Académique Documents
Professionnel Documents
Culture Documents
Cash is one of the current assets of a business. It is needed at all times to keep the
business going. Business concern should always keep sufficient cash for meeting its obligations.
Any shortage of cash will hamper the operations of a concern and excess of it, will be
unproductive. Cash is the most unproductive of all the assets. While fixed assets like machinery,
plant etc...And in hand will not add anything to the concern. It is in this context that cash
management has much importance.
For some persons, cash means only in the form of currency. For other persons, cash
means both cash in hand and at bank. Some even include near cash assets in it. They take
marketable securities too as part of cash. These are the securities which can easily be converted
into cash. These viewpoints reflect the degree of freedom of the persons using the cash. Whether
a persons wants to use it immediately or can wait for a time to use it depends upon the needs of
the concerned persons. Cash itself does not produce goods or services. It is used as a medium to
acquire other assets. It is the other assets which are used in manufacturing goods or providing
services. The idle cash can be deposited in bank to earn interest.
A business has to keep required cash for meeting various needs. The assets acquired by
cash again help the business in producing cash. The goods manufactured or services produced
are sold to acquire cash. A firm will have to maintain a critical level of cash. If at a time does not
have sufficient cash with it, it will have to borrow from the market for reaching the required
level. There remains a gap between cash inflows and outflows. Sometimes cash receipts are more
than the payments or it may be vice-versa at another time. A Financial manager tries to
synchronization the inflows and cash outflows. But this situation is seldom found in the real
world. Perfect synchronization of receipts and payments of cash is only ideal situation.
The project was undertaken at Forest Industries Travancore Limited,
Thaikattuara,Aluva. The company engaged in the current business of manufacturing and
marketing of wooden furniture, door, windows, and joineries since 1963. F.I.T became a
government company in 1960. F.I.T Ltd is the only public sector company in Kerala solely
engages in business of wood products. The aim of the study is to find EFFECTIVENESS OF
CASH MANAGEMENT OF FOREST INDUSTRIES (TRAVANCORE) LTD, ALUVA.
business concerns .The study is about effectiveness of cash management of Forest Industries
(Travancore).
The significance of this study lies in the fact that it helps to know the importance of
cash management system followed by the organization and suggest measures to overcome the
drawbacks of existing system. The study indicates the importance of cash management and it is
being done with the help of the cash flow statements (i.e. cash inflow and cash outflow).
The significance lies in the study that is mainly based on the Baumols model and the
hypothesis testing is being focused on the chi-square test and based upon the results obtained
from the test, indicates the acceptance or rejection of the test. Thus the significance of the study
is purely focused on the Baumols model.Hence, the present study entitled Effectiveness of
Cash Management has been taken up.
To find out the liquidity position of the concern through ratio analysis.
To study the growth of Forest Industries (Travancore)ltd in terms of cash flow statement.
1.6 HYPOTHESIS
A hypothesis (plural hypotheses) is a proposed explanation for a phenomenon. For a
hypothesis to be a scientific hypothesis, the scientific method requires that one can test it.
Scientists generally base scientific hypotheses on previous observations that cannot satisfactorily
be explained with the available scientific theories. Even though the words "hypothesis" and
"theory" are often used synonymously, a scientific hypothesis is not the same as a scientific
theory.
A scientific hypothesis is a proposed explanation of a phenomenon which still has to be
rigorously tested. In contrast, a scientific theory has undergone extensive testing and is generally
accepted to be the accurate explanation behind an observation. A working hypothesis is a
provisionally accepted hypothesis proposed for further research.
Null hypothesis:
H0: Existing cash management of Forest industries (Travancore)ltd is not effective in the
organization.
4
H1: Existing cash management system of Forest industries (Travancore)ltd is effective in the
organization.
ii.
iii.
Method of analysis: cash inflow and out flow analysis, chi-square test analysis,
bar diagram, pie diagram.
Chapter 1 Introduction
It includes the different tools for data analysis, tables and charts used to show the
consolidated data.
This chapter includes the findings, suggestions and conclusion regarding the topic
and study.
6
Time constraints:
Time was a bit short and hence was not able to make the study in depth. But still all
efforts to the best possible extent have been made to collect the data.
Period of analysis:
Sample size for 7years has taken for the study which was sufficient for the study but a
bigger sample will be more effective.
CHAPTER -II
REVIEW OF RELATED LITERATURE
Functionalist modem
Traditional modem.
Commercial modem
The commercial modem became associates with extra values which
commercial furniture is offered by the manner in which it was advertised. All furniture design
was influenced by social and economic trends of theera. In general furniture produced in the last
5000 years had not undergone development in any produced scene. A brief history of the
development of furniture in various parts of the world is given below:
EGYPTIAN
Climate & belief in immortality are responsible for more being known about Egyptian
furniture than that of other civilizations antedating the Christian era. The Egyptians were partial
to decorative furniture. In lays of livory, mother of pearl, faience, semi precious stones, gold and
other metals] frequently enhanced the pieces. The woods used were sycamore, cedar,1 acacia,
olive wood, yow and bony. Most of these were obtained from other lands because of scarcity of
other than palm trees in Nile valley .Egyptians Were in fact so much outstanding furniture
makers of the ancient World, which their forms served as models for other civilization such as
Assyrian, Babylonian and Hebrew.
GREEK
Knowledge of furniture in use during the classical age of Greece has been gleaned from
the decryption of contemporary writers and from piece shown of their fine vases and in their
sculpture groups. Although some of it may be made after Egyptian models, Greek furniture was
consistently lighter and more delicate. Wood used was native olive wood, cedar, yew, box and
ebony. Bronze was favored material for the piece. Some of the finest Couches were lavishly
10
decorated and has cushion covered with silk that had reached Greece from China via the already
existent caravan route across Asia. Apparently this was the first use of silk in the western world.
ROMAN
Knowledge of roman furniture, like that of the ancient civilization, has to depend
largely on contemporary written, painted or sculptured descriptions representations. Basically
roman furniture was the first copied from the Greek. Then as the empire Expanded, it became
more elaborate in keeping with the prevailing luxury of the Upper class. Such furniture was
lavishly carved with intricate inlays of ivory, tortoise shell, boxwood, holly, ebony, stained bone
and the like.
FRENCH
The ultimate in decorative furniture in the opinion of many critics was that made by
French choristers of the Louis XV period. Mahogany was the chief wood used for fine pieces,
but for others Oak, Walnut, Cherry and other fruitwood and rosewood were used.
DUTCH
In furniture design the Dutch reflected Spanish rule, French Proximity, and oriental
commerce. Their furniture was basically Gothic combined with holian ornamentation.
MEDIEVAL AND GOTHIC FURNITURE
Architectural in the proportions, gothic furniture appears unnecessarily heavy and
cumbersome to modem eyes .As gothic designs spread to other European countries certain
discriminative Characteristics developed.
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ENGLISH
This follows the current style in Europe, but in a simplified, adaptive form. Its main
characteristics are nice proportion, dignity and restraint in decorations and certain fitness for
intended use.
AMERICAN FURNITURE
Furniture making in America started before 160 and has proceeded! Un interruptedly ever
since. It is of two kinds.
1) Handmade as individual pieces by cabinet makers at their benches.
2) Factory made in quantity with machine tools, coercible today as antique furniture is
that made by cabinetmakers and every early product of the factories.
material and furniture, and consumption is broken down by product type or variety. The office
furniture segment, particularly metal furniture is much more advanced that the home furniture
and a larger % of its production is exported.
The Indian furniture industry as a whole employs around a total of 30
workers. The country breaks down furniture imports and exports, by product and by material.
Ancient sculptures, Statues, temples and other buildings are excellent examples of carving
works. Ancient furniture is also example of unique work. In ancient stages furniture are made
with copper, silver, wood etc. But now it has been changed to iron, plastic, steel etc. But that
does not mean that the demand for wooden furniture has decreased. Furniture industries of India
are concentrated in New Delhi, Maharashtra, Kerala, U.P and Tamil Nadu.
13
2.2
14
1961,FACT changed its technology for the manufacture of fertilizer and there by agreement with
FACT practically expired.
In 1962, a second hand plant for manufacture of Furniture was purchased and
the same was installed. The furniture manufacture commenced in 1963.Since the company is
engaged in manufacturing of wooden furniture, joineries and chemical treatment of wood and
wooden material. F.I.T LTD is only public sector undertaking in Kerala solely engaged in the
business of wood products. The main customers of the company are the government
departments, organizations, institutions and local bodies. The chief raw material i.e. the timber is
obtained from government owned forest depots by participating in auctions conducted and from
private parties through tender.
During early seventies the company started exporting its furniture and allied
items to the gulf countries. During the time the Exports were made through Kerala State
Industrial Enterprises (KSIE). But the export was not very attractive to F.I.T because of the
presence of the intermediary. Presently the company is not exporting any of its products and is
now entering to the domestic market only.
The main mission of the company is that the supply of qualified furniture and
other products at competitive price to customers for customer satisfaction. It concerned for
environmental and safety of the company.
15
MISSION STATEMENT
The company is intended to achieve;
MANAGEMENT OF F.I.T
There is a 9 member team of Board of directors to manage FIT. The managing director
of the company looks after the day-to-day affairs. The executives at different level help the MD
in carrying out his work smoothly. There are directors to assist chairman and MD. The directors
also include those nominated by the government of Kerala.
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DESIGNATION
Chairman
Shri.Azim Ismail
Managing Director
Shri.V.Rajappan
Director
Smt.Minimol V.G
Director
Shri.C.S. Yalakki,IFS
Director
Shri.N.A.Aboobacker Master
Director
Director
Shri.T.S. Ramdas
Director
Shri.P.K. Thangal
Director
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BOARD OF DIRECTORS
MANAGING DIRECTOR
PERSONAL
AND
ADMINIST
RATION
FINANCE
AND
ACCOUNTS
MANAGER
SECURITY
OFFICER
ASS.MANAGER
(F&A)
ASS.ACCOUNTANT
ACCOUNTS
CLERK
STAFFS
PRODUCTI
ON
MANAGER
ASS.MANAGER
(WORKERS)
PURCHASE
MANAGER
PLANNING
AND
MARKETIN
G
MANAGER
CHIEF STORE
KEEPER
ASS.MANAG
ER
STORE
ASSISTANT
JR.EXECUTIVE
SUPERVI
SOR
SUPERVI
SOR
STAFFS
SUPERVI
SOR
STAFFS
STAFFS
18
Keeping the record of stock purchased, accounts receivable and timely submission of the
same to the insurance and banking authorities.
19
Giving monthly reports of the financial performance of the company to the top
management.
Auditing of complete purchase files, pre audit of purchase books, checking of sales
invoice various ledgers and perpetual stock and assets verification.
Sales accounting, sales budget and expenditure budget are to be prepared on a regular
basis.
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HIGHLIGHTS
The company always has an attention to adopt and accept modern technologies in
its plants. They introduce several innovations and modernizations schemes to achieve higher
productivity and energy conservation, environmental control and economy inputs. The company
markets their products with a view to profitability. F.I.T has no subsidiaries, branches Etc. They
have only one office at Thaikkattukara, Aluva. They are only the monopolist in this field. They
providing after sales service to their customers. The company got award in the year 2005-2006
given by central government named as Best Public Sector.State bank of Travancore is the only
bank of Forest Industries (Travancore)ltd.
F.I.T Shares at present:
TABLE 2.2F.I.TS Share at Present
Government of Kerala
77.41
Financial Institution
1.14
Public
21.45
Total
100
GENERAL INFORMATION
Incorporation
Ownership
Type of capital
-Equity shares.
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Kerala government
Government Institutions
Public
TURNOVER
PROFIT
PROFIT AFTER
BEFORE
TAX(IN
TAX(IN
CRORES)
CRORES)
2009-2010
807.90
11.07
7.49
2010-2011
772.40
4.58
2.35
2011-2012
1231.80
6.52
9.18
2012-2013
1537.72
6.18
48.37
2013-2014
3159.09
2.27
54.92
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TURNOVER
3500
3000
2500
2000
TURNOVER
1500
1000
500
0
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
PRODUCT PROFILE
The Forest Industries (Travancore) Ltd was established in 1946, is only government
owned company in Kerala exclusively engaged in manufacture of wooden furniture and
joineries. Over the last six decades, FIT has served its past quite efficiently to provide high
quality furniture at Reasonable rate. The high precision machinery and highly skilled work force
ensure that our product attain the best possible quality. Apart from wooden furniture, FIT also
Manufacture steel furniture, does custom interiors, aluminum/steel fabrication and modular work
station for corporate civil/electrical works etc
FIT has a wide range of home furniture and dcor solutions to provide the warmth and
comfort of a relaxed family life. The range includes sofas, cabins, telephone stands, center table,
corner stand etc. For bedrooms FIT present more sophisticated, superior and stylish range of
furniture, economically designed bedroom tables and chairs ensure their no wastage of space and
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provide at most comfort and relaxation. Thoughtfully designed dining and kitchen furniture is
also available in F.I.T.The perfectly designed
meals.
They are adaptable, affordable and are here to stay, above all.
The forest Industries Travancore limited produces elegant and value for money
product that are last a lifetime. Being a government of Kerala undertaking, there is no
compromise on the quality of the product. Only Nilambure teak and other high-qualified woods
are use for making furniture and whats more, all furniture is making in accordance with Vasthu
principles. This makes it unique in many ways. From the assembly buildings to universities to
solutions .F.I.T also offer home packages to suite your needs and custom designs to suite your
budget.
F.I.T have 500sq cm showroom situated at Thaikkattukara in F.I.T campus. And
they use only high quality woods for our products and hence the durability. In order to further
strengthen the same, they set up a quality assurance section headed by qualified and experienced
wood technologist.FIT is specialized in excellent quality wood products manufactured from
superior quality timber by highly skilled employees. Government has already issued an order
directing government department organization, institutions local bodies etc, to purchase its
requirements of wooden items from FIT without tender formalities.
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Turned leg, settee set, reaper seat & back loose cushion covered with
Best quality.
Cot with ornamental head board & leg board turned pieces.
Bed side locker with shelf, complete in plywood & Formica.
Towel rack with 4 hooks.
Easy chair plastic seat with long arm. Turned legs.
Dressing table with oval shape mirror with 2 drawers & shelf.
TV stand, turned legs with 3 steps.
Divan coat turned legs with loose cushion & 2 round pillows without
Head rest & also with both side rest board.
Rocking chair with loose cushion.
TV chair folding type with nylon cloth seat.
Canvas chair with long arm rest without cloth, folding type.
Tea poi, top glass, bottom reaper shelf.
1) DOMESTIC PRODUCTS:-
Dining table
Chair
Sofa
Divan
Almirah
Study table
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Screen.
Settee.
Showcase.
Ladder.
Stool.
Cabinet(kitchen cabinet)
Cot.
Stand.
Footrest.
Chair
Conference
Benches.
Stools
Flooring tiles
Wall paneling
joinery
Doors.
Windows
Shutters.
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Frames.
Ventilator.
Raw materials used:The raw materials presently used are teak, Rosewood, Anjali& hardwood & are
available from the government forest to FIT. Saw mill takes wood directly, without any kind of
seasoning. Wood has been an integral part of civilization. It is one of the earliest known building
materials. Wood requires small part of energy utilization compared to very other building
material others need large input of energy to convert it to a usable product.
The traditional timber like Teak, rosewood etc..Naturally durable & resistant to
bio -degrading mechanism in nature. This quality is inbuilt in these species. With the advent of
modern technology & increased demand for wood, The time between feelings of the tree the
point of usage has dramatically come down. This also has a major problem on the quality of
wood. Therefore artificial seasoning is must.
1) Wooden products
2) Modular workstations
3) Interior decorations
4) Aluminum partitions
5) Civil contracts
6) Electrical contracts
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During 2003-04 company did not undertake any R&D activities. Company is
planning to associate with KFRI, SISA etc. in order to develop new designs in furniture and
joineries and R&D activities. The company is formulating a program for replacing obsolete
equipments for conserving energy. Electronic chokes are being used for tube lights.
Studies are being conducted for identifying further energy conservation areas. Impact
of such reduction of energy consumption on the cost of production of goods to be the undertaken
will be the identified after implementation.
2.3
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is also an ultimate output expected to be realized by selling the service of product manufactured
by the firm.
Cash is the life blood of every business, so a manager can aware about how to
manage the cash management of the firm. After the preparation of cash budget, the financial
manager should also ensure that are no significant differences between the expected/budgeted
cash flows and the actual cash flows. This requires controlling and reviewing of the whole
exercise on a regular basis. The financial manager should take appropriate steps for preventing
any unexpected deviation in both the inflows as well as outflows.
Nature of cash:
For some persons, cash means only in the form of currency. For other persons, cash
means both cash in hand and at bank. Some even include near cash assets in it. They take
marketable securities too as part of cash. These are the securities which can easily be converted
into cash. These viewpoints reflect the degree of freedom of the persons using the cash. Whether
a persons wants to use it immediately or can wait for a time to use it depends upon the needs of
the concerned persons. Cash itself does not produce goods or services. It is used as a medium to
acquire other assets. It is the other assets which are used in manufacturing goods or providing
services. The idle cash can be deposited in bank to earn interest.
A business has to keep required cash for meeting various needs. The assets acquired
by cash again help the business in producing cash. The goods manufactured or services produced
are sold to acquire cash. A firm will have to maintain a critical level of cash. If at a time does not
have sufficient cash with it,it will have to borrow from the market for reaching the required level
.
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Transaction motive
Precautionary motive
Speculative motive
Some peoples are of the view that a business requires cash only for the first two motives while
others feel that speculative motive also remains. These are discussed as follows:
1. Transaction Motive:
A firm needs cash for making transactions in the day to day operations. The cash is needed to
make purchase, pay expenses, taxes, dividend etc. The transaction needs of cash can be
anticipated because the expected payments in near future can be estimated. The receipts in future
may also be anticipated but the things do not happen as desired.
2 Precautionary Motive:
A firm is required to keep cash for meeting various contingencies. Though cash inflows and
cash outflows are anticipated but there may be variations in these estimates. A firm should keep
some cash for such contingencies or it should be in a position to raise finance at a short period.
The cash maintained contingency is not productive or it remains ideal. However, such cash may
be invested in short period or low risk marketable securities which may provide cash such as
and when necessary.
30
3. Speculative Motive:
The speculative motive relates to holding of cash for investing in profitable opportunities as and
when they arise .Such ooportunities do not come in a regular manner.these opportunities cannot
be scientifically predicted but only conjectures can be made about their occurrence.The primary
motive of a firm is not to indulge in speculative transactions but such investments may be made
at times.
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 firms holds. It is significant because it
is used to pay the firms 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.
In simple words Cash management has assumed importance because it is the most significant of
all the current assets. It is required to meet business obligations and it is unproductive when not
used.
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ii.
iii.
its facts:
Cash planning:
Cash planning is a technique to plan and control the use of cash. A projected cash flow
statement may be prepared, based on the present business operations and anticipated future
activities. The cash inflows from various sources may be anticipated and cash outflows will
determine the possible uses of cash.
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.
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
32
cash. A cash budget is an estimates of cash receipts and disbursements during a future period of
time. It is an analysis of flow of cash in a business over a future, short or long period of time. It
is a forecast of expected cash intake and outlay.
The short term forecasts can be made with the help of cash flow projections. The finance
manager will make estimates of likely receipts in the near future and the expected disbursements
in that period. Through it is not possible to make exact forecasts even then estimates of cash
flows will enable the planners to make arrangement for cash needs.it may so happen that
expected cash receipts may fall short or payments may exceed estimates.The long term forecasts
are also essential for proper cash planning. These estimates may be for three, four, five or more
years. Long term forecasts indicate companys future financial needs for working capital, capital
projects, etc.
FUNCTIONS OF CASH MANEGEMENT
The management of cash is important because it bring into sharp focus the trade-off between
risk and return faced by financial manager. Cash is held for the following:
1. Transaction balance:
The transactions motive requires a firm to hold cash to conduct its business in the
ordinary course. The firm needs cash primarily to make payments for purchases, wages and
salaries, other operating expenses, taxes, dividends etc. The need to hold cash would not arise if
33
there were perfect synchronization between cash receipts and cash payments, i.e., enough cash is
received when the payment has to be made. But cash receipts and payments are not perfectly
synchronized. For those periods, when cash payments exceed cash receipts, the firm should
maintain some cash balance to be able to make required payments. For transactions purpose, a
firm may invest its cash in marketable securities. Usually, the firm will purchase securities
whose maturity corresponds with some anticipated payments, such as dividends or taxes in the
future. Notice that the transactions motive mainly refers to holding cash to meet anticipated
payments whose timing is not perfectly matched with cash receipts.
2. Precautionary balance:
The precautionary motive is the need to hold cash to meet contingencies in the
future.
The
precautionary amount of cash depends upon the predictability of cash flows. If cash flows can
be predicted with accuracy, less cash will be maintained for an emergency. The amount of
precautionary cash is also influenced by the firms ability to borrow at short notice when the
need arises.
Stronger the ability of the firm to borrow at short notice, less the need for
precautionary balance.
securities. Marketable securities play an important role here. The amount of cash set aside for
precautionary reasons is not expected to earn anything; the firm should attempt to earn some
profit on it. Such funds should be invested in high-liquid and low-risk marketable securities.
Precautionary balances should, thus, be held more in marketable securities and relatively less in
cash.
34
3. Speculative balance:
The speculative motive relates to the holding of cash for investing in profit-making
opportunity to make profit may arise when the security prices change. The firm will hold cash,
when it is expected that interest rates will rise and security prices will fall. Securities can be
purchased when the interest rate is expected to fall; the firm will benefit by the subsequent fall in
interest rates and increase in security prices. The firm may also speculate on materials prices. If
it is expected that materials prices will fall, the firm can postpone materials purchasing and make
purchases in future when pric4e actually falls. Some firms may hold cash for speculative
purposes. By and large, business firms do not engage in speculations. Thus, the primary
motives to hold cash and marketable securities are: the transactions and the precautionary
motives.
4. Investing balance: cash is required
1. For meeting operational requirements.
2. For providing liquidity reserves against:
a) Routine net outflows of cash.
b) Scheduling of major outlays.
c) Exploitation of possible particulars for advantages long term investment.
d) Unexpected drains of cash.
3. Maintenance of bank relationship
4. Building of an investment image and other such intangible.
5. Constructing a reserve for net cash inflows, pending an opportunity for a better use of
funds.
35
36
8. Investment image:
Investment in money assets enables a firm to improve its investments image. Liquidity is
the primary consideration of every firm, for it is one basis that it can win the confidence of it
investors.
ADVANTAGES OF CASH MANAGEMENT
1. The availability of cash may be a matter of life or death. A sufficient of cash keep an
unsuccessful firm going despite losses.
2. Cash may be sold like the blood stream in a living body ;for it is much the lifeblood of
business.
3. The first priority of my business is survival, and this cannot be assured, even in the short
run, unless a company remains both liquid and solvent.
4. Cash management involves balance sheet changes and other cash flows that do not
appear in the profit and loss account such as capital expenditure.
5. It views problem in a dynamic context over a period of time.
6. It yields a plan as an integral part of the procedure.
DISADVANTAGES OF CASH MANAGEMENT
1. It may offer a solution of compensation which is not justified on the basis of a concentrate
notation, particular when the business economy in an uncertain word.
37
2. It considers economic recession as the main sources of uncertainty but ignores technological
developments, shifts in consumer preference, political changes, etc ;.moreover ,recessions are
not the sources of economic unhappiness.
3. The cost of holding cash is the profit that could have been earned had the funds been put to
another use.
4. Financial distress usually is a matter of degree, while the declaration of the bank raptly is an
indication of this distress in an extreme form. .Middle firms of financial distress occure when a
firms cash flow fall below expectations.
OTHER FACTORS THAT AFFECT THE SIZE OF CASH BALANCE
1. Availability of short-term credit:
To avoid holding unnecessary large balances of cash, most firms attempt to make
arrangements at borrow money is case of unexpected needs. With such an agreement, the firm
normally pays interest only during the period that the money is actually used.
2. Money market rates:
If money will bring a low return a firm may choose not to invest it. Since the loss or profit is
small, it may not be worth the trouble to make the loan. On the other hand, if interest rates are
very high, every extra rupee will be invested.
3. Variation in cash flows:
Some firms experience wide fluctuation in cash flows as a routine matter. A firm with
steady cash flows can maintain a fairly uniform cash balance.
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4. Compensating balance:
If a firm has borrowed money from a bank, the loan agreement may require the firm to
maintain a minimum balance of cash in its accounts. This is called compensating balance. In
effect this requires the firm to use the services of bank a guaranteed deposit on which it pays no
interest. The interest free deposit is the banks compensation for its advice and assistance.
CASH MANAGEMENT BASIS STRATEGIES
The management should, after knowing the cash position by means of the cash budget,
work out the basic strategies to be employed to manage its cash.
CASH CYCLE:
The cash cycle refers to the process by which cash is used to purchase materials from
which are produced goods, which are them sold to cstomers.
Cash cycle=Average age of firms inventory
+Days to collect its accounts receivables
-Days to pay its accounts payable.
The cash turnover means the numbers of times firms cash is used during each year.
360
Cash turnover = -----------Cash cycle
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The higher the cash turnover, the less cash the firm requires. The firm should, therefore, try to
maximize the cash turn.
MANAGING COLLECTIONS:
a) Prompt Billing:
By preparing and sending the bills promptly, without a time log between the dispatch of
goods and sending the bills, a firm can ensure earlier remittance.
b) Expeditious collection of cheques:
An important aspect of efficient cash management is to process the cheques receives very
promptly.
c) Concentration Banking:
Instead of a single collection center located at the company headquarters, multiple
collection centers are established.
customers mail in their payments and the time when the company has use of the funds are then to
a concentration bank usually a disbursement account.
d) Lock-Box System:
With concentration banking, a collection center receives remittances, processes them and
deposits them in a bank. The purpose is to lock-box system is to eliminate the time between the
receipt of remittances by the company and their deposit in the bank. The company rents a local
post office box and authorizes its bank in each of these cities to pick up remittances in the box.
The bank picks up the mail several times a day and deposits the cheque in the companys
40
accounts. The cheques are recorded and cleared for collection. The company receives a deposits
the cheque in the companys accounts. The cheques are recorded and cleared for collation. The
company receives a deposit slip and a lift of payments. This procedure frees the company from
handling a depositing the cheques.
CONTROL OF DISBURSMENT
a) Stretching Accounts Payable
A firm should pay its accounts payables as late as possible without damaging its credit
standing. It should, however, take advantages of the cash discount available on prompt payment.
b) Centralized Disbursement
One procedure for rightly controlling disbursements is to cenrealise payables in to a
single account, presumably at the companys headquarters. Such an arrangement would enable a
firm to delay payments and can serve cash for several reasons. Firstly, it increases transit time.
Secondly, if a firm has a centralized bank account, a relatively smaller total cash balances will be
needed.
c) Bank Draft
Unlike an ordinary cheque, the draft is not payable on demand. When it is presented to
the issuers bank for collection, the bank must present it to the issuer for acceptance. The funds
then are deposited by the issuing firm to cover payments of the draft. But suppliers prefer
cheques. Also, bank imposes a higher service charge to process them since they require special
attention, usually manual.
41
cash is needed from which source it will be derived, how much can be generated, how much can
be utilized.
2. Helps in internal financial management
Cash flow analysis information about funds, which will be available from operations.
This will helps the management in repayment of long-term debt, dividend policies etc.,
3. Discloses the movements of Cash
Cash flow statement discloses the complete picture of cash movement. The increase in
and decrease of cash and the reasons therefore can be known. It discloses the reasons for low
cash balance in spite of heavy operation profits on for heavy cash balance in spite of low profits.
4. Discloses success or failure of cash planning
The extent of success or failure of cash planning be known by comparing the projected
cash flow statement with the actual cash flow statement and necessary remedial measures can be
taken.
DETERMINE THE OPTIMUM CASH BALANCE
One of the primary responsibilities of the financial manager is to maintain a sound
liquidity position of the firm so that the dues are settled in time. The firm needs cash to purchase
raw materials and pay wages and other expenses as well as for paying dividend, interest and
taxes. The test of liquidity is the availability of cash to meet the firms obligations when they
become due.
43
A firm maintains the operating cash balance for transaction purposes. It may also carry
additional cash as a buffer or safety stock. The amount of cash balance will depend on the riskreturn trade-off. If the firm maintains small cash balance, its liquidity position weakens, but its
profitability improves as the released funds can be invested in profitable opportunities
(marketable securities). When the firm needs cash, it can sell its keeps high cash balance, it will
have a strong liquidity position but its profitability will be low. The potential profit foregone on
holding large cash balance is an opportunity cost to the firm. The firm should maintain optimum
just to enough, neither too much nor too little cash balance. How to determine the optimum
cash balance if cash flows are predictable and if they are not predictable.
44
The opportunity cost of holding cash is known and it does not change over time.
The firm will incur the firm sells securities and starts with a converts securities to cash.
Figure 2.2
45
C=
2AF
O
where
C = Optimum balance.
A = Annual (or monthly) cash disbursement
F = Fixed cost per transaction
O = Opportunity cost of holding cash.
46
47
48
49
50
51
52
CHAPTER III
RESEARCH METHODOLOGY
53
The sampling design which deals with the method of selecting items to be observed for
the given study
The observational design which relates to the conditions under which the observations
are to be made.
The statistical design which concerns with the question of how many items are to be
observed and how the information and data gathered are to be analyzed
The operational design which deals with the techniques by which the procedures
specified in the sampling, statistical and observational designs can be carried out.
Research design has some important features. It is a plan that specifies the sources and types of
information relevant to the research problem. It is a strategy specifying which approach will be
used for gathering and analyzing the data. It also includes the time and cost budgets since most
studies are done under these two constraints. This study has its research design as follows:
54
Quantitative approach
Qualitative approach
Quantitative approach:
In the Quantitative approach, research is based on measurable quantities. Therefore, in this
approach, data are available in the quantitative form. This approach are further be classified into
Inferential, experimental and simulation approaches. The inferential approach aims at forming a
database from which to infer characteristics or relationships of population. In experimental
approach, some variables are manipulated to observe their effect on their variables. Simulation
approach involves construction of an artificial environment within which relevant information
and data can be generated.
Qualitative approach:
Qualitative approach to research is concerned with subjective assessment of
attitudes, opinions and behaviors. Research in such situations is a function of researchers insight
and impressions. The approach adopted in this study is the quantitative approach by analyzing
the data collected with the help of inventory techniques and statistical tools
55
1. Primary Data
The primary data are those data which are collected by the investigator for the first
time. The primary data was collected with the help of a informal talk with officers.The
investigator has made a face to face interaction to get the exact data, since it clarifies doubt of the
investigator.
2. Secondary data
The secondary data are those which are already gathered, have been collected
originally for some other purpose. The investigator collected data from the company files and
various records.The investigations made use of number of books and papers on organizational
culture. The data should also be collected from internet by the investigator.In this project, the
secondary data sources are:
Company manuals, company website, company annual reports ,text books etc.
56
selected.Non probability sampling is that sampling procedure which does not afford any basis for
estimating the probability for each item to be included in the sample.
The sampling technique adopted for the study is Purposive sampling or
Judgement sampling. The population considered for the study is based on the balance sheets, P
and L account, and stock summary details of the company. The sample size is selected, based on
the data provided for the 5 years. The study is based on the data collected for 5 years which have
been considered for the study as the representative of the population
Percentage method refers to a special kind of ratio. Percentage is used in matching comparison
between two or more series of data. Percentage can also be used to compare relative terms,
distribution of two or more series of data.
2. CHI-SQUARE TEST
A chi-square test is any statistical hypothesis test in which the sampling distribution of the test
statistic is a chi-square distribution when the null hypothesis is true, or any in which this is
asymptotically true, meaning that the sampling distribution can be made to approximate a chisquare distribution as closely as desired by making the sample size large enough.
57
3. BAUMOLS MODEL
William j. baumol developed a model, which is usually used in inventory management but has its
application in determining the optimal cash balance also.Baumol found similarities between
inventory management and cash management.
4 .RATIO ANALYSIS:
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the relationship
between two or more things. It involves comparison for a useful interpretation of the financial
statements and helps to summarize large quantities of financial data and to make qualitative
judgment about the firms financial performance.
6.CORRELATION:
The data involving two associated variables is known as bivariate data. In a bivariate
data the study of the degree of relationship (magnitude) between the variables is known as
Correlation analysis. In correlation analysis it is assumed that the two variables are linearly
correlated.
If there is correlation between the variables then the change in one variable is
accompanied by a proportionate change in the other variable. The change can occur in both
directions. If the increase in one variable causes increase in the other variable then the 2
variables are said to be positively correlated. If the increase in one variable results in decrease of
the other variable then the correlation is negative. The linear correlation between 2 variables can
be measured using Karl Pearsons Correlation Coefficient (usually denoted as r). The
58
equation of the Karl Pearsons correlation coefficient is calculated by considering the 2 variables
as X and Y.
r = n XY - X.Y
2
Where -1 r +1
2
nX - (X) . nY - (Y)
r = -1
No correlation
r=0
r = +1
Negative Correlation
r<0
Positive Correlation
r>0
59
CHAPTER IV
DATA ANALYSIS & INTERPRETATION
60
Sales(rs in
Other
Change in
Total(rs in
lakhs)
income(rs in
stock(rs in
lakhs)
lakhs)
lakhs)
2009-10
805.76
2.15
(53.78)
754.13
2010-11
771.60
0.80
250.86
1023.26
2011-12
1265.33
0.74
18.41
1284.48
2012-13
1618.58
3.64
1622.22
20113-14
3227.28
49.43
3276.71
61
Year
Manufac
Personal
Sales
Interest
Depreciat
Other
turing
expense
&direct
& bank
ion(in
expens
expense
s(in
expens
charges(i
lakhs)
es(in
s(in
lakhs)
es(in
n lakhs)
lakhs)
Total
lakhs)
lakhs)
2009-10
528.27
140.26
5.19
47.31
2.56
17.18
740.77
2010-11
720.39
215.32
6.61
50.23
2.49
21.96
1017
2011-12
1007.41
185.46
4.31
50.86
2.59
20.57
1271.2
2012-13
1151.58
199.11
3.65
76.33
28.33
1462
2013-14
2781.98
224.11
2.42
81.99
30.23
3123.73
62
Particulars
2009-10 2010-11
2011-12
Cash inflow
754.13
1023.26
1284.48
Cash outflow
740.77
1017
Cash
13.36
2012-13
2013-14
1622.22
3276.71
1462
3123.73
13.28
160.22
152.98
47%
99.4%
1271.2
6.26
surplus(inflowoutflow)
Cash deficit
Profitability
100%
1199.25% 1145.05%
percentage
3500
3000
2500
2000
cash inflow
1500
cash outflow
1000
500
0
2009-10
2010-11
2011-12
2012-13
63
2013-14
X(INFLOW)
Y(OUTFLO
X2
Y2
XY
568712.05
548740.19
558636
W)
2009-
754.13
740.77
2010
2010-
.88
1023.26
1017
1047061.02
1034289
2011
2011-
5.42
1284.48
1271.2
1649888.87
1615949.44
2012
2012-
163283
0.97
1622.22
1462
2631597.72
2137444
2013
2013-
104065
237168
5.64
3276.71
3123.73
10736828.42
9757689.11
2014
102355
57.33
X=7960.8
Y=7614.7
X2=16634088.08
Y2==15094111.
XY=
74
158393
66.24
64
r = n XY - X.Y
nX2- (X)2 . nY2 - (Y)2
CORRELATION ( r ) = 0.998496
There is positive correlation between inflow &outflow of F.I.T.
RATIO ANALYSIS
Ratio analysis is one of the most powerful tool of financial analysis If it is a yardstick which
measures relationship between two variables.
According to Robert Antony ratio is one number expressed in terms of another.It is useful for
answering the performance of the
forecasting.
R a t i o a n a l y s i s i s a w i d e l y u s e d t o o l o f f i n a n c i a l analysis. It can be
used to compare the risk and return relationship of firms of different sizes. It is defined as the
systematic use of ratio to interpret the financial statements so that the strengths
and weaknesses of a firm as well as its historical performance and current financial condition
can be determined. The term ratio refers to the numerical or quantitative
relationship between two items.
Here using mainly four ratios:
1. Cash ratio
2. Cash to working capital ratio
65
1) CURRENT RATIO:
Current ratio is a financial ratio that measures whether or not a firm has enough resources to
pay its debts over the next 12 months. It compares a firm's current assets to its liabilities. Current
ratio of a firm measures its short term solvency.
Current ratio of 2:1 is considered as ideal ratio or standard ratio. A high ratio indicates sound
solvency position and a low ratio indicates inadequate working capital.
Current Ratio =
Current Assets
Current Liabilities
66
Table 4.5
year
Current
Current
Current ratio
assets
liability
2009-2010
1193.42
483.32
2.46
2010-2011
1391.66
613.99
2.26
2011-2012
2155.31
1454.03
1.48
2012-2013
2394.47
1310.11
2.01
2013-2014
2080.07
1123.64
1.85
Graph 3
current ratio
2.5
2
1.5
current ratio
1
0.5
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Analysis &interpretation:
The graph shows that comparison of current ratio of five years of forest industries
(Travancore)ltd.The figure shows that company has sound solvency position..In the year2014
67
companys solvency position is low (i.e 1.85:1) because the ideal current ratio is 2:1.in the year
2012-2013 the position of the company is good(current ratio is 2.01:1).
2) CASH RATIO:
Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It is an
extreme liquidity ratio since only cash and cash equivalents are compared with the current
liabilities. It measures the ability of a business to repay its current liabilities by only using its
cash and cash equivalents and nothing else.
Cash ratio =
Current liability
Table 4.6
Year
Cash
Current liability
Cash ratio
2009-2010
237.61
483.32
.49
2010-2011
250.96
613.99
.40
2011-2012
201.69
1454.03
.13
2012-2013
405.35
1310.11
.30
2013-2014
764.17
1123.64
.68
68
Graph 4
Cash ratio
0.8
0.6
0.4
Cash ratio
0.2
0
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
current liabilities because they can use a portion of idle cash to generate
profits. This means that a normal value of cash ratio of F.I.T in the year 2012 is below 1.00.
capital to run its day-to-day operations. In other words, it has enough capital to work. The
working capital ratio transforms the working capital calculation into a comparison between
current assets and current liabilities.
Cash
Cash to working capital ratio
Working capital
Table 4.7
Year
Cash
Working capital=
Cash to working
capital ratio
237.61
710.1
.346
2010-2011
250.96
777.67
.327
2011-2012
201.69
701.29
.2875
2012-2013
405.35
1084.36
.3738
2013-2014
764.17
956.44
.7989
70
Graph 5
40
20
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Analysis &Interpretation:
Since the working capital ratio measures current assets as a percentage of current liabilities, it
would only make sense that a higher ratio is more favorable. A WCR of 1 indicates the current
assets equal current liabilities. A ratio of 1 is usually considered the middle ground. It's not risky,
but it is also not very safe. This means that the firm would have to sell all of its current assets in
order to pay off its current liabilities.
A ratio less than 1 is considered risky by creditors and investors because it shows the
company isn't running efficiently and can't cover its current debt properly. A ratio less than 1 is
always a bad thing and is often referred to as negative working capital.On the other hand, a ratio
above 1 shows outsiders that the company can pay all of its current liabilities and still have
current assets left over or positive working capital.
71
It is one of the most important ratios of assessment of control of cash flows. This ratio provides a
deep insight into the amount of cash balance held by a concern. In the words of Professor John
Sengan, "The increase in sales is generally associated with larger bank balances. The growth of
which will increase decrease as the size of business increases. Table 4.8 illustrates the cash to
sales ratio of the selected steel Companies during the study period.
cash
Sales
Table 4.8
Year
cash
sales
2009-2010
237.61
805.76
.2948
2010-2011
250.96
771.60
.3252
2011-2012
201.69
1265.33
.1593
2012-2013
405.35
1618.58
.2504
2013-2014
764.17
3227.28
.2367
72
Figure 6
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
From the above graph, it reveals that the increase in sales is generally associated with larger bank
balances which means in the year 2010-2011 the sale of the firm high (.3252),% where as in the
year 2013- 2014 it was .2367 .The above diagram indicates that the growth of which will
increase decrease as the size of business increases. It can be observed that the ratio showed
increasing and decreasing trend.The lowest at .1593 percent in the year 2011-2012.
5.quick ratio:
Quick ratio also called acid test ratio establishes a relationship between quick or liquid assets
and current liabilities. The acid test ratio is a more severe and stringent test of a firm's ability to
pay its short-term obligations as it include only quick conversion assets.
73
Table 4..9
Year
Quick Assets
Current Liabilities
2009-10
654.46
2010-11
593.03
2011-12
1366.1
2012-13
1444.75
2013-14
1291.65
Ratio
1.35
483.32
0.96
613.99
1.08
1262.15
1.21
1193.94
1.15
1123.64
Graph 7
quick ratio
1.5
1
Ratio
0.5
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation
The ideal Quick Ratio of 1:1 is considered to be satisfactory. The table indicates that the year
2009-10 was in a better financial position compared to other years. While the year 2010-11
indicates that current assets are low in comparison to the current liabilities.
74
Total Debt
Net worth
Ratio
2009-10
609.04
138.19
4.41
2010-11
678.45
140.54
4.83
2011-12
786.3
149.73
5.25
2012-13
1054.03
198.1
5.32
2013-14
1015.8
253.01
4.01
Graph 8
2
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation
The desirable norm in a debt equity ratio is 1:1 .A ratio higher than 1 signifies greater long term
debt financing than equity financing. Here , the claims of creditors are greater than those of
owners equity. A high level of debt position of the company states the inflexibility in the firm
operation due to increasing inference and pressure from the creditors. The company was high
debt equity ratio in the year 2012-13 and decreased to 4.01in the year 2013-14.
75
Table 4..11
Year
2009-10
2010-11
2011-12
2012-13
2013-14
Average
inventory
Net Sales
805.75
771.6
1265.33
1618.58
3227.28
Ratio
480.27
577.4
710.15
755.22
761.33
1.68
1.34
1.78
2.14
4.24
Graph 9
2
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation
Here , Net Sales and average inventory of the company is showing an increasing trend. In the
year 2013-14, both average inventory and net sales are maximum.
76
Net sales
805.75
771.6
1265.33
1618.58
3227.28
Average Debtors
Ratio
776.58
621.31
877.47
1101.91
783.44
1.04
1.24
1.44
1.47
4.12
Graph 10
2
1
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation
In FIT , there is an increasing trend in debtors turnover ratio. It has reached the highest in the
year 2013-14 which shows the efficiency of the firm in credit management. It also implies the
companys credit sales are quickly converted into cash.
77
Table 4..13
Year
2009-10
2010-11
2011-12
2012-13
2013-14
No. of days
365
365
365
365
365
Debtors turnover
Debt collection
ratio
period
1.04
350.96
1.24
294.35
1.44
253.47
1.47
248.30
4.12
88.59
Graph 11
100
0
2009-10
2010-11
2011-12
2012-13
2013-14
Interpretation
The debt collection period indicates that there is a downward trend . The year 2013-14 has the
least debt collection period indicating effective collection of debt.
78
William j. baumol developed a model, which is usually used in inventory management but has its
application in determining the optimal cash balance also.Baumol found similarities between
inventory management and cash management.
Here using the following formula to check the optimal cash balance.
C=
2AF
where
C = Optimum balance.
A = Annual (or monthly) cash disbursemen
F = Fixed cost per transaction
O = Opportunity cost of holding cash.
79
Table 4.9
PARTICULARS 2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
Annual cash
693.19
965.97
1217.75
1466.41
3128.69
49.41
49.41
49.41
49.41
49.41
5%
5%
5%
5%
5%
1170.47
1381.71
1551.37
1702.41
2486.67
disbursement
Fixed cost per
transaction
Opportunity cost
of holding cash
Optimum
balance
Figure 12
optimum balance
3000
2013-2014,
2486.67
2500
2000
1500
2009-2010,
1170.47
2010-2011,
1381.71
2011-2012,
1551.37
2012-2013,
1702.41
1000
500
0
2009-2010
2010-2011
2011-2012
80
2012-2013
2013-2014
The above diagram represents the optimum cash balance of five years. In the graph indicates
that the optimum cash balance of F.I.T is increasing. At present F.I.T have 30% increase in the
cash balance. Therefore the total cost of F.I.T is minimum . The lowest balance of cash is in
the year 2009-2010 (i.e. 14%). And in the year 2011-2012, 2012-2013 it was 19% and 20%
respectively.
HYPOTHESIS TESTING
H0: The existing cash management system of F.I.T is not effective in the organization.
Chi-square test:
A chi-square test is any statistical hypothesis test in which the sampling distribution
of the test statistic is a chi-square distribution when the null hypothesis is true, or any in which
this is asymptotically true, meaning that the sampling distribution can be made to approximate a
chi-square distribution as closely as desired by making the sample size large enough.
Non-parametric chi-square test is applied to test the goodness of fit between the observed
frequencies &expected frequencies.
x2
n-1
Talbe 10
Year
Observed
Expected
frequency
frequency
(O-E)2
(O-E)2
E
2009-2010
1170.47
6303.294
26.34
4.17
2010-2011
1381.71
6303.294
24.22
3.84
2011-2012
1551.37
6303.294
22.58
3.58
2012-2013
1702.41
6303.294
21.16
3.35
2013-2014
2486.67
6303.294
14.56
2.3
E
=17.24
Calculated value is greater than table value (17.24>9.488).so reject null hypothesis that the
existing cash management system of F.I.T.Therefore the existing cash management of Forest
industries is effective in the organization.
82
Chapter v
SUMMARY AND CONCLUSION
83
84
5.2 FINDINGS
The year 2009-10 is having highest current ratio and lowest in the year 2011-12. Initially
it was high and a decreasing trend is seen till 2011-12 ,there was a small increase in the
year 2012-13 and again reduced to 1.85 in the year 2013-14.
A cash ratio of 1.00 and above (in the year 2010, 2011, 2013 &2014) means that the
business will be able to pay all its current liabilities in immediate short term.A normal
value of cash ratio of F.I.T in the year 2012 is below 1.00
Quick ratio shows that the year 2009-10 was in a better financial position compared to
other years. While the year 2010-11 indicates that current assets are low in comparison to
the current liabilities.
In F.I.T there is adownward debt collection period.the year 2013-14 has the least debt
collection period.
In F.I.T there is an increasing trend in debtors turnover ratioIt has reached the highest in
the year 2013-2014 which shows the efficiency of the firm in credit management.It also
implies company s credit sales are quickly converted into cash.
Cash to sales ratio indicates 23.67% of sales has been maintained as cash with the
business.
There is a high rate of positive correalation between cash inflows and cash outflows(.99)
The company was high debt equity ratio in the year 2012-13 and decreased to 4.01in the
year 2013-14.
85
5.3 SUGGESSIONS
F.I.T S should keep its cash&cash equivalents below the requirements of one months
normal expenditure.
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.
Company should prepare and use historical cashflow statement to gain understanding
about where all the money went.
At times like low sales and poor cash management,business managers or owners need to
sit down and undertake cash management analysis so that they can address
shortfalls,increase revenues,and cut-spending before its too late.
86
The project study is limited for a period from 2010 2014. The study is done only based on the
annual reports, company websites and stock summary details provided by the company. Any
fluctuations before the study period is not considered in the study, considering and comparing
the period of study before will help to attain more accurate results. The original image of the
company can only be seen when the entire life of the business is considered. The study is limited
to Baumols cash management techniques. The researcher can make use of the other techniques
of cash management other than the techniques used in the study. This will helps the researcher
to compare how the results obtained are different from other techniques as well as helps to know
the merits as well as demerits of the various techniques.
The study has scope for further research. The study conducted is
limited to the area of the Forest Industries (Travancore)ltd.there is a scope for studying
different furniture companys performance with this techniques.
87
5.5
CONCLUSION
Knowing when, where, and how your cash needs will occur,
Knowing what the best sources are for meeting additional cash needs; and,
Being prepared to meet these needs when they occur, by keeping good relationships with
bankers and other creditors.
The main purpose of keeping cash is to meet day-to-day requirements along with sufficient
liquidity and adequate profitability. A financial analyst has come to the conclusion that "business
enterprises should keep its cash and near-cash reserves below the requirements of one month's
normal expenditure. If cash and near cash reserves happen to be more than this limit, it should be
taken for granted that excessive cash is being carried by the concern."24 In fact, a concern
should go foroptimizing its cash holdings without impairing the overall liquidity requirements.
This can be possibly executed only if a firm exercises tight control over cash flows. A concern in
this respect may develop a trend or pattern from its past records and experience or a
comparative study of its own cash balances with that of other concerns of the same industry may
also be conducted for framing a line of control. This may help the concern in determining the
extent of cash balances and in avoiding risk of holding excess cash balance in the business. The
following ratios are considered helpful in this respect: -current ratio, cash ratio, cash to sales,
cash to other income etc..
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