MBA Project CASH AND RECEIPTS MANAGEMENT

STATEMENT OF THE PROBLEM

Cash is the important current asset for the operations of the business. Cash is the basic input needed to keep the business running as a continuous basis. It is also the ultimate output expected to be realized by selling the product or service manufactured by firm. The firm should keep sufficient cash neither more or less. Cash shortage will disturb the firm’s manufacturing operations while excessive cash will remain idle, without contributing anything towards the firm’s profitability. This is a major function of the financial manager is to maintain a sound cash position.

Trade credit arises when a firm sells its products or services on credit and does not receivable immediately. It is an essential marketing tool, acting as a bridge for the movement of goods that the production and distribution stages to customers. Credit creates “Receivables or Book Debts” which the firm is expected to collect in the near future book debts or receivable arising out of credit receivable constitutes a substantial portion of current assets of the firm.

An attempt is made in this project work to analyze the efficiency of cash and receivable management of the sample unit.

CASH AND RECEIVABLES MANAGEMENT

Introduction Finance is aptly described as the lifeblood and nerve center of any business. It is just as the circulation of blood, an essential system in the human body to keep and alive. Finance is vital input for the smooth functioning of the business. Every business enterprise irrespective of its size and nature needs finance to carry on its operations and achieve its target.

Working Capital refers to a firm’s investment in short-term assets viz, cash, short-term securities.

Cash Management

Cash management is one of the key areas of working capital management, apart from the fact that it is the most liquid current asset, cash is the common denominator to which all current assets can be reduced because the other major liquid assets, that is, receivables and inventory get eventually converted into cash. The term ‘Cash’ with reference to cash management is used in two senses. In a narrow sense, it is used broadly to cover currency and generally accepted equivalents of cash, such as cheques, drafts and demand deposits in banks.

Cash Management is concerned with the managing of:

1. Cash flows into and out of the firm2. Cash flows within the firm, and3. Cash balance held by the firm at a point of time by financing

deficit of investing surplus cash.

It can be represented by a cash management cycle. The surplus cash to be invested while deficit has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and control.

In order to resolve the uncertainty about cash flow prediction and lack of synchronization between cash receipts and payments, the firm should develop appropriate strategies regarding the following four facts of cash management.

Cash Planning Cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget should be planned to project cash surplus or deficit.

Managing the Cash Flows The flow of cash should be properly the cash flows should be accelerated while, as far as possible, the cash outflows should be decelerated.

Optimum Cash Level

The firm should decide about the appropriate level of cash balance. The cost of excess cash and danger deficiency should be matched to determine the optimum level of cash balances.

Investing Surplus Cash

The surplus cash balance should be properly invested to earn profits. The firm should decide about the division of such cash balances between alternative short term investment opportunities such as bank deposits, marketable securities or inter corporate lending.

The Key Elements of Cash Management

Good cash management can have a major impact of overall working capital management. The key elements of cash management are:

Cash Forecasting Balance Management Administration Internal Control

Motive for holding cash

The firm’s need to hold cash may be attributed to the following three motives:1. The Transaction Motive: The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries and other operating expenses, taxes, dividend etc.,. The need to hold cash would not arise here were perfect synchronization between cash receipts and cash payments.2. Precautionary Motive: The precautionary motive is the need to hold cash to meet contingencies in the future. It provides a cushion or buffer to withstand some unexpected emergencies. The precautionary amount of cash depends upon the predictability of cash flows.3. Cash Forecasting: Good cash management requires regular forecasts. In order for these to be materially accurate, they must be based on information provided by those managers responsible for the amounts and timing of expenditure. Capital expenditure and operating expenditure must be taken into account.

Administration

Cash receipts should be processed and banked as quickly as possible because:-They cannot earn interest or reduce overdraft until they are banked-Information about the existence and amounts of cash receipts is usually not available until they are processed.

Internal Control Cash and Cash management is part of a department’s overall internal control system. The main internal cash control is invariably the bank reconciliation. This provides assurance that the cash balance recorded in the accounting systems are consistent with the actual bank balance.

Speculative Motive The speculative motive related to the holding of cash for investing in profit making opportunities as and when it arises. The opportunity to make profit may arise when the security prices changes.

RECEIVABLES MANAGEMENT

The receivables represent an important component of the current assets of a firm. The term receivable is defined as ‘debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business’. Receivables management is also called trade credit management. Thus, accounts receivable represent an extension of credit to customers, allowing them a reasonable period of time in which to pay for the goods received.

The company in practice feels the necessity of granting credit for several reasons:

Competition Company’s bargaining power Buyer requirements Relationship with dealers Marketing tool Industry practice Transit delays.

Credit Policy

In the preceeding, the credit policy of a firm provides the framework to determine whether or not to extend credit to a customer and how much credit to extend. The credit policy decision of a firm has two broad dimensions:

Credit terms have three components

1. Credit Period In terms of the duration of time for which trade credit is extended during this period the overdue amount must be paid by the customer. A firm’s credit period may be governed by the industry norms. But depending on its objective, the firm can lengthen the credit period.2. Credit Discount If any, which the customer can take advantage of, that is, the overdue amount will be reduced by this amount. The firm uses cash discount as a increase in sales and accelerate collections from customers.

3. Credit Discount Period Which refers to the duration during which the discount can be available of these terms are usually.Collection Policies The third area involved in the account receivables management is collection policies. They refer to the procedures followed to collect account receivables when, after the expiry of the credit period, they become due. These policies cover two aspects.

1. Credit Standard

The term ‘credit standards’ represents the basic criteria for the extension of credit of customers. Our aim is to show what happens to the trade-off when standards are relaxed or, alternatively, tightened. The tradeoff with reference to credit standards are:

The collection costs The average collection period Level of bad debt losses Level of sales

2. Credit Analysis Besides establishing credit standards a firm should develop procedures for evaluating credit applicants. The second aspect of credit policies of a credit analysis and investigation. The two basic steps are involved in the credit investigation process:

Obtaining credit information Analysis of credit information

Credit Terms The second decisions are in accounts receivables management is the credit terms. After the credit standards have been established and the credit worthiness of the customers has been assessed, the management of a firm must determine the terms and conditions of which trade credit will be made available. The stipulations under which goods are sold on credit are referred to as credit terms.

1. Degree of Collection Effort

To illustrate the effect of the collection effort, the credit policies of a

firm may be categorized into Strict/Light Lenient

The collection policy would be tight if very rigorous procedures are followed a tight collection policy has implications which involve benefits as well as costs.

2. Type of Collection Efforts The second aspect of collection policies related to the steps that should be taken to collect over dues from the customers. The steps usually taken are

Letters, including reminders, to expedite payment Telephone calls for personal contact Personal visits Help of collection agencies and fully Legal action

- The aim should be to collect as early as possible; genuine difficulties of the customers should be given due consideration.

- The management of receivables involves crucial decision in 3 areas credit policies, credit terms, collection policies.

- The objective of receivables management therefore is to have a trade-off between the benefits and costs associated with the extension of credit.

- The extension of credit involves risk and cost. The benefits are increased sales and anticipated increased profits/incremental contribution.

RESEARCH DESIGN AND METHODOLOGYResearch Methodology is way to systematically solve the research problems. It guides us how research is done scientifically.Research Design Research design is the plan, structure to answer whom, when, where and how of the subject under investigation conceived so as to obtain answer to research questions and to control variance.Data Collection The required data are collected from two sources that are primary data and secondary sources of information. This information has been gathered from” Reliance Communications Infrastructure Limited” through personal interview and personal verification of the reports and financial statements.

OBJECTIVES

The study is being undertaken with the following objectives:1. To study the maintenance of Cash Flow of “RELIANCE

COMMUNICATIONS INFRASTRUCTURE LIMITED” to meet its day to day requirements.

2. To analyze funds committed to cash balances.3. To know Cash inflow and outflow of the “RELIANCE

COMMUNICATIONS INFRASTRUCTURE LIMITED”.4. To know the company’s policy allowing credit to customers.

SCOPE OF THE STUDYThe current study is undertaken for the purpose of analyzing

cash and receivables management of Reliance Communications Infrastructure Limited, which is situated at Bangalore, Karnataka. The study concentrates on various techniques involved in maintaining an optimal level of cash in the firm to reduce the loss occurred due to cash budget.

LIMITATIONS

The study is limited to only a particular company i.e, Reliance communications infrastructure limited.

It is difficult to analyze the cash and receivables information regarding the analysis based for a specified period.

It is not possible to calculate the performance of the company in the total environment because we are calculating the performance of this company.

PLAN OF ANALYSIS

The entire process of cash and receivables management in “Reliance communications infrastructure limited” has been analyzed in detail and the various techniques involved in the above two concepts are studied comprehensively. It is a quantitative analysis of the working capital management. The study has been used to generate some of the recommendations to the company at times of crisis.

The following is the approximate chapterization of main topics.1. introduction and theoretical background2. research design and methodology3. company profile4. Study of cash and receivables management in Reliance

communications infrastructure limited.5. suggestions and recommendations

DECLARATION

I here by declare that the synopsis report entitled “A STUDY OF CASH AND RECEIVABLES MANAGEMENT OF RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD, BANGALORE” is a genuine work carried out by me, in partial fulfillment of the requirement for the award of Master of Business Administration (M.B.A.) JNTU, Hyderabad under the supervision of my guide Miss T.HIMA BINDU, M.F.M. of SITAMS, Chittoor.

This synopsis work was not submitted by me in any form previously for the Award of Degree, Diploma or other titles at any other Institute.

Place: (G.SABAREESH KUMAR)Date: Regno: 06751E0039

ACKNOWLEDGEMENT

It gives a great pleasure to reveal my deep-expressible gratitude and appreciation to Dr. T. Sai Rama, Principal, SITAMS, Chittoor for giving me the opportunity to do the SYNOPSIS REPORT. Endeavor to express my heart full thanks to the Head of Department Dr. S. E. V. Subramanyam, M.B.A., Ph.D who provided all the necessary facilities to carry out the synopsis program effectively and efficiently. I wish to express my deep sense of gratitude to miss T.HIMA BINDU, for inspiring guidance illuminating insights and above all for her enormous patience in putting up in a right way to accomplish in the completion of the report. Last but not the least a very special thanks to all the M.B.A. staff members and my friends and the following MBA staff members for their cooperation in the accomplishment of the synopsis report.

Ph: (08572) 246298, 246299Fax: (08572) 246297

SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES

Dr. Vishweswariah Road,(Bangalore – Tirupati bye pass road)Murakambattu, Chittoor – 517127.

(Approved by AICTE, New Delhi and affiliated to J. N. T. U., Hyderabad)

CERTIFICATE

This is to certify that this synopsis report is a bonafide record of project work entitled on “A STUDY OF CASH AND RECEIVABLES MANAGEMENT OF RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD BANGALORE” submitted by Mr. G. SABAREESH KUMAR in partial fulfillment of the requirements for the award of the degree in MASTER OF BUSINESS ADMINISTRATION UNDER JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY, HYDERABAD.

Head of the Department Guide Dr S.E.V.SUBRAHMANYAM, Ms.T. Hima bindu M.B.A.Ph.D. M.F.M. HOD, Vice-principal. Assistant Professor.

A STUDY OF CASH AND RECEIVABLES MANAGEMENT OF RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD,

BANGALORE.

A PROJECT REPORT

Submitted in partial fulfillment of theRequirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION(JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY, HYDERABAD)

ByMr. G. SABAREEESH KUMAR

(REG NO: 06751E0039)Under the guidance ofMs. T.HIMA BINDU

M.F.M. Assistant Professor.

DEPARTMENT OF MANAGEMENT STUDIES

SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES

74, THIMMASAMUDRAM, BANGALORE-TIRUPATHI BY-PASS ROCHITTOOR-517127

ANALYSIS FRAME WORKClassifications of collection operations

1. Preparation of aging schedules.2. Credit sales to account receivables statement.3. Collection to accounts receivable statement. The whole calculation part data has provided by the employees of finance department as secondary source of data and was no scope has given me to look into original statements.

ANALYSIS OF AGEING SCHEDULES The company prefers monthly ageing schedule to monitor its book-debts. The debts outstanding are broken down into branch wise entries. The ageing schedules for the past three years have been thoroughly analyzed to come out with average outstanding days of the book debts of the company. On an average the outstanding days of the book debts in the company is as follows overdue less than 30 days, 30 to 60 days, and 90 to 180 days, 180 to 300 days and above 360 days respectively. These reports are prepared especially for the extended overdue accounts. The basic reason is to develop a file of customer who require special attention either in the form of statement, letters or the collection activity.ACCOUNTS RECEIVABLE TURN OVER RATIO1. Credit sales divided by ending accounts receivables and2. Accounts receivables divided by credit-sales time

365 days the first formula gives the number of times the correct balance of receivable is collected during the year, while the second formula gives the average number of days the current balance is expected to remain outstanding before it is collected.

COLLECTION RATIO This is the ratio of monthly to the account receivables outstanding at the first of the month to raise sales to receivables and collection to receivables is closely related. Accounts receivables are the second most liquid form of assets of the firm. The receivables come into being as credit-sales and constitute as one of the largest asset. Skill full administration of the receivables management is therefore of prime importance to the business. The very reason of credit sales is to expand sales volume and if too debit is maintained by the company in the approval of the customer credit purchases many sales may be last that would otherwise contribute to the profits of the firm. Before going to quote the credit at Reliance communication infrastructure limited.What actually credit will credit?

1. Company position2. Protection from competition3. Buyers states and requirements4. Dealer relationship.5. Transit delays.6. Individual practice.

Credit policy and practices at Reliance infrastructure private limited. The sales of the company, Reliance communications infrastructure ltd go on cash as well as credit terms. The trading division of Reliance pvt ltd sells its product, which receives from the factories on a credit period of 45 days to 55 days, through the branches of the company located all over the country.

Cash discountsA cash discount is a reduction in payment offered to the customers to induce them to reply credit obligations within a specified period of time, which will be less than the normal credit period. It is usually expressed as a percentage of sales. Cash discounts term indicates the rate of discount and the period for which it is available. The cash discount terms of the company are as follows.Payments Discounts offerOn cash 1%In 7 days 0.75%In 15 days 0.5%

Credit policyThe company, Reliance communications ltd, extends a credit

period of 21 days to its customers. It waits for a period of 55 days for the payments from the customersEX: A company has daily sales or credit sales of 20 lakhs from all branches and a giving credit period averagely 30 days. So the company investment on receivables is 20*30 = 600 lakhs. There is one way in which the financial manager can control the volume of credit sales and collection period and consequently, investment in accounts receivables it can change through credit policies.

CREDIT POLICY1. Credit standard – It is careful analysis risk2. Credit term – Specific of the duration3. Collection – Lower collection will influences lower investment in

Receivables and vice-versa4. Cash discount

Credit standards Credit standards are criteria to decide the types of customer to whom goods could be sold on credit. If a firm has slow paying customer its investment in accounts receivables will increase the firm will also be exposed to higher risk of default.Credit terms Specify duration of credit and terms of payment by customers’ investment in accounts receivables will be high if customer allowed to extend time period for making payments.Collection efforts Collection effort determine the actual collection period. The lower the collection the lower investment in accounts receivables and vice-versa.

Goals of credit policy1. Stringent credit policy – Less credit to customer as a result to

decrease the sales2. Lenient credit policy – More credit to it leads to increase in

salesIf there is any change in credit policy there will be a change in the

1. Volume of credit sales2. Default risk or bad debts3. Costs4. Average collection period

The following technologies are used in Reliance communications limited.

1. Wireless2. Global3. Broadband

4. OthersThe company looks for the character of the customer i.e., his willingness to pay the moral factor is of considerable importance in credit position.It looks for the ability of the customer to pay. This is evaluated by his financial position and the bank guarantee given by him. Based on the above factors the company analyses the customer and determine the credit limit to them. Every six months, the company goes for the review of the customers. When a customer is found to be regular in paying the dues within 30 days the company may go for increase in the credit for the customer. In a small way, the customers are taken into consideration and given the credit.Collection procedures The company follows a system of centralized control and decentralized collections. The company does not employ any collection agency for its collection activities. The division receives a statement of sales outstanding daily from all the branches in the country, the collection is done through Reliance communications account and through bank cheques.Monitoring book debts The company classifies its book debts based on the number of outstanding days in the given following wayOutstanding days Debts categoryMore than 300 days DisputesBetween 180 to 300 days Bad debtsBetween 90 to 180 days Doubtful debtsBetween 0 to 90 days Good debts

Analysis of ageing schedule of Reliance communications infrastructure ltd. The company prepares monthly ageing schedule to monitor its books debts. The debts outstanding are broken down into companies’ wise entries. The ageing schedules for the past one year have been thoroughly analyzed to come out with average outstanding dates of the book debt of the company. On an average the outstanding days of the book debts in the company is as follows.

Ageing schedule of wireless technology ltd Table 1 Ageing schedule of Reliance communications during the year 2005 Outstanding period Outstanding

receivablesOutstanding receivables as % of total outstanding receivables

0-30 3456.957 30%31-60 8635.456 38%61-90 3846.964 32%Total 15939.377 100%Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The outstanding debts of RCL during the period 2005 April to 2006 Dec was collected within 30 days from 30% of the outstanding debts. From 31 days to 60 days the debts collected were 38% of the

total outstanding debts. From 61 days to 90 days the debt collected were 32% of the total outstanding debts.

Ageing schedule of Global technology ltd Table 2 Ageing schedule of Reliance communications during the year 2005 Outstanding period Outstanding


0-30 4634.723 22%31-60 7443.364 38%61-90 3435.856 40%Total 15513.943 100%Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The outstanding debts of RCL during the period 2005 April to 2006 Dec was collected within 30 days from 22% of the outstanding debts. From 31 days to 60 days the debts collected were 38% of the total outstanding debts. From 61 days to 90 days the debt collected were 40% of the total outstanding debts.

Ageing schedule of Broadband technology ltd Table 3 Ageing schedule of Reliance communications during the year 2005 Outstanding period Outstanding


0-30 230.764 6%31-60 4753.343 80.33%61-90 3464.434 13.67%Total 8448.541 100%Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The outstanding debts of RCL during the period 2005 April to 2006 Dec was collected within 30 days from 6% of the outstanding debts. From 31 days to 60 days the debts collected were 80.33%of the total outstanding debts. From 61 days to 90 days the debt collected were 13.67% of the total outstanding debts. The total outstanding

receivables are 8448.541 considered as 100% within a period of 365 days the debt amounts were collected in the above pattern.

FRAME WORK OF COLLECTION MATRIX They can convert the table to a COLLECTION EXPERIENCE MATRIX by dividing the outstanding receivables in each column by sales amount in that column. The following table is the second scheduled analysis frame work statements. The following table contains information of the percentage of receivables to the credit sales from which those receivables are originated. If the percentages increase as we move it implies that the firm is unable to collect its receivables faster. But they are wholly separated from the past data.

COLLECTION MATRIX A collection matrix is a statement which is prepared with reference to credit sales and collections. This statement confines how the debt amounts are collected with were in respective tenure of months with cash values. Now we have various respective years’ collection statements which play major role in analysis work. We can interpret this table in percentages.Accounts receivables collection matrix of RCL for 2005

Table 4 (Rs. In crore)Month Mar June Sep DecCredit sales

2970 2283 2880 2991

CollectionsMar 2820June 150 2213

Sep 70 2880Dec 2812Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The credit sale of Mar 2005 amounts to Rs.2970 crores. Rupees 2820 was collected in the same month and the remaining Rs.150 crores were collected in June. The credit sale of June 2005 amounts to Rs.2283 crores. Rs.2213 was collected in the same month and the remaining Rs.70 crores were collected in Sep. The credit sale of Sep amounts to Rs.2880 crores and the same is collected during the same month. The credit sale of Dec amounts to Rs.2991 crores. Rs.2812 crores was collected in the particular month.

Accounts receivables in percentage of collection matrix of RCL for 2005

Table 5 (Rs. In crore)Month Mar June Sep DecCredit salesCollectionsMar 95%June 5% 97%Sep 3% 100%Dec 94%Source: Data collected from the internal reports of Finance Department of RCL.

Analysis: The credit sale of Mar 2005 amounts to Rs.2970 crores. Rupees 2820 was collected in the same month and the remaining Rs.150 crores were collected in June. 95% was collected in the month of Mar 2005 and the remaining 5% was collected in the month of June. The credit sale of June 2005 amounts to Rs.2283 crores. Rs.2213 was collected in the same month and the remaining Rs.70 crores were collected in Sep. 97% was collected in the month of June2005 and the remaining 3% was collected in the month of Sep. The credit sale of Sep amounts to Rs.2880 crores and the same is collected during the same month. 100% was collected in the month of Sep 2005. The credit sale of Dec amounts to Rs.2991 crores. Rs.2812 crores was collected in the particular month. 94% was collected in the month of Dec. Reliance much concentrate on the receivables for every two months as mentioned above.

Accounts receivables collection matrix of RCL for 2006Table 6 (Rs. In crore)

Month Mar June Sep DecCredit sales

2970 3250.12

3456.39

3755.30

CollectionsMar 2820June 150 3221.

12Sep 29 3456.

39Dec 3563.

23Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The credit sale of Mar 2005 amounts to Rs.2970 crores. Rupees 2820 crores was collected in the same month and the remaining Rs.150 crores were collected in June. The credit sale of June 2005 amounts to Rs.3250.12 crores. Rs.3221.12 crores was collected in the same month and the remaining Rs.29 crores were collected in Sep. The credit sale of Sep amounts to Rs.3456.39 crores and the same is collected during the same month. The credit sale of Dec amounts to Rs.3755.30 crores. Rs.3563.23 crores were collected in the particular month.


Table 7 (Rs. In crore)Month Mar June Sep DecCredit salesCollectionsMar 95%June 5% 99%

Sep 1% 100%Dec 95%Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The credit sale of Mar 2005 amounts to Rs.2970 crores. Rupees 2820 was collected in the same month and the remaining Rs.150 crores were collected in June. 95% was collected in the month of Mar 2005 and the remaining 5% was collected in the month of June. The credit sale of June 2005 amounts to Rs.3250.12crores. Rs.3221.12 crores was collected in the same month and the remaining Rs.29 crores were collected in Sep. 99% was collected in the month of June2005 and the remaining 1% was collected in the month of Sep. The credit sale of Sep amounts to Rs.3456.39 crores and the same is collected during the same month. 100% was collected in the month of Sep 2005. The credit sale of Dec amounts to Rs.3755.30 crores. Rs.3563.23 crores were collected in the particular month. 95% was collected in the month of Dec.Accounts receivables collection matrix of RCL for 2007


17440.25

4303.70

4578.53

4874.20

CollectionsMar 16450.

55June 990 2456.

54Sep 1847.

164578.53

Dec 4250.06

Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The credit sale of Mar 2005 amounts to Rs.17440.25 crores. Rupees 16450.55 was collected in the same month and the remaining Rs990 crores were collected in June. The credit sale of June 2005 amounts to Rs.4303.70 crores. Rs.2456.54 crores was collected in the same month and the remaining Rs.1847.16crores were collected in Sep. The credit sale of Sep amounts to Rs.4578.53 crores and the same is collected during the same month. The credit sale of Dec amounts to Rs.4874.20 crores. Rs.4250.06 crores was collected in the particular month.



CollectionsMar 94June 6% 57%Sep 43% 100%Dec 87%Source: Data collected from the internal reports of Finance Department of RCL.Analysis: The credit sale of Mar 2005 amounts to Rs.17440.25 crores. Rupees 16450.55 crores were collected in the same month and the remaining Rs.990 crores were collected in June. 94% was collected in the month of Mar 2005 and the remaining 6% was collected in the month of June. The credit sale of June 2005 amounts to Rs.4303.70 crores. Rs.2456.54 crores was collected in the same month and the remaining Rs.1847.16 crores were collected in Sep. 57% was collected in the month of June2005 and the remaining 43% was collected in the month of Sep. The credit sale of Sep amounts to Rs.4578.53 crores and the same is collected during the same month. 100% was collected in the month of Sep 2005. The credit sale of Dec amounts to Rs.4874.20 crores. Rs.4250.06 crores was collected in the particular month.87% was collected in the month of Dec. A STATEMENT OF SALES & RECEIVABLES DATA The last and final state in analysis frame work is preparation of sales and receivables data sheet; this gives us an elaborative framework towards the company performance towards collection vitae. This statement will throw a light up on: Average collection period and as well as debtors turnover ratio.

In preparation of sales and receivables data we will come across with various terms like Average collection period and Debtors turnover ratio.Debtor’s turnover ratio is the ratio between sales or credit sales with respect to average debtors.Debtors turnover ratio = Credit sales/ Average debtors.Average debtors = Collection period* Creditsales/360.Average collection period is the ratio between Average debtors and sales of credit sales with respect to the period of 360 days.Average collection period = Average debtors/Credit sales*360.

A STATEMENT OF SALES & RECEIVABLES DATA FROM THE MONTH OF MARCH TO DECEMBER 2005 Table 10

Credit sales(Rs. In crores)

Debtors (Rs. In crores)

DTR(in times)

ACP(in days)

Mar 2970 13 1.5 23June 2283 77 2.9 30Sep 2880 67 1.6 24Dec 2991 34 1.8 23Source: Data collected from the internal reports of Finance Department of RCL.

Analysis: In the month of March 2005 ACP is 23 days, increased to 30 days in the month of June and decreased to 24 days in the month of Sep and again decreased to 23 days in the month of Dec.

A STATEMENT OF SALES & RECEIVABLES DATA FROM THE MONTH OF MARCH TO DECEMBER 2006

Table 11Credit sales(Rs. In crores)


DTR(in times)

ACP(in days)

Mar 2970 39 5.4 26June 3250.12 77 7.3 24Sep 3456.39 56 4.3 22Dec 3755.30 43 5.6 20Source: Data collected from the internal reports of Finance Department of RCL.

Analysis: In the month of March 2005 ACP is 26 days, decreased to 24 days in the month of June and decreased to 22 days in the month of Sep and again decreased to 20 days in the month of Dec.

A STATEMENT OF SALES & RECEIVABLES DATA FROM THE MONTH OF MARCH TO DECEMBER 200717440.25

4303.70

4578.53

4874.20

Table 12Credit sales(Rs. In crores)


DTR(in times)

ACP(in days)

Mar 17440.25 104 12.5 11June 4303.70 75 17 43Sep 4578.53 276 5.8 40Dec 4874.20 54 5.6 38Source: Data collected from the internal reports of Finance Department of RCL.

Analysis: In the month of March 2005 ACP is 11 days, increased to 43days in the month of June and decreased to 40 days in the month of Sep and again decreased to 38 days in the month of Dec respectively.

RATIO ANALYSIS AND INTERPRETATION FOR CASH Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as the “relationship between two or more things”. In financial analysis a ratio is used as a bench mark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statement do not provide a meaningful

understand of the performance and financial position of a firm, an accounting figure conveys meaning when it is related to some other relevant information. Every enterprise maintains cash balances to meet its different business obligations. Different ratios can be calculated and analyzed to asses the use of cash for the business operations. Financial ratios like cash to current assets, cash to total assets and cash turnover of business units can be made to asses their efficiency in the management of cash.

CASH TO CURRENT ASSETS RATIO: In order to measure the short term liquidity of solvency of a concern, comparison of current liabilities is inevitable. Current ratio indicates the ability of a concern to meet its current obligations as and when they are due for payment.

Current ratio = (Current assets/ Current liabilities)

CASH TO CURRENT ASSETS RATIO IN RCL Table 13

Year CURRENT ASSETS

CURRENT LIABILITIES

RATIO

2005-06 1647 1579 1.042006-07 3007 1645 1.822007-08 2972 1607 1.84

INFERENCE An ideal ratio is 2:1. The ratios from 2005-06 to 2007-08 are 1.04, 1.82, 1.84 which are lesser than the standard norm, which indicates a downward trend.

CASH TO TOTAL ASSETS RATIO: This ratio indicates the proportion of cash balances maintained by the company. It assumes prominence as the level of cash balance indicates the profitability and liquidity position of the concern. The cash to total assets ratio indicates the importance of current assets in

the total worth of any business concern. The components of current assets are inventory, cash, debtors and other.Inventories total assets ratio = (inventories/ Total assets) CASH TO TOTAL ASSETS RATIO IN RCL Table 14

Year Inventories(Rs. In crores)

Total assets(Rs. In crores)

ratio

2005-06 1061 3907 0.272006-07 5613 1647 3.402007-08 9613 3582 2.68

INFERENCE The ratios from 2005-06 to 2007-08 are 0.27, 3.40, 2.68 respectively. It is increasing year by year and so it is satisfactory.

Cash to current liability ratio: This ratio reveals the ability of company to meet the current obligations as and when they matured. The cash position in the company study area is presented in the table that follows. Cash to current liability ratio = (Cash/ Current liabilities)*100

Table 15

Year Cash(Rs. In crores)

Current liabilities(Rs. In crores)

Ratio

2005-2006 1183 1579 74.922006-2007 238 1645 14.462007-2008 420 1607 26.13

Inference: Current liabilities in the year 2005-2006 was more increased, and as well as 2007-2008 was satisfactory. The company tries to take care about the liabilities.

Cash turnover ratio: This ratio indicates the proportion of cash balances held in relation to sales volume. This is used as a controlling device. Increases in sales are associated with larger cash balances. Higher cash turnover in sales indicates efficient utilization of cash resources.

Cash turnover ratio = Net sales/ cash Cash to sales ratio in RCL

Table 16

Year Net sales (Rs. In crores)

Cash (Rs. In crores)

Ratio

2005-2006 6371 1183 5.382006-2007 7365 238 30.942007-2008 9788 420 23.30

Inference: The ratio in the year 2005-06 is no satisfactory for getting profits. And the remaining years could get good results of the sales.

Analysis for receivables: The management of any business holdings credit balances involves cost, which at the same time affects profitability. The management has to decide how much to be invested in debtors to strike best balance between cost and benefits. Moreover, the level of investment in accounts receivables depends upon the volume of sales,

credit terms and conditions, riskiness of individuals and customers to whom credit is given and so on. However the decision may be taken by comparing its performance of the debtors’ management functions with to its performance in the past. A useful basic for such comparison may be percentage of debtors’ to total assets, percentage of receivables to current assets and debtors turnover ratio.

Debtors to total assets ratio: This ratio expresses the percentage of investment made in total assets of a concern. It is important in the view of management to have lesser amount of debtors for the efficient functioning of the business units.

Debtors to total assets ratio = (Debtors/ Total assets)*100

Ratio of debtors to total assets in RCL Table 17

Year Debtors (Rs. In crores)

Total assets (Rs. In crores)

Ratio

2005-2006 5190 681 762.112006-2007 1751 2262 77.402007-2008 2663 3510 75.86

Inference: Total assets ratio in the year 2005-06 is huge with 762.11 is not satisfactory.

Debtors to current assets ratio: The percentage of debtors to current assets is an important tool in judging the practice of maintaining receivables balance by the company. This ratio is used to analyze the share of working capital

block in debtors. The debtors to current assets ratio is computed in the company furnished below.

Debtors to current assets ratio = (Debtors/ Current assets)*100 Ratio of debtors to current assets in RCL Table 18

Year Debtors (Rs. In crores)

Current assets (Rs. In crores)

Ratio

2005-2006 5190 1647 315.112006-2007 1751 3007 58.232007-2008 2663 2972 89.60

Inference: Current assets ratio in the year 2005-06 is huge with 315.11 is satisfactory. The remaining years are also satisfactory.

Debtors’ turnover ratio: Debtors’ turnover ratio indicates what the number of times is the turnover for debtors is each year. Generally, the higher the value of the debtors’ turnover, the more efficient is the management of credit.

The objective of this ratio is to measure the liquidity of receivables is uncollected. Debtor turnover ratio = (Sales/average accounts receivables) Debtor turnover ratio Table 19

Year Sales (Rs. In lakhs)

Average a/c receivables (Rs. In lakhs)

Ratio

2005-2006 4371 561 7.912006-2007 7307 231 8.672007-2008 9788 378 25.89

Inference: The ratios are showing an increasing trend, this gradual increase shows that better is the liquidity of the debtors.

FINDINGS1. The sales of the company are made on both cash and credit

terms. Out of the sales generated 90% are of credit and 10% of cash basis. But, RCL sales were done on “Cash and Carry down” basis.

2. The company extends credit for period of 45 days to its customers. It waits for a period of 55 days to get the payments

from the customers. The company does not offer cash discounts to reduce their debt crisis.

3. The credit worthiness and credit limit to customer is determined by the character and financial position of a customer and period of presence in the business.

4. The transactions with the new customers will be on the cash terms, with due course of time, credit will be given to them.

5. The company follows the classification of debts into three categories namely debts outstanding for less than 30-90 days are considered to be “GOOD”, for 90-180 days are considered to be “DOUBTFUL” and>181 days are considered to be “DISPUTES”.

6. The company employs” AGEING SCHEDULE” in order to monitor its book debts. It provides more information about the past collection experience and helps to spot out the slow paying debtor. With the ageing schedule, the company is not able to trace out the over dues from the customers, which results in poor debt management.

SUGGESTIONS

1. It is suggested that the company employs the “Ageing Schedule” to monitor its debts, which suffers from the problem of aggregation and does not relate book debts to sales of the same period. This problem can be eliminated by using dis-aggregated data for analyzing collection experience.

2. It is recommended that the company adopt structured frame work for bank guarantee limits must be done by the company that extend the company to give credit limit to its customer.

3. Implementation of a special package of “ERP”, that is to be made to improve the cash and credit management procedures in a better manner regarding to”CASH AND RECEIVABLE”.

4. It is suggested that the company has to take guarantee from a scheduled bank must be taken.

5. Before investigating whether the payments from the debtors are collected in time or not, it would be necessary that should be improved,

a) The existing billing system.b) Is the billing mechanism efficient to introduce? (For

periodical payments).

CONCLUSIONIt can be concluded that cash and receivables performance of the company is reasonably satisfactory. In certain areas the company has to focus more. Reliance communications ltd should try to overcome hurdles, especially in the area of debtor’s management. As Reliance communications ltd has stepped into a liberalized market driven environment, there is an urgent need for its managers to function like businessmen, rather than Government officials this not only needs change on the part of higher officials but also requires wholehearted efforts of all the employees.

BIBLIOGRAPHY

I.M.PANDEY, Financial Management

Edition: Third Edition

Publisher: Himalaya publications

Dr. G. PRASAD, Dr. K.V.N.B. KUMAR, Advanced Management Accountancy

Edition: First Edition

Publisher: Jai Bharat

Company Website: WWW.RCOM.CO.IN

WWW.RELIANCE COMMUNICATIONS.COM

CONTENTS

Chapter no

Chapter name Page no.

1. Statement of the problem2. Introduction to the concept of cash

and receivables3. Research design and methodology

-Objectives of the study-Methodology-Scope of the study-Limitations

4. Industry profile5. Company profile6. Analysis of cash and receivables

http://WWW.RELIANCE/

http://WWW.RCOM.CO.IN/

management7. Findings8. Suggestions9. Conclusions10. Appendices11. Bibliography

BALANCE SHEET OF RELIANCE COMMUNICATIONS (Rs. In crores)

Particulars 2005-06 2006-07 2007-08Sources of fundsTotal share capital

0.01 0.05 1,022.31

Equity share capital

0.01 0.05 1,022.31

Share application money

0.00 611.57 0.00

Preference share capital

0.00 0.00 0.00

Reserves 0.00 14,783.43 19,503.23Revaluation reserves

0.00 0.00 0.00

Net worth 0.01 15,395.05 20,525.54Secured loans 0.00 0.00 5,113.57Unsecured loans 0.00 0.00 9,454.27Total debt 0.00 0.00 14,567.84Total liabilities 0.01 15,395.05 35,093.38Application of fundsGross block 0.00 198.08 20,625.82Accum. Depreciation

0.00 31.85 2,527.37

Net block 0.00 166.24 18,098.45Capital work in progress

0.00 0.00 2,185.60

Investments 0.00 12,074.10 5,434.43Inventories 0.00 0.00 98.51Sundry debtors 0.00 0.00 802.11Cash and bank balance

0.00 0.05 28.08

Total current assets

0.00 0.05 928.70

Loans and advances

0.01 3,158.91 19,137.97

Fixed deposits 0.00 0.00 40.37Total CA, loans & advances

0.01 3,158.96 20,107.04

Deferred credit 0.00 0.00 0.00Current liabilities

0.00 1.68 6,309.33

Provisions 0.00 2.57 4,422.81Total CL& 0.00 4.25 10,732.14

provisionsNet current assets

0.01 3,154.71 9,374.90

Miscellaneous expenses

0.00 0.00 0.00

Total assets 0.01 15,395.05 35,093.38Contingent liabilities

0.00 0.00 3,781.30

Book value(Rs) 10.00 1,478,348.00 100.39

MBA Project CASH AND RECEIPTS MANAGEMENT

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