1.

1 INTRODUCTION

Many Indian companies are caught in financial crisis of varying degree

because of the less efficient working capital management. The objective of Corporate
Excellence viz., Quality products, Satisfied Customers, Employees and Investors,
High profitability and Comfortable funds position etc., can be achieved through
increased productivity of capital, particularly the working capital.

Your business has been reaping huge profits for years now, when all of
sudden you find yourself in need of fast cash. If you have tried several solutions
without success, you may be interested in learning more about accounts receivable
management.

ACCOUNTS RECEIVABLE MANAGEMENT:

An account receivable is the money owed to a company by a consumer for

products and services purchased on credit. This is usually treated as a current asset of
accounts receivable after the customer is sent an invoice. Accounts receivable are
known by various names, such as accounts receivable aging, accounts payable, days
receivable, accounts receivable turnover and invoice factoring.

According to the experts, accounts receivable or invoice factoring is one of a

series of accounting transactions. These accounting transactions deal with the billing
of customers who owe money to a person, company or organization for goods and
services purchased. If you are seriously considering using accounts receivable as a
method of obtaining a more liquid asset, then it is wise to hire accounts receivable
management specialists.

Accounts receivable management specialists can help you in a variety ways:

 It can cut and maintain your average collection delay or DSO
 It can lessen your direct and indirect expenses
 It can considerably reduce your bad debt
 It can tell you various ways to take advantage of your cash-
flow
 It can help you capitalize on your internal resources

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  It can maximize your interventions on sales, service and market
share.

Hiring the best accounts receivable management will clear up the common
misconception that the selling of accounts receivable is a loan. Accounts receivable
are the amounts that customers owe a business; this is clearly shown on a company's
balance sheet.

Some also call accounts receivable trade receivables and try to classify them
as current assets. Accounts receivable management’s main goal is to take care of all
these debts and to record sales of accounts; one must debit a receivable and credit a
revenue account. Accounts receivable management also looks into issues such as
recognizing accounts receivable, valuing accounts receivable, and disposing of
accounts receivable.

CREDIT MANAGEMENT:

Trade credit creates amount receivables or trade debtors also referred to as

book debts in India that the firm is expected to collected in near future. The
customers from whom receivables or book debts have to be collected in the future
are called trade debtors.

A credit sale has 3 characteristics:

 Involves an element of risk that should be carefully analyzed.
 Based on economic value.
 Implies futurity.

➢ Credit policy: Nature and Goals:

A firm investment in accounts receivables depends on:

 The volume of credit sales
 The collection period.
There is only one way in which the financial management can affect the volume
of credit sales and collection period, consequently invest in accounts receivables that

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is through the change in credit policy is sure to refer to the combination of decision
variables.
➢ Credit standards:

Credit standards which have criteria to decide the types of customers which
have criteria to decide the types of customers to whom goods could be sold on
credit. If a firm has more slow playing customers it’s invest in account receivables
will increase. The firm will also be exposed to higher risk of default.

➢ Credit terms:

Credit terms specify duration of credit payment by customers. Investment in

account receivables will be high if customers are allowed extended time period for
making payments.

➢ Collection efforts:

Collection efforts determine the actual collection period. The lower the
collection period is, the lower the investment in account receivables & vice versa.

Goals of credit policy:

A firm may follow a lenient or a stringer credit policy. The firm following a
lenient credit policy tends to sell on credit to customers on very liberal terms and
standards credit is granted for longer periods over to those customers who credit
worthiness is not fully known or whose financial position is doubtful.

1.2 COMPANY PROFILE

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 GTC (P) LTD. (General Trading Company) was established on 23.12.04 by
Mr. S. Khaja Alimudeen and Mr. M.B. Habeeb Rahman.

GTC (P) LTD. (General Trading Company) is dealing with imported coal and
processed coal. The coal is mainly imported from Indonesia, China and South Africa.
The company is supplying coal to Steel Industries, Rolling mills, Sponge iron mills,
Power plants, sugar Industries and Brick chambers etc...

GTC (P) Ltd. (General Trading Company) earned a remarkable and renowned
name in the Coal Industries, in the span of Five Years, with its Quality, Prompt
Delivery and Service. By taking this as challenge, delivering the finest imported coal
from South Africa, Indonesia, China and other countries to all over India to become a
leader of this field.

Its achievements in this past five years paved the way towards it. By the Hard
work and Corporate Vision all put in together, it is heading to a sharp lead in the
market to become number one in the short time.

The company is delivering all varieties of Coal to all over South India and
supporting Cement industries, Steel industries, Tea industries etc... GTC is also
playing a vital Role in Brick Industries. Major Chambers in and around South India
and Hundreds of Large and small scale Industries are already in our list.

Products:

Supplies and imported of Lignite coal, Sub- Biuminous coal, Anthracite coal,
Bituminous coal, Coke coal, Matallurgical coke coal, Pet coke coal to all steel, tea,
brick industries etc.,

Vision:

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 “It is leading to a sharp lend is the market to become number one in the short
time”

Our value:

“We shared value is the way we want our company to be run and to be
perceived by others. We also constitute the basic and style for interaction with each
other within the company and outside. GTC has inherited value and this has become
the basic for the way we run our business and people transactions.”

SWOT Analysis of GTC

Strengths:

➢ Strong and Growing economy

➢ Low labour cost and High productivity
➢ Flexibility of adopting innovative technologies
➢ Large consumer base
➢ Rich geological resource base

Weakness:

➢ Deficit infrastructure
➢ Socio – political interventions
➢ High cost of finance

Opportunities:

➢ Strengthening of logistics in coal distribution - In India, the logistics

infrastructure such as ports and railways are overburdened and costly and act
as bottlenecks in development of free market.
➢ Privatization of ports may bring the needed efficiencies and capacities. In
addition, capacity addition by the Indian Railways is necessary to increase
freight capacity from the coal producing regions to demand centers in the
northern and central parts of the country. On the Indian rail network, freight

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 trains get a lower priority than passenger trains, a problem that promotes
delays and inefficiency. Special freight corridors would raise speeds, cut costs,
and increase the system's reliability.
➢ Considerable potential exists for setting up manufacturing units for value
added products.
➢ There exists considerable opportunities for future discoveries of sub-surface
deposits with the application of modern techniques.
➢ Current economic mining practices are generally limited to depths of 300
meters and 25 percent of the reserves of the country are beyond this depth.
➢ In India demand for coal is 90%.
➢ Coal is used in all the power plants
➢ Instead of Furnace oil coal is used in many industries.

Threats:

➢ The coal is very cyclical product with sharp swings in its price. Downward
movement in the coal prices would adversely affect the margins of the
company.
➢ The high level of integration in operation, wide range of product mix location
advantages are the inherent strength of our company to pass through the cycles
successfully.

Company with its dynamic tycoons:

• M/s ETA – Dubai

• M/s. Coastal Energy
• M/s. Stat Coal India
• M/s. Bhatia International’s
• M/s. Star Coal India Pvt ltd.
GTC valuable Customers:
• Cement Giant M/s Associated Cement Company (ACC)
Madukkarai Plant
• Tea Companies like M/s. AVT Naturals Products India and so on.
• Sugar Companies like, M/s. EMPEE Sugars & Distilleries and
many others.

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 • Steel Companies like, M/s. Insha Steel Rolling Mill, Coimbatore
• M/s. Kamatchi steels,HKT Bellari
• M/s. Premium Ferro Alloys, Cochin
• M/s. Jaisankar Steels Pvt. Ltd., Ernakulum
• M/s. Alwaye Metals, Alwaye
• M/s. S.R. Steels. Dindikal
• M/s. Amman steels, Trichy
• Paper Mills like M/s. Venkateshwara Paper Mill
• M/s. Prime Traders
• Playing a vital role in Brick Industries, whom our major customers
are The Tamilnadu Brick and Tile Manufacturer’s Industrial
Service Co-operative Society Limited and
• Brick Association of Tharapuram and Major Chambers in and
around south India.

1.3 PRODUCT PROFILE

Products:

Supplies and imported of Lignite coal, Sub- Biuminous coal, Anthracite coal,
Bituminous coal, Coke coal, Matallurgical coke coal, Pet coke coal to all steel, tea,
brick industries etc.,

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Coal types:
Types of coal
• Lignite coal
• Subbituminous coal
• Anthracite coal
• Coke
• Metallurgical coke
• Petcoke

FACILITY:
Lignite coal:

Lignite coal is the lowest rank of coal, often referred to as brown coal, used
almost exclusively as fuel for steam-electric power generation. It is brownish-black
and has a high inherent moisture content, sometimes as high as 45 percent. The heat
content of lignite ranges from 9 to 17 million Btu/ton (10 to 20 MJ/kg) on a moist,
mineral-matter-free basis. The heat content of lignite consumed in the United States
averages 13 million Btu/ton (15 MJ/kg), on the as-received basis (i.e., containing both
inherent moisture and mineral matter).

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Subbituminous coal:

Subbituminous coal is a coal whose properties range from those of lignite to

those of bituminous coal and is used primarily as fuel for steam-electric power
generation. It may be dull, dark brown to black, soft and crumbly at the lower end of
the range, to bright, jet-black, hard, and relatively strong at the upper end.
Subbituminous coal contains 20 to 30 percent inherent moisture by weight. The heat
content of subbituminous coal ranges from 17 to 24 million Btu per ton on a moist,
mineral-matter-free basis. The heat content of subbituminous coal consumed in the
United States averages 17 to 18 million Btu/ton (20 to 21 MJ/kg), on the as-received
basis (i.e., containing both inherent moisture and mineral matter).

Bituminous coal is a dense coal, usually black, sometimes dark brown, often
with well-defined bands of bright and dull material, used primarily as fuel in steam-
electric power generation, with substantial quantities also used for heat and power
applications in manufacturing and to make coke. Bituminous coal is the most
abundant coal in active U.S. mining regions. Its moisture content usually is less than
20 percent. The heat content of bituminous coal ranges from 21 to 30 million Btu/ton
(24 to 35 MJ/kg) on a moist, mineral-matter-free basis. The heat content of
bituminous coal consumed in the United States averages 24 million Btu/ton (28
MJ/kg), on the as-received basis (i.e., containing both inherent moisture and mineral
matter).

Anthracite coal:
Anthracite coal is the highest rank of coal; used primarily for residential and
commercial space heating. It is hard, brittle, and black lustrous coal, often referred to
as hard coal, containing a high percentage of fixed carbon and a low percentage of
volatile matter. The moisture content of fresh-mined anthracite generally is less than
15 percent. The heat content of anthracite ranges from 22 to 28 million Btu/ton (26 to
33 MJ/kg) on a moist, mineral-matter-free basis. The heat content of anthracite coal
consumed in the United States averages 25 million Btu/ton (29 MJ/kg), on the as-
received basis (i.e., containing both inherent moisture and mineral matter). Note:
Since the 1980s, anthracite refuses or mine waste has been used for steam electric
power generation. This fuel typically has a heat content of 15 million Btu/ton (17
MJ/kg) or less.

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Coke:
Coke is a solid carbonaceous residue derived from low-ash, low-sulfur
bituminous coal from which the volatile constituents are driven off by baking in an
oven at temperatures as high as 2,000 F (1,000 C) so that the fixed carbon and
residual ash are fused together. Coke is used as a fuel and as a reducing agent in
smelting iron ore in a blast furnace. Coke from coal is grey, hard, and porous and has
a heating value of 24.8 million Btu/ton (29 MJ/kg). Byproducts of this conversion of
coal to coke include coal-tar, ammonia, light oils, and "coal-gas". (Coke can also be
made from petroleum).

Metallurgical coke:
Metallurgical coke, also known as “Met” coke, is a carbon material manufactured
by the “destructive distillation” of various blends of bituminous coal. Met coke has a
very low volatile content. However, the “ash” constituents remain encapsulated in the
resultant coke. Typical purities range from 88-92% fixed carbon. Metallurgical coke
is used where a high quality, tough, resilient, wearing carbon is required. Applications
include but are not limited to conductive flooring, friction materials, foundry coatings,
foundry carbon raiser, corrosion materials, drilling applications, reducing agents,
heat-treatment, ceramic packing media, electrolytic processes, and oxygen exclusion.
Blast furnace coke is used in the blast furnaces of steel mills. It is the largest traded
coke by volume and is produced in several countries with China being the largest
producer and exporter.

Petcoke:
Petcoke is a solid carbonization by-product of high-boiling hydrocarbon
fractions obtained in petroleum processing. There are many different variations and
consistencies of petroleum from which the coke is derived. It is the general term for
all special petroleum coke products such as green, calcined and needle petroleum
coke. There is over 60 Million tons of petcoke produced around the world annually.

INDIAN COAL

India is the world's third largest coal producer (after China and the United
States), so most of the country's coal demand is satisfied by domestic supplies. Indian
coal generally has a high ash content and low calorific value, so most coking coal

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must be imported. Major Indian coal fields are found in Bihar, West Bengal, and
Madhya Pradesh.

The Indian government controls almost all coal production. Nearly all of India's
390 mines are under Coal India Ltd. (CIL), which accounts for about 90% of the
country's coal production.

India has seven per cent of the world’s proven coal reserves. Coal meets
approximately 63 % of the country’s total energy requirements. By current estimates
the reserves are enough to meet India’s needs for at least another 100 years.

Coal (hard coal and Lignite) is the predominant primary commercial energy
source in India. Its share in total commercial energy since 1970-71 is more or less
consistent around 62% in spite of increasing share of Natural Gas. The ash/mineral
matter of Indian Coal is of inherent nature i.e. intimately mixed with coal mass at the
time of formation resulting in different cleaning characteristics.

Indian Coal, in spite of the handicap of high ash, has many positive
characteristics particularly with respect to environmental aspects and end-use. These
are:

 Low Sulphur content

 High Ash Fusion Temperature

 Low Iron Content in Ash

 Refractory Nature of Ash

 Low chlorine content

 Low Toxic Trace Elements

In 1972-73, the Indian government nationalized the coal industry, primarily to

develop the sector, since it was considered to be of strategic importance for rapid
industrial development. Coal India Ltd (CIL) was incorporated as a holding company
for seven coal producing subsidiaries and a planning and design-focused company.

Indian coal is of mostly sub-bituminous rank, followed by bituminous and lignite

(brown coal). The ash content in Indian coal ranges from 35% to 50%.

PRODUCT RANGE FOR INDUSTRIES:

PRODUCT 1.

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 Imported Steaming Coal (Indonesia) – Chennai Port
Gross Calorie Value 6300 +/- 50 Kcal/kg
Total Moisture 17-18 %
Inherent Moisture 10-11%
Ash Content 06-07%
Volatile Matter 40-42 %
Fixed Carbon By Difference
Total Sulphur < 1%
Size 0-50mm

PRODUCT 2.

Imported Steaming Coal (Indonesia) – Chennai Port

Gross Calorie Value 6100 +/- 50 Kcal/kg
Total Moisture 13-14 %
Inherent Moisture 05-06%
Ash Content 14%
Volatile Matter 40-42 %
Fixed Carbon By Difference
Total Sulphur < 0.8%
Size 0-50mm

PRODUCT 3.

Imported Steaming Coal (Indonesia) – Chennai Port

Gross Calorie Value 5650 +/- 50 Kcal/kg
Total Moisture 26%
Inherent Moisture 12%
Ash Content 04%
Volatile Matter 42 %
Fixed Carbon By Difference
Total Sulphur < 0.8%
Size 0-50mm

PRODUCT 4.

Imported Steaming Coal (Indonesia) – Chennai Port

Gross Calorie Value 5500 +/- 50 Kcal/kg

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 Total Moisture 30 %
Inherent Moisture 14%
Ash Content 05%
Volatile Matter 42 %
Fixed Carbon By Difference
Total Sulphur < 1%
Size 0-50mm

PRODUCT 5.

Imported Steaming Coal (Indonesia) – Tuticorin Port

Gross Calorie Value 5900 +/- 50 Kcal/kg
Total Moisture 24 %
Inherent Moisture 14%
Ash Content 04%
Volatile Matter 38-40 %
Fixed Carbon By Difference
Total Sulphur < 0.9%
Size 0-50mm

PRODUCT 6.

Imported Steaming Coal (Indonesia) – Tuticorin Port

Gross Calorie Value 5650 +/- 50 Kcal/kg
Total Moisture 26%
Inherent Moisture 12%
Ash Content 04%
Volatile Matter 42%
Fixed Carbon By Difference
Total Sulphur < 0.8%
Size 0-50mm

PRODUCT 7.

Imported Steaming Coal (Indonesia) – Tuticorin Port

Gross Calorie Value 5500 +/- 50 Kcal/kg
Total Moisture 30%
Inherent Moisture 14%

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 Ash Content 05%
Volatile Matter 42 %
Fixed Carbon By Difference
Total Sulphur < 1%
Size 0-50mm

PRODUCT 8.

Processed Coal – Tuticorin Port

Gross Calorie Value 5800 +/- 50 Kcal/kg
Total Moisture 24%
Inherent Moisture 16%
Ash Content 04%
Volatile Matter 38-40 %
Fixed Carbon By Difference
Total Sulphur 0.9% max
Size Above 25mm

Contents:

Coal contains many trace elements, including arsenic and mercury, which are
dangerous if released into the environment. Coal also contains low levels of uranium,
thorium, and other naturally-occurring radioactive isotopes. Chemical composition of
the coal is defined in terms of its proximate and ultimate (elemental) analysis. The
parameters of proximate analysis are moisture, volatile matter, ash, and fixed carbon.
Elemental or Ultimate analysis encompasses the quantitative determination of carbon,
hydrogen, nitrogen, sulfur, and oxygen.

Calorific Value:

The calorific value or heat of combustion or heating value of a sample of fuel is

defined as the amount of heat evolved when a unit weight ( or volume in the case of a
sample of gaseous fuels ) of the fuel is completely burnt and the products of
combustion cooled to a standard temperature of 298 degree K.
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The quality of coal depends upon its rank and grade. The coal rank arranged in an
ascending order of carbon contents is Lignite → sub bituminous coal → bituminous
coal → anthracite.

Consumption:

Coal is the dominant commercial fuel in India, satisfying more than half of
India's energy demand. Power generation accounts for about 70% of India's coal
consumption, followed by heavy industry. Coal consumption is projected in the
International Energy Annual 2004 to increase to 430 million short tons (Mmst) in
2010, up from 359 million short tons (Mmst) in 2000. Demand has been rising at an
annual rate of 5 per cent since 1992-93. Demand from the power sector, which
accounts for over 70 per cent of coal off take, was 214 million tons in 1997-98. Other
users include iron and steel mills, cement plants, foundries, fertilizers producers,
paper manufacturers, brick kilns etc.

Coal consuming sectors comprising:

 Thermal power plants accounting for nearly 68% of the total coal off-take.

 Steel plants, cement plants, railway, fertilizer plants etc. accounting for
over 14% of the total coal off-take

 Textiles, refractory’s, foundries, paper mills, chemical industries etc.

numbering over 20,000 units.

 Over a 100,000 brick-kilns, tobacco growers, tea garden and millions of

households.

ELECTRICITY:

India is trying to expand electric power generation capacity, as current generation is

seriously below peak demand. Although about 80% of the population has access to
electricity, power outages are common, and the unreliability of electricity supplies is
severe enough to constitute a constraint on the country's overall economic
development. The government had targeted capacity increases of 100,000 megawatts

15
(MW) over the next ten years. As of January 2002, total installed Indian power
generating capacity was 120,000 MW. Owing to population growth and economic
development, India's energy consumption has been increasing at one of the fastest
rates in the world.

Why Coal as Fuel?

Worldwide, coal is enormously important. It is the world's most abundant and

widely distributed fossil fuel. It is economic.
Coal is the major fuel for generating electricity worldwide. More than 45 percent of
the world's electricity is generated from coal.

Coal is used in at least three-quarters of all steel making and it has other
industrial uses as well. Around four thousand million tons of coals are mined every
year in more than proved environment in the developed world or an improved
standard of living in the developing world, the fact is that 87% or more of the world's
primary energy is derived at present from fossil fuels, oil, gas and coal. And the
greatest of these three energy, coal is expected to continue its primary role in the
world scenario in the near future also.
Advanced coal-fired power generation technologies should be developed
worldwide to generate at minimum economic coal, improve thermal efficiency and
meet environmental requirements.

World Coal Reserves:

Coal is one of the most significant natural resources in the world, with extensive
reserves in almost 100 countries, estimated in 1996 at around one thousand billion (1
x 1012) tones of coal reserves economically accessible using current mining
technology. The world’s major hard coal producers are China, the USA, India, South
Africa, Australia, Russia, Poland, Kazakhstan and the Ukraine. Coal is mostly used in
the region it is produced but about 12% is traded between countries. Australia, the
USA and South Africa are the largest exporters of coal.

At current production levels, there is enough coal to last over 200 years, not
taking in account other reserves which might be proved by on-going exploration or

16
become accessible through improvements in mining technology. Known world oil and
gas reserves will be largely exhausted within 45 to 60 years time. Growth in demand
for coal for energy and steel making is expected to drive increased worldwide coal use
from around 5.3 billion tons per annum (btpa) at present to 7.6 btpa by 2020.

2.1 NEED FOR THE STUDY

Business activity is dynamic in character and subject to wide fluctuations.

Most firms treat account receivables as marketing tool to promote sales and profits.
Every firm has a set of credit terms and policies under which goods are sold on credit

17
and every policy has a cost and benefit associated with it. This project attempts as to
how to manage the accounts receivable and the impact of it.

In a competitive environment sometimes the firms are compelled and

sometimes the firms desire to adopt liberal credit policies for pushing up the sales and
the factoring has been done. So a careful analysis of various aspects of the credit
policy is required. That is why “Appraisal of Receivable Management” is done.

2.2 OBJECTIVE OF THE STUDY

Primary Objective:

To study the effectiveness of managing accounts receivables and the impact

of the same.

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Secondary Objective:

➢ To analyze the receivable management performance of the GTC for a

period of three years from 2006 – 2009 through ratio analysis.

➢ To find out the efficiency of collection performance comparative

statement analysis.

➢ To analyze the receivable of major dealers by segregating the

outstanding into various categories.

➢ To find out the trend analysis of the company, correlation co-efficient of

the company.

2.3 SCOPE OF THE STUDY

Receivables means “Collecting the debt owed to the company, by the

customers arising from the sale of goods or services in the ordinary course of business
money owned by customers/ individuals/ corporation to another entity in exchange for
goods and services that have been delivered or used by not yet paid for receivable
usually come in the form of operating lines of credit and are usually due within a
relatively short time period.

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 The sale of goods on credit is an essential part of any modern and
competitive economic system like India. Credit sale and therefore receivables are
treated as marketing tools to aid the sale of goods. The study aims at analyzing the
debtors and outstanding or amount of its company. It is hoped that this study will help
the company in reducing its investment in Accounts Receivables.

2.4 LIMITATION OF THE STUDY

✔ The study has taken into account only three years for comparative analysis.

✔ Time and other resources have proved to be a constraint.

✔ It has always not been possible to get the full information.

✔ Since the study is based only on secondary data, so the reliability of

information may not be ensured.

✔ No primary data is used for the study.

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 2.5 REVIEW OF LITERATURE

MEANING OF ACCOUNTS RECEIVABLES:

Accounts receivable is one of a series of accounting transactions dealing with

the billing of customers who owe money to a person, company or organization
for goods and services that have been provided to the customer. In most business
entities this is typically done by generating an invoice and mailing or electronically
delivering it to the customer, who in turn must pay it within an established timeframe
called credit or payment terms.

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 While booking a receivable is accomplished by a simple accounting
transaction, the process of maintaining and collecting payments on the accounts
receivable subsidiary account balances can be a full time proposition. Depending on
the industry in practice, accounts receivable payments can be received up to 10 - 15
days after the due date has been reached. These types of payment practices are
sometimes developed by industry standards, corporate policy, or because of the
financial condition of the client.

OBJECTIVE OF RECEIVABLE MANAGEMENT:

From creation of receivables the firm gets a few advantages & it has to bear
bad debts, administrative expenses, financing costs etc. In the management of
receivables financial manager should follow such policy through which cash
resources of the firm can be fully utilized. Management of receivables is a process
under which decisions to maximize returns on the investment blocked in them are
taken.

Thus, the main objectives of management receivable are to maximize

the returns on investment in receivables & to minimize risk of bad debts etc. Because
investment in receivables affects liquidity and profitability, it is, therefore, significant
to maintain proper level of receivables. Efficient credit management helps to increase
the sales of the firm.

• To optimize the amount of sales.

• To minimize cost of credit.
• To optimize investment in receivables.
• To establish a balance between profitability and risk (cost).
A business can afford to invest in its receivables unless the marginal costs and
marginal profits are the same. Although the level of receivables is affected by various
external factors like standards of industry, economic conditions, seasonal factors, rate
of competition etc, management can control its receivables. Though credit policies,
credit terms, credit standards and collection procedures.

FACTORING:

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 Factoring is the sale of invoices or Accounts Receivable at a discount. It is a way
for the business to generate cash and improve cash flow without taking on additional
debt.

Traditionally, factoring was a financing service used by the textile and furniture
industries. Today however, factoring has become a financing standard in just about
any industry that created Accounts Receivable by extending terms to its customers.

Why do companies factor their Accounts Receivable?

Simply put, to generate cash flow. Factoring provides immediate working capital
for companies facing a short term cash constraint. Most companies that choose
factoring are not currently able to qualify for a traditional loan from their bank or
companies who are growing faster than their bank is willing to extend credit.

Due to credit policies and regulatory constraints, banks typically need to see 2
years of profits, minimal leverage and a certain amount of cash flow for debt
coverage. Companies that do not meet these characteristics and does not have any real
estate to pledge as collateral can many times find itself on the outside looking in.
However, companies with Accounts Receivable (a current asset but not cash) can use
them to generate cash for their day to day working capital needs.
When a company sells its product or service on terms, it typically creates an
invoice. This outstanding invoice for completed work can be called an Accounts
Receivable. Instead of waiting to receive the cash when the customer remits payment,
the business may decide to factor the receivable and immediately receive the cash. In
order to have instant access to funds, the company is charged a nominal fee.

In GTC factoring done by GLOBAL TRADERS Tuticorin and the commission

paid for them is half of the receivables.

BENEFITS

Although every business is different and their reasons for Factoring may not be the
same, the following benefits are representative of most situations:
 Additional cash is immediately available

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  Quick and easy to set up
 It is temporary (no long term contracts required) and flexible (frequency and
amount of funding is optional)
 No additional debt is created as it is "Off Balance Sheet" financing
 Owner avoids giving up equity or control of the company
 Unlimited source of Working Capital - the funds available grows as the
company's sales grow

THE BANKER OF GTV.PVT/LDS:

1. Punjab National Bank Limited

2. Indian Bank
3. HDFC Bank Limited

Immediate cash requirement:

The immediate cash requirements of the company are met through the
Temporary Bank Overdrafts and Bills Discounting.

Bank Overdrafts:

GTC pvt ltd makes use of the temporary “O.D” facilities offered by its
bankers to meet its immediate cash requirement. Under this facility, the company is
allowed to withdraw funds in excess of the balance in its current account up to certain
specified limit during a stipulated period. The borrowing power will be the difference
between the current assets and current liabilities i.e., working capital after deducting
the margin amount.

Bills discounting:

Bills discounting is the another sources, in addition to bank overdraft, by

which the company meets its immediate cash requirements. In this process, the
company draws bills of exchange for products on buyers, and then discounts it with
its bankers for a charge. The banker will give an account, discounting the charge of
the bank from the full amount of the bill, and collects the full amount on maturity.

24
The amount provided by the bank is covered within the overall credit limit. Though
the banker becomes the owner of the bill, he holds them as a security of the credit. In
this case, the transaction is between the companies and the bankers and if the dealer
fails to pay the amount within the stipulated period, the company has to pay back the
money. The company, GTC pvt ltd also handles the discounting of bills or Hundies
rose by its suppliers.

CREDIT MANAGEMENT:

Trade credit is considered as an essential tool, acting as a bridge for the

movement of the products through production and distribution stages to customers.
When the firm sells its product or services and do not receive the cash for it
immediately the firm is said to have granted trade credit to the customers. Trade credit
thus, creates receivables or book debts which the firm is expected to collect in the
near future.
Receivables constitute a substantial portion of current assets of several firms.
In India debtors, after the inventories, are the major components of the current assets.
They form one-third of the current assets in India. Granting credit and creating debtor
amount to the blocking of funds. The internal between the date of the sale and the date
of payments has to be financed out of the working capital. Thus, trade debtors
represent investment. As substantial amounts are tied up in trade debtors, it needs
careful analysis and proper management.

CREDIT POLICY AND PRACTICES AT GTC PVT LIMITED

The sales of the company GTC pvt Limited, goes on cash and as well as
credit terms. The trading division of the GTC Pvt Limited sells its products, which it
receives from the factories on a credit period o 45 days, through the branches of the
company located all over the country. The branches in turn, will sell these products to
the dealers of the company all over the country.

CREDIT POLICY:

The company GTC Pvt Limited extends a credit period of 21 days to its
dealers. It waits for a period of 45 days for the payments from the customers.

25
CASH DISCOUNT

Cash discount is a reduction in payment offered to the customers to induce

them to repay credit obligation within a specified period of time, which will be less
than the normal credit periods. It is usually expressed as a percentage of sales. Cash
discount terms indicate the rate of discount and the period for which it is available.

ANALYSIS OF DEALERS:

One of the main strengths of the company is its good dealer network,
spreading throughout the country. It has around 5000 dealers all over south India. The
company looks for the following factors in granting the credit to its dealers.
➢ Looks for the period of presence of the dealer in the business
➢ Looks for the character of the dealer i.e., his willingness to pay. The moral
factor is of considerable importance in credit Evaluation.
➢ Looks for his ability to pay. This is evaluated by his financial position and the
bank guarantee given by him.
Based on the above factors the company analyses the customers and determine the
credit limit to them every six months, the company goes for the review of the
customers.
When a dealer is found to be regular in playing the dues within 21 days, the
company may go for increase in credit limit for the dealer. In the small way, new
dealer are taken into consideration and given the credit.
The company gives a margin of “Three Percentage” to its dealers.

COLLECTION PROCEDURES:

The company follows a system of centralized control and decentralized

collection. The company does not employ and collection agency for its collection
activities. The trading division receives statements of sales and outstanding daily from
all the branches in the country, to initiate appropriate actions. The sales officers are
engaged in collections activity at the branch level. The sales branch deposits the
payments from the dealers in the banks, insisted by the trading division of the
company.

26
MONITORING BOOK DEBTS

The company classifies its debts on the number of outstanding ways in the following
way.

OUTSTANDING DAYS DEBTS CATEGORY

More than 90 days Disputes
Between 45 to 90 days Doubtful
Less than 45 days Good

The company prepares the “Aging schedule” to monitor the control the books debts.
The monthly aging schedule is prepared according to the outstanding days
classification as given below with the corresponding due amount.

OUTSTANDING PERIOD
0-21 Days
22-45 Days
46-90 Days
Over 90 Days

The company will go for the “cash in advances” or “cash on demand” terms for the
repeated promise breakers.

FINANCIAL RATIOS:
Financial ratios are useful indicators of a firm's performance and financial
situation. Most ratios can be calculated from information provided by the financial
statements. Financial ratios can be used to analyze trends and to compare the firm's
financials to those of other firms. In some cases, ratio analysis can predict future
bankruptcy.

Financial ratios can be classified according to the information they provide.

The following types of ratios frequently are used:

• Liquidity ratios

• Asset turnover ratios

Use and Limitations of Financial Ratios

Attention should be given to the following issues when using financial ratios:

27
• A reference point is needed. To be meaningful, most ratios must be compared
to historical values of the same firm, the firm's forecasts, or ratios of similar
firms.

• Most ratios by themselves are not highly meaningful. They should be viewed
as indicators, with several of them combined to paint a picture of the firm's
situation.

• Year-end values may not be representative. Certain account balances that are
used to calculate ratios may increase or decrease at the end of the accounting
period because of seasonal factors. Such changes may distort the value of the
ratio. Average values should be used when they are available.

• Ratios are subject to the limitations of accounting methods. Different

accounting choices may result in significantly different ratio values.

28
 3.1 RESEARCH METHODOLOGY

This project study is aimed at analyzing the receivable management and its
impact at GTC (P) Ltd.

RESEARCH:

➢ Systematic and organized effort to investigate a scientific problem.

➢ Identify the problem.
➢ Gather information.
➢ Analyze the data.
➢ Take corrective action and solve the problem.

RESEARCH METHODOLOGY:

It is the way to systematically solve the research problem. This study on

Receivable Management is an analytical study because the facts and information that
is readily available are being used to make critical evaluation of receivable
Management at GTC (P) Ltd.

RESEARCH DESIGN:

Research design is a blue print or a planned procedure for conducting

research program.

RESEARCH DESIGN USED IN THE STUDY:

ANALYTICAL RESEARCH:

29
 The researcher has to use facts or information already available and analyze
those facts to make a critical evaluation of the Receivable Management.

DATA COLLECTION METHOD:

✔ Nature of Data

The data collected is secondary in nature. This is due to the nature of

analysis, which only call for secondary data.

✔ Source of Data

The source of data is the various year’s balance sheet, profit and loss
account and statements provided by the GTC (P) Ltd. They were used for
the analysis and for preparing reports. The records maintained by the company
where referred to get the required information.

TOOLS AND TECHNIQUIES FOR ANALYSIS:

Various tools and techniques are used for the analysis are as follows.

 FINANCIAL ANALYSIS:
Trend Projection
Comparative Statement
Ratio Analysis
Ageing schedule

 STATISTICAL ANALYSIS:
Trend Analysis
Correlation Analysis

PERCENTAGE ANALYSIS:

Is this study is used to find the variation percentage i.e., the increase and
decrease which is helpful to have a look over in the trend.

30
COMPARATIVE STATEMENT:

Comparative financial statement is a statement of the financial

Position of a business, which are prepared in such a way as to provide, at a time
perspective to the various element embodied in such a statements. These statements
mainly include two types of analytical statement namely
• Comparative balance sheet
• Comparative income statement

They facilitate comparison among two or more similar firms, preferable in the
same industry. Comparison may be regarding profitability and financial position.
Comparative financial statement shows the following information for analytical
purposes:

 Actual data in absolute money, as given in the financial statement for

the period under consideration
 Increase or decrease in various items in money value
 Increase or decrease in various items in terms of percentage.

RATIO ANALYSIS:

Ratio:
The term ration refers to the numerical or quantitative relationship
between two figures. A ratio is the relationship between two figures, and obtained
by dividing the former by the latter. Ratios are designed to show how one number
is related to another. It is worked out by dividing one number by another.

Percentage

If 100 multiply the quotient obtained, the unit of expression is termed

as “percentage”.

31
Ratio can be expressed in two ways

➢ Times
➢ Percentage
Times:
When another divides one value, the unit used to express the quotient is
termed as “Time”.

CURRET RATIO:

Current Ratio is expresses relationship between current assets and current

liabilities. It is the most common ratio for measuring liquidity. Being related to
working capital analysis, it is also called the working capital ratio. The current ratio is
the ratio of total current assets to current liabilities.

The current ratio of a firm measures its short-term solvency. It is ability to

meet short-term obligations. As a measure of short-term financial liquidity, it
indicates the rupees of current sales available for each rupees of current liability or
obligation. The higher the current ratio, the larger the amount of rupees available per
rupee of current liability, the more the firm’s ability to meet current obligations and
the greater the safety of funds of short-term creditors.

Formula
Current Assets
Current Ratio=
Current Liabilities
Current Assets

Which assets are easy to converted cash or which assets are easy to realized
within one year, is called current assets. The currents assets of a firm represent
those assets, which can be in the ordinary course of business converted onto cash
within period not exceeding one year.

Examples
➢ Cash in hand

32
 ➢ Cash at bank
➢ Debtors
➢ Bills Receivable
➢ Prepaid Expenses
➢ Stock

Current Liabilities

Current liabilities are those amounts which are payable within a period of one year.

Examples
➢ Creditors
➢ Bills payable
➢ Bank Overdraft
➢ Outstanding Expenses

QUICK RATIO

Quick ratio is also known as liquid ratio or acid test ratio or near money
ratio. It is the ratio between quick or liquid assets and quick liabilities. It indicates
the relation between strictly liquid assets whose value is almost certain on the
hand, and strictly liquid liabilities one the other.

Formula
Liquid Assets
Liquid ratio =
Current Liabilities

Liquid Assets

Liquid assets means, which assets are immediately convertible into cash
without much loss.
Liquid Assets = Current Assets – (Stock and Prepaid Expenses)

Liquid Liabilities

33
 Liquid liabilities means liabilities which are payable within a short period.

Liquid Liabilities = Current liabilities – Bank Overdraft

DEBTORS TURNOVER RATIO

This is also called “Debtor Velocity” or “Receivable Turnover”. A firm

sells goods on credit and cash basis. When the firm extends credits to its
customers, book debts (Debtors or Account Receivable) are created in the firms
account. Debtors expected to be converted into cash over short period and thus
included in current assets. A debtor includes the amount of Bills Receivable and
Book Debts at the end of accounting period. It is most essential that a reasonable
quantitative relationship not been able to collect within a reasonable time its funds
are unnecessarily locked up in receivables. In such case short – term loans have to
be arranged for paying off its current liabilities. The liquidity position of the firm
depends on the quality of debtors to a great extent.

The purpose of this ratio is to measure the liquidity of the receivables or

to find out the period over which receivables remain uncollected.

Financial analysts to judge the liquidity of a firm use two ratios. They are
➢ Debtors turnover ratio
➢ Debt collection period ratio

Formula
Net Credit Sales
Debtors Turnover ratio=
Average Accounts Receivables

Account Receivable = Debtors + Bills Receivables

Average Account Receivable = Opening Stock + Closing Stock

34
DEBT COLLECTION PERIOD

This ratio indicates the extent to which the debts have been collected in time.
It gives the average debt collection period. The ratio is very helpful to the lenders
because it explains to them whether their borrowers are collection money within a
reasonable time. An increase in the period will result in greater blockage of funds in
debtors.

Formula
Days in the year
Debt collection period =
Debtors Turnover Ratio

CREDITORS TURNOVER RATIO

This is also known as Account payable or Creditor Velocity. A business firm

usually purchases on credit goods, raw material and services from other firm. The
amount of total payables of a business concern depends upon the purchases policy of
the concern, the quantity of purchases and suppliers credit policy. Longer the period
of outstanding payables is, lesser is the problem of working capital of the form. But
when the firm does not pay of its creditors within time, it may have adverse effect on
the business.

Credit turnover indicates the speed with which the payments for credit
purchases are made to the creditors. It signifies the credit period enjoyed by the firm
paying creditors.

Formula
Net Purchase
Credit Turnover Ratio =
Average Accounts Payable

35
 Account payable = Creditors + Bills Payable
Opening Stock + Closing Stock
Average Account Payable =
2

DEBT PAYMENT PERIOD

This ratio gives the average credit period enjoyed from the creditors.

Formula

Debt payment period = Days in the year

Creditors Turnover Ratio

AGEING SHEDULE:

The company monthly prepares the “Ageing Schedule” to monitor and control
its book debts. The monthly ageing schedule is prepared according to the outstanding
days. These ageing schedules have been analyzed to come out with average
outstanding days of the book debts of the company.

CORRELATION CO - EFFICIENT ANALYSIS

A measure of the strength of linear association between two variables.

Correlation will always between -1.0 and +1.0. If the correlation is positive, we have a
positive relationship. If it is negative, the relationship is negative.

36
 Use the Correlation transformer to determine the extent to which changes in
the value of an attribute (such as length of employment) are associated with changes
in another attribute (such as salary). The data for a correlation analysis consists of two
input columns. Each column contains values for one of the attributes of interest. The
Correlation transformer can calculate various measures of association between the
two input columns. You can select more than one statistic to calculate for a given pair
of input columns.

The data in the input columns also can be treated as a sample obtained from
a larger population, and the Correlation transformer can be used to test whether the
attributes are correlated in the population. In this context, the null hypothesis asserts
that the two attributes are not correlated, and the alternative hypothesis asserts that the
attributes are correlated.

The Correlation transformer calculates any of the following correlation-

related statistics on one or more pairs of columns.

Formula

r= N∑XY – (∑X) (∑Y)

√ [NΣX2 - (ΣX) 2] [NΣY2 - (ΣY) 2])

N= Number of values or elements

X = First Score
Y = Second Score
ΣXY = Sum of the product of first and Second Scores
ΣX = Sum of First Scores
ΣY = Sum of Second Scores
ΣX2 = Sum of square First Scores
ΣY2 = Sum of square Second Scores

TREND ANALYSIS

The procedure by which the time related factors that influence the values
observed in the time series are identified and segregated is called Time – series
Analysis.The general long term movement, which increases or decreases in the time
series values over an extended period of years, is called Trend or Secular Trend.

37
 It is a set of observation taken at specified time interval, usually at “Equal
Intervals” from a sufficiently long period of time. They help in making estimates of
futures. The estimate made for the future period is forecasts.

This is the best method for obtaining the trend values. It provides a convenient
basis for obtaining the line of best fit in a series. Line of the best fit is a line from
which the sum of the deviation of various points on either side in zero. Further the
sum of the squares of these deviations would be the least as compared to the sum of
squares of the deviations obtained by using other lines. For this reason the sum of
squares of the deviations of various points from the line of the Best Fit is the least.

The straight line trend has an equation of the type Y = a+bX

Where Y Estimated values of the trend
X Deviation in time period
a&b Constraints

Merits:

• This method gives the trend values for the entire time period.
• It can be used to forecast future trend because trend line establishes a
functional relationship between the values and the time.
• This method is a completely objective method.

3.2 ANALYSIS AND INTERPRETATION

3.2.1 TABLE SHOWING TREND PROJECTION OF SALES IN GTC FOR 3

YEARS

YEAR
SALES

38
 2006 43309826.56

2007 47767544.17

2008 110848043.20

FINDINGS:

From the above table it is found that the sale in 2006 is 43309826.56; 2007 is
47767544.17 and in 2008 is 110848043.20.

INFERENCES:

It can therefore be inferred that the sales and its percentage increases from year
to year.

3.2.2.1CHART SHOWING TREND PROJECTION OF SALES IN GTC FOR 3

YEARS

39
3.2.2 TABLE SHOWING TREND PROJECTION OF PROFITS IN GTC FOR 3
YEARS

Year Net Profit

2006 20000.53

2007 28643.91

2008 74685.07

FINDINGS:

From the above table it is found that the profit in 2006 is 20000.53; 2007 is
28643.91 and in 2008 is 74685.07.

INFERENCES:

40
 It can therefore be inferred that the profits and its percentage increases from
year to year.

3.2.2.2 CHART SHOWING TREND PROJECTION OF PROFITS IN GTC

FOR 3 YEARS

41
3.2.3 TABLE SHOWING COMPARATIVE INCOME STATEMENT OF GTC
(P) LTD

Comparative income Statement of GTC for the year ended 31march of 2006 & 2007
% OF
% OF
INCREASE
INCREASE /
PARTICULAR /
2006 2007 DECREASE
S DECREAS
OF 2006
E OF 2007
AMT.
AMT.
(+)3697717.6
1
Net sales 43309826.56 47007544.17 (+) 8.54
(+)3682572.1
(-) cost of sales 42247554.16 45930126.30 4 (+) 8.72

Gross profit (A) 1062272.40 1077417.87 (+) 15145.47 (+) 1.43

Operating
expenses

Administrative &
1050271.87 1048773.96 (-) 1497.91 (-) 0.14
selling expenses

Total operate
expenses (B) 1050271.87 1048773.96 (-) 1497.91 (-) 0.14

Operating profit
(A - B)= C
12000.53 28643.91 (+) 16643.38 (+) 138.69

Non operating
incomes:- (-) 8000.00 (-) 100.00
Commission 8000.00 -

Total non.
Operate income - (-) 8000.00 (-) 100.00
(D) 8000.00

Net profit C+D 20000.53 28643.91 (+) 8643.38 (+) 43.22

FINDINGS:

42
 From the above table it is found that the Administrative & selling expenses
and commission are in negative. In 2006 is 20000.53and in 2007 is 28643.91.

INFERENCES:

It can therefore be inferred that the company has increased percentage in

profits when compared to 2006 – 2007, it has – 43.22%.

3.2.4 TABLE SHOWING COMPARATIVE BALANCE SHEET OF GTC (P)

LTD

43
 Comparative Balance Sheet of UTC as on 31st march of 2006 & 2007
AMT. % F
PARTICULARS
2006 2007 INC IN 2006
& 2007

Current Assets:

Cash on Hold 5990.00 61640.08 +55650.08 929.5

Cash at Bank 1851197.28 390577.90 -146023.38 (-)78.90

Closing Stock 50361.51 414682.66 +364321.15 723.41

Sundry Debtors 15538192.45 1060672.42 +4931430.03 31.74

Sundry Loan & 287632.75 333720.67 +46087.92 16.02

Advances

Sundry Deposits 22500.00 25000.00 +2500.00 11.11

Total CA (A) 17755873.99 11832379.73 -5923494.26 -33.36

Fixed Assets:-
Fixed Assets 209189.55 233315.42 +24125.87 11.53

Total FA(B) 209189.55 233315.42 +24125.87 11.53

Total (A+B) 17965063.54 1206569515 -5899368.39 -32.88

assets

Current
Liabilities
Provisions 114996.33 91867.00 -23129.33 -20.11

Sundry Creditors
17060430.42 10847992.25 -6212438.17 -36.41

Total CL(A)
17175426.75 1093989.25 -6235567.5 -36.31
Loans &
Liabilities
Loans
426626.00 426626.00 - -

Total Loans (B)

426626.00 426626.00 - -

Total (A+B) 17602052.75 11366485.25 -6235567.5 -35.43

44
 Capital & 363010.79 699209.89 +336199.10 92.61
Reserves
Share Capital

Total 363010.79 699209.89 +336199.10 92.61

Shareholders’
Funds (O)

Total Capital &

Liabilities (C+B) 17965063.54 12065695.15 -5899368.39 -32.83

FINDINGS:

From the above table it is found that the cash at bank, provision and sundry
creditors are in negative.

INFERENCES:

It can therefore be inferred that the company financial performance is good.

3.2.5 TABLE SHOWING INCOME STATEMENT OF GTC (P) LTD

Comparative Income Statement if GTC for the year ended 31march of 2007 & 2008
% OF
% OF
INCREASE
INCREASE /
PARTICULAR /
2007 2008 DECREASE
S DECREAS
OF 2007
E OF 2008
AMT.
AMT.

45
 47007544.1
7
Net sales 110848043.20 110848043.20 + 135.81

45930126.3
(-) cost of sales 0 2380555.44 - 62537361.45 (-) 136.16

Gross profit (A) 1077417.87 2380555.44 (+)1303137.57 + 120.95

Operating
expenses :-
Administrative & 1048773.96 2305870.37 (+)1257096.41 (+) 119.86
sending expenses

Total operating (+)1257096.4

exp. (B) 1048773.96 2305870.37 1 (+) 119.86

Operative net 28643.91 74685.07 (+) 146041.46 (+) 160.74

profit
(A - B)

Non operative - - - -
income

Net profit 28643.91 74685.07 (+) 46041.46 (+) 160.74

FINDINGS:

From the above table it is found that the cost of sales is in negative. In 2007 is
28643.91and in 2008 is 74685.07.

INFERENCES:

46
 It can therefore be inferred that the company has increased percentage in
profits when compared to 2007 – 2008. It has – 160.74%.

3.2.6 TABLE SHOWING BALANCE SHEET OF GTC (P) LTD

Comparative Balance Sheet of UTC as on 31st march 2007 & 2008
% ON
2007 2008
PARTICULARS INC/AMT.
Assets:-

Cash on hand 61640.08 61297.49 -342.59 -0.56

Cash at bank 390573.90 552487.38 +161913.48 +41.46

47
 Closing stock 414682.66 2867186.82 +2452504.16 +591.42

Sundry debtors 10606762.42 16976976.46 +6370214.04 +60.56

Sundry loans &

advances 333720.67 669353.44 +335632.77 +100.57

Sundry deposits 25000.00 92654.00 +67654 +270.62

Total (A(A) 11832379.73 21219955.59 +938757.86 +79.34

Fixed Assets:- 23331.42 826991.50 +593676.08 +254.45

Total FA (B) 23331.42 826991.50 +593676.08 +254.45

Total assets:- 12065695.15 22046947.09 +9981251.99 +82.72

(A+B)

Current
liabilities:- 91867.00 30000.00 -618767.00 -67.34

provisions 10847992.25 20863692.42 +10015700.17 +92.33

sundry creditors
- 81772.00 +81772 -
TDS
payable
10939859.25 20975464.42 +10036505.17 +91.73
Total (C(A)

Loans &
liabilities:-
Loans 426626.00 237297.00 -189329 -44.38

Total loan (B)

426626.00 237297.00 -189329 -44.38
Total (A+B)=C
Capital & 11366485.25 21212761.42 +9846276.17 +86.63
reserves:-
Share capital

699209.89 834185.67 +134975.78 +19.30

Total share
holder’s fund(D)
699209.89 834185.67 +134975.78 +19.30
Total capital &
liabilities (C+D)
12065695.15 22046947.09 +9981251.94 +82.72

48
FINDINGS:

From the above table it is found that the cash on hand, provision and loan are in
negative.

INFERENCES:

It can therefore be inferred that the company financial performance is good.

3.2.7 TABLE SHOWING CURRENT RATIO OF GTC (P) LTD FOR 3 YEARS:

CURRENT CURRENT
YEARS RATIO
ASSETS LIABILITIES

49
 2006 17755873.99 17175426.75 1.03

2007 11832379.73 10939859.25 1.08

2008 21219955.59 20975464.42 1.01

FINDINGS:

Current Ratio = Current assets

Current Liabilities

From the above table it is found that the current ratio in 2006 is 1.03; 2007 is
1.08 and in 2008 is 1.01.

INFERENCES:

Current ratio should be around ‘2’ but the company has ‘1’. So the company has
to maintain its current position.

3.2.2.3 CHART SHOWING CURRENT RATIO OF GTC (P) LTD FOR 3

YEARS:

50
 3.2.8 TABLE SHOWING QUICK RATIO OF GTC (P) LTD FOR 3 YEARS

CURRENT
YEARS LIQUID ASSETS RATIO
LIABILITIES

2006 17705512.48 17175426.75 1.03

2007 11417697.07 10939859.25 1.04

2008 18352768.77 20975464.42 0.87

FINDINGS:

Quick Ratio = Current assets - Stock

Current Liabilities

51
 From the above table it is found that the quick ratio in 2006 is 1.03; quick ratio
in 2007 is 1.04 and quick ratio in 2008 is 0.87.

INFERENCES:

Quick ratio should be around ‘1’ but the company has ‘1 & 0.87’. So the
company has to maintain its quick ratio.

3.2.2.4 CHART SHOWING QUICK RATIO OF GTC (P) LTD FOR 3 YEARS

52
 3.2.9 TABLE SHOWING DEBTORS TURNOVER RATIO OF GTC (P) LTD
FOR 3 YEARS

AVERAGE
YEARS CREDIT SALES RATIO
RECEIVABLES

2006 43309826.56 15538192.45 2.78 times

2007 47007544.17 10606762.42 4.43 times

2008 110848043.20 16976976.46 6.53 times

FINDINGS:

DTR = Net Credit Sales

Average Receivables

From the above table it is found that the Debtors Turnover Ratio in 2006 is 2.78;
2007 is 4.43 and in 2008 is 6.53.

INFERENCES:

It can therefore be inferred that the DTR is increases year by year.

53
3.2.2.5 CHART SHOWING DEBTORS TURNOVER RATIO OF GTC (P) LTD
FOR 3 YEARS

3.2.10 TABLE SHOWING DEBTORS COLLECTION PERIOD OF GTC (P)

LTD FOR 3 YEARS

DEBTORS
DAYS IN A
YEAR TURNOVER DAYS
YEAR
RATIO

54
 2006 365 2.78 131

2007 365 4.43 82

2008 365 6.53 56

FINDINGS:

Debtors Collection Period = Days in a year

Debtors Turnover Ratio

From the above table it is found that the debtor’s collection period in 2006 is
131days; 2007 is 82days and in 2008 is 56days.

INFERENCES:

It can therefore be inferred that the debtor’s collection period is less year by
year. The company has higher turnover ratio and shorter the average collection period.

3.2.2.6 CHART SHOWING DEBTORS COLLECTION PERIOD OF GTC (P)

LTD FOR 3 YEARS

55
 3.2.11 TABLE SHOWING CREDITORS TURNOVER RATIO OF GTC (P)
LTD FOR 3 YEARS

AVERAGE
PURCHASE RATIO
YEAR CREDITORS

2006 4027053.16 17060430.42 2.36

2007 46294463.39 10847992.25 4.27

2008 110418622.62 2086369.42 5.29

FINDINGS:

56
 CTR = Net Credit Purchase

Average Accounts Payable

From the above table it is found that the creditor’s turnover ratio in 2006 is
2.36; 2007 is 4.27 and in 2008 is 5.29.

INFERENCES:

It can therefore be inferred that the creditor’s turnover ratio increases year by
year.

3.2.2.7 CHART SHOWING CREDITORS TURNOVER RATIO OF GTC (P)

LTD FOR 3 YEARS

57
3.2.12 TABLE SHOWING CREDITORS COLLECTION PERIOD OF GTC (P)
LTD FOR 3 YEARS

CREDITORS
YEAR DAYS IN A YEAR TURNOVER DAYS
RATIO

2006 365 2.36 155

2007 365 4.27 85

2008 365 5.29 69

FINDINGS:

Creditors Collection Period = Days in a year

Creditors Turnover Ratio

From the above table it is found that the creditor’s collection period in 2006 is
155days; 2007 is 85days and in 2008 is 69days.

INFERENCES:

It can therefore be inferred that the collection period decreases year by year.

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3.2.2.8 CHART SHOWING CREDITORS COLLECTION PERIOD OF GTC
(P) LTD FOR 3 YEARS

3.2.13 TABLE SHOWING AGEING SHEDULE OF GTC (P) LTD:

OUTSTANDING DAYS PERCENTAGE

0-21 46
22-45 18
46-90 15
More than 90 21

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 3.2.14 TABLE SHOWING CORRELATION COEFFICIENT BETWEEN
SALES AND WORKING CAPITAL

YEAR X Y X2 Y2 XY
2005 to 43309826 580447 1875741076657281 336919015837 2513906929163
2006 0
2006 to 47007544 892520 2209709208894500 796592807219 4195517317088
2007 0
2007 to 11084804 244491 1228728868126906 59775932207 2710134888111
3
2008 6 3

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TOTAL 20116541 171745 3325273896682084 119328775526 9419559134362
3 9
7 3 3

Where X – Sales, Y – Working Capital, N = Number of Values

Working Capital = Current Asset – Current Liabilities

N =3
∑X = 201165413
∑Y = 1717459
∑X2 = 33252738966820847
∑Y2 = 1193287755263
∑XY = 94195591343623

Formula

r= N∑XY – (∑X) (∑Y)

√ [NΣX2 - (ΣX) 2] [NΣY2 - (ΣY) 2]

r = 3(94195591343623) – (201165413)( 1717459)

√[(3*33252738966820847) – (201165413) ][(3*1193287755263) – (1717459) ]

2 2

r = -0.85198

FINDINGS:

From the above it is found that the correlation co-efficient between sales and
working capital is -0.85198.

INFERENCES:

61
 It can therefore be inferred that there is a negative correlation between sales
and working capital.

3.2.15 TABLE SHOWING CORRELATION COEFFICIENT BETWEEN

SALES AND DEBTORS

YEAR X Y X2 Y2 XY
2005 to 43309826 1553819 1875741028150276 24143541062886 672956391874592
2006 2 4
2006 to 47007544 1060676 2209709192911936 11250340012464 498597831412528
2007 2 4
2007 to 11084804 1697697 1228728863692984 28821771410457 188186456565796
3
2008 6 9 6 8
TOTAL 20116541 4312193 1637273885799206 64215652485808 305341878894508
3 0
1 4 8
62
Where X – Sales, Y – Debtors, N = Number of Values

N =3
∑X = 201165413
∑Y = 43121930
∑X2 = 16372738857992061
∑Y2 = 642156524858084
∑XY = 3053418788945088

Formula

r= N∑XY – (∑X) (∑Y)

√ [NΣX2 - (ΣX) 2] [NΣY2 - (ΣY) 2]

r = 3(3053418788945088) – (201165413)( 43121930)

√[(3*16372738857992061) – (201165413) ][(3*642156524858084) – (43121930) ]

2 2

r = 0.63802

FINDINGS:

From the above it is found that the correlation co-efficient between sales and
debtors is 0.63802.

INFERENCES:

It can therefore be inferred that there is a positive correlation between sales and
debtors.

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3.2.16 TABLE SHOWING TREND ANALYSIS FOR SALES OF GTC (P) LTD

YEAR(X) SALES(y) x = X-A x2 Xy

2006 43309826 -1 1 -43309826

2007 47007544 0 0 0

2008 110848043 1 1 110848043

TOTAL 201165413 0 2 67538217

Y = a+ bx

64
Where a= ∑y b = ∑xy
N ∑x2

a = 201165413 b = 67538217/2
3

a = 67055137.67 b = 33769108.5

FINDINGS:

Sales in 2005 – 2006

Y = 67055137.67 + (33769108.5*-1)
= 33286029.17

Sales in 2006 – 2007

Y = 67055137.67 + (33769108.5*0)
= 67055137.67

Sales in 2007 – 2008

Y = 67055137.67 + (33769108.5*1)
= 100824246.17

INFERENCES:

It can therefore be inferred that the sales increased year by year.

65
3.2.2.9 CHART SHOWING TREND ANALYSIS FOR SALES OF GTC (P) LTD

66
 3.3 FINDINGS

➢ The company net sales were increased during the three years.

➢ The company profit was increased year by year due to sales increased and

efficient management.

➢ The cost of sales was increased during the period 2007. When compared to

previous year. It shows the company is spending more for expenses.

➢ There was no non-trading income during the year2007 & 2008.

➢ The cost of sales was increased during the period 2008. When compared to

previous year. It shows the company is spending more for expenses.

➢ The current liabilities were sufficiently decreased during the year 2007.

➢ The current assets were sufficiently decreased during the year 2007.

➢ The loans and liability was decreased during the year 2008.

➢ During the period 2006 to 2008 the cost of sales increased percentage. This

increase may due to rise in raw material price and inefficiency of the

purchasing department.

➢ The net working capital of the company shows the fluctuating trend.

➢ During the year 2008 the quick ratio is very low 0.87compared with

standard ratio(1:1)

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➢ During the period 2006 to 2008 the Debtor turnover ratio is high and the

company takes less days for collecting debtors.

➢ During the period 2006 to 2008 the Creditors turnover ratio is high and the

company takes more periods to pay creditors.

3.4 SUGGESTIONS

➢ The Company may concentrate to increase current assets to meet the

obligations (liabilities)

➢ The Company may concentrate to increase the quick assets to meet the

liquid liabilities because of meeting liquidity position of the organization.

➢ The Company may concentrate to utilities the current assets effectively

➢ The Company can maintain (decrease) current liabilities properly in year

by year.

➢ The Company can maintain cash position it will increase the liquidity

Position of the company.

➢ Even though sales increases but debtor collection policy should be strict so

that the inflow will be increased.

➢ Motivate the dealers and sales representatives through various promotional

activities.

➢ The company can prepare collection experience statement for each dealer.

➢ Collection experience matrix to monitor its book debts.

➢ Company can maintain structured frame work for bank guarantee limits

determination.

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 3.5 CONCLUSION

During the project study period, major department are covered. The
receivable management is the key area of the working capital management. The main
purpose of the project is to analysis the financial performance of the company. The
detailed observations are presented in the form of analysis in the previous chapter.

The major financial performance indicators of GENERAL TRADING

COMPANY PRIVATE LIMITED for the three year period in terms of ratios like
liquidity ratios, creditor’s turnover ratio, debt turnover ratio of the company and so
many data’s used in this project work.

The study concludes by saying that the performance of the overall

Receivable Management has improved when compared to the previous year. It is
found from the survey that the company’s credit management is not very strict.

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