CHAPTER – 1

INTRODUCTION
 INTRODUCTION

Financial management involves the management of finance functions it is concerned with the
planning, organizing, directing and controlling the financial activities of an enterprise it deals
mainly raising funds in the most economic and the suitable manner using these funds as
profitable as possible planned future development through financial account cost accounting
budgeting statistics and other means.
The finance function mainly deals with the following three functions:
1. Investment decision
2. Finance decision
3. Dividend decision firm.
Investment decision:
The investment decision relates to the selection of assets by a firm. The assets selection
decision of firm is one (or) two types. The first of these involving fixed assets is popularly
known capital budgeting. The aspect of financial decision-making with reference to current
assets or short-term assets is designated as working capital management.
Financial decision:
In this function, the finance manager has to establish carefully the total funds required by
the enterprise after taking into account both the fixed and working capital requirement in this
contest the financial manager is required to determine the best financing mix or capital structure
of the firm. Then he must decide him to acquire funds to meet the firm’s investment needs. The
central issue before the finance manager is to determine the best financing mix or optimum or
optimum capital structure for his firm.

Dividend decision:
The finance manager must decide whether the firm should distribute all profits or retain them.
Distribute a portion and retain the balance. The finance has to develop such a dividend policy,
which divides the net earnings into dividends and retained earnings in an optimum way to
achieve the objective of maximizing the market value of firm. In order to make these decisions
rational the management must have a clear understanding of the objectives rational the
management must have a clear understanding of the objectives, which are sought to be achieved.
Importance of finance need not be emphasized. It is needed the key to successful business
operations without proper administration of finance, no business enterprise can be utilizing is full
potentials for growth and success. Money is a universal lubricant, which keeps the enterprise
dynamic and keeps man and machine at work and encourages management to make progress and
creates value.

The growth of a business to a large extent depends on the current operations. So the working
capital management, the liquidity position of the firm can be understood. Working capital
management is an important part of investment decisions and is major importance to the finance
manager in order accomplish he wealth maximization, which is the capital ultimate goal of any
organization, depends on the working capital decisions, maintaining an optimum level of
working capital is a serious problem with which the finance manager is seriously concerned
because the problem of tradeoff between risk and return is involved, so working capital
management has now assumed an importance place in the business management.

OBJECTIVES OF STUDY
The main objectives of the study are the purpose of study aims at analyzing changes in the
financial position of company. It includes the following constrains.

 To know the operational efficiency of RELIANCE COMMUNICATIONS.

 To study & prepare Funds Flow Statements
 To analyze the movement of funds between the dates of two balance sheets in
period of study.
 To know the financial position of the RELIANCE COMMUNICATIONS.

 To find out true and fair view of the business.

 To find out various assets mix and the capability of the business to meet its
Long-term & short-term liabilities
RESEARCH METHODOLOGY
Primary data:

It is also known as first hand information. It is collected through questionnaire. In the present
study no primary data is used.

Secondary data:

It is also known as readymade information. The secondary data is collected from the published
reports of RELIANCE COMMUNICATIONS.

Period of the Study:

The period of research study is 43 days and four years data is considered for the i.e. 2008 - 12.
Tools of Analysis:
The data collected through secondary sources have been analyzed using appropriate statistical
measures like ratios and percentages, diagrams, tables and charts are presented to illuminate the
facts and figures. Various ratios are calculated to examine the causative factors in ascending the
effectiveness of funds flow in organization and management in RELIANCE
COMMUNICATIONS.

Scope of the Study:

There are plethora of techniques are available for studying financial performance of a firm. But
in the present study funds flow analysis technique is used to assess financial performance. In
practical scenario there exist different conventions, concepts and standards in implementation of
accounting principles. In the present study common principles are considered with references to
communication industry.
Financial analysis consists of ratio analysis and funds flow analysis. To know funds flow from
one to one, as the time available is very limited and the subjects are very vast, the study is
continued to overall financial condition of a firm. This study is to know working capital increase
or decrease funds from operation, sources and application of funds of RELIANCE
COMMUNICATIONS.
Limitations of The Study:

The study is based on four years data. It is not sufficient to present clear picture of the
RELIANCE COMMUNICATIONS. The accuracy of results depends on the accuracy of
published reports. All the limitations of financial statements will apply to the study more ever the
research period is not sufficient to cover up all aspects.

 The study is only pertaining to RELIANCE COMMUNICATIONS.

 The period of study is of 5 years and the performance evaluation is also limited to 5years.

 The study is purely based on the data available the form of annual reports...

 This study is conducted within a short period. The time factor is also a limitation.
 It cannot reveal continuous changes.
 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.
 It is not original statement but simply is arrangement of data given in the financial
statements.
 Changes in cash are more important and relevant for financial management than the
working capital.
 CHAPTER -2
INDUSTRY PROFILE
 INDIAN CELL PHONE INDUSTRY

Evolution of cell phones in India

The means of communication was revolutionized in the past century, a result of unprecedented
progress in Science and Technology. What started as a support system for US army to
communicate ultimately became a way of life for millions across the world. The emergence of
mobile phones is indeed fascinating and the current post deals with its development in a
fascinating country called India.

The mobile operations for general public began in mid 90s in India, though it was a luxury of the
rich only. The reasons were several. The call rate was very high, the sets were expensive. There
were fewer service providers which operated only in big metros. Another important reason was
that our country was in a state of transition. After the post independence failure of the socialist
model, the country had just opened up its economy and its middle class, who form the bulk of
consumers in any country, were yet to rise.

By the turn of the new millennium, the change was visible. With the growth rate shooting high,
we were experiencing a new change in our lives. The bourgeois class had finally made its present
felt in the country with all sorts of consumer goods taking a leap in sales. The sales of cell
phones also started rising as it began to make its presence felt among the new confident Indians
who entered the new century with high ambition. Since there was charge on incoming calls, cell
phones were mainly used by those who had business related to it. Although the status symbol
that it represented were diluting day by day.

The news came that the incoming calls were made free by the government. It was the turning
point for cell phones in India as it was embraced by the masses, whether they actually required it
or not was not a question to be asked. Since then there have been rapid development in the
mobile phone industry. With low call rates and reduction of handset prices, it became affordable
to any average man who comfortably earned his living.

The major reason for the cellular boom in India was its economic progress. We can’t deny the
power of money but it was not the sole reason. . During the BSNL monopoly, one had to wait for
long, even 8 years in some cases, to get a connection. The author believes that whoever
possesses cell phones today are among those who don’t have the knack to wait for those many
years to get a connection.
Another major reason was the lack of connectivity in rural India. Many villages don’t have
electricity. Cell phones came as a surprise as well as a boon for them who even don’t have access
to decent roads to commute.

If economic boom has enabled people to buy cell phones, the latter have also made people lead
better lives. Many small businessman, artisans and workers have really benefited with cell
phones and there are plenty of examples all around us.

Today, cell phones have become a way of life. From the dhobi alas to corporate honchos,
everyone uses it. Some use for their business, some to gossip, and some just to make style
statements, the truth is that cell phones have become an intrinsic way of life. Few years down the
line it would be unimaginable a life without cell phones. Coming to facts, India has over 100
million users and almost 8 million add every month making it the second largest cell phone
market in the world after China.

The telecom industry is one of the fastest growing industries in India. India has nearly 200
million telephone lines making it the third largest network in the world after China and USA.
With a growth rate of 45%, Indian telecom industry has the highest growth rate in the world.

Cellular services are a part of the telecommunication sector of India. It was launched in 1999
with the adoption of New National Telecom Policy by Telecom regulatory authority of India
(TRAI). Cellular services are further divided into two categories, namely GSM (Global System
for Mobile Communications) and CDMA (Code Division Multiple Access).GSM segment
consists of players like Airtel, Vodafone, Idea and BSNL. Whereas, CDMA segment consists of
players like Reliance, Tata, etc. There are ten private service operators in each area, and an
incumbent state operator. Cellular companies provide two types of subscriptions – pre-paid and
post-paid.
The DoT has allowed cellular companies to buy rivals within the same operating circle provided
their combined market share did not exceed 67 per cent. Previously, they were only allowed to
buy companies outside their circle.

Wireless Telecommunication Networks in India Today

Today, India is one of the fastest growing telecom markets in the world with current sub-scriber
base nearing 490 mil-lion and looking positive to touch 500 million subscribers by 2010. India,
the fastest growing telecom market in world, registered a CAGR of around 34% over the last
decade and has left analysts around the world totally in awe.

Among the various segments, cellular or mobile segment has been the key contributor and
specially prepaid services, with its wide offerings of services, has been leading the growth wave.
With the upcoming 3G allotment, the sector is likely to grow at a good rate riding on better and
possibly a whole new range of services.

The Indian telecommunications industry is one of the fastest growing in the world and India is
projected to become the second largest telecom market globally. According to the Telecom
Regulatory Authority of India (TRAI), the number of telecom subscribers in the country
increased to 562.21 million in December 2009, an increase of 3.5 per cent from 543.20 million in
November 2009. With this the overall teledensity (telephones per 100 people) has touched
47.89.The telecom industry notched up US$ 8.56 billion in revenues during the quarter ended
December 31, 2009 helped by a recovery in earnings from both mobile and landline services.
According to Business Monitor International, India is currently adding 8-10 million mobile
subscribers every month. It is estimated that by mid 2012, around half the country's population
will own a mobile phone. This would translate into 612 million mobile subscribers, accounting
for a tele-density of around 51 per cent by 2012.

The growing affluent-middle-class, low cost of handsets and call tariffs has helped this
stupendous growth .Even now the penetration rate of mobile phones in India, in comparison to
other markets like China, Japan, and European countries is low. This presents an enormous
opportunity for the Indian mobile service operators to enhance their market share through
mindshare. The recent policy initiative of allowing new operators in a circle has added fuel to the
competition in the cellular market, bringing the call tariffs to the lowest in the world.
The fierce competition among the cellular service providers resulted in numerous tariff plans,
group plans, contracts (life long validity), and top-up plans. Today, an Indian mobile customer is
overwhelmed with the competing offers and service packages from the competing operators.
Many of the world-renowned telecom giants are eying the fast-growing Indian mobile market.
With the FDI limit of 74% these MNCs are partnering with Indian business houses to enter into
India. Telenor, Datacom, Loop mobile, NTT Docomo are among the new entrants in the Indian
mobile space. Their entry with high-end value added services and quality infrastructure is bound
to push the prices further southward. The choice set for the Indian customer is widening with
increasing number of players in each telecom circle. These global competitors will spread their
arms by adopting innovative pricing strategies and value added services at lower costs,
leveraging their technology and financial muscle.

Mobile call tariffs in India are the lowest in the world. The tariffs dwindled from Rs. 6.50/minute
to 1paisa/second in just above seven years. Competition is intense among the players to attract
customers. Every now and then, a new scheme with low service charges and tariff plan pops up
and gets superseded by another new scheme within no time. The mobile market is flooded with
offers and packages and in fact, the customer is overwhelmed with competing choices. Customer
retention has become a challenge for the mobile operators with increasing competition. Some
marketers target brand switchers because brand switchers have higher market potential
.Switching is encouraged by all the players in the mobile market to enhance the customer base.
Moreover, in the prepaid GSM services, the switching costs are low that they make switching
easy. The only major impediment to switching, as of now, is the inconvenience of changing to a
new number. The Telecom Regulatory Authority of India is in the process of finalizing the
procedure for Mobile Number Portability which allows the customer to retain the same mobile
number across the operators. This is expected to open floodgates for customer switching in both
pre-paid and post-paid segments. In the wake of the above, in order to effectively design
strategies to retain customers to enhance profitability, there is a need to understand the factors
that are prompting customers to switch operators.
Sector Overview:

15 years back, no one had thought that India will become a country with more number of GSM
subscribers than fixed line sub-scribers. According to the Telecom Regulatory Authority of
India (TRAI), the number of telecom subscribers in the country increased to 562.21 million in
December 2009, an increase of 3.5 per cent from 543.20 million in November 2009. With this
the overall teledensity (telephones per 100 people) has touched 47.89.

As per the estimates of Stock watch the expected mobile subscriber base will touch around 771
million by the year 2013. Telephony services i.e. (mobile and basic) and internet services
dominate the Indian Tele-com services market. With a CAGR of 29% from 2002 to 2007 with
revenues of $20 billion, it is expected to stabilize at 16% by 2010 with revenues in the range of
$43 billion. Over the years, wire-less services has acquired almost 92% of the total telephony
market, with State owned BSNL as the leader in the landline domain and Bharti Airtel being the
leader in cellular services with other players like Reliance, Idea Cellular and Vodafone giving it
a tough competition.

The number of telephone subscribers in India increased from509.03 Million at the end of Sep-09
to 562.16 Million at the end ofDec-09, registering a growth of 10.4%. The overall Teledensity in
India has reached 47.88 as on 31st December 2009.
Subscription in Urban Areas grew from 357.22 Million at the end of Sep-09 to 387.63 Million at
the end of Dec-09, taking the urban Teledensity from 102.79 to 110.96. Rural subscription
increased from 151.81 Million to 174.53 Million leading to increase in Rural Teledensity from
18.46 to 21.16, during this period.
About 57% of the total net additions have been in urban areas as compared to 65% in the
previous quarter. These in other words imply rapid increase in rural subscriptions during the
quarter. However, this uptake in rural subscription is in wireless segment.
The share of rural subscribers has increased to 31% in total subscription from 29.8% in Sep-09.
Growth Prospects: Telecom in India

Indian telecom industry has set an example by penetrating the market to an extent of around 43%
in a span of 10 years when analysts and experts were extremely skeptical about India as a
market. The growth has not been restricted only to the higher section of the society, now it is
driven primarily by the rural market as well and the acceptance has been in-creasing
considerably over the years. On an average approximately 8 million users are added per month to
the kitty thereby making India the world‘s fastest growing telecom market and thus happens to
be the country offering highest ROI for the telecom companies. To support the growing telecom
market, the government is supporting telecom manufacturing by providing tax sops as well as
setting up Special economic zones The future for the Indian Telecom industry looks bright with
fierce com-petition making way for consolidation. The growth will be majorly driven by rural
sector which is currently attracting good investment not only from the players but also from the
government. The biggest challenge will be to keep in touch with the rural customers as setting up
customer touch points requires investment with not much tangible returns as the number of sub-
scribers is still pretty low. As of now the penetration in rural areas is around 10% as opposed to
around 30% in urban landscape. The industry currently is nicely poised with great new policy
changes and new players entering the market to make it more fruitful for the consumers.

India’s Competitive Advantage

An analysis of the Indian telecom industry under the Porter’s Diamond Model reveals that India
offers a competitive advantage for firms operating in the country.
India is the fastest growing free market democracy in the world. It has a mature and dynamic
private sector, which accounts for 75 per cent of India’s GDP, and a market with enormous
potential due to its large size and diversity. It is also expected to achieve the highest growth rate
among the BRIC countries (Brazil, Russia, India and China). India offers significant business
opportunities to the services, as well as the manufacturing sectors. This is because India offers
benefits such as cost advantage in product development and back-office processing and the
large-scale availability of skilled English-speaking professionals. The middle class population is
also a significant market for any business entity. AT Kearney ranked India as the second-most
attractive democracy in its FDI confidence index. The success of MNCs is a proof that India is
an attractive investment destination. India’s huge domestic market and buoyant economic growth
have always attracted foreign investors.

Stable Economic Outlook

A decade of reforms has opened the country to greater competition and spurred industries to
become more efficient. India is currently the fourth-largest economy on PPP basis and is well
positioned on a continuously increasing growth curve. India’s emergence as a leading destination
for foreign investment is a result of positive indicators such as a stable 6 per cent annual growth,
rising foreign exchange reserves of over US$ 266.18 billion(July 24th 2009) and Foreign Direct
Investment (FDI) of US$ 15 billion. Goldman Sachs had earlier predicted that India will become
the third-largest economy in the world. However, it has now revised its previous estimates and
claims that by 2050, India will even surpass the US and become the second-largest economy
after China. The country’s economic growth has become more attractive due to the rising share
of the services sector in the GDP. ed foreign investors.

Large Talent Pool

The working age population is expected to rise by 83 per cent by 2026. India has over 380
universities and about 1,500 research institutes, which churn out approximately 200,000
engineers, 300,000 post graduates, 2,100,000 other graduates and around 9,000 PhDs. This large
base of skilled manpower offers unparalleled advantages to the companies operating in India. As
a result, many multinational companies have either established operation hubs in India to
leverage this sizeable talent pool, or they have outsourced their work to a third party in India.
The numerous BPOs and KPOs flourishing in India are a direct consequence of companies
choosing the latter option.

Low Labor Cost

CII estimates that manufactured product outsourcing accounted for US$ 10 billion in 2007. The
value will escalate to US$ 50 billion by 2015. India has one of the lowest labor costs among the
developing countries, which is the foremost factor for attracting multinational giants in every
sector. The Ministry of Commerce, Government of India, has estimated that off shoring
operations to India can provide a cost benefit of up to 40 to 60 per cent, as compared to
developed countries. The country has also emerged as a major R&D hub with more than hundred
Fortune 500 companies based in India. An apt example is Nokia, which has set up its
manufacturing operations in India considering the long term sustainable demand for mobile
telephony. The company believes that this initiative will help the company in reducing time to
market and respond better to customer requirements. It has pumped in US$ 150 million into its
Chennai facility

Key trends in telecom industry:

3G spectrum:

3G spectrum will be the next growth wave in the industry and also the source of additional
revenues for the companies. Foreign players such as AT&T and NTT Do Como have show great
interest for the same. The spectrum allotment is a major investment opportunity and is estimated
to attract an investment of around US$8-10 billion during 2008-11. The state owned incumbent
BSNL has successfully launched its 3G service under the proposed ‘India-Golden 50’ scheme
but could not create that much of buzz though for not being aggressive in marketing the same.
WiMax on the other hand promises seamless connectivity with speed of more than 4 Mbps in
tough terrains also. With the growing number of smart phones entering the market coupled with
buzz created by the social networking websites, one can surely expect a substantial amount of
people using their mobile phones for the internet. The telecom ministry is planning to auction
few slots in WiMax in near future. VAS on the other hand is the constant source of revenue and a
means to en-gage subscribers. The expected revenue from VAS will be around US$ 4.0 billion
by 2015. The con-current developments like M-Commerce, focus on localization, availability of
content in vernacular languages, availability of mobile TV are few out of many growth drivers
for the VAS industry. With the customer data at their disposal, telecom companies are generating
knowledge and information by churning out this data to serve their customers better.

Mobile Number portability (MNP)

One of the most frequent definitions that prevail in the telecom circles for number portability is:
"Number portability is a circuit-switch telecommunications network feature that enables end
users to retain their telephone numbers when changing service providers, service types, and or
locations." Why mobile number portability (MNP)? When fully implemented nationwide by both
wire line and wireless providers, portability will remove one of the most significant deterrents to
changing service, providing unprecedented convenience for consumers and encouraging
unrestrained competition in the telecommunications industry. In short, this is the best method to
increase the efficiency of the service provider by increasing the competition, thereby ensuring
better services in all respects. From the subscribers’ perspective, this is a deceptively simple and
very welcome change, because they can change wireless service providers without worrying
about notifying friends, family and business contacts that their wireless number is changing. In
addition, being able to ‘port’ a number from one provider to another eliminates the hassle and
expenses of changing business cards, stationery, invoices and other materials for businesses.
From the wireless carrier’s perspective the change is anything, but simple. Virtually all of
wireless carriers’ systems are affected. Especially any system that relies on mobile identity
numbers (MINs) or mobile directory numbers (MDNs) will be affected. Examples of critical
systems and processes that would be affected are: billing, customer service, order activation, call
delivery, roamer registration and support, short messages service center, directory assistance,
caller ID, calling name presentation, switches, maintenance and CSC systems, home location
registers (HLRs), and visiting location registers (VLRs).

Mobile Virtual Network Operator (MVNO)

Mobile Virtual Network Operator (MVNO) is a GSM phenomenon where an operator or

company which does not own a licensed spectrum and generally with out own networking
infrastructure. Instead MVNOs resell wireless services under their brand name, using regular
telecom operator's network with which they have a business arrangements. Usually they they buy
minutes of use from the licensed telecom operator and then resell minutes of usage to their
customers of MVNO. Currently MVNOs are emerging in fast pace in European markets and
beginning in USA also. Slowly MVNO phenomenon is catching up in Asia and other parts of the
world also.
IPTV
IPTV (Internet Protocol Television) delivers television programming to households via a
broadband connection using Internet protocols. It requires a subscription and IPTV set-top box,
and offers key advantages over existing TV cable and satellite technologies. IPTV is typically
bundled with other services like Video on Demand (VOD), voice over IP (VOIP) or digital
phone, and Web access, collectively referred to as Triple Play.

Because IPTV arrives over telephone lines, telephone companies are in a prime position to offer
IPTV services initially, but it is expected that other carriers will offer the technology in the
future.
 CHAPTER – 3

COMPANY PROFILE
 THE RELIANCE GROUP OF INDUSTRIES LIMITED

OUR FOUNDER

Few men in history have made as dramatic a contribution to their country’s economic fortunes

as did the founder of Reliance, Sh. Dhirubhai H Ambani. Fewer still have left behind a legacy

that is more enduring and timeless. As with all great pioneers, there is more than one unique

way of describing the true genius of Dhirubhai The corporate visionary, the unmatched strategist,

the proud patriot, the leader of men, the architect of India’s capital markets, the champion of

shareholder interest. But the role Dhirubhai cherished most was perhaps that of India’s greatest

wealth creator. In one lifetime, he built, starting from the proverbial scratch, India’s largest

private sector enterprise. When Dhirubhai embarked on his first business venture, he had a seed

capital of barely US$ 300 (around Rs 14,000). Over the next three and a half decades, he

converted this fledgling enterprise into a Rs 60,000 crore colossus—an achievement which

earned Reliance a place on the global Fortune 500 list, the first ever Indian private company to

do so. Dhirubhai is widely regarded as the father of India’s capital markets. In 1977, when

Reliance Textile Industries Limited first went public, the Indian stock market was a place

patronised by a small club of elite investors which dabbled in a handful of stocks.Undaunted,

Dhirubhai managed to convince a large number of first-time retail investors to participate in the

unfolding Reliance story and put their hard-earned money in the Reliance Textile IPO, promising

them, in exchange for their trust, substantial return on their investments. It was to be the start of

one of great stories of mutual respect and reciprocal gain in the Indian markets. Under

Dhirubhai’s extraordinary vision and leadership, Reliance scripted one of the greatest growth
stories in corporate history anywhere in the world, and went on to become India’s largest private

sector enterprise. Throughout this amazing journey, Dhirubhai always kept the interests of the

ordinary shareholder uppermost in mind, in the process making millionaires, out of many of the

initial investors in the Reliance stock, and creating one of the world’s largest shareholder

families.

THE RELIANCE ANIL DHIRUBHAI AMBANI GROUP

OUR CHAIRMAN

 Regarded as one of the foremost corporate leaders of contemporary India, Shri Anil D

Ambani, 48, is the chairman of all listed companies of the Reliance ADA Group,

namely, Reliance Communications, Reliance Capital, Reliance Energy and Reliance

Natural Resources.

 He is also the president of the Dhirubhai Ambani Institute of Information and

Communications Technology, Gandhinagar

 An MBA from the Wharton School of the University of Pennsylvania, Shri Ambani is

credited with pioneering several financial innovations in the Indian capital markets. He

spearheaded the country’s first forays into overseas capital markets with international

public offerings of global depositary receipts, convertibles and bonds.

 Under his chairmanship, the constituent companies of the Reliance ADA group have

raised nearly US$ 3 billion from global financial markets in a period of less than 15

months.

 Shri Ambani has been associated with a number of prestigious academic institutions in

India and abroad.

HE IS CURRENTLY THE MEMBER OF:-

 Wharton Board of Overseers, The Wharton School, USA

 Board of Governors, Indian Institute of Management (IIM), Ahmedabad

 Board of Governors, Indian Institute of Technology (IIT), Kanpur

 Executive Board, Indian School of Business (ISB), Hyderabad

 In June 2004, Shri Ambani was elected as an Independent member of the Rajya Sabha –

Upper House, Parliament of India, a position he chose to resign voluntarily on March 25,

2006.

SELECT AWARDS AND ACHIVEMENTS:-

 Voted ‘the Businessman of the Year’ in a poll conducted by The Times of India – TNS,

December 2006

 Voted the ‘Best role model’ among business leaders in the biannual Mood of the Nation poll

conducted by India Today magazine, August 2006

 Conferred ‘the CEO of the Year 2004’ in the Platts Global Energy Awards

 Conferred 'The Entrepreneur of the Decade Award' by the Bombay Management

Association, October 2002

 Awarded the First Wharton Indian Alumni Award by the Wharton India Economic Forum

(WIEF) in recognition of his contribution to the establishment of Reliance as a global leader

in many of its business areas, December 2001

 Selected by Asia-week magazine for its list of 'Leaders of the Millennium in Business and

Finance' and was introduced as the only 'new hero' in Business and Finance from India, June

1999

RELAINCE PHILOSOPHY:-

VISION To build a global enterprise for all our stakeholders, and A great future for

our country, To give millions of young Indians the power to shape their destiny,The means to

realize their full potential…

VALUES

 Shareholder Interest

 People Care

 Consumer Focus

 Excellence in Execution

 Team Work

 Proactive Innovation

 Leadership by Empowerment

 Social Responsibility

 Respect for Competition

 Shareholder Interest

We value the trust of shareholders, and keep their interests paramount in every business decision

we make, every choice we exercise

People Care
We possess no greater asset than the quality of our human capital and no greater priority than the

retention, growth and well-being of our vast pool of human talent

Consumer Focus

We rethink every business process, product and service from the standpoint of the consumer – so

as to exceed expectations at every touch point.

Excellence in Execution

We believe in excellence of execution – in large, complex projects as much as small everyday

tasks. If something is worth doing, it is worth doing well.

Team Work

The whole is greater than the sum of its parts; in our rapidly-changing knowledge economy,

organizations can prosper only by mobilizing diverse competencies, skill sets and expertise; by

imbibing the spirit of “thinking together” -- integration is the rule, escalation is an exception.

Proactive Innovation

We nurture innovation by breaking silos, encouraging cross-fertilization of ideas & flexibility of

roles and functions. We create an environment of accountability, ownership and problem-solving

–based on participative work ethic and leading-edge research.

Leadership by Empowerment

We believe leadership in the new economy is about consensus building, about giving up control;

about enabling and empowering people down the line to take decisions in their areas of operation

and competence.

Social Responsibility
We believe that organizations, like individuals, depend on the support of the community for their

survival and sustenance, and must repay this generosity in the best way they can.

Respect for Competition

We respect competition – because there’s more than one way of doing things right. We can learn

as much from the success of others as from our own failures.

OUR STRUCTURE:-
ABOUT RELIANCE ENERGY

 Reliance Energy Limited, incorporated in 1929, is a fully integrated utility

engaged in the generation, transmission and distribution of electricity. It

ranks among India’s top listed private companies on all major financial

parameters, including assets, sales, profits and market capitalization.

  It is also India’s foremost private sector utility with aggregate estimated

revenues of Rs 9,500 crore (US$ 2.1 billion) and total assets of Rs 10,700

crore (US$ 2.4 billion).

 Reliance Energy distributes more than 21 billion units of electricity to over

25 million consumers in Mumbai, Delhi, Orissa and Goa, across an area

that spans 1,24,300 sq. kms. It generates 941 MW of electricity, through

its power stations located in Maharashtra, Andhra Pradesh, Kerala,

Karnataka and Goa.

 Reliance Energy is currently pursuing several gas, coal, wind and hydro-

based power generation projects in Maharashtra, Uttar Pradesh, Arunachal

Pradesh and Uttaranchal with aggregate capacity of over 12,500 MW.

These projects are at various stages of development.

 Reliance Energy is vigorously participating in emerging opportunities in

the areas of trading and transmission of power. It is also engaged in a

portfolio of services in the power sector in Engineering, Procurement and

Construction (EPC) through a network of regional offices in India.

RELIANCE CAPITAL

 Reliance Capital Ltd is a part of the Reliance - Anil Dhirubhai Ambani Group, and is

ranked among the 15 most valuable private companies in India.

  Reliance Capital is one of India's leading and fastest growing private sector financial

services companies, and ranks among the top 3 private sector financial services and

banking groups, in terms of net worth.

 Reliance Capital has interests in asset management and mutual funds, life and general

insurance, private equity and proprietary investments, stock broking, depository services,

distribution of financial products, consumer finance and other activities in financial

services.

 The Reliance Anil Dhirubhai Ambani Group is one of India's top 3 business houses, and

has a market capitalisation of over Rs.2,90,000 crore (US$ 75 billion), net worth in

excess of Rs.40,000 crore (US$ 10 billion), cash flows of Rs. 9,000 crore (US$ 2.2

billion), net profit of Rs. 5,000 crore (US$ 1.3 billion) and zero net debt.

RELIANCE ENTERTAINMENT

Reliance Entertainment is spearheading the Group’s foray into the media and

entertainment space. Reliance Entertainment’s core focus is to build significant presence for

Reliance in the Entertainment eco-system: across content and distribution platforms.

‘Adlabs Films’
 The key content initiative are across Movies, Music, Sports, Gaming, Internet & mobile

portals, leading to direct opportunities in delivery across the emerging digital distribution

platforms: digital cinema, IPTV, DTH and Mobile TV.

Reliance ADA Group acquired Adlabs Films Limited in 2005, one of the largest

entertainment companies in India, which has interests in film processing, production, exhibition

& digital cinema. www.adlabsfilms.com, www.adlabscinemas.com

‘BIG92.7FM’

BIG 92.7 FM, already rolled out in several cities successfully, is on the verge of creating

a pan-Indian presence, spanning 45 cities, 1,000 towns and 50,000 villages. It will reach 200

million people across the length and breadth of the country. The company plans to promote radio

not only as a medium of entertainment but also as a vehicle for informing and empowering

listeners in key metro towns as well as far-flung rural markets. The aim is to create a radio

network that is exciting, innovative and contemporary, yet retains an essential element of 'Indian-

ness' in its content. Keeping with the tag line ‘Suno Sunao, Life Banao!’, it is BIG 92.7 FM’s

endeavour to ensure its offerings have a positive impact on people’s lives. www.big927fm.com.

‘RELIANCE BIG ENTERTAINMENT’

 Helping to realise Reliance Anil Dhirubhai Ambani Group’s vision of assuming a

position of leadership in communications, media and entertainment, Reliance Entertainment is

geared to create a significant presence in businesses across various vectors of content, services

and platforms for distribution. Recognising that India is standing on the threshold of an

experience and entertainment economy, the company strives to create converged services and

platforms for masses to access innovative, cutting-edge content. Key content initiatives include

production and strategic collaboration in areas such as gaming, movies, animation, music, sports

and user-generated content, amongst others.

‘ZAPAK’

Zapak.com is India’s No.1 online gaming portal. It has been one of the most successful

youth brand launches in the past three years. Zapak acquired more than 1 million registered users

in the first four months of its launch; the current registered user base exceeds 3 million. The

company has already started building a pan-India gaming infrastructure with the launch of state-

of-the-art gameplexes and

‘massively multiplayer online games’ (MMOGs). Zapak is committed to spearhead the online

gaming revolution in India with the best content and gaming experience. www.zapak.com.

‘BIG FLICKS’

Bigflicks.com aims to redefine the home entertainment business by providing movie

rental and movie download services both to the domestic market as well as the NRI community.

Apart from Internet-based services, the company has started building a pan-India infrastructure

to reach out to masses with the opening of a chain of DVD stores. The service is subscription-
based and rides on a robust infrastructure for home delivery. Bigflicks is poised to create the

largest content library in India to provide its customers with the widest choice of movie viewing.

www.bigflicks.com.

‘BIGADDA’

Bigadda.com is India’s own social networking platform for Web and mobile. A Web

2.0 initiative, Bigadda is built on a technology framework for user-generated content. It is

innovative and comprehensive with unique youth-centric appeal across communities, hosting

video and photo sharing features, blogging and music platforms. www.bigadda.com.

‘BIG MOTION PICTURES’

Big Motion Pictures is India's first motion picture studio with a countrywide presence

and a vision to create movies that entertain Indian—and global—audiences. With one of the

largest movie slates ever mounted in the history of the Indian film industry and partnerships

forged with the best creative talent across the country, Big Motion Pictures is poised to redefine

the movie viewing experience of audiences. The company has established world-class production

facilities that will offer a platform for unfettered creativity and cutting-edge filmed entertainment

content. With a production pipeline exceeding 40 films, Big Motion Pictures is poised to become

a dominant player in one of the world's fastest growing film industries.

‘BIG ANIMATION’ (AniRights Infomedia)

 AniRights is a technologically superior digital animation content creation company. Its

state-of-the-art studio in Pune creates next-generation animation for theatre, television, direct-to-

home and other platforms. Its team excels in producing world-class, award-winning digital

animation shows by blending technology and creativity. AniRights aims to create content for the

entire audio-visual spectrum and keep the global audience informed and entertained.

www.anirights.com.

‘JUMP GAMES’

Jump Games is a leading publisher and developer of mobile games. It has leveraged its

experience and expertise to create innovative gaming content endorsed by some of the best

global brands. Its commitment to quality gaming is reflected in award-winning games like Bappi

Da Disco King, which won the Best Mobile Game in India in 2007. Distributed across the US,

Europe, South Africa, Australia, the Middle East and Asia, Jump's games can be played on

leading networks in over 40 countries.www.jumpgames.co.in.

‘BIG MUSIC&HOME ENTERTAINMENT’

Big Music & Home Entertainment launched its first product, Kireedam, in June 2007. In

the next three months, it rapidly made its presence felt in the Hindi and South Indian film

industries with successful musical launches such as Cash, Johnny Gaddaar, Dhamaal and Happy

Days. In addition, the company has signed on the greatest names in the industry, including Asha

Bhosle, Jagjit Singh, Ghulam Ali and Shankar Mahadevan. Big Music and Home Entertainment

plans to focus on digital platforms such as the Internet and mobile and radio networks, in

addition to traditional physical formats. It will also make its foray into events and live
entertainment through talent management and conducting live events. An example is its tie-up

with Star Voice of India to manage the winner and other finalists with shows and albums.
 ABOUT RELIANCE COMMUNICATIONS

The Late Dhirubhai Ambani dreamt of a digital India - India Where the common man

would have access to affordable means of information and Communication . Dhirubhai, who

single – handed built India’s largest private sector company virtually from scratch , had stated

as early as 1999 : “ Make the tools of information and communication available to people at

an affordable cost . They will overcome the handicaps of illiteracy and lack of mobility ” It

was with this belief in mind that Reliance Communications (formerly Reliance Infocomm )

started laying 60,000 route kilometres of a pan – India fibre optic backbone . This backbone

was commissioned on 28 December 2002 , the auspicious occasion of Dhirubhai’s 70th

birthday , though sadly after his unexpected demise on 6 July 2002 . Reliance communications

has a reliable , high – capacity , integrated ( both wireless and wire line ) and convergent ( voice ,

data and video ) digital network . It is capable of delivering a range of services spanning the

entire infocomm ( information and communication ) value chain , including infrastructure and

services — for enterprises as well as individuals , applications , and consulting . Today ,

Reliance Communications is revolutionising the way India communicates and networks, truly

bringing about a new way of life.

 PRODUCT PROFILE

PRODUCTS OF RELIANCE COMMUNICATIONS

Handsets providers of reliance communications are

 LG

 CLASSIC

Various handsets provided by LG are:

 2690 (b/w)

 2530 (b/w)

 2750 (b/w)

 RD3000 (colour)

 RD3100 (colour + fm(radio))

various handsets provided by CLASSIC are:

 701 (b/w)

 703 (colour display)

 731 (colour)

 702 (b/w)

 762 (colour + fm)

 761 (colour + fm)

 161 (recently launched)

 CHAPTER – 4

THEORITICAL FRAME WORK

 THEORITICAL FRAMEWORK

Introduction
The basic financial statements i.e., the balance sheet and profit and loss account or
income statement of business, reveal the net effect of various transactions on the operational and
financial position of the company. The balance sheet gives a summary of the assets and liabilities
of an undertaking at a particular point of time. It reveals the financial states of the company. The
assets side of a balance sheet incurred and the revenue realized in an accounting period and the
revenue realized in an accounting period. Both the statement provides the essential basic
information on the financial activities of a business but their usefulness is limited for analysis
and planning purposes. The balance sheet gives a static view of the resources (liabilities) of a
business and the uses (assets) to which these resources have been put at a certain point of time. It
does not disclose the causes 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
operate through profit and loss account. Thus another statement has to be prepared to show the
change in the assets and liabilities from the end of one period of time to the end of another period
of time. The statement is called a statement of changes in financial position or a funds fl
The Funds Flow Statement is a statement, which shows the movement of funds
and is a report of the financial operations of the business undertaking. It indicates various means
by which funds were obtained during a particular period and the ways in which these funds were
employed. In simple words it is a statement of sources & applications of funds.
There are many transactions that take place in an undertaking and which do not operate Profit &
Loss A/c. Thus another statement has to be prepared to show the change in Assets & Liabilities
from the end of one period of time to the end of another period of time. The statement is called a
statement of changes in financial position or a Funds Flow Statement.
The Funds Flow Statement is a statement which shown the movement of funds and is a report of
financial operations of business undertaking. In simple words it is a statement of source and
application of funds.
In any business we cannot under estimate the flow of funds from two operations. The business
runs with funds but the organization knows how to flow of funds. The Funds Flow Statement is
concerned with sources and applications of organization. Statement of changes in working
capital shows the increase or decrease in the working capital.
“Funds from Operations” statement shows how much funds from operations.
A Funds Flow Statement is a statement which reflects flow of funds. The statement is called "
Statement of Sources and Applications of Funds " or "Statement of Derivation and Disposition
of the Means of Operation " or " Where Got, Where Gone Statement " or " Movement of
Working Capital Statement " or " Movement of Funds Statement " other self explanatory names
may also be used for the statement.
The Statement Show flows of funds into (i.e. sources) and out of (i.e. applications) business.
Obviously, statement will have two aspects

1. Sources of Funds and

2. Their Application.
Before, we know about the Sources and Application of Funds. It is better to understand the
word “Funds”

Funds:
The work “Funds should not be constructed as 'cash' only. They are understood as 'Working
capital'. That is why the items which do not affect the working capital are not reflected in the
statement. For example, conversion of debentures into shares, dividend paid through issue of
bonus shares and such other items are not included in the statement. In other words, the
statement does not contain the transfers, amortizations, and accruals i.e., internal transactions.
Thus, we may say that 'sources' consist of the transactions that increase the net working capital
and their 'Application' consists of the transaction that decreases the net working capital.
Sources of Funds:

1. Issue of Share Capital.

2. Borrowing.
3. Sale of Fixed assets and Investments.
4. Income from Investments.
5. Income from Trading Operations (i.e. Profit).
6. Decrease in Working capital.
7. Non-Trading operations like dividend received, gifts etc.

Application of Funds:

1. Repayment of Debentures, Lines and Redeemable shares.

2. Purchase of Investments and other Fixed Assets.
3. Payment of Dividends.
4. Increase in Working Capital.
5. Loss on account of Trading Operations.
6. Non-Trading expenses.

Importance of Funds Flow Statement:

The primary object of preparing the Funds Flow Statement is to know the sources of funds and
their application during a given period, normally one year. The statement is prepared with the
help of two balance sheets (opening and closing) and the profit and loss account for the particular
period. Many large companies prepare such statement for their shareholders as part of the
published accounts. The statement is useful to both the external and internal parties concerned.

Usefulness to Outsiders:

1. To assess the funds available for payment of dividend and interest on the investments.
2. To assess the probable expected return on the future investments.
3. To assess the efficiency of management in application of funds.
 4. To assess degree of risk involved in lending money to the concern.

Usefulness to Management:

1. Management knows the sources and application of funds and their compositions.
2. The statement, though historical in nature, may be said to be a counterpart to business
budgets. It facilitates control. Management may know whether the working capital has
been efficiently used or not. Hence the statement is very helpful in policy decisions.

Uses of Funds Flow Statement:

The various uses of funds flow statement ate summarized as under

(a) As a Tool of Historical Analysis:

It provides an answer to some of the important financial questions such as:

1. How was it possible to distribute dividend in excess of current earnings or in the

presence of a net loss for the period?
2. Why has the net working capital decreased although there has been a net loss for the
period?
3. Why has the net working capital increased even though there has been a net loss for the
period?
4. What happened to the proceeds of the sale of plant and equipment?
5. Why did the firm issue new equity or preference shares?
6. How was the retirement of long-term debts or redemption of redeemable preference
shares accomplish?

(b) As a Tool of Planning:

The projected Funds Flow Statement enables the management to plan its future investments,
operating and financial activities such as the repayment of long-term loans and interest there on,
modernization or expansion of plant, payment of dividend etc.
(c) As a Tool in Managing and Utilizing the Working Capital:

The management can know the adequacy or otherwise of the working capital and can plan for the
effective utilization of working capital or can make arrangement in case of inadequacy of
working capital. The management can identify the magnitude and directions of change in various
components of working capital and if there is any undesired situation such as high inventory high
receivables then normally required, the necessary corrective action may be taken so as to achieve
the desired level.

Meaning and concept of Funds:

The term flow means movement and includes both inflow and out flow. The term
flow of funds means transfer of economic values from one asset of equity to 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.
The term fund has been defined in a number of ways. In a narrow sense, it means
cash only and a funds flow statement. Such a statement enumerates net effects of the various
business transactions on cash and takes into account receipts and disbursements of cash. Fund
refers to all the financial resource of the company on the other extreme fund has been understood
as cash only. The most acceptance meaning of the “fund” is “working capital”.

The term fund has a variety of meaning:

A) Cash Fund Or Narrow Sense:

In a narrow sense, funds mean only cash. ‘Cash flow statement portrays net effect of various
business transactions cash into account receipts & disbursement of cash.

The concept of preparing funds from statement is not accepted, as there are many such
transactions that do not affect cash but represent the flow of fund.
B) Capital Fund (or) Broader Sense:
The term ‘funds’, refers to money values in whatever form it may exit. Here
‘funds’ means all financial resources, used in business whether in the form of men, material
money, machinery and others.

C). Net Working Capital (or) Popular Sense:

Networking capital means differences between current assets & liabilities. A fund generally
refers to cash or cash equipment or to working capital. The term ‘funds’, means working capital,
i.e., the working capital concept of funds has emerged due to the fact that total resources of a
business are invested partly in fixed assets in the form of fixed capital and partly kept in form of
liquid or near liquid form as working capital.

Definition of Flow of Fund:

Flow of fund means movement of fund. I take the example of air; we can feel its movement or
flow of air. Same thing is happen with fund, due to the activity of business fund is transfer from
one asset to another assets. If fixed assets are converted into current asset or fixed liability is
converted into current liabilities, these are the flow of fund. But if current assets are changed
with current assets or current assets are changed into current liabilities, then, there is no flow of
fund because there is no change working capital. Suppose, we get the money from debtor, this is
not flow of fund because, working capital is not changed. Both items of current assets and when
current assets change into current assets, there will not be change in working capital.
Flow of Fund = Fixed asset changes into current asset or current asset changes into fixed assets
Or
Fixed liability changes into current liability or current liability changes into fixed liability.
Definition of Funds Flow Statement:

Fund flow statement is a statement which shows the inflow and out flow of funds between two
dates of balance sheet. So, it is known as the statement of changes in financial position. We all
know that balance sheet shows our financial position and inflow and outflow of fund affects it.
So, in company level business, it is very necessary to prepare fund flow statement, to know what
the sources and what are the applications of a fund between two dates of a balance sheet.
Generally, it is prepare after getting two year balance sheet.

Fund flow statements are known with different names

Statement of source and uses of funds or Summary of financial operations

Movement of working capital statement or Fund received and distributed statement

or
Fund generated and expended statement

“The funds flow statement describes the source from which additional funds were derived and
the use to which these coerces were put”.
--ANTHONY.

Funds flow statement, income statement and balance sheet:

Funds flow statement is not a substitute of an income statement, i.e., a profit &
loss account and balance sheet.
A balance sheet is a statement of financial position or status of a business on a
given date. It is prepared at the end of accounting period. The balance sheet depicts various
resources of an undertaking and his deployment of these resources in various assets on a
particular date.
 Hence, funds flow statement is not competitive but complementary to financial
statements. The funds statement provides additional information as regards changes in working
capital. It is a tool of management for financial analysis and helps in making decisions.

Funds Flow Statement is different from Income Statement (Profit and Loss
Account):

A funds flow statement differs from an income statement (i.e. Profit and Loss Account) in
several respects:
1. A Funds Flow Statement deals with the financial resources required for running the business
activities. It explains how were the funds obtained and how were they used, whereas an income
statement discloses the results of the business activities, i.e., how much has been spent.
2. A Funds Flow Statement matches the “funds raised” and " funds applied” during a particular
period. The sources and applications of funds may be of capital as well as of revenue nature. An
income statement matches the incomes of a period with the expenditures of that period which are
both of a revenue nature. For example where shares are issued for cash, it becomes a source of
funds while preparing a funds flow statement but it is not an item o income for an Income
statement.
3. Sources of funds are many besides operations such as share capital, debentures, sale of fixed
assets, etc. An income statement which discloses the results of operations cannot even accurately
tell about the funds from operations alone because of non-funds items (such as depreciation,
writing off of fictitious assets, etc.) Being included there in,
Thus, both income statement and Funds Flow Statement have different functions to perform.
Modern management needs both. One cannot be substituted for the other; rather they are
complementary to each other.
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.
3. While preparing funds flow
statement both capital and revenue
item are considered.
4. There is no prescribed format for
preparing a fund flow statement.
Income statement
1. It does not reveal the inflow and
outflows of funds but deposits
the items of expenses and
income arrive at the figure of
profit or loss.
2. Income statement is not
prepared from fund flow
statement.
3. Only revenue item are
considered.
4. It is prepared prescribed format.
 Difference between funds flow statement & balance sheet
Funds flow statement
1. It is a statement of changes in
financial position and hence is
dynamic in nature.
2. It shows the sources and uses of
funds in a particular period of time.
3. It is a tool of management for
financial analysis and helps in
making decisions.
4. Usually, schedule of changes in
working has to be prepared before
preparing funds flow statement.
Balance sheet
1. It is a statement of
financial position on a particular
date and hence is static in nature.
2. It depicts the assets and
liabilities at a particular point of
time.
3. It is not of much help to
management in making decisions.
4. No such schedule of
changes in working capital is
required. Rather profit & loss
account is prepared.

Uses, significance and importance of funds flow statement:

1. A fund flow statement is an essential tool for the financial analysis and is of
primary importance to the financial management. The basic purpose of a funds flow statement is
to reveal the changes in the working capital on the two balance sheet dates. If 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. The significance or importance of funds flow statement can be well followed from its
various uses given below. 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 of a business and the uses to which have been put
at a certain point of time. The funds flow statement explains causes for such changes and also the
effect of this change on the liquidity position of the company sometime a concern may operate
profitably and yet its cash position may become more and worse. The funds flow statement gives
a clear answer to such a situation explaining what has happened.
2. It throws light on many perplexing questions of general interest:

Which otherwise may be difficult to be answered, such as

1. Why were the net current assets lesser spite of higher profits and vice versa?
2. Why more dividends could not be declared in spite of available profits?
3. How was it possible to distribute more dividends than the present earnings?
4. What happened to the proceeds of sale of fixed assets or issue of shares, debentures, etc.?
5. What happened to the net profit? Where did they go?
6. How was the increase in working capital financed and how will it be financed in future?

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

Sometimes a firm has sufficient profits available for distribution as dividend but
yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such
cases, 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 wants to make the best use of
these resources. A projected funds flow statement constructed for the future helps in making
managerial decisions. The firm can plan the deployment of its resources and allocate them
among various applications.

5. It acts as a future guide:

A projected funds flow statement also acts a guide for future to the management.
The management can come to know the various problems it is going to face in near future for
want of funds. The firm’s future needs want of funds. The firm’s future needs of funds can be
projected work in advance and also the timing of these needs.
6. It helps in appraising the use of working capital:

A funds flow statement helps in explaining how effectively the management has
used its working capital and also suggests ways 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 member of years before granting
loans to know the credit worthiness and paying capacity of the firm. Hence, a firm seeking
financial assistance from these institutions has no alternative but to prepare funds flow statement.
FINANCIAL ANALYSIS:
A fund flow statement is a financial analysis tool that helps managers makes decisions. It
highlights the changes in the financial position of a company. Unlike other financial statements,
such as an income statement and balance sheet that provide only a static view of an
organization's financial operations, a fund flow statement is dynamic and depicts the flow of
funds and how they have been allocated between various business activities. It provides complete
information to financial managers on the effectiveness of fund allocation and reveals an
organization's fund-generating strengths and weaknesses. A fund flow statement also throws
light on the financial position of a firm at a given point in time and highlights the financial
consequences of major business operations, allowing managers to take corrective actions if
required. Funds flow statements allow financial managers to plan on how to improve the rate of
return on assets, manage the effects of insufficient funds and cash balance and plan how to pay
interest to creditors and dividends to shareholders.
Effective Resource Allocation:
A fund flow statement is a useful resource allocating tool. It helps financial managers allocate
resources efficiently. It is not uncommon for managers to design projected fund flow statements
as a forecasting tool. A fund flow statement, therefore, can be thought of as a control device that
allows managers to make effective financial planning decisions. It helps managers plan on how
to invest idle funds and secure additional capital.
Fund Transactions:
There is a plenty of business transactions which results in flow of funds or which cause changes
in working capital. For this purpose, all the business transactions classified into (a) those
transactions which increase funds i.e. sources of funds (b) those transactions which decrease
funds i.e. application of funds. Identification of transactions causing for increase or decrease in
funds is essential for funds flow statement analysis. The following transactions do not affect the
flow of funds. These are

1. Transactions between two current assets. (For ex. conversion of stock into cash)
2. Transactions between two current liabilities.
3. Transactions between current assets and current liabilities.
4. Transactions between two non-current or fixed assets.
5. Transactions between two long-term liabilities.
6. Transactions between non-current assets and long-term liabilities.

There are various elements of business that affect fund/cash flow. These include such things as
increased sales, reductions or increases in debtors, longer or shorter times in paying creditors,
repayments of loans, etc., a summary of which should be shown on separate lines of the
statement. It can start with a section listing the elements that contribute to an increase in cash,
and then the next section lists those items which have contributed to a decrease in cash.
Space (and time!) does not permit more comprehensive details of what is needed and how to do
it. You should consult a text book on Financial Accounting and look at the fund/cash flow
statement of a company similar to the one for which you wish to prepare such a statement.
 CHAPTER – 5

DATA ANALYSIS AND INTERPRETATION

 DATA ANALYSIS AND INTERPRETATION
Statement of Changes in Working capital

Changes in Working Capital Statement for the year 2008 -2009

(Amount Rs.in crores)
Particulars 2008 2009 Increase Decrease

Current Assets, loans and

advances
Inventories 201.22 253.14 51.92

Sundry Debtors 1093.21 1482.22 389.01

Cash and bank balances 192.65 534.89 342.24

Loans and Advances 17028.20 23272.50 6244.3

Total Current Assets 18515.28 25542.75

Current Liabilities
Current Liabilities 7214.31 5774.74 1439.57

Provision 4023.85 3590.72 433.13

Total Current Liabilities 11238.16 9365.46

Net Working (CA - CL) 7277.12 16177.29 8900.17

Increase in Working Capital 8900.17

16177.55 16177.55 8900.17 8900.17

Interpretation:

The working capital in 2008 is Rs.7277012 crores where as in 2009 is 16177.29 crores. In 2009,
working capital increased Rs.8900.17 crores.
 CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2009

PARTICULARS AMOUNT AMOUNT

(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (50658.3-23808.02) 26850.28

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:

Depreciation written off

during the year (6533.38-4688.69) 1844.69

Decrease in capital work in progress 3473.70

Early dividend paid 165.12
Corporate tax 28.06
5511.57
32361.85
Less ; 1844.69
Non –operating income

30517.16
Funds from operations
 FUNDS FLOW STETMENT FOR THE YEAR 31-3-2009
(Rs.in crores)

Sources Amount Applications Amount

Issue of share capital

----- Purchase of fixed assets 14520.14

Funds from Secured loans

2050 Payment of dividend 165.12

Increase in unsecured
Loans 8567.19 Corporate tax 28.06

Increase in working
Funds from operations 30517.16 8900.17
capital

Purchase of inventory 17520.61

Increase in fixed
0.25
deposits

41134.35 41134.35

Interpretation;

The above statement indicates that the fund from operations is Rs.30517.17crores. This is a
major source of fund in 2009 and funds generated from secured loans are 2050 crores.
Working capital is increased by Rs. 8900.17crires this leads to application of funds. The major
application of funds in 2009 is purchase of investments Rs. 17520.61 and payment of dividend
constitutes Rs.165.12.
 Statement of Changes in Working capital

Changes in Working Capital Statement for the year 2009 -2010

(Amount Rs.in crores)
Particulars 2009 2010 Increase Decrease

Current Assets, loans and

advances
Inventories 253.14 298.34 45.2
Sundry Debtors 1482.22 1738.63 256.41
Cash and bank balances 534.89 81.92 452.97
Loans and Advances 23272.50 17886.79 5385.71
Total Current Assets 25542.75 20005.68
Current Liabilities
Current Liabilities 5774.74 5836.53 61.79
Provisions 3590.72 3386.84 203.88
Total Current Liabilities 9365.46 9223.37

Net Working (CA - CL) 16177.29 10782.31

Decrease in Working Capital 5394.98 5394.98
16177.29 16177.29 5900.47 5900.47

Interpretation:

The working capital in 2009 is 16,177.29 crores where as in 2010 it is Rs.10, 782.31. It is clear
that during the 2010 working capital decreased by Rs.5394.98.
.
 CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2010

PARTICULARS AMOUNT AMOUNT

(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (50658.3-49466.88) (-)1191.43

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:

Depreciation written off

during the year 2692.31
Capital work in progress 1960.34
Early dividend paid 175.44
Corporate tax 29.14
4857.23
3665.8

Less ; 2896.88
Non –operating income

768.92

Funds from operations

 FUNDS FLOW STETMENT FOR THE YEAR 31-3-2010
(Rs.in crores)

Sources Amount Applications Amount

Issue of share capital

----- Unsecured loan paid 6425.33

Funds from Secured loans

----- Purchase of investments 533.85

Sale of fixed asset

795.28

Decrease in working
capital 5394.98

Funds from operations

768.92

6959.18 6959.18

Interpretation;

The major source of funds in 2010 is decrease in working capital Rs5394.98 crores followed by
sale of fixed assets 795.28 crores and funds from operation is 768.92 crores
The major application of funds is unsecured loans paid 6425.33 crores followed by purchase of
investments 533.85.
 Statement of Changes in Working capital

Changes in Working Capital Statement for the year 2010 -2011

(Amount Rs.in crores)
Particulars 2008 2009 Increase Decrease

Current Assets, loans and

advances
Inventories 298.34 306.11 7.77

Sundry Debtors 1738.63 1969.25 230.62

Cash and bank balances 81.92 3812.95 3731.03

Loans and Advances 17886.79 13065.25 4821.54

Total Current Assets 20005.68 19153.56

Current Liabilities
Current Liabilities 5836.33 7551.94 1715.61

Provision 3386.84 2855.35 531.49

Total Current Liabilities 9223.37 10407.29

Net Working (CA - CL) 10782.31 8746.27

Decrease in Working Capital 2036.04 2036.04

10782.31 10782.31 6537.15 6537.15

Interpretation:

The working capital in 2010 is Rs.10782.31 crores where as in 2011 is 8746.27 crores. It is
evident that the working capital in 2011 is decreased by Rs.2036.04 crores.
 CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2011

PARTICULARS AMOUNT AMOUNT

(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (49466.88-47112.47) (-)2354.41

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:

Depreciation written off

during the year 2837.58

Early dividend paid 103.20

Corporate tax 17.14

2957.92
603.51
Less ; -8224.14
Increase in work in progress 2957.92
Non –operating income

10578.55

Funds from operations

 FUNDS FLOW STETMENT FOR THE YEAR 31-3-2011
(Rs.in crores)

Sources Amount Applications Amount

Funds from Secured loans Payment of un secured

12226.02 5251.56
loans
Decrease in working
capital 2036.04 Purchase of investments 203.53

Sale of asset
1771.58 Funds lost on operation 10578.55

16033.64 16033.64

Interpretation;

The major source of finance in 2011 is funds from secured loans Rs.12226.02 crores followed by
decrease in working capital is 2036.04 and sale of assets is 1771.58 crores.
The major application of funds is payment of unsecured loan Rs.5251.56 crores followed by
purchase of investments 203.53 crores.

Statement of Changes in Working capital

Changes in Working Capital Statement for the year 2011 -2012
(Amount Rs.in crores)
Particulars 2008 2009 Increase Decrease

Current Assets, loans and

advances
Inventories 306.11 329.00 22.89

Sundry Debtors 1969.25 1932.00 37.25

Cash and bank balances 3812.95 178.00 3634.95

Loans and Advances 13065.25 13229.00 163.75

Total Current Assets 19153.56 15668

Current Liabilities
Current Liabilities 7551.94 6026.00 1525.94

Provision 2855.35 6911.00 4055.65

Total Current Liabilities 10407.29 12937.00

Net Working (CA - CL) 8746.27 2731.00

Decrease in Working Capital 6015.27 6015.27

8746.27 8746.27 7727.85 7727.85

Interpretation:

The working capital in 2011 is Rs. 8746.27 crores where as in 2012 is 2731.00 crores. In 2012,
working capital Decreased by Rs. 6015.27crores.

CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2012

PARTICULARS AMOUNT AMOUNT

 (RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (44165-47112.47) -2947.47

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:
Miscellaneous expenses 299.00
Depreciation written off
during the year 1741.00
Equity dividend 52.00
Corporate dividend tax 8.00
capital work in progress 9142.66

11242.66
8295.19

Less ; 2338.75
Non –operating income

5956.44
Funds from operations

FUNDS FLOW STETMENT FOR THE YEAR 31-3-2012

(Rs.in crores)
Sources Amount Applications Amount

Secured loans Payment of unsecured

11038.98 14620.72
loan
Sale of investments
213.13 Purchase of fixed assets 8543.10

Decrease in working
capital 6015.27 Equity dividend paid 52.00

Funds from operations

5956.44 Corporate tax paid 8.00

23223.82 23223.82

Interpretation;

The major source of funds in 2012 is secured loans Rs.11038.98crores followed by decrease in
working capital Rs.6015.27 crore and funds from operation is Rs5956.44 crores.
The major application of funds in 2012 is payment of unsecured loan 14620.72 crores followed
by purchase of fixed assets Rs.85431.1 crores and equity dividend paid is Rs. 52 crores.
.
 CHAPTER – 6

FINDINGS SUGGESTIONS AND CONCLUSIONS

 Summary of Findings Suggestions and Conclusions

Findings:

To keep within reasonable limits the main findings of the study are presented below:
1. The working capital in 2008 is Rs.7277.12 crores; 2009 is 16177.20 crores; 2010-
Rs.10782.31crores; in 2011it is .Rs8746.27 crores.
2. In 2009 working capital is increased by Rs.8900.17 crores where as in 2010 it is
decreased by 5394.98. In 2011 working capital is decreased by 2036.04 where as
in 2012 it is decreased by6015.27 crores.
3. In 2009 the major sources of finance from unsecured loan is Rs.30517.17 crores
where as in 2010decrease in working capital is R.s.5394.98.in 2011 major source
is funds from secured loans where as in 2012 is secured loan Rs. 11038.98
4. In 2009 the major application of funds is purchase of investment Rs. 17520.61
crores in 2010 is payment of unsecured loans Rs.6425.33. in 2011 is also
payment of unsecured loans Rs. 5251.56. Where as in 2012 is also payment of
unsecured loans 14620.72.
5. In current assets loans advances occupy large extent. Being short term in nature
as per company policy.
6. There are heavy flucatations in cash and bank balances . in 2009
Rs.534.89crores; in 2010Rs.81.92 crores; in 2011 R.s3812.95 crores and in 2012
R.s 178 crores.
7. For the study period debtors amount in current assets also occupy significant
portion.
8. There are fluctuations in inventory.
Suggestions:

1. The company is advised to reduce debtor’s level. i.e company has to

increase cash sales. Cash has reinvestment opportunity.
2. For entire study period company has positive working capital so the
company liquidity position is good. It is advised to maintain this in future
years.
3. The company is advised not to pay loans in large amounts. Ultimately it
affects company cash stability.
4. The company is advised to maintain an optimum level of working capital.
i.e based on turnover performance and scale of operations the working
capital should be maintained.
5. The company is advised to decrease current provisions.

CONCLUSIONS:

The study on Funds Flow Analysis at Reliance Communications was undertaken with an
objective of getting an insight into the concept ofFunds Flow. The study aims to evaluate the
Funds Flow Analysis of the company and determine the efficiency of the same. Further, the
study focuses on the Funds Flow Analysis of the organization.

The study is done using the Balance sheet, Profit and Loss account and other financial
information of Reliance Communications. The entire study is based on the secondary data only.
The study is done at Hyderabad for a period of 45 days. The study had few limitations which
were taken care of.

The company also maintains positive correlation between sales and Funds flow analysis. It
maintains good relationship their distributors, vendors and sales executives. Further, it was found
that the debtor turnover ratio and the work in progress decreased.

It is suggested to the company to arrange capital to meet future requirement since it requires
huge amount of funds in order to achieve more sales. Also, periodical review of the fund should
be carried out for its proper control. Proper communication should be maintained between
purchases and production department and also the funds turnover ratio and the debtor turnover
ratio.

BIBLIOGRAPHY

NAME OF THE BOOK AUTHOR

FINANCIAL MANAGEMENT---------------------------------- I.M. PANDEY

FINANCIAL MANAGEMENT THEORY AND M.Y. KHAN &

PRACTISE------------------------------------------------------- P.K JAIN

FINANCIAL ACCOUNTING------------------------------------ NARAYANA&SWAMY

FINANCIAL ACCOUNTING & ANALYSIS----------------- PRASANNA&CHANDRA

FINANCIAL MANAGEMENT AND PRACTICE---------- R.K. SHARMA &

SHASHI K. GUPTA

ANNUAL REPORTS

 RELIANCE COMMUNICATIONS ANNUAL REPORTS. 2007-08

 RELIANCE COMMUNICATIONS ANNUAL REPORTS. 2008-09
 RELIANCE COMMUNICATIONS ANNUAL REPORTS. 2009-10
 RELIANCE COMMUNICATIONS ANNUAL REPORTS. 2010-11
 RELIANCE COMMUNICATIONS ANNUAL REPORTS.2011-12