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A PROJECT REPORT ON FUNDS FLOW ANALYSIS AT PENNA CEMENT INDUSTRIES LIMITED TADPATRI.

BY

E.ASWARTHA REDDY
H.T.NO: 026-07-188 Project submitted in partial fulfillment for the award of the degree of MASTER OF BUSINESS ADMINISTRATION

PRIYADARSHINI COLLEGE OF BUSINESS

MANAGEMENT

(AFFILIATED TO OSMANIA UNIVERSITY) HYDERABAD (2007 - 2009)

DECLARATION

I hereby declare that the project report submitted by me on FUNDS FLOW ANALYSIS,at PENNA CEMENT INDURTIES LIMITED, submitted by me to the department of PRIYADARSHINI COLLEGE OF BUSINESS MANAGEMENT is a bonofied student work undertaken by me and it is not submitted to any Other University or institution for the award of any degree diploma/certificate or published any time before.

Date

Place : Hyderabad

(E.ASWARTHA REDDY)

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Mr. G.GOPAL REDDY Chief Administration & security manager, And Mr.Y.DHAYAKARA REDDY Finance Manager of PENNA CEMENT INDUSTRIES LIMITED their kind co-operation.

I would like to express my sincere gratitude to Smt.M.VIJAYA NIRMALA Principal Madam for permitting me to do my project

My gratitude to our Head of the department Ms. S.MARY RAJAMANI MBA, M.Phil, Department of Business Management Studies, PRIYADARSHINI COLLEGE OF BUSINESS MANAGEMENT , D.K ROAD , AMEERPET

My sincere thanks to Mrs. P.KALYANI MBA, faculty of Finance Department, for her proper guidance throughout the project and I am deeply indebted to them.

(E.ASWARTHA REDDY)

ABSTRACT

Funds flow analysis helps in judging the efficiency of financial functions and administration of a business by providing a summary of the sources from which funds have be procured and uses to which such funds have been put to.

A projected funds flow statement will help the analyst in finding out as to how the management is going to allocate the scare financial resources for meeting productive requirements of the business.

It is the responsibility of the organization to maintain a standard level of funds flow neither excess or deficit.

S.NO

CONTENTS

PAGE.NO i ii 1-6

LIST OF TABLES LIST OF GRAPHS I INTRODUCTION


RESEARCH METHODOLOGY
OBJECTIVES OF THE STUDY SCOPE OF THE STUDY

II III IV V VI

LITERARY REVIEW INDUSTRY PROFILE COMPANY PROFILE ANALYSIS & INTERPRETATION FINDINGS

7-41 42-50 51-62 63-74 75 76 77 78 79-86

VII SUGGESSIONS VIII CONCLUSION IX X BIBLIOGRAPHY ANNEXURE

LIST OF TABLES

Table No. 1 2 3 4 5 6 7 8

PARTICULARS STATEMENT OF CHANGES IN WORKING CAPITAL 2004-2005 FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH 31.12.2005 STATEMENT OF CHANGES IN WORKING CAPITAL 2005-2006 FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH 31.12.2006 STATEMENT OF CHANGES IN WORKING CAPITAL 2006-2007 FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH 31.12.2007 STATEMENT OF CHANGES IN WORKING CAPITAL 2007-2008 FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH 31.12.2008

PAGE No 63 65 66 68 69 71 72 74

LIST OF GRAPHS

Table No. 1 3 5 7

PARTICULARS STATEMENT OF CHANGES IN WORKING CAPITAL 2004-2005 STATEMENT OF CHANGES IN WORKING CAPITAL 2005-2006 STATEMENT OF CHANGES IN WORKING CAPITAL 2006-2007 STATEMENT OF CHANGES IN WORKING CAPITAL 2007-2008

PAGE No 64 67 70 73

INTRODUCTION

A funds flow statement is a technical device designed to analyze, the changes

in

the financial condition of a business enterprise between two years. It is also called as a statement of sources and applications of funds . The funds flow statement is becoming popular with the management because it not only helps them in analyzing financial operations, providing basis for comparison with budgets, and serving as a tool of communication, but also explains the financial consequences of such operations suchas the reason why the company is experiencing difficulty in making payments to creditors or why the bank balance is getting thinner.

There is a general recognition in industry and business and among professional accounting bodies that financial statements should provide relevant information which sub serves the multiple objectives of shareholders, investors, creditors, customers and the public and which enable them to arrive at rational economic decisions. Normally what the shareholders look for in these statements is an account of the stewardship of the firm and the amount which may be expected as dividend. Potential investors look upon funds flow statements as the source of there realistic view of the value of a companys shares in terms of an expected futures stream of distribution and judge the efficiency of the management accordingly. 1

MEANING OF FUNDS Fund:


According to the dictionary meaning of the term Funds implies an accumulation or deposit of resources from which supplies are may be drawn a more or less permanent store or supply. It is also defined as available pecuniary resources but these two meanings are abroad in nature and apt to macro level planning and control. A number of definitions of the term fund have been given. Some people call fund as cash. But it is seen in practice that the current assets are constantly circulating through cash account in business operations and many transactions affect flow of cash at least later or sooner.

Meaning of Flow of Funds :


The term flow means movement and includes both inflow and out flow. The term flow of funds means transfer of economic values from one asset of equality to another. Flow of funds is said top have taken place when any transaction makes changes in the amount of funds available before happening of the transaction.

RESEARCH METHODOLOGY

OBJECTIVES
1. To study the financial statements of The Penna Cement Financial Services limited for the 4 years. 2. To analyze how The Penna Cement Financial Services is utilizing its resources. 3. To analyze the changes in assets and liabilities from the end of one period of the time to the end of another period of time 4. To find out the sources from which additional funds were derived and the use to which their sources were put.

SCOPE OF THE STUDY

The present study focuses as sources funds and application of funds for a period of time. The study is confirmed to find out the changes in the financial position of The Penna Cement Financial Services Limited between the beginning and ending financial Year.It is a technical device designed to analyze the changes in the financial condition of the business enterprises between two dates.

This funds flow statement is a statement which indicates various means by which the funds have been obtained during a certain period and the ways to which these funds have been used during the period.

The term funds used here means working capital that is the excess of current assets over current liabilities. It is an essential tool for the financial analysts and is of primary importance to the financial management.

Now a days it is being widely used by the financial analyst credit granting institutions and financial managers. The basic purpose of the funds flow statement is to reveal the changes in the working capital on the two balance sheet dates. It helps in the analysis of financial operations. It helps in the formation of realistic dividend policy. It helps in the proper allocation of resources. It helps in appraising the use of working capital and finally it acts as future guide. 4

Research
Research is a process in which the researcher wishes to find out the end result for a given problem and thus the solution helps in the future course of action. Redman and Mory defines research as a systematized effort to gain new knowledge.

Research Design

A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with company in procedure. In fact, the research design is the conceptual structure within which research is conducted; it constitutes the blue print for the collection, measurement and analysis of data.

Sources of Data:
The data was collected through primary and secondary sources.

Primary Data:
First hand information was collected using the direct personal interview. Interaction with guide to understand the general & specific aspects regarding utilization of resources.

Secondary Data:

Annual reports collected from the M/S Penna cement Ltd., Tadpatri.

Period of study:

The analyze presented in the study are Annual Reports of M/S PENNACEMENT, TADPATRI from 2004-2005 to 2007-2008

LIMITATIONS

It should remember that a funds flow statement is not a substitute of an income statement or a balance sheet. It provides only some additional information as regards changes in working capital

The study based on the available annual reports and internal information of Pennas cement Financial Services Ltd only.

It cannot reveal continuous changes.

PARTIES INTERESTED IN FINANCIAL ANALYSIS

There are different parties interested in the financial analysis of these statements. But their aim and objective of the analysis differ significantly. The users of the financial statements can be divided into tow broad groups:

(a) Internal users

(b) External Users.

Internal Users:

Financial Executives:

The first party interested in the financial statement analysis is the Finance Department of the company itself. This analysis helps the Financial Manager to have a deep insight into the financial condition of the enterprise.

Top Management:

The Top Management of the concern is also interested in the analysis of financial statements. It helps them in reaching conclusion on the following: Is the firm in a position to meet its current obligations? What sources of long-term finance are employed by the firm? How efficiently does the firm use its assets? Are the earnings of the firm adequate? etc.,

External Users:

Investors:
Those who are interested in buying the shares of a company are naturally interested in the financial statements to know how safe the investment already made is and how safe the proposed investment will be.

Creditors:

Lenders are interested to know whether their loan, principal and interested will be paid when due. Suppliers and other creditors are also interested to know the ability of the firm to pay their dues in time. 8

Workers:

In our country, workers are entitled to payment of bonus which depends on the size of profit earned. Hence, they would like to be satisfied that the bonus being paid to them is correct.

Customers:

They are also concerned with the stability and profitability of the enterprise. They may be interested in knowing the financial strength of the company to take further decisions relating to purchase of goods. Government: Financial analysis helps government in knowing the role and status of industry in general and companies in particular in framing Macro-Economic policies.

Researches:

The financial statements, being a mirror of business conditions, are of great interest to scholars understanding research in Accounting theory as well as business affairs and practices.

Significance of Financial Analysis:

Analysis of financial statement is carried out to measure the enterprises liquidity, profitability, solvency and other indicators to assess its operating efficiency, financial position and performance. Financial analysis serves the following purpose:

To know the operational efficiency of the business. Helpful in measuring the solvency of the firm. Helpful in comparison of past and present results. Helps in measuring the profitability. It is more helpful in inter-firm comparison. Helps in judging the solvency of the undertaking.

Types of analysis:

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

Vertical Analysis Horizontal Analysis

The Companies Act, 1956 permit the companies to present the financial statements in vertical as well as horizontal form. 10

Vertical Analysis:

It is the analysis of relationship as between different individual components for a given period of time. Comparison of current assets to current liabilities or comparison of debt to equity for one point of time is the examples of vertical analysis. It can be made in the following ways.

By preparation of common size statements of the two similar units. By preparing common size statement of different years of the same business.

Horizontal Analysis:
It is the analysis of changes in different components the financial statements over different periods with the help of a series of statements. Study of trends in debt or share capital or their relationship over the past ten years period or study of profitability trends for a period of five years or ten years are examples of horizontal analysis. It comprises:

Comparison of the financial statements of different years of the same business unit.

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

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Methods of Analysis:

A financial analyst can adopt the following tools for analysis of the financial statements. These are also termed as Methods of Financial Analysis.

Comparative Statement Analysis. Common-size Statement Analysis. Trend Analysis. Funds flow Analysis. Cash flow Analysis. Ratio Analysis.

Comparative Statement Analysis:

Comparative financial statements are those statements which are designed to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements figures for two or more periods are shown side by side to facilitate comparison. Both the income statement and balance sheet can be prepared in the form of comparative financial statements.

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Common-size Statement Analysis:

Common-size statement is a financial tool of studying key changes and trends in financial position of a company. In common-size statement, each item is stated as percentage of the total of which that item is a part, each percentage exhibits the relation of the individual item to its respective total. Therefore, the common-size percentage method represents a type of ratio analysis. That is why this statement is also designated as component percentage or 100 percent statement. Preparation of the common-size statement involves two steps:

State the total of the statement as 100 percent. Compute the ratio of each item to the total in the statement

There are tow types of common-size statements, viz., common-size income Statement and Balance Sheet.

Trend Analysis:
Trend analysis depicts behavior of the ratios over a period of time and the trends in the operation of the enterprise. The trend figures are index figures giving a birds eye view of the comparative data by presenting it over a period of time. This is horizontal analysis of financial statement, often called as Pyramid Method of Ratio Analysis a guide to yearly changes. 13

Under this form of analysis, generally financial ratios are studied for a specified number of years. It is a dynamic analysis depicting the changes over a stated period. The working of trend analysis involves the following three steps:

Selection of the base year. Assignment of an index number of 100 to each item of the base year. Calculation of percentage relationship that each item bears to the same item in the base year

Ratio Analysis:

Ratio Analysis is powerful tool of financial analysis. The relationship between two accounting figures, expressed mathematically, it is known as a financial ratio. In financial analysis, a ratio is used as a benchmark for evaluating financial position and performance of a firm. Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firms financial performance.

Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. In view of the requirements of the various users of ratios.

14

We may classify them into the following categories:

Liquidity Ratios. Leverage Ratios. Activity Ratios. Profitability ratios.

Financial analysis is the processes of identifying the financial strengths and weaknesses of the firm by properly 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.

Users of Financial Analysis:

Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relationship between the items of the Balance Sheet and the Profit and Loss Account financial analysis can be under taken by management of the firm of by parties outside the firm viz., Owners, Creditors, Investors and others. The nature of analysis will differ depending on the purposes of the analyst.

15

Trade creditors:

Trade creditors are invested in firms ability to meet the climes over very short period of time. Their analysis therefore, confine to the revolution of the firms liquidity position.

Suppliers of long term debt:

On the other hands are concerned with the firms long term solvency and survival. They analyze the firms profitability over time its ability to generate cash to be able to pay interest and repay principle and the relationship between various courses of funds.

Investors:

Who have invested their money in the firms shares are must be concerned about the firms earnings. They restore more confidence in those firms. That show study growth in earnings as such they concentrate analyzing the firms present and future profitability.

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Management:

Management of the firm would be invested in every aspect of the financial analysis. It is their over all responsibility to see that the resources of the firms are used most effectively and efficiently and that the firms financial condition is sound.

Funds Flow Analysis:

Significant technique of financial analysis is FUNDS FLOW ANALYSIS. It is designed to highlight changes in the financial condition of a business concern between concern between two points of time which generally conform to beginning and ending financial statement dates.

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.

17

MEANING AND CONCEPT OF FUNDS

Fund:

According to the dictionary meaning of the term Funds implies an accumulation or deposit of resources from which supplies are may be drawn a more or less permanent store or supply. It is also defined as available pecuniary resources but these two meanings are abroad in nature and apt to macro level planning and control. A number of definitions of the term fund have been given.

Some people call fund as cash. But it is seen in practice that the current 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 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 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. 18

The term funds have been defined in a number of ways.

In a Narrow Sense:

It means cash only and a funds flow statement prepared on this is called a cash flow statement. Such a statement enumerates net effects of the various business transactions on cash and takes into account receipts and disbursements of cash.

In Broader sense:

The term Funds refers to money values in whatever from it may exist here Funds means all means all financial resources used in business whatever in the firm of men, material, money, machinery and others.

In a Popular Sense:

The term Funds means working capital i.e., the excess of current assets over current liabilities. The working capital concept of funds has emerged due to fact that total resource of a business are invested partly in fixed assets in the form of fixed capital and partly kept in firm of liquid of near liquid form as working capital. 19

MEANING AND CONCEPT OF FLOW OF FUNDS

The term flow means movement and includes both inflow and out flow. The term flow of funds means transfer of economic values from one asset of equality to another. Flow of funds is said top have taken place when any transaction makes changes in the amount of funds available before happening of the transaction. If the effect of transaction results in the increase of funds, it is called source of funds and it results in the decrease of funds, it if known as an application of funds.

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 vise 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.

20

Funds Flow:

Here flow means changes, i.e., flow of funds means changes in working capital by business transactions. The business transaction brings the change in working capital either in the form of decrease or increase. Flow of fund involves in flow or out flow of fund. It means, transfer of economic values from one asset to another or equity to another, from an asset to an equity or vice versa.. if there is change in current assets and current liabilities in the same direction and by the same amount, there will be change only in their amount. The working capital or fund will be the same and hence there would be flow in such a situation.

PROCEDURE FOR KNOWING WHETHER A TRANSACTION RESULTS IN THE FLOW OF FUNDS OR NOT: Analyze the transaction and find out the tow accounts involved.

Make journal entry of the transaction. Determine whether the accounts involved in the transactions are Current or non-current. If both the accounts involved are non-current i.e., either permanent assets of permanent liabilities, it still does not result in flow funds.

If the accounts involved are such that one is a current account while the other is a noncurrent i.e., current assets and permanent liability and fixed assets or current liability and permanent liability then it results in flow of funds. 21 In any business we cannot under estimate the flow of funds from two operations. The

business runs with funds but the organization knows how much important the flow of funds is.

The Funds Flow Statement is concerned with sources and applications of organization. Statement of changes in working capital shows the increase or decrease in working capital. Funds from Operation statement shows how much funds from operations.

IMPORTANCE OF FUNDS FLOW ANALYSIS:

The importance of funds Flow analysis and ratio analysis in all undertakings needs no emphasis. How is it managed? What are the practices adopted? What are the problems faced? This study is an attempt to answer the questions. This is considered to M/S. PENNA CEMENT LIMITED, TADPATRI.

Funds Flow Statement, Income Statement and Balance Sheet:

Funds Flow Statement is not a substitute of an income statement i.e., a Profit and Loss Account, and a Balance Sheet. The Profit and Loss Account is a document, which indicates the extent of success achieved by a business in earning profits. 22 A balance sheet is a statement of financial position or status of business on given date. It is prepared at end of accounting period. The balance sheet depicts various resources of an understanding and the deployment of these resources in various assets on a particular date. As it indicates the financial condition on a particular date, it is static in nature; while funds flow statement is a dynamic one.

Funds Flow Statement tells us many financial facts, which a balance sheet cannot tell. Balance sheet does not disclose the cause for change in the assets and liabilities between two different points of time. Again, while balance sheet is the end result of all accounting operations for a period of time? The funds flow statement provides additional information as regard changes in working capital derived from financial statements at two points of time. management for financial analysis and helps in making decisions. It is a tool of

1. It helps in the Analysis of Financial operations:


The financial statements reveal the net effect of various transactions on the operational and financial position of the concern. The balance sheet gives a static view of the resource of a business and these have been put at a certain point of time. But it does not disclose the causes for

changes in the assets and liabilities between two different points of time. The funds flow statements explains cause for such changes and also effect these changes on the liability position of the company. Some times concern may operate profitability and yet its cash position may become more and worse. The funds flow statement gives a clear answer to such a situation explaining what happened to the profits firm. 23

2. It throws light on May perplex Questions of general interest:

Why were the net current assets lesser in spite of higher profits and vise versa? Why more dividends could not be declared in spite of available profits? How was it possible to distribute more dividends than the present earnings? What happened to the profit and where it has gone? What happened to the proceeds of sales of fixed assets, issue of shares, debentures, etc?

3. It helps in the Formation of Business of Realistic Dividend Policy:

Sometimes a firm has sufficient profits available for distributing as dividend but yet may not be available to distribute for cash resources. In such cases a funds flow statement helps in the information of a realistic dividend policy.

4. It helps in the proper Allocation of Resources:

The resources of a concern are always limited and it wants to make the best use of these resources. A project funds flow statement constructed for the future helps in making managerial decisions. The firm can plan the development of its resources and allocate them many various applications. 24

5. It Acts as a Future Guide:

A projected funds flow statement also acts as a guide for future to the management. The management can come to know the various problems it ids going to face in near future for want of funds. The firms future needs of funds can arrange to finance these needs more effectively and avoid future problems.

6. It helps in appraising the use of Working Capital:

A funds flow statement helps in explaining the management has its working capital and also suggest way the management has used its working capital position of the firm.

7. It helps knowing the Overall credit Worthiness of a firm:

The financial institution and banks such as state financial institutions, industrial development corporation of India, Industrial Development Bank of India etc., all ask for funds flow statement constructed for a number of years before granting loans to know the credit

worthiness and paying capacity of firm. Hence a firm is seeking assistance from these institutions has to know alternate but to prepare functional statement.

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LIMITATIONS OF FUNDS FLOW STATEMENT:

The Funds Flow Statement has a number of uses: however, it has certain limitations also, which are listed below.

It should remember that a Funds Flow Statement is not a substitute of an income statement or a balance sheet. It provides only some additional information as regards chances in working capital.

It cannot reveal continuous changes. It is not an original statement but simply is arrangement of date given in the financial statements.

It is essentially historic in nature and project funds flow statement cannot be prepared with much accuracy.

Changes in cash are more important and relevant for financial management than the working capital.

26

Business transactions and flow of funds:

It may be noted at this stage of analysis that for the purpose of funds flow statement, the items of balance sheet are classified into two broad categories viz.,Items of current accounts and Items of non-current accounts.

Current account Items

Current assets Cash in hand Cash at bank (including fixed deposits) Bills receivable Trade or sundry debtors Inventory-Raw-materials, work in-progress, Finished Goods, Stores,etc Prepaid expenses Outstanding incomes Short-term loans and advances Temporary investments, etc

Current liabilities Bills payable Trade or sundry creditors Outstanding expences Cash credit/bank overdraft Short-term loans Income received in advance Long-term loans (or part) which fall due for repayment within a year Provision for doubtful debts and discount on debtors

27

Non-current Account Items


Non-current assets Land and Buildings Plant and Machinery and vehicles Furniture and fittings Goodwill Patents, trade marks, copy rights, preliminary expenses and profit and loss account(deficiency),etc Non-current liabilities Equity share capital Preference share capital Debentures Reserves and surplus Long term loans

The word fund is to denote working capital. Funds flow there fore refers to the changes in the fund (i.e., working capital) by the transactions operational, financial and investment, though

the effect of all the transactions on the funds are considered, it should be remembered here that not all the transactions cause the flow of funds .

28

Transactions Affecting Flow of Funds:

Increase in current assets but not any increase in current liabilities. Decrease in current assets but not any decrease in current liabilities. Increase in current liabilities but not any increase in current assets. Decrease in current liabilities but not any decrease in current assets.

Transactions not Affecting Flow of Funds:


(CHANGE IN WORKING CAPITAL)

Transactions which make conversions of one current into another current assets. Transactions which make conversions of one current liability into another current liability.

Transactions

which

bring

increase

or

decrease

in

current

assets

causing a corresponding increase or decrease in current liabilities by the same amount.

29

Funds Flow Statement:

The Funds Flow Statement is also known as FUNDS FLOW ANALYSIS. There are several names for this statement; some are

Statement of sources and applications of funds. Statement of inflow and outflow of funds. Statement of Fund Supplied and Applied. Statement of Resources provided and Applied. Where got and where gone Statement.

Where its name may be the various factors for inflow and outflow of working capital area shown in a statement, particularly prepared for this purpose, which is known a Funds Flow

Statement. This statement reveals the manner in which the financial resources have been generated and deployed during the accounting period. This statement is also considered as an important one as the two traditional financial statements as it supplies important information for the users. In brief it may be said that fund statement focuses on the flow of funds between the various assets and equity items during the accounting period and on analysis basis this statement is generally called as Funds Flow Analysis.

30

IMPORTANCE OF FUNDS FLOW STATEMENT:

The balance sheet and profit and loss account failed to provide the information which is provided by Funds Flow statement i.e., changes in financial position of an enterprise. This statement indicates the changes in financial position of an enterprise.

This statement indicates the changes which have taken place between the two accounting dates.

Gives details of sources and uses of funds during given period is of great help to the users of financial information.

It is also a very useful tool in the hands of management judging the financial and operating performance of the company.

It also indicates the working capital position which helps the management in taking policy decisions regarding dividend etc.,

Funds Flow statement helps in answering questions like where the profits have gone? Why there is imbalance existing between liquidity position and profitability position of the enterprise? Why is the concern financially solid in spite of losses?

It helps management to take policy decisions to decide about the financing policies and capital expenditure programmed for future.

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DIFFERENCE BETWEEN FUNDS FLOW STATEMENT AND BALANCESHEET

FUNDS FLOW STATEMENT

BALANCE SHEET

1.

It is a statement of changes in Financial position and hence is Dynamic in nature

1. It is a statement of financial position on a particular date and hence static in nature. 2. It depicts the assets and funds liabilities at a Particular point of time. 3. It is not of much help to management in making Decisions. 4. No such schedule of

2. It shows the sources and Applications of funds in a Particular period of time. 3. It is a tool of management for Financial analysis and helps in Making decisions. 4. Usually, schedule of changes in

Working capital has to be prepared Before preparing funds flow Statement.

changes in working capital is required rather Profit & loss account is Prepared.

32

DIFFERENCE BETWEEN FUNDS FLOW & CAH FLOW STATEMENT

FUNDS FLOW STATEMENT

CASH FLOW STATEMENT

1. It is based on a wider concept of Funds, i.e., working capital. 2. It is based on accrual basis of Accounting. 3. Schedule of changes in working capital is required to be prepared. 4. Funds Flow Analysis reveals the sources and applications of funds the net difference between sources and application

1. It is based on a narrower concept of funds i.e., Cash. 2. It is based on cash basis of Accounting. 3. Schedule of changes in working capital is not required to be prepared. 4. It is prepared by taking the opening balance of cash, adding to this all the inflows of cash and deducting the

of funds represents net increase or decrease in working capital.

outflows of cash from the total, difference represents Closing balance of cash.

5. It is useful for long term planning.

5. It is more useful for short term analysis and cash Planning. 33

PROCEDURE FOR PREPARING A FUNDS FLOW STATEMENT

Funds Flow statement is a method by which we study changes in the financial position of a business enterprise between beginning and ending financial statements dates. Hence, the funds flow statement is prepared by comparing two balance sheets and worth the help of such other information derived form the accounts as may be needed.

Broadly speaking, the preparation of funds flow statement consists of two parts:

Statement of Schedule of Changes in Working Capital Statement of sources and Application of Funds

1. Statement of Changes in Working Capital:

Working Capital means the excess of current assets over current liabilities. Statement of Changes in Working Capital Is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of Current Assets and Liabilities derived with the help of Current Assets and Current Liabilities derived from the two balance sheets as:

34 Working Capital = Current Assets Current Liabilities.

An increase in Current Assets increase Working Capital A decrease in Current Assets decrease Working Capital An increase in Current Liabilities decrease Working Capital A decrease in current Liabilities increase Working Capital

The changes in all current assets and liabilities are merged into one figure only either an increase or decrease in working capital over the period for which funds statements has been prepared. If the working capital at the end of the period is more than the working capital at the beginning thereof, the difference is expressed as Increase in working capital. On the other hand, if the working capital at the end of the period is less than that at the commencement, the difference is called Decrease in Working Capital

2. Funds Flow Statement:

Funds flow statement is a final statement. It shows the amount used in a particular period of time i.e., Application of Funds and the how much amount comes into the organization in a particular period. Finally those application and sources are balanced.

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1) Schedule of changes in Working capital:

PARTICULARS

PREVI OUS YEAR

CURR ENT YEAR

EFFECT ON WORKING CAPITAL INCRE DECREA ASE SE ** **

CURRENT ASSETS Inventories Sundry Debtors Cash &Bank Loans& Advances * *** Total Current Assets(a) ** CURRENT LIABILITIES Current Liabilities Provisions * Total current liabilities(b) * *** * Working Capital (a-b) * Net increase or decrese in working capital ** * * *** ** * ** *** *** ** ** * * ** ** * *** ** ** ** * ** ** ** * *** ** ** ** ** * ** * * *** ** ** ** * * ** **

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2) Statement of sources and uses of funds:

Sources Funds from operations Issue of shares and Debentures Long-term Loans Sale of investment, Fixed assets, etc Non-trading Income Decrease in working capital

Amount Rs

Applications Redemption of preference shares and debentures Repayment of loan Purchase of Investment, Fixed assets, etc Non-Trading Expenses Increase in working capital

Amount Rs

*** *** *** *** *** *** ***

*** *** *** *** *** ***

Note:* Any one of these will find the place in the statement + Any one of these will find the place in the statement

Funds means working capital this working capital represents the difference between current assets, current liabilities. All flows of funds pass through working capital. This means that every transaction has an effect on the firms working capital position. 1. An example illustrates this as follows:2. An increase in profits increases the cash balance and hence working capital, 3. An increase in long term liability or any decrease in fixed assets increase the cash balance and hence working capital. 37 Therefore the Funds Flow Statement shows the movement of funds into or out of the current asset account of the firm. The movement of funds has two aspects:-

Sources of funds. Uses of funds.

The former supply funds to the working capital and enhances its position. On the other hand, the latter consume funds and erode the working capital position.

SOURCES OF FUND: Issue of new shares Issue of debentures Creation of long term liability Profit from operation

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. Merely only cash and stock will affect the fund as these are the companies of working capital. 38

Issue of Debentures:

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

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.

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.

Profit from Operations:

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

39

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 PREFERENCE SHARES ADDITION IN ASSETS

Loss from Operations:

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.

Discharge of Liability:

Any decrease in long term liability would be the indicator that fund ha 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. 40

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.

Redemption of Preference Shares:

If these preference shares are rendered 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.

Addition in Assets:

If these assets whether current or fixed are increased, it will be shown in the users 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 asset are accompanied by decrease in current assets or increase in current liability, there would certainly be out flow of fund.

41

INTRODUCTION

Cement Industry has been decontrolled from price and distribution on 1 st March 1989 and de licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry.

The constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance. The industry is subject to quality control order issued on 17.2.2003 to ensure quality standards.

CEMENT INDUSTRY IN INDIA

In India it came to be established during the beginning of 20th century. In fact the cement era in India commenced with the establishment of a small cement factory at WASHERMANPET in 1904 by South India industry Ltd. a company that dates to 1879. The potential capacity of this plant was only 10,000 metric tones per annum. This was the first attempt of manufacturing Portland cement with cat carious seashells as a principal raw material. There was sufficient demand for that product, but because of technological defects and inadequate supply of raw materials, the plant did not operate economically, a later on collapsed. 42

India is ranked forth in the world after China, Japan, and USA in cement production. Yet the per-capital consumption of cement in India however low at 70 to 80 kgs against the world average of around 220kgs.

CEMENT INDUSTRY IN ANDHRA PRADESH

Cement was first manufactured in America in the year 1875. In India, in 1914 the India Cements Company Limited was established a cement factory at Portland. Andhra Pradesh is the second largest cement production state in India, one third of the limestone (138crore tones) is available in A.P.I.A.P. the cement production was started in 1936 with two factories. Of these two factories one is Andhra Cement Company Limited and another in Krishna Cement Factory. One is on the side of Krishna Cement Factory. One is on the side of Krishna River and another is in between Krishna and Guntur districts respectively.

In 1995, one more factory was established at Panyam in Kurnool Dist., named as Panyam Cement and mineral industries. At the same time one more factory has been established at Maacherla in Guntur district. At the end of July 1985 the total capital invested on cement industry was Rs.427.81 lakhs and provided employment for 1262 persons and 19 factories were functioning with a production of 85lakh tones.

43

Capacity, Production and Exports

India today boasts 129 large plants and over 300 mini cement plants with a capacity of 165 million tones and production of 134 million tones (2004-05).

It ranks second in the world among cement producing countries, with per capita consumption at 118Kg compared to the world avg. Of around 317. Per capita consumption is 366 Kg in Thailand, 626 Kg in China, 606 Kg in Malaysia and 1216 Kg in South Korea. This indicates a huge potential for increase in consumption.

The Cement Corporation of India, which is a central public sector undertaking, has 10 units. Besides, there are 10 large cement plants owned by various state Governments. Keeping in view the past trends, a production target of 133 million tons has been set for the year 2004 05. During the Tenth Plan, the Industry is expected to grow at the rate of 10% per annum and is expected to add capacity of 40 52 million tons.

Mainly through expansion of existing plants and use of more fly ash inthe production of cement. A part from meeting the domestic demand, the cement Industry also contributes towards exports. The export of cement and clinker during the last three years is as under:-

44

Export of Cement
(In million tons)

Year 2005 06 2006 07 2007 08

Cement 3.47 3.36 3.31

Clinker 3.45 5.64 4.82

Total 6.92 9.00 8.13

Overview of the performance of the Cement Sector:


The Indian Cement Industry not only ranks second in the production of cement in the world but also produces quality cement, which meets global standards. However, the Industry faces a number of constraints in terms of high cost of power. High railway tariff; high incidence of state and central levies and duties; lack of private and public investment in infrastructure projects; poor quality coal and inadequate growth of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize excess capacity available with the cement Industry, the Government has identified the following thrust areas for increasing demand for cement:

(i) (ii) (iii) (iv)

Housing development programs; Promotion of concrete highways and roads; Use of ready mix concrete in large infrastructure projects; and Construction of concrete roads in rural areas under Prime Ministers Gram Sadak Yolanda.

45

Technological advancements

Indian cement industry is modern and uses latest technology. Only a small segment of industry is using old technology based on wet and semi-dry process. Efforts are being made to recover waste heat and success in this area has been significant.

India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement, etc. Production of these varieties of cement conforms to the BIS Specifications. It is worth mentioning that some cement plants have set up dedicated jetties for promoting bulk transportation and export.

Infrastructure driven demand push


The bulk of cement demand is from housing and commercial development of which metros account for a significant amount. It is estimated that Mumbai, which consumes almost six million tones, along with Pune, accounts for 45 percent of Maharastras cement consumption, Bangalore consumes four million tones and Chennai around 3 million tones, these are really the growth clusters. Today bulk of the demand is driven by housing and commercial construction and as infrastructure picks up, for example, Bangalore international airport, Hyderabad airport and modernization of Mumbai and Delhi airports. 46 Another large consumer has been the roads sector. The off take was good when the NHDP programme was launched but there was a lull last year. Once again new orders have been

placed and in 2006, the industry will pick up. The estimate is that from roads, sdemand is not more than 4-5 million tones but it makes a difference in the growth numbers.

Narrowing demand-supply gap:


The industry has a capacity of 165 million tons and in Jan 2006, dispatches were at almost 100%. On an overall basis, the industry does not do more than 90-92% because of constraints such as transport and raw material.

The industry has been adding capacity of 6-7 million per annum by Brownfield expansion and de-bottlenecking which is expected to partly cater to the requirement because it is growing by around 20 million tons per annum.

Challenges before the industry:


Energy costs account for half of the cost of production of cement. Last year saw a 1516% increase in coal prices and then diesel prices went up pushing up transportation costs.

47

Freight problems

The importance of freight for the cement industry cannot be emphasized enough. While in the last few months railways have been steadily losing freight to road sector they have been confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could go as high a Rs.800 for long leads. This would only easy the first level of sale and additional costs are involved to take it further. Another issue, which will hit the industry hard, is that of logistics and a Supreme Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed to enforce the discipline that trucks only carry a specified load. Many states and already implementing this and there is already an increase in freight rates and in some cases, it has gone up by 50%. Also, the requirement for trucks to carry the same freight has nearly doubled and in many places the industry is being forced to move to railways.

High taxes
While the railways have had capacity to meet the requirement, it is expected that in March the commencement of peak season for the procurement of food grains, the railways would be constrained to provide adequate number of wagons. So fright rates are up, railways cannot provide wagons and trucks are unlikely to be viable so there could be a serious dislocation of supplies going forward.According to the cement manufactures association total taxes and duties on cement come to around Rs.900 a ton or Rs. 45 a bag. So at a price of Rs.150 a bag in the market, taxes and duties account for one third. Which is high for such a basic product. This includes excise duty, sales tax and royalty on limestone. 48

The importance of limestone can only be underscored as for every ton of cement produced. 1.5tons of limestone is required. For limestone, royalty is on a per ton basis at Rs. 40 whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying Rs.70 a ton for limestone as royalty. VAT is at 12.5% without any justification and it should be in 4% category, excise is at Rs.408 per ton when it should be around Rs.200.

Export Advantages

From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of cement/clinker have grown rapidly at about 30-40% and this year exports will cross 10 million tons.

Major cement producers market shares:


Acc -12.8% Abuja -10.7% Grasim-10.4% Ultra tech-9.5% India cement-6.0% Jaypee-4.1% Lafarge-3.2% Madras-3.2%

49

Overall, the industry is in a better state today than 2 years ago. Cement prices even today are way below global levels. So setting up Greenfield capacities is not attractive, as prices will not give attractive returns on investment. That is a minor reason why there is no Greenfield capacity coming up. It has to be born in mind that one third of the prices is accounted for by taxes and duties and nearly 20-25% by the freight component. So what produces earn at the factory gate is among the lowest in the world.

This year 2008 has commenced on a good note and in fact, December was a very good month wit dispatches at 12.5 million tons and January dispatches were in excess of 13 million tons.

This means capacity utilization is in the nineties which is healthy and will actually lead to firming up of prices. It looks like sales could be 137 million a ton for 2007-08(125 million tons in 2006-07) and so far growth has been 10%. There are enough reasons to believe it will sustain.

50

INTRODUCTION

A Penna cements industry Ltd was incorporate on Oct 24 th 1991, to set up a cement plant at Tadpatri in Anantapur District of Andhra Pradesh. The plant commenced commercial production on Aug 10th 1994 as mini cement plant with initial capacity of 0.30 million tones. The company short period getting profits. Later 1995 plant capacity was increased 0.4 million tones which upgrade its state major plant

Penna cement industries ltd establishing by Mr. Prathap Reddy aged 44 began his entrepreneur career with civil engineering contracts by lunching pioneer builders mr.prathp reddy has experiences of two decades in cement industry .he was the executive director of priyadrashini cement right from its inception in 1984 in 1991 Mr. Pratap Reddy incorporated his own cement company located in between Talaricheruvu and Urichintala village. At present about 2720 tones of various grades of cement is being manufactured daily at the factory.

Quarry:
Major raw material for cement industry. The quarry has a mining lease of 235.52 acres in Talaricheruvu village. 440.47 acres in Urichintala village and 629.75 acres in Korumanipalli village of Kurnool district.

51

RAW MATERIALS :

Limestone:

Limestone is the major raw material for the cement industry. Limestone constitutes 60 to 70 percent of the total raw material costs. Nearly 1.5 1.6 tons of limestone is required for producing one ton of cement clinker limestone (calcium carbonate) is a rock of either sedimentary or metamorphic origin with calcium oxide as its main constituent. In India limestone occurs mainly as sedimentary rocks and constitutes 30 percent of the total sedimentary rocks in the country. Cement grade limestone is available in 21 states in the country. About 65 percent of the cement plants in India uses sedimentary limestone and 20 percent use metamorphic crystalline limestone. India has 85,980 million tones of cement grade limestone deposits, which is enough to produce 100 million tones of cement for the next 500 years.

Total reserve No. of years limestone reserve would last = ------------------------------------Avg., limestone Consumption

52

It is quite clear that Indias limestone reserves are adequate for the next several years. More over new reserves would be discovered every year Limestone is mixed extensively in India and ranks second in production next to coal mining. Major portion of limestone mining portion of limestone mining is for cement industry (nearly 75% to 80%) therefore the demand supply situation is quite comfortable.

In India limestone deposits are abundantly found only in Siroly (Rajasthan), Santna, Belaspur (M.P., wadi (Karnataka), Tadpatri (A.P.) and some places in Gujarat. Units are generally located in close proximity of limestone deposits in Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka, Rajasthan, and Gujarat.

The quality of required for the cement production should have the following composition.

Lime Silican Aluminium Iron oxide Magnesiam Loss on Ignition

: : : : : :

50% 3% 4% 0.50% 0.50% 42%

Total

100%

53

If Magnesia content exceeds 0.4-o.5 percent, the limestone is not suitable for cement. Similarly, lime content is directly proportional to the clinker and cement quality and quantity.

Gypsum:
Gypsum is another important required material for cement manufacturing, constitutes about 5 percent of the weight of the cement. Gypsum is added in required quantity at the time of grinding of clinker. The clinker and the required amount of the Gypsum is added to control the setting time of the cement. India possesses resources of gypsum. Hence its availability is not a concern for the cement manufacture.

Other Raw Materials:


A few other raw materials like Blast furnace slag and fly ash are also required for the manufacture of the cement. Blast furnace slag is a waste product obtained from iron smelting furnace whereas fly ash is the left over ash from thermal power station.

Inputs:

Although limestone is the major raw material for cement industry, the critical raw material is energy. How well the company uses coal and electricity and how much it costs will determine the success ratio for cement manufacturers. Major inputs in cement manufacturing include coal, power and freight. 54

Coal:

In India coal I am being used as the fuel for the manufacturing of cement. Else where in the world lignite, nature gas and oil are also used. They are not used in India as continuous supply of natural gas is not assured used by plants in southern plants ogf India, like Dalmia Cement, Chettinad cement etc., as a supplement to coal which compensates the storage for coal in this area. Non cooking coal of lower ash content is required by cement plants. It should be less than 30%. A useful heat of 4500 kilocalories per kg of coal. Coal of lower ash enables comparatively lower quality of limestone. The coal should have volatile matter and high temperature. Transport of coal is another big issue as many of larger cement plants are located close to the limestone deposits, which may not have coal deposits nearby.

Power:
Power constitutes about 10% of the total cement production costs. About 3 percent of the total power generated in the country is used by cement industry. The average consumption of power in the dry process kilns is around 125 units per million tons of clinker.

Freight:

Freight constitutes a very significant part of the cost structure of cement units in India. On an average freight for transporting finished product alone forms 13.85% of the cost of production of large cement plants. 55

The main areas of freight coast for the cement industries are

i. ii.

Transporting coal from the coal fields to the cement factories. Transporting cement from the plants to their markets.

Limestone transport would be even costlier than transporting coal or cement. Hence cement plants are located in cluster near limestone deposits. Indian railway is moving up to 60% of the total cement production.

SALIENT FEATURES OF PENNA CEMENT:

High strength and great durability A very perceptible saving in costs (up to 20% to 25%) due to low setting time Superior quality of the cement resulting in a better overall finest Stronger bonding with aggregates.

Growth and Performance:


The company has enhanced its capacity from 600 TPD to 8000 TPD over the period of 10 years. The Existing cement plant was upgraded to 5000 tones capacity per day. The profits for the year 2007-08 are Rs. 92.77 lakhs and sales of Rs. 946.20 lakhs. The company holds the assets of Rs. 601.92 lakhs. The annual capacity of the company 18,25000 tones.

56

Competitiveness of Cement Project:

companies Ultra tech, Andhra Cement, Grasim Cement, Gujarat Ambuja cement, Parasakthi, Larsen and Tubro,Coramandal cement,Priya Cement, Nagarjuna cement, Sagar cement ACC Suraksha cement, Zuari cement, and India cement Ltd

TECHNOLOGY ADOPTION AND INNOVATION:

The company has obtained the basic engineering designs and other technical know-how from M/s. ONADA ENGINEERING and consulting company limited Japan for the cement plant he technical collaborates are continuously guiding the company for achieving improved productivity and benefits such as conservation of energy etc., besides trouble shooting a specific.

Man power:

Based on requirement of individual departments, Head of that department is asked to give information to man power planning department regarding the number of persons required. The departmental heads assess their requirements based on the available departmental job description to ensure role clarity and to avoid role ambiguity. The Central Personnel Dept. carries out the recruitment process.

57

The total employees in PENNA CEMENT are 345 covering all departments. There are nearly 500 contract labor working every day on casual basis.

Raw Materials & Requirement:

Limestone, Iron ore, Bauxite, Gypsum and Coal are the basic raw materials used in the manufacturing process of cement. The average consumption of various raw materials is shown in the table.

REQUIREMENT OF RAW MATERIALS

S. No 1 2 3 4 5

Raw material Limestone Additives Bauxite iron ore Gypsum Product clinker

Tones per day 2282 375 155 85 500

Consumption per tones of Cement 1.4 to 1.5 0.06 to 0.75 1.16 to 0.20 0.04 to 0.05 ------

Source: Annual reports of Penna Cement Limited.,

58 Note: Due to change in the quality of lime stone and coal, the consumption of additives has been changed accordingly.

Material Balance:

Limestone + Additives

Raw material

Raw material (1.46%) +coal

Calcinations clinker

Clinker + Gypsum

Ordinary Portland cement

Clinker + Fly ash

Pozzoland Portland

Note: Depending upon quality of raw materials the above consumption may value.

59

PRODUCT PROFILE:

Penna Cement manufactures and distributes its own main product lines of cement. It aims to optimize production across all the marketers, providing a completer solution for customers needs at the lowest possible cost, an approach known as strategic Integration of Activities. Cement is made from a mixture of 80 percent limestone and 20 percent clay. These are crushed and ground to provide the raw meal, a pale, flour like powder. Heated to around 1450o C (2642o F) rotating kilns, the meal undergoes complex chemical changes and is transformed into clinker. Fine grinding the clinker together with a small quality of gypsum produces cement. Adding other constituents at this stage produces cements for specialized uses.

PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS:

Presently the company is manufacturing 43 grade, 53 grade. Ordinary portal cement port land slag cement, soleplate Resistant with brand name of PENNA

Penna Suraksha Penna Power Penna Super

53 Grade 53 Grade 43 Grade

60

ADVANTAGES:

Here are five of the many reasons why Penna 53 Grade and 43 Grade cement edges out its competitors.

High compressive strength

Low heat of hydration

Better soundness

Lesser consumption of cement for M-20 Concreate Grade and above

Faster de shuttering of formed work

Reduced construction time with a superior and wide range of cement catering to every conceivable building need, Penna Cement is a formidable player in the cement market.

61

Here are just a few reasons why Penna Cement chosen by millions of India.

Ideal raw material

Low lime and magnesia content and high proportion of silicates

Greater fineness

Slow initial and fast final setting

Wide range of applications

Quality customer services

62

STATEMENT OF CHANGES IN WORKING CAPITAL

2004-2005
Table-1
Particulars 2004 Rs. 2005 Rs. Changes in WC Rs. Increase Current Assets: Inventories Sundry Debtors Cash &Bank Loans& Advances Total Current Assets(a) Current Liabilities: Current Liabilities & Provisions Total current liabilities(b) Working Capital a-b Increase in Working Capital 23,49,02,360 23,49,02,360 42,38,38,372 42,38,38,372 18,89,36,012 8,88,68,774 11,23,63,109 1,24,33,458 28,17,26,538 49,53,91,879 11,52,02,941 17,85,50,027 7,27,32,900 59,86,51,897 96,51,37,765 26334167 66186918 6029925442 316925359 Decrease

26,04,89,519 28,08,09,874

54,12,99,393

28,08,09,874

54,12,99,393

54,12,99,393

46,97,45,886

46,97,45,886

63

Table-1

Changes In Working Capital


1200000000 1000000000 Amount 800000000 600000000 400000000 200000000 0 Total Current Assets Total Current Liabilities Working Capital 2004 2005

Sources: we have taken this information from Penna cement, from 2004-2005

Interpretation:

Comparing the year 2004-2005 the current assets increased by 46,97,45,886 rupees compare the current liabilities 18,89,36,012 as a result working capital increase 28,08,09,874 rupees. There fore short term financial position of The Financial Services limited is good. 64

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH

31.12.2005 Table-2
Amount Sources Rs. Uses Amount Rs.

Funds from operations Long term loans Sale of Investments Decrease in Miscellaneous expenditure Increase in Deferred tax liability

12,06,57,250 Increase in Working capital 85,74,96,949 Purchase of fixed assets 40,02,17,536 14,78,511 3,51,08,965 63,78,87,187

28,08,09,874 113,41,49,337

63,78,87,187

Sources: we have taken this information from Penna cement, from 2004-2005

Interpretation:
The Financial Services limited take huge amount of Long term loans through funds from operations and Sale of investments. The Financial Services limited use some of these funds to purchase fixed assets. The Financial Services limited is also use these funds to Increase working capital.

65

STATEMENT OF CHANGES IN WORKING CAPITAL 2005-2006


Table-3
Particulars 2005 Rs. 2006 Rs. Changes in WC Rs. Increase Current Assets: Inventories Sundry Debtors Cash &Bank Loans& Advances Total Current Assets(a) Current Liabilities: Current Liabilities & Provisions Total current liabilities(b) Working Capital a-b 42,38,38,372 42,38,38,372 74,94,16,641 74,94,16,641 32,55,78,269 11,52,02,941 17,85,50,027 7,27,32,900 59,86,51,897 96,51,37,765 16,15,83,313 26,56,85,722 4,10,06,192 59,81,54,044 106,64,29,271 4,63,80,372 8,71,35,695 3,17,26,708 4,97,853 Decrease

54,12,99,393

31,70,12,630

Decrease in Working Capital

22,42,86,763

22,42,86,763

54,12,99,393 66

54,12,99,393

35,78,02,830

35,78,02,830

Table-3

Changes in Working Capital


1200000000 1000000000 Amount 800000000 600000000 400000000 200000000 0 Total Current Assets Total Current Liabilities Working Capital 2005 2006

Sources: we have taken this information from Penna cement, from 2005-2006

Interpretation:

Comparing the year 2005-2006 the current assets increased by 10,12,91,506 rupees compare the current liabilities 32,55,78,269 as a result working capital decrease 22,42,86,763 rupees. There fore short term financial position of The Financial Services limited is not good.

67

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH

31.12.2006 Table-4
Amount Sources Rs. Uses Amount Rs.

Funds from operations Long term loans Decrease in Working capital Decrease in Miscellaneous expenditure Increase in Deferred tax liability

16,01,23,732

Redemption of shares

5,40,942 21,69,98,475 42,03,47,770

15,15,15,878 Purchase of fixed assets 22,42,86,763 Purchase of Investments 10,76,442 10,08,85,372 63,78,87,187

63,78,87,187

Sources: we have taken this information from Penna cement, from 2005-2006

Interpretation:
The Financial Services limited take huge amount of Long term loans through funds from operations and Purchase of investments. The Financial Services limited use some of these funds to purchase fixed assets. The Financial Services limited is also use these funds to Decrease working capital. 68

STATEMENT OF CHANGES IN WORKING CAPITAL

2006-2007 Table-5
Particulars 2006 Rs. 2007 Rs. Changes in WC Rs. Increase Current Assets: Inventories Sundry Debtors Cash & Bank Loans& Advances 16,15,83,313 26,56,85,722 4,10,06,192 59,81,54,044 21,89,56,216 37,09,00434 11,21,52,347 62,82,93,656 5,73,72,903 10,52,14,712 7,11,46,155 3,01,39,612 Decrease

Total Current Assets(a) Current Liabilities: Current Liabilities & Provisions Total current liabilities(b) Working capital a-b

106,64,29,271

133,03,02,653

74,94,16,641

76,05,69,548

1,11,52,907

74,94,16,641 31,70,12,630

76,05,69,548 56,97,33,105

Increase in working capital

25,27,20,475 56,97,33,105

56,97,33,105

26,38,73,382

25,27,20,475 26,38,73,382

69

Table-5

C hanges in Working C apital


1400000000 1200000000 1000000000 Amount 800000000 600000000 400000000 200000000 0 Total Total W ork ing Current Current Capital As sets Liabilities 2006 2007

Sources: we have taken this information from Penna cement, from 2006-2007.

Interpretation:
Comparing the year 2006-2007 the current assets increased by 26,38,73,382 rupees compare the current liabilities 1,11,52,907 as a result working capital Increase 25,27,20,475 rupees. There fore short term financial position of The Financial Services limited is good. 70

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH 31.12.2007 Table-6
Amount Sources Rs. Uses Amount Rs.

Funds from operations Long term loans Decrease in Miscellaneous expenditure

23,51,80,715 27,31,74,976

Increase in Working capital

25,27,20,475

2,50,800 Purchase of fixed assets Purchase of Investments

22,58,55,400 4,56,00,000

Increase in Differed tax liability

1,55,69,384 52,41,75,875 52,41,75,875

Sources: we have taken this information from Penna cement, from 2006-2007.

Interpretation:
The Financial Services limited take huge amount of long term loans through funds from operations and Purchase of investment. The Financial Services limited use some of these funds to purchase fixed assets. The Financial Services limited is also use these funds to increase working capital. 71

STATEMENT OF CHANGES IN WORKING CAPITAL 2007-2008

Table-7
Particulars 2007 Rs. 2008 Rs. Changes in WC Rs. Increase Current Assets: Inventories Sundry Debtors Cash & Bank Loans& Advances 21,89,56,216 37,09,00434 11,21,52,347 56,39,26,687 35,30,33,377 41,35,39,323 11,86,08,237 56,98,39,851 13,40,77,161 4,26,38,889 64,55,890 59,13,164 Decrease

Total Current Assets(a) Current Liabilities: Current Liabilities & Provisions Total current Liabilities(b)

126,59,35,684

145,50,20,788

69,62,02,579

102,90,32,147

33,28,29,568

69,62,02,579

102,90,32,147

Working capital a-b Decrease in working capital

56,97,33,105

42,59,88,641 14,37,44,464 14,37,44,464 33,28,29,568 33,28,29,568

56,97,33,105

56,97,33,105

72

Table-7

Changes in Working Capital


1600000000 1400000000 1200000000 1000000000 800000000 600000000 400000000 200000000 0 Total Current Assets Total Current Liabilities Working Capital

Amount

2007 2008

Sources: we have taken this information from Penna cement, from 2007s-2008.

Interpretation: - Comparing the year 2007-2008 the current assets increased by 18,90,85,104
rupees compare the current liabilities 33,28,29,568 as a result working capital Decrease 14,37,44,464 rupees. There fore short term financial position of The Financial Services limited is not good.

73

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH 31.12.2008 Table-8
Amount Sources Rs. Uses Amount Rs.

Funds from operations Increase in loans Decrease in Miscellaneous expenditure Decrease in Working capital Increase in Deffered tax liability

99,81,84,829 Purchase of fixed assets 118,07,66,087 Purchase of Investments 89,747 Proposed Dividend 14,37,44,464 10,49,68,143 242,77,53,270 242,77,53,270 13,38,00,000 3,59,00,000 225,80,53,270

Sources: we have taken this information from Penna cement, from 2007-2008.

Interpretation:
The Financial Services limited take huge amount of Long term loans through funds from operations and Purchase of investment. The Financial Services limited use some of these funds to purchase fixed assets. The Financial Services limited is also use these funds to Decrease working capital. 74

FINDINGS:

It is found that The Financial Services limited is holding sufficient share capital. It is inferred that The Financial Services limited is maintaining a minimum Cash Balances. In 2004-2005 the Working capital of The Financial Services limited is increased by 28,08,09,874 rupees. In the same period the long term loans of The Financial Services limited is high because the company get huge amount of funds from operations and also from decrease in miscellaneous expenditure reserve. The Financial Services limited uses that fund to redeem the shares and to purchase fixed assets.

In 2005-2006 the Working capital of The Financial Services limited is decreased by 22,42,86,763 but the flow of funds is decreased because The Financial Services limited do not get any funds from decrease of reserves, The Financial Services limited get funds only from operations and purchase of investment. The Financial Services limited uses some of those funds to purchase fixed assets.

In 2006-2007 the Working capital of The Financial Services limited is increased by 25,27,20,475 but the flow of funds is high as compared to previous year because The Financial Services limited get funds only from operating activities. The Financial Services limited use some funds to purchase fixed assets.

In 2007-2008 the Working capital of The Financial Services limited is decreased by 14,37,44,464 but the flow of funds is high as compared to previous year because The Financial Services limited get funds only from operating activities. The Financial Services limited use some funds to purchase fixed assets 75

SUGGESSIONS:

It may be suggested that The Financial Services limited should utilize Limited Funds for the purchase of fixed assets.

If The Financial Services limited spend more money on purchase of fixed assets & investments it effects the growth of the Penna cement company limited.

The company must maintain the sufficient working capital in order to meet the daily needs of the firm.

The company should increase its investments and its fixed assets. It has to keep concentration on working capital, expenses, and fixed assets. It has to decrease its Long term loans (liabilities). It is better to maintain the same steps which it has followed in 2006-07 to decrease its liabilities and maintain the profit.

76

CONCLUSION

It can be concluded that funds flow performance of the financial services limited is good because funds from operations are high in every year but increase in loans of funds. The Financial services limited utilize some funds to purchase fixed assets every year the financial services limited do some investment activities to utilize funds effectively.

77

BIBLIOGRAPHY

Student hand book on cost accounting and financial management by B. Sarvana Prasad, Edition-5thMay 2006, Page. No. 16.1 to 16.11

Financial Accounting & Finance by K. Rajeshwar Rao, G. Prasad, Edition-1998, 14.1 to 14.6, 15.1 to 15.12

Financial Management Theory & Practice by Prasanna Chandra, Edition-5th 2004, 727 to 758

Financial Management by I.M. Pandey, Edition -4th 2005, Page no 345 to 325 Penna Cement Annual reports from 2004-2008

http:/www.Pennacement.in

78

PENNA CEMENT INDUSTRIES LIMITED BALANCE SHEET AS AT 31.3.2005

Particulars SOURCES OF FUNDS Share holders Funds: Share Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Add: Capital works- in- progress

Schedule No.

2005

A B C

13,43,40,942 89,66,23,798 94,03,76,495 96,39,05,443 24,78,34,769 318,30,81,447

D 266,23,57,147 55,57,90,567 210,65,66,580 E F G 35,21,99,400 11,52,02,941 17,85,50,027 7,27,32,900 59,86,51,897 96,51,37,765 42,38,38,372 54,12,99,393 14,16,989 318,30,81,447 18,15,99,085 228,81,65,665

INVESTMENTS
Current Assets, Loans and Advances Inventories Sundry debtors Cash and Bank Balances Loans and Advances Less: Current Liabilities and provisions Miscellaneous Expenditure(to the extent not return of or adjusted) Total 79

H I

PENNA CEMENT INDUSTRIES LIMITED BALANCE SHEET AS AT 31.3.2006

Particulars SOURCES OF FUNDS Share holders Funds: Share Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Add: Capital works- in- progress

Schedule No.

2006

A B C

13,38,00,000 105,67,47,530 84,56,73,700 121,84,87,846 34,87,20,141 360,34,29,217

316,89,56,316 67,98,52,280

248,91,04,036 E F G 78,09,11,900 16,15,83,313 26,56,85,722 4,10,06,192 59,81,54,044 106,64,29,271 H I Total 80 74,94,16,641 31,70,12,630 3,40,547 360,34,29,217,81,447 1,60,60,104 250,51,64,140

INVESTMENTS
Current Assets, Loans and Advances Inventories Sundry debtors Cash and Bank Balances Loans and Advances

Less: Current Liabilities and provisions Miscellaneous Expenditure(to the extent not return of or adjusted)

PENNA CEMENT INDUSTRIES LIMITED BALANCE SHEET AS AT 31.3.2007

Particulars SOURCES OF FUNDS Share holders Funds: Share Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Add: Capital works- in- progress

Schedule No.

2007

A B C

13,38,00,000 129,19,28,245 92,73,53,942 140,99,82,580 36,42,89,525 412,73,54,292

D 320,81,62,454 82,53,36,717 238,28,25,737 E F G 34,81,93,803 273,10,19,540 82,65,11,900 21,89,56,216 37,09,00,434 11,21,52,347 56,39,26,687 126,59,35,684 H I Total 81 69,62,02,579 56,97,33,105 89,747 412,73,54,292,81,447

INVESTMENTS
Current Assets, Loans and Advances Inventories Sundry debtors Cash and Bank Balances Loans and Advances Less: Current Liabilities and provisions Miscellaneous Expenditure(to the extent not return of or adjusted)

PENNA CEMENT INDUSTRIES LIMITED BALANCE SHEET AS AT 31.3.2008


Particulars Schedule No. 2008

SOURCES OF FUNDS Share holders Funds: Share Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Add: Capital works- in- progress E D 398,46,31,393 98,12,21,831 300,34,09,562 198,56,63,248 498,90,72,810 F G 35,30,33,377 41,35,39,323 11,86,08,237 56,98,39,851 145,50,20,788 Less: Current Liabilities and provisions Miscellaneous Expenditure(to the extent not return of or adjusted) Total 82 I H 102,90,32,147 42,59,88,641 ---627,74,73,35181,447 86,24,11,900 A B C 13,38,00,000 215,63,13,074 178,57,14,077 173,23,88,532 46,92,57,668 627,74,73,351

INVESTMENTS
Current Assets, Loans and Advances Inventories Sundry debtors Cash and Bank Balances Loans and Advances

PENNA CEMENT INDUSTRIES LIMITED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2005 Particulars Schedule No.

2005

INCOME Sales (Increase/decrease) in Stock Total Income EXPENDITURE Manufacturing Expenses Cost of trading goods Central Excise Duty Sales Tax Administrative and Selling Expenses Interest and Finance Charges Depreciation Miscellaneous Expenditure Written off Total Expenditure Profit for the year Provision for taxation Profit after Tax Deferred Tax for the year Fringe Benefit Tax for the year Prior period expenditure Profit available for appropriations Transfer to General Reserve Proposed Dividend Tax on Dividend Profit brought forward from previous year Goodwill on Merger written off Profit Carried to Balance Sheet N 83 -1,98,40,834 69,08,96,2351,447 I F G E M L 153,07,01,345 --69,86,42,442 55,90,24,763 58,82,88,777 14,43,46,417 11,88,30,197 22,32,340 364,20,66,281 19,84,48,014 152,54,699 18,31,93,315 3,89,50,042 ----------11,56,849 14,30,86,424 -------------------------------56,76,50,645 J K 385,65,72,118 -1,60,57,823 384,05,14,295

PENNA CEMENT INDUSTRIES LIMITED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2006
Particulars Schedule No. 2006

INCOME Sales (Increase/decrease) in Stock Total Income EXPENDITURE Manufacturing Expenses Cost of trading goods Central Excise Duty Sales Tax Administrative and Selling Expenses Interest and Finance Charges Depreciation Miscellaneous Expenditure Written off Total Expenditure Profit for the year Provision for taxation Profit after Tax Deferred Tax for the year Fringe Benefit Tax for the year Prior period expenditure Profit available for appropriations Transfer to General Reserve Proposed Dividend Tax on Dividend
Profit brought forward from previous year

J K

452,87,19779 -98,74,875 451,88,44,904

188,52,41,099 32,67,699 81,46,64,469 62,30,34,491

68,09,34,484 9,96,49,474 12,47,85,177

10,76,442 423,26,53,335 28,61,91,569 2,24,41,139 26,61,91,569 10,08,85,372 ------------27,41,325 16,01,23,733 ----------------------

F G

-----------69,08,96,235 ---------85,10,19,968447

Goodwill on Merger written off Profit Carried to Balance Sheet 84 N

PENNA CEMENT INDUSTRIES LIMITED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2007
Particulars INCOME Schedule No. 2007

Sales (Increase/decrease) in Stock Total Income EXPENDITURE Manufacturing Expenses Cost of trading goods Central Excise Duty Sales Tax Administrative and Selling Expenses Interest and Finance Charges Depreciation Miscellaneous Expenditure Written off Total Expenditure Profit for the year Provision for taxation Profit after Tax Deferred Tax for the year Fringe Benefit Tax for the year Prior period expenditure Profit available for appropriations Transfer to General Reserve Proposed Dividend Tax on Dividend
Profit brought forward from previous year

J K

640,97,93,371 2,96,92,824 643,94,86,195

241,01,65,622 67,40,11,176 95,80,88,420 63,36,87,866

118,57,25,154 9,99,66,070 14,54,84,437

2,50,800 610,73,79,545 33,21,06,650 7,51,17,114 25,69,89,536 1,55,69,387 17,33,786 45,05,648 23,51,80,715 ----------------------

F G

-----------85,10,19,968 ------------108,62,00,683

Goodwill on Merger written off Profit Carried to Balance Sheet 85 N

PENNA CEMENT INDUSTRIES LIMITED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2008
Particulars INCOME Sales J 914,46,59,562 Schedule No. 2008

(Increase/decrease) in Stock Total Income EXPENDITURE Manufacturing Expenses Cost of trading goods Central Excise Duty Sales Tax Administrative and Selling Expenses Interest and Finance Charges Depreciation Miscellaneous Expenditure Written off Total Expenditure Profit for the year Provision for taxation Profit after Tax Deferred Tax for the year Fringe Benefit Tax for the year Prior period expenditure Profit available for appropriations Transfer to General Reserve Proposed Dividend Tax on Dividend Profit brought forward from previous year Goodwill on Merger written off Profit Carried to Balance Sheet 86

3,74,11,258 918,20,70,820

311,40,33,391 5,55,30,769 114,28,05,092 94,83,24,696

197,79,88,742 13,47,58,957 15,59,73,434

89,747 752,95,04,820 165,25,65,992 50,76,18,003 114,49,47,989 10,49,68,144 22,35,543 1,68,20,163 102,09,24,139 15,00,00,000 13,38,00,000

F G

2,27,39,310 108,62,00,683 -----------

N 180,05,85,512