A Study on LONG - Term Liquidity Position of the Select

A Study on LONG - Term Liquidity Position of the

Select Paper Mills in Tamilnadu 1D. Jai Ganesh and 2S.M. Chockalingam

1Karpagam Academy of Higher Education,

Coimbatore, Tamil Nadu.

2Department of Commerce,

Karpagam Academy of Higher Education,

Coimbatore.

Abstract Paper is considered as one of the important inventions that has created

History around the world. Paper has spread to all elements of human activity

from books to bullet and early morning News paper to Atom energy. The

Paper firms are considered as the 2nd largest in India that is liberated after

cement Industry. Currently, the financial performance of paper mills are not

satisfactory in spite of numerous benefits and fiscal concessions provided to

the firms. Hence, the Paper industry is facing crisis. In this situation the

scholar has made a deliberate effort in analyzing the Long term liquidity

position of Tamilnadu News Print & Papers Limited and Seshasayee Paper and

Boards Limited in Tamil Nadu. The study is analytical in nature with a focus

on comparing the short-term liquidity position of the TNPL and SPBL. As on

31.03.2015, there are eight paper mills in operation in Tamil Nadu, out of which

only 2 large-scale paper Mills, namely TNPL and SPBL is choosed. Thus, the

two large-scale paper mills are chosen for the current study. The study

includes both the primary and secondary data. For collecting the primary data,

personal discussions are made with the officials of the select paper mills. The

study is based on the secondary data. The secondary data are collected from

the annual statement reports published, account books, minutes, audit reports,

company annual reports and circulars of the TNPL and SPBL. A period of ten

years from 2005-06 to 2014-15 is selected for this study. The results show that

there is an important difference in the current ratio, quick ratio and super

quick ratio between the TNPL and SPBL during the period of study. On the

other hand, there is no important difference is discovered in the inventory to

working capital ratio b/w the TNPL and SPBL. The select paper mills face

problems such as inadequate short-term liquidity, improper utilization of

working capital and inefficiency of the cash management. The researcher

suggests better avenues to enhance the short-term liquidity position of both the

paper mills.

International Journal of Pure and Applied MathematicsVolume 117 No. 7 2017, 287-302ISSN: 1311-8080 (printed version); ISSN: 1314-3395 (on-line version)url: http://www.ijpam.euSpecial Issue ijpam.eu

287

1. Importance of the Paper Industry

Our country is one of the fastest developing market in the world & its current

situation indicated a satisfying position. The consumption of paper will be ready

at any movement with increasing in sync with the economic growth & is

projected to touch 13.95 million tones by the end of 2015-16. Paper and paper

products are a core sector of the Industrial Development and Regulation Act,

1951. Paper is considered as one of the essential products included in the

Essential Commodities Act, 1955.1 Due to the wide spread of Industry across

the globe, it has resulted in the regional balance of both output and

consumption. The predominant role of paper industry has continued until

recently when the revolution in microelectronics and photo chemicals posed

challenges to this industry.2

Growing consumerism, modern retailing, rising literacy through the Sarva

Shiksha Abhiyan, and more maintenance of documentation will help in

increasing the demand of paper. Though India’s per capita consumption is quite

less, when compared to other countries, there is an upward trend & the demand

is likely to increase from current 13 million tones to a projected 20 million tones

by the end of 2020. There is more scope for growth of paper industry in India.

From the view of demand, with every one Kg increase in the per capita

consumption will result in additional demand of one million tone per year.

Moreover, with more than half of the world population in Asia, the potential

growth in paper consumption is enormous.3 The Indian paper industry plays a

vital role in economic development by contributing to a sizeable revenue for the

exchequer. It provides Job opportunities to 1.50 million people and its

contribution to the Government is around Rs.3000 crores. The projected sales of

the paper industry is Rs.35000 crores.

2. Long Term Solvency Analysis

The term “Solvency means the possession of Total Assets in excess of External

liabilities. In other words, the ability to pay the debts is called Solvency. Each &

every activities of the business such as Operation, Financing and Investing

activity have an impact on Solvency. The long-term indebtedness of a company

includes Long term Loan, Debentures, Creditors etc. The long-term Debts of a

Company are mostly concerned regarding the earning capacity, so as to enable

the firm to pay Interest regularly, commitment in payment of principal amount

on the maturity date. In this chapter, an attempt has been made to analyze the

Solvency position in Long run of the select paper mills.

1Alka Subramanian, “Small is not Beautiful: A Study of Paper Industry”, Economic and Political

Weekly, Vol. XXII, No. 35, August, Pp. 87, 1987. 2Research Section of the National Productivity Council, “Productivity Norms for Agro Paper Mills”,

Productivity, Vol. 29, No. 4, January-March, Pp. 467, 1989. 3 Seetal S. Mehta and Rakshesh J.Oza, “Indian Paper Industry Looking to a Sunbeam?”, SAKET

Industrial Digest, Vol. 5, No. 8, August, Pp. 11, 1999.

International Journal of Pure and Applied Mathematics Special Issue

288

The Soundness of the long term position of a company can be evaluated by

testing its capacity to pay interest at regular intervals and its ability in its

commitment to repay the Principal amount. The long-term solvency of any

business can be checked with the help of Debt Equity Ration , Fixed Asset

Ratio , Solvency Ratio & Proprietary Ratio etc. In this context, various analyses

such as ratio analysis, Co-efficient of variation, t. test , Growth rate variation

and inter-correlation analysis have been employed to evaluate the long-term

solvency position of the TNPL and SPBL.

3. Review of Literature

Sudarsana Reddy, Sivarami Reddy and Mohan Reddy (2014) 4 studied the

causes of poor financial performance of six paper mills in Andhra Pradesh for a

period of ten years. The data have been obtained from the secondary sources

such as Financial reports and books of accounts of select paper mills . mills, the

Stock Exchange Official Directory, etc. The study reveals that there is no

positive relation between debt and equity and there was the possibility of non-

payment of interest charges to creditors, which may have caused financial

problems. The selected paper mills have not made use of Fixed assets

effectively and have made use of Term funds to provide funds for fixed assets.

Raw material was under-stocked and all the sample mills have not maintained

finished paper stock properly.

Basavarajappa (2012)5 made an attempt to study the effectiveness of inventory

management; to study the inventory management practices in Mysore Paper

Mills Limited; to evaluate the inventory control techniques in Mysore Paper

Mills Limited; and to offer suggestions for improving the efficiency in

inventory management. This study was mainly concentrated on inventory

management adopted by the company. The results indicate that inventory

turnover ratio are increased from 2005 to 2007 (3.43 to 3.631) then it decreases

in 2008, 2009 finally it increased in the 2010. Raw material turnover ratio is

lowest in 2006 at 3.83 and highest in the year 2007. The study suggests that

stock-in-process ratio should be decreased so it is good to an organization. The

store can be moderate according to the needs of the company. This will provide

effective, safe and good storage system. The company should follow the first in

first out method in issuing the materials to the production department.

Lamaan Sami and Anas Khan (2015)6 examined the financial performance of

the Ballarpur Industries Limited and Tamil Nadu Newsprint and Papers

4Reddy, G.Sudarsana, Reddy, C.Sivarami and Reddy, P.Mohan, “Management Focus on Operational

Performance of Paper Industry in Andhra Pradesh State of India: Empirical Research Findings”, Journal of

Financial Management and Analysis, Vol. 27, No. 2, July-December, 2014. 5Basavarajappa, M.T, “An Empirical Investigation of Inventory Management Practices of Mysore Paper

Mills Limited Bhadravathi: A Case Study”, International Journal of Research in Computer Application &

Management, Vol. 2, No. 12, December, Pp.150-155, 2012. 6Lamaan Sami and Anas Khan (2015). “Financial Performance Appraisal of Paper Industry in India: A

Study of Selected Paper Mills”, International Journal of Multidisciplinary Research and Development, Vol.2,

No.12, December, pp. 69-72.


289

Limited. The objectives of the study are: to study the concept of financial

performance appraisal; to analyze the profitability position of BILT and TNPL;

to analyze the liquidity position of BILT and TNPL; to appraise the long-term

solvency and short-term solvency of BILT and TNPL; and to suggests ways to

enhance the financial performance of the BILT and TNPL. The study is based

on the secondary sources of data collected from the published financial

statements of the selected paper mills. Therefore, to study the Financial

performance Profitability, Liquidity and Solvency ratios are used for the said

purpose. The findings showed that there is a significant d/f in BILT and TNPL

with respect to G/P Ratio, N/P ratio , CR , QR and DER.

Halani (2014)7 made an attempt to study the factors affecting working capital

requirements in selected paper companies in India; and to analyze the working

capital management with respect to trade off between the liquidities. The study

was preliminary based on the published accounts and Annual Financial

Statement of the select paper mills. The study shows that the current ratio was

satisfactory in Andhra Pradesh Paper Mills, Ballarpur Paper Mills, J. K. Paper

Mills, Orient Paper and Industries, Seshasayee Paper and Boards, Sirpur Paper

Mills, South India Paper Mills and Star Paper Mills. Further, the current ratio is

also satisfactory in TNPL and West Coast Paper Mills. It is found that there is

an important variation in the current ratio of the select paper mills.

4. Research Gap

The above reviews show that there have been studies on financial performance

of public or private companies. The studies made on paper mills have analyzed

only Inventory management and analysis of one company. Therefore, No such

study has been undertaken to compare the Long Term Liquidity aspects of the

financial performance of the Tamil Nadu Newsprint and Papers Limited, and

Seshasayee Paper and Boards Limited on a comparative basis. Hence, a careful

and exhaustive investigation is found to be important in this aspect. With this

situation, the present study makes an attempt to fill in the research gap in these

areas.

5. Statement of the Problem

There is a downward trend in the Paper Industry in India due to the increase

in supply together with world wide recession. The world recession and Asian

crisis has contributed to a reduced demand considerably. Since 1990, the paper

industry in India is facing a trade cycle with different phases of over capacity

leading to fall in paper prices, lower capacity utilization and decreased

investments/capacity addition, followed by the dissolution of mills, decreased in

demand supply gap and once again back circle to increase the paper prices.

7Halani, P.R, “A Comparative Study of Working Capital Management of Selected Paper Companies in

India”, Research Hub: International Multidisciplinary Research Journal, Vol. 1, No. 5, December,

Pp. 1-11, 2014.


290

More over availability of adequate capital, Raising cost of capital, Higher

dividend payout ratio, Higher interest on long term funding of Banks etc , have

also created a major blow to paper industries in India. The major issue before

the paper industry is production of paper. There are several issues that have

prone to the environmental issues. It is evident that planning for the

development of a basic industry like paper and pulp industries, account has not

taken immediately, but also fairly that there is the need for the country over a

long period. Inadequate investment in the infrastructure, lack of coherent and

modern manufacturing policy traditional labour welfare policies. And

insufficient supply of power has created a situation where only about 60%

production capacity is being used, while approximately 200 small mills are

currently underperforming or closed.

India’s infrastructure has seen improvement, but still has to improve a lot and it

is not on par with the developed countries. Developments in roads, railways and

ports can benefit all the industries including pulp and paper. India has a large

number of unskilled and skilled labours and the advantage of very low labour

costs. Indian paper Industries are facing difficulties such as increasing

production cost , Lack of adequate raw material , high labour and raw material ,

higher cost of power etc., there is also lack of availability of specialized and

sophisticated machineries and equipments in India. These machines need to be

imported at higher cost. There is also a sharp increase in prices that has resulted

in crisis in the economy and hence the paper industry has been facing crisis due

to different causes such as sub-optimal use of installed capacity, poor

profitability etc., Capacity under utilization, high costs of manufacture,

inefficient management in finance etc., are few causes for the poor profitability.

Paper mills also face a problem of sharp increase in the price of fuel. The steep

increase in the fuel had a negative impact on the operation cost of the paper

industry. The financial performance of the paper mills are not satisfactory in

spite of enormous benefits in terms of facility and fiscal benefis. Currently the

paper industry is at the crossroads In this context, the researcher makes an

attempt to compare the Long -term liquidity position of the Tamil Nadu News

Print and Papers Limited, and Seshasayee Paper and Boards Limited in

Tamilnadu.

6. Objectives of the Study

The Objective of the study is listed below:

1. To Study the Long-term liquidity position of the Tamil Nadu News Print

and Papers Limited, and Seshasayee Paper and Boards Limited.

2. To suggest the better measures to increase the Long-term liquidity

position of the select paper mills on the basis of findings in the study.

Testing of Hypothesis

The following Null Hypothesis is framed for the purpose of the study. The

validity is tested with the available data through an suitable analysis. Ho: There

is no significant difference in the Long-term liquidity position between the


291

Tamil Nadu News Print and Papers Limited, and Seshasayee Paper and Boards

Limited.

Scope of the Study

This study is undertaken to assess the Long -term liquidity position of the select

paper mills. The present study is confined to two paper mills only, namely, the

Tamil Nadu Newsprint and Papers Limited (a public sector undertaking), and

Seshasayee Paper and Boards Limited (a private sector undertaking).

7. Methodology

The Nature of the study is analytical and focuses on comparing the Long-term

liquidity position of the Tamil Nadu News Print and Papers Limited, and

Seshasayee Paper and Boards Limited. As on 31.03.2015, there are eight paper

mills in operation in Tamilnadu, of which there are only two large-scale paper

mills, namely, the Tamil Nadu Newsprint and Papers Limited, and Seshasayee

Paper and Boards Limited. Thus, the 2 large-scale paper mills are selected for

the present study. The study includes both the primary and secondary data. For

collecting the primary data, discussion with officials of the select paper mills

was undertaken. The study is mainly focuses on the secondary data. The

secondary data are collected from the published yearly statements, account

books, minutes, audit reports, and circulars of the select paper mills. A period of

ten years from 2005-06 to 2014-15 is selected for this study. The data are

analyzed by making use of various Accounting and Quantitative and Statistical

tools such as ratio analysis, student’s t test, growth rates, Co-efficient of

variation and inter-correlation analysis.

Table 1: Fixed Assets Ratio of the Select Paper Mills

Year TNPL SPBL

Fix

ed A

sset

s

(Rs.

in

Cro

res)

Ca

pit

al

Em

plo

yed

(Rs.

in

Cro

res)

Fix

ed A

sset

s R

ati

o

Fix

ed A

sset

s

(Rs.

in

Cro

res)

Ca

pit

al

Em

plo

yed

(Rs.

in

Cro

res)

Fix

ed A

sset

s R

ati

o

2005-06 702.39 985.02 0.71 231.81 249.33 0.93

2006-07 718.42 1288.55 0.56 360.84 388.22 0.93

2007-08 992.91 1380.69 0.72 512.72 538.61 0.95

2008-09 1221.26 1690.62 0.72 536.15 551.65 0.97

2009-10 1244.09 2377.54 0.52 515.97 548.10 0.94

2010-11 2193.90 2653.50 0.83 509.17 523.64 0.97

2011-12 2177.93 2974.23 0.73 485.81 501.01 0.97

2012-13 2083.86 2826.15 0.74 759.97 663.67 1.15

2013-14 2433.21 2937.72 0.83 730.79 699.01 1.04

2014-15 2409.60 3626.89 0.66 716.83 677.62 1.06

Source: Annual Financial Statement of the Select Paper Mills


292

Comparison of Fixed Assets Ratio between TNPL and SPBL t Value D.F Table Value at 1% Result

7.428 18 2.878 Significant

The computed t value (7.428) is more when compared to the table value (2.878)

at 1% LOS. This indicates that there is a significant difference in the fixed

assets ratio between TNPL and SPBL. Therefore, the null hypothesis (Ho2) is

disproved.

Table 2: Stability in the Fixed Assets Ratio of the Select Paper Mills

Paper Mills No. of Years Mean Standard Deviation Co-efficient of Variation

TNPL 10 0.70 0.10 14.29

SPBL 10 0.99 0.07 07.07

Source: Annual Reports of the Select Paper Mills

It is inferred from the above table that the mean fixed assets ratio of the TNPL

and SPBL are 0.70 and 0.99 respectively. The FA ratio of the SPBL is

satisfactory when compared with TNPL. Moreover, the variation in the FA ratio

is high in TNPL (14.29% per cent) and it is low in SPBL (7.07%). Thus, there

exists a uniformity in the fixed assets ratio of the SPBL.

Table 3: Annual, Linear Annual and Compound Annual Growth Rates of the

Fixed Assets Ratio

Paper Mills Annual Growth Rate Linear Annual Growth Rate

Compound

Annual

Growth Rate

TNPL 2.25 0.01 1.68

SPBL 1.70 0.02 1.80

Source Annual Reports of the Select Paper Mills

Table 3 shows annual, linear annual and compound annual growth rates of the

FA ratio of the select paper mills. It is noticed that the fixed assets ratio of the

TNPL has recorded a highest annual growth rate (2.25) followed by compound

annual growth rate (1.68) and linear annual growth rate (0.01). Likewise, SPBL

has registered the highest compound annual growth rate (1.80) followed by the

annual growth rate (1.70) and linear annual growth rate of 0.02 in the fixed

assets ratio during the study period.

Debt-Equity Ratio

It refers to the ratio which indicates the soundness of Long Term financial

position and policies of a firm. It expresses the relationship b/w long-term

liabilities and stockholder’s equity, it is also known as “external-internal equity

ratio”. The object of calculating the DER is to analyze the relative interest of

Creditors and Shareholders fund. This ratio indicates the proportionate claims of

share holders on the total assets of the firm. The Ideal ratio is considered as 1:1.

If debts are more than the equities, it reflects a risky financial position of the

firm in the long run. In order to analyze the long-term solvency of the TNPL


293

and SPBL, debt equity ratio has been computed and is explained with the help

of table and graphs with comparative analyze.

Table 4: Debt-Equity Ratio of the Select Paper Mills

Year TNPL SPBL

Lo

ng

-ter

m D

eb

t (R

s. i

n

Cro

res)

Sh

are

ho

lder

s’ F

un

d

(Rs.

in

Cro

res)

Deb

t-E

qu

ity

Ra

tio

Lo

ng

-ter

m D

eb

t (R

s. i

n

Cro

res)

Sh

are

ho

lder

s’ F

un

d

(Rs.

in

Cro

res)

Deb

t-E

qu

ity

Ra

tio

2005-06 308.13 522.52 0.59 145.04 104.29 1.39

2006-07 559.39 576.50 0.97 247.14 141.08 1.75

2007-08 552.44 640.01 0.86 356.49 182.11 1.96

2008-09 806.45 664.32 1.21 359.65 192.53 1.87

2009-10 1362.91 804.50 1.69 323.51 224.59 1.44

2010-11 1244.04 915.79 1.36 240.59 283.05 0.85

2011-12 1434.25 970.69 1.48 190.41 310.61 0.61

2012-13 1153.14 1035.48 1.11 300.43 361.88 0.83

2013-14 1087.39 1145.98 0.95 314.88 384.13 0.82

2014-15 1844.45 1201.64 1.53 283.63 392.99 0.72

Source: Annual Statement of TNPL and SPBL

Comparison of Debt-Equity Ratios between TNPL and SPBL

t Value D.F Table Value at 5% Result

0.250 18 2.101 Not significant

The computed value of t test (0.250) is less when compared to the tablated value

(2.0101) at 5% level of significance. Hence, there is No significant difference in

the debt-equity ratio between TNPL and SPBL. Because of this reason, the null

hypothesis (Ho2) is proved.

Table 5: Stability in the Debt-Equity Ratio of the Select Paper Mills


TNPL 10 1.17 0.34 29.06

SPBL 10 1.22 0.52 42.62


It is shown in the above table that the debt-equity ratio of TNPL and SPBL

stood at an average of 1.17 and 1.22 respectively. It reveals that the select paper

mills are dependent on debt and they face difficulties to pay off its long-term

commitments in time. Furthermore, the variation in the debt-equity ratio is high

in SPBL (42.62% per cent) and it is low in TNPL (29.06%). Thus, there exists

stability in the debt-equity ratio of the TNPL.


294

Table 6: Annual, Linear Annual and Compound Annual Growth Rates of the

Debt-Equity Ratio

Paper Mills Annual Growth Rate Linear Annual

Growth Rate

Compound Annual

Growth Rate

TNPL 16.04 0.06 6.31

SPBL -4.03 -0.14 -11.10


Table 6 shows annual, linear annual and compound annual growth rates of the

debt-equity ratio of the select paper mills. The TNPL has registered the highest

Annual Growth Rate (16.04) of debt-equity ratio. The linear annual growth rate

and compound annual growth rate of the debt-equity ratio of TNPL are 0.06 and

6.31 respectively. The SPBL has registered negative annual growth rate (4.03),

liner annual growth rate (0.14) and compound annual growth rate (11.10) of

debt-equity ratio over the years.

Proprietary Ratio

It is also called Equity Ratio. It refers to the share of Equity share holders to the

Total assets of a company and there by estimates the amount of capital utilized.

There fore , PR expresses the relationship between SHF and TA of a Firm. The

proprietary ratio is a an indicator of stability in finance. If the ratio is high , it

indicates that there is adequate amount of equity capital available in the firm. If

the ratio is high, it indicates that a company has a sufficient amount of equity to

support the functions of the business. On the other hand , a low ratio indicates

that the firm is making use of more Debt capital rather than equity capital. In

this context, an attempt was made to find out if there is any significant

difference in the PR between TNPL and SPBL.

Table 7: Proprietary Ratio of the Select Paper Mills

Year TNPL SPBL

Sh

are

ho

lder

s’ F

un

d

(Rs.

in

Cro

res)

To

tal

Ass

ets

(Rs.

in

Cro

res)

Pro

pri

eta

ry R

ati

o

Sh

are

ho

lder

s’ F

un

d

(Rs.

in

Cro

res)

To

tal

Ass

ets

(Rs.

in

Cro

res)

Pro

pri

eta

ry R

ati

o

2005-06 522.52 830.64 0.63 104.29 411.00 0.25

2006-07 576.50 1135.89 0.51 141.08 575.96 0.24

2007-08 640.01 1192.43 0.54 182.11 748.07 0.24

2008-09 664.32 1470.77 0.45 192.53 748.60 0.26

2009-10 804.50 2167.41 0.37 224.59 743.07 0.30

2010-11 915.79 2159.83 0.42 283.05 873.83 0.32

2011-12 970.69 2404.93 0.40 310.61 809.22 0.28

2012-13 1035.48 2188.61 0.47 361.88 1116.65 0.32

2013-14 1145.98 2233.35 0.51 384.13 1093.55 0.35

2014-15 1201.64 3046.08 0.39 392.99 1100.58 0.36



295

Comparison of Proprietary Ratio between TNPL and SPBL t Value D.F Table Value at 1% Result


The computed value of t test is 6.097, which is more than the tablated value

(2.878) at 1%LOS. This indicates that there is a significant difference in the

proprietary ratio between TNPL and SPBL. Therefore, the hypothesis (Ho2) is

disproved.

Table 8: Stability in the Proprietary Ratio of the Select Paper Mills


TNPL 10 0.47 0.08 17.02

SPBL 10 0.29 0.04 13.79


It is inferred from the above table that the mean proprietary ratio of the TNPL

and SPB are 0.47 and 0.29 respectively. It means that the shareholders have

contributed 47% of funds and creditors contributed the remaining 53% of funds

in financing total assets in TNPL. In case of SPB, 29% and 71% of the funds

were contributed by shareholders and creditors respectively. Thus, the

proprietary ratio of the SPB is not satisfactory. Besides, the variation in the

proprietary ratio is high in TNPL (17.02% per cent) and it is low in SPBL

(13.09%). Thus, there exists stability in the proprietary ratio of the SPB during

the study period.

Table 9: Annual, Linear Annual and Compound Annual Growth Rates of

the Proprietary Ratio

Paper Mills Annual Growth Rate Linear Annual

Growth Rate

Compound Annual Growth

Rate

TNPL -4.04 -0.02 -3.12

SPBL 4.49 0.01 4.74


It is obvious from the above table that the TNPL has registered negative annual

growth rate (4.04), liner annual growth rate (0.02) and compound annual growth

rate (3.12) of the proprietary ratio. The SPBL has registered the highest

compound annual growth rate (4.74) followed by annual growth rate (4.49) of

the proprietary ratio. The liner annual growth rate of the proprietary ratio of

SPBL was 0.01 during the study period.

Solvency Ratio

It refers to the ratio used to measure the ability of a company to meet its

external obligations out of its assets. It expresses the relationship between total

assets and total liabilities. Solvency ratio is a small variant of equity ratio. More

over , when solvency ratio is less , higher the stability of long term solvency

position of a company. An attempt was made to find out if there is any

significant difference in the solvency ratio between TNPL and SPBL.


296

Table 10: Solvency Ratio of the Select Paper Mills

Year TNPL SPBL

Ex

tern

al

Deb

t (R

s.

in C

rore

s)

To

tal

Ass

ets

(Rs.

in

Cro

res)

So

lven

cy R

ati

o

Ex

tern

al

Deb

t (R

s.

in C

rore

s)

To

tal

Ass

ets

(Rs.

in

Cro

res)

So

lven

cy R

ati

o

2005-06 698.99 830.64 0.84 161.67 411.00 0.39

2006-07 979.22 1135.89 0.86 187.74 575.96 0.33

2007-08 1085.86 1192.43 0.91 209.46 748.07 0.28

2008-09 1370.96 1470.77 0.93 196.42 748.60 0.26

2009-10 1930.50 2167.41 0.89 194.97 743.07 0.26

2010-11 2159.55 2159.83 1.00 350.19 873.83 0.40

2011-12 2584.22 2404.93 1.07 308.21 809.22 0.38

2012-13 2445.54 2188.61 1.18 452.98 1116.65 0.41

2013-14 2566.68 2233.35 1.15 394.54 1093.55 0.36

2014-15 3495.86 3046.08 1.15 423.96 1100.58 0.38

Source: Annual financial statements of TNPL and SPBL

Comparison of Solvency Ratio between TNPL and SPBL t Value D.F Table Value at 1% Result


It is understood from the table that the calculated ‘t’ value is 14.465, which is

greater than the table value of 2.878 at 1% level of significance. This reveals

that there is a significant difference in the solvency ratio between TNPL and

SPB. Therefore, the null hypothesis (Ho2) is disproved.

Table 11: Stability in the Solvency Ratio of the Select Paper Mills


TNPL 10 1.00 0.13 13.00

SPBL 10 0.35 0.06 17.04


It is shown in the above table that the mean solvency ratio of the TNPL and

SPBL is 1.00 and 0.35 respectively. Since the mean solvency ratios show low

values, the solvency position of the select paper mills are satisfactory. Besides,

the variation in the solvency ratio is high in SPBL (17.04% per cent) and it is

low in TNPL (13%). Thus, there exists the stability in the solvency ratio of the

TNPL during the study period.

Table 12: Annual, Linear Annual and Compound Annual Growth Rates of

the Solvency Ratio

Paper Mills Annual Growth Rate Linear Annual Growth Rate Compound Annual Growth Rate

TNPL 3.69 0.04 4.14

SPBL 1.38 0.01 2.36



297

Table 12 exhibits annual, liner annual and compound annual growth rates of the

solvency ratio of the select paper mills. It is inferred that TNPL has registered

the highest compound annual growth rate (4.14), followed by annual growth

rate (3.69) and linear annual growth rate (0.04). Likewise, SPBL has recorded

the highest compound annual growth rate (2.36), followed by annual growth

rate (1.38) and linear annual growth rate (0.01) during the study period.

Inter-Relationship among the Long-Term Solvency Ratios

An attempt has been made to find out if there is any relationship among the

long-term solvency ratios of the select paper mills. In this context, an inter-

correlation analysis has been employed to find out the relationship among the

long-term solvency ratios.

Table 13: Inter-Correlations among the Long-term Solvency Ratios of the

Select Paper Mills

Paper Mills Ratios F

ixed

ass

ets

Ra

tio

Deb

t-eq

uit

y R

ati

o

Pro

pri

eta

ry R

ati

o

So

lven

cy R

ati

o

TNPL Fixed assets ratio 1.000 -0.285 0.204 0.488

Debt-equity ratio 1.000 -0.986** 0.300

Proprietary ratio 1.000 -0.383

Solvency ratio 1.000

SPBL Fixed assets ratio 1.000 -0.428 0.762* 0.008

Debt-equity ratio 1.000 -0.787** -0.783**

Proprietary ratio 1.000 0.446

Solvency ratio 1.000


It is inferred from the above analysis that fixed assets ratio of TNPL has a

moderate correlation coefficient (0.488) with solvency ratio. Debt-equity ratio

has a noteworthy negative correlation coefficient with proprietary ratio (0.986)

at 1 per cent level of significance.

A negative moderate correlation coefficient is found between proprietary ratio

and solvency ratio (0.383). Fixed assets ratio of SPBL has a significant positive

correlation coefficient (0.762) with proprietary ratio at 1 per cent level of

significance and it has a moderate negative correlation coefficient with debt-

equity ratio (0.428).

Debt-equity ratio of SPBL has a significant negative correlation coefficient with

proprietary ratio (0.787) and solvency ratio (0.783) at 1 per cent level of

significance. A moderate correlation is found between proprietary ratio and

solvency ratio (0.446) of SPB.


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8. Findings

1. A significant difference is found between the fixed assets ratio,

proprietary ratio and solvency ratio of the TNPL and SPBL. However,

there is in significant difference between the DER of the TNPL and

SPBL during the study period.

2. There is consistency in the debt-equity ratio and solvency ratio of the

TNPL. There exists stability in the FAR and proprietary ratio of SPBL.

3. The mean fixed assets ratio of the TNPL and SPBL are 0.70 and 0.99

respectively. The fixed assets ratio of the SPBL is satisfactory when

compared with TNPL. The fixed assets ratio of the TNPL has registered

the highest annual growth rate (2.25) followed by compound annual

growth rate (1.68) and linear annual growth rate (0.01). Likewise, SPBL

has registered a highest compound annual growth rate (1.80) followed

by annual growth rate (1.70) and linear annual growth rate of (0.02) the

fixed assets ratio during the study period.

4. The debt-equity ratio of TNPL and SPBL stood at an average of 1.17

and 1.22 respectively. It reveals that they are dependent on debt and face

difficulties to pay off their long-term commitments in time. TNPL has

registered the highest annual growth rate (16.04) of debt-equity ratio.

The linear annual growth rate and compound annual growth rate of the

debt-equity ratio of TNPL are 0.06 and 6.31 respectively. The SPBL has

registered negative annual growth rate (4.03), liner annual growth rate

(0.14) and compound annual growth rate (11.10) of debt-equity ratio

during the study period.

5. The mean proprietary ratio of the TNPL and SPBL are 0.47 and 0.29

respectively. It implies that shareholders have contributed 47% of funds

and creditors contributed the remaining 53% of funds in financing total

assets in TNPL. In case of SPBL, 29% and 71% of the funds were

contributed by shareholders and creditors respectively. Thus, the

proprietary ratio of the SPBL is unsatisfactory. TNPL has registered

negative annual growth rate (4.04), liner annual growth rate (0.02) and

compound annual growth rate (3.12) of the proprietary ratio. The SPBL

has registered the highest compound annual growth rate (4.74) followed

by annual growth rate (4.49) of the proprietary ratio. The liner annual

growth rate of the proprietary ratio of SPB was 0.01 during the study

period.

6. The mean solvency ratio of the TNPL and SPBL are 1.00 and 0.35

respectively. Thus, the solvency position of the select paper mills is

satisfactory. TNPL has registered the highest compound annual growth

rate (4.14), followed by annual growth rate (3.69) and linear annual

growth rate (0.04). Similarly, SPB has recorded the highest compound

annual growth rate (2.36), followed by annual growth rate (1.38) and

linear annual growth rate (0.01) during the study period.

7. Fixed assets ratio of the TNPL has a moderate correlation coefficient

(0.488) with solvency ratio. DER has noteworthy negative correlation


299

coefficient with proprietary ratio (0.986). A negative moderate

correlation coefficient was found between proprietary ratio and solvency

ratio (0.383).

8. Fixed assets ratio of the SPBL has a significant positive correlation

coefficient (0.762) with proprietary ratio and it has a moderate negative

correlation coefficient with debt-equity ratio (0.428). DER of SPBL has

a significant negative coefficient of correlation with proprietary ratio

(0.787) and solvency ratio (0.783). A moderate correlation was found

between proprietary ratio and solvency ratio (0.446) of SPB.

9. Suggestions

1. The select paper mills should take measures to increase its proprietary

Ratio, as both the company does not match the ideal ratio. (The Ideal

Proprietary Ratio is 0.5:1) (The Mean Proprietary Ratio of TNPL is

0.47 and SPBL is 0.29)

2. The FAR of TNPL is less when compared to SPB. Therefore TNPL

should take necessary measures to increase its fixed assets.

3. The Solvency Ratio of TNPL is not satisfactory and should take steps to

improve the same.

10. Conclusion

The significance of paper and paper products in the present day life is

recognized by everyone. Life without paper is unimaginable. Being one of the

basic necessities of the present day society, its scarcity could jeopardize the

economic and intellectual advancement of a country. In Tamil nadu, there are 2

prominent paper mills in operation, namely, Tamil Nadu Newsprint and Papers

Limited, and Seshasayee Paper and Boards Limited. These two papers mills are

selected for the present study. Therefore, it can be concluded that the TNPL’s

Long term Liquidity position is better than that of SPBL, where in the Mean

Solvency Ratio and Proprietary Ratio of TNPL is higher than that of SPBL.

And the Annual Growth rate of Fixed Asset Ratio, Debt Equity Ratio and

Solvency Ratio is higher in case of TNPL.

References

[1] Jain R.K., Working Capital Management of State Enterprises in India, Jaipur: National Publishing House, 1988.

[2] Basavarajappa M.T., An Empirical Investigation of Inventory Management Practices of Mysore Paper Mills Limited Bhadravathi: A Case Study, International Journal of Research in Computer Application & Management 2 (12) (2012).

[3] Alka Subramanian, Small is not Beautiful: A Study of Paper Industry, Economic and Political Weekly 35 (1987).


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[4] Seetal S. Mehta, Rakshesh J. Ozam, Indian Paper Industry Looking to a Sunbeam?”, SAKET Industrial Digest 5 (8) (1999).

[5] Sudarsana Reddy G, Sivaram Reddy C Mohan Reddy R, Debtors Management: A Case Study of Andhra Pradesh Paper Industry, The Management Accountant 38 (11) (2003).

[6] Lamaan Sami, Anas Khan, Financial Performance Appraisal of Paper Industry in India: A Study of Selected Paper Mills, International Journal of Multidisciplinary Research and Development 2 (12) (2015) 69-72.

[7] Halani P.R, A Comparative Study of Working Capital Management of Selected Paper Companies in India, Research Hub: International Journal of Multidisciplinary Research 1 (5) (2014) 1-11.


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A Study on LONG - Term Liquidity Position of the Select