48646627-MBA-Project-finance
Content
INTRODUCTION OF THE STUDY
The Funds flow statement is the changes in financial position are prepared to determine only the sources and uses of working capital between dates of two balance sheets. working capital is defined as the difference between current assets and current liabilities. Working capital determines the liquidity position of the firm. As a historical analysis, the statement of changes in working capital reveals to management the way in which working capital was distained and used with the insight management can prepare the estimate of the working capital flows. A statement reporting the changes in working capital is useful in addition to the financial statements. A projected statement of changes in working capital is immensely useful in the firm’s long range planning management, for example, wants to anticipate the working capital flows in order to plan the repayment schedules, its long- term debt for a fast growth and expansion, a firm needs larger on long- term assets are also required to determine whether or not adequate working capital will be generated to meet the firm’s expansion, if not the firm can make arrangements in advance to procure funds from outside to meet its needs. The study will provide a use full model to the financial analysts and corporate planners to enable them to determine the effects of the various funds on the assets holding patterns. With the help of such a model, one can quantify the impacts of the change in employed capital on the fixed assets and working capital of a firm. In the study we want to test the useful in investment and financing decisions. Funds flow statement is defined as the statement of changes in financial position, Prepare to determine only the sources and the uses of working capital between the dates of two balance sheets. statistical relation between the change in the
components of working capital and the fixed assets of a company. Such a study may also be
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SOURCES OF FUNDS • • • Issue of additional share capital or debentures for cash Borrowings made by the firm for a long term. Non operating incomes such as income from investment or profit from the sale of assets / investment APPLICATION OF FUNDS • • If there is business loss to the firm then this tantamount to decrease or use of funds The redemption of preference share capital or decrease during a year also utilize the funds • Repayment of a long term loan during the year.
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SIGINIFICANCE OF THE STUDY The basic need is to complete a project work for the partial fulfillment of my Master’s degree. With this need the search started for the topic that was appealing and that would make most of my skills and abilities. The project work is carried out by me in Regency Ceramics Limited, Yanam. The aim of project is to analyze the funds flow analysis of the company. For a better understanding of the enterprise it is essential to identify movement of funds during the year and their consequent effect on its financial position. This information is made available in the statement of change in financial position. The funds flow statement provides an analysis of changes in the firms’ working capital position. Funds flow statement is also known as statement of sources and application of funds or management of funds statement
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OBJECTIVES OF THE STUDY
The primary objective of the study is to evaluate the financial position of REGENC CERAMICS LIMITED.
To asses the present profitability and operating efficiency of
REGENCY
CERAMICS
LIMITED as a whole as well as for it
different departments. To find out relative importance of different components of the financial position of the firm through funds flow analysis. To identify the reasons for change in the profitability financial position of the firm. To asses how effectively the company is using its resources. To offer suggestions for improvement in relevant aspects. To make overall view on the theoretical approach of funds flow analysis.
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METHODOLOGY OF THE STUDY
SOURCES OF DATA:
The data that is necessary for doing this project should be collected through two sources. 1. Primary data 2. Secondary data
PRIMARY DATA:
The primary data comprises of information obtained by the candidate during discussions with head of the departments and from the meeting with officials and staff of the Regency Ceramics Limited.
SECONDARY DATA:
The secondary data has been collected from the information through annual reports, Public report and other printed materials supplied by the Regency Ceramics Limited. Data also has been collected from kotari’s industry directory, journals, weekly magazines related to commerce and industry and business newspapers like economic times and business lines.
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LIMITATIONS OF THE STUDY
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The study is based on the past five annual reports of the REGENCY CERAMICS LTD. The study mainly has been carried out based on the secondary data i.e., financial statements.
•
• •
The time given to complete this project is very limited. The funds flow are generally calculated from the post financial statement and as show they are not the indications of future.
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The Analysis is made from the information given by an organization.
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INDUSTRY PROFILE
HISTORY AND DEVELOPMENT OF CERAMIC CULTURE:
Ceramic Industry is one of the oldest Legacies in the world. It dates back to human civilization. The legacy of ceramic Industry can be claimed to have come from ancient pottery industry. The area of pottery is a part of Indian culture and still practiced as tradition in Indian sub continent . But before Indians could claim as their own, the developed countries gave a new dimension to this industry by mechanizing and computerizing the production with a wide application. Ceramics, which finds various applications in both industrial and construction, had a significant presence in the construction sector. Ever since India began economic planning after independence the trusts for infrastructure have always been felt. One of the basic needs for the people, that is Shelter have always been deprived in India. Since liberalization in the eighties the raising levels in the income and the Govt. encouragement in inserting the infrastructure and the reduction in interest rates have a boom to housing standards. The increasing activity of real estate business and increasing in life style have increased the business of ceramic tiles. In India the industry was born in 1958 when H&R JOHNSON with the collaboration of Johnson (U.K) . Set up the first plant for manufacturing wall and then followed by SPL (Formerly so many Millington). Spartan Ceramics entered in 1985 and the revolution is on the anvil with the instruction of floor tiles for the first time in India. With many advantages and wider range of colors than the traditional mosaic tiles demand for floor tiles boomed. This encourages the entry of many other players like Regency Ceramic, Ka jaria Ceramics, Murudeswar Ceramics, Bell Ceramics etc., into the floor tiles segments. The government continued to lower the excise duty by on Ceramic tile from as high as 54% in 1995-96 budgets in 2002-03 budgets. This is due to the fact that Ceramic tiles are viewed as luxury items in the past. Since the excise duty comes down the price of ceramic tiles have been cheaper. The luxury items of rich people have become the necessity of middle- income people.
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INDUSTRY CHARACTERSTICS:
1. Working Capital Intensive:
The raw materials have to be stored in advance. The clay has to be stocked for at least four to six months as mixing is not possible during rainy season and also could be heavier for transportation at that time due to adsorption. The costly glazes that are imported also have to be stored for about four months. Credit periods are also so long for the institution caters about 90 to 100 days as apposed to the 30 to 35 days for those serving in the retail segment. The industry being subject to varying tastes, tiles in variety of sizes and colors have to be stocked. The minimum being 20 to 25 designs. These entire mean that the working capital cycle of about seven and half month of sales.
2. Capital Intensive:
With the minimum economic sizes having shot up from 12000 Mt in 1986 to 85000 Mt investment of Rs.1.60 crores to set up the new plant. The capital intensive nature can also be gagged form the fact the asset turnover ratio is low 0.70. The capacity utilization should be as 75% break – even. 3. Power and Fuel intensive: These account for about 20% of the manufacturing cost. Wall tiles consume more fuel, as they are double tired. Generally natural gas LPG and naphtha are used as fuel for firing the tiles. Cost wise natural Gas is lowest, followed by Naphtha and LPG. Currently, players in north and west like KHALARIA and BELL are an advantage as they asses to natural gas of HBG pipeline. Regency Ceramics to have an advantage of basing their plant near Godavari basin and have an access to tatipalli gas pipeline. 4. Location near Markets: As transportation over a long distance is costly and profit comes from returns to the markets plays an important role in profitability, KHAJARIA and SPL dominate the north while H & R JHNSON, BELL and SPL rule the west ; MRUDESWAR, REGENCY AND SPARTEK share the south.
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5. Brand image/Distribution Network: Strong brand image is definitely an entry barrier. A large dealer network not only helps in popularizing the brand also protects the margins , as realizations are higher and faster in the retail segment. 6. Production Techniques: These are broadly two techniques used. The newer dingle firing and older double fast firing. A third double fast firing is also used less frequently.
Generally, double firing is batch processing and batch takes about 45 hours. Advantagesare that the size and color variation are minimum. Strength is higher and the glass is good but the fuel consumption is more leading to higher production cost. There are further three methods in double firing. They are
Roller/ roller Tunnel/ tunnel Tunnel/roller
While the roller technology is for continue production. The tunnel technology is for batch production. Single firing was introduced for the first tine in India for their floor tile manufacturing process. Its fuel consumption is also lower. Floor tiles are usually manufacturing by the single roller technique. Wall tiles can also be produced by the same technology is used in bigger size tiles while the tunnel technology is for smaller size tiles.
SOCIO- ECONOMIC ENVIRONMENT AND INDUSTRIL SCENARIO:
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The Ceramic industry during the past few years was registering a fare growth, despite the challenges it faced form the unorganized sector and cheap import. The advanced technology has seen a sustained growth in installed capacity in this sector. The demand for tiles form different countries has highlighted that the India industry needs to concentrate on quality on a large scale basis or match the international standards. Ceramic happens to be an energy intensive industry and fuel is an important component that calls for furnaces with clean fuels having less pollution emission to attain high quality and productivity. India has abundant qualitative raw materials required for making advanced ceramic tiles and also cheap efficient manpower. Its geographical location is highly suitable for international trade. But the major deterrents are the high energy and distribution costs along with the import of glazes and colors and appropriate advanced technologies. Now the Govt. has opened up the imports, there a threat off other assign countries dumping their products in India.
MARKET STRUCTURE:
Ceramic tiles are being manufactured both in large and small scale sectors, with great variance in sizes, quality and standards. There are about 25 units in organized sector. The organized sector caters to the needs of various states: the unorganized sectors caters to the needs of only local markets. The states, which are having these small – scale sectors, are Gujarat, Kerala etc., Ceramic tiles market can also be classified in to floor and wall tiles. The floor tiles production and consumption works out to about 40% of the total demand and the balance 60% for wall tiles production and consumption.
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INDIAN MARKET – INSTALLED CAPADITIES:
The major players in the ceramic tiles industry and their installed capacities are given below.
INSTALLED CAPACITIES (IN MPTA)
S.No Company 1 2 3 4 5 6 7 8 9 10 11 Bell Ceramics H.R.Johnson Kajaria Ceramics SPL Madusudan Inds Oriental Ceramics Spartek EI Parry NITCO Murudeswar Regency Total Floor Tiles 40,000 1,00,000 80,000 45,000 --60,000 -1,20,000 25,000 90,000 5,60,000 Wall Tiles 55,000 95,000 50,000 42,000 25,000 50,000 -24,000 2,40,000 25,000 -6,06,000
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CONSUMPTION PATTERN AND DEMAND:
In India the Ceramics Industry is estimated of having a turnover of Rs.1,500 crores and this is expected to reach Rs.2,000 crores by 2003.In Indai the per capital consumption of Ceramics tiles is only 0.05 Sq.Mts. Compared to 0.25 Sq.Mts in China and 2 Sq.Mts in European Countries. The estimated growth of ceramic consumption is in range of 25.03% per annum, compounding . By 2003 the consumption is exempted to rise to 40.00 lakh MPTA. Though there are little In the growth rate the overall growth rate holds good. More are less all players in the industry are either having plans or implementing expansions.
The consumption pattern region wise in India is as below:
Zone South WEST EAST State Covering KERALA MAHARASTRA, GUJARAT, GOA & 45% HIGHLY MADHYA PRADESH ORISSA NORTH DELHI, HARYANA,RAJASTAN, JAMMUKASMIR & HP PANJAB, 15% COMPETATIVE ZONE Consumption Share
A.P., TAMILNADU, KARNATAKA & 30%
WEST BENGAL, ASSAM, BIHAR,UP, 10%
COMPETATORS MARKET SHARE:
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The following is the list of market share occupied by different companies.
COMPANY Murudeswar Kajaria Regency Spartek HR Johnson Somany Bell Others Total MARKET SHARE 16% 15% 13% 14% 10% 11% 11% 11% 100%
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CYCLICAL TRENDS IN THE INDUSRTY:
Ceramic tiles Industry is subjected only to moderate cyclically, that too in terms of price fluctuations of both inputs and outputs.
GOVERNMENT CONTROLS AND REGULATORY FRAME WORK:
The ceramic industry is not a pollution generating industry. However , it is subject to clearance from pollution control board . There are no specific controls and regulations to hamper the growth of ceramic industry.
PRICE SENITIVITY:
The market forces influence the prices of ceramic tiles. The prices of ceramic tiles have fallen by about 20% in the last three years, as the industry is facing the price
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war and extended the credit period among major payers. However this is only a temporary phenomenon and the companies with their strength of lower cost of production are confident of protecting their margins.
INDUSTRY SCENARIO AND FUTURE PROSPECTS:
The growth in the industry is mainly on account of the following.
a) Reduction in excise duty from 55% to 16%.
b) The increased awareness among the Indian middle class of the need for hygiene at the house and public places.
The industry is expected to grow at 25% due to the following factors:
1. The expected further reduction in excise duty rates in ceramic tiles.
2. Increased trend of shift towards ceramic tiles traditional mosaic flooring. 3. Substantial reduction in interest rate on housing finance.
4. Proposed amendment in the urban land (ceiling and regulation) Act,1976 which
would add to the housing stock of the country.
5. Shortage of 9.5 million houses in the urban segment and 23.5 million in the rural
segment.
6. Increase in replacement market in the middle class segment, where they are going
in for ceramic tiles for flooring and tiles in kitchen and bathrooms, not only up to 5/6 feet, but also up to the roof top, with latest designs and colors. 7. The middle class segment is replacing flooring and in case of new construction going with ceramic tiles , in view of
Low gestation Easy to lay the tiles Vast range of designs and colors.
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Better properties in term of hygiene, abrasion, resistance, acid resistances and scratch proof
EXPORT MARKET: The ceramic tile production In the world is around three billion sq. Mts. per year. And the per capital ceramic tile consumption is also showing an increased trend. There are many countries in the world, which are depending on the other countries for their requirement of ceramic tiles. The major countries among them are Gulf , U.S.A. , Australia and CIS countries. Though the competition is very severe among many exporting countries in India, there lay the vast market for ceramic tiles. Even at the competitive price, 20-30% of Indian production is being exported. As the domestic consumption is expending the Indian manufacturers are having a lukewarm approach towards exports. However in the long run, due to increase in capacitates and increase in competition in domestic market, Indian manufacturers are volumes. going to increase their export
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PROFILE OF THE REGENCY CERAMICS LIMITED
HISTORY OF THE COMPANY:
Ever since the industry was de-license provided they set up their units in backward areas. There had been a space of registration with directorate, general of technical development followings a boon in housing activity. The hellion period in late eighties has pushed many entrepreneurs to enter in to ceramic tiles industry. Though ceramic tiles are viewed as luxury items till recently by the Government. There is substantial increase demand thanks to the improved standard of living. Not with standing the difficulties faced by the industry there is scope for setting up units in Andhra Pradesh, Gujarat, Utter Pradesh and Tamilnadu. Andhra Pradesh particularly Godaari test, is ideal say a seniors officials of A.P State Industrial Development belt, is ideal says is senior official of A.P State Industrial Development Corporation which has sanctioned term loans are particulars in equity capital of many units. Regency Ceramics Limited is one of such industry established in the year 1985 at Yamuna (integral part of Union Territory of Pondicherry) on the Godavari River belt of E.G.Dt of Andhra Pradesh. The company has established on 4 acres of land to manufacture glazed and unglazed ceramic floor and wall tiles. The plant is constructed with technical collaboration of “Wello” industry of Italy, with a initial capacity of 40000 Sq.mt per day. The initial investments were 12 crores.
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The plant commercial production was started in the year 1986 with a capacity of 4000 Sq.mt per day. The company took up expansions in 1991 in order to meet the growing demand for the product in the export and domestic market. 1991-4500Sqm. 1996-6000Sqm, 2000-2400Sqm and 200112000Sqm. The output for expansion was Rs. 28 crores with an additional production capacity of 21000 Mt. per annum. Thus, bring the total plant capacity of 46000 Mt. per annum (25000+21000Mt). The increased demand and acceptability of regency Ceramic Tiles as further prompted the company to extent further production facility to 2 lakhs meter in a phased manner with divorced products in wall and porcelain tiles. The plant started up as on 100% export oriented unit and later got the permission to service the Indian market as well. Thus, substantial revenue is generated by way of sales tax, excise duty and infrastructure facilities at Yanam.
PROCESS DESCRIPTION:
The process description is different from tiles to wall tiles. FLOOR TILES: Raw material such as ball clay, Feldspar and black clay are weighted in proportion in batch quantities and transferred to ball mill through a belt conveyor. On the conveyer mantic separators are provided to remove tramp iron particulars. The raw materials are around in ball mill along with water to from slip. The slip is transferred and stores in storage tanks. From the storage tanks the slip is pumped is to pray drier by high pressure pump in autopsied the sherry falls down. It becomes dry granulate power with 6% moisture content, the dried power is stored in silos. Form the silos the powder transforms required sizes. The green tiles coming out of the presses are conveyed automatically feedings systems transfers the tiles from drier to
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glaze lines where different glasses and colorants are applied. Preparation of glazes is carried out in wet mills with porcelain lining. The tiles with the application of glazes and colorants are then conveyed automatically in to the single layer fast firing kiln, where the tiles fired at above 1150 degree Celsius approximately. The fired tiles coming out of the kiln are checked as per the quantity parameters. Sorted out of different grades by strapping machine for exports and placed on pallets. The pallets are transferred to the finished to the finished product godown.
CERAMIC TECHNOLOGIES FOR THE PRODUCTION TILES:
1. CLASSIFICATION • • A) Floor tiles Wall tiles 1. Porcelain tiles (water absorption<0.01%) 2.Glazed / unglazed stoneware (water absorption <3%) 3. Glazes semi – stoneware (water absorption 3-:6%) B) 1. Monoperosa (water absorption 10-:18%)
2. Fast double – fired tiles (water absorption 19-:18%) The aforesaid classification divides tiles into the most important groups, according to the enclosed UNI table, which has introduced in 1984, this method of classification by referring to water absorption (porosity) ad shaping (pressing of extrusion)
2.
RAW MATERIAL FOR BODIES:
Clays, plastic materials: They are characterized by a very fine particle size distribution, which grant them the hygroscopic characteristics necessary to bind with the water, by becoming plastic.
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In fact, they are utilized in bodies, in substantial percentage, so as grant the pieces shaping both by pressing and extrusion. Lean or inert material: The lean materials include fluxes, such as sodic or potassic feldspars, utilized in floor tiled bodied, and carbon materials utilized in wall tile bodies, which beside being fluxes, confer high porosity on the body, because of their out grassing during firing.
3.
RAW MATERIAL FOR GLAZES AND ENGOBES: Partly composed pf the above mentioned minerals and partly of chemical products. Minerals shall fire white or very light colored and shall be selected and practically constant both with regard to their chemical, physical and mineral composition, but also to their particle size distribution of utilization. Kaolin’s and clays must moreover be washed (i.e.: filter pressed water suspensions) and dried. The max. grains of hard materials (i.e.: quartz, feldspars) must be lower than 125 microns. Chemical products shall be at least of technical degree.
THE MAIN COMPONENTS OF GLAZES AND ENGOBES ARE:
→ → → → →
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Washed kailin Washed clay Potassic feldspar Sodic feldspar Potassic – sodic feldspar
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→ → → → → → → → → → → → → →
Quartz Calcine alumina Calcium carbonate Dolomite Barium carbonate Zinconium silicate – flour and micronized Wollastonite Borax Boric acid Lithium carbonate Potassium carbonate Sodium carbonate Inc oxide Minium
Series of ceramic stains for glazes and vitreous china bodies:
→ → → → Carbon methyl cellulose Fixing agents Various deflocculates Screen printing ink vehicles
4. CERAMIC BODIES: Ceramic bodies can be divided in two main classes. A) NON CALCAREOUS FOR FLOOR TILES.
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This class of bodies differs from the previous one, become it does not contain carbonates, which are, if at all, present in very low percentage. As a matter of fact, their low water absorption as well as their high nitrification degrees, typical of wall tiles, excludes their use. On the contrary, feldspatchi, sodic and or potassic fluxes (i.e.: alibite, pegmatite.) which are produce at stronger verification degrees and high temperatures are used.
B) CALCAREOUS FOR WALL TILES:
Called this way, because of their high content of carbonates brought about by various minerals dolomite, calcite and so on or by pure CaCO3. These minerals act as flixes, but give a high porosity of the tiles after firing due to the strong out gassing of Co3 group at about 900 Deg. C, such as to contain also the shrinkage (contraction) of material, avoiding any possible geometrical defect. The other materials utilized, are common for both bodies, that’s to say, for clays white and colored (according to the producer’s choice) which grant plasticity and aloe the piece shaping. Whereas interests, such as quartz, pyrophyllite. Are added too confer “skeleton” on materials and to color the linear expansion coefficient of the support, which be in accordance with glaze in order to avoid defects such as peeling or crazing, convexity or concavity of pieces resulting form a wrong connection between support and glaze alphas. SINGLE – FIRING
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Glazed / unglazed stoneware
water absorption >3% water absorption3-:6%
Glazed / unglazed semi – stoneware Monoporosa
water absorption 10-: 18%
5. PRODUCTION PROCESS:
Wall / floor tiles. (These productions can be described together as they differ only with regard to the body composition already described and the maximum firing temperature Deg. C) 1) GRINDING: The grinding of raw materials compounding ceramic body is carried out in wet conditions through rubber or silica lined rotary mills and with grinding load composed of silica pebbles. Raw materials are weighted in a weighing bin and by means of a conveyor loaded inside the mill, according to a predetermined formula. Then a 50% quantity of water and a low percentage of deflocculates are added to the dry product, in order to allow a better flowing of the slip inside the mill. The grinding process finished when the particle size distribution of raw materials reaches the requested fineness; this being determined through the dry residue found on a screen made up of determined meshes. 2) SPRAY – DRYING:The slip, coming from grinding and ready for spray drying process, so as to have the powder prepared for the pressing phase, is then stored inside big underground tanks. The slip is pumped at about 20 bar, by nozzles which spray it in micro spheres, inside a chamber where in counter current it meets with a flow of hot air (about 400 Deg. C at the entry:- 100 Deg. C at the exit)
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Which provides for the drying of the slip spheres by leaving only a residual humidity (4-:6%) necessary for the pressing phase. Thus the dried spheres falling towards the spray – dryer cone exit hole are stored, by means of a belt, inside a series of soils for at least 24 hours. Necessary time to homogenize the residual humidity from the middle towards the edges of the spray – dried power spheres. Thereafter the power is ready to be pressed. 3) PRESSING: this is the phase of tiles shaping. Tiles were obtained by loading the power in to a die – set having variable cavities, according to the requested sized and then pressed with a determined to pressing power. This power, given by the oleo dynamic press, divided by the total pressing surface (total surface of tiles is called specific pressing pressure and changes according to the type of product (wall tiles about 210 Kgs/sq cm floor tiles about 350 kgs/sq cm – porcelain tiles about 400 kgs/sq cm) the problems and the technological characteristics of the process. 4) DRYING: Drying of tiles is called out by using the stream of hot air which by convection, warms up the tiles by allowing the gradual evaporation of a water percentage of 4:-6% (residual humidity) still present in the pieces after pressing. Two different kinds of spray – dryer are usually utilized for his process: vertical and horizontal. In both dryer, hot air is let into an insulated channel and through gates, let into tiles channel from where it is then sucked up close to the material inlet area in order to create a growing temperature (Deg. C) curve towards the end of the drying cycle, at about 140 Deg. C.
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Otherwise, a too high temperature (Deg. C) at the beginning of the process could damage the pieces with cracks formed by a too rapid evaporation. 5) GLAZING: With regard to wall and floor Monoporosa the tiles coming out from the dryer are sent, still hot to the glazing line, reaching the first application at temperature (Deg. C) of about 80 Deg. C. So as to allow the evaporation of most of the water contained in the glazes. Otherwise, that’s to say if tiles are could, there will be the complete absorption of glazes water in the support making it friable and requiring a further drying process before firing. The first application is given by the encode, which is a suspension similar to the glaze, but much more refractory utilized as insulator between support and glaze. The second application is given by the glaze, which grants the basically characteristics to the product. Polished semi matt, matt, colored and so on.. For what concerns floors tiles, two double disk cabins are usually used for the first two applications whilst for all tiles, it’s advisable to make use to two bell – shaped spreaders are utilized because by forming a glaze film, they make it possible to obtain a smother and mirror like surface in the finished product. Following these two basic application there is the choice of decorations which can consists of drawings made by silk screen printing machines, mottling of colored glazes through spray guns, dripping of glaze obtained by utilized the cabins with a very low disks speed, so as to spray dry the glaze less, or by applying granules of frits or dry glaze by means of suitable equipments.
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At the end of glazing the material can automatically be stored in layer trucks or be fed directly into the kiln for the final firing phase.
6) FIRING:
It is carried out inside rapid continuous cycle roller kilns. From a technological point of view, kiln are dividend into five sections. 1) PRE-KILN 2) PRE-HEATING 3) FIRING 4) COOLING/CONTROLLED SECTION 5) FINAL COOLING
7) SORTING OR CLASSIFICATION: At the kiln exit the material is transferred to the sorting line, where an operator classifies the pieces according to the possible surface defects, size flatness. The classification includes three qualities plus scrap: 1st quality: no visible defects at about 1.5 distances
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2nd quality: small visible defects 3rd quality: evident defects Scrap: broken, cracked pieces and so in. Europen standards exactly state the “lux” with which tiles shall be lit up the observation angle and the examination distance for tiles to the classified. A part from surface defects visible only to the necked eye, there are automatic machines, such as surface and size testers which automatically classify pieces according to their flatness and dimensions. Following the aforesaid operations, tiles are boxes, noted with quality mark and factory name and then palletized and stored ready for sale.
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FLOW CHARTS Manufacturing process flow chart for floor tiles
RAW RAW MATERIALS
PRESSER
RAW MATERIAL
WEIGHING HOOPER
DRIER
WEIGHT SCALE
BAR MILLS
GLAZE LINE
GLAZE MILLS
SPRY DRYER
UNIVERSAL LOADING
STORAGE TANK
BODY SLIP SEPARATOR
SORAGE CARS
UNIVERSAL UNLOADING SLIP STORAGE TANK
KLIN SERVIE TANK
SPRAY DRIER
STORAGE LINE
9849458383 POWSER STORAGE SIOLS
STOCK YARD
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Manufacturing Process Flow Chart for Wall Tiles
RAW MATERIALS
PRESSER
RAW MATERIAL
WEIGHING HOOPER
BISCUIT KLIN
WEIGHT SCALE
BALL MILLS
STPRAGE SYSTEM
GLAZE MILLS
BODY SLIPN SEPARATOR
GLAZE LINE
STORAGE TANK
SLIP STORAGE TANK
BOX LOADING
STORAGE CARS SERVIE TANK BOX UNLOADING SPRAY DRIER GLAZE FIRING KLIN
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CONCEPTUAL FRAME WORK FUNDS FLOW STATEMENT
INTRODUCTION
The basic financial statement i.e., the balance sheet and profit and loss account (or) income statement of business, reveal the net effect of the various transaction on the operational and financial position of the assets and liabilities of an undertaking at particular point of time. It reveals the financial status of the company. The assets side of a balance sheet shows of the deployment of resources of an undertaking while the liabilities side indicates its obligation i.e., the manner in which these resources were obtained. The profit and loss account reflects the results of the business operations for a period of time. It contains a summary of expenses incurred and the revenues realized in a accounting period. Both these statement provide the essential basic information on the financial activities of a business. The balance sheet give a static view of the resources (liabilities) of a business and uses (assets) to which these resources have been but at a certain point of time. It does not disclose the cause for changes in the assets and liabilities between two different points of time. The profit and loss account, in a general way, indicates the resources provided by operations. But there are many transactions that take place in an undertaking and which do not operate through profit and loss account. Thus another statement has to prepare to show the change in the assets and liabilities from the end of one period of time to the end of another period of time. The statement is called a statement of changes in financial position or a funds flow statements. The funds flow statement in a statement which shows the movement of funds and a report of the financial operations of the business undertakings. It indicates various cans by which funds were obtained during a particular period and the way to which these funds were employed. In simple words. It is a statement of sources and applications funds.
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MEANING AND CONCEPT OF FUNDS:
The term “Funds “ has variety of meanings. There are people who take it synonyms to cash and to them there is no difference between a Funds Flow statement and cash flow statement. While others include marketable securities besides cash in the definition of the term “funds”. The term ‘funds’ has been defined in a number of ways. a. In a narrow sense, it means cash only and a funds flow statement prepared on this basic is called a cash flow statement such a statement enumerates net effects of business transactions in cash and takes into account receipts and b. various disbursements of cash.
In a broader sense the term ‘funds’ refers to money values in whatever form it may exist. Here ‘funds’ means all financial resources used in business whether in the form of men, material , money, machinery and other.
c.
In a popular sense the term ‘funds’ means working capital i.e., the excess of current assets over current liabilities, the working capital concept of funds has emerged due to the fact that total resources of business are invested partly in fixed assets in the form of fixed capital and partly kept inform of liquid or hear liquid form as working capital.
The statement can be classified into four: Income statement Funds Flow Statement Statement of changes in financial position Cash Flow statement.
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1. Income Statement: As already indicated in an earlier chapter then an income statement measure the inflow of assets resulting from rending of gods or services customers over a period of time. 2. Funds Flow Statement: The statement measures the inflows and the out flows of working Capitals that results from any type of business activity. 3. Statement of changes in financial position: This statement has wider meaning than Funds Flow statement. It measures changes both in Working Capital and non-Working Capital. 4. Cash Flow statement: The statement measures in flows and the out flows of cash on account of any type of business activity.
MEANING AND CONCEPT OF ‘FLOW OF FUNDS’:
The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’ the term ‘flow of funds’ means transfer of economic values from one assets of equity to another flow of funds is said to have taken place when any transaction makes changes in the amount of funds available before happening of the transaction. If the effect of transaction results in the increase of funds. It is called a source of funds and if it results in the decrease of funds, it is known as an application of funds. Further, in case the transaction does not change funds. It is said to have not resulted in the flow of funds. According to the working capital concept of funds, the term ‘flow of funds’ refers to the movement of funds in the working capital. If any transaction results in the increase in working capital it is said to be a source or inflow of funds and it results in decrease of working capital, it is said to be an application or outflow funds. In simple language funds move when a transaction affects.
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i ii. iii, iv.
A current assets and a fixed assets, or A fixed and a current liability. A current assets and a fixed liability. A fixed liability and current liability. And funds do not move when the transaction affects fixed assets and fixed liability or
current assets and current liabilities. Kenneth medley and Ronald Gibers define the term ‘funds’ as one used in the sense of spending power, it refers to the value embedded in assets. According to Bonneville and Dewey ‘funds’ constitute the prime importance in sharing and operating any business enterprise. In the ordinary parlance. Funds mean cash only, but it has got several different concepts as mentioned below. Funds may mean: a. Cash only b. Net working capital i.e., current assets less current liabilities. c. Total resources or total funds. d. Internal resources only. e. Net worth i.e., owner’s equity capital plus reserves.
WORKING CAPITAL:
There are 2 concepts in Working Capital Gross Working Capital Net Working Capital Gross Working Capital refers to the firm’s investment in current assts while the term net Working Capital means excess of current assets over current liabilities i.e., Gross Working Capital = Total Current Assets Net Working Capital = Current Assets – Current Liabilities.
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CURRENT AND NON-CURRENT ACCOUNTS:
To understand flow of funds it is essential to classify various accounts and balance sheet items current and non-current categories. Current accounts can either be current assets or current liabilities. Non current liabilities. Current Assets: Current assets are those assets which in the ordinary course of business can be or will be converted into cash with in a short period of normally one accounting year. Definition according of Glady: “For accounting purpose , the term Current Assets is used to designate cash and other assets or resources commonly identified as those which are reasonable expected to be realized in cash or sold or consumed during the normal operating cycle of the business”. The Current Assets are: Cash including fixed deposit with banks. Accounts receivable. • • Inventory. • • • Raw material Work – in – Progress. Finished Goods. Trade Debtors Bills Receivable. accounts can either be non-current assets or non-current
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Stores and spare parts. Advances recoverable i.e., the advances given to supplier of goods and services or deposit with government or other public authorities. Prepaid expenses.
Current liabilities:
Current liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business. Current liabilities are Accounts payable i.e. • • Bills payable Creditors
Outstanding expenses i.e., expenses for which services have been received by the business but for which the payment has not been made. Bank Overdraft Short – term loans i.e., Loans from Banks. Advanced payments received by the business for the service to be rendered or goods to be supplied in future.
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Current maturities of long-term i.e., long-term debts due within a year of the balance sheet date. Non- Current Assets: All assets other than current assets come within the category of non-current assets. Such assets including Goodwill Land &Building Machinery Furniture Long-term investments Payments rights Trade marks Debit balance of profit & Loss account. Non – Current Liabilities: All liabilities other than current liabilities come within the category of Non-current assets. General reserves. Dividend equalization Debentures sinking fund
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Capital redemption reserve.
FUNDS FLOW STATEMENT:
The following is the list of current or working capital accounts: List of current or working capital accounts: Table -3.1 Current Liabilities 1. Bills payable 2. Sundry creditors or account payable 3. Accrued or out standing expanses 4. Dividends payable 5. Bank overdraft 6. Short term loans advances and deposits 7. Provisions against currents assets Current Assets 1. Cash in hand 2. Cash at bank 3. Bills receivable 4. Sundry debtors or accounts receivable 5. Short term loans and advance 6. Temporary or marketable investments 7. Inventories or stocks such as (A)Raw materials (B)Work in progress (C)Stores and spares. 8. Provision for taxation, if it does not amount to appropriation of profits. 9.Proposed dividends (may be a current, non – current Liability). (D) Finished goods 8.Pre paid expenses 9.Accrued incomes
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List of non-Current (or) permanent Capital Accounts:
Table -3.2 Non-current or permanent Liabilities 1. Equity share capital 2. Preference share capital 3. Redeemable preference share 4. 5. 6. 7. 8. capital Debentures Long term loans Share premium account Share forfeited account Profit and loss accounts (balance of profit ie., credit 9. 10. 11. 12. Balance) Capital reserve Capital redemption reserve Provision for depreciation against fixes assets Appropriation of profits (a) General reserve (b)Dividend equalization Fund (c) Insurance fund (d)Compensation fund (e) Sinking fund (f) Investment fluctuation 9. 1 0. 1 1. 1 2. Debit balance of profit and loss account Discount on issue of shares Discount on issues of shares Other Deferred expenses Non- current or permanent assets 1. Good will 2. Land 3. Building 4. 5. 6. 7. 8. Plant and Machinery Furniture and Fittings Trade Marks Patent Rights Long term investment
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(g)Provision for taxation (h)Proposed dividend
FUNDS FLOW STATEMENT:
Funds flow statement is the statement of sources and application of funds. It is also called as ‘funds where got and where gone statement’ Almond the Coleman observed. the “The of funds statement in a statement period’. summarizing the significant financial changes which have occurred between beginning and end company’s accounting There are 4 steps involving in preparation of funds flow statement: a. Ascertain the funds from operations. b. Preparation of statement of changes. c. Computation of any missing figures as to profit or loss on Sale of purchases or sale of fixed assets and the amount of fixed assets d.
depreciation on fixed assets etc. Finally preparation of funds flow statement. “A statement of sources and appreciation of funds in technical device designed to analyse the changes in the financial condition of a business enterprise between two dates” In the words of Anthony the funds flow statement describes the sources from which additional funds were derived and the use to which these sources were put. F.C.W.A. in glossary of management accounting terms defined funds flow statement as a statement either prospectus or retrospect’s, setting out the sources and applications of the funds of an enterprise. The purpose of the statement is to indicate clearly the requirement of funds and how they are proposed to be raised and the efficient utilization and application of the same.
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Foulke defines this statement as:
Thus funds flow statement in 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 i.e., the excess of current assets over current liabilities.
Need for funds flow statement:
The funds flow statement is widely used by the financial analyst and credit granting institutions and financial managers in performance of their jobs. It has become a useful tool in their analytical Kit. This is because the financial statements i.e. “Income Statement” and the “balance sheet” have a limited role to perform. Income statement measures flow restricted to transactions that pertain to rendering of goods or services to customers. The balance sheet of assets and liabilities as on particular date. It does not sharply focus those major financial transactions, which have been behind the balance sheet changes. One has to draw inferences from the balance sheet about major financial transactions only after comparing the balance sheet of two periods.
Importance of Funds Flow Statement:
Funds Flow analysis is an invaluable analytical tool for a financial manager or a creditor for evaluation of the employment of funds by a firm and in determining the sources for such funds. In addition to studying past flow by means of funds-statements based upon forecasts. Such a statement provides an efficient method to the financial manager to assess the growth of the firm and it results in the financial needs, and to determine the best way to those needs. In particular, Funds Flow analysis is very useful in planning intermediate and long term financing.
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The traditional package to final of final accounts and statement through very significant statements has such a limited role to play in financial analysis. The balance sheet is a statement of assets and liabilities on a particular date. Similarly the income statement will show in more detail only the profit or loss, change in owners’ equity arising during accounting period as a result of the productive and commercial activities in that period. The main criticism against the balance sheet of two periods shown in a separate of source and application of funds. “Where got and where gone statement”. Statement simply called “Funds Statements”.
Sources of funds:
In business several transactions take place. Some of these transactions increase the funds while others decrease the funds. Some may not make any change in the fund position. In case a transaction result in increase in funds, it will be termed as a “Sources of Funds”.
Applications of Funds:
In case transaction result in decrease in funds, it will be termed as an “Application of funds.
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(1) It helps in the analysis of financial operations: The financial statements reveal the net effect of various transactions on the operational and financial position of a concern. The balance sheet gives a static view of the resources of a business and the uses to which these resources have been put at a certain point of time. But it does not disclose the causes for changes in assets and liabilities between two different point of time. The funds flow statement explains causes for such changes and also the effect of these changes no the liquidity position of the company. Sometimes a concern may operate profitably and yet its cash position may become more and more course. The funds flow statement gives a clear answer to such a situation explaining what has happened to the profit of the firm. (2) It throws li2ht on many perp1exin questions of 2eneral interest: Which other wise may be difficult to be answered, such as: a. Why were the net current assets lesser inspite of higher profits and vice-verse. b. Why more dividends could not be declared inspite of available Profit? c. How was it possible to distribute more dividends than the Present earning? d. What happened to the net profit? Where did they go? e. What happened to the proceeds of sale of fixed assets or issue of Shares, debenture etc? (3) It helps in the formation of a realistic dividend policy: Sometime a firm has sufficient profit available for distribution as dividend but yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such causes, a funds flow statement helps in the formation of a realistic dividend policy. (4) It helps in the proper allocation of resources:
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The resources of a concern are always limited and it works to make the best use of these resources. A projected funds flow statement constructed for the future help in making managerial decision. The firm can plan the deployment of its resources and allocate them among various application
(5) It acts as a future guide: A project funds flow statement also acts as a guide for future to the management. The management can come to know the various problems it is going to funds can be projected well in advance and also the timing of these needs. The firm can arrange to finance these needs more effectively and avoid future problem. (6) It helps in appraising the use of working capital: A funds flow statement helps in explaining how efficiently the management has used its working capital and also suggests way to improve working capital position of the firm. (7) It helps knowing the overall credit worthiness fo a firm: The financial institutions and banks such as state financial institutions, industrial development corporation, industrial finance corporation of India, industrial development bank of India etc., all ask for funds flow statement constructed for a number of years before granting loans to know the credit worthiness and paying capacity of the firm. Hence, a firm seeking financial assistance from these institutions has no alternative but to prepare funds flow statements. Limitations of Funds Flow Statement: The funds flow statement has a number of uses: however, it has certain limitations also, which are listed below: 1. It should be remembered that a funds flow statement is not a substitute of an income statement or a balance sheet. It provides only some additional information as changes in working capital. 2. 3. 4. It cannot reveal continuous changes. It is not a original statement but simply a re-arrangement of data given in the ` financial statement. It is essentially historic in nature and projected funds flow statement cannot be
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prepared with much accuracy. 5. Changes in cash are more important and relevant for financial management than the working capital.
Despite these limitation the information supplied by the Funds Flow statement is really invaluable and the management in planning capital expenditure, devising dividend and other financial policies etc. Taken in conjunction with ratio analysis provides a rich sources of information regarding possible managerial uses. Procedure for Preparing a Funds Flow Statement: Funds flow statement is a method by which are study changes in financial position of a business enterprise between beginning and ending financial statement dates. Hence, the funds flow statement is prepared by comparing two balance sheets and with the help of such other information derived from the accounts as may be needed. Broadly speaking the preparation of a funds flow statement consists of two parts. 1. Statement of schedule of changes in working capital 2. Statement of sources and application of funds. (1) Statement of schedule of changes in working capital. Working capital means the excess of current assets over current liabilities. Statement of changes in working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from the two balance sheets.
As working capital =current assets - current liabilities. So, i. An increase in current assets increase working capital ii. A decrease in current assets decreasing working capital. iii.An increase in current liabilities decreasing working capital; iv. A decrease in current liabilities increases working capita
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2. Statement of Sources and application of Funds:
In order to prepare a Funds Flow statement , it is necessary to find out “Sourse” and “application” of funds.
Sources of Funds:
The sources of funds can be both internal & External Internal Sources: Funds from operations are the only internal source of funds. However following adjustments will be requires in the figure of net profit for finding out real finds from operations. Add: The following items, as they do not result in outflow of funds: Depreciation of fixed assts Preliminary expences or goodwill etc written off Contribution to debenture redemption fund, transfer to general reserves, etc. Provision for taxation and proposed dividend. Loss on sale of fixed assets. Deduct: The following items, as they do not increase funds. Profit on sale of fixed assets. Non- operating incomes such as dividend received or accured dividend, refund of income tax, rent received or accured rent.
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Exrenal Sources: Funds from long-term loans. Sale of fixed assets Funds from increase in share capital.
Application of funds.
The uses to which funds are put are called ‘application of funds”. Following are some of the pupose for which funds may be used: Purchase of Fixed Assets. Payment of dividend. Payment of fixed Liability. Payment of Tax Liability.
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CASH FLOW STATEMENT (CFS):
The statement showing sources and uses of funds, popularly known as the ‘funds flow statement’, is a condensed report of how the activities of the business have been financed and how the financial resources have been used during the period covered by the statement. It is an operating statement as it summarizes the financial activities for a period of time. But it performs a function different from the income statement which is primarily a presentation of revenue and expenses items and the computation of the net income for the period. The funds flow statement is a report of the financial operations of a business undertaking. It shows the ebb and flow of funds into and out of a business. It covers all movements book-keeping adjustments are not reported. It discloses the results or the policies followed by the financial management in a way which probably makes it more understandable to most readers than are the other financial statements. In financial accounting a cash flow statement is a financial statement that shows a company’s incoming and outgoing money (sources monthly or quarterly). The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing and financing activities. As an analytical tool the statement of cash flows is useful in determining the short-term viability of a company y, particularly its ability to pay bills. People and groups interested in cash flow statements include. • Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses. • Potential lenders on creditors, who want a clear picture of a company’s ability to repay. • Potential investors, who need to judge whether the company is financially sound. • Potential employees or contractors, who need to know whether the company will be able to afford compensation. Definitions: Cash: Cash comprises cash on hand and demand deposit with banks.
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Cash equivalents: Cash Cash equivalents are short term, highly liquid investments that are readily convertible in to known amounts of cash and which are subject to an insignificant risk of changes in value. Examples of cash equivalents are treasury bills, commercial paper etc., Cash flow: Cash flows are inflows and outflows of cash equivalents. It means the movement of cash in to the organization and movement of cash out of the organization. The difference between the cash inflows and cash out flows is known as net cash flow which can be either net cash inflow or net cash out flow.
Type of cash flow
While preparing a Cash Flow statement , two types of cash Flows viz., Actual Cash Flow and National Cash Flow are identified. Actual Cash Flow refers to actual movements of cash into out of the business. Purchase of fixed assets, borrowings from bank of financial institutions, trading profits and redemption of debenture are all examples of actual Cash Flow. National Cash Flows results only in the cash of Increase or decrease in current assets. National Cash Flow result indirect cash movements into or out of business, for Example, increase in the balance of debtors does not result in any actual cash outflow since it is part of credit sales. But form of material costs, labour cost, overheads etc., looked up in the goods sold on credit. Classification of cash flows: Operating activities: Operating activities include the production sales and delivery of the company’s product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising and shipping the product. Items which are added back to the net income figure (which is found on the income statement) to arrive at cash flows from operations generally include. • Depreciation (loss of tangible asset value over time) • Deferred tax • Amortization (loss of intangible asset value over time) • Any gains or losses associated with an asset sale (unrealized gain losses are also added back
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from the income statement) Investing Activities: Investing activities focus on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long term assets that are no longer needed by the company. Items under investing activities include: • Capital expenditures which purchases (and sales) of property, plant and equipment. • Investment: Financin2 Activities: Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement. Items under the financing activities section include: • Dividends paid • Net borrowings . • Sale or repurchase of the company’s stock.
BASIC INFORMATION FOR PREPARATION OF CFS:
The following basic information’s are required to prepare a CGF: 1. Comparative BS: The first and the foremost requirement is the comparative BS in the beginning and at the end of the period to find out the changes taking place in different items of the BS. 2. Is for the period under consideration: The IS of the period is also required to find out the cash generated or used in the operation of the firm. 3.Additional Information: Together with BS and IS other relevant information is also required to identify the hidden information, if any.
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Limitations of Cash Flow analysis:
Cash Flow analysis is a useful tool of financial analysis. However, its own limitations. These limitations are as under: 1.Cash Flow statement cannot be equated with the income statement. An income statement takes into account both Cash as well as non- cash items and , therefore, net Cash flow does not necessarily mean net income of the business. 2. The cash balance as disclosed by the Cash Flow statement may not represent the real liquid position of the business since it can be easily influenced by postponing purchased and other payments. 3.Cash Flow statement cannot replace the income statement or the Funds Flow statements .
Each of them has a separate function to perform.
STEP BY STEP PROCEDURE TO PREPARE CFS:
1. Calculate the net increase or decrease in cash and cash equivalents: shown For this purpose the opening balance of total cash and equivalents is compared with the closing balance of cash and equivalents. The net increase/decease as here is the figure to be explained by the CFS. The table explains the procedure for this. Increase/Decrease in Cash and Cash Equivalent: Opening Balance Balance Cash in Hand Cash at Bank Short term Investments Total **** **** **** **** **** **** Closing
****
****
The difference between the totals of opening and closing balance will be the increase or
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decrease in cash and equivalents during the period. 2. Net cash flow from operating activities: On the basis of the information contained in the comparative Balance Sheets and the IS and the additional information, the net cash flow generated or used by operating activities may be ascertained
3. Calculating of cash provided by financing and investment Activities: All other items (except current accounts already considered in step 2 above) are analyzed in the light of additional information to find out the resultant cash flow it any. For this purpose, different items and information’s are classified into financing activities and investment activities.
4. Preparation of CFS: On the basis of information collected and calculations made in the above steps, now the CFS can be prepared as per any of the formats given earlier. The net cash flow provided by operating activities plus financing activities plus investment activities is equal to the net change in cash and equivalents (as calculated in step 1).
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Sources and uses of cash: The following are the sources of cash 1. The profitable operations of the firm 2. Decrease in assets (except cash) 3. Increase in liabilities (including debentures or bonds) 4. Sales proceeds from an ordinary preference shares issue The following are the uses of cash: 1. The loss from operations 2. Increase in assets (except cash) 3. Decrease in liability (including redemptions of debentures or bonds) 4. Redemptions of redeemable preference shares 5. Cash dividends.
FFS and CFS:
The cash flow statement (CFS) is different from the FFS in its approach. The difference between the two can be summarized as follows: 1. The FFS is based on the concept of WC where as, the CFS is based on cash which is only one of the element of working capital (WC). Thus, the CFS provides details of cash movements where as the FFS provides the details of funds movements. 2. The CFS considers only the actual movements of cash as FFS considers the movement as the funds on accrual basis
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STATEMENT SHOWING CHANGES IN WORKING CAPITAL2005-06
Table – 4.1 Particulars Current Assets:Inventories Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Decrease in Working Capital 6254.87 417.1 6254.87 417.1 1003.47 1003.47 2853.28 2853.28 6254.87 3216.35 3216.35 5837.77 ---363.07 --3849.09 3227.02 979.44 117.54 935.06 9108.15 4333.89 2620.87 1053.99 144.56 900.81 9054.12 484.8 -74.55 27.02 ---606.15 --34.25 2005 (Rs) 2006 (Rs) Rs. In Lakhs Increase Decrease
Sources from Annual Report of Regency Ceramics Limited
Interpretation:
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There is a net decrease in Working Capital due to decrease of current assets in inventories, cash on bank.
Sundry debtors, loans and advances are increase position .
Company has the increase inventory due to increase in production demand.
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FUNDS FLOW STATEMENT FOR 2005-2006 Table – 4.2 Rs. In Lakhs Sources of fund Amount Rs. Share Capital Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities Decrease in Working Capital 20684.51 Sources from Annual Report of Regency Ceramics Limited. Interpretation::• In current asset of Loans and advances has appreciation to Rs.34.25 Lakhs and current liabilities & Provisions of current liabilities has been decreased Rs.363.07 Lakhs. • During the year the company in borrowings taken secured loans Rs.11643.49 Lakhs. The huge amount invested in assets Rs. 14534.19 lakhs. 20684.51 4171.1 1359.68 5262.91 11643.49 288.96 2129.47 Investments Fixed Assets Miscellaneous Expenditure Net Current Assets Application of Fund Amount Rs. 211.53 14534.19 101.02 5837.77
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2006-07
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Table – 4.3 Particulars Current Assets:Inventories Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Increase in Working Capital 6275.87 6275.87 438.09 3216.35 3216.35 5837.78 3900.90 3900.90 6275.87 4333.89 2620.87 1054.00 144.50 900.81 9054.13 5010.35 3378.97 845.93 189.30 752.22 10176.77 2006 (Rs) 2007 (Rs)
Rs. In Lakhs Increase 676.46 758.1 -44.8 -----Decrease --2081.07 -148.59 -684.55 ---
438.09 1479.3 1479.3
Sources from Annual Report of Regency Ceramics Limited.
Interpretation:
There is a increase in working Capital due to increase of current assets in inventories , sundry debtors .
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In the inventories (Raw materials ,packing materials ,work in process, finished goods, stores, spares and consumables , materials in transit, tools and implements.)
In this year the situation is reversed that means currents assets are increased and current liabilities are increased. In this year the company has the increasing inventory due to increase production demand.
FUNDS FLOW STATEMENT FOR 2006-2007 Table – 4.4
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Rs. In Lakhs Sources of fund Amount Rs. Share Capital Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities 20293.05 Sources from Annual Report of Regency Ceramics Limited. 1359.68 4895.67 11326.44 725.81 1895.45 Investments Fixed Assets Miscellaneous Expenditure Net Current Assets Increase in Working Capital 20293.05 Application of Fund Amount Rs. 212.47 13726.46 77.25 6275.86 438.09
Interpretation::• In current asset of Loans and advances has deppreciation to Rs.148.59 Lakhs and current liabilities & Provisions of current liabilities has been increased Rs.684.55 Lakhs. • During the year the company in borrowings taken secured loans Rs.11326.44 Lakhs. The huge amount invested in assets Rs. 13726.46 lakhs.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2007-08 Table – 4.5 Rs. In Lakhs
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Particulars Current Assets:Inventories Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Decrease in Working Capital
2007 (Rs) 5010.34 3378.97 845.93 189.30 752.22 10176.76 3900.90 3900.90 6275.86
2008 (Rs) 4390.10 2596.89 965.14 227.71 1000.85 9180.69 3828.58 3828.58 5352.11
Increase -119.21 38.41 248.63 -72.32 ---
Decrease 620.24 782.08 --------
923.75 6275.86 6275.86
923.75 1402.32 1402.32
Sources from Annual Report of Regency Ceramics Limited.
Interpretation:
There is a decrease in working capital due to decrease of current assets in inventories, sundry debtors and also decrease the current liabilities.
Cash on bank , loans and advances are increase position.
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In the inventories (Raw materials ,packing materials ,work in process, finished goods, stores, spares and consumables , materials in transit, tools and implements.)
FUNDS FLOW STATEMENT FOR 2007-2008 Table – 4.6 Rs. In Lakhs Sources of fund Amount Rs. Share Capital
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Amount Rs.
1359.68
Investments
212.69
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Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities Decrease in Working Capital
3353.73 9939.00 2025.26 1649.79 923.75 18327.46
Fixed Assets Miscellaneous Expenditure Net Current Assets
12709.18 53.48 923.75
18327.46
Sources from Annual Report of Regency Ceramics Limited. Interpretation::• In current asset of Loans and advances has appreciation to Rs.248.63 Lakhs and current liabilities & Provisions of current liabilities has been decreased Rs.72.32 Lakhs. • During the year the company in borrowings taken secured loans Rs.9939.00 Lakhs. The huge amount invested in assets Rs. 12709.18 lakhs.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2008-09 Table – 4.7 Rs. In Lakhs Particulars Current Assets:Inventories Sundry Debtors
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2008 (Rs) 4390.10 2596.89
2009 (Rs) 3233.11 2646.55
Increase -49.66
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Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Increase in Working Capital
965.14 227.71 1000.85 9180.69 3828.58 3828.58 5352.11
1247.54 248.33 1736.65 9112.18 2825.46 2825.46 6286.72
282.4 20.62 735.8 -1003.12 ---
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934.61 6286.72 6286.72 2091.6
934.61 2091.6
Sources from Annual Report of Regency Ceramics Limited.
Interpretation:
There is increase in working capital due to increase of current assets in sundry debtors , cash on bank , loans and advances.
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Inventories are decrease position .
In the inventories (Raw materials ,packing materials ,work in process, finished goods, stores, spares and consumables , materials in transit, tools and implements.)
FUNDS FLOW STATEMENT FOR 2008-2009 Table – 4.8 Rs. In Lakhs Sources of fund
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Application of Fund
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Rs. Share Capital Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities 18213.15 Sources from Annual Report of Regency Ceramics Limited. 1359.68 1870.62 11561.41 2170.11 1251.33 Investments Fixed Assets Miscellaneous Expenditure Net Current Assets Increase in Working Capital
Rs. 206.42 11690.25 29.71 2686.77 934.61 18213.15
Interpretation::• In current asset of Loans and advances has appreciation to Rs.735.8 Lakhs and current liabilities & Provisions of current liabilities has been decreased Rs.1003.12 Lakhs. • During the year the company in borrowings taken secured loans Rs.11561.41 Lakhs. The amount invested in assets Rs. 11690.25 lakhs.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2009-10 Table – 4.9 Rs. In Lakhs Particulars Current Assets:Inventories 2009 (Rs) 2010 (Rs) Increase Decrease
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Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Increase in Working Capital Sources from Annual Report of Regency Ceramics Limited.
FUNDS FLOW STATEMENT FOR 2009-10 Table – 4.10 Rs. In Lakhs Sources of fund Amount Rs. Share Capital Reserves Secured Loans Unsecured Loans
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Amount Rs.
Investments Fixed Assets Miscellaneous Expenditure Net Current Assets
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Deferred Tax Liabilities
Increase in Working Capital
Sources from Annual Report of Regency Ceramics Limited.
SUMMARY
Financial management in a broad sense and provides a conceptual analytical framework for financial decision making which covers both acquisitions of funds as well as their allocation. Thus, apart from the issues involved in acquiring external funds, the main concern of financial management is the efficient and wise allocation of funds to various users, Defined in a broad sense, it is viewed as an integral part of overall management. Funds flow statement is prepared to know the changes in assets, liabilities and owners equity between dates of two balance sheets. It is a statement of sources and uses of funds. Funds flow statement is also known as statement of sources and application of funds or management of funds statement etc... Funds flow
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statement reveals both inflow and outflow of funds. The inflow of funds is known as sources of funds and the out flow funds mean uses or application of the funds. In other words financial statement gives detailed analysis of changes in the distribution of resources between two dates. It is very useful tool in the financial manager's analytical kit. It provides a summery management decisions on finance actives the firm investment policy. In the present study 174th of the total information is from primary data and the rest is from the secondary data of company Annual reports. The analysis is made basing only on the past 5 annual reports of the REGENCY CERAMICS LIMITED. The funds flow are generally calculated from the post financial statement and as show thy are not the indicators of future.
PREPARATION OF FUNDS FLOW STATEMENT: Schedule of changes in working capital Rules 1. compare current year value with previous year note down the change as increase or decrease 2. consider current assets changes only (non-CA or fixed assets are not to be considered) 3. consider only current liabilities (non - CL or long term liabilities and owners equity are not to be considered)
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4. apply the following equation to find out the changes in working capital. FUNDS FLOW STATEMENT:
The statement of changes in financial position, prepare to determine only the sources and the uses of working capitol between the dates of two balance sheet is known as funds flow statement. SOURCES OF FUNDS: • • • Issue of additional share capitol or debentures for cash. Borrowings made by the firm for a long term. Non operating incomes such as income from investment or profit from
the sale of assets/ investment. APPLICATION OF FUNDS: • If there is business loss to the firm then this tantamount to decrease or
use of funds. • The redemption of preference share capitol or debenture during a year
also utilize the funds. • Repayment of a long term loan during the year.
Finally through the funds flow statement the overall performance of the organization is satisfactory. FINDINGS: • • • • Reserve has been decreasing during all the four years since 2005. The company debt capital raised more from secured loans & unsecured loans. Operating cash is increased in 2006 due to increase of trade & payables. The company uses more debt than their own funds to finance fixed assets. It has to pay a lot of interest from profits. • In the year 2009 the changes in working capital increased.
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SUGGESTIONS
•
The company invest huge amount at a time in the year 2005. It is better to invest subsequent years rather than to invest at a time.
• •
The Raw material should be maintained for meeting the short term operations. It is better to raise debt-capital more from preferential share holders than secured and unsecured loans for reduce interest.
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• •
The company is better to maintain stable debt equity to reduce the cost of debt. The company may further reduce its collection period to increase profitability using lock box system of collection.
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BIBLIOGRAPHY
NAME OF THE BOOK
NAME OF THE AUTHOR
YEAR AND PUBLICATION OF BOOK
1. Financial Management 2. Financial Management 3. Financial Management 4. Financial Management
M.Y.KHAN & P.K.JAIN
Tata Mc. Graw Hill, New Delhi 1998
PRASANNA CHANDRA I.M.PANDEY JAMES C. VAN HORNE
Tata Mc. Graw Hill, New Delhi 1998 VIKAS PUBLICATIONS, 8TH EDITION, NEW DELHI 1999 VIKAS PUBLICATIONS, 8TH EDITION, NEW DELHI 1999
5. Management Accounting & Financial Management
S.N.MAHESWARI
Sultan Chand & Sons New- Delhi – 1997
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CHAPTER I
INTRODUCTION OF THE STUDY
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CHAPTER II
INDUSTRY PROFILE&COMPANY PROFILE
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CHAPTER-III
CONCEPTUAL FRAMEWORK OF FUNDS FLOW ANALYSIS
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CHAPTER IV
DATA ANALYSIS & INTERPRETATION
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CHAPTER V
SUMMARY AND SUGGESTIONS ANNEXURE, BIBLIOGRAPHY
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ANNEXURE
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CONTENTS PAGE No: CHAPTER – I INTRODUCTION Significance of the study Objectives of the study Methodology of the study Limitations of the study CHAPTER-II PROFILE OF THE REGENCY CERAMICS LIMITED Profile of the Ceramics tiles industry Profile of the REGENCY CERAMICS LIMITED CHAPTER-III Conceptual frame work of funds flow analysis CHAPTER-IV Data analysis and interpretation of REGENCY CERAMICS LIMITED CHAPTER-V
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1-6
7-30
31-39
40-49
50-53
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Summary and suggestions ANNEXURES Annual reports BIBLIOGRAPHY 59-60 54-59
LIST OF TABELS TABLE NO NAME OF THE TABLE PAGE NO
2.1 2.2 2.3 3.1
Indian Market- Installed capacities The consumption pattern region wise in India Competitors Market share Proforma of schedule of changes in working capital
13 14 15 36
3.2 3.3 4.1
Proforma of funds flow statement Specimen of report from funds flow statement Statement of changes in working capital 2004-2005
37 39 40
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4.2 4.3
Funds flow statement for 2004-2005 Statement of changes in working capital 2005-2006
41 42
4.4 4.5
Funds flow statement for 2005-2006 Statement of changes in working capital 2006-2007
43 44
4.6 4.7
Funds flow statement for 2006-2007 Statement of changes in working capital 2007-2008
45 46
4.8 4.9
Funds flow statement for 2007-2008 Statement of changes in working capital 2008-2009
47 48
4.10
Funds flow statement for 2008-2009
49
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FUNDS FLOW ANALYSIS A study with reference to the REGENCY CERAMICS LIMITED YANAM project Report Submitted to the Department of Commerce and Management Studies Andhra University, Visakhapatnam In Partial fulfillment for the requirement for the award of the SCHOOLS OF MANAGEMENT STUDIES Submitted by: M.D.BHASKARA RAO Regd No: 09A21E0054 Under the guidance of Ms.NAIDU, M.B.A Phd
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Project submission in partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION By
SWARNANDHRA COLLEGE Of ENGNEERING & TECHNOLOGY (Seetharamapuram) J.N.T.U, Kakinada
2009-2011
DECLARATION
I here by declare that the project work on “FUNDS FLOW ANALYSIS” in “REGENCY CERAMICS LIMITED”, YANAM. Is Originally Prepared and Submitted by me to JNTU KAKINADA inpartial Fulfillment of the requirements for the award of degree of MANAGEMENT
OF
BUSINESS ADIMISTRATION . The empirical findings in the report are
based on the data collected by myself while preparing this report. It has not been submitted to any other university or publication at any time before.
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.
Place: M.D.BHASAKARA RAO Date: Regd.no: 09A21E0054
CERTIFICATE
This is to certify that, this project report entitled “FUNDS FLOW ANALYSIS” with reference to “REGENCY CERAMICS LIMITED”,YANAM. Is being submitted by Mr.M.D.BHASAKARA RAO, Regd No: 09A21E0054 in partial fulfillment for the award of The Degree of Master of Business Administration to JNTU, KAKINADA. It is a bonafide work carried by her under my guidance and supervision.
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Place: VENKATA REDDI NAIDU Date:
DR. B. (PROJECT GUIDE)
ACKNOWLEDGEMENT .
The completion of this project makes me to recall with gratitude several persons who extended their cooperation in one way or the other in this venture. I am very much thankful to the principal Dr.M.Muralidhara Rao SCET(Seetharampuram), for permitting me to pursue my project.
I express my sincere thanks to Head of the Department MBA programmer Dr.P.G.Ramanujam, for his encouragement.
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I owe a sense of gratitude to DR. B. VENKATA REDDI NAIDU, my project guide, for his friendly cooperation at each and every point of my work, for his patience and immense Support for the completion of the project.
Finally I wish to express my thanks to all faculty members of Department of MBA for their suggestions in bringing out my project in most successful manner.
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The Funds flow statement is the changes in financial position are prepared to determine only the sources and uses of working capital between dates of two balance sheets. working capital is defined as the difference between current assets and current liabilities. Working capital determines the liquidity position of the firm. As a historical analysis, the statement of changes in working capital reveals to management the way in which working capital was distained and used with the insight management can prepare the estimate of the working capital flows. A statement reporting the changes in working capital is useful in addition to the financial statements. A projected statement of changes in working capital is immensely useful in the firm’s long range planning management, for example, wants to anticipate the working capital flows in order to plan the repayment schedules, its long- term debt for a fast growth and expansion, a firm needs larger on long- term assets are also required to determine whether or not adequate working capital will be generated to meet the firm’s expansion, if not the firm can make arrangements in advance to procure funds from outside to meet its needs. The study will provide a use full model to the financial analysts and corporate planners to enable them to determine the effects of the various funds on the assets holding patterns. With the help of such a model, one can quantify the impacts of the change in employed capital on the fixed assets and working capital of a firm. In the study we want to test the useful in investment and financing decisions. Funds flow statement is defined as the statement of changes in financial position, Prepare to determine only the sources and the uses of working capital between the dates of two balance sheets. statistical relation between the change in the
components of working capital and the fixed assets of a company. Such a study may also be
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SOURCES OF FUNDS • • • Issue of additional share capital or debentures for cash Borrowings made by the firm for a long term. Non operating incomes such as income from investment or profit from the sale of assets / investment APPLICATION OF FUNDS • • If there is business loss to the firm then this tantamount to decrease or use of funds The redemption of preference share capital or decrease during a year also utilize the funds • Repayment of a long term loan during the year.
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SIGINIFICANCE OF THE STUDY The basic need is to complete a project work for the partial fulfillment of my Master’s degree. With this need the search started for the topic that was appealing and that would make most of my skills and abilities. The project work is carried out by me in Regency Ceramics Limited, Yanam. The aim of project is to analyze the funds flow analysis of the company. For a better understanding of the enterprise it is essential to identify movement of funds during the year and their consequent effect on its financial position. This information is made available in the statement of change in financial position. The funds flow statement provides an analysis of changes in the firms’ working capital position. Funds flow statement is also known as statement of sources and application of funds or management of funds statement
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OBJECTIVES OF THE STUDY
The primary objective of the study is to evaluate the financial position of REGENC CERAMICS LIMITED.
To asses the present profitability and operating efficiency of
REGENCY
CERAMICS
LIMITED as a whole as well as for it
different departments. To find out relative importance of different components of the financial position of the firm through funds flow analysis. To identify the reasons for change in the profitability financial position of the firm. To asses how effectively the company is using its resources. To offer suggestions for improvement in relevant aspects. To make overall view on the theoretical approach of funds flow analysis.
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METHODOLOGY OF THE STUDY
SOURCES OF DATA:
The data that is necessary for doing this project should be collected through two sources. 1. Primary data 2. Secondary data
PRIMARY DATA:
The primary data comprises of information obtained by the candidate during discussions with head of the departments and from the meeting with officials and staff of the Regency Ceramics Limited.
SECONDARY DATA:
The secondary data has been collected from the information through annual reports, Public report and other printed materials supplied by the Regency Ceramics Limited. Data also has been collected from kotari’s industry directory, journals, weekly magazines related to commerce and industry and business newspapers like economic times and business lines.
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LIMITATIONS OF THE STUDY
•
The study is based on the past five annual reports of the REGENCY CERAMICS LTD. The study mainly has been carried out based on the secondary data i.e., financial statements.
•
• •
The time given to complete this project is very limited. The funds flow are generally calculated from the post financial statement and as show they are not the indications of future.
•
The Analysis is made from the information given by an organization.
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INDUSTRY PROFILE
HISTORY AND DEVELOPMENT OF CERAMIC CULTURE:
Ceramic Industry is one of the oldest Legacies in the world. It dates back to human civilization. The legacy of ceramic Industry can be claimed to have come from ancient pottery industry. The area of pottery is a part of Indian culture and still practiced as tradition in Indian sub continent . But before Indians could claim as their own, the developed countries gave a new dimension to this industry by mechanizing and computerizing the production with a wide application. Ceramics, which finds various applications in both industrial and construction, had a significant presence in the construction sector. Ever since India began economic planning after independence the trusts for infrastructure have always been felt. One of the basic needs for the people, that is Shelter have always been deprived in India. Since liberalization in the eighties the raising levels in the income and the Govt. encouragement in inserting the infrastructure and the reduction in interest rates have a boom to housing standards. The increasing activity of real estate business and increasing in life style have increased the business of ceramic tiles. In India the industry was born in 1958 when H&R JOHNSON with the collaboration of Johnson (U.K) . Set up the first plant for manufacturing wall and then followed by SPL (Formerly so many Millington). Spartan Ceramics entered in 1985 and the revolution is on the anvil with the instruction of floor tiles for the first time in India. With many advantages and wider range of colors than the traditional mosaic tiles demand for floor tiles boomed. This encourages the entry of many other players like Regency Ceramic, Ka jaria Ceramics, Murudeswar Ceramics, Bell Ceramics etc., into the floor tiles segments. The government continued to lower the excise duty by on Ceramic tile from as high as 54% in 1995-96 budgets in 2002-03 budgets. This is due to the fact that Ceramic tiles are viewed as luxury items in the past. Since the excise duty comes down the price of ceramic tiles have been cheaper. The luxury items of rich people have become the necessity of middle- income people.
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INDUSTRY CHARACTERSTICS:
1. Working Capital Intensive:
The raw materials have to be stored in advance. The clay has to be stocked for at least four to six months as mixing is not possible during rainy season and also could be heavier for transportation at that time due to adsorption. The costly glazes that are imported also have to be stored for about four months. Credit periods are also so long for the institution caters about 90 to 100 days as apposed to the 30 to 35 days for those serving in the retail segment. The industry being subject to varying tastes, tiles in variety of sizes and colors have to be stocked. The minimum being 20 to 25 designs. These entire mean that the working capital cycle of about seven and half month of sales.
2. Capital Intensive:
With the minimum economic sizes having shot up from 12000 Mt in 1986 to 85000 Mt investment of Rs.1.60 crores to set up the new plant. The capital intensive nature can also be gagged form the fact the asset turnover ratio is low 0.70. The capacity utilization should be as 75% break – even. 3. Power and Fuel intensive: These account for about 20% of the manufacturing cost. Wall tiles consume more fuel, as they are double tired. Generally natural gas LPG and naphtha are used as fuel for firing the tiles. Cost wise natural Gas is lowest, followed by Naphtha and LPG. Currently, players in north and west like KHALARIA and BELL are an advantage as they asses to natural gas of HBG pipeline. Regency Ceramics to have an advantage of basing their plant near Godavari basin and have an access to tatipalli gas pipeline. 4. Location near Markets: As transportation over a long distance is costly and profit comes from returns to the markets plays an important role in profitability, KHAJARIA and SPL dominate the north while H & R JHNSON, BELL and SPL rule the west ; MRUDESWAR, REGENCY AND SPARTEK share the south.
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5. Brand image/Distribution Network: Strong brand image is definitely an entry barrier. A large dealer network not only helps in popularizing the brand also protects the margins , as realizations are higher and faster in the retail segment. 6. Production Techniques: These are broadly two techniques used. The newer dingle firing and older double fast firing. A third double fast firing is also used less frequently.
Generally, double firing is batch processing and batch takes about 45 hours. Advantagesare that the size and color variation are minimum. Strength is higher and the glass is good but the fuel consumption is more leading to higher production cost. There are further three methods in double firing. They are
Roller/ roller Tunnel/ tunnel Tunnel/roller
While the roller technology is for continue production. The tunnel technology is for batch production. Single firing was introduced for the first tine in India for their floor tile manufacturing process. Its fuel consumption is also lower. Floor tiles are usually manufacturing by the single roller technique. Wall tiles can also be produced by the same technology is used in bigger size tiles while the tunnel technology is for smaller size tiles.
SOCIO- ECONOMIC ENVIRONMENT AND INDUSTRIL SCENARIO:
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The Ceramic industry during the past few years was registering a fare growth, despite the challenges it faced form the unorganized sector and cheap import. The advanced technology has seen a sustained growth in installed capacity in this sector. The demand for tiles form different countries has highlighted that the India industry needs to concentrate on quality on a large scale basis or match the international standards. Ceramic happens to be an energy intensive industry and fuel is an important component that calls for furnaces with clean fuels having less pollution emission to attain high quality and productivity. India has abundant qualitative raw materials required for making advanced ceramic tiles and also cheap efficient manpower. Its geographical location is highly suitable for international trade. But the major deterrents are the high energy and distribution costs along with the import of glazes and colors and appropriate advanced technologies. Now the Govt. has opened up the imports, there a threat off other assign countries dumping their products in India.
MARKET STRUCTURE:
Ceramic tiles are being manufactured both in large and small scale sectors, with great variance in sizes, quality and standards. There are about 25 units in organized sector. The organized sector caters to the needs of various states: the unorganized sectors caters to the needs of only local markets. The states, which are having these small – scale sectors, are Gujarat, Kerala etc., Ceramic tiles market can also be classified in to floor and wall tiles. The floor tiles production and consumption works out to about 40% of the total demand and the balance 60% for wall tiles production and consumption.
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INDIAN MARKET – INSTALLED CAPADITIES:
The major players in the ceramic tiles industry and their installed capacities are given below.
INSTALLED CAPACITIES (IN MPTA)
S.No Company 1 2 3 4 5 6 7 8 9 10 11 Bell Ceramics H.R.Johnson Kajaria Ceramics SPL Madusudan Inds Oriental Ceramics Spartek EI Parry NITCO Murudeswar Regency Total Floor Tiles 40,000 1,00,000 80,000 45,000 --60,000 -1,20,000 25,000 90,000 5,60,000 Wall Tiles 55,000 95,000 50,000 42,000 25,000 50,000 -24,000 2,40,000 25,000 -6,06,000
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CONSUMPTION PATTERN AND DEMAND:
In India the Ceramics Industry is estimated of having a turnover of Rs.1,500 crores and this is expected to reach Rs.2,000 crores by 2003.In Indai the per capital consumption of Ceramics tiles is only 0.05 Sq.Mts. Compared to 0.25 Sq.Mts in China and 2 Sq.Mts in European Countries. The estimated growth of ceramic consumption is in range of 25.03% per annum, compounding . By 2003 the consumption is exempted to rise to 40.00 lakh MPTA. Though there are little In the growth rate the overall growth rate holds good. More are less all players in the industry are either having plans or implementing expansions.
The consumption pattern region wise in India is as below:
Zone South WEST EAST State Covering KERALA MAHARASTRA, GUJARAT, GOA & 45% HIGHLY MADHYA PRADESH ORISSA NORTH DELHI, HARYANA,RAJASTAN, JAMMUKASMIR & HP PANJAB, 15% COMPETATIVE ZONE Consumption Share
A.P., TAMILNADU, KARNATAKA & 30%
WEST BENGAL, ASSAM, BIHAR,UP, 10%
COMPETATORS MARKET SHARE:
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The following is the list of market share occupied by different companies.
COMPANY Murudeswar Kajaria Regency Spartek HR Johnson Somany Bell Others Total MARKET SHARE 16% 15% 13% 14% 10% 11% 11% 11% 100%
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CYCLICAL TRENDS IN THE INDUSRTY:
Ceramic tiles Industry is subjected only to moderate cyclically, that too in terms of price fluctuations of both inputs and outputs.
GOVERNMENT CONTROLS AND REGULATORY FRAME WORK:
The ceramic industry is not a pollution generating industry. However , it is subject to clearance from pollution control board . There are no specific controls and regulations to hamper the growth of ceramic industry.
PRICE SENITIVITY:
The market forces influence the prices of ceramic tiles. The prices of ceramic tiles have fallen by about 20% in the last three years, as the industry is facing the price
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war and extended the credit period among major payers. However this is only a temporary phenomenon and the companies with their strength of lower cost of production are confident of protecting their margins.
INDUSTRY SCENARIO AND FUTURE PROSPECTS:
The growth in the industry is mainly on account of the following.
a) Reduction in excise duty from 55% to 16%.
b) The increased awareness among the Indian middle class of the need for hygiene at the house and public places.
The industry is expected to grow at 25% due to the following factors:
1. The expected further reduction in excise duty rates in ceramic tiles.
2. Increased trend of shift towards ceramic tiles traditional mosaic flooring. 3. Substantial reduction in interest rate on housing finance.
4. Proposed amendment in the urban land (ceiling and regulation) Act,1976 which
would add to the housing stock of the country.
5. Shortage of 9.5 million houses in the urban segment and 23.5 million in the rural
segment.
6. Increase in replacement market in the middle class segment, where they are going
in for ceramic tiles for flooring and tiles in kitchen and bathrooms, not only up to 5/6 feet, but also up to the roof top, with latest designs and colors. 7. The middle class segment is replacing flooring and in case of new construction going with ceramic tiles , in view of
Low gestation Easy to lay the tiles Vast range of designs and colors.
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Better properties in term of hygiene, abrasion, resistance, acid resistances and scratch proof
EXPORT MARKET: The ceramic tile production In the world is around three billion sq. Mts. per year. And the per capital ceramic tile consumption is also showing an increased trend. There are many countries in the world, which are depending on the other countries for their requirement of ceramic tiles. The major countries among them are Gulf , U.S.A. , Australia and CIS countries. Though the competition is very severe among many exporting countries in India, there lay the vast market for ceramic tiles. Even at the competitive price, 20-30% of Indian production is being exported. As the domestic consumption is expending the Indian manufacturers are having a lukewarm approach towards exports. However in the long run, due to increase in capacitates and increase in competition in domestic market, Indian manufacturers are volumes. going to increase their export
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PROFILE OF THE REGENCY CERAMICS LIMITED
HISTORY OF THE COMPANY:
Ever since the industry was de-license provided they set up their units in backward areas. There had been a space of registration with directorate, general of technical development followings a boon in housing activity. The hellion period in late eighties has pushed many entrepreneurs to enter in to ceramic tiles industry. Though ceramic tiles are viewed as luxury items till recently by the Government. There is substantial increase demand thanks to the improved standard of living. Not with standing the difficulties faced by the industry there is scope for setting up units in Andhra Pradesh, Gujarat, Utter Pradesh and Tamilnadu. Andhra Pradesh particularly Godaari test, is ideal say a seniors officials of A.P State Industrial Development belt, is ideal says is senior official of A.P State Industrial Development Corporation which has sanctioned term loans are particulars in equity capital of many units. Regency Ceramics Limited is one of such industry established in the year 1985 at Yamuna (integral part of Union Territory of Pondicherry) on the Godavari River belt of E.G.Dt of Andhra Pradesh. The company has established on 4 acres of land to manufacture glazed and unglazed ceramic floor and wall tiles. The plant is constructed with technical collaboration of “Wello” industry of Italy, with a initial capacity of 40000 Sq.mt per day. The initial investments were 12 crores.
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The plant commercial production was started in the year 1986 with a capacity of 4000 Sq.mt per day. The company took up expansions in 1991 in order to meet the growing demand for the product in the export and domestic market. 1991-4500Sqm. 1996-6000Sqm, 2000-2400Sqm and 200112000Sqm. The output for expansion was Rs. 28 crores with an additional production capacity of 21000 Mt. per annum. Thus, bring the total plant capacity of 46000 Mt. per annum (25000+21000Mt). The increased demand and acceptability of regency Ceramic Tiles as further prompted the company to extent further production facility to 2 lakhs meter in a phased manner with divorced products in wall and porcelain tiles. The plant started up as on 100% export oriented unit and later got the permission to service the Indian market as well. Thus, substantial revenue is generated by way of sales tax, excise duty and infrastructure facilities at Yanam.
PROCESS DESCRIPTION:
The process description is different from tiles to wall tiles. FLOOR TILES: Raw material such as ball clay, Feldspar and black clay are weighted in proportion in batch quantities and transferred to ball mill through a belt conveyor. On the conveyer mantic separators are provided to remove tramp iron particulars. The raw materials are around in ball mill along with water to from slip. The slip is transferred and stores in storage tanks. From the storage tanks the slip is pumped is to pray drier by high pressure pump in autopsied the sherry falls down. It becomes dry granulate power with 6% moisture content, the dried power is stored in silos. Form the silos the powder transforms required sizes. The green tiles coming out of the presses are conveyed automatically feedings systems transfers the tiles from drier to
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glaze lines where different glasses and colorants are applied. Preparation of glazes is carried out in wet mills with porcelain lining. The tiles with the application of glazes and colorants are then conveyed automatically in to the single layer fast firing kiln, where the tiles fired at above 1150 degree Celsius approximately. The fired tiles coming out of the kiln are checked as per the quantity parameters. Sorted out of different grades by strapping machine for exports and placed on pallets. The pallets are transferred to the finished to the finished product godown.
CERAMIC TECHNOLOGIES FOR THE PRODUCTION TILES:
1. CLASSIFICATION • • A) Floor tiles Wall tiles 1. Porcelain tiles (water absorption<0.01%) 2.Glazed / unglazed stoneware (water absorption <3%) 3. Glazes semi – stoneware (water absorption 3-:6%) B) 1. Monoperosa (water absorption 10-:18%)
2. Fast double – fired tiles (water absorption 19-:18%) The aforesaid classification divides tiles into the most important groups, according to the enclosed UNI table, which has introduced in 1984, this method of classification by referring to water absorption (porosity) ad shaping (pressing of extrusion)
2.
RAW MATERIAL FOR BODIES:
Clays, plastic materials: They are characterized by a very fine particle size distribution, which grant them the hygroscopic characteristics necessary to bind with the water, by becoming plastic.
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In fact, they are utilized in bodies, in substantial percentage, so as grant the pieces shaping both by pressing and extrusion. Lean or inert material: The lean materials include fluxes, such as sodic or potassic feldspars, utilized in floor tiled bodied, and carbon materials utilized in wall tile bodies, which beside being fluxes, confer high porosity on the body, because of their out grassing during firing.
3.
RAW MATERIAL FOR GLAZES AND ENGOBES: Partly composed pf the above mentioned minerals and partly of chemical products. Minerals shall fire white or very light colored and shall be selected and practically constant both with regard to their chemical, physical and mineral composition, but also to their particle size distribution of utilization. Kaolin’s and clays must moreover be washed (i.e.: filter pressed water suspensions) and dried. The max. grains of hard materials (i.e.: quartz, feldspars) must be lower than 125 microns. Chemical products shall be at least of technical degree.
THE MAIN COMPONENTS OF GLAZES AND ENGOBES ARE:
→ → → → →
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Washed kailin Washed clay Potassic feldspar Sodic feldspar Potassic – sodic feldspar
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→ → → → → → → → → → → → → →
Quartz Calcine alumina Calcium carbonate Dolomite Barium carbonate Zinconium silicate – flour and micronized Wollastonite Borax Boric acid Lithium carbonate Potassium carbonate Sodium carbonate Inc oxide Minium
Series of ceramic stains for glazes and vitreous china bodies:
→ → → → Carbon methyl cellulose Fixing agents Various deflocculates Screen printing ink vehicles
4. CERAMIC BODIES: Ceramic bodies can be divided in two main classes. A) NON CALCAREOUS FOR FLOOR TILES.
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This class of bodies differs from the previous one, become it does not contain carbonates, which are, if at all, present in very low percentage. As a matter of fact, their low water absorption as well as their high nitrification degrees, typical of wall tiles, excludes their use. On the contrary, feldspatchi, sodic and or potassic fluxes (i.e.: alibite, pegmatite.) which are produce at stronger verification degrees and high temperatures are used.
B) CALCAREOUS FOR WALL TILES:
Called this way, because of their high content of carbonates brought about by various minerals dolomite, calcite and so on or by pure CaCO3. These minerals act as flixes, but give a high porosity of the tiles after firing due to the strong out gassing of Co3 group at about 900 Deg. C, such as to contain also the shrinkage (contraction) of material, avoiding any possible geometrical defect. The other materials utilized, are common for both bodies, that’s to say, for clays white and colored (according to the producer’s choice) which grant plasticity and aloe the piece shaping. Whereas interests, such as quartz, pyrophyllite. Are added too confer “skeleton” on materials and to color the linear expansion coefficient of the support, which be in accordance with glaze in order to avoid defects such as peeling or crazing, convexity or concavity of pieces resulting form a wrong connection between support and glaze alphas. SINGLE – FIRING
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Glazed / unglazed stoneware
water absorption >3% water absorption3-:6%
Glazed / unglazed semi – stoneware Monoporosa
water absorption 10-: 18%
5. PRODUCTION PROCESS:
Wall / floor tiles. (These productions can be described together as they differ only with regard to the body composition already described and the maximum firing temperature Deg. C) 1) GRINDING: The grinding of raw materials compounding ceramic body is carried out in wet conditions through rubber or silica lined rotary mills and with grinding load composed of silica pebbles. Raw materials are weighted in a weighing bin and by means of a conveyor loaded inside the mill, according to a predetermined formula. Then a 50% quantity of water and a low percentage of deflocculates are added to the dry product, in order to allow a better flowing of the slip inside the mill. The grinding process finished when the particle size distribution of raw materials reaches the requested fineness; this being determined through the dry residue found on a screen made up of determined meshes. 2) SPRAY – DRYING:The slip, coming from grinding and ready for spray drying process, so as to have the powder prepared for the pressing phase, is then stored inside big underground tanks. The slip is pumped at about 20 bar, by nozzles which spray it in micro spheres, inside a chamber where in counter current it meets with a flow of hot air (about 400 Deg. C at the entry:- 100 Deg. C at the exit)
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Which provides for the drying of the slip spheres by leaving only a residual humidity (4-:6%) necessary for the pressing phase. Thus the dried spheres falling towards the spray – dryer cone exit hole are stored, by means of a belt, inside a series of soils for at least 24 hours. Necessary time to homogenize the residual humidity from the middle towards the edges of the spray – dried power spheres. Thereafter the power is ready to be pressed. 3) PRESSING: this is the phase of tiles shaping. Tiles were obtained by loading the power in to a die – set having variable cavities, according to the requested sized and then pressed with a determined to pressing power. This power, given by the oleo dynamic press, divided by the total pressing surface (total surface of tiles is called specific pressing pressure and changes according to the type of product (wall tiles about 210 Kgs/sq cm floor tiles about 350 kgs/sq cm – porcelain tiles about 400 kgs/sq cm) the problems and the technological characteristics of the process. 4) DRYING: Drying of tiles is called out by using the stream of hot air which by convection, warms up the tiles by allowing the gradual evaporation of a water percentage of 4:-6% (residual humidity) still present in the pieces after pressing. Two different kinds of spray – dryer are usually utilized for his process: vertical and horizontal. In both dryer, hot air is let into an insulated channel and through gates, let into tiles channel from where it is then sucked up close to the material inlet area in order to create a growing temperature (Deg. C) curve towards the end of the drying cycle, at about 140 Deg. C.
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Otherwise, a too high temperature (Deg. C) at the beginning of the process could damage the pieces with cracks formed by a too rapid evaporation. 5) GLAZING: With regard to wall and floor Monoporosa the tiles coming out from the dryer are sent, still hot to the glazing line, reaching the first application at temperature (Deg. C) of about 80 Deg. C. So as to allow the evaporation of most of the water contained in the glazes. Otherwise, that’s to say if tiles are could, there will be the complete absorption of glazes water in the support making it friable and requiring a further drying process before firing. The first application is given by the encode, which is a suspension similar to the glaze, but much more refractory utilized as insulator between support and glaze. The second application is given by the glaze, which grants the basically characteristics to the product. Polished semi matt, matt, colored and so on.. For what concerns floors tiles, two double disk cabins are usually used for the first two applications whilst for all tiles, it’s advisable to make use to two bell – shaped spreaders are utilized because by forming a glaze film, they make it possible to obtain a smother and mirror like surface in the finished product. Following these two basic application there is the choice of decorations which can consists of drawings made by silk screen printing machines, mottling of colored glazes through spray guns, dripping of glaze obtained by utilized the cabins with a very low disks speed, so as to spray dry the glaze less, or by applying granules of frits or dry glaze by means of suitable equipments.
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At the end of glazing the material can automatically be stored in layer trucks or be fed directly into the kiln for the final firing phase.
6) FIRING:
It is carried out inside rapid continuous cycle roller kilns. From a technological point of view, kiln are dividend into five sections. 1) PRE-KILN 2) PRE-HEATING 3) FIRING 4) COOLING/CONTROLLED SECTION 5) FINAL COOLING
7) SORTING OR CLASSIFICATION: At the kiln exit the material is transferred to the sorting line, where an operator classifies the pieces according to the possible surface defects, size flatness. The classification includes three qualities plus scrap: 1st quality: no visible defects at about 1.5 distances
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2nd quality: small visible defects 3rd quality: evident defects Scrap: broken, cracked pieces and so in. Europen standards exactly state the “lux” with which tiles shall be lit up the observation angle and the examination distance for tiles to the classified. A part from surface defects visible only to the necked eye, there are automatic machines, such as surface and size testers which automatically classify pieces according to their flatness and dimensions. Following the aforesaid operations, tiles are boxes, noted with quality mark and factory name and then palletized and stored ready for sale.
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FLOW CHARTS Manufacturing process flow chart for floor tiles
RAW RAW MATERIALS
PRESSER
RAW MATERIAL
WEIGHING HOOPER
DRIER
WEIGHT SCALE
BAR MILLS
GLAZE LINE
GLAZE MILLS
SPRY DRYER
UNIVERSAL LOADING
STORAGE TANK
BODY SLIP SEPARATOR
SORAGE CARS
UNIVERSAL UNLOADING SLIP STORAGE TANK
KLIN SERVIE TANK
SPRAY DRIER
STORAGE LINE
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STOCK YARD
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Manufacturing Process Flow Chart for Wall Tiles
RAW MATERIALS
PRESSER
RAW MATERIAL
WEIGHING HOOPER
BISCUIT KLIN
WEIGHT SCALE
BALL MILLS
STPRAGE SYSTEM
GLAZE MILLS
BODY SLIPN SEPARATOR
GLAZE LINE
STORAGE TANK
SLIP STORAGE TANK
BOX LOADING
STORAGE CARS SERVIE TANK BOX UNLOADING SPRAY DRIER GLAZE FIRING KLIN
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CONCEPTUAL FRAME WORK FUNDS FLOW STATEMENT
INTRODUCTION
The basic financial statement i.e., the balance sheet and profit and loss account (or) income statement of business, reveal the net effect of the various transaction on the operational and financial position of the assets and liabilities of an undertaking at particular point of time. It reveals the financial status of the company. The assets side of a balance sheet shows of the deployment of resources of an undertaking while the liabilities side indicates its obligation i.e., the manner in which these resources were obtained. The profit and loss account reflects the results of the business operations for a period of time. It contains a summary of expenses incurred and the revenues realized in a accounting period. Both these statement provide the essential basic information on the financial activities of a business. The balance sheet give a static view of the resources (liabilities) of a business and uses (assets) to which these resources have been but at a certain point of time. It does not disclose the cause for changes in the assets and liabilities between two different points of time. The profit and loss account, in a general way, indicates the resources provided by operations. But there are many transactions that take place in an undertaking and which do not operate through profit and loss account. Thus another statement has to prepare to show the change in the assets and liabilities from the end of one period of time to the end of another period of time. The statement is called a statement of changes in financial position or a funds flow statements. The funds flow statement in a statement which shows the movement of funds and a report of the financial operations of the business undertakings. It indicates various cans by which funds were obtained during a particular period and the way to which these funds were employed. In simple words. It is a statement of sources and applications funds.
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MEANING AND CONCEPT OF FUNDS:
The term “Funds “ has variety of meanings. There are people who take it synonyms to cash and to them there is no difference between a Funds Flow statement and cash flow statement. While others include marketable securities besides cash in the definition of the term “funds”. The term ‘funds’ has been defined in a number of ways. a. In a narrow sense, it means cash only and a funds flow statement prepared on this basic is called a cash flow statement such a statement enumerates net effects of business transactions in cash and takes into account receipts and b. various disbursements of cash.
In a broader sense the term ‘funds’ refers to money values in whatever form it may exist. Here ‘funds’ means all financial resources used in business whether in the form of men, material , money, machinery and other.
c.
In a popular sense the term ‘funds’ means working capital i.e., the excess of current assets over current liabilities, the working capital concept of funds has emerged due to the fact that total resources of business are invested partly in fixed assets in the form of fixed capital and partly kept inform of liquid or hear liquid form as working capital.
The statement can be classified into four: Income statement Funds Flow Statement Statement of changes in financial position Cash Flow statement.
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1. Income Statement: As already indicated in an earlier chapter then an income statement measure the inflow of assets resulting from rending of gods or services customers over a period of time. 2. Funds Flow Statement: The statement measures the inflows and the out flows of working Capitals that results from any type of business activity. 3. Statement of changes in financial position: This statement has wider meaning than Funds Flow statement. It measures changes both in Working Capital and non-Working Capital. 4. Cash Flow statement: The statement measures in flows and the out flows of cash on account of any type of business activity.
MEANING AND CONCEPT OF ‘FLOW OF FUNDS’:
The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’ the term ‘flow of funds’ means transfer of economic values from one assets of equity to another flow of funds is said to have taken place when any transaction makes changes in the amount of funds available before happening of the transaction. If the effect of transaction results in the increase of funds. It is called a source of funds and if it results in the decrease of funds, it is known as an application of funds. Further, in case the transaction does not change funds. It is said to have not resulted in the flow of funds. According to the working capital concept of funds, the term ‘flow of funds’ refers to the movement of funds in the working capital. If any transaction results in the increase in working capital it is said to be a source or inflow of funds and it results in decrease of working capital, it is said to be an application or outflow funds. In simple language funds move when a transaction affects.
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i ii. iii, iv.
A current assets and a fixed assets, or A fixed and a current liability. A current assets and a fixed liability. A fixed liability and current liability. And funds do not move when the transaction affects fixed assets and fixed liability or
current assets and current liabilities. Kenneth medley and Ronald Gibers define the term ‘funds’ as one used in the sense of spending power, it refers to the value embedded in assets. According to Bonneville and Dewey ‘funds’ constitute the prime importance in sharing and operating any business enterprise. In the ordinary parlance. Funds mean cash only, but it has got several different concepts as mentioned below. Funds may mean: a. Cash only b. Net working capital i.e., current assets less current liabilities. c. Total resources or total funds. d. Internal resources only. e. Net worth i.e., owner’s equity capital plus reserves.
WORKING CAPITAL:
There are 2 concepts in Working Capital Gross Working Capital Net Working Capital Gross Working Capital refers to the firm’s investment in current assts while the term net Working Capital means excess of current assets over current liabilities i.e., Gross Working Capital = Total Current Assets Net Working Capital = Current Assets – Current Liabilities.
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CURRENT AND NON-CURRENT ACCOUNTS:
To understand flow of funds it is essential to classify various accounts and balance sheet items current and non-current categories. Current accounts can either be current assets or current liabilities. Non current liabilities. Current Assets: Current assets are those assets which in the ordinary course of business can be or will be converted into cash with in a short period of normally one accounting year. Definition according of Glady: “For accounting purpose , the term Current Assets is used to designate cash and other assets or resources commonly identified as those which are reasonable expected to be realized in cash or sold or consumed during the normal operating cycle of the business”. The Current Assets are: Cash including fixed deposit with banks. Accounts receivable. • • Inventory. • • • Raw material Work – in – Progress. Finished Goods. Trade Debtors Bills Receivable. accounts can either be non-current assets or non-current
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Stores and spare parts. Advances recoverable i.e., the advances given to supplier of goods and services or deposit with government or other public authorities. Prepaid expenses.
Current liabilities:
Current liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business. Current liabilities are Accounts payable i.e. • • Bills payable Creditors
Outstanding expenses i.e., expenses for which services have been received by the business but for which the payment has not been made. Bank Overdraft Short – term loans i.e., Loans from Banks. Advanced payments received by the business for the service to be rendered or goods to be supplied in future.
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Current maturities of long-term i.e., long-term debts due within a year of the balance sheet date. Non- Current Assets: All assets other than current assets come within the category of non-current assets. Such assets including Goodwill Land &Building Machinery Furniture Long-term investments Payments rights Trade marks Debit balance of profit & Loss account. Non – Current Liabilities: All liabilities other than current liabilities come within the category of Non-current assets. General reserves. Dividend equalization Debentures sinking fund
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Capital redemption reserve.
FUNDS FLOW STATEMENT:
The following is the list of current or working capital accounts: List of current or working capital accounts: Table -3.1 Current Liabilities 1. Bills payable 2. Sundry creditors or account payable 3. Accrued or out standing expanses 4. Dividends payable 5. Bank overdraft 6. Short term loans advances and deposits 7. Provisions against currents assets Current Assets 1. Cash in hand 2. Cash at bank 3. Bills receivable 4. Sundry debtors or accounts receivable 5. Short term loans and advance 6. Temporary or marketable investments 7. Inventories or stocks such as (A)Raw materials (B)Work in progress (C)Stores and spares. 8. Provision for taxation, if it does not amount to appropriation of profits. 9.Proposed dividends (may be a current, non – current Liability). (D) Finished goods 8.Pre paid expenses 9.Accrued incomes
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List of non-Current (or) permanent Capital Accounts:
Table -3.2 Non-current or permanent Liabilities 1. Equity share capital 2. Preference share capital 3. Redeemable preference share 4. 5. 6. 7. 8. capital Debentures Long term loans Share premium account Share forfeited account Profit and loss accounts (balance of profit ie., credit 9. 10. 11. 12. Balance) Capital reserve Capital redemption reserve Provision for depreciation against fixes assets Appropriation of profits (a) General reserve (b)Dividend equalization Fund (c) Insurance fund (d)Compensation fund (e) Sinking fund (f) Investment fluctuation 9. 1 0. 1 1. 1 2. Debit balance of profit and loss account Discount on issue of shares Discount on issues of shares Other Deferred expenses Non- current or permanent assets 1. Good will 2. Land 3. Building 4. 5. 6. 7. 8. Plant and Machinery Furniture and Fittings Trade Marks Patent Rights Long term investment
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(g)Provision for taxation (h)Proposed dividend
FUNDS FLOW STATEMENT:
Funds flow statement is the statement of sources and application of funds. It is also called as ‘funds where got and where gone statement’ Almond the Coleman observed. the “The of funds statement in a statement period’. summarizing the significant financial changes which have occurred between beginning and end company’s accounting There are 4 steps involving in preparation of funds flow statement: a. Ascertain the funds from operations. b. Preparation of statement of changes. c. Computation of any missing figures as to profit or loss on Sale of purchases or sale of fixed assets and the amount of fixed assets d.
depreciation on fixed assets etc. Finally preparation of funds flow statement. “A statement of sources and appreciation of funds in technical device designed to analyse the changes in the financial condition of a business enterprise between two dates” In the words of Anthony the funds flow statement describes the sources from which additional funds were derived and the use to which these sources were put. F.C.W.A. in glossary of management accounting terms defined funds flow statement as a statement either prospectus or retrospect’s, setting out the sources and applications of the funds of an enterprise. The purpose of the statement is to indicate clearly the requirement of funds and how they are proposed to be raised and the efficient utilization and application of the same.
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Foulke defines this statement as:
Thus funds flow statement in 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 i.e., the excess of current assets over current liabilities.
Need for funds flow statement:
The funds flow statement is widely used by the financial analyst and credit granting institutions and financial managers in performance of their jobs. It has become a useful tool in their analytical Kit. This is because the financial statements i.e. “Income Statement” and the “balance sheet” have a limited role to perform. Income statement measures flow restricted to transactions that pertain to rendering of goods or services to customers. The balance sheet of assets and liabilities as on particular date. It does not sharply focus those major financial transactions, which have been behind the balance sheet changes. One has to draw inferences from the balance sheet about major financial transactions only after comparing the balance sheet of two periods.
Importance of Funds Flow Statement:
Funds Flow analysis is an invaluable analytical tool for a financial manager or a creditor for evaluation of the employment of funds by a firm and in determining the sources for such funds. In addition to studying past flow by means of funds-statements based upon forecasts. Such a statement provides an efficient method to the financial manager to assess the growth of the firm and it results in the financial needs, and to determine the best way to those needs. In particular, Funds Flow analysis is very useful in planning intermediate and long term financing.
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The traditional package to final of final accounts and statement through very significant statements has such a limited role to play in financial analysis. The balance sheet is a statement of assets and liabilities on a particular date. Similarly the income statement will show in more detail only the profit or loss, change in owners’ equity arising during accounting period as a result of the productive and commercial activities in that period. The main criticism against the balance sheet of two periods shown in a separate of source and application of funds. “Where got and where gone statement”. Statement simply called “Funds Statements”.
Sources of funds:
In business several transactions take place. Some of these transactions increase the funds while others decrease the funds. Some may not make any change in the fund position. In case a transaction result in increase in funds, it will be termed as a “Sources of Funds”.
Applications of Funds:
In case transaction result in decrease in funds, it will be termed as an “Application of funds.
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(1) It helps in the analysis of financial operations: The financial statements reveal the net effect of various transactions on the operational and financial position of a concern. The balance sheet gives a static view of the resources of a business and the uses to which these resources have been put at a certain point of time. But it does not disclose the causes for changes in assets and liabilities between two different point of time. The funds flow statement explains causes for such changes and also the effect of these changes no the liquidity position of the company. Sometimes a concern may operate profitably and yet its cash position may become more and more course. The funds flow statement gives a clear answer to such a situation explaining what has happened to the profit of the firm. (2) It throws li2ht on many perp1exin questions of 2eneral interest: Which other wise may be difficult to be answered, such as: a. Why were the net current assets lesser inspite of higher profits and vice-verse. b. Why more dividends could not be declared inspite of available Profit? c. How was it possible to distribute more dividends than the Present earning? d. What happened to the net profit? Where did they go? e. What happened to the proceeds of sale of fixed assets or issue of Shares, debenture etc? (3) It helps in the formation of a realistic dividend policy: Sometime a firm has sufficient profit available for distribution as dividend but yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such causes, a funds flow statement helps in the formation of a realistic dividend policy. (4) It helps in the proper allocation of resources:
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The resources of a concern are always limited and it works to make the best use of these resources. A projected funds flow statement constructed for the future help in making managerial decision. The firm can plan the deployment of its resources and allocate them among various application
(5) It acts as a future guide: A project funds flow statement also acts as a guide for future to the management. The management can come to know the various problems it is going to funds can be projected well in advance and also the timing of these needs. The firm can arrange to finance these needs more effectively and avoid future problem. (6) It helps in appraising the use of working capital: A funds flow statement helps in explaining how efficiently the management has used its working capital and also suggests way to improve working capital position of the firm. (7) It helps knowing the overall credit worthiness fo a firm: The financial institutions and banks such as state financial institutions, industrial development corporation, industrial finance corporation of India, industrial development bank of India etc., all ask for funds flow statement constructed for a number of years before granting loans to know the credit worthiness and paying capacity of the firm. Hence, a firm seeking financial assistance from these institutions has no alternative but to prepare funds flow statements. Limitations of Funds Flow Statement: The funds flow statement has a number of uses: however, it has certain limitations also, which are listed below: 1. It should be remembered that a funds flow statement is not a substitute of an income statement or a balance sheet. It provides only some additional information as changes in working capital. 2. 3. 4. It cannot reveal continuous changes. It is not a original statement but simply a re-arrangement of data given in the ` financial statement. It is essentially historic in nature and projected funds flow statement cannot be
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prepared with much accuracy. 5. Changes in cash are more important and relevant for financial management than the working capital.
Despite these limitation the information supplied by the Funds Flow statement is really invaluable and the management in planning capital expenditure, devising dividend and other financial policies etc. Taken in conjunction with ratio analysis provides a rich sources of information regarding possible managerial uses. Procedure for Preparing a Funds Flow Statement: Funds flow statement is a method by which are study changes in financial position of a business enterprise between beginning and ending financial statement dates. Hence, the funds flow statement is prepared by comparing two balance sheets and with the help of such other information derived from the accounts as may be needed. Broadly speaking the preparation of a funds flow statement consists of two parts. 1. Statement of schedule of changes in working capital 2. Statement of sources and application of funds. (1) Statement of schedule of changes in working capital. Working capital means the excess of current assets over current liabilities. Statement of changes in working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from the two balance sheets.
As working capital =current assets - current liabilities. So, i. An increase in current assets increase working capital ii. A decrease in current assets decreasing working capital. iii.An increase in current liabilities decreasing working capital; iv. A decrease in current liabilities increases working capita
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2. Statement of Sources and application of Funds:
In order to prepare a Funds Flow statement , it is necessary to find out “Sourse” and “application” of funds.
Sources of Funds:
The sources of funds can be both internal & External Internal Sources: Funds from operations are the only internal source of funds. However following adjustments will be requires in the figure of net profit for finding out real finds from operations. Add: The following items, as they do not result in outflow of funds: Depreciation of fixed assts Preliminary expences or goodwill etc written off Contribution to debenture redemption fund, transfer to general reserves, etc. Provision for taxation and proposed dividend. Loss on sale of fixed assets. Deduct: The following items, as they do not increase funds. Profit on sale of fixed assets. Non- operating incomes such as dividend received or accured dividend, refund of income tax, rent received or accured rent.
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Exrenal Sources: Funds from long-term loans. Sale of fixed assets Funds from increase in share capital.
Application of funds.
The uses to which funds are put are called ‘application of funds”. Following are some of the pupose for which funds may be used: Purchase of Fixed Assets. Payment of dividend. Payment of fixed Liability. Payment of Tax Liability.
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CASH FLOW STATEMENT (CFS):
The statement showing sources and uses of funds, popularly known as the ‘funds flow statement’, is a condensed report of how the activities of the business have been financed and how the financial resources have been used during the period covered by the statement. It is an operating statement as it summarizes the financial activities for a period of time. But it performs a function different from the income statement which is primarily a presentation of revenue and expenses items and the computation of the net income for the period. The funds flow statement is a report of the financial operations of a business undertaking. It shows the ebb and flow of funds into and out of a business. It covers all movements book-keeping adjustments are not reported. It discloses the results or the policies followed by the financial management in a way which probably makes it more understandable to most readers than are the other financial statements. In financial accounting a cash flow statement is a financial statement that shows a company’s incoming and outgoing money (sources monthly or quarterly). The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing and financing activities. As an analytical tool the statement of cash flows is useful in determining the short-term viability of a company y, particularly its ability to pay bills. People and groups interested in cash flow statements include. • Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses. • Potential lenders on creditors, who want a clear picture of a company’s ability to repay. • Potential investors, who need to judge whether the company is financially sound. • Potential employees or contractors, who need to know whether the company will be able to afford compensation. Definitions: Cash: Cash comprises cash on hand and demand deposit with banks.
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Cash equivalents: Cash Cash equivalents are short term, highly liquid investments that are readily convertible in to known amounts of cash and which are subject to an insignificant risk of changes in value. Examples of cash equivalents are treasury bills, commercial paper etc., Cash flow: Cash flows are inflows and outflows of cash equivalents. It means the movement of cash in to the organization and movement of cash out of the organization. The difference between the cash inflows and cash out flows is known as net cash flow which can be either net cash inflow or net cash out flow.
Type of cash flow
While preparing a Cash Flow statement , two types of cash Flows viz., Actual Cash Flow and National Cash Flow are identified. Actual Cash Flow refers to actual movements of cash into out of the business. Purchase of fixed assets, borrowings from bank of financial institutions, trading profits and redemption of debenture are all examples of actual Cash Flow. National Cash Flows results only in the cash of Increase or decrease in current assets. National Cash Flow result indirect cash movements into or out of business, for Example, increase in the balance of debtors does not result in any actual cash outflow since it is part of credit sales. But form of material costs, labour cost, overheads etc., looked up in the goods sold on credit. Classification of cash flows: Operating activities: Operating activities include the production sales and delivery of the company’s product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising and shipping the product. Items which are added back to the net income figure (which is found on the income statement) to arrive at cash flows from operations generally include. • Depreciation (loss of tangible asset value over time) • Deferred tax • Amortization (loss of intangible asset value over time) • Any gains or losses associated with an asset sale (unrealized gain losses are also added back
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from the income statement) Investing Activities: Investing activities focus on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long term assets that are no longer needed by the company. Items under investing activities include: • Capital expenditures which purchases (and sales) of property, plant and equipment. • Investment: Financin2 Activities: Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement. Items under the financing activities section include: • Dividends paid • Net borrowings . • Sale or repurchase of the company’s stock.
BASIC INFORMATION FOR PREPARATION OF CFS:
The following basic information’s are required to prepare a CGF: 1. Comparative BS: The first and the foremost requirement is the comparative BS in the beginning and at the end of the period to find out the changes taking place in different items of the BS. 2. Is for the period under consideration: The IS of the period is also required to find out the cash generated or used in the operation of the firm. 3.Additional Information: Together with BS and IS other relevant information is also required to identify the hidden information, if any.
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Limitations of Cash Flow analysis:
Cash Flow analysis is a useful tool of financial analysis. However, its own limitations. These limitations are as under: 1.Cash Flow statement cannot be equated with the income statement. An income statement takes into account both Cash as well as non- cash items and , therefore, net Cash flow does not necessarily mean net income of the business. 2. The cash balance as disclosed by the Cash Flow statement may not represent the real liquid position of the business since it can be easily influenced by postponing purchased and other payments. 3.Cash Flow statement cannot replace the income statement or the Funds Flow statements .
Each of them has a separate function to perform.
STEP BY STEP PROCEDURE TO PREPARE CFS:
1. Calculate the net increase or decrease in cash and cash equivalents: shown For this purpose the opening balance of total cash and equivalents is compared with the closing balance of cash and equivalents. The net increase/decease as here is the figure to be explained by the CFS. The table explains the procedure for this. Increase/Decrease in Cash and Cash Equivalent: Opening Balance Balance Cash in Hand Cash at Bank Short term Investments Total **** **** **** **** **** **** Closing
****
****
The difference between the totals of opening and closing balance will be the increase or
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decrease in cash and equivalents during the period. 2. Net cash flow from operating activities: On the basis of the information contained in the comparative Balance Sheets and the IS and the additional information, the net cash flow generated or used by operating activities may be ascertained
3. Calculating of cash provided by financing and investment Activities: All other items (except current accounts already considered in step 2 above) are analyzed in the light of additional information to find out the resultant cash flow it any. For this purpose, different items and information’s are classified into financing activities and investment activities.
4. Preparation of CFS: On the basis of information collected and calculations made in the above steps, now the CFS can be prepared as per any of the formats given earlier. The net cash flow provided by operating activities plus financing activities plus investment activities is equal to the net change in cash and equivalents (as calculated in step 1).
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Sources and uses of cash: The following are the sources of cash 1. The profitable operations of the firm 2. Decrease in assets (except cash) 3. Increase in liabilities (including debentures or bonds) 4. Sales proceeds from an ordinary preference shares issue The following are the uses of cash: 1. The loss from operations 2. Increase in assets (except cash) 3. Decrease in liability (including redemptions of debentures or bonds) 4. Redemptions of redeemable preference shares 5. Cash dividends.
FFS and CFS:
The cash flow statement (CFS) is different from the FFS in its approach. The difference between the two can be summarized as follows: 1. The FFS is based on the concept of WC where as, the CFS is based on cash which is only one of the element of working capital (WC). Thus, the CFS provides details of cash movements where as the FFS provides the details of funds movements. 2. The CFS considers only the actual movements of cash as FFS considers the movement as the funds on accrual basis
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STATEMENT SHOWING CHANGES IN WORKING CAPITAL2005-06
Table – 4.1 Particulars Current Assets:Inventories Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Decrease in Working Capital 6254.87 417.1 6254.87 417.1 1003.47 1003.47 2853.28 2853.28 6254.87 3216.35 3216.35 5837.77 ---363.07 --3849.09 3227.02 979.44 117.54 935.06 9108.15 4333.89 2620.87 1053.99 144.56 900.81 9054.12 484.8 -74.55 27.02 ---606.15 --34.25 2005 (Rs) 2006 (Rs) Rs. In Lakhs Increase Decrease
Sources from Annual Report of Regency Ceramics Limited
Interpretation:
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There is a net decrease in Working Capital due to decrease of current assets in inventories, cash on bank.
Sundry debtors, loans and advances are increase position .
Company has the increase inventory due to increase in production demand.
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FUNDS FLOW STATEMENT FOR 2005-2006 Table – 4.2 Rs. In Lakhs Sources of fund Amount Rs. Share Capital Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities Decrease in Working Capital 20684.51 Sources from Annual Report of Regency Ceramics Limited. Interpretation::• In current asset of Loans and advances has appreciation to Rs.34.25 Lakhs and current liabilities & Provisions of current liabilities has been decreased Rs.363.07 Lakhs. • During the year the company in borrowings taken secured loans Rs.11643.49 Lakhs. The huge amount invested in assets Rs. 14534.19 lakhs. 20684.51 4171.1 1359.68 5262.91 11643.49 288.96 2129.47 Investments Fixed Assets Miscellaneous Expenditure Net Current Assets Application of Fund Amount Rs. 211.53 14534.19 101.02 5837.77
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2006-07
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Table – 4.3 Particulars Current Assets:Inventories Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Increase in Working Capital 6275.87 6275.87 438.09 3216.35 3216.35 5837.78 3900.90 3900.90 6275.87 4333.89 2620.87 1054.00 144.50 900.81 9054.13 5010.35 3378.97 845.93 189.30 752.22 10176.77 2006 (Rs) 2007 (Rs)
Rs. In Lakhs Increase 676.46 758.1 -44.8 -----Decrease --2081.07 -148.59 -684.55 ---
438.09 1479.3 1479.3
Sources from Annual Report of Regency Ceramics Limited.
Interpretation:
There is a increase in working Capital due to increase of current assets in inventories , sundry debtors .
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In the inventories (Raw materials ,packing materials ,work in process, finished goods, stores, spares and consumables , materials in transit, tools and implements.)
In this year the situation is reversed that means currents assets are increased and current liabilities are increased. In this year the company has the increasing inventory due to increase production demand.
FUNDS FLOW STATEMENT FOR 2006-2007 Table – 4.4
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Rs. In Lakhs Sources of fund Amount Rs. Share Capital Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities 20293.05 Sources from Annual Report of Regency Ceramics Limited. 1359.68 4895.67 11326.44 725.81 1895.45 Investments Fixed Assets Miscellaneous Expenditure Net Current Assets Increase in Working Capital 20293.05 Application of Fund Amount Rs. 212.47 13726.46 77.25 6275.86 438.09
Interpretation::• In current asset of Loans and advances has deppreciation to Rs.148.59 Lakhs and current liabilities & Provisions of current liabilities has been increased Rs.684.55 Lakhs. • During the year the company in borrowings taken secured loans Rs.11326.44 Lakhs. The huge amount invested in assets Rs. 13726.46 lakhs.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2007-08 Table – 4.5 Rs. In Lakhs
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Particulars Current Assets:Inventories Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Decrease in Working Capital
2007 (Rs) 5010.34 3378.97 845.93 189.30 752.22 10176.76 3900.90 3900.90 6275.86
2008 (Rs) 4390.10 2596.89 965.14 227.71 1000.85 9180.69 3828.58 3828.58 5352.11
Increase -119.21 38.41 248.63 -72.32 ---
Decrease 620.24 782.08 --------
923.75 6275.86 6275.86
923.75 1402.32 1402.32
Sources from Annual Report of Regency Ceramics Limited.
Interpretation:
There is a decrease in working capital due to decrease of current assets in inventories, sundry debtors and also decrease the current liabilities.
Cash on bank , loans and advances are increase position.
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In the inventories (Raw materials ,packing materials ,work in process, finished goods, stores, spares and consumables , materials in transit, tools and implements.)
FUNDS FLOW STATEMENT FOR 2007-2008 Table – 4.6 Rs. In Lakhs Sources of fund Amount Rs. Share Capital
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Application of Fund
Amount Rs.
1359.68
Investments
212.69
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Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities Decrease in Working Capital
3353.73 9939.00 2025.26 1649.79 923.75 18327.46
Fixed Assets Miscellaneous Expenditure Net Current Assets
12709.18 53.48 923.75
18327.46
Sources from Annual Report of Regency Ceramics Limited. Interpretation::• In current asset of Loans and advances has appreciation to Rs.248.63 Lakhs and current liabilities & Provisions of current liabilities has been decreased Rs.72.32 Lakhs. • During the year the company in borrowings taken secured loans Rs.9939.00 Lakhs. The huge amount invested in assets Rs. 12709.18 lakhs.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2008-09 Table – 4.7 Rs. In Lakhs Particulars Current Assets:Inventories Sundry Debtors
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2008 (Rs) 4390.10 2596.89
2009 (Rs) 3233.11 2646.55
Increase -49.66
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Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Increase in Working Capital
965.14 227.71 1000.85 9180.69 3828.58 3828.58 5352.11
1247.54 248.33 1736.65 9112.18 2825.46 2825.46 6286.72
282.4 20.62 735.8 -1003.12 ---
--------
934.61 6286.72 6286.72 2091.6
934.61 2091.6
Sources from Annual Report of Regency Ceramics Limited.
Interpretation:
There is increase in working capital due to increase of current assets in sundry debtors , cash on bank , loans and advances.
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Inventories are decrease position .
In the inventories (Raw materials ,packing materials ,work in process, finished goods, stores, spares and consumables , materials in transit, tools and implements.)
FUNDS FLOW STATEMENT FOR 2008-2009 Table – 4.8 Rs. In Lakhs Sources of fund
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Application of Fund
Amount
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Rs. Share Capital Reserves Secured Loans Unsecured Loans Deferred Tax Liabilities 18213.15 Sources from Annual Report of Regency Ceramics Limited. 1359.68 1870.62 11561.41 2170.11 1251.33 Investments Fixed Assets Miscellaneous Expenditure Net Current Assets Increase in Working Capital
Rs. 206.42 11690.25 29.71 2686.77 934.61 18213.15
Interpretation::• In current asset of Loans and advances has appreciation to Rs.735.8 Lakhs and current liabilities & Provisions of current liabilities has been decreased Rs.1003.12 Lakhs. • During the year the company in borrowings taken secured loans Rs.11561.41 Lakhs. The amount invested in assets Rs. 11690.25 lakhs.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL2009-10 Table – 4.9 Rs. In Lakhs Particulars Current Assets:Inventories 2009 (Rs) 2010 (Rs) Increase Decrease
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Sundry Debtors Cash on Bank Other Current Assets Loans & Advances Total Current Liabilities:Liabilities & provision Total Working Capital CA-CL Increase in Working Capital Sources from Annual Report of Regency Ceramics Limited.
FUNDS FLOW STATEMENT FOR 2009-10 Table – 4.10 Rs. In Lakhs Sources of fund Amount Rs. Share Capital Reserves Secured Loans Unsecured Loans
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Application of Fund
Amount Rs.
Investments Fixed Assets Miscellaneous Expenditure Net Current Assets
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Deferred Tax Liabilities
Increase in Working Capital
Sources from Annual Report of Regency Ceramics Limited.
SUMMARY
Financial management in a broad sense and provides a conceptual analytical framework for financial decision making which covers both acquisitions of funds as well as their allocation. Thus, apart from the issues involved in acquiring external funds, the main concern of financial management is the efficient and wise allocation of funds to various users, Defined in a broad sense, it is viewed as an integral part of overall management. Funds flow statement is prepared to know the changes in assets, liabilities and owners equity between dates of two balance sheets. It is a statement of sources and uses of funds. Funds flow statement is also known as statement of sources and application of funds or management of funds statement etc... Funds flow
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statement reveals both inflow and outflow of funds. The inflow of funds is known as sources of funds and the out flow funds mean uses or application of the funds. In other words financial statement gives detailed analysis of changes in the distribution of resources between two dates. It is very useful tool in the financial manager's analytical kit. It provides a summery management decisions on finance actives the firm investment policy. In the present study 174th of the total information is from primary data and the rest is from the secondary data of company Annual reports. The analysis is made basing only on the past 5 annual reports of the REGENCY CERAMICS LIMITED. The funds flow are generally calculated from the post financial statement and as show thy are not the indicators of future.
PREPARATION OF FUNDS FLOW STATEMENT: Schedule of changes in working capital Rules 1. compare current year value with previous year note down the change as increase or decrease 2. consider current assets changes only (non-CA or fixed assets are not to be considered) 3. consider only current liabilities (non - CL or long term liabilities and owners equity are not to be considered)
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4. apply the following equation to find out the changes in working capital. FUNDS FLOW STATEMENT:
The statement of changes in financial position, prepare to determine only the sources and the uses of working capitol between the dates of two balance sheet is known as funds flow statement. SOURCES OF FUNDS: • • • Issue of additional share capitol or debentures for cash. Borrowings made by the firm for a long term. Non operating incomes such as income from investment or profit from
the sale of assets/ investment. APPLICATION OF FUNDS: • If there is business loss to the firm then this tantamount to decrease or
use of funds. • The redemption of preference share capitol or debenture during a year
also utilize the funds. • Repayment of a long term loan during the year.
Finally through the funds flow statement the overall performance of the organization is satisfactory. FINDINGS: • • • • Reserve has been decreasing during all the four years since 2005. The company debt capital raised more from secured loans & unsecured loans. Operating cash is increased in 2006 due to increase of trade & payables. The company uses more debt than their own funds to finance fixed assets. It has to pay a lot of interest from profits. • In the year 2009 the changes in working capital increased.
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SUGGESTIONS
•
The company invest huge amount at a time in the year 2005. It is better to invest subsequent years rather than to invest at a time.
• •
The Raw material should be maintained for meeting the short term operations. It is better to raise debt-capital more from preferential share holders than secured and unsecured loans for reduce interest.
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• •
The company is better to maintain stable debt equity to reduce the cost of debt. The company may further reduce its collection period to increase profitability using lock box system of collection.
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BIBLIOGRAPHY
NAME OF THE BOOK
NAME OF THE AUTHOR
YEAR AND PUBLICATION OF BOOK
1. Financial Management 2. Financial Management 3. Financial Management 4. Financial Management
M.Y.KHAN & P.K.JAIN
Tata Mc. Graw Hill, New Delhi 1998
PRASANNA CHANDRA I.M.PANDEY JAMES C. VAN HORNE
Tata Mc. Graw Hill, New Delhi 1998 VIKAS PUBLICATIONS, 8TH EDITION, NEW DELHI 1999 VIKAS PUBLICATIONS, 8TH EDITION, NEW DELHI 1999
5. Management Accounting & Financial Management
S.N.MAHESWARI
Sultan Chand & Sons New- Delhi – 1997
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CHAPTER I
INTRODUCTION OF THE STUDY
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CHAPTER II
INDUSTRY PROFILE&COMPANY PROFILE
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CHAPTER-III
CONCEPTUAL FRAMEWORK OF FUNDS FLOW ANALYSIS
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CHAPTER IV
DATA ANALYSIS & INTERPRETATION
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CHAPTER V
SUMMARY AND SUGGESTIONS ANNEXURE, BIBLIOGRAPHY
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ANNEXURE
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CONTENTS PAGE No: CHAPTER – I INTRODUCTION Significance of the study Objectives of the study Methodology of the study Limitations of the study CHAPTER-II PROFILE OF THE REGENCY CERAMICS LIMITED Profile of the Ceramics tiles industry Profile of the REGENCY CERAMICS LIMITED CHAPTER-III Conceptual frame work of funds flow analysis CHAPTER-IV Data analysis and interpretation of REGENCY CERAMICS LIMITED CHAPTER-V
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1-6
7-30
31-39
40-49
50-53
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Summary and suggestions ANNEXURES Annual reports BIBLIOGRAPHY 59-60 54-59
LIST OF TABELS TABLE NO NAME OF THE TABLE PAGE NO
2.1 2.2 2.3 3.1
Indian Market- Installed capacities The consumption pattern region wise in India Competitors Market share Proforma of schedule of changes in working capital
13 14 15 36
3.2 3.3 4.1
Proforma of funds flow statement Specimen of report from funds flow statement Statement of changes in working capital 2004-2005
37 39 40
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4.2 4.3
Funds flow statement for 2004-2005 Statement of changes in working capital 2005-2006
41 42
4.4 4.5
Funds flow statement for 2005-2006 Statement of changes in working capital 2006-2007
43 44
4.6 4.7
Funds flow statement for 2006-2007 Statement of changes in working capital 2007-2008
45 46
4.8 4.9
Funds flow statement for 2007-2008 Statement of changes in working capital 2008-2009
47 48
4.10
Funds flow statement for 2008-2009
49
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FUNDS FLOW ANALYSIS A study with reference to the REGENCY CERAMICS LIMITED YANAM project Report Submitted to the Department of Commerce and Management Studies Andhra University, Visakhapatnam In Partial fulfillment for the requirement for the award of the SCHOOLS OF MANAGEMENT STUDIES Submitted by: M.D.BHASKARA RAO Regd No: 09A21E0054 Under the guidance of Ms.NAIDU, M.B.A Phd
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Project submission in partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION By
SWARNANDHRA COLLEGE Of ENGNEERING & TECHNOLOGY (Seetharamapuram) J.N.T.U, Kakinada
2009-2011
DECLARATION
I here by declare that the project work on “FUNDS FLOW ANALYSIS” in “REGENCY CERAMICS LIMITED”, YANAM. Is Originally Prepared and Submitted by me to JNTU KAKINADA inpartial Fulfillment of the requirements for the award of degree of MANAGEMENT
OF
BUSINESS ADIMISTRATION . The empirical findings in the report are
based on the data collected by myself while preparing this report. It has not been submitted to any other university or publication at any time before.
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.
Place: M.D.BHASAKARA RAO Date: Regd.no: 09A21E0054
CERTIFICATE
This is to certify that, this project report entitled “FUNDS FLOW ANALYSIS” with reference to “REGENCY CERAMICS LIMITED”,YANAM. Is being submitted by Mr.M.D.BHASAKARA RAO, Regd No: 09A21E0054 in partial fulfillment for the award of The Degree of Master of Business Administration to JNTU, KAKINADA. It is a bonafide work carried by her under my guidance and supervision.
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Place: VENKATA REDDI NAIDU Date:
DR. B. (PROJECT GUIDE)
ACKNOWLEDGEMENT .
The completion of this project makes me to recall with gratitude several persons who extended their cooperation in one way or the other in this venture. I am very much thankful to the principal Dr.M.Muralidhara Rao SCET(Seetharampuram), for permitting me to pursue my project.
I express my sincere thanks to Head of the Department MBA programmer Dr.P.G.Ramanujam, for his encouragement.
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I owe a sense of gratitude to DR. B. VENKATA REDDI NAIDU, my project guide, for his friendly cooperation at each and every point of my work, for his patience and immense Support for the completion of the project.
Finally I wish to express my thanks to all faculty members of Department of MBA for their suggestions in bringing out my project in most successful manner.
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