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Summer Training Report

ON
CASH FLOW STATEMENT
AT
HYUNDAI
Submitted in partial fulfillment of the requirement of the degree of
BACHELORS OF BUSINESS ADMINISTRATION
Affiliated from
H.N.B. Garhwal University, Srinagar

Submitted by-
)

Internal Guide: External Guide:


MR. JAYANT MAHAJAN

DEPARTMENT OF MANAGEMENT
INSTITUTE OF TECHNOLOGY & MANAGEMENT
DEHRADUN
ACKNOWLEDGEMENT

At the very outset, I would like to acknowledge with immense gratitude the support
and guidance of some people without whom the project could not have been completed.
Also thanks to them, I learnt a lot more additional things than that just restricted to my
project.

First of all I would like to thank my project guide MR JAYANT MAHAJAN for his
support and patience with me despite him being hard pressed for time.

I am thankful to (ICICI) for providing me with the wonderful opportunity and


allowing me to take this study.

Also I would like to thank the faculty guide of my college (faculty’s name) who
guided me in my project.

I would also like to thank (other members of your training institute who helped you
out in completion of your project report.)

Last but not the least I would like to thank my parents who have always showed their
full faith in me, and are the biggest source of my encouragement and guidance.

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CANDIDATE’S DECLARATION

I hereby declare that the work for the project Report entitled CASH FLOW
STATEMENT AT HYUNDAI ” is completely done by me, based on my own work
conducted in “ training institute” for the partial fulfillment of my Bachelors of Business
Administration.
Admittedly I have received suggestions and guidance from my guides.

Date-
(SHAHID )

BBA

3
CONTENTS

Title
i
To whom so ever it may concern ii
Acknowledgement iii
Preface iv
Candidate’s declaration v

CHAPTER No. DESCRIPTION PAGE No.

Chapter-1 Company’s profile


1.1 An Introduction
1.2 Mission
1.3 Goals

Chapter-2 Topic undertaken


2.1 an introduction
2.2 definitions by different authors

Chapter 3 Training and development at Minda Industries


Chapter-4 Research Methodology

4.1 Research Objective


4.2 Sources of data collection
4.3 data analysis & interpretation
4.4 Findings and limitation

Chapter-5 Conclusion
4
Chapter-6 Suggestions

Chapter-7 Bibliography

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COMPANY PROFILE

ABOUT HYNDAI MOTOR COMPANY

Established in 1967, Hyundai Motor Co. has grown into the Hyundai-Kia Automotive
Group which was ranked as the World’s Fifth-Largest Automaker in 2007 and includes
over two dozen auto-related subsidiaries and affiliates. Employing over 75,000 people
worldwide, Hyundai Motor posted sales of US$74.9 billion in 2007 on a consolidated-
basis and US$32.8 billion on a non-consolidated basis (using the average currency
exchange of 929 won per US dollar). Hyundai vehicles are sold in 193 countries through
some 6,000 dealerships and showrooms. Further information about Hyundai Motor Co.
and its products is available at http://www.hyundai-motor.com.

Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai


Motor Company (HMC), South Korea and is the second largest and the fastest growing
car manufacturer in India. HMIL presently markets 34 variants of passenger cars across
segments. The Santro in the B segment, the Getz Prime and the i10 in the B+ segment,
the Accent and the Verna in the C segment, the Sonata Embera in the E segment and the
Tucson in the SUV segment.

Hyundai Motor India, continuing its tradition of being the fastest growing
passenger car manufacturer, registering total sales of 327,160 vehicles in the calendar
year (CY) 2007, an increase of 9.2 percent over CY 2006. In the domestic market it
clocked a growth of 7.6 percent as compared to 2006 with 200,412 units, while overseas
sales grew by 11.8 percent, with exports of 126,748 units.

HMIL’s fully integrated state-of-the-art manufacturing plant near Chennai boasts


of the most advanced production, quality and testing capabilities in the country. In
continuation of its commitment to provide the Indian customer with global technology,

HMIL has set up its second plant, which produces an additional 300,000 units per annum,
raising HMIL’s total production capacity to 600,000 units per annum.

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PRODUCT LINE-UP:
The Santro Xing is a stunning combination of
contemporary looks and functional luxury. It
also incorporates the revolutionary
EUROSAFE Passenger Protection System
that meets the latest European safety standards.
The new Santro Xing combines a fresh new
attitude, warmth and comfort

Here’s the car brimming with


innovative ideas and good design that
will put pleasure into every moment
you spend behind the wheels.
The first glimpse of the Sonata V-6 will always
take your breath away. Your quest for automotive
perfection ends with Sonata. This is a car worthy
of a modern day Caesar.

Even though the styling of the Verna seems


contemporary you always end up comparing it
with the Accent. The external additions of the
body of the Verna seem to blend together with
the shape and this sets it apart from the Accent

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The Tucson 2.0 CRDi, 1991cc, 4 cylinder, 16 valve
engine comes with amazing power 122ps and
245Nm of torque. This soft-roader is highly fuel
economic and yet is very good at engine
performance. Dual airbags provide very high level
of safety.

Getz's space/comfort and Santro's engine


make Getz Prime. A very practical car. Fuel
economy had been a concern but with 1.1L
engine, it's not any more. Getz 1.3 is still
available as top-end versions. never sell like
Swift but in essence Getz scores over Swift on This car sits between the Santro and Getz Prime
many parameters. presents itself as a good looking VFM family car.
There are options like ABS and airbags along with
features like sunroof to opt for. All this in a small-
car!
Won Car of the Year - 2008

HMIL is investing to expand capacity in line with its positioning as HMC’s global
export hub for compact cars. Apart from expansion of production capacity, HMIL plans
to expand its dealer network, which will be increased from 232 to 260 this year.

The year 2007 has been a significant year for Hyundai Motor India. It achieved a
significant milestone by rolling out the fastest 400,000th export car. Hyundai exports to
over 90 countries globally; even as it plans to continue its thrust in existing export
markets, it is gearing up to step up its foray into new markets.

The year just ended also saw Hyundai Motor India attaining other milestones with the
launch of the i10 and yet another path-breaking record in its young journey by rolling out
the fastest 1,500,000th car.

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3.3 Awards and Certifications:

For Environment

ISO 14001
Certification (EMS)
in 2003 from TUV,
Germany
Eco First Award in 2003 from
Kanchi Health & Education
Society

3 Leaves Award in 2001


from CSE, New Delhi

Energy Conversation & Safety

Energy Efficient Unit Award


in 2001 from CII

Safety Appreciation Award


in 2001 from National
Safety Council

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National Energy
Conservation Award in
2002 from Govt. of India

Car of the Year 2008


Car of the Year
Small Car of the Year 2008
Compact Car of the Year

PM Presents “Star Company” Award to


Car of the Year 2008 Hyundai Motor India

Hyundai Santro has topped the JD Power


Car of the Year - Aaj Tak Viewers Choice
10
Award
Asia Pacific Intial Quality Study (IQS) that
measures product quality for three years in
a row (Years 2000, 2001 & 2002)

CNBC-TV18 Autocar Auto Awards


2007: 'Best value-for-money car'

Hyundai Getz is the CNBC Autocar Car


of the Year 2005

Hyundai Elantra – Best Value for


Money Car of the Year 2005

Company – Awards – CNBC Autocar India


– Hyundai has been the manufacturer of the
year for two years in row.

Hyundai i20 awarded 'Five Star Rating' for Safety by


European New Car Assessment Programme
(NCAP).

“Hyundai Motor wins the ‘Manufacturer of the


Year’ award at the NDTV Profit Car & Bike Awards
2009.

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Hyundai Motor India was named the ‘Manufacturer
of the Year’ award and the 'Best Variant' award for
it’s ‘i-10 Kappa’ engine at the UTVi Autocar Awards
2009.

Hyundai Motor India wins the “Highest Resale


Value” award at the Apollo Tyres Auto India Best
Brand Survey Awards for the year 2009.

Hyundai i20 wins the ‘Viewer’s Choice Award’ at


the Overdrive CNBC TV 18 Awards 2010.

Hyundai Motor India Ltd wins the award for


‘Customer Service’ at the Apollo Auto India Best
Brand Awards 2010.

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Hyundai i20 wins the ‘Design of the Year’ award at
the NDTV Profit Car & Bike Awards 2010.

Hyundai i10 brand ambassador Shahrukh Khan wins


the ‘Brand Ambassador of the Year’ award at NDTV
Profit Car & Bike Awards 2010.

3.4 THE HYUNDAI LOGO

 The symbol represents an image of Car Company that produces refined cars with
cutting edge technology.
 Expresses the will of the management for harmony and stability
 The oval shape symbolizes the earth to expresses the global nature of HMC car.
 The H logo stands for the first letter of Hyundai motor company

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 The slanted shape of the H represent progress and a company that will
successfully face future challenges as it continues to raise its standard of quality.

3.5 GOALS OF HMIL:


 The ultimate goal is to join the ranks of the world’s top 10 automakers.
 Focus on developing advanced technology.
 Hyundai cars known as world-class cars
 Concentrating on building cars that are more environments conscious and further
improving the quality of life for everyone in future.

3.6 BASIC OBJECTIVES OF HMIL:


 Best customer service
 Best technology
 Best quality products
 Best value for people

This has helped the company deliver consistently producing some of the finest cars of the
company.
3.7 HMIL VISION
 DREAM
 STRIVE
 ACHIEVE TOGETHER

Executives:

Mgmt. Trainee / Grad. Engr. Trainee


3.8 HMIL MISSION:
Asst. Mgr / Dy. Mgr
 INNOVATION FOR HUMANITY Mgr / Sr. Mgr / AGM / DGM / GM
Sr.GM / VP / Sr.VP / President
Vision of Hyundai is “Innovation for humanity”.
Jr.Executives:
Manpower: [Category wise]
Em Engineer / Officer
plo Technical / Business Associate
yee
309 Technical /Business Associate Trainees
s
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Non - Executives:
1280
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Technician / Workman / Trainee
95
Executives
9 Jr. Executives Non Executives
Unique HR

3.9 UNIQUE HR INITIATIVES:


 Morning Department Standing Meeting – done by all
 My Machine and My Station concept
 Music Extravaganza in the Plant – once a year at Founders day
 Free Help Line services to serve employees
 Employees Family Visit Program – Gift from Management thanking the family
 Publicity for Outstanding Work
 By display of achievement and Photograph in Department Notice Board
 By distribution of Prizes in meetings attended by all employees
 Annual Picnics to promote “ ONENESS ”
 Birthday Greeting with flower bouquet & Plantation of trees named after them
 Marriage Gift to newly married employees
 Welfare benefits over and above what is prescribed by law
 Meditation for Managers – and follow up
 Tax Saving Gift vouchers / Gift Credit Card on Festive occasions

The Challenges were…

To manufacture and sell a global technology, global quality car reflecting Indian
consumer needs at an appropriate price and attain profitability.

What Hyundai Provide:

 A highly Energized & Stimulating work environment


 High Levels of Motivation, Empowerment & Recognition
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 Emphasis on Competence, Creativity and Challenge
 Proactively unleashing People’s Potential that will build the future
 Encourage Innovation and allow the freedom to learn from mistakes
 A culture of Continuous Change & Improvement

Health:
 Regular Health Camps (Eye, Cardiac and Wellness) at the adopted villages
 Donated Ultra Sound Machines and Auto Refractometer to Primary Health Center

Infrastructure:
 Construction of Cement Roads at Keevalur
 Deepening of Ponds in Thandalam & Kattarambakkam
 Drinking Water Tank construction at Irrungattukottai

Education:
 Construction of High School at Thandalam (Common for Four villages)
 Infrastructure Facilities like Fans, Benches for the Schools of nearest 4 villages
 Distribution of Note Books and Stationery items to School Children
 Picnics for all the 4 school children once a year

TABLE OF CONTENTS

 OBJECTIVE OF THE TRAINING

 ABOUT TRACTOR INDUSTRY

 INTRODUCTION

 FUTURE OF TRACTOR INDUSTRY

 MARKET SHARE OF THE TRACTOR INDUSTRY

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 TRACTOR INDUSTRY PERFORMANCE

 COMPANY’S PROFILE

 ESCORTS SYMBOL

 MISSION

 QUALITY POLICY

 BACKGROUND OF THE BUSINESS

 BOARD OF DIRECTORS

 OUTLINE OF ESCORTS

 SUBSIDERIES

 BANKERS

 AGRI MACHINERY GROUP

 INTRODUCTION

 AGRI MACHINERY GROUP CONTRIBUTION

 MODERNIZATION OF AGRI- MACHINERY GROUP

 PRODUCTS

 COMPANY’S FUTURE

 CASH MANAGEMENT

 INTRODUCTION

 CASH FLOW MANAGEMENT

 CASH MANAGEMENT SYSTEM

 IMPORTANCE OF CASH MANAGEMENT

 CASH MANAGEMENT STRATEGIES

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 CASH OUTFLOW

 CASH INFLOW

 CASH FLOW STATEMENT

 IMPORTANCE

 DAILY CASH FLOW REPORT

 CASH BUDGET

 BANK RECONCILIATION

 CASH RATIOS

 RECEIVABLES MANAGEMENT

 PAYABLE MANAGEMENT

 RECOMMENDATIONS

 LIMITATIONS

 BIBLIOGRAPHY

 ANNEXURES

INTRODUCTION

Cash is the important current asset for the operation of the business.
Cash is a medium of exchange to purchase the goods and services and to
discharge the liabilities. Cash is the basic input needed to keep the
business running on a continuous basis; it is also the ultimate output

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expected to be realized by selling the service or product manufactured by
the firm. The firm should keep sufficient cash, neither more nor less.
Cash shortage will disrupt the firm’s manufacturing operations while
excessive cash will simply remain idle, without contributing anything
towards the firm’s profitability. Thus a major function of the financial
manager is to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without


any restriction. The term cash includes coins, currency and cheques held
by the firm, and balances in its bank accounts. Sometimes near cash
terms, such as marketable securities or bank time deposits, are also
included in cash. The basic characteristic of near cash asset is that they
can readily be converted into cash. Generally, when a firm has excess
cash, it invests it in marketable securities. This kind of investment
contributes some profit to the firm.

CASH FLOW MANAGEMENT

Cash flow management is a process of monitoring, analyzing, and


adjusting one’s business cash flows. The most important aspect of cash
flow management is avoiding extended cash shortages, caused by having
too great a gap between cash inflows and outflows. Therefore, one

19
needs to perform a cash flow analysis on a regular basis, and use cash
flow forecasting so that one can take the steps necessary to head off cash
flow problems.

Cash management involves the efficient collection, disbursement and


temporary investment of cash. The treasurer department of a company is
usually responsible for the firm’s cash management system. A cash
budget, instrumental in the process, tell us how much cash we likely to
have it, and for how long.

In cash flow management I studied many statements like as


follows:

Cash flow Statement

Cash Budget

CASH MANAGEMENT SYSTEM

With timely information reporting a firm can generate significant


income by properly managing collections, disbursement cash balance and
cash equivalents investment,

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Collection Disbursement

Cash

Cash Equivalents

Control Through Information Report

IMPORTANCE OF CASH

MANAGEMENT

Cash management assumes more important than other current assets


because cash is the most significant and the least productive asset that a
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firm holds. It is significant because it is used to pay the firms obligations.
However cash is unproductive. Unlike fixed assets or inventories, it does
not produce goods for sale. Therefore, the aim of cash management is to
maintain adequate control over cash position to keep the firm sufficiently
liquid and to excess cash in some profitable way.

Cash management is also important because it is difficult to predict


cash flow accurately, particularly the inflows and there is no perfect
coincidence between the inflows or outflows of cash. During some
periods, cash outflows will exceed cash inflows, because payments for
taxes, dividends, or seasonal inventory build up. At other times, cash
inflows will be more than cash payments because there will be large cash
sales and debtors may be realized in large sums promptly.

Cash management is significant because cash constitutes the


smallest portion of the total current assets, yet management’s
considerable time is devoted in managing it.

CASH MANAGEMENT STRATEGIES

The firm should develop appropriate strategies for cash management.


The firm should evolve strategies regarding the following four facets of
cash management:

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Cash planning cash inflow and outflow should be planned to project
cash surplus or deficit for each period for each period of the planning
period. Cash budget should be prepared for this purpose.

Managing the cash flows the flow of cash should be properly managed.
The cash inflows should be accelerated while, as far as possible, the cash
outflows should be decelerated.

Optimum cash level the firms should decide about the appropriate
level of cash balances. The cost of excess cash and danger of cash
deficiency should be matched to determine the optimum level of cash
balances.

Investing surplus cash the surplus cash balances should be properly


invested to earn profits. The firm should decide about the division of such
cash balance between short-term investment opportunities such as bank
deposits, marketable securities, or inter- corporate lending.

CASH OUTFLOW

For cash management, the control of cash outflows, which is


directly related to organizational arrangements for budget execution, can
pose more difficulties than the control of cash inflows. However, issues
related to cash management should not be confused with issues related to
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the distribution of responsibilities for accounting control and
administration of the payment system. The major purpose of controlling
cash outflows is to ensure that there will be enough cash until the date
payments are due and to minimize the costs of transactions, while
keeping cash outflows compatible with cash inflows and fiscal
constraints. The first condition for ensuring that cash outflows fit fiscal
constraints is good budget preparation and budget implementation
covering both cash and obligations. However, during budget
implementation, cash outflows must also be regulated through cash plans
to smooth cash outflows.

CASH INFLOW

It is necessary to minimize the interval between the time when cash


is received and the time it is available for carrying out expenditure
programs. Collected revenues need to be processed promptly and made
available for use. When tax collection is done by the tax administration
24
offices (or by Treasury offices) the administrative organization of these
offices may have to be reviewed and their equipment modernized.

Commercial banks by virtue of the banking sector infrastructure are often


able to collect revenues more efficiently than tax offices, which should
therefore focus instead on tracking taxpayers. When revenues are
collected by commercial banks, arrangements must be defined to foster
competition and ensure prompt transfer of collected revenues to
government accounts. Systems of bank remuneration through float,
which consists of authorizing the banks to keep the revenues collected for
a few days, present inconveniences. Stringent rules to ensure prompt
transfers must be established. Moreover, bank remuneration through fees
is more transparent and promotes competitive bidding. An appropriate
system of penalties for taxpayers is also an important element in avoiding
delays in revenue collection.

CASH FLOW STATEMENT


Meaning:

IT IS a summary of firm’s cash receipts and cash payments during


period of time.

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The purpose of cash flow statement is to report a firm’s cash inflow
and outflows, during a period of time, segregated in to three categories:
operating, investing and financing activities.

The statement of cash flow explains changes in cash and cash


equivalent such as treasure bill and the activities that increase and
decrease cash. The cash flow statement may be presented using either a
“direct method” (Which is encouraged by financial accounting standards
board) or an “Indirect Method” (which is likely to be the method
followed by good majority of firms). The only difference between the
direct and indirect method of presentation concern the reporting of
operating activities; the investing and financing activities section would
be identical under either method. Under the direct method, operating cash
flow reported directly by major classes of operating cash receipts (from
customers) and payment (to suppliers and employees). A separate indirect
reconciliation of Net income to net cash flow from operating activities
must be provided. The reconciliation starts with reported net income and
adjusts this figure for non-cash income statement items and related
changes in balance sheet items to determine cash provides by operating
activities.

Cash flow statement has three activities like as follow:

Operating Activities:- Shows impact of transactions not defined as


investigation or financing activities. These cash flows are generally the

26
cash effects or transaction that enter into the determination of net income.
Thus, we see items that not all statement users might think of as
‘operating’ flows-items such as dividends and interest received, as well as
interest paid.

Investing Activities:- Shows impact of buying and selling fixed assets


or equity securities of other entities.

Financing Activities:- Shows impact of all cash transactions with


shareholders and the borrowing and repaying transactions with lenders.

IMPORTANCE

27
 The effects of cash and non-cash investing and financing
transaction.

 A manager can assess the reason for differences between net


income and net cash flow from operating activities.

 It is also helpful for a company to generate future net cash inflows


from operations to pay debts, interest and dividends.

 It gives indication to a company’s need for external financing.

 A cash flow statement is straightforward and easy to

Understand.

 It gives a strong indication of how viable the company will be over


time.

 The extent of success or failure of cash planning can be known by


comparing the actual cash statement with the budgeted cash flow
statement and remedial measures can be taken.

 It discloses the volume and the speed at which cash flows in


different segments of the business

DAILY CASH FLOW REPORT

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The Daily Cash Flow report is prepared with an objective to keep
incessant check on the cash flows of the firm, which includes both inflow
and outflow cash. The cash flows are planned to project cash surplus or
deficit for each period i.e daily, monthly, quarterly, semi-annual & annual
basis. The framework of report highlights all the effects, which lead to
cash surplus or deficit. It is a measure, which calculates the details of
daily transaction in terms of sale and purchase, which further includes the
means through which they take place.

At Escorts-AMG, the daily cash flow report is designed in a format


suiting their requirements .The sales of Hyundai is their primary goal
which includes exports as well. The bills are presented for desired
collection from various channels i.e dealers, stockiest, distributors
through which the Hyundai are supplied in the market. Besides Hyundai
they also deal in engines, backend, implements which are included in the
category of other receipts. The receipts are other than collections as they
aren’t generated through sales. Next come the payments, which are made
in discharge of financial obligation towards various suppliers, bank
payments, excise duty, salary & wages etc.

Through the various collections, receipts and payment, we are now


in a position to derive the surplus or deficit which is the result of above
transactions. The surplus balance shows that the collections & receipts
are more than payments and vice-a-versa in case of deficit. Though
surplus is an indicator of sound financial position and deficits the other
way round, but excess surplus is also not considered healthy which has
reasons to it like inventory pile up and so on.

The last component of the cash flow report is the outstanding


debtors, which is calculated by subtracting billing & collection from

29
opening o/s of debtors in domestic, export and other categories. This way
the day to day cash transactions are maintained through the cash flow
report which leads to proper functioning of an organization’s resources
both men & material.

COMPONENTS

The annual cash flow statement at Escort- AMG is prepared for the fiscal
period commencing from 01/10/20XX to 31/09/20XX. They are also
maintaining the daily cash flow report with a purpose of keeping constant
check on the daily flow of cash i.e cash inflow and cash outflow, for
different products categories, their parts and other miscellaneous.

The main products at ESCORTS – AMG are “ HYUNDAI “ which are


available in three major categories:

Farmtrac

Powertrac

Escorts

These products are sold into the market through intermediaries like
dealers, stockists and distributors , these parties charge a commission for
the services provided by them.

Among these parties dealers are given priority over the stockists &
distributors for the delivering the product to the end customer and the
commission also varies in the same manner.

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The following are the transactions that take place in the daily cash flow
report under the following main heads:

 Particulars,

 Year to date i.e the very first day of the financial year till the
previuos months end (in which the daily report is being made),

 The previous month,

 Plan for the ongoing month,

 The particular day for which the report is being made,

 Month to date (from the beginning of the current month till the day
for which report is being made).

SALES – This includes the number of Hyundai sold in the domestic


boundaries as well as overseas.

BILLING – It is the process of sending accounts to customers for goods


or services. The document used is called an invoice, the invoice may be
attached to the goods or forwarded separately. The average sale value of
each tractor is calculated as a follows :

Total sales of Hyundai

Number of Hyundai sold

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COLLECTION – The collections is recovered from all those parties to
whom the products is being sold. The parties involved are :

Hyundai ( Direct ) – This includes the sale made through dealers to the
end customer, for which a predetermined amount is given as commission
to the opposite party. If the dealer fails to make the sale till the due date
than he has to pay interest on it thereon.

Hyundai ( Stockists ) – This includes the sale made through stockists,


who doesn’t sell the product by themselves but sells them through
dealers. The credit period allowed to stockists by the company is less in
comparison than that of dealers, which yields to faster generation of
income .

Hyundai ( Channel financing ) – This system is adopted to improve the


working capital of the company by avoiding inventory pile up and
earning speedy collections. Furthermore, Channel Financing is an
innovative option for extending working capital finance to dealers who
have business relationships with large companies. Channel Financing is
the mechanism through which a Bank / Financial Institution meets the
various

Channel Financing could cover : -

Discounting of trade bills drawn by a company & accepted by its


dealers/ distributors/ channel partners.
32
Providing overdraft facility to the dealers/ distributors who have
business dealings with large corporate.

OTHER RECEIPTS : An acknowledgment (usually tangible) that


payment has been made. The below mentioned are the transactions
included in it :

Bill discounting : it is a major activity with some of the smaller banks.


Under this type of lending, bank takes the bill drawn by borrower or his
(borrower’s) customer and pay him immediately deducting some amount
as discount / commission. The bank then present the bill to the
borrower’s customer on the due date of the bill and collect the total
amount. If the bill is delayed, the borrower or his customer pays the bank
a predetermined interest depending upon the terms of the transaction.

The following entries could be passed in the co.’s books:

Sales bill discounting : Following entries are passed during the


sales

Made by the company:

Party a/c dr. ..........

To sales a/c ...........

(Being sale made on credit)

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Bank a/c dr. ..........

Bank charges a/c dr. …….

To party a/c ……..

( being payment recived)

Purchase bill discounting : Following entries are passed in the books

purchases made by the company :-

Purchase a/c dr. ……

To party a/c ……

( being purchases made)

Party a/c dr. ……

To bill discounting supplier a/c ……

( being paid to party through bank )

Bill discounting supplier a/c dr. …….

To bank a/c ……

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( being payment made to bank)

Letter of credit : The LC can also be the source of payment for a


transaction, meaning that redeeming the letter of credit will pay an
exporter. Letters of credit are used primarily in international trade
transactions of significant value, for deals between a supplier in one
country and a customer in another. The parties to a letter of credit are
usually a beneficiary who is to receive the money, the issuing bank of
whom the applicant is a client, and the advising bank of whom the
beneficiary is a client. Almost all letters of credit are irrevocable, i.e.,
cannot be amended or canceled without prior agreement of the
beneficiary, the issuing bank and the confirming bank. In this 100 %
payment is not given to the supplier by the bank due to loss in
transition , rejection & shortage . in if loss doesn’t occur than 100 % is
given to the supplier on the due date.

Packing credit : when we receive an export order from countries , than


we can avail loan from bank at nominal interest as packing credit loan. It
provides the exporters with working capital between the time of the
receipt of order and the time of shipment to arrange for production or
procurement of goods. Pre-shipment finance is of particular importance
to small scale manufacturers and exporters who do not possess sufficient
financial resources to meet the expenditure involved in the production of
goods for export.

35
Pre shipment finance is normally provided by the commercial
banks. As in the case of many other advances the bank takes into
consideration a number of factors before making the necessary other
advances to exporters viz., (1) honesty, integrity and capital of the
borrower, (2) exporter’s experience in the line, (3) security offered, (4)
the margin of interest (5) the bank’s experience about the exporter to
ensure that his name does not appear on the caution list of the Reserve
Bank.

Pre- shipment : when the company receives order

Post shipment : when assignment is dispatched from the company.

The following entries to be passed in the books for packing credit loan :

Party a/c dr. ……

To export a/c ……

( being export order received)

Bank a/c dr. ……

Bank charges a/c dr. …….

To packing credit loan ……

( being loan granted by bank )

Bank a/c dr. ……

To party a/c …….

( being payment made to bank)


36
Pcl a/c dr. ……

To bank a/c ……

( being payment of loan made to bank)

Credit note : This note is presented to the other party for the payment to
be made by the opposite party. Whereas debit note is given to the
company by the other party in case of payment is to be made by the
company.

PAYMENTS : It is the transfer of wealth from one party (such as a


person or company) to another. A payment is usually made in exchange
for the provision of goods, services or both, or to fulfill a legal obligation.

The payments at Escorts – AMG includes – Direct (hundis, LC ), bank


payment , excise duty which is lieved on the parts of the Hyundai, ladt
( local area development tax), sales tax , salary and wages, vrs, spare
parts, implements, electricity, overhead, finance charges, capex is the
capital expenditure made to purchase the fixed assets or adding value to
the existing fixed asset, credit note, corporate loan, loan rapyments,
interest, wcdl payment, packing credit & bill discounting.

37
OUTSTANDING : Outstanding debtors are calculated by the following
formula –

Closing O/S = Opening O/S + Billing - Collection

In this, values are calculated for debtors outstanding in different


point of time in domestic and overseas sales of Hyundai & its part.

CASH BUDGET

38
MEANING
A forecast of estimated cash receipts and disbursements for a
specified period of time.

A cash budget is arrived at through a projection of future cash receipts


and cash disbursements of the firm over interval of time, it reveals the
timing and amount of expected cash inflows and outflows over the
period. With this, the firm will be able to determine its future cash needs,
and exercise control over the cash and liquidity of the firm. Though the
cash budget may be prepared almost any interval of time, its monthly
projection are most common.

In short, we can say that cash budget is a forecast of a firms future


cash flows arising from collection and disbursement, usually on a
monthly basis..

The key to the accuracy of most cash budgets is the sales forecast.
This forecast can be either internal or external analysis, in internal
approach, sales representatives are asked to project sales for the
forthcoming period, We can then consolidate these sales estimates for the
product line. The estimates for the various product lines are then
combined in to an overall sales estimate for the firm. The basic problem
with an internal approach is that it can be too myopic, often significant
trends in the economy and in the industry are overlooked.

Many companies use an external analysis as well, in external


approach economic analysts make forecast of the economy and of
industry sales for several years to come. They may use regression
analysis to estimate the association between industry sales and the
economy in general. After these basic predictions of business conditions
and the industry are made. The next step is to estimate the market share
39
by individual products, price that are likely to prevail and the expected
reception of new product. By this way we can prepare an external
forecast.

For Effective Cash Budget

 A firm may be able to delay its capital expenditure or its payment


for purchase,

 Purpose of cash budget should be to determine the timing and


magnitude of prospecting financing needs so that the most
appropriate method of financing can be arranged,

 A decision to obtain long term financing should be based on long-


range funds requirement.

 On the basis of cash budget the manager should be able to plan to


invest excess funds in cash equivalents.

BANK RECONCILIATION

40
Bank reconciliation involves comparing the company’s record of
transactions and balances to the bank’s record of transactions and
balances. The company should go through every transaction in their
account and make sure the company and the bank agree on the
transaction.

It’s important to go through the process of bank reconciliation. If the


company doesn’t, than it is taking few risks. Without bank reconciliation,
the company may not have a clear idea of how much cash is available in
their accounts. They might bounce Cheques and incur overdraft charges.

Without bank reconciliation, the company also expose yourself to


risk. People may be stealing from the company’s account. If they never
look through each transaction, they’ll never know about it. If they don’t
notify the bank quickly enough, they may be out of luck. The same goes
for bank mistakes. With regular bank reconciliation the company can find
problems quickly and make them go away.

Bank reconciliation can be done manually, in excel & there’s


electronic bank reconciliation as well.

Though the manual way for handling company’s large bank


accounts is not appropiate, it is helpful when there are less transactions.
But still it important for any manager to learn it as it is the basic form of
doing it.

For reconciling the company’s record of transaction with the bank


balances , there are three essential requirements :

 Bank book

 Bank statement

 Bank reconciliation statement of preceding month


41
Than the above transactions needs to be tally & unmatched have to be
reconciled accordingly. Below is an example of how is it done manually:-

CASH RATIOS

MEANING

Cash ratios are also important tool of cash control. There are
various ratios which explain the efficiency of cash management or vice-
versa. They are the acids test ratio, cash ratio, receivables turnover ratio,
inventory turnover ratio, cash turnover ratio etc.

These are calculated as –

LIQUIDITY RATIOS –

Liquidity ratio measures the ability of the firm to meet its current
obligations. It is necessary to strike a proper balance between high
liquidity and lack of liquidity. A high degree of liquidity means that a
firm’s fund will be unnecessarily tied up in current assets. Whereas lack
of liquidity, implies failure of a company to meet its obligations due to
lack of sufficient liquidity.

The ratios, which are used for the analysis of Escorts liquidity
position in this report, are:

 Current Ratio

 Quick Ratio

CURRENT RATIO

42
Current ratio is calculated by dividing current assets by current liabilities:

Current ratio = Current Assets

Current Liabilities

2016-17 2017-18

Current Ratio 1.12 1.16

From the above table it can be interpreted that Escorts liquidity position
is not constant. As a conventional rule a current ratio of 2:1 or more is
considered satisfactory because in a worse situation, even if the value of
current assets become half, the firm will be able to meet its obligations.
Current ratio refers to a margin of safety for creditors therefore higher the
current ratio, the greater the margin of safety.

QUICK RATIO

Quick ratio establishes a relationship between quick or liquid assets and


current liabilities. An asset is liquid if it can be converted into cash
immediately or reasonably soon without a loss of value. Inventories are

43
considered to be less liquid therefore calculating quick ratio they are
deducted from current assets.

Quick Ratio = Current Assets – inventory

Current liabilities

2016-17 2017-18

Quick Ratio 0.90 0.99

Escorts quick ratio in the current year has decreased in comparison to


previous year, yet it can be considered to be satisfactory, as it is 1:1 times
of current liabilities. Although quick ratio is more penetrating test of
liquidity than current ratio. Yet it should be used cautiously, as all debtors
may not be liquid and cash may be immediately needed to pay operating
expenses.

The value of quick ratio is decreasing every year. The satisfactory level
of the quick ratio is 1:1. This shows the worse situation of the company.
The current liabilities are more than the quick assets.

ACTIVITY RATIOS –

Activity Ratios are used to evaluate the efficiency with which the firm
manages and utilizes its assets. The ratios are called Turnover Ratios as
they indicate the speed with which the firm manages and utilizes its
assets.
44
Activity ratios, which are used to analyze Escorts effectiveness in Asset
utilization, are

 Inventory Turnover Ratio

 Fixed Assets Turnover Ratio

 Working Capital Turnover Ratio

 Debtors Turnover Ratio

 Creditors Turnover Ratio

INVENTORY TURNOVER RATIO

It indicates the efficiency of the firm in producing and selling its product.
It is calculated by dividing sales by avg. inventory. In a manufacturing
company inventory of finished goods is used to calculate inventory
turnover.

Inventory Turnover = Cost of goods sold

Avg. Inventory

2006-07 2007-08

Inventory turnover 14.42 15.10

45
If the company is comfortably meeting the customer needs with 9.73
days inventory of finished goods, all India basis.

It is a good achievement for the Escorts Limited.

FIXED ASSETS TURNOVER RATIO

A firm’s ability to produce a large volume of sales for a given amount of


net assets is the most important aspect of its operating performance.
Unutilized or underutilized assets increase the firm’s need for costly
financing as well as expenses for maintenance and upkeep. Fixed assets
turnover is calculated by dividing net sale by net fixed assets.

Fixed Assets Turnover = Sales

Fixed Assets

2015-16 2016-17

F.A.T 2.29 2.35

Escorts fixed asset turnover have increased in 2003-04. The fixed asset
turnover of 2.78 implies that it is producing Rs.2.78 of sales for one
rupee of capital employed.

The higher the ratio, more it is satisfactory…


46
It should be interpreted very cautiously because the denominator of the
ratio includes fixed asset net of depreciation. Thus old assets with lower
book value may create a misleading impression of high turnover without
any improvement in sales

DEBTORS TURNOVER RATIO

Debtor’s turnover indicates the number of times debtors’ turnover each


year. Higher the value of Debtors turnover, the more efficient is the
management of credit. The liquidity position of the firm depends on the
quality of the debtors to a great extent.

Debtors Turnover = Credit Sales

Avg. Debtors

2015-16 2016-17

Debtors Turnover 4.44 4.29

Escorts debtors turnover is quite lower. The debtor’s turnover ratio is


high at 2003-04 . The ratio is decreasing. Also the debt collection period
has its own importance. The debt collection period of Escorts was 76
days in 2003-04 but it has increased to 95 days . This does not show the
satisfactory level. The shorter the collection period, the better the quality
of debtors, since a short collection period implies prompt payment by
debtors.
47
A too low collection period is also not necessarily favorable as it may
indicate a very restrictive collection and credit policy. Because of the fear
of bad debt loses the firm may be selling to those only whose financial
conditions are sound and who are very prompt in making the payments.

CREDITOR TURNOVER RATIO

Creditors Turnover = Total Purchases

Creditors

2015-16 2016-17

Creditors Turnover 3.55 3.45

Though the days are very high and apparently appears to substitute right
collection, this extended credit has its own drawback like:

 High interest inbuilt in cost system.

 Sub-quality creditors may be accepted.

 Quality of material may be accepted.

48
The payment period of Escorts Limited is 90 days in 2007-08, which is
more reasonable than previous years. This helps to make good quality
product and also better relationship with suppliers.

WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio has its own significance in the business
organizations. It shows the efficiency of the firm. How much sale that the
company get with the utilization of the limited working capital.

Working Capital Turnover = Net Sales

Net Working Capital

2006-07 2007-08

Working.Cap.Turn. 113.45 28.30

In the case of working capital turnover ratio Escorts is significantly going


very downward. This is a very dangerous point of the firm. The company
should try to improve it earlier. It shows that the company requires more
money to generate sales.

RECEIVABLE MANAGEMENT

49
The term receivable is defined as “debt owed to the firm by
customers arising from sales of goods in the ordinary course of business”.
The sale of goods on credit is an essential part of modern day business.
The credit sales are generally made on open account in the sense that
there are no formal obligations through a financial instrument. However
extension of credit involves risks and cost. Management should weigh
the benefits as well as the cost to determine the goal of receivable
management. The benefits from receivables are the increased sales and
profits anticipated because of more liberal policy. When firm extend trade
credit, i.e. invest in receivables, they intend on increase the sales level.
The motive of liberal credit policy can be either growth oriented or sales
retention. The extension of credit has a major impact on sales, costs and
profitability. Other things being equal, a relatively liberal policy and
therefore higher investments in receivables will produce larger sales.
However the cost will be higher with liberal policies then with more
stringent measures. Therefore account receivable management should
aim at a trade- of between profit and risk.

The costs associated with the extension of credit and account receivables
are

 collection cost

 capital cost

 delinquency cost

 default cost

DECISION AREAS

50
CREDIT POLICIES

The credit policy of a firm provides the framework to


determine whether or not to extend credit to a customer and also how
much credit to extend. It has two broad dimensions, the first is credit
standard and second is the credit analysis. Credit standards represent the
basic criteria for the extension of credit to customers. The trade- off with
reference to credit standards covers collection costs, average collection
period, level of bad debts losses and level of sales. With a relaxed credit
standard the collection costs, bad debts expenses and sales goes up and in
reverse case vice-versa happens. The second aspect of credit policy is
credit analysis. It begins with obtaining credit information of the
customers and ends up with the analysis of the obtained credit
information. Information can be collected either internally or externally.
Internal source of credit information is derived from the records of the
firm. The analysis of credit information should cover both qualitative as
well as quantitative aspects. The quantitative aspect is based on the
available financial statements whereas qualitative aspects cover the
quality of management.

CREDIT TERMS

The second decision area in accounts receivable management is


the credit terms. After the credit standard have been establish and the
credit worthiness of the customers is assessed, the management of a firm
must determine the terms and conditions on which trade credit will be
made available. Credit terms have three components : credit period, cash
discount and cash discount period. Credit period is the duration of time
for which trade credit is extended whereas cash discount is the amount by
51
which the over the due amount will be reduced thus benefiting the
customer. The credit terms like the credit standard affect the profitability
as well as the cost of the firm therefore a firm should determine the
credit terms on the basis of cost-benefit trade-off.

COLLECTION POLICIES

The collection policies refer to the procedures followed to


collect account receivable when after expiry of the credit period they
become due. This policy covers two aspects : first is the degree of effort
to collect the over due and second is the type of collection efforts.

CHANNEL FINANCE FACILITIES

The company arranges these facilities with various


bankers for the company dealers to support their cash needs. The goods
are sold on credit against hundis. Hundis can be drawn for 50 or 75 or 90
days subject to qualifying criteria of bank.

CREDIT FACILITIES

Escort provides thirty days interest free credit to the dealers. For this in
respect of all hundis the company bears 30 days interest and the
remaining cost of interest, delayed payment charges are borne by the
dealers.

PENALTY ON BOUNCING OF HUNDIES / CHEQUES

52
Bouncing of hundis/ cheques drawn in favor of the
company is viewed very strongly and usually following actions are taken.

 Tractor supplies are suspended and restored only after all dues are
cleared.

 All charges debited by the bank such as collection charges, penal


interest are debited to the dealer.

 The bank extending channel financing policy have clearly stated


that if a dealer has two or more bouncing he will be black listed
and his limit will be withdrawn with immediate effect. Company
also makes sales to such dealers only against letter of credit or
demand draft.

CASH DISCOUNT ON EARLY PAYMENT

Cash discount of 1% is payable on Hyundai dispatched against


funds available in the form of letter of credit or demand draft. Interest is
charged/ paid at 12% per annum on outstanding/ credit balance early
payment incentive.

PAYABLE MANAGEMENT

Creditors are a vital part of effective cash management and should


be managed carefully to enhance the cash position. Purchasing initiates
cash outflows and an over-zealous purchasing function can create
liquidity problems. A better strategy is to shrink the vendor base
53
radically, then use one’s clout to negotiable longer terms with the
vendors. Vendor rationalization is a process that can pay off in a big way.
Apart from the question that who should authorize purchasing in the
company – should it be tightly managed or spea among a number of
(junior) people? The following comes under good payable management.

 Purchase quantities should be geared to demand forecasts.

 Order quantities should be used which takes account of stock


holding and purchasing costs.

 The cost to the company of carrying stock should be clearly


defined.

 A Company should have alternative sources of supply. It should


get quotes from Major suppliers and shop around for the best
discounts, credit terms and reduce dependence on a single supplier.

54
RECOMMENDATIONS

LOANS AND ADVANCES

Special efforts should be made to analyze loans & advances, which


are between 35% to 56% of current assets. This can be classified between
55
production / operation relation related and non-production / operation
related. No production related cases might be financed from other
sources like debenture etc. and treated separately.

INVENTORY

Inventory should be reviewed constantly to identify show / dead /


obsolete item and then disposed . Optimum level should be revised
periodically, keeping in view, distance of suppliers, production lead time
of supplier, transport problem if any and reliability of suppliers. This will
help to avoid obsolesce and dead inventory.

DEBTORS

A study may be conducted if required by experts to pinpoint

reason behind Escorts high correction period of 95 days in 2007-08


against 50 days of Mahindra & Mahindra. It is due to quality of products,
quality of customer, the segment of customers marketing effort,
distribution pattern or other reasons.

CREDITORS

Though high payout days may be appartenly beneficial for the company.
It has it very heavy long term cost like high interest cost, bad credit
ratings and shyness of good quality / standard suppliers.
56
RATIOS

The company should try to improve its current situation. The ratios,
which are taken in this research to evaluate the company’s position, are
Current ratio, Quick ratio and Activity ratio. These ratios show the actual
position of the company. The Quick ratio is declining since 2001-02 till
now. There is a drastic declining in the working capital turnover ratio.
This ratio goes to –ve position in current year compared to previous. The
Debts collection period is 359 days for Exporters. This shows the poor
collection policy. The current ratio is 1.12 in 2006-07, which is not upto
the ideal ratio. This shows that the current assets are equal to the current
liabilities. Not satisfactory.

OTHERS –

 More attention must be given to market forecasts can be made and


the surplus of inventory is reduced to minimum

 Company should not follow the competitors only. New products


should be produced for the farmers having low income and small
holdings.

 Proper market survey should be carried out. The company should


explore the export market to study the present and prospective
demand.

 Proper inventory plans should be made in order to reduce the


carrying cost.

57
 New market strategies should be devised from time to time. This is
because, even if the tractor is of good quality, the competitors may
produce the same product with additional features and at lower
prices.

 Marketing network should be enhanced. Company should also


produce more Hyundai of higher H.P. But new developments
should be made continuously in order to survive in this competitive
world.

58
LIMITATIONS

59
Although every effort has been in to collect the relevant
information through the sources available, still some relevant information
could not be gathered.

Busy Schedule of Concerned Executives: The concerned executives


were having very busy schedule because of which they were reluctant to
give appointment.

Time: The time duration could not provide ample opportunity to study
every detail of working capital management of the company.

Unawareness: Executives were unaware of many terms related to


working capital study while asking to them.

Confidential Information: As the company on account of confidential


report has not disclosed some figures. Moreover, in some cases separate
accounts of division are not separately maintained thereby, leading to
restrictions in study.

BIBLIOGRAPHY

BOOKS
60
Financial Management- S.K Gupta

Management Accountancy-D k Gole

Cost and Management Accountancy, S.N.Maheshwari

Financial Management And Policy, James C.Van Horne

WORLD WIDE WEB

www.escortsagri.com

www.economictimes.com

www.planware.com

www.icraindia.com

Other than Web

M.I.S of the company

Annual Reports

61
ANNEXURES

1SToct 2016- 30th September 2017 1st oct 2017 – 30th sept 2018
Operating income 2,012.00 2,092.0
Material consumed 1,470.66 1,540.0
Manufacturing expenses 47.68 50.7
Personnel expenses 202.63 204.0
Selling expenses 114.57 118.6
Adminstrative expenses 69.12 57.4
Expenses capitalised -
Cost of sales 1,904.66 1,970.9
Operating profit 107.34 121.1
Other recurring income 0.04 20.8
62
Adjusted PBDIT 107.38 141.9
Financial expenses 55.93 89.7
Depreciation 42.87 44.9
Other write offs - 3.3
Adjusted PBT 8.58 3.9
Tax charges 47.13 -10.8
Adjusted PAT -38.55 14.8
Non recurring items 17.56 -21.2
Other non cash adjustments 32.86
Reported net profit 11.87 -6.4
Earnigs before appropriation -133.59 -145.4
Equity dividend -
Preference dividend -
Dividend tax -
Retained earnings -133.59 -145.4
PROFIT AND LOSS ACCOUNT

BALANCE SHEET AS ON…..


1ST OCT 2016- 30th SEPT 2017 1st OCT 2017 – 30TH SEPT 2018
Equity share capital 90.71 83.69
Share application money - -
Preference share capital - -
Reserves & surplus 645.49 563.38
Secured loans 422.63 414.04
Unsecured loans 14.44 31.10
Total 1,173.27 1,092.21
Gross block 1,415.93 1,436.96
63
Less : revaluation reserve 466.46 471.90
Less : accumulated depreciation 593.41 583.24
Net block 356.06 381.82
Capital work-in-progress 14.43 13.40
Investments 425.79 425.13
Current assets, loans & advances 1,131.98 1,325.61
Less : current liabilities & provisions 776.14 1,069.68
Total net current assets 355.84 255.93
Miscellaneous expenses not written 11.00 15.93
Total 1,163.12 1,092.21
Book value of unquoted investments 494.53 493.87
Market value of quoted investments 1.98 3.31
Contingent liabilities 168.40 318.74
Number of equity sharesoutstanding
907.09 836.94
(Lacs)

CASH FLOW STATEMENT

PARTICULAR MARCH MARCH


(2016) (2017)
CASH FLOW FROM OPERATING ACTIVITIES
N.P BEFORE TAX 26.14 -17.33
64
Adjustment for:
provision for doubtful debts , obsolescence inventory & 16.36 1.89
advances
Gain on sale of long term investment -1.22
Gain on sale of asset -4.8 -0.13
Depreciation 42.87 44..97
Assets w/off 11.64 8.08
Interest expense 62.2 72.22
Dividend income 0.04 -0.02
Interest income 12.93 -20.82
Operating profit before change in w.capital 141.52 87.64
Adjustment for:
Trade & receivable -65.36 -168.61
Money in escrow account 20.09
Inventory -43.68 13.79
Trade payable 58.02 67.05
Misc.expenditure -3.21 -7.5
Op.profit after change in w.capital -34.14 -95.27
Cash generated from operating activities 107.38 -7.63
Less-Direct taxes/refunds -6.25 -17.85
NET CASH FLOW FROM OPERATING ACTIVITIES 101.13 -25.48
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets -7.5 0.86
Proceeds from sale of fixed. Assets 14.26 -30.95
Loss on sale of investment -30.64
Movement in loan & advances -3.9 -16.27
Sale of investment -0.66 32.33
Short term deposits with schedule banks 8.58 -2.31
Interest received 3.21 20.7
Dividend received -0.04 0.02
NET CASH FLOW FROM INVESTING ACTIVITIES 16.69 4.38
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from share capital & securities premium 40.32 114.44
Proceeds/repayment from long- term borrowings 234.09 80.6
Less:repayment of long term borrowing -41.68 -0.54
Proceed/repayment from short-term borrowing -46.83 -146.82
Interest paid -66.27 -77.4
NET CASH USED IN FINANCING ACTIVITIES -114.46 -23.72
Net increase / decrease in cash & cash equivalents (30.03 -44.82
OPENING CASH BALANCE 60.83 105.65
CLOSING CASH BALANCE 30.8 60.83

65