A - Study - On - Liquidity - and - Solvency - Positi Madik PDF

A STUDY ON LIQUIDITY AND SOLVENCY
POSITION WITH SPECIAL REFERENCE TO

SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS
UNION LTD, SALEM
PROJECT REPORT
Submitted by
DEVARAJAN.K
Register No: 098001112015
in partial fulfillment for the award of the degree

of
MASTER OF BUSINESS ADMINISTRATION

IN
DEPARTMENT OF MANAGAMENT STUDIES
MAHARAJA ENGINEERING COLLEGE

AVINASHI–641 654.
MAY 2011
MAHARAJA ENGINEERING COLLEGE
AVINASHI – 651654
DEPARTMENT OF MANAGEMENT STUDIES
PROJECT WORK
PHASE-II
MAY 2011
This is to certify that the project entitled
A STUDY ON LIQUIDITY AND SOLVENCY POSITION WITH SPECIAL

REFERENCE TO SALEM DISTRICT CO-OPERATIVE MILK
PRODUCERS UNION LTD, SALEM
Is the bonafide record of project work

done by
DEVARAJAN.K
Of MBA during the year 2010 – 2011.
________________ ________________
Project Guide Head of the Department
Submitted for the project viva-voce examination held on__________________________
_________________ ________________
Internal Examiner External Examiner
DECLARATION
I affirm that the project work titled, “A STUDY ON LIQUIDITY AND SOLVENCY
POSITION WITH SPECIAL REFERENCE TO SALEM DISTRICT CO-OPERATIVE
MILK PRODUCERS UNION LTD, SALEM” being submitted in partial fulfillment for the
award of MBA is the original work carried out by me. It has not formed the part of any other
project work submitted for award of any degree or diploma, either in this or any other university.
(Signature of the Candidate)

DEVARAJAN.K
I certify that the declaration made by the candidate is true.
(Signature of the guide)
Ms.R.RENUKADEVI, MBA.,M.Phil., (Ph.D)
Asst.Professor,
Department of Management Studies

ACKNOWLEDGEMENT
First and foremost I would like to give my wholehearted and sincere

thanks to the ALMIGHTY GOD for helping me throughout this project.
I express my gratitude to Thiru. K.PARAMASIVAM B.Sc., Chairman of Maharaja

Institutions and Mr.P.SATHIYAMOORTHY BE., MBA. M.S., Correspondent of Maharaja
Institutions, who gave me this wonderful opportunity to take up the project.
I wish to express my sincere thanks to Principal Dr. N. KUPPUSAMY, M.E., Ph.D.,

FIE., who permitted me to do the project.
With great pleasure I remember and thank my beloved Lecture Mr. S.KUMAR, M.B.A.,
M.Phil., (Ph.D)., M.I.S.T.E., Head of the Department, Department of Management Studies for
the support rendered for all the stages of my project work.
Words can‟t express my heartful gratitude to my faculty guide Ms.R.RENUKADEVI,

MBA., M.Phil., (Ph.D) for her valuable guidance and advice to complete the project work in
proper manner and also in time.
I acknowledge my sincere gratitude to Dr.SENGUTTUVAN B.V.Sc Salem dairy for

necessary arrangement for this work.
I also express my hearty thanks to my parents, sister, my friends and all my well wishers
and to the employees of Salem dairy who have been greatest success of inspiration of every stage
of my Project.
(DEVARAJAN.K)
CONTENTS
Chapter no Description Page no.
Abstract vi
List of tables Vii
List of Charts Viii
1 Introduction
1.1 About the Study 1
1.2 About the Industry 6
1.3 About the Company 9
1.4 Review of Literature 13
2 Main theme of the project
2.1 Objectives of the Study 15
2.2 Scope and Limitations of the Study 16
2.3 Research Methodology 17
2.4 Analysis and Interpretation 20
3 Findings, Recommendations & Conclusion
3.1 Findings 57
3.2 Recommendations 58
3.3 Conclusion 59
Appendices
References
ABSTRACT
AAVIN is the trademark of the Tamil Nadu Co-operative Milk Producers Federation
Limited, a Tamil Nadu-based milk producer's union. It sells milk and milk products. The project
titled “A STUDY ON LIQUIDITY AND SOLVENCY POSITION WITH SPECIAL
REFERENCE TO SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD,
SALEM” is to analyze the financial position of the company.
The objective of the study is to analyze the liquidity and solvency position of the
company, and to identify the operating efficiency, the study will be helpful in analyzing the short
term and long term solvency of the firm and to measure the profitability of the firm and to
evaluate the overall position of the Salem district co-operative milk producers union limited.
Published data when collected from different sources and analysis was made for period of
1st April 2006 to 31st march 2010.
The source for the data collected was secondary source and formal and informal
discussions with the concerned officials of the Salem district co-operative milk producers union
limited, the tools used in this study for the purpose of analysis are ratio analysis, comparative
statement, common size statement and the changes in working capital.
Through the detailed analysis and interpretation of data it has been noticed that the
company bear a good financial position and the overall performance of the company is also
satisfactory during the entire period of the study.
From the study the liquidity and solvency position of the firm was satisfactory and also
there is an increase in the working capital which is good for the firm.
LIST OF TABLES
TABLE TITLE PAGE

NO NO
2.4.1 Table showing current ratio 21
2.4.2 Table showing liquidity ratio 23
2.4.3 Table showing absolute quick ratio 25
2.4.4 Table showing current assets to fixed assets ratio 27
2.4.5 Table showing proprietary ratio 29
2.4.6 Table showing working capital turnover ratio 31
2.4.7 Table showing gross profit ratio 33
2.4.8 Table showing net profit ratio 35
2.4.9 Table showing debtors turnover ratio 37
2.4.10 Table showing average data collection period 39
2.4.11 Table showing creditors turnover ratio 41
2.4.12 Table showing average payment period 43
2.4.13 Table showing return on investment 45
2.4.14 Table showing operating ratio 47
2.4.15 Table showing debt equity ratio 49
2.4.16 Comparative statement as on 31.03. 2007 51
2.4.17 Common size statement as on 31.03.2010 53
2.4.18 Schedule of changes in working capital as on 31.03.2009 55

LIST OF FIGURES
FIGURE TITLE PAGE

NO NO
2.4.1 Figure showing current ratio 22
2.4.2 Figure showing liquidity ratio 24
2.4.3 Figure showing absolute quick ratio 26
2.4.4 Figure showing current assets to fixed assets ratio 28
2.4.5 Figure showing proprietary ratio 30
2.4.6 Figure showing working capital turnover ratio 32
2.4.7 Figure showing gross profit ratio 34
2.4.8 Figure showing net profit ratio 36
2.4.9 Figure showing debtors turnover ratio 38
2.4.10 Figure showing average data collection period 40
2.4.11 Figure showing creditors turnover ratio 42
2.4.12 Figure showing average payment period 44
2.4.13 Figure showing return on investment 46
2.4.14 Figure showing operating ratio 48
2.4.15 Figure showing debt equity ratio 50

CHAPTER-I
INTRODUCTION
1.1 ABOUT THE STUDY:
Liquidity
The term liquidity refers to the ability of a firm to meet its obligations in the short run
usually one year. The Liquidity resources of a may be kept in various forms: cash in hand and
cash at bank in current assets, reserve drawing power under cash credit or overdraft
arrangement and short term deposits. Cash balance in current account provides the high
degree of Liquidity. The Liquidity is to measure firm‟s ability to meet expected and
unexpected cash requirements, expand its assets, reduce its liabilities or cover any operating
losses.
Solvency
Liquidity helps to indicate the level of solvency of the firm. Solvency is the ability of a
business to have enough assets to cover its liabilities. Solvency is often confused with liquidity,
but it is not the same thing. Solvency represents the state of affairs a firm under which a firm is
able to meet its debt obligation. Assets of a firm must be at least equal to or more than liabilities.
A firm is solvent if the amount of its assets exceeds the amount its liabilities to all
claimants. A firm may be solvent but may not be liquid. That means the assets exceeds the
liabilities but it cannot convert assets into cash.
Purpose of liquidity
To identify the operating efficiency of the firm.
To study the short term solvency of the firm.
To study the long term solvency (leverage position) of the firm.
Easy to understand the financial position of the firm

Factors of determining liquidity
In efficient cash management the finance manager has to be consider the following
factors for determining liquidity:
 Certainty of firms cash flow pattern
 Availabilities of inventory at right time and right place
 Ability of the firm to meet its cash obligations.
 Ensure the cash ability of non cash assets.
 Minimization of the cost financing.
 Ability to speed the collection of accounts receivables.
 Ability of the firm raises non bank funds.
 Efficiency of cash management
Importance of solvency
The ability of a corporation to meet its long-term fixed expenses and to accomplish long-
term expansion and growth. The better a company's solvency, the better it is financially. When a
company is insolvent, it means that it can no Longer operate and is undergoing bankruptcy.
Solvency opinions should be rendered by independent financial advisors to provide

investors, board of directors and creditors with unbiased analyses of the expected financial
condition of the company undertaking a highly levered transaction. The basic purpose of a
solvency analysis is to provide information to these decision makers as to whether it is
financially feasible to undertake the transaction.
Measurement of Liquidity and Solvency
Liquidity helps to indicate the level of solvency and flexibility of the firm. In order to
ensure a desire level of solvency and provide to enough financial flexibility of company to
attain the strategic goal of the company. The following important ratios are used to measure
the liquidity and solvency of the firm. They are Current ratio, Liquidity ratio, Absolute quick
ratio, Current assets to fixed ratio, Operating ratio, Debt equity ratio, Proprietary ratio, Return
on capital employed, Gross profit ratio, Net profit ratio, solvency Ratio, Stock turnover ratio,
Debtors turnover ratio, Creditors turnover ratio.
Current Ratio
It is the ratios of current assets to current liabilities. It is a measure of firm‟s short term
solvency. It is also called working capital ratios.
Operating Ratio = 100-Net Profit
Quick/liquid Ratio
It establishes the relation between quick assets and current liabilities. It is also called
as acid test ratio.
Absolute Quick Ratio
It is the ratio which establishes the relationship between the super quick assets and the
quick liabilities.
Absolute Quick assets = Cash + marketable securities
Absolute Quick liabilities = current liabilities-bank overdraft.
Current Assets to Fixed Assets Ratio
This ratio measures the efficiency of a in utilizing its fixed assets in generating sales .it
calculated as
Current Assets to Fixed Assets Ratio= Sales/Fixed Assets
Operating Ratio
Operating Ratio establishes the relationship between operating expenditure and operating
income of a firm. This ratio shows the operating efficiency of the firm.
Working Capital Turn Over Ratio
This ratio indicates whether the working capital is effectively used in making sales. It is
calculated as net sales/net working capital.
Net working capital: Current Assets-Current Liabilities.
Net Sales=Gross Sales-Sales return.
Debtors /Receivables turnover ratio
It measures how fast debt is collected. It is relates net credit sales (credit sales minus
returns) to sundry debtors including bills receivables.
Average collection period
The Average collection period represent the average number of days for which a firm
has to wait before its receivables are converted into cash.
Creditors turnover ratio
The supplier of goods is naturally interested in finding out how much time firm is
likely to take in repaying its trade creditors. It calculated as credit purchase/average account
payable.
Proprietary ratio
This ratio establishes the relationship between share holders fund and total assets. it
indicates the proportion of total assets financed by share holders.
Solvency Ratio
It is used to test the solvency of the firm. It establishes the relationship between total
assets and total outsides liabilities.
Gross profit ratio
Gross Profit Ratio is the ratio of Gross Profit to Net Sales expressed as a percentage. It
expresses the relationship between gross profit margin and sales. The basic components are
Gross Profit and Sales. Net Sales means total sales minus sales returns.
Net profit ratio
It is the ratio of net profit to sales.net profit is the balance of the profit and loss a/c after
adjusting interest and taxes and all non operating expanses
Return on investment
Return on share holder‟s investment, popularly known as ROI or return on share

holders fund is the relationship between net profit and the share holder‟s
Debt equity ratio
The ratio indicates the relationship between the external equities or the outsiders fund
and internal equities other share holder‟s fund. It is calculated the relative claim of outside
and the owner against the firm asset.
Comparative Balance Sheet
A comparative balance sheet shows the balances of accounts on different dates and also
extent of their increase or decrease between these days throwing or the trend and direction of
changes in the position over the trends and direction of changes in the position over the periods.
This helps in predicting about the position of the business in future.
1.2 ABOUT THE INDUSTRY
ABOUT THE INDUSTRY
In 1946 in the fresh season of milk there was surplus milk available in market
And the agent demand the milk at a very low price , this work place is our crash after his
Incident some farmers in that village of Bombay decided to start a co-operative society
To supply milk by seeing developed nation co-operative movement there it was the first
Milk by seeing developed nation co-operative society started in India at katara district
Co-operative and it reached in the successful manner .
The villager‟s nearby also began to start new milk co-operative society by
Seeing the successful ness running of the co-operative society of milk began to spread
all over the India .
There are two seasons in milk they are
 Flesh season ie , in this season , more milk will be available

 Lien season ie , in this season , only less milk will available
In 1970 , when “ Lal Bahadur Shastri” was the prime minister India hearing the
Grievance of the farmers who were began crushed the agents who purchased the milk at a
Low price , keeping this in mind , the prime minister started two bodies or co-operation
For dairy and they are National dairy development & Indian dairy co-operation.
In 1972 , tem of world bank delayer visited many places in Tamilnadu to start a
Dairy in Tamilnadu . The collected various information from various parts of the state and
At last they selected ERODE .
The place where a dairy is to be started with aid of world bank and as a result to this
Effect , in 1974 on 2nd October four units of milk society was started in Tamilnadu in
Madurai , Dharmapuri , Namakal , Paramathi Vellore .
The main duties of the societies started in tamilnadu is to collect milk from small
Village in the surrounding of the milk socities like Madurai , Dharmapuri , Namakal ,
Paramathi Vellore and to sent to Dharmapuri to chilling the milk and the balance milk is
Sent to state milk federation at Madurai .
Dairy development in Tamilnadu
Dairy development activity in Tamilnadu data back to the 1920‟s when milk
Co-operative societies were organized by the state operative department .In 1927‟s
Tamilnadu‟s first co-operative dairy with processing and marketing facilities was
Established at AYNAVARAM in madras city . This was established of milkco-operative union
at Coimbatore , Madurai , Trichy , Tanjore , Ooty , Cuddalore and other part of the Tamilnadu .
From 01-08-1965 all the milk co-operative societies in Tamilnadu were bought under the
control of the state dairy development department . In 1972 the Tamilnadu dairy developed .
Corporation was set up which took over commercial activities carried out by the state
dairy developed department Tamilnadu co-operative milk producers federation was formed on
01-02-1981 .
1.3 ABOUT THE COMPANY
THE SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS' UNION LTD,

SALEM
1. Managing Director Thiru C.M. Rajan,
District Revenue Officer / Managing Director.
2. Office Address: Sithanur-Dalavaipatti P.O., Steel Plant Road, Salem – 636 302.
3. Telephone M.D. : Direct: 0427-2387033
Resi : 0427-2447922
Office: 2386871 to 2386875
4. Fax Tele Fax: 0427-2387033
5. E-mail address Slm_aavinslm@sancharnet.in
6. I.SO. Certificate I.S.O. 9002 Certificate obtained for Production and Supply of
Milk, Skim Milk Powder, Butter, Ghee and UHT Milk in Tetra
Pack.
PREAMBLE:
The Salem District Co-operative Milk Producers' Union Ltd., was registered on 10-07-
1978 under Tamilnadu Co-operative Societies Act and started functioning from 07-10-1978.
The object of the Union is to carry out activities conducive to the economic development of
agriculturists and agricultural tenants and laborers by organizing effectively production,
processing and marketing of milk commodities. The commercial production of products viz.
Butter, Ghee and Skim Milk Powder started on 16-08-1983.
LOCATION:
The Dairy complex is situated in about 46 acres of land bounded by Sithanur and
Dhalavaipatty villages in Steel Plant Road.
PROCUREMENT:
In total 1100 Milk Producers Co-operative Societies are affiliated and 932 Societies are
functioning. The milk is collected through 55 milk routes daily ranging from 2.5 lakhs to 3.25
lakhs litres of milk per day depending on the season.
The Procurement and Input operations are managed through 8 milk procurement team
offices at Salem, Sankari, Namakkal, P.Velur, Attur, Rasipuram, Mettur, and Valapady. The
milk is delivered at the dock of the three Chilling Centres at Namakkal, P.Velur, Attur and the
Main Dairy at Salem for chilling.
INPUT:
Artificial Insemination Service, Input Veterinary Service and Emergency veterinary

service and being provided to the animals of the producers in societies by the Veterinarians of
this union. Further, artificial inseminations with exotic, cross bred and murrah bull semen are
being undertaken through the 564 Artificial Insemination Sub-Centres of the Primary societies /
Union and doing on an average of 26,000 Artificial Insemination per month. Nutritious Cattle
Feed is being supplied to the members at par rate.
FODDER:
The union has taken up cultivation of fodder crops like Cumbu Napier, Hamil grass,
Buffaloe grass, Subabul, Sithakathi Cholam, Cumbu, Maize, Cowpea and Hedge Lucerne etc. for
distribution of seed materials to the milk producers through milk cooperative societies at free of
cost/at nominal cost.
TRAINING CENTRE:
The Union had setup a Training Centre in the year 1985 under Operation Flood. The
Training Centre is imparting Training to the DCS Personnel of our union and also from Periyar,
Coimbatore and Nilgiris unions.
The Training Centre conduct the programmes such as
Secretary Training, Milk Tester Training, A.H.Worker, Management Committee

Members Dairy Animal Management Training , A.I.Refresher Training , Cluster A.I.
Training.
STEP (Support Training Employment Programme)
It is proposed to organise and assist 25 Women Dairy Co-operatives both in Salem and
Namakkal Districts during the period from 2002 to 2005, involving 1750 women members
through Self Help Groups.
The proposed 25 dairy Co-operatives will have 70 members in each society and they will
be identified, trained in all aspects of Dairying and monitored continuously for their economic
upliftment.
DAIRY:
The Dairy has installed capacity to process 3 Lakh litres of milk per day, to produce 10
MT of Skim Milk Powder 9 MT of Butter and 6 MT of Ghee.
The quantity of milk available after local sales and despatch to Chennai is converted
into products viz., Butter, Ghee and Skim Milk Powder. Ghee and Skim Milk Powder are being
sold in the markets all over India through the Tamil Nadu Co-op. Milk Producers' Federation
Ltd., Chennai with "Agmark" and "ISI" grades respectively. Our products bear the famous
brand name of "AAVIN". I.S.O. 9002 Certificate also obtained for Production and Supply of
Milk, Skim Milk Powder, Butter, Ghee and UHT Milk in Tetra Pack.
PRODUCTS
Milk , Butter, Ghee ,Skim, milk powder ,Khoa ,Curd ,Butter milk, Tetra milk.
ASEPTIC PACKAGING STATION
Ultra High temperature treated milk has a shelf life of 120 days at room temperature
without refrigeration. For Ultra High Temperature treatment, milk of low bacteriological count
is taken and is subjected to high temperature of 140 degree C gradually ( Exposed for 2
seconds) and cooled back to ambient temperature and packed in sterile Aluminium foil polythene
paper in the shape of Brick
The main advantages of Ultra High Temperature treated milk are:
1. No refrigeration is required.
2. Very hygienic and no adulteration can be done.
3. Single way transportation, easy for storage, pilfer-proof and convenience to consume.
4. Reasonable price.
QUALITY CONTROL:
The wing comprises two sections: as Chemical and Bacteriological.The role of the lab is
to assist in stage-wise testing and reporting the quality status of milk processed and standardized
so that milk of the correct standards are prepared and marketed. Similarly Cream, Butter, Butter-
Milk, Ghee and Skim Milk Powder are tested at regular intervals both during production and
storage to check that there is no quality deterioration. Water, cleaning chemicals packing
materials, etc., are also tested regularly to ensure their conformity to pre-set standards. The
bacteriologists check incoming and processed in milk and also milk products in addition to water
& environmental air to ensure that they are free from harmful microorganisms. They also check
the sterility of plant and equipment to ensure their hygienic status. The Dairy has an effluent
treatment plant. The effluent is tested periodically to ensure that it satisfies the standards
prescribed by the Tamil Nadu Pollution Control Board.
MARKETING:
Salem Union markets about 83,000 litres of liquid milk per day in Salem & Namakkal
Districts through 15 Routes, 375 sale points and 25 parlours. The product are available at the
parlours and for special orders and requirement of products the following areas like Salem,
Namakkal, Rasipuram, Thiruchengode, Mettur and Pallipalayam were marketing office is
located
1.4 REVIEW OF LITERATURE
According to Solomon, whenever one speaks of a firm‟s liquidity ,he tries to

measure firm’s ability to meet expected and unexpected cash requirements, expand its
assets, reduce its liabilities or cover any operating losses.
In the word of John Paget,”Liquidity is a measure of the ability of an individual,

business, or institution to convert assets to cash without significant loss at a particular point in
time.
In the word of Kinley “Liquidity is to how quickly and cheaply an asset can be converted
into cash. Money (in the form of cash) is the most liquid asset. Assets that generally can only be
sold after long exhaustive searches for a buyer are known as illiquid”.
Prof.Sayers defines “liquidity is the ability of an asset to be converted into cash quickly
and without any price discount.
Horace white Opines Liquidity is
1. The availability of liquid funds in an economy.
2. The status or condition of a person or business in terms of its ability to convert its assets into
cash and to meet its obligations.
3. The capacity of a market in a particular security or commodity to withstand an unusual

amount of buying or selling without affecting the market substantially.
The word of Herbert L Hart The term 'Solvency' is used to represent the state of
possession of surplus assets over the liabilities. It is derived from the commonly
used term insolvency which means a person or entity does not have enough
assets to pay off his creditors.

In the word of Crowther Solvency is the ability of a business to have enough assets to
cover its liabilities. Solvency is often confused with liquidity, but it is not the same thing.
CHAPTER-II
MAIN THEME OF THE PROJECT
2.1OBJECTIVES OF THE STUDY
 Primary objective
To study the liquidity and solvency position with special reference to Salem
district co-operative milk producers union limited.
 Secondary objectives
To identify the operating efficiency of the firm.
To study the short term and long term solvency of the firms.
To measure the profitability of company.
To evaluate the overall position of the Salem district co-operative milk

producers union limited.
To offer valid suggestion to improve the liquidity and solvency of the firm.
2.2 SCOPE OF THE STUDY
Scope of the study is restricted to liquidity and solvency of Salem district co-operative
milk producers union limited.
The Analysis has been done through the liquidity and solvency ratios analysis.
The annual report was used for calculation of various liquidity and solvency ratios.
The study is based on historical data.
LIMITATIONS OF THE STUDY
It is only a study of balance sheet.
It is too vast concept to understand within the short period.
The period of study is restricted to five years.

2.3 RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the Research problem it may be

understand as a science of new research is done Scientifically.
MEANING OF RESEARCH
It is a careful investigation or enquiry especially through search for new facts in any
branch of knowledge.
RESEARCH DESIGN
Research design is the frame work or blue print for collecting the information needed for
the best possible way. A research design is the logic frame work or plan for study the guides the
collection and analysis of the data.
ANALYTICAL RESEARCH
It includes analysis of the collected secondary data.
The main characteristics of this that the researcher has no control over the variables he
can only report what has happened or what is happening.
SECONDARY DATA
Secondary data are those data which are already collected by the researcher for some
other purposes. It is collected through
Books
Website of the firm.
Official records
Internet
Library
TOOLS USED FOR ANALYSIS OF DATA
1) Liquidity and Solvency Ratios
Current ratio
Liquidity ratio
Absolute Quick ratio
Current assets to fixed ratio
Operating ratio
Debt equity ratio
Proprietary ratio
Return on Investment
Gross profit ratio
Net profit ratio
Average Payment Period
Average collection period
Debtors turnover ratio
Working Capital turn over
2) Comparative Balance Sheet
A comparative balance sheet shows the balances of accounts on different dates and
also extent of their increase or decrease between these days throwing or the trend and direction
of changes in the position over the trends and direction of changes in the position over the
periods. This helps in predicting about the position of the business in future.
Formula for comparative balance sheet:

Difference between two years value / Base year value x 100
3) SCHEDULE OF CHANGES IN WORKING CAPITAL
The working capital does changes due to various transactions. The working capital position
at the beginning of a period is changed to different position at the end of the period. A statement
of working capital is prepared to depict the changes in working capital. Working capital
represents the excess of current assets over current liabilities. Since, several items i.e. all current
assets and liabilities are the component of working capital, it is necessary to measure the increase
or decrease therein, by preparing a statement or schedule of changes in working capital.
Rules in working capital
 Increase in a current assets item increases working capital.

 Decrease in a current assets item decrease working capital.
 Increase in a current liability item decrease working capital.
 Decrease in a current liability item increases working capital.
4) COMMON SIZE STATEMENT
Common size financial statements are those statements in which items are converted into
percentages by taking some common base. These statements are also called “100 percent statements”
or “component percentage” because each statement are reduced to the total 100 and each individual
items are expressed as a percentage of this total. Common size balance sheet and common size income
statement can be prepared. A statement in which each and is shown as percentage of the total assets
and each liability and capital items is shown as the percentage of the total liability and capital is called
as “common size balance sheet”. A statement in which each expense item is shown as a percentage of
net sales is called a “Common size income statement”.
2.4 ANALYSIS AND INTERPRETATION
Liquidity
The term liquidity refers to the ability of a firm to meet its obligations in the
short run usually one year. The Liquidity resources of a may be kept in various forms:
cash in hand and cash at bank in current assets, reserve drawing power under cash
credit or overdraft arrangement and short term deposits. Cash balance in current
account provides the high degree of Liquidity. The Liquidity is to measure firm’s ability
to meet expected and unexpected cash requirements, expand its assets, reduce its
liabilities or cover any operating losses.
Solvency
Liquidity helps to indicate the level of solvency of the firm. Solvency is the ability of a
business to have enough assets to cover its liabilities. Solvency is often confused with liquidity,
but it is not the same thing. Solvency represents the state of affairs a firm under which a firm
is able to meet its debt obligation. Assets of a firm must be at least equal to or more than
liabilities.
TABLE NO 2.4.1
TABLE SHOWING CURRENT RATIO
CURRENT RATIO
It is the ratios of current assets to current liabilities
Current assets
Current ratio =
Current liabilities
Year Current assets Current liabilities Ratio

2005-06 107254293 54503645 1.96
2006-07 172908252 97647038 1.81
2007-08 176850481 113712287 1.52
2008-09 296222206 104588275 2.83
2009-10 361636181 190354993 1.89
Source: Secondary Data (2006-2010)
Interpretation
From the above table, the short term solvency position of the company is sound
.An ideal current ratio is 2:1. In the year 2005-2006 current ratio of company is 1.96, 2006-2007
current ratio of company is 1.81, 2007-2008 current ratio of company is 2.37, 2008-2009 current
ratio of company is 2.83, 2009-2010 current ratio of company is 1.89.The current ratio of these
years indicate that liquidity position of the company has satisfied.
FIGURE 2.4.1
FIGURE SHOWING CURRENT RATIO
CURRENT RATIO
3 2.83%
2.5
1.96% 1.89%
2 1.81%
RATIO
1.52%
1.5
0.5
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO 2.4.2
TABLE SHOWING LIQUIDITY RATIO
LIQUIDITY RATIO
Liquid Ratio may be defined as the ratio of Liquid Assets to Liquid Liabilities or Current
Liabilities.
Quick assets or liquid assets
Liquid Ratio =
Liquid Liabilities /Current Liabilities
Year Liquid assets Current liabilities Ratio

2005-06 1092902509 54503645 1.88
2006-07 166487124 97647038 1.46
2007-08 173491454 113712287 1.77
2008-09 271658756 104588275 2.59
2009-10 352549265 190354993 1.85
Interpretation
From the above table, liquid ratio which is 1.88, 1.77, and 1.85 indicates more than
satisfactory position of the company. An ideal ratio of liquidity is 1:1. In the year 2005-2006,
2006-2007, 2007-2008, 2009-2010, liquidity position of company is satisfied. The liquid ratio is
high in the year of 2008-2009, in 2006-2007 shows the low liquid position of the company.
FIGURE 2.4.2
FIGURE SHOWING LIQUID RATIO
LIQUID RATIO
2.5 2.59%
2
RATIO
1.88%
1.77% 1.85%
1.5 1.46%
0.5
0
2005-062006-07
2007-08
2008-09
YEAR 2009-10
TABLE NO.2.4.3
TABLE SHOWING ABSOLUTE QUICK RATIO
ABSOLUTE QUICK RATIO

It is the ratio which establishes the relationship between the super quick assets and the
quick liabilities
Absolute quick assets

Absolute Quick Ratios =
Absolute quick liabilities
Year Absolute Quick Absolute Quick Ratio

assets liabilities
2005-06 662563 54503645 0.012

2006-07 6198762 97647038 0.054
2007-08 8527284 113712287 0.087
2008-09 19790476 104588275 0.18
2009-10 20711382 190354993 0.108
Interpretation
From the above table, Absolute Quick Ratio which is highly satisfied in year of
2008-2009, 2009-2010 it shows the liquidity position of the company is highly satisfied in this
year. Absolute Quick Ratio which is low in the year of 2005-2006.
FIGURE 2.4.3
FIGURE SHOWING ABSOLUTE QUICK RATIO
ABSOLUTE QUICK RATIO

0.18%
0.18
0.16
0.14
0.12
RATIO
0.108%
0.1 0.087%
0.08
0.054%
0.06
0.04
0.012%
0.02
0
2005-062006-07
2007-08
2008-09
2009-10
YEAR
TABLE NO.2.4.4
TABLE SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO
CURRENT ASSETS TO FIXED ASSETS RATIO
Current Assets to Fixed Assets Ratio helps to measure the efficiency of a firm‟s to utilize
its level of current assets to fixed assets.
Current assets
Current Assets to Fixed Assets Ratio =
Fixed Assets
Year Current assets Fixed assets Ratio

2005-06 107254293 60103164 1.78
2006-07 172908252 75121203 2.30
2007-08 176850481 110333323 1.60
2008-09 29655506 114667663 2.58
2009-10 361636181 119324495 3.03
Interpretation
From the above table, it is clear that Current assets to fixed ratio is highly
satisfied in year of 2009-2010.it shows that the liquidity position of the company is highly
satisfied in this year. The lowest level of liquidity shows in the year of 2007-2008.
FIGURE 2.4.4
FIGURE SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO
CURRENT ASSETS TO FIXED ASSET RATIO
3.5
3.03%
3
2.58%
2.5 2.3%
RATIO
2 1.78%
1.6%
1.5
0.5
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.5
TABLE SHOWING PROPRIETARY RATIO
PROPRIETARY RATIO
This ratio establishes the relationship between share holders fund and total assets
Shareholders fund
Proprietary Ratio = * 100
Total Assets
Year Shareholders fund Total assets Ratio
2005-06 9367368 167357457 5.59
2006-07 10535899 248029455 4.2
2007-08 12441946 287183804 4.4
2008-09 7768216 410889869 1.8
2009-10 11925484 480960676 2.4
Interpretation
The above table shows, proprietary ratio which is highly satisfied in year of 2005-
2006.Its ratio is 5.59.it shows the liquidity position of the company is highly satisfied in this
year. The lowest level of liquidity shows in the year of 2008-2009 and its ratio is 1.8.
FIGURE 2.4.5
FIGURE SHOWING PROPRIETARY RATIO
PROPRIETARY RATIO
6 5.59%
5
4.4%
4.2%
R
A 3
T 2.4%
I
O 1.8%
2
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
TABLE NO.2.4.6
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
Net sales
Working capital turnover ratio =
Net working capital
Net working Capital=Current Assets-Current liabilities
Net sales = Gross sales-sales return
Year Net sales NWC Ratio

2005-06 197135117 52750648 1.93
2006-07 213354436 161195965 0.76
2007-08 539157805 79203443 2.21
2008-09 733918383 191633931 1.23
2009-10 1057891767 171281188 1.53
Interpretation
From the above table, Working capital turnover ratio which is highly satisfied in year of
2005-2006, 2007-2008, 2008-2009, 2009-2010.it shows the liquidity position of the company is
highly satisfied in these years. The lowest level of liquidity shows in the year of 2006-2007.
FIGURE 2.4..6
FIGURE SHOWING WORKING CAPITAL TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
7 6.1%
5
3.73% 3.82%
4
RATIO
1.32%
2
0.68%
1
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.7
TABLE SHOWING GROSS PROFIT RATIO
GROSS PROFIT RATIO (G.P. RATIO)
Gross Profit Ratio is the ratio of Gross Profit to Net Sales expressed as a percentage
Gross profit
Gross Profit Ratio = * 100
Net Sales
Year Gross profit Net Sales Ratio
2005-06 21125174 197135117 11
2006-07 41569240 213354436 19
2007-08 134841450 539157805 25
2008-09 101241540 733918383 14
2009-10 243541240 1057891767 23
Interpretation
From the above table it is clear that Gross profit ratio is highly satisfied in year
2007-2008, its ratio is 25.It shows liquidity position of the company is highly satisfied in this
year. The lowest level of liquidity shows in the year of 2005-2006.
FIGURE 2.4.7
FIGURE SHOWING GROSS PROFIT RATIO
GROSS PROFIT RATIO
30
25%
25 23%
20 19%
RATIO
14%
15
11%
10
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.8
TABLE SHOWING NET PROFIT RATIO
NET PROFIT RATIO (N.P. RATIO)
Net Profit Ratio is used as a measure of overall profitability and is useful to the owners.
Net profit
Net Profit Ratio = * 100
Net Sales
Year Net profit Net Sales Ratio

2005-06 -66882419.18 197135117 -33.9
2006-07 -90909844.4 213354436 -26
2007-08 -60459814.17 539157805 -11.2
2008-09 -57818627.12 733918383 -7.8
2009-10 -67065566 1057891767 -6
Interpretation
The above table shows that, the net profit for the company are in a loss position
the company has to take necessary steps to overcome the loss and to make a profit.
FIGURE 2.4.8
FIGURE SHOWING NET PROFIT RATIO
NET PROFIT RATIO

05-06 06-07 07-08 08-09 09-10
0
2005-06 2006-07 2007-08 2008-09 2009-10
-5
-6%
-10 -7.8%
-11.2%
-15
RATIO
-20
-25
-26%
-30
-35 -33.9%
-40
YEAR
TABLE NO.2.4.9
TABLE SHOWING DEBTORS TURN OVER RATIO
DEBTORS TURN OVER RATIO
Debtors turnover ratio indicates the velocity of a debt collection of a firm.
Net sales
Debtors turnover ratio =
Sundry debtors
Year Sales Debtors Ratio
2005-06 197135117 102142548 1.93
2006-07 213354436 23326264 1.73
2007-08 539157805 175621435 3.06
2008-09 733918383 237514040 3.08
2009-10 1057891767 263157156 4.02
Interpretation
Generally the higher value of debtors turnover ratio indicates that the firm is more
efficient in managing the debtors. But here the firm is lacking behind in this field of managing
the debtors. Here high ratio is 4.02 in the year of 2009-2010.low rate of ratio shows in the year of
2006-2007.
FIGURE 2.4.9
FIGURE SHOWING DEBTORS TURNOVER RATIO
DEBTORS TURNOVER RATIO
4.5
4.02%
4
3.5
3.06% 3.08%
3
RATIO
2.5
1.93%
2 1.73%
1.5
0.5
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.10
TABLE SHOWING AVERAGE DATA COLLECTION PERIOD
AVERAGE DATA COLLECTION PERIOD
The average collection period represent the average number of days for which a firm has
to wait before its receivables are converted into cash
Number of working days
Average data collection period =

Debtor turnover ratio
Year No of days Debtor turnover Ratio
ratio
2005-06 360 1.93 187
2006-07 360 1.73 208
2007-08 360 3.06 118
2008-09 360 3.08 117
2009-10 360 4.02 90
Interpretation
From the table we can understand that the average collection period of the firm is
decreasing from 2007-2010.During the year 2007 it had the collection period around 208 days
but during the year 2010 it shrink down to 90 days. The firm has to take a perfect concentration
on this part.
FIGURE 2.4.10
FIGURE SHOWING AVERAGE DATA COLLECTION PERIOD
AVERAGE DATA COLLECTION PERIOD
250
208
187
200
150 118
117
DAYS
90
100
50
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
YEAR
TABLE NO.2.4.11
TABLE SHOWING CREDITORS TURN OVER RATIO
CREDITORS TURN OVER RATIO
The supplier of goods is naturally interested in finding out how much time firm is likely
to take in repaying its trade creditors.
Credit purchase
Creditors turnover ratio =

Average Account payable
Year Credit Purchase Average payable Ratio

2005-06 72315912 42539561 1.69
2006-07 84853087 42539561 1.67
2007-08 124857299 866357331 1.77
2008-09 147857378 72315912 1.70
2009-10 174827299 68763210 1.85
Interpretation
The above table shows that the credit worthiness is in a upward movement. The
highest creditors turnover ratio is in the year of 2009-2010 and the lowest ratio is in the year of
2006-2007.
FIGURE 2.4.11
FIGURE SHOWING CREDITORS TURNOVER RATIO
CREDITORS TURNOVER RATIO

1.85%
1.85
1.8 1.77%
1.75
1.7%
1.69%
RATIO
1.7 1.67%
1.65
1.6
1.55
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.12
TABLE SHOWING AVERAGE PAYMENT PERIOD
AVERAGE PAYMENT PERIOD
It is the average number of days taken by a firm to pay its creditors.
Number of working days

Average payment period =
Year No of days Creditor turnover Ratio

ratio
2005-06 360 1.69 213
2006-07 360 1.67 215
2007-08 360 1.77 203
2008-09 360 1.70 211
2009-10 360 1.85 194
Interpretation
From the analysis conducted it is found that the company takes above 200 days for its
repayment of cash to its creditors. This firm should take initiative in paying back the amount by
any other means or should control in purchasing the raw materials and other materials and
machineries in credit. Here lowest average period is 194.
FIGURE 2.4.12
FIGURE SHOWING AVERAGE PAYMENT PERIOD
AVERAGE PAYMENT PERIOD
220
215
215 213
211
210
DAYS
205 203
200
194
195
190
185
180
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.13
TABLE SHOWING RETURN ON INVESTMENT
RETURN ON INVESTMENT
Return on share holder‟s investment, popularly known as ROI or return on

share holder/proprietors fund is the relationship between net profit the proprietors fund. It
calculated as:
Net profit
Return on investment =
Shareholders fund
Year Net profit Shareholders fund Ratio
2005-06 -66882419.18 9367368 -7.1

2006-07 -90909844.4 10535899 -8.62
2007-08 -60459814.17 12441946 -4.8
2008-09 -57818627.12 14541946 -3.9
2009-10 -67065566 11925484 -5.6
Interpretation
From the above table it is clear that the overall efficiency of the firm is not satisfied .
The primary objectives of firm are to maximize its earnings. Here the firm‟s return on investment
is in a negative position.
FIGURE 2.4.13
FIGURE SHOWING RETURN ON INVESTMENT
RETURN ON INVESTMENT
05-06 06-07 07-08 08-09 09-10
0
2005-06 2006-07 2007-08 2008-09 2009-10
-1
-2
-3
-4
RATIO
-3.9%
-5
O
-4.8%
-6 -5.6%
-7
-7.1%
-8
-9 -8.62%
-10
YEAR
TABLE NO.2.4.14
TABLE SHOWING OPERATING RATIO
OPERATING RATIO
Operating Ratio establishes the relationship between Operating Expenditure and

Operating Income of a firm.
Operating Ratio = 100-Net Profit
Year 100 Net profit ratio Ratio
2005-06 100 -33.9 133.9

2006-07 100 -26 126
2007-08 100 -11.2 111.2
2008-09 100 -7.8 107.8
2009-10 100 -6 106
Interpretation
From the above table, the operating ratio is high in the year 2005-2006, 2006-
2007, 2007-2008 and 2008-2009.the operating ratio is low in the year of 2009-2010.
FIGURE 2.4.14
FIGURE SHOWING OPERATING RATIO
OPERATING RATIO
133.9%
140 126%
111.2%
120 107.8% 106%
100
80
RATIO
60
40
20
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE NO.2.4.15
TABLE SHOWING DEBT EQUITY RATIO
DEBT EQUITY RATIO
The ratio indicates the relationship between the external equities or the
outsiders fund and internal equities other share holder‟s fund.
Outsiders fund
Debt equity ratio =
Share holders fund
Year Sales Debtors Ratio
2005-06 197135117 102142548 1.93
2006-07 213354436 23326264 1.73
2007-08 539157805 175621435 3.06
2008-09 733918383 237514040 3.08
2009-10 1057891767 263157156 4.02
Interpretation
The above table shows that the debt equity ratio is high in the year of 2007-2008, 2008-
2009, 2009-2010.The lower level debt equity is 1.73 in the year of 2006-2007.The ratio gives an
idea about the cushion available to outsiders on the liquidation of firm. But the study tells that
the outsiders fund have dominated on the owners fund.
FIGURE 2.4.15
FIGURE SHOWING DEBT EQUITY RATIO
DEBT EQUITY RATIO
18
15.7%
16
14
12
9.7%
RATIO
10
7.5%
8 6.8%
5.67%
6
0
2005-06 2006-07 2007-08 2008-09 2009-10
YEAR
TABLE 2.4.16
COMPARATIVE STATEMENT AS ON 2006-2007
Particulars 2006 2007 Increase or Percentage

decrease
Assets
Current assets 107254293 172908252 +65653959 +61.21
Fixed assets 60103164 75121203 +15018039 +24.98
Others 53675789 59884065 +6208276 +11.56
Profit and loss a/c 66882419 90909844 +24027425 +35.92
Total 287915665 398823364 +110907699 +38.52
Liabilities & capital
Current liabilities 54503645 97647038 +143143393 +79.15
Long term liabilities 100626771 112785576 +102722899 +12.08
Capital 2351784 3526315 +1168531 +49.68
Reserves 130433465 184864435 +54436970 +41.73
Total 287915665 398823364 +110907699 +38.52

INTERPRETATION:
The above table showed that, the comparative balance sheet of the year 2006-
2007.the capital stays is increase, and also increase the current liabilities.
The overall balance sheets shows a deviation of in a positive figure in the year of
2006-2007.so, the overall position of the company is satisfactory.
TABLE 2.4.17
COMMON SIZE STATEMENT AS ON 2009-2010
Particulars 2009 Percentage 2010 Percentage
Assets
Current assets 296222206 55.77% 361636181 58.49%
Fixed assets 114667663 21.58% 119324495 19.29%
Others 62416454 11.75% 70260819 11.36%
Profit and loss a/c 57818627 10.88% 67065566 10.84%
Total 531124950 100% 618287061 100%
Liabilities & capital
Current liabilities 104588275 19.69% 190354993 30.78%
Long term liabilities 211708707 39.86% 242435286 39.21%
Capital 7526362 1.41% 4909900 0.79%
Reserves 207301606 39.03% 180586882 29.20%
Total 531124950 100% 618287061 100%

INTERPRETATION:
The study of common size balance sheet shows the 55.77% to58.49% of increase in
current assets and the liabilities shows 19.69% to 30.78% of current liabilities and 39.86% to 39.
21% of fixed liabilities. This shows the satisfactory position of the company during the year
2009-2010.
TABLE 2.4.18
SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 2008-2009
Particulars 2008 2009 Changes in working capital
Rs. Rs. Increase Decrease
Current assets
Cash in hand 175500 2165978 1990478 __
Cash at bank 8351784 17624498 9272714 __
Other investment 51137546 76246845 25109299 __
Sundry debtors 1254369 22458792 21204423 __
Prepaid expenses 113826624 175621435 61794811 __
Stock 2104658 2104658 __ __
Total (A) 176850481 296222206
Current liabilities
Sundry debtors 94286587 99231481 __ 4944894
Sales tax dues 15000 394005 __ 379005
Trade charge dues 3345451 4962789 __ 1617338
Total (B) 97647038 104588275
Working capital 79203443 191633931

(A-B)
Net increase in 112430488 __ __ 112430488

working capital
191633931 191633931 119371725 119371725

INTERPRETATION:
The schedule of changes of working capital as on 2008-2009 shows that there is

an net increase in the working capital which means the current assets is over the current liability
for the last year which is a satisfactory position for the organization.
CHAPTER-3
FINDINGS, RECOMMENDATIONS AND CONCLUSION
3.1 FINDINGS
The company has a good liquidity and solvency position

The highest current ratio of the company is 2.83 in 2008-2009.So the current ratio of the firm
is satisfactory
The liquidity position of the company has satisfied during the period 2008-2009
The absolute quick ratio is satisfied in the year 2008-2009,2009-2010
Considering the proprietary ratio the financial position of the company is satisfactory.
The working capital turnover ratio shows that the company has meet their payments
effectively
Gross profit ratio of the company is satisfactory level
The net profit ratio shows that the company has attained loss during these five years.
The debtor turnover ratio indicates that the firm is more efficient to manage its debtors.
The company has to make a reasonable time to collect the amount from debtors
The creditor turnover ratio shows that the company has unsatisfactory condition to make the
payments of its creditors
The overall efficiency of the firm is not satisfied
The operating ratio is not satisfied
The outsiders fund is more than share holders fund. So the company has take more risk.
The comparative balance sheet of the year 2006 and 2007 shows that, the current assets are
increasing up to 61.21%
The comparative balance sheet of the year 2006 and 2007 shows that, the fixed assets are
increasing up to 24.98%
The overall performance of comparative balance sheet of the year 2006-2007 is in a
satisfactory position.
The overall performance of common size statement of the year 2009-2010 is in a satisfactory
position.
3.2 RECOMMENDATIONS
The firm liabilities is in an upward movement which will lead to a huge loss in order to
avoid that the company has to take enough measures to avoid that.
The company may take remedial actions for increasing its strength in the overall
activities.
The firm may develop strategies in boosting up in order to cover the cost involved in the
production.
The management may take proper action in reducing the payment period and thus reduce
the creditors of the firm.
The company facing loss for the past five accounting year the company has to take
necessary measures to overcome the loss.
3.3 CONCLUSION
Liquidity is the ability of an asset to be converted into cash quickly and without any
price discount. It helps to identify the operating efficiency of the firm and to help to understand
the financial position of the firm.
Liquidity helps to indicate the level of solvency of the firm. Solvency is the ability
of a business to have enough assets to cover its liabilities. Solvency is often confused with
liquidity, but it is not the same thing.
The study of liquidity and solvency which is help to the company but they have to
look into the effective management by that it helps to reduce the huge outflow of money.
Competitors in the industries are too high to be a market leader. It has to develop some
Strategies such cost leadership or diversification strategy.

APPENDICES
SALEM DISTRICT CO-OP MILK PRODUCERS UNION. LTD.,
BALANCE SHEET AS ON 01.04.2005-31.03.2006
LIABILITIES ASSETS
RS RS
Share capital 2351784 cash in hand 114107

sales tax dues 10000 cash at bank 5484586
Subsidies 15786854 other investment 45142654
provision for bonus 4523398 fixed deposit 43500000
trade charge dues 1345789
fixed asset
contingies dues 548625
60103164
building & machinery
sundry creditors 53147856
13512
input stock
non statutorry reserve 114196178
other reserves (inc.stock,interest 9221703
Others
& fixed deposit)
stock other item
milk cost short paid in co-ops 72315912 37154
stock excess
undisbursed profit 7451982 1237495
trade stock in store
reseve fund 7015584 2145678
stock deficit value
456317
interest accured
107634
trade income occurred
43857
misc income occurred
6147654
prepaid expenses
4351784
sundry debtors
52147650
loss f/d from p&l a/c

66882419
287915665 287915665
LIABILITIES ASSETS
RS RS

fixed asset
75121203
175253
input stock
Others
& fixed deposit) 52013
stock other item
stock excess
resreve fund 7015584 630958
stock deficit value
1125174
interest accured
40513
9545484
6245875
prepaid expenses
102142548
sundry debtors

90909844
398823364 398823364
LIABILITIES ASSETS
RS RS

fixed asset
60103164
13512
input stock
Others
& fixed deposit)
stock other item
stock excess
reserve fund 7015584 2145678
stock deficit value
456317
interest accured
107634
43857
6147654
prepaid expenses
4351784
sundry debtors
52147650

66882419
403772577 403772577
LIABILITIES ASSETS
RS RS

fixed asset
114667663
2104658
input stock
Others
& fixed deposit)
stock other item
stock excess
reserve fund 7015584 8548654
stock deficit value
1107321
interest accured
4501468
55512
2879745
prepaid expenses
22458792
sundry debtors
175621435

57818627
531124950 531124950
LIABILITIES ASSETS
RS RS

fixed asset
119324495
5871069
input stock
Others
& fixed deposit)
stock other item
stock excess
resreve fund 7015584 12168347
stock deficit value
2425070
interest accured
5670039
90967
3844112
prepaid expenses
3215847
sundry debtors
237514040

67065566
618287061 618287061
REFERENCES
BOOKS
Jain S.P. Narang. K.L., „Advanced Accountancy‟, New Delhi, Kalayani Publishers, 2000,
11th Edition.
Kalkarni P.V., „Financial Management‟, 1981, Himalaya Publishing House.
Kothari, C.R., „Research Methodology; Methods and Techniques‟, New Delhi, 2001, 2nd
Edition.
Manmohan and Goyal S.N., „Principles of Management Accounting‟, 1988, Sahithya

Publishers.
Pandey I.M., „Financial Management‟, 1995, Vikas Publishing House.
WEBSITES
http:/www.google.com
http:/www.emeraldinsight.com

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A STUDY ON LIQUIDITY AND SOLVENCY

POSITION WITH SPECIAL REFERENCE TO

in partial fulfillment for the award of the degree

MASTER OF BUSINESS ADMINISTRATION

MAHARAJA ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES

This is to certify that the project entitled

A STUDY ON LIQUIDITY AND SOLVENCY POSITION WITH SPECIAL

Is the bonafide record of project work

Submitted for the project viva-voce examination held on__________________________

(Signature of the Candidate)

I certify that the declaration made by the candidate is true.

(Signature of the guide)

Ms.R.RENUKADEVI, MBA.,M.Phil., (Ph.D)

Department of Management Studies

First and foremost I would like to give my wholehearted and sincere

I express my gratitude to Thiru. K.PARAMASIVAM B.Sc., Chairman of Maharaja

I wish to express my sincere thanks to Principal Dr. N. KUPPUSAMY, M.E., Ph.D.,

Words can‟t express my heartful gratitude to my faculty guide Ms.R.RENUKADEVI,

I acknowledge my sincere gratitude to Dr.SENGUTTUVAN B.V.Sc Salem dairy for

List of tables Vii

List of Charts Viii

1.1 About the Study 1

1.2 About the Industry 6

1.3 About the Company 9

1.4 Review of Literature 13

2 Main theme of the project

2.1 Objectives of the Study 15

2.2 Scope and Limitations of the Study 16

2.3 Research Methodology 17

2.4 Analysis and Interpretation 20

3 Findings, Recommendations & Conclusion

titled “A STUDY ON LIQUIDITY AND SOLVENCY POSITION WITH SPECIAL

REFERENCE TO SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD,

SALEM” is to analyze the financial position of the company.

1st April 2006 to 31st march 2010.

statement, common size statement and the changes in working capital.

satisfactory during the entire period of the study.

TABLE TITLE PAGE

2.4.2 Table showing liquidity ratio 23

2.4.3 Table showing absolute quick ratio 25

2.4.4 Table showing current assets to fixed assets ratio 27

2.4.5 Table showing proprietary ratio 29

2.4.6 Table showing working capital turnover ratio 31

2.4.7 Table showing gross profit ratio 33

2.4.8 Table showing net profit ratio 35

2.4.9 Table showing debtors turnover ratio 37

2.4.10 Table showing average data collection period 39

2.4.11 Table showing creditors turnover ratio 41

2.4.12 Table showing average payment period 43

2.4.13 Table showing return on investment 45

2.4.14 Table showing operating ratio 47

2.4.15 Table showing debt equity ratio 49

2.4.16 Comparative statement as on 31.03. 2007 51

2.4.17 Common size statement as on 31.03.2010 53

2.4.18 Schedule of changes in working capital as on 31.03.2009 55

FIGURE TITLE PAGE

2.4.2 Figure showing liquidity ratio 24

2.4.3 Figure showing absolute quick ratio 26

2.4.4 Figure showing current assets to fixed assets ratio 28

2.4.5 Figure showing proprietary ratio 30

2.4.6 Figure showing working capital turnover ratio 32