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INTRODUCTION

The success of business beside other things depends upon the manner in
which its Cash flow is managed. Thus, Cash flow is required as the life and
blood of business concern.
Cash flow management in simple term is the flow of funds which a
company must have to finance its day to day operation.
It includes the form near cash asset or even assets a little further from
cash but yet in process of moving towards the cash from in short period. It
comprises of stock of finished goods, semi-processed items, sundry
debtors, cash and short-term investment, if any.
Cash flow management throws light on adequacy of the firm and also risk
of bankruptcy. If firm do not have adequate Cash i.e. it does not invest
sufficient funds in current assets, it may become liquid and consequently
may not have ability to met its current obligation and thus, invite risk of
bankruptcy. It also focuses on key strategy and consideration trade off
between profitability and liquidity of the firm.
Management of Cash flow gives financial position, profitability and also
efficient use of an individual current asset like cash, receivables and
inventory.

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OBJECTIVES

 The purpose of preparing a cash flow projection is to determine


shortages or excesses in cash.

 Ways to reduce the amount of cash paid out includes having fewer
inventories, reducing purchases of equipment or other fixed assets,
or eliminating some operating expenses.

 The objective is to finally develop a plan which, if followed, will


provide a well-managed flow of cash.

 It involves the study of the existing pattern of cash flow


management in the organization.

 Understand the types of transactions that result in cash flows from


operating, investing, and financing activities.

 To know the financial soundness of the company.

 Develop an ability to analyze the statement of Projected cash flows,


including the relation among cash flows from operating, investing,
and financing activities for businesses in various stages of their
growth.

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LIMITATIONS OF THE STUDY

• Lack of time for completing the study.

• The company executives were able to give valuable time only for a few
days in a week. Hence the required information could not be obtained.

• This project report is based on the analysis of two years data which
may not be sufficient to in some cases.

• Time will be a major constraint.

• The respondent may be biased.

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TYPES & TECHNIQUES

The study conducted is a conclusive descriptive statistical study; the


researcher comes to the decision which is precise and rational. The study
is conclusive because after doing the study the researcher comes to a
conclusion regarding the position of the brand in the minds of respondents
of different firms groups. The study is statistical because throughout the
study all the similar samples are selected and group together. All the
similar responses are taken together as one and their percentages are
calculated.
Thus, this, conclusive descriptive statistical study is the best study for this
purpose as it provides the necessary information which is utilize to arrive
at a concrete decision.

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RESEARCH METHODOLOGY

Definition of Research:

The word research is derived from the Latin word meaning to know.
It is a systematic and a replicable process, which identifies and defines
problems, within specified boundaries. It employs well-designed method to
collect the data and analyses the results. It disseminates the findings to
contribute to generalize able knowledge. The characteristics of research
presented below will be examined in greater details later are:

 Systematic problem solving which identifies variables and tests


relationships between them,
 Collecting, organizing and evaluating data.
 Logical, so procedures can be duplicated or understood by others
 Empirical, so decisions are based on data collected
 Reductive, so it investigates a small sample which can be
generalized to a larger population
 Replicable, so others may test the findings by repeating it.
 Discovering new facts or verify and test old facts.
 Developing new scientific tools, concepts and theories, this would
facilitate to take decision.

For the proper analysis of data simple statistical techniques such as


percentage were use. It helps in making more generalization from the data
available. The data which was collected from a sample of population was
assumed to be representing entire population was interest. Demographic
factors like age, income and educational background was used for the
classification purpose.

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Primary Data:

Primary data is collected with consultation and discussion with the


concerned staff. The company whenever requires funds they arrange
the funds from the internal sources. They arrange the funds from
customer advance. The company mostly does not borrow funds from
the banks. Whenever the company receives the money from the
debtors they simultaneously pay to their creditors. The company has
proper balances between the inflow and outflow of the funds through
the debtors and creditors.

Secondary Data:

It was collected from the P&L A/c, balance sheet, reference books
based on financial management & management accounting. The various
books helped in understanding the various theoretical concepts
associated with the project such as the significance of Cash flow
management & the way to interpret various funds. All the figures
required to carry out the ratio analysis were gathered from financial
statements such as P&L A/c, Balance sheet of the company

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VERROC GROUP COMPANY PROFILE

Name of Concerns : 1) Varroc engineering Pvt. Ltd.

2) Varroc Polymers Pvt. Ltd.

Regd. Office : Varroc Engineering Pvt. Ltd.


E-4, MIDC, Waluj, Aurangabad. (M.S.)
India 431136.
Phone: +91 240 2556227,
Fax: +91 240 2564540.
Email: varroc.info@varrocgroup.com
Website: http://www.varrocengg.com/

Plant Address : Varroc polymers Pvt. Ltd.(VPPL III)


M-165-167 MIDC Industrial Area,
Waluj, Aurangabad – 431 136, M.S. India

Telephone No. : +91-240-2551101/2563325.


Fax Nos. : +91-240-2551102

Website : www.verrocengg.com
Constitution : Partnership Firms

Name of Promoters : Mr.Naresh Chandra Jain – Chairman


Mr. Tarang Jain – Managing Director

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Year of establishment : 1990.

Bankers : HDFC Bank

Work Exposures : Hood, Foam and seat covers of all types of


Vehicles like two and three wheelers his
Division manufactures the following:
Interior Pillar Trims, Door Panels, Floor
Console
Exterior Parts- Bumpers, Fenders, Claddings,
Wheel Arches
Rubber Parts
Mirror Assemblies and Mirror Plates
Air Cleaner Assembly
PU Foam Pad and Seating System.

Companies Clients :

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TAN NO. : NSKV02183G

VAT NO. : 27270286289V

PAN NO. : AABCM2508F

EXCISE REG.NO. : AABCM2508FXM002

SERVICE TAX NO. : AABCM2508FXM002

MAN POWER VPPL Office staff : 08


Supervisory Staff : 10
Technical Staff : 06
Quality Control Staff : 02
Skilled worker : 12
Unskilled worker : 75
Human Resource : 03

Infrastructure facility:

They have a wide range of machinery out of which some


machinery are most sophisticated special purpose machines on which any
type of work of high precision and accuracy can be successfully carried
out.

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Preamble:

In the late eighties, as India opened up to liberalization, international


companies and markets started looking at India with renewed interest.

Amongst other industries, major international automobile and consumer


durable companies saw India as a promising business destination and set
up state-of-art manufacturing plants here.

Varroc Group saw a vast potential in the automobile industry and focused
on manufacturing and supplying of different components as well as setting
up subassemblies for the booming automobile, consumer durable and
white goods industry.

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Varroc created three distinct To manage growth in a highly


divisions that would supply quality competitive business environment,
products to match global standards. Varroc follows the principles of

 Polymer Division  Strong Leadership


 Electrical Division  Positive Work Environment
 Metallic Division  Financial Discipline

Varroc's success stems from Varroc is focusing on three critical


continuous improvements in areas that give it world-class status

 Quality  Efficiency
 Cost Innovation  Innovation
 Delivery  Reliability

Beginning with a venture in Aluminum Die Casting in 1985, the Jain Group
made a successful foray into the automobile industry by manufacturing
engineering products. However, with plastics making its presence felt in
different aspects of life, the Jains foresaw a vast potential to expand its
business in the booming automobile and consumer durable industries. This
far-sight enabled them to sow the seeds of successful foray into polymer
engineering. Consequently, Varroc Engineering was setup in the year
1990. It is operating through two divisions: Metallic and Electrical..

Varroc Group has 19 plants: 14 in Western India, 3 in Northern


India and two in Europe with head quarters in Aurangabad,
Maharashtra, INDIA.
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Export market in European and American Countries, Indonesia, Hong


Kong, Singapore, Malaysia and also domestic customers in all Major cities.
The percentage of export sales during last 3 years was 98.9%, 95.9%, and
95.65% respectively.

Varroc Group - Total Sales FY 2007-2008 US $ 450 Million

Market Segments:

 Two Wheelers - 60%


 Four Wheelers and Earth Moving - 35%
 White Goods - 5 %

Varroc Engineering Pvt Ltd ( US $ 283.5 Million )

Electrical Division ( Sales US $ 166.5 Million)

The Electrical division manufactures and supplies:

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 A.C. generators & Magneto


 Digital CDI, digital regulator rectifier units.
 Starter motors, wiper motors
 Switch assembly and handle bar assembly for motorcycle, LED
lights
 Electronic control unit., Electronic Clusters

Metallic Division ( Sales US $ 117 Million )

The Metallic Division manufactures and supplies :

 Engine Valves.
 Crank pins for motorcycles.
 Hot, cold & warm forged machined components.
 Catalytic converters for 2, 3 and 4 wheelers.

Varroc Polymers Pvt. Ltd. (US $ 166.5 Million)

This Division manufactures the following :

 Interior Pillar Trims, Door Panels, Floor Console


 Exterior Parts- Bumpers, Fenders,Claddings,Wheel
Arches
 Underbody/ HVAC parts
 Injection and Compression Molded Rubber Parts
 Mirror Assemblies and Mirror Plates
 Air Cleaner Assembly

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 PU Foam Pad And Seating System Assembly


 Multilayer co-extruded Thermoplastic Sheets
 Molded parts for White Goods and Consumer Electronic
Parts
 Series Molds and Pre Production Molds

A key differentiator between Varroc’s Polymer division and other


companies manufacturing similar products is the in-house capability to
design and manufacture custom tooling according to the customer’s
requirement.

Varroc therefore offers a “one stop shop” for engineering plastics, with the
capability to design a product based on only broad requirements provided
by the client. This represents significant value addition over generic
manufacturing of plastic moulded components.
Tool Room:

 General Capability to make Plastic and Rubber


Mould.
 7 State of Art CNC Machining Centre with CAM
Facility.
 EDMs.
 Conventional Tool Room M/c's and Inspection
equipments.

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SERVICES OFFERED:

The product manufactured by the Company is fully guaranteed for its


quality and workmanship. However, if the tool is damaged for some
unforeseen reasons the damaged tool is replaced by the Complaint free of
cost and the tool in replacement of the defective one is sent to the
customer. This service is offered to all their valued customers.

SELECTION & TRAINING:

The selection of the employees is done purely on the basis of their


qualification. Such selected employees are given in-plant training in the
Organization.

VISION:

Since inception Varroc Group has maintained. A path sustained growth,


responding pro actively to market’s new opportunities and customer
needs. Propelling this dynamism has been our total commitment to quality
and customer satisfaction. Regardless of other changes that processes will
demand our conviction will remain steadfast.
Varroc Group will continue to apply the very best of emerging technologies
to match global standards. To complement Varroc Group organic growth, it
will make strategic alliances with likeminded partners.
In this way Varroc Group will move forward to meet the challenges of the
new millennium.

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MISSION:

 Expand the horizon by targeting niche markets in the pharmaceutical


industry.

 Attain corporate success and personal progress in an environment of


integrity and fair practices

 Create products that maximizes customer satisfaction, while


improving the quality of human life.

 Provide products and services of high quality.

 Achieving customer satisfaction.

HR Strategies:

 Do it on Kaizen Basis rather than disruptive/ drastic changes.


 Achieving up-gradation/changes through existing resources so that
HR team can see HR and learn through ‘On the Job Training’ (OJT)
approach.
 Improve each and every subcomponent of HR Architecture for
systemic gains (synergy). DO it on authentic data-based decision
matrix rather than guesstimates/ hunches.
 Make employees future ready – move them from ‘Command and
Control’ mindsets to ‘Learning Organization’ paradigms.
 Upgrade the education/knowledge base of the existing employees to
make them ‘Knowledge Workers’ for a long term future health of the
organization.

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HR Objectives:

 Making High Performance Work System (HPWS) where employees


can grow both professionally as well as personally.
 Improve employee enthusiasm, involvement and commitment
towards the organization.
 Improve the Quality of Work Life (QWL) and ensure a better Work
Life balance.
 Be amongst the top 50 employers of choice, especially in
Maharashtra.
 Become internal consultant to the organization.
 Create a Knowledge Management (KM) system to avoid reinvention
of wheel and build on past strength.
 Move from P&A to HR and then to Strategic HRM

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Varroc Group Sales Turnover

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STRENGTH:

1. Pioneer,
2. Goodwill,
3. Quality,
4. Top management acceptance to dynamism,
5. Growing stage of product life cycle.

WEAKNESS:

1. Lack of proper communication, (internal & external)


2. Lack of training department,
3. Quality unawareness at lowers level,
4. Less effective gales.

OPPORTUNITIES:

1.Large potential market still untapped,


2. Going for related diversification.

THREATS:

1.Increasing competition,
2.Increasing substitutes inn various areas for aluminium logos, names,
plates & label,
3.Very less product differentiation,
4.Low diversity.

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INTRODUCTION TO
CASH FLOW STATEMENT

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Cash flow statement

In financial accounting, a cash flow statement or statement of cash flows


is a financial statement that shows how changes in balance sheet and
income accounts affect cash and cash equivalents, and breaks the analysis
down to operating, investing, and financing activities. As an analytical tool,
the statement of cash flows is useful in determining the short-term
viability of a company, particularly its ability to pay bills. International
Accounting Standard 7 (IAS 7) is the International Accounting Standard
that deals with cash flow statements. The success, growth and survival of
every reporting entity depends on its ability to generate or otherwise
obtain cash. Cash flow is a concept that everyone understands and with
which they can identify. Reported profit is important to users of financial
statements, but so too is the cash flow generating potential of an
enterprise. What enables an entity to survive is the tangible resource of
cash not profit, which is merely one indicator of financial performance. A
cash flow statement (CFS) is important to external users, and should be of
significant importance internally as well. Cash flow refers to the movement
of cash into or out of a business, or project, or financial product. It is
usually measured during a specified, finite period of time. Measurement of
cash flow can be used.

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


flows into and out of projects are used as inputs in financial models
such as internal rate of return, and net present value.

 To determine problems with a business's liquidity. Being profitable


does not necessarily mean being liquid. A company can fail because
of a shortage of cash, even while profitable.

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 As an alternate measure of a business's profits when it is believed


that accrual accounting concepts do not represent economic
realities. For example, a company may be notionally profitable but
generating little operational cash (as may be the case for a
company that barters its products rather than selling for cash). In
such a case, the company may be deriving additional operating cash
by issuing shares, or raising additional debt finance.

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


by accrual accounting. When Net Income is composed of large non-
cash items it is considered low quality.

 To evaluate the risks within a financial product. E.g. matching cash


requirements, evaluating default risk, re-investment requirements,
etc.

Cash flow is one of the most important aspects of running any business -
large or small. It is one of the single most important reasons why many
businesses fail - regardless of how good the business is. Managing cash
flow therefore is vitally important in the smooth running, survival and
success of a business. This activity will look at what cash flow is, and use
some examples to show how cash flow can make the difference between
success and failure. Failure in this case means insolvency. If you are
insolvent then you are unable to pay your debts. We often use the term
'bankrupt' to describe this but strictly, only an individual can be declared
bankrupt. Companies are declared as insolvent. The principle however is
the same. Some firms deal with so-called 'personal insolvency' which
effectively means bankruptcy so the use of the terms can sometimes be
confusing!

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Business success might not be determined by how many customers you


have, the quality of your product, the price or many other things - it might
be down to a simple case of managing your cash flows!

Cash flow should not be confused with 'profit' - these are two different
things. Profit refers to the difference between the total revenue (TR) and
total cost (TC) over a period of time.

Most businesses, when starting up, will have to spend money to get things
set up. In the example of the fruit business, the students had to spend out
money on buying some of the main things they needed to run the business
- the shed, the lab coats, the display boxes and the money box.
These represented their 'fixed costs' - the costs that do not depend on the
level of output or sales.

Money flowing out of the business

It should be clear from what we have said so far that the business will
have to pay out money in order to carry out its activities. This is its
'expenditure'.

A business has a responsibility to pay all sorts of bills in carrying out its
activities. In our simple example we have tried to keep the amount of
information to a minimum. In a real business the firm will be paying out
for all sorts of things. This will include paying wages to staff, insurance
premiums, interest on loans, rent for premises, postage costs, heating,
lighting, telephone bills, payments for paper, computers, photocopiers,
water bills, rates and so on.

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Some of these costs have to be paid monthly, others perhaps every three
months, some might be paid yearly and in some cases costs might be
incurred every day. In many cases, the business will know when it has bills
that it has to pay.

The people to whom a business owes money are called the 'creditors'. If
you enter into an agreement as a business with a creditor, you have an
obligation to pay them. If you do not pay then the creditor could take you
to court to force you to pay your debts. If this happens with lots of
creditors then this could be the thing that causes the firm to become
insolvent.

Money flowing into a business

To balance this out, the firm receives money from selling its goods and
services. In our simple example, Fruit28 receives revenue from selling
fruit. The revenue they receive depends on the amount they sell (Q) and
the price that they charge (P). We can say therefore that Total Revenue
(TR) = P x Q.

Bills will arise for all sorts of things - they all represent a flow of money
out of the business and the business has to make sure it has enough cash
to cover these debts when they are due.

Some businesses do not receive their revenue on such a regular basis. It


will depend on the agreements they have with their customers. If a
business is involved in selling goods to another business, for example,
there might be an agreement that they will receive payment for goods

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supplied every 28 days, or possibly 3 months; it might be 6 months or


even annually.

A firm will normally send an invoice to its customers to notify them how
much they owe. The people who owe money to a firm are called 'debtors'.
Payments do not always arrive when they should, however, which can be
the start of the cause of cash flow problems

Some firms might see revenue rise at certain times of the year but at
other times sales might be very slow. Toy shops for example, might
expect to receive the vast majority of the revenue from sales in the period
from September to December. The period from February to August might
be very slow.

Revenue, therefore, does not come in at the same time as costs have to
go out. This is the main problem facing firms and the whole point about
cash flow. A firm has to manage its cash to ensure that it has enough
money coming in to pay its bills. If it cannot pay a bill for some reason, it
could perhaps negotiate with the creditor to delay the payment. However,
it cannot keep doing this!

The importance of Cash flow planning is linked to liquidity of a business. In


any business, there is a need for cash in running day-to-day operations.
Some examples include the purchase of office stationary or fuel.

“Cash flow is simply Cash Receipts minus Cash Disbursements.


That means Cash In versus Cash Out. “

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These 'cash needs' of the firm would not be met should a business have its
monies tied up in other areas. Examples include:

 Credit sales - Having sold goods for n days of credit (ie company to
be paid in n days). Credit sales is ok but too much would have
effects on the business especially if it is not managing its cash flow.
 Assets - Purchases of assets like buildings and machinery must be
checked against the cash flow management capacity of a firm given
that they would become cash flow burdens to the firm after a
purchase.

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The diagram above helps to understand this idea of a 'flow'. If the money
coming into the business is more than that going out, the business will
have a surplus of cash.

If there is a problem in getting the money in from debtors (people who


owe the business money) then the firm might face problems in paying its
creditors (the people it owes money to). Many businesses, especially small
ones, find that getting the money they are owed is not always easy. If
they cannot pay their debts however, this can force the firm to have to
close down.

Cash Flow Forecasts:

Many businesses will be expected to prepare a cash flow forecast as part


of their business planning. This means trying to plan out when costs will
arise over the next year and also what they think their revenue is going to
be.

For a new firm, they might do this based on the market research they
have conducted prior to starting in business. For an established firm, they

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might base their forecast revenue on what has happened to them in


previous years.

There are a few things we need to make clear about these


forecasts.

Receipts: This will be an estimate of the predicted sales revenue for each
month. This is found by multiplying the amount the firm thinks it will sell
by the price they charge.

Payments: This section will detail the payments that the firm expects to
have to make during the year. This will be added together to give a 'Total
Payments' box for each month.

Net Cash Flow: This will show the difference between the total payments
and the receipts. For example, if in January a firm expects to receive £500
in revenue but will expect its total payments to be £650, it will have a net
cash flow of -£150. This can either be put into the box as a minus number
or is sometimes put in brackets (£150) to show that it is a negative figure.

Opening Balance: This shows the money that a firm has carried over
from a previous month. For example, in the case above, the firm would
have to show that it had a negative cash flow of -£150 carried over from
January in the box for 'opening balance' for February.

Closing Balance: This is the difference between the net cash flow figure
and the opening balance.

Cash flows are classified into:

 Operational cash flows: Cash received or expended as a result of


the company's internal business activities. It includes cash earnings

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plus changes to working capital. Over the medium term this must be
net positive if the company is to remain solvent.

 Investment cash flows: Cash received from the sale of long-life


assets, or spent on capital expenditure (investments, acquisitions
and long-life assets).

 Financing cash flows: Cash received from the issue of debt and
equity, or paid out as dividends, share repurchases or debt
repayments.

Purpose:

The cash flow statement was previously known as the statement of


changes in financial position or flow of funds statement. The cash flow
statement reflects a firm's liquidity or solvency.

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


obligations at a single point in time, and the income statement
summarizes a firm's financial transactions over an interval of time. These
two financial statements reflect the accrual basis accounting used by firms
to match revenues with the expenses associated with generating those
revenues. The cash flow statement includes only inflows and outflows of
cash and cash equivalents; it excludes transactions that do not directly
affect cash receipts and payments. These noncash transactions include
depreciation or write-offs on bad debts to name a few. The cash flow
statement is a cash basis report on three types of financial activities:
operating activities, investing activities, and financing activities. Noncash
activities are usually reported in footnotes.

The cash flow statement is intended to:

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 Provide information on a firm's liquidity and solvency and its ability


to change cash flows in future circumstances.

 Provide additional information for evaluating changes in assets,


liabilities and equity.

 Improve the comparability of different firms' operating performance


by eliminating the effects of different accounting methods.

Cash flow activities:

The cash flow statement is partitioned into three segments, namely: cash
flow resulting from operating activities, cash flow resulting from investing
activities, and cash flow resulting from financing activities.

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The money coming into the business is called cash inflow, and money
going out from the business is called cash outflow.

Operating activities:

Operating activities include the production, sales and delivery of the


company's product as well as collecting payment from its customers. This
could include purchasing raw materials, building inventory, advertising,
and shipping the product.

Operating cash flows include:

Receipts from the sale of goods or services

Receipts for the sale of loans, debt or equity instruments in a trading


portfolio

Interest received on loans

Dividends received on equity securities

Payments to suppliers for goods and services

Payments to employees or on behalf of employees

Interest payments

Items which are added back to [or subtracted from, as appropriate] the
net income figure (which is found on the Income Statement) to arrive at
cash flows from operations generally include:

Depreciation (loss of tangible asset value over time)

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Deferred tax

Amortization (loss of intangible asset value over time)

Any gains or losses associated with the sale of a non-current asset,


because associated cash flows do not belong in the operating
section.(unrealized gains/losses are also added back from the income
statement)

Investing activities:

Examples of investing activities are

Purchase of an asset (assets can be land, building, equipment marketable


securities, etc.)

Loans made to suppliers or customers.

Financing activities:

Financing activities include the inflow of cash from investors such as banks
and shareholders, as well as the outflow of cash to shareholders as
dividends as the company generates income. Other activities which impact
the long-term liabilities and equity of the company are also listed in the
financing activities section of the cash flow statement.

Proceeds from issuing shares

Proceeds from issuing short-term or long-term debt

Payments of dividends

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Payments for repurchase of company shares

Repayment of debt principal, including capital leases

For non-profit organizations, receipts of donor-restricted cash that is


limited to long-term purposes

Dividends paid

Sale or repurchase of the company's stock.

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Preparation methods:

The direct method of preparing a cash flow statement results in a more


easily understood report. The indirect method is almost universally used,
because FAS 95 requires a supplementary report similar to the indirect
method if a company chooses to use the direct method.

Direct method:

The direct method for creating a cash flow statement reports major classes
of gross cash receipts and payments. Dividends received may be reported
under operating activities or under investing activities. If taxes paid are
directly linked to operating activities, they are reported under operating
activities; if the taxes are directly linked to investing activities or financing
activities, they are reported under investing or financing activities.

Indirect method:

The indirect method uses net-income as a starting point, makes


adjustments for all transactions for non-cash items, then adjusts for all
cash-based transactions. An increase in an asset account is subtracted
from net income, and an increase in a liability account is added back to net
income. This method converts accrual-basis net income (or loss) into cash
flow by using a series of additions and deductions.

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Rules:

The following rules are used to make adjustments for changes in current
assets and liabilities, operating items not providing or using cash and
nonoperating items.

Decrease in noncash current assets are added to net income

Increase in noncash current asset are subtracted from net income

Increase in current liabilities are added to net income

Decrease in current liabilities are subtracted from net income

Expenses with no cash outflows are added back to net income

Revenues with no cash inflows are subtracted from net income


(depreciation expense is the only operating item that has no effect on cash
flows in the period)

Nonoperating losses are added back to net income

Nonoperating gains are subtracted from net income

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What is a projected cash flow statement?

The projected cash flow statement indicates the source and


amount of income and expense activities for a given period in
the future. It also shows when money will be borrowed and
when it will be paid. The cash flow demonstrates the ability to
repay a loan in a timely manner, something that is important to
lenders.

A projected cash flow statement also functions as a planning


tool. You can anticipate situations when you will not have
enough money to pay your bills. Then you can make
arrangements for other sources of funds to get you through
cash flow crunches.

Definition:

A cash flow projection is a forecast of cash funds a business


anticipates receiving and paying out throughout the course of a
given span of time, and the anticipated cash position at specific
times during the period being projected. [For the purpose of
this projection, cash funds are defined as cash, checks, or
money order, paid out or received.

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Objective:

The purpose of preparing a cash flow projection is to determine


shortages or excesses in cash from that necessary to operate
the business during the time for which the projection is
prepared. If cash shortages are revealed in the project,
financial plans must be altered to provide more cash until a
proper cash flow balance is obtained. For example, more owner
cash, loans, increased selling prices of products, or less credit
sales to customers will provide more cash to the business.
Ways to reduce the amount of cash paid out includes having
less inventory, reducing purchases of equipment or other fixed
assets, or eliminating some operating expenses. If excesses of
cash are revealed, it might indicated excessive borrowing or idle
money that could be "put to work." The objective is to finally
develop a plan which, if followed, will provide a well-managed
flow of cash.

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Procedure:
Most of the entries for the cash flow spreadsheet are self-
explanatory; however, the following suggestions are offered to
simplify the procedure:

 Suggest even dollars be used rather than showing


cents.
 If this is a new business, or an existing business
undergoing
 significant changes or alterations, the cash flow part
of the
 column marked "Pre-start-up Position" should be
completed. [Fill in appropriate blanks only.] Costs
involved here are, for example, rent, telephone, and
utilities deposits before the business is actually open.
Other items might be equipment purchases, alterations,
the owner's cash injection, and cash from loans received
before actual operations begin.
 Next fill in the pre-start-up position of the essential
operating data [non-cash flow information], where
applicable.
 Complete the spreadsheet using the suggestions for
each entry, provided in the partial spreadsheet on the next
worksheet.

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Difference between cash flow and fund flow

Fund flow statement Vs Cash Flow Statement

Both fund flow statement and cash flow statement serves as a


fundamental parts of the financial statements. In 1961, the
AICPA issued ARS No. 2, “Cash Flow Analysis and the Fund
Statements “which recommended that a fund statement
covered by auditor’s opinion be included in companies financial
reports.

According to paragraph 5 of Preface to Statement of


International Accounting Standard [approved by the IASC Board
in November1982 for publication in January 1983 and
supersedes the preface published in January 1975 (amended
March 1978)], “the term ‘financial statements’. Covers balance
sheets, income statement or profit and loss accounts,
statements of change in financial position, notes and other
statements and explanatory materials which are identified as
being part of financial statements” (IASC, 2000:32)

As per paragraph 7 of framework for the Preparation and


Presentation of Financial Statements (approved by IASC board
in April 1989 for publication in July 1989), “A complete set of
financial statement normally includes a balance sheet, an

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income statements, a statements of change in financial position


(which may be presented in a variety of ways, for example as a
statement of cash flow or a statement of fund flows) and those
notes and other statements and explanatory material that are
an integral part of the financial statements”.

As per paragraph 4 of the previous IAS 7 (October 1977),


statements of change in financial position, the term ‘ funds’
referred to cash, cash and cash equivalents or working capital
(IFAC, 1992: p.813). Funds provided or used in operation of an
enterprise should be presented in the statements of changes in
financial statement separately from other sources and uses of
fund. Unusual items, which are not part of ordinary activities of
the enterprise, should be separately disclosed (IASC: Para 21).
But many users of financial statements considers current
practices of reporting fund flows as confusing because too much
information is compressed in the statements of change in
financial position, and because no single definition has been
established. (Mosich and Larsen, 1982; p. 935) In order to
develop a conceptual framework for financial accounting and
reporting the FASB issued in December 1980, a discussion
memorandum” reporting Fund flow, Liquidity and Financial
Flexibility” which was issued for the following reason.

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(1) For assessing future cash flow.

(2) Current practices regarding the reporting of funds


flow information are not entirely satisfactory.

As a result of deliberation, FASB issued SFAS NO. 95


‘Statements of Cash Flow’ in 1987. The statements requires the
inclusion of statements of Cash Flows rather than a statement
of Change in Financial position when issuing a complete set of
financial statements which was made effective for annual
periods ending after July 15, 1988. The major requirements of
the statements are of the following two areas.

(a) Basis of Presentation. The statement must focuses on


fund increase and
decrease and must explain the change in cash plus cash
equivalents.
(b) Classification of Fund flows: Fund flows are to be
classified according to operating, investing and financing
activities. The basis of such classification is derived from the
financial theory, which state that enterprise derives the cash
used for investing activities and settlement of outstanding
financial obligation in an accounting period from internal and
external sources. Internal cash sources emanate from the net

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cash generated from current operation and perhaps disinvesting


and depletion of cash resources at start of the period. External
cash sources come from financing activities such as borrowing,
and receiving cash from the sale of equity shares to existing
and new shareholders.

Objective and Scope of IAS 7, Fund flow statements


Information about the fund flows of an enterprise is useful in
providing users of financial statements with a basis to assess
the ability of the enterprise to generate cash and cash
equivalents and the needs of the enterprise to utilize those cash
flows. The economic decision are taken by users require an
evaluation of the ability of an enterprise to generate cash and
cash equivalents and timing and certainty of their generation.
The objective of IAS 7 is to require the provision of information
about the historical change in cash and cash equivalents of an
enterprise by means of a cash flow statement that classifies
cash flows during the period from operating, investing and
financing activities. An enterprise should prepare a cash flow
statement in accordance with the requirements of IAS 7 and
should present it as an integral parts of its financial statements
for each period for which financial statements are prepared,
Users of an enterprise’s financial statements are interested in
how the enterprise generate and uses cash and cash
equivalents. This is the case regardless of the nature of the

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enterprise activities and irrespective of whether cash can be


viewed as the product of the enterprise, as may be the case
with a financial organization. Enterprises need cash for the
same reason s however different their principal revenue-
producing activities might be. They need cash to conduct their
operations, to pay their obligation s, to provide return to the
investors. Accordingly this standard requires all enterprise to
present a cash flow

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GROWTH IN THE NET PROFIT


YEAR NET PROFIT (IN CR.)
2006 (84.51)
2007 818.74
2008 553.22
2009 936.69
2010 1030.45
2011 1133.59
2012 1247.04
2013 1371.83

WITH THE HELP OF ABOVE BAR DIAGRAM WE CAN CONCLUDE THAT


THE GROWTH OF NET PROFIT IS INCREASING EVERY YEAR.

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GROWTH IN THE NET SALES

YEAR NET SALES (IN CR.)


2006 6556.81
2007 8924.17
2008 8425.12
2009 18570.19
2010 20427.21
2011 22469.93
2012 24716.93
2013 27188.62

GROWTH IN THE SALES OF THE COMPANY IS DECREASED IN THE


YEAR 2008 IN THE ACTUAL DATA BUT IN PROJECTED DATA WE
IMPROVING THE SALES STRATEGY AND MARKTING STRATEGY
AND I HAVE INCREASED THE SALES IN THE EVRY YEAR BY 10%
BASED ON THE ASSUMPTIONS.

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ASSUMPTIONS

Assumption for the year 31/03/2009 to 31/03/2013


 For sales company have good track record of sales since last
three as per company data so I assume that company have good
prospect in future of growing sale as per I projected.
 For expenses as projected that sales will grow at the projected
growth rate the expenses will also grow with the proportion to
sales to fulfill the sales requirement.
 As per company law company doesn’t transfer any amount to any
reserve and all the profit is transfer to balance sheet for further
growth.
 Coming to balance sheet
 I assume that as per growing of company and as per growing of
sales company want funds to complete the assigned project so
company require funds that Fund Company will collect from share
holder as per requirement.
 For unsecured loan I assume that company will repay the
unsecured mainly from relative through available cash in hand at
the rate of 10% P.A. with interest
 For term loan I assume that by growth in earning profit company
is sufficient to pay term loan as per I projected
 Coming to assets side of the balance sheet company showing that
fixed assets growing in the later year like in 2010 ,2011, 2013
because as per assumption to fulfill or to complete the project
company wants machinery.
 All current assets are growing with the growing rate of sales.
 All current liability are also growing at the rate of company will
get the assignments as per projection

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OBSERVATION & FINDINGS

 Cash flow statement cannot be equated with the income


statement. An income statement takes into account both
cash as well as non-cash items and therefore, net cash
flow does not necessarily mean net income of the
business.
 It reports the effects on cash flows of a firm’s operating,
investing and financing activities.
 Cash flow measures the amount of cash that a company
brings in and uses during the course of an accounting
period (quarter or year) after all fixed expenses are
eliminated.

 Net profit ratio is in decline in first year. So it is not good


for the company.
 Debtor’s ratio is in the every year which is less than
previous year, high is good for the company. It shows
stable condition of supply of the company.
 Creditors are decrease in first two years. It shows creditors
collection period is less than previous year. It is not good
for the company.

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CONCLUSIONS
 The cash position at the end of each year should be
adequate to meet the cash requirements for the following
year. If too little cash, then additional cash will have to be
injected or cash paid out must be reduced. If there is too
much cash on hand, this money is not working for your
business.

 The cash balance as disclosed by the projected cash flow


statement may not represent the real liquid position of the
company since it can be easily influenced by postponing
purchases and other payments

 The projection becomes more useful when the estimated


information can be compared with actual information as it
develops. It is important to follow through and complete
the actual columns as the information becomes available.
Utilize the cash flow projection to assist in setting new
goals and planning operations for more profit.

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SUGGESTIONS

 Decrease in the creditors from one period to another


period will result of decrease of cash from operation it
means more cash payments have been made to creditors.
So company should increase the creditors.
 Same as in debtors company should decrease debtors to
maintain the cash
 The working capital requirement of the company has
increased with the increase in inventories, debtors and
creditors, company should follow sound strategy so that
the inventories and creditors are minimized and cash in
hand is increased.
 In the actual cash flow the cash in hand or at bank is very
less company so should keep sound cash in hand or cash
at bank.
 Investment for long term shall be done.
 The factory should try to maintain Cash Flow to the extent
of optimum level.
 The company should reduce the capital expenditure.
 The factory should try to collect additional share capital
from the share-holders and Repay the long-term secured
and unsecured loan.

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MUMBAI UNIVERSITY

VARROC POLYMERS PVT. LTD. (VPPL III)


PROFIT & LOSS ACCOUNT

Actual
Sr.no. Particulars SCH 2006 2007 2008
A Income:
Sales Including Excise Duty 6,556.81 8,924.17 8,425.12
Less:
Excise Duty 759.02 1,165.99 1,170.04
Net Sales 5,797.79 7,758.19 7,255.08
Other Income 13 21.66 30.07 16.42
5,819.45 7,788.26 7,271.50
B Expenditure:
Materials 14 5,170.00 6,163.08 5,962.03
Expenses 15 564.81 633.01 568.81
Interest 16 90.03 109.98 115.87
Depreciation/Amortisation 79.12 63.45 71.57
5,903.97 6,969.52 6,718.28

Add: Depreciation written back

Profit Before Taxation -84.51 818.74 553.22


Provision for Taxation
Current Taxation
Fringe Benefit Tax
Profit for the Year -84.51 818.74 553.22
Expenses for Earlier years
Balance Profit -84.51 818.74 553.22
Add:
Profit Brought Forward 1,115.06 1,030.55 1,849.29
Balance Profit Available for Appr. 1,030.55 1,849.29 2,402.51

Balance Carried to Balance Sheet 1,030.55 1,849.29 2,402.51


1,030.55 1,849.29 2,402.51

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MUMBAI UNIVERSITY

VARROC POLYMERS PVT. LTD. (VPPL-III)


SCHEDULES FORMING PART OF BALANCE SHEET
Actual
Sr.no. Particulars 2006 2007 2008
Schedule: 1
Share Capital:

- - -
Schedule: 2
Reserves & Surplus
General Reserve
Balance brought Forward - - -

Profit & Loss Account 1,030.55 1,849.29 2,402.51


1,030.55 1,849.29 2,402.51
Schedule: 3
Secured Loans:
Term Loans:
Cash Credit from Banks 318.90 312.88
318.90 312.88
Schedule: 4
Unsecured Loans: 2,000.00 980.00 1,200.00
2,000.00 980.00 1,200.00
Schedule: 5
Schedule: 6
Investments (At Cost, Unquoted)

Schedule: 7
Inventories:
Raw Material 77.24 99.98 41.05
Work In Process 34.44 49.17 50.15
Finished Goods 9.76 3.47 2.84
Stores & Spares 19.76 20.29 31.37
Tools & Instruments 1.52 2.47 3.03
Packing Material 4.84 1.10
Stock of Trading Items 9.31 0.72
156.88 177.20 128.43
Goods In Transit - At Cost 41.36 263.51
198.24 440.72 128.43

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MUMBAI UNIVERSITY

VARROC POLYMERS PVT. LTD. (VPPL-III)


SCHEDULES FORMING PART OF BALANCE SHEET
Actual
Sr.no. Particulars 2006 2007 2008
Schedule: 8
Sundry Debtors:
(unsecured, Considered Good) 0.23
Add: Considered Doubtful 14.48 46.21 7.91
Total Over Six month 14.48 46.21 8.14
Less: Bad & Doubtful Debts 7.91
Others 1,213.12 1,200.00 1,214.23
1,227.60 1,246.21 1,214.46
Schedule: 9
Cash & Bank Balances:
Cash In Hand 45.00 65.00 76.00
Current Account 0.40 0.90 58.56
Fixed Deposits 10.17
Interest Accrued on Fixed Deposits 0.18
55.75 49.28 47.23
Schedule: 10
Loans & Advdances:
(unsecured,Considered Good)
Advances Recoverable in Cash or kind or for Value
to be received 37.32 76.66 30.48
Balance with Excise Department 17.20 29.64 0.30
Sundry Deposits 4.24 4.24 4.24
Advances Tax & Tax Deducted at Source 22.80 35.89 47.78
Interest Receivable 0.17 0.18
Receivable from Varroc Eng. Pvt. Ltd. 0.17 5,563.65
Loan Repaid 10.00 22.00 35.09
91.73 168.59 5,681.71
Schedule: 11
Current Liabilities:
Sundry Creditors for Supplies 600.00 952.22 1,008.00
Sundry Creditors for Capital Goods 15.61 5.10 1.57
Other payble 55.84 139.67 30.21
Expenses Payble 61.77 100.47 30.50
Interest Accrued but not due on Loans 9.77
733.22 1,197.46 1,080.05

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VARROC POLYMERS PVT. LTD. (VPPL-III)


SCHEDULES FORMING PART OF BALANCE SHEET
Schedule: 12
Provisions for:
Leave Encashment 2.97 1.95 5.76
2.97 1.95 5.76
Schedule: 13
Other Income:
Intrest - Gross (TDS Rs/-) - -
Fixed Deposits With Banks 0.23 0.48
Others 0.25 0.24 0.23
Profit on sale of Fixed Assests 0.00 4.40
Miscellaneous Receipts 19.40 9.84 11.79
Excess Provision Written back 1.02
Foreign Exchange Fluctuation - Gain 1.78 18.49 0.00
21.66 30.07 16.42
Schedule: 14
Materials:
A) Raw Materials Consumed
Opening Stocks 106.86 77.24 99.98
Add: Purchases 4,130.19 5,588.78 5,925.22
4,237.05 5,666.02 6,025.20
Less: Closing Stocks 77.24 99.98 41.05
(A) 4,159.80 5,566.04 5,984.15
B) Increase/(Decrease) in Stocks
Closing Stock - Finished Goods 9.76 3.47 2.84
- Working in
Process 34.44 49.17 50.15
44.20 52.64 52.99
Less: Opening Stock-Finished Goods 9.01 9.76 3.47
-Work in Process 97.85 67.48 96.51
106.86 77.24 99.98
(B) -62.66 -24.60 -47.00
C) Excise Duty on Finished Goods
Opening Stock 1.32 1.51 0.51
Closing Stocks 1.51 0.51 0.39
Net (C) 0.20 -1.00 -0.13
4,097.34 5,540.44 5,937.03
Cost of Trading Items Sold 1,072.67 622.64 25.00
5,170.00 6,163.08 5,962.03

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MUMBAI UNIVERSITY

VARROC POLYMERS PVT. LTD. (VPPL-III)


SCHEDULES FORMING PART OF BALANCE SHEET
Sr.no. Particulars 2006 2007 2008
Schedule: 15
Expenses:
Stores & Spares Consumed 33.19 25.51 41.25
Tools & Instruments 0.04 0.05 0.49
Packing Material Consumed 27.64 27.96 5.99
Labour Charges 274.22 325.81 295.24
Power & Water 28.08 34.55 35.46
Freight 81.97 68.59 56.23
Salary,Wages & Bonus 56.99 71.96 64.43
Gratuty Provision & Contribution 0.66 0.79 0.43
Contribution to Provident Fund 3.72 5.08 4.56
Staff Welfare 2.53 4.17 3.75
Repairs: 0.00 0.00 0.00
A) Machinery 7.55 9.13 6.84
B) Building 2.64 1.19 1.45
C) General 7.62 7.16 16.95
Insurance 5.33 5.48 2.39
Rates & Taxes 0.75 1.77 7.83
Excise Duty Paid 0.07 0.06 0.00
Foreign Exchange Fluctuation - Loss 2.57 4.88 -16.01
Amount Written Off Against Lease Hold Land 0.90 0.90 0.90
Rent 0.70 0.72 0.28
Provision for Bad & Doubtful Debts 0.00 0.00 7.91
Miscllaneous Expenses 27.65 37.24 32.44
564.81 633.01 568.81
Schedule: 16
Interest On:
Term Loans
Bank Overdraft 89.99 109.98 115.87
Others 0.04
90.03 109.98 115.87

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MUMBAI UNIVERSITY

VARROC POLYMERS PVT. LTD.(VPPLIII)


CASH FLOW STATEMENT
SR. ACTUAL
PATICULARS
NO. 2006-2007 2007-2008
A Cash Flow from Operating Activities
Net Profit before Tax & Earlier Expenses 818.74 553.22
Adjustment for:
Add:
Depreciation 63.45 71.57
Lease Written Off 15.80 15.80
Provision for Leave Encashments - -
Interest Paid 109.98 189.23 115.87 203.24
Less: Interest Received 0.73 0.73 0.23 0.23
Operating Profits before Working 1007.24 756.23
Capital Changes
Add: Increase in Creditors 464.24 (117.41)
Less: Increase in Inventories 242.48 (312.29)
Increase in Debtors (18.61) 240.37 31.75 (397.94)
Cash Generated from Operations 1247.61 358.29
Less: Interest Paid 109.98 115.87
Income Tax Paid 13.09 11.89
Wealth Tax Paid 55.90 178.97 70.89 198.65
Net Cash from Opereating Activities 1068.64 159.64
B Net Cash from Investing Activities
Add: Interest Received 0.73 0.23
Sale of Fixed Assets 6.23 6.96 17.87 18.10
Less: Capital Expenditure 80.09 (73.13) 100.00 (81.90)
Net Cash used in Investing Activities (73.13) (81.90)
C Cash Flow from Financing Activities
Add: Increase in Term Loans
Increase in Cash Credits 6.02 (312.88)
Increase in Unsecured Loans (1020.00) 220.00
Less: Loan Repaid (12.00) (1001.98) (13.09) (79.79)
Net Cash used in Financing Activities (1001.98) (79.79)
Net Cash & Cash Equivalants (A+B+C) (6.47) (A+B+C) (2.05)
Opening Cash & Bank Balance on 01.04.07 55.75 49.28
Closing Cash & Bank balance on 31.03.07 49.28 47.23

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BIBLOGRAPHY

Books:

• S.N. MAHESHWARI (FINANCIAL MANAGEMENT)


• COMPANIES ANNUAL REPORTS
• COST AND MANAGEMENT ACCOUNT (ICWA-I STAGE)
• FINANCIAL MANAGEMENT BY PRASANNA CHANDRA.
• FINANCIAL MANAGEMENT BY KHAN & JAIN.
• FINANCIAL ACCOUNTING FOR MANAGERS – T. P. GHOSH (TAXMAN)
• MANAGMENT ACCOUNTING FOR PROFIT CONTROL – KELLER &
FERRARA.

Web Resources:

www.verrocengg.com
http://ezinearticles.com/
http://asbdc.ualr.edu/
http://en.wikipedia.org/wiki/Main_Page
http://www.bized.co.uk/index.htmhttp

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