CASH FLOW MANAGEMENT.docx

COMPANY PROFILE

Fine Switches Pvt. Ltd. is engaged in manufacturing of electrical accessories since

1973 & recognized as among leaders in electrical industry, company is known for

its high standards of quality products catering to the need of millions of people all

over India and Middle East countries to their entire satisfaction.

Fine Switches Factory View

Company's manufacturing plant is installed in an ultra-modern building complex

having the latest automatic machines, capable of producing highly sophisticated

products. Company maintains a modern Research & Development Centre and a

well equipped Laboratory which are being looked after by well qualified &

experienced professionals and keeps on updating the technology for bringing out

the latest designs & models comparable to global standards. Presently company

operates 6 in number BIS certification making licenses.

Fine’s Products are manufactured as per ISO 9001:2008 standards and we can

proudly say that we owe this achievement to our inspiring motto "QUALITY

KEEPS US AHEAD".

ABOUT FINE SWITCHES PVT. LTD.

Fine Switches Pvt. Ltd's Corporate Identification Number (CIN) is

U31909PB1990PTC010784. It was registered on 25 October 1990 at Registrar of

Companies-Chandigarh and it's Registration number is . It's registered address is

Industrial Area Phagwara, Punjab, INDIA. It is classified as Company limited by

shares. It's authorized share capital is 950,000 and paid capital is 467,500. Annual

General Meeting (AGM) was last held on 29 September 2012 and as per records

from Ministry of Corporate Affairs (MCA), it's balance sheet was last filed on 31

March 2012.

Fine Switches Pvt Ltd currently has 5 Directors/Partners. Current status of Fine

Switches Pvt Ltd is Active.

Company's manufacturing plant is installed in an ultra-modern building complex

having the latest automatic machines, capable of producing highly sophisticated

products. Company maintains a modern Research & Development Centre and a

well equipped Laboratory which are being looked after by well qualified &

experienced professionals and keeps on updating the technology for bringing out

the latest designs & models comparable to global standards. Presently company

operates 6 in number BIS certification making licenses.

Fine Switches Pvt Ltd's Annual General Meeting (AGM) was last held on 30

September 2013 and as per records from Ministry of Corporate Affairs (MCA), its

balance sheet was last filed on 31 March 2013.

CHAIRMAN’S DESK

S P SETHI CHAIRMAN

Company’s progress / growth is based on its commitment to QUALITY, to meet

higher demands of its Customers by providing something new, something

innovative, something different with better aesthetics at competitive prices. At

FINE we have taken care of all these aspects and feel proud to state that

undoubtedly FINE have a satisfied customer base with ever increasing demand of

FINE products in spite of the stiff competition posed by globalization /

liberalization of the Industry.

FINE, a professionally managed group of Companies is engaged in manufacturing

of Electrical Wiring Accessories since 1973. The manufacturing Plant is installed

with the latest Automatic Machinery & Plant capable of producing highly

sophisticated Products at par with International standards. The Company maintains

a Modern Research & Development Centre and a Testing Laboratory equipped

with latest testing equipments as per BIS norms which are being looked after by

qualified and experienced professionals who keep on updating the technology for

bringing out the latest designs and models setting the Global Standards. Presently

the Company is operating 6 BIS Certification Marking Licenses.

 FINE is the first Company in northern India to be granted ISO 9001 : 2000

Certificate and we can confidently say that we owe this achievement to our

inspiring motto i.e. “ Quality Keeps Us Ahead”. FINE’S Modular & Plate series,

Wires & Cables, MCB’s, Distribution Boards & CFL along with vast range of

other products have widely been well accepted and acknowledged by all sections

of the Society. Every day more and more people are switching over to the fine

products.

 FINE group is looked after by Highly Qualified & Experienced Professionals in

Development, Manufacturing, Marketing & Administration and are ably supported

by Trained Skilled & experienced workers. We feel proud in saying that Fine

Group of companies have achieved a substantial growth within a short span of

period and is looking forward to achieve its goals for Quality, Production & Sales

in the next financial years. In its diversification plans FINE is planning to enter

into several other Electrical & Electronic items.

DIRECTORS OF FINE SWITCHES PVT LTD

Director

Identification

Name Designation Date of

Appointment

Number

01164804 CHANDAN SETHI Director 23 July 2005

01164910 GOBIND RAM SETHI Director 01 January 1994

01167394 ANIL SETHI Director 01 April 1999

01167446 GAUTAM SETHI Director 23 July 2005

01179026ASHOK KUMAR

SETHIManaging director 23 July 2005

FINE BRANCH OFFICES

Amritsar

Jalandhar

Phagwara

Chandigarh

Ambala

Jaipur

ACHIEVEMENTS

We share the pride for having been awarded with number of state & national

awards viz. for:

Best Entrepreneurs Award by H E Bharion Singh Shekhawat, The Vice

President of India.

Best Quality Award by Dr. Manmohan Singh hon’ble Prime Minister of

India.

Rajiv Gandhi National Quality Award by Shri Sharad Pawar Hon’ble

Union Minister of Agriculture & Commerce.

Punjab State Productivity Award (Twice) & many other.

 We bank upon the Quality, Production, R & D and Marketing Staff for their

untiring efforts, co-operative attitude and keeping an eagle’s eye on day to day

developments. I have all the faith in our valued Distributors, Dealers & ever

embracing customers all over India & Abroad. May God be with us and we

succeed.

QUALITY CONTROL AT FINE SWITCH PVT. LTD.

The essence of quality at QRG is closely wrapped in the way we think, plan and

work. It finds its true expression when we extend beyond ourselves to exceed our

customer’s expectations. To deliver products that are safer, faster and simply

better.

Each time, every time. Building customer confidence through teamwork is a top

priority to provide a wide variety of products and services.

Realizing and respecting the basic needs of customers to feel more secure, we've

committed ourselves to make our products better, safer and smarter than what he or

she is looking for. That's a passion that began 30 years ago and that's how it

continues to be even today. Our customers rely on us and it is our responsibility to

give them the very best. All our products are as per IEC standards.

VISION, MISSION AND QUALITY POLICY

Vision

“Total customer satisfaction”

"To be a globally recognized corporation that provides best electrical &

lighting solutions, delivered by best-in-class people."

Mission

Encourage electric-based co-operative industry.

To develop co-operative movement in rural sector.

growth within a short span of period

To achieve our vision through fairness, business ethics, global reach,

technological expertise, building long term relationships with all our

associates, customers, partners, and employees.

Values

Customer Delight: A commitment to surpassing our customer

expectations Leadership by example. A commitment to set standards in

our business and transactions based on mutual trust. Integrity and

Transparency: A commitment to be ethical, sincere and open in our

dealings. Pursuit of Excellence : A commitment to strive relentlessly, to

constantly improve ourselves, our teams, our services and products so as

to become the best in class

PRODUCTS RANGE

Electrical Wiring Accessories  & Products of assorted designs & colours.

Copper, Silver, Brass Parts of various specifications manufactured from

material having the best Electrical/Mechanical Properties.

Brass, Copper and  Phosphor Bronze, Sheet Parts of various specifications and

designs.

Machine & Wooden Screws of assorted sizes and specifications.

Our MODULAR/PLATE SERIES, WIRES & CABLES, RCCB's, MCBs,

DISTRIBUTION BOARDS, CFL’s along with vast range of allied items have

been widely accepted & acknowledge by all sections of society that is why more

and more people are switching over to FINE PRODUCTS.

PRODUCT CATEGORIES

Modular Series Electric Accesories DP Switch, MCBs

& Isolators

Wire & Cables

Porcelain (KIT

KAT) & Tops General Accesories

LED Panel Light

(SMD)

LED Spot Light

(COB)

RF Remote Control

Switch & Wireless

Door Bell

Other Traditional

Bell

MODULAR SERIES

Silverline Series Goldline Series Modular Series

Modular Switch,  Modular Plate, Socket Module, Support modules, Front Plates,

Inner Plates,Foot Light,Power Units, Plugs,Outer Plate, Flush Metal Boxes, Plastic

Boxes, etc.

ELECTRIC ACCESORIES

Fancy Series Top Class Series Deluxe Series Surface Type

General Electrical Accesories from Fine Swiches.

DP SWITCH, MCBS & ISOLATORS

Total Electric Safety products for offices and homes

D.P. Switch 32A 240V

(Box Type)

Cat.No. 48 D.P. Switch 32A 240V

(Box Type) Pkg 1Pcs

D.P. Switch 32A 240V

(Classic)

Cat.No. 416 D.P. Switch 32A 240V

(Classic) Pkg 10Pcs

D.P. Switch 32A 240V

(Deluxe)

Cat.No. 47 D.P. Switch 32A 240V

(Deluxe) - ISI Pkg 10Pcs

D.P. Switch 32A 240V

(Dlx. Flush type)

Cat.No. 46 D.P. Switch 32A 240V

(Dlx. Flush type) Pkg 10Pcs

WIRE & CABLES

Wire & Cables for all Electric Wiring of Home & Offices.

 Electric Cable

0.75

Sq.mm 0.75 (Click on Product for Full detail &

Specifications.)

Electric Cable

1.5mm

Sq.mm 1.5 (Click on Product for Full detail &

Specifications.)

Electric Cable

10mm

Sq.mm 10 (Click on Product for Full detail &

Specifications.)

Electric Cable

1mm

Sq.mm - 1 (Click on Product for Full detail &

Specifications.)

PORCELAIN (KIT KAT) & TOPS

ISOLATORS & FUES of various  rating from Fine Switches

3 Pin Push Type Plug

Top 16A 240V(PC)

Cat.No. 68A 3 Pin Push Type Plug

Top 16A 240V(PC) Pkg 20Pcs

3 Pin Triangular Plug

Top 16A 240V (PC)

Cat.No. 69(A) 3 Pin Triangular Plug

Top 16A 240V (PC) Pkg 20Pcs

3Pin Triangular Plug Top

6A 240V -ISI

Cat.No. 68 3Pin Triangular Plug Top

6A 240V -ISI Pkg 20 Pcs

3Pin Triangular Plug Top

6A 240V -ISI

Cat.No. 69 3Pin Triangular Plug Top

6A 240V -ISI Pkg 20Pcs

Porce. Fues Unit 240V

(Kit Kat 32A)

Cat.No. 503 Porce. Fues Unit 240V

(Kit Kat 32A) Pkg 10Pcs

Porce. Fues Unit 240V

(Kit Kat 63A)

Cat.No. 504 Porce. Fues Unit 240V

(Kit Kat 63A) Pkg 10Pcs

GENERAL ACCESORIES

All Type Of General Electric Accesories of many designs includes Holders,Rose

Plates,Gang Box,Tube Fittings & Door Bell etc.

Extension Cord 6A (Strip

Type)

Cat. No. 247(A) Pkg. (pc)10

MRP./Pc. Rs.284.00

Extension Cord 6A Fancy

(8 Yards)

Cat. No. 247(B) Pkg. (pc)10

MRP./Pc. Rs.222.00

Extension Cord 6A (8

Yards)

Cat. No. 247 Pkg. (pc)10 MRP./Pc.

Rs.208.00

Multi Plug 240VCat. No. 36 Pkg. (pc)20 MRP./Pc.

Rs.42.00

Iron Connector 240VCat. No. 38 Pkg. (pc)10 MRP./Pc.

Rs.46.00

Pendent Lamp Holder

250V -ISI

Cat. No. 79 Pkg. (pc)20 MRP./Pc.

Rs.23.00

Braket Lamp Holder 250V

-

Cat. No. 80 Pkg. (pc)20 MRP./Pc.

Rs.25.25

LED PANEL LIGHT (SMD)

LED SMD

SQ 3W

LED SMD SQ 3W Cat No:905 Packaging:50Pcs

Voltage:240V Material:Aluminum Shell+ Light

Diffuser+SMD LED Working

Temperature:10to55c Color: WH/WW

LED SMD

RD 3W

LED SMD RD 3W Cat No:906 Packaging:50Pcs

Voltage:240V Material:Aluminum Shell+ Light

Diffuser+SMD LED Working

Temperature:10to55c Color: WH/WW

LED SMD

SQ 6W

LED SMD SQ 6W Cat No:907 Packaging:20Pcs

Voltage:240V Material:Aluminum Shell+ Light

Diffuser+SMD LED Working

Temperature:10to55c Color: WH/WW

LED SMD

RD 6W

LED SMD RD 6W Cat No:908 Packaging:20Pcs

Voltage:240V Material:Aluminum Shell+ Light

Diffuser+SMD LED Working

Temperature:10to55c Color: WH/WW

RF REMOTE CONTROL SWITCH & WIRELESS DOOR BELL

RF

Remote

Control

Switch

Cat.No. 901 RF Remote Control Switch Pkg 50Pcs

*RF remote control switch,for 4 channels of light

*30+ meters of rang (unobstructed). Signal can

penetrate walls *Input voltage for

receiver:1x12v/123(included) *Load of each

channel:

Wireless

Door

Bells

Cat.No.902 Pkg 40Pcs. *Wireless battery operated

door chime,easy installations. *with LED indicator

in the receiver. *The volume can be adjusted by the

bottom in the receiver. *operating range up to 100

meets in open area. *32 sounds select-able,you

Wireless

Door

Bells

Cat.No.903 Pkg 40 Pcs *Wireless door bell,battery

operated *Operating range up to 100 meters in open

area. *32 Polyphonic melodies (tune) *volume

control in 3 levels *LED strobe in the bell and push

*Battery for Push:1x12v/A23(included);for bell

Wireless

Door

Bells

Cat.No.904 Pkg 40 Pcs *Wireless door bell,battery

operated *Operating range up to 100 meters in open

area. *32 Polyphonic melodies (tune) *volume

control in 3 levels *LED strobe in the bell and push

*Battery for Push:1x12v/A23(included);for bell

LED SPOT LIGHT (COB)

LED COB

SQ 3W

LED COB SQ 3W Cat No:915

Packaging:100Pcs Voltage:240V

Material:Aluminum Shell+COB LED

Working Temperature:10to55c Color:

WH/WW

LED COB

RD 3W

LED COB RD 3W Cat No:916

Packaging:100Pcs Voltage:240V

Material:Aluminum Shell+SMD LED

Working Temperature:10to55c Color:

WH/WW

LED COB

SQ 3W SF

LED COB SQ 3W SF Cat No:917

Packaging:50Pcs Voltage:240V

Material:Aluminum Shell+COB LED

Working Temperature:10to55c Color:

WH/WW

LED COB

SQ 5W

LED COB SQ 5W Cat No:918

Packaging:50Pcs Voltage:240V

Material:Aluminum Shell+COB LED

Working Temperature:10to55c Color:

WH/WW

OTHER TRADITIONAL BELL

Door Bell Electric

Buzzer

Cat.No. 242 Door Bell Electric Buzzer Pkg

10Pcs

Musical Door Bell PoloCat.No. 243 Musical Door Bell Polo Pkg

10Pcs

Musical Door Bell

Bulbul

Cat.No. 244 Musical Door Bell Bulbul Pkg

10Pcs

Fish Bell Cat.No. 245 fish Bell Pkg 10Pcs

Ding Dong Bell Cat.No. 246 Ding Dong Bell Pkg 10Pcs

Musical Door Bell

(Square)

Cat.No. 247 Musical Door Bell (Square)

Pkg 10Pcs

OBJECTIVE OF THE COMPANY

The object of the society is to encourage proper development of Electricals

Industrial amongst members on Co-operative lives by promotions of principal and

methods of Co-operative and joint forming methods so as to secure best merits of

modern large scale electrics production for this purpose.

a) To encourage self-help, thrift and co-operate amongst members.

b) To undertake such other activities as are identical and conductive to the

development of the society etc.

c) To acquire and install machinery for the utilization of the product and buy

raw material and sell finished product is the course of utilizing and

marketing the byproducts.

d) To Work together with our suppliers and clients to provide quality and value

for money through strong partnerships. Our staff will always provide our

clients with a product and service that complies with all statutory regulations

as well as changing community expectations, and environmental and safety

requirements.

SWOT- ANALYSIS

I have found some strengths and weaknesses, opportunities to the factory during

my training period at this plant. Factory is facing some problems regarding sale

under government restriction. How much government permits to sell the electrical

switches that much only factory has to sell not more than that it sells through

quotations. It covers small area only. Even there is no particular system for

appointment of employees.

STRENGHTS -

The major strength is crushing capacity and packing of bags per day.

It is producing own electricity it reduces the cost of electric bills.

It also sells electricity to the KPTCL.

This factory has its own trucks and some other vehicles, which

reduces transportation charges.

Good Administration

Healthy management labour relations

Superior product quality

Skilled and efficient staff and labour force

Maximum profitability due to various by products

Well structured distribution channel.

Improved infrastructure.

In total this factory has a very good organization structure

WEAKNESS

It does not have separate HR department, so the selection of employees is

not satisfactory and it creates lot of burden on labour welfare officer.

They purchased two wheeler vehicles and trucks on loan. During off-season

they remain idle, but the interest of the loan is always shooting up.

They don’t have particular employee for particular work. Anybody can do

any work assigned by their respective superiors.

High cost of production.

No control on minimizing the losses in process.

OPPORTUNITIES-

It is located in the best area. Here all the resources are available in less cost.

Offer replacement of machinery to new machinery for good running of

factory.

Present production performance is excellent.

Non-establishment of the programs to motivate and develop effective

manpower.

Restricted market opportunities shirked a better price for finished products.

Reducing the overhead expenditure.

To provide comfort and convince to employees for doing the work.

SAFETY MATTER

Protection against Electrical Shocks and fire:

With the ever increasing of the usage of electricity in our daily lives , the risk of

electrical shocks and hazards related to electrical fire to overcrowded wiring and

leakage due to installation failure.

Poorly insulated apparatus, faulty wires or the incorrect use of an electrical device

cause current to flow through the wrong face (i.e. through the insulation) to the

earth. This current is called the "Leakage Current". Leakage current in an electrical

system is responsible for two major risks.

Risk of electrocution(electric shocks)

Risk of fire

Risk of Electrocution (Electric shocks)

Electrocution is the passage through human body, which is dangerous .The flow of

current through human body, affects two vital functions

Breathing

Heart Beat

Electrocution can lead to muscle contraction causing respiratory paralysis, cardiac

fibrillation and immediate cardiac arrest resulting in death depending upon the

magnitude of the leakage current and the contract voltage.

Risk of fire

Poorly insulated wiring or loose connections are enough to create fire hazards a

portion of the current which normally flows in the conductor can find a way back

to the earth through these "leaks" and through materials with varying degrees of

conductivity. These materials are not intended to conduct current, and may get

heated up to such a degree that they will set fire to whatever they are in contact

with (insulation, wood etc.). This is the start of fire.

Solution

Earth Leakage Circuit Breakers installed in the circuit senses these leakage

currents and isolates the faulty circuit thereby ensuring safety against the hazards

of earth leakage. It is mandatory to install an ELCB in the incoming circuit for all

installations except those specified by the section 30 of the Indian Electricity Act,

1910.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. The

research methodology included various methods and techniques for conducting a

research. “Marketing Research is a systematic design, collection, analysis, and

reporting of data and finding relevant solution to a specific marketing situation or

problem.” Sciences define research as “ the manipulation of things, concepts or

symbols for the purpose of generalizing to extend, correct or verify knowledge,

whether that knowledge aids in construction of theory or in practice of an art.”

Research is thus, an original contribution to the existing stock of knowledge

marketing for its advancement, the purpose of research is to discover answers to

the questions through the application of scientific procedure. My research project

has a specified framework for collecting the data in an effective manner. Such

framework is called “Research Design”. The research process which was followed

by me consisted following steps.

Defining the problem & Research Objectives

It is said, “A problem well defined is half solved”. The step is to define the project

under study and deciding the research objective. The definition of problem

includes Brand Awareness & Preference Regarding Fine Switches Pvt. Ltd.

Developing the Research Plan

The second stage of research calls for developing the efficient plan for gathering

the needed information. Designing a research plan calls for decision on the data

sources, research approach, research instruments, sampling plan and contacts

methods. The research is descriptive in nature and is aimed at analyzing the brand

awareness & preference regarding Fine Switches Pvt. Ltd..

STEPS OF METHODOLOGY

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:-

The primary data are those, which are collected afresh and for the first time and

thus happen to be original in character.

Personal Investigation

Observation Method

Information from superiors of the organization

2. Secondary Data:-

The secondary data are those, which have already been collected by someone else

and passed through statistical process. The secondary data required of the research

was collected through various newspapers, and Internet etc.

Unpublished Sources such as Company Internal reports prepare by them

given to their analyst & trainees for investigation.

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

Analyze the Information

The next step is to extract the pertinent findings from the collected data. I have

tabulated the collected data and developed frequency distributions. Thus the whole

data was grouped aspect wise and was presented in tabular form. Thus, frequencies

and percentages were prepared to render impact of the study.

OBJECTIVES OF THE STUDY

Every study is conducted with key objectives and aims kept in the fore. Without

aims and objectives the study is like a ship without radar. So aims and objectives

of this study are.

1. Indicate the primary purpose of the statement of cash flows.

2. Distinguish among operating, investing, and financing activities.

3. Explain the impact of the product life cycle on a company's cash flows.

4. Steps in the Preparation of the Statement of Cash Flows

5. Identify the users and uses of accounting information.

6. Describe the components that supplement the financial statements in an

annual report.

1) INDICATE THE PRIMARY PURPOSE OF THE STATEMENT OF

CASH FLOWS.

(i). Explanation of the changes in cash:

SCF explains the reasons of the change in company’s cash and cash equivalents

during a particular accounting period by showing the details of cash generated and

cash used to perform operating, investing and financing activities of the business.

(ii). Anticipation of future cash flows:

The management, creditors, actual and perspective investors and competitors of the

company are interested to know the ability of the company to generate positive

cash flows in future. The  SCF enables these parties to understand how company

manages cash and to anticipate the impact of current cash receipts and cash

disbursements on future cash flows of the business.

(iii). Legal requirements:

In some countries, the companies are legally required to prepare and present

financial statements in accordance with international financial reporting standards

(IFRSs). As the statement of cash flows (SCF) is one of the basic components of

financial statements, its presentation is legally required in some countries.

(iv). Information about non-cash investing and  financing activities:

Companies also engage in various investing and financing activities that do not

require the use of cash. Such activities are known as non-cash investing and

financing activities. Sometime these activities have a significant impact on the

future cash flows of the entity and therefore their disclosure to the users of

financial statements becomes necessary.  For this purpose, a company that

performs any significant non-cash investing and financing activity during the

accounting period must disclose it either in the statement of cash flows or in the

footnotes to the financial statements.

The examples of non-cash investing and financing activities that may become

significant for a company are given below:

Purchase of land for issuing common stock.

Issuance of common stock to discharge a liability.

Purchase of equipment for issuing a note.

(v). The difference between net income and net cash flows from operating

activities:

The SCF explains the reasons of the difference between the net income and the

related net cash flows from operating activities.

2) DISTINGUISH AMONG OPERATING, INVESTING, AND FINANCING

ACTIVITIES.

1. The primary purpose of the statement of cash flows is to provide information

about cash receipts, cash payments, and the net change in cash resulting from the

operating, investing, and financing activities of a company during the period.

a. The Statement of Cash Flows (SFAS-95) identifies cash flows as being

generated from three sources:

i. Operating Activities

1. Operating activities include the cash effects of all transactions that create

revenues and expenses and thus enter into the determination of net income. In

general Operating activities are those activities that the business was created to

perform and also includes interest from any source and any other type or revenue

producing (other revenue) types of activity

i. Operating activities is the most important category because it shows the cash

provided or used by company operations.

ii. Cash provided by operations is generally considered to be the best measure of

whether a company can generate sufficient cash to continue as a going concern and

to expand.

ii. Investing Activities

1. include all those activities involve in long-term uses or sources of cash.

i. purchasing and disposing of investments and productive long-lived assets

using cash and

ii. lending money and collecting the loans.

i. Note that any interest revenue or expenses from these activities are operating

activities

iii. Investing Activities

1. Include obtaining cash from issuing debt and repaying the amounts borrowed

and (b) obtaining cash from stockholders and paying them dividends

i. Note that Dividends received or paid are operating activities

b. Activities involving cash are reported in a format that reconciles the beginning

and ending cash balances.

i. The statement of cash flows provides answers to the following important

questions:

1. Where did the cash come from during the period?

2. What was the cash used for during the period?

3. What was the change in the cash balance during the period?

ii. The statement of cash flows also provides clues about whether dynamic

companies will be able to thrive and invest in new opportunities or whether a

struggling company will survive or perish.

2. Illustrating the Types of Cash Inflows and Outflows

a. Operating activities

i. Cash Inflows:

1. From sale of goods or services.

2. Returns on loans (interest received) and on equity securities (dividends

received).

ii. Cash outflows:

1. To suppliers for inventory.

2. To employees for services.

3. To government for taxes.

4. To lenders for interest.

b. Investing activities

i. Cash inflows:

1. From sale of property, plant, and equipment.

2. From sale of debt or equity securities of other entities.

3. From collection of principal on loans to other entities.

ii. Cash outflows:

1. To purchase property, plant, and equipment.

2. To purchase debt or equity securities of other entities.

3. To make loans to other entities.

c. Financing activities

i. Cash inflows:

1. From sale of equity securities (company's own stock).

2. From issuance of debt (bonds and notes).

ii. Cash outflows:

1. To stockholders as dividends.

2. To redeem long-term debt or reacquire capital stock.

Some cash flows relating to investing or financing activities are classified as

operating activities because these items are reported in the income statement where

results of operations are shown.

♦ For example, receipts of investment revenue (interest and dividends) and

payments of interest to lenders are classified as operating activities because these

items are reported in the income statement.

♦ As a general rule :

Operating activities involve income statement items.

Investing activities involve cash flows resulting from changes in investments

and long-term asset items.

Financing activities involve cash flows resulting from changes in long-term

liability and stockholders' equity items.

♦ Not all of a company's significant activities involve cash. Here are four

examples of significant noncash activities:

1. Issuance of common stock to purchase assets.

2. Conversion of bonds into common stock.

3. Issuance of debt to purchase assets.

4. Exchanges of plant assets

a. They are reported either in a separate schedule at the bottom of the statement of

cash flows or in a separate note or supplementary schedule to the financial

statements.

b. The reporting of significant activities not affecting cash in a separate or

supplementary schedule satisfies the full disclosure principle because it identifies

significant non-cash investing and financing activities of the enterprise.

c. The three activities--operating, investing, and financing--plus the significant

noncash investing and financing activities make up the general format of the

statement of cash flows, plus the significant noncash investing and financing

activities.

3) EXPLAIN THE IMPACT OF THE PRODUCT LIFE CYCLE ON A

COMPANY'S CASH FLOWS.

1. All products go through a series of phases called the product life cycle.

a. The phases (in order of their occurrence) are often referred to as the

i. introductory phase,

ii. growth phase,

iii. maturity phase, and

iv. decline phase.

b. The phase a company is in affects its cash flows.

i. The introductory phase occurs at the beginning of a company’s life, when

the company is purchasing fixed assets and beginning to produce and sell products.

1. When a company is in the introductory stage, one would

expect that the company will not be generating positive cash from operations.

a. It will be spending considerable amounts to purchase productive assets such

as buildings and equipment.

b. To support asset purchases the company will have to issue stock or debt.

i. One would expect cash from operations to be negative, cash from investing to

be negative, and cash from financing to be positive.

ii. During the growth phase, the company is striving to expand its production

and sales.

1. When a company is in the growth phase, one would expect to see the

company start to generate small amounts of cash from operations.

a. Cash from operations on the cash flow statement will be less than net income

on the income statement during this phase.

b. Because sales are projected to be increasing, the size of inventory purchases

must increase.

i. However, less inventory will be expensed on an accrual basis than purchased

on a cash basis in the growth phase.

ii. Cash collections on accounts receivable will lag behind sales, and because

sales are growing, accrual sales during a period will exceed cash collections during

that period.

iii. Cash needed for asset acquisitions will continue to exceed cash provided by

operations, requiring that the company make up the deficiency by issuing new

stock or debt.

1. Thus, the company continues to show negative cash from investing and

positive cash from financing in the growth phase.

iii. In the maturity phase, sales and production level off.

1. Cash from operations and net income are approximately the same.

2. Cash generated from operations exceeds investing needs.

3. Thus, in the maturity phase the company can actually start to retire debt or

buy back stock.

iv. During the decline phase, sales of the product fall due to a weakening in

consumer demand.

1. During this phase, cash from operations decreases.

a. Cash from investing might actually become positive as the firm sells off

excess assets.

b. Cash from financing may be negative as the company buys back stock and

retires debt.

♦ The information in a statement of cash flows should help investors,

creditors, and others evaluate the following aspects of the company’s financial

position.

The company’s ability to generate future cash flows. By examining

relationships between items in the statement of cash flows, investors and

others can better predict the amounts, timing, and uncertainty of future

cash flows.

The company’s ability to pay dividends and meet obligations. Employees,

creditors, stockholders, and customers should be particularly interested in

this statement because it alone shows the flows of cash in a business.

The reasons for the difference between net income and net cash provided

(used) by operating activities. Many financial statement users investigate

the reasons for the difference between net income and cash provided by

operating activities and then they can assess for themselves the reliability

of the income numbers.

The investing and financing transactions during the period. By examining a

company’s investing activities and financing activities, a financial

statement reader can better understand why assets and liabilities increased

or decreased during the period.

4) STEPS IN THE PREPARATION OF THE STATEMENT OF CASH

FLOWS

1. The statement of cash flows is prepared differently from the other basic

financial statements.

a. It is prepared by comparing the change in every account balances from the

beginning to the end of the year.

i. All accounts on the company books must be considered, even if their change

was not related to the receipt or disbursement of cash or if there was no change in

their balance (increases could have equaled decreases)

b. The information to prepare the statement of cash flows usually comes

from three sources.

i. Balance Sheet numbers : Post-closing trial balance information from the prior

period is compared to the adjusted trial balance of the current period.

1. If no trial balance information is available, information in the comparative

balance sheets indicates the amount of the changes in assets, liabilities, and

stockholders’ equities from the beginning to the end of the period.

a. If comparative balance sheet information is used, one must insure that the

Retained Earnings is the beginning of year balance (or the net income must be

backed out if it is the end of year balance).

i. This is because the income statement accounts must also be analyzed and if

they are included in RE, they will be double counted.

ii. Income Statement numbers : If the post-closing and adjusted trial balances are

used, these numbers are automatically included.

1. If comparative balance sheet numbers are used, the income statement numbers

must be gleaned from the income statement.

a. As noted above, insure that the RE number from the balance sheet is the

beginning of the year balance to insure that nominal account balance changes are

not counted twice (once on the income statement and once in RE).

iii. Additional information includes transaction data that are needed to determine

how cash was provided or used during the period.

2. Either the Direct or Indirect method or preparing the statement of cash flows

is allowed.

a. Direct Method

i. Computes the change in cash balance directly by analyzing the effect of every

account on the cash account

1. The FASB has expressed a preference for the direct method but allows the use

of either method

2. The direct method is more consistent with the objective of the statement of

cash flows because it shows operating cash receipts and payments.

b. Indirect Method

i. Computes the change in cash by starting with net income and then

reconciling net income for the period to the change cash balance by adjusting from

accrual accounting (revenue recognized when earned, expenses recognized when

incurred) to cash basis accounting (revenue recognized when cash received,

expenses recognized when cash paid).

1. In The indirect method is used extensively in practice.

Companies favor the indirect method for three reasons:

a. Accountants claim it is easier to prepare…that is a red

herring.

i. It is definitely more difficult for non-accountants

to understand

1. Just consider the difficulty you have as

students in converting from accrual to cash basis.

b. It focuses on the differences between net income and net

cash flow from operating activities.

c. It tends to reveal less company information to

competitors.

c. Differences between the direct and indirect methods:

i. They differ in disclosing the items that make up the total amount of

operating activities.

j. The investing activities and financing activities sections are not affected by

the choice of method.

5. IDENTIFY THE USERS AND USES OF ACCOUNTING

INFORMATION.

The primary function of accounting is to

A. provide financial information for decision making. The users of financial

information fall into two categories--internal users and external users.

♦ Internal users - users within the organization.

♦ Marketing managers, production supervisors, finance directors and company

officers

♦ Questions asked by internal users – What is the cost of manufacturing each

unit of product? Which product is the most profitable?

iv. External users - users who are outside the organization.

1. Investors (owners)

2. Creditors (suppliers and bankers)

3. Others (i.e. IRS, SEC, FTC, etc.)

Internal users may ask: How does the company compare in size and profitability

with competitors? Will the company be able to pay its debts as they come due?

6. DESCRIBE THE COMPONENTS THAT SUPPLEMENT THE

FINANCIAL STATEMENTS IN AN ANNUAL REPORT.

Companies traded on an organized exchange like the New York Stock Exchange or

The American Stock Exchange are required to provide shareholders with an annual

report which always includes financial statements. In addition, the annual report

includes the following information:

♦ Management Discussion and Analysis - covers three aspects of a company:

liquidity, capital resources, and results of operation.

♦ Notes to Financial Statements

Clarify information presented in the financial statements.

Describe accounting policies or explain uncertainties and contingencies.

Auditor's Report

Auditor, a professional accountant, who conducts an independent

examination of the financial accounting data presented by a company.

Auditor gives an unqualified opinion if the financial statements

present the financial position, results of operations, and cash flows in

accordance with accepted accounting standards.

7. EXPLAIN THE MEANING OF ASSETS, LIABILITIES, AND

STOCKHOLDERS' EQUITY

Assets - resources owned by the business.

Assets will benefit the business for more that the immediate short term…

usually at least 1 year

This is opposed to an expense…items which benefit the business only for

the immediate short term

For example: if a business buys a delivery truck, the truck is an asset. The

gas an oil used to operate the truck are expenses

Liabilities - creditors claims on total assets (obligations or debts of the

business).

Stockholders' Equity - ownership claim on total assets.

Stockholders equity is what’s left over after all the liabilities are satisfied

The accounting equation:

Assets = Liabilities + Stockholders' Equity

SCOPE OF THE PROJECT

The focus of all corporate today in the highly deregulated and competitive

environment has been to cut costs optimize their operations and with the

realization that only efficient structures which can cut their transactional costs can

survive in the current scenario. With the technology advent in all spheres it would

only follow that organizations would use it as a platform to cut their operating

cycles and to take advantage of all the available investment opportunities which

may arise.

This can be done only with the help of better cash management, which for long has

been a neglected area, by Indian corporate. The project attempts to understand the

tolls offered by institutions today that make this possible. Both side of the services

of collections as well as payments have sought to be examined with an emphasis

on how these products have developed and offered by banks in India.

INTRODUCTION TO PROJECT

“The world sometimes turns upside down and only those with light liquid assets

float to the top again.’ – Anthony H Allen.

Whenever any long-term investment is considered the future cash flows from the

project, the uncertainty of those cash flows, and the opportunity cost of the funds

invested in the project are evaluated. Investment in current assets are also

evaluated by all organizations in the same manner but over a short-term period.

The time value of money plays an important role in the valuation of long term

investments as these investments produce expected cash flows into the future. In

the case of current assets (cash, marketable securities, accounts receivables,

inventory) provide expected cash flows only in the short term, therefore the time

value of money is of lesser importance while evaluating current assets.

Whenever decisions are made for new product development and marketing there is

capital investment. Aside from the outlay for assets to produce the product the

investment requires:

More cash to handle the increased volume of transactions.

More inventory (raw materials, work in progress and finished goods)

More accounts receivable ( because selling more goods on credit means

increasing credit to customers)

Investments made in current assets support the day to day operations of the firm.

Therefore investment in long term projects there has to be investment in current

assets in order to support the day to day operations that will be required by the

project. Current assets are the “Working Capital” put together to work in order to

generate benefits monetary or otherwise from the investment made.

How much investment should be made in current assets? This is a difficult

question as this depends on various factors such as:

The type of business and product

The length of the operating cycle

Customs, traditions, and the industry practices

The degree of uncertainty of the business

The type of business, whether extractive, retail, manufacturing or service, affects

the way an organization invests. In some industries, large investments in

machinery and equipment are necessary. In other industries, such as retail firms

less is invested in plant and equipment and other long-term assets and more is

invested in current assets such as inventory and receivables. The firm’s operating

cycle – the time it takes the firm to turn its investment in inventory into cash –

affects how much the firm ties up its assets in current assets. The operating cycle

includes the time it takes to manufacture the goods sell, them, and collect cash on

their sale. The longer the operating cycle, the larger the investment in current

assets.

This can be explained with an international example that differences also arise

from customary business practice. Mac Donald’s does not extend credit to its

customers, but Chrysler, through its, financing subsidiary does. Chrysler’s major

competitors, General Motors and Ford, offer credit to their customers, but Mac

Donald’s major competitors, Wendys and Burger King do not offer credit.

Some generalizations about operating cycles:

Firms in the retail industry tend to have shorter operating cycles; with firms

dealing in food products having the shortest operating cycles and firms dealing

in luxury items having the longest.

Firms involved in manufacturing tend to have longer operating cycles than

retailers because of the amount of time necessary to produce goods for sale.

Firms such as automobile manufacturers, which customarily extend credit to

their customers, tend to have longer operating cycles, but the length of time it

takes customers to pay varies among industries.

A firm’s investment in working capital (its current assets) depends on the length of

its operating cycle. The longer this cycle, the longer it takes to generate cash from

the firm’s investment in goods and services, This longer cycle increases a firm’s

risk and cost associated with its working capital investment.

And how much should a firm have in current assets anyway?

It was long believed that current capital / current assets – bears a direct relation to

the current liabilities. This can be traced to the practice of Scottish bankers in the

seventeenth century, who felt that each obligation must be backed by a like amount

of current assets. Developed from this was the notion in banking that the ratio of

current assets to current liabilities should be 2. During the twentieth century,

grantors of credit have relaxed a bit and no longer require such a definite, direct

relationship between current assets and current liabilities. Because firms can now

raise capital in other ways than through bank loans and because of the changing

views about borrowers’ ability to generate cash flow, the focus has shifted from a

shift relation between current assets and current liabilities. (Source: Arthur Stone

Dewing The Financial Policy of Corporations, 5th Edition).

Customs and traditions developed over time also affect how much a firm invests in

current assets. Some industries, such as those selling raw materials, traditionally

require cash on delivery, this tradition developed when there was a small profit

margin on these goods that the seller could not bear the cost of extending credit.

What competitors do is also an influence, if competitors extend credit on generous

terms, the firm may have to do the same.

The greater is the uncertainty regarding the supply and the price of raw material

the larger will be the requirement of current assets. If the price of raw materials

fluctuates widely, a firm that requires these raw materials may have to keep either

a large store of these goods on hand or a sufficient supply of cash (or cash

equivalents) ready in order to take advantage of price fluctuations. If the supply of

raw materials may be interrupted (e.g. By a labour strike), the firm may want to

keep a large quantity of raw materials whose prices are volatile. Further, the

greater the uncertainty firms face regarding the sale of goods and services, the

larger is the investment they tend to make in current assets to ensure that there will

be enough in case demand increases. The influence of the nature of the business

can be seen from the illustration I. The current assets have been broken up into

cash, marketable securities, accounts receivable and other current assets. In

addition to the precautionary balances, firms tend to keep cash on hand for

unexpected future opportunities. This is referred to as “Speculative Balance”. This

is the amount of cash or securities that can be easily turned into cash, above what is

needed for transactions and precaution, it enables an organisation to take advantage

of investment opportunities on a short notice and to meet extraordinary demands

for cash. In addition to the cash balances for transaction, precautionary and

speculative needs, an organisation may keep cash in an account in the form of a

“Compensating Balance”- a cash balance required by banks in exchange for

banking services. By keeping a balance in an account, which is non-interest

bearing or low interest earning, the firm is effectively compensating the bank for

loans and other services it provides.

There is a cost to holding assets in the form of cash. Since cash does not generate

earnings, the cost of holding cash is referred to as “Holding Cost” which is an

opportunity cost, which is the profit the cash would have earned if it were invested

in another asset. If there is a requirement for cash there must be a sale of goods or

services, sale of an asset or borrowing of cash. There are transaction costs

associated with both selling of assets or borrowing. Transaction cost are the fees,

commissions or other costs associated with selling assets or borrowing, they are

analogous to ordering costs for inventory.

The next step in the cash management process is how much cash should an

organisation hold?

Firms hold some of their assets in cash for several reasons. They need cash to meet

transactions of their day to day operations. Referred to as the transaction balance,

the amount of cash needed for this purpose differs from firm to firm depending

upon the particular flow of cash into and out of the firm. This amount depends

upon:

1. The size of the transactions made by the firm

2. The firms operating cycle – which determines its cash outflow and inflow, both

depending upon the firms production process, purchasing process and collection

policies.

There is always some degree of uncertainty about future cash requirements, firms

typically hold additional cash called as precautionary balance just in case the

transaction needs exceed the transaction balance. But how much to keep as a

precaution depends on the degree of uncertainty of the transaction or how well the

transactions can be predicted.

For transaction purposes, adequate to meet the day to day requirements of

operations. To determine what is adequate for day to day operations, the

comparison between the cost of having too much cash to the cost of getting cash or

the transaction cost of getting cash is compared. The holding cost and the

transaction cost is compared. As the cash holding increases the holding cost

increases. With higher balances however the transactional cost however declines

due to economies of scale. This is due to the fact that with larger cash balances ,

there are fewer transactions required for cash requirements.

There are two basic models that help in determining what levels of cash minimises

the sum of the cost of making transactions to get the cash and the opportunity cost

of holding more cash than required, they are :

(a) The Baumol Model

(b)The Miller Orr Model

CASH FLOW STATEMENTS

This Accounting Standard is not mandatory for Small and Medium Sized

Companies, as defined in the Notification. Such companies are however

encouraged to comply with the Standard.

OBJECTIVE

Information about the cash flows of an enterprise is useful in providing users of

financial statements with a basis to assess the ability of the enterprise to generate

cash and cash equivalents and the needs of the enterprise to utilise those cash

flows. The economic decisions that are taken by users require an evaluation of the

ability of an enterprise to generate cash and cash equivalents and the timing and

certainty of their generation.

The Standard deals with the provision of information about the historical changes

in cash and cash equivalents of an enterprise by means of a cash flow statement

which classifies cash flows during the period from operating, investing and

financing activities.

SCOPE

An enterprise should prepare a cash flow statement and should present it for each

period for which financial statements are presented.

Users of an enterprise’s financial statements are interested in how the enterprise

generates and uses cash and cash equivalents. This is the case regardless of the

nature of the enterprise’s activities and irrespective of whether cash can be viewed

as the product of the enterprise, as may be the case with a financial enterprise.

Enterprises need cash for essentially the same reasons, however different their

principal revenue-producing activities might be.

NATURE OF CASH FLOW STATEMENT

A Cash flow statement shows inflow and outflow of cash and cash equivalents

from various activities of a company during a specific period. The primary

objective of cash flow statement is to provide useful information about cash flows

(inflows and outflows) of an enterprise during a particular period under various

heads, i.e. operating activities, investing activities and financing activities.

This information is useful in providing users of financial statements with a basis to

assess the ability of the enterprise to generate cash and cash equivalents and the

needs of the enterprise to utilise those cash flows. The economic decisions that are

taken by users require an evaluation of the ability of an enterprise to generate cash

and cash equivalents and the timing and certainty of their generation.

BENEFITS OF CASH FLOW INFORMATION

A cash flow statement, when used in conjunction with the other financial

statements, provides information that enables users to evaluate the changes in net

assets of an enterprise, its financial structure (including its liquidity and solvency)

and its ability to affect the amounts and timing of cash flows in order to adapt to

changing circumstances and opportunities.

Cash flow information is useful in assessing the ability of the enterprise to generate

cash and cash equivalents and enables users to develop models to assess and

compare the present value of the future cash flows of different enterprises. It also

enhances the comparability of the reporting of operating performance by different

enterprises because it eliminates the effects of using different accounting

treatments for the same transactions and events.

Historical cash flow information is often used as an indicator of the amount, timing

and certainty of future cash flows. It is also useful in checking the accuracy of past

assessments of future cash flows and in examining the relationship between

profitability and net cash flow and the impact of changing prices.

DEFINITIONS

The following terms are used in this Standard with the meanings specified:

Cash comprises cash on hand and demand deposits with banks.

Cash equivalents are short term, highly liquid investments that are readily

convertible into known amounts of cash and which are subject to an insignificant

risk of changes in value.

Cash flows are inflows and outflows of cash and cash equivalents.

Operating activities are the principal revenue-producing activities of the enterprise

and other activities that are not investing or financing activities.

Investing activities are the acquisition and disposal of long-term assets and other

investments not included in cash equivalents.

Financing activities are activities that result in changes in the size and composition

of the owners’ capital (including preference share capital in the case of a company)

and borrowings of the enterprise.

CASH AND CASH EQUIVALENTS

Cash equivalents are held for the purpose of meeting short-term cash commitments

rather than for investment or other purposes. For an investment to qualify as a cash

equivalent, it must be readily convertible to a known amount of cash and be

subject to an insignificant risk of changes in value. Therefore, an investment

normally qualifies as a cash equivalent only when it has a short maturity of, say,

three months or less from the date of acquisition. Investments in shares are

excluded from cash equivalents unless they are, in substance, cash equivalents; for

example, preference shares of a company acquired shortly before their specified

redemption date (provided there is only an insignificant risk of failure of the

company to repay the amount at maturity).

Cash flows exclude movements between items that constitute cash or cash

equivalents because these components are part of the cash management of an

enterprise rather than part of its operating, investing and financing activities. Cash

management includes the investment of excess cash in cash equivalents.

DIFFERENT TYPES OF CASH FLOW

I have put together a summary of the different types of cash flow calculations for

investment analysis. Let’s start with the three types of cash flow in the cash flow

statement:

Cash Flow From Operations

Cash Flow from Operations measures the cash generated from the core business or

operations of the business.

Cash Flow From Operations (CFO) = Net Income + Depreciation & Amortization

+/- 1 Time Adjustments +/- Changes in Working Capital

Cash Flow From Operations is a line item in the Cash Flow Statement.

Cash Flow From Investing Activities

Cash Flow From Investing measures the purchases and sales of long term

investments including items such as capital expenditures, acquisitions, or

investments in other securities such as stock and bonds.

Cash Flow From Investing = Net Capital Expenditures of Property, Plant, and

Equipment (PPE) +/- Long Term Investments

Cash flow from investing activities will usually be negative. For most companies

this represents investment in itself. Cash flows would only be positive when

investments are disposed of.

Cash Flow From Investing Activities is a line item in the Cash Flow Statement.

Cash Flow From Financing Activities

Cash flow from Financing measures the activities that fund the company and

stakeholders (debt and equity holders). These activities include issuing or buying

back stock, issuing or repurchasing debt, and paying dividends to shareholders.

Cash Flow From Financing = Cash Received From Issuance of Equity or Debt –

Dividends to Shareholders – Purchase of Outstanding Equity or Debt

Cash Flow From Financing Activities is a line item in the Cash Flow Statement.

Note: The above cash flows are segregated and detailed in the Statement of Cash

Flow. The sum of the three makes up the Total Cash Flow for the entity.

Total Cash Flow

Total Cash Flow = Cash Flow from Operations +/- Investing Cash Flow +/-

Financing Cash Flow

Total Cash Flow of the entity is the sum of the Cash Flow from all activities

including operating, investing, and financing activities. It is the total you find at the

bottom of the Cash Flow Statement labeled “Change in Cash and Cash

Equivalents”. The Total Cash Flow of a period of time will equal the difference

between the entity’s cash balance at the beginning and ending of the time period.

Cash Earnings

Cash Earnings = Net Income + Non-Cash Expenses (i.e. Depreciation &

Amortization)

Cash Earnings of Net Cash Flow or Net Income Plus Depreciation (NIPD) is the

profits (or loss) of the entity plus non-cash expenses (i.e. depreciation and

amortization).

This metric includes the financing and investing activities that are included on the

income statement, but excludes financing and investing activities affecting the

balance sheet.

Personally, cash earnings is one of my favorite metrics because it isolates the

operations income. This is the cash earnings power of company operations.

Management can do one of three things with cash earnings: 1) reinvest it in the

business 2) pay down debt or 3) return it to shareholders through dividends or

buybacks.

Owner Earnings

Warren Buffett has promoted the concept of “Owner Earnings”. Owner Earnings

takes it one step beyond Cash Earnings by subtracting the approximate amount of

capital expenditures it takes to keep the company a going concern. This is

calculated:

Owner Earnings = Net Income + Non-Cash Expenses (i.e. Depreciation &

Amortization) – Average Annual Maintenance Capital Expenditures

(Note: An estimate is made of Maintenance Capital Expenditures. This is the

CAPEX required to maintain the company and does not include CAPEX required

for growth.)

What is left is theoretically for the company stakeholders (debt & equity

shareholders). Options would include reinvesting for growth, debt reduction,

dividends, and stock buybacks.

Owners’ Cash Profits

Owners’ Cash Profits is a slight variation of Owners’ Earnings. Here, Cash Flow

from Operations is used instead of Net Income; therefore changes in working

capital are included in the equation.

Owners’ Cash Profits (OCP) = Cash Flow form Operations (CFO) [Net Income +

Depreciation & Amortization +/- one-time adjustments +/- Changes in Working

Capital] – Estimate of Maintenance Capital Expenditures

(Y-Charts uses this metric instead of Owners’ Earnings)

Free Cash Flow

Free Cash Flow = Cash Flow from Operations – Capital Expenditures

Free Cash Flow is Cash Flow from Operations less capital expenditures. It is the

cash available to debt and equity holders after the expenses and taxes are paid and

capital expenditures have been deducted.

The difference between Owner’s Cash Profits and Free Cash Flow is Free Cash

Flow would deduct all capital expenditure, including any extraordinary

expenditures used to grow the company. Owners’ Earnings and Owners’ Cash

Profits only subtract the average capital expenditures or those needed to sustain the

company.

A positive free cash flow means the company has enough cash inflows to maintain

operations and meet its capital expenditure plans. A negative free cash flow means

the company needs to use cash reserves, or raise cash through the sale of assets,

stock or debt. In the long run, a company cannot have negative free cash flow and

remain a going concern.

Net Free Cash Flow (NFCF)

Net Free Cash Flow is Free Cash Flow less the current portion (amount to be paid

over the next year) of capital expenditures, long term debt, and dividends).

Net Free Cash Flow = Free Cash Flow – current capital expenses – current portions

of long term debt – current portion of future dividends

This is a more conservative version of Free Cash Flow. A positive net free cash

flow means the company has enough cash inflows to meet ALL the plans

(operations, investments, and financing) of the company during the following year.

A negative net free cash flow means the company needs to use cash reserves, raise

cash from outside sources, or cut planned cash outflows.

IMPORTANCE OF CASH FLOW STATEMENT

The cash flow statement provides information regarding inflows and outflows of

cash of a firm for a period of one year. Therefore cash flow statement is important

on the following grounds.

1.Cash flow statement helps to identify the sources from where cash inflows have

arisen within a particular period and also shows the various activities where in the

cash was utilized.

2. Cash flow statement is significant to management for proper cash planning and

maintaining a proper matching between cash inflows and outflows.

3. Cash flow statement shows efficiency of a firm in generating cash inflows from

its regular operations.

4. Cash flow statement reports the amount of cash used during the period in

various long-term investing activities, such as purchase of fixed assets.

5. Cash flow statement reports the amount of cash received during the period

through various financing activities, such as issue of shares, debentures and raising

long-term loan.

6. Cash flow statement helps for appraisal of various capital investment

programmes to determine their profitability and viability.

PRESENTATION OF A CASH FLOW STATEMENT

The cash flow statement should report cash flows during the period classified

by operating, investing and financing activities.

An enterprise presents its cash flows from operating, investing and financing

activities in a manner which is most appropriate to its business. Classification by

activity provides information that allows users to assess the impact of those

activities on the financial position of the enterprise and the amount of its cash and

cash equivalents. This information may also be used to evaluate the relationships

among those activities.

A single transaction may include cash flows that are classified differently. For

example, when the installment paid in respect of a fixed asset acquired on deferred

payment basis includes both interest and loan, the interest element is classified

under financing activities and the loan element is classified under investing

activities.

Operating Activities

The amount of cash flows arising from operating activities is a key indicator of the

extent to which the operations of the enterprise have generated sufficient cash

flows to maintain the operating capability of the enterprise, pay dividends, repay

loans an d make new investments without recourse to external sources of

financing. Information about the specific components of historical operating cash

flows is useful, in conjunction with other information, in forecasting future

operating cash flows.

Cash flows from operating activities are primarily derived from the principal

revenue-producing activities of the enterprise. Therefore, they generally result

from the transactions and other events that enter into the determination of net profit

or loss. Examples of cash flows from operating activities are:

(a) cash receipts from the sale of goods and the rendering of services;

(b) cash receipts from royalties, fees, commissions and other revenue;

(c) cash payments to suppliers for goods and services;

(d) cash payments to and on behalf of employees;

(e) cash receipts and cash payments of an insurance enterprise for premiums

and claims, annuities and other policy benefits;

(f) cash payments or refunds of income taxes unless they can be specifically

identified with financing and investing activities; and

(g) cash receipts and payments relating to futures contracts, forward contracts,

option contracts and swap contracts when the contracts are held for dealing

or trading purposes.

Some transactions, such as the sale of an item of plant, may give rise to a gain or

loss which is included in the determination of net profit or loss. However, the cash

flows relating to such transactions are cash flows from investing activities.

An enterprise may hold securities and loans for dealing or trading purposes, in

which case they are similar to inventory acquired specifically for resale. Therefore,

cash flows arising from the purchase and sale of dealing or trading securities are

classified as operating activities. Similarly, cash advances and loans made by

financial enterprises are usually classified as operating activities since they relate

to the main revenue-producing activity of that enterprise.

Investing Activities

The separate disclosure of cash flows arising from investing activities is important

because the cash flows represent the extent to which expenditures have been made

for resources intended to generate future income and cash flows. Examples of cash

flows arising from investing activities are:

(a) cash payments to acquire fixed assets (including intangibles). These

payments include those relating to capitalised research and development

costs and self-constructed fixed assets;

(b) cash receipts from disposal of fixed assets (including intangibles);

(c) cash payments to acquire shares, warrants or debt instruments of other

enterprises and interests in joint ventures (other than payments for those

instruments considered to be cash equivalents and those held for dealing or

trading purposes);

(d) cash receipts from disposal of shares, warrants or debt instruments of other

enterprises and interests in joint ventures (other than receipts from those

instruments considered to be cash equivalents and those held for dealing or

trading purposes);

(e) cash advances and loans made to third parties (other than advances and

loans made by a financial enterprise);

(f) cash receipts from the repayment of advances and loans made to third

parties (other than advances and loans of a financial enterprise);

(g) cash payments for futures contracts, forward contracts, option contracts

and swap contracts except when the contracts are held for dealing or

trading purposes, or the payments are classified as financing activities; and

(h) cash receipts from futures contracts, forward contracts, option contracts

and swap contracts except when the contracts are held for dealing or

trading purposes, or the receipts are classified as financing activities.

When a contrac t is accounted for as a hedge of an identifiable position, the cash

flows of the contract are classified in the same manner as the cash flows of the

position being hedged.

Financing Activities

The separate disclosure of cash flows arising from financing activities is important

because it is useful in predicting claims on future cash flows by providers of funds

(both capital and borrowings) to the enterprise. Examples of cash flows arising

from financing activities are:

(a) cash proceeds from issuing shares or other similar instruments;

(b) cash proceeds from issuing debentures, loans, notes, bonds, and other short

or long-term borrowings; and

(c) cash repayments of amounts borrowed.

FOREIGN CURRENCY CASH FLOWS

Cash flows arising from transactions in a foreign currency should be recorded in an

enterprise’s reporting currency by applying to the foreign currency amount the

exchange rate between the reporting currency and the foreign currency at the date

of the cash flow. A rate that approximates the actual rate may be used if the result

is substantially the same as would arise if the rates at the dates of the cash flows

were used. The effect of changes in exchange rates on cash and cash equivalents

held in a foreign currency should be reported as a separate part of the

reconciliation of the changes in cash and cash equivalents during the period.

Cash flows denominated in foreign currency are reported in a manner consistent

with Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange

Rates. This permits the use of an exchange rate that approximates the actual rate.

For example, a weighted average exchange rate for a period may be used for

recording foreign currency transactions.

Unrealised gains and losses arising from changes in foreign exchange rates are not

cash flows. However, the effect of exchange rate changes on cash and cash

equivalents held or due in a foreign currency is reported in the cash flow statement

in order to reconcile cash and cash equivalents at the beginning and the end of the

period. This amount is presented separately from cash flows from operating,

investing and financing activities and includes the differences, if any, had those

cash flows been reported at the end-of-period exchange rates.

EXTRAORDINARY ITEMS

The cash flows associated with extraordinary items should be classified as arising

from operating, investing or financing activities as appropriate and separately

disclosed.

The cash flows associated with extraordinary items are disclosed separately as

arising from operating, investing or financing activities in the cash flow statement,

to enable users to understand their nature and effect on the present and future cash

flows of the enterprise. These disclosures are in addition to the separate disclosures

of the nature and amount of extraordinary items required by Accounting Standard

(AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in

Accounting Policies.

INTEREST AND DIVIDENDS

Cash flows from interest and dividends received and paid should each be disclosed

separately. Cash flows arising from interest paid and interest and dividends

received in the case of a financial enterprise should be classified as cash flows

arising from operating activities. In the case of other enterprises, cash flows arising

from interest paid should be classified as cash flows from financing activities while

interest and dividends received should be classified as cash flows from investing

activities. The total amount of interest paid during the period is disclosed in the

cash flow statement whether it has been recognised as an expense in the statement

of profit and loss or capitalised in accordance with Accounting Standard (AS) 10,

Accounting for Fixed Assets.

Interest paid and interest and dividends received are usually classified as operating

cash flows for a financial enterprise. However, there is no consensus on the

classification of these cash flows for other enterprises. Some argue that interest

paid and interest and dividends received may be classified as operating cash flows

because they enter into the determination of net profit or loss. However, it is more

appropriate that interest paid and interest and dividends received are classified as

financing cash flows and investing cash flows respectively, because they are cost

of obtaining financial resources or returns on investments.

Some argue that dividends pai d may be classified as a component of cash flows

from operating activities in order to assist users to determine the ability of an

enterprise to pay dividends out of operating cash flows. However, it is considered

more appropriate that dividends paid should be classified as cash flows from

financing activities because they are cost of obtaining financial resources.

TAXES ON INCOME

Cash flows arising from taxes on income should be separately disclosed and should

be classified as cash flows from operating activities unless they can be specifically

identified with financing and investing activities.

Taxes on income arise on transactions that give rise to cash flows that are

classified as operating, investing or financing activities in a cash flow statement.

While tax expense may be readily identifiable with investing or financing

activities, the related tax cash flows are often impracticable to identify and may

arise in a different period from the cash flows of the underlying transactions.

Therefore, taxes paid are usually classified as cash flows from operating activities.

However, when it is practicable to identify the tax cash flow with an individual

transaction that gives rise to cash flows that are classified as investing or financing

activities, the tax cash flow is classified as an investing or financing activity as

appropriate. When tax cash flow are allocated over more than one class of activity,

the total amount of taxes paid is disclosed.

INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT

VENTURES

When accounting for an investment in an associate or a subsidiary or a joint

venture, an investor restricts its reporting in the cash flow statement to the cash

flows between itself and the investee/joint venture, for example, cash flows

relating to dividends and advances.

ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND

OTHER BUSINESS UNITS

The aggregate cash flows arising from acquisitions and from disposals of

subsidiaries or other business units should be presented separately and classified as

investing activities.

An enterprise should disclose, in aggregate, in respect of both acquisition and

disposal of subsidiaries or other business units during the period each of the

following:

(a) the total purchase or disposal consideration; and

(b) the portion of the purchase or disposal consideration discharged by means

of cash and cash equivalents.

The separate presentation of the cash flow effects of acquisitions and disposals of

subsidiaries and other business units as single line items helps to distinguish those

cash flows from other cash flows. The cash flow effects of disposals are not

deducted from those of acquisitions.

NON-CASH TRANSACTIONS

Investing and financing transactions that do not require the use of cash or cash

equivalents should be excluded from a cash flow statement. Such transactions

should be disclosed elsewhere in the financial statements in a way that provides all

the relevant information about these investing and financing activities.

Many investing and financing activities do not have a direct impact on current cash

flows although they do affect the capital and asset structure of an enterprise. The

exclusion of non-cash transactions from the cash flow statement is consistent with

the objective of a cash flow statement as these items do not involve cash flows in

the current period. Examples of non-cash transactions are:

(a) the acquisition of assets by assuming directly related liabilities;

(b) the acquisition of an enterprise by means of issue of shares; and

(c) the conversion of debt to equity.

COMPONENTS OF CASH AND CASH EQUIVALENTS

An enterprise should disclose the components of cash and cash equivalents and

should present a reconciliation of the amounts in its cash flow statement with the

equivalent items reported in the balance sheet.

In view of the variety of cash management practices, an enterprise discloses the

policy which it adopts in determining the composition of cash and cash

equivalents.

The effect of any change in the policy for determining components of cash and

cash equivalents is reported in accordance with Accounting Standard

(AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in

Accounting Policies.

OTHER DISCLOSURES

An enterprise should disclose, together with a commentary by management, the

amount of significant cash and cash equivalent balances held by the enterprise that

are not available for use by it.

There are various circumstances in which cash and cash equivalent balances held

by an enterprise are not available for use by it. Examples include cash and cash

equivalent balances held by a branch of the enterprise that operates in a country

where exchange controls or other legal restrictions apply as a result of which the

balances are not available for use by the enterprise.

Additional information may b e relevant to users in understanding the financial

position and liquidity of an enterprise. Disclosure of this information, together with

a commentary by management, is encouraged and may include:

(a) the amount of undrawn borrowing facilities that may be available for

future operating activities and to settle capital commitments, indicating

any restrictions on the use of these facilities; and

(b) the aggregate amount of cash flows that represent increases in operating

capacity separately from those cash flows that are required to maintain

operating capacity.

The separate disclosure of cash flows that represent increases in operating capacity

and cash flows that are required to maintain operating capacity is useful in

enabling the user to determine whether the enterprise is investing adequately in the

maintenance of its operating capacity. An enterprise that does not invest

adequately in the maintenance of its operating capacity may be prejudicing future

profitability for the sake of current liquidity and distributions to owners.

PREPARE A STATEMENT OF CASH FLOWS

A statement of cash flows is 1 of the 4 major financial statements prepared by

corporations at the end of each accounting period. The goal of the cash flow

statement is to provide an accurate picture of the financial health of a company

without the cover of accrual-based accounting treatments. The statement is

essentially prepared by adjusting the income statement to include only cash-based

transactions. Learning how to prepare a statement of cash flows requires a careful

examination of the income statement and a few simple calculations.

1. Determine the company's beginning cash balance. The statement of cash flows

covers the entire accounting period, and so it begins with the cash balance at the

start of the period. This balance can be found on the previous period's statement of

cash flows (where it will be presented as the ending balance). It can also be

calculated from the balance sheet.

To calculate the beginning cash balance from the balance sheet, add together all

cash and cash equivalents. Cash equivalents will be listed under the "Current

Assets" heading, and can include money market accounts, savings accounts, and

certificates of deposit.

2. Determine the amount of cash the company generated through its operations.

The first section of a statement of cash flows is titled "Cash Flow from Operating

Activities," and represents all the cash the company raised through its main

operations - generally sales of its products. This section can be constructed by

adjusting the company's net income (obtained from the income statement) to

exclude non-cash transactions.

The basic formula for arriving at operating cash flow from net income is as

follows:

Depreciation expenses should be added back to net income, since they don't

represent a disbursement of cash. A rise in accounts receivable should be

subtracted, since they represent cash that hasn't yet been collected (a fall in

receivables should be added). A rise in accounts payable should be added, since

they represent cash that hasn't been disbursed yet.

3. Determine the amount of cash the company spent through its investing activities.

When a company buys a large asset like a piece of machinery, or when it buys

stock in other companies, cash is paid out even though the assets are not

immediately presented on the income statement as expenses. The second heading

of the cash flow statement, titled "Cash Flow from Investing Activities," adjusts for

these types of assets.

To arrive at the investing cash flow, simply add together all the capitalized

purchases from that accounting period. Any assets that were purchased with cash

and are being held on the balance sheet (such as buildings and equipment) as well

as any stock purchases should be added together. This amount will generally be

negative, as it represents a cash disbursement.

4. Determine the amount of cash the company raised (or used) through its

financing activities. The third and final heading on the cash flow statement is titled

"Cash Flow from Financing Activities." This section sums all the cash flows from

the issuance of debt or stock, the redemption of debt, and dividends paid to

shareholders.

To arrive at the financing cash flow, add together the cash received through the

issuance of stock or debt (such as bonds). Subtract any cash paid out to redeem

long-term debts, and subtract cash paid to shareholders as dividends.

5. Compile the statement of cash flows. After the document's title, the cash flow

statement has 6 essential line items, in this order: beginning cash balance, cash

flow from operating activities, cash flow from investing activities, cash flow from

financing activities, ending cash balance, and supplemental information. Present

the values calculated above in each section to complete the cash flow statement.

The "Supplemental Information" section should contain notes on any major non-

cash transactions (for example, the swap of company stock for bonds). This section

should also disclose the amount of interest and income tax paid.

ILLUSTRATION I

CASH FLOW STATEMENT FOR AN ENTERPRISE OTHER THAN A

FINANCIAL ENTERPRISE

This illustration does not form part of the accounting standard. Its purpose is to

illustrate the application of the accounting standard.

1. The illustration shows only current period amounts.

2. Information from the statement of profit and loss and balance sheet is provided

to show how the statements of cash flows under the direct method and the indirect

method have been derived. Neither the statement of profit and loss nor the balance

sheet is presented in conformity with the disclosure and presentation requirements

of applicable laws and accounting standards. The working notes given towards the

end of this illustration are intended to assist in understanding the manner in which

the various figures appearing in the cash flow statement have been derived. These

working notes do not form part of the cash flow statement and, accordingly, need

not be

3. The following additional information is also relevant for the preparation of the

statement of cash flows (figures are in Rs.’000).

(a)An amount of 250 was raised from the issue of share capital and a further

250 was raised from long term borrowings.

(b)Interest expense was 400 of which 170 was paid during the period. 100

relating to interest expense of the prior period was also paid during the

period.

(c) Dividends paid were 1,200.

(d) Tax deducted at source on dividends received (included in the tax expense

of 300 for the year) amounted to 40.

(e)During the period, the enterprise acquired fixed assets for 350. The payment

was made in cash.

(f) Plant with original cost of 80 and accumulated depreciation of 60 was sold

for 20.

(g)Foreign exchange loss of 40 represents the reduction in the carrying

amount of a short -term investment in foreign-currency designated bonds

arising out of a change in exchange rate between the date of acquisition of

the investment and the balance sheet date.

(h)Sundry debtors and sundry creditors include amounts relating to credit sales

and credit purchases only.

Balance Sheet as at 31.12.1996(Rs. ’000)

Assets1996 1995

Cash on hand and balances with banks 200 25Short-term investments 670 135Sundry debtors 1,700 1,200Interest receivable 100 –Inventories 900 1,950Long-term investments 2,500 2,500Fixed assets at cost 2,180 1,910

Accumulated depreciation(1,450

) (1,060)Fixed assets (net) 730 850Total assets 6,800 6,660

LiabilitiesSundry creditors 150 1,890Interest payable 230 100Income taxes payable 400 1,000Long-term debt 1,110 1,040

Total liabilities 1,890 4,030

Shareholders’ FundsShare capital 1,500 1,250Reserves 3,410 1,380Total shareholders’ funds 4,910 2,630Total liabilities and shareholders’ funds 6,800 6,660

Statement of Profit and Loss for the period ended 31.12.1996

(Rs. ’000)Sales 30,650Cost of sales (26,000)Gross profit 4,650Depreciation (450)Administrative and selling expenses (910)Interest expense (400)Interest income 300Dividend income 200Foreign exchange loss (40)Net profit before taxation and extraordinary item 3,350Extraordinary item – Insurance proceeds fromearthquake disaster settlement 180Net profit after extraordinary item 3,530Income-tax (300)Net profit 3,230

Direct Method Cash Flow Statement [Paragraph

18(a)](Rs. ’000)

Cash flows from operating activities1996

Cash receipts from customers30,15

0

Cash paid to suppliers and employees(27,60

0)Cash generated from operations 2,550Income taxes paid (860)

Cash flow before extraordinary item 1,690Proceeds from earthquake disaster settlement 180Net cash from operating activities 1,870Cash flows from investing activitiesPurchase of fixed assets (350)Proceeds from sale of equipment 20Interest received 200Dividends received 160Net cash from investing activities 30

Cash flows from financing activitiesProceeds from issuance of share capital 250Proceeds from long-term borrowings 250Repayment of long-term borrowings (180)Interest paid (270)

Dividends paid(1,200

)Net cash used in financing activities (1,150)Net increase in cash and cash equivalents 750Cash and cash equivalents at beginning of period(see Note 1) 160Cash and cash equivalents at end of period(see Note 1) 910

Indirect Method Cash Flow Statement [Paragraph 18(b)]

(Rs. ’000)1996

Cash flows from operating activitiesNet profit before taxation, and extraordinary item 3,350Adjustments for :

Depreciation 450Foreign exchange loss 40Interest income (300)Dividend income (200)Interest expense 400

Operating profit before working capital changes 3,740Increase in sundry debtors (500)Decrease in inventories 1,050

Decrease in sundry creditors(1,74

0)Cash generated from operations 2,550Income taxes paid (860)Cash flow before extraordinary item 1,690Proceeds from earthquake disaster settlement 180

Net cash from operating activities 1,870

Cash flows from investing activitiesPurchase of fixed assets (350)Proceeds from sale of equipment 20Interest received 200Dividends received 160Net cash from investing activities 30Cash flows from financing activitiesProceeds from issuance of share capital 250

Proceeds from long-term borrowings 250Repayment of long-term borrowings (180)Interest paid (270)Dividends paid (1,200)Net cash used in financing activities (1,150)

Net increase in cash and cash equivalents

750

Cash and cash equivalents at beginning of period

(see Note 1)160

Cash and cash equivalents at end of period (see Note 1)

910

Notes to the cash flow statement(direct method and indirect method)

1. Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and balances with banks, and investments in money-market instruments. Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts.

1996 1995Cash on hand and balances with banks 200 25Short-term investments 670 135Cash and cash equivalents 870 160Effect of exchange rate changes 40 –Cash and cash equivalents as restated 910 160

Cash and cash equivalents at the end of the period include deposits with banks of

100 held by a branch which are not freely remissible to the company because of

currency exchange restrictions.

The company has undrawn borrowing facilities of 2,000 of which 700 may be used

only for future expansion.

2. Total tax paid during the year (including tax deducted at source on dividends

received) amounted to 900.

Alternative Presentation (indirect method)

As an alternative, in an indirect method cash flow statement, operating profit

before working capital changes is sometimes presented as follows:

Revenues excluding investment income 30,650Operating expense excluding depreciation (26,910)Operating profit before working capital changes 3,740

Working Notes

The working notes given below do not form part of the cash flow statement and,

accordingly, need not be published. The purpose of these working notes is merely

to assist in understanding the manner in which various figures in the cash flow

statement have been derived. (Figures are in Rs. ’000.)

1. Cash receipts from customers

Sales30,6

50Add: Sundry debtors at the beginning of the year

1,200

31,850

Less : Sundry debtors at the end of the year1,70

030,1

50

2. Cash paid to suppliers and employees

Cost of sales26,0

00Administrative and selling expenses 910

Add: Sundry creditors at the beginning of the

1,890

26,910

year 2,790Inventories at the end of the year 900

Less: Sundry creditors at the end of the year 150

29,700

2,100

Inventories at the beginning of the year

1,950

27,600

3. Income taxes paid (including tax deducted at source from dividends received)

Income tax expense for the year (including tax deducted 300at source from dividends received)Add : Income tax liability at the beginning of the year

1,000

1,300

Less: Income tax liability at the end of the year 400

900

Out of 900, tax deducted at source on dividends received (amounting to 40) is included in cash flows from investing activities and the balance of 860 is included in cash flows from operating activities (see paragraph 34).

4. Repayment of long-term borrowings

Long-term debt at the beginning of the year1,04

0Add : Long-term borrowings made during the year 250

1,290

Less : Long-term borrowings at the end of the year

1,110

180

5. Interest paidInterest expense for the year 400Add: Interest payable at the beginning of the year 100

500Less: Interest payable at the end of the year 230

270

ILLUSTRATION II

Cash Flow Statement for a Financial Enterprise

This illustration does not form part of the accounting standard. Its purpose is to

illustrate the application of the accounting standard.

1. The illustration shows only current period amounts.

2. The illustration is presented using the direct method.

(Rs. ’000)1996

Cash flows from operating activities

Interest and commission receipts28,44

7

Interest payments(23,46

3)Recoveries on loans previously written off 237Cash payments to employees and suppliers (997)Operating profit before changes in operating assets 4,224(Increase) decrease in operating assets:Short-term funds (650)Deposits held for regulatory or monetary control purposes 234Funds advanced to customers (288)Net increase in credit card receivables (360)Other short-term securities (120)Increase (decrease) in operating liabilities:Deposits from customers 600Certificates of deposit (200)Net cash from operating activities before income tax 3,440

87

Income taxes paid (100)

Net cash from operating activities 3,340Cash flows from investing activitiesDividends received 250Interest received 300Proceeds from sales of permanent investments 1,200Purchase of permanent investments (600)Purchase of fixed assets (500)Net cash from investing activities 650

Cash flows from financing activitiesIssue of shares 1,800Repayment of long-term borrowings (200)

Net decrease in other borrowings(1,00

0)Dividends paid (400)Net cash from financing activities 200Net increase in cash and cash equivalents 4,190Cash and cash equivalents at beginning of period 4,650Cash and cash equivalents at end of period 8,840

88

LIMITATIONS OF THE STUDY

1) The possibility of respondent’s responses being biased cannot be ruled out.

2) Limited access to secondary data pertaining to Fine Switches Pvt. Ltd.

performance in other regions or any other information was another problem

in finding a correct response.

3) Since a smaller sample was chosen so it may not be true representative of

population under study.

4) Most of the times people don’t give appropriate information.

5) Mostly retailers don’t want to give accurate information and act rudely.

6) The survey was to be conducted in a limited span of time (6 weeks) which

also posed a limiting factor.

7) The retailers are so busy in their business so that they did not show actual

picture of the situation.

89

FINDINGS

Strength of Fine Switches Pvt. Ltd. is its Brand Name

Fine Switches Pvt. Ltd. is willing to take up any challenges customization

project & successfully implement it

Advertisement costs are too less because they manufacture the products

based on the orders

Fine Switches Pvt. Ltd. electric has ISO certifications

Quality assurance department is maintaining the quality of the product & it

has become basis of competition with other companies

Company is eco friendly, they recycle the waste water & reuse the same

water for their daily use like washing & gardening

They have well integrated use data base that co-ordinates & connects various

information of different departments, hence it provides ready information to

the top level management to take immediate decisions

90

RECOMMENDATIONS AND SUGGESTIONS

1. More local/ regional advertisements should be there to make people aware

about Fine Switches Pvt. Ltd. and its products

2. There should be more advertisement on the world wide web also.

3. Campaigning should be done at all level.

4. Business Development Officers should contact Architects and Customers on

regular basis.

5. More flexible discount schemes should be provided

6. Product catalogues and price lists should be provided to the customers on

regular basis.

7. Increase the percentage rate of adjustment policy. Or start guarantee.

8. Improve the behavior of sales person of the company as well as distributor.

(6% of respondent).

9. Company should further reduce its price.

10.Fulfill all the commitments which are made by company or distributor.

11.There is more need in improvement of quality of Green CFL so that it

decreases the rate of replacement.

12.The adjustment policy’s rate is not enough because replacement rate is 15%

to 20%.

13.If company backs out any scheme, then it should give some time to the

retailer.

14.Provide updated information and knowledge to the retailers about the

product.

15.Provide equal Price to all the retailers.

16.Company should compromise with dealer according to the circumstances.

17.Company should improve its grievance handling system

91

CONCLUSION

Cash Flow is one of the most important investment concepts to understand. For the

value investor it is more important than accounting profits because it paints an

untainted or truer picture of the company and its finances.

Each one of the different cash flow metrics gives pertinent insight into the health

of an entity. By using the different types of cash flow for investment analysis you

will be greatly improving your ability to analyze and compare investment

opportunities.

A company can use a cash flow statement to predict future cash flow, which helps

with matters in budgeting. For investors, the cash flow reflects a company's

financial health: basically, the more cash available for business operations, the

better. However, this is not a hard and fast rule. Sometimes a negative cash flow

results from a company's growth strategy in the form of expanding its operations.

By adjusting earnings, revenues, assets and liabilities, the investor can get a very

clear picture of what some people consider the most important aspect of a

company: how much cash it generates and, particularly, how much of that cash

stems from core operations.

92

BIBLIOGRAPHY

www.google.com

www.encyclopedia.com

www.wikipedia.com

https://www.zionsbank.com/pdfs/biz_resources..

www.fineswitches.com/

www.ncert.nic.in/NCERTS/l/leac206

93