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ABSTRACT

Liquidity may be regarded as the lifeblood of the firm. IN the financial management, liquidity is one yardstick. For effective utilization of fund every firm maintain liquidity at standard norms. The industry wise different standard norms are applied. The liquidity is analyzed in two ways (i) Through the liquidity ratios (ii) Through the liquidity position. The present research paper focuses on analysis of liquidity position of oil refineries in India. Researcher has been selected six oil refineries for analysis liquidity position. Here analyzed liquidity position through four major ratios, liquidity rank and ultimately rank. Liquidity rank suggested year wise soundness of individual components of current assets in regard to liquidity position and ultimately rank suggested overall year wise soundness of liquidity position.


INTRODUCTION

The liquidity position of firm is largely affected by working capital. The working capital refers to the firm current-short term assets mean highly liquid assets. The short-term assets include accounts receivable, debtors, cash and bank balance and other short-term advances and loans. For maintaining continuity in day-to- day operation firm has to invest part of its capital in current assets and part of capital for paying its current liability. There are two aspect of working capital:



  1. Balance sheet concept

  2. Operating cycle concept

From the view point of balance sheet concept working capital distributed in more two parts: (i) Gross working capital (ii) Net working capital. The gross working capital means sum of current assets and net working capital means difference between current assets and current liabilities. From the view points of operating cycles concepts working capital means set of co-related activities that starts with procurement raw-material and end with realization or sales of goods. The diagram of operating cycle of working capital given below:


Stock of Raw Materials

Finished

Good





Cash

Inventories or Debtors or Bills

Thus in working capital one aspect is liquidity. The well accepted objective of working capital management it to maintain good liquidity position .Therefore present research paper analyses liquidity position of oil refineries in India. In addition to liquidity position also give rank between year for sampled units and between samples concerning average value. The present paper also defines findings from analysis.


REVIEW OF LITERATURE.

Nirmal Chakraborty (2013) Working Capital Performance: A Case Study On Dabur India Ltd. Among all the problems of management, the problems of working capital management have probably been recognizes as the most crucial one. It is because of the fact that working capital always helps a business concern to gain and strength. This study focuses working capital performance of Dabur Ltd. And also make correlation Co-efficient between liquidity and profitability.


Refuse M.E.(1996) refocused on urgent need on working capital management. He found that the idea of delaying payment to the creditors as a strategy of improving capital. Instead he proposed that the companies should strategize more on stock management based on lean supply chain techniques. Grablowsky. B.J.(1976) examined the mismanagement of account receivable by small business and found that there is significant relationship between various success measures and the employment of formal working capital policies and procedures.
Sakariya,S.V.(2012) Working Capital Management And Profitability Performance: Case Study Of Wipro Company Ltd. The researcher chooses the 18 ratios for measuring working capital management and impact on earnings. The chi-square test used for testing the hypothesis and last sessions of research paper give some findings and suggestions to company for better performance.
RESEARCH GAP

From the above mention literature researcher reviewed and defined the research gap. In the research gap several past studies conducted on working capital management of the industry. Moreover nor defined liquidity position by “motaals test” and not give rank between year and between samples company for oil refineries. Hence present study try to full fill research gap by conducting the study and also contribute to existing literature.


OBJECTIVES

The present study carried out based on following major objectives.


  1. To study the liquidity position of selected sampled units.

  2. To give the rank to individuals sample units between years under study period.

  3. To analyzed comparative liquidity position for all sampled units.

  4. To gives recommendation for better liquidity position.


RESEARCH METHODOLOGY


The study totally based on secondary data. The sources of secondary data have been used like annual report of sampled units, journals, magazines, news paper and e –contents form the various search engine. The study covers last five year data i.e. 2007-08 to 2011-12. The total units run in refineries industry has considered as universe of the study. Form the population researcher has been selected six oil refineries from the population for the study.. The convenience sampling technique used for selection of sampled. No other reason for selection of sampled, based on availability of data and convenience. The sampled units are BPCL, HPCL, IOC, MRPL, NRL and CPCL.
The hypothesis play important role in research work. The meet the objectives of the study researcher need to frame appropriate hypothesis. So present study also framed following hypothesis:
  1. The liquidity positions of all sampled units are remaining same significantly under study period. (Between sampled units)

  2. The every year all the sampled units are significantly maintain same liquidity under period. (Between years)

Development of hypothesis not enough but need to be prove or disprove hypothesis. Therefore testing of hypothesis is also same contributed as a development. For testing the hypothesis various statistical tools are used. The selection of test depends on nature of the study. According to nature of the present study researcher used “Motaal Ranking Test” with liquidity position. The details concepts of test given below:

In this test the following ratios are taken in to consideration. Each of the ratios is expressed as percentage.

  1. Inventory /Current Assets

  2. Debtors /Current Assets

  3. Cash and Bank /Current Assets

  4. Loan and Advances and other Current Assets/Current Assets


For (i) the lower the ratio more favorable is the position and ranking has been done in that order. For (ii), (iii) and (iv) the higher the ratio, the more favorable is the position and thus ranking has been done in that order. Ultimate ranking has been done on the principle that lower the point scored the more favorable is the position and vice-versa.

ANALYSIS OF LIQUIDITY POSITION



Table no:-1

Comparative Liquidity position of sampled units

Ratio

Units


Inventory to Current Assets (%)

Debtors to Current Assets (%)

Cash & Bank to Current Assets (%)

Loans & Advances and other Current Assets to Current Assets (%)

Liquidity Rank

Total

Rank


Ultimate

Rank


1

2

3

4







BPCL

46.65

10.55

2.48

40.32

2

6

4

1

13

3

HPCL

58.57

10.83

1.45

29.15

5

5

5

3

18

6

IOC

56.07

11.83

1.16

30.93

4

4

6

2

16

5

MRPL

46.18

26.27

3.17

24.38

1

1

3

5

10

1

NRL

67.88

19.91

11.85

0.36

6

2

1

6

15

4

CPCL

55.07

15.88

4.02

25.03

3

3

2

4

12

2

(Sources:- Annual Report of Sampled Companies)

Note: - All the value of above table is average value from year 2007-08 to 2011-12)


The table no:-1, indicates liquidity position of sampled units. The liquidity position derived from average value under study period. The five year data have taken for defining the average and mainly six sampled units taken for study. The higher level inventory shows in efficiency about inventory management so rank given accordingly. The lower debtors, cash and bank and other current assets shows inefficiency about management of current assets. So rank is given accordingly. The total rank used for defining sound liquidity position among the sampled units.
In case of BPCL 46.65% contribution by inventories in current assets, same 10.55% by debtors, 2.48% by cash and bank and 10.32% by loan and advances in current assets. Among the sampled units BPCL have 2nd rank in Inventory management, 6th rank receivable management, 4th rank in cash management and 1st rank in loans and advances management. The considering all four management of liquidity, BPCL has stand in 3rd rank among the sampled units. In cash of HPCL contribution of inventories, debtors, cash and bank and loans and advances are 38.57%, 10.83%, 1.45% and 29.15% respectively. In term of inventory management and availability of cash and bank balance management HPCL poor rank ultimately HPCL have last rank in term of liquidity position among the sampled units. In IOC inventories contribution 56.07%, debtor’s contribution 10.83%, cash and bank contribution 1.16% and 30.93% contribution by loans and advances. In terms of inventories management and receivable management IOC have in 4th rank. In loans and advances management goes second rank for IOC. Looking to ultimate rank 5th rank goes to IOC for liquidity position, lower level rank due to inefficiency in inventories and debtors/receivable management. For MRPL in current assets 46.18%, 26.27%, 3.17% and 24.38% contribution by inventories, debtors, cash and bank balance and loans and advances respectively. The MRPL is top position in inventory management and debtor’s management, means first rank. The 3rd rank in cash management and 5th rank has in loans and advances management. The sufficient management to ward inventories and debtors are main reason for second rank 1st goes to MRPL for overall liquidity position. The NRL liquidity position was also measure by four components of current assets. The components wise contribution like has 67.88% by inventories, 19.19% by debtors, and 11.85% by cash and term loans and advances. In terms of inventor’s management and loans and advances management, NRL inefficiency and stand in last rank. However in receivable management and cash management NRL have in stand 2nd rank and 1st rank respectively. The ultimately 4th rank goes to NRL. In CPCL 55.07% contribution by inventories, 15% contribution by 15.58% 4.02% contribution by cash and bank and 25.08% by loans and advances in current assets. Among the sample units CPCL have receivable 3rd rank in inventories and receivable management and 2nd rank in cash management and 4th rank in loans and advances. The ultimate 2nd rank among the all sampled units concerning to liquidity position.
FINDINGS AND SUGGESTIONS

From “Mottals test” Liquidity rank position analysis. It observed that for inventories management MRPL in 1st rank and NRL in last rank. In debtor’s management, MRPL was in first rank and BPCL in last rank. For availability of cash and bank NRL has in 1st rank and IOC in last rank. For short-terms loans and advances management BPCL has in 1st rank and NRL in last rank. Looking to the major four management like, inventory management, debtor’s management, cash & bank and loans & advances, the MRPL have sound liquidity position and gets 1st rank in among sample units and the HPCL have weak liquidity position and gets last rank among sample units In HPCL inefficiency about inventories, receivable and cash& bank position. The Following diagram shows overall liquidity position rank among sampled units.



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