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A Study On Receivable Management & Its Impact
A Study On Receivable Management & Its Impact
1 INTRODUCTION
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.
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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:
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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:
➢ Collection efforts:
Collection efforts determine the actual collection period. The lower the
collection period is, the lower the investment in account receivables & vice versa.
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.
3
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.”
Strengths:
Weakness:
➢ Deficit infrastructure
➢ Socio – political interventions
➢ High cost of finance
Opportunities:
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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.
6
• 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.
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).
8
Subbituminous coal:
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.
9
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
10
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:
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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.
PRODUCT 3.
PRODUCT 4.
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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.
PRODUCT 6.
PRODUCT 7.
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Ash Content 05%
Volatile Matter 42 %
Fixed Carbon By Difference
Total Sulphur < 1%
Size 0-50mm
PRODUCT 8.
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:
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.
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
ELECTRICITY:
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(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.
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.
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
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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.
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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.
Primary Objective:
18
Secondary Objective:
statement analysis.
the company.
19
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.
✔ The study has taken into account only three years for comparative analysis.
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2.5 REVIEW OF LITERATURE
21
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.
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.
FACTORING:
22
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.
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.
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
23
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 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:
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:
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
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:
26
MONITORING BOOK DEBTS
The company classifies its debts on the number of outstanding ways in the following
way.
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.
• Liquidity 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.
28
3.1 RESEARCH METHODOLOGY
This project study is aimed at analyzing the receivable management and its
impact at GTC (P) Ltd.
RESEARCH:
RESEARCH METHODOLOGY:
RESEARCH DESIGN:
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.
✔ 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.
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:
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:
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
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:
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
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Liquid liabilities means liabilities which are payable within a short period.
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
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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
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
This ratio gives the average credit period enjoyed from the creditors.
Formula
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.
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.
Formula
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.
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.
YEAR
SALES
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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.
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3.2.2 TABLE SHOWING TREND PROJECTION OF PROFITS IN GTC FOR 3
YEARS
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.
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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
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
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:
43
Comparative Balance Sheet of UTC as on 31st march of 2006 & 2007
AMT. % F
PARTICULARS
2006 2007 INC IN 2006
& 2007
Current Assets:
Fixed Assets:-
Fixed Assets 209189.55 233315.42 +24125.87 11.53
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 - -
44
Capital & 363010.79 699209.89 +336199.10 92.61
Reserves
Share Capital
FINDINGS:
From the above table it is found that the cash at bank, provision and sundry
creditors are in negative.
INFERENCES:
45
47007544.1
7
Net sales 110848043.20 110848043.20 + 135.81
45930126.3
(-) cost of sales 0 2380555.44 - 62537361.45 (-) 136.16
Operating
expenses :-
Administrative & 1048773.96 2305870.37 (+)1257096.41 (+) 119.86
sending expenses
Non operative - - - -
income
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%.
47
Closing stock 414682.66 2867186.82 +2452504.16 +591.42
Current
liabilities:- 91867.00 30000.00 -618767.00 -67.34
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
48
FINDINGS:
From the above table it is found that the cash on hand, provision and loan are in
negative.
INFERENCES:
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
FINDINGS:
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.
50
3.2.8 TABLE SHOWING QUICK RATIO OF GTC (P) LTD FOR 3 YEARS
CURRENT
YEARS LIQUID ASSETS RATIO
LIABILITIES
FINDINGS:
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
FINDINGS:
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:
53
3.2.2.5 CHART SHOWING DEBTORS TURNOVER RATIO OF GTC (P) LTD
FOR 3 YEARS
DEBTORS
DAYS IN A
YEAR TURNOVER DAYS
YEAR
RATIO
54
2006 365 2.78 131
FINDINGS:
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.
55
3.2.11 TABLE SHOWING CREDITORS TURNOVER RATIO OF GTC (P)
LTD FOR 3 YEARS
AVERAGE
PURCHASE RATIO
YEAR CREDITORS
FINDINGS:
56
CTR = Net Credit Purchase
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.
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
FINDINGS:
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.
58
3.2.2.8 CHART SHOWING CREDITORS COLLECTION PERIOD OF GTC
(P) LTD FOR 3 YEARS
59
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
60
TOTAL 20116541 171745 3325273896682084 119328775526 9419559134362
3 9
7 3 3
Formula
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.
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 = 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.
63
3.2.16 TABLE SHOWING TREND ANALYSIS FOR SALES OF GTC (P) LTD
2007 47007544 0 0 0
Y = a+ bx
64
Where a= ∑y b = ∑xy
N ∑x2
a = 201165413 b = 67538217/2
3
a = 67055137.67 b = 33769108.5
FINDINGS:
Y = 67055137.67 + (33769108.5*-1)
= 33286029.17
Y = 67055137.67 + (33769108.5*0)
= 67055137.67
Y = 67055137.67 + (33769108.5*1)
= 100824246.17
INFERENCES:
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
➢ The cost of sales was increased during the period 2008. When compared to
➢ 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)
67
➢ During the period 2006 to 2008 the Debtor turnover ratio is high and the
➢ During the period 2006 to 2008 the Creditors turnover ratio is high and the
3.4 SUGGESTIONS
obligations (liabilities)
➢ The Company may concentrate to increase the quick assets to meet the
by year.
➢ The Company can maintain cash position it will increase the liquidity
➢ Even though sales increases but debtor collection policy should be strict so
activities.
➢ The company can prepare collection experience statement for each dealer.
➢ Company can maintain structured frame work for bank guarantee limits
determination.
68
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.
69
70