Prathi Project Capex

A project on analysis of profitability and liquidity relation at CAPEX
INTRODUCTION
Financial management is that management activity which is concerned with the planning and controlling of the firms financial resources. The three aims in aspects of financial management are profitability, liquidity and solvency. Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing relationship between the items of Balance Sheet and Profit and Loss Account. Management of the firm would be interested in every aspect of financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently that the firms financial condition is sound. Profit is the goal that every person seeks. Without profit a business venture cannot exist. Profit is the end product of business activity and the measurement of success of a business venture. In the words of Lord Keynes, Profit is the engine that drives the business enterprise. Profits are thus a useful measure of overall efficiency of a business. Profitability is the ability to earn income and sustain growth in both short term and long term. Simply defined profit is the excess of income (revenue) over costs (expenses). Understanding profitability and the elements that provide an insight to the concept of profitability and the elements that provide income to the company. Business decisions are made based on their effect on profitability. Financial decisions which increase the profitability will increase the value of the firm. A companys degree of profitability is usually based on the income statement that reports on the companys result of operations. Profitability ratios are calculated to measure the overall efficiency of the business. Generally profitability ratios are calculated either in relation to sales or in relation to sales or in relation to investment. Liquidity is the ability to maintain positive cash flow, while satisfying immediate obligations. The short term obligation of a firm can be met only when there are sufficient liquid assets. Therefore a firm must ensure that it does not suffer from lack of liquidity or the capacity to pay its current obligations.
INSTITUTE OF MANAGEMENT IN KERALA
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A project on analysis of profitability and liquidity relation at CAPEX Kerala State Cashew workers Apex Industrial Co-operative Society Limited (CAPEX) was registered on 09-09-1984 under Kerala Co-operative Societies Act 1969 as an Apex Society of Cashew workers primary society with Headquarters at Kollam. The main object of the apex society is to organize Cashew Industry in the state on commercial basis, rendering assistance to affiliated societies in the matter of procurement and marketing of kernels and other items produced in the factories of the affiliated societies. CAPEX is the only largest Cashew processing Unit in the Co-operative Sector under Industries Department, Government of Kerala. The financial statement are prepared for the purpose of presenting a periodical review or report on the progress made by the concern and deal with the status of the investment in the business and results achieved during the accounting period. The aim of maintaining various records is to exhibit the various financial position of the business. Financial statements, income statements and statements are the outcome of the accounting process.
STATEMENT OF THE PROBLEM

The objective of financial management is to earn maximum profit. Various important decisions are taken to maximize the profit of the firm. Profit maximization as an objective of financial management results in efficient allocation of resources. Analysis of profitability and liquidity of a company is essential or taking business decisions for managers and Investment decisions for shareholders. Profitability and liquidity analysis are in great assistance in locating the week spots of CAPEX. This further helps in Financial forecasting and planning Communicating the strength and financial standing of CAPEX For effective control of business
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A project on analysis of profitability and liquidity relation at CAPEX Companies collect their finance by issuing shares to the public. Investors also purchase shares in hope of getting good return from the company in the form of dividend. If the company does not earn good profit, it fails to distribute higher dividends. The people would not invest in such a company and people who have already invested will sell their stocks. The analysis of profitability and liquidity relation requires the analysis and interpretation of financial statements. Financial analysis helps in the calculation of the relationship of one financial fact with one another to measure the profitability, operational efficiency, solvency and growth potential of the company. Financial analysis also helps in identifying the strength and weakness of the firm by establishing the relationship between items of Balance Sheet and the profit and loss account.
OBJECTIVES
1. To find out the profitability and liquidity position of CAPEX 2. To analyze the income and profitability trend of CAPEX during the period 2005 to 2010 3. To find out how profitability and liquidity are correlated
RESEARCH METHODOLOGY
The research methodology is considered as the blue print of the study which determines the strength, reliability and accuracy of the project. It refers to the techniques and tools used in performing the research and it deals with the research design, data collection methods, and various statistical tools. The type of research undertaken is Analytical and Descriptive in nature. Research design is the basic framework that provides guidelines for the rest of the research process. It specifies the method of data collection and data analysis. Descriptive research includes survey and fact finding enquiries of different kinds. It gives a detailed interpretation and description of the state of affairs. In Analytical research one has to use facts or information already available and analyze these to make a critical evaluation of the material
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METHOD OF DATA COLLECTION

The data that was necessary for the study was collected through two sources: primary and secondary sources.
Primary Source
Primary data are usually collected through sources such as self observation, conducting formal and informal talks with personnel of the finance department. An informal discussion with the finance department personnel was the primary source in this study.
Secondary Source
Secondary data was collected from company records like annual reports, financial statements like Balance Sheet, Profit and Loss Account. The general information of the industry was collected from the internet and books.
DATA ANALYSIS TOOLS AND TECHNIQUES

The analysis of the data was done through standard financial and statistical techniques. The principal techniques used in the analysis of the profitability and liquidity relation are ratio analysis and the statistical measures like trend analysis and correlation are used.
Tools for data analysis

Ratio Analysis Trend analysis Fund flow analysis Correlation Ratio analysis is one of the most used techniques of financial analysis. It aims at making use of quantitative information for decision making. It is a yardstick, which measures the relationship between two variables. Ratios are simply means of highlighting in arithmetic terms of relationship between figures drawn from various financial statements. Financial ratios can be derived from the balance sheet and income statements.
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A project on analysis of profitability and liquidity relation at CAPEX Trend analysis aims to find out a pattern in the change of financial parameters over the years. Here a year is set as the base year and the other years are expressed as percentage of the base year. This enables the interested parties to spot any particular trend in the change of the parameter with respect to the base year. Fund flow statement is a statement in summary form that indicates the changes of items in financial position between two different balance sheet dates showing clearly the sources and application of funds. The major purpose of a fund statement is to provide a detailed presentation of the results of financial management, as distinguished from operating management. Correlation is defined as the tendency of two or more groups or series of items to vary together directly or inversely. The word correlation usually implies the cause and effect relationship i.e. mutual interdependence. When two variables are correlated there need not be cause and effect relationship. It is just possible that the high degree of correlation may be due to the same cause effecting each variable.
Tools for representing data

Tables Graphs
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SCOPE OF THE STUDY

The scope of the study aims to analyze the relationship between the profitability and liquidity of CAPEX and the trend of profitability in the past 5 years and also the liquidity position of the company. The main aim of the study is to understand the financial performance as well as to evaluate the strength and weakness of CAPEX. The study reviews the performance of the company for a period of 5 years i.e. from 2005-2010, as revealed by the financialstatements of CAPEX. The study also provides suggestions based upon findings. They may serve as an aid for drawing out the plans for future.
LIMITATIONS OF THE STUDY

The study is mainly based on the data collected from the secondary sources provided by the company and hence there are chances of error The information collected from the company records related only to the past which may not be an overall representative of the company The company has many problems of its own including being a public sector undertaking. The prices are fixed by the government which acts as a major obstacle in profit making. All these factors hinder the cross section analysis of the ratios. The reliability and accuracy of calculation depends on the information available from the balance sheet.
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CHAPTERISATION
Chapter 1: This chapter deals with the introduction to the study, the statement of the problem, objectives, , research methodology, scope and limitations of the study Chapter 2: This chapter deals with the literature review of an analysis of profitability and liquidity relation study conducted by different researchers. Chapter 3: The third chapter deals with the Company Profile of CAPEX and the theoretical perspective Chapter 4: This chapter deals with the Industry and Company Profile of CAPEX Chaptor5: This chapter deals with data analysis and interpretation Chapter 6: This chapter deals with the findings, suggestions ad conclusion of the study
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LITERATURE REVIEW
The review of literature gives a broad outlook of various research studies made in the past and the details of such studies throw light on future studies to be made. It also strengthens the theoretical base of the research study. In our present day economy, finance is defined as the provision of money at the time when it is required. Every enterprise whether big, medium or small it requires finance to carry on various business operations and to achieve their predetermined goals. A basic definition of finance is a branch of economies that deals with resource management. In simple laymans terms, finance is any area of study that helps us get manage and invest money. Profitability is the efficiency of a company or industry at generating earnings. Profitability is expressed in terms of several popular numbers that measure one of two generic types of performances: how much they make with what they have got and how much they make from what they take in. Analysis of profitability of a business is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. Liquidity is the ability of the firm to meet its current liabilities as they fall due. Since liquidity is the basis of the continuous operations of the company, it becomes necessary to determine the level of liquidity. While calculating current ratios, relatively high current ratios indicate that the firm is liquid and its ability to pay its current obligation in time and when they become due. The quick ratio establishes a relationship between quick or liquid assets and current liabilities. Profitability is the measure of the amount by which a companys revenues exceed its relevant expenses. Profitability ratios are used to evaluate managements ability to create earnings from revenues generating bases within the organization. As per Business dictionary.com profitability is the ability of a firm to generate net income on consistent basis. It is often measured by price to earnings ratio. Review of literature and theories on determinants of profitability explains that the profitability determinants were basically divided into two main categories, namely the internal determinants and the external
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A project on analysis of profitability and liquidity relation at CAPEX determinants. The internal determinants include management controllable factors such as liquidity, investment in securities, investment in subsidiaries, loans, and overhead expenditure. Bourke, et al, (2000)1, indicated that financial statement variables are those variables which relate to the balance sheet and profit and loss account. Asset-liability portfolio decisions would certainly have an impact on profitability. Hester and Zoellner (2006)2 were the pioneers of bank profitability studies. In their work, they measured the relationship between items in the balance sheet and the profit and loss account of 300 banks in Kansas City and Connecticut in the USA, for the period from 2000 to 2003. They used the net current operating income, net profit before income taxes, net profit after taxes as the dependent variable. They found that the changes in asset and liability portfolios (items in the balance sheet) produced both positive and negative results on banks earnings. While all asset items ad a significant positive relationship, all liability items, which include demand, time and saving deposits were negatively related to profits. Haslem (2008)3 found that, in order to improve profit the management should first emphasize on expense management. Investopedia(1997)4explains profitability ratios like profit margin, return on assets and return on equity. It is important to note that a little bit of background knowledge is necessary in order to make relevant comparisons when analyzing these ratios. Investopedia(1997)5 explains liquidity. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment. Shafii Ndanusa Abuja(1999)6 Nigeria quoted the following in his article named Liquidity versus Profitability: The Dilemma of the Finance Manager,: Each time a major investment decision has to be made, technically there is always a dilemma in choosing between keeping more or less liquidity or desiring less of more profitability.
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A project on analysis of profitability and liquidity relation at CAPEX For organizations that are pure profit oriented, it is easier to see the interplay of conflicting preferences. While for organizations that are non-profit oriented, the desire for profitability can be equated to the desire for value-for-money in service delivery. With respect to the management of financial resources, a challenge usually arises in deciding whether to favour liquidity profitability. It is not possible to favour both inn one single decision. The more liquidity you keep, the less profitability you achieve. Likewise, the less liquidity you decide to keep, the more financial resources you are able to channel to fixed capital investments which eventually leads to more profitability. More of both choices are thus desirable but usually excluding. Some of the factors affecting managers preferences for either liquidity or profitability the individual managers attitude to risk, the industry peculiarities, the general investment climate, cost of borrowing long and short term funds and current levels of return on various classes of fixed capital investment in the firms portfolio, amongst others. Sherin Moraes(1995)7 a student at Marian Institute of Health Sector management in a study writes that A firm is required to maintain a balance between liquidity and profitability while conducting its day to day operations. Investments in current assets are inevitable to ensure delivery of goods or services to the ultimate customers. A proper management of the same could result in the desired impact on either profitability or liquidity.
Bhunia (2010)8 a study of liquidity is of major importance to both the internal and external analysts because of its close relationship with day to day operations of a business A weak liquidity position poses a threat to the solvency as well as profitability of a firm and makes it unsafe and unsound.Profitability is a measure of the amount by which a firms revenues exceeds its relevant expenses. Potential investors are interested in dividends and appreciation in market price of stock, so they pay more attention on the profitability ratios. Managers on the other hand are interested in measuring the operating performance in terms of profitability. Hence, a low profit margin would suggest ineffective management and investors would be hesitant to invest in the company. The liquidity and profitability goals are contradictory to each other in most decisions which the finance manager takes. For example, the firm by following a lenient credit
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A project on analysis of profitability and liquidity relation at CAPEX policy may be in a position to increase its sales, but its liquidity may tend to worse. In addition to this, referring to the risk return theory there is a direct relationship between risk and return. Thus, firms with high liquidity may have low risk and then low profitability. Conversely, firm that has low liquidity may face high risk results to higher return. Consequently, a firm is required to maintain a balance between liquidity and profitability in its day-to-day operations. Eljelly (2004)9 efficient liquidity management associates planning and controlling current assets and current liabilities in an efficient manner so as to eliminate the risk of non-payment of dues for short term requirements and it also avoids excessive investment in these assets. The connection between profitability and liquidity was examined, as determined by current ratio and cash conversion cycle on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. Eljelly stressed that, cash conversion cycle is the most effective tool to measure the liquidity compared to the current ratio which affects profitability. Lairodi et al (1999)10 with the listed companies of London Stock Exchange for 4 years period revealed that, the cash conversion cycle (CCC), current ratio (CR) and the quick ratio (QR) have a negative association with the profitability ratios like the net profit ratio, return on assets ratio and the return on equity ratio. They also found a positive correlation between the liquidity ratios itself. Velnampy, T (2006)11 examined the financial position of the companies and the relationship between financial position and profitability with the sample of 25 public quoted companies in Sri Lanka by using the Altman Original Bankruptcy Forecasting Model. His findings suggest that, out of 25 companies only 4 companies are in the condition of going to bankrupt in the near future. He also found that, earning/total assets ratio, Velnampy, T. and Niresh, J.A. (2012) investigated the association between capital structure and profitability of listed Sri Lankan banks over the period of 8 years from 2002 to 2009. Results of their analysis show that, there is a negative association between capital structure and profitability except the association between debtto equity and return on equity
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A project on analysis of profitability and liquidity relation at CAPEX Vishnani and Shah (2007)12 mentioned that, the most common measure of liquidity is current ratio and returnon investment for profitability. A higher current ratio indicates a larger investment in current assets whichmeans, a low rate of return on investment for the firm, as excess investment in current assets will not yield enough return. A low current ratio means smaller investment in current assets which means a high rate ofreturn on investment for the firm, as no unused investment is tied up in current assets. However, a low current ratio might also mean disruption in production and sales due to the frequent stock outs and the inability to pay the creditors in time due to the restrictive policy. Velnampy,T. and Nimalathasan, B(2008)13 investigated the association between organizational growth and profitability of Commercial bank ltd in Sri Lanka over the period of 10 years from 1997 to 2006. They found that, sales are positively associated with profitability ratios except operating profit, return on equity and number of depositors are negatively correlated to the profitability ratios except operating profit and return on equity. Likewise, number of advances is also negatively correlated to the return on average shareholders funds. Furthermore, Velnampy,T Nimalathasan, B (2010)14 made a research regarding the association between firm size and profitability of all the branches of Bank of Ceylon and Commercial Bank of Ceylon ltd over a period of 10 years from 1997 to 2006. Findings reveal that, there is a positive relationship between firm size and profitability in Commercial Bank of Ceylon ltd, but there is no relationship between firm size and profitability in Bank of Ceylon. Smith et al (1997)15 profitability and liquidity are the salient goals of working capital management. The problem arises due to the maximization of the firms returns could seriously threaten its liquidity, and the pursuit of liquidity had a propensity to dilute returns. This piece of work appraised the association between standard and alternative working capital measures and the return on investment, mainly in the industrial firms listed in the Johannesburg Stock Exchange. The problem under investigation was to create whether the more recently developed alternative working capital concepts showed improved association with return on investment to
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A project on analysis of profitability and liquidity relation at CAPEX that of the conventional working capital ratios or not. The resultsverified that, there were no significant difference between the years and the chosen independent variables. The results of their stepwise regression confirmed that, the total current liabilities is divided by funds flow accounted for most of the variability in return on investment. The statistical results proved that, a traditional working capital leverage ratio, current liabilities divided by funds flow, exhibited greatest association with return on investment. Renowned liquidity concepts such as current ratio and the quick ratio showed insignificant associations whilst only one of the newer working capital concepts, the comprehensive liquidityindex indicated significant association with return on investment. Narware (2004)16 in his study of working capital management and profitability of NFL, a fertilizer company found both positive and negative association Mukhopadhyay (2004)17 loans and advances and other current assets hardly had any role to contribute to the revenue generation of a firm. Furthermore, Bardia (2004) and Sur and Ganguly (2001) in their study on steel giant SAIL and aluminum producing industry believed that, there is a positive association between liquidity and profitability and this observation tallies with the observation derived by Narware (2004). Smith and Begemann (1997)18 emphasized that those who promoted working capital theory shared that profitability and liquidity comprised the salient goals of working capital management. The problem arose because the maximization of the firm's returns could seriously threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns. Deloof (2003)19 discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payableof Belgian firms.
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A project on analysis of profitability and liquidity relation at CAPEX Howorth and Westhead (2003)20 suggest that small companies tend to focus on some areas of working capital management where they can expect to improve marginal returns. For small and growing businesses, an efficient working capital management is a vital component of success and survival; i.e both profitability and liquidity (Peel and Wilson, 1996). They further assert that smaller firms should adopt formal working capital management routines in order to reduce the probability of business closure, as well as to enhance business performance. Lazaridis and Tryfonidis (2006)21 find a negative relationship between profitability and CCC for 131 listed companies listed in Athens Stock Exchange for the period 2001 - 2004. Similar to the results of these studies focused on large firms. Christopher and Kamalavalli (2009)22 study, they investigated a sample of 14 corporate hospitals in India using panel data analysis for the period 96/97 to 2005/06. The independent variables used were current ratio, quick ratio, inventory turnover ratio, working capital turnover ratio, and debtors turnover ratio, ratio of current asset to total asset, ratio of current asset to operating income, comprehensive liquidity index, netliquid balance size, leverage and growth. Amarjit Gill 1, Nahum Biger 2, Neil Mathur 3 (2010)23 under the title "The Relationship between Working Capital Management and Profitability: Evidence from the United States", the aim of this paper is to find the relationship between working capital management and profitability. A sample of 88 American firms listed on New York Stock Exchange for a period of 3 years from 2005 to 2007 was selected. Dong (2010)24 reported that the firms profitability and liquidity are affected by working capital management in his analysis. Pooled data are selected for carrying out the research for the era of 2006-2008 for assessing the companies listed in stock market of Vietnam. SaswataChatterjee (2010)25 focused on the importance of the fixed and current assets in the successful running of any organization. It poses direct impacts on the profitability liquidity. There have been a phenomenon observed in the business that most of the companies increase the margin for the profits and losses because this act shrinks the size of working capital relative to sales
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A project on analysis of profitability and liquidity relation at CAPEX Mohammad Alipour (2011)26, under the title "Working Capital Management and Corporate Profitability: Evidence from Iran", the results of the research show that in the studied companies, there is a significant relation between working capital management and profitability and working capital management has a great effect on the profitability of the companies and the managers can create value for shareholders by means of decreasing receivable accounts and inventory, World Applied SciencesJournal 12 (7): 1093-1099, 2011. Mamoun M. Al-Debi'e(2011)27 under the title, "Working Capital Management and Profitability: The Case of Industrial Firms in Jordan", the aim of this paper is to examining the relationship between profitability and working capital management measures for industrial companies listed on Amman Stock Exchange in Jordan during the period 2001-2010.
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A project on analysis of profitability and liquidity relation at CAPEX REFERENCES: [1]Bose D.C (2006), Fundamentals of Financial Management, New Delhi, Prentice Hall of India Pvt Ltd p.76
[2]Chandra Prasanna (2000), Financial Management-Theory and Practices, New Delhi, Tata Mc Graw Hills p.88
[3]Pandey I.M (1997), Financial Management, New Delhi, Vikas Publishing House Pvt. Ltd p78 [4]Srinivasan N.P, (2008), Rajendra Ravindra Printers (Pvt) Ltd Profitability p 95 Working Capital and
[5]Sekaran Uma, Research Methods for Business, New Delhi: Johm Willey India Pvt. Ltd p107 [6] Shafii Ndanusa Abuja, Impact of Working Capital Management Policies on Corporate Performance: An Empirical Study. Global Business Review 8, p.473.
[7] Sherin Moraes, Working Capital performance of corporate India: An empirical survey, Management & Accounting Research, Vol. 4, p98
[8] Bhunia, A. (2010). A trend analysis of liquidity management efficiency in selected private sector Indian steel industry, International Journal of Research in Commerce and Management, Volume-1, Issue-5 (Sep, 2010), pp. 9-21. [9] Eljelly, A. (2004) Liquidity-Profitability Tradeoff: An Empirical Investigation in an Emerging Market. International Journal of Commerce & Management. Vol. 14, No 2, pp. 4861.
[10] Lairodi et al (1999). Working capital management and Profitability - Case of Pakistani Firms. International Review of Business Research Papers, Vol. 3, No. 1, pp. 279-300.
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A project on analysis of profitability and liquidity relation at CAPEX [11] veluampyt. (2006). Working Capital and Profitability - An Empirical Analysis,The Management Accountant, Vol. 39(6), pp. 120-127. [12] Vishnani, S. and sha, K.S. (2007). Impact of Working Capital Management Policies on Corporate Performance: An Empirical Study. Global Business Review 8, p.267. [13] . veluampy T and Nimalathasam (2008). Does Working Capital Management affects Profitability of Belgian Firms?,Journal of Business Finance & Accounting, Vol.30 No. 3 & 4, pp. 573-587.
[14]Nimlathasam B. (2012). Working Capital performance of corporate India: An empirical survey, Management & Accounting Research, Vol. 4, p. 35-65.
[15] smith et al (1997). Research Methodology: Methods & Techniques, p.55.
[16] Narware (2004). International Working Capital Practices in the UK, European Financial Management, Vol. 6 No. 1, pp. 69-84. [17] Mukhopadhyay (2004), Impact of Working Capital Management in the Profitability of Hindalco Industries Limited, The ICFAI University Journal of Financial Economics, Vol. 36, pp. 64-79. [18] Smith and Begemann (1997) impact of working capital management in profitability oof Hindalco Industry Limited, The ICFAI University Journal of Financial Economics, Vol. 36, pp. 92-103. [19] Deloof, (2003) International Working Capital Practices in the UK, European FinancialManagement, V ol. 6 No. 1, p75.80. [20] Howorth and Westhead (2003), ). Impact of Working Capital Management Policies Corporate Performance: An Empirical Study. Global Business Review 8, p.176.
[21]. Lazaridi and Tryfonidis (2006) Impact of Working Capital Management Policies on Corporate Performance: An Empirical Study. Global Business Review 8, p.188. [22] Christopher and Kamalavalli (2009) Does Working Capital Management affects Profitability of Belgian Firms?,Journal of Business Finance & Accounting, Vol.30 No. 3 & 4, p. 534-538. [23] Amarjit Gill 1, Nahum Biger 2, Neil Mathur 3 (2010), impact of working capital management in profitability oof Hindalco Industry Limited, The ICFAI University Journal of Financial Economics, Vol. 36, p. 88-109.
[24] Dong (2010) ). International Working Capital Practices in the UK, European Financial Management, Vol. 6 No. 1, p. 76-98. [25] SaswataChatterjee 25(2010) Impact of Working Capital Management Policies on Corporate Performance: An Empirical Study. Global Business Review 8, p.200.
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THEORETICAL FRAMEWORK
The term ratio simply means one number expressed in terms of another. It describes in mathematical terms the quantitative relationship that exists between two numbers. Ratio analysis refers to the analysis and the interpretation of financial statements through ratios. It is now widely being used by all the business and industrial concerns in their financial analysis. Ratios are considered to be the best guides for the efficient execution of basic managerial functions like planning, forecasting and control etc.
ANALYSIS OF LIQUIDITY/LIQUIDITY RATIOS

Liquidity ratios play a key role in assessing the short-term financial position of a business. Managements can employ these ratios to ascertain how efficiently they utilize the working capital in the business. Shareholders and debenture holders and other long-term creditors can use these ratios to assess the prospects of dividend and interest payments. This types of ratios normally indicates the ability of the business to meet the maturing or current debts, the efficiency of the management in utilizing the efficiency of the working capital, and the progress attained in the current financial position. 1. Current ratio Current ratio may be defined as the ratio of current assets to current liabilities. It is also known as Working Capital ratio or 2:1 ratio. It shows the relationship between the total current assets and total current liabilities. Current Ratio = Current Assets Current Liabilities Current ratio is an index of the firms financial stability, i.e., an index of the technical solvency and an index of the strength of the working capital, which means the excess of current assets over current liabilities. The ideal current ratio could be between 1.5:1 to 2:1. A high current ratio is an assurance that the firm will have adequate funds to pay current liabilities and other current payments.
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2. Liquid Ratio Liquid ratio may be defined as the ratio of liquid assets to liquid liabilities or current liabilities. It is concerned with the relationship between liquid assets and liquid or current liabilities. This ratio is also known as Quick Ratio or Acid Test Ratio. Liquid Ratio = Liquid Assets Current Liabilities The ratio indicates that by realizing the debtors, short-term investments and bills receivables at their face values along with cash and bank balances, the firm could pay off all liquid liabilities. The standard liquid ratio is 1:1. A high liquid ratio compared to current ratio may indicate under stocking while a low liquid ratio may indicate over-stocking.the liquid ratio gives a better picture of the firms capacity to meet its short-term obligations out of short-term assets. 3. Absolute Liquid Ratio Absolute liquidity is represented by cash and near cash items. Hence, in the computation of this ratio, only absolute liquid assets are compared with liquid liabilities. Absolute Liquid Ratio = Cash + Bank + Marketable securities Liquid Liabilities This ratio gains significance only when it is done in conjunction with the first two ratios. A standard of 0.5:1 is considered an acceptable norm for this ratio. In other words, this ratio indicates that 50 paise worth of absolute liquid assets are sufficient to meet 1 rupee worth of liquid liabilities. This ratio is not much in use.
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A project on analysis of profitability and liquidity relation at CAPEX 4. Inventory Turnover Ratio Inventory turnover ratio is a ratio that establishes a relationship between cost of sales and average inventory. It is also known as Stock turnover ratio. This ratio indicates whether
the investment in inventory is within proper limit or not. Besides being an index of the liquidity of the firm showing the rate at which inventories are converted into sales and then into cash, this ratio helps the finance manager to evaluate the inventory policy. Inventory Turnover Ratio = Cost of goods sold Average Inventory at Cost
ANALYSIS OF PROFITABILITY/PROFITABILITY RATIOS

Profitability is the measure of efficiency and control. It indicates the efficiency or effectiveness with which the operations of the business are carried on. Profitability ratios are employed by management in order to assess how efficiently they carry on business operations. Creditors, banks and financial institutions are interested in profitability ratios since they indicate the liquidity or capacity of the business to meet interest obligations, and regular and improved profits to enhance the long-term solvency position of the business. Owners are interested in the profitability for they indicate the growth and also rate of return of their investments. 1. Gross Profit Ratio Gross Profit Ratio is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit margin and sales. The basic components are gross profit and sales. Gross Profit Ratio = Gross profit x 100 Net Sales
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A project on analysis of profitability and liquidity relation at CAPEX There is no standard GP ratio. GP ratio indicates as to what extend the selling price of goods per unit may be reduced without incurring losses on operations. 2. Net Profit Ratio This is the ratio of net income or profit after taxes to net sales. Net Profit Ratio = Net Profit x 100 Net Sales This is used as a measure of overall profitability and is useful to the owners. It is both an index of efficiency as well as profitability when used along with GP ratio and Operating ratio. 3. Operating Ratio This is the ratio of operating cost to net sales. The term operating cost refers to cost of goods sold plus operating expenses. This is closely related to the ratio of operating profit to net sales. Operating Ratio = Operating cost x 100 Net sales This ratio indicates the operational efficiency with which the business is being carried on. It shows the percentage of net sales that is absorbed by the cost of goods sold and operating expenses. Hence, lower the operating ratio, higher will be the operating profit. An operating profit ranging between 75% and 85% is generally considered as standard for manufacturing concerns. 4. Return on Total Assets This ratio relates the net profit after tax and interest to the total productive assets used. This ratio is computed to find out the productivity of the total assets. Return on Total Assets = Net profit after tax and interest x 100 Total Assets Fictitious Assets
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TREND ANALYSIS
In financial analysis, the direction of changes over a period of years is of crucial importance. Time series or trend analysis of ratios indicates the direction of change. The kind of analysis is particularly applicable to the items of profit and loss account. It is advisable that trend of sales and net income may be studied in the light of two factors: the rate of fixed expansion or secular trend in the growth of the business and the general price level. It might be found in practice that a number of firms would show a persistent growth over a period of years. But to get a true growth, the sales figure should be deflated for a rising price level. When the resulting figures are shown on the graph, we will get trend of growth devoid of price changes. Another method of securing trend of growth and one which can be used instead of adjusted sales figures or as check on them is to tabulate and plot the output or physical volume of sales expressed in suitable units of measure. If the general price level is not considered while analyzing trend of growth, it can mislead the management. They may become unduly optimistic in periods of prosperity and pessimistic in dull periods. For trend analysis, the use of index number is generally advocated. The procedure followed is to assign the number of 100 items of the base year and to calculate percentage changes in each item of other years in relation to the base year. This procedure may be called as trend percentage method.
Trend Analysis method: Trend can be analyzed in any of the following two methods
By calculating the trend ratio or percentage By plotting on a graph paper or chart
Trend Ratio or Percentages: the calculation of trend ratio analysis involves the
ascertainment of arithmetic relationship with each item of several years to the same item of base
A project on analysis of profitability and liquidity relation at CAPEX year. The method of calculating trend ratio or percentage involves the calculation of percentage relationship each item bears to the same item in the base year. Usually, the earliest year is chosen as the base year. The value of one particular item out of several items shown in financial statement is converted into ratio or percentage, taking the value of the same item in the base year as 100.
Plotting the Trend Ratio: the ratios or percentages calculated can be plotted on graph
paper on a line drawn through the point to give a general idea of the direction. It should be remembered that the line drawn should be smooth.
Procedure for calculating trends

One year is taken as base year. Generally the first or the last is taken as base year. The figures for base year are taken as 100. Trend percentages are calculated in relation to base year. If a figure in other year trend percentages will be less than 100 and more than 100 if figures is more than base year figure. Each year figures is divided by the base year figure.
ANALYSIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

It is prepared in order to measure the increase or decrease in the working capital over a period of time. It is necessary to prepare this schedule. This schedule is prepared with the help of only current assets and current liabilities. Working capital means the excess of current assets over current liabilities. Compare each current asset in previous year with that in current year. Simply, compare each current liability in previous year with that in the current year. The difference is recorded for each individual current assets and current liabilities. This process will be repeated till all account related to all current assets and current liabilities in two balance sheets are gone through and difference is properly recorded. The two columns showing the changes in current assets and current liabilities are balanced. The balancing figure represents either an increase or decrease in working capital. It must be remembered that schedule of changes in working capital is prepare
A project on analysis of profitability and liquidity relation at CAPEX only from accounts appearing in the Balance Sheet. There is no effect of additional information given in the problem.
Working Capital = Current Assets Current Liabilities

If the working capital at the end of the period is more than working capital at the beginning, the difference is expressed as Net increase in working capital. Similarly, if the working capital at the end of the beginning is less than that of the beginning, the difference is expressed as Net decrease in working capital.
CORRELATION
Correlation is defined as the tendency of two or more groups or series of items to vary together directly or inversely. The word correlation usually implies the cause and effect relationship i.e. mutual interdependence. When two variables are correlated there need not be cause and effect relationship. It is just possible that the high degree of correlation may be due to the same cause effecting each variable. The different types of correlation are: 1. Positive and negative correlation 2. Linear and non-linear correlation 3. Simple, multiple and partial correlation Karl Pearsons Coefficient of Correlation: of the several mathematical methods of measuring correlation the Karl Pearsons method, popularly known as the Pearsonian coefficient of correlation, is most widely used in practice. Karl Pearson, the great biologist and statistician has given a formula for calculation of coefficient of correlation. The Pearsonian coefficient of correlation is denoted by the symbol r. the formula used for calculating the pearsonian coefficient of correlation is r= (x-x)(y-y) nxy
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where x = standard deviation of x series, y = standard deviation of y series, and n= number of pairs of observation.thi is also known as product moment correlation coefficient. The above formula can also be expressed as r= nxy (x)(y) (nx (x)2) x (n(y)2 (y)2) The interpretation of the coefficient values or r as follows:r = 1, it is indicative of Perfect Positive Correlation r = -1, it is indicative of Perfect Negative Correlation r = >0 but <1, it is indicative of imperfect positive correlation r = <0 but >-1, it is indicative of imperfect negative correlation r = 0, it is indicative of no correlation
FUND FLOW ANALYSIS

Fund flow statement is a statement in summary form that indicates the changes of items in financial position between two different balance sheet dates showing clearly the sources and application of funds. The major purpose of a fund statement is to provide a detailed presentation of the results of financial management, as distinguished from operating management. It summarizes the financing and investing activities of the enterprise. The statement shows directly the information that the readers of financial reports could otherwise obtain only by making an analysis and interpretation of published balance sheets and statements of income and retained earnings.
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Preparation of Fund Flow Statement

Mainly two comparative balance sheets at the beginning and end of a period are used for preparing a fund flow statement. In addition, a summarized income statement and retained earning statement or, at least material information from these statements are required in order to obtain information relating to funds from operations and ownership transactions. The fund flow analysis involves the preparation of two statements i.e. a) Schedule of changes in working capital b) Sources and use of funds statement a) Schedule
of Changes in Working Capital
Since a fund flow statement depicts changes in working capital, it will be better to prepare first the schedule of changes in working capital before preparing a fund flow statement. The statement of changes in working capital is prepared with the help of current assets and current liabilities. There is no effect of additional information given separately and such information will affect only the fund flow statement.
b)Fund Flow Statement The total difference between the total sources and application will be shown as either increase or decrease in working capital or funds and this could be verified with the net increase or decrease in working capital as derived from the schedule of changes in working capital. While preparing fund flow statement, current assets and current liabilities are to be ignored. Attention is to be given to changes in fixed assets and fixed liabilities.
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INDUSTRY PROFILE
CASHEW INDUSTRY
The expansion of the global market for cashew kernels in the 1960s promoted India to adopt a systematic and integrated approach towards developing the cashew economy. In the mid 1960s the government launched a cashew development programme and in 1966 a separate Directorate of cashew nut development was established under the ministry of agriculture. As a result, Indian witnessed remarkable expansion in the area under cultivation although the processing industry is still heavily dependent on imported raw nuts. Among the Agro-horticultural commodities getting exported from India, cashew ranks second position. During the year 2001-2002, India could export 97550 MT of cashew kernels valued at Rs.177680 crores. U.S.A, Netherlands, U.K, Japan, U.A.E, Canada, Saudi Arabia, Singapore, Italy, German Fed Republic, Austria, Israel and Spain are the major international buyers of Indian Cashews. Indian is the largest area holder of this crop. Cultivation of cashew in India confines mainly to peninsular areas. It is grown in Kerala, Karnataka, Goa and Maharashtra along the east coast. To a limited extent it is being cultivated in Chattisgarh, North Eastern States (Assam, Maniour, Trioura, Meghalaya and Nagaland) and Andaman and Nicobar Islands. In the year 2000, the total global area under cashew cultivation was around 40, 00,000; while the estimated average productivity was around 510 Kg and total raw nut production was 1.8 million tones. In India, cashew occupies an area of 7.70 lakhs MT and an average productivity of 710 Kg. Of these 2.001 lakhs of the plantations developed from the beginning of the eight plan alone have been with supplier varieties. Apart from the foreign exchange earnings of the industry, it plays a major role in the field of providing employment to a very large number of people both directly and indirectly and it has thus played a very vital role in the economy of the country. It generates employment in the processing and agrarian sector, employing over 3 lakhs persons with 95% of them being women.
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A project on analysis of profitability and liquidity relation at CAPEX The Cashew tree (Anacardium Occidentale), is a tropical evergreen native to the Americas but is now widely cultivated in Asia and Africa. Cashew in its natural form is a soft, white, meaty kernel contained within the hard shells of kidney shaped, raw cashew seeds. Cashew is consumed all over the world as a snack or used as a food ingredient. Cashew is essentially a tropical crop, grows best in the warm, moist and typically tropical climate. The distribution of cashew is restricted to altitudes below 700 m where the temperature does not fall below 2000C for prolonged periods, although it may be found growing at elevation up to 1200 m. It is best adopted to the coastal regions. The cashew is hardy and drought resistant, but it is damaged by frost. Cashew is grown in areas with rainfall ranging from 600 4500 mm per annum. Fruit setting in cashew will be good if rains are not abundant during flowering and nuts mature in a dry period. Cashew is a sun loving tree and does not tolerate excessive shade. It can tolerate temperature of more than 360C for a shorter period but the most favourable temperature lies between 240C to 280C. Cashew is a hardy crop. It can be grown on a wide range of soils except heavy clay, water logged and saline soils. Well drained red, sandy and laterite soils are ideal for good growth and yield of cashew. Selection of suitable cashew varieties for the specific region and appropriate package of practices determines the final yield. More than 30 varieties which are having exportable grade of cashew kernels are released from different research institutes in India and details are furnished separately. Marketing of raw cashew nut in India has not yet been organized in systematic manner except in Goa where co-operative marketing society is procuring raw nuts to the little desired extent. A major portion of the produce is brought by itinerant merchants and the agents of the processing units. A number of wholesale merchants and the processing factories open their collecting centres in important cashew producing areas during the harvesting period. The petty dealers who buy the nuts from the growers also dispose the nuts in these collecting centres. Cashew nuts are brought for sale to the assembling markets largely by the itinerant merchants. In certain areas, the most resourceful processors contact the producers thus avoiding the commission agents role and enjoy good bargaining power by providing credit facilities to the producers.
A project on analysis of profitability and liquidity relation at CAPEX As there are a number of intermediaries operating the field between the primary producer and the processing unit, the different costs and margins in the total spread between the producer and the processing unit are quite significant and the producers share in the price paid by the processing units generally low. The seasons of peak output are approximately: India Vietnam Brazil East Africa West Africa March March July October March June June February December June
The international trade in cashew is still young compared to other commodities. It started only some 75 years ago and trade in this product is relatively unsophisticated. Each year over 1.5 million metric tonnes of raw cashew seeds are produced in 19 countries, major producers being India, Brazil, Vietnam, Ivory Coast, Tanzania, Guinea Bissau, Benin, Nigeria, Mozambique and Indonesia. Cashew production in developing countries has been gathering more attention over the last decade. The development of cashew nut production is being advocated by governments and NGOs. As one of the most valuable processed nuts and tree crops on global commodity markets, cashew nut cultivation and processing is an important and promising sector for many developing countries. However, despite an important share of global production, sub-Saharan African countries have not been able to exploit a large part of the cashew's economic value. Efforts to upgrade through processing and improved production strategies to increase economic benefits have been fraught with difficulties. The global cashew trade is passing through a crucial period at present. The major challenges in this sector include steps to improve production, processing and marketing facilities and measures to expand global cashew consumption.
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A project on analysis of profitability and liquidity relation at CAPEX While Asia is said to be the predominant player in the world cashew trade, producing more than 50 per cent of the world's raw cashew production and consuming around 35 per cent of global production, it is the emergence of some of the African countries in this segment that is worth taking note of. Almost 100 per cent of the world's raw cashew are imported into Asia; 70 per cent of the world's cashew shelling is done in Asia; 35per cent of world's cashew consumption is in Asia; over 75 per cent of world cashew kernel exports are from Asia. Major threat to Asia's predominant role in global cashew trade is the increasing production in Africa and the desire of various African countries to increase cashew processing facilities in their country. Despite the relatively poor infrastructure, lack of skilled manpower and other resource constraints, the cashew processing in Africa is still posting high growth rate. There is lot of scope for linkages between Asia and Africa in the area of processing as well as production because processors in Asia provide a ready market for raw cashews produced in Africa. This will ensure remunerative prices for the African farmers and will also ensure that the processing units which come up in Africa are efficient. Proper coordination and cooperation between Asia and Africa can convert the threat into an opportunity for improving the health of cashew sector in both continents. Within Asia, the two main producers are India and Vietnam. Indonesia is another important producer. Thailand, Cambodia and Philippines also produce cashew in small quantities. China and Japan are the two big consumers in Asia, apart from India which is the second largest consumer in the world. Despite this overwhelming presence in the world cashew trade, no Asian country is leading the market. Global cashew markets are led by the activities of roasters and marketing companies in the two other major consuming blocks - the US and the EU. This is natural because creating sustainable demand is more important than production and processing which are low-tech, lowinvestment segments of the cashew trade. Major investments are required in brand building, promotions, identifying new uses etc. These initiatives can come only from large food companies in the developed countries who have financial and other resources. Cashew sector in the producing and processing countries is fragmented. Margins at production and processing level are much smaller than at the retail
A project on analysis of profitability and liquidity relation at CAPEX marketing level. Apart from large production, Asia's strength is in excellent processing infrastructure, first in India and now in Vietnam and Indonesia as well. With limited mechanisation of some parts of the processing cycle Asian countries have significant competitive advantage over the more mechanized processing being used in other countries. This enables them to process at lower cost and achieve better realization per MT of raw cashew than the mechanised processing. Lot of work has been done in the last few years in Asia to upgrade quality and hygiene standards. This effort needs to be sustained to meet the continuously tightening food safety requirements. Cashews' share in the world nut business and more significantly in the world snack food and food market - needs to be increased. New uses for cashews as an ingredient in foods - for instance, increased use in chocolates, ice creams, cooking etc have to be found to make cashews a part of the daily diet rather than just a snack food. Health and nutritional benefits have to be emphasized so that consumers become aware about cashews as a food rather than a luxury snack. Another challenge is modernizing processing units, continuous upgrading of packaging, quality and hygiene standards. Only this will provide the confidence in product quality which is essential for the large food industries to increase the use of cashews as an ingredient in their products. Like all other businesses, cashew trade will also have to adapt - and adapt quickly - to the all pervasive influence of Internet. Faster communication and more transparent trading mechanisms will mean that all players will have to become more efficient, control costs and find ways to do business safely because reduced margins at each stage of the cycle from farm to shelf will reduce the ability to sustain losses. Close cooperation and coordination between all segments of the cashew trade - producers, processors, traders, roasters, marketers and food companies - will be required to meet these challenges and convert them into opportunities to build a strong and sustainable world cashew economy.
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World Scenario
Africas cashew-nut processing industries are merely ticking over. Out of 18 plants in Mozambique, Africas fourth largest producer of cashew nuts, only seven are still operating, and the continents main producer, Tanzania, has refurbished only one plant out of the ten set up in the 1980s, the remainder having had to close within five years. In West Africa, the situation is scarcely any better: Guinea-Bissau, Africas second largest producer, has still not got its single large cashew-nut processing plant up and running, Guinea-Conakry has no plants at all, and, in Cte dIvoire, the Sodiro cashew-nut processing plant is operating below capacity. As a result, African countries which export, on average, 90 per cent of their annual production of unprocessed nuts (slightly more than 350,000 tonnes, almost one third of world production), essentially to India have an enormous deficit to make up, amounting to over $50 million. At the start of the marketing campaign, purchase prices for nuts are low, so they could quickly fill a market slot before higher bids come in. This is particularly the case since regulations in the sector allow them to contact planters direct without going through intermediaries. Thats one advantage they have over exporters. The supply issue is, however, more complicated than that out in the field. The African cashew-nut market is dominated by Indian exporting companies who generally offer planters better prices. Cashew nut's global marketplace. International selling price of cashew nut used to rise sharply when USSR countries' imports are steady and important. Same prices nose dive abruptly when these countries demands are inconsistent and low. That behavior of former USSR market results in highlighting the importance and predominance of USA's imports, which then represent something in the range of 60% of the global world market of cashew nut; instead of the normal level of 50% when demands are steady in former USSR's market. Cashew nut share on the global market of nuts and almonds in European Union countries is marginal. It accounts for 10,000 metric tons per year of processed cashew nut or something in range of 3% of the total of imports of all kinds of nuts and almonds. These 10,000 metric tons are provided by following countries: India: 20%; Brazil: 20%; Africa: 60% and spread between importing European countries as follows: Germany 30%; United Kingdom: 25%; France: 10%; Netherlands: 25% and 10% for other European countries. In Asia, only the Japanese market is important. It accounts only for 4% to 5 % of the total of the global international export market of cashew nut. That is to say 4,000 metric tons per year.
A project on analysis of profitability and liquidity relation at CAPEX The Portuguese took the cashew plant to Goa, India, between the years of 1560 and 1565. From there it spread throughout Southeast Asia and eventually Africa. The Portuguese came to India to get cashews roasted and then trade them in different parts of world because the Indians had mastered the art of roasting cashews. The Indian cashew industry is one of the few industries in the country which is export oriented. Small quantities of cashew kernels were exported from India even before the First World War in 1914. But the real break came when cashew started appearing on the global market towards the middle of 1920's, when packing of cashew kernels on an atmosphere of carbon dioxide were introduced until then, the kernels were packed in wooden cases lined with newspapers. Being highly susceptible to infection, this mode of packing resulted in deterioration in the quality by the time the kernels reached the destination. In the middle of 1920's two countries dominated the trade. This was because in India kernels were introduced entirely from raw nuts grown within the country. It was with the emergence of East Africa as a supplier that trade in raw nuts started. In these days, the cashew industry depends mostly on the raw nuts imported from various African countries The expansion of the global market for cashew kernels in the 1960's promoted India to adopt a systematic and integrated approach towards developing the cashew economy. In the mid 1960's the government launched a cashew development programme and in 1966 a separate Directorate of cashew nut development was established under the ministry of agriculture. As a result, Indian witnessed remarkable expansion in the area under cultivation although the processing industry is still heavily dependent on imported raw nuts Among the Agro-horticultural commodities getting exported from India, cashew ranks second position. During the year 2001-2002, India could export 97550 MT of cashew kernels valued at Rs. 177680 crores. U.S.A, Netherlands, U.K, Japan, U.A.E, Canada, Saudi Arabia, Singapore, Italy, German Fed Republic, Austria, Israel and Spain are the major international buyers of Indian Cashews. India is the largest area holder of this crop. Cultivation of cashew in India confines mainly to peninsular areas. It is grown in Kerala, Karnataka, Goa and Maharashtra along
A project on analysis of profitability and liquidity relation at CAPEX the east coast. To a limited extent it is being cultivated in Chhattisgarh, North Eastern States (Assam, Manipur, Tripura, Meghalaya and Nagaland) and Andaman and Nicobar Islands. In the year 2000, the total global area under cashew cultivation was around 40,00,000; while the estimated average productivity was around 510 Kg and total raw nut production was 1.8 million tones. In India, cashew occupies an area of 7.70 lakhs MT and an average productivity of 710 Kg. Of these 2.001 lakhs of the plantations developed from the beginning of the eight plans alone have been with supplier varieties. Apart from the foreign exchange earnings of the industry, it plays a major role in the field of providing employment to a very large number of people both directly and indirectly and it has thus played a very vital role in the economy of the country. It generates employment in the processing and agrarian sector, employing over 3 lakhs persons with 95% of them being women.
Indian Scenario
India is the largest producer and exporter of cashew kernels in the world. Over 65 per cent of the world export of cashew kernels is accounted for by India. Indian cashews are consumed in as many as 60 countries all over the world, the major markets being the United States, the United Kingdom, Japan, Netherlands, Australia, Canada, Germany Hong Kong, Singapore, New Zealand and Middle East countries. The Indian cashew kernel is well acclaimed for its good quality, taste and appearance. India is the world leader in cashew production, processing and exportation. However India is at an important juncture in the development of its cashew industry due to increased international competition. At the present time only half of the cashews processed in India are produced domestically, reflecting that production has not kept pace with its growing processing capacity. While Kerala has been the center of cashew production and processing for over fifty years, both activities are now moving out of the state due to high labor costs and land shortages. Production is now more fragmented and the states of Tamil Nadu, Maharashtra, Karnataka, Andhra Pradesh and Orissa have emerged as leading producers of raw cashew nuts.
A project on analysis of profitability and liquidity relation at CAPEX India has always been a major player in the production of cashew. It is the second largest producer of raw cashew in the world but conquers the 1st place among the largest producing countries of cashew kernels and also in the maximum area covered that figures to be 7.70 lakh hectares currently. The country provides with around 55% supply of cashew kernels in the world. The Indian production of cashews contributes to around 4.6 lakhs tons per annum. The major states in India in which cashew is cultivated are; Members of the Cashew Export Promotion Council of India, who are manufacturers and exporters of cashew kernels are the major sources for cashews from India. Indian. cashews are available with prominent importers in USA, Canada, Japan, the Middle East, Singapore, Australia, U.K. and other EEC countries. India is the largest area holder of this crop. Cultivation of cashew in India confines mainly to the peninsular areas. It is grown in Kerala, Karnataka, Goa and Maharashtra along the west coast and Tamil Nadu, Andhra Pradesh, Orissa and West Bengal along the east coast. To a limited extent it is being cultivated in Chattisgarh, North Eastern States (Assam, Manipur, Tripura, Meghalaya and Nagaland) and Andaman & Nicobar Islands. Four centuries ago, the adventurous Portuguese came sailing down the Indian coasts and brought with them the priceless tree nut - "Cashew", the wonder nut of the world. Cashew came, conquered and took deep roots in the entire coastal region of India. Cashew found the Indian soil more homely than its homeland. Later it spread as a popular crop to other parts of India. Cashew cultivation now covers a total area of 0.70 million hectares of land, producing over. 0.40 million M.T. of raw cashew nuts annually. By the end of the century India has targeted to achieve a production level of over 0.60 million metric tonnes of raw cashew nuts. Cashew tree is a short, stocky, low-spreading, evergreen tropical tree. It flowers once a year, between the months of November and January. The fruit ripens fully within 2 months. The nuttiest feature of Cashew nut is that it is attached to the lower portion of the cashew apple which looks like a fruit, but in reality it is the enlarged stem of the cashew tree. The Cashewnut can be seen sitting smugly under the soft belly of the cashew' apple. Together, it is one of the fascinating sights of nature. The Cashew nut seed has within itself a whole kernel and this delicate kernel is covered by a testa membrane and a thick outer shell which effectively protects the tasty kernel from the
A project on analysis of profitability and liquidity relation at CAPEX ravages of nature from the time of harvesting to processing. In its raw form, the cashew kernel is soft, white and meaty. When roasted it changes colour and taste. The cashew kernel turns from a creamy white into a golden hue and the mellow pulp becomes crisp. Salted, it appeals to the palate as the most delicious nut. India was the first country to hit the world market with cashew kernels and it was she who pioneered cashew processing as an industry. India is the largest producer, processor and exporter of cashews in the world. The raw cashew nuts collected from the growing areas are moved to the factories for processing. There are regular shipping facilities from India to all ports of the world. Major shipments from India take place through Cochin port. Other ports are Tuticorin, Mangalore, Madras and Bombay. Regular services of container ships are available from Indian ports on India-USA, India-UK/Continent, India-Australia, India-Japan, India-Middle East and India-Singapore routes. Maharashtra leads the list above with an annual production of 174000 tons and also has the maximum area covered i.e. 160000 hectares. The state of Maharashtra is an interesting case study in successful public and private sector support for cashew development, particularly in the Sindhudurg district, which is near the border with Goa .The countries average annual yield per hectare is 810 kilograms. Indian cashews are consumed in as many as 60 countries all over the world, the major markets being the United States, the United Kingdom, Japan, Netherland, Australia, Canada, Germany, Hong Kong, Singapore, New Zealand and Middle Eastern Countries. The Indian cashew kernel is well acclaimed for its good quality, taste and appearance. Cashew made an entry into Indian subcontinent through Portuguese colonists in the 16th century. The climate in the country suited the crop so well that it spread along in all the direction of the continent. India became the leader in the cashew production till in 2002 its dominating position was taken over by Vietnam. The country is still the second largest country producing raw cashew nuts. It is also is the largest country producing cashew kernels, the largest country indulging in the processing of this food product and the largest exporter of cashews in the world. The Indian production of cashews is around 4.6 lakh tons per year. Maharashtra stands 1st among the main cashew producing states in India followed by Andhra Pradesh and Orissa.
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A project on analysis of profitability and liquidity relation at CAPEX The country also is the third largest consumer of the food product in the world after United States and European Union as it consumes over 3 million cartons per annum. Cashew production in India is dominated by smallholder farmers. Between 80-90% of cashew holdings are on less than two acres of land that are of poor quality and are multi-cropped. In Kerala, this is partly due to a land ceiling law which was repealed in 2006 that limited individual land holdings to five acres for cashew production as well as other designated crops. Governmentrun plantations, however, are exempt from this regulation, which has led to the recent development of cashew estates on government-owned lands. State-level plantation corporations are estimated to manage 10% of all land under cashew cultivation. Both public and private production is shifting out of Kerala to more land-abundant states including Maharashtra, Tamil Nadu, Karnataka, Orissa and Andhra Pradesh. This is also due to lower value added taxes in these states (2%-4% as compared to 12.5% in Kerala). As India is the largest processor country in the world, it is left with more quantity for exports that also makes it the largest exporter in the world cashew market. It annually exports around 4 million cartons in one year. Members of the Cashew Export Promotion Council of India, who are manufacturers and exports of cashew kernels are the major sources for cashews from India. The major countries that import Indian cashew are

United States of America (43149 tons) Netherlands (18736 tons) United Kingdom (6238 tons) United Arab Emirates (8274 tons) Japan (4685 tons) France (3470 tons) Saudi Arabia (2827 tons) Spain (2648 tons) Russia (1990 tons) Germany (1991 tons) Canada (1558 tons)
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Greece (1859 tons) India somehow imports small quantities raw cashew nuts from the African
countries so as to meet the international demand for Indian processed cashew kernels. Cashew industry is directly connected to the growth of the economy as India earns a good amount of foreign exchange by exporting cashews. Cashew ranks second among the horticultural commodities exported from India. This industry also gives employment to around 3 lakh people in the country and the demand for Indian cashews is quite large due to qualitative edge over other countries. It was 1955; the Cashew Export Promotion Council (CEPC) was formed under the purview of the Ministry of Commerce with the mandate to guide the industry in promoting exports of cashew kernel and allied products.
Market Influencing Factors

Production fluctuations in the major raw cashew nut producing countries Indirect domestic demand due to the presence of large unorganized sector Government policies
THE MAJOR TRADING CENTERS OF CASHEW IN INDIA ARE

Palasa Kollam Mangalore Kochi Kerala is the main cashew processing State in India with almost hundred per cent concentrations in Kollam District. As the industry began to grow, the number of processing units increased and the importers began to take speculative position on the commodity. The pioneering efforts taken by some industrialists in Kollam had helped to bring up the Indian cashew industry into global monopoly. In the 1960s the Government of Kerala had brought the Land Reforms Act; Cashew was taken away from the
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A project on analysis of profitability and liquidity relation at CAPEX plantation status while Rubber, Tea, Coffee and Cardamom were given the plantation status. Before the act came into force, existing cashew plantations were converted into rubber plantations. Since Kerala had a monopoly of the cashew crop, the Land Reforms Act and similar acts in other states simultaneously affected the indigenous production of cashew nuts. According to the Directorate of cashew and cocoa we need about 12 lakh metric tonnes of raw nuts for processing and the production is only 5.5 lakh metric tonnes giving rise to a deficit of 6.5 lakh tonnes, which is met through imports. Now Brazil, Vietnam etc have started processing in a big way leading to lot of problems for exporters in the market with respect to raw cashew procurement from abroad as well as finding the export market.
Why Kollam?
India is the largest producer and processor of cashew in the world. Kerala is the main processing and exporting centre of cashew. In Kerala most of the cashew processing factories are located in Kollam district. Kollam provide excellent quality of raw cashew nuts in huge quantity with a very good out - turn percentage and has nut count of 180 -190 / kg. Skilled work force with the highest efficiency is the pillar of Kollam in processing. So it is named as The Cashew Capital of the Globe. Kollam is the only state which has favourable environment, facility and transportation that match the various requirements of cashew and its supply chain. The industry provides livelihood for about 6-7 lakhs of employees and farmers. The cashew industry has national importance. In Kollam district alone there are more than 2.5 lakhs of employees directly involved in the industry, which comes about 10 per cent of the population of the district. 95 per cent are women workers, out of which 45% belongs to the backward community. Fifty percent of them are educated and rest of the employees are illiterate. Even though technology has developed considerably, the working conditions of women employees are still pathetic and miserable Kerala has the largest processing capacity in India, almost 50% of a capacity of one million Metric Tons of raw nuts in 2000. It also exports the highest share of the countrys cashew kernels. Progress on this industry in the 1991s was against a backdrop of Indias growing liberal environment, both in terms of the trade liberalistaion and industrial delicensing, coupled with a
A project on analysis of profitability and liquidity relation at CAPEX fairly steady growth in the production and exports of cashew kernels. However such an environment appears to have legitimized greater information of production and work arrangement in the processing sector of Kerala. Thus we doubt whether any of the large numbers of workers employed in this sector over 90% are women, would have benefited from this growth. In some ways the gains made earlier by the unionized labor force and an interventionist state appears to have been reversed. While Kerala has been the center of cashew production and processing for over fifty years, both activities are now moving out of the state due to high labor costs and land shortages The cashew workers of Kerala are a group whose history and present situation are of relevance to scholars of the humanities and social science for several reasons. During the past six or seven decades, female cashew factory employees have constituted the largest single group of registered workers in Kerala. They have been organized in trade unions since the 1940s and often have been the most militant of all workers, as measured by man-days lost due to strikes. This makes these individuals contrast sharply with the stereotypical depiction of Third World Women as powerless, illiterate victims. The story of the cashew workers in Kerala has been described by some as a story of anti capitalist struggle and success, and by others as a story of victimized women who suffer from ignorance and patriarchal oppression. Both these ways of writing history have their limitations for three reasons: a) only the productive sphere is analyzed; b) womens own voices are not heard; and c) international influences are analyzed exclusively from a materialist and economic viewpoint. In the early 20th century, cashew nuts were processed in peoples homes or on the streets and commonly sold at markets. They were considered to be especially healthy and nutritious and frail people were advised to eat them. In the 1920s, an agent from the American company, General Foods, came to Kerala in order to search for profitable export goods. His attention was drawn to cashew nuts and soon the first shipment of cashew kernels left Kerala. Some British companies also became involved in the business, but before long indigenous men were in majority among the cashew factory owners.
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A project on analysis of profitability and liquidity relation at CAPEX The processing of cashews started as cottage production in which entire familiesmen, women, and childrenwere engaged. By the 1930s, production became centralized into small factories. Cashews soon became one of Keralas most important export items. Profits were huge and factory owners were referred to as cashew barons or cashew kings. Exporting cashew nuts was a way for the owners to become rich quickly, while the workers in those early factories lived under conditions that have been described as deplorable and slave-like. Male cashew factory workers are generally paid monthly and receive a certain amount of unemployment compensation when factories close seasonally because raw nuts are not available. Women, however, are paid neither by the month, the week, the day, or the hour, but by the piece, and usually receive nothing when a cashew factory closes. Kerala was among the first regions in the country, after South Canada, where cashew processing units emerged. In the 1930s the industry became concentrated in Kollam, in the former princely state of Travancore. Kerala is the main processing and exporting centre of Cashew. In Kerala most of the cashew processing factories are located in Kollam district. The industry provides livelihood for about 6-7 Lakhs of employees and farmers, the Cashew Industry has national importance. In Kollam District alone there are more than 2.5 Lakhs employees directly involved in the Industry, which comes about 10% of the population of the district, out of which 95% are women workers. It is a fact that any amount received by a Women worker will be utilized directly for the benefit of the family and hence the link relating to family welfare is quite clear. Kerala alone produces 80,000 M.T. of raw Cashew Nut every year. The majority of cultivation is in Kannur, Kasargode, Kozhikode, Trichur and Malappuram Districts. The poor earnings and inhuman working conditions in Kollams cashew factories led to the emergence of a trade union movement. The first union formed as early as 1939. And subsequently, unions affiliated to different political parties, in particular the leftwing parties, gained considerable strength. However, the rise in trade unionism has not meant that labour issues are tackled from a gender perspective. Issues such as differences between male and
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A project on analysis of profitability and liquidity relation at CAPEX female wages have not been given much attention, despite the fact that women workers believe that they belong the working class and also get involved in collective action. State intervention has been very intense in the Cashew processing sector in Kerala, largely in response to pressures from Trade Unions. Initially the State intervened to enact protective legislation for workers and grant them minimum labour rights given the deplorable conditions in which they work. In 1945 the Government declared Cashew work places as factories even though they did not use power. This declaration gave employees considerable obligations, including adhering to stipulated working hours, and paying unemployment compensation, maternity benefit and employees State Insurance, especially if the factories were categorized as Perennial factories. Despite stiff resistance from factory owners in 1956 the Government declared Cashew factories to be perennial. The industry was also brought under the purview of minimum wages Act. An important historical reason for processing capacity being located in Kollam appears to have been the availability of cheap labour. The industry has always been labour intensive, for instance it is found that the number of workers per unit of productive capital in Cashew was 21.32 compared to 2.20 in the cotton spinning and weaving, and 2.25 in Coir Spinning and Weaving. Another factor appears to have been the lack of labour legislation and regulations in Travancore. As the processing work required manual dexterity deemed to be most suitable for Female Workers, the industry became highly female labour intensive, the absence of a law governing maternity benefits to Women Workers helped to reduce the financial burden on factory owners. By the 1940s when Kollam was processing 75% of Indias Cashew Kernel exports, only one third of the raw nuts processed came from local sources. There was a setback in the processing sector during the war but the post war period saw rapid expansion of the industry due to high export demand.
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COMPANY PROFILE
Kerala State Cashew workers Apex Industrial Co-operative Society Limited (CAPEX) was registered on 09-09-1984 under Kerala Co-operative Societies Act 1969 as an Apex Society of Cashew workers primary society with Headquarters at Kollam. The main object of the apex society is to organize Cashew Industry in the state on commercial basis, rendering assistance to affiliated societies in the matter of procurement and marketing of kernels and other items produced in the factories of the affiliated societies. All these are done to provide the continuous employment to the poor people engaged in Cashew processing. 95% are Women workers out of which 35% are from backward community. CAPEX is the only co-operative organization in Cashew processing sector. The employees strength of the 10 Factories is above 5,000. CAPEX is the only largest Cashew processing Unit in the Co-operative Sector under Industries Department, Government of Kerala. An Apex society under the name the CAPEX was formed with the Five member societies and registered as No.IND(ST)12 with Headquarters at Kollam. The board of Director of the Apex Society consists of 11 Directors including the Chairman nominated by the Government. All the major Trade Unions were represented in Board of Directors of the Apex Society, which ensured peaceful labour relation. It provides employment for 5,000 labourers offering work for 230 days in a year, particularly in a seasonal industry like Cashew Nut. The Kerala Raw Cashew Nut Act of 1981 empowered the Government of Kerala to provide the trade in Raw Cashew Nuts by the State to the execution of all others by procurement and sales thereof at fair price within the State. The CAPEX acted as the sole agent of the Government from 1989 to 1991 and in 1991 the Government decided to resume this policy for a successive fourth year. From 1988 the CAPEX became the authorized agent of the government for the procurement of Cashews. For a successive period of 5 Years from 1998-2002 CAPEX was authorized to procure Raw Nuts in the State under the monopoly procurement programme. Pricing of raw materials is decided by the Government year in a year in consultation with the members of the advisory committee formed for the purpose. CAPEX opened 60 drying yards with godowns for the
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A project on analysis of profitability and liquidity relation at CAPEX collections, frying and storing of raw Nuts purchased by the sub-agent according to necessity. Each yard was mannered by a yard Manager assisted by one or more yard assistant.
BUSINESS FOCUS: - Their main business focus is on Cashew Nuts and its exporting.
Suppliers: - In Kerala, their suppliers are collection agents from Societies and Business agents. Distribution Network: - The distribution of Cashew Nuts done by CAPEX is mainly through two channels, i.e. the processed Cashews reach the customers through collection agents from societies and business agents. Products: - CAPEX used to purchase/import raw nuts and export the Kernels in large quantities. 80% of sales are by way of export. Indian Grade Kernels, Rejection Grade Kernels, Cashew Shell, Cashew skin, Shell Oil etc. are the by products of raw Cashew Nut. CAPEX has a capacity to process 18000 M.T of raw Cashew Nuts per annum. Quality: - Internationally, CAPEX produces good quality cashew nuts. They have a special Quality Checking Departments in each sections (peeling, grading, shelling) that checks and ensures the quality of Cashew Nuts. Social Responsibility: - Provide continuous employment and job security to the workers who were thrown out of their job at the time of takeover, and CAPEX is deeply committed to serve the community.
OBJECTIVES OF CAPEX
To organize Cashew Industry in the State. Rendering assistance to affiliated societies. Procurement & distribution of raw nuts. Measures to promote manufacturing and marketing of Kernels. To ensure continuous inflow of raw Cashew Nuts to our factories. To deliver high quality tropical edible nuts to the world ethically.
Present Scenario of CAPEX

Installed 13 Electric Burma at 10 factories of CAPEX. As a part of modernization five factories were fully reconstructed and rejuvenated including installation of new Chimneys, Bathrooms, Roasting Machines, Daycare Centers etc. CAPEX has given continuous working days to the workers during the last year. CAPEX had achieved a Record working days of 210 during the Calendar Year 2008. Computerization of CAPEX Head Office is in full swing and the computerization works at 10 factories is in process. Maximum capacity utilization in factories has been made effective by increasing the employee strength and thus enhanced the Roasting capacity from 35 M.T/day to 54 M.T/day. CAPEX has paid off all the arrears pertaining to the statutory liability like ESI, EPF, RWF, Sales Tax etc. payment of Arrear Salary, Wages and Bonus to workers are paid. In addition to this, pending payments to Raw Nut suppliers were paid who had supplied during the past few years. The 10 Co-operative Societies were affiliated to a Central Society which was named CAPEX. The responsibility of the Central Society was to produce raw nuts, distribute the same to the primaries, get it processed by the primary society, pack and market the processed kernels. The apex society started with there objective and had been working for the last 13 years. A tin manufacturing unit was also started by CAPEX. The Apex Society could make profits only for 2 years 1990-91 and 1991-92 in its working for the last 15 years. The accumulated loss for the society as on 31.3.2002 was 44.24 Crores of Rupees. The ten Cashew processing factories and one tin factory as a primary society in its fold and 4309 workers including maikads and 264 staffs. The capacity based on the existing strength of workers is to process 60 tones of raw Cashew Nuts on the basis of 200 working days in a year, the processing capacity of CAPEX will be 12,000 M.T of raw nuts Per annum. Operation in a global market place require as an undertaking of the needs of global customers and knowledge of competitors addressing similar issues. CAPEX is influencing
A project on analysis of profitability and liquidity relation at CAPEX global marketing strategy and will continue to be an attractive area for continuing growth of the industry. Globalization of products is not possible without modernization of factories. Globalization intensifies with more and more countries and sectors getting swept up in its momentum. CAPEX seeks to enhance Indias state as in the world market, through its belief in total quality management as a strategy not only for strengthening its current position but also for gaining access to new markets. Tomorrows emerging markets are drivers for todays initiatives. Activities of the Societies:- The activities of the CAPEX is purchasing of raw Cashew Nuts from various sources, domestic and from foreign market and get it processed and packed for being consumed either in the foreign or in the domestic market. CAPEX is the only largest Cashew processing Unit in the Co-operative Sector under Industries Department, Government of Kerala. The authorized share capital of the society will be Rs.10,00,00,000/- up to 1,00,000 shares of Rs.1000/- each. Cashew Workers Industrial Co-operative Societies and other Co-operative Societies will be eligible for membership in the society. But they cannot claim admission as the matter of right. It shall be competent for the State to participate in the share capital of the society. The liability of the members shall be limited to the share capital subscribed by them. No affiliated society shall be permitted to transfer or withdraw its share in the Apex Society when its ceases to the society engaged in Cashew Industry either by amending its bye-laws or on account of an order to be wound up. The Society can raise funds from the following sources such as Share Capital Borrowings Entrance Fees Donation Grant Subsidies Other forms of assistance from State Government
A project on analysis of profitability and liquidity relation at CAPEX The Chairman shall have an over all control in the affairs of the Apex Society and Societies affiliated to it and shall be competent to do such acts as may be necessary for the effective conduct of the business of the federation. The Board of Directors shall be competent to frame regulations for the conduct of the business of the Apex Society consistent with the Act, the rules these under and the bye-laws. Such regulation shall be entered in the minutes book of the Apex Society and shall be reported to the Registrar. The ultimate authority in all matters relating to the administration of the society shall be the general body of the member who shall meet from time to time and at least once in a year to conduct the business of the society. The executive committee shall have powers delegated by the Board of Directors. The quorum shall be 3. At least 3 days notice shall be given for the meeting of the Executive Committee. The Executive Committee shall be convened by the M.D at least once in a month. Current position of Factories is in pathetic condition. All factories especially factories at Navaikulam, Perinadu, Chathinamkulam and Perumpuzha are running with pitiable conditions of peeling, factory grading and shelling sheds. The factory shed is becoming worse day-by-day workers are provided with insecure working condition. Most of the factories roofs are heavily leaking and floors are completely broken. The factories are in poor condition because of CAPEX impecuniousness. As a part of modernization, old sheds are demolished and new sheds are constructed according to the rules. Employees are the real asset of an organization. Improved working condition makes people more motivated and it resulted in improved production. Therefore, it is essential to reconstruct and maintain the existing factories of CAPEX as a part of modernization of factory sheds
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FEATURES

Maintain and sustain healthy relationship with customers. Exporting high quality cashews kernels. High Brand image Measures to enhance quality. Influence global marketing strategies. There is enough scope for cashew cultivation and thereby increasing the production of raw nuts within the state.
Providing employment to a large number of people.
MAJOR ACHIEVEMENTS
From 2008-Ongoing CAPEXA three dimensional changing Phase The changes that recorded in Capex in the last financial year is to be ear marked as a three dimensional change and can be viewed as a revolutionary transformation in all aspects and at all angles. All necessary steps has been taken on war foot basis to reduce loss and to drive on to a road which can take the industry to a better profit making organization within a short period from now. The whole hearted Support from the Government and the officials together with our immense intense effort for sure will make the organization a result oriented one in the coming years. Replaced old traditional Bormas at our 10 factories and installed 15Electric Bormas at factories of CAPEX to reduce and nullify the quality loss; and thus to improve profit margin. As a part of modernization 7 CAPEX factories were fully Reconstructed and
rejuvenated including installation of New Chimneys, Bathrooms, Roasting Machines, Day care centers, yards for drying raw nuts etc., Reconstruction works at the rest of the 3 factories are in full swing. Turnover of Rs 16 crores (06-07) has been enhanced to Rs. 37 crores during the financial year 2008-2009 and further to Rs.48 crores during 09-10.
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A project on analysis of profitability and liquidity relation at CAPEX Loss of Rs.6.69 Cores in the year 2006-07 had come down to Rs. 4.17 Crores during the audited year 2007-08, and the net loss has touched down to Rs. 3.35 cores during the financial year 2008-09 Construction of 11000 sqft Modern flexi packing centre along with fully automated H.O, which got inaugurated on 29-10-2009 was another achievement. Till then Capex was working in a rented building at Kadappakada, Quilon Maximum Capacity Utilization by increasing Employees strength from 3800 workers in 2007 to 6300 employees in 2010, helped the organization in two ways, by providing more employment opportunity capacity. Computerization of CAPEX Head Office and has been completed successfully and by utilizing the entire production
the computerization works at 10 Factories is in full swing. After the successful
completion of the same, the entire activities undergone at the factories can be monitored and necessary corrections can be advised then and there. Maximum capacity Utilization in factories has been made effective by increasing the Employee strength and thus enhanced the Roasting capacity from 35M.T/day to 54 M.T/day. Highest ever production performance of 11590 Mtns recorded during 2009-10 when compared to 6732 Mtns during the previous year, and 2950 Mtns during the financial year 2008-09 . Exploited the foreign markets by fetching with 16 containers during 2008-09, at a better price. Exports are in full swing during 11-12 too. Fully automated Export Packing Machine has been purchased and got it installed at the new packing center at Mundakkal, Kollam. Domestic Market has been explored by introducing new packs of various grade kernels and is participating in trade shows and other festival shows in Kerala State Domestic market will be more and more explored during 2010-11. We have paid off all the arrears pertaining to the statutory liabilities like ESI, EPF, RWF, Sales tax etc, payment of arrear salary, wages and Bonus to workers. In addition to this, pending payments to Rawnut Suppliers were paid who had supplied during the past few years. All these liabilities were pending for payment long since the new board has taken
A project on analysis of profitability and liquidity relation at CAPEX over of charge. We were able to procure maximum quantity of Kerala origin raw cashew nuts from Kannur, Malappuram, Kasargode districts and more and more effective steps will be taken to procure the best available quantity of raw cashew nuts from Kerala itself, so that the farmers will be much benefited and will get a reasonable price, more ever they can be protected From being exploited by the middle -agents Issued arrear gratuity to the retired workers of Capex from 1998 to 2006 with the funds received from Government of Kerala during 2008-09, 09-10&10-11. Roasting and Salting machine has also been installed at the new packing centre at Mundakkal, Kollam to fetch the domestic market to give variety of tastes for Capex Cashews. During the calendar year 2009 capex has crossed our own previous working day Record of 210 days with 214 days, when compared to 96 days during 2007 and till 30/06/10 we already achieved 136 working days. Purchased and installed hand operated Cutting Machine to cut raw nuts at 10 factories of Capex to increase the productivity. Sale of Cashew kernels through Dealers and Franchise had by now brought up the brand image for Capex Cashews. A project for installing Solar Panels at 9 factories of Capex has been approved by the Government of Kerala with technical assistance from ANERT. The Electricity tariff plan of all our factories was amazingly alarming. During the first half of 2008, we found that each factory carried a monthly bill amounting to Rs 1400021000/- .The tariff was then under 6c, 7A in all factories, this was changed to LT4 tariff plan and the bill amount started to Rs 3000 to Rs 4000/month for each factory. Three appointments under the dying in harness have been made from the long pending list.
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ACHIEVEMENTS IN A NUT SHELL

1, Highest ever production performance. 2, Maximum Employee strength. 3, Highest turnover even since inception. 4, Minimum loss. 5, Record number of working days. 6, Maximum capacity utilization. 7, Highest quantity of purchase.
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PROCESSING TECHNIQUES
Converting cashew nuts to Kernels involves.
chart no: 4:1 The un-shelled nut is steamed to soften the shell and carefully cut open. The kernel is dried to loosen the skin which is then peeled off. Whole kernels are graded by size and color. Pieces are chopped into required sizes. After final QC including metal detection, they are packed in vacuum for freshness. Steaming: Raw nuts are sun dried for 3 to 4 days. Then they are steamed in a boiler for 30 minutes to expand the shell and soften the nut. After steaming the nuts are cooled by spreading then on the floor in the shade. This hardens the shell so that it can be cracked, either by machine or with stones. Steam processing preserves the original colour of the Kernel. The inshell cashews are steamed under pressure to soften the shell. This causes the cashews inside to become loose and easier to remove in time. Shelling: Each cashew shell is split open longitudinally and the cashew inside is immediately taken out by hand. Drying: The skin on cashews is dried in an Owen at low heat for a few hours to loosen the skin.
A project on analysis of profitability and liquidity relation at CAPEX Peeling: The skin of each cashew is removed by hand and the cashew is simultaneously visually graded according to quality. Grading: The whole cashew kernels are individually graded by hand according to count per pound. Quality Inspection: The cashews of each grade are inspected according to the present quality standards for that grade. Quality Control: cashews are then put through a set of quality assurance measures heating in an oven, final quality checking metal detection, and dust aspiration and handpicking conveyor. Packing: Cashews are packed in 50-pound (22.68 kg) multilayer barrier pouches in a modified atmosphere of low oxygen and high carbon dioxide and nitrogen. These pouches are placed one each in a carton.
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DATA ANALYSIS AND INTERPRETATION

The ratio analysis is one of the most powerful tool for analyzing the liquidity and profitability of a business concern. It is process of establishing and interpreting various ratios (quantitative relationship between figures and group of figures). Ratios are used as a device to analyze and interpret the financial health of the enterprise. It was with the help of the ratios that the financial statements of CAPEX were analyzed more clearly and analysis of liquidity and profitability of the concern was made with the help of liquidity and profitability ratios. Trend analysis has been used to study the profitability pattern of CAPEX during a period of five years i.e. from 20052010.
LIQUIDITY RATIOS
Liquidity ratios play a key role in assessing the short-term financial position of a business. Managements can employ these ratios to ascertain how efficiently they utilize the working capital in the business. Shareholders and debenture holders and other long-term creditors can use these ratios to assess the prospects of dividend and interest payments. This types of ratios normally indicates the ability of the business to meet the maturing or current debts, the efficiency of the management in utilizing the efficiency of the working capital, and the progress attained in the current financial position. The various liquidity ratios used in this study are: Current Ratio Liquidity Ratio Absolute Liquid Ratio Inventory turnover Ratio A firm must ensure that it does not suffer from lack of liquidity or the capacity to pay its current obligations. Lack of good liquidity position will affect the goodwill of the company. A very high liquidity cause unnecessarily excessive fund of the firm being tied up in the current asset. It is very important to have proper balance in regard to the liquidity of the firm.
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CURRENT RATIO
1. Current ratio Current ratio may be defined as the ratio of current assets to current liabilities. It is also known as Working Capital ratio or 2:1 ratio. It shows the relationship between the total current assets and total current liabilities. The standard current ratio is 2:1.
Current Ratio =
Current Assets Current Liabilities
TABLE 5.1 CURRENT RATIO OF CAPEX year Current assets Current liabilities Current ratio
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Means
29,114,965.78 3,717,727.85 55,677,999.15 101,132,876 187,265,492
200,651,967.85 246,683,958.7 286,889,193.94 265,902,791 290,519,489
0.14 0.015 0.19 0.38 0.64 1.365 0.273
Source: Secondary Data
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Interpretation
The ideal current ratio is said to be ranging from 1.5:1 to 2:1. From the above chart it becomes clear to us that in CAPEX the current liabilities are more than the current assets. Comparing with the ideal rate it may be considered as insufficiently liquid. Here the current ratio shows a fluctuating trend. The highest current ratio is 0.64 in the year 2009-2010 and the lowest is 0.015 in the year 2006-2007. The average current ratio is 0.273 which is too low compared to the standard current ratio of 1.5:1. A low current ratio shows that a firm will have inadequate funds to pay the current liabilities and other current payments. Thus, the companys current ratio position is not at all satisfactory. This is convincingly illustrated in the fig.5.1.
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A project on analysis of profitability and liquidity relation at CAPEX CHART 4.1. CURRENT RATIO OF CAPEX
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 0.14 0.015 0.19 0.38 current ratio 0.68
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LIQUID RATIO
Liquid ratio may be defined as the ratio of liquid assets to liquid liabilities or current liabilities. It is concerned with the relationship between liquid assets and liquid or current liabilities. This ratio is also known as Quick Ratio or Acid Test Ratio. The standard liquid ratio is Quick Ratio = Quick Assets Current Liabilities Quick Assets = Current Asset- (Stock+ prepaid expenses)
TABLE 5.2. QUICK RATIO OF CAPEX year Quick assets Current liabilities Quickratio
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Means Source: Secondary Data
4,942,981.78 3,595,328.85 6,085,331.05 29,883,892 38,132,750
200,651,967.85 246,683,958 286,889,193 265,902,791 290,519,489
0.025 0.014 0.021 0.112 0.131 0.303 0.0606
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Interpretation
Usually, a high quick ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand, a low quick ratio represent that the firms liquidity position is not satisfactory. The standard liquid ratio is considered to be 1:1. From the above table it is found that the highest quick ratio is the highest with a value of 0.131 in the year 2009-2010 and lowest in the year 2006-2007 with a value of 0.014. But none of the quick ratios during the period of five years tend to approach the standard quick ratio of 1:1. A low liquid ratio is also an indicator of overstocking. The mean of the quick ratio is 0.0606, which is too low than the accepted standard. Hence, the quick ratio position of CAPEX is not satisfactory and the company is in a poor liquid position. The quick ratio shows a fluctuating rend during the period 2005-2010. This is illustrated in the figure 5.2.
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A project on analysis of profitability and liquidity relation at CAPEX CHART 5.2. QUICK RATIO OF CAPEX
0.14
0.131
0.12
0.112
0.1
0.08 quickratio 0.06
0.04 0.025 0.02 0.014 0.021
0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
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ABSOLUTE LIQUID RATIO

Absolute liquidity is represented by cash and near cash items. Hence, in the computation of this ratio, only absolute liquid assets are compared with liquid liabilities. The standard absolute liquid ratio is 0.5:1. Absolute Liquid Ratio = Absolute liquid assets Current Liabilities Absolute Liquid Assets = Cash + Bank + Marketable securities
TABLE 5.3. ABSOLUTE LIQUIDITY POSITION OF CAPEX YEAR ABSOLUTE LIQUID ASSETS 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Mean Source: Secondary Source 311,439,385.57 350,037,685.92 463,891,117.22 520,452,877 524,542,946 CURRENT LIABILITIES 200,651,967.85 246,683,958 286,889,193.94 265,902,791 290,519,489 1.55 1.42 1.62 1.96 1.81 8.36 1.672 ABSOLUTE LIQUID RATIO
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Interpretation
Absolute liquid ratio includes cash in hand and at bank and marketable securities or temporary investments. The acceptable norm of this ratio is 0.5:1. The absolute liquid ratio is 1.96 i.e. highest during the year 2008-2009 and lowest wit 1.42 during the year 2006-2007. But all the absolute ratios are too high than the standard ratio of 0.5:1. The absolute liquid ratio shows a fluctuating trend. The mean of the ratio is 1.672 which is very high of the accepted standard. So the absolute liquidity position of the company is above the satisfactory level. This is illustrated in the figure 5.3
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A project on analysis of profitability and liquidity relation at CAPEX CHART 5.3. ABSOLUTE LIQUID RATIO OF CAPEX
2.5
1.96 1.81 1.62 1.42
1.55 1.5
ALR 1
0.5
0 2005-2006 2006-2007 2007-2008 2005-2006 2009-2010
Source: Secondary data
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INVENTORY TURNOVER RATIO

Inventory turnover ratio is a ratio that establishes a relationship between cost of sales and average inventory. It is also known as Stock turnover ratio. This ratio indicates whether the investment in inventory is within proper limit or not. Besides being an index of the liquidity of the firm showing the rate at which inventories are converted into sales and then into cash, this ratio helps the finance manager to evaluate the inventory policy. Inventory Turnover Ratio = Cost of goods sold Average Inventory at Cost Cost of goods sold = Sales Gross Profit TABLE 5.4. INVENTORY TURNOVER RATIO OF CAPEX YEAR COST OF GOODS AVERAGE SOLD 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Mean Source: Secondary Data 201,680,132.9 204,892,800.6 115,801,643.3 350,130,570 438,310,035 INVENTORY 24,863,723 12,147,191.5 24,180,045.5 68,052,803.5 126,291,390.5 INVENTORY TURNOVER RATIO 8.11 16.62 4.79 5.14 3.47 38.13 7.626
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Interpretation
The stock turnover ratio measures how quickly the inventory is sold. It is a test of efficient inventory management. A high ratio implies good inventory management. From the above table we can see that the ratio is highest with a value of 16.62 in the year 2006-2007 and lowest with a value of 3.47 in the year 2009-2010. The inventory management has been good through the years 2005-2009 but has been comparatively poor in the year 2009-2010. The average inventory turnover ratio is 7.626 which is satisfactorily high. A low level of inventory will adversely affect the ability to meet customer demand as it may not cope up with the requirements. This is illustrated in the figure 5.4.
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CHART NO 5.4 THE INVENTORY TURNOVER OF CAPEX

18 16.62 16
14
12
10 8.11 8 STR
6 4.79 4
5.14 3.47
0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Source: secondary source
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PROFITABILITY RATIOS
Profits are an index of the economic progress. Profitability ratios are calculated to measure the overall efficiency of the business. Generally profitability ratios are calculated either in relation to sales or in relation to investment. The various profitability ratios done in this study are Gross Profit Ratio Net Profit Ratio Operating Ratio Return on Total Assets
GROSS PROFIT RATIO

Gross Profit Ratio is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit margin and sales. The basic components are gross profit and sales. Gross Profit Ratio = Gross profit x 100 Net Sales There is no standard GP ratio. GP ratio indicates as to what extend the selling price of goods per unit may be reduced without incurring losses on operations.
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TABLE 5.5 GROSS PROFIT RATIO OF CAPEX YEAR GROSS PROFIT (in lakhs) 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Mean Source: Secondary source -268.31 -615.56 -158.21 170.57 439.67 SALES (in lakhs) 1,748.49 1,559.15 1,158.02 3,671.87 4,822.77 -15.35 -39.48 -13.66 4.64 9.11 -54.74 -10.94 GP RATIO(%)
Interpretation
Gross profit ratio indicates the efficiency with which a firm produces its products. The higher the gross ratios, the better the result. The above table and the chart given below shows the gross profit ratio for the past five years of the company. In the beginning the company incurred huge losses due to some economic problems. In the subsequent years the company tried to overcome those problems. Later in the years 2008-2009 and 2009-2010 there has been a profit of 170.57 lakhs and 439.67 lakhs respectively and a gross margin of 4.64 and 9.11 respectively. This means that the company tries to increase their profitability. The mean gross profit ratio is -10.94, which shows average gross loss. This is illustrated in the figure 5.6.
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CHART NO 5.5 GROSS PROFIT RATIO OF CAPEX

20
10 4.64 0 2005-2006 -10 -13.66 2006-2007 2007-2008 2008-2009
9.11
2009-2010
GPR
-15.35 -20
-30
-40
-39.48
-50
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NET PROFIT RATIO

This is the ratio of net income or profit after taxes to net sales. Net Profit Ratio = Net Profit x 100 Net Sales This is used as a measure of overall profitability and is useful to the owners. It is both an index of efficiency as well as profitability when used along with GP ratio and Operating ratio.
TABLE 5.6 NET PROFIT RATIO OF CAPEX YEAR NET PROFIT (in lakhs) 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Mean -615.56 -417.79 -490.74 -156.58 -140.11 NET SALES (in lakhs) 1748.49 1599.15 1158.02 3671.87 4822.77 -35.2 -26.12 -42.38 -4.26 -2.91 -110.87 -22.174 NPR(%)
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Interpretation
From the above table, we can see that, CAPEX has been incurring loss during the past five years. The net profit ratio shows a fluctuating trend. The average net profit ratio is too low. This is illustrated in the figure 5.6. -22.174% which is
CHART NO 5.6 NET PROFIT RATIO OF CAPEX

0 2005-2006 -5 -10 -15 -20 NPR -25 -26.12 -30 -35 -35.2 -40 -45 -42.38 2006-2007 2007-2008 2008-2009 -4.26 2009-2010 -2.91
Source: Secondary source
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OPERATING RATIO
This is the ratio of operating cost to net sales. The term operating cost refers to cost of goods sold plus operating expenses. This is closely related to the ratio of operating profit to net sales. Operating Ratio = Operating cost x 100 Net sales An operating profit ranging between 75% and 85% is generally considered as standard for manufacturing concerns.
TABLE 5.7. OPERATING RATIOS OF CAPEX YEAR OPERATING COST (in lakhs) 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Mean Source: Secondary Data 2,227.23 2,368.17 1,592.57 3,650.59 4,849.66 NET SALES (in lakhs) 1,748.49 1,559.15 1,158.02 3,671.87 4,822.17 127.38 151.89 137.52 99.4 100.57 616.76 123.52 OPERATING RATIO (%)
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Interpretation
The standard operating ratio is said to be between the range of 75% and 85%. From the above table, we can see that the highest operating ratio is 151.89% in the year 2006-2007 and the lowest operating ratio is 99.4% in the year 2008-2009. None of the ratios come in the accepted range of 75% to 85%. During the first three years the company has been incurring operating losses. In the year 2008-2009, there has been a very small profit with an operating ratio of 99.4% which is almost equal to 100% which means no profit and no loss. In the year 2009-2010, the operating ratio is 100% which indicates no profit no loss. The average operating ratio is 123.52 which means the company is incurring operating loss as when compared to the normal standards. This is illustrated in the figure 5.7.
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CHART NO 5.7 OPERATING RATIO OF CAPEX

160
151.89 137.52 127.38
140
120 100.57
100
99.4
80
OR
60
40
20
0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Source: secondary data
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RETURN ON TOTAL ASSETS

This ratio relates the net profit after tax and interest to the total productive assets used. This ratio is computed to find out the productivity of the total assets. Return on Total Assets = Net profit after tax and interest x 100
Total Assets Fictitious Assets
TABLE 5.8 RETURN ON TOTAL ASSETS OF CAPEX YEAR NET PROFIT (in lakhs) 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total Mean Source: Secondary data -615.56 -417.79 -490.74 -156.58 -140.11 TOTAL ASSETS (in lakhs) 3,306.26 3,291.61 3,848.77 3,742.29 4,434.99 RETURN ON TOTAL ASSETS (%) -18.61 -12.69 -12.75 -4.18 -3.16 -51.39 -10.578
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Interpretation
The return on total assets is showing an increasing trend. It is lowest during the year 2005-2006 and highest during the year 2009-2010. This shows that the return on total assts has been increasing year by year even though they are incurring losses. The average return on total assets is -10.578 there is no much return on total assets. This is illustrated in the figure 5.8.
CHART NO 5.8 THE RETURN ON TOTAL ASSETS OF CAPEX

0 2005-2006 -2 -4 -4.18 -6 -8 -10 -12 -14 -16 -18 -20 -18.61 -12.69 -12.75 RTA -3.16 2006-2007 2007-2008 2008-2009 2009-2010

FUND FLOW ANALYSIS

Fund flow statement is a statement in summary form that indicates the changes of items in financial position between two different balance sheet dates showing clearly the sources and application of funds. The major purpose of a fund statement is to provide a detailed presentation of the results of financial management, as distinguished from operating management. It summarizes the financing and investing activities of the enterprise. The statement shows directly the information that the readers of financial reports could otherwise obtain only by making an analysis and interpretation of published balance sheets and statements of income and retained earnings.
Preparation of Fund Flow Statement

Mainly two comparative balance sheets at the beginning and end of a period are used for preparing a fund flow statement. In addition, a summarized income statement and retained earning statement or, at least material information from these statements are required in order to obtain information relating to funds from operations and ownership transactions. The fund flow analysis involves the preparation of two statements i.e. a) Schedule of changes in working capital b) Sources and use of funds statement a) Schedule of Changes in Working Capital Since a fund flow statement depicts changes in working capital, it will be better to prepare first the schedule of changes in working capital before preparing a fund flow statement. The statement of changes in working capital is prepared with the help of current assets and current liabilities. There is no effect of additional information given separately and such information will affect only the fund flow statement.
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TABLE 5.9 SCHEDULE OF CHANGES IN WORKING CAPITAL DURING 2006-2007

PARTICULARS 2006 2007 EFFECT ON WORKING CAPITAL
INCREASE
DECREASE
Current Assets 1.Stock in trade 2.Cash and Bank 3.Sundry Debtors 4.Stock of Stamp 5.Loans and advances TOTAL
Current Liabilities
24,171,984 4,942,981 -
122,399 3,541,282 52,304.72 1,742 52,304.72 1,742
24,049,585 1,401,699
299,963,281.6 329,078,246.6
318,986,440.2 322,704,167.92
19,023,158.6
1.Sundry creditors 2.Other liabilities 3.Provision for contingencies 4.Compensation to acquire factories TOTAL Working Capital
Net decrease in WC
61,979,585.36 138,672,382.49
73,789,204.07 135,163,287.17 3,509,095.32
11,809,618.7
34,038,039
34,038,039
234,690,006.9 94,388,239.7
3,693,428.51 246,683,958.75 76,020,209.17 18,368,030.53 22,586,300.64 18,368,030.57 4,095,4331.21
3,693,428.51
40,954,331.21
94,388,239.7
94,388,239.7
Source: secondary data

TABLE 5.10 SCHEDULE OF CHANGES IN WORKING CAPITAL DURING 2007-2008

PARTICULARS 2007 2008
EFFECT ON WORKING CAPITAL
INCREASE
DECREASE
Current Assets 1.Stock in trade 2.Cash and Bank 3.Sundry Debtors 4.Stock of Stamp 5.Loans and advances TOTAL
Current Liabilities
122,399 3,541,282 52,304.72 1,742 318,986,440.2 322,704,167.92
48,237,629 7,372,804.43 63,584.72 3,981 321,084,479.1 376,762,478.25
48,115,230 3,831,522.33 11,280 2,239 2,098,038.9
1.Sundry creditors 2.Other liabilities 3.Provision for contingencies 4.Compensation to acquire factories TOTAL Working Capital
Net increase in WC
73,789,204.07 135,163,287.17
72,797,604.07 176,921,806.73
991,600 41,758,519.56
34,038,039
34,038,039
3,693,428.51 246,683,958.75 76,020,209.17 13,853,075.4
3,131,744.14 286,889,193.9 89,873,284.4
561,684.37
55,611,594.6
41,758,519.56 13,853,075.4
94,388,239.7 Source: Secondary data
89,873,284.4
55,611,594.6
55,611,594.6
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A project on analysis of profitability and liquidity relation at CAPEX TABLE 5.11 SCHEDULE OF CHANGES IN WORKING CAPITAL DURING 2008-2009 Current Assets 1.Stock in trade 2.Cash and Bank 3.Sundry Debtors 4.Stock of Stamp 5.Loans and advances TOTAL
Current Liabilities
87,867,915 48,237,629 7,372,804.43 63,584.72 3,981 321,084,479.1 376,762,478.25 273,096,796 374,229,672 8,778,158 4,486,803 -
39,630,286 1,405,353.57 4,423,218.28 3981
47,987,683.1
72,797,604.07 176,921,806.73
46,472,835 181,142,694
26,324,769.1 41,220,887.27
1.Sundry creditors 2.Other liabilities 3.Provision for contingencies 4.Compensation to acquire factories 5.Duties & taxes 6.Employee statutory liability TOTAL Working Capital
Net increase in WC
34,038,039
34,038,039
3,131,744.14 -
2,521,994 1,634,017
609,750.14
1,634,017 286,889,193.9 89,873,284.4 18,453,597.7 108,326,882 108,326,882 72,393,377.1 93,211 286,889,193.9 108,326,882 72,393,377.1 53,939,779.4 18,453,597.7 72,393,377.1 93,211
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A project on analysis of profitability and liquidity relation at CAPEX TABLE 5.12 SCHEDULE OF CHANGES IN WORKING CAPITAL DURING 2009-2010 PARTICULARS 2009 2010
INCREASEEFFECT ON WORKING CAPITAL INCREASE DECREASE
Current Assets 1.Stock in trade 2.Cash and Bank 3.Sundry Debtors 4.Loans and advances TOTAL
Current Liabilities
87,867,915 8,778,158 4,486,803
164,714,866 11,724,633 10,825,991 76,846,951 2,946,475 6,339,188
273,096,796 374,229,672 46,472,835 181,142,694
256,233,869 443,499,359 66,280,244 180,933,571 209,123
16,862,927
1.Sundry creditors 2.Other liabilities 3.Provision for contingencies 4.Compensation to acquire factories 5.Duties & taxes 6.Employee statutory liability TOTAL Working Capital
Net increase in WC
19,807,409
34,038,039
34,038,039
2,521,994 1,634,017
2,521,994 1,634,017
93,211 286,889,193.9 108,326,882 45,629,471
4,135,233 289,543,098 153,956,261 86,341,737
4,042,022
40,712,266 45,629,471
153,956,261
153,956,261
86,341,737
86,341,737
Source: Secondary source

b)Fund Flow Statement

The total difference between the total sources and application will be shown as either increase or decrease in working capital or funds and this could be verified with the net increase or decrease in working capital as derived from the schedule of changes in working capital. While preparing fund flow statement, current assets and current liabilities are to be ignored. Attention is to be given to changes in fixed assets and fixed liabilities.
TABLE 5.13 FUND FLOW STATEMENT FOR THE YEAR ENDED 31/3/2007 SOURCE Issue of grant from govt. Issue of share capital from factories Secured loan taken Sale of fixed assets Issue of assistance from govt. Net decrease in Working capital AMOUNT 24,25,000 40,442 8,096,893 47,799 15,725,000 18,368,031 66,553,165 Source: Secondary Data 66,553,165 APPLICATION Redemption of shares Fixed deposit Fund from loss AMOUNT 40,442 61,556,116.15 4,956,607
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TABLE 5.14 FUND FLOW STATEMENT FOR THE YEAR ENDED 31/3/2008 SOURCE Issue of assistance from Govt. of Kerala
Issue of share capital from factories
AMOUNT 110,000,000
APPLICATION Repayment of loan Payments of interest
AMOUNT 2,618,848 50,112,798 2,172,789 41,778,940 13,853,075
21,909
Purchase of fixed assets Fund from loss
Fixed deposit
514,471
Increase in working capital
110,536,380 Source: Secondary Data TABLE 5.15
110,536,380
FUND FLOW STATEMENT FOR THE YEAR ENDED 31/3/2009 SOURCE Shareholders fund 1.Share capital 2.Reserves and surplus Loan funds 1.Secured loans 2.Unsecured loans 68,840,719 442,834,000 31,315,351 411,502,962 AMOUNT APPLICATION 1.Fixed assets Gross block Less: depreciation Net block Capital work in progress 2.P/L account(debit balance) 954,493,032 Source: Secondary Data 819,280,380 954,493,032 5,352,980 1,298,372 24,054,607 2,831,163 AMOUNT
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A project on analysis of profitability and liquidity relation at CAPEX TABLE 5.16 FUND FLOW STATEMENT FOR THE YEAR ENDED 31/3/2010 SOURCE Shareholders fund 1.Share capital 2.Reserves and surplus Loan funds 1.Secured loans 2.Unsecured loans 68,840,719 462,834,000 31,315,351 481,502,962 AMOUNT APPLICATION 1.Fixed assets Gross block Less: depreciation Net block Capital work in progress 2.P/L account(debit balance) 1,044,493,032 Source: Secondary Data 1,044,493,032 834,973,209 59,527,795 2,987,842 56,539,953 AMOUNT
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TREND ANALYSIS
In financial analysis, the direction of changes over a period of years is of crucial importance. Time series or trend analysis of ratios indicates the direction of change. The kind of analysis is particularly applicable to the items of profit and loss account. It is advisable that trend of sales and net income may be studied in the light of two factors: the rate of fixed expansion or secular trend in the growth of the business and the general price level. It might be found in practice that a number of firms would show a persistent growth over a period of years. But to get a true growth, the sales figure should be deflated for a rising price level. When the resulting figures are shown on the graph, we will get trend of growth devoid of price changes. Another method of securing trend of growth and one which can be used instead of adjusted sales figures or as check on them is to tabulate and plot the output or physical volume of sales expressed in suitable units of measure. If the general price level is not considered while analyzing trend of growth, it can mislead the management. They may become unduly optimistic in periods of prosperity and pessimistic in dull periods. For trend analysis, the use of index number is generally advocated. The procedure followed is to assign the number of 100 items of the base year and to calculate percentage changes in each item of other years in relation to the base year. This procedure may be called as trend percentage method. Trend Analysis method: Trend can be analyzed in any of the following two methods By calculating the trend ratio or percentage By plotting on a graph paper or chart Trend Ratio or Percentages: the calculation of trend ratio analysis involves the ascertainment of arithmetic relationship with each item of several years to the same item of base year. The method of calculating trend ratio or percentage involves the calculation of percentage relationship each item bears to the same item in the base year. Usually, the earliest year is chosen as the base year. The value of one particular item out of several items shown in financial statement is converted into ratio or percentage, taking the value of the same item in the base year as 100.
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A project on analysis of profitability and liquidity relation at CAPEX Plotting the Trend Ratio: The ratios or percentages calculated can be plotted on graph paper on a line drawn through the point to give a general idea of the direction. It should be remembered that the line drawn should be smooth. In this study, the first method is used to analyze the income trend and the second method of trend analysis is adopted i.e. plotting the calculated profitability ratios on a graph. The trend of income and profitability during a period of five years is analyzed here.
TABLE 5.17 TREND PERCENTAGE OF INCOME YEAR INCOME TREND PERCENTAGE 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 174,957,288.2 166,107,050.5 167,705,694.2 369,520,333 482,277,162 100 94.9 95.8 211.2 275.6
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CHART NO 5.9 TREND ANALYSIS OF INCOME
trend percentage
300 275.6 250
211.2 200
150
trend percentage
100
100
94.9
95.8
50
0 0 1 2 3 4 5 6
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A project on analysis of profitability and liquidity relation at CAPEX TABLE 5.18 PROFITABILITY RATIOS YEAR GROSS PROFIT RATIO NET PROFIT RATIO OPERATING RATIO RETURN ON TOTAL ASSETS 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 -15.35 -39.4 -13.66 4.64 9.11 -35.2 -26.12 -42.38 -4.26 -2.91 127.38 151.89 137.52 99.4 100.57 -18.61 -12.61 -12.75 -4.18 -3.16
Interpretation:
By analyzing the table shown above, we find that the loss incurred by the organization has been continuously reducing during the past five years. By analyzing the trend of the past years CAPEX is expected to be in a profitable position in the near future say 2 to 3 years.
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A project on analysis of profitability and liquidity relation at CAPEX CHATR NO 5.10 PROFITABILITY TREND FROM 2005-2010
200
150
100 GRP 50 NRP OR RTA 0 2005-2006 -15.35 2006-2007 -39.4 -50 4.64 2007-2008 -13.66 2008-2009 9.11 2009-2010
-100
Page 90
CORRELATION TEST
KARLS PEARSONS METHOD OF CORRELATION COEFFICIENT r = [nxy (x)(y)] / [nx (x)2 * n(y)2 (y)2] where, r = Pearsons co-efficient of correlation n = number of pairs of observations x = given values of the first variable y = given values of the second variable Current Ratio to Net Profit Ratio In this test current ratio is taken as x and net profit ratio is taken as y TABLE 5.19 CALCULATION OF CORRELATION BETWEEN CURRENT RATIO AND NET PROFIT RATIO YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 x 0.14 0.015 0.19 0.38 0.64 x=1.365 y -35.2 -26.12 -42.38 -4.26 -2.91 y=-110.87 xy -4.928 -0.392 -8.052 -1.619 -1.862 xy= -16.853 x2 0.0196 0.0002 0.0361 0.1444 0.4096 x2=0.6099 y2 1239.04 682.25 1796.06 18.15 8.47 y2= 3743.97 Source: Secondary data
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r=
nxy (x)(y) (nx (x)2) x (n(y)2 (y)2)
r=
5 x -16.853 (1.365)(-110.87) (5 x 0.6099 1.863) x (5 x 3743.97 12292.16)
r = -84.265 + 151.338 1.1865 x 6427.69 r= 67.073 1.089 x 80.173 r= 0.77
Interpretation
Correlation between Current Ratio and Net profit ratio shows the degree of relationship between Current ratio and Net Profit Ratio represented by the symbol r. The Current ratio and Net profit ratio shows a correlation of 0.77. This implies that the current ratio and net profit ratio are positively correlated.
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Quick Ratio to Net Profit Ratio

In this calculation quick ratio is taken as x and net profit ratio is taken as y. TABLE 5.20 CALCULATION OF CORRELATION BETWEEN QUICK RATIO AND NET PROFIT RATIO YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 x 0.025 0.014 0.021 0.112 0.131 x=0.303 y -35.2 -26.12 -42.38 -4.26 -2.91 y=-110.87 Xy -0.88 -0.366 -0.889 -0.477 -0.381 xy= -2.993 x2 0.0006 0.0002 0.0004 0.0125 0. 0172 x2=0.0309 y2 1239.04 682.25 1796.06 18.15 8.47 y2= 3743.97 Source: Secondary data
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A project on analysis of profitability and liquidity relation at CAPEX r= nxy (x)(y) nx (x)2 x n(y)2 (y)2 r= 5 x -2.993 (0.303)(-110.87) (5 x 0.0309 0.0918) x (5 x 3743.97 12292.16) r = -14.965 + 33.594 0.0627 x 6427.69 r= 67.073 0.2504 x 80.173 r = 0.93
Interpretation
The correlation between quick ratio and net profit ratio shows the degree of relationship between quick ratio and net profit ratio represented by the symbol r. The quick ratio and net profit ratio shows a correlation of 0.93. This implies that the quick ratio and the net profit ratio are highly correlated.
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Absolute Liquid Ratio to Net Profit Ratio

In this test absolute ratio is taken as x and net profit ratio is taken as y TABLE 5.21 CALCULATION OF CORRELATION BETWEEN ABSOLUTE LIQUID RATIO AND NET PROFIT RATIO YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 x 1.55 1.42 1.62 1.96 1.81 x=8.36 y -35.2 -26.12 -42.38 -4.26 -2.91 y=-110.87 Xy -54.56 -37.09 -68.66 -8.35 -5.27 xy= -173.93 x2 2.402 2.016 2.624 3.842 3.276 x2=14.16 y2 1239.04 682.25 1796.06 18.15 8.47 y2= 3743.97 Source: Secondary data
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A project on analysis of profitability and liquidity relation at CAPEX r= nxy (x)(y) nx2 (x)2 x n(y2) (y)2 r= 5 x -173.93 (8.36)(-110.87) (5 x 14.16 69.89) x (5 x 3743.97 12292.16) r = -869.65 + 926.873 0.91 x 6427.69 r= 67.073 0.9539 x 80.173 r= 0.75
Interpretation
The correlation between absolute liquid ratio and net profit ratio shows the degree of relationship between absolute liquid ratio and net profit ratio represented by the symbol r. The quick ratio and net profit ratio shows a correlation of 0.75. This implies that the absolute liquid ratio and the net profit ratio are highly correlated.
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TABLE 5.22 CORRELATION BETWEEN PROFITABILITY AND LIQUIDITY PROFITABILITY RATIO LIQUIDITY RATIO CORRELATION COEFFICIENT Net profit ratio Net profit ratio Net profit ratio Source: Secondary Data Current ratio Quick ratio Absolute liquid ratio 0.77 0.93 0.75
Interpretation:
From the table given above, we can find out that profitability and liquidity are highly positively correlated i.e. an increase in the profitability of the organization results in the increase in the liquidity of that organization and a decrease in the profitability will result in the decrease in the liquidity of the firm.
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FINDINGS
1. CAPEX has dissatisfactory credit worthiness because the current ratio of the company is below the normal standards. 2. Since the quick ratio is too low, we can say that there are overstocking of goods. 3. The absolute liquid ratio is above the normal standards. 1.67 paise worth of absolute liquid assets are available for one rupee worth of liquid liability. 4. The inventory turnover ratio is high during all the five year, especially in the year 20062007, which shows good management of inventory. 5. There is a gross loss in the organization for the first three years, but is improving from the fourth year, i.e, 2008-2009, which shows that the company is setting off the losses and is running on its way to profit. 6. The net profit ratio shows a loss during all the five years of study. 7. During the first three years the company has been incurring operating losses. In the year 2008-2009, there has been a very small profit with an operating ratio of 99.4% which is almost equal to 100% which means no profit and no loss. In the year 2009-2010, the operating ratio is 100% which indicates no profit no loss. The average operating ratio is 123.52 which means the company is incurring operating loss as when compared to the normal standards. 8. By analyzing the five years balance sheet of the company, it can be seen that the cash and bank balances shows a fluctuating rate, which adversely affects the liquidity position of the organization. 9. The analysis of working capital shows a net decrease in the year 2006-2007 and then shows an increasing trend from the year 2007-2008 to 2009-2010. 10. The current ratio and the net profit ratio shows a correlation of 0.77 which implies that current ratio and net profit ratio are positively correlated. 11. The quick ratio and the net profit ratio shows a correlation of 0.93 which implies that quick ratio and net profit ratio are highly positively correlated. 12. The absolute liquid ratio and the net profit ratio shows a correlation of 0.75 which implies that absolute ratio and net profit ratio are positively correlated.
CONCLUSION
The study conducted on the topic AN ANALYSIS OF PROFITABILITY AND LIQUIDITY POSITION AT CAPEX is undertaken in CAPEX, Kollam. This project evaluates the extend of relationship between the profitability and liquidity of the organization for the past five years i.e. from 2005 to 2010. The project also aims at finding the profitability and liquidity position of CAPEX. The study also deals with the analysis of profitability trend for five years. In this study an attempt is made to provide an idea about the way in which the decision can be taken to plan the field of finance for better progress. The analysis of the financial data reaches a conclusion that CAPEX is currently running at a loss and has dissatisfactory profitability and liquidity position. The profitability of CAPEX shows an increasing trend during the past five years. The organization is expected to run in profit in the near future. The study also reveals that the profitability and liquidity of the organization are highly positively correlated. This implies that with an increase/decrease in the profitability of the organization, there will be a corresponding increase/decrease in the liquidity of the organization. At present the profitability and liquidity position of CAPEX is not satisfactory.
Page 99
SUGGESTIONS
1. The company has to give more importance in the utilization of assets effectively. 2. The company should demand more aid from the government. 3. The company should increase the profit by reducing unnecessary operating expenses. 4. Proper inventory controlling measures should be taken to reduce the unnecessary stock. 5. Adequate sales promotion efforts can be adequate to increase sales. 6. The company should study the reason for the loss and must take necessary step to overcome the loss.
Page 100

Prathi Project Capex

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A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

STATEMENT OF THE PROBLEM

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

METHOD OF DATA COLLECTION

DATA ANALYSIS TOOLS AND TECHNIQUES

Tools for data analysis

INSTITUTE OF MANAGEMENT IN KERALA

Tools for representing data

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

SCOPE OF THE STUDY

LIMITATIONS OF THE STUDY

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

[15] smith et al (1997). Research Methodology: Methods & Techniques, p.55.

A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

ANALYSIS OF LIQUIDITY/LIQUIDITY RATIOS

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

ANALYSIS OF PROFITABILITY/PROFITABILITY RATIOS

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

Procedure for calculating trends

ANALYSIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

Working Capital = Current Assets Current Liabilities

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

FUND FLOW ANALYSIS

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

Preparation of Fund Flow Statement

of Changes in Working Capital

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

A project on analysis of profitability and liquidity relation at CAPEX

Market Influencing Factors

THE MAJOR TRADING CENTERS OF CASHEW IN INDIA ARE

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA

INSTITUTE OF MANAGEMENT IN KERALA