Embed Size (px)
Citation preview
ACKNOWLEDGEMENT
Perseverance, inspiration and motivation have always played a key role in the
success of any venture. Beginning as well as completion of my project report work is
greatly attributed in all those who inspired and motivated me, whose wide spread
knowledge in the subject and valuable suggestion made m project work really worthwhile.
I am greatly thankful to the management of The Sukhjit Starch and Chemicals Ltd.
Who give me a permission for industrial training in their company. I have been able to
complete the partial fulfillment of the requirements for the Graduate Degree Course of
B.Com (Professional) only with the help of my teachers and staff members of Sukhjit
Starch and Chemicals Ltd. Which are giving me a proper help regarding the preparation
of Project Report. This was not possible without their support and assurance.
I am thankful to my guide Mrs.Nidhi Walia for devoting her precious time to solve
my problems regarding this project report. I am also thankful to department time to solve
my problems regarding this project report. I am also thankful to department of commerce
who provide me help.
I Convey my sincere thanks to Mr.I.K.Sardana(M.D.), Mr.K.K.Sardana(Jt.M.D.) of
the company and also to Mr.V.K.Suri(G.M.Adm.,), Mr.N.K.Kapoor(P.A. to Accounts),
Sh.M.G.Sharma(G.M.Finance) who regularly paid attention and monitored the progress of
my training. I am also thankful to my parents and friends who encouraged me at every
step. I am also thankful to the library staff for extending co-operation. All may not have
been mentioned but none is forgotten.
CERTIFICATE-I
This is to certify that the Project Report “Financial Statement
Analysis of The Sukhjit Starch & Chemicals Ltd.” Being submitted
by Mehak Arora to the Deptt. Of Finance for the partial
fulfillment of degree of MBA.
Mrs.Nidhi Walia
Deptt.of Finance
PIMT, MGG.
CERTIFICATE – II
This is to certify that the project report entitled as “Financial
Statement Analysis of The Sukhjit Starch & Chemicals Ltd.” Is my
own work and all ideas & references have been duly acknowledge.
Mehak Arora
MBA IIIrd. SEM.
PREFACE
Finance play a vital role in every aspect of the business, because every enterprise
whether big or small needs finance to carry on its operations. In fact, finance is so
indispensable that it is rightly said the life blood of an enterprise. Considering this point, I
decided to choose the topic of financial analysis which is considered with the financial
position of the organization, because it reflects the financial soundness of the company
and is a mirror to the health of the business.
As a part of my Degree of MBA (PTU,JAL.), I underwent industrial training of
Sukhjit Starch & Chemicals Ltd., Phagwara. During the training period, I was also given a
chance to visit the factory premises to know about the practical working of the business. I
have studied the financial statements, annual reports of The Sukhjit Starch & Chemicals
Ltd., Phagwara. After the financial analysis, I have given some observations relating to
my study. The report is presented in the subsequent pages.
INDEX
CONTENTS PAGE NO.
1.CHAPTER – 1: INTRODUCTION OF THE ESTABLISHMENT
1. Brief Introduction2. Historical Background3. Subsidiary Companies4. Objectives of the Company5. Philosophy of the Company6. Ordinary Rules of the Company7. Contribution of the Company8. Organizational Chart9. Swot Analysis of the Company10.5 P’s of the Company
2.CHAPTER – II : OBJECTIVE OF STUDY & RESEARCH METHODOLOGY
1. Reasons for Choosing2. Objective of Study3. Data Source
3.CHAPTER – III : FINANCIAL STATEMENT ANALYSIS- THE ORETICAL ASPECTS
1. Meaning & Types of Financial Statement Analysis2. Meaning & Types of Comparative Statement3. Meaning & Types of Common-size Statement4. Meaning & Types & Uses of Cash Flow Statement5. Meaning & Procedure of Trend Analysis6. Meaning & Significance of Fund Flow Statement7. Meaning of Value Added Statement
4.CHAPTER – IV :INTERPRETATION & ANALSIS THROUGH VARIOUSFINANCIAL TOOLS
1. Data of Various Statements of Last Five Years.
5.CHAPTER – V: OBSERVATION & CONCLUSION.
BIBLIOGRAPHY
INTRODUCTION
OF THE
ESTABLISHMENT
BRIEF INTRODUCTION ABOUT The Sukhjit Starch & Chemicals Ltd., Phagwara
1.COMPANY STATUS:-
Date of Incorporation March 15, 1943
Date of Commencement April 1, 1943
Date of conversion in to Joint Stock Company March 16, 1944
Sector Private
Construction Public Co.Ltd.By Shares
Location Sarai Road, Phagwara
Corporate Office New Delhi
Registered Office Phagwara
Branch Office Nizamabad
2.BOARD OF DIRECTORS:-
Sh.V.K.Sardana Chairman
Sh.I.K.Sardana Managing Director
Sh.K.K.Sardana Jt.Managing Director
Sh.S.M.Jindal Executive Director & Secretary
Sh.S.C.Jindal Director
Sh.A.K.Sardana Director
Sh.Naresh Sardana Director
Sh.S.K.Anand Director
Sh.V.P.Kapahi Director
1
3.REGISTERED OFFICE:- Phagwara – 144 401 (Pb.)
4.LICENCED CAPACITY:-
MAIZE STARCH 1500 M.T./P.A with D.G.T.D.
LIQUID GLUCOSE 1200 M.T./P.A with D.G.T.D.
DEXTROSE MONOHYDRATE 1800 M.T./P.A with D.G.T.D.
MALTO DEXTRINS 1000 M.T./P.A with D.G.T.D.
DEXTROSE ANHYDROUS 1000 M.T./P.A with D.G.T.D.
SORBITOL Capacity not mentioned
5.INSTALLED CAPACITY:-
STARCH 3500 M.T.
LIQUID GLUCOSE 1800 M.T.
SORBITOL 4500 M.T.
6.ACTUAL PRODUCTION:-
MAIZE STARCH 20052.800 M.T.
DEXTRIN 1485.000 M.T.
LIQUID GLUCOSE 1937.000 M.T.
DEXTROSE MONOHYDRATE 1937.000 M.T.
SORBITOL 4930.700 M.T.
DEXTROSE ANHYDROUS 1252.052 M.T.
BY PRODUCTS 8625.1800 M.T.
7.BANKERS:-Punjab National Bank,G.T.Road, Phagwara
2
8.AUDITORS:-
M/S Y.K.Sood & CompanyJalandhar
9.MAJOR CUSTOMERS:-
M/S Nestle Indian Limited
Glaxo Limited
Consumer Health Care
Smith Kline Beacham Limited
Britania Industries Limited
Hindustan Lever Limited
Chittranjan Locomotives Works
J.C.T.Limited
Jagatjit Industries Limited
10. EXPORT COUNTRIES:-
Greece
Indonesia
Iran
Egypt
Mauritius
Russia
Denmark
3
11.STAFF COMPOSITION IN MANAGEMENT
There are about 700 personal employed in the Organization which includes all Directors,
Management, Supervisor, Clerks & Other administration & Technical staff in the following
manner:
Whole time directors 3
Dy.General Managers 2
Vice Presidents 2
Gen.Managers 1
Plant Officers 10
Security Staff 42
Administrative Staff 65
Peons 12
All other markers in employees 401
12.SHAREHOLDING PATTERN:-
1. Promoters 59.17%
2. Banks, Financial Institutions, 0.02%Govt. Institutions etc.
3. Corporate Bodies 1.29%
4. NRIs/OCBs 0.04%
5. General Public 39.44%
6. Clearing Member 0.04%----------
Total No. of Shares 100.00%-----------
4
HISTORICAL BACKGROUND
The Sukhjit Starch & Chemicals Ltd., Phagwara is a leading company engaged in the
production of maize starch liquid glucose, dextrose, monohydrate & other derivatives for
the cash more than six decades.
Sh.B.K.Sardana, B.D.Sardana and Mr.Agarwal incorporated the company in 1943. Then
Sh.Bhagat recently joined the Co. They all were employees of JAGJIT SUGAR MILL of
Phagwara. They meet & decided to incorporate the company and they incorporated the
company under the name of The Sukhjit Starch & Chemicals Ltd. For the manufacturing
of starch by crushing of the maize.
This Compan is situated on SARAI ROAD, PHAGWARA. The company was converted
into joint stock co. on 16th March,1944. The company have authorized share capital Rs.5
Crore. At the time of establishment of the company it was 4.5 Lacs. The company have
subscribed and paid up capital of Rs.368.991 Lacs at present. The company was
established with an installed capacity of maize crushing 5 T.P.D. (tones per day). This
was increased to 35 T.P.D. during the year 1984-85 which in the subsequent ear
increased to 200 T.P.D.
During the year 1999-2000 the company has recommended 30% dividends to its
shareholders.
During the year 1985 the company has set up a similar unit in NIZAMABAD in the state of
ANDHRA PRADESH the organization also diversified into other fields as well as VIJOY
STEEL AND GENERAL MILLS LTD. Is a wholly owned subsidiary of the Phagwara plant.
Which besides complimenting the parent co. by providing necessary engineering
infrastructure that is costing fabrication of STARCH MILL & CHEMICAL PLANT It
5
manufactures agricultural equipment for the form rich state of PUNJAB. The co. is to
undertake leasing, hire purchase. One another subsidiary company was also
incorporated on 8th.October named SCOTT INDUSTRIES LTD. This industry mainly deals
with the production and export of readymade garments oriented unit this industry work at
village KADIAN,G.T.ROAD,WEST LUDHIANA.
The company appears to be the forefront of STARCH INDUSTRIES in the country
from the view point of productivity and profitability. Its products are well known for the
quality through out the country and abroad.
6
SUBSIDIARY COMPANES
The Sukhjit Starch & Chemicals Ltd., Phagwara has also started three subsidiary
companies they are following:-
1.VIJOY STEEL AND GENERAL MILL:-
The company was incorporated in 1945 & is wholly owned subsidiary of Phagwara
unit. It provides help to the recent company by supplying necessary engineering
infrastructure. It has the business of manufacturing agriculture equipment for the farmers
of PUNJA as the state family depends & deals in agriculture. It is an independent
manufacturers in having net worth of Rs.2967445.
2.SUKHJIT FINANCE LIMITED:-
This company was established as on 6th February, 1995 main business of the
company includes undertaking leasing, hire purchase financing and other related
activities. This subsidiary is having net worth Rs.49500000.
3.SCOTT INDUSTRIES LIMITED:-
The company has incorporated on 8th. Octorber, 1997. The company has paid up
capital of Rs.105,070,000. It has incorporated machinery from JAPAN, CHINA &
TAIWAN. It deals in production and export of readymade garments. This company is
situated at village KADIAN G.T. ROAD, LUDHIANA.
7
MAIN OBJECTIVES OF THE COMPANY
The main objectives of the company are stated in the Memorandum of the company
which are as follows:-
To buy, sell , import, export , manufacture and deal in starch.
To dye print or bleach dyers clothes, woolen and other goods & fabrics whether of
the company or the customer.
To lend money to such persons and on such terms as may see expedient and
particular to the customers of the company and to other person having dealings
with the company and to guarantee the performance of the contract.
To amalgamate with other company having objects altogether or in part similar to
those of this company.
To carry on transact all kinds of agency business.
To fulfill social obligation such as working liberal contribution to various public
charitable institutions.
PHILOSOPHY OF COMPANY
The company has always believed in Good corporate Governance transparency.
Fair business and standard corporate practices help the company to maximize long-
term shareholders vale and in building a bond of trust with it’s employees, customers,
creditors, leaders and others. The company has always remained prompt in
discharging its statutory obligation and duties.
The board has constituted various committees of directors from time to time and
the meetings of the board and committees thereof have been heed as frequently as
8
the affairs of the company. All the directors attending the board & committee meeting
actively participate in the proceeding and decisions are taken unanimously.
ORDINARY RULES OF THE COMPANY
THE ORDINARY RULES OF THE COMPANY RELATING TO ITS BUSINESS
TRANSACTIONS HAVE BEEN PROVIDED IN THE 60th ANNUAL GENERAL
MEETING OF THE MEMBERS OF THE SUKHJIT STARCH CHEMICALS LTD.AT
THE REGISTERED OFFICE OF THE COMPANY AT PHAGWARA ON FRIDAY THE
17th DAY OF SEPTEMBER 2005. AT 10.00 AM ARE GIVEN AS FOLLOW:-
1. To receive, consider and adopt the directors report, auditor’s report. Audited
Balance Sheet and Profit & Loss account for the ear ended 31.3.2004.
2. To declare dividend on equity shares for the year ended 31.3.2004.
3. To appoint director in place of Sh.H.C.Sardana, who retires by rotation and being
eligible offers himself for re-appointment.
4. To appoint Director in place of Sh.V.K.Sardana, who retires by rotation and being
eligible for re-appointement.
5. To appoint auditors to hold office from the conclusion of this Annual General
meeting till the conclusion of the next Annual General Meeting and fix their
remuneration.
9
CONTRIBUTION OF SUKHJIT STARCH AND CHEMICAL
LIMITED, PHAGWARA
TOWARDS PRODUCT MARKET
Main products manufactured by the company are:-
1. Maize Starch
2. Liquid Glucose
3. Liquid Malto Dextrin
4. Dextrose Monohydrate
5. Dextrose Anhydrate
6. Sorbitol
7. Textilose
8. Textilose – B
9. Modified Starch
10.White Dextrin
11.Maize Fine Bran
12.Maize Oil Cake
13.Corn Sleep Solid
10
TOWARDS SOCIETY
These contribution of the company are explained as follows:-
1. It provides donation to various public charitable institutions. It runs three
institutions under auspicious two senior secondary schools and one women
college i.e. Kamla Nehru College for Women, at Phagwara.
2. The company also provides help both personally and financially to Grievances
Committee Phagwara and Hindu Committee Kapurthala.
3. It has also provided valuable help or service to sales tax advisory committee
Kapurthala by its members.
11
THE ORGANIZATION CHART
BOARD
MANAGING DIRECTOR
Joint M.D. Executive Director
G.M.(FIN) G.M.(Adm.) G.M.(Prod.) G.M.(Niz.) G.M. (Sale)
Manager Manager Manager(Fin.) (Account) (Sales)
Assistant Security TimeAccount Officers Supervisor Keeper Accounts Watch & Ward Time Assistant Product Quality Assistants Office Production Development Control
Sales Manager Manager Manager Assistants
Workshop Plant Plant Electric MaintainsIncharge Supervisor Supervisor Incharge Engineer
Foreman Workers Workers Assistant Foreman 12
5 P’s OF SUKHJIT STARCH & CHEMICALS LTD.
* PROPER
* PLANNING
* PREVENTS
* POOR
* PERFORMANCE
13
RESULTS
QUALITYCONTROL
OBJECTIVE OF
STUDY &
RESEARCH
METHODOLOGY
REASON FOR CHOOSING SUKHJIT STARCH AND
CHEMICALS LIMITED
The Company also enjoys a good credit worthiness and goodwill among its
creditors, suppliers customers, bankers as well as shareholders. Labour management
relations are very good which are very helpful for the smooth working of an organization
Public relations are also good.
The company making a liberal contribution to various public charitable institutions it
runs three educational institutions in which are two senior secondary school and one
women college at Phagwara presently they also open a Public School named as Kamla
Nehru Public School, Hargobind Nagar, Phagwara. They are also managing an
Anathalaya in the city. They also arrange the smooth supply of fresh water in the nearby
one village of Phagwara.
Thus, they have a good name and reputation in the society, which is the main
reason for choosing Sukhjit Starch & Chemicals Ltd. By me.
Now a days Sukhjit starch and Chemicals Limited is marking it’s mark at inter-
national level and is considered to be leading starch industry in the country from the point
of view of both profitability and productivity.
The reason for choosing Sukhjit Starch and Chemicals Limited for studying my
regarding “Financial Statement Analysis” is that the company provides full help to he
trainees during their period of training and give them opportunity to learn more practically.
Another reason for choosing the company is that it is Well-reputed Oldest and
famous company in India. It appears to be on fore-front of the starch industry in the
country from the point of view of quality.
14
OBJECTIVE OF STUDY
Specifically the objectives of my study can be numbered as follows:-
1. To analyze he basis to access he working capital requirements of The Sukhjit
Starch & Chemicals Ltd., Phagwara.
2. To analyze the profitability, Liquidity position of the company.
3. To analyze the means for financing the position of the company.
4. To analyze management of cash, inventory and receivables of Sukhjit Starch and
Chemicals Limited in brief.
5. To know the company’s efficiency in utilizing its current and fixed assets.
6. To know company’s ability to meet short term or current obligations.
7. To have comparative view over its business financial position measuring changes
in composition and figures of various assets & liabilities.
8. To know efficiency of concern in utilizing resources.
9. To analyze the operational efficiency.
15
DATA SOURCES
For the purpose of completion of my project. I have taken data from two sources which
are explained as below:-
1. Primary sources.
2. Secondary sources.
1.PRIMARY SOURCES:- Primary sources are those which are used for the time. The
soures which have come into existence for the purpose of said and it is an expensive and
time consuming source of getting information. I have consulted with finance manager
‘N.K.Kapoor (P.A. to G.M.), Major V.K.Suri for the purpose of collecting information by
primary source.
2.SECONDARY SOURCES:-Secondary sources are those which are already into
existence for some other purpose. IN other words, we can say the source other than
primary source are known as secondary source. The secondary source which are used
by me are:
a. Annual Report
b. Published Accounts
c. Different Periodicals
I have also gone through the literate of financial analysis from different financial books.
16
FINANCIAL
STATEMENT
ANALYSIS –
TERORETICAL
ASPECT
FINANCIAL STATEMENT ANALYSIS
MEANING OF FINANCE:- Finance may be defined as the provision of money at
the time when it is require. All kinds of enterprise need finance to carry on its operations
and to achieve its targets. Finance can rightly be regarded as the lifeblood of an
enterprise as without adequate finance no enterprise can possibly accomplish its
objective.
FINANCE STATEMENTS:- Financial statements are the sources of information
on the basis of which conclusions are drawn about the profitability and financial position
of a concern. They are major means employed by firm to present their financial situation
to owners, creditors and the general public.
Thus the term “Financial Statements” generally refers to 2
statements:
I. The position statement of the balance sheet; and
II. The income statement of the profit and loss account
Acc. To John Myer,
“The financial statements provide a summary of accounts of a business enterprise, the
balance sheet reflection the assets, liabilities and capital as on a certain date the income
statement showing the results of operations during a certain period.”
Robert N. Anthony defines financial statements as, “interim reports, presented annually
and reflecting a division of the life of an enterprise in to more or less arbitrary accounting
period period-more frequently a year”
17
FINANCIAL STATEMENT ANALYSIS
Financial statements provided only a summarized view of financial position and
operations of firm. They are not much useful in understanding the strategic aspects of the
information provided herein. However, information provided in the financial statements is
of immense use in making decisions through analysis and interpretation of financial
statements.
Financial Statements analysis is “the process of identifying the financial strengths and
weaknesses of the firm by establishing strategic relationship between the items of the
balance sheet, profit and loss a/c and other operational data.
The focus of financial analysis is on key figures in the statements and the
significant relationships that exist between them so as to make analysis judgment about
the profitability and financial soundness of the firm.
According to Metcalf and Titard
Financial Statement parts of a financial statement to obtain a better understanding of a
firm’s position and performance”.
Following steps are followed while making financial statement
analyses:-
To select the information relevant to the decision under consideration from the total
information contained in the financial statement.
To arrange information in a way to highlight significant relationship:
Interpretation and drawing of inferences and conclusions.
In brief financial statement analysis is the process of selection ,relation and evaluation.
18
TYPES OF FINANCIAL ANALYSIS
Financial analysis can be classified in to different categories depending upon:-
1. The material used, and
2. Method of operation followed or modus operandi of analysis
TYPES OF FINANCIAL ANALYSIS
Financial Analysis can be classified in to different categories depending upon:-
I. The material used, and
II. Method of operation followed or Modus operandi of analysis
ON THE BASIS OF MATERIAL USED
(a) External Analysis :- External analysis is one, which is done by
outsiders having no access to the detailed accounting records of
business firm. Published accounts of the firm are used to draw
relevant information about limitations of information provided in
financial statements.
19
TYPES OF FINANCIAL ANALYSIS
On the basis of Material Used
ExternalAnalysis
InternalAnalysis
On the basis of Modus Operandi
HorizontalAnalysis
VerticalAnalysis
(b) Internal Analysis :- Financial Analysis done by persons engaged
in the working of an organization is termed as internal analysis.
Executives, employees or the govt. agencies that have statutory
power vested in them can perform it.
ON THE BASIS OF MODUS OPERANDI
(a) Horizontal analysis :- Horizontal analysis also known as
‘Dynamic analysis’ is based on the data from year to year rather
than on data of any one year. It makes it possible to focus attention
on items that have changed significantly during the period under
review. Comparison of an item over several period with a base year
may show a trend developing.
(b) Vertical analysis :- Vertical analysis also known as ‘static
analysis’ involves the statements of one of one accounting year with
a base item selected from the same year’s statement. Common-size
financial statements and financial ratios are two tools employed to
vertical analysis.
METHODS/DEVICES/TOOLS OF FINANCIAL ANALYSIS
A number of Methods or devices are used to study the relationship between
different statements. Some of important techniques used are as follow:-
Comparative Statements Common-size Statements Cash flow Analysis Trend Analysis Fund Flow Analysis Value Added Statement
20
Tools/Techniques ofFinancial analysis
COMPARTIVES STATEMENTS
The comparative financial statements are the statement of financial position at different
periods of time; where the various elements of financial position are shown in a
comparative from so as to give on idea of financial position at 2 or more periods. From
practical point of view generally, two financial statement i.e. balance Sheet & Income
Statement are prepared in comparative from for analysis purpose. The comparatives
statement show:
Absolute figures
Changes in financial figures i.e. increase or decrease in absolute figures
Absolute data in terms of percentages.
Increase or decrease in terms of percentages
However, it must always be remembered that financial data will be comparative only
when same accounting principles are used in preparing these statement. In case of any
deviation, the fact must be mentioned at the foot financial statement and a careful
analysis should be made.
21
COMPARATIVE BALANCE SHEET
ComparativeStatements
Common-sizeStatements
Cash flowAnalysis
TrendAnalysis
Fund FlowAnalysis
Value AddedStatement
The comparative balance sheet shows the items of balance sheets of two or more years
in comparative form, enabling the analyst to from an opinion about the progress of an
enterprise. The comparative balance sheet has four columns-two for the data of original
balance sheets, one showing absolute changes in items (increase/decrease), one for
giving the values of % of increase or decrease.
COMPARTIVE INCOME STATEMENT
Comparative Income Statement provides a cooperative view of items of revenues and
expenditures of 2 or more financial years. It enables the analyst to judge the relative
changes in the profitability of company.
22
COMMON-SIZE STATEMENTS
The common-size statement are shown in analytical percentages. The figures are shown
as percentage of total assets total liabilities and total sales, the total assets/total liabilities
or sales as the case may be are as taken 100 and different items of balance sheet and
profit and loss a/c (as the may be) are expressed as % of total. Thus, the analyst is able
to assess the figures in relation to total value. The common size statement may be
prepared in the following way:
1) Take the total assets/Liabilities/sales as 100;
2) Calculate percentages of various items in relation to total.
Common-size statement can also be prepared for balance sheet and profit & loss a/c.
Thus, we can have common-size balance sheet and common-size profit & loss a/c.
COMMON-SIZE BALANCE SHEET:-
A statement, in which Balance Sheet items are expressed as the ratio asset to total asset
& each liability to total liability is called common size balance sheet. Such a statement can
be used to compare companies of differing size. The comparison of figures in different
periods is not of much use because total figures may affected by a number of factor. It is
not possible o establish standard norms for various assets Even the trend percentages
may give misleading result. In such circumstances, common-size statement is the best
tool in the hands of analyst.
COMMON-SIZE INCOME STATEMENT:-
The items income statement can be shown as & sales to shown the relation of each item
to sales. A significant relationship can be established between items of income statement
and volume of sales. This statement is very helpful in evaluating operational efficiency of
the enterprise. 23
CASH FLOW STATEMENTS
Cash Flow Statements is one of the must useful techniques to analyze the cash position
of a concern. Cash Plays a very important role in the entire economic life of a business.
Sometimes business enterprise face cash crisis even having sufficient profits. Thus, the
movement of cash is of vital importance to the management. A cash flow statement is
prepared to study the flow of cash in an organization. It is a statement, which describes
the inflows (source) and outflows (uses) of cash and cash equipments in an enterprise
during a specified period of time. Such a statement enumerates net effects of the various
business transactions on cash and its equivalents and takes in to account receipts and
disbursements of cash. A cash flow statements summarizes the cause of changes in cash
position of a business enterprise between dates of two balance sheets. According to As-3
(revised), an enterprise should prepare statements are prepared.
CLASSIFICATION OF CASH FLOWS
According to As 3(revised), the cash flow statement should report cash flows during the
period classified by operating , investing and financing activities. Thus, cash flow are
classified in to three main categories:
1) Cash flows from operating activities
2) Cash flows from investing activities
3) Cash flows from investing activities
1) Cash Flows From Operating Activities:- Operating activities are the principal
revenue generating activities of the enterprise and other activities that are not investing or
financing activities. The amount of cash flows arising from operating activities is a key
indicator of the extent to extent to which the operations of enterprise have generated
sufficient cash flows to maintain the operating capability of the enterprise. 24
Examples of cash flows from operating activities are:-
Cash receipts from the sale of goods and the rendering of services.
Cash receipts from royalties, fees, commission and other revenue.
Cash payments to suppliers of goods and services.
Cash payments or refunds of income taxes unless they can specifically be
identified with financing and investing activities etc;
2) Cash flows from Investing activities are:-
Cash payments to acquire fixed assets.
Cash payments to acquire shares, warrants, or debt instruments of other
companies and interesting joint ventures.
Cash receipts from disposals of shares, warrants, or debt instruments of other
companies and interest in joint venture.
Cash advances and loans made to third parties(other than advances and loans
made by a financial institution).
Cash receipts from the repayment of advances and loans made to third
parties(other than advances and loans of a financial enterprise);
Cash payments or receipt from future contracts, forward contracts, opinion
contracts, and swap contracts except when the contract are held for trading or
dealing purposes, not where they are classified as financing activities.
3) Cash flows From financing Activities:- Financing Activities are activities that
result in change in the size and composition of the owner’s capital and borrowings of the
enterprise. The separate disclosure of cash flows of cash flows arising from financing
activities is important because it is useful in predicting claims on future cash flows by
providers of funds. 25
Examples of cash flows from investing activities are:
a. Cash proceeds from issuing shares and other similar instruments;
b. Cash proceeds from issuing debentures, loans, note, and other short term or long
term borrowings; and
c. Cash repayments of amounts borrowed such as redemption of debentures, bonds
and preference shares.
USES OF CASH FLOW STATEMENT
A cash flow statement is of primary importance to the financial management. It is an
essential tool of short-term financial analysis. Its main uses are as follows:
1. Cash flow statement facilitates to prepare sound financial policies. It also helps to
evaluate the current cash position.
2. A projected cash flow statement can be prepared in order to know future cash
position of a concern so as to enable a firm to plan and coordinate its financial
operations properly.
3. It helps the managements in taking short-term financial decisions.
4. Cash flow statements provides information of all activities classified under
operating investing and financing activities.
5. Cash flow statement prepared according to AS-3 (revised) is more suitable for
making comparisons than the fund flow statement, as there is no standard format
used for the same.
6. Cash flow analysis is more useful and appropriate than funds flow analysis for
short-term financial analysis as in a very short period it is cash which is more
relevant than the working capital for forecasting the ability of firm to meet its
immediate obligations. 26
7. It better explain the cause for poor cash position in spite of substantial profits in a
firm by throwing light on various applications of cash made by firm.
Trend Analysis
One of the techniques of financial analysis is trend analysis. Trends of series of
information of a concern may be development easily in order to analyze the financial
statements of a particular concern. Trends Show the upward or downward directions
in figures of a particular item (may be of profit & kiss a/c or of balance sheet) by
establishing the percentage relationships with the figures of base year. Usually the
figures of base year taken as 100 and trend ratios for other years are calculated on
basis of base year.
PROCEDURE FOR CALCULATING TRENDS:-
1) Select a base year. Generally, the first or last year is taken as base year.
2) Taken the figures of base year as 100 for comparison purpose.
3) Calculate trend percentages in relation to base year.
27
MEANING, SIGNIFICATION AND LIMITATION OF FUNDS FLOW
STATEMENTS
MEANING:
Funds Flow Statements is a method by which we study changes in the financial position
of a business enterprise between beginning and ending financial statement dates. It is a
statement showing sources and uses of funds for a period of time.
Funds Flow Statements is a statement which indicates various means by which the funds
have been obtained during a certain period and the ways to which these funds have been
used during that period.
The term ‘Funds’ used here means working capital that is the excess of current assets
over current liabilities. The term ‘Flow’ means movement and includes both inflow and
outflow. The term ‘Flow of Funds’ means transfer of economic values from one asset of
equity to another. The flow of funds occurs when a transaction changes on the one hand
a non current account and on the other a current account and vice-versa. If any
transaction results in the increase in funds, it is said to be an application or outflow of
funds.
SIGNIFICANCE:The Significance of funds flow statement can be well followed from its various uses given
below:
1. It helps in the analysis of financial operations.
2. It throws light on many perplexing questions of general interest which may be
otherwise difficult to be answered such as:
28
Why were the net current assets lesser in spite of higher profits and vice-versa?
Why more dividends could not be declared in spite of available profits?
What happened to the net profit? Where did they go?
What happened to the proceeds of sale of fixed assets or issue of shares,
debentures, etc.?
How was the increase in working capital financed and how will it be financed in
future?
3. It helps in the formation of realistic dividend policy.
4. It helps in the proper allocation of resources.
5. It acts as a future guide.
6. It helps in appraising the use of working capital.
7. It helps knowing the overall credit worthiness of a firm.
29
VALUE ADDED ANALYSIS
Value added is a basic and important measurement to judge the performance of an enterprises. The origin of this concept in the field of accounting may be traced back to the year 1975 when the Accounting Standards Steering commission in U.K. has stressed the inclusions of value added in the corporate Annual Report. The corporate report (issued in July 1995) recommended and concluded that there is a need for s Statement reports the operating performance of a company at a given point of time using both accrual and matching procedures The concept of value added has a direct linkage with the concept of “Social Responsibility”. The value added statements is a rearrangement of information contained in the income statement.
DEFINITION
Acc. To David Pendrill: “The statement which shows the income of the as an entity and how that is dividend between the people who have contributed to its creation.”
Generation of value added:The value added is the increase in the market value brought by an alteration in the form location or availability of a product or service excluding he cost bought is materials on service used in that product or service.
Application of Value Added:The value added is shared by the three contributing members are (i) Employees (ii) Government (iii) Providers of capital. The reminder of the value added is reinvested in business in the form of depreciation and retained profits.
ASSUMPTIONS
I. Value added statement is no substitute but a supplement to the income statement.II. It is based on items and figures obtained in the income statement and accounting
concept remain the same in the preparing value added statement.III. It is different from the income statement to an extent, the latter contains the non-
value added debits and credits like provisions, non-trading losses, appropriations etc.
30
INTERPRETATION
AND ANALYSIS
THROUGH
VARIOUS
FINANCIAL TOOLS
OBSERVATIONS
&
CONCLUSION
BIBLIOGRAPHY
