working capital management
DESCRIPTION
project report on working capital management presented to mangalore universityTRANSCRIPT
ABOUT THE ORGANIZATION
Pioneer spinning & weaving Mills Limited was incorporated on 9th Oct
1979 for the purpose of establishing a Spinning Mill to manufacture different
counts of cotton and blended yam to cater to the needs of knitting and weaving
industries at Puttur in Chittoor District; Andhra Pradesh a centrally notified
industrially backward area and started commercial production on 1st January
1982. The company obtained a letter of intent and later on industrial license for
a capacity of 2500 spindles. The Unit was put up with an initial capacity of
8396 spindles with financial assistance of Andhra Pradesh Industrial
Development Corporation Ltd., Andhra Pradesh State Financial Corporation
and Andhra Bank by way of Term Loan under IDBI refinance scheme.
The capacity was progressively increased to 27,936 spindles by internal
accruals and obtaining further term loans and Hire purchase / Lease Finance
The mill is at a distance of 3 km from puttur town and is on the
Highway fro Chennai to Tirupati.
The site is surrounded by a number of villages providing the required
labour force and is well connected by rail and road. The raw materials and
finished goods will be transported by Road and no difficulty is being
experienced in transportation.
1
TYPE OF ORGANIZATION
The company is the form of manufacturing business concern and tr4ade
of yarn with in the country for various levels.
NATURE OF BUSINESS
The spinning operation starts from raw cotton to yarn. The variety of
raw cottons are mixed and are transferred to the blow room department where
the impurities, dust, seeds and unnecessary materials present in raw cotton
were removed, so that the loose cotton is made in to well regulated sheet called
lap.
Then the laps are transferred to carding department where the laps are
separated in to fibre and cleaned. The fibre then transferred to dr4awing
department to parallelize the fibres. The output from drawing department is
transform to simplex department for the conversion of fibre in to bobbins. The
bobbins where transferred to speed frame department to strengthen the fibres
and make uniform in thickness from the speed frame department as yarn and
the yarn is spinned. Thus the manufacturing cotton in to yarm process was held
in the manufacturing activities.
MANAGEMENT STRUCTURE
Sri K. Subbiah, Chairman under the overall superintendence and
direction of the Board of Directors, manages the Company. The Mill is
managed professionally under the guidance and control of Chairman of the
company. The Executive Director is looking after day – to – day affairs of the
company assisted by Factory Manager and Technical Personnel in the areas of
production quality and maintenance and backed by a well experienced
consultant.
2
ORGANISATION STRUCTURE
3
Organization Structure
Chairman and Managing Director
Executive Director
Manager
Personnel offr
S TK S
AccountantOffice CashierGodown ClerkStore KeeperTypist Dispatch Clerk
Electrical
HP E GO
ASM Prod ASM Maint
Supervisors
F H C
Shift Supervisor
SQC M
WB M
Legend
SHPWBC
SecurityHelper A/C PlantWrapping BoysCleaning Workers
TKEFM
Time Keeping Electrician FitterMastries
WCGOHW
Wage ClerkGenerator Operator HelpersWorkers
C. TECHNICAL DETAILS
MANUFACTURING PROCESS
The raw material used in the process if ginned cotton. The ginned cotton
received in the form of bales are opened and cleaned to remove impurities such
as husk, short fibres, foreign materials etc., in the Blow room and removal of
impurities. The laps converted in the form of sliver.
The cotton slivers taken to the draw frames for importing parallelism by
drafting and making it to uniform slivers.
The slivers from Draw Frames processed through Simplex Machine for
alienations and wound on Bobbins in the Roving from after imparting twist.
The bobbins’ containing roving fed to the Ring Spinning Frames to spin
yarn.
After spinning, the yarns converted in the form of cone yarn or hank
yarn by passing through winding or reeling machines.
The yarns are packed in the form of bags / bales and marketed.
4
PROCESS FLOW CHART
5
Godown(Weighing & Stocking Samples for SQC)
Blow Room(Mixing Feeding cotton to MBO Machine. Cleaning of cotton is done at 4 stages:
MBO > Mono Cylinder > step cleaner > ERM > Scutcher output is laps)
Carding (Removal of short fibres and impurities. Input is laps and output is sliver in cans)
Drawing (importing parallelism)
Combing (For better quality removal of short fibres)
Simplex(Rowing attenuation)
Ring Spinning(yarn formation)
Cone winding
Ring Doubling Reeling
Packing
Wetting
Godown Dispatch
MARKET DETAILS
The mill is producing cotton yarn. The end use of cotton yarn is for
knitting and weaving cloth. Cloth being a consumer – non – durable has a
ready and permanent market. Cotton yarn particularly in a tropical climate that
of India has a better market always as compared to that of polyester / viscose
yarn.
The mill marketing its products in and around the mill which is
surrounded by handlooms and power loom centers and also other yarn
consuming centers in the state of Tamilanadu, Maharashtra and West Bengal.
The mill also supplying to export units offering internationally accepted
standards of quality and exporting through Export Houses to Sri Lanka and
Bangladesh.
Therefore marketing of yarn is not at all a problem.
6
MANAGEMENT
Pioneer Spinning and Weaving Mills Ltd retains an excellent
management team besides receiving able guidance from eminent professionals
and industrialists constituting its Board.
BOARD OF DIRECTORS
Mrs. Beenakosaraju
Mrs. Jagan mohan Reddy. C ( APSFC Nominee)
Mrs. Rajaram. S
Mrs. Ashwin Kakeemanu
Mrs. Sheela. K. Sarath
GENERAL MANGER
Mr. P. Rajendra Naidu
MANAGER
P. Venkateswarlu
7
COMPETITORS
Sri Rama Krishna Mills Ltd, Nagari
Chidda Spinning Mills Ltd, Puttur
Sri Lakshmi Venkateswara Spinning Mills Ltd, Nagari
CORPORATE POLICY
Good Manufacturing practices
Good Business practices
Good Corporate Governance
Good Environment protection
Good Management and Safety System
Good customer Services
Good HRD Culture
8
LIQUIDITY:-
Liquidity is an attribute that signifies the capacity to meet financial
obligation as and when required. According to Oxford Advanced Learner’s
Dictionary, liquidity is “the state of owning things of value that can easily be
exchanged for cash.”
Liquidity management is the most essential component of financial
management. It plays most dominant role in the successful functioning of an
enterprise. Liquid assets may be defined as the money and assets that are
readily convertible into money. Different degree of liquidity. Money itself is,
by definition, the most liquid of assets, other assets have varying degrees of
liquidity, depending on the case with which they can be turned into cash. In our
study we focus on the most liquid assets of the company, cash and marketable
securities. Liquidity management involves determining the total amount of
these two types of assets the company will hold. The day – to – day problems
of liquidity management consists of the highly important task of finding
sufficient cash to meet current obligations.
A firm should ensure that it does not suffer from lack of liquidity, and
also that it is not too highly liquid. The failure of the company to meet its
obligations, due to lack of sufficient liquidity, will result in bad credit image,
loss of creditor’s confidence, or even in lawsuits resulting in the closure of the
company. A very high degree of liquidity is also bad; idle assets earn nothing.
The firm’s funds will be unnecessarily tied up in current assets management. It
is very important for maintaining minimum liquidity position in the firm for
profitability, so that company would maintain the liquidity in their business.
9
LIQUIDITY RATIO:
These are the ratios which measure the short term solvency of financial
position of firm. These ratios are calculated to comment upon the short term
paying capacity of a concern or the firm’s ability to meet its current
obligations. The various liquidity rations are: current ratio, liquid ratio and
absolute liquid ratio. Further to see the efficiency with which the liquid
resources have been employed by a firm, debtors turn – over and creditors’
turnover ratios are calculated.
Liquidity refers to the ability of a concern to meet its obligations, as and
when these become due. The short – term obligation are met by realizing
amounts from current, floating or circulating assets. The current assets should
either be liquid or near liquidity. These should be convertible into cash fro
paying obligations of short – term nature. The sufficiency or insufficiency of
current assets should be assessed by comparing them with short term liabilities.
If current assets can pay off current liabilities may not be easily met out of
current assets then liquidity position will be bad. The bankers, suppliers of
goods and other short term creditors are interested in the liquidity of the
concern. They will extend credit only if they are sure that current assets are
enough to pay out the obligation. To measure the liquidity of a firm, the
following ratios can be calculated.
1. Current Ratio
2. Quick or Acid Test or Liquid Ratio
3. Absolute Liquid Ratio or Cash Position Ratio.
10
(I) CURRENT RATIO
Current ratio may be defined as the relationship between current assets
and current liabilities. This ratio, also known as working capital ratio, is a
measure of general liquidity and is most widely used to make the analysis of a
short- term financial position or liquidity of a firm. It is calculated by dividing
the total of current assets by total of the current liabilities. Thus,
The two basic components of this ratio are: current assets and current
liabilities. Current assets include cash and those assets which can be easily
converted into cash within a short period of time generally, one year, such as
marketable securities, bills receivables, sundry debtors, inventories, work in
progress, etc. prepaid expenses should also be included in current assets
because they represent payments made in advance which will not have to be
paid in near future. Current Liabilities are those obligations which are payable,
within a short period of generally one year and include outstanding expenses,
bills payables, sundry creditors, accrued expresses, short term advances,
income tax payable, divided payable, etc. Bank overdraft should also generally
be included in current liabilities because it represents short term arrangement
with the bank and is payable with a short period. But where bank overdraft is
permanent or long term arrangement with the bank, it should be secluded. The
following table gives the components of current ratio.
11
COMPONENTS OF CURRENT RATIO
1. Cash In Hand
2. Cash In Bank
3. Marketable Securities
4. Short Term Investments
5. Bills Receivable
6. Sundry Debtors
7. Inventories(Stocks)
8. Work In Process
9. Prepaid Expenses
1. Outstanding Expenses / Accrued
Expenses.
2. Bills Payable
3. Sundry Creditors
4. Short Term Advances.
5. Income Tax Payable
6. Dividends Payable
7. Bank Overdraft (If Not Permanent
Arrangement).
Interpretation of Current Ratio:
A relatively high current ratio is an indication that the firm is liquid and
has the ability to pay its current obligations in time as and when they become
due. On the other hand, a relatively low current ratio represents that the
liquidity position of the firm is not good and the firm shall not be able to pay its
current liabilities in time without facing difficulties. An increase in the current
ratio represents improvement in the liquidity position of a firm while a decrease
in the current ratio indicates that there has been deterioration in the liquidity
position of the firm. As convention the minimum of ‘two to one ratio’ is
referred to as a banker’s rule of thumb or arbitrary standard of liquidity for a
firm.
12
Current Assets Current Liabilities
Some authors are of the view that bank overdraft should not be taken as
a current liability since it is a continuing arrangement with the bank. Through
bank overdraft may look to be a long term liability because bank extends this
facility year after year but in fact it is current liability because the amount will
have to be cleared at the end of every year. Unless otherwise it is specifically
mentioned that bank ove3rdraft is a long term arrangement, it should be taken
as a current liability.
A high current ratio may not be favorable due to the following reasons:
1. There may be slow moving stocks. The stocks will pile up due to
poor sale.
2. The figures of debtors may go up because debt collection is not
satisfactory.
3. The cash or bank balances may be lying idle because of insufficient
investment opportunities.
On the other hand, a low current ration may be due to the following
reasons:
a) There may not be sufficient funds to pay off liabilities.
b) The business may be trading beyond its capacity. The resources
may not warrant the activities.
not warrant the activities.
Important Factors for reaching a conclusion:
A number of factors should be taken into consideration before reaching
a conclusion about short term financial position. Some of these factors are as
such:-
13
(a) Type of Business
Current ratio is influenced by the type pf business. a business with heavy
investments in fixed assets may be successful even if the ratio is low. On the
other hand, a trading concern will require a high current ratio because it has to
pay its suppliers quickly.
(b) Types of Products
The type of products in which a business deals also influences current ratio. A
business dealing in goods whose demand changes fact will require a higher
current ratio. On the other hand, if products have more intrinsic value, e.g.,
gold, silver, metals, etc., a lower current ratio may also do.
(c) Reputation of the Concern
A business unit with better goodwill and reputation may afford a small current
ratio because the turnover is more and creditors also allow credit for longer
periods. A new concern or a concern which has not established its reputation
will need higher current assets
(d) Seasonal Influence
Current assets and current liabilities change with the seasons. In a peak season,
current assets will be more and current ratio will be high. On the other hand
this ratio will go down when the season is off.
14
Type of Assets Available
The type of current assets in the business also influence interpretation of
current ratio. If the current assets include large amounts of slow moving stocks
then even a high ratio may not be satisfactory.
All the above mentioned factors should be taken into mind while interpreting
current ratio.
Significance and Limitations of Current Ratio
Current ratio is a general and quick measure of liquidity of a firm. It represents
the ‘margin of safety’ or ‘cushion’ available to the creditors and other current
liabilities. It is most widely used for making short term analysis of the financial
position or short term solvency of a firm. But one has to be careful while using
current ratio as a measure of liability because it suffers from the following
limitations
(a) Crude ratio : It is a crude ratio because it measures only the quantity and
not be quality of current assets.
(b) Window Dressing :
Valuation of current assets and window dressing is another problem of
current ratio. Current assets and liabilities are manipulated in such a way
that current ratio loses its significance. Window dressing may be
indulged in the following ways.
15
1. Over valuation of closing stock.
2. Obsolete or worthless stocks are shown in the closing inventory at their
costs instead of writing them off.
3. Recording in advance cash receipts applicable to the next year’s sales.
4. Omission of liability for merchandise included in inventory.
5. Treating a short term obligation as a long term liability.
6. Inadequate provision for bad and doubtful debts.
7. Inclusions in debtors advance payment for purchase of fixed assets.
Window dressing is done to show current ratio at a particular figure. It
does not present the real financial position of the concern. T6he inference
drawn on such a ratio will be faulty and deceptive.
(II) QUICK OR ACID TEST OR LIQUID RATIO:-
Quick Ratio also known as Acid Test or Liquid Ratio, is a more rigorous
test of liquidity than the current ratio. The term ‘liquidity’ refers to the ability
of a firm to pay its short term obligations as and when t6hey become due. The
two determinants of current ratio, as a measure of liquidity, are current assets
and current liabilities. Current assets include inventories and prepaid expenses
which are not easily convertible into cash within a short period.
Quick ratio may be defined as the relationship between quick / liquid
assets and current or liquid liabilities. An assets is said to be liquid if it can be
converted into cash within a short period without loss of value. In that sense,
cash in hand and cash at bank are the most liquid assets. The other assets which
16
can be included in the liquid assets are bills receivable, sundry debtors,
marketable securities and short term or temporary investments.
Inventories cannot be termed to be liquid assets because they cannot be
converted into cash immediately without a sufficient loss of value. In the same
manner, prepaid expenses are also excluded from the list of quick / liquid assets
because they are not expected to be converted into cash. The quick ratio can be
calculated by dividing the total of the quick assets by total current liabilities.
Thus
Sometimes, bank overdraft is not included in current liabilities while
calculating quick or acid test ratio, on the argument that bank overdraft is
generally a permanent way of financing and is not subject to be called on
demand. In such cases, the quick ratio is found out by dividing the total quick
assets by quick liabilities (i.e., Current liabilities – Bank Overdraft).
However, in questions quick assets and current liabilities have been used for
calculating Acid Test Ratio.
17
Quick or Liquid AssetsQuick / Liquid or Acid Test Ratio =
Current Liabilities
Quick or Liquid AssetsQuick / Liquid or Acid Test Ratio =
Current Liabilities
Components of Quick / Liquid Ratio
Quick / Liquid Assets Current Liabilities
Cash in hand
Cash in bank
Bills receivables
Sundry Debtors
Marketable Securities
Temporary Investments
Out standing or
Accrued Expenses
Bills Payable
Sundry Creditors
Short term
advances
Income tax
payable
Bank over draft
Quick assets can also be calculated as:-
Current Assets – (Inventories + Prepaid Expenses). Inventories here will mean
all types of stocks i.e., finished, work in process and raw materials.
18
OBJECTIVES OF THE STUDY
To assess the efficiency of the liquidity management of Pioneer Spinning &
Weaving Mills Limited, puttur.
To examine and evaluated the liquidity position of Pioneer Spinning &
Weaving Mills Limited by taking measures of cash and bank.
To offer suggestions for improvement of the liquidity position of Pioneer
Spinning & Weaving Mills Limited, Puttur.
19
SCOPE OF THE STUDY
1. The scope of study is confined to Pioneer Spinning & Weaving Mills
Limited.
2. The scope is limited to the study of Five years statements.
3. The study is confined only for financial department.
4. The study is conducted for a period of two months.
20
METHODOLOGY
The study is analytical in nature. The data for the study have been
collected from the secondary sources only. Secondary data are colleted from
the annual reports of Pioneer Spinning & Weaving Mills Limited, Puttur from
2001 – 02 to 2005 – 06. Besides, necessary supporting documents and details
have been collected from books, Journals, reports and the like. The study
covers manly the following aspects of liquidity analysis.
Analyzing level of liquidity position.
Analyzing liquidity Ratios.
21
LIMITATIONS OF THE STUDY
The data used in this study have been taken from only published
annual reports of Pioneer Spinning & Weaving Mills Limited, Puttur.
Executives opinion of Pioneer Spinning & Weaving Mills
Limited, Puttur is not considered.
There is no set of industry standards or comparisons and hence
the interference is made on general standards
The information provided in the company Balance sheet is only
the data source available.
22
Table:-
Liquidity position of Pioneer Spinning and Weaving Mills Ltd., Puttur
YearCurrent
Assets
Current
LiabilitiesQuick Assets
Net
Working
Capital
2001- 02 11,73,79,460 5,50,52,171 6,30,49,630 6,23,27,289
2002 – 03 12,90,58,250 5,53,67,330 4,19,05,050 7,36,90,920
2003 -2004 12,11,59,003 5,32,80,075 5,19,38,418 6,78,78,928
2004 – 2005 12,98,34,731 5,02,91,030 5,31,15,093 7,95,43,701
2006-2005 14,26,34,519 4,81,71,031 7,07,27,758 9,44,63,488
Growth rate of current assets from 2001 – 02 to 2005 – 06 = 22%
Decline rate of current liabilities from 2001 – 02 to 2005 – 06 = 12%
Growth rate of Net working capital from 2001 – 02 to 2005 – 06 = 5%
23
Table:-
Year 2001 – 02 2002 – 03 2003 – 04 2004 – 05 2005 – 06
Current Assets
Inventories 5,43,29,830 8,71,53,200 6,92,20,585 7,85,19,638 7,19,06,761
Sundry Debtors 2,01,33,580 99,85,970 1,50,67,731 1,97,76,505 2,58,94,713
Cash & bank
balances33,17,050 63,42,610 29,37,587 35,44,436 24,32,714
Other current
assets45,99,000 55,76,470 58,45,000 63,30,064 63,30,064
Loans &
Advances 3,50,00,000 2,00,00,000 2,80,88,100 2,16,64,088 3,60,70,267
Total 11,73,79,46
0
12,90,58,25
0
12,11,59,00
3
12,98,34,73
1
14,26,34,51
9
Current
Liabilities
Sundry Creditors 5,10,73,526 5,00,35,784 4,92,13,840 4,56,36,905 3,91,40,959
Provisions 39,78,645 53,31,546 40,66,235 46.54.125 90.30.072
Total 5,50,52,171 5,53,67,330 5,32,80,075 5,02,91,030 4,81,71,031
Quick Assets
Sundry Debtors 2,01,33,580 99,85,970 1,50,67,731 1,97,76,505 2,58,94,713
Cash & bank
balances33,17,050 63,42,610 29,37,587 35,44,436 24,32,714
Other current
assets45,99,000 55,76,470 58,45,000 63,30,064 63,30,064
Loans &
Advances 3,50,00,000 2,00,00,000 2,80,88,100 2,16,64,088 3,60,70,267
Total 6,30,49,630 4,19,05,050 5,19,38,418 5,13,15,093 7,07,27,758
24
Absolute Assets
Cash & bank
balances 33,17,050 63,42,610 29,37,587 35,44,436 24,32,714
Total 33,17,050 63,42,610 29,37,587 35,44,436 24,32,714
INFERENCE:
25
Current Assets 2001 - 02
20133580
3317050
4599000
35000000
54329830Inventory
Sundry debtors
Cash & Bank balance
Other current assets
Loans & Advances
From the above chart it is inferred that the total inventory is very high
when compared to other current assets.
26
INFERENCE:
From the above chart it is inferred that the cash and bank balance is very
less when compared to other current assets.
27
Current Assets 2002 - 03
9985970
6342610
5576470
20000000
87153200
Inventory
Sundry debtors
Cash & Bank balance
Other current assets
Loans & Advances
INFERENCE:
From the above chart it is inferred that the sundry debtors and cash and bank
balances are very less when compared to inventory.
28
Current Assets 2003 - 04
15067731
2937587
5845000
28088100 69220585Inventory
Sundry debtors
Cash & Bank balance
Other current assets
Loans & Advances
INFERENCE:
From the above chart it is inferred that the total inventory is very high
when compared to other current assets.
29
Current Assets 2004 - 05
19776505
3544436
6330064
21664088
78519638
Inventory
Sundry debtors
Cash & Bank balance
Other current assets
Loans & Advances
INFERENCE:
From the above chart it is inferred that half off the current assets is
inventory and cash and bank balance very less when compared to sundry
debtors.
30
Current Assets 2005 - 06
25894713
2432714
6330064
36070267
71906761
Inventory
Sundry debtors
Cash & Bank balance
Other current assets
Loans & Advances
INFERENCE:-
From the above chart it is inferred that the provisions is less when
compared to sundry creditors.
31
Current liabilities 2001 - 02
51073526
3978645
Sundry creditors
provisions
INFERENCE:-
From the above chart it is inferred that the provisions is less when compared to sundry creditors.
32
Current liabilities 2002 - 03
50035784
5331546
Sundry creditors
provisions
INFERENCE:-
From the above chart it is inferred that the provisions is less when compared to sundry creditors.
33
Current liabilities 2003 - 04
49213840
4066235
Sundry creditors
provisions
INFERENCE:-
From the above chart it is inferred that the provisions is less when
compared to sundry creditors.
34
Current liabilities 2004 - 05
45636905
4654125
Sundry creditors
provisions
INFERENCE:-
From the above chart it is inferred that the provisions is less when
compared to sundry creditors.
35
Current liabilities 2005 - 06
39140959
9030072
Sundry creditors
provisions
Table:-
Liquidity Ratios of Pioneer Spinning and Weaving Mills Ltd., Puttur
36
Year Current Ratio Quick RatioAbsolute
Ratio
2001- 02 2.13 1.14 0.06
2002 – 03 2.33 0.75 0.11
2003 -2004 2.27 0.97 0.05
2004 – 2005 2.58 1.02 0.07
2006-2005 2.96 1.46 0.05
37
Interpretation (Current Ratio):-
From the above calculations that the current ratio of Pioneer Spinning
and Weaving Mills Ltd., Puttur is varied between 2.13 and 2.96 during the year
2001 – 02 to 2005 – 06. the average ratio of is 2.45 percent. The ratio of the
company has more that the conventional standard of 2:1. Hence the judged
from the conventional standard the liquidity ratio of the company is at sates
factory level the management of the company is maintaining the current assets
and current6 liabilities in good manner.
During the first year i.e., 2001 – 02 the calculated current ratio is 2.13. It
is more than the standard is 2:1. In the second year i.e., 2002 – 03 the ratio is
2.33. The growth rate of the ratio is 9.38 percent. In the third year i.e., 2003 –
04 the ratio is 2.27 the growth rate of the ratio is 6.57 percent. In the fourth
year i.e., 2004 – 05 the ratio is 2.58. The growth rate of the ratio is 21.12
percent. In the fifth year i.e., 2005 – 06 the ratio is 2.96 the growth rate of the
ratio is 38.96 percent.
38
INFERENCE:-
From the above chart it is inferred that the cash and bank balances is
very less when compared to sundry debtors and loans and advances.
39
Quick Assets 2001 - 02
20133580
3317050
35000000
Sundry Debtors
Cash & bank balances
Loans & Advances
INFERENCE:-
From the above chart it is inferred that the cash and bank balances is
very less when compared to sundry debtors and loans and advances.
40
Quick Assets 2002 - 03
9985970
6342610
20000000
Sundry Debtors
Cash & bank balances
Loans & Advances
INFERENCE:-
From the above chart it is inferred that the cash and bank balances is
very less when compared to sundry debtors and loans and advances.
41
Quick Assets 2003 - 04
15067731
2937587
28088100
Sundry Debtors
Cash & bank balances
Loans & Advances
INFERENCE:-
From the above chart it is inferred that the cash and bank balances is
very less when compared to sundry debtors and loans and advances.
42
Quick Assets 2004 - 05
3544436
21664088
19776505
Sundry Debtors
Cash & bank balances
Loans & Advances
INFERENCE:-
From the above chart it is inferred that the cash and bank balances is
very less when compared to sundry debtors and loans and advances.
43
Quick Assets 2005 - 06
2432714
36070267
25894713
Sundry Debtors
Cash & bank balances
Loans & Advances
Interpretation (Quick Ratio):-
From the above calculations that the current ratio of Pioneer Spinning
and Weaving Mills Ltd., Puttur is varied between 1.14 and 1.46 during the year
2001 – 02 to 2005 – 06. the average ratio of is 1.06 percent. The ratio of the
company is flexible then the conventional standard of 1:1. Hence the judged
from the conventional standard the liquidity ratio of the company is low during
the years 2002 to 2003. So the management of the company is maintaining less
amount in current assets when compared to current liabilities in years 2002 –
03 & 2003 – 04.
During the first year i.e., 2001 – 02 the calculated current ratio is 1.14. It
is more than the standard is 1:1. In the second year i.e., 2002 – 03 the ratio is
0.75. The decline rate of the ratio is 34.2 percent. In the third year i.e., 2003 –
04 the ratio is 0.97 the growth rate of the ratio is 14.9 percent. In the fourth
year i.e., 2004 – 05 the ratio is 1.02. The decline rate of the ratio is 10.05
percent. In the fifth year i.e., 2005 – 06 the ratio is 1.46 the growth rate of the
ratio is 28.0 percent.
44
45
Absolute assets Cash and Bank Balance
6342610
2937587
3544436
24327143317050
2001 - 02
2002 - 03
2003 - 04
2004 - 05
2005 - 06
Interpretation (Absolute Ratio):-
From the above calculations that the current ratio of Pioneer Spinning
and Weaving Mills Ltd., Puttur is varied between 0.06 and 0.05 during the year
2001 – 02 to 2005 – 06. The average ratio is 0.07 percent. The ratio of the
company has more than the conventional standard of 0.50:1. Hence the judged
from the conventional standard the liquidity ratio of the company is not
satisfactory. So the management of the company has to maintain better amount
in current assets when compared to current liabilities.
During the first year i.e., 2001 – 02 the calculated current ratio is 0.06. It
is not more than the standard is 0.05:1. In the second year i.e., 2002 – 03 the
ratio is 0.11. The growth rate of the ratio is 83.3 percent. In the third year i.e.,
2003 – 04 the ratio is 0.05 the decline rate of the ratio is 16.66 percent. In the
fourth year i.e., 2004 – 05 the ratio is 0.07. The growth rate of the ratio is 16.7
percent. In the fifth year i.e., 2005 – 06 the ratio is 0.05 the decline rate of the
ratio is 16.66 percent.
46
FINDINGS
(e) Liquidity management plays a crucial role in the success of a business
firm. Liquidity refers to the ability of the concern to meet its current
obligations and when these become due.
(f) From the viewpoint of the conventional standard of current ratio, it is
concluded that the short – term liquidity is satisfactory.
(g) Quick ratio was mostly below the normal standard in the
years 2002 – 03 & 2003 – 04.
(h) The position of absolute ratio was not satisfactory, i.e., the calculated
ratios for the study period are less than the standard; cash management of
the company was in poor position.
(i) The net working capital is also increased from year 2001 – 02 to 2005 –
06 of the study period (51%)
(j) The current assets are also increased from the year 2001 – 02 to 2005 –
06 (22%).
(k) The average current ratio during the study period comes to 2.45. The
average of current assets and current liabilities worth Rs. 12,80,13,192
and 5,24,32,327 respectively
47
SUGGESTIONS
Generally current ratio is influenced by the type of business. A high current
ratio may not be favorable due to the following reasons.
There may be slow moving stocks.
The figures of debtors may go up because debt
collection is not satisfactory.
The cash and bank balances may be lying idle because
of insufficient.
However the current ratio measures only is quantity of current assets and not
quality of current assets.
In order to maintain the current assets and current liabilities i.e.,
liquidity position, the management of the concern must maintain the
appropriate current assets only.
Cash management of the company is also poor. Hence it can be concluded
that the management should maintain appropriate cash position in the
concern. In order to improve the cash management the management of the
concern should allot requires funds in the forth coming periods.
Quick ratio was always less than the standard. It is better to maintain this
ratio near to the standard by reducing the liabilities in time and also it is
better to improve the short term Loans and Advances.
Accumulation of huge funds in Networking capital is also not good to the
concern. Here it is better to reduce this also for better liquidity management
of the concern.
PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDING
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31ST MARCH OF PIONEER SPINNING & WEAVING MILLS LIMITED, PUTTUR
Particulars 2005 – 06 2004 – 05 2003 – 04 2002 – 03 2001 – 02
Income
Sales 308759592 290872532 198613536 341561588 257986500
Other income 1841988 7749574 6645873 5572335 3217892
Stock adjustments +11070878 -1612722 +9854580 +8723540 -3915265
Total – I 321672458 297009384 215113989 355857463 257289127
Expenses
Raw materials consumed
169001004 163204305 81325325 162753660 102516356
Manufacturing Expenses
95996136 83856968 62453600 89856910 41012785
Administrative Expenses
5084124 3925048 3072500 2615000 2572500
Selling & distributing Expenses
7976301 5483186 4827520 4583660 3386686
Financial expenses
13079971 11880321 15067500 28755068 20080000
Total – II 291137536 268349828 166746445 288564298 169568327
Profit before depreciation(I – II )
30534922 28659556 48367544 67293165 87720800
Less: Depreciation 4839593 8271521 11018054 35584170 51018200
Profit before Tax 25695329 20388035 37349490 31708995 36702600
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Less
Provision for Taxes 8020000 4590000 9876530 9955000 13566740
Deferred tax liability
- 3385960 5600700 - 9785980
Provision for FBT 121423 - 576000 98000 -
Net profit 17553906 12412075 21296260 21655995 13349880
Add:
Surplus from previous year
22233757 10333790 15581785 12533600 10000000
Deferred tax asset 57459 - 75855 98250 -
Less / Add income tax relating to previous year
-379636 +2017 +86350 -50000 +10000
Amount available for appropriations
39465486 22747882 37040250 34237845 23359880
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BALANCE SHEET AS AT 31ST MARCH EVERY YEAR OF
PIONEER SPINNING AND WEAVING MILLS LTD.,
PUTTUR
Particulars 2005 – 06 2004 – 05 2003 – 04 2002 – 03 2001 – 02
I Sources of funds: 1. Share holder’s funds:
a). capital 15000000 10500000 10475000 10400000 10380000
b). reserves & surplus
41770044 25521485 20020000 20000000 18055865
2. Loan Funds:
a). Secured Loans
93187463 82764560 78572220 72235631 68645983
b). Unsecured Loans
7921592 11863971 13981245 28071995 20051775
3. differed tax liability
5713419 5301833 4633761 3953325 2679443
Total 59092518 135951849 127682226 134660951 119813056
II Application of Funds:
1. fixed assets:
a). gross block
134199833 128046015 140123215 117533000 107598555
b). less: deprecation
89887917 86209806 95283786 81097770 76394974
c). net block 44641916 41836209 44839429 36435230 31203581
2. capital work in progress
- 69888 97585 55633 -
3. investment 3013200 13200 5098374 1375100 3370535
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4. current assets, loans & advances
a. inventories 71906761 78519638 69220585 87153200 54329830
b. sundry debtors
25894713 19776505 15067731 9985970 20133580
c. cash & bank balances
2432714 3544436 2937587 6342610 3317050
d. other current assets
6330064 6330064 5845000 5576470 4599000
e. loans & advances
36070267 21664088 28088100 20000000 35000000
Less: current liabilities & provisions
142634519 129834731 121159003 129058250 117379460
a. liabilities 39140959 45636905 49213840 50035784 51073526
b. provisions 9030072 4654125 4066235 5331546 3978645
Net current assets 94463488 79543701 67878928 73690920 62327289
5. miscellaneous expends:- true to the extent not written off or adjusted deferred revenue expenditure
16973914 14488851 9767910 23104068 22911651
Total 159092518 135951849 127682226 134660951 119813056
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BIBLIOGRAPHY
1. Sharma R.K. Management Kalyani Publishers
And Accountancy Ludhiana
Shashi K. Gupta
2. I. M. Pandey Financial Management Vikas Publishing House
Pvt. Ltd., New Delhi.
3. M. Y. Khan Financial management Tata Publishing House
P. K. Jain Publishing Company
Limited. New Delhi.
4. Sharan fundamental of Pearson EducationFinancial Management
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