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Continuous Issue – 35 February – March 2020 A Study on Liquidity Analysis of Company Limited of Gujarat Abstract The main objective of this study is to know the liquidity position of Paschim Gujarat Vij Company Limited (PGVCL) which is one of the subsidiary power distribution company of Limited (GUVNL). To fulfil the aim of the study 7 year’s secondary data from 2012-13 to 2018-19 has been collected from annual reports of the company. To analyse collected data trend analysis, various liquidity ratios i.e. current ratio, quick ratio, current assets to total assets ratio and statistical tools i.e. mean, standard Deviation, covariance, correlation and one sample t – test has been used. The study concluded that overall liquidity performance of PGVCL is not at desired level and liquidity ratios don’t have any significant difference during the study period. Company can improve its liquidity position by adopting suggestions given in the study. Key words: Power distribution company, Liquidity, Trend analysis, Correlation, One sample T - test 1. Introduction: To run any business in a smooth way liquidity plays very important role as business cannot run long time if it does not have sufficient money to operate its regular business activity. On the other side high or low liquidity creates problem for business as high liquidity result in idle fund which does not gave any return to business and low liquidity results in financial crises in which business does not have funds to pay its short term obligations. To run business in a long run proper liquidity management is necessary. To restructure and improve efficiency of electrical industry Gujarat Urja Vikas Nigam Limited (GUVNL) was established as a wholly owned subsidiary of Gujarat Electricity Board (GEB) in May, 1999. Management of GEB was divided into seven subsidiary companies in which GUVNL becomes holding company of remaining six companies, Gujarat State Electricity Corporation Limited (GSECT) for power generation, Gujarat Electricity Transmission Corporation Limited (GETCO) for power transmission and Paschim Gujarat Vij Company Limited (PGVCL), Company Limited (UGVCL), Dakshin Gujarat Vij Company Limited (DGVCL) and Company Limited (MGVCL) for power distribution. 2. Literature Review: R. G. Patel (April, 2018) Studied “A Profitability Analysis of MGVCL and PGVCL Companies of Gujarat State”. The main aim of this study is to compare profitability of two power distribution companies of Gujarat state namely MGVCL and PGVCL for which 5 year’s secondary data from 2012-13 to 2016-17 has been collected from published articles, magazines, related websites, journals and financial literatures and analysed by various profitability ratios i.e. GPR, NPR, RTAR, RCER, RSFR, EPS and two sample T – test has been used. The study concluded that there is significant difference between profitability ratios of MGVCL and PGVCL for the study period except NPR. Dr. Gaurang kumar C. Barot (December, 2014) made study on “Electricity Purchase and Sales Performance in Gujarat with reference to Gujarat Urja Vikas Nigam Limited”. The objective of the study is to know performance of GUVNL in purchasing and selling power and to know correlation between them. Study covers 4 year’s study period from 2008-09 to 2011-12. Data used in the study was secondary in nature which was collected from annual reports of GUVNL. Year wise and subsidiary wise two-way ANOVA and rank correlation has been used to analysed and draw conclusions. The study revealed that years wise power purchasing and selling performance was satisfactory but subsidiary wise performance was not good. Positive correlation has been found between purchasing

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and selling of power. Study recommended that GUVNL has to increase number of subsidiaries to distribute power. 3. Objectives: ● To know liquidity position of PGVCL. ● To know correlation among liquidity ratios. ● To know whether liquidity ratios have significant difference or not. ● To found were company is lacking in liquidity or not and if lacking, give suggestion for further improvement. 4. Hypothesis: H0: There is no significant difference in the hypothesized mean and sample mean of liquidity ratios of PGVCL for the study period. H1: There is significant difference in the hypothesized mean and sample mean of liquidity ratios of PGVCL for the study period. 5. Research Methodology: To analyse liquidity performance of PGVCL, secondary data of 7 years from 2012-13 to 2018- 19 has been collected from annual reports of the company and structured in the form of tables as per the need of the study. Among seven subsidiaries of GEB, PGVCL is taken as a sample in this study. Liquidity analysis is done by using various accounting tools i.e. Ratio analysis, Trend analysis and statistical tools i.e. Mean, Standard deviation, Covariance, Correlation and one sample t – test. 6. Data analysis and interpretation: 6.1 Liquidity ratios: Below shown liquidity ratios has been used in the present study to know the overall liquidity performance of the company: Table – 6.1 Liquidity Ratios Statistical CATAR (In : Group CR (In : 1) QR (In : 1) Tools 1) Liquidity Minimum 0.6211 0.4624 0.1828 0.4221 Maximum 1.5118 1.1794 0.2175 0.9696 Average 0.9177 0.6875 0.2035 0.6029 S. D. 0.3416 0.2683 0.0114 0.2071 C.V. (In %) 37.2276 39.0295 5.6223 27.2931

6.1.1 Current Ratio(CR): Above table no. 6.1 shows the current ratio of PGVCL for the study period from 2012-13 to 2018-19. Highest CR has been noticed in the year 2018-19 and lowest CR has been found in the year 2013-14 with average 0.9177, standard deviation 0.3416 and covariance 37.2276%. CR of the company ranged between 0.6211 to 1.5118 for the study period. The ideal CR should be 2:1, which was not maintained by the company, but in every year CR was increases as compare to previous year. 6.1.2 Quick Ratio (QR): Above table no. 6.1 indicates the QR of PGVCL for the study period from 2012-13 to 2018-19. 0.4624 is the lowest and 1.1794 is the highest QR which was noticed in the year 2013-14 and 2018-19 respectively. QR of the company ranges from 0.4624 to 1.1794. Average QR is 0.6875 with Standard Deviation 0.2683 and Covariance 39.0295%. Ideal QR should be 1: 1, which was not maintained by the company except in the year 2018-19 (1.1794). Company have positive increasing trend in QR except the year 2013-14 (-8.88). 2 | P a g e

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6.1.3 Current Assets to Total Assets Ratio (CATAR): Above table no. 6.1 indicates CATAR of PGVCL for the study period from 2012-13 to 2018-19. Company have highest 0.2175 CATAR in the year 2012-13 and lowest 0.1828 CATAR in the year 2015- 16. CATAR of the company have average of 0.2035 with standard deviation 0.0114 and covariance 5.6223%. CATAR have negative trend from 2013-14 to 2015-16 and have positive trend from 2016-17 to 2018-19. Current assets and total assets have mixed positive trend during the study period except 2015-16 as in this year company have negative (-3.55%) change in current assets. 6.1.4 Overall Liquidity: Above table no. 6.1 shows the overall liquidity performance of PGVCL for the study period from 20012-13 to 2018-19. Group average of all liquidity ratios of PGVCL is 0.4635 and standard deviation is 0.1701 with covariance 36.712%. 6.2 Correlation: Table – 6.2 Correlation Ratios CR LR ALR/CR CATAR CR 1 LR 0.997664161 1 ALR/CR 0.404129722 0.357630075 1 CATAR -0.134096514 -0.120550669 -0.043026646 1 Above table no. 6.2 shows correlation among all liquidity ratios of PGVCL for the period of study from 2012-13 to 2018-19. CR and LR both have strong positive correlation. ALR is positively correlated with CR and LR. CATAR have negative correlation with CR, LR and ALR. 6.3 One Sample T – test: Table – 6.3 One Sample T – test Ratios CR QR CATAR Mean 0.917718729 0.687518246 0.203469146 Variance 0.116720883 0.072003578 0.000130866 Observations 7 7 7 Hypothesized Mean 1.038 0.846 0.223 Df 6 6 6 t Stat -0.931478311 -1.562612345 -4.517075507 P(T<=t) one-tail 0.193775809 0.084585927 0.002015034 t Critical one-tail 1.943180274 1.943180274 1.943180274 P(T<=t) two-tail 0.387551619 0.169171854 0.004030069 t Critical two-tail 2.446911846 2.446911846 2.446911846

Above table no. 6.3 shows the results of one sample T – test of CR, QR AND CATAR. T – value of CR, QR and CATAR is less than its T – critical value. So, we accept null hypothesis as there is no significant difference in the hypothesized mean and sample of liquidity ratios of PGVCL for the study period. 7. Findings:  Current ratio of PGVCL increases continuously from 2013-14 to 2018-19.  Fluctuating position has been found in the quick ratio of PGVCL during study period.  Absolute liquid ratio has fluctuating position during the period of study.  During the study period fluctuating position has been found in the current assets to total assets ratio.

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8. Suggestions: The company can improve its liquidity position by following below shown suggestions: ● By increasing current assets and decreasing current liabilities. ● Form proper and strict collection policy as many customers have culture of not paying electricity bill timely, by which company get regular cash inflows and pay its short term obligations on time to time basis. ● By reducing loss of transmission units, so company can sell more units to generate more revenue. 9. Conclusion: For any business liquidity is very important as those businesses not able to pay its short term obligations, they are not run for long time in future. In the present study to know overall liquidity performance of PGVCL various accounting and statistical tools has been applied on collected secondary data. The study concluded that overall liquidity performance of PGVCL is not satisfactory and there is no significant difference in the hypothesized mean and sample mean of liquidity ratios. To improve its liquidity performance company can follow above shown suggestions. References: I. Shah, K. K. (2020). A study on Financial Statement analysis of Rajoo engineering company ltd. Journal of Commerce and Management, (34), 1–6. Retrieved from http://kcgjournal.org/kcg/wp- content/uploads/commerce/issue34/Issue34DrKevalKShah.pdf II. Patel, R. G. (2018). A Profitability Analysis of MGVCL and PGVCL companies of Gujarat State. Journal of Social Science, (30), 1–6. Retrieved from http://kcgjournal.org/kcg/wp- content/uploads/SocialScience/issue30/Issue30PATELRAJESHKUMAR.pdf III. Barot, G. kumar C. (2014). Electricity Purchase and Sales Performance in Gujarat with reference to Gujarat Urja Vij Nigam Limited. GIAN JYOTI E-JOURNAL, 4(4), 1–10. Retrieved from https://www.gjimt.ac.in/wp-content/uploads/2017/10/1_Dr.-Gaurang- Barot_Electricity-Purchase-and-Sales-Performance-in-Gujarat.pdf IV. www.pgvcl.com. (n.d.). Retrieved from http://www.pgvcl.com/

********************************************************************************** Mr. Vaghela Rahul Rameshbhai Faculty of Accountancy and Commerce (Cont.) and M. Phil Scholar Department of Accountancy and Commerce, Tolani Commerce College Adipur

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