Fund Flow Analysis

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FUNDS FLOW ANALYS IS

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INTRODUCTION

Finance is one the basic foundations of all kinds of

economic activities. It is the master key, which provides access to all the sources for

being employed in manufacturing. Hence it is rightly said that finance is lifeblood of

any enterprise, besides being the scarcest elements, it is also the most indispensable

requirement. Without finance neither any business can be started nor successfully run.

Provision of sufficient funds at the required time is the key to success of concern. As

matter of fact finance may be said to be the circulatory system of economic body,

making possible the needed co-operation among many units of the activity.

FINANCIAL MANAGEMENT:

Financial management emerged as a distinct field of study at the turn of this

Century. Many eminent persons defined it in the following ways:

DEFINITIONS:

According to GUTHMANN AND DOUGHAL: “Business finance can

broadly be defined as the activity concerned with planning, rising, controlling and

administering of funds used in the business.”

According to BONNEVILE AND DEWEY: “Financing consists in the

rising, providing and managing of all the money, capital or funds of any kind to be

used in connection with the business.”

According to Prof. EZRA SOLOMAN: “Financial management is concerned

with the efficient use of any important economic resource, namely capital funds.”

FINANCIAL FUNCTIONS:

The finance functions of raising funds, investing them in assets and

distributing returns earned from assets to shareholders are respectively known as

financing, investment and dividend decisions. While performing these functions, a

firm attempts to balance cash inflows and outflows. This is called as liquidity

decision.

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The finance functions can be divided into three broad categories.

1. Investment or long-term asset mix decision

2. Financing or capital mix decision

3. Dividend or profit allocation decision

4. Liquidity or short-term asset mix decision

INVESTMENT DECISION:

Investment or capital budgeting involves the decisions of allocation of

cash or commitment of funds to long-term assets, which would yield benefits in

future. It involves measurement of future profitability, which involves risk, because of

uncertain future. Investment proposal should therefore be evaluated in terms of both

expected return and risk. Other major aspect of investment decision is the

measurement of standard or hurdle rate against which the expected return of new

investment can be compared.

FINANCING DECISIONS:

Financing decision is the second important function to be performed by the fir.

Broadly, he must decide when, where, and how to acquire funds to meet the firms

investment needs. He has to determine the proportion of debt and equity. This mix of

debt and equity is known as the firms ‘capital structure’. The financial manager must

strive to obtain the least financing mix or the ‘optimum capital structure’ where the

market value of share is maximized.

DIVIDEND DECISIONS:

It is the third major financial decision. The financial manager decides whether

the firm should distribute all profits, or return them, or distribute a portion and return

the balance. The optimum dividend policy should be determined where is maximizes

the markets value of the share.

LIQUIDITY DECISIONS:

Current assets management, which affects firm’s liquidity, is yet another

finance function in addition to the management of long-term assets. Current assets

should be managed effectively safeguarding the firm against the dangers of liquidity

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and insolvency.

Investment in current assets affects the profitability, liquidity, and risk. A

conflict exists between profitability and liquidity while managing current assets. If the

firm doesn’t invest sufficient funds in current assets it may. Become illiquid. But it

could loose profitability, as idle CA would not earn anything. Thus a proper takeoff

must be achieved between profitability and liquidity. In order to ensure that neither

insufficient nor unnecessary funds are invested in current assets.

GOALS OF FINANCIAL MANAGEMENT:

� Maximize the value of the firm to its equity shareholders. This means

that the Goals of the firm should be to maximize the market value of

its equity shares (Which represent the value of the firm to its equity

shareholders)

� Maximization of profit.

� Maximization of earnings per share.

� Maximization of return on equity (defined as equit earnings/net worth).

� Maintenance of liquid assets in the firm.

� Ensuring maximum operational efficiency through planning, directing

and Controlling of the utilization of the funds i.e., through the effective

employment of funds.

� Enforcing financial discipline in the use of financial resources through

the coordination of the operation of the various divisions in the

organization.

� Building up of adequate reserves for financing growth and expansion.

� Ensuring a fair return to the shareholders on their investment.

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The key challenges for the finance manager in India appear to be in the

following areas:

� Investment Planning

� Financial Structure

� Treasure Operations

� Foreign Exchange

� Investor Communication

� Management Control

The basic financial statements, i.e., the balance sheet and profit and loss account or

income statement of business, reveal the net effect of the various transactions on the

operational and financial position of the company. The balance sheet gives a summary

of the assets and liabilities of an undertaking at a particular point of time. It reveals

the financial status of the company. The profit and loss account reflects the results of

the business operations for a period of time. It contains a summary of expenses

incurred and the revenue realized in an accounting period. Both these statements

provide the essential basic information on the financial activities of a business, but

their usefulness is limited for analysis and the uses to which these resources have been

put at a certain point of time.

The profit and loss account, in a general way, indicates the resources

provided by operations. But there are many transactions that place in an undertaking

and which do not operate through profit and loss account.

Thus another statement has to be prepared to show the change in the

assets and liabilities from the end of one period of time to the end of another period of

time. The statement is called a “Statement of changes in financial Position” or a

“Funds Flow Statements”.

The basic financial statements, i.e., the balance sheet and profit and loss

account or income statement of business, reveal the net effect of the various

transactions on the operational and financial position of the company. The balance

sheet gives a summary of the assets and liabilities of an undertaking at a particular

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point of time. It reveals the financial status of the company. The profit and loss

account reflects the results of the business operations for a period of time. It contains

a summary of expenses incurred and the revenue realized in an accounting period.

Both these statements provide the essential basic information on the financial

activities of a business, but their usefulness is limited for analysis and the uses to

which these resources have been put at a certain point of time.

The profit and loss account, in a general way, indicates the resources

provided by operations. But there are many transactions that place in an undertaking

and which do not operate through profit and loss account.

Thus another statement has to be prepared to show the change in the

assets and liabilities from the end of one period of time to the end of another period of

time. The statement is called a “Statement of changes in financial Position” or a

“Funds Flow Statements”.

MEANING: The term ‘funds’, means working capital, i.e. the excess of current over

current liabilities. ‘Flow’ means movement and includes both ‘inflow’ and ‘outflow’.

‘Flow of Fund’ refers that transfer of economic values from one asset of equity to

another. Flow of Funds refers to the movement of funds in the working capital. If any

transaction results in the increase in working capital, it is said to be a source or inflow

of funds and if it results in the decrease of working capital, it is said to be an

application or out-flow of fund.

Funds Flow Statements is a method by which we study changes in the

financial position of a business enterprise between beginning and ending financial

statement dates.

It is a statement showing sources and uses of funds for a period of time.

Funds Flow Statement is a statement which shows the movement of funds and is a

report of the financial operations of the business undertaking. It indicates various

means by which funds were obtained during a particular period and the ways in which

these funds were employed.

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It is a “statement of sources and application of funds is a technical device

designed to analyze the changes in the financial condition of a business enterprise

between two dates.”

Thus, funs 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 that period.

CONCEPT OF FUNDS FLOW STATEMENT: Preparation of the funds flow statement is lies on the following rule… “The flow of funds occurs when a transaction changes on the one hand a non-current

account and on the other a current account and vice-versa.”

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

liabilities, reserves and surplus, fictitious assets, etc., is followed by change in another

non-current account, it does not amount to flow of funds. This is because of the fact

that in such cases neither the working capital increases nor decreases. Similarly, when

a change in one current account results in a change in another current account, it does

not affect funds. Funds move from non-current to current transaction or vice versa

only.

Funds Flow happens when fund moves in the following case only...

• A current asset and a fixed asset.

• A fixed and a current liability.

• A current asset and a fixed liability.

• A fixed liability and current liability.

Fund do not moves when the following transaction affects

• Fixed assets and fixed liability

• Current assets and current liability.

PROCEEDURE FOR PREPARING THE FUNDS FLOW STATEMENT:

The preparation of a funds flow statement consists of two parts:

• Statement or schedule of changes in working capital.

• Statement of sources and Application of Funds.

Along with these two ‘funds from operation’ or ‘trading profit / loss’ is needed to

complete the statement.

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1. SCHEDULE 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 current liabilities derived

from two balance sheets.

Working capital = Current assets – Current liabilities

The change in the amount of any current asset or current liability in the current

balance sheet as compared to that of the previous balance sheet either results in

increase of decrease in working capital. In case a current asset in the current

period is more than in the previous period, the effect is an increase in working

capital and it is recorded in the increase column. But if a current liability in the

current period is more than in the previous period, the effect is decrease in

working capital and it is recorded in the decrease column or vice versa. The total

increase and total decrease are compared and the difference shows the net increase

or net decrease in working capital.

\

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2. STATEMENT OF SOURCES AND APPLICATION OF FUNDS:

Funds flow statement is a statement which indicates various sources

from which funds have been obtained during a certain period and the uses or

applications to which these funds have been put during that period.

Funds from operations → →

Funds lost in operations

F

Issue of share capital → →

Redemption of Prefe.share

U

Issue of debenture → →

Redemption of debenture

N

Sale of fixed assets → →

Purchase of fixed assets

D

Non-Trading receipts → →

Payment of dividend & tax

S

Decrease in working capital → →

Non-Trading Payments

3. FUNDS FROM OPERATION / FUNDS LOST IN OPERATION:

Trading profits or the profits from operations of the business are the

most important and major source of funds. Funds from operations is not profit as

shown by the profit and loss account of a firm, because there are many non-fund

or non-operating items which may have been either debited or credited to profit

and loss account. The examples of such items on the debit side of a profit and loss

account are: amortization of fictitious and intangible assets such as goodwill,

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preliminary expenses and discount on issue of shares and debentures written off,

depreciation and depletion, loss of sale of fixed assets, etc. the non-fund items are

those which may be operational expenses but they do not move out of business. A

fund from operation is ascertained by adding all the non-fund and non-business

expenses and deducting all non-fund and non-operating incomes to the net profit.

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INDUSTRY PROFILE One cannot simply think of economic development without the growth of the

Cement Industry. Cement one of the basic elements for setting up storage and health

infrastructure plays a crucial role in economic development of a country.

Having more then a hundred and fifty years of history it had been used

extensively construction of anything from of building to projects. As such cement

consumption may be considered as one of the yardsticks in scaling economy. It is

core sector industry and a rise in the price of cement is bound to have inflationary

effects on other industries with in the economy.

India is the second largest cement producing country after China. The

industry is characterized by a high degree of fragmentation that has creator intense

competitive pressure on price realizations. Spread across length and breath of the

country there are 120 large plants belonging to 56 companies of around 135 Million

Tones (MT) as March 2002.

The industry was totally decontrolled in March 1989 and deli censed in July

1991 leading to a rapid increase in installed capacity from 61.55 Million Tones per

annum in 1989-90 to 105.25 Million Tones per annum in 1996-97. Today cement

ranks among the to five industries in terms of their contribution to the union excise

duty.

Cement manufacturing involves hating a mixture of limestone and clay.

Partial fusion occurs and lumps called clinker are formed. The clinker is mixed with

little amount of gypsum to give ordinary Portland Portland_Cement (OPC), mixing

this with blast furnace slag or husk yields. Portland Slag Cement (PSC) and Portland

Pozzolonna Cement (PPC). The producing capacities of are, PPC and PBFS are 70,

18 and 11 percent respectively. The manufacturing process has also changed from the

inefficient wet process to the more efficient dry process 87% of the total capacity is of

dry process and 13% is not.

Cement consumption growth is highly correlated to the GDP growth and

serves and a leading Indicator. More industrial activities and greater purchasing

power means more asset formation and thus more consumption of cement.

INDUSTRY STRUCTURE

The total world production of cement if to be around 1400 MT. Asia is the

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largest consumer followed by Europe & the America. India’s installed capacity and

production for 1996-97 was 105.25 Million Tones Per annum & 76.22 including mini

and white sector. With 3.8 MT more already becoming operational this year and

another 3 MT to be added, there will be 57 large cement companies with 114 plants

and an installed capacity of 109 Million Tones per annum.

Before 1991 the Government uses to be the biggest consumer of cement

accounting for almost 40%-45%. Since then its share has been coming down and now

stands at about 30%. About 37% is estimated taken up by the retail segment.

The cement sector is relatively insulated from international trade. Being a very

bulky item, International Trade is very limited and only between neighboring states.

Although India has been consistently exporting cement in the volume of exports took

a beating after the southern Asian crises. From a peak of 2.68MT 1998-99 cement

exports from India have slid down to 2.06MT in 1998-99.

With the expected huge demand in the Asian countries the future India being a

convenient country for the export oriented activities and with the cheaper labour there

are many cement companies entering India.

Cement is preferred as building material in India. It is used extensively in

house hold and industrial construction. Earlier government sector used to consume

50% of the cement sold in India, but in the last decade it share has come down to

35% rural areas consume less 23% of the total cement. Availability of cheaper

building material for the nonpermanent structure affects the rural demand.

The budget gave substantial incentives to private sector construction

companies. Ongoing liberalization will lead to an increase in industrial activities and

infrastructure development so it is hoped that Indian cement industry shall boom

again in near future. The National highway Act to allow private toll collection and

identified projects, bridge, expressways for private construction.

MARKETING:

Cement being a commodity item has low margins and its bulky nature ensures

that the supply is determined by the economical transportation distance, this led to

the formation of regional markets, Western, Northern, Southern and eastern. And the

concentration of limestone deposits in a few states has a led to the concentration of

limestone the formation of cement plant clusters at seven locations. Having surpassed

the period of shortage and achieving high growth in capacity, implying springing up

many plants, the industry is getting competitive. Hence the necessary and need for

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coordinated marketing efforts.

The surplus cement that emerged towards end of the 1980’s necessitated the

Indian cement industry to develop marketing strategies and look for new areas of

cement usage. On such are identified was the coast of concrete roads.

Since 1988 the cement manufacturers association has propagated the idea of

concrete roads through a series of seminars, workshops and deliberations at decision-

making levels at both state and central governments discussion with metropolitan

authorities and other involved in road building activities. As a result the Delhi –

Matura road is under construction. The city of Bombay has already completed

construction of one-third of its 350 km arterial roads with concrete. More concrete

roads and likely to be built in India both in the private and government sectors

including toll roads and express highways. The government has recently asked for

private participation including foreign investment for the construction of toll roads,

some which are likely to be concrete.

The incentives offered to private builders include a guarantee of minimum

reasonable rate of return on their investments, increase debt equity ratio up to 100%

foreign equity participation development of service and rest areas along the road.

Expressways between Bombay – Nasik, Bombay – Pune, Bangalore – Mysore and

Bomaby – Vadodara are some of the roads identified.

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COMPANY PROFILE

The name Lanco has been derived from the promoter of the Group

Shri. Lagadapati Amarappa Naidu. The Lanco group is a diversified multi faced

conglomerate with the business interests in Pig Iron, Cement, Power, Graded

Castings, Spun Pipes, Information Technology and Infrastructure Development.

Young technocrats with exceptional entrepreneur skills promote the Lanco Group

with a mission and a great vision and the top agenda to put the group on the global

corporate may be during the next 10 years.

"Economy builds the nation and industry builds the economy"

LANCO industries limited are one of the best mini-blast furnace pig

iron manufacturing units in our country and it was 5th plant under TATA - KORE

technology. The company was incorporated on 1st November 1991 under company's

act-1956, in the name of LANCO FERRO LTD.,

THE COMPANY started construction work in august 1993. The

entire construction work was completed in a record time of 12 months. This was

achieved by teamwork of LANCO collective and the best efforts of the contractors.

With this achievement the company started commercial productions in September

1994.

The name LANCO Ferro limited was changed to LANCO

INDUSTRIES L1MITDED ON JULY 6 th, 1994.

LANCO INDUSTRIES LIMITED is located in between Tirupathi

and Srikalahasti with an access of about 30kms from Tirupati and about

Rachagunneri village, Srikalahasti Mandal of Chittoor district Andhra Pradesh is as

follows:

� Cheap availability of required land.

� There is more water resource.

� The distance between the harbor and present work spot is less.

� Proximity to raw materials.

� Proximity to marketing.

� To have financial subsidy.

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� Nearer to the railway sidings.

� Well connected to the road, rail and port.

� Availability of labor.

LANCO industries are importing coke from china, Japan and

Australia because; there is scarcity of prime cooking coal, which is the raw material

for producing coke. The coke, which is imported, comes to Chennai port.

Which is approximately 100km away from the site. And from there is

brought to site, and also fluxes. Which are required to produce pig iron like

Limestone, Dolomite, Quartzite and Manganese, are available in near by districts.

Plants under the group:

The pig iron plant and LANCO cement plant are two plants, which

are presently under of m/s. LANCO industries limited and LANCO Construction

limited is the sister of concern of it.

Administration:

The general administration of the company is carried out by

managing director, and general managers of finance. commercial, operations,

materials, purchase, human resource and administration.

The chairman and managing director are holding Overall control on

administration in all aspects, with the help of Vice-President and-other General

Managers. The board consists of five member's directors, Vice-Chairman, a

Managing Director and a Company Secretary.

Lanco industries limited:

Established in the year of 1993. An ISO 9002 Company, it had setup

a state of the art integrated manufacturing facility for Pig Iron through mini-blast

furnace route conforming to the latest international technology with initial capacity

of 1,00,000 TPA.

Its quality products of S G-Grade pig iron are being supplied to

foundries in the south. As a forward integration, it has utilized the slag produced in

the Pig Iron are being supplied to foundries in the south.

As a forward integration, it has utilized the slag produced in the Pig

Iron manufacturing process to install the cement plant is being met through a 2.5 mw

co-generation power plant. Due to severe completion and survival, company has

increased the production capacity from 90,000 TPA to 1, 50,000 TPA from 2003.

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Location:

A Lanco industry limited is a rural based factory sprawling over many

areas of land with deep resources and congenial soil. It is located in Rachagunneri

village near Tirupati. Nearly 50% of the consumption of electrical power is supplied

by APSES, Government of Andhra Pradesh and other 50% of power is maintained

by the company owned Dg sets and power plants.

Since it is a rural area labor potential is available and also company is

enjoying the subsides from state government. the Lanco group is a diversified

multifaceted onglo merale, with business interests I n Pig Iron, Cement, Power

Graded Castings, Spun Pipes, Real Estate Development, Information Technology a

past from infrastructure use development promoted by entrepreneurial skills and the

agenda to put the group on the global corporate map during the next 10 years

Lanco Kalahasti Castings Limited:

Merged with Lanco Industries Limited:

Established in 1997 and strategically located in close proximity to the

mini-blast furnace of the Pig Iron Plant, it has a clear economic mileage over other

casting sites.

The molten metal from the blast furnace is directly used as a basic

raw material to produce graded castings, cast iron pipes and Ductile iron spun pipes

with a capacity of 60,000 TPA, which will be gradually expanded for the to meet the

surging demand of the products.

The ups to the pipe plant will be met through 10 MW captive power

plants. To emerge to enhance the necessities and the self-sufficiency, it was decided

to enhance the production capacity from 60,000 TPA to 90,000 TPA from 2003.

Brief History Of Lil Since Incorporation Till Date:

Lanco Industries Limited (LIL) was incorporated on 1st November

1991 by Lanco Group of Companies to manufacture Pig Iron using Korf (German)

technology and Cement. The unit is located at Rachagunneri Village on Tirupati -

Srikalahasti road, which is about 30 Kms from Tirupati and 10 Kms from

Srikalahasti. The installed capacity of Pig Iron was 90,000 TPA and with similar

capacity 90,000 TPA for cement.

Due to the poor demand and other reasons, the operations of the

cement unit of the Company was suspended and the unit was reengineered for

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producing a different product mix having potential in South India.

As a measure of forward integration project for adding value to the

Pig Iron manufactured by the Company, LIL floated an another company named

Lanco Kalahasti Castings Limited (LKCL) on 4th March 1997 to manufacture iron

castings and spun pipes in the same campus of the Company with an annual capacity

of 40,000 TPA and 35,700 TPA respectively.

However, due to falling Pig Iron prices, increase additional capacity

in the industry, competition and the technical and financial assistance, the operations

of both LIL and LKCL were affected and the Company was exploring financial and

technical strategic alliance with Indian 1st Foreign Partner.

During the same time Mrs. Electro steel Castings Limited, was also

looking for additional capacities for producing spun pipes. Considering the synergies

involved, Lanco Industries Limited entered into a strategic alliance partnership

during December 2002, with MIs. Electro steel Castings Limited (ECL), Calcutta a.

leading manufacturer of CI, Pipes and DI pipes. This was win-win situation for both

L1L and ECL. After takeover, a financial re-engineering and re-structuring of LIL

was undertaken by ECL by implementing the following:

� Immediately after take over an amount of RS.2200 lakhs was infused as

share capital of the Company by Mis ECL to strengthen the equity base of

the company.

� During 2002, the capacity of Pig Iron was increased from 90,000 TPA to

150,000 TPA.

� With effect from 1st April, 2002 LKCL was merged with the company to

take advantage of the close synergy in the business of the two companies,

since a large part of Molten Iron/Pig Iron is consumed by LKCL for

manufacture of 01 Pipes.

� After the merger, the share capital of LIL, the paid up share value of

RS.101- was reduced to RS.2.50 per share and accordingly one share of

RS.101- each fully paid up in LIL was issued to all the existing

shareholders for every 4 shares held by them.

� During 2003, the capacity of the 01 pipes was increased to 90,000 TPA.

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� During 2004, the company took the step of backward integration by

setting up 150,000 TPA coke oven plant in the same complex, which was

commissioned in June 2005.

� During 2005, the company started setting up of a Captive Power Plant of

12 MW by using the waste heat recovered from the coke oven plant which

is expected to be commissioned by March 2006.

� An additional amount of RS.25 crores is being spent on other capital

works like revamping of bitumen coatings machine, balancing equipment

and facilities for production of higher diameter DI pipes etc. to increase

the capacity of 01 pipes from the present 90,000 TPA to 120,000 TPA by

2006-07.

The above has resulted in the company witnessing a profitable years

after a gap of 8 years during the years ended 31st March, 2003, 2004 and 2005 and a

dividend of 10% was declared for the years ended 31st March 2004 and 2005 to the

shareholders.

Step-by-Step Company's Growth:

1991 - Incorporation of Lanco

1994 - Setting up of Mini Blast Furnace with 90,000 TPA

Capacity

1995 - Setting up a 250 TPO Mini Cement Plant

1997 - Setting up of LKCL for manufacture of 40,000 TPA

castings and 35,700 TPA 01 Pipes.

2002 - Strategic Alliance with Electro steel Casting Limited

2002 - Infusion of RS.2200 lakhs to the equity and financial

restructuring

2003 - Merger of LKCL with L1L for synergy

2003 - Capacity of Pig Iron was increased to 90~000 TPA to

150000 TPA.

2004 - Capacity of 01 Pipes was increased to 90,000 TPA.

2005 - Commissioning of 150,000 TPA coke oven plant.

2006 - Setting up of Captive Power Plant of 12 MW by using

the waste heat recovered from the coke oven plant

2007 - Merger of LKCL with LIL for synergy

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PRODUCT PROFILE

What Is Cement? Cement is a mixture of limestone, clay, silica and gypsum. It is a fine

powder which when mixed with water sets to a hard mass as a result of hydration of

the constituent compounds. It is the most commonly used construction material.

Different Types of Cement

There are different varieties of cement based on different compositions according

to specific end uses namely Ordinary Portland Cement, Portland Pozolona cement,

Portland Blast Furnace Slag Cement, White Cement and Specialized Cement. The

basic difference lies in the percentage of clinker used.

Ordinary Portland cement (OPC)

OPC, popularly known as gray cement, has 95% clinker and 5% of gypsum and other

materials. It accounts for 70% of the total consumption. White cement is a variation of OPC

and is used for decorative purposes like rendering of walls, flooring etc. It contains a very low

proportion of iron oxide.

Portland Pozolona Cement (PPC) PPC has 80% clinker, 15% pozolona and 5% gypsum and accounts for 18% of the

total cement consumption. Pozolona has siliceous and aluminous materials that do not possess

cementing properties but develop these properties in the presence of water. It is cheaply

manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient. It has a

lower heat of hydration, which helps in preventing cracks where large volumes are being cast.

Portland Blast Furnace Slag Cement (PBFSC):

PBFSC consists of 45% clinker, 50% blast furnace slag and 5% gypsum and

accounts for 10% of the total cement consumed. It has a heat of hydration even lower than

PPC and is generally used in construction of dams and similar massive constructions.

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White Cement: Basically, it is OPC: clinker using fuel oil (instead of coal) and with iron oxide

content below 0.4% to ensure whiteness. Special cooling technique is used. It is used

to enhance aesthetic value, in tiles and for flooring. White cement is much more

expensive than gray cement.

Specialized Cement: Oil Well Cement: is made from clinker with special additives to prevent any

porosity.

Rapid Hardening Portland cement: It is similar to OPC, expect that it is ground

much Filner, so that on casting, the compressible strength increases rapidly.

Water Proof Cement: OPC,with small portion of calcium seta rate or non

saponifibate oil to impart waterproofing properties.

Different Types of Process:

The wet, semi-dry or dry processes can be used to produce cement. In the

wet/semi-dry process, the raw material is produced by mixing limestone and water

(called slurry) and blended with soft clay. The dry process and semi-dry processes are

more fuel-efficient. The vertical shaft technology employed by mini cement units, use

the wet process where as the rotary kiln technology uses the modern dry process. The

Indian cement industry has been progressively using the wet process with the dry

process, which now accounts for 91% of the installed capacity.

How Is Cement Made? The manufacturing process of cement consists of mixing, drying and

grinding of limestone, clay and silica into a composite mass. The mixture is then

heated and burned in a pre-heater and kiln and then cooled in an air cooling systems

to form clinker, which is the semi-finished form. This clinker is cooled by air,

subsequently grinded with gypsum to form cement.

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Limestone is the key raw material and normally, 1.2-1.5 tons are needed for

every ton of cement. The quality of the limestone significantly affects the operating

efficiency of the units. Under normal conditions, to produce 1 ton of cement, 0.25 ton

of coal, 120 kWh of power and 0.05 ton of gypsum is required.

PRODUCTION PROCESS

The process for the production of cement consists essentially of seven

operations described below:

1. CRUSHING & GRINDING :

Limestone obtained from the mine in boulders form crushed in crushers. The same,

along with fines, clay and iron ores are into a raw mill & ground into powder & stored

in silos.

2. NODULIZING:

Nodulization means glomeration of all uniform small size particles to from large

nodules. Since fuel is in the raw meal, for clinkering nodulization is very important &

critical. Nodulization is done in a specially designed revolving at an angle. Ground

raw meal is fed to the dish which is revolving & water is sprayed to convert the wider

into globules called nodules. Perfect nodulization is achieved by having proper size of

fuel, size of dish,gle of inclination of dish & the spread of water jets sprayed.

3. CLINKERING :

Nodules made, called the black meal, are fed into the vertical shaft kiln. The nodules

are converted into clinker by sintering of the meal by blowing control air supplies by

root blower. The various zones of reactions staring from the top of the kiln are the

drying zone, calcining zone, sintering zone & cooling zone. Clinker thus made is

stacked in hoppers, using belt conveyors.

4. SLAG DRYING :

Usually, the slag coming out of slag granulation plant of a blast furnace or MBF has a

moister content it needs to be dried before grinding. A rotary dryer is installed for this

purpose which uses hot flue gas from the air preheaters of MBF.

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5. CEMENT GRINDING:

Clinker, gypsum & slag are fed into the cement mill after passing through proper

weighing & feeding mechanism. The grinding steel balls grind the cement to required

fineness. Over size materials will return for regrinding. Gypsum is added in the range

regulate the setting property of cement.

6. PACKING :

The cement stored in silos is packed in bags of 50 kgs using an automatic double

sprouted packing machine.

7. QUALITY CONTROL :

Tests are carried-out at every stage for required chemical & physical properties such

as composition, strength, fuel value, setting properties, nodulization, roundness etc.

Cement is manufactured to national standards.

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REVIEW OF LITERATURE

In our present day economy, finance is defined as the provision of

money at any time when it is required. Every enterprise, whether big, medium and

small, needs finance to carry out its operations and to achieve its targets. In fact,

finance is so indispensable today that it is rightly said that it is the lifeblood of an

enterprise. Without adequate finance, no enterprise can possibly accomplish its

objectives.

Finance may be defined as the provision of money at the time when it

is required. Finance refers to the management of flows of money through an

organization. It concerns with the application of skills ion the manipulation uses and

control of money divestment authorities have interpreted the term finance differently.

Finance is concerned with the task of providing funds to the

Enterprises on the term that is most favorable towards the attainment of the

Organizational goal’s objects. The function of finance is not merely Furnishing funds

to the organization. Finance has a broader meaning and it covers financial planning,

forecasting of cash receipts and disbursements, rising of funds, use and allocation of

funds and financial control. The area of operation of finance manager is vague from

one compact to another and industry – to – industry etc.

There are many definitions of finance of all the best was of Howard

and Upton. “That administrative area of set of administrative area of organization will

have the means to carryout as objectives to satisfactorily as possible and at the same

time meet its obligations as they become due”.

The fundamental principle of finance:

A business proposal – regardless of whether it is a new investment or

acquisition of another company or restructuring initiative – raises the value of the

firm, only if the present value of the future stream of net cash benefits expected from

the proposal is greater than the initial cash outlay required to implement the proposal.

The difference between the present value of future cash benefits and

the initial outlay represents the net present value of NPV of the proposal.

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Net present value =

Present value of future cash benefits – initial cash outlay

Significance of financial management:

Financial management is the managerial activity, which is concerned

with planning and controlling of the firms financial resources.

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

academicians and the practicing managers. The practicing managers all interested in

this subjects become the most crucial decisions of the firm all those which results to

the finance, and on understanding of the theory of financial management provides

them with conceptual and analytical insights to make these decisions skillfully.

As a separate activity as discipline it is of recent origin. It was a

branch of economic till 1890, today financial management is recognized as the most

important branch of business administration.

According to Howard, and Upton, financial management involves the

application of general management principals to particular financial operation.

N.G. Wright financial management is intimately itself woven into the

fabric of the management itself its central role is concerned with the same objectives

as these of the management which the way in which the way in which the resources of

the management in to three main areas.

� Decision on the capital structure.

� Allocation of available funds to specific uses.

� Analysis and appraised of problems.

Financial management includes planning of finance cash budgets and

source of finance. Era sloman and john prigle insists that financial management must

attend to investment decision because if these decisions.

The balance sheet:

The balance sheet shows the financial conditions or the state of affairs of the

firm at a particular point of time. More specifically the balance sheet conditions detailed

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information of the firm’s assets and liabilities. Assets represents economic resources

possessed by the firm while the liabilities are the amounts payable by the firm. The balance

sheet gives concise summery of the firm resources and obligations and measures the firms

liquidity and solvency.

Profit and loss account:

The profit and loss account shows the profitability of the firm by giving the

details about income and expenses. It is simply income and expenditure account. Revenues

are benefits, which customers contribute to the firm in exchange of goods and services. The

cost of economics resources used in providing goods and services to the customer are called

expenses.

Profit and loss account provides a concise summary of firm’s revenues and

expenses during the period of time and measures its profitability.

The above two statements provide useful information regarding the

operations of the firm.

They fail to explain the financial data required for financing and investing

decisions by the management i.e. causes for changes in assets and liabilities and owner’s

equities. They do not indicate the movement of funds between sources and uses from the end

of the period to the end of next periods. It is therefore; necessary to prepare an additional

statement called funds flow statements to overcome the above difficulties.

Funds flow statement:

The funds flow statement is a statement, which shows the

movement of funds and is a report the financial operations of the business

undertaking. It indicates various means by which funds were obtained during a

particular period and the ways in which these find were employed.

In simple, the funds flow statement is a statement of sources and

application of funds. In short, it is a technical device designed to high light the

change in the financial condition of a business enterprise between tow Balance

Sheets.

According to Robert Anthony "the funds flow analysis describes the

sources fro which additional funds were derived and the uses to which these

funds were put.”

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According to Fouke, "A Statement of sources and Applications of

funds is a technical device designed to analyze the changes in the financial

position of a business enterprise between two periods.”

Funds flow statement is widely used by the financial analyst and credit

granting institution and financial managers in performance of their jobs. It has

become a useful tool in their analytical kit. This is because the financial statement

like income statement and· balance sheet have limited role to perform.

Income statement measures flows restricted to transaction that pertain

to rendering of good and services to customers. The balance sheet is merely a static

statement's these statements do not sharply focus those major financial transactions,

which have behind the n\balance sheet changes.

However financial analyst must know the purpose for which the loan was

unitized and the sources from which it has rises. This will help him in making a better

estimate about the company's financial position and polices.

Uses, significance and importance of funds flow statement:

Analysis of financial operations: -

A funds flow statement shows bow the resources have beer obtained and the

uses to which they are put.

The funds flow statements determining the financial consequences of

business operation. It also useful in guiding whether the firm has expanded at too fast rate and

whether financing is strained, it also point out to the effectiveness with which the

management has handled working during the period under review.

Evaluation of the firms: -

This statement can consist the financial manager in planning intermediate

and long-term finance for obtaining sources in the further and determining how they are to be

used. That is analysis of the major sources of funds in the past reveals what positions of the

firms growth was financed internally and what position externally.

General Rule:

The flow of funds occurs when a transaction changes on the one hand

a non-current account and vice versa.

� A current asset and a fixed asset.

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� A fixed asset and a current liability.

� A current asset and a fixed liability.

� A fixed liability and a current liability.

Uses-of Funds Flow Analysis:

� It helps in the analysis of financial operations.

� It throws light on many perplexing question of general

interest.

� It helps in the formation of a realistic dividend policy.

� It helps in the proper allocation of resources.

� It acts as a future guide.

Limitations of funds Flow Analysis:

� It is essentially historic in nature and projected funds flow statement

cannot be prepared with much accuracy.

� It cannot be reveal continues changes.

� It is not an original statement but simply a re - arrangement of data given

in the financial statements.

Different names of funds Flow Statement:

A statement of sources and Uses of funds.

� A statement of Sources and Application of funds.

� Where got and where gone Statement.

� Inflow and out flow of funds statement.

Main purpose of funds Flow Statement:

� To help to understand the changes in assets and which are not evident

� Financial statements or I the income statement.

� To inform on to how the loans to the business has been used.

� To point out the financial strengths and weakness of the business.

� To help in planning sound dividend policy.

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Procedure for preparing a Funds Flow Statement:

The preparation of funds flow statement consists of some parts:

Statement or schedule of changes in working capital.

� Statement of sources of funds.

� Statement of application of funds.

� Finding out the hidden transactions or changes in non-current assets

and non-current liabilities.

Statement or Schedule of changes in Working Capital:

The increase or decrease in working capital can be calculated by

preparing the schedule of changes in working capital.

Working capital means the excess of current assets over current

liabilities. Statement of changes in working capital is propose to show the changes in

the working capital between two balance sheets data. This statement is prepared with

the help of current assets and current liabilities derived from two balance sheets.

While preparing a schedule of changes in working capital, it should be note that:

� Increase in Current Assets, Increases the Working Capital.

� Decrease in Current assets, Decreases the Working Capital.

� Increase in Current Liabilities, Decreases the working capital.

� Decrease in Current Liabilities, Increases the Working Capital.

� An increase in current assets and increase in current liabilities does not

affect working capital.

� A decrease in current assets and decrease in current liabilities does not


� Changes in fixed (non-current) assets and fixed (non-current) liabilities


The changes in all current assets and current liabilities are merged into

one figure only either an increase of 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

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capital at the beginning the difference is expresses as “increase in working capital”.

On the other hand, if the working capital at the end of the period is less than at the

commencement, the difference is called “decrease in working capital”.

Working Capital = Current assets – Current Liabilit ies

Current Assets:

The expression ‘current assets’ denotes those assets, which are

continually on the move. Since they are constantly in motion, they are known as the

circulating capital of the business. These assets can or will be converted into cash

during a complete operating cycle of the business.

Current assets include:

� Stock-in-trade or inventories,

� Debtors,

� Payments in advance or prepaid expenses,

� Stores,

� Bills receivable,

� Cash at bank,

� Cash in hand and

� Work-in-progress etc.

Current Liabilities:

‘Current Liabilities’ are those liabilities, which are to be paid in the

near future, i.e., during a complete operating cycle of the business.

Current liabilities include: -

� Trade creditors,

� Accrued or outstanding expenses,

� Bills payable,

� Income tax payable,

� Dividends declared and

� Bank overdraft.

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Note: - according to the experts opinion ‘bank overdraft’ has a tendency to become

more or less permanent source of financing and hence it need not be included among

‘current liabilities’.

Statement of Sources and application of funds:

Funds flow statement is a statement, which indicates various sources

for which funds have been obtained during a chain period and the uses or applications

to which these funds have been put during that period.

� Sources of funds

� Application of Funds.

Statement of sources and Applications

Sources of funds Amount Application of funds Amount

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RESEARCH METHODOLOGY

SOURCES:

The data have been collected from both the primary and secondary

sources. The data was collected from the officials of the organization.

The data collected related to the study was from the two sources.

� Primary data

� Secondary data

Primary data:

For the study, the data were collected from the primary data i.e.

consulting financial manager and accounting assistance gathered income statements

of the company.

Secondary data:

The information collected to the company profile from the company

past records and websites are secondary data.

However, the entire study was based on the primary data and

secondary, which are collected from the books, records, journal, newspaper, survey

and profiles of the organization

INTRODUCTION OF RATIO ANALYSIS:

Accounting is the process of identifying, measuring and

communicating economic information to present informed judgments and decisions

by users of the information. It involves recording, classifying and summarizing

various business transactions.

Financial Statements:

Financial statements are the sources of information on the basis of

which conclusions are drawn about the profitability and liquidity position of the

business enterprise at the financial year. The primary objective of financial statement

is to assist decision - making.

Financial statement are end products of financial accounts, prepared by

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the accountant that purpose to reveal financial position of the enterprise, the result of

its resent activities and an analysis of what has been done with the analysis.

Types of financial statement:

Financial statements primarily comprise two basic statements.

� The position statement (or) the balance sheet

� The income (or) profit and loss account.

Analysis Meaning:

The term financial analysis also known as analysis and interpretation

of financial statement refers to the process of determining financial strengths and

weakness of the firm by establishing strategic relationship between the items of

balance sheet, profit and loss account of other operative data.

Classification of Ratios:

The use of ratio analysis is not confined to financial manage only. There are

different parties interested in the ratio analysis for different purposes. In view of

several of ratios, there are many types of ratio’s, which can be calculated from the

information given in the financial statements. The particular purpose of the user

determines the particular ratio’s that might be used for financial analysis.

Various Accounting Ratios can be classified as follows

� Traditional Classification

� Functional Classification

� Significance Ratios

Liquidity Ratio’s:

Liquidity refers to the ability of a concern to meet its current

obligations as and when these become due. The short-term obligations are met by

realizing amounts from current floating (or) circulating assets. The bankers,

suppliers of goods and other short-term creditors are interested in the liquidity of the

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concern. They will extend credit only if they are sure that current assets are enough

to payout the obligations.

� Current Ratio

� Quick or Acid Test (or) Liquid Ratio

� Absolute Liquid Ratio or cash position ratio

� Net working capital Ratio.

�

Current Ratio:

Current Ratio may be defined as the relationship between current

assets and current liabilities. This ratio, also known as working capital ratio, is a

measure of general liquidity and is most widely used to make the analysis of a short-

term financial position (or) liquidity of a firm.

Current Assets

Current Ratio = --------------------

Current Liabilities

A relatively high current ratio is an indication that the firm is liquid and has

the ability to pay its current obligations in time as and when they become due. On the

other hand a relatively low current ratio represents that the liquidity position of a firm

is not good and the firm shall not able to pay its current liabilities in time. “Two to

one ratio” is referred to as a banker’s rule of thumb (or) arbitrary standard of liquidity

for a firm.

Current assets include cash and those can be easily converted into cash

with in a short period of time generally, one year such as marketable securities,

debtors, inventories, work-in-progress etc.

Current liabilities are those obligations which are payable within a

short period of time generally one year and include outstanding expenses, bills

payable, sundry creditors, accrued expenses short term advances, income tax etc.

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Quick Ratio (or) Acid Test Ratio:

Quick ratio is known as acid test ratio or liquid ratio is a more rigorous

test of liquidity then the current ratio. The term liquidity raffs to the ability of a firm

to pay its short-term obligations as and when they become due. The two determinants:

of current ratio as a measure of liabilities.

Quick ratio may be current or liquid liabilities. Inventories cannot be

‘termed to be liquid asset because they cannot be converted into cash immediately

without a sufficient loss of value. The quick ratio can be calculated by dividing the

total of the quick assets by total current liabilities. As a rule of thumb (or) as a

convention quick ratio of 1: 1 is considered satisfactory.

Quick (or) Liquid Assets

Quick / Liquid (or) Acid Test Ratio = ---------------------------------

Current Liabilities Absolute Liquid

Ratio:

Although receivables, debtors and bills receivables are generally more

liquid than inventories, yet there may be doubts regarding their realization into cash

immediately (or) in time. Absolute liquid assets include cash in hand and at bank and

marketable securities or temporary investment. The acceptable norm for this ratio is

50% (or) 0.5 (or) 1:2.

Absolute Liquid Assets

Absolute Liquid Ratio = ---------------------------------

Current Liabilities

One of the value aids to the financial manager or the creditor is funds flow

statement, with which evaluate how a firm uses funds and determine how these uses

are financed. In addition to studying the past flow, the analyst can evaluate the future

flows by means of the funds statement based on forecasts.

Such as statement provides an efficient method for the financial manager to assess the

growth of the firm and its resulting financial needs as well as to determined the best

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way in which those needs may be financed. In particular, funds statements are very

useful in planning intermediate and long – term financing.

Net working capital Ratio: -

The difference between the current assets and the current liabilities

excluding short-term bank borrowings is called net working capital. It is some times

used as a measure of a firm’s liquidity.

It is considered that between two firms, the one having the larger

networking capital has greater ability to meet its current obligations.

This is no necessary so; the measure of liquidity is a relationship,

rather than the difference between Current Assets and Current Liabilities.

Net working capital

Net working capital Ratio = ---------------------------

Net assets

Net working capital = current assets – current liabilities

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NEED OF THE STUDY

The main need of the study is to study the sources and applications of

funds in the company and methods to evaluate the financial performance of the

company.

� With the help of funds flow statements to evaluate the pattern of the firm.

� To know about the need of the funds for the growth of the firm.

� To know the working capital position of the company.

� With the help of the funds flow statements we can estimate the cash

balance of the company.

To find out the out flow and inflow of the funds

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SCOPE OF THE STUDY

The scope of the study covers the previous five years financial reports

of the company.

� An extensive study is done on the investment made by LANCO

INDUSTRY; on its funds flow statements and its adequacy, and the factors

determining that investment.

� The study concentrates on the liquidity position of the firm and the brief

study.

� The technique used by the firm of the management of its current assets and

sources though which the finance of the funds flow statement in availed

for the firm.

� The study covers all the financial information of the firm.

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OBJECTIVES OF THE STUDY

The major objective of the study is to assess the inflow and outflow of

the funds in the LANCO INDUSTRIES LIMITED.

The specific objectives of the study are:

� To analyze the funds from operations

� To determine the inflow and outflow of funds in LIL

� To identify the source and applications of funds

� To know how changes in working capital affect on the company’s

operations profit

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LIMITATIONS OF THE STUDY

The funds flow analysis of the organization fully depends upon the

secondary data. The primary data were used only to throw light on the company's

history and growth. Thus the following are the main limitations of the study.

� These statements were over all reports (2006-2007, 2007-2008, 2008-09,

2009-10, and 2010-11). Hence it is a postmortem analysis of the financial

statement.

� The figures taken from the financial statement like profits and loss

accounts and balance sheets were historical in nature.

� Time value of money is not being considered.

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ANALYSIS AND INTERPRETATION

Lanco Industries Limited Balance Sheet As On (2007-2011)

Particulars Schedule 2007 2008 2009 2010 2011

I. SOURCE OF FUNDS

1. Share holders fund a) Share capital 1 3976.36 3976.36 3976.36 3976.36 3976.36 b)Reserves and Surplus

2 5108.64 7179.70 8549.77 13713.91 17164.25

2. Loan Fund

a) Secured Loans 3 16382.92 17832.33 33227.46 26486.50 30087.87 b)Unsecured Loans 4 13733.65 12271.32 4878.54 6130.29 5845.48 3. Deferred Tax Liability (net)

1184.79 2576.95 3123.73 3435.74 3614.81

Total 40386.36 43836.66 53755.86 53742.80 60688.77 U. APPLICATION OF FUNDS

1. Fixed Assets a)Gross-Block 31824.32 35516.23 38974.86 40286.29 43098.25 b) (-) Depreciation, 7666.24 9127.88 10734.88 12527.20 12932.62 c) Net Block 24158.08 26388.35 28239.98 27759.09 30165.63 d) Capital Work in Progress

754.45 862.01 425.37 3441.21 3484.33

2. Investments NIL NIL NIL NIL NIL 3. Current Assets, Loans and Advances

a) Inventories 10636.86 12092.91 14436.48 11519.49 23883.36 b) Sundry Debtors 7667.92 8814.31 11966.16 11845.80 13725.85 c) Cash & Bank balances

2650.37 420.10 3550.27 1516.42 1899.09

d)Loans and Advances 5241.68 5289.66 6020.93 5581.47 4454.39 Total

26196.83 26616.98 35973.84 30463.18 43962.69

Less: Current liabilities and provisions

a.Current liabilities

10188.34 9319.38 1018.38 6853.94 15633.54

b. Provisions 538.25 711.30 774.95 1066.74 1290.34 Total 10726.59 10030.68 10883.33 7920.68 16923.88 Net CurrentAssets 15470.24 16586.30 25090.51 22542.50 27038.81 4.Deferred Tax Asset NIL NIL NIL NIL NIL 5.Miscellaneous Expenditure

3.59 NIL NIL NIL NIL

Profit &Loss Account NIL NIL NIL NIL NIL Total 40386.36 43836.66 53755.86 53742.80 60688.77

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STATEMENT OF CHANGES IN WORKING CAPITAL (2006-07)

Particulars 2005-06 2006-07 Changes in working capital

Increase Decrease

Current assets (CA)

Inventories 9194.08 10636.86 1442.78

Sundry debtors 6706.59 7667.92 961.33

Cash and bank balances 350.67 2650.37 2299.70

Loans and advances 2070.42 5241.68 3171.26

total current assets 18321.76 26196.83

Current liabilities (CL)

Current liabilities 9202.11 10188.34 986.23

Provisions 354.42 538.25 183.83

Total current liabilities 9556.53 10726.59

Working capital (CA-CL) 8765.23 15470.24

Increasing in Working Capital

6705.01 6705.01

15470.24 15470.24 7875.07 7875.07

INFERENCE: -

It is clear from the above table that the current assets of the

company have increased from Rs.18321.76 crores in (2005-06) to

Rs.26196.83 crores in (2006-07). The current liabilities of the company

have decreased from Rs.9556.53 crores in (2005-06) to Rs.10726.59

crores in (2006-07).

There is an increasing the working capital is Rs.6705.01 (crores)

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Increase Decrease

Current assets (CA)

Inventories 10636.86 12092.91 1456.05

Sundry debtors 7667.92 8814.31 1146.39



total current assets 26196.83 26616.98



Provisions 538.25 711.30 173.05




1116.06 1116.06

16586.30 16586.30 3519.38 3519.38

INFERENCE: -




have increased from Rs.10726.59 crores in (2006-07) to Rs.10030.68



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Increase Decrease

Current assets (CA)

Inventories 12092.91 14436.48 2343.57

Sundry debtors 8814.31 11966.16 3151.85



Total Current Assets 26616.98 35973.84



Provisions 711.30 774.95 63.65




8504.21 8504.21

25090.51 25090.51 9356.86 9356.86

INFERENCE: -







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Increase Decrease

Current assets (CA)

Inventories 14436.48 11519.49 2916.99

Sundry debtors 11966.16 11845.80 120.36






Provisions 774.95 1066.74 291.79



Decreasing in Working Capital

2548.01 2548.01

25090.51 25090.51 5802.45 5802.45

INFERENCE: -


company have decreased from Rs.35973.84 crores in (2008-09) to


have increased from Rs.10883.33 crores in (2008-09) to Rs.7920.68


There is a decreasing the working capital is Rs.2548.01 (crores)

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Particulars 2009-10 2010-11 Changes in working capital Increase Decrease

Current assets (CA)

Inventories 11519.49 23883.36 12363.87

Sundry debtors 11845.80 13725.85 1880.05






Provisions 1066.74 1290.34 223.6




4496.31 4496.31

27038.81 27038.81 14626.59 14626.59

INFERENCE: -






There is an increasing the working capital is Rs 4496.31 (crores)

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The statement showing the working capital from 2003-04 to 2006-07

Year Increase Decrease

2006-2007 6705.01

2007-2008 1116.06 -

2008-2009 8504.21 -

2009-2010 - 2548.01

2010-2011 4496.31 -

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Adjusted profit & loss account: 2007

Particulars Amount Particulars Amount To balance c/d 5108.64 By balance b/d 3993.06 To deferred tax 566.73 Funds from

operation 2841.12

To depreciation

1156.89

To preliminary expenses

1.92

6834.18 6834.18

Funds flow statement: 2007

Sources Amount Applications Amount

secured loans 7138.11 Payment of un-secured loans

1335.46

Decreased in capital work in progress

4849.57 Purchase of fixed assets

6788.33

Funds from operation

2841.12 Increasing working capital

6705.01

14828.80 14828.80

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Particulars Amount Particulars Amount To balance c/d 7179.76 By balance b/d 5108.64

To preliminary expenses

- Funds from operation

4976.21

To depreciation 1512.99

To deferred tax 1392.16

10084.85 10084.85


Sources Amount Applications Amount secured loans 1449.41 Payment of

un-secured loans

1462.33



3691.91

Increasing working capital

1116.06

Increase in capital working progress

107.56

Prior Period Adjustment

47.76

6425.62 6425.62

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Particulars Amount Particulars Amount

To balance c/d 8549.77 By balance b/d 7179.70

To deferred tax 546.78 Funds from operation

3558.69

To depreciation 1641.84

10738.39 10738.39


Sources Amount Applications Amount



8504.21



3458.63

Secured loans 15395.13 Un-secured loans

7392.78

Prior Period Adjustment

34.84

19390.46 19390.46

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To depreciation 1794.60 Funds from operation

7270.75


15820.52 15820.52


Particulars Amount Applications Amount Un-secured loans

1251.75 Payment of secured loans

6740.96



1311.43



3015.84

Prior Period

Adjustment 2.28

11070.51 11070.51

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To depreciation 1871.61 Funds from operation

5501.02


19214.93 19214.93


Particulars Amount Applications Amount Funds from operation

5501.02 Un-secured loans

284.81

Payment of secured loans


2811.96

Increasing working capital

4496.31

Increased in capital work in progress

1509.31

9102.39 9102.39

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RATIO ANALYSIS: -

Current Ratio: (Rs.In Lakhs)

Years Current Assets Current

Liabilities Ratio

2006-07 20955.15 10188.34 2.06

2007-08 21327.32 9319.38 2.3

2008-09 29952.91 10108.38 2.96

2009-10 24881.71 6853.94 3.6

2010-11 39508.30 15633.54 2.53

Current Ratio:

Interpretation: The Current ratio measures the firm’s short- term solvency. The standard

norm for current ratio is 2:1.It is inferred from the above table that from 2006

onwards current ratio is in increasing trend from 2006-2010, and it is decreased in the

year 2011.In this we can know that current ratio at lanco industries is Satisfactory

level.

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JBIPGC - TIRUPATI

Quick Ratio:

Quick ratio also called acid-test ratio, establishes a relationship between quick, or

liquid, assets and current liabilities. An asset is a liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most liquid asset.

Current Assets – Inventories Quick Ratio = ----------------------------------- Current Liabilities

(Rs. In Lakhs)

Years Quick Asset Current Liabilities

Ratio

2006-07 10318.29 10188.34 1.01

2007-08 9234.41 9319.38 0.99

2008-09 15516.43 10108.38 1.53

2009-10 13362.22 6853.94 1.95

2010-11 15624.94 15633.54 1.0

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Quick Ratio:

Interpretation: Quick ratio indicates the extent to which you could pay current liabilities

without relying on the safe of inventory. The standard norm for the quick ratio is 1:1

.It is inferred from the above table that from the 2006 onwards Quick ratio is in

fluctuating stage till the year 2011. During the period 2008-2010 Quick ratio is

increasing trend. However, the ratio was above the standard norm so the ratio was not

satisfactory.

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CASH RATIO:

It is Suggested that it would be useful for the Management if the liquidity measure

also takes into account reserve borrowing power as the firm’s real debt paying ability depends

notonly on the cash resources available with it but also on its capacity on its borrow from the

market at short notice. “Absolute Liquid Assets include cash-in-hand and at bank and

marketable securities or temporary investments”. This ratio may be expressed as Under:

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

ABSOLUTE LIQUID ASSETS = CASH &BANK BALANCE

(Rs. In Lakhs)

Years Cash & bank balance

Current Liabilities Ratio

2006-07 2650.37 10188.34 0.26

2007-08 420.10 9319.38 0.04

2008-09 3550.27 10108.38 0.35

2009-10 1516.42 6853.94 0.22

2010-11 1899.09 15633.54 0.12

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CASH RATIO:

Interpretation:

It is inferred from the above table that Cash ratio is fluctuating from year by year i.e.,

2006 -2011.So the Company Should maintain Cash reserves it will good for Company even

though the Company has policy to not maintain heavy Cash. There is nothing to worry about

lack of Cash because Company has more reserves to pay debts.

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Net Working Capital Ratio:

Working capital of a concern directly related the current assets like debtors, bills

receivable, and cash, stock etc, changes with in the increase or decrease in sales.

The working capital is takes as

Working Capital = Current Assets – Current Liabilities

Working capital turnover ratio indicates number of times the working capital is turned

over in the course of year. This ratio measured the efficiency with which the working capital

is being used by a firm.

Net working capital This ratio can be calculated as: = ----------------------------- Net assets

(Rs. In Lakhs)

Years Net Working

Capital Net asset Ratio

2006-07 10766.81 24158.08 0.44

2007-08 12007.94 26388.35 0.45

2008-09 19844.53 28239.98 0.70

2009-10 18027.77 27759.09 0.65

2010-11 23874.76 30165.63 0.79

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Net working capital ratio:

Interpretation

Net working capital measures the firms potential reservoir of funds it can be

related net assets and the ratio are 0.44, 0.45, 0.70, 0.65,0.79. It is inferred from the

above table that the networking capital has been increasing trend from the last 3 years

and it is decreased in the year 2010 i.e., 0.65 and then it is increased in the year 2011

i.e., 0.79. It is good for the company.

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FINDINGS

FINDINGS OF WORKING CAPITAL:

� During the year 2007 the company utilized Rs 6705.01 (crores) towards

finance which worked out to be 45.21 per cent of the total application of funds

utilized.

� During the year 2008 the company utilized Rs 1116.06 (crores) towards

finance which worked out to be 17.36 per cent of the total application of funds

utilized.

� In the year 2009 the company utilized Rs 8504.21 (crores) towards finance

which worked out to be 43.86 per cent of the total application of funds utilized.





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FINDINGS OF THE FUNDS FLOW STATEMENT:

� During the year 2007 the company had generated funds from operation Rs

2841.12 (crores). This consists 19.16 per cent of total funds.

� During the year 2008 the company had generated funds from operation Rs

4976.21 (crores). This consisted 77.44 per cent of total funds.

� In the year 2009 the company had generated funds from operation Rs 3558.69

(crores). This consists18.35 per cent of total funds.

� In the year 2010 the company had generated funds from operation amounted

to Rs 7270.75 (crores). This consists of 65.57 per cent of total funds.

� In the year 2011 the company had generated funds from operation amounted

to Rs 5501.02 (crores). This consists of 60.43 per cent of total funds.

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SUGGESTIONS

� All the reserves and surplus amount are utilizing for purchasing fixed assets

and for working capital. It is better to utilize some amount for purchasing

investments which diversifies the financial risk.

� Company is maintaining more current ratio. Hence, firm’s funds will be

unnecessarily ties up in current assets. It could be better to invest the amount

in purchasing the marketable securities.

� In the financial senses acquiring the share capital will makes profitable not

borrowing the loans thorough secured and unsecured.

� Trading activity should be operated effectively to generate more funds.

.

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CONCLUSION

The following conclusions are arrived at based on the observations

made on the present study: -

From the analysis on the “funds flow statement at LANCO industries

limited, Sri Kalahasti” the company is needed to maintain the stability in working and

expenses. Hence, the management has to act rationally in the cost control and stock –

out for getting more profits and maximize the share holder’s wealth.

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BIBLIOGRAPHY

� James C.Vann Horne Financial Management, 9th edition Prentice –

Hall of India Private Limited, New Delhi, 1994.

� Khan M.Y. & Jain P.K. Financial Management, 2nd Edition Tata

Mc. Graw-Hill Publishing Co. Ltd., New Delhi.

� Pandey I.M., Financial Management, 7th Edition, Vikas Publishing

House Pvt. Ltd., New Delhi, 1995.

� Kothari C.R. Research Methodology, 2nd Edition, Wishwa

Prakasham, New Delhi, 1990.

� Maheswari S.N., Financial Management, 4th Edition, Sultan Chand

& Sons, New Delhi. 1997.

� Man Mohan & Goyal S.N., Principles of Management Accountings

6th Edition, Sathya Bhavan, Agra, 1998.

� Prasanna Chandra, Financial Management, 3rd Edition, Tata

McGraw-Hill Publishing Co., Ltd., New Delhi, 1984.

Websites:

www.lancoindustries.com www.wikipedia.org

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Lanco Industries Limited Balance Sheet As On (2007-2011)


I. SOURCE OF FUNDS

1. Share holders fund a) Share capital 1 3976.36 3976.36 3976.36 3976.36 3976.36 b)Reserves and Surplus

2 5108.64 7179.70 8549.77 13713.91 17164.25

2. Loan Fund

a) Secured Loans 3 16382.92 17832.33 33227.46 26486.50 30087.87 b)Unsecured Loans 4 13733.65 12271.32 4878.54 6130.29 5845.48 3. Deferred Tax Liability (net)

1184.79 2576.95 3123.73 3435.74 3614.81

Total 40386.36 43836.66 53755.86 53742.80 60688.77 U. APPLICATION OF FUNDS

1. Fixed Assets a)Gross-Block 31824.32 35516.23 38974.86 40286.29 43098.25 b) (-) Depreciation, 7666.24 9127.88 10734.88 12527.20 12932.62 c) Net Block 24158.08 26388.35 28239.98 27759.09 30165.63 d) Capital Work in Progress

754.45 862.01 425.37 3441.21 3484.33

2. Investments NIL NIL NIL NIL NIL 3. Current Assets, Loans and Advances

a) Inventories 10636.86 12092.91 14436.48 11519.49 23883.36 b) Sundry Debtors 7667.92 8814.31 11966.16 11845.80 13725.85 c) Cash & Bank balances

2650.37 420.10 3550.27 1516.42 1899.09

d)Loans and Advances 5241.68 5289.66 6020.93 5581.47 4454.39 Total

26196.83 26616.98 35973.84 30463.18 43962.69

Less: Current liabilities and provisions

a.Current liabilities

10188.34 9319.38 1018.38 6853.94 15633.54

b. Provisions 538.25 711.30 774.95 1066.74 1290.34 Total 10726.59 10030.68 10883.33 7920.68 16923.88 Net CurrentAssets 15470.24 16586.30 25090.51 22542.50 27038.81 4.Deferred Tax Asset NIL NIL NIL NIL NIL 5.Miscellaneous Expenditure

3.59 NIL NIL NIL NIL

Profit &Loss Account NIL NIL NIL NIL NIL Total 40386.36 43836.66 53755.86 53742.80 60688.77

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PROFIT AND LOSS ACCOUNT


INCOME

Sales (Gross) 41045.08 49472.02 68046.95 71051.85 75015.37

(-)Excise Duty 4108.43 3106.39 3575.34 1993.89 2529.74

Total sales

36936.65 46365.63 64471.61 69057.96 72485.63

Other Income 13 33.59 93.21 210.18 71.93 324.66

Increase / Decrease in Stocks

14 471.24 14.16 (246.82) 503.99 (46.96)

Total -- 37441.48 46473.00 64434.97 69633.88 72763.33

EXPENDITURE

Purchases - - 607.33 640.58 2869.91

Raw Materials Consumed

15 19232.45 24779.93 39775.51 37578.14 40392.83

Manufacturing expenses

& Other Expenses

16 13055.04

13876.05

14979.99

18761.11

20577.09

Interest and financial changes

1832.36 2302.59 4607.48 2061.82 1467.37

Depreciation

1156.89 1512.99 1641.84 1794.60 1871.61

Total 35276.74 42471.56 61612.15 60836.25 67178.81

Profit and Loss Before Tax

2164.74 4001.44 2822.82 8797.63 5584.52

Provision for Tax [current +Deferred]

242.93 453.41 318.20 1984.16 1202.82

MAT Credit Entitlement

(242.93) (453.41) 108.14 707.49 -

Provision for deferred Tax

566.73 1392.16 546.78 312.01 179.07

Provision for Fringe Benefit Tax

17.21 17.54 14.41 - -

PROFIT AFTER tax

1580.80 2591.74 1835.29 5793.97 4202.63

Balance brought 837.09 858.92 1242.48 1143.80 1657.94

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forward from previous year Prior Period Adjustment

- 55.46 - 67.99 (59.08)

Profit available for appropriate

2417.89 3395.20 3077.77 7755.76 5801.49

APPROPRIATION

Transfer to debenture redemption reserve

93.75 187.50 468.75 - -

Transfer to General reserve

1000.00 1500.00 1000.00 5400.00 3500.00

Proposed dividend

397.64 397.64 397.64 596.45 596.45

Tax on dividend 67.58 67.58 67.58 101.37 96.76

Balance carried to Balancesheet

858.92 1242.48 1143.80 1657.94 1608.28

Total 2417.89 3395.20 3077.77 7755.76 5801.49

Basic &Diluted EPS[Rupees]

3.98 6.52 4.62 14.57 10.57

No of shares used in computing basic &diluted EPS

39763595 39763595 39763595 39763595 39763595

Documents

Fund Flow Analysis