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INTRODUCTION
The success of business beside other things depends upon the manner in
which its Cash flow is managed. Thus, Cash flow is required as the life and
blood of business concern.
Cash flow management in simple term is the flow of funds which a
company must have to finance its day to day operation.
It includes the form near cash asset or even assets a little further from
cash but yet in process of moving towards the cash from in short period. It
comprises of stock of finished goods, semi-processed items, sundry
debtors, cash and short-term investment, if any.
Cash flow management throws light on adequacy of the firm and also risk
of bankruptcy. If firm do not have adequate Cash i.e. it does not invest
sufficient funds in current assets, it may become liquid and consequently
may not have ability to met its current obligation and thus, invite risk of
bankruptcy. It also focuses on key strategy and consideration trade off
between profitability and liquidity of the firm.
Management of Cash flow gives financial position, profitability and also
efficient use of an individual current asset like cash, receivables and
inventory.
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OBJECTIVES
Ways to reduce the amount of cash paid out includes having fewer
inventories, reducing purchases of equipment or other fixed assets,
or eliminating some operating expenses.
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• The company executives were able to give valuable time only for a few
days in a week. Hence the required information could not be obtained.
• This project report is based on the analysis of two years data which
may not be sufficient to in some cases.
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RESEARCH METHODOLOGY
Definition of Research:
The word research is derived from the Latin word meaning to know.
It is a systematic and a replicable process, which identifies and defines
problems, within specified boundaries. It employs well-designed method to
collect the data and analyses the results. It disseminates the findings to
contribute to generalize able knowledge. The characteristics of research
presented below will be examined in greater details later are:
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Primary Data:
Secondary Data:
It was collected from the P&L A/c, balance sheet, reference books
based on financial management & management accounting. The various
books helped in understanding the various theoretical concepts
associated with the project such as the significance of Cash flow
management & the way to interpret various funds. All the figures
required to carry out the ratio analysis were gathered from financial
statements such as P&L A/c, Balance sheet of the company
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Website : www.verrocengg.com
Constitution : Partnership Firms
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Companies Clients :
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Infrastructure facility:
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Preamble:
Varroc Group saw a vast potential in the automobile industry and focused
on manufacturing and supplying of different components as well as setting
up subassemblies for the booming automobile, consumer durable and
white goods industry.
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Quality Efficiency
Cost Innovation Innovation
Delivery Reliability
Beginning with a venture in Aluminum Die Casting in 1985, the Jain Group
made a successful foray into the automobile industry by manufacturing
engineering products. However, with plastics making its presence felt in
different aspects of life, the Jains foresaw a vast potential to expand its
business in the booming automobile and consumer durable industries. This
far-sight enabled them to sow the seeds of successful foray into polymer
engineering. Consequently, Varroc Engineering was setup in the year
1990. It is operating through two divisions: Metallic and Electrical..
Market Segments:
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Engine Valves.
Crank pins for motorcycles.
Hot, cold & warm forged machined components.
Catalytic converters for 2, 3 and 4 wheelers.
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Varroc therefore offers a “one stop shop” for engineering plastics, with the
capability to design a product based on only broad requirements provided
by the client. This represents significant value addition over generic
manufacturing of plastic moulded components.
Tool Room:
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SERVICES OFFERED:
VISION:
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MISSION:
HR Strategies:
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HR Objectives:
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STRENGTH:
1. Pioneer,
2. Goodwill,
3. Quality,
4. Top management acceptance to dynamism,
5. Growing stage of product life cycle.
WEAKNESS:
OPPORTUNITIES:
THREATS:
1.Increasing competition,
2.Increasing substitutes inn various areas for aluminium logos, names,
plates & label,
3.Very less product differentiation,
4.Low diversity.
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INTRODUCTION TO
CASH FLOW STATEMENT
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Cash flow is one of the most important aspects of running any business -
large or small. It is one of the single most important reasons why many
businesses fail - regardless of how good the business is. Managing cash
flow therefore is vitally important in the smooth running, survival and
success of a business. This activity will look at what cash flow is, and use
some examples to show how cash flow can make the difference between
success and failure. Failure in this case means insolvency. If you are
insolvent then you are unable to pay your debts. We often use the term
'bankrupt' to describe this but strictly, only an individual can be declared
bankrupt. Companies are declared as insolvent. The principle however is
the same. Some firms deal with so-called 'personal insolvency' which
effectively means bankruptcy so the use of the terms can sometimes be
confusing!
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Cash flow should not be confused with 'profit' - these are two different
things. Profit refers to the difference between the total revenue (TR) and
total cost (TC) over a period of time.
Most businesses, when starting up, will have to spend money to get things
set up. In the example of the fruit business, the students had to spend out
money on buying some of the main things they needed to run the business
- the shed, the lab coats, the display boxes and the money box.
These represented their 'fixed costs' - the costs that do not depend on the
level of output or sales.
It should be clear from what we have said so far that the business will
have to pay out money in order to carry out its activities. This is its
'expenditure'.
A business has a responsibility to pay all sorts of bills in carrying out its
activities. In our simple example we have tried to keep the amount of
information to a minimum. In a real business the firm will be paying out
for all sorts of things. This will include paying wages to staff, insurance
premiums, interest on loans, rent for premises, postage costs, heating,
lighting, telephone bills, payments for paper, computers, photocopiers,
water bills, rates and so on.
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Some of these costs have to be paid monthly, others perhaps every three
months, some might be paid yearly and in some cases costs might be
incurred every day. In many cases, the business will know when it has bills
that it has to pay.
The people to whom a business owes money are called the 'creditors'. If
you enter into an agreement as a business with a creditor, you have an
obligation to pay them. If you do not pay then the creditor could take you
to court to force you to pay your debts. If this happens with lots of
creditors then this could be the thing that causes the firm to become
insolvent.
To balance this out, the firm receives money from selling its goods and
services. In our simple example, Fruit28 receives revenue from selling
fruit. The revenue they receive depends on the amount they sell (Q) and
the price that they charge (P). We can say therefore that Total Revenue
(TR) = P x Q.
Bills will arise for all sorts of things - they all represent a flow of money
out of the business and the business has to make sure it has enough cash
to cover these debts when they are due.
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A firm will normally send an invoice to its customers to notify them how
much they owe. The people who owe money to a firm are called 'debtors'.
Payments do not always arrive when they should, however, which can be
the start of the cause of cash flow problems
Some firms might see revenue rise at certain times of the year but at
other times sales might be very slow. Toy shops for example, might
expect to receive the vast majority of the revenue from sales in the period
from September to December. The period from February to August might
be very slow.
Revenue, therefore, does not come in at the same time as costs have to
go out. This is the main problem facing firms and the whole point about
cash flow. A firm has to manage its cash to ensure that it has enough
money coming in to pay its bills. If it cannot pay a bill for some reason, it
could perhaps negotiate with the creditor to delay the payment. However,
it cannot keep doing this!
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These 'cash needs' of the firm would not be met should a business have its
monies tied up in other areas. Examples include:
Credit sales - Having sold goods for n days of credit (ie company to
be paid in n days). Credit sales is ok but too much would have
effects on the business especially if it is not managing its cash flow.
Assets - Purchases of assets like buildings and machinery must be
checked against the cash flow management capacity of a firm given
that they would become cash flow burdens to the firm after a
purchase.
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The diagram above helps to understand this idea of a 'flow'. If the money
coming into the business is more than that going out, the business will
have a surplus of cash.
For a new firm, they might do this based on the market research they
have conducted prior to starting in business. For an established firm, they
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Receipts: This will be an estimate of the predicted sales revenue for each
month. This is found by multiplying the amount the firm thinks it will sell
by the price they charge.
Payments: This section will detail the payments that the firm expects to
have to make during the year. This will be added together to give a 'Total
Payments' box for each month.
Net Cash Flow: This will show the difference between the total payments
and the receipts. For example, if in January a firm expects to receive £500
in revenue but will expect its total payments to be £650, it will have a net
cash flow of -£150. This can either be put into the box as a minus number
or is sometimes put in brackets (£150) to show that it is a negative figure.
Opening Balance: This shows the money that a firm has carried over
from a previous month. For example, in the case above, the firm would
have to show that it had a negative cash flow of -£150 carried over from
January in the box for 'opening balance' for February.
Closing Balance: This is the difference between the net cash flow figure
and the opening balance.
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plus changes to working capital. Over the medium term this must be
net positive if the company is to remain solvent.
Financing cash flows: Cash received from the issue of debt and
equity, or paid out as dividends, share repurchases or debt
repayments.
Purpose:
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The cash flow statement is partitioned into three segments, namely: cash
flow resulting from operating activities, cash flow resulting from investing
activities, and cash flow resulting from financing activities.
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The money coming into the business is called cash inflow, and money
going out from the business is called cash outflow.
Operating activities:
Interest payments
Items which are added back to [or subtracted from, as appropriate] the
net income figure (which is found on the Income Statement) to arrive at
cash flows from operations generally include:
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Deferred tax
Investing activities:
Financing activities:
Financing activities include the inflow of cash from investors such as banks
and shareholders, as well as the outflow of cash to shareholders as
dividends as the company generates income. Other activities which impact
the long-term liabilities and equity of the company are also listed in the
financing activities section of the cash flow statement.
Payments of dividends
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Dividends paid
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Preparation methods:
Direct method:
The direct method for creating a cash flow statement reports major classes
of gross cash receipts and payments. Dividends received may be reported
under operating activities or under investing activities. If taxes paid are
directly linked to operating activities, they are reported under operating
activities; if the taxes are directly linked to investing activities or financing
activities, they are reported under investing or financing activities.
Indirect method:
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Rules:
The following rules are used to make adjustments for changes in current
assets and liabilities, operating items not providing or using cash and
nonoperating items.
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Definition:
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Objective:
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Procedure:
Most of the entries for the cash flow spreadsheet are self-
explanatory; however, the following suggestions are offered to
simplify the procedure:
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ASSUMPTIONS
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CONCLUSIONS
The cash position at the end of each year should be
adequate to meet the cash requirements for the following
year. If too little cash, then additional cash will have to be
injected or cash paid out must be reduced. If there is too
much cash on hand, this money is not working for your
business.
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SUGGESTIONS
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Actual
Sr.no. Particulars SCH 2006 2007 2008
A Income:
Sales Including Excise Duty 6,556.81 8,924.17 8,425.12
Less:
Excise Duty 759.02 1,165.99 1,170.04
Net Sales 5,797.79 7,758.19 7,255.08
Other Income 13 21.66 30.07 16.42
5,819.45 7,788.26 7,271.50
B Expenditure:
Materials 14 5,170.00 6,163.08 5,962.03
Expenses 15 564.81 633.01 568.81
Interest 16 90.03 109.98 115.87
Depreciation/Amortisation 79.12 63.45 71.57
5,903.97 6,969.52 6,718.28
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- - -
Schedule: 2
Reserves & Surplus
General Reserve
Balance brought Forward - - -
Schedule: 7
Inventories:
Raw Material 77.24 99.98 41.05
Work In Process 34.44 49.17 50.15
Finished Goods 9.76 3.47 2.84
Stores & Spares 19.76 20.29 31.37
Tools & Instruments 1.52 2.47 3.03
Packing Material 4.84 1.10
Stock of Trading Items 9.31 0.72
156.88 177.20 128.43
Goods In Transit - At Cost 41.36 263.51
198.24 440.72 128.43
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BIBLOGRAPHY
Books:
Web Resources:
www.verrocengg.com
http://ezinearticles.com/
http://asbdc.ualr.edu/
http://en.wikipedia.org/wiki/Main_Page
http://www.bized.co.uk/index.htmhttp
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