CHAPTER-1

INTRODUCTION

1
 INTRODUCTION:
Cash is the important current asset for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis; it is also the ultimate
output expected to be realized by selling the service or product manufactured by the firm.
The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the
firm’s manufacturing operations while excessive cash will simply remain idle, without
contributing anything towards the firm’s profitability. Thus, a major function of the
financial manager is to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm, and balances in its bank
accounts. Sometimes near-cash items, such as marketable securities or bank times
deposits, are also included in cash. The basic characteristic of near-cash assets is that they
can readily be converted into cash. Generally, when a firm has excess cash, it invests it in
marketable securities. This kind of investment contributes some profit to the firm.

FACTS OF CASH MANAGEMENT:

Cash management is concerned with the managing of: (i) Cash flows into and out of the
firm, (ii) Cash flows within the firm, and (iii) Cash balances held by the firm at a point of
time by financing deficit or investing surplus cash. It can be represented by a cash
management cycle. Sales generate cash which has to be disbursed out. The surplus cash
has to be invested while deficit this cycle at a minimum cost. At the same time, it also
seeks to achieve liquidity and control. Cash management assumes more importance than
other current assets because cash is the most significant and the least productive asset that
a firm’s holds. It is significant because it is used to pay the firm’s obligations. However,
cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for sale.
Therefore, the aim of cash management is to maintain adequate control over cash position
to keep the firm sufficiently liquid and to use excess cash in some profitable way.

Cash management is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no prefect coincidence between the inflows and

2
outflows of cash. During some periods, cash outflows will exceed cash inflows, because
payments for taxes, dividends, or seasonal inventory build up. At other times, cash inflow
will be more than cash payments because there may be large cash sales and debtors may be
realized in large sums promptly. Further, cash management is significant because cash
constitutes the smallest portion of the total current assets, yet management’s considerable
time is devoted in managing it. In recent past, a number of innovations have been done in
cash management techniques. An obvious aim of the firm these days is to manage its cash
affairs in such a way as to keep cash balance at a minimum level and to invest the surplus
cash in profitable investment opportunities.

In order to resolve the uncertainty about cash flow prediction and lack of synchronization
between cash receipts and payments, the firm should develop appropriate strategies for
cash management. The firm should evolve strategies for cash management. The firm
should evolve strategies regarding the following four facets of cash management.
 Cash planning: Cash inflows and outflows should be planned to project cash
surplus or deficit for each period of the planning period. Cash budget should be
prepared for this purpose.

 Managing the cash flows: The firm should decide about the properly managed.
The cash inflows should be accelerated while, as far as possible, the cash outflows
should be decelerated.

 Optimum cash level: the firm should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be matched
to determine the optimum level of cash balances.

 Investing surplus cash: The surplus cash balances should be properly invested to
earn profits. The firms should decide about the division of such cash balances
between alternative short-term investment opportunities such as bank deposits,
marketable securities, or inter-corporate lending.

MOTIVES FOR HOLDING CASH

The firm’s need tohold cash may be attributed to the following three motives:

 The transactions motive

 The precautionary motive

 The speculative motive

3
CHAPTER- 2
REVIEW OF
LITERATURE

4
According to (Davidson et al, 1999), cash is any medium of exchange, which is
immediately negotiable. It must be free of restriction for any business purpose. Cash has to
meet the prime requirements of general acceptability and availability for instant use in
purchasing and payment of debt. Acceptability to a bank for deposit is a common test
applied to cash items. This is a process of Planning, controlling, and accounting for cash
transactions and cash balances. It is channeling available cash into expenditures that
enhance productivity, directly or indirectly.
In addition, Cash is ready money in the bank or in the business. It is not inventory, it is not
accounts receivable (what you are owed), and it is not property. These might be converted
to cash at some point in time, but it takes cash on hand or in the bank to pay suppliers, to
pay the rent, and to meet the payroll. Profit growth does not necessarily mean more cash.
(Davidson et al, 1999)
Cash is the important current asset for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis: it is also the ultimate
output expected to be realized by selling the service or product manufactured by the firm.
The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the
firm’s manufacturing operations while excessive cash will simply remain idle. Without
contributing anything towards the tint’s profitability. Thus, a major function of the
financial manager is to maintain a Sound cash position. (Pandey, 2007)

A cash flow statement is an important indicator of financial health because it is possible for
a company to show profits while not having enough cash to sustain operations. It is a
financial report that shows to the user the source of a company's cash and how it was spent
over a specific period of time. A cash flow statement counters the ambiguity regarding a
company's solvency that various accrual accounting measures create. It also categorizes the
sources and uses of cash to provide the reader with an understanding of the amount of cash
a company generates and uses in its operations, as opposed to the amount of cash provided
by sources outside the company, such as borrowed funds or funds from stockholders. The
cash flow statement also tells the reader how much money was spent for items that do not
appear on the income statement, such as loan repayments, long-term asset purchases, and
payment of cash dividends (Ryan 2007).

5
The role of cash flow information in discriminating between bankrupt and non-bankrupt
companies remains a contentious issue. In a number of literature reviews on bankruptcy
prediction (e.g. Zavgren, 1983; Jones, 1987; Neill et al. 1991; Watson, 1996) the common
view is that cash flow information does not contain significant incremental information
content over accrual information in discriminating between bankrupt and non-bankrupt
firms.).

Hamburger (Hamburger, 1986) 5 has brought about the distinction between project cost
accounting and project cash flows. He elucidates the importance and need to recognize and
track them separately. The conventional accounting practices account for the cost on
accrual basis while the cash flow occurs when the actual payment is made or received.
Hence there is a difference of timing between incurrence of cost and occurrence of cash
flow related to it. Cash flows generally lag behind the project expenditure (except when
advances are paid or received). Although Hamburger had stated what has been a known
and practiced theory for the company accountants and finance persons, he had highlighted
a common misconception widespread probably among project persons. It also seems
ironical even today, the popular project management software such as Microsoft Project;
Primavera etc. do not make any distinction between the two.

Fellows (Fellows, 1982) 6 showed how different policies and situations influence the cash
flows for a contractor. Considering variations in mobilization advances, retention amounts,
pricing mark-ups and effects of inflation and expected payment delays, effects on project
profitability, financing requirements and cash flows were studied on the basis of a typical
building construction project. Certain recommendations were made for increasing profits,
reducing financing costs and minimizing negative cash flows. He had also illustrated that
the net working capital needs of a typical project vary over a period of project; peaking at
one time and then becoming positive, making the project entirely self-financing.
Chen (Chen, 2007)7 reiterated that the terms cash flow and expenditure were being
interchangeably used by many project teams and organizations. Chen illustrated typical
situation for a project contractor where a cash deficit due to difference between cash inflow
and cash outflow gets created during project execution. He further stated that this cash
deficit was needed to be estimated accurately as it was to be financed on a short-term basis

6
as working capital. He therefore had demonstrated a step-by-step procedure to workout
project cash flows using a tabular format popularly known as spreadsheet, superimposing
the basic project information such as project cost breakdown and project payment schedule
on project activity schedule. It has been observed that the procedure illustrated by Chen,
being based on the basic principles of cash flows, is probably the most popular one among
project contractors. These papers had brought forward certain basic understanding and
conceptual clarities on the topic of project cash flows. Firstly, the difference between the
terms ‘project expenditure’ and ‘project cash flows’ had become very clear. Secondly, by
listing different variables relating to project cash flows, the effect of the changes in these
variables on the contractor’s net cash flows had been illustrated. Thirdly, a simple process
for working out project cash flows integrated to project schedule had been explained.

Jarrah et al (Jarrah, Kulkarni, & O'Connor, 2007)11 collected actual cash flow data in form
of monthly account summary reports for various projects under Texas Department of
Transportation. The sample consisted of different category of projects such as construction
and replacement of bridges, new nonfreeways, road overlay and rehabilitation of existing
roads, landscape scenic enhancements, widening of freeways etc. Projects were further
classified in different cost ranges. Based on the scatter chart of payments against time for
different projects in a given category, a fourth degree polynomial regression analysis was
used to obtain the cash flow curves that turned out to be characteristic ‘S’ shaped for most
of the projects. Although statistical significance could not be proved due to availability of
limited data, a feasible approach for cash flow prediction was established. Since the data
was related to payments to the contractor, only the cash inflow curves could be established.
Extending the same methodology to data for contractor’s cash outflows, there appears to be
a possibility of working out net working capital gap. A model developed by Görög (Görög,
2009) 12 suggested a set of new measurements and indicators in line with the ‘earned
value’ measurements and indicators for possible integration of both systems. Therefore
similar to the earned value measurements such as Budgeted Cost of Work Scheduled
(BCWS), Budgeted Cost of Work Performed (BCWP) and the Actual Cost of Work
Performed (ACWP) for working out the Cost Performance and Schedule Performance
Indices (CPI and SPI); the new set of measurements and indicators was based on the ‘Price
Value’ and ‘Invoice Value’ of the contracted work. This could therefore forecast the

7
difference between price to be received by the contractor from client and the cost to be
expended by the contractor for the amount of work carried out at any point of time. Hence
the differential indicated expected margin based on project status. However, the
methodologyexplained in the model worked out the values on accrual basis and did not
recognize the time difference in their occurrence and therefore could not be found useful to
forecast and monitor cash flows in financial sense. In a paper published by Maniar
(Maniar, 2011)13 a model for finding the Least Working Capital (LWC) which is the
maximum cumulative negative cash flow during a project was proposed and validated on
the basis of a sample of Indian infrastructure projects. It considered different cost
parameters such as labour, material, overheads, subcontracting charges, machinery and
equipment expenses, etc. Assuming uniform rate of expenditure during contracting period
the model using a multiple regression analysis on the sample data estimated the LWC as
the total of project expenses till the receipt of the first payment from the client. Although
this approach was different than the one taken by other researchers that projected
component cash flows on ‘S’ curve basis, it probably failed to recognize the fact that the
maximum gap between receipts and payments on a project mostly occurs in the middle
portion of the project and not necessarily before receipt of the first payment from the
client. In fact, due to mobilization advances received by the contractors, there is a cash
surplus with the contractor in the beginning of the project. Also it is seen that the rate of
expenditure is not uniform in engineering projects except for the linear projects such as
construction of road, bridges, tunnels, railway tracks etc. that were taken as sample by the
author. Therefore, this model is not considered of any significance to our study.

Roy (Cheng & Roy, 2010).16 However, a closer look reveals that these models work out
the expenditure flow or the cost flow only and do not consider the aspect of timing
difference between expenditure and cash flow. Hence these models are not of any
importance to our present study. Further, all the models developed so far have used the
smooth sigmoid ‘S’ curves for cash flows and no model has been developed using ‘step’
curves that represent the reality.

Datey (Datey, Step function model for forecasting project cash flow, 2015) has pointed out
that although the assumption of cash flow being a continuous function could be
mathematically reasonable, it may hide the cash deficits that may be occurring between
8
two periods and if ignored, can have acute real consequences on the project. He has
therefore proposed a development of a suitable mathematical model using step functions
for representing cash flows as a feasible approach. However, none of these models are
either compatible or integrated with any of the popularly used project management
packages and hence require an independent effort, access to the data base of a library of
different characteristic ‘S’ curves for a variety of projects and in-depth mathematical
understanding for their application. However, the research done so far shows different
approaches that may be useful to the project contractors leading them to some specific
direction to estimate and monitor cash flows.

9
 CHAPTER-3
RESEARCH
METHODOLOGY

10
Methodology is the systematic, theoretical analysis of the methods applied to a field of
study. It comprises the theoretical analysis of the body of methods and principles
associated with a branch of knowledge. Typically, it encompasses concepts such
as paradigm, theoretical model, phases and quantitative or qualitative techniques.[1]

A methodology does not set out to provide solutions—it is therefore, not the same as a
method. Instead, a methodology offers the theoretical underpinning for understanding
which method, set of methods, or best practices can be applied to a specific case, for
example, to calculate a specific result.

OBJECTIVES OF THE STUDY

• To analyze the cash management of Standard Polymers.

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

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

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

polymers.

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

DATA COLLECTION
 Secondary Sources

1. From the annual reports maintained by the company.

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

3. Books and journals pertaining to the topic.

11
4.4 TOOLS USED IN THE ANALYSIS

 Cash flow statement

 Trend analysis
 Ratio analysis.

4.5 Period of study

The present study has taken into account Five years viz., 2002-2003 to 2006-2007.

12
CHAPTER-4
DISCUSSION

13
CALCULATIONS OF FUNDS FROM OPERATION AND CASH
FROM OPERATION FOR THE YEAR ENDED (Rs in Thousand)
Particulars Year 1 Year 2 Year 3 Year4

Net Profit 621082 1183275 478738 400470

Depreciation during the 1260161 1440184 1620207 1800231

year

FFO(FLO) 1881243 2623459 2098945 2200701

ADD:

Sundry debtors 736292 293962

Prepaid Expenses 43200

Sundry creditors 4731130 1710210 10643203

Outstanding liabilities 1009534 91841

Bank O/D 2950464 10801353

LESS:

Stock 1497634 567073 1755576 1106913

Bank O/D 2950464

Outstanding liabilities 767131 334244

Sundry Debtors 9562393 910746

Sundry Creditors 1699354

CFO(CLO) 9854229 342963 1516020 8950797

14
 5.2 CASH FLOW STATEMENT
Inflow Year 1 year 2 Year 3 Year 4

Opening balance 14564 64678 104545 63582

Cash from operation 9854229 342963 1516020 8950797

Increase in loan funds 2410798

Sales of Asset 797244

Increase in share capital 2800000

Total 9868793 1204885 6831363 9014379

Outflows

Cash outflow from

operation

Purchase of Asset 9776411 6767781 7004825

Decrease in loan funds 27704 900340 1731144

Decrease in share 200000

capital

Closing balance 64678 104545 63582 278410

Total 9868793 1204885 6831363 9014379

Inference:
This table shows that the cash flow statements of STANDARD POLYMERS are to be efficient.
The cash inflow of the company is to be increased for year after year. The fund from operation is
also to differ from every year. The company should increase their share capital from 2006-2007
for Rs. 28, 00,000. Its must be used as efficient for the next year for decrease their loan amount.

15
TREND ANALYSIS

Y = a + bX
Where a = ∑Y ; b = ∑XY
n ∑X2

INVENTORIES

Inventories

YEAR X X2 (Rs in lakhs) XY

Y (Rs in lakhs)

’02 – ‘03 -2 4 27,76,072 -55,52,144

’03 – ‘04 -1 1 12,78,438 -12,78,438

’04 – ‘05 0 0 18,45,511 0

’05– ‘06 1 1 36,01,087 36,01,087

’06 – ‘07 2 4 47,08,000 94,16,000

TOTAL 10 1,42,09,108 61,86,505

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

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

10

Inference:

This table indicates that the volume of inventory has been increased every year. Its must
be increased for the last year 11, 06,913. Inventories value in 2008 will be about 21,
40,134.1

16
 5.3.2 SUNDRY DEBTORS
Sundry
Debtors
YEAR X X2 XY
(Rs)
(Rs)
Y

’02 – ‘03 -2 4 20,69,513 -41,39,026

’03 – ‘04 -1 1 28,05,805 -28,05,805

’04 – ‘05 0 0 25,11,842 0

’05 – ‘06 1 1 1,20,74,236 1,20,74,236

’06 – ‘07 2 4 1,29,84,982 2,59,69,964

TOTAL 10 3,24,46,378 3,10,99,369

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

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

10

Inference:

This table shows that the Sundry Debtors has been more every year. It must be increased
more than 6 times from the beginning of the period of the study. Sundry Debtors value in
2008 will be about 1, 58, 19,086.3.

17
 CASH / BANK
Cash / Bank

YEAR X X2 (Rs) XY

Y (Rs)

’02– ‘03 -2 4 14,564 -29,128

’03 – ‘04 -1 1 64,679 -64,679

’04 – ‘05 0 0 61,858 0

’05 – ‘06 1 1 63,582 63,582

’06 – ‘07 2 4 2,78,410 5,56,820

TOTAL 10 4,83,093 5,26,593

a = 4, 83,093 = 96,618.6

b = 5, 26,593 = 52,659.3

10

Inference:

The cash value of the STANDARD POLYMERS has been increased and the estimated it should be
decreased for the previous year. Cash value in 2008 will be about 254596.5.

18
 LOANS & ADVANCES

Loans &
Advances
YEAR X X2 XY
(Rs)
(Rs)
Y

’02 – ‘03 -2 4 1,00,065 -2,00,130

’03 – ‘04 -1 1 8,26,377 -8,26,377

’04 – ‘05 0 0 3,60,138 0

’05 – ‘06 1 1 27,70,937 27,70,937

’06 – ‘07 2 4 5,62,837 11,25,674

TOTAL 10 46,20,354 28,70,104

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

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

10

Inference:

The table indicates that the loans and advances of STANDARD POLYMERS will be
reduced from the year 2006-2007. Loans & Advances value in 2008 will be about
17, 85,102.

19
 CURRENT LIABILITIES

Current
Liabilities
YEAR X X2 XY
(Rs)
(Rs)
Y

’02 – ‘03 -2 4 22,58,576 -45,17,152

’03 – ‘04 -1 1 57,45,442 -57,45,442

’04 – ‘05 0 0 38,56,338 0

’05 – ‘06 1 1 1,44,73,102 1,44,73,102

’06 – ‘07 2 4 1,25,88,203 2,51,76,406

TOTAL 10 3,89,21,661 2,93,86,914

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

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

10

Inference:
The table shows that the company’s current liability will be increased from the every year.

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

20
 CURRENT ASSET
Current asset

X X2 (Rs) XY
YEAR
Y (Rs)

’02 – ‘03 -2 4 21,27,277 -42,54,554

’03 – ‘04 -1 1 41,48,921 -41,48,921

’04 – ‘05 0 0 59,74,933 0

’05 – ‘06 1 1 1,85,09,842 1,85,09,842

’06 – ‘07 2 4 2,03,50,240 4,07,00,480

TOTAL 10 5,11,11,213 5,08,06,947

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

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

10

Inference:
This table shows that the current asset of the company will be grown at 9times. When
compared to the beginning of the period of study its must be increased. Current Asset value
in 2008 will be about 2, 54,64,326.7.

RATIO ANALYSIS:
Ratio Analysis is a powerful tool of financial analysis. A Ratio is defined as “the indicated
quotient of two mathematical expressions” and as “the relationship between two or more
things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial
position and performance of a firm.

Ratio helps to summarize large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.
21
 RATIO ANALYSIS
Current Assets to Fixed Assets Ratio

The formula for the ratio is Current Assets

Fixed Assets
Current Assets to Fixed Assets Ratio
Increase/
Decrease
YEAR RATIO
2002 – 03 0.94:1

2003 – 04 0.72:1 -0.22

2004 – 05 1.55:1 0.82

2005 – 06 1.28:1 -0.27

2006 – 07 1.62:1 0.34

. Inference:
The level of Current Assets can be measured by using this Current Asset to Fixed
Assets Ratio. The level has been fluctuating every year.
1.8
1.6
1.4
1.2
1 Current Asset to Fixed Asset
0.8 Ratio
0.6
0.4
0.2
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

22
Current Assets to Total Assets Ratio

The formula for the ratio is Current Assets

Total Assets
Current Assets to Total Assets Ratio
Increase/
Decrease
YEAR RATIO
2002 - 03 0.26:1

2003 - 04 0.48:1 0.22

2004 - 05 0.62:1 0.14

2005 - 06 0.59:1 -0.03

2006 - 07 0.59:1

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

0.7
0.6
0.5
0.4
Current Assets to Total
0.3 Assets Ratio
0.2
0.1
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

23
 Net Working Capital Ratio
The formula for the ratio is Net Working Capital
Net Assets

Net Working Capital Ratio

Increase/
Decrease
YEAR RATIO
2002 – 03 0.27:1

2003 – 04 0.12:1 - 0.15

2004 – 05 0.15:1 0.03

2005 – 06 0.21:1 0.06

2006 – 07 0.22:1 0.01

Inference:
Net Working Capital is used as a measure of a firm’s liquidity and the firm’s potential
reservoir of funds. It can also be relate to net assets.
The Net Working Capital Ratio from the table shows a fluctuating trend and the average
Net Working Capital Ratio is 0.21 times of Net Working Capital to Net Assets. Hence it shows that
STANDARD POLYMERS has an average liquidity position.

0.3

0.25

0.2

0.15
Net Working Capital Ratio
0.1

0.05

0
'02-'03 '03-'04 04-'05 '05-'06 '06-'07

24
 Inventories to Current Assets Ratio
The formula for the ratio is Inventories
Current Assets

Inventories to Current Assets Ratio

Increase/
Decrease
YEAR RATIO
2002 – 03 1.30:1

2003 – 04 0.31:1 -0.99

2004 – 05 0.31:1

2005 – 06 0.19:1 -0.12

2006 – 07 0.23:1 0.04

Inference:
From the table it is known that the Inventories to Current Assets Ratio also register a
fluctuating trend during the entire study period.

The average ratio is 0.31 times and thus it is found that the investment in inventories (being
one of the important Current Assets) is kept at the considerable level.

1.4
1.2
1
0.8
Inventories to Current
0.6 Assets Ratio
0.4
0.2
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

25
 Sundry Debtors to Current Assets Ratio
The formula for the ratio is Sundry Debtors
Current Assets
Sundry Debtors to Current Assets Ratio
Increase/
Decrease
YEAR RATIO
2002 – 03 0.97:1

2003 – 04 0.68:1 -0.29

2004 – 05 0.42:1 - 0.26

2005 – 06 0.65:1 0.23

2006 – 07 0.63:1 -0.02

Inference:
From the table the Sundry Debtors to Current Assets Ratio shows a fluctuating trend
throughout the study period from 2002-03 to 2006-07.

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

0.8

0.6
Sundry Debtors to Current
0.4 Assets Ratio

0.2

0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

26
 Loans and Advances to Current Assets Ratio
The formula for the ratio is Loans and Advances
Current Assets
Loans and Advances to Current Assets Ratio

Increase/
Decrease
YEAR RATIO
2002 – 03 0.02:1

2003 – 04 0.19:1 0.17

2004 – 05 0.06:1 -0.13

2005 – 06 0.15:1 0.09

2006 – 07 0.02:1 - 0.13

===
Inference:
From the table it is noted that the Loans and Advances to Current Assets Ratio have
registered a fluctuating trend.

It implies that a quarter positions of the Current Assets are kept in for Loans and Advances;
thereby it is found that STANDARD POLYMERS value of Loans and Advances is considerable.

0.2

0.15

0.1 Loans & Advances to

Current Assets Ratio

0.05

0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

27
 Cash to Current Assets Ratio
The formula for the ratio is Cash
Current Assets

Cash to Current Assets Ratio

Increase/
Decrease
YEAR RATIO
2002 – 03 0.006:1

2003 – 04 0.015:1 0.09

2004 – 05 0.01:1 -0.14

2005 – 06 0.003:1 - 0.007

2006 – 07 0.013:1 0.01

Inference:
The table shows the details of Cash to Current Assets Ratio and registered a fluctuating
trend throughout the study period from year 1 to Year 4.

Hence we find that STANDARD POLYMERS had maintained a moderate level of cash in
proportion to Current Assets.

0.016
0.014
0.012
0.01
0.008
Cash to Current Assets Ratio
0.006
0.004
0.002
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

28
 Cash to Working Capital Ratio
The formula for the ratio is Cash
Working Capital
Cash to Working Capital Ratio
Increase/
Decrease
YEAR RATIO
2002 – 03 0.11:1

2003 – 04 0.04:1 - 0.07

2004 – 05 0.03:1 - 0.01

2005 – 06 0.07:1 0.04

2006 – 07 0.06:1 -0.01

Inference:
The Cash to Working Capital Ratio registered a fluctuating trend during the study period
this is noted from the table. It was 0.11 times in 2004-05, which sharply increased to 0.04 times in
the next year and later for the following years it is fluctuating.

Hence it is found that 4% of the Working Capital ratio is managed by using the cash &
bank balance available in the company.

The policy regard financing the Working Capital in STANDARD POLYMERS can be said
as aggressive policy.

0.12

0.1

0.08

0.06
Cash to Working Capital Ratio
0.04

0.02

0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

29
 Cash to Sales Ratio
The formula for the ratio is Cash
Sales
Cash to Sales Ratio
Increase /
Decrease
YEAR RATIO
2002 – 03 0.0007:1

2003 – 04 0.0026:1 0.0019

2004 – 05 0.0028:1 0.0002

2005 – 06 0.0069:1 0.0041

2006 – 07 0.0064:1 - 0.0005

Inference:
This is one of the important ratios of controlling cash. A study of cash to sales ratio will
provide a deep insight into the cash balances held in the concerns.

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

0.007
0.006
0.005
0.004
0.003 Cash to Sales Ratio

0.002
0.001
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

30
 Cash Ratio
The formula for the ratio is Cash
Current liabilities
Cash Ratio
Increase /
Decrease
YEAR RATIO
2002 – 03 0.0064:1

2003 – 04 0.0112:1 0.0048

2004 – 05 0.0160:1 0.0048

2005 – 06 0.0044:1 -0.0116

2006 – 07 0.0221:1 0.0177

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

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

31
 0.025

0.02

0.015
Cash Ratio
0.01

0.005

0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Current Ratio
The formula for the ratio is Current Assets
Current liabilities
Current Ratio
Increase /
Decrease
YEAR RATIO
2002 – 03 0.94: 1

2003 – 04 0.72: 1 -0.22

2004 – 05 1.55: 1 0.83

2005 – 06 1.27: 1 -0.28

2006 – 07 1.62: 1 0.35

Inference:
This ratio is an indicator of the firm’s commitment to meet its short – term
liabilities.
From the table it is clear that the Current Ratio of STANDARD POLYMERS has been
fluctuating from the starting of the study period, later for last year it has been increasing; hence the
Current Ratio is quite satisfactory.

32
 Thus the Current Ratio shows that the company has sufficient funds to meet its short-term
obligations.

1.8
1.6
1.4
1.2
1
0.8 Current Ratio
0.6
0.4
0.2
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Liquidity Ratio
The formula for the ratio is Liquid Assets
Current liabilities
Liquidity Ratio
Increase /
Decrease
YEAR RATIO

2002 – 03 0.94: 1

2003 – 04 0.50: 1 -0.44

2004 – 05 1.07: 1 0.57

2005 – 06 1.03: 1 -0.04

2006 – 07 1.24: 1 0.21

Inference:
This ratio helps the management to measure short-term solvency. The ideal liquid ratio is
1:1
From the table it is clear that STANDARD POLYMERS liquid ratio is more than the
ideal ratio during the starting of the study period and later in 2004 - 05 it had reduced
slightly, yet for the rest of the period current liabilities were fully secured by liquid
33
 assets because the liquid assets were more than the current liabilities and hence the
company’s liquidity is satisfactory.

1.4
1.2
1
0.8
0.6 Liquidity Ratio

0.4
0.2
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Super Quick Ratio

The formula for the ratio is Super Quick Assets
Quick liabilities
Super Quick Ratio
Increase /
Decrease
YEAR RATIO
2002 – 03 0.65:1

2003 – 04 0.32:1 -0.33

2004 – 05 0.58:1 0.26

2005 – 06 0.62:1 0.04

2006 – 07 0.64:1 0.02

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

34
 From the table 4.21 it is noted that the liquidity of STANDARD POLYMERS had a steep slope
in between during the year 2003-04, yet it was able to have a slow increase in the rest of the
study period and able to maintain its position.
Hence it shows that STANDARD POLYMERS is able to meet its current
obligations (liabilities).

0.7
0.6
0.5
0.4
0.3 Super Quick Ratio

0.2
0.1
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

orking Capital Turnover Ratio

The formula for the ratio is sales
Working Capital
Working Capital Turnover
Increase /
Decrease
YEAR RATIO
2002 – 03 12.36: 1

2003 – 04 17.70: 1 5.34

2004 – 05 11.55: 1 -25.15

2005 – 06 31.55: 1 20.00

2006 – 07 5.45: 1 -26.15

35
Inference:
This ratio indicates whether Working Capital has been effectively utilized in making sales
or not.

From the table it is noted that Working Capital had some fluctuation in the middle of the
study period, yet the company was able to increase it in the later years.

Hence the turnover indicates that STANDARD POLYMERS had utilized its Working
Capital efficiently and the company can also try to work on this to get more effective values.

35
30
25
20
Working Capital turnover
15 Ratio
10
5
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Inventories Turnover Ratio

The formula for the ratio is Cost of Goods Sold
Average Stock
Inventories Turnover
YEAR RATIO Increase /
Decrease

2002 – 03 1.36: 1

2003 – 04 1.02: 1 -0.34

2004 – 05 1.02: 1 0

2005 – 06 1.02: 1 0

2006 – 07 1.53: 1 0.51

36
Inference:
This ratio indicates whether investment in inventory is efficiently used or not and whether
the investment is within proper limits.

From the table it is found that the Inventory turnover Ratio of STANDARD POLYMERS
had some fluctuations in the starting of the study period then it had a growth in it.

Hence the efficiency of inventory control in STANDARD POLYMERS shows a

satisfactory position.

1.6
1.4
1.2
1
0.8
0.6 Inventories tor Ratio
0.4
0.2
0
'02- '03- '04- '05- '06-
'03 '04 '05 '06 '07

Debtors Turnover Ratio

The formula for the ratio is Sales
Sundry Debtors
Debtors Turnover
Increase /
Decrease
YEAR RATIO
2002 – 03 7.84: 1

2003 – 04 8.54: 1 0.70

2004 – 05 8.49: 1 -0.05

37
 2005 – 06 3.30: 1 -5.19

2006 – 07 3.26: 1 -0.04

Inference:
This is one of the techniques employed by the company with regard to the
collection of the receivables through effective management of collection policy with the
help of factoring services.
From the table it shows that the Debtors’ turnover Ratio had satisfactory increase in the
starting of the study period. However, in middle of the study period it had slight fluctuations, the
company was able to raise it in the next year.

9
8
7
6
5
4 Debtors turnover Ratio
3
2
1
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Debt Collection Period Ratio

The formula for the ratio is Days in a Month
Sundry Debtors turnover
Debt Collection Period Ratio
Increase /
Decrease
YEAR RATIO
2002 – 03 46.5

38
 2003 – 04 42.7 -3.8

2004 – 05 81.29 39.79

2005 – 06 110.6 29.31

2006 – 07 111.9 1.3

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

STANDARD POLYMERS use this ratio to find out whether their borrowers are paying on
time. From the table it is found that throughout the study period the collection period is fluctuating
and is within the average.

120

100

80

60 Debt Collection Period

Ratio
40

20

0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

Cash Interval Measure Ratio

The formula for the ratio is Current Assets – Inventories
Avg. Daily Operating Exp.
Cash Interval Measure Ratio
Increase /
Decrease
YEAR RATIO

39
 2002 – 03 135.14

2003 – 04 104.27 -30.89

2004 – 05 136.44 32.17

2005 – 06 144.72 8.28

2006 – 07 146.13 1.41

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

The defensive interval measures the time period for which a firm can operate on the basis
of present liquid assets without resorting to the next year’s revenue.

This ratio of STANDARD POLYMERS, from the table shows that the company can meet
its operating cash requirements within a period of 105 to 146 days without resorting to next year’s
income.

160
140
120
100
80 Debt Collection Period
Ratio
60
40
20
0
'02-'03 '03-'04 '04-'05 '05-'06 '06-'07

40
CHAPTER 5:
Findings:

41
 FINDINDS

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

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

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

 The cash inflow and outflow of cash flow statement have a cash balance will be increased
4.2 times when compared to last year balance.

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

 The company’s Liquidity Ratio shows a satisfactory trend.

 Super Quick Ratio shows that STANDARD POLYMER is able to meet its current
obligations (liabilities)..

 The efficiency of inventory control in STANDARD POLYMER shows a satisfactory

position..

 The Cash Ratio shows that the cash required to meet out the current liabilities is
maintained at a normal level hence, it shows that STANDARD POLYMER follows an
average policy.

 Interval Measure Ratio shows that the company can meet its operating cash requirements
within a period of 105 to 146 days without resorting to next year’s income.

 The Current Assets to Total Assets Ratio implies that STANDARD POLYMER is
maintaining a considerable level of Current Assets in proportion to Total Assets.

 The average Cash to Current Assets is maintained at 0.009 times. Hence, it is found that
the company had maintained a moderate level of cash in proportion to Current Assets.

 The average ratio of Inventories to Current Assets is 0.46 times and thus it is found that the
investment in inventories.

 The average ratio of Sundry Debtors to Current Assets is 0.67 times. Hence it implies that
the credit policy followed by STANDARD POLYMERS is moderate.

 The loans and Advances to Current Assets ratio of the company imply that a quarter
positions of the Current Assets are kept in for loans and advances, which is considerable.

 The policy regard financing the Working Capital in STANDARD POLYMER can be said
as Aggressive policy according to the Cash to Working Capital Ratio.

 The average cash to sales ratio is 0.004 times and which indicates that only 0.4% of sales
has been maintained as cash with the business.

42
 SUGGESTIONS & RECOMMENDATIONS

 STANDARD POLYMER should try to match their Cash with the sales. In case of surplus
Cash, it should be invested either in securities or should be used to repay borrowings.

 The company should try to prepare a proper ageing schedule of debtors. This will help
them to reduce the bad debts and speed up collection efforts.

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

opportunities

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

 The company followed an aggressive policy of financing working capital should try to
finance 50% of their working capital using long term source and improve their status.

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

should try to improve the current ratio. So it should invest large amount in current ratio, in
order to maintain liquidity and solvency position of the concern.

 The company should try to follow a matching policy for financing current Assets (i.e.)
using both long term and short-term sources of finances.

43
 CHAPTER 6:
Conclusion,
Recommendations

44
 CONCLUSION
The Cash Management Analysis done on the financial position of the company has
provided a clear view on the activities of the company. The use of the ratio analysis, trend
analysis, Cash Flow Statement and other accounting and financial management helped in
this study to find out the financial soundness of the company.
This project was very useful for the judgment of the financial status of the company from
the management point of view. This evaluation proved a great deal to the management to
make a decision on the regulation of the funds to increase the sales and bring profit to the
company.
Before I conclude I wish to convey my thankfulness in regard to the training given to me in
STANDARD POLYMER. It gave me extreme satisfaction and practical knowledge of the
financial activities carried out in the company. The kindness, attention, and immense co-
operation extended to me buy all the officials in the company made my project easy and
comfortable. Really it was a very pleasant experience in STANDARD POLYMER.

45
CHAPTER 7:
Limitations

46
 SCOPE OF THE STUDY
 It helps to take short term financial decision.

 It indicates the cash requirement needed for plant or equipment expansion

programmes.

 To find strategies for efficient management of cash.

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

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

 It reveals the liquidity position of the firm by highlighting the various sources of
cash and its uses.

47
 8.2 LIMITATIONS OF THE STUDY
 The study is restricted only to STANDARD POLYMERS. Being a case study,
the findings cannot be generalized.

 The study does not take into account the inflation.

 The study takes into account only the quantitative data and the qualitative
aspects were not taken into account

48
 BIBILIOGRAPHY
 S.N. Maheshwari, Financial management, Eleventh Edition 2006, Sultan
Chaqnd & Sons, Educational Publishers. New Delhi.
 Zavgren, C. (1983). The prediction of corporate failure: the state of the
art. Journal of Accounting Literature, 2(1), 1-38.
 I.M Pandey, Financial management, Ninth Edition, Vikas publishing house pvt
Ltd.
 M.Y Khan- P.K Jain, Management Accounting, Third edition, Tata Mc Graw-
Hill Publishing co. Ltd
 B.L. Gupta, Management of Liquidity and Profitability, Arihant Publishing
House, Jaipur.

49