CONTENT

1. CHAPTER-I

INTRODUCTION

NEED OF STUDY

OBJECTIVES

METHODOLOGY

LIMITATIONS

2. CHAPTER-II

PROFILE OF STEEL INDUSTRY

3. CHAPTER-III

PROFILE OF “G S ALLOY CASTINGS LTD”

4. CHAPTER-IV

THEORETICAL FRAMEWORK

OF “FUNDS FLOW ANALYSIS”

5. CHAPTER-V

DATA ANALYSIS

6. CHAPTER-VI

FINDINGS, SUGGESTIONS & BIBLOGRAPH

1
 CHAPTER-1
INTRODUCTION, NEED FOR STUDY,

OBJECTIVES

METHODOLOGY

LIMITATION

2
 INTRODUCATION

The funds flow statement is a statement, which shows the movement of funds and is a
report of the financial operations of the business undertaking. It indicates various
means by which funds were obtained during particular period and the ways in which
these funds were employed. In simple words, it is a statement of source and
applications of funds.

Financial management is that managerial activity which is concerned

with the planning and controlling of the firm’s financial resources. Financial
management involves the application of general management principles to particular
operation. Financial management is that part of management which is concerned
mainly with raising funds in the most economic and suitable manner. Financial
management implies the designing and implementation of certain plan. Plan aim at
effective utilization if funds. Financial management is important because it has an
impact on all activities of a firm. It’s primary responsibility is to discharge the finance
function.
Funds flow statement thus reveals the various sources from which funds
have been procured during a particular period and the various uses of such funds during
the same period.

3
 NEED FOR THE STUDY

In this rapidly changing, the role financial statements also have undergone
considerable changes. Funds constitute the prime importance in starting and operating
any business enterprise. The need for maintaining the financial chastity of business
operations, ensuring the reliability of recorded experience resulting from these
operations and conducting a frank appraisal of such experience has made accounting a
prime activity along with such other activities as marketing and production.

So, it has been the silent features of the evolution of accounting theory and
practice that the preparation of final accounts and statements is undertaken with the
object of providing as much as information as possible for public gaze. From this point
of view, it is important to know the uses and application of funds in any enterprise.

A study of funds flow analysis is major importance to internal and external

analysis because it reflects the position of the company in terms of finance. Excess or
inadequate working capital or funds can result in the loss of the company or reduce the
profits of the company. Which it could earn otherwise. Both excessive and inadequate
capital is dangerous from the firm's point of view.

Thus, it is just as important to know what funds became available during the
accounting period as it is to know what assets and liabilities exist and as well as what
profit has been made because the conduct of a business involves a flow of funds into
operating assets and then back to funds again.

4
 OBJECTIVES OF THE STUDY

 To know the changes in Working Capital during the last 2005 to 2010 years
in the company and the reason for the changes in Working Capital.

 To know the various sources from which the funds are raised and the
application of those funds in the company. To know the Financial and
Working Capital position of the company.

 To determine the financial consequences of business operations.

 To determine the exact financial position of the organization.

 To give necessary suggestions that can be made by making a thorough study

on the financing and flow of funds on G.S.ALLOY CASTING LIMITED.

5
 INTRODUCTION OF FINANCIAL MANAGEMENT

Finance is an important function in any business as money is required to various

activities. It has given birth to “financial management” as a separate subject. As a
separate subject, financial management is of recent origin and has not acquired a body
of knowledge of its own. It draws heavily on “economic” for its theoretical concepts. In
the early half of the last century, the job of financial management was largely confined
to the acquisition of funds. But as business firms continued to expend their markets and
they become larger and more diversified, greater control of financial operation become
highly important.

MEANING OF FINANCIAL MANAGEMENT:

Finance is considered as the life-blood of any business. It is defined as the

provision of money at the time it is needed. All the plans of a businessman would
remain mere dreams unless adequate money is available to convert them into reality.

Financial management is very important to every type of organisation.It refers

to that part of managerial activity concerned with the procurement and utilization of
funds for business purpose. In the words of Howard and Upton.

Financial management involves the application of general management

principles to financial operations.
Finance is considered as the lifeblood of any business. It is defined as “ the
provision of money at the time it is needed.”
In the words of Howard and Upton
“Financial management involves the application of the general management
principles to financial operations.”

Jo In the words of Ezra Solomon Prigle hn

“Financial management is concerned with the effective use of economic
resources namely capital funds”.

6
In the words of Joseph Massive,
“Financial Management is the operational activity of a business that is
responsible for obtaining the funds necessary for efficient operation”.
Thus financial management is concerned with:
 Estimation of the fixed and working capital requirements,
 Formulation of capital structure,
 Procurement of fixed and working capital , and
 Management of earnings.

NATURE OF FINANCIAL MANAGEMENT

Financial management is that managerial activity which is concerned with the

planning and controlling of the firm’s financial resources. It was branch of economics
till 1890, and as a separate discipline, it is of recent origin. Still it has no unique body
of knowledge of its own, and draws heavily on economics for its theoretical
concepts even today.

The subject of the financial management is of immense interest to both

academicians and practicing managers. Practicing m anagers are interested in
this subject because among the most crucial decisions of the firm are those
which relate to finance, and an understanding of the theory of financial
management provides them with conceptual and analytical insights to make those
decisions skillfully
Significance of financial management

Financial management occupies a significant place because it has an impact on

all the activities of a firm. Its primary responsibility is to discharge the finance function
successfully. No one can think of any business activity in isolation from its financial
implications. The management may accept or reject a business proposition on the basis
of financial variabilities. In other words, the live executives who are directly involved
in the decision-making process should give supreme importance for financial
consideration

7
 Objectives of financial management:

Financial management is concerned with the efficient use of capital funds. It

evaluates how funds are used and procured. In all cases, financial management involves
sound judgement, combined with a logical approach to decision – making.

There can be many financial objectives. Two of them are notable because of
wide support for them. These are:

1.Profit maximization, and

2.wealth maximization

Profit Maximization Approach:

Profit maximization means maximizing the rupee income of firms. As profit

earnings is the main aim of every economic activity. A business being economic
institutions must earn profit to cover its cost and provide funds for growth. Firms
produce goods and services. They may function in a market economy, or in a
government- controlled competitive market. Firms in the market economy are expected
to produce goods and services desired by society as efficiently as possible. Price
system is the most important organ of a market economy indicating what goods and
services society wants. Price system directs managerial efforts.

Wealth Maximization:

The objective of shareholder’s wealth maximization is an appropriate and

operationally feasible criterion to choose among the alternative financial actions.
It provides an unambiguous measure of what financial management should seek to
maximize in making investment and financing decision on behalf of owners.
Shareholders wealth maximization means maximizing the net present value of a
course of action to shareholders the net present value of a course of action is the
difference between the present value of its benefits and the present value of its
costs.

8
Wealth maximization is the appropriate objectives of an enterprise.

When the firm maximizes the stockholders wealth the individual stockholders
can use this wealth to maximize individual utility. It means that by maximizing
stockholders wealth the firms operating constantly towards the maximizing
stockholders utility.

Stockholders current wealth in the firms is the product of the product of the
number of shares owned multiplied with the current stock price per share.

Shareholders current wealth in a firm=no. Of shares owned* current stock price

per share.

FINANCE FUNCTIONS:

The functions themselves can be readily identified the functions of raising

funds investing them in assets and distributing returns earned from assets to share
holders are respectively known as financing investment and dividend decisions.
While performing these functions affirm attempts to balance cash in follows and out
flows. This is called Liquidity decisions. Financial functions are as follows

 Investment or long term assets mixed decision

 Financing or capital mix decision
 Dividend or profit also capital decision
 Liquidity or short term asset mix decision

INVESTMENT DECISION:
Investment decision or capital budgeting involves the decision of allocation of
capital or commitment of funds to long – term assets that would yield benefits sin the
future. The important aspects of the investments decision.
a) The evaluation of the prospective profitability of new investments.
b) The measurement of a cut off rate against that the prospective return of new
investment could be compared investment proposals should therefore be
evaluated in terms of the both exported return & risk involves decision of
recommitting funds when an asst becomes less productive or non –profitable.

9
 The correct cut-off rate is the required rate of return or the opportunity cost
of capital.

FINANCING DECISION:
In this when where and how to meet the firms investments needs. The debt &
equity mix is known as the firm’s capital structure the market value of share maximized
the capital structure considered as the optimum

DIVIDEND DICISION:
The firm distribution all the profits or retain the. Or distribute a portion and
retain- the balance the debt policy should be determined in terms of its impact on the
shareholders value. The pay out ration is equal to the percentage of dividends earnings
available to share holders.

LIQUIDITY DECISION:
In addition to the management of long –term assets. Current assets should be
managed efficiently for safe guarding the firm against the danger of liquidity and
insolvency. Investment in current assets affects the firm‘s profitability liquidity & risk.

ORGANISATION OF FINANCE FUNCTION

The responsibilities for financial management are spread throughout the
organization in the sense that financial management is, to an extent, an integral part of
the job of mangers involved in planning, allocation of resources and control. Financial
decisions are of crucial importance. It is, therefore, essential to set up an efficient
organization for the financial management functions.

10
 The job of the chief financial executive does not cover only routine aspects of
finance accounting. As a member of the top management, he is closely associated with
the formulation of polices as well as decision making, under him are controllers and
treasures, although they may be known by different designations in different firms. The
tasks of financial management and allied areas like accounting are distributed between
these two key financial officers. Their functions are described below

11
Financial decisions are of crucial importance. It is, therefore, essential to set up an
efficient organization for the financial management functions

MEHTODOLOGY

There are so many techniques to analyze the financial statements such as

comparative balance sheet, trend analysis, funds flow analysis, etc. the methods
selected for this study are funds flow analysis with the help of working capital.

The study of Funds Flow Analysis was conducted by using annual reports.

SOURCES OF DATA

The sources of data collected for this study could be broadly classified in to two
categories.

Primary data: This information has been collected through direct conversation with
the manager of finance department.

Secondary data: this data was collected from the help of the sources mentioned below.

1. The internal circulation copy of company's broachers.

2. The annual reports of the organization.
3. Other of the Journals, Internal

12
 SCOPE OF THE STUDY
What is finance? What are firm financial activities? How rare they related to the
firm’s other activities? Firms create manufactory capacities for production of goods.
Some provide services to customers. They sell their goods or services to earn profit.
They raise funds to acquire manufacturing and other facilities. Thus, the three most
important activities of business firm are:
 Production

 Marketing
 Finance

Finance Functions:
It may be difficult to separate the finance functions from production,
marketing and other functions, but the functions can be readily identified. The functions
of raising funds, investing them in assets and distributing returns earned from assets to
shareholders are respectively known as financing decision and dividend decision.
A firm attempted to balance cash inflows and out flows while performing these
functions. This is called liquidity decision and we may add it to the list of important
finance decision or function

13
LIMITATIONS OF THE STUDY

1. Being an academic effort this project cannot be generalized for any other
company
2. It reveals only a rearrangement of the data given in annual reports of the
company.
3. It is not an original statement. It is only a rearrangement of data given in
financial statement.
4. Funds flow statement is essentially historic in nature. A projected funds flow
statement, on the basis of it cannot be prepared with much accuracy. It does not
estimate the sources and application of funds of the near future.
5. It cannot reveal continuous changes.

14
 CHAPTER-2

PROFILE OF STEEL INDUSTRY

15
 INDUSTRY PROFILE

PROFILE OF STEEL INDUSTRY

The Steel Industry dates back to the ancient times in Armenia which is
approximately around three thousand and five hundred Before Christ. The Steel
Industry in the modern times was initiated during the medium half of nineteenth
century (during 1850s to be precise). The initiator of it was a person named Mr. Henry
Bessemer of England.

At the same time, another person named Mr. William Kelly, a resident of United
States, has also started the production of steel and was completely an independent
approach from Mr. Bessemer. The process in which the first ever production of steel
was carried out came to be known as Bessemer process. This helped the steel industries
to produce steel in large quantities and also at comparatively low costs.

The Steel Industry was enriched and modernized through the introduction of
Open-Hearth process of steel production which made the industries to produce steel out
of domestic iron ores. This process was first adopted by the steel industries situated in
United States Of America in the year 1888. This time saw rapid innovations in the
processes of steel production which got its impetus from the increased want for steel
from various industries namely, railway industry, automobile industry, industry
involved in construction of bridges, etc. During this time period, the enhanced demand
as well as supply of steel pushed the ranking of USA to the first position, in terms of
the steel production.

The utilization of the Open-Hearth system of steel production continued

approximately from the year 1910 to the year 1960. After this, a new process called
Basic Oxygen Process came into existence which produces steel in a more quick and
efficient manner.

The early 1960s a new process was incepted by the steel industry for the
production of steel known as the Process of Electric Arc Furnace. This process helps

16
these industries in production of stainless steels and also in recycling of scrap steel
items. With the passage of time, the quantity of production by USA has decreased with
relation to total world production of steel. After the 1980s, China came strongly enough
and became the largest producer of steel. India is also showing good performance in
this sector in the recent times.

The history of the modern steel industry began in the late 1850s, but since then
steel has been basic to the world’s industrial economy. The Indian steel industry began
expanding into Europe in the 21st century. In January 2007 India’s Tata steel made a
successful $11.3 billion offer to buy European steel maker Corus Group PLC. In 2006
Mittal Steel (based in London but with Indian management) acquired Arcelor for $38.3
billion to become the world’s biggest steel maker.

Steel Industry in India

India has traditionally been one of the major producers of steel in the world .Till
the 1990s the steel industry of India was regulated and controlled by government
policies. After the economic reforms of the early 1990s, the Indian steel industry has
evolved significantly to conform to global standards.

India has set a vision to be an economically developed nation by 2020. The steel
industry is expected to play a major role in India’s economic development in the
coming years. The steel industry of India has a very high growth potential and is
expected to register significant growth in the coming decades. India is expected to
emerge as a strong force in the global steel market in coming years.

The two major aspects that are expected to play a significant role in the growth of the
steel industry in India are

17
  Abundant availability of iron ore in the country
 The country has well established facilities for steel production

The major sectors where consumption of steel is expected to grow in the

coming years are

 Construction
 Housing
 Ground transportation

Hi-tech engineering industries such as power generation, petrochemicals, fertilizers

The current scenario of the Indian steel industry indicates that there is huge
growth potential in this industry. The per capita-consumption of steel in India,
according to latest available estimates, is only 29kg. This is much less compared to the
global average of 140kg. The per capita consumption level of developed nations like
the United States of America is 400kg. In this respect, one of the major initiatives that
need to be taken is to focus on increasing the consumption of steel in the rural areas of
India. The potential for the growth of consumption of steel in the rural areas of India
for purposes like rural housing, rural infrastructure, etc is high which needs to be
tapped efficiently.

In order to realize the growth potential in the steel industry of India, it is

essential to ensure that the industry can remain competitive. One of the major aspects in
this regard is the availability of inputs. Shortage of inputs like coke has led to increase
in costs earlier. Moreover proper infrastructure facilities like transport infrastructure,
power etc are of prime importance in maintaining the competitiveness of the industry.

Most developed countries have regulations that are aimed to protect the
domestic steel industry. The Indian steel industry has comparatively much lesser
protection through regulations. Proper regulatory measures should be adopted by the
government to protect the domestic steel industry.

Present Position

18
 The steel industry in the world, which was characterized as a sunset industry two
decades ago, is experiencing a vast change in scenario. The fast developing Chinese
steel industry has far outstripped the world steel giants. United States, Russia and
Japan, which were leading steel producers, are more in a position to claim that position.

China producing less than a million tons of steel prior to revolution in 1949 has
now become the largest steel producer in the world. During 2005 the global steel
production stood at 1132 million tones, showing a rise of 6 percent over the last year.
The countries in South America, CIS (former Soviet Union) Europe and North America
have actually shown negative growth. The Asian continent for the first time produced
more crude steel than the rest of the world combined. Major shift has taken place
because during 2005 with China producing 349 million tons of steel, accounting for 32
percent of the world steel production. During 2005, Chinese steel production increased
by 69 million tones i.e. by 25 percent. Chinese steel output was more than three times
that of Japan and four times of USA during 2005.

Per capita consumption of steel in the world was estimated to be 170 kg during
the year 2005. However in India it stood at only 35 kg during the same year. Indian
steel production was 38 million tones, which accounted for only 3.4 percent of the
world steel output. In view of the fact that Indian population is 16 percent of the global
population, the production of steel is much lower in India. Although India is the second
largest populated country in the world, it ranks eighth in steel production. Steel
Authority of India Ltd (SAIL) is ranking 17 th among the world’s largest steel producing
companies.

With staff competition in the global market, the formation of giant companies to
reduce cost and add to profitability has become the regular feature in the industry.
Merger and acquisitions have become the order of the day. The recent attempt of the
Mittal Steel to acquire Arcelor, a Luxemburg based European company, if succeeds,
will make Mittal Steel produce over 110 million tons of steel per year, i.e. about 10
percent of the global steel output.

19
Government Policy

In the new Industrial policy announced in July, 1991 Iron and Steel industry,
among others, was removed from the list of industries reserved for the public sector and
also exempted from the provisions of compulsory licensing under the Industries
(Development and Regulation ) Act, 1951.

With effect from 24.5.92, Iron and Steel industry has been included in the list of
‘high priority’ industries for automatic approval for foreign equity investment up to
51%. This limit has been recently increased to 100%.

Price and distribution of steel were deregulated from January 1992. At the same
time, it was ensured that priority continued to be accorded for meeting the requirements
of small scale industries, exporters of engineering goods and North Eastern Region of
the country, besides strategic sectors such as Defense and Railways.

The trade policy has been liberalized and import and export of iron and steel is
freely allowed. The only mechanism regulating the imports is the tariff mechanism.
Tariffs on various items of iron and steel have drastically come down since 1991-92
levels and the government is committed to bring them down to the international levels
Iron& Steel are freely importable as per the Extant Policy.

Iron and Steel are freely exportable. Advance Licensing Scheme allows duty
free import of raw materials for exports. The floor price for seconds and defective
continues till date.

Imports of seconds and defectives of steel are allowed only through three
designated ports of Mumbai, Calcutta and Chennai. Mandatory pre-inspection
certificate by a reputed international agency for every import consignment of seconds
and defectives. In the union Budget 2007-08 the import duty on seconds and defective
has been further reduced from 20% to 10%.

India is the fifth largest producer of steel in the world. India Steel Industry has
grown by leaps and bounds, especially in recent times with Indian firms buying steel

20
companies overseas. with huge demands for stainless steel in the construction of new
airports and metro rail projects.

Industry statistics

Government targets to increase the production capacity from 56 million tones

annually to 124 MT in the first phase which will come to an end by 2011 - 12.
Currently with a production of 56 million tonnes India accounts for over 7% of the total
steel produced globally, while it accounts to about 5% of global steel consumption. The
steel sector in India grew by 5.3% in May 2009. Globally India is the only country to
post a positive overall growth in the production of crude steel at 1.01% for the period of
January - March in 2009.

Export
About 50% of the steel produced in India is exported. India's export of steel
during April - December 2008 was 64.4 MT as against 9.7 MT in December 2007. In
February 2009, steel export increased by 17% to 12.6 MT from 10.8 MT in the same
month last year. More than 50% of steel from India is exported to China.

Hurdles

Power shortage hampers the production of steel Use of outdated process for
production Lags behind in the production of stainless steel Deficiency of raw materials
required by the industry Labour productivity is low. It is 144 tons per worker per year
against 600 tons in Western Europe as per estimates inadequate shipment capacity and
transport structure

Strengths

There are many strong points of the industry that makes it one of the leading
names in the global steel industry. The rate of labor wage in India is among one of the
lowest in the world thereby making large scale production feasible.

Investments

21
 Numerous steel companies some major projects in the pipeline to invest in India
Steel industry. Steel companies have earmarked more than 100 million USD for the
setting up of sponge iron units in Koppel and Bellary in Karnataka.

CHAPTER-3

PROFILE OF G.S ALLOY CASTINGS LIMITED

22
 COMPANY PROFILE

GSAC is started by Mr. G. Prasad Rao, a technocrat with 35 years experience in

foundry industry. The top management consists of people with rich, long experience
from renowned foundries like L&T and KCP. The 250 strong dedicated work forces is
the back-bone of this company. G.S. Alloy Castings Ltd. Company is started in 1987
with initial capacity of 1800 Mt/annum and later grown into one of the biggest
foundries in South India with capacity of 4800mt/annum. One more branch with higher
tonnage capacity at Surampalli village.

G.S. Alloy Castings (GSAC) company is situated on the outskirts of

Vijayawada. They are aiming to run production capacity 12000 MT per annum by
producing cast steel. Ni-hard, and high Chrome & A Cast Iron castings. They
established Unit-1 at Payakapuram, Vijayawada-15, A.P jobbing foundry in 1989 with
an average production capacity of 1800 per annum and expanded in 1997 to 3000 MT
per annum 7 continuing with full-fledged production capacity of 5000 MT per annum.

Now they are already started out Unit-11 with all required equipment with a
Dual Track Introduction Melting Capacity of 25 tones to pour single piece 25000 kg.
They are having a competent technical team headed by Technocrat with 25 + years
experience in various aspects of foundry with well established QMS & got ISO
9000:2000 certification by LRQA-UKAS for Unit-1 and aiming to get ISO 9001:2000
for Unit-11 also at the earliest. The facilities for making 6500kg. Single piece at unit-1
& 25000 kg. Single pieces at unit-11.

The company having full-fledged machining facilities at unit-1. They can

supply Rough/Proof Machined/Fully Finished Castings up to the customer requirement
as per national & international standards. They can make & supply castings required for
cement, crushing, mining, power generation and valve, sponge iron, General

23
Engineering, Rubber processing and steel plants. They have well equipped testing labs
for chemical, technical & NDT Testing with experienced Technical Personnel.

The Quality Policy

GSAC’S Commitment is for manufacture and supply of critical steel and Alloy
Steel Casting to meet Quality requirements of its customers and their schedule
adherence at a competitive price.

GSAC has acquired skills in producing castings ranging from few kgs to 6000kgs
single piece in.
 Plain Carbon Steel
 Alloy Steels
 Heat Resistant Steels
 Wear Resistant Steels
 Stainless Steel

Objectives
 Every year increased by 10% production
 Rejection of goods in a month only 5%
 Less price and goods quality products
 To give more priority to customers

Vision
 To achieve the 1000 tons per month
 Increase the productivity level

Mission
 1000 tons per month.

24
 Row unit 1-1-400 tones acquiring they established a unit-11 and they
want to do 600 tones in that unit.
 Reasonable price given to the customers.

25
Achievements
 Major Customers
 MNC’s- Taking orders from MNC’s
 In the year of 2004-05 crossed 25 Crores turn over
 4500 tons per year

Future Plans
 In the year of 2010-2011-100 crores turn over.
 To increase the turnover of 1000 tons per month.
 Unit-1-400 tones, Unit-11- 600 tones.
 To do the turnover of unit-11-600 tones.
 Now there are 70 customers and fluctuating by 70-100 customers.

Strength
 Single proprietor
 Reasonable price
 Large term customers
 25% experience
 75% future running
 Less price, good quality (60 RS-kg)
 Automatic, Semiautomatic (100 RS-kg)

Weakness
 Delivery of goods
 No design the products only castings
 No computer basis
 Handmade process

Opportunity
 Deciding the goods to Industrial, Engineering, Mining
 No of MNC’s give the orders to GSA

26
Threats
 GSAC Is India’s 5th place
 Making of complicated shapes
 Boeyinted by heavy castings making
 Less capacity, critical shapes

Products
o Cast Steel
o Alloy Steel
o Manganese Steel
o Heat Resistance Steel
o Stainless Steel
o Hi-hard and cast iron castings

Customers
 GSAC thanks its satisfied customers for the long and fruitful association
 BHEL HYDERABAD& VARANASI
 LARSEN MACHINES LIMITED
 HARI MACHINES LIMITED
 VISAKAPATNAM STEEL PLANT
 SANDVIK ASIA LIMITED
 PUZZOLANA MACHINARY FABRICATORS
 BHILAL STEEL PLANT
 ROUREKELA STEEL PLANT
 AUDCO INDIA LIMITED
 APHMEL

Quality Assurance
 ISO 9001-2000

27
  110 years old agency
 110 yd’s register Quality Assurance
 UKAS Quality Management

MANUFACTURING FACILITIES

Pattern Shop

Develop Ancillary pattern shops in Vijayawada. In-House pattern repair shop.

Meeting Shop

5mt, 2.5mt, 1.0mt, 0.5mt capacity medium frequency induction furnaces

immersion pyrometer for temp measurement. L&T- Spout Ladies of different capacities
weighing scales.

Moulding Shop

 Head moulding
 CO2 Sand process
 750kg, 500kg, 850kg sand mixtures

Cores Shop

 CO2 No-bake process

 200kg, 100kg, sand mixtures

Festing Shop

 Swing frame, hand and pencil grinders

 Shot blasting machine 2mt capacity
 Pneumatic chippers
 ARC gouging machines
 Welding Machines

Heat Treatment Shop

28
  10T Capacity 4m *3.5*1.8m size Electric Furnace with recorder
 4T Capacity 2.5m*2.0m*1.2m size Electric Furnace with recorder
 2T Capacity 1.5m*1.0m*0.9m size Electric Furnace with recorder
 4m*2m*3m water quenching tank

Utilities

3 Air compressors of 250 cpm each

3 Diesel Power Generators of 120 KVA, 185 KVA, 360 KVA, capacity

NDT

Ultrasonic Machine EEC Make

MPT Machine Magna Field Make
DTP Equipment
Tie-up with M/s IRICO\ Chennai for Radiography testing.

QC Lab

UNISPEC-16 Element testing Spectrometer

Sample Cutting & polishing Machines
40T Capacity Universal Testing Machine
3-3000(M) Brinnel hardness Testing Machine
Impact Testing Machine
Lab for wet analysis of elements
Sand testing-Sieve analysis
Metallurgical Microscope

Measuring
2m Die surface table

Equipment

Height Gauge
Outside Inside Calipers

29
 Machine Shop

1. VTL- 1 Mt -1No Baring machine-100 mm-1 No

2. VTL-102mt-1No Radial Drilling Machine-(2”)-1 No
3. VTL-1.2Mt-1 No Plano Miller-5 mts-1 No
4. Ferrous material is used in production of steel
5. GSAC is taking orders direct from customers and delivery on orders
6. They have direct distribution
7. GSAC provides capital goods and sales connect is main implemented
8. GSAC has handmade capital goods, there is no machine
9. Giving the major priority to the customers
10. GSAC give the suggestions requirements to the customers to improve the
efficiency of their materials

Table – 3.1

STATEMENT OF WORKING EMPLOYEES IN THE

ORGANISATION

WORKERS SALARY NO.OF.PEOPLE

SKILLED 4000 30-40
SEMI SKILLED 3000 120
UN SKILLED 2500 100
STAFF 6000 15
CONTRACT CASOUR 200(2,00,000P.M)

30
 Table – 3.2

STATEMENT OF MELTING FACILITIES

TYPE FURNISHED DETAILS

SAND RECLAMATION SYSTEM CAPACITY:6.0MT/HOUR
CONTINOUS SCREW MIXER:2-PART CAPACITY:5.0MT/HOUR

QTY:2Nos
SAND MULLERS CAPACITY: 500 kg.

QTY:2Nos

Table – 3.3

STATEMENTS OF MATERIAL HANDLING FACILITIES-CRANES

RANK CRANES,HYDERABAD 1. 50 T – 01No

E.O.T 2. 30 T – 01No

3. 20 T – 01No

4. 15 T – 03Nos

Table – 3.4

STATEMENT OF POURING –FACILITIES

20 T BOTTOM POURING LADDLES 01 N0.

15 T BOTTOM POURING LADDLES 02 No.
12 T BOTTOM POURING LADDLES 01 No.

Table – 3.5

31
STATEMENT OF HEATS – TREATMENT FACILITIES

HTF-01 (Oil Fired with Recorder) 1. Capacity: 32T

Qty = 01No. 2. Size: 5500WX 7500 DX 3000 H

(BOGIE HEART, BATCH TYPE AUTO CYCLE 3. Used for: Normalizing, Tempering
CONTROL & DIRECT FIRING TYPE)
4. Temperature Range: 0-1150 C

5. Type: Oil Fired

*HTF-02 1. Capacity: 20T

(Oil Fired with Recorder) 2. Size: 3500WX 4000 DX 2000 H

Qty. = 01No. 3. Used for: Normalizing, Tempering

& Water Quenching
(BOGIE HEART, BATCH TYPE AUTO CYCLE
CONTROL & DIRECT FIRING TYPE) 4. Temperature Range: 0-1150 C

5. Type: Oil Fired

Water Quenching Tank 1. Capacity: 45000Lt/10000 Gallons

2. Size: 4000mm * 4500mm *

2500mm

Table – 3.6
STATEMENTS OF QUALITY CONTROL FACILITIES
TYPE DETAILS

32
Spectrograph SPECTRO:MAX * M-DESKTOP

Capabilities/Number of Channels/Trace Model: Optical Emission

elements Analysis capability with
Spectrometer with Nitrogen Analysis
elements name

Trace elements:15(C, Si, Mn, P, S, Cr, Ni, Mo, Al, Cu,

Chemical Lab- Web Analysis
UTM/Tens meter for Tensile
Metallographic- Microscope
Polishing Equipment
Nb, Ti, V, Sn, & Fe)
CARBON & SULPHUR APPARATUS Make: KSM
Laboratories, Chennai, all elements carrying out
chemical analysis at our Lab.
Name: UNIVERSALTESTING MACHINE
Make: Crystal Tech Engineers, Kolhapur.
Capacity:60 T
Name: METALLURGICAL MICROSCOPE
Make: Scientific Technologies.
Mode: EPIMET-2 (Inverted Model)
Name: SPECTRO SAMPLE POLISHING DISC

Make: UNIMAT.

Mode: ALUMDUM G-14 (SDP)

Impact Testing Machine
Hardness Testing Machine
ULTROSONIC Equipment
Name: IMPACT TESTING
Make: FIE
* Available at Unit-1
Name: DIGITAL HARDNESS TESTER
Name: DIGITAL ULTROSONIC EQUIPMENT

Figure – 3.6

ORGANISATION STRUCTURE

MD
↓
EXECUTIVE DIRECTOR

33
 ↓
PERSONAL ADMINISTRATION
↓
PURCHASING STORES
↓
ACCOUNTS
↓
SALES EXECUTIVE
↓
QUALITY CONTROL & ASSURANCE
↓
PRODUCTION
↓
MACHINE SHOP
↓
DESPATCH
↓
TECHNICAL METHODING
↓
PETTESON SHOP
↓
MARKETING

The Indian Metal casting (Foundry Industry) is well established. According to the
recent World Census of Castings by Modern Castings, USA India produces an
estimated 6 Million MT of various grades of Castings as per International standards.

The various types of castings which are produced are ferrous, non ferrous,
Aluminum Alloy, graded cast iron, ductile iron, Steel etc for application in
Automobiles, Railways, Pumps Compressors & Valves, Diesel Engines,

34
Cement/Electrical/Textile Machinery, Aero & Sanitary pipes & Fittings etc & Castings
for special applications.

There are approx 4500 units out of which 80% can be classified as Small Scale
units & 10% each as Medium & Large Scale units.Approx 500 units are having
International Quality Accreditation. The large foundries are modern & globally
competitive & are working at nearly full capacity. Most foundries use cupolas using
LAM Coke.

Exports

The Exports are showing Healthy trends approx 25-30% YOY as can be seen
from the charts below. The current exports for FY 2005-06 are approx USD 800
Million.

Employment

The industry directly employs about 5, 00,000 people & indirectly about 1,
50,000 people & is labour intensive. The small units are mainly dependant on manual
labor However, the medium & large units are semi/ largely mechanized & some of the
large units are world class

Important Clusters:-

There are several foundry clusters .Some of the major clusters are as below. Each
cluster is known for its type of products.

PRODUCT MIX

Grey iron is the major component of production followed by steel, ductile iron
& non ferrous as Shown below

PRODUCT MIX

35
 The Indian Foundry Industry is trying to focus on higher value added castings to
be at the competition.

INVESTMENTS

India would need approx. $ 3 Billion in investment to meet the demand of

growing domestic industry and strong export drive.

Following the economic reforms the Govt. of India has reduced tariffs on
imported capital goods as a result the annual average amount of FDI is reported to have
increased but is still one tenth of the annual FDI in China. The reforms also encourage
the privatization of industry enabling foreign companies to invest or enter into joint
ventures with Indian Foundries. FDI projects are permitted an automatic approval
process. Several International corporate from USA, EU and East Asian Countries have
increased overseas foundry operations in India. i.e. VOLVO foundries in Chennai and
Suzuki in Haryana. Sundaram Clayton has joined hands with Cummins. Hyundai
Motors, Delphi. Ford India, Tata-Cummins, GM and Ford have contracts of foundry
products for export with a value of $ 40 Million.

RAW MATERIAL & ENERGY

Since 2006 the steep increase in cost of raw materials and energy have resulted
in the closure of approx. 500 units, Overall India is exporter of Pig Iron but must
import Scrap metals and Coke etc. Cost recovery for material and energy is very
difficult as most contracts are long term contracts without any clause for price
adjustment. India has to import coke & scrap. Moulding sand is locally available &
India has an advantage on this account .Energy cost typically vary between 12-15%

LABOUR

India has major competitive advantage over the foundry industries in the
developed countries. The total labour cost account for 12-15%

TECHNOLOGY

36
 Govt. of India (GOI) has encouraged technology transfer through JV with
foreign Companies and GOI has cooperated with UNIDO with many foundry clusters.
Indian foundry industry has an edge over China for producing complex machined and
precision castings as per international quality standards. The GOI also helps upgrade
foundry clusters. The clusters in Belgium, Coimbatore and Howrah are undergoing
modernization under the industrial infrastructure up gradation scheme. More of such
clusters are likely to follow

The Institute of Indian Foundry man has plans to strengthen and develop
various foundry clusters.

AN OVERVIEW OF THE FOUNDRY CLUSTERS IN INDIA

There are more than 5,000 foundry units in India, having an installed capacity
of approximately 7.5 million tons per annum. The majority (nearly 95%) of the foundry
units in India falls under the category of small-scale industry.

The foundry industry is an important employment provider and provides direct

employment to about half a million people.

A peculiarity of the foundry industry in India is its geographical clustering.

Some of the major foundry clusters in the country are shown in the map.

Typically, each foundry cluster is known for catering to some specific end-use
markets. For example, the Coimbatore cluster is famous for pump-sets castings, the
Kolhapur and the Belgium clusters for automotive castings and the Rajkot cluster for
diesel engine castings.

FOUNDRY CLUSTER: BELGIUM

About 100 foundry units at Belgium. The geographical spread of the cluster
includes primarily catering to the needs of the automobile industry at Pune.

37
 Belgium is recognized to be a reliable source of high precision, high volume
and economical castings. A significant percentage (almost 20%) of the foundry units at
Belgaum has ISO 9000 certification and export casting.

INDIA SHARPENS ITS FOCUS ON FOUNDRIES

While Rajendra Singh was working on his doctoral degree in physics in Canada
during the late 1970s, he dreamed of one day returning to his native India to
manufacture sola Photovoltaic cells cheap enough to be installed on every rooftop in
the country. But over the next few decades, as the focus of his career in U.S. academia
shifted increasingly to semiconductor manufacturing, his homecoming plan slowly
evolved.

Today, instead of manufacturing solar cells, his goal is to build India’s first
modern 12-inch semiconductor fabrication plant to provide foundry services to
multinational chip customers and the country’s burgeoning chip design industry

“We want to leave a legacy—we want to be the creator of an industry that is not
yet here,” says Singh, who currently splits his time between his duties as an electrical
engineering professor at Clemson University and chairman of India Electronics
Manufacturing Corp. (IEMC). IEMC is one of several groups attempting to set up chip
foundries in India (see “Move Over, China,” March 2006). Headed mostly by expatriate
Indians who have worked in the U.S. technology industry, they hope to eventually
replicate the success of Taiwan’s $35 billion semiconductor industry. Taiwanese
industry veterans brought the expertise they gained from overseas back to their home
country about 20 years ago and started a semiconductor industry there. The jury is still
out on the prospects for India’s returning chip entrepreneurs. But it’s clear that their
success will depend, at least in the early stages, largely on imported engineering talent
and capital as well as substantial government incentives.

Joanne I tow, an analyst with Semico Research, says government support in the
form of financial incentives and infrastructure improvements is imperative. But equally
important, she says, is developing a “unique story” to attract investors and customers.
The country’s booming economy and electronics market; large, skilled workforce; and
relatively strong intellectual property protections offer some of the necessary

38
ingredients. Another enticement, says Gartner Dataquest foundry analyst Jim Hines, is
proximity to India’s fast-growing chip design industry, which now boasts more than
100 companies, including subsidiaries of many of the world’s top chip makers, says
Hines, “When you compare India with China, that’s a clear difference.”

GOVERNMENT INCENTIVES

Government support for India’s technology industry has strengthened

dramatically since the 2004 election of Prime Minister Man Mohan Singh, an Oxford-
trained economist and former central banker who has welcomed foreign investment and
helped liberalize the economy. Recently, the government identified the semiconductor
industry as a particularly high priority.

Finance minister P. Chidambaram declared during his annual budget speech to

parliament in February that “the time is ripe to make India a preferred destination for
the manufacture of semiconductors.” His 2006 budget calls for a three-year program to
encourage chip makers to set up factories in India. A detailed national semiconductor
policy is still being drafted, but the incentives for qualifying projects are expected to
include tax breaks, loans and the option of equity investments through India
Infrastructure Finance Co. India will need to spend heavily to compete with other
countries’ incentives. China, Ireland, Israel and Malaysia, for instance, reportedly offer
much higher tax breaks to semiconductor makers than India currently does. And their
largesse goes far beyond tax relief. Israel recently provided a $540 million grant to
persuade Intel to build a $3.5 billion fab there.

Nonetheless, industry officials expect India to soon be much more competitive.

Vinod Agarwal, chairman of SemIndia, which is planning a $3 billion fab in India, says
he expects the new government policy to “level the playing field” with other countries.
Deven Verma, chairman of Hindustan Semiconductor Manufacturing Co. (HSMC),
which is planning its own $3.5 billion fab, expects India’s incentives to reach nearly the
level of Israel’s. “It could easily be half a billion dollars if you’re doing a big fab,” he
says.

At least some of those incentives are likely to come from India’s state
governments. Andhra Pradesh, Karnataka, Tamil Nadu and Uttar Pradesh, among

39
others, have been competing fiercely to attract the proposed chip projects, which could
create thousands of jobs and other economic benefits.

Some of the project organizers are still weighing offers from various locations,
but SemIndia recently signed a memorandum of understanding to locate in a “fab
city” technology park outside Hyderabad, in the southern state of Andhra Pradesh.
Quality-of-life considerations and easy access to the new Rajiv Gandhi International
Airport, scheduled to open in 2008, contributed to the company’s decision. But
SemIndia’s Agarwal says financial incentives also were an important factor. He says his
company’s incentives package includes 1,200 acres, tax breaks and upgraded roads as
well as attractive rates for communications, water, power and waste-treatment services.

DIFFERENT STRATEGIES

All the proposed Indian fab projects thus far plan to operate as foundries,
providing manufacturing services for other companies’ chip designs. But a key
difference between the projects is their size and scope. Several groups are planning
smaller, less costly 8-inch fabs, and others are proposing leading-edge 12-inch fabs.
There are merits to both strategies, but some expect the Indian government’s
forthcoming policy to support only the larger projects.

Varma says he expects “any foundries coming up in the next three years” to
qualify for incentives. But IEMC’s Singh says government support will be limited to
just 12-inch fabs. “They’re not going to put any money into the older fabs,” he insists.
Government official saren’t tipping their hand yet, but a recent Indian press report
quoted an unnamed senior government official as saying that prospective fab
developers will have to invest at least $1 billion in India to qualify for government
loans and equity investments. If true, that could hurt some of the smaller projects’
chances.

Three of the five groups are planning 8-inch fabs, at least for their initial stages.
Nano-Tech Silicon India broke ground outside Hyderabad in June 2005 on what was to
be a $600 million 8-inch fab. But recent visitors to the site say that no construction
appears to be under way. And despite sporadic Indian press reports about possible tie-
ups between Nano-Tech and IBM (and more recently Intel), there have been no recent

40
statements from the project’s organizer, Korean businessman Pyung June Min, to
clarify whether his company’s technology and investment partners are still in place.

Another 8-inch fab was proposed last year by India’s Nest Group, a diversified
electronics conglomerate that announced plans to build a $1 billion memory foundry in
India’s Kerala state, with backing from Japanese partners. The company has said little
about the project since then, however, and did not reply to inquiries from electronic
business. Company officials have said they plan to open a chip design center this year
and a chip test and assembly plant in 2007.

HSMC plans to start by relocating an existing 8-inch production line to India.

The company’s $500 million first phase calls for taking over a 180- to 130-micron
manufacturing process, and all the necessary fab equipment, from an as-yet-unnamed
U.S. chip maker seeking to outsource some of its production. Verma says his group will
continue producing chips for the seller after moving the operation to India. It also plans
to use the 8-inch fab for technology development and engineer training while building a
second, $3 billion 12-inch fab.

Even Seminude, which aims to ultimately build a $3 billion 12-inch fab, plans
to get its feet wet in India first with a chip assembly and test operation. Agarwal calls
the assembly and test facility, scheduled to start construction this year, “the first logical
step in our vision to make India a semiconductor manufacturing destination.” Semico’s
Itow says that beginning with test and assembly is “not such a bad idea.” She says it
may help a company establish trusted business relationships before getting into the
actual foundry business.

IEMC, however, plans to start immediately with a 12-inch fab and technology
for making 90-nanometer circuits. It’s likely to cost at least $3 billion, although the
precise details including location, investors and technology partners are still being
negotiated. Singh is adamant that state-of-the-art fabs and process technology will be
needed to create a viable Indian chip manufacturing industry. “We cannot compete
with older-generation technology,” he says, adding that many of the 8-inch foundries in
China, Israel, Malaysia and Singapore are struggling to make a profit

41
 Chris Düsseldorf, an analyst with research firm Strategic Marketing Associates,
agrees that the economics of 12-inch fibs can be more attractive, although the fabs cost
more. “The 12-inch fabs are much more efficient,” he says. Besides lower per-chip
production costs, they typically offer significant water and electricity savings.

The good news for India’s would-be chip makers says Gartner analyst Hines, is
that the foundry business is outgrowing the rest of the chip industry and there probably
is still room for additional players.

He notes, however, that whatever strategy they adopt, neither they, nor the
Indian government, should expect quick success. “Look at Japan, Korea and
Taiwan,” Hines says. “It took them years of work and government support and
investment to create their semiconductor manufacturing industries. It needs to be a
long-term commitment.

42
 CHAPTER-4
THEORETICAL FRAMEWORK OF FUNDSFLOW ANALYSIS

43
 THEORETICAL FRAMEWORK

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm. It is done by establishing relationships between the items of
financial statements viz., Balance sheet and Profit and Loss account. Financial analysis
can be undertaken by management of the firm or by parties outside the firm, viz.,
owners, creditors, investors and others.

Analysis of financial statement refers to the art of applying various tools to

know the behavior of the accounting information. It is the process of evaluating the
relationship between component parts of a financial statement to obtain a better
understanding of a firm’s position and performance.

According to the dictionary meaning the term “Funds” implies an accumulation

or deposit of resources from which supplies are or may be drawn a more or less
permanent store or supply. It is also defined available pecuniary resources but these two
meanings are broad in nature and apt to macro level planning and control. A number if
definitions of the term ‘fund’ have been given.

Some people call ‘fund’ as ‘cash’. But it is seen in practice that the currents
assets are constantly circulating through cash account in business operations and many
transactions affect flow of cash at least later or sooner. For example, the sale of goods
on credit increases in accounts payable rather than resulting in an immediate cash flow.

Similarly, certain expenses may result in a current liability since they might not
have been paid immediately. In other words, it may be said that any current assets and
or current liability has its impact on working capital (as working capital is the
difference of current assets and current liabilities) rather than cash. Therefore there is
another view about meaning of ‘fund’ that it means ‘working capital’.

“Financial statement analysis is largely a study of relationship among various

financial factors in a business as disclosed by a single set of statements and a study of
the trends of these factors as shown in a series of statements.”

44
RULE

The flow of funds occurs when a transaction changes on one hand a non-
current account and on the other a current account and on the other a current account
and vice – versa.

When a change in non-account e.g., fixed assets, long-term liabilities, reserves

and surplus, fictitious assets etc., is followed by change in another non-current account,
it dues no amount flow of funds.

TYPES OF ANALYSIS

Two types of analysis are undertaken to interpret the position of an enterprise. They
are

1. Vertical analysis
2. Horizontal analysis.

The companies act, 1956 permits the companies to present the financial statements in
vertical as well as horizontal form.

VERTICAL ANALYSIS

It is the analysis of relationship as between different individual components. It

is also the analysis between these components and their totals for a different component
for a given point of time. It does not focus light on changing behavior of the above
relationships. It is also regarded as static analysis. Comparison of current assets to
current liabilities or comparisons of debt to equity for one point of time are the
examples of vertical analysis.

45
Thus, the vertical analysis can be made in the following ways.

i. By preparation of common size statement of the two similar units

ii. By preparing common size statement of different years of the same business
unit.

HORIZONTAL ANALYSIS

It is the analysis of change s in deferent components of the financial statement

over deferent period with the help of a series of statement. such an analysis makes it
possible to study periodic fluctuations indifferent components of the financial statement
study of trends in debt or share capital or their relationship over the past ten year period
or study of profitability trends for a period of 5(or)10 years . Horizontal analysis is also
known as dynamic analysis

i. Comparison of the financial statement of deferent years of the same business

units
ii. Comparison of financial statement of a particular year of different business
units

METHODS OF ANALYSIS

A financial analyst can adopt the following tool for analysis of the financial
statements these are also termed as methods of financial analysis.

1. Competitive statement analysis

2. Common size statement analysis
3. Trend analysis
4. Funds flow analysis
5. Ratio analysis

46
 FUNDS FLOW ANALYSIS

In any business we cannot under estimate the flow of funds from two
operations. The business runs with funds but the organization knows how to flow of
funds. The Funds Flow Statement is concerned with sources and applications of
organization. Statement of changes in working capital shows the increase or decrease in
the working capital.” Funds from Operations” statement shows how much funds from
operations.

Significant technique of financial analysis is ‘FUNDS FLOW ANALYSIS’. It

is designed to highlight changes in the financial condition of a business concern
between two points of time which generally conform to beginning and ending financial
statement dates.

Although financial statements supply useful information to the management and

describe the nature of changes in ownership as a result of the periods productive and
commercial activities, these statements fail mirror the funds changes that have taken
place over a given time span. They do not spell out the movement of funds.

It is more important to describe the sources from which additional funds were
derived and the uses to which these funds were put, because the ultimate success of a
business enterprise depends on where got and where gone situations. The Funds Flow
Statement is, therefore, prepared to uncover the information which the financial
statements fail to describe clearly.

Thus, Funds Flow Statement is a report which summarizes the events taking
between the two accounting periods. It spells out the sources from which funds were
derived and the uses to which these funds were put. This statement is essentially
derived from an analysis of which these have occurred in assets and liabilities items
between two balance sheet dates. In this statement, only the net changes are shown so
that the outcome of a transaction upon the financial condition of a business enterprise
reflected more sharply.

47
 MEANING OF FUNDS FLOW STATEMENT

The funds flow statement is “a report on the movement of funds or working

capital “. It explains how working capital is raised and used during an accounting
period.

MEANING OF FUND

The term fund has been defined in a number of ways. In narrow sense it means
cash only. A fund statement prepared on cash basis is called a cash flow statement. In a
broad sense the term funds refers to all financial resources. However the concept of
funds as a working capital is the most popular and widely accepted. Working capital is
the excess of current assets over current liabilities.

MEANING OF FLOW OF FUND

The term flow means change. Thus flow of fund means change in fund or
change in working capital flow of fund is said to have taken place when a business
transactions makes a change in the amount of fund which existed just before the
happening of the transaction. The flow of fund refers to transfer of economic value
from one asset to another, from one equity to another, from one asset to equity or vice
versa or a combination of any these. Funds flow statements essentially study the
movement s to and from working capital area.

1. The inflow into working capital for the whole year as a consequence of rising of
capital, raising of loans, sales of fixed assets, sales of investments and
operational inflow due to profits. Funds from operations have to be adjusted.
Depreciation on fixed assets loss on sales of fixed assets, provisions and
reserves are added and gain on sales of fixed assets is to be deducted.
2. out flow from working capital as a consequence of purchasing of fixed Assets,
payment of dividends, payment of taxes payment of preference Capital and long
term debts, payment of debenture etc.

48
REVIEW OF LITERATURE

“A statement of sources and applications of funds is a technical device designed

to analyze the changes in the financial condition of a business between two dates “

- R.A.FOULK

“The fund flow statement describes the sources from which additional funds
were derived and the uses to which these funds were put”

- R.N.ANTONY

“It is a statement which highlights the underlining financial movements and

explains the changes of working capital from one point of time to another.”

- BIERMA

IMPORTANCE

Fund flow statement is to indicate where funds came from and where it was
used during the certain period.

1. Funds flow statement determines the financial consequence business operations.

It shows s how the funds were obtained and used in the past. Financial
manager can take corrective actions.
2. The management can formulate its financial policies – dividend, reserve etc. On
the basis of the statement.
3. It services as a control device when comparing with budgeted figures. The
Financial manager can take remedial steps, if there is any deviation.
4. It points out the sound and weak financial position of the enterprise.
5. It points out of the causes for changes in working capital.
6. It enables the bankers, creditors of financial institutions in assessing the Degree
of risk involved in granting credit to the businesses.

49
SIGNIFICANCE
1. Useful in Decision Making to the Management:

With the help of the funds flow statement, the analyst can evaluate the financing
pattern of the enterprise. An analysis of the major sources of funds in the past reveals
what portion of the growth was financed internally and what portion externally. The
statement is also meaningful in judging whether the company has grown at too fast rate,
credit has increased out of proportion to expansion in current assets and sales. If trade
credit has increased at relatively higher rate, one would wish to evaluate the
consequences of slowness in trade payments on the credit standing of the company and
its ability to finance in future.

The funds flow statement serves as handmaid to the fiancé manager in deciding
the make-up of capitalization. Estimated uses of funds for new fixed assets, working
capital, dividends and repayment of debt are made for each of several future years.
Estimates are made of the funds to be provided by operations, and the balance must be
obtained by borrowing or issuance of new securities.

If the indicated amount of new funds required is greater than the finance
manager thinks it is possible to raise, then plans for new fixed asset acquisition and the
individual policies are re-examined so that the uses of funds can be brought into
balance with the anticipated sources of financing them. In particular, funds statements
are very useful in planning Intermediated and long-term financing.

The funds flow statement reveals clearly the causes for the financial difficulties
of the company. The difficulties may be due to improper mix of short and long term
sources, unnecessary accumulation of inventory of the fixed asserts, etc. these can be
found out by a careful study of the funds flow statement.

50
 2. Useful for Economists

With the point of view of economists, the fund statement has much importance.
In India has made use of its analysis of flow of fund in various sectors,
e.g.,BankingSector.

3. Useful for banks and for Financial Institutions

Banks and other financing institutions have also recognized the importance of
fund statement. This statement helps to know the credit worthiness and repaying
capacity of the concern. The banks and financial institutions ask the concern to prepare
fund flow statement for a number of years. With its help, the banks can know about the
risk involved in granting credit to the business concerns. What is the performance of
the concern in using the funds effectively? This can be known from the fund flow
statement only.

4. Useful for Investors

The investors and share holders may easily find themselves in possession of the
information about managerial policies relating to payment of dividends, earnings
capacity, and effective use of working capital on the basis of funds flow statement.
They can take decision on the basis of funds flow statement.

5. Other Uses

Besides the above Funds Flow Statement has much importance in many other
ways. It helps in framing a suitable dividend policy. It also suggests the ways for
improving the working capital position of the concern. It gives many other useful
information relating to business affairs which are not depicted in balance sheets.
Sometimes profit disclosed by Profit and Loss a/c may mislead as it is affected by
many non-cash charges such as depreciation, written off good will and preliminary
expenses. These do not affect the fund or working capital, so Fund Flow Statement can
provide correct amount of generated by business operations.

51
ADVANTAGES

The funds flow statement is of primary importance to the financial

management. It is an essential tool for financial analyses. It is been widely used by
financial institutions, financial managers and analysts.

1. Analyses of Financial Operations

The main purpose of funds flow statement is to analyze the financial operation
of the businesses .the statement explains the causes for changes in the assets and
liabilities during a period.

2. Evaluation of the Firm Financing

The analysis of sources of funds reviles how the firm has financed its
development projects in the past from internal sources or from external
sources .it also reviles the rate of growth of firm.

3. Allocation of Scare Resources

A projected funds flow statement is an instrument for allocation of resources. It

lays down the plan for efficient use of scarce resources in future. It enables the
management to discharge its financial obligation promptly.

4. Helps in Working Capital Management

Funds flow statement indicates the adequacy or inadequacy of working capital

.the management can take steps for effective use of surplus working capital.

5.Act as a Guide to the Future

With the aid of projected funds flow statement the management can plan
for meeting future financial requirements.

6. Helps Financial Institutions

The funds flow statement is also useful to leading institution like banks,
IDBI, ICICI, IFCI, and others.

52
 OBJECTIVES

The main objectives of funds flow statement are:

1. To show how the resources have been obtained and used to indicate the
results of current financial management.
2. To throw light upon the most important changes that has taken place during
a specific period.
3. To show how the general expansion of the business has been financed.
4. To indicate the relationship between profits from operations, distribution of
Dividend and rising of new capital or term loans to have an assessment of
the working capital position of the concern.
5. The funds flow statement contains all the details of the financial resource
which have become available during an accounting period and the ways in
which those resources have been used up.
6. This statement discloses the amounts raised from various sources of finance
during a period and then explains how that finance has been used in the
Business.
7. This statement is valuable in interpretation of the accounts.
8. It is a very useful tool in analysis of financial statements which analyses the
Changes taking place between two balance sheet dates.

9. The statement analyses the changes between the opening and closing
balance sheets for the period. A balance sheet sets out the financial position
at a point of time, setting liabilities form which funds have been raised
against assets acquired by the use of those funds.
10. A funds flow statement analyses the changes which have taken place in the
assets and liabilities during certain period as disclosed by a comparison of
the opening and closing balance sheets.

53
 LIMITATIONS OF FUNDS FLOW STATEMENT

The limitations of funds flow statement are listed below:

1. Funds flow statement is not a substitute for an income statement or balance

sheet. It provides only some additional information regarding changes in
working capital.
2. Changes in cash are more important and relevant for financial management than
the working capital.
3. It is not an original statement. It is only a rearrangement of data given in
financial statement.
4. Funds flow statement is essentially historic in nature. A projected funds flow
statement, on the basis of it cannot be prepared with much accuracy. It does not
estimate the sources and application of funds of the near future.
5. It cannot reveal continuous changes.

54
Distinguish between funds flow statement and balance sheet

FUNDS FLOW STATEMENT BALANCE SHEET

It is prepared to know the total sources and It is prepared to know the financial
their uses in a year. position.
It is dynamic as it reveals the changes in the It shows the assets and liabilities as on a
value of fixed assets and their effect on flow particular date, as such it is a static
of funds. statement.
It is prepared with the help of balance It is prepared on the basis of deferent
sheets of two consecutive years. accounts in the ledger.
Its preparation is at the discretion of the Its preparation is a statutory obligation
management. and as per the format prescribed under
legal provisions.
In funds flow statement, current assets and In balance sheet, current and current
current liabilities are used to find out liabilities are show item wise.
increase or decrease in working capital.
It is useful for internal financial It is useful not only to the management ,
management. but also to the share holders, creditors,
outsiders and government agencies etc.

Distinguish between funds flow statement and income statement

55
FUNDS FLOW STATEMENTS INCOME STATEMENTS

Its main objective is to ascertain the funds Its main objective is ascertained the net
generated from operations. It reveals sources of profit earned or loss incurred by the
funds and their applications. company out of businesses operations at
the end of particular period.
It is prepared based on the financial statements It is prepared on the basis of nominal
of two consecutive years accounts of particular accounting period
Funds flow statement matches the funds raised But the income statement matches cost of
with funds applied. No distinction is made goods sold with sales, to ascertain profit
between capital and revenue items. or loss. It deals with revenue items only.
It takes into account not only the funds available It uses only income and expenditure
for trading operation but also funds available transactions relating to trading operations
from other sources like issue of share, of a particular period.
capital/debentures ,sales of fixed assets ,etc.
Income statement is one of the source An income statement can be prepared
documents in preparation of funds flow without the help of funds flow statement.
statement.
Preparation of funds flow statement is not a Preparation of profit and loss account is a
statutory obligation and is left to the discretion statutory obligation and should prepare in
of management. accordance with the legal requirements.
It may be prepared much before businesses It is static in as much as it gives
operations and act as an instrument of planning information on what has happened during
and control. the period covered by it.
It can be prepared as and when management It is prepared only at the end of
wants it. accounting period for the period covered
by it

STEPS IN PREPARATION OF FUNDS FLOW STATEMENT

STEP – I PREPARATION OF CHANGES IN WORKING CAPITAL

56
 This statement follows the statement of sources and application of funds. The
primary purpose of the statement is to explain the net change in working capital, as
arrived in the funds flow statement, all current assets and current liabilities are
individually listed. The working capital position at the beginning of a period is changed
to a different position at the end of that period. A statement of working capital is
prepared to depict the changes in working capital. Working capitals represent the excess
of current assets or current liabilities.

Since several items i.e. all current assets and current liabilities are the
component of working capital, it is necessary to measure increase or decrease there in,
by preparing a statement or schedule changes in working capital. and their effect of
working capital. The total increases and total decreases in the end are compared and the
deference of total

Statement of schedule of changes in working capital

Particulars Beginning of the End of the Working capital

Increase Decrease

57
 year year
Current assets
Cash in hand & bank Xxx xxx xxx _
Bills receivable Xxx xxx _ xxx
Sundry debtors Xxx xxx _ xxx
Closing stock Xxx xxx xxx _
Short time investments Xxx xxx xxx _
Prepaid Expenses Xxx xxx xxx _
Other current assets Xxx xxx _ xxx
(A) Xxxx xxxx
Current liabilities
Bills payable Xxx xxx xxx _
Sundry creditors Xxx xxx _ xxx
Outstanding expenses Xxx xxx _ xxx
Bank overdraft Xxx xxx _ xxx
Short-term loans taken Xxx xxx xxx _
Proposed dividend Xxx xxx xxx _
Provision for tax Xxx xxx _ xxx
Other current liabilities Xxx xxx xxx _
(B) Xxxx xxxx
Working capital (A- Xxxx xxxx _ _
B)
Net increase or decrease in Xxxx xxxx xxxx xxxx
working capital
Xxxx xxxx xxxx xxxx

BASIC RULES OF CHANGES IN WORKING CAPITAL

1. Increases in current assets will increases in working capital

2. Decreases in current assets will decreases in working capital
3. Increases in current liability will influence to decrease working capital.
4. Decrease in current liability will increase the working capital
5. The amount of every item of current asset of the current year compared with its
amount of previous year. If the amount of current asset of current year is more
than its amount of previous year, the excess is recorded in debit column.
6. If the amount of assent of current year is less than its amount of the previous
year, the deference is recounted in credit column. Make sure that all the account

58
 relating to current assets appearing in the two balance sheets on gone through
differences or properly recorded. If the amount of each current liability of
current year is more than its amount of previous year, the excess is recorded in
the credit column.
7. If the amount of current liability of current year is less than its amount of
previous year, the deficit is recorded in debit column. Find out total of all debit
amounts and all credit amounts.
8. The above totals are compared in the end and the deference shows decrease or
increases in the working capital the deference of total current assets and the
total current liabilities of a year It. its working capital.
9. It the working capital at the end of the current year is more than the working
capital at the previous year the excess is called “increases in working capital”. If
previous year’s working capital is more than the current year’s working capital
the excess is called “decreases in working capital”.

59
STEP – 2 PREPARATIONS OF FUNDS FROM OPERATIONS

Profit of a period is an important source of funds. The profit and loss account
reveals the net profit or loss of a business. The net profit is arrived at after taking into
account all items of income and expenditure (both operating and non-operating, both
fund items and non-fund items).. There are two methods to find out the amount of
funds from operations

 Statement form
 Account form

CALUCULATION OF FUNDS FROM OPERATION (statement

form)

Net profit earned during the year (current year) Xxxxx

Add: Non-fund and Non Operating item
Which are already debited to P&L a/c Xxxx
Depreciation on fixed assets Xxxx
Goodwill written off Xxxx
Discount on issue of share, written off Xxxx
Preliminary expenses written off Xxxx
Patents written off Xxxx
Transfer to receivers Xxxx
Loss on sales of fixed assets Xxxx
Less: Non-fund or Non-Operating items
Which are already credits of P&L a/c Xxxx
Profit on sale of fixed assets Xxxx
Profit of revaluation of assets Xxxx
Rent received Xxxx
Dividend received Xxxx
Refund of income tax Xxxx
Funds from operations Xxxxxx

If the profit and loss a/c shows a net loss, the above procedure will be received. (Funds
flow can also prepaid by using format).

Account Form

60
 Alternatively, an adjusted profit and loss account may be written up as follows
and the balancing figure thus reference trading profit or fund from operation.

ADJUSTED PROFIT AND LOSS ACCOUNT

To Depreciation xxx By Opening balance of P&L xxx

To Preliminary expenses xxx appreciation a/c xxx

written off xxx By Dividend received xxx

To Discount on share written off xxx By Excess provision written xxx

To Goodwill written off xxx back

To Premium on redemption xxx By Trading profit of fund from

To Transfers to receivers xxx operation (balancing figure)

To Loss on sale of fixed assets xxx

To Closing balance of P&L xxx

Xxxx xxxx
appreciation a/c

61
STEP – 3 PREPARATION OF FUNDS FLOW STATEMENT

The basic rule in preparation of the fund s flow statement is as follows

The relationship between source and application of funds and its impact on
working capital is explained in the format of statement and sources and application of
fund given below.

STATEMENTS OF SOURCES AND APPLICATION OF FUNDS

SOURCE AND APPLICATION OF FUNDS (Rs)

Funds from operations xxx
Issue of share capital xxx
Rising of long-term loans xxx
Receipts from partly paid share, called up xxx
Sales of non –current (fixed) assets xxx
Non-trading receipts, such as dividend received xxx
Sale f investments(long term) xxx
Decreases in working capital as per schedule of charges in working capital xxx
xxxxx
APPLICATION OR USES OF FUNDS
Funds lost in operations xxx
Redemption of preference share capital xxx
Redemption of debentures xxx
Re payment of long term loan xxx
Purchases of non-current (fixed) assets Xxx
Purchases of long term investments Xxx
Non-trading payments Xxx
Payments of dividends Xxx
Payment of tax Xxx
Increases in working capital(as per schedule in working capital) Xxx

62
SOURCES OF FUND

o Issue of new shares

o Issue of debentures
o Creation of long term liability
o Funds from operation

1. ISSUE OF NEW SHARES

On comparing the balance sheet of two dates there is an increase in

share capital. It would affect working capital to the extent of current assets. If it
does not have any impact upon fund, it would not be a source of fund. For
example, shares issued and cash/stock/furniture received.

2. ISSUE OF DEBENTURES

That amount of issued debentures would be a source of fund which affects

working capital.

3. CREATION OF LONG TERM LIABILITIES

If loan and mortgaged loan has been taken its increase between two balances
sheet dates would be a source of fund.

4. SALE OF FIXED ASSETS

Any decrease in fixed assets due to sale of fixed assets is shown in the sources
of fund as it involves cash or other current assets which are the elements of
working capital.

5. FUNDS FROM OPERATIONS

It is a source of fund, to be shown on the sources side.

63
APPLICATIONS OF FUNDS

The fund acquired in the business may be used in the following items:

 Loss from Operation

 Discharge of Liability
 Redemption of Debentures
 Redemption of preferences shares
 Addition in assets

1. LOSS FROM OPERATION

Just like profit from operations is a source. Similarly loss from operations is
treated as uses of fund. In fact, incurring of loss means out flow of funds. It may
be due to increase in liabilities or decrease in assets or both.

2. DISCHARGE OF LIABILITIES

Any decrease in long term liability would be the indicator that fund has
gone from the business liability which may be decreased due to decrease in
assets (payment of creditors by giving cash of fixed assets to them) or increase
in liability. For example, a liability is converted into another.

3. REDEMPTION OF DEBENTURES

If the redemption is made through conversion into shares or new debentures,

it does not affect funds. If they are rendered in cash, it would affect fund.

4. REDEMPTION OF PREFERENCE SHARES

If these preference shares are redeemed by issue of new preference shares or

equity shares or debentures such decrease in preference shares will not be
treated as use of fund, as the flow of fund does not take place in this transaction.

64
 5. ADDITION IN ASSETS

If the assets whether current or fixed are increased, it will be shown in the uses of
fund because such increase entails outflow of fund. If there is increase in fixed assets
accompanied either by increase in long term liabilities or increase in share capital, there
will not be outflow of fund. On the other hand, if these fixed assets are accompanied by
decrease in current assets or increase in current liability, there would certainly be out
flow of fund.

65
 CHAPTER-5
DATA ANALYSIS

DATA ANALYSIS AND INTERPRETATION

66
Table 5.
Statement of changes in working capital of G.S Alloy Casting Limited
during the period 2006-07
Particulars 2006 2007 Effect on Working Capital
Increase Decrease

Rs Rs
CURRENT ASSETS
Inventories 8300794.00 30687803.00 22387009.00
Sundry debtors 44778397.53 90215354.05 45436956.52
Cash and bank balance 1993509.14 3244604.23 1251095.09
Loans and advances 11124294.67 17924217.65 6799922.98
Advances against 1409151.07 206947.76 1202203.31
purchases
Advance against capital 12472173.00 102565.00 12369608.00
goods
Total – (A) 80078319.41 142381491.69
CURRENT
LIABILITIES
Outstanding liabilities 8682219.51 13086022.20 4403802.69

Creditors for purchase 29839376.24 60479057.75 30639681.51

Creditors for capital goods
Advances against sales
Total – (B)
Net current assets (A-B)
Increasing working capital
8695078.38 2914609.70 5780468.68
4466402.26 5367973.67 901571.07
51683076.39 81847663.32
28395243.02 60533828.37
32138585.35 32138585.35
60533828.37 60533828.37 81655452.27 81655452.27

Table 5.2

Adjusted profit and loss account of G.S.Alloy Casting Limited during

the period of 2006-07

Particulars Amount Particulars Amount

Rs. (Crores) Rs. (Crores)

To Depreciation 13335179.34 By balance b/d 2390805.42
To Preliminary 172840.00

67
 Expenses
To Balance c/d 520784.79 By funds from 11637998.71
operations
14028804.13 14028804.13

Table 5.3

Funds flow statement of G.S.Alloy Casting Limited during the period

of 2006-07
Sources Rs. Application Rs.

(in crores) (in crores)

Issue of equity 30933850.00 Payment of shares application 14981639.00
shares of money
Raising secured 101682386.11 Reduction of unsecured loans 10291.50
loans
Funds from 11637998.71 Purchase of fixed assets 98531088.39
operations
Decrease in 1407369.42 Increasing working capital 32138585.35
deferred tax
145661604.82 145661604.82
INTERPRETATION:

From the above table 5.1 it is observed that the Working Capital of the company
shows increased trend. The current assets of the company were increased from
Rs.80078319.41, in 2005-06 to Rs.142381491.69, in 2006-07. The current liability of
the company was increased from Rs 51683076.39 in 2005-06 to Rs.81847663.32 in
2006-07. In 2005-06, the net working capital of the company stood at Rs.28395243.02
cores and it was increased to Rs.60533828.37crores in 2006-07.

It is also evident from the above table 5.3 that the total funds flow during the period
from 2006-07 amounts to Rs.145661604.24 crores. In the total funds 11637998.74
cores was received from funds from operation, 30933850 cores from issue of equity
share, 101682386.11 cores from secured loans and 1407369.42 from decreased differed
tax

68
 Whereas the application of funds 14981639.00 cores is used for payment of share
application money, 10291.50 for redemption of unsecured loans, 98531088.39 cores for
purchasing fixed assets, and increasing working capital is 32138585.35 crores.

Table 5 .4

Statement of changes in Working Capital of G.S. Alloy

casting Limited during the period 2007-08

Particulars 2007 2008 Effect on working capital

Increase Decrease
CURRENT ASSETS
Inventories 30687803.00 72538681.00 41850878.00
Sundry debtors 90215354.05 138031674.25 47816320.20
Cash and bank balance 3244604.23 5226109.51 1981505.28
Loans and advances 17924217.65 16118243.35 1805974.30
Advances against 206947.76 2433140.20 2226192.44
purchases
Advance against capital 102565.00 5908128.00 5805563.00

69
goods
Total – (A) 142381491.69 240255976.31
CURRENT
LIABILITIES
Outstanding liabilities 13086022.20 15329108.00 2243085.80
Creditors for purchase 60479057.75 134539412.47 74060354.72
Creditors for capital 2914609.70 0.00 2914609.70
goods
Advances against sales 5367973.67 9516114.00 4148140.33
Total – (B) 81847663.32 159384634.47
Net current assets (A-B) 60533828.37 80871341.84
Increasing working 20337513.42 1.95
capital
80871341.84 80871341.84 102595068.62 102595068.62

Table 5.5

Adjusted profit and loss account of G.S.Alloy Casting Limited during

the period of 2007-08

Particulars Amount Particulars Amount

Rs. Rs.

(Crores) (Crores)
To Depreciation 27896642.33 By Balance b/d 520784.79
To Preliminary 129630.00
Expenses
To Balance c/d 2436339.64 By Funds from 29941827.18
operations
30462611.97 30462611.97

Table 5.6

Funds Flow Statement of G.S.Alloy Casting Limited during the Period

Of 2007-08

70
Sources Rs. Application Rs.

(in Crores) (in Crores)

Issue of shares application 4083740.00 Payment of secured loans 2964844.65
money
Issue of secured loans 111428.90 Purchase of fixed assets 9798078.54
Funds from operations 29941827.18 Decreasing deferred tax 1036559.42
Increasing working 20337513.47
capital
34136996.08 34136996.08

INTERPRETATION:

From the above table 5.4 it is observed that the Working Capital of the company
shows increased trend. The current asset of the company was increased
Rs.142381491.69 cores in 2006-07 to Rs.240255976.31 crores in 2007-08. The current
liability of the company is increased from Rs.81847663.32 cores in 2006-07 to
Rs.159384634.47 cores in 2007-08. In 2006-07 the net working capital of the company
stood at Rs.60533828.37 cores and it was increased to Rs.80871341.84 cores in 2007-
08.

It is evident from the above table 5.6 that the total funds flow during the period
from 2007-08 amount Rs.34136996.08 crores. In the total funds 29941827.18crores
was received from funds from operation, 4083740.00 lakhs from issue of share
application money, 111428.90 lakhs from unsecured loans.

Regarding the application of funds 2964844.63 lakhs is used for payment of

secured loans, 2964844.63 lakhs for redemption of secured loans, 9798078.54lakhs for
purchasing fixed assets, and increasing working capital was 20337513.47 crores.

71
Table 5.7

Statement of changes in Working Capital of G.S. Alloy Casting

Limited during the period 2008-09

Particulars 2008 2009 Effect on working capital

Increase Decrease
CURRENT ASSETS
Inventories 72538681.00 69631813.00 2906868.00
Sundry debtors 138031674.25 148014363.82 9982689.57
Cash and bank balance 5226109.51 10271432.21 5045322.70
Loans and advances 16118243.35 19167217.76 3048974.41
Advances against purchases 2433140.20 2430114.52 3025.68
Advance against capital goods 5908128.00 0.00 5908128.00
Total – (A) 240255976.31 249514941.31
CURRENT LIABILITIES
Outstanding liabilities 15329108.00 15266022.90 63085.10
Creditors for purchase 134539412.47 137820186.52 3281674.05
Creditors for capital goods 0.00 0.00 0.00 0.00
Advances against sales 9516114.00 8938222.37 577891.63
Total – (B) 159384634.47 162025331.79
Net current assets (A-B) 80871341.84 87489609.52
Increasing working capital 6618267.68 6618267.63
87489609.52 87489609.52 12099695.73 12099695.73

72
Table 5.8

Adjusted Profit And Loss Account of G.S.Alloy Casting Limited

during the Period of 2008-09

Particulars Amount Particulars Amount

Rs. Rs.

(In Crores) (In Crores)

To Depreciation 25224205.39 By Balance b/d 2220958.64

To Preliminary Expenses 86420.00

To Balance c/d 179704.79 By funds from operations 23269371.54

25490330.18 25490330.18

Table 5.9

Funds Flow Statement of G.S.Alloy Casting Ltd during the Period of

2008-09

Sources Rs. Application Rs.

( in crores) (in crores)

Issue of shares application 5228000 Purchase of fixed assets 55650156.38
money
Raising of secured loans 31636745.10 Increasing working 6618267.68
capital
Raising of unsecured loans 883156.42 Increasing deferred tax 1448849.00
Funds from operations 23269371.54
63717273.06 63717273.06

73
INTERPRETATION:

From the above table 5.7 it is observed that the Working Capital of the company
shows increased trend. The current assets of the company were increased
Rs.240255976.31crores in 2007-08 to Rs.249514941.31 crores in 2008-09. The current
liability of the company is increased from Rs.159384634.47 crores in 2007-08 to
Rs.162025331.79 crores in 2008-09. In 2007-08 the net working capital of the company
stood at Rs.80871341.84 crores and it was increased to Rs.87489609.52crores in 2008-
09. It is evident from the above table 5.9 that the total funds flow during the period
from 2007-08 amount Rs. 63134116.64 crores. In the total funds 23269371.54 crores
was received from funds from operation, 5228000 lakhs from issue of share application
money, 883156.42 lakhs from unsecured loans.

Regarding the application of funds 31636745.10 lakhs is raised from secured loans,
received from unsecured loans Rs. 883156.42 lakhs, 55650156.38 crores for purchasing
of fixed assets, and increasing working capital is 6618267.68 lakhs, 1448849.00
increases in deferred tax.

74
Table 5.10

Statement of Changes in Working Capital Of G.S Alloy Casting

Limited during the period 2009-10

Particulars 2009 2010 Effect on working capital

Increase Decrease
CURRENT ASSETS
Inventories 69631813.00 59715532.00 9916281.00
Sundry debtors 148014363.82 210052525.85 62038162.03
Cash and bank balance 10271432.21 3238884.71 7032547.50
Loans and advances 19167217.76 15665815.00 3501402.76
Advances against purchases 2430114.52 2074886.18 355228.34
Advance against capital goods 0.00 31302823.00 31302823.00
Total – (A) 249514941.31 322050466.74
CURRENT LIABILITIES
Outstanding liabilities 15266022.90 17584090.00 2318067.10
Creditors for purchase 137820186.52 201189558.70 63368472.18
Creditors for capital goods 0.00 0.00 0.00 0.00
Advances against sales 8938222.37 7330751.10 1607471.27
Total – (B) 162025331.79 226104399.80
Net current assets (A-B) 87489609.52 95946066.94
Increasing working capital 8456457.42 8456457.42
95946066.94 95946066.94 94948456.30 94948456.30

Table 5.11

Adjusted Profit And Loss Account of G.S.Alloy Casting Limited

during the period of 2009-2010

75
 Particulars Amount Rs Particulars Amount

(in crores) Rs

(in crores)
To Depreciation 25390643.41 By Balance b/d 179704.79
To Preliminary Expenses 43210.00
To Balance c/d 1184042.29 By Funds from 26438190.91
operations
26617895.70 26617895.70

Table 5.12
Funds Flow Statement of G.S.Alloy Casting Limited during the
period of 2009-10
Sources Rs. Application Rs.

( in crores) ( in crores)
Issue of shares application 2178731.00 Reduction of unsecured 7973.10
money loans
Raising of secured loans 27590339.02 Purchase of fixed assets 39247263.41
Funds from operations 26438190.91 Increasing working capital 8456457.42
Increasing differed tax 2174533.00
Preoperative expenses 6321034.00
56207260.93 56207260.93

INTERPRETATION:

From the above table 5.10 it is observed that the working capital of the company
shows increased trend. The current assets of the company have increased from
Rs.249514941.31 crores, in 2008-09 to Rs.322050466.74 crores in 2009-10. The
current liability of the company is increased from Rs.162025331.79 crores in 2008-09
to Rs.226104399.80 crores in 2009-10. In 2008-09 the net working capital of the
company stood at Rs.87489609.52crores and it was increased to Rs.95946066.94 crores
in 2009-10.

It is evident from the above table 5.12 that the total funds flow during the period
from 2009-10 amount Rs.56207260.93 crores. In the total funds 26438190.91 crores

76
was received from funds from operation, 2178731.00 lakhs from issue of share
application money, 27590339.02 crores from secured loans, and 7973.10 Rs from
unsecured loans.

Regarding the application of funds 39247263.41 crores for purchasing fixed

assets, and increasing working capital is 8456457.42 lakhs.2174533.00 lakhs increasing
differed tax, and pre-operative expenses 6321034.00lakh.

Table 5.13

Statement of Changes in Working Capital of G.S Alloy Casting

Limited during the Period 2010-11

Particulars 2010 2011 Effect on working capital

Increase Decrease
CURRENT ASSETS
Inventories 59715532.00 57829792.00 1885740.00
Sundry debtors 210052525.85 206956952.28 3095573.57
Cash and bank balance 3238884.71 6489842.71 3250958.00
Loans and advances 15665815.00 22966221.00 7300406.00
Advances against purchases 2074886.18 2481310.61 406424.43
Advance against capital goods 31302823.00 11264638.00 20038185.00

77
Total – (A) 322050466.74 307988756.60
CURRENT LIABILITIES
Outstanding liabilities 17584090.00 24172573.00 6588483.00
Creditors for purchase 201189558.70 175589067.09 25600491.61
Creditors for capital goods 0.00 0.00
Advances against sales 7330751.10 7195593.58 135157.52
Total – (B) 226104399.80 206957233.67
Net current assets (A-B) 95946066.94 101031522.93
Increasing working capital 5085455.99 5085455.99
101031522.93 101031522.93 36693437.56 36693437.56

Table 5.14

Adjusted Profit and Loss Account of G.S.Alloy Casting Ltd during the
Period of 2010-11.

Particulars Amount Particulars Amount

Rs Rs

(in crores) (in crores)

To Depreciation 33007390.27 By Balance b/d 1184042.29
By Preliminary Expenses 43210.00
To Balance c/d 16475000.90 By Funds from operations 48255138.88
49482391.17 49482391.17

Table 5.15
Funds Flow Statement of G.S.Alloy Casting Limited during the
Period of 2010-11

78
Sources Rs. Application Rs.

( in crores) ( in crores)
Issue of shares application 191658.00 Reduction of secured loans 11837359.19
money
Raising of pre-operative 8215712.55 Reduction of unsecured 50116.00
expenses loans
Raising Funds from operations 48255138.88 Purchase of fixed assets 39689578.25
Increasing working capital 5085455.99
56662509.43 56662509.43

INTERPRETATION

From the above table 5.13 it is observed that the working that the working capital of
the company shows increased trend. The current assets of the company have decreased
Rs.322050466.74 crores, in 2009-10 to Rs.307988756.60 crores in 2010-11. The
current liability of the company is decreased from Rs.226104399.80 crores in 2009-10
to Rs.206957233.62 crores in 2010-11. In 2009-10 the net working capital of the
company stood at Rs.95946066.94 crores and it was increased to Rs.101031522.93
crores in 2010-11.

It is evident from the above table 5.15 that the total funds flow during the period
from 2010-11 amount Rs.56662509.43 crores. In the total funds 48255138.88 crores
was received from funds from operation, 191658.00 lakhs from issue of share
application money, 8215712.55 lakhs from pre-operative expenses.

Regarding the application of funds11837359.19 crores is used for payment of

secured loans, 50116.00 Rs for redemption of unsecured loans, 39689578.25 crores for
purchasing fixed assets, and increasing working capital is 5085455.99 lakhs.

79
GRAPHICAL REPRESNTATION OF SCHEDULE OF CHANGES
IN WORKING CAPITAL DURING THE YEARS
2006-2011
YEARS Increase Decrease
2006-2007 32138585.35 -

2007-2008 20337513.47 -

2008-2009 6618267.68 -

2009-2010 -
8456457.42
2010-2011 -

5085455.99

80
GRAPHICAL REPRESNTATION OF SCHEDULE OF CHANGES
IN FUNDS FLOW DURING THE YEARS 2006-2011s

Year Increase Decrease

(in Crores)
2006-2007 11637998.71 -

2007-2008 -
29941827.18
2008-2009 -

2009-2010 -
23269371.54

81
 2010-2011 -

26438190.91

48255138.88

CHAPTER-6
FINDING AND SUGGESTIONS & BIBLOGRAPH

82
FINDINGS:
1. An overview of working capital position of the company has been increasing
during the period of 2006-07 to 2010-11. From the point of view of current
assets of the company was also increased from Rs. 8.00 crores to Rs. 32.25
crores where as the current liabilities of the company was increased to Rs. 5.14
crores to Rs. 22.59 crores.

2. The funds from operations of G.S.Alloy casting limited during the period of
2006-07 to 2010-11. It was increased trend for foresaid period. These are
including Rs. 1.16 crores, Rs. 3.02 crores, Rs. 2.35 crores, Rs. 2.68 crores, and
Rs. 4.79 crores for the respective period of 2005-06 to 2010-11.

83
 3. The funds flow statement of G.S. Alloy casting limited during the period of
2006-07 to 2010-11, it was decreased of sources and applications of this
company for the above said period, and during the period of 2006-07 it was Rs.
14.5 crores where as in 2010-11. This was reduced Rs. 5.38 crores.

SUGGESTIONS:

1. It may be suggested that the current assets position of the company has been
increasing year to year. This indicates good position of the company because the
firm having good liquid position to meet the day to day expenditures.
2. The current liability of the company was also increasing during the above said
period. It is suggested that the company will try for reducing current liabilities.
In case the requirements of funds has to be mobilized from long term sources
that is good for the company. On the other hand the companies will redemption
of short term liabilities with in the near future. It is not good for the company
because of the business is uncertainty
3. It is also suggested that the working capital position of the company was also
good. As a result the company will make a plan for efficient usage of these
funds towards discharge its financial obligation promptly.

84
 4. The funds from operations of the company are also good during the period of
2005-06 to 2009-10. It may be suggested that these funds has to be utilized for
expansion of company in order to maximizing return on investment.
5. The funds flow statement of G.S. Alloy casting limited during the period of
2005-06 to 2009-10 is not satisfactory. The main reason is that the company has
not been mobilization of the funds from the public. Due to this reason not that
much of changes in sources and application of G.S. Alloy casting limited for the
above said period.

CONCLUSION:

The funds flow statement highlights the amounts raised from various sources of
finance during a period and then explains how that finance has been used in the
business. It analyzes the net increase or decrease in working capital in to changes in the
constituent item that is Stock, Debtors, Creditors, and Cash etc.

It is an analysis of funds flow between two balance sheets along with funds flow
statement another statement is also prepared to analyze the impact of funds flow
working capital position.

The funds flow statement list out the sources from which working capital has been
derived during the accounting period and the ways in which working capital has been
usedup.

85
Balance sheet of G.S Alloy casting limited during the year 2006-2007
Particulars 2006 2007
Sources of Funds
Share Holders Funds
Share capital 29773200.00 60707050.00
Share application money 30934575.78 15952936.78
Reserves & Surplus 2390805.42 ---
Loan Funds
Secured loans 34675012.36 136357398.47
Unsecured loans 2131440.20 2121148.70
Total 99905033.76 215138533.95
Applications of Funds
Fixed Assets
Gross Block 102931085.11 201462173.50
Less Depreciation 32232470.37 45567649.71
Net Block 70698614.74 155894523.79

86
Investments NIL NIL
Current Assets
Inventories 8300794.00 30687803.00
Sundry Debtors 44778397.53 90215354.05
Cash & Bank Balance 1993509.14 3244604.23
Loans & Advances 11124294.67 17924217.65
Advance against purchases 1409151.07 206947.76
Advance against Capital Goods 12472193.00 102565.00
Total-A 80078319.41 142381491.69
Current liabilities
Outstanding Liabilities 8682219.51 13086022.20
Creditors for Purchases 29839376.24 60479057.75
Creditors for capital goods 8695078.38 2914609.70
Advance against Sales 4466402.26 5367973.67
Total-B 51683076.39 81847663.32
Net current Assets(A-B) 28395243.02 60533828.37
Differed Tax Asset -614511.00 -1983443.00
Mislicellaneous Expenditure
Preliminary Expenses 191050.00 172840.00
Pre-operative Expenditure 1234637.00 0.00
Profit & Loss Account 0.00 520784.79
99905033.76 218805197.84

87
Balance sheet of G.S Alloy casting limited during the year 2007-2008

Particulars 2007 2008

Sources of Funds
Share Holders Funds
Share capital 60707050.00 60707050.00
Share application money 15952936.78 20036676.78
Reserves & Surplus --- 2436339.64
Loan Funds
Secured loans 136357398.47 133392553.82
Unsecured loans 2121148.70 2232577.60
Total 215138533.95 218805197.86
Applications of Funds
Fixed Assets
Gross Block 201462173.50 211260252.05
Less Depreciation 45567649.71 73464292.04
Net Block 155894523.79 137795960.00
Investments NIL NIL
Current Assets
Inventories 30687803.00 72538681.00
Sundry Debtors 90215354.05 138031674.25
Cash & Bank Balance 3244604.23 5226109.51
Loans & Advances 17924217.65 16118243.35
Advance against purchases 206947.76 2433140.20
Advance against Capital Goods 102565.00 5908128.00
Total-A 142381491.69 240255976.31
Current liabilities
Outstanding Liabilities 13086022.20 15329108.00
Creditors for Purchases 60479057.75 134539412.47
Creditors for capital goods 2914609.70 0.00
Advance against Sales 5367973.67 9516114.00
Total-B 81847663.32 159384634.47
Net current Assets(A-B) 60533828.37 80871341.84
Differed Tax Asset -1983443.00 8266.00
Mislicellaneous Expenditure
Preliminary Expenses 172840.00 129630.00
Profit & Loss Account 520784.79 0.00

88
 218805197.84 218805197.84

Balance sheet of G.S Alloy casting limited during the year 2008-2009

Particulars 2008 2009

Sources of Funds
Share Holders Funds
Share capital 60707050.00 60707050.00
Share application money 20036676.78 25264676.78
Reserves & Surplus 2436339.64 0.00
Loan Funds

89
Secured loans 133392553.82 165029298.93
Unsecured loans 2232577.60 5232577.60
Total 218805197.86 256233603.30
Applications of Funds
Fixed Assets
Gross Block 211260252.05 265613504.42
Less Depreciation 73464292.04 98584485.43
Net Block 137795960.00 167029019.99
Investments NIL NIL
Current Assets
Inventories 72538681.00 69631813.00
Sundry Debtors 138031674.25 148014363.82
Cash & Bank Balance 5226109.51 10271432.21
Loans & Advances 16118243.35 19167217.76
Advance against purchases 2433140.20 2430114.52
Advance against Capital Goods 5908128.00 0.00
Total-A 240255976.31 249514941.31
Current liabilities
Outstanding Liabilities 15329108.00 15266022.90
Creditors for Purchases 134539412.47 137821086.52
Creditors for capital goods 0.00 0.00
Advance against Sales 9516114.00 8938222.37
Total-B 159384634.47 162025331.79
Net current Assets(A-B) 80871341.84 87489609.52
Differed Tax Asset 8266.00 1448849.00
Mislicellaneous Expenditure
Preliminary Expenses 129630.00 86420.00
Profit & Loss Account 0.00 179704.79
218805197.84 256233603.30

90
Balance sheet of G.S Alloy casting limited during the year 2009-2010

Particulars 2009 2010

Sources of Funds
Share Holders Funds
Share capital 60707050.00 60707050.00
Share application money 25264676.78 27443407.78
Reserves & Surplus 0.00 0.00
Loan Funds
Secured loans 165029298.93 192619637.94
Unsecured loans 5232577.60 5224604.50
Total 256233603.30 285994700.22
Applications of Funds
Fixed Assets
Gross Block 265613504.42 304860767.83
Less Depreciation 98584485.43 123975127.84
Net Block 167029019.99 180885639.99
Investments NIL NIL
Current Assets
Inventories 69631813.00 59715532.00
Sundry Debtors 148014363.82 210052525.85
Cash & Bank Balance 10271432.21 3282884.71
Loans & Advances 19167217.76 15665815.00
Advance against purchases 2430114.52 2074886.18
Advance against Capital Goods 0.00 31302823.00
Total-A 249514941.31 322094466.74

91
Current liabilities
Outstanding Liabilities 15266022.90 17584090.00
Creditors for Purchases 137821086.52 201189558.70
Creditors for capital goods 0.00 0.00
Advance against Sales 8938222.37 7330751.10
Total-B 162025331.79 226104399.80
Net current Assets(A-B) 87489609.52 95990066.94
Differed Tax Asset 1448849.00 2174533.00
Mislicellaneous Expenditure
Preliminary Expenses 86420.00 43210.00
Pre-operator Expenditure 0.00 5717208.00
Profit & Loss Account 179704.79 1184042.29
256233603.30 285994700.22

92
Balance sheet of G.S Alloy casting limited during the year 2010-2011

Particulars 2010 2011

Sources of Funds
Share Holders Funds
Share capital 60707050.00 60707050.00
Share application money 27443407.78 27635065.78
Reserves & Surplus 0.00 16475000.90
Loan Funds
Secured loans 192619637.94 180782278.75
Unsecured loans 5224604.50 5174488.50
Total 285994700.22 290773883.93
Applications of Funds
Fixed Assets
Gross Block 304860767.83 344550346.08
Less Depreciation 123975127.84 156982518.08
Net Block 180885639.99 187567828.00
Investments NIL NIL
Current Assets
Inventories 59715532.00 57829792.00
Sundry Debtors 210052525.85 206956952.28
Cash & Bank Balance 3282884.71 6489842.71
Loans & Advances 15665815.00 22966221.00
Advance against purchases 2074886.18 2481310.61
Advance against Capital Goods 31302823.00 11264638.00
Total-A 322094466.74 307988756.60
Current liabilities
Outstanding Liabilities 17584090.00 24172573.00
Creditors for Purchases 201189558.70 175589067.09
Creditors for capital goods 0.00 0.00
Advance against Sales 7330751.10 7195593.58
Total-B 226104399.80 206957233.69
Net current Assets(A-B) 95990066.94 101031522.93
Differed Tax Asset 2174533.00 2174533.00
Mislicellaneous Expenditure
Preliminary Expenses 43210.00 0.00
Pre-operator Expenditure 5717208.00 0.00
Profit & Loss Account 1184042.29 0.00
285994700.22 290773883.93

93
 BIBLIOGRAPHY

REFERENCE BOOKS:

1. G. Prasad, V. Chandra Shekhar Rao, Accounting For Managers, Jai Bharat

Publishers, Brodipet Guntur
2. P. Premchand Babu, M. Madhana Mohan, Financial Accounting and
Analysis, Himalaya Publishing House.
3. Sudhindra bhat, Financial Management Principles and Practices, 2nd Edition,
Excel Books.
4. Shashi. K. Gupta and R.K. Sharma, Advanced Management Accounting,
Kalyani Publishers, New Delhi.
5. Shashi. K. Gupta and R.K. Sharma, Management Accounting, Kalyani
Publishers, New Delhi.

94
WEBSITES:

1. www.google.com
2. www.g.s.alloycasting limited.com

95