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Introduction
Funds constitute prime importance in starting and operating any business Enterprise the most significant of all financial activities is the raising and management of funds financial decisions are those which concern the generation and flow of funds various sources and the use of these funds. The accounting standards state that in many countries the approach to provide a statement of changes in financial position as a part of audited accounts is the trend in India companies are under no legal obligation to publish a statement of changes in financial position statements along with financial statements especially in the case of companies listed on the stock exchanges and other large commercial industrial and business enterprise in public and private sectors. The funds flow statement which shows the movement of funds and is the part of financial operation of the business under taking. It indicates various means by which funds. Where obtained during a particular period and the ways in which there funds where employed in simple words. It is a statement of sources and application of funds. Funds flow analysis refers to the process of determining the financial strengths and weakness of the by establishing relationship between the items of balance sheet and profit and loss account. Funds flow statement serves as a handy tool in financial analysis making financial planning preparation of budget through this analysis firm group the change in the allocation resources between the two balance sheets. The Funds flow statement expresses the changes in working capital and assesses the impact upon liquidity position of the undertaking with the help of this statement.
The financial management can plan the intermediate and long term
financial of the concern repayment of loans, expansions of business and distribution of resources. It is helpful in the crucial decision making process incase of expansion. Diversification of conservation of more funds for profitable utilization of sound projects in the sequent year. It is useful to economize financial institution, investors and owners for analyzing performance of the firm.
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Needs For The Study The basic financial statements i.e. the “Balance sheet”, “Profit and Loss accounts” reveal the net effect of the various transaction on the operational and “Financial position of the company”. But these statements do not disclose the cases for changes in the ‘assets’ and ‘liabilities’ between two different points of time. Even the ‘profit & loss account’ indicates the resources provided by operations.But there are many transactions that take place in an undertaking which do not operate through ‘profit & loss account’. Thus another statements has to be prepared,show the change in the ‘assets and liabilities’ from the end of one period of time to the end of another period of time. That statement is called Funds flow statement. So, I have undertaken this study to examine the changes which are occurring in the financial operation of the organization and to the “Funds management system” in “KESORAM CEMENTS LTD”.
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Objectives Of The Study •
To study the source of funds of the Kesoram Cement Limited.
•
To study the application funds of the Kesoram Cement Limited.
•
To study the changes in “working capital”
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To study & analysis the various aspects of balance sheet.
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Suggesting better way if any for improving management of funds flow research
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Scope Of The Study: •
Only the FUNDS FLOW has been taking to measure the financial performance.
•
The study confines to the funds management at “Kesoram Cements Limited only.
•
This study can not reflect the Overall Industry’s funds management system.
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Research and Methodology:
Research: Research is an academic activity and as such term should be used in a technical sense. According to Clifford woody research comprises defining and redefining problems, formulating Hypothesis or suggested solutions; collecting, organizing and evaluating data, making deduction and reaching conclusion; and At last carefully testing the conclusions to determine whether they fit the formulating the hypothesis.
Data Collection Methods Primary Data: Primary data refers to information on that is generated to meet the specific requirements of the investigation at hand it consist observation method; interview method; through questionnaires; through schedules methods.
Secondary Data: The information that is collected for a purpose other than to solve the specific problem under investigation is known as secondary data Secondary data has been collected from books publications, websites, and annual reports of Kesoram cement.
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Limitations: •
The analysis made on the basis of secondary data.
•
This analysis has done based on the information provided by the industry. If any mistakes published in this reports, the same information has taken into consideration.
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This project is not a basis for further research.
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Only data of three years is taken for the study,which may not be sufficient to measure the financial performance of the firm
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REVIEW LITERATURE This cyclic relationship between flows , style drift, and performance is problematic to understand. Significant amounts of new flow could cause a manager to trade more frequently, therefore incurring more transaction costs. In addition, fund flows can constrain a fund manager from adhering to an optimal investment strategy, as they might have to hold more cash to allow for erratic flows (Edelen, 1999; Rakowski, 2003). Negative tax implications might also arise from significant fund flows (Shoven, Dickson & Sialm, 2000). In addition, a fund demonstrating style inconsistency could discourage further investment and, therefore, result in fund outflows. Cooper et al. (2005) find that a change in the style of the name of a fund can subsequently attract significant amounts of fund flow. Many studies have examined the relationship between fund flows and performance (Berk & Green, 2004; Chevalier & Ellison, 1997; Deaves, 2004; DelGuercio & Tkac, 2002; Sirri & Tufano, 1998). Chevalier and Ellison (1997) and Sirri and Tufano (1998) find that mutual fund flows are related to lagged measures of excess returns. This finding implies that successful funds are more likely to attract fund flow in the future. This finding is also reported by DelGuercio and Tkac (2002) for those funds at the top of the distribution. Other literature points to three variables that are important in explaining fund flow: prior period performance, prior period fund flows and the size of the fund (Jain & Wu, 2000; Zeckhauser, Patel & Hendricks, 1991). Deaves (2004), using a sample of Canadian funds, finds that money flows into successful funds, but not out of unsuccessful ones at the same rate. This finding is often referred to as the convex relationship between flow and performance (Brown, Harlow & Starks, 1996; Chevalier & Ellison, 1997). A positive, significant relationship between mutual fund flow and Jensen’s alpha is reported by DelGuercio and Tkac (2002),although they find that this is most likely because of a high correlation between published fund ratings and alpha.
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Industry Profile History Of Indian Cement Industry By stating production in 1914 the story of story of Indian cement is a stage of continuous growth. Cement is derived from the Latin word “cementam”.
Egyptians and Romans found the process of manufacturing cement. In England during the first century the hydraulic cement has become more versatile building material. Later on, Portland cement was invented and the invention was usually attributed to Joseph Aspdin of England.
India is the world’s 4th largest cement produced after China, Japan and U.S.A. The South Industries have produced cement for the first time in 1904. The company was setup in Chennai with the installed capacity of 30 tonnes per day. Since then the cement industry has progressing leaps and bounds and evolved into the most basic and progressive industry. Till 1950 – 1951, the capacity of production was only 3.3 million tonnes. So far annual production and demand have been growing a pace at roughly 78 million tonnes with an installed capacity of 87 million tonnes.
In the remaining two years of 8th plan an additional capacity of 23 million tonnes will actually come up.
India is well endowed with cement grade limestone(90 billion tonnes) and coal(190 billion tonnes). During the nineties it had a particularly impressive expansion with growth rate of 10%.
The strength and vitality of Indian Cement Industry can be gauged by the interest shown and support gives by World Bank considering the excellent performance of the industry in utilizing the loans and achieving the objectives and targets. The World Bank is examining the feasibility of providing a third line of credit for further upgrading the industry in varying areas, which will make it global. With liberalization policies of Indian Government. The industry is posed for a high growth rates in nineties and the installed capacity is expected to cross 100 million tonnes and 8
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production 90 million tonnes by 2003 AD. The industry has fabulous scope for exporting its product to countries like the U.S.A., U.K, Bangladesh, Nepal and other several countries. But there are not enough wagons to transport cement for shipment.
Cement – The Product:
The natural cement is obtained by burning and crushing the stones containing clayey, carbonate of lime and stone amount of carbonate of magnesia. The natural cement is brown in color and its best variety is known as “ROMAN CEMENT”. It sets very quickly after addition of water.
It was in the eighteenth century that the most important advances in the development of cement were which finally led to the invention of Portland cement.
In 1756, John Smeaton showed that hydraulic lime which can resist the action of water can be obtained nit only from hard lime stone but from a limestone which contain substantial proportion of clayey.
In 1796, Joseph Parker found that modules of argillaceous limestone made excellent hydraulic cement when burned in the usual manner. After burning the product was reduced to a powder, this started the natural cement industry.
The artificial cement is obtained by burning at a very high temperature a mixture of calcareous and argillaceous material. The mixture of ingredients should be intimate and they should be in correct proportion. The calcined product is known as clinker. A small quantity of gypsum is added to clinker and it is then pulverized into very fine powder, which is known as cement.
The common variety of artificial cement is known as normal setting cement or ordinary cement. A mason Joseph Aspdn of Leeds of England invented this cement in 1824. He took out a patent for this cement called it “PORTLAND CEMENT” because it had resemblance in its color after setting to a variety of sandstone, which is found a
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abundance in Portland England.
The manufacture of Portland cement was started in England around 1825. Belgium and Germany started the same 1855. America started the same in 1872 and India started in 1904.
The first cement factory installed in Tamilnadu in 1904 by South India limited and then onwards a number of factories manufacturing cement were started. At present there are more than 150 factories producing different types of cements.
Composition Of Cement:
The ordinary cement contains two basic ingredients, namely, argillaceous and calcareous. In argillaceous materials the clayey predominates and in calcareous materials the calcium carbonate predominates.
A good chemical analysis of ordinary cement along with desired range of ingredients.
Ingredients
Percent
Range
Lime(CaO)
62
62-67
Silica(SiO2)
22
17-25
5
3-8
4
3-4
3
3-4
Alumina(Al2O3)
Calcium sulphate (CaSO4)
Iron Oxide (Fe2O3)
10
11
Magnesia(MgO)
2
1-3
Sulphur (S)
1
1-3
Alkalies
1
0.2-1
Industry Structure And Development:
With a capacity of 115 million tonnes of large cement plants, Indian Cement industry is the fourth largest in the world. However per captia consumption in our country is still at only 100Kgs of developed countries and offers significant potential for growth of cement consumption as well as addition to cement capacity. The recent economic policy announcement by the government in respect of housing, roads, power etc., will increase cement consumption.
Opportunity And threats:
In view of low per captia consumption in India, there is a considerable scope for growth in cement consumption and creation of new capacities in coming years.
The cement industry does not appear to have adequately exploited cement consumption in rural segment where damaged where damaged growth is possible.
Landed cost of cement (with import duty)continues to be higher than home market prices but with reduced import duty, increasing imports, may pose a serious threat to the domestic cement industry.
Risks and Concerns:
Slow down of Indian economy or drop in growth rate of agriculture may 11
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adversely affect the consumption. The recent increase in railway freight coupled with diesel / petrol price like will increase the cost of production and distribution, as being bulky, cement is freight intensive increase in Limestone royalty also adds to the cost of production, which is considerably higher than corresponding costs of many other developing countries.
In our country there is a need to undertake a massive programme of house construction activity into the rural and urban areas. It is impossible to construct a house without cement and steel, in other words, cement is one of the basic construction materials and therefore it is one of the vital elements for the economic development of the nation.
India inspite of being the 4th biggest producer of cement in the world has still a very low per capital consumption of cement.
Management Awards of the Government of Andhra Pradesh. Kesoram is also conscious of its social responsibilities. It’s rural and community development programmes include adoption of two nearby villages, running an Agricultural Demonstration Farm, Model Dairy Farm etc., impressed by these activities, FAPCCI choose Kesoram to confer the Award for “Best efforts of an Industrial Unit in the year 1994 as well as in1998. Kesoram also has to its credit the National Award (Shri S.R. Rangta Award for Social Awareness) for the year 1995- 1996, for the Best Rural Development Efforts made for “Best Workers Welfare” Kesoram got the first Prize for Mine Environment and pollution Control for year 1999 too, for the 3rd year in succession in July, 2001 Kesoram annexed the “Vana Mithra” Award from the Government of Andhra Pradesh.
Quality conscious and progressive in its outlook, KESORAM CEMENT is an OHSAS 08001 Company and also joined the select brand of Companies.
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ISO 9001-2000
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Company Profile
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Kesoram Cement
One among the industrial giants in the country tocday, serving the nation on the industrial front Kesoram Industries Limited has a chequeres and evenful history is dating back to the Twenties when the industrial House of Birlas acquired it. With only a Textile Mill under it banner in 1924, it grew from strength and paper, spun pipes and Refractories, tyres, Oil Mills and Refinery Extractions.
Looking to the wide gap between demand and supply, of a vital commodity, cement, which plays an important role in nation – building the government of India de-licensed the Cement industry in the year 966 with a view to attract private entrepreneurs to argument the cement product Kesoram rose to the occasion and decided to setup a few cement plants in the country.
The Cement plant of Kesoram with a capacity of 2.5 lack tonnes per annum based on dry process, was established in 1969 at Basanthnagar a backward area in Karimnagar District, Andhra Pradesh, and christened it Kesoram Cement. The second unit followed suit, which added a capacity of 2.00 lack tonnes in 1971. The plant was further expanded to 9.00 lack tonnes by adding 2.5 lack tonnes in August 1978. 1.14 lack tonnes in January, 1981 and 0.87 lack tonnes in September, 1981.
Kesoram Cement has outstanding track of performance and distinguished itself among all the Cement factories in India bagging the coveted National Productivity Award for two successive years, i.e., in 1985 and 1936, so also the National Awards for Mines Safety for two year 1985-86 and 1986- 87. Kesoram also bagged NCBM’s (National Council for Cement Building Materials) National Award for Energy Conservation for the year 1989-90.Kesoram got the prestigious state Award “Yajamanya Ratna” & “Best Management Award” for the year 1989: so also the FAPCCI (Federation of Andhra Pradesh Chamber of Commerce and Industry) Award for Best Family Planning effort in the State. Foe the year 1987-88, Kesoram also got the FAPPCI Award for Best Industrial Promotion/ Expansion effort in the State.
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History
The first unit was installed at Basanthnagar with a capacity of 2.5 lacks TPA (tonnes per annum) incorporating humble supervision, preheated system, during the year 1969.
The second unit followed suit with added a capacity of 2 lack TPA in 1971.The plant was further expanded to 9 lack by adding 2.5 lack tonnes in August, 1978, 1.13 lack tonnes in January, 1981 and .87 lack tonnes in September, 1981.
Power:
A Singareni colliery makes the supply of coal for this industry and the power was obtained form AP TRANSCO. The power demand for the factory is about 21MW. Kesoram has got 2 diesel generator sets of 4MW each installed in the year 1987.
Kesoram cement now has a 15KW captive power plant to facilitate for uninterrupted power supply for manufactured of cement.Pandit Jawaharlal Nehru Silver Rolling Trophy for Best Productivity effort in the State, Sponsored by FAPCCI, for 1993 Kesoram got the Best.
Performance:
The performance of Kesoram Cement industry had been outstanding achieving over percent capacity utilization although despite many odds like power cuts and which most 40% was due to wagon shortage etc.
The company being a continuous process industry works round the clock and has an excellent record of performance achieving over 100% capacity utilization.
Kesoram has always combined technical progress with industrial performance.
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The company had a glorious track record for the last 27 years in the industry.
Technology:
Kesoram Cement uses most modern technology and the computerized control in the plant. A team of dedicated and well – experienced experts manages the plant. The quality is maintained much above the bureau of Indian Standards.
The raw materials used for manufacturing cement are:
•
Lime stone
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Bauxite
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Hematite
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Gypsum
Environmental And Social Obligations:
For environmental promotion and to keep-up the ecological balance, this section has undertaken various social welfare programs by adopting ten nearly villages, organizing family welfare camps, surgical camps, children immunization
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camps, animal health camps, blood donation camps, distribution of fruit bearing trees and seeds, training for farmers etc., were arranged.
Welfare And Recreation Facilities:
For the purpose of recreation facility 2 auditoriums were provided for playing indoor games, cultural function and activities like drama, music and dance etc.
The industry had provided libraries and reading rooms. About 1000 books are available in the library. All kinds of newspaper, magazines are made available.
Canteen is provided to cater to the needs to the employees for supply snacks, tea, coffee and meals etc.
One English medium and one Telugu medium school are provided to meet the educational requirements.
The company has provided a dispensary with a qualified medical office and paramedical staff for the benefit of the employees. The employees covered under ESI scheme have to avail the medical facilities from the ESI hospital.
Competitions in sports and games are conducted every year for August 15, Independence Day and January 26, Republic Day among the employees.
Electricity:
The power consumption per ton cement has come down to 108 units against 113 units last year, due to implementation of various energy saving measures. The performance of captive power plant of this section continues to be satisfactory. Total power generation during the years was 84 million units last year. This captive power plant is playing a major role in keeping power costs with in economic levels.
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The management has introduced various HRD Programs for training and development and has taken various other measures for the betterment of employee’s efficiency / performance.
The section has installed adequate air pollution systems and equipment and is ISO 14001 such as Environment Management System is under implementation.
Awards:
Kesoram cement bagged many prestigious awards including national awards for productivity, technology, conservation and several state awards since 1984. The following are the some of important awards.
Awards Of Kesoram:
No
Year
Awards
National / State
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1.
1984
Best family planning effort in the state
State
2.
1985-86
National Productivity Award
National
1985-86-87
Mines Safety
National
3.
1987-88
Best industrial promotion/expansion effort
State
4.
1987-89
Productivity Award
State
5.
1988-89
Best industrial promoter
State
6.
1988-89
Expansion effort in the state
State
7.
1988-89
Award for contribution given for rural economy
State
8.
1989
Best family planning effort
State
9.
1989
Yajmanya Ratna & Best Management Award
State
10. 11.
1988-90
Community development programs
State
12.
1988-90
Energy conservation
National
13.
1991
May Day award of the Government of State Andhra Pradesh for best Management
14.
1991
Pandit Jawaharlal Nehru rolling trophy for State best national productive effort
15.
1993
Indira
Gandhi
National
Award
for State
excellence in Industry(Best Management 16.
1994
Award)
State
17.
1994-95
Best industrial rebellion award
State
Rural
development
chief
minister
18.
1995
environmental and mineral conservation State
19.
1995-96
award
State
Best industrial rebellion award 20.
1996
Best effort of an industrial unit to develop National rural economy
21.
1996
Shri S.R.Rungta award for social awareness State
22.
1996-97
for best rural development efforts
State
23.
1999
Best workers welfare
State
Best family welfare award First prize for mine environment & pollution control for the 3rd year in succession.
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24.
2001
Vana Mithra award from Andhra Pradesh State Government.
25.
2005
Best workers welfare
State
26.
2007
Best Family welfare award
State
27.
2010
FAPCCI Award for Excellence in Industrial State Productivity
from
Andhra
Pradesh
Government
In the mines safety week celebrations, under the auspices of the Director General of Mines Safety, Kesoram’s Basanthnagar limestone Mines won 2 first prizes for environment and pollution control and safe drilling and blatting and 14 2 nd prizes for overall performance, productivity, operation and maintenance of machines publicity / propaganda etc.
This section also bagged the award for Environment Protection in the Godavari River belt, sponsored by the Godavari Pradushana Pariharana Pariyavarana.
Production:
Last 20 years production of Kesoram Cements industry, Basanthnagar.
Year
Production(in tonnes)
1984-85
749197
1985-86
761581
1986-87
805921
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21
1987-88
760708
1988-89
550254
1989-90
601453
1990-91
643307
1991-92
343663
1992-93
748258
1993-94
685596
1994-95
731177
1995-96
784555
1996-97
782383
1997-98
731049
1998-99
746474
1999-2000
688305
2000-2001
777092
2001-2002
692424
2002-2003
727447
2003-2004
735012
2004-2005
746418
2005-2006
754834
2006-2007
1046166
2007-2008
1056742
2008-2009
1199445
Note: Production including internal consumption also.
Cement and clinker production were lower than the previous year mainly
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because of lower dispatches of cement due to recession prevailing in cement industry wit slowdown in demand during the year under review. This section had to curtail production due to accumulation of large stocks of clinker. However, sales realization during the second half of the year has improved and it it=shoped that prices will stabilize at some reasonable levels.
Directors Of Kesoram industries Limited
Chairman
•
Sri.B.K.birla
Directors
•
Smt. K.G.Maheshwari
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Shri. Pramod Khaitan
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Shri.B.P.Bajoria
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Shri.P.k.Chokesy
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Smt.Neeta Mukerji
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(Nominee of ICICI
•
Shri. D.N.Mishra
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(Nominee of L.I.C.)
•
Shri P.K.Malik
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•
Smt Manjushree Khaitan
Secretary •
Shri. S.K.Parik
Senior Executives •
Shri.K.C.Jain (Manager of the Company)
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Shri J.D.Poddar
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Shri O.P.Poddar
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Shri P.K.goyenka
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Shri D. Tandon
Auditors •
Messrs Price Waterhouse Subsidiary Companies Of Kesoram Industries
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Bharat General & Textile Industries Limited
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KICM Investment Limited
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Assam Cotton Mills Limited
•
Soft shree Estates Limited
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Conceptual frame work Financial Statements Introduction: The basis for financial planning, analysis and decision-making is the financial information. Financial information is needed to project, compare and evaluate the firm’s earning ability. It is also required to aid in economic decisionmaking investment and financial decision-making. The financial information of an enterprise is contained in the financial statements or accounting reports. Three basic financial statements of great significance to owners, management and investors are balance sheet, profit and loss account and cash flow statement. Balance Sheet: Balance sheet is the most significant financial statement. It indicates the financial condition or the state of affairs of a business at a particular moment of time. More specially, balance sheet contains information about resources and obligations of a business entity and about its owner’s interest in the business at a particular point of time. Thus, the balance sheet communicates information about assets, liabilities and owner’s equity for a business firm as on a specific date. It provides a snapshot of the financial position of the firm at the close of the firm’s accounting period. Assets are valuable economic resources owned by the firm. They embody
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future benefits and are measured in monetary terms. Assets represent: (a) stored purchasing power (e.g., cash), (b) money claims (e.g., receivables stock ) and (c) tangible and intangible items that can be sold or used in business to generate earning. Tangible items that include land, building, plant, equipment or stocks of materials and finished goods and all such other items do not have any physical existence, but they have value to a firm. They include patents, copyrights, trade name or goodwill. Assets are classified as: (1) current assets and (2) fixed (long term) assets.
Current assets: sometimes called liquid assets are those of a firm which are either held in the form of cash with in the accounting period are of one-year duration. Current assets include cash, tradable (marketable) securities, and debtors (accounts receivables) and stock of raw material, work-in process and finished goods. Fixed assets are long-term in nature; they are held for periods longer than the accounting period.
They include tangible fixed assets like land, building,
machinery, equipment, furniture etc. Intangible fixed assets represent the firm’s rights and include patents, copyrights franchises, trademarks, trade names and goodwill. Firm’s obligations are called liabilities. Liabilities represent debts payable in future by the firm to its lenders and creditors. They represent economic obligations to pay cash or pay cash or to provide goods services in some future period. Examples of liabilities are creditors, bills payable, wages, salaries payable, taxes payable, bonds, debentures, borrowings from banks and financial institutions, public deposits etc… Liabilities are of two types: (1) current liabilities; and (2) long-term (fixed) Current liabilities are debts payable within an accounting period. Current
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assets are converted into cash to pay current liabilities. Long-term liabilities are the obligations or debts payable in a period of time greater than the accounting period. Long-term liabilities include debentures, bonds, and secured long-term loans from financial institutions. The financial interest of the owner’s are called owner’s equity or simplyEquity. The owner’s interest is residual in nature, reflecting the excess of the firm’s assets over its liabilities. As liabilities are the claims of outside parties, equity represents owner’s equity has two parts (a) paid-up share capital and (b) reserves and surplus. Paid-up share capital is the amount of funds directly contributed by the shareholders through purchase of shares. Reserves and surplus or obtained earning are undistributed profits. Paid up share capital and reserves and surplus together are called net worth. Profit And Loss Accounts: Balance sheet is considered as a very significant statement by bankers and other lender because it indicates the firm’s financial solvency and liquidity, as measured by its resources and obligations.However, creditors, particularly bankers and financial analysis in India have recently started paying more attention to the firm’s earning capacity as a measure of its financial strength. The earning capacity and potential of a firm are reflected by its profit and loss account. The profit and loss account is a “score-board” of the firm’s performance during a period of time. Profit and loss account presents the summary of revenues, expenses, net income or net loss of a firm. It serves as measure of firm’s profitability. Revenues are amounts that the customers. The cost of the firm for providing them goods and services to customers. The cost of the economic resources used to earn revenues during a period of time is called Expenses. Revenues and expenses are sometimes categorized as operating and nonoperating business of the firm are called operating revenues (operating expenses). Revenues (expenses) which are incidental or indirect to the main operations of the firm are called non-operating revenues (expenses).
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Funds Flow Analysis: Introduction: The basis financial statement i.e. the balance sheet and profit & loss account or income statements of business reveal the net effect of the various transactions on the sssoperational and financial position of the company. The balance sheet gives a summary of the assets and liabilities of an undertaking at a particular point of time; it reveals status of the company. The asset side of a balance sheet shows the deployment of resources of an under taking while the liabilities side indicates its obligation financial activities of a business for a period of time and financial activities if a business but their usefulness is limited for analysis and planning purpose. But they are many transactions that take place in an under taking and which do not operate though profit & loss account. Another statement has to be prepared to show the change in the assets & 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 of a fund flow statement. Meaning & Concept Of Fund: The term fund has been defined in a number of ways. 27
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•
In a Narrow Sence:
It means cash only and funds flow statement
prepared on this basic is called a cash flow statement. Such statement enumerates net effects of the various business transactions on cash and takes into account receipts and disbursement of cash. •
In a Border Sence: The term funds refers to money values in whatever from in may exits, here funds means all financial resources, used in business whether in the form of men, material, money, machinery and others.
•
In a Popular Sence: The term funds means working capital, i.e. the excess of current over current liabilities. The working capital concept of funds has emerged due to the fact that total resources are invested partly in fixed assets in the form of capital and kept in form of liquid or near liquid form as working capital.
Meaning & Concept Of Flow Of Funds: The term ‘FLOW’ means ‘movement’ and includes both ‘inflow’ & ‘outflow’. The term ‘FLOW OF FUNDS’ means transfer of economic values from one asset 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. Effect on transaction resulted in the ‘FLOW OF FUNDS’. According to the working capital concept of funds the term ‘FLOW OF FUNDS’ refers to the movements of funds in the working capital, it is said to be an application or out of funds. RULE: The flow of funds occurs when a transaction on the one hand a noncurrent and on the other a current account and vice-versa. When a change in a non-current account E.g. Fixed assets, long term liabilities, reserve and surplus, fictitious assets etc… is followed by a change in another non-current account, it does not amount to “flow of funds”. This is because of the fact that in such cases neither the
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working capital increases nor decreases. Similarly, when a change in one current account results in change in another current. It does not affect funds. Funds move from non-current transactions or vice-versa only. In simple language funds move when a transaction affects. •
A current assets and fixed assets.
•
A fixed liabilities and current liabilities.
•
A current asset and a fixed asset.
•
A fixed liabilities and current liabilities.
Current And Non-Current Assets: To understand flow of funds, it is essential to classify various accounts and balance sheet items into current and non current categories. •
Current accounts can either be current assets or current liabilities. Current assets are those assets which in the ordinary course of business can be or will be converted into cash in a short period of normally one accounting year.
•
Current liabilities which are intended to be paid in the ordinary courses of business with in a short period of normally one accounting year out of the current assets or the income of the business.
The Following Is List Of Current Working Capital Accounts
Current liabilities 1. Bills payable.
List of current or working capital accounts Current assets 1. Cash in hand.
2. Sundry creditor’s (or) account payable. 3. Accrued
2. Cash at bank. 3. Bills Receivable.
(or)
outstanding
expenses.
4. Short
tern
(or)
Account
Receivable.
4. Dividends payable.
5. Short term loans & Advances.
5. Bank over drafts.
6. Temporary
29
(or)
Marketable
30
6. Short term loans advances & deposits. 7 8
9
investment. 7
Provision against current assets.
Inventories or stock such as a) Raw material.
Provision for taxation, if it does
b) Working process
not amount to Appropriation of
c) Stores and pares.
profit.
d) Finished goods.
Proposed dividend (may be a
8
Prepaid expenses.
current
9
Accord income.
(or)non
current
Liabilities).
Procedure For Knowing A Transaction Resulting In The Flow Of Funds •
Analysis the transaction and find out the two accounts in valued
•
Makin journal entry of the transaction
•
Determine whether the account in valued in the transaction are current or noncurrent
•
If the both account in valued are non current i.e. either permanent assets or permanent liabilities, it does not result in the flow of funds.
•
If both the account invalid are non-current.
•
If he accounts in valued are such that one is a current account while the other is a non-current account i.e. current assets and permanent and fixed assets or current liabilities and fixed assets or current liability and permanent liability & fixed assets or current liability & permanent liability then it result in the flow of funds.
30
31
\
Funds Flow statement, Income Statement & Balance Sheet Funds flow statement is not a substitute an income, i.e. a profit and loss account and balance sheet. The profit and loss account is a document which indicates the extent of success achieved b y a business in earning profits. It reports the result of business activities and indicates the reasons for the profitability of a business. It does not reveal the inflow and outflow of funds in business during a particular period. Hence funds flow statement is not competitor to financial statements. The funds statement provides additional information as regards changes in working capital, derived from financial statements at two point of time.
It is a tool of
management for financial analysis and helps in making decisions. Difference Between Funds Flow Statement And Income Statement Funds flow statement
Income statement
31
32
1. It highlights the changes in the
1.
It does not reveal the inflow and
financial position of a business and
outflows of fund but depicts the
indicates the various mean by which
items of expenses and incomes
funds
arrive at the figure of profit or loss.
were
obtained
during
a
particular period and the ways to be which these funds were employed. 2. It
is
complementary
to
income
statement income statement helps the preparation of funds flow statement.
2. Income statement is not prepared from funds flow statement.
3. While preparing funds flow statement both capital and revenue items are considered.
3. Only revenue items are considered.
4. There is no prescribed format for preparing a funds flow statement. 4. It is preparing in prescribed format.
Difference Between Funds Flow Statement And Balance Sheet Funds flow statement 1. It is a statement of changes in
Balance sheet 1. It is a statement of financial
financial position and hence is
position on particular data and
dynamic nature.
hence is static in nature.
2. It shows the sources and use of funds in a particular period of time.
2. It depicts the assets and liabilities at particular point of time. 3. It is not of much help to
3. It is a total of management for financial analysis and helps in decisions.
management in making decisions. 4. No such of changes in
4. Usually, schedule of changes in
working capital is required.
working capital has to be prepared
Rather profit & loss account is
before
prepared.
preparing
funds
flow 32
33
statement.
Significant And Importance Of Funds Flow Statement: A funds flow statement is an essential tool for the financial 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 institution and financial manages. The basic purpose of funds flow statement is to reveal the changes in the working capital on the two balance sheets data. It also describes the sources from which additional working capital has been financed and the uses to which working capital has been applied. Such a statement is particularly useful in assessing the growth of the firm. It resulting financial needs and in determining the best way of financial these needs. These significance or importance of funds flow statement can be well followed one can plan the intermediate and long term financing of the firm.
Uses Of Funds Flows Statement •
Helps in analysis of financial statement. 33
34
•
Throes light or preplanning questions.
•
Helps in formulation of dividend policy.
•
Helps in the proper allocation of resources.
•
Acts as a future guide.
•
Helps appraising the use of working capital.
•
Helps knowing the credit worthless. Limitations Of Funds Flow Statement The funds flow statement has a number of users; however, it has creation
limitations also, which are listed below. •
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. •
It can not reveal continuous changes.
•
It is not an original statement but simply is arrangement of data given in the financial statement.
•
It is essentially historical in nature and relevant for financial management in that the working capital.
Procedure For Preparing a Funds Flow Statement Funds flow statement is method by which we study changes in the financial position of a business. Enterprise between beginning and ending financial statement dates. Hence the funds flow statement is prepared by comparing two 34
35
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. •
Statement of schedule of changes in working capital.
•
Statement of sources and application of funds.
•
Statement of schedule of changes in working capital Working capital means the excess of current assets over current liabilities. Statement of changes in working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of current assets & current liabilities derived from the 2 balances. Working capital = current assets – current liabilities
Statement of schedule of changes in working capital Particulars Current assets:
Previous year
Current year
35
Effect on working capital Increase Decrease
36
Cash in hand
xxx
Xxx
Cash at bank
xxx
Xxx
Bills receivable
xxx
Xxx
Sundry debtors
xxx
Xxx
Temporary
Xxx
Xxx
Investment
Xxx
Xxx
Stock
Xxx
Xxx
Prepaid expenses
Xxx
Xxx
Accrued incomes
Xxx
Xxx
Total current assets
Xxx
Xxx
Current liabilities: Bills payable Sundry creditors Outstanding expenses Bank overdraft Short advantages Dividend payable Provision for taxation
36
37
Total current liabilities Working capital (CACL) Net
increase
(or)
decrease in working capital.
Xxx
Xxx
Xxx
xxx
Xxx
Xxx
Xxx
Xxx
Xxx
xxx
Xxx
xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Statement of sources and application of funds: Funds flow statement is a statement which indicates various sources from which funds (working capital) have been obtained during a certain period and the users or applications to which these funds have been put during the period. 37
38
Generally this statement prepared two formats. •
Report form
•
T form or an account form or self balancing type.
Specification Of Reports Form Of Funds Flow Statement Particulars
Rs
38
39
Source of funds Funds from operation.
Xxx
Issue of share capital.
Xxx
Raising of long term loans.
Xxx
Receipts from partly paid shares, called up.
Xxx
Sales of non current assets.
Xxx
Non trading receipts, such as dividends received.
Xxx
Sales of investment(long term)
Xxx
Decrease in working capital (as per schedule of change Xxx in working capital).
Xxx Total:
Application (or) uses of funds
Xxx
Funds lost in operation.
Xxx
Redemption of debentures.
Xxx
Repayment of long term loans.
Xxx
Purchase of long term investment.
Xxx
Purchase of non current assets.
Xxx
Non trading payments.
Xxx
Payment of dividends.
Xxx
Payment of tax.
Xxx
Increase in working capital.
xxx
Total:
39
40
T’ forms An Account Form Or Self Balancing Type Funds Flow Statements Sources Rs Funds from operation Issue of Xxx
Applications Rs Funds in Operation. Redemption of Xxx
Share Capital
xxx
preference share capital
Issue of debentures.
xxx
Redemption
of
xxx debentures.
Raising of long term loans. Xxx
Repayment of long term loans
Receipts from partly paid hares.
Purchase of non current (fixed) Xxx
Xxx
Sales of non current (fixed) assets.
assets. xxx
Non trading receipts such as dividends.
Purchase of long term investment.
Xxx
Payment of dividends
Xxx
Payment of tax Xxx
Net increasing in working capital. Total
Total
Xxx
Non trading Payment
Sales of long term investments Net decrease in working capital
xxx
Xxx
Xxx Xxx Xxx Xxx
Xxx
xxx
NOTE:- Payment of dividend and tax will appear as an application of funds only when these items are appropriations of profit and not current liabilities. 40
41
Statement Of Changing Working Capital For The Year PARTICULARS CURRENT ASSETS
YEAR1
YEAR2
INCREASE DECREASE
Inventories
xxx
Xxx
xxx
Sunday Debtors
xxx
xxx
xxx
Cash & Bank balance
xxx
xxx
Others Current Assets (A)
xxx
Xxx
xxx
Xxx
xxx
xxx
xxx
xxx
(+-
(+-
xxx
xxx
xxx
xxsx
Current Liabilities:Current Liabilities Provisions Total Current Liabilities (T.S) Working Capital = (A+B) Decrease
/
working Capital
Increase
in
41
Xxx
42
Statement Showing Sourses And Application Of Funds: Amount
Application of funds
Amount
Sources of funds Issue of shares
xxx
Preferences of Shares
xxx
Issue of Debentures
xxx
Redemption of Debentures
xxx
Long term Borrowings
xxx Payment of other Long Term Loans
xxx
Purchase of Fixed Assets
xxx
Payment of Fixed Assets
xxx
Increase in working Capital
xxx
TOTAL
xxx
Sales of Fixed Assets
Operating profit
xxx
xxx
Decrease in working xxx Capital
TOTAL
xxx
42
43
Data analysis & interpretation Statement Of Changing In Working Capital For Year 2008-2009 Of Kesoram Cements Ltd. 2008
2009
Particulars Current Assets:-
Effect on working capital Increase
Inventories
4421701810
5890612970
1468911160
Sundry Debtors
2730735205
3801705637
1070970432
Cash & Advances
405421333
568552594
163131261
Loans & Advances
4290179191
5271380085
981200894
Other current Assets
214691785
223641866
8950081
Decrease
Total current Assets (A) Current liabilities & Provisions:-
600802069 148935466
Current liabilities Other
current
liabilities Total current liabilities (B)
Working Capital (AB)
43
44
Increase in working capital
1206272933
1575589315
0
2
3030323592
3631125661
3303927056 6334250648
3452862522 7083988183
5728478676
8671904969
2943426293 Total
8671904969
8671904969
3693163828
3693163828
Funds Flow Statement For Year 2008-2009 Of Kesoram Cements Ltd. Particulars Source of funds
Rs
Particulars Application of funds
Rs
Reserve & surplus
3481839261
Net fixed assests
9503655273
Secured loans
5652087754
Investments
139542799
Unsecured loans
3618964260
Redemption of
3693163828
Funds from operation
1166941247
debentures
Issue of shares
2359955668
Increase in working Capital
44
2943426293
45
Total
1627978819
Total
16279788190
0
Interpretation:-
The above analysis that is 2008-2009 total current assets amount
Rs
12062729330 has been Increased to Rs.15755893152 . The Increased in current assets Rs 3693163822 Cash & Bank balance has shown Higher i.e. from (405421333 to 568552594) Rs 163131261 loans and Advances also Increased from Rs. 4290179191 to Rs.5271380085 i.e. 981200894
45
46
At the same time the current liabilities also Increased from Rs. 6334250648 to Rs.7083988183 i.e. 749737535 The net working capital Increased during the study period amount to Rs 2943426293. The Increase in net working capital resulted from Increase in sundry debtors. Cash & Bank balances loans & Advances.
Statement Of Changing In Working Capital For The Year 2009-2010 Of Kesoram Cements Ltd. Particulars
2009
2010
Effect on working Capital Increase
Current Assets:Inventories
5890612970
Sundry Debtors
3801705637
Cash & Advances
568552594
Loans & Advances
9161941383
3271328413
5428886145
1627180508
804488277
235935683
2874621844
742209886
2132411958 46
Decrease
47
301337952 Other current Assets
77696086
223641866
Total current Assets (A) Current liabilities & Provisions:Current liabilities Other
current
163969157
liabilities Total
1655118889
current
liabilities (B) Working Capital (AB) Inecrease in working capital
4463200844
1261692503
1857127561
0
1
3631125661
5286244550
313894395
149925238
3945020056
5436169788
47
48
8671904969
1313510582
4463200844
Total
8671904963
8671904963
48
6118319733
6118319733
49
Funds Flow Statement For The Year 2009- 2010 Of Kesoram Cements Ltd. Particulars
Amount (Rs)
Particulars
Sources of FUNDS
Application
Amount (Rs) of
FUNDS Reserve & Surplus
2101360896
Fixed assets
11754538420
Secured loans
32744630006
Current assets
5954350586
Unsecured loans
8715535119
Fund
from 996160779
operation
Increase in working 4463200849
103472721
capital
Investment
Total
2217208986
Total
Interpretation:
49
2217028986
50
The above calculation that in 2009-2010 total current assets amount to Rs 12616925030 has been Increased Rs 18571275611. The Increased in current assets Rs 5954350581 Cash & Bank balance has been increase i.e. from Rs.568552594 to Rs.804488277 i.e; Rs 235935683 loans and Advances also Increased from Rs.2132411958 to Rs.2874621844 i.e.Rs.742209886. At the same time the current liabilities also Increased from Rs.3945020056 to Rs.54366169788 i.e. 1591149732 The net working capital Increased during the study period amount to Rs4463200849 . The Increase in net working capital resulted from Increase in. Cash & Bank balances, loans & Advances.
Statement Of Changing In Working Capital For The Year 2010-2011 Of Kesoram Cements Ltd
50
51
Particulars
2010
2011
Effect On Working capital
Inventories
9161941383
1118548444
2023543064
Sundry Debtors
5428886145
Cash & Advances
804488277
Loans & Advances
2874621844
Current Assets:-
7
884542716
6313428861 736443833
68044444 1152525196
4027147040 Other
Current 301337962
Assets
17561462 318899424
TotalCurrent Assets(A) Current Liabilities & Provisions Current Liabilites
Other
Current
Liabilites
Total
Current
Liabilities(B) Working Capital(AB) Increase in Working capital
51
52
Total
1857127561
2258140361
1
0
5286244550
7525958375
2239713824
149925238
149421845
503393
5436169788
7673380219
1313510582
1490602339
3
1 1770917568
1770917568 1490602339
1490602339
1
1
52
4078172438
4078172438
53
Funds Flow Statement For The Year 2010- 2011 Of Kesoram Cements Ltd Particulars
Amount(Rs)
53
Particulars
Amount(Rs)
54
Sources of FUNDS Secured loans
Application Of FUNDS 5081163511
Unsecured loans
Reserve & Surplus Net fixed assests
1502412212 Funds from operation Issue of shares Sale of fixed assests
2399902260
1043547002 1565320502 2087094008
249799932 Investments Redemption of
2848789472 4010127999
debentures Increase in working
1770917568
Capital
Total
1127953724
Total
1127953724
Interpretation: The above calculation that in 2010-22011 total current assets amount to
54
55
Rs.18571775611 has been Increased Rs 22581403610. The Increased in current assets Rs 4009627999 Cash & Bank balance has shown lower i.e. from Rs.804488277 to Rs.736443833i.e; Rs.68044444 loans and Advances also Increased from Rs.2874621844 to Rs.4027147040 i.e;Rs.1152525196 At the same time the current liabilities also decreased from Rs.5286244550 to Rs.7525958375 i.e. 2239713824 The net working capital Increased during the study period amount to Rs 1770917568. The Increase in net working capital resulted from decrease . Cash & Bank balances and Increase loans & Advances.
Comparison of current assets: Table:I
55
56
years
current assets
Percentage
2009
15755893152
23%
2010
18571275611
15%
2011
22581403610
18%
25 20 15
2009
10
2010 2011
5 0 current asset
Interpretation: The above graph shows that current assets decreasing over a period of study is a good sign to organization because the liquidity cash or capital is not holding by the organization it is invested in the assets or business.
Comparison of Current liabilities: Table:II
56
57
Years
Total liabilites
Current
2009
7083988183
44%
2010
5436169788
-30%
2011
7675380219
29%
Percentage
50 40 30 20 10 0 -10 -20 -30 -40
2009 2010 2011
current liabilites
Interpretation: The above graph shows current liabilities as decreased in the year 2010 comparing to the the year 2009 it is a positive sign to the organization which leads to the improvement . It impacts on the working capital i.e a decrease in current liability means an increase in working capital.
Comparison of Sundry debtors: Table:III
57
58
Years
Sundry Debtors
Percentage
2009
3801056371
28%
2010
5428886145
29%
2011
6313428361
14%
30 25 20
2009
15
2010
10
2011
5 0 SundryDebtors
Interpretation: The lowest debtors are found in the year 2009 , highest in the year 2011 which leads to increase in the sales of the organization. There is a drastic increase in debtors from the year 2009-2011 hence it shows that organization is increasing there turnover year by year.
Comparison of cash & bank balance Table:IV
58
59
Years
Cash & balance
bank
2009
568552194
29%
2010
804488277
29%
2011
736443833
-9%
Percentage
30 25 20 15 10 5 0 -5 -10
2009 2010 2011 cash& bank balance
Interpretation: Increase in the the cash and bank balance in 2010 compare to the 2009 and a Drastic change in the 2011.
Comparision of fixed assets: Table:V
59
60
Years
Fixed assets
2009
26692000441
2010
38446538857
2011
41295328329
Percentage 36% 31% 7%
40 35 30 25 20 15 10 5 0
2009 2010 2011
Fixedassets
Interpretation: The fixed assets of the company are physically verified by the management according to phased programmes designed to cover all the items over a period of three years.The nature of assets ,which have increased or decreased ,must be studied to understand its implications in the future. The fixed assets has been increased in the 2009 and decreased in 2011 is a negative sign to the organization.
Comparison of Loans & advances Table:VI
60
61
Years
Loans & advances
Percentage
2009
5271380085
23%
2010
2874621844
2011
736443833
-45% -74%
40 20 0
2009
-20
2010
-40
2011
-60 -80 Loans &advances
Interpretation: In the year 2010-2011 the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
Findings & Suggestions Findings: •
From the above information the current assets as been increasing
61
62
which is a good sign to the organization because the increase in the current assets leads to increase in the working capital. If working capital increases it leads to good turnover to the organization. •
The current liabilities as decreased in the year 2010 compared to the year 2009 it is a positive sign to the organization which leads to the improvement in the company. it impacts on the working capital.
•
The lowest debtors are found in the year 2009 , highest in the year 2011 which leads to increase in the sales of the organization.
•
Increase in the the cash and bank balance in 2010 compare to the 2009 and a slight decrease in the 2011.
•
The current assets are more in the year 2009 than compare to the current liabilities It is the positive sign to the organization that current assets are higher than the current liabilaties. In the year 2011 the current assets are more than the current liabilities.
•
The fixed assets of the company are physically verified by the management according to phased programmes designed to cover all the items over a period of three years. The nature of assets ,which have increased or decreased ,must be studied to understand its implications in the future. The fixed assets has been increased in the 2009 and decreased in 2011 is a negative sign to the organization
•
In the year 2011The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
Suggestions: •
There is lot of pretension consistence demand the cement industry as a cement producer the company can able to source, their funds throw more share
62
63
holders funds. •
Company is maintaining inventories a part of current assets for the entire study period. It shows that excessive inventory level are not good for any organization and any company. The company has to concentrate much more on inventory maintains..
•
During study period there are positive working capital levels for the company so the company must maintained enough current assets the keep working capital, figure positively.
•
A company has to recollect their standing amount from the debtor’s regularly.
•
The company has to maintain same funds long-term investment.
•
The overall profitability of the company is satisfactory.
Bibliography
63
64
Author
Name of the book
Edition
RK Sharma shashi K Gupth
Management of accounting
8th edition
Dr.S.N.Maheshwari
Financial management
6th edition
I.M pandey
Financial management
9th edition
Websites •
Company Annual reports.
•
Website of a company www.kesoram.com
•
www.google.com
64
