INTRODUCTION

Finance and accounting are the exciting subjects as we enter the 21st century. The study of finance is whether financial executives can increase the value of a firm. Finance is concerned not only with measuring the profitability but also with setting minimum standards for profitability and hence with the whole question of measuring the cost of capital for any given society.

Meaning
Finance is called the science of the money finance is the branch of economics till 1890. Economies may be defined as the study of the efficient use of scare resource the decision made by the business firms in the production, marketing, finance and personal matter in the form of the subject form of the economics, finance is age process of conversion of accumulated funds to the productive use. In simple terms finance may be defined as an activity concerned with the planning, raising, controlling and administering of funds to be used in the business.

Definition
Haward and uptron defined in his book, business finance as an administrative area (or) set of administration which relates with the arrangement of cash and credits so that the organization may have means of the objectives as satisfactory as possible

Financial management
Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. It was a branch of economics till 1890, and as a separate discipline, it is of recent organization still, it has no unique body of knowledge of its own, and draws, heavily on economics for its theoretical concepts even today. The study of financial management is of immense interest to both the academicians and practicing managers. It mainly involves raising of funds and their effectives utilization with the objective of maximizing share of wealth. Financial management is an operation activity of business I.e., responsible for obtaining and effectively utilizing the funds necessary for efficient operations.

Meaning
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Financial management is very important in every type of organization. Financial management is a managerial activity which is concerned with the planning controlling of the firms financial resources

Definition
According to Howard and uptorn defined financial management is an application of managerial principle to the area of the financial decision- making The term financial management can be defined as the management of flow of funds in a firm and it deals with the financial decision- making of a firm.

Objectives
The important objectives of the financial management is as follows they are Profit maximization Wealth maximization The objective of profit maximization measures the performance of a firm by looking at its total profit. It does not consider the risk which the firm may under take in maximization of the profit. The objective of maximization of shareholders wealth considers all future cash flow, dividend, earnings per share, risk of a decision etc. So the objective of maximization of the share holders wealth is operational and objectives in its approach.

Functions of financial management

Financial functions deals with the problem of raising funds and their effective utilization in the business the process of rising funds investing them in assets and distributing returns are known respectively as financing, investment and paying dividends the firm performs them continually and simultaneously various decisions regarding acquisition of assets, specific form of assets, where money is to be invested and the composition of its liabilities are covered the following are some of the functions of finance. Long term assets-mix (or) investment decision Capital- mix (or) dividend decision Profit allocation (or) dividend decision Short term asset mix (or) liquidity decision The following of financial management can be broadly classified into three
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 Investment decision Financial decision Dividend decision

Investment decisions
The investment decision is concerned with a selection of assets of by which funds invested by business firms. In business firms includes long term assets (or) long term finance (or) capital budgeting. Where as short term finance (or) working capital management. The financial manager also responsible for efficient management of current assets that is working capital management. Working capital constitutes an integral part of the financial management

Financial decisions
The second important decision is financial decision. It is concerned with capital mix. The term capital structure refers to the proportion of debentures capital and equity share capital financial decisions of a firm relates to the financing mix. The financial manager has to bring a trade off between risk and return in maintaining a proper balance between debt capital and equity capital.

Dividend decisions
The third important major decision is dividend policy. These are concerned with a distribution of the profits of a firm to share holders. How much of the profits should be paid as dividends that are dividend payout ratio. The decision will depend upon the preferences of the share holders. The dividend payout ratio is to be determined the light of the objectives of maximizing the market value of the share.

OBJECTIVES OF THE STUDY

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The main objective of the study is to study the overall financial position of the company from 2006-2010.

To study the financial performance of the company. To study the sources and applications of the funds. To offer suggestions for improvement in the relevant aspects. To find out the financial stability of the firm. To know how effectively the company is using its resources. To measure the extent to which the company has been financing its

needs through borrowing.

NEED OF THE STUDY

Andhra Pradesh is the state where there is the highest number of textile units. So, it can be drawn that there is necessary to gain a more accurate inside in to the working in to such a unit and the balance that is being brought the utilization of financial resources.
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The present study carried out is on FUNDS FLOW ANALYSIS of sree satyanarayana spinning mills ltd. As there is a need for every company to analysis its present financial position and trend. It was provided with the required data for analyzing present financial position in through financial statements of last five years.

SCOPE OF THE STUDY

Present study is undertaken mainly to analysis the financial performance of sree satyanarayana spinning mills ltd, during period 2005-2010, the funds flows analysis is one of the important technique of financial analysis and has been used for the study. The study is confine to look over the sources and application of the company.
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METHODOLOGY
The systematic and scientific study of any research work the methodology is very important, because it deals with the choice of selecting the sample, research work design, data to be collected and the technique to be used for the collection and analysis of data.

I Primary Data:

Primary data is nothing but the first hand information primary data either through observation or through direct communication with respondents in one form or another or through personal interviews.

II Secondary Data:
Secondary data means data that are already available i.e., they refer to the data, which have already been collected and analyzed by someone else. Secondary data may either be published data or unpublished data. Usually published data are available in: The study completely depends upon the secondary data. Annual reports. News papers. Trade journals. Reference Books. Magazines, Company websites.

LIMITATIONS OF THE STUDY

The time given to complete this project is not sufficient that is 45 days only. The study is based on accounting information. The analysis is made from the information given by the organization. The study was conducted with limited data available and analysis was done accordingly. The complexity and confidentiality of various operations is also a limitation to this study.

TEXTILE INDUSTRY PROFILE

Cotton textile industry is one of the oldest and largest during the last 3 Decades. The textile industry still occupies a key position in the economy of the country industries in India. Which has made rapid strides during the century of its existence? At the end of March 2001 there were 1846 miles in the country 1565 spinning mills
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and 281 composite mills. At present the industry provides direct employment to nearly 18 lakhs workers. It also provides indirect employment to many millions like the cotton growers, processors, handlooms and power looms weavers who alone are estimated five million and innumerable cloth dealers and shop keepers. The industry contributes in ever increasing measure to the central and state Governments by way of taxes and duties. Being one of the oldest industries it has history of over 150 years. It occupies a unique position in the world export, where Indian has a 24per cent share in the global cotton yarn market. It has influence on agriculture because of its consumption of cotton, wool and silk and on industries because of its requirements of machinery, dyes and chemicals and synthetic fibers. Thus the industry has an important role to play both in economic prosperity of the country and in the supply of essential commodities for the entire population. The cotton textile industry consists of 3 distinct categories in the organized sectors. They are: 1. spinning mills 2. coarse and medium composite mills 3. fine and super fine composite mills Spinning mills are generally small in size, coarse and medium composite mills are not able to adjust their cost in the face or rising prices of raw materials and increases in wages consequently many of them became uneconomic units and ran into difficulties. Fine and super fine composite mills use foreign cotton. They are not subject to stock restriction and can therefore carry on stable production program. India has been a manufacturing nation and export of the fine cotton fabrics to the entire civilized world. The firs mill in India was setup by C.N. Dakar in 1854 with an Englishmen as his partner. It was Dakars mills which laid the foundations for a strong and growing textiles industry in Bombay and soon after in other regions of India. The Bombay Mills Owner Association is the first mill formed association in India in the year 1875

When India became independent in 1947, there were ten million three hundred thousand spindles and lakhs two thousand looms installed in million mills. The mills were producing nearly 4000 million meters of cloth and handlooms accounted for approximately 130 millionaires. The mill sector employed nearly 7lakhs of workers and thus was the largest organized industry in the country. The industry faced its major post independence crisis in the early sixties up till then if had been more or less sellers market and most of the mills were making reasonable profits. But a number of factors contributed to a very big depression in the market and mills started incurring losses. The result was that in 1967, the spindle activity came down for 88.2per cent to 73.1per cent. Consequently, textiles become a postponable item. On the other hand, while the purchasing power of the people went down, the cost of the production of textiles it increased. And the price of the cloth has to be raised. As the cloth prices began to go up the Government felt the need for the production of a cheap, durable cloth for the weaker sections of the population. Consequently the cloth schemes were introduced in 1964. States such a Bihar, Orissa, Andhra Pradesh and Kerala have all established spinning mills many of them in co-operative sector. The growth of cotton spinning sector, in terms of capacity received an imparitus in 1991 with the regimenting of spindle age. Installed spindle age has been rising steadily since then. In 1991 the number of spindle installed was around 26.27 million and the number of spindle went up to nearly 30 million in 1995. The total spindles installed by 2001 are estimated to have gone up to 35.53 million. However adverse factors such as the South East Asian Crises, Worldwide economic slowdown and increased costs hit the spinning industry which could not benefit it from the expanded captained capacity. The phenomenal rise in raw cotton prices in the 1994-1995 seasons added a new dimension to the spinning sector. All these were reflected in stagnant production in the past four years. Cotton spun yarn production 2,022 million kg, 2213 million kg in 1997-1998 to 2,022 million kg in 1998- 1999, but recovered to 2,266.86 million kg in 2000-2001. Spindle capacity utilization which was 76per cent in 1991-1192. Had gone up to 86per cent in 1996-97 fell to 79per cent in 1998-1999 before bouncing back to 85per cent in 20002001.
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The share of spinning capacity of south Indian mills in all India capacity is estimated to be around 50per cent as on March 31, 2002. The spinning capacity of southern mills was 19.53 mills spindles while the all India capacity was 38.33 million during 2000-2001. While the power loom sector had consumed nearly 42per cent of the total cotton yarn produced, handlooms consumed around 23per cent was exported. A major portion of cotton yarn exports is to be non-quota countries. Which is started with five counts, a wide range of counts is being exported now. In 1991, exports to quota countries were 31.62 million kg and to non-quota countries 89.49 million kg. In 2001, these were 43.83 million kg and 413.16 million kg respectively. Thus the percentage of exports to quota countries came down from around 26percent in 1991 to about 9per cent in 2001. During 1994-2002, some of the major destinations for India cotton yarn exports had been South Korea, Bangladesh and Hong Kong. According to a report on Achieving break through growth in cotton textile export, India has a large and modern spinning industry and a major position of its capacity is in the organized sector. The cotton yarn spinning units could capitalize on the growth in yarn imports expected in key Asian destinations. According to the chairman of South Indian Mills Association {SIMA} V.S. Velayatham, there has been a revival both in the domestic and export markets. However, if the revival is to be sustained, certain issues need to be addressed, he feels. The cost of almost all components-power Raw material, transport, labour has gone up during the last four or five years. The total cost of product on the cotton yarn in ring spinning {805} in 1995 was about Rs. 178.40 a kg. In 2001, it had shot up to Rs. 232.63 a kg. In order to make available raw cotton of good quality at reasonable price, the thrust is on integrated cotton farming now.

Textile Industry in India:

The organized cotton textile industry is one of our oldest and most family established major industries at the end of March 1994; there were 1,775 mills in the country {906 spindles and 269 composite mills} with 28 millions spindles and 1.6 lakhs labor. There were 132 closed mills by the end of March 1994.
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The structure of textile industry complete with the modern, sophisticated and highly mechanized mill sector on the one hand spinning and hand weaving {handlooms} sectors on the other. In between falls other decentralized small scale power looms sectors. If we include all the three sectors the cotton and synthetic textile industries in India are the largest industries in the country accounting for about 20per cent of the industrial output providing employment to output 17 million persons and contributing nearly 30per cent of the value of the exports. In India textile industry is predominant cotton based 70per cent of the fabric production of raw cotton, carries from the year to year depending upon rainfall and weather conditions and price fluctuations in raw cotton effets the industry production of yarn in a almost entirely in the organized sector and over the year. It has showing a steadily rising trend as for example from 1600 million kgs in 1993/94 to nearly 28,000 million meters in 1993/94. In the production of fabrics, the decentralized sectors have roughly 93per cent and mills sectors has approximately 7per cent share only.

A Perspective of India Textile Industry:

Textile industry is the largest industry of modern India. It contributes about 4per cent of GDP, 20per cent of total output, and together with carpets in handicrafts it has a share of 38per cent in total value of escorts. The first cotton mill in India was setup in Calcutta in 1818. However, Indian Textile Industry plays a pirior role through its contribution of about 14per cent to industrial production, 4per cent to GDP and 16.63per cent to export earnings. Its share in global textiles and apparel is 3.9per cent and 3per cent respectively. It provides direct employment to over35 million people. Textiles sector is the second largest provider of employment after agriculture. The
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close industry to Agriculture and the ancient culture and tradition of the country make the Indian textiles sector unique in comparison with textiles industry of other countries. This industry is growing by 9per cent-10per cent and the pace would be increase to 16per cent in the coming years. This also provides the Industry with the capacity of products suitable to different market segments, both within and country. Ahmedabad had 19per cent of mills are provided employment to 113.6per cent of the workers outside the Bombay city. Some mills located in the shaper, Baroda and other centers in Maharashtra. India textile industry contributes to be predominantly cotton based as 65per cent of fabric consumption in the country is being against the world average of 46.5per cent.

Problems of Cotton Textile Industry:

In the past the cotton mill industry industry suffered from in competent and selfish managing agent and directors, who were more interested in their own profits. The maintenance of machinery and modernization of textile units had been defective. The role of the industry has not been helpful. The two most important factors which have felt disaster to the industry in the last 3decades are government textile policy and growth of the power loom sector. The result was that many cotton mills became inefficient and one-third of the cotton mills became sick by end of May 1999.

Government Controls and Heavy Excise Duties:

The cotton industry has suffered badly due to often confused policies of the government. In the past government has sought control etc., at one-time prices of cloth were fixed by the government far below cost. Under the yarn distribution 1972 the government made it obligatory on all mills to supply 50per cent of the production to yarn to the decentralized quite high and it not only made important to cotton quite expensive but exercised and upward pressure on the price of indigenous cotton. The excise duties on differed varieties of cotton cloth are quite heavy and beside they are
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discriminatory. Serious Problems of the Mill Sector Related to Production Of Controlled Cloth

PROFILE OF SREE SATYANARANA SPINNING MILLS LIMITED

Sree satyanarayana Spinning Mills Ltd is established in 23 rd JULY 1962. It was originally incorporated as private Ltd Company on above date. Subsequently it is converted to public Ltd Company on 9th April 1966. The company entered into commercial production initially with an installed capacity of 5000 spindles. They are manufacturing yarn cone and hank form. The company has expanded is spindles from time to time. Now the spindle capacity of the company is around 31500 spindles. Further more we have registered with government of India to start other 25000 spindles units as and when the finance is available.

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The company with 1, 05,010 numbers of shares with each share as Rs.10/-. The company is declaring dividends continuously for the past 5 years at the rate of 100per cent. The company barrows substantial amounts from IDBI for the modernization and expansion of the company. The same was paid back. The promoter directors are Mr. M. HARISHCHANDRA PRASAD and Y. NARAYANA RAJU. The company is now running with around 450 workers in the factory and running in triple shifts on all 7 days of a week. This mill is helping the rural poor to get employment by paying them decent wages compared to other sector. The company is continuously under modernization and replacing all the machinery. Thus the company has now introduced combers and producing combed yarn also. The company has special quality control department and a laboratory equipped with latest imported cotton and yarn testing equipment, to obtain a quality product. The companys main objectives are to purchase quality raw materials and to produce and supply quality yarn to customers. One of its policies is to provide employment opportunities to local people. The Industry producers yarn from cotton. They are supply two types of yarn. 1. Cone from- used for weaving on power looms 2. Hank from used for handlooms. The company markets its yarn in domestic and also exports some portion through dealers. In domestic market its product is sold in BOMBAY, CHENNAI, and A.P. though consignment agents. There exports markets are SRILANKA, BANGLADESH and MALAYSIA. Raw cotton is available from Guntur and Bellari. They are using different counts such as 10, 20, 40, 60, 80, 100 and 120. There are different varieties of cotton. They are DCH-32 Long stable varieties MCU-5
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Varalakshmi LK V-797Medium and short stable varieties JAYADHAR LRA The company is in loss for the first 15 years and now in profits since the last 10 years and paying dividends to share holders. There is no separate department for marketing. The accounts department undergoes marketing activities.

Procurement of raw materials is done through brokers i.e., with the existence of third party agency. The major contributors are N.V. Eicher and CO, Contributors are Galiekotawala, Mumbai

80per cent of procurement is done through the above firms and various firms contribute the remaining. Marketing of the finished product i.e., yarn is done through various consignment agents. Few of them are

K.Veereshkumar and Co Radhike Textiles, Itchalakaranji. Surajmul Gowri Center, Mumbai

And marketing of finished product is also directly from mill to mill various mills that procure yarn directly are premier mills. Mafatlal industries, Virudhnagar textile industries, loyal textile mills, Bombay dyeing and manufacturing co.

Preparation process: Preparation of yarn cotton is done through the following process
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Blow room Carding Preparatory Spinning Winding

Considering the following factors does the purchase of cotton

Staple length Fitness Strength Moisture contest Tresh Purchased cotton has to pass through the following stages for becoming yarn, which is used by textile industries.

Low Room:
It is the first phase of the process. Cotton purchased is pass through bloom room machine where dust and wastage i.e., trash content in the cotton in the cotton is removed. The purified cotton is made in to sheets and is rolled like cylinders or drums. The main objective of the bloom is to separate the waste content in the cotton.

Carding:
Cotton, which is in the form of cylinders, is further purified and is made in the shape of threads. Each drum obtained from the room is made in to thread.

Preparatory:
The cotton obtained from carding, which is in the from of threads, is grouped together. Different threads obtained from carding department are grouped lap formers, combers and drawing.

Spinning:

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The cotton obtained from preparatory department is made in to fine threads of lesser width through spinning. The thread of lesser width called as yarn, which is obtained from spinning.

Winding:
Winding is the method in which the yarn is made in to packages of different shapes such as conical and bails etc Mill Name: Location: Started: Started size: Commercial production: Mill area: Total Employees: Shifts: Production Capacity: Power consumption: Water consumption: Grams/ Spindles/8Hrs: Capacity utilization: Sree Satyanarayana Spinning Mills Ltd Tanuku 23rd July 1962 10 crores 1963 10 acres 450 3shifts [General 8:30 am -4:30pm] 10 tones per day 11kv/430 Volts 45000 gallons 125.72 115.72

Hank Yarn Turns OVER Cone Yarn: 76per cent Sales centers: Cone Yarn: Mumbai, Madras, Ichalakaran Hank Yarn: Chirala, Mangalagiri, Guntur. Bankers:
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SBI [STATE BANK OF INDIA]. TANUKU Auditors: M/S: Nageswara RAO M/S: Sivudu [HYD]

Departmentation:
Plant engineer is responsible for the entire production activities. The function of plant engineer is to rectify mechanical defects, to make machinery running smoothly and their maintained and co ordination of production activities. Plant engineer is maintaining his functions which two assistance i.e., department in charge and the supervisor. Each part of production section is under control of section in charge, directly to plant engineer.

Products Manufactured:
The mills provide quality cotton yarn and blended spun yarn. Both the power looses are well received in the year Indian market as well as received in the international markets the company is providing counted yarn also. It is supplying 75per cent of the yarn in the cane power supply loams of Bombay and other places 255 of the yarn in the hank to weavers in our state. The year is well received in the market for the manufacturing of sarees, dhotis and other fabrics. The percentage of capacity utilization is 95per cent resulting in more production and better utilization manpower. The labor is intensive. The company imports technology, it imports its technology from LMW [Lakshmi Machinery Work} Coimbatore. This company is total pollution free. As it is a textile industry, there will be some sound pollution from it
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Financial Department
Though the company was started with the initial share capital with 13 crores present it is having share capital of 3.79 crores and it consists reserves and surplus with the amount of 45 lakes. In the year 2007-2008 the company got net profit 44 lakes. And it is having 27.45 fixed assets and 82.88 current assets till 2007-08 and the country consists current liabilities 11.02 crores. So the company has the working capital 7.18 crores in the current year. The organization is having current ratio with 2.25 that means it is having optimal performance with recording as the standard normal current ratio is 2.1 The company is having the liquidity percentage of the assets with the ratio of 0.53 The cowman maintains the debt equity ratio with 8.20 percentages which shows the relationship between total debt and share holders equity? The inventory is having a greater role in organization. It can be shown with the inventory ratio by 4.06 The company has following financial institution that is State Bank of India Tanuku. No specific impact has taken place because of depreciation of rupee on the financial position of organization. The finance department has been with for pro and other language especially with the package of Tally9.2.

The company disposes its profits in to two types

Inform of surplus and reinvestment 20 per cent bonus to the worker.

Marketing Wing
The marketing wing having tremendous role in this organization as a company for the manufacturing Yarn the cotton is necessary as the raw material for the process of production. The marketing department takes an effort to minimize the costs regarding from raw materials purchasing to district of the finished product.
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As the marketing gives costumers as a choice among products. This organization provides into the market. This marketing main aim is creating costumers. For that this company maintaining a better marketing team. The marketing team is considered members who are situated trough out the India those members take an achievement concentrated having financial give on the four PS Concept.

Product:
Here the marketing product is yarn thread it is produced as a bundle which consists for kegs. The yarn thread is produced as a bundle which consists 16000 meters. It is high quality product and color of the product is white transparent cover and well setup in the brown boxes 24 boundless for one box to export.

Place:
The place is the most significant in the marketing. Because the product should be easily transported and to be sold easily. This product is being exported to the following places from Tanuku. Chennai Coimbatore Mumbai

Because in those places the textile industries are well estabilished to manufacture cloth materials.

Price:
The price nothing but the value of the product, the price of the product is fixed is the organization according to the market fluctuation and inflation rate the Price of the yarn will be charged. The organization is having effective pricing strategies the price of the one Kg. Yarn = 155 Rs -160 in the market.
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Promoters:
Promotion is the necessary as the process of selling are more technical buyers more sophisticated and the organization promotional activities are taken place to the agent and merchants. Because as the organization is newly established it does not depend upon the advertisement. All the marketing activities are based on the order taking the organization is offering the following promotions.

Informative Promoters:
Offering the information about organization products through the agents. PERUASIVE Promotion: The basic purpose of promotion is to persuade customers to buy.

Sales:
The sales of the organization are growing year by year in progressive manner.

Manufacturing Process
Flow Diagram Of Manufacturing

Mixing Manually Blow Room Dust

To mix different variety of cotton

To open the fiber tuft and

Cording

To open the fiber to individual stage

Draw frame

To parlize the fiber and deposit

Uni Lap

To make lap to feed to comber

Comber Extent 22

To make lap to feed to comber

Auto leveler material in can Speed Frame

To remove short fiber and deposit the draw frame To make Roving

Reing frame count Cone windind

To make yarn with twist and

To wind the form of cone

Packing Intopreseribed Bags

Packing of individual cones or cartoons

All the sales activities done to agents of merchants. In the process of sales there selling expenses will be acquired. If he estimated those expenses as follow [in lakes] 10-11 37.18 11-12 37.28 12-13 37.28 13-14 37.48

Graphical Representation

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CONCEPTUAL FRAME WORK FUNDS FLOW STATEMENT

INTRODUCTION:
The basic financial statement i.e., the balance sheet and profit and loss account (or) income statement of business, reveal the net effect of the various transaction on the operational and financial position of the assets and liabilities of an undertaking at particular point of time. It reveals the financial status of the company. The assets side of a balance sheet shows of the deployment of resources of an undertaking while the liabilities side indicates its obligation i.e., the manner in which these resources were obtained. The profit and loss account reflects the results of the business operations for a period of time. It contains a summary of expenses incurred and the revenues realized in a accounting period. Both these statement provide the essential basic information on the financial activities of a business. The balance sheet give a static view of the resources (liabilities) of a business and uses (assets) to which these resources have been but at a certain point of time. It does not disclose the cause for changes in the assets and liabilities between two different points of time. The profit and loss account, in a general way, indicates the resources provided by operations. But there are many transactions that take place in an undertaking and which do not
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operate through profit and loss account. end of

Thus another statement has to prepare to

show the change in the assets and liabilities from the end of one period of time to the

another period of time. The statement is called a statement of changes in financial position or a funds flow statements. The funds flow statement in a statement which shows the movement of funds and is a report of the financial operations of the business undertakings. It indicates various means by which funds were obtained during a particular period and the way to which these funds were employed. In simple words. It is a statement of sources and applications of funds.

MEANING AND CONCEPT OF FUNDS:

The term funds has been defined in a number of ways. a. In a narrow sense, it means cash only and a funds flow statement prepared on this basic is called a cash flow statement such a statement enumerates net effects of various business transactions in cash and takes into account receipts and disbursements of cash. b. Ina broader sense the term funds refers to money values in whatever form it may exist. Here funds means all financial resources used in business whether in the form of men, material , money, machinery and other. c. In a popular sense the term funds means working capital i.e., the excess of current assets over current liabilities, the working capital concept of funds has emerged due to the fact that total resources of business are invested partly in fixed assets in the form of fixed capital and partly kept inform of liquid or hear liquid form as working capital.

MEANING AND CONCEPT OF FLOW OF FUNDS

The term flow means movement and includes both inflow and outflow the term flow of funds means transfer of economic values from one assets of equity to
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another flow of funds is said to have taken place when any transaction makes changes in the amount of funds available before happening of the transaction. If the effect of transaction results in the increase of funds. It is called a source of funds and if it results in the decrease of funds, it is known as an application of funds. Further, in case the transaction does not change funds. It is said to have not resulted in the flow of funds. According to the working capital concept of funds, the term flow of funds refers to the movement of funds in the working capital. If any transaction results in the increase in working capital it is said to be a source or inflow of funds and it results in decrease of working capital, it is said to be an application or outflow funds.

In simple language funds move when a transaction effects.

i. A current assets and a fixed assets, or ii. A fixed and a current liability. iii. A current assets and a fixed liability. iv. A fixed liability and current liability. And funds do not move when the transaction affects fixed assets and fixed liability or current assets and current liabilities. Kenneth medley and Ronald Gibers define the term funds as one used in the sense of spending power, it refers to the value embedded in assets. According to Bonneville and Dewey funds constitute the prime importance in sharing and operating any business enterprise. In the ordinary parlance. Funds mean cash only, but it has got several different concepts as mentioned below.

Funds may mean:

a. Cash only b. Net working capital i.e., current assets less current liabilities. c. Total resources or total funds. d. Internal resources only.
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e. Net worth i.e., owners equity capital plus reserves.

CURRENT AND NON-CURRENT ACCOUNTS:

To understand flow of funds it is essential to classify various accounts and balance sheet items current and non-current categories. Current accounts can either be current assets or current liabilities. Current assets are those assets which in the ordinary course of business can be or will be converted into cash with in a short period of normally one accounting year.

FUNDS FLOW STATEMENT

The following is the list of current or working capital accounts: List of current or working capital accounts: Current Liabilities 1. Bills payable 2. Sundry creditors or account payable 3. Accrued or outstanding expenses 4. Dividends payable Current Assets 1. Cash in hand 2. Cash at bank 3. Bills receivable 4. Sundry debtors or accounts receivable 5. Bank overdraft 6. Short term loans advances and deposits 5. Short term loans and advance 6. Temporary or marketable investments 7. Provision against current assets 7. Inventories or stocks such as [a] Raw materials [b] Work in progress.
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[c] Stores and spares. [d] Finished goods 8.. Prepaid expenses

8. Provision for taxation, if it does not amount to appropriation of profits. 9. Proposed dividends (maybe a current non-current Liability).

9. Accrued incomes

List of non-Current (or) Permanent Capital Accounts:

Non-current or permanent liabilities 1. Equity share capital 2. Preference share capital 3. Redeemable preference share capital 4. Debentures 5. Long term loans 6. Share premium account 7. Share forfeited account 8. Profit and loss account (balance of profit ie., credit Balance). 9. Capital reserve 10 Capital redemption reserve 11 Provision for depreciation against fixed assets 12 Appropriation of profits [a] General reserve [b] Dividend equalization Fund [c] Insurance Fund [d] Compensation fund [e] Sinking fund
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Non-current or permanent assets 1. Good will 2. Land 3. Building 4. Plant and Machinery 5. Furniture and Fittings 6. Trade Marks 7. Patent Rights 8. Long term investment 9. Debit balance of profit and loss account. 10. Discount on issue of shares 11 Discount on issue of debentures 12 Other Deferred expenses

[f] Provision for taxation. [g] Proposed dividend.

FUNDS FLOW STATEMENT

Funds flow statement is the statement of sources and application of funds. It is also called as funds where got and where gone statement Almond Coleman observed. The funds statement in a statement summarizing the significant financial changes which have occurred between the beginning and the end of companys accounting period. There are 4 steps involving in preparation of funds flow statement: a. Ascertain the funds from operations. b. Preparation of statement of changes. c. Computation of any missing figures as to profit or loss on Sale of fixed assets purchases or sale of fixed assets and the amount of depreciation on fixed assets etc. d. Finally preparation of funds flow statement.

Foulke defines this statement as:

A statement of sources and appreciation of funds in technical device designed to analyse the changes in the financial condition of a business enterprise between two dates In the words of Anthony the funds flow statement describes the sources from which additional funds were derived and the use to which these sources were put. F.C.W.A. in glossary of management accounting terms defined funds flow statement as a statement either prospectus or retrospects, setting out the sources and applications of the funds of an enterprise. The purpose of the statement is to indicate
29

clearly the requirement of funds and how they are proposed to be raised and the efficient utilization and application of the same.

Thus funds flow statement in a statement which indicates various means by which the funds have been obtained during a certain period and the ways to which these funds have been used during that period. The term funds used here means working capital i.e., the excess of current assets over current liabilities. Funds flow statement is called by various names such as sources and application of funds; statement of changes in financial position, sources and uses of duns; summary of financial operation, where came in and where gone out statement, where got, where gone statement, movement of working capital statement, movement of funds statement, funds received and disbursed statement; funds generated and expended statement; sources of increase and application of decrease; funds statement etc.

30

Difference between funds flow statement and income statement.:

Funds Flow statement 1 It highlights the changes in the financial position of a business and indicates the various means by which funds were obtained during a particular period and the ways to which these funds were employed. 2. It is complementary to Income statement income statement helps the preparation of funds flow statement. While preparing funds flow statement both capital 3 Only revenue items are considered. 3. and revenue items are considered. 4. There is no prescribed Format for preparing a funds flow statement. . 4. It is prepared in a prescribed format. 2 Income statement is not prepared from funds flow statement. Income Statement 1. It does not reveal the inflows and outflows of funds but depicts the items of expenses and incomes to arrive all the figure of profit or loss.

31

Difference between funds flow statement and balance sheet :

Funds Flow statement 1 It is a statement of changes financial position and hence in dynamic in nature Balance Sheet 1. It is a statement of financial position on a particular date and here is static in nature.

2. It shows the sources and uses of funds in a particular period of time

2. It depicts the assets and liabilities at a particular point of time.

3. It is tool of management for financial analysis and helps in making decisions.

3. It is not of much help to management in making decision.

4. Usually schedule of changes in working capital has to be prepared before preparing funds flow statement.

4. No such schedule of changes is required rather profit and loss account is prepared.

USES, SIGNIFICANCE AND IMPORTANCE OF FUNDS FLOW STATEMENT:

32

A funds flow statement is an essential tool for the financial analysis and is of primary importance to the financial management. Now-a-days, it is being widely used by the financial analysis, credit granting institutions and financial managers. The basic purpose of a funds flow statement is to reveal the changes in working capital on the two balance sheets dates. It also describes the sources from which additional working capital has been financial and the uses to which working capital has been applied such a statement is particularly useful in assessing the growth of the firm its resulting financing these needs. By making use of projected funds flow statement, the management can come to know the adequacy or inadequacy of working capital even in advance. One can plan the intermediate and long-term financial of the firm, repayment of long-term debts, expansion of the business, allocation of resources, etc., the significance or importance of a funds flow statement can be were followed from its various uses given below:

(1) It helps in the analysis of financial operations:

The financial statements reveal the net effect of various transactions on the operational and financial position of a concern. The balance sheet gives a static view of the resources of a business and the uses to which these resources have been put at a certain point of time. But it does not disclose the causes for changes in assets and liabilities between two different point of time. The funds flow statement explains causes for such changes and also the effect of these changes no the liquidity position of the company. Sometimes a concern may operate profitably and yet its cash position may become more and more course. The funds flow statement gives a clear answer to such a situation explaining what has happened to the profit of the firm.

(2) It throws light on many perplexing questions of general interest:

Which other wise may be difficult to be answered, such as:
33

a. Why were the net current assets lesser inspite of higher profits and vice-verse. b. Why more dividends could not be declared inspite of available Profit? c. How was it possible to distribute more dividends than the Present earning? d. What happened to the net profit? Where did they go? e. What happened to the proceeds of sale of fixed assets or issue of Shares, debentures etc?

(3) It helps in the formation of a realistic dividend policy:

Sometime a firm has sufficient profit available for distribution as dividend but yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such causes, a funds flow statement helps in the formation of a realistic dividend policy.

(4) It helps in the proper allocation of resources:

The resources of a concern are always limited and it works to make the best use of these resources. A projected funds flow statement constructed for the future help in making managerial decision. The firm can plan the deployment of its resources and allocate them among various application.

(5) It acts as a future guide:

A project funds flow statement also acts as a guide for future to the management. The management can come to know the various problems it is going to funds can be projected well in advance and also the timing of these needs. The firm can arrange to finance these needs more effectively and avoid future problem.

(6) It helps in appraising the use of working capital:

34

A funds flow statement helps in explaining how efficiently the management has used its working capital and also suggests way to improve working capital position of the firm.

(7) It helps knowing the overall credit worthiness of a firm:

The financial institutions and banks such as state financial institutions, industrial development corporation, industrial finance corporation of India, industrial development bank of India etc., all ask for funds flow statement constructed for a number of years before granting loans to know the credit worthiness and paying capacity of the firm.

Limitations of Funds Flow Statement:

The funds flow statement has a number of uses; however, it has certain limitations also, which are listed below: 1. It should be remembered that a funds flow statement is not a substitute of an income statement or a balance sheet. It provides only some additional information as regards changes in working capital. 2. It cannot reveal continuous changes. 3. It is not a original statement but simply a re-arrangement of data given in the financial statement. 4. It is essentially historic in nature and projected funds flow statement cannot be prepared with much accuracy. 5. Changes in cash are more important and relevant for financial management than the working capital.

Procedure for Preparing a Funds Flow Statement:

35

Funds flow statement is a method by which are study changes in financial position of a business enterprise between beginning and ending financial statement dates. Hence, the funds flow statement is prepared by comparing two balance sheets and with the help of such other information derived from the accounts as may be needed. Broadly speaking the preparation of a funds flow statement consists of two parts. 1. Statement of schedule of changes in working capital 2. Statement of sources and application of funds.

(1) Statement of schedule of changes in working capital.

Working capital means the excess of current assets over current liabilities. Statement of changes in working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from the two balance sheets. As working capital =current assets current liabilities. So, i. An increase in current assets increase working capital. ii. A decrease in current assets decreasing working capital. iii. An increase in current liabilities decreasing working capital;

Statement (or) Schedule of Changes in Working Capital

36

Particulars

PreviousYear CurrentYear

Effect in working Capital Increase Decrease

Current Assets Cash in hand Cash at Bank Bills receivable Sundry debtors Temporary investment Stock/inventories Accrued incomes Total current assets Current Liabilities Bills payable Sundry creditors Bank over draft Dividend payable Provision for taxation Total Current liabilities Working capital (CA-CL) Net increase/decrease in,(W.C) Working capital

37

Specimen of report form of fund flows statement:

Sources of Funds Funds from operations Issue of share capital Issue of debentures Raising of long term loans Receipts from partly paid share, called up Sales of non current (fixed) assets Non-trading receipts such as dividends received Sale of investment (long term) Decrease in working capital (as per schedule of changes in working capital) Total Applications or uses of funds: Funds lost in operations Redemption of preference share capital Redemption of debentures Repayment of long-term loans Purchase of noncurrent (fixed) assets Purchase of long-term investments Non-trading payments Payments of dividends Payment of tax Increase in working capital (as per schedule of changes in working capital Total
38

Rs.

Statement of Sources and Application of Funds

Funds flow statement is statement which indicates various sources from which funds (working capital) have been obtained during a certain period and the uses or applications to which these funds have been put during the period. Generally, this statement is prepared in two formats a. Report firm b. T form or an account form or self balance type.

Funds from Operation:

As a first step it would be convenient if the profit and loss appropriation account is prepared and net profit after tax is ascertained as a balancing figure. Then the funds from operations are worked out as follows: Particulars Net profit after tax ADD: 1. Non-cash expenses during the year [a] Depreciation [b] Writing off of goodwill, patents, trade marks, deferred revenue expenditure, Preliminary expenses etc. [c] Amortization of discount on issue of debentures or share etc. 2. Loss on sale of fixed assets,. 3. Extra-ordinary (or) non recurring losses. LESS: 4. Profit on sale of fixed assets. 5. Amortization of share premium or debenture premium etc. Rs. Rs.

39

Funds from operations:

Funds from operation are a source of fund during period. If it is still a negative balance it is loss from operations and is shown on the side of Application of funds but if it shows a positive it is a source of funds.

P & L appropriation account

Particulars

Amount

Particulars

Amount

To Interim Dividend To Proposed equity Dividend To Preference dividend To Transfer to reserve To Balance c/d

By balance b/d By excess provision written back By income tax provision not required By Dividend received By net profit after tax (balancing figure) (transferred from P&L account

40

Funds Flow Statement

(For the year ended.)

Sources Funds from operations Issue of share capital Issue of Debentures Raising of long-term loans receipt from partly paid share called up Sales of non current (fixed) Assets. Non trading receipts such as dividends. Sale of long-term investment Net decreasing in working capital

Rs

Applications Funds lost in operations Redemption of preference Share capital Repayment of long term loans Purchase of non-current (fixed assets) Purchase of long-term Investments Non trading payment. Payment of dividends. Payment of tax. Net increase in working capital

Rs

WORKING CAPITAL MANAGEMENT

41

Working capital is the firms holdings of current assets such as Cash , receivables , inventory and marketable securities. Every firm required working capital for its day to day transactions such as purchasing raw material , for meeting salaries , wages , rents , rates , advertising etc. But there is much disagreement among various financial authorities (financial managers , accountants , businessmen and economists ) as to the exact meaning of the term working capital.

Significance of working capital:

The world in which real firms function is not perfect. It is characterized by the firms considerable uncertainty regarding the demand, market price, quality and availability of its own products and those of suppliers. These real world circumstances introduce problems to the firm must deal. While the firm has many strategies available to address these circumstances, strategies that utilize investment or financing with working capital accounts often offer a substantial advantage over the other techniques. The importance of working capital management is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities like.

Arranging short term financing

Negotiating favorable credit terms Controlling the movement of cash Administering accounts receivables Monitoring investment in receivables Decisions concerning the above areas play an important role in maximizing

overall value of the firm. Once decisions concerning these areas are reached, the level of working capital is also determined in active decision sense, but falls out as residual from the decision just made. The management of working capital plays an important role in maintaining the financial health during the normal course of business. This critical

42

role can be enunciated by examining the flow of resources through the firm. By far the major flow is the working capital cycle. This is the loop which starts at the cash and the marketable securities account, goes trough the current account as direct labour and materials which are purchased and use to produce inventory, which in turn is sold and generates accounts receivables, which are finally collected to replenish cash. The major point to notice about this cycle is that the turnover or velocity of resources through this loop is very high related to the other inflows and outflows of the cash account.

Concept of working capital:

There are two concepts of working capital 1. Gross Working Capital 2. Net Working Capital

Gross Working Capital:

Gross working capital, simply called as working capital refers to the firms investment in current assets. Current assets are the assets, which in ordinary course of business can be converted into cash within an accounting year.

Examples of Current Assets are:

Cash and bank balances Short term loans and advances Bills Receivables Sundry Debtors Inventory Prepaid Expenses Accrued Incomes Money Receivable in 12 months

The gross working capital concept focuses attention of two aspects of current assets management.
43

a) Optimum investment in current assets and b) Financing of current assets. The consideration of the level of investment in current assets should avoid two danger points excessive and inadequate investment in current arranging funds to finance current assets. When ever a need for working capital funds arises due to the increasing level of business activity or for any other reason arrangement should be made quickly.

Net Working Capital:

Net working capital refers to the difference between the current assets and current liabilities. Current liabilities are those claims of outsiders, which are accepted, to mature for payment with an accounting year and include creditors, bills payable and outstanding expenses. Net Working Capital = Current Assets Current Liabilities Net working capital can be positive or negative. A positive net working capital will arise when current assets exceeds current liabilities. It is a quantitative concept. It . 1. Indicate the liquidity position of the firm 2. Suggests the extent to which working capital needs may be financed by permanent sources of funds.

Types of working capital

Working capital can be classified into two categories i.e.
44

1. Permanent working capital 2. Temporary or variable working capital Permanent working capital: It is the minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities . Tandon Committee has reserved to this type of working capital as Core Current Assets . Characteristics of permanent working capital:

Amount of permanent working capital remains in the business in one form or another. It also grows with the size of the business. It is permanently needed for the business, and therefore, it should be financed out of long term funds.

Variable working capital:

The amount of working capital over permanent working capital is known as variable working capital. The amount of such working capital keeps on fluctuating from time to time on the business activities . It may again be subdivided into seasonal working capital and special working capital Seasonal working capital is required to meet the seasonal demands of busy periods occurring at stated intervals on the other hand , special working capital is required to meet extraordinary needs for contingencies.

DATA ANALYSIS AND INTERPRETATION

particulars Statement of change in working capital 2005-2006 2005 2006 Working capital
45

Increase CURRENT ASSETS Inventories Sundry debtors Cash and bank Other C.As 6,17,76,717 69,22,453 42,35,628 4,47,288 5,69,68,223 1,32,11,013 80,00,769 5,57,463 62,88,560 40,65,141 1,10,175

decrease

48,08,494 -----------------

Loans and Advance Total C.As Current Liabilities Liabilities Provisions Total C.Ls Working Capital

1,59,91,287 8,93,73,373

2,78,85,255 10,69,22,723

1,18,93,968

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

2,47,36,620 90,75,948 3,38,12,568 5,55,60,805

1,45,20,906 2,01,14,777 3,46,35,683 7,22,87,040 ---7,22,87,040

1,02,15,714 ----------------3,25,73,558

-----1,10,38,829

Increase in Working 1,67,26,235 Capital 7,22,87,040

1,67,26,235 3,25,73,558

Interpretation:Particulars Total of Current Assets (-)Total of Current Liabilities 2005 8, 93, 73,373 3, 38, 12,568 5, 55, 60,805 = = 2006 10, 68, 22,723 3, 46, 35,683 7, 22, 87,040 X 100 Change +2, 24, 50,650 +8, 23,115 +2,16,27,535

2, 16, 27,535 5, 55, 60,805 38.92%

46

1) The is an increase in the working capital by 2,16,27,535 i.e., 38.92% 2) The sundry debtors have been increased to 90% when compared to previous year
3) The cash and bank balance, other C.As and loans and advance were increased

constantly like and advances were increased constantly like 95%, 25% and 74% respectively. 4) The inventories were decreased to 7.7% with respect to last year. 5) The liabilities were decreased to 4% when compared to last tear. 6) The provisions were increased to 98% gradually when compared to last year. Hence the companies present position is satisfactory

Funds flow statement of 2005-2006

Sources Reserves & surplus Unsecured Loans Fixed Assets Amount 3,02,60,311 21,66,000 15,34,142 3,39,82,153 Applications Secured loans Differed Tax Increase in Working Capital 3,39,82,153 amount 1,65,09,934 6,45,984 the 1,67,26,235

Interpretation:47

The major Sources come to the company mainly from the Reserves and surplus which constitutes 95% of sources. The unsecured loans constitute of 2% and investment constitutes of 0.5% and the remaining 2.5% which comes from sale of fixed assets. During the year 2005-2006 the firm constitutes of secured loans for Rs: 1, 66, 09,934 and the differed tax was of Rs : 6,45,984 and the remaining were utilized for working capital requirements.

STATEMENT OF CHANGES IN WORKING CAPITAL 2006-2007

Particulars 2006 2007 Working capital Increase decrease

CURRENT ASSETS Inventories Sundry debtors Cash and bank Other C.As 5,69,68,223 1,32,11,013 83,00,769 5,57,463 8,82,49,822 1,03,45,424 40,09,652 2,62,173 3,12,81,599 -------------------28,65,589 42,91,117 2,95,290

Loans and Advance

2,78,85,255

4,47,11,917
48

1,68,26,659

--------

Total C.As Current Liabilities Liabilities Provisions Total C.Ls Working Capital

10,69,22,723

14,75,78,985

---------1,20,99,084

1,45,20,906 2,01,14,777 3,46,35,683 7,22,87,040

2,66,19,990 2,92,40,145 5,58,60,135 9,17,18,850 ---9,17,18,850

--------------------4,81,08,258 1,94,31,810 4,81,08,258 91,25,368

Increase in Working 1,94,31,810 Capital 9,17,18,850

INTERPRETATION:Particulars Total of Current Assets (-)Total of Current Liabilities 2006 10, 69, 22,723 3, 46, 35,683 7, 22, 87,040 2007 Change

14, 75, 78,985 +4, 06, 56,262 5, 58, 60,135 +2, 12, 24,452 9, 17, 18,850 +1,94,31,810

= =

1, 94, 31,810 7, 22, 87,040 26.88%

X 100

There is an increase in the working capital by Rs: 1, 94, and 31,810 i.e. 26.88

%. The inventories and loans and advances where been increased constantly by 55% and 60% respectively.
Whereas the sundry debtors, cash and bank balance and other current assets

were been decreased to 21%, 51%, and 52% respectively, The liabilities and provisions were been increased gradually by 83% and 45%.

49

 Hence the present position of the company in increase its satisfactory. But the company has to increase its level of cash and bank balance and other current assets.
Here the companys position is quite good.

Funds flow statement of 2006-2007

Sources Reserves & surplus Secured loans Unsecured Loans Fixed Assets Amount 1,38,38,235 35,24,313 8,36,000 17,91,483 1,99,90,031 Increase in the 1,94,31,810 1,99,90,031 Applications Differed Tax amount 5,58,221

Working Capital

INTERPRETATION:Here the major sources come to the company mainly from the reserves and surplus which constitutes of 945. The secured loans and the unsecured loans constitutes of 2% and 1% respectively the remaining 3% of sources comes from the sale of fixed assets. In this year 2006-2007 the firm mainly constitutes of differed tax of Rs: 5, 58,221 from its applications and the remaining was utilized for the working capital requirements.

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STATEMENT OF CHANGES IN WORKING CAPITAL 2007-2008

Particulars 2007 2007 Working capital Increase decrease

CURRENT ASSETS Inventories Sundry debtors Cash and bank Other C.As 8,82,49,822 1,03,45,424 40,09,652 2,62,173 6,52,17,785 1,92,46,481 87,58,692 4,68,286 -----89,00,057 47,49,040 2,06,113 2,30,32,037 ---------

Loans and Advance Total C.As Current Liabilities Liabilities Provisions Total C.Ls Working Capital Decrease Capital in

4,47,11,917 14,75,78,985

2,71,37,869 12,08,28,113

------

1,75,74,045 ---------44,01,565

2,66,19,990 2,92,40,145 5,58,60,135 9,17,18,850 Working ----

3,10,21,555 2,32,25,826 5,42,47,381 6,65,80,732 2,51,38,118

51

-------60,14,319 --------------2,51,38,118 ------------------

9,17,18,850

9,17,18,850

4,50,07,647

4,50,07,647

INTERPRETATION:Particulars Total of Current Assets (-)Total of Current Liabilities -2,51,38,118 = = 2, 51, 38,118 9, 17, 18,850 27.40% X 100 2007 14,75,78,98 5,58,60,135 9,17,18,850 2008 5,42,47,38 6,65,80,732 Change -16,12754

12, 08, 28,113 -2, 67, 50,872

There is a decrease in the working capital by Rs:2,51,38,118 i.e. 27.40%

The inventories and loans and advances were decreased by 26% and 39.3% respectively.
Whereas the sundry debtors and cash & bank balance were increased to 86%

and 90% respectively. And other C.As were also gradually increased to 78.6%.
The liabilities were decreased to 16.5% and the provision was increased to

20.5 % respectively. Hence the companys position is not favorable so it has to increase its inventory level and loans and advance to uplift its present position.

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Funds flow statement of 2007-2008

Particulars Sources unsecured loans Amount 12,77,000 Particulars Applications reserves & surplus secured loans Fixed Assets 13,07,881 Differed Tax amount 1,46,79,316 57,76,092 40,67,654

Decrease in the working 2,51,38,118 capital 2,77,22,999 Differed Tax( asset)

31,99,937

2,77,22,999

INTERPRETATION
The major sources of the company constitutes of unsecured loans of 3% and 4% of the fixed assets sale and the remaining 93% are from the decrease in the working capital. The major part of the applications consist of reserves and surplus of 60% and secured loans of 20% differed tax of 10% and remaining 10% are by differed tax asset. So, the company has to increase its working capital level for its growth.

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STATEMENT OF CHANGES IN WORKING CAPITAL 2008-2009

Particulars 2008 2009 Working capital Increase

decrease -----

CURRENT ASSETS Inventories Sundry debtors Cash and bank Other C.As 6,52,17,785 1,92,46,481 87,58,692 4,68,286 7,66,65,507 1,70,35,660 33,66,329, 5,56,229 1,14,47,722 ---------87,943

22,09,821 53,92,363 ---

Loans and Advance Total C.As Current Liabilities Liabilities Provisions Total C.Ls Working Capital Increase Capital in

2,71,37,869 12,08,28,113

2,99,72,495 12,75,96,220

28,34,626

---------

3,10,21,555 2,32,25,826 5,42,47,381 6,65,80,732 Working 1,49,92,471 8,15,73,203

2,50,62,519 2,09,60,498 4,60,23,017 8,15,73,203 ---8,15,73,203

59,59,036 22,65,328 ------------------2,25,94,655

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

1,49,92,471 2,25,94,655

INTERPRETATION:Particulars Total of Current Assets 2008 12, 08, 28,113

54

2009 12, 75, 96,220

Change +67,68,107

(-)Total of Current Liabilities 5,42,47,381 1,49,92,471 = =

4,60,23,017 6,65,80,732 8,15,73,203

+82,24,364

1, 49, 92,471 6, 65, 80,732 22.5%

X 100

There is an increase in the working capital of Rs.1,49,92471 I.e.22.5%

The inventories in the company will gone up to 17.5%

The other C.As and loans and advances were also gone up by 18.7% and 10.4%
There was a decrease in the level of the cash and bank balances and sundry

debtors by 61.5 % and 11.4 % The liabilities and the provisions have been decreased to the 19.2 % and 9.75 % respectively. Here the companys position is quite satisfactory because the liabilities have been paid off to some extent.

Funds flow statement of 2008-2009

Sources Reserves & surplus Secured loans Differed Tax Assets Fixed Assets Amount 81,39,903 39,28,797 22,81,708 13,02,063 1,56,52,471
55

Applications Unsecured capital

amount loans 6,60,000

increase in working 1,49,92,471 1.56,52,471

Interpretation:The major source comes to the company mainly from reserves and surplus constituting 80% of sources. The secured loans constitutes 10% of sources and the reduction in differed tax asset constitutes 6% and the remaining 4 % are from sale of fixed assets. During the year 2008-2009 the firm has repaid its obligations I.e Rs.6,60,000 and the remaining funds are utilized for working capital requirements.

56

STATEMENT OF CHANGES IN WORKING CAPITAL 2009-2010

Particulars CURRENT ASSETS Inventories Sundry debtors Cash and bank Other C.As 1,70,35,660 33,66,329, 5,56,229 1,76,61,911 30,82,331 2,75,853 6,26,251 -----------2,83,998 2,80,376 2009 7,66,65,507 2010 5,58,31,186 Working capital Increase decrease ----2,08,34,321

Loans and Advance Total C.As Current Liabilities Liabilities Provisions Total C.Ls Working Capital Increase in Working Capital

2,99,72,495 12,75,96,220

6,91,06,304 14,59,57,585 1,95,14,071

3,91,33,809 ------55,48,448

---------

2,50,62,519 2,09,60,498 4,60,23,017 8,15,73,203 1,01,44,051 3,47,26,260 5,42,40,331 9,17,17,254 ----------------------------

-----1,37,65,762 --------1,01,44,,051

9,17,17,254

9,17,17,254

4,53,08,508

4,53,08,508

INTERPRETATION:Particulars Total of Current Assets 2009 12, 75, 96,220 2010 14, 59, 57,585 5,42,40,331 9,17,17,254 Change +1,83,61,365 +82,17,314

(-)Total of Current Liabilities 4,60,23,017 8,15,73,203 +1,01,44,051

57

= =

1, 01, 44,051 8, 15, 73,203 12.4%

X 100

There was an increase in the working capital of Rs.1,01,44,051 I.e 12.4 %

The sundry debtors and loans and advances were been increased to 36.7% and

130% Where as its inventory, cash and bank balance and other C.As were decreased to the percentage of 27.1 %, 8.4 % and 37.4 % respectively. The liabilities were also decreased to 22.1%. The provisions were increased to 65.6 %

Funds flow statement of 2009-2010

58

Sources Reserves & surplus

Amount 3,90,11,744

Applications Secured Unsecured Fixed

amount loans 1,63,86,174 loans 34,42,000

Differed Tax Differed Tax (Asset)

38,51,628 9,18,229 4,37,81,601

assets 1,32,09,391 5,99,987 investments increase 1,01,44,051 in working capital 4,37,81,601

Interpretation:
In this the major sources comes from the reserves and surplus which constitutes of 85% and differed tax by 10% and remaining 5 % by differed tax asset. During the year 2009-2010 secured loans consists of 40% and unsecured loans by 10% sale of fixed assets by the 30% and 2% by investments and 18% was utilized for the working capital requirements.

FINDINGS
The company is concentrating more on the reserves and surplus.
59

 The company is concentrating more on raising the outside capital. There was a decrease in liabilities of the company every year. There are no fluctuations in the working capital. The maintenance of working capital of the company is in a satisfactory position. The level of inventories can be reduced from year to year.

SUGGESTIONS

Application of funds should be done more on fixed assets than the reserves & surpluses

60

 There should be increase in fixed assets and reduce raising of funds from creditors. Financial planning should done regularly It is better to concentrate on best territory to purchase more fixed assets. It is suggested to take proper steps for maintaining the required level of inventory by the company. The liquidity position should be maintained properly.

Conclusion

The funds flow analysis is one of the principle technique of financial management the term funds refers to cash and it includes money values in whatre from it may the flow means movement and it includes both inflow and outflow flow of funds means transfer of economic values from are asset equity to another It is a statement which shows the movement of funds and is a repot of the financial operations of the business undertakings it is defined as a systematic use of required funds to interpret the financial statement so that the strengths and weakness of sree satyanarayana spinning mills Ltd as well as its historical performance and current financial condition can be determined
61

BIBLIOGRAPHY
NAME OF THE AUTHOR NAME OF THE BOOK PUBLISHER

I.M.PANDY

FINANCIAL MANAGEMENT

IKAS PUBLISHING HOUSE PVT.,LTD.,

KHAN & JAIN

FINANCIAL MANAGEMENT

TATA MC GRAW HILL PUBLISHING COMPANY LIMITED NEW DELHI

62

PRASANNA CHANDRAS

FINANCIAL MANAGEMENT

TATA MC GRAW HILL PUBLISHING COMPANY LIMITED NEW DELHI

PUBLISHED ANNUAL REPORTS OF SREE SATYANARAYANA SPINNING MILLS Ltd AND STORES LEDGERS & RECORDS IN THE TRAINING SECTIO N

BIBLIOGRAPHY

FINANCIAL MANAGENENT

I M PANDEY

FINANCIAL MANAGENENT

R P RUSTOGI

FINANCIAL MANAGENENT

PRASANNACHANDRA

FINANCIAL MANAGENENT

M Y KHAN

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