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MEANING
1 STEP:
TOTAL
2ND STEP:
AMOUNT
80
20
100
IN FUND FLOW STATEMENT WE WILL SHOW LONG TERM SOURCES OF FUNDS AND LONG T
USE OF FUNDS.
CAN YOU PREPARE FUND FLOW STATEMENT WITH ABOVE INFORMATION????????
FUND FLOW STATEMENT
SOURCES OF FUNDS
CAPITAL
TOTAL SOURCES OF FUNDS (A)
USE OF FUNDS
FIXED ASSETS
TOTAL USES OF FUNDS (B)
SURPLUS (A-B)
IT MEANS YOU BOUGHT 100 CRORE CAPITAL OUT OF WHICH 80 CRORES ( 80%) YOU USED
PURCHASING FIXED ASSETS AND RS.20 CRORES (20%) USED FOR CREATING CURRENT AS
( AS PER BALANCE SHEET IN STEP 1) IT MEANS YOUR CURRENT ASSETS IS FUNDED BY Y
OWN MONEY.
3RD STEP:
NOW YOU HAVE RS. 20 CRORE IN YOUR CURRENT ASSETS SUPPOSE MAY BE 15 CRORE
MATERIAL AND 5 CRORE IN CASH & BANK BALANCE
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
80
CURRENT ASSETS
RAW MATERIAL
15
CASH & BANK
5
TOTAL
100
100
4TH STEP:
SUPPOSE YOU SELL YOUR PRODUCTION FOR RS. 20 CRORES SO YOUR PROFIT IS RS. 3 CR
( 20 CRORES (SALES)- 17 CRORES (PRODUCTION)
CAN YOU PREPARE YOUR PROFIT AND LOSS STAMENT NOW ???
INCOME STATEMENT
INCOME
20
EXPENSES
TOTAL
4TH STEP:
17
3
NOW ASSUME THAT YOUR 60% SALE WAS ON CREDIT AND 40% ON CASH
CREDIT SALE FOR RS. 12 CRORE (60% OF 20 CRORE) AND CASH SALE FOR RS.8 CRORE (
20 CRORE)
IT MEANS YOU HAVE DEBOTRS FOR RS. 12 CRORES NOW AS SALE WAS MADE 60% ON CR
NOW WE HAVE DEBTORS OF RS. 12 CRORE, PROFIT OF RS. 3 CRORE, RMS OF RS. 2 CROR
CASH BALANCE OF RS.9 CRORES ( 1 CRORE ( 5-4(USED FOR PRODUCTION) + 8 CRORE
SALES))
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
80
CURRENT ASSETS
P& L
( RETAINED
PROFIT)
TOTAL
3 RAW MATERIAL
DEBTORS
CASH & BANK
2
12
9
103
103
100
3
103
NOTE:
IF CAPITAL IS LONG TERM FUND THEN RETAINED PROFIT IS ALSO LONG TERM FUND AS IT
TO OWNERS ONLY.
5TH STEP:
NOW CAN YOU PREPARE FUND FLOW STAMENT AS PER ABOVE GIVEN INFORMAT
6TH STEP:
NOW SUPPOSE YOU WANT TO BUY ANOTHER PLANT & MACHIENERY FOR RS. 50
FOR THIS YOU HAVE TO INCREASE YOUR SALES BY 50 CRORES AND PROFIT BY
ANOTHER RS. 5 CRORES. IT SOUND VERY ILLOGICAL.BUT REMEMBER ONE THIN
FUND FLOW WILL THROW ALL ILLOGICAL FINANCIAL STUFF DONE BY THE BUSIN
ENTITIES
LETS GO AHEAD..NOW YOU ARE GOING TO BRING FRESH CAPITAL OF RS. 10 CRO
THIS
NOW QUESTION IS THAT ONLY 10 CRORES BUT YOUR REQUIREMENT IS RS.50 CR
BUT DONT FORGET YOU HAD CASH BALANCE OF RS. 9 CRORE. SO YOU HAVE F
RS. 19 CRORE( RS.10 CRORE( FRESH CAPITAL)+ RS.9 CRORE 9 CASH BALANCE)
HENCE THE REQUIREMENT IS FOR RS. 31 CRORE ( RS. 50 CRORE - RS. 19 CRORE
NOTE:
YOU CAN NOT USE SHORT TERM BORROWING FOR AQUIRING PLANT AND MACH
BUT SHORT TERM BORROWING GOING TO GIVE YOU CASH AND YOU MAY USE TH
FIND SOME LONG TERM FUNDS LATER AS SUBSTITUTE ( I KNOW ITS CRIMI
MISTAKE DONT WORRY GO AHEAD)
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
130
ADDITIONAL
CAPITAL
10 CURRENT ASSETS
SHORT TERM
BORROWING
31
P& L
( RETAINED
PROFIT)
TOTAL
3 RAW MATERIAL
DEBTORS
CASH & BANK
144
2
12
0
144
7TH STEP:
B
C
LAST YEAR YOUR SALES WERE RS. 20 CRORE FOR THAT YOU USED RMS FOR R
CRORE AND OTHER EXPENSES FOR RS. 4 CRORE FROM CASH
CURRENT YEAR YOU WILL REPEAT THE SAME PLUS ADDITIONAL SALES
WITH
EXISTING WITH NEW
PARTICULARS CAPACITY CAPACITY
SALES
20
50
70
RM
CONSUMED
13
38
-51
OTHER
EXPENSES
-11
PROFIT
SO IT MEANS YOU ARE GOING TO CONSUME RMS OF RS. 51 CRORE BUT YOUR BALANCE
SAYS YOU HAVE BALANCE OF RS. 2 CRORES WORTH RMS.NOW YOU HAVE TO PURCHASE R
CRORE ( RS. 51 CRORE - RS 2 CRORE) OF RAW MATERIALS.. AND YOU DONT HAVE CASH
...AND HAVE TO DEPEND ON YOUR CASH SALES FOR THIS. SO, ASCERTAIN CASH INFLOW
SALES
YOUR CREDIT SALES ARE GOING TO INCRESES TO REMAIN COMPETITIVE IN MARKET. YOU
SALES ARE RS.70 CRORE OUT OF WHICH 80% IS ON CREDIT SALES AND 20% ON CASH SA
YOU WILL HAVE DEBTORS OF 68 CRORES ( 56 CRORE(80% OF 70 CRORE) + 12 CRORE (A
LAST BALANCE SHEET)
NOW FIND OUT YOUR CASH BALANCE
OPENDING
0
CASH
SALES BALANCE
(20% OF 70
ADD:
CRORE)
14
CASH GENERATION
14
MAKE USE OF CASH GENERATED TO PURCHASE GOODS AND CALCULATE HOW MUCH SHO
PURCHASE ON CREDIT ????????
RAW MATERIAL REQUIREMENT
51
LESS: RAW STOCK AVAILABLE
2
RAW MATERIAL TO BE PURCHASE
49
LESS: CASH PURCHASE WITH CASH
GENERATED
RAW PURCHASE TO BE MADE IN
PURCHASE CREDIT
TOTAL
14
35
0
-11
(HOW YOU WILL IF YOU DONT HAVE MONEY IN CASH & BANK). THOSE
EXPENSES WILL REMAIN LAIBLITY TILL THEY PAID OFF.
RAW MATERIAL STOCK
DEBTORS
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
ADDITIONAL
CAPITAL
10 CURRENT ASSETS
BANK
OVERDRAFT
31
P& L
( RETAINED
PROFIT)
11 RAW MATERIAL
SUNDRY
CREDITORS
35 DEBTORS
EXPENSES
PAYABLE
TOTAL
198
68
130
0
68
0
198
CAN YOU PREPARE 2 YEARS BALANCE SHEET AND P&L AT ONE PLACE?????????
LIABITIES
CAPITAL
AMOUNT
AMOUNT (C.Y) (P.Y)
CURRENT ASSETS
100
100 FIXED ASSETS
AMOUNT (C.Y)
130
ADDITIONA
L CAPITAL
10
0 CURRENT ASSETS
BANK
OVERDRAFT
31
P& L
( RETAINED
PROFIT)
11
3 RAW MATERIAL
SUNDRY
CREDITORS
35
0 DEBTORS
EXPENSES
PAYABLE
11
TOTAL
198
103
INCOME STATEMENT
SALES
70
68
0
198
8TH STEP:
A
ANS.
B
ANS.
NOTE
RM
CONSUMPTIO
N
-51
OTHER
EXPESES
PROFIT
-11
8
ADDITIONAL CAPITAL OF RS. 10 AND FUND FROM OPERATION RS.8.. SO LONG TERM FUND
18
WHAT YOUR LONG TERM USES??
IT IS RS. 50 CRORES OF PLANT AND MACHINERY
HERE COMES THE CATCH GO AND PREPARE YOUR FUND FLOW STATEMENT
FUND FLOW STATEMENT
SOURCES OF FUNDS
CAPITAL
FUND FROM OPERATION
TOTAL SOURCES OF FUNDS (A)
USE OF FUNDS
FIXED ASSETS
TOTAL USES OF FUNDS (B)
SURPLUS (A-B)
YOUR LONG TERMS SOURCE SAYS THAT YOU HAD DEFICIT OF RS. 32 CRORES
IT MEANS YOU HAD USE SOME OTHER FUND FOR CREATING LONG TERM ASSETS. YOU HA
THE FUND FOR WORKING CAPITAL PURPOSE
LET ELABORATE THIS:
LAST YEAR YOUR WORKING CAPITAL REQUIREMENT WAS RS. 23 CRORES. THAT WAS FUND
FULLY BY OWN FUND.
BUT CURRENT YEAR WORKING CAPITAL FUND REQUIREMENT WAS RS. 68 CRORES.(I.E CU
ASSETS)+ BUT AGAINST THIS YOU HAD CURRENT LIABLITY OF RS. 77 CRORE ( BANK OVER
OTHER EXPENSES+ CREDITORS). IT MEANS YOU HAD NEGATIVE WORKING CAPITAL
LET ME TABULATE THAT
PARTICUALRS
CURRENT ASSETS
CURRENT LIABLITY
WORKING CAPITAL
REDUCTION IN WORKING CAPITAL
PREVOIUS
YEAR
23
0
23
32
YOU HAVE USED REDUCTION IN WORKING CAPITAL TO FUND FIXED ASSET CREAT
AND THIS AMOUNT REVEALED FROM FUND FLOW STATEMENT
OTHERWORDS,
YOU HAVE ATTEMPTED TO CREATE LONG TERM ASSET TO TUNE OF RS.50 CRS. B
ARRANGING LONG TERM FUND OF JUST RS. 18 CRS AND RELYING PREDOMINATY
SHORT TERM FUNDS OF RS. 32 CRORES
FFS SHOW THAT YOU WANT TO RUN BUSINESS WITH OTHER FUNDS, SPECIALLY
WHICH
CANTHAT
PUT LOTS
OF PRESSURES
ON LIQUIDITY
OF YOUR
BUSINESS
FFS SHOW
SOLVENCY
OF YOUR BUSINESS
IS ALWAYS
UNDER
PRESSURE AN
THREAT
FFS SHOW THAT YOU WANT TO CREATE ASSETS EVEN BEFORE YOU STABLISE IN
OPERATIONS
FFS SHOW THAT YOU ARE VERY POOR IN WORKING CAPITAL MANAGEMEN
FFS SHOW THAT YOU HAVE CHEATED YOUR BANKERS, BECAUSE YOU HAVE AVAIL
CASH CREDIT BUT IN TURN USED IT FOR CREATING FIXED ASSETS
REMARKS:
NT
??
Rs. Crore)
H ABOVE INFORMATION?????????
100
100
80
80
20
??
Rs. Crore)
URRENT ASSETS???
??
Rs. Crore)
100
3
103
80
80
23
PAYABLE
??
Rs. Crore)
12
9
103
RM USES??
YOUR FUND FLOW STATEMENT??
10
8
18
50
50
-32
CURRENT YEAR
68
77
-9
( PREVIOUS YEAR CURRENT YEAR)