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A STUDY ON FUND FLOW ANALYSIS IN

G. S. ALLOY CASTING LIMITED
VIJAYAWADA

PRESENTED BY
VIJAYA BHASKAR
 INTRODUCTION OF FUNDS FLOW ANALYSIS

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.

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.
DEFINITION
“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

1. The management can formulate its financial policies –

dividend, reserve etc. On the basis of the statement.
2. It services as a control device when comparing with
budgeted figures. The Financial manager can take remedial
steps, if there is any deviation.
3. It points out the sound and weak financial position of the
enterprise.
4. It points out of the causes for changes in working capital.
OBJECTIVES

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. It is a very useful tool in analysis of financial statements which
analyzes the Changes taking place between two balance sheet
dates.
STEPS IN PREPARATION OF FUNDS FLOW STATEMENT

Preparation of change in working capital

Preparation of Funds from Operations

Preparation of Funds Flow Statement

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

STEP – 2 PREPARATIONS OF FUNDS FROM OPERATIONS

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). To arrive at funds from operation, adjustment are made in
net profit for non-fund and non-operating items it will be clear following.
There are two methods to find out the amount of funds from operations

•Statement form
•Account form
 STEP – 3 PREPARATION OF FUNDS FLOW STATEMENT
The basic rule in preparation of the fund s flow statement is as follows

An increase in an asset over the year is an application of fund

A decreases in an asset over the year is a source of fund

A decreases in liability over the year is an application of fund

An increases in a liability over the year is a source of fund

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.
 NEED FOR THE STUDY

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.

SCOPE OF THE STUDY

The study on analysis of flow of funds of G.S.ALLOY

CASTING LIMITED. It is confined to only G S Alloy casting
limited and cannot be generalized to any other company. The
study is only about funds flow analysis of G S Alloy casting
limited.
 OBJECTIVES OF THE STUDY

1. 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.

2. To determine the financial consequences of business operations.

3. To determine the exact financial position of the organization.

4. 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.
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:

•The internal circulation copy of company's broachers.

•The annual reports of the organization.
•Other of the Journals, Internal
 PROFILE OF STEEL INDUSTRY
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.
The Steel Industry was enriched and modernized through
the introduction of Open-Hearth process of steel production
This process was first adopted by the steel industries
situated in United States Of America in the year 1888.
The utilization of the Open-Hearth system of steel
production continued approximately from the year 1910 to the
year 1960.
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 these industries in
production of stainless steels and also in recycling of scrap
steel items.
 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 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 major sectors where consumption of steel is expected to grow
in the coming years are
•Construction
•Housing
•Ground transportation
 PROFILE OF G.S.ALLOY CASTINGS LIMITED

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.
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 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
kg’s to 6000kgs single piece in.
1.Plain Carbon Steel
2.Alloy Steels
3.Heat Resistant Steels
4.Wear Resistant Steels
5.Stainless Steel
Vision
•To achieve the 1000 tons per month
•Increase the productivity level

Mission
•1000 tons per month.
•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.

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
Table 5.1 Statement of changes in working capital of G.S Alloy Casting Limited during the period 2005-06

(Rs in crores)
Particulars 2005 2006 Effect on Working Capital
Increase Decrease
Rs Rs
CURRENT ASSETS
Inventories 0.83 3.06 2.23
Sundry debtors 4.48 9.02 5.00
Cash and bank balance 0.20 0.32 0.12
Loans and advances 1.11 1.79 0.68
Advances against purchases 0.14 0.02 0.12
Advance against capital goods 1.24 0.01 1.23
Total – (A) 8.00 14.22
CURRENT LIABILITIES
Outstanding liabilities 0.86 1.30 0.44
Creditors for purchase 2.98 6.40 3.42
Creditors for capital goods 0.86 0.29 0.47
Advances against sales 0.44 0.53 0.09
Total – (B) 5.14 8.16
Net current assets (A-B) 2.86 6.06
Increasing working capital 3.2 3.2
6.06 6.06 8.5 8.5
 Table 5.2 Adjusted profit and loss account of G.S.Alloy Casting Limited during the
period of 2005-06
Dr Cr

Particulars Amount Particulars Amount

Rs. Rs.
(Crores) (Crores)

To Depreciation 1.33 By balance b/d 0.23

To Preliminary Expenses 0.01

To Balance c/d 0.05 By funds from operations 1.16

1.39 1.39
 Table 5.3 Funds flow statement of G.S.Alloy Casting Limited during the period
of 2005-06

Sources Rs. Application Rs.

(in crores) (in crores)

Issue of equity shares 3.1 Payment of shares application of 1.5

money

Raising secured loans 10.17 Reduction of unsecured loans 0.01

Funds from operations 1.16 Purchase of fixed assets 9.85

Decrease in deferred tax 0.13 Increasing working capital 3.2

14.56 14.56
 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.8.00
crores, in 2004-05 to Rs.14.22 crores, in 2005-06. The current liability of the company was
increased from Rs.5.14 crores in 2004-05 to Rs.8.16 crores in 2005-06. In 2004-05, the net
working capital of the company stood at Rs.2.786 crores and it was increased to Rs.6.06
crores in 2005-06.

It is also evident from the above table 5.3 that the total funds flow during the period
from 2005-06 amounts to Rs.14.56 crores. In the total funds 1.16 crores was received from
funds from operation, 3.1 crores from issue of equity share, 10.17 crores from secured
loans and0.13 lakes from decreased differed tax.

Whereas the application of funds 1.5 crores is used for payment of share application
money,0.01 lakes for redemption of unsecured loans, 9.85 crores for purchasing fixed
assets, and increasing working capital is 3.2 crores.
 Table 5.4 Statement of changes in Working Capital of G.S. Alloy casting Limited during the
period 2006-07
(Rs in crores)

Particulars 2006 2007 Effect on working capital

Increase Decrease
CURRENT ASSETS
Inventories 3.06 7.25 4.19
Sundry debtors 9.02 13.80 4.78
Cash and bank balance 0.32 0.52 0.20
Loans and advances 1.79 1.61 0.18
Advances against purchases 0.02 0.24 0.22
Advance against capital goods 0.01 0.59 0.58
Total – (A) 14.22 24.01
CURRENT LIABILITIES
Outstanding liabilities 1.30 1.6 0.30
Creditors for purchase 6.04 13.45 7.41
Creditors for capital goods 0.29 0.29
Advances against sales 0.53 0.95 0.42
Total – (B) 8.16 16.00
Net current assets (A-B) 6.06 8.01
Increasing working capital 1.95 1.95
8.01 8.01 10.26 10.26
Table 5.5 Adjusted profit and loss account of G.S.Alloy Casting Limited during
the period of 2006-07
Dr Cr

Particulars Amount Particulars Amount

Rs. Rs.
(Crores) (Crores)

To Depreciation 2.79 By Balance b/d 0.05

To Preliminary Expenses 0.04

To Balance c/d 0.24 By Funds from 3.02

operations

3.07 3.07
Table 5.6 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 shares application 0.39 Payment of secured loans 0.30

money

Issue of secured loans 0.01 Purchase of fixed assets 0.98

Funds from operations 3.02 Decreasing deferred tax 0.19

Increasing working capital 1.95

3.42 3.42
INTERPRETATION:
From the above table 5.4 it is observed that the Working Capital of the company
shows increased trend. The current assets of the company was increased Rs.14.22
crores in 2005-06 to Rs.24.01 crores in 2006-07. The current liability of the company
is increased from Rs.8.16 crores in 2005-06 to Rs.16.00 crores in 2006-07. In 2005-
06 the net working capital of the company stood at Rs.6.06 crores and it was
increased to Rs.8.01 crores in 2006-07.

It is evident from the above table 5.6 that the total funds flow during the period
from 2006-07 amount Rs.3.42 crores. In the total funds 3.02crores was received
from funds from operation, 0.39 lakhs from issue of share application money, 0.01
lakhs from unsecured loans.

Regarding the application of funds 0.30 lakhs is used for payment of secured
loans, 0.30 lakhs for redemption of secured loans, 0.98 lakhs for purchasing fixed
assets, and increasing working capital was 1.95 crores
 Table 5.7 Statement of changes in Working Capital of G.S. Alloy Casting Limited during the
period 2007-08

(Rs in crores)
Particulars 2007 2008 Effect on working capital
Increase Decrease
CURRENT ASSETS
Inventories 7.25 6.96 0.29
Sundry debtors 13.80 14.80 1.00
Cash and bank balance 0.52 1.02 0.5
Loans and advances 1.74 1.91 0.17
Advances against purchases 0.24 0.24 0.00
Advance against capital goods 0.59 - 0.59
Total – (A) 24.14 24.93
CURRENT LIABILITIES
Outstanding liabilities 1.6 1.52 0.08
Creditors for purchase 13.45 13.78 0.33
Creditors for capital goods - -
Advances against sales 0.95 0.89 0.06
Total – (B) 16.00 16.19
Net current assets (A-B) 8.14 8.74
Increasing working capital 0.6 0.6
8.74 8.74 1.81 1.81
 Table 5.8 Adjusted Profit And Loss Account of G.S.Alloy Casting Limited during
the period of 2007-08
Dr Cr

Particulars Amount Particulars Amount

Rs. Rs.
(In Crores) (In Crores)

To Depreciation 2.52 By Balance b/d 0.22

To Preliminary Expenses 0.04

To Balance c/d 0.01 By Funds from operations 2.35

2.57 2.57
Table 5.9 Funds Flow Statement of G.S.Alloy Casting Ltd during the period of
2007-08

Sources Rs. Application Rs.

(in
( in crores) crores)

Issue of shares application 0.52 Purchase of fixed assets 5.6

money

Raising of secured loans 3.17 Increasing working capital 0.6

Raising of unsecured loans 0.30 Increasing deferred tax 0.14

Funds from operations 2.35

6.34 6.34
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.24.14
crores in 2006-07 to Rs.24.93 crores in 2007-08. The current liability of the company is
increased from Rs.16.00 crores in 2006-07 to Rs.16.19 crores in 2007-08. In 2006-07
the net working capital of the company stood at Rs.8.14 crores and it was increased to
Rs.8.74 crores in 2007-08.

It is evident from the above table 5.9 that the total funds flow during the period
from 2006-07 amount Rs. 6.34 crores. In the total funds 2.35 crores was received from
funds from operation, 0.52 lakhs from issue of share application money, 0.30 lakhs
from unsecured loans.

Regarding the application of funds 3.17 lakhs is raised from secured loans,
received from unsecured loans Rs. 0.30 lakhs, 5.6 crores for purchasing of fixed
assets, and increasing working capital is 0.6 lakhs, 0.14 increase in deferred tax.
Table 5.10 Statement of Changes in Working Capital Of G.S Alloy Casting Limited during the period 2008-
09
(Rs in crores)

Effect on working capital

Particulars 2008 2009
Increase Decrease
CURRENT ASSETS
Inventories 6.96 6.00 0.96
Sundry debtors 14.80 21.00 6.2
Cash and bank balance 1.02 0.32 0.7
Loans and advances 1.91 1.6 0.31
Advances against purchases 0.24 0.23 0.01
Advance against capital goods - 3.31 3.31
Total – (A) 24.93 32.28
CURRENT LIABILITIES
Outstanding liabilities 1.6 1.75 0.15
Creditors for purchase 13.8 20.11 6.31
Creditors for capital goods - -
Advances against sales 0.9 0.73 0.17
Total – (B) 16.3 22.59
Net current assets (A-B) 8.63 9.69
Increasing working capital 1.06 1.06
9.69 9.69 9.50 9.50
Table 5.11 Adjusted Profit And Loss Account of G.S.Alloy Casting Limited during
the period of 2008-09
Dr Cr

Particulars Amount Rs Particulars Amount Rs

(in crores) (in crores)

To Depreciation 2.53 By Balance b/d 0.01

To Preliminary Expenses 0.04

To Balance c/d 0.11 By Funds from operations 2.68

2.69 2.69
 Table 4.12 Funds Flow Statement of G.S.Alloy Casting Limited during the
period of 2008-09

Sources Rs. Application Rs.

( in crores) ( in crores)

Issue of shares application 0.22 Reduction of unsecured 0.07

money loans

Raising of secured loans 2.8 Purchase of fixed assets 3.92

Funds from operations 2.68 Increasing working capital 1.06

Increasing differed tax 0.07

Preoperative expenses 0.57

5.7 5.7
INTERPRETATION:

From the above table 5.10 it is observed that the working that the working capital of the
company shows increased trend. The current assets of the company have increased from
Rs.24.93 crores, in 2007-08 to Rs.24.93 crores in 2008-09. The current liability of the company
is increased from Rs.16.3 crores in 2007-08 to Rs.22.59 crores in 2008-09. In 2007-08 the net
working capital of the company stood at Rs.8.63 crores and it was increased to Rs.9.69 crores
in 2008-09.

It is evident from the above table 5.12 that the total funds flow during the period from
2008-09 amount Rs.5.7 crores. In the total funds 2.68 crores was received from funds from
operation, 0.22 lakhs from issue of share application money, 2.8 crores from secured loans,
and 0.07 lakhs from unsecured loans.

Regarding the application of funds 3.92 crores for purchasing fixed assets, and
increasing working capital is 1.06 lakhs.0.07 lakhs increasing differed tax.
Table 4.13 Statement of Changes in Working Capital of G.S Alloy Casting Limited during the period 2009-
10
(Rs in crores)

Particulars
2009 2010 Effect on working capital
Increase Decrease
CURRENT ASSETS
Inventories
6.00 6.00 0.22
Sundry debtors
21.00 21.00 0.31
Cash and bank balance
0.32 0.32 0.32
Loans and advances
1.62 1.6 0.67
Advances against purchases
0.20 0.23 0.04
Advance against capital goods
3.31 3.31 2.19
Total – (A)
32.25 32.28
CURRENT LIABILITIES
Outstanding liabilities
1.75 2.41 0.65
Creditors for purchase
20.11 17.66 2.50
Creditors for capital goods
Advances against sales
0.73 0.80 0.07
Total – (B)
22.59 20.87
Net current assets (A-B)
9.66 9.89
Increasing working capital
0.23 0.23
9.89 9.89 3.6 3.6
Table 5.14 Adjusted Profit and Loss Account of G.S.Alloy Casting Ltd during the
period of 2009-10
Dr Cr

Particulars Amount Particulars Amount

Rs Rs
(in crores) (in crores)

To Depreciation 3.3 By Balance b/d 0.11

By Preliminary Expenses 0.04

To Balance c/d 1.64 By Funds from operations 4.79

4.94 4.94
Table 5.15 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 money 0.22 Reduction of secured loans 1.18

Raising of pre-operative expenses 0.57 Reduction of unsecured loans 0.01

Raising Funds from operations 4.79 Purchase of fixed assets 3.96

Increasing working capital 0.23

5.38 5.38
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.32.25 crores, in 2008-09 to Rs.30.76 crores in 2009-10. The current
liability of the company is decreased from Rs.22.59 crores in 2008-09 to Rs.20.87
crores in 2009-10. In 2008-09 the net working capital of the company stood at Rs.9.66
crores and it was increased to Rs.9.89 crores in 2009-10.
It is evident from the above table 5.15 that the total funds flow during the period
from 2009-10 amount Rs.5.38 crores. In the total funds 4.79 crores was received from
funds from operation, 0.22 lakhs from issue of share application money, 0.57 lakhs
from pre-operative expenses.
Regarding the application of funds1.18 crores is used for payment of secured
loans, 0.01 lakes for redemption of unsecured loans, 3.96 crores for purchasing fixed
assets, and increasing working capital is 0.23 lakhs.
 FINDINGS:

An overview of working capital position of the company has been increasing

during the period of 2005-06 to 2009-10. 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.

The funds from operations of G.S.Alloy casting limited during the period of
2005-06 to 2009-10. 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 2009-10.

The funds flow statement of G.S. Alloy casting limited during the period of 2005-
06 to 2009-10, it was decreased of sources and applications of this company for the
above said period, and during the period of 2005-06 it was Rs. 14.5 crores where as
in 2009-10. This was reduced Rs. 5.38 crores.
 SUGGESTIONS

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.

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.

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
used up.
Thank you