sindhu main project
TRANSCRIPT
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INTRODUCTION
Finance and accounting are the exciting subjects as we enter the 21st century.
The study of finance is whether financial executives can increase the value of a firm.
Finance is concerned not only with measuring the profitability but also with setting
minimum standards for profitability and hence with the whole question of measuring
the cost of capital for any given society.
Meaning
Finance is called the science of the money finance is the branch of economics
till 1890. Economies may be defined as the study of the efficient use of scare resource
the decision made by the business firms in the production, marketing, finance and
personal matter in the form of the subject form of the economics, finance is age
process of conversion of accumulated funds to the productive use. In simple terms
finance may be defined as an activity concerned with the planning, raising, controlling
and administering of funds to be used in the business.
Definition
Haward and uptron defined in his book, business finance as an administrative area
(or) set of administration which relates with the arrangement of cash and credits so
that the organization may have means of the objectives as satisfactory as possible”
Financial management
Financial management is that managerial activity which is concerned with the
planning and controlling of the firm’s financial resources. It was a branch of
economics till 1890, and as a separate discipline, it is of recent organization still, it
has no unique body of knowledge of its own, and draws, heavily on economics for its
theoretical concepts even today.
The study of financial management is of immense interest to both the
academicians and practicing managers. It mainly involves raising of funds and their
effectives utilization with the objective of maximizing share of wealth. Financial
management is an operation activity of business I.e., responsible for obtaining and
effectively utilizing the funds necessary for efficient operations.
Meaning
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Financial management is very important in every type of organization. Financial
management is a managerial activity which is concerned with the planning controlling
of the firm’s financial resources
DefinitionAccording to Howard and uptorn defined financial management is an application of
managerial principle to the area of the financial decision- making
The term financial management can be defined as the management of flow of funds
in a firm and it deals with the financial decision- making of a firm.
Objectives
The important objectives of the financial management is as follows they are
Profit maximizationWealth maximization
The objective of profit maximization measures the performance of a firm by looking
at its total profit. It does not consider the risk which the firm may under take in
maximization of the profit.
The objective of maximization of shareholders wealth considers all future cash
flow, dividend, earnings per share, risk of a decision etc. So the objective of
maximization of the share holders wealth is operational and objectives in its approach.
Functions of financial management
Financial functions deals with the problem of raising funds and their effective
utilization in the business the process of rising funds investing them in assets and
distributing returns are known respectively as financing, investment and paying
dividends the firm performs them continually and simultaneously various decisions
regarding acquisition of assets, specific form of assets, where money is to be invested
and the composition of its liabilities are covered the following are some of the
functions of finance.
Long term assets-mix (or) investment decision
Capital- mix (or) dividend decision
Profit allocation (or) dividend decision
Short –term asset mix (or) liquidity decision
The following of financial management can be broadly classified into three
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Investment decision
Financial decision
Dividend decision
Investment decisions
The investment decision is concerned with a selection of assets of by which
funds invested by business firms. In business firms includes long term assets (or) long
term finance (or) capital budgeting. Where as short term finance (or) working capital
management.
The financial manager also responsible for efficient management of current
assets that is working capital management. Working capital constitutes an integral
part of the financial management
Financial decisions
The second important decision is financial decision. It is concerned with capital
mix. The term capital structure refers to the proportion of debentures capital and
equity share capital financial decisions of a firm relates to the financing mix. The
financial manager has to bring a trade off between risk and return in maintaining a
proper balance between debt capital and equity capital.
Dividend decisions
The third important major decision is dividend policy. These are concerned with a
distribution of the profits of a firm to share holders. How much of the profits should
be paid as dividends that are dividend payout ratio. The decision will depend upon the
preferences of the share holders. The dividend payout ratio is to be determined the
light of the objectives of maximizing the market value of the share.
OBJECTIVES OF THE STUDY
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The main objective of the study is to study the overall financial
position of the company from 2006-2010.
To study the financial performance of the company.
To study the sources and applications of the funds.
To offer suggestions for improvement in the relevant aspects.
To find out the financial stability of the firm.
To know how effectively the company is using its resources.
To measure the extent to which the company has been financing its
needs through borrowing.
NEED OF THE STUDY
Andhra Pradesh is the state where there is the highest number of textile
units. So, it can be drawn that there is necessary to gain a more accurate inside in to
the working in to such a unit and the balance that is being brought the utilization of
financial resources.
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The present study carried out is on “FUNDS FLOW ANALYSIS” of
sree satyanarayana spinning mills ltd. As there is a need for every company to
analysis its present financial position and trend. It was provided with the required data
for analyzing present financial position in through financial statements of last five
years.
SCOPE OF THE STUDY
Present study is undertaken mainly to analysis the financial performance of sree
satyanarayana spinning mills ltd, during period 2005-2010, the funds flows analysis is
one of the important technique of financial analysis and has been used for the study.
The study is confine to look over the sources and application of the company.
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METHODOLOGY
The systematic and scientific study of any research work the
methodology is very important, because it deals with the choice of selecting the
sample, research work design, data to be collected and the technique to be used for the
collection and analysis of data.
I Primary Data:
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Primary data is nothing but the first hand information primary data either
through observation or through direct communication with respondents in one form or
another or through personal interviews.
II Secondary Data:
Secondary data means data that are already available i.e., they
refer to the data, which have already been collected and analyzed by someone else.
Secondary data may either be published data or unpublished data. Usually published
data are available in:
The study completely depends upon the secondary data.
Annual reports.
News papers.
Trade journals.
Reference Books.
Magazines, Company websites.
LIMITATIONS OF THE STUDY
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The time given to complete this project is not sufficient that is 45 days only.
The study is based on accounting information.
The analysis is made from the information given by the organization.
The study was conducted with limited data available and analysis was done
accordingly.
The complexity and confidentiality of various operations is also a limitation to this
study.
TEXTILE INDUSTRY PROFILE
Cotton textile industry is one of the oldest and largest during the last 3 Decades.
The textile industry still occupies a key position in the economy of the country
industries in India. Which has made rapid strides during the century of its existence?
At the end of March 2001 there were 1846 miles in the country 1565 spinning mills
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and 281 composite mills. At present the industry provides direct employment to
nearly 18 lakhs workers. It also provides indirect employment to many millions like
the cotton growers, processors, handlooms and power looms weavers who alone are
estimated five million and innumerable cloth dealers and shop keepers. The industry
contributes in ever increasing measure to the central and state Governments by way of
taxes and duties.
Being one of the oldest industries it has history of over 150 years. It occupies
a unique position in the world export, where Indian has a 24per cent share in the
global cotton yarn market.
It has influence on agriculture because of its consumption of cotton, wool and
silk and on industries because of its requirements of machinery, dyes and chemicals
and synthetic fibers. Thus the industry has an important role to play both in economic
prosperity of the country and in the supply of essential commodities for the entire
population.
The cotton textile industry consists of 3 distinct categories in the organized sectors.
They are:
1. spinning mills
2. coarse and medium composite mills
3. fine and super fine composite mills
Spinning mills are generally small in size, coarse and medium composite mills
are not able to adjust their cost in the face or rising prices of raw materials and
increases in wages consequently many of them became uneconomic units and ran into
difficulties. Fine and super fine composite mills use foreign cotton. They are not
subject to stock restriction and can therefore carry on stable production program.
India has been a manufacturing nation and export of the fine cotton fabrics to the
entire civilized world.
The firs mill in India was setup by C.N. Dakar in 1854 with an Englishmen as
his partner. It was Dakar’s mills which laid the foundations for a strong and growing
textiles industry in Bombay and soon after in other regions of India. “The Bombay
Mills Owner Association” is the first mill formed association in India in the year 1875
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When India became independent in 1947, there were ten million three hundred
thousand spindles and lakhs two thousand looms installed in million mills. The mills
were producing nearly 4000 million meters of cloth and handlooms accounted for
approximately 130 millionaires. The mill sector employed nearly 7lakhs of workers
and thus was the largest organized industry in the country.
The industry faced its major post independence crisis in the early sixties up till
then if had been more or less sellers market and most of the mills were making
reasonable profits. But a number of factors contributed to a very big depression in the
market and mills started incurring losses. The result was that in 1967, the spindle
activity came down for 88.2per cent to 73.1per cent. Consequently, textiles become a
postponable item. On the other hand, while the purchasing power of the people went
down, the cost of the production of textiles it increased. And the price of the cloth has
to be raised. As the cloth prices began to go up the Government felt the need for the
production of a cheap, durable cloth for the weaker sections of the population.
Consequently the cloth schemes were introduced in 1964.
States such a Bihar, Orissa, Andhra Pradesh and Kerala have all established
spinning mills many of them in co-operative sector. The growth of cotton spinning
sector, in terms of capacity received an imparitus in 1991 with the regimenting of
spindle age. Installed spindle age has been rising steadily since then. In 1991 the
number of spindle installed was around 26.27 million and the number of spindle went
up to nearly 30 million in 1995. The total spindles installed by 2001 are estimated to
have gone up to 35.53 million.
However adverse factors such as the South East Asian Crises, Worldwide
economic slowdown and increased costs hit the spinning industry which could not
benefit it from the expanded captained capacity. The phenomenal rise in raw cotton
prices in the 1994-1995 seasons added a new dimension to the spinning sector.
All these were reflected in stagnant production in the past four years.
Cotton spun yarn production 2,022 million kg, 2213 million kg in 1997-1998 to 2,022
million kg in 1998- 1999, but recovered to 2,266.86 million kg in 2000-2001. Spindle
capacity utilization which was 76per cent in 1991-1192. Had gone up to 86per cent in
1996-97 fell to 79per cent in 1998-1999 before bouncing back to 85per cent in 2000-
2001.
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The share of spinning capacity of south Indian mills in all India capacity
is estimated to be around 50per cent as on March 31, 2002. The spinning capacity of
southern mills was 19.53 mills spindles while the all India capacity was 38.33 million
during 2000-2001. While the power loom sector had consumed nearly 42per cent of
the total cotton yarn produced, handlooms consumed around 23per cent was exported.
A major portion of cotton yarn exports is to be non-quota countries. Which is
started with five counts, a wide range of counts is being exported now. In 1991,
exports to quota countries were 31.62 million kg and to non-quota countries 89.49
million kg. In 2001, these were 43.83 million kg and 413.16 million kg respectively.
Thus the percentage of exports to quota countries came down from around 26percent
in 1991 to about 9per cent in 2001. During 1994-2002, some of the major destinations
for India cotton yarn exports had been South Korea, Bangladesh and Hong Kong.
According to a report on “Achieving break through growth in cotton textile export”,
India has a large and modern spinning industry and a major position of its capacity is
in the organized sector.
The cotton yarn spinning units could capitalize on the growth in yarn imports
expected in key Asian destinations.
According to the chairman of South Indian Mills Association {SIMA} V.S.
Velayatham, there has been a revival both in the domestic and export markets.
However, if the revival is to be sustained, certain issues need to be addressed, he
feels. The cost of almost all components-power Raw material, transport, labour has
gone up during the last four or five years. The total cost of product on the cotton yarn
in ring spinning {805} in 1995 was about Rs. 178.40 a kg. In 2001, it had shot up to
Rs. 232.63 a kg. In order to make available raw cotton of good quality at reasonable
price, the thrust is on “integrated cotton farming” now.
Textile Industry in India:
The organized cotton textile industry is one of our oldest and most family
established major industries at the end of March 1994; there were 1,775 mills in the
country {906 spindles and 269 composite mills} with 28 millions spindles and 1.6
lakhs labor. There were 132 closed mills by the end of March 1994.
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The structure of textile industry complete with the modern, sophisticated and
highly mechanized mill sector on the one hand spinning and hand weaving
{handlooms} sectors on the other. In between falls other decentralized small scale
power looms sectors. If we include all the three sectors the cotton and synthetic textile
industries in India are the largest industries in the country accounting for about 20per
cent of the industrial output providing employment to output 17 million persons and
contributing nearly 30per cent of the value of the exports.
In India textile industry is predominant cotton based 70per cent of the fabric
production of raw cotton, carries from the year to year depending upon rainfall and
weather conditions and price fluctuations in raw cotton effets the industry production
of yarn in a almost entirely in the organized sector and over the year. It has showing a
steadily rising trend as for example from 1600 million kgs in 1993/94 to nearly
28,000 million meters in 1993/94. In the production of fabrics, the decentralized
sectors have roughly 93per cent and mills sectors has approximately 7per cent share
only.
A Perspective of India Textile Industry:
Textile industry is the largest industry of modern India. It contributes about
4per cent of GDP, 20per cent of total output, and together with carpets in handicrafts
it has a share of 38per cent in total value of escorts. The first cotton mill in India was
setup in Calcutta in 1818. However, Indian Textile Industry plays a pirior role through
its contribution of about 14per cent to industrial production, 4per cent to GDP and
16.63per cent to export earnings. Its share in global textiles and apparel is 3.9per cent
and 3per cent respectively. It provides direct employment to over35 million people.
Textiles sector is the second largest provider of employment after agriculture. The
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close industry to Agriculture and the ancient culture and tradition of the country make
the Indian textiles sector unique in comparison with textiles industry of other
countries. This industry is growing by 9per cent-10per cent and the pace would be
increase to 16per cent in the coming years.
This also provides the Industry with the capacity of
products suitable to different market segments, both within and country. Ahmedabad
had 19per cent of mills are provided employment to 113.6per cent of the workers
outside the Bombay city. Some mills located in the shaper, Baroda and other centers
in Maharashtra.
India textile industry contributes to be predominantly cotton based as
65per cent of fabric consumption in the country is being against the world average of
46.5per cent.
Problems of Cotton Textile Industry:
In the past the cotton mill industry industry suffered from in competent
and selfish managing agent and directors, who were more interested in their own
profits. The maintenance of machinery and modernization of textile units’ had been
defective. The role of the industry has not been helpful. The two most important
factors which have felt disaster to the industry in the last 3decades are government
textile policy and growth of the power loom sector. The result was that many cotton
mills became inefficient and one-third of the cotton mills became sick by end of May
1999.
Government Controls and Heavy Excise Duties:
The cotton industry has suffered badly due to often confused policies of
the government. In the past government has sought control etc., at one-time prices of
cloth were fixed by the government far below cost. Under the yarn distribution 1972
the government made it obligatory on all mills to supply 50per cent of the production
to yarn to the decentralized quite high and it not only made important to cotton quite
expensive but exercised and upward pressure on the price of indigenous cotton. The
excise duties on differed varieties of cotton cloth are quite heavy and beside they are
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discriminatory. Serious Problems of the Mill Sector Related to Production Of
Controlled Cloth
PROFILE OF SREE SATYANARANA SPINNING MILLS
LIMITED
Sree satyanarayana Spinning Mills Ltd is established in 23 rd JULY 1962.
It was originally incorporated as private Ltd Company on above date. Subsequently it
is converted to public Ltd Company on 9th April 1966. The company entered into
commercial production initially with an installed capacity of 5000 spindles.
They are manufacturing yarn cone and hank form. The company has expanded
is spindles from time to time. Now the spindle capacity of the company is around
31500 spindles. Further more we have registered with government of India to start
other 25000 spindles units as and when the finance is available.
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The company with 1, 05,010 numbers of shares with each share as Rs.10/-. The
company is declaring dividends continuously for the past 5 years at the rate of 100per
cent. The company barrows substantial amounts from IDBI for the modernization and
expansion of the company. The same was paid back.
The promoter directors are Mr. M. HARISHCHANDRA PRASAD and Y.
NARAYANA RAJU. The company is now running with around 450 workers in the
factory and running in triple shifts on all 7 days of a week. This mill is helping the
rural poor to get employment by paying them decent wages compared to other sector.
The company is continuously under modernization and replacing all the
machinery. Thus the company has now introduced combers and producing combed
yarn also. The company has special quality control department and a laboratory
equipped with latest imported cotton and yarn testing equipment, to obtain a quality
product.
The company’s main objectives are to purchase quality raw materials and to
produce and supply quality yarn to customers. One of its policies is to provide
employment opportunities to local people.
The Industry producers yarn from cotton. They are supply two types of yarn.
1. Cone from- used for weaving on power looms
2. Hank from –used for handlooms.
The company markets its yarn in domestic and also exports some portion through
dealers. In domestic market its product is sold in BOMBAY, CHENNAI, and A.P.
though consignment agents. There exports markets are SRILANKA, BANGLADESH
and MALAYSIA.
Raw cotton is available from Guntur and Bellari. They are using different counts
such as 10, 20, 40, 60, 80, 100 and 120. There are different varieties of cotton. They
are
DCH-32
Long stable varieties
MCU-5
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Varalakshmi
LK
V-797Medium and short stable varieties
JAYADHAR
LRA
The company is in loss for the first 15 years and now in profits since the last 10 years
and paying dividends to share holders.
There is no separate department for marketing. The accounts department
undergoes marketing activities.
Procurement of raw materials is done through brokers i.e., with the existence
of third party agency. The major contributors are
• N.V. Eicher and CO, Contributors are
•
Galiekotawala, Mumbai80per cent of procurement is done through the above firms and various firms
contribute the remaining.
Marketing of the finished product i.e., yarn is done through various
consignment agents. Few of them are
• K.Veereshkumar and Co
• Radhike Textiles, Itchalakaranji.
• Surajmul Gowri Center, Mumbai
And marketing of finished product is also directly from mill to mill various
mills that procure yarn directly are premier mills. Mafatlal industries, Virudhnagar
textile industries, loyal textile mills, Bombay dyeing and manufacturing co.
Preparation process:
Preparation of yarn cotton is done through the following process
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• Blow room
• Carding
• Preparatory
• Spinning
• Winding
Considering the following factors does the purchase of cotton
• Staple length
• Fitness
• Strength
•Moisture contest
• Tresh
Purchased cotton has to pass through the following stages for becoming
yarn, which is used by textile industries.
Low Room:
It is the first phase of the process. Cotton purchased is pass through bloom
room machine where dust and wastage i.e., trash content in the cotton in the cotton is
removed. The purified cotton is made in to sheets and is rolled like cylinders or
drums. The main objective of the bloom is to separate the waste content in the cotton.
Carding:
Cotton, which is in the form of cylinders, is further purified and is made in the shape
of threads. Each drum obtained from the room is made in to thread.
Preparatory:
The cotton obtained from carding, which is in the from of threads, is grouped
together. Different threads obtained from carding department are grouped lap formers,
combers and drawing.
Spinning:
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The cotton obtained from preparatory department is made in to fine threads of
lesser width through spinning. The thread of lesser width called as yarn, which is
obtained from spinning.
Winding:
Winding is the method in which the yarn is made in to packages of different
shapes such as conical and bails etc
Mill Name: Sree Satyanarayana Spinning Mills Ltd
Location: Tanuku
Started: 23rd July 1962
Started size: 10 crores
Commercial production: 1963
Mill area: 10 acres
Total Employees: 450
Shifts: 3shifts [General 8:30 am -4:30pm]
Production Capacity: 10 tones per day
Power consumption: 11kv/430 Volts
Water consumption: 45000 gallons
Grams/ Spindles/8Hrs: 125.72
Capacity utilization: 115.72
Hank Yarn Turns OVER Cone Yarn: 76per cent
Sales centers:
Cone Yarn: Mumbai, Madras, Ichalakaran
Hank Yarn: Chirala, Mangalagiri, Guntur.
Bankers:
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SBI [STATE BANK OF INDIA]. TANUKU
Auditors:
M/S: Nageswara RAO
M/S: Sivudu [HYD]
Departmentation:
Plant engineer is responsible for the entire production activities. The function
of plant engineer is to rectify mechanical defects, to make machinery running
smoothly and their maintained and co ordination of production activities. Plant
engineer is maintaining his functions which two assistance i.e., department in charge
and the supervisor. Each part of production section is under control of section in
charge, directly to plant engineer.
Products Manufactured:
The mills provide quality cotton yarn and blended spun yarn. Both the power
looses are well received in the year Indian market as well as received in the
international markets the company is providing counted yarn also.
It is supplying 75per cent of the yarn in the cane power supply loams of
Bombay and other places 255 of the yarn in the hank to weavers in our state. The year
is well received in the market for the manufacturing of sarees, dhotis and other
fabrics. The percentage of capacity utilization is 95per cent resulting in more
production and better utilization manpower. The labor is intensive.
The company imports technology, it imports its technology from LMW
[Lakshmi Machinery Work} Coimbatore. This company is total pollution free. As it is
a textile industry, there will be some sound pollution from it
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Financial Department
Though the company was started with the initial share capital with 13 crores
present it is having share capital of 3.79 crores and it consists reserves and surplus
with the amount of 45 lakes. In the year 2007-2008 the company got net profit 44
lakes.
And it is having 27.45 fixed assets and 82.88 current assets till 2007-08 and
the country consists current liabilities 11.02 crores.
So the company has the working capital 7.18 crores in the current year. The
organization is having current ratio with 2.25 that means it is having optimal
performance with recording as the standard normal current ratio is 2.1
The company is having the liquidity percentage of the assets with the ratio of
0.53
The cowman maintains the debt equity ratio with 8.20 percentages which
shows the relationship between total debt and share holders equity? The inventory is
having a greater role in organization. It can be shown with the inventory ratio by 4.06
The company has following financial institution that is State Bank of India
Tanuku. No specific impact has taken place because of depreciation of rupee on the
financial position of organization. The finance department has been with for pro and
other language especially with the package of Tally9.2.
The company disposes its profits in to two types
• Inform of surplus and reinvestment
• 20 per cent bonus to the worker.
Marketing Wing
The marketing wing having tremendous role in this organization as a company
for the manufacturing
Yarn the cotton is necessary as the raw material for the process of production.
The marketing department takes an effort to minimize the costs regarding from raw
materials purchasing to district of the finished product.
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As the marketing gives costumers as a choice among products. This
organization provides into the market. This marketing main aim is creating costumers.
For that this company maintaining a better marketing team.
The marketing team is considered members who are situated trough out the
India those members take an achievement concentrated having financial give on the
four P’S Concept.
Product:
Here the marketing product is yarn thread it is produced as a bundle which
consists for kegs. The yarn thread is produced as a bundle which consists 16000
meters. It is high quality product and color of the product is white transparent cover
and well setup in the brown boxes 24 boundless for one box to export.
Place:
The place is the most significant in the marketing. Because the product should be
easily transported and to be sold easily. This product is being exported to the
following places from Tanuku.
• Chennai
• Coimbatore
• Mumbai
Because in those places the textile industries are well estabilished to
manufacture cloth materials.
Price:
The price nothing but the value of the product, the price of the product is fixed
is the organization according to the market fluctuation and inflation rate the Price of
the yarn will be charged. The organization is having effective pricing strategies the
price of the one Kg. Yarn = 155 Rs -160 in the market.
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Promoters:
Promotion is the necessary as the process of selling are more technical buyers
more sophisticated and the organization promotional activities are taken place to the
agent and merchants. Because as the organization is newly established it does not
depend upon the advertisement. All the marketing activities are based on the order
taking the organization is offering the following promotions.
Informative Promoters:
Offering the information about organization products through the agents.
PERUASIVE Promotion:
The basic purpose of promotion is to persuade customers to buy.
Sales:
The sales of the organization are growing year by year in progressive manner.
Manufacturing Process
Flow Diagram Of Manufacturing
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Mixing
Manually
To mix different variety of cotton
Blow Room Dust To open the fiber tuft and
Cording To open the fiber to individual stage
Draw frame To parlize the fiber and deposit
Uni Lap To make lap to feed to comber
Comber Extent To make lap to feed to
comber
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All the sales activities done to agents of merchants. In the process of sales there
selling expenses will be acquired. If he estimated those expenses as follow [in lakes]
10-11 11-12 12-13 13-14
37.18 37.28 37.28 37.48
Graphical Representation
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Auto leveler
material in can
To remove short fiber and
deposit the draw frame
Speed Frame To make Roving
Rein frame count To make arn with twist and
Cone windind To wind the form of cone
Packing Intopreseribed Packing of individual cones or
cartoons
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CONCEPTUAL FRAME WORK
FUNDS FLOW STATEMENT
INTRODUCTION:
The basic financial statement i.e., the balance sheet and profit and loss account
(or) income statement of business, reveal the net effect of the various transaction on
the operational and financial position of the assets and liabilities of an undertaking at
particular point of time. It reveals the financial status of the company. The assets
side of a balance sheet shows of the deployment of resources of an undertaking while
the liabilities side indicates its obligation i.e., the manner in which these resources
were obtained. The profit and loss account reflects the results of the business
operations for a period of time. It contains a summary of expenses incurred and the
revenues realized in a accounting period. Both these statement provide the essential
basic information on the financial activities of a business. The balance sheet give a
static view of the resources (liabilities) of a business and uses (assets) to which these
resources have been but at a certain point of time. It does not disclose the cause for
changes in the assets and liabilities between two different points of time. The profit
and loss account, in a general way, indicates the resources provided by operations.But there are many transactions that take place in an undertaking and which do not
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operate through profit and loss account. Thus another statement has to prepare to
show the change in the assets and liabilities from the end of one period of time to the
end of
another period of time. The statement is called a statement of changes in financial
position or a funds flow statements.
The funds flow statement in a statement which shows the movement of funds and
is a report of the financial operations of the business undertakings. It indicates
various means by which funds were obtained during a particular period and the way to
which these funds were employed. In simple words. It is a statement of sources and
applications of funds.
MEANING AND CONCEPT OF FUNDS:
The term ‘funds’ has been defined in a number of ways.
a. In a narrow sense, it means cash only and a funds flow statement
prepared on this basic is called a cash flow statement such a statement
enumerates net effects of various business transactions in cash andtakes into account receipts and disbursements of cash.
b. Ina broader sense the term ‘funds’ refers to money values in whatever
form it may exist. Here ‘funds’ means all financial resources used in
business whether in the form of men, material , money, machinery and
other.
c. In a popular sense the term ‘funds’ means working capital i.e., the
excess of current assets over current liabilities, the working capital
concept of funds has emerged due to the fact that total resources of
business are invested partly in fixed assets in the form of fixed capital
and partly kept inform of liquid or hear liquid form as working capital.
MEANING AND CONCEPT OF ‘FLOW OF FUNDS”
The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’ the
term ‘flow of funds’ means transfer of economic values from one assets of equity to
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another flow of funds is said to have taken place when any transaction makes changes
in the amount of funds available before happening of the transaction. If the effect of
transaction results in the increase of funds. It is called a source of funds and if it
results in the decrease of funds, it is known as an application of funds. Further, in
case the transaction does not change funds. It is said to have not resulted in the flow
of funds. According to the working capital concept of funds, the term ‘flow of funds’
refers to the movement of funds in the working capital. If any transaction results in
the increase in working capital it is said to be a source or inflow of funds and it results
in decrease of working capital, it is said to be an application or outflow funds.
In simple language funds move when a transaction effects.
i. A current assets and a fixed assets, or
ii. A fixed and a current liability.
iii. A current assets and a fixed liability.
iv. A fixed liability and current liability.
And funds do not move when the transaction affects fixed assets and fixed
liability or current assets and current liabilities.
Kenneth medley and Ronald Gibers define the term ‘funds’ as one used in the
sense of spending power, it refers to the value embedded in assets. According to
Bonneville and Dewey ‘funds’ constitute the prime importance in sharing and
operating any business enterprise. In the ordinary parlance. Funds mean cash only,
but it has got several different concepts as mentioned below.
Funds may mean:
a. Cash only
b. Net working capital i.e., current assets less current liabilities.
c. Total resources or total funds.
d. Internal resources only.
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e. Net worth i.e., owner’s equity capital plus reserves.
CURRENT AND NON-CURRENT ACCOUNTS:
To understand flow of funds it is essential to classify various accounts and balance
sheet items current and non-current categories.
Current accounts can either be current assets or current liabilities. Current assets
are those assets which in the ordinary course of business can be or will be converted
into cash with in a short period of normally one accounting year.
FUNDS FLOW STATEMENT
The following is the list of current or working capital accounts:
List of current or working capital accounts:
Current Liabilities Current Assets
1. Bills payable 1. Cash in hand
2. Sundry creditors or account payable 2. Cash at bank
3. Accrued or outstanding expenses 3. Bills receivable
4. Dividends payable 4. Sundry debtors or accounts
receivable
5. Bank overdraft 5. Short term loans and advance
6. Short term loans advances and deposits 6. Temporary or marketable
investments
7. Provision against current assets 7. Inventories or stocks such as
[a] Raw materials
[b] Work in progress.
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[c] Stores and spares.
[d] Finished goods
8. Provision for taxation, if it does not amount to
appropriation of profits.
8.. Prepaid expenses
9. Proposed dividends (maybe a current non-current
Liability).
9. Accrued incomes
List of non-Current (or) Permanent Capital Accounts:
Non-current or permanent liabilities Non-current or permanent assets
1. Equity share capital 1. Good will
2. Preference share capital 2. Land
3. Redeemable preference share capital 3. Building
4. Debentures 4. Plant and Machinery
5. Long term loans 5. Furniture and Fittings
6. Share premium account 6. Trade Marks
7. Share forfeited account 7. Patent Rights
8. Profit and loss account (balance of profit ie.,
credit Balance).
8. Long term investment
9. Capital reserve 9. Debit balance of profit and loss
account.
10 Capital redemption reserve 10. Discount on issue of shares
11 Provision for depreciation against fixed assets 11 Discount on issue of debentures
12 Appropriation of profits 12 Other Deferred expenses
[a] General reserve
[b] Dividend equalization Fund
[c] Insurance Fund
[d] Compensation fund
[e] Sinking fund
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[f] Provision for taxation.
[g] Proposed dividend.
FUNDS FLOW STATEMENT
Funds flow statement is the statement of sources and application of funds. It is
also called as ‘funds where got and where gone statement’ Almond Coleman
observed. “The funds statement in a statement summarizing the significant financial
changes which have occurred between the beginning and the end of company’s
accounting period’.
There are 4 steps involving in preparation of funds flow statement:
a. Ascertain the funds from operations.
b. Preparation of statement of changes.
c. Computation of any missing figures as to profit or loss on Sale of fixed
assets purchases or sale of fixed assets and the amount of depreciation
on fixed assets etc.
d. Finally preparation of funds flow statement.
Foulke defines this statement as:
“A statement of sources and appreciation of funds in technical device designed to
analyse the changes in the financial condition of a business enterprise between two
dates”
In the words of Anthony the funds flow statement describes the sources from
which additional funds were derived and the use to which these sources were put.
F.C.W.A. in glossary of management accounting terms defined funds flow
statement as a statement either prospectus or retrospect’s, setting out the sources and
applications of the funds of an enterprise. The purpose of the statement is to indicate
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clearly the requirement of funds and how they are proposed to be raised and the
efficient utilization and application of the same.
Thus funds flow statement in a statement which indicates various means by which
the funds have been obtained during a certain period and the ways to which these
funds have been used during that period. The term funds used here means working
capital i.e., the excess of current assets over current liabilities.
Funds flow statement is called by various names such as sources and application
of funds; statement of changes in financial position, sources and uses of duns;
summary of financial operation, where came in and where gone out statement, where
got, where gone statement, movement of working capital statement, movement of
funds statement, funds received and disbursed statement; funds generated and
expended statement; sources of increase and application of decrease; funds statement
etc.
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Difference between funds flow statement and income statement.:
Funds Flow statement Income Statement
1 It highlights the changes in the financial position
of a business and indicates the various means by
which funds were obtained during a particular
period and the ways to which these funds were
employed.
1. It does not reveal the inflows and
outflows of funds but depicts the
items of expenses and incomes to
arrive all the figure of profit or loss.
2. It is complementary to Income statement income
statement helps the preparation of funds flow
statement.
2 Income statement is not prepared
from funds flow statement.
3.
While preparing funds flow statement both capital
and revenue items are considered.
3
.
Only revenue items are considered.
4. There is no prescribed
Format for preparing a funds flow statement.
4. It is prepared in a prescribed
format.
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Difference between funds flow statement and balance sheet :
Funds Flow statement Balance Sheet
1 It is a statement of changes financial
position and hence in dynamic in nature
1. It is a statement of financial position
on a particular date and here is static
in nature.
2. It shows the sources and uses of funds in a
particular period of time
2. It depicts the assets and liabilities at a
particular point of time.
3. It is tool of management for financial
analysis and helps in making decisions.
3. It is not of much help to management
in making decision.
4. Usually schedule of changes in working
capital has to be prepared before preparing
funds flow statement.
4. No such schedule of changes is
required rather profit and loss
account is prepared.
USES, SIGNIFICANCE AND IMPORTANCE OF FUNDS FLOW
STATEMENT:
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A funds flow statement is an essential tool for the financial analysis and is of
primary importance to the financial management. Now-a-days, it is being widely
used by the financial analysis, credit granting institutions and financial managers.
The basic purpose of a funds flow statement is to reveal the changes in working
capital on the two balance sheets dates. It also describes the sources from which
additional working capital has been financial and the uses to which working capital
has been applied such a statement is particularly useful in assessing the growth of the
firm its resulting financing these needs. By making use of projected funds flow
statement, the management can come to know the adequacy or inadequacy of
working capital even in advance. One can plan the intermediate and long-term
financial of the firm, repayment of long-term debts, expansion of the business,
allocation of resources, etc., the significance or importance of a funds flow statement
can be were followed from its various uses given below:
(1) It helps in the analysis of financial operations:
The financial statements reveal the net effect of various transactions on the
operational and financial position of a concern. The balance sheet gives a static view
of the resources of a business and the uses to which these resources have been put at acertain point of time. But it does not disclose the causes for changes in assets and
liabilities between two different point of time. The funds flow statement explains
causes for such changes and also the effect of these changes no the liquidity position
of the company. Sometimes a concern may operate profitably and yet its cash
position may become more and more course. The funds flow statement gives a clear
answer to such a situation explaining what has happened to the profit of the firm.
(2) It throws light on many perplexing questions of general interest:
Which other wise may be difficult to be answered, such as:
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a. Why were the net current assets lesser inspite of higher profits and
vice-verse.
b. Why more dividends could not be declared inspite of available Profit?
c. How was it possible to distribute more dividends than the Present
earning?
d. What happened to the net profit? Where did they go?
e. What happened to the proceeds of sale of fixed assets or issue of
Shares, debentures etc?
(3) It helps in the formation of a realistic dividend policy:
Sometime a firm has sufficient profit available for distribution as dividend but
yet it may not be advisable to distribute dividend for lack of liquid or cash resources.
In such causes, a funds flow statement helps in the formation of a realistic dividend
policy.
(4) It helps in the proper allocation of resources:
The resources of a concern are always limited and it works to make the best
use of these resources. A projected funds flow statement constructed for the future
help in making managerial decision. The firm can plan the deployment of its
resources and allocate them among various application.
(5) It acts as a future guide:
A project funds flow statement also acts as a guide for future to the
management. The management can come to know the various problems it is going to
funds can be projected well in advance and also the timing of these needs. The firm
can arrange to finance these needs more effectively and avoid future problem.
(6) It helps in appraising the use of working capital:
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A funds flow statement helps in explaining how efficiently the management has
used its working capital and also suggests way to improve working capital position of
the firm.
(7) It helps knowing the overall credit worthiness of a firm:
The financial institutions and banks such as state financial institutions, industrial
development corporation, industrial finance corporation of India, industrial
development bank of India etc., all ask for funds flow statement constructed for a
number of years before granting loans to know the credit worthiness and paying
capacity of the firm.
Limitations of Funds Flow Statement:
The funds flow statement has a number of uses; however, it has certain limitations
also, which are listed below:
1. It should be remembered that a funds flow statement is not a substitute
of an income statement or a balance sheet. It provides only some
additional information as regards changes in working capital.
2. It cannot reveal continuous changes.
3. It is not a original statement but simply a re-arrangement of data given
in the financial statement.
4. It is essentially historic in nature and projected funds flow statement
cannot be prepared with much accuracy.
5. Changes in cash are more important and relevant for financial
management than the working capital.
Procedure for Preparing a Funds Flow Statement:
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Funds flow statement is a method by which are study changes in financial position
of a business enterprise between beginning and ending financial statement dates.
Hence, the funds flow statement is prepared by comparing two balance sheets and
with the help of such other information derived from the accounts as may be needed.
Broadly speaking the preparation of a funds flow statement consists of two parts.
1. Statement of schedule of changes in working capital
2. Statement of sources and application of funds.
(1) Statement of schedule of changes in working capital.
Working capital means the excess of current assets over current liabilities.
Statement of changes in working capital between the two balance sheet dates. This
statement is prepared with the help of current assets and current liabilities derived
from the two balance sheets.
As working capital =current assets – current liabilities.
So, i. An increase in current assets increase working capital.
ii. A decrease in current assets decreasing working capital.
iii. An increase in current liabilities decreasing working capital;
Statement (or) Schedule of Changes in Working Capital
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Particulars PreviousYear CurrentYear Effect in working
Capital
Increase Decrease
Current Assets
Cash in hand
Cash at Bank
Bills receivable
Sundry debtors
Temporary investment
Stock/inventories
Accrued incomes
Total current assets
Current Liabilities
Bills payable
Sundry creditors
Bank over draft
Dividend payable
Provision for taxation Total
Current liabilities
Working capital (CA-CL)
Net increase/decrease in,(W.C)
Working capital
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Specimen of report form of fund flows statement:
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Sources of Funds Rs.
Funds from operations
Issue of share capital
Issue of debentures
Raising of long term loans
Receipts from partly paid share, called up
Sales of non current (fixed) assets
Non-trading receipts such as dividends received
Sale of investment (long term)
Decrease in working capital (as per schedule of changes in working capital)
Total
Applications or uses of funds:
Funds lost in operations
Redemption of preference share capital
Redemption of debentures
Repayment of long-term loans
Purchase of noncurrent (fixed) assets
Purchase of long-term investments
Non-trading payments
Payments of dividends
Payment of tax
Increase in working capital (as per schedule of changes in working capital
Total
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Statement of Sources and Application of Funds
Funds flow statement is statement which indicates various sources
from which funds (working capital) have been obtained during a certain period
and the uses or applications to which these funds have been put during the
period. Generally, this statement is prepared in two formats
a. Report firm
b. T form or an account form or self balance type.
Funds from Operation:
As a first step it would be convenient if the profit and loss appropriation account
is prepared and net profit after tax is ascertained as a balancing figure.
Then the funds from operations are worked out as follows:
Particulars Rs. Rs.
Net profit after tax
ADD:
1. Non-cash expenses during the year
[a] Depreciation
[b] Writing off of goodwill, patents, trade marks, deferred
revenue expenditure, Preliminary expenses etc.
[c] Amortization of discount on issue of debentures or share etc.
2. Loss on sale of fixed assets,.
3. Extra-ordinary (or) non recurring losses.
LESS:
4. Profit on sale of fixed assets.
5. Amortization of share premium or debenture premium etc.
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Funds from operations:
Funds from operation are a source of fund during period. If it is still a negative
balance it is loss from operations and is shown on the side of “Application of funds”
but if it shows a positive it is a source of funds.
P & L appropriation account
Particulars Amount Particulars Amount
To Interim Dividend
To Proposed equity
Dividend
To Preference dividend
To Transfer to reserve
To Balance c/d
-
-
-
-
-
By balance b/d
By excess provision written back
By income tax provision not required
By Dividend received
By net profit after tax
(balancing figure)
(transferred from P&L account
-
-
-
-
-
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Funds Flow Statement
(For the year ended….)
Sources Rs Applications Rs
Funds from operations
Issue of share capital
Issue of Debentures
Raising of long-term loans receipt
from partly paid share called up
Sales of non current (fixed)
Assets.
Non trading receipts such as dividends.
Sale of long-term investment
Net decreasing in working capital
Funds lost in operations
Redemption of preference
Share capital
Repayment of long term loans
Purchase of non-current (fixed assets)
Purchase of long-term
Investments
Non trading payment.
Payment of dividends.
Payment of tax.
Net increase in working capital
WORKING CAPITAL MANAGEMENT
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Working capital is the firms holdings of current assets such as Cash ,
receivables , inventory and marketable securities. Every firm required working
capital for its day to day transactions such as purchasing raw material , for
meeting salaries , wages , rents , rates , advertising etc. But there is much
disagreement among various financial authorities (financial managers , accountants
, businessmen and economists ) as to the exact meaning of the term working
capital.
Significance of working capital:
The world in which real firms function is not perfect. It is characterized by
the firm’s considerable uncertainty regarding the demand, market price, quality and
availability of its own products and those of suppliers. These real world circumstances
introduce problems to the firm must deal. While the firm has many strategies
available to address these circumstances, strategies that utilize investment or
financing with working capital accounts often offer a substantial advantage over the
other techniques. The importance of working capital management is reflected in the
fact that financial managers spend a great deal of time in managing current assets and
current liabilities like.
Arranging short term financing
• Negotiating favorable credit terms
• Controlling the movement of cash
• Administering accounts receivables
• Monitoring investment in receivables
Decisions concerning the above areas play an important role in maximizing
overall value of the firm. Once decisions concerning these areas are reached, the level
of working capital is also determined in active decision sense, but falls out as residual
from the decision just made.
The management of working capital plays an important role in
maintaining the financial health during the normal course of business. This critical
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role can be enunciated by examining the flow of resources through the firm. By far
the major flow is the working capital cycle.
This is the loop which starts at the cash and the marketable securities account,
goes trough the current account as direct labour and materials which are purchased
and use to produce inventory, which in turn is sold and generates accounts
receivables, which are finally collected to replenish cash. The major point to notice
about this cycle is that the turnover or velocity of resources through this loop is very
high related to the other inflows and outflows of the cash account.
Concept of working capital:
There are two concepts of working capital
1. Gross Working Capital
2. Net Working Capital
Gross Working Capital:
Gross working capital, simply called as working capital refers tothe firm’s investment in current assets. Current assets are the assets, which in ordinary
course of business can be converted into cash within an accounting year.
Examples of Current Assets are:
• Cash and bank balances
• Short term loans and advances
• Bills Receivables
• Sundry Debtors
• Inventory
• Prepaid Expenses
• Accrued Incomes
• Money Receivable in 12 months
The gross working capital concept focuses attention of two aspects of current assetsmanagement.
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a) Optimum investment in current assets and
b) Financing of current assets.
The consideration of the level of investment in current assets should avoid
two danger points – excessive and inadequate investment in current arranging funds
to finance current assets. When ever a need for working capital funds arises due to the
increasing level of business activity or for any other reason arrangement should be
made quickly.
Net Working Capital:
Net working capital refers to the difference between the current assets and
current liabilities. Current liabilities are those claims of outsiders, which are accepted,
to mature for payment with an accounting year and include creditors, bills payable
and outstanding expenses.
Net Working Capital = Current Assets – Current Liabilities
Net working capital can be positive or negative. A positive net working capital
will arise when current assets exceeds current liabilities. It is a quantitative
concept. It .
1. Indicate the liquidity position of the firm
2. Suggests the extent to which working capital needs may be financed by
permanent sources of funds.
Types of working capital
Working capital can be classified into two categories i.e.
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1. Permanent working capital
2. Temporary or variable working capital
Permanent working capital:
It is the minimum amount of investment in all current assets which is required
at all times to carry out minimum level of business activities . Tandon
Committee has reserved to this type of working capital as “ Core Current Assets “.
Characteristics of permanent working capital:
•
Amount of permanent working capital remains in the business in oneform or another.
• It also grows with the size of the business. It is permanently needed for the
business, and therefore, it should be financed out of long term funds.
Variable working capital:
The amount of working capital over permanent working capital is
known as variable working capital. The amount of such working capital keeps
on fluctuating from time to time on the business activities . It may again be
subdivided into seasonal working capital and special working capital Seasonal
working capital is required to meet the seasonal demands of busy periods
occurring at stated intervals on the other hand , special working capital is
required to meet extraordinary needs for contingencies.
DATA ANALYSIS AND INTERPRETATION
Statement of change in working capital 2005-2006
particulars 2005 2006 Working capital
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Increase decrease
CURRENT ASSETS
Inventories 6,17,76,717 5,69,68,223 - 48,08,494
Sundry debtors 69,22,453 1,32,11,013 62,88,560 -------
Cash and bank 42,35,628 80,00,769 40,65,141 ------
Other C.A’s 4,47,288 5,57,463 1,10,175 ------
Loans and Advance 1,59,91,287 2,78,85,255 1,18,93,968 -----
Total C.A’s 8,93,73,373 10,69,22,723 ----------
Current Liabilities
Liabilities 2,47,36,620 1,45,20,906 1,02,15,714 ------
Provisions 90,75,948 2,01,14,777 ----- 1,10,38,829
Total C.L’s 3,38,12,568 3,46,35,683 -----
Working Capital 5,55,60,805 7,22,87,040 ------
Increase in Working
Capital
1,67,26,235 --------
1,67,26,235
7,22,87,040 7,22,87,040 3,25,73,558 3,25,73,558
Interpretation:-
Particulars 2005 2006 Change
Total of Current Assets 8, 93, 73,373 10, 68, 22,723 +2, 24, 50,650
(-)Total of Current Liabilities 3, 38, 12,568 3, 46, 35,683 +8, 23,115
5, 55, 60,805 7, 22, 87,040 +2,16,27,535
= 2, 16, 27,535 X 100
5, 55, 60,805
= 38.92%
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1) The is an increase in the working capital by 2,16,27,535 i.e., 38.92%
2) The sundry debtors have been increased to 90% when compared to previous year
3) The cash and bank balance, other C.A’s and loans and advance were increased
constantly like and advances were increased constantly like 95%, 25% and 74%
respectively.
4) The inventories were decreased to 7.7% with respect to last year.
5) The liabilities were decreased to 4% when compared to last tear.
6) The provisions were increased to 98% gradually when compared to last year.
Hence the companies’ present position is satisfactory
Funds flow statement of 2005-2006
Sources Amount Applications amount
Reserves & surplus 3,02,60,311 Secured loans 1,65,09,934
Unsecured Loans 21,66,000 Differed Tax 6,45,984
Fixed Assets 15,34,142 Increase in the
Working Capital
1,67,26,235
3,39,82,153 3,39,82,153
Interpretation:-
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The major Sources come to the company mainly from the Reserves and
surplus which constitutes 95% of sources. The unsecured loans constitute of 2%
and investment constitutes of 0.5% and the remaining 2.5% which comes from
sale of fixed assets.
During the year 2005-2006 the firm constitutes of secured loans for Rs:
1, 66, 09,934 and the differed tax was of Rs : 6,45,984 and the remaining were
utilized for working capital requirements.
STATEMENT OF CHANGES IN WORKING CAPITAL 2006-2007
Particulars 2006 2007 Working capital
Increase decrease
CURRENT ASSETS
Inventories 5,69,68,223 8,82,49,822 3,12,81,599 -----
Sundry debtors 1,32,11,013 1,03,45,424 ------- 28,65,589
Cash and bank 83,00,769 40,09,652 ---- 42,91,117
Other C.A’s 5,57,463 2,62,173 ------- 2,95,290
Loans and Advance 2,78,85,255 4,47,11,917 1,68,26,659 --------
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Total C.A’s 10,69,22,723 14,75,78,985 ----------
Current Liabilities
Liabilities 1,45,20,906 2,66,19,990-----
1,20,99,084
Provisions 2,01,14,777 2,92,40,145 ----- 91,25,368
Total C.L’s 3,46,35,683 5,58,60,135 -----
Working Capital 7,22,87,040 9,17,18,850 ------
Increase in Working
Capital
1,94,31,810 --------
1,94,31,810
9,17,18,850 9,17,18,850 4,81,08,258 4,81,08,258
INTERPRETATION:-
Particulars 2006 2007 Change
Total of Current Assets 10, 69, 22,723 14, 75, 78,985 +4, 06, 56,262
(-)Total of Current Liabilities 3, 46, 35,683 5, 58, 60,135 +2, 12, 24,4527, 22, 87,040 9, 17, 18,850 +1,94,31,810
= 1, 94, 31,810 X 100
7, 22, 87,040
= 26.88%
There is an increase in the working capital by Rs: 1, 94, and 31,810 i.e. 26.88
%.
The inventories and loans and advances where been increased constantly by
55% and 60% respectively.
Whereas the sundry debtors, cash and bank balance and other current assets
were been decreased to 21%, 51%, and 52% respectively,
The liabilities and provisions were been increased gradually by 83% and 45%.
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Hence the present position of the company in increase its satisfactory. But the
company has to increase its level of cash and bank balance and other current
assets.
Here the company’s position is quite good.
Funds flow statement of 2006-2007
Sources Amount Applications amount
Reserves & surplus 1,38,38,235 Differed Tax
Increase in the
Working Capital
5,58,221
Secured loans 35,24,313
Unsecured Loans 8,36,000 1,94,31,810
Fixed Assets 17,91,483
1,99,90,031 1,99,90,031
INTERPRETATION:-
Here the major sources come to the company mainly from the reserves and
surplus which constitutes of 945. The secured loans and the unsecured loans
constitutes of 2% and 1% respectively the remaining 3% of sources comes from the
sale of fixed assets.
In this year 2006-2007 the firm mainly constitutes of differed tax of Rs: 5, 58,221
from its applications and the remaining was utilized for the working capital
requirements.
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9,17,18,850 9,17,18,850 4,50,07,647 4,50,07,647
INTERPRETATION:-
Particulars 2007 2008 Change
Total of Current Assets 14,75,78,98 12, 08, 28,113 -2, 67, 50,872
(-)Total of Current Liabilities 5,58,60,135 5,42,47,38 -16,12754
9,17,18,850 6,65,80,732
-2,51,38,118
= 2, 51, 38,118 X 100
9, 17, 18,850
= 27.40%
There is a decrease in the working capital by Rs:2,51,38,118 i.e. 27.40%
The inventories and loans and advances were decreased by 26% and 39.3%respectively.
Whereas the sundry debtors and cash & bank balance were increased to 86%
and 90% respectively.
And other C.A’s were also gradually increased to 78.6%.
The liabilities were decreased to 16.5% and the provision was increased to
20.5 % respectively.
Hence the company’s position is not favorable so it has to increase its
inventory level and loans and advance to uplift its present position.
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Funds flow statement of 2007-2008
Particulars Amount Particulars amount
Sources
unsecured loans 12,77,000
Applications
reserves & surplus
secured loans
Differed Tax
Differed Tax( asset)
1,46,79,316
57,76,092
40,67,654
Fixed Assets 13,07,881
Decrease in the working
capital
2,51,38,118 31,99,937
2,77,22,999 2,77,22,999
INTERPRETATION
The major sources of the company constitutes of unsecured loans of 3% and
4% of the fixed assets sale and the remaining 93% are from the decrease in the
working capital.
The major part of the applications consist of reserves and surplus of 60% and
secured loans of 20% differed tax of 10% and remaining 10% are by differed tax
asset.
So, the company has to increase its working capital level for its growth.
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STATEMENT OF CHANGES IN WORKING CAPITAL 2008-2009
Particulars 2008 2009 Working capital
Increase decrease
CURRENT ASSETS
Inventories 6,52,17,785 7,66,65,507 1,14,47,722
-----
Sundry debtors 1,92,46,481 1,70,35,660 ------- 22,09,821
Cash and bank 87,58,692 33,66,329, ---- 53,92,363
Other C.A’s 4,68,286 5,56,229 87,943 ---
Loans and Advance 2,71,37,869 2,99,72,495 28,34,626 -----
Total C.A’s 12,08,28,113 12,75,96,220 -----
Current Liabilities
Liabilities 3,10,21,555 2,50,62,519 59,59,036 ------
Provisions 2,32,25,826 2,09,60,498 22,65,328 ------
Total C.L’s 5,42,47,381 4,60,23,017 -------- ------
Working Capital 6,65,80,732 8,15,73,203 --------
Increase in Working
Capital
1,49,92,471 ---------
1,49,92,471
8,15,73,203 8,15,73,203 2,25,94,655 2,25,94,655
INTERPRETATION:-
Particulars 2008 2009 Change
Total of Current Assets 12, 08, 28,113 12, 75, 96,220 +67,68,107
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(-)Total of Current Liabilities 5,42,47,381 4,60,23,017 +82,24,364
6,65,80,732 8,15,73,203
1,49,92,471
= 1, 49, 92,471 X 100
6, 65, 80,732
= 22.5%
There is an increase in the working capital of Rs.1,49,92471 I.e.22.5%
The inventories in the company will gone up to 17.5%
The other C.A’s and loans and advances were also gone up by 18.7% and
10.4%
There was a decrease in the level of the cash and bank balances and sundry
debtors by 61.5 % and 11.4 %
The liabilities and the provisions have been decreased to the 19.2 % and 9.75
% respectively.
Here the company’s position is quite satisfactory because the liabilities have been
paid off to some extent.
Funds flow statement of 2008-2009
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Sources Amount Applications amount
Reserves & surplus 81,39,903 Unsecured loans
increase in working
capital
6,60,000
Secured loans 39,28,797
Differed Tax Assets 22,81,708 1,49,92,471
Fixed Assets 13,02,063
1,56,52,471 1.56,52,471
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Interpretation:-
The major source comes to the company mainly from reserves and surplus
constituting 80% of sources. The secured loans constitutes 10% of sources and the
reduction in differed tax asset constitutes 6% and the remaining 4 % are from sale of fixed assets.
During the year 2008-2009 the firm has repaid its obligations I.e Rs.6,60,000 and the
remaining funds are utilized for working capital requirements.
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STATEMENT OF CHANGES IN WORKING CAPITAL 2009-2010
INTERPRETATION:-
Particulars 2009 2010 Change
Total of Current Assets 12, 75, 96,220 14, 59, 57,585 +1,83,61,365
(-)Total of Current Liabilities 4,60,23,017 5,42,40,331 +82,17,314
8,15,73,203 9,17,17,254
+1,01,44,051
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Particulars 2009 2010 Working capital
Increase decrease
CURRENT ASSETS
Inventories
7,66,65,507 5,58,31,186 ----- 2,08,34,321
Sundry debtors 1,70,35,660 1,76,61,911 6,26,251 ------
Cash and bank 33,66,329, 30,82,331 ---- 2,83,998
Other C.A’s 5,56,229 2,75,853 ---- 2,80,376
Loans and Advance 2,99,72,495 6,91,06,304 3,91,33,809 -----
Total C.A’s 12,75,96,220 14,59,57,585 ------- -----
Current Liabilities
Liabilities2,50,62,519
1,95,14,071 55,48,448
------
Provisions 2,09,60,498 3,47,26,260 ------- 1,37,65,762
Total C.L’s 4,60,23,017 5,42,40,331 -------- ------
Working Capital 8,15,73,203 9,17,17,254 -------- ----
Increase in Working
Capital
1,01,44,051 ---- ----- 1,01,44,,051
9,17,17,254 9,17,17,254 4,53,08,508 4,53,08,508
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= 1, 01, 44,051 X 100
8, 15, 73,203
= 12.4%
There was an increase in the working capital of Rs.1,01,44,051 I.e 12.4 %
The sundry debtors and loans and advances were been increased to 36.7% and
130%
Where as its inventory, cash and bank balance and other C.A’s were decreased
to the percentage of 27.1 %, 8.4 % and 37.4 % respectively.
The liabilities were also decreased to 22.1%.
The provisions were increased to 65.6 %
Funds flow statement of 2009-2010
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Interpretation:
In this the major sources comes from the reserves and surplus which
constitutes of 85% and differed tax by 10% and remaining 5 % by differed tax asset.
During the year 2009-2010 secured loans consists of 40% and unsecured loans by
10% sale of fixed assets by the 30% and 2% by investments and 18% was utilized for
the working capital requirements.
FINDINGS
The company is concentrating more on the reserves and surplus.
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Sources Amount Applications amount
Reserves & surplus 3,90,11,744 Secured loans
Unsecured loans
Fixed assetsinvestments increase
in working capital
1,63,86,174
34,42,000
1,32,09,391Differed Tax 38,51,628 5,99,987
1,01,44,051Differed Tax (Asset) 9,18,229
4,37,81,601 4,37,81,601
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The company is concentrating more on raising the outside capital.
There was a decrease in liabilities of the company every year.
There are no fluctuations in the working capital.
The maintenance of working capital of the company is in a satisfactory
position.
The level of inventories can be reduced from year to year.
SUGGESTIONS
Application of funds should be done more on fixed assets than the reserves &
surpluses
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There should be increase in fixed assets and reduce raising of funds from
creditors.
Financial planning should done regularly
It is better to concentrate on best territory to purchase more fixed assets.
It is suggested to take proper steps for maintaining the required level of
inventory by the company.
The liquidity position should be maintained properly.
Conclusion
The funds flow analysis is one of the principle technique of financial management the
term funds refers to cash and it includes money values in what’re from it may the flow
means movement and it includes both inflow and outflow flow of funds means
transfer of economic values from are asset equity to another
It is a statement which shows the movement of funds and is a repot of the
financial operations of the business undertakings it is defined as a systematic use of
required funds to interpret the financial statement so that the strengths and weakness
of sree satyanarayana spinning mills Ltd as well as its historical performance andcurrent financial condition can be determined
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BIBLIOGRAPHY
NAME OF THE AUTHOR NAME OF THE BOOK PUBLISHER
I.M.PANDY FINANCIAL
MANAGEMENT
IKAS PUBLISHING
HOUSE PVT.,LTD.,
KHAN & JAIN FINANCIAL
MANAGEMENT
TATA MC GRAW
HILL PUBLISHING
COMPANY LIMITED
NEW DELHI
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PRASANNA CHANDRAS FINANCIAL
MANAGEMENT
TATA MC GRAW
HILL PUBLISHING
COMPANY LIMITED
NEW DELHI
PUBLISHED ANNUAL REPORTS OF SREE SATYANARAYANA
SPINNING MILLS Ltd AND STORES LEDGERS & RECORDS IN THETRAINING SECTIO N
BIBLIOGRAPHY
FINANCIAL MANAGENENT I M PANDEY
FINANCIAL MANAGENENT R P RUSTOGI
FINANCIAL MANAGENENT PRASANNACHANDRA
FINANCIAL MANAGENENT M Y KHAN
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WEBSITES:
WWW.APPM.CO.IN
www.a2zmba.com
www. Mibclubindia.com
www.sssmltd.com
www.yahoo.com
www.managementparadise.com
MAGZINES
Capital Growth
Icfai
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