Submitted in partial fulfillment of the requirement for the award of

MASTER’S DEGREE IN BUSINESS ADMINISTRATION

(Session 2007-2009)-MBA 3rd Semester

Under Supervision of: Submitted By:

Mr. Pawan Nidhi
Dy. manager Uni.Roll No.
(Indoasian fusegear ltd.)
PANIPAT INSTITUTE
OF
ENGINEERING $ TECHNOLOGY (SAMALKHA)
 2

INDEX
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S.No Topic Page No.

1 acknowledgement 3

2 Declaration 5

3 Executive summary 6

4 Company profile 8
5 Industry profile 26

6 Objective of study 27

7 Research methodology 30

8 Swot analysis 37

9 Introduction to topic 41

10 Organizational structure 61

11 Analytical tools 63

12 Analysis and interpretation 67

13 limitations 81

14 bibliography 83

15 annexure 87
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ACKNOWLEDGEMENT

As parent contribute to make their child the best amongst others, so are the teachers .They
play a very crucial and major role in grooming the personality and efficiency of a child. I
would like to thank Ms. Puja Walia mam(H.O.D) who has given me the opportunity to do
this project successfully. I would like to acknowledge a special debt of gratitude to Mr. Anil
Dhiman without which it would not have been possible for me to complete this study. He
 5

spent his precious time to share her creative thoughts, views, knowledge, and helped me to
learn a gain under his valuable guidance.

I would also like to thank Mr. Anil Srivastava (HR Manager) Indoasian
Fusegear Ltd., for providing me with the opportunity to work and learn the practical aspects
of finance. I would like to thank him for his guidance and support in completing the project
and giving his insights into it and when required. Last but not the least, I also like to thank to
all my friends for giving me their precious time.

Nidhi,

Preface

Electricity has become an inseparable part of our daily lifestyle. In homes, offices, industries and
hospitals, there are myriad systems, equipment and sophisticated appliances that depend on
electrical energy. Yet, uncontrolled electrical power can be extremely dangerous. Overloads,
crowded wiring, short-circuits and all kinds of interruptions in supply can lead to devastating losses,
least of them being financial.

Under these circumstances, we, at Indo Asian are proud to be known and respected the world over
 6

for our range of superior quality, electrical control and safety devices. Through them, we speak of
our abiding concern for safety, security and productivity of our customers.

Protection of the environment and conservation of plant life have acquired a vital place in today's
industrialized society. Continuous efforts have been made by Indo Asian to plant trees and shrubs
for harmonious co-existence. The process of maintaining the balance of nature together with
industrial growth is ongoing at Indo Asian, which looks forward to the future with an indomitable
spirit...
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DECLARATION

I Nidhi Gupta Roll no 0733 MBA (3rd Semester) of the Panipat Institute Of Engineering And
Technology, Samalkha hereby declare that the Summer Training Report entitled “ANALYSIS OF
CASH FLOW STATEMENT ” is an original work and the same has not been submitted to any
other Institute for the award of any other degree.

A seminar presentation of the Training Report was made on ____________ and the suggestions as
approved by the faculty were duly incorporated.

NIDHI GUPTA
8
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“ANALYSIS OF CASH FLOW STATMENT at INDOASIAN FUSEGEAR LTD.” This is the

title of Research Study. This Research study is selected because Effectiveness of any
system which is implemented in the organization is important because its help in knowing
about Improvements required in contents of the program.
Cash flow means flow of cash in doing company activities. cash flow statement means
Statement of activities that involves cash either in form of cash inward or cash outward. It
shows how much cash does a company spent and how much cash company has earned.
So cash flow statement is a statement showing inflows and outflows of cash during a
particular period. It is a summary of sources and applications of cash between two balance
sheet dates.
Objective of the study is to study the financial position of the organization and to study
how the company manage its finance and the system and to know the things which makes
the system more effective.
10
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ABOUT INDO ASIAN

Indo Asian was formed in 1958 by a young group of technocrats indigenously developed
India’s first sheet steel enclosed rewirable switch at Jalandhar in Punjab. This marked the
birth of INDO ASIAN, which today has grown into a multi product, multi Location
Company specializing in manufacturing and marketing a wide range of high-tech. electrical
products used for distribution, protection, control and conservation of electrical energy. The
superior quality of these products has earned them the respect of the Indian market and the
world over where they are popular under the brand names: Indo Asian industrial plugs &
sockets, stopshock RCCBs, Indo Asian HRC fuse links and Contactors & Relays.
The group’s annual turnover, which grew from Rs. 10 million in 1986, to Rs. 900 million
last year, is slated to reach Rs. 3000 million by the year 2009. Its modern manufacturing
units at Sonipat, Noida, Parwanoo, and Jalandhar, are being further augmented. Once
achieved, this would be largest production base in India of the next generation of RCCBs,
and Compact Fluorescent lamps and other high technology, high quality electrical control
and safety equipments.

At present the group comprises the following companies:-

1) INDO ASIAN FUSEGEAR LTD., MURTHAL
2) INDO ASIAN FUSEGEAR LTD., NOIDA
3) INDO ASIAN FUSEGEAR LTD., JALANDHAR
4) INDO ASIAN FUSEGEAR LTD., LIGHTING DIVN. HARIDWR.
The registered office of the group is located in Okhla, New Delhi.
 12

A few of company valued overseas customers:

• Abu Dhabi Water and Electricity Authority, UAE

• Alstom, South Africa
• Eaton Electric Limited, UK
• Electricity Authority of Cyprus
• Dubai Electricity & Water Authority, UAE
• Federal Electricity and Water Authority, UAE
• Sharjah Electricity and Water Authority, UAE
• Electricity Distribution Directorate, Bahrain
• Jordan Electric Power Supply Co., Jordan
• Ministry of Trade, Iraq
• Ministry of Electricity &Water, Kuwait
• Ministry of Electricity & Water, Doha, Qatar

For inquiries and orders contact at:

International Business Department

Indo Asian Fusegear Ltd.
A-39, Phase-II Extn.,Hosiery Complex,
Noida - 201305, Uttar Pradesh, India

Ph: +91-120-3042222
Fax: +91-120-2563537 (Direct)
Fax: +91-120-2463 3442 / 2705
Email: international@indoasian.com
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E-mail addresses

General Information:
Switchgear Sales:
Lighting Sales:
International Enquiries:

Corporate Office

207-208, Hemkunt Towers, 98, Nehru Place, New Delhi-110019, India

Tel.: +91 11 30821773 , 30821774
Fax : +91 11 26446977, 26219537

Head Office

B - 200, Phase II, Noida - 201305, U.P., India

Tel.: +91 120 3042222
Fax: +91 120 2563442, 2562705
 15

Branch Offices

Copyright © 2005. All right reserved by INDOASIAN.

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VISION

Our vision “enriching quality of life by ensuring safe, efficient and convenient use of
electricity” has been our guiding force for development of new and better products. The
culture of innovation and constant change has played a key role in our success.

MISSION

 BETTER TECHNOLOGY
 BETTER QUALITY
 BETTER TOMARROW
 17

COMMITEMENT

Our focus on “energy management” i.e. designing and building products that not only
protect and control but conserve and comprehensively manage mankind’s greatest asset i.e.
electrical energy has enabled us to serve millions of our customers both in India and abroad
with world class products.

Today Indo Asian has emerged as a strong brand name and has proven track record both in
domestic and international markets. Our deep commitment to social responsibility gives us
much satisfaction as the fact that millions of customers in every corner of the world respect
us, trust us and use our products for protection of people, property and possessions.
 18

VALUES OF INDO ASIAN

 Quality and care are vital for customer satisfaction.

 Empowered people are the most valuable assets for our organization.
 Profitable growth is achieved through fostering mutually beneficial relations with all.
 A culture of innovation and constant change is essential for us to succeed.
 Zeal to explore
 Integrity and fairness in all the matters

SOME OF INDO ASIAN MAJOR CUSTOMERS IN INDIA INCLUDES:-

Railway integral coach factory, Electricity Board, CPWD, PWD, NTPC, Indian Oil
Corporation Limited, Oil and natural gas commission, Reliance Industries Ltd., Bluestar
Ltd, M.R.F Ltd., Ashok Leyland Ltd., Bajaj Auto Ltd., Hindustan Liver Ltd., Tata
Honeywell Ltd.
 19

CROSSING GLOBAL FRONTEIRS

Indo Asian products are well accepted in countries around the world, our regular overseas
market include Russia, Australia, Malaysia, Nepal, Srilanka, U.A.E., Iran, Syria, Jorden,
Angola, and Cyprus. Some of our valued major foreign customers include public utilities in
South Africa.
Bovara Pvt. Ltd. Australia persuasion listriknagra (PNL), Jakarta, Indonesia, public utilities
board Singapore. Ceylon Electricity Board Srilanka, Rahad corporation khartourn, Sudan.
Ministry of Electricity and water Dubai, Dubai Electricity company Dubai. Water and
Electricity company Abu Dhabi, ministry of Electricity and water Doha, ministry of
electricity and water Muscat Oman, Jordanian Electric power supply company Am
 20

QUALITY-CENTERS AROUND THE CUSTOMERS

The name “Indo Asian” is today synonymous with high quality in the field of
electrical distribution and protection equipment in India, Asia as well as other developed
countries.

Quality of our products and processes is, in fact, checked by impartial bodies which is now a
variety of Indo Asian products are ASTA tested and their manufacturing plants have won
ISO 9001 certification from BVQ1, UK. In fact, Indo Asian Fuse gear Ltd. was the first
Indian manufacturer of electrical safety equipment, to be awarded ISO 9001 certification
under the upgraded 1994 guidelines.

At indo Asian, we recognize that quality holds the greatest insurance to our customer.
Especially, when one manufacturer’s product looks no different from another’s. Which is
why, in spite of certifications and recognitions, we have put in place quality management
cycle that works right around, from materials procurement to product application; with
everything revolving around the customer’s needs, customer’s preferences and his
objectives.

Ultimately, how well our products safeguard human lives and property, is our primary
concern.
 21

INTRODUCTION OF IAFL, SONIPAT UNIT

The company M/S Indo Asian Fusegear Ltd., Murthal started in the year 1984, with the
manufacturer of miniature circuit breakers (MCBs) in technical inspiration of M/S Heinrich
Kopp, Germany and is a part of Indo Asian group of companies which were first to launch
breakers (ELCBs) in technical inspiration of M/S Doepke, Germany was added to its
product range. The technology for various products has been fully absorbed and based on
such successful performance. One of our inspiration namely M/S Heinrich Kopp, ACs has
even gone for putting in their financial stake up a joint venture with their group of
companies in the year 1992.

Through a very strong and the active team of research and development personal company
has brought in new innovations in its products for instance we developed & are now
producing MCBs in 3KA and 6KA breaking capacity also (in addition to the range of 9KA
MCBs) HRC Fuses/ Fuse bases/ Fuse Strips and Distribution Board/ Feeder Pillars as per
the specifications/ requirements of national/ international clients.

They are further developing technology for manufacture of plug-in MCBs, Moulded case
circuit breakers (MCCBs), push bottom starters and semi conductors fuses, switch fuses,
cutouts, energy meters etc.

The company has been earning considerable foreign exchange by exporting a significant
portion of its annual turnover to various countries e.g. Australia, Iran, UAE, Syria, Kuwait,
Srilanka, Bangladesh, Russia, New Zealand, Cyprus, Jordan, Nepal.
 22

Managers at all levels are committed to the following principles:

• Have knowledge of, and accept total responsibility for, the success of the organization’s
human resources philosophy, policies and procedures, and review them with team members
to ensure their total understanding.
• Ensure consistent and fair application of all HR policies
• Exercise leadership by demonstrating integrity, professional knowledge, courage of your
convictions, and concern for the feelings of others.
• Establish a relationship with team members that encourage a free bi-directional flow of
information, permits open discussion of differing views, and allows decision making at the
most appropriate levels.

In the same context, all employees are expected to maintain certain standards in relation to their
work, and in representing themselves as the staff of Indoasian. They will:

• Communicate constructive ideas and opinions to managers and team members either pro-
actively, or on request
• Accept and support decisions made contrary to their expressed positions
• Apply the highest standards of ethics, integrity and honesty
• Comply with the company's policies and procedure
 23

Plants Nine
Marketing Offices 30 across India, 8 warehouses
Total Manpower 2,000
Doctorates 2
Engineers 110
Educated to Class XII All (Minimum Qualification)
International Certifications ASTA, VDE, TUV, CB,ISO-9000
National certifications BIS (ISI Mark), NABL
IT Backbone Dedicated Fiber Optics Connectivity With All Plants/
Offices/Branches. Using Online Order Booking System &
Production Planning System
Test Facility Short Circuit Lab to IEC 17025 (15 kA)
 24

INDO ASIAN presents the widest range of world-class

Switch Disconnector Fuse units. Switch Disconnectors
and Changeover Switches, leader in the field of electro
mechanical engineering; particularly

INDO ASIAN CFL Energy Saving Lamps and

accessories come to you from Indo Asian Group of
companies established as a reliable high quality producer
of electrical goods in India for over four decade

The International Business Department is responsible for

marketing and sales of the following: company's in-house
products and other related electrical equipment in the
international markets, and
25
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27
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COMPANY DETAILS

Board of Directors

V.P.Mahendru Chairman-Cum-Managing Director

R.C.Bansal Non-Executive Director
Dr.Sai Ramachandran Non-Executive Director
A.K.Ghosh Non-Executive Director
P.K.Ranade Joint Managing Director
Vinay Mahendru Executive Director

N.L.Jain Director Finance

Atul Kumar AGM(Legal) & Company Secretary

Auditors
J.C.Bhalla & Co.
New Delhi

Bankers
State Bank of India
State Bank of Patiala
Standard Chartered Bank

Corporate Office
207-208, Hemkunt Tower,
98, Nehru Place,
New Delhi-1100019
 29

Registered office
51Kms., G.T. Karnal Road,
Murthal, Distt. Sonepat,
Haryana-131027

Works:
Switchgear
51Kms. G.T. Karnal Road, Murthal,
Distt. Sonepat,
Haryana-131027
By-Lane, Nakodar Road,
Jallandhar, Punjab-144003
B-200, Phase-II, Noida,
Distt. Gautam Budh Nagar, U.P.-201305
Plot No.21-23 Sector No. 5,
Parwanoo, Distt. Solan,
Himachal Pradesh-173220
Plot No.2, Sector 2, SIDCUL,
Haridwar, Uttarakhand-249402

CFL Lighting
A-39, Hosiery Complex, Phase-II Extension,
Noida, Distt. Gautam Budh Nagar,
U.P.-201305
Plot No. 10, Sector 4, SIDCUL,
Haridwar, Uttarakhand-249402

Wires & Cables

Plot No. 2(Block A), Sector 2, SIDCUL,
Haridwar, Uttarakhand-249402
 30

Industry Profile

Electric power is one of the most important ingredients of our socio economic growth, touching all
facets of life- commercial, industrial, residential, entertainment, critical services. With projected
GDP growth rate of around 9-10%per annum, the growth rate of power supply needs to be over 13-
15% annually.

Government has recognized the pivotal role of electric power in economic

development and also the urgent and critical need to invest heavily to reduce the growing gap in
power demand and supply. The government has set itself the target of providing access to electricity
to all households by 2012. Government’s increased investment in this sector will thus create
exponential demand for Power Transmission and Distribution Equipments including wide range of
Electrical Switchgear and Energy Efficient Lighting Equipment.

The retail electrical industry is divided into two sub segments namely the
power distribution equipment segment which includes products such as switchgear, cables, wires,
energy meters, lighting equipment etc. and consumer durables segments which include energy
saving Compact Florescent Lamps (CFLs), Fluorescent Tube Lights, Light Fittings, Luminaries
Switches etc. The growing power sector and boom in construction industry not only in India but the
world over offers huge opportunities for growth of the Company, indigenously and overseas.

The demand for the products being manufactured by the company is

rising continuously due to the ever increasing use of the power in Industrial, Commercial and
Domestic sectors. Besides, increasing concern of people towards protection of life and increased
emphasis on safety in respect of the use of power has also resulted in buoyancy in the demand of
advanced circuit protection equipments, in which your company is a leader.
31
 OBJECTIVE OF THE STUDY

“To analyze the cash flow statement” in Indoasian Fusegear Ltd to

study the deviation of cash from earning. ”

SUB OBJECTIVES OF THE STUDY

• Cash flow statement analysis is useful for company short term financial planning
• Useful in preparing the cash budget
• Another objective of analysis of cash flow statement is comparison with the cash
budget
• To study the trend of cash receipts and payments
• To explains the deviations of cash from earnings
• To know the cash flow from various activities separately
• To raise the funds in a manner that the cost of capital is minimum
• To ensure flexibility in capital structure so that changes in the sources of funds may be
made according to the changing situation
• To ensure sufficient liquidity of funds
• Suggesting the new ways and new techniques which can be introduced to the existing
financial system, to improve its effectiveness and usefulness.
33
 34

RESEARCH METHODOLOGY

Research simply means ‘search for knowledge’. According to Rodman and Mory, research
is ‘systemized effort to gain new knowledge’. Some people consider research as a
movement from known to unknown; it is actually a voyage of discovery. According to
Clifford Woody, research includes defining and redefining problem, formulating hypothesis
or the suggested solutions, collecting organizing and evaluating data, reaching conclusions
and at last carefully testing the conclusions to determine whether they fit to the formulated
hypothesis or not.

Research methodology has many dimensions, it includes not only the research methods but
also consists the logic behind the methods used in the context of the study and explains why
only a particular method of technique had been used so that search lend themselves to
proper evaluation. Thus in a way it is a written game plan for concluding research.The
term research refers to search of something new that can solve a problem. Research must
have a specific objective which is called research problem. On the basis of the problem,
researcher sets hypothesis. The goal of the research process is to produce new
knowledge, which takes three main forms:

• Exploratory research:- which structures and identifies new problems

• Constructive research:- which develops solutions to a problem
• Empirical research:- which tests the feasibility of a solution using empirical evidence
• Casual research:- which is related to day to day problems or for casual proble
 35

RESEARCH DESIGN

The research design used here is Exploratory Research Design .I have to study the
Cash flow statement .So I need to enquire about financial activities and cash
involved in them. So availability of cash flows is collected by people related with
company financial sector and based on the reports I have to explore the factors
that really help me in analysis of cash flow statement.. Since the major emphasis was
on the discovery of ideas and insights into the facts, the research design most appropriate
must be flexible enough to permit the consideration of many different aspects of a
phenomenon.
The methods used in context of this research design are:
(1) The survey of concerning literature,
(2) Experience Survey.
The important features of this research design are listed as follows:
 The sampling design used is Non-Probability Sampling design and it is flexible in nature.
 There is a no pre-planned design for the analysis.
 There is structured instrument for the collection of the data i.e. company cash flow statement
 No fixed decisions about the operational procedures.
 36

SAMPLING DESIGN

1. Sampling Unit

It defines the unit of target population that will be sampled i.e. it answers who is to be

surveyed. Sampling unit in my study will be individual employees of Indoasian Fusegear

who are indulging in making financial activities.

2. Sampling Techniques

This refers to the procedure by which the respondents should be chosen. In this study, Non

Probability sampling of the following type is used:-

• Convenience sampling

Sample Size

It indicates the number of people to be surveyed. Through large sample give more reliable results

than small samples but due to constraints of time and money the sample size was restricted to few

respondents.
 37

Area of Study

Though other methods are important, but this method is given prime significance in modern

research because of its extensive use to study the relationship of different factors, attitudes and

practices of society and to explore the problems that cannot be treated by experiment methods.
 38

SOURCES OF DATA COLLECTION:

The data can be collected from secondary sources. The basic premises of my study are

supplemented with the secondary data.

1. Primary Data

♣ Personal Investigation

♣ Observation Method

♣ Information from correspondents

♣ Information from superiors of the organization

2. Secondary Data

♣ Unpublished Sources such as Company Internal reports prepare by them given to

their analyst & trainees for investigation.

♣ Websites like Indoasian official site, some other sites are also searched to find data.
 39

ANALYSIS AND REPORTING THE FINDINGS

 Compilation of data through statement

 Presentation of findings
 Suggestions and conclusions
 40

Financial SWOT analysis

Strengths

 Indoasian Fusegear ltd. has a very good image in mind of public.

 1st BIS and DIN HRC Fuses in India
 1st Rewirable Switches in deep drawn enclosures in India
 1st MCB with 9kA breaking capacity
 1st to produce RCCM�s in India
 1st Switchgears Company to receive ISO 9001
 1st to manufacture CFL�s in India
 1st to offer B certified MCB�s
 1st to get ISO 9001 for all plants under one certificate

Weakness

 Company also not uses its funds properly as company earns a huge losses
 Indoasian Fusegear ltd have very low current assets and it is not proper to meet the working
capital requirements
 Company is not paying any dividend since last 3 years.
 41

Opportunities

 Indoasian Fusegear ltd is one of the company which provide the capital security to
investments of the customers this provide a opportunity to the company

 Establishing alliances with reputable overseas partners.

 Establishing firm distribution networks.
 Branding of products for several reputable brands in overseas markets.

Threats

 The Indian and global players are entering in to the Indian market that will increase the
competition in Fusegear market
 Increase interest rate scenario provides a threat to company
 As no dividend is distributed from 3 years, investors are losing their confidence.
 42

SCOPE OF THE STUDY

This study is going to help, in identifying the causes of satisfaction or dissatisfaction

regarding company financial activities. This study also describes certain factors that explain
measures that how we can make financial system more effective. It is helpful in doing short
term planning as it provides information regarding the sources and utilization of cash during
a period, so it became easier for management to assess whether it will have adequate cash to
meet day to day expenses and pay creditors in time. It is also useful in preparing cash budget
for the future period as it informs the management about surplus or deficit periods of cash.
So it is helpful in planning the investment of surplus cash in short term investments and to
plan short term credit in advance for deficit periods. This study is also helpful in knowing
trends and speed at which the current assets and current liabilities are being paid. It also
reveals how the company take help of cash flow statement to ascertain the position of cash
generated from operating activities which can be used for payment of dividend.
 43

LITERATURE REVIEW

Once the research problem is formulated, the researcher undertakes an extensive literature survey.
The literature survey conducted here includes the academic books and websites from internet.

The research to be conducted was “To analyze the cash flow statement of Indoasian Fusegear
ltd in context to various financial factors.”

The inspiration to conduct this particular research was from Management accounting and
financial management D.K.Goel and corporate accounting, Shashi. K. Gupta. There are
various type of financial technique and the individuals prefer different ones according to their
choice and needs. The details about the financial information have been collected from
websites like www.indoasian.com and company annual report. The research has tried to
cover almost every area of the research topic and has gained an insight of the financial factors
that affect financial position like cash and cash equivalents and financial activities like cash
flows from operating activities, cash flows from investing activities and cash flow from
financing activities. This study provides help in developing positive work environment in the
organization which contributes to productivity.
44
 45

CASH FLOW STATMENT

Cash Flow Statement Overview

The cash flow statement shows a company's money flow in and out over a fixed period of time.
Most companies report their cash flow statement on a quarterly or monthly basis. The cash flow is
broken out into three reporting areas: (1) Operating, (2) Investing, and (3) Finance. The cash flow
statement was originally known as the flow funds statement or statement of changes in financial
position.

The statement of cash flow reports the movement of cash into and out of your business in a given
year. Cash is the lifeblood of your company. Cash includes currency, checks on hand, and deposits
in banks. Cash equivalents are short-term, temporary investments such as treasury bills, certificates
of deposit, or commercial paper that can be quickly and easily converted to cash.

Your business will use cash to pay bills, repay loans, and make investments, allowing you to
provide goods and services to your customers. Your company will use cash to generate even more
cash as a result of higher profits. The cash flow statement reports your business’ sources and uses of
cash and the beginning and ending values for cash and cash equivalents each year. It also includes
the combined total change in cash and cash equivalents from all sources and uses of cash.

It is imperative that you, the business owner, be able to successfully prepare a statement of cash
flow. This discussion provides a detailed look into the various sections of a cash flow statement. It
also describes two methods used to calculate cash flow from operating activities, indirect and direct
with examples that will give you an edge when it comes time to prepare a cash flow statement of
your own.
 46

Purpose of the Cash Flow Statement

The cash flow statement is intended to provide information on a firm's liquidity or solvency. The
cash flow provides a clear understanding of a company's financial resources at a given point in time.

The cash flow statement shows cash coming into a company (from sales, income from
investments, asset sales) and going out (payments to suppliers, investment), the raising of capital
(money borrowed or raised from shareholders) and the payment of returns of capital (interest and
dividends) and tax.

Like profit, cash flow can be measured at a number of levels. For example, operating cash flow
roughly corresponds to operating profit with the effects on non-cash items stripped out.

The main items in a typical cash flow statement are (in order):

• cash flow from operating activities

• returns on investments and servicing of finance
• taxation
• capital expenditure and financial investments
• acquisitions and disposals
• equity dividends paid
• management of liquid resources
• financing

The returns on investments and servicing of finance includes dividends received (e.g. from
subsidiaries) and interest from fixed interest securities and bank deposits. It will also show
payments to lenders: both banks and holders of a company's fixed interest securities.

Capital investments and financial investments will show the cashflow relating to the purchase and
disposal of fixed assets. Liquid resources are cash and liquid, short term, investments.
 47

All items in the cash flow statement can be significantly different from equivalent items on the
P & L. This is what makes the cash flow so valuable (it is not susceptible to manipulation), but it
can also make it less meaningful (there are good reasons for accruing in the other accounting
statements).

Operating cash flow is very often looked at by investors. The capital expenditure item is a quicker
way of finding out how heavily the company is investing than looking at the balance sheet (and then
correcting for depreciation etc.) but it has two weaknesses: it does not record purchases not yet paid
for and it does not allow one to separate capital expenditure on operating assets from long term
financial investments.

A more complex use of the cashflow statement is the calculation of free cash flow, which can be
used in valuation ratios and DCF valuations. All the items in the cashflow statement provide a
useful check on items in the other accounting statements and are a vital input to the financial models
used for forecasting.

The bulk of the positive cash flow stems from cash earned from operations, which is a good sign for
investors. It means that core operations are generating business and that there is enough money to
buy new inventory. The purchasing of new equipment shows that the company has cash to invest in
inventory for growth. Finally, the amount of cash available to the company should ease investors'
minds regarding the notes payable, as cash is plentiful to cover that future loan expense.

Of course, not all cash flow statements look this healthy, or exhibit a positive cash flow. But a
negative cash flow should not automatically raise a red flag without some further analysis.
Sometimes, a negative cash flow is a result of a company's decision to expand its business at a
certain point in time, which would be a good thing for the future. This is why analyzing changes in
cash flow from one period to the next gives the investor a better idea of how the company is
performing, and whether or not a company may be on the brink of bankruptcy or success.
 48

Tying the CFS with the Balance Sheet and Income Statement
As we have already discussed, the cash flow statement is derived from the income statement and the
balance sheet. Net earnings from the income statement is the figure from which the information on
the CFS is deduced. As for the balance sheet, the net cash flow in the CFS from one year to the next
should equal the increase or decrease of cash between the two consecutive balance sheets that apply
to period that cash flow covers.

History and variations

Cash basis financial statements were common before accrual basis financial statements. The "flow
of funds" statements of the past were cash flow statements.

In the United States in 1971, the Financial Accounting Standards Board (FASB) defined rules that
made it mandatory under Generally Accepted Accounting Principles (US GAAP) to report sources
and uses of funds, but the definition of "funds" was not clear. "Net working capital" might be cash
or might be the difference between current liabilities and current assets. From the late 1970 to the
mid-1980s, the FASB discussed the usefulness of predicting future cash flows.In 1987, FASB
Statement No. 95 (FAS 95) mandated that firms provide cash flow statements.In 1992, the
International Accounting Standards Board issued International Accounting Standard 7 (IAS 7),
Cash Flow Statements, which became effective in 1994, mandating that firms provide cash flow
statements.[7]

US GAAP and IAS 7 rules for cash flow statements are similar. Differences include

• IAS 7 requires that the cash flow statement include changes in both cash and cash
equivalents. US GAAP permits using cash alone or cash and cash equivalents.
• IAS 7 permits bank borrowings (overdraft) in certain countries to be included in cash
equivalents rather than being considered a part of financing activities.
• IAS 7 allows interest paid to be included in operating activities or financing activities. US
GAAP requires that interest paid be included in operating activities.
• US GAAP (FAS 95) requires that when the direct method is used to present the operating
activities of the cash flow statement, a supplemental schedule must also present a cash flow
statement using the indirect method. The IASC strongly recommends the direct method but
allows either method. The IASC considers the indirect method less clear to users of financial
statements. Cash flow statements are most commonly prepared using the indirect method,
which is not especially useful in projecting future cash flows.
 49

Cash flow activities

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

Operating activities

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

Under IAS 7, operating cash flows include[12]

• receipts from the sale of goods or services

• receipts for the sale of loans, debt or equity instruments in a trading portfolio
• interest received on loans
• dividends received on equity securities
• payments to suppliers for goods and services
• payments to employees or on behalf of employees
• tax payments
• interest payments (alternatively, this can be reported under financing activities in IAS 7, but
not in US GAAP)
• payments for the sale of loans, debt or equity instruments in a trading portfolio

Items which are added back to the net income figure (which is found on the Income Statement) to
arrive at cash flows from operations generally include:

• Depreciation (loss of tangible asset value over time)

• Deferred tax
• Amortization (loss of intangible asset value over time)
• Any gains or losses associated with an asset sale (unrealized gains/losses are also added
back from the income statement)
 50

Investing activities

Investing activities focus on the purchase of the long-term assets a company needs in order to make
and sell its products, and the selling of any long-term assets.

Under IAS 7, investing cash flows include[13]

• collections on loan principal and sales of other firms' debt instruments

• investment returns from other firms' equity instruments, including sale of those instruments
• receipts from sale of plant and equipment
• expenditure for purchase of plant and equipment
• loans made and acquisition of other firms' debt instruments
• expenditure for purchase of other firms' equity instruments (unless held for trading or
considered cash equivalents)

Items under investing activities include:

• Capital expenditures, which include purchases (and sales) of property, plant and equipment
• Investments

Financing activities

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

Under IAS 7, financing cash flows include

• proceeds from issuing shares

• proceeds from issuing short-term or long-term debt
• payments of dividends
• payments for repurchase of company shares
• repayment of debt principal, including capital leases
 51

• for non-profit organizations, receipts of donor-restricted cash that is limited to long-term

purposes

Items under the financing activities section include:

• Dividends paid
• Sale or repurchase of the company's stock
• Net borrowings

Disclosure of noncash activities

Under IAS 7, noncash investing and financing activities are disclosed in footnotes to the financial
statements. Under US GAAP, noncash activities may be disclosed in a footnote or within the cash
flow statement itself. Noncash financing activities may include

• leasing to purchase an asset

• converting debt to equity
• exchanging noncash assets or liabilities for other noncash assets or liabilities
• issuing shares in exchange for assets
 52

Preparation methods

The direct method of preparing a cash flow statement results in a more easily understood report.The
indirect method is almost universally used, because FAS 95 requires a supplementary report similar
to the indirect method if a company chooses to use the direct method.

Direct method

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

Sample cash flow statement using the direct method

Cash flows from operating activities

Cash receipts from customers $27,500

Cash paid to suppliers and employees (20,000)

Cash generated from operations (sum) 7,500

Interest paid (2,000)

Income taxes paid (2,000)

Net cash flows from operating activities $3,500

Cash flows from investing activities

 53

Proceeds from the sale of equipment 7,500

Dividends received 3,000

Net cash flows from investing activities 10,500

Cash flows from financing activities

Dividends paid (12,000)

Net cash flows used in financing activities (12,000)

Net increase in cash and cash equivalents 2,000

Cash and cash equivalents, beginning of year 1,000

Cash and cash equivalents, end of year $ 3,000

 54

Indirect method

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

Rules

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

• Decrease in noncash current assets are added to net income

Increase in noncash current asset are subtracted from net income

The balance sheet, income statement, and cash flow statement are the three generally accepted
financial statements used by most businesses for financial reporting. All three statements are
prepared from the same accounting data, but each statement serves its own purpose. The purpose of
the cash flow statement is to re portthe sources and uses of cash during the reporting period.
 55

Structure of the Cash Flow Statement

The most commonly used format for the cash flow statement is broken down into three sections:
cash flows from operating activities, cash flows from investing activities, and cash flows from
financing activities.

Cash flows from operating activities are related to your principal line of business and include the
following:

• Cash receipts from sales or for the performance of services

• Payroll and other payments to employees
• Payments to suppliers and contractors
• Rent payments
• Payments for utilities
• Tax payments

Investing activities include capital expenditures – disbursements that are not charged to expense but
rather are capitalized as assets on the balance sheet. Investing activities also include investments
(other than cash equivalents as indicated below) that are not part of your normal line of business.
These cash flows could include:

• Purchases of property, plant and equipment

• Proceeds from the sale of property, plant and equipment
• Purchases of stock or other securities (other than cash equivalents)
• Proceeds from the sale or redemption of investments
• Financing activities include cash flows relating to the business’s debt or equity financing:

• Proceeds from loans, notes, and other debt instruments

• Installment payments on loans or other repayment of debts
• Cash received from the issuance of stock or equity in the business
• Dividend payments, purchases of treasury stock, or returns of capital
•
 56

Cash for purposes of the cash flow statement normally includes cash and cash equivalents. Cash
equivalents are short-term, temporary investments that can be readily converted into cash, such as
marketable securities, short-term certificates of deposit, treasury bills, and commercial paper. The
cash flow statement shows the opening balance in cash and cash equivalents for the reporting
period, the net cash provided by or used in each one of the categories (operating, investing, and
financing activities), the net increase or decrease in cash and cash equivalents for the period, and the
ending balance. Both methods yield the same result, but different procedures are used to arrive at
the cash flows.

The following three main headings should be used for all cash flow statement

a) operating cash flows;

b) investing cash flows; and
c) financing cash flows.

The level of detail within each category should reflect the nature of the entity's operations.
Comparatives should be given to the cash flow statement for each year presented in the financial
statements.

The nature of an entity's business will determine the classification of cash flows between the three
headings . A cash flow that relates to an entity's investing activities will be classified as such.
Financing cash flows are similarly identified. All remaining cash flows will be classified as
operating. Although IFRS allow a reasonable amount of discretion with respect to classification, the
classification an entity adopts should be followed consistently.

Where appropriate, the cash flows of a transaction should be divided into their constituent parts
according to their nature and the respective elements included within operating, investing and
financing

The resulting cash flow total for the period is the movement in the balance of cash and cash
equivalents from the start of the period to the end . If the total for cash and cash equivalents
presented cannot be traced directly to the balance sheet, a reconciliation must be presented in the
notes to the financial statements.

Operating cash flows

Operating cash flows comprise all cash flows during the period that do not qualify as either
investing cash flows or financing cash flows.
 57

Operating cash flows may be prepared from the entity's accounting records under the direct method
. Alternatively, the entity can calculate the cash flows indirectly by adjusting the net profit or
loss for the period for non-cash items and for investing and financing items

The preferred method is the direct method, because the information provided is more use. However,
the indirect method is more commonly used.

Interest paid is often classified as an operating activity, even though it arises on a financing balance.
Interest costs must be covered by cash flows from operations and is included in determination of net
income/expense. There is support for it to be classified as an operating cash flow.

Investing cash flows

Investing activities include cash payments to acquire PPE and other long-term asset.Investing
activities also include cash payments and cash receipts relating to acquisition and disposal of debt
and equity interests in other entities and interests in joint ventures (except for these relating to
dealing or trading activity). Loans or advances made to other parties are classified as investing
activities.

Interest received and dividends received should each be classified separately and are normally
classified as investing activities

Financing cash flows

Financing cash flows include cash flows relating to obtaining, servicing and redeeming sources of
finance. Those sources of finance can include loans, debentures and share capital.

Dividends paid should be classified separately and are usually included in financing cash flows

Classification by financial institutions

Activities a financial institution carries out in its ordinary course of business will be classified as
operating activities, even though for other entities the same activity would likely be classified as
investing or financing.

Loans and advances a financial institution makes should be classified as operating, as should the
interest paid and received on those balances. Likewise, dividends received should be classified as
operating cash flows.

Classification of other cash flows

 58

Classification of tax cash flows

Tax cash flows are normally classified as operating cash flows. However, where specific cash flows
can be identified with either investing activities or financing activities, then it is appropriate to
classify that element of the tax cash flows as investing or financing respectively [IAS7.10].

Where the tax cash flows are included in investing or financing categories, disclosure of the total
tax cash flows should also be given

Netting of cash flows

Generally cash flows should be shown gross. The primary exceptions are when

a) cash receipts and payments are made on behalf of a customer and therefore represent the customer's
transactions and not the reporting entity's or
b) cash receipts and payments are in respect of items for which the turnover is quick, the amounts are large and
the maturities are short

The opportunities for reporting cash flows on a net basis will usually arise only in a bank or similar
financial institution

The derivation of operating cash flows by use of the indirect method also results in some netting of
cash flows.

Foreign currency cash flows

Foreign currency cash flows should be translated into the functional currency at the rate of
 59

exchange on the date of the transaction. This is consistent with the translation of the transaction for
inclusion in the income statement .

A foreign subsidiary's cash flows should also be translated at the exchange rates relevant to the
underlying transactions [IAS7.26]. However, a rate that approximates the actual rate, for example a
weighted average rate, may be used, consistent with the guidance

The period-end rate cannot be used to translate foreign currency cash flow. However, residual
balances arising as a result of a foreign currency transaction will be included in the balance sheet at
the period-end rate. Consequently, a reconciling difference will arise between the changes in cash
and cash equivalents reported in the cash flow statement and the equivalent amounts obtained from
the balance sheet. This reconciling difference is not a cash flow but is reported separately in the
cash flow statement

Treatment of overdrafts
A bank overdraft may be used as part of an entity's day-to-day cash management tools rather than as
financing arrangements. Normally, such overdraft accounts will regularly fluctuate between a
positive and a negative balance. The overdraft balance should be included in the balance of cash and
cash equivalents where overdrafts are used for such cash management purposes. In all other
circumstances, an overdraft balance is treated as part of the entity's financing.

Classification of short-term investments

Investments with an original maturity of less than three months should not be considered a cash
equivalent if there is any doubt that the obligated entity will fully redeem the security at maturity

Not all investments that meet the definition of cash equivalents are required to be treated as such.
The nature of the transaction should be considered in determining the classification . The
policy for determining which items are treated as cash equivalents should be consistently applied
and disclosed.

Other matters

Acquisitions and disposals

The cash flows in respect of each major acquisition or disposal should be separately disclosed and
 60

classified as an investing cash flow. The amount reported is net of any cash included in the entity
acquired or disposed of .

The amount of cash in the entities acquired or disposed of should be disclosed in the notes. This can
be given in aggregate. The value of the consideration given or received should also be disclosed in
the notes, together with the proportion represented by cash .

Subsidiaries' cash flows are consolidated into the cash flow statement from the date of acquisition.
The cash flows of other investments accounted for using the equity method or the cost-dividend
method are recognised as dividend income.

Discontinuing operatio g, investing and financing transactions

Classification of cash flows ns

The net cash flows relating to discontinuing operations should be disclosed, generally in a note
(Disposal groups and discontinued operations). The cash flows should be classified between
operating, investing and financing
 61

Barter and other non-cash transactions

The cash flow statement should not include transactions that do not include the transfer of cash .
The same applies to the non-cash element of consideration, for example, in a barter transaction.

However, relevant information concerning non-cash transactions should be disclosed in the notes.
The information should be classified between operatin relating to hedging instruments
Cash flows relating to financial instruments such as futures and forwards are generally classified as
operating . However, the cash flows of financial instruments that are appropriately designated as
hedges should be classified with the cash flows of the underlying transaction being hedged

Segmental analysis

Entities are encouraged, but not required, to give a summary analysis of cash flows by segment
This would be at the level of operating, investing and financing cash flows .

Background on a Cash Flow Statement

Before getting into the nuts and bolts of a statement of cash flow, let’s take a brief look at how this
document has evolved over the years.
 62

Originally, businesses were required to file a statement of changes in financial position, or funds
statement. The funds statement went through several years of development before it was widely
used. In 1961, Accounting Research Study No. 2, sponsored by the American Institute of Certified
Public Accountants (AICPA), recommended that a funds statement be included with the income
statement and balance sheet in annual reports to shareholders.

Two years later, Accounting Principles Board (APB) Opinion No. 3 was issued and provided funds
statement preparation guidelines. Although Opinion No. 3 did not go so far as to make the funds
statement mandatory, most businesses, aware of the statement’s value, included it in their annual
reports anyway. Finally in 1971, APB Opinion No. 19 officially made the funds statement one of
the three primary financial documents required in annual reports to shareholders. The APB also said
a funds statement must be covered by the auditor’s report. Because Opinion No. 19 didn’t specify a
particular format for the funds statement, businesses still enjoyed considerable flexibility in how
they chose to report their funds flow information.

That flexibility came to an end in late 1987, with the Financial Accounting Standards Board’s
(FASB) issuance of Statement No. 95, which called for a statement of cash flows to replace the
more general funds statement. Additionally, the FASB, in an effort to help investors and creditors
better predict future cash flow, specified a universal statement format that highlighted cash flow
from operating, investing, and financing activities. This format is still used today.

General Format For a Statement of Cash Flows

 63

The Investing and Financing Activities sections of the statement of cash flows are straightforward.
The Operating Activities section, however, is more complex. It requires analysis of operating
accounts that converts figures from an accrual to a cash format.

Advantages of a Cash Flow Statement

• Helps the company to know whether it will be able to cover payroll and other immediate
expenses
• Helps the lenders to know the company's ability to repay
• Helps the investors judge whether the company is financially sound
• Helps the newly formed companies to know their inflow and outflow of cash and thus
prevent cash shorta
 64

\
 65

SR.VICE PRESIDENT
OPERATIONS

VICE PRESIDENT-
OPERATIONS

A.G.M.-COMMERCE AND
FINANCE

FINANCE & INDUSTRIAL& PERSONNEL & RAW MATERIAL

ACCOUNTING COSTING DEPTT. ADMINISTRATION RECEIPT & STORE
DEPTT. DEPTT. DEPTT.

DY.MANAGER ASSISTANT MANAGER DY. MANAGER

MANAGER

SR. OFFICER-TAX ASSISENT AST. MANAGER SR. OFFICER-R.M.

STORE

SR. OFFICER OFFICER ASST.

ACCOUNTS SUPERVISOR

OFFICER EXCISE ASST. OFFICER SUPERVISOR-

MAIN STORE

OFFICER- RECEPTIONIST SUPERVISOR-

PURCHASE MAINTAINENCE

OFFICER-CASHIER TRAINEE TRAINEE-STORE

TRAINEE-
ACCTOUNT
66
 67

Financial ratios

Ratios Year: 2005- Year: 2004- Year: 2003-2004

2006 2005

Current ratio=Current assets 1,444,190,92 7= 2.56:1 947,273,788 = 2.65:1 539,179,551 =3.42:1

Current liabilities 563,043,661 357,709,899 157,209,504

Quick ratio =CA- inventory 1,004,444,523 = 1.78:1 664,602,563 = 1.86:1 418,265,645 = 2.66:1
Current liabilities 563,043,661 357,709,899 157,209,504

Fixed assets 2,143,963,027 = 4.13:1

Turnover = Net sales 1,471,327,239 = 4.04:1 749,827,220 = 7.04:1
518,798,994
Net fixed assets 363,782,306 106,519,847

Working capital
Turnover = Net sales 2,143,963,027 = 2.43:1 1,471,327,239 = 2.49:1 672,272,196 = 1.91:1

Net working capital 881,147,266 589,563,889 749,827,220

Current assets
Turnover = Net sales 2,143,963,027 = 2.44:1 1,471,327,239 = 2.50:1 749,827,220 = 1.39:1

Net current assets 881,147,266 589,563,889 539,179,551

 68

Financial ratios

Year: 2002-2003
Ratios Year: 2001-2002

Current ratio=Current assets 472,087,797 =3.94:1 499,208,717 =3.93:1

Current liabilities 119,771,796 126,991,943

Quick ratio =CA- inventory 378,638,637 =3.16:1 414,410,141 =3.26:1

Current liabilities 119,771,796
126,991,943

Fixed assets
Turnover = Net sales 672,272,196 =6.27:1 634,924,055 = 5.44:1

Net fixed assets 107,150,371 116,776,909

Working capital
Turnover = Net sales 672,272,196 = 1.91:1 634,924,055= 1.70:1

Net working capital 352,316,001 372,216,774

Current assets
Turnover = Net sales 672,272,196 =1.42:1 634,924,055 = 1.28:1

Net current assets 472,087,797 499,208,717

Debtors turnover= G.sales 775,091,854 = 2.39:1 706,003,577 = 2.31:1

Avg.debtor 324,072,416 305,521,985

Debtors collection
Period = days 300 = 125.52 days 300 = 129.87 days

Debtor turnover ratio 2.39 2.31

 69

Stock turnover 633,771,632 = 6.98:1

Ratio = Cost of goods sold 659,907,354 = 7.40:1 90,762,153
Avg. stock 89,123,868

Stock holding 300 = 40.5 days 300 = 42.98 days

Period = days
7.40 6.98
Stock turnover ratio
 70

Analysis & interpretation

 71

Absolute figures expressed in monetary terms in the financial statement by themselves are
meaningless. These figures often do not convey much meaning unless expressed in relation to other
figures.
For example, one trader Mr. Anil earns a profit of Rs. 1, 50,000, whereas another trader Mr. Sunil
earns a profit of Rs. 1,80,000. Which one is more efficient? Generally we can say that Sunil is more
efficient as he is earning more profits. But in order to give the correct answer, we must find out,
how much the capital is employed by each of them. Suppose, Anil has employed a capital of Rs.
10,00,000 & Sunil has employed Rs. 15,00,000, we can now calculate the percentage of profit
earned by each of them on the capital employed:
Anil = 1, 50,000
* 100 = 15%
10,00,000

Sunil = 1, 80,000 * 100 = 12%

15, 00,000

This shows that Anil has earned Rs. 15 for every Rs. 100 of capital, whereas Sunil has earned Rs.
12 for every Rs. 100 of capital. As such, Anil is using his capital more efficiently.
The above example shows that the figures assume significance only when expressed in
relation to other figures. Just as in example given above, the absolute figure of profit was
meaningless but when the figure of profit was expressed in relation to capital, it assumed
significance.

Thus, we can say,

Ratio is the relationship between two figures of profit, expressed in arithmetical terms.
“ A ratio is simply one number expressed in terms of another. It is found by dividing one number
into the other”
_ R.n. Anthony

Working Capital Management Performance using Ratio analysis

 72

A ‘ratio’ is defined as the indicated quotient of two mathematical expressions and as the
relationship between two or more things. In Financial analysis, a ratio is used as benchmark for
evaluating the financial position and performance of a firm. Ratios help to summarize large
quantities of financial data and to make qualitative judgment about the firm’s performance.

Ratio analysis involves comparison for a useful interpretation of the financial statements. Single
ratio in itself does not indicate favorable or unfavorable condition. Therefore in this report it is
compared with:

• Past ratios, i.e. ratios calculated from the past financial statements of the same company.

Since liquidity ratios and Activity ratios helps to measure the firms ability to meet current
obligations and firms efficiency in utilizing its assets respectively. These two have been used.

Limitations of Ratio analysis

 73

• It is difficult to decide on the proper basis of comparison.

• The comparison is rendered difficult because of differences in situations of two companies

or of one company over years.

• Price level changes make the interpretation of ratios invalid.

• The differences in the definition of items in the balance sheet and profit and loss account
make the interpretation of ratios difficult.
 74

CLASSIFICATION OF RATIOS

A)LIQUIDITY RATIO

“Liquidity” refers to the ability of the firm to meet its

current liabilities. The liquidity ratio, therefore, are also
called “ short-term solvency ratios”. These ratios are
used to assess the short-term financial position of the
concern. They indicate the firm’s ability to meet its
current obligations out of current resources.
Liquidity ratio include two ratios:

I) Current ratio

II) Quick ratio

 75

CURRENT RATIO

This ratio explains the relationship between current assets & current liabilities of the firm. The
formula for calculating this ratio is:

Current ratio = Current assets

Current liabilities

Current assets= cash in hand + cash at bank+ b/r+ short-term investments+ debtors+ stock+
prepaid expenses.

Current liabilities= bank overdraft+ b/p+ creditors+ provision for taxation+ proposed dividends+
outstanding expenses+ loan payable within one year.

Significance: this ratio is used to assess the firm’s ability to meet its short-term liabilities on time.
The ideal ratio is 2:1.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

CURRENT RATIO 3.93 3.94 3.42 2.65 2.56

This ratio has been falling from 3.93:1 in 2006-07 to 2.56:1 in 2005-06.But still the short term
financial position is sound because its 2.56:1, which is more than ideal ratio of 2:1.
 76

QUICK RATIO

Quick ratio indicates whether the firm is in the position to pay its current liabilities within a month
or immediately. As such, the quick ratio is calculated by dividing liquid assets by current liabilities:

Quick ratio = liquid assets

Current liabilities

‘Liquid assets’ means those assets, which will yield cash very shortly. All current assets except
stock & prepaid expenses are included in liquid assets. Stock is excluded from liquid assets because
it has to be sold before converting it to cash.

Significance: an ideal quick ratio is said to be 1:1. if it is more, it is considered to be better.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

QUICK RATIO 3.26 3.16 2.66 1.86 1.78

This ratio has been falling from 3.26:1 in 2001-02 to 1.78:1 in 2006-07.As liquid ratio of the
company is 1.78:1, which is more than the ideal ratio 1:1. Thus, the company is in the position to
pay its current liabilities instantly.
 77

ACTIVITY RATIO

These ratios are calculated on the basis of ‘cost of sales’ or ‘sales’; therefore, these are also called as
‘turnover ratios’. Turnover indicates the speed or number of times the capital employed has been
rotated in the process of doing the business. In other words, these ratios indicate how efficiently the
capital is being used to obtain sales; how efficiently the fixed assets are being used to obtain sales;
& how efficiently the working capital & stock is being used to obtain sales. Higher turnover ratios
indicate the better use of capital or resources and in turn lead to higher profitability. Turnover ratios
includes the following:

I) Inventory turnover ratio

II) Fixed assets turnover ratio

III) Current assets turnover ratio

IV) Debtors turnover ratio

V) Working capital turnover ratio

 78

Fixed assets turnover ratio

This ratio reveals how efficiently the fixed assets are being utilized. It is of particular importance in

manufacturing concerns where the investments in fixed assets are quite high.

Fixed assets turnover= net sales

Net fixed assets

Significance: This ratio is particular important for the manufacturing concerns where the investment
in fixed assets is quite high. this ratio tells how efficiently the fixed assets are being utilized.
Compared to previous year if there is increase in this ratio, it indicates that there is better utilization
of fixed assets. But if there is fall in this ratio, it will show that fixed assets have not been utilized as
efficiently, as they had been used in the previous year.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

FIXED ASSET TURNOVER 5.44 6.27 7.04 4.04 4.13

The ratio increased drastically from 5.44 in 2001-02 to 7.04 in 2003-04, then decreased drastically
to 4.13 in 2006-07. This clearly shows that the fixed assts are not being used efficiently.
 79

CURRENT ASSETS TURNOVER

These ratios show the efficiency with which the firm is utilizing its current assets and net current
assets.

Current assets turnover ratio = Net sales

Net current assets

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

CAT 1.28 1.42 1.39 2.50 2.44

Current assets turnover has increased from 1.28 in year 2001-02 to 2.44 in 2005-06 which indicates
efficient utilization of current assets in the firm.
 80

WORKING CAPITAL TURNOVER RATIO

This ratio is of particular importance in non-manufacturing concerns where current assets play a
major role in generating sales.

Working capital turnover ratio = net sales

Net working capital

Significance: this ratio reveals how efficiently working capital has been utilized in making sales. In
other words, it shows the number of times working capital has been rotated in producing sales. A
high working capital turnover ratio shows efficient use of working capital & quick turnover of
current assets like stock & debtors. A lower working capital turnover ratio indicates under
utilization of working capital.

YEAR 2001-02 2002-03 2003-04 2005-06 2006-07

Working capital turnover 1.70 1.91 1.96 2.49 2.43

This ratio has increased considerably from 1.70 in 2001-02 to 2.43 in 2006-07. This shows that
numbers of times the working capital has been employed in the process of carrying on the business
has increased drastically this means better efficiency in the utilization in the working capital.
 81

CONCLUSION

Cash flows in a cycle, into, around and out of a business. It is the business’s lifeblood and every
management’s primary task is to help keep it flowing and to use the cash flow to generate profits.
The faster a business expands the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital within business. Good management of
working capital will generate cash, which will help improve profits and reduce risks.

cash flow statement include all the three activities profit but cash flow s considered effective when
profit from operating activity is higher as compare to financial and investing activities because
investing income or income from financial activity are not operational, they can be up or down but
operating profit is derived from co. operations. So, then business will generate more cash or it will
need to borrow less money to fund working capital. As a consequence, one can reduce the cost of
bank interest or generate additional free money available to support additional sales growth or
investment. Similarly, if one can negotiate improved terms with suppliers e.g. get longer credit or an
increased credit limit; one can effectively create free finance to help fund future sales.
 82

LIMITATIONS OF THE STUDY

Various hindrances occurred while carrying out the research. The limitation of the study
includes the weak points that are not covered during the study. A person can’t analyze all aspects of
the study. Sometimes he forgot some factors or sometimes he is not able to study the impact of
these factors because of time constraints or limited recourses. Limitations of the study are:-

• Employees are not available as are busy in their work

• Atrocious weather condition disturbing the tour plan.
• There was a problem in taking appointments from the managers.
• Sources were confounded some time to give proper information.
• Limited time to complete my project.
• All the people from whom I collected the data are not cooperative.
• The office area was very congested.
• Proper financial data and financial supervision did not provided to me due to
shortage of time to the trainer.
 83

POLICY IMPLICATIONS

I suggested various policies to organization which I think that if they implemented in the right
manner increase the earnings of the firm which in turn increases the goodwill of the firm. If the
goodwill of firm is good in the market, then it will raise funds at low interest rates.

The various policies that should be applied in an organization on the basis of my study of
financial analysis of cash flow statement are as follows:

 Firstly I gave the suggestion regarding to the exchange currency as Indoasian have many
projects in overseas and Dollar is depreciating and company will incurred huge losses
due to Dollar depreciating. I gave suggestion to change the currency from Dollar to Euro
and company establishes the mechanism to adopt Euro
 I have also given the suggestion regarding to advertising and company officials are
increasing the advertising expenses from next fiscal year.
 Company is also going to hire new and enthusiastic sales force as I have recommended.
 Company should recruit new agents or consultants. It is necessary for company to trend
them in a well manner therefore they will gave good results.
 Company should open customer service point in rural area also.
 Company should make plans for promotion of company business it should organise road
shows seminars, exhibition or contests because these things make clear picture of co’s
plans.
 84

RECOMMENDATIONS

The following are the recommendations for the company:

 Cash discounts should be increased to boost sales & accelerate collections from customers.
This will reduce the level of receivables & the associated costs.

 Current ratio is more than the ideal current ratio. No doubt by this firm can easily meet its
short-term obligations but there is an apprehension about the ideal funds that can reduce
profitability of the firm.

 For each & every activity, a standard should be fixed & made clear to one & all. The
concerned persons should regularly measure their performance with reference to standards.

 Company should form a working capital management committee with the operational head
of respective department for better working capital management.

 Inventory management needs more attention, as there is a considerable level of inventory,

which is not moving presently.
 85

BIBLIOGRAPHY

BOOKS:

1. Kothari, C.R, Research methodology, methods & techniques, New age international ltd.
Publishers, Second edition
2. Gupta, S.P. Stastical methods and techniques, Sultan Chand & Sons. Educational Publishers,
New Delhi
3. Indoasian Annual Report
4. Kotler Philip, Armstrong Gary, Principles of marketing, Prentice Hall of India Pvt.

Ltd., eleventh edition, New Delhi.

5. Kotler Philip & Keller Kevin lane,” marketing management” 12th edition PEARSON
(Prentice Hall)

Websites

sales@indoasian.com
corporate@indoasian.com
ecolite@indoasian.com
international@indoasian.com
www.indoasian.com
86
 87

ANNEXURE -1
INDO ASIAN FUSEGEAR LIMITED
PROFIT & LOSS ACCOUNT

PARTICULARS 2001-02 2002-03 2003-04 2005-06

INCOME
Income from operation 706,003,577 775,091,854 837,304,678 1,557,614,441
Less: excise duty 71,079,522 102,819,658 87,477,458 86,287,202

Net sales 634,924,055 672,272,196 749,827,220 1,471,327,239

Other income 1,270,202 1,281,939 2,820,518 6,922,037

636,194,257 673,554,135 752,647,738 1,478,249,276

EXPENDITURE:
Material cost 340,852,364 316,533,869 384,420,666 766,534,657
Manufacturing expenses 47,531,810 64,579,581 78,910,818 152,965,626
Administration & other expenses 120,499,064 140,967,679 153,771,726 207,412,391
Selling & distribution expenses 53,641,295 89,909,146 87,977,426 195,628,698
Financial expenses 43,398,522 39,037,056 29,739,615 32,564,268
Depreciation 19,112,825 16,790,537 15,850,540 21,029,837

625,035,880 667,817,868 750,670,791 1,376,135,4771

Less/add: net increase/ decrease
In finish good & work in progres (10,005,954) 6,628,575 16,483,726 76,931,273

635,041,834 661,189,293 734,187,065 1,299,204,204

Profit before tax 1,152,423 12,364,842 18,460,673 179,045,072

 88

Less: income tax expense

-Current tax 110,000 7,471,300 4,350,000 15,550,000
- Deferred tax 749,220 1,483,558 1,373,137 (1,172,940)
- Fringe benefit tax --- --- --- 6,583,000
Income tax paid for earlier years --- 666,172 --- ---
Excess provision for I. Tax
Written back 78 125,472 483,031 ---
Profit after tax 1,791,721 5,836,400 15,966,841 158,085,012
Surplus brought foreword 13,421,298 3,213,019 6,049,419 4,553,622
Acquired under the scheme
Of arrangement --- --- --- 106,170,549

Less: difference b/w the amt.

Recorded as preference share
Capital issued in lieu of equity
Shares under the scheme of
Arrangement --- --- --- 17,500,000

Profit Available for

Appropriation 15,213,019 9,049,419 22,016,260 251,309,183

Appropriation:

General reserve 12,000,000 3,000,000 6,000,000 ---

Arrears of preference dividend
Paid & income tax thereon --- --- --- 1,140,250
Balance transferred to balance
Sheet 3,213,019 6,049,419 16,016,260 250,168,
15,213,019 9,049,419 22,016,260 251,309,183
 89

ANNEXURE-2
INDO ASIAN FUSEGEAR LIMITED
BALANCE SHEET

PARTICULARS 2001-02 2002-03 2003-04 2005-06

SOURCES OF FUNDS
SHAREHOLDER FUNDS
Share capital 103,521,000 103,521,000 103,521,000 195,261,000
Share application money --- --- 8,750,000 ---
Reserves & surplus 101,203,870 107,040,270 123,007,111 446,269,961

LOAN FUNDS
Secured loans 255,622,380 219,203,414 229,748,543 430,151,650
Unsecured loans 19,002,352 19,502,323 12,598,170 19,273,743
Deferred tax liability (net) 14,918,140 13,434,582 12,061,445 9,631,574
494,267,742 462,701,589 489,686,269 1,100,587,928
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 248,538,317 254,797,715 269,540,081 603,246,866
Less: depreciation 131,761,408 147,647,344 163,020,234 239,464,560

Net block 116,776,909 107,150,371 106,519,847 363,782,306

Capital W.I.P. --- --- --- 129,736,140

Pre-operative exp. Pending
Allocation --- --- --- 13,105,593
 90

CURRENT ASSETS, LOANS

& ADVANCES
-Inventories 84,798,576 93,449,160 120,913,906 282,671,225
-Sundry debtors 336,344,613 311,800,219 328,814,007 519,055,936
-Cash & bank balances 17,457,780 15,903,655 34,651,362 67,675,387
-Loans & advances 60,607,748 50,934,763 54,800,276 77,871,240

499,208,717 472,087,797 539,179,551 947,273,788

Less: current liabilities

& Provisions
-Liabilities 110,484,622 102,299,248 141,480,826 290,491,064
-Provisions 16,507,321 17,472,548 15,728,678 67,218,835

Net current assets 372,216,774 352,316,001 381,970,047 589,563,889

Miscellaneous expenditure 5,274,059 3,235,217 1,196,375 ---

(To the extent not written off
Or adjusted)
494,267,742 462,701,589 489,686,269 589,563,889
 91

ANNEXURE-3
INDO ASIAN FUSEGEAR LIMITED
FINANCIAL RESULTS & OPERATIONS

(Rs./lakhs)

Particulars 2001-02 2002-03 2003-04 2005-06

Sales & other income 7072.74 7763.74 8401.25 15645.36

Operating profit 636.63 681.93 640.51 2326.39
Financial charges 433.98 390.37 297.40 325.64
Depreciation 191.13 167.91 158.50 210.30
Profit before tax 11.52 123.65 184.61 1790.45
Less: provision for tax 1.10 74.71 43.50 209.60
Tax paid earlier year 0.00 6.66 --- ---
Add: provision for income
Tax written back 0.00 1.25 4.83 ---

Deferred tax income 7.50 14.84 13.73 ---

Profit after tax 17.92 58.36 159.67 1580.85
Add: profit brought forward
From previous year 134.21 32.13 60.49 45.53
Acquired under the
Scheme Of arrangement --- --- --- 1061.71
Less: diff. between the amt.
Recorded as preference share
Capital issued in lieu of equity
Share capital under the scheme
Of arrangement --- --- --- 175.00
Surplus available for
Appropriation 152.13 90.49 220.16 2513.09
 92

Transfer to general reserve 120.00 30.00 60.00 ---

Arrears in pref. Dividend paid
& Income tax thereon --- --- --- 11.40
Retained profit carried forward
To the next year 32.13 60.49 160.16 2501.69
 93

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2007

2006-07
2005-06
(Rs.)
(Rs.)
A. Cash Flow from Operating Activities

Net Profit before tax and extra ordinary items 202,889,347

179,045,072
Adjustments for :
Depreciation 36,933,121
21,029,837
Interest Income (354,026)
(428,951)
Interest Charged 57,953,894
32,993,219
Loss/(Profit) on sale of fixed assets (88,588)
–
Operating profit before Working Capital Changes 297,333,748
232,639,177
Adjustments for :

Trade and Other Receivable (302,730,406)

(211,131,976)
Inventories (157,075,179)
(100,588,843)
Trade payables and Other Liabilities 177,533,918
90,263,294
Cash generated from Operations 15,062,081
11,181,652
Direct Taxes Paid (30,461,685)
(17,231,933)
Net Cash from Operating Activities (15,399,604)
(6,050,281)
B. Cash Flow from Investing Activities

Purchase of Fixed Assets (149,951,927)

(165,554,582)
Sale of Fixed Assets 550,000
–
Pre-operative Expenditure pending allocation (9,906,110)
(13,105,593)
Investments (47,121,266)
(4,400,000)
Interest Received 188,532
648,818
Net Cash used in Investing Activities (206,240,771)
(182,411,357)
C. Cash Flow from Financing Activities

Proceeds from Issuance of Shares Warrants 24,075,000

12,801,250
Proceeds from Borrowings 402,756,403
278,377,661
Repayment of Borrowings (158,089,747)
(44,479,307)
Interest Paid (56,033,994)
(32,092,199)
Preference Dividend Paid –
(1,000,000)
 94

Income Tax on Preference Dividend Paid –

(140,250)
Net Cash from Financing Activities 212,707,662
213,467,155
Net (Decrease)/Increase in Cash & Cash Equivalents (8,932,713)
25,005,517
Cash & Cash Equivalents at start of the year 67,675,387
950,697
Cash & Cash Equivalents accquired under the Scheme of
Arrangement –
41,719,173
Cash & Cash Equivalents at close of the year 58,742,674
67,675,387
Cash and cash equivalents include Rs.4,018,677/- ( Previous Year Rs. 5,539,005/-) on account of Margin Money which
is held for more than three months.
As per our report of even date

BALANCE SHEET AS AT 31ST MARCH, 2007