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1 INTRODUCTION
Many Indian companies are caught in financial crisis of varying degree
because of the less efficient working capital management. The objective of Corporate
Excellence viz., Quality products, Satisfied Customers, Employees and Investors,
High profitability and Comfortable funds position etc., can be achieved through
increased productivity of capital, particularly the working capital.
Your business has been reaping huge profits for years now, when all of
sudden you find yourself in need of fast cash. If you have tried several solutions
without success, you may be interested in learning more about accounts receivable
management.
ACCOUNTS RECEIVABLE MANAGEMENT:
An account receivable is the money owed to a company by a consumer for
products and services purchased on credit. This is usually treated as a current asset of
accounts receivable after the customer is sent an invoice. Accounts receivable are
known by various names, such as accounts receivable aging, accounts payable, days
receivable, accounts receivable turnover and invoice factoring.
According to the experts, accounts receivable or invoice factoring is one of a
series of accounting transactions. These accounting transactions deal with the billing
of customers who owe money to a person, company or organization for goods and
services purchased. If you are seriously considering using accounts receivable as a
method of obtaining a more liquid asset, then it is wise to hire accounts receivable
management specialists.
Accounts receivable management specialists can help you in a variety ways:
flow
It can help you capitalize on your internal resources
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Hiring the best accounts receivable management will clear up the common
misconception that the selling of accounts receivable is a loan. Accounts receivable
are the amounts that customers owe a business; this is clearly shown on a company's
balance sheet.
Some also call accounts receivable trade receivables and try to classify them
as current assets. Accounts receivable managements main goal is to take care of all
these debts and to record sales of accounts; one must debit a receivable and credit a
revenue account. Accounts receivable management also looks into issues such as
recognizing accounts receivable, valuing accounts receivable, and disposing of
accounts receivable.
CREDIT MANAGEMENT:
Trade credit creates amount receivables or trade debtors also referred to as
book debts in India that the firm is expected to collected in near future. The
customers from whom receivables or book debts have to be collected in the future
are called trade debtors.
A credit sale has 3 characteristics:
Involves an element of risk that should be carefully analyzed.
Based on economic value.
Implies futurity.
Credit policy: Nature and Goals:
A firm investment in accounts receivables depends on:
There is only one way in which the financial management can affect the volume
of credit sales and collection period, consequently invest in accounts receivables that
is through the change in credit policy is sure to refer to the combination of decision
variables.
Credit standards:
Credit standards which have criteria to decide the types of customers which
have criteria to decide the types of customers to whom goods could be sold on
credit. If a firm has more slow playing customers its invest in account receivables
will increase. The firm will also be exposed to higher risk of default.
Credit terms:
Credit terms specify duration of credit payment by customers. Investment in
account receivables will be high if customers are allowed extended time period for
making payments.
Collection efforts:
Collection efforts determine the actual collection period. The lower the
collection period is, the lower the investment in account receivables & vice versa.
Goals of credit policy:
A firm may follow a lenient or a stringer credit policy. The firm following a lenient
credit policy tends to sell on credit to customers on very liberal terms and standards
credit is granted for longer periods over to those customers who credit worthiness is
not fully known or whose financial position is doubtful.
GTC (P) Ltd. (General Trading Company) earned a remarkable and renowned
name in the Coal Industries, in the span of Five Years, with its Quality, Prompt
Delivery and Service. By taking this as challenge, delivering the finest imported coal
from South Africa, Indonesia, China and other countries to all over India to become a
leader of this field.
Its achievements in this past five years paved the way towards it. By the Hard
work and Corporate Vision all put in together, it is heading to a sharp lead in the
market to become number one in the short time.
The company is delivering all varieties of Coal to all over South India and
supporting Cement industries, Steel industries, Tea industries etc... GTC is also
playing a vital Role in Brick Industries. Major Chambers in and around South India
and Hundreds of Large and small scale Industries are already in our list.
Products:
Supplies and imported of Lignite coal, Sub- Biuminous coal, Anthracite coal,
Bituminous coal, Coke coal, Matallurgical coke coal, Pet coke coal to all steel, tea,
brick industries etc.,
Vision:
It is leading to a sharp lend is the market to become number one in the short
time
Our value:
We shared value is the way we want our company to be run and to be
perceived by others. We also constitute the basic and style for interaction with each
other within the company and outside. GTC has inherited value and this has become
the basic for the way we run our business and people transactions.
SWOT Analysis of GTC
Strengths:
Strong and Growing economy
Low labour cost and High productivity
Flexibility of adopting innovative technologies
Large consumer base
Rich geological resource base
Weakness:
Deficit infrastructure
Socio political interventions
High cost of finance
Opportunities:
Cement
Giant
M/s
Associated
Cement
Company
(ACC)
Madukkarai Plant
Tea Companies like M/s. AVT Naturals Products India and so on.
Lignite coal
Subbituminous coal
Anthracite coal
Coke
Metallurgical coke
Petcoke
Coal Type
Lignite
Depth
Burial
of
Maximum
temperature
during burial
Moisture
Fixed Carbon
Content
Content
0.2-1.5km
25-45C
30-50%
20-35%
1.5-2.5Km
45-75C
10-30%
35-45%
Bituminous
2.5-6km
75-180C
5-10%
45-80%
Anthracite
>6km
>180C
<5%
80-96%
Sub
bituminous
FACILITY:
Lignite coal:
Lignite coal is the lowest rank of coal, often referred to as brown coal, used
almost exclusively as fuel for steam-electric power generation. It is brownish-black
and has a high inherent moisture content, sometimes as high as 45 percent. The heat
content of lignite ranges from 9 to 17 million Btu/ton (10 to 20 MJ/kg) on a moist,
mineral-matter-free basis. The heat content of lignite consumed in the United States
averages 13 million Btu/ton (15 MJ/kg), on the as-received basis (i.e., containing both
inherent moisture and mineral matter).
Subbituminous coal:
Subbituminous coal is a coal whose properties range from those of lignite to
those of bituminous coal and is used primarily as fuel for steam-electric power
generation. It may be dull, dark brown to black, soft and crumbly at the lower end of
the range, to bright, jet-black, hard, and relatively strong at the upper end.
Subbituminous coal contains 20 to 30 percent inherent moisture by weight. The heat
content of subbituminous coal ranges from 17 to 24 million Btu per ton on a moist,
mineral-matter-free basis. The heat content of subbituminous coal consumed in the
United States averages 17 to 18 million Btu/ton (20 to 21 MJ/kg), on the as-received
basis (i.e., containing both inherent moisture and mineral matter).
Bituminous coal is a dense coal, usually black, sometimes dark brown, often
with well-defined bands of bright and dull material, used primarily as fuel in steamelectric power generation, with substantial quantities also used for heat and power
applications in manufacturing and to make coke. Bituminous coal is the most
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abundant coal in active U.S. mining regions. Its moisture content usually is less than
20 percent. The heat content of bituminous coal ranges from 21 to 30 million Btu/ton
(24 to 35 MJ/kg) on a moist, mineral-matter-free basis. The heat content of
bituminous coal consumed in the United States averages 24 million Btu/ton (28
MJ/kg), on the as-received basis (i.e., containing both inherent moisture and mineral
matter).
Anthracite coal:
Anthracite coal is the highest rank of coal; used primarily for residential and
commercial space heating. It is hard, brittle, and black lustrous coal, often referred to
as hard coal, containing a high percentage of fixed carbon and a low percentage of
volatile matter. The moisture content of fresh-mined anthracite generally is less than
15 percent. The heat content of anthracite ranges from 22 to 28 million Btu/ton (26 to
33 MJ/kg) on a moist, mineral-matter-free basis. The heat content of anthracite coal
consumed in the United States averages 25 million Btu/ton (29 MJ/kg), on the asreceived basis (i.e., containing both inherent moisture and mineral matter). Note:
Since the 1980s, anthracite refuses or mine waste has been used for steam electric
power generation. This fuel typically has a heat content of 15 million Btu/ton (17
MJ/kg) or less.
Coke:
Coke is a solid carbonaceous residue derived from low-ash, low-sulfur
bituminous coal from which the volatile constituents are driven off by baking in an
oven at temperatures as high as 2,000 F (1,000 C) so that the fixed carbon and
residual ash are fused together. Coke is used as a fuel and as a reducing agent in
smelting iron ore in a blast furnace. Coke from coal is grey, hard, and porous and has
a heating value of 24.8 million Btu/ton (29 MJ/kg). Byproducts of this conversion of
coal to coke include coal-tar, ammonia, light oils, and "coal-gas". (Coke can also be
made from petroleum).
Metallurgical coke:
Metallurgical coke, also known as Met coke, is a carbon material manufactured
by the destructive distillation of various blends of bituminous coal. Met coke has a
very low volatile content. However, the ash constituents remain encapsulated in the
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resultant coke. Typical purities range from 88-92% fixed carbon. Metallurgical coke is
used where a high quality, tough, resilient, wearing carbon is required. Applications
include but are not limited to conductive flooring, friction materials, foundry coatings,
foundry carbon raiser, corrosion materials, drilling applications, reducing agents, heattreatment, ceramic packing media, electrolytic processes, and oxygen exclusion. Blast
furnace coke is used in the blast furnaces of steel mills. It is the largest traded coke by
volume and is produced in several countries with China being the largest producer
and exporter.
Petcoke:
Petcoke is a solid carbonization by-product of high-boiling hydrocarbon
fractions obtained in petroleum processing. There are many different variations and
consistencies of petroleum from which the coke is derived. It is the general term for
all special petroleum coke products such as green, calcined and needle petroleum
coke. There is over 60 Million tons of petcoke produced around the world annually.
INDIAN COAL
India is the world's third largest coal producer (after China and the United
States), so most of the country's coal demand is satisfied by domestic supplies. Indian
coal generally has a high ash content and low calorific value, so most coking coal
must be imported. Major Indian coal fields are found in Bihar, West Bengal, and
Madhya Pradesh.
The Indian government controls almost all coal production. Nearly all of India's
390 mines are under Coal India Ltd. (CIL), which accounts for about 90% of the
country's coal production.
India has seven per cent of the worlds proven coal reserves. Coal meets
approximately 63 % of the countrys total energy requirements. By current estimates
the reserves are enough to meet Indias needs for at least another 100 years.
Coal (hard coal and Lignite) is the predominant primary commercial energy
source in India. Its share in total commercial energy since 1970-71 is more or less
consistent around 62% in spite of increasing share of Natural Gas. The ash/mineral
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matter of Indian Coal is of inherent nature i.e. intimately mixed with coal mass at the
time of formation resulting in different cleaning characteristics.
Indian Coal, in spite of the handicap of high ash, has many positive
characteristics particularly with respect to environmental aspects and end-use. These
are:
Low Sulphur content
High Ash Fusion Temperature
Low Iron Content in Ash
Refractory Nature of Ash
Low chlorine content
Low Toxic Trace Elements
In 1972-73, the Indian government nationalized the coal industry, primarily to
develop the sector, since it was considered to be of strategic importance for rapid
industrial development. Coal India Ltd (CIL) was incorporated as a holding company
for seven coal producing subsidiaries and a planning and design-focused company.
Indian coal is of mostly sub-bituminous rank, followed by bituminous and lignite
(brown coal). The ash content in Indian coal ranges from 35% to 50%.
PRODUCT RANGE FOR INDUSTRIES:
PRODUCT 1.
Total Moisture
17-18 %
Inherent Moisture
10-11%
Ash Content
06-07%
Volatile Matter
40-42 %
Fixed Carbon
By Difference
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Total Sulphur
< 1%
Size
0-50mm
PRODUCT 2.
Imported Steaming Coal (Indonesia) Chennai Port
Gross Calorie Value
Total Moisture
13-14 %
Inherent Moisture
05-06%
Ash Content
14%
Volatile Matter
40-42 %
Fixed Carbon
By Difference
Total Sulphur
< 0.8%
Size
0-50mm
PRODUCT 3.
Imported Steaming Coal (Indonesia) Chennai Port
Gross Calorie Value
Total Moisture
26%
Inherent Moisture
12%
Ash Content
04%
Volatile Matter
42 %
Fixed Carbon
By Difference
Total Sulphur
< 0.8%
Size
0-50mm
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PRODUCT 4.
Imported Steaming Coal (Indonesia) Chennai Port
Gross Calorie Value
Total Moisture
30 %
Inherent Moisture
14%
Ash Content
05%
Volatile Matter
42 %
Fixed Carbon
By Difference
Total Sulphur
< 1%
Size
0-50mm
PRODUCT 5.
Imported Steaming Coal (Indonesia) Tuticorin Port
Gross Calorie Value
Total Moisture
24 %
Inherent Moisture
14%
Ash Content
04%
Volatile Matter
38-40 %
Fixed Carbon
By Difference
Total Sulphur
< 0.9%
Size
0-50mm
PRODUCT 6.
Imported Steaming Coal (Indonesia) Tuticorin Port
Gross Calorie Value
Total Moisture
26%
Inherent Moisture
12%
Ash Content
04%
Volatile Matter
42%
Fixed Carbon
By Difference
Total Sulphur
< 0.8%
Size
0-50mm
PRODUCT 7.
Imported Steaming Coal (Indonesia) Tuticorin Port
Gross Calorie Value
Total Moisture
30%
Inherent Moisture
14%
Ash Content
05%
Volatile Matter
42 %
Fixed Carbon
By Difference
Total Sulphur
< 1%
Size
0-50mm
PRODUCT 8.
Processed Coal Tuticorin Port
Gross Calorie Value
Total Moisture
24%
Inherent Moisture
16%
Ash Content
04%
Volatile Matter
38-40 %
15
Fixed Carbon
By Difference
Total Sulphur
0.9% max
Size
Above 25mm
Contents:
Coal contains many trace elements, including arsenic and mercury, which are
dangerous if released into the environment. Coal also contains low levels of uranium,
thorium, and other naturally-occurring radioactive isotopes. Chemical composition of
the coal is defined in terms of its proximate and ultimate (elemental) analysis. The
parameters of proximate analysis are moisture, volatile matter, ash, and fixed carbon.
Elemental or Ultimate analysis encompasses the quantitative determination of carbon,
hydrogen, nitrogen, sulfur, and oxygen.
Calorific Value:
The calorific value or heat of combustion or heating value of a sample of fuel is
defined as the amount of heat evolved when a unit weight ( or volume in the case of a
sample of gaseous fuels ) of the fuel is completely burnt and the products of
combustion cooled to a standard temperature of 298 degree K.
The quality of coal depends upon its rank and grade. The coal rank arranged in an
ascending order of carbon contents is Lignite sub bituminous coal bituminous
coal anthracite.
Consumption:
Coal is the dominant commercial fuel in India, satisfying more than half of
India's energy demand. Power generation accounts for about 70% of India's coal
consumption, followed by heavy industry. Coal consumption is projected in the
International Energy Annual 2004 to increase to 430 million short tons (Mmst) in
2010, up from 359 million short tons (Mmst) in 2000. Demand has been rising at an
annual rate of 5 per cent since 1992-93. Demand from the power sector, which
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accounts for over 70 per cent of coal off take, was 214 million tons in 1997-98. Other
users include iron and steel mills, cement plants, foundries, fertilizers producers,
paper manufacturers, brick kilns etc.
ELECTRICITY:
India is trying to expand electric power generation capacity, as current generation is
seriously below peak demand. Although about 80% of the population has access to
electricity, power outages are common, and the unreliability of electricity supplies is
severe enough to constitute a constraint on the country's overall economic
development. The government had targeted capacity increases of 100,000 megawatts
(MW) over the next ten years. As of January 2002, total installed Indian power
generating capacity was 120,000 MW. Owing to population growth and economic
development, India's energy consumption has been increasing at one of the fastest
rates in the world.
Why Coal as Fuel?
Worldwide, coal is enormously important. It is the world's most abundant and
widely distributed fossil fuel. It is economic.
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Coal is the major fuel for generating electricity worldwide. More than 45 percent of
the world's electricity is generated from coal.
Coal is used in at least three-quarters of all steel making and it has other
industrial uses as well. Around four thousand million tons of coals are mined every
year in more than proved environment in the developed world or an improved
standard of living in the developing world, the fact is that 87% or more of the world's
primary energy is derived at present from fossil fuels, oil, gas and coal. And the
greatest of these three energy, coal is expected to continue its primary role in the
world scenario in the near future also.
Advanced coal-fired power generation technologies should be developed
worldwide to generate at minimum economic coal, improve thermal efficiency and
meet environmental requirements.
World Coal Reserves:
Coal is one of the most significant natural resources in the world, with extensive
reserves in almost 100 countries, estimated in 1996 at around one thousand billion (1
x 1012) tones of coal reserves economically accessible using current mining
technology. The worlds major hard coal producers are China, the USA, India, South
Africa, Australia, Russia, Poland, Kazakhstan and the Ukraine. Coal is mostly used in
the region it is produced but about 12% is traded between countries. Australia, the
USA and South Africa are the largest exporters of coal.
At current production levels, there is enough coal to last over 200 years, not
taking in account other reserves which might be proved by on-going exploration or
become accessible through improvements in mining technology. Known world oil and
gas reserves will be largely exhausted within 45 to 60 years time. Growth in demand
for coal for energy and steel making is expected to drive increased worldwide coal use
from around 5.3 billion tons per annum (btpa) at present to 7.6 btpa by 2020.
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Primary Objective:
To study the effectiveness of managing accounts receivables and the impact
of the same.
Secondary Objective:
To analyze the receivable management performance of the GTC for a
period of three years from 2006 2009 through ratio analysis.
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debtors and outstanding or amount of its company. It is hoped that this study will help
the company in reducing its investment in Accounts Receivables.
The study has taken into account only three years for comparative analysis.
Time and other resources have proved to be a constraint.
It has always not been possible to get the full information.
Since the study is based only on secondary data, so the reliability of
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days after the due date has been reached. These types of payment practices are
sometimes developed by industry standards, corporate policy, or because of the
financial condition of the client.
OBJECTIVE OF RECEIVABLE MANAGEMENT:
From creation of receivables the firm gets a few advantages & it has to bear
bad debts, administrative expenses, financing costs etc. In the management of
receivables financial manager should follow such policy through which cash
resources of the firm can be fully utilized. Management of receivables is a process
under which decisions to maximize returns on the investment blocked in them are
taken.
Thus, the main objectives of management receivable are to maximize
the returns on investment in receivables & to minimize risk of bad debts etc. Because
investment in receivables affects liquidity and profitability, it is, therefore, significant
to maintain proper level of receivables. Efficient credit management helps to increase
the sales of the firm.
A business can afford to invest in its receivables unless the marginal costs and
marginal profits are the same. Although the level of receivables is affected by various
external factors like standards of industry, economic conditions, seasonal factors, rate
of competition etc, management can control its receivables. Though credit policies,
credit terms, credit standards and collection procedures.
FACTORING:
Factoring is the sale of invoices or Accounts Receivable at a discount. It is a way
for the business to generate cash and improve cash flow without taking on additional
debt.
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Traditionally, factoring was a financing service used by the textile and furniture
industries. Today however, factoring has become a financing standard in just about
any industry that created Accounts Receivable by extending terms to its customers.
Why do companies factor their Accounts Receivable?
Simply put, to generate cash flow. Factoring provides immediate working capital
for companies facing a short term cash constraint. Most companies that choose
factoring are not currently able to qualify for a traditional loan from their bank or
companies who are growing faster than their bank is willing to extend credit.
Due to credit policies and regulatory constraints, banks typically need to see 2
years of profits, minimal leverage and a certain amount of cash flow for debt
coverage. Companies that do not meet these characteristics and does not have any real
estate to pledge as collateral can many times find itself on the outside looking in.
However, companies with Accounts Receivable (a current asset but not cash) can use
them to generate cash for their day to day working capital needs.
When a company sells its product or service on terms, it typically creates an
invoice. This outstanding invoice for completed work can be called an Accounts
Receivable. Instead of waiting to receive the cash when the customer remits payment,
the business may decide to factor the receivable and immediately receive the cash. In
order to have instant access to funds, the company is charged a nominal fee.
In GTC factoring done by GLOBAL TRADERS Tuticorin and the commission
paid for them is half of the receivables.
BENEFITS
Although every business is different and their reasons for Factoring may not be the
same, the following benefits are representative of most situations:
Additional cash is immediately available
Quick and easy to set up
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It is temporary (no long term contracts required) and flexible (frequency and
amount of funding is optional)
No additional debt is created as it is "Off Balance Sheet" financing
Owner avoids giving up equity or control of the company
Unlimited source of Working Capital - the funds available grows as the
company's sales grow
amount provided by the bank is covered within the overall credit limit. Though the
banker becomes the owner of the bill, he holds them as a security of the credit. In this
case, the transaction is between the companies and the bankers and if the dealer fails
to pay the amount within the stipulated period, the company has to pay back the
money. The company, GTC pvt ltd also handles the discounting of bills or Hundies
rose by its suppliers.
CREDIT MANAGEMENT:
Trade credit is considered as an essential tool, acting as a bridge for the
movement of the products through production and distribution stages to customers.
When the firm sells its product or services and do not receive the cash for it
immediately the firm is said to have granted trade credit to the customers. Trade credit
thus, creates receivables or book debts which the firm is expected to collect in the
near future.
Receivables constitute a substantial portion of current assets of several firms.
In India debtors, after the inventories, are the major components of the current assets.
They form one-third of the current assets in India. Granting credit and creating debtor
amount to the blocking of funds. The internal between the date of the sale and the date
of payments has to be financed out of the working capital. Thus, trade debtors
represent investment. As substantial amounts are tied up in trade debtors, it needs
careful analysis and proper management.
CREDIT POLICY AND PRACTICES AT GTC PVT LIMITED
The sales of the company GTC pvt Limited, goes on cash and as well as credit
terms. The trading division of the GTC Pvt Limited sells its products, which it
receives from the factories on a credit period o 45 days, through the branches of the
company located all over the country. The branches in turn, will sell these products to
the dealers of the company all over the country.
CREDIT POLICY:
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The company GTC Pvt Limited extends a credit period of 21 days to its
dealers. It waits for a period of 45 days for the payments from the customers.
CASH DISCOUNT
Cash discount is a reduction in payment offered to the customers to induce
them to repay credit obligation within a specified period of time, which will be less
than the normal credit periods. It is usually expressed as a percentage of sales. Cash
discount terms indicate the rate of discount and the period for which it is available.
ANALYSIS OF DEALERS:
One of the main strengths of the company is its good dealer network,
spreading throughout the country. It has around 5000 dealers all over south India. The
company looks for the following factors in granting the credit to its dealers.
Looks for the period of presence of the dealer in the business
Looks for the character of the dealer i.e., his willingness to pay. The moral
factor is of considerable importance in credit Evaluation.
Looks for his ability to pay. This is evaluated by his financial position and the
bank guarantee given by him.
Based on the above factors the company analyses the customers and determine the
credit limit to them every six months, the company goes for the review of the
customers.
When a dealer is found to be regular in playing the dues within 21 days, the
company may go for increase in credit limit for the dealer. In the small way, new
dealer are taken into consideration and given the credit.
The company gives a margin of Three Percentage to its dealers.
COLLECTION PROCEDURES:
The company follows a system of centralized control and decentralized
collection. The company does not employ and collection agency for its collection
activities. The trading division receives statements of sales and outstanding daily from
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all the branches in the country, to initiate appropriate actions. The sales officers are
engaged in collections activity at the branch level. The sales branch deposits the
payments from the dealers in the banks, insisted by the trading division of the
company.
MONITORING BOOK DEBTS
The company classifies its debts on the number of outstanding ways in the following
way.
OUTSTANDING DAYS
More than 90 days
Between 45 to 90 days
Less than 45 days
DEBTS CATEGORY
Disputes
Doubtful
Good
The company prepares the Aging schedule to monitor the control the books debts.
The monthly aging schedule is prepared according to the outstanding days
classification as given below with the corresponding due amount.
OUTSTANDING PERIOD
0-21 Days
22-45 Days
46-90 Days
Over 90 Days
The company will go for the cash in advances or cash on demand terms for the
repeated promise breakers.
FINANCIAL RATIOS:
Financial ratios are useful indicators of a firm's performance and financial
situation. Most ratios can be calculated from information provided by the financial
statements. Financial ratios can be used to analyze trends and to compare the firm's
financials to those of other firms. In some cases, ratio analysis can predict future
bankruptcy.
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Liquidity ratios
Most ratios by themselves are not highly meaningful. They should be viewed
as indicators, with several of them combined to paint a picture of the firm's
situation.
Year-end values may not be representative. Certain account balances that are
used to calculate ratios may increase or decrease at the end of the accounting
period because of seasonal factors. Such changes may distort the value of the
ratio. Average values should be used when they are available.
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RESEARCH METHODOLOGY:
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the analysis and for preparing reports. The records maintained by the company
where referred to get the required information.
TOOLS AND TECHNIQUIES FOR ANALYSIS:
Various tools and techniques are used for the analysis are as follows.
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FINANCIAL ANALYSIS:
Trend Projection
Comparative Statement
Ratio Analysis
Ageing schedule
STATISTICAL ANALYSIS:
Trend Analysis
Correlation Analysis
PERCENTAGE ANALYSIS:
Is this study is used to find the variation percentage i.e., the increase and
decrease which is helpful to have a look over in the trend.
COMPARATIVE STATEMENT:
Comparative financial statement is a statement of the financial
Position of a business, which are prepared in such a way as to provide, at a time
perspective to the various element embodied in such a statements. These statements
mainly include two types of analytical statement namely
They facilitate comparison among two or more similar firms, preferable in the
same industry. Comparison may be regarding profitability and financial position.
Comparative financial statement shows the following information for analytical
purposes:
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34
Bank Overdraft
Outstanding Expenses
QUICK RATIO
Quick ratio is also known as liquid ratio or acid test ratio or near money
ratio. It is the ratio between quick or liquid assets and quick liabilities. It indicates
the relation between strictly liquid assets whose value is almost certain on the
hand, and strictly liquid liabilities one the other.
Formula
Liquid Assets
Liquid ratio =
Current Liabilities
Liquid Assets
Liquid assets means, which assets are immediately convertible into cash
without much loss.
Liquid Assets = Current Assets (Stock and Prepaid Expenses)
Liquid Liabilities
Liquid liabilities means liabilities which are payable within a short period.
Liquid Liabilities = Current liabilities Bank Overdraft
DEBTORS TURNOVER RATIO
This is also called Debtor Velocity or Receivable Turnover. A firm
sells goods on credit and cash basis. When the firm extends credits to its
customers, book debts (Debtors or Account Receivable) are created in the firms
account. Debtors expected to be converted into cash over short period and thus
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included in current assets. A debtor includes the amount of Bills Receivable and
Book Debts at the end of accounting period. It is most essential that a reasonable
quantitative relationship not been able to collect within a reasonable time its funds
are unnecessarily locked up in receivables. In such case short term loans have to
be arranged for paying off its current liabilities. The liquidity position of the firm
depends on the quality of debtors to a great extent.
The purpose of this ratio is to measure the liquidity of the receivables or
to find out the period over which receivables remain uncollected.
Financial analysts to judge the liquidity of a firm use two ratios. They are
Debtors turnover ratio
Debt collection period ratio
Formula
Net Credit Sales
Debtors Turnover ratio=
Average Accounts Receivables
Account Receivable = Debtors + Bills Receivables
Average Account Receivable = Opening Stock + Closing Stock
2
DEBT COLLECTION PERIOD
This ratio indicates the extent to which the debts have been collected in time.
It gives the average debt collection period. The ratio is very helpful to the lenders
because it explains to them whether their borrowers are collection money within a
reasonable time. An increase in the period will result in greater blockage of funds in
debtors.
37
Formula
Days in the year
Debt collection period =
Debtors Turnover Ratio
CREDITORS TURNOVER RATIO
This is also known as Account payable or Creditor Velocity. A business firm
usually purchases on credit goods, raw material and services from other firm. The
amount of total payables of a business concern depends upon the purchases policy of
the concern, the quantity of purchases and suppliers credit policy. Longer the period
of outstanding payables is, lesser is the problem of working capital of the form. But
when the firm does not pay of its creditors within time, it may have adverse effect on
the business.
Credit turnover indicates the speed with which the payments for credit
purchases are made to the creditors. It signifies the credit period enjoyed by the firm
paying creditors.
Formula
Net Purchase
Credit Turnover Ratio =
Average Accounts Payable
This ratio gives the average credit period enjoyed from the creditors.
Formula
Debt payment period =
AGEING SHEDULE:
The company monthly prepares the Ageing Schedule to monitor and control
its book debts. The monthly ageing schedule is prepared according to the outstanding
days. These ageing schedules have been analyzed to come out with average
outstanding days of the book debts of the company.
The data in the input columns also can be treated as a sample obtained from
a larger population, and the Correlation transformer can be used to test whether the
attributes are correlated in the population. In this context, the null hypothesis asserts
that the two attributes are not correlated, and the alternative hypothesis asserts that the
attributes are correlated.
The Correlation transformer calculates any of the following correlationrelated statistics on one or more pairs of columns.
Formula
r=
40
This is the best method for obtaining the trend values. It provides a convenient
basis for obtaining the line of best fit in a series. Line of the best fit is a line from
which the sum of the deviation of various points on either side in zero. Further the
sum of the squares of these deviations would be the least as compared to the sum of
squares of the deviations obtained by using other lines. For this reason the sum of
squares of the deviations of various points from the line of the Best Fit is the least.
The straight line trend has an equation of the type Y = a+bX
Where Y
X
a&b
Merits:
This method gives the trend values for the entire time period.
It can be used to forecast future trend because trend line establishes a
YEAR
SALES
41
2006
43309826.56
2007
47767544.17
2008
110848043.20
FINDINGS:
From the above table it is found that the sale in 2006 is 43309826.56; 2007 is
47767544.17 and in 2008 is 110848043.20.
INFERENCES:
It can therefore be inferred that the sales and its percentage increases from year
to year.
42
120000000
100000000
80000000
SALES
60000000
40000000
20000000
0
2006
2007
2008
YEAR
43
Year
Net Profit
2006
20000.53
2007
28643.91
2008
74685.07
FINDINGS:
From the above table it is found that the profit in 2006 is 20000.53; 2007 is
28643.91 and in 2008 is 74685.07.
INFERENCES:
It can therefore be inferred that the profits and its percentage increases from
year to year.
44
80000
70000
60000
50000
40000
30000
20000
10000
0
2006
2007
2008
PARTICULARS
Net sales
2006
2007
% OF
INCREASE /
DECREASE
OF 2006
AMT.
% OF
INCREASE
/
DECREAS
E OF 2007
AMT.
(+)3697717.6
1
43309826.56
47007544.17
42247554.16
45930126.30
(+)3682572.1
4
(+) 8.72
1062272.40
1077417.87
(+) 15145.47
(+) 1.43
1050271.87
1048773.96
(-) 1497.91
(-) 0.14
1050271.87
1048773.96
(-) 1497.91
(-) 0.14
12000.53
28643.91
(+) 16643.38
(+) 138.69
Non operating
incomes:Commission
(-) 8000.00
(-) 100.00
8000.00
Total non.
Operate income
(D)
(-) 8000.00
(-) 100.00
8000.00
28643.91
(+) 8643.38
(+) 43.22
(+) 8.54
Operating
expenses
Administrative &
selling expenses
Total operate
expenses (B)
Operating profit
(A - B)= C
20000.53
FINDINGS:
46
From the above table it is found that the Administrative & selling expenses
and commission are in negative. In 2006 is 20000.53and in 2007 is 28643.91.
INFERENCES:
It can therefore be inferred that the company has increased percentage in
profits when compared to 2006 2007, it has 43.22%.
5990.00
61640.08
+55650.08
929.5
Cash at Bank
1851197.28
390577.90
-146023.38
(-)78.90
Closing Stock
50361.51
414682.66
+364321.15
723.41
Sundry Debtors
15538192.45
1060672.42
+4931430.03
31.74
287632.75
333720.67
+46087.92
16.02
Sundry Deposits
22500.00
25000.00
+2500.00
11.11
Total CA (A)
17755873.99
11832379.73
-5923494.26
-33.36
209189.55
233315.42
+24125.87
11.53
Total FA(B)
209189.55
233315.42
+24125.87
11.53
Total (A+B)
assets
17965063.54
1206569515
-5899368.39
-32.88
91867.00
-23129.33
-20.11
17060430.42
10847992.25
-6212438.17
-36.41
17175426.75
1093989.25
-6235567.5
-36.31
426626.00
426626.00
426626.00
426626.00
Current
Liabilities
Provisions
Sundry Creditors
Total CL(A)
Loans &
Liabilities
Loans
Total Loans (B)
114996.33
48
Total (A+B)
17602052.75
11366485.25
-6235567.5
-35.43
Capital &
Reserves
Share Capital
363010.79
699209.89
+336199.10
92.61
Total
Shareholders
Funds (O)
363010.79
699209.89
+336199.10
92.61
17965063.54
12065695.15
-5899368.39
-32.83
FINDINGS:
From the above table it is found that the cash at bank, provision and sundry
creditors are in negative.
INFERENCES:
It can therefore be inferred that the company financial performance is good.
Net sales
DECREASE
OF 2007
AMT.
/
DECREAS
E OF 2008
AMT.
110848043.20
110848043.20
+ 135.81
47007544.1
7
45930126.3
0
2380555.44
- 62537361.45
(-) 136.16
1077417.87
2380555.44
(+)1303137.57
+ 120.95
1048773.96
2305870.37
(+)1257096.41
(+) 119.86
1048773.96
2305870.37
(+)1257096.4
1
(+) 119.86
28643.91
74685.07
(+) 146041.46
(+) 160.74
74685.07
(+) 46041.46
(+) 160.74
Operating
expenses :Administrative &
sending expenses
Total operating
exp. (B)
Operative net
profit
(A - B)
Non operative
income
Net profit
28643.91
FINDINGS:
50
From the above table it is found that the cost of sales is in negative. In 2007 is
28643.91and in 2008 is 74685.07.
INFERENCES:
It can therefore be inferred that the company has increased percentage in
profits when compared to 2007 2008. It has 160.74%.
2007
2008
% ON
INC/AMT.
Cash on hand
61640.08
61297.49
-342.59
-0.56
Cash at bank
390573.90
552487.38
+161913.48
+41.46
Closing stock
414682.66
2867186.82
+2452504.16
+591.42
Sundry debtors
10606762.42
16976976.46
+6370214.04
+60.56
333720.67
669353.44
+335632.77
+100.57
Sundry deposits
25000.00
92654.00
+67654
+270.62
Total (A(A)
11832379.73
21219955.59
+938757.86
+79.34
Fixed Assets:-
23331.42
826991.50
+593676.08
+254.45
Total FA (B)
23331.42
826991.50
+593676.08
+254.45
Total assets:(A+B)
12065695.15
22046947.09
+9981251.99
+82.72
Current
liabilities:-
91867.00
30000.00
-618767.00
-67.34
provisions
10847992.25
20863692.42
+10015700.17
+92.33
81772.00
+81772
10939859.25
20975464.42
+10036505.17
+91.73
PARTICULARS
Assets:-
sundry creditors
TDS
payable
Total (C(A)
-189329
Loans &
liabilities:Loans
426626.00
237297.00
426626.00
237297.00
-189329
-44.38
Total (A+B)=C
Capital &
reserves:Share capital
11366485.25
21212761.42
+9846276.17
+86.63
-44.38
52
699209.89
834185.67
+134975.78
+19.30
699209.89
834185.67
+134975.78
+19.30
12065695.15
22046947.09
+9981251.94
+82.72
Total share
holders fund(D)
Total capital &
liabilities (C+D)
FINDINGS:
From the above table it is found that the cash on hand, provision and loan are in
negative.
INFERENCES:
It can therefore be inferred that the company financial performance is good.
53
3.2.7 TABLE SHOWING CURRENT RATIO OF GTC (P) LTD FOR 3 YEARS:
YEARS
CURRENT
ASSETS
CURRENT
LIABILITIES
RATIO
2006
17755873.99
17175426.75
1.03
2007
11832379.73
10939859.25
1.08
2008
21219955.59
20975464.42
1.01
FINDINGS:
Current Ratio
Current assets
Current Liabilities
From the above table it is found that the current ratio in 2006 is 1.03; 2007 is
1.08 and in 2008 is 1.01.
INFERENCES:
Current ratio should be around 2 but the company has 1. So the company has
to maintain its current position.
54
32%
33%
2006
2007
2008
35%
55
3.2.8 TABLE SHOWING QUICK RATIO OF GTC (P) LTD FOR 3 YEARS
YEARS
LIQUID ASSETS
CURRENT
LIABILITIES
RATIO
2006
17705512.48
17175426.75
1.03
2007
11417697.07
10939859.25
1.04
2008
18352768.77
20975464.42
0.87
FINDINGS:
Quick Ratio
From the above table it is found that the quick ratio in 2006 is 1.03; quick ratio
in 2007 is 1.04 and quick ratio in 2008 is 0.87.
INFERENCES:
Quick ratio should be around 1 but the company has 1 & 0.87. So the
company has to maintain its quick ratio.
56
3.2.2.4 CHART SHOWING QUICK RATIO OF GTC (P) LTD FOR 3 YEARS
2.36
2006
2007
2008
5.29
4.27
57
YEARS
CREDIT SALES
AVERAGE
RECEIVABLES
RATIO
2006
43309826.56
15538192.45
2.78 times
2007
47007544.17
10606762.42
4.43 times
2008
110848043.20
16976976.46
6.53 times
FINDINGS:
DTR =
From the above table it is found that the Debtors Turnover Ratio in 2006 is 2.78;
2007 is 4.43 and in 2008 is 6.53.
INFERENCES:
It can therefore be inferred that the DTR is increases year by year.
58
2006
2007
2008
2.36
5.29
4.27
59
YEAR
DAYS IN A YEAR
DEBTORS
TURNOVER
RATIO
DAYS
2006
365
2.78
131
2007
365
4.43
82
2008
365
6.53
56
FINDINGS:
Days in a year
Debtors Turnover Ratio
From the above table it is found that the debtors collection period in 2006 is
131days; 2007 is 82days and in 2008 is 56days.
INFERENCES:
It can therefore be inferred that the debtors collection period is less year by
year. The company has higher turnover ratio and shorter the average collection period.
60
5.29
4.27
2.36
2006
2007
2008
61
PURCHASE
AVERAGE
CREDITORS
RATIO
2006
4027053.16
17060430.42
2.36
2007
46294463.39
10847992.25
4.27
2008
110418622.62
2086369.42
5.29
YEAR
FINDINGS:
CTR
From the above table it is found that the creditors turnover ratio in 2006 is
2.36; 2007 is 4.27 and in 2008 is 5.29.
INFERENCES:
It can therefore be inferred that the creditors turnover ratio increases year by
year.
62
6
5
4
3
4.27
5.29
2.36
1
0
2006
2007
2008
63
YEAR
DAYS IN A YEAR
CREDITORS
TURNOVER
RATIO
2006
365
2.36
155
2007
365
4.27
85
2008
365
5.29
69
DAYS
FINDINGS:
Days in a year
Creditors Turnover Ratio
From the above table it is found that the creditors collection period in 2006 is
155days; 2007 is 85days and in 2008 is 69days.
INFERENCES:
It can therefore be inferred that the collection period decreases year by year.
64
160
155
140
120
100
85
80
69
60
40
20
0
2006
2007
2008
65
PERCENTAGE
46
18
15
21
66
X2
Y2
XY
2005 to
43309826
580447
1875741076657281
336919015837
2513906929163
2006
2006 to
0
47007544
892520
2209709208894500
796592807219
2007
2007 to
0
110848043
244491
1228728868126906
2008
TOTAL
4195517317088
59775932207
27101348881113
1193287755263
9419559134362
6
201165413
171745
9
3325273896682084
7
r =
67
r = -0.85198
FINDINGS:
From the above it is found that the correlation co-efficient between sales and
working capital is -0.85198.
INFERENCES:
It can therefore be inferred that there is a negative correlation between sales
and working capital.
68
X2
Y2
XY
2005 to
43309826
1553819
1875741028150276
24143541062886
672956391874592
2006
2006 to
2
47007544
1060676
2007
2007 to
2008
TOTAL
4
2209709192911936
11250340012464
498597831412528
11084804
3
1697697
1228728863692984
28821771410457
188186456565796
20116541
3
4312193
0
1637273885799206
64215652485808
305341878894508
N =3
X = 201165413
Y = 43121930
X2 = 16372738857992061
Y2 = 642156524858084
XY = 3053418788945088
Formula
r=
69
r =
r = 0.63802
FINDINGS:
From the above it is found that the correlation co-efficient between sales and
debtors is 0.63802.
INFERENCES:
It can therefore be inferred that there is a positive correlation between sales and
debtors.
70
3.2.16 TABLE SHOWING TREND ANALYSIS FOR SALES OF GTC (P) LTD
YEAR(X)
2006
SALES(y)
43309826
x = X-A
-1
x2
1
Xy
-43309826
2007
47007544
2008
110848043
110848043
TOTAL
201165413
67538217
Y = a+ bx
Where
a=
y
N
a = 201165413
xy
x2
b = 67538217/2
3
a = 67055137.67
b = 33769108.5
FINDINGS:
Sales in 2005 2006
Y = 67055137.67 + (33769108.5*-1)
= 33286029.17
Sales in 2006 2007
Y = 67055137.67 + (33769108.5*0)
= 67055137.67
71
72
3.2.2.9 CHART SHOWING TREND ANALYSIS FOR SALES OF GTC (P) LTD
120000000
100824246.17
100000000
80000000
67055137.67
60000000
40000000
33286029.17
20000000
0
2006
2007
2008
73
3.3 FINDINGS
The company net sales were increased during the three years.
The company profit was increased year by year due to sales increased and
efficient management.
The cost of sales was increased during the period 2007. When compared to
previous year. It shows the company is spending more for expenses.
There was no non-trading income during the year2007 & 2008.
The cost of sales was increased during the period 2008. When compared to
previous year. It shows the company is spending more for expenses.
The current liabilities were sufficiently decreased during the year 2007.
The current assets were sufficiently decreased during the year 2007.
The loans and liability was decreased during the year 2008.
During the period 2006 to 2008 the cost of sales increased percentage. This
increase may due to rise in raw material price and inefficiency of the
purchasing department.
The net working capital of the company shows the fluctuating trend.
During the year 2008 the quick ratio is very low 0.87compared with
standard ratio(1:1)
During the period 2006 to 2008 the Debtor turnover ratio is high and the
company takes less days for collecting debtors.
During the period 2006 to 2008 the Creditors turnover ratio is high and the
company takes more periods to pay creditors.
74
3.4 SUGGESTIONS
The Company may concentrate to increase current assets to meet the
obligations (liabilities)
The Company may concentrate to increase the quick assets to meet the
liquid liabilities because of meeting liquidity position of the organization.
The Company may concentrate to utilities the current assets effectively
The Company can maintain (decrease) current liabilities properly in year
by year.
The Company can maintain cash position it will increase the liquidity
Position of the company.
Even though sales increases but debtor collection policy should be strict so
that the inflow will be increased.
Motivate the dealers and sales representatives through various promotional
activities.
The company can prepare collection experience statement for each dealer.
Collection experience matrix to monitor its book debts.
Company can maintain structured frame work for bank guarantee limits
determination.
75
3.5 CONCLUSION
During the project study period, major department are covered. The
receivable management is the key area of the working capital management. The main
purpose of the project is to analysis the financial performance of the company. The
detailed observations are presented in the form of analysis in the previous chapter.
The major financial performance indicators of GENERAL TRADING
COMPANY PRIVATE LIMITED for the three year period in terms of ratios like
liquidity ratios, creditors turnover ratio, debt turnover ratio of the company and so
many datas used in this project work.
The study concludes by saying that the performance of the overall
Receivable Management has improved when compared to the previous year. It is
found from the survey that the companys credit management is not very strict.
76
77