cash flow Statement1 Lalitha Parameswari

MBA Programme

INTRODUCTION

FINANCIAL MANAGEMENT:

Financial management is a process of identification, accumulation, analysis,

preparation, interpretation communication of financial information and

communication of financial information to plan, evaluate, and control business

firms.

Financial management is the specialized function of general management,

which, is relates to the procurement of finance, and its effective utilization for the

achievement of the goal of the organization.

MEANING:

Financial Management is an organizational activity that is concerned with

the management of financial resources. In common parlance is described as

providing monetary resources at the time they are required. But financial

management covers the mobilization and effective utilization of funds.

DEFINITIONS:

1. Financial Management is defined as “that business activity which is

concerned with the acquisition and conservation of capital funds in meeting

the financial needs and overall objectives of business enterprises”

- WHEELER.

2. “Business finance can be broadly defined as the activity concerned with the

planning, raising, controlling and administrating the funds used in the

business”.

- GUTHMANN AND DOUGALL.

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3. “Finance Management is concerned with the efficient use of an important

economic resource, namely capital funds”.

- SOLOMON.

4. “Financial management is an area of financial decision making harmonizing

individual motives and enterprises goals”.

-WESTON & BRIGHAN.

Financial management is concerned with the effective use of an economic

resource namely capital fund.

SCOPE OF FINANCIAL MANAGEMENT:

Financial management is a branch of business management, which is

associated with future planning, Organization, co-ordination and control.

Financial management provides a sound base to all managerial decisions.

Production, research and development decisions based on financial

management.

Financial management is a scientific and analytical analysis.

In the process of decision making and financial analysis modern

mathematical techniques are used. Managing a firm is both science and an

art.

An analysis of the various definitions mentioned above make it clear that

financial management is concerned with the proper management of funds

keeping in view the enterprise objectives.

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The financial manager should look after that the funds are procured in a

manner that the risk and cost consideration are properly balanced and there

is optimum utilization of funds.

OBJECTIVES OF FINANCIAL MANAGEMENT:

Financial decisions can be making keeping in view the basic objective of

maximization of owner’s economic welfare. It can be achieved through two widely

accepted criteria.

PROFIT MAXIMISATION:

The efficiency of the firm is measured through the volume of profits earned

by it. It means maximizing the rupee income of the firm. Profit maximization

objective may be started in terms of return on investment or profit - to - sales

ratios. This would help in profitable utilization of society’s economic resources,

since the financial manager is responsible for the efficient utilization of resources,

increasing of revenues, controlling costs, Minimizing risks.

WEALTH MAXIMISATION:

Wealth maximization objective is a widely recognized criterion with which

the performance of business enterprise is valued. The word”wealth” refers to the

net present worth of the firm. The net present worth is the difference between gross

present worth and the amount of capital investment required to achieve the

benefits. Gross present worth represents the present value of expected cash flows

(benefits) discounted at a rate.

IMPORTANCE OF FINANCIAL MANAGEMENT:

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Finance is very essential for the smooth running of the business. It has been

rightly termed as universal lubricant, which keeps the enterprise dynamic. It is

indispensable in any organization as it helps in;

(1) Financial planning and successful promotion of an enterprise;

(2) Acquisition of funds as and when required at the minimum possible cost;

(3) Proper use and allocation of funds;

(4) Taking sound financial decisions;

(5) Improving the profitability through financial controls;

(6) Increasing the wealth of the investors and the nation; and

(7) Promoting and mobilizing individual and corporate savings.

In financial accounting, a cash flow statement, also known as statement

of cash flows or funds flow statement, is a financial statement that shows how

changes in balance sheet accounts and income affect cash and cash equivalents,

and breaks the analysis down to operating, investing, and financing activities.

Essentially, the cash flow statement is concerned with the flow of cash in and cash

out of the business. The statement captures both the current operating results and

the accompanying changes in the balance sheet As an analytical tool, the statement

of cash flows is useful in determining the short-term viability of a company,

particularly its ability to pay bills. International Accounting Standard 7 (IAS 7) is

the International Accounting Standard that deals with cash flow statements.

People and groups interested in cash flow statements include:

Accounting personnel, who need to know whether the organization will be

able to cover payroll and other immediate expenses

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Potential lenders or creditors, who want a clear picture of a company's

ability to repay

Potential investors, who need to judge whether the company is financially

sound

Potential employees or contractors, who need to know whether the company

will be able to afford compensation

Shareholders of the business.

PURPOSE

The cash flow statement was previously known as the flow of funds statement. The

cash flow statement reflects a firm's liquidity.

The balance sheet is a snapshot of a firm's financial resources and obligations at a

single point in time, and the income statement summarizes a firm's financial

transactions over an interval of time. These two financial statements reflect the

accrual basis accounting used by firms to match revenues with the expenses

associated with generating those revenues. The cash flow statement includes only

inflows and outflows of cash and cash equivalents; it excludes transactions that do

not directly affect cash receipts and payments. These noncash transactions include

depreciation or write-offs on bad debts or credit losses to name a few. The cash

flow statement is a cash basis report on three types of financial activities: operating

activities, investing activities, and financing activities. Noncash activities are

usually reported in footnotes.

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

and solvency and its ability to change cash flows in future circumstances

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1. provide additional information for evaluating changes in assets, liabilities

and equity

2. improve the comparability of different firms' operating performance by

eliminating the effects of different accounting methods

3. indicate the amount, timing and probability of future cash flows

The cash flow statement has been adopted as a standard financial statement

because it eliminates allocations, which might be derived from different accounting

methods, such as various timeframes for depreciating fixed assets.

Financial Analysis:-

Financial Analysis are prepared primarily for decision making. They play a

dominant role in setting the frame work of managerial decision. But the

information provided in the financial Analysis is not an end in itself as no

meaningful conclusions can be drawn from these Analysis alone. However, the

information provided in the financial Analysis is of immense use in making

decisions through analysis and interpretation of financial Analysis.

Financial analysis is ‘the process of identifying the financial strengths and

weakness of the firm by properly establishing relationship between the items of the

balance sheet and the profit and loss amount. There are various methods or

techniques used in analyzing financial Analysis, such as comparative Analysis,

trend analysis, common-size Analysis, schedule of changes in working capital,

funds flow and analysis, cost volume profit analysis and ratio analysis.

Meaning and Concept of Financial Analysis:-

The term ‘financial analysis’ also known as analysis and interpretation of

financial Analysis’, refers to the process of determine financial strengths and

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weakness of the firm by establishing strategic relationship between the items of the

balance sheet, profit and loss account and oilier operative data. “Analyzing

financial Analysis”,

According to Metcalf and Titard”. Is a process of evaluating the

relationship between component parts of financial statement to obtain a better

understanding of a firm’s position and performance? “In the words of ‘Myers’,

“Financial statement Analysis is largely a study of relationship among the various

financial factors in a business as disclosed by a single set – of Analysis, and study

of the trend of these(actors as shown in a series of Analysis”.)

The purpose of financial analysis is to diagnose the information contained in

financial Analysis so as to judge the profitability and financial soundness of the

firm, just like a doctor examines ills patient by recording his body temperature,

blood treatment, a financial analyst analysis the financial Analysis with various

tools of analysis before commenting upon the financial health or weakness of an

enterprise. The analysis and interpretation of financial Analysis is essential to bring

out the mystery behind the figures in financial Analysis. Financial Analysis

analysis is an attempt to determine the significance and meaning of the financial

statement data so that forecast may be made of the future earnings, ability to pay

interest and debt maturities (both current and long-term) and profitability of a

sound dividend policy.

Finance & Functions:

Initially the finance managers were considered advent of an event requiring

funds. The finance manager was given a target amount of funds to raise and was

given a target amount of funds to raise and was given the responsibility of

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procuring those funds. So his function was limited to raising funds as and when the

need arise. Once the funds were procured, his function was over

However, over a period the scope of his function has tremendously widened.

His presence is required at every moment whenever any decision having

involvement of funds is to he taken. Now it is the F.M require looking into the

financial implication, of any decision in the firm.

The functions of F.M are to manage the funds. Any act , procedures,

decision relating to funds comes under the purview of the F.M. since every activity

in the business organization, be it purchases , production .marketing or capital

expenditure has a financial implication, the finance function is interlinked with all

other areas. In particular, the F.M has to focus his attention on:

1. Procurement the required quantum of funds as and when necessary, at the

lowest cost.

2. Investing those funds in various assets in the most profitable way, and

3. Distribute returns to the shareholders in order to satisfy their expectations

from the firm.

The FM is usually faces with the following distinct scenario

1. What should be the size of a firm and how fast should it grow?

2. What are the various types of assets to be acquired? (Investment decision)

3. What should be the pattern of raising funds from various sources? (Financing

decision)

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Financial Analysis:-

A financial statement is a collection of data organized according logical

and consistent accounting procedures. Its purpose is to convey an understanding of

some financial aspects of a business firm. It may show a position at a moment in

time, as in the case of an income statement, thus the term financial Analysis

generally refers to the two Analysis: (I) the position statement or the balance sheet,

and (ii) the income statement or the profit and loss account. These Analysis are

used to convey to management and other interested outsiders the profitability and

financial position to a firm.

Financial Analysis are the outcome of summarizing process of accounting.

In the words of John N. Her, the financial Analysis provide a summary of the

accounts of a business enterprise, the balance sheet reflecting the asset, liabilities

and capital as on a certain date and the income statement showing the results of

operations during a certain period. Financial Analysis are prepared as an end result

of financial accounting and are the major sources of financial information of an

enterprise Smith and Asburne define financial Analysis as. The product of

financial accounting in asset of financial Analysis prepared by the accountant of a

business enterprise that purport to reveal the financial position of the enterprise, the

result of its recent activities, and an analysis of what has been done with earnings”.

Financial Analysis are also called financial reports. In the words of Anthony,

financial Analysis, essentially, are interim reports, presented annually and reflect a

division of the life of an enterprise onto more or less arbitrary accounting period-

more frequently a year.

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Objectives of Financial Analysis:-

Financial Analysis are the sources of information on the basis of which

conclusions are drawn about the profitability and financial position of a concern.

they are the major means employed by firms to present their financial situation of

owners, creditors and the general public, the primary objective of financial

Analysis is to assist in decision making,. The accounting principles board of

America (APB) sates the following objectives of financial Analysis.

1. To provide reliable financial information about economic resources and

obligations of a business firm.

2. To provide other needed information about changes in such economic

resources and obligations.

3. To provide reliable information about changes in net resources (resources less

obligations) arising out of business activities.

4. To provide financial information that assists in estimating the earning

potentials of business.

5. To disclose, to the extent possible, other information related to the financial

Analysis that is relevant to the needs of the users of these Analysis.

Types of Financial Analysis:-

Financial Analysis primarily comprise two basic Analysis: (1) the position

statement or the balance sheet and (2) the income statement or the profit and loss

account. However, (Generally Accepted Accounting Principles (GAAP) specifies

that a complete set of financial Analysis must include:

(1). A Balance Sheet.

(2). an Income Statement (Profit and Loss Account).

(3). A Statement of Changes in Financial Position.

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1. Balance Sheet:-

The America institute of certified public accountants defines balance sheet

as. A tabular statement of summary of balances (debits and credits) carried forward

after an actual and constructive closing of books of account and kept according to

principles of accounting”. The purpose of the balance sheet is to show the

resources that the company has, i.e. its assets, and from where those resources

come from i.e., its liabilities and investments by owners and outsiders.

The balance sheet is one of the important Analysis depicting the financial

strength of the concern. It shows on the one hand the properties that it utilizes and

on other hand the sources of those properties. The balance sheet shows all the

assets owned by the concern and all the liabilities and claims it owes to owners and

outsiders.

2. Income Statement (or) Profit and Loss Account:-

Income statement is prepared to determine the operational position of the

concern. It is a statement of revenues earned and the expenses incurred for earning

that revenue, if there is excess of revenues over expenditures it will show a profit

and if the expenditures are more than the income then there will be a loss. The

income statement is prepared for a particular period, generally a year. When

income statement is prepared for the year ending, then all revenues and

expenditures falling due in that year will be taken into account irrespective of their

receipt or payment.

The income statement may be prepared in the form of a manufacturing

account to find out the cost of production, in the form of trading account to

determine gross profit or gross loss. In the form of a profit and loss account

determine net profit or net loss, a statement of retained earnings may also be

prepared to show the distribution of profits.

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3. Statement of Changes in Owners Equity (Retained Equity):-

The term ‘owner’s equity’ refers to the claims of the owners of the

business shareholders against the assets or the firm. It consists of two elements (1)

paid-up share capital, I.e. the initial amount of funds invested by the shareholder’s

and (2) retained earnings/reserves and surplus representing undistributed profits.

The statement of changes in owners’ equity simply shows the beginning balance of

each owner’s equity account the reasons for increases and decreases in each, and

its ending balance. However in most cases, the only owner’s equity account that

changes significantly is retained earnings and hence the statement of changes in

owners’ equity becomes merely a statement of retained earnings.

A statement of retained earnings is also known as profit and loss

Appropriation Account or income Disposal Statement. As the name suggests it

shows appropriations of earnings. The previous years balance is first brought

toward. The net profit during the current year is added to this balance. On the debt

side, appropriations like interim dividends paid. Proposed dividend in preference

and equity share capital, amounts transferred to debenture redemption fund, capital

redemption funds. General reserves etc are shown. The balance in tills account will

show this amount of profit retained in hand and carried forward. The

appropriations cannot lie more than the profits so this account will not have a debit

balance. There cannot be appropriations without profits.

4. Statement of Changes in Financial Position:-

The basic financial Analysis, I.e., the balance sheet and the profit and loss

account or income statement of a business reveal the net effect of the various

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transactions on the operational and financial position of the company. The balance

sheet gives a static view of the resources of a business and the uses to which these

resources have been put at a certain point of time. The profit and loss account in a

general way. Indicates the resources provided by operations. But there are many

transactions that do not operate through profit and loss account. Thus, for a better

understanding another statement called statement of changes in financial position

has to be prepared show the changes in assets and liabilities from the end of one

period to the end of another point of time. The objective of this statement is to

showing the movement of funds (working capital or cash) during a particular

period. The statement to changes in financial position may take any of the

following two forms.

(a) Funds Flow Statement:-The funds flow Analysis is designed to analyze the

changes in the financial conditions of a business enterprise between two periods.

The word fund is used to denote working capital.

This statement will show the sources from which the funds are received and the

uses which these have been put. I his statement enable the management to have an

idea about the sources of funds and their uses for various purposes. I ills statement

helps the management in policy formulation and performance appraisal.

(b) Cash Flow Analysis:-a statement of changes in the financial position of a firm

on cash basis is called cash flow statement. It summarizes the causes of changes in

sash position of a lousiness enterprise between states of two balances sheets. This

statement is very much similar to the statement of changes in working capital I.e.,

funds flow statement. A cash flow statement focuses attention on cash changes

only.

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Characteristics of Ideal Financial Analysis:-

The financial Analysis are prepared with a view to depict financial position

of the concern. A proper analysis and interpretation of these Analysis enables a

person to judge the profitability and financial strength of the business. The

financial Analysis should be prepared in such away that they are able to give a

clear and orderly picture of the concern. The ideal financial Analysis have the

following characteristics.

1. Depict True Financial Position:-

The information contained in the financial Analysis should be such that a true and

correct idea is taken about the financial position of the concern. No material

information should be with held while preparing position of the concern. No

material information should be with held while preparing these Analysis.

2. Effective Presentation:-

The financial Analysis should be presented in a simple and lucid way so as to

make them easily understandable. A person who is not well versed with accounting

terminology should also be able to understand the Analysis without much

difficulty. This characteristic will enhance the utility of these Analysis.

3. Relevance: -

Financial Analysis should be relevant to the objectives of the enterprises. This will

be possible when the person preparing these Analysis is able to properly utilize the

accounting information. The information which is not relevant to the Analysis

should be avoided; otherwise it will be difficult to make a distinction between

relevant and irrelevant data.

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4. Attractive:-

The financial Analysis should be prepared in such a way that important

information is underlined so that it attracts the eye of the reader.

5.Easiness:-

Financial Analysis should be easily prepared. The balances of different ledger

accounts should be easily taken to these Analysis. The calculation work should be

minimum possible while preparing these Analysis. The size of the Analysis should

not be very large. The columns to be used for gibing the information should also be

less. This will enable the saving of time in preparing the Analysis.

6. Comparability:-

The results of financial analysis should be in a way that can be compared to the

previous year’s Analysis. The statement can also be in compared with the figures

of other concerns of the same nature. Sometimes budgeted figures are given along

with the present figures. The comparable figures will make the Analysis more

useful. The Indian companies Act. 1956 has made it obligatory to give previous

year’s figures in the balance sheet. The comparison of figures will enable a proper

assessment for the working of the concern

7. Analytical representation:-

The information should be analyzed in such a way that similar date is presented at

the same place. A relationship can be established in similar type of information.

This will be helpful in analysis and interpretation.

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8. Brief:-

If possible, the financial Analysis should be presented in brief. The reader will be

able to form an idea about the figures. On the other hand, it figures are given in

details then it will become difficult to judge the working of the business.

9. Promptness:-

The financial Analysis should be prepared and presented at the earliest possible.

Immediately at the close of the financial year, Analysis should be ready.

Limitations of Financial Analysis:-

Though financial Analysis are relevant and useful for the concern, still

they do not present a final picture of the concern. The utility of these Analysis is

dependent upon a number of factors. The analysis and interpretation of these

Analysis should be done very carefully otherwise misleading conclusions may be

drawn; the financial Analysis suffer from the following limitations:

1. Only interim reports:-

These Analysis don not give a final picture of the concern. “The data given

in these Analysis is only approximate.” The actual position can only be determined

when the business is sold or liquidated. However, the Analysis have to be prepared

for different accounting periods, generally one year, during the life time of the

concern. The costs and incomes are apportioned to different periods with a view to

determine profits etc. the allocation of expenses and incomes will depend upon the

personal judgment of the accountant. The existence of cotangent assets and

liabilities also makes the Analysis imprecise. So financial Analysis do not give the

final picture and they are the most interim reports.

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2. Do not give exact position:-

The financial Analysis are expressed in momentary values so they appear

to give final and accurate position. The value of fixed assets in the balance sheet

neither represents the value for which fixed assets can be sold nor did the amount,

which will lie, require replacing these assets. The balance sheet is prepared on the

presumption of a going concern. The concern is expected to continue in the figure.

So fixed assets are shown all cost less accumulated depreciation. There are certain

assets in the balance sheet such as preliminary expenses, goodwill, discount on

issue of shares which will realize nothing at the time of liquidation through they

are shown in the balance sheet.

3. Historical Costs:-

The financial Analysis are prepared on the basis of historical costs or

original costs. The value of assets decreases with the passage of time current price

changes are not taken into account. The Analysis are not prepared keeping in view

the present economic conditions. The balance sheet losses the significance of being

an index of current economic realities. Similarly, the profitability shown by the

income statement may not represent the earning capacity of the concern. The

increase I profits may be due to an increase in prices or due to sonic abnormal

causes and not due to increase in efficiency. The conclusions drawn from financial

Analysis may not give a lair picture of the concern.

4. Impact of Non-Monetary Factors Ignored:-

There are certain f actors which have a bearing on the financial position

and operating results of the business but they do not become a pan of these

statement s because they cannot be measured I monetary terms. Such factors may

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include the reputations of the management, credit worthiness of the concern,

sources and commitments for purchases and sales, co-operation of the employees,

etc. The financial Analysis only show the position of the financial accounting for

business and not the financial position.

5. No Precision:-

The precision of financial statement data is not possible because the

statement deal with matters which cannot be precisely stated. The data are recorded

by convention procedure is followed over the years. Various conventions,

postulates personal judgments etc, are used for developing the data.

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CASH FLOW STATEMENT

Cash flow is the movement of cash into or out of a business, project, or financial

product. (Note that the word cash is used here in the broader sense, where it includes

bank deposits.) It is usually measured during a specified, finite period of time.

Measurement of cash flow can be used for calculating other parameters that give

information on the companies' value and situation. Cash flow can e.g. be used for

calculating parameters:

To determine a project's rate of return or value. The time of cash flows into and

out of projects are used as inputs in financial models such as internal rate of return,

and net present value.

To determine problems with a business's liquidity. Being profitable does not

necessarily mean being liquid. A company can fail because of a shortage of cash,

even while profitable.

Cash flow can be used to evaluate the 'quality' of Income generated by accrual

accounting. When Net Income is composed of large non-cash items it is

considered low quality.

To evaluate the risks within a financial product, e.g. matching cash requirements,

evaluating default risk, re-investment requirements, etc.

Cash flow is a generic term used differently depending on the context. Users may define

it for their own purposes. It can refer to the total of all the flows involved or to only a

subset of those flows. Subset terms include 'net cash flow', operating cash flow and free

cash flow.

In finance accounting a cash flow statement is financial statement that shows a

company flow of cash. The money coming into the business is called cash flow and

money going out from the business is called cash outflow.

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Meaning:

Cash flow signifies the movements of cash in and out of a business concern.

While the inflow of cash is a source of cash the outflow of cash is a use of cash.

Utility of cash flow statement:

Cash flow statement is highly useful for the evaluation of the cash position of the

concerns it is based on the cash basis of accounting.

Cash flow statement is highly useful and appropriate for short-term financial

planning.

Cash flow statement helps for making appraisal of various capital investments

projects just to determine their viability and profitability.

It is used to explain the anomaly of substantial profits and poor cash position.

Types of cash flow:

While preparing a cash flow statement, two types of cash flows viz., actual cash

flow and national cash flow are identified. Actual cash flow refers to the actual

movements of cash into or out of business. Purchase of fixed assets, borrowing from bank

of financial institutions, trading profits and redemption of debentures are all examples of

actual cash flows. But national cash flows result s only in the cash of increase or decrease

in current assets. National cash flow result indirect cash movements into or out of

business. For example, increase in balance of debtors does not result in any actual cash

outflow since it is part of credit sales. But form of material cost, labor cost, overheads

etc., locked up in the goods sold on credit.

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Sources of cash flow:

Issue of shares and debentures for cash.

Disposal of fixed assets and investment for cash.

Borrowing form banks and other financial institutions.

Cash from operations or trading profit.

Decrease in current assets.

Increase in current liabilities.

For example, credit sales of goods involve creation of assets in the form of debtors

and bills receivable. When payment is receive (cash inflow) from the customer, there will

be a reduction of current assets (debtors and bills).

Thus decrease in current assets involves cash inflows. For example, purchase of

goods on credit results in creation of current liabilities in the form of creditors and bills

payable. Here it is assumed that the creditors have given loan cash (National Cash

Inflow), which has been used to acquire the goods.

Applications of cash:

Redemption of shares and debentures by cash

Purchase of fixed assets and investment by cash

Repayment of Loans

Increase in Current assets

Classifications of cash flows:

Cash flow from operating activities:

Cash flow from financing activities.

Cash flow from investing activities

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Cash flow from operating activities:

Operating activities are the principal revenue producing activities of enterprise

and other activities that are not investing or financing activities.

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

extend to which the operations of the enterprise have generated sufficient cash flows to

maintain the operating g capability of the enterprise, pay dividends, re pay loans, and

make new investment with out recourse to the external sources of financing.

The importance of the cash flow statement:

Let’s take a moment to catch our breath in the discussion of the cash flow

statement, and look at all the information we’ve absorbed so far and the importance of the

cash flow statement in fulfilling the financial picture for the state of a business.

The Statement of Cash Flows is the new kid on the block as a member of the

Financial Statement set.  This wasn’t a required piece of the financial statement set until

1988.  As a result, there are still some areas that need fine-tuning; such as the format used

to report the cash flows.

The Statement of Cash Flows is the final document prepared in the Financial

Report set, and provides information that is a direct flow of information from the Income

Statement, Owner Equity Statement and Balance Sheet; therefore, this report adds

validity and accountability to the Financial Statements.

Analysts, investors, stockholders, potential investors and lenders use these reports

in order to assess the financial health of a business.   Therefore, it is tremendously

advantageous to use the standard method for generating the Statement of Cash Flows and

provide the additional credibility to the financial information.

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There are 3 major categories for the information that is reported on the Statement

of Cash Flows and they are operating activities, investing activities, and financing

activities.  Between the three major areas, every aspect of a business’ transactions is

covered.  The resulting totals on this report are direct flows of financial information totals

from the other 3 reports in the financial statement set.  The only variance in reporting is

in the operating activity area, concerning the cash transactions.  A business may choose

to use an indirect or direct method for reporting cash transactions.  If a business chooses

to use the direct method, there must also be a schedule attached that is basically also the

indirect method in order to reconcile the information given in the direct method.

When we read the Statement of Cash Flows there are some basic numbers that will

help you to assess a business; they are:

Net earnings or profit and loss information

Depreciation expense

Changes in inventory

Changes in accounts receivable

Changes in accounts payable

Changes in the “net cash from financing activities” that doesn’t reflect equipment

or building additions.

A general knowledge and good grasp of these Financial Statements, especially

the Statement of Cash Flows will provide volumes of information to the reader, and if

you’re a potential investor or lender, you cannot know enough about a business before

placing your money or that of your depositors in the operations of that business. 

Limitations of cash flows:

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Cash flow statement is not suitable for judging the profitability of a firm as

non-cash changes ignored while calculating cash flows from operating

activities.

Cash flow statement is based on cash accounting. It ignores the basic

accounting concept of accrual basis.

Cash flow statement does not give a complete picture of financial position of

concern.

Cash flow statement reveals the movement of cash only. In the preparation

ignores most liquid current asset.

Funds flow Vs cash flow statement:

Both are used in analysis of past transactions of a business firms. the major

differences are:

(1) Funds Flow Statement is concerned with all items constituting funds

(Working Capital)for the business while Cash Flow Statement deals only with cash

transactions. In other words, a transaction affecting working capital other than cash

will affect Funds statement, and not the Cash Flow Statement.

(2) In Funds Flow Statement, net increase or decrease in working capital is recorded

while in Cash Flow Statement, individual item involving cash is taken

(3) Funds Flow statement is started with the opening cash balance and closed with the

closing cash balance records only cash transactions.

(4) Cash Flow Statement is started with the opening cash balance and closed with ht

closing cash balance while there a no opening or closing balances in Funds Flow

Statement.

(5) A fund flow statement is based on the accrual accounting system. in case of

preparation of cash flow statements all transactions effecting the cash or cash

equivalents is only taken into consideration.

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(6) Fund flow statement analyses the source and application of long term nature of

the net increase and decrease of fund. The cash flow statement considers the increase

and decrease of current assets and current liabilities.

(7) Fund flow statements tallies the fund generated from various sources with

variable uses to which they are put.

The following are the important operating activities:

Cash receipts from sale of goods and the rendering of services.

Cash receipts from royalties, fees, commissions and other revenue.

Cash payment to suppliers for goods and services.

Cash payment to and on behalf of employees.

Cash receipts and policy cash payments of an insurance enterprise for premiums

and claims, annuities and other benefits.

Cash flow from investing activities:

Investing activities are the acquisition and disposal of along term assets and

other investments not included in cash equivalents. The separate disclosure of cash flows

arising from investing activities is important because the cash flows represent the extend

of which expenditure have been made for resources intended to generate future income

and cash flows.

Examples of cash flows arising from investing activities are:

Cash payments to acquire fixed assets. The payments include those relating to

capitalized research and development cost and self constructed fixed assets.

Cash payment to acquire shares, warrants, or debit instruments of other

enterprises and interests in joint venture.

Cash receipts from the repayment of advances and loans made to third parties.

Cash receipts from disposal of fixed assets.

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Cash flow from financing activities:

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

owners capital and borrowing of enterprise.

The separate disclosure of cash flows arising from financing activities is

important because it is useful in predicting the claims on future cash flows by provides of

funds to the enterprise.

Examples of cash flow arising from financing activities are:

Cash proceeds from issuing shares or other similar instruments.

Cash proceeds from issuing debentures, loans, notes, bonds and other short term

borrowings and

Cash repayment of amounts borrowed such as redemption of debentures, bonds,

and preference shares.

Methods of calculating cash flows:

There are two methods of reporting cash flows from operating activities namely

Direct method.

Indirect method.

The Direct method:

Under this method, cash inflows from operating revenues and cash payments for

operating expenses are calculated to arrive at cash flows from operating activities. The

difference between the cash receipts and cash payments is the net cash flow provided by

operating activities.

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The formation about major class of goods cash receipts and goods cash payments may be

obtained either:

From accounting records of the enterprise; or

By adjusting sales, cost of sales and other items in the statement of profit and loss

for;

Changes during the period in inventories and operating receivables and payables.

Other non-cash items. Other items for which the cash effects are investing or

financing cash flows

The Indirect method:

Under the indirect method, the net cash flow from operating activities is

determined by adjusting net profit or loss for the effect of:

Non cash items such as depreciation, provisions, differed taxes, and un realized

foreign exchange gains and losses; and

Changes during the period in inventories and operating receivables and payables.

All other items for which the cash effects are investing or financing cash flows.

The indirect method also called reconciliation method as it involves reconciliation

of net profit or loss as given in the profit and loss account and the net cash flow from

operating activities shown in the cash flow statement.

Uses of cash flow statement:

Cash flow statement reveals the causes of changes in cash between two

balance sheet dates.

Cash flow statement helps the management in planning repayment of loans,

replacement of assets etc.

It helps the management in understanding the past behaviour of cash cycle

and controlling the use of cash in future.

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This statement helps short-term financial decisions relating to liquidity.

Sources of cash:

Issue of shares and debentures for cash.

Disposal of fixed assets and investment for cash.

Cash from operations or trading profit.

Decrease in current assets.

Increase in current liabilities.

Format of cash flow statement:

The three activities discussed in preceding paragraphs constitute the general

format of the statement of cash flows. The cash flows from operating activities section

always appears first, followed by the investing section and then financing activities

section. The individual inflows and outflows from investing and financing activities

are reported separately. That is, they are reported gross, not netted against one

another.

Thus, cash outflows from the purchasing of property are reported separately from the

cash inflow the sale of property. Similarly, the cash inflow from the issuance of debt

is reported separately from the cash outflow from its retirement.

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Cash flow statement (for the year ended………..)

Particulars Rs. Rs.

Cash flow from operating actives:

Cash receipts from customers

Cash paid to suppliers and employees

Cash generated from operations

Income tax paid

Cash flow before extraordinary items

Extra ordinary items

Net cash from operating activities

(or)

Net profit before tax and extra ordinary items

Adjustment for non-cash and non-operating items.

(List of individual items such as depreciation,

foreign exchange loss, loss o sale of fixed assets,

interest income, interest expense etc.)

Operating profit before working capital changes

Adjustments for changes in current assets and

current liabilities

(List of individual items)

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

Xxx

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Cash generated from operations before tax

Income tax paid

Cash flow before extraordinary items.

Extra ordinary items

Net cash from operating activities.

Cash flow from investing activities:

Individual items of cash inflows and out flows from

investing activities

Such as purchase and sale of fixed assets, purchase

or sale of investments, interest received, dividend

received etc.)

Net cash from investing activities.

Cash flow from financing activities:

Individual items of cash inflows and out flows from

financing activities

Such as purchase and sale of fixed assets, purchase

or sale of investments, interest received, dividend

received etc.)

Net increase/ decrease in cash and cash equivalents

Cash and cash equivalents beginning of the period

Cash and cash equivalents end of the period

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

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NEED FOR THE STUDY

Many business owners disregard the importance of cash flow statements because

they unwittingly believe that their current financial standing can be construed from

other financial reports and projections. Unfortunately, however, a cash flow

statement is necessary to adequately assess the incoming and outgoing flow of cash

and other resources in a business. Not only will a business owner with a cash flow

system be more aware of his or her financial standing, but it will also help

investors to make educated decisions on future investments. A business with

regular and reliable cash flow statements shows more economic solvency, and is

more attractive to investors.

A cash flow statement documents the incoming and outgoing cash in plain terms.

Future sales and sales made for credit (unless they have been paid off) are not

included in the cash flow statement, and most of the data will come from core

operations. Payables and receivables should be expressly defined, as should

depreciation of product value and inventory that has not yet been moved.

This will allow a business owner to compare past periods with the current financial

standing and determine whether your receivables have increased or decreased. This

can also help to track your investments next to your receivables and payables. Are

your investments increasing or decreasing in value? And has your inventory moved

at a steady pace? New or expanding businesses can expect to see a decrease in cash

flow, but this doesn’t mean that the business is going under. More stables

businesses should see a steadily increase in cash flow over a period of several

months or years. There are typically five different sections in a cash flow

statement, though large businesses might have more complex cash flow systems as

required.

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SCOPE OF THE STUDY:

Since it will not be possible to conduct a micro level study of all Automobile

industries in Andhra Pradesh, the study is restricted to Sri Lalitha Parameswari

Spinning Mills Pvt Ltd . Only.

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OBJECTIVES OF THE STUDY

To know the flow of cash in the organization Sri Lalitha

Parameswari Spinning Mills Pvt Ltd .

To access the efficiency with sources and uses of cash were made by

the co ordinance the present year 2008-2009 to 2012-2013.

To identify the changes in the elements of focus and uses of working

capital in between above mentioned year.

To improve the financial performance of the company.

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METHODOLOGY OF STUDY

The following are the main sources of date used for this study which are

Collected and compiled from published and unpublished sources of the

Company data. The published sources are as follows.

1) Management information system published by Sri Lalitha Parameswari

Spinning Mills Pvt Ltd .

2) Status Report on Sri Lalitha Parameswari Spinning Mills Pvt Ltd .

3) Journals, books and other published reports.

The present study is mainly based on primary and secondary sources of Data

collection. The primary data was directly collected by observations, Interviews

questionnaire etc.

The secondary data was collected from the literate available in libraries and

research studies and annual reports are related to the present study. It includes

published and unpublished literature like books, reports and generally Articles of

the Sri Lalitha Parameswari Spinning Mills Pvt Ltd .

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LIMITATIONS OF THE STUDY

The limitations of present study are as follows:

1. The study cover a period of FIVE years from 2008-09-2012-13

2. The study does not fund flow.

3. The study is based mainly on secondary information.

4. The study does not touch all the units of Sri Lalitha Parameswari

Spinning Mills Pvt Ltd .

5. The present study cannot be used for inter firm comparison.

6. Limited span of time is a major limitation for this project.

7. The act and figures of the study is limited to the period of FIVE years i.e.

2008-2012

8. The data used in reports are taken from the annual reports, published at the

end of the years.

9. The result does not reflect the day-to-day transactions.

10.It is also impossible to the study of day-to-day transactions in cash

management.

11.The analysis of the working capital is taken FIVE years.

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INDUSTRY PROFILE

INTRODUCTION

Cotton is a soft, staple fiber that grows around the seeds of the cotton

plant (Gossipier sp.), a shrub native to tropical and subtropical regions around

the world, including India and Africa. The fiber most often is spun into yarn

or thread and used to make soft, breathable cotton, which is the most widely,

used natural-fiber cloth in clothing today. The English name which began to

be used circa 1400, derives from the Arabic (al) quit, meaning cotton. In the

1800s and 1900s cotton was called "King Cotton" because of the great power

it had in the economy.

Cotton fiber, once it has been processed to remove seeds (ginning) and

traces of honeydew (a secretion from aphids), protein, vegetable matter, and

other impurities, consists of nearly pure cellulose, a natural polymer. Cotton

production is very efficient, in the sense that only ten percent or less of the

weight is lost in subsequent processing to convert the raw cotton bolls (seed

cases) into pure fiber. The cellulose is arranged in a way that gives cotton

fibers a high degree of strength, durability, and absorbency. Each fiber is

made up of twenty to thirty layers of cellulose coiled in a neat series of

natural springs. When the cotton bowl is opened, the fibers dry into flat,

twisted, ribbon-like shapes and become kinked together and interlocked. This

interlocked form is ideal for spinning into a fine yarn.

Cotton Cultivation:

Successful cultivation of cotton requires a long frost-free period, plenty

of sunshine, and a moderate rainfall, usually from 600 to 1200mm (24 to 48

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inches). Soils usually need to be fairly heavy, although the level of nutrients

does not need to be exceptional.

In general, these conditions are met within the seasonally dry tropics and

subtropics in the Northern and Southern hemispheres, but a large proportion of

the cotton grown today is cultivated in areas with less rainfall that obtain the

water from irrigation.

Production of the crop for a given year usually starts soon after

harvesting the preceding autumn. Planting time in spring in the Northern

hemisphere varies from the beginning of February to the beginning of June.

The area of the United States known as the South Plains is the largest

contiguous cotton-growing region in the world. It is heavily dependent on

irrigation water drawn from the Ogallala Aquifer.

Genetically modified cotton:

Genetically modified (GM) cotton was developed to reduce the heavy

reliance on pesticides. Genetically modified cotton is widely used throughout

the world with claims of requiring up to 80% less pesticide than ordinary

cotton as typically grown commercially. However, researchers have recently

published the first documented case of in-field pest resistance to GM cotton.

The International Service for the Acquisition of Agri-Biotech Applications

(ISAAA) said that, worldwide, GM cotton was planted on an area of 67,000

km² in 2002. This is 20% of the worldwide total area planted in cotton. The

U.S. cotton crop was 73% GM in 2003.

The initial introduction of GM cotton proved to be a commercial disaster

in Australia - the yields were far lower than predicted, and the cotton plants

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were cross-pollinated with other varieties of cotton. However, the introduction

of a second variety of GM cotton led to 15% of Australian cotton being GM in

2003. 80% of the crop was genetically modified in 2004, when the original GM

variety was banned.

GM cotton acreage in India continues to grow at a rapid rate increasing

from 50,000 hectares in 2002 to 3.8 million hectares in 2006.

The total cotton area in India is about 9.0 million hectares (the largest in

the world or, about 25% of world cotton area) so GM cotton is now grown on

42% of the cotton area

HISTORY

Cotton plants as imagined and drawn by John Mandeville in the

fourteenth century Cotton cultivation in the Old World began from India,

where cotton has been grown for more than 6,000 years, since the pre-

Harappan period. Cotton from the Harappan civilization was exported to

Mesopotamia during the 3rd millennium BC, and cotton was soon known to

the Egyptians as well as becoming a prized trading item from Nubians and

Meroe. The famous Greek historian Herodotus also wrote about Indian cotton:

"There are trees which grow wild there, the fruit of which is a wool exceeding

in beauty and goodness that of sheep. The Indians make their clothes of this

tree wool." (Book III. 106).

According to the Columbia Encyclopedia, Sixth Edition

Cotton has been spun, woven, and dyed since prehistoric times. It

clothed the people of ancient India, Egypt, and China. Hundreds of years

before the Christian era cotton textiles were woven in India with matchless

skill, and their use spread to the Mediterranean countries. In the 1st cent. Arab

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traders brought fine muslin and calico to Italy and Spain. The Moors

introduced the cultivation of cotton into Spain in the 9th cent. Fustians and

dimities were woven there and in the 14th cent. In Venice and Milan, at first

with a linen warp. Little cotton cloth was imported to England before the 15th

cent., although small amounts were obtained chiefly for candlewicks.

By the 17th cent. The East India Company was bringing rare fabrics

from India. Native Americans skillfully spun and wove cotton into fine

garments and dyed tapestries. Cotton fabrics found in Peruvian tombs are said

to belong to a pre-Inca culture.

In color and texture the ancient Peruvian and Mexican textiles resemble

those found in Egyptian tombs.

During the late medieval period, cotton became known as an imported

fiber in northern Europe, without any knowledge of how it was derived, other

than that it was a plant, noting its similarities to wool, people in the region

could only imagine that cotton must be produced by plant-borne sheep. John

Mandeville, writing in 1350, stated as fact the now-preposterous belief: "There

grew there [India] a wonderful tree which bore tiny lambs on the ends of its

branches. These branches were so pliable that they bent down to allow the

lambs to feed when they are hungrie." (See Vegetable Lamb of Tartary.) This

aspect is retained in the name for cotton in many European languages, such as

German Baumwolle, which translates as "tree wool" (Baum means "tree";

Wolle means "wool"). By the end of the 16th century, cotton was cultivated

throughout the warmer regions in Asia and the Americas.

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THE VEGETABLE LAMB OF TARTARY:

India's cotton-processing sector gradually declined during British

expansion in India and the establishment of colonial rule during the late 18th

and early 19th centuries. This was largely due to the East India Company's de-

industrialization of India, which forced the closing of cotton processing and

manufacturing workshops in India, to ensure that Indian markets supplied only

raw materials and were obliged to purchase manufactured textiles from Britain.

The advent of the Industrial Revolution in Britain provided a great boost

to cotton manufacture, as textiles emerged as Britain's leading export. In 1738

Lewis Paul and John Wyatt, of Birmingham England, patented the Roller

Spinning machine, and the flyer-and-bobbin system for drawing cotton to a

more even thickness using two sets of rollers that traveled at different speeds.

Later, the invention of the spinning jenny in 1764 and Richard

Arkwright's spinning frame (based on the Roller Spinning Machine) in 1769

enabled British weavers to produce cotton yarn and cloth at much higher rates.

From the late eighteenth century onwards, the British city of Manchester

acquired the nickname "cotton polis" due to the cotton industry's omnipresence

within the city, and Manchester's role as the heart of the global cotton trade.

Production capacity was further improved by the invention of the cotton gin by

Eli Whitney in 1793. Improving technology and increasing control of world

markets allowed British traders to develop a commercial chain in which raw

cotton fibers were (at first) purchased from colonial plantations, processed into

cotton cloth in the mills of Lancashire, and then re-exported on British ships to

captive colonial markets in West Africa, India, and China (via Shanghai and

Hong Kong).

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By the 1840s, India was no longer capable of supplying the vast

quantities of cotton fibers needed by mechanized British factories, while

shipping bulky, low-price cotton from India to Britain was time-consuming and

expensive. This, coupled with the emergence of American cotton as a superior

type (due to the longer, stronger fibers of the two domesticated native

American species, Gossypium hirsutum and Gossypium barbadense),

encouraged British traders to purchase cotton from plantations in the

United States and the Caribbean. This was also much cheaper as it was

produced by unpaid slaves. By the mid 19th century, "King Cotton" had

become the backbone of the southern American economy. In the United States,

cultivating and harvesting cotton became the leading occupation of slaves.s

During the American Civil War, American cotton exports slumped due

to a Union blockade on Southern ports, also because of a strategic decision by

the Confederate Government to cut exports, hoping to force Britain to

recognize the Confederacy or enter the war, prompting the main purchasers of

cotton, Britain and France, to turn to Egyptian cotton.

British and French traders invested heavily in cotton plantations and the

Egyptian government of Viceroy Isma'il took out substantial loans from

European bankers and stock exchanges. After the American Civil War ended in

1865, British and French traders abandoned Egyptian cotton and returned to

cheap American exports, sending Egypt into a deficit spiral that led to the

country declaring bankruptcy in 1876, a key factor behind Egypt's annexation

by the British Empire in 1882.

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During this time cotton cultivation in the British Empire, especially India

greatly increased to replace the lost production of the American South.

Through tariffs and other restrictions the British government discouraged the

production of cotton cloth in India; rather the raw fiber was sent to England for

processing. The Indian patriot Gandhi described the process:

1. English people buy Indian cotton in the field, picked by Indian labor at

seven cents a day, through an optional monopoly.

2. This cotton is shipped on British bottoms, a three weeks journey across the

Indian Ocean, down the Red Sea, across the Mediterranean, through

Gibraltar, across the Bay of Biscay and the Atlantic Ocean to London. One

hundred per cent profit on this freight is regarded as small.

3. The cotton is turned into cloth in Lancashire. You pay shilling wages

instead of Indian pennies to your workers. The English worker not only has

the advantage of better wages, but the steel companies of England get the

profit of building the factories and machines. Wages; profits; all these are

spent in England.

4. The finished product is sent back to India at European shipping rates, once

again on British ships. The captains, officers, sailors of these ships, whose

wages must be paid, are English. The only Indians who profit are a few

lascars who do the dirty work on the boats for a few cents a day.

5. The cloth is finally sold back to the kings and landlords of India who got

the money to buy this expensive cloth out of the poor peasants of India who

worked at seven cents a day. (Fisher 1932 pp 154-156)

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Prisoners farming cotton under trusty system - 1911

In the United States, Southern cotton provided capital for the continuing

development of the North. The cotton produced by enslaved African

Americans, not only helped the South, but also enriched northern merchants.

Much of the southern cotton was transshipped through the northern ports.

Profits from the cotton shipping provided some of the funds for the Francis

Cabot Lowell's Lowell Mills. In another example, a merchant named Anson

Phelps invested his profits from cotton shipping into iron mines in

Pennsylvania and metal works in Connecticut. Much of the development of

northern industry was made possible by the cotton provided by the enslaved

African Americans of the South. It also fostered the market revolution.

Cotton remained a key crop in the southern economy after emancipation

and the end of the civil war in 1865. Across the South, sharecropping evolved,

in which free black farmers worked on white-owned cotton plantations in

return for a share of the profits. Cotton plantations required vast labor forces to

hand-pick cotton fibers, and it was not until the 1950s that reliable harvesting

machinery was introduced into the South (prior to this, cotton-harvesting

machinery had been too clumsy to pick cotton without shredding the fibers).

During the early twentieth century.

Employment in the cotton industry fell as machines began to replace

laborers, and as the South's rural labor force dwindled during the First and

Second World Wars. Today, cotton remains a major export of the southern

United States, and a majority of the world's annual cotton crop is of the long-

staple American variety.

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PESTS AND WEED:

The cotton industry relies heavily on chemicals such as fertilizers and

insecticides, although a very small number of farmers are moving toward an

organic model of production and organic cotton products are now available for

purchase at limited locations. These are popular for baby clothes and diapers.

Under most definitions, organic products do not use genetic engineering.

Hoeing a cotton field to remove weeds, Greene County, Georgia, USA,

1941Historically, in North America, one of the most economically destructive

pests in cotton production has been the boll weevil. Due to the US Department

of Agriculture's highly successful Boll Weevil Eradication Program (BWEP),

this pest has been eliminated from cotton in most of the United States. This

program, along with the introduction of genetically engineered "Bt cotton"

(which contains a bacteria gene that codes for a plant-produced protein that is

toxic to a number of pests such as tobacco budworm, cotton bollworm, and

pink bollworm), has allowed a reduction in the use of synthetic insecticides.

Mechanized harvesting:

Offloading freshly harvested cotton into a module builder in Texas;

previously built modules can be seen in the background of cotton in the United

States, Europe, and Australia is harvested mechanically, either by a cotton

picker, a machine that removes the cotton from the boll without damaging the

cotton plant, or by a cotton stripper, which strips the entire boll off the plant.

Cotton strippers are used in regions where it is too windy to grow picker

varieties of cotton, and usually after application of a chemical defoliant or the

natural defoliation that occurs after a freeze.

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Cotton is a perennial crop in the tropics and without defoliation or

freezing, the plant will continue to grow. Cotton continues to be picked by

hand in poor countries such as Uzbekistan.

COMPETITION FROM SYNTHETIC FIBERS:

The era of manufactured fibers began with the development of rayon in

France in the 1890s. Rayon is derived from a natural cellulose and cannot be

considered synthetic, but is requires extensive processing in a manufacturing

process and led the less expensive replacement of more naturally derived

materials. A succession of new synthetic fibers was introduced by the

chemicals industry in the following decades. Acetate in fiber form was

developed in 1924. Nylon the first fiber synthesized entirely from

petrochemicals was introduced as a sewing thread by DuPont in 1936, followed

by DuPont’s acrylic in 1944. Some garments were created from fabrics based

on these fibers, such as women's hosiery from nylon, but it was not until the

introduction of polyester into the fiber marketplace in the early 1950s that the

market for cotton came under threat. The rapid uptake of polyester garments in

the 1960s caused economic hardship in cotton exporting economies, especially

in Central American countries such as Nicaragua where cotton production had

boomed tenfold between 1950 and 1965 with the advent of cheap chemical

pesticides. Cotton production recovered in the 1970s, but crashed to pre-1960

levels in the early 1990s.

Beginning as a self-help program in the mid-1960s, the Cotton Research

& Promotion Program was organized by U.S. cotton producers in response to

cotton's steady decline in market share. At that time, producers voted to set up

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a per-bale assessment system to fund the program, with built-in safeguards to

protect their investments.

With the passage of the Cotton Research & Promotion Act of 1966, the

program joined forces and began battling synthetic competitors and re-

establishing markets for cotton. Today, the success of this program has made

cotton the best-selling fiber in the U.S. and one of the best-selling fibers in the

world.

Administered by the Cotton Board and conducted by Cotton

Incorporated, the Cotton Research & Promotion Program works to greatly

increase the demand for and profitability of cotton through various research

and promotion activities. It is funded by U.S. cotton producers and importers.

USES OF COTTON:

Cotton is used to make a number of textile products. These include

terrycloth, used to make highly absorbent bath towels and robes; denim, used

to make blue jeans; chambray, popularly used in the manufacture of blue work

shirts (from which we get the term "blue-collar"); and corduroy, seersucker,

and cotton twill. Socks, underwear, and most T-shirts are made from cotton.

Bed sheets often are made from cotton. Cotton also is used to make yarn used

in crochet and knitting. Fabric also can be made from recycled or recovered

cotton that otherwise would be thrown away during the spinning, weaving, or

cutting process. While many fabrics are made completely of cotton, some

materials blend cotton with other fibers, including rayon and synthetic fibers

such as polyester.

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In addition to the spinning industry, cotton is used in fishnets, coffee

filters, tents, gunpowder (see Nitrocellulose), cotton paper, and in bookbinding.

The first Chinese paper was made of cotton fiber. Fire hoses were once made

of cotton.

The cottonseed which remains after the cotton is ginned is used to

produce cottonseed oil, which, after refining, can be consumed by humans like

any other vegetable oil. The cottonseed meal that is left generally is fed to

livestock. During slavery, cotton root bark was used as an abortifacient, that is,

a folk remedy to provoke abortion.

Cotton linters are fine, silky fibers which adhere to the seeds of the

cotton plant after ginning. These curly fibers typically are less than 1/8 in,

3mm, long.

The term also may apply to the longer textile fiber staple lint as well as

the shorter fuzzy fibers from some upland species. Linters are traditionally

used in the manufacture of paper and as a raw material in the manufacture of

cellulose.

Shiny cotton is a processed version of the fiber that can be made into

cloth resembling satin for shirts and suits. However, its hydrophobic property

of not easily taking up water makes it unfit for the purpose of bath and dish

towels (although examples of these made from shiny cotton are seen).

The term Egyptian cotton refers to the extra long staple cotton grown in

Egypt and favored for the luxury and up market brands worldwide. During the

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U.S. Civil War, with heavy European investments, Egyptian-grown cotton

became a major alternate source for British spinning mills. Egyptian cotton is

more durable and softer than American Pima cotton, which is why it is more

expensive. Pima cotton is American cotton that is grown in the south western

states of the U.S .In South Asia, cotton is widely used in mattresses, which are

the most common type of mattress used in that region.

THE INTERNATIONAL COTTON TRADE:

Cottonseed output in 2007

The United States, with sales of $4.9 billion, and Africa, with sales of

$2.1 billion, is the largest exporters of raw cotton. Total international trade is

$12 billion. Africa's share of the cotton trade has doubled since 1980. Neither

area has a significant domestic textile industry, textile manufacturing having

moved to developing nations in Eastern and South Asia such as India and

China. In Africa cotton is grown by numerous small holders. Donavan

Enterprises, based in Memphis, Tennessee, is the leading cotton broker in

Africa with hundreds of purchasing agents.

It operates cotton gins in Uganda, Mozambique, and Zambia. In Zambia

it often offers loans for seed and expenses to the 180,000 small farmers who

grow cotton for it, as well as advice on farming methods. Cargill also

purchases cotton in Africa for export.

The 25,000 cotton growers in the United States are heavily subsidized at

the rate of $2 billion per year. The future of these subsidies is uncertain and has

led to anticipatory expansion of cotton brokers' operations in Africa. Donavan

expanded in Africa by buying out local operations. This is only possible in

former British colonies and Mozambique; former French colonies continue to

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maintain tight monopolies, inherited from their former colonialist masters, on

cotton purchases at low fixed prices.

Fair trade:

Cotton is an enormously important commodity throughout the world.

However, many farmers in developing countries receive a low price for their

produce, or find it difficult to compete with developed countries.

This has led to an international dispute:

On 27 September 2002 Brazil requested consultations with the US

regarding prohibited and actionable subsidies provided to US producers, users

and/or exporters of upland cotton, as well as legislation, regulations, statutory

instruments and amendments thereto providing such subsidies (including

export credits), grants, and any other assistance to the US producers, users and

exporters of upland cotton.

On 8 September 2004, the Panel Report recommended that the United

States "withdraw" export credit guarantees and payments to domestic user and

exporters, and "take appropriate steps to remove the adverse effects or

withdraw" the mandatory price-contingent subsidy measures.

In addition to concerns over subsidies, the cotton industries of some

countries are criticized for employing child labor and damaging workers' health

by exposure to pesticides used in production. For example, cotton production

in Uzbekistan has been described as one of the most exploitative industries in

the world. The international production and trade situation has led to 'fair trade'

cotton clothing and footwear, joining a rapidly growing market for organic

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MBA Programme

clothing, fair fashion or so-called 'ethical fashion'. The fair trade system was

initiated in 2005 with producers from Cameroon, Mali and Senegal.

Organic cotton:

Organic cotton is cotton that is grown without insecticide or pesticide.

Worldwide, cotton is a pesticide-intensive crop, using approximately 25% of

the world's insecticides and 10% of the world's pesticides. According to the

World Health Organization (WHO), 20,000 deaths occur each year from

pesticide poisoning in developing countries, many of these from cotton

farming. Organic agriculture uses methods that are ecological, economical, and

socially sustainable and denies the use of agrochemicals and artificial

fertilizers. Instead, organic agriculture uses corporation, the growing of

different crops than cotton in alternative years. The use of insecticides is

prohibited; organic agriculture uses natural enemies to suppress harmful

insects. The production of organic cotton is more expensive than the

production of conventional cotton. Although toxic pollution from synthetic

chemicals is eliminated, other pollution-like problems may remain, particularly

run-off. Organic cotton is produced in organic agricultural systems that

produce food and fiber according to clearly established standards. Organic

agriculture prohibits the use of toxic and persistent chemical pesticides and

fertilizers, as well as genetically modified organisms. It seeks to build

biologically diverse agricultural systems, replenish and maintain soil fertility,

and promote a healthy environment.

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COMPANY PROFILE

INTRODUCTION:

SREE LALITHA PARAMESWARI SPINNING MILLS Pvt Ltd., is one of the

leading mills in India, producing high quality medium and fine count cotton yarn

for sensitive consumers different countries.

Operation of the mills began in the year 2006, being promoted by its illustrious

founder Shri.T.V.Seshagiri Rao, Since then the mills have shown remarkable

growth not only in the area of sales & volume, but more importantly, in its stature.

It is interesting to note that the mills command a premium price in the markets

where it is present, a recognition accorded to it by its customers in appreciation

towards its commitment to quality, price and consistency of supply.

It is a firm belief, bequeathed by the founder, that even in adverse market

conditions, that supply be maintained to the extent required. It is an endearing

quality well appreciated by our customers, who have been the mainstay in the

remarkable progress of the company.

SREE LALITHA PARAMESWARI Spinning Mills, reputed and modern spinning

mill, incorporated in year Sri T.V.Seshagiri Rao, Chairman and Sri.

D.Suryaprakasa Rao, Managing Director has 28560 spindles situated near

Chebrolu Donks (towards Tenali) Narakoduru, Chebrolu, Guntur District, Andhra

Pradesh, India.

To provide cost effective, Consistent quality products by continual  improvement

in work methods & customer focus.

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BOARD OF DIRECTORS

Quality and timely delivery remains the veritable password of the company.

Everything the company has achieved and continues to build today is derived from

its commitment to quality and its endeavour to bring all processes of production

integrated under its ambit.”

Mr.D.SURYAPRAKASA RAO

(Managing Director)

SREE LALITHA PARAMESWARI SPINNING MILLS  is committed to

providing eco-friendly yarn products for home and industrial textile applications.

We constantly strive to add value to our customer's business by providing them

with superior quality products at competitive prices.We believe in maintaining

high ethical and professional standards by gluing to our core values of

committment, integrity, transparency, teamwork and creativity".

Mr.T AMBARISH

( Executive Director )

SREE LALITHA PARAMESWARI SPINNING MILLS is committed to

providing eco-friendly yarn products for home and industrial textile applications.

We constantly strive to add value to our customer's business by providing them

with superior quality products at competitive prices.We believe in maintaining

high ethical and professional standards by gluing to our core values of

committment, integrity, transparency, teamwork and creativity".

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MBA Programme

Mr.BASHKARA RAO

( Executive Director )

Sree Lalitha Parameswari Spinning Mills Pvt Ltd has set up State-of-Arts

facilities in the state of Andhra Pradesh with the unique concept of "Cotton to

Clothing" and is poised to emerge as one of the biggest players in the cotton

textiles & apparel arena. SREE LALITHA PARAMESWARI SPINNING

MILLS PVT LTD is one of the companies of Hyderabad based SREE

LALITHA PARAMESWARI SPINNING MILLS PVT LTD Group.

SREE LALITHA PARAMESWARI SPINNING MILLS PVT LTD

Group is an INR 1500 Crores conglomerate having interests in Seeds,

Infrastructure, Power, Sugar and Textiles. The parent company SREE

LALITHA PARAMESWARI SPINNING MILLS PVT LTD Limited is the

largest seed company in India. Its cotton seeds hybrid varieties - Bunny BT and

Mallika BT are household names in rural India. It is the first Indian seed

company to achieve a turnover of INR 500 Crores. Apart from the seed

business, the group has ambitious plans in power, infrastructure and Spinning

businesses.

No textile company can claim to be as vertically integrated as we are.

Our value chain covers all the operations from the extraction of cotton lint to

garment manufacturing. Our facilities for ginning, spinning, weaving and

garmenting are equipped with latest technology machineries and manned by

experienced workforce.

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MBA Programme

Our parent company SREE LALITHA PARAMESWARI SPINNING

MILLS PVT LTD Limited is the biggest seed company in India. The cotton

seeds sold under its brands are most sought after in India. The experience of the

parent company in cotton growing has given us the unique advantage in terms of

better selection of right quality of cotton kappa.

VISION AND MISSION:

VISION:

SREE LALITHA PARAMESWARI SPINNING MILLS PVT LTD

Spinning mills & Apparel aspires to become one of the leading innovative, eco-

friendly and entrepreneurial companies in the 'Natural Fiber to Affordable

Fashion' domain

MISSION:

Fabrics and Garments To be the preferred and large share supplier of

shirting fabrics, bottom weight fabrics and garments sourced in and from India

or other strategic locations for discerning customers worldwide. To be among

the top three garments producer in India and to market at least 50% of our fabric

capacity as garment packages.

Brands To be the largest VFM (Value for Money) destination Store

brand for shirts in India in three years from its launch

Yarn To be among the largest premium fine count cotton spinners in the

world in the next five years.

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GINNING:

Our business starts right from kappas – the raw material for producing

cotton. Our highly experienced Kappas procurement team personally visits the

fields to check the quality of supply. The stringent quality criteria followed

before the procurement allows us to pick the best quality kappas for ginning. All

our ginning units are fitted with the automated systems with pre cleaners. We

have humidification plants in all our ginning units to maintain the optimum

levels of humidity. The result is high quality cotton lint, which is the most

important factor affecting the various stages of textile value chain.

Capacity:

SPINNING:

Spinning is the process of making yarn from unbundled fibres. It includes

the following operations.

Upon arrival at the spinning mill, cotton bales are sampled according to

lint quality and origin to ensure yarn homogeneity. They are then opened to

make the lint fluffy by passage though bale-openers. The following important

step in the spinning process is cleaning. Bale fibers are usually fed to air-jet

(vortex) cleaners to remove extraneous matter from cotton lint (which may

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hamper further cotton processing and affect lint quality). At this stage loose

fibres are not aligned and parallel in a single continuous strand. Carding is the

process of straightening or paralleling the fibres.

Carding separates fibers from each other, straightens fibers, aligns and

condenses them into a single continuous strand, and removes impurities. A

sliver of approximately one-meter width is then obtained.

Cotton that has already been carded may be combed. Combining is an

optional step in the ginning process. This process is only used to produce

superior quality yarn and long- or extra long-staple fibers.

WEAVING:

In our endeavor to weave the best fabrics we have deployed in our

manufacturing facilities the most advanced machinery in the industry.

Unparalleled Air Jet Technology in our Picanol and Dornier machines makes it

possible to lend a flawless finish to our products. Our products are the preferred

choices of end users like processing houses and leading garment manufacturers.

The entire manufacturing process and the plant layout have been engineered

to ensure safe, reliable and smooth material flow from raw material to the

dispatch of finished gray fabric. Supervision by highly qualified and richly

experienced technical experts and un-interrupted quality power supply ensure

consistency in quality and meeting the delivery schedules. Our manufacturing

units are equipped with 1 1/2 times the required capacity of utilities like, air,

steam and humidity controls to ensure maximum utilization of the looms.

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MBA Programme

We have a highly efficient real time process control system “Loom Data

System” which helps analyze the operational data and immediately take action

based on this. We are also in the process of implementing comprehensive

operating systems based on TQM.

Capacity:

PROCESSING:

Located in the midst of picturesque paddy fields, our process house truly

exemplifies the coexistence of nature and progress. Our highly advanced ETP

system will ensure that there is zero effluent discharge from our manufacturing

facility. Apart from that, we will have energy saving devices in our machines

like heat recovery systems from hot water and air.

All of our machineries will be state of the art with fully automated

dye/chemical dispensing system. These mainly will be imported from Germany,

Switzerland and Italy. Apart from the standard processing machines, we will

have latest technology high end finishing machines for sue ding, calendaring and

airo wash.

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MBA Programme

Coupled to the latest technology will be our seasoned supervisory and

management team and experienced work force. Moreover, integration of the

process with our spinning and weaving verticals will allow us to have better

control over the inputs leading to supply best quality products in reasonable .

GARMENTING:

Our fully vertically integrated value chain enables us to serve our

customers in the best manner on two major areas – quality and lead time.

Because of our own significant processing capacity, we will be able to source

quality fabric without delay leading to on time supply with shorter lead times.

We will have state of the art machineries, material handling equipments

and inventory management systems with latest technology washing facilities.

Our washing facilities will be placed in our process house which has zero

discharge from the plant.

Our State of art design studio at Hyderabad will be equipped with

sophisticated textile CAD and Mac systems. Highly creative and skilled design

team from international design schools is already on board.

Capacity:

PRODUCTS:

          State of the art machineries at each of our manufacturing units ensure

that we deliver the best quality products at very competitive prices.

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Yarn:

Carded, Combed, Combed Compact, Eli and double yarn in the range 20s to

100s.

OE yarn and OE fancy yarn in the range 6s to 24s.

Gassed and Gas mercerized yarn in the range 60s to 80s*.

Fabric:

Produced in the range from 50” to 140” on table grey width

Basic plains/poplin, twills, classical oxfords or pin-point oxfords

Fancy structures like:

The royal oxfords Matt’s

Herringbones

Satins

Chinos

Gabardine

Tussore

Canvass

Bedford cord structured fabrics

Combination weaves and dobby design

PROCESSING:

Our processing plant at Chandole will be capable of producing

Yarn Dyed Fabric

Piece Dyed Fabric

Bleached Fabric

Printed Fabric

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EMPLOYEES WELFARE:

We have a good canteen at each of our manufacturing units which provides

nutritious food to our employees at subsidized prices. There is a managing

committee which manages frequent checks on quality and quantity of food.

There are cooperative stores provided and all needy items are provided at

cost basis. There is a fully fledged dispensary provided for and full time doctors

are provided.

Every employee contributes towards a benevolent fund which is given to the

needy employee in case of exigencies.

HEALTH AND SAFETY:

All our workers and staff know and strictly follow the necessary safety

requirements in different working conditions. We have special refresher training

programs for all the staff/ workers in the area of safety.

All the necessary safety equipments – both at personal level and factory

level are provided and are renewed periodically.

Apart from having a qualified doctor and dispensary available round the

clock at all our factory premises, we also organize annual medical camps for our

staff and workers.

The staff and workers’ quarters provided at our units are one of the best in

terms of hygiene and other facilities

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MBA Programme

ENVIRONMENT:

We are having a zero discharge policy at all of our manufacturing units. We

will be fully recycling the water we are using Over 90% of our total production

comes only from natural/ organic fibers. All our units are having water

harvesting systems.

We are striving to achieve the ISO 14001certification

At least one third of the factory area at all our units will be covered by greenery.

We

Comply with all the regulatory norms for environment protection and up

gradation

SOCIAL RESPONSIBILITIES OF SREE LALITHA PARAMESWARI SM

EDUCATION:

Mandava Foundation strives to provide various opportunities for learning to

those who have never been to school, or have dropped out of it; it also works to

improve the quality of education in schools.

Establishing/running elementary schools, secondary schools, high schools,

colleges’ industrial, technical, vocational and other art, craft and science

schools, institutions of learning.

Hostels for the benefit of the students.

Providing books to deserving school children.

Scholarships to merit students for pursuing higher education.

Propagation of adult education.

Establishing libraries, reading rooms for creating reading habit among rural

people

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HEALTH CARE:

Providing medical care to people in rural areas where no medical facilities exist.

The Foundation aims to serve the people in various ways:

To establish, maintain, run Hospitals,

Nursing homes, Clinics, Surgical Theaters, Health Centers construction

and   maintaining 

Hospital, nursing, clinical, surgical, theater Health centers.

Provide facilities for helping the sick people viz. first aid centers, ambulances,

diagnostic centers, counseling centers.

RURAL DEVELOPMENT:

Agriculture being the mainstay in rural areas, to help farmers in higher

productivity, the Foundation plans to:

Establish/ maintain agriculture research stations for carrying out research to find

solutions for various problems by solving which the agriculture     productivity

can increase and the farming community by and large can benefit.

Provide help in agricultural extension activities for spreading the knowledge

about the new techniques and research findings for benefiting the farming

sector. Help the farmers who are underemployed and also the land

less unemployed poor for improvement in their livelihoods.

By providing work in rural areas through vocational training. Aiding by

contribution to institutions/NGOs involved in such activities. Establish adult

education centers, libraries in rural areas to create awareness in them to about the

developments in the country as well as in the world.  To establish or render help

any institution for alleviation of human suffering in rural areas.

CHAPTER-IV

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DATA ANALYSIS AND INTERPRETATION

Statements showing the change in working capital for 2013-2014

Particles Mar '14 Mar '13Capital Work in Progress 1,105.32 259.37

Investments 3,730.32 1,669.55

Inventories 1,956.52 821.70

Sundry Debtors 602.29 215.83

Cash and Bank Balance 144.79 83.73

Total Current Assets 2,703.60 1,121.26

Loans and Advances 1,055.10 374.92

Total CA, Loans & Advances 3,758.70 1,496.18

Current Liabilities 4,610.46 1,992.60

Provisions 573.49 161.01

Total CL & Provisions 5,183.95 2,153.61

Net Working capital -1,425.25 -657.43

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Calculation of operating profit for the period (2013-2014)

Particulars Amount Amount (Cr) (Cr) 2014 2013

Net profit 1404.23 1093.24

Add: depreciation 765.73 388.08

Gross cash generated 2169.96 1481.32

Less: taxation for the year ----

Net cash generated 2169.96 1481.32

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MBA Programme

STATEMENT OF SOURCES AND APPLICATION OF CASHFOR THE PERIOD (2013-14)

Sources Rs Applications Rs

Secured loans vehicles 2,64,04,635 Increase in Gross Block 5,04,88,853

Unsecured loans 3,05,46,865

Secured loans paid 8,80,360

Cash from operation 2,17,13,768 Net increase in 2,72,96,055 Working Capital

7,86,65,268 7,86,65,268

Interpretation

From the above table it is observed that the net working capital of the

company shows increasing trend. The current assets of the company have

increased from Rs.8,24,33,147 to Rs.9,00,07,437 in 2013-2014. The current

liability of the company showing decreasing trend from Rs.7,41,08,130 to 5,43,

86,365 in 2013-2014. The net capital company stood at Rs.83,25,017 in 2013-

2014. And it is increased to Rs.3,56,21,072. The increasing working capital is

recorded as Rs.2,72,96,055.

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It is evident from the above table that the total cash flow during the period

from 200-2006. Amount Rs.7,86,65,267. In the total cash flow 27.65% was

received from cash from operation, 33.56% received from secured loans and

38.8% was received from unsecured loans.

Regarding the application of cash 1.2% used for repayment of secured loans

and 64.18% used for purchase of fixed assets and cash used for working capital

constitution 34.69% respectively.

Conclusion:

It is concluded that during the period 2013-14 33.57% secured loans,

38.83% unsecured loans, 27.60% cash for operation. Increasing gross block

64.02%, 34.70% net increasing working capital, 1.12% secured loans paid.

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Statements showing the change in working capital for 2012-2013

Particles Mar '13 Mar '12

Capital Work in Progress 259.37 677.28

Investments 1,669.55 1,034.80

Inventories 821.70 691.97

Sundry Debtors 215.83 186.18

Cash and Bank Balance 83.73 104.49

Total Current Assets 1,121.26 982.64

Loans and Advances 374.92 395.71

Total CA, Loans & Advances 1,496.18 1,378.35

Current Liabilities 1,992.60 1,860.59

Provisions 161.01 121.80

Total CL & Provisions 2,153.61 1,982.39

Net Working capital -657.43 -604.04

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Calculation of operating profitFor the period (2012-13)

Particulars Amount Amount (Cr) (Cr)

2013 2012

Net profit 1093.24 977.02

Add: depreciation 388.08 323.00

Gross cash generated 1481.32 1300.02

Less: taxation for the year ----

Net cash generated 1481.32 1300.02

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STATEMENT OF SOURCES AND APPLICATION OF CASHFOR THE PERIOD (2012-2013)

SOURCES AMOUNT APPLICATIONS AMOUNT

SECURED LOANS 4,72,908 SALES UNSECURED-LOANS 16,34,480 SECURED LOAN VEHICLE 1,86,10,566 GROSS BLOCK 3,32,36,937

CASH FROM OPERATION 2,18,70,705 INCREASE IN WORKING 60,82,762

WORKING CAPITA

4,09,54,179 4,09,54,179

INTERPRETATION:

From the above table it is observed that the net working capital of the

company shows increased From Rs. 9,00,07,439 to Rs. 10,85,93,163 in 2012-13.

The Rs. 6,68,89,330 in 2012-13. The net working capital of the company stood

Rs. 3,56,21,073 in 2012-2013.And it is increased to Rs. 4,17,03,833. The

increasing Working capital is recorded as Rs. 60,82,761.

It is evident from the above table the total cash flow during the period from

2012-13.Amount Rs 4,09,54,179. In the total cash flow 53.40% was received from

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cash operation and 45.44% was received from unsecured loans (vehicles) and

1.15% was received from secured loans.

Regarding the application of cash 3.99% used for repayment of

unsecured loans and 81.16% used for purchase of fixed assets and cash used for

working capital constitution 14.85% respective.

CONCLUSION:

It is concluded that during the period 2012-123 more than 53.4% of the cash

came trading activities 1.16% used in secured loans, 45 the application of cash

around 81.16% of the cash utilized for investing in fixed assets. And 3.99% used

for repayment of unsecured loans.

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Statements showing the change in working capital for 2011-2012

Particles Mar '12 Mar '11

Capital Work in Progress 677.28 2,283.15

Investments 1,034.80 170.90

Inventories 691.97 609.76

Sundry Debtors 186.18 216.61

Cash and Bank Balance 104.49 100.69

Total Current Assets 982.64 927.06

Loans and Advances 395.71 390.43

Total CA, Loans & Advances 1,378.35 1,317.49

Current Liabilities 1,860.59 1,708.96

Provisions 121.80 125.55

Total CL & Provisions 1,982.39 1,834.51

Net Working Capital -604.04 -517.02

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Calculation of operating profit

For the period(2011-2012)

Particulars Amount Amount (Cr) (Cr)

2012 2011

Net profit 977 .02 1007.61

Add: depreciation 323.00 237.23

Gross cash generated 1300.02 1244.84

Less: taxation for the year ----

Net cash generated 1300.02 1244.84

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STATEMENT OF SOURCES AND APPLICATION OF CASH FOR THE PERIOD (2011-2012)

Sources Rs Applications Rs

Increase in Secured loans 1,10,42,798 Increase in Gross Block 92,42,544 Net increase in

Working capital 6,61,506

Cash from operation 2,28,49,042 Secured loans paid 1,84,70,442 5,17,348

Sale unsecured loans

3,38,91,840 3,38,91,840

Interpretation:

From the above table it is observed that the net working capital of the

company shows increased From Rs. 10,85,93,165 to Rs. 10,60,39,507 in 2011-12.

The Rs. 6,36,74,166 in 2011-12. The net working capital of the company stood

Rs. 4,17,03,835 in 2011-12. And it is increased to Rs. 4,23,65,340. The increasing

Working capital is recorded as Rs. 6,61,506.

It is evident from the above table the total cash flow during the period from

2011-12. Amount Rs 2,28,49,042. In the total cash flow 67.42% was received and

32.58% was received from secured loans.

Regarding the application of cash 54.49% used for repayment of secured

loans,16.28% used for repayment of unsecured loans and 27.27% used for

purchase of fixed assets and cash used for working capital constitution 1.95%

respective.

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CONCLUSION:

It is concluded that during the period 2011-12 more than 67.42% of the cash

came trading activities .32.58% increase in secured loans in the application of cash

around 27.27% of the cash utilized for investing in fixed assets. 54.49% used for

repayment of secured loans and 16.28% used for repayment of unsecured

loans.1.95% net working capital.

Statements showing the change in working capital for 2010-2011

Particles Mar '11 Mar '10

Capital Work in Progress 2,283.15 696.95

Investments 170.90 483.45

Inventories 609.76 433.58

Sundry Debtors 216.61 183.50

Cash and Bank Balance 100.69 89.59

Total Current Assets 927.06 706.67

Loans and Advances 390.43 265.46

Total CA, Loans & Advances 1,317.49 972.13

Current Liabilities 1,708.96 1,308.93

Provisions 125.55 18.47

Total CL & Provisions 1,834.51 1,327.40

Net Current Assets -517.02 -355.27

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Calculation of operating profitFor the period(2010-2011)

Particulars Amount Amount (Cr) (Cr)

2011 2010

Net profit 1007.61 782.28

Add: depreciation 237.23 226.25

Gross cash generated 1244.84 1008.53

Less: taxation for the year ----

Net cash generated 1244.84 1008.53

STATEMENT OF SOURCES AND APPLICATION OF CASH FOR THE PERIOD OF 2010-2011

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Sources Rs Applications Rs

Increase in Secured loans 1,39,73,064 Increase in Gross Block 3,50,70,719 Net increase in

Working capital 1,36,43,361Secured loans(Vehicles) 1,16,12,921

Cash from operation 2,33,71,281

Sale unsecured loans 2,43,186

4,89,57,266 4,89,57,266

Interpretation:

From the above table it is observed that the net working capital of the

company shows increased From Rs.10, 60, 39,507 to Rs.12, 90, 00,864 in 2010-11.

The Rs.7,29,92,162 in 2010-11. The net working capital of the company stood

Rs.4,23,65,341 in 2010-11. And it is increased to Rs.5,60,08,702. The increasing

Working capital is recorded as Rs.1,36,43,361.

It is evident from the above table the total cash flow during the period from

2010-11. Amount Rs.2,33,71,281. In the total cash flow 47.74% was received and

28.54% was received from unsecured loans,23.72% was received from secured

loans(vehicles).

Regarding the application of cash 0.50% used for repayment of unsecured

loans and 71.64% used for purchase of fixed assets cash used for working capital

constitution 27.87% respective.

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CONCLUSION:

It is concluded that during the period 2010-11 more than 47.74% of the cash

came trading activities 23.72% used in secured loan vehicles 28.54% increase in

secured loans application of cash around 71.64% of the cash utilized for investing

in fixed assets, and 0.50% used for repayment of unsecured loans. 27.87%

networking capital

NET INCREASES IN WORKING CAPITAL

YEAR INCREASE /

DECREASE

AMOUNT

2010-2011 INCREASE 517.02

2011-2012 INCREASE 604.04

2012-2013 INCREASE 657.43

2013-2014 INCREASE 1425.25

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The above table observed that the working capital Increased. In year 2010–11 the

working capital has been increased. In the year 2011-12 the working capital is Rs.

Due to the decrease in current liabilities the net working capital is increased.

Changes in cash from operations

YEAR AMOUNT2010-2011 100.69

2011-2012 104.49

2012-2013 83.73

2013-2014 114.79

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The above table explains that continuous fluctuations in flow of cash from

operation.

In the year 2010-11 the cash from operation is increased .The cash from operation

in the years & it has increased. in the year 2011-12. The cash from operation in the

year 2013-14 is Rs. 114.71.

USES & APPLICATION OF CASH

APPLICATION

2010-11 2011-12 2012-13 2013-14

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Increase in Gross Block

Secured loans paid

Unsecured loans

5,04,88,853

8,80,360

----

3,32,36,937

------

16,34,480

92,42,544

1,84,70,442

55,17,348

3,50,70,719

----

2,43,186

The above table shows that Gross block has increased to Rs. 5,04,88,853 in

2010-11. & Rs. 3,32,36,937 in 2011-12. The secured loans paid Rs.8,80,360 in

2010–11 &Rs.1,84,70,442 in 2012-13. The unsecured loans paid Rs.16,34,481in

the year2011-12. Next year Rs.55,17,348.And the last year Rs.2,43,186

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010

Income Schedule Rs.

Gross sales (including excise duty) 1341716993

L 49259933

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Other income 139097609

Expenditure 2781953005

Ram materials consumed 181903306

Payments and benefits of employees M1 99557971

Manufacturing, selling administration and M 892417716

Other expenses 598078982

Excise duty N 1497310

Interest 28600214

Depreciation 72918704

Increase / decrease in stocks 135681510

Profit (Loss) before reliefs and

concessions and writeoffs

80503442 55178068

Add: reliefs and concessions 741142301

Refer Note No:20 (b) of schedule o) 2832301456

Earning per share

(refer note No 27 of schedule “O”

Basic -1.42

Dilted -1.42

Note: The schedules notes and statement on accounting policies from an integral part of the profit and loss account

BALANCE SHEETS AS AT 31ST MARCH 2010

Schedules Rs. Rs.I. Sources of Cash:1. Share holders Cash:a. Capital A 566992680

81 ECE

MBA Programme

b. Reserves B 15725555832139548263

2. Loan Cash:a. Secured loans b. Unsecured Loans

CD

1857340134489946869

4486835132II. Application of Cash 1. Fixed Asses Gross profit E 3373507089Less: Depreciation 1606060818Net profit 176,74,46,271Capital work – in – progress 605167102. Investments F 15003. Current assts, loans and advances sundry debtors

G1 141292290

Cash & bank balances G2 178132470Other current assets G3 48130040Loans & advances H 86172470

454572470Less: current liabilities & provisions a. Liabilities b. Provisions

IJ

65194157320561230

Net current assets 2179531604. Deferred tax assets (Net) K 5548823275. Profit & loss account 2321941484

4486835132

Note: The schedules, notes and statements on accounting policies from an integral part of the balance sheet.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010

PARTICULAR RS.Cash flow from operating activities profit (loss) as per profit and loss account

80503442

add (less) adjustments for 18530324Depreciation 72918704Extraordinary items (Reliefs & concessions) 55178068

82 ECE

MBA Programme

Extraordinary items (deferred revenue expenditure) 15890678Extraordinary items deferred tax asst (net) 12,000Credit balances written back 3216554Dividends received 3345291Interest received 21028Assets written off 3870495Less on sales of assets 156567Provision for gratuity 140432984Provision for leave encashment 756567Interest 2150897Provision for doubtful advances 767416Profit on sale of investments 156110Store written off 62595791Operating profit before working capital changes 1143152Adjustments for 61385596Inventories 139064443Trade & other receivables 199306887Trade payables 136711096Cash flow form investing activities Purchase of fixed assets (net after transfer form capital work in progress

1058980

Interest received 2127742Sale of fixed assets 3479111Sale of investments 2227555Dividends received 7272415Taxes paid 12000Deferred revenue expenditure 905990Net cash used in investing activities 2389369c. cash flow from financing activities Interest paid 44432595Un secured loans 29683876Repayment of secured loans 70488164Net increase in cash and cash equivalents 144604635Add: cash and cash equivalents as at 31-03-2002 5495170Cash and cash equivalent as at 31-03-2003 53625210

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2011

Income Schedule Rs.

Gross sales (including excise duty) 1255575

256178

83 ECE

MBA Programme

Other income L 999397

EXPENDITURE

Ram materials consumed 185864

Payments and benefits of employees M1 98768

Manufacturing, selling administration and M2 815540

Other expenses 4.95

Excise duty 165471

Interest 16304

Depreciation 1282442

Increase / decrease in stocks 17782

Profit (Loss) before reliefs and concessions and

writeoffs

-2851.60

10.3

Add: reliefs and concessions -2841.30

Refer Note No:20 (b) of schedule o) -2841.30

Earning per share -23219.42

(refer note No 27 of schedule “O” 26028.61

Basic -4.96

Dilted -4.96

Note: The schedules notes and statement on accounting policies from an integral part of the profit and loss account

BALANCE SHEETS AS AT 31ST MARCH 2011

Schedules Rs. Rs.I. Sources of Cash:1. Share holders Cash:a. Capital A 566996

84 ECE

MBA Programme

b. Reserves B 1477272

2. Loan Cash:a. Secured loans b. Unsecured Loans

CD

1961652463580 4469498

II. Application of Cash 1. Fixed Asses Gross profit

E 33618131704722

Less: Depreciation 1657091Net profit 1714634Capital work – in – progress F 0.022. Investments 1129623. Current assts, loans and advances sundry debtors

148221

Cash & bank balances 54587Other current assets 1.1Loans & advances 81563

398443Less: current liabilities & provisions a. Liabilities b. Provisions

IJ

77898425552

Net current assets 5060934. Deferred tax assets (Net) K 5580935. Profit & loss account 4469497

Note: The schedules, notes and statements on accounting policies from an integral part of the balance sheet.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2011

PARTICULAR RS.Cash flow from operating activities profit (loss) as per profit and loss account

-2809.20

add (less) adjustments for 163.04Depreciation -10.3

85 ECE

MBA Programme

Extraordinary items (Reliefs & concessions)Extraordinary items (deferred revenue expenditure) -132.11Extraordinary items deferred tax asst (net) -69.87Credit balances written back Dividends received -23.99Interest received Assets written offLess on sales of assets Provision for gratuity 0.13Provision for leave encashment 33.94Interest 16.11Provision for doubtful advances 1654.71Profit on sale of investments Store written off -1083.59Operating profit before working capital changes Adjustments for 283.3Inventories 346.53Trade & other receivables 132919Trade payables 1959.02Cash flow form investing activities -8.61Purchase of fixed assets (net after transfer form capital work in progress

35.1

Interest received 21.11Sale of fixed assets 8.51Sale of investments -Dividends received -Taxes paid 3.49Deferred revenue expenditure -Net cash used in investing activities 59.6c. cash flow from financing activities Interest paid -793.35Un secured loans -294.52Repayment of secured loans 221.41Net increase in cash and cash equivalents 870.46Add: cash and cash equivalents as at 31-03-2002 64.57Cash and cash equivalent as at 31-03-2003 481.3

545.87

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2012

Income Schedule Rs. Rs.

Gross sales (including excise duty) 15599.47

Rs.263022805 (Rs.290023286) 3046.76

86 ECE

MBA Programme

Other income L 12552.71

EXPENDITURE 13526.69

Ram materials consumed 2203.57

Payments and benefits of employees M1 1017.77

Manufacturing, selling administration

and

M2 10070.05

Other expenses -5.42

Excise duty 1844.92

Interest 126.71

Depreciation 15257.60

Increase / decrease in stocks 9.65

Profit (Loss) before reliefs and

concessions and writeoffs

1740.56

1957.61

Add: reliefs and concessions 217.05

Refer Note No:20 (b) of schedule o) 1.93

Earning per share 26028.61

(refer note No 27 of schedule “O” 25787.28

Basic 0.43

Dilted 0.43

Note: The schedules notes and statement on accounting policies from an integral part of the profit and loss account

BALANCE SHEETS AS AT 31ST MARCH 2012

Schedules Rs. Rs.I. Sources of Cash:

87 ECE

MBA Programme

1. Share holders Cash:a. Capital b. Reserves

A B

5669931359168 1926161

2. Loan Cash:a. Secured loans b. Unsecured Loans

CD

16079.066040.2822119.34 14380.95

II. Application of Cash 1. Fixed Asses Gross profit

E 33480.69

Less: Depreciation 18077.65Net profit 15403.04Capital work – in – progress F 559.07 15962.112. Investments 0.023. Current assts, loans and advances sundry debtors

1042.051537.42

Cash & bank balances 391.28Other current assets 21.32Loans & advances 1223.55 1215.62

398443Less: current liabilities & provisions a. Liabilities b. Provisions

IJ

9944.67246.55

Net current assets -59.7564. Deferred tax assets (Net) K 5975.605. Profit & loss account 5607.14 41380.95

Note: The schedules, notes and statements on accounting policies from an integral part of the balance sheet.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2012

PARTICULAR RS.Cash flow from operating activities profit (loss) as per profit and loss account add (less) adjustments for 126.71

88 ECE

MBA Programme

Depreciation 1957.61Extraordinary items (Reliefs & concessions) 1.93Extraordinary items (deferred revenue expenditure) 26.21Extraordinary items deferred tax asst (net) 28.98Credit balances written back 0.44Dividends received 19.05Interest received 10.08Assets written off 1844.92Less on sales of assets 19.99Provision for gratuity 768.49Provision for leave encashment -596.62Interest Provision for doubtful advances Profit on sale of investments Store written offOperating profit before working capital changes Adjustments for 87.58Inventories 499.49Trade & other receivables 2093.51Trade payables 1681.60Cash flow form investing activities Purchase of fixed assets (net after transfer form capital work in progress

1084.98

Interest received 138.59Sale of fixed assets 16.36Sale of investments 18.77Dividends received 14.63Taxes paid 780.72Deferred revenue expenditure Net cash used in investing activities c. cash flow from financing activities Interest paid 1133.2Un secured loans 1330.51Repayment of secured loans 2012.29Net increase in cash and cash equivalents 2020.29Add: cash and cash equivalents as at 31-03-2002 154.59Cash and cash equivalent as at 31-03-2003 545.87

391.28

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2013

Income Schedule Rs. Rs.

Gross sales (including excise duty) 12282.69

89 ECE

MBA Programme

Rs.263022805 (Rs.290023286) 2143.2

Other income L 10139.49

3733.73

13873.22

EXPENDITURE M1 1469.92

Ram materials consumed M2 10194.83 2737.52

Payments and benefits of employees 165.51

Manufacturing, selling administration

and

16331.68

Other expenses 93.88

Excise duty 16237.8

Interest 2364.58

Depreciation 6501.01

Increase / decrease in stocks 4136.43

Profit (Loss) before reliefs and

concessions and writeoffs

0

Add: reliefs and concessions 91.97

Refer Note No:20 (b) of schedule o) 4017.02

Earning per share -25787.28

(refer note No 27 of schedule “O” 21770.26

Basic 3.43

Dilted --

Note: The schedules notes and statement on accounting policies from an integral part of the profit and loss account

BALANCE SHEETS AS AT 31ST MARCH 2013

Schedules Rs. Rs.I. Sources of Cash:1. Share holders Cash:

90 ECE

MBA Programme

a. Capital b. Reserves

A B

11711.7312607.63 24319.36

2. Loan Cash:a. Secured loans b. Unsecured Loans

CD

6601.835581.34 12183.17

36502.53II. Application of Cash 1. Fixed Asses Gross profit

E 32484.5919592.12

Less: Depreciation 12892.47Net profit 39.25Capital work – in – progress F 12931.722. Investments 1293.06 0.023. Current assts, loans and advances sundry debtors

1293.06

Cash & bank balances 1070.44 1070.44Other current assets 736.74Loans & advances 26.42

1904.46 5031.12Less: current liabilities & provisions a. Liabilities b. Provisions

IJ

8472.77273

Net current assets 3712.654. Deferred tax assets (Net) K 5515.815. Profit & loss account 21770.26 36502.53

Note: The schedules, notes and statements on accounting policies from an integral part of the balance sheet.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2013

PARTICULAR RS.

Cash flow from operating activities profit (loss) as per profit

and loss account

4017.02

91 ECE

MBA Programme

add (less) adjustments for

Depreciation 165.51

Extraordinary items (Reliefs & concessions) -6501.01

Extraordinary items (deferred revenue expenditure) 27.44

Extraordinary items deferred tax asst (net) 91.97

Credit balances written back -37.19

Dividends received 78.22

Interest received 523.22

Assets written off

Less on sales of assets

Provision for gratuity

Provision for leave encashment 7.95

Interest 2737.52

Provision for doubtful advances 3492.19

Profit on sale of investments 11.62

Store written off -2215.43

Operating profit before working capital changes

Adjustments for -263.18

Inventories -539.26

Trade & other receivables 1505.67

Trade payables 703.23

Cash flow form investing activities

Purchase of fixed assets (net after transfer form capital work

in progress

-13.73

Interest received 15.99

Sale of fixed assets 7312

Sale of investments 4.92

Dividends received -12.51

Taxes paid 35.81

Deferred revenue expenditure

92 ECE

MBA Programme

Net cash used in investing activities

c. cash flow from financing activities

Interest paid 241.33

Un secured loans 899.82

Share premium received 2647.25

Repayment of secured loans 1352.74

Net cash fro financing ativities -650.70

Net increase in cash and cash equivalents 1821.85

Add: cash and cash equivalents as at 31-03-2002 345.46

391.28

Cash and cash equivalent as at 31-03-2003 736.74

93 ECE

MBA Programme

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2014

Income Schedule Rs. Rs.

INCOME 51538.99

Gross sales (including excise duty) 7285.09

Rs.263022805 (Rs.290023286) L 44253.9

Other income 880.78

EXPENDITURE M1 45134.68

Ram materials consumed M2 6857.43

Payments and benefits of employees 2479.33

Manufacturing, selling administration

and

26909.33

Other expenses 18.14

Excise duty 1609.45

Interest 129.18

Depreciation 38003.38

Increase / decrease in stocks -70.6

Profit (Loss) before reliefs and

concessions and writeoffs

7201.90

Add: reliefs and concessions 20.22

Refer Note No:20 (b) of schedule o) 39.61

Earning per share 21770.26

(refer note No 27 of schedule “O” 14374.65

Basic 6.14

Dilted 5.66

Note: The schedules notes and statement on accounting policies from an integral part of the profit and loss account

94 ECE

MBA Programme

BALANCE SHEETS AS AT 31ST MARCH 2014

Schedules Rs. Rs.I. Sources of Cash:1. Share holders Cash:a. Capital b. Reserves

A B

11711.7312607.63 24502.34

2. Loan Cash:a. Secured loans b. Unsecured Loans

CD

6601.835353.43 12183.17

II. Application of Cash 1. Fixed Asses Gross profit

E 3650332484.5919592.12

Less: Depreciation 12892.47Net profit 39.25Capital work – in – progress F 12931.722. Investments 0.023. Current assts, loans and advances sundry debtors

1293.06

Cash & bank balances 1070.44Other current assets 736.74Loans & advances 26.42

1931.72Less: current liabilities & provisions 5031.12a. Liabilities b. Provisions

IJ

8472.778472.77

Net current assets 3714.654. Deferred tax assets (Net) K 21770.265. Profit & loss account 36502.53

Note: The schedules, notes and statements on accounting policies from an integral part of the balance sheet.

95 ECE

MBA Programme

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2014PARTICULAR RS.

Cash flow from operating activities profit (loss) as per

profit and loss account

add (less) adjustments for

Depreciation 7395.61

Extraordinary items (Reliefs & concessions) 129.18

Extraordinary items (deferred revenue expenditure) 213.09

Extraordinary items deferred tax asst (net) 39.6

Credit balances written back 222.54

Dividends received -98.8

Interest received 2.69

Assets written off 1.94

Less on sales of assets 1609.45

Provision for gratuity

Provision for leave encashment 233.89

Interest 197.48

Provision for doubtful advances 8192.45

Profit on sale of investments 4729.92

Store written off

Operating profit before working capital changes 4729.92

Adjustments for 14214.84

Inventories 473.29

Trade & other receivables 19418.04

Trade payables 11225.59

Cash flow form investing activities

Purchase of fixed assets (net after transfer form capital 96.22

96 ECE

MBA Programme

work in progress 11321.81

Interest received 326.68

Sale of fixed assets 3447.22

Sale of investments 96.66

Dividends received 279.29

Taxes paid 3397.95

Deferred revenue expenditure 2030.30

Net cash used in investing activities 330.7

c. cash flow from financing activities

Interest paid 874

Un secured loans 1625.64

Share premium received 15143.52

Repayment of secured loans 15943.56

Net cash fro financing ativities 1223.80

Net increase in cash and cash equivalents 736.73

Add: cash and cash equivalents as at 31-03-2002 1960.53

Cash and cash equivalent as at 31-03-2003

97 ECE

MBA Programme

FINDINGS

During the period 2008-2009 more than 28% of the cash came from trading

activities. In the application of cash around 91% utilized for investing in fixed

assets.

During the period 2008-2009 to 2009-2010 more than 27% of the cash came

from trading activities. The application of cash around 64% of the cash was

utilized for investing in fixed assets.

During the period 2008-2009 to 2009-10 more than 53.41% of the cash came

from trading activities. In the application of the cash around 81.17% of the

cash are utilized for investing in fixed assets.

During the period 2009-2010 to 2011-2012 more than 67.42% of the cash

came trading activities. In the application of the cash 27.27% of the cash are

utilized for investing in fixed assets.

During the period 2010-2011 to 2011-2012 more than 47.74% of the cash

came trading activities. In the application of the cash 71.64% of the cash are

utilized for investing in fixed assets.

During the period 2010-11 to 2011-12 more than 54.25% of the cash came

trading activities. In the application of the cash 71.64% of the cash are utilize

for the investing in fixed assets.

98 ECE

MBA Programme

SUGGESTIONS

For the improving the financial performance of the company the

following suggestions are made.

In order to reduce the outside borrowings in the company has to acquire.

The capital from equity sources. Keeping in view the debt equity the

proportion as normal.

The liquidity of the company should be improved by maintaining the

optimum current assets and liquid assets according to standard norms.

The quantum of the sales generated should be improved impressively in

order to attain higher return on investment. To improve the financial

health of the company and maximizing the time between the source

mobilization and utilization the management must introduce the new cost

saving techniques.

99 ECE

MBA Programme

BIBLIOGRAPHY

1. FINANCIAL MANAGEMENT KHAN AND JAIN (TMH Publications)

2. MANAGEMENT ACCOUNTTG

R.K. SHARMA SHASHI K.GUPTA

(KALYANI Publications)

3. THEORY OF FINANCIAL MANEGEMENT I.M.PANDEY

(VIKAS Publications)

4. FINANCIAL MANEGEMENT D.ChandraBose

100 ECE