CASH MANAGEMENT ANALYSIS OF NEPAL

WATER SUPPLY CORPORATION

By
BISHNU GAJUREL
Shanker Dev Campus
T.U. Regd. No.: 7-1-246-112-2000
Campus Roll No. : 2495/063

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the degree of

Master of Business Studies (MBS)

Kathmandu, Nepal
August 2010
 RECOMMENDATION
This is to certify that the thesis

Submitted by:
BISHNU GAJUREL

Entitled:
CASH MANAGEMENT ANALYSIS OF NEPAL
WATER SUPPLY CORPORATION
has been prepared as approved by this Department in the prescribed format of
the Faculty of Management. This thesis is forwarded for examination.

..………..……………….. ........…………..……….….……… ……………..………………….

Joginder Goet Prof. Bishweshor Man Shrestha Prof. Dr. Kamal Deep Dhakal
(Thesis Supervisor) (Head, Research Department) (Campus Chief)

2
 VIVA-VOCE SHEET

We have conducted the viva –voce of the thesis presented

By
BISHNU GAJUREL

Entitled:
CASH MANAGEMENT ANALYSIS OF NEPAL
WATER SUPPLY CORPORATION

And found the thesis to be the original work of the student and written
according to the prescribed format. We recommend the thesis to be
accepted as partial fulfillment of the requirement for the degree of
Master of Business Studies (MBS)

Viva-Voce Committee

Head, Research Department …………………….………

Member (Thesis Supervisor) …………………….………

Member (External Expert) …………………….………

3
 DECLARATION

I hereby declare that the work reported in this thesis entitled “Cash
Management Analysis of Nepal Water Supply Corporation” submitted to
Office of the Dean, Faculty of Management, Tribhuvan University, is my
original work done in the form of partial fulfillment of the requirement for the
degree of Master of Business Studies (MBS) under the supervision of
Joginder Goet of Shanker Dev Campus, T.U.

..…………….……………………
Bishnu Gajurel
T.U. Regd. No.: 7-1-246-112-2000
Campus Roll No. : 2495/063

4
 ACKNOWLEDGEMENT

It is my pleasure to write this thesis with the supervision of Joginder Goet of

Shanker Dev Campus, who has always been co-operative to provide suggestion
and guidelines through telephone and direct observation. Without whose
appreciable technical contribution this thesis would not have come out in this
present form and regular inspiration by sir to submit this thesis in time is vital
job to me.

I would like to express credit to the Nepal Water Supply Corporation for their
co-operation to provide materials related to this study. I would like to provide
gratitude to the staff of library to give me chance of reading literature.

At last but not least, I wish to express ineptness to my family and friend Mr.
Shiba Pathak to providing special assistance at the time of need.

Bishnu Gajurel

5
 ABBREVIATIONS

A/C : Account
BS : Bikram Sambat
EOQ : Economic Order Quantity
FY : Fiscal Year
i.e. : That is
KTM : Kathmandu
Ltd. : Limited
MBS : Master in Business Studies
MPES : Manufacturing Public Enterprises
NTC : Nepal Telecom
NWSC : Nepal Water Supply Corporation
P.E. : Probable Error
PEs : Public Enterprises
r : Correlation
Rs. : Rupees
S.D : Standard Deviation
T.U. : Tribhuvan University
WSSC : Water Supply and Sewerage
Corporation

6
 TABLE OF CONTENTS
Recommendation
Viva Voce Sheet
Declaration
Acknowledgment
Table of Contents
List of Tables
List of Figures
Abbreviations
Page No.
CHAPTER – I INTRODUCTION
1.1 General Background 1
1.2 Introduction of NWSC 3
1.3 Introduction of Cash Management 4
1.4 Efficient Cash Management Practices in PEs 5
1.5 Statement of the Problem 6
1.6 Objectives of the Study 7
1.7 Scope of the Study 7
1.8 Limitations of the Study 7
1.9 Significance of Study 8
1.10 Organization of the Study 9

CHAPTER – II REVIEW OF LITERATURE

2.1 Conceptual Framework 11
2.1.1 Meaning of Cash Management 11
2.1.1.1 Cash Management as a Function of Finance 13
2.1.1.2 Cash Management Function Comes Under Investment Decision 14
2.1.1.3 Principles of Cash Management 14
2.1.1.4 Motives for Holding Cash 15
2.1.1.5 Objective of Cash Management 17
2.1.1.6 Efficiency of Cash Management 18

7
 2.1.1.7 Techniques for Effective Cash Management 22
2.1.1.8 Determination of Optimum Cash Balance 25
2.1.1.9 Cash Management Models 26
2.1.1.10 Basic Strategies for Cash Management 32
2.1.1.11 Cash Conversion Cycle 33
2.2 View of Different Authors Regarding Cash Management 34
2.3 Review of Related Studies 40
2.3.1 Review of Journals 40
2.3.2 Review of Previous Research Work 43
2.4 Research Gap 49

CHAPTER – III RESEARCH METHODOLOGY

3.1 Research Design 50
3.2 The Population and Sample 50
3.3 Nature and Sources of Data Collection 50
3.4 Financial and Statistical Tools and Techniques 51
3.4.1 Ratio Analysis 51
3.4.1.1 Current Ratio/Liquidity Ratio 51
3.4.2 Turnover Ratio 52
3.4.2.1 Cash Turnover Ratio 52
3.4.2.2 Inventory Turnover Ratio 52
3.4.2.3 Receivable Turnover Ratio 52
3.4.3 Cash and Bank Balance to Other Aspects 53
3.4.3.1 Cash and Bank Balance to Current Liabilities 53
3.4.3.2 Cash and Bank Balance to Total Assets 53
3.4.4 Net Profit Margin Ratio 54
3.4.5 Return on Working Capital Ratio 54
3.4.6 Net Profit after Tax to Quick Assets Ratio 54
3.5 Statistical Tools 54
3.5.1 Straight –Line Trend 55
3.5.2 Karl Pearson’s Coefficient of Correlation (r) 56

8
 3.5.3 Standard Deviation 58

CHAPTER – IV DATA PRESENTATION AND ANALYSIS

4.1 Analysis of Cash and Bank Balance 59
4.1.1 Analysis of Dispersion in Cash and Bank Balance 62
4.1.2 Cash and Sales 63
4.1.2.1 Analysis of Cash Turnover Ratio 63
4.1.2.2 Analysis of the Relation between Cash and Bank
Balance and Revenue 65
4.2 Analysis of Liquidity Position 66
4.2.1 Analysis of Current Ratio 66
4.3 Profitability Analysis 68
4.3.1 Analysis of Net Profit Margin Ratio 69
4.3.2 Analysis of Net Profit after Tax on Current Assets 70
4.4 Analysis of Relation between Cash and Bank
Balances and Current Assets 72
4.5 Analysis of Cash and Bank Balance to Current Liabilities 73
4.6 Major Findings of the Study 75

CHAPTER – V SUMMARY, CONCLUSION AND

RECOMMENDATION
5.1 Summary 77
5.2 Conclusion 78
5.3 Recommendation 78

Bibliography
Appendices
LIST OF TABLES

Table No. Title Page

No.
4.1 Analysis of Cash and Bank Balance 60
9
4.2 Dispersion in Cash and Bank Balance 62
4.3 Analysis of Cash Turnover Ratio 63
4.4 Correlation between Cash and Bank Balance and Revenue 65
4.5 Analysis of Current Ratio 67
4.6 Analysis of Net Profit Margin Ratio 69
4.7 Analysis on Return on Current Assets 71
4.8 Relation between Cash and Bank Balances and Current Assets 72
4.9 Cash and Bank Balance to Current Liabilities 74

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 LIST OF FIGURES

Figure No. Title Page

No.
2.1 Cash Management, A Function of Finance 13
2.2 Cash Balance 26
2.3 Boumol's Model for Optimum Cash 28
2.4 Cost of Trade Off, Baumal's 29
2.5 Cash Cycle 32
2.6 Cash Management Cycle 36
4.1 Analysis of Cash and Bank Balance 60
4.2 Analysis of Cash Turnover Ratio 64
4.3 Analysis of Cash Turnover Ratio 64
4.4 Analysis of Current Assets and Liabilities 67
4.5 Analysis of Current Ratio 68
4.6 Analysis of Net Profit Margin Ratio 70
4.7 Analysis on Return on Current Assets 71
4.8 Cash and Bank Balances to Current Assets Ratio 73
4.9 Relation between Cash and Bank Balances and Current Liabilities 74

11
 CHAPTER - I
INTRODUCTION

1.2 General Background

Nepal has made great progress in recent decades transitioning from an isolated
medieval kingdom with no infrastructure to a modern state. Poverty reduction
remains the greatest development challenge for this nation of 23.1 million.
More than 45% of population lies below the poverty line. Many of its social
indicators are among the lowest worldwide: nearly 40% of its population lack
access to basic healthcare and education; half Nepal’s children under the age of
five are malnourished; 80% of its citizens rely on subsistence agriculture, even
as only 20% of Nepal’s rugged Terrain is arable. Agriculture is the backbone of
Nepalese economy, means of livelihood for the majority of population and the
main source of gross domestic production, income and employment because
half the country’s population is crowded into the hilly, fertile southern Terai
region. But non-agricultural sectors have also significant contribution in the
national economy.

Economic growth of a country is directly related with its industrial growth.

Expansion of industries leads to grater utilization of natural resources creation
of employment opportunities, increase export and decrease the import of goods
and services, getting enough income, which improve the general standard of
living of people. About four decades age, when the country was under Rana
rule for more than a hundred years no significant initiatives were taken to
improve the economic condition. There were few Rana prime minister who had
shown their interest in establishing some industries and public companies for
the first time in the country. During the rule of Ranas, few industries were
established, for example: communication and ropeway transportation, Nepal
Bank ltd, Morang sugar mills ltd and Nepal insurance and transport company
ltd.

12
In fact, public sector and private sector are in dispensable basis for growth and
development of the economy of the country. Actually these are two wheels of
the economy where as public sector provides the base for development of
private sector, Public sector and private sector both are internal parts of the
national economy.

Nepal has abundant natural resources, but still is back work in term of socio
economic development because of the inability in exploiting the resources.
Exploitation of the available resources helps to make economy of a nation
strong by flourishing various development works. Among the various resources
available in the nation, water resource is the greatest one. It’s the second richest
country in the world in water resource. The physiographic of Nepal facilities to
mime water in three forms as snow, rain fall and ground water. These forms
have generated more than 6000 river and rivulets inter linked mainly in four
major river systems carving to this tiny country Nepal. The perennial river
systems carry out 225 billion cubic meter of water every year and follow down
to Indian Ocean via India.

The water resources of Nepal can be considered as incomparable means of all

round development if it is used wisely. From our rivers, we can not only
generate hydro electricity but it can be multipurpose source of energy. This
typical gift of nature has abundant potentiality of fresh water sources for
drinking purpose and hydropower generation besides other uses.

Water is one of the most essential substances of human life, which is provided
by nature. The existence of all living being that is plant; animal and human
depend in water. According to the history, the civilization development around
the abundant supply of water, which is derived from different sources and
unevenly distributed, Water is equally important for other development
activities. First of all we need it for drinking purpose. It is as important as we
need air for breathing, we use water for different purpose such as drinking,

13
washing, protecting life and protect against fire, bathing cleaning, industrial
purpose etc.

Therefore, the National water plan should focus on the utilization of water in
two aspects as water resource developed to fulfill the related service of
domestic need and for commercial purpose. Thus the integrate water resource
development project for agriculture and vegetation growth, water induced
disaster control, sustainable drinking water supply and electricity generation
have the potential to overall development if the country.

Considering the multiple use of water resource, Nepal government has

established the public enterprise that is Water supply and sewerage corporation
(WSSC). It is an enterprise of public utility which is striving to achieve its
objectives. The success and failure of this corporation in achieving its set goal
depends on its strategy, planning of various budgets and financial performance.

1.2 Introduction of NWSC

Nepal Water Supply Corporation is an organization which came in to being in
the month of February 1990 under the NWSS act 1990 of Nepal government. It
operates as an important utility in providing its services in the field of drinking
water and sewerage amenities in the urban centers of Nepal.

The first drinking water scheme in Nepal was called "Bir Dhara" in B.S. 1995
"Pani Goswara" is one of the oldest offices in the history of Nepal. It was based
in Kathmandu. Later on, new schemes were also implemented in stages to
provide drinking water in Patan and Bhaktapur and some augmented in
Kathmandu with a new system popularly known as "Tri Bhim Line".

The department of irrigation and water supply was responsible body for water
supply unit 1972. Then the department of water out more time bond
programmer in the water supply and sewerage sectors throughout the country.

14
The water supply and sewerage board was constituted in July, 1973 under the
development board act, 1957 to implement the project, financed under the
International Development Association to provide improved water and
sewerage facilities in Kathmandu valley and Pokhara systematically.

Water supply and Sewerage Corporation was established in 1985July under the
corporation act. 1965 with the objective of providing more autonomy in its
operation and enabling it to function on a commercial basis by dissolving the
"Water Supply and Sewerage Board". And since 1990 Water Supply and
Sewerage Corporation was converted in to "Nepal Water Supply Corporation",
a fully government owned public utility that establish under the corporation act
1990. Its main objectives are to provide pure drinking water

Some of the main challengers are as under maintained of NWSC

1. Need to complete with private utilities in the coming years.
2. Financial resources constraints to meet even growing demand aspiration
of the public.
3. Very old network system in place but still in use, contribute to a high
leakage percentage, demanding immediate up-grading.
4. Shortage of water for rapidly growing population, especially in urban
areas.
5. Strengthen institutional capacity to fulfill customer's expectation in the
new millennium.

1.3 Introduction of Cash Management

Cash is the most important current assets for the operation of the business. It’s
the basic input needed to keep the business. It is ultimate output expected to be
realized by selling the services or products manufacturing by the firm as well.
The firm should keep sufficient cash, which should be neither more nor less.
Cash shortage will disrupt the firms manufacturing operation, while excessive

15
cash will simply remain idle unproductive. Thus the major function of financial
manager is to maintain a sound cash position.

1.4 Efficient Cash Management Practices in PEs

Cash management has been the most intricate and challenging area of modern
corporation finance as much the management always fine a tradeoff between
the liquidity and profitability of a firm. Most of the enterprises in Nepal have
been well recognized the importance and purpose of cash management
although they are facing the problem of cash management. Most of the
enterprises of Nepal are based on traditional practices. Large enterprises have
periodic accumulation of surplus cash and corresponding cash shortage from
time to time. However, most of the enterprises considered the implication of
holding idle cash balance and few have taken in the account the potential
benefit of investing surplus in marketable securities. In Nepalese firm's context,
the theory of cash management has not been much effectively applied in
practice, term such as cash flow analysis cash discount policy, cash equivalent
has never been serious considered. Traditional approaches are feculent to adopt
modern enterprises. One of the major coerces involved in the down falling
trend of public and private companies in Nepal is obviously the
mismanagement of cash balance level of cash for day to day operation or for
the use in the short run has been one of the greatest shortcoming in the area of
finance function. However use of sophisticated forecasting technique is not
basic requirement of budgeting the inherent quality of a cash budget prepared
at the beginning of a fiscal year, it untouched thereafter can be of no use, even
if it was prepared with very sophisticated forecasting tool.

In order to remedy the current problem of cash management in public

enterprises studies and researches are to be conduct to find out the reality so
this study would be one those efforts and thus it will examine the cash
management practice being employed in Nepal water supply corporation, one
of the leading public enterprise in Nepal.

16
1.5 Statement of the Problem
The down falling trends of public enterprises, especially the industries public
enterprise or the manufacturing enterprises have been the over cashing problem
of our country. Hardly a handful of these public enterprises have provided
satisfactory rest of all being a burden to the government. In the same of
economic liberalization, many of these companies are either privatized or in the
process of privatization to get rid of the burden.

With an objective to accelerate the movement of economic and social

development of the country, Nepal government operates carious public
enterprises by investing huge amount of resource. These PES were established
when private sector was not fourth coming to people. in the past several PES
were established under the foreign assistance as well. However weak position
and unsatisfactory financial performance have made the huge government
investment unproductive and the return on investment is in diminishing trend.

These bitter facts urged this researcher to find out the relation down falling
trend of financial performance of these public manufacturing enterprises, what
would be the underlying deficiency, which is hindering the financial success of
public enterprises? can a public enterprise not service on its own efforts
without being privatized? The movement of a public enterprise is privatized
most coming gradually with draws obviously these are number of problems for
the PES, interference of politically infected bureaucracy are not doubt the
major causes, the poor financial performance is not doubt the effect. The
current upsetting situation is obviously because of weak financial performance
or rather a haphazard financial decision of the public enterprises. However such
poor performance is to be verified on the grounds of globally accepted financial
statistical tool.

1.6 Objectives of the Study

17
The main objectives of the study are as follows
1. To examine the existing internal control policy of cash transaction in
NWSC
2. To analyze the cash flow structure and cash management techniques
practiced by the company.
3. To examine the liquidity position of NWSC
4. To study the relationship of cash with other influencing variable of cash
management

1.7 Scope of the Study

Nepal Water Supply Corporation has been chosen as sample among various
public enterprises. Hence, the finding could not be extensively generalized to
the existing public enterprises of the country. The research study will depend
on the Nepal Water Supply Corporation. On the basis of this study we can
imagine that the cash management of public enterprises of Nepal.

1.8 Limitations of the Study

As every research has its own limitations, this study is not biased. Basically the
research is done for the partial fulfillment of Master in Business Studies
program of Tribhuvan University. So, it has some limitations, which are listed
below.
 Time constraint and unavailable of primary and secondary data on time
might be limit the detail and depth of the study
 The study is mainly dependent on secondary data covering data of 10
years (2055/2065).
 Time and financial constraint are also the major limitation of the study.
 The study is based on the cash management of NWSC therefore the result
may not applicable to other enterprises.
 The study is concentrated in cash transaction of NWSC It does not cover
its other area.

18
  The researcher being the beginner in this area, this report cannot remain
without flaws. Best effort has been done to make this report with
minimum error. Being almost impossible without error, existence of
unnoticed errors is also a major limitation of the study.

1.9 Significance of Study

Cash management is one of the most important functions in any organization. It
is broad area having to do with the collection, concentration and disbursement
of cash including measuring the level of liquidity, managing the cash balance
and short-term investments. A proper cash management considerably
contributes to improve the overall financial performance and leads the
organization towards success. An organization cannot achieve its goal unless
cash is controlled effectively and capital is allocated properly. Proper cash
management helps an organization to manage the cash cycle efficiently with
control and to forecast cash flows in multiple time periods. Also the study of
and the concept of cash management helps the manager to plan for the
unforeseen eventualities that nearly every organization and every business
faces.

NWSC plays vital role to provide pure drinking water for many orban and
rural area's people. The research on this enterprise will be beneficial for the
same enterprise to know actual existing each management and financial
performance and help to improve the financial performance. This research will
be helpful to government to make different plans and policies regarding public
enterprises as well.
1.10 Organization of the Study
The study is organized in sequence of five chapters which are presented in
short as under.

Chapter – I Introduction

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Chapter one will be introductory, background information on the subject matter
of research, introduction of NWSS, introduction of cash management, efficient
cash management practice in PES, statement of problem, object of the study,
scope if the study, significance of the study and limitation of study.

Chapter – II Review of Literature

Chapter two deals with the review of literature for cash management, It include
the reviews of related previous thesis and study to find out the existing gap, so
past studies in the cash management function as well as the public enterprises
are reviewed to find out what new can be contributed. Review of text book
thesis /dissertations, and government publication are included in this chapter.

Chapter – III Research Methodology

In this chapter, the research methodology of the study is described. It includes
research design, the population and sample, nature and source of data, financial
and statistical tools for the analysis of the data.

Chapter – IV Data Presentation and Analysis

In this chapter, the acquired of data are presented and analyzed through the
given in methodology. This is the core of the thesis. The systematic
presentation and analysis of financial statements and statistical tools are
presented in this chapter.

Chapter – V Summary, Conclusion and Recommendation

At last, in fifth chapter the summary of finding issues and constraints and
recommendation are presented.

Reference of the bibliography consists of published and unpublished books,

articles and dissertation etc. that the sources of information and will use as

20
reference. Appendix consists of relevant material when ever, however, how
much with mentioning in the main body of the report, include profit and loss
account, balance sheet and summary of statistical finding.

21
 CHAPTER - II
REVIEW OF LITERATURE

2.1 Conceptual Framework

2.1.1 Meaning of Cash Management
The term cash has a definition according to the purpose for which it is used and
persons with varying branches of knowledge conveying various meaning of
cash. For instant, from an economist's viewpoint, cash is the legal tender of
money issued by the government of the state which means to satisfy human
wants. On the contrary, when it comes to the financial literature cash is defined
in yet another fashion that is totally different from earlier definition. However
according to the balance sheet, cash is an asset constituting the liquid items
among all the assets, in need cash, which has a cost whether received internally
through money procurement, is a liability and a wasted opportunity unless and
it is not put to its optional use (Saksena, 1974: 54).

So such whether cash a corporation has must be utilized efficiently to meet

obligations of interest payment if cash is obtained from borrowing. If it is
receive through issue of share, the corporation has responsibility to owner in
assuring them to pay favorable rate of return. Since cash is not easy to obtain,
the available cash must be prudently spent without incurring loss (Shrestha,
1980: 147).

The term cash with reference to cash management is used in two senses. In a
narrow sense broadly to cover cash (currency) and generally accepted
equivalent of cash such as cheques, drafts, and demand deposits in bank. The
broader view of cash also includes near cash assets. Such as, marketable
securities and time deposits in banks. The main characteristic of these is that
they can be readily sold and converted in to cash. They also provide a short-
term investment out let for excess cash and also useful for meeting planned out
flow of funds. We employ the term cash management in the broader sense.
22
Irrespective of the form in which it held a distinguished feature of cash, as an
asset, is that it has no earning power.

The management of cash has been regarded as one of the conditioning factors
in the decision making issues. It is no doubt, very difficult to point out as to
how much cash is needed by a particular company but it is very essential to
analyze and find out the solution to make an efficient use of funds. If any time
a company fails to pay an obligation when it is due because of the lack of cash,
the company is insolvent. Insolvency is the primary reason firm’s go bankrupt.
Moreover, efficient cash management means more than just preventing
bankruptcy. It improves the profitability and reduces the risk which the firm is
exposed. It is only natural that major business expenses are incurred in the
production of goods or the provision of services. In the most cases, a business
incurs such expenses before the corresponding payment is received from
costumers. In addition, employee salaries and other expenses drain
considerable funds from most business. These factors make effective cash
management an essential part of any business.

Cash Management involves managing the monies of the firm in order to

maximize cash availability and interest income on any idle funds. At one end,
the function starts when a customer writes a check to pay the firm on its
account receivable. The function ends when a supplier an employee or the
government realizes collected funds from the firm on account payable or
accrual (Van Horn, 1991:394).

Cash management has certain variables, which are directly related to cash.
Diagram of cash flow and its related variables are shown (Blecke, 1981: 50).

So, simple stating, management of near-cash assets, i.e. marketable securities,

time deposits in bank are called management. Broadly speaking, the
management of cash includes management of cash, receivables and inventory.

23
In broader sense, management of receivable and inventory is also termed as
management of cash because receivables and inventory are also supposed to
readily converting in to cash (Khan and Jain, 1986, p663-664)

2.1.1.1 Cash Management as a Function of Finance

Figure 2.1
Cash Management, A Function of Finance
Finance function

1 investment decision 2financing decision 3dividend policy

decision

1 selecting of long-term Assets yielding 2 selection of short term assets or current

return after more than one year assets (working capital management),
converted in to cash within a year

1 Overview of working capital 2 Efficient management of individual

management as a whole current Assets like cash, receivables
and inventory or cash management.
(Source: Khan and Jain, 1986)
According to modern approach, financial management can be broken down in
to three major decisions as functions of finance, which are:
 Investment Decision
 Financial Decision
 Dividend Decision
24
2.1.1.2 Cash Management Function Comes Under Investment Decision
Investment decision refers to two major decisions
A. Selection of long term assets, which will yield a return over a period of
time in future, i.e. more than a year, and
B. Selection of short term assets or current assets, which can generally be
converted into cash within a year.
C. The latter function is also termed as working capital management which is
concerned with the management of current assets. The two basic
components of working capital are:
 An overview of working capital management as a whole, and
 Efficient management of the individual current assets like cash,
receivable and inventory.

Cash management deals with the second component of working capital

management, the management of cash or near-cash assets such as marketable
securities and time deposits in banks, receivable and inventory

2.1.1.3 Principles of Cash Management

The size of cash balance in hand in account to be maintained depends on the
behavior of operation cash flows of the firms. Each business operation in
unique in the matter of cash collection and disbursement as such a firm needs
to follow cash management strategies based on its own financial strength and
objective in the matter of cash management. Financial manager are mainly
concerned with the a) management of cash receipt. b) management of
disbursement c)minimization of cash balance through the determination as
optimum balance d) use of most inexpensive source of financing for cash
balances and e) investment of excess balance of cash.

The standard principles of cash are as follows:

25
  To collect account receivable as soon as possible without establishment
annoying and loosing potential customers by establishment a system of
lack boxes electronic funds transfer, preauthorizes checks and deposit
concentration
 To delay payment as long permitted without demanding the firms credit
rating by establishing controlled disbursement system
 To minimize cash balance without adversely affecting the business
operation by following the techniques to cash balance management such
as Baumol and Miller Orr- models.
 To manage must inexpensive source of financing for meeting short term
cash defacing by optimally balancing between cost and risk.
 To investment short term excess cash which is most efficient market
portfolios of securities such as money market instruments (Pradhan,
1992:98).

2.1.1.4 Motives for Holding Cash

Cash is the common denominator to which all other current assets can be
converted into readily or in near future and thus it is the most liquid current
asset.

Kenes in his book has explained cash, when held, as an asset has no earning
capacity. Never the less business firms have to hold cash for three different
motives, which are:
 Transaction motive
 Precautionary motive and
 Speculative motive

In addition of three motives for holding cash, compensating motive is also a

Motive of holding cash.

 Transaction Motives

26
The transaction motive requires a firm to hold cash to conduct its business in
the ordinary course. The firm needs cash primary to make payments for
purchases, wages, others operating expenses, taxes, dividends etc need to hold
cash would not rise if there were perfect synchronization between cash and
receipts and cash payment has to made. But cash receipts and payments are not
perfectly synchronized. For that period when cash payment exceeds cash
receipts the firm should maintain some cash balances to be able to made
required payment. For transaction purpose, a firm may invest its cash in
marketable securities, whose maturity corresponds with some anticipated
payments, such as dividends or taxes in future. Notice that the transaction
motive mainly refers to holding cash to meet anticipated payments whose
timing is not perfectly matched with cash receipts.

 Precautionary Motives
The precautionary motive is the need to hold cash to meet contingencies in
future. It provides a cushion or buffer to withstand some unexpected
emergency, the precaution amount of cash depend upon the predictability with
accuracy; less cash will be maintained for an emergency the amount
precautionary cashes also influence by the firm's ability to borrow as such
notice when the need arise.

 Speculative Motive
The speculative motive relates to the holding of cash for investing in profit
making opportunities as an when they arise. The firm will hold cash, when it is
expected that interest rates will arise and security prices will fall securities can
purchased when the interest rate is expected to fall, the firm will benefit by the
subsequent fall in interest rates and increase in security price (Pandey, 1999:
841).

 Compensating Motive

27
It is to compensate banks for providing certain services and loans. Usually,
clients are requested to maintain a minimum balance of cash at the bank. Since
this balance of cash at the bank by the firm for trisection purpose the banks
they can use the amount to earn to return. Such balances are compensating
balances.

Compensating balance is also required by some loans arrangement between a

bank and its customers during period when the supply of the credits is
restricted and interest rates are raising, banks require a borrower to maintain a
minimum balance in his account a condition precedent to the grant of loan. T
his is presumably to compensating for a raise in the interest rate during the
period when the loan will be pending.

These four are primary motives of holding cash balances. The two most
important motives are transaction motives and the compensation motives.
Business firm do not normally speculate and need not have speculate balance,
the requirement of precautionary balances can be met out of short-term
borrowing (Khan and Jain, 2003:302-308).

2.1.1.5 Objective of Cash Management

The basic objectives of cash management are to reconcile two mutually
contradictory and conflicting tasks. They are:

 Meeting Payment Schedule

In the normal course of business, firm has to make payment of cash as a
condition and regular basis to suppliers of good, employees and so on. At the
same time, there is constant inflow of cash through collection from debtors.
Cash is therefore, described as "oil to lubricate the ever wheels of business
without it the process grinds to a stop." A basic of cash management is to meet
the payment schedule, which is to have sufficient cash to meet the cash
disbursement needs of firm.

28
 Minimize Funds Committed to Cash Balances
In the minimizing, the cash balances two conflicting aspects have to be
reconciled. A high level of cash balance will ensure promote payment together
with all the advantage. However, it also implies that large fund will remain
idle, as cash in nonearning assets and firm will have to go for profit, a low level
of cash balances, on other hand, may mean failure to meet the payment,
therefore, and should to have an optional amount of cash balances (Khan and
Jain, 1978:664).

2.1.1.6 Efficiency of Cash Management

Cash performs a number of functions as it makes payment possible and serves
to meet emergencies. But if cash is kept idle it contributes directly nothing to
earning of corporation. As such, corporation must adopt such a policy that
makes optimum cash management possible. The financial manager of the
corporation should try to minimize the corporation holding of cash. The
efficiency of cash management, effective method of collection and
disbursement should be adopted (Shrestha, 1980:62). The method of efficiency
of cash management is briefly described as below:

2.1.1.6.1 Speedy Cash Collection

Efficient cash management is possible only when the collection of cash is
accelerated.

Collection process may be speeded up in any of the following manners.

 The mailing time of payment from customers to the firm may be reduced.
 The time during which payments received by the firm remain uncollected
may be minimized, it includes the time a company takes in processing the
cheques internally and the time consumed in clearance of the cheque
through the banking system.

Following techniques are considered to be useful to accelerate the collection.

29
i) Concentration Banking
To speed up collection, collections should be decentralized as far as possible.
If, instead of one collection center, there are number of collection centers for
the purpose, collections would certainly be speeded up. This procedure is
named as concentration banking. Through this procedure, the mailing time of
the customer is reduced. Customers of a particular region may be directed to
deposit/remit their payments to a collection center will deposit the payments
received in the local bank regularly, which is generally at the firm’s head
office. This concentration bank or central bank can get the payments by
telegraphic transfer or by telex, as per instructions given by the firm. The
collection centers may themselves collect the cheques or the cash payment
from the customers, instead of customers remitting the payment to the
collection centers.

ii) Lock Box System

Under this system, the time required in collecting the payments, processing
them and finally depositing them in the local bank accounts is further reduced.
Before determining the collection centers a feasibility study is made of the
possibility of checks that would be deposited under alternative plans. In this
regard operations research techniques have proved useful in the location of
lock box sites. A lock box is hired by the firm at each collection center and the
customers are instructed to mail through remittance of the box. The remittance
is picked up by the local bank directly from the lock box as per instructions
given by the firm. The bank can pick up mail several times a day and deposit
the checks in the amount of the firm. A record is kept by the bank regarding the
checks deposited and is sent to the firm as and when required. Te main
disadvantages of such system is the cost involved of making such arrangements
hiring post office box and loading the bank with additional burden of work
entail costs and sometimes it may be uneconomical for the firm to adopt such a
system.

30
iii) Collection Through Messengers
Certain firms like to send messengers at the places of customers to collect the
payments. It certainly reduces the mailing time but increase the cost of
collection in terms of the travelling costs of messengers.

To conclude, whatever system of speeding up collection is adopted, the costs

are to be compared with the benefits derived there from.

2.1.1.6.2 Slowing Disbursement

Disbursement is the opposite of collection. Here, the firm strives to slow down
payments. Decentralized collection system is the best way to accelerate
collections and centralized payment system is the best way to slow down the
disbursements. Delaying the account payable to the extent possible can help the
firm only if the firm’s credit standing does not suffer. If an effective control
over disbursements is exercised without losing goodwill, cash availability is
certainly enhanced. There are some techniques to delay are; centralized
payments, paying the float and payments on due dates only.

2.1.1.6.3 Cash Velocity

Efficiency of the use of cash depends upon the cash velocity, i.e. level of cash
over a period of time.
Annual Sales
Cash Velocity =
Average Cash Balance

2.1.1.6.4 Using Float

Float is an advantage to the firm as a buyer and disadvantage to the firm as a
seller. Float is the lag between the time the cheque is written and the time the
firm’s bank receives it. A firm may have less balance in its bank account but
the firm may issue a cheque to its supplier because the supplier would present
the cheque to his bank for payment only when he receives it after few days.

2.1.1.6.5 Overdraft System

31
Overdraft is a system where by deposits may write cheque in excess of their
balances with their books automatically extend loan to cover the shortage. Most
of the foreign countries use overdraft system.

2.1.1.6.6 Minimum Cash Balance

Corporations are required to keep a minimum cash balance requirement of
bank either for service it renders on in consideration of lending arrangement.

2.1.1.6.7 Synchronization of Cash Flows

With a perfect synchronization of cash inflows and outflows and a higher
degree of predictability, Cash balance could be held to low levels. An example
of synchronization demonstrate as low cash flows can be improved through
more frequent requisitioning of fund to divisional offices from the firm’s
central office. If funds are requisitioned once a month, it helps to explore the
possibility of requisitioning of funds on fortnightly, or weekly or daily basis.
Moreover, effective forecasting can be achieved; it will enable the firm to
economize on the amount of money it must borrow and thereby keeping
interest expenses to a minimum.

2.1.1.6.8 Transferring Funds

There are two methods for transferring funds, Check Wire Transfer and
Electronic depository transfer. With a Wire transfer, funds are immediately
transferred from one bank to another even in a different city. It is the fastest
way to move cash between banks, eliminating transit float. An Electronic
Depository transfer check is a paperless electronic image transfer via the
Automated Clearing house network. The EDTC avoids the use of the mails and
has a uniform one business-day clearing time. Electronic Depository Transfer
checks are generally initiated by central company management.

2.1.1.6.9 Special Holding of Cash

To meet the standards of the line of business in which firm is engaged, and to
take the advantage of the available business opportunities, the firm may like to
32
have sufficient cash balance. Credit standing can be maintained if the firm has
sufficient cash. Certain companies maintain cash balance to take advantage of
the trade discount and cash discounts, which may be available to them on the
basis of the terms of sale. Emergencies like strikes, floods, fire etc can be met
out successfully only when the firm has sufficient liquidity.

2.1.1.7 Techniques for Effective Cash Management

2.1.1.7.1 Cash Planning
Cash planning can help anticipate future cash flows and needs of the firm and
reduces the possibility of idle cash balance and cash deficits. The nature of
business, credit position, the amount of sales, time required in conversion of
accounts receivable etc are determine the normal cash requirement of a firm.
Cash plans are very crucial in developing the overall operating plans of the
firm. Cash planning may be done on daily, Weekly, or monthly basis. It
depends upon the nature, size and status of the business and philosophy of
management. “Cash planning is a technique to plan, for and control the use of
cash” (Pandey, 1999:483). Therefore costs may be based on the present
operations or anticipated future operation.

2.1.1.7.2 Cash Forecasting and Budgeting

Cash budget forecast is the most significance device to plan and control cash
receipt and payments. A cash budget is a summary statement of the firms
expected cash inflows and outflow over a projected time period. Cash forecasts
are needed to prepare cash budget. Cash forecasting may be done on short term
or long term basis. Generally, forecasts covering period of one year of less term
cash forecast are:
 To determine operating cash requirement.
 To anticipate short term financing.
 To mange investment of surplus cash.

 Receipt and Disbursement Method

33
The prime aim of receipt and disbursement forecast is to summarize these
flows during a predetermined period. In case of these companies where each
items of income and expenses involve flows; this method is favored to keep a
close control over cash.

 Adjusted Net Income Method

This method of cash forecasting involves the tracing of working capital flows.
It's sometime called sources and uses approach. These are two objective of
adjusted net income method. They are to Project Company’s need for cash at a
future date and to slow whether the company can generate the required fund
internally, and if not how much will have to be borrowed of raised in the
capital market. It is a projected cash flow statement based on Performa
financial statement. One popularly used method of protecting working capital
is to use ration relating account receivable and investing to sales.

 Sensitivity Analysis
One useful method of getting insights about the variability of cash flow is
sensitivity analysis. Cash budget can be prepared under three condition, they
are optimistic, most probable and pessimistic. Knowledge of the outcome of
extreme expectation will help the firm to be prepared with contingency plans.
A cash budget prepared under worst condition will prove to be useful to
management of face these circumstances.

 Long Term Cash Forecasting

Forecasting these extending beyond one year are considered long term. Once a
company has developed long-term cash forecast, it can be used to evaluate the
impact of say, new product development of plant acquisition on the firm's
financial condition four year in the future. The major uses of long-term
forecasts are:

34
  To indicate as company's future financial needs especially for its working
capital requirement
 To evaluate proposed as well as. Its pinpoint the cash required to finance
these projects as well as the cash to be generated by the company to
support them.
 To improve corporate planning long term cash forecast compel each
division to plan for future and no formulate project carefully (Pandey,
1999:843).

2.1.1.7.3 Optimum Cash Level

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

2.1.1.7.4 Managing the Cash Flows

The flows of cash should be properly managed. The cash should be accelerated
while, as far as possible the cash should be declared.

2.1.1.7.5 Investment Surplus Cash

The surplus cash balance should be properly invested to earn profits. The firm
should decide about the decision of such between alternatively short term
investment opportunities such as bank deposits, marketable securities, or
incorporate landing (Pandey, 1997:89).

2.1.1.8 Determination of Optimum Cash Balance

One of the primary responsibilities of the financial manager is to maintain a
sound liquidity position of the firm so than dues may be settle in time. The firm
needs cash not only to purchase raw materials and pay wages, but also for
payment of dividend, interest, taxes and countless purchase. The text of

35
liquidity is really the available of cash to meet the firm's obligations when they
become due.

Thus cash balance is maintained for translation purpose and on additional

amount may be maintain as a buffer or safety stock. The financial manager
should determine the appropriate amount of cash balance. Such as decision is
influenced by tradeoff between risk and return, if the firm maintains a small
cash balance its liquidity position becomes weak and suffers from paucity of
cash to make payment. But a higher profitability can be attained by investing
released funds in some profitable opportunities. When the firms run out of cash
it may have to sell marketable securities. If available of borrow. This involves
transaction cost. On the other hand, if forgo the opportunity to earn interest.
The potential lost on holding large cash balance involves an opportunities to
earn interest. The potential loss on holding large cash balance involves an
opportunity cost of the firm. Thus cash balance sound with the opportunity cost
of too large a balance. It can be shown by following graphs.
Figure 2.2
Cash Balance

Cost
Total Cost

Opportunity Cost

Transaction
Cost

36
 Cash Balance
(Source: Pandey, 1992)

If the firm maintains large cash balances its transaction cost would decline, but
the opportunity cost would increase. At point x the sum of the two cost is
minimum. This is the point of optimum cash balance which a firm should seek
to achieve, where is to minimize the total costs.

2.1.1.9 Cash Management Models

Boumol's Model (1952)
This model developed by William Boumol. Essentially applies a basic
inventory model to determine the minimum cost amount of cash that a financial
manager can obtain by converting securities to cash, considering the cost of
conversion and the counter balancing cost of keeping idle cash balance which
otherwise could have been invested in marketable securities. The total cost
associated with cash management, according to this model, has two events.
They are a) cost converting marketable securities into cash and b) cost
opportunity cost. As such, the firm attempts to minimize the cost of holding
cash. The conversion costs are included each time marketable securities are
converted into cash.

TB
Total Conversion Cost Period =
C

Where,
B = cost per conversion assumed to be independent of the transaction.
T = total transaction needs for period.
C = value of marketable securities sold at conversion.

The opportunity cost is derived from the cost/ for interest rate 1) that could
have been entered on the investment of cash balances. Total opportunity cost in
the interest rate times the average cash balance kept by the firm. The model
assumes as constant and certain pattern of cash out flows. At the beginning of
37
cash period, the firm starts with until at the end of the period it has zero cash
balances and must replenish its each supply to the level of cash in the
beginning, which is shown graphically as:

38
 Figure 2.3
Boumol's Model for Optimum Cash
Amount

Average

Time
T2 T1
Mathematically,

√2bt
a) C*=
I

Where C* = The optimal size of the cash transfer

T =Total cash uses wage for the period of time involved
B=The cost of transaction in the purchases or sale of marketable
securities
I = The applicable interest rate on marketable securities

𝐶∗
b) Average Cash Balance=
2

c) Number of Optimal Transfer=T/C*

d)Total Annual Cost of Maintaining an Optimal Cash Balance=T/C*x B +
C*/2XI

Figure 2.4

39
 Cost of Trade Off, Baumal's
Cost
Total Cost

Opportunity Cost

Transaction
Cost

Time
(Source: Pandey, 1992)

2.1.1.9.2 Miller Orr Model (Miller and Orr, 1966:413-435)

According to Miller Orr, The objective of cash management is to determine the
optimum cash balance level, which minimize the cost management. It assumes
that net cash flows are normally distribute with a zero value of mean and a
standard deviation, each firms cash flows fluctuate randomly and hit the upper
control limit, and then it buys sufficient marketable to come back level of cash
balance. Similarly, when the firm's cash flows wander and hit the lower limit, it
sells sufficient marketable securities to bring cash balance back to the normal
level.
Mathematically
3 3𝐵𝜎 2
Z* = √ + 𝐿
4𝑖

Where,
B=fixed cost for transaction
𝜎2=variance of net daily cash flows
I=Daily interest

40
 L=Lower limit

And average cash balance is comprised as follow:

C=4z*-L/3

Similarly, upper limit is computed by:

Upper limit (v)=3z*-2L
Purchase strategy=V-Z*
Selling strategy=Z*-L

Orgler's Model (1970)

According to this model, an optimum cash management strategy can be
determined through the use of multiple linear programming models. The
construction of the model comprises three sectors. They are: 1) selection of
appropriate planning horizon, 2) selection of appropriate decision variable and
3) formulation of cash management strategy itself. The advantage of linear
programming model is that it enables coordination of optimum cash
management strategy with other operation of the firm such as production and
with less restriction on working capital balances.

Orgel,s objective function is to minimize the horizon value of the net revenues
from the cash budget over the entire planning period. The objective function
recognizes cash operation of the firm that generates cash inflows of outflows
on adding or subtracting profit operation. In the objective functions, decision
variables which cause inflow, such payments on receivable, have positive
coefficient while decision variable which generate cash inflows, such as
interest and short term borrowing have negative coefficient that the financial
managers first specify an objective function and then specify a set of constraint.

The constraint of the model could be 1) Institutional or 2) policy constraint.

The institutional factors that is, back required compensating balance. Policy

41
constraints are imposed on cash management by the firm itself. For instance,
the financial manager may be prohibited from selling securities before maturity
can occur in the model during one monthly period over several or all the month
in one year planning horizon.

An example of linear programming model as follows:

Objective Function
Maximum profit: a1X1+a2X2
b1X1 Production
b2x2 cconstraint
c1X1+c2X2 cash available constraint
d1X1+d1X2 current assets requirement constraint
X1 0=1, in non negatively constraint

A very important feature of the model is that it allows the financial manager to
integrate cash management with production and aspect of the firm.

Monte Carlos' (1978)

Although the Boumol model and other theoretical models provides insights into
the optimum cash balance, they are generally not for practical use, rather firms
generally set their target cash balances based as some "safety stock" of cash
that holds the risk of running out of money to some acceptability low level.
One commonly used procedure is Monte Carlo simulation. Sales and collection
are the driving forces in expected values for sales and collection as well as for
other cash flows. However, it budget is constructed using a spreadsheet
program with Monte Carlo add in software, then the key uncertain variable
could be specified as continuous probability distribution rather point value.

2.1.1.10 Basic Strategies for Cash Management

42
The cash budget, as a cash management tool, would throw light on the net cash
position: the management should work out the basic strategies to be employed
to manage its cash.

Cash Cycle
The financial needs of the corporation are affected by the details of the cash
cycle involved in the process of conversion from purchase, production and
sales to ultimate collection. Opportunities to improve cash cycle helps in best
management of cash. The cash cycle of the corporate is as follows (Soloman
and Pringle, 1978:417-478)
Figure 2.5
Cash Cycle
A B C D E F G H I

(Source: Soloman and Pringle, 1978:417-478)

Figure No.2.4: Details of Cash Cycle

Where,
A= Material Order
B= Material received
C= Payment
D= Check clearance
E= Goods sold
F= Customer Mail Payment
G=Payment received
H=Check deposited
I= Funds collection

In addressing the cash management strategies, we are concerned with their time
period involved in strategies ABC and DEFG. A firm has no control over time
involved between D and E is determined by the production process and

43
inventory policy. The time period between stages E and F is determined by the
production process and inventory policy of customers.

Minimum Operating Cash

The higher the cash turnover, the less is the cash a firm requires. A firm should
therefore try to maximize cash turnover. But it must maintain a minimum
amount of operating cash balance so that it does not run out of cash, the
minimum level of operating cash is determined by dividing the total operating.
Annual out lays by the cash turnover rate. Cash management strategies that can
be employed to do the needful and as follows:
 Stretching account payable
 Efficient inventory, production management
 Spending collection and account receivable
 Combined cash management strategy

2.1.1.11 Cash Conversion Cycle

The cash conversion cycle model diagrams the length of time between when
the company makes payment and when it receives cash. The following terms
are used in the model.
 Inventory conversion period
 Receivable collection period
 Payable deferral period
The cash conversion cycle net outs this period thus equals to the length of time
between the firm actual cash expenditures for productive resources and its own
cash receipt from the sale of production. The cash conversion cycle equals the
average length of time dollar tied in current assets.

CCC=ICP+RCP-PDP
Where,
CCC=Cash conversion cycle
ICP=Inventory conversion period

44
 RCP=Receivable conversion period
PDP=Payable deferral period

The cash conversion cycle can be shortened i) if the firm can reduce the
inventory conversion period by processing and selling goods quickly. ii) if it
can reduces the receivable collection period by speeding up collection. iii) if it
can lengthen the payable deferral period by showing down its payment. To take
extents that these actions can be taken without increasing cost of depressing
pales they should carried out.

2.2 View of Different Authors Regarding Cash Management

Various scholars as well as authors have given different views regarding cash
management some of them are follows:

Cash in only one constituent of what is essentially a combination of business

resources. It is the part of working capital and as such provides the means of
earning of profit investment for business. The objective should aim to obtain an
optimum level for each component of current assets figure and a smooth and
rapid conversation of these assets to cash both of these leads to improve
earning power. He again suggested consequences. In the short term it will be
possible to cut back expenditure on marketing and other function, but futures
sales will probably suffer and consequently, these will be further denotation in
cash flow. Further. He defined cash management as the process involved in the
effective planning and control of cash management of a business (Batty, 1972).

Pandey (1993) suggested that the firm should keep sufficient cash neither more
nor less. Cash shortage will disrupt the firms manufacturing operation while
excessive cash will simply remain idle, without contributing anything toward,
the firm's profitability. According to him, the main function of financial
manger has presented by him. He said that cash management is concerned with
the managing i)cash flow into and out of the firm ii)cash flow into and within

45
the firm and iii) cash balances hold by firm at point of time by financing deficit
or investing surplus cash. It can be represented by a cash management cycle.
Sales generate cash, which has to disburse out. The surplus cash has to be
invested while deficit has to be borrowed. Cash management seeks to achieve
liquidity and control. Cash management assumes more important than other
current because cash is the most significant and the least productive asset that a
firm holds. It is significant because it is used to pay the firm's obligation.
However cash is unproductive. Unlike, fixed assets or inventories it does not
produce goods for sale. Therefore the aim of cash management is to maintain
adequate control over cash portion to keep the firm sufficiently liquid and to
use excess cash in some profitable way. The management cycle is shown as
follows:

46
 Figure 2.6
Cash Management Cycle

Cash
Collection

Information
Borrow
and Control
and Invest

Cash Payment

The management of cash is also important because it is difficult to predict cash

flows accurately, particularly the inflows, and that there is no perfect
coincidence between inflows and outflows of cash. During some period, cash
out flows will exceed cash outflows because payment to taxes, dividend or
seasonal inventory buildup. At other times, cash inflows will be more that cash
payment inflows will be more that cash payment because there may be large
cash sales and debtors, may be realized in large sum promptly. Cash
management is also important because cash constitutes the smaller portion of
the total current assets. Yet management considerable time is devoted in
managing it, in recent past, a number of innovations have been done in cash
management techniques. An obvious aim of the firm now a day is to manage its
cash affairs in such a way as to keep cash balance at a minimum level to invest
the surplus cash in profitable investment opportunity.

Jain and Naranng (1993) have described about cash management. He said
that cash is crucial component of working capital of a concern ash like blood
stream of human body, gives strength to business unit. He explained that cash
is ultimate resource for a business. Therefore, management of cash business

47
unit should end ever to focus large cash at the end of cash working capital
cycle then what it had at the beginning of working capital cycle. Further, the
important object in managing cash should be trade of liquidity and profitability
in order to maximize profits. By keeping large amount of cash of the firm is
able to maximize profits. By keeping large amount of cash, the firm is to meet
its obligation when they fall due and the risk of technical insolvency is reduced.
However, cash is non-earning asset so unnecessary cash should not be kept as
hand then the business efficiency. Liquidity and the same time maximize its
profitability. They also stress that business transaction, without involvement of
cash is mythical in this monitory world. Today the important of cash
management in recognized by all segment of organization activities, If some of
departments are handled independently without considering there implication
of cash management are bound to create serious problem. The study of cash
management is therefore considered as an integrated approach to management
science.

Simmons and Kerrenbrock (1964) expressed that cash is more after than
other assets, is the item involved in business traction. This is due to nature of
business transactions, which include a price and condition calling for
settlement in terms of medium of exchange.

In striking constant to activity of cash is unproductive in nature. Some cash is

measured of values it cannot expose to grow unless it is converted into other
properties. Excessive balance of cash on hand is often referred to as 'idle cash'.
To be most useful to business enterprise, cash must be kept moving.

Hampton (1989) has given more suggestion for effective management of cash.
He explained that net working capital is the adequacy of near cash to meet the
firm's obligation. The highly liquid firm has sufficient cash to pay its bills at all
time. An illiquid firm is unable to pay its bills when due. The investment of
excess cash, minimizing of inventory, speedy collection of receivables, and

48
elimination of unnecessary and costly short term financing all contribute to
maximizing the value of firm. In a period of high interest rate customer may be
slow in paying their bills a face that will be cause an increase in the level if
sales , variable working capital may be changed.

Khan and Jain (2003) explained that cash management linkage with working
capital management. A part from the fact is the most liquid asset, cash is the
common denominator to which all current assets is receivable and inventories
get eventually converted into cash. This underlines the significance of
management cash , i.e. motive for holding cash objective of cash management,
factor determine cash needs, cash management of cash and specific techniques
to manage cash subsequently.

Shrestha (1980) has described some conceptual ingredients about cash

management, which is based on his various research studies. We can learn
lesson from it and also helpful for this study indeed. He adjusted the relation of
cash with sufficient and in sufficient corporations. It does not matter whether
cash inverses of devices of they are not in position to utilize them, but efficient
corporations due to undertaking of more operations need more besides cash
besides having profit.

Weston and Bringham (1978) have poured some views about cash
management after their various studies on it. The bond conceptual finding of
their studies provides sound knowledge and guidelines for the motives for
holding cash, specific advantage of adequate cash synchronization of cash
management, determine cash balance, compensating balances, marketable
securities. Substitute for cash criteria for setting securities investment
alternatives.
Van Horn (2002) has presented the knowledge about cash management. He
said that cash management involves managing the money of the firm to
maximize the cash availability and interest income to any idle funds. At one

49
end the function starts when a customer writes check to pay the firms its
current receivable. The function ends when supplier, an employ or government
realize collected fund from the form as amount payable or accruals. All
activities between these two point fall within the real cash management. the
firms efforts to get customers to pay their bills at a certain time fall within
account receivable management on other hand, the firms decision about when
to pay its bills involves account payable and accrual management. He again
described an idea of cash, we should attempt to accelerate collection and
disbursement of cash, we should attempt to acceleration collection and handle
disbursement so that maximum cash is available. Collection can be accelerated
by means of concentration banking a lock-box system and certain other
procedures. Disbursement should be handled to give maximum transfer
flexibility and the optimum timing of payment being mind full however of
supplier relation. Methods of controlling disbursement i.e. electronic fund
transfer are becoming increasingly important and most corporations use such
transfer in one way or another.

Bringham, Gapenski and Ehrahard (2001) have described some conceptual

insights which are be based on various research studies. They believed that
case is offered called "non earning assets". It is needed to pay for pay labor and
row material to buy fixed assets to pay taxes to survive debt to pay taxes to
survive debt to pay dividend and so on. However, cash itself earn to interest.
Thus the goals of the cash managers are to minimize the amount of cash. The
firm must hold for sue in conduction its normal business activities. Yet, the
same time, to have sufficient cash i) to take trade discount ii)to maintain its
credit rating, and iii)to meet unexpected cash needs.

Pradhan (2004) explained about cash and its management. He told that cash
includes coins, currencies, cheque hold by a firm, and balance in its bank
account. This money is immediately useable to pay bills. Some time 'hear cash
items" are also included in cash, e.g. marketable securities. If the firm has

50
excess cash, it may decide to convert it to short-term investment. The financial
manager will purchase low risk; high liquidity money market instrument that
can be converted bank to cash without delay if the need arise. The securities
provide a small profit on cash that may not be needed immediately for the firms
operation. These securities offer different characteristic that make it suitable for
different characteristic that makes it suitable for the firms. He said cash
management is also or currently in hand but also the readily convertible
securities or other near cash items, e.g. time and demand deposits, readily
available credit and so on. According to him concerning area of cash
management are:
 Management of cash flows into and out of the firm
 Management of cash flow within the firm
 Management of cash balance held by the firm at a point of time.

Weston and Copland (1992) suggested about cash management firm various
study and research. They said that relatively high level of interest rates have
developed new techniques for optimizing cash balance and determining the
appropriate relation between holding cash holding investment in marketable
securities.

2.3 Review of Related Studies

In this section an attempt has been made to review some journals,
thesis/dissertation and other related publications related to cash management.

2.3.1 Review of Journals

Baumol (1952), at his article “The Transaction Demand for Cash: An
Inventory Theoretic Approach” on quarterly journal of economic (Vol. LXV)
identifies cash maintenance as analogues to inventory and demonstrates that
the model of economic order quantities that is applicable to inventory
management is perfectly applicable in cash management too. He has presented
model in view of minimizing the opportunity cost of holding cash and
maximizing the return on available funds, the cash balance should be
51
maintained at a minimum level and the funds not required from immediate use
be invested in the marketable securities.

Miller and Orr (1996), in their article “A Model of the Demand for money in
firms” on quarterly journal of economic, (Vol. LXV) have developed a model
known as Miller-Orr model, that takes into account the realistic pattern of cash
flows and prescribed when and how much to transfer from cash to investment
account and vice-versa.

Saksena (1974), at his article, “Towards More Efficient Cash Management”

on quarterly journal of management quality (Vol.No. 5) identified that the term
cash management has a meaning according to the purpose for which it is used
and persons with varying branches of knowledge implies various meaning of
cash. Economics considered cash, as the means to satisfy human want, the
lawyer the view that cash is legal tender money issued by a determinate
authority. However, our concern of the meaning of cash is an asset constituting
the most liquid item among all the assets. But to obtain cash involves cost
because corporation has to rise through issue to share or by borrowing with
interest. In through generation money market procurement is liability and
wasted opportunity unless it is not put to its optimal use.

Miltzer (1963), adjudged wealth as an explanatory variable of cash balance

determination and sales as the measure of wealth. He hypothesized that the
amount of money held by firms is the function of the market rate of interest and
wealth. He concluded that “the results suggest strongly that the cross-section
demand for money by firms is a function of sales, to a first approximation
linear in the logarithms and unit elastic.”

Whalen (1965), in his article “A Cross Section Study of Business Demand for
Cash” on journal of finance, has found the speculative demand for money may
be considered as a function of wealth. Assets and sales are the explanatory

52
variables to determine the cash balance of the firm. Since Whalen attempted to
incorporate assets as well as transactions into the demand function, the analysis
presented by him in order to determine the cash holding of the firm differed
from Miltzer’s model. He hypothesized that the cash holding of the firm is not
only for transaction purpose but also as an investment.

Sprenkle (1967), in their article “Large Economic Units, Banks and the
Transactions Demand for Money” on quarterly journal of economic, (Vol.
LXXX, 436-442) have assumed that money had all the attributes of ordinary
inventories goods.

Vogel and Maddala (1967), assumed that the demand for cash, government
securities and liquid assets is a function of wealth determination. According to
them the firm is assumed to allocate its financial holdings among assets so as to
equalize the marginal rates of return, adjusted for risk involved. The results
differ from Miltzer only in that Meltzer estimated the demand equation for
individual industry for each year, whereas, Vogel and Maddala employed the
dummy variables end estimated pooled regression with yearly data. They had
also included assets as an explanatory variable in the demand for money
equation and determined the economics of scale.

2.3.2 Review of Previous Research Work

The basic concept of cash management has been searched into this section of
literature review. Textbook there have been prescribed under studies are the
primary source of data under my study dissertations. After various research
studies on cash management when browsed through computer record of these
reports presented earlier in Tribhuvan university central library.

53
Sainju (2003), entitled "A Cash Study of Royal Drugs" conducted the poor
cash management practices of Royal Drugs limited.
She conducts that:
 Overall ash management practice has been found disappointing
 Overall liquidity position of the firm has been found moderately
dissatisfactory
 Overall, yearly cash inflow and out plow in RDL is not been properly
employed. Surplus cash has not been properly employed to earn return by
investing in short term investment opportunities.
 Profitability has been found in very weak position.
 Overall cash budgeting practice of RDL is very poor.

On this study payable deferral period investing conversion period and

receivable collection period and their aggregate effect as cash management has
not been identified i.e. cash conversion cycle of the company has not been
identified which helps to analyzed overall status of collection of cash in an
organization.

Neupane (2004), conducted the study of “Cash Management in Nepalese

Public Enterprises: A Case Study of Salt Trading Corporation Limited”. He
had noticed some issues and constraints while analyzing the management of
cash in STCL, which are as follows:
 Absence of forecast and plan: It is observed that the cash management is
least concerned to forecast of cash for the coming period. The cash
forecasting is completely lacking in the corporation. The fluctuating trend
of cash deficit reveals the fact clearly.
 The lack of accurate and proper sales forecast is one of the important
constraints that affect the financial performance of the corporation. If the
corporation forecasts the expected sales accurately, it can manage the
various activities accordingly.

54
  The quality of management itself is a scarce factor in STCL. The
performance of STCL exhibits that the management lacks basic
knowledge of financial management.
 Restrictive credit policy is one of the important constraints that affected
the sales volume of the corporation. If it adopts liberal credit policy, it can
increase the sales volume and the receivable turnover by employing a very
restrictive credit policy.
 Due to certain constraints in management, STCL denied to provide
information except balance sheet and profit and loss account, which are
not sufficient for analysis of cash management.

He had concluded that many factors or determinants such as nature of business,

level of sales, credit terms, quality of customers, economic condition etc. have
to be considered in cash management.

Kunwar (2005), conducted a research topic "Cash Management of

Manufacturing Companies." He has studies cash management of five
manufacturing companies. Nepal leer Ltd. Nepal lube Oil Ltd., Bottler Nepal
(Terai) Ltd., Nepal Bansaspati Ghee Ltd., and Raghupati Jute Mill Ltd. Major
objectives of the study are to identify the liquidity position, relationship of cash
with other influencing variable of cash and Analysis of cash conversion cycle.

Major finding of the study are mention as under:

Listed manufacturing companies don’t have any definite policy regarding how
much cash balance to bold in each period. Companies have not been hold in
each period. Companies have not been able to trade of liquidity and
profitability. The CR and NPM are found with insignificant correlation.
Companies are not been able to collect cash in considerable time span. The
average cash conversion cycle of manufacturing companies have not been

55
obtain to be 114 days. Due to the high inventory conversion period the result
was not satisfactory.

Conclusions derived from this research are cash management be the major
element of financial function. It is said that main function of financial manager
is to apply better technique to improve cash management in companies. There
is other numerous aspect of finance involves in the overall financial
performance addition of a firm. in addition to this, the overall performance of a
firm counts for other management aspects. Such as human resources
management, Organization structure, marketing management etc. however all
down falling trend of financial position is indication of the fact that listed
manufacturing companies should immediately seek for drastic change in its
managerial structure. So far cash management is concerned the recommended
and suggested above could to a great extent, uplift the listed manufacturing
companies’ cash management situation.

He recommended manufacturing coma pies should try to reduce cash

conversion cycle. Cash conversion cycle of the companies has been found to be
higher. However RCP and PDP have been found to be considered period.
Inventory conversion period was found too long. High level of inventory has
affected to make CCC longer. It is recommended that the companies should
improve their inventory management system. Manufacturing companies should
try to trade off liquidity and profitability in order to increase profit.

Shrestha (2005), conducted a research on the topic, “Cash Management in

Public Manufacturing Enterprises of Nepal: A Case Study of Royal Drugs
Limited”. His major objective is to examine the management of cash in RDL.
The other objectives of this study are to make the analysis of cash flow of
RDL, To examine the liquidity position of RDL and to analyze the cash
budgeting practice. From the study he had found that the current assets and
quick assets are not being maintained in accordance with current liabilities and

56
large portion of RDL’s current assets has been tied up in the most liquid asset
i.e. inventory. He had suggested adopting the following recommendation for
better cash management.
 Recommend to maintain optimum cash balance every year.
 Recommend to prepare cash flow statement
 Recommend not tie-up current assets in unsaleable inventories
 Maintain optimum current assets variables and current liabilities every
year.

Chataut (2008), conducted the study on “Cash Management in Nepal

Telecom”. The objectives of his study are as follows:
 To observe devices of planning and control of cash in NT.
 To examine the existing internal control policy in NT regarding cash
control practices.
 To identify the shortage of excess of cash in the company and the
procedures of financing for the shortage and investment of excess cash.
 To study the liquidity position of the company.
 To analyze the gap between budgeted and actual sources and uses of cash
and its trend.
 To review cash flow from operating, financing and investing activities.
 To suggest and recommend NT based findings.

Bhandari (2008), conducted the study on “Cash Flow Analysis of Nepal

Telecom”. The main objectives of his study are as follows:
 To analyze the trend of cash flow of NTC.
 To identify the strengths and weakness of cash management of NTC.
 To reflect ability to generate cash flow in future periods
 To provide suggestions and recommendations for future improvement of
cash flow and cash management.

57
According to his study he concluded that,
 Regular financing activities of NTC are long term debt receipt/payment,
dividend payment and repayment of retained earning to Nepal
Government.
 Operating profit before adjustment of working capital is in positive
growth for every year.
 There is not scarcity of cash during the period to operate its general
activities.
 Overall activities are satisfactory.

Ban (2009), conducted the study on “Cash Management in Public

Manufacturing Company: A Case Study of Bottlers Nepal Limited”. The
objectives of his study are:
 To study of existing cash management system in BNL.
 To critically review the cash management technique practiced by BSNL.
 To suggest appropriate cash management policy for the future.

The major findings, which may be drawn on the basis of this study are as
follows:
 Cash Management in the BNL is primarily based on the practices lacking
in scientific approach.
 Modern practices with respect to debt collection monitoring the payment
behavior of customers and relevant banking arrangements in connection
with collection of receivables have been virtually ignored in BNL.
 The cash turnover time is in the fluctuating trend over the study period.
 No optimum cash balance is maintained. The cash and bank balance with
respect to current assets is in the fluctuating trend.

Shrestha (2009), conducted the study on “Cash Management Practices in

Nepal Telecom”. The major objective of the study is to examine the

58
management of cash in Nepal Telecom. The major findings of his study are as
follows:
 Public sector enterprises play backbone role for economic development of
the nation.
 The main sources of cash of NTC are international trunk telephone, local
telephone and domestic trunk telephone both of PSTN and mobile.
 The actual cash balances were higher than approved budgeted amount. It
shows that there was no effective implication of budgeted amount.
 When comparison is made between actual cash source and actual cash
uses, there was big deviation resulting surplus. So, it shows that budget
was not implemented properly and surplus was not used in productive
investment.
 Total budgeted sources involved closing cash balance of previous year,
external and internal source. Internal source of cash was main portion of
the total cash source to meet the budget.
 Current ratio shows that NTC is efficient in maintain the good liquidity
position.
 Cash flow analysis shows strong financial position of the company.
 Cash budgeting practice of NTC is poor.

Nepal telecom is non-manufacturing company and most of its transaction is

done in cash basis. It is one of the major contributors to the revenue of the
government. Besides this, stakeholders have various level of interest on the
company. Cash management of Nepal Telecom; a service oriented company
has great importance in overall planning and control of the company. So this is
legitimate reasons for studies in some aspects of cash management practices of
NTC and the researcher has chosen this topic of interest. The researcher mainly
focuses the study on the analysis of cash budget, cash position, surplus/deficit,
liquidity position and internal control policy regarding cash management
practices of the company.

59
2.4 Research Gap
The review of above relevant literature has contributed to enhance the
fundamental understand and knowledge, which is required to make study
meaning and positive.

There has been lots of article published related to management of Public

Enterprises. There are various researches conducted on cash management of
Public Enterprises. While reviewing other studies on cash management analysis
related to public Enterprises. The researcher found that the ratios are not
properly analyzed. What actually the ratios indicate is not clear. So, this study
has tried to analyze the different ratios in order to make fruitful analysis on the
cash management of Nepal Water Supply Corporation.

Apart from this study will be fruitful to those interested person, parties,
scholars, professor, students, businessman and government for academically as
well as policy perspective. Hoping that, this study will help to others in the
related field.

CHAPTER - III
RESEARCH METHODOLOGY

The basic objective of this study is to analysis the cash management of the
NWSC. A methodology state the method with data has been used in
interpretation of such data is to fulfill the objectives. Thus in this chapter,
research design, the population and the sample, nature and sources of data and
processing procedure tool and techniques which are required for cash
management to analysis data will be presented.

3.1 Research Design

60
This study is a case study research of NWSC. Historical data last ten fiscal
years from fiscal year 2055/56 to 2064/65 of the corporation have been the
basis of this study. The balance sheet and profit and loss account for last ten
years have been compared to analyze the cash mange of the corporation.

3.2 The Population and Sample

Total public enterprises in Nepal are total of 36 (according to economic survey
2005/6) NWSC is one of them. So the existing numbers of public
manufacturing enterprises in Nepal refers to the population and Nepal Water
supply Corporation, the sample. Since NWSC is the oldest public
manufacturing company. It is most 59 likely to represent all other public
manufacturing enterprises, However, this is a case study and thus the finding
could not be extensively generalized to all other public, manufacturing
enterprises.

3.3 Nature and Sources of Data Collection

This study will be based upon the secondary data. Basically secondary data will
be collected from annual report which comprises the financial statements such
as balance sheet, profit and loss account. Thus this will be the main source of
data and other necessary data concerning with thesis research authorized staff
at center office of NWSC, Tripureswor Kathmandu. Some of these data will be
from published and unpublished sources. The balance sheet and profit and loss
account will be obtained for the last ten years.

3.4 Financial and Statistical Tools and Techniques

To find out the true picture of "Cash Management" of NWSC the financial and
statistical analytical tools will be used. For quantitative analysis of secondary
data are as follows:

3.4.1 Ratio Analysis

61
The relationship between two calculating figures are expressed mathematically
is known as a financial ratio large quantitative figure.

3.4.1.1 Current Ratio/Liquidity Ratio

Current assets includes cash and those assets which can be converted into cash
within a year such as marketable securities debtors and inventories, prepaid
expenses and current liabilities includes creditors, bills payable accrued
expenses, short term borrowing, income tax and term debt in the current year.
Current Assets
Current Ratio =
Current Liabilities

Current Ratio of 2:1 as more is considered satisfactory

Current Assets−Inventories
Quick Ratio =
Curent Liabilities

Quick Ratio is most liquid assets. A financial analyst may examine this ratio.
Trade investment as marketable securities are equivalent of cash, therefore,
they may be including in the computation of cash ratio.

3.4.2 Turnover Ratio

3.4.2.1 Cash Turnover Ratio
Cash turnover ratio explain how quickly the cash is received from the sale or in
other words it measures the speed with cash more through an company’s
operation, cash turnover ratio is obtained by the following formula:

Sales
Cash Turnover Ratio =
Cash in Hand+Bank Balance

3.4.2.2 Inventory Turnover Ratio

This ratio indicates the number of times inventory is converted in sales during
the year.

62
 Sales
Inventory Turnover =
Average Inventory

Sales
Inventory Conversion Period =
Closing Inventory

It indicates that the gap of the period which the inventory to be sold in each
time of conversion.

3.4.2.3 Receivable Turnover Ratio

Receivable turnover or debtors are converted into cash. In other words, the
receivables turnover ratio is the test of liquidity of debtors of a firm.

Sales
Receivable Turnover Ratio =
Account Receivable

Receivable conversion period/Average collection period =

Days in a year
Receivable Turnover Ratio
The higher turnover ratio and shorter the receivable collection period, the better
is trade credit management and the better is the liquidity of the debtors as short
collection period and higher turnover ratio imply prompt payment on the part
of debtors. On the other hand, Low turnover ratio and long collection period
reflect delayed payment by debtors. In general, therefore, short collection
period is preferable.

3.4.3 Cash and Bank Balance to Other Aspects

3.4.3.1 Cash and Bank Balance to Current Liabilities
It indicates the cash balance available with the firm in meeting payment of
current liabilities. Moderately higher ratio indicates good liquidity. Too high
and too low ratio both are unfavorable for the firm since too high indicates
excess cash balance held idle, too low ratio means the firm unable to meet
current liabilities.

Symbolically,

63
 Cash and Bank Balance
Cash to Current Liabilities =
Current Liabilities

Cash & Bank Balance

Cash and Bank Balance to A/C Payable =
Account Payable

3.4.3.2 Cash and Bank Balance to Total Assets

It indicates the position of cash with relation to total assets. It measures ratio of
productive assets with unproductive assets moderately high is best. Too much
high measures the idle cash which is losing opportunity income and vice versa.

Cash & Bank Balance

Cash and Bank Balance to Total Assets =
Current Assets

3.4.4 Net Profit Margin Ratio

It indicates the percentage of net profit under sales where higher ratio is good
for a company.
Net Profit
Net Profit Margin Ratio =
Sales

3.4.5 Return on Working Capital Ratio

Return on working capital ratio shows the profit generate by working capital
where higher ratio is favorable.
Net Profit After Tax
Return on Working Capital Rate =
Working Capital

3.4.6 Net Profit after Tax to Quick Assets Ratio

It indicates the proportion of quick assets to earn profit. Higher return shows
the good management of quick asset to generate the net profit.

Net Profit After Tax

Net Profit After Tax to Quick Assets =
Quick Assets

64
3.5 Statistical Tools
Regression is the statistical tool which is used to determine the statistical
relationship between two (or more0 variables and make estimation ( or
production) of one variables on the basis of other variables. It helps to calculate
the unknown value of one variable can be estimated on the basis of known
values, the more accurate the estimated value is the unknown variables to be
estimated is called dependent variable and the known variable is called
independent variable. Correlation analysis indicated to what degree the
variables are related the variables are related.

Regression line of ‘X’ variable on ‘Y’ variable i.e. (X on Y)

X−̅
X = bxy ( Y − ̅
Y)
Regression line of ‘Y’ variable on ‘X’ variable i.e. (Yon X)
̅ = bxy ( X − X
Y−Y ̅)

Where
̅ and Y̅ = Arithmetic means of X and Y series respectively.
X
N ∑ XY − ∑ X ∑ Y
byx =
N ∑ X 2 − (∑ X)2
N ∑ XY − ∑ X ∑ Y
bxy =
N ∑ y 2 − (∑ y)2

3.5.1 Straight –Line Trend

This is one of the time series analyses, which gives the best estimate of one
variable for any value of other variables, which is analyzed specially for the
average mathematical relationship between two variables.

In this method, a trend line Yc =a+bX is fitted to the given data such Σ(Y- Yc)
= 0 and (ΣY-Yc)2 is least.

65
Where,
Yc = value of y computed from relationship for a given ‘x’
a= Numerical constant measures the distance of the fitted line directly above or
below the origin or y- intercept
b = Numerical constant which measures the change in y per unit change in x.
The value of a and b can be found out by solving the following numerical
equation.
X = Time in case of time series analysis.
ΣY = Na + bΣX
ΣXY = n ΣX+ bΣX2

Where,
N is the number of years or any period, on which the data are given, the normal
equations are obtained by using above conditions and some mathematical
manipulations

3.5.2 Karl Pearson’s Coefficient of Correlation (r)

Correlation analysis in the statistical tools generally used to describe the degree
which our variable is related to another. This tools is used for measuring the
intensity or the magnitude of linear relationship between two variable X and Y
is usually denoted by ‘r’ can be obtained as:
N ∑ XY − ∑ X ∑ Y
𝑟=
√N ∑ X 2 − (∑ X)2 √N ∑ Y 2 − (∑ Y)2

Where,
N = no of observation in series X and Y
∑ X = Sum of observation in series X
∑ Y = Sum of observation in series Y
∑ X 2 = Sum of square observation in series X
∑ Y 2 = Sum of square observation in series Y
∑ XY = Sum of the product of observation in series X and Y

66
However in this thesis work, while computing correlation coefficient, the above
formula has been used only once manually. For rest of the computations will be
done. The value of r lies between +1 to -1. Value +1 refers the positively
relationship between two variables and -1 refers to the negatively correlated
between two variables. And near to 0 is refers no correlated between two
variables. Together with Karl Persons coefficient of correlation, probable error
(PE) of the correlation coefficient is also computed. This probable error of
correlation coefficient is the basis for the interpretation of its value. It is given
by
1 − r2
P. E. = 0.6745
√n
Where,
PE = Probable error of correlation coefficient
N= Number of pair of observation
r = correlation coefficient

It is used in interpretation whether calculated value of ‘r’ is significant or not.

1. If r < P.E., it is insignificant. So, perhaps there is no evidence of
correlation.
2. If r > P.E., it is significant.
3. In other cases nothing can be concluded.

When r < PE, the value of r is not statistically significant at all, i.e. there isw no
evidence of correlation. r< 6PE, the value of r is significantly i.e. practically.
But when PE< r < 6 (PE) the value of r is inconclusive as to statistically
significant/insignificant correlation. The upper limit and lower with in which
the correlation coefficient is expected to lie are given by:
r+ PE (upper limit) and
r-PE ( Lower Limit) respectively

67
But when r is of negative value i.e. -1< r < 0 in order to compare r with PE
which is always in positive value, r modulus i.e. /r/ is calculated . /r/ is nothing
but is the positive value r itself for example if r is calculated as r =0.5 then /r/
=0.5

3.5.3 Standard Deviation

Standard deviation measures the scatter, spread or variation and provides idea
of the homogeneity or heterogeneity of the distribution. Out of various method
s of studying dispersion such as Rang, Inter quartile range and quartile most
popular method is the standard deviation and variation and variance method.

Standard deviation is represented by the symbol sigma (σ ) and is given by:

∑(𝑋−𝑋)
̅̅̅̅ 2
SD (𝜎) =
𝑁

Where,
∑𝑋
𝑋̅ =
𝑁

In conjunction with standard deviation coefficient of variation (CV) is also

computed which is relative measure based on standard deviation to the mean
expressed in percent.

Coefficient of Variation
CV calculated by:
𝑋̅
𝐶𝑉 =
𝜎

The ratio σ/ −X is called coefficient of variation. CV has no unit. Distribution

with lower CV is said to be less variables (or more) consistent or more uniform

68
and the distribution with higher CV is indicative of more variable or (less
consistent or less uniform) The limitation of using CV is that when
distributions being compared have negative observation, It provides underline
way to compare variability across data sets.

69
 CHAPTER - IV
DATA PRESENTATION AND ANALYSIS

This chapter includes analysis of data collection and their presentation with
reference to various readings and literature reviews in their preceding chapters.
To meet the objectives, which is stated in chapter I is to have true insight in to
‘Cash Management of Nepal Water Supply Corporation. For accomplishment
of these objectives, a definite course of research methodology has been
followed, which is described in chapter III. Now in this study, the effort has
been made to access and analysis the cash management to disclose the actual
position of cash management in NWSC.

In this chapter, efforts have been made to process the obtained data from Nepal
Water Supply Corporation, presentation, analysis and interpretation them by
the use of methodology. The available data which are collected and tabulated in
the appropriate categories on the basis of their homogeneous nature, These
tabulated data are analyzed with the help of financial, statistical and cash
management tools are finally interpreted to explore the facts.

4.1 Analysis of Cash and Bank Balance

Holding of optimum cash balance is the rational cash management practice of a
business form. Total cash balance refers to the cash in hand, cash at bank and
cash in transit, near cash assets such as marketable securities and time deposit
in bank. In this way management of cash plays a significant role in current
assets of NWSC. Following table shows the amount of cash and bank balance
of NWSC during the period under study. The cash balance of each fiscal year
has been compared to preceding year analyze fluctuations.

Table 4.1
Analysis of Cash and Bank Balance
(Rs. in thousand)
70
 Increase /Decrease
FY Cash and Bank Balance
(%)
2055/056 184402 0
2056/057 258569 40.22
2057/058 257050 -0.59
2058/059 163435 -36.42
2059/060 226244 38.43
2060/061 236083 4.35
2061/062 311413 31.91
2062/063 346103 11.14
2063/064 392682 13.46
2064/065 274971 -29.98
Average 265095.2

Figure 4.1
Analysis of Cash and Bank Balance

450000
400000
350000
300000
Amount

250000
200000
150000
100000
50000
0

Year

From above table and chart, we can analyze trend of cash and bank balance as
under. In fiscal year 2055/56, the cash balance of the company is Rs 184402
thousand, which is increase by only 40.22 %, to Rs. 258569 thousand in the
following year. In this way above table and figure show that the cash balance
of next year is going to be sharply decreased by 0.59% in the fiscal year
2057/058 as compared to preceding year, such trends come up to fiscal year
2058/059 by -36.42% and in fiscal year 2059/060 the cash and bank balance

71
increase by 38.43%. Likewise there is increase in cash balance in 2061/062 by
31.91 and that after the cash balance in FY 2062/ 63 is in increasing trend.
From next i.e. FY 2063/64 it is increase by 13.46%. In FY 2064/2065, the cash
balance is sharply decreased by 29.98%.

However, most deviation in increment of cash balance occurred in 2056/057

when the company holds cash by 258569 thousand and the most deviation in
decrement of cash balance occurred in 2058/059 by 36.42%.

Such fluctuation states that decision regarding holding cash balance at year end
is rather a haphazard decision without any substantial logic and policy.
Regarding cash balance, it is current asset. Holding more cash indicates passive
decision (policy). Likewise holding less current asset is aggressive decision
(policy). But vast fluctuation is found.

72
4.1.1 Analysis of Dispersion in Cash and Bank Balance
Table 4.2
Dispersion in Cash and Bank Balance
(Rs. in thousands)
F/Y Cash and bank balance(X) (𝑿 − 𝑿 ̅) (𝑿 − 𝑿̅ )𝟐
2055/056 184402 -80693.2 6511392526
2056/057 258569 -6526.2 42591286.44
2057/058 257050 -8045.2 64725243.04
2058/059 163435 -101660.2 10334796264
2059/060 226244 -38851.2 1509415741
2060/061 236083 -29012.2 841707748.8
2061/062 311413 46317.8 2145338597
2062/063 346103 81007.8 6562263661
2063/064 392682 127586.8 16278391534
2064/065 274971 9875.8 97531425.64
Total 2650952 44388154028

∑𝑋 2650952
𝑀𝑒𝑎𝑛 (𝑋̅) = = = 265095
𝑁 10

∑(𝑋−𝑋̅)2 44388154028
Standard Deviation (σ) = √ =√ = 70228.32
𝑁−1 10−1

Above calculation shows that NWSC held cash without any basic policy i.e.
some time so high some time very low, the standard deviation has been found
Rs. 70228.32 which indicates that there is no normal degree of uniformity in
holding cash balance in the fiscal year ends.

Calculation of coefficient of variation (CV) further shows that whether the

uniformity or homogeneity of cash balance held id poor, good or excellent.

σ
Coefficient of variation (CV) = ̅ × 100 = 26.49%
x

Lower CV means higher consistency or higher stable cash balances where as

higher CV indicates just opposite situation. In this way, the CV off NWSC i.e.
26.49% definitely signifies that the homogeneity in holding cash balance is
poor.

73
4.1.2 Cash and Sales
4.1.2.1 Analysis of Cash Turnover Ratio
The following table shows that cash turnover during the study period of
NWSC.
Table 4.3
Analysis of Cash Turnover Ratio
(Rs. in thousands)
F/Y Revenue Cash and Bank Balance Ratio( times)
2055/056 287809 184402 1.56
2056/057 382523 258569 1.47
2057/058 486667 257050 1.89
2058/059 533961 163435 3.26
2059/060 582706 226244 2.57
2060/061 598894 236083 2.53
2061/062 726478 311413 2.33
2062/063 755619 346103 2.18
2063/064 755958 392682 1.92
2064/065 265907 274971 0.96
Average 2.067

There is fluctuations have been observed in cash turnover ratio analysis. The
fluctuations of cash turnover ratio is the indication of no definite policy holding
cash balance in relation to sales volume, is applied by NWSC. The average
cash turnover ratio of NWSC is 2.067.

74
 Figure 4.2
Analysis of Cash Turnover Ratio
800000
700000
600000 Sales
500000
Amount

400000
Cash and
300000 bank
200000 balance
100000
0

Year

Where the higher ratio is 3.26 times has been observed in FY 2058/59.
Likewise, the lowest ratio of 0.96 times has been observed in FY 2064/65. In
FY 2058/59, 2059/60, 2060/61, 2061/62 and 2062/63, the cash turnover shows
the higher than average and remaining all fiscal year i.e.2055/56, 2056/057,
2057/058, 2063/64 and 2064/065, the cash turnover shows the lower than the
average. This shows that cash turnover is not so fluctuation in NWSC.
Figure 4.3
Analysis of Cash Turnover Ratio
3.5
3
2.5
2
Ratio

1.5
1
0.5
0

Year

4.1.2.2 Analysis of the Relation between Cash and Bank Balance and
Revenue

75
To analyze the relationship between cash and bank balance and Revenue, Karl
Person’s correlation coefficient has been determined as general rules i.e. if
revenue grows higher, the cash balance held tend to be higher too and vice
versa. Generally, cash balance held and revenue volumes are positively
correlated.
Table 4.4
Correlation between Cash and Bank Balance and Revenue
F/Y Revenue Cash and Bank Balance
2055/056 287809 184402
2056/057 382523 258569
2057/058 486667 257050
2058/059 533961 163435
2059/060 582706 226244
2060/061 598894 236083
2061/062 726478 311413
2062/063 755619 346103
2063/064 755958 392682
2064/065 265907 274971
Correlation Coefficient (r) 0.607
Probable Error (P.E) 0.043
6 × P. E. 0.256
Source: Annual Reports of NWSC (2055/56 to 2064/065 and Appendix 1)

The calculated correlation between sales and cash and bank balance has been
observed to be 0.607. Generally, it indicates the positive relationship between
sales and cash and bank balance. To make confirm, whether it is real or not for
NWSC, it is compared with probable error. The probable error multiplied by
six found to be 0.256. Since r > 6 * PE r, it is significant and there is
significant correlation between cash and bank balance.

4.2 Analysis of Liquidity Position

Liquidity of a firm indicates the position to meet its current short-term
obligation when it becomes due for payment. Therefore, in cash management,
the study of liquidity position of an enterprise constitutes an important role. If a

76
firm is adequately liquid or solvent, the short-term creditors are interested in
such firms and therefore such firms get their short-term requirements easily.
However, too much liquidity or in other words, holding more than enough cash
an indication of mismanagement of cash balance such cash balance remained
other meeting payments would remain idle. So an optimum liquidity is to
necessity of the firm.

The liquidity ratio measures the liquidity of enterprise to meet their short term
obligations and reflect the short term financial strength of a firm.

4.2.1. Analysis of Current Ratio

One of the reliable methods to examine liquidity position of a company is by
means of current ratio. It is calculated by diving current assets by current
liabilities, which is a measure of the firm’s short-term solvency. The standard
current ratio is to measure by 2:1. If the ratio is higher than 2, it is very
comfortable for the creditors but it is the indicator of idle funds and the ratio is
less than 2, difficulty may be experienced in the payment of current liabilities
and day to day operations of the business may suffer.

Thus too much reliance should not be placed on the current assets should be
carried. However, the current ratio is a crude and quick measure of the firm’s
liquidity. The current ratio of NWSC is shown as under.

77
 Table 4.5
Analysis of Current Ratio
(Rs in thousand)
Fiscal Year Current Assets Current Liabilities Ratio (Times)
2055/056 863333 208252 4.15
2056/057 982970 416175 2.36
2057/058 1077909 525891 2.05
2058/059 1056131 655954 1.61
2059/060 1141260 735655 1.55
2060/061 1275089 857546 1.47
2061/062 1481586 992420 1.49
2062/063 1689762 1148268 1.47
2063/064 1912819 1868361 1.02
2064/065 717824 734723 0.98
Average 1219868.3 814324.5 1.82
Source: Annual Reports of NWSC (2055/056 to 2064/065)

Figure 4.4
Analysis of Current Assets and Liabilities

2000000

1500000
Current
Amount

liabilities
1000000

500000 Current
Assets

Fiscal Year

Above table and figure indicates that there might have been prevailed a little bit
slack management practice. The figure shows that the average current ratio is
1.82, which is normally less than the satisfactory level; however satisfactory
level is 2:1.

78
Overall, the average ratio signals a little bit unsatisfactory position of the
NWSC, which should be little bit above the average ratio to reach near to 2:1.

Figure 4.5
Analysis of Current Ratio
4.5
4
3.5
3
2.5
Ratio

2
1.5
1
0.5
0

Fiscal Year

4.3 Profitability Analysis

A company should earn profits to survive and to grow over a long period of
time. Profits are essential, but it would be wrong to assure that every action
initiated by management of a company should be aimed to maximize profits,
irrespective of social consequences. It is unfortunate that word ‘Profit’ is
looked upon as a maximize profits at the cost of employees, customers and
society. Expect such infrequent cases, it is a fact that sufficient profits must be
earned to sustain the operations of the business to able to obtain funds from
investors for expansion and growth and to contribute towards the social over
heads for the welfare of the society. The profitability ratios are calculated to
measure the operating efficiently of the firm. Creditors want to get interest and
repayment of principal regularly; owners want to get a reasonable return on
their investment. This is possible only when the company earns enough profit.

4.3.1 Analysis of Net Profit Margin Ratio

79
It measures the relationship between the net profit and sales and indicates
management efficiently in manufacturing administering and selling of the
firm’s ability to turn each rupee sales into net profit.
Table 4.6
Analysis of Net Profit Margin Ratio
F/Y Revenue NPAT Ratio (%)
2055/056 287809 -148653 -51.65
2056/057 382523 -145115 -37.94
2057/058 486667 -204296 -41.98
2058/059 533961 -258443 -48.40
2059/060 582706 -273318 -46.90
2060/061 598894 -274118 -45.77
2061/062 726478 -236970 -32.62
2062/063 755619 -239728 -31.73
2063/064 755958 -836184 -110.61
2064/065 265907 -204746 -77.00
Average 537652.2 -282157.1 -52.46
Source: Annual Reports of NWSC (2055/056 to 2064/065)

80
 Figure 4.6
Analysis of Net Profit Margin Ratio
0

-20

-40
Ratio in times

-60

-80

-100

-120
Fiscal Year

The above figure shows that NWSC has been operating in loss in all fiscal year
during the research period. Net profit (loss) margin ratio in FY 2055/56 is -
51.65% .Similarly, FY 2056/057 is seen little better because net profit margin
is minimum i.e. -37.94%. In FY 2063/064 there was heavy loss i.e. -110.61%
but after that year, loss is decreased continuously. Very poor performance has
been seen also in FY 2057/58, 2058/59, 2059/060, 2060/061 which are -
41.98%,-48.40%,-46.90 and -45.77% respectively.

In overall, NWSC has been operating under loss and the average net
profitability margin has been calculated -52.46%.

4.3.2 Analysis of Net Profit after Tax on Current Assets

It is computed by dividing net profit (loss) after tax by current assets. Higher
ratio indicates higher utilization of current assets to earn profit and vice versa.

81
 Table 4.7
Analysis on Return on Current Assets
Fiscal Year Current Assets NPAT Ratio (%)
2055/056 863333 -148653 -17.22
2056/057 982970 -145115 -14.76
2057/058 1077909 -204296 -18.95
2058/059 1056131 -258443 -24.47
2059/060 1141260 -273318 -23.95
2060/061 1275089 -274118 -21.49
2061/062 1481586 -236970 -15.99
2062/063 1689762 -239728 -14.18
2063/064 1912819 -836184 -43.71
2064/065 717824 -204746 -28.52
Average 1219868.3 -282157.1 -23.13
Source: Annual Reports of NWSC (2055/056 to 2064/065)

Figure 4.7
Analysis on Return on Current Assets
0
-5
-10
-15
-20
Ratio

-25
-30
-35
-40
-45
-50
Fiscal Year

This Analysis shows that NWSC has not utilizing its current assets effectively
in earning profit. The overall ratios are dissatisfying, indicating loss in each
fiscal year. Overall, the return on working capital i.e. current assets is
disappointing indicating drastic downfall of the corporation. The average return
on working capital has been calculated as -23.13%.

82
4.4 Analysis of Relation between Cash and Bank Balances and Current
Assets
Cash is the most liquid current assets. More cash indicates the enterprise is
capital for facing current obligation but the excess cash always remain idle. So
this ratio indicates the proportion of cash balance is the current assets.

Table 4.8
Relation between Cash and Bank Balances and Current Assets
Fiscal Year Cash and Bank Balance Current Assets Ratio (%)
2055/056 184402 863333 21.36
2056/057 258569 982970 26.31
2057/058 257050 1077909 23.85
2058/059 163435 1056131 15.47
2059/060 226244 1141260 19.82
2060/061 236083 1275089 18.51
2061/062 311413 1481586 21.02
2062/063 346103 1689762 20.48
2063/064 392682 1912819 20.53
2064/065 274971 717824 38.31
Average 265095.2 1219868.3 22.57
Correlation Coefficient (r) 0.7743
Probable Error (P.E) 0.027
6 × P. E. 0.162
Source: Annual Reports of NWSC (2055/056 to 2064/065) and Appendix

83
 Figure 4.8
Cash and Bank Balances to Current Assets Ratio
45
40
35
30
25
Ratio

20
15
10
5
0

Fiscal Year

Above calculation shows the proportion of the cash in current assets of NWSC.
The lower ratio is 15.47% in FY 2058/059 and highest ratio 38.31% in FY
2064/065. The average ratio of cash and bank balance and current assets is
22.57%. The above ratio indicates NWSC not follow the basic policy about the
cash balance in current assets.

Since, coefficient of correlation between cash and bank balance and current
assets is 0.7743. This shows that there exists positive correlation between the
two variables. To examine its significance, probable error multiplied by six
found to be 0.162. Since r > 6 * PE, it is significant and there is correlation
cash and bank balance and current assets. This implies that there is positive
correlation between two variables.

4.5 Analysis of Cash and Bank Balance to Current Liabilities

The analysis of cash and bank balance to current liabilities indicates the
proportion of cash balance available to meet the payment of current liabilities.
A moderate ratio is considered satisfactory, too high ratio indicates excess cash

84
balance held idle and too low ratio is indicative of company being unable to
meet its payment of current liabilities in times.
Table 4.9
Cash and Bank Balance to Current Liabilities
Fiscal Year Cash and Bank Balance Current Liabilities Ratio (%)
2055/056 184402 208252 88.55
2056/057 258569 416175 62.13
2057/058 257050 525891 48.88
2058/059 163435 655954 24.92
2059/060 226244 735655 30.75
2060/061 236083 857546 27.53
2061/062 311413 992420 31.38
2062/063 346103 1148268 30.14
2063/064 392682 1868361 21.02
2064/065 274971 734723 37.43
Average 265095.2 814324.5 40.27
Correlation Coefficient (r) 0.8283
Probable Error (P.E) 0.021
6 × P. E. 0.127

Figure 4.9
Relation between Cash and Bank Balances and Current Liabilities
2000000
1800000
1600000
1400000
Amount in RS.

Cash and Bank

1200000
Balance
1000000
800000 Current
600000 Liabilities
400000
200000
0

Fiscal Year

Above calculation shows the fluctuation of ratio occurred from lower 21.02%
to 88.55% which indicate the significant cash balance to meet the current
obligation. But on the other hand most of the ratios are less than 30% which
shows the excess cash and deficit in making payment during the study. It has

85
clearly indicated that NWSC has not been following a systematic cash
management practices.

Since, coefficient of correlation between cash and bank balance and current
liabilities is 0.8283. This shows that there exists positive correlation between
the two variables. To examine its significance, we can use probable error (PE).
The probable error multiplied by six found to be 0.127. Since r > 6 * PE r, it is
significant and there is correlation between cash and bank balance and current
liabilities

4.6 Major Findings of the Study

 NWSC have not any definite policy regarding how much cash balance to
hold in each period. Cash and bank balance hold during the deferent
period of study were observed to be highly fluctuated and thus the fact
indicates the definite policy regarding how much of each balance to be
hold each period. Average cash balance of NWSC during the study period
is 265095200.
 There is fluctuations have been observed in cash turnover ratio analysis.
The fluctuations of cash turnover ratio is the indication of no definite
policy holding cash balance in relation to sales volume, is applied by
NWSC. The average cash turnover ratio of NESC is 2.067.
 Correlation between sales and cash and bank balance has been observed to
be 0.607. Generally, it indicates the positive relationship between sales
and cash and bank balance.
 The average current ratio is 1.82, which is normally less than the
satisfactory level; however satisfactory level is 2:1. Overall, the average
ratio signals a little bit unsatisfactory position of the NWSC, which should
be little bit above the average ratio to reach near to 2:1.
 NWSC has been operating in loss in all fiscal year during the research
period. In overall, NWSC has been operating under loss and the average
net profitability margin has been calculated as -52.46%.
86
 NWSC has not utilizing its current assets effectively in earning profit. The
overall ratios are dissatisfying, indicating loss in each fiscal year. Overall,
the return on working capital i.e. current assets is disappointing indicating
drastic downfall of the corporation. The average return on working capital
has been calculated as -23.13%.
 Cash and Bank Balances and Current Liabilities ratio occurred from lower
21.02% to 88.55% which indicate the significant cash balance to meet the
current obligation. But on the other hand most of the ratios are less than
30% which shows the excess cash and deficit in making payment during
the study. It has clearly indicated that NWSC has not been following a
systematic cash management practices.

87
 CHAPTER - V
SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary
The study focuses on the cash management of NWSC. It attempts to analyze
the cash management of NWSC for last 10 years from 2055 to 2065. NWSC
has been growing concern of greater national importance in the area of
providing water. It contributes significantly to the economic development of
the country. However, NWSC is found to be suffered from cash management.
So the objective of this study is to have true insight into its cash management.
An effect has been made to assess and analysis the cash management of the
corporation. An attempt has also been made in the study to provide a possible
suggestive frame work for the better cash management of NWSC. As state in
earlier cash management refers to the management of cash, receivable and
inventory. Likewise as stated in the introduction section, the objectives of the
study are:

To examine the cash management practice in NWSC, to examine the liquidity

position of NWSC, to study the relation of the relationship of cash with other
related variables of cash management and to provide necessary
recommendation for improvement of cash management on the basis of
analysis.

To make research fulfill, review of related studies has been concerned in

second chapter. To make major findings and to reach closer to conclusion,
explanation of the tools and techniques has implemented in chapter four.

Hence, an effort has been made in this chapter to present major findings on
overall cash management practice in NWSC recommendation and make
conclusion.

88
5.2 Conclusion
Cash management is the major element in financial function. It is said that
main function off financial manager is to apply better techniques to improve
cash management in companies. There is other numerous aspect of finance
involved in the overall financial performance addition of a firm. In addition to
this, the overall performance of a firm counts for other managerial aspects such
as human resource management, organizational structure, marketing
management etc. However, all down falling trend of the financial position is an
indication of the fact that NWSC 's cash management practices is a poor and
not so effective due to the lack of mobilizing excess cash on profitable sector
and lack of awareness of the employees for practicing better cash management
inside NWSC.

Negative profitability of the firm adds much to the worsening financial position
of the firm. Besides such management being one of the major elements of
financial functions.

Finally, Overall condition of the Corporation is found very poorly operating.

To overcome this situation, the NWSC has to improve management practice. If
unused cash is utilized efficiently in profitable area, if estimation and
forecasting system is done properly, if different policy is implemented to
collect credit sales timely the corporation might improve this situation.

5.3 Recommendation
Financial efficiency is one of the key elements to achieve the goal of any
business enterprises. The major finding of the study shows that NWSC is not
followed any specific and appropriate financial principal and techniques.
Following recommendation are given for better financial performance and
good cash management of the company on the basis of the finding of the study.

89
 The study has identified that NWSC has not been maintaining optimum
cash balance. The balance held are at time too high and too low in other
time without definite purpose as too why the firm has held excess or
deficit balance of cash. Holding optimum cash as per its sales, profit and
other influencing variable should be recommended.
 NWSC should prepare the cash budget and cash planning on a formal
basis as to project cash surplus or as deficit for a period not exceeding one
year and broken up into shorter internals. Cash budget should be prepared
with considering influencing variable on cash management.
 Company should manage its cash affairs in such a way as to keep cash
balances at a minimum level and to invest the surplus cash funds in
profitable opportunities.
 NWSC should manage their cash in such way as to keep cash balance at a
minimum level for daily operating purpose and invest surplus cash in
profitable opportunities because idle cash increases opportunity cost and
profit will be decreased.
 The relation of cash balance with respect to CA and CL insignificant. So,
it is recommended that NWSC should plan to maintain cash balance with
respected CA and CL.

90
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Sainju, S.P. (2003). Cash Management in Public Manufacturing Enterprises of
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of Nepal :A Case Study of Royal Drugs Limited. Kathmandu: An
Unpublished Master Degree Thesis, Submitted to Faculty of Management,
T.U.

94
 APPENDICES
APPENDIX - 1
Correlation between Cash and Bank Balance and Revenue

Cash & Bank x =X−̅

X x2 y = Y−̅
Y y2 xy
Revenue(X)
Balance(Y)
56 287809 184402 -249843.2 62421624586 -80693.2 6511392526 20160647
57 382523 258569 -155129.2 24065068693 -6526.2 42591286.44 1012404
58 486667 257050 -50985.2 25994p90619 -8045.2 64725243.04 4101861
59 533961 163435 -3691.2 13624957.44 -101660.2 10334796264 3752481
60 582706 226244 45053.8 2029844894 -38851.2 1509415741 -1750394
61 598894 236083 61241.8 3750558067 -29012.2 841707748.8 -1776759
62 726478 311413 188825.8 35655182746 46317.8 2145338597 8745995
63 755619 346103 217966.8 47509525902 81007.8 6562263661 17657010
64 755958 392682 218305.8 47657422314 127586.8 16278391534 27852938
65 265907 274971 -271745.2 73845453723 9875.8 97531425.64 -2683701

95
 299547796501.6
5376522 2650952
0 0 0 44388154028 70003575
𝑋̅ = 537652.2

Cash and Bank Current 𝑥 𝑥2 𝑦 = 𝑌 − 𝑌̅ 𝑦2 𝑥𝑦

CashBalance
and Bank Assets
Current 𝑥 𝑋 − 𝑋̅
= 𝑥2 𝑦 = 𝑌 − 𝑌̅ 𝑦2 𝑥𝑦
56 Balance
184402 863333
Liabilities = 𝑋 − 𝑋̅
-80693.2 6511392526 -356535.3 127117420146.09 28769974
57
56 258569 208252
982970 -6526.2 42591286.44 -236898.3 56120804542.89 15460456
184402 -80693.2 6511392526 -606072.5 367323875256.25 48905929
58 257050 1077909 -8045.2 64725243.04 -141959.3 20152442856.49 11420909
57 258569 416175 -6526.2 42591286.44 -398149.5 158523024350.25 2598403
59 163435 1056131 -101660.2 10334796264 -163737.3 26809903411.29 16645566
58 257050 525891 -8045.2 64725243.04 -288433.5 83193883922.25 2320505
60 226244 1141260 -38851.2 1509415741 -78608.3 6179264828.89 30540267
59 163435 655954 -101660.2 10334796264 -158370.5 25081215270.25 16099976
61 236083 1275089 -29012.2 841707748.8 55220.7 3049325708.49 -1602073
60 226244 735655 -38851.2 1509415741 -78669.5 6188890230.25 3056404
62 311413 1481586 46317.8 2145338597 261717.7 68496154493.29 12122188
63 346103 1689762 81007.8 6562263661 469893.7 220800089299.69 38065054
64 392682 1912819 127586.8 16278391534 692950.7 480180672630.49 88411362
65 274971 717824 9875.8 97531425.64 -502044.3 252048479162.49 -4958089
l 2650952 12198683 0 44388154028 0 1260954557080.10 1831961466
̅
𝑌 = 265095.2

r =
 xy =
70003575986
= 0.607090754
x y
2 2 √299547796501.600×√443881540280

1−𝑟 2 1−0.607090542
P. E. =0.6745 × = 0.6745 × = 0.0425906
√10 10
6 × P. E. = 6 × 0.042590683 = 0.255544098

Relation between Cash and Bank Balances and Current Assets

𝑋̅ = 265095.2
𝑌̅ = 1219868.3

r =
 xy =
183196146602.40
= 0.774342461
x y
2 2 √44388154028×√1260954557080.10

1−𝑟 2 1−0.7743424612
P. E. = 0.6745 × 10 = 0.6745 × = 0.027
√ 10
6 × P. E. = 6 × 0.027 = 0.162

Relation between Cash and Bank Balances and Current Liabilities

96
61 236083 857546 -29012.2 841707748.8 43221.5 1868098062.25 -1253950
62 311413 992420 46317.8 2145338597 178095.5 31718007120.25 8248991
63 346103 1148268 81007.8 6562263661 333943.5 111518261192.25 27052028
64 392682 1868361 127586.8 16278391534 1054036.5 1110992943332.25 134481144
65 734723
274971 9875.8 97531425.64 -79601.5 6336398802.25 -786128
l 2650952 8143245 0 44388154028 0 1902744597538.50 240723303

𝑋̅ = 265095.2
𝑌̅ = 814324.5

r =
 xy =
240723303932.00
= 0.8283
√44388154028 × √1902744597538.50
 
x 2
y 2

1−𝑟 2 1−0.82832
P. E. =0.6745 × = 0.6745 × =0.021
√10 10
6 × P. E. = 6 × 0.021 = 0.127

97