1.0 INTRODUCTION TO FINANCIAL MANAGEMENT

Financial management refers to that part of management activity, which is

concerned with the planning and controlling of firms financial resources. It deals with

finding out various sources for raising funds for the firm. The sources must be suitable

and economical for the need of the business. In simple words, financial management

study about the procuring and judicious use of financial resources with a view to

maximize the value of a business enterprise there by the value to the owner is

maximized.

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

to that part of managerial activity concerned with the procurement and utilization of

funds for the business purposes.

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

support its various activities. It has given birth to “Financial management” as a separate

subject. As a separate subject, financial management is of recent origin and has not

acquired a body knowledge of its own. It draws heavily on “Economics” for its

theoretical concepts.

In the early half of the last century, the job of financial management was largely

confined to the acquisition of funds. But as business firms continued to expand their

markets and they became larger and more diversified, greater control of financial

operation became highly important. Thus now the scope of financial management is

very wide and it should not be considered to be merely restricted for rising of capital. It

also covers other aspects of financing such as assessing the needs of budgeting,

maintaining liquidity lending and borrowing policies, dividend policy and so on.

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DEFINITIONS:

Ezra Solomon has defined “The financial management deals with the

efficient use of an important economic resource namely capital funds”.

“Financial management is the activity concerned with the planning, raising,

controlling and administrating the funds used in the business.”

- Guthman and Dougall.

“Financial management is that managerial activity which is concerned with the

planning and controlling of the firm’s financial resources”.

-I.M.Panday.

“Financial management is concerned with the efficient use of an important

economic resource namely capital funds”.

-Ezra Soloman

“Financial management is the operation activity of a business that is responsible

for obtaining and effectively utilizing the funds necessary for efficient operations”.

- Joseph and Massie.

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SCOPE OF FINANCIAL MANAGEMENT

The approach to the scope and the functions of financial management is divided

for the purpose of expositions into two broad categories

A) Traditional Approach:

Traditional approach to the finance function relates to the initial stages of its

evolution during 1920’s and 1930’s when term corporate finance was used to describe

in the academic world today as the financial management.

The approach was focused on procurement of long-term funds. In that issue

allocation of funds which is so important today is completely ignored. The utilization of

funds was considered beyond the pure view of finance function.

B) MODERN APPROACH

The Modern approach views finance function in broader sense. It includes both

rising of funds as well as this effective utilization under the preview of finance. The cost

of raising funds and the returns from their use should be compared. The utilization of

funds requires decision making.

Finance functions covers financial planning rising of funds, allocation of funds,

financial control etc. Modern approach is an analytical way of dealing with financial

problems of firms.

In that approach considers there are three basic management decisions i.e.,

investment decisions, financing & dividend decisions within the scope of finance

functions.

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OBJECTIVES OF FINANCIAL MANAGEMENT

The objectives of financial management are:

A) Profit Maximization:-

According to this approach actions that increase profits should be under taken

and those that decrease profits are to be avoided. In specific operational terms as

applicable to financial management, the profit maximization implies that the investment

financing and dividend policy decisions of affirm should be oriented to the

maximization of profits.

B) Wealth Maximization:-

This is also known as value maximization or net present wealth maximization.

In current academic literature value maximization is almost universally accepted and

appropriate operational criterion for financial management divisions as it removes the

technical limitation criterion. It operational features satisfy all the three requirements of

a suitable operational objective of financial courses of actions namely exactness, quality

of the benefits and the time value of money.

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AN OVER VIEW OF FINANCIAL MANAGEMENT

Trade -off

The financial manager in a bid to maximize owner’s wealth should strive to maximize

returns relation to given risk. To ensure maximum return funds flowing in and out of the

firm should be constantly monitored to assure that they are safe guarded and properly

utilized.

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Financial Management

Maximization of share value

Financial decision

Investment

Decision

Financing Decision

Dividend Decision

Liquidity Decision

Return Risk

FUNCTIONS OF FINANCIAL MANAGEMENT:

The financial functions can be divided into four broad categories:

1. Investment decisions.

2. Financing decisions

3. Dividend decisions.

4. Liquidity decisions.

1. Investment decision:

Investment decision or capital budgeting involves the decision of allocation of

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

future. It’s one very significant aspect is the task of measuring the prospective

profitability of new investments. Future benefits are difficult to measure and cannot be

predicted with certainty.

2. Financing decision:

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

financial manager. Broadly, he must decide when, where and how to acquire funds to

meet the firm’s investment needs. The central issue before him is to determine the

proportion of equity and debt. The mix of debt and equity is known as the firm’s capital

structure. The firm’s capital structure is considered to be optimum when the market

value of shares is maximized.

3. Dividend decision:

Dividend decision is the third major financial decision. The financial manager

must decide whether the firm should distribute a portion and retain the balance. Like the

debt policy, the dividend policy should be determined in terms of impact on the

shareholder’s value. The optimum dividend policy is one, which maximizes the market

value of the firm’s shares.

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4. Liquidity decision:

Current assets management, which affects a firm’s liquidity, is an important

finance function. Current assets should be managed efficiently for safe guarding the

firm against the dangers of liquidity and insolvency. Investment in current assets affects

firm’s profitability, liquidity and insolvency. Investment in current assets affects firm’s

profitability, liquidity and risk. A conflict exists between profitability and liquidity

while managing current assets.

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm. It is done by establishing relationships between the items of

financial statements viz., balance sheet and profit and loss account. Financial analysis

can be undertaken by management of the firm or by parties outside the firm viz.,

owner’s creditors, investors and others.

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FINANCIAL ANALYSIS

Financial analysis is the process of analyzing & interpreting the financial

statement via Balance sheet & profit & loss a/c (income statement) of a

company to gain valuable insight into the company’s performance &

position. Financial analysis provides a comprehensive assessment of the company

in various areas. The two powerful tools of financial analysis are,

I. Financial ratios &

II. Funds flow statement

Ration analysis evaluates liquidity profitability capital structure & operational

efficiently aspects of a company. Funds flow analysis provides insight into the

movement of funds & help in understanding the changes in the structure of

assets liabilities & owners equity.

Various types of the financial analysis of the financial statements are:

EXTERNAL ANALYSIS:

Analysis by creditors, shareholders, banks & financial institutions.

INTERNAL ANALYSIS:

Analysis by the management.

HORIZONAL ANALYSIS:

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Compassion of financial statements.

VERTICAL ANALYSIS:

A study of a single statement for the relationship of the components of the total

by careering each amount in the statement to an X of percentage of total amount of

the ratio.

TREND RATIOS:

Computed in relationship to base year & these are index no. of changes of financial

data.

Funds flow statementsBreak –even analysis

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1.1 NEED FOR THE STUDY

The main need of the study is to analyses the financial information of the ML Agro

products Ltd.

To find out the liquidity or short term solvency of the ML Agro products Ltd.

To know the different types of funds flow analysis and how it shows impact on

different organizations.

To allow the relationship among various aspects in such a way that it allows drawing

conclusion about the performance, strength and weaknesses of the company.

To know the short term servicing ability of the company.

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1.2 OBJECTIVES OF THE STUDY

The main objectives of the present study are given bellow.

The main objective of the study is to analyze the financial information of the ML Agro

products Ltd.

To study the tobacco industry in India and analyze the financial performance of ML

Agro products Ltd.

To present a theoretical framework relating to financial analysis.

To evaluate the liquidity position of ML Agro products Ltd.

To understand the operating efficiency of ML Agro products Ltd.

To offer suggestions if any for the betterment of the company

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1.3 SCOPE OF THE STUDY

All activities & concerned parties are interested to a varying to extent to know the

financial affairs of a business enterprise. The financial statements are the blueprints of its

financial affairs. A financial analysis can prove deep in to the financial statements& also in

to financial policies pursued by the Management& offer constructive suggestions to

overcome the financial problems of any and if diagnosed these statements out as a become

to management in ensuring goal orientation and effective performance of the business

enterprise.

The analysis of financial statements communicate useful information to interested

parties, the analysis highlights the significant facts & relationship concerning managerial

performance. Corporate efficiency financial strength & weakness & also its credit

worthiness.

In short, the scope of financial performance analysis does not need emphasis to the

owners of the enterprise. They reveal its progress as evidence by earning & current

financial conditions.

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1.4 RESEARCH METHODOLOGY

Methodology is scientific and systematic search for pertinent information on specific

topic. The reliability of management decision depends upon the quality of data.

Basically we have two types of data. These are primary data and secondary data.

Primary data:

Primary data can be collected either through experience or through survey.

That which is collected a fresh and for the first time and thus happens to be original in

character is called primary data. Primary data can be collected in the following ways.

By observation.

Through personal interview.

Through telephone interviews.

Secondary data:

Secondary data means data that is already available which was collected and

analyzed by someone else and which have already been passed through the statistical

process. Secondary data may either be published data or unpublished.

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1.5 LIMITATIONS OF THE STUDY

While the study is undertaken about the financial analysis of the ML Agro products

Ltd. the following limitations were encountered.

Due to shortage of time the overall analysis of the financial information of the

ML Agro products Ltd. became difficult.

Since the current year was not completed it was not possible to compare the

current year information with the previous information.

Some of the information was with registered office of the company due to

some statutory requirements so it became difficult to get the overall

information of the company.

Since we are new to the company, company refused to provide its financial

information.

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2.0 INDUSTRY PROFILE

HISTORY:

Tobacco is a plant that grows natively in north and South America. It is in the

same family as the potato, pepper and the poisonous nightshade, a very dead plant.

The seed of a tobacco plant is very small. A ‘1’ ounce sample contains about 300,000

seeds.

It is believed that tobacco began growing in the America about 6,000 B.C. As

early as ‘1’ B.C., American Indians began using tobacco in many different ways, such

as in religious and medicinal practices. Tobacco was believed to be a cure-all, and

was used to dress wounds, as well as a pain killer. Chewing tobacco was believed to

relieve the pain of a toothache.

Soon after, sailors brought tobacco back to Europe, and the plant was being

grown all over Europe. The major reason for tobacco’s growing popularity in Europe

was its supposed healing properties. Europeans believed that tobacco could cure

almost anything, from bad breath to cancer.

In 1571, a Spanish doctor named Nicolas Monardes wrote a book about the

history of medicinal plants of the new world. In this he claimed that tobacco could

cure 36 health problems.

In 1588, a Virginian named Thomas Harriet promoted smoking tobacco as a

viable way to get one’s daily dose of tobacco. Unfortunately, he died of nose cancer

(because it was popular then to breathe the smoke out through the nose).

During the 1600’s, tobacco was so popular that it was frequently used as

money! Tobacco was literally “as good as gold!” This was also a time when some of

the dangerous effects of smoking tobacco were being realised by some individuals. In

1610 sir Francis Bacon noted that trying to quit the bad habit was really hard.

In 1632, 12 years after the mayflower arrived on Plymoth Rock, it was illegal

to smoke publicly in Massachusetts! This had more to do with moral beliefs of the

day, than health concerns about smoking tobacco.

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In 1760, Pierre Lorillard establishes a company in New York City to process

tobacco, cigar, and snuff. Today, P. Lorillard is the oldest tobacco company in the

U.S.

GROWTH:

In 1776, during the American revolutionary war, tobacco helped finance the

revolution by serving as collateral for loans the Americans borrowed from France!

Over the years, more and more scientists began to understand the chemical in tobacco,

as well as the dangerous health effects smoking produces.

In 1826, the pure form of nicotine was finally discovered. Soon after,

scientists concluded that nicotine was dangerous poison.

In 1836, New Englander Samuel Green stated that tobacco was an insecticide,

a poison, and can kill a man.

In 1847, the famous Phillip Morris was established, selling hand rolled

Turkish cigarettes. Soon after in 1849, J. E. Liggett and Brother was established in

St. Louis, Mo. (the company that has settled out of the big lawsuits recently).

Cigarettes became popular around this time when soldiers brought it back to England

from the Russian and Turkish soldiers.

Cigarettes in the U.S. were mainly made from scraps left over after the

production of other tobacco products, especially chewing tobacco. Chewing tobacco

became quite popular at this time with the “cowboys” of the American West.

In 1875, R. J. Reynolds Tobacco Company (better known for its Reynolds

wrap aluminum foil) was established to produce chewing tobacco. It wasn’t until the

1900’s that the cigarette became the major tobacco product made and sold. Still, in

1901 3.5 billion cigarettes were sold, while 6 billion cigars were sold. Along with the

popularity of cigarettes however, was a small but growing anti-tobacco campaign,

with some states proposing a total ban on tobacco?

In 1902, the British Phillip Morris set up a New York headquarters to market

its cigarettes, including a now famous Marlboro brand. The demand for cigarettes

grew however, and in 1913 R.J. Reynolds began to market a cigarette brand called

Camel.

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WAR & CIGARETTES: A DEADLY COMBO:

The cigarette exploded during world war (1914-1918), where cigarettes were

called the “soldier’s smoke”. By 1923, Camel controls 45% of the U.S. market! In

1924, Phillip Morris began to market Marlboro as a woman’s cigarette that is a “Mild

as May”!

To battle this, American Tobacco Company, maker of the lucky strike brand,

began to market its cigarettes to women and gains 38% of the market. Smoking rates

among female teenagers soon tripled during the year’s between1925-1935. In 1939,

American Tobacco Company introduced a new brand, Pall Mall, which allowed

American to become the largest tobacco company in the U.S.

During World War II (1939-1945), cigarette rates were at an all time high.

Cigarettes were included in a soldier’s C-Rations (like food). Tobacco companies sent

millions of cigarettes to the soldiers for free, and when these soldiers came home, the

companies had a steady stream of loyal customers. During the 1950’s, more and more

evidence was surfacing that smoking was linked to lung cancer.

In 1952 P. Lorillard markets its Kent brand with the ’Micronite’ filter, which

contained asbestos! This was fortunately discontinued in 1956. In 1953, Dr. Ernst L.

Wynders find that putting cigarette tar on the backs of mice causes tumors! In 1954,

RJ Reynolds introduced the salem brand, which was the first filter-tipped menthol

cigarette.

HEALTH HAZARDS REVEALED:

In 1964, the Surgeon General’s Report on “Smoking and Health” came out.

This report assisted in allowing the government to regulate the advertisement and

sales of cigarettes. The 1960’s in general was a time when much of health hazards of

smoking were reported.

In 1965, television cigarette ads were taken off the air in Great Britain. In

1966, those health warnings on cigarette packs began propping up. In 1968, Bravo, a

non-tobacco cigarette brand was marketed made primarily of Lettuce, it failed

miserably!

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Because of the negative press about tobacco, the major tobacco companies

began to diversify their products. Phillip Morris began to buy into the Miller Brewing

company, makers of Miller Beer, Miller Lite, and Red Dog Beer. RJ Reynolds

Tobacco Company drops the “Tobacco Company” in its name, and becomes RJ

Reynolds industries.

It also began to buy into other products, such as aluminium. American

Tobacco Company also drops “Tobacco” from its name, becoming American Brands,

Inc. In 1971, television ads for cigarettes are finally taken off the air in the U.S.

cigarettes, however, were still the most heavily advertised product second to

automobiles. In 1977, the first national great American Smoke out took place.

In 1979, the surgeon general reported on the health consequences of smoking

for women. This is in light to the increasing number of women who were taking up

the bad habit. Some attribute is to slick and campaign of the Virginia Slims brand,

“you’ve come a long way baby”.

THE RECENT PAST:

During the 1980’s there were many lawsuits filed against the tobacco industry

because of the harmful effects of its products. Smoking became politically incorrect,

with more public places forbidding smoking. In 1982, the surgeon general reported

that second hand smoke may cause lung cancer. Smoking in pubic areas was soon

restricted, especially at the work place. In 1985, lung cancer became the No.1 killer of

women, beating out breast cancer! Phillip Morris continued to diversify into other

products, buying into General Foods Corporation and Kraft Inc in 1985. R. Reynolds

also diversified, buying Nabisco and becoming RJR / Nabisco.

In 1987, congress banned smoking on all domestic flights lasting less than 2

hours. In 1990, smoking is banned, except to Alaska and Hawaii. In 1990, Ben &

Jeery’s (of ice cream fame) boycotts RJR / Nabisco, and dropped Oreos from its ice

cream products.

During the 80’s and 90’s, the tobacco started marketing heavily in areas

outside the U.S., especially developing countries in Asia. Marlboro is considered the

world’s no.1 most valuable brand of any product with a value over $30 billion! Over

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this period, there is a battle between Coca Cola and Marlboro as the No.1 brand in the

world.

In the recent years there is growing evidence that the tobacco industry has

known all along that cigarettes are harmful, but continue to market and sell them.

There is also evidence that they know that nicotine was addictive and exploited this

hidden knowledge to get millions of people hooked on this dangerous habit!

Tobacco industry is an agro based industry. Tobacco is cultivated mainly in

the states of Andhra Pradesh and Karnataka most of the tobacco is used for the

manufacture of cigarettes and for exports. Tobacco is also grown in Tamilnadu, West

Bengal, Uttar Pradesh, Gujarat, Madhya Pradesh, Maharashtra and Orissa also.

However the tobacco grown in these states is of very less quality and is not

used for manufacture of cigarettes and exports. Several varieties of tobacco such as

Virginia flue cured ,Virginia air cured light soil burley, sun cured Virginia ,nature,

chewing. Tobacco, HDBRG, wrapper tobacco, beedi tobacco and hookah tobacco etc.

are grown in India. Virginia flue cured is a major variety grown in India. More than

80% of Indian tobacco crop belongs to this variety.

The tobacco cultivation exports and some other industrial activities are

regulated by central government (ministry of commerce) through Tobacco board.

Tobacco board is headed by I.A.S officer of senior category generally from the

central government. The board consists of several central government officers, state

government officers, political leaders, representatives of farmers and reputed

industrialists. One of the directors of ML group is always representing the

industrialists in the tobacco board.

Tobacco board issues licenses to the farmers who are permitted to grow

tobacco. The licenses regulate the cultivations area the farmers have to restrict the

cultivation to the given area and must sell the grown tobacco through tobacco board

auctions only any violation is an offence and is punishable.

In Virginia flue cured variety the tobacco leaves are separated from the plant

and are cured in tobacco barns. Tobacco barns are like a furnace where the fumes

are used to cure the green leaves of tobacco plant. tobacco barns appear like small

go downs with firing chambers at the bottom fixed to the walls .the green tobacco

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leaves of the plant will be arranged in the form of rows inside the barns .the

temperature inside the barn will be regulated by means of flow of hot air through the

firing chambers .

This is simple technical process by which the green leaf exposed to hot air at

high temperature and cooled slowly over a period of time. After the curing process,

the primary leaf tobacco turns into lemon yellow colour, gold colour, brownish yellow

colour, brown colour and dark brown colour. This tobacco is called katcha tobacco

leaf and is ready for sale. The formers pack different colours as a separate grade

which has a separate price in the market.

Tobacco must be sold only through tobacco board auction platforms under

strict rules and regulations. Farmer or buyer is permitted to transact in tobacco board

auction platforms. Central government has also established several tobacco research

institutes for betterment of quality of tobacco in India. The other varieties of tobacco

are not regulated by tobacco board.

The tobacco purchased from the tobacco board auction platforms will be

graded further wherever required. Grading is a process of manual separation of one

variety of leaf from the other and is done mainly on the basis if colour. Each grade

will generally have unique quality parameters.

The graded tobacco is further processed either manually or on machines; this

processing is called DEBUTTING and STRIPPING. Workers separate the butt of

the tobacco leaf from the leaf. This process can also be done on machines .The

machines processing is called THRESHING.

After stripping/threshing, the tobacco will be further processed for

stabilization of moisture. And this process is called “REDRYING”. In this process

the tobacco first of all will be dried completely then it will be given steam at the

required temperature.

After redrying process the tobacco will be packed in the required packing say

bale packing /case packing etc. The packed tobacco is ready for export. In India, the

first threshing plant which is working uninterruptedly for the last 25/30 years an

imported one by Maddi Lakshmaiah &co ltd. This was installed at Ganapavaram

and the plant is still running at high efficiency levels in the country with 98%

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average efficiency level for the last 3 years. There are two plants owned by ITC

which can be compared with this plant in the country. ITC uses their threshing

plants for their own consumption.

Tobacco industry is fetching more than Rs 9000 crores of revenue to the

Central Government. It is providing employment to lakh of people directly and

millions of people indirectly and is also contributing RS 1000 crores of forex

reserves to the country. The Central Government is announcing several restrictions

on advertisement and consumption of cigarettes in the country. Encouraging the

farmers by providing subsidized fertilizers and by supporting through tobacco

board.

The major players in tobacco industry in India are as under:

Name of the company Occupation % of business in India

ITC ltd

Cigarette manufacturing & un

manufactured tobacco exports50%

VST industries ltd

Cigarette manufacturing & un

manufactured tobacco exports12%

GTC industries ltd

Cigarette manufacturing & un

manufactured tobacco exports6%

Godfrey Phillips India ltd

Cigarette manufacturing & un

manufactured tobacco exports

8%

The consumption is linked with the habits of the people; the tobacco usage cannot be

eradicated, even in countries like USA where anti tobacco campaign started in 1962,

the production of cigarettes and consumption of cigarettes is still progressing.

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Exporters:

S.No Name of the company Occupation % of business in India

A ML group

Cigarette manufacturing

& un manufactured

tobacco exports5%

B

Polisetty group

Cigarette manufacturing

& un manufactured

tobacco exports

5%

C Bommidala group

Cigarette manufacturing

& un manufactured

tobacco exports

3%

D

Mittapalli group

Cigarette manufacturing

& un manufactured

tobacco exports

3%

E Other companies

Cigarette manufacturing

& un manufactured

tobacco exports

8%

Our ML company has developed strong relationship with overseas

manufacturing in Europe, Russia and Middle East though there is very good demand

from Russian market. Our company is not exporting much because of poor economic

conditions of the country.

ML Company is now exporting cigarettes to Middle East and U.S.A by

manufacturing the cigarettes on job work basis. The company foresees a very bright

future for this company in tobacco in the coming years.

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ML group is the first tobacco company who exported tobacco to China and is

the first company who imported tobacco also from China. There was imported

tobacco in Indian tobacco history before this and after till now. The group maintains

good relationship with the Chinese tobacco monopoly.

One of the trade delegates that accompanied our honorable Prime Minister

during his recent visit to China is from ML Company. Three ambassadors of China

have visited our company in the past as our guests and expressed their satisfaction

on our infrastructure facilities.

Production of different varieties of tobacco in India:

VFC Tobacco Traditional/NCOs/My sore 200 million

VFC Tobacco HDBRG 12 million

ISB Tobacco ISB (Releswaram/Warangal) 10 million

IAS Tobacco 25 million

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3.0 COMPANY PROFILE

HISTORY:

The highly competitive tobacco market represented tremendous growth

potential to Mr. Maddi Lakshmaiah. Foreseeing the and for quality Indian tobacco a

long term strategy was formulated. Right from its inception, the company adhered to

international standards and made rapid in roads to global tobacco markets.

A sophisticated threshing plant of international standards was commissioned

in 1976 first in Andhra Pradesh. It created a revolution in tobacco processing and led

to a huge upsurge in demand. This led to the commissioning of two modern plants

with threshers, redryers and other sophisticated equipment for the processing of

quality tobacco.

ML Group has taken its credo of total quality to the furthest, whether in the

quality of process, products or working conditions for the vast workforce. The

foresighted innovation of Sri Maddi Lakshmaiah has given the group strong edge. The

personal involvement of the directors in all aspects of the business has resulted in high

quality operational parameters.

The company can proudly claim some of the most skilled work force and a

highly efficient management people who have contributed significantly to the

prominent position the company. The company has earned recognition from apex

institutions and is a recognized leader in tobacco markets the world over.

The quantum growth in ML group: Spread of investment in infra structure and

diversification into other business.

“ML GROUP” under its umbrella, various companies have an annul turnover

of Rs 1550 million and an asset base of Rs 2000 million. A real estate development

wing was setup to develop and lease commercial properties with working

environment that rival the best internationally.

The information about the establishment of the group which consists of five

concerns as displayed on the preceding pages, let us have a look on the various

concerns of ML Group individually:

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ML group of companies (ML group) was founded by Mr.Maddi Lakshmaiah

in 1970. He joined in his family business in 1952 after completing his engineering

degree. The joint family business started payback in 1943 dealing with tobacco

exports, well before India.

ML group of companies (ML group), a pioneer in Indian un manufactured

tobacco industry has been exporting tobacco to all over the world for the past three

decades. It has solidified its relationship with overseas tobacco merchants&

manufactures.

ML Agro products Ltd. was set up at Chilakaluripet, a village in Andhra

Pradesh that produces some of the best tobacco in the country. Today it has evolved

into a diversified, multi products conglomerate known as ML Group that is

recognised world over for its excellence. The company processes tobacco and

another agro based products that are used both in the country and exported to the

most quality conscious world markets.

An emphasis on total quality and dedication to the interests of its client’s

world wide is a hallmark of ML group. The group is performing excellently well

from the date of its incorporation and has been exporting large volume of tobacco to

Russia, CIS countries, U.K, Europe, African countries, China, Latin American

countries, Middle East countries, Bangladesh & Nepal etc. The group established its

branches in Russia & European countries and has strong tie up with African and

Latin American countries and especially with the neighbour giant China.

The group is founded by Sri Maddi Lakshmaiah, a mechanical engineer after

15 years of versatile experience in tobacco industry in 1970 at Chilakaluripet ,

Guntur dist, A.P .the group has 5 major concern namely;

Maddi Lakshmaiah & Co Ltd (MLCO)

ML Agro Products (MLAP)

K.S Subbaiah Pillai & co ltd (KSSP)

ML Exports (MLE)

Coromandal Agro Products & Oils Ltd (CAPOL)

Expecting CAPOL which is engaged in edible oils all are engaged in tobacco

industry. MLCO & MLAP have concentrated on processing activities where as

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KSSP&MLE are leading exporters and are recognised by government of India as

export house.

Vision:

Descriptions of some thing can organization corporate culture, business

technology an activity in the future.

The company is trying to develop world class information technology building

in Bangalore, china and Hyderabad in the coming 5 years time.

The company is going for sheet tobacco plant in joint venture with on of the

Indian best tobacco cigarette manufacturer.

The company is also contemplating for 100% tobacco joint venture association

with one of the best cigarette manufacturer.

The company exports with second strongest country china, Russia and

Germany.

The ambassadors are coming to ML Company limited in August.

The ambassadors of South Africa are hold up and the company is having top

joint venture with U.K.

Mission:

A mission statement is an enduring statement of purpose that distinguishes one

business from others similar firms. This statement identifies the scope of firms

operations in product and market terms.

M.L & company limited mission is to produce good quality of tobacco and get

number one position in India in producing and exporting tobacco.

Policies:

Policies can be considered a guide to action it is desirable that persons

responsible for implementation of policies use discretion and judgment in appraising

and deciding among alternative courses of action.

The company has well defined policies for exports the quality tobacco.

To conduct its operation with honesty integrity and transpoarency.

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Employment policy is formulation and adoption.

This company shall maintain quality leadership by providing products and

services that completely and consistently meet the agreed.

Requirements of all customs and unsure fitness for use of all products there by

ensuring total confidence to every customer.

Employment policy formulation and adoption.

Canteen, cleaning, security maintenance of good industrial relation.

Future plans :-

The ML Agro products for an ECB for 50 million dollars and development

of regular trade and also infrastructure projects in India.

ML Agro products is also working on joint venture basis with UK based

Commodities Company for supply of agri products to South Asian countries.

The company already entered into joint venture with an US based company

by name CARGIL for the south Indian needs.

They have worked for joint venture arrangements with Yugoslavian

government for their requirement for India.

This for above five million dollars of investment in supply of 5000 tonnes

every year.

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Achievements / awards:-

ML Agro products has no particular achievements/ awards.

Maddi Lakshmaiah group (CAPOL Chirala, Prakasam Dist ) got several

achievement awards .

All India Cotton Feed Crushers Association, Mumbai awarded CAPOL as III

highest exporter and II highest domestic seller of cotton seed extraction for the

year 1992-93.

CAPOL is the highest exporter and III highest domestic set of cotton seed

extraction for the year 1993-94.

CAPOL is the III highest domestic seller of cotton seed extraction in the year

1994-95.

CAPOL is the II highest domestic seller of cotton seed extraction in the year

1995-96.

CAPOL is the II highest domestic seller of cotton seed extraction in the year

1997-98

CAPOL is the III highest domestic seller of cotton seed extraction for the year

1999-2000.

CAPOL is the II highest extraction of cotton linter for the year 2000-01.

CAPOL is the III highest exporter of cotton linter and III highest domestic

seller of cotton seed extraction for the year 2001-02.

The company (CAPOL) has been awarded may commendation led by

government of AP for its continuous harmonious relations with its employees

in the years 1994,95,96,97.

28

Track record:-

The company has 30 years of performance.

It never failed in meeting the scheduled repayments of loans with the bank.

Rather it postponed most of the loans with the lenders.

LAND MARKS:-

ML Agro products Ltd was the first Indian company to join with China to do

business.

It was the first company to import tobacco and export tobacco.

Ambassadors have already come here and 4th one is coming in this august.

GRADING POINTS:-

ML Agro products has three grading points at Chilakaluripet i.e.

Martur, Muppavaram and some other on national highway between Guntur and

Chilakaluripet and three more in Guntur city.

NEGOTIATIONS:-

. The company is trying to develop world class information technology

building in Bangalore, Chennai and Hyderabad in the coming five years time

The company is going for sheet tobacco plant in joint venture with one of the

Indian best tobacco cigarette manufacture.

The company is also contemplating for 100% tobacco joint venture in

association with one of the best cigarette manufacture.

The company exports with the second strongest country china, Russia and

India.

29

The finance manager is assisted by a team of experienced management and

non management staff who takes care of finance & accounts activities of the

organisation.

The export manager (ML Agro products) deals all the matters regarding the

exports department and directly reports to the managing director.

ML group was a multifaceted corporate leader of which the group consists of

five concerns namely.

Maddi Lakshmaiah& Co .Ltd- Tobacco threshers, packers & exporters, real

estate &leasing.

ML Agro Products - Tobacco threshers, packers &exporters.

KS Subbaiah Pillai & Co (India) ltd - Tobacco export.

ML Exports. - Exports house.

Coromandal Agro Products & Oils ltd. - Bulk producers of oils

Maddi Lakshmaiah & Co Ltd:-

ML & company Limited, the fore runner of all the companies of ML group,

the company enjoys a pre eminent standing in the world of tobacco, exporting to

China, Russia, Western Europe, Africa and Bangladesh among others.

Supported by a team of experts, technicians, engineering and a skilled world –

force, the company has forged a head setting standards that have become benchmarks

in the industry. Today Chilakaluripet is a well known name in the global tobacco

business in no little measure due to the pioneering efforts of the intrepid founder, Sri

Maddi Lakshmaiah.

ML AGRO PRODUCTS LTD:-

ML agro products ltd was born of an increase in demand for quality tobacco in

both the domestic and foreign markets. Building on the rich experience of running a

profitable operation, a new plant was set up in 1976 at Martur, Prakasam district.

30

It is fully self sufficient with modern threshers, lamina redryers, and

automatic double ram press, sophisticated quality control laboratory and mammoth

ware houses. It ranks among the largest threshing units in the country apart from its

export commitments.

KS Subbiah Pillai & Co (India) ltd:

K.S.S.P & Co Ltd was acquired in 1982 with all its assets K.S

Subbaiah Pillai & Co (India) Ltd is the group with leading tobacco exporting unit. In a

field that is extremely competitive, the excellent performance of the company is an

indicator of the trust that it enjoys across the globe.

COROMANDAL AGRO PRODUCTS & OILS LTD (CAPOL):

CAPOL started in 1976, extracts and refines cotton seed oil. Today it is a

multi products company with equipment to process all kinds of oil seeds. The plant

has a storage capacity of 2100 tones for different types of oil.

Extreme care is taken to ensure that at every stage in the process of production

right from selection of the raw material to packing the products, only the best is

passed.

Minimum human intervention and rigorous application of quality control

process ensures the final product conform to all appropriate standards. The by-

products, hulls and de-oil cakes are in high demand in many parts of the world.

ML EXPORTS:

ML exports is a totally export oriented unit, with clients in a variety of

markets around the world. The company enjoys a reputation for excellent delivery

schedules and transparent business practice in global markets.

31

SHARE HOLDING PATTERN & MANAGEMENT OF GROUP:

The group has been successfully improving its business in all of its activities

such as domestic sales, export sales, tobacco processing & other tobacco development

activities, warehousing facilities etc. The group has two tobacco processing plants and

one solvent extraction plant in South India. The group owns around 1, 00,000 sq. mts

of warehousing complexes in south India.

INCORPORTATION:

ML Agro products is a limited company ( ML Agro products Ltd) which was

originally incorporated on 8th day of October 1970 under the name, ML Agro products

Ltd. Private Limited having passed the necessary special resolution on the 23 rd day of

March 2002, in terms of Sec 31(1)/44 of the Companies Act 1956 the name of the

company changed to Maddi Lakshmaiah and co.Ltd

NATURE OF ACTIVITY:

o This factory produces good quality tobacco.

o The production capacity per each day is 1 lakh 20 tones

FINANCIAL STRUCTURE:

The initial investment of ML Company is 10, 00,000.

TURN OVER OF THE GROUP:

The turn over of the group for the financial year 1989-99 standards is at

around Rs 800 million. The net earnings after taxes of the group have been

maintained at Rs 150/200 million per annum.

The group has sound assets base having assets spread in most of the prime

centres & ports of South India.

The group has developed excellent infrastructure during the past 30 years which

has been yielding a promising regular income of more than Rs 225 million every year.

32

TURNOVER OF THE COMPANY:

The turnover of ML Company for the following years of 1997-

2003 is as follows:

S NO NO OF YEARS AMOUNT IN RS IN LAKHS

1 1994 2370

2 1995 1693

3 1996 488

4 1997 2372

5 1998 3358

6 1999 1778

7 2000 1000

Profit after tax:

SNO NO OF YEARS AMOUNT IN RS IN LAKHS

1 2002 109

2 2003 270

3 2004 203

4 2005 312

5 2006 262

6 2007 134

7 2008 103

8 2009 123

33

The above table represents the profit for the following years after paying all

the taxes.

The products of the M.L Company &their main uses:

The various products of the MLCompany and their economic uses are as

follows.

Karnataka light soil-Mysore:

This tobacco is preferred for low nicotine content, high filling capacity and

suitability to blend well with any tobacco.

Monsoon burley:

Used in U.S. blended cigarettes

Traditional burley:

Used for pipe mixture, chewing plugs and hookah tobacco paste.

Kurnool and Telangana (natu):

Primarily used for cigarette blending and for hookah tobacco paste making.

Eluru (natu tobacco):

Mainly used for cheroots, snuff pipe tobacco, cigarette blending and for

hookah paste making.

Oriental:

Used for cigarette blending.

Century fire cured tobacco:

Used in pipe mixtures and hookah tobacco paste

34

Bidi tobacco:

Used in the manufacture of bidis, a hand rolled smoking products made by

wrapping tobacco with natured bony leaves.

Cigar wrapper tobacco:

Mainly used for wrapping the cigars.

Cigar filler tobacco:

Mainly used in the manufacture of cigars &exported to some countries for use

in hookah tobacco paste.

Cheroot tobacco:

Used for the manufacture of cheroots and hookah tobacco paste.

Lanka tobacco:

Used for the manufacture of cigars & cheroots

Tamilnadu:

Used for chewing & cheroot.

Black Chopadia:

Used as chewing tobacco.

Red Chopadia:

Mostly used for chewing also called lat Chopadia and safna. The export

packing ranges from 250gms-1000gms and is available in bales of up to 100kg.

Rustic tobacco:

Used as chewing tobacco, hookah tobacco for tobacco sheet making, for

kreteks in Indonesia, pipe mixers& cigarette blending to some extent

35

Motihari:

Used in manufacture of various tobacco products such as chewing tobacco,

hookah paste, bidis etc.

Southern light soil:

Blends with any tobacco.

Black soil (traditional):

Blends well with any tobacco.

Northern light soil (nls):

This tobacco is flavoured to semi flavoured with excellent ageing properties.

36

Objectives of the company:

To serve the nation’s vital interest in the tobacco related sectors.

To earn a reasonable return on investment.

To work towards achievement of self reliance in the field of tobacco,

threshing formulation& distribution system.

To create strong research& development in the field of tobacco and

stimulate R&D of exports.

To maximize utilization of the existing facilities in order to improve

efficient and increased productivity.

To import training, conduct seminars, workshops and educational

courses on computers, computer maintenance software development

and software exports and to develop and design software in India.

Abroad and to start software technology part in India or abroad and to

offer relationship management solutions for individuals and

organizations both individually and through strategic alliances with

others companies.

To employ experts to investigate and examine into the conditions,

prospects, value character and circumstance of any business concern

and undertaking and generally of any assets property or right.

To carry on all kinds of agency business.

To carry on business as merchants in all kinds of goods.

BOARD OF DIRECTORS:

Managing Director : Sri Maddi Lakshmaiah

Director : Sri Maddi Seetha Devi

Director : Sri Maddi Venkateswara Rao (M.B.A in USA)

Director : Sri Maddi Ramesh

Excutive Director : Sri Mallavarapu Rama Mohana Rao

37

Excutive Director : Sri Meaden Sekhar

MANAGEMENT TEAM:

Managing Director : M. Venkateswara Rao

Director : M. Lakshmaiah

General Director : M. Rama Mohana Rao

Personnel Manager : B. Babu Rao

Leaf Manager : M. Rama Mohana Rao

Finance Manager : M. Shekhar

Export Manager : M. Shekhar

Production Manager : K.S. Rami Reddy

Circle Manager : Anji Babu

Factory coordinator : P. Subba Rao

ORGANIZATION STRUCTURE:

The company (ML Company) is under the complete administrative control of the

managing director and he is reported by the director and he is reported by general

manager.

The General Manager (ML Company) is assisted by five General

Managers.

o Manager personnel.

o Manager leaf department.

38

o Manger finance.

o Manager exports.

o Manager production.

39

Managing Director

Deputy Managing Director

General Managing Director

Personnel

Manager

Personnel

officer

Welfare

officer

Safty offic

er

Staff

Leaf Manager

Financial Manager

Accouns

Officer

Staff

Export Manager

Export Officer

Production

Manager

Plant Engine

er

Assist. Engineer

Staff workers

Responsibilities:

The ML Agro products managing director M.Venkateswara Rao is under the

complete administrative control of the managing direction and he is reported by the

director and he is reported by general manager

The general manager of ML Agro products is M. Ram Mohan Rao assisted by

fine general manager i.e., personal manager, leaf manager or department manager,

finance manager, exports manager and production manager.

The personal department manager B. Babu Rao is headed by who reports

directly to G.M. he looks after the areas of personnel & administration under there

may be a personal offices welfare officer and a safely officer.

The finance manager M.Shekhar is assisted by a team of experienced

management and non management staff who takes care of the finance is accounts

activities of the organization.

The export manager M.Shakhar deals all the matters regarding the export

departments and directly reports to managing director.

The production manager K.S.Rami Reddy is headed by the G.M. is assisted by

a plant engineer and staff of the production department.

FUNCTIONS OF THE COMPANY:

The group has the following different departments.

PERSONNEL DEPARTMENT:

This department deals with the matters of industrial relations, HRD, welfare

activities, labour legislations, recruitment and issues of wages etc. which is the main

department in the organisation

LEAF DEPARTMENT:

40

This department deals with the matters of tobacco leaf. It looks after buying

tobacco from the farmers for the processing of tobacco.

EXPORT DEPARTMENT:

It looks after the export matters of the organisation. This organisation exports

tobacco leaf to China, Bangladesh & UK.

PRODUCTION DEPARTMENT:

This department takes care to produce quality tobacco to customers.

MARKETING DEPARTMENT:

This department takes care of marketing the company tobacco to other

countries such as Russia, Europe, Middle East, Bangladesh, African countries etc.

They sell varieties of tobacco in market and maintain good relationship with the

customers. This is one of the main/important departments in this organization.

M.L group was concentrating on domestic market.

It ties up with Indian strongest cigarette manufacturing company, ITC.

41

Methods:-

In ML Company the methods of purchasing tobacco is of various types i.e.

With tenders raised in market, documents will be filled up by various

companies or merchants can purchase them.

They have good contacts with various merchants (mediators between

manufacture & exporters) in reputed companies at Guntur.

Every year they are procuring 1000 tonnes of various varieties /grades of

tobacco.

They usually do their business with the international reputed companies like.

o Universal

o Damon

o Standard commercial

The company have some direct contacts with other countries and

they directly ask them at the time of requirement.

Marketing channels:-

Normally they send samples/verities.

At the time of requirement, they send samples through couriers.

Participating in exhibitions- every year ML Company was taking participation

in 5-6 exhibitions.

The people who have connection in tobacco visit tobacco stalls usually, even

from Europe, Russia & china.

People like manufactures, dealers, bankers, merchants of tobacco may visit the

tobacco exhibitions.

They display the samples of the company and sell the samples.

42

Another mode:-

The other mode of marketing (channel) is through business delegations of

Tobacco Board of Central government, Ministry of Commerce. Government. of India,

Guntur. The tobacco board usually:

Regularize crop.

Register of foreigners.

Fixing the crop size.

The board explore marketing possibilities with the help of exporters.

Another type of business mode is tobacco trade delegations from different

countries (usually every year 5-6 delegations may takes place).

The tobacco delegations meet exporters and inspect all the tobacco.

They get the business through reputation.

Customers usually approach them because of the good will of the company.

Mode of payment:-

Exporters normally receive payment from their buyers through L.C’S (letters

of credit).

Some time through advance payment ion terms of D.A&D.P.

o Document against payment

o Document against acceptance.

After customers checkers in the Madras port it may send to abroad.

Shipment of tobacco is through Chennai port only.

At the same time shipment of tobacco the pay/buyers send payment to bank in

the company’s account.

Credit:-

43

Some parties ask/need some time for payment with in certain period from

these date of bill of payment (up to 180 days).

In India there is a rule that on credit basis, the payment must be done with in

180 days from the date.

Market range:-

ML Company was marketing 7-10 million kilos of tobacco every year. But the

market range is not fixed. The market range depends on supply &demand forces.

When there is demand, the company produces more.

In the tobacco field, the marketing/market range may be flexible based on

international supply -demand.

FINANCE DEPARTMENT:

In this department

Cash payments will be checked by cashiers.

Cash bills and credit bills may be received from trashing factory and

engineering department.

Concerned accounts may be generalized by the accountants and may be sent to

concerned heads.

Credit bills payment will be given in the form of cheque’s or DD’s.

44

4.0 INTRODUCTION TO FUNDS FLOW ANALYSIS

Significant technique of financial analysis is ‘Funds Flow Analysis’. It is

designed to highlight changes in the financial conditions of a business concern

between two points of time which generally conform to beginning and ending

financial statement dates. Funds flow statement is also termed as a statement of

sources and applications of Funds’, ‘statement of changes in working capital,

‘statement of changes in Financial Position’, ‘statement of Funds supplied and

Applied’, ‘statement of Funds Generated and Expended’, ‘where got and where gone

statement’, funds statement.

All though financial statements supply useful information to the management

and describe the nature of changes ownership as a result of the period’s productive

and commercial activities, these statements fail to mirror the funds changes that have

taken place over a given time span. They do not spell out the movements of funds. It

is more important to describe the sources from which additional funds sere derived

and the uses to which these funds were put, because the ultimate success of a

business enterprise depends on where got and where gone situations. The funds flow

statement is, therefore, prepared to uncover the information which the financial

statements fail to describe clearly.

Funds Flow Statement:

The following are the definitions of funds flow statement.

R.N. Anthony:"The funds flow statement describes the sources from which additional

funds were derived and the uses to which these funds were put.

R.A.Foulk: “A statement of sources and applications of funds is a technical devise

designed to analysis the changes in the financial conditions of a business between two

dates”.

Bigman: “It is a statement which highlights the underlying financial movements and

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

45

Thus funds flow statement is a report which summarizes the events taking

place 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 the changes that have occurred in assets and liabilities

items between two balances sheet dates. In this statements only the net changes are

shows that the outcome of a transaction as of a series of transactions upon the

financial condition of a business enterprise is reflected more sharply.

Concept of Fund:

The term ‘Funds’ has a variety of meanings. Some people take funds

synonymous to cash, and to them there is a no difference between a cash Flow

Statement prepared on this basis and a Funds Flow Statement. While others include

marketable securities and cash to constitute business funds. However, the most

common definition of the term ‘funds’ is ‘Working Capital’ or ‘Net current Assets’.

Thus the difference between Current Assets and Current Liabilities is called ‘Funds’.

46

Objectives of financial analysis:

Analysis of financial statements may be made for a particular purpose in view.

However, the following are generally considered to be the objectives of financial

analysis.

1. To find out the financial stability and soundness of the business enterprise.

2. To assess and evaluate the earning capacity of the business

3. To estimate and evaluate the fixed assets stock … etc of the concern.

4. To estimate and determine the possibilities of future growth of business.

5. To assess and evaluate the firm’s capacity and ability to repay short-term and

long term loans.

Parties interested in financial analysis:

The analysis and interpretation of financial statements is an important

accounting activity. The end users of business financial statements are interested these

statements primarily as an aid to determine the financial position and the results of the

operations. There are different parties interested in the financial analysis of these

statements. But their aim and objectives of analysis differ significantly. The users of

financial statements can be divided into two broad groups; (i) internal users and (ii)

external users.

1. Internal users:

1. Financial executives:

The first party interested in the financial statement analysis is the financial

department of the company itself. This analysis helps the finance manager to have a

47

deep insight into the financial condition of the enterprise. This analysis helps him in

taking appropriate decisions from future point of view.

I. 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.

a) Is the firm in a position to meet its current obligations?

b) What sources of long-term finance are employed by the firm? What is the

relationship between them? Is there any danger to the solvency of the firm

due to the employment of excessive debt?

c) How efficiently does the firm use its assets?

d) Are the earnings of the firm adequate?

e) Do investors consider the firm as profitable and safe for the purpose of

investing their money in its shares?

2. 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.

1. Creditors: Lenders are interested to know whether their loan, principal and

interest, will be paid when due suppliers and other creditors and also interested

to know the ability of the firm to pay their dues in time.

2. Workers: In our country, workers are extitled to payment of bonus which

depends on the size of profit earned. Hence, they would like to be satisfied that

the bonus beung paid to them is correct. This knowledge also helps them in

conducting negotations for wages.

3. 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 decision relating to purchase of goods.

48

4. Government: Financial analysis helps governments in determining tax

liability. This also helps government is knowing the role and status of industry

in general and companies in particular for framing macro-economic policies.

5. Public: The public at large is interested in the functioning of the enterprise

because it may make a substantial contribution to the local economy in many

ways including the number of people employed and their patronage to local

suppliers.

6. Researches: The financial statements being a mirror of business conditions,

is of great interest to schalours undertaking research in accounting theory as

well as business affairs and practices.

Significance of Funds Flow Statement:

The funds flow statement is an important tool of financial analysis. The utility

of the funds flow statement items from the fact that it enables management,

shareholders, investors, creditors and other interested in the enterprise to evaluate the

uses of financial policies of the management.

i. Decisions relating to financing:

With the people of the funds flow statement the analyst can evaluate the

financing patterns of the enterprise. An analysis of the major sources of funds

in the past reveals what portion of the growth was financed internally and

what portion externally. The statement is also meaningful in judging whether

the company has grown at too fast a rate, credit has increased at relatively

higher rate, one would wish to evaluate the consequences of slowness in the

trade payments on the credit standing of the company and its ability to finance

in future.

ii. Decision on capitalization:

49

The funds flow statement serves as handmaid to the finance manager

in deciding the make up of capitalizations. Estimated uses of funds for new

fixed assets working capital, dividend, and repayment of debt are made for

each of several future years. Estimates are made of the funds to be provided by

operations, and the balance must be obtained by borrowing or issuance of new

securities, if the indicated amount of new funds required is greater than what

the finance manager thinks possible to raise, then plans for new fixed assets

acquisition and the dividend policies are re-examined so that the uses of funds

can be brought into balance with the anticipated sources of financing them. In

particular funds statements are very useful in planning intermediate and long

term financing.

iii. Reveals the reasons for financial difficulties:

The funds flow statement reveals clearly the cause for the financial difficulties

of the company. The difficulties may be due to improper mix of short and long

term sources, un necessary accumulation of inventory of fixed assets etc.,

These can be found out by a careful study of the funds flow statement.

iv. Others uses:

Funds Flow Statement is useful to the management in following cases.

a) Estimating the amount of funds needed for growth;

b) Improving the rate of income on assets;

c) Planning the temporary investment of idle funds;

d) Securing additional working capital when needed ;

e) Securing economies in the centralized management of cash in organisation

whose management is decentralized;

f) Planning the payment of dividend to shareholders and interest to creditor and

g) Lasting the effects of insufficient cash balance.

50

Useful as control device:

The funds flow statement also serves as a control device in that the statement

compared with the budgeted figures will show to what extent the funds were put to

use according to plan. This enables the finance managers to find out deviation from

the planned course of action and take remedial steps to correct the deviations.

Useful to the external parties:

The outside parties can have a clear knowledge about the financial policies

that the company has persuade. In the light of the information so supplied by the

statement the outsiders can decide whether or not to invest in the enterprise and on

what terms funds have to be invested. The funds statement provides an insight into the

financial operations of a business enterprise an insight immensely valuable to the

finance manager in analyzing the past and future expansion plans of the enterprise and

the import of these plans an its liquidity. He can detect imbalances in the issue of

funds and undertake remedial actions.

Thus, the funds statement draws the attention of finance manager to problems

which call for detailed analysis and immediate action. In view of these funds flow

statement is becoming more popular with management. Even some bank managers

make it obligatory for the borrowers to furnish a funds statement along with their

annual balance sheet now a days many Indian companies are publishing this statement

in their annual reports although they are not obliged to do so under the companies

Act.

Limitations of financial analysis:

Every coin has two sides. Same is the case with analysis of financial

statement. Although this analysis has much significant and usefulness yet it has

51

certain limitations. Financial analysis may not provide exact answers to these

questions but it does indicates what can expected in the future. The limitations of

financial analysis are given below.

1. Historical data: Analysis of the financial statements indicates about the

performance of the business in the preceding periods. It does not indicates the

present position of the business. Financial statements are prepared on historian

facts and not throw light on the current and present position of the business.

2. Lack of standard terminology: Accounting is not an exact science. It does not

universally accepted terminology. Different meanings are given to a particular

term. These are different methods of providing depreciation. Interest may be

charged on different rates. In this way, there is sufficient possibility of

manipulation and the financial statements have suffer. As a consequence

financial analysis also proves to be defective. However, in the recent past the

International Accounting Board is taking active interest and taking measures

for standard sing the accounting terminology as well as bringing standards for

bring informing in accounting system.

3. Affects of price level changes: The results shown by financial statements may

be misleading, if price level changes haven’t been accounted for. The ratio

may improve with the increase in price, where as the actual efficiency may not

improve. Ratios on the two years will not be meaningful for comparison, it the

prices of commodities are different. Changes in price affects cost of

production, sales and value of assets and as a consequence comparability of

suffers.

4. Non-consideration qualitative aspects: Financial analysis does not measure the

qualitative aspects of the business. It does not show the skill, technical know

how and the efficiency of its employees and managers. It is the qualitative

measurement of the performance. It means that analysis of financial

statements measures only one sided performance of the business. It completely

ignores human resources.

5. Mis leading results: Results shown by financial analysis my be misleading in

the absence of absolute data. For example, the analysis of one firm revels that

the increase in profits form Rs.20,000 to Rs.80,000 shows that the profit has 52

increased by four times. In case of another firm the analysis reveals that the

profit of this firm also increased for Rs.100 crores to Rs.400 crores, showing

four fold increase. But this analysis ignored the size of the firms. As such, the

results may mislead.

Financial Statements and Funds Flow Statement:

Financial statement means the profit and loss account and the balance sheet.

All the organizations more particularly, the company from of organizations is required

to present the annual financial statements every year. The financial statements differ

with the funds flow statement in many ways.

A Funds Flow Statement is a statement measuring the inflows the inflows and

outflows of net working capital that result from any type of business activity between

two dates. An Income statement in a statement measuring the inflows and outflows of

net assets of revenue nature that result form rendering goods on services to customers

between two dates.

A Funds Flow Statements has become a useful tool in the hands of financial

analyst. That is be cause the financial statements i.e., Income statement measures the

flows restricted to transaction relating to rendering of goods and services to

customers. It is not capable of any accurate information of the resources from

operating unless the income data is converted into funds data. It does not depict the

major financial transactions which have resulted in changes in Balance Sheet.

Preparation of Funds Flow Statement:

In order to prepare funds flow statement, it is necessary to find out the

“Sources and Applications” of funds.

53

Sources of Funds:

Particulars Amount Particulars Amount

To Depreciation  By Opening Balance of P&L

A/c 

To General Reserve Account   By Profit on fixed Assets  

To Loss on fixed asset      

To Provision for Taxation      

To Closing Balance of P&L

A/c  By Funds from operations  

       

1. Funds from Operations: Funds from operations is the only internal sources of

funds. Some adjustments are to be made in calculating funds from operations

to the net profit given in the financial statement.

2. Calculation of funds from operations:

The following procedure is to be followed in the calculation of funds from

operations.

1. Start with the Net Profit given in the profit and loss account.

2. Add the following items to the net profit as they do not result in outflow of

funds.

i. Depreciation on fixed assets.

ii. Preliminary expenses or good will etc., written off.

54

iii. Contribution to debenture redemption funds, transfer to general reserve

etc., if they have been deducted before arriving at the figure of net

profit.

iv. Provision for taxation and proposed dividend. These may be taken as

appropriations of profits or current liabilities for the purposes of Funds

Flow Statement. Tax or dividends actually paid are taken as

applications to funds. Similarly interim dividend paid is known as an

application of funds. All these items will be added back to net profit if

already deducted, to find funds from operations.

v. Loss on sale of fixed assets.

1. Deduct the following items from net profit as they do not increase the funds:

i. Profit on sale of fixed assets, since the full sale proceeds are taken as a

separate source of funds and conclusion here will result in duplication.

ii. Profit on revaluation of fixed assets.

iii. Non-operating incomes such as dividend received or accured rent.

These items increase funds but they are not operating incomes. They

will be shown under separate heads as “sources” of funds” in the Funds

Flow Statement.

In case the profit and loss account shows net loss this should be

taken as an items which decrease the finds.

Statement 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 represents the excess of current assets over current liabilities.

Several items of all current assets and current liabilities are the components of

working capital. In order to ascertain the working capital at the beginning and at the

end of the period and to measure the increase or decrease therein it is necessary to

prepare a statement or schedule of changes in working capital.

55

Schedule of changes in working capital of the company for the year

ended

Particulars Previous

Year(Rs.)

Current

Year(Rs.)

Effect on working capital

Increase (Rs.) Decrease(Rs.)

Current Assets:

Stock

Debtors

Cash – Bank

Bills receivable

Prepaid expenses

Total (A)

Current liabilities:

Creditors

Bills payable

Outstanding expenses

Total (B)

Working changes:(A-B)

Increase/decrease in

Working capital

56

While preparing a schedule of changes in working capital it should be noted that.

1.

a. an increase in current assets increases working capital;

b. a decrease in current assets decrease working capital;

c. an increase in current liabilities decreases working capital;

d. a decrease in current liabilities increase working capital;

e. an increases in current asset and increase in current liabilities does not

affect working capital.

f. a decrease in fixed assets and fixed liabilities affects working capital .

2. The changes in all currents assets and current 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 difference 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.

Current Assets:

The expression ‘current assets’ denotes those assets which are

continually on the move since they are constantly in motion, they are also 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;

a. stock-in-trade or inventories

b. debtors

c. payments in advance or prepaid expenses

d. stores

e. bills receivables

57

f. cash at bank

g. cash in hand

h. work in progress

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. Such liabilities include;

a. Trade creditors

b. Accrued or outstanding expenses.

c. Bills payable.

d. Income tax payable

e. Dividends declared;

f. Bank overdraft

Note: Some experts are of the opinion that as bank over draft has a tendency to

become more or less a permanent source of financing and hence it need not be

included among current liabilities.

Statement of Sources and Application of Funds:

1. Funds from operation:It is an internal source of funds. Funds from operations

are to be calculated as per the method stated above.

2. Funds from long term loans: Long term loans such of debentures, borrowing

from financial institutions will increase the working capital and therefore,

there will be inflow of funds. However, if the debentures have been issued in

consideration of some fixed assets, there will be no inflow of funds.

3. Sale of fixed assets: Sale of land, buildings, and long-term investments will

result in generation of funds.

58

4. Funds from increase in share capital: Issue of shares for cash or for any other

current asset or in discharge of current liability is another source of funds.

However, shares allotted in consideration of some fixed assets will not result

in funds. However, it is recommended that such purchase of fixed assets as

well as issue of securities to pay for them be revealed in funds flow statement.

5. Decrease in working capital: Decrease in working capital is the result of

decrease in current asset or increase in current liabilities. In both the cases

inflow of funds takes place. Suppose stock, a current asset reduce from

Rs.15,000 to Rs.12,000 the decrease of Rs.3,000 is assumed to be due to the

disposal of stock which undoubtedly brings funds into the business. In the

fame way, increase in current liabilities means lesser payment, so retaining

funds is also a source.

59

Funds flow Statements

Particulars Amount (Rs.)

Sources of funds:

Issue of shares

Issue of debentures

Long term borrowings

Sale of fixed assets

* Decrease in working capital

Total sources

Application of funds:

Redemption of redeemable

Preference shares

Redemption of debentures

Purchase of fixed assets

Payment of other long term loans

Payment of dividends, taxes, etc

*increase in working capital

Total uses

Note: * only one will be there.

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

60

Treatment of adjustments:

Some times the factors affecting the funds from operations may not be given

in the problems directly and there may be some hidden information. As such, some of

the transactions have to digged out using the additional information provided as

adjustments to the balance sheet. These items include: a) provision for tax (b)

proposed dividends (c) sale purchase of fixed assets.

a. Provision for tax: it is current liability while preparing a funds flow

statement, these are two options available.

Provision for tax may be taken as a current liability in such a case, when

provision for tax is made the transaction involves profit and loss

appropriation account which is a fixed liability and provision for tax

account which is a current liability. It will thus decrease the working

capital. On payment of tax these will be no change in working capital

because it will in-values one current liability (i.e., provision for tax) and

the other a current assets (i.e., bank or cash balance).

Provision for tax may be taken only as an appropriation of profit. It

means that, there will now change in working capital position when

provision for tax is made since it will involve two fixed liabilities, i.e.,

profit and loss appropriation account and provision for tax account.

However, when tax is paid, it will be taken as application of funds,

because it will when involve ‘Provision for tax account’ which has been

taken as a fixed liability and ‘bank’ which is current assets.

b. Proposed dividends: Whatever has been said about the “provision for tax is

also applicable to “proposed dividends”. Proposed dividends can also be dealt

with in two ways;

Proposed dividends may be taken current liability since declaration of

dividends by the share holders is simply a formality. Once the

dividends are declared in the general meeting, they will have to be paid

within 42 days of theirs declaration. In case proposed dividends is

61

taken as a current liability it, will appear as one of the items decreasing

working capital in the schedule of changes in working capital. It will

not be shown as an application of funds when dividend is paid later on.

Proposed dividends may simply be taken as an appropriation of profits.

In such a case proposed dividend for the current year will be added

back to current year’s profit in order to find out funds from operations

if such amount of dividend has already been charged to profits.

Payment of dividend will be shown an “application of funds”.

c. Sale or purchase of fixed assets: For arriving at the final figure we have to

prepare the asset account, depreciation account, assets sold as purchased

account. This can be illustrated well with the following extracts of the balance

sheet.

Asset account (plant and machinery account):

This is maintained at the cost price. The accounts is debited with the cost of

the machinery as at the beginning of the year (i.e., balance in the machinery

account at the beginning) and with purchases during the year. It is credited

with the cost price of the machinery sold and with cost of the machinery as at

the close of the year (i.e., balance in the machinery account at the end). In the

problems either the total value of purchases during the year may be missing or

the cost of the machinery sold may be missing. The missing figure can be

found out by feeding the account with the available information and balancing

it.

Depreciation account: Depreciation is not source of funds. Source of funds is

constituted by those transactions, where one account belongs to current

category and the other is longs to non-current category. In case of depreciation

both items belong to non-current category, as such it does not make any

change in the funds and is not a source of funds. In support of the answer

journal entry regarding depreciation is presented herewith.

Profit and loss account is a non-current liability and fixed assets are non-

current asset. As both of them belong to non-current category, so depreciation

is not a source of funds.

62

Asset sold account: the purpose of preparing this account is to ascertain the

profit or loss made on sale of the asset. The account is debited with the cost of

the assets sold (transferred from the asset account). It is credited with the

accumulated depreciation on the asset sold (transferred from depreciation

account). It is also credited with the money received on sale of the machinery.

The difference between the two sides would be profit (if credit balance or loss

(if debit balance).

63

5.0 DATA ANALYSIS AND INTERPRETATION

TABLE 5.1

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2009-2010

Particulars 2009 2010Working capital

Increase Rs. 

Decrease Rs. 

A) Current assets:        

1) Inventories172256321 187934012 15677691

 

2) Sundry Debtors 24937024 26860540 1923516  

3) cash & bank balance 33465753 6059037   27406716

4) other current assets 28656816 48679846 20023030  

5) Loans & Advances 14928012 11723019   3204993

Total Current Assets 274243926 281256454    

B) Current liabilities:      

1) Current Liabilities 108391431 139624184   31232753

2) Provisions for taxation 7256927 12018960   4762033

Total Current Liabilities 115648358 151643144    

Net working capital (A-B) 158595568 129613310    

Decrease in working capital   28982258 28982258  

Total 158595568 158595568 66606495 66606495

Source: Compiled from annual reports of the company

64

INTERPRETATION:

It is observed from table 5.1 that the net increase in working capital for the year 2009-

10 is Rs 2,89,82,258. The current assents of the company are decreased comparing

with previous year results. The current liabilities of the company are increased

comparing the previous results.

TABLE 5.2

ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2009-10

Dr. Cr.

Particulars Amount Rs.  Particulars Amount Rs. 

To Depreciation A/c 105478021By Opening Balance of Reserves and surplus A/c

135167525

To Closing Balance of Reserves and surplus A/c

130270036 By Funds from operations 100580532

  235748057   235748057

Source: Compiled from annual reports of the company.

INTERPRETATION:

From the table 5.2, has been observed the company gains profit from the operation to an extent Rs 10,05,80,532.

65

TABLE 5.3

FUNDS FLOW STATEMENT FOR THE YEAR 2009-10

Sources Amount Rs.  Applications Amount Rs. 

Raising unsecured loans 23688279 Payment on secured loan 74848773

Funds from operations 100580532 Purchase fixed assets 79411683

Sale of investment 736800    

Decrease in working capital 28982258    

Increase in differed tax 272587    

  154260456   154260456

Source: Compiled from annual reports of the company

INTERPRETATION:

From the table 5.3, net decrease in working capital is Rs 2,89,82,258. This

year raising the unsecured loans and selling some investments. This year changes in

differed tax increased, the company paying some funds to secured loans holders.

TABLE 5.466

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2010-2011

Particulars 2010 2011

Working capital

Increase Rs. 

Decrease Rs. 

A) Current assets:       

1) Inventories187934012 239880075 51946063

 

2) Sundry Debtors 26860540 35992686 9132146  

3) cash & bank balance 6059037 7150276 1091239  

4) other current assets 48679846 69640943 20961097  

5) Loans & Advances 11723019 12529745 806726  

Total Current Assets 281256454 365193725    

B) Current liabilities:      

1) Current Liabilities 139624184 202449314   62825130

2) Provisions for taxation 12018960 9073986 2944974  

Total Current Liabilities 151643144 211523300    

Net working capital (A-B) 129613310 153670425    

Increase in working capital 24057115   24057115

Total 153670425 153670425 86882245 86882245

Source: Compiled from annual reports of the company

INTERPRETATION:

67

It is observed from table 5.4 that the net increase in working capital for the year 2010-

11 is Rs 2,40,57,115. The current assents of the company are increased comparing

with previous year results. The current liabilities of the company are decreased

comparing the previous results.

TABLE 5.5

ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR

2010-11

Dr. Cr.

Particulars Amount Rs.  Particulars Amount Rs. 

To Depreciation A/c 145033137By Opening Balance of Reserves and surplus A/c

130270036

To Closing Balance of Reserves and surplus A/c

151136957 By Funds from operations 165900058

  296170094   296170094

Source: Compiled from annual reports of the company.

INTERPRETATION:

From the table 5.5, has been observed the company gains profit from the operation to an extent Rs 16,59,00,058.compare to the last year there is an increase in the funds from operation

TABLE 5.6

FUNDS FLOW STATEMENT FOR THE YEAR 2010-11

68

Sources Amount Rs.  Applications Amount Rs. 

Increase in differed tax 451322 Payment on secured loan 10888974

Funds from operations 165900058 Purchase fixed assets 125206678

    Payment Unsecured loan 6198613

    Increase in working capital 24057115

       

  166351380   166351380

Source: Compiled from annual reports of the company

INTERPRETATION:

It shows the table 5.6, net increase in working capital is Rs 2,40,57,115. This

year company is paying unsecured loans, at present time no change in investments.

And this year change in differed tax increased and the company pay some funds to

secured loan holders.

TABLE 5.7

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

69

2011-2012

Particulars 2011 2012Working capital

Increase Rs. 

Decrease Rs. 

A) Current assets:   

   

1) Inventories239880075 236975762

  2904313

2) Sundry Debtors 35992686 36258591 265905  

3) cash & bank balance 7150276 13998934 6848658  

4) other current assets 69640943 93687132 24046189  

5) Loans & Advances 12529745 10864119   1665626

Total Current Assets 365193725 391784538    

B) Current liabilities:      

1) Current Liabilities 202449314 158452146 43997168  

2) Provisions for taxation 9073986 21580520   12506534

Total Current Liabilities 211523300 180032666    

Net working capital (A-B) 153670425 211751872    

Increase in working capital 58081447   58081447

Total 211751872 211751872 75157920 75157920

Source: Compiled from annual reports of the company

INTERPRETATION:

70

It is observed from table 5.7. That the net increase in working capital for the year 2011-12 is Rs 5,80,81,447. The current assents of the company are increased comparing with previous year results. The current liabilities of the company are decreased comparing the previous result

TABLE 5.8

ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2011-12

Dr. Cr.

ParticularsAmount

Rs. Particulars

Amount Rs. 

To Depreciation A/c 182491726By Opening Balance of Reserves and surplus A/c

151136957

To Closing Balance of Reserves and surplus A/c

194200158 By Funds from operations 225554927

  376691884   376691884

Source: Compiled from annual reports of the company

INTERPRETATION

from the table 5.8,has been observed the company gains profit from the operation to an extent Rs 22,55,54,927. compare to the last year there is an increase in the funds from operation

TABLE 5.9

71

FUNDS FLOW STATEMENT FOR THE YEAR 2011-12

Sources Amount Rs.  Applications Amount Rs. 

Raise secured loans 99207205 Payment on unsecured loan 111445151

Funds from operations 225554927 Purchase fixed assets 154511989

    Decrease in differed tax 723545

    Increase in working capital 58081447

       

  324762132   324762132

Source: Compiled from annual reports of the company

INTERPRETATION:

from the table 5.9, net increase in working capital is Rs 5,80,81,447. This

year changes in differed tax decreased and the company raising some funds to secured

loan holders.

TABLE 5.10

72

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2012-2013

Particulars 2012 2013

Working capital

Increase Rs. Decrease

Rs. 

A) Current assets:   

   

1) Inventories236975762 327412543

90436781  

2) Sundry Debtors 36258591 22361498   13897093

3) cash & bank balance 13998934 73891461 59892527  

4) other current assets 93687132 151568707 57881575  

5) Loans & Advances 10864119 13966691 3102572  

Total Current Assets 391784538 589200900    

B) Current liabilities:      

1) Current Liabilities 158452146 143360960 15091186  

2) Provisions for taxation 21580520 90860140   69279620

Total Current Liabilities 180032666 234221100    

Net working capital (A-B) 211751872 354979800    

Decrease in working capital 143227928   143227928

Total 354979800 354979800 226404641 226404641

Source: Compiled from annual reports of the company

INTERPRETATION:

73

It is observed from table 5.10. That the net increase in working capital for the year 2012-13 is Rs 14,32,27,928. The current assents of the company are increased comparing with previous year results. The current liabilities of the company are decreased comparing the previous results.

TABLE 5.11

ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2012-13

Dr. Cr.

ParticularsAmount

Rs. Particulars

Amount Rs. 

To Depreciation A/c 218501632By Opening Balance of Reserves and surplus A/c

194200158

To Closing Balance of Reserves and surplus A/c

345901071 By Funds from operations 370202545

  564402703   564402703

Source: Compiled from annual reports of the company

INTERPRETATION:

From the table 5.11, the has been observed company gains profit from the operation to an extent Rs 37,02,02,545 compare to the last year there is an increase in the funds from operation

TABLE 5.12

74

FUNDS FLOW STATEMENT FOR THE YEAR 2012-13

SourcesAmount

Rs. Applications

Amount Rs. 

Raise unsecured loans 1790474 Payment on secured loan 49556343

Funds from operations 370202545 Purchase fixed assets 215836650

Increase in differed tax 36627902 Increase in working capital 143227928

       

  408620921   408620921

Source: Compiled from annual reports of the company

INTERPRETATION:

. from the table 5.12, net increase in working capital is Rs 14,32,27,928. This

year is paying unsecured loans comparing with previous year. This year changes in

differed tax increased, the company raising some funds from secured loan holders

TABLE 5.14

75

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2013-2014

Particulars 2013 2014

Working capital

Increase Rs.  Decrease Rs. 

A) Current assets:   

   

1) Inventories 327412543 341906868 14494325  

2) Sundry Debtors 22361498 83013158 60651660

3) cash & bank balance

73891461 156006572 82116110  

4) other current assets

151568707 219855601 68286894  

5) Loans & Advances

13966691 16218625 2251934  

Total Current Assets 589200900 8170018236    

B) Current liabilities:      

1) Current Liabilities

143360960 125982205 17378755  

2) Provisions for taxation

90860140 127893051   37032911

Total Current Liabilities

234221100 253875256    

Net working capital (A-B)

354979800 563126567    

Decrease in working capital

208146767 ------   208146767

Total

563126567 563126567 245179678 245179678

Source: Compiled from annual reports of the company

INTERPRETATION:

76

It is observed from table 5.13. That the net increase in working capital for the year 2013-14 is Rs 20,81,46,767. The current assents of the company are increased comparing with previous year results. The current liabilities of the company are decreased comparing the previous results

TABLE 5.14

ADJUSTED PROFIT & LOSS ACCOUNT FOR THE YEAR 2013-14

Dr. Cr.

ParticularsAmount

Rs. Particulars

Amount Rs. 

To Depreciation A/c 256813736By Opening Balance of Reserves and surplus A/c

345901071

To Closing Balance of Reserves and surplus A/c

424599303 By Funds from operations 335511968

  681413039   681413039

Source: Compiled from annual reports of the company.

INTERPRETATION:

To find the table 5.14, the company gains profit from the operation to an extent Rs

33,55,11,968. compare to the last year there is an decrease in the funds from

operation.

TABLE 5.15

77

FUNDS FLOW STATEMENT FOR THE YEAR 2013-14

SourcesAmount

(Rs)Applications

Amount

(Rs)

Raise unsecured loans 171565663 Payment on secured loan 31648312

Funds from operations 4832584 Purchase fixed assets 273665497

Increase in differed tax 335511968 Increase in working capital 208146767

Decrease in capital work in process

1550361

513460576 513460576

Source: Compiled from annual reports of the company

INTERPRETATION:

from the table 5.15, net increase in working capital is Rs 20,81,46,767. This

year the company is raising funds through secured loans, differed tax increased and

decrease in capital work in process. This year The Company spend funds for

purchasing of fixed assets and unsecured loans

6.0 FINDINGS

78

1. It has been observed the share capital of company is not increasing from 2009 to 2014.

2. The company is having good reserves and surplus position. These are increasing year to year from 2009 to 2014. It has been observed that reserves increased to Rs from 13,02,70,036 to 42,45,99,303.

3. The company is taking loans from other sources like banks, financial institutes etc. it observed from 2009 to 2014, the loan amount has deceased from Rs 52,96,65,603 to Rs 51,25,12,335. But 2010 the company is raising up to 65,24,29,686.

4. It has been observed that the company is investing less on fixed assets from 2009 to 2014. The decrease is from 60,60,14,108 to 57,09,03,729.

5. It has been observed that the company made investments in 2005 only. Afterwards till 2011 no new investments have been made.

6. The total increase in current assets of the company has overcome the total increase in current liabilities in 2009 to 2014. Current assets are increasing year to year. But in 2010 only the increases in current liabilities overcame the increase in current assets.

7. It has been observed that the net working capital has decreasing in 2009-2010 (to Rs 2,89.82.258) while in all other years till 2011, it increased. And the company’s funds from operations is satisfactory

8. It has been observed that the company is raising funds from secured and unsecured loans, sale of fixed assets and funds from operations and it is spending to purchase fixed asset, redemption of loans and other payments.

SUGGESTIONS

79

1. It has been observed that the share capital of the company is not increasing from

2009 to 2010. This is obstructing the growth of the company. Hence I suggest the

company to increase the share capital.

2. It has been observed that the company’s contribution to the fixed assets is

gradually decreasing through out the study. This would be a problem for the

company procuring funds. Hence I suggest the company to focus on this and

increase the allocation for fixed assets.

3. It has been observed that the company has made investments only in 2009.

Afterwards there are no investments at all though all these years. This may affect

the reputation of the company in the public. Hence I advise the company to

increase investments and improve its image.

4. It has been observed that the increase in current assets of the company is less than

current liabilities in 2009-10. This shows that the company has less liquidity

capacity. Hence I suggest the company to maintain the current ration to 2:1 by

increasing current assets or reducing current liabilities.

5. It has been observed that the position of the working capital in 2009-10 has

decreased. This will have on effect on sources of funds of the company. Hence I

advice the company improve the position of current assets than current liabilities

and control the decrease in working capital.

6. The company is getting favorable funds from operations in all years of the study.

This is due to the excellence in operations. This is a good trend and it should be

carefully maintained.

CONCLUSION

80

ML Agro products Ltd. was the flat ship company of Maddi Lakshmaiah

Group after successful beginning and performance of ML Agro products Ltd. It was

the India based infrastructure in tobacco based operations in entire un manufacturing

tobacco industries.

The company is having experienced professionals in management and also in

supervisory levels.

The company is having the efficiency of the plant operations on average for

the last 3 years in 98% which is recorded as the best in India. The company is having

scientists in Leaf Management. The company is developing tobacco in certain areas of

the country which is said to be of high quality standards in the international market.

The company is having experts in almost all departments and running their company

always at better standards than the competitors in India.

They had satisfied their strength and now they are setting on fixed properties

worth about Rs 400 crores. The group is own in fixed properties of Rs 400 crores and

they were enjoying the financial limits.

The company started diversifying into infrastructure projects and developed a

software technology building named as “Maddi Lakshmaiah Towers” in Mumbai.

This is per the architecture of Maharashtra Development Company. The best of its

kind in entire greater Mumbai city.

This is a project of around 7,500 acres. This would flex around 1,25,000 a

month. It is concentrated on tobacco trading is reduced. The company is enjoying

working capital limits with Canara Bank, Guntur.

They have also developed warehousing complexes in southern areas of south

India. This was the first class warehousing company near Kakinada Port and

International Company warehousing near ICDI, Hyderabad and one in ICD Guntur.

The company is negotiating two complexes near Madras Port & Cochin.

The company for an ECB for 50 million dollars and development of regular

trade and also infrastructure projects in India.

81

The only delegate from tobacco industry who is permitted along with P.M

Atal Bihari Vajpayee to the recent tole to china is form Maddi Lakshmaiah Company.

82

6.1 BIBLIOGRAPHY

S.NO AUTHOR NAME TITLE OF THE

BOOK

NAME OF

PUBLISHER

YEAR

1 I.M.Pandey Financial

management

Vikas publishing

house

2003

2 M.Y.Khan &

P.K.JAIN

Financial

management

Tata Mc Graw Hill

publishing co.

2003

3 V.K.Bhalla Financial

management

Anmol

publications Pvt.

Ltd

2003

ML Agro products Ltd, ANNUAL REPORTS.

www.indiantobacco.com

www.pogakuvedika.com

www.icra.in

83

6.2 Annual reports of ML Agro products Limited

for year 2009-10

Particulars Amount

Sources of Funds:  

Share capital 13000000

Reserves & Surplus 130270036

Loan Funds  

Secured loans 390364244

Unsecured loans 199239493

Differed Tax liabilities 5796209

Total 738669982

Applications of Funds  

Fixed Assets:  

Gross Block 711492129

Less Depreciation 105478021

Net Block 606014108

capital work in progress 59399

Investments 2983165

Current Assets:  

Inventories 187934012

Sundry Debtors 26860540

Cash & Bank Balance 6059037

Other Current Assets 48679846

Loans & Advances 11723019

  281256454

(-)Current liabilities:  

Current Liabilities 139624184

Provisions 12018960

  151643144

Net current Assets 129613310

Total 738669982

84

Particulars Amount

Sources of Funds:

Share capital 13000000

Reserves & Surplus 151136957

Loan Funds  

Secured loans 379475270

Unsecured loans 193040880

Differed Tax liabilities 6247531

Total 742900638

Applications of Funds  

Fixed Assets:  

Gross Block 746114635

Less Depreciation 145033137

Net Block 581081498

capital work in progress 5165551

Investments 2983165

Current Assets:  

Inventories 239880075

Sundry Debtors 35992686

Cash & Bank Balance 7150276

Other Current Assets 69640943

Loans & Advances 12529745

  365193725

(-)Current liabilities:  

Current Liabilities 202449314

Provisions 9073986

  211523300

Net current Assets 153670425

Total 742900638

Annual reports of ML Agro products Limited

for year 2010-11

85

Annual reports of ML Agro products Limited

for year 2011-12

Particulars Amount

Sources of Funds:

Share capital 13000000

Reserves & Surplus 194200158

Loan Funds  

Secured loans 478682475

Unsecured loans 81595729

Differed Tax liabilities 5523986

Total 773002348

Applications of Funds  

Fixed Assets:  

Gross Block 738903208

Less Depreciation 182491726

Net Block 556411482

capital work in progress 1855829

Investments 2983165

Current Assets:  

Inventories 236975762

Sundry Debtors 36258591

Cash & Bank Balance 13998934

Other Current Assets 93687132

Loans & Advances 10864119

  391784538

(-)Current liabilities:  

Current Liabilities 158452146

Provisions 21580520

  180032666

Net current Assets 211751872

Total 773002348

86

Annual reports of ML Agro products Limited

for year 2012-13

87

Annual reports of ML Agro products Limited

for year 2013-14

88

Particulars Amount

Sources of Funds:

Share capital 13000000

Reserves & Surplus 345901071

Loan Funds  

Secured loans 429126132

Unsecured loans 83386203

Differed Tax liabilities 42151888

Total 913565294

Applications of Funds  

Fixed Assets:  

Gross Block 772553600

Less Depreciation 218501632

Net Block 554051968

capital work in progress 1550361

Investments 2983165

Current Assets:  

Inventories 327412543

Sundry Debtors 22361498

Cash & Bank Balance 73891461

Other Current Assets 151568707

Loans & Advances 13966691

  589200900

(-)Current liabilities:  

Current Liabilities 143360960

Provisions 90860140

  234221100

Net current Assets 354979800

Total 913565294

89

Particulars Amount

Sources of Funds:

Share capital 13000000

Reserves & Surplus 424599303

Loan Funds  

Secured loans 600691795

Unsecured loans 51737891

Differed Tax liabilities 46984472

Total 1137013461

Applications of Funds  

Fixed Assets:  

Gross Block 827717465

Less Depreciation 256813736

Net Block 570903729

capital work in progress

Investments 2983165

Current Assets:  

Inventories 341906868

Sundry Debtors 83013158

Cash & Bank Balance 156006572

Other Current Assets 219855601

Loans & Advances 16218624

  817001823

(-)Current liabilities:  

Current Liabilities 12598225

Provisions 12789505

  25387526

Net current Assets 5631268

Total 1137013461