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Hi its just a quick one to say that project work report-reg
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Project Report submitted to
In partial fulfilment of the requirement for the award of the degree of
Submitted by
Under the supervision of
This is to certify that the project report entitled “A STUDY ON LIQUIDITY AND SOLVENCY WITH SPECIAL REFERENCE TO KSE LTD, IRINJALAKUDA” is a bonafide record of project done by ASHWIL P.S, Reg.No. CCATBCM067 under my guidance and supervision in partial fulfilment of the requirement for the award of the degree of BACHELOR OF COMMERCE and it has not previously formed the basis for any Degree, Diploma and Associateship or Fellowship.
I would like to take the opportunity to express my sincere gratitude to all people who have helped me with sound advice and able guidance. Above all, I express my eternal gratitude to the Lord Almighty under whose divine guidance; I have been able to complete this work successfully. I would like to express my sincere obligation to Rev. Dr. Jolly Andrews, Principal-in-Charge, Christ College Irinjalakuda for providing various facilities. I am thankful to Prof. K.J. JOSEPH, Co-ordinator of B.Com (Finance), for providing proper help and encouragement in the preparation of this report. I am thankful to Ms. SIJI C.L., Class teacher for her cordial support, valuable information and guidance, which helped me in completing this task through various stages. I express my sincere gratitude to Ms. SIJI C.L., Assistant Professor, whose guidance and support throughout the training period helped me to complete this work successfully. I would like to express my gratitude to all the faculties of the Department for their interest and cooperation in this regard. I extend my hearty gratitude to the librarian and other library staffs of my college for their wholehearted cooperation. I express my sincere thanks to my friends and family for their support in completing this report successfully. Place: Irinjalakuda ASHWIL P.S
2 company. This analysis enables the investors and creditors evaluate past and current performance, financial position and to predict future performance. In this study, an attempt is made to identify the short term and long term solvency of the firm by properly establishing relationship between the items in the balance sheet and profit and loss account of KSE Ltd,Irinjalakuda.
Liquidity and solvency helps in understanding financial health and trend of a business. It helps the management in formulating policies, forecasting and planning decision making, inter-firm and intra-firm comparisons. It helps the shareholders and investors to calculate the price of the shares evaluate the performance and for the creditors it helps to measure the liquidity or short term financial position, strength and weaknesses of the company. The better a company’s solvency, the better it is financially. When a company is insolvent, it means that it can no longer operate and is undergoing bankruptcy.
To study liquidity position of KSE Ltd. To analyse the long term solvency position of KSE Ltd. To facilitate intra firm comparison.
A Research design is the procedures for collecting, analysing, interpreting and reporting data in research studies. In simple words it is a framework or blueprint for conducting research.
3 1.5.1 Nature of study The study is analytical in nature. Analytical study focus on examining relationship between factors. 1.5.2 Nature of data The study is undertaken with the help of secondary data. Secondary data is collected from office journals, library, magazines, annual reports, newspapers,etc. 1.5.3 Sources of data The data required for the study is collected from the annual reports of the company. This financial statement information is acquired from online database. 1.5.4 Period of study The period of study consists of 5years i.e. from the 2016 - 17 to 2020-21.
Financial tools used are liquidity ratios and solvency ratios. Bar diagrams is used for presentation of data.
It completely ignores the qualitative aspects of the firm. It suffers from inherent limitations of accounting records. It is based on secondary data only.
Chapter 1 Introduction : This chapter includes introduction, statement of the problem, significance of study, objectives of the study, research design , tools of analysis and limitations.
This chapter contains review of literature , it is divided into two parts first part contains conceptual review about the topics ratio analysis, objectives, liquidity ratio and solvency ratio, its types, formulas, components. The second part contains empirical review about the studies conducted earlier about this topic.
Accounting is the language of business. According to the American Institute of Certified Public Accountants, “ Accounting is an art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the result thereof. ” 2.1.1 Ratio Analysis Ratio analysis refers to the analysis and interpretation of the figures appearing in the financial statements (i.e., Profit and Loss Account, Balance Sheet and Fund Flow statement etc.). It is a process of comparison of one figure against another. It enables the users like shareholders, investors, creditors, Government and analysts. to get better understanding of financial statements. Ratio analysis is a very powerful analytical tool useful for measuring performance of an organisation. Khan and Jain define the term ratio analysis as “ the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial conditions can be determined. ” According to nature or functions, ratios are of the following types: Liquidity Ratio
Current ratio - It is defined as the ratio of current assets to current liabilities. It is also called working capital ratio. Current Ratio = Current Assets Current Liabilities Components of current ratio- Current assets and current liabilities are the two basic components of current ratio. Current assets include cash, inventory, prepaid expenses or any assets that can be converted into cash with one year. Current liabilities includes creditors, bills payable, outstanding expenses or any liabilities which are payable within one year. Standard Current Ratio is 2:1. Quick ratio - It is the ratio of liquid assets to current liabilities. It measures instant debt paying ability of a firm. It is also called liquid ratio. Quick ratio = Liquid Assets Current Liabilities Components of Quick ratio- Quick assets and current liabilities are two main components of Quick ratio. Quick assets are those assets which can be quickly converted into cash without loss of value. It includes all current assets except inventory and prepaid expenses. Standard Quick ratio is 1:1. Super Quick ratio - It is the ratio that shows relationship between super quick assets and quick liabilities. It is also called absolute quick ratio. Super quick ratio= Cash and cash equivalents Current Liabilities-Bank Overdraft Components of super quick ratio-Super quick assets include cash and equivalents and quick liabilities include all current liabilities except bank overdraft. Standard Super Quick ratio is 0.5:1.
Operating Cash Flow ratio - It is a measure of how readily current liabilities are covered by the cash flows generated from a company's operations. This ratio can help gauge a company's liquidity in the short term. Operating cash flow ratio = Cash flow from operations Current Liabilities Components of operating cash flow ratio are cash from/used in operating activities and total current liabilities. Standard Operating Cash Flow Ratio is 1:1. Net working capital ratio - Net working capital is a measure of a company’s liquidity, operational efficiency, and short-term financial health. If a company has substantial positive NWC, then it should have the potential to invest and grow. If a company’s current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors. Net working capital ratio=Net Working Capital(CA-CL) Net Assets Components of this ratio are working capital i.e. current assets minus current liabilities and net assets which is the difference between total assets and total liabilities.
Solvency ratio= Total Assets Total Debt Components of total assets to total debt ratio-Total assets include total non current assets and total current assets. Total debt means total outside liabilities it includes long term liabilities and short term liabilities. Fixed Assets to Proprietors’ Fund Ratio - This ratio establishes the relationship between fixed assets and Proprietors fund. It shows the extent to which shareholders fund are invested in the fixed assets. It is also called fixed assets to networth ratio. Fixed Assets to Proprietors’ Fund ratio=Fixed Assets Proprietors’ Fund Components of fixed assets to proprietors fund ratio are fixed assets and proprietors fund or equity. Fixed assets include plant, machinery, building, intangible assets, etc. Proprietors’ fund includes equity share capital, preference shares capital and all reserves. Fixed Asset Ratio - Fixed Assets ratio is a type of solvency ratio which is found by dividing total fixed assets of a company with its long-term funds. It shows the amount of fixed assets being financed by each unit of long-term funds. Fixed Assets Ratio =Fixed Assets Long Term Funds Components of fixed assets ratio are fixed assets and long term funds. Fixed assets are building, plant, machinery, etc. Long term funds are the sum of equity and long term liabilities. Standard Fixed Asset Ratio is 0.67:1. Stock/Inventory Turnover Ratio - It is one of the financial ratios that provide information about the liquidity of a company. It shows relationship between cost of goods sold and average stock. ITR=Cost of Goods Sold Average stock
Components of ITR are cost of goods sold and average stock. COGS= Opening stock + Purchases - Closing stock Average stock= Opening stock + Closing stock 2 Standard ITR is 8 times. Stock Velocity - When inventory turnover ratio is expressed in days or months, then it is called stock velocity or stock turnover period. Stock Velocity = No.of Days or Months in a year ITR
