INTRODUCTION:

Liquidity and profitability of the organization having a vital role in the financial position of the company. It is showing the real standing position of the organization’s financial areas, it help the organization to know their growth and able to take proper decision. Everybody associated with the business like employees, bankers, creditors, government, shareholders, management and the society want to know how the finance, which is not separable from any other functional activity is being optimized. Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them. There are several ratios that express accounting liquidity.

The analysis of financial statement is a process of evaluating the relationship between components and part of the financial statement to obtain a better understanding of firms financial position and performance.

LITERATURE REVIEW:

Prasanta Paul (2011) stated on the Financial Performance Evaluation – Some of the selected NBFCs are taken for the comparative study. In the study, five of the listed NBFCs are considered for the analyzation of comparative financial performance. Different type of statistical tools like standard deviation, arithmetic mean, correlation etc. are used extensively.

Sheela Christina (2011) reported on Financial Performance of Wheels India Ltd. Secondary data collection method is used for the analytical type of research design. Before conducting the study, validity and reliability is checked for the past five years where the researcher used this for the purpose of study.

Ried Edwardj and Srinivasan Suraj (2010) made an investigation to check whether the special items presented by the managers’ in the financial statements reflected in the economic performance or opportunism

Edward I Altman (1986) in the Dean Solvency predictors. He was the first person to successfully use step-wise multiple discriminate analysis to develop a prediction model with a high degree of accuracy using the sample of 66 companies, 33 failed and 33 successful, Altman’s model achieved an accuracy rate of as percent. Altman’s model takes the following form.

Z = 1.2 A + 1.4 B + 3.3 C + 0.6 D + 0.99 E

A = Working Capital to total assets

D = Market value of equity / Book value of liabilities E = Sales to total assets

Pass C.L. Pike RH (1984) studied that over the past 40 years major theoretical developments have occurred in the areas of longer term investment and financial decision making. Many of these concepts and the related techniques are now being employed successfully in industrial practices. By far less attention has been paid to the area of short term finance, in particular that of working capital management. Such neglect might be acceptable were working capital considerations of relatively little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. Indeed experience shows that inadequate planning and control of working capital is one of the common causes of business failure.

OBJECTIVE OF THE STUDY:

To study the impact of liquidity and profitability on the financial position of Rubfila International Limited, kanjikode.

To understand the factors affecting liquidity and profitability of the firm.

To analyze how liquidity and profitability influence the financial position of the firm.

RESEARCH DESIGN:

Here we take descriptive research design to reach the objective. And I take secondary data’s like published reports like, Balance Sheets and Profit and Loss account of Rubfila International Limited from past 5 years.

TOOLS USED FOR ANALYSIS:

Ratio Analysis

Correlation

Cash flow Statement

Trend Analysis

RATIO ANALYSIS:

Liquidity Ratios:

These ratios portray the capacity of the business unit to meet its short term obligation from its short-term resources.

Current Ratio:

Current ratio may be defined as the relationship between current assets and current liabilities it is the most common ratio of measuring liquidity. It is Calculated by dividing current assets and current liabilities. Current assets are those, the amount of which can be realized with in a period of one year. Current liabilities are those amounts which are payable with in the period of the year.

Current assets

Current ratio =--------------------------

Current liabilities

Table 1.1 showing current ratio

Years	Current assets	Current liabilities	Ratio
2017-2018	1306.05	434.86	3.00
2018-2019	2497.06	503.48	4.96
2019-2020	3640.59	931.42	3.96
2020-2021	4472.68	1137.84	3.93
2021-2022	5938.00	2239.79	2.65

Chart 1.1 showing Current ratio:

Interpretation:

An ideal current ratio is 2:1.Here current asset shows an increasing trend in the first two years of 3 to 4.96 than current liabilities which thus decreased to 2.65 in 2021-22. From this it can be understand that company has maintaining a good current ratio.

Profitability Ratios:

The term profitability means the profit earning capacity of any business activity. Thus, profit earning may be judged on the volume of profit margin of any activity and is calculated by subtracting costs from the total revenue accruing to a firm during a particular period.

Profitability Ratio is used to measure the overall efficiency or performance of a business. Generally, a large number of ratios can also be used for determining the profitability as the same is related to sales or investments.

1) Gross Profit Ratio

Gross Profit Ratio established the relationship between gross profit and net sales. This ratio is calculated by dividing the Gross Profit by Sales. It is usallally indicated as percentage.

Gross Profit

Gross Profit Ratio = ----------------------------

Net Sales

Table 2.1 showing gross profit ratio

Years	Gross profit	Net sales	Ratio (in %)
2017-2018	1262.62	7920.19	16 %
2018-2019	1994.45	9656.14	21 %
2019-2020	2359.75	10023.94	24 %
2020-2021	2493.63	12543.07	20 %
2021-2022	4160.79	16147.5	26 %

Chart 2.1 showing gross profit ratio

Interpretation:

The ideal gross profit ratio is 20 % to 25 %.The ratio of the company shows a preferable one except in the year as it is 16% in 2017-2018 which thus increased to 21% and thus to 24% in 2019-2020 and thus increased to 26% in 2021-2022. It indicates the efficient production and purchase management of the company.

4) Net profit ratio:

Net Profit Ratio is also termed as Sales Margin Ratio (or) Profit Margin Ratio (or) Net Profit to Sales Ratio. This ratio reveals the firm's overall efficiency in operating the business. Net profit Ratio is used to measure the relationship between net profit (either before or after taxes) and sales. This ratio can be calculated by the following formula:

Net Profit After Tax

Net Profit Ratio = -----------------------------x 100

Net Sales

Net profit includes non-operating incomes and profits. Non-Operating Incomes such as dividend received, interest on investment, profit on sales of fixed assets, commission received, discount received etc. Profit or Sales Margin indicates margin available after deduction cost of production, other operating expenses, and income tax from the sales revenue. Higher Net Profit Ratio indicates the standard performance of the business concern.

Table 2.4 showing Net profit ratio

Years	Net profit	Net sales	Ratio (in %)
2017-2018	214.77	7920.19	2.71 %
2018-2019	3277.1	9656.14	33.90 %
2019-2020	1329.97	10023.94	13.27 %
2020-2021	928.85	12543.07	7.41 %
2021-2022	1358.87	16147.5	8.41 %

Chart 2.4 showing Net profit ratio

Interpretation: The ideal net profit ratio is 5 – 10 %.The company is having net profit ratio in the preferable standard. It was low only in the first year of 2.71%.In 2017-18 which was increased to 33.90% in 2018-19.Thus it shows a decreasing trend in the next 3 years.

Cash Flow Statement:

Cash flow statement for the year ended 31 march, 2021

Particulars	For the year ended 31 march,2021		For the year ended 31 march,2020
Particulars	In rs lakhs		In rs lakhs
A. Cash flow from operating activities
Net profit/(loss) before tax		2041.77		1397.26
Adjustment for
Depreciation and amortization	272.60		307.49
(Profit)/loss on sale/Write off of assets	(3.80)		(1.70)
Finance costs	8.98		3.31
Interest income	(69.93)		(116.96)
Net (gain)/loss on sale of investments	-		-
Rental income from operating leases	-		(2.89)
Liabilities/Provisions no longer required	-		-
written back
Provision for bad doubtful debts	-		-
Provision for contingencies	-		-
Other non-cash charges –Preliminary	-		-
Expenses	207.85
			182.63
		2249.62		1579.89
Operating profit/(loss)before working capital
changes
Changes in working capital:
Adjustments for increase/(Decrease) in
operating assets:	(610.20)
Inventories	(596.77)		(64.93)
Trade receivables	(352.08)		(362.86)
Short-term loans and advances	(588.84)		406.10
Long-term loans and advances	91.06		4.32
Other current assets			(181.49)

Other non-current assets Adjustments for increase / (decrease) in operating liabilities: Trade payables Other current liabilities Short-term provisions Long-term provisions	493.17 44.80 71.03 80.63		(105.74) 36.41 6.65 1.46
	(1367.20)	882.42	(260.09)	1319.80
Cash flow from extra ordinary items Cash generated from operations Net income tax (paid)/refunds Net cash flow from/(used in) operating activities(A) B. Cash flow from investing activities Capital expenditure on fixed assets, including capital advances Proceeds from sale of fixed assets Interest received Rental income from operating leases Cash generated from investments	(360.23) 6.68 69.93 -	882.42		1319.80
		- 882.42 (289.10)		- 1319.80 (253.20)
		593.32		1066.60
		(283.62)	(632.06) 19.00 116.96 2.89	(493.21)
Net income tax (paid) / refunds
Net income tax (paid) / refunds		-		-
Net cash flow from / (used in) investing activities (B)		(283.62)		(493.21)

C.Cash flow from financing activities Proceeds from issue of equity shares Repayment of long-term borrowings Dividend paid on equity shares Payment of dividend tax Finance cost	(259.31) (44.07) (8.98)	(312.36)	(259.31) (44.07) 3.31	(300.06)
Net income tax (paid) / refunds Net cash flow from /(used in financing activities(C) Net increase /(Decrease)in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year				(300.06)
		(312.36) (2.66) 477.69 475.03		(300.06) 273.32 204.36 477.69
The figures in brackets represent outflows of cash an equivalents Previous years figures have been regrouped /reclassified, wherever necessary

Interpretation:

Net cash flow from operating expenses shows an decreasing trend which 1066.60 in 2020 which thus decreased to 593.32 in 2015.While cash flow from investing activities is a negative figure of 493.21 to 283.62 which shows an advantage to the company. Whereas cash flow from financing activities shows a negative figure of 300.06 in 2020 which increases to 312.36 in 2021.Thus,Net cash & Cash Equivalents as it was 273.32 in 2014, while it comes to a negative figure of 2.66 in 2021.

Trend Analysis:

Table 5.1 showing liquidity

Years	Cash and cash equivalents	Trend %	Trade receivables	Trend %
2017-2018	233.06	100 %	845.52	100 %
2018-2019	305.04	131%	1089.98	129 %
2019-2020	204.36	88%	1397.56	165%
2020-2021	477.69	205%	1760.42	208%
2021-2022	475.03	204%	2357.19	279%

(Note: Taking 2017-2018 as base year)

Interpretation:

The trend analysis shows an increasing trend throughout the year. which cash & cash equivalents shows an increasing value on 131% to 204% in 2021-2022.thus to which trade receivables shows an increasing percentage from 2017 to 2022.whereas cash & cash equivalents with trade receivables shows percentage of more than 100 percentage through out the year of analysis.

Table 5.2 showing profitability

Years	Sales	Trend analysis	Stock	Trend analysis
2017-2018	7920.19	100 %	195.91	100 %
2018-2019	9656.14	122 %	282.73	144 %
2019-2020	10023.94	127 %	310.45	158%
2020-2021	12543.07	158 %	375.39	192%
2021-2022	16147.5	204 %	985.59	503%

(Note: Taking 2017-2018 as base year)

Interpretation:

The trend analysis shows profitability on sales with stock shows an increasing trend from 2011-2015.where sales percentage was increased from 100% to 204% ,to which stock also shows an increasing trend which was 5 times in 2011-2015.Thus,t which sales also increased to doubled from the initial year of analysis.

FINDINGS:

· An ideal current ratio is 2:1.Here current asset shows an increasing trend in the first two years of 3 to 4.96 than current liabilities which thus decreased to 2.65 in 2021-22. From this it can be understand that company has maintaining a good current ratio.

· The ideal liquid ratio is 1:1.The ratio is an indicator of short term solvency of the company. Where the quick ratio 2.48 in 2017-2018 which increased to 2.77 in 2018-2019 in which it decreased to 1.26 in 2021-2022 It is considered to be superior to current ratio in testing the liquidity position of the firm. Here, the ratio is good in all the years.so that the company will be maintaining good liquidity position.

· The ideal gross profit ratio is 20 % to 25 %.The ratio of the company shows a preferable one except in the year as it is 16% in 2017-2018 which thus increased to 21% and thus to 24% in 2019-2020 and thus increased to 26% in 2021-2022.It indicates the efficient production and purchase management of the company.

· The ideal net profit ratio is 5 – 10 % .The Company is having net profit ratio in the preferable standard. It was low only in the first year of 2.71%.In 2017-18 which was increased to 33.90% in 2018-19.Thus it shows a decreasing trend in the next 3 years.

· Liquidity and profitability ratio are positively correlated. It means when liquid position will increase, profitability will be also increasing and vice versa. So that liquidity and profitability have good impact on financial position of the firm.

· Net cash flow from operating expenses shows an decreasing trend which 1066.60 in 2021 which thus decreased to 593.32 in 2015.While cash flow from investing activities is a negative figure of 493.21 to 283.62 which shows an advantage to the company. Whereas cash flow from financing activities shows a negative figure of 300.06 in 2021 which increases to 312.36 in 2022. Thus, Net cash & Cash Equivalents as it was 273.32 in 2021, while it comes to a negative figure of 2.66 in 2022.

· The trend analysis shows an increasing trend throughout the year. which cash & cash equivalents shows an increasing value on 131% to 204% in 2021-2022.thus to which trade receivables shows an increasing percentage from 2017 to 2022.whereas cash & cash equivalents with trade receivables shows percentage of more than 100 percentage through out the year of analysis.

· The trend analysis shows profitability on sales with stock shows an increased from 100% to 204% ,to which stock also shows an increasing trend which was 5 times in 2021-22.Thus, in which sales also increased to doubled from the initial year of analysis.

Suggestions:

· The company earns good profit. So the company can adopt suitable policies for the future also.

· It will be highly beneficial when company maintaining good liquidity position.

· It will be highly beneficial if the company can achieve the cost control and cost reduction method such as target costing

· The company can plan of investing more amount on research and development for generating innovative product in order to compete with others.

· Company will have the need for increasing operating profit by reducing operating expenses to a limited extent.

· Company will be trying to increase its cash flow from operating, investing, and financing activities.

CONCLUSION:

The study reveals impact of liquidity and profitability on the financial position of Rubfila International Limited. Impact of liquidity and profitability will be measured by liquidity and profitability ratios respectively. Major limitation of the study is data collection will be depends on secondary data and comparison with other companies are not possible.

In this study data will be analyzed using ratio’s, correlation, cash flow statement and trend analysis. Rubfila International Limited was enough production and sales in all 5 years. Company is also getting profit from their operations. But the proposition of profit against sales is very low. Company’s production costs was very high in these years. That’s why they are getting only low range of profit. If this situation continues for long, the company will face problems in future. So they have to concentrate more on profit part. The company will have good liquidity position. That is reflected from the ratios. Here, both liquidity and profitability ratios are positively correlated and it has good impact on financial position.

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Received on 14.10.2022 Modified on 18.01.2023

Asian Journal of Management. 2023;14(3):191-196.

DOI: 10.52711/2321-5763.2023.00032