07-09-2012, 10:45 AM
AN ANALYSIS ON CASH MANAGEMENT AT STANDARD POLYMERS, PUDUCHERRY
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ABSTRACT
The need for Cash to run the day-to-day business activities cannot be overemphasized. One can hardly find a business firm, which does not require any amount of Cash. Indeed, firms differ in their requirements of the Cash.
A firm should aim at maximizing the wealth of its shareholders. In its endeavor to do so, a firm should earn sufficient return from its operation. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current asset for generating sales. Current asset are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash.
The objectives are to analyze the Cash management and to determine efficiency in cash, inventories, debtors and creditors. Further, to understand the liquidity and profitability position of the firm.
These objectives are achieved by using ratio analysis and then arriving at conclusions, which are important to understand the efficiency / inefficiency of Cash.
INTRODUCTION:
Cash is the important current asset for the operations of the business. Cash is the basic input needed to keep the business running on a continuous basis; it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firm’s profitability. Thus, a major function of the financial manager is to maintain a sound cash position.
Cash is the money which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheques held by the firm, and balances in its bank accounts. Sometimes near-cash items, such as marketable securities or bank times deposits, are also included in cash. The basic characteristic of near-cash assets is that they can readily be converted into cash. Generally, when a firm has excess cash, it invests it in marketable securities. This kind of investment contributes some profit to the firm.
STANDARD POLYMERS
HISTORY/ MILESTONE:
Standard polymer is its original form and structure was founded and started in the year 1990 by its founder Mr. Francis, father of the present inactive partner Mr. Marie susai raj. The company was then manufacturing only mono-layer films and printed pouches for ordinary hand-packing of day-to-day selling commodities. The company faced problems in the initial two years in achieving its turnover targets. It then gradually picked up when bulk orders from tamilnadu dairy sectors could be established. The company possessed a mono-layer extrudsion plant and a flexo-graphic printer. Slitting and pouching were done by manual processes.
Contemporarily another company under the name Mylon plastics was functioning. It was founded and run by the present production manager Mr. Natarajan’s father, who was a thorough knowledged person in industrial sector. Before having started his own venture, he was a depute of Pondicherry government and was entrusted to investigate the possibilities of enhancing the industrial infrastructure of Pondicherry. He could gain lot of experience in this field during his service, which motivated him to start an industry of his own. The industry he chose was packing industry, where packing materials like multi-layer polythene films and pouches made from these films for packing of food products were in great demand. He was also convinced about the increasing future potential for the demand of this type of packing and hence his decision to start this industry. The company was then engaged in the manufacture of multi-layer polythene films and 2-4 colour printed pouches.
COMPANY’S LOCATION AND INFRASTRUCTURE
The company with its subsidiary units of production. Administration and other facilities are placed together in a complex, located at Odiampet, a village lying on the outskirts of Pondicherry and about 12 Kms form Pondicherry centre. The company is situated amidst agricultural lands and well accessible by that road. Bus service from and to Pondicherry is available twice a day.
The complex is well planned and placed in an area of about 2.5 acres of land. The administrative premises face the road side and its architectural design presents a well established company. The frontage upto road is gardened with flower plants and greenery. Also a parking area inside the premises is provided.
The production units are placed behind and adjoining the administration buildings. Housings for production units are well designed to comply with factory requisites. The housings are spacy for the installation of machines and free movements of the workers. Adequate numbers of windows provide free circulation of air and facilitate for adequate light and ventilation. Access to different units is also not complicated. Vehicle approaches for the purposes of loading and unloading area unhindered. The backyard is empty and large enough to accommodate further buildings. Plantation of many trees all around gives enough shade and flow of pleasant breeze, not only for the employees but also for those visiting the complex. Water availability is from Bore-wells, installed in the premises itself. Power supply is tapped from the electrical mains running along the road.
OBJECTIVES / FUTURE PLANS OF STANDARD POLYMERS
It was understand during our conversations with the Managing Director that the company in the present circumstances requires neither to alter nor to advance the existing production technology and structure. The technology adopted fulfills the requirements of today’s packing industry. The company is able to manufacture even the most sophisticated forms of packing covers. The volume of continuing orders, in spite of competitors tends not to decrease. The company has adopted itself to suit the size, organization structure and production capacity.
The continuing monthly turnover of Rs. 1 crore and above and the increasing demand for its products puts M/s Standard Polymers in a comfortable position of maintaining the company without much hazards. The quality of products is in par with high standards and well accepted by its customers.
NEED FOR THE STUDY
The importance of Cash management in any industrial concern cannot be overstressed. Under the present inflationary condition, management of Cash is perhaps more important than even management of profit and this requires greatest attention and efforts of the finance manager. It needs vigilant attention as each of its components require different types of treatment and it throws constant attention on exercise of skill and judgment, awareness of economic trend etc, due to urgency and complicacy the vital importance of Cash.
FACETS OF CASH MANAGEMENT:
Cash management is concerned with the managing of: (i) Cash flows into and out of the firm, (ii) Cash flows within the firm, and (iii) Cash balances held by the firm at a point of time by financing deficit or investing surplus cash. It can be represented by a cash management cycle. Sales generate cash which has to be disbursed out. The surplus cash has to be invested while deficit this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and control. Cash management assumes more importance than other current assets because cash is the most significant and the least productive asset that a firm’s holds. It is significant because it is used to pay the firm’s obligations. However, cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for sale. Therefore, the aim of cash management is to maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way.