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DEPARTMENT OF MBA

INTRODUCTION
Financial management is a process of identification, accumulation,
analysis, preparation, interpretation communication of financial information
and communication of financial information to plan, evaluate, and control
business firms.
Financial management is the specialized function of general
management, which, is relates to the procurement of finance, and its
effective utilization for the achievement of the goal of the organization.

MEANING AND DEFINITIONS OF FINANCIAL MANAGEMENT


MEANING
Financial Management is an organizational activity that is concerned
with the management of financial resources. In common parlance is
described as providing monetary resources at the time they are required. But
financial management covers the mobilization and effective utilization of
funds.

DEFINITIONS
(1) Financial Management is defined as that business activity which is
concerned with the acquisition and conservation of capital funds in
meeting the financial needs and overall objectives of business
enterprises
-WHEELER.

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DEPARTMENT OF MBA

(2) Business finance can be broadly defined as the activity concerned


with the planning, raising, controlling and administrating the funds
used in the business.
-GUTHMANN AND DOUGALL.
Financial management is concerned with the effective use of an
economic resource namely capital fund.

CONCEPTS OF FUNDS
The term 'funds' have a variety of meaning. Some people take funds
synonymous to cash, and to them there is no difference between a cash flow
statement prepared on the basis and a fund flow statement. While other
include marketable securities and cash to constitute business funds. How
ever the most common definition of the term 'Fund' is 'working capital' or
net 'current assets'. Thus the difference between current and current
liabilities is called funds.

DEFINITIONS
The funds flow statement described the sources from which additional
funds were derived and used to which these funds are put.
R.N.ANTONY
The fund flow statement is an important device for brining to light the
underlying financial movements the ebb and flow of funds.
PATON & PATON

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DEPARTMENT OF MBA

USES OF FUNDS FLOW STATEMENT


Funds flow statement helps the financial analyst in having a more detailed
analysis and understanding of changes in the distribution of resources
between two balance sheet dates. In case such study is required regarding the
future working capital position of the company, a projected funds flow
statement can be prepared. The uses are as follows.
It explains financial consequences of balances operation

Funds flow statement provides a ready access or many conflicting


Situations such as.
Why the liquidity position of business is becoming more and more

unbalanced
How was it possible to distribute dividends in excess of current

earnings or in the presence of net loss for the period.


Where have the profits gone.
How the business could have good liquid position in spite of

business making losses (or) acquisition of funds assets.


It answers intricate queries
The financial analyst can find out answers to a number of intricate
Questions.
What are the sources of payment of loan taken
What is the overall credit worthiness of the enterprise.
How much funds are generated through normal business operation.
In what way the management has utilized the funds in the part and
what are going to be likely uses of funds.

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DEPARTMENT OF MBA

It Acts an instruments for allocation of resources


A projected funds flow statement will help the analyst in finding out how the
management is going to allocate the scare resources for meeting the
productive requirements of business. The use funds should be phased in such
as order that the valuable resources are put to the best use of the enterprise.

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DEPARTMENT OF MBA

FUNDS FLOW ANALYSIS


The following are the definitions of funds flow statement.
R.N. ANTONY
"The funds flow statement described the sources from which additional
funds were derived and the used to which these funds are put."
R.N. Foulk
"A Statement of sources and application of funds in technical device
designed to analyze the charges in the financial condition of a business
between two dates.
BIERMAN
"It is a statement which highlights the underlying financial movements and
explains the changes of working capital from one point of time to another."
These, funds flow statement is report which summarizes the events taking
place between the two accounting periods. It spells out the sources from
which funds were derived and the use to which these funds were put. This
statement in essentially derived from an analysis of the changes that have
occurred in assets and liabilities item between two balance sheets dates. In
this statement only the net changes are shown that the outcome of a
transaction on of a series of transactions upon the financial conditions of a
business enterprise in reflected more sharply.
CONCEPTS OF FUNDS
The term 'funds' have a variety of meaning. Some people take funds
synonymous to cash, and to them there is no difference between a cash flow
statement prepared on the basis and a fund flow statement. While other

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DEPARTMENT OF MBA

include marketable securities and cash to constitute business funds. How


ever the most common definition of the term 'Fund' is 'working capital' or
net 'current assets'. Thus the difference between current and current
liabilities is called funds.
SIGNIFICANCE OF FUNDS FLOW STATEMENT
Funds flow statement is an important tool of financial analysis. The utility of
the funds flow statement stems form the fact that it enable management,
shareholder, investors, creditors and other interested in the enterprise to
evaluate the user of funds by the enterprise to evaluate the user of funds by
the enterprise to evaluate the user of funds by the enterprise and to determine
how these funds are financed.
USEFUL IN DECISION MAKING TO THE MANAGER
The funds flow statement services as valuable tool of financial analysis to
the finance manager. It helps in understanding the financial stability and
efficiency of financial policies of management.
Decision relating to Financing
With the help of the funds flow statement, the analyst can evaluate the
financing pattern of the enterprise. An analysis of the major sources of funds
in the part reveals what portion of the growth was finance internally and
what portion externally. The statement is also measuring for judging whether
the company has grown as too fast a rate, credit has increased out of
proportion to expansion in current assets and sales. If trade credit has
increased at relatively high rate one would wish to evaluate the
consequences of slowness in trade payments on the credit standing of the
company and its ability to finance in future.

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DEPARTMENT OF MBA

Decision of capitalization :
The funds flow statement serves as hand maid to the financial manager in
deciding the making up of capitalization. Estimated user of funds for new
fixed assets, working capital, dividends and repayment of debt are made for
each of several futures years. Estimates are made for each of several future
years. Estimate is made of the funds to be provided by operations and the
balance must be obtained by barrowing or issuance of new securities. If the
indicated amount of new funds required is greater than what the financial
Manager thinks possible to raise, then plans for new fixed assets acquisition
and the dividend policies are re-examined so that the use of the funds can be
brought into balance with the anticipated sources of financing them. In
particular funds statements are very useful in planning intermediate and long
tern financing.
USES OF FUNDS FLOW STATEMENT
Funds flow statement helps the financial analyst in having a more detailed
analysis and understanding of changes in the distribution of resources
between two balance sheet dates. In case such study is required regarding the
future working capital position of the company, a projected funds flow
statement can be prepared. The uses are as follows.
It explains financial consequences of balances operation

Funds flow statement provides a ready access or many conflicting


Situations such as.
Why the liquidity position of business is becoming more and more

unbalanced

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DEPARTMENT OF MBA
How was it possible to distribute dividends in excess of current

earnings or in the presence of net loss for the period.


Where have the profits gone.
How the business could have good liquid position in spite of

business making losses (or) acquisition of funds assets.


It answers intricate queries
The financial analyst can find out answers to a number of intricate
Questions.
What are the sources of payment of loan taken.
What is the overall credit worthiness of the enterprise.
How much funds are generated through normal business operation.
In what way the management has utilized the funds in the part and
what are going to be likely uses of funds.
It Acts an instruments for allocation of resources
A projected funds flow statement will help the analyst in finding out how the
management is going to allocate the scare resources for meeting the
productive requirements of business. The use funds
Should be phased in such as order that the valuable resources are put to the
best use of the enterprise.

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DEPARTMENT OF MBA

Funds flow Statement:

MEANING AND TYPES OF FINANCIAL STATEMENTS


A financial statement is an organized collection of data. According to logical
and consistent accounting procedures its purpose is to convey and
understanding or some financial aspects of business firm. It may show a
position at a moment of time as, in the case of a balance sheet or may reveal
a series of activities ones a given period of time, as in the case of an Income
statement.
Financial statement analysis when used carefully, can produce meaningful
insights about a company's financial information and its prospects for the
future. However, the analyst must be aware of certain important
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considerations about financial statements and the use of these analytical


tools. For example, the dollar amounts for many types of assets and other
financial statement items are usually based on historical costs and thus do
not reflect replacement costs or inflationary adjustments. Furthermore,
financial statements contain estimates of numerous items. John Myer,
"Financial Statement analysis is largely a study of relationship among the
various financial factors in a business as disclosed by single set of
statements and a study of the trend of these factors as shown in a series of
statements.
Thus the financial statement generally refers to, four financial statements.
Income Statement
Balance Sheet Of course a business may also prepare profit & loss

account.
Statement of retained earnings,
A statement of changes in financial position.

Financial Statement

STATEMENT OF CHANGES IN FINANCIAL POSITION


The Balance Sheet shows the financial condition of the
business at a particular moment of time, while the income statement
discloses the result of operating of business ones a period of time. How ever
for a better understanding of the affairs of the business it is essential to
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identify the movement of working capital or cash in and out of the business
this information is available in the statement of changes in financial position
of the business.

Change in working capital position in such a case the statement in

termed (SCFP) or funds flow statement,


Change in cash position in such a case the statement in termed as
SCFP (or) cash flow statement,
Change in overall financial position. In such a case the statement is
termed as statement of changes in financial position.
The technique of funds flow analysis is widely used by the financial
analysis, credit granting institutions and financial managers in performance
of their jobs. It has become a useful tool in their analytical kit. This is
because the financial statement i.e. income statement and the "Balance
Sheet" have a limited role to perform. Income statement measure flows
restricted to transactions that pertain to rendering of goods or services to
customers. The Balance Sheet is merely a static statement. It is the statement
of assets and liabilities of business as a particular date. It does not supply
focus those major financial transactions which have been believed the
Balance Sheet changes. One has to draw inferences from the Balance sheet
about major financial transactions only after comprising the Balance sheet of
two periods.
For example, if fixed assets worth Rs.3,00,000 are purchased during he
current year by raising share capital of Rs.3,00,000 the balance sheet simply
shows a higher capital figure and higher fixed assets figure. In case, One
compares one year balance sheet with the previous year balance Sheet then

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only one can draw an inference that fixed assets are acquired by raising
share capital of Rs.3,00,000 similarly, Certain important transitions which
might (Occur during the course of the accounting) not find any place in the
Balance Sheet. For example, if a loan of Rs.3,00,000 was raised and paid in
the accounting year, the balance sheet will not depict this transaction.
However, a financial analyst must know the purpose for which loan was
utilized and the source from it was raised. This will help him in making
better estimates about the company's financial position and policies.
FINANCIAL ANALYSIS
Financial analysis is highly essential to understand the efficiency and
financial position of the enterprise.
The term 'Analysis' means methodical clarification of the data provided in
the financial statements. 'Analysis' and 'Interpretation' are complementary to
each other Interpretation requires analysis, while analysis is useless without
interpretation. The term 'Analysis' to cover the meanings of analysis and
interpretation, since analysis involves interpretation.
Myres States
"Financial statement analysis is largely a study of the relationship among the
various financial factors in a business as disclosed by a single set of a
statements and a study of the trend of these factors as shown in a series of
statements".
TYPES OF FINANCIAL ANALYSIS
We can classify various types of financial analysis in to different categories
depending upon.
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The material used
The method of operation fallowed in the analysis of the modus

operand! Of analysis.

ON THE BASIS OF MATTERIAL USED


According to material used financial analysis can be classified two types.
External analysis
Internal analysis.
EXTERNAL ANALYSIS
It is the analysis by outsiders who don't have access to the detailed
internal accounting records of the business firm, these outsiders include
investors, Potential investors, Potential creditors and government
agencies, credit agencies and the general public. For the financial
analysis, the external parties to the firm depend almost entirely on the
published financial statements. External analysis only serves for limited

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purpose. How ever the recent changes in the Government regulations


requiring business firm to make available more detailed information to
the public through audited published account have considerably
improved the position of the External analysis.
INTERNAL ANALYSIS
The analysis conducted by person who has access to the financial accounting
records of a business firm is known as internal analysis. Such an analysis
can therefore be performed by executive and employee of the organization
as well as Government agencies which have statutory power rested in this
financial analysis for managerial purpose is the internal type of analysis that
can be affected depending upon the purpose be achieved.
ON THE BASIS OF MODUS OPERANDI
This analysis also classification in to two types
Horizontal Analysis
Vertical Analysis
HORIZONTAL ANALYSIS
Horizontal analysis refers to the comparison of financial data of a company
for several years. The figure for this type of Analysis is presented Horizontal
over a no of columns. The figures of the various years are compared with
standard or base year. A base year is a year chosen as beginning point. This
type of analysis is also called dynamic as it is based on the data from year
rather that an data from any one year.

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Horizontal analysis means it possible to focus attention on items that have


changed significantly during the period under review comparison of an item
over several periods with a base year may show a trend development
comparative statement and trend percentage are two tools employed in
Horizontal analysis.
Since this reflects changes in financial position of the company over a long
period of time it comprises:
Comparison of the financial statements of different years of the same
business unit.
Comparison of financial statement of a particular year of different
business units.
VERTICAL ANALYSIS
Vertical analysis is refers to the study of the various items in the financial
statement of one accounting period. In this type of analysis of the figure
from financial statement of a year are compared with a base select from the
same year statement. It is also known as "Static analysis" common size
financial statement and financial ratios are two tools employed in Vertical
Analysis.
Since Vertical Analysis considers data for one time period only it is very
conductive to a proper analysis of financial statement. However may be used
along with horizontal analysis to make it more effective and meaningful.
METHODS (OR) EVICES OF FINANCIAL ANALYSIS
The analysis and interpretation of financial statement is used to determine
the financial position and result of operations as well. A number of methods
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(or) devices are used to study the relationship between different statements.
An effort is made to use those devices which clearly analysis are generally
used.
Comparative statement
Common size statement
" Trend analysis
Funds flow statement
Cash flow statement
Ratio analysis
Cost volume profit analysis

FROMS OF WORKING CAPITAL


Gross Working Capital
.Net Working Capital
Permanent Working Capital
Temporary Working Capital
GROSS WORKING CAPITAL

It refers to the companies investments in current assets which can be


converted into cash within one year (or) in an accounting year. It includes
cash, short term securities.
Working capital is necessary to run a business firm and to meet day-today
expenses. Cash is generated through sales which is possible with the
investment in inputs such as raw materials, consumables, labour etc hence
working capital is necessary for acquiring inputs.
Gross working capital focus on two aspects of current assets management.
(i)

How to optimize in current assets

(ii)

How current assets should be financed.

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The financial manager should have knowledge of the sources of working


capital funds as well as investment revenue where idle funds may be
temporarily invested.
NET WORKING CAPITAL:It refers to excess of current assets over current liability i.e. difference
between current assets and current liabilities. Current liabilities are those
claims of outsiders. Which are expected to mature of payment with in
accounting expenses. Net working Capital may be positive or negative. A
present working capital will arise when current assets are exceeding current
liabilities.
A net working capital will occur when current liabilities are in excess of
current assets.
Net working capital is a qualitative concept of indicators the liquidity
position of the company and suggests the extent to which working capital.
PERMANENT WORKING CAPITAL
It refers to the minimum level of current assets, which is continuously
required by the company to carry out the business operations. Permanent
working capital is also known as fixed working capital. It is payment in the
same way as the company's fixed assets are depending up on the changes in
production and sales. The need for working capital ones and above
permanent working capital will fluctuation.

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TEMPORARY WORKING CAPITAL


It refers to that part of total working capital which required by business over
and above permanent working capital. The extra working capital needed to
support the changing production and sales activities. It is also called
'Variable working capital'.
ELEMENTS IN WORKING CAPITAL (a) CURRENT ASSETS
The term current asset includes assets which are acquired with the intention
of converting them in to cash during the normal business operation of the
company. However, the definition of the current assets has been given by
Grady in the following words.
For accounting purpose, the term Current assets is used to designate
cash and other assets or resources commonly identified on those which are
reasonable expected to be realized in cash or sold or consumed during the
normal operating cycle of the business.
The current assets are

Cash including fixed deposit with bank


Account receivables
Inventory
Advance receivables

Prepaid expenses
It should be noted that short term investment should be included in the
definition of the term current assets while loose tools should be excluded
from the category of current assets. Of course, this is not strictly
accordingly to the requirements of the companies Act regarding
presentation of financial statement where investments even though held
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temporarily are to be shown separately from current assets while loose


tools are shown separately from current assets while loose tools are
shown under the category of current assets.
Current Liabilities
The term Current Liabilities is used principally to designate such
Delegation whose liquidation is reasonably expected to require the use of
assets classified as current assets in the same balance sheet or the
operation : other current liability of those expected to be satisfied with in
a relatively a short period of time usually one year.

Account payable
Outstanding expenses
Bank overdraft
Short term loans
Advance payment received by business

PROVISIONS AGAINST CURRENT ASSETS


Provision for doubtful debts, provision for loss on stock, provision for
scout on debtors etc, are treated as current liabilities. Since they reduce the
amount of current assets.
NON-CURRENT ASSETS
All assets other than current assets come within the category of noncurrent
assets include goodwill, land building, machinery, furniture long term
investment, Patent rights, Trader marks, debt balance of the profit & loss
account, discount on issue of debentures and preliminary expenses etc.
NON-CURRENT LIABILITIES
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All liability other than current liability comes with in the category of
Non-current liabilities. They include share capital, long term loans,
debentures, hare premium, credit balance in the profit & loss Account.
Revenue and capital reserve, dividend equalization fund, debentures sinking
fund.

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PREPARATION OF FUNDS FLOW STATEMENT


Schedule of changes in working capital
Funds flow statement

SCHEDULE OF CHANGES IN WORKING CAPITAL


The schedule of changes in working capital can be prepared by computing
the current asset and current liabilities of two different balance sheet dates.
SCHEDULE OF CHANGES IN WORKING CAPITAL
Items

As On

As On

Changes
Increase

Decrease

Current assets :Cash Balance


Bank Balance
Marketable Securities
Account receivables
Stock in trade
Prepaid expenses
Current Liabilities :Bank Overdraft
Outstanding expenses
Accounts payable
Net Increase (or) decrease
Decrease in Working Capital

RULES FOR PREPARING THE SCHEDULE


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Increase in a current assets, result in increase in working capital,
Decrease in a current asset result in decrease in working capital,
Increase in a current liability results in decrease in working capital,
Decrease in a current liability results in increase in working capital.

FUNDS FLOW STATEMENT


While preparing a funds flow statement current assets and current liabilities
are to be ignored attention is to be given to change in fixed assets fixed
liabilities. The statement may be prepared in fare following form.
There will be no flow of funds if there transition involves
Current assets and fixed assets

Ex : Purchasing of building for cash


Current assets and capital

Ex : issue of shares for cash.


Current assets and fixed liability

Ex : Redemption of debentures in cash


Current liabilities and fixed liabilities

Ex : Credit paid off in debenture


Current liability and capital

Ex : Creditors paid of in shares


Current liability and fixed assets

Ex : Building transferred to creditors in satisfaction of their claim.


There will be no flow of funds if these transactions involves,
Current assets and current liability
Ex. Pay to creditors
Fixed assets and fixed liability

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Ex. Building purchased and payment made in debentures


Fixed assets and capital.
Ex. Building purchased and payment made in debentures.
MEANING OF FUNDS FLOWS
The term "Flow" means change and there fore the term "Flow of funds"
means change in "Funds" or change in "Working capital" in other words any
increase or decrease in working capital means "Flow of Funds".
:

Funds Flow statement is also called as a "Statement of Source and

Application of Funds" summary of financial operation etc.


In business several transactions take place some of the transactions increase
the funds while other decrease the funds some may not make any change in
the funds position. In case a transaction results increase of funds. It will be
termed as source of funds. In case a transactions results in decrease of funds
it will be taken as an application or use of funds.
PREPARATION OF FUNDS FLOW STATEMENT
In order to prepare a Funds flow statement if it is necessary to find out the
sources and "Application" of funds.
SOURCES OF FUNDS
Sources of funds can be divided in to two types
Internal source
External source

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INTERNAL SOURCE

Funds from operation is the only internal source of funds how ever, the
following adjustment will be required in the figure of net profit for finding
our real funds from operation.
Depreciation on Fixed assets
Preliminary expenses and good will written / off.
Contribution to debentures redemption fund transfer to general

reserve.
Loss on sale of fixed assets.
Provision for tax proposed dividend.

EXTERNAL SOURCES
Funds from long term loans
Long term loan such as debentures borrowing from financial institutions will
increase the working capital and therefore, there will be Flow of Funds.
However if the debenture have been issued in consideration of some fixed
assets, there will be no flow of funds.
State of fixed assets
Sale of land, Building Long term investment will result in generation of
funds.
Funds from increase in share capital
Issue of share for cash or for my other current assets result in increase in
working capital and hence will be a flow of funds.

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APPLICATION OF FUNDS:The uses to which funds are called application of funds. Following are same
of the purpose for which funds may be used.
PURCHASE OF FIXED ASSETS
Purchase of fixed assets such as land, Building Plant, Machinery long term
investments etc, results in decrease of current assets. With out any decrease
in current liabilities. Hence there will be a flow of funds. But in the case of
debentures are issued for acquisition of fixed assets, there will be no Flow of
funds.
PAYMENT OF DIVIDEND
Payment of dividend result in decrease of fixed liability and therefore it
affects funds generally recommendations of directors regarding declaration
of dividends is simply taken as an appropriation of profit and not as an item
effecting the working capital.
PAYMENT OF FIXED LIABILITY
Payment of long term liability such as redemption of debentures of
redemption of redeemable preference shares results in reduction of working
capital and hence it is taken as application of fund.
PAYMENT OF TAX LIABILITY
Provision for taxation is generally taken as an appreciation of profit and not
as an application fund. But if the tax has been paid it will be taken as an
application.

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INCREASE IN WORKING CAPITAL


Working capital is increased. If current assets increase and current liability
decrease. Funds are required in both the case i.e. in order to acquire more
current assets or paying current liabilities and thus funds are said to have
been applied or used.
STATEMENT OF SOURCES AND APPLICATION OF FUNDS
FUNDS FROM OPERATIONS
It is an internal sources of funds. A fund from operation is to be calculated as
per this method.
Funds from operation is the only internal source of funds some adjustments
are to be made in calculating funds from operation to the net profit given in
the financial statement.
USEFUL AS CONTROL DEVICE
The funds flow statement also serves as a control device in that the
statement. Compared with the budgeted figures will show to what extent the
funds were put to use according to plan. This enables the financial manager
to find out deviation form the planned course of action and taken remedial
steps to correct the deviation
USEFUL TO THE EXTERNAL PARTIES
The outside parties can have a clear knowledge about the financial policies
that the company had purchased in the light of the information so supplied
by the statement, the outsider can decide whether or not to invest in the
enterprise and on what terms funds have to be invested. The funds flow
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statement provides an insight into the financial operation of a business


enterprise an insight immensely Valuable to the finance manager in
analyzing the part and future expansion plans of the enterprise and the
impact of these plans on its liquidity. He can debuct imbalance in the use of
funds and undertake remedial actions.
STATEMENTS SHOWING OF FUNDS FROM OPERATIONS
Trading profits or the profits from operations of the business are the
most important and major sources or inflow of funds in the business as they
increase assets but at the same time funds flow out of business for expenses
and cost of goods sold. Thus the net effect of operation will be a sources of
funds if inflow from sales exceeds the outflow for expanses and cost of
goods sold and vice-versa but it must be remembered that funds from
operation do not necessarily mean the profit as shown by the profit & loss of
a firm because there are many non- fund (or) Non operating items which
may have been either debited or credited to profit & loss Account.
The examples of such items on the debt side of a profit & loss
Account are amortization of fictitious and intangible assets such as good
will, preliminary expenses and discount on issue of share & debentures
written off. Appreciation of retained earnings such as transfer to reserve etc,
depreciation and depletion loss and sale of fixed assets, payment of dividend
etc. The Non-fund items are those which may be operational expenses but
they do not affect funds of the business.
E.g. for depreciation charged to profit & loss account funds really don't

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move out of business non operating items are those which although may
result in the outflow of funds but are not related to the trading operations of
business such as loss on sale of machinery or payment of dividends the
method of calculating funds from operation have been discussed.
METHOD OF CALCULATING FUNDS FROM OPERATION
The first method is to prepare the Profit & loss A/c a fresh by taking
in to Consideration only funds and operational items, which involve
funds, are related to normal operation of the business. The balancing
figures in this case will be either funds generated from operations or
funds in operations depending up on. The income or audit side (or)
profit & loss a/c exceeds the expenses or debit side of profit & loss
a/c or vice versa.
The second method which is generally used to precede from figure of
net profit & loss account already prepared Funds from operations by
this method can be calculated as under.

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ADJUSTED PROFIT AND LOSS ACCOUNT


Particulars
To

Amount

Depreciation

on

Fixed xxxx

Particulars

Amount

By Opening Balance

xxxx

assets
To Good Will written off

xxxx

By Dividend received xxxx

To preliminary Expenses

xxxx

By Profit on sale of xxxx


assets

To Transfer to general reverse


To

Payment

of

xxxx

By

proposed

Funds

from xxxx

operations

dividend

xxxx

To Provision for tax

xxxx

To Loss on sale of assets

xxxx

To Closing Balance

xxxx

(Balancing Figure)

xxxx

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FUNDS FLOW STATEMENT


Sources of funds

Amount

Application of funds Amount

Issue of shares

xxxx

Redemption

Issue of debentures

xxxx

redeemable

Long term barrowing

xxxx

Preferenceshares
Payment of equity xxxx

Sale of fixed assets

xxxx

shares capital

Operating Profit

xxxx

Redemption

xxxx

debentures
Payment of

Decrease in working capital

of xxxx

of xxxx
other

long term loan


Purchase

of

fixed xxxx

assets
Operating Loss

xxxx

Payment of dividend xxxx


and tax
xxxx

Net

increase

in xxxx

working capital

TREATMENT OF ADJUSTMENTS

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Some times the factors affecting the funds from operation may not be given
in the problem directly and there may be some hidden information as such
some of the transactions have to designed our using the additional
information provided as adjustments to the balance sheet there items
include.
Provision for tax
Proposed dividend
Sale (or) Purchase of fixed assets
PROVISION FOR TAX
It is a current liability while preparing on funds flow statement there are two
options available.
Provision for Tax may be taken as a current liability. In such a case,

where provision for tax is made there transaction involves profit and loss
appropriation Account which is a fixed liability and provision for Tax
Account. Which is a current liability it will thus decrease the working
capital on payment of tax there will be no change in working capital
because it will involve one current liability and other a current assets.
Provision for tax may be taken only as on appropriation of profit. It
means that will no change in working capital position when provision for
tax is made since it involves two fixed liabilities, i.e. profit and loss
appropriation a/c and provision for tax account however what tax is paid
it will be taken as application of funds because it will when involves
provisions for tax account which has been taken as a fixed liability and
bank account which is a current asset.

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PROPOSED DIVIDEND

What ever has been said about the 'Provision for Tax' is also applicable to
"Propose dividends" proposed dividend can also be death with in two ways.
Proposed dividend may be taken as a current liability since declaration of

dividends by the share holders in simply a formality. One the dividends


are declared in the general meeting, they will have to be paid with in 42
days their declaration. Income proposed dividend is taken as a current
liability, it will appear as one of the item decreasing working capital in
the schedule of change in working capital it will not be shown as an
application of funds when dividends is paid later on.
Proposed dividends may simply be taken as an appropriation of profits.
In such as case proposed dividend for the current year will be added back
to current year's profit in order to find out funds from operations if such
amount of dividend has already been charged to profits payment of
dividend will be shown as an "Application of Funds".
SALE OR PURCHASE OF FIXED ASSETS

For arriving at the final figure we have to prepare the assets


depreciation account as sets, sold or purchased account.

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OBJECTIVES OF THE STUDY


The following objectives have been formulated to make in the study.
To assess the Working Capital position of the company from 2008-09
to 2012-13.
To identify sources and uses of the funds of the company from 200809 to 2012-13.
To examine the sources and applications of the funds through cash
basis from 2008-09 to 2012-13.
To know the operational efficiency.
To study and prepare funds flow statements.

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NEED FOR THE STUDY


The need for the study is analyze the financial position of the company
To find out the liquidity or short term solvency of the company.
To allow relationship among various aspects in such a way that it
allows conclusion about the performance, strength and weakness of
the company.
To know how finance works in the typical organization structure.
To know how working capital covers all the current assets and
liabilities.

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SCOPE OF THE STUDY


.
An extensive study is done on the financial position of the company.
The study covers the historical financial information of the company
and finds growth of the company.
The study covers all the transactions of the company and the funds
flow statements.
The company covers the measurement of profitability of firm and the
operating efficiency and relationship among different financial
aspects.

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METHODOLOGY
Methodology describes the method of achieving objectives through
collection of data. The data collected can be either primary or secondary.
The above information is carried on with the co-operation of the
management of Amaravathi Textiles Pvt.Ltd.
Primary data:
Primary data is the data, which has been collected directly from the
people of the organization it is also called as first hand data. The primary data is
collected by discussions with the functional managers, officers, staff and other
members of the organization.
Secondary data:
Secondary data is those which have been already collected by some
agency and which have been processed. Secondary data for the present study
has been collected from margins, journals and annual reports, published books,
reference books, websites and any other in direct.
The secondary data is obtained from annual report and financial
statement that is balance sheet and profit and loss account, annual reports, and
from the textbooks of financial management. Here the project is done on
secondary data.

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Methods of data collection:


The data collected from the company files, financial assets, balance
sheet and other library book and other articles and from the corporate
websites e.t.c.
Data analysis
The analyses used in the study are tabulation of data charts and graphs and
mathematical tools or representation and schedule of ratio, cash flow, and
fund flow.
Diagrammatic representation of the research and methodology

LIMITATIONS OF STUDY
DATA
SOURCES

Primary

Secondary

Sources

Sources

Personal
Observance
Management

Respondents

Inside the

Outside the

Company

Company
Text books

Journals
Annual
Reports
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The study is based on the information available in the latest balance sheets of
the company, these balance sheets suffers a few limitations.
The study is based on the working capital analysis only.
The study is made only through secondary source of data. Normally
this will not facilitate to undertake a deeper study on the subject taken
into consideration.
The study is limited to a period of five years for analysing the data.
This study of working capital does not reflect the whole financial
position of the organization.

INDUSTRY PROFILE
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The Indian textile industry has a significant presence in the economy as


well as in the international textile economy. Its contribution to the Indian
economy is manifested in terms of its contribution to the industrial
production, employment generation and foreign exchange earnings. It
contributes 20 percent of industrial production, 9 percent of excise
collections, 18 percent of employment in the industrial sector, nearly 20
percent to the countries total export earning and 4 percent to the Gross
Domestic Product.
In human history, past and present can never ignore the importance of
textile in a civilization decisively affecting its destinies, effectively
changing its social scenario. A brief but thoroughly researched feature on
Indian textile culture.
HISTORY OF TEXTILE INDUSTRY
India has been well known for her textile goods since very ancient times.
The traditional textile industry of India was virtually decayed during the
colonial regime. However, the modern textile industry took birth in India in
the early nineteenth century when the first textile mill in the country was
established at fort gloster near Calcutta in 1818. The cotton textile industry,
however, made its real beginning in Bombay, in 1850s. The first cotton
textile mill of Bombay was established in 1854 by a Parsi cotton merchant
then engaged in overseas and internal trade. Indeed, the vast majority of the
early mills were the handiwork of Parsi merchants engaged in yarn and
cloth trade at home and Chinese and African markets.

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The first cotton mill in Ahmadabad, which was eventually to emerge as a


rival centre to Bombay, was established in 1861. The spread of the textile
industry to Ahmadabad was largely due to the Gujarati trading class.
The cotton textile industry made rapid progress in the second half of the
nineteenth century and by the end of the century there were 178 cotton
textile mills; but during the year 1900 the cotton textile industry was in bad
state due to the great famine and a number of mills of Bombay and
Ahmadabad were to be closed down for long periods.
The two world War and the Swedish movement provided great stimulus to
the Indian cotton textile industry. However, during the period 1922 to 1937
the industry was in doldrums and during this period a number of the
Bombay mills changed hands. The second World War, during which textile
import from Japan completely stopped, however, brought about an
unprecedented growth of this industry. The number of mills increased from
178 with 4.05 lakh looms in 1901 to 249 mills with 13.35 lakh looms in
1921 and further to 396 mills with over 20 lakh looms in 1941. By 1945
there were 417 mills employing 5.10 lakh workers.
The cotton textile industry is rightly described as a Swadeshi industry
because it was developed with indigenous entrepreneurship and capital and
in the pre-independence era the Swadeshi movement stimulated demand
for Indian textile in the country.
The partition of the country at the time of independence affected the cotton
textile industry also. The Indian union got 409 out of the 423 textiles mills
of the undivided India. 14 mills and 22 per cent of the land under cotton
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cultivation went to Pakistan. Some mills were closed down for some time.
For a number of years since independence, Indian mills had to import
cotton from Pakistan and other countries.
After independence, the cotton textile industry made rapid strides under the
Plans. Between 1951 and 1982 the total number of spindles doubled from
11 million to 22 million. It increased further to well over 26 million by
1989-90.
CURRENT POSSITION OF TEXTILE INDUSTRY IN INDIA
Textile constitutes the single largest industry in India. The segment of the
industry during the year 2000-01 has been positive. The production of
cotton declined from 156 lakh bales in 1999-2000 to 1.40 lakh bales during
2000-01. Production of man-made fibre increased from 835 million kgs in
1999-2000 to 904 million kgs during the year 2000-01 registering a growth
of 8.26%. The production of spun yarn increased to 3160 million kgs
during 2000-01 from 3046 million kgs during 1999-2000 registering a
growth of 3.7%. The production of man-made filament yarn registered a
growth of 2.91% during the year 1999-2000 increasing from 894 million
kgs to 920 million kgs. The production of fabric registered a growth of
2.7% during the year 1999-2000 increasing from 39,208 million sq mtrs to
40,256 million sq mtrs. The production of mill sector declined by 2.6%
while production of handloom, powerloom and hosiery sector increased by
2%, 2.7% and 5.1% respectively. The exports of textiles and garments
increased from Rs. 455048 million to Rs. 552424 million, registering a
growth of 21%. Growth in the textile industry in the year 2003-2004 was
Rs. 1609 billion. And during 2004-05 production of fabrics touched a peak
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of 45,378 million squre meters. In the year 2005-06 up to November,


production of fabrics registered a further growth of 9 percent over the
corresponding period of the previous year.
With the growing awareness in the industry of its strengths and weakness
and the need for exploiting the opportunities and averting threats, the
government has initiated many policy measures as follows.
The Technology Upgradation Fund Scheme (TUFS) was launched in April
99 to provide easy access to capital for technological upgradation by
various segments of the Industry.
The Technology Mission on Cotton (TMC) was launched in February 2000
to address issues relating to the core fibre of Cotton like low productivity,
contamination, obsolete ginning and pressing factories, lack of storage
facilities and marketing infrastructure

A New Long Term Textiles and Garments Export Entitlement (Quota)


Policies 2000-2004 was announced for a period of five years with effect
from 1.1.2000 to 31.12.2004 covering the remaining period of the quota
regime.
In the current year Budget 2006-2007 states the measures for Textile
Industry as follows
Allocation to the Technology Upgradation Fund (TUF) enhanced
from Rs4.4bn to Rs 5.4bn.
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Provision for the interest subsidy on term loans to the handloom


sector to be increased from Rs2.0bn to Rs 2.4bn.
Rs1.9 bn to be provided for the scheme for integrated Textiles
Parks (launched in October 2005 with the intention of creating 25
textile parks)
Excise duty on all man-made fibre yarn and filament yarn to be
reduced from 16% to 8%
Import duty on all man-made fibers and yarns to be reduced from
15% to 10%.
FUTURE PROSPECTS:
The future outlook for the industry looks promising, rising income levels
in both urban and rural markets will ensure a rising market for the cotton
fabrics considered a basic need in the realm of new economic reforms
(NER) proper attention has been given to the development of the textiles
industry in the Tenth plan. Total outlay on the development of textile
industry as envisaged in the tenth plan is fixed at Rs.1980 crore. The
production targets envisaged in the terminal year of the Tenth plan are
45,500 million sq metres of cloth 4,150 million kg of spun yarn and 1,450
million kg of man made filament yarn. The per capita availability of cloth
would be 28.00 sq meters by 2006-2007 as compared to 23.19 sq meters
in 2000-01 showing a growth of 3.19 percent. The export target of textiles
and apparel is placed at $32 billion by 2006-2007 and $50 billion by
2010.
Vision India 2010 for Textiles

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Textile economy to grow to $ 85 bn. by 2010.


Creation of 12 million new jobs in Textile Sector.
To increase Indias share in world trade to 6% by 2010.
Achieve export value of $ 40 Billion by 2010.
Modernisation

and

consolidation

for

creating

globally

competitive industry.
STRUCTURE OF INDIAS TEXTILE INDUSTRY
The textile sector in India is one of the worlds largest. The textile industry
today is divided into three segments:
Cotton Textiles
Synthetic Textiles
Other like Wool, Jute, Silk etc.
All segments have their own place but even today cotton textiles continue
to dominate with 73% share. The structure of cotton textile industry is
very complex with co-existence of oldest technologies of hand spinning
and hand weaving with the most sophisticated automatic spindles and
loom. The structure of the textile industry is extremely complex with the
modern, sophisticated and highly mechanized mill sector on the one hand
and hand spinning and hand weaving (handloom sector) on the other in
between falls the decentralised small scale powerloom sector.
Unlike other major textile-producing countries, Indias textile industry is
comprised mostly of small-scale, nonintegrated spinning, weaving,
finishing, and apparel-making enterprises. This unique industry structure
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is primarily a legacy of government policies that have promoted laborintensive, small-scale operations and discriminated against larger scale
firms:
Composite Mills.
Relatively large-scale mills that integrate spinning, weaving and,
sometimes, fabric finishing are common in other major textile-producing
countries. In India, however, these types of mills now account for about
only 3 percent of output in the textile sector. About 276 composite mills
are now operating in India, most owned by the public sector and many
deemed financially sick. In 2003-2004 composite mills that produced
1434 m.sq mts of cloth. Most of these mills are located in Gujarat and
Maharashtra.
Spinning.
Spinning is the process of converting cotton or manmade fiber into yarn
to be used for weaving and knitting. This mills chiefly located in North
India. Spinning sector is technology intensive and productivity is affected
by the quality of cotton and the cleaning process used during ginning.
Largely due to deregulation beginning in the mid-1980s, spinning is the
most consolidated and technically efficient sector in Indias textile
industry. Average plant size remains small, however, and technology
outdated, relative to other major producers. In 2002/03, Indias spinning
sector consisted of about 1,146 small-scale independent firms and 1,599
larger scale independent units.
Weaving and Knitting.

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The weaving and knits sector lies at the heart of the industry. In 2004-05,
of the total production from the weaving sector, about 46 percent was
cotton cloth, 41 percent was 100% non-cotton including khadi, wool and
silk and 13 percent was blended cloth. Three distinctive technologies are
used in the sector handlooms, powerlooms and knitting machines.
Weaving and knitting converts cotton, manmade, or blended yarns into
woven or knitted fabrics. Indias weaving and knitting sector remains
highly fragmented, small-scale, and labour-intensive. This sector consists
of about 3.9 million handlooms, 380,000 powerloom enter-prises that
operate about 1.7 million looms, and just 137,000 looms in the various
composite mills. Powerlooms are small firms, with an average loom
capacity of four to five owned by independent entrepreneurs or weavers.
Modern shuttleless looms account for less than 1 percent of loom
capacity.
Fabric Finishing.
Fabric finishing (also referred to as processing), which includes dyeing,
printing, and other cloth preparation prior to the manufacture of clothing,
is also dominated by a large number of independent, small-scale
enterprises. Overall, about 2,300 processors are operating in India,
including about 2,100 independent units and 200 units that are integrated
with spinning, weaving, or knitting units.
Clothing.
Apparel is produced by about 77,000 small-scale units classified as
domestic

manufacturers,

manufacturer

exporters,

and

fabricators

(subcontractors).
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INDIAS MAJOR COMPETITIORS IN THE WORLD


To understand Indias position among other textile producing the industry
contributes 9% of GDP and 35% of foreign exchange earning, Indias
share in global exports is only 3% compared to Chinas 13.75% percent. In
addition to China, other developing countries are emerging as serious
competitive threats to India. Looking at export shares, Korea (6%) and
Taiwan (5.5%) are ahead of India, while Turkey (2.9%) has already
caught up and others like Thailand (2.3%) and Indonesia (2%) are not
much further behind. The reason for this development is the fact that India
lags behind these countries in investment levels, technology, quality and
logistics. If India were competitive in some key segments it could serve as
a basis for building a modern industry, but there is no evidence of such
signs, except to some extent in the spinning industry.

Indias Competitive Position in Stages of Textile Manufacture

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PROBLEM FACED BY THE TEXTILE INDUSTRY IN INDIA


The cotton textile industry is reeling under manifold problems. The major
problems are the following:
Sickness:
Sickness is widespread in the cotton textile industry. After the engineering
industry, the cotton textile industry has the highest incidence of sickness.
As many as 125 sick units have been taken over by the Central
Government. Sickness is caused by various reasons like the problems
mentioned below.
Obsolescence:
The plant and machinery and technology employed by a number of units
are obsolete. The need today is to make the industry technologically upto-date rather than expand capacity as such. This need was foreseen quite
sometime back and schemes for modernization of textile industry had
been introduced. The soft loan scheme was introduced a few years back
and some units were able to take advantage of the scheme and modernise
their equipment. However, the problem has not been fully tackled and it is
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of utmost importance that the whole industry is technologically updated.


Not many companies would be able to find resources internally and will
have to depend on financial institutions and other sources.
Government Regulations:
Government regulations like the obligation to produced controlled cloth
are against the interest of the industry. During the last two decades the
excessive regulations exercised by the government on the mill sector has
promoted inefficiency in both production and management. This has also
resulted in a colossal waste of raw materials and productive facilities. For
example, the mills are not allowed to use filament yarn in warp in order to
protect the interest of art silk and power loom sector which use this yarn
to cater to the affluent section of society.
Low Yield and Fluctuation of Cotton Output:
The cotton yield per hectare of land is very low in India. This results in
high cost and price. Further, being largely dependent on the climatic
factors, the total raw cotton production is subject to wide fluctuation
causing serious problems for the mills in respect of the supply of this vital
raw material.
Competition from Man-made Fibers:
One of the serious challenges facing the cotton textile industry is the
competition from the man-made fibers and synthetics. These textures are
gradually replacing cotton textiles. This substitution has in fact been
supported by a number of people on the ground that it is not possible to
increase substantially the raw cotton production without affecting other
crops particularly food crops.

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Competition from other Countries:


In the international market, India has been facing severe competition from
other countries like Taiwan, South Korea, China and Japan. The high cost
of production of the Indian industry is a serious adverse factor.
Labour Problems:
The cotton textile industry is frequently plagued by labour problems. The
very long strike of the textile workers of Bombay caused losses
amounting to millions of rupees not only to the workers and industry but
also to the nation in terms of excise and other taxes and exports.
Accumulation of Stock:
At times the industry faces the problems of very low off take of stocks
resulting in accumulation of huge stocks. The situation leads to price cuts
and the like leading to loss or low profits.
Miscellaneous:
The industry faces a number of other problems like power cuts,
infrastructural problems, lack of finance, exorbitant rise in raw material
prices and production costs etc.
EXPORT AT GLANCE:
Textile exports plays a crucial role in the overall exports from
India.Throught export friendly government policies and positive efforts
by the exporting community, textile exports increased substantially from
US$ 5.07 billion in 1991-92 to US$ 12.10 billion during 2000-01. The
textile export basket contributing over 46 percent of total textile export. In
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world textile trade has risen to 3.1 percent in 1999-2000 as against 1.80
percent in early nineties.
Exports have grown at an average of 11 percent per annum over the
last few years, while world textile trade has grown only about 5.4 per cent
per annum in the same years. During the year 2000-01 Indias textile
export was US$ 12014.4 million. It was increased the year 2004-05 US$
13038.64 million. The exports of textiles (including handicrafts, jute, and
coir) formed 24.6% of total exports in 2001-2002, however this
percentage decreased to 16.24% during 2004-2005. The textile exports
recorded a growth of 15.3% in 2002-2003 and 8.7% in 2003-2004.
Textile exports during the period of April-February 2003-2004
amounted to $11,698.5 million. During 2004-05 textile exports were US$
13,039.00 million, recording a decline of 3.4% as compared to the
corresponding period of previous year. However, during April-November,
2005, the textile exports have shown growth of 8.2% as compare to the
corresponding period of previous year.
Against a target of US$ 15,160 million during 2004-05, the textile
exports were of US$13039 million, registering a shortfall of 14% against
the target. The overall export target for 2005-06 has been fixed at US$
15,565 million. In 2005 textile and garments accounted for about 16% of
export earning. Indias textile export to the US has shown a good rise of
29.5% between January and June 2005.
INVESTMENT IN TEXTILE INDUSTRY

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Investment is the key for Indian textiles to make rapid strides. The Vision
Statement prepared by the Indian Cotton Mills federation has projected
that the industry has the potential to reach a size of $85 billion by 2010
from the current level of $ 36 billion. Further, the vision statement has
estimated that textile exports could touch $40 billion by 2010 from $ 11
billion in 2002. In the process, Indias share in the global textile and
clothing trade is expected to double from three percent in 2002 to six
percent by 2010.
To reach these this ambitious target, it is estimated that new investment to
the tune of Rs.1, 40,000 crores will be needed in the next five years. After
analysing the capacity and technology levels in various segments of
textile Industry and the need for modernisation, funds required for various
segments have been below.

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The Multi-Fibre Agreement (MFA)


The Multi-Fibre Agreement (MFA), that had governed the extent of textile
trade between nations since 1962, expired on 1 January 2005. It is
expected that, post-MFA, most tariff distortions would gradually
disappear and firms with robust capabilities will gain in the global trade
of textile and apparel. The prize is the $360 bn market which is expected
to grow to about $600 bn by the year 2010 barely five years after the
expiry of MFA.

National Textile Policy 2000


Faced with new challenges and opportunities in a changing global trade
environment, the GOI unveiled its National Textile Policy 2000 (NTP
2000) on November 2, 2000. The NTP 2000 aims to improve the
competitiveness of the Indian textile industry in order to attain $50 billion
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DEPARTMENT OF MBA

per year in textile and apparel exports by 2010.86 The NTP 2000 opens
the countries apparel sector to large firms and allows up to 100 percent
FDI in the sector without any export obligation.
Export Promotion Capital Goods (EPCG) Scheme
To promote modernization of Indian industry, the GOI set up the Export
Promotion Capital Goods (EPCG) scheme, which permits a firm
importing new or Secondhand capital goods for production of articles for
export to enter the capital goods at preferential tariffs, provided that the
firm exports at least six times the c.i.f. value of the imported capital goods
within 6 years. Any textile firm planning to modernize its operations had
to import at least $4.6 million worth of equipment to qualify for duty-free
treatment under the EPCG scheme.
Export-Import Policy
The GOIs EXIM policy provides for a variety of largely export-related
assistance to firms engaged in the manufacture and trade of textile
products. This policy includes fiscal and other trade and investment
incentives contained in various programs.
Duty Entitlement Passbook Scheme (DEPS)
DEPS is available to Indian export companies and traders on a pre- and
post-export basis. The pre-export credit requires that the beneficiary firm
has exported during the preceding 3-year period. The post-export credit is
a transferable credit that exporters of finished goods can use to pay or
offset customs duties on subsequent imports of any unrestricted products.

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The Agreement on Textiles and Clothing (ATC)


The Agreement on Textiles and Clothing (ATC) promises abolition of all
quota restrictions in international trade in textiles and clothing by the year
2005. This provides tremendous scope for export expansion from
developing countries.
Guidelines of the revised Textile Centers Infrastructure Development
Scheme (TCUDS)
TCIDS Scheme is a part of the drive to improve infrastructure facilities at
potential Textile growth centres and therefore, aims at removing
bottlenecks in exports so as to achieve the target of US$ 50 billion by
2010 as envisaged in the National Textile Policy, 2000.
Under the Scheme funds can be given to Central / State Government
Departments/

Public

Sector

Undertakings/

Other

Central

/State

Governments agencies / recognized industrial association or entrepreneur


bodies for development of infrastructure directly benefiting the textile
units. The fund would not be available for individual production units.

Technology Upgradation Fund Scheme (TUFS)


At present, the only scheme through which Government can assist the
industry is the Technology Upgradation Fund Scheme (TUFS) which
provides for reimbursing 5% interest on the loans/finance raised from
designated

financial

institutions

for

bench marked

projects

of

modernisation. IDBI, SIDBI, IFCI have been designed as nodal agencies


56

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DEPARTMENT OF MBA

for large and medium small scale industry and jute industry respectively.
They have co-opted 148 leading commercial banks/cooperative banks and
financial institutions like State Finance Corporations and State Industrial
Development Corporation etc.
Scheme for Integrated Textile Parks (SITP)
To provide the industry with world-class infrastructure facilities for
setting up their textile units, Government has launched the Scheme for
Integrated Textile Parks (SITP) by merging the Scheme for Apparel Parks
for Exports (APE) and Textile Centre Infrastructure Development Scheme
(TCIDS). This scheme is based on Public-Private Partnership (PPP) and
envisages engaging of a professional agency for project execution. The
Ministry of Textiles (MOT) would implement the Scheme through
Special Purpose Vehicles (SPVs).
National Textile Corporation Ltd. (NTC)
National Textile Corporation Ltd. (NTC) is the single largest Textile
Central Public Sector Enterprise under Ministry of Textiles managing 52
Textile Mills through its 9 Subsidiary Companies spread all over India.
The headquarters of the Holding Company is at New Delhi. The strength
of the group is around 22000 employees. The annual turnover of the
Company in the year 2004-05 was approximately Rs.638 crores having
capacity of 11 lakhs Spindles, 1500 Looms producing 450 lakh Kgs of
Yarn and 185 lakh Mtrs of cloth annually.

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Cotton Corporation of India Ltd. (CCI)


The Cotton Corporation of India Ltd (CCI), Mumbai, is a profit-making
Public Sector Undertaking under the Ministry of Textiles engaged in
commercial trading of cotton. The CCI also undertakes Minimum Support
Price Operation (MSP) on behalf of the Government of India.
The Ministry of Textiles
The Ministry of Textiles is responsible for policy formulation, planning,
and development export promotion and trade regulation in respect of the
textile sector. This included all natural and manmade cellulose fibers that
go into the making of textiles, clothing and handicrafts.

Power loom development and export promotion council


Power loom development and export promotion council, set up by the
ministry of textiles government of India. PDEXCIL provide some export
assistance as follows
Exploration of overseas market.
Identification of items with export potential.
Market survey and up-to-date market intelligence.
Contact with protective buyers to interest them in your products.
Providing your company's profile to overseas buyers and viceversa.
Advice on international marketing.
Display of selected product groups.

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Cotton Textile Export Promotion Council (TEXPROCIL):


The Council looks after the export promotion of cotton fabrics, cotton
yarn and cotton made-ups. Its activities include market studies for
individual products, circulation of trade enquiries, participation in
exhibitions, fairs and seminars at home and abroad, in order to boost
exports.

SWOT ANALYSIS OF INDIAN TEXTILE INDUSTRY


Indian textile industry has several Strengths
Abundant Raw Material Availability
Low Cost Skilled Labour
Presence across the value-chain
Growing Domestic Market

Indian textile industry has several Weaknesses


Fragmented industry
Effect of Historical Government Policies
Lower Productivity and Cost Competitiveness
Technological Obsolescence

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Indian textile industry has several Opportunities


Post 2005 challenges
Research and Development and Product Development
Indian textile industry has several Threats
Competition in Domestic Market
Ecological and Social Awareness
Regional alliances

Strengths
Abundant Raw Material Availability:
Allowing the industry to control cost and reduce over all lead-times
across the value chain.
Low Cost Skilled Labour
Low cost skilled labour providing a distinct competitive advantage for the
industry.

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Presence across the value-chain


Presence across the value-chain providing a competitive advantage when
compared to countries likes Bangladesh, Srilanka, who have developed
primarily as garmenters.
Reduced Lead-times:
Manufacturing capacity present across the entire product range, enabling
textile companies and garmenters do source their material locally and
reduce lead-time.
Super Market:
Ability to satisfy customer requirements across multiple product gradessmall and large lot sizes specialized process treatments etc.
Growing Domestic Market
Growing Domestic market which could allow manufacturers to mitigate
risks while allowing them to build competitiveness.
Weaknesses
Fragmented industry
Fragmented industry leading to lower ability to expand and emerge as
world-class players.
Effect of Historical Government Policies

61

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DEPARTMENT OF MBA

Historical regulations thought relaxed continue to be an impediment to


global competitiveness.
Lower Productivity and Cost Competitiveness
Labour force in India has a much lower productivity as compared
to competing countries like china, Srilanka etc.
The Indian industry lacks adequate economies of scale and is
therefore unable to compete with china, and other countries etc.
Cost like indirect takes, power and interest are relatively high.
Technological Obsolescence
Large portion of the processing capacity is obsolete
While state of the art integrated textile mills exist majority of the
capacity lies currently with the power loom sector.
This has also resulted in low value addition in the industry.
Opportunities
Post 2005 challenges
During the year 2005 is a huge opportunity that needs to be capitalized.
Research and Development and Product Development
Indian companies needs to increase focus on product development.
Newer specialized fabric- smart Fabrics , specialized treatment etc.
Faster turn around times for design samples Investing in design
centers and sampling labs.
Increased use of CAD to develop designing capability in the
Organisation and developing greater options.
62

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DEPARTMENT OF MBA

Investing in trend forecasting to enable growth of the industry in


India.
Threats
Competition in Domestic Market
Competition is not likely to remain just in the exports space, the
industry is likely to face competition from cheaper imports as well.
This is likely to affect the domestic industry and may lead to
increased consolidation.
Ecological and Social Awareness
Development in the form of increased consumer consciousness on issues
such as usage of child labour unhealthy working conditions etc.
The Indian industry needs to prepare for the fall out of such issues by
issues by improving its working practices.
Regional alliances
Regional trade blocs play a significant role in the global garment industry
with countries enjoying concessional tariffs by virtue of being members of
such blocs/ alliances.
Indian industry would need to be prepared to face the fall out of the post
2005 scenarios in the form of continued barriers for imports.

63

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DEPARTMENT OF MBA

COMPANY PROFILE
Amaravathi Textile with its diverse interests in core areas is surging ahead with
drive and determination. with all the companies superbly integrated in one single
campus, the group harnesses an entrepreneurial spirit, state-of-art technology and
financial strengths to emerge as an industrial force to reckon with.
Amaravathi Textiles Group is driven by a passion of be the best in all the areas it
operates. Backed by a high density of advanced technology and sophisticated
manufacturing facilities, its only natural that the group is leaf fogging for an outstanding
future. The total group turnover is around 300 crores per annum.
ABOUT THE COMPANY:
The founder of Amaravathi Textiles Group who has drawn its future planned growth.
A man whose spirit of dynamism has helped the group to achieve manifold growth.
Thanks to his pioneering vision, the groups operation grew and market extended. Today
Amaravathi Textiles group is a multi-activity group with an Rs.300crores turnover,
comprising divisions with diverse interest in

COTTON

SPINNING

TEXTILE

A Star who shone in all his brilliance and dazzled everyone. With his visionary
leadership abilities and caliber. Unfortunately fate nipped his sparkling career in the bud.
Though short-lived, his visionary dedication continues to guide the spirit of achievement
and enterprise of Amaravathi Textiles across various activities.

64

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DEPARTMENT OF MBA

A TRADITION OF ENTERPRISE:
Sri Kandimalla Srinivasa Rao left in pursuit of a dream. With just two bags of grain,
he ventured to cultivate 100 acres of land. And with the tell- tale sprite gleaming in his
eyes. This man had set the ball of a 120crore conglomerate rolling. His value oriented
strategy and adventurous sprit bore fruit consistently. His farmland grew and from a
model farmer he evolved into a dynamitic entrepreneur. He proved that success starts
with a proactive attitude. A vigorous confidence that one can effectively integrate ideas
with enterprise. Sadinenis first trip to RUSSIA gave him the power of conviction to
stride boldly into the industrial environment. And, valiantly into the future.
THE BIRTH OF A DREAM:
Sri Kandimalla Srinivasa Rao set up a cotton ginning mill in 1984. The operations
grew rapidly to lay solid foundations for giant surging ahead in diverse environments. To
the group, the future is rich in possibilities. A future where the best of minds and men will
work. And will have the most resources to draw upon. Its vision of the future where
change will be embraced as the very basis of opportunity and endeavor.
The managing Director of Amaravathi Textiles

Pvt.Ltd. Relentless pursuit of

perfection is the hallmark of this young and dynamic B.Tech Textiles Graduate. His rich
and professionals experience in the spinning line enabled Amaravathi Textiles Spinning
Division to scale new heights. His enterprising zeal and cautious planning have been the
pivotal points in driving the group towards trailblazing progress.
Sri Kandimalla Srinivasa Rao is committed to labour welfare and his visionary
leadership has earned him a wealth of respect among the employees of Amaravathi. An
astute professional by habit, he is forever aiming higher. He is widely acknowledged as

65

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DEPARTMENT OF MBA
the man who has fostered a can do culture which starts at top and filters down to every
employee at Amaravathi. He is power by just one belief.
Success is a matter of excellence, and not chance.
Social service has always been a matter of prime concern to him. Which is why he
perennially strives to provide the best education and undertake multi-pronged schemes
towards the betterment of the community? While nurturing a corporate culture that
encourages individual growth, he is committed to a vision that encompasses everybodys
up liftment.
COTTON DIVISION:
The COTTON GINNING & PRESSING UNIT was started in 1984. The Division maintains
54 Gins and 1 Hydraulic press with an annualized turnover of Rs.40crores. The company
firmly believes that unmatched capabilities plus an in-depth knowledge of various cotton
growing areas alone can put it on the path to speedy growth.
This Division also processes Indias best long staple cotton DCH-32 at Dharwad
Branch, Karnataka. The division is poised to excel and is confidently geared to post an
impressive growth rate. This Division has stayed big thinking big and keeping an eye on
the details that sustain quality.
Manufacture of cotton i.e. by Ginning& Pressing Activities.
LICENSED

: Licensed under Industries (D&R) Act, 1951

PROCESSING

: 12000 MTs of cotton seed

INSTALLEDCAPACITY: 392MTS of Speed per day of 24 hours working


RAW MATERIAL

: Cotton kappas

FINISHED PRODUCTS : Cotton lint

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DEPARTMENT OF MBA
Cotton Lint will be supplied to Spinning Mills and Cotton Seed Mills.

SPINNING DIVISION:
The Amaravathi Textiles

Spinning Mills Division has been a trend setter ever

since its commissioning. Established in 1991, the plant started commercial production of
World class yarn to the requirement of global markets as well as indigenous markets.
Conceived in a sprawling area in the midst of rich cotton fields of Guntur District, the
division is on its way to dizzy heights on the cotton horizon. We are having a capacity of
60,000 spindles. The impressive performance reflects The Amravatis commitment to
continue machine modernization.
The division through a concerted Endeavour assures exemplary quality by
undertaking rigid quality control measures which start right at the at the stage of
procuring raw material ingredients down to the last level. It is the dedicated quality
consciousness that as paved the way for a phenomenal demand for The Amaravathi
products.
All this translates into utmost customer satisfaction. The unit is enviably wellentrenched as a leading player for the highly competitive export markets ever since 1996.
Amaravathi Textiles magnificent obsession with exports has won for it important
international markets. In fact, over 70% of the produce was exported major European
countries. In recognition of its excellent quality conforming to the highest international
standards, the products of Amaravathi Textiles

have won widespread appreciation and

repeat orders. By exporting world class cotton yarn globally, the mill is leap fogging for
the further growth.
The thrust on higher capacity utilization, uncompromising productivity standards,
quality management, astute focus on niche markets, prompt delivery schedules combined
with competitive pricing have resulted in higher sales and profits. Amaravathi Values:

67

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DEPARTMENT OF MBA
v Promptness in execution.
v Transparency in Business
v Integrity in Negotiation
v Innovation that fuels growth
ENVIRONMENTAL PROTECTION AND SAFETY A TOP PRIORITY;
Amaravathi is committed to the conservation of the environment. Our manufacturing
facilities comply with stringent environmental norms and are equipped for effluent treatment.
The Amaravathi Dyeing Plant uses reverse osmosis with a multi effect vaporator to qualify as
a zero discharge unit.
COUNT RANGE: We are running from 50 to 100 counts in single well as double (TFO)
yarns. We are running compact yarn with 12000 spindles (session). We will achieve 25000
spindles compact yarn shortly.
This unit manufactories Cotton yarn by processing of cotton lint.
LICENSED

: Registered with office of the textile Commission


: Registered with ministry of Commerce & Industry
: Secretariats for Industrial Assistance, New Delhi.

INSTALLED CAPACITY : 55,536 Spindles. 48 Looms.


RAW METERIAL
FINISHED PRODUCTS

: Cotton Lint
: Cotton yarn.

TEXTILE DIVISION:
The Division was started in 2005. The Units equipped with modern imported
machinery. Presently we are running with 48 Brand New Looms. We have sucker

68

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DEPARTMENT OF MBA
wrapping and sizing. Total plant planned for 98 Looms. In phased manner we are
expanding the Looms capacity.
STATEMENT OF ACCOUNTING POLICIES GENERAL:

The accountings are prepared on historical cost convention and in accordance


with normally accepted Accounting Principles.
FIXED ASSETS:
Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition of
fixed assets is inclusive of directly attributable cost of bringing the assets to their working
condition for the intended use and interest on borrowings till the date of commissioning
of the assets, CENVAT/VAT credit availed, if any, on fixed assets is not included in the
cost of such fixed assets capitalized.
INVESTMENTS:
Long-Term investments are valued at cost price less provision for diminution on
account other than temporary decline in the value of investment
DEPRECIATION:
Depreciation is a written off in accordance with the provisions of schedule XIV of the
companies Act 1956 as follows:

Under Straight Line Method in respect of the assets of Spinning, and Textile
Divisions.

Under Written down Value method on the assets of all other divisions of the
company.

INVENTORIES:
Valuation of inventories is made as follows

69

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DEPARTMENT OF MBA

Raw-Material and Finished goods at cost or net realizable value whichever is


lower.

Work-in-Progress at cost inclusive of direct production overheads.

Stores and spares at cost.

Electronic power at net releasable value

Excise Duty:
Liability on finished goods is accounted for as and when goods are cleared from
factory and there is no liability on closing stock of finished goods at the year end.
SALES:
Sales are exclusive of sales tax collections due to implementation of AP VAT Act
2005.
TAXES ON INCOME:
Current taxes is determined as per the provisions of income Tax Act 1961 in respect
of taxable income for the year ended 31st march, 2007.Differed tax liability is
recognized, subject to the consideration of timing differences, being the difference
between the taxable income and accounting income the originate in one period and are
capable of reversal in one or more subsequent periods. In case of power division which
eligible for tax Holiday. Deferred Tax Asset / liabilities for timing differences which
reverse after the Tax Holiday period are recognized.
SEGMENT REPORTING:
The accounting policies adopted for segment reporting are in line with the accounting
policies of the company with the following additional policies for segment reporting.
Inter-segment Revenue has been accounted for based on the market related prices.

70

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DEPARTMENT OF MBA
Revenue and Expenses other than interest have been identified to segments on the
basis of their relationship to the operating activities of the segment. Revenue and expense
which related to the enterprise as a whole and are not allocable to segments on a
reasonable basis have been included under Unallocated head.

RETIREMENT BENEFITS:
The Company makes regular monthly contribution to provident fund which are
deposited with the Government and Group term Insurance is routed through L.I.C, and
are charged against the revenue. The company has taken Group Gradually (Cash
Accumulation) scheme with L.I.C of India. The premium on policy and the difference
between the amounts of gratuity paid on retirement and recovered from the Life
Insurance Corporation of India debited to profit and Loss Account. Leave encashment is
accounted as and when the employees claimed and paid.
PROPOSED DIVIDEND:
Provision is made in the account for the dividend payable (including of all tax
thereon) by the company as recommended by the Board of Directors, Pending approval
of the shareholders at the annual General Meeting.
FOREIGN CURRENCY TRANSACTIONS:

Imports of material /capital Equipment are accounted at the rates at


which actual payments are effected.

The profit/ Loss arising out of foreign Exchange transactions on sale of


goods are accounted on actual realization basis.

71

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DEPARTMENT OF MBA
Foreign Currency loans covered by forward contracts are stated at the

forward contracts rates while those not covered are calculated at year
end rate.

IMPAIRMENT OF ASSETS:
At the date of each balance sheet the company evaluates internally, indications of
the impairment if any, to carrying amount of its fixed and other assets. No
impairment loss has been recognized.

CONTINGENT LIABILITIES:
Contingent Liabilities are not recognized in the accounts, but are disclosed after a
careful evaluation of the concerned facts and legal issues involved. Amravati Product:
YARN
Commercial performance
Table 2:3

(in rupees)

Year

Sales Turnover

Domestic Sales

2008-09

28,34,20,669

28,34,20,669

2009-10

34,46,12,983

34,46,12,983

2010-11

44,48,54,723

44,48,54,723

2011-12

52,60,60,377

52,60,60,377

2012-13

68,97,53,568

68,97,53,568

BOARD OF DIRECTORS:

72

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DEPARTMENT OF MBA

K.Srinivasa Rao

- Director

K.Bhaskar

- Director

K.Geetha

-Director

GENERAL MANAGER.
Sri P.Ramesh, D.T.T., B.A.,
ACCOUNTS MANAGER.
Sri N.Veeraiah, B.Com. A.C.A.
BANKERS
State Bank of India, Guntur
State Bank of Mysore, Guntur.
State Bank of Hyderabad, Guntur.
REGISTERED OFFICE
33-263, Kandimalla Road,
Pandaripuram,
Chilakaluripet-522616

FACTORY
Martur-522301,

Martur Mandal,

Prakasam District, Andhra Pradesh.

73

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DEPARTMENT OF MBA
IMAGES OF COTTONS;-

CLOTH

74

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DEPARTMENT OF MBA

75

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DEPARTMENT OF MBA
MAN POWER INAMARAVATHI TEXTILES:

Spinning Division - 1000


Textile Division

- 120

FUTURE OUTLOOK:
Operations on consolidated basis continue to pose healthy trends. However, changes
in the industrial trends are bound to influence spinning operations. Company has acquired
48 looms under first phase of project implementation for textile division. Textile
operations have come out of teething problem but have to reach estimated levels in
operations and profits. This shall take some more time in view of dip in dollar valuation
and decline in exports.

Thus, company has to grapple with an industrial scenario that calls for alert and
caution.

In view of this, we are hopeful of improved performance in 2009-2010 despite the


difficulties posed.

76

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DEPARTMENT OF MBA
DATA ANALYSIS AND INTERPRETATION SCHEDULE OF CHANGES
IN WORKING CAPITAL FOR THE YEAR 2008-09

Particulars

Previous

Current

year 2008

year 2009

Working capital
Increase

Decrease

Rs.

Rs.

A) Current assets:
1) Inventories

172256321 187934012

15677691

2) Sundry Debtors

24937024

26860540

1923516

3) cash & bank balance

33465753

6059037

4) other current assets

28656816

48679846

5) Loans & Advances

14928012

11723019

Total Current Assets

27406716
20023030
3204993

274243926 281256454

B) Current liabilities:
1) Current Liabilities
2) Provisions for taxation

108391431 139624184
7256927

31232753

12018960

Total Current Liabilities

115648358 151643144

Net working capital (A-B)

158595568 129613310

4762033

Decrease in working capital

28982258

28982258

Total

158595568 158595568

66606495

66606495

Source: Compiled from annual reports of the company


ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2008-09

77

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DEPARTMENT OF MBA
Dr.

Cr.
Particulars

To Depreciation A/c

To Closing Balance of
Reserves and surplus A/c

Amount

Particulars

Rs.
105478021

By Opening Balance of
Reserves and surplus A/c

Amount
Rs.
135167525

130270036 By Funds from operations

100580532

235748057

235748057

Source: Compiled from annual reports of the company


TABLE 5.3
FUNDS FLOW STATEMENT FOR THE YEAR 2008-09
Sources

Amount

Applications

Rs.

Amount
Rs.

Raising unsecured loans

23688279

Payment on secured loan

74848773

Funds from operations

100580532

Purchase fixed assets

79411683

Sale of investment
Decrease in working
capital
Increase in differed tax

736800
28982258
272587
154260456

154260456

Source: Compiled from annual reports of the company


INTERPRETATION:

78

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DEPARTMENT OF MBA
It is observed from table 5.4. That the net increase in working capital for
the year 2008-09 is Rs 2,89,82,258. The current assents of the company are
decreased comparing with previous year results. The current liabilities of the
company are increased comparing the previous results. To find the table 5.3, the
company gains profit from the operation to an extent Rs 10,05,80,532. It shows
the table 5.3, net decrease in working capital is Rs 2,89,82,258. This year raising
the unsecured loans and selling some investments. This year changes in differed
tax increased, the company paying some funds to secured loans holders.

79

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DEPARTMENT OF MBA
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2009-10
Table 5.4

Particulars

Previous

Current

year 2009

year 2010

Working capital
Increase

Decrease

Rs.

Rs.

A) Current assets:
1) Inventories

187934012

239880075

51946063

2) Sundry Debtors

26860540

35992686

9132146

3) cash & bank balance

6059037

7150276

1091239

4) other current assets

48679846

69640943

20961097

5) Loans & Advances

11723019

12529745

806726

281256454

365193725

1) Current Liabilities

139624184

202449314

2) Provisions for taxation

12018960

9073986

Total Current Liabilities

151643144

211523300

Net working capital (A-B)

129613310

153670425

Increase in working capital

24057115

Total Current Assets


B) Current liabilities:

Total

153670425

62825130
2944974

24057115
153670425

86882245

86882245

Source: Compiled from annual reports of the company


TABLE 5.5
80

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DEPARTMENT OF MBA
ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2009-10
Dr.

Cr.
Particulars

To Depreciation A/c

To Closing Balance of
Reserves and surplus A/c

Amount

Amount

Particulars

Rs.
145033137

151136957

Rs.

By Opening Balance of

130270036

Reserves and surplus A/c

By Funds from operations

296170094

165900058

296170094

Source: Compiled from annual reports of the company


TABLE 5.6
FUNDS FLOW STATEMENT FOR THE YEAR 2009-10
Sources
Increase in differed tax
Funds from operations

Amount

Applications

Rs.
451322

Payment on secured loan

165900058 Purchase fixed assets


Payment Unsecured loan
Increase in working
capital

166351380

Amount
Rs.
10888974
125206678
6198613
24057115

166351380

Source: Compiled from annual reports of the company

INTERPRETATION:
81

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DEPARTMENT OF MBA
It is observed from table 5.7. That the net increase in working capital for
the year 2009-10 is Rs 2,40,57,115. The current assents of the company are
increased comparing with previous year results. The current liabilities of the
company are decreased comparing the previous results. To find the table 5.5, the
company gains profit from the operation to an extent Rs 16,59,00,058. It shows
the table 5.6, net increase in working capital is Rs 2,40,57,115. This year company
is paying unsecured loans, at present time no change in investments. And this year
change in differed tax increased and the company pay some funds to secured loan
holders.

TABLE 5.7
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
82

ECE

DEPARTMENT OF MBA
2010-11

Particulars

Previous

Current

year 2010

year 2011

Working capital
Increase

Decrease

Rs.

Rs.

A) Current assets:
1) Inventories

2904313

239880075

236975762

2) Sundry Debtors

35992686

36258591

265905

3) cash & bank balance

7150276

13998934

6848658

4) other current assets

69640943

93687132

24046189

5) Loans & Advances

12529745

10864119

365193725

391784538

202449314

158452146

9073986

21580520

Total Current Liabilities

211523300

180032666

Net working capital (A-B)

153670425

211751872

Increase in working capital

58081447

Total Current Assets

1665626

B) Current liabilities:
1) Current Liabilities
2) Provisions for taxation

Total

211751872

43997168
12506534

58081447
211751872

75157920

75157920

Source: Compiled from annual reports of the company


TABLE 5.8
ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2010-11

83

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DEPARTMENT OF MBA
Dr.

Cr.
Particulars

To Depreciation A/c

To Closing Balance of
Reserves and surplus A/c

Amount Rs.

Particulars
By Opening Balance of

182491726

Reserves and surplus A/c

194200158

By Funds from operations

376691884

Amount
Rs.
151136957

225554927

376691884

Source: Compiled from annual reports of the company


TABLE 5.9
FUNDS FLOW STATEMENT FOR THE YEAR 2010-11
Sources

Amount

Applications

Rs.

Payment on unsecured

Raise secured loans

99207205

Funds from operations

225554927 Purchase fixed assets

loan

Decrease in differed tax


Increase in working capital

324762132

Amount
Rs.
111445151
154511989
723545
58081447

324762132

Source: Compiled from annual reports of the company


INTERPRETATION:

84

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DEPARTMENT OF MBA
It is observed from table 5.10. That the net increase in working capital for
the year 2010-11 is Rs 5,80,81,447. The current assents of the company are
increased comparing with previous year results. The current liabilities of the
company are decreased comparing the previous results. To find the table 5.8, the
company gains profit from the operation to an extent Rs 22,55,54,927. It shows
the table 5.9, net increase in working capital is Rs 5,80,81,447. This year changes
in differed tax decreased and the company raising some funds to secured loan
holders.

TABLE 5.10
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
85

ECE

DEPARTMENT OF MBA
2011-12

Particulars

Previous

Current

year 2011

year 2012

Working capital
Increase

Decrease

Rs.

Rs.

A) Current assets:
1) Inventories

236975762 327412543

90436781

2) Sundry Debtors

36258591

22361498

3) cash & bank balance

13998934

73891461

59892527

4) other current assets

93687132

151568707

57881575

5) Loans & Advances

10864119

13966691

3102572

Total Current Assets

13897093

391784538 589200900

B) Current liabilities:
1) Current Liabilities

158452146 143360960

2) Provisions for taxation

21580520

90860140

Total Current Liabilities

180032666

234221100

Net working capital (A-B)

211751872

354979800

Increase in working capital

143227928

143227928

354979800 354979800 226404641

226404641

Total

15091186
69279620

Source: Compiled from annual reports of the company


TABLE 5.11
ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2011-12
Dr.

Cr.
86

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DEPARTMENT OF MBA

Particulars

To Depreciation A/c

To Closing Balance of
Reserves and surplus A/c

Amount

Particulars

Rs.
218501632

By Opening Balance of
Reserves and surplus A/c

Amount
Rs.
194200158

345901071 By Funds from operations

370202545

564402703

564402703

Source: Compiled from annual reports of the company


TABLE 5.12
FUNDS FLOW STATEMENT FOR THE YEAR 2011-12
Sources
Raise unsecured loans

Amount

Applications

Rs.
1790474

Payment on secured loan

Amount
Rs.
49556343

Funds from operations

370202545 Purchase fixed assets

215836650

Increase in differed tax

36627902

143227928

Increase in working capital

408620921

408620921

Source: Compiled from annual reports of the company


INTERPRETATION:
It is observed from table 5.13. That the net increase in working capital for
the year 2011-12 is Rs 14,32,27,928. The current assents of the company are

87

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DEPARTMENT OF MBA
increased comparing with previous year results. The current liabilities of the
company are decreased comparing the previous results. To find the table 5.11, the
company gains profit from the operation to an extent Rs 37,02,02,545. It shows
the table 5.12, net increase in working capital is Rs 14,32,27,928. This year is
paying unsecured loans comparing with previous year. This year changes in
differed tax increased, the company raising some funds from secured loan holders.

TABLE 5.13
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2012-13

88

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DEPARTMENT OF MBA

Particulars

Previous

Current year

year 2012

2013

Working capital
Increase

Decrease

Rs.

Rs.

A) Current assets:
1) Inventories

327412543

341906868

2) Sundry Debtors

22361498

83013158

3) cash & bank balance

73891461

156006572

4) other current assets

151568707

219855601

5) Loans & Advances

13966691

16218625

589200900

8170018236

1) Current Liabilities

143360960

125982205

2) Provisions for taxation

90860140

127893051

Total Current Liabilities

234221100

253875256

Net working capital (A-B)

354979800

563126567

Increase in working capital

208146767

------

563126567

563126567

Total Current Assets

14494325
60651660
82116110
68286894
2251934

B) Current liabilities:

Total

17378755
37032911

208146767
245179678

245179678

Source: Compiled from annual reports of the company


TABLE 5.14
ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2012-13
Dr.

Cr.in Rs

89

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DEPARTMENT OF MBA

Particulars

To Depreciation A/c

To Closing Balance of
Reserves and surplus A/c

Amount

Particulars

Rs.

By Opening Balance of

256813736

Reserves and surplus A/c

Amount
Rs.
345901071

424599303 By Funds from operations

335511968

681413039

681413039

Source: Compiled from annual reports of the company


TABLE 5.15
FUNDS FLOW STATEMENT FOR THE YEAR 2012-13
Sources
Raise unsecured loans
Funds from operations
Increase in differed tax
Decrease in capital work
in process

Amount

Applications

(Rs)
171565663
4832584
335511968

Payment on secured loan


Purchase fixed assets
Increase in working capital

Amount
(Rs)
31648312
273665497
208146767

1550361

513460576
Source: Compiled from annual reports of the company

513460576

INTERPRETATION:
It is observed from table 5.13. That the net increase in working capital for
the year 2012-13 is Rs 20,81,46,767. The current assents of the company are
increased comparing with previous year results. The current liabilities of the

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DEPARTMENT OF MBA
company are decreased comparing the previous results. To find the table 5.14, the
company gains profit from the operation to an extent Rs 33,55,11,968. It shows the
table 5.15, net increase in working capital is Rs 20,81,46,767. This year the
company is rais1ng funds through secured loans, differed tax increased and
decrease in capital work in process. This year The Company spend funds for
purchasing of fixed assets and unsecured loans

CHANGES IN WORKING CAPITAL DURING THE PERIOD


2008-09 to 2012-13
Years
Changes in Working Capital Amount in lakhs
2008-09 Decrease
289.82
2009-10 Increase
240.57
2010-11 Increase
580.81

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DEPARTMENT OF MBA
2011-12
2012-13

Increase
Increase

143.22
208.14

700
580.81

600
500
400
289.82

300

240.57

208.14

200

143.22

100
0
Decrease

Increase

Increase

Increase

Increase

INTERPRETATION:
Comparing the five years data the changes in working capital is in
this year. In the year i.e., 2008-09 working capital decreases to
289.82 lakhs.
In the year 2009-10 working capital also increased to Rs 240.57
lakhs. Working capital has decreased it indicates the current assets
are increased and the current liabilities are decreased.
The working capital is increased it indicates the current assets are
decreased and the current liabilities are increased.
The year 2011-12 the working capital is 143.22 lakhs and the
financial year 2012-13 the working capital is also decreased.
ADJUSTED PROFIT& LOSS ACCOUNT DURING THE PERIOD
2008-09 to 2012-13
Years
2008-09
2009-10
2010-11
2011-12
2012-13

Adjusted Profit &Loss a/c


Profit from business operation
Profit from business operation
Profit from business operation
Profit from business operation
Profit from business operation
92

Amount in Lakhs
1005.80
1659.00
2255.54
3702.02
3355.11
ECE

DEPARTMENT OF MBA

4000

3702.02
3355.11

3500
3000
2500

2255.54

2000

1659

1500
1000

1005.8

500
0
2008-09

2010-11

2011-12

2012-13

2012-13

Interpretation:
The Financial position in Amaravathi Textiles Pvt.Ltd in 2008-09 is in good
condition, profit from business operation by Rs.1005.8 lakhs. In 2009-10 it is
better condition Rs.1659.00 lakhs. In the year 2010-11 the profit from business
operations increased Rs.2255.54 lakhs.
The company leads to better position in the year 2011-12 financial year.
The year 2012-13 the profit has decreased to Rs.3355.11 lakhs.
Funds flow and cash flow statement during the period 2008-09 to 2012-13
Years
2008-09
2009-10
2010-11
2011-12
2012-13

Funds Flow Statement (Rs in lakhs)


1542.60
1663.51
3247.62
4086.20
5134.60

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DEPARTMENT OF MBA
6000
5134.6
5000
4086.2
4000
3247.62
3000
2000

1542.6

1663.51

208-09

2009-10

1000
0
2010-11

2011-12

2012-13

INTERPRETATION:
During the year from 2008-09 to 2012-13 the company has various
sources of funds and the uses of the funds are done for purchasing of
fixed assets and increasing in the current assets.
In the year i.e, 2012-13 the loans like Unsecured and Secured loans
are increased Rs. 5134.6 lakhs.
In the year 2010-11 the sources of funds Rs.1663.51 lakhs. In the
year 2012-13 the sources are Rs.5134.6 lakhs. So the financial
position of the company was in good condition.

FINDINGS
It has been observed that the share capital of company is not increasing from
2008 to 2013.
The company is having good reserves and surplus position. These are
increasing year to year from 2008 to 2013. It has been observed that reserves
increased to Rs from 13,02,70,036 to 42,45,99,303.

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DEPARTMENT OF MBA
The company is taking loans from other sources like banks, financial institutes
etc. it observed from 2008 to 2013, the loan amount has deceased from Rs
52,96,65,603 to Rs 51,25,12,335. But 2011 the company is raising up to
65,24,29,686.
It has been observed that the company is investing less on fixed assets from
2008 to 2013. The decrease is from 60,60,14,108 to 57,09,03,729.
It has been observed that the company made investments in 2008 only.
Afterwards till 2013 no new investments have been made.
The total increase in current assets of the company has overcome the total
increase in current liabilities in 2008 to 2013. Current assets are increasing year
to year. But in 2008-09 and 2009-10 only the increases in current liabilities
overcame the increase in current assets.
It has been observed that the net working capital has decreasing in 2008-09 (to
Rs 2,89.82.258) while in all other years till 2013, it increased. And the
companys funds from operations is satisfactory
It has been observed that the company is raising funds from secured and
unsecured loans, sale of fixed assets and funds from operations and it is
spending to purchase fixed asset, redemption of loans and other payments.

SUGGESTIONS
It has been observed that the share capital of the company is not increasing
from 2008 to 2013.This is obstructing the growth of the company. Hence I
suggest the company to increase the share capital.
It has been observed that the companys contribution to the fixed assets is
gradually decreasing through out the study. This would be a problem for the
95

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DEPARTMENT OF MBA
company procuring funds. Hence I suggest the company to focus on this and
increase the allocation for fixed assets.
It has been observed that the company has made investments only in 2008-09.
Afterwards there are no investments at all though all these years. This may
affect the reputation of the company in the public. Hence I advise the company
to increase investments and improve its image.
It has been observed that the increase in current assets of the company is less
than current liabilities in 2008-09. This shows that the company has less
liquidity capacity. Hence I suggest the company to maintain the current ration
to 2:1 by increasing current assets or reducing current liabilities.
It has been observed that the position of the working capital in 2008-09 has
decreased. This will have on effect on sources of funds of the company. Hence
I advice the company improve the position of current assets than current
liabilities and control the decrease in working capital.
The company is getting favorable funds from operations in all years of the
study. This is due to the excellence in operations. This is a good trend and it
should be carefully maintained.

CONCLUSION
Amaravathi Textiles Pvt.Ltd Company was the flat ship company of
Amaravathi Textiles Pvt.Ltd Group after successful beginning and performance of
Amaravathi Textiles Pvt.Ltd.
The company is having experienced professionals in management and also
in supervisory levels.

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DEPARTMENT OF MBA
The company is having the efficiency of the plant operations on average for
the last 5 years in 98% which is recorded as the best in India. The company is
having scientists in Leaf Management. The company is developing milk products
in certain areas of the country which is said to be of high quality standards in the
market. The company is having experts in almost all departments and running their
company always at better standards than the competitors in Andhra Pradesh.
They had satisfied their strength and now they are setting on fixed
properties worth about Rs 400 crores. The group is own in fixed properties of Rs
400 crores and they were enjoying the financial limits.
The company started diversifying into infrastructure projects and developed
a software technology building named as Amaravathi Textiles Pvt.Ltd in Martur.

BIBLIOGRAPHY
Financial Management, I.M.Pandey, Vikas Publishing House, 2003.
Financial Management, M.Y. Khan and P.K.Jain, : Text and Problems, Tata
Mc Graw Hill Publishing Co, 2003.

97

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DEPARTMENT OF MBA
Financial Management,V.K.Bhalla, and Policy, Anmol publications Pvt.
Ltd., New Delhi.
COMPANY ANNUAL REPORTS.

98

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DEPARTMENT OF MBA
ANNUAL REPORTS OF AMARAVATHI TEXTILES PVT.LTD
Particulars
Sources of Funds:

2009

2010

2011

2012

2013

Share capital

13000000

13000000

13000000

13000000

13000000

130270036

151136957

194200158

345901071

424599303

Secured loans

390364244

379475270

478682475

429126132

600691795

Unsecured loans

199239493

193040880

81595729

83386203

51737891

5796209

6247531

5523986

42151888

46984472

738669982

742900638

773002348

913565294

1137013461

Gross Block

711492129

746114635

738903208

772553600

827717465

Less Depreciation

105478021

145033137

182491726

218501632

256813736

Net Block

606014108

581081498

556411482

554051968

570903729

59399

5165551

1855829

1550361

2983165

2983165

2983165

2983165

2983165

187934012

239880075

236975762

327412543

341906868

26860540

35992686

36258591

22361498

83013158

Cash & Bank Balance

6059037

7150276

13998934

73891461

156006572

Other Current Assets

48679846

69640943

93687132

151568707

219855601

Loans & Advances

11723019

12529745

10864119

13966691

16218624

281256454

365193725

391784538

589200900

817001823

139624184

202449314

158452146

143360960

12598225

12018960

9073986

21580520

90860140

12789505

151643144

211523300

180032666

234221100

25387526

Net current Assets

129613310

153670425

211751872

354979800

5631268

total

738669982

742900638

773002348

913565294

1137013461

Reserves & Surplus


Loan Funds

Differed Tax liabilities


Total
Applications of Funds
Fixed Assets:

capital work in progress


Investments
Current Assets:
Inventories
Sundry Debtors

(-)Current liabilities:
Current Liabilities
Provisions

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