Funds Flow Analysis

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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:
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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.
• 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.
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• Cash flow Analysis.
• Ratio Analysis.
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
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There are tow types of common-size statements, viz., common-size income Statement and
Balance Sheet.
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
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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?
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• 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.
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:
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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.
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:
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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.
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- Short-term loans
progress, Finished Goods, Stores,etc

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 Provision for doubtful debts and discount
Temporary investments, etc on debtors
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Non-current Account Items
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, Long –term loans
preliminary expenses and profit and loss
account(deficiency),etc
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.
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Transactions not Affecting Flow of Funds:
(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.
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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.
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”.
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IMPORTANCE OF FUNDS FLOW STATEMENT:
• 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.
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DIFFERENCE BETWEEN
FUNDS FLOW STATEMENT AND BALANCESHEET
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.
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DIFFERENCE BETWEEN
FUNDS FLOW & CAH FLOW STATEMENT
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
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Planning.
PROCEDURE FOR PREPARING A FUNDS FLOW STATEMENT
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
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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
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.
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1) Schedule of changes in Working capital:
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PARTICULARS PREVI CURR EFFECT ON
OUS ENT WORKING CAPITAL
INCRE DECREA
YEAR YEAR
ASE SE
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
** **
* *
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• *** ** *** ***
* **
2) Statement of sources and uses of funds:
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Sources Amount Applications Amount
Rs Rs
Funds from operations *** Redemption of preference ***
Issue of shares and *** shares and debentures ***
Debentures *** Repayment of loan ***
Long-term Loans Purchase of Investment,
*** ***
Sale of investment, Fixed Fixed assets, etc
***
assets, etc Non-Trading Expenses ***
Non-trading Income *** Increase in working capital ***
Decrease in working capital ***
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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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.
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Creation of Long term Liabilities:
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.
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Discharge of Liability:
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.
38
39
INTRODUCTION
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
40
CEMENT INDUSTRY IN ANDHRA PRADESH
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.
41
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
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.
42
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
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.
43
Infrastructure – driven demand push
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.
44
Challenges before the industry:
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.
45
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%
46
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.”
47
48
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.
49
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
50
and ranks second in production next to coal mining. Major portion of limestone mining portion of
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.
51
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
52
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
53
• 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.
54
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.
Material Balance:
55
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
Penna Power - 53 Grade
Penna Super - 43 Grade
ADVANTAGES:
56
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
57
58
STATEMENT OF CHANGES IN WORKING CAPITAL
2005-2006
Table-1
Particulars 2005 2006 Changes in WC
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 8,88,68,774 11,52,02,941 26334167 -
Sundry Debtors 11,23,63,109 17,85,50,027 66186918 -
Cash &Bank 1,24,33,458 7,27,32,900 6029925442 -
Loans& Advances 28,17,26,538 59,86,51,897 316925359 -
Total Current Assets(a) 49,53,91,879 96,51,37,765
Current Liabilities:
Current Liabilities & 23,49,02,360 42,38,38,372

Provisions - 18,89,36,012
23,49,02,360 42,38,38,372
Total current liabilities(b)
Working Capital a-b 26,04,89,519 54,12,99,393
Increase in Working Capital 28,08,09,874 28,08,09,874
54,12,99,393 54,12,99,393 46,97,45,886 46,97,45,886
Table-1
59
Changes In Working Capital
1200000000
1000000000
800000000
2005
600000000
2006
400000000
200000000
0
Total Total Working
Current Current Capital
Assets Liabilities
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.
FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH
60
31.12.2006
Table-2
Amount Amount
Sources Rs. Uses Rs.
Funds from operations 12,06,57,250 Increase in Working capital 28,08,09,874

113,41,49,33
Long term loans 85,74,96,949 Purchase of fixed assets 7
Sale of Investments 40,02,17,536

Decrease in Miscellaneous 14,78,511
expenditure
Increase in Deferred tax liability 3,51,08,965
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.

2006-2007
Table-3
61
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 11,52,02,941 16,15,83,313 4,63,80,372
Sundry Debtors 17,85,50,027 26,56,85,722 8,71,35,695
Cash &Bank 7,27,32,900 4,10,06,192 - 3,17,26,708
Loans& Advances 59,86,51,897 59,81,54,044 - 4,97,853
Total Current Assets(a) 96,51,37,765 106,64,29,271
42,38,38,372 74,94,16,641 - 32,55,78,269

Current Liabilities &
Provisions
42,38,38,372 74,94,16,641
Working Capital a-b 54,12,99,393 31,70,12,630
Decrease in Working Capital 22,42,86,763 22,42,86,763
54,12,99,393 54,12,99,393 35,78,02,830 35,78,02,830
Table-3
62
Changes in Working Capital
1200000000
1000000000
Amount
800000000
2006
600000000
2007
400000000
200000000
0
Total Total Working
Assets Liabilities
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.
63
31.12.2007
Table-4
Amount Amount
Funds from operations 16,01,23,732 Redemption of shares 5,40,942
Long term loans 15,15,15,878 Purchase of fixed assets 21,69,98,475
Decrease in Working capital 22,42,86,763 Purchase of Investments 42,03,47,770
Decrease in Miscellaneous 10,76,442

expenditure
Increase in Deferred tax liability 10,08,85,372
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.
64
2007-2008
Table-5
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 16,15,83,313 21,89,56,216 5,73,72,903 -
Sundry Debtors 26,56,85,722 37,09,00434 10,52,14,712 -
Cash & Bank 4,10,06,192 11,21,52,347 7,11,46,155 -
Loans& Advances 59,81,54,044 62,82,93,656 3,01,39,612 -
106,64,29,271 133,03,02,653
Current Liabilities & 74,94,16,641 76,05,69,548 - 1,11,52,907

Provisions
74,94,16,641 76,05,69,548
31,70,12,630 56,97,33,105
Working capital a-b
Increase in working capital

25,27,20,475 25,27,20,475
56,97,33,105 56,97,33,105 26,38,73,382 26,38,73,382
Table-5
65
1400000000
1200000000
1000000000
800000000 2007
600000000 2008
400000000
200000000
0
Total Total Working
Assets Liabilities
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.

66
31.12.2008
Table-6
Amount Amount
Funds from operations 23,51,80,715 Increase in Working capital 25,27,20,475
Long term loans 27,31,74,976
Decrease in Miscellaneous 2,50,800 Purchase of fixed assets 22,58,55,400

expenditure
Purchase of Investments 4,56,00,000
Increase in Differed tax liability 1,55,69,384
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.

2008-2009
Table-7
67
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 21,89,56,216 35,30,33,377 13,40,77,161 -
Sundry Debtors 37,09,00434 41,35,39,323 4,26,38,889 -
Cash & Bank 11,21,52,347 11,86,08,237 64,55,890 -
Loans& Advances 56,39,26,687 56,98,39,851 59,13,164 -
126,59,35,684 145,50,20,788
Current Liabilities & 69,62,02,579 102,90,32,147 - 33,28,29,568

Provisions
69,62,02,579 102,90,32,147
Total current Liabilities(b)
56,97,33,105 42,59,88,641
Working capital a-b
Decrease in working capital

14,37,44,464 14,37,44,464
56,97,33,105 56,97,33,105 33,28,29,568 33,28,29,568
Table-7
68
1600000000
1400000000
1200000000
1000000000
2008
800000000
2009
600000000
400000000
200000000
0
Total Total Working
Assets Liabilities
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.
69
31.12.2009
Table-8
Amount Amount
Funds from operations 99,81,84,829

Purchase of fixed assets 225,80,53,270
Increase in loans 118,07,66,087
Purchase of Investments 3,59,00,000
Decrease in Miscellaneous 89,747
expenditure Proposed Dividend 13,38,00,000
Decrease in Working capital 14,37,44,464
Increase in Deffered tax liability 10,49,68,143
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.
70
FINDINGS:
71
• 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
72
SUGGESSIONS:
73
• 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.
74
75
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.
76
77
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
78
79
PENNA CEMENT INDUSTRIES LIMITED
BALANCE SHEET AS AT 31.3.2006
Particulars Schedule No. 2006
SOURCES OF FUNDS
Share holder’s Funds:
Share Capital A 13,43,40,942
Reserves and Surplus B 89,66,23,798
Loan Funds C
Secured Loans 94,03,76,495
Unsecured Loans 96,39,05,443
Deferred Tax Liability 24,78,34,769
Total 318,30,81,447
APPLICATION OF FUNDS
D 266,23,57,147
Fixed Assets
55,57,90,567
Gross Block
Less: Depreciation
Net Block 210,65,66,665
Add: Capital works- in- progress E 18,15,99,085
INVESTMENTS F 228,81,65,665
Current Assets, Loans and Advances G
Inventories 35,21,99,400
Sundry debtors 11,52,02,941
Cash and Bank Balances 17,85,50,027
Loans and Advances 7,27,32,900

59, 86,51,897
96,51,37,765
Less: Current Liabilities and provisions H 42,38,38,372
Miscellaneous Expenditure(to the extent 54,12,99,393
not return of or adjusted) I 14,16,989
Total 318,30,81,4471,447
80
SOURCES OF FUNDS
Loan Funds C
Total 360,34,29,217
D 316,89,56,316
Fixed Assets
67,98,52,280
Gross Block
Less: Depreciation
Net Block 248,91,04,036
INVESTMENTS F 250,51,64,140

59,81,54,044
106,64,29,271
not return of or adjusted) I 3,40,547
Total 360,34,29,217,81,447
81
SOURCES OF FUNDS
Loan Funds C
Total 412,73,54,292
Fixed Assets D
320,81,62,454
Gross Block
82,53,36,717
Less: Depreciation
238,28,25,737
Net Block
273,10,19,540
F 82,65,11,900
INVESTMENTS
21,89,56,216
Inventories
37,09,00,434
Sundry debtors
11,21,52,347
Cash and Bank Balances
56,39,26,687
Loans and Advances
126,59,35,684
not return of or adjusted) I 89,747

412,73,54,292,81,447
Total
82
SOURCES OF FUNDS
Loan Funds C
178,57,14,077
Secured Loans
173,23,88,532
Unsecured Loans
46,92,57,668
Deferred Tax Liability
627,74,73,351
Total
Fixed Assets D
398,46,31,393
Gross Block
98,12,21,831
Less: Depreciation
300,34,09,562
Net Block
E 198,56,63,248
Add: Capital works- in- progress
498,90,72,810
F 86,24,11,900
INVESTMENTS

145,50,20,788
not return of or adjusted) I ----
Total 627,74,73,35181,447
83
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2006
INCOME
Sales J 385,65,72,118
(Increase/decrease) in Stock K -1,60,57,823
Total Income 384,05,14,295
EXPENDITURE
Manufacturing Expenses L 153,07,01,345
Cost of trading goods ---
Central Excise Duty 69,86,42,442
Sales Tax 55,90,24,763
Administrative and Selling Expenses M 58,82,88,777
Interest and Finance Charges 14,43,46,417
Depreciation 11,88,30,197
Miscellaneous Expenditure Written off E 22,32,340
Total Expenditure 364,20,66,281
Profit for the year F 19,84,48,014
Provision for taxation 152,54,699
G
Profit after Tax 18,31,93,315
Deferred Tax for the year 3,89,50,042
Fringe Benefit Tax for the year -----------
Prior period expenditure
11,56,849
Profit available for appropriations
14,30,86,424
Transfer to General Reserve
-----------
Proposed Dividend
-----------
Tax on Dividend I
------------
Profit brought forward from previous
56,76,50,645
year
Goodwill on Merger written off -1,98,40,834
Profit Carried to Balance Sheet N 69,08,96,2351,447
84
INCOME
Sales J 452,87,19779
(Increase/decrease) in Stock K -98,74,875
EXPENDITURE
Cost of trading goods 32,67,699
Sales Tax 62,30,34,491
Provision for taxation 2,24,41,139
G
Fringe Benefit Tax for the year -------------
Prior period expenditure 27,41,325
Profit available for appropriations 16,01,23,733
Transfer to General Reserve -----------
Proposed Dividend ------------
Tax on Dividend I ------------
Profit brought forward from previous year 69,08,96,235
Goodwill on Merger written off ----------
Profit Carried to Balance Sheet 85,10,19,968447
N

85
INCOME
Sales J 640,97,93,371
(Increase/decrease) in Stock K 2,96,92,824
EXPENDITURE
Cost of trading goods 67,40,11,176
Sales Tax 63,36,87,866
G
Fringe Benefit Tax for the year 17,33,786
Prior period expenditure 45,05,648
Transfer to General Reserve -----------
Proposed Dividend ------------
Tax on Dividend I ------------
Profit brought forward from previous year 85,10,19,968
Goodwill on Merger written off -------------
N

86
INCOME
Sales J 914,46,59,562
(Increase/decrease) in Stock K 3,74,11,258
EXPENDITURE
Cost of trading goods 5,55,30,769
Sales Tax 94,83,24,696
Miscellaneous Expenditure Written off E 89,747
G
Fringe Benefit Tax for the year 22,35,543
Prior period expenditure 1,68,20,163
Transfer to General Reserve 15,00,00,000
Proposed Dividend 13,38,00,000
Tax on Dividend I 2,27,39,310
Profit brought forward from previous 108,62,00,683
year -----------
Goodwill on Merger written off N
87

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Funds Flow Analysis

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1

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

distribution and judge the efficiency of the management accordingly.

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

have been given.

flow of cash at least later or sooner.

Meaning of Flow of Funds :

funds available before happening of the transaction.

enterprises between two dates.

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

The data was collected through primary and secondary sources.

TADPATRI from 2004-2005 to 2007-2008

or a balance sheet. It provides only some additional information as regards changes in

Pennas cement Financial Services Ltd only.

• It cannot reveal continuous changes.

divided into tow broad groups:

(a) Internal users

(b) External Users.

financial condition of the enterprise.

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.,

proposed investment will be.

their dues in time.

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

Significance of Financial Analysis:

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

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.

vertical as well as horizontal form.

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

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

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

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

• Comparison of financial statement of a particular year of different business

These are also termed as Methods of Financial Analysis.

• Comparative Statement Analysis.

• Common-size Statement Analysis.

• Funds flow Analysis.

Comparative Statement Analysis:

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

comparative financial statements.

Common-size Statement Analysis:

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

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.

the base year

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

about the firm’s financial performance.

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

various users of ratios.