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Financial statements are prepared to meet external reporting obligations and also
for decision making purposes. They play a dominant role in setting the framework of
managerial decisions. But the information provided in the financial statements is not an
end in itself as no meaningful conclusions can be drawn from these statements alone.
However, the information provided in the financial statements is of immense use in
making decisions through analysis and interpretation of financial statements. Financial
statements analysis is a process of evaluating the relationship between the components
parts of the financial statements to obtain a better understanding of a firms position and
performance.
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information that is useful for evaluate the performance of the enterprise and to predict its
future performance.
The financial statement and the end products of a financial accounting system may be
perceived as a model that captures the economic reality of the enterprise
The basic financial statements i.e., the balance sheet and profit and loss account or
income statement of business, reveal the net effect of various transactions on the
operational and financial position of the company. The balance sheet gives a summary of
the assets and liabilities of an undertaking at a particular point of time. It reveals the
financial states of the company. The assets side of a balance sheet shows the deployment
of resources of an undertaking while the liabilities side indicates its obligations i.e., the
manner in which these resources were obtained. The profit and loss account reflects the
results of the business operations for a period of time. It contains a summary of expenses
incurred and the revenue realized in an accounting period and the revenue realized in an
accounting period. Both the statement provides the essential basic information on the
financial activities of a business but their usefulness is limited for analysis and planning
purposes. The balance sheet gives a static view of the resources (liabilities) of a business
and the uses (assets) to which these resources have been put at a certain point of time. It
does not disclose the causes for changes in the assets and liabilities between two different
point of time. The profit and loss account, in a general way indicates the resources
provided by operations. But there are many transactions that take place in an undertaking
and which do not operate through profit and loss account. Thus another statement has to
be prepared to show the change in the assets and liabilities from the end of one period of
time to the end of another period of time. The statement is called a statement of changes
in financial position or a funds flow statement
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The Funds Flow Statement is widely used by the financial analysis and 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 statements, i.e., Income
Statement and the Balance Sheet have a limited role to perform. Income Statement
measures flow restricted to transitions that pertain to rendering of goods and services to
customers. The Balance Sheet is merely a static statement. It is a statement of assets and
liabilities as on a particular data
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To know the operational efficiency of kusalava international limited
To show the manner in which the operations have been financed, and show the
financial resource have been used.
To analyze the movement of funds between the dates of two balance sheets in
period of study.
To identify the changes in working capital in between above mentioned year.
To improve the financial performance of the company .
If focuses attention on resource available for capital investement.
They provide useful guide to creditiors & lenders.
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The scope of the study is to find out how assets and liabilities are maintained. It is
done through the balance sheet of the company for the periods, 2011-12, 2012- 13, 2013-
14,2014-15,2015-16.
The study helps to analyse the financial operations of the company, proper
allocation of funds, appraising the use of working capital and to know the overall credit
worthiness of the company
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Methodology is a systematic procedure of collecting information in order to analyze and
verify a phenomenon. The collection is done through two principle sources viz.
1. Primary data
2. Secondary data
1. Primary Data:
It is the information collected directly without any reference. In this study it was
mainly through interviews with concerned officers and staff, either individually or
collectively. Some of the information had been verified of supplemented conducting
personal with observation.
2. Secondary data:
The secondary data was collected from already published source such as
Pamphlets, annual reports, returns and international records.
Methodology under study has been collected from the annual reports of Kusalava
International Ltd., in house magazines, Publications, books, Journals on Management and
Websites.
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LIMITATIONS OF THE STUDY
(3) It also ignores when transactions involved between current accounts or non-current
accounts.
(4) It does not provide any additional information to the management because financial
statements are simply rearranged and presented
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AUTOMOBILE INDUSTRY:
The Indian automotive market managed to stand to the vagaries of the economic
meltdown to show slightly positive growth during fiscal 2014-15. Overall vehicle sales at
97.23 lakh grew 0.71 per cent from 96.54 lakh units in 2013-14.
(Source: SIAM )
COMMERCIAL VEHICLES SEGMENT:
The Indian Automobile sector is presently going through a phase of slow down
for the last two years i.e. 2013-14 and 2014-15. The sector witnessed a net decline in
production in 2013-14 of (-) 2.29% and in 2014-15 the sector posted a modest growth in
production at 2.96% over 2013-14. The worst affected segment in the auto sector is the
Commercial Vehicle segment, which has witnessed a production decline by almost 24%
in 2014-15 over the previous year. The medium and Heavy Commercial vehicle category
has been the hardest hit which has seen a decline in production by 35% in 2014-15. The
exports of CVs have also plummeted. The department of heavy industry has taken the
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initiative to ensure that under the Stimulus Package-II announced by the Government, the
state governments will be allowed to buy transport vehicles (buses) under the JNNURM
programmed. Among commercial vehicle makers, all major players saw substantial fall in
volumes.
Market leader Tata Motors with a 60 per cent plus share, showed 22 per cent drop
in numbers at 2.34 lakh units while Ashok Leyland showed 37 per cent drop at 47,632.
Eichers sales volume fell 37 per cent at 17,341 units and Force Motors was down 28 per
cent at 7,819 units in 2014-15. The freight movement is unlikely to improve this fiscal
which will impact truck sales.
PROSPECTS:
As per SIAM estimates, passenger vehicles are expected to record a sales growth
of 3-5 per cent in FY11-12, commercial vehicles at 7-10 per cent (over a low base of the
previous fiscal), two-wheelers at 0-5 per cent and three-wheelers at 5-8 per cent.
According to SIAM in the fiscal 2015-16, passenger vehicles are expected to have sales
of 18.9 lakh to 19.2 lakh units. Commercial vehicles have been forecast to clock sales of
5.2-5.4 lakh units, while two-wheelers sales have been pegged at 83.4-87.6 lakh units.
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this sector emerging as one of the fastest growing manufacturing sectors in India and
globally.
Engine parts
Drive Transmission & Steering Parts
Suspension & Brake Parts
Electrical Parts
Body and chassis
Domestic Investments:
The market is so large and diverse that a large number of players can be absorbed
to accommodate buyer needs. The sector not only has global players looking to invest and
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expand but leading domestic component companies are also pumping in huge sums into
expanding operations:
Bharat Forge invested US$ 135 million in its Pune plant for increasing domestic
capacity to 240,000 tones.
Amtek Auto is expanding capacity of its castings unit to 70,000 tonnes per annum
(TPA) from 30,000 TPA.
Sona Koyo plans to have capacity of three million pieces of manual steering gears,
500,000 units of hydraulic power steering and 250,000 units of electronic power
steering (EPS), apart from doubling the capacity of steering columns from one
million parts.
Rico Auto is investing US$ 23 million to expand capacity.
Apollo Tyres plans to invest US$ 469.58 million in the next three years to increase
its production capacity both in India and abroad.
Kesoram Industries is planning to set up three new tyre units in the northern state
of Uttaranchal to take its tyre-making capacity to 734 metric tonnes per day.
With such accelerating interest by both domestic and foreign investors, the Indian
auto component industry is set to growth exponentially.
Foreign Investments:
India enjoys a cost advantage with respect to casting and forging as manufacturing
costs in India are 25 to 30 percent lower than their western counterparts. Seeing the
growing popularity of India in the automotive component sector (a whopping US$ 530
million in terms of foreign direct investment), the Investment Commission has set a target
of attracting foreign investment worth US$ 5 billion for the next five years to increase
India's share in the global auto components market from the existing 0.4 per cent to 3-4
per cent.
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Chrysler is setting up a local sourcing unit in Chennai and is expected to start
sourcing for its global plant by next year.
Pal finger AG, the Austrian hydraulic lifting, loading and handling systems
manufacturer, has joined hands with Western Auto LLC, Dubai, the vehicle
dealership arm of ETA Star group, have invested US$ 1.7 million to set base in
India.
IFCI Venture Capital Funds Limited is launching a private equity fund in
association with German consultancy UBF-B worth US$ 144.67 million focused
entirely on domestic automotive components industry.
Auto parts maker Robert Bosch of Germany will invest US$ 201.4 million in its
Indian subsidiaries over the next two years.
Japans Omron Corporation, the leading manufacturers of automation components
has set up the company's first production base on the subcontinent.
Swiss company Reiter Automotive India aims to increase its production capacity
in India and extend its product range to heat shields
Fiat is setting up a group purchasing office in India as part of its strategy to cut
costs by buying more components from low-cost centers such as India and China.
Daimler, Hero joint venture will invest US$ 1.1 billion in 5 years to manufacture
light and medium CVs initially, and heavy-duty vehicles by 2012.
The developments in the Indian auto component industry can be traced to trade
liberalization during the 1990s that resulted in an influx of multinational
automotive companies like ford, general motors, Hyundai, Mercedes-Benz,
Peugeot and Volvo into India. The entry of these foreign auto companies during
the early 90s changed quality standards and impacted the complexity of the parts
required by OEMs.
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vehicles (417,762 passengers vehicles alone) in the year 1995-96, to nearly 6.8
million vehicles (900,752 passenger vehicles) during 2003-04. The Indian auto
component industry responded to these challenges by adding capacity and
modemizing existing plants. The total sales volume of auto components has
increased from $2.9 billion in the year 1999 to $7 billion in the year 2004.
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That was just the first step in the process of Indian component marks
producing globally competitive products. The next best thing to happen to this
sector was the recession of 1992-93. To maintain their viability, ancillary had little
choice but to focus on export markets, and step up quality. This is evident in the
spate of ISO 9000- certifications those component makers began to receive. Of
the roughly 350 companies in this sector, at least 130 have bagged ISO 9000
certification, something no other industry can boast of.The step up process has not
ended with the Japanese innovation. Gradually manufacturers from ale parts of
the world are making a beeline for India.
Result: Component makers are now exposed to different, more complex and
advanced development processes. Earlier, they were dealing with just one culture,
one standard Japanese. Today we have the Koreans, the Americans, the Europeans
and the French coming with their global suppliers in to the country. Ford, for
instance, is flagging off the ford ACG (Automotive component group) and general
motors have brought in Delhi. Toyota too, is creating a Toyota village around its
manufacturing unit in the south, as is Hyundai, which will house all its ancillary
suppliers in an industrial park. In the south, auto archly has been taken over by
US Major Rockwell. Saks Ancillaries has suffered the same fate. Joint ventures
though, are imperative and at last count there were at least 322 collaborations with
foreign auto majors.
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Over the past 3 years the Indian auto component industry has been consistently
exporting at least 20% of its production. In 1996-97 exports were worth a cool $
300 millions (Rs.1, 170 Crores). In 5 years, overseas sales are expected to more
than triple to all of $ one billion.
Kusalava International Limited was established in the year 1964. It was earlier known as
Bharat industries where it was started as a small work shop. But later the name was
changed to Kusalava International Limited. To manufactured cylinder liners under the
brand name of TIGER POWER. The chairman of Kusalava International Limited is
Mr. ChukkapalliKusalava.
Today TIGER POWER brand is the most dynamic name in the cylinder liner
manufacturing business.
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Kusalava International Limited has nearly 38 years of industrial manufacturing
experience in the field. Nearly 50% of the production goes to original equipment.
Kusalava International Limited had geared up to meet the technological changes and
world standards. It also in the stood the competition in the world market which arose
done to the establishment of world trade organization.
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Continual Improvement in all the Integrated Management
System Process.
TPM POLICY
Zero Breakdowns
Zero Accidents
Zero Defects
A Safe and Clean Environment and eliminate all other losses through Total
Employee Involvement.
1).Kusalava Motors (P) Ltd : The company is involved in the activity of trading 2
Wheelers and 4 Wheelers, it is the official dealer for TVS Motors and Hyundai Cars in
the cities of Vijayawada, Guntur, Ongole, Bhimavaram and Gudivada.
3).Kusalava Finance: The company has been established way back in 1970 and is
engaged in the business of financing automobiles. The company has been able to carve a
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niche of itself in the automotive sector by offering clients customized financing options
as per their needs.
4).Kusalava Power: The company is involved in the business of power generation and
has a total generating capacity of 3 MW.
6).Bharat Automobiles: The company activities involve trading is automobile spare and
represents a host of reputed manufacturers like Bharat Forge for Crank Shafts, Timken
for Bearing, Maple for Pistons and Kusalava for Liners. The company operations and
network spread across entire south India.
7).KusalavaInc: The Company is a trading firm located in Houston, Texas, USA and is
involved in the activity of sourcing automotive components from India and China to
OEM's in USA. The company has products stocked in 22 warehouses across USA to
supply to customers on a JIT basis.
1964: Kusalava International Limited comes into existence as M/S Bharat Industries.
Products: Brake drums
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During the inception year itself supplies were started to OEM, Bajaj Tempo.
1972: Started production of grey iron cylinder liners. Started supplies to major road transport
corporations (STU's)
1982: Supplies to replacement market with TIGER POWER-TOUGH PARTS Brand name.
1992: Tiger Power became the major supplier of cylinder liners in After Market
1995: Kusalava commissions its first overseas office in Houston, Texas, and USA ISO: 9002 certified.
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chain management.
Awarded by ACMA for Best Six Sigma Project in 2008 again.
2009: Entered into an agreement with the Market Leader Darton Sleeves, USA for supplying High
Grade Ductile iron liners to the Drag Racing Market.
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ORGANIZATIONAL CHART OF
KUSALAVA INTERNATIONAL LIMITED
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Director
Technical
Operator
Maintenance Engineers
Maintenance
Quality Manager
Control Manager Quality Control Engineers
Accountants
IT Support Engineers
Director Manager
Marketing Accounts
Director
Manager Asst. Manager Assistant
Human Resources
Director IT Manager
Purchase General Manager
Manager Internal Audit
Director Finance
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Locations:
1. Cylinder Liners:
The most important function of cylinder liners is the excellent characteristic as sliding
surface and these four necessary points.
The cylinder liner receives combustion heat through the piston and piston rings
and transmits the heat to the coolant.
A cylinder wall in an engine is under high temperature and high pressure, with the
piston and piston rings sliding at high speeds. In particular, since longer service life is
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required of engines for trucks and buses, cast iron cylinders that have excellent wear-
resistant properties are only used for cylinder parts.
Also, with the recent trend of lighter engines, materials for engine blocks have
been shifting from cast iron to aluminum alloys. However, as the sliding surface for the
inner cylinder, the direct sliding motion of aluminum alloys has drawbacks in
deformation during operation and wear-resistance. For that reason, cast iron cylinder
liners are used in most cases.
Kusalava has developed materials with special properties in grey and ductile iron
by centrifugal casting process for critical sealing applications. These rings are being
supplied to Automotive, Locomotive, Marine, and Power generation, Aircraft, Aerospace
and Hydrocarbon processing Applications. We also supply rough machined rings to ring
manufactures around the world in ductile and grey iron materials.
4. Centrifugal Castings:
Centrifugal casting method was developed after the turn of the 20th century to
meet the need for higher standards. Spinning molds generate centrifugal force on molten
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metal to position the metal within a mold. As the molten metal solidifies from the outside
in, a casting with dense, close grain structure is created. As a result of close grain
structure the centrifugal process offers products with better physical properties than
castings made using the static casting method. Proper mold design, mold coatings, mold
spinning speeds, pouring speeds, cooling rates and metal chemistry results in castings
with higher yields, fewer impurities and greater strength.
QUALITY
Six Sigma:
A method or set of techniques, Six Sigma has also become a movement focused on
business process improvement. It is a quality measurement and improvement program
originally developed by Motorola that focuses on the control of a process to the point of
six sigma (standard deviations) from a centerline, or put another way, 3.4 defects per
million items. A Six Sigma systematic quality program provides businesses with the tools
to improve the capability of the business processes.
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Kusalava had started implementing these techniques in 2002.The company had 5
Black belts and 14 Green Belts. And it was awarded twice for its best projects. It had
tangible results in terms of quality and production.
Infrastructure:
1. Plants
Location of Plant 1 Adavinekkalam, Vijayawada.
Adavinekkalem, AgiripalliMandalam,
Address
Krishna District, AP 521212, India
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Address Kusalava International Ltd., VSEZ,
Duvvada,Visakhapatnam -530046,India
Products Cylinder Liners
Area 7.16 acres
Operations Machining.
Most of the vehicle manufacture in the Indian domestic market has a tie-up with
international manufactures like Mazda, Hino, Mercedes Benz, Mitsubishi etc.,,
Kusalava International Limited supplies their product to the bellow OEMs in India who
has international collaboration.
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6. V.S.T. Tillers Tractors Ltd Mitsubishi 100.00%
And for the international Market, Kusalava international Limited had a start 5
years back and supplying the products after quality validation for the below customers.
Interestingly, Kusalava has worked in tandem with the above international collaborated
Indian OEMs to achieve their stringent quality requirement both in Foundry and
Machining. The above OEMs contribute 30% of Kusalava International Limited
turnover.
Technical officers from Kusalava have played a vital role in establishing and
understanding the International specification for the domestic OEMs and had good
report for working hand in hand to meet the drawing print specifications. And for the
International Market Kusalava International Limited is supplying the products after
quality validation for the below customers.
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It caters to Marine, Industrial, Automotive, refrigeration, and compressors, Tractor,
Aeronautical and Truck Business. It also caters to the after market requirements by
indirectly supplying the liners in Bulk to Liner manufacturers.
Company Product:
Kusalava manufacturers Liners/Sleeves in both cast iron and S.G. Iron, Centric cast valve
seat insert and Alfin Piston inserts. As a new development Kusalava has started
manufacturing the engineering items out of its own technology like 3 mts., pipes for ash
disposal for the thermal power plants, sugar crushers material, and motor frames for the
heavy electrical motors.
STRENGTHS:
Equipped with the latest technology (in houses) in the industry to manufacture
any variety of Cylinder Liners as per Customer Having a Track record of 45 years
Highly automated with state of the art technology having the complete
manufacturing facilities in house
Major supplier to domestic OEMs like Tata Motors limited, Ashok Leyland
Ltd, Eicher Motors Ltd, Bajaj Tempo Ltd, Swaraj Mazda Ltd, VST Tiller Ltd and
International OEMs as Tier 2
Good Distribution Network all over India in the aftermarket and USA
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Wide spread Customer segmentation
Dedicated Manpower
Technology Up gradation:
Kusalava has developed the basic technical requirement for the manufacturing of their
products, and in line to develop the technical strength hires experts from Germany for
upgrading the foundry technology in line to the International practices. Till Kusalava has
taken 3 rounds of experts views to validate their process and to fine tune their existing
process for better productivity. Most significantly, Kusalava deputes their technical
managerial personal for the training in different institutes for betterment of their
knowledge and practices.
Mr. Prasad R.K Chukkapalli, Managing Director of the company has visited Japan
under AOTS programmed for 15days technical training in Quality Systems during the
first week of October 02.
ERP Software:
Kusalava has in house software development Center, and presently implementing self
developed ERP System of K Online integrating Finance, Manufacturing, Distribution
and HR Activities across INDIA and USA offices.
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to help you bring immediate value and profit your companys bottom line. It was used by
the firm in the past.
VISION:
To produce Quality auto component products the matching best available in the
world in terms of innovative design features and endues at competitive cost deliverable in
time and maximize customer satisfaction to ensure constant increase in market share and
global presence for the company.
MISION:
To constantly strive for automation and technology up gradation of companys
plant process and product to maximize customer satisfaction and efficient use of
resources at companys disposal to optimize production and minimize cost.
To trigger higher demand for companys products both Domestic and International
Market and there by improve market share.
To improve both top line and Bottom Line of the company to ensure optimum
returns for all stake-holders of the company.
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To make Kusalava a true global conglomerate through professional management,
corporate governance initiatives and strict adherence to regulatory compliances.
Production:
Production department takes the raw materials and melts it down in the electrical
induction furnace. It makes rough casting through centrifugal dice.
Materials:
Material department purchases the raw material on the parameters like good
quality in time delivery, credit facility and on the right time acquiring the raw materials
cost variability.
Marketing:
Marketing departments sells the products through marketing representatives, sales
offices and distributors. This department gets the orders from the customers through the
representatives, sales officers and distributors. This department sends the senior engineers
to check complaints of the customers. This department provides incentives to sell the
product in the market.
Finance:
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This department makes economic plans and helps in decision making through MIS
which are needed in survival and profitability of the organization. This departments work
to the requirements of loans and take necessary steps to acquire them from banks and
other financial institutions. It also prepares and sends yearly expenditure and net profits
to the management.
It took into the matters like fluctuations of profits, change in got policies and sales,
market conditions and orders being placed.
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does not disclose the causes for changes in the assets and liabilities between two different
point of time. The profit and loss account, in a general way indicates the resources
provided by operations. But there are many transactions that take place in an undertaking
and which do not operate through profit and loss account. Thus another statement has to
be prepared to show the change in the assets and liabilities from the end of one period of
time to the end of another period of time. The statement is called a statement of changes
in financial position or a funds flow statement
In a narrow sense
It means cash only and a funds flow statement. Such a statement
enumerates net effects of the various business transactions on cash and takes into account
receipts and disbursements of cash.
In a broader sense
The term funds, refers to money values in whatever from it may exit.
Here funds means all financial resources, used in business whether in the form of men,
material money, machinery and others.
In a Popular sense
The term funds, means working capital, i.e., the working capital concept
of funds has emerged due to the fact that total resources of a business are invested partly
in fixed assets in the form of fixed capital and partly kept in form of liquid or near liquid
form as working capital.
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Meaning and concept of Flow of funds
The term flow means movement and includes both inflow and out flow. The term
flow of funds means transfer of economic values from one asset of equity to another flow
of funds is said to have taken place when any transaction makes changes in the amount of
funds available before happening of the transaction. If the effect of transaction results in
the increase of funds it is called a source of funds and if it results in the decrease of funds,
it is known as an application of funds. Further, in case the transaction does not change
funds, it is said to have not resulted in the flow of funds.
According to the working capital concept of funds, the term flow of funds
refers to the movement of funds in the working capital. If any transaction results in the
increase in working capital, it is said to be a source or flow of funds and if it results in the
decrease of working capital ,it is said to be an application or out flow of funds.
Rule
The flow of funds occurs when a transaction changes on the one hand a
non current account and on the other a current account and vice versa only. In simple
language funds move when a transactions effects
1 a current asset and a fixed asset, or
2 a fixed and a current liability or
3 a current asset and a fixed liability or
4 a fixed liability and current liability
And funds do not move when the transaction affects fixed assets and
fixed liability or current assets and current liabilities.
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Current accounts can either be current assets or current liabilities. Current assets
are those assets which in ordinary course of business can be or will be converted into
cash within a short period of normally one accounting year.
Current liabilities are those liabilities which are intended to be paid in the
ordinary course of business with in a short period of normally one accounting year
out of the current assets or the income of the business.
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LIST OF CURRENT OR WORKING CAPITAL ACCOUNTS
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LIST OF NON-CURRENT OR PERMANENT CAPITAL ACCOUNTS
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PROCEDURE FOR KNOWING WHETHER A TRANSACTION RESULTS IN THE
FLOW OF FUNDS OR NOT:
1. Analyses the transaction and find out the two accounts involved.
2. Make journal entry of the transaction.
3. Determine whether the accounts involved in the transaction are current or non-
current.
4. If both the accounts involved are current i.e., either current assets or current
liabilities, it does not result in the flow of funds.
5. If both the account involved is, non-current, i.e., either permanent assets or
permanent liabilities, it still does not result in the flow of funds.
6. If the accounts involved are such that one is a current account while the other is a
non-current account, i.e., current asset and fixed asset, or current liability and
permanent liability then it results in the flow of funds.
The funds flow statement describes the source from which additional
funds were derived and the use to which these coerces were put.
-------ANTHONY.
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statement is to indicate clearly the requirement of funds and how they are proposed to be
raised and the efficient utilization and application of the same
------- ICWA.IN GLOSSARY OF MANAGEMENT ACCOUNT
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Funds flow statement Income statement
1. It highlights the changes in the 1. It does not reveal the inflow and
financial position of a business and outflows of funds but deposits the
indicates the various means by items of expenses and income
which funds were obtained during arrive at the figure of profit or loss.
a particular period and the ways to
which these funds were employed. 2. Income statement is not prepared
2. It is complementary to income from fund flow statement.
statement. Income statement helps
the preparation of funds flow 3. Only revenue item are considered.
statement.
3. While preparing funds flow 4. It is prepared prescribed format.
statement both capital and revenue
item are considered.
4. There is no prescribed format for
preparing a fund flow statement.
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Funds flow statement Balance sheet
1. It is a statement of changes in 1. It is a statement of financial
financial position and hence is position on a particular date and
dynamic in nature. hence is static in nature.
2. It shows the sources and uses of 2. It depicts the assets and
funds in a particular period of liabilities at a particular point of
time. time.
3. It is a tool of management for 3. It is not of much help to
financial analysis and helps in management in making decisions.
making decisions. 4. No such schedule of
4. Usually, schedule of changes in changes in working capital is
working has to be prepared before required. Rather profit & loss
preparing funds flow statement. account is prepared.
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Which otherwise may be difficult to be answered, such as
1. Why were the net current assets lesser spite of higher profits and vice versa?
2. Why more dividends could not be declared in spite of available profits?
3. How was it possible to distribute more dividends than the present earnings?
4. What happened to the proceeds of sale of fixed assets or issue of shares,
debentures, ect. ?
5. What happened to the net profit? Where did they go?
6. How was the increase in working capital financed and how will it be financed in
future?
3. It helps in the formation of a realistic dividend policy
Some times a firm has sufficient profits available for distribution as
dividend but yet it may not be advisable to distribute
dividend for lack of liquid or cash resources. In such cases, a
funds flow statement helps in the formation of a realistic dividend policy.
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A typical for statement or schedule of changes in working capital is as
follows
1. Statement of changes in Working Capital
Effect in working
capital
Previous Current
Particulars year Year Increase Decrease
Current Assets
Cash in hand xxx xxx
Cash at bank xxx xxx
Bills Receivable xxx xxx
Sundry Debtors xxx xxx
Temporary Investments xxx xxx
Stock or Inventories xxx xxx
Prepaid Expenses xxx xxx
Accrued Incomes xxx xxx
Total Current Assets xxx xxx
Current Liabilities
Bills Payable xxx xxx
Sundry Creditors xxx xxx
Outstanding Expenses xxx xxx
Bank Overdraft xxx xxx
Short term advances xxx xxx
Dividend Payable xxx xxx
Proposed Dividend * xxx xxx
Provision for Taxation * xxx xxx
Total Current Liabilities xxx xxx xxx xxx
Working Capital (CA - CL) xxx xxx
Net Increase / Decrease in
Working Capital xxx xxx xxx xxx
* May or may not be a current liability.
2. Statement of Sources and Application of Funds
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uses a applications to which these funds have been put during that period. Generally,
the statement is prepared in tow formats.
Amount Amount
Sources (Rs.) Applications (Rs.)
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Funds from Operations xxx Funds Lost in Operations xxx
Redemption of Preference
Issue of Share Capital xxx Share Capital xxx
*Note
vi) Provision for Taxation (if it is not taken in Current Liability) xxx
vii) Any other non-fund/ non operating items which have been debited
to p & l a/c) xxx
Total (a) xxx
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Less : Non Fund or Non Operating items which have already been
Credited to P & L a/c xxx
i) Profit on Sale of Non Current (Fixed) Assets, such as xxx
1. Profit on sale of Land & Buildings xxx
2. Profit on sale of Plant & Machinery xxx
3. Profit on sale of Long - term Investments, etc., xxx
Amount Amount
Particulars (Rs) Particulars (Rs)
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To Depreciation & Depletion or
Amortization of Fictions and By Opening Balance (of P &
Intangible Assets xxx La/c) xxx
Transfer to General
Reserves, Dividend Equalization
Fund, Sinking Fund, etc., By Dividends Received xxx
To Loss on Sales of any Non - By Profit on sale of fixed or
Current or Fixed Assets xxx non current assets xxx
INTRODUCTION
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Cash plays a very important role in the entire economic life of a business. A firm
needs cash to make payments to its suppliers, to incur day-to-day expenses and to pay
salaries, wages, interest and dividend, etc. In fact ,what blood is to a human body, cash is
to a business enterprise. It is very essential for a business to maintain an adequate balance
of cash. But many times , a concern operates profitably and yet it becomes very difficult
to pay taxes and dividend. This may be because
although huge profits have been earned yet cash may not have been received.
even if cash has been received, it may have drained out (used) for some other
purposes.
This movement of cash is of vital importance to the management.
We have studied in the previous chapter that the two basic financial
statements, i.e., the balance sheet and profit and loss account , provide the essential basic
information on the financial activities of a business, but their usefulness is limited for
analysis and planning purposes. The balance sheet does not disclose the causes for
changes in the assets and liabilities between two different points of time. The profit and
loss account also fails to disclose the reasons for shortage of cash in spite of positive net
income. Thus, another statement ,called funds flow statement, was prepared to show the
changes in the assets and liabilities from the end of one period of time to the end of
another period of time. To underline the importance of funds statement, the institute of
Chartered Accountants of India (ICAI) issued in June,1981 Accounting Standard-3
dealing with the preparation of statement of changes in Financial Position. The statement
of changes in financial position summarized, for the period covered by it, the changes in
the financial position including the sources from which funds where obtained by the
enterprise and the specific uses to which such funds where applied. For this purpose, the
term funds was defined as cash and cash equivalents or working capital. The statement
in financial position, also called Funds Flow Statement , was intended to provide a
meaningful link between the balance sheet at the beginning and at the end of a period
and the profit and loss account for that period.
MEANING
Cash flow statement is a statement which describes the inflows
(sources) and outflows (uses) of cash and cash equivalents in an enterprise during a
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period of time. Such a statement enumerates net effects of the various business
transactions on cash and its equivalents and takes into account receipts and disbursements
of cash. A cash flow statement summarizes the causes of changes in cash position of a
business enterprise between dates of two balance sheets. According to As-3 (Revised), an
enterprise should prepare a cash flow statement and should present it for each period for
which financial statements are prepared. The terms cash, cash equivalents and cash flows
are used in this statement with the following meanings:
1. Cash comprises cash on the hand and demand deposits with banks.
2. Cash equivalents are short term, highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an insignificant
risk of changes in value. Cash equivalents are held for the purpose of meeting
short-term cash commitments rather than for investment or other purposes.
3. Cash flows are inflows and outflows of cash and cash equivalents. Flow of cash
is said to have taken place when any transaction makes changes in the amount of
cash and cash equivalents available before happening of the transaction. If the
effect of transaction results in the increase of cash and its equivalents, it is called
an inflow (source) and if it is results in the decrease of total cash, it is known as
outflow (use) of cash.
CLASSIFICATION OF CASH FLOWS
53
about the specific components of historical operating cash flows is useful, in
conjunction with other information, in forecasting future operating cash flows.
Examples of cash flows from operating activities are:
(a) cash receipts from the sale of goods and the rendering of services;
(b) cash receipts from the royalties, fees, commissions, and other revenue;
(c) cash payments to suppliers of goods and services;
(d) cash payments to and on behalf of employees.
2. Cash Flows From Operating Activities:
Investing activities are the acquisition and disposed of long-term assets and
other investments not included in cash equivalents. The separate disclosure cash flows
arising from investing activities is important because the cash flows represent the extent
to which expenditures have been made for resources intended to generate future income
and cash flows.
Examples of cash flows arising from investing activities are.
(a) cash payments to acquire fixed assets (including intangibles).
These payments include those relating to capitalized research &
development costs and self constructed fixed assets;
(b) cash payments to acquire shares, warrants, or debt instruments of
other enterprises and interests in joint ventures (other than
payments for those instruments considered to be cash equivalents
and those held for dealing or trading purposes);
(c) cash receipts from disposal of fixed assets (including intangibles).
3. Cash Flows From Financial Activities:
Financing activities are activities that results in changes in the size and
composition of the owners capital (including preference share capital in the case of a
company) and borrowings of the enterprise The separate disclosure of cash flows arising
from financing activities is important because it is useful in predicting claims on future
cash flows by providers of funds (both capital and borrowings) to the enterprise.
Examples of cash flows arising from financing activities are:
(a) cash proceeds from issuing shares or other similar instruments;
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(b) cash proceeds from issuing debentures, loans, notes, bonds, and other short-term
borrowings;
(c) cash repayments of amounts borrowed such as redemption of debentures, bonds,
preference shares
OBJECTIVES
1. Information about the cash flows of an enterprise is useful in
providing users of financial statements with a basis to assess the
ability of the enterprise to generate cash and cash equivalents and
the needs of the enterprise to utilize those cash flows.
2. The economic decisions that are taken by user require an
evaluation of the ability of an enterprise to generate cash and cash
equivalents and the timing and certainly of their generation.
3. The statement deals with the provision of information about the
historical Changes in cash and cash equivalents of an enterprise by
means of a cash flow statement which classifies cash flows during
the period from operating investing and financing activities.
SCOPE
1. An enterprise should prepare a cash flow statement and present it for each period
for which financial statements are presented.
2. Users of an enterprises financial statements are interested in how the enterprise
generates and uses cash and cash equivalents. This is case regardless of the nature
of the enterprises activities and irrespective of whether cash can be viewed as the
product of the enterprise, as may be the case with a financial enterprise, as may be
the case with a financial enterprise.
3. Enterprises need cash for essentially the same reasons, however different their
Principal revenue-producing activities might be.
4. They need cash to conduct their operations, to pay their obligations, and to
provide returns to their investors
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Cash flow statement is of vital importance to the financial management. It is an
essential tool of financial analysis for short-term planning. The chief advantages of cash
flow statement are as follows:
(1) Since a cash flow statement is based on the cash basis of accounting, it is very
useful in the evaluation of cash position of a firm.
(2) A projected cash flow statement can be prepared in order to know the future cash
position of a concern so as enable a firm to plan and coordinate its financial
operations properly. By preparing this statement, a firm can come to know as to
how much cash will be generated into the firm and how much cash will be needed
to make various payments and hence the firm can well plan to arrange for the future
requirements of cash.
(3) A comparison of the historical and projected cash flow statements can be made so
as to find the variations and deficiency or otherwise in the performance so as to
enable the firm to take immediate and effective action.
(4) A series of intra-firm and inter-firm cash flow statements reveals whether the firms
liquidity (short-term paying capacity)is improving or deteriorating over a period of
time and in comparison to other firms over a given period of time.Cash flow
statement helps in planning the repayment of loans, replacement of fixed assets and
other similar log-term planning of cash. It is also significant for capital budgeting
decisions.
(5) Cash flow analysis is more useful and appropriate than funds flow analysis for
short-term financial analysis as in a very short period it is cash which is more
relevant then the working capital for forecasting the ability of the firm to meet its
immediate obligations.
(6) Cash flow statement provides information of all activities classified under
operating, investing and financing activities, the funds statement even when
prepared on cash basis, did not disclose cash flows from such activities separately,
Thus, cash flow statement is more useful than the funds statement.
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LIMITATIONS OF CASH FLOW STATEMENTS
Despite a number of uses, cash flow statements suffers from the following limitations:
(1) As cash flow statement is based on cash basis of accounting, it ignores the basic
accounting concept of accrual basis.
(2) Some people feel that as working capital is a wider concept of funds, a funds flow
statement provides a more complete picture than cash flow statement.
(3) Cash flow statement is not suitable for judging the profitability of a firm as non-
cash charges are ignored while calculating cash flows from operating activities.
PREPARATION OF CASH FLOW STATEMENT
The Cash Flow Statement is to be presented as per the AS-3 of the Institute of
Chartered Accountants of India (ICAI). The ICAI issued AS-3in June, 1981 for the first
time. Later in March, 1997 it revised the standard. The model stipulated in AS-3 is the
widely accepted model for presentation of Cash Flow Statements.
All the listed companies/entities whose financial year ends on March, 1996
and thereafter will be required to give Cash Flow Statement along with Balance Sheet
and Profit and Loss Account. The above amendment comes into effect immediately I.e.,
w.e.f.15-2-1996
While preparing the cash flow statement, cash flows from operating activities
are presented first, followed by investing activities and then financing activities .the
individual inflows and outflows relating to investing and financing activities are
presented separately in their respective categories. The operating activities section can be
presented using the direct method or indirect method. In the direct method cash flow
statement is presented primarily on a cash receipts and cash payments basis, instead of on
accrual basis. In the indirect method, net income is adjusted for items that affected net
income but did not affect cash.
Direct Method:
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Format of Cash Flow Statement
Amount Amount
Particulars Rs Rs
58
Analysis of data
Analysis and interpretation of collected data is the heart of project work. Only
after analysis one can arrive at the various findings with the related problem identified.
This findings that have been arrived after analysis and interpretation helps to find out the
hidden solutions for the problem and give most appropriate suggestions for over coming
problems.
The analysis and interpretation can be carried out by various techniques. These
techniques help in analyzing the large volume of data by establishing the quantity
relation between various caravels of data.
59
Inventories 977.61 1234.0 -- 256.39
316.04
Loans & Advances 305.40
351.69
B) Current Liabilities
60
Un secured loans 61
364.05
Applications
Total 641.63
61
Particulars Rs. In lakhs Rs. In lakhs
Inflows
Profit after tax 164.16
Total 1005
Outflows
Increase in current assets
Purchase of fixed assets 374.37
Purchase of investment ---
1005
Total
10
Surplus
INTERPRETATION
During the period 2011-12 there is decrease in working capital. We got funds
loss from operations (164.16) lakhs. There was no contribute the share
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funds are increased for the cause of sale fixed assets.
2012-13
tax liabilities 65
Total 592.38
Applications
64
Purchase of fixed asset 209.08
Total 592.38
Inflows
Profit from operation 176
Depreciation 448.6
Share capital 2
Secured loan 300
Un secured loan 5.01
Tax liabilities 10 942.85
Total 942.85
Outflows
Current assets 284.1
Purchase of fixed assets 658.75
65
Purchase of investment -- --
942.85
Total 942.85
INTERPRETATION
This is the major sources in the organization and the unsecured loans are also
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SCHEDULE OF CHANGE IN WORKING CAPITAL FOR THE YEAR ENDED
2013-14
A) Current Assets
B) Current Liabilities
67
Creditors for expenses 110.09 138.47 28.38 ---
Total 364.05
Applications
Purchase in investments --
364.05
Total
68
CASH FLOW STATEMENT FOR THE YEAR ENDED 2013-14
Total 15
44
Outflows 786
Increase in current assets
Purchase of fixed assets 728
Purchase of investments 30
Total 1
544
69
Opening balance of cash & bank 61
Surplus 01
INTERPRETATION
During the period 2013-14 there is increase in working capital. This organization is in
profit. We got profit from the operations 164.16.lakhs.The funds from operations, secured
and unsecured loans, share capital were major sources of the organization
The other payments were purchase of fixed assets, and Purchase of investments etc.
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SCHEDULE OF CHANGE IN WORKING CAPITAL FOR THE YEAR ENDED
2014-15
PARTICULARS 31.03.2014 31.03.2015 INCREASE DECREASE
A) Current Assets
B) Current Liabilities
71
Increase in working capital 664.09 --- 664.09
Applications
Total 1203
72
CASH FLOW STATEMENT FOR THE YEAR ENDED 2014-15
Total 1296.00
Outflows
Deferred tax adjustment 4.00
Total 1296.00
62.00
Opening balance of cash & bank
73
Surplus 2.00
INTERPRETATION
During the period 2014-15 there is increase in working capital. This organization
In this year share capital is increased at 2.00 lakhs. This year major use is increase
etc.
74
SCHEDULE OF CHANGE IN WORKING CAPITAL FOR THE YEAR ENDED
2015-16
A) Current Assets
B) Current Liabilities
75
STATEMENT OF FUNDS FLOW FOR THE YEAR ENDED 2015-16
Applications
Total 828.61
76
CASH FLOW STATEMENT FOR THE YEAR ENDED 2015-16
Total 996.00
Outflows
Purchase of fixed assets 969.63
Total 996.00
Surplus 10.00
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INTERPRETATION
organization is not profit from operations 108.43lakhs.This year major use is decrease in
working capital, which is 102.43 lakhs. Other applications payment of purchases of fixed
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FINDINGS
During the period 2011-12 there is decrease in working capital. The sources of
funds are increased for the cause of sale fixed assets.
During the period 2012-13 there is increase in working capital. This year
Profit is the major source for the company and the unsecured loans are also
During the period 2013-14 there is increase in working capital. This organization
is in profit. We got profit from the operations 164.16.lakhs.
During the period 2014-15 there is increase in working capital. This organization
is in profit from operations 110.00 lakhs.This year major use is increase in
working capital, which is 664.09 lakhs.
The current assets has been reduced compare to previous this incurred due to the
company investing more on fixed assets.
During this period 2015-16 these is decrease in working capital. This year major
use is decrease in working capital, which is 102.43 lakhs.
The use of working capital has been reduced compare to previous years which
shows the inefficiency of the company.
But the overall performance of the company is satisfactory.
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SUGGESTIONS
The company investing more on fixed assets instead of investing on fixed assets
better to invest on some other projects which are more profitable.
Increase the utilization of working capital. The company has to increase working
capital for better efficiency.
The company depending more on profits and unsecured loans.
It is better to reduce unsecured loans for better credibility.
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CONCLUSION
TheKusalava International Limited liquidity position was quite good with high rate
of liquidity levels and it maintains a low rate of cash balances which is not satisfactory.
The sale of the company has tremendously increased which have enhanced the
performance of the company to at great extent when compared to previous years.
The profit margins drastically increased when compare in between the last five years
and is suggested to maintain the levels considerably so that the company could reach the
heights.
Finally, I would like to conclude that the company position is satisfactory in all
aspects.
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BIBLIOGRAPHY
REFFERED BOOKS
INTERNET SITE
www.ercap.org
www.wikipedia.com
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