44372833 a study on cash management on

7/26/2019 44372833 a Study on Cash Management On

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ASTUDY ON CASH MANAGEMENT ON

THE FLAVORS INDIA (P) LTD,PUDUCHERRY

SUMMER PROJECT REPORT

Submitted by

J.SAKTHIPRIYA

REGISTER NO: 273433!

Under the Guidance of

MRS.R.HEMALATHA M.".A.F#$%&', D*#+'-' O M#-#/-' S'%01

In partial fulfilment for the award of the degree

Of

MASTER OF "USINESS ADMINISTRATION

DEPARTMENT OF MANAGEMENT STUDIES

SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE

PONDICHERRY UNIVERSITY

PUDUCHERRY, INDIA

SEPTEM"ER 27


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SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE

PONDICHERRY UNIVERSITY

DEPARTMENT OF MANAGEMENT STUDIES

BONAFIDE CERTIFICATE

This to certify that the project work entitle A STUDY ON CASH

MANAGEMENT ON THE FLAVORS INDIA (P) LTD5is a bonafidework

doneby J.SAKTHIPRIYA 6REGISTER NO: 273433!] in partial fulfilment

of the requirement for the award of Master f !usiness "dministration by #ondicherry

Uni$ersity durin% the academic year &''()&''*+

GUIDE HEAD OF THE DEPARTMENT

Submitted for the $i$a , $oice -.amination held on

ETERNAL EAMINER8

2


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TA"LE OF CONTENTS

CHAPTER TITLE PAGE NO

"/0123-4G-M-1T

"!ST5"/T

36ST 7 T"!3-

36ST 7 /8"5T

6

61T54U/T61

9+9 6ntroduction of the Study9+& #rofile of the /ompany 9

66 5-:6-2 7 36T-5"TU5- *

666 !J-/T6:- 7 T8- STU4; &+ +#'1? $+01' *%+$;#

A>+#/ #$$?%-' *##=&.

3 CASH "UDGETING

" firm is well ad$ised to hold adequate cash balance but should a$oid e.cessi$e

balances+ The firm hasC thereforeC to assess its need for cash properly+ The cash bud%et is

probably the most important tool in cash mana%ement+ 6t is de$ice to help a firm to plan and

control the use of cash+ 6t is a statement showin% the estimated cash inflows and cash outflows


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o$er the plannin% horiHon+ 6n the other wordsC the net cash position of a firm as it mo$es from

one bud%etin% sub period to another is hi%hli%hted by the cash bud%et+

The $arious purposes of cash bud%ets are

To coordinates the timin%s of cash needs+ 6t identifies the periods when there mi%ht either

be as shorta%e of cash or an abnormally lar%e cash requirement+

6t pinpoints the periods when there is likely to be e.cess cash+

6t enables a firm which has sufficient cash to take ad$anta%e of cash discounts on its

accounts payableC to pay help obli%ation when dueC to formulate di$idend policyC to plan

financin% of capital e.pansion and to help unify the production schedule durin% the year so that

the firm can smooth out costly seasonal fluctuations+

6t helps to arran%e needs funds on the most fa$orable terms and percents the

accumulation for e.cess funds+ 2ith adequate time to study his needsC the finance mana%e can

select the best alternati$e a$enues of financin%C the mana%ement would be forced to accept the

best terms offered in a difficult situation+ These terms will not be as fa$orableC since the lack of

plannin% indicates to the lenderC that there is an or%aniHational deficiency+ The firmC thereforeC

represents a hi%h risk+

/ash bud%etin% or short)term cash forecastin% is the principal tool of cash mana%ement+

-stimatin% cash requirement

#lannin% short)term financin%

Schedulin% payments in connection with capital e.penditure projects

#lannin% purchase of materials

4e$elopin% credit policies and

/heckin% the accuracy of lon% term forecastin%

7irms use multiple short)term forecasts of $aryin% len%th and detailC suited to meet different

needs+ The commonly used desi%n for short ,term cash forecasts are

ne year di$ided into quarters or monthly+

ne quarter di$ided into months and

ne month di$ided into weeks+


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3. A RECEIPTS AND PAYMENTS METHODS:

The cash bud%et prepared under this method shows the timin% and ma%nitude of e.pected

cash receipts and payments o$er the forecast period+ 6t includes all e.pected receipts and

payments irrespecti$e of how they are classified in accountin%+

3. " LONG TERM CASH FORECASTING

3on%)term cash forecastin% are %enerally prepared for a period ran%in% from two to fi$e

years and ser$e to pro$ide a broad brush picture of a firmKs financin% needs and a$ailability of

in$ertible surplus in future+ Such forecasts are helpful in plannin% capital in$estment methods

outlays and lon%)term financin%

3. C REPORTS FOR CONTROL:

/ash reportsC pro$idin% a comparison of actual de$elopments with forecast fi%uresC are

helpful in controllin% and re$isin% cash forecasts on a continual basis+ Se$eral types of cash

reports may be prepared the important ones are+

DAILY CASH REPORT

The daily cash report shows the openin% balanceC receiptsC payments and the closin%

balance on a daily basis+

DAILY TREASURY REPORT

"n amplification of the daily cash reportC the daily treasury report pro$ides a

comprehensi$e picture of chan%es in cashC marketable securitiesC debtors and creditors+

MONTHLY CASH REPORT

This report shows the actual cash receipts and payments on a monthly basis+ The actual

are compared with the bud%eted fi%ures and $ariances calculated+

3. D CASH COLLECTION AND DIS"URSEMENT:


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The cash balance shown by a firm on its books is called the bookC or led%erC balance

whereas the balance shown in its bank account is called the a$ailableC or collectedC balance+ The

difference between the a$ailable balance and the led%er balance is referred to as the float+

There are two kinds of float disbursement float and collection floatC cheque issued by a firm

create disbursement float+

The net float is the sum of disbursement float and collection float+ 6t is simply the difference

between the firmKs a$ailable balance and its book balance+ 6f the net float is positi$e Ene%ati$eF it

means that the a$ailable balance is %reater ElesserF than the book balance+

2.7 "ANK ORGANISATION

#rior to the projectC the billin% process was distributed across different product processors

like Ethose handlin% cross border transferC non resident yen relatedC mass paymentsC throu%h post


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office etcF+ 2iproKs solution aims to implement a centraliHed billin% system that ma.imiHes

automation+

The transaction details would be pushed from the product processors to the billin% system

as an end of day offline processC which will then calculate the char%es based on the transaction

type and %enerate accountin% entries+ "t the end of the billin% cycleC customer in$oices would be

%enerated by the system and the customer account debits will take place in the bank host+

/ustomer information and char%e information Efi.edC transaction and e$ent basedF are

maintained in the billin% system+ 7or transactions that require immediate char%e calculationC the

billin% systemPs pricin% en%ine would pro$ide the char%es in real time+

&+* /"S8 M"1"G-M-1T S;ST-M 75 " 1"T61"36Q-4 !"10

M/ 4e /M proposed a solution to facilitate information flow between $arious entities

of the /ash Mana%ement system+ This system enabled a complete -lectronic Messa%in% Solution

for their !ranch ffices across the country+ This project facilitated the !ank to e.chan%e

information between its /// E/heque /ollection /entreFC 7// E7und /ollection /entreF and

7M/ E7und Mana%ement /entreF seamlessly without any delay+

The !ank has its /orporate ffice in !an%alore and 6nternational transaction center at

Mumbai+ The realiHation of cheque or any cash transactions required a couple of days+ This delay

leads to a situation where the !ank was not in a position to %et at its head office the transaction

happened at each of its branches or e.tension counters at+

The head office and the 6nternational transaction office faced numerous problems in

terms of mana%in% the cash at $arious locations+ The customers also could not really track the

transaction especially if they are more than one transaction at different places+ The !ank thou%ht

of an ambitious pro%ram of offerin% /ash Mana%ement Ser$ices to its customers across the

country The /ustomer deposit their cheque at $arious /heque /ollection /enterKs E///F across


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the country and this information is processed and consolidated at the 7und Mana%ement /entre

E7M/F located at Mumbai+ The 7M/ will further communicate the processed information to

$arious 7und /ollection /entre E7//F+ The /ustomers can contact directly the 7und /ollection

/entre E7//F to obtain updated information about their funds position as required

CHAPTER@III


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O"JECTIVE OF THE STUDY

To determine the o$erall performance of cash in the concern+

To know the credit worthiness of the concern+

To assess the liquidity and short term sol$ency position of the firm+

To understand the relationship maintained with the trade creditors and the debtors of thefirm+

To identify the basic forces influencin% the cash mana%ement of the firm+

CHAPTER@IV

RESEARCH METHODOLOGY


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4.8 RESEARCH DESIGN:

The research approach used for the study is descripti$e+ The form of the study is on the

financial statement analysis in %eneral and specific to the cash position+

4.2 DATA COLLECTION

PRIMARY DATA:

The primary data is collected from the personnel inter$iew+

SECONDARY DATA:

The study has been made usin% secondary dataC which are obtained from annual reports

and statements of accounts+ The study is period for the annual reports and statements of accounts

e.tended form the year &''9)'& to &''?)'A+

4.3 ANALYTICAL TOOLS FOR THE STUDY

The researcher for the purpose of analysis and interpretation of the followin% tools ha$e been

need

/"S8 732 ST"T-M-1T

5"T6 "1"3;S6S

/"S8 !U4G-T61G

4.4 PERIOD OF STUDY:

The study includes ? years E&''9)'& to &''?)'AF financial rates of the firms+ The study was

conducted for 9 monthKs period+

CHAPTER@V

DATA ANALYSIS INTERPRETATION


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!.8 CASH FLO9 STATEMENT:

" cash flow statement is used in conjunction with the other financial statementsC

pro$ides information that enables users to e$aluate the chan%e in net assets of an

enterpriseC its financial structure Eincludin% its liquidity and sol$encyFC and its ability to

affect the amounts and timin% of cash flow in order to adapt to chan%in% circumstance

and opportunities+ /ash flow information is useful in assessin% the ability of the

enterprises to %enerate cash and cash)equi$alents and enables users to de$elop models to

assess and compare the present $alue of the future cash flows of different enterprises+ 6t

also enhances the comparability of the reportin% of operatin% performance by different

because it eliminates the effects of usin% different accountin% treatments for the same

transactions and e$ents+

CASH FLO9 STATEMENT (28@2)

TA"LE NO: !.8


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PARTICULARS 38@3@28 38@3@22

OPENING "ALANCES

/ash in 8and A9(=*

SOURCE OF CASH

/entral -.cise &9?9 ((< 9=(&

Secured 3oan ==A=**' =@'A9=@ @&&?@

CASHFROMOPERATION

1et #rofit &@(=@9 &'A


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OPENING "ALANCES

/ash in 8and 9&@&=

SOURCE OF CASH

6ncome Ta. 9


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CASH FLO9 STATEMENT (24@!)

TA"LE NO@!.4


OPENING "ALANCES

/ash in 8and A&AA

SOURCE OF CASH

/entral -.cise ?=9= &?


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PARTICULARS 38@3@24 38@3@2!

OPENING "ALANCES

/ash in 8and


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OPENING "ALANCES

/ash in 8and AA??

SOURCE OF CASH

/entral -.cise &@A


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/ash in 8and .B8 .824 .B . .B

SOURCE OF CASH

/entral -.cise '+'9= '+'& '+9@

Secured 3oan '+@&&

6ncome Ta. '+'&

Sale of 7i.ed "ssets '+&= 9+


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The concern is purchase the fi.ed assets in the year &''9)'&C&''=)'@C&''?)'A at

'+'@AC&+A? and 9+?9+ The concern purchase hi%h asset in the year &''=)'@ at &+A?

it clearly determine the outflow of cash in the concern+

The borrowin% of concerns hi%h in the year &''=)'@ at 9+&A it indicates that the

concern uses more loan+ The concern should reduce to borrow the money from the

$arious resources+ 6t leads to take more ad$anta%e to the borrowers+

The closin% balance is not hi%h than the openin% balance +it indicates that the cash

is not properly mana%ed in the concern+

!.2 CASH "UDGETING:

" firm is well ad$ised to hold adequate cash balance but should a$oid e.cessi$e

balances+ The firm hasC thereforeC to assess its need for cash properly+ The cash bud%et is

probably the most important tool in cash mana%ement+ 6t is de$ice to help a firm to plan

and control the use of cash+ 6t is a statement showin% the estimated cash inflows and cash


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outflows o$er the plannin% horiHon+ 6n the other wordsC the net cash position of a firm as

it mo$es from one bud%etin% sub period to another is hi%hli%hted by the cash bud%et

CASH "UDGET

TA"LE NO !.7

PARTICULARS 28@2 22@3 23@4 24@! 2!@B

# OPENING CASH

"ALANCE B873 82423 B2BB 28 BB!!

b 5eceipts 9A=9?@=(

9*'A@(9

'

9


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0

2

4

6

8

10

12

20

01-

02

20

02-

03

20

03-

04

20

04-

05

20

05-

06

!"# $%&'($%)

INTERPRETATION:

6n the abo$e table it clearly determines the a$ailability of the cash balance in the

subsequent year+ 6t will clearly determine the minimum cash balance requirement of the

concern+ 6n the &''?)'A leads to hi%her need of cash balance 99+A& lakhs+ The cash

balance is hi%hly required for the day) to day transaction+

!.3 RATIO ANALYSIS:

"n analysis of financial statements based on ratios is known as ratio analysis+ 5atio

analysis in$ol$es the process of computin% determinin% and resentin% the relationship of items or


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%roup of items of financial statements+ 5atio analysis is a widely , used tool of financial

analysis+ 6t can be used to compare the risk and return relationship of firms of different siHes+ 6t is

defined as the systematic use of ratio to interpret the financial statements so that the stren%ths

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 quantitati$e relationship between two

items+

!.3.8 NET 9ORKING CAPITAL

1et workin% capital represents the e.cess of current assets o$er current liabilities+

The term current assets refers to assets which in the normal course of business %et


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con$erted into cash without dimunition in $alue o$er a short period Cusually not

e.ceedin% one year or len%th of operation cycle whiche$er is more+ The %reater is the

amount of net workin% capitalC the %reater is the liquidity of the firmC accordin%ly net

workin% capital is a measure of liquidityC and inadequate workin% capital is the first si%n

of financial problem for a firm+

FORMULA:

NET 9ORKING CAPITAL CURRENT ASSETS@CURRENT LIA"ILITIES.

NET 9ORKING CAPITAL

TA"LE NO@!.

PARTICULARS 2001-02 2002-03 2003-04 2004-05 2005-06

CURENT ASSETS ))*+, -.*+/ -)*.0 1/*0) 1/*.+

CURRENT LIABILITIES 20*21 3-*2) 20*-. .1*)0 .)*-+

NET *ORKING CAPITAL +)*0. ++*0/ 2-*21 .-*,) ./*2)


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C;#+' -?.!.2

0

10

20

30

40

50

60+0

80

,0

100

2001-

02

2002-

2003

2003-

04

2004-

05

2005-

06

C'$$%. !""%."

C'$$%. /(!(/(.(%"

N%. *$( !(.!/

I-'+*+'#'1?-:

This ratio indicates there is lower amount required in the workin% capital+ The

hi%her amount is in the year &''9)'& at ?


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The current assets of a firmC as already statedC represent that asset which can beC in the

ordinary course of businessC con$erted into cash within a short period of time normally

not e.ceedin% one year+

FORMULA:

CURRENT RATIO CURRENT ASSETS

CURRENT LIA"ILITIES

CURRENT RATIO

TA"LE NO@!.

PARTICULARS 2001-02 2002-03 2003-04 2004-05 2005-06

CURRENT ASSETS ))*+, -.*+/ -)*.0 1/*0) 1/*.+

CURRENT LIABILITIES 20*21 3-*2) 20*-. .1*)0 .)*-+

CURRENT RATIO 3*2+ 3*). 3*,- 3*00 ,*)


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C;#+' -?.!.3

0

10

20

30

40

50

60

+080

,0

100

2001-

02

2002-

2003

2003-

04

2004-

05

2005-

06

C'$$%. !""%."

C'$$%. /(!(/(.(%"

C'$$%. $!.(

I-'+*+'#'1?-:

The company is hi%hly efficient is short , term sol$ency position+ The company

should maintain this current ratio+ The concern should concentrate on &''?)'A year

current ratio position+

!.3.3 UICK TEST RATIO:

The quick test ratio is the ratio between quick current ratio and current liabilities

and is calculated by di$idin% the quick assets by the current liabilities+


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The term quick assets refers to current assets which can be con$erted into cash

immediately or at a short notice without diminution of $alue+

FORMULA:

UICK TEST RATIO UICK ASSETS

UICK LIA"ILITIES

UICK TEST RATIO

TA"LE NO@!.8

PARTICULARS 2001-02 2002-03 2003-04 2004-05 2005-06

UICK ASSETS 32*-+ 3/*+- 2+*+, ./*+) ./*,/

UICK LIABILTIES 20*21 3)*00 20*-. .1*)0 .)*-+

ACID TEST RATIO 0*/, 0*). ,*,, 0*)/

0*)0

C;#+' -?.!.4


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0

510

1520

2530

3540

45

50

2001-

02

2002-

2003

2003-

04

2004-

05

2005-

06

'( !""%."

'( /(!(/(.(%"

A() .%". $!.(

I-'+*+'#'1?-:

The liquidity position is not near to the standard ratio+ The concern should clearly

determine the $arious liquidity position of the concern+

!.3.4 INVENTORY TURNOVER RATIO:

6t is computed by di$ided the cost of %ood sold by the a$era%e in$entory thusC the

cost of %ood sold means sales minus %ross profit+ The a$era%e in$entory refers to the


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simple a$era%e of the openin% and closin% in$entory+ The ratio indicated how fast

in$entory is sold+

FORMULA:

INVENTORY TURNOVER RATIO COST OF GOOD SOLD

AVERAGE INVENTORY

INVENTORY TURNOVER RATIO

TA"LE NO@!.88

PARTICULARS 2001-02 2002-03 2003-04 2004-05 2005-06INVENTORY TURNOVER

RATIO ,*,/ ,*+) 3*./ 3*-, .*.1

COST OF GOOD SOLD -/*02 ,0+*01 ,,-*) ,,1*0+ ,.2*,

AVERAGE INVENTORY 12*00 /+*-3 +0*.- 2,*/+ .)*-2

C;#+' -?.!.!


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0

20

40

60

80

100

120

140

2001-

02

2002-

2003

2003-

04

2004-

05

2005-

06

I%.$7 T'$O%$

$!.(C". ) "/)

A%$!% I%.$7

I-'+*+'#'1?-:

The in$entory turno$er is increasin% %radually to the period of the year+ 6t will

clearly determine the capacity of the concern

!.3.! DE"TORS TURNOVER RATIO


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6t is determine by di$idin% the net credit sales by a$era%e debtors outstandin%

durin% the year+ ThusC net credit sales consist of %ross credit sales minus returnsC if anyC

from customerKs a$era%e debtors is the simple a$era%e of debtors Eincludin% bills

recei$ablesF at the be%innin% and at the end of the year+

FORMULA:

DE"TORS TURNOVER RATIO NET CREDIT SALES

AVERAGE DE"TORS

DE"TORS TURNOVER RATION:

TA"LE NO@!.82

PARTICULARS 2001-02 2002-03 2003-04 2004-05 2005-06

CREDIT SALES ,+)*- ,+1*- ,++*- ,13*/3 30/*2+

AVERAGE DEBTORS 3.*,. 3+*/3 .+*)1 20*)1 ./*32

DEBTORS TURNOVER

RATIO /*)0 /*,/ 2*.. 2*3, +*/)


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C;#+' -?.!.B

0

50

100

150

200

250

2001-

02

2002-

2003

2003-

04

2004-

05

2005-

06

C$%)(. "!/%"

A%$!% )%.$"

D%.$" .'$ %$

$!.(

I-'+*+'#'1?-:

The debtorKs turno$er ratio is not in the concert way in the concern+ The hi%her

ratio is in the year &''9)'& is A+


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6t is a ratio between net credit purchase and the a$era%e amount of creditors

outstandin% durin% the year+ " low turno$er ratio reflects liberal credit terms %ranted by

suppliersC while a hi%h ratio shows that account are to be settled rapidly+ The creditorKs

turno$er ratio is an important tool of analysis as a firm can reduce its requirement of

current assets by relyin% on supplierKs credit+

FORMULA:

CREDITORS TURNOVER RATIO NET CREDIT PURCHASES

AVERAGE CREDITORS

CREDITORS TURNOVER RATIO

TA"LE NO@!.83

PARTICULARS 2001-02 2002-03 2003-04 2004-05 2005-06

CREDIT PURCHASE -/*0 ,0+*01 ,,-*), ,,1*0+ ,.2*,/

AVERAGES CREDITORS .+*++ .,*0- .0*,, .2*0+ .3*+2

CREDITORS TURNOVER

RATIO 3*23 .*.- .*)2 .*2. 2*,3


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C;#+' -?.!.7

0

20

40

60

80

100

120

140

2001-

02

2002-

2003

2003-

04

2004-

05

2005-

06

C$%)(. '$#!"%

A%$!% $%)(.$"

C$%)(.$" T'$%$

$!.(

I-'+*+'#'1?-:

The creditorKs a$ailability of the concern keeps on decrease in the year+ 6t will

clearly determine in the year &''9)'& &+@&+

CHAPTER@VI

FINDINGS AND SUGGESTION OF THE STUDY


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B.8 FINDINGS OF THE STUDY

9+ The net workin% capital of the or%aniHation is not satisfactory+

&+ The current ratio for the four year it is as per the standard norms E&9F concept for

the year &''?)'A which is 9+


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The cash mana%ement of the company is failed to stren%then the cash position so

the company so required to table steps to impro$e the cash position by

concentratin% on recei$ablesC in$entories a$oidin% to much on borrowin%s+

The company failed to mana%e the recei$able in the normal le$el because of poor

performance of the collection procedure and inefficient performance related with

mana%in% the recei$ables+

The in$entories play a major role in production+ SoC the concern should take

measure to maintain the in$entories that are required to in order reduce the e costC

and keep the production flow continuously+

6n &''?)'A the net profit is increased compare to the other four year+ So the

concern should maintain the same position to impro$e the net profit+

The cash and bank balance indicate hi%h liquidity position of a companyC The

7la$ors 6ndia EpF 3td maintain cash includin% bank balance is at a optimum le$el

and it is enou%h to meet day to day requirement+

CHAPTER@VII

CONCLUSION


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"nalysis and 6nterpretation of the financial data of The 7la$ors 6ndia EpF ltdC

ascertain the cash position of the firm+ The results e.plores that the firm is unable toe

meet its short term obli%ations+

The concern should reduced the lon% term loan and obtain the profit+

The concern should take $arious measures to increase the net profit+

CHAPTER@VIII

LIMITATION SCOPE OF THE STUDY


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6t indicates the cash requirement needed for plant and equipment e.pansion

pro%ramme+

6t re$eals the liquidity position of the firm by hi%hli%htin% the $arious sources of

cash and its uses+

To find strate%ies for efficient mana%ement of cash+

44372833 a study on cash management on

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