CHAPTER - I

INTRODUCTION

1
 Introduction

Cash flow analysis is a valuable aid to the financial executive and creditors for evaluating the
uses of funds by the firm and in determining how these uses were financed. A cash flow
statement indicates where funds came from and where it was used during the period under
review. They are important tools for communication and Very helpful for financial executives
in planning the intermediate and financing of the Firm.

Cash flow statement is a statement of Cash flow. Cash flow signifies the movement of cash in
and out of a business concern. In flow of cash is a known as source out flow of cash is called
use of cash. The term cash here stands for and bank balance.

Cash flow Statement shows the changes in position between two balance sheet dates. It
provides the details in respect of cash generate and applied during the accounting period. The
Transactions which increase the cash position of the business are known as in flows of cash
(Ex: Sales of current and fixed assets, issue of shares and debentures etc.) The transactions
which decrease the cash position are known as out flows (Ex: Purchase of current and fixed
assets, redemption of debentures, and performance says and other long term depicts) Cash flow
statements constants on transactions that have a direct impact on cash. This statement depicts
factors responsible for such in flow and out flow of cash. In brief, cash flow statement
summarizes process of changes in cash position between dates of balance sheets. A cash flow
statement is like receipt and payments account in summary form.
The net flow cash is equal to net profit but this cannot be true in all cases because of the
presence of non-cash from operations certain adjustments are to be made to the net profit as
disclosed by profit and loss account.

There are three methods of determining cash from operations namely.

1. Cash sales method.
2. Net Profit/Net loss method.
3. Cash from operations: Cash sales – Cash purchases – Cash operating expenses.

2
 NEED AND IMPORTANCE

1. To know about The future plans of the company depend upon the cashflow analysis of
the company.

2. This study helps in finding the comparison between the past and performance
Of the company.

3. This study also helps up the goals and objectives for future in the content of cash flow
control.

4. This analysis to these statements will provide the decision maker to understand
strengths and weaknesses of the firm.

5 This analysis is important for the management and also for outside dealing with
organization is moving

3
 OBJECTIVE OF THE STUDY

The objectives of the study are as under:

• To Evaluate and analyze the financial performance of the Co-operative Electric Supply
Society Limited (CESS LTD.)

• To Draw conclusions and offer suggestions for improvement of the financial

performance of the above said organization in the light of finding of the study.

• To study the resources pattern and their utilization with a view to analysis the cash flow
of CESS Limited.

• To evaluate the sources of funds and their application by using cash flow techniques of
financial statements.

• To analyze profitability and capital structure of company.

4
 METHODOLOGY

The data collection of the study consists

1. Primary source of data

This is first hand in nature and can be collected through

• Officers of accounting section.

• Executives and staff of finance and accounts department.

• Personal observation.

2. Secondary data

Methods of collection of the secondary data which is already exists are

• Financial management text books.

• Journal and magazines and newspapers.

• Text books.

• Worldwide webs.

3. Tools/Techniques used for analysis

• Cash flow statement

5
 SCOPE OF THE STUDY

The study of cash flow analysis of CESS Limited is a very wide topic. In the Study many
factors that need detailed analysis could not be discussed in detail because Of the limitations
regarding length of the project and available time. The scope of the Study has, therefore, been
limited to the presentation of, cash flow statements and their Analysis.

6
 LIMITATIONS OF THE STUDY

The limitations of the present study are:

1. In the study many factors that need detailed analysis could not discussed in detail Because of
the limitations regarding length of the project and available time.

2. The study is subject to limitations of the nature of cash flow analysis tools and Techniques.

3. It is not always possible to make future estimation on the basis of the past as it is always
does not come true.

7
 CHAPTER – II
PROFILE OF C.E.S.S

8
CO-OPERATIVE SUPPLY SOCIETY LIMITED SIRCILLA

HISTORY OF CESS

India is predominantly an agricultural country. Nearly 70% of the Indian population

lives in villages and about 70% of them directly or indirectly depend on agriculture for their
livelihood and nearly 50% of the total income is generated from agriculture.

Electric power is one form of energy, which is an essential ingredient of economic

development and it is requited for commercial and non-commercial uses. Electricity plays a
vital role in the development of agricultural and oriented industries require electricity at a very
economical rate. The necessity of electricity is increasing day by day in all fields.

Power is essential for the modern necessities in the town or villages or rural areas.
Per capita consumption is an indicator for development of the country. Electricity boards have
been formed states wide to meet the demand of electricity.

NATIONAL RURAL ELECTRIC CO-OPERATIVE ASSOCIATION

The NRECA (National rural electric co-operative association)

Experts investigated the feasibility in three phases dealing with identification of areas suitable
for the location of pilot rural organizational and economic aspects.

Five pilot rural electric co-operative societies have been started and financed by the
National Rural Electric Co-operative Association in 1969. The experiAmerican co-operatives
were largely drawn upon in organizing these pilot rural electric co-operatives.

The five pilot co-operative projects are as follows:

1. SIRCILLA (ANDHRA PRADESH)
2. HUKERI (MYSORE)
3. KODINAR (GUJARAT)
4. MULA-PRAVARA (MAHARASTRA)
5. LUCKNOW (UTTAR PRADESH)

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OBJECTIVES OF CO-OPERATIVES:

The main objectives of co-operative projects:

1 Furnish electricity to the rural people at the lowest possible cost in order to
increase agricultural production to stimulate agro-industry and improve the
standard of living of the rural people.
2 Increase the responsible action of the people by giving them some degree of
control over the electric supply.
3 Establish local organizations for the financing, procurement, installation, repair
and proper use of electrical appliances and equipment such as pump sets.
4 Assure a rapid and standardized pattern of construction and operation of rural
electric system in all states.

THE CO-OPERATIVE ELECTRIC SUPPLY SOCIETY LTD., SIRCILLA

During the middle of 1960’s Govt. of India felt the need for establishment of a
separate organization for quicker pace of rural electrification, with a view to increase food
production in the country and also for socio economic development in rural India.
The experts of National Rural Electric Co-operatives Association (NRECA) of U.S.A. and
United States Agency for International Development (US AID) have studied the feasibility and
recommended for establishment of pilot Rural Electric Co-operatives in India. With the result
pilot RE Co-operatives viz. Sircilla (in Andhra Pradesh), Hukeri (in Karnataka), Kodinor (in
Gujarat), Lucknow (in Uttar Pradesh) and Mulapravara (in Maharastra) were taken birth in the
country in the year 1970. The Puri committee appointed by the REC, New Delhi has studied the
performance of the five pilot Co-operatives during middle of 1970s and recommended for the
growth of RE Co-operatives. Similarly Mathur committee has also endorsed the
recommendations of Puri committee, during 1980s. With the result about 100 RE Co-operatives
become functional in India, of which 9 Co-operatives in Andhra Pradesh. At present about 30
Co-operatives are working in the country including 4 in Andhra Pradesh.

10
 As a result the Rural Electric Co-operatives are established. The CESS Limited, Sircilla
is one of the 1st five Rural Electric Co-operative in India It is registered on 30-10-1969 with

Regd.No.748/TD as per the APCS Act 1964 and started functioning from 1st November
1970. The area of operation of the society comprises of nine revenue mandals, conterminous
with entire revenue division
Sircilla and Nallagonda and Thippaipally villages of Kodimyal mandal, consisting 173
villages, 150 hamlets, with geographical area of 1870 sq. Km
ACHIEVEMENTS:
The Society has successfully grounded all the five projects sanctioned by the Rural
Electrification Cooperation (REC), New Delhi and achieved the targets envisaged in the above
projects reports, well in advance.

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  PHYSICAL ACHIEVEMENTS:

Sl Particulars Take over Target for Achivement Position As on

No. Position on 2006-07 for 31-03-2007
31-10-70 2006-07
1 Villages Electrified
46 0 0 173
(No.)
2 Hamlets Electrified
7 0 0 150
(No.)
3 11 K.V. lines (Km)
194 60 21 2047
4 Transformers (No.) 109 90 133 2965
5 LT Lines (Km)
461 75 21 6401

6 Service Connections:

a) Domestic (No) 1798 1000 2846 114226

b) Commercial 474 50 1105 5230
c) Industrial 105 10 24 1743
d) Cottage industries ---- 40 215 5173
e)Agriculture 2299 600 621 52800
h)Others 44 ---- 45 1637
TOTAL:
4720 1700 3866 180809
7 Sub-Station (NPDCL
assets)
---- ----- ----- 4
a) 132/33 kv
1 ----- 2 29
b) 33/11 kv

Some of the statistics shows below indicates the pace and intensive rural electrification
made by the society. This could be achieved with the active Co-operation of society members.

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Sol. Particulars Position Project Targets Position
No. as on Up to as on
31-10-70 31-03-97 30-09-06
1 Villages Electrified
(No.) 46 127 173
2 Hamlets Electrified
(No.) 7 1 150
3 11 K.V. & LT lines
(Km) 655 4657 8432

4 Transformers
109 1258 2845
(No.)
5 Installed capacity
(KVA) 8225 79001 275835

6 Service Connections:

a) Agriculture 2299 25500 52358

b) LT industrial 105 1180 1729
c) Cottage industries --- 300 5055
d)Domestic & others 2316 31414 119481

TOTAL:
4720 58394 178623

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  PER SQUARE KM DATA:

Sl.No. Particulars Unit

State CESS
1 Total services No.
60.00 92.55
2 Agriculture connections No.
8.60 27.66
3 11KV & LT lines KM
2.63 4.46
4 Distribution No.
1.48 1.45
Transformers
5 Capacity of DTRs KVA 81 141
6 Consumption per year
MWH 137 183
7 Per capita LT KWH 404 613
consumption

8 Consumers per No. 267 627

employee

9 Distribution Losses % 16.89 16.06

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 CAPITAL FOR CESS

1. WORKING CAPITAL:

The society is taking up rural electrification works mainly with the loan
assistance provided by the REC, New Delhi and member contribution. No regular allocation of
funds is available to this society either from the state Govt. or from the Central Govt.
Working capital of the society as on 31-03-2006 comprises of the following:

1 REC Loans: (Rs.in crores)

a) Sanctioned 10-03
b) Released 10-03
c) Repaid 7-57
d) Balance 2-46
2 Share capital:
a) state Government
i) Sanctioned 0.63
ii) Repaid 0.63
iii) Out standing --Nil--
b) A.P. Transco 0.26
c) Members 2,02,361 5.83
3 Development charges(paid by the members) 10.22
4 Grant from the state Govt.under SPF,CBI,etc, 0.73
5 Grant from MOP 2.86
6 Consumers service connections deposits & 3.26
contribution

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 1. REPAYMENT OF LOANS:
The society is repaying the REC loan as scheduled in the project reports and there is no
over dues. The society has got a rebate of Rupees15.20 lakhs from rural electrification
corporation for prompt repayment of loan installments, yearly installments under this head is
about Rs.45 lakhs towards principal and Rs.25lakhs towards interest.

2. PAYMENT TO A.P.TRANSCO/DISCOM:
The CESS is paid HT bill regularly to the DISCOM and there are no outstanding dues.
The average bill for month is Rs.1.20 crores.

3. SPECIAL RESERVE FUND:

The REC, New Delhi has sanctioned loan assistance for execution of works and
declared a moratorium period of 5 years. The amount equivalent to interest remission on
project loan during the moratorium period, is invested separately in Special Reserve Fund
(SRF).The total SRF including the interest accrued on it is of the order of Rs.10.92crores.This
amount is available in the shape of fixed deposits in the nationalized banks.

4. ASSETS CREATED:
The values of fixed assets taken over from the APSEB on 31-10-1970 are Rs.
0.59crores. The same has been grown to the extent of Rs.50.76crores, as on 31-03-2007.In
addition to this society is having liquidity assets of about Rs. 35crores

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 DEVELOPMENTS OF SOCIETY

1. VILLAGE ELECTRIFICATION:

All the 173 revenue villages have been electrified with in a short span of 5 years
i.e. by 31-03-1975. Similarly all the 150 hamlets and 320 Harijan Basties and existing
weaker section colonies have also electrified by 31-03-1989 itself. The has achieved 100%
electrification of habitations in the area of operation of CESS.

2. ENERGISATION OF AGRICULTURE PUMP SETS:

At the time of take over, there were only 2299 pump sets. Now the same has been
increased to 52,800 Nos. on account of which about 1.60 lakhs acres of additional land is
brought into cultivation. Further providing livelihood to one lakh agricultural labourer and
helped in increasing of production 4.50 lakh tons of paddy every year.

3. ELECTRIFICATION OF DWELLING HOUSES:

The average electrification of houses in our country is about 46.5% and in Andhra
Pradesh it is 59.60% whereas in our co-operative area achievement is 86%. The society has
been prepared a scheme “Rajiv Gandhi Grameen Vidhyuthikarana Yojana” for a
achivement of 100% Electrification of Houses. The total houses Electrified as on 31-03-
2007 are 1, 14,226.

4. SUPPLY OF ELECTRICITY TO INDUSTRIES:

The industrial service connections have been increased from 105 to 6916 and 75%
of them belongs to cottage industries of backward classes i.e. power looms, which has
resulted in creation of employment potential to 15,000 families and producing 12 lakh
meters of cloth worth of about Rs. 1crore per day.

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5. POWER SUPPLY ARRANGEMENTS:

There are (29) 33/11kv sub-stations existing in CESS area. These sub-stations are
being fed from four 132/33 kV sub-stations peddur, Mallaram, Yellareddipet and
Ellanthakuta. All the sub-stations are owned and maintained by the
APNPDCL/APTRANSCO.
In addition to the above existing sub-stations. Six 33/11kv sub-stations sanctioned
at Bowsaipet, Garjanpally, Lingannapet, Bonala, Nampally, and Somarampet. Further four
33/11kv sub-stations proposed at Rajannapet, Pothgal, Chekkapally and Sanugula are under
sanction.

6. STORES:

The stores section is broadly divided in to two wings namely in-door section and
out-door section. In-door section deals mainly with, consumables, spares for meters and
transformers. The Out-door section deals with hardware line materials transformers
conductor etc. There are all together about 200 items of in-door section and 100 items of
out-door section.

7. RCC POLE MANUFACTURING CENTRE:

The RCC poles of 8m length both for HT and LT lines were being manufactured at
poles manufacturing center of CESS Ltd.
There are twenty curing ponds at RCC pole manufacturing center, which is
constructed in 1971. The capacity of each pond is 25 poles. The manufacturing of RCC
poles is being carried out on labour contract basis manufacturing center is 750 numbers per
month and it can be increased to 1000 numbers if circumstances warrant. In addition to
RCC poles RCC base plates are also being manufactured.
On an average 3,500 poles and 4,000 base plates were manufactured every year to
meet our demand. At present the RCC poles manufacturing is stopped and proposed to
switch over to PSCC pole manufacturing in view of introduction of PSCC poles. These
poles are being purchased.

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 8. METERS AND TRANSFORMERS:

The society is self-sufficient in testing and repairing of transformers and energy

meters. About 350 distribution transformers (DTRs) are being repaired every year in
addition to overhauling 400DTRs.

9. WORKSHOP:

The Work-shop is set up for fabrication of important line material such as cross
arms, D.P. structures, stay sets etc. The work-shop consists of drilling machine, cutting
machine, welding transformer and a grinder.

10.REVENUE FOR CESS:

The society is adopting the same L.T. tariff rates as that of A.P. Transco to its
consumers. The society is purchasing power form A.P. Transco to its consumers. The HT
tariff payable by the society to the Transco is being fixed by APERC from time to time
taking into account the viability of the society; present rate is 40 paisa per unit.

Distribution staff are taking meter readings at the end of every month and
furnishing the same to the revenue wing, for billing purpose, for all categories except
agriculture. In case of agriculture the billing is being done once in six months,
synchronizing the collections with the harvesting season of agriculture.

With a view to effective collection at the door steps of the consumers, fixed
programme of Bill Collector is chalked out in such a way that they visit every village at
least twice, every month.

11. REVENUE REALISATION:

The average percentage of collection of c.c. charges is more than 90%.

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 12.LINE LOSSES:

At the time inception the percentage of line losses were at 28%. The same has been
brought down to 16%.
13.ENERGY AUDIT:

With the view to asses agriculture consumption and line losses. Energy meters are
installed to agricultural services under on LT feeder of a transformer in 10 villages of various
mandals. The concerned O&M staff will furnish readings every month. Based on this
agriculture consumption and line losses are being worked out.

14. D.P.E SECTION:

One DPE section headed by an on ADE is formed and allotted a jeep exclusively to this
section for conducting inspections/rides and to arrest theft and malpractice of energy.
Pole to pole inspections is also being conducted once in a month pooling about
100members from various sections to arrest theft.

15. FAILURE OF TRANSFORMERS:

The present rate of failure of DTRs is 10.37% with the view to reduce the rate of
failures amaintenance squad is formed. They are provided with a van, men and material to
attend to all minor defects on the spot such as replacement of LV bushings, rods, washers, top
up of transformer oil etc. However the rat of failure of transformers is in increasing trend as the
Load Diversity Factor adopted is not working mostly due to continuous restrictions and control
of power. New improvement transformers are being added to the system, every year, to bring
down the LDF.
16. TARIFF:
The society is purchasing energy at 11 KV from APNPDCL and metered at 33/11 kv
sub-stations. The tariff payable by the society to NPDCL is being fixed by the APERC every
year. The present tariff rate is 40 paise/unit.
The society is adopting the same LT tariff rates as that of DISCOMs to its consumers.

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17. IN HOUSE COMPUTER:
In house computer has been established with an expenditure of Rs.11.5 lakhs. At
present the following works are being carried out in computer.
1. Preparation of CC bills.
2. Preparation of Revenue ledgers.
3. Preparation of Bill Book abstract.
4. Preparation of Revenue analysis.
5. Preparation of “D” lists.
6. Preparation of Daily Cash book.
7. Preparation of Pay Bills.
Further it is programmed to take up the following work:
1. Financial Accounting.
2. Inventory Accounting.
3. Personal Information System.
4. Share Capital Accounts etc.

1. AUDIT:
Audit of the accounts of the society is completed up to the year 2006-07 and
submitted to the DCAO, Karimnagar yet to be issued.

2. ADMINISTRATION OF CESS Ltd:

The constitution Managing Committee to manage the affairs of the society as follows.

Chairman : 1

Elected Directors : 10 (one from each mandal incl. 1 from sircilla Municipal area)

Official Nominated Directors : 4 (Civil. Elecl. Engineer from A.P. Transco, Chief Project
Manager from REC, Cist. Co-op. Officer from Co-op. Department and Managing Director of
the society).

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In month of January, 2007 elections were conducted the existing elected body assumed charge
on 22.01.2007. The Chairmain is one of the members of elected directors.

3. SHRAMADAN:
The unique feature of the society is voluntary labour contribution i.e.
“SHRAMADAN” by the prospective consumers in transportation of poles, digging of pits,
erection of poles and stringing of lines etc. The value of the “SHRAMADAN” is of the order
of 15to 20% value of the fixed assets.besides this they have also contributed about Rs.1022.41
lakhs in the shape of development charges..

SOME OF THE PERFORMANCE PARAMETERS:

A) TECHNICAL:
1. Failures of Transformers : 9.4%
2. Time taken for replacement of : 1 day
Failed distribution transformers
3. Break downs : 1/11KV feeder/year
4. Average time taken for rectification : 3.5 hours
5. of break downs
6. Line losses : 16%
Accidents per every 100Km of
line/year: 0.2
B) GENERAL :
8. No. of consumers per employee : 620
9. Percentage of revenue collection : Above 90%

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History of the Electric Power Industry
America enjoys some of the most reliable and affordable electricity in the world. But have you
ever wondered how today’s electricity system, with its “on-demand” power, got its start?

You would probably guess that any discussion about the early and you’d be right.
Although knowledge of electricity dates back to the ancient Greeks, it wasn’t until Edison’s
pioneering work with electricity in the late 19th century that we were able to harness electricity
in a useful way of life and we have him to thank for the last 125 years of electric innovation.

Invention of the Light Bulb:

On October 21, 1879, Edison created his now famous incandescent light bulb, which Burned
for 40 hours. During 1880, Edison continued work to refine his light bulb. He also began
exploring ideas for an equality important invention: a way to generate and transmit the
electricity his light bulb was ever to become a practical appliance for homes and business.

Edison’s Pearl Street Station:

By the end of 1880, Edison had formed the Edison Electric Illuminating Company to build
central station electric generating plants in New York City. The first central power plant-Pearl
Street Station in lower Manhattan-began generating electricity on September 4, 1882. Pearl
Street had one generator and it produced power for 800 electric light bulbs. Within 14 months,
Pearl Street Station had 508 subscribers and 12,732 bulbs.

With the success of Pearl Street Station, Edison created the Edison Company of Isolated
Lighting. This company was formed in May 1883 to build and sell electric power stations, like
Pearl Street Station, to towns and cities throughout the United States.

23
Emergence of an Electric Utility Industry Structure:
Early electric companies were somewhat inefficient and redundant in the services they
provided. Separate companies provided electricity for different needs such as street
illumination, industrial power, residential lighting, and street car service. They frequently
operated under nonexclusive franchises, often in competition with one another. Companies
used different equipment, voltages, and frequencies, so their systems were not compatible. In
order to operate, the companies had to acquire franchise rights from the local municipality.
Franchise territories differed greatly, from a single block to the entire city.

The franchise process kept the industry fragmented and inefficient. It was not unusual
for franchises to be granted on the basis of bribes and payoffs to city officials. The issuance of
numerous short-term franchises created an uncertain, chaotic operating environment. It was
during these early years that entrepreneurs like Samuel Insul, who had worked with Edison,
gave his attention to utility operations and began to shape and define important economic
concepts, which still govern modern utility planning and pricing.

Emerging Financial Framework:

Early leaders recognized that electric companies suffered from high fixed costs as a
result of the heavy investment needed to finance central generating plants and distribution
systems. At the same time, their operating-or variable-costs were relatively low. Insull
understood that with more customers on a system, more revenue was generated, spreading out
fixed costs. He reduced prices and aggressively marketed to attract more customers. Many
companies gave away light bulbs and electric irons to encourage electricity use. The difficulty
was in establishing an appropriate price for electricity.
The development of the demand meter made it possible for Insull to more accurately
price his commodity. The demand meter measured a customer’s electric demand, or the
“share” of fixed cost required for usage, as well as the actual energy for kilowatthours used.
Insull set the price of electricity to cover both of these costs: fixed (demand) and operating
(energy or variable). Fixed costs reflect the foxed amount of investment that must be paid,

24
regardless of output, and include power plant construction and equipment. Variable costs are
those which vary with the level of electric output and include fuel expenses. Early analyses
showed that the more time a plant was in use, the higher the profit, with a lower average
kilowatthour cost to the customer. Since electricity cannot be stored the trick was to find the
right mix of customers to utilize the plant for as much of the day as possible. For example, in
order to maximize plants to their fullest, one might take into account the early morning and late
afternoon streetcar load, an evening residential lighting load, and a business and industrial load
between the two streetcar peak loads. Insull realized that the same three loads could be served
by one plant instead of three different plants which were then being used.

In addition to load diversity, it was discovered that there was a way of increasing efficiency
through economies of scale. One large centrally located power station could be operated more
cheaply than numerous isolated small generating units. Thus, the formation of the industry was
heavily influenced by the inherent advantage in serving many customers, the desirability, and
some renewable energy plants, smaller units can again be cost effective, especially to meet
unusually high demand.
The Evolution of the Natural Monopoly and the Advent of Regulation:
Utilities frequently found that it was difficult to maintain inventor
confidence and attract adequate capital. This was attributable to both the dubious franchise
process, which made operation of the utility over the long term an uncertain prospect, and the
low returns investors received. Early industry leaders began to think that if that if the franchise
granting process and the rates charged by utilities were overseen by a nonpartisan state agency
instead of a city council, financing might be easier and cheaper to obtain.
In 1898, in an address before the National Electric Light Association (the forerunner of Edison
Electric Institute), Samuel Insull proposed that electric companies be regulated by state
agencies which would establish rates and set service standards. The idea became increasingly
appealing to investor-owned companies in the face of public enthusiasm for the growth of
municipal electric systems. Privately-owned companies surmised that the public might be more
supportive if their companies were regulated so that customer interest would be protected. By
1916, 33 states had regulatory agencies. Early regulation of the industry proved beneficial to

25
both the electric companies and their customers, who got reliable, reasonably priced service
without the uncertainties caused by duplicate services and inefficient operations.
Characteristics of Electric Utilities:
As the structure of the electric industry evolved, electric utilities began to assume
certain common characteristics. These include: Assignment of Franchise or Service Territory—
A franchise allows an electric utility to serve customers within a designated geographic area,
known as its service territory, for a specific period of time; Obligation to Serve—In return for
its franchise, an electric utility is required to serve all existing and future customers equally and
at reasonable cost; Service as a Natural Monopoly—A single company providing electric
service is more economically efficient because it eliminated duplication of service and
equipment.
Forms of Ownership:
Private investor funds fueled the earliest electric power production and distribution
facilities. This tradition has continued to today, with shareholder-owned electric companies
providing approximately 70 percent of all power generated in the U.S. by electric utilities, or
about 50 percent of all the electricity generated in the country. Shareholder-owned electric
companies are owned by millions of small investors, either directly or indirectly through other
investments such as life insurance policies, retirement funds, and mutual funds.
• Shareholder-owned electric companies sell power at retail rates to
several different classes of customers and at wholesale rates (for resale) to
state and local government-owned utilities, public utility districts, and rural
electric cooperatives. While most electricity is provided by shareholder-
owned electric utilities, other entities that function as electric utilities include:
municipally-owned systems, federally-owned systems, and rural electric
cooperatives.
• Municipally-owned electric utilities are those that are owned by the city
or municipality in which they operate and are financed through municipal
bonds. They are self-regulated. Approximately 11 percent of the nation’s
power needs are met by about 2,000 municipally-owned systems.

26
 • Federally-owned utilities are agencies of the federal government involved in
the generation and/or transmission of electricity, most of which is sold at
Wholesale prices to local government-owned and cooperatively-owned utilities and to
shareholder-owned companies. These government agencies are the Army Corps of
Engineers and the Bureau of Reclamation which generate electricity at federally-owned
hydroelectric projects. There are five power marketing agencies that sell this relatively
low-cost power on a preferential basis to local government-owned and cooperatively-
owned utilities. In addition, the Tennessee Valley Authority produces and transmits
electricity in the Tennessee Valley region.
In 1936 the Rural Electrification Administration was created to provide low-interest
loans to expand electric service to rural areas. Rural electric cooperatives were and can
still be formed by groups of rural area residents. There are approximately 1,000 rural
cooperatives in the U.S. Most are distribution cooperatives which purchase power from
federally-owned and/or investor-owned utilities, but about 60 of them are Generation
and Transmission Cooperatives that provide wholesale power to their member
Distribution Cooperatives.

27
 Electric Power India

The electric power industry in India is both a supplier and a consumer of primary energy,
depending on the kind of energy used to turn the generators. Hydroelectric and nuclear power
plants add to the country’s supply of primary energy. The total installed electricity capacity in
public utilities in 1992 was 69,100 megawatts, of which 70 percent was thermal, 27 percent
hydropower, and 3 percent nuclear. The total installed capacity was programmed to reach
around 1, 00,000 megawatts by FY 1996 through a package of government-supported
incentives to the private sector.
Because they cannot always depend on public utilities, many larger enterprises have developed
their own power generation systems. In 1992 there was a capacity of 9,000 megawatts outside
the public utility system. Overall, the generation and transmission of power in India –with an
average 57 percent plant load factor in FY 1992 in thermal plants and transmission losses of 22
percent--were inefficient. About 322 billion kilowatt-hours of power were generated by
utilities in FY 1992, approximately 8.5 percent shy of demand. The resulting deficit led to
acute shortages in some states. This trend continued the next year when 315 billion kilowatt-
hours were produced. Many factors contributed to the shortfall of electric power in India,
including slow completion of new installations, low use of installed capacity because of
insufficient maintenance and coal, and poor management. In FY 1990, industry accounted for
45 percent of electricity consumed, agriculture 26 percent, and domestic use 16.5 percent.
Other sectors, including commerce and railroads, accounted for the remaining 12.5 percent.
Villages received electricity for the first time. In 1990 around 84 percent of India’s villages had
access to electricity. Most of the villages without electricity were in Bihar, Orissa, Rajasthan,
Uttar Pradesh, and West Bengal. Villagers complain that government figures on electrification
of villages are artificially inflated. Actually, although lines have been run to most villages,
electricity is provided only sporadically (for example, only nine to twelve hours per day), and
villages feel they cannot depend on electricity to operate pumps and other equipment.
Electricity to cities also is sporadic; blackouts occur every day in most cities.

28
 India’s first hydroelectric station was constructed in 1897 in Darjiling (then
Darjeeling). In FY 1990, installed capacity for hydroelectric power was 18,000 megawatts. The
country has a large economically exploitable hydroelectric potential, especially in the foothills
of the Himalayas, but no large increase in capacity is predicted for the mid-1990s.
Hydroelectric facilities have to be coordinated with other sources of electricity because
seasonal and annual variations in rainfall affect the amount of water needed to turn the
generators and consequently the amount of electricity that can be produced.
Hydroelectric power projects in India have not been without controversy. Indian Dams for
irrigation and power generation have displaced people and raised the specter of ecological
problems.

Power India 2008

Power India 2008 the Total Energy Industry show
Past Events:
The prime focus of the Foundations activities is on modernization and technology Up
graduation of Indian industry through international techno-economic cooperation, and to assist
in overall development of selected industry sectors through promotion of exports, technology
transfer and joint ventures. Also in evolved in International Exhibitions, Institution of Awards,
and Trade Delegations etc.
The India-Tech Foundation’s Upcoming Trade shows includes Costru India 2008, Telecom
India 2008, and Power India 2008.

Past events include:

POWER INDIA 2007- This event Show cased the latest Indian Power scenario to the
world. It brought together the technocrats, Industry Leaders, and senior officials from central &
state government as well as experts from both private &public sectors. POWER India 2007
offered a unique platform to meet all the Techno-commercial personal at the Exhibition and

29
Conference that represented, Co-generators, Self-generators & Fuel Suppliers, OEMs,
Independent Power producers, Utility Engineers,
Electric Utilities, End Users & Buyers. Entrepreneurs with approved projects as well as
officials from SEBs and other government agencies related to the power sector and also
entrepreneurs, technocrats and engineers from major industrial users of electricity.

POWER INDIA 2008- 8th International Exhibition and Conference for power and related
sectors, 12-14 October 2006, Mumbai: The Objective of POWER India 2006 was to highlight
the progress made so far in power & related sectors and policy initiatives to help achieve the
target: Power for all by 2012. In this event the special focus was on how Tech-innovation can
help accelerate this progress and how energy security/independence can be achieved through
availability & affordability of quality fuel i.e. oil, gas and coal. In addition, to help strengthen
Made in India image for Indian
Technologies, expertise and services, leading Indian companies showcased their products,
services and/or the progress made by them in these sectors as well as their planned projections
for the coming years. The theme of this year mega show was “Making Power Sector Efficient
& Substainable”.

30
 NTPC India

NTPC Limited or National Thermal Power Corporation Ltd is the largest thermal power
Generating company of India. NTPC is the sixth largest thermal power generator in the world
and the second most efficient utility in terms of capacity utilization based on data of 1998.
NTPC was founded in 1975 to give boost to power development in the country as a wholly
owned company of the Government of India. Presently, Government of India holds 89.5%
equity in the company and the balance 10.5% is held by Flls, Domestic Banks, Public and
others. NTPC is engaged in engineering, construction and operation of power generating
plants. It also provides consultancy in the area of power plant constructions and power
generation to companies in India and abroad. NTPC was among the first Public Sector
Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in
1987-88. Since then, every year, NTPC has been placed under the ‘Excellent category’ (the
best category). In recognition of its excellent performance and tremendous potential NTPC has
been given the status of “Navratna” by the Government of India.

As on date, NTPC’s total installed capacity is 27,904 MW. NTPC’s coal based power
stations are at: Singrauli (Uttar Pradesh), Korba (Chhattisgarh), Ramagundam (Andhra
Pradesh), Farakka (West Bengal), Vidhyachal (Madhya Pradesh), Rihand(Uttar Pradesh),
Kahalgaon (Bihar), NTCPP (Uttar Pradesh), Talcher (Orissa), Unchahar (Uttar Pradesh),
Simhadri (Andhra Pradesh), Tanda (Uttar Pradesh), Badarpur (Delhi), and Sipat (Chattisgarh).
NTPC’s Gas/Liquid based power stations are located at: Anta (Rajasthan), Auraiya (Uttar
Pradesh), Kawas (Gujarat), Dadri (Uttar Pradesh), Jhanor-Gandhar (Gujarat), Rajiv Gandhi
CCPP Kayamkulam (Kerala), and Faridabad (Haryana). NTPC’s Power Plants with Joint
Ventures are located at Durgapur (West Bengal), Roukela (Orissa), Bhilai (Chattisgarh), and
RGPPL (Maharashtra).

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Subsidiaries of NTPC:
NTPC Electric Supply Company Ltd (NESCL): NESCL is a wholly owned
subsidiary of NTPC. IT was incorporated in August 2002 with the objective to acquire,
establish & operate Electricity Distribution Network in various circles/cities across India. The
company provides consultancy in the area of: Turnkey execution, Project monitoring, Quality
Assurance and Inspection, and Third Party Quality inspection on the behalf of utility.
NTPC Vidyut Vyapar Nigam Ltd. (NVVN): It was formed to cater to and deal with the
vast potential of power trading in the country and optimum capacity utilization.

NTPC Hydro Limited (NHL): It was set up in December, 2002 to develop small and
medium sized Hydro Electric Power Projects of up to 250 MW capacities.

Major Achievements of NTPC:

 Largest thermal power generating company of India.
 Sixth largest thermal power generator in the world.
 One of the nine PSUs to be awarded the status of Navratna.
 Provides power at the cheapest average tariff in the country.

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AP Genco
On October 1, 2004 the province of New Brunswick the Electricity Act which resulted in the
reorganization of New Brunswick power Corporation (“NB Power”) into a holding corporation
with subsidiary operating companies. Under the Electricity Act, Genco was established and
assumed the conventional generation business (Heritage Assets) of NB Power. Genco, which is
not a regulated entity under the Electricity Act, wholly-owns two subsidiaries

• New Brunswick Coleson Cove Corporation (“Coesonco”), which owns and

Operates Coleson Cove Generating Station

• NB Coal Limited (“NB Coal”), which mines local coal to supply Grand Lake
Generating Station

Genco operates and maintains one of North America’s most diverse generating systems
consisting of 14 hydro, coal, oil and diesel-powered stations. The network of conventional
generating stations has an installed net capacity of 3,313 megawatt (“MW”) comprised of
1,903 MW thermal capacity, 884 MW hydro capacity and 526 MW combustion turbine
capacity. In addition, Genco also has PPAs representing an additional 402 MW of capacity.
Disco represents Genco’s sole in-province customer. Genco supplies capacity and energy to
Disco fewer than two PPAs; a Genco PPA and a Colesonoco PPA. Genco is obligated to
supply energy to Disco from the Heritage Assets in priority to any other customers. When
market condition exist, Genco sells surplus capacity and into out-of- province market including
New English, Quebec, Prince Edward Island and Nova Scotia. However, the forecasted export
benefits that are derived from these out-of-Province sales are credited to Disco through the
PPA.

33
Purpose of Evidence
The following evidence has been prepared in response to the Board’s ruling of July 16,
2007. To provide detailed evidence on underlying generation costs. An overview of the
Components of Genco’s forecasted net earning for 2007/08 is presented in Table A. Each
component identified in Table A is discussed in a separate section within this evidence.

Pass through of costs to Disco

It is important to note that the costs of Genco do not flow through to Disco on a direct
Basis. The Genco PPA and colesonco PPA are contrast that were structured to Recover, over
the life of the PPAs, all of Genco’s costs, net of miscellaneous revenues and expert gross
margin benefits and to provide a return to Genco. Variable costs such as fuel and purchased
power expense were designed to be recovered through a direct fuel charge and non-fuel costs
recovered through capacity payments and other charges are based on prescribed rates.

The PPAs were constructed based on long-term cost estimates and designed to allocate
risk between Genco and Disco. Please refer to the Attachment to PPAs-Allocation of risk in the
PPAs’. The increases that may occur in terms such as OM&A and capital costs, taxes, and
interest expense, compared to the original cost estimates factored into the design of the PPAs,
is a risk that is borne by Genco (except in certain situations such as increased costs resulting
from changes in environmental regulations). The variability in these items only impacts
Genco’s net earnings, it does not flow through to disco by means of the PPA. Other risks are
also borne by Genco, including changes in Station heat rates, operational results, and expert
market results outside of pre-determined amounts.

Table B provides a comparision of Genco’s PPA revenue to net expenses for 2007/08.
The table outlines the relationship between the PPA revenue to components and the net costs
that they were intended to recover. These costs and revenue items will be discussed in greater
detail in the respective sections contained in the evidence.

34
 CHAPTER - III

REVIEW OF LITERATURE

35
FINANCIAL STATEMENTS
Financial statements, as used in corporate business hours refer to a set of report
and schedule, which an account prepare at the end of the period of the time for a business
enterprise. The financial statement are the means with the help of which the accounting
system perform its main function of providing summarized information about the financial
affair of the business this statement comprises balance sheet or position statement and
profit and loss account or income statement, India, every company has to present it
financial statement in the form and contents as prescribed under section 211 of the
companies Act, 1956.

ANALYSIS OF FINANCIAL STATEMENTS

Financial analysis is to be determined the significant operation and financial

characteristic of a firm from accounting data. It is a technique typical devoted to evaluate
the past, current and projected of a business firm. Financial Analysis is an attempt to
determine the significance and meaning of financial statement data so that forecast may be
made of the future prospects for earnings, ability to pay interest and debit maturities and
profitability.

Published financial statements are the only source of information about the activities
and affair of a business entity available tom the public, shareholders, investors and
creditors and the government. This various groups are interested in the progress, position
and prospect of such entity in various ways. But these statements however, correctly and
objectively prepared, by themselves do not reveal the significance, meaning and
relationship of the information contained therein. For this proposes, financial statements
have to be carefully studied, dispassionately analyzed and intelligently interpreted.
Financial analysis results in the presentation of information by arranging financial
statement data in a system manner that aids business managers, investor, and financial
statement can provide valuable insighits into a company’s performance.

36
 OBJECT OF FINANACIAL ANALYSIS
• To estimate the earning capacity of the sirm.
• To gauge the financial position and financial performance of the firm.
• To determine the long-term liquidity of the funds as well as solvency.
• To determine the debit capacity of the firm.
• To decide about the future prospects of the firms.

TYPES OF FINANACIAL STATEMENTS ANALYSIS:

A distinction may be drawn between various type of financial and it may be as under:

(A)According to the nature of the analysis and the material used by him
1).External analysis: - it is made by those who do not have access to the detailed record
of the company. This group, which has to depend almost entirely on
Published financial statement, includes investors, credit agencies and government
Agencies regulating a business in nominal way.
2).Internal analysis: - the internal analysis is accomplished by those who have access to
the books of account and all other information related to business. While conducting this
analysis is a apart of the enterprise he is analyzing.
Executives and employees of the enterprise conduct it.

(B) Accounting to the Modus Operandi of Analysis:

1) Horizontal analysis: When financial statements for a number of years are reviewed
and analysis, the analysis is called ‘Horizontal’. As it is based on data from to years rather
on one date or period of time as a whole, this is also known as ‘Dynamic Analysis’.
2) Vertical Analysis: It is frequently used for referring to ratio developed for date or for
one accounting period. It is also called ‘Static Analysis’. This is not very conductive to
proper analysis of the firm’s financial position and its interpretation, as it does not enable to
study data in perspective.

37
According to the objective of analysis:

1. Long term analysis: - This analysis is made to order to study the long term financial
stability, and liquidity as well as profitability and earning capacity of a business. The
objective of this analysis is to know whether the firm will be able to earn a minimum
amount, which will be sufficient to maintain a reasonable rate of return on the investment.
2. Short term analysis: -This analysis is made to determine the short term solvency,
stability, liquidity and earning capacity of the business. The requirement or not and
sufficient borrowing capacity to meet contingencies in the near future.

PARTIES INTERESTED IN FINANCIAL

1. Financial Executives:-
The first party interested in the financial analysis in the financial department of the
business concern who have a deep insight into the financial of the enterprise and a view of
the past performance, which help in decisions making.

2. Management:-
The management of the concern is also interested in the analysis of the statements because
it helps them in reaching conclusion regarding the over all operation of the business. The
management is interested in every aspect of the financial analysis it is there overall
responsibility to see that the firm are used most effectively and firm’s financial position is
sound. As such, return on analysis is very important for them.

3. Creditors:-
Creditors also evaluate the financial statements and on the basis if these financial
statements they come about the credit worthiness of the business enterprises and chosen to
extends, maintain or restrict credit. Creditors will be interested to give credit for those
business enterprises having sound financial position and having capable of being
repayments of their credit. Some of the aspects of enterprise operation that are of interested

38
of the creditor’s are liquidity of funds, soundness of the financial structure, profitability of
the operations, effectiveness of working capital management etc. The bankers and trade
creditors of a business enterprise are interested in its cash generation and credit worthiness.
They want to asses whether the enterprise will as interested payment due as per agreed
schedules. They get all this information from the analysis of balance sheet and income
statement of the company.

4. Investor: -
Investors, present as well as prospective, are interested in the business in the measurement
of earning capital of secureties. Every investor as the tendency to get fair return on his or
investments.Investers hav been increased concerned with he cash generation capability of
on enterprise primarly in terms of the flexibility availability to such enterprises to acquire
other business and new assets on an advantageous basis. For this purpose each cash flow
analysis and funds flow analysis are very useful.

5. Government: -
The financial statements are used to asses the tax liability of the business enterprise.
The government studies economic situations of the country from these statements enable
the government to find out whether business is following varios rules and regulations or
not.

6. Bankers:-
The Banker is interested to see that the loan the amount is secure and the customer is also
able to take the interest regularly. The banker will analysis the balance sheet to determine
financial strength of the concern and profit and loss account will also be studied to fine out
earning position.
The information provide by the analysis and interpretation of various financial statement is
important and useful to those groups also that are interested in working of the business due
to one or other motive.

39
IMPORTANT OF FINANCIALS

Financial analysis is very important for the management, shareholder,

investers and general public. Following are important points in this regard.

1. It simplifies, summarize and systematizes a long arise of accounting figures, which

prove very useful to the interested parties as it helps these in arriving at valuable decisions.

2. Financial analysis is invaluable aid to the management in discharge of its basic function
of fore, planning, co-ordinatinon, communication and control.

3. It identifies the financial health of enterprises the evaluating important aspects of

business like liquidity, solvency, profitability, capital gearing, extra, such an evaluation
enables conclusion to be drawn regarding financial health of business.

4. The process of analysis financial statements involves the preparation and interpretation
of meaning device such as ratios and trend percentages. So with the preparation of meaning
devices the data become easy to establish its relationship and other data can be easily
ranked in terms of its relative significance.

5. Without analysis of financial statement it is impossible to interpret the financial

statements figures. Therefore interpretation requires analysis.

6. Owing to the increasing demand for analytical information by business executive,

bankers and other it is necessary to have analysis and interpretation of financial and
operatintg data.

The financial statements are a mirror, which reflect the financial position and operating
strength are weakness of the business enterprise.

40
PROCEDURE OF ANALYSIS
The process of analyzing financial statements involves the rearranging,
comparing and measuring the significance of financial and operating data. Interpretation,
which follows analysis, is an attempt to logical conclusion regarding the position and
progress of the business on the basis of analysis.
The procedure may be as under
Deciding up on the extend of analysis: - The depth, object and extend of analysis have to
be determined so that the scope of the analysis, tool of analysis and the amount and quality
of financial data required could be determined.

2. Going through the financial statements: - Before analysis and preparing any
statements are composing financial ratios, it is necessary to go through the varios financial
statement of the firm.
3. Collection of necessary information: - Other useful information that can not be
revealed from financial statements but is useful for analysis has to be collected from
management.
4. Rearranging of financial data: - The data available has to be arranged in a useful
manner before analysis and interpretation.
5. Analysis In this step the actual: - analysis is made for which any technique such as,
comparative financial statement, trend analysis, ratio analysis and cash flow statements,
statements of change in working capital, etc., can be used.
6. Interpretation: - After analysis, interpretation is done and conclusions are drawn.
These interpretations are of vital importance to the management, shareholder, workers, etc.,
to know the relative worth of the company .Thus, analysis and interpretation of financial
statements are regarded as complimentary to each other.

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 TOOLS OF FINANCIAL ANALYSIS

The analysis of financial statements consists of relationship and trends, top

determine whether the financial position of the company is satisfactory or not. The
analytical methods or devices, listed below are used to ascertain or measure the
relationships among the financial stetements items.
Analysis methods and devices used in analyzing financial statements are as
follows:
Comparative financial statements.
Common size financial statements.
Trend ratios
Ratio Analysis
Cash Flow Statements

They may be discussed as under:

Comparative financial statements:-
Statements prepared in a form the reflects data for two or more periods are know as
Compared with similar data for a previous period or a number of prior period. Annual data
can be compared with similar data for prior years. Comparative statements can be prepared
for both types for financial statements balance sheet shows the effect of operations on the
assets and liabilities i.e., change in the financial position during the period under
consideration. The comparative profit and loss account will present a review of operating
activities of the business.
Common Size financial Statements:-
Comparative statements that give only the vertical percentage of ratios for financial data
without giving rupee values are known as Common Size Financial statements. They are
also known as 100% statements. A common size statements show the relation of each
component to the whole. It is useful in vertical financial analysis and comparison of two
business enterprise at a certain date.

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Trend Analysis:-
Under the technique of trend analysis the ratio of different items for various periods are
calculated and then a comparison is made. An analysis of the ratios over the past few years
may well suggests the trend or direction in which the concern is going-upward or
downward.
Ratio Analysis:-
Ratio analysis is the most widely used tool of financial analysis. It is essentially an attempt
to develop meaningful relationship between individual items or groups of items in the
balance sheet or profit and loss account. The objects and utility of ratio
analysis is confined not only to the internal parties but to the credit suppliers, bans and
leading institution also. Ratio analysis tells about the financial position of the enterprise as
to whether the capital structure of the business is in proper order, whether the capital
structure of the enterprise is satisfactory, whether the credit policy in relation to sales and
purchase is sound and whether the company is creditworthy. Thus, ratio analysis highlights
the liquidity, solvency, profitability and capital gearing position.

CASHFLOW ANALYSIS:-
Cash flow analysis is a valuable aid to the financial executive and creditors for evaluating
the uses of funds by the firm and in determining how these uses were financed. A cash flow
statement indicates where funds came from and where it was used during the period under
review. They are important tools for communication and very helpful for financial
executives in planning the intermediate and long-term financing of the firm.

When it is desired to explain to management the source of cash and its uses during a
particular period of time, a statement know as cash flow statement is prepared. A statement
of cash flow reports the inflows (receipts) and outflow (payments) of cash and its
equivalent of an organization during a particular period. It provides important information
that compliments profit and loss account and balance sheet. A statement of cash flow report
cash receipts and payments classified according to the entities major activities- operating,
investing and financial during the period.
The main object of cash flow analysis is to show the causes of changes in cash balance
during the period under consideration. Cash flow analysis also provides the information to

43
the management regarding movement of cash and the availability of cash. This analysis is
not only concerned with the good or bad management of cashes but also the liquidity
position of the concern. It also helps the management in short-term financial decision
relating to liquidity.
UTILITY OF CASH FLOW ANALYSIS:
A cash flow statement is very important for financial management. It is an essential
tool of short-term financial analysis, as a business enterprise needs sufficient cash to
meet its various obligations in the near future such as payments for purchase of
fixed assets, expanses of business etc., A historical analysis of the different source
and application cash will enable the management to make reliable cash flow
projections for the immediate future. It may then plan out for investment of surplus or
meeting the deficit, if any.
The main uses of cash flow analysis are as follows:-
Help in efficient cash management: Cash flow analysis helps in evaluating financial polices
and cash position, as the cash is the basis for all operations. A projected cash flow
statement will enable the management to plan and coordinate the financial operations.

Help in internal financial management: Cash flow analysis provides information

about funds, which will be available from operations. This will help the management in
determining polices regarding internal financial management, e.g., dividend policies,
possibility of repayment of long-term debt, etc.
Disclose the movement of cash: Cash flow statements disclose the complete story of cash
movement. The increase in, or decrease of, cash and the reason thereof can be know. It
discloses the reason for low cash balance in spite of low profit. The comparison of original
forecast with the actual result highlight the trends of management of cash, which may
otherwise go undetected.
Discloses success or failure of cash planning: The extent of success or failure of cash
planning can be known by comparing the projected cash flow statement with the actual
cash flow statement and necessary remedial can be taken.

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 LIMITATIONS OF CASH FLOW ANALYSIS:-
Cash flow analysis is a useful tool of financial analysis, but it has its own limitations. Of
cash flow analysis are as follows:
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 means net income of the business.
The cash balance as disclosed by the cash flow statement may not represent the real liquid
position of the business it can be easily influenced by postponing purchase and other
payments. Cash flow statements cannot replace the income statement or the funds flow
statement or the fund flow statement. Each of them has a separate function to perform.

CASH FLOW ANALYSIS AND STATEMENT:

Cash flow analysis is a method of analyzing the financing, investing, and operating
activities of a company. The primary goal of cash flow analysis is to identity, in a timely
manner, cash flow problems as well as cash flow opportunities. The primary document
used in cash flow analysis is the cash flow statement. Since 1988, the Securities and
Exchange Commission (SEC) has required every company that files reports to include a
cash flow statement with its quarterly and annual reports. The cash flow statement is useful
to managers, leaders, and investors because it translates the earnings reported on the
income statement—which are subject to reporting regulations and accounting decisions—
into a simple summary of how much cash the company has generated during the period in
question. “Cash flow measures real money flowing into, or out of, a company’s bank
account,” Harry Domash notes his Web site, WinningInvesting.com. “Unlike reported
earnings, there is little a company can do to overstate its bank balance.”

THE CASH FLOW STATEMENT:

A typical cash flow statement is divided into three parts: cash from operations (from daily
business activities like collecting payments from customers or making payments to
suppliers and employees); cash from investment activities (the purchase or sale of assets);
and cash from financing activities (the issuing of stock or borrowing of funds). The final
total shows the net increase or decrease in cash for the period.

45
Cash flow statements facilitate decision making by providing a basis for judgments
concerning the profitability, financial condition, and financial management of a company.
While historical cash flow statements facilitate the systematic evaluation of past cash
flows, projected (or pro forma) cash flow statements provide insights regarding future cash
flows. Projected cash flow statements are typically developed using historical cash flow
data modified for anticipated changes in price, volume, interest rates, and so on.
To enhance evaluation, a properly-prepared cash flow statement distinguishes between
recurring and nonrecurring cash flows. For example, collection of cash from customers is a
recurring activity in the normal course of operations, where as collections of cash proceeds
from secured bank loans (or issuances of stock, or transfers of personal assets to the
company) is typically considered a recurring activity. Similarly, cash payments to vendors
is a recurring activity, whereas repayments of secured bank loans (or the purchase of
certain investments or capital assets) is typically not considered a recurring activity in the
normal course of operations. In contrast to nonrecurring cash inflows or outflows, most
recurring cash inflows or outflows occur (often frequently) within each cash cycle (i.e.,
within the average time horizon of the cash cycle). The cash cycle (also known as the
operating cycle or the earnings cycle) is the series of transactions or economic events in a
given company whereby:
Cash is converted into goods and services.
Goods and services are sold to customers.
Cash is collected from customers.
To a large degree, the volatility of the individual cash inflows and outflows within the cash
cycle will dictate the working-capital requirements of a company. Working capital
generally refers to the average level of unrestricted cash required by a company to ensure
that all stakeholders are paid on a timely basis. In most cases, working capital can be
monitored through the use of a cash budget.
PREPARATION OF CASH FLOW STATEMENTS:
Cash flow statement is prepared with the help of balance sheet, income statement, and
surplus appropriations statement and other given information. The measurement of cash
flow is primarily based on income statement as the items in any income statement6 are
shown on actual basis, where as in cash flow statement they are shown cash basis.

46
Cash flow measurement depends primarily on determining cash receipt and disbursements
over a given period.
The measurement of cash flow constitutes two aspects, determining the inflow of
cash and outflow of cash. The items constitution inflows of cash are the sources of cash
while outflow of cash is the application of cash.
SORCE OF CASH OR CASH INFLOWS:
The transactions, which increase the cash position of the firm, are called as sources of cash
of cash inflows. The main sources of cash inflow are as follows:
Increase in share capital: - Share capital raised whether in the form of preference of equity
capital would constitute inflow of cash. The inflow would be to the extent of actually
received on issue of share. However, issue of share by capitalization of reserves or issue of
share for consideration other that cash or issue of share in conversion of debentures or
long-term loans would not be a cash inflow.
Issue of debenture, loans etc: - The net amount received on the issue of debentures and
rising of loan will constitute inflow of cash. However, if the debentures are issued or loans
raised for consideration other cash, it will not constitution inflow of cash.
Reduction in or sale of assets: - Sale proceeds of fixed assets and long-term investment
to the extent payment being received in cash would be inflow of cash. Similarly, decrease
in debtors and bill receivable will be inflow of cash.
Other receipts: - There may also be some other sources of cash inflows. For example,
sale proceeds of by-products of waste material, cash receipts of dividends and interest,
income-tax refund, compensation received etc.
APLICATION OF CASH OR CASH OUTFLOW:
Operation loss: - If a business is operating at a loss then to that extent it is treated as
application of cash or cash flow.
Reduction of redeemable shares of debentures: - Amount actually paid on the redeemable
of preference share or debentures constitute outflow of cash. While paying back the
preference capital, arrears of dividend may also be paid. However, if equality share are
allocated in repayment of preference capital or debentures, there will be no cash outflow.
Decrease in or repayment of loans: - Decrease in the long-term or short-term loans,
creditors and bills payable also constitute outflow of cash.

47
Increase in or purchase of non-current assets: - The acquisition of fixed assets and
investments also involves the use of cash. For example, if furniture is purchased for cash, it
will constitute an outflow of cash. However, if the acquisition is made on credit or by the
issue of shares or debentures, it will not involve out of cash.
Other payments: - Payments of dividend, income tax, interest, compensation etc., also
constitute outflow of cash.

FORM OF CASH FLOW STATEMENT: -

There is no set format for cash flow statements; it can also be prepared in two forms,
either in report form or in an account form. Under both these form any of the following
types may be adopted:-
Reminder type :- Under this type, the cash flow statement is divided into two parts sources
of cash and application .The difference of the total of the sides would show increase in cash
or decrease in during under study.
Self balance type :- Under this method, cash flow statement is prepared in the same way as
in reminder type but in this method the short side of the statement is balanced by showing
change in the balance of cash. Which the cash balance shown in the current year balance
sheet. This method is most popular and widely used in practice.

Reconciling type: - Under this method opening and closing balances of cash are tallied in
it, the statement starts with the opening balance of cash. In this balance all the inflow of
cash are added and all outflows of cash are
Detected, the resulting figure will be closing balance of cash, which must tally, with the
balance shown in the current year’s balance sheet. This method is most popular and widely
used in practice.

48
 CHAPTER – IV
ANALYSIS AND INTERPRETATION

COMMON SIZE BALANCE SHEETS 2002 TO 2005

2002 - 2003 - 2004 -
2004 2003 2004 2005 2005
LIABILITIES
SHARE CAPITAL 16371306 12108199349 137453299 147117994 9664695
RESERVS AND 326815264 362629131 393773915 31144784.
SURPLUS 35813866.7 .7 .4 .9 52
SECURITY 46086540
50
 COMMON SIZEBALANCE SHEET 2004
TO2007
2004 - 2005 - 2006 -
2006 2005 2006 2007 2007

LIABILITIES
1547853
SHARE CAPITAL 7667330 147117994 24 163198122 8412798
-
RESERVS AND 30523985. 393773915 4242979 402286875 22011026.
SURPLUS 85 .9 02 .4 4
2911043
SECURITY LOANS -5658702 34769136 4 24588758 -4521676
CUURENT 132349612 1443092 153814064
LIABILITES 11959600 .2 12 .2 9504852
-
SUN DRY 4253614.8 76179337. 8043295 74249055. 6183896.8
CREDITERS 8 96 3 96 8
43259624. 253211263 2964708 341769273 45298385.
OTHER LIABILITIES 59 .5 88 .1 02
47628058. 5366122 60895813. 7234584.5
PROFIT 6033171 37 9 9 3
98038624. 108502931 1.183E+0 122080196 37734020.
TOTAL 32 8 9 3 28

ASSETS
31459136. 538972271 5704314 603557860 33126453.
FIXED ASSETS 18 .5 08 .8 15
-
7498636.3 14151793. 2165043 11277563. 10372866.
CURRENT ASSETS 4 24 0 2 4
LOANS AND 2116624.2 10384448. 1250107 13861451. 1360378.6
ADVASNCES 7 2 2 16 9
38687447. 212651567 2513390 290789895 39450881.
SUN DRY DEBITERS 25 .2 14 .9 5
-
CASH AND BANK 15145789. 2085770.7 1723156 10794080. 6437478.9
BALANCE 15 2 0 92 5
- -
INVESTMENTS AND 22408386. 289072965 2666645 228311272 38353306.
DEPOSITS 5 .8 79 .7 6
25539377. 17710501. 4324987 62209837. 18959958.
OTHER ASSETS 65 24 9 75 86
98038624. 108502931 1.183E+0 122080196 37734020.
TOTAL 35 8 9 3 28

51
 COMMON SIZE CASHFLOWSTATEMENT SHEETS 2004 TO
07
2004 2005 2006 2007
LIABILITIES
SHARE CAPITAL 16371306 9664695 7667330 8412798
31144784.5 30523985.8 -
RESERVS AND SURPLUS 35813866.7 2 5 22011026.39
SECURITY LOANS -5658702 -5658702 -5658702 -4521676
15001894.5
CUURENT LIABILITES 9151103.47 3 11959600 9504852
SUN DRY CREDITERS -4085281 989711 4253614.88 -6183896.88
-
52898503.8 25234357.6 43259624.5
OTHER LIABILITIES 7 8 9 45298385.02
PROFIT 152656.34 6013449.65 6033171 7234584.53
ASSETS
29458133.4 47803836.8 31459136.1
FIXED ASSETS 9 5 8 33126453.15
-
CURRENT ASSETS -3830970.44 5542707.82 7498636.34 10372866.38
LOANS AND ADVASNCES 1780737.85 -989711 2116624.27 1360378.69
50510771.4 38687447.2
SUN DRY DEBITERS 5 9787867.16 5 39450881.5
15145789.1
CASH AND BANK BALANCE 5017397.76 -4002292.31 5 -6437478.95
-
16634004.3 22408386.4 -
INVESTMENTS AND DEPOSITS 22473247.9 7 9 38353306.59
10238777.2 25539377.6
OTHER ASSETS 765864.63 6 5 18959958.86

52
 CASH FLOW STATEMENT FOR THE YEAR
2004

SOURCES Rs APPLICATION Rs
SHARE CAPITAL 16371306 SECURED LOANS 5658702

RESERVS AND SURPLUS 35813866.7 SUNDRY CREDITORS 4085281

CURRENT LIABILITES 9151103.47 FIXED ASSETS 29458133.49

OTHER LIABILITES 52898503.87 LOANS AND ADVANCES 1780737.85

CURRENT ASSETS 3830970.44 SUNDRY DEBITORS 50510771.45

OTHER ASSETS 765864.63 CASH &BANK BALANCE 5017397.76

CASH FROM OPERATIONS 152656.34 INVSTMENTS&DEPOSITS 22473247.9

118984271.5 118984271.5

INTERPRETATION
SOURCES:
1. SHARE CAPITAL, RESERVS AND SURPLUS, CURRENT LIABILITES, OTHER
LIABILITES & CASH FROM OPERATIONS these are Increased.
2. CURRENT ASSETS & OTHER ASSETS these are Decreased.
A PPLICATION:
1. FIXED ASSETS, LOANS AND ADVANCES, SUNDRY DEBITORS, CASH
&BANK BALANCE & INVSTMENTS&DEPOSITS These are increased.
2. SECURED LOANS & SUNDRY CREDITORS these are decreased.

53
 CASH FLOW STATEMENT FOR THE YEAR 2005

SOURCES Rs APPLICATION Rs
SECURED LOANS
SHARE CAPITAL (IN) 9664695 (DE) 5658702
RESERVS AND 31144784. CURRENT ASSETS 5542707.8
SURPLUS (IN) 52 (IN) 2
CURRENT LIABILITES 15001894. 47803836.
(IN) 53 FIXED ASSETS (IN) 85
OTHER LIABILITES 25234357. 10238777.
(IN) 68 OTHER ASSETS (IN) 26
SUNDRY CREDITORS SUNDRY 9787867.1
(IN) 989711 DEBITORS(IN) 6
LOANS AND INVSTMENTS&DEPOS 16634004.
ADVANCES (DE) 3614710.8 ITS (IN) 37
CASH &BANK 4002292.3
BALANCE (DE) 1
CASH FROM 6013449.6
OPERATIONS(IN) 5
95665895. 95665895.
49 46

INTERPRETATION
SOURCES:
1.SHARE CAPITAL, RESERVS AND SURPLUS ,CUURENT LIABILITES,
OTHER LIABILITES ,SUNDRY CREDITORS & CASH FROM OPERATIONS
These are Increased.
2. LOANS AND ADVANCES & CASH &BANK BALAN
APPLICATION:
1. CURRENT ASSETS ,FIXED ASSETS ,OTHER ASSETS ,SUNDRY DEBITORS,
&INVSTMENTS&DEPOSITS These are Increased
2. SECURED LOANS are decreased.

54
 CASH FLOW STATEMENT FOR THE YEAR
2006

SOURCES Rs APPLICATION Rs
SECURED LOANS
SHARE CAPITAL (IN) 7667330 (DE) 5658702
RESERVS AND 30523985. CURRENT ASSETS
SURPLUS (IN) 85 (IN) 7498636.34
CUURENT LIABILITES 31459136.1
(IN) 11959600 FIXED ASSETS (IN) 8
OTHER LIABILITES 43259624. LOANS AND
(IN) 59 ADVANCES(IN) 2116624.27
INVSTMENTS&DEPOS 22408386. SUNDRY 38687447.2
ITS (DE) 49 DEBITORS (IN) 5
SUNDRY CREDITORS 4253614.8 CASH &BANK 15145789.1
(IN) 8 BALANCE (IN) 5
CASH FROM OTHER ASSETS 25539377.6
OPERATIONS (IN) 6033171 (IN) 5
126105712 126105712.
.8 84

INTERPRETATION
SOURCES:
1. SHARE CAPITAL, RESERVS AND SURPLUS, CUURENT LIABILITES, OTHER
LIABILITES, SUNDRY CREDITORS & CASH FROM OPERATIONS These are
increased.
2. INVSTMENTS & DEPOSITS are decreased.
APPLICATION:
1. CURRENT ASSETS, FIXED ASSETS, LOANS AND ADVANCES ,SUNDRY
DEBITORS,
CASH &BANK BALANCE & OTHER ASSETS These are Increased.
3. SECURED LOANS are Decreased.
55
 CASH FLOW STATEMENT FOR THE YEAR
2007

SOURCES Rs APPLICATION Rs
SECURED LOANS
SHARE CAPITAL (IN) 8412798 (DE) 4521676
INVSTMENTS&DEPOS 38353306. SUNDRY 6183896.8
ITS (DE) 59 CREDITORS (DE) 8
CUURENT LIABILITES 33126453.
(IN) 9504852 FIXED ASSETS (IN) 15
OTHER 45298385. LOANS AND 1360378.6
LIABILITES(IN) 02 ADVANCES (IN) 9
CURRENT ASSETS 10372866. SUNDRY DEBITORS 39450881.
(DE) 38 (IN) 5
CASH &BANK 6437478.9 RESERVS AND 22011026.
BALANCE (DE) 5 SURPLUS (DE) 39
CASH FROM 7234584.5 18959958.
OPERATIONS (IN) 3 OTHER ASSETS (IN) 86
125614271 125614271
.5 .5

INTERPRETATION
SOURES:
1. SHARE CAPITAL, CUURENT LIABILITES, OTHER LIABILITES & CASH FROM
OPERATIONS These are increased.
2. INVSTMENTS&DEPOSITS, CURRENT ASSETS & CASH &BANK BALANCE These
areDecreased.
APPLICATIONS:

56
1. SECURED LOANS, SUNDRY CREDITORS & RESERVS AND SURPLUS These are
Decreased.
2. FIXED ASSETS ,LOANS AND ADVANCES ,SUNDRY DEBITORS & OTHER ASSETS
These are increased.

CASHFLOW STATEMENTS INCREASING & DECREASING

57
INTERPRETATION:

In this section an attempt has been made to analyze in detail the cash flow statements of
CESS Ltd. For the period of five years from 2002-03 to 2006-07. These cash flow statements
have been taken from the published accounts of the company. The sources and application of
funds have been computed on year to year basis. The objective of the analysis is to find out the
different sources from where the company has raised the funds during the period and how
where this funds utilized in order to achieve its objectives.
After going through the cash flow statements we can conclude that cash flow at the end
of the financial year 2006-07 was maximum compared to other years, as there was proper carry
out of financial activities, it can be said that the company has invested in the purchase of fixed
assets. It has also applied adequate dividends to shareholders. Consequently, CESS Ltd., is in a
better position which can be seen from the cash positions at the end of the financial year 2006-
07. The company is constantly investing in the purchase of fixed assets and prompt repayments

58
of loans. There was no issue of shares throughout the period it is clear from the cash flows of
the year 2006-07 that company has substantially invested in the purchase of fixed assets.

CHAPTER - V

FINDING SUGGETIONS, CONCLUSION

59
SUMMARY OF FINDINGS:

 CASH FLOW ANALYSIS:-

1. The cash flow statement we can conclude that cash in a better position.
2. The company has invested in the purchase of fixed assets. It has also paid adequate
dividends to the shareholders.
3. The company is constantly investing in purchase of fixed assets and promote
repayment of loans.
4. From the study we can conclude that the CESS Ltd Gross Profit is high in all years,
higher the gross profit better the results.
5. From the study the Net profit of CESS Ltd it is indicates the organization efficiency
of the management, manufacturing, selling, administrative and other activities of the
firm is not good.

60
 SUGGESTIONS

The following are the suggestions for the CESS Ltd:

1) The performance in maintenance the Cash of the organization is good. This shows the

health of financial strength of organization.

2) The Debt-Equity is in down ward trend. There is sufficient scope provision to avail the

further debt.

3) The fixed assets and capital are to be improved, as it is very marginal in the year 2005-

06 and 2006-07. It reflects the in appropriation of the fixed assets and capital employed

in the organization. This situation can be avoided by increasing the sales.

4) The management is to minimize the administrative expenditure to the extent possible to

increase the cash from operation or (net profits different), which is found very low.

5) The management of CESS Ltd., have to examine efforts to increase the cash from

operation or (net profits different) in the same way as achieved better results in case of

gross profit.

61
 CONCLUSION

In the previous chapters, we analyzed the cash flow statement of CESS Ltd. The present
chapter is a summary on the performance of the company based on its financial analysis
an attempt has been made to recommend improvements in its performance to achieve
the objective of the company.

62
 BIBLIOGRAPHY
BOOKS REFFERED

1) FINANCIAL MANAGEMENT ----- I.M.PANDEY

2) INTERNET ------------

3) ANNUAL REPORTS OF CESS LTD.

4) BOOKS REFERS
5) FINANCIAL MANAGEMENT M.Y. KHAN & P.K.JAIN

6) FINANCIAL MANAGEMENT PRASANNA CHANDRA

WEB SITES:

www.electricpower.com
www.transco.com
www.genco.com
www.ntpc.com

63
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