AN ANALYSIS OF CASH MANAGEMENT OF SALT TRADING

COROPORATION, BIRATNAGAR

BY

Rashmi Mandal

Reg.no:7-2-3-20-2014

Symbol no:14784

A Summer Project Report Submitted to

Faculty of Management, Tribhuvan University

In partial fulfillment of the requirements for the degree of

Bachelor of Business Administration

at the

Mahendra Morang Adarsh Multiple Campus

Tribhuvan University

Biratnagar

April/2018
 STUDENT DECLARATION

This is to certify that the summer project entitled “Cash Management of Salt Trading
Concern, Biratnagar” under the guidance of “Mr. Bhupal Mishra” in the partial fulfillment
of the requirement for the degree of Bachelor of Business Administration at Faculty of
Management, Tribhuvan University. This is my Original work and I have not submitted it
earlier elsewhere.

Signature: __________

Name: Rashmi Mandal

Date: April/2018

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 CERTIFICATE FROM THE SUPERVISOR

This is to certify that the summer project entitled “Cash Management of Salt trading
Concern Biratnagar” is an academic work done by “Rashmi Mandal” submitted in the
partial fulfillment of the requirements for the degree of Bachelor of Business
Administration at Faculty of Management, Tribhuvan University under my guidance and
supervision. To the best of my knowledge, the information presented by her in the summer
project report has not been submitted earlier.

______________________

Signature of the Supervisor:

Name: Mr. Bhupal Mishra

Designation: Research Supervisor

Date: April/2018

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 ACKNOWLWDGEMENT

The project work has been prepared for the partial fulfillment of the requirements for the
degree of Bachelor of Business Administration at Faculty of Management, Tribhuvan
University. Every student should be able to express his or her theoretical knowledge
practically because theoretical knowledge is not enough for doing something special work.

The project report is based on “Cash Management Of Salt Trading Concern, Biratnagar”.
The purpose of this study is concerned to the theoretical explanation and practical
application of cash management of salt trading concern limited. Through this report I want
to evaluate the overall cash management of Salt trading concern by the help of various
financial tools and techniques.

Firstly I like to express my sincere thanks to TU for giving the opportunity of research
work. I am grateful to our Head of Department Mr. Narendra Dhakal and Mr. Bhupal
Mishra as our supervisor of this report writing assignment for providing all the useful
guidelines and information to help to prepare the report. Of course my deep gratefulness
also accredited to my parents, for their indescribable help. Last but not the least thanks go
to all of my supporters.

Rashmi mandal

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Table of content

STUDENT DECLARATION……………………………………………………2

CERTIFICATE FROM THE SUPERVISOR……………………………………3

ACKNOWLEDQMENT………………………………………………………….4

LIST OF TABLE………………………………………………………………….6

LIST OF FIGURE……………………………………………………………........7

CHAPTER 1:INTRODUCTION…………………………………………………..8

1.1 Context information………..……………………………………………........9

1.2 Statement of the Problem…………………………………………………….10

1.3 Objectives of the Study………………………………………………………10
1.4 Significance of the Study…………………………………………………….11
1.5 Limitation of the Study……………………………………………………….11
1.6 Literature Review…………………………………………………………….12
1.7.Research Design………………………………………………………………12
1.7.1 The Population and Sample …………………………………………….….12
1.7.2 Sources of Data………………………………………………………….….13
1.7.3 Data Collection Procedures…………………………………………….…...13
1.7.4 Data Processing Procedure …………………………………………………14
CHAPTER-IIPRESENTATION AND ANALYSIS OF DATA……………………15
2.1. Organization profile…………………………………………………………...15
2.2. Data presentation and Analysis in table and figure with analysis…………….16
2.3.Findings and Discussion……………………………………………………….17
CHAPTER-III:CONCLUSION AND ACTION IMPLICATION……………….
3.1. Conclusion……………………………………………………………….. 34
3.2. Recommendations 36

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LIST OF TABLES
Table No. Page No.

Cash Budget…………………………………………… 13

Cash Flow Statement 13

Analysis of Cash Balance 14

Analysis of Cash Turnover Ratio 16
Analysis of Current Ratio 16
Analysis of Quick Ratio 17
Analysis of Receivables Turnover Ratio 18
Analysis of Inventory Turnover Ratio 19
Analysis of Payable Conversion period 20
Analysis of Cash Conversion Cycle 21

Analysis of Cash & Bank Balance to Account Receivable. 22

Analysis of Cash and Bank Balance to Current Assets 24

Analysis of cash and Bank Balance to Current Liabilites 25

Analysis of Net Profit Margin Ratio 27

Analysis of Return on Working Capital 28

Aanlysis of Net profit after Tax to Quick Assets 29

Comparative Table of Cash Flow 30

30

LIST OF FIGURES

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Figure No. Page No.

4.1 Cash Turnover Ratio 15

4.2 Cash and Bank Balance to Account Receivables 23

4.3 Cash and Bank Balance to Current Assests 25

4.3 Cash and Bank to Current Liabilities 26

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 CHAPTER I

INTRODUCTION

1.1 Context information

Nepal is a least developed country. Government of Nepal has been focusing on the
economic liberalization policy to grow its national economy. Nepalese government
has launched on the economic liberalization policy to grow its national economy.
Nepalese government has launched many plans and programs for its economic
development. But lack of proper capital is the main cause of undeveloped economy.
Recently, the Nepalese government has adopted the path of economic development
through privatization and liberalization policy. But in the other hand, the political
situation of country is not favorable for investors and entrepreneurs. Policies have
been well designed but unfortunately, it has not been implemented.

Cash management assumes more importance than other current assets because cash
is the most significant and the least productive asset that a firm holds. It is significant
because it is used to pay the firm's obligations. However, cash is unproductive,
unlike fixed assets or inventories; it does not produce goods for sale. Therefore, the
aim of cash management is to maintain adequate control over cash position to keep
the firm liquid and to use the excess cash in profitable way.

Cash management predicts cash flow accurately, particularly the inflows and that
there is no perfect coincidence between the inflows and outflows of cash. During
some periods, cash outflows will exceed cash inflows, because of payments for
taxes, dividends, or seasonal inventory buildup. At other times cash inflows will be
more than cash payments because there may be large cash sales and debts may be
realized in large sums promptly. It also constitutes the smallest portion of the total
current assets, yet management's considerable time is devoted in managing it. Thus,
an obvious aim of the management nowadays is to manage its cash affairs in such a

8
way that it keeps cash balance at minimum level and invests the surplus cash in
profitable opportunities.

In Nepalese firm's context, the theory of cash management has not been much
effectively applied in practice. Term's such as cash as cash flow analysis, cash
budget, forecasting of cash requirements, credit discount policy, cash discount policy,
etc has never been seriously considered, traditional approaches are still dominant in
Nepalese public enterprises and are reluctant to adopt modern techniques. "However,
use of sophisticated forecasting technique is not the basic requirement of cash
budgeting. The inherent quality of cash budget prepared at the beginning of a fiscal
year, if left untouched thereafter can be of no use, even if it was prepared with very
sophisticated forecasting tools." (Bajracharya, 1990:112-114)

One of the major causes involved in the down falling trend of public and private
companies in Nepal is obviously the mismanagement of cash balances. A time,
Nepalese business firms are exposed to more than enough cash or near cash assets
for short run use, whereas at other times these firms suffer from cash scarcity when
they need to utilize it instantly for different kinds of business opportunities. So the
cash management or the determination of optimum level of cash for day to day use
or for the use is the short run has been one of the greatest short comings in the area
of finance functions.

Nevertheless, one of the major influencing factors, the political factor can doubt be
considered a hindrance for such short comings in cash management. Likewise in
spite of having technical capability, the underlying corrupt attitudes of the
individuals of the public enterprise are no doubt another season for not implementing
the desired methodology of cash management. However, this study ignore the above-
mentioned influencing factors & assumes that political system has no effect upon
any kinds of decision in the firm & the individuals employed in the firm are honest
in fulfilling their duties.

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In order to resolve the uncertainty about the cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should develop
appropriate strategies for cash management.

1.2 Statement of the Problem

Cash management in the business enterprises of Nepal is primarily based on

traditional practices lacking scientific approach. A more serious aspect of cash
management has been the absence any formalized system of planning and cash
budgeting.

The down falling trend of public enterprises, especially the trading enterprises has
been the over lasting problem of our country. In the name of economic liberalization,
many of these companies are either privatizes or are in process of privatization to get
ride of the burden.

The research questions in this research are:

a) What is the cash management policy of Salt Treading Corporation Ltd.?
b) What is the cash management policy and its impact on profitability of
STCL?

1.3 Objectives of the Study

The present study has been conducted to examine cash management of STCL. It
focuses on the investment decision of the company and in particular the cash
management in short run business operation of the corporation.

The specific objectives of the study are as follows:

a) To study the existing cash management system adopted by STCL.

b) To find out the trend of cash management of STCL.
c) To determine the cash and bank balance with respect to account receivable,
current asset and current liabilities of STCL.
d) To examine the cash flow statement of STCL.
e) To calculate the company’s net profit margin ratio.

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 f) To find out the trend of profitability.

1.4 Significance of the Study

This study is concerned to the theoretical explanation and practical application of

cash management of STCL. Business transaction without the investment of cash is
mythical in this monetary world. Today the importance of cash management is
recognized. Every research is done for some specific reasons that is to say every
research work has a rationale behind it and every study that has rationale behind it
has some significance. The main significance of this study is:

◘ It describes the current financial status of STCL.

◘ It explores the difficulties faced by the management while managing cash.
◘ It provides information and suggestions on how to manage cash effectively.
◘ Since many people are unaware of benefits of effective cash management, it
will also be helpful for them to have an insight of modern management
technique.
◘ Last but not the least, it provides the literature to the researcher who wants to
carry on further research in this field.

1.5 Limitation of the Study

The scope of the study is subject to various limitations, which are as follows:
i. The study assumes that the impact of political factors of the country such
as change in government, any sort of political involvement in the firm, if
prevalent, has in significant or no effect on the financial decisions.
ii. Unavailability of primary data is another limitation which could limit the
scope of the study.
iii. This study is limited to cash management of STCL.
iv. The study is mainly dependent on secondary data, covering data of past
five years since 2069/70 to 20673/74
v. Most of the data used will be secondary in nature.

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 vi. Statistical tools and financial ratio analysis have only been used to analyze
quantitatively.
1.6 Literature review

In this chapter, some basic and useful related literatures of cash management are
included. In other words, this chapter includes the theories, the empirical evidence of
cash management. Such as government publications articles, reports are involved in
cash management. "The cash of a business consist of money or any other media of
exchange that a bank will accept at face value for deposit." (Pyle and White;
1963:24)

"Cash consists of funds that are immediately available for disbursement without
restriction. Usually, most of these funds are on deposit in checking accounts in banks
and the remainder is cash registers or other temporary storage facilities on the
company's premises "(Anthony; 1964:45)

"Cash is also a particular form of money. It is defined as ready money, a term which
implies activity. It is indeed ready money for many purposes. As legal tender it is
completely negotiable and is used to settle contractual obligations. It is equally ready
to be managed in order to earn profit and increase itself." (Clarkson and Elliot;
1969:19)

"Cash includes bank deposits, currency, cheques, bank drafts and money order. Any
medium of exchange that a bank will accept at face value on deposit is usually
shown on balance sheet as cash. Most of the cash may be on deposit at the bank.
Some of it may be in cash drawn of safe." (Mobel and Miswonger; 1963:24)

1.7.Research Methodology

1.7.1 Research method

In simple, research refers investigation or careful study, especially, in order to

discover new facts or information. In other hand a set of methods used in a particular
area of activity is known as methodology.

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This chapter includes research design, population and sample of the study, sources of
data collection techniques, data analysis tools etc. Various financial and stastical
tools are used making conclusion in this research.

1.7.2 Research Design

This research study is considered to analysis the cash management of salt trading
corporation. Under this, historical research design is applied because historical
research design is concerned with past phenomena. It is a process of collecting,
evaluating verifying, and synthesizing past evidence systematically and objectively
to research a conclusion.

The cash management of salt trading corporation is also concerned with past
evidence. Therefore, the historical research design has adopted in this study by the
help of financial statements such as balance sheets, profit and loss accounts and cash
flow statements from fiscal year 2068/69 to 2073/74 (i.e. five years). The past
evidence can be found either primary source or secondary sources, and to support the
historical research design, the researcher has used the analytical and descriptive
study methods. In conclusion, research design can be said as the combination of tools
to measure the position of capital structure in the company.

1.7.3. The population and sample

There are many trading companies, which are actively operating their business in
market. It is not possible to study all of them regarding the research topic therefore
among them; one reputed trading company is taken as a sample company from
population for this research study.

1.7.4 Sources of Data

This study is based upon secondary data, which are published by the salt trading
corporation limited. For this study more than five years balance sheet, profit and loss
account, Cash flow statement and related appendix and auditor’s reports have been
collected. Other related information has been collected through the direct interview
and questions arise with company’s account officer.

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1.7.5 Data Collections Procedures

Collection data is the connecting line to the word of reality for the researcher. The
data collection actively and consists of taking ordered information from reality and
transferring it in to some recording system so that it can later be examined and
analyzed for partners. Research as a media can be interpreted as having a content of
data and process of methodology.

1.7.6 Data Gathering instruments

Data recording system of STCL is scientific and systematic type of record keeping
has been found because most of the personnel are trained and effective directions
from the general manager.

The published data relating to the cash management position of STCL have been
obtained from account department. The balance sheet and profit and loss account and
other related documents, which are secondary nature, are directly collected from the
corporation account department.

1.7.7. Data Processing Procedure

The collected raw data are processed and presented in tabular from with the help of
simple arithmetic rules. The entire raw data are converted into approximate and
condensed in the form of summary balance sheet and profit and loss account. Most
of the data have been compiled in one from and processed and interpreted as per the
need of the study. The secondary type data are presented for the analytical purpose
after the tabulation of the data. These types of data processing represent are clear
situation.

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 CHAPTER-II

PRESENTATION AND ANALYSIS OF DATA

The basic objective of this study as stated in chapter one is to have true insight in to
"Cash Management" at STCL. For accomplishment of these objectives, a definite
course of research methodology has been followed which is described in chapter
third. Now in this study the effort has been made to assess and analysis the cash
management to describe the actual position of cash management in STCL.

2.1.Organization Introduction

Salt Trading Corporation was established in 27th Bhadra 2020 B.S. (August 1963
A.D.) under the collaboration of Nepal Government, National Trading Ltd (NTL)
and share of common people. The amount invested by Nepal Government, NTL and
common people was Rs. 200,000, Rs. 100,000 & Rs. 1,000,000 respectively. STCL
has been progressing from its date of establishment to till today. So, at present it has
Rs. 10 crores authorized capital, Rs. 24,777,700 of paid up capital and Rs.
50,000,000 of issued capital. At present STCL have many branch offices in overall
Nepal. Its main office is situated in Kalimati, Kathmandu.

After its establishment, STCL has continuously distributed qualitative salt with
proper price to its people, customer and to its country as a whole very honestly. The
organization was not only able to meet the demand but was also able to maintain
quality and later, was able to provide iodized salt to prevent goiter a disease that once
plagued the Nepalese society.

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2.2 Analysis of the Data by Financial Tools.

2.2.1 Analysis of Cash Balance

Management of cash plays a significant role in current assets of STCL. The total
cash includes cash in hand, Cast at bank and cash in transit. The table below shows
the cash position of the company during the period under study.

Table no:2.1 Analysis of Cash Balance

Fiscal Year Cash Balance (in Rs) Increase (Decrease) %

2069/70 80292345 3.25%

2070/71 62952414 (27.54)%

2071/72 110634296 43.09%

2072/73 65295940 (69.43)%

2073/74 111689211 41.53%

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Source: Audited Balance Sheet of STCL for the Relevant Year.

Note: Figures within brackets ( ) indicates minus.

The cash holding of the corporation shows increasing trend as it is increased by

3.25% in year 2069/2070 as compared to 2068/2069 and 2070/2071 decreased by
27.54%. as compared to cash balance of 2069/2070. Similarly in year 2071/2072
increased by 43.09% as compared to 2070/2071. But in year 2072/2073 decreased by
69.43% as compared to 2071/2072 and year 2073/2074 increased by 41.53% as
compared to 2072/2073. In fact, this visualizes that the corporation could not make
best use of these available cash balance prudently.

There is declined at cash balance 2072/2073 but in the year 2073/2074 the cash
balance is increased by 41.53%. On the whole figures show no any definite policy of
cash balance while in other years it has very low. Moreover the corporation has not
planned cash inflow and outflow forecasts. It is of crucial importance for the
corporation to keep careful watch over the cash movements of determines how cash
thrown become available and also to investigate the opportunity for the use of cash.

2.2.2 Analysis of Cash Turnover

Table no:2.2.Analysis of Cash Turnover Ratio

Fiscal Year Sales Cash in hand & Cash turnover

Bank
(RS.)
(Rs.)

2069/70 1916218180 80292345 23.86

2070/71 2138957424 62952414 33.97

2071/72 3190432746 110634296 28.83

2072/73 6366335450 65295940 97.49

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 2073/74 3874061721 111689211 34.68

Average 43.77

Fig:2.2.Analysis of Cash Turnover Ratio

NOTE: - hello dear, please describe above figure in your own language yourself. I
hope you can.

Source: Audited Balance Sheet of STCL. for the Relevant Year.

Cash turnover ratio represents how quickly the cash is received from its sales to be
formulated to find out. Higher turnover is the significant of good liquidity and vice
versa. Above table shows that the highest ratio 97.49 times has been observed in
Fiscal year 2072/2073 likewise, the lowest ratio of 23.86 has been observed in the
Fiscal year 2069/2070; overall, average ratio has been calculated 43.77 times.

This table shows that a cash turnover time of corporation is not homogeneity i.e.
there is fluctuating trend. Sometime it takes more time and sometimes it takes very
less time than that of averages.

It can be presented with the help of graph to show the cash turnover ratio in relation
with sales and cash balance.

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fig2.1.showing cash turnover ratio in different year adopted from table no 2.2

Protective liquidity, out of which, on going liquidity refers to the inflows and
outflows of cash. So it is important to go the cash flow at the company with the help
of analysis firm's cash conversion cycle.

A cash conversion cycle reflected the net time interval in days between actual cash
expenditure of the firm on productive resources and ultimate recovery of cash. The
cash conversion cycle is calculated as follows:

Cash conversion cycle = Inventory conversion period + Receivable conversion

period - payable deferred period

2.2.3 Analysis of Current Ratio

One of the reliable methods to examine liquidity position of enterprises is means of

current ratio i.e. current assets to current liabilities.

The conventionally accepted current ratio, 2:1 is the standard ratio, a company
should maintain. However, depending upon the nature of the company, the
development of capital market and availability of long term funds to finance current

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assets the satisfactory ratio varies. As stated by khan and join, taking into
consideration the nature of a company, satisfactory current ratio for public
enterprises is generally very low, as normally these companies have very little need
for current assets. So, satisfactory ratio for STCL, a public enterprise is between 2:1
and higher than 1.5:1. But in general ratio less than 1:1 is certainly undesirable for
any enterprise.

Table no:2.3

Analysis of Current ratio.

Fiscal Year Current Assets year (Rs.) Current liabilities (Rs.) Ratio

2069/70 1891943548 416532694 4.54

2070/71 1877511466 437625683 4.29

2071/72 2524086558 432886967 5.83

2072/73 2874494177 430737324 6.67

2073/74 3286278841 442085043 7.43

Average 5.75

Source: Audited Balance Sheet of STCL for the Relevant Year.

The above table shows that the current ratio varies from 7.43 in the F.Y. 2073/74 to
4.29 in the F.Y. 2068/69 indicating highly fluctuations. But in the F.Y. 2073/74
current ratio is the highest. Below 2:1, which indicates the STCL does not have a
sound of satisfactory liquidity position.

2.2.4 Analysis of Quick Ratio

The ratio conveys the most precise information liquidity position of a firm since; it
excludes the inventory, the least liquid assets from the current assets and compares it
with current liabilities. Inventory when excluded from current assets is called quick
assets. The preceding ratio analysis i.e. the current ratio analysis fails to convey
information regarding composition of the current assets of a firm. Current assets are
composed of cash and bank balance, short time marketable securities, receivable and
inventory. However, inventory is not capable of readily converting into cash and
20
therefore it is the less liquid compared to other composition of the current assets.
Thus this quick ratio is more reliable measure of liquidity than current ratio. Quick
ratio is so called because it measures the capacity of a firm to convert its current
assets quickly into cash in order to meet its current liabilities.

Table no:2.4.Analysis of quick Ratio.

Fiscal Year Quick Assets (Rs.) Current liabilities (Rs.) Ratio

2069/70 299230439 416532694 0.72

2070/71 290250014 437625683 0.66

2071/72 349566869 432886967 0.81

2072/73 288335065 430737324 0.67

2073/74 405502302 442085043 0.92

Average 0.75

Source: Audited Balance Sheet of STCL for the Relevant Year.

The above table shows that the quick ratio varies from 0.92 in the F.Y. 2073/74 to
0.66 in the F.Y. 2070/71 indicating highly fluctuations. The stand quick ratio to be
maintained by the enterprise is 1:1. Below 1:1 which indicates that the STCL does
not have a sound satisfactory liquidity position.

2.2.5 Analysis of Receivables Turnover Ratio.

This ratio shows how quickly receivables are converted into cash. The ratio shows
how the debtors will have been handled by the company. In connection with this
ratio average collection period is also calculated. Higher ratio and shorter average
collection period indicates better trade credit management and better liquidity of
debtors and consequently better liquidity of the enterprises likewise, lower ratio and
longer average collection period signals delayed payment by the debtors.

Sales
Receivable Turnover 
Receivables

Table no:2.4.Analysis of Receivables Turnover Ratio.

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 Fiscal Sales Receivable Receivable Days in a R.C.P.
Year s turnover year
(Rs.)
(Rs.)

2069/70 1916218180 218938094 8.75 360 41

2070/71 2138957424 224310407 9.53 360 38

2071/72 3190432746 244732573 13.03 360 28

2072/73 6366335450 223039125 28.54 360 13

2073/74 3874061721 293813091 13.18 360 27

Total 147

Average 29.4

Source: Audited Balance Sheet of STCL for the relevant Years.

From the above table, the ratio has shown fluctuation trend in the study period. It
varies from the minimum R.C.P.13 days in the F.Y. 2072/73 to maximum 41 days in
the F.Y. 2069/70. The average collection period of STCL is low collection period
indicates fast conversion of receivable and long collection period indicates slow
conversion period.

Here in the Fiscal year 2072/73 and 2073/2074, collection period is less than average
and in F.Y.2069/70, 2070/71, the collection period is higher than average and in the
F.Y. 2072/73 it is nearly equal to average collection period.

2.2.6 Analysis of Inventory Turnover Ratio.

Table no:2.5.Inventory Turnover Ratio.

Fiscal Days in Sales Inventory Inventory ICP

Year a year turnover
2069/70 1916218180
360 714440295 2.68 134
2070/71 360 2138957424 611621230 3.49 103

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 2071/72 360 3190432746 1007175635 3.16 114
2072/73 360 6366335450 1447506550 3.39 82
2073/74 360 3874061721 1579415218 2.45 147

Average 3.23
Source: Audited Balance Sheet of STCL for the Relevant Year.

From the above table shows that the ratio fluctuates from 2.45 times to 3.49 times
and there occur at 2073/74 and 2068/69 respectively. The ratio for the F.Y. 2070/71
is 3.49 times, the longest of all ratio has definitely suggest that during the period,
either the company should have undergone under investment or the inventory held
was comparatively lower. The fluctuation is moderate and the average ratio has been
calculated 3.23 times.

2.2.7 Analysis of Payable Conversion Period.

Payable conversion period indicates that speed of creditors payable. A high payable
conversion period is favorable for the company. Payable differed (conversion) period
is calculated as follows;

Creditors x Days in a year

PDP 
Purchase

Table no:2.6.Analysis of payable conversion period.

Fiscal Year Creditors Purchase Days in a year PDP.

2069/70 416532694 1644540991 360 91

2070/71 437625683 1837630785 360 86

2071/72 432886967 2813514025 360 55

2072/73 430737324 2847981343 360 54

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 2073/74 442085043 3223898614 360 49

Average 67

Source: Audited Balance Sheet of STCL for the Relevant Year.

The calculation of payable deferred period of STCL in the above table indicates
fluctuating trend in the study period. In the study period PDP varies from minimum
of 49 days in the F.Y. 2073/74 to maximum of 91 days in the F.Y. 2069/70. The
average payable period of 67 days has been taken by the company for payment of
trade creditors.

2.2.8 Calculation of Cash Conversion Cycle (CCC)

Cash conversion cycle shows how many times it takes to convert the receivable into
cash, inventory turnover into cash and how much time it takes to repay its obligation.
Shortly it refers the cash inflow and outflow of the company. The cash conversion
cycle is calculated as follows:

CCC = ICP+RCP-PDP

Table no:2.7.Analysis of Cash Conversion Cycle.

Fiscal Year ICP RCP PDP CCC

2069/70 134 41 91 84

2070/71 103 38 86 55

2071/72 114 28 55 87

2072/73 82 13 54 41

2073/74 147 27 49 125

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 Average 78.4

Source: Audited Balance Sheet of STC for the Relevant Year.

The above table shows the cash conversion cycle CCC of STCL for study period of
five years from the F.Y. 2069/70 to 2073/74. Above table shows fluctuation trend in
corporation during the study period. The average cash conversion cycle of STCL is
78.4 days which seen to be not satisfactory but company's credibility is good. Firm
could get the credit due to company delay in paying its obligation. STCL has
maximum of 125 days in the F.Y. 2073/74 and minimum of 41 days in the F.Y.
2072/73.

2.2.9 Analysis of Cash and Bank Balance to Account Receivable

The ratio measures the relationship between the cash and bank balance on hand to
account receivable. The higher ratio indicates better liquidity position and
vice-versa. However, too high ratio indicates excessive cash balances are held
idle and that the transactions are limited only to parties making prompt
payments.

Table No. 2.9.Analysis of Cash and Bank Balance to Account Receivable

Fiscal Year A/R Cash & bank balance % of C& B on A/R

2069/70 218938094 80292345 36.67%

2070/71 224310407 62952414 28.06%

2071/72 244732573 110634296 45.20%

2072/73 223039125 65295940 29.27%

2073/74 293813091 111689211 38.01%

Source: Audited Balance Sheet of STC for the Relevant Year.

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The above table shows that the ratio or percentage of account receivables from 28.06
to 45.20% in F.Y. 2070/71 and 2071/72 respectively. The highest percentage of
account receivables is 45.20%. During the study period cash and bank balance is not
homogeneity the amount of cash and bank with respect to account receivable is
minimum, which shows that the management is less concerned to speed of the
collections of account receivables. By this situation corporation is suffered the deficit
of cash balance to meet its current liabilities and, also shows that management has
taken semi liberal credit policy of sales of goods.

Evaluating this situation, cash and bank balance is neither so good not so bad i.e.
moderately satisfactory because the minimum percentage of AR on cash and bank
balance is 28.06 and maximum at 45.20%. Therefore, that cash and bank balance is
not satisfactory in corporation to account receivables. Thus it can said that higher the
account receivable caused lower cash balance and vice-versa. This management
should adapt strength credit policy to increase cash balance to maintain at a desired
level of cash balance.

26
fig no:2.2 showing graphical presentation between cash and account receivables

The above diagram shows that the relation of account receivable with cash and bank
balance. In the figure, it is seen that the account receivable exception in the year
2073/74 is increasing trend and cash bank balance are in fluctuating trend. It is the
minimum in the year 2070/71 and maximum in the year 2069/70

2.2.10 Analysis of Cash and Bank Balance to Current Assets:

As we know that the cash is the most liquid current assets and as such more the
amount of cash balance is an enterprise, more liquid the enterprise in meeting its
current obligations. However, bearing excess cash signifies cash balance held idle
without any motive.The ratio of cash and bank to current assets indicates stable
pattern at ratio for different fiscal years indicate that the company has been following
a system policy regarding how much cash balances to hold at the fiscal year end.

27
Table No. 2.10.Analysis of Cash and Bank Balance to Current Assets

Fiscal Year C&B Balance Current Assets (Rs) % of C& B on CA

(Rs)

2069/70 80292345 1891943548 4.24%

2070/71 62952414 1877511466 3.35%

2071/72 110634296 2524086558 4.38%

2072/73 65295940 2874494177 2.27%

2073/74 111689211 3286278841 3.39%

Average 3.53%

Source: Audited Balance Sheet of STCL for the Relevant Year.

From the above table shows percentage of cash and bank balance to current assets of
the STCL. Above table indicates that the cash and bank balance with respect to
current assets has fluctuating trend. During the study period the percentage of cash
and bank balance of current assets range from the lower at 2.27% to the highest at
4.79% in the F.Y. 2072/73 and 2071/72 respectively. The average of cash and bank
balance to cash assets for study period 3.53% while comparing with the average it is
found that the percentage of cash and bank balance to current assets for the year
except 2072/73 and 2073/74 is lower. Thus, it can be said that the cash position of
STCL is not good.

28
fig:2.3.showing graphical presentation between cash and bank balance and current
assets

The above diagram shows that the graphical relation between account receivable and
cash and bank balance. In the figure it is seen that the current assets are in increasing
trend over the study period where as the cash and bank balance is in fluctuating
trend. The figure clearly shows that the portion of cash and bank balance with
comparing to its current assets are very minimum.

2.2.11 Analysis of Cash and Bank Balance to Current Liabilities.

Among the technique of measuring corporate liquidity the ratio of cash and bank
balance to current liabilities may also be used as index at cash management. This
ratio indicates the amount of cash (in percentage) available to pay the current
obligation of the firm. A moderate ratio is considered satisfactory too high ratio
indicates excess cash balance held idle and too low ratio is indicative of company
being unable to meet its payment of current liabilities in time.

29
Table No 2.11.Analysis of Cash and Bank Balance to Current Liabilities.

Fiscal Year C&B Balance Current Liabilities (Rs) % of C& B on CL

(Rs)
2069/70 80292345 416532694 19.27%
2070/71 62952414 437625683 14.38%

2071/72 110634296 432886967 25.55%

2072/73 65295940 430737324 15.15%
2073/74 111689211 442085043 25.26%
Average 19.92%

Source: Audited Balance Sheet STC for the Relevant Year.

Above table shows that the ratio fluctuate from the lowest of 14.38% to the highest
at 25.26% in the F.Y. 2070/71 and 2073/74 respectively. The above table has clearly
indicates that the company has not been following a systematic cash management
practice. The average ratio has been found calculated 19.92%.

It can also present with the help of graph to show the relationship between cash and
bank balance and current liabilities.

30
fig:2.3.showing graphical presentation between cash and bank balance and current
liabilities

Above bar diagram shows that the graphical presentation between current liabilities
and cash and bank balance. In the figure it is seen that the current liabilities in the
F.Y. 2069/70 is maximum. There is also fluctuating trend is cash and bank balance.
The portion of cash and bank balance with comparison to current liabilities are very
minimum.

2.2.12. Analysis of Net Profit Margin Ratio

Net profit margin ratio measures the relationship between net profits and sales of a
firm. A high profit margin indicates adequate return to the firm and thus enables in
with standing in adverse economic situation when sales price is declining, cost at
production is rising and demand for the product is falling.

31
Table no:2.14.Analysis of Net profit Margin Ratio

Fiscal Year Net profit Sales Net profit margin Ratio

2069/70 (103656366) 1916218180 (0.054)

2070/71 13027201 2138957424 0.006

2071/72 11555081 3190432746 0.003

2072/73 37151020 6366335450 0.005

2073/74 60003097 3874061721 0.015

Average (0.004)

Source: Audited Balance Sheet STCL for the Relevant Year

The above table shows that the corporation has been operating under profit during
the study periods. The above table indicates that net profit with respect to sales has
fluctuating trend. The average net profitability margin has been calculated (0.004).

2.2.13. Analysis of Return on Working capital

This is another ratio to examine profitability of firm. The ratio is aimed at analyzing
the proportion of current Assets employed to earn the profit amount. Higher ratio is
favorable and vice-versa.

32
Table 2.13.Analysis of Return on working capital

Fiscal Year Net profit after tax (loss) Current Assets Ratio Net profit /C.A

2069/70 (103656366) 1891943548

(0.054)

2070/71 13027201 1877511466

0.006

2071/72 11555081 2524086558

0.005

2072/73 37151020 2874494177

0.012

2073/74 60003097 3286278841

0.018

Average (0.004)

Source: Audited Balance Sheet STCL for the Relevant Year

The above table shows that the company has not been utilizing its current assets
effectively in earning profit. The company has insignificant positive return on
working capital with ratio of (0.054), 0.006, 0.005, 0.012 and 0.018 in F.Y. 2069/70,
2070/71, 2071/72, 2072/73, 2073/74 respectively. The overall ratio is not
satisfactory. The average return on working capital has been calculated (0.004).

2.2.14. Analysis of Net Profit after Tax to Quick Assets

This ratio also examines profitability at the time analyzing the proportion of quick
Assets in earning the profit amount. Higher ratio indicates higher utilization of quick
assets in earning profit and vice-versa.

33
 Table 2.14.Analysis Net Profit After Tax to Quick Assets.

Fiscal Year Net profit after Quick Assets Ratio =Net Profit
tax (loss) /Q.A.

2069/70 (103656366) 299230439 (0.346)

2070/71 13027201 290250014 0.044

2071/72 11555081 349566869 0.033

2072/73 37151020 288335065 0.128

2073/74 60003097 405502302 0.147

Average 0.0016

Source: Audited Balance Sheet STCL for the Relevant Year

The above table shows that the ratio has been found disastrous. The figured clearly
indicates that utilizing quick assets have not been earning profit in the average rather
incurring average loss at very significant positive ratio has been observed in all
Fiscal Year. Overall, the average ratio has been calculated 0.0016, which definitely
signifies dismal situation.

2.2.15 Analysis Cash Flow Statement of STCL.

Cash flow statement of the company signifies the movements of cash in and out of
corporation. The actual cash flow statement is financing activities and cash from
investment activities for the fiscal year 2069/70 to 2073/74 as follows:

TableNo.2.26.Comparative Table of Cash flow

Years 2069/070 2070/071 2071/72 2072/73 2073/74

[A] Cash Flows from Operating
Activities
Net profit after tax -103,656,366 13,027,201 26,001,944 63,935,863 98,512,653
Add: Non cash/non operating Expenses.
Depn 4,275,438 5,169,703 7,064,647 7,719,126 7,287,132
Provision for tax 10,511,592 12,364,110 0 0 0
Provision for Loss 135000000 30,000,000 29,810,500 34,944,314 42,258,224
Interest expenses 161188663 152956369 197,195,114 260,201,790 294577494
Less: Net operating income

34
Profit on sale of fixed Assets -96,171 -8,996 -2953 -1,287,081 -75632
Dividend Income -276,390 -2,803,872 -4,605,886 -4555662

Fund from operation

Decrease /Increase in current assets 26345488 31430221 163489108 291099551 153107925
Advance loan and deposit -136,745,691 -127367408 -192289816 37,244,682 -154920915
Debtors -37125974 -8545426 -30422166 6139884 -80,773,966
Less: increase in current assets
-
Inventory 162,137,938 102,819,065 -395554405 -131,908,668
440,330,915
Deferred Tax asset -2,987,193
Net Cash available from Operating
activities
before tax 221,834,917 208,581,256 -197,511,899 255,061,328 223,508,585
Tax paid -11,920,043 3173113 -9414018 -19,553,190 -32,787,844
[A] Net Cash available from Operating
Activities 209,914,874 211,754,369 -206,925,917 235,508,138 190,720,741

Cash available from Investing activities

Purchase of fixed assets -48,063,760 -22,457,867 -20890223 -4,959,719 -4,104,768
Purchase of fixed shares -4,486,656 -14658302 -17370400 -28,068,200
Sales of fixed assets 23,452 2,884,912 265,257
Dividend Receive 2,803,872 4,605,886 4,555,662
Other Investment -4733912 -10,561,768 -3,653,961
[B] Net Cash available from Investing
Activities -52,550,416 -37,116,169 -40,167,211 -8,030,689 -31,006,010
Cash available from Financing Activities
Issue or (payment) of long term loan -86,514,617 -53,145,986 498254420 -6,800,110 176,996,611
Dividend paid -4419493 -7,048,494 -1660782 -1347158 -4740246
Interest paid -162074799 -153153031 -197079912 -256818894 -296925544
Secured Loan 110863987 21092989 -4738716 -2,149,643 11,347,719
[C] Net Cash available from Financing
-
Activities -142,144,922 -192,254,522 294,775,010 -113,321,460
267,115,805

Equivalent to cash(A+B+C) 15,219,536 -17,339,931 47,681,882 -39,638,356 46,393,271

Add Opening balance 65,072,809 80292345 62,952,414 104,834,296 65,295,940
Closing Balance 80,292,345 62,952,414 110,634,296 65,195,940 111,689,211
Source: Cash Flow Statement of STCL for the relevant
Year. (2069/70/71/72/73)
Note :Figure inside ( ) indicates cash outflow and loses

The corporation's main sources of cash are cash from operating activities. The
operating performance of salt trading corporation is very critical. The cash from
operating activity for the fiscal year 2071/72 is negative and for the rest of fiscal year

35
is positive. The negative cash balance indicates very poor position of corporation and
vice-versa.The investing activity of all fiscal year is negative.

The financing performance of STCL is so good. The cash from financing activity for
fiscal year 2071/72 is positive and for the rest of fiscal year is negative.

2.2 Major Findings and discussion

Cash management in the STCL is primarily based on the traditional practices lacking
in scientific approach. A more serious aspect to cash management has been the
absence of any formalized system of cash planning and cash budgeting in STCL.

1) The STCL could not make the best use of available cash balance prudently.

2) Modern practices with respect to debt collection, monitoring the payment

behavior of customer and relevant banking arrangements in connecting with
collection of receivables have been virtually ignored in STCL.

3) The average cash turnover time in a year is found 43 times which is in

fluctuating trend over the study period.

4) The average inventory conversion period into cash is found 116 days which is
low.

5) The average cash conversion cycle takes 78.4 day i.e. little more than 11-
Months which is good signal for cash management or cash collection
efficiency of corporation.

6) The average payable conversion period is faster than average receivable

period which is not a good signal for the purpose of managing cash.

7) Cash collection efficiency of corporation is low.

8) Management has taken liberal credit policy to sales of goods. Hence, the cash
and bank balance of the study period is minimum of account receivable.

CHAPTER-III

CONCLUSION AND ACTION IMPLICATION

36
The third chapter includes the conclusions and action implication derived from the study of
cash management of salt treading corporation Ltd. in Nepal. This chapter makes an attempt to
draw the summary, conclusion of the study and the final part recommendation is related with
the findings.

3.2 Conclusion

In conclusion, it can be said that cash management is an important part of the

financial decision making variable.

Many factors determinants such as nature of business, level of sales, credit terms,
quality of customers, economic condition etc. Have to be considered in cash
management. Apart from the level of purchase, method of creating cash
management, establish of credit terms, types of credit policy, motives for holding
cash, efficiency of cash management, different technique to cash management cash
cycle etc are to be considered. Corporation must prepare cash budget to plan for and
control cash flow.

The main conclusion of the study is given below:-

 On the basis of cash turnover ratio, it is clear that in fiscal year 2073/074, the
company’s cash turnover ratio is higher (97.49) than other rest fiscal year
which taken under this study, so that in fiscal year 2073/074 there is a
significant of good liquidity.

 On the basis of liquidity ratio, the liquidity position of STCL is higher in

fiscal year 2073/074, which indicates the STCL does not have a sound of
satisfactory liquidity positions.

 Using CCC, it is clearly shows that RCP is less than PGF of each & every
fiscal year, it seem to be not satisfactory but company’s credibility is good.
Firm could not get the credit due to company delays in paying its obligation.

 On the basis of cash & bank balance with respect to account receivable , cash
& bank balance is neither so good or not so bad i.e. modality satisfactory
because the minimum percentage of account receivable on cash & bank
balance is 28.06 & maximum at 45.20 percentage. Therefore, that cash &
bank balance is not satisfactory in corporation to account receivable. Thus it
37
 can say that higher the account receivable caused lower cash balance and vise-
versa.

 Net profit margin ratio indicates that company’s net profit with respect to
sales has fluctuating trend, but last three years the company’s net profit
margin ratio increase in increasing trend.

 On the basis of Cash Flow Statement, The corporation's main sources of cash
are cash from operating activities. The operating performance of salt trading
corporation is very critical. The cash from operating activity for the fiscal year
2071/72 is negative and for the rest of fiscal year is positive. The negative
cash balance indicates very poor position of corporation and vice-versa.

The investing activity of all fiscal year is negative.

The financing performance of STCL is so good. The cash from financing

activity for fiscal year 2071/72 is positive and for the rest of fiscal year is
negative.

Thus, for STCL it is necessary to highlight the importance of developing appropriate

strategies for cash management in respect of:

a) Cash planning and cash budgeting in formal basis so as to project cash surplus
or cash deficit for a period not exceeding one year and broken up into shorter
intervals.

b) Managing of cash flows so as to accelerate the inflows as far as possible to

decelerate out flows.

c) Optimizing the level of cash balance by matching the cost of holding excess
cash and the danger of cash deficiency.

d) Investing idle cash balance taking into account the cost of administering
investments in marketable securities.

e) While observing the relationship between cash balance and source of finance,
there is positive relationship is observed. However, it is satisfying in
significant.

3.3 Suggestions for Implication

38
The third section of this chapter is recommendation. The recommendation from this study is
given below.

1. Efficient Management of cash.

Salt Trading Corporation Limited should have proper cash planning to estimate the
cash receipts and payments. Corporation should first identify the cash needs for
operation. For this, corporation should consider the various expenses it has to incur
such as purchase of commodities, payment to be made for wages, salaries, rent,
power etc. In other words, it should forecast the cash needs for trading expenses,
administrating and selling overheads for certain period of time, say one month. After
identifying the cash needs, the corporation should estimate with the proper budgeting
of cash sales and collections of credits. When the cash flows are forecasted, the
corporation should then determine the minimum level of cash balance needed to the
corporation. At the same time, the seasonal requirement should also be considered.

2. To prepare Monthly trial balance cash funds statements and financial

reports:

Looking at the corporation’s deficiency in the areas of internal audit and central
system. It can be suggested that, the corporation should prepare monthly balance
cash and funds flow statements and financial reports in order to appraisal its financial
positions to the board of directors time to time.

3. To design the effective account receivables management:

Account receivables management is one of the basic components of current assets

and management should be given to priority by the top management of the
corporation since major share of corporation since major share of corporation current
assets has been occupied by account receivables. Account receivables can be
managed efficiently by designing an appropriate receivables management
programmed. This programmed has two main approaches in the first place. The
corporation should try to minimize account receivable by selling only in cash terms.
Secondly it should try to maximize collection efforts by different process restoring to
various measures. That is to determine appropriate credit policy. Not only that the
STCL should follow suitable credit terms, specially providing discount that is

39
attractive to encourage payments earlier and at the same time make a comprehensive
study of character, capacity, capital, collateral and conditions of all those customers
or institutions that request credit from the corporation.

4) Adopt effective credit policy:

The corporation should have suitable credit policy to handle the cash management
effectively. It should adopt liberal credit policy to increase the sales. Next it should
adopt strength credit policy especially for its staff and workers for effective credit
and collection performances as low total receivable. One of the reasons of lower
turnover and high collection period arise due to more advances to corporation
employees.

5. Maintain optimum cash balance:

STCL should optimum cash balance by matching between surplus and deficiency of
cash balance. As the size of the cash balance directly varies with peak period, stock
period and general economic factors and investment opportunities the STCL should
take all those situations, while determining optimum cash balance. During the peak
period while in the production phase the corporation should hold more cash to make
huge purchase for the fulfillment of domestic as well as international demand. Like
this small cash or bank balance should be kept by he STCL in off season because of
no any purchase is made off season. Moreover, in general economic conditions such
as sugar flour and rice, sometime STCL get a chance to take advantage of investment
opportunity to purchase shares, debentures, marketable securities, when interest is
expected to decline etc. the corporation should exploit those profitable opportunities
and keep cash reserve to do so.

6. Invest the surplus cash in profitable opportunities:

Corporation should manage its cash affairs in such a way as to keep cash balances to
a minimum level and to invest the surplus cash funds in profitable opportunities like

40
government securities, investment in new business, provide loan, deposit, and launch
new products.

Due to the political instability in the country and other violating factors, economic activity
started to go down; some of the foreign investors even pulled away their hands from
investment due to which GDP went very low and because of this Nepalese share market was
badly affected. Hence, it is recommended that the government should make every effort to
give peaceful solution to the present political conflict and other uncontrollable forces for the
economic growth, make the business policy transparent and international standard per WTO
norms. Similarly government should devise rules and regulation regarding the operation of
stock market for a healthy economic development of the nation. The government further
should make every possible arrangement to trade securities on the floor of NEPSE, the only
organized stock market in the country to feel a sense of safe and belonging from the view
point of investor

3.4.Lesson Learnt

REFERENCES

Books

41
Pradhan, R. S.. (1986). Management of Working Richard Capital. New Delhi: National
books Organization.

Pradhan, S. (2000). Basic of Financial Management. Kathmandu: Educational Enterprise.

Thesis, Journals, Report and Asrticles

Achary, K. (1985). Problems and Impediments in the Management of Working Capital in

Nepalese Enterprises. Kathmandu: ISDOC, Vol. 10.

Bhandary, A. R. (2047). A Case Study of Working Capital Management of Nepal Bank Ltd.
Kathmandu: Unpublished Master's Degree Thesis, Central Department of
Management, T.U.

Giri, R. (1986). A Case Study of Working Capital Management of Balaju Textile Industry
Limited. Kathmandu: Unpublished Master's Degree Thesis, Central Department of
Management, T.U.

Salt Trading Concern Limited ,Biratnagar : Annual Report (Fiscal Year 2067/68 to 2071/72).

Shrestha, P. K. (1994), A Study on Working Capital Management in Bhirkuti Paper Mills

Ltd. Kathmandu: Unpublished Master's Degree Thesis, Central Department of
Management, T.U.

Websites

http.//www.bambooweb.com

http.//www.bbc.calen/my_project/projects/growth/working-capital.htm

http.//www.bized.ac.uk

http.//www.studyfinance.com

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