CHAPTER-8 BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE...
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CHAPTER-8
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 302
CAHPTER - 8
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE
MANAGEMENT
8.1 INTRODUCTION OF RECEIVABLE MANAGEMENT
8.2 MEANING OF RECEIVABLES
8.3 NEED OF MAINTAINING RECEIVABLES
8.4 COST OF MAINTAINING RECEIVABLES
8.5 OBJECTIVES OF RECEIVABLES MANAGEMENT
8.6 PRINCIPLES OF CREDIT ADMINISTRATION
8.7 ALLOCATION OF AUTHORITY
8.8 OPTIMUM CREDIT POLICY
8.9 ASPECTS OF CREDIT POLICY
8.10 DEBTORS TURNOVER RATIO
8.11 AVERAGE COLLECTION PERIOD
8.12 INTRODUCTION OF PAYABLE MANAGEMENT
8.13 TRADE CREDIT BETWEEN FIRMS
8.14 TERMS OF TRADE CREDIT
8.15 OBTAINING TRADE CREDIT
8.16 THE PAYABLE MANAGEMENT EFFICIENCY OF
ANALYSIS
8.17 CREDITOR’S TURNOVER RATIO / ACCOUNT
PAYABLES TURNOVER RATIO
8.18 AVERAGE PAYABLES PERIOD
8.19 RERERENCES
8.20 CONCLUSION
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CAHPTER - 8
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE
MANAGEMENT
8.1 INTRODUCTION OF RECEIVABLE MANAGEMENT
The receivable management represent an important component of the current
assets of a firm. The amount of investment in accounts receivable for most firms also
represents a very substantial portion of current assets.
According to I. M. Pandey
“Trade credit is the most prominent force of the mordent business. It is
considered as an essential marketing tool, acting as a bridge for the movement of
goods from production and distribution stages to customers finally. A f8.irm grants
trade credit to protect its sales from the competitors and attract potential customers to
buy its products on favourable terms. Granting credit and creating receivables amount
to the blocking of the firm’s fund. The interval period between the date of sale and the
date of receipt of payment has to be financed out working capital funds. Thus, trade
debtors represent investment. As substantial amounts are tied-up in trade debtors or
receivables, it needs careful analysis and proper management.”
8.2 MEANING OF RECEIVABLES
The term ‘receivables’ has been defined by Emarson As:
“When goods or services are sold under an arrangement permitting the
customers to pay for them at a later date, the amount due from the customers is
recorded as accounts receivable”.
This is an asset account, representing claim to future payments of cash from
the customer.
According to Robert N. Anthony:
“Accounts receivable are amounts owed to the business firm, usually by its
customers. Sometimes this is broken down into trade accounts receivable and other
accounts receivable, the former refers to amounts owed by customers, and the later
refers to amounts owed by employees and others”.
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The receivables arising out of credit has three characteristics. Firstly it
involves an element of risk which should be carefully analysed. Cash sales are totally
riskless, but not the credit sales, as the cash payment have yet to be received.
Secondly, it is based on economic value in goods or services passes immediately at
the time of sales, while the seller expects an equivalent value to be received later on.
Thirdly, it implies futurity. The cash payment for goods or services received by the
buyer will be made by him in a future period.
8.3 NEED OF MAINTAINING RECEIVABLES
The firm grants trade credit because it expects the investment in receivable to
be profitable. The immediate impact of granting trade credit shows up in the firm’s
sales level, and the motivation for investment in receivables may be either oriented
toward sales expansion or sales retention. Sales expansion motivated investment in
receivables refers to granting more trade credit to enable sales to present customers to
increase and or to attract new customers.
This need for account receivable is growth-oriented. Sales retention motivated
investment in receivable refers to granting trade credit to protect the firm’s sales from
compactors sales programmes.
8.4 COST OF MAINTAINING RECEIVABLES
The maintenance of receivable involves a credit sanction which means that the
funds of the tie up with it. The cost of maintaining receivable is incurred because of
the following factors:
Financing receivables:
The use of credit invariably involves the tying up of capital.
Receivables may be financed from existing capital or long term debt, or by
using additional capital or long term debt, as the case may be.
Administrative expenses:
The maintenance of receivables calls for the use of an administrative
machinery ways. A firm have to conduct investigations to find out the
creditworthiness or otherwise of its customers. Administrative expenses are
therefore, incurred on the maintenance of receivables.
Cost of collection:
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An effective maintenance of receivables depends ultimately upon the
effective collection receivables. A firm may be constrained to appoint several
persons or engage collection agencies to remind and even call on delinquent
customers make payments. A number of collection letters and reminders
usually follow. This eventually increases the cost of collection.
Default cost:
After making all the attempts to recover the money, the firm may not
be able to do so because of the inability of the customers. Such debts are
treated as bed debts and have to be written off as they cannot be recovered.
Such costs are known as default costs with receivables.
8.5 OBJECTIVES OF RECEIVABLES MANAGEMENT
The basic objective of receivable management is to maximise the value of the
firm by achieving a trade off between liquidity and profitability. In fact, the firm
should manage its credit in such a way that sales are expanded to an extent to which
risk remains within an acceptable limit. Thus, to achieve the objective to maximising
the value, the firm should manage its trade credit:
To obtain optimum value of sales.
To control the cost of credit and keep it at minimum.
To maintain investment in debtors at optimum level.
The purpose of credit management is not sales maximisation. But efficient and
effective credit management does help to expand sales and can prove to be an
effective tool of marketing. It helps to retain old customer’s ad win new customers.
Well administrative credit means profitable credit amount. Thus, the objective of
receivable management is to promote sales and profit until that point is reached where
the return on investment in further finding or receivable is less than the cost of funds
raises to finance that additional credit.
8.6 PRINCIPLES OF CREDIT ADMINISTRATION
According to Joseph L. Wood:
“The purpose of any commercial enterprise is the earning of profit. Credit is
itself is utilised to increase sales, but sales must return a profit.”
In the words of R. K. Mishra:
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“To make receivables management sound and effective, a business should
follow certain well recognised and established principles of credit and collection
policies. The first of these principles relates to allocation of authority pertaining to
credit and collection to some specific department. The second principle puts stress on
the selection of proper credit terms. The third principle of credit and collection
policies emphasizes a is taken. And the last principle touches upon the establishment
of sound collection policies and procedures.”
8.7 ALLOCATION OF AUTHORITY
The size of receivables in any firm fluctuates according to the efficacy of its
credit and collection policies. The effectiveness with which credit and collection
policies are formulated and executed, in turn, depends upon the location of the credit
department in the organizational structure of a firm. The credit and collection function
is generally viewed either as a finance function, which places it under the direct
responsibility of the chief finance officer, or it is viewed as an integral part of the
sales function, and in that case it is located in the sales organisation.
An argument which favour the former position in that this function is
fundamentally financial in nature since it directly affects the flow of funds.
Furthermore, credit affects the solvency of the firm. For these reason, credit and
collection functions should be placed under the direct supervision of the individuals
who are responsible for the firm’s financial position. There are others who suggested
that business firms should enforce upon their sales departments strictly the principles
that sales are incomplete until the value thereof is realised.
The exponents of this view also plead that since the objective of this function
is credit maximum sales with minimum bed debt losses, the function should be the
chief sales officer since the sales force is an a better position to evaluate the credit
capacity of the firm’s customers that the finance officer. Opposing this argument, it is
adduced that sales managers in their enthusiasm for sales volume often grant credit
department from achieving its true objectives. Thus, it may be concluded that the
sound administration of credit with the view that the working capital position is least
strained, requires that authority in this regard be allocated to the sales or finance
department.
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8.8 OPTIMUM CREDIT POLICY
The term credit policy refers to those decision variables that influence the
amount of trade credit, i.e., the investment in receivables. The firm’s investment in
receivables are affected by some uncontrollable factors like economic conditions,
industry norms, competitions etc., but it can certainly influence the level of trade
credit through its credit policy within these constraints imposed externally. Further,
whenever some external factors change, the firm can accordingly adapt its credit
policy.
Tight or Loose Credit policy:
The credit policy of any firm may broadly be classified as ‘tight’ credit policy
or ‘loose’ credit policy. Firms with tight credit policies tend to sell on credit only to
those customers who have the highest quality credit ratings. On the other hand, array
of customers, including customers with relatively low credit ratings. In fact, firms
follow credit policies which range between tight and loos credit policies. Credit
policies differ in their effects on the firm’s sales costs and profits.
Generally, firms pursuing loose credit policies will have higher sales and
profits as compared to similar firm following tight credit policies. Loose credit
policies stimulate sales because the potential customer’s base is broadened. But firms
with loose credit policies can incur higher bad debt losses and face the problem of
liquidity as compared to the firms with tight credit policies. A tight credit policy
follows tight credit standards and terms and as a result, minimise costs and chances of
bed debts. Such policies do not pose the serious problems of liquidity. But they
restrict sales and profit margins. The objective of credit management, therefore,
should be the achievement of a balance that maximises the overall return of the firm.
Thus, the decision to grant trade credit involves a trade-off. Certain benefits
will accrue to the firm from establishing a particular trade credit policy and certain
costs will be incurred. The firm’s problem is to compare the costs and benefits
involved to determine its best level of receivables. The costs and benefits to be
compared are marginal costs and benefits.
Cost-Benefits Trade-off:
The determination of optimum investment in receivables involves a trade-off
between costs and benefits. The major considerations in costs are liquidity and
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opportunity costs. Liquidity consideration concerns the possibility of receivables
being collected in time and at full value. As the firm’s policy become loose, the
chances of the bed debts increase and collection period gets extended. This poses a
problem of liquidity. Loose credit policy also involves large investment in receivables
and thus, adds to opportunity costs. On the other hand, profitability is expected to
improve when credit policy is relaxed. Loose policy tends to expand sales and the
increased revenue results. The optimum credit policy will be determined by the trade
off between liquidity and profitability.
It is indicated that the firm becomes less liquid as its credit policy relaxes. But
profitability increase as the credit policy becomes more and more liberal. The
optimum credit policy should occur at a point where there is a trade off between
liquidity and profitability.
8.9 ASPECTS OF CREDIT POLICY
The success or failure of a business depends to a large extent on its level of
sales as a rule, the higher the sales volume, the grater the profit and the healthier the
firm. Sales, in turn, depend on a number of factors, some of which are controllable by
the firm. The major controllable variable which affects sales or sales price are product
quality, advertisement and firm’s credit policy. Credit policy, in turn, consists of these
three elements
Credit Terms
Credit Standards
Collection Policy
Credit Terms
The stipulation under which the firm sells on credit to its customers is called
terms. A firm should carefully decide upon the terms of credit. The decision of the
terms on which credit will be granted may cover the various aspects of a credit policy,
namely, selection of credits customers, approval of credit periods, acceptance of sale
discount and provision regarding the instruments of security for credits to be
accepted. The terms should be determined in the light of the needs of the firm and the
established practices of concern in this regard. This selection of credit customers
should be made on the basis of the amount of bed debt losses which a firm can absorb
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in any given period. The amount funds tied up in receivables is directly related to the
limits of credit granted to customers.
Beckman Says:
“These limit should never be ascertained on the basis of the subject’s own
requirements; they should be based upon the debts paying power of customer and his
ledger record of the orders and payment.”
The time duration for which credit is extended to the customers is referred to
as credit period. It is generally stated in terms of net date. Usually the credit period of
the firm’s governed by the industry norms, but firms can extend credit for longer
duration to stimulate sales. If the firm’s bed debts built up it may tighten up its credit
policy as against the industry norms.
Cash discount is another aspect of credit terms. Many firms offer cash
discount as inducements for customers to pay their bills early. If payment is made by
a certain date the buyer can pay less than the full amount of the invoice. The cash
discount terms indicate the rate of discount and the period for which discount has
been offered. If a customer does not avail himself of this offer, he is expected to
make the payment by the stipulated date.
“To make cash discount an effective tool of credit control, a firm should also
see that it is allowed to only those customers rho make payments of due date”
Credit terms can be used as an investment to push sales. The most desirable
credit terms, which increase the overall profitability of the firm, should be offered to
customers. The financial manager should compare costs and benefits f alternate credit
terms to find out the most desirable credit terms, finally, the credit terms of a firm
should lay stress upon the receipt of securities for the credits to be granted. Credit
sales may be got secured by being furnished with instruments such as trade
acceptance, promissory notes, or bank guarantees.
Credit Standards
The credit standard followed by the firm has an impact on sales and
receivables. The sales and receivable levels are likely to be high, if the credit
standards of the firm are relatively loose. Liberal credit standards tend to push sales
up by a higher incidence to bad debts loss, a larger investment in receivables, and a
higher cost of collection. Stiff credit standards have opposite effects. They tend to
depress sales, reduce the incidence of bad debts loss, decreases the investment in
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receivables, and lower the collection cost. The firm’s credit standards are influenced
by “Five C’s” of credit:- character, capacity, capital, collateral and conditions.
Character refers to the profitability that a customers will try to honour his
obligations. This factor is of considerable importance, because every credit
transaction implies a promise to pay.
Capacity is gauged by his past record, supplemented by physical observation
of the customer’s plant or store and business methods.
Capital is measured by the general financial position of the firm as indicated
by a financial ratio analysis, with special emphasis on the tangible net worth of the
firm.
Collateral is represented by assets that the customer may offer as a pledge for
security of the credit extended to him.
Condition refers to the impact of general economic trends on the firm or to
special developments in certain areas of economy that may affect the customer’s
ability to meet his obligations.
Normally, a firm should lower its credit standards to the extent profitability of
increased sales exceeds the associated costs. The extent to which credit standards can
be liberalised should depend upon the matching between the profits arising due to
increased sales and the costs to be incurred on the increased sales.
Collection Policy:
A collection policy is required because all customers do not pay the firm’s
bills in time. The collection programme of the firm, aimed at timely collection of
receivables. It may consist of the following:
Monitoring the state of receivables.
Despatch of latter to customers whose due date is approaching.
Telegraphic and telephonic advice to customers around the due date.
Threat of legal action to overdue accounts.
Legal action against overdue accounts.
The basic idea underlying formulation of collection policy is to ensure the
earliest possible payment on receivables without any customer losses through ill will.
Prompt collection of accounts tends to reduce investment required to carry receivable
and the cost associated with it. Percentage of bad debts is very likely to decrease.
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The most important variable of credit policy is the expenditure on collection of
accounts. Other things being equal, greater the amount spent on collection efforts, the
lower the percentage of bad debts losses and shorter is the average collection period
and vice-versa. However, the relationship between collection expenditures and bad
debts losses is not as linear as it appears. In determining the most suitable collection
policy for the firm, the financial manager must strike balance between the costs and
benefits of different collection policies.
8.10 DEBTORS TURNOVER RATIO:
Meaning :
This Ratio establishes a relationship between net credit sales and
average debtor’s + Bills Receivable.
Objective :
The objective of computing this ratio is to determine the efficiency
with which the trade debtor’s are converted into cash
Components :
1. Net credit sales which mean gross credit sales minus sales return.
2. Average Debtor’s and Bill Receivable
Computation and interpretations :
This ratio is computed by dividing the Net Credit sales by the Average
Debtor’s and Bill Receivable. This ratio is usually express as a ‘x’ number of
times. In the form of a formula, this ratio may be express as follows:
𝐃𝐞𝐛𝐭𝐨𝐫𝐬 𝐓𝐫𝐮𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 = 𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫′𝐬
This ratio indicates both the quality of Debtor’s and the credit collection
efforts of the enterprise. It’s also the speed with which the Debtor’s are converted into
cash in the year. In general, a high ratio indicates the shorter collection period which
implies prompt payments by Debtor’s and a low ratio indicates a longer collection
period which implies delayed payment by Debtor’s. Thus, an enterprise should have
neither a very high nor a very low ratio; it should have a satisfactory ratio. To judge
whether the ratio is satisfactory or not, it should be compare with its own past ratio or
with the ratio of similar firm in the same industry or with the industry average.
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The Debtor’s Turnover Ratio of selected companies of Automobile Industry in
India is given in the Table No- 8.1 as follows: on the next page
Table :- 8.1
Debtor Turnover Ratio in Times From 2005 –’06 to 2011 –‘12
COMPANY NAME
YEAR
IAP
PM
BIL
td
JK
PM
OP
IL
SP
BL
SP
ML
SIP
L
SP
M L
td
TN
NP
L
WC
PM
L
2005-'06 16.89 6.62 5.67 75.32 8.52 9.60 5.86 28.61 6.05 13.49
2006-'07 13.96 6.11 7.05 8.87 8.21 14.99 5.95 42.17 8.11 12.72
2007-'08 12.62 5.05 5.47 9.51 9.14 10.38 6.44 39.64 9.52 13.60
2008-'09 16.21 4.86 10.05 10.68 10.03 5.75 5.95 37.65 6.28 14.28
2009-'10 13.98 4.60 10.58 8.78 11.32 6.86 7.66 23.56 5.14 18.22
2010-'11 14.19 4.34 11.41 8.17 10.87 6.76 8.81 27.36 5.75 14.55
2011-'12 18.96 4.63 9.21 7.18 6.10 6.23 8.56 32.49 4.18 17.92
Average 15.26 5.17 8.49 18.36 9.17 8.66 7.03 33.07 6.43 14.97
S.D. 2.19 0.85 2.41 25.14 1.78 3.30 1.29 6.95 1.81 2.20
C.V. 14.33 16.52 28.42 136.93 19.41 38.07 18.34 21.03 28.17 14.69
Min 12.62 4.34 5.47 7.18 6.10 5.75 5.86 23.56 4.18 12.72
Max 18.96 6.62 11.41 75.32 11.32 14.99 8.81 42.17 9.52 18.22
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Graph - 8.1
Debtors Turnover Ratio In Times From 2005 -'06 to
2011 -'12
2005-'06
2006-'07
2007-'08
2008-'09
2009-'10
2010-'11
2011-'12
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The above mentioned Table No- 8.1 and Graph No- 8.1 show the indicated a
fluctuating trends of the Debtor’s turnover ratio of selected paper companies in India
from 2005-2006 to 2011-2012.
1. International Andhra Pradesh Paper Mills Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the
International Andhra Pradesh Paper Mills Limited during the study period form
2005 –’06 to 2011 –’12, the highest debtors turnover ratio is 18.96 times in the
year 2011 –’12 and the lowest debtors turnover ratio is 12.62 times in the year of
2007 –’08.
In the year 2005 –’06 the debtor’s turnover ratio has been shown as 16.89
times, which has been decreased in 2006 –’07 to 2007 –’08 has been 13.96 times
and 12.62 times which is shown above in the table no - 8.1. But in the year 2008
–’09 the debtor’s turnover ratio has been increased and reached 16.21 times and
in 2009 –’10 it has been decreased and reached at 13.98 times, than after debtor’s
turnover ratio has been increased in 2010 –’11 and reached at 14.19 times in
selected study period. But the last year of the study period it has been increased
and reached at 18.96 times in 2011 –‘12. It has been also shown in graph – 8.1.
So, the average (AVG.) debtor’s turnover ratio is 15.26 times, the standard
deviation (S.D) is 2.19 times and co-efficient variance (C.V) is 14.33% which is
show in table no - 8.1. Which solvency of International Andhra Pradesh Paper
Mills limited because the average debtor’s turnover ratio shows satisfactory ratio
during the study period.
2. Ballarpur Paper Mills Limited
The table no - 8.1 shows that the debtors turnover ratio of the Ballarpur
Paper Mills Limited during the study period form 2005 –’06 to 2011 –’12, the
highest debtor’s turnover ratio is 6.62 times in the year 2005 –’06 and the lowest
debtor’s turnover ratio is 4.34 times in the year of 2010 –’11.
In the years from 2005 –’06 to 2010 –‘11 to the debtor’s turnover ratio has
been continuously decreased as 6.62 times, 6.11 times, 5.05 times, 4.86 times,
4.60 times and 4.34 times respectively. But at the end of the study period it has
been increased as 4.63 times in 2011 –’12. It has been also shown in graph – 8.1.
So, the average (AVG.) debtor’s turnover ratio is 5.17 times, the standard
deviation (S.D) is 0.85 times and co-efficient variance (C.V) is 16.52% which is
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shown in table no - 8.1. Which solvency of Ballarpur Paper Mills limited because
the average debtor’s turnover ratio shows satisfactory ratio during the study
period.
2. JK Paper Mills Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the J. K. Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
debtor’s turnover ratio is 11.41 times in the year 2010 –’11 and the lowest
debtor’s turnover ratio is 5.47 times in the year of 2007 –’08.
In the year 2005 –’06 the debtor’s turnover ratio has been 5.67 times and it
has been increased in 2006 –’07 as 7.05 times, but it has been decreased 5.47
times in 2007 –’08. In the year from 2008 –’09 to 2010 –’11, it has been also
increased to 10.05 times, 10.58 times and 11.41 times. But, it has been decreased
in 2011 –’12 as 9.21 times. It has been also shown in the graph - 8.1.
So, the average (AVG.) debtor’s turnover ratio is 8.49 times, the standard
deviation (S.D) is 2.41 times and co-efficient variance (C.V) is 28.42% which is
shown in table no - 8.1. Which solvency of J. K. Paper Mills Limited because the
average debtor’s turnover ratio shows satisfactory ratio during the study period.
3. Orient Paper and Industries Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the Orient
Paper and Industries Limited during the study period form 2005 –’06 to 2011 –
’12, the maximum debtor’s turnover ratio is 75.32 times in the year 2005 –’06 and
the minimum debtor’s turnover ratio is 7.18 times in the year of 2011 –’12.
In the present the table no - 8.1 shows the debtor’s turnover ratio of Orient
Paper and Industries Limited is fluctuating in the whole study period. In 2005 –
’06 debtor’s turnover ratio has been shown as 75.32 times and it has been
decreased 8.87 times in 2006 –’07. But, then after the next two year it has been
increased as 9.51 times and 10.68 times from 2007 –‘’08 to 2008 –’09. In the last
three years from 2009 –’10 to 2011 –’12 it has been continuously decreased as
8.78 times, 8.17 times and 7.18 times respectively. It has been also shown in
graph – 8.1.
So, the average (AVG.) debtor’s turnover ratio is 18.36 times, the standard
deviation (S.D) is 25.14 times and co-efficient variance (C.V) is 139.93% which is
a show in table no - 8.1. Which solvency of Orient Paper and Industries Limited
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because of the average debtor’s turnover ratio shows satisfactory ratio during the
study period.
4. Seshasayee Paper and Boards Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the Seshasayee
Paper and Boards Limited during the study period form 2005 –’06 to 2011 –’12,
the maximum debtor’s turnover ratio is 11.32 times in the year 2009 –’10 and the
minimum debtor’s turnover ratio is 7.18 times in the year of 2011 –’12.
In the table no - 8.1 shows the debtor’s turnover ratio of Seshasayee Paper
and Boards Limited is zigzag trend. It has been 8.52 times in 2005-’06 and it has
been decreased as 8.21 times. The debtor’s turnover ratio has been continuously
increased as 9.14 times, 10.03 times, and 11.32 times. But it has been decreased as
10.87 times and 6.10 times from 2010 –’11 and 2011 –’12. It has been also shown
in graph – 8.1.
So, the average (AVG.) debtor’s turnover ratio is 9.17 times, the standard
deviation (S.D) is 1.78 times and co-efficient variance (C.V) is 19.41 % which is a
show in table no - 8.1. Which solvency of Seshasayee Paper and Boards Limited
because of the average debtor’s turnover ratio shows satisfactory ratio during the
study period.
5. Sirpur Paper Mills Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the Sirpur
Paper Mills Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum debtor’s turnover ratio is 14.99 times in the year 2006 –’07 and the
minimum debtor's turnover ratio is 5.75 times in the year of 2008 –’09.
In the year 2005 –’06 the debtor’s turnover ratio has been shown as 9.60
times. Debtor’s turnover ratio has been increased 14.99 times in 2006 –’07 and it
has been decreased as 10.38 times and 5.75 times from 2007 –’08 to 2008 –’09.
Then after shows the fluctuating trend in debtor’s turnover ratio as 6.86 times,
6.76 times and 6.23 times from 2009 –’10 to 2011 –’12. It has been also shown in
the graph – 8.1.
So, the average (AVG.) debtor’s turnover ratio is 8.66 times, the standard
deviation (S.D) is 3.30 times and co-efficient variance (C.V) is 38.07% which is a
show in table no - 8.1. Which solvency of Sirpur Paper Mills Limited because the
average debtor’s turnover ratio shows satisfactory ratio during the study period.
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6. South India Paper Mills Limited
The table no - 8.1 and graph – 8.1 shows that the debtor’s turnover ratio of
the South India Paper Mills Limited the study period form 2005 –’06 to 2011 –
’12, the maximum debtor’s turnover ratio is 8.81 times in the year 2010 –’11 and
the minimum debtor’s turnover ratio is 5.86 times in the year of 2005 –’06.
In the table no - 8.1 and graph – 8.1 shows the debtor’s turnover ratio of
South India Paper Mills Limited form 2005 – ’06 to 2011 –’12. It is fluctuated
during the study period have been as 5.86 times, 5.95 times, 6.44 times, 5.95
times, 7.66 times, 8.81 times and 8.56 times respectively.
So, the average (AVG.) debtor’s turnover ratio is 7.03 times, the standard
deviation (S.D) is 1.29 times and co-efficient variance (C.V) is 18.34 % which is
shown in table no - 8.1. Which solvency of South India Paper Mills Limited
because the average debtor’s turnover ratio shows satisfactory ratio during the
study period.
7. Star Paper Mills Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the Star Paper
Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum
debtor’s turnover ratio is 42.17 times in the year 2006 –’07 and the minimum
debtor’s turnover ratio is 23.56 times in the year of 2011 –’12.
The table no - 8.1 and graph – 8.1 shows the debtor’s turnover ratio has
been shown as 28.61 times in 2005 –’06. It has been increased when reached
highest point as 42.17 times in year 2006 –’07. But, it has been decreased from
2007 – ’08 to 2009 –’10 as 39.64 times, 37.65 times and 23.56 times. But lat two
year of the study period from 2010 –’11 to 2011 –’12 it has been increased as
27.36 times and 32.49 times respectively.
So, the average (AVG.) debtor’s turnover ratio is 33.07 times, the standard
deviation (S.D) is 6.95 times and co-efficient variance (C.V) is 21.03% which is
shown in table no - 8.1. Which solvency of Star Paper Mills limited because the
average debtor’s turnover ratio shows satisfactory ratio during the study period.
8. T. N. Newsprint Paper Mills Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the T. N.
Newsprint Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the
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maximum debtor’s turnover ratio is 9.52 times in the year 2007 –’08 and the
minimum debtor’s turnover ratio is 4.18 times in the year of 2011 –’12.
The above table no - 8.1 shows fluctuated in debtor’s turnover ratio trend
from 2005 – ’06 to 2011 –’12. In 2005 –’06 the debtor’s turnover ratio has been
shown as 6.05 times. It has been increased in the year 2006 –’07 at 8.11 times. But
then after it has been increased in 2007 –’08 at 9.52 times. But it has been
decreased again in the year 2008 –’09 to 2009 –‘10 as 6.28 times and 5.14times.
For the next year in 2010 -11 it has been increased as 5.75 times. At the last year
2011 –’12 it has been decreased and reached at lowest point as 4.18 times in 2011
–’12. It has been also shown in graph – 8.1.
So, the average (AVG.) debtor’s turnover ratio is 6.43 times, the standard
deviation (S.D) is 1.81 times and co-efficient variance (C.V) is 28.17% which is
shown in table no - 8.1. Which solvency of T. N. Newsprint Paper Mills Limited
because the average debtor’s turnover ratio shows satisfactory ratio during the
study period.
9. West Coast Paper Mills Limited
The table no - 8.1 shows that the debtor’s turnover ratio of the West Coast
Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum
debtor’s turnover ratio is 18.22 times in the year 2009 –’10 and the minimum
debtor’s turnover ratio is12.72 times in the year 2006 –’07.
In the West Coast Paper Mills Limited debtor’s turnover ratio has been
shown as 13.49 times in 2005 –’06. But, it has been decreased in year 2006 –’07
as 12.72 times. In the study period from 2007 – ’08 to 2009 –’10, a debtor’s
turnover ratio has been increased as 13.60 times 14.28 times, and 18.22 times. But
then after the debtor’s turnover ratio has been decreased at 14.55 times in 2010 –
’11. But again it has been increased in as 17.92 times in 2011 –’12. It has been
also shown in the graph - 8.1.
So, the average (AVG.) debtor’s turnover ratio is 14.97 times, the standard
deviation (S.D) is 2.20 times and co-efficient variance (C.V) is 14.69% which is
shown in table no - 8.1, which solvency of West Coast Paper Mills Limited
because the average debtor’s turnover ratio shows satisfactory ratio during the
study period.
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ANOVA TEST OF DEBTOR’S TURNOVER RATIO :
Hypothesis:
Ho: Null Hypothesis:
There is no significant difference in Debtor’s turnover ratio of
selected paper companies in India.
H1: Alternative Hypothesis:
There is significant difference in Debtor’s turnover ratio of
selected paper companies in India.
Level of Significance: 5%
The calculation of ANOVA test calculated in Microsoft excel programme.
Table :- 8.1.1
Debtor Turnover Ratio - ANOVA: Single Factor
SUMMARY
Groups Count Sum Average Variance
IAPPM 7 106.79235 15.25605012 4.781639
BILtd 7 36.213793 5.173399066 0.730147
JKPM 7 59.455684 8.493669188 5.826732
OPIL 7 128.52173 18.36024756 632.0084
SPBL 7 64.1878 9.169685727 3.168841
SPML 7 60.588699 8.655528392 10.86088
SIPL 7 49.225325 7.032189218 1.66365
SPM Ltd 7 231.49566 33.07080809 48.36076
TNNPL 7 45.042475 6.434639332 3.286334
WCPML 7 104.78179 14.96882744 4.835341
Table :8.1.2
ANOVA ( F- Test Result) of Debtor Turnover Ratio
Source of
Variation
SS D.F MS F P-value F crit
Between Groups 4432.52 9 492.5021 6.8831 9.8118 2.0401
Within Groups 4293.14 60 71.5522
Total 8725.66 69
Degree of freedom = 70-1= 69
Table Value of ‘F’ =2.0401
Calculate Value of ‘F’ = 6.8831
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F calculate > F table
6.8831 > 2.0401
F calculate > F table
Table No-8.1.2 indicates the calculate value of ‘F’ is 6.8831 and the table
value of ‘F’ at 5% level of significance is 2.0401 so, the calculate value of ‘F’ which
is greater then the table value. It indicates that the Null Hypothesis is rejected and
Alternate Hypothesis is accepted. It indicates that there is significant in debtor’s
turnover ratio of selected paper companies in India
8.11 AVERAGE COLLECTION PERIOD
Meaning :
This Ratio establishes a relationship between Average Debtor’s, net Credit
sales and no of days in the year.
Objective :
The objective of computing this ratio is to determine the period shows an
average period which the credit sales.
Components :
1. Average Debtor’s which refer to Trade Debtor’s
2. Net Credit Sales which refers gross credit sales- sales return
3. No of Days =365 days
Computation and interpretations :
This ratio is computed by dividing the Average debtor’s by the net credit
sales multiplied by 365 days. This ratio is usually express as days. In the form of a
formula, this ratio may be express as follows:
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 = 𝐃𝐞𝐛𝐭𝐨𝐫𝐬
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬 𝐗 𝐍𝐨. 𝐨𝐟 𝐃𝐚𝐲𝐬(𝟑𝟔𝟓)
This ratio indicates an average period for which the credit sales remain
outstanding or the average credit period actually enjoyed by the debtors. It measures
the quality of debtors it indicates the rapidity or slowness with which the money is
collected form debtors. To judge whether the ratio is satisfactory or not, it should be
compare with its own past ratio or with the ratio of similar firm in the same industry
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or with the industry average. The Average Collection period of selected companies of
Automobile Industry in India is given in the Table No-8.2 as follows:
Table:- 8.2
Average Collection Period Ratio (in Days) From 2005 –’06 to 2011 –‘12
COMPANY NAME
YEAR IA
PP
M
BIL
td
JK
PM
OP
IL
SP
BL
SP
ML
SIP
L
SP
M L
td
TN
NP
L
WC
PM
L
2005-'06 22 55 64 5 43 38 62 13 60 27
2006-'07 26 60 52 41 44 24 61 9 45 29
2007-'08 29 72 67 38 40 35 57 9 38 27
2008-'09 23 75 36 34 36 63 61 10 58 26
2009-'10 26 79 34 42 32 53 48 15 71 20
2010-'11 26 84 32 45 34 54 41 13 63 25
2011-'12 19 79 40 51 60 59 43 11 87 20
Average 24 72 46 37 41 47 53 11 60 25
S.D. 3 11 14 15 9 14 9 3 16 3
C.V. 14 15 31 41 23 31 17 22 27 14
Min 19 55 32 5 32 24 41 9 38 20
Max 29 84 67 51 60 63 62 15 87 29
The above mentioned Table No- 8.2 and Graph No- 8.2 show the indicated
fluctuated trends of the Average collection period of selected paper companies in
India from 2005-2006 to 2011-2012.
0
10
20
30
40
50
60
70
80
90
100
Graph: -8.2
Average Collection Period Ratio (in Days), From 2005 -
'06 to 2011 -'12
2005-'06 2006-'07 2007-'08 2008-'09 2009-'10 2010-'11 2011-'12
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1. International Andhra Pradesh Paper Mills Limited
The table no - 8.2 shows that the average collection period of the International
Andhra Pradesh Paper Mills Limited during the study period form 2005 –’06 to 2011
–’12, the highest average collection period is 29 days in the year 2007 –’08 and the
lowest average collection period is 19 days in the year of 2011 –’12.
In the year 2005 –’06 the average collection period of 22 days, which has been
increased in 2006 –’07 to 2007 –’08 as 26 days and 29 days which is shown in above
table - 8.2. But in the year 2008 –’09 the average collection period has been
decreased and reached as 23 days and in 2009 –’10 it has been increased and reached
at 26 days in 2009 –’10 and, then after average collection period has no change in
2010 –’11 and reached at 26 days in selected study period. But the last year of the
study period it has been decreased and reached as 19 days in 2011 –‘12. It has been
also shown in graph – 8.2.
So, the average (AVG.) average collection period is 24 days, the standard
deviation (S.D) is 3 days and co-efficient variance (C.V) is 14% which is shown in
table no - 8.2. Which solvency of International Andhra Pradesh Paper Mills limited
because the average collection period shows satisfactory ratio during the study period.
2. Ballarpur Paper Mills Limited
The table no - 8.2 shows that the average collection period of the Ballarpur
Paper Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
average collection period is 84 days in the year 2010 –’11 and the lowest average
collection period is 55 days in the year of 2005 –’06.
In the years from 2005 –’06 to 2010 –‘11 to the average collection period has
been continuously increased as 55 days, 60 days, 72 days, 75 days, 79 days and 84
days respectively. But at the end of the study period it has been decreased at 79 days
in 2011 –’12. It has been also shown in graph – 8.2.
So, the average (AVG.) average collection period is 72 days, the standard
deviation (S.D) is 11 days and co-efficient variance (C.V) is 15.00% which is shown
in table no - 8.2. Which solvency of Ballarpur Paper Mills limited because the average
collection period shows satisfactory ratio during the study period.
3. JK Paper Mills Limited
The table no - 8.2 shows that the average collection period of the J. K. Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
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average collection period is 67 days in the year 2007 –’08 and the lowest average
collection period is 32 days in the year of 2010 –’11.
In the year 2005 –’06 the average collection period was as 64 days and it has
been decreased in 2006 –’07 as 52 days, but it has been increased as 67 days in 2007
–’08. In the year from 2008 –’09 to 2010 –’11, it has been also decreased to 36 days,
34 days and 32 days. But, it has been increased in 2011 –’12 as 40 days. It has been
also shown in the graph - 8.2.
So, the average (AVG.) average collection period is 46 days, the standard
deviation (S.D) is 14 days and co-efficient variance (C.V) is 31.00 % which is shown
in table no - 8.2. Which solvency of J. K. Paper Mills Limited because the average
collection period shows satisfactory ratio during the study period.
4. Orient Paper and Industries Limited
The table no - 8.2 shows that the average collection period of the Orient Paper
and Industries Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum average collection period is 21 days in the year 2011 –’12 and the
minimum average collection period is 5 days in the year of 2005 –’06.
In the present the table no - 8.2 shows the average collection period of Orient
Paper and Industries Limited is fluctuating in the whole study period. In 2005 –’06
average collection period was 5 days and it has been increased as 41 days in 2006 –
’07. But, then after the next two year it has been decreased as 38 days and 34 days
from 2007 –‘’08 to 2008 –’09. In the last three years from 2009 –’10 to 2011 –’12 it
has been continuously increased as 42 days,45 days and 51 days respectively. It has
been also shown in graph – 8.2.
So, the average (AVG.) debtor’s turnover ratio is 37 days, the standard
deviation (S.D) is 15 days and co-efficient variance (C.V) is 41.00% which is shows
in table no - 8.2. Which solvency of Orient Paper and Industries Limited because of
the average debtor’s turnover ratio shows satisfactory ratio during the study period.
5. Seshasayee Paper and Boards Limited
The table no - 8.2 shows that the average collection period of the Seshasayee
Paper and Boards Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum average collection period is 60 days in the year 2011 –’11 and the
minimum average collection period is 32 days in the year of 2009 –’10.
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In the table no - 8.2 shows the average collection period of Seshasayee Paper
and Boards Limited is like zigzag trend. It was 43 days, 44 days, 40 days, 36 days,32
days,34 days and 60 days from 2005-’06 to 2011 –’12. It has been also shown in
graph – 8.2.
So, the average (AVG.) average collection period is 41 days, the standard
deviation (S.D) is 9 days and co-efficient variance (C.V) is 23.00 % which is shown
in table no - 8.2. Which solvency of Seshasayee Paper and Boards Limited because of
the average collection period shows satisfactory ratio during the study period.
6. Sirpur Paper Mills Limited
The table no - 8.2 shows that the average collection period of the Sirpur Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the maximum
average collection period is 63 days in the year 2008 –’09 and the minimum average
collection period is 24 days in the year of 2006 –’07.
In the year 2005 –’06 the debtors’ turnover ratio was 38 days. Average
collection period has been decreased as 24 days in 2006 –’07 and it has been
increased as 35 days and 63 days from 2007 –’08 to 2008 –’09. Then after shows the
fluctuated trend in average collection period as 53 days, 54 days and 59 days from
2009 –’10 to 2011 –’12. It has been also shown in the graph – 8.2.
So, the average (AVG.) average collection period is 47 days, the standard
deviation (S.D) is 14 days and co-efficient variance (C.V) is 31.00% which is shown
in table no - 8.2. Which solvency of Sirpur Paper Mills Limited because the average,
average collection period shows satisfactory ratio during the study period.
7. South India Paper Mills Limited
The table no - 8.2 and graph – 8.2 shows that the average collection period of
the South India Paper Mills Limited the study period form 2005 –’06 to 2011 –’12,
the maximum average collection period is 62 days in the year 2005 –’06 and the
minimum average collection period is 41 days in the year of 2010 –’11.
In the table - 8.1 and graph – 8.2 show the average collection period of South
India Paper Mills Limited form 2005 – ’06 to 2011 –’12. It is fluctuated during the
study period as 62 days ,61 days, 57 days, 61 days, 48 days, 41 days and 43 days
respectively.
So, the average (AVG.) average collection period is 53 days, the standard
deviation (S.D) is 9 days and co-efficient variance (C.V) is 17.00% which is shown in
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table no - 8.2. Which solvency of South India Paper Mills Limited because the
average collection period shows satisfactory ratio during the study period.
8. Star Paper Mills Limited
The table no - 8.2 shows that the average collection period of the Star Paper
Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum average
collection period is 15 days in the year 2009 –’10 and the minimum average
collection period is 9 days in the years of 2006 –’07 & 2007 –‘08.
The table no - 8.2 and graph – 8.2 shows the average collection period was 13
days in 2005 –’06. It has been decreased and reached as 9 days in year 2006 –’07 and
2007 –‘08. But, it has been increased from 2008 – ’09 to 2009 –’10 as 10 days, 15
days. But lat two year of the study period from 2010 –’11 to 2011 –’12 it has been
decreased as 13 days and 11 days respectively.
So, the average (AVG.) average collection period is 11 days, the standard
deviation (S.D) is 3 days and co-efficient variance (C.V) is 22.00% which is shown in
table no - 8.2. Which solvency of Star Paper Mills limited because the average
collection period shows satisfactory ratio during the study period.
9. T. N. Newsprint Paper Mills Limited
The table no - 8.2 shows that the average collection period of the T. N.
Newsprint Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the
maximum average collection period is 87 days in the year 2011 –’12 and the
minimum average collection period is 38 days in the year of 2007 –’08.
The above table no. - 8.2 indicated fluctuated in average collection period
trend from 2005 – ’06 to 2011 –’12. In 2005 –’06 the average collection period was
60 days. It has been decreased in the year 2006 –’07 at 45 days. But then after it has
been again decreased in 2007 –’08 at 38 days as a lowest. But it has been increased in
the year 2008 –’09 to 2009 –‘10 as 58 days and 71 days. For the next year in 2010 -
11 it has been decreased as 63 days. At the last year 2011 –’12 it has been increased
and reached lowest point as 87 days in 2011 –’12. It has been also shown in graph –
8.2.
So, the average (AVG.) average collection period is 60 days, the standard
deviation (S.D) is 16 days and co-efficient variance (C.V) is 27.00% which is shown
in table no - 8.2. Which solvency of T. N. Newsprint Paper Mills Limited because the
average collection period shows satisfactory ratio during the study period.
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10. West Coast Paper Mills Limited
The table no - 8.2 shows that the average collection period of the West Coast
Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum
average collection period is 29 days in the year 2006 –’07 and the minimum average
collection period is 20 days in the year 2009 –’10.
In the West Coast Paper Mills Limited average collection period was 27 days
in 2005 –’06. But, it has been increased in year 2006 –’07 as 29 days. In the study
period from 2007 – ’08 to 2009 –’10, A average collection period has been decreased
as 27 days, 26 days, and 20 days. But then after the average collection period has been
increased at 25 days in 2010 –’11. But again it has been decreased as 20 days in 2011
–’12. It has been also shown in the graph - 8.2.
So, the average (AVG.) average collection period is 25 days, the standard
deviation (S.D) is 3 days and co-efficient variance (C.V) is 14.00% which is shown in
table no - 8.2 Which solvency of West Coast Paper Mills Limited because the average
collection period shows satisfactory ratio during the study period.
ANOVA TEST OF AVERAGE COLLECTION PERIOD :
Ho: Null Hypothesis:
There is no significant difference in Average collection period of
selected paper companies in India.
H1: Alternative Hypothesis:
There is significant difference in Average collection period of selected
paper companies in India.
Level of Significance: 5%
Table :- 8.2.1
Average Collection Period Ratio - ANOVA: Single Factor
SUMMARY
Groups Count Sum Average Variance
IAPPM 7 170.3063 24.32947736 10.99772
BILtd 7 504.4329 72.06184229 114.6791
JKPM 7 325.192 46.45600411 209.8983
OPIL 7 255.5877 36.51252323 221.7749
SPBL 7 289.2819 41.32599194 87.13276
SPML 7 326.6929 46.67041715 204.2005
SIPL 7 373.4341 53.34772398 84.87901
SPM Ltd 7 80.37645 11.48235038 6.261005
TNNPL 7 423.4486 60.49265621 261.7684
WCPML 7 173.6308 24.80439344 11.22388
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Table:- 8.2.2
ANOVA ( F- Test Result) of Average Collection Period Ratio
Source of
Variation
SS D.F MS F P-value F crit
Between Groups 20897.31 9 2321.9224 19.14489 1.3785 2.0401
Within Groups 7276.89 60 121.2815
Total 28174.20 69
Degree of freedom = 70-1= 69
Table Value of ‘F’ =2.0401
Calculate Value of ‘F’ = 19.14489
F calculate > F table
19.14489 > 2.0401
F calculate > F table
Table No-8.2.2 indicates the calculate value of ‘F’ is 19.14483 and the table
value of ‘F’ at 5% level of significance is 2.0401 so, the calculate value of ‘F’ which
is greater than the table value. It indicates that the Null Hypothesis is rejected and
Alternate Hypothesis is accepted. It indicates that there is significant in average
collection period of selected paper companies in India.
8.12 INTRODUCTION OF PAYABLE MANAGEMENT
The current assets of a firm are supported by a combination of long term and
short term sources of financing. The long-term sources of finance provide support for
a small part of current assets requirement, which is called the working capital margin.
Working capital are present the difference between current assets and current
liabilities. The short term sources of finance, referred to also as current liabilities
consists of
I. Accruals and provisions
II. Trade credit
III. Short term bank finance
IV. Public deposits
According to Weston and Brigham:
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The main sources of short term finance are: (i) Trade credit between firms (ii)
Loan from commercial banks and (iii) Commercial paper.
8.13 TRADE CREDIT BETWEEN FIRMS
Trade credit is a form of short term financing common to almost all business.
In fact, it is the largest sources of short term funds for business firms collectively. In
an advance economy, most buyers are not required to pay for goods upon delivery but
are allowed a short deferment period before payment is due. During this period, the
seller of goods extends credit to the buyer. Because suppliers generally are more
liberal in the extension of credit than financial institution, small companies in
particulars realy on trade credit.
According to Solomon and Pringle:
“Trade credit arises from the firm’s normal operations, specifically from the
time lag between receipt of goods purchased and payment. The sum total of a firm’s
obligations to its trade creditor’s at any point in times normally is called ‘accounts
payable’ on the balance sheet.”
In the words of O. M. Joy:
“Trade credit refers to the credit that sellers grant their customers during the
ordinary course of business. Most purchases made by the firm do not have to be paid
immediately, and this deferral of payment is a short term source of funds called trade
credit.” Trade credit tantamount to a loan of goods instead of money.
8.14 TERMS OF TRADE CREDIT
There are two aspects of trade credit which warrant discussion :
Trade cash discount
The payment period
Trade cash payment:
A cash discount is a reduction in price based on payment within a specified
period. The cost of not taking cash discount often exceed the rate of interest at which
the buyers cash borrow, so it is important that a firm be cautions in its use of trade
credit as a source of financing – it could be quite expensive. If the firm borrows and
takes the cash discount, the period during which accounts payable remain on the book
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is reduced. The effective length of credit is thus influenced by the size of discount
offered.
The payment period
Credit terms regarding payment period may be categorised in several groups
according to the net period within which payment is expected and according to the
terms of the cash discount.
1. Cash before delivery:
These terms involves no credit at all since the customer is required to
make payment for the goods before the supplier ships them. These terms are
imposed when the supplier either knows nothing about the customers or he
knows too much about the customer’s unreliability in managing his business
affairs.
2. Cash on delivery:
Under these terms the supplier ships the goods by mail or express but
the customers must pay for them before taking possession. These terms do not
involve credit. The only risk involved in these terms is that the customers may
refuse the shipment and the supplier will have to pay the costs of shipping the
merchandise both ways.
3. Net terms, No cash discount:
Where net terms are quoted, the seller specifics the period within
which full payment must be made. These terms involve extension of credit.
4. Net term with cash discount:
These terms contain the provision of grant of cash discount if the
payment is made within the specified period. Under most circumstances a cash
discount is offered as an incentive to the buyer to pay early.
5. Seasonal dating:
Seasonal dating sometimes is used in connection with goods that have
seasonal sales patterns. By offering seasonal terms, the manufacture is able to
judge the size of the market more accurately and to maintain level production
over the year. The buyers obtain the goods for sale, but it is not obligated to
pay until the arrival of the peak selling season.
8.15 OBTAINING TRADE CREDIT
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The confidence of suppliers is the key to securing trade credit. What do
suppliers look for in granting trade credit? Among the things that suppliers consider
are:
A. Earning record over a period of time:
If the firm has a fairly good earnings record with a portion of it ploughed back
in the business, it is looked upon favourably.
B. Liquidity position of the firm:
Suppliers naturally look at the ability of the firm to meet its obligations in the
short run. Such ability is usually measured by the current ration and aced test
ratio.
C. Record of payment:
If the firm has been prompt and regular in paying the bulk of the suppliers in
the past, it is deemed to be creditworthy.
8.16 ANALYSIS OF THE EFFICIENCY OF PAYABLE
MANAGEMENT
The most important factor in determining the volume of payable is the level of
a firm’s credit purchases. It may be assumed that with an increase in size of
purchases, there will be a proportionate increase in the size of payable. The analysis
of growth rate in annual purchase and payable, in addition to comparison of
percentage of payable to total current liabilities, will provide a meaningful picture of
the situation increase in account payable in the natural outcome of growth in
purchases and it is mainly dependent on the extension of credit.
In the present study the following criteria have been adopted to evaluate the
performance of payable management in the selected paper companies in India.
1. Account payables turnover ratio or creditor’s ratio
2. Average payable period
8.17 CREDITOR’S TURNOVER RATIO / ACCOUNT PAYABLES
TURNOVER RATIO
The account payable turnover shows relationship between net purchases and
average account payable of a company. It is expressed as follows:
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 330
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 =𝑵𝒆𝒕 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔
𝑨𝒗𝒂𝒓𝒂𝒈𝒆 𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔
Net purchases consist of gross purchases mines returns, if any, to suppliers.
An average account payable is the simple average of creditor’s at the beginning and at
the end of the year. The ratio is calculated to determine whether the company is
making payment to creditor’s in time.
According to Singh and Poul:
“The ratio is relationship between trade creditor’s or payables and the credit
purchase is not available, figure of net purchases may be used”
In calculation of this ratio the same steps as in the case of debtors’ turnover
ratio are involved. The accounts payable turnover ratio in the selected paper
companies in India for the period of study from 2005 –’06 to 2011 –’12, as presented
below table no – 8.3.
Table:- 8.3
Creditor Turnover Ratio In Times Period From 2005 –’06 To 2011 –‘12
COMPANY NAME
YEAR
IAP
PM
BIL
td
JK
PM
OP
IL
SP
BL
SP
ML
SIP
L
SP
M L
td
TN
NP
L
WC
PM
L
2005-'06 1.33 0.47 5.66 1.94 0.18 1.30 4.70 3.70 20.80 2.22
2006-'07 1.98 0.25 4.44 2.06 1.88 1.38 5.99 2.55 70.22 1.93
2007-'08 1.78 0.70 3.58 2.21 1.68 1.31 6.27 2.43 62.92 1.45
2008-'09 1.40 0.77 7.80 2.21 2.04 1.31 8.34 2.32 5.46 1.08
2009-'10 1.49 0.36 5.96 2.52 2.51 1.56 6.59 6.48 4.28 1.22
2010-'11 2.52 0.44 6.78 3.22 2.64 3.07 10.19 5.41 1.62 5.34
2011-'12 3.52 3.61 5.06 3.34 1.73 2.81 6.77 0.21 1.42 7.41
Average 2.00 0.94 5.61 2.50 1.81 1.82 6.98 3.30 23.82 2.95
S.D. 0.78 1.19 1.42 0.56 0.81 0.77 1.78 2.10 30.02 2.45
C.V. 39.13 125.77 25.32 22.37 44.55 42.57 25.55 63.75 126.03 82.95
Min 1.33 0.25 3.58 1.94 0.18 1.30 4.70 0.21 1.42 1.08
Max 3.52 3.61 7.80 3.34 2.64 3.07 10.19 6.48 70.22 7.41
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CHAPTER - 8 PAGE 331
.
The above mentioned Table No- 8.3 and Graph No- 8.3 show on the next page
indicated a fluctuating trends of the Creditor’s turnover ratio of selected paper
companies in India from 2005-2006 to 2011-2012.
1. International Andhra Pradesh Paper Mills Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the International
Andhra Pradesh Paper Mills Limited during the study period form 2005 –’06 to 2011
–’12, the highest creditor’s turnover ratio is 3.52 times in the year 2011 –’12 and the
lowest creditor’s turnover ratio is 1.35 times in the year of 2005 –’06.
In the year 2005 –’06 the creditor’s turnover ratio was 1.35 times, it has been
increased in 2006 –’07 as 1.98 times. But it has been decreased from 2007 –’08 to
2008 –’09 as 1.78 times and 1.40 times. Last three year of study period it has been
continuously increased from 2009 –’10 to 2011 –’12 as 1.49 times, 2.52 times and
3.52 times respectively. It has been also shown in graph no – 8.3.
So, the average (AVG.) creditor’s turnover ratio is 2.06 times, the standard
deviation (S.D) is 0.78 times and co-efficient variance (C.V) is 39.32% which is
shown in table – 8.3. Which solvency of International Andhra Pradesh Paper Mills
limited because the average creditor’s turnover ratio shows satisfactory ratio during
the study period.
2. Ballarpur Paper Mills Limited
2005-'06
2007-'08
2009-'102011-'12
0.00
20.00
40.00
60.00
80.00
Graph :-8.3
Creditor Turnover Ratio in Times period from 2005 –’06
to 2011 –‘12
2005-'06
2006-'07
2007-'08
2008-'09
2009-'10
2010-'11
2011-'12
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The table no - 8.3 shows that the creditor’s turnover ratio of the Ballarpur
Paper Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
creditor’s turnover ratio is 3.61 times in the year 2011 –’12 and the lowest creditor’s
turnover ratio is 0.25 times in the year of 2006 –’07.
The above table no -8.1shows the fluctuated trends of creditor’s’ turnover ratio
of Ballarpur Paper Mills Limited as .47 times in 2005 –’06. It has been decreased in
2006 –’07 as 0.25 times reached at lowest point of the study period. Next two year of
the study period it has been increased as 0.70 times and 0.77 times form 2007 –’08 to
2008 –’09. It has been decreased in year 2009 –’10 as 0.36 times. But last two year of
the study period it has been increased form 2010 –’11 to 2011 –’12 as 0.44 times and
3.61 times respectively. It has been also shown in graph no – 8.3.
So, the average (AVG.) creditor’s turnover ratio is 0.94 times, the standard
deviation (S.D) is 1.19 times and co-efficient variance (C.V) is 125.77% which is
shown in table – 8.3. Which solvency of Ballarpur Paper Mills limited because the
average creditor’s turnover ratio shows satisfactory ratio during the study period.
3. JK Paper Mills Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the J. K. Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
creditor’s turnover ratio is 7.80 times in the year 2008 –’09 and the lowest creditor’s
turnover ratio is 3.58 times in the year of 2007 –’08.
In the year 2005 –’06 the creditor’s turnover ratio was 5.66 times and it has
been decreased in 2006 –’07 as 4.44 times, but it has been again decreased 2.58 times
in 2007 –’08. In the year 2008 –’09 it has been increased as 7.80 times and reached
highest point in the above table – 8.3. In the year 2009 –’10 it has been decreased as
5.96 times and it has been increased as 6.78 times in 2010 –’11 and at the last year of
the study period it has been decreased as 5.06 times in 2011 –’12. It has been also
shown in the graph - 8.3.
So, the average (AVG.) creditor’s turnover ratio is 5.61 times, the standard
deviation (S.D) is 1.42 times and co-efficient variance (C.V) is 25.32% which is
shown in table – 8.3. Which solvency of J. K. Paper Mills Limited because the
average creditor’s turnover ratio shows satisfactory ratio during the study period.
4. Orient Paper and Industries Limited
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The table no - 8.3 shows that the creditor’s turnover ratio of the Orient Paper
and Industries Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum creditor’s turnover ratio is 3.34 times in the year 2011 –’12 and the
minimum creditor’s turnover ratio is 1.94 times in the year of 2005 –’06.
In the present the table – 8.3 shows the creditor’s turnover ratio of Orient
Paper and Industries Limited has been increased in the whole study period from 2005
–’06 to 2011 –’12 as 1.94 times, 2.06 times, 2.21 times, 2.21 times, 2.52 times, 3.22
times and 3.34 times respectively. It has been also shown in graph no. – 8.3.
So, the average (AVG.) debtor’s turnover ratio is 2.50 times, the standard
deviation (S.D) is 0.56 times and co-efficient variance (C.V) is 22.37% which is
shown in table no – 8.3. Which solvency of Orient Paper and Industries Limited
because of the average creditor’s turnover ratio shows satisfactory ratio during the
study period.
5. Seshasayee Paper and Boards Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the Seshasayee
Paper and Boards Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum creditor’s turnover ratio is 2.64 times in the year 2010 –’11 and the
minimum creditor’s turnover ratio is 0.18 times in the year of 2005 –’06.
In the table – 8.3 shows the creditor’s turnover ratio of Seshasayee Paper and
Boards Limited is like zigzag trend. It has been shown 0.18 times in 2005-’06 and it
has been increased as 1.88 times in 2006 –‘07. But, it has been decreased as 1.68
times in 2007 –’08. The creditor’s turnover ratio has been continually increased as
2.04 times, 2.51 times, and 2.64 times from 2008 –’09 to 2010 –‘11. But it has been
decreased as 1.73 times in 2011 –’12. It has been also shown in graph no – 8.3.
So, the average (AVG.) creditor’s turnover ratio is 1.81 times, the standard
deviation (S.D) is 0.81 times and co-efficient variance (C.V) is 44.55 % which is
shown in table – 8.3. Which solvency of Seshasayee Paper and Boards Limited
because of the average creditor turnover ratio shows satisfactory ratio during the study
period.
6. Sirpur Paper Mills Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the Sirpur Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the maximum
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 334
creditor’s turnover ratio is 3.07 times in the year 2010 –’11 and the minimum
creditor’s turnover ratio is 1.30 times in the year of 2005 –’06.
In the year 2005 –’06 the creditor’s’ turnover ratio was 1.30 times. Creditor’s
turnover ratio has been increased 1.38 times in 2006 –’07 and it has been decreased as
1.31 times and 1.31 times from 2007 –’08 to 2008 –’09. Then after next two year it
has been increased as 1.56 times and 3.07 times from 2009 –’10 to 2010 –’11. But,
last year of the study period it has been decreased as 2.81 times in 2011 –’12. It has
been also shown in the graph no – 8.3.
So, the average (AVG.) creditor’s turnover ratio is 1.82 times, the standard
deviation (S.D) is 0.77 times and co-efficient variance (C.V) is 42.77% which is
shows in table no – 8.3. Which solvency of Sirpur Paper Mills Limited because the
average creditor’s turnover ratio shows satisfactory ratio during the study period.
7. South India Paper Mills Limited
The table no - 8.3 and graph no – 8.3 show that the creditor’s turnover ratio of
the South India Paper Mills Limited the study period form 2005 –’06 to 2011 –’12,
the maximum creditor’s turnover ratio is 10.19 times in the year 2010 –’11 and the
minimum creditor’s turnover ratio is 4.70 times in the year of 2005 –’06.
In the table - 8.3 and graph – 8.3 show the creditor’s turnover ratio of South
India Paper Mills Limited form 2005 – ’06 to 2008 –’09 has been increased 4.70
times, 5.99 times, 6.27 times and 8.34 times. It has been decreased as 6.59 times in
year 2009 –’10. In the year 2010 –’11 it has been increased and reached at highest
point as 10.19 times. At last year of the study period in 2011 –’12 it has been
decreased as 6.77 times.
So, the average (AVG.) creditor’s turnover ratio is 6.98 times, the standard
deviation (S.D) is 1.78 times and co-efficient variance (C.V) is 25.55 % which is
shown in table – 8.3. Which solvency of South India Paper Mills Limited because the
average creditor’s turnover ratio shows satisfactory ratio during the study period.
8. Star Paper Mills Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the Star Paper
Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum creditor’s
turnover ratio is 6.48 times in the year 2010 –’11 and the minimum creditor’s
turnover ratio is 0.21 times in the year of 2011 –’12.
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CHAPTER - 8 PAGE 335
The table no – 8.3 shows the creditor’s turnover ratio has been decreased from
2005 –’06 to 2008 –’09 as 3.70 times, 2.55 times, 2.43 times and 2.23 times
respectively. But in the year 2009 –’10 it has been increased as 6.48 times reached as
highest point. It has been decreased as 5.41 times in year 2010 –’11. But, last year of
the study period it has been decreased as .021 times at lowest point in 2011 –’12. It
has been also shown in the graph no – 8.3.
So, the average (AVG.) creditor’s turnover ratio is 3.30 times, the standard
deviation (S.D) is 2.10 times and co-efficient variance (C.V) is 63.75% which is
shown in table no – 8.3. Which solvency of Star Paper Mills limited because the
average creditor’s turnover ratio shows satisfactory ratio during the study period.
9. T. N. Newsprint Paper Mills Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the T. N.
Newsprint Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the
maximum creditor’s turnover ratio is 70.22 times in the year 2006 –’07 and the
minimum creditor’s turnover ratio is 1.42 times in the year of 2011 –’12.
The above table no – 8.3 shows fluctuate trend in creditor’s turnover ratio
from 2005 – ’06 to 2011 –’12. In 2005 –’06 the creditor’s turnover ratio was 20.70
times. It has been increased in the year 2006 –’07 at 70.22 times. But then after it has
been decreased from 2007 –’08 to 2011 –’12 as 62.92 times, 5.46 times, 4.28 times,
1.62 times and 1.42 times respectively. It has been also shown in graph no – 8.3.
So, the average (AVG.) creditor’s turnover ratio is 23.82 times, the standard
deviation (S.D) is 30.02 times and co-efficient variance (C.V) is 126.03% which is
shown in table – 8.3. Which solvency of T. N. Newsprint Paper Mills Limited because
the average creditor’s turnover ratio shows satisfactory ratio during the study period.
10. West Coast Paper Mills Limited
The table no - 8.3 shows that the creditor’s turnover ratio of the West Coast
Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum
creditor’s turnover ratio is 7.41 times in the year 2011 –’12 and the minimum
creditor’s turnover ratio is 1.08 times in the year 2008 –’09.
In the West Coast Paper Mills Limited creditor’s turnover ratio has been
decreased from 2005 –’06 to 2008 –’09 as 2.22 times, 1.93 times, 1.45 times and 1.08
times respectively. But last three year of the study period it has been continuously
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 336
increased as 1.22 times, 5.34 times and 7.41 times from 2009 –’10 to 2011 –’12. It
has been also shown in the graph no - 8.3.
So, the average (AVG.) creditor’s turnover ratio is 2.95 times, the standard
deviation (S.D) is 2.45 times and co-efficient variance (C.V) is 82.92% which is
shown in table no – 8.3 which is solvency of West Coast Paper Mills Limited because
the average creditor’s turnover ratio shows satisfactory ratio during the study period.
ANOVA TEST OF CREDITOR’S TURNOVER RATIO :
Hypothesis:
Ho: Null Hypothesis:
There is no significant difference in Creditor’s turnover ratio of
selected paper companies in India.
H1: Alternative Hypothesis:
There is significant difference in Creditor’s turnover ratio of
selected paper companies in India.
Level of Significance: 5%
Table: 8.3.1
Creditor Turnover Ratio - ANOVA: Single Factor
SUMMARY
Groups Count Sum Average Variance
IAPPM 7 14.01659 2.00237 0.613912
BILtd 7 6.614466 0.944924 1.412259
JKPM 7 39.27939 5.611342 2.018323
OPIL 7 17.50385 2.50055 0.312764
SPBL 7 12.66832 1.80976 0.650032
SPML 7 12.74004 1.820006 0.600333
SIPL 7 48.84636 6.978051 3.17852
SPM Ltd 7 23.10843 3.301204 4.429454
TNNPL 7 166.7178 23.81683 900.9204
WCPML 7 20.64165 2.948807 5.983556
Table: 8.3.2
ANOVA ( F- Test Result) of Creditor Turnover Ratio
Source of Variation SS D.F MS F P-value F crit
Between Groups 2919.832 9 324.4258 3.5259 0.001462 2.0401
Within Groups 5520.717 60 92.01195
Total 8440.549 69
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 337
Degree of freedom = 70-1= 69
Table Value of ‘F’ =2.0401
Calculate Value of ‘F’ = 3.5259
F calculate > F table
3.5259 > 2.0401
F calculate > F table
Table No-8.3.2 indicates the calculate value of ‘F’ is 3.5259 and the table
value of ‘F’ at 5% level of significance is 2.0401 so, the calculate value of ‘F’ which
is greater than the table value. It indicates that the Null Hypothesis is rejected and
Alternate Hypothesis is accepted. It indicates that there is significant in creditor’s’
turnover ratio of selected paper companies in India.
8.18 AVERAGE PAYABLES PERIOD
This ratio is, in fact, inter- related with the dependent upon, the payables
turnover ratio. It is calculated by dividing the days in a year by the payables turnover.
It is expressed as follows:
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑷𝒆𝒓𝒊𝒐𝒅 =𝟑𝟔𝟓
𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓
Creditor’s, especially trade creditor’s, are interested in how promptly a firm its
bills. From a creditor’s point of view it is desirable to obtain an aging of accounts
payable or a conversion matrix for payables.
According to Singh and Poul: “The ratio shows that period will be required
to pay the current liabilities.
They further say: “The ratio indicates the number of days the company takes
an average to pay its creditor’s. By calculating this ratio the creditor’s or suppliers can
know whether they will get the payment in time. The lower the ratio better it is from
the creditor’s point of view.
The ratio also measures the credit allowed by the suppliers”. The average
payables period of the selected paper companies in India for the study from 2005 –’06
to 2011 –’12 are presented as below table no – 8.4.
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CHAPTER - 8 PAGE 338
Table : - 8.4
Average Payable Period Ratio In Days from 2005 –’06 to 2011 –‘12
COMPANY NAME
YEAR
IAP
PM
BIL
td
JK
PM
OP
IL
SP
BL
SP
ML
SIP
L
SP
M L
td
TN
NP
L
WC
PM
L
2005-'06 274 776 64 188 1986 282 78 99 18 164
2006-'07 184 1446 82 177 194 264 61 143 5 189
2007-'08 205 519 102 165 217 278 58 150 6 252
2008-'09 261 471 47 165 179 280 44 157 67 339
2009-'10 245 1003 61 145 146 233 55 56 85 299
2010-'11 145 826 54 114 138 119 36 67 225 68
2011-'12 104 101 72 109 211 130 54 1716 258 49
Average 203 735 69 152 439 227 55 341 95 194
S.D. 63 429 19 31 683 72 13 607 105 110
C.V. 31 58 27 20 156 32 24 178 111 57
Min 104 101 47 109 138 119 36 56 5 49
Max 274 1446 102 188 1986 282 78 1716 258 339
The above mentioned Table No- 8.4 and Graph No- 8.4 show the indicated
fluctuating trends of the Average payable period of selected paper companies in India
from 2005-2006 to 2011-2012.
0200400600800
100012001400160018002000
Table : - 8.4
Average Payable Period Ratio In Days
from 2005 –’06 to 2011 –‘12
2005-'06 2006-'07 2007-'08 2008-'09 2009-'10 2010-'11 2011-'12
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1. International Andhra Pradesh Paper Mills Limited
The table no - 8.4 shows that the average payable period of the International
Andhra Pradesh Paper Mills Limited during the study period form 2005 –’06 to 2011
–’12, the highest average payable period is 274 days in the year 2005 –’06 and the
lowest average payable period is 104 days in the year of 2011 –’12.
In the year 2005 –’06 the average payable period was 274 days, which has
been decreased in 2006 –’07 as 184 days is shown in above table no - 8.4. But in the
year from 2007 –’08 to 2008 –’09 the average payable period has been increased as
205 days and 261 days. In 2009 –’10 to 2011 –’12 it has been decreased as 245 days,
145 days and 104 days respectively. It has been also shown in graph – 8.4.
So, the average (AVG.) average payable period is 203 days, the standard
deviation (S.D) is 63 days and co-efficient variance (C.V) is 31.00% which is shown
in table no - 8.4. Which solvency of International Andhra Pradesh Paper Mills limited
because the average payable period shows satisfactory ratio during the study period.
2. Ballarpur Paper Mills Limited
The table no - 8.4 shows that the average payable period of the Ballarpur
Paper Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
average payable period is 1446 days in the year 2006 –’07 and the lowest average
payable period is 101 days in the year of 2011 –’12.
The above table no – 8.4 shows that the average payable period of Ballarpur
Paper Mills Limited was 776 days in 2005-’06. It has been increased in year 2006 –
’07 as reached at highest point as 1446 days. the average payable period of Ballarpur
Paper Mills Limited has been decreased as next two year from 2007 –’08 to 2008 -09
as 519 days and 471 days respectively. The average payable period of Ballarpur Paper
Mills Limited has been increased in year 2009 –’10 as 1003 times. In the last two year
of the study period from 2010 –’11 to 2011 –’12 it has been decreased as 826 days
and 101 days. It has been also shown in graph no – 8.4.
So, the average (AVG.) average payable period is 735 days, the standard
deviation (S.D) is 429 days and co-efficient variance (C.V) is 58.00% which is shown
in table no - 8.4. Which solvency of Ballarpur Paper Mills limited because the average
payable period shows satisfactory ratio during the study period.
3. JK Paper Mills Limited
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The table no - 8.4 shows that the average payable period of the J. K. Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the highest
average payable period is 102 days in the year 2007 –’08 and the lowest average
payable period is 47 days in the year of 2008 –’09.
In the year 2005 –’06 the average payable period was 64 days and it has been
increased in 2006 –’07 as 82 days, but it has been increased 102 days in 2007 –’08. In
the year from 2008 –’09 it has been decreased as 47 days. In the year 2009 –’10 it has
been increased as 61 days. Next year of the study period the average payable period
has been decreased as 54 days. But, it has been increased in 2011 –’12 as 72 days. It
has been also shown in the graph no - 8.4.
So, the average (AVG.) average payable period is 69 days, the standard
deviation (S.D) is 19 days and co-efficient variance (C.V) is 27.00 % which is shown
in table no - 8.4. Which solvency of J. K. Paper Mills Limited because the average
payable period shows satisfactory ratio during the study period.
4. Orient Paper and Industries Limited
The table no - 8.4 shows that the average payable period of the Orient Paper
and Industries Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum average payable period is 188 days in the year 2005 –’06 and the minimum
average payable period is 109 days in the year of 2005 –’06.
In the present the table no - 8.4 shows the average payable period of Orient
Paper and Industries Limited has been decreased whole study period from 2005 –’06
to 2011 –’12 as 188 days, 177 days, 165 days, 165 days, 145 days, 114 days and
109days respectively. It has been also shown in graph no – 8.4.
So, the average (AVG.) debtor’s turnover ratio is 152 days, the standard
deviation (S.D) is 31 days and co-efficient variance (C.V) is 20.00% which is shown
in table no - 8.4. Which solvency of Orient Paper and Industries Limited because of
the average debtor’s turnover ratio shows satisfactory ratio during the study period.
5. Seshasayee Paper and Boards Limited
The table no - 8.4 shows that the average payable period of the Seshasayee
Paper and Boards Limited during the study period form 2005 –’06 to 2011 –’12, the
maximum average payable period is 1986 days in the year 2005 –’06 and the
minimum average payable period is 138 days in the year of 2010 –’110.
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 341
In the table no - 8.4 shows the average payable period of Seshasayee Paper
and Boards Limited in 2005 –’06 as 1986 days. It has been decreased as 194 in year
2006 –’07. The average payable period has been increased in year 2008 –’09. But, the
next three of the study period from 2008 –’09 to 2010 –’11 it has been decreased as
179 days, 146 days and 138 days respectively. But, the last year of the average
payable period of the Seshasayee Paper and Boards Limited has been increased as
211 days in 2011 –’12. It has been also shown in graph no – 8.4.
So, the average (AVG.) average payable period is 439 days, the standard
deviation (S.D) is 683 days and co-efficient variance (C.V) is 156.00 % which is
shown in table no - 8.4. Which solvency of Seshasayee Paper and Boards Limited
because of the average payable period shows satisfactory ratio during the study
period.
6. Sirpur Paper Mills Limited
The table no - 8.4 shows that the average payable period of the Sirpur Paper
Mills Limited during the study period form 2005 –’06 to 2011 –’12, the maximum
average payable period is 282 days in the year 2005 –’06 and the minimum average
payable period is 119 days in the year of 2010 –’11.
The above table no - 8.4 show the year 2005 –’06 the average payable period
was 282 days. Average payable period has been decreased 264 days in 2006 –’07 and
it has been increased as 278 days and 280 days from 2007 –’08 to 2008 –’09. Then
after the table no – 8.4 shows the decreasing trend in average payable period as 233
days, and 119 days from 2009 –’10 to 2010 –’11. The last year of the study period it
has been increased as 130 days in 2011 –’12. It has been also shown in the graph no –
8.4.
So, the average (AVG.) average payable period is 227 days, the standard
deviation (S.D) is 72 days and co-efficient variance (C.V) is 32.00% which is shown
in table no - 8.4. Which solvency of Sirpur Paper Mills Limited because the average,
average payable period shows satisfactory ratio during the study period.
7. South India Paper Mills Limited
The table no - 8.4 and graph no – 8.4 shows that the average payable period of
the South India Paper Mills Limited the study period form 2005 –’06 to 2011 –’12,
the maximum average payable period is 78 days in the year 2005 –’06 and the
minimum average payable period is 36 days in the year of 2010 –’11.
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 342
In the table no - 8.4 and graph no – 8.4 show the average payable period of
South India Paper Mills Limited form 2005 – ’06 to 2008 –’09 it has been decreased
as 78 days, 61 days, 58 days and 44 days respectively. The average payable period of
the South India Paper Mills Limited has been increased in year 2009 –’10 as 55 days.
But it has been decreased in 2010 –’11 as 36 days. In the last year of the study period
2011 –’12 the average payable period of the South India Paper Mills Limited has been
increased as 54 days.
So, the average (AVG.) average payable period is 55 days, the standard
deviation (S.D) is 13 days and co-efficient variance (C.V) is 24.00% which is shown
in table no - 8.4. Which solvency of South India Paper Mills Limited because the
average payable period shows satisfactory ratio during the study period.
8. Star Paper Mills Limited
The table no - 8.4 shows that the average payable period of the Star Paper
Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum average
payable period is 1716 days in the year 2011 –’12 and the minimum average payable
period is 56 days in the years of 2009 –’10.
The table no - 8.4 and graph no – 8.4 shows the average payable period of the
Star Paper Mills Limited has been increased for the first four years of the study period
from 2005 –’06 to 2008 –’09 as 99 days, 143 days, 150 days and 157 days. The
average payable period of the Star Paper Mills Limited has been deceased as 56 day
in year 2009 –’10 which has at lowest point. At end of the study period the average
payable period of the Star Paper Mills Limited is 1716 days in 2011 –’12.
So, the average (AVG.) average payable period is 341 days, the standard
deviation (S.D) is 607 days and co-efficient variance (C.V) is 178.00% which is
shown in table no - 8.4. Which solvency of Star Paper Mills limited because the
average payable period shows satisfactory ratio during the study period.
9. T. N. Newsprint Paper Mills Limited
The table no - 8.4 shows that the average payable period of the T. N.
Newsprint Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the
maximum average payable period is 258 days in the year 2011 –’12 and the minimum
average payable period is 5 days in the year of 2006 –’07.
The above table no - 8.4 shows the average payable period of the T. N.
Newsprint Paper Mills Limited was 18 days in year 2005 – ’06. It has been decreased
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 343
as 5 days in year 2006 –’07. The average payable period of the T. N. Newsprint Paper
Mills Limited from 2007 –‘08 to 2011 –’12 has been increased as 6 days, 67 days, 85
days, 225 days and 258 days respectively. It has been also shown in graph no – 8.4.
So, the average (AVG.) average payable period is 95 days, the standard
deviation (S.D) is 105 days and co-efficient variance (C.V) is 111.00% which is
shown in table no - 8.4. Which solvency of T. N. Newsprint Paper Mills Limited
because the average payable period shows satisfactory ratio during the study period.
10. West Coast Paper Mills Limited
The table no - 8.4 shows that the average payable period of the West Coast
Paper Mills Limited the study period form 2005 –’06 to 2011 –’12, the maximum
average payable period is 339 days in the year 2008 –’09 and the minimum average
payable period is 49 days in the year 2011 –’12.
The above table no – 8.4 shows that the West Coast Paper Mills Limited
average payable period has been increased from 2005 –’06 to 2008 –’09 as 164 days,
189 days, 252 days and 339 days respectively . But, it has been decreased from 2009
–’10 to 2011 –’12 as 299 days, 68 days and 49 days. It has been also shown in the
graph no - 8.4.
So, the average (AVG.) average payable period is 194 days, the standard
deviation (S.D) is 110 days and co-efficient variance (C.V) is 57.00% which is shown
in table no - 8.4 Which solvency of West Coast Paper Mills Limited because the
average payable period shows satisfactory ratio during the study period.
ANOVA TEST OF AVERAGE PAYABLE PERIOD :
Hypothesis:
Ho: Null Hypothesis:
There is no significant difference in Average payable period of selected
paper companies in India.
H1: Alternative Hypothesis:
There is significant difference in Average payable period of selected paper
companies of India under study.
Level of Significance: 5%
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 344
Table:- 8.4.1
Average Payable Period Ratio - ANOVA: Single Factor
SUMMARY
Groups Count Sum Average Variance
IAPPM 7 1418.01 202.5729 3960.975
BILtd 7 5142.335 734.6192 184240.3
JKPM 7 482.7375 68.96249 346.7941
OPIL 7 1062.394 151.7705 931.5307
SPBL 7 3070.502 438.6431 466567.6
SPML 7 1585.776 226.5394 5152.784
SIPL 7 385.7599 55.10855 176.0428
SPM Ltd 7 2388.663 341.2376 368903.5
TNNPL 7 664.0284 94.86121 11073.23
WCPML 7 1360.715 194.3879 12142.54
Table:- 8.4.2
ANOVA ( F- Test Result) of Average Payable Period Ratio
Source of
Variation
SS D.F MS F P-value F crit
Between Groups 2723879 9 302653.2 2.872848 0.006911 2.040098
Within Groups 6320971 60 105349.5
Total 9044850 69
Degree of freedom = 70-1= 69
Table Value of ‘F’ =2.0401
Calculate Value of ‘F’ = 2.872848
F calculate > F table
2.872848 > 2.0401
F calculate > F table
Table No-8.4.2 indicates the calculate value of ‘F’ is 2.872848 and the table
value of ‘F’ at 5% level of significance is 2.0401 so, the calculate value of ‘F’ which
is greater than the table value. It indicates that the Null Hypothesis is rejected and
Alternate Hypothesis is accepted. It indicates that there is significant in average
payable period of selected paper companies in India.
8.19 CONCLUSION
Chapter – 8 deals with the concept of bills receivable management and bills
payable management. In this chapter researcher discussed basic theoretical concept of
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 345
bills receivable management and bills payable management and also calculated
related ratios like as debtor turnover ratio, average collection period, creditor turnover
ratio and average payable period. Use one Way ANOVA test for testing hypotheses
and all the null hypotheses had been rejected.
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 346
8.20 REFERENCES
1. I. M. Pandey, Financial Management, (New Delhi, Vikash Publishing House
Pvt. Ltd., 1983) p. 319.
2. Henk O. Emerson, Introducing Accounting, I ed., (New York:
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3. Robert N. Anthony, Management Accounting – Text and Cases, (Homewod:
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7. I. M. Pandey, op.cit. pp.319.
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CHAPTER - 8 PAGE 347
19. Eugene F. Brigham, Fundamentals of Financial Management, (Holt-Sounders
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20. R. K. Mishra, op. Cit., p. 323.
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28. Prasanna Chandra, op.cit. pp.295.
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36. R. M.. Srivastava, op.cit. pp.351.
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38. Prasanna Chandra, op.cit. pp.336.
BILLS RECEIVABLE MANAGEMENT AND BILLS PAYABLE MANAGEMENT
CHAPTER - 8 PAGE 348
39. Jagwant Singh and Rantej Poul, Management Accounting, (Allahabad: Kitab
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40. Ezar Solomon and John J. Pringle. op.cit. pp.96.
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42. Jagwant Singh and Rantej Poul, op.cit. pp.65.
43. Annual report of The Andhra Pradesh Paper Mills Limited from 2005 –’06 to
2011 – ’12 and www.andhrapaper.com
44. Annual report of Ballarpur Industries Limited from 2005 –’06 to 2011 – ’12
and www.bilt.com
45. Annual report of J. K. Paper mills limited from 2005 –’06 to 2011 – ’12 and
http://www.jkpaper.com
46. Annual report of Orient Paper and Industries from 2005 –’06 to 2011 – ’12
and http://www.orientpaperindia.com
47. Annual report of Seshasayee Paper and Boards from 2005 –’06 to 2011 – ’12
and http://www.spbltd.com
48. Annual report of Sirpur Paper Mills from 2005 –’06 to 2011 – ’12 and
http://www.sirpurpaper.com
49. Annual report of South India Paper Mills from 2005 –’06 to 2011 – ’12 and
http://www.sipaper.com
50. Annual report of Star Paper Mills from 2005 –’06 to 2011 – ’12 and
httpw://ww.starpapers.com
51. Annual report of Tamil Nadu Newsprint and Papers from 2005 –’06 to 2011 –
’12 and http://www.tnpl.com
52. Annual report of West Coast Paper Mills from 2005 –’06 to 2011 – ‘12 and
http://www.westcoastpaper.com