Cash Flows and Funds Flows.

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INTRODUCTION OF THE STUDY

Introduction To Financial Management

Financial management is the Managerial activity which is concerned with

planning and controlling of the firm’s financial resources. Through it was a branch

of economics till 1890, as a separate activity or discipline it is of recent Origin.

Still, it has no unique body of knowledge of its own, and draws heavily on

economics for its Historical concepts today.

The subject of financial management is of immense interest to both

academicians and Practicing Managers. It is of great interest to academicians

because the Subject is still developing, and there are still certain areas where

controversies exist for which no unanimous solutions have been reached as yet.

Practicing Managers are interested in this subject because among the most crucial

decisions of the firm are those which related to the finance, and an understanding

of the theory of financial management provides them with conceptual and

analytical insights to make those decisions skillfully.

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2. FINANCE FUNCTIONS:

Although, it may be difficult to separate the finance functions from

production, marketing and other functions, yet the functions themselves can be

readily identified. The functions of raising funds, investing them in assets and

distributing returns earned from assets to share holders are respectively known as

financing, investment and dividend decisions. While performing these functions, a

firm attempts to balance cash inflows and outflows. This is called liquidity and we

may add it to the list of important finance decisions or functions.

Finance functions or decisions include:

Investment or long-term assets-mix Decision.

Financing or capital mix decisions.

Dividend or profit allocation decision.

Liquidity or short-term asset-mix decision.

A firm performs finance functions simultaneously and continuously in the

normal course of the business. They do not necessarily occur in a sequence.

Finance functions call for skilful planning, control and execution of a firm’s

activities.

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INVESTMENT DECISION:

Investment decision or capital budgeting involves the decision of allocation of

capital or commitment of funds to long-term assets that would yield benefits in

future. Two important assets of investment decision are:

a) The evaluation of prospective return on new investments and

b) The measurement of a cut-off rate against the prospective (profitability)

return of new investments should be compared.

These investment decisions involves risk. So the financial Managers

evaluate the investment proposals in terms of both return and risk.

FINANCING DECISION:

Financing decision is the second important function to be performed by

the financial manager. Broadly, he or she must decide when, where and how to

acquire funds to meet the firm’s investment needs. The central issue before him or

her is to determine the proportion of equity and debt. The mix of debt-equity is

known as firm’s capital structure. The financial manager must strive to obtain the

best financing mix or the optimum capital structure for his or her firm. Once the

manager is able to determine the best combination of debt and equity, he or she

must raise the appropriate amount through the best available sources.

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DIVIDEND DECISION:

Dividend decision is the major financial decision. The financial

manager must decide whether the firm should distribute all profits, or retain them,

or distribute a portion, and retain the balance. The dividend policy should be

determined in terms of its impact on the shareholder’s value. The optimum

dividend policy is one that maximizes the market value of firm’s share. If the

shareholders are not different to the firm’s dividend policy, the financial manager

must determine the optimum dividend-pay-out ratio. The pay out ratio is equal to

the percentage of dividends to earnings available to share holders. The financial

manager should also consider the questions of dividend stability, bonus shares and

cash dividend in practice.

LIQUIDITY DECISION:

Current assets management that affects a firm’s liquidity is yet

another important finance function, in addition to the management of long-term

assets. Current assets should be managed efficiently for safeguarding the firm

against the dangers of illiquidity and solvency. If the firm does not invest sufficient

funds in current assets, it may become illiquid. But it would lose profitability, as

idle current assets would not earn anything. In order to ensure that neither

insufficient nor unnecessary funds are invested in current assets, the financial

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manager should develop sound techniques of managing current assets. He or she

should estimate firm’s needs for current assets and make sure that funds would be

made available when needed. So we may conclude that these finance functions

may affect the size, growth, profitability and risk of the firm, ultimately the value

of the firm.

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SCOPE OF THE STUDY:-

The study has been conducted to understand the position of the industry and

various functional areas of the company and their operations. The study mainly

focuses on Funds flow anylasis of the company.

NEED FOR THE STUDY:-

The basic need is to complete a project work for the partial fulfillment of

my Master’s degree. With this need the search started for the topic that was

appealing and that would make most of my skills and abilities.

The project work is carried out by me in Foods, Fats and Fertilizers

Limited, Tadepalligudem and the aim of project is to analyze the Funds flow

anylasis of the company.

The “Funds flow anylasis ” has emerged as the principal technique of

the Analysis of Financial Statements. The Funds flow anylasis can be used with

other measures to fully evaluate the operational effiency and also provide a

standard of comparison at a point of time and allows comparisons with other

firms .It can be used to analyze financial position to identify the trends, shift in

trends or other factors.

For the purpose of the study FFF Ltd is chosen. It necessary to identify

the financial strengths and weaknesses of FFF Ltd by establishing relationship

between different items of reference.

The present study is entitled “Financial Performance of Foods, Fats and

Fertilizers Ltd by using Funds flow anylasis ” this study is made with special

emphasis on financial position by using Funds flow anylasis .

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The retained profit in the year 2004-2005 is decreased when compared to the

years 2003-2004 and 2002-2003. The company is involved in more projects which

needed gestation period. The main reduction in the commodity trading.

Considering the financial background of the company the retained profits increased

from the years 2002-2003 to 2003-2004.

The profit in year 2001-2002 is more when compared to other, this is

because depreciation, profit before tax, profit after tax and provision of taxes are

more when compared to other years.

Interest and provision for dividend and tax are less when compared to other

and thus detained profits are more in the year 2002.

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Objectives of the study:

The main objective of the study is to study the overall financial position of

the company from 2006-2010.

To study the financial performance of the company.

To study the sources and applications to the cash.

To offer suggestions for improvement in the relevant aspects.

To find out the financial stability of the firm.

To know how effectively the company is using its resources.

To measure the extent to which the company has been financing its needs

through borrowing.

To study about the profile of the oil industry and the FOODS,FACTS

AND FERTILISERS Ltd. Company profile.

To make an overall view on theoretical approach of cash flow and funds

flow statements.

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Methodology:

The data used for preparing this report is through 2 sources.

1. primary data.

2.secondary data.

Primary data:

Primary data was collected on the basis of personal observations discussions

and through interviews.

Secondary data:

Secondary data has been collected by referring to various annualreports and

records / documents of the company.

a)Annual Reports:

These are one of the important sources of information in collecting secondary data.

By referring the previous annual reports, the financial position of the company and

its requirement of funds for ratio analysis has been arrived.

b) Records & Documents:

These consists of

1. Balance sheet

2. Profit / Loss account.

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Limitations of the study:

The time given to complete this project is very limited,

The study is based on accounting information.

The analysis is made from the information given by the organization.

The study was conducted with limited data available and analysis was done

accordingly.

The complexity and confidentiality of various operations is also a limitation

to this study.

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CHAPTER II

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INDUSTRY PROFILE

INTRODUCTION

In the Indian context, the term ‘Vegetable Oils’ is almost synonymous with

‘Edible Oils’ and land is not used as cooking media. However it is important to keep this

distinction in mind not all Vegetable Oils are Edible - Some including caster oil are

mostly non-edible and some of the edible oils like Ground Nut and Coconut are finding

increasing industrial applications as in cosmetic, soap making etc.

By virtue if they’re high nutritive content, Edible oils from a major source of

nutrition. The fatty acids in Edible Oils are required by the body as a vehicle for carrying

vitamins, provide oil cakes, which are by-product of the oil extraction process, are

important source of animal nutrition. These can be processed in to Edible flavors, which

are rich in proteins.

Oil seeds occupy an important position as the agriculture map pf and rank second

after food grains as a farm commodity crop. India accounts for a tenth of the world out

put of Vegetable Oils and fats. It is the largest produces of Ground Nut, rapeseed,

mustard and sesame, second in respect of castor seeds, third in coconut, fourth in cotton

seed and fifth in line seed.

Our country has a highly developed oil based industry. Providing gainful

employment to nearly 15 million persons besides another half a million engaged in

milling and processing units. It is essential a food-oil industry accounting for four fifths

of the total supply of Vegetable Oils. Soap paints and varnish industries from the bulk of

non-food applications.

In spite of their national importance, production of food grains has been suffering

a negative growth rate all these years. Only during the first plan period, the Targets set

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for production were realized after this no impressive achievement was recorded. The

main contributory factors are two fold, first only marginal land, in rain fed areas is being

used for their cultivation resulting inevitable in low productivity, second agriculture in

India is still subject to the vagaries of monsoon which makes for erratic production. It is

little wonder therefore that the annual rate; of growth of oil-seed production for the

decade 1965-1976 was a mere 1.2 percent while that of oil seed productivity, an equally

dismal one percent.

Viewed in the global context, India has the dubious distinction of having the

highest acreage under oil seeds and recording the highest output, and yet showing the

lowest yield, at 736 kg. India’s yield per hectare is lower than that of Nigeria (1615.38

Kg) U.S.A. (91474.58 Kg), Argentina (1153.49 Kg.) and China (1148.55 kg.) The

following table would give picture of Indian’s placing in the world settings.

For the year 1980-81, target for oil-seed production had been fixed at 11 million

tones, actual production however lagged behind, with; provisional estimates

Placed at 10.2 million tones. Production of live major oil seeds viz./ groundnut,

rare seed mustard, sesame, line seed and castor seed and is estimated to be around 90

lakes tones, which is about 13 percent higher than the previous year’s production.

Production estimates of groundnut at 57 lake tones however show decline of 70,000

tones. At 2 lack tones castor seed production has also registered a decrease of 30,000

tones. Rapeseed, sesame and line seed have however, registered increase over the

previous year’s production levels.

The central Government therefore took various measures to increase production of

oil seeds. A centrally sponsored scheme for an intensive oil seed development

programmed was operated in 14 states with a coverage target 40.6 lakes hectors under a

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liberalized pattern of central, assistance. However actual coverage was only 36 lake

hectares and the short fall was attributed to serve

Brought conditions in several states during the kharrif season.

Short falls in production persisted in the oil year 1981-82 as well. As a result,

domestic industry could not meet the consumption needs respect of edible oils. The total

edible and supplies from indigenous sources were estimated at about 30 lake tones in

1981-82 (which however higher than the previous year’s levels of 25 lakes tones). The

gap of 10 lake tones had to be filled only through imports. Consequently, the state-trading

corporation was asked to import a million tones of Edible Oils during the oil year 1981-

82. The allotment of imported Edible Oils was also pruned in a bid to ensure more

supplies through fair price shops.

The trend of imports in expected to continue in the year to come despite the best

efforts of the union agriculture ministry to raise oil seed output. The genera-based

international trade center has projected import f 13 million tones of Vegetable Oils in

1985. As for exports, it is anticipated that India would export 15 Lake Tones of oil

equivalent of hand picked-selected groundnut, other nuts and castor oil by 1985.

The composition of our exports is expected to under go a change palm oil and

products (palm oil and FBD palm oil) will in further account for an increasing share of

Indian exports soybean oil and rapeseed oil will continue to be imported through their

combined share may fall to about one third of the total imports refined rapeseeds oil

could be the cheep oil for the liquid market while soybean oil is expected to the supplied

to the vanaspathi industry. Regarding production of oils, an increase in the production of

solvent extracted oils such as rice bran oil tree oils in lightly to occur the ITC reports says

that the country could make significant investments in view of it’s resource for this oil

and the demand for Edible Oils. The report has also forecast a rise in the de oiling of

ground nuts cake and other sun cakes the country could also produce 4.5 lakes of tones

seed oil per year.

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PROFILE OF THE OIL INDUSTRY:

The power and strength of the company depends on how strong and secure it is on the

food front. In trying to achieve this goal, the oil seed scenario in the country has

undergone a substantial charge during the post few years. The country is moving away

from a situation of scarcity and huge import bills to one of self-sufficiency and possibly

even export of vegetable oils.

India ranks high among the oil seeds producing countries in the world with perhaps the

larges number of commercial varieties of oil seeds such as ground not, rape and mustard,

sesame, kardi seed, nigerseed, soya beans, sunflower seeds, linseed, castor seed, copra,

cotton seed and a number of minor seeds of tree origin oil seeds takes their place, as the

second largest agricultural crop, next only to food grains. The cultivation of oil seeds in

India is spread over various states with a distinct regional pattern covering about 19 to 20

million hectares, which accounts for about 11 percent of the total land under cultivation

in the country.

In India where fats of animal origin such as fish oil are seldom used as cooking media.

The term “vegetable oils” is used as a synonym for “edible oils”. However it needs to be

recommended that there are, on the one hand vegetables oils such as castor, groundnut

and coconut oils, which are finding increasing. Industrial applications such as in

cosmetics, soap making etc… edible oils are a major source of nutrition for the people in

the country. Oil cakes that are by-products of the oil extraction process are an important

source of animal nutrition. They can also be processed in to protein rich edible.

India has a highly developed oil based industry employing more than 15millon persons.

However it remains essentially food oil. Industry accounting for a much as 83% of the

total supply of vegetable oil in the country. The major non-food users of oil are soap,

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paint and vanish industries. Faced with major demand for their conventional products,

FMCG majors have been planning their hopes on branded staple foods to deliver rapid

top line extension. Negative growth in the oils and fats business has been instruments in

restraining top line growth for the FMCG.

PRODUCTS:

Broadly edible oil or fat products can be categorized as fallows.

a. Vegetable refined oil

b. Hydrogenated oil

c. Bakery fats

Expelled ground oil of good quality can be directly consumed. It can also be refined to

have higher purity other oils such as soya has to be refined to make them edible.

Vanaspathi is obtained by hydrogenation of edible oil. It is used as a suitable for ghee by

some segments of sources and also for making sweets, snacks including biscuits, cakes

etc…

CONSUMER AWARENESS AND PENETRATION:

Among FMCG products, edible oils has one of the highest penetration of 98% in urban as

well as in rural areas penetration of all these 3 cooking medium is very high at 99.8% in

urban areas as well as rural areas.

Vanaspathi penetration averages 17.4% at all India level, significantly higher at 28.8% in

urban areas and 13% in rural areas. It is highest in medium size towns of 0.5-1mm

population of 34.3% in metros and towns.

In metros refined edible oil is a relatively popular cooking medium. The per capita

vegetables oil consumption in the country was 7.6kg p.a in 1997-98, significantly lower

than 8.5 kg p.a during 1996-97.

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CONSUMER HABITS AND PRACTICES:

Edible oil is one form or other is consumed is almost every household, and Indian food

habits show a strong preference for fried vegetables and several other fixed snacks.

Traditionally the north and west have been milk surplus regions in the country. This has

led to surplus ghee production in these areas and higher ghee consumption. The lower

ends of the society which can not afford ghee consume vanaspathi.

Sweet meat makers in the unorganized sector, particularly in the north represent one of

the largest user segments for vanaspathi.

In the south there has been abundant availability of edible oils, namely coconut oil,

ground nut oil, sunflower oil etc. This had led to different consumer habits southern

consumer prefer refined oil cooking medium as compared to ghee or vanaspathi.

Similarly the eastern region, which is milk deficient, has preference for vegetable oil as

cooking medium.

There are also regional and cultural differences in the type of edible oil used for cooking.

For instance kerala uses more of coconut oil for cooking. Sesame oil is widely used in the

north, mustard oil in the north and east while there is an over whelming preference for

groundnut oil is in the west.

Most consumers, especially in the rural areas buy edible oil in loose form. Where as in

large metros loose oil is scarcely available as retailers find it difficult to handle the same.

In medium sized towns, loose as well as branded oil is available.

In the last few years popularity of branded oil has been increasing particularly with the

introduction of low cost poly packs with the government ordering compulsory packaging

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of edible oil in the wake of dropsy deaths in the country due to use of adulterated mustard

oil, the wage of branded oils is expected to witness phenomenal growth.

India accounts for 9.3% of world oil seed production. It has the world’s fourth largest

edible oil economy. In 1999, India ranked as the world’s largest importer of edible oils,

displacing china. The bulk of edible oil, India imports under the open general license is

RBD palmolein of Malaysian and Indonesian origin.

India is one of the worlds leading producer of oil seeds and oil, contributing to 9.3%

world oil seed production. It produces the largest number of commercial varieties of oil

seeds over nearly 28.4 million hectares of land. The major edible oils produced in India

are ground nut, rapeseed, soya, cottonseed, sesame seed, castor seed, sunflower seed, etc.

Groundnut was the most widely consumed and traded edible oil determining edible oil

economics, but is now being displaced by others. India is the world’s second largest

production of groundnut, next only to china. The govt. has set up a technology mission on

oil seeds, to increase production of other oil seeds and oil and to reduce dependence on

imports. The strategy followed was to

Increase productivity with better inputs and practices

Increase area under oil seed crop

Encourage winter oil seed crops.

This led to a sharp increase in oil seed production driven mainly by rapeseed, sunflower,

castor seed and soya. India is today the world’s third largest producer of rapeseed and

cottonseed and the largest producer of caster seed. India has approximately 300 edible oil

refining units, 60-70% of which are in the small scale unlike the bigger refiners, the

smaller one are unable to important huge quantities of crude either low capacity or lack

of financial resources, and may be forced to close down or sell out to the bigger ones in

the fore cable future.

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Another major problem is the low capacity utilization. The installed capacity of oil mills

is around 36 million tones annually, but capacity utilization is only 40% solvent

extraction plants shows only 33% capacity utilization of vegetable oil refineries 40%

utilization.

The import of refined palm oil was put under OGC (Open general license) in March

1994. Other edible oils were put under OGC in April 1995 when an item is brought under

OGC, it means that the item can be imported without seeking any approval.

Originally there was no discrimination between refined and non-refined edible oil as far

as import duty was concerned. The duty on both was 65% duty was then slashed to 30%

for both then to 20% in 1996 and 15 % in the 1999-2000 budgets.

In most parts of the world, import duty on the oil seeds is lower than that on oils. But in

India, it is higher 40%. That is why no import of oil seeds (or) oil-bearing material has

taken place in India. The industry wants the duty to be lowered from the present 40% to

50%.

Edible oil prices in the Indian market have crashed owe to large imports by multinational

trading houses. The edible oil industry is one sector in India that will see considerable

reform in the foreseeable future.

Major players in refined edible oils in the organizational sector are the ITC Agrotech,

Marico Industries, Ahmed mills, Godrej foods. HLL and NDDB. The market is highly

fragmented among various brands. Sundrop refined Sunflower oil brand with around 13l

market share/ ITC Agrotechs other edible oil brands include Real Gold mustard oil,

Crystal refined oil and Sudan unrefined mustard oil. Sweekar sunflower oil marketed by

marica has an 8.2% share and saffola has 7.5% market share other leading edible oil

brands include NDDB’s Dhara rape seed oil. Godrej foods (Godrej cooklite sunflower)

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with 11% market share, HLL’s flora with 2.5% market share (6% in sunflower oil

segment) and Postman with around 8% market share.

The vanaspathi HLL’s Dalda is the oldest and largest brand with close to 36% market

share. Its brand extension Dalda manpasand was launched in 1996. In Feb 98, HLL

launched another brand variant dalda feel light. Other major vanaspathi manufacturers are

Wipro, Amrit Vanaspathi, IVP, Madhusudan industries Rasui and Pioneer Agro.

IMPORT OF EDIBLE OILS:

It has not been done away completely, but whenever import is now made is largely a

measure of precaution than out of any composition from 1988-89. The edible oils import

has been drastically cut down/ In 1996-97, import totaled 3 lakh tones valued at Rs 250

crores during the next 2 years it is expected around the same level. The present import is

significant compared to the napping to 19.45 lakh tones imported value at Rs 969 crore in

1997-98.

India has signed a memorandum of understanding with Malaysia for an annual import of

two lakh tones of palm oil for two years. Besides the country is to receive 50,000 tones of

soya been oil from the U.S. as a gift for meeting social objectives. Although in the

context of exceptionally large oil seeds production during the current year, there is hardly

and need for import, the country may avail the option to import for building a buffer

stock to meet the needs of public distribution system during the lean period.

EXPORT

Export of oil mill, oil seed and minor oils and are expected to gather momentum

following the enouncement regarding the full float of rupee on the trade account,

according to the sources in the trade. The present export scenario shows that the trade is

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in a beyond mood of achieving a formidable target, with increased export earning in the

current year. This basically enacts from bumper oil seeds output of 215 lakh tones in the

offing. This expectation of a bumper crop, moreover has compelled the union ministry of

commerce to raise the current years export target for the oil seeds from Rs 1250 crore

over Rs 1300 crore.

According to the estimates made by the central coordination committee, the exports of oil

mills, oil seeds and minor oils during the current year would be more than 3.3 lakh tones

with a value of Rs 1362 crore as against 30 lakhs tones with the value of Rs 1043 crore

achieved during the year 1996-97 the export of oil meals, oil seeds and minor oil during

the period April 1996 to Jan 1998 stood at over 24 lakhs tones valued at more than Rs

1000 crores.

CUSTOMER SATISFACTION:

Satisfaction is a persons feeling of pleasure (or) disappointment resulting from comparing

a products perceived performance in relation to his (or) her expectation.

As this definition makes clear satisfaction is a junction of perceived performance and

expectations. If the performance falls short of expectation, the customer is dissatisfied. If

the performance matches the expectations, the customer is satisfied or delighted.

Many companies are aiming for high satisfaction because customers who are just

satisfied still find it easy to.

When a better offer comes along those who are highly satisfied are much less ready to

switch. High satisfaction (or) delight creates an emotional affinity with the brand, not just

a rational preference. The request is high customer loyalty.

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CHAPTER III

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PROFILE OF THE ORGANIZATION

Foods Fats & Fertilizers Limited

Introduction:

Foods, Fats and Fertilizers Ltd, Tadepalligudem are a family owned

Organization. It is well known as “foods, fats”. But the West Godavari farmers call

it is a “Tavudu Factory”. This organization is professionally carrying the business

activity by the Goenka family. It is having branches in Madras, Bombay,

Hyderabad, Kakinada, Calcutta and Baroda.

The registered office of Foods, Fats and Fertilizers:

P.B.NO-15

Tanuku road

Tadepalligudem-534101

West Godavari district

Andhra Pradesh.

Foods, Fats and Fertilizers Ltd, Tadepalligudem, West Godavari district was

conceived in 1959, born in 1960 and were on its fact by 1962. Today foods, fats

and fertilizers Ltd has matured into a conglomeration of 20 industrial units spread

over 40 acres constantly buzzing with activity and providing employment to over

630 person

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MISSION:

Safety and quality are the wings of our success.

VISION:

To be the number one edible oils and specialty Fats Company in the country

targeting to reach 1000 crores people by 2010.

PHILOSOPHY OF THE COMPANY:

The philosophy of the organization FFF is “serving the society through the

industry”.

OBJECTIVES OF FFF LTD:

The main objectives of the organization are:

To serve the society through the success in the oil out put.

The objective towards the organization include –

Concern

Commitment

Integrity

Quality

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Foods, Fats and Fertilizers have completed 40 years of existence where it has seen

lots of ups and downs. As the company has incorporated its name as Foods, Fats

and Fertilizers Ltd, it has given 3F as the brand name to all the products it

produces.

The wheel of the fortune has turned a full circle for Mr. B.K.Goenka, the

architect of Foods, Fats and Fertilizers Ltd. Born and Bred in Burma the Goenka

family established and respected in industry and trade.

They had a flouring textile business and a large rice mill. The rice bran from

Mr. Goenka’s mill was avidly sought as animal feed and his observant eyes used to

notice thin deposit of oil in the wrapping papers used for sampling could this oil be

extracted? What would be its quality? These questions had to wait because in 1942

the Japanese invaded Burma and Mr. Goenka had to abandon his business and

return to India.

Being an optimist, he transformed the adversity into opportunity by this got

and determination. After brief spell in his native land in Rajastan, his restless

enterprising zeal brought, Mr. Goenka to madras in 1943 where he is with his

brothers, started export of handloom fabrics. In due course he established a large

textile business.

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In 1959 Mr. Goenka read in a article by Dr. Raghunath Prasad of central and

visited Burma with him to study the relevant technologies though he found that

east German technology better, he was not fully satisfied and asked his brother Ms

G.S. Goenka who was in Japan to study in detail about the Japanese process and

another brother Mr. S.N. Goenka in Europe, to study the process of Hugo of

Germany and Dr. Smith of Belgium mean while he concerned searching for an

ideal location to set up his industry in India. Technology was selected and

Tadepalligudem, the rice bowl of A.P. was finalized as the location for the

proposed extraction plant, the first in India to process rice bran.

This group associates modesty garments and golden needle apparels in

garments and fabrics and Sanyak Udyog in plastic products constantly strengthen

their group activities.

A NEW ERA BEGINS:-

In collaboration with M/S Yoshino seisakusho company Ltd, a renowned

engineering house in Japan we leshered in a unique technology for refining high

FFA. Rice bran oil to induce large production of rice bran oil by providing

diversified outlets and better realization to the solvent extraction plants to achieve

the potential production of 0.6 million tones from the present 0.25 million tones

and almost nothing in 1960.

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FUNCTIONAL PROFILE:-

PRODUCTION:VARIOUS PLANTS IN FOODS FATS AND FERTILIZERS LTD:-

Solvent Extraction:- (Lurgi, West Germany)

Installed and commissioned in 1962 with production capacity 2400 tones pa.

This plant process exclusively for rice bran. Rice bran is tempered and palletized

by the use of hexane, the oil in the bran is extracted. The de oiled bran thus

obtained is packed for export. According to the quality of the oil is extracted is

used for edible and non-edible purposes.

Solvent extraction Plant II:- ( desment, Belgium, India)

Installed and commission in 1972 production capacity 36000 tones PA

process. In thus plant is similar to plant-I however this plant is equipped with

preparatory.

Solvent- extraction plant III:-

Installed and commissioned in 1983 production capacity 45,000 tones pa.

( Fabricated and installed by engineering division of foods, fats and fertilizers Ltd).

This plant is also versatile to process various seeds oiled cakes and kernels. It is

designed, fabricated by foods, fats and fertilizers Ltd, engineering division short

coming of the other plant.

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Its uniqueness is the incorporation of minimize the Hexane loss and facility for low

temperature extraction.

Refinery:-

Installed and commissioned in 1965 production capacity 4500

tones pa. our refinery is equipped with both batch and continuous neutralizes.

Refining process consists of benumbing, caustic neutralization, Bleaching and

deodorization. Deorderdarised oil is passed through polishing filters and sent to

packing section.

Solvent extraction plant(iv):-

(Fabricated and installed by oil ex India and their engineering division)

It was installed and commissioned in 1985 with a production capacity of

45000 tons per annum. These four extraction plants provide variability of operation

in oil seeds and oil cakes and at the same time has advantages in marketing. The

plants have facilities to process a wide varieties of oil seeds, oil cakes like rice

bran, soybean, sunflower, ground nut, rape seed, sesame, mangosal, Niger etc.,

Due to non-availability of sufficient bran and export-import policies of

Indian government, forced the company to stop two solvent plants.

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Fat Splitting plant:-

Installed and commissioned in 1967 into a production capacity of 4500 tones

pa. Oil consists of fatty acids and glycerin. It can be separated from the oil by high

pressure splitting under high pressure and temperature, reaction taxes place, slitting

the oil into crude fatty acid and sweet water which is the dilute from the glycerin is

obtained.

Glycerin plant:-

UNIT NO: 1 installed and commissioned in 1967 with a production capacity

of 300 tons per annum. Sweet water obtains from the fat splitting plant is set to

multi effect vacuum evaporators, where it is evaporated into crude glycerin. The

crude glycerin is further concentrated, deodorized and bleached to yield refined

glycerin.

Hydrogenation plant:-

UNIT NO: 1 commissioned in 1979, UNIT NO 2 in 1982 into a production

capacity of 6000 tons per annum. Rice bran oil bounds in unsaturated fatty acids to

render this oil suitable for making good quality soaps it has to be hydrogenated for

increasing its melting point. Hydrogenated plants consists of cell house,

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compressor room and hydrogenation auto claves. This oil is hydrogenated under

high temperature and pressure using a catalyst.

To obtain better products for premium soaps this hydrogenated rice bran oil is

split and distilled to give hardened distilled fatty acid.

Physical Refinery:-

Installed in 1986, into production capacity of 9000 tons per annum. This is

fabricated by the engineering division of foods, fats and fertilizers Ltd. The

conventional process of refining consists of specifying the free fatty acid in the oil

by the use of an alga. In physical refining the free fatty acid is directly distilled out

under high vacuum and temperature.

Waste oil recovery plant:-

Installed and commissioned in 1986. In this plant waste oil from present

bleaching earth and spent nickel catalyst is recovered.

Vanaspathi Shortening:-

Production of Vanaspathi shortening high quality bakery fats, margarine

from refined oils fractionation. This division produces high quality olives and

steering from various edible fats for use in manufacture of chocolate confectionery

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and cosmetics leading manufacturers this yields of activity all over the world are

their consumers.

Turnkey Engineering:-

In collaboration with yashino-seisakush co. Ltd. Japan who has done

pioneering work in developing process and technical know how far refining high

fat rice bran oil. The engineering division has installed and commissioned five

plants into a total project cost of Rs 1.70 millions in south India.

India is the second largest producers of rice and has large potentials for crude rice

bran oil to be processed and turned into a cooking medium to satisfy their

requirements of an immense Indian market.

International Trading:-

Besides the export of the manufactured products, with large ware houses for

dry cargo, bulk storage installation for liquid infrastructures at their command and

the rich international trading experience of over 40 years. They have set up high

standards and achieved substantial growth is international trading of commodities

like rice, industrial fats, maize, tapioca, HPS ground nuts, kernels, oils and

chemicals, new products like natural foods, cob’s, oleoresin and high quality

waxes are proposed to be added to their export baskets.

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Through R&D new products and value addition to the existing products is being

done in a continuous basis for enriching the international trading both quality and

volume.

ADMINISTRATION AND ORGANIZATIONAL STRUCTURE

Board of Directors:

Sri B.K.Goenka (Chairman and M.D.)

G.S.Goenka (whole time Director)

S.B.Goneka (whole time Director)

Bharat Kumar Goenka (whole time Director)

O.P.Goneka

Sita Ram Goenka.

Sushi Goenka.

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Organizational structure:

The General Manager is the main administrating and controlling and head of

the FFF ltd. On behalf of the board of directors under him there will be one Deputy

(Finance and Administration) five heads of the Departments representing the 3F

ltd.

Man Power Position:-

To continue the day by day operations the company has adopted a

systematic manpower poison.

1) Managerial Staff:

The managerial staff consists of 75 members and they belong to all

departments of the organization.

2) Staff:

Staff consists of 100 members. It includes clerical and non-clerical staff.

3) Technical Staff:

The technical staff consists of 245 members. It includes plant engineers,

plant supervisor, plant operators etc.

4) Bata:

Bata otherwise known as piece rated workers, they are 92 in number.

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5) Trainers:

Trainers consist of 98 members. Trainers are those persons who take training

from the organization.

6) Act apprentices:

An act apprentice consists of 20 members. Industrial training colleges send

some students to the organization to pursue trainings in different branches.

MARKETING:-

The FFF ltd has a strong marketing network spread in all the country where

it is existed. Various dealers and consignment agents are been appointed every year

to increase the network and have a strong command over the market. The company

has also increased the size of the basket of the products that are offered to the

industrial customers by adding various new products.

FINANCIAL RESULTS:-

Financial performance:

During the years 2008-2009 and 2007-2008, the company was mainly

engaged in trading of imported vegetable oils and achieved a turnover of Rs 471.49

crores as compared to Rs 450.50 crores previous year.

After that in the year 2009-2010 the turnover is Rs 498.14 crores the

increment is due to performance of the company.

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AWARDS:-

The company received the “SEA RICE BRAN OIL” award in 2001-2002 from

the solvent, extraction association of India.

PROJECTS:-

2000-2001, a terminal at Gopalpur in orissa was commissioned and started

marketing imported oils in the linter lands of orissa.2001-2002 palm, solvent,

refining and purification of plant.

2002-2003, Balancing of equipment has been by adding a cooling tower to

various plants.2003-2004,Complete Deodourisation plant III has been

commissioned with installed capacity of 18000 TPA in order to improve the

productivity.

INTERPRETATION OF FINANCIAL RESULTS

Particulars 2007-08

Rs in

Lakhs

2006-07

Rs in Lakhs

2005-06

Rs in Lakhs

2004-05

Rs in Lakhs

Profit before Interest,

Depreciation, and Tax

4294.21 2826.86 1525.67 1021.95

Less: interest 1291.69 1011.70 643.04 530.56

Depreciation 573.33 492.60 318.56 282.66

Profit before tax 2429.19 1322.56 564.07 208.73

Less: Provision for taxes 901.37 505.94 206.37 (44.66)

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Profit after tax 1527.82 816.62 357.70 253.39

Less: Provision for dividend

and tax

248.41 186.32 118.38 57.01

Retained profit 1279.41 630.30 239.32 196.38

CHAPTER IV

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CONCEPTUAL FRAME WORK

FUNDS FLOW STATEMENT

INTRODUCTION

The basic financial statement i.e., the balance sheet and profit and loss

account (or) income statement of business, reveal the net effect of the various

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transaction on the operational and financial position of the assets and liabilities of

an undertaking at particular point of time. It reveals the financial status of the

company. The assets side of a balance sheet shows of the deployment of

resources of an undertaking while the liabilities side indicates its obligation i.e.,

the manner in which these resources were obtained. The profit and loss account

reflects the results of the business operations for a period of time. It contains a

summary of expenses incurred and the revenues realized in a accounting period.

Both these statement provide the essential basic information on the financial

activities of a business. The balance sheet give a static view of the resources

(liabilities) of a business and uses (assets) to which these resources have been but

at a certain point of time. It does not disclose the cause for changes in the assets

and liabilities between two different points of time. The profit and loss account, in

a general way, indicates the resources provided by operations. But there are many

transactions that take place in an undertaking and which do not operate through

profit and loss account. Thus another statement has to prepare to show the

change in the assets and liabilities from the end of one period of time to the end of

another period of time. The statement is called a statement of changes in financial

position or a funds flow statements.

The funds flow statement in a statement which shows the movement of

funds and is a report of the financial operations of the business undertakings. It

indicates various means by which funds were obtained during a particular period

and the way to which these funds were employed. In simple words. It is a

statement of sources and applications of funds.

MEANING AND CONCEPT OF FUNDS:

The term ‘funds’ has been defined in a number of ways.

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a. In a narrow sense, it means cash only and a funds flow statement

prepared on this basic is called a cash flow statement such a statement

enumerates net effects of various business transactions in cash and takes into

account receipts and disbursements of cash.

b. Ina broader sense the term ‘funds’ refers to money values in whatever

form it may exist. Here ‘funds’ means all financial resources used in

business whether in the form of men, material , money, machinery and

other.

c. In a popular sense the term ‘funds’ means working capital i.e., the

excess of current assets over current liabilities, the working capital concept

of funds has emerged due to the fact that total resources of business are

invested partly in fixed assets in the form of fixed capital and partly kept

inform of liquid or hear liquid form as working capital.

MEANING AND CONCEPT OF ‘FLOW OF FUNDS”

The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’

the term ‘flow of funds’ means transfer of economic values from one assets of

equity to another flow of funds is said to have taken place when any transaction

makes changes in the amount of funds available before happening of the

transaction. If the effect of transaction results in the increase of funds. It is called

a source of funds and if it results in the decrease of funds, it is known as an

application of funds. Further, in case the transaction does not change funds. It is

said to have not resulted in the flow of funds. According to the working capital

concept of funds, the term ‘flow of funds’ refers to the movement of funds in the

working capital. If any transaction results in the increase in working capital it is

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said to be a source or inflow of funds and it results in decrease of working capital,

it is said to be an application or outflow funds.

In simple language funds move when a transaction effects.

i. A current assets and a fixed assets, or

ii. A fixed and a current liability.

iii. A current assets and a fixed liability.

iv. A fixed liability and current liability.

And funds do not move when the transaction affects fixed assets and fixed

liability or current assets and current liabilities.

Kenneth medley and Ronald Gibers define the term ‘funds’ as one used in

the sense of spending power, it refers to the value embedded in assets. According

to Bonneville and Dewey ‘funds’ constitute the prime importance in sharing and

operating any business enterprise. In the ordinary parlance. Funds mean cash only,

but it has got several different concepts as mentioned below.

Funds may mean:

a. Cash only

b. Net working capital i.e., current assets less current liabilities.

c. Total resources or total funds.

d. Internal resources only.

e. Net worth i.e., owner’s equity capital plus reserves.

CURRENT AND NON-CURRENT ACCOUNTS:

To understand flow of funds it is essential to classify various accounts and

balance sheet items current and non-current categories.

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Current accounts can either be current assets or current liabilities. Current

assets are those assets which in the ordinary course of business can be or will be

converted into cash with in a short period of normally one accounting year.

Current liabilities are those liabilities which are intended to be paid in the

ordinary course of business with in a short period of normally one accounting year

out of the current assets or the income of the business.

FUNDS FLOW STATEMENT

The following is the list of current or working capital accounts:

List of current or working capital accounts:

Current Liabilities Current Assets

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1. Bills payable 1. Cash in hand

2. Sundry creditors or account

payable

2. Cash at bank

3. Accrued or outstanding expenses 3. Bills receivable

4. Dividends payable 4. Sundry debtors or accounts

receivable

5. Bank overdraft 5. Short term loans and advance

6. Short term loans advances and

deposits

6. Temporary or marketable

investments

7. Provision against current assets 7. Inventories or stocks such as

[a] Raw materials

[b] Work in progress.

[c] Stores and spares.

[d] Finished goods

8. Provision for taxation, if it does

not amount to appropriation of

profits.

8.. Prepaid expenses

9. Proposed dividends (maybe a

current non-current Liability).

9. Accrued incomes

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List of non-Current (or) Permanent Capital Accounts:

Non-current or permanent liabilities Non-current or permanent assets

1. Equity share capital 1. Good will

2. Preference share capital 2. Land

3. Redeemable preference share

capital

3. Building

4. Debentures 4. Plant and Machinery

5. Long term loans 5. Furniture and Fittings

6. Share premium account 6. Trade Marks

7. Share forfeited account 7. Patent Rights

8. Profit and loss account (balance of

profit ie., credit Balance).

8. Long term investment

9. Capital reserve 9. Debit balance of profit and loss

account.

10 Capital redemption reserve 10. Discount on issue of shares

11 Provision for depreciation against

fixed assets

11 Discount on issue of debentures

12 Appropriation of profits 12 Other Deferred expenses

[a] General reserve

[b] Dividend equalization Fund

[c] Insurance Fund

[d] Compensation fund

[e] Sinking fund

[f] Investment fluctuation fund

[g] Provision for taxation.

[h] Proposed dividend.

FUNDS FLOW STATEMENT

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Funds flow statement is the statement of sources and application of funds.

It is also called as ‘funds where got and where gone statement’ Almond Coleman

observed. “The funds statement in a statement summarizing the significant

financial changes which have occurred between the beginning and the end of

company’s accounting period’.

There are 4 steps involving in preparation of funds flow statement:

a. Ascertain the funds from operations.

b. Preparation of statement of changes.

c. Computation of any missing figures as to profit or loss on Sale of

fixed assets purchases or sale of fixed assets and the amount of

depreciation on fixed assets etc.

d. Finally preparation of funds flow statement.

Foulke defines this statement as:

“A statement of sources and appreciation of funds in technical device designed to

analyse the changes in the financial condition of a business enterprise between two

dates”

In the words of Anthony the funds flow statement describes the sources from

which additional funds were derived and the use to which these sources were put.

F.C.W.A. in glossary of management accounting terms defined funds flow

statement as a statement either prospectus or retrospect’s, setting out the sources

and applications of the funds of an enterprise. The purpose of the statement is to

indicate clearly the requirement of funds and how they are proposed to be raised

and the efficient utilization and application of the same.

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Thus funds flow statement in a statement which indicates various means by

which the funds have been obtained during a certain period and the ways to which

these funds have been used during that period. The term funds used here means

working capital i.e., the excess of current assets over current liabilities.

Funds flow statement is called by various names such as sources and

application of funds; statement of changes in financial position, sources and uses

of duns; summary of financial operation, where came in and where gone out

statement, where got, where gone statement, movement of working capital

statement, movement of funds statement, funds received and disbursed statement;

funds generated and expended statement; sources of increase and application of

decrease; funds statement etc.

Difference between funds flow statement and income statement.

Funds Flow statement Income Statement

1 It highlights the changes in the

financial position of a business

and indicates the various means

by which funds were obtained

during a particular period and

the ways to which these funds

were employed.

1. It does not reveal the inflows and

outflows of funds but depicts the

items of expenses and incomes to

arrive all the figure of profit or

loss.

2. It is complementary to Income

statement income statement

helps the preparation of funds

flow statement.

2 Income statement is not prepared

from funds flow statement.

3. While preparing funds flow 3. Only revenue items are considered.

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statement both capital and

revenue items are considered.

4. There is no prescribed

Format for preparing a funds

flow statement.

4. It is prepared in a prescribed

format.

Difference between funds flow statement and balance sheet

Funds Flow statement Income Statement

1 It is a statement of changes

financial position and hence in

dynamic in nature

1. It is a statement of financial

position on a particular date

and here is static in nature.

2. It shows the sources and uses of

funds in a particular period of

time

2. It depicts the assets and

liabilities at a particular point

of time.

3. It is tool of management for

financial analysis and helps in

making decisions.

3. It is not of much help to

management in making

decision.

4. Usually schedule of changes in

working capital has to be

prepared before preparing funds

flow statement.

4. No such schedule of changes

is required rather profit and

loss account is prepared.

USES, SIGNIFICANCE AND IMPORTANCE OF FUNDS FLOW STATEMENT:

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A funds flow statement is an essential tool for the financial analysis and is of

primary importance to the financial management. Now-a-days, it is being widely

used by the financial analysis, credit granting institutions and financial managers.

The basic purpose of a funds flow statement is to reveal the changes in working

capital on the two balance sheets dates. It also describes the sources from which

additional working capital has been financial and the uses to which working capital

has been applied such a statement is particularly useful in assessing the growth of

the firm its resulting financing these needs. By making use of projected funds flow

statement, the management can come to know the adequacy or inadequacy of

working capital even in advance. One can plan the intermediate and long-term

financial of the firm, repayment of long-term debts, expansion of the business,

allocation of resources, etc., the significance or importance of a funds flow

statement can be were followed from its various uses given below:

(1) It helps in the analysis of financial operations:

The financial statements reveal the net effect of various transactions on the

operational and financial position of a concern. The balance sheet gives a static

view of the resources of a business and the uses to which these resources have been

put at a certain point of time. But it does not disclose the causes for changes in

assets and liabilities between two different point of time. The funds flow

statement explains causes for such changes and also the effect of these changes no

the liquidity position of the company. Sometimes a concern may operate

profitably and yet its cash position may become more and more course. The funds

flow statement gives a clear answer to such a situation explaining what has

happened to the profit of the firm.

(2) It throws light on many perplexing questions of general interest:

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Which other wise may be difficult to be answered, such as:

a. Why were the net current assets lesser inspite of higher profits and vice-

verse.

b. Why more dividends could not be declared inspite of available Profit?

c. How was it possible to distribute more dividends than the Present

earning?

d. What happened to the net profit? Where did they go?

e. What happened to the proceeds of sale of fixed assets or issue of Shares,

debentures etc?

(3) It helps in the formation of a realistic dividend policy:

Sometime a firm has sufficient profit available for distribution as dividend

but yet it may not be advisable to distribute dividend for lack of liquid or cash

resources. In such causes, a funds flow statement helps in the formation of a

realistic dividend policy.

(4) It helps in the proper allocation of resources:

The resources of a concern are always limited and it works to make the best

use of these resources. A projected funds flow statement constructed for the future

help in making managerial decision. The firm can plan the deployment of its

resources and allocate them among various application.

(5) It acts as a future guide:

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A project funds flow statement also acts as a guide for future to the

management. The management can come to know the various problems it is going

to funds can be projected well in advance and also the timing of these needs. The

firm can arrange to finance these needs more effectively and avoid future problem.

(6) It helps in appraising the use of working capital:

A funds flow statement helps in explaining how efficiently the management

has used its working capital and also suggests way to improve working capital

position of the firm.

(7) It helps knowing the overall credit worthiness fo a firm:

The financial institutions and banks such as state financial institutions,

industrial development corporation, industrial finance corporation of India,

industrial development bank of India etc., all ask for funds flow statement

constructed for a number of years before granting loans to know the credit

worthiness and paying capacity of the firm. Hence, a firm seeking financial

assistance from these institutions has no alternative but to prepare funds flow

statements.

Limitations of Funds Flow Statement:

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The funds flow statement has a number of uses; however, it has certain

limitations also, which are listed below:

1. It should be remembered that a funds flow statement is not a substitute

of an income statement or a balance sheet. It provides only some

additional information as regards changes in working capital.

2. It cannot reveal continuous changes.

3. It is not a original statement but simply a re-arrangement of data given

in the financial statement.

4. It is essentially historic in nature and projected funds flow statement

cannot be prepared with much accuracy.

5. Changes in cash are more important and relevant for financial

management than the working capital.

Procedure for Preparing a Funds Flow Statement:

Funds flow statement is a method by which are study changes in financial

position of a business enterprise between beginning and ending financial statement

dates. Hence, the funds flow statement is prepared by comparing two balance

sheets and with the help of such other information derived from the accounts as

may be needed. Broadly speaking the preparation of a funds flow statement

consists of two parts.

1. Statement of schedule of changes in working capital

2. Statement of sources and application of funds.

(1) Statement of schedule of changes in working capital.

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Working capital means the excess of current assets over current liabilities.

Statement of changes in working capital between the two balance sheet dates. This

statement is prepared with the help of current assets and current liabilities derived

from the two balance sheets.

As working capital=current assets – current liabilities.

So, i. An increase in current assets increase working capital

ii. A decrease in current assets decreasing working capital.

iii. An increase in current liabilities decreasing working capital;

i. A decrease in current liabilities increases working capital

Statement (or) Schedule of Changes in Working Capital

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ParticularsPrevious

Year

Current

Year

Effect in working

Capital

Increase Decrease

Current Assets

Cash in hand

Cash at Bank

Bills receivable

Sundry debtors

Temporary investment

Stock/inventories

Pre-paid expenses

Accrued incomes

Total current assets

Current Liabilities

Bills payable

Sundry creditors

Outstanding expenses

Bank over draft

Dividend payable

Proposed dividends

Provision for taxation Total

Current liabilities

Working capital (CA-CL)

Net increase/decrease in

Working capital

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(2) Statement of Sources and Application of Funds

Funds flow statement is statement which indicates various sources from

which funds (working capital) have been obtained during a certain period and the

uses or applications to which these funds have been put during the period.

Generally, this statement is prepared in two formats

a. Report firm

b. T form or an account form or self balance type.

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Specimen of report form of fund flows statement:

Sources of Funds Rs.

Funds from operations

Issue of share capital

Issue of debentures

Raising of long term loans

Receipts from partly paid share, called up

Sales of non current (fixed) assets

Non-trading receipts such as dividends received

Sale of investment (long term)

Decrease in working capital (as per schedule of changes in

working capital)

Total

Applications or uses of funds:

Funds lost in operations

Redemption of preference share capital

Redemption of debentures

Repayment of long-term loans

Purchase of non current (fixed) assets

Purchase of long-term investments

Non-trading payments

Payments of dividends

Payment of tax

Increase in working capital (as per schedule of changes in

working capital

Total

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Funds from Operation:

As a first step it would be convenient if the profit and loss appropriation

account is prepared and net profit after tax is ascertained as a balancing figure.

Then the funds from operations are worked out as follows:

Particulars Rs. Rs.

Net profit after tax

ADD:

1. Non-cash expenses during the year

[a] Depreciation

[b] Writing off of goodwill, patents, trade

marks, deferred revenue expenditure,

Preliminary expenses etc.

[c] Amortization of discount on issue of

debentures or share etc.

2. Loss on sale of fixed assets,.

3. Extra-ordinary (or) non recurring losses.

LESS:

4. Profit on sale of fixed assets.

5. Amortization of share premium or debenture

premium etc.

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Funds from operations:

Funds from operation are a source of fund during period. If it is still a

negative balance it is loss from operations and is shown on the side of “Application

of funds” but if it shows a positive it is a source of funds.

P & L appropriation account

Particulars Amount Particulars Amount

To Interim Dividend

To Proposed equity

Dividend

To Preference dividend

To Transfer to reserve

To Balance c/d

-

-

-

-

-

By balance b/d

By excess provision written

back

By income tax provision

not required

By Dividend received

By net profit after tax

(balancing figure)

(transferred from P&L

account

-

-

-

-

-

T form or an account form or self balancing type

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Funds Flow Statement

(for the year ended….)

Sources Rs Applications Rs

Funds from operations

Issue of share capital

Issue of Debentures

Raising of long-term loans

receipt

from partly paid share called

up

Sales of non current (fixed)

Assets.

Non trading receipts such as

dividends.

Sale of long-term investment

Net decreasing in working

capital

Funds lost in operations

Redemption of preference

Share capital

Repayment of long term loans

Purchase of non-current (fixed

assets)

Purchase of long-term

Investments

Non trading payment.

Payment of dividends.

Payment of tax.

Net increase in working capital

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WORKING CAPITAL MANAGEMENT

Working capital is the firms holdings of current assets such as Cash ,

receivables , inventory and marketable securities. Every firm required working

capital for its day to day transactions such as purchasing raw material , for

meeting salaries , wages , rents , rates , advertising etc. But there is much

disagreement among various financial authorities (financial managers ,

accountants , businessmen and economists ) as to the exact meaning of the

term working capital.

Significance of working capital :

The world in which real firms function is not perfect. It is characterized by the

firm’s considerable uncertainty regarding the demand, market price, quality and

availability of its own products and those of suppliers. These real world

circumstances introduce problems to the firm must deal. While the firm has many

strategies available to address these circumstances, strategies that utilize

investment or financing with working capital accounts often offer a substantial

advantage over the other techniques. The importance of working capital

management is reflected in the fact that financial managers spend a great deal of

time in managing current assets and current liabilities like.

Arranging short term financing

Negotiating favorable credit terms

Controlling the movement of cash

Administering accounts receivables

Monitoring investment in receivables

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Decisions concerning the above areas play an important role in maximizing overall

value of the firm. Once decisions concerning these areas are reached, the level of

working capital is also determined in active decision sense, but falls out as residual

from the decision just made.

The management of working capital plays an important role in maintaining the

financial health during the normal course of business. This critical role can be

enunciated by examining the flow of resources through the firm. By far the major

flow is the working capital cycle.

This is the loop which starts at the cash and the marketable securities account,

goes trough the current account as direct labour and materials which are purchased

and use to produce inventory, which in turn is sold and generates accounts

receivables, which are finally collected to replenish cash. The major point to notice

about this cycle is that the turnover or velocity of resources through this loop is

very high related to the other inflows and outflows of the cash account.

Concept of working capital:

There are two concepts of working capital

1. Gross Working Capital

2. Net Working Capital

Gross Working Capital:

Gross working capital, simply called as working capital refers to the firm’s

investment in current assets . Current assets are the assets, which in ordinary

course of business can be converted into cash within an accounting year.

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Examples of Current Assets are:

Cash and bank balances

Short term loans and advances

Bills Receivables

Sundry Debtors

Inventory

Prepaid Expenses

Accrued Incomes

Money Receivable in 12 months

The gross working capital concept focuses attention of two aspects of current

assets management.

a) Optimum investment in current assets and

b) Financing of current assets.

The consideration of the level of investment in current assets should avoid two

danger points – excessive and inadequate investment in current arranging funds to

finance current assets. When ever a need for working capital funds arises due to the

increasing level of business activity or for any other reason arrangement should be

made quickly.

Net Working Capital:

Net working capital refers to the difference between the current assets and current

liabilities. Current liabilities are those claims of outsiders, which are accepted, to

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mature for payment with an accounting year and include creditors, bills payable

and outstanding expenses.

Net Working Capital = Current Assets – Current Liabilities

Net working capital can be positive or negative. A positive net working

capital will arise when current assets exceeds current liabilities. It is a

quantitative concept. It .

1. Indicate the liquidity position of the firm and

2. Suggests the extent to which working capital needs may be

financed by permanent sources of funds.

Types of working capital:

Working capital can be classified into two categories i.e.

1. Permanent working capital

2. Temporary or variable working capital

Permanent working capital :

It is the minimum amount of investment in all current assets which is

required at all times to carry out minimum level of business activities .

Tandon Committee has reserved to this type of working capital as “ Core

Current Assets “.

Characteristics of permanent working capital:

Amount of permanent working capital remains in the business in one

form or another.

It also grows with the size of the business. It is permanently needed for

the business, and therefore, it should be financed out of long term funds.

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Variable working capital :

The amount of working capital over permanent working capital is known as

variable working capital. The amount of such working capital keeps on

fluctuating from time to time on the business activities . It may again be

subdivided into seasonal working capital and special working capital Seasonal

working capital is required to meet the seasonal demands of busy periods

occurring at stated intervals on the other hand , special working capital is

required to meet extraordinary needs for contingencies. Even like strikes ,

fire , unexpected competition , rising price tendencies or initiating a big

advertisement campaign require such capital.

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CASH FLOW STATEMENT (CFS)

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

shows a company’s incoming and outgoing money (sources monthly or quarterly).

The statement shows how changes in balance sheet and income accounts affected

cash and cash equivalents, and breaks the analysis down according to operating,

investing and financing activities. As an analytical tool the statement of cash flows

is useful in determining the short-term viability of a company y, particularly its

ability to pay bills.

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.

Potential lenders on 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.

Definitions:

Cash:

Cash comprises cash on hand and demand deposit with banks.

Cash equivalents:-

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

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

risk of changes in value. Examples of cash equivalents are treasury bills,

commercial paper etc.,

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Cash flow:

Cash flows are inflows and outflows of cash equivalents. It means the

movement of cash in to the organization and movement of cash out of the

organization. The difference between the cash inflows and cash out flows is

known as net cash flow which can be either net cash in flow or net cash out flow.

Classification of cash flows:

Operating activities:

Operating activities include the production sales and delivery of the

company’s product as well as collecting payment from its customers. This could

include purchasing raw materials, building inventory, advertising and shipping the

product.

Items which are added back to the net income figure (which is found on the

income statement) to arrive at cash flows from operations generally include.

Depreciation (loss of tangible asset value over time)

Deferred tax

Amortization (loss of intangible asset value over time)

Any gains or losses associated with an asset sale (unrealized gain/losses are

also added back from the income statement)

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Investing Activities:

Investing activities focus on the purchase of the long-term assets a company

needs in order to make and sell its products, and the selling of any long term assets

that are no longer needed by the company.

Items under investing activities include:

Capital expenditures which purchases (and sales) of property, plant and

equipment.

Investment:

Financing Activities:

Financing activities include the inflow of cash from investors such as banks

and shareholders, as well as the outflow of cash to shareholders as dividends as the

company generates income. Other activities which impact the long-term liabilities

and equity of the company are also listed in the financing activities section of the

cash flow statement.

Items under the financing activities section include:

Dividends paid.

Sale or repurchase of the company’s stock.

Net borrowings.

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BASIC INFORMATION FOR PREPARATION OF CFS

The following basic information’s are required to prepare a CGF:

1. Comparative BS: The first and the foremost requirement is the comparative

BS in the beginning and at the end of the period to find out the changes taking

place in different items of the BS.

2. Is for the period under consideration: The IS of the period is also required to

find out the cash generated or used in the operation of the firm.

3. Additional Information: Together with BS and IS other relevant information

is also required to identify the hidden information, if any.

STEP BY STEP PROCEDURE TO PREPARE CFS

1. Calculate the net increase or decrease in cash and cash equivalents:

For this purpose the opening balance of total cash and equivalents is

compared with the closing balance of cash and equivalents. The net

increase/decease as shown here is the figure to be explained by the CFS. The table

explains the procedure for this.

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Increase/Decrease in Cash and Cash Equivalent

Opening Balance Closing Balance

Cash in Hand **** ****

Cash at Bank **** ****

Short term Investments **** ****

Total **** ****

The difference between the totals of opening and closing balance will be the

increase or decrease in cash and equivalents during the period.

2. Net cash flow from operating activities:

On the basis of the information contained in the comparative Balance

Sheets and the IS and the additional information, the net cash flow generated or

used by operating activities may be ascertained.

3. Calculating of cash provided by financing and investment Activities:

All other items (except current accounts already considered in step 2

above) are analyzed in the light of additional information to find out the resultant

cash flow it any. For this purpose, different items and information’s are classified

into financing activities and investment activities.

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4. Preparation of CFS:

On the basis of information collected and calculations made in the above

steps, now the CFS can be prepared as per any of the formats given earlier. The

net cash flow provided by operating activities plus financing activities plus

investment activities is equal to the net change in cash and equivalents (as

calculated in step 1).

5. Other items:

If there is any other investment or financing transaction (not already

covered in step 3 above) that should be disclosed in the CFS e.g. there maybe a

purchase of an assets by issue of capital or debenture. This transaction will not

find place in the usual CFS but must be disclosed to make the CFS a useful and a

meaningful document.

Pro-forma of cash flow statements

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Particulars Amount Rs.Cash flows from operating activitiesCash receipts from customers XXXCash paid to Suppliers and employees XXX

------Cash generated from operations XXXIncome tax paid (XXX)Cash flow before extra-ordinary item XXX+ Extra ordinary items-

XXX------

Net cash from operating activities XXXCash flow from investing activities:Purchase of fixed assets (XXX)Proceeds from sale of equipment XXXInterest received XXXDividends received XXX

------Net cash from investing activities XXXCash flow from financing activitiesProceeds from issuance of share capital XXXProcedure from long-term borrowings XXXRepayments of long-term borrowings (XXX)Interest paid (XXX)Dividend paid XXX

------Net cash from operating activities XXX

------XXX

Net increase in cash and cash EquipmentsCash and cash equipments at beginning of period

XXX

Cash and cash equivalents at the end of period

XXX

Sources and uses of cash:

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The following are the sources of cash

1. The profitable operations of the firm

2. Decrease in assets (except cash)

3. Increase in liabilities (including debentures or bonds)

4. Sales proceeds from an ordinary preference shares issue

The following are the uses of cash:

1. The loss from operations

2. Increase in assets (except cash)

3. Decrease in liability (including redemptions of debentures or bonds)

4. Redemptions of redeemable preference shares

5. Cash dividends.

FFS and CFS:

The cash flow statement (CFS) is different from the FFS in its approach. The

difference between the two can be summarized as follows:

1. The FFS is based on the concept of WC where as, the CFS is based on cash

which is only one of the element of working capital (WC). Thus, the CFS

provides details of cash movements where as the FFS provides the details of

funds movements.

2. The CFS considers only the actual movements of cash as FFS considers the

movement as the funds on accrual basis.

Statement of changes in working capital 2004-2005

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Particulars 2004 (Rs) 2005(Rs) Increase Decrease

Current

Assets:-

Inventories 43,27,71,837 55,87,58,958 12,59,87,121 -

Sundry

Debtors

36,42,25,932 17,25,45,861 - 19,16,80,071

Cash & Bank 7,3,2,53,857 3,73,85,785 - 3,58,68,072

Other current

Assets

3,3,4,344 4,77,294 1,42,950 -

Loans and

Advances

9,65,64,227 15,31,35,283 5,65,71,056 -

Total 96,71,50,197 92,23,03,181

Current

liabilities:

Liabilities 36,24,07,808 32,49,92,501 3,74,15,307

Provisions 1,91,80,165 70,08,921 1,21,71,244

Total 38,15,87,973 33,20,01,422

Working capital 58,55,62,224 59,03,01,759

Increase in

Working capital

47,39,535

23,22,87,678 23,22,87,678

Funds flow statement for 2004-2005

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Sources Amount Rs. Application Amount Rs

Shares 32,82,650 Deferred tax 77,16,279

Reserves 2,46,11,049 Investments 3,84,09,810

Secured loans 17,12,01,611 Fixed Assets 15,76,51,865

Unsecured loans 94,22,179 Increase in working

capital

47,39,535

20,85,17,489 20,85,17,489

Interpretations for the year 2004-2005:

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When the statement of changes in workings capital is analyzed it is evident

that there is an increase in inventories, other current Assets and loans and

advances. There is a decrease in the cash position. Decrease in sundry debtors may

mean that when compared to the previous year i.e., 2003-2004 there are less credit

sales. The debtor has been decreased by 52%.

When the current liabilities are observed, the liabilities have been paid off to

some extent. In this year there is an increase in working capital.

Funds flow statement shows that the major source of funds come from the

secured and unsecured loans. They constitute of about 86% of total Sources of

funds. The other 14% is from shares and reserves. The application of funds mainly

consists of changes in working capital. The funds have been utilized for purchasing

the fixed assets and investments.

Statement of changes in working capital 2005-2006

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Particulars 2005 (Rs) 2006(Rs) Increase Decrease

Current

Assets:-

Inventories 55,87,58,958 51,94,46,973 - 3,93,11,985

Sundry

Debtors

17,25,45,861 26,54,05,373 9,28,59,512

Cash & Bank 3,73,85,785 5,22,07,212 1,48,21,427

Other current

Assets

4,77,294 6,99,643 2,22,349

Loans and

Advances

15,31,35,283 10,66,56,431 - 4,64,78,852

Total 92,23,03,181 94,44,15,632

Current

liabilities:

Liabilities 32,49,92,501 42,77,45,526 - 10,27,53,025

Provisions 70,08,921 1,53,79,488 - 83,70,567

Total 33,20,01,422 44,31,25,014

Working capital 59,03,01,759 50,12,90,618

Decrease in

Working capital

8,90,11,141

19,69,14,429 19,69,14,429

Funds flow statement for 2005-2006

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Sources Amount Rs. Application Amount Rs

Shares 28,84,600 Investments 1,61,09,754

Reserves 3,25,55,442 Fixed Assets 22,55,81,308

Secured loans 8,30,89,936

Unsecured loans 2,67,54,511

Deferred tax 73,95,442

Decrease in

working capital

8,90,11,131

24,16,91,062 24,16,91,062

Interpretation:

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In this year there is a decrease in inventories and loans and advances.

Decrease in inventories means there is an increase in sales. There is a decrease in

inventories by 7%. There is an increase in debtors by 9,28,59,512 which means

there are more credit sales in the year. Working capital has been decreased by

8,90,11,141 when compared to the previous year 2004-2005.

In this year also the major source of funds came from secured and unsecured

Loans it represents about 45.4% of the total sources. The organization has issued

additional share in order to raise funds.

During the year the funds are mainly used for purchasing the fixed assets

and investment. Major parts of funds are mainly used for purchasing fixed assets.

Statement of changes in working capital 2006-2007

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Particulars 2006 (Rs) 2007(Rs) Increase Decrease

Current

Assets:-

Inventories 51,94,46,973 1,17,93,86,830 65,99,39,857

Sundry

Debtors

26,54,05,373 26,15,99,670 38,05k703

Cash & Bank 5,22,07,212 7,13,53,331 1,91,46,119

Other current

Assets

6,99,643 2,89,561 4,10,082

Loans and

Advances

10,66,56,431 9,31,00,773 1,35,55,658

Total 94,44,15,632 1,60,57,30,165

Current

liabilities:

Liabilities 42,77,45,526 80,28,01,131 37,50,55,605

Provisions 1,53,79,488 2,25,24,295 71,44,807

Total 44,31,25,014 82,53,25,426

Working capital 50,12,90,618 78,04,04,739

Increase in

Working capital

27,91,14,121

67,90,85,976 67,90,85,976

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Funds flow statement for 2006-2007

Sources Amount Rs. Application Amount Rs

Reserves 5,83,06,198 Increase in

working capital

27,91,14,120

Secured loans 10,02,33,880

Unsecured loans 3,12,40,013 Investments 1,14,12,750

Deferred tax 4,46,71,112

Fixed Assets 5,60,75,667

29,05,26,870 29,05,26,870

Interpretation:

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There is an increase in working capital due to the increase in inventories and

cash. There is an increase of more than 55% in inventories. There is a decrease in

sundry debtors. Other current assets and loans and advances. The liabilities are

increased by 50%.

This year also the company has borrowed funds. They are the main sources

of funds consisting 35% of the total sources. Next major sources came from sale of

fixed assets and researches. The company continued to make investments.

Statement of changes in working capital 2006-2007

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Particulars

Previous Current Effect in workingYear Year Capital2007 2008 Increase Decrease

A) Current Assets        

inventories 1179386830 1808705113 629318283  

sundry debtors 261599670 325658869 64059199  

Cash & Bank 71353331 123204267 51850936  

Other current assets 289561 316641 27080  

Loans & advences 93100773 224178076 131077303  

Total current assets 1605730165 2482062966    

B) Current Liabilities        

Sundry creditors 804207614 1235291362   431083748

Proposed dividends 15925088 21233450   5308362

Provision for tax on

Distrinutable Units

2706469 3608625   902156

provision for Taxes ( Net

on advance payments )

2486256 9100314   6614058

Provision for leave

encashment

0 7250699   7250699

Current liabilities 825325427 1276484450    

Working capital (CA-

CL)

780404738 1205578516    

Net increase/decrease in

working capital

425173778     425173778

1205578516 1205578516 876332801 876332801

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Funds flow statement for 2007-2008

sources amount Rs application amount Rs

reserves 119992725 investments 27671700

secured loans 342058433 fixed assets 54490971

unsecured loans 27807685

increase in working

capital 425173777

deferred tax 17477605    

  507336448   507336448

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Interpretation:

There is an increase in working capital due to the increase in inventories and

loans & advances. There is increase of more than 65% in inventories there is also

increase in loans and advances more than 71%. There is increase in current

liabilities of 65%. And provisions of 51%.

As far as the firm’s sources are concerned there are four kinds of aspects.

Those are 1) increase in outsiders funds like secured loans and unsecured loans.2)

sale of fixed assets. 3) Deferred tax 4.) Increase in reserves. Among these four

increases in outsiders funds is the major source. Since it occupies almost 75% in

the firm’s sources. It indicates the firms have the ability to more invest in the

firm’s fixed assets.

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CASH FLOW STATEMETN FOR THE YEAR ENDED 31ST MARCH 2005Cash Flow Statement( for the year ended ------------)

Foods Fats & Fertilisers limited 2004-05Rs. Rs.

A.      Cash Flow From Operating Activities     Net profit before tax   20872988

Depreciation 28266021   interest (net) 53056066   loss on sale of assets 12532  Excess provision on Quoted securities -81488   profit on sale of assets -271416   Dividend received -11267939       provision for leave encashment 97065 69810841     Operating profit before working

capital changes  90683829

less :adjustments for Working capital changes

inventories -125987121  trade and other receivables 138043760  trade payables -38954078 -26897439Cash generated from operations   63786390 Direct taxes paid   -12847435     Net cash from operating activities   50938955B.      Cash Flow From Investing

Activities    

Purchase of fixed assets -24374410   increase in capital Works in progress -172508637  

Sales of fixed assets 6349134       Sale of investments 100000  Interest received 2721981  Dividend received 11267939  Purchase of investments -38428322       Net cash from /used in investing

activities   -214872315

C.      Cash Flow From Financing    

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Activities interest paid -54382227  increase /(decrease) in long term

borrowings 171201611  

increase /(decrease) in unsecured loans

9422179  

issue of equity shares 3282650  share premium received 9847950  Dividend paid -10000000  tax on dividend -1306875       Net cash from/ used in financing

activities   128065288

Net increase / decrease in cash and cash equivalents

  -35868071

Cash and cash equivalents as at ---------( opening balance )

  73253857

Cash and cash equivalents as at --------( closing balance )

  37385785

Interpretation:

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Cash from operating activities:

In the present year i.e., 2004-2005. The net profit before tax is 2,08,72,988.

It is decreased by 58% compared to 2003-2004. After adjustments cash from

operating activities is 6,37,86,390.

Cash from investing activities:

During the year the cash inflows are lesser than the cash outflows from the

investing activities. There is purchase of fixed out and investments and increase in

capital works in progress.

Cash from financing activities:

In the year the cash generated from financing activities is more when

compared to the operating and investing activities. This is due to the increase in

secured loans and unsecured loans.

At the end there is a net decrease in cash & cash equivalents by 3,58,68,072.

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2006Cash Flow Statement

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( for the year ended ------------)

Foods Fats & Fertilisers Limited 2005-06Rs. Rs.

A.      Cash Flow From Operating Activities     Net profit before tax   56407087 Depreciation 31856107   interest (net) 64304282   loss on sale of assets 3441539   profit on sale of assets -1515867   asstes written off     Dividend received -9559873        provision for leave encashment 23758 88549946     

Operating profit before working capital changes   144957033

less :adjustments for Working capital changes    

inventories 39311985  trade and other receivables -49315411  trade payables 101866649 91863223

Cash generated from operations   236820256 Direct taxes paid   -8096802

     Net cash from operating activities   228723454B.      Cash Flow From Investing Activities    

Purchase of fixed assets -175857713   increase in capital Works in progress -100442215  

Sales of fixed assets 12140640       Sale of investments 0  Interest received 2988510  Dividend received 9559873  Purchase of investments -16109754       Net cash from /used in investing activities   -267720659

C.      Cash Flow From Financing Activities     interest paid -66628765   increase /(decrease) in long term borrowings 83089936  

increase /(decrease) in unsecured loans 26754511  issue of equity shares 2884600  share premium received 13419600  

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Dividend paid -5000000  tax on dividend -701250       Net cash from/ used in financing activities   53818632

Net increase / decrease in cash and cash equivalents   14821427

Cash and cash equivalents as at ---------( opening balance )   37385785

Cash and cash equivalents as at --------( closing balance )   52207212

Interpretation:.

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Cash from operating activities:

When compared to the previous year (2004-2005) the net profit before tax is

increased by 63%. After the necessary adjustments the cash from operating

activities is 22,87,23,454. It is increased by 72%. When compared to 2004-2005.

Cash from investing activities:

The organization has increased the use of cash for investing activities during

this year by 5,28,48,344. this is due to purchase of fixed assets.

Cash from financing activities:

Cash from financing activities has been decreased by 7,42,46,656. i.e.,58%

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2007Cash Flow Statement

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( for the year ended ------------)

Foods Fats & Fertilisers Limited 2006-07Rs. Rs.

A.      Cash Flow From Operating Activities    Net profit before tax   132256042 Depreciation 49259510  

interest (net) 101170028   loss on sale of assets 336278   profit on sale of assets -47520   assets written off 55223   Dividend received -664838       provision for leave encashment 75054 150183735     

Operating profit before working capital changes   282439777

less :adjustments for Working capital changes    

inventories -659939857  trade and other receivables 32125894  trade payables 375180792 -252633171Cash generated from operations   29806606 Direct taxes paid   -20410969     Net cash from operating activities   9395637

B.      Cash Flow From Investing Activities    Purchase of fixed assets -283141340   increase in capital Works in progress 282907496  Sales of fixed assets 1981855       Sale of investments 100000  Interest received 4270113  Dividend received 664838  Purchase of investments -11512750       Net cash from /used in investing activities   -4729788

C.      Cash Flow From Financing Activities    interest paid -105155246  increase /(decrease) in long term borrowings 100233880  

increase /(decrease) in unsecured loans 31240013  Dividend paid -10382265  tax on dividend -1456113  

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     Net cash from/ used in financing activities   14480269

Net increase / decrease in cash and cash equivalents   19146119

Cash and cash equivalents as at ---------( opening balance )   52207212

Cash and cash equivalents as at --------( closing balance )   71253331

Interpretation:

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Cash from operating activities:

During this year the net profit before tax has been increased by 57%. The net

cash from operating activities has been decreased when compared to 2005-2006.

Cash from investing activities:

In 2006-2007 the cash was majorly used for purchasing fixed assets. And

purchase of investments. There is a source of cash in the form of sale of fixed

assets and investments and interest received on loans and advances.

Cash from financing activities:

The main source of cash came from long term borrowings and unsecured

loans. Net cash used in financing activities have been decreased by 73%.

CASH FLOW STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2008

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Cash Flow Statement( for the year ended ------------)

2007-08Rs. Rs.

A.      Cash Flow From Operating Activities    Net profit before tax   242919590 Depreciation 57333045   interest (net) 129168630   loss on sale of assets 929712   profit on sale of assets -59135   assets written off 45848   Dividend received -8109       provision for leave encashment        187409991

Operating profit before working capital changes   430329581

less :adjustments for Working capital changes  

inventories -629318282  trade and other receivables -209901035  trade payables 430615593 -408603724Cash generated from operations   21725857 Direct taxes paid   -48509383     Net cash from operating activities   -26783526

B.      Cash Flow From Investing Activities    Purchase of fixed assets -71040267  

increase in capital Works in progress -49565238  Sales of fixed assets 3206869       Sale of investments 691450  Interest received 10606433  Dividend received 8109  Purchase of investments -28363150       Net cash from /used in investing activities   -134455794

C.      Cash Flow From Financing Activities    interest paid -140411398  increase /(decrease) in long term borrowings 342058431  

increase /(decrease) in unsecured loans 27807685  Dividend paid -15925088  

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tax on dividend -2706469       Net cash from/ used in financing activities   210823161

Net increase / decrease in cash and cash equivalents   51850936

Cash and cash equivalents as at ---------( opening balance )   71353331

Cash and cash equivalents as at --------( closing balance )   123204267

Interpretation:

Cash from operating activities:

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During this year the net profit before tax has been increased by 84%. The net

cash from operating activities has been decreased when compared to 2006-2007.

Cash from investing activities:

In 2007-2008 the cash was majorly used for purchasing fixed assets. And

purchase of investments. There is a source of cash in the form of sale of fixed

assets and investments and interest received on loans and advances.

Cash from financing activities:

The main source of cash came from long term borrowings and unsecured

loans. The major applications of the cash to interest, dividend payments.

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CHAPTER V

SUMMARY & SUGGITIONS

Funds flow statements and cash flow statements is an essential part of

overall corporate financial management. It is the art of anticipating and preparing

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for risk and uncertainties and overcoming obstacles. Management should be

particularly interested knowing the financial strengths of the firm as well as the

weakness of the firm to take suitable corrective decisions. Hence a study has been

conducted on the cash flow and funds flow statements with reference to FFF Ltd.,

Tadepalligudem. The main objectives of the study are to evaluate the cash and

funds flow statements. So, Funds flow and cash flow statements are important

managerial tools for financial analysis.

The FFF Ltd., has a unique place in Indian economy and rural development

because of its multiple contributions in terms of employment and provisions of raw

materials to other industries. That’s why it is suffered with a problem of over

employment. The components of cash flow and funds flow statements have been

explained in purview of FFF Ltd., of which the study projects the results regarding

the net working capital of cash flow and funds flow statements.

It was suggested that:

1. When there is an increase in debtors there will be a block of money in

debtors. So, reduce the credit period. Provide policies to debtors (like

discounts).

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2. Investments are very high. So it should be reduced.

3. Cash from operations is very high. So, decrease in the working capital when

obtaining loans from banks.

4. net profit is satisfactory

5. Adequate promotional activities should be taken.

FINDINGS

1. Increase in working capital in 2004-2005 due to an increase in current

assets.

2. There is a decrease in working capital in 2005-2006 due to an increase in

liabilities and provisions and decrease in loans and advances.

3. Increase in working capital in 2006-2007, 2007-2008.

4. The net working capital of the company is decreased only in 2005-2006.

5. The reserves have been increased during all the 4 years.

6. The company is using more sources from secured and unsecured loans.

7. There is issue of shares in 2004-2005 and 2005-2006.

8. Cash from operating activities is more.

9. Net profit is increasing.

BIBLIOGRAPHY

FINANCIAL MANAGENENT I M PANDEY

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FINANCIAL MANAGENENT R P RUSTOGI

FINANCIAL MANAGENENT PRASANNA CHANDRA

FINANCIAL MANAGENENT M Y KHAN

MAGAZINES:

Business world

Business week

Business India

WEBSITES www.fff.co.in

www.google.com

ANNUAL REPORTS OF FFF LTMITED 2004-2005 TO 2007-2008

“A study on FINANCIAL ANALYSIS THROUGH FUNDS FLOW & CASH FLOW STATEMENT OF FFF Ltd”

In partial fulfillment of the requirements for the award of the degree of

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MASTER OF BUSINESS ADMINISTRATION

Submitted byR.V.RAJA SEKHAR

(Enrollment No: 07A81E0057)

Under the guidance ofMr.D.Satyanarayana, M.A, M.COM, ICWA

Asst. Professor

SRI VASAVI ENGINEERING COLLEGE(Affiliated to Jawaharlal Nehru Technological University, Hyderabad)

DEPARTMENT OF MANAGEMENT STUDIESPedatadepalli, Tadepalligudem, west Godavari

2007-2009

SRI VASAVI ENGINEERING COLLEGE(Affiliated to Jawaharlal Nehru Technological University, Hyderabad)

DEPARTMENT OF MANAGEMENT STUDIES

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CERTIFICATE

This is to certify that the project work titled “FIANACIAL ANALYSIS

“submitted by R.V.RAJA SEKHAR examined and adjudged sufficient as

partial fulfillment for the award of the Master of Business Administration, by

Jawaharlal Nehru Technological University, Kakinada from SRI VASAVI

ENGINEERING COLLEGE, Tadepalligudem.

INTERNAL GUIDE HEAD

Department of Management studies

INTERNAL EXAMINER EXTERNAL EXAMINER

DECLARATION

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I hereby declare that project report entitled "A STUDY management

analysis through cash flow statement ’’ in FOODS FATS & FERTILISERS

LTD , TADEPALLIGUDEM is original and has been carried out by me towards

partial fulfillment for the award of the degree in “master business administration

” submitted to the Department of Commerce & Management Studies, Sri Vasavi

Engineering College Tadepalligudem

I also declare that this project work is result of my own effort and the

findings of the report are based on the information collected by me during this

study.

Place: Tadepalligudem

Date: (V. RAJASEKHAR RYALY)

ACKNOWLEDGEMENT

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I feel great pleasure to express my gratitude and thanks to all people who

played roles for successful completion of my two months field work.

I owe my gratitude to Mr. V. KIRAN KUMAR, Asst Professor, and Head of

the Department, M.B.A. Sri Vasavi Engineering College, Tadepalligudem for

his constant encouragement and for his valuable support throughout the project.

I express my deep gratitude to Sri R.V.S.S.S.Prasada Rao, GM (Finance)

and Sri A Srinivasa Rao, Manager (Accounts) and staff of finance dept of FFF

Ltd for their prompt help and co-operation for in collecting the information and

data during my placement at FFF Ltd.

(V.RAJASEKHAR RYALY)

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INDEX

CHAPTER I INTRODUCTION TO STUDY

SCOPE OF THE STUDY

NEED OF THE STUDY

OBJECTIVES OF THE STUDY

METHODOLOGY OF THE STUDY

LIMITATIONS OF THE STUDY

CHAPTER II INDUSTRY PROFILE

CHAPTER III COMPANY PROFILE

CHAPTER IV CONCEPTUAL FRAME WORK

CHAPTER V SUMMARY & SUGGESTIONS

BIBLIOGRAPHY

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