Liquidity and Profitability
Liquidity and Profitability
Liquidity and Profitability
1.1 INTRODUCTION
Liquidity:
The concern of business owners and managers all over the world is to devise a strategy
of managing their day to day operations in order to meet their obligations as they fall
due and increase profitability and shareholders wealth. Liquidity management, in most
cases, are considered from the perspective of working capital management as most of
the indices used for measuring corporate liquidity are a function of the components of
working capital. The importance of liquidity management as it affects corporate
profitability in todays business cannot be over emphasis. The crucial part in managing
working capital is required in maintaining its liquidity in day-to-day operation to ensure
its smooth running and meets its obligation. A firm should ensure that it does not suffer
from lack-of or excess liquidity to meet its short-term compulsions. A study of liquidity
is of major importance to both the internal and the external analysts because of its close
relationship with day-to-day operations of a business. Liquidity requirement of a firm
depends on the peculiar nature of the firm and there is no specific rule on determining
the optimal level of liquidity that a firm can maintain in order to ensure positive impact
on its profitability. Liquidity and its management determines to a great extent the
growth and profitability of a firm. This is because either inadequate liquidity or excess
liquidity may be injurious to the smooth operations of the organization. This seeming
controversy has attracted a lot of interest in the subject of liquidity management. WCM
technique appears with the philosophy of using long term source should be used for the
entire investment in the current assets and short term should be used only for urgent
situations. Distinct features of conservative WCM are increased liquidity and less risk
but more interest has to be paid on the seasonal requirement for the entire period. Larger
firm focus on higher sales with fewer on cash basis which leads to greater cash flow
problems and seasonality while smaller firms major focus is stock management and
credit management policies with low profitability.
Liquidity is the availability of funds or assurance that funds will be available, to honor
all cash outflow commitments (both on and off-balance sheet) as they fall due. These
commitments are generally met through cash inflows, supplemented by assets the
institutions capacity to borrow. The risk of illiquidity may increase if principal and
interest cash flows related to assets, liabilities and off- balance sheet items or
mismatched.
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Liquidity ratios are a set of ratios or figures that measure a companys ability to pay off
its short-term debt obligations. This is done by measuring a companys liquid assets
(including those that might easily be converted into cash) against its short-term
liabilities. There are a number of different liquidity ratios, which each measure slightly
different types of assets when calculating the ratio. More conservative measures will
exclude assets that need to be converted into cash.
In general, the greater the coverage of liquid assets to short-term liabilities, the more
likely it is that a business will be able to pay debts as they become due while still
funding ongoing operations. On the other hand, a company with a low liquidity ratio
might have difficulty meeting obligations while funding vital ongoing business
operations. Liquidity ratios are sometimes requested by banks when they are evaluating
a loan application. If you take out a loan, the lender may require you to maintain a
certain minimum liquidity ratio, as part of the loan agreement. For that reason, steps to
improve your liquidity ratios are sometimes necessary.
Liquidity ratios are used to deter- mine a companys status to meet its short-term debt
obligations. Investors often take a close look at liquidity ratios when performing
fundamental analysis on a rm. Since a company that is consistently having trouble
meeting its short-term debt is at a higher risk of bankruptcy, liquidity ratios are a good
measure of whether a company will be able to comfort- ably continues as a going
concern.
Liquidity is the availability of funds or assurance that funds will be available, to honor
all cash outflow commitments (both on and off-balance sheet) as they fall due.
Managing assets and liabilities both as to cash flow and concentration, to ensure that
cash inflows have an appropriate relationship to approaching cash out flows.
Profitability:
Every business is most concerned with its profitability. Profitability is the ability to
make profit from all the business activities of an organization, company, firm, or an
enterprise. It shows how efficiently the management can make profit by using all the
resources available in the market. One of the most frequently used tools of financial
ratio analysis is profitability ratios, which are used to determine the company's bottom
line. Profitability ratios show a company's overall efficiency and performance.
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on firms profitability as well on liquidity. This study is going to find out the impact of
Liquidity, Profitability and Working capital on the firms financial aspects.
Definitions:
Amongst many criteria of business success, there are two which are expressed in
financial terms, namely profitability and liquidity.
Profit:
Is the excess of resources earned over resources expended or income less costs. Various
profit figures (gross, net, pre-tax etc.) for the period can be read from the profit and loss
account (US term income statement).
Profitability:
Is the relationship between profits and capital (the static resources set aside to earn
those profits). Measuring profitability means that you have to relate a profit figure
(from the profit and loss account) to a resources figure (from the balance sheet).
In short, profit is the measure of gain, and profitability businesses give up their
resources to more profitable, because the total profit earned will rise, other things being
equal. For this to hold true private and public profit must be equivalent; this is not the
case where, for example, profit earners cause there to be social costs, such as
atmospheric pollution or noise.
Liquidity:
May be defined as the ability of a firm to meet its financial obligations as they fall due.
The balance sheet (defined as a structures statement of assets and liabilities) measures
these resources and claims, and describes the liquidity of the firm i.e., the relationship
between assets and liabilities see also LD10, accounting theory and the purpose of
accounting.
Measuring profitability and liquidity:
Whereas definition and discussion of the concepts are activities beloved by academics,
their practical day to day expression and measurement is a matter for business personnel
and accountants. Large organizations may employ accountants or, like smaller firms,
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Such expressions and such measurements require care, routine and administration as
well as an understanding of the principles involved. All the levels of profit (gross,
operating, net and retained) are expressed in the various sections of the profit and loss
account my definition being a structured statement of income and expenses). The
measurement of profit is, in fact, very difficult and it is to cut through the problems of
principle that accountants adopt a number of rules of thumb, such as deprecation in
equal installments over the estimated useful life of the project.
It is only if a form is profitable that in the long run it will receive in cash more than it
pays out. This is most clearly imaginable in the case of a trading business which buys
and sells exclusively on a cash basis. If such a firm makes losses it is paying out in cash
more than it coming in from sales. It can only sustain its cash balances by injections of
capital or by selling off its assets, processes which cannot be continued indefinitely.
Profitability may be necessary but it is not sufficient. A firm must be careful to ensure
that it does not commit itself to payments that it cannot cover. thus detailed records
require to be kept, ideally on a real time basis, of case in hand and expected and cash
to be paid. The accounting statement shoeing this detail is the cash budget every item
will be tracked in terms of the time of flow, and the whole managed so that there is
never a time when payments cannot be made when due. This requires the study exercise
of the bureaucratic virtues of thoroughness, reliability and accuracy, together with
contingency planning to cope with uncertainties:
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Whatever the immediate situation, profitability and liquidity also to be seen in their
strategic context i.e. In the light of market growth, market share and progress through
the product and industry life cycles.
Liquidity
Liquidity management is very important for every organization that means to pay
current obligations on business, the payment obligations include operating and financial
expenses that are short term but maturing long term debt. According to Shim and Siegel
(2000) accounting liquidity is the companys capacity to liquidate maturing shortterm
debt (within one year). Maintaining adequate liquidity is much more than a corporate
goal and is a condition without which it could not reach the continuity of a business.
Functions leading to liquidity In seeking sufficient liquidity to carry out the firms
activities, following functions have to be carried out:
1) Forecasting cash flows: Successful day-to-day operations require the firm to be able
to pay its bills promptly. This is largely a matter of matching cash inflows against
outflows. The firm must be able to forecast the sources and timing of inflows from
customers and use them to pay creditors and suppliers.
2) Raising funds: The firm receives financing from a variety of sources. At different
times some sources will be more desirable than others. A possible source may not; at a
given point of time have sufficient funds available to meet the firms needs. So the
financial manager must identify the amount of funds available from each source and the
periods when they will be needed.
3) Managing the flow of internal funds: A large firm has a number of different bank
accounts for various operating divisions or for special purposes. The money that flows
among these internal accounts should be carefully monitored.
2.2.Profitability Profitability can be defined as the final measure of economic success
achieved by a company in relation to the capital invested in it. This economic success is
determined by the magnitude of the net profit accounting (Pimentel et al, 2005).
Profitability may be measured in many different ways Lazaridis and Tryfonidis (2006)
found statistically significant relationship between profitability, measured through gross
operating profit, and the cash conversion cycle and its components (accounts
receivables, accounts payables, and inventory). Functions leading to Profitability In
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seeking profits for firm, the financial manager can be a full member of the corporate
management structure. In this role the manager provides specific input into decision
making process, based on financial training and actions.
With respect to profitability, some of his specific functions are as:
1) Cost control: Most large corporations have detailed cost accounting systems to
monitor expenditures in the operational areas of the firm. Because of supervising the
accounting and reporting functions, the financial manager is in a position to monitor
and measure the amounts of money spent or committed be the company.
2) Pricing: Some of the most important decisions made by a firm involve the prices
established for products, product lines, and services. The philosophy and approach to
pricing policy are critical elements in the companys marketing effort, image, and sales
level. Determination of the appropriate price is the joint decision of marketing and
finance.
3) Forecasting profits: The financial manager is usually responsible for gathering and
analyzing the relevant data and making forecasts of profit levels.
4) Measuring required return: Every time a firm invests its capital, it must make the
risk-return decision. The required return is the rate of return that must be expect from a
proposal before it can be accepted.
2.3. Need for the study
Liquidity and profitability play a significant role in any organization that means to meet
current obligations and maintain a healthy profitability from business operations. The
purpose of this study is to measure the liquidity and profitability performance of the
selected pharmaceutical companies. Every stakeholder has interest in the liquidity
position of a company. Suppliers of goods will check the liquidity of the company
before selling goods on credit. Employees should also be concerned about the
companys liquidity to know whether the company can meet its employee related
obligationssalary, pension, provident fund, etc. Thus, a company needs to maintain
adequate liquidity so that liquidity greatly affects profits of which some portion that will
be divided to shareholders. Analysis of profit is of vital concern to stockholders since
they derive revenue in the form of dividends. Profits are also important to creditors
because profits are one source of funds for debt coverage. Furthermore, Management
uses profit as a performance measure. Liquidity ratios measure the ability of a firm to
meet its short-term obligations. The ability to pay short-term debt is of concern to
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anyone who interacts with the company. If a company cannot maintain a short-term
debt-paying ability, it will not be able to maintain a long-term debt-paying ability, nor
will it be able to satisfy its stockholders. The liquidity ratios look at aspects of the
company's assets and their relationship to current liabilities.
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Cement is a generic term and used for all powers material, which, when mixed with
water has a plastic form, but becomes a solid structure within a few hours, the structure
gaining strength and bonding properties with age. Thus defined, cement is an ancient
building material. Lime and volcanic ash cement used for the pyramids of Egypt.
Evidence exists of its use age in the Indus Valley civilization of Mohenjo-Daro.
Credit for the invention of cement goes to an English man by the name of Joseph
Aspasia of Leeds. England. In 1824 Aspasia manufactured cement in a rudimentary
form, by burning mixture of limestone and clay. It was termed Portland cement as it
resembled the Portland Stone a popular lime stone used for building construction in
England. Another quarter of centaury passed before a slightly better quality of cement
was produced in 1850 by yet another English-man Isaac Charles Johnson. In 1857, an
American named David Saylor improved the mix design of limestone and clay resulting
in a much more superior quality of cement. He also called his cement by the same
name Portland cement.
Origin of the industry in India
In India Portland cement was first manufactured in 1904 near madras, by the south
India industrial ltd., is a 30 tons per day plant. However, this venture failed. In October,
1914 another enterprise, Indian company limited commissioned 100 tons per day
Rotary Kiln at Porbander, Gujarat. The next couple of years saw the emergence of two
new factories at Katni-Madhya Pradesh and Laksher-Rajasthan were commissioned.
The First World War gave a fillip to the cement industry and by 1918. The three
together were able to produce about 85,000 tons per year. Starting with less than a1000
tones per annum in 1914, cement product is expected to reach capacity of over 60
Million tones per annum by the end of the Seventh Five Year Plan
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Milestones
The following milestones achieved by the Indian cement industry will give an idea of
growth pattern.
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Exports
Apart from meeting the entire domestic demand, the industry is also exported and
cement, the details are as follows
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some cases. Exports have helped in improving capacity utilization and profitability of
these firms besides earning.
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1.3 COMPANPROFILE
Since the performance of the Company was not encouraging and started making losses
from 1985-86 onwards due to sluggish market of cement and also severe competition in
Engineering products. In 1988 PANYAM was became sick and the management of the
company was taken over by late M.V. SubbaRao and Associates. M.V. SubbaRao and
Associates have taken various steps to improve the profitability of the company which
has yielded results wiping out the accumulated losses and the company reported
excellent performance in the years 1996-97 and 1997-98.
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However, the Cement Industry went through severe crisis in 1999 consequent to the
liberalization policy announced by the Government of India. In addition, due to paucity
of working capital finance, the Cement Unit could not run continuously to its capacity
due to various reasons.
The built up area comes to 2.87 million sft. The company has entered into an
agreement with M/s. Salarpuria Developers (P) Limited for developing the land under
joint development considering the boom in the real estate. The company has received
advances from the prospective buyers against the companys proportionate share under
joint development and the same was utilized for settlement of dues of banks/ secured
creditors, payment of VRS dues etc.
The company has taken up modernization of Kiln No.1 by enhancing the capacity
of the said kiln to 2000 M. Tonnes. After trial runs and initial teething problems, the
output has started from the kiln. The project has started the commercial production from
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10th August, 2011. After completion of the Modernisation Scheme, . The present
capacity of the cement plant is 3000 M.Tonnes per day. The project was financed by
Indian Overseas Bank, Adarshnagar, Hyderabad and State Bank of Hyderabad,
Overseas Branch, Somajiguda, Hyderabad.
State Of The Art Plant
Initially one kiln with a capacity of 200 TPD was installed and later on the
capacities were augmented by addition of two more kilns with a capacity of 300 TPD
and 600 TPD respectively. Over the years, the wet process kilns were converted into dry
process and the capacities were increased to a level of 2200 TPD by 1997 running three
kilns.
The company has diversified its activities in 1980 by amalgamating Deccan Wires
Limited (a unit of the then promoters group) which was incorporated in 1976 at
Bangalore for manufacture of 10000 tonnes of high carbon and alloy steel wires. The
said Engineering Division was having about 20.80 acres of prime land at
Bommanahalli, Bangalore
PRODUCTS
Advantages
Develops high early strength so that form work of slabs and beams can be
removed much earlier resulting in faster speed of construction and saving in
centering cost.
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Produces highly durable and sound concrete due to very low percentage of
alkalis, chlorides, magnesia and free lime in its composition.
43 Grade Cement is the popular brand cement with low heat of hydration and long
life of Concrete Structures.
Advantages
Its high fineness offers better workability for a given water cement ratio
ensuring very dense, compact and durable concrete.
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Nandi Group is a leading business group led by Founder and Chairman Mr S.P.Y.Reddy.
The Group is leading player in PVC, HDPE, CPVC,uPVC pipes. The group was started
as a small unit of manufacturing of Plastic containers in 1978. It was later expanded to
manufacturing of PVC and allied pipes under the brand "Nandi".
The group is a major player is Agricultural Pipes, Casing Pipes, Submersible Pipes,
Ring Fit Pipes, Plumbing Pipes, Electrical Pipes, Sewer Pipes. It also major player in
Water Storage Tanks and Solvent Cements. Over the last decades the group has
diversified into different businesses and has presence in Cement ,Infrastructure , Tmt
Bars, Agro products and Dairy Industry.
Test Report
FACTORY TEST Requirements as per IS :
Description
RESULTS 8112-89
CHEMICAL PROPERTIES
1. Loss on Ignition % 1.46 5.0 max
2. MgO % 0.91 6.0 max
3. SO3 % 2.04 3.0 max
4. Insoluble Residue % 1.52 3.0 max
5. Alumina Modulus 1.47 0.66 min
6. Lime Saturation Factor 0.88 0.66 - 1.02
7. Chloride Content % 0.06 0.1 max
PHYSICAL PROPERTIES
1. Fineness( m/Kg ) 2.76 225 min
2. Setting Time( minutes )
Initial: 105 30 min
Final: 160 600 max
3. Compressive
Strength( Mpa )
3days 28 23 min
7days 38 33 min
28days 53 43 min
4. Soundness
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LechatelierExpansion( mm ) 1 10 max
Autoclave Expansion( % ) 0.06 0.8 max
Room Temperature( C ) 28 272C
PPC Cement is the popular brand cement with low heat of hydration and long life of
Concrete Structures.
Advantages
Its high fineness offers better workability for a given water cement ratio
ensuring very dense, compact and durable concrete.
Test Report
FACTORY TEST Requirements as per IS :
Description
RESULTS 1489(Pt-1)-91
CHEMICAL PROPERTIES
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Promotors
Sri.S.P.Y.REDDY (B.E.(Mech)
Sri S.P.Y.Reddy is the Chairman of Panyam Cements & Mineral Industries Limited. He
is Engineering Graduate in Mechanical from Regional Engineering College,
Warangal.On completion of graduation, he has worked for a shorter period of three
years in Bhaba Atomic Research Centre, Mumbai. He started his own business in the
year 1977 and has essential role in establishment of NANDI GROUP He has served as
Chairman of Nandyal Municipality for a brief period. Sri S.P.Y.Reddy is a sitting
Member of Parliament from Nandyal Parliamentary Constituency.
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PRODCUT PRODUCING:
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2. RESEARCH METHODOLOGY
The study is descriptive in nature and reveals an existing fact. The Population of the
study is all the companies listed in the NSE. The data is used on the basis of
profitability random sampling. Secondary data is used from the books, journals and
internet. The data is analyzed through the regression analysis to find out the impact of
liquidity on profitability, Correlation analysis is used to find out the relationship
between liquidity with profitability. The following liquidity and profitability ratios are
used for analysis:
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SOURCE OF DATA:
Annual financial reports of the company
Liquidity Ratios:
1. Current ratio
2. Quick ratio
3. Cash ratio
4. Inventory turnover ratio
5. Current asset total asset ratio
6. Current liabilities total asset ratio
7. Debtors turnover ratio
8.Net working capital to current assets ratio
9 .Liquid asset to current assets ratio
10. Loans and advances to current assets ratio
11. Return on capital employed
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1. CURRENT RATIO:
The ratio of current assets to current liabilities is called current ratio. The term current
assets includes debtors, stock, bills receivables, bank and cash balance, repaid expenses,
income due to short term investments. The term current liabilities include creditors,
bank overdraft, bills payable, outstanding expenses, income received in advance etc.
standard current ratio is 2:1 i.e. current assets shall be two times to current liabilities.
Current Assets
Current Ratio=
Current Liabilities
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Quick Assets
Quick Ratio=
Current Liabilities
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Current Assets
C . T . T . R=
Total Assets
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Inventory
Inventory Current assets Ratio=
Current Assets
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Liquid assets
Liquid Assets Current Assets Ratio=
current Assets
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LoansAdvances
Loans Advances Current Assets Ratio=
Current Assets
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LIQUIDITY AND PROFITABILITY ANALYSIS
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Tomeasure the extent of relationship between liquidity and profitability spearmans rank
correlation co-efficient is computed. An attempt has also been made to test whether the
computed value of such correlation co-efficient is significant or not, students test has
further been applied. For this purpose, the ratio of current asset to total assets (CTTR)
has been used as the liquidity indicator and the ratio of return on capital employed
(ROCE) has been taken as the profitability parameter.
1. CURRENT RATIO:
Current assets
Current Ratio = -------------------------------
Current liabilities
current ratio
3.39
3.5
3 2.43 2.54 2.4
2.27 2.24 2.29
2.5 2.05
2
RATIO 1.5
1
0.5
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
The ideal norm of current ratio is 2:1. In the above analysis the current ratio is more
than the standard norm which indicates the meaning of company having current assets
more from the year 2013-14. In the years 2015 and 2016 it is less than the standard
norm indicating insufficient current assets.
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Quick assets
Quick Ratio = ----------------------------------------
Current liabilities
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quick ratio
3.5 3.07
3
2.24 2.21 2.18 2.23
2.5 1.94
2 1.45 1.32
RATIO
1.5
1
0.5
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
The standard norm of quick ratio is 1:1.The above analysis showing fluctuations in the
result, the ratio is more than the standard norm. It means that the company having
sufficient quick assets to meet its short term obligations
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Graph: 3
0.5
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
From the above table it is observed that cash ratio decreased from 2009-16 In the year
2013 it was somewhat increased to compare to the above years why because the
company caries a small amount of cash. As company having decreasing cash from last
three years, it is in need of raising liquid funds from resources.
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Current assets
C.T.T.R = -------------------------------------
Total assets
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CA TO TA RATIO
0.95 0.93
0.9
0.86
0.85
0.84
0.85 0.83
0.82
0.81
RATIO 0.79
0.8
0.75
0.7
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
Gr
aph
INTERPRETATION:
From the above table it is observed that the current assets to total assets ratio is
fluctuating from 2009-16 because total assets increased more than the current assets and
from year 2014-15 increasing because current assets increase more than the total assets
and from year 2015-16 again its decreasing because total assets increasing more than
the current assets.
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Average debtor
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30 26.87
25
20
15.46
13.51 13.46
RATIO 15 10.77
8.85
10 6.11
4.97
5
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
From the above table it reveals that debtor turn ratio decreasing form 2009-16 and
having continuous increase from the year 2015-16, because sales are continuously
increasing but debtors are not increasing as extent to the proportion of sales.
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Net sales
INVENTORY TURN OVER RATIO = ------------------------------------------
Average inventory cost
30 26.19
23.41 22.72
25
20
RATIO 15 11.06
10.16
6.87 7.78 7.81
10
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
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LIQUIDITY AND PROFITABILITY ANALYSIS
From the above table it is observed that inventory turnover ratio is increasing form
2009-16 because the sales are increasing. It started its decrease from the year 2013-14
with the increment there in sales and less proportionate increase in inventory cost. It
again started its growth in the year 2016, because there is sudden and more increment in
sales in that year.
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0.4
0.28
0.3 0.23
RATIO
0.2
0.1
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
From the above table it reveals that net working capital ratio is having decreasing trend
except in the years 2013-14 where it is having stability in the growth with equal
proportionate change in the net working capital and net assets.
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Graph 7:
NC TO CA
0.8 0.71
0.7 0.59 0.56 0.56
0.6 0.51
0.44
0.5
0.35
RATIO 0.4 0.28
0.3
0.2
0.1
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
From the above table it is observed that net working capital to current assets ratio is
decreasing from 2009-12 because the current assets are sufficiently maintained and the
working capital based uponneeds can be utilized.
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Liquid assets
Liquid Assets To current Assets ratio = ---------------------------------
Current assets
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Graph9:
INTERPRETATION:
From the above table it is revel that the liquid assets to current asset ratio are constant
mostly because the company is capable enough to maintain constant ratio of assets as
per its requirement. And we can also observe nearly the constant changes in the quick
and current assets.
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Loans&advance
LOANS ANDADVANCES TO CURRENT ASSETS RATIO =
---------------------------
Current assets
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0.39 0.38
0.4
0.33
0.35 0.31
0.3 0.25
0.22 0.23 0.22
0.25
RATIO 0.2
0.15
0.1
0.05
0
2009 2010 2011 2012 2013 2014 2015 2016
YEARS
INTERPRETATION:
From the above table it is observed that the loans & advances to current assets ratio
fluctuating in this period, because fluctuating in the loans and advances. Current assets
are continuously increasing.
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9.41
10
9
8
7
6
4.4
RATIO 5
4
3 1.54
1.51
2 1.12
0.76
1 0.13 0.14 0.14 0.1 0.12 0.19
0
CPR QR CR CTTR ITR DTR
YEARS
INTERPRETATION:
The above table it reveals that the average current ratio during the study period was
2.20:1 with a S.D of 1.54 and covariance is 0.14. And cash position ratio was 1.25 with
S.D of 0.76 the covariance is 0.13 the average inventory ratio was 14.49 with a S.D
4.40 the covariance is 0.12. average debtors ratio was 12.50 with S.D is 9.41 and
covariance is 0.19 with this we clearly state that the variation in debtor turn over ratio
was more than current ratio and debtors turn over ratio followed by quick ratio, cash
position ratio, and inventory turn over ratio respectively.
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LIQUIDITY AND PROFITABILITY ANALYSIS
% Rank(R1) % Rank(R2)
2009 83.64 4 27.58 6 -2 4
2010 79.00 8 8.94 7 1 1
2011 82.51 5 8.14 8 -3 9
2012 85.17 3 39.70 4 -1 1
2013 83.83 2 32.73 5 -3 9
2014 93.43 1 50.12 1 0 0
2015 80.89 7 41.81 3 4 16
2016 82.30 6 43.18 2 4 16
r = 1- 6D2
n (n2-1)
r = 0.33
t= r * n-2
1-r2
t=0.86
INTERPRETATION:
It has been made to measure the extent of relationship between liquidity and
profitability of PANYAM CEMENTS PRIVATE LIMITED by computing spearmans
rank correlation co-efficient. For this purpose, the ratio of current assets to total assets
has been used the liquidity indicator and the ratio of return on capital has taken as the
profitability parameter. In that the rank correlation co efficient between CTTR and
ROCE of PANYAM CEMENTS PRIVATE LIMITED was 0.33.
FINDINGS:
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LIQUIDITY AND PROFITABILITY ANALYSIS
The current ratio of the company is higher than the standard norm
2:1 during the study period 2009.so the current assets converted into
cash and investing short term investments.
The quick ratio of the company was also more than the standard
norm 1:1 during the study period 2009-16. so immediately need to
pay operating expenses.
The portion of current assets is less when compared with total assets.
This indicates that fixed assets are not utilized properly.
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LIQUIDITY AND PROFITABILITY ANALYSIS
Loans & advances to current assets ratio fluctuating this period and
their firm fully utilized current assets and to have credit limit
sanctioned from samely, so the loans and advances increased.
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LIQUIDITY AND PROFITABILITY ANALYSIS
SUGGESTIONS:
The current ratio and quick ratio both are more than standard norm (2:1) that
means additional blockage of short term funds in the business so, try to release
the blocked funds and invests in short term securities to get same return on idle
funds.
The debtors turnover ratio was increasing during the study period. Try to reduce
the debtors.
The ROCE was fluctuating so, try to increase the sales revenue for maximizing
profits. So that the return on capital employed may increase.
CONCLUSION:
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LIQUIDITY AND PROFITABILITY ANALYSIS
BOOKS
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LIQUIDITY AND PROFITABILITY ANALYSIS
WEBSITES:
www.Google.com
MONEYCONTROL.COM
WWW. PANYAM CEMENTS PRIVATE LIMITED.COM
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