ABOUT THE ORGANIZATION

Pioneer spinning & weaving Mills Limited was incorporated on 9th Oct 1979 for the purpose of establishing a Spinning Mill to manufacture different counts of cotton and blended yam to cater to the needs of knitting and weaving industries at Puttur in Chittoor District; Andhra Pradesh a centrally notified industrially backward area and started commercial production on 1st January 1982. The company obtained a letter of intent and later on industrial license for a capacity of 2500 spindles. The Unit was put up with an initial capacity of 8396 spindles with financial assistance of Andhra Pradesh Industrial Development Corporation Ltd., Andhra Pradesh State Financial Corporation and Andhra Bank by way of Term Loan under IDBI refinance scheme. The capacity was progressively increased to 27,936 spindles by internal accruals and obtaining further term loans and Hire purchase / Lease Finance The mill is at a distance of 3 km from puttur town and is on the Highway fro Chennai to Tirupati.

The site is surrounded by a number of villages providing the required labour force and is well connected by rail and road. The raw materials and finished goods will be transported by Road and no difficulty is being experienced in transportation.

TYPE OF ORGANIZATION
The company is the form of manufacturing business concern and tr4ade of yarn with in the country for various levels.

NATURE OF BUSINESS
The spinning operation starts from raw cotton to yarn. The variety of raw cottons are mixed and are transferred to the blow room department where the impurities, dust, seeds and unnecessary materials present in raw cotton were removed, so that the loose cotton is made in to well regulated sheet called lap. Then the laps are transferred to carding department where the laps are separated in to fibre and cleaned. The fibre then transferred to dr4awing department to parallelize the fibres. The output from drawing department is transform to simplex department for the conversion of fibre in to bobbins. The bobbins where transferred to speed frame department to strengthen the fibres and make uniform in thickness from the speed frame department as yarn and the yarn is spinned. Thus the manufacturing cotton in to yarm process was held in the manufacturing activities.

MANAGEMENT STRUCTURE
Sri K. Subbiah, Chairman under the overall superintendence and direction of the Board of Directors, manages the Company. The Mill is managed professionally under the guidance and control of Chairman of the company. The Executive Director is looking after day to day affairs of the company assisted by Factory Manager and Technical Personnel in the areas of production quality and maintenance and backed by a well experienced consultant.

ORGANISATION STRUCTURE
Organization Structure Chairman and Managing Director Executive Director Manager
Personnel offr

TK

Accountant Office Cashier Godown Clerk Store Keeper Typist Dispatch Clerk

Electrical

ASM Prod

ASM Maint

HP

GO

Shift Supervisor

Supervisors

SQC WB
Legend

M M

S HP WB C

Security Helper A/C Plant Wrapping Boys Cleaning Workers

TK E F M

Time Keeping Electrician Fitter Mastries

WC GO H W

Wage Clerk Generator Operator Helpers Workers

C. TECHNICAL DETAILS
MANUFACTURING PROCESS
The raw material used in the process if ginned cotton. The ginned cotton received in the form of bales are opened and cleaned to remove impurities such as husk, short fibres, foreign materials etc., in the Blow room and removal of impurities. The laps converted in the form of sliver.

The cotton slivers taken to the draw frames for importing parallelism by drafting and making it to uniform slivers.

The slivers from Draw Frames processed through Simplex Machine for alienations and wound on Bobbins in the Roving from after imparting twist.

The bobbins containing roving fed to the Ring Spinning Frames to spin yarn.

After spinning, the yarns converted in the form of cone yarn or hank yarn by passing through winding or reeling machines.

The yarns are packed in the form of bags / bales and marketed.

PROCESS FLOW CHART

Godown (Weighing & Stocking Samples for SQC) Blow Room (Mixing Feeding cotton to MBO Machine. Cleaning of cotton is done at 4 stages: MBO > Mono Cylinder > step cleaner > ERM > Scutcher output is laps)

Carding (Removal of short fibres and impurities. Input is laps and output is sliver in cans)

Drawing (importing parallelism)

Combing (For better quality removal of short fibres)

Simplex (Rowing attenuation) Ring Spinning (yarn formation) Cone winding Ring Doubling Reeling Wetting

Packing Godown Dispatch

MARKET DETAILS

The mill is producing cotton yarn. The end use of cotton yarn is for knitting and weaving cloth. Cloth being a consumer non durable has a ready and permanent market. Cotton yarn particularly in a tropical climate that of India has a better market always as compared to that of polyester / viscose yarn.

The mill marketing its products in and around the mill which is surrounded by handlooms and power loom centers and also other yarn consuming centers in the state of Tamilanadu, Maharashtra and West Bengal.

The mill also supplying to export units offering internationally accepted standards of quality and exporting through Export Houses to Sri Lanka and Bangladesh.

Therefore marketing of yarn is not at all a problem.

MANAGEMENT
Pioneer Spinning and Weaving Mills Ltd retains an excellent management team besides receiving able guidance from eminent professionals and industrialists constituting its Board.

BOARD OF DIRECTORS

Mrs. Beenakosaraju Mrs. Jagan mohan Reddy. C ( APSFC Nominee) Mrs. Rajaram. S Mrs. Ashwin Kakeemanu Mrs. Sheela. K. Sarath

GENERAL MANGER

Mr. P. Rajendra Naidu

MANAGER
P. Venkateswarlu

COMPETITORS

Sri Rama Krishna Mills Ltd, Nagari

Chidda Spinning Mills Ltd, Puttur

Sri Lakshmi Venkateswara Spinning Mills Ltd, Nagari

CORPORATE POLICY

Good Manufacturing practices Good Business practices Good Corporate Governance Good Environment protection Good Management and Safety System Good customer Services Good HRD Culture

LIQUIDITY:Liquidity is an attribute that signifies the capacity to meet financial obligation as and when required. According to Oxford Advanced Learners Dictionary, liquidity is the state of owning things of value that can easily be exchanged for cash. Liquidity management is the most essential component of financial management. It plays most dominant role in the successful functioning of an enterprise. Liquid assets may be defined as the money and assets that are readily convertible into money. Different degree of liquidity. Money itself is, by definition, the most liquid of assets, other assets have varying degrees of liquidity, depending on the case with which they can be turned into cash. In our study we focus on the most liquid assets of the company, cash and marketable securities. Liquidity management involves determining the total amount of these two types of assets the company will hold. The day to day problems of liquidity management consists of the highly important task of finding sufficient cash to meet current obligations. A firm should ensure that it does not suffer from lack of liquidity, and also that it is not too highly liquid. The failure of the company to meet its obligations, due to lack of sufficient liquidity, will result in bad credit image, loss of creditors confidence, or even in lawsuits resulting in the closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. The firms funds will be unnecessarily tied up in current assets management. It is very important for maintaining minimum liquidity position in the firm for profitability, so that company would maintain the liquidity in their business.

LIQUIDITY RATIO:
These are the ratios which measure the short term solvency of financial position of firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firms ability to meet its current obligations. The various liquidity rations are: current ratio, liquid ratio and absolute liquid ratio. Further to see the efficiency with which the liquid resources have been employed by a firm, debtors turn over and creditors turnover ratios are calculated. Liquidity refers to the ability of a concern to meet its obligations, as and when these become due. The short term obligation are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash fro paying obligations of short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short term liabilities. If current assets can pay off current liabilities may not be easily met out of current assets then liquidity position will be bad. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligation. To measure the liquidity of a firm, the following ratios can be calculated.

1. 2. 3.

Current Ratio Quick or Acid Test or Liquid Ratio Absolute Liquid Ratio or Cash Position Ratio.

10

(I) CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short- term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities. Thus,

The two basic components of this ratio are: current assets and current liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time generally, one year, such as marketable securities, bills receivables, sundry debtors, inventories, work in progress, etc. prepaid expenses should also be included in current assets because they represent payments made in advance which will not have to be paid in near future. Current Liabilities are those obligations which are payable, within a short period of generally one year and include outstanding expenses, bills payables, sundry creditors, accrued expresses, short term advances, income tax payable, divided payable, etc. Bank overdraft should also generally be included in current liabilities because it represents short term arrangement with the bank and is payable with a short period. But where bank overdraft is permanent or long term arrangement with the bank, it should be secluded. The following table gives the components of current ratio.

11

COMPONENTS OF CURRENT RATIO

Current Assets Current Liabilities

1. Cash In Hand 2. Cash In Bank 3. Marketable Securities 4. Short Term Investments 5. Bills Receivable 6. Sundry Debtors 7. Inventories(Stocks) 8. Work In Process

1. Outstanding Expenses / Accrued Expenses. 2. Bills Payable 3. Sundry Creditors 4. Short Term Advances. 5. Income Tax Payable 6. Dividends Payable 7. Bank Overdraft (If Not Permanent

9. Prepaid Expenses

Arrangement).

Interpretation of Current Ratio:

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of a firm while a decrease in the current ratio indicates that there has been deterioration in the liquidity position of the firm. As convention the minimum of two to one ratio is referred to as a bankers rule of thumb or arbitrary standard of liquidity for a firm.

12

Some authors are of the view that bank overdraft should not be taken as a current liability since it is a continuing arrangement with the bank. Through bank overdraft may look to be a long term liability because bank extends this facility year after year but in fact it is current liability because the amount will have to be cleared at the end of every year. Unless otherwise it is specifically mentioned that bank ove3rdraft is a long term arrangement, it should be taken as a current liability. A high current ratio may not be favorable due to the following reasons: 1. 2. 3. There may be slow moving stocks. The stocks will pile up due to poor sale. The figures of debtors may go up because debt collection is not satisfactory. The cash or bank balances may be lying idle because of insufficient investment opportunities. On the other hand, a low current ration may be due to the following reasons: a) There may not be sufficient funds to pay off liabilities. b) The business may be trading beyond its capacity. The resources may not warrant the activities. not warrant the activities. Important Factors for reaching a conclusion: A number of factors should be taken into consideration before reaching a conclusion about short term financial position. Some of these factors are as such:-

13

(a) Type of Business

Current ratio is influenced by the type pf business. a business with heavy investments in fixed assets may be successful even if the ratio is low. On the other hand, a trading concern will require a high current ratio because it has to pay its suppliers quickly.

(b) Types of Products

The type of products in which a business deals also influences current ratio. A business dealing in goods whose demand changes fact will require a higher current ratio. On the other hand, if products have more intrinsic value, e.g., gold, silver, metals, etc., a lower current ratio may also do.

(c) Reputation of the Concern

A business unit with better goodwill and reputation may afford a small current ratio because the turnover is more and creditors also allow credit for longer periods. A new concern or a concern which has not established its reputation will need higher current assets
(d)

Seasonal Influence

Current assets and current liabilities change with the seasons. In a peak season, current assets will be more and current ratio will be high. On the other hand this ratio will go down when the season is off.

14

Type of Assets Available

The type of current assets in the business also influence interpretation of current ratio. If the current assets include large amounts of slow moving stocks then even a high ratio may not be satisfactory. All the above mentioned factors should be taken into mind while interpreting current ratio.

Significance and Limitations of Current Ratio

Current ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors and other current liabilities. It is most widely used for making short term analysis of the financial position or short term solvency of a firm. But one has to be careful while using current ratio as a measure of liability because it suffers from the following limitations (a) Crude ratio: It is a crude ratio because it measures only the quantity and not be quality of current assets. (b) Window Dressing: Valuation of current assets and window dressing is another problem of current ratio. Current assets and liabilities are manipulated in such a way that current ratio loses its significance. Window dressing may be indulged in the following ways.

15

1. Over valuation of closing stock. 2. Obsolete or worthless stocks are shown in the closing inventory at their costs instead of writing them off. 3. Recording in advance cash receipts applicable to the next years sales. 4. Omission of liability for merchandise included in inventory. 5. Treating a short term obligation as a long term liability. 6. Inadequate provision for bad and doubtful debts.
7. Inclusions in debtors advance payment for purchase of fixed assets.

Window dressing is done to show current ratio at a particular figure. It does not present the real financial position of the concern. T6he inference drawn on such a ratio will be faulty and deceptive.

(II) QUICK OR ACID TEST OR LIQUID RATIO:Quick Ratio also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short term obligations as and when t6hey become due. The two determinants of current ratio, as a measure of liquidity, are current assets and current liabilities. Current assets include inventories and prepaid expenses which are not easily convertible into cash within a short period.

Quick ratio may be defined as the relationship between quick / liquid assets and current or liquid liabilities. An assets is said to be liquid if it can be converted into cash within a short period without loss of value. In that sense, cash in hand and cash at bank are the most liquid assets. The other assets which can be included in the liquid assets are bills receivable, sundry debtors, marketable securities and short term or temporary investments.
16

Inventories cannot be termed to be liquid assets because they cannot be converted into cash immediately without a sufficient loss of value. In the same manner, prepaid expenses are also excluded from the list of quick / liquid assets because they are not expected to be converted into cash. The quick ratio can be calculated by dividing the total of the quick assets by total current liabilities. Thus

Quick or Liquid Assets Quick / Liquid or Acid Test Ratio = Current Liabilities

Sometimes, bank overdraft is not included in current liabilities while calculating quick or acid test ratio, on the argument that bank overdraft is generally a permanent way of financing and is not subject to be called on demand. In such cases, the quick ratio is found out by dividing the total quick assets by quick liabilities (i.e., Current liabilities Bank Overdraft).

Quick or Liquid Assets Quick / Liquid or Acid Test Ratio = Current Liabilities

However, in questions quick assets and current liabilities have been used for calculating Acid Test Ratio.

17

Components of Quick / Liquid Ratio

Quick / Liquid Assets

Current Liabilities Out standing or

Cash in hand Cash in bank Bills receivables Sundry Debtors Marketable Securities Temporary Investments

Accrued Expenses Bills Payable Sundry Creditors Short term advances Income tax payable Bank over draft

Quick assets can also be calculated as:Current Assets (Inventories + Prepaid Expenses). Inventories here will mean all types of stocks i.e., finished, work in process and raw materials.

18

OBJECTIVES OF THE STUDY

To assess the efficiency of the liquidity management of Pioneer Spinning &

Weaving Mills Limited, puttur.

To examine and evaluated the liquidity position of Pioneer Spinning &

Weaving Mills Limited by taking measures of cash and bank.

To offer suggestions for improvement of the liquidity position of Pioneer

Spinning & Weaving Mills Limited, Puttur.

19

SCOPE OF THE STUDY

1. The scope of study is confined to Pioneer Spinning & Weaving Mills Limited.

2. The scope is limited to the study of Five years statements.

3. The study is confined only for financial department.

4. The study is conducted for a period of two months.

20

METHODOLOGY
The study is analytical in nature. The data for the study have been collected from the secondary sources only. Secondary data are colleted from the annual reports of Pioneer Spinning & Weaving Mills Limited, Puttur from 2001 02 to 2005 06. Besides, necessary supporting documents and details have been collected from books, Journals, reports and the like. The study covers manly the following aspects of liquidity analysis.

Analyzing level of liquidity position. Analyzing liquidity Ratios.

21

LIMITATIONS OF THE STUDY

The data used in this study have been taken from only published

annual reports of Pioneer Spinning & Weaving Mills Limited, Puttur.

Executives opinion of Pioneer Spinning & Weaving Mills

Limited, Puttur is not considered.

There is no set of industry standards or comparisons and hence

the interference is made on general standards

The information provided in the company Balance sheet is only

the data source available.

22

Table:Liquidity position of Pioneer Spinning and Weaving Mills Ltd., Puttur

Current Assets 11,73,79,460 Current Liabilities 5,50,52,171 Net Working Capital 6,23,27,289

Year

Quick Assets

2001- 02

6,30,49,630

2002 03

12,90,58,250

5,53,67,330

4,19,05,050

7,36,90,920

2003 -2004

12,11,59,003

5,32,80,075

5,19,38,418

6,78,78,928

2004 2005

12,98,34,731

5,02,91,030

5,31,15,093

7,95,43,701

2006-2005

14,26,34,519

4,81,71,031

7,07,27,758

9,44,63,488

Growth rate of current assets from 2001 02 to 2005 06 = 22% Decline rate of current liabilities from 2001 02 to 2005 06 = 12% Growth rate of Net working capital from 2001 02 to 2005 06 = 5%

23

Table:-

Year Current Assets Inventories Sundry Debtors Cash & bank balances Other current assets Loans & Advances Total Current Liabilities Sundry Creditors Provisions Total Quick Assets Sundry Debtors Cash & bank balances Other current assets Loans & Advances Total Absolute Assets Cash & bank balances Total

2001 02

2002 03

2003 04

2004 05

2005 06

5,43,29,830 2,01,33,580 33,17,050 45,99,000 3,50,00,000 11,73,79,46 0

8,71,53,200 99,85,970 63,42,610 55,76,470 2,00,00,000 12,90,58,25 0

6,92,20,585 1,50,67,731 29,37,587 58,45,000 2,80,88,100 12,11,59,00 3

7,85,19,638 1,97,76,505 35,44,436 63,30,064 2,16,64,088 12,98,34,73 1

7,19,06,761 2,58,94,713 24,32,714 63,30,064 3,60,70,267 14,26,34,519

5,10,73,526 39,78,645 5,50,52,171

5,00,35,784 53,31,546 5,53,67,330

4,92,13,840 40,66,235 5,32,80,075

4,56,36,905 46.54.125 5,02,91,030

3,91,40,959 90.30.072 4,81,71,031

2,01,33,580 33,17,050 45,99,000 3,50,00,000 6,30,49,630

99,85,970 63,42,610 55,76,470 2,00,00,000 4,19,05,050

1,50,67,731 29,37,587 58,45,000 2,80,88,100 5,19,38,418

1,97,76,505 35,44,436 63,30,064 2,16,64,088 5,13,15,093

2,58,94,713 24,32,714 63,30,064 3,60,70,267 7,07,27,758

33,17,050 33,17,050

63,42,610 63,42,610

29,37,587 29,37,587

35,44,436 35,44,436

24,32,714 24,32,714

24

Current Assets 2001 - 02

54329830 35000000 Inventory Sundry debtors Cash & Bank balance 4599000 3317050 20133580 Other current assets Loans & Advances

INFERENCE:
From the above chart it is inferred that the total inventory is very high when compared to other current assets.

25

Current Assets 2002 - 03

20000000 5576470 6342610 9985970 Inventory Sundry debtors Cash & Bank balance Other current assets 87153200 Loans & Advances

INFERENCE:
From the above chart it is inferred that the cash and bank balance is very less when compared to other current assets.

26

Current Assets 2003 - 04

28088100 69220585
Inventory Sundry debtors

5845000 2937587 15067731

Cash & Bank balance Other current assets Loans & Advances

INFERENCE:
From the above chart it is inferred that the sundry debtors and cash and bank balances are very less when compared to inventory.

27

Current Assets 2004 - 05

21664088 6330064 3544436 19776505 78519638
Inventory Sundry debtors Cash & Bank balance Other current assets Loans & Advances

INFERENCE:
From the above chart it is inferred that the total inventory is very high when compared to other current assets.

28

Current Assets 2005 - 06

36070267
Inventory Sundry debtors Cash & Bank balance Other current assets Loans & Advances

6330064 2432714 25894713 71906761

INFERENCE:
From the above chart it is inferred that half off the current assets is inventory and cash and bank balance very less when compared to sundry debtors.

29

Current liabilities 2001 - 02

3978645

Sundry creditors provisions

51073526

INFERENCE:From the above chart it is inferred that the provisions is less when compared to sundry creditors.

30

Current liabilities 2002 - 03

5331546

Sundry creditors provisions

50035784

INFERENCE:From the above chart it is inferred that the provisions is less when compared to sundry creditors.

31

Current liabilities 2003 - 04

4066235

Sundry creditors provisions

49213840

INFERENCE:From the above chart it is inferred that the provisions is less when compared to sundry creditors.

32

Current liabilities 2004 - 05

4654125

Sundry creditors provisions

45636905

INFERENCE:From the above chart it is inferred that the provisions is less when compared to sundry creditors.

33

Current liabilities 2005 - 06

9030072

Sundry creditors provisions 39140959

INFERENCE:From the above chart it is inferred that the provisions is less when compared to sundry creditors.

34

Table:Liquidity Ratios of Pioneer Spinning and Weaving Mills Ltd., Puttur

Year 2001- 02 Current Ratio 2.13 Quick Ratio 1.14 Absolute Ratio 0.06

2002 03

2.33

0.75

0.11

2003 -2004

2.27

0.97

0.05

2004 2005

2.58

1.02

0.07

2006-2005

2.96

1.46

0.05

35

36

Interpretation (Current Ratio):-

From the above calculations that the current ratio of Pioneer Spinning and Weaving Mills Ltd., Puttur is varied between 2.13 and 2.96 during the year 2001 02 to 2005 06. the average ratio of is 2.45 percent. The ratio of the company has more that the conventional standard of 2:1. Hence the judged from the conventional standard the liquidity ratio of the company is at sates factory level the management of the company is maintaining the current assets and current6 liabilities in good manner.

During the first year i.e., 2001 02 the calculated current ratio is 2.13. It is more than the standard is 2:1. In the second year i.e., 2002 03 the ratio is 2.33. The growth rate of the ratio is 9.38 percent. In the third year i.e., 2003 04 the ratio is 2.27 the growth rate of the ratio is 6.57 percent. In the fourth year i.e., 2004 05 the ratio is 2.58. The growth rate of the ratio is 21.12 percent. In the fifth year i.e., 2005 06 the ratio is 2.96 the growth rate of the ratio is 38.96 percent.

37

Quick Assets 2001 - 02

20133580

Sundry Debtors Cash & bank balances

35000000 3317050

Loans & Advances

INFERENCE:From the above chart it is inferred that the cash and bank balances is very less when compared to sundry debtors and loans and advances.

38

Quick Assets 2002 - 03

9985970

Sundry Debtors Cash & bank balances

20000000

Loans & Advances

6342610

INFERENCE:From the above chart it is inferred that the cash and bank balances is very less when compared to sundry debtors and loans and advances.

39

Quick Assets 2003 - 04

15067731

Sundry Debtors Cash & bank balances

28088100 2937587

Loans & Advances

INFERENCE:From the above chart it is inferred that the cash and bank balances is very less when compared to sundry debtors and loans and advances.

40

Quick Assets 2004 - 05

19776505

Sundry Debtors
21664088

Cash & bank balances Loans & Advances

3544436

INFERENCE:From the above chart it is inferred that the cash and bank balances is very less when compared to sundry debtors and loans and advances.

41

Quick Assets 2005 - 06

25894713

Sundry Debtors Cash & bank balances

36070267

Loans & Advances

2432714

INFERENCE:From the above chart it is inferred that the cash and bank balances is very less when compared to sundry debtors and loans and advances.

42

Interpretation (Quick Ratio):-

From the above calculations that the current ratio of Pioneer Spinning and Weaving Mills Ltd., Puttur is varied between 1.14 and 1.46 during the year 2001 02 to 2005 06. the average ratio of is 1.06 percent. The ratio of the company is flexible then the conventional standard of 1:1. Hence the judged from the conventional standard the liquidity ratio of the company is low during the years 2002 to 2003. So the management of the company is maintaining less amount in current assets when compared to current liabilities in years 2002 03 & 2003 04.

During the first year i.e., 2001 02 the calculated current ratio is 1.14. It is more than the standard is 1:1. In the second year i.e., 2002 03 the ratio is 0.75. The decline rate of the ratio is 34.2 percent. In the third year i.e., 2003 04 the ratio is 0.97 the growth rate of the ratio is 14.9 percent. In the fourth year i.e., 2004 05 the ratio is 1.02. The decline rate of the ratio is 10.05 percent. In the fifth year i.e., 2005 06 the ratio is 1.46 the growth rate of the ratio is 28.0 percent.

43

2432714

Absolute assets Cash and Bank Balance

3317050
2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06

3544436

6342610 2937587

44

Interpretation (Absolute Ratio):-

From the above calculations that the current ratio of Pioneer Spinning and Weaving Mills Ltd., Puttur is varied between 0.06 and 0.05 during the year 2001 02 to 2005 06. The average ratio is 0.07 percent. The ratio of the company has more than the conventional standard of 0.50:1. Hence the judged from the conventional standard the liquidity ratio of the company is not satisfactory. So the management of the company has to maintain better amount in current assets when compared to current liabilities.

During the first year i.e., 2001 02 the calculated current ratio is 0.06. It is not more than the standard is 0.05:1. In the second year i.e., 2002 03 the ratio is 0.11. The growth rate of the ratio is 83.3 percent. In the third year i.e., 2003 04 the ratio is 0.05 the decline rate of the ratio is 16.66 percent. In the fourth year i.e., 2004 05 the ratio is 0.07. The growth rate of the ratio is 16.7 percent. In the fifth year i.e., 2005 06 the ratio is 0.05 the decline rate of the ratio is 16.66 percent.

45

FINDINGS
(e) Liquidity management plays a crucial role in the success of a business firm. Liquidity refers to the ability of the concern to meet its current obligations and when these become due. (f) From the viewpoint of the conventional standard of current ratio, it is concluded that the short term liquidity is satisfactory.
(g)

Quick

ratio

was

mostly below

the normal

standard in

the

years 2002 03 & 2003 04. (h) The position of absolute ratio was not satisfactory, i.e., the calculated ratios for the study period are less than the standard; cash management of the company was in poor position. (i) The net working capital is also increased from year 2001 02 to 2005 06 of the study period (51%)
(j)

The current assets are also increased from the year 2001 02 to 2005 06 (22%).

(k)

The average current ratio during the study period comes to 2.45. The average of current assets and current liabilities worth Rs. 12,80,13,192 and 5,24,32,327 respectively

46

SUGGESTIONS
Generally current ratio is influenced by the type of business. A high current ratio may not be favorable due to the following reasons. There may be slow moving stocks. The figures of debtors may go up because debt collection is not satisfactory. The cash and bank balances may be lying idle because of insufficient. However the current ratio measures only is quantity of current assets and not quality of current assets. In order to maintain the current assets and current liabilities i.e., liquidity position, the management of the concern must maintain the appropriate current assets only.
Cash management of the company is also poor. Hence it can be concluded

that the management should maintain appropriate cash position in the concern. In order to improve the cash management the management of the concern should allot requires funds in the forth coming periods.
Quick ratio was always less than the standard. It is better to maintain this

ratio near to the standard by reducing the liabilities in time and also it is better to improve the short term Loans and Advances. Accumulation of huge funds in Networking capital is also not good to the concern. Here it is better to reduce this also for better liquidity management of the concern.

PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDING 31ST MARCH OF
47

PIONEER SPINNING & WEAVING MILLS LIMITED, PUTTUR

Particulars Income Sales Other income Stock adjustments Total I Expenses Raw materials consumed Manufacturing Expenses Administrative Expenses Selling & distributing Expenses Financial expenses Total II Profit before depreciation (I II ) Less: Depreciation Profit before Tax 169001004 95996136 5084124 7976301 13079971 291137536 30534922 4839593 25695329 163204305 83856968 3925048 5483186 11880321 268349828 28659556 8271521 20388035 81325325 62453600 3072500 4827520 15067500 166746445 48367544 11018054 37349490 162753660 89856910 2615000 4583660 28755068 288564298 67293165 35584170 31708995 Next page 102516356 41012785 2572500 3386686 20080000 169568327 87720800 51018200 36702600 308759592 1841988 +11070878 321672458 290872532 7749574 -1612722 297009384 198613536 6645873 +9854580 215113989 341561588 5572335 +8723540 355857463 257986500 3217892 -3915265 257289127 2005 06 2004 05 2003 04 2002 03 2001 02

48

Previous page continue

Less Provision for Taxes Deferred tax liability Provision for FBT Net profit Add: Surplus from previous year Deferred tax asset Less / Add income tax relating to previous year Amount available for appropriations 22233757 57459 -379636 39465486 10333790 +2017 22747882 15581785 75855 +86350 37040250 12533600 98250 -50000 34237845 10000000 +10000 23359880 8020000 121423 17553906 4590000 3385960 12412075 9876530 5600700 576000 21296260 9955000 98000 21655995 13566740 9785980 13349880

49

BALANCE SHEET AS AT 31ST MARCH EVERY YEAR OF PIONEER SPINNING AND WEAVING MILLS LTD., PUTTUR

Particulars I Sources of funds: 1. Share holders funds: a). capital b). reserves & surplus 2. Loan Funds: a). Secured Loans b). Unsecured Loans 3. differed tax liability Total II Application of Funds: 1. fixed assets: a). gross block b). less: deprecation c). net block 2. capital work in progress 3. investment

2005 06

2004 05

2003 04

2002 03

2001 02

15000000 41770044

10500000 25521485

10475000 20020000

10400000 20000000

10380000 18055865

93187463 7921592 5713419 59092518

82764560 11863971 5301833 135951849

78572220 13981245 4633761 127682226

72235631 28071995 3953325 134660951

68645983 20051775 2679443 119813056

134199833 89887917 44641916 3013200

128046015 86209806 41836209 69888 13200

140123215 95283786 44839429 97585 5098374

117533000 81097770 36435230 55633 1375100

107598555 76394974 31203581 3370535

Next page...

50

Previous Page Continue

4. current assets, loans & advances a. inventories b. sundry debtors c. cash & bank balances d. other current assets e. loans & advances Less: current liabilities & provisions a. liabilities b. provisions Net current assets 5. miscellaneous expends:- true to the extent not written off or adjusted deferred revenue expenditure Total 71906761 25894713 2432714 6330064 36070267 78519638 19776505 3544436 6330064 21664088 69220585 15067731 2937587 5845000 28088100 87153200 9985970 6342610 5576470 20000000 54329830 20133580 3317050 4599000 35000000

142634519 129834731 39140959 9030072 94463488 45636905 4654125 79543701

121159003 129058250 117379460 49213840 4066235 67878928 50035784 5331546 73690920 51073526 3978645 62327289

16973914

14488851

9767910

23104068

22911651

159092518 135951849 127682226 134660951

119813056

51

BIBLIOGRAPHY
1. Sharma R.K. And Shashi K. Gupta Management Accountancy Kalyani Publishers Ludhiana

2.

I. M. Pandey

Financial Management

Vikas Publishing House Pvt. Ltd., New Delhi.

3.

M. Y. Khan P. K. Jain

Financial management

Tata Publishing House Publishing Company Limited. New Delhi.

4.

Sharan

fundamental of Financial Management

Pearson Education

52