 270650 150000 4534
6266 4451797 443130
CASH FLOW STATEMENT (2003-04) TABLE NO: 5.3
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Central Excise CASH FROM OPERATION Net Profit ADD Increase Creditors
31-03-2003
31-03-2004
6266
5313
2596
2717
261547 in Sundry 2470569 379275
267548 3553092 530420 4378883 4542399 13274938
5999 1082523 151145 1319726 1890623 668770 677753
Increase in Other Liabilities
Decrease in Inventories 5698609 LESS Increase in Sundry Debtors 2651776 TOTAL CASH AVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Secured Loan Unsecured Loan Income Tax CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE 5254682 726292 206000 3135484 1105000 81906 11467089
991175 332424 3088824 900000 107401
264883 126424 46660 205000 25495
9291 5419824 677753
CASH FLOW STATEMENT (2004-05) TABLE NO-5.4
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Sale of Fixed Assets Unsecured Loan CASH FROM OPERATION Net Profit ADD Increase in Other Liabilities Decrease in Sundry Debtors Decrease in Inventories LESS Decrease in Sundry Creditors TOTAL CASH AVAILABLE APPLICATION OF CASH Loan & Advance Unsecured Loan Central Excise Income Tax CLOSING BALANCE
31-03-2004
31-03-2005
9291
991175 900000
792972 1200000
198203 300000
267546 530420 4542399 4378883 3553092 15163515
309347 531981 3652395 3950640 3258702 13696037
41801 1561 890004 428243 294390 1067219 1574713
332424 3088824 2596 107401
377608 15892601 24695 108612
45184 1499564 22099 1211
Cash in Hand TOTAL APPLICATION AVAILABLE 3531245
6655 16403516 1574713
CASH FLOW STATEMENT (2005-06) TABLE NO-5.5
PARTICULARS 31-03-2005 31-03-2006
OPENING BALANCES Cash in Hand SOURCE OF CASH Central Excise Secured Loan CASH FROM OPERATION Net Profit ADD Increase in Other Liabilities Decrease in Sundry Debtors LESS Decrease in Sundry Creditors Increase in Inventories TOTAL CASH AVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Secured Loan Income Tax CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE 20437 2442281 3080000 658156 792972 377608 1163089 108612 944278 432320 1589260 114142 151306 54712 426171 5530 309347 531981 3652395 3258702 3950640 13317020 413155 735107 3596559 3250590 4018625 13186992 10380 8 20312 6 55836 8112 67985 286673 658156 24695 1589260 9867 1163089 14828 350000 6655
CASH FLOW STATEMENT TABLE NO-5.6 PARTICULARS OPENING BALANCES 2001-02 2002-03 2003-04 2004-05 2005-06
Cash in Hand SOURCE OF CASH Central Excise Secured Loan Income Tax Sale of Fixed Assets Unsecured Loan CASH FROM OPERATION NET PROFIT ADD Increase in Sundry Creditors Increase in Other Liabilities Decrease in Inventories Decrease in Sundry Debtors LESS Increase in Inventories Increase in Sundry Debtors Decrease in Sundry Creditors TOTAL CASH AVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Secured Loan Unsecured Loan Central Excise Income Tax CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE INTERPRETATION: •
0.61 0.013 0.422
0.124
0.06 0.02
0.09
0.06 0.14
0.02 0.23
1.98 3
3.5
0.4 3.84 0.002 3.18
0.14 0.78 17.67
0.05 10.82 1.51 14
0.42
1.04
0.015 4.28 8.9
2.03 0.56 0.68 0.08 6.57 1.51 0.54 4.26
1.78 12.76 0.55 0.046 0.31 4.42
18.9 2.94 6.76 2.65 1.26 0.46 2.05 0.25 15.7
0.11 2.7 1.5 0.04
0.45 15 0.22 0.012 0.22 15.7
0.07 0.12 0.55 0.06 4.42
0.055 0.2 6.57
0.09 6.76
The above table explains that the beginning of the (2001-02) opening balance is in0.61 but in the other year it reduced gradually. So the concern should take necessary step to overcome the default.
•
The concern is purchase the fixed assets in the year 2001-02,2003-04,2005-06 at 0.046,2.65 and 1.51. The concern purchase high asset in the year 2003-04 at 2.65 it clearly determine the outflow of cash in the concern.
•
The borrowing of concerns high in the year 2003-04 at 1.26 it indicates that the concern uses more loan. The concern should reduce to borrow the money from the various resources. It leads to take more advantage to the borrowers.
•
The closing balance is not high than the opening balance .it indicates that the cash is not properly managed in the concern.
5.2 CASH BUDGETING: A firm is well advised to hold adequate cash balance but should avoid excessive balances. The firm has, therefore, to assess its need for cash properly. The cash budget is probably the most important tool in cash management. It is device to help a firm to plan and control the use of cash. It is a statement showing the estimated cash inflows and cash
outflows over the planning horizon. In the other words, the net cash position of a firm as it moves from one budgeting sub period to another is highlighted by the cash budget
CASH BUDGET TABLE NO – 5.7
PARTICULARS a OPENING BALANCE b Receipts c Payments
2001-02 CASH 61738 16315437 16093407 222030 222030
2002-03 12423 1806471 0 1789247 8 172232 394262 406685 100000
2003-04 6266 1992924 4 1966463 1 264613 658875 665141 100000
2004-05 9291 2052023 2 2025314 9 267083 925958 935249 100000
2005-06 6655 23938082 23608102 329980 1255938 1262593 100000
d NET CASH FLOW (b-c) e Cumulative Net Cash Flow
f (a+e) 283768 g Minimum Cash Balance Requirement 100000 SURPLUS RELATION TO THE MINIMUM CASHBALANCE REQUIREMENT(F-G) 183768
306685
565141
835249
1162593
CHART NO –5.1
12 10 8 6 4 2 0 20 20 20 20 20 01- 02- 03- 04- 0502 03 04 05 06 cash required
INTERPRETATION: In the above table it clearly determines the availability of the cash balance in the subsequent year. It will clearly determine the minimum cash balance requirement of the concern. In the 2005-06 leads to higher need of cash balance 11.62 lakhs. The cash balance is highly required for the day- to day transaction.
5.3 RATIO ANALYSIS: An analysis of financial statements based on ratios is known as ratio analysis. Ratio analysis involves the process of computing determining and resenting the relationship of items or
group of items of financial statements. Ratio analysis is a widely – used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items.
5.3.1 NET WORKING CAPITAL: Net working capital represents the excess of current assets over current liabilities. The term current assets refers to assets which in the normal course of business get
converted into cash without dimunition in value over a short period ,usually not exceeding one year or length of operation cycle whichever is more. The greater is the amount of net working capital, the greater is the liquidity of the firm, accordingly net working capital is a measure of liquidity, and inadequate working capital is the first sign of financial problem for a firm. FORMULA: NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES. NET WORKING CAPITAL TABLE NO-5.8
PARTICULARS CURENT ASSETS CURRENT LIABILITIES NET WORKING CAPITAL
2001-02 99.51 40.47 59.03
2002-03 83.56 28.49 55.06
2003-04 89.30 40.83 48.47
2004-05 76.09 37.90 38.19
2005-06 76.35 39.85 36.49
Chart no.5.2
100 90 80 70 60 50 40 30 20 10 0 200102 20022003 200304 200405 200506
Current assets Current liabilities Net Working capital
Interpretation: This ratio indicates there is lower amount required in the working capital. The higher amount is in the year 2001-02 at 59.03. It will clearly determine the firm is in liquidly position but this is reducing gradually. The financial manager should concentrated more on the working capital as it is not satisfactory.
5.3.2 CURRENT RATIO: The current ratio is the ratio of total current assets to total current liabilities. It’s calculated by divided current assets by current liabilities.
The current assets of a firm, as already stated, represent that asset which can be, in the ordinary course of business, converted into cash within a short period of time normally not exceeding one year.
FORMULA: CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES
CURRENT RATIO TABLE NO-5.9
PARTICULARS CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO
2001-02 99.51 40.47 2.45
2002-03 83.56 28.49 2.93
2003-04 89.30 40.83 2.18
2004-05 76.09 37.90 2.00
2005-06 76.35 39.85 1.9
Chart no.5.3
100 90 80 70 60 50 40 30 20 10 0 200102 20022003 200304 200405 200506
Current assets Current liabilities Current ratio
Interpretation: The company is highly efficient is short – term solvency position. The company should maintain this current ratio. The concern should concentrate on 2005-06 year current ratio position.
5.3.3 QUICK TEST RATIO: The quick test ratio is the ratio between quick current ratio and current liabilities and is calculated by dividing the quick assets by the current liabilities.
The term quick assets refers to current assets which can be converted into cash immediately or at a short notice without diminution of value.
FORMULA: QUICK TEST RATIO = QUICK ASSETS QUICK LIABILITIES
QUICK TEST RATIO TABLE NO-5.10
PARTICULARS QUICK ASSETS QUICK LIABILTIES ACID TEST RATIO 2001-02 24.85 40.47 0.61 2002-03 26.58 29.00 0.93 2003-04 45.51 40.83 1.11 2004-05 36.59 37.90 0.96 0.90 2005-06 36.16 39.85
Chart no.5.4
50 45 40 35 30 25 20 15 10 5 0
Quick assets Quick liabilities Acid test ratio
2001- 2002- 2003- 2004- 200502 2003 04 05 06
Interpretation: The liquidity position is not near to the standard ratio. The concern should clearly determine the various liquidity position of the concern.
5.3.4 INVENTORY TURNOVER RATIO: It is computed by divided the cost of good sold by the average inventory thus, the cost of good sold means sales minus gross profit. The average inventory refers to the
simple average of the opening and closing inventory. The ratio indicated how fast inventory is sold.
FORMULA: INVENTORY TURNOVER RATIO= COST OF GOOD SOLD AVERAGE INVENTORY
INVENTORY TURNOVER RATIO TABLE NO-5.11
PARTICULARS INVENTORY TURNOVER RATIO COST OF GOOD SOLD AVERAGE INVENTORY 2001-02 1.16 86.04 74.00 2002-03 1.59 105.07 65.82 2003-04 2.36 118.9 50.38 2004-05 2.81 117.05 41.65 2005-06 3.37 134.1 39.84
Chart no.5.5
140 120 100 80 60 40 20 0 2001- 2002- 2003- 2004- 200502 2003 04 05 06 Interpretation: The inventory turnover is increasing gradually to the period of the year. It will clearly determine the capacity of the concern Inventory TurnOver ratio Cost of good sold Average Inventory
5.3.5 DEBTOR’S TURNOVER RATIO:
It is determine by dividing the net credit sales by average debtors outstanding during the year. Thus, net credit sales consist of gross credit sales minus returns, if any, from customer’s average debtors is the simple average of debtors (including bills receivables) at the beginning and at the end of the year.
FORMULA: DEBTOR’S TURNOVER RATIO= NET CREDIT SALES AVERAGE DEBTORS
DEBTOR’S TURNOVER RATION: TABLE NO-5.12
PARTICULARS CREDIT SALES AVERAGE DEBTORS DEBTORS TURNOVER RATIO 2001-02 159.8 23.13 6.90 2002-03 157.8 25.62 6.16 2003-04 155.8 35.97 4.33 2004-05 172.62 40.97 4.21 2005-06 206.45 36.24 5.69
Chart no.5.6
250 200 150 100 50 0 2001- 200202 2003 2003- 200404 05 200506 Credit sales Average debtors Debtors turn over ratio
Interpretation: The debtor’s turnover ratio is not in the concert way in the concern. The higher ratio is in the year 2001-02 is 6.90. The past performance is clearly determining the various formation of the concern.
5.3.6 CREDITOR’S TURNOVER RATIO:
It is a ratio between net credit purchase and the average amount of creditors outstanding during the year. A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that account are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit. FORMULA: CREDITOR’S TURNOVER RATIO= NET CREDIT PURCHASES AVERAGE CREDITOR’S
CREDITOR’S TURNOVER RATIO TABLE NO-5.13
PARTICULARS CREDIT PURCHASE AVERAGES CREDITORS CREDITORS TURNOVER RATIO 2001-02 86.0 35.55 2.42 2002-03 105.07 31.08 3.38 2003-04 118.91 30.11 3.94 2004-05 117.05 34.05 3.43 2005-06 134.16 32.54 4.12
Chart no.5.7
140 120 100 80 60 40 20 0 2001- 2002- 2003- 2004- 200502 2003 04 05 06 Credit purchase Average creditors Creditors Turnover ratio
Interpretation: The creditor’s availability of the concern keeps on decrease in the year. It will clearly determine in the year 2001-02 2.42.
CHAPTER-VI FINDINGS AND SUGGESTION OF THE STUDY
6.1 FINDINGS OF THE STUDY
1. The net working capital of the organization is not satisfactory. 2. The current ratio for the four year it is as per the standard norms (2:1) concept for the year 2005-06 which is 1.9:1. On an average current ratio is formed to be satisfactory. 3. Quick ratio of the company is not satisfactory as it is not up to the standard norms (1:1). 4. Inventory turnover ratio is found to be not satisfactory as it is maintain low inventory. 5. Debtor turnover ratio is decline indicates it is not satisfactory. 6. Creditor’s turnover ratio showing increasing ratio indicates that the company is enjoying. Its credit facilities to the possible amount. 7. In the year 2005-06 is leads to higher requirement of cash balance 11.62 lakhs. 8. Cash reflects the liquidity position of the concern is reduced in the year 2005-06 0.06 lakhs decreasing cash position indicated that the company is not managing its cash position satisfactorily.
6.2 SUGGESTION & RECOMMENDATION: The various suggestions are followed after analyzing the main finding of this study.
•
The cash management of the company is failed to strengthen the cash position so the company so required to table steps to improve the cash position by concentrating on receivables, inventories avoiding to much on borrowings.
•
The company failed to manage the receivable in the normal level because of poor performance of the collection procedure and inefficient performance related with managing the receivables.
•
The inventories play a major role in production. So, the concern should take measure to maintain the inventories that are required to in order reduce the e cost, and keep the production flow continuously.
• •
In 2005-06 the net profit is increased compare to the other four year. So the concern should maintain the same position to improve the net profit. The cash and bank balance indicate high liquidity position of a company, The Flavors India (p) Ltd maintain cash including bank balance is at a optimum level and it is enough to meet day to day requirement.
CHAPTER-VII
CONCLUSION
Analysis and Interpretation of the financial data of The Flavors India (p) ltd, ascertain the cash position of the firm. The results explores that the firm is unable toe meet its short term obligations. The concern should reduced the long term loan and obtain the profit. The concern should take various measures to increase the net profit.
CHAPTER-VIII LIMITATION & SCOPE OF THE STUDY
8.1 LIMITATION OF THE STUDY: • • These studies only concentrated the quantitative method. The study is restricted only to The Flavors India (P) Ltd. being a case study the findings cannot be generalized.
8.2 SCOPE OF THE FURTHER STUDY: • It helps to take short term financial decision.
• • •
It indicates the cash requirement needed for plant and equipment expansion programme. It reveals the liquidity position of the firm by highlighting the various sources of cash and its uses. To find strategies for efficient management of cash.
SUMMER PROJECT REPORT
Submitted by
J.SAKTHIPRIYA REGISTER NO: 27348335
Under the Guidance of
MRS.R.HEMALATHA M.B.A.
Faculty, Department Of Management Studies In partial fulfilment for the award of the degree Of
MASTER OF BUSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT STUDIES SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE PONDICHERRY UNIVERSITY PUDUCHERRY, INDIA SEPTEMBER – 2007
SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE PONDICHERRY UNIVERSITY DEPARTMENT OF MANAGEMENT STUDIES
BONAFIDE CERTIFICATE
This to certify that the project work entitle “A STUDY ON CASH
MANAGEMENT ON THE FLAVORS INDIA (P) LTD” is a bonafide work
done by J.SAKTHIPRIYA [REGISTER NO: 27348335] in partial fulfilment of the requirement for the award of Master Of Business Administration by Pondicherry University during the academic year 2007-2008.
GUIDE
HEAD OF THE DEPARTMENT
Submitted for the viva – voice Examination held on EXTERNAL EXAMINER
1 2
TABLE OF CONTENTS
CHAPTER
TITLE
PAGE NO
ACKNOWLEDGEMENT ABSTRACT LIST OF TABLE LIST OF CHART INTRODUCTION 1.1 Introduction of the Study 1.2 Profile of the Company REVIEW OF LITERATURE OBJECTIVE OF THE STUDY RESEARCH METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS OF THE STUDY SUGGESTION & RECOMMENDATION
I II III IV V
1 8 29 30 31
VI
54
VII
CONCLUSION
56
VIII
LIMITATION & SCOPE OF THE STUDY ANNEXURE BIBLOGRAPHIC
57
ACKNOWLEDGEMENT
I whole heatedly thank my respected chairman Mr. N. KESAVAN, vice chairman Mr. SUGUMARAN, and beloved M.D Mr. DHANASEKARAN who helped us in all our endeavors and for his blessings on us to make this project a successful one. I would like to express my profound gratitude to all those who have been instrumental on the preparation of the project report I wish to place on deep sense of gratitude to our principal Mr. V.S.K. VENKATACHALAPATHY the keen interest and affection towards as through out the course. I convey my sincere thanks to prof. Mr. S. JAYAKUMAR HOD, Department Of Management Studies for his interest towards us throughout the course. I am sincere thanks to my internal guide MRS. R. HEMALATHA M.B.A. Department Of Management Studies for her valuable guidance and inspiration extended all along the project. I am grateful to my company guide Mr. MURUGAVEL, Accounting Incharge for his valuable guidance and inspiration extended all along the project. I also wish my sincere thank to all the teacher and non-teaching staff of department of MBA, Sri Manakula Vinayagar Engineering College, without whose cooperation this project would not be a success. Lastly, I wish to thank my parents and friends who supported and helped me in completion of this project.
ABSTRACT
The project is titled as “A STUDY ON CASH MANAGEMENT ON THE FLAVORS INDIA (P) LTD”, the aim is to analyses cash position of the company by using the financial tool and techniques. These project is mainly concentrated on cash management is an important factor and it is one of the component of working capital cash can be regarded as a life blood of corporate. Cash either a hand or at bank is the most liquidity of all current assets. The cash and bank balance indicates high liquidity position of a company.
LIST OF TABLE
TABLE NO
2.1 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.1 5.11 5.12 5.13
LIST OF TABLE
CASH FLOW STATEMENT CASH FLOW STATEMENT(2001-02) CASH FLOW STATEMENT(2002-03) CASH FLOW STATEMENT (2003-04) CASH FLOW STATEMENT (2004-05) CASH FLOW STATEMENT (2005-06) CASH FLOW STATEMENT CASH BUDGET NET WORKING RATIO CURRENT RATIO QUICK TEST RATIO INVENTORY TURNOVER RATIO DEBTORS TURNOVER RATIO CREDITORS TURNOVER RATIO
PAGE NO
16 32 33 34 35 36 37 39 42 44 46 48 50 52
LIST OF CHART
TABLE NO
LIST OF TABLE
PAGE NO
5.1
CASH BUDGET
40
5.2
NET WORKING RATIO
43
5.3
CURRENT RATIO
45
5.4
QUICK TEST RATIO
47
5.5
INVENTORY TURNOVER RATIO
49
5.7
DEBTORS TURNOVER RATIO
51
5.8
CREDITORS TURNOVER RATIO
53
BIBLIOGRAPHY
Khan M.Y and P.K. Jani Financial Management, New Delhi, Tata Mc Graw Hill, 1992. Dr.S.N. Maheshwari, Principles of Management Accounting. Prasanna Chandra, Financial Management Theory and Practice
Websites:
www.flavorindia.com.
CHAPTER - I
INTRODUCTION
1.1 INTRODUCTION FOR THE STUDY:
This study aims in knowing the functions of the financial department of The Flavors India (p) ltd. • • • To know about the general functioning of the company.
To study the practical work and collect information from the concern. To compare the theoretical knowledge gained with practice in real life commercial situation. To analysis the balance sheet and profit & loss account of the year. To know the financial position of the company.
• •
1.2 PROFILE OF THE COMPANY
The Flavors India (p) Ltd is a well established and systematically organized company engaged in the manufacture of food flavours, food colours and caramel. The genesis of flavors India dates back to 1975 after an in-depth and intensive market survey to cater to the needs of high demand areas The promoter late shri R.Bramanandam and his team had the business acumen, professional background obtained after serving a long stint in flavors industry, sound business ethics, skills and had brought this to bear in the discipline and systems required to maintain and sustain quality in such a mass production. The Flavors India (p) Ltd operates from puducherry (India) previously a French colony and now the union territory capital, about 120kms from Chennai airport, south India. Garnering and utilizing the skilled low-cost manpower strength that puducherry offer, flavors India has staff strength of 100 personnel headed by the board of directors, who control the different divisions of the organization. 1.2.1Quality: For the Flavors India with 30 years of standing, quality is the day to success. Our plant has fully equipped quality control laboratories where the raw materials, in process and finished products are rigorously tested for their quality standards. Our qualified manufacturing and technical personnel deal with material handling, shop floor and production activities. We maintain stringent quality control measure and hygienic condition as per the specification of Bureau of India Standards. The research and development wing devotes its fulltime towards better product development, cost .effective methods and new products. The Flavors India (p) Ltd is an ISO 9001_2000 certified company ensuring the quality systems practiced .with a commitment towards safe
environment we have development an efficient Effluent Treatment Plant fulfilling the pollution control Board needs. 1.2.2 CUSTOMER BASE: Our motto being “customer is our Boss” a good amount of time and skill is put in and translated into action by formulating new products as demands by the customers. Our products command its reputation in the market for the past 3decades and more in leading food processing companies throughout the country and overseas. Our customer service is always prompt and sure as the” sun –rises and sun set” 1.2.3 AWARDS: The Flavors India (p) Ltd believes in the concepts of “the company as a family “and “working together towards the future” with various welfare programmes for the employees. It was a moment of pride when government of puducherry bestowed on us thrice the Good Industries Relations Award for the consecutive years 2001, 2002and 2003. We promise to march towards the future with the same zeal and motive.
1.2.4 OUR PRODUCTS
TOP SOFT DRINK CONCENTRATES, TOP MIST, TOP LIQUID PRESERVATIVE, TOP CONCENTRATED OILS, TOP FOOD COLOURS WITH ISI MARK, TOP FLAVORS, TOP DRY MIX POWDER FLAVORS, TOP LIQUOR FLAVORS, TOP CARAMEL WITH ISI MARK, TOP CULINARY FLAVORS, TOP FLAVORS, TOP DRY MIX POWDER FLAVORS, TOP ENCAPSULATED FLAVORS, TOP FLAVORS, TOP DUST-ON POWDER FLAVORS, TOP FLAVORS.
1.2.5 ORGANISATIONAL CHART
MANAGING DIRECTOR
FACTORY INCHARGE
PRODUCTION DEPARTMENT
QUALITY CONTROL
FINANCE DEPARTMENT
MARKETING DEPARTMENT
INCOME TAX
ACCOUNTS
SENIOR ASSISTANT
JUNIOR ASSISTANT
1.2.6 FINANCE DEPARTMENT:
The accounts department of The Flavors India (p) ltd functions so as to keep as a system record of the daily events of the business. It maintain records of all financial transaction to find out the profit and loss according during the year and to financial status of the company, which helps them to take quick and correct policy decision. 1.2.7 OBJECTIVE OF FINANCE DEPARTMENT: • To determine the financial status of the company balance sheet, profit and loss accounts. • To help the management to analyses the financial standard of the company so that they can take quick correct decision. • To provide useful information to management. • Analysis the cash flow of the company it will useful for new ventures. 1.2.8 SYSTEM OF ACCOUNTING: All the transaction in the company is enter into to the system. There is more lapse of time in the company to do the other work. The daily transaction of the company is registered under the computer. The invoice, Quotation etc are sending through the system. 1.2.9 FUNCTING FINANCE DEPARTMENT OF THE FIRM The work performed by the account department has follows. 1. Preparation of cash and bank vouchers ( both debtors and creditors) 2. Maintaining cash and bank book. 3. Bank reconciliation statement. 4. Preparing purchasing journal, salaries, wages etc. 5. Preparing debtors and creditors notes. 6. Posting journal to journal books. 7. Maintaining general ledger accounts. 8. Maintaining subsidiary books.
9. Preparing trial balance, profit and loss account and balance sheet. 10. Filling of return of income tax both company and employers to income tax departments
.
CHAPTER-II
REVIEW OF LITERATURE
2.1 CASH MANAGEMENT: Cash management is one of the key areas of working capital management. A part from the fact that it is the most liquid current assets, cash is the common denomination to which all current assets can be reduced because the other major liquid assets that are receivables and inventory get eventually converted into cash. 2.2 MOTICES FOR HOLDING CASH: The term cash with reference to cash management is used in the two senses. 2.2.1 NARROW SENSES: To cover currency and generally accepted equivalents of cash, such as cheque, drafts and demand deposits in bank. 2.2.2 BROAD SENSES: It includes near –cash, assets such as marketable securities and time deposits in bank. There are four primary motives for maintaining cash balances. • • • • Transaction motives. Precautionary motives. Speculative motives. Compensating motives.
A, TRANSACTION MOTIVES: An important reason for maintain cash balance is the transaction motive. This refers to the holding of cash to meet routine cash requirements to finance the transactions which a firm carries on the ordinary course of business.
B, PRECAUTIONARY MOTIVES:
It will clearly determine the cash inflows and outflows in the ordinary course of business, a firm may have to pay cash for purposes which cannot be predicted or anticipated. C, SEPCULATIVE MOTIVE: It refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business. D, COMPENSATIVE MOTIVE: Bank provides a variety of service of business firms, such as clearance of cheque, of credit information, transfer of funds. 2.3 OBJECTIVE OF CASH MANAGEMENT: The basic objective of cash management is two-fold. • • To meet the cash disbursement needs (payment schedule) and. To minimize funds committed to cash balance. Firms have to make payments of cash on a continuous and regular basis to suppliers of goods, employees. At the same time, there is a constant inflow of cash through collections from debtors. Minimizing funds committed to cash balance: In minimizing the cash balance 2.4 FACTORS DETERMING CASH MEEDS: The factors that determine the required cash balance are. A SYNCHRONIZATION OF CASH FLOWS. The need for maintaining cash balance arises from the non- synchronization of the inflows and outflows of cash. If the receipts and payments pf cash perfectly coincide or balance each other, there would be no need for cash balances. The first consideration in determining the cash need is, therefore, the extent of non – synchronization of cash receipts and disbursements.
Meet payments schedule:
For the purpose, the inflows and outflows have to be forecast over a period of time, depending upon the planning horizon which is typically a one-year period with each of the 12months B, SHORT COST. Another general factor to be considered in determining cash needs is the cost associated with a shortfall in the cash needs. The cash forecast presented in the cash budget would reveal periods of cash shortages. In addition, there, may be some unexpected shortfall. Every shortage of cash whether expected or unexpected- involves a cast depending upon the severity, duration and frequency of the shortfall and how the shortage is covered. TRANSACTION COSTS: Transaction costs are associated with raising cash to tide over the shortage. This is usually the brokerage incurred in relation to the sale of some short-tern near-cash assets such as marketable securities. BORROWING COSTS: Borrowing costs associated with borrowing to cover the shortage. These include items such as interest on loan, commitment charge and other expense relating to the loan. C LOST OF CASH –DISCOUNT: Lost of cash-discount a substantial loss because of a temporary shortage of cash. D, COST ASSOCIATED WITH DETERIORATION OF THE CREDIT RATING: Cost associated with deterioration of the credit rating which is reflected in shortage of cash charges on loans, stoppage of supplies, demands for cash payment, refusal to sell, loss of image and the attendant decline in sales and profits. E, PENALTY RATES: Penalty rates by banks to meet a shortfall in compensating balances. F, EXCESS CASH BALANCE COSTS:
The cost of having excessively large cash balances is known as the excess cash balances cost. If large funds are idle, the implication is that the firm has missed opportunities to invest those funds and has thereby lost interest which it would otherwise have earned. This loss of interest is primarily the excess cost. G, PROCUREMENT AND MANAGEMENT: These are the costs associated with establishing and operating cash management staff and activities. They are generally fixed and are mainly accounted for but salary, shortage, handling of securities and so on. H, UNCERTAINTY AND CASH MANAGEMENT: Finally, the impact of uncertainty on cash management strategy us also relevant as cash flows cannot be predicted with complete accuracy. The first requirement is a precautionary cushion to cope with irregularities in cash flows, unexpected delays in collections and disbursements, defaults and unexpected cash needs. The impact of uncertainty on cash management can, however, is mitigated through. • • Improved forecasting of tax payments, capital expenditure, dividends and so on. Increased ability to borrow through overdraft facility.
2.5 DETERMINE CASH NEED: There are two approaches to derive on optimal cash balances, namely • • Minimizing cost cash model, Cash budget.
2.5.1 CASH MANAGEMENT: The following are the analytical model for cash management • • • Baumol model Miller-orr model Orgler’s model.
A, BAUMOL MODEL: The purpose of this model is to determine the minimizing cost amount of cash that a financial manager can obtain by converting securities to cash. They are two elements • • Conversion cost Opportunity cost
CONVERSION COST: Conversion costs are incurred each time marketable securities are converted into cash.
Total conversion cost per period = Tb\c
Where, b = cost per conversion. T = total transaction cash need for the period. C = value of marketable security sold to each conversion. OPPORTUNITY COST: Opportunity cost is derived from the cost\forfeited interest rate (i) that could have been earned on the investment of cash balance.
I (c\2)
Where, c\2= the average cash balance (i)=interest rate that could have been earned. i(c\2)+(Tb\c) B, MILLER- ORR MODEL: To determine the optimum cash balance level which minimizes the cost of cash management.
C=bE (n)\t+iE (M)
Where, b = the fixed cost per conversion. E (M) = the expected average daily cash balance. E (N) = the expected number of conversion. t = the number of days in the period. (i) = the lost opportunity cost. C = total cash management costs C, ORGLER’S MODEL: According this model, an optimal cash management strategy can be determined through the use of a multiple linear programme model. The construction of the model comprises three sections • • • Selection of the appropriate planning horizon. Selection of the appropriate decision variables and Formulation of the cash management strategy itself.
The advantage of linear programming model is that it enables coordinates of the optimal cash management strategy with the other operations of the firm such as production and with less restriction on working capital balances. The model basically uses one year planning horizon with twelve monthly periods because of its simplicity. It has four basic sets of decisions variables which influence cash management of a firm and which must be incorporated into the linear programming model of the firm. These are • • • • Payment schedules. Short-term financing. Purchase and sale of marketable securities and Cash balance.
The formulation of the model requires the financial managers first specify an objective function and then specify a set of constraints.
Orgler’s objectives function is to minimize the horizon value to the net revenues from the cash budget over the entire planning period; using the assumption that all revenues generated are immediately re-invested and that any cost is immediately financed, the objective function represented the value of the net income from the cash budget at the horizon by adding the net returns over the planning period. Thus, the objective function recognizes each operation of the firm that generated cash inflow or cash outflows as adding pr subtracting profit opportunities for the firm from its cash management operations. In the objective function, decision variables which cause inflows, such as payments on receivables, have positive coefficient.
2.6 TECHNIQUES OR TOOLS OF CASH MANAGEMENT ANALYSIS: The most important techniques of analysis and interpretation of cash management are us follows. • • • CASH FLOW STATEMENT. CASH BUDGETING RATIO ANALYSIS.
1 CASH FLOW STATEMENT: A cash flow statement is used in conjunction with the other financial statements, provides information that enables users to evaluate the change in net assets of an enterprise, its financial structure (including its liquidity and solvency), and its ability to affect the amounts and timing of cash flow in order to adapt to changing circumstance and opportunities. Cash flow information is useful in assessing the ability of the enterprises to generate cash and cashequivalents and enables users to develop models to assess and compare the present value of the future cash flows of different enterprises. It also enhances the comparability of the reporting of operating performance by different because it eliminates the effects of using different accounting treatments for the same transactions and events 1.1 MEANING OF CASH STATEMENT: A cash flow statement is a statement depicting change in cash position from one period to another. A proper planning of the cash resource will enables the management to have cash available whenever needed and put it to some profitable or productive use in case there is surplus cash available. 1.2 UTILITY OF CASH FLOW ANALYSIS: A cash flow statement is useful for short-term planning. A business enterprise needs sufficient cash to meet its various obligations in the near future such as payment for purchase of fixed assets, payment of debts maturing in the near future, expenses of the business etc. a cash flow analysis is an important financial tool for the management. Its chief advantage is as follows. • • • • Helps in efficient cash management. Helps in internal financial management. Discloses the movement of cash. Discloses success or failure of cash.
1.3 LIMITATION OF CASH FLOW STATEMENT: • Cash flow analysis is a useful tool of financial analysis. However, it has its own limitation.
• • •
Cash flow statement cannot be equated with the income statement. The cash balance as disclosed by the cash flow statement may not represent the real liquid position of the business. Cash flow statement cannot replace the income statement or the fund flow statement. CASH FLOW STATEMENT TABLE NO 2.1 PARTICULARS
OPENING BALANCES Cash in Hand xxxxxx Xxxxx xxxx Xxxx Xxxx Xxxxx Xxxx Xxxx
SOURCE OF CASH
Income Tax Sale of Fixed Assets CASH FROM OPERATION Net Profit ADD Increase in Other Liabilities Decrease in Inventories LESS Decrease in Sundry Creditors Increase in Sundry Debtors
TOTAL CASH AVAILABLE APPLICATION OF CASH
Loans & Advance Secured Loan Unsecured Loan Central Excise
Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxx
CLOSING BALANCE
Cash in Hand
TOTAL APPLICATION AVAILABLE
2 RATIO ANALYSES: An analysis of financial statements based on ratios is known as ratio analysis. Ratio analysis involves the process of computing determining and resenting the relationship of items or group of items of financial statements. Ratio analysis is a widely – used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes. It is
defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items. 2.1 ADVANTAGE OF RATIO ANALYSIS: The advantages of ratio analysis are as follows. 1. Forecasting. 2. Managerial control. 3. Facilitates communications. 4. Measuring efficiency. 5. Facilitating investment decisions 6. Useful in measuring financial solvency. 7. Inter firm comparisons 2.2 STEPS IN RATIO ANALYSIS: • • • Selection of relevant information. Comparison of calculated ratios. Interpretation and reporting.
2.3 LIMITATION OF RATIO ANALYSIS: • • • • • The analyst should have a through knowledge and experience about the firm and industry. Ratios are not an end in themselves but they are means to achieve a particular purpose or end. Ratios are interred- related and therefore a single ratio cannot convey meaning. It has to be interpreted with reference to other related to draw meaningful conclusions. Ratio will be meaningful if they can be compared with standards or norms. Ratio analysis will be fruitful only if the conclusions are conveyed quickly to the management.
• •
Ratio analysis becomes redundant during periods of heavy price Fluctuations.
2.4 NET WORKING CAPITAL: MEANING: This ratio establishes the relationship between cost of sales and working capital. SIGNIFICANCE: Working capital measures the effective utilization of working capital. It also measures the smooth running of business. Net working capital represents the excess of current assets over current liabilities. The term current assets refers to assets which in the normal course of business get converted into cash without dimunition in value over a short period ,usually not exceeding one year or length of operation cycle whichever is more. The greater is the amount of net working capital, the greater is the liquidity of the firm, accordingly net working capital is a measure of liquidity, and inadequate working capital is the first sign of financial problem for a firm. COMPONENTS: The components of working capital ratio are current assets and current liabilities. FORMULA: This ratio is calculated with the help of the following formula.
Net Work capital = current assets - Current liabilities
2.5 CURRENT RATIO: MEANINGS: This ratio expresses the relationship between current assets and current liabilities.
SIGNIFICANCE: The liquidity position of any company is easily measured with the help of current ratio. The current ratio is the ratio of total current assets to total current liabilities. It’s calculated by divided current assets by current liabilities. The current assets of a firm, as already stated, represent that asset which can be, in the ordinary course of business, converted into cash within a short period of time normally not exceeding one year. COMPONENTS: The components of currents assets of the firm are cash at bank, deposits, sundry debtors and closing stock. The components of current liabilities are sundry creditors and provision for Income Tax. FORMULA:
Current ratio
=
Current assets
Current Liabilities
2.6 DEBTORS’ TURNOVER RATIO: MEANINGS: This ratio determines the debtors constitute of current assets and therefore the quality of debtors to great extent determines a firm’s liquidity.
SIGNIFICANCE: This ratio helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales. It is determine by dividing the net credit sales by average debtors outstanding during the year. Thus, net credit sales consist of gross credit sales minus returns, if
any, from customer’s average debtors is the simple average of debtors (including bills receivables) at the beginning and at the end of the year COMPONENTS: The components of Debtors Turnover Ratio are the Credit Sales and the Average Accounts Receivable. FORMULA:
Debtors’ turnover ratio =
Credit sales Average Accounts Receivables
2.7 STOCK TURNOVER RATIO: MEANINGS: This ratio indicates whether investment in inventory is efficiently used or not. It therefore, explains whether investments in inventories is within proper limits B SIGNIFICANCE: The ratio is measure to discover the possible trouble in the form of overstocking or overvaluation. The stock position is known as the graveyard of the balance sheet It is computed by divided the cost of good sold by the average inventory thus, the cost of good sold means sales minus gross profit. The average inventory refers to the simple average of the opening and closing inventory. The ratio indicated how fast inventory is sold.
COMPONENTS: The component of Stock Turnover Ratio is determined by the Cost of Goods Sold during the Year and the Average Inventory.
FORMULA:
Stock Turnover Ratio = Cost of Goods Sold During the Year Average Inventory
2.8 LIQUID RATIO: MEANING: The ratio expresses the relationship between liquid assets and current liabilities of the firm. It is otherwise known as absolute liquid ratio or quick ratio. SIGNIFICANCE: It is a measure of judging the immediate ability of the firm to pay – off its current obligations. The quick test ratio is the ratio between quick current ratio and current liabilities and is calculated by dividing the quick assets by the current liabilities. The term quick assets refers to current assets which can be converted into cash immediately or at a short notice without diminution of value COMPONENTS: All the components of current assets are included except stock and prepaid expenses and the various components of currents liabilities are same as the items included in current ratio.
FORMULA: Liquid ratio can be calculated as follows.
Liquid Ratio =
Liquid assets Current Liabilities
Liquid assets - (Stock + Prepaid Expenses) 2.9 CREDITOR’S TURNOVER RATIO: It indicates the speed with which the payment for credit purchase are made to the creditors A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that accounts are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit. The extent to which trade creditors are willing to wait for payment can be approximated by the creditor’s turnover ratio. It is a ratio between net credit purchase and the average amount of creditors outstanding during the year. A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that account are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit.
Creditors turnover ratio =
credit purchase Average account payable.
3 CASH BUDGETING: A firm is well advised to hold adequate cash balance but should avoid excessive balances. The firm has, therefore, to assess its need for cash properly. The cash budget is probably the most important tool in cash management. It is device to help a firm to plan and
control the use of cash. It is a statement showing the estimated cash inflows and cash outflows over the planning horizon. In the other words, the net cash position of a firm as it moves from one budgeting sub period to another is highlighted by the cash budget. The various purposes of cash budgets are • • • To coordinates the timings of cash needs. It identifies the periods when there might either be as shortage of cash or an abnormally large cash requirement. It pinpoints the periods when there is likely to be excess cash. It enables a firm which has sufficient cash to take advantage of cash discounts on its accounts payable, to pay help obligation when due, to formulate dividend policy, to plan financing of capital expansion and to help unify the production schedule during the year so that the firm can smooth out costly seasonal fluctuations. • It helps to arrange needs funds on the most favorable terms and percents the accumulation for excess funds. With adequate time to study his needs, the finance manage can select the best alternative avenues of financing, the management would be forced to accept the best terms offered in a difficult situation. These terms will not be as favorable, since the lack of planning indicates to the lender, that there is an organizational deficiency. The firm, therefore, represents a high risk. Cash budgeting or short-term cash forecasting is the principal tool of cash management. • • • • • • Estimating cash requirement Planning short-term financing Scheduling payments in connection with capital expenditure projects Planning purchase of materials Developing credit policies and Checking the accuracy of long term forecasting
Firms use multiple short-term forecasts of varying length and detail, suited to meet different needs. The commonly used design for short –term cash forecasts are • • One year divided into quarters or monthly. One quarter divided into months and
•
One month divided into weeks.
3. A RECEIPTS AND PAYMENTS METHODS: The cash budget prepared under this method shows the timing and magnitude of expected cash receipts and payments over the forecast period. It includes all expected receipts and payments irrespective of how they are classified in accounting. 3. B LONG –TERM CASH FORECASTING: Long-term cash forecasting are generally prepared for a period ranging from two to five years and serve to provide a broad brush picture of a firm’s financing needs and availability of invertible surplus in future. Such forecasts are helpful in planning capital investment methods outlays and long-term financing 3. C REPORTS FOR CONTROL: Cash reports, providing a comparison of actual developments with forecast figures, are helpful in controlling and revising cash forecasts on a continual basis. Several types of cash reports may be prepared the important ones are. DAILY CASH REPORT: The daily cash report shows the opening balance, receipts, payments and the closing balance on a daily basis. DAILY TREASURY REPORT: An amplification of the daily cash report, the daily treasury report provides a comprehensive picture of changes in cash, marketable securities, debtors and creditors.
MONTHLY CASH REPORT: This report shows the actual cash receipts and payments on a monthly basis. The actual are compared with the budgeted figures and variances calculated.
3. D CASH COLLECTION AND DISBURSEMENT: The cash balance shown by a firm on its books is called the book, or ledger, balance whereas the balance shown in its bank account is called the available, or collected, balance. The difference between the available balance and the ledger balance is referred to as the float. There are two kinds of float disbursement float and collection float, cheque issued by a firm create disbursement float. The net float is the sum of disbursement float and collection float. It is simply the difference between the firm’s available balance and its book balance. If the net float is positive (negative) it means that the available balance is greater (lesser) than the book balance.
2.7 BANK ORGANISATION Prior to the project, the billing process was distributed across different product processors like (those handling cross border transfer, non resident yen related, mass payments, through post
office etc). Wipro’s solution aims to implement a centralized billing system that maximizes automation. The transaction details would be pushed from the product processors to the billing system as an end of day offline process, which will then calculate the charges based on the transaction type and generate accounting entries. At the end of the billing cycle, customer invoices would be generated by the system and the customer account debits will take place in the bank host. Customer information and charge information (fixed, transaction and event based) are maintained in the billing system. For transactions that require immediate charge calculation, the billing system's pricing engine would provide the charges in real time.
2.8 CASH MANAGEMENT SYSTEM FOR A NATIONALIZED BANK MC De COM proposed a solution to facilitate information flow between various entities of the Cash Management system. This system enabled a complete Electronic Messaging Solution for their Branch Offices across the country. This project facilitated the Bank to exchange information between its CCC (Cheque Collection Centre), FCC (Fund Collection Centre) and FMC (Fund Management Centre) seamlessly without any delay. The Bank has its Corporate Office in Bangalore and International transaction center at Mumbai. The realization of cheque or any cash transactions required a couple of days. This delay leads to a situation where the Bank was not in a position to get at its head office the transaction happened at each of its branches or extension counters at. The head office and the International transaction office faced numerous problems in terms of managing the cash at various locations. The customers also could not really track the transaction especially if they are more than one transaction at different places. The Bank thought of an ambitious program of offering Cash Management Services to its customers across the country The Customer deposit their cheque at various Cheque Collection Center’s (CCC) across
the country and this information is processed and consolidated at the Fund Management Centre (FMC) located at Mumbai. The FMC will further communicate the processed information to various Fund Collection Centre (FCC). The Customers can contact directly the Fund Collection Centre (FCC) to obtain updated information about their funds position as required
CHAPTER-III
OBJECTIVE OF THE STUDY
• • • •
To determine the overall performance of cash in the concern. To know the credit worthiness of the concern.
To assess the liquidity and short term solvency position of the firm. To understand the relationship maintained with the trade creditors and the debtors of the firm. To identify the basic forces influencing the cash management of the firm.
•
CHAPTER-IV
RESEARCH METHODOLOGY
4.1 RESEARCH DESIGN: The research approach used for the study is descriptive. The form of the study is on the financial statement analysis in general and specific to the cash position. 4.2 DATA COLLECTION PRIMARY DATA: The primary data is collected from the personnel interview. SECONDARY DATA: The study has been made using secondary data, which are obtained from annual reports and statements of accounts. The study is period for the annual reports and statements of accounts extended form the year 2001-02 to 2005-06. 4.3 ANALYTICAL TOOLS FOR THE STUDY: The researcher for the purpose of analysis and interpretation of the following tools have been need • • • CASH FLOW STATEMENT RATIO ANALYSIS CASH BUDGETING
4.4 PERIOD OF STUDY: The study includes 5 years (2001-02 to 2005-06) financial rates of the firms. The study was conducted for 1 month’s period.
CHAPTER-V DATA ANALYSIS &INTERPRETATION
5.1 CASH FLOW STATEMENT: A cash flow statement is used in conjunction with the other financial statements, provides information that enables users to evaluate the change in net assets of an enterprise, its financial structure (including its liquidity and solvency), and its ability to affect the amounts and timing of cash flow in order to adapt to changing circumstance and opportunities. Cash flow information is useful in assessing the ability of the enterprises to generate cash and cash-equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different enterprises. It also enhances the comparability of the reporting of operating performance by different because it eliminates the effects of using different accounting treatments for the same transactions and events.
CASH FLOW STATEMENT (2001-02) TABLE NO: 5.1
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Central Excise Secured Loan CASHFROMOPERATION Net Profit ADD: Increase in Sundry Creditors Increase in Other Liabilities Less Increase in Inventories Increase in Sundry Debtors TOTALCASHAVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Income Tax CLOSING BALANCE Cash in Hand TOTALAPPLICATION AVAILABLE
31-03-2001
31-03-2002 61738
2151 3363880 247341 3363458 300217 7310787 2154425 16742259 744630 162581 77494
779 3406134 206964 3747384 300466 7466168 2473039 17600934 749327 194320 84556 40377 383926 249 155381 318614
1372 42254
-49443 55921 4697 31739 7062 12423
984705
1028203
55921
CASH FLOW STATEMENT (2002-03) TABLE NO-5.2
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Income Tax Sale of Fixed Assets CASH FROM OPERATION Net Profit ADD Increase Liabilities
31-03-2002
31-03-2003
12423
194320 726292
206000 749327
2650 23035
247341 in Other 300466
261547 379275 5698609 2470569 2651776 12417103
14206 78809 176755 9 127681 5 178737 405022 443130
Decrease in Inventories 7466168 LESS Decrease in Sundry Creditors 3747384 Increase in Sundry Debtors 2473039
TOTAL CASH AVAILABLE 15155010 APPLICATION OF CASH Loans & Advance Secured Loan Unsecured Loan Central Excise CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE 4856233 194320 3406134 1255000 779
206000 3135484 1105000 5313
11680 270650 150000 4534
6266 4451797 443130
CASH FLOW STATEMENT (2003-04) TABLE NO: 5.3
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Central Excise CASH FROM OPERATION Net Profit ADD Increase Creditors
31-03-2003
31-03-2004
6266
5313
2596
2717
261547 in Sundry 2470569 379275
267548 3553092 530420 4378883 4542399 13274938
5999 1082523 151145 1319726 1890623 668770 677753
Increase in Other Liabilities
Decrease in Inventories 5698609 LESS Increase in Sundry Debtors 2651776 TOTAL CASH AVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Secured Loan Unsecured Loan Income Tax CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE 5254682 726292 206000 3135484 1105000 81906 11467089
991175 332424 3088824 900000 107401
264883 126424 46660 205000 25495
9291 5419824 677753
CASH FLOW STATEMENT (2004-05) TABLE NO-5.4
PARTICULARS OPENING BALANCES Cash in Hand SOURCE OF CASH Sale of Fixed Assets Unsecured Loan CASH FROM OPERATION Net Profit ADD Increase in Other Liabilities Decrease in Sundry Debtors Decrease in Inventories LESS Decrease in Sundry Creditors TOTAL CASH AVAILABLE APPLICATION OF CASH Loan & Advance Unsecured Loan Central Excise Income Tax CLOSING BALANCE
31-03-2004
31-03-2005
9291
991175 900000
792972 1200000
198203 300000
267546 530420 4542399 4378883 3553092 15163515
309347 531981 3652395 3950640 3258702 13696037
41801 1561 890004 428243 294390 1067219 1574713
332424 3088824 2596 107401
377608 15892601 24695 108612
45184 1499564 22099 1211
Cash in Hand TOTAL APPLICATION AVAILABLE 3531245
6655 16403516 1574713
CASH FLOW STATEMENT (2005-06) TABLE NO-5.5
PARTICULARS 31-03-2005 31-03-2006
OPENING BALANCES Cash in Hand SOURCE OF CASH Central Excise Secured Loan CASH FROM OPERATION Net Profit ADD Increase in Other Liabilities Decrease in Sundry Debtors LESS Decrease in Sundry Creditors Increase in Inventories TOTAL CASH AVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Secured Loan Income Tax CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE 20437 2442281 3080000 658156 792972 377608 1163089 108612 944278 432320 1589260 114142 151306 54712 426171 5530 309347 531981 3652395 3258702 3950640 13317020 413155 735107 3596559 3250590 4018625 13186992 10380 8 20312 6 55836 8112 67985 286673 658156 24695 1589260 9867 1163089 14828 350000 6655
CASH FLOW STATEMENT TABLE NO-5.6 PARTICULARS OPENING BALANCES 2001-02 2002-03 2003-04 2004-05 2005-06
Cash in Hand SOURCE OF CASH Central Excise Secured Loan Income Tax Sale of Fixed Assets Unsecured Loan CASH FROM OPERATION NET PROFIT ADD Increase in Sundry Creditors Increase in Other Liabilities Decrease in Inventories Decrease in Sundry Debtors LESS Increase in Inventories Increase in Sundry Debtors Decrease in Sundry Creditors TOTAL CASH AVAILABLE APPLICATION OF CASH Purchases of Fixed Assets Loans & Advance Secured Loan Unsecured Loan Central Excise Income Tax CLOSING BALANCE Cash in Hand TOTAL APPLICATION AVAILABLE INTERPRETATION: •
0.61 0.013 0.422
0.124
0.06 0.02
0.09
0.06 0.14
0.02 0.23
1.98 3
3.5
0.4 3.84 0.002 3.18
0.14 0.78 17.67
0.05 10.82 1.51 14
0.42
1.04
0.015 4.28 8.9
2.03 0.56 0.68 0.08 6.57 1.51 0.54 4.26
1.78 12.76 0.55 0.046 0.31 4.42
18.9 2.94 6.76 2.65 1.26 0.46 2.05 0.25 15.7
0.11 2.7 1.5 0.04
0.45 15 0.22 0.012 0.22 15.7
0.07 0.12 0.55 0.06 4.42
0.055 0.2 6.57
0.09 6.76
The above table explains that the beginning of the (2001-02) opening balance is in0.61 but in the other year it reduced gradually. So the concern should take necessary step to overcome the default.
•
The concern is purchase the fixed assets in the year 2001-02,2003-04,2005-06 at 0.046,2.65 and 1.51. The concern purchase high asset in the year 2003-04 at 2.65 it clearly determine the outflow of cash in the concern.
•
The borrowing of concerns high in the year 2003-04 at 1.26 it indicates that the concern uses more loan. The concern should reduce to borrow the money from the various resources. It leads to take more advantage to the borrowers.
•
The closing balance is not high than the opening balance .it indicates that the cash is not properly managed in the concern.
5.2 CASH BUDGETING: A firm is well advised to hold adequate cash balance but should avoid excessive balances. The firm has, therefore, to assess its need for cash properly. The cash budget is probably the most important tool in cash management. It is device to help a firm to plan and control the use of cash. It is a statement showing the estimated cash inflows and cash
outflows over the planning horizon. In the other words, the net cash position of a firm as it moves from one budgeting sub period to another is highlighted by the cash budget
CASH BUDGET TABLE NO – 5.7
PARTICULARS a OPENING BALANCE b Receipts c Payments
2001-02 CASH 61738 16315437 16093407 222030 222030
2002-03 12423 1806471 0 1789247 8 172232 394262 406685 100000
2003-04 6266 1992924 4 1966463 1 264613 658875 665141 100000
2004-05 9291 2052023 2 2025314 9 267083 925958 935249 100000
2005-06 6655 23938082 23608102 329980 1255938 1262593 100000
d NET CASH FLOW (b-c) e Cumulative Net Cash Flow
f (a+e) 283768 g Minimum Cash Balance Requirement 100000 SURPLUS RELATION TO THE MINIMUM CASHBALANCE REQUIREMENT(F-G) 183768
306685
565141
835249
1162593
CHART NO –5.1
12 10 8 6 4 2 0 20 20 20 20 20 01- 02- 03- 04- 0502 03 04 05 06 cash required
INTERPRETATION: In the above table it clearly determines the availability of the cash balance in the subsequent year. It will clearly determine the minimum cash balance requirement of the concern. In the 2005-06 leads to higher need of cash balance 11.62 lakhs. The cash balance is highly required for the day- to day transaction.
5.3 RATIO ANALYSIS: An analysis of financial statements based on ratios is known as ratio analysis. Ratio analysis involves the process of computing determining and resenting the relationship of items or
group of items of financial statements. Ratio analysis is a widely – used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items.
5.3.1 NET WORKING CAPITAL: Net working capital represents the excess of current assets over current liabilities. The term current assets refers to assets which in the normal course of business get
converted into cash without dimunition in value over a short period ,usually not exceeding one year or length of operation cycle whichever is more. The greater is the amount of net working capital, the greater is the liquidity of the firm, accordingly net working capital is a measure of liquidity, and inadequate working capital is the first sign of financial problem for a firm. FORMULA: NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES. NET WORKING CAPITAL TABLE NO-5.8
PARTICULARS CURENT ASSETS CURRENT LIABILITIES NET WORKING CAPITAL
2001-02 99.51 40.47 59.03
2002-03 83.56 28.49 55.06
2003-04 89.30 40.83 48.47
2004-05 76.09 37.90 38.19
2005-06 76.35 39.85 36.49
Chart no.5.2
100 90 80 70 60 50 40 30 20 10 0 200102 20022003 200304 200405 200506
Current assets Current liabilities Net Working capital
Interpretation: This ratio indicates there is lower amount required in the working capital. The higher amount is in the year 2001-02 at 59.03. It will clearly determine the firm is in liquidly position but this is reducing gradually. The financial manager should concentrated more on the working capital as it is not satisfactory.
5.3.2 CURRENT RATIO: The current ratio is the ratio of total current assets to total current liabilities. It’s calculated by divided current assets by current liabilities.
The current assets of a firm, as already stated, represent that asset which can be, in the ordinary course of business, converted into cash within a short period of time normally not exceeding one year.
FORMULA: CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES
CURRENT RATIO TABLE NO-5.9
PARTICULARS CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO
2001-02 99.51 40.47 2.45
2002-03 83.56 28.49 2.93
2003-04 89.30 40.83 2.18
2004-05 76.09 37.90 2.00
2005-06 76.35 39.85 1.9
Chart no.5.3
100 90 80 70 60 50 40 30 20 10 0 200102 20022003 200304 200405 200506
Current assets Current liabilities Current ratio
Interpretation: The company is highly efficient is short – term solvency position. The company should maintain this current ratio. The concern should concentrate on 2005-06 year current ratio position.
5.3.3 QUICK TEST RATIO: The quick test ratio is the ratio between quick current ratio and current liabilities and is calculated by dividing the quick assets by the current liabilities.
The term quick assets refers to current assets which can be converted into cash immediately or at a short notice without diminution of value.
FORMULA: QUICK TEST RATIO = QUICK ASSETS QUICK LIABILITIES
QUICK TEST RATIO TABLE NO-5.10
PARTICULARS QUICK ASSETS QUICK LIABILTIES ACID TEST RATIO 2001-02 24.85 40.47 0.61 2002-03 26.58 29.00 0.93 2003-04 45.51 40.83 1.11 2004-05 36.59 37.90 0.96 0.90 2005-06 36.16 39.85
Chart no.5.4
50 45 40 35 30 25 20 15 10 5 0
Quick assets Quick liabilities Acid test ratio
2001- 2002- 2003- 2004- 200502 2003 04 05 06
Interpretation: The liquidity position is not near to the standard ratio. The concern should clearly determine the various liquidity position of the concern.
5.3.4 INVENTORY TURNOVER RATIO: It is computed by divided the cost of good sold by the average inventory thus, the cost of good sold means sales minus gross profit. The average inventory refers to the
simple average of the opening and closing inventory. The ratio indicated how fast inventory is sold.
FORMULA: INVENTORY TURNOVER RATIO= COST OF GOOD SOLD AVERAGE INVENTORY
INVENTORY TURNOVER RATIO TABLE NO-5.11
PARTICULARS INVENTORY TURNOVER RATIO COST OF GOOD SOLD AVERAGE INVENTORY 2001-02 1.16 86.04 74.00 2002-03 1.59 105.07 65.82 2003-04 2.36 118.9 50.38 2004-05 2.81 117.05 41.65 2005-06 3.37 134.1 39.84
Chart no.5.5
140 120 100 80 60 40 20 0 2001- 2002- 2003- 2004- 200502 2003 04 05 06 Interpretation: The inventory turnover is increasing gradually to the period of the year. It will clearly determine the capacity of the concern Inventory TurnOver ratio Cost of good sold Average Inventory
5.3.5 DEBTOR’S TURNOVER RATIO:
It is determine by dividing the net credit sales by average debtors outstanding during the year. Thus, net credit sales consist of gross credit sales minus returns, if any, from customer’s average debtors is the simple average of debtors (including bills receivables) at the beginning and at the end of the year.
FORMULA: DEBTOR’S TURNOVER RATIO= NET CREDIT SALES AVERAGE DEBTORS
DEBTOR’S TURNOVER RATION: TABLE NO-5.12
PARTICULARS CREDIT SALES AVERAGE DEBTORS DEBTORS TURNOVER RATIO 2001-02 159.8 23.13 6.90 2002-03 157.8 25.62 6.16 2003-04 155.8 35.97 4.33 2004-05 172.62 40.97 4.21 2005-06 206.45 36.24 5.69
Chart no.5.6
250 200 150 100 50 0 2001- 200202 2003 2003- 200404 05 200506 Credit sales Average debtors Debtors turn over ratio
Interpretation: The debtor’s turnover ratio is not in the concert way in the concern. The higher ratio is in the year 2001-02 is 6.90. The past performance is clearly determining the various formation of the concern.
5.3.6 CREDITOR’S TURNOVER RATIO:
It is a ratio between net credit purchase and the average amount of creditors outstanding during the year. A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows that account are to be settled rapidly. The creditor’s turnover ratio is an important tool of analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit. FORMULA: CREDITOR’S TURNOVER RATIO= NET CREDIT PURCHASES AVERAGE CREDITOR’S
CREDITOR’S TURNOVER RATIO TABLE NO-5.13
PARTICULARS CREDIT PURCHASE AVERAGES CREDITORS CREDITORS TURNOVER RATIO 2001-02 86.0 35.55 2.42 2002-03 105.07 31.08 3.38 2003-04 118.91 30.11 3.94 2004-05 117.05 34.05 3.43 2005-06 134.16 32.54 4.12
Chart no.5.7
140 120 100 80 60 40 20 0 2001- 2002- 2003- 2004- 200502 2003 04 05 06 Credit purchase Average creditors Creditors Turnover ratio
Interpretation: The creditor’s availability of the concern keeps on decrease in the year. It will clearly determine in the year 2001-02 2.42.
CHAPTER-VI FINDINGS AND SUGGESTION OF THE STUDY
6.1 FINDINGS OF THE STUDY
1. The net working capital of the organization is not satisfactory. 2. The current ratio for the four year it is as per the standard norms (2:1) concept for the year 2005-06 which is 1.9:1. On an average current ratio is formed to be satisfactory. 3. Quick ratio of the company is not satisfactory as it is not up to the standard norms (1:1). 4. Inventory turnover ratio is found to be not satisfactory as it is maintain low inventory. 5. Debtor turnover ratio is decline indicates it is not satisfactory. 6. Creditor’s turnover ratio showing increasing ratio indicates that the company is enjoying. Its credit facilities to the possible amount. 7. In the year 2005-06 is leads to higher requirement of cash balance 11.62 lakhs. 8. Cash reflects the liquidity position of the concern is reduced in the year 2005-06 0.06 lakhs decreasing cash position indicated that the company is not managing its cash position satisfactorily.
6.2 SUGGESTION & RECOMMENDATION: The various suggestions are followed after analyzing the main finding of this study.
•
The cash management of the company is failed to strengthen the cash position so the company so required to table steps to improve the cash position by concentrating on receivables, inventories avoiding to much on borrowings.
•
The company failed to manage the receivable in the normal level because of poor performance of the collection procedure and inefficient performance related with managing the receivables.
•
The inventories play a major role in production. So, the concern should take measure to maintain the inventories that are required to in order reduce the e cost, and keep the production flow continuously.
• •
In 2005-06 the net profit is increased compare to the other four year. So the concern should maintain the same position to improve the net profit. The cash and bank balance indicate high liquidity position of a company, The Flavors India (p) Ltd maintain cash including bank balance is at a optimum level and it is enough to meet day to day requirement.
CHAPTER-VII
CONCLUSION
Analysis and Interpretation of the financial data of The Flavors India (p) ltd, ascertain the cash position of the firm. The results explores that the firm is unable toe meet its short term obligations. The concern should reduced the long term loan and obtain the profit. The concern should take various measures to increase the net profit.
CHAPTER-VIII LIMITATION & SCOPE OF THE STUDY
8.1 LIMITATION OF THE STUDY: • • These studies only concentrated the quantitative method. The study is restricted only to The Flavors India (P) Ltd. being a case study the findings cannot be generalized.
8.2 SCOPE OF THE FURTHER STUDY: • It helps to take short term financial decision.
• • •
It indicates the cash requirement needed for plant and equipment expansion programme. It reveals the liquidity position of the firm by highlighting the various sources of cash and its uses. To find strategies for efficient management of cash.
