Working Capital Management

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


9985970

6342610

5576470

20000000

87153200

Inventory

Sundry debtors

Cash & Bank balance


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


15067731

2937587

5845000

28088100 69220585Inventory

Sundry debtors

Cash & Bank balance


Loans & Advances

INFERENCE:

From the above chart it is inferred that the total inventory is very high

when compared to other current assets.

29


19776505

3544436

6330064

21664088

78519638

Inventory

Sundry debtors

Cash & Bank balance


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


25894713

2432714

6330064

36070267

71906761

Inventory

Sundry debtors

Cash & Bank balance


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


50035784

5331546

Sundry creditors

provisions

INFERENCE:-

From the above chart it is inferred that the provisions is less when compared to sundry creditors.

33


49213840

4066235

Sundry creditors

provisions

INFERENCE:-



34


45636905

4654125

Sundry creditors

provisions

INFERENCE:-



35


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

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:-



40


9985970

6342610

20000000

Sundry Debtors


Loans & Advances

INFERENCE:-



41


15067731

2937587

28088100

Sundry Debtors


Loans & Advances

INFERENCE:-



42


3544436

21664088

19776505

Sundry Debtors


Loans & Advances

INFERENCE:-



43


2432714

36070267

25894713

Sundry Debtors


Loans & Advances

Interpretation (Quick Ratio):-



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.


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


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):-



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.


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


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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Working Capital Management

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