projects
CHAPTER – I
INTRODUCTION
1.1 INTRODUCTION TO THE CONCEPT OF STUDY
Trade credit is considered as an essential marketing tool, acting as a bridge for the movement of goods through production and distribution stages of customers. A company grants trade credit to protect its sales from the competitors and to attract the potential customers to buy its products at favorable and competitive terms. When the company sells its products or services and does not receive cash for it immediately, the company is said to have granted trade credit to customer.
Trade credit means receivable or book debts which the company is expected to collect in the near future. The book debts or receivables arising out of credit have three characteristics, first it involves an element of risk which should be carefully analyzed. Cash sales are totally risk free, but not the credit sales as the cash payments is yet to be received. Secondly it is based on economic value of the goods or services which passes immediately at the time of sale, while the seller expects an equivalent value to the received later on.
Thirdly, it implies futurity. The payment for goods or services received by the buyer will be made by him in a future period. The seller has to collect the payment from his customers who are called trade debtors and the amount to be collected is known as receivables. Receivable constitute a substantial portion of current assets of several firms.
1.2. THEORETICAL BACKGROUND OF THE STUDY
1.2.1 Meaning of Ratio
A ratio is a simple arithmetical expression of the relationship of one number to another. According to Accountants Handbook by Wixon Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. In short it can be defined as the indicated quotient of two mathematical expressions. The ratios can be expressed in,
1. Percentages
2. Fraction
3. Proportion of numbers.
1.2.2 Meaning of Ratio Analysis: -
Ratio Analysis is a
INTRODUCTION
1.1 INTRODUCTION TO THE CONCEPT OF STUDY
Trade credit is considered as an essential marketing tool, acting as a bridge for the movement of goods through production and distribution stages of customers. A company grants trade credit to protect its sales from the competitors and to attract the potential customers to buy its products at favorable and competitive terms. When the company sells its products or services and does not receive cash for it immediately, the company is said to have granted trade credit to customer.
Trade credit means receivable or book debts which the company is expected to collect in the near future. The book debts or receivables arising out of credit have three characteristics, first it involves an element of risk which should be carefully analyzed. Cash sales are totally risk free, but not the credit sales as the cash payments is yet to be received. Secondly it is based on economic value of the goods or services which passes immediately at the time of sale, while the seller expects an equivalent value to the received later on.
Thirdly, it implies futurity. The payment for goods or services received by the buyer will be made by him in a future period. The seller has to collect the payment from his customers who are called trade debtors and the amount to be collected is known as receivables. Receivable constitute a substantial portion of current assets of several firms.
1.2. THEORETICAL BACKGROUND OF THE STUDY
1.2.1 Meaning of Ratio
A ratio is a simple arithmetical expression of the relationship of one number to another. According to Accountants Handbook by Wixon Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. In short it can be defined as the indicated quotient of two mathematical expressions. The ratios can be expressed in,
1. Percentages
2. Fraction
3. Proportion of numbers.
1.2.2 Meaning of Ratio Analysis: -
Ratio Analysis is a
References: 7. I.M.Pandey, Financial Management, 1986 edition, Page no. 510. 9. T.S.Reddy, Y.Hari Prasad Reddy, Cost and Management Accounting, Margham Publications, 2010, Page no.13.6.