AN ANALYSIS ON CASH MANAGEMENT AT

STANDARD POLYMERS, PUDUCHERRY

LIST OF TABLES

Table No. Name of the Table Page No.

5.1 Cash from operation 295.2 Cash flow statement 30

5.3.1 Inventories 315.3.2 Sundry debtors 325.3.3 Cash/bank 335.3.4 Loans & Advances 345.3.5 Current liabilities 355.3.6 Current Assets 365.4.1 Current Asset to Fixed Asset 385.4.2 Current Asset to Total Asset 395.4.3 Net working capital Ratio 405.4.4 Inventories to Current Asset Ratio 415.4.5 Sundry Debtors to Current Asset Ratio 425.4.6 Loans & Advances to Current Asset Ratio 435.4.7 Cash to Current Asset Ratio 445.4.8 Cash to Working Capital Ratio 455.4.9 Cash to Sales Ratio 465.4.10 Cash Ratio 475.4.11 Current Ratio 485.4.12 Liquidity Ratio 495.4.13 Super Quick Ratio 505.4.14 Working Capital Turnover Ratio 515.4.15 Inventory Turnover Ratio 525.4.16 Debtors Turnover Ratio 535.4.17 Debt Collection Period 545.4.18 Cash Interval Measure Ratio 55

LIST OF CHARTS

Table No. Name of the Charts Page No.

5.4.1 Current Asset to Fixed Asset 38

5.4.2 Current Asset to Total Asset 39

5.4.3 Net working capital Ratio 40

5.4.4 Inventories to Current Asset Ratio 41

5.4.5 Sundry Debtors to Current Asset Ratio 42

5.4.6 Loans & Advances to Current Asset Ratio 43

5.4.7 Cash to Current Asset Ratio 44

5.4.8 Cash to Working Capital Ratio 45

5.4.9 Cash to Sales Ratio 46

5.4.10 Cash Ratio 47

5.4.11 Current Ratio 48

5.4.12 Liquidity Ratio 49

5.4.13 Super Quick Ratio 50

5.4.14 Working Capital Turnover Ratio 51

5.4.15 Inventory Turnover Ratio 52

5.4.16 Debtors Turnover Ratio 53

5.4.17 Debt Collection Period 54

5.4.18 Cash Interval Measure Ratio 55

CONTENTS

CHAPTER TITLES PAGE NO

LIST OF TABLES

LIST OF CHARTS

I INTRODUCTION

PROFILE OF THE COMPANY

NEED FOR THE STUDY

1

2

9

II REVIEW OF LITERATURE 10

III OBJECTIVES OF THE STUDY 27

IV RESEARCH METHODOLOGY 28

V DATA ANALYSIS AND INTERPRETATION 29

VI FINDINGS OF THE STUDY,

SUGGESTION AND RECOMMENDATIONS56

58

VII CONCLUSION 59

VIIISCOPE FOR THE FUTHER STUDY

LIMITATION OF THE STUDY

60

61

BIBILIOGRAPHY 62

CHAPTER I

CASH MANAGEMENT

1.1 INTRODUCTION:Cash is the important current asset for the operations of the business. Cash is the basic

input needed to keep the business running on a continuous basis; it is also the ultimate output

expected to be realized by selling the service or product manufactured by the firm. The firm

should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s

manufacturing operations while excessive cash will simply remain idle, without contributing

anything towards the firm’s profitability. Thus, a major function of the financial manager is

to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without any restriction.

The term cash includes coins, currency and cheques held by the firm, and balances in its bank

accounts. Sometimes near-cash items, such as marketable securities or bank times deposits,

are also included in cash. The basic characteristic of near-cash assets is that they can readily

be converted into cash. Generally, when a firm has excess cash, it invests it in marketable

securities. This kind of investment contributes some profit to the firm.

1.2 STANDARD POLYMERS

HISTORY/ MILESTONE:

Standard polymer is its original form and structure was founded and started in the year

1990 by its founder Mr. Francis, father of the present inactive partner Mr. Marie susai raj.

The company was then manufacturing only mono-layer films and printed pouches for

ordinary hand-packing of day-to-day selling commodities. The company faced problems in

the initial two years in achieving its turnover targets. It then gradually picked up when bulk

orders from tamilnadu dairy sectors could be established. The company possessed a mono-

layer extrudsion plant and a flexo-graphic printer. Slitting and pouching were done by

manual processes.

Contemporarily another company under the name Mylon plastics was functioning. It

was founded and run by the present production manager Mr. Natarajan’s father, who was a

thorough knowledged person in industrial sector. Before having started his own venture, he

was a depute of Pondicherry government and was entrusted to investigate the possibilities of

enhancing the industrial infrastructure of Pondicherry. He could gain lot of experience in this

field during his service, which motivated him to start an industry of his own. The industry he

chose was packing industry, where packing materials like multi-layer polythene films and

pouches made from these films for packing of food products were in great demand. He was

also convinced about the increasing future potential for the demand of this type of packing

and hence his decision to start this industry. The company was then engaged in the

manufacture of multi-layer polythene films and 2-4 colour printed pouches.

In the year 2004 mylon plastics was facing financial problems to run the company

further. The aiding Bank was unwilling to forward funds for the maintenance and functioning

of the company. So there arose a compulsion, when mylon plastics have to seek financing

partners. It was also decided for the fusion of both the companies. i.e., Mylon plastics and

standard polymers. Things were re-organized in deputation and functional responsibilities of

personals.

PROFILE OF M/S STANDARD POLYMERS

M/s. Standard polymers private limited can be declared as a medium scale industry

and as it stands today was organized and re-established in the year 2005 with five partners,

among whom three are active and the rest two are inactive. The three active partners have

taken charge and handling of the departments.

Mr. T. Chandrasekaran - Administration, Purchase & Overall incharge.

Mr. Natarajan - Production and Human Resources.

Mr. Senthil Kumar - Marketing and Sales.

Mr. Marie Susai Raj and Mr. Selvanayagam and other miscellaneous duties.

Today’s profile of M/s Standard Polymers private limited posses a picture of a well

established and progressively functioning company. The company with a production volume of

60 tonnes a month in the year 2004 has reached a capacity of 160 metric tones as per today.

The production takes place in three shifts and even then the volume of pending orders has

raised to its brim. The company is capable of manufacturing packing covers of high standards

for industrial packing. The present financial turnover ranges upto two crores a month. The

company’s merits are well exposed and its reputation respectfully recognized by its customers

and Bankers. The major customers are;

• MRF Ltd., Kerala, Tiruvothiyur and Pondicherry.

• Parrys confectionery Limited.

• Nutrine confectionary company (P) Limited.

• Winner Dairy (P) Limited.

• SNP Dairy milk, Madurai.

• Aiswariya Milk products, Virudhachalam.

• Sarva Seva dairy federation Limited. (Seva Milk).

• Sarva seva dairy federation (Sarvodaya Milk).

• G.K Dairy, Thanjavur (District) Kurichi.

• Balaji Oil Milk, Vanur (Lion Brand Double groundnut oil).

• South India flour mills Limited, Chennai.

• S.M Detergents (P) Limited, Coimbatore.

• Kovilpatti lakshmi roller flour mills Limited, Gangaikondan.

• Meenakshni foods India private Limited, Chennai.

• Vega marketing (P) Limited, Dindugal.

COMPANY’S LOCATION AND INFRASTRUCTURE

The company with its subsidiary units of production. Administration and other facilities

are placed together in a complex, located at Odiampet, a village lying on the outskirts of

Pondicherry and about 12 Kms form Pondicherry centre. The company is situated amidst

agricultural lands and well accessible by that road. Bus service from and to Pondicherry is

available twice a day.

The complex is well planned and placed in an area of about 2.5 acres of land. The

administrative premises face the road side and its architectural design presents a well

established company. The frontage upto road is gardened with flower plants and greenery.

Also a parking area inside the premises is provided.

The production units are placed behind and adjoining the administration buildings.

Housings for production units are well designed to comply with factory requisites. The

housings are spacy for the installation of machines and free movements of the workers.

Adequate numbers of windows provide free circulation of air and facilitate for adequate light

and ventilation. Access to different units is also not complicated. Vehicle approaches for the

purposes of loading and unloading area unhindered. The backyard is empty and large enough

to accommodate further buildings. Plantation of many trees all around gives enough shade and

flow of pleasant breeze, not only for the employees but also for those visiting the complex.

Water availability is from Bore-wells, installed in the premises itself. Power supply is tapped

from the electrical mains running along the road.

OBJECTIVES / FUTURE PLANS OF STANDARD POLYMERS

It was understand during our conversations with the Managing Director that the

company in the present circumstances requires neither to alter nor to advance the existing

production technology and structure. The technology adopted fulfills the requirements of

today’s packing industry. The company is able to manufacture even the most sophisticated

forms of packing covers. The volume of continuing orders, in spite of competitors tends not to

decrease. The company has adopted itself to suit the size, organization structure and production

capacity.

The continuing monthly turnover of Rs. 1 crore and above and the increasing demand

for its products puts M/s Standard Polymers in a comfortable position of maintaining the

company without much hazards. The quality of products is in par with high standards and well

accepted by its customers.

There is no scarcity in the availability of raw-material. Accordingly there is no

necessity in seek of other technologies. Though shortage of labour force arises now and then,

the management is able to master this problem through labour agencies. In accordance to

Indian labour laws and in consideration of huge manpower, there is also no necessity to go in

for further automatisation. Only in consideration of increasing demand, the administration has

decided to put up another production unit, whose housing is under construction.

Precisely speaking, the company aims at maintaining its reputation of serving its

customers to their satisfaction and free the company at the earliest from its existing financial

encumbrance.

SHARE CAPITAL AND BANKERS

Both the companies, Mylon Plastics and previous standard polymers were re-organized

and formed into one company, which is today’s Standard Polymers. The funds invested for the

establishment was 3 crores, composing of;

a) partner share of 1 crore and

b) bank finance of further 2 crores

Besides, the company when established possessed Rs. 2 crores in machineries,

buildings and others as capital asset. The share capital of Rs. 25, 00,000 of each partnership is

constituted of 25,000 equity share of Rs. 100 each, with powers to increase, classify, divide,

subdivide and consolidate the same with the power of attaching such rights of preferential,

deferred or otherwise as the case may be, determined from time to time.

The Bank for business activities of M/s Standard Polymers is Indian Overseas Bank at

Reddiearpalayam, Puducherry.

ORGANISATION STRUCTURE

General Executives

1.3 NEED FOR THE STUDY

The importance of Cash management in any industrial concern cannot be

overstressed. Under the present inflationary condition, management of Cash is perhaps more

important than even management of profit and this requires greatest attention and efforts of

Administrative Sales Production Accounts

Manager SalesmanAuditor

Human Resource Collection

Data Entries

Security

CashierSupervisor Supervisor

3 printer operators 3 Slitter operators3 Extruder operators

Helpers

the finance manager. It needs vigilant attention as each of its components require different

types of treatment and it throws constant attention on exercise of skill and judgment,

awareness of economic trend etc, due to urgency and complicacy the vital importance of

Cash.

The anti-inflationary measure taken up by the Government, creating a tight money

condition has placed working capital in the most challenging zone of management and it

requires a unique skill for its management. Today, the problem of managing Cash has got the

recognition of separate entity, so its study and management is of major importance to both

internal and external analyst to judge the current position of the business concerns. Hence, the

present study entitled “An Analysis on Cash Management” has been taken up.

CHAPTER II

REVIEW OF LITERATURE

Meaning:

Cash is the money which a firm can disburse immediately without any restriction.

The term cash includes coins, currency and cheques held by the firm, and balances in its bank

accounts. Sometimes near-cash items, such as marketable securities or bank times deposits,

are also included in cash. The basic characteristic of near-cash assets is that they can readily

be converted into cash.

FACETS OF CASH MANAGEMENT:

Cash management is concerned with the managing of: (i) Cash flows into and out of

the firm, (ii) Cash flows within the firm, and (iii) Cash balances held by the firm at a point of

time by financing deficit or investing surplus cash. It can be represented by a cash

management cycle. Sales generate cash which has to be disbursed out. The surplus cash has

to be invested while deficit this cycle at a minimum cost. At the same time, it also seeks to

achieve liquidity and control. Cash management assumes more importance than other current

assets because cash is the most significant and the least productive asset that a firm’s holds. It

is significant because it is used to pay the firm’s obligations. However, cash is unproductive.

Unlike fixed assets or inventories, it does not produce goods for sale. Therefore, the aim of

cash management is to maintain adequate control over cash position to keep the firm

sufficiently liquid and to use excess cash in some profitable way.

Cash management is also important because it is difficult to predict cash flows

accurately, particularly the inflows, and there is no prefect coincidence between the inflows

and outflows of cash. During some periods, cash outflows will exceed cash inflows, because

payments for taxes, dividends, or seasonal inventory build up. At other times, cash inflow

will be more than cash payments because there may be large cash sales and debtors may be

realized in large sums promptly. Further, cash management is significant because cash

constitutes the smallest portion of the total current assets, yet management’s considerable time

is devoted in managing it. In recent past, a number of innovations have been done in cash

management techniques. An obvious aim of the firm these days is to manage its cash affairs

in such a way as to keep cash balance at a minimum level and to invest the surplus cash in

profitable investment opportunities.

In order to resolve the uncertainty about cash flow prediction and lack of

synchronization between cash receipts and payments, the firm should develop appropriate

strategies for cash management. The firm should evolve strategies for cash management.

The firm should evolve strategies regarding the following four facets of cash management.

• Cash planning: Cash inflows and outflows should be planned to project cash surplus

or deficit for each period of the planning period. Cash budget should be prepared for

this purpose.

• Managing the cash flows: The firm should decide about the properly managed. The

cash inflows should be accelerated while, as far as possible, the cash outflows should

be decelerated.

• Optimum cash level: the firm should decide about the appropriate level of cash

balances. The cost of excess cash and danger of cash deficiency should be matched to

determine the optimum level of cash balances.

• Investing surplus cash: The surplus cash balances should be properly invested to

earn profits. The firms should decide about the division of such cash balances

between alternative short-term investment opportunities such as bank deposits,

marketable securities, or inter-corporate lending.

MOTIVES FOR HOLDING CASH The firm’s need to hold cash may be attributed to the following three motives:

• The transactions motive

• The precautionary motive

• The speculative motive

TRANSACTION MOTIVE

The transactions motive requires a firm to hold cash to conduct its business in the

ordinary course. The firm needs cash primarily to make payments for purchases, wages and

salaries, other operating expenses, taxes, dividends etc. The need to hold cash would not arise

if there were perfect synchronization between cash receipts and cash payments, i.e., enough

cash is received when the payment has to be made. But cash receipts and payments are not

perfectly synchronized. For those periods, when cash payments exceed cash receipts, the firm

should maintain some cash balance to be able to make required payments. For transactions

purpose, a firm may invest its cash in marketable securities. Usually, the firm will purchase

securities whose maturity corresponds with some anticipated payments, such as dividends or

taxes in the future. Notice that the transactions motive mainly refers to holding cash to meet

anticipated payments whose timing is not perfectly matched with cash receipts.

PRECAUTIONARY MOTIVE

The precautionary motive is the need to hold cash to meet contingencies in the future.

It provides a cushion or buffer to withstand some unexpected emergency. The precautionary

amount of cash depends upon the predictability of cash flows. If cash flows can be predicted

with accuracy, less cash will be maintained for an emergency. The amount of precautionary

cash is also influenced by the firm’s ability to borrow at short notice when the need arises.

Stronger the ability of the firm to borrow at short notice, less the need for precautionary

balance. The precautionary balance may be kept in cash and marketable securities.

Marketable securities play an important role here. The amount of cash set aside for

precautionary reasons is not expected to earn anything; the firm should attempt to earn some

profit on it. Such funds should be invested in high-liquid and low-risk marketable securities.

Precautionary balances should, thus, be held more in marketable securities and relatively less

in cash.

SPECULATIVE MOTIVE

The speculative motive relates to the holding of cash for investing in profit-making

opportunity to make profit may arise when the security prices change. The firm will hold

cash, when it is expected that interest rates will rise and security prices will fall. Securities

can be purchased when the interest rate is expected to fall; the firm will benefit by the

subsequent fall in interest rates and increase in security prices. The firm may also speculate

on materials prices. If it is expected that materials prices will fall, the firm can postpone

materials purchasing and make purchases in future when pric4e actually falls. Some firms

may hold cash for speculative purposes. By and large, business firms do not engage in

speculations. Thus, the primary motives to hold cash and marketable securities are: the

transactions and the precautionary motives.

CASH PLANNING

Cash flows are inseparable parts of the business operations of firms. A firm needs

cash to invest in inventory, receivable and fixed assets and to make payment for operating

expenses in order to maintain growth in sales and earnings. It is possible that firm may be

making adequate profits, but may suffer from the shortage of cash as its growing needs may

be consuming cash very fast. The ‘poor cash’ position of the firm cash is corrected if its cash

needs are planned in advance. At times, a firm can have excess cash may remain idle. Again,

such excess cash outflows. Such excess cash flows can be anticipated and properly invested

if cash planning is resorted to. Cash planning is a technique to plan and control the use of

cash. It helps to anticipate the future cash flows and needs of the firm and reduces the

possibility of idle cash balances ( which lowers firm’s profitability ) and cash deficits (which

can cause the firm’s failure).

Cash planning protects the financial condition of the firm by developing a projected

cash statement from a forecast of expected cash inflows and outflows for a given period. The

forecasts may be based on the present operations or the anticipated future operations. Cash

plans are very crucial in developing the overall operating plans of the firm.

Cash planning may be done on daily, weekly or monthly basis. The period and

frequency of cash planning generally depends upon the size of the firm and philosophy of

management. Large firms prepare daily and weekly forecasts. Medium-size firms usually

prepare weekly and monthly forecasts. Small firms may not prepare formal cash forecasts

because of the non-availability of information and small-scale operations. But, if the small

firms prepare cash projections, it is done on monthly basis. As a firm grows and business

operations become complex, cash planning becomes inevitable for its continuing success.

OTHER FACTORS THAT AFFECT THE SIZE OF CASH BALANCE

1. Availability of short-term credit:

To avoid holding unnecessary large balances of cash, most firms attempt to make

arrangements at borrow money is case of unexpected needs. With such an agreement, the

firm normally pays interest only during the period that the money is actually used.

2. Money market rates:

If money will bring a low return a firm may choose not to invest it. Since the loss or

profit is small, it may not be worth the trouble to make the loan. On the other hand, if interest

rates are very high, every extra rupee will be invested.

3. Variation in cash flows:

Some firms experience wide fluctuation in cash flows as a routine matter. A firm with

steady cash flows can maintain a fairly uniform cash balance.

4. Compensating balance:

If a firm has borrowed money from a bank, the loan agreement may require the firm to

maintain a minimum balance of cash in its accounts. This is called compensating balance. In

effect this requires the firm to use the services of bank a guaranteed deposit on which it pays

no interest. The interest free deposit is the bank’s compensation for its advice and assistance.

CASH MANAGEMENT – BASIS STRATEGIES

The management should, after knowing the cash position by means of the cash budget,

work out the basic strategies to be employed to manage its cash.

CASH CYCLE:

The cash cycle refers to the process by which cash is used to purchase materials from

which are produced goods, which are them sold to customers.

Cash cycle=Average age of firm’s inventory

+Days to collect its accounts receivables

-Days to pay its accounts payable.

The cash turnover means the numbers of times firm’s cash is used during each year.

360

Cash turnover = ----------------

Cash cycle

The higher the cash turnover, the less cash the firm requires. The firm should, therefore, try

to maximize the cash turn.

MANAGING COLLECTIONS:

a) Prompt Billing:

By preparing and sending the bills promptly, without a time log between the dispatch of

goods and sending the bills, a firm can ensure earlier remittance.

b) Expeditious collection of cheques:

An important aspect of efficient cash management is to process the cheques receives

very promptly.

c) Concentration Banking:

Instead of a single collection center located at the company headquarters, multiple

collection centers are established. The purpose is to shorten the period between the time

customers mail in their payments and the time when the company has use of the funds are

then to a concentration bank – usually a disbursement account.

d) Lock-Box System:

With concentration banking, a collection center receives remittances, processes them and

deposits them in a bank. The purpose is to lock-box system is to eliminate the time between

the receipt of remittances by the company and their deposit in the bank. The company rents a

local post office box and authorizes its bank in each of these cities to pick up remittances in

the box. The bank picks up the mail several times a day and deposits the cheque in the

company’s accounts. The cheques are recorded and cleared for collection. The company

receives a deposits the cheque in the company’s accounts. The cheques are recorded and

cleared for collation. The company receives a deposit slip and a lift of payments. This

procedure frees the company from handling a depositing the cheques.

CONTROL OF DISBURSMENT

a) Stretching Accounts Payable

A firm should pay its accounts payables as late as possible without damaging its credit

standing. It should, however, take advantages of the cash discount available on prompt

payment.

b) Centralized Disbursement

One procedure for rightly controlling disbursements is to cenrealise payables in to a

single account, presumably at the company’s headquarters. Such an arrangement would

enable a firm to delay payments and can serve cash for several reasons. Firstly, it increases

transit time. Secondly, if a firm has a centralized bank account, a relatively smaller total cash

balances will be needed.

c) Bank Draft

Unlike an ordinary cheque, the draft is not payable on demand. When it is presented

to the issuer’s bank for collection, the bank must present it to the issuer for acceptance. The

funds then are deposited by the issuing firm to cover payments of the draft. But suppliers

prefer cheques. Also, bank imposes a higher service charge to process them since they

require special attention, usually manual.

d) Playing the float

The amount of cheques issued by the firm but not paid for by the bank is referred to as

the “payment float”. The differences between “payment float” and “collection float” are the

net float. So, if a firm enjoys a positive “net float”, it may issue cheques even if it means

having an ever drown account in its books. Such an action is referred to as “playing the

float”, within limits a firm can play this game reasonably safely.

Thus management of cash becomes essential and it should be seen to, that neither

excessive nor inadequate cash balances are maintained.

CASH FLOW ANALYSIS

The cash flow analysis is done with the help of cash flow statement. A cash flow

statement is a statement depicting changes in cash position from one period to another. It is

an important planning tool. Cash flow statement gives a clear picture of the source of cash,

the uses of cash and the net changes in cash. The primary purpose of cash flow statement is

to show that as to where from the cash to be acquired and where to use them.

UTILITY OF CASH FLOW ANALYSISA Cash flow analysis is an important financial tool for the management. Its chief

advantages are as follows.

1. Helps in efficient cash management

Cash flow analysis helps in evaluating financial policies and cash position. Cash is

the basis for all operation and hence a projected cash flow statement will enable the

management to plan and co-ordinate the financial operations properly. The management can

know how much cash is needed from which source it will be derived, how much can be

generated, how much can be utilized.

2. Helps in internal financial management

Cash flow analysis information about funds, which will be available from operations.

This will helps the management in repayment of long-term debt, dividend policies etc.,

3. Discloses the movements of Cash

Cash flow statement discloses the complete picture of cash movement. The increase

in and decrease of cash and the reasons therefore can be known. It discloses the reasons for

low cash balance in spite of heavy operation profits on for heavy cash balance in spite of low

profits.

4. Discloses success or failure of cash planning

The extent of success or failure of cash planning be known by comparing the projected

cash flow statement with the actual cash flow statement and necessary remedial measures can

be taken.

DETERMINE THE OPTIMUM CASH BALANCE

One of the primary responsibilities of the financial manager is to maintain a sound

liquidity position of the firm so that the dues are settled in time. The firm needs cash to

purchase raw materials and pay wages and other expenses as well as for paying dividend,

interest and taxes. The test of liquidity is the availability of cash to meet the firm’s

obligations when they become due.

A firm maintains the operating cash balance for transaction purposes. It may also

carry additional cash as a buffer or safety stock. The amount of cash balance will depend on

the risk-return trade-off. If the firm maintains small cash balance, its liquidity position

weakens, but its profitability improves as the released funds can be invested in profitable

opportunities (marketable securities). When the firm needs cash, it can sell its keeps high

cash balance, it will have a strong liquidity position but its profitability will be low. The

potential profit foregone on holding large cash balance is an opportunity cost to the firm. The

firm should maintain optimum – just to enough, neither too much nor too little – cash balance.

How to determine the optimum cash balance if cash flows are predictable and if they are not

predictable.

Optimum cash balance under certainty

BAUMOL’S MODELThe Baumol model of cash management provides a formal approach for determining a

firm’s optimum cash balance under certainty. It considers cash management similar to an

inventory management problem. As such, the firm attempts to minimize the sum of the cost

of holding cash (inventory of cash) and the cost of converting marketable securities to cash.

The baumol’s model makes the following assumptions:

• The firm is able to forecast its cash needs with certainty.

• The firm’s cash payments occur uniformly over a period of time.

• The opportunity cost of holding cash is known and it does not change over time.

• The firm will incur the firm sells securities and starts with a converts securities to

cash.

Baumol’s model for cash balance

Cost trade-off: Baumol’s model

Optimum Cash Balance under uncertainty:

The Miller-Orr Model

Cash balance

C

C/2 Average

Time

0 T1 T2 T3

The limitation of the Baumol model is that it does not allow the cash flows to

fluctuate. Firms in practice do not use their cash balance uniformly nor are they able to

predict do not use their cash inflows and outflows. The Miller-Orr model overcomes this

shortcoming and allows for daily cash flow variation. It assumes that net cash flows are

normally distributed with a zero value of mean and a standard deviation. The MO model

provides for two control limits-the upper control limit and the lower control limit as well as a

return point. If the firm’s cash flows fluctuate randomly and hit the upper limit, then it buys

sufficient marketable securities to come back to a normal level of cash balance (the return

point). Similarly, when the firm’s cash flows wander and hit the lower limit, it sells sufficient

marketable securities to bring the cash balance back to the normal level (the return point)

1. The Latest Trends in North American Cash Management Steve Wilder, Senior Vice President and JPMorgan Chase Treasury Services

Western Hemisphere Corporate and Financial Institutions Sales Executive

The Drive towards Efficiency, Transparency,

Standardization and Integration

Fragmentation is a key driver of corporate inefficiency. This has long been the case in the

movement of paper checks and related remittance documents within the U.S. payments system, and the

flow of goods, trade-related documents and funds within the broader global supply chain. As corporate

treasurers pursue end-to-end automation for treasury and supply-chain activities, they understand that

to achieve straight-through processing — and the subsequent optimization of working capital globally —

they must integrate the payment and information components of a transaction.

Based on this drive for efficiency, three interrelated trends are shaping North America’s cash

management landscape today. First, corporate treasurers and their banks are driving the convergence

towards electronic payments to better integrate money and information flows. Second, there is a parallel

convergence in international trade towards open account, electronic payment and the automation of

information flows, as treasury pushes to integrate the physical and financial supply chains. On both

fronts, solutions are emerging to digitize paper wherever it persists. Third, as companies continue to

expand globally — and information and money flows follow — treasury is focused on standardizing

processes and strengthening internal controls. The objective is to create transparency across a range of

business activities to manage risk and ensure financial reporting integrity in compliance with Sarbanes-

Oxley.

2. CASH MANAGEMENT AND CAPITAL BUDGETING PRACTICES

Virginia department of transportation Richmond, Virginia.

Our review has found that Transportation has made significant progress or completed

most of the recommendations made in our 2002 special report. Complete implementation of

these changes will take at least four to five years.

Over the last two years, Transportation’s management has started not only

implementing recommendations, but more importantly begun implementing a change in the

corporate and cultural structure of the organization. The success of change with

Transportation will depend on whether a true structural change in organization takes place.

The measure of success will require a substantial long-term commitment by management to

not only making the change, but to prevent backsliding into Transportation’s old approaches.

In some ways, the accomplishments to date are the easy part of change. The harder

part lays ahead in funding and implementing new systems, continuing to make the changes to

get closer to capital budgeting process, and overcoming Transportation’s corporate and

cultural structure to improve project management. The success of this effort is highly

dependent on management guidance and direction, and current management has demonstrated

their dedication towards this effort. If any management change occurs, it is essential that they

have the same commitment; otherwise, progress may be negatively impacted.

Transportation is restoring fiscal accountability by implementing several budgetary

and financial changes, including adopting a debt management policy and model. Additionally,

they are establishing a methodology to identify statewide transportation priorities and

developing project management policies.

Transportation has completed several budgetary and financial changes, including attempts to

make the Six-Year Improvement Program a realistic management tool and reduce the projects

with a deficit status.

However, to ensure accurate matching on cash inflows and outflows, Transportation must

begin estimating the cost of projects by fiscal year. Transportation does not currently have

sufficient controls and processes in place to manage the rate at which they spend funds.

For major projects, Transportation has begun assigning a project management team that

follows a project from its inception to its completion. However, it is still too early in the

process to determine if the policies put into place will provide Transportation with better

project management. However, the actions to date are those considered best practices in both

the private and public for large organizations.

Maintenance is still an area of concern at Transportation. The growing maintenance

requirements and the limited ability to budget on a needs-based approach increases the risk of

inappropriately applied funding. Once the asset management system is fully implemented a

needs-based approach will be possible and Transportation will be able identify and prioritize

maintenance projects.

3. Ms. Katherine M. Landmann Controller Washington University in St.

Louis Campus.This final report presents the results of our audit of the cash management procedures

used by Washington University in St. Louis (University) to control the funds paid by the

Payment Management System (PMS) during the three years ended June 30, 2000.

We found that the University did not have adequate policies and procedures in place to

monitor daily cash balances and to precisely calculate interest earned on positive daily cash

balances. In monitoring the daily cash balances, the University did not consider (1)

outstanding checks and (2) overhead costs as incurred. In addition, the University did not use

the appropriate interest rates when calculating the interest remitted to the Federal government.

We determined that the amount of excess interest remitted by the University was

comparable to the amount of interest that should have been remitted if appropriate procedures

had been used. We believe that this occurrence was a coincidence due to off setting factors in

the University’s calculation of the amount to be remitted.

We are recommending that the University revise its written policies and procedures to

effectively monitor the daily cash balance and to accurately compute the Federal remittance.

We made four specific recommendations for improving the University’s cash management

procedures. The University concurred with two and is still evaluating the third. However, they

did not accept our fourth recommendation. The University’s response is included in its

entirety as Appendix A.

4. Cash Management by Enid Beverly Jones

It is a Financial Overview for School Administrators is a succinct overview of public

school finance, presenting concepts of importance to both site-based and central-office

leaders. A pragmatic blend of theoretical concepts and factual information provides readers

with an excellent synopsis of public school finance.

The economics and politics of education are discussed in the context of human capital and the

role of public education in the United States as an investment in human capital. Author Enid Jones, who

is an associate professor of school finance at Fayetteville State University, stresses the importance of

investment in human capital and its necessity for an educated, productive workforce.

The chapter on adequacy and equity provides an understanding of the two concepts so

frequently debated in school finance. As more states struggle with funding issues, this subject matter is

timely and useful.

Cash Management seems intended for use nationwide with information on basic school business

procedures, including budgeting and financing of school facilities. The use of lay terminology and relevant

examples make the book valuable both in graduate school classes on educational leadership and in the

hands of practicing administrators.

(Cash Management: A Financial Overview for School Administrators, by Enid Beverley

Jones, Scarecrow Press, Lanham, Md., 2001)

CHAPTER III

OBJECTIVES OF THE STUDY

Primary Objective:

• To analyze the cash management of Standard Polymers.

Secondary Objective: • To find out the liquidity position of the concern through ratio analysis.

• To study the growth of standard polymers in terms of cash flow statement.

• To make suggestion and recommendation to improve the cash position of standard

polymers.

CHAPTER-IV

RESEARCH METHODOLOGY

4.1 RESEARCH

Research is a process in which the researchers wish to find out the end result for a given problem and thus the solution helps in future course of action. The research has been defined as “A careful investigation or enquiry especially through search for new facts in branch of knowledge”

4.2 RESEARCH DESIGN

The research design used in this project is Analytical in nature the procedure using, which researcher has to use facts or information already available, and analyze these to make a critical evaluation of the performance.

4.3 DATA COLLECTION Primary Sources

1. Data are collected through personal interviews and discussion with Finance-

Executive.

2. Data are collected through personal interviews and discussion with Material

Planning- Deputy Manager.

Secondary Sources1. From the annual reports maintained by the company.

2. Data are collected from the company’s website.

3. Books and journals pertaining to the topic.

4.4 TOOLS USED IN THE ANALYSIS

• Cash flow statement

• Trend analysis

• Ratio analysis.

4.5 Period of studyThe present study has taken into account Five years viz., 2002-2003 to 2006-2007.

CHAPTER V

DATA ANALYSIS & INTERPRETATION

5.1 CALCULATIONS OF FUNDS FROM OPERATION AND CASH

FROM OPERATION FOR THE YEAR ENDED (Rs in Thousand)

Particulars 2003-2004 2004-2005 2005-2006 2006-2007

Net Profit 621082 1183275 478738 400470

Depreciation during the

year

1260161 1440184 1620207 1800231

FFO(FLO) 1881243 2623459 2098945 2200701

ADD:

Sundry debtors 736292 293962

Prepaid Expenses 43200

Sundry creditors 4731130 1710210 10643203

Outstanding liabilities 1009534 91841

Bank O/D 2950464 10801353

LESS:

Stock 1497634 567073 1755576 1106913

Bank O/D 2950464

Outstanding liabilities 767131 334244

Sundry Debtors 9562393 910746

Sundry Creditors 1699354

CFO(CLO) 9854229 342963 1516020 8950797

5.2 CASH FLOW STATEMENTInflow 2003-2004 2004-2005 2005-2006 2006-2007

Opening balance 14564 64678 104545 63582

Cash from operation 9854229 342963 1516020 8950797

Increase in loan funds 2410798

Sales of Asset 797244

Increase in share

capital

2800000

Total 9868793 1204885 6831363 9014379

Outflows

Cash outflow from

operation Purchase of Asset 9776411 6767781 7004825

Decrease in loan

funds

27704 900340 1731144

Decrease in share

capital

200000

Closing balance 64678 104545 63582 278410

Total 9868793 1204885 6831363 9014379

Inference:

This table shows that the cash flow statements of STANDARD POLYMERS are to be

efficient. The cash inflow of the company is to be increased for year after year. The fund

from operation is also to differ from every year. The company should increase their share

capital from 2006-2007 for Rs. 28, 00,000. Its must be used as efficient for the next year for

decrease their loan amount.

5.3 TREND ANALYSIS

Y = a + bX

Where a = ∑Y ; b = ∑XY

n ∑X2

5.3.1 INVENTORIES

YEAR X X2

Inventories

(Rs in lakhs)

Y

XY

(Rs in lakhs)’02 – ‘03 -2 4 27,76,072 -55,52,144’03 – ‘04 -1 1 12,78,438 -12,78,438’04 – ‘05 0 0 18,45,511 0’05– ‘06 1 1 36,01,087 36,01,087’06 – ‘07 2 4 47,08,000 94,16,000TOTAL 10 1,42,09,108 61,86,505

a = 1, 42, 09,108 = 2, 84,182.6

5

b = 61, 86,505 = 6, 18,650.5

10

Inference:

This table indicates that the volume of inventory has been increased every year. Its

must be increased for the last year 11, 06,913. Inventories value in 2008 will be about

21, 40,134.1

5.3.2 SUNDRY DEBTORS

YEAR X X2

Sundry

Debtors

(Rs)

Y

XY

(Rs)

’02 – ‘03 -2 4 20,69,513 -41,39,026’03 – ‘04 -1 1 28,05,805 -28,05,805’04 – ‘05 0 0 25,11,842 0’05 – ‘06 1 1 1,20,74,236 1,20,74,236’06 – ‘07 2 4 1,29,84,982 2,59,69,964TOTAL 10 3,24,46,378 3,10,99,369

a = 3, 24, 46,378 = 64, 89,275.6

5

b = 3, 10, 99,369 = 31, 09,936.9

10

Inference:

This table shows that the Sundry Debtors has been more every year. It must be

increased more than 6 times from the beginning of the period of the study. Sundry Debtors

value in 2008 will be about 1, 58, 19,086.3.

5.3.3 CASH / BANK

YEAR X X2

Cash / Bank

(Rs)

Y

XY

(Rs)’02– ‘03 -2 4 14,564 -29,128’03 – ‘04 -1 1 64,679 -64,679’04 – ‘05 0 0 61,858 0’05 – ‘06 1 1 63,582 63,582’06 – ‘07 2 4 2,78,410 5,56,820TOTAL 10 4,83,093 5,26,593

a = 4, 83,093 = 96,618.6

5

b = 5, 26,593 = 52,659.3

10

Inference:

The cash value of the STANDARD POLYMERS has been increased and the estimated

it should be decreased for the previous year. Cash value in 2008 will be about

254596.5.

5.3.4 LOANS & ADVANCES

YEAR X X2

Loans &

Advances

(Rs)

Y

XY

(Rs)

’02 – ‘03 -2 4 1,00,065 -2,00,130’03 – ‘04 -1 1 8,26,377 -8,26,377’04 – ‘05 0 0 3,60,138 0’05 – ‘06 1 1 27,70,937 27,70,937’06 – ‘07 2 4 5,62,837 11,25,674TOTAL 10 46,20,354 28,70,104

a = 46, 20,354 = 9, 24,070.8

5

b = 28, 70,104 = 2, 87,010.4

10

Inference:

The table indicates that the loans and advances of STANDARD POLYMERS will be

reduced from the year 2006-2007. Loans & Advances value in 2008 will be about

17, 85,102.

5.3.5 CURRENT LIABILITIES

YEAR X X2

Current

Liabilities

(Rs)

Y

XY

(Rs)

’02 – ‘03 -2 4 22,58,576 -45,17,152’03 – ‘04 -1 1 57,45,442 -57,45,442’04 – ‘05 0 0 38,56,338 0’05 – ‘06 1 1 1,44,73,102 1,44,73,102’06 – ‘07 2 4 1,25,88,203 2,51,76,406TOTAL 10 3,89,21,661 2,93,86,914

a = 3, 89, 21,661 = 77, 84,332.2

5

b = 2, 93, 86,914 = 29, 38,691.4

10

Inference:

The table shows that the company’s current liability will be increased from the every

year.

Current Liabilities value in 2008 will be about 1, 66, 00,406.4.

5.3.6 CURRENT ASSET

YEAR

X X2

Current asset

(Rs)

Y

XY

(Rs)

’02 – ‘03 -2 4 21,27,277 -42,54,554’03 – ‘04 -1 1 41,48,921 -41,48,921’04 – ‘05 0 0 59,74,933 0’05 – ‘06 1 1 1,85,09,842 1,85,09,842’06 – ‘07 2 4 2,03,50,240 4,07,00,480TOTAL 10 5,11,11,213 5,08,06,947

a = 5,11,11,213 = 1,02,22,242.6

5

b = 5,08,06,947 = 50,80,694.7

10

Inference:

This table shows that the current asset of the company will be grown at 9times. When

compared to the beginning of the period of study its must be increased. Current Asset value in

2008 will be about 2, 54,64,326.7.

RATIO ANALYSIS:

Ratio Analysis is a powerful tool of financial analysis. A Ratio is defined as

“the indicated quotient of two mathematical expressions” and as “the relationship between

two or more things”. In financial analysis, a ratio is used as a benchmark for evaluating the

financial position and performance of a firm.

Ratio helps to summarize large quantities of financial data and to make

qualitative judgment about the firm’s financial performance.

5.4 RATIO ANALYSIS

5.4.1 Current Assets to Fixed Assets Ratio

The formula for the ratio is Current Assets

Fixed Assets

Current Assets to Fixed Assets Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 0.94:12003 – 04 0.72:1 -0.222004 – 05 1.55:1 0.822005 – 06 1.28:1 -0.272006 – 07 1.62:1 0.34

. Inference: The level of Current Assets can be measured by using this Current Asset to Fixed

Assets Ratio. The level has been fluctuating every year.

00.20.40.60.8

11.21.41.61.8

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Current Asset to Fixed AssetRatio

5.4.2 Current Assets to Total Assets Ratio

The formula for the ratio is Current Assets

Total Assets

Current Assets to Total Assets Ratio

YEAR RATIO

Increase/

Decrease2002 - 03 0.26:12003 - 04 0.48:1 0.222004 - 05 0.62:1 0.142005 - 06 0.59:1 -0.032006 - 07 0.59:1

Inference:The Table shows the Current Assets to Total Assets ratio of the company, which registered a fluctuating trend throughout the study period. This ratio varied from 0.26 to 0.48 times during the study. There is no change for last year.

00.1

0.20.3

0.4

0.50.6

0.7

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Current Assets to TotalAssets Ratio

5.4.3 Net Working Capital Ratio

The formula for the ratio is Net Working Capital

Net Assets

Net Working Capital Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 0.27:12003 – 04 0.12:1 - 0.152004 – 05 0.15:1 0.032005 – 06 0.21:1 0.062006 – 07 0.22:1 0.01

Inference:Net Working Capital is used as a measure of a firm’s liquidity and the firm’s

potential reservoir of funds. It can also be relate to net assets.

The Net Working Capital Ratio from the table shows a fluctuating trend and the

average Net Working Capital Ratio is 0.21 times of Net Working Capital to Net Assets.

Hence it shows that STANDARD POLYMERS has an average liquidity position.

0

0.05

0.1

0.15

0.2

0.25

0.3

'02-'03 '03-'04 04-'05 '05-'06 '06-'07

Net Working Capital Ratio

5.3.4 Inventories to Current Assets Ratio The formula for the ratio is Inventories

Current Assets

Inventories to Current Assets Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 1.30:12003 – 04 0.31:1 -0.992004 – 05 0.31:12005 – 06 0.19:1 -0.122006 – 07 0.23:1 0.04

Inference:From the table it is known that the Inventories to Current Assets Ratio also register a

fluctuating trend during the entire study period.

The average ratio is 0.31 times and thus it is found that the investment in inventories

(being one of the important Current Assets) is kept at the considerable level.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Inventories to CurrentAssets Ratio

5.4.5 Sundry Debtors to Current Assets Ratio The formula for the ratio is Sundry Debtors

Current Assets

Sundry Debtors to Current Assets Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 0.97:12003 – 04 0.68:1 -0.292004 – 05 0.42:1 - 0.262005 – 06 0.65:1 0.232006 – 07 0.63:1 -0.02

Inference:From the table the Sundry Debtors to Current Assets Ratio shows a fluctuating trend

throughout the study period from 2002-03 to 2006-07.

The average ratio is 0.65 times. Hence it implies the credit policy followed by

STANDARD POLYMERS is moderate.

0

0.2

0.4

0.6

0.8

1

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Sundry Debtors to CurrentAssets Ratio

5.4.6 Loans and Advances to Current Assets Ratio

The formula for the ratio is Loans and Advances

Current Assets

Loans and Advances to Current Assets Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 0.02:12003 – 04 0.19:1 0.172004 – 05 0.06:1 -0.132005 – 06 0.15:1 0.092006 – 07 0.02:1 - 0.13

Inference:From the table it is noted that the Loans and Advances to Current Assets Ratio have

registered a fluctuating trend.

It implies that a quarter positions of the Current Assets are kept in for Loans and

Advances; thereby it is found that STANDARD POLYMERS value of Loans and Advances

is considerable.

0

0.05

0.1

0.15

0.2

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Loans & Advances toCurrent Assets Ratio

5.4.7 Cash to Current Assets Ratio

The formula for the ratio is Cash

Current Assets

Cash to Current Assets Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 0.006:12003 – 04 0.015:1 0.092004 – 05 0.01:1 -0.142005 – 06 0.003:1 - 0.0072006 – 07 0.013:1 0.01

Inference:The table shows the details of Cash to Current Assets Ratio and registered a

fluctuating trend throughout the study period from 2002-03 to 2006-07.

Hence we find that STANDARD POLYMERS had maintained a moderate level of

cash in proportion to Current Assets.

00.0020.0040.0060.008

0.010.0120.0140.016

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Cash to Current Assets Ratio

5.4.8 Cash to Working Capital Ratio

The formula for the ratio is Cash

Working Capital

Cash to Working Capital Ratio

YEAR RATIO

Increase/

Decrease2002 – 03 0.11:12003 – 04 0.04:1 - 0.072004 – 05 0.03:1 - 0.012005 – 06 0.07:1 0.042006 – 07 0.06:1 -0.01

Inference:The Cash to Working Capital Ratio registered a fluctuating trend during the study

period this is noted from the table. It was 0.11 times in 2004-05, which sharply increased to

0.04 times in the next year and later for the following years it is fluctuating.

Hence it is found that 4% of the Working Capital ratio is managed by using the cash &

bank balance available in the company.

The policy regard financing the Working Capital in STANDARD POLYMERS can be

said as aggressive policy.

0

0.02

0.04

0.06

0.08

0.1

0.12

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Cash to Working Capital Ratio

5.4.9 Cash to Sales Ratio

The formula for the ratio is Cash

Sales

Cash to Sales Ratio

YEAR RATIO

Increase /

Decrease2002 – 03 0.0007:12003 – 04 0.0026:1 0.00192004 – 05 0.0028:1 0.00022005 – 06 0.0069:1 0.00412006 – 07 0.0064:1 - 0.0005

Inference:This is one of the important ratios of controlling cash. A study of cash to sales ratio

will provide a deep insight into the cash balances held in the concerns.

Evident from the table shows Cash to Sales registered a fluctuating trend throughout

the study period.

0

0.001

0.002

0.003

0.004

0.005

0.006

0.007

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Cash to Sales Ratio

5.4.10 Cash Ratio

The formula for the ratio is Cash

Current liabilities

Cash Ratio

YEAR RATIO

Increase /

Decrease2002 – 03 0.0064:12003 – 04 0.0112:1 0.00482004 – 05 0.0160:1 0.00482005 – 06 0.0044:1 -0.01162006 – 07 0.0221:1 0.0177

Inference:From the table it is noted that the cash position of the STANDARD POLYMERS is

satisfactory.

It is found that the cash required to meet out the current liabilities is maintained at a

normal level.

0

0.005

0.01

0.015

0.02

0.025

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Cash Ratio

5.4.11 Current Ratio

The formula for the ratio is Current Assets

Current liabilities

Current Ratio

YEAR RATIO

Increase /

Decrease2002 – 03 0.94: 12003 – 04 0.72: 1 -0.222004 – 05 1.55: 1 0.832005 – 06 1.27: 1 -0.282006 – 07 1.62: 1 0.35

Inference:This ratio is an indicator of the firm’s commitment to meet its short – term liabilities.

From the table it is clear that the Current Ratio of STANDARD POLYMERS has been

fluctuating from the starting of the study period, later for last year it has been increasing;

hence the Current Ratio is quite satisfactory.

Thus the Current Ratio shows that the company has sufficient funds to meet its short-

term obligations.

00.20.40.60.8

11.21.41.61.8

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Current Ratio

5.4.12 Liquidity Ratio

The formula for the ratio is Liquid Assets

Current liabilities

Liquidity Ratio

Inference:This ratio

helps the

management to

measure short-term

solvency. The

ideal liquid ratio is 1:1

From the table it is clear that STANDARD POLYMERS liquid ratio is more than the ideal ratio during the starting of the study period and later in 2004 - 05 it had reduced slightly, yet for the rest of the period current liabilities were fully secured by liquid assets because the liquid assets were more than the current liabilities and hence the company’s liquidity is satisfactory.

YEAR RATIO

Increase /

Decrease

2002 – 03 0.94: 12003 – 04 0.50: 1 -0.442004 – 05 1.07: 1 0.572005 – 06 1.03: 1 -0.042006 – 07 1.24: 1 0.21

0

0.2

0.4

0.6

0.8

1

1.2

1.4

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Liquidity Ratio

5.4.13 Super Quick Ratio

The formula for the ratio is Super Quick Assets

Quick liabilities

Super Quick Ratio

YEAR RATIO

Increase /

Decrease2002 – 03 0.65:12003 – 04 0.32:1 -0.332004 – 05 0.58:1 0.262005 – 06 0.62:1 0.042006 – 07 0.64:1 0.02

Inference:Super Quick Ratio is the healthy measure of the firm’s liquidity position.

From the table 4.21 it is noted that the liquidity of STANDARD POLYMERS had a steep

slope in between during the year 2003-04, yet it was able to have a slow increase in the

rest of the study period and able to maintain its position.

Hence it shows that STANDARD POLYMERS is able to meet its current

obligations (liabilities).

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Super Quick Ratio

5.4.14 Working Capital Turnover Ratio

The formula for the ratio is sales

Working Capital

Working Capital Turnover

YEAR RATIO

Increase /

Decrease2002 – 03 12.36: 12003 – 04 17.70: 1 5.342004 – 05 11.55: 1 -25.152005 – 06 31.55: 1 20.002006 – 07 5.45: 1 -26.15

Inference:This ratio indicates whether Working Capital has been effectively utilized in making

sales or not.

From the table it is noted that Working Capital had some fluctuation in the middle of

the study period, yet the company was able to increase it in the later years.

Hence the turnover indicates that STANDARD POLYMERS had utilized its Working

Capital efficiently and the company can also try to work on this to get more effective values.

0

510

1520253035

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Working Capital turnoverRatio

5.4.15 Inventories Turnover Ratio The formula for the ratio is Cost of Goods Sold

Average Stock

Inventories Turnover

YEAR RATIO Increase /

Decrease2002 – 03 1.36: 12003 – 04 1.02: 1 -0.342004 – 05 1.02: 1 02005 – 06 1.02: 1 02006 – 07 1.53: 1 0.51

Inference:This ratio indicates whether investment in inventory is efficiently used or not and

whether the investment is within proper limits.

From the table it is found that the Inventory turnover Ratio of STANDARD

POLYMERS had some fluctuations in the starting of the study period then it had a growth in

it.

Hence the efficiency of inventory control in STANDARD POLYMERS shows a

satisfactory position.

00.20.40.60.8

11.21.41.6

'02-'03

'03-'04

'04-'05

'05-'06

'06-'07

Inventories tor Ratio

5.4.16 Debtors Turnover Ratio

The formula for the ratio is Sales

Sundry Debtors

Debtors Turnover

YEAR RATIO

Increase /

Decrease2002 – 03 7.84: 12003 – 04 8.54: 1 0.702004 – 05 8.49: 1 -0.052005 – 06 3.30: 1 -5.192006 – 07 3.26: 1 -0.04

Inference:This is one of the techniques employed by the company with regard to the collection

of the receivables through effective management of collection policy with the help of

factoring services.

From the table it shows that the Debtors’ turnover Ratio had satisfactory increase in

the starting of the study period. However, in middle of the study period it had slight

fluctuations, the company was able to raise it in the next year.

0123456789

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Debtors turnover Ratio

5.4.17 Debt Collection Period Ratio

The formula for the ratio is Days in a Month

Sundry Debtors turnover

Debt Collection Period Ratio

YEAR RATIO

Increase /

Decrease2002 – 03 46.52003 – 04 42.7 -3.82004 – 05 81.29 39.792005 – 06 110.6 29.312006 – 07 111.9 1.3

Inference:This ratio indicates the extent to which the debts have been colleted in time. It gives

the average debt collection period.

STANDARD POLYMERS use this ratio to find out whether their borrowers are

paying on time. From the table it is found that throughout the study period the collection

period is fluctuating and is within the average.

0

20

40

60

80

100

120

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Debt Collection PeriodRatio

5.4.18 Cash Interval Measure Ratio The formula for the ratio is Current Assets – Inventories

Avg. Daily Operating Exp.

Cash Interval Measure Ratio

YEAR RATIO

Increase /

Decrease2002 – 03 135.142003 – 04 104.27 -30.892004 – 05 136.44 32.172005 – 06 144.72 8.282006 – 07 146.13 1.41

Inference:This ratio examines the firm’s ability to meet its regular cash expenses.

The defensive interval measures the time period for which a firm can operate on the

basis of present liquid assets without resorting to the next year’s revenue.

This ratio of STANDARD POLYMERS, from the table shows that the company can

meet its operating cash requirements within a period of 105 to 146 days without resorting to

next year’s income.

020406080

100120140160

'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Debt Collection PeriodRatio

CHAPTER VI

6.1 FINDINDS

The cash management of STANDARD POLYMER has been working well in the

organization.

The Funds from operations of a company has been increased from year by year.

The cash from operations has been find that it used as efficient.

The cash inflow and outflow of cash flow statement have a cash balance will be

increased 4.2 times when compared to last year balance.

Current Ratio shows that the company has sufficient funds to meet its short-term

obligations.

The company’s Liquidity Ratio shows a satisfactory trend.

Super Quick Ratio shows that STANDARD POLYMER is able to meet its current

obligations (liabilities)..

The efficiency of inventory control in STANDARD POLYMER shows a satisfactory

position..

The Cash Ratio shows that the cash required to meet out the current liabilities is

maintained at a normal level hence, it shows that STANDARD POLYMER follows an

average policy.

Interval Measure Ratio shows that the company can meet its operating cash

requirements within a period of 105 to 146 days without resorting to next year’s

income.

The Current Assets to Total Assets Ratio implies that STANDARD POLYMER is

maintaining a considerable level of Current Assets in proportion to Total Assets.

The average Cash to Current Assets is maintained at 0.009 times. Hence, it is found

that the company had maintained a moderate level of cash in proportion to Current

Assets.

The average ratio of Inventories to Current Assets is 0.46 times and thus it is found

that the investment in inventories.

The average ratio of Sundry Debtors to Current Assets is 0.67 times. Hence it implies

that the credit policy followed by STANDARD POLYMERS is moderate.

The loans and Advances to Current Assets ratio of the company imply that a quarter

positions of the Current Assets are kept in for loans and advances, which is

considerable.

The policy regard financing the Working Capital in STANDARD POLYMER can be

said as Aggressive policy according to the Cash to Working Capital Ratio.

The average cash to sales ratio is 0.004 times and which indicates that only 0.4% of

sales has been maintained as cash with the business.

6.2 SUGGESTIONS & RECOMMENDATIONS

STANDARD POLYMER should try to match their Cash with the sales. In case of

surplus Cash, it should be invested either in securities or should be used to repay

borrowings.

The company should try to prepare a proper ageing schedule of debtors. This will help

them to reduce the bad debts and speed up collection efforts.

The company should be prompt in making payments so as to enjoy cash discount

opportunities

The company should determine the optimum cash balance to be kept.

The company followed an aggressive policy of financing working capital should try to

finance 50% of their working capital using long term source and improve their status.

The current Ratio of 2:1 is considered normally satisfactory. STANDARD

POLYMER should try to improve the current ratio. So it should invest large amount in

current ratio, in order to maintain liquidity and solvency position of the concern.

The company should try to follow a matching policy for financing current Assets (i.e.)

using both long term and short-term sources of finances.

CHAPTER VII

CONCLUSION

The Cash Management Analysis done on the financial position of the company

has provided a clear view on the activities of the company. The use of the ratio analysis, trend

analysis, Cash Flow Statement and other accounting and financial management helped in this

study to find out the financial soundness of the company.

This project was very useful for the judgment of the financial status of the

company from the management point of view. This evaluation proved a great deal to the

management to make a decision on the regulation of the funds to increase the sales and bring

profit to the company.

Before I conclude I wish to convey my thankfulness in regard to the training

given to me in STANDARD POLYMER. It gave me extreme satisfaction and practical

knowledge of the financial activities carried out in the company. The kindness, attention, and

immense co-operation extended to me buy all the officials in the company made my project

easy and comfortable. Really it was a very pleasant experience in STANDARD POLYMER.

CHAPTER VIII

8.1 SCOPE OF THE STUDY

It helps to take short term financial decision.

It indicates the cash requirement needed for plant or equipment expansion

programmes. To find strategies for efficient management of cash.

It helps to arrange needed funds on the most favourable terms.

It helps to meet routine cash requirement to finance the transaction.

It reveals the liquidity position of the firm by highlighting the various sources

of cash and its uses.

8.2 LIMITATIONS OF THE STUDY

• The study is restricted only to STANDARD POLYMERS. Being a case

study, the findings cannot be generalized.

• The study does not take into account the inflation.

• The study takes into account only the quantitative data and the qualitative

aspects were not taken into account

BIBILIOGRAPHY

BOOKS:

S.N. Maheshwari, Financial management, Eleventh Edition 2006,

Sultan Chaqnd & Sons, Educational Publishers. New Delhi.

I.M Pandey, Financial management, Ninth Edition, Vikas publishing

house pvt Ltd.

M.Y Khan- P.K Jain, Management Accounting, Third edition, Tata Mc

Graw-Hill Publishing co. Ltd

B.L. Gupta, Management of Liquidity and Profitability, Arihant

Publishing House, Jaipur.

WEBSITE:

www.finance india .org

www.fao.org