Lquidity Conditions in Cotton Ginning Mills: Guntur District

Abstract

Ratio Analysis helps the management of a business organisation to analyse and compare past performance of the firm with the present performance, the individual organisation’s performance with that of industry standards and also to analyse the performance of a particular group of units in the same industry. Ratio analysis allows interested parties like share-holders, creditors, government, management and others to measure, analyse the causes and effects and suggest corrective measures on the operational efficiency, financial performance and liquidity efficiency of an organisation. Most of the SSIs are in the form of proprietorship or partnership firms, and in some cases, as private limited companies. Therefore only certain suitable ratios can be applied to the business units of SSI sector. The basic firms in the textile industry ladder are cotton ginning and pressing units which mostly fall in the small scale category according to the classification of MSMEs under MSME Development Act 2006, with investment ranging from Rs. 25 lakh to Rs. 5 crore for manufacturing industries. In a small scale industry the management of working capital is relatively more important and necessary than that of management of long term capital (capital budgeting). The management of working capital can be monitored through ratio analysis by adopting certain suitable ratios. For this study three ratios were selected: Current ratio, Quick ratio, and Inventory turnover ratio.