submitted in partial fulfillment of the requirement

8/14/2019 Submitted in Partial Fulfillment of the Requirement

1/94

Submitted in partial fulfillment of the requirement for the award of

MASTERS DEGREE IN BUSINESS ADMINISTRATION

(Session 2007-2009)-MBA 3rd Semester

Under Supervision of: Submitted By:

Mr. Pawan NidhiDy. manager Uni.Roll No.

(Indoasian fusegear ltd.)

PANIPAT INSTITUTE

OF

ENGINEERING $ TECHNOLOGY (SAMALKHA)


2/94

2

INDEX


3/94

3

S.No Topic Page No.

1 acknowledgement 3

2 Declaration 5

3 Executive summary 6

4 Company profile 8

5 Industry profile 26

6 Objective of study 27

7 Research methodology 30

8 Swot analysis 37

9 Introduction to topic 41

10 Organizational structure 61

11 Analytical tools 63

12 Analysis and interpretation 67

13 limitations 81

14 bibliography 83

15 annexure 87


4/94


5/94

5

spent his precious time to share her creative thoughts, views, knowledge, and helped me to

learn a gain under his valuable guidance.

I would also like to thank Mr. Anil Srivastava (HR Manager) Indoasian

Fusegear Ltd., for providing me with the opportunity to work and learn the practical aspects

of finance. I would like to thank him for his guidance and support in completing the projectand giving his insights into it and when required. Last but not the least, I also like to thank to

all my friends for giving me their precious time.

Nidhi,

Preface

Electricity has become an inseparable part of our daily lifestyle. In homes, offices, industries andhospitals, there are myriad systems, equipment and sophisticated appliances that depend onelectrical energy. Yet, uncontrolled electrical power can be extremely dangerous. Overloads,crowded wiring, short-circuits and all kinds of interruptions in supply can lead to devastating losses,least of them being financial.

Under these circumstances, we, at Indo Asian are proud to be known and respected the world over


6/94

6

for our range of superior quality, electrical control and safety devices. Through them, we speak ofour abiding concern for safety, security and productivity of our customers.

Protection of the environment and conservation of plant life have acquired a vital place in today'sindustrialized society. Continuous efforts have been made by Indo Asian to plant trees and shrubsfor harmonious co-existence. The process of maintaining the balance of nature together withindustrial growth is ongoing at Indo Asian, which looks forward to the future with an indomitablespirit...


7/94

7

DECLARATION

I Nidhi Gupta Roll no 0733 MBA (3rd Semester) of the Panipat Institute Of Engineering And

Technology, Samalkha hereby declare that the Summer Training Report entitled ANALYSIS OF

CASH FLOW STATEMENT is an original work and the same has not been submitted to any

other Institute for the award of any other degree.

A seminar presentation of the Training Report was made on ____________ and the suggestions as

approved by the faculty were duly incorporated.

NIDHI GUPTA


8/94

8


9/94

9

ANALYSIS OF CASH FLOW STATMENT at INDOASIAN FUSEGEAR LTD. This is the

title of Research Study. This Research study is selected because Effectiveness of any

system which is implemented in the organization is important because its help in knowing

about Improvements required in contents of the program.

Cash flow means flow of cash in doing company activities. cash flow statement means

Statement of activities that involves cash either in form of cash inward or cash outward. It

shows how much cash does a company spent and how much cash company has earned.

So cash flow statement is a statement showing inflows and outflows of cash during a

particular period. It is a summary of sources and applications of cash between two balance

sheet dates.

Objective of the study is to study the financial position of the organization and to study

how the company manage its finance and the system and to know the things which makesthe system more effective.


10/94

10


11/94

11

ABOUT INDO ASIAN

Indo Asian was formed in 1958 by a young group of technocrats indigenously developed

Indias first sheet steel enclosed rewirable switch at Jalandhar in Punjab. This marked the

birth of INDO ASIAN, which today has grown into a multi product, multi Location

Company specializing in manufacturing and marketing a wide range of high-tech. electrical

products used for distribution, protection, control and conservation of electrical energy. The

superior quality of these products has earned them the respect of the Indian market and the

world over where they are popular under the brand names: Indo Asian industrial plugs &

sockets, stopshock RCCBs, Indo Asian HRC fuse links and Contactors & Relays.

The groups annual turnover, which grew from Rs. 10 million in 1986, to Rs. 900 million

last year, is slated to reach Rs. 3000 million by the year 2009. Its modern manufacturing

units at Sonipat, Noida, Parwanoo, and Jalandhar, are being further augmented. Once

achieved, this would be largest production base in India of the next generation of RCCBs,

and Compact Fluorescent lamps and other high technology, high quality electrical control

and safety equipments.

At present the group comprises the following companies:-

1) INDO ASIAN FUSEGEAR LTD., MURTHAL

2) INDO ASIAN FUSEGEAR LTD., NOIDA3) INDO ASIAN FUSEGEAR LTD., JALANDHAR

4) INDO ASIAN FUSEGEAR LTD., LIGHTING DIVN. HARIDWR.

The registered office of the group is located in Okhla, New Delhi.


12/94

12

A few of company valued overseas customers:

Abu Dhabi Water and Electricity Authority, UAE

Alstom, South Africa

Eaton Electric Limited, UK

Electricity Authority of Cyprus

Dubai Electricity & Water Authority, UAE

Federal Electricity and Water Authority, UAE Sharjah Electricity and Water Authority, UAE

Electricity Distribution Directorate, Bahrain

Jordan Electric Power Supply Co., Jordan

Ministry of Trade, Iraq

Ministry of Electricity &Water, Kuwait Ministry of Electricity & Water, Doha, Qatar

For inquiries and orders contact at:

International Business Department

Indo Asian Fusegear Ltd.

A-39, Phase-II Extn.,Hosiery Complex,

Noida - 201305, Uttar Pradesh, India

Ph: +91-120-3042222Fax: +91-120-2563537 (Direct)Fax: +91-120-2463 3442 / 2705Email: [email protected]
mailto:[email protected]:[email protected]


13/94

13


14/94

14

E-mail addresses

General Information:

Switchgear Sales:

Lighting Sales:

nternational Enquiries:

Corporate Office

207-208, Hemkunt Towers, 98, Nehru Place, New Delhi-110019, IndiaTel.: +91 11 30821773 , 30821774Fax : +91 11 26446977, 26219537

Head Office

B - 200, Phase II, Noida - 201305, U.P., IndiaTel.: +91 120 3042222

Fax: +91 120 2563442, 2562705


15/94

15

Branch Offices

Copyright 2005. All right reserved by INDOASIAN.


16/94

16

VISION

Our vision enriching quality of life by ensuring safe, efficient and convenient use of

electricity has been our guiding force for development of new and better products. The

culture of innovation and constant change has played a key role in our success.

MISSION

BETTER TECHNOLOGY

BETTER QUALITY

BETTER TOMARROW


17/94

17

COMMITEMENT

Our focus on energy management i.e. designing and building products that not only

protect and control but conserve and comprehensively manage mankinds greatest asset i.e.

electrical energy has enabled us to serve millions of our customers both in India and abroad

with world class products.

Today Indo Asian has emerged as a strong brand name and has proven track record both in

domestic and international markets. Our deep commitment to social responsibility gives us

much satisfaction as the fact that millions of customers in every corner of the world respect

us, trust us and use our products for protection of people, property and possessions.


18/94

18

VALUES OF INDO ASIAN

Quality and care are vital for customer satisfaction.

Empowered people are the most valuable assets for our organization.

Profitable growth is achieved through fostering mutually beneficial relations with all.

A culture of innovation and constant change is essential for us to succeed.

Zeal to explore

Integrity and fairness in all the matters

SOME OF INDO ASIAN MAJOR CUSTOMERS IN INDIA INCLUDES:-

Railway integral coach factory, Electricity Board, CPWD, PWD, NTPC, Indian Oil

Corporation Limited, Oil and natural gas commission, Reliance Industries Ltd., Bluestar

Ltd, M.R.F Ltd., Ashok Leyland Ltd., Bajaj Auto Ltd., Hindustan Liver Ltd., Tata

Honeywell Ltd.


19/94

19

CROSSING GLOBAL FRONTEIRS

Indo Asian products are well accepted in countries around the world, our regular overseas

market include Russia, Australia, Malaysia, Nepal, Srilanka, U.A.E., Iran, Syria, Jorden,

Angola, and Cyprus. Some of our valued major foreign customers include public utilities in

South Africa.

Bovara Pvt. Ltd. Australia persuasion listriknagra (PNL), Jakarta, Indonesia, public utilities

board Singapore. Ceylon Electricity Board Srilanka, Rahad corporation khartourn, Sudan.

Ministry of Electricity and water Dubai, Dubai Electricity company Dubai. Water and

Electricity company Abu Dhabi, ministry of Electricity and water Doha, ministry of

electricity and water Muscat Oman, Jordanian Electric power supply company Am


20/94

20

QUALITY-CENTERS AROUND THE CUSTOMERS

The name Indo Asian is today synonymous with high quality in the field of

electrical distribution and protection equipment in India, Asia as well as other developed

countries.

Quality of our products and processes is, in fact, checked by impartial bodies which is now a

variety of Indo Asian products are ASTA tested and their manufacturing plants have won

ISO 9001 certification from BVQ1, UK. In fact, Indo Asian Fuse gear Ltd. was the first

Indian manufacturer of electrical safety equipment, to be awarded ISO 9001 certification

under the upgraded 1994 guidelines.

At indo Asian, we recognize that quality holds the greatest insurance to our customer.

Especially, when one manufacturers product looks no different from anothers. Which is

why, in spite of certifications and recognitions, we have put in place quality management

cycle that works right around, from materials procurement to product application; with

everything revolving around the customers needs, customers preferences and his

objectives.

Ultimately, how well our products safeguard human lives and property, is our primary

concern.


21/94

21

INTRODUCTION OF IAFL, SONIPAT UNIT

The company M/S Indo Asian Fusegear Ltd., Murthal started in the year 1984, with the

manufacturer of miniature circuit breakers (MCBs) in technical inspiration of M/S Heinrich

Kopp, Germany and is a part of Indo Asian group of companies which were first to launch

breakers (ELCBs) in technical inspiration of M/S Doepke, Germany was added to its

product range. The technology for various products has been fully absorbed and based on

such successful performance. One of our inspiration namely M/S Heinrich Kopp, ACs has

even gone for putting in their financial stake up a joint venture with their group of

companies in the year 1992.

Through a very strong and the active team of research and development personal company

has brought in new innovations in its products for instance we developed & are now

producing MCBs in 3KA and 6KA breaking capacity also (in addition to the range of 9KA

MCBs) HRC Fuses/ Fuse bases/ Fuse Strips and Distribution Board/ Feeder Pillars as per

the specifications/ requirements of national/ international clients.

They are further developing technology for manufacture of plug-in MCBs, Moulded case

circuit breakers (MCCBs), push bottom starters and semi conductors fuses, switch fuses,

cutouts, energy meters etc.

The company has been earning considerable foreign exchange by exporting a significant

portion of its annual turnover to various countries e.g. Australia, Iran, UAE, Syria, Kuwait,

Srilanka, Bangladesh, Russia, New Zealand, Cyprus, Jordan, Nepal.


22/94

22

Managers at all levels are committed to the following principles:

Have knowledge of, and accept total responsibility for, the success of the organizations

human resources philosophy, policies and procedures, and review them with team members

to ensure their total understanding.

Ensure consistent and fair application of all HR policies

Exercise leadership by demonstrating integrity, professional knowledge, courage of your

convictions, and concern for the feelings of others.

Establish a relationship with team members that encourage a free bi-directional flow of

information, permits open discussion of differing views, and allows decision making at the

most appropriate levels.

In the same context, all employees are expected to maintain certain standards in relation to theirwork, and in representing themselves as the staff of Indoasian. They will:

Communicate constructive ideas and opinions to managers and team members either pro-

actively, or on request

Accept and support decisions made contrary to their expressed positions

Apply the highest standards of ethics, integrity and honesty

Comply with the company's policies and procedure


23/94

23

Plants Nine

Marketing Offices 30 across India, 8 warehouses

Total Manpower 2,000

Doctorates 2

Engineers 110

Educated to Class XII All (Minimum Qualification)

International Certifications ASTA, VDE, TUV, CB,ISO-9000

National certifications BIS (ISI Mark), NABL

IT Backbone Dedicated Fiber Optics Connectivity With All Plants/

Offices/Branches. Using Online Order Booking System &

Production Planning System

Test Facility Short Circuit Lab to IEC 17025 (15 kA)


24/94

24

INDO ASIAN presents the widest range of world-class

Switch Disconnector Fuse units. Switch Disconnectors

and Changeover Switches, leader in the field of electro

mechanical engineering; particularly

INDO ASIAN CFL Energy Saving Lamps and

accessories come to you from Indo Asian Group of

companies established as a reliable high quality producer

of electrical goods in India for over four decade

The International Business Department is responsible for

marketing and sales of the following: company's in-house

products and other related electrical equipment in the

international markets, and


25/94


26/94

26


27/94

27


28/94

28

COMPANY DETAILS

Board of Directors

V.P.Mahendru Chairman-Cum-Managing DirectorR.C.Bansal Non-Executive DirectorDr.Sai Ramachandran Non-Executive DirectorA.K.Ghosh Non-Executive DirectorP.K.Ranade Joint Managing DirectorVinay Mahendru Executive Director

N.L.Jain Director FinanceAtul Kumar AGM(Legal) & Company Secretary

Auditors

J.C.Bhalla & Co.New Delhi

Bankers

State Bank of IndiaState Bank of Patiala

Standard Chartered Bank

Corporate Office

207-208, Hemkunt Tower,98, Nehru Place,New Delhi-1100019


29/94


30/94

30

Industry Profile

Electric power is one of the most important ingredients of our socio economic growth, touching all

facets of life- commercial, industrial, residential, entertainment, critical services. With projectedGDP growth rate of around 9-10%per annum, the growth rate of power supply needs to be over 13-15% annually.

Government has recognized the pivotal role of electric power in economicdevelopment and also the urgent and critical need to invest heavily to reduce the growing gap inpower demand and supply. The government has set itself the target of providing access to electricityto all households by 2012. Governments increased investment in this sector will thus createexponential demand for Power Transmission and Distribution Equipments including wide range ofElectrical Switchgear and Energy Efficient Lighting Equipment.

The retail electrical industry is divided into two sub segments namely thepower distribution equipment segment which includes products such as switchgear, cables, wires,energy meters, lighting equipment etc. and consumer durables segments which include energysaving Compact Florescent Lamps (CFLs), Fluorescent Tube Lights, Light Fittings, LuminariesSwitches etc. The growing power sector and boom in construction industry not only in India but theworld over offers huge opportunities for growth of the Company, indigenously and overseas.

The demand for the products being manufactured by the company isrising continuously due to the ever increasing use of the power in Industrial, Commercial andDomestic sectors. Besides, increasing concern of people towards protection of life and increasedemphasis on safety in respect of the use of power has also resulted in buoyancy in the demand ofadvanced circuit protection equipments, in which your company is a leader.


31/94

31


32/94

OBJECTIVE OF THE STUDY

To analyze the cash flow statement in Indoasian Fusegear Ltd to

study the deviation of cash from earning.

SUB OBJECTIVES OF THE STUDY

Cash flow statement analysis is useful for company short term financial planning

Useful in preparing the cash budget

Another objective of analysis of cash flow statement is comparison with the cash

budget

To study the trend of cash receipts and payments

To explains the deviations of cash from earnings

To know the cash flow from various activities separately

To raise the funds in a manner that the cost of capital is minimum

To ensure flexibility in capital structure so that changes in the sources of funds may be

made according to the changing situation

To ensure sufficient liquidity of funds

Suggesting the new ways and new techniques which can be introduced to the existing

financial system, to improve its effectiveness and usefulness.


33/94

33


34/94

34

RESEARCH METHODOLOGY

Research simply means search for knowledge. According to Rodman and Mory, research

is systemized effort to gain new knowledge. Some people consider research as a

movement from known to unknown; it is actually a voyage of discovery. According to

Clifford Woody, research includes defining and redefining problem, formulating hypothesis

or the suggested solutions, collecting organizing and evaluating data, reaching conclusions

and at last carefully testing the conclusions to determine whether they fit to the formulated

hypothesis or not.

Research methodology has many dimensions, it includes not only the research methods but

also consists the logic behind the methods used in the context of the study and explains why

only a particular method of technique had been used so that search lend themselves to

proper evaluation. Thus in a way it is a written game plan for concluding research.The

term research refers to search of something new that can solve a problem. Research must

have a specific objective which is called research problem. On the basis of the problem,

researcher sets hypothesis. The goal of the research process is to produce new

knowledge, which takes three main forms:

Exploratory research:- which structures and identifies new problems

Constructive research:- which develops solutions to a problem

Empirical research:- which tests the feasibility of a solution using empirical evidence

Casual research:- which is related to day to day problems or for casual proble


35/94

35

RESEARCH DESIGN

The research design used here is Exploratory Research Design .I have to study theCash flow statement .So I need to enquire about financial activities and cash

involved in them. So availability of cash flows is collected by people related with

company financial sector and based on the reports I have to explore the factors

that really help me in analysis of cash flow statement.. Since the major emphasis was

on the discovery of ideas and insights into the facts, the research design most appropriate

must be flexible enough to permit the consideration of many different aspects of a

phenomenon.

The methods used in context of this research design are:

(1) The survey of concerning literature,

(2) Experience Survey.

The important features of this research design are listed as follows:

The sampling design used is Non-Probability Sampling design and it is flexible in nature.

There is a no pre-planned design for the analysis.

There is structured instrument for the collection of the data i.e. company cash flow statement

No fixed decisions about the operational procedures.


36/94

36

SAMPLING DESIGN

1. Sampling Unit

It defines the unit of target population that will be sampled i.e. it answers who is to be

surveyed. Sampling unit in my study will be individual employees of Indoasian Fusegear

who are indulging in making financial activities.

2. Sampling Techniques

This refers to the procedure by which the respondents should be chosen. In this study, Non

Probability sampling of the following type is used:-

Convenience sampling

Sample Size

It indicates the number of people to be surveyed. Through large sample give more reliable results

than small samples but due to constraints of time and money the sample size was restricted to few

respondents.


37/94

37

Area of Study

Though other methods are important, but this method is given prime significance in modern

research because of its extensive use to study the relationship of different factors, attitudes and

practices of society and to explore the problems that cannot be treated by experiment methods.


38/94

38

SOURCES OF DATA COLLECTION:

The data can be collected from secondary sources. The basic premises of my study are

supplemented with the secondary data.

1. Primary Data

Personal Investigation

Observation Method

Information from correspondents

Information from superiors of the organization

2. Secondary Data

Unpublished Sources such as Company Internal reports prepare by them given to

their analyst & trainees for investigation.

Websites like Indoasian official site, some other sites are also searched to find data.


39/94


40/94

40

Financial SWOT analysis

Strengths

Indoasian Fusegear ltd. has a very good image in mind of public.

1st BIS and DIN HRC Fuses in India

1st Rewirable Switches in deep drawn enclosures in India

1st MCB with 9kA breaking capacity

1st to produce RCCMs in India

1st Switchgears Company to receive ISO 9001

1st to manufacture CFLs in India

1st to offer B certified MCBs

1st to get ISO 9001 for all plants under one certificate

Weakness

Company also not uses its funds properly as company earns a huge losses

Indoasian Fusegear ltd have very low current assets and it is not proper to meet the working

capital requirements

Company is not paying any dividend since last 3 years.


41/94


42/94

42

SCOPE OF THE STUDY

This study is going to help, in identifying the causes of satisfaction or dissatisfaction

regarding company financial activities. This study also describes certain factors that explain

measures that how we can make financial system more effective. It is helpful in doing short

term planning as it provides information regarding the sources and utilization of cash during

a period, so it became easier for management to assess whether it will have adequate cash to

meet day to day expenses and pay creditors in time. It is also useful in preparing cash budget

for the future period as it informs the management about surplus or deficit periods of cash.

So it is helpful in planning the investment of surplus cash in short term investments and to

plan short term credit in advance for deficit periods. This study is also helpful in knowing

trends and speed at which the current assets and current liabilities are being paid. It also

reveals how the company take help of cash flow statement to ascertain the position of cash

generated from operating activities which can be used for payment of dividend.


43/94

43

LITERATURE REVIEW

Once the research problem is formulated, the researcher undertakes an extensive literature survey.

The literature survey conducted here includes the academic books and websites from internet.

The research to be conducted was To analyze the cash flow statement of Indoasian Fusegear

ltd in context to various financial factors.

The inspiration to conduct this particular research was from Management accounting and

financial management D.K.Goel and corporate accounting, Shashi. K. Gupta. There are

various type of financial technique and the individuals prefer different ones according to their

choice and needs. The details about the financial information have been collected from

websites like www.indoasian.com and company annual report. The research has tried to

cover almost every area of the research topic and has gained an insight of the financial factors

that affect financial position like cash and cash equivalents and financial activities like cash

flows from operating activities, cash flows from investing activities and cash flow from

financing activities.This study provides help in developing positive work environment in the

organization which contributes to productivity.
http://www.indoasian.com/http://www.indoasian.com/http://www.indoasian.com/http://www.indoasian.com/


44/94

44


45/94

45

CASH FLOW STATMENT

Cash Flow Statement Overview

The cash flow statement shows a company's money flow in and out over a fixed period of time.Most companies report their cash flow statement on a quarterly or monthly basis. The cash flow isbroken out into three reporting areas: (1) Operating, (2) Investing, and (3) Finance. The cash flow

statement was originally known as the flow funds statement or statement of changes in financialposition.

The statement of cash flow reports the movement of cash into and out of your business in a given

year. Cash is the lifeblood of your company. Cash includes currency, checks on hand, and deposits

in banks. Cash equivalents are short-term, temporary investments such as treasury bills, certificates

of deposit, or commercial paper that can be quickly and easily converted to cash.

Your business will use cash to pay bills, repay loans, and make investments, allowing you to

provide goods and services to your customers. Your company will use cash to generate even more

cash as a result of higher profits. The cash flow statement reports your business sources and uses of

cash and the beginning and ending values for cash and cash equivalents each year. It also includes

the combined total change in cash and cash equivalents from all sources and uses of cash.

It is imperative that you, the business owner, be able to successfully prepare a statement of cash

flow. This discussion provides a detailed look into the various sections of a cash flow statement. It

also describes two methods used to calculate cash flow from operating activities, indirect and direct

with examples that will give you an edge when it comes time to prepare a cash flow statement of

your own.


46/94

46

Purpose of the Cash Flow Statement

The cash flow statement is intended to provide information on a firm's liquidity or solvency. The

cash flow provides a clear understanding of a company's financial resources at a given point in time.

The cash flow statement shows cash coming into a company (from sales, income from

investments, asset sales) and going out (payments to suppliers, investment), the raising of capital

(money borrowed or raised from shareholders) and the payment of returns of capital (interest and

dividends) and tax.

Like profit, cash flow can be measured at a number of levels. For example, operating cash flow

roughly corresponds tooperating profit with the effects on non-cash items stripped out.

The main items in a typical cash flow statement are (in order):

cash flow from operating activities

returns on investments and servicing of finance

taxation

capital expenditure and financial investments

acquisitions and disposals

equity dividends paid management of liquid resources

financing

The returns on investments and servicing of finance includes dividends received (e.g. from

subsidiaries) and interest from fixed interest securities and bank deposits. It will also show

payments to lenders: both banks and holders of a company's fixed interest securities.

Capital investments and financial investments will show the cashflow relating to the purchase anddisposal offixed assets. Liquid resources are cash andliquid, short term, investments.
http://moneyterms.co.uk/operating_cash_flow/http://moneyterms.co.uk/operating-profit/http://moneyterms.co.uk/operating-profit/http://moneyterms.co.uk/capex/http://moneyterms.co.uk/acquisitions/http://moneyterms.co.uk/fixed_assets/http://moneyterms.co.uk/liquidity/http://moneyterms.co.uk/liquidity/http://moneyterms.co.uk/operating_cash_flow/http://moneyterms.co.uk/operating-profit/http://moneyterms.co.uk/capex/http://moneyterms.co.uk/acquisitions/http://moneyterms.co.uk/fixed_assets/http://moneyterms.co.uk/liquidity/


47/94

47

All items in the cash flow statement can be significantly different from equivalent items on the

P & L. This is what makes the cash flow so valuable (it is not susceptible to manipulation), but it

can also make it less meaningful (there are good reasons for accruing in the other accounting

statements).

Operating cash flow is very often looked at by investors. The capital expenditure item is a quicker

way of finding out how heavily the company is investing than looking at the balance sheet (and then

correcting fordepreciation etc.) but it has two weaknesses: it does not record purchases not yet paidfor and it does not allow one to separate capital expenditure on operating assets from long term

financial investments.

A more complex use of the cashflow statement is the calculation offree cash flow, which can be

used in valuation ratios and DCF valuations. All the items in the cashflow statement provide a

useful check on items in the other accounting statements and are a vital input to the financial models

used for forecasting.

The bulk of the positive cash flow stems from cash earned from operations, which is a good sign for

investors. It means that core operations are generating business and that there is enough money to

buy new inventory. The purchasing of new equipment shows that the company has cash to invest in

inventory for growth. Finally, the amount of cash available to the company should ease investors'

minds regarding the notes payable, as cash is plentiful to cover that future loan expense.

Of course, not all cash flow statements look this healthy, or exhibit a positive cash flow. But a

negative cash flow should not automatically raise a red flag without some further analysis.

Sometimes, a negative cash flow is a result of a company's decision to expand its business at a

certain point in time, which would be a good thing for the future. This is why analyzing changes in

cash flow from one period to the next gives the investor a better idea of how the company is

performing, and whether or not a company may be on the brink of bankruptcy or success.
http://moneyterms.co.uk/depreciation/http://moneyterms.co.uk/depreciation/http://moneyterms.co.uk/fcf/http://moneyterms.co.uk/dcf/http://moneyterms.co.uk/depreciation/http://moneyterms.co.uk/fcf/http://moneyterms.co.uk/dcf/


48/94

48

Tying the CFS with the Balance Sheet and Income Statement

As we have already discussed, the cash flow statement is derived from the income statement and the

balance sheet. Net earnings from the income statement is the figure from which the information on

the CFS is deduced. As for the balance sheet, the net cash flow in the CFS from one year to the next

should equal the increase or decrease of cash between the two consecutive balance sheets that apply

to period that cash flow covers.

History and variations

Cash basis financial statements were common before accrual basis financial statements. The "flowof funds" statements of the past were cash flow statements.

In the United States in 1971, the Financial Accounting Standards Board (FASB) defined rules thatmade it mandatory underGenerally Accepted Accounting Principles (US GAAP) to report sourcesand uses of funds, but the definition of "funds" was not clear. "Net working capital" might be cashor might be the difference between current liabilities andcurrent assets. From the late 1970 to themid-1980s, the FASB discussed the usefulness of predicting future cash flows.In 1987, FASB

Statement No. 95 (FAS 95) mandated that firms provide cash flow statements.In 1992, theInternational Accounting Standards Board issued International Accounting Standard 7 (IAS 7),Cash Flow Statements, which became effective in 1994, mandating that firms provide cash flowstatements.[7]

US GAAP and IAS 7 rules for cash flow statements are similar. Differences include

IAS 7 requires that the cash flow statement include changes in both cash and cashequivalents. US GAAP permits using cash alone or cash and cash equivalents.

IAS 7 permits bank borrowings (overdraft) in certain countries to be included in cashequivalents rather than being considered a part of financing activities.

IAS 7 allows interest paid to be included in operating activities or financing activities. USGAAP requires that interest paid be included in operating activities.

US GAAP (FAS 95) requires that when the direct method is used to present the operatingactivities of the cash flow statement, a supplemental schedule must also present a cash flowstatement using the indirect method. The IASC strongly recommends the direct method butallows either method. The IASC considers the indirect method less clear to users of financialstatements. Cash flow statements are most commonly prepared using the indirect method,which is not especially useful in projecting future cash flows.
http://en.wikipedia.org/wiki/Financial_Accounting_Standards_Boardhttp://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Cash_flow_statement#cite_note-6%23cite_note-6http://en.wikipedia.org/wiki/Cash_flow_statement#cite_note-6%23cite_note-6http://en.wikipedia.org/wiki/Financial_Accounting_Standards_Boardhttp://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Cash_flow_statement#cite_note-6%23cite_note-6


49/94

49

Cash flow activities

The cash flow statement is partitioned into cash flow resulting from operating activities, cash flowresulting from investing activities, and cash flow resulting from financing activities.

Operating activities

Operating activities include theproduction, sales and delivery of the company's product as well ascollecting payment from its customers. This could include purchasing raw materials, buildinginventory, advertising and shipping the product.

Under IAS 7, operating cash flows include[12]

receipts from the sale of goods or services receipts for the sale of loans, debt or equity instruments in a trading portfolio interest received on loans dividends received on equity securities payments to suppliers for goods and services payments to employees or on behalf of employees tax payments interest payments (alternatively, this can be reported under financing activities in IAS 7, but

not in US GAAP) payments for the sale of loans, debt or equity instruments in a trading portfolio

Items which are added back to the net income figure (which is found on the Income Statement) toarrive at cash flows from operations generally include:

Depreciation (loss of tangible asset value over time) Deferred tax Amortization (loss of intangible asset value over time) Any gains or losses associated with an asset sale (unrealized gains/losses are also added

back from the income statement)
http://en.wikipedia.org/wiki/Production%2C_costs%2C_and_pricinghttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Deliveryhttp://en.wikipedia.org/wiki/Cash_flow_statement#cite_note-11%23cite_note-11http://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Amortization_(business)#Accountinghttp://en.wikipedia.org/wiki/Production%2C_costs%2C_and_pricinghttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Deliveryhttp://en.wikipedia.org/wiki/Cash_flow_statement#cite_note-11%23cite_note-11http://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Amortization_(business)#Accounting


50/94


51/94

51

for non-profit organizations, receipts of donor-restricted cash that is limited to long-termpurposes

Items under the financing activities section include:

Dividendspaid Sale or repurchase of the company's stock Netborrowings

Disclosure of noncash activities

Under IAS 7, noncash investing and financing activities are disclosed in footnotes to the financialstatements. Under US GAAP, noncash activities may be disclosed in a footnote or within the cashflow statement itself. Noncash financing activities may include

leasing to purchase an asset converting debt to equity exchanging noncash assets or liabilities for other noncash assets or liabilities issuing shares in exchange for assets
http://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Debt


52/94

52

Preparation methods

The direct method of preparing a cash flow statement results in a more easily understood report.Theindirect method is almost universally used, because FAS 95 requires a supplementary report similarto the indirect method if a company chooses to use the direct method.

Direct method

The direct method for creating a cash flow statement reports major classes of gross cash receiptsand payments.dividends received may be reported under operating activities or under investingactivities. If taxes paid are directly linked to operating activities, they are reported under operatingactivities; if the taxes are directly linked to investing activities or financing activities, they arereported under investing or financing activities.

Sample cash flow statement using the direct method

Cash flows from operating activities

Cash receipts from customers $27,500

Cash paid to suppliers and employees (20,000)

Cash generated from operations (sum) 7,500

Interest paid (2,000)

Income taxes paid (2,000)

Net cash flows from operating activities $3,500

Cash flows from investing activities


53/94

53

Proceeds from the sale of equipment 7,500

Dividends received 3,000

Net cash flows from investing activities 10,500

Cash flows from financing activities

Dividends paid (12,000)

Net cash flows used in financing activities (12,000)

.

Net increase in cash and cash equivalents 2,000

Cash and cash equivalents, beginning of year 1,000

Cash and cash equivalents, end of year $ 3,000


54/94

54

Indirect method

The indirect method uses net-income as a starting point, makes adjustments for all transactions fornon-cash items, then adjusts for all cash-based transactions. An increase in an asset account issubtracted from net income, and an increase in a liability account is added back to net income. Thismethod converts accrual-basis net income (loss) into cash flow by using a series of additions anddeductions

Rules

The following rules are used to make adjustments for changes in current assets and liabilities,

operating items not providing or using cash and nonoperating items.

Decrease in noncash current assets are added to net income

Increase in noncash current asset are subtracted from net income

The balance sheet, income statement, and cash flow statement are the three generally accepted

financial statements used by most businesses for financial reporting. All three statements are

prepared from the same accounting data, but each statement serves its own purpose. The purpose of

the cash flow statement is to re portthe sources and uses of cash during the reporting period.


55/94

55

Structure of the Cash Flow Statement

The most commonly used format for the cash flow statement is broken down into three sections:

cash flows from operating activities, cash flows from investing activities, and cash flows from

financing activities.

Cash flows from operating activities are related to your principal line of business and include the

following:

Cash receipts from sales or for the performance of services

Payroll and other payments to employees

Payments to suppliers and contractors

Rent payments

Payments for utilities

Tax payments

Investing activities include capital expenditures disbursements that are not charged to expense but

rather are capitalized as assets on the balance sheet. Investing activities also include investments

(other than cash equivalents as indicated below) that are not part of your normal line of business.

These cash flows could include:

Purchases of property, plant and equipment

Proceeds from the sale of property, plant and equipment

Purchases of stock or other securities (other than cash equivalents)

Proceeds from the sale or redemption of investments

Financing activities include cash flows relating to the businesss debt or equity financing:

Proceeds from loans, notes, and other debt instruments

Installment payments on loans or other repayment of debts

Cash received from the issuance of stock or equity in the business

Dividend payments, purchases of treasury stock, or returns of capital


56/94

56

Cash for purposes of the cash flow statement normally includes cash and cash equivalents. Cash

equivalents are short-term, temporary investments that can be readily converted into cash, such as

marketable securities, short-term certificates of deposit, treasury bills, and commercial paper. The

cash flow statement shows the opening balance in cash and cash equivalents for the reporting

period, the net cash provided by or used in each one of the categories (operating, investing, and

financing activities), the net increase or decrease in cash and cash equivalents for the period, and the

ending balance. Both methods yield the same result, but different procedures are used to arrive at

the cash flows.

The following three main headings should be used for all cash flow statement

a) operating cash flows;

b) investing cash flows; and

c) financing cash flows.

The level of detail within each category should reflect the nature of the entity's operations.

Comparatives should be given to the cash flow statement for each year presented in the financialstatements.

The nature of an entity's business will determine the classification of cash flows between the threeheadings . A cash flow that relates to an entity's investing activities will be classified as such.Financing cash flows are similarly identified. All remaining cash flows will be classified asoperating. Although IFRS allow a reasonable amount of discretion with respect to classification, theclassification an entity adopts should be followed consistently.

Where appropriate, the cash flows of a transaction should be divided into their constituent partsaccording to their nature and the respective elements included within operating, investing and

financing

The resulting cash flow total for the period is the movement in the balance of cash and cashequivalents from the start of the period to the end . If the total for cash and cash equivalentspresented cannot be traced directly to the balance sheet, a reconciliation must be presented in thenotes to the financial statements.

Operating cash flows

Operating cash flows comprise all cash flows during the period that do not qualify as either

investing cash flows or financing cash flows.


57/94

57

Operating cash flows may be prepared from the entity's accounting records under the direct method. Alternatively, the entity can calculate the cash flows indirectly by adjusting the net profit or

loss for the period for non-cash items and for investing and financing items

The preferred method is the direct method, because the information provided is more use. However,the indirect method is more commonly used.

Interest paid is often classified as an operating activity, even though it arises on a financing balance.Interest costs must be covered by cash flows from operations and is included in determination of netincome/expense. There is support for it to be classified as an operating cash flow.

Investing cash flows

Investing activities include cash payments to acquire PPE and other long-term asset.Investingactivities also include cash payments and cash receipts relating to acquisition and disposal of debtand equity interests in other entities and interests in joint ventures (except for these relating todealing or trading activity). Loans or advances made to other parties are classified as investingactivities.

Interest received and dividends received should each be classified separately and are normally

classified as investing activities

Financing cash flows

Financing cash flows include cash flows relating to obtaining, servicing and redeeming sources offinance. Those sources of finance can include loans, debentures and share capital.

Dividends paid should be classified separately and are usually included in financing cash flows

Classification by financial institutions

Activities a financial institution carries out in its ordinary course of business will be classified asoperating activities, even though for other entities the same activity would likely be classified asinvesting or financing.

Loans and advances a financial institution makes should be classified as operating, as should theinterest paid and received on those balances. Likewise, dividends received should be classified asoperating cash flows.

Classification of other cash flows


58/94

58

Classification of tax cash flows

Tax cash flows are normally classified as operating cash flows. However, where specific cash flowscan be identified with either investing activities or financing activities, then it is appropriate toclassify that element of the tax cash flows as investing or financing respectively [IAS7.10].

Where the tax cash flows are included in investing or financing categories, disclosure of the totaltax cash flows should also be given

Netting of cash flows

Generally cash flows should be shown gross. The primary exceptions are when

a) cash receipts and payments are made on behalf of a customer and therefore represent the customer'stransactions and not the reporting entity's or

b) cash receipts and payments are in respect of items for which the turnover is quick, the amounts are larg

the maturities are short

The opportunities for reporting cash flows on a net basis will usually arise only in a bank or similarfinancial institution

The derivation of operating cash flows by use of the indirect method also results in some netting ofcash flows.

Foreign currency cash flows

Foreign currency cash flows should be translated into the functional currency at the rate of


59/94

59

exchange on the date of the transaction. This is consistent with the translation of the transaction forinclusion in the income statement .

A foreign subsidiary's cash flows should also be translated at the exchange rates relevant to theunderlying transactions [IAS7.26]. However, a rate that approximates the actual rate, for example aweighted average rate, may be used, consistent with the guidance

The period-end rate cannot be used to translate foreign currency cash flow. However, residualbalances arising as a result of a foreign currency transaction will be included in the balance sheet atthe period-end rate. Consequently, a reconciling difference will arise between the changes in cash

and cash equivalents reported in the cash flow statement and the equivalent amounts obtained fromthe balance sheet. This reconciling difference is not a cash flow but is reported separately in thecash flow statement

Treatment of overdrafts

A bank overdraft may be used as part of an entity's day-to-day cash management tools rather than asfinancing arrangements. Normally, such overdraft accounts will regularly fluctuate between apositive and a negative balance. The overdraft balance should be included in the balance of cash andcash equivalents where overdrafts are used for such cash management purposes. In all othercircumstances, an overdraft balance is treated as part of the entity's financing.

Classification of short-term investments

Investments with an original maturity of less than three months should not be considered a cashequivalent if there is any doubt that the obligated entity will fully redeem the security at maturity

Not all investments that meet the definition of cash equivalents are required to be treated as such.

The nature of the transaction should be considered in determining the classification . Thepolicy for determining which items are treated as cash equivalents should be consistently appliedand disclosed.

Other matters

Acquisitions and disposals

The cash flows in respect of each major acquisition or disposal should be separately disclosed and


60/94

60

classified as an investing cash flow. The amount reported is net of any cash included in the entityacquired or disposed of .

The amount of cash in the entities acquired or disposed of should be disclosed in the notes. This canbe given in aggregate. The value of the consideration given or received should also be disclosed inthe notes, together with the proportion represented by cash .

Subsidiaries' cash flows are consolidated into the cash flow statement from the date of acquisition.The cash flows of other investments accounted for using the equity method or the cost-dividendmethod are recognised as dividend income.

Discontinuing operatio g, investing and financing transactions

Classification of cash flows ns

The net cash flows relating to discontinuing operations should be disclosed, generally in a note(Disposal groups and discontinued operations). The cash flows should be classified betweenoperating, investing and financing


61/94

61

Barter and other non-cash transactions

The cash flow statement should not include transactions that do not include the transfer of cash .The same applies to the non-cash element of consideration, for example, in a barter transaction.

However, relevant information concerning non-cash transactions should be disclosed in the notes.The information should be classified between operatin relating to hedging instruments

Cash flows relating to financial instruments such as futures and forwards are generally classified asoperating . However, the cash flows of financial instruments that are appropriately designated ashedges should be classified with the cash flows of the underlying transaction being hedged

Segmental analysis

Entities are encouraged, but not required, to give a summary analysis of cash flows by segmentThis would be at the level of operating, investing and financing cash flows .

Background on a Cash Flow Statement

Before getting into the nuts and bolts of a statement of cash flow, lets take a brief look at how this

document has evolved over the years.


62/94

62

Originally, businesses were required to file a statement of changes in financial position, or funds

statement. The funds statement went through several years of development before it was widely

used. In 1961, Accounting Research Study No. 2, sponsored by the American Institute of Certified

Public Accountants (AICPA), recommended that a funds statement be included with the income

statement and balance sheet in annual reports to shareholders.

Two years later, Accounting Principles Board (APB) Opinion No. 3 was issued and provided funds

statement preparation guidelines. Although Opinion No. 3 did not go so far as to make the fundsstatement mandatory, most businesses, aware of the statements value, included it in their annual

reports anyway. Finally in 1971, APB Opinion No. 19 officially made the funds statement one of

the three primary financial documents required in annual reports to shareholders. The APB also said

a funds statement must be covered by the auditors report. Because Opinion No. 19 didnt specify a

particular format for the funds statement, businesses still enjoyed considerable flexibility in how

they chose to report their funds flow information.

That flexibility came to an end in late 1987, with the Financial Accounting Standards Boards

(FASB) issuance of Statement No. 95, which called for a statement of cash flows to replace the

more general funds statement. Additionally, the FASB, in an effort to help investors and creditors

better predict future cash flow, specified a universal statement format that highlighted cash flow

from operating, investing, and financing activities. This format is still used today.

General Format For a Statement of Cash Flows


63/94

63

The Investing and Financing Activities sections of the statement of cash flows are straightforward.

The Operating Activities section, however, is more complex. It requires analysis of operating

accounts that converts figures from an accrual to a cash format.

Advantages of a Cash Flow Statement

Helps the company to know whether it will be able to cover payroll and other immediate

expenses

Helps the lenders to know the company's ability to repay

Helps the investors judge whether the company is financially sound

Helps the newly formed companies to know their inflow and outflow of cash and thus

prevent cash shorta


64/94

64

\


65/94

65

SR.VICE PRESIDENTOPERATIONS

VICE PRESIDENT-OPERATIONS

A.G.M.-COMMERCE ANDFINANCE

FINANCE &ACCOUNTING

DEPTT.

INDUSTRIAL&COSTING DEPTT.

PERSONNEL &ADMINISTRATIONDEPTT.

RAW MATERIALRECEIPT & STOREDEPTT.

DY.MANAGER

SR. OFFICER-TAX

SR. OFFICERACCOUNTS

OFFICER EXCISE

OFFICER-PURCHASE

OFFICER-CASHIER

TRAINEE-ACCTOUNT

ASSISTANTMANAGER

ASSISENT

DY. MANAGER

AST. MANAGER

OFFICER

ASST. OFFICER

RECEPTIONIST

TRAINEE

MANAGER

SR. OFFICER-R.M.STORE

ASST.SUPERVISOR

SUPERVISOR-MAIN STORE

SUPERVISOR-MAINTAINENCE

TRAINEE-STORE


66/94

66


67/94

67

Financial ratios

Ratios Year: 2005-2006

Year: 2004-2005

Year: 2003-20

Current ratio=Current assetsCurrent liabilities

1,444,190,92 7= 2.56:1

563,043,661

947,273,788 = 2.65:1

357,709,899

539,179,551 =3.42

157,209,504

Quick ratio =CA- inventoryCurrent liabilities

1,004,444,523 = 1.78:1563,043,661

664,602,563 = 1.86:1

357,709,899

418,265,645 = 2.66157,209,504

Fixed assetsTurnover = Net sales

Net fixed assets

2,143,963,027 = 4.13:1

518,798,9941,471,327,239 = 4.04:1

363,782,306

749,827,220 = 7.04

106,519,847

Working capitalTurnover = Net sales

Net working capital

2,143,963,027 = 2.43:1

881,147,266

1,471,327,239 = 2.49:1

589,563,889

672,272,196 = 1.91:

749,827,220

Current assetsTurnover = Net sales

Net current assets

2,143,963,027 = 2.44:1

881,147,266

1,471,327,239 = 2.50:1

589,563,889

749,827,220 = 1.39:1

539,179,551


68/94


69/94


70/94

70

Analysis & interpretation


71/94

71

Absolute figures expressed in monetary terms in the financial statement by themselves aremeaningless. These figures often do not convey much meaning unless expressed in relation to otherfigures.

For example, one trader Mr. Anil earns a profit of Rs. 1, 50,000, whereas another trader Mr. Sunilearns a profit of Rs. 1,80,000. Which one is more efficient? Generally we can say that Sunil is moreefficient as he is earning more profits. But in order to give the correct answer, we must find out,how much the capital is employed by each of them. Suppose, Anil has employed a capital of Rs.10,00,000 & Sunil has employed Rs. 15,00,000, we can now calculate the percentage of profitearned by each of them on the capital employed:

Anil = 1, 50,000 * 100 = 15%10,00,000

Sunil = 1, 80,000 * 100 = 12%15, 00,000

This shows that Anil has earned Rs. 15 for every Rs. 100 of capital, whereas Sunil has earned Rs.12 for every Rs. 100 of capital. As such, Anil is using his capital more efficiently.

The above example shows that the figures assume significance only when expressed in

relation to other figures. Just as in example given above, the absolute figure of profit wasmeaningless but when the figure of profit was expressed in relation to capital, it assumedsignificance.

Thus, we can say,Ratio is the relationship between two figures of profit, expressed in arithmetical terms. A ratio is simply one number expressed in terms of another. It is found by dividing one numberinto the other

_ R.n. Anthony

Working Capital Management Performance using Ratio analysis


72/94

72

A ratio is defined as the indicated quotient of two mathematical expressions and as the

relationship between two or more things. In Financial analysis, a ratio is used as benchmark for

evaluating the financial position and performance of a firm. Ratios help to summarize large

quantities of financial data and to make qualitative judgment about the firms performance.

Ratio analysis involves comparison for a useful interpretation of the financial statements. Single

ratio in itself does not indicate favorable or unfavorable condition. Therefore in this report it is

compared with:

Past ratios, i.e. ratios calculated from the past financial statements of the same company.

Since liquidity ratios and Activity ratios helps to measure the firms ability to meet currentobligations and firms efficiency in utilizing its assets respectively. These two have been used.

Limitations of Ratio analysis


73/94

73

It is difficult to decide on the proper basis of comparison.

The comparison is rendered difficult because of differences in situations of two companiesor of one company over years.

Price level changes make the interpretation of ratios invalid.

The differences in the definition of items in the balance sheet and profit and loss accountmake the interpretation of ratios difficult.


74/94

74

CLASSIFICATION OF RATIOS

A)LIQUIDITY RATIO

Liquidity refers to the ability of the firm to meet itscurrent liabilities. The liquidity ratio, therefore, are alsocalled short-term solvency ratios. These ratios areused to assess the short-term financial position of theconcern. They indicate the firms ability to meet itscurrent obligations out of current resources.Liquidity ratio include two ratios:

I) Current ratio

II) Quick ratio


75/94

75

CURRENT RATIO

This ratio explains the relationship between current assets & current liabilities of the firm. Theformula for calculating this ratio is:

Current ratio = Current assets

Current liabilities

Current assets= cash in hand + cash at bank+ b/r+ short-term investments+ debtors+ stock+prepaid expenses.

Current liabilities= bank overdraft+ b/p+ creditors+ provision for taxation+ proposed dividends+outstanding expenses+ loan payable within one year.

Significance: this ratio is used to assess the firms ability to meet its short-term liabilities on time.The ideal ratio is 2:1.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

CURRENT RATIO 3.93 3.94 3.42 2.65 2.56

This ratio has been falling from 3.93:1 in 2006-07 to 2.56:1 in 2005-06.But still the short termfinancial position is sound because its 2.56:1, which is more than ideal ratio of 2:1.


76/94

76

QUICK RATIO

Quick ratio indicates whether the firm is in the position to pay its current liabilities within a monthor immediately. As such, the quick ratio is calculated by dividing liquid assets by current liabilities:

Quick ratio = liquid assets

Current liabilities

Liquid assets means those assets, which will yield cash very shortly. All current assets exceptstock & prepaid expenses are included in liquid assets. Stock is excluded from liquid assets becauseit has to be sold before converting it to cash.

Significance: an ideal quick ratio is said to be 1:1. if it is more, it is considered to be better.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

QUICK RATIO 3.26 3.16 2.66 1.86 1.78

This ratio has been falling from 3.26:1 in 2001-02 to 1.78:1 in 2006-07.As liquid ratio of thecompany is 1.78:1, which is more than the ideal ratio 1:1. Thus, the company is in the position topay its current liabilities instantly.


77/94

77

ACTIVITY RATIO

These ratios are calculated on the basis of cost of sales or sales; therefore, these are also called asturnover ratios. Turnover indicates the speed or number of times the capital employed has beenrotated in the process of doing the business. In other words, these ratios indicate how efficiently thecapital is being used to obtain sales; how efficiently the fixed assets are being used to obtain sales;& how efficiently the working capital & stock is being used to obtain sales. Higher turnover ratios

indicate the better use of capital or resources and in turn lead to higher profitability. Turnover ratiosincludes the following:

I) Inventory turnover ratio

II) Fixed assets turnover ratio

III) Current assets turnover ratio

IV) Debtors turnover ratio

V) Working capital turnover ratio


78/94


79/94

79

CURRENT ASSETS TURNOVER

These ratios show the efficiency with which the firm is utilizing its current assets and net current

assets.

Current assets turnover ratio = Net sales

Net current assets

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

CAT 1.28 1.42 1.39 2.50 2.44

Current assets turnover has increased from 1.28 in year 2001-02 to 2.44 in 2005-06 which indicatesefficient utilization of current assets in the firm.


80/94

80

WORKING CAPITAL TURNOVER RATIO

This ratio is of particular importance in non-manufacturing concerns where current assets play amajor role in generating sales.

Working capital turnover ratio = net sales

Net working capital

Significance: this ratio reveals how efficiently working capital has been utilized in making sales. Inother words, it shows the number of times working capital has been rotated in producing sales. Ahigh working capital turnover ratio shows efficient use of working capital & quick turnover ofcurrent assets like stock & debtors. A lower working capital turnover ratio indicates underutilization of working capital.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

Working capital turnover 1.70 1.91 1.96 2.49 2.43

This ratio has increased considerably from 1.70 in 2001-02 to 2.43 in 2006-07. This shows thatnumbers of times the working capital has been employed in the process of carrying on the businesshas increased drastically this means better efficiency in the utilization in the working capital.


81/94

81

CONCLUSION

Cash flows in a cycle, into, around and out of a business. It is the businesss lifeblood and every

managements primary task is to help keep it flowing and to use the cash flow to generate profits.

The faster a business expands the more cash it will need for working capital and investment. The

cheapest and best sources of cash exist as working capital within business. Good management of

working capital will generate cash, which will help improve profits and reduce risks.

cash flow statement include all the three activities profit but cash flow s considered effective when

profit from operating activity is higher as compare to financial and investing activities because

investing income or income from financial activity are not operational, they can be up or down but

operating profit is derived from co. operations. So, then business will generate more cash or it will

need to borrow less money to fund working capital. As a consequence, one can reduce the cost of

bank interest or generate additional free money available to support additional sales growth or

investment. Similarly, if one can negotiate improved terms with suppliers e.g. get longer credit or an

increased credit limit; one can effectively create free finance to help fund future sales.


82/94

82

LIMITATIONS OF THE STUDY

Various hindrances occurred while carrying out the research. The limitation of the study

includes the weak points that are not covered during the study. A person cant analyze all aspects of

the study. Sometimes he forgot some factors or sometimes he is not able to study the impact of

these factors because of time constraints or limited recourses. Limitations of the study are:-

Employees are not available as are busy in their work

Atrocious weather condition disturbing the tour plan.

There was a problem in taking appointments from the managers.

Sources were confounded some time to give proper information.

Limited time to complete my project.

All the people from whom I collected the data are not cooperative.

The office area was very congested.

Proper financial data and financial supervision did not provided to me due to

shortage of time to the trainer.


83/94


84/94


85/94


86/94


87/94

87

ANNEXURE -1

INDO ASIAN FUSEGEAR LIMITED

PROFIT & LOSS ACCOUNT

PARTICULARS 2001-02 2002-03 2003-04 2005-06

INCOME

Income from operation 706,003,577 775,091,854 837,304,678 1,557,614,441

Less: excise duty 71,079,522 102,819,658 87,477,458 86,287,202

Net sales 634,924,055 672,272,196 749,827,220 1,471,327,239

Other income 1,270,202 1,281,939 2,820,518 6,922,037

636,194,257 673,554,135 752,647,738 1,478,249,276

EXPENDITURE:

Material cost 340,852,364 316,533,869 384,420,666 766,534,657

Manufacturing expenses 47,531,810 64,579,581 78,910,818 152,965,626

Administration & other expenses 120,499,064 140,967,679 153,771,726 207,412,391

Selling & distribution expenses 53,641,295 89,909,146 87,977,426 195,628,698

Financial expenses 43,398,522 39,037,056 29,739,615 32,564,268

Depreciation 19,112,825 16,790,537 15,850,540 21,029,837

625,035,880 667,817,868 750,670,791 1,376,135,4771

ess/add: net increase/ decrease

n finish good & work in progres (10,005,954) 6,628,575 16,483,726 76,931,273

635,041,834 661,189,293 734,187,065 1,299,204,204

Profit before tax 1,152,423 12,364,842 18,460,673 179,045,072


88/94


89/94

89

ANNEXURE-2


BALANCE SHEET

PARTICULARS 2001-02 2002-03 2003-04 2005-06

SOURCES OF FUNDS

SHAREHOLDER FUNDS

Share capital 103,521,000 103,521,000 103,521,000 195,261,000

Share application money --- --- 8,750,000 ---

Reserves & surplus 101,203,870 107,040,270 123,007,111 446,269,961

LOAN FUNDS

Secured loans 255,622,380 219,203,414 229,748,543 430,151,650

Unsecured loans 19,002,352 19,502,323 12,598,170 19,273,743Deferred tax liability (net) 14,918,140 13,434,582 12,061,445 9,631,574

494,267,742 462,701,589 489,686,269 1,100,587,928

APPLICATION OF FUNDS

FIXED ASSETS

Gross block 248,538,317 254,797,715 269,540,081 603,246,866

Less: depreciation 131,761,408 147,647,344 163,020,234 239,464,560

Net block 116,776,909 107,150,371 106,519,847 363,782,306

Capital W.I.P. --- --- --- 129,736,140

Pre-operative exp. Pending

Allocation --- --- --- 13,105,593


90/94

90

CURRENT ASSETS, LOANS

& ADVANCES

-Inventories 84,798,576 93,449,160 120,913,906 282,671,225

-Sundry debtors 336,344,613 311,800,219 328,814,007 519,055,936

-Cash & bank balances 17,457,780 15,903,655 34,651,362 67,675,387

-Loans & advances 60,607,748 50,934,763 54,800,276 77,871,240

499,208,717 472,087,797 539,179,551 947,273,788

Less: current liabilities

& Provisions

-Liabilities 110,484,622 102,299,248 141,480,826 290,491,064

-Provisions 16,507,321 17,472,548 15,728,678 67,218,835

Net current assets 372,216,774 352,316,001 381,970,047 589,563,889

Miscellaneous expenditure 5,274,059 3,235,217 1,196,375 ---(To the extent not written off

Or adjusted)

494,267,742 462,701,589 489,686,269 589,563,889


91/94

91

ANNEXURE-3


FINANCIAL RESULTS & OPERATIONS

(Rs./lakhs)

Particulars 2001-02 2002-03 2003-04 2005-06

Sales & other income 7072.74 7763.74 8401.25 15645.36

Operating profit 636.63 681.93 640.51 2326.39

Financial charges 433.98 390.37 297.40 325.64

Depreciation 191.13 167.91 158.50 210.30

Profit before tax 11.52 123.65 184.61 1790.45

Less: provision for tax 1.10 74.71 43.50 209.60

Tax paid earlier year 0.00 6.66 --- ---

Add: provision for income

Tax written back 0.00 1.25 4.83 ---

Deferred tax income 7.50 14.84 13.73 ---

Profit after tax 17.92 58.36 159.67 1580.85

Add: profit brought forward

From previous year 134.21 32.13 60.49 45.53Acquired under the

Scheme Of arrangement --- --- --- 1061.71

Less: diff. between the amt.

Recorded as preference share

Capital issued in lieu of equity

Share capital under the scheme

Of arrangement --- --- --- 175.00

Surplus available for

Appropriation 152.13 90.49 220.16 2513.09


92/94

92

Transfer to general reserve 120.00 30.00 60.00 ---

Arrears in pref. Dividend paid

& Income tax thereon --- --- --- 11.40

Retained profit carried forward

To the next year 32.13 60.49 160.16 2501.69


93/94

93

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2007

2006-072005-06

(Rs.)(Rs.)A. Cash Flow from Operating Activities

Net Profit before tax and extra ordinary items 202,889,347

179,045,072

Adjustments for :

Depreciation 36,933,12121,029,837

Interest Income (354,026)(428,951)

Interest Charged 57,953,894

32,993,219

Loss/(Profit) on sale of fixed assets (88,588)

Operating profit before Working Capital Changes 297,333,748

232,639,177

Adjustments for :

Trade and Other Receivable (302,730,406)

(211,131,976)

Inventories (157,075,179)

(100,588,843)

Trade payables and Other Liabilities 177,533,918

90,263,294

Cash generated from Operations 15,062,081

11,181,652

Direct Taxes Paid (30,461,685)

(17,231,933)

Net Cash from Operating Activities (15,399,604)

(6,050,281)B. Cash Flow from Investing Activities

Purchase of Fixed Assets (149,951,927)

(165,554,582)

Sale of Fixed Assets 550,000

Pre-operative Expenditure pending allocation (9,906,110)

(13,105,593)Investments (47,121,266)

(4,400,000)

Interest Received 188,532

648,818

Net Cash used in Investing Activities (206,240,771)

(182,411,357)

C. Cash Flow from Financing Activities

Proceeds from Issuance of Shares Warrants 24,075,000

12,801,250

Proceeds from Borrowings 402,756,403

278,377,661

Repayment of Borrowings (158,089,747)

(44,479,307)

Interest Paid (56,033,994)

(32,092,199)Preference Dividend Paid

(1,000,000)


94/94

94

Income Tax on Preference Dividend Paid

(140,250)

Net Cash from Financing Activities 212,707,662

213,467,155

Net (Decrease)/Increase in Cash & Cash Equivalents (8,932,713)

25,005,517

Cash & Cash Equivalents at start of the year 67,675,387

950,697

Cash & Cash Equivalents accquired under the Scheme of

Arrangement

41,719,173

Cash & Cash Equivalents at close of the year 58,742,674

67,675,387

Cash and cash equivalents include Rs.4,018,677/- ( Previous Year Rs. 5,539,005/-) on account of Margin Money which

is held for more than three months.

As per our report of even date

BALANCE SHEET AS AT 31ST MARCH, 2007

submitted in partial fulfillment of the requirement

Documents