Cash ratiocash & bank balances divided by current liabilities & provisionsis an indicator of the extent to which a company can pay its current liabilities with cash in hand, without relying on the sale of inventory and receipt of accounts receivables.
The decline in cash ratio suggests that each year public sector enterprises are having less of the most liquid asset, cash, to meet their current liabilities. On the brighter side, it must be noted that a ratio above 0.5:1 is considered healthy and good enough to get ample credit.
A comparative study has been made for 55 PSUs excluding banks and NBFCs from 07-08 to 09-10. The aggregated cash & bank balances of these companies increased by 13.1% to Rs 1.51 lakh crore during 09-10 from Rs 1.33 lakh crore (14% growth) during 08-09 and Rs 1.17 lakh crore during 07-08.
A steady increase in cash & bank balances was seen in the case of SAIL, MRPL, Oil India, PTC India, NMDC, MTNL, SJVN, MOIL and Coal India. The cash & bank balances of SAIL steadily increased by 32.7% to Rs 18,265 crore during 08-09 from the level of Rs 13,759 crore during 07-08 and increased further by 22.8% to Rs 22,436 crore during 09-10.
The current liabilities & provisions of these PSUs increased by 19.5% to Rs 2.81 lakh crore during 09-10, from Rs 2.35 lakh crorea growth of 17.3%during 08-09 and Rs 2.00 lakh crore during 07-08.
A steady increase in current liabilities & provisions was seen in the case of MMTC, SAIL, Bhel, GAIL(I), Oil India, Power Grid Corpn., NMDC and Bharat Electronics. The current liabilities and provisions of MMTC increased from Rs 4,819 crore during 07-08 to Rs 5,387 crore during the year 09-10.
However, the ratio of cash & bank balances to current liabilities & provisions has decreased during the study period.
The top five PSUs according to cash ratio during the year 09-10 were NMDC, MOIL, Container Corporation, Oil India and PTC India.
A steady increase in cash ratio was witnessed in the case of ten PSUs, including Coal India, SAIL, RCF and SJVN. The cash ratio of Coal India steadily increased from 81.48% during 07-08 to 100.10% during 08-09 and further to 131.94% during 09-10.
A downward trend in the cash ratio was seen in the case of 21 PSUs, including Bhel, BPCL, NTPC, MMTC, GAIL(I), Nalco, Neyveli Lignite, Engineers India and Dredging Corporation. The cash ratio of Bhel decreased from 41.79% during 07-08 to 36.34% during 08-09 and further to 30.12% during 09-10.
In the sector-wise analysis, a significant decline in the cash ratio in the last three years was seen with automobiles, aluminium, chemicals, electric equipment, gas distribution, pharmaceuticals and shipping. The cash ratio of automobile companies decreased from 14.73% during 07-08 to 8.24% during 09-10.
An upward trend in the cash ratio was seen in the case of diversified, metal, mining & minerals, trading, steel and transport. The highest and lowest cash ratio was witnessed in 09-10 in the case of metal, mining & minerals and refineries, respectively.