funds-flow-analysis at penna cement

INTRODUCTION

A funds flow statement is a technical device designed to analyze, the changes in

the financial condition of a business enterprise between two years. It is also called as a ‘statement

of sources and applications of funds . The funds flow statement is becoming popular with the

management because it not only helps them in analyzing financial operations, providing basis for

comparison with budgets, and serving as a tool of communication, but also explains the financial

consequences of such operations suchas the reason why the company is experiencing difficulty in

making payments to creditors or why the bank balance is getting thinner.

There is a general recognition in industry and business and among professional

accounting bodies that financial statements should provide relevant information which sub serves

the multiple objectives of shareholders, investors, creditors, customers and the public and which

enable them to arrive at rational economic decisions. Normally what the shareholders look for in

these statements is an account of the stewardship of the firm and the amount which may be

expected as dividend. Potential investors look upon funds flow statements as the source of there

realistic view of the value of a company’s shares in terms of an expected futures stream of

distribution and judge the efficiency of the management accordingly.

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MEANING OF FUNDS

Fund:

According to the dictionary meaning of the term “Funds” implies an accumulation or

deposit of resources from which supplies are may be drawn a more or less permanent store or

supply. It is also defined as available pecuniary resources but these two meanings are abroad in

nature and apt to macro level planning and control. A number of definitions of the term ‘fund’

have been given.

Some people call ‘fund’ as ‘cash’. But it is seen in practice that the current assets are

constantly circulating through cash account in business operations and many transactions affect

flow of cash at least later or sooner.

Meaning of Flow of Funds :

The term ‘flow’ means movement and includes both ‘inflow’ and ‘out flow’. The

term ‘flow of funds’ means transfer of economic values from one asset of equality to another.

Flow of funds is said top have taken place when any transaction makes changes in the amount of

funds available before happening of the transaction.

OBJECTIVE OF STUDY:

1) Helpful in planning.

2) Helpful in organizing.

3) Helpful in interpreting financial information.

4) Helpful in making decision

5) Report to management.

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NEED FOR STUDY

1. To study the financial statements of The Penna Cement Financial Services limited for the 4 years.

2. To analyze how The Penna Cement Financial Services is utilizing its resources.

3. To analyze the changes in assets and liabilities from the end of one period of the time to

the end of another period of time

4. To find out the sources from which additional funds were derived and the use to which

their sources were put.

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SCOPE OF THE STUDY

The present study focuses as sources funds and application of funds for a period of time.

The study is confirmed to find out the changes in the financial position of The Penna Cement

Financial Services Limited between the beginning and ending financial Year.It is a technical

device designed to analyze the changes in the financial condition of the business enterprises

between two dates.

This funds flow statement is 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 the period.

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RESEARCH METHODOLOGY

Research is a process in which the researcher wishes to find out the end result for a given

problem and thus the solution helps in the future course of action. Redman and Mory defines

research as a “systematized effort to gain new knowledge”.

Research Design

A research design is the arrangement of conditions for collection and analysis of data in a

manner that aims to combine relevance to the research purpose with company in procedure. In

fact, the research design is the conceptual structure within which research is conducted; it

constitutes the blue print for the collection, measurement and analysis of data.

Sources of Data:

The data was collected through primary and secondary sources.

Primary Data:

First hand information was collected using the direct personal interview.

Interaction with guide to understand the general & specific aspects regarding utilization of

resources.

Secondary Data:

Annual reports collected from the M/S Penna cement Ltd., Tadpatri.

Period of study:

The analyze presented in the study are “Annual Reports” of M/S PENNACEMENT,

TADPATRI from 2004-2005 to 2007-2008

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LIMITATIONS

It should remember 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

The study based on the available annual reports and internal information of

Pennas cement Financial Services Ltd only.

It cannot reveal continuous changes.

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PARTIES INTERESTED IN FINANCIAL ANALYSIS

There are different parties interested in the financial analysis of these statements. But their

aim and objective of the analysis differ significantly. The users of the financial statements can be

divided into tow broad groups:

(a) Internal users

(b) External Users.

Internal Users:

Financial Executives:

The first party interested in the financial statement analysis is the Finance Department of

the company itself. This analysis helps the Financial Manager to have a deep insight into the

financial condition of the enterprise.

Top Management:

The Top Management of the concern is also interested in the analysis of financial

statements. It helps them in reaching conclusion on the following:

Is the firm in a position to meet its current obligations?

What sources of long-term finance are employed by the firm?

How efficiently does the firm use its assets?

Are the earnings of the firm adequate? etc.,

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External Users:

Investors:

Those who are interested in buying the shares of a company are naturally interested in

the financial statements to know how safe the investment already made is and how safe the

proposed investment will be.

Creditors:

Lenders are interested to know whether their loan, principal and interested will be paid

when due. Suppliers and other creditors are also interested to know the ability of the firm to pay

their dues in time.

Workers:

In our country, workers are entitled to payment of bonus which depends on the size of

profit earned. Hence, they would like to be satisfied that the bonus being paid to them is correct.

Customers:

They are also concerned with the stability and profitability of the enterprise. They may be

interested in knowing the financial strength of the company to take further decisions relating to

purchase of goods.

Government: Financial analysis helps government in knowing the role and status of industry in

general and companies in particular in framing Macro-Economic policies.

Researches:

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The financial statements, being a mirror of business conditions, are of great interest to

scholars understanding research in Accounting theory as well as business affairs and practices.

Significance of Financial Analysis:

Analysis of financial statement is carried out to measure the enterprise’s liquidity,

profitability, solvency and other indicators to assess its operating efficiency, financial position

and performance. Financial analysis serves the following purpose:

To know the operational efficiency of the business.

Helpful in measuring the solvency of the firm.

Helpful in comparison of past and present results.

Helps in measuring the profitability.

It is more helpful in inter-firm comparison.

Helps in judging the solvency of the undertaking.

Types of analysis:

Two types of analysis are undertaken to interpret the position of an enterprise. They are:

Vertical Analysis

Horizontal Analysis

The Companies Act, 1956 permit the companies to present the financial statements in

vertical as well as horizontal form.

Vertical Analysis:

It is the analysis of relationship as between different individual components for a given

period of time. Comparison of current assets to current liabilities or comparison of debt to equity

for one point of time is the examples of vertical analysis. It can be made in the following ways.

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By preparation of common size statements of the two similar units.

By preparing common size statement of different years of the same business.

Horizontal Analysis:

It is the analysis of changes in different components the financial statements over different

periods with the help of a series of statements. Study of trends in debt or share capital or their

relationship over the past ten years period or study of profitability trends for a period of five years

or ten years are examples of horizontal analysis. It comprises:

Comparison of the financial statements of different years of the same business

unit.

Comparison of financial statement of a particular year of different business

units.

Methods of Analysis:

A financial analyst can adopt the following tools for analysis of the financial statements.

These are also termed as Methods of Financial Analysis.

Comparative Statement Analysis.

Common-size Statement Analysis.

Trend Analysis.

Funds flow Analysis.

Cash flow Analysis.

Ratio Analysis.

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Comparative Statement Analysis:

Comparative financial statements are those statements which are designed to provide time

perspective to the consideration of various elements of financial position embodied in such

statements. In these statements figures for two or more periods are shown side by side to facilitate

comparison. Both the income statement and balance sheet can be prepared in the form of

comparative financial statements.

Common-size Statement Analysis:

Common-size statement is a financial tool of studying key changes and trends in financial

position of a company. In common-size statement, each item is stated as percentage of the total of

which that item is a part, each percentage exhibits the relation of the individual item to its

respective total. Therefore, the common-size percentage method represents a type of ratio

analysis. That is why this statement is also designated as “component percentage” or “100 percent

statement”. Preparation of the common-size statement involves two steps:

State the total of the statement as 100 percent.

Compute the ratio of each item to the total in the statement

There are tow types of common-size statements, viz., common-size income Statement and

Balance Sheet.

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Trend Analysis:

Trend analysis depicts behavior of the ratios over a period of time and the trends in the

operation of the enterprise. The trend figures are index figures giving a bird’s eye view of the

comparative data by presenting it over a period of time. This is horizontal analysis of financial

statement, often called as Pyramid Method of Ratio Analysis – a guide to yearly changes.

Under this form of analysis, generally financial ratios are studied for a specified number of

years. It is a dynamic analysis depicting the changes over a stated period. The working of trend

analysis involves the following three steps:

Selection of the base year.

Assignment of an index number of 100 to each item of the base year.

Calculation of percentage relationship that each item bears to the same item in

the base year

Ratio Analysis:

Ratio Analysis is powerful tool of financial analysis. The relationship between two

accounting figures, expressed mathematically, it is known as a financial ratio. In financial

analysis, a ratio is used as a benchmark for evaluating financial position and performance of a

firm. Ratios help to summarize large quantities of financial data and to make qualitative judgment

about the firm’s financial performance.

Several ratios, calculated from the accounting data, can be grouped into various classes

according to financial activity or function to be evaluated. In view of the requirements of the

various users of ratios.

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We may classify them into the following categories:

Liquidity Ratios.

Leverage Ratios.

Activity Ratios.

Profitability ratios.

Financial analysis is the processes of identifying the financial strengths and weaknesses of

the firm by properly establishing relationships between the items of financial statements viz.,

Balance sheet and profit and loss account, financial analysis can be undertaken by management of

the firm or by parties outside the firm, Viz., Owners, Creditors, Investors and others.

Users of Financial Analysis:

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

firm by properly establishing relationship between the items of the Balance Sheet and the Profit

and Loss Account financial analysis can be under taken by management of the firm of by parties

outside the firm viz., Owners, Creditors, Investors and others. The nature of analysis will differ

depending on the purposes of the analyst.

Trade creditors:

Trade creditors are invested in firm’s ability to meet the climes over very short period of

time. Their analysis therefore, confine to the revolution of the firm’s liquidity position.

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Suppliers of long term debt:

On the other hands are concerned with the firm’s long – term solvency and survival. They

analyze the firm’s profitability over time its ability to generate cash to be able to pay interest and

repay principle and the relationship between various courses of funds.

Investors:

Who have invested their money in the firms shares are must be concerned about the firm’s

earnings. They restore more confidence in those firms. That show study growth in earnings as

such they concentrate analyzing the firms present and future profitability.

Management:

Management of the firm would be invested in every aspect of the financial analysis. It is

their over all responsibility to see that the resources of the firms are used most effectively and

efficiently and that the firms financial condition is sound.

Funds Flow Analysis:

Significant technique of financial analysis is ‘FUNDS FLOW ANALYSIS’. It is designed

to highlight changes in the financial condition of a business concern between concern between

two points of time which generally conform to beginning and ending financial statement dates.

Thus, Funds Flow Statement is a report which summarizes the events

taking between the two accounting periods. It spells out the sources from which funds were

derived and the uses to which these funds were put. This statement is essentially derived from an

analysis of which these have occurred in assets and liabilities items between two balance sheet

dates. In this statement, only the net changes are shown so that the outcome of a transaction upon

the financial condition of a business enterprise reflected more sharply.

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MEANING AND CONCEPT OF FUNDS

Fund:

According to the dictionary meaning of the term “Funds” implies an accumulation or

deposit of resources from which supplies are may be drawn a more or less permanent store or

supply. It is also defined as available pecuniary resources but these two meanings are abroad in

nature and apt to macro level planning and control. A number of definitions of the term ‘fund’

have been given.

Some people call ‘fund’ as ‘cash’. But it is seen in practice that the current assets are

constantly circulating through cash account in business operations and many transactions affect

flow of cash at least later or sooner.

For example, the sale of goods on credit increases in accounts payable rather than in an

immediate cash flow. Similarly, certain expenses may result in a current liability since they might

not have been paid immediately. In other words, it may be said that any current assets and

current liability has its impact on working capital (as working capital is the difference of current

assets and current liabilities) rather than cash. Therefore there is another view about meaning of

‘fund’ that it means ‘working capital’.

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The term funds have been defined in a number of ways.

In a Narrow Sense:

It means cash only and a funds flow statement prepared on this is called a cash flow

statement. Such a statement enumerates net effects of the various business transactions on cash

and takes into account receipts and disbursements of cash.

In Broader sense:

The term Funds refers to money values in whatever from it may exist here Funds means all

means all financial resources used in business whatever in the firm of men, material, money,

machinery and others.

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 fact that total resource of a

business are invested partly in fixed assets in the form of fixed capital and partly kept in firm of

liquid of near liquid form as working capital.

In any business we cannot under estimate the flow of funds from two operations. The

business runs with funds but the organization knows how much important the flow of funds is.

The Funds Flow Statement is concerned with sources and applications of organization.

Statement of changes in working capital shows the increase or decrease in working capital.

“Funds from Operation” statement shows how much funds from operations.

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IMPORTANCE OF FUNDS FLOW ANALYSIS:

The importance of funds Flow analysis and ratio analysis in all undertakings needs no

emphasis.

How is it managed? What are the practices adopted? What are the problems faced?

This study is an attempt to answer the questions. This is considered to M/S. PENNA

CEMENT LIMITED, TADPATRI.

Funds Flow Statement, Income Statement and Balance Sheet:

Funds Flow Statement is not a substitute of an income statement i.e., a Profit and Loss

Account, and a Balance Sheet. The Profit and Loss Account is a document, which indicates the

extent of success achieved by a business in earning profits.

A balance sheet is a statement of financial position or status of business on given date. It

is prepared at end of accounting period. The balance sheet depicts various resources of an

understanding and the deployment of these resources in various assets on a particular date. As it

indicates the financial condition on a particular date, it is static in nature; while funds flow

statement is a dynamic one.

Funds Flow Statement tells us many financial facts, which a balance sheet cannot tell.

Balance sheet does not disclose the cause for change in the assets and liabilities between two

different points of time. Again, while balance sheet is the end result of all accounting operations

for a period of time? The funds flow statement provides additional information as regard changes

in working capital derived from financial statements at two points of time. It is a tool of

management for financial analysis and helps in making decisions.

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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 the concern. The balance sheet gives a static view of the resource of a

business and these have been put at a certain point of time. But it does not disclose the causes for

changes in the assets and liabilities between two different points of time. The funds flow

statements explains cause for such changes and also effect these changes on the liability position

of the company. Some times concern may operate profitability and yet its cash position may

become more and worse. The funds flow statement gives a clear answer to such a situation

explaining what happened to the profits firm.

2. It throws light on May perplex Questions of general interest:

Why were the net current assets lesser in spite of higher profits and vise versa?

Why more dividends could not be declared in spite of available profits?

How was it possible to distribute more dividends than the present earnings?

What happened to the profit and where it has gone?

What happened to the proceeds of sales of fixed assets, issue of shares,

debentures, etc?

3. It helps in the Formation of Business of Realistic Dividend Policy:

Sometimes a firm has sufficient profits available for distributing as dividend but yet may

not be available to distribute for cash resources. In such cases a funds flow statement helps in the

information of a realistic dividend policy.

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4. It helps in the proper Allocation of Resources:

The resources of a concern are always limited and it wants to make the best use of these

resources. A project funds flow statement constructed for the future helps in making managerial

decisions. The firm can plan the development of its resources and allocate them many various

applications.

5. It Acts as a Future Guide:

A projected funds flow statement also acts as a guide for future to the management. The

management can come to know the various problems it ids going to face in near future for want of

funds. The firms future needs of funds can arrange to finance these needs more effectively and

avoid future problems.

6. It helps in appraising the use of Working Capital:

A funds flow statement helps in explaining the management has its working capital and

also suggest way the management has used its working capital position of the firm.

7. It helps knowing the Overall credit Worthiness of a firm:

The financial institution and banks such as state financial institutions, industrial

development 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 firm. Hence a firm is seeking assistance from these institutions

has to know alternate but to prepare functional statement.

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LIMITATIONS OF FUNDS FLOW STATEMENT

The Funds Flow Statement has a number of uses: however, it has certain limitations also,

which are listed below.

It should remember 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 chances in working capital.

It cannot reveal continuous changes.

It is not an original statement but simply is arrangement of date given in the

financial statements.

It is essentially historic in nature and project funds flow statement cannot be

prepared with much accuracy.

Changes in cash are more important and relevant for financial management

than the working capital.

Business transactions and flow of funds:

It may be noted at this stage of analysis that for the purpose of funds flow statement,

the items of balance sheet are classified into two broad categories viz.,Items of current accounts

and Items of non-current accounts.

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Current account Items

Current assets Current liabilities

Cash in hand Bills payable

Cash at bank (including fixed deposits) Trade or sundry creditors

Bills receivable Outstanding expences

Trade or sundry debtors Cash credit/bank overdraft

Inventory-Raw-materials, work in-

progress, Finished Goods, Stores,etc

Short-term loans

Prepaid expenses Income received in advance

Outstanding incomes Long-term loans (or part) which fall due

for repayment within a year

Short-term loans and advances

Temporary investments, etc

Provision for doubtful debts and discount

on debtors

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Non-current Account Items

The word ‘fund’ is to denote working capital. Funds flow there fore refers to the changes in the

fund (i.e., working capital) by the transactions – operational, financial and investment, though the

effect of all the transactions on the funds are considered, it should be remembered here that not

all the transactions cause the flow of funds .

Transactions Affecting Flow of Funds:

Increase in current assets but not any increase in current liabilities.

Decrease in current assets but not any decrease in current liabilities.

Increase in current liabilities but not any increase in current assets.

Decrease in current liabilities but not any decrease in current assets.

Transactions not Affecting Flow of Funds:

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Non-current assets Non-current liabilities

Land and Buildings Equity share capital

Plant and Machinery and vehicles Preference share capital

Furniture and fittings Debentures

Goodwill Reserves and surplus

Patents, trade marks, copy rights,

preliminary expenses and profit and loss

account(deficiency),etc

Long –term loans

(CHANGE IN WORKING CAPITAL)

Transactions which make conversions of one current into another current

assets.

Transactions which make conversions of one current liability into

another current liability.

Transactions which bring increase or decrease in current assets

causing a corresponding increase or decrease in current liabilities by the same

amount.

Funds Flow Statement:

The Funds Flow Statement is also known as “FUNDS FLOW ANALYSIS”. There are

several names for this statement; some are

Statement of sources and applications of funds.

Statement of inflow and outflow of funds.

Statement of Fund Supplied and Applied.

Statement of Resources provided and Applied.

Where got and where gone Statement.

Funds Flow Statement:

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The Funds Flow Statement is also known as “FUNDS FLOW ANALYSIS”. There are

several names for this statement; some are

Statement of sources and applications of funds.

Statement of inflow and outflow of funds.

Statement of Fund Supplied and Applied.

Statement of Resources provided and Applied.

Where got and where gone Statement.

various factors for inflow and outflow of working capital area shown in a statement, particularly

prepared for this purpose, which is known a “Funds Flow Statement.” This statement reveals the

manner in which the financial resources have been generated and deployed during the accounting

period. This statement is also considered as an important one as the two traditional financial

statements as it supplies important information for the users. In brief it may be said that fund

statement focuses on the flow of funds between the various assets and equity items during the

accounting period and on analysis basis this statement is generally called as “Funds Flow

Analysis”.

IMPORTANCE OF FUNDS FLOW STATEMENT:

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The balance sheet and profit and loss account failed to provide the information

which is provided by Funds Flow statement i.e., changes in financial position of

an enterprise. This statement indicates the changes in financial position of an

enterprise.

This statement indicates the changes which have taken place between the two

accounting dates.

Gives details of sources and uses of funds during given period is of great help to

the users of financial information.

It is also a very useful tool in the hands of management judging the financial and

operating performance of the company.

It also indicates the working capital position which helps the management in

taking policy decisions regarding dividend etc.,

Funds Flow statement helps in answering questions like where the profits have

gone? Why there is imbalance existing between liquidity position and profitability

position of the enterprise? Why is the concern financially solid in spite of losses?

It helps management to take policy decisions to decide about the financing

policies and capital expenditure programmed for future.

DIFFERENCE BETWEEN

FUNDS FLOW STATEMENT AND BALANCESHEET

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FUNDS FLOW STATEMENT BALANCE SHEET

1. It is a statement of changes in 1. It is a statement of financial

Financial position and hence is position on a particular date

Dynamic in nature and hence static in nature.

2. It shows the sources and 2. It depicts the assets and

Applications of funds in a funds liabilities at a

Particular period of time. Particular point of time.

3. It is a tool of management for 3. It is not of much help to

Financial analysis and helps in management in making

Making decisions. Decisions.

4. Usually, schedule of changes in 4. No such schedule of

Working capital has to be prepared changes in working

Before preparing funds flow capital is required rather

Statement. Profit & loss account is

Prepared.

DIFFERENCE BETWEEN

FUNDS FLOW & CAH FLOW STATEMENT

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FUNDS FLOW STATEMENT CASH FLOW STATEMENT

1. It is based on a wider concept 1. It is based on a narrower

of Funds, i.e., working capital. concept of funds i.e., Cash.

2. It is based on accrual basis of 2. It is based on cash basis of

Accounting. Accounting.

3. Schedule of changes in 3. Schedule of changes in

working capital is required working capital is not

to be prepared. required to be prepared.

4. Funds Flow Analysis reveals 4. It is prepared by taking the

the sources and applications opening balance of cash,

of funds the net difference adding to this all the inflows

between sources and application of cash and deducting the

of funds represents net increase outflows of cash from the

or decrease in working capital. total, difference represents

Closing balance of cash.

5. It is useful for long term planning. 5. It is more useful for short

term analysis and cash

Planning.

PROCEDURE FOR PREPARING A FUNDS FLOW STATEMENT

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Funds Flow statement is a method by which we study changes in the financial position of

a business enterprise between beginning and ending financial statements dates. Hence, the funds

flow statement is prepared by comparing two balance sheets and worth the help of such other

information derived form the accounts as may be needed.

Broadly speaking, the preparation of funds flow statement consists of two parts:

Statement of Schedule of Changes in Working Capital

Statement of sources and Application of Funds

1. Statement 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 and

Liabilities derived with the help of Current Assets and Current Liabilities derived from the two

balance sheets as:

Working Capital = Current Assets – Current Liabilities.

An increase in Current Assets increase Working Capital

A decrease in Current Assets decrease Working Capital

An increase in Current Liabilities decrease Working Capital

A decrease in current Liabilities increase Working Capital

The changes in all current assets and liabilities are merged into one figure only – either an

increase or decrease in working capital over the period for which funds statements has been

prepared. If the working capital at the end of the period is more than the working capital at the

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beginning thereof, the difference is expressed as ‘Increase in working capital’. On the other hand,

if the working capital at the end of the period is less than that at the commencement, the

difference is called ‘Decrease in Working Capital’

2. Funds Flow Statement:

Funds flow statement is a final statement. It shows the amount used in a particular period

of time i.e., “Application of Funds” and the how much amount comes into the organization in a

particular period. Finally those application and sources are balanced.

1) Schedule of changes in Working capital:

31

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PARTICULARS PREVIOUS

YEAR

CURRENT

YEAR

EFFECT ON WORKING

CAPITAL

INCREASE DECREASE

CURRENT ASSETS

Inventories

Sundry Debtors

Cash &Bank

Loans& Advances

Total Current Assets(a)

CURRENT LIABILITIES

Current Liabilities

Provisions

Total current liabilities(b)

***

***

***

***

***

***

***

***

**

**

-

-

**

-

**

-

-

**

**

-

**

**

**** ****

***

***

***

***

**** ****

Working Capital (a-b)

Net increase or decrese in

working capital

***

***

***

***

**** **** *** ***

2) Statement of sources and uses of funds:

Note:* Any one of these will find the place in the statement

+ Any one of these will find the place in the statement

Funds means working capital this working capital represents the difference between

current assets, current liabilities. All flows of funds pass through working capital. This means that

every transaction has an effect on the firms working capital position.

1. An example illustrates this as follows:-

2. An increase in profits increases the cash balance and hence working capital,

3. An increase in long term liability or any decrease in fixed assets increase the cash

balance and hence working capital.

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Sources Amount

Rs

Applications Amount

Rs

Funds from operations

Issue of shares and

Debentures

Long-term Loans

Sale of investment, Fixed

assets, etc

Non-trading Income

Decrease in working capital

***

***

***

***

***

***

***

Redemption of preference

shares and debentures

Repayment of loan

Purchase of Investment,

Fixed assets, etc

Non-Trading Expenses

Increase in working capital

***

***

***

***

***

***

Therefore the Funds Flow Statement shows the movement of funds into or out of the current

asset account of the firm.

The movement of funds has two aspects:-

Sources of funds.

Uses of funds

The former supply funds to the working capital and enhances its position. On the other

hand, the latter consume funds and erode the working capital position.

SOURCES OF FUND:

Issue of new shares

Issue of debentures

Creation of long term liability

Profit from operation

Issue of new shares:

On comparing the balance sheet of two dates there is an increase in share capital. It would

affect working capital to the extent of current assets. If it does not have any impact upon fund, it

would not be a source of fund. For example, shares issued and cash/stock/furniture received.

Merely only cash and stock will affect the fund as these are the companies of working capital.

Issue of Debentures:

That amount of issued debentures would be a source of fund which affects working

capital.

Creation of Long term Liabilities:

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If loan and mortgaged loan has been taken its increase between two balances sheet dates

would be a source of fund.

Sale of Fixed Assets:

Any decrease in fixed assets due to sale of fixed assets is shown in the sources of fund as

it involves cash or other current assets which are the elements of working capital.

Profit from Operations:

It is a source of fund, to be shown on the sources side.

Applications of Funds:

The fund acquired in the business may be used in the following items:

LOSS FROM OPERATION

DISCHARGE OF LIABILITY

REDEMPTION OF DEBENTURES

REDEMPTION OF PREFERENCE SHARES

ADDITION IN ASSETS

Loss from Operations:

Just like profit from operations is a source. Similarly loss from operations is treated as

uses of fund. In fact, incurring of loss means out flow of funds. It may be due to increase in

liabilities or decrease in assets or both.

Discharge of Liability:

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Any decrease in long term liability would be the indicator that fund ha gone from the

business liability which may be decreased due to decrease in assets ( payment of creditors by

giving cash of fixed assets to them ) or increase in liability. For example, a liability is converted

into another.

Redemption of Debentures:

If the redemption is made through conversion into shares or new debentures, it does not

affect funds. If they are rendered in cash, it would affect fund.

Redemption of Preference Shares:

If these preference shares are rendered by issue of new preference shares or equity shares

or debentures such decrease in preference shares will not be treated as use of fund, as the flow of

fund does not take place in this transaction.

Addition in Assets:

If these assets whether current or fixed are increased, it will be shown in the users of fund

because such increase entails outflow of fund. If there is increase in fixed assets accompanied

either by increase in long term liabilities or increase in share capital, there will not be outflow of

fund. On the other hand, if these fixed asset are accompanied by decrease in current assets or

increase in current liability, there would certainly be out flow of fund.

36

INTRODUCTION

37

Cement Industry has been decontrolled from price and distribution on 1 st March

1989 and de – licensed on 25th July 1991. However, the performance of the industry and prices of

cement are monitored regularly. Being a key infrastructure industry.

The constraints faced by the industry are reviewed in the Infrastructure Coordination

Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary

(Coordination). The Committee on Infrastructure also reviews its performance. The industry is

subject to quality control order issued on 17.2.2003 to ensure quality standards.

CEMENT INDUSTRY IN INDIA

In India it came to be established during the beginning of 20 th century. In fact the cement

era in India commenced with the establishment of a small cement factory at WASHERMANPET

in 1904 by South India industry Ltd. a company that dates to 1879. The potential capacity of this

plant was only 10,000 metric tones per annum. This was the first attempt of manufacturing

Portland cement with cat carious seashells as a principal raw material. There was sufficient

demand for that product, but because of technological defects and inadequate supply of raw

materials, the plant did not operate economically, a later on collapsed.

India is ranked forth in the world after China, Japan, and USA in cement production. Yet

the per-capital consumption of cement in India however low at 70 to 80 kgs against the world

average of around 220kgs

CEMENT INDUSTRY IN ANDHRA PRADESH

38

Cement was first manufactured in America in the year 1875. In India, in 1914 the India

Cements Company Limited was established a cement factory at Portland. Andhra Pradesh is the

second largest cement production state in India, one third of the limestone (138crore tones) is

available in A.P.I.A.P. the cement production was started in 1936 with two factories. Of these

two factories one is Andhra Cement Company Limited and another in Krishna Cement Factory.

One is on the side of Krishna Cement Factory. One is on the side of Krishna River and another is

in between Krishna and Guntur districts respectively.

In 1995, one more factory was established at Panyam in Kurnool Dist., named as Panyam

Cement and mineral industries. At the same time one more factory has been established at

Maacherla in Guntur district. At the end of July 1985 the total capital invested on cement

industry was Rs.427.81 lakhs and provided employment for 1262 persons and 19 factories were

functioning with a production of 85lakh tones.

Capacity, Production and Exports

India today boasts 129 large plants and over 300 mini cement plants with a capacity

of 165 million tones and production of 134 million tones (2004-05).

It ranks second in the world among cement producing countries, with per capita

consumption at 118Kg compared to the world avg. Of around 317. Per capita consumption is

366 Kg in Thailand, 626 Kg in China, 606 Kg in Malaysia and 1216 Kg in South Korea. This

indicates a huge potential for increase in consumption.

The Cement Corporation of India, which is a central public sector undertaking, has 10

units. Besides, there are 10 large cement plants owned by various state Governments. Keeping in

39

view the past trends, a production target of 133 million tons has been set for the year 2004 – 05.

During the Tenth Plan, the Industry is expected to grow at the rate of 10% per annum and is

expected to add capacity of 40 – 52 million tons.

Mainly through expansion of existing plants and use of more fly ash inthe production of

cement. A part from meeting the domestic demand, the cement Industry also contributes towards

exports. The export of cement and clinker during the last three years is as under:-

Export of Cement

(In million tons)

Year Cement Clinker Total

2005 – 06 3.47 3.45 6.92

2006 – 07 3.36 5.64 9.00

2007 – 08 3.31 4.82 8.13

Overview of the performance of the Cement Sector:

The Indian Cement Industry not only ranks second in the production of cement in the

world but also produces quality cement, which meets global standards. However, the Industry

faces a number of constraints in terms of high cost of power.

High railway tariff; high incidence of state and central levies and

duties; lack of private and public investment in infrastructure projects; poor quality coal and

inadequate growth of related infrastructure like sea and rail transport, ports and bulk terminals. In

40

order to utilize excess capacity available with the cement Industry, the Government has identified

the following thrust areas for increasing demand for cement:

(i) Housing development programs;

(ii) Promotion of concrete highways and roads;

(iii) Use of ready – mix concrete in large infrastructure projects; and

(iv) Construction of concrete roads in rural areas under Prime Ministers

Gram Sadak Yolanda.

Technological advancements

Indian cement industry is modern and uses latest technology. Only a small segment of

industry is using old technology based on wet and semi-dry process. Efforts are being made to

recover waste heat and success in this area has been significant.

India is also producing different varieties of cement like Ordinary Portland Cement

(OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well

Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement,

etc. Production of these varieties of cement conforms to the BIS Specifications. It is worth

mentioning that some cement plants have set up dedicated jetties for promoting bulk

transportation and export.

Infrastructure – driven demand push

41

The bulk of cement demand is from housing and commercial development of which

metros account for a significant amount. It is estimated that Mumbai, which consumes almost six

million tones, along with Pune, accounts for 45 percent of Maharastra’s cement consumption,

Bangalore consumes four million tones and Chennai around 3 million tones, “these are really the

growth clusters. Today bulk of the demand is driven by housing and commercial construction and

as infrastructure picks up, for example, Bangalore international airport, Hyderabad airport and

modernization of Mumbai and Delhi airports.

Another large consumer has been the roads sector. The off take was good when the

NHDP programme was launched but there was a lull last year. “Once again new orders have been

placed and in 2006, the industry will pick up. The estimate is that from roads, sdemand is not

more than 4-5 million tones but it makes a difference in the growth numbers”.

Narrowing demand-supply gap:

The industry has a capacity of 165 million tons and in Jan 2006, dispatches were at

almost 100%. On an overall basis, the industry does not do more than 90-92% because of

constraints such as transport and raw material.

The industry has been adding capacity of 6-7 million per annum by Brownfield

expansion and de-bottlenecking which is expected to partly cater to the requirement because it is

growing by around 20 million tons per annum.

Challenges before the industry:

42

Energy costs account for half of the cost of production of cement. Last year saw a

15-16% increase in coal prices and then diesel prices went up pushing up transportation costs.

Freight problems

The importance of freight for the cement industry cannot be emphasized enough. While

in the last few months’ railways have been steadily losing freight to road sector they have been

confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could go as high a

Rs.800 for long leads. This would only easy the first level of sale and additional costs are

involved to take it further.

Another issue, which will hit the industry hard, is that of logistics and a Supreme

Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed to

enforce the discipline that trucks only carry a specified load. “Many states and already

implementing this and there is already an increase in freight rates and in some cases, it has gone

up by 50%. Also, the requirement for trucks to carry the same freight has nearly doubled and in

many places the industry is being forced to move to railways.”

High taxes

While the railways have had capacity to meet the requirement, it is expected that in March

the commencement of peak season for the procurement of food grains, the railways would be

constrained to provide adequate number of wagons.

43

So fright rates are up, railways cannot provide wagons and trucks are unlikely to be viable so

there could be a serious dislocation of supplies going forward.According to the cement

manufactures association total taxes and duties on cement come to around Rs.900 a ton or Rs. 45

a bag. “So at a price of Rs.150 a bag in the market, taxes and duties account for one third. Which

is high for such a basic product. This includes excise duty, sales tax and royalty on limestone.

The importance of limestone can only be underscored as for every ton of cement

produced. 1.5tons of limestone is required. “For limestone, royalty is on a per ton basis at Rs. 40

whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying Rs.70 a

ton for limestone as royalty. VAT is at 12.5% without any justification and it should be in 4%

category, excise is at Rs.408 per ton when it should be around Rs.200.

Export Advantages

From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of cement/clinker

have grown rapidly at about 30-40% and this year exports will cross 10 million tons.

Major cement producers – market shares:

Acc -12.8%

Abuja -10.7%

Grasim-10.4%

Ultra tech-9.5%

India cement-6.0%

Jaypee-4.1%

Lafarge-3.2%

Madras-3.2%

44

Overall, the industry is in a better state today than 2 years ago. “Cement prices even today

are way below global levels. So setting up Greenfield capacities is not attractive, as prices will not

give attractive returns on investment. That is a minor reason why there is no Greenfield capacity

coming up. It has to be born in mind that one third of the prices is accounted for by taxes and

duties and nearly 20-25% by the freight component. So what produces earn at the factory gate is

among the lowest in the world.”

This year 2008 has commenced on a good note and in fact, December was a very good

month wit dispatches at 12.5 million tons and January dispatches were in excess of 13 million

tons.

“This means capacity utilization is in the nineties which is healthy and will actually lead to

firming up of prices. It looks like sales could be 137 million a ton for 2007-08(125 million tons in

2006-07) and so far growth has been 10%. There are enough reasons to believe it will sustain.”

45

INTRODUCTION

A Penna cements industry Ltd was incorporate on Oct 24 th 1991, to set up a cement

plant at Tadpatri in Anantapur District of Andhra Pradesh. The plant commenced commercial

production on Aug 10th 1994 as mini cement plant with initial capacity of 0.30 million tones. The

company short period getting profits. Later 1995 plant capacity was increased 0.4 million tones

which upgrade its state major plant

Penna cement industries ltd establishing by Mr. Prathap Reddy aged 44 began his

entrepreneur career with civil engineering contracts by lunching pioneer builders mr.prathp reddy

has experiences of two decades in cement industry .he was the executive director of priyadrashini

cement right from its inception in 1984 in 1991 Mr. Pratap Reddy incorporated his own cement

company located in between Talaricheruvu and Urichintala village. At present about 2720 tones

of various grades of cement is being manufactured daily at the factory.

Quarry:

Major raw material for cement industry. The quarry has a mining lease of 235.52 acres in

Talaricheruvu village. 440.47 acres in Urichintala village and 629.75 acres in Korumanipalli

village of Kurnool district.

47

RAW MATERIALS :

Limestone:

Limestone is the major raw material for the cement industry. Limestone constitutes 60 to

70 percent of the total raw material costs. Nearly 1.5 – 1.6 tons of limestone is required for

producing one ton of cement clinker limestone (calcium carbonate) is a rock of either sedimentary

or metamorphic origin with calcium oxide as its main constituent. In India limestone occurs

mainly as sedimentary rocks and constitutes 30 percent of the total sedimentary rocks in the

country. Cement grade limestone is available in 21 states in the country. About 65 percent of the

cement plants in India uses sedimentary limestone and 20 percent use metamorphic crystalline

limestone. India has 85,980 million tones of cement grade limestone deposits, which is enough to

produce 100 million tones of cement for the next 500 years.

Total reserve

No. of years limestone reserve would last = -------------------------------------

Avg., limestone Consumption

It is quite clear that India’s limestone reserves are adequate for the next several years.

More over new reserves would be discovered every year Limestone is mixed extensively in India

and ranks second in production next to coal mining. Major portion of limestone mining portion of

48

limestone mining is for cement industry (nearly 75% to 80%) therefore the demand supply

situation is quite comfortable.

In India limestone deposits are abundantly found only in Siroly (Rajasthan), Santna,

Belaspur (M.P., wadi (Karnataka), Tadpatri (A.P.) and some places in Gujarat. Units are generally

located in close proximity of limestone deposits in Madhya Pradesh, Andhra Pradesh, Tamil

Nadu, Karnataka, Rajasthan, and Gujarat.

The quality of required for the cement production should have the following composition.

Lime : 50%

Silican : 3%

Aluminium : 4%

Iron oxide : 0.50%

Magnesiam : 0.50%

Loss on Ignition : 42%

Total : 100%

If Magnesia content exceeds 0.4-o.5 percent, the limestone is not suitable for cement.

Similarly, lime content is directly proportional to the clinker and cement quality and quantity.

49

Gypsum:

Gypsum is another important required material for cement manufacturing, constitutes

about 5 percent of the weight of the cement. Gypsum is added in required quantity at the time of

grinding of clinker. The clinker and the required amount of the Gypsum is added to control the

setting time of the cement. India possesses resources of gypsum. Hence its availability is not a

concern for the cement manufacture.

Other Raw Materials:

A few other raw materials like Blast furnace slag and fly ash are also required for the

manufacture of the cement. Blast furnace slag is a waste product obtained from iron smelting

furnace whereas fly ash is the left over ash from thermal power station.

Inputs:

Although limestone is the major raw material for cement industry, the critical raw material

is energy. How well the company uses coal and electricity and how much it costs will determine

the success ratio for cement manufacturers. Major inputs in cement manufacturing include coal,

power and freight.

Coal:

In India coal I am being used as the fuel for the manufacturing of cement. Else where in

the world lignite, nature gas and oil are also used. They are not used in India as continuous

supply of natural gas is not assured used by plants in southern plants ogf India, like Dalmia

Cement, Chettinad cement etc., as a supplement to coal which compensates the storage for coal in

this area. Non cooking coal of lower ash content is required by cement plants. It should be less

50

than 30%. A useful heat of 4500 kilocalories per kg of coal. Coal of lower ash enables

comparatively lower quality of limestone.

The coal should have volatile matter and high temperature. Transport of

coal is another big issue as many of larger cement plants are located close to the limestone

deposits, which may not have coal deposits nearby.

Power:

Power constitutes about 10% of the total cement production costs. About 3 percent of the

total power generated in the country is used by cement industry. The average consumption of

power in the dry process kilns is around 125 units per million tons of clinker.

Freight:

Freight constitutes a very significant part of the cost structure of cement units in India. On

an average freight for transporting finished product alone forms 13.85% of the cost of production

of large cement plants.

The main areas of freight coast for the cement industries are

i. Transporting coal from the coal fields to the cement factories.

ii. Transporting cement from the plants to their markets.

Limestone transport would be even costlier than transporting coal or cement. Hence

cement plants are located in cluster near limestone deposits. Indian railway is moving up to 60%

of the total cement production.

SALIENT FEATURES OF PENNA CEMENT:

High strength and great durability

A very perceptible saving in costs (up to 20% to 25%) due to low setting time

51

Superior quality of the cement resulting in a better overall finest

Stronger bonding with aggregates.

Growth and Performance:

The company has enhanced its capacity from 600 TPD to 8000 TPD over the period of 10

years. The Existing cement plant was upgraded to 5000 tones capacity per day. The profits for

the year 2007-08 are Rs. 92.77 lakhs and sales of Rs. 946.20 lakhs. The company holds the assets

of Rs. 601.92 lakhs. The annual capacity of the company 18,25000 tones.

Competitiveness of Cement Project:

companies – Ultra tech, Andhra Cement, Grasim Cement, Gujarat Ambuja cement, Parasakthi,

Larsen and Tubro,Coramandal cement,Priya Cement, Nagarjuna cement, Sagar cement ACC

Suraksha cement, Zuari cement, and India cement Ltd

TECHNOLOGY ADOPTION AND INNOVATION:

The company has obtained the basic engineering designs and other technical know-how

from M/s. ONADA ENGINEERING and consulting company limited Japan for the cement plant

he technical collaborates are continuously guiding the company for achieving improved

productivity and benefits such as conservation of energy etc., besides trouble shooting a specific.

Man power:

Based on requirement of individual departments, Head of that department is asked to give

information to man power planning department regarding the number of persons required. The

departmental heads assess their requirements based on the available departmental job description

to ensure role clarity and to avoid role ambiguity. The Central Personnel Dept. carries out the

recruitment process.

52

The total employees in PENNA CEMENT are 345 covering all departments. There are

nearly 500 contract labor working every day on casual basis.

Raw Materials & Requirement:

Limestone, Iron ore, Bauxite, Gypsum and Coal are the basic raw materials used in the

manufacturing process of cement. The average consumption of various raw materials is shown in

the table.

REQUIREMENT OF RAW MATERIALS

S. No Raw material Tones per day Consumption per tones

of Cement

1 Limestone 2282 1.4 to 1.5

2 Additives 375 0.06 to 0.75

3 Bauxite iron ore 155 1.16 to 0.20

4 Gypsum 85 0.04 to 0.05

5 Product clinker 500 ------

Source: Annual reports of Penna Cement Limited.,

Note:

Due to change in the quality of lime stone and coal, the consumption of additives has been

changed accordingly.

53

Material Balance:

Limestone + Additives Raw material

Raw material (1.46%) +coal Calcinations clinker

Clinker + Gypsum Ordinary Portland cement

Clinker + Fly ash Pozzoland Portland

Note:

Depending upon quality of raw materials the above consumption may value

PRODUCT PROFILE:

Penna Cement manufactures and distributes its own main product lines of cement. It aims

to optimize production across all the marketers, providing a completer solution for customer’s

needs at the lowest possible cost, an approach known as “strategic Integration of Activities”.

Cement is made from a mixture of 80 percent limestone and 20 percent clay. These are crushed

and ground to provide the “raw meal”, a pale, flour – like powder. Heated to around 1450o C

(2642o F) rotating kilns, the “meal” undergoes complex chemical changes and is transformed into

clinker. Fine – grinding the clinker together with a small quality of gypsum produces cement.

Adding other constituents at this stage produces cements for specialized uses.

PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS:

Presently the company is manufacturing 43 grade, 53 grade. Ordinary portal cement port

land slag cement, soleplate Resistant with brand name of “PENNA”

Penna Suraksha - 53 Grade

54

Penna Power - 53 Grade

Penna Super - 43 Grade

ADVANTAGES:

Here are five of the many reasons why Penna 53 Grade and 43 Grade cement edges out its

competitors.

High compressive strength

Low heat of hydration

Better soundness

Lesser consumption of cement for M-20 Concreate Grade and above

Faster de – shuttering of formed work

Reduced construction time with a superior and wide range of cement catering

to every conceivable building need, Penna Cement is a formidable player in the

cement market.

Here are just a few reasons why Penna Cement chosen by millions of India.

Ideal raw material

Low lime and magnesia content and high proportion of silicates

Greater fineness

Slow initial and fast final setting

Wide range of applications

Quality customer services

55

STATEMENT OF CHANGES IN WORKING CAPITAL2005-2006

Table-1Particulars 2005

Rs.2006Rs.

Changes in WC Rs.

Increase DecreaseCurrent Assets:

Inventories

Sundry Debtors

Cash &Bank

Loans& Advances


Current Liabilities:

Current Liabilities & Provisions


Working Capital a-b

Increase in Working Capital

8,88,68,774

11,23,63,109

1,24,33,458

28,17,26,538

11,52,02,941

17,85,50,027

7,27,32,900

59,86,51,897

26334167

66186918

6029925442

316925359

-

- -

- -

18,89,36,012

28,08,09,874

49,53,91,879 96,51,37,765

23,49,02,360 42,38,38,372

23,49,02,360 42,38,38,372

26,04,89,519

28,08,09,874

54,12,99,393

54,12,99,393 54,12,99,393 46,97,45,886 46,97,45,886

57

Table-1

Sources: we have taken this information from Penna cement, from 2005-2006

Interpretation:

Comparing the year 2005-2006 the current assets increased by 46,97,45,886 rupees

compare the current liabilities 18,89,36,012 as a result working capital increase 28,08,09,874

rupees. There fore short term financial position of The Financial Services limited is good.

58

Changes In Working Capital

0

200000000

400000000

600000000

800000000

1000000000

1200000000

TotalCurrentAssets

TotalCurrentLiabilities

WorkingCapital

2005

2006

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH

31.12.2006

Table-2

Sources

Amount

Rs. Uses

Amount

Rs.


Long term loans

Sale of Investments

Decrease in Miscellaneous

expenditure

Increase in Deferred tax liability

12,06,57,250

85,74,96,949

40,02,17,536

14,78,511

3,51,08,965

Increase in Working capital

Purchase of fixed assets

28,08,09,874

113,41,49,337

63,78,87,187 63,78,87,187


Interpretation:

The Financial Services limited take huge amount of Long term loans through

funds from operations and Sale of investments. The Financial Services limited use some of these

funds to purchase fixed assets. The Financial Services limited is also use these funds to Increase

working capital.

59



Rs.2007Rs.

Changes in WC Rs.


Inventories

Sundry Debtors

Cash &Bank

Loans& Advances





Working Capital a-b

Decrease in Working Capital

11,52,02,941

17,85,50,027

7,27,32,900

59,86,51,897

16,15,83,313

26,56,85,722

4,10,06,192

59,81,54,044

4,63,80,372

8,71,35,695

-

-

-

22,42,86,763

3,17,26,708

4,97,853

32,55,78,269

96,51,37,765 106,64,29,271

42,38,38,372 74,94,16,641

42,38,38,372 74,94,16,641

54,12,99,393 31,70,12,630

22,42,86,763

54,12,99,393 54,12,99,393 35,78,02,830 35,78,02,830

60

Table-3


Interpretation:


compare the current liabilities 32,55,78,269 as a result working capital decrease 22,42,86,763

rupees. There fore short term financial position of The Financial Services limited is not good.

61

Changes in Working Capital

0

200000000

400000000

600000000

800000000

1000000000

1200000000

TotalCurrentAssets


WorkingCapital

Am

ou

nt

2006

2007


31.12.2007

Table-4

Sources

Amount

Rs. Uses

Amount

Rs.


Long term loans

Decrease in Working capital


expenditure

Increase in Deferred tax liability

16,01,23,732

15,15,15,878

22,42,86,763

10,76,442

10,08,85,372

Redemption of shares


Purchase of Investments

5,40,942

21,69,98,475

42,03,47,770

63,78,87,187 63,78,87,187


Interpretation:

The Financial Services limited take huge amount of Long term loans through

funds from operations and Purchase of investments. The Financial Services limited use some of

these funds to purchase fixed assets. The Financial Services limited is also use these funds to

Decrease working capital.

62



Rs.2008Rs.

Changes in WCRs.


Inventories

Sundry Debtors

Cash & Bank

Loans& Advances





Working capital a-b

Increase in working capital

16,15,83,313

26,56,85,722

4,10,06,192

59,81,54,044

21,89,56,216

37,09,00434

11,21,52,347

62,82,93,656

5,73,72,903

10,52,14,712

7,11,46,155

3,01,39,612

-

-

-

-

-

1,11,52,907

25,27,20,475

106,64,29,271 133,03,02,653

74,94,16,641 76,05,69,548

74,94,16,641 76,05,69,548

31,70,12,630

25,27,20,475

56,97,33,105

56,97,33,105 56,97,33,105 26,38,73,382 26,38,73,382

63

Table-5

Sources: we have taken this information from Penna cement, from 2007-2008.

Interpretation:


compare the current liabilities 1,11,52,907 as a result working capital Increase 25,27,20,475

rupees. There fore short term financial position of The Financial Services limited is good.

64


0

200000000

400000000

600000000

800000000

1000000000

1200000000

1400000000

TotalCurrentAssets


WorkingCapital

2007

2008


31.12.2008

Table-6

Sources

Amount

Rs. Uses

Amount

Rs.


Long term loans


expenditure

Increase in Differed tax liability

23,51,80,715

27,31,74,976

2,50,800

1,55,69,384

Increase in Working capital



25,27,20,475

22,58,55,400

4,56,00,000

52,41,75,875 52,41,75,875


Interpretation:

The Financial Services limited take huge amount of long term loans through funds

from operations and Purchase of investment. The Financial Services limited use some of these

funds to purchase fixed assets. The Financial Services limited is also use these funds to increase

working capital.

STATEMENT OF CHANGES IN WORKING CAPITAL

65

2008-2009


Rs.2009Rs.

Changes in WCRs.


Inventories

Sundry Debtors

Cash & Bank

Loans& Advances




Total current Liabilities(b)

Working capital a-b

Decrease in working capital

21,89,56,216

37,09,00434

11,21,52,347

56,39,26,687

35,30,33,377

41,35,39,323

11,86,08,237

56,98,39,851

13,40,77,161

4,26,38,889

64,55,890

59,13,164

-

14,37,44,464

- - -

-

33,28,29,568

126,59,35,684 145,50,20,788

69,62,02,579 102,90,32,147

69,62,02,579 102,90,32,147

56,97,33,105 42,59,88,641

14,37,44,464

56,97,33,105 56,97,33,105 33,28,29,568 33,28,29,568

Table-7

66


Interpretation: - Comparing the year 2008-2009 the current assets increased by 18,90,85,104

rupees compare the current liabilities 33,28,29,568 as a result working capital Decrease

14,37,44,464 rupees. There fore short term financial position of The Financial Services limited is

not good.

67


0

200000000

400000000

600000000

800000000

1000000000

1200000000

1400000000

1600000000

TotalCurrentAssets


WorkingCapital

2008

2009


31.12.2009

Table-8

Sources

Amount

Rs. Uses

Amount

Rs.


Increase in loans


expenditure

Decrease in Working capital

Increase in Deffered tax liability

99,81,84,829

118,07,66,087

89,747

14,37,44,464

10,49,68,143



Proposed Dividend

225,80,53,270

3,59,00,000

13,38,00,000

242,77,53,270 242,77,53,270


Interpretation:

The Financial Services limited take huge amount of Long term loans through funds from

operations and Purchase of investment. The Financial Services limited use some of these funds to

purchase fixed assets. The Financial Services limited is also use these funds to Decrease working

capital.

68

FINDINGS:

It is found that The Financial Services limited is holding sufficient share capital.

It is inferred that The Financial Services limited is maintaining a minimum Cash Balances.

.

In 2004-2005 the Working capital of The Financial Services limited is increased by

28,08,09,874 rupees. In the same period the long term loans of The Financial Services

limited is high because the company get huge amount of funds from operations and also

from decrease in miscellaneous expenditure reserve. The Financial Services limited uses

that fund to redeem the shares and to purchase fixed assets.

In 2005-2006 the Working capital of The Financial Services limited is decreased by

22,42,86,763 but the flow of funds is decreased because The Financial Services limited do

not get any funds from decrease of reserves, The Financial Services limited get funds only

from operations and purchase of investment. The Financial Services limited uses some of

those funds to purchase fixed assets.

In 2006-2007 the Working capital of The Financial Services limited is increased by

25,27,20,475 but the flow of funds is high as compared to previous year because The

Financial Services limited get funds only from operating activities. The Financial Services

limited use some funds to purchase fixed assets.

In 2007-2008 the Working capital of The Financial Services limited is decreased by

14,37,44,464 but the flow of funds is high as compared to previous year because The

Financial Services limited get funds only from operating activities. The Financial Services

limited use some funds to purchase fixed assets

70

SUGGESSIONS:

71

It may be suggested that The Financial Services limited should utilize Limited Funds for

the purchase of fixed assets.

If The Financial Services limited spend more money on purchase of fixed assets &

investments it effects the growth of the Penna cement company limited.

The company must maintain the sufficient working capital in order to meet the daily needs

of the firm.

The company should increase its investments and its fixed assets.

It has to keep concentration on working capital, expenses, and fixed assets.

It has to decrease its Long term loans (liabilities).

It is better to maintain the same steps which it has followed in 2006-07 to decrease its

liabilities and maintain the profit.

72

CONCLUSION

It can be concluded that funds flow performance of the financial services limited

is good because funds from operations are high in every year but increase in loans of funds. The

Financial services limited utilize some funds to purchase fixed assets every year the financial

services limited do some investment activities to utilize funds effectively.

74

BIBLIOGRAPHY

Student hand book on cost accounting and financial management by B. Sarvana Prasad,

Edition-5thMay 2006, Page. No. 16.1 to 16.11

Financial Accounting & Finance by K. Rajeshwar Rao, G. Prasad, Edition-1998, 14.1 to

14.6, 15.1 to 15.12

Financial Management Theory & Practice by Prasanna Chandra, Edition-5th 2004, 727 to

758

Financial Management by I.M. Pandey, Edition -4th 2005, Page no 345 to 325

Penna Cement Annual reports from 2004-2008

http:/www.Pennacement.in

76

PENNA CEMENT INDUSTRIES LIMITED BALANCE SHEET AS AT 31.3.2007

Particulars Schedule No. 2006

SOURCES OF FUNDS

Share holder’s Funds:

Share Capital

Reserves and Surplus

Loan Funds

Secured Loans

Unsecured Loans

Deferred Tax Liability

Total

APPLICATION OF FUNDS

Fixed Assets

Gross Block

Less: Depreciation

Net Block

Add: Capital works- in- progress

INVESTMENTS

Current Assets, Loans and Advances

Inventories

Sundry debtors

Cash and Bank Balances

Loans and Advances

Less: Current Liabilities and provisions

Miscellaneous Expenditure(to the extent

not return of or adjusted)

Total

A

B

C

D

E

F

G

H

I

13,43,40,942

89,66,23,798

94,03,76,495

96,39,05,443

24,78,34,769

318,30,81,447

266,23,57,147

55,57,90,567

210,65,66,665

18,15,99,085

228,81,65,665

35,21,99,400

11,52,02,941

17,85,50,027

7,27,32,900

59, 86,51,897

96,51,37,765

42,38,38,372

54,12,99,393

14,16,989

318,30,81,4471,447

78



SOURCES OF FUNDS


Share Capital


Loan Funds

Secured Loans

Unsecured Loans


Total


Fixed Assets

Gross Block

Less: Depreciation

Net Block


INVESTMENTS


Inventories

Sundry debtors


Loans and Advances




A

B

C

D

E

F

G

H

I

13,38,00,000

105,67,47,530

84,56,73,700

121,84,87,846

34,87,20,141

360,34,29,217

316,89,56,316

67,98,52,280

248,91,04,036

1,60,60,104

250,51,64,140

78,09,11,900

16,15,83,313

26,56,85,722

4,10,06,192

59,81,54,044

106,64,29,271

74,94,16,641

31,70,12,630

3,40,547

79

Total 360,34,29,217,81,447



SOURCES OF FUNDS


Share Capital


Loan Funds

Secured Loans

Unsecured Loans


Total


Fixed Assets

Gross Block

Less: Depreciation

Net Block


INVESTMENTS


Inventories

Sundry debtors


Loans and Advances




A

B

C

D

E

F

G

H

I

13,38,00,000

129,19,28,245

92,73,53,942

140,99,82,580

36,42,89,525

412,73,54,292

320,81,62,454

82,53,36,717

238,28,25,737

34,81,93,803

273,10,19,540

82,65,11,900

21,89,56,216

37,09,00,434

11,21,52,347

56,39,26,687

126,59,35,684

69,62,02,579

56,97,33,105

89,747

412,73,54,292,81,447

80

Total



SOURCES OF FUNDS


Share Capital


Loan Funds

Secured Loans

Unsecured Loans


Total


Fixed Assets

Gross Block

Less: Depreciation

Net Block


INVESTMENTS


Inventories

Sundry debtors


Loans and Advances




A

B

C

D

E

F

G

H

I

13,38,00,000

215,63,13,074

178,57,14,077

173,23,88,532

46,92,57,668

627,74,73,351

398,46,31,393

98,12,21,831

300,34,09,562

198,56,63,248

498,90,72,810

86,24,11,900

35,30,33,377

41,35,39,323

11,86,08,237

56,98,39,851

145,50,20,788

102,90,32,147

42,59,88,641

----

81

Total 627,74,73,35181,447

PENNA CEMENT INDUSTRIES LIMITEDPROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2007


INCOME

Sales

(Increase/decrease) in Stock

Total Income

EXPENDITURE

Manufacturing Expenses

Cost of trading goods

Central Excise Duty

Sales Tax

Administrative and Selling Expenses

Interest and Finance Charges

Depreciation

Miscellaneous Expenditure Written off

Total Expenditure

Profit for the year

Provision for taxation

Profit after Tax

Deferred Tax for the year

Fringe Benefit Tax for the year

Prior period expenditure

Profit available for appropriations

Transfer to General Reserve

Proposed Dividend

Tax on Dividend

Profit brought forward from previous

year

J

K

L

M

E

F

G

I

385,65,72,118

-1,60,57,823

384,05,14,295

153,07,01,345

---

69,86,42,442

55,90,24,763

58,82,88,777

14,43,46,417

11,88,30,197

22,32,340

364,20,66,281

19,84,48,014

152,54,699

18,31,93,315

3,89,50,042

-----------

11,56,849

14,30,86,424

-----------

-----------

------------

56,76,50,645

82

Goodwill on Merger written off

Profit Carried to Balance Sheet

N -1,98,40,834

69,08,96,2351,447



INCOME

Sales


Total Income

EXPENDITURE



Central Excise Duty

Sales Tax



Depreciation


Total Expenditure

Profit for the year


Profit after Tax






Proposed Dividend

Tax on Dividend

Profit brought forward from previous year

J

K

L

M

E

F

G

I

N

452,87,19779

-98,74,875

451,88,44,904

188,52,41,099

32,67,699

81,46,64,469

62,30,34,491

68,09,34,484

9,96,49,474

12,47,85,177

10,76,442

423,26,53,335

28,61,91,569

2,24,41,139

26,61,91,569

10,08,85,372

-------------

27,41,325

16,01,23,733

-----------

------------

------------

69,08,96,235

83



----------

85,10,19,968447



INCOME

Sales


Total Income

EXPENDITURE



Central Excise Duty

Sales Tax



Depreciation


Total Expenditure

Profit for the year


Profit after Tax






Proposed Dividend

Tax on Dividend

Profit brought forward from previous year

J

K

L

M

E

F

G

I

N

640,97,93,371

2,96,92,824

643,94,86,195

241,01,65,622

67,40,11,176

95,80,88,420

63,36,87,866

118,57,25,154

9,99,66,070

14,54,84,437

2,50,800

610,73,79,545

33,21,06,650

7,51,17,114

25,69,89,536

1,55,69,387

17,33,786

45,05,648

23,51,80,715

-----------

------------

------------

85,10,19,968

84



-------------

108,62,00,683



INCOME

Sales


Total Income

EXPENDITURE



Central Excise Duty

Sales Tax



Depreciation


Total Expenditure

Profit for the year


Profit after Tax






Proposed Dividend

Tax on Dividend

Profit brought forward from previous

year

J

K

L

M

E

F

G

I

N

914,46,59,562

3,74,11,258

918,20,70,820

311,40,33,391

5,55,30,769

114,28,05,092

94,83,24,696

197,79,88,742

13,47,58,957

15,59,73,434

89,747

752,95,04,820

165,25,65,992

50,76,18,003

114,49,47,989

10,49,68,144

22,35,543

1,68,20,163

102,09,24,139

15,00,00,000

13,38,00,000

2,27,39,310

108,62,00,683

-----------

85


Profit Carried to Balance Sheet180,05,85,512

86

funds-flow-analysis at penna cement

Documents

blast furnace

tax deferred

provisions

financial

dividendprofit

bank balances

deferred tax

bank loansamp