Study On Financial Position and Cash Management of Malco LTD

CHAPTER- 1
INTRODUCTION TO STUDY
1.1. INTRODUCTION TO TEXTILE INDUSTRY
Indian Textile Industry is one of the leading textile industries in the world. Though was
predominantly unorganized industry even a few years back, but the scenario started changing
after the economic liberalization of Indian economy in 1991. The opening up of economy gave
the much-needed thrust to the Indian textile industry, which has now successfully become one of
the largest in the world.
India textile industry largely depends upon the textile manufacturing and export. It also
plays a major role in the economy of the country. India earns about 27% of its total foreign
exchange through textile exports. Further, the textile industry of India also contributes nearly
14% of the total industrial production of the country. It also contributes around 3% to the GDP of
the country. India textile industry is also the largest in the country in terms of employment
generation. It not only generates jobs in its own industry, but also opens up scopes for the other
ancillary sectors. India textile industry currently generates employment to more than 35 million
people. It is also estimated that, the industry will generate 12 million new jobs by the year 2010.
Indian textile industry can be divided into several segments, some of which can be listed
as below:
• Cotton Textiles
• Silk Textiles
• Woolen Textiles
• Readymade Garments
• Hand-crafted Textiles
• Jute and Coir
India textile industry is one of the leading in the world. Currently it is estimated to be
around US$ 52 billion and is also projected to be around US$ 115 billion by the year 2012. The
current domestic market of textile in India is expected to be increased to US$ 60 billion by 2012
from the current US$ 34.6 billion. The textile export of the country was around US$ 19.14
billion in 2006-07, which saw a stiff rise to reach US$ 22.13 in 2007-08. The share of exports is
also expected to increase from 4% to 7% within 2012. Following are area, production and
productivity of cotton in India during the last six decades.
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YEAR Area in lakh hectares Production in lakh bales of 170 kgs Yield kgs per hectare
1950-51 56.48 30.62 92
1960-61 76.78 56.41 124
1970-71 76.05 47.63 106
1980-81 78.24 78.6 170
1990-91 74.39 117 267
2000-01 85.76 140 278
2001-02 87.3 158 308
2002-03 76.67 136 302
2003-04 76.3 179 399
2004-05 87.86 243 470
2005-06 86.77 244 478
2006-07 91.44 280 521
2007-08 94.39 315 567
2008-09 93.73 290 526
Strengths
• Vast textile production capacity

• Large pool of skilled and cheap work force
• Entrepreneurial skills
• Efficient multi-fiber raw material manufacturing capacity
• Large domestic market
• Enormous export potential
• Very low import content
• Flexible textile manufacturing systems
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Weaknesses
• Increased global competition in the post 2005 trade regime under WTO
• Imports of cheap textiles from other Asian neighbors
• Use of outdated manufacturing technology
• Poor supply chain management
• Huge unorganized and decentralized sector
• High production cost with respect to other Asian competitors
1.1.1 Cotton Exports from India:
Year Quantity (in lakh bales of 170 kgs) Value (in Rs./Crores)
1996-97 16.82 1655
1997-98 3.5 313.62
1998-99 1.01 86.72
1999-00 0.65 52.15
2000-01 0.6 51.43
2001-02 0.5 44.4
2002-03 0.83 66.31
2003-04 12.11 1089.15
2004-05 9.14 657.34
2005-06 47 3951.35
2006-07 58 5267.08
2007-08 85 8365.98
2008-09 50 N.A.
- -4-
Year Quantity (in lakh bales of 170 kgs.) Value (Rs./Crores)
1996-97 0.3 56.42
1997-98 4.13 497.93
1998-99 7.87 772.64
1999-00 22.01 1967.92
2000-01 22.13 2029.18
2001-02 25.26 2150.01
2002-03 17.67 1789.92
2003-04 7.21 880.1
2004-05 12.17 1338.04
2005-06 5 695.77
2006-07 5.53 752.29
2007-08 6.5 986.33
2008-09 7 N.A.
1.1.2. CURRENT FACTS ON INDIA TEXTILE INDUSTRY:

• India retained its position as world’s second highest cotton producer.
• Acreage under cotton reduced about 1% during 2008-09.
• The productivity of cotton which was growing up over the years has decreased in 2008-
09.
• Substantial increase of Minimum Support Prices (MSPs).
• Cotton exports couldn't pick up owing to disparity in domestic and international cotton
prices.
• Imports of cotton were limited to shortage in supply of Extra Long staple cottons.
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1.2. CO-OPERATIVE SECTOR IN KERALA
The Co-operative sector has been playing a distinct and significant role in the process of socio-
economic development of the state with special focus on rural population and livelihood. The co-
operative movement in Kerala has a solid foundation and impressive track record in terms of
financial stability and sound infrastructure to generate adequate funds. There are 12996 co-
operatives under the control of Registrar of Co-operative Societies, of which 10236 are
functional in the various promotional activities in the sector. The strategy adopted for the
development of Co-operative sector during Xth Plan was expansion and diversification of
commercial ventures. The spread and growth of co-operatives in different sectors were nurtured
under development plans with Government initiative and Government finance.
Through sustained efforts, co-operatives have made impressive progress in various segments of
Indian economy particularly in agriculture credit disbursement, fertilizer distribution,
procurement and distribution of agricultural commodities, promotion of consumer activities,
health, dairy, fisheries, handloom, coir etc.
The Malappuram Co-operative Spinning Mill Ltd are producing and selling various kinds of
textiles products and it is registered under the kerala co-operative Act. 1969.
1.3. METHODOLOGY
Research Methodology is the systematic way of solving the research problem. It may be
understood as a science of studying how research is done scientifically. So while we discussing
about the research methodology we discuss not only the research methods but also we consider
the logic behind the method that we used in the context of our research study and explanation
why we are not using other so that research results are being capable of evaluating the researcher
himself or by others.
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The study intends to measure the financial performance and management of cash
resource of The Malappuram Co-operative Spinning Mill Limited.. The analysis is made on the
basis of primary and secondary data furnished by ‘The Malappuram Co-operative Spinning Mill
Limited’, for the period of five year from 2004-2009.
1.3.1. Source of data:
Primary Data:
The information relating to the companies functions, its operations etc are collected by
direct observation and by interviewing concerned personnel.
Secondary Data:
The data related to the financial statements are the essential elements of this study. These
financial data are collected from the financial records of the firm like Profit and Loss account
and Balance sheet.
Tools used:
Ratio Analysis
Schedule of changes in working capital
Trend Analysis
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1.4. OBJECTIVE OF THE STUDY:
The main objective of the study was to judge the financial position and cash
management of the enterprise through analysis of financial Statement.
Secondary objectives:
o To study the liquidity position of the organization

o To analyze the long term solvency of the firm.
o To evaluate the profitability of the concern
o To examine the cash management of the firm
1.5. LIMITATION OF THE STUDY
o The tool for the study that is ratio analysis, trend analysis has its own limitations
which in turns effect the accurate evaluation of financial performance of the firm.
o The analysis was made on the basis of data derived from the secondary sources and
hence the suggestions derived may not be 100 percent reliable.
o The period of study was very limited.
o This study mainly covers the financial aspects and hence the factors which are non-
financial and important for working of the company were not taken into accounts.
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CHAPTER- 2
COMPANY PROFILE
- -9-
2.1. COMPANY PROFILE
The Malappuram Co-operative spinning mill Ltd, also called MALCO LTD was registered on 28th
October 1975 as a co-operative society under the Kerala co-operative societies Act 210 F 1969. But
production started in 1980with 5104 spindles. The objective is 20056 spindles that get only in 1984. Mill
installed capacity of 20056 spindles from the manufacturing of cotton and synthetic yarn.
The project was completed with the total investment of Rs.50024 lakh including Rs. 247 lakh as financial
assets from IDBI, IFCI, and ICICI. The mill was not able to perform on envisaged and was incurring
continues cash losses, which resulted in the erosion of capital from the very beginning. The mill was
unable to repay the institutional dues amounting to Rs. 243.75 lakhs and interest accrued thereon. The
continues cash losses incurred during the entire period resulted in erosion of working capital during the
year 1988. The mill was faced to stop functioning (from 19-05-1988).
The mill functions with the capacity utilization of 68%. The reason for the low capacity utilization was
the low voltage problem during the peak hours which accounts for a loss of about 17% of the
commissioned capacity. In order to solve this problem, the mill has to purchase the generation set. By
commissioning three generator sets of 590 KVA each the mill will be able to achieve more the 85%
capacity utilization. This result improved productivity in account of uninterrupted power supply and will
enable the mill to become finally viable. Survival of the industry in the competitive environment depends
on quality and productivity of the men and machine therefore in order to improve the quality of yarn and
the productivity on the machine, the mill purpose to implement modernization scheme with assistance
from the Kerala Industrial Revilisation Fund(KIRF).
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2.2. NATURE OF BUSINESS CARRIED:
The malappuarm co-operative spinning mill ltd is a manufacturing company engaged in
produced yarn and staple fibers. The type of organization is a co-operative society registered
under the kerala co-operative Act in 28-05-1975. It is a medium scale unit. A authorized capital
of the company is 15 crores and paid up capital is 113753860.It mainly produced three types of
yarn
1. Cotton
2. Polyester staple fiber
3. Viscose staple fiber
2.3. VISION, MISSION AND QUALITY POLICY:
1. To carry on the purchase of cotton and staple fiber spinning. To purchase or otherwise
acquire the deal in cotton staple fiber and other raw material, yarn and staple fiber yarn.
2. To raise funds in such a manner as the Board of the mill think fit for carrying on business
of the mill.
3. To provide for the welfare of the person employed or competent for the mill.
4. For the purpose of attaining the aforesaid object. It shall be competent for the mill.
5. To adopt new technology in the mill.
6. To manufacturing fiber and quality yarn.
7. To achieve all employees shall be systematically trained and
2.4. COMPETITORS INFORMATION

1. precont spinning mill Ltd, Palakkad
2. KSTC Spinning Mill Ltd, edrikode
3. Pat spin Spinning Mill Ltd
4. GTN Textiles
5. Rajgopal Textile Mill
6. Vanaja Textile Ltd, Kunchikkkara
7. Thanikkudam Bagavati Spinning Mill Ltd
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2.5. DEPARTMENTS
1. Store Department
2. purchase Department
3. production Department
4. quality assurance Department
5. documentation Department
6. account Department
7. Human Resource Department
2.6. MEMBERSHIP OF THE ORGANISATION
Membership of the organization opened to,
1. Primary weavers cp-operative society and Kerala State Handloom weavers Co-operative
society
2. Any other registered co-operative society
3. individual or Body corporate other than co-operative societies
4. Government(state and central) KSIDC and NCDC
5. The workers and staff of the mill.
2.7. ORGANISATIONAL STRUCTURE
The board of directors is constituted by the Government of Kerala. According to the

instruction from the government, the number of directors should not be less than 2 and more
than 9.The Government appoints all the directors including the full time managing director.
However the directors need not hold shares. At present, the Board of Directors includes 9
members including Managing Director.
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2.8.ORGANISATIONAL CHARTS
BOARD OF DIRECTORS
CHAIRMAN
MANAGING DIRECTOR
DEPUTY MILL MANAGER LABOUR

FINANCIAL WELFARE
CONTROLER OFFICER
ACCOUNT PERSONNEL SPINNING MASTER HEAD TIME

OFFICER ASSISTANT OFFICER
ACCOUNT PURCHASE&SA ASSIST. SPINNING ASSIST.CLER

CLERK LES CLERK MASTER K
ASSIST. ELECTRICAL ASSIST. ASSIST. STORE

PLANNING SUPERVISOR SPINNING SPINNING KEEPER
MASTER MASTER MASTER
WORK ELECTRICIAN SUPERVISOR QUALITY STORE

SHOP ASSISTANT
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2.9. PROCESS CHART
RAW COTTON
MIXING
BLOWING
CARDING
COBBER (if
cotton)
DRAWING
SIMPLEX
SPINNING
CONE WENDING
PACKING
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2.10. CAPITAL STRUCTURE:
Capital structure is the mix of long term source of funds used by the firm. The study of
the capital structure helps in the determination of the profitability and financial position of the
mill.
2.10.1. Share Capital:

The mill had raised its capital by issue of shares. The shares have been to government,
other co-operative societies, corporate bodies and any individual.
particulars amount Amount

Authorized share capital:
(15,00,000 equity Ashares 1500,00,000.00
of 100 each)
Subscribed capital:
Share capital issued & 1137,53860.00
paid up
2.10.2. Reserve and Surplus:

Reserve amount set aside of divisible profits for meeting un known liability or loss in the
future.
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particulars amount amount
RESERVE;
Central subsidy 1500,000.00
Investment subsidy 500,000.00
Quality Rebate on 654,381.20
Machinery 13200989.55
Capital Reserve
Total 15855,370.75
2.10.3. Secured Loans:
The mill may borrow money by means of loans and advances from other institutions
subject to the approval of the registrar.
particulars amount Amount
LOANS:
IDF Loan 3500,000.00
NCDDC Loan 14581,000.00
Bridge Loan from 7979,000.00
Government 23474,671.14
Cash credit from State
Bank of Travangore
Total 81034,671.14
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From 1990 onwards, the financial account is prepared progressively; the mill followed Double
Entry Accounting System. The accounts are computerized since 1998-99. the entire accounts are
checked and corrected through internal auditors accompanied by Chartered Accountant. The
internal audit is carried out on a concurrent basis. Matter that may come up in the cause of audit
requiring immediate attention, the may be reported to the office as well as to the concerned
without waiting for the finalization of the auditors reports.
When the mill was re-opened for sharing its operation management have faced many
financial and marketing constraints. Now the position is some what better.
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CHAPTER- 3
THEORITICAL REVIEW
- - 18 -
3.1. FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is defined as the process of identifying financial strengths and
weaknesses of the firm by properly establishing relationship between the items of the balance
sheet and the profit and loss account.
There are various methods or techniques that are used in analyzing financial statements, such as
comparative statements, schedule of changes in working capital, common size percentages, funds
analysis, trend analysis, and ratios analysis.
Financial statements are prepared to meet external reporting obligations and also for decision
making purposes. They play a dominant role in setting the framework of managerial decisions.
But the information provided in the financial statements is not an end in itself as no meaningful
conclusions can be drawn from these statements alone. However, the information provided in the
financial statements is of immense use in making decisions through analysis and interpretation of
financial statements.
3.1.1. Objectives of Financial Analysis
Financial analysis is helpful in assessing the financial position and profitability of the concern.
This is done through comparison by ratios for the same concern over a period of years; or for one
concern against another; or for one concern against the industry as a whole (inter-firm
comparison); or for one concern against predetermined a standards; or for one department of a
concern against other departments of the same concern (intra-firm comparison). Accounting
ratios calculated for a number of years show the trend of the change of position, i.e. whether the
trend is upward or downward or static.
The main objectives of the analysis of financial statements are to assess:
o The present and future earning capacity or profitability of the concern,
o The operational efficiency of the concern as a whole and of its various parts or
departments,
o The short term and long term solvency of the concern for the benefit of the debenture
holders and trade creditors,
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o The comparative study in regard to one firm with another firm or one department with
another department,
o The possibility of developments in the future by making forecast and preparing budgets.
o The financial stability of a business concern,
o The real meaning and significance of the financial data, and
o The long term liquidity of its funds.
In addition to the analysis, interpretation also requires comparison to draw meaningful results.
Mere examination of the various components of financial statements like current assets, current
liabilities, long term liabilities, share holders’ fund, working capital, gross profit, operating
profit, cost of goods sold etc. will not lead to definite conclusion in regard to the financial status
of a business. Comparison of related components like current assets with current liabilities, long
term liabilities with shareholders fund, gross profit with sales etc. is requires to draw meaning
full conclusions about the position of a company. Therefore, to interpret the position of a
company, it is necessary not only to separate the totals given in its financial statements in to
various components of like nature but also to make comparison of related components. In
addition to this comparison of various components with that of previous year analysis should be
made to know the changes that have taken place in the business over several years.
3.1.2. Techniques or Tools of Analysis and Interpretation
The following techniques can be used in connection with the analysis and interpretation of
financial statements:
Comparative Financial Statements

Common Measurement Statements
Trend Percentage Analysis.
Net working Capital Analysis
Ratio Analysis
Comparative Financial Statements:
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These statements are prepared in a way so as to provide time prospective to the consideration of
various elements of financial position embodied in such statements. This is done to make the
financial data more meaningful. The statement of two or more years are prepared to show
absolute data of two or more years, increases or decreases in absolute data in value and in terms
of percentages. Comparative statement can be prepared for income statement as well as position
statement or balance sheet.
Common Measurement Statements:
Common size financial statements are those in which figures reported are converted to some
common base. Vertical analysis is requires for an interpretation of underlying causes of changes
over a period of time. For this, items in the financial statements are presented as percentages or
ratios to total of the items and a common base for comparison is provided. Hence vertical
analysis becomes possible. Each percentage shows the relation of the individual item to its
respective total. Common size statements may be used for Balance sheet as well as income
statement.
Trend Percentage Analysis:
This analysis is an important tool of horizontal financial analysis. This analysis enables to know
the changes in the financial function and operating efficiency between the time period chosen.
By studying the trend of each item, one can know the direction of changes and based upon the
direction of changes, the opinions can be formed. This method is immensely helpful in making a
comparative study of financial statements of several years.
Net working Capital Analysis:
This statement is prepared to know the net changes in working capital of the business between
two specified dates. It is prepared from current assets and current liabilities of the said dates to
show the net increase or decrease in working capital.
Ratio Analysis:
It is done to develop meaningful relationship between individual items or group of items usually
shown in the periodical financial statements published by the concern. An accounting ratio is the
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relationship between two inter-related accounting figures as gross profit to sales, current assets to
current liabilities etc.
Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance and
effectiveness of the firm. Some of the most popular profitability ratios are as under:
• Gross profit ratio

• Net profit ratio
• Operating ratio
• Expense ratio
• Return on shareholders investment or net worth
• Return on equity capital
• Return on capital employed (ROCE) Ratio
• Dividend yield ratio
• Dividend payout ratio
• Earnings Per Share Ratio
• Price earning ratio
Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are
calculated to comment upon the short term paying capacity of a concern or the firm's ability to
meet its current obligations. Following are the most important liquidity ratios.
• Current ratio
• Liquid / Acid test / Quick ratio
Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a firm have
been employed. These ratios are also called turnover ratios because they indicate the speed with
which assets are being turned over into sales. Following are the most important activity ratios:
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• Inventory / Stock turnover ratio
• Debtors / Receivables turnover ratio
• Average collection period
• Creditors / Payable turnover ratio
• Working capital turnover ratio
• Fixed assets turnover ratio
• Over and under trading
Long Term Solvency or Leverage Ratios:
Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and
payment schedules of its long term obligations. Following are some of the most important long
term solvency or leverage ratios.
• Debt-to-equity ratio
• Proprietary or Equity ratio

• Ratio of fixed assets to shareholders funds
• Ratio of current assets to shareholders funds
• Interest coverage ratio
3.2. CASH MANAGEMENT
Cash management is a broad term that refers to the collection, concentration, and disbursement
of cash. It encompasses a company's level of liquidity, its management of cash balance, and its
short-term investment strategies. In some ways, managing cash flow is the most important job of
business managers. If at any time a company fails to pay an obligation when it is due because of
the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt.
Obviously, the prospect of such a dire consequence should compel companies to manage their
cash with care. Moreover, efficient cash management means more than just preventing
bankruptcy. It improves the profitability and reduces the risk to which the firm is exposed.
Cash management is particularly important for new and growing businesses. As Jeffrey P.
Davidson and Charles W. Dean indicated in their book Cash Traps, cash flow can be a problem
- - 23 -
even when a small business has numerous clients, offers a superior product to its customers, and
enjoys a sterling reputation in its industry. Companies suffering from cash flow problems have
no margin of safety in case of unanticipated expenses. They also may experience trouble in
finding the funds for innovation or expansion. Finally, poor cash flow makes it difficult to hire
and retain good employees.
It is only natural that major business expenses are incurred in the production of goods
or the provision of services. In most cases, a business incurs such expenses before the
corresponding payment is received from customers. In addition, employee salaries and other
expenses drain considerable funds from most businesses. These factors make effective cash
management an essential part of any business's financial planning. "Cash is the lifeblood of a
[store]," wrote Richard Outcalt and Patricia Johnson in Playthings. "Without cash for inventory,
payroll, and other expenses, an emergency is imminent."
When cash is received in exchange for products or services rendered, many small
business owners, intent on growing their company and tamping down debt, spend most or all of
these funds. But while such priorities are laudable, they should leave room for businesses to
absorb lean financial times down the line. The key to successful cash management, therefore, lies
in tabulating realistic projections, monitoring collections and disbursements, establishing
effective billing and collection measures, and adhering to budgetary rest
Good cash management means:
• Knowing when, where, and how your cash needs will occur,
• Knowing what the best sources are for meeting additional cash needs; and,
• Being prepared to meet these needs when they occur, by keeping good relationships with
bankers and other creditors.
The starting point for avoiding a cash crisis is to develop a cash flow projection. Smart
business owners know how to develop both short-term (weekly, monthly) cash flow projections
to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help
- - 24 -
them develop the necessary capital strategy to meet their business needs. They also prepare and
use historical cash flow statements to gain an understanding about where all the money went.
3.2.1.Objective of Cash Management
1) To make Payment According to Payment Schedule:-
Firm needs cash to meet its routine expenses including wages, salary, taxes etc.
Following are main advantages of adequate cash-
1. To prevent firm from being insolvent.

2. The relation of firm with bank does not deteriorate.
3. Contingencies can be met easily.
4. It helps firm to maintain good relation’s with suppliers.
(2) To minimize Cash Balance:-
The second objective of cash management is to minimize cash balance. Excessive

amount of cash balance helps in quicker payments, but excessive cash may remain unused &
reduces profitability of business. Contrarily, when cash available with firm is less, firm is unable
to pay its liabilities in time. Therefore optimum level of cash should be maintained.
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CHAPTER- 4
DATA ANALYSIS AND
INTREPRETATION
- - 26 -
4.1.RATIO ANALYSIS
CURRENT RATIO
:
It is the ratio of the current assets to current liabilities. It shows a firms’ ability to cover its
current liabilities with its current assets. Generally 2:1 is considered ideal for a concern.
Current Assets
Current ratio= -----------------------
Current Liabilities
Table showing the ratio in last five years:

YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO
2005 58717515.54 56364153.49 1.04175
2006 58840889.47 60805740.78 0.96769
2007 56667820.22 53010376.58 1.06899
2008 48297236.74 60881054.39 0.7933
2009 48037734.64 75645848.08 0.63503
Charts showing the ratio in last five years:

CURRENT RATIO
1.2
0.8
RATIO
0.6 RATIO
0.4
0.2
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
While considering the current ratio, the five years ratio of the firm was below standard, i.e.
2:1. It means the liquidity position of the company is not good. So the company may not be able
to pay its current obligation in time without facing difficulties.
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QUICK RATIO
This is the ratio of the liquid assets to current (liquid) liabilities. It shows a firms’ ability
to meet current liabilities with its most liquid (quick) assets. 1:1 ratio is considered ideal ratio for
a concern. Liquid assets include cash balances, bill receivable, sundry debtors and short term
investment. Liquid liabilities include all items of current liabilities except bank overdraft. It is
calculated as under:
Liquid Assets
Liquid ratio=------------------------
Current liabilities
Table showing the ratio in last five years

YEAR LIQUID ASSETS CURRENT LIABILITIES RATIO
2005 30913579.97 56364153.49 0.54846
2006 24519491.11 60805740.78 0.40324
2007 15262173.57 53010376.58 0.28791
2008 19968926.15 60881054.39 0.328
2009 21674988.23 75645848.08 0.28653
LIQUID RATIO
0.6
R A T IO
0.4
RATIO
0.2
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The quick ratio of the firm is also below standard. The ratio was lowest in 2007 and
2009. So, conclude that the firm may not able to pay off the current obligations immediately. The
liquidity position of the firm is unsatisfactory.
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ABSOLUTE LIQUID RATIO
Though receivables are generally more liquid than inventories, there may be debts
having doubt regarding their real stability in time. So to get idea about the absolute liquidity of a
concern, both receivables and inventories are excluded from current assets and only absolute
liquid assets, such as cash in hand, cash at bank and readily realizable securities are taken into
consideration. The desirable norm for this ratio is 1:2. it is calculated as follows:
Cash in hand and at bank+ short term marketable securities

Absolute Liquidity ratio=------------------------------------------------------------------------
Current Liabilities
YEAR ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES RATIO
2005 81601.42 56364153.49 0.00145
2006 112425.82 60805740.78 0.00185
2007 164982.72 53010376.58 0.00311
2008 167150.56 60881054.39 0.00275
2009 146191.59 75645848.08 0.00193
ABSOLUTE LIQUID RATIO
0.004
0.003
R A T IO
0.002 RATIO
0.001
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The absolute liquid ratio of the firm in the last five years was comparatively very less
than the current and liquid ratios. They were far below the standard ratio 1:2. This ratio shows
that the absolute liquid asset of the firm is very less. The firm may not have enough cash / bank
balance or marketable securities
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DEBT EQUITY RATIO
It measures the extent of the equity covering the debt. This ratio is calculated to measure
the relative proportions of outsiders’ funds and shareholders’ funds invested in the company.
This ratio is determined to ascertain the soundness of the long term financial policies of the
company and is also known as external- internal equity ratio. It is calculated as follows:
Long Term Debts

Debt Equity ratio=-------------------------------
Shareholders’ Funds

YEAR DEBT EQUITY RATIO
2005 105558811.9 136533633.8 0.77313
2006 110168781.9 134521594.5 0.81897
2007 114778751.9 132710659.2 0.86488
2008 119425173.9 131080907.4 0.91108
2009 124071595.9 129614130.8 0.95724
DEBT EQUITY RATIO
1.5
RATIO
1
RATIO
0.5
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The debt equity ratio of the firm is showing a continuous increase from 0.77 in 2005 to
0.9 in 2009. It indicates the debt capital of the firm is increasing year by year. So the liability to
pay regular interest for this debt may also increase. The owners’ fund of the firm was decreased
every year, because of the debt equity ratio increased. Even though the debt equity ratio is
increasing the owners’ interest in the capital structure is greater than the outsiders. Thus the
financial position is still solvent.
- - 30 -
PROPREITARY RATIO
A variant of debt to equity ratio is the proprietary ratio which shows the relationship
between shareholders’ fund and total tangible assets. This ratio should be 1:3. it is worked out as
follows:
Shareholders’ Funds
Proprietary ratio=-----------------------------
Total Tangible Assets

YEAR SHAREHOLDERS FUND TOTAL ASSETS RATIO
2005 136533633.8 298456599.2 0.45747
2006 134521594.5 305496117.2 0.44034
2007 132710659.2 300499787.7 0.44163
2008 131080907.4 311387135.6 0.42096
2009 129614130.8 329331574.7 0.39357
PROPREITARY RATIO
0.5
R A T IO
0.45
RATIO
0.4
0.35
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The proprietors’ fund to total assets of the firm was significantly less. The ratio is
increasing in all 5 years that is the long term solvency of the firm is not so good.
- - 31 -
SOLVANCY RATIO
:
This ratio expresses the relationship between total assets and total liabilities of a
business. It measures the solvency of the business. It is calculated as follows:
Total Assets
Solvency ratio=-----------------------
Total Debts

YEAR TOTAL ASSETS TOTAL DEBTS RATIO
2005 109427411.2 161922965.4 0.675799204
2006 108984671.4 170974522.7 0.637432231
2007 102345736.1 167789128.5 0.609966432
2008 89639098.2 180306228.3 0.497149206
2009 85723199.9 199717444.1 0.429222396
SOLVANCY RATIO
0.8
RATIO
0.6
0.4 RATIO
0.2
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The solvency ratio indicates the ability of the firm to pay the outside liabilities (both long
term and short term) out of total assets. Here the solvency ratio is less than the total liability. It
means that there is some much difficulty in paying off its outside liabilities out of the assets
because the assets are less than the current liabilities. So the firm is treated as not solvent.
- - 32 -
NET PROFIT RATIO
This ratio explains per rupee profit generating capacity of sales. If the cost of sales is
lower, then the net profit will be higher and then divide it with the net sales, the result is sales
efficiency. If lower is the net profit per rupee of sales, lower will be sales efficiency. This is very
useful to the proprietors and prospective investors because it reveals the over all profitability of
the concern. It is calculated as follows:
Net Profit after Tax

Net Profit ratio=-----------------------------
Net sales

YEAR NET PROFIT SALES RATIO
2005 -19473921.07 205572788.6 -0.09473
2006 -7482257.81 203298289.6 -0.0368
2007 -1661373.79 225806164.8 -0.00736
2008 -23575217.86 195540470.4 -0.12056
2009 -21860337.31 181649151.3 -0.12034

NET PROFIT RATIO
0
2005 2006 2007 2008 2009
-0.02
-0.04
RATIO
-0.06
RATIO
-0.08
-0.1
-0.12
-0.14
YEAR
INTREPRETATION:
Here the company faced loss in all 5 years. In 2008 and 2009, there was huge loss, that is
12%.
- - 33 -
INVENTORY TURNOVER RATIO
.
This ratio measures the number of times, on average; the inventory is sold during the
period. Its purpose is to measure the liquidity of the inventory. This ratio is calculated as follows:
Cost of goods sold
Inventory turnover ratio=---------------------------
Average inventory

YEAR COST OF GOODS SOLD AVERAGE STOCK RATIO
2005 193826902.3 19015517.23 10.1931
2006 176560852.1 18761457.17 9.41083
2007 191897377.9 19659678.83 9.76096
2008 184318161.1 16791882.57 10.9766
2009 163505191.1 17700912.04 9.23711
INVENTORY TURNOVER RATIO
12
11
R A T IO
10 RATIO
9
8
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
Inventory turn over ratio is a measure of liquidity of inventory or how quickly

inventory is sold. Here the ratios indicate that inventory is sold fast because the ratio is higher
than the standard (8) in all 5 years. So the company maintained good inventory management in
last 5 years.
- - 34 -
FIXED ASSETS RATIO
This ratio explains whether the firm has raised adequate long term funds to meet its fixed
assets requirements. This ratio gives an idea as to what part of the capital employed has been
used in purchasing the fixed assets for the concern. If the ratio is less than one it is good for the
concern. The ideal ratio is .67. It is calculated as under:
Fixed Assets
Fixed Assets ratio=------------------------
Capital employed

YEAR FIXED ASSETS CAPITAL EMPLOYED RATIO
2005 50654895.61 242092445.7 0.20924
2006 50088781.92 244690376.4 0.2047
2007 45622915.85 247489411.1 0.18434
2008 41286861.48 250506081.3 0.16481
2009 37630465.33 253685726.7 0.14833
FIXED ASSETS RATIO
0.25
0.2
RATIO
0.15
RATIO
0.1
0.05
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The ratio of fixed assets to capital employed of the firm in last 5 years shows a
continuous decrease from 0.20 to 0.14 (less than the normal rate 1:1). It implies that a part of
working capital was also financed out of long term fund of the firm.
- - 35 -
TOTAL ASSETS TURNOVER RATIO
:
This ratio is calculated by dividing the net sales by the value of total assets. An higher
ratio is an indicator of over trading of total assets while a low ratio reveals idle capacity
Net Sales
Total Assets Turnover ratio=----------------------
Total Assets

YEAR SALES TOTAL ASSETS RATIO
2005 205572788.6 298456599.2 0.68879
2006 203298289.6 305496117.2 0.66547
2007 225806164.8 300499787.7 0.75144
2008 195540470.4 311387135.6 0.62797
2009 181649151.3 329331574.7 0.55157
TOTAL ASSETS TURNOVER RATIO
0.8
0.6
RATIO
0.4 RATIO
0.2
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
This ratio indicates the efficiency of the total assets to generate sales or revenue. Here
the ratio is below standard, that means. There may be idle capacity.
- - 36 -
FIXED ASSETS TURNOVER RATIO
This ratio measures the efficiency of the assets use. The efficient use of assets will generate
greater sales per rupee invested in all the assets of a concern. The inefficient use of the asset will
result in low sales volume coupled with higher overhead charges and under utilization of the
available capacity. Hence the management must strive for using total resources at optimum level,
to achieve higher ROI. It is calculated as under:
Sales
Fixed Assets Turnover ratio=-----------------------------
Net Fixed Assets

YEAR SALES NET FIXED ASSETS RATIO
2005 205572788.6 50654895.61 4.0583
2006 203298289.6 50088781.92 4.05876
2007 225806164.8 45622915.85 4.9494
2008 195540470.4 41286861.48 4.73614
2009 181649151.3 37630465.33 4.82718
FIXED ASSETS TURNOVER RATIO
6
RATIO
4
RATIO
2
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
This ratio implies that the efficiency of the firm in utilizing its fixed assets in placing
sales. By taking all 5 years, there is an increase in the ratio (above 4).it means the profit earning
capacity of the firm is good
- - 37 -
WORKING CAPITAL TURNOVER RATIO
This ratio shows the number of times working capital is turned over in a stated period.
The higher is the ratio, the lower is the investment in working capital and greater are the profits.
It is calculated as follows
Sales
Working Capital Turnover ratio= --------------------------------
Net Working Capital

YEAR SALES WORKING CAPITAL RATIO
2005 205572788.6 2353362.05 87.3528
2006 203298289.6 -1964851.31 -103.468
2007 225806164.8 3657443.64 61.7388
2008 195540470.4 -12583817.65 -15.539
2009 181649151.3 -27608113.44 -6.57956
WORKING CAPITAL TURNOVER

RATIO
100
RATIO
0
RATIO
-100 2005 2006 2007 2008 2009
-200
YEAR
INTREPRETATION:
Working capital turn over ratio indicates whether working capital is effectively
utilized in making sales. By taking 5 years data of the firm, 2005 and 2007 is higher than the
standard rate (7 or 8 times). The higher ratio indicates better utilization of the working capital.
But a very high ratio indicates over trading i.e. low investment of working capital. In 2006, 2007
and 2008 ratio was negative, which means under trading. Any way, now the working capital
management of the company is no
- - 38 -
4.13. CAPITAL TURNOVER RATIO
This ratio shows the efficiency of the of capital employed in the business by computing how
many times capital employed is turned-over in a stated period. The higher the ratio, the greater
are the profit. A low capital turnover ratio should be taken to mean that sufficient sales are not
being made and profits are lower.
Sales
Capital Turnover ratio=--------------------------
Capital Employed

YEAR SALES CAPITAL EMPLOYED RATIO
2005 205572788.6 242092445.7 0.84915
2006 203298289.6 244690376.4 0.83084
2007 225806164.8 247489411.1 0.91239
2008 195540470.4 250506081.3 0.78058
2009 181649151.3 253685726.7 0.71604
CAPITAL TURNOVER RATIO
1
R A T IO
0.5 RATIO
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The capital turn over ratio of the firm was less than 1 in all five years. This ratio
indicates the effectiveness with which the firms utilize its resources or capital employed. Hence
the capital employed was not fully utilized by the firm for earning revenue or increasing sales.
- - 39 -
CASH TURNOVER RATIO
This ratio indicates a firm's efficiency in its use of cash for generation of sales revenue. It
is the inverse of cash-to-sales ratio.
Sales
Cash Turnover ratio=------------------------------
Average Cash Balances

YEAR SALES AVERAGE CASH RATIO
2005 205572788.6 82843.2 2481.47
2006 203298289.6 97013.6 2095.56
2007 225806164.8 138704.3 1627.97
2008 195540470.4 166066.6 1177.48
2009 181649151.3 156671.1 1159.43
CASH TURNOVER RATIO
3000
R A T IO
2000
RATIO
1000
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
This ratio indicates a firm’s efficiency in its use of cash for generation of sales
revenue. While taking this ratio, the company has much efficiency in its use of cash for the
generation of sales revenue.
- - 40 -
ACCOUNT RECEIVABLE TURNOVER RATIO
This ratio measures the number of times, on average; receivables are collected during the
period. The higher the value of ratio, the more is the efficient management of debtors. It is
calculated as follows:
Net Credit Sales
Receivable Turnover ratio=-----------------------------
Average Receivables

YEAR SALES AVG ACCOUNT RECEIVABLES RATIO
2005 205572788.6 2526701.06 81.3602
2006 203298289.6 4128716.35 49.2401
2007 225806164.8 2526422.51 89.3778
2008 195540470.4 2010056.25 97.2811
2009 181649151.3 3595183.96 50.5257
ACCOUNT RECEIVABLE TURNOVER

RATIO
150
R A T IO
100
RATIO
50
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
Here, the efficient of management of debtors is good because of the debtors turn over ratio is
above standard, that means the quality or liquidity of debtors. In 2008, the debtors are collected
more promptly by comparing other four years.
- - 41 -
AVERAGE COLLECTION PERIOD
It indicates on an average for how many days sales are pending uncollected by the concern.
This also reflects the credit policy and terms of the concern.
Days in a year
Average Collection Period=-------------------------------------
Debtor Turnover ratio

AVG COLLECTION
YEAR NO. OF DAYS DEBTORS TURNOVER RATIO PERIOD
2005 360 81.36015449 4.424770359
2006 360 49.24007182 7.311118499
2007 360 89.37783126 4.027844432
2008 360 97.2810937 3.700616289
2009 360 50.52569029 7.125088206
AVERAGE COLLECTION PERIOD
8
6 AVG
R A T IO
4 COLLECTION
2 PERIOD
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
Average collection period shows that there is an increasing trend. This means more funds are
utilized to finance debtors. The firm follows correct and cash sales procedure.
- - 42 -
CREDITORS TURN OVER RATIO
Creditors Turnover ratio:

A short-term liquidity measure used to quantify the rate at which a company pays off its
suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from
suppliers and dividing it by the average accounts payable amount during the same period.

YEAR CREDIT PURCHASE AVG ACCOUNT PAYABLE RATIO
2005 130930655.4 7608350.4 17.2088
2006 125059910.1 10629318.9 11.7656
2007 130225506.1 12773841.1 10.1947
2008 124984162.1 14322157.2 8.72663
2009 112430648.2 21720705.9 5.1762
CREDITORS TURNOVER RATIO
20
15
RATIO
10 RATIO
5
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
While taking the creditors turn over ratio it can be shows that ratios were increased i.e. the
payment to creditors was delayed. In 2005, indicates high ratio, which means early payment to
creditors and the firm is not taking the full advantage of credit allowed by the creditors.
- - 43 -
AVERAGE PAYMENT PERIOD:
The average payment period (APP) is defined as the number of days a company takes to
pay off credit purchases. It is calculated as accounts payable / (total annual purchases / 360). As
the average payment period increases, cash should increase as well, but working capital remains
the same. Most companies try to decrease the average payment period to keep their larger
suppliers happy and possibly take advantage of trade discounts.
Days in a year
Average payment period=---------------------------------
Creditors Turnover ratio

CREDITORS TURNOVER
YEAR NO. OF DAYS RATIO AVG PAYMENT PERIOD
2005 360 17.20880986 20.91951756
2006 360 11.76556196 30.59777351
2007 360 10.19470221 35.31245862
2008 360 8.72662968 41.25303963
2009 360 5.176196792 69.54913317
AVERAGE PAYMENT PERIOD
80
60
R A T IO
AVG PAYMENT
40
PERIOD
20
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The credit enjoyed by the company is 35 days which means the makes payment to creditors, after
80 years on average and also the payment period of the company is not at all good possession
due to the business expansion.
- - 44 -
RATIO OF FIXED ASSETS TO NETWORTH
It measure the solvency of a firm, this ratio indicates the extent to which the owners' cash is
frozen in the form of brick and mortar and machinery, and the extent to which funds are
available for the firm's operations. A ratio higher than 0.75 indicates that the firm is vulnerable to
unexpected events and changes in the business climate.
Net Fixed Assets

Fixed Assets to Net worth Ratio=-----------------------------------
Net worth

YEAR FIXED ASSETS NETWORTH RATIO
2005 50654895.61 136533633.8 0.37101
2006 50088781.92 134521594.5 0.37235
2007 45622915.85 132710659.2 0.34378
2008 41286861.48 131080907.4 0.31497
2009 37630465.33 129614130.8 0.29033

FIXED ASSETS TO NETWORTH RATIO
0.4
0.35
0.3
0.25
RATIO
0.2 RATIO
0.15
0.1
0.05
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The ratio of fixed assets to net worth is showing the continuous decrease from the 0.37 in 2005
to 0.29 in 2009. It shows that the shareholders fund was not fully sunk into the fixed assets. The
equity may be utilized for some other purpose als
- - 45 -
RATIO OF CURRENT ASSETS TO FIXED ASSETS
This is the ratio of the Current Assets to Fixed Assets. This ratio is worked out as:
Current Assets
Ratio of Current Assets to Fixed Assets=------------------------
Fixed Assets

YEAR CURRENT ASSETS FIXED ASSETS RATIO
2005 58717515.54 50654895.61 1.15917
2006 58840889.47 50088781.92 1.17473
2007 56667820.22 45622915.85 1.24209
2008 48297236.74 41286861.48 1.1698
2009 48037734.64 37630465.33 1.27656

CURRENT ASSETS TO FIXED
ASSETS RATIO
1.3
1.25
RATIO
1.2 RATIO
1.15
1.1
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
The ratio of current assets to fixed assets was increased in last five years which
indicate a continuous decrease from 0.20 to 0.14 (less than the normal ratio 1; 1). It implies that a
part of working capital was also financed out of long term fund of the firm
- - 46 -
RATIO OF INVENTORY TO WORKING CAPITAL
:
In order to ascertain that there is no over stocking, the ratio of inventory to working
capital should be calculated. Working capital is the excess of current assets over current
liabilities. Increase in volume of sales requires increase in size of inventory, but from a sound
financial point of view, inventory should not exceed amount of working capital. The desirable
ratio is 1:1. It is worked out as follows:
Inventory
Ratio to Inventory to Working capital=---------------------
Working capital

YEAR INVENTORY WORKING CAPITAL RATIO
2005 32682663.3 2353362.05 13.8876
2006 30146698.1 -1964851.31 -15.343
2007 27456310.6 3657443.64 7.50697
2008 19859081.1 -12583817.65 -1.57814
2009 27235334.9 -27608113.44 -0.9865
INVENTORY TO WORKING CAPITAL

RATIO
20
RATIO
0 RATIO
2005 2006 2007 2008 2009
-20
YEAR
INTREPRETATION:
This ratio implies the relationship between inventories to working capital. Here 2005 and 2007
indicate that inventory is more than the working capital, i.e. working captal management is not
good
- - 47 -
RATIO OF CASH TO CURRENT ASSETS
Cash to Current Assets ratio is useful for determining the proportion of cash within the current
assets category. This is the most conservative way to measure a company’s liquidity, since it
ignores the liquidation value of account receivables and inventory. It is most useful for
determining the ability of a company to pay off the liabilities in the extremely short term
Cash +Short term marketable securities

Ratio of Cash to Current Assets=-----------------------------------------------------
Current Assets

YEAR CASH CURRENT ASSETS RATIO
2005 46614.29 58717515.54 0.00079
2006 74874.36 58840889.47 0.00127
2007 129584.26 56667820.22 0.00229
2008 143025.1 48297236.74 0.00296
2009 71156.13 48037734.64 0.00148

CASH TO CURRENT ASSETS RATIO
0.0035
0.003
0.0025
RATIO
0.002
RATIO
0.0015
0.001
0.0005
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
While considering the cash to current assets there was less amount of cash that used for the
purpose of day to day operations.
- - 48 -
RATIO OF CASH TO WORKING CAPITAL
Cash To Working Capital Ratio is useful for determining the proportion of working
capital that is made up of cash or investments that can be readily converted into cash. If the ratio
is low, it may be an indication that a company will have trouble meeting its short-term
commitments because of a lack of cash. If this were the case, the next formula to calculate would
be the number of expense coverage days to determine exactly how many days of operations can
be covered by existing cash levels.
Cash + short term marketable securities

Cash to Working capital ratio=-------------------------------------------------
Net Working Capital

YEAR CASH & BANK WORKING CAPITAL RATIO
2005 81601.42 2353362.05 0.03467
2006 112425.82 -1964851.31 -0.05722
2007 164982.72 3657443.64 0.04511
2008 167150.56 -12583817.65 -0.01328
2009 146191.59 -27608113.44 -0.0053

CASH TO WORKING CAPITAL RATIO
0.06
0.04
0.02
RATIO
0
2005 2006 2007 2008 2009 RATIO
-0.02
-0.04
-0.06
-0.08
YEAR
INTREPRETATION:
Here the company has big trouble for meeting its short term commitments because of lack of
cash or cash equivalent.
- - 49 -
CASH RATIO
This is the ratio of a company's total cash and cash equivalents to its current
liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can
therefore determine if, and how quickly, the company can repay its short-term debt. A strong
cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to
extend to the asking party.
Cash and cash equivalents

Cash ratio=-------------------------------------
current liabilities
YEAR CASH CURRENT LIABILITIES RATIO
2005 46614.29 56364153.49 0.00083
2006 74874.36 60805740.78 0.00123
2007 129584.26 53010376.58 0.00244
2008 143025.1 60881054.39 0.00235
2009 71156.13 75645848.08 0.00094

CASH RATIO
0.003
0.0025
0.002
RATIO
0.0015 RATIO
0.001
0.0005
0
2005 2006 2007 2008 2009
YEAR
INTREPRETATION:
Cash ratio is used to measure the company’s liquidity. While considering the last five years, they
cannot repay its short term debts quickly.
- - 50 -
STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2005 &
2006
Changes in working capital
Increase Decrease
Particulars 2005 2006
CURRENT ASSETS:
Deposits 5861358 6053934 192576
Advances 11718135 12884254 1166119
Receivables 3597406 4712524 1115118
Inventory 32682663 30146698 2535965
Stores, spares& packing materials 4776351 4931024 154673
Cash and bank balance 81601 112426 30825
TOTAL CURRENT ASSETS 58717514 58840860
CURRENT LIABILITIES:
SBT account 24615556 22841071 1774485
Statutory liabilities 1228640 1380718 152078
Creditors 77337189 15485203 61851986
Outstanding expenses 3921735 4127435 205700
Provisions 10980788 9918277 1062511
Other liabilities 7880245 7053035 827210
TOTAL CURRENT LIABILITIES 125964153 60805739
2893743
Increase in Working Capital -67246639 -1964879 68175503 65281760
TOTAL 68175503 68175503
INTREPRETATION
In 2005 and 2006 the statement of working capital shows that the working capital position was
still good. Because the current assets of the mill increased to 58840860 and also current
liabilities decreased to 60805739.
- - 51 -
STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2006 and 2007
Increase Decrease
CURRENT ASSETS:
Deposits 6053934 5925997 127937
Advances 12884254 13949336 1065082
Receivables 4712524 3299956 1412568
Inventory 30146698 27456310 2690388
SBT account 22841071 21480048 1361023
Creditors 15485203 10596904 4888299
Provisions 9918277 8080302 1837975 138054
Other liabilities 7053035 7191089
4522827
Increase in Working Capital -1964879 3657444 10145150 5622323
TOTAL 10145150 10145150
INTREPRETATION
In the 2006 and 2007, the current assets decreased by 2173040 and current liabilities decreased
by 7795363. This means the working capital is in increasing position but
- - 52 -
Increase Decrease
CURRENT ASSETS:
Deposits 5925997 6060584 134587
Advances 13949336 12626789 1322547
Receivables 3299955 4281864 981909
Inventory 27456310 19859081 7597229
SBT account 2148008 22481915 20333907
Creditors 10596903 18352706 7755803
Provisions 808031 7546917 6738886
1661156
Decrease in Working Capital 30266754 -12583817 42850571 44511727
TOTAL 44511727 44511727
INTREPRETATION
In 2007 and 2008 the statement of working capital shows that the working capital position was
still bad. Because the current assets of the mill decreased to 8375582 and current liabilities
decreased to 34474989.
- - 53 -
Particulars 2008 2009 Increase Decrease
CURRENT ASSETS:
Deposits 6060584 6060584
Advances 12626789 6662444 5964345
Receivables 4281864 3562920 718944
Inventory 19859081 27235335 7376524
SBT account 22481915 23474671 992756
Creditors 18352706 29475821 11123115
Provisions 7546917 7852656 305739
-12583817 -27608113 12382779
Decrease in Working Capital 15024026 27406805
TOTAL 27406805 27406805
INTREPRETATION:
In the 2008 and 2009, the current assets decreased by 259501 and current liabilities increased by
14764795. This means the working capital management of the company is not good.
- - 54 -
CHAPTER 5
FINDINGS, SUGGESTIONS AND
CONCLUSION
- - 55 -
5.1. FINDINGS
Net profit position of the company is not at all satisfactory. Firm is in loss for several
years. The low realization value from the sale of yarn is main reason for the losses
incurred by the firm. The cost of raw material is very high because around 63% of the
total sale value is consumed by the raw materials and also operating expense of the
company is high. The profitability of the firm greatly depend on external factors like
export trade, local market sales, supply of raw material etc.
The modernization activities of the mill are not yet completed. Therefore the mill is still
maintaining a big labour force.
The unfavorable market price of the products is the most important and crucial problem
faced by the mill. The price of the yarn is fixed on the basis of the general price level in
the yarn market. The mill has no influence in the determination of market price.
Unfortunately for the last few years, the market price of the yarn is not favorable to the
mill.
The Liquidity position of the company is not satisfactory. So the company may not be
able to pay off its current obligations in time without facing difficulties. And also the
working capital is not maintained properly. There was inadequate working capital in
some years. Working capital ratio is also not satisfactory. The amount of current assets
was greater than the fixed assets in last five years. It means that more funds were blocked
in current assets
The long term solvency position of the firm is satisfactory. The fixed assets to net worth
ratio indicate that the share holders fund was not fully sunk in to the fixed assets. The
equity may be utilized for some other purpose also. The study implies that a part of
working capital was also financed out of the long term funds of the firm.
The cash management of the firm is not satisfactory, because of the liquidity and
solvency position is below standard, i.e, during the current year the company has no
much liquid cash and marketable securities in time to meet the short term obligations.
The stock turn over ratio of the firm in all five years was above satisfactory level. The
firm has a very efficient debtor management.
- - 56 -
Finally, conclude that the financial as well as overall financial performance of the
company is not good.
5.2. SUGGESTION
Necessary steps have to be taken to make the working capital management more
effective.
The profitability of any business depends to a very extend on the capacity of business
to enhance sales. So effective marketing techniques have to be introduced.
Liquidity of the business should be properly maintained.
High price in production has a negative influence in profit earning of the business. So
it has to be reduced.
The efficient utilization of the raw materials will help to reduce the cost of raw
material and to increase the realization value from the sale of yarn. Also try to
minimize if there is any wastage of raw materials.
The complete modernization of the mill will help to improve the efficiency of the
firm and to reduce the labour force and thereby the labour costs.
Since it is a government company, the government authorities may give additional
financial assistance to the firm.
It is desirable for the firm to undertake necessary steps to reduce the operating
expenses.
The firm has to introduce new ways to reduce the cost of production and to increase
the efficiency and profitability.
If the firm switch over the present production procedure to automated technologies it
may increase the profitability. Because that may reduce the cost of production.
The company should purchase the raw materials in bulk quantities and keep
warehouse when it is available at low price.
The mill must take every steps to ensure a continues and regular supply of raw
materials so as to accelerate production.
The investment in inventories should be reduced by effectively controlling variation
in lead time and careful planning orderly schedules.
- - 57 -
Entrance of trade union should be restricted. To avoid this problem company can
make labour participation in the management.
5.3. CONCLUSION
The Malappuram Co-operative Spinning Mill Limited is a leading

organization dealing in cotton yarns since 1975. The performance of the mill through out
the operational period has not been at all satisfactory. The mill faced high losses for the
last few years, because of high cost, negative working capital, less liquidity of money. In
order to avoid these problems, proper management is essential. And also management of
cash, working capital is essential.
- - 58 -
BIBLIOGRAPHY
S.P.Jain. K.L.Narang, Cost and Management Accounting, Kalyani publishers,Ludhiana,

2007
A. Vinod, Cost and Management Accounting, Calicut University Central Co-operative
store Ltd.,Calicut, 2007.
C.R. Kothari, Research Methodology, Wiley Eastern Ltd., New Delhi,2002
Annual Report of the Malappuram Co-operative Spinning Mill Ltd.
http://www.smallbusinessnotes.com/operating/finmgmt/cashmanagement.html
http://www.investorwords.com/774/cash_management.html
- - 59 -

Study On Financial Position and Cash Management of Malco LTD

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CHAPTER- 1

1950-51 56.48 30.62 92

1960-61 76.78 56.41 124

1970-71 76.05 47.63 106

1980-81 78.24 78.6 170

1990-91 74.39 117 267

2000-01 85.76 140 278

2001-02 87.3 158 308

2002-03 76.67 136 302

2003-04 76.3 179 399

2004-05 87.86 243 470

2005-06 86.77 244 478

2006-07 91.44 280 521

2007-08 94.39 315 567

2008-09 93.73 290 526

• Vast textile production capacity

1.1.1 Cotton Exports from India:

1996-97 16.82 1655

1997-98 3.5 313.62

1998-99 1.01 86.72

1999-00 0.65 52.15

2000-01 0.6 51.43

2001-02 0.5 44.4

2002-03 0.83 66.31

2003-04 12.11 1089.15

2004-05 9.14 657.34

1996-97 0.3 56.42

1997-98 4.13 497.93

1998-99 7.87 772.64

1999-00 22.01 1967.92

2000-01 22.13 2029.18

2001-02 25.26 2150.01

2002-03 17.67 1789.92

2003-04 7.21 880.1

2004-05 12.17 1338.04

2006-07 5.53 752.29

2007-08 6.5 986.33

1.1.2. CURRENT FACTS ON INDIA TEXTILE INDUSTRY:

1.3.1. Source of data:

o To study the liquidity position of the organization

1.5. LIMITATION OF THE STUDY

o The period of study was very limited.

2.3. VISION, MISSION AND QUALITY POLICY:

2.4. COMPETITORS INFORMATION

2.6. MEMBERSHIP OF THE ORGANISATION

Membership of the organization opened to,

2.7. ORGANISATIONAL STRUCTURE

The board of directors is constituted by the Government of Kerala. According to the

DEPUTY MILL MANAGER LABOUR

ACCOUNT PERSONNEL SPINNING MASTER HEAD TIME

ACCOUNT PURCHASE&SA ASSIST. SPINNING ASSIST.CLER

ASSIST. ELECTRICAL ASSIST. ASSIST. STORE

WORK ELECTRICIAN SUPERVISOR QUALITY STORE

2.10.1. Share Capital:

particulars amount Amount

2.10.2. Reserve and Surplus:

2.10.3. Secured Loans:

particulars amount Amount

3.1.1. Objectives of Financial Analysis

3.1.2. Techniques or Tools of Analysis and Interpretation

Comparative Financial Statements

Common Measurement Statements: