ABSTRACT

Efficacious liquidity management is cardinal for being of an organization. Diverse components of

current assets and current liabilities should be managed in such manner that an organization is able to

keep appropriate liquidity structure. Adequate liquidity capacitates an organization to meet its

obligations in time. Efficient liquidity management impact firm’s risk, return and share prices, and

surmises its success or failure. Liquidity management is credited as a lifeline of every concern. Need for

dexterous liquidity management has, thus, become prime lately. The study developed on idiolect of

disparate indices reveals that the overall liquidity position of the selected company, Titan Company Ltd.

is not impressive. The paper also offers few suggestions to elevate certain facets stirring healthy liquidity
management .

1. INTRODUCTION

Liquidity plays a crucial role in the cogent evolving of a firm. Liquidity management has, thus, become

a motherly aspect of assessing the performance of a corporate entity. Liquidity should be neither

excessive nor inadequate. Excessive liquidity indicates idle funds which do not earn any profit for the

firm while inadequate liquidity adversely impacts the credibility of a firm, interrupts the production

process and hampers its earning capacity substantially. Need for efficient liquidity management, has

thus, become essential for the smooth running of any business enterprise. It is in this context that a

modest attempt has been made in this paper to examine the different aspects of liquidity management

and for better illustration, through a case study. The unit selected for the study is Titan Company Ltd. 2.
Liquidity-Concept

Liquidity is a function of Current Assets (CA) and Current Liabilities (CL) and their composition.

Company‟s degree of liquidity depends upon its cash and other assets that can be promptly converted
into

cash irrespective of company‟s making or losing money, obligations for repayment in near future and

ability to raise cash through securities or borrowed money (Chambers & Lacey, 2011). An essential

ingredient of liquidity is time it takes to convert an asset into cash or to pay CL. Quicker an asset

converted into cash, more liquid it is. An enterprise is reasoned to be liquid if it has sufficient resources

to meet its liabilities in time with minimal cost (Maness & Zietlow, 2005). Liquidity refers to the ability

to pay in cash the due obligations. In the absence of adequate liquidity, an enterprise is technically
insolvent and at least faces financial embarrassments of renegotiating its obligations to creditors (Kolb,

Burton A., 1983). It may be defined as the ability to realize value in money (Van Horne, 1978). In other

words, liquidity is a firm‟s ability to meet its maturing obligations. Such liquidity is ascertained by

assessing its ability to hold necessary cash at the time of meeting obligations. Anthony and Reece

viewed that liquidity refers to company‟s ability to meet its current obligations (Anthony & Reece,

1975). Solvency on the other hand, pertains to company‟s ability to meet interest costs and repayment

schedules associated with its long-term obligations (Anthony & Reece, 1975). Hampton opined that

liquidity means adequate cash in hand held by a firm to meet its obligations at all times (Hampton J.,

1979). Bierman and Hass explained it as the likelihood of a firm being able to meet its financial

obligation (Bierman & Hass, 1963). An enterprise must have certain level of cash above its expected

needs to meet emergencies and to get all possible discount facilities for bulk purchases. Higher the

financial liquidity, lower the risk of technical insolvency and vice versa. Liquidity beyond an

acceptable limit would be disastrous as it increases risk of becoming technically insolvent.

2. Literature REVIEW

Shapiro and Balbier (2000) viewed that an evaluation of quality of an organization‟s receivable and
inventory is significant to assessment of liquidity. If receivable and inventory turnover promptly, cash
Flow can be invested for return. Ross and Westerfield (2005) opined that temporary cash surplus can be
invested in short-term marketable securities for receiving high return since idle cash is reasoned
inefficient. Toby (2008) in the investigation on liquidity execution relationship in Nigerian Manufacturing
Companies unearthed that the results show strong connection between liquidity and

productivity, effectiveness and obligation in Nigerian cited production. Ebben and Johnson (2011)

investigated the relationship between cash conversion cycle and degree of liquidity, capital investment

and performance over time and found significant relationship to all these aspects. Firms with more

efficient cash conversion cycles have more liquidity and higher returns, and need less debt and equity

financing. Campello, Giambona, Graham, and Harvey (2011) in their study of liquidity management

offered new insights on interfaces between internal liquidity, external funds and corporate decisions.

Firms with limited access to credit lines appear to choose between saving and investing during crisis.
Their evidence indicated that credit lines ease impact of financial crisis on corporate spending. Almeida,

Campello, and Hackbarth (2011) studied firms liquidity policies as a function of real asset reallocation,

analyzing trade-off between cash and credit lines. Their findings showed that firms are more likely to
apply credit lines in industries with more liquidity mergers. Nunes, Viveiros, and Serrasqueiro (2011) in

their study observed relative importance of age, size, liquidity and long-term debts for the increased

profitability while risk is of great relative importance for the diminished profitability of young S.M.E.

compared to old S.M.E European enterprises. Campello, Giambona, Graham, and Harvey (2012)

explored in their study that firms with restricted access to credit draw more funds from their credit lines

during their crisis than large profitable counterparts. Their findings suggested that credit lines do not

wane during crisis and provide liquidity that firms used to cope with the phenomenal constraint.

Banos-Caballero, Garcia-Teruel and Martinez-Solano (2014) analyzed the linkage between working

capital management and corporate performance for selected non-financial British companies. Their

findings provided strong support for an inverted U-shaped relation between investment in working

capital and firm performance. Lima, Martins, and Brandao (2015) in their investigation observed that

working capital management truly influences profitability of S.M.E. in European countries. Positive

relationship exists between liquidity and profitability. Lyngstadas and Berg (2016) in their study assured

that working capital management is relevant for small and medium-sized Norwegian firms profitability.

Banos-Caballero, Garcia-Teruel, and Martinez-Solano (2016) in their investigation on the relationship

between financing strategies of working capital requirement and firm performance found that an

appropriate strategy can help firms improve their performance. Managers should be aware of
investment

in working capital and financing pattern of investment. Afrifa and Tingbani (2018) in their analysis on

impact of working capital management on S.M.E. performance on selected British S.M.E. observed

insignificant negative impact and suggested that in case of cash flow unavailability/availability,

managers should attempt to decrease/increase investment in working capital to foster performance.

Valaskova, Kliestik, and Kovacova (2018) investigated financial risks of Slovak companies using

multiple regression and reasoned net return on capital, cash ratio, quick ratio, current ratio, net working

capital, current debt ratio, financial debt ratio and current assets turnover as valid determinants

grounded on which decision about the future companies default can be framed. Kontuš (2018) studied
the

relationship between liquidity and profitability of S.M.E. and large companies in the Republic of Croatia

in 2014 but offered no empirical evidence favoring negative correlation.

The prime objectives of the study are: (i) to assess the liquidity of the selected company through ratio

analysis.(ii) to examine the relationship between liquidity and profitability by using Spearman‟s Rank

Correlation Coefficient and also to test the significance of such correlation coefficient.(iii) to offer

suggestions to improve the liquidity management of Titan Company Ltd.

The researcher, being an external analyst, has to depend solely on secondary data for the examination

of the different aspects of liquidity management of the selected undertaking, i.e., Titan Company Ltd.

Hence the data and information required for the study have been collected mostly from the annual

reports of the company for the period from 2017-2018 to 2021-2022. Editing, classification and

tabulation of the financial data collected from the above-mentioned source have been done as per

requirement of the study. For the purpose of analyzing the efficiency of the liquidity management of the

company under study, the technique of ratio analysis, statistical techniques like mean, Standard

Deviation (SD), Coefficient of Variation (CV), Spearman‟s Rank Correlation, etc. have been employed.

In order to test the significance of relationship between liquidity and profitability worked out by the

rank correlation coefficient, the “t-test” has also been applied.

4. Research Methodology
The researcher, being an external analyst, has to depend solely on secondary data for the examination

of the different aspects of liquidity management of the selected undertaking, i.e., Titan Company Ltd.

Hence the data and information required for the study have been collected mostly from the annual

reports of the company for the period from 2017-2018 to 2021-2022. Editing, classification and

tabulation of the financial data collected from the above-mentioned source have been done as per

requirement of the study. For the purpose of analyzing the efficiency of the liquidity management of the

company under study, the technique of ratio analysis, statistical techniques like mean, Standard

Deviation (SD), Coefficient of Variation (CV), Spearman‟s Rank Correlation, etc. have been employed.

In order to test the significance of relationship between liquidity and profitability worked out by the

rank correlation coefficient, the “t-test” has also been applied.

Titan Company Ltd., a joint venture between the Tata Group and the Tamil Nadu Industrial

Development Corporation (TIDCO) commenced its operations in 1984 as Titan Watches Limited. Titan

is the fifth largest incorporated own brand watch manufacturer in the world. Over the last three
decades,

Titan has entered into market competitiveness and fashioned lifestyle brands across diverse production

categories. Titan is acclaimed for metamorphosing watch and jewellery industry in India and for

shaping India‟s retail market by building client experience. The company keeps thriving and establishes

yardsticks for merit with each fresh bid. Titan Company Limited is involved in presenting watches,

jewelry, eyewear and others. Titan Co. Ltd. has lately started its new division namely Taneira and

SKINN. It has different brands like Titan, Sonata, Helios, Nebula, Tanishq, Titan EyePlus, etc. The

company has received many prestigious awards in different times, e.g., “Best Store Experience” award

from the Platinum Guild International, London, „Red Dot: Best of the Best‟ award for innovative laser

cut tube jewellery, the most prestigious and coveted award in the world in the field of Product Design

and also for groundbreaking design innovation, “Best Employer Award” by Tamil Nadu Government,

Brand Equity Shark Award, “Customer Service Excellence” and “Retail Store of

Year—Merchandising” awards in Future of Retail Awards 2019, Bronze in the prestigious ACEF Asian

Leadership Award, etc. The company has developed its first international Tanishq store in Dubai based

on thriving regions outside India and obtained Hyderabad-based technology and wearable firm HUG
innovations.

5. CONCLUSION

Liquidity management occupies an important place in financial management. An analysis of liquidity

aspect of working capital is vital for both short-term creditors and management of a business enterprise.

Efficient liquidity management could be ascertained by firm‟s ability to meet maturing debts or

obligations. Liquidity is considered as busy-bee of working capital management. Moreover, analysis of

liquidity aspect helps management to get information about the adequacy of working capital. Study of

liquidity, in fact, implicates study of interface between current assets and current liabilities. This study
evidences that the company is not making payment of its current debts within the time over the years

and hence, the company‟s internal operations have to be improved to achieve better management
status.

The company is unable to meet its entire requirements for payment of high liquidity commitments with

prolific operations and from its cash flow operations. The study based on different parameters

witnesses that the overall liquidity position of Titan Company Ltd. is capricious and dispiriting. There

is a need for improvement in almost all factors.

6. SUGGESTION

Investment in CA is much high in the company under study which should be reduced steadily.

Optimum level of CA should, therefore, be maintained by considering the concept of liquidity,

profitability and solvency.

There is a need for immediate improvement in the creditors‟ payment policy because creditors are not

paid in time. In nearly all cases, payment is made beyond one year. Management should put stress on

the payment of debts.

Management of Titan Company Ltd. should try to maintain a definite proportion among the various

components of working capital in relation to the overall CA to keep adequate quantum of liquidity

invariably. Such a proportion can be resolved following past experience.

As the cash position of the company is poor, investment appearing as inventory should be reduced and

through prompt collection of debts.

The company should improve its liquidity position through raising its LA like cash in hand, bank

balance, etc., to maintain proper liquid funds like cash and bank balances.

The company having high stock, it should lessen the stock by increment deals.

The company should keep up legitimate fluid supports like money and bank balance

Inventories should be reduced to the least possible extent. Norms both for the consumption and stock
of

raw materials should be laid down on a scientific basis and in no case should they be violated in practice.

Liquidity management system of the company to be effective for successful survival in the competitive

business world must adopt varied scientific methods of liquidity management so that CA can be
maintained at optimum level.
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