INTRODUCTION OF FINANCIAL MANAGEMENT

CONTENT

1. CHAPTER-I

INTRODUCTION

NEED OF STUDY

OBJECTIVES

METHODOLOGY

LIMITATIONS

2. CHAPTER-II

PROFILE OF STEEL INDUSTRY

3. CHAPTER-III

PROFILE OF G S ALLOY CASTINGS LTD

4. CHAPTER-IV THEORETICAL FRAMEWORK

OF FUNDS FLOW ANALYSIS

5. CHAPTER-V

DATA ANALYSIS

6. CHAPTER-VI FINDINGS, SUGGESTIONS & BIBLOGRAPH CHAPTER-1 INTRODUCTION, NEED FOR STUDY, OBJECTIVES METHODOLOGY

LIMITATION

INTRODUCATIONThe funds flow statement is a statement, which shows the movement of funds and is a report of the financial operations of the business undertaking. It indicates various means by which funds were obtained during particular period and the ways in which these funds were employed. In simple words, it is a statement of source and applications of funds.

Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. Financial management involves the application of general management principles to particular operation. Financial management is that part of management which is concerned mainly with raising funds in the most economic and suitable manner. Financial management implies the designing and implementation of certain plan. Plan aim at effective utilization if funds. Financial management is important because it has an impact on all activities of a firm. Its primary responsibility is to discharge the finance function.

Funds flow statement thus reveals the various sources from which funds have been procured during a particular period and the various uses of such funds during the same period.

NEED FOR THE STUDYIn this rapidly changing, the role financial statements also have undergone considerable changes. Funds constitute the prime importance in starting and operating any business enterprise. The need for maintaining the financial chastity of business operations, ensuring the reliability of recorded experience resulting from these operations and conducting a frank appraisal of such experience has made accounting a prime activity along with such other activities as marketing and production.So, it has been the silent features of the evolution of accounting theory and practice that the preparation of final accounts and statements is undertaken with the object of providing as much as information as possible for public gaze. From this point of view, it is important to know the uses and application of funds in any enterprise.A study of funds flow analysis is major importance to internal and external analysis because it reflects the position of the company in terms of finance. Excess or inadequate working capital or funds can result in the loss of the company or reduce the profits of the company. Which it could earn otherwise. Both excessive and inadequate capital is dangerous from the firm's point of view.Thus, it is just as important to know what funds became available during the accounting period as it is to know what assets and liabilities exist and as well as what profit has been made because the conduct of a business involves a flow of funds into operating assets and then back to funds again. OBJECTIVES OF THE STUDY

To know the changes in Working Capital during the last 2005 to 2010 years in the company and the reason for the changes in Working Capital.

To know the various sources from which the funds are raised and the application of those funds in the company. To know the Financial and Working Capital position of the company. To determine the financial consequences of business operations. To determine the exact financial position of the organization. To give necessary suggestions that can be made by making a thorough study on the financing and flow of funds on G.S.ALLOY CASTING LIMITED.

INTRODUCTION OF FINANCIAL MANAGEMENTFinance is an important function in any business as money is required to various activities. It has given birth to financial management as a separate subject. As a separate subject, financial management is of recent origin and has not acquired a body of knowledge of its own. It draws heavily on economic for its theoretical concepts. In the early half of the last century, the job of financial management was largely confined to the acquisition of funds. But as business firms continued to expend their markets and they become larger and more diversified, greater control of financial operation become highly important.

MEANING OF FINANCIAL MANAGEMENT:Finance is considered as the life-blood of any business. It is defined as the provision of money at the time it is needed. All the plans of a businessman would remain mere dreams unless adequate money is available to convert them into reality. Financial management is very important to every type of organisation.It refers to that part of managerial activity concerned with the procurement and utilization of funds for business purpose. In the words of Howard and Upton.Financial management involves the application of general management principles to financial operations.

Finance is considered as the lifeblood of any business. It is defined as the provision of money at the time it is needed.

In the words of Howard and Upton Financial management involves the application of the general management principles to financial operations.

Jo In the words of Ezra Solomon Prigle hn

Financial management is concerned with the effective use of economic resources namely capital funds.

In the words of Joseph Massive, Financial Management is the operational activity of a business that is responsible for obtaining the funds necessary for efficient operation.

Thus financial management is concerned with:

Estimation of the fixed and working capital requirements,

Formulation of capital structure,

Procurement of fixed and working capital , and

Management of earnings. NATURE OF FINANCIAL MANAGEMENT

Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. It was branch of economics till 1890, and as a separate discipline, it is of recent origin. Still it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concepts even today.The subject of the financial management is of immense interest to both academicians and practicing managers. Practicing managers are interested in this subject because among the most crucial decisions of the firm are those which relate to finance, and an understanding of the theory of financial management provides them with conceptual and analytical insights to make those decisions skillfully

Significance of financial management

Financial management occupies a significant place because it has an impact on all the activities of a firm. Its primary responsibility is to discharge the finance function successfully. No one can think of any business activity in isolation from its financial implications. The management may accept or reject a business proposition on the basis of financial variabilities. In other words, the live executives who are directly involved in the decision-making process should give supreme importance for financial consideration Objectives of financial management:Financial management is concerned with the efficient use of capital funds. It evaluates how funds are used and procured. In all cases, financial management involves sound judgement, combined with a logical approach to decision making.There can be many financial objectives. Two of them are notable because of wide support for them. These are:

1.Profit maximization, and

2.wealth maximization

Profit Maximization Approach:

Profit maximization means maximizing the rupee income of firms. As profit earnings is the main aim of every economic activity. A business being economic institutions must earn profit to cover its cost and provide funds for growth. Firms produce goods and services. They may function in a market economy, or in a government- controlled competitive market. Firms in the market economy are expected to produce goods and services desired by society as efficiently as possible. Price system is the most important organ of a market economy indicating what goods and services society wants. Price system directs managerial efforts.

Wealth Maximization:

The objective of shareholders wealth maximization is an appropriate and operationally feasible criterion to choose among the alternative financial actions. It provides an unambiguous measure of what financial management should seek to maximize in making investment and financing decision on behalf of owners. Shareholders wealth maximization means maximizing the net present value of a course of action to shareholders the net present value of a course of action is the difference between the present value of its benefits and the present value of its costs.

Wealth maximization is the appropriate objectives of an enterprise.

When the firm maximizes the stockholders wealth the individual stockholders can use this wealth to maximize individual utility. It means that by maximizing stockholders wealth the firms operating constantly towards the maximizing stockholders utility.Stockholders current wealth in the firms is the product of the product of the number of shares owned multiplied with the current stock price per share.

Shareholders current wealth in a firm=no. Of shares owned* current stock price per share.

FINANCE FUNCTIONS:

The functions themselves can be readily identified the functions of raising funds investing them in assets and distributing returns earned from assets to share holders are respectively known as financing investment and dividend decisions. While performing these functions affirm attempts to balance cash in follows and out flows. This is called Liquidity decisions. Financial functions are as follows

Investment or long term assets mixed decision

Financing or capital mix decision

Dividend or profit also capital decision

Liquidity or short term asset mix decision

INVESTMENT DECISION:

Investment decision or capital budgeting involves the decision of allocation of capital or commitment of funds to long term assets that would yield benefits sin the future. The important aspects of the investments decision.

a) The evaluation of the prospective profitability of new investments.

b) The measurement of a cut off rate against that the prospective return of new investment could be compared investment proposals should therefore be evaluated in terms of the both exported return & risk involves decision of recommitting funds when an asst becomes less productive or non profitable.

The correct cut-off rate is the required rate of return or the opportunity cost of capital.FINANCING DECISION:

In this when where and how to meet the firms investments needs. The debt & equity mix is known as the firms capital structure the market value of share maximized the capital structure considered as the optimum

DIVIDEND DICISION:

The firm distribution all the profits or retain the. Or distribute a portion and retain- the balance the debt policy should be determined in terms of its impact on the shareholders value. The pay out ration is equal to the percentage of dividends earnings available to share holders.LIQUIDITY DECISION:

In addition to the management of long term assets. Current assets should be managed efficiently for safe guarding the firm against the danger of liquidity and insolvency. Investment in current assets affects the firms profitability liquidity & risk.

ORGANISATION OF FINANCE FUNCTION The responsibilities for financial management are spread throughout the organization in the sense that financial management is, to an extent, an integral part of the job of mangers involved in planning, allocation of resources and control. Financial decisions are of crucial importance. It is, therefore, essential to set up an efficient organization for the financial management functions.

The job of the chief financial executive does not cover only routine aspects of finance accounting. As a member of the top management, he is closely associated with the formulation of polices as well as decision making, under him are controllers and treasures, although they may be known by different designations in different firms. The tasks of financial management and allied areas like accounting are distributed between these two key financial officers. Their functions are described belowFinancial decisions are of crucial importance. It is, therefore, essential to set up an efficient organization for the financial management functions MEHTODOLOGYThere are so many techniques to analyze the financial statements such as comparative balance sheet, trend analysis, funds flow analysis, etc. the methods selected for this study are funds flow analysis with the help of working capital.

The study of Funds Flow Analysis was conducted by using annual reports.

SOURCES OF DATAThe sources of data collected for this study could be broadly classified in to two categories.

Primary data: This information has been collected through direct conversation with the manager of finance department.

Secondary data: this data was collected from the help of the sources mentioned below.

1. The internal circulation copy of company's broachers.

2. The annual reports of the organization.

3. Other of the Journals, Internal

SCOPE OF THE STUDY What is finance? What are firm financial activities? How rare they related to the firms other activities? Firms create manufactory capacities for production of goods. Some provide services to customers. They sell their goods or services to earn profit. They raise funds to acquire manufacturing and other facilities. Thus, the three most important activities of business firm are:

Production

Marketing

Finance

Finance Functions:

It may be difficult to separate the finance functions from production, marketing and other functions, but the functions can be readily identified. The functions of raising funds, investing them in assets and distributing returns earned from assets to shareholders are respectively known as financing decision and dividend decision.

A firm attempted to balance cash inflows and out flows while performing these functions. This is called liquidity decision and we may add it to the list of important finance decision or functionLIMITATIONS OF THE STUDY1. Being an academic effort this project cannot be generalized for any other company 2. It reveals only a rearrangement of the data given in annual reports of the company.3. It is not an original statement. It is only a rearrangement of data given in financial statement.

4. Funds flow statement is essentially historic in nature. A projected funds flow statement, on the basis of it cannot be prepared with much accuracy. It does not estimate the sources and application of funds of the near future.

5. It cannot reveal continuous changes.

CHAPTER-2 PROFILE OF STEEL INDUSTRY

INDUSTRY PROFILEPROFILE OF STEEL INDUSTRY

The Steel Industry dates back to the ancient times in Armenia which is approximately around three thousand and five hundred Before Christ. The Steel Industry in the modern times was initiated during the medium half of nineteenth century (during 1850s to be precise). The initiator of it was a person named Mr. Henry Bessemer of England.

At the same time, another person named Mr. William Kelly, a resident of United States, has also started the production of steel and was completely an independent approach from Mr. Bessemer. The process in which the first ever production of steel was carried out came to be known as Bessemer process. This helped the steel industries to produce steel in large quantities and also at comparatively low costs.

The Steel Industry was enriched and modernized through the introduction of Open-Hearth process of steel production which made the industries to produce steel out of domestic iron ores. This process was first adopted by the steel industries situated in United States Of America in the year 1888. This time saw rapid innovations in the processes of steel production which got its impetus from the increased want for steel from various industries namely, railway industry, automobile industry, industry involved in construction of bridges, etc. During this time period, the enhanced demand as well as supply of steel pushed the ranking of USA to the first position, in terms of the steel production.

The utilization of the Open-Hearth system of steel production continued approximately from the year 1910 to the year 1960. After this, a new process called Basic Oxygen Process came into existence which produces steel in a more quick and efficient manner.

The early 1960s a new process was incepted by the steel industry for the production of steel known as the Process of Electric Arc Furnace. This process helps these industries in production of stainless steels and also in recycling of scrap steel items. With the passage of time, the quantity of production by USA has decreased with relation to total world production of steel. After the 1980s, China came strongly enough and became the largest producer of steel. India is also showing good performance in this sector in the recent times.

The history of the modern steel industry began in the late 1850s, but since then steel has been basic to the worlds industrial economy. The Indian steel industry began expanding into Europe in the 21st century. In January 2007 Indias Tata steel made a successful $11.3 billion offer to buy European steel maker Corus Group PLC. In 2006 Mittal Steel (based in London but with Indian management) acquired Arcelor for $38.3 billion to become the worlds biggest steel maker.

Steel Industry in IndiaIndia has traditionally been one of the major producers of steel in the world .Till the 1990s the steel industry of India was regulated and controlled by government policies. After the economic reforms of the early 1990s, the Indian steel industry has evolved significantly to conform to global standards.

India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in Indias economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years.

The two major aspects that are expected to play a significant role in the growth of the steel industry in India are

Abundant availability of iron ore in the country

The country has well established facilities for steel production

The major sectors where consumption of steel is expected to grow in the coming years are

Construction

Housing

Ground transportation

Hi-tech engineering industries such as power generation, petrochemicals, fertilizers

The current scenario of the Indian steel industry indicates that there is huge growth potential in this industry. The per capita-consumption of steel in India, according to latest available estimates, is only 29kg. This is much less compared to the global average of 140kg. The per capita consumption level of developed nations like the United States of America is 400kg. In this respect, one of the major initiatives that need to be taken is to focus on increasing the consumption of steel in the rural areas of India. The potential for the growth of consumption of steel in the rural areas of India for purposes like rural housing, rural infrastructure, etc is high which needs to be tapped efficiently.

In order to realize the growth potential in the steel industry of India, it is essential to ensure that the industry can remain competitive. One of the major aspects in this regard is the availability of inputs. Shortage of inputs like coke has led to increase in costs earlier. Moreover proper infrastructure facilities like transport infrastructure, power etc are of prime importance in maintaining the competitiveness of the industry.

Most developed countries have regulations that are aimed to protect the domestic steel industry. The Indian steel industry has comparatively much lesser protection through regulations. Proper regulatory measures should be adopted by the government to protect the domestic steel industry.

Present PositionThe steel industry in the world, which was characterized as a sunset industry two decades ago, is experiencing a vast change in scenario. The fast developing Chinese steel industry has far outstripped the world steel giants. United States, Russia and Japan, which were leading steel producers, are more in a position to claim that position.

China producing less than a million tons of steel prior to revolution in 1949 has now become the largest steel producer in the world. During 2005 the global steel production stood at 1132 million tones, showing a rise of 6 percent over the last year. The countries in South America, CIS (former Soviet Union) Europe and North America have actually shown negative growth. The Asian continent for the first time produced more crude steel than the rest of the world combined. Major shift has taken place because during 2005 with China producing 349 million tons of steel, accounting for 32 percent of the world steel production. During 2005, Chinese steel production increased by 69 million tones i.e. by 25 percent. Chinese steel output was more than three times that of Japan and four times of USA during 2005.

Per capita consumption of steel in the world was estimated to be 170 kg during the year 2005. However in India it stood at only 35 kg during the same year. Indian steel production was 38 million tones, which accounted for only 3.4 percent of the world steel output. In view of the fact that Indian population is 16 percent of the global population, the production of steel is much lower in India. Although India is the second largest populated country in the world, it ranks eighth in steel production. Steel Authority of India Ltd (SAIL) is ranking 17th among the worlds largest steel producing companies.

With staff competition in the global market, the formation of giant companies to reduce cost and add to profitability has become the regular feature in the industry. Merger and acquisitions have become the order of the day. The recent attempt of the Mittal Steel to acquire Arcelor, a Luxemburg based European company, if succeeds, will make Mittal Steel produce over 110 million tons of steel per year, i.e. about 10 percent of the global steel output.

Government PolicyIn the new Industrial policy announced in July, 1991 Iron and Steel industry, among others, was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation ) Act, 1951.

With effect from 24.5.92, Iron and Steel industry has been included in the list of high priorityindustries for automatic approval for foreign equity investment up to 51%. This limit has been recently increased to 100%.

Price and distribution of steel were deregulated from January 1992. At the same time, it was ensured that priority continued to be accorded for meeting the requirements of small scale industries, exporters of engineering goods and North Eastern Region of the country, besides strategic sectors such as Defense and Railways.

The trade policy has been liberalized and import and export of iron and steel is freely allowed. The only mechanism regulating the imports is the tariff mechanism. Tariffs on various items of iron and steel have drastically come down since 1991-92 levels and the government is committed to bring them down to the international levels Iron& Steel are freely importable as per the Extant Policy.

Iron and Steel are freely exportable. Advance Licensing Scheme allows duty free import of raw materials for exports. The floor price for seconds and defective continues till date.

Imports of seconds and defectives of steel are allowed only through three designated ports of Mumbai, Calcutta and Chennai. Mandatory pre-inspection certificate by a reputed international agency for every import consignment of seconds and defectives. In the union Budget 2007-08 the import duty on seconds and defective has been further reduced from 20% to 10%.

India is the fifth largest producer of steel in the world. India Steel Industry has grown by leaps and bounds, especially in recent times with Indian firms buying steel companies overseas. with huge demands for stainless steel in the construction of new airports and metro rail projects.

Industry statisticsGovernment targets to increase the production capacity from 56 million tones annually to 124 MT in the first phase which will come to an end by 2011 - 12. Currently with a production of 56 million tonnes India accounts for over 7% of the total steel produced globally, while it accounts to about 5% of global steel consumption. The steel sector in India grew by 5.3% in May 2009. Globally India is the only country to post a positive overall growth in the production of crude steel at 1.01% for the period of January - March in 2009.

Export About 50% of the steel produced in India is exported. India's export of steel during April - December 2008 was 64.4 MT as against 9.7 MT in December 2007. In February 2009, steel export increased by 17% to 12.6 MT from 10.8 MT in the same month last year. More than 50% of steel from India is exported to China. Hurdles Power shortage hampers the production of steelUse of outdated process for productionLags behind in the production of stainless steelDeficiency of raw materials required by the industryLabour productivity is low. It is 144 tons per worker per year against 600 tons in Western Europe as per estimatesinadequate shipment capacity and transport structureStrengthsThere are many strong points of the industry that makes it one of the leading names in the global steel industry. The rate of labor wage in India is among one of the lowest in the world thereby making large scale production feasible.

InvestmentsNumerous steel companies some major projects in the pipeline to invest in India Steel industry. Steel companies have earmarked more than 100 million USD for the setting up of sponge iron units in Koppel and Bellary in Karnataka. CHAPTER-3

PROFILE OF G.S ALLOY CASTINGS LIMITED COMPANY PROFILEGSAC is started by Mr. G. Prasad Rao, a technocrat with 35 years experience in foundry industry. The top management consists of people with rich, long experience from renowned foundries like L&T and KCP. The 250 strong dedicated work forces is the back-bone of this company. G.S. Alloy Castings Ltd. Company is started in 1987 with initial capacity of 1800 Mt/annum and later grown into one of the biggest foundries in South India with capacity of 4800mt/annum. One more branch with higher tonnage capacity at Surampalli village.

G.S. Alloy Castings (GSAC) company is situated on the outskirts of Vijayawada. They are aiming to run production capacity 12000 MT per annum by producing cast steel. Ni-hard, and high Chrome & A Cast Iron castings. They established Unit-1 at Payakapuram, Vijayawada-15, A.P jobbing foundry in 1989 with an average production capacity of 1800 per annum and expanded in 1997 to 3000 MT per annum 7 continuing with full-fledged production capacity of 5000 MT per annum.

Now they are already started out Unit-11 with all required equipment with a Dual Track Introduction Melting Capacity of 25 tones to pour single piece 25000 kg. They are having a competent technical team headed by Technocrat with 25 + years experience in various aspects of foundry with well established QMS & got ISO 9000:2000 certification by LRQA-UKAS for Unit-1 and aiming to get ISO 9001:2000 for Unit-11 also at the earliest. The facilities for making 6500kg. Single piece at unit-1 & 25000 kg. Single pieces at unit-11.

The company having full-fledged machining facilities at unit-1. They can supply Rough/Proof Machined/Fully Finished Castings up to the customer requirement as per national & international standards. They can make & supply castings required for cement, crushing, mining, power generation and valve, sponge iron, General Engineering, Rubber processing and steel plants. They have well equipped testing labs for chemical, technical & NDT Testing with experienced Technical Personnel.

The Quality Policy

GSACS Commitment is for manufacture and supply of critical steel and Alloy Steel Casting to meet Quality requirements of its customers and their schedule adherence at a competitive price.GSAC has acquired skills in producing castings ranging from few kgs to 6000kgs single piece in.

Plain Carbon Steel

Alloy Steels

Heat Resistant Steels

Wear Resistant Steels

Stainless Steel

Objectives Every year increased by 10% production

Rejection of goods in a month only 5%

Less price and goods quality products

To give more priority to customers

Vision To achieve the 1000 tons per month

Increase the productivity level

Mission 1000 tons per month.

Row unit 1-1-400 tones acquiring they established a unit-11 and they want to do 600 tones in that unit.

Reasonable price given to the customers.

Achievements Major Customers

MNCs- Taking orders from MNCs

In the year of 2004-05 crossed 25 Crores turn over

4500 tons per year

Future Plans

In the year of 2010-2011-100 crores turn over.

To increase the turnover of 1000 tons per month.

Unit-1-400 tones, Unit-11- 600 tones.

To do the turnover of unit-11-600 tones.

Now there are 70 customers and fluctuating by 70-100 customers.

Strength Single proprietor

Reasonable price

Large term customers

25% experience

75% future running

Less price, good quality (60 RS-kg)

Automatic, Semiautomatic (100 RS-kg)

Weakness Delivery of goods

No design the products only castings

No computer basis

Handmade process

Opportunity Deciding the goods to Industrial, Engineering, Mining

No of MNCs give the orders to GSA

Threats GSAC Is Indias 5th place

Making of complicated shapes

Boeyinted by heavy castings making

Less capacity, critical shapes

Products Cast Steel

Alloy Steel

Manganese Steel

Heat Resistance Steel

Stainless Steel

Hi-hard and cast iron castings

Customers GSAC thanks its satisfied customers for the long and fruitful association

BHEL HYDERABAD& VARANASI

LARSEN MACHINES LIMITED

HARI MACHINES LIMITED

VISAKAPATNAM STEEL PLANT

SANDVIK ASIA LIMITED

PUZZOLANA MACHINARY FABRICATORS

BHILAL STEEL PLANT

ROUREKELA STEEL PLANT

AUDCO INDIA LIMITED

APHMEL

Quality Assurance ISO 9001-2000

110 years old agency

110 yds register Quality Assurance

UKAS Quality Management

MANUFACTURING FACILITIESPattern ShopDevelop Ancillary pattern shops in Vijayawada. In-House pattern repair shop.

Meeting Shop5mt, 2.5mt, 1.0mt, 0.5mt capacity medium frequency induction furnaces immersion pyrometer for temp measurement. L&T- Spout Ladies of different capacities weighing scales.Moulding Shop Head moulding

CO2 Sand process

750kg, 500kg, 850kg sand mixtures

Cores Shop CO2 No-bake process

200kg, 100kg, sand mixtures

Festing Shop Swing frame, hand and pencil grinders

Shot blasting machine 2mt capacity

Pneumatic chippers

ARC gouging machines

Welding Machines

Heat Treatment Shop 10T Capacity 4m *3.5*1.8m size Electric Furnace with recorder

4T Capacity 2.5m*2.0m*1.2m size Electric Furnace with recorder

2T Capacity 1.5m*1.0m*0.9m size Electric Furnace with recorder

4m*2m*3m water quenching tank Utilities 3 Air compressors of 250 cpm each

3 Diesel Power Generators of 120 KVA, 185 KVA, 360 KVA, capacity NDT Ultrasonic Machine EEC Make

MPT Machine Magna Field Make

DTP Equipment

Tie-up with M/s IRICO\ Chennai for Radiography testing.

QC Lab UNISPEC-16 Element testing Spectrometer

Sample Cutting & polishing Machines

40T Capacity Universal Testing Machine

3-3000(M) Brinnel hardness Testing Machine

Impact Testing Machine

Lab for wet analysis of elements

Sand testing-Sieve analysis

Metallurgical Microscope

Measuring 2m Die surface table

Equipment Height Gauge

Outside Inside Calipers

Machine Shop1. VTL- 1 Mt -1No Baring machine-100 mm-1 No

2. VTL-102mt-1No Radial Drilling Machine-(2)-1 No

3. VTL-1.2Mt-1 No Plano Miller-5 mts-1 No

4. Ferrous material is used in production of steel

5. GSAC is taking orders direct from customers and delivery on orders

6. They have direct distribution

7. GSAC provides capital goods and sales connect is main implemented

8. GSAC has handmade capital goods, there is no machine

9. Giving the major priority to the customers

10. GSAC give the suggestions requirements to the customers to improve the efficiency of their materials

Table 3.1 STATEMENT OF WORKING EMPLOYEES IN THE ORGANISATION

WORKERSSALARYNO.OF.PEOPLE

SKILLED400030-40

SEMI SKILLED3000120

UN SKILLED2500100

STAFF600015

CONTRACT CASOUR200(2,00,000P.M)

Table 3.2STATEMENT OF MELTING FACILITIESTYPEFURNISHED DETAILS

SAND RECLAMATION SYSTEMCAPACITY:6.0MT/HOUR

CONTINOUS SCREW MIXER:2-PARTCAPACITY:5.0MT/HOUR

QTY:2Nos

SAND MULLERSCAPACITY: 500 kg.

QTY:2Nos

Table 3.3STATEMENTS OF MATERIAL HANDLING FACILITIES-CRANESRANK CRANES,HYDERABAD

E.O.T1. 50 T 01No

2. 30 T 01No

3. 20 T 01No

4. 15 T 03Nos

Table 3.4

STATEMENT OF POURING FACILITIES20 T BOTTOM POURING LADDLES01 N0.

15 T BOTTOM POURING LADDLES02 No.

12 T BOTTOM POURING LADDLES01 No.

Table 3.5 STATEMENT OF HEATS TREATMENT FACILITIESHTF-01 (Oil Fired with Recorder)

Qty = 01No.

(BOGIE HEART, BATCH TYPE AUTO CYCLE CONTROL & DIRECT FIRING TYPE)1. Capacity: 32T

2. Size: 5500WX 7500 DX 3000 H

3. Used for: Normalizing, Tempering

4. Temperature Range: 0-1150 C

5. Type: Oil Fired

*HTF-02

(Oil Fired with Recorder)

Qty. = 01No.

(BOGIE HEART, BATCH TYPE AUTO CYCLE CONTROL & DIRECT FIRING TYPE)1. Capacity: 20T

2. Size: 3500WX 4000 DX 2000 H

3. Used for: Normalizing, Tempering & Water Quenching

4. Temperature Range: 0-1150 C

5. Type: Oil Fired

Water Quenching Tank1. Capacity: 45000Lt/10000 Gallons

2. Size: 4000mm * 4500mm * 2500mm

Table 3.6STATEMENTS OF QUALITY CONTROL FACILITIES

TYPEDETAILS

Spectrograph

Capabilities/Number of Channels/Trace elements Analysis capability with elements nameSPECTRO:MAX * M-DESKTOP

Model: Optical Emission

Spectrometer with Nitrogen AnalysisTrace elements:15(C, Si, Mn, P, S, Cr, Ni, Mo, Al, Cu, Nb, Ti, V, Sn, & Fe)

Chemical Lab- Web AnalysisCARBON & SULPHUR APPARATUS Make: KSM Laboratories, Chennai, all elements carrying out chemical analysis at our Lab.

UTM/Tens meter for TensileName: UNIVERSALTESTING MACHINE Make: Crystal Tech Engineers, Kolhapur.Capacity:60 T

Metallographic- MicroscopeName: METALLURGICAL MICROSCOPE Make: Scientific Technologies.Mode: EPIMET-2 (Inverted Model)

Polishing EquipmentName: SPECTRO SAMPLE POLISHING DISC

Make: UNIMAT.Mode: ALUMDUM G-14 (SDP)

Impact Testing MachineName: IMPACT TESTING Make: FIE* Available at Unit-1

Hardness Testing MachineName: DIGITAL HARDNESS TESTER

ULTROSONIC EquipmentName: DIGITAL ULTROSONIC EQUIPMENT

Figure 3.6ORGANISATION STRUCTURE MD

EXECUTIVE DIRECTOR

PERSONAL ADMINISTRATION

PURCHASING STORES

ACCOUNTS

SALES EXECUTIVE

QUALITY CONTROL & ASSURANCE

PRODUCTION

MACHINE SHOP

DESPATCH

TECHNICAL METHODING

PETTESON SHOP

MARKETING

The Indian Metal casting (Foundry Industry) is well established. According to the recent World Census of Castings by Modern Castings, USA Indiaproduces an estimated 6 Million MT of various grades of Castings as per International standards.

The various types of castings which are produced are ferrous, non ferrous, Aluminum Alloy, graded cast iron, ductile iron, Steel etc for application in Automobiles, Railways, Pumps Compressors & Valves, Diesel Engines, Cement/Electrical/Textile Machinery, Aero & Sanitary pipes & Fittings etc & Castings for special applications. There are approx 4500 units out of which 80% can be classified as Small Scale units & 10% each as Medium & Large Scale units.Approx 500 units are having International Quality Accreditation. The large foundries are modern & globally competitive & are working at nearly full capacity. Most foundries use cupolas using LAM Coke. ExportsThe Exports are showing Healthy trends approx 25-30% YOY as can be seen from the charts below. The current exports for FY 2005-06 are approx USD 800 Million.

EmploymentThe industry directly employs about 5, 00,000 people & indirectly about 1, 50,000 people & is labour intensive. The small units are mainly dependant on manual labor However, the medium & large units are semi/ largely mechanized & some of the large units are world class

.

Important Clusters:-

There are several foundry clusters .Some of the major clusters are as below. Each cluster is known for its type of products.

PRODUCT MIXGrey iron is the major component of production followed by steel, ductile iron & non ferrous as Shown below

PRODUCT MIXThe Indian Foundry Industry is trying to focus on higher value added castings to be at the competition.

INVESTMENTSIndia would need approx. $ 3 Billion in investment to meet the demand of growing domestic industry and strong export drive.

Following the economic reforms the Govt. of India has reduced tariffs on imported capital goods as a result the annual average amount of FDI is reported to have increased but is still one tenth of the annual FDI in China. The reforms also encourage the privatization of industry enabling foreign companies to invest or enter into joint ventures with Indian Foundries. FDI projects are permitted an automatic approval process. Several International corporate from USA, EU and East Asian Countries have increased overseas foundry operations in India. i.e. VOLVO foundries in Chennai and Suzuki in Haryana. Sundaram Clayton has joined hands with Cummins. Hyundai Motors, Delphi. Ford India, Tata-Cummins, GM and Ford have contracts of foundry products for export with a value of $ 40 Million.

RAW MATERIAL & ENERGY Since 2006 the steep increase in cost of raw materials and energy have resulted in the closure of approx. 500 units, Overall India is exporter of Pig Iron but must import Scrap metals and Coke etc. Cost recovery for material and energy is very difficult as most contracts are long term contracts without any clause for price adjustment. India has to import coke & scrap. Moulding sand is locally available & India has an advantage on this account .Energy cost typically vary between 12-15%

LABOUR

India has major competitive advantage over the foundry industries in the developed countries. The total labour cost account for 12-15%

TECHNOLOGYGovt. of India (GOI) has encouraged technology transfer through JV with foreign Companies and GOI has cooperated with UNIDO with many foundry clusters. Indian foundry industry has an edge over China for producing complex machined and precision castings as per international quality standards. The GOI also helps upgrade foundry clusters. The clusters in Belgium, Coimbatore and Howrah are undergoing modernization under the industrial infrastructure up gradation scheme. More of such clusters are likely to follow

The Institute of Indian Foundry man has plans to strengthen and develop various foundry clusters.

AN OVERVIEW OF THE FOUNDRY CLUSTERS IN INDIAThere are more than 5,000 foundry units in India, having an installed capacity of approximately 7.5 million tons per annum. The majority (nearly 95%) of the foundry units in India falls under the category of small-scale industry.

The foundry industry is an important employment provider and provides direct employment to about half a million people.

A peculiarity of the foundry industry in India is its geographical clustering. Some of the major foundry clusters in the country are shown in the map.

Typically, each foundry cluster is known for catering to some specific end-use markets. For example, the Coimbatore cluster is famous for pump-sets castings, the Kolhapur and the Belgium clusters for automotive castings and the Rajkot cluster for diesel engine castings.

FOUNDRY CLUSTER: BELGIUMAbout 100 foundry units at Belgium. The geographical spread of the cluster includes primarily catering to the needs of the automobile industry at Pune.

Belgium is recognized to be a reliable source of high precision, high volume and economical castings. A significant percentage (almost 20%) of the foundry units at Belgaum has ISO 9000 certification and export casting.

INDIA SHARPENS ITS FOCUS ON FOUNDRIESWhile Rajendra Singh was working on his doctoral degree in physics in Canada during the late 1970s, he dreamed of one day returning to his native India to manufacture sola Photovoltaic cells cheap enough to be installed on every rooftop in the country. But over the next few decades, as the focus of his career in U.S. academia shifted increasingly to semiconductor manufacturing, his homecoming plan slowly evolved.

Today, instead of manufacturing solar cells, his goal is to build Indias first modern 12-inch semiconductor fabrication plant to provide foundry services to multinational chip customers and the countrys burgeoning chip design industry

We want to leave a legacywe want to be the creator of an industry that is not yet here, says Singh, who currently splits his time between his duties as an electrical engineering professor at Clemson University and chairman of India Electronics Manufacturing Corp. (IEMC). IEMC is one of several groups attempting to set up chip foundries in India (see Move Over, China, March 2006). Headed mostly by expatriate Indians who have worked in the U.S. technology industry, they hope to eventually replicate the success of Taiwans $35 billion semiconductor industry. Taiwanese industry veterans brought the expertise they gained from overseas back to their home country about 20 years ago and started a semiconductor industry there. The jury is still out on the prospects for Indias returning chip entrepreneurs. But its clear that their success will depend, at least in the early stages, largely on imported engineering talent and capital as well as substantial government incentives.Joanne I tow, an analyst with Semico Research, says government support in the form of financial incentives and infrastructure improvements is imperative. But equally important, she says, is developing a unique story to attract investors and customers. The countrys booming economy and electronics market; large, skilled workforce; and relatively strong intellectual property protections offer some of the necessary ingredients. Another enticement, says Gartner Dataquest foundry analyst Jim Hines, is proximity to Indias fast-growing chip design industry, which now boasts more than 100 companies, including subsidiaries of many of the worlds top chip makers, says Hines, When you compare India with China, thats a clear difference.GOVERNMENT INCENTIVESGovernment support for Indias technology industry has strengthened dramatically since the 2004 election of Prime Minister Man Mohan Singh, an Oxford-trained economist and former central banker who has welcomed foreign investment and helped liberalize the economy. Recently, the government identified the semiconductor industry as a particularly high priority.

Finance minister P. Chidambaram declared during his annual budget speech to parliament in February that the time is ripe to make India a preferred destination for the manufacture of semiconductors.His 2006 budget calls for a three-year program to encourage chip makers to set up factories in India. A detailed national semiconductor policy is still being drafted, but the incentives for qualifying projects are expected to include tax breaks, loans and the option of equity investments through India Infrastructure Finance Co. India will need to spend heavily to compete with other countriesincentives. China, Ireland, Israel and Malaysia, for instance, reportedly offer much higher tax breaks to semiconductor makers than India currently does. And their largesse goes far beyond tax relief. Israel recently provided a $540 million grant to persuade Intel to build a $3.5 billion fab there.

Nonetheless, industry officials expect India to soon be much more competitive. Vinod Agarwal, chairman of SemIndia, which is planning a $3 billion fab in India, says he expects the new government policy to level the playing field with other countries. Deven Verma, chairman of Hindustan Semiconductor Manufacturing Co. (HSMC), which is planning its own $3.5 billion fab, expects Indias incentives to reach nearly the level of Israels. It could easily be half a billion dollars if youre doing a big fab, he says.

At least some of those incentives are likely to come from Indias state governments. Andhra Pradesh, Karnataka, Tamil Nadu and Uttar Pradesh, among others, have been competing fiercely to attract the proposed chip projects, which could create thousands of jobs and other economic benefits.

Some of the project organizers are still weighing offers from various locations, but SemIndia recently signed a memorandum of understanding to locate in a fab citytechnology park outside Hyderabad, in the southern state of Andhra Pradesh. Quality-of-life considerations and easy access to the new Rajiv Gandhi International Airport, scheduled to open in 2008, contributed to the companys decision. But SemIndias Agarwal says financial incentives also were an important factor. He says his companys incentives package includes 1,200 acres, tax breaks and upgraded roads as well as attractive rates for communications, water, power and waste-treatment services.

DIFFERENT STRATEGIESAll the proposed Indian fab projects thus far plan to operate as foundries, providing manufacturing services for other companieschip designs. But a key difference between the projects is their size and scope. Several groups are planning smaller, less costly 8-inch fabs, and others are proposing leading-edge 12-inch fabs. There are merits to both strategies, but some expect the Indian governments forthcoming policy to support only the larger projects.

Varma says he expects any foundries coming up in the next three years to qualify for incentives. But IEMCs Singh says government support will be limited to just 12-inch fabs. Theyre not going to put any money into the older fabs, he insists. Government official sarent tipping their hand yet, but a recent Indian press report quoted an unnamed senior government official as saying that prospective fab developers will have to invest at least $1 billion in India to qualify for government loans and equity investments. If true, that could hurt some of the smaller projects chances.Three of the five groups are planning 8-inch fabs, at least for their initial stages. Nano-Tech Silicon India broke ground outside Hyderabad in June 2005 on what was to be a $600 million 8-inch fab. But recent visitors to the site say that no construction appears to be under way. And despite sporadic Indian press reports about possible tie-ups between Nano-Tech and IBM (and more recently Intel), there have been no recent statements from the projects organizer, Korean businessman Pyung June Min, to clarify whether his companys technology and investment partners are still in place.

Another 8-inch fab was proposed last year by IndiasNest Group, a diversified electronics conglomerate that announced plans to build a $1 billion memory foundry in Indias Kerala state, with backing from Japanese partners. The company has said little about the project since then, however, and did not reply to inquiries from electronic business. Company officials have said they plan to open a chip design center this year and a chip test and assembly plant in 2007.

HSMC plans to start by relocating an existing 8-inch production line to India. The companys $500 million first phase calls for taking over a 180- to 130-micron manufacturing process, and all the necessary fab equipment, from an as-yet-unnamed U.S. chip maker seeking to outsource some of its production. Verma says his group will continue producing chips for the seller after moving the operation to India. It also plans to use the 8-inch fab for technology development and engineer training while building a second, $3 billion 12-inch fab.

Even Seminude, which aims to ultimately build a $3 billion 12-inch fab, plans to get its feet wet in India first with a chip assembly and test operation. Agarwal calls the assembly and test facility, scheduled to start construction this year, the first logical step in our vision to make India a semiconductor manufacturing destination. Semicos Itow says that beginning with test and assembly is not such a bad idea. She says it may help a company establish trusted business relationships before getting into the actual foundry business.

IEMC, however, plans to start immediately with a 12-inch fab and technology for making 90-nanometer circuits. Its likely to cost at least $3 billion, although the precise details including location, investors and technology partners are still being negotiated. Singh is adamant that state-of-the-art fabs and process technology will be needed to create a viable Indian chip manufacturing industry. We cannot compete with older-generation technology, he says, adding that many of the 8-inch foundries in China, Israel, Malaysia and Singapore are struggling to make a profit

Chris Dsseldorf, an analyst with research firm Strategic Marketing Associates, agrees that the economics of 12-inch fibs can be more attractive, although the fabs cost more. The 12-inch fabs are much more efficient, he says. Besides lower per-chip production costs, they typically offer significant water and electricity savings.

The good news for Indias would-be chip makers says Gartner analyst Hines, is that the foundry business is outgrowing the rest of the chip industry and there probably is still room for additional players.

He notes, however, that whatever strategy they adopt, neither they, nor the Indian government, should expect quick success. Look at Japan, Korea and Taiwan,Hines says. It took them years of work and government support and investment to create their semiconductor manufacturing industries. It needs to be a long-term commitment.

CHAPTER-4

THEORETICAL FRAMEWORK OF FUNDSFLOW ANALYSIS

THEORETICAL FRAMEWORKFinancial analysis is the process of identifying the financial strengths and weaknesses of the firm. It is done by establishing relationships between the items of financial statements viz., Balance sheet and Profit and Loss account. Financial analysis can be undertaken by management of the firm or by parties outside the firm, viz., owners, creditors, investors and others.

Analysis of financial statement refers to the art of applying various tools to know the behavior of the accounting information. It is the process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firms position and performance.

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

Some people call fundas cash. But it is seen in practice that the currents assets are constantly circulating through cash account in business operations and many transactions affect flow of cash at least later or sooner. For example, the sale of goods on credit increases in accounts payable rather than resulting in an immediate cash flow.

Similarly, certain expenses may result in a current liability since they might not have been paid immediately. In other words, it may be said that any current assets and or current liability has its impact on working capital (as working capital is the difference of current assets and current liabilities) rather than cash. Therefore there is another view about meaning of fund that it means working capital.

Financial statement analysis is largely a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of the trends of these factors as shown in a series of statements.

RULEThe flow of funds occurs when a transaction changes on one hand a non-current account and on the other a current account and on the other a current account and vice versa.

When a change in non-account e.g., fixed assets, long-term liabilities, reserves and surplus, fictitious assets etc., is followed by change in another non-current account, it dues no amount flow of funds.

TYPES OF ANALYSISTwo types of analysis are undertaken to interpret the position of an enterprise. They are

1. Vertical analysis

2. Horizontal analysis.

The companies act, 1956 permits the companies to present the financial statements in vertical as well as horizontal form.

VERTICAL ANALYSISIt is the analysis of relationship as between different individual components. It is also the analysis between these components and their totals for a different component for a given point of time. It does not focus light on changing behavior of the above relationships. It is also regarded as static analysis. Comparison of current assets to current liabilities or comparisons of debt to equity for one point of time are the examples of vertical analysis.

Thus, the vertical analysis can be made in the following ways.

i. By preparation of common size statement of the two similar units

ii. By preparing common size statement of different years of the same business unit.

HORIZONTAL ANALYSISIt is the analysis of change s in deferent components of the financial statement over deferent period with the help of a series of statement. such an analysis makes it possible to study periodic fluctuations indifferent components of the financial statement study of trends in debt or share capital or their relationship over the past ten year period or study of profitability trends for a period of 5(or)10 years . Horizontal analysis is also known as dynamic analysis

i. Comparison of the financial statement of deferent years of the same business units

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

METHODS OF ANALYSISA financial analyst can adopt the following tool for analysis of the financial statements these are also termed as methods of financial analysis.

1. Competitive statement analysis

2. Common size statement analysis

3. Trend analysis

4. Funds flow analysis

5. Ratio analysis

FUNDS FLOW ANALYSIS

In any business we cannot under estimate the flow of funds from two operations. The business runs with funds but the organization knows how to flow of funds. The Funds Flow Statement is concerned with sources and applications of organization. Statement of changes in working capital shows the increase or decrease in the working capital. Funds from Operations statement shows how much funds from operations.

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

Although financial statements supply useful information to the management and describe the nature of changes in ownership as a result of the periods productive and commercial activities, these statements fail mirror the funds changes that have taken place over a given time span. They do not spell out the movement of funds.

It is more important to describe the sources from which additional funds were derived and the uses to which these funds were put, because the ultimate success of a business enterprise depends on where got and where gone situations. The Funds Flow Statement is, therefore, prepared to uncover the information which the financial statements fail to describe clearly.

Thus, Funds Flow Statement is a report which summarizes the events taking between the two accounting periods. It spells out the sources from which funds were derived and the uses to which these funds were put. This statement is essentially derived from an analysis of which these have occurred in assets and liabilities items between two balance sheet dates. In this statement, only the net changes are shown so that the outcome of a transaction upon the financial condition of a business enterprise reflected more sharply.

MEANING OF FUNDS FLOW STATEMENTThe funds flow statement is a report on the movement of funds or working capital . It explains how working capital is raised and used during an accounting period.

MEANING OF FUNDThe term fund has been defined in a number of ways. In narrow sense it means cash only. A fund statement prepared on cash basis is called a cash flow statement. In a broad sense the term funds refers to all financial resources. However the concept of funds as a working capital is the most popular and widely accepted. Working capital is the excess of current assets over current liabilities.

MEANING OF FLOW OF FUNDThe term flow means change. Thus flow of fund means change in fund or change in working capital flow of fund is said to have taken place when a business transactions makes a change in the amount of fund which existed just before the happening of the transaction. The flow of fund refers to transfer of economic value from one asset to another, from one equity to another, from one asset to equity or vice versa or a combination of any these. Funds flow statements essentially study the movement s to and from working capital area.

1. The inflow into working capital for the whole year as a consequence of rising of capital, raising of loans, sales of fixed assets, sales of investments and operational inflow due to profits. Funds from operations have to be adjusted. Depreciation on fixed assets loss on sales of fixed assets, provisions and reserves are added and gain on sales of fixed assets is to be deducted.

2. out flow from working capital as a consequence of purchasing of fixed Assets, payment of dividends, payment of taxes payment of preference Capital and long term debts, payment of debenture etc.

REVIEW OF LITERATURE A statement of sources and applications of funds is a technical device designed to analyze the changes in the financial condition of a business between two dates

- R.A.FOULK The fund flow statement describes the sources from which additional funds were derived and the uses to which these funds were put

- R.N.ANTONY It is a statement which highlights the underlining financial movements and explains the changes of working capital from one point of time to another.

- BIERMAIMPORTANCEFund flow statement is to indicate where funds came from and where it was used during the certain period.

1. Funds flow statement determines the financial consequence business operations. It shows s how the funds were obtained and used in the past. Financial manager can take corrective actions.

2. The management can formulate its financial policies dividend, reserve etc. On the basis of the statement.

3. It services as a control device when comparing with budgeted figures. The Financial manager can take remedial steps, if there is any deviation.

4. It points out the sound and weak financial position of the enterprise.

5. It points out of the causes for changes in working capital.

6. It enables the bankers, creditors of financial institutions in assessing the Degree of risk involved in granting credit to the businesses. SIGNIFICANCE 1. Useful in Decision Making to the Management:

With the help of the funds flow statement, the analyst can evaluate the financing pattern of the enterprise. An analysis of the major sources of funds in the past reveals what portion of the growth was financed internally and what portion externally. The statement is also meaningful in judging whether the company has grown at too fast rate, credit has increased out of proportion to expansion in current assets and sales. If trade credit has increased at relatively higher rate, one would wish to evaluate the consequences of slowness in trade payments on the credit standing of the company and its ability to finance in future.

The funds flow statement serves as handmaid to the fiancmanager in deciding the make-up of capitalization. Estimated uses of funds for new fixed assets, working capital, dividends and repayment of debt are made for each of several future years. Estimates are made of the funds to be provided by operations, and the balance must be obtained by borrowing or issuance of new securities.

If the indicated amount of new funds required is greater than the finance manager thinks it is possible to raise, then plans for new fixed asset acquisition and the individual policies are re-examined so that the uses of funds can be brought into balance with the anticipated sources of financing them. In particular, funds statements are very useful in planning Intermediated and long-term financing.

The funds flow statement reveals clearly the causes for the financial difficulties of the company. The difficulties may be due to improper mix of short and long term sources, unnecessary accumulation of inventory of the fixed asserts, etc. these can be found out by a careful study of the funds flow statement.

2. Useful for Economists

With the point of view of economists, the fund statement has much importance. In India has made use of its analysis of flow of fund in various sectors, e.g.,BankingSector.

3. Useful for banks and for Financial Institutions

Banks and other financing institutions have also recognized the importance of fund statement. This statement helps to know the credit worthiness and repaying capacity of the concern. The banks and financial institutions ask the concern to prepare fund flow statement for a number of years. With its help, the banks can know about the risk involved in granting credit to the business concerns. What is the performance of the concern in using the funds effectively? This can be known from the fund flow statement only.

4. Useful for Investors

The investors and share holders may easily find themselves in possession of the information about managerial policies relating to payment of dividends, earnings capacity, and effective use of working capital on the basis of funds flow statement. They can take decision on the basis of funds flow statement.

5. Other Uses

Besides the above Funds Flow Statement has much importance in many other ways. It helps in framing a suitable dividend policy. It also suggests the ways for improving the working capital position of the concern. It gives many other useful information relating to business affairs which are not depicted in balance sheets. Sometimes profit disclosed by Profit and Loss a/c may mislead as it is affected by many non-cash charges such as depreciation, written off good will and preliminary expenses. These do not affect the fund or working capital, so Fund Flow Statement can provide correct amount of generated by business operations.ADVANTAGESThe funds flow statement is of primary importance to the financial management. It is an essential tool for financial analyses. It is been widely used by financial institutions, financial managers and analysts. 1. Analyses of Financial Operations

The main purpose of funds flow statement is to analyze the financial operation of the businesses .the statement explains the causes for changes in the assets and liabilities during a period. 2. Evaluation of the Firm Financing The analysis of sources of funds reviles how the firm has financed its development projects in the past from internal sources or from external sources .it also reviles the rate of growth of firm.

3. Allocation of Scare Resources A projected funds flow statement is an instrument for allocation of resources. It lays down the plan for efficient use of scarce resources in future. It enables the management to discharge its financial obligation promptly.

4. Helps in Working Capital Management

Funds flow statement indicates the adequacy or inadequacy of working capital .the management can take steps for effective use of surplus working capital. 5.Act as a Guide to the Future With the aid of projected funds flow statement the management can plan for meeting future financial requirements.

6. Helps Financial Institutions

The funds flow statement is also useful to leading institution like banks, IDBI, ICICI, IFCI, and others.

OBJECTIVES The main objectives of funds flow statement are:

1. To show how the resources have been obtained and used to indicate the results of current financial management.

2. To throw light upon the most important changes that has taken place during a specific period.

3. To show how the general expansion of the business has been financed.

4. To indicate the relationship between profits from operations, distribution of Dividend and rising of new capital or term loans to have an assessment of the working capital position of the concern.

5. The funds flow statement contains all the details of the financial resource which have become available during an accounting period and the ways in which those resources have been used up.

6. This statement discloses the amounts raised from various sources of finance during a period and then explains how that finance has been used in the Business.

7. This statement is valuable in interpretation of the accounts.

8. It is a very useful tool in analysis of financial statements which analyses the Changes taking place between two balance sheet dates. 9. The statement analyses the changes between the opening and closing balance sheets for the period. A balance sheet sets out the financial position at a point of time, setting liabilities form which funds have been raised against assets acquired by the use of those funds.

10. A funds flow statement analyses the changes which have taken place in the assets and liabilities during certain period as disclosed by a comparison of the opening and closing balance sheets.

LIMITATIONS OF FUNDS FLOW STATEMENT The limitations of funds flow statement are listed below:

1. Funds flow statement is not a substitute for an income statement or balance sheet. It provides only some additional information regarding changes in working capital.

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

3. It is not an original statement. It is only a rearrangement of data given in financial statement.

4. Funds flow statement is essentially historic in nature. A projected funds flow statement, on the basis of it cannot be prepared with much accuracy. It does not estimate the sources and application of funds of the near future.

5. It cannot reveal continuous changes.

Distinguish between funds flow statement and balance sheetFUNDS FLOW STATEMENTBALANCE SHEET

It is prepared to know the total sources and their uses in a year. It is prepared to know the financial position.

It is dynamic as it reveals the changes in the value of fixed assets and their effect on flow of funds.It shows the assets and liabilities as on a particular date, as such it is a static statement.

It is prepared with the help of balance sheets of two consecutive years.It is prepared on the basis of deferent accounts in the ledger.

Its preparation is at the discretion of the management. Its preparation is a statutory obligation and as per the format prescribed under legal provisions.

In funds flow statement, current assets and current liabilities are used to find out increase or decrease in working capital.In balance sheet, current and current liabilities are show item wise.

It is useful for internal financial management.It is useful not only to the management , but also to the share holders, creditors, outsiders and government agencies etc.

Distinguish between funds flow statement and income statementFUNDS FLOW STATEMENTSINCOME STATEMENTS

Its main objective is to ascertain the funds generated from operations. It reveals sources of funds and their applications. Its main objective is ascertained the net profit earned or loss incurred by the company out of businesses operations at the end of particular period.

It is prepared based on the financial statements of two consecutive years It is prepared on the basis of nominal accounts of particular accounting period

Funds flow statement matches the funds raised with funds applied. No distinction is made between capital and revenue items.But the income statement matches cost of goods sold with sales, to ascertain profit or loss. It deals with revenue items only.

It takes into account not only the funds available for trading operation but also funds available from other sources like issue of share, capital/debentures ,sales of fixed assets ,etc.It uses only income and expenditure transactions relating to trading operations of a particular period.

Income statement is one of the source documents in preparation of funds flow statement.An income statement can be prepared without the help of funds flow statement.

Preparation of funds flow statement is not a statutory obligation and is left to the discretion of management.Preparation of profit and loss account is a statutory obligation and should prepare in accordance with the legal requirements.

It may be prepared much before businesses operations and act as an instrument of planning and control.It is static in as much as it gives information on what has happened during the period covered by it.

It can be prepared as and when management wants it.It is prepared only at the end of accounting period for the period covered by it

STEPS IN PREPARATION OF FUNDS FLOW STATEMENT STEP I PREPARATION OF CHANGES IN WORKING CAPITALThis statement follows the statement of sources and application of funds. The primary purpose of the statement is to explain the net change in working capital, as arrived in the funds flow statement, all current assets and current liabilities are individually listed. The working capital position at the beginning of a period is changed to a different position at the end of that period. A statement of working capital is prepared to depict the changes in working capital. Working capitals represent the excess of current assets or current liabilities.

Since several items i.e. all current assets and current liabilities are the component of working capital, it is necessary to measure increase or decrease there in, by preparing a statement or schedule changes in working capital. and their effect of working capital. The total increases and total decreases in the end are compared and the deference of total Statement of schedule of changes in working capitalParticularsBeginning of the yearEnd of the yearWorking capital

IncreaseDecrease

Current assets

Cash in hand & bankXxxxxxxxx_

Bills receivableXxxxxx_xxx

Sundry debtorsXxxxxx_xxx

Closing stockXxxxxxxxx_

Short time investmentsXxxxxxxxx_

Prepaid ExpensesXxxxxxxxx_

Other current assetsXxxxxx_xxx

(A)Xxxxxxxx

Current liabilities

Bills payable Xxxxxxxxx_

Sundry creditorsXxxxxx_xxx

Outstanding expensesXxxxxx_xxx

Bank overdraft Xxxxxx_xxx

Short-term loans takenXxxxxxxxx_

Proposed dividend Xxxxxxxxx_

Provision for taxXxxxxx_xxx

Other current liabilities Xxxxxxxxx_

(B)Xxxxxxxx

Working capital(A-B)Xxxxxxxx__

Net increase or decrease in working capitalXxxxxxxxxxxxxxxx

Xxxxxxxxxxxxxxxx

BASIC RULES OF CHANGES IN WORKING CAPITAL1. Increases in current assets will increases in working capital

2. Decreases in current assets will decreases in working capital

3. Increases in current liability will influence to decrease working capital.

4. Decrease in current liability will increase the working capital

5. The amount of every item of current asset of the current year compared with its amount of previous year. If the amount of current asset of current year is more than its amount of previous year, the excess is recorded in debit column.

6. If the amount of assent of current year is less than its amount of the previous year, the deference is recounted in credit column. Make sure that all the account relating to current assets appearing in the two balance sheets on gone through differences or properly recorded. If the amount of each current liability of current year is more than its amount of previous year, the excess is recorded in the credit column.

7. If the amount of current liability of current year is less than its amount of previous year, the deficit is recorded in debit column. Find out total of all debit amounts and all credit amounts.

8. The above totals are compared in the end and the deference shows decrease or increases in the working capital the deference of total current assets and the total current liabilities of a year It. its working capital.

9. It the working capital at the end of the current year is more than the working capital at the previous year the excess is called increases in working capital. If previous years working capital is more than the current years working capital the excess is called decreases in working capital.

STEP 2 PREPARATIONS OF FUNDS FROM OPERATIONS Profit of a period is an important source of funds. The profit and loss account reveals the net profit or loss of a business. The net profit is arrived at after taking into account all items of income and expenditure (both operating and non-operating, both fund items and non-fund items).. There are two methods to find out the amount of funds from operations

Statement form

Account form

CALUCULATION OF FUNDS FROM OPERATION (statement form)Net profit earned during the year (current year)Xxxxx

Add: Non-fund and Non Operating item

Which are already debited to P&L a/cXxxx

Depreciation on fixed assetsXxxx

Goodwill written offXxxx

Discount on issue of share, written offXxxx

Preliminary expenses written offXxxx

Patents written offXxxx

Transfer to receiversXxxx

Loss on sales of fixed assetsXxxx

Less: Non-fund or Non-Operating items

Which are already credits of P&L a/cXxxx

Profit on sale of fixed assetsXxxx

Profit of revaluation of assetsXxxx

Rent receivedXxxx

Dividend receivedXxxx

Refund of income taxXxxx

Funds from operationsXxxxxx

If the profit and loss a/c shows a net loss, the above procedure will be received. (Funds flow can also prepaid by using format). Account FormAlternatively, an adjusted profit and loss account may be written up as follows and the balancing figure thus reference trading profit or fund from operation.

ADJUSTED PROFIT AND LOSS ACCOUNTTo Depreciation

To Preliminary expenses

written off

To Discount on share written off

To Goodwill written off

To Premium on redemption

To Transfers to receivers

To Loss on sale of fixed assets

To Closing balance of P&L

appreciation a/cxxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxxBy Opening balance of P&L

appreciation a/c

By Dividend received

By Excess provision written

back

By Trading profit of fund from

operation (balancing figure)xxx

xxx

xxx

xxx

Xxxxxxxx

STEP 3 PREPARATION OF FUNDS FLOW STATEMENT The basic rule in preparation of the fund s flow statement is as follows

The relationship between source and application of funds and its impact on working capital is explained in the format of statement and sources and application of fund given below.

STATEMENTS OF SOURCES AND APPLICATION OF FUNDSSOURCE AND APPLICATION OF FUNDS (Rs)

Funds from operationsxxx

Issue of share capitalxxx

Rising of long-term loans xxx

Receipts from partly paid share, called upxxx

Sales of non current (fixed) assetsxxx

Non-trading receipts, such as dividend receivedxxx

Sale f investments(long term)xxx

Decreases in working capital as per schedule of charges in working capitalxxx

xxxxx

APPLICATION OR USES OF FUNDS

Funds lost in operationsxxx

Redemption of preference share capitalxxx

Redemption of debentures xxx

Re payment of long term loan xxx

Purchases of non-current (fixed) assets Xxx

Purchases of long term investmentsXxx

Non-trading paymentsXxx

Payments of dividends Xxx

Payment of tax Xxx

Increases in working capital(as per schedule in working capital)Xxx

SOURCES OF FUND Issue of new shares

Issue of debentures

Creation of long term liability

Funds from operation

1. ISSUE OF NEW SHARES

On comparing the balance sheet of two dates there is an increase in share capital. It would affect working capital to the extent of current assets. If it does not have any impact upon fund, it would not be a source of fund. For example, shares issued and cash/stock/furniture received. 2. ISSUE OF DEBENTURES

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

3. CREATION OF LONG TERM LIABILITIES

If loan and mortgaged loan has been taken its increase between two balances sheet dates would be a source of fund.

4. SALE OF FIXED ASSETS

Any decrease in fixed assets due to sale of fixed assets is shown in the sources of fund as it involves cash or other current assets which are the elements of working capital.

5. FUNDS FROM OPERATIONS

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

APPLICATIONS OF FUNDSThe fund acquired in the business may be used in the following items:

Loss from Operation

Discharge of Liability

Redemption of Debentures

Redemption of preferences shares

Addition in assets

1. LOSS FROM OPERATION

Just like profit from operations is a source. Similarly loss from operations is treated as uses of fund. In fact, incurring of loss means out flow of funds. It may be due to increase in liabilities or decrease in assets or both.

2. DISCHARGE OF LIABILITIES

Any decrease in long term liability would be the indicator that fund has gone from the business liability which may be decreased due to decrease in assets (payment of creditors by giving cash of fixed assets to them) or increase in liability. For example, a liability is converted into another.

3. REDEMPTION OF DEBENTURES

If the redemption is made through conversion into shares or new debentures, it does not affect funds. If they are rendered in cash, it would affect fund.

4. REDEMPTION OF PREFERENCE SHARES

If these preference shares are redeemed by issue of new preference shares or equity shares or debentures such decrease in preference shares will not be treated as use of fund, as the flow of fund does not take place in this transaction.5. ADDITION IN ASSETS

If the assets whether current or fixed are increased, it will be shown in the uses of fund because such increase entails outflow of fund. If there is increase in fixed assets accompanied either by increase in long term liabilities or increase in share capital, there will not be outflow of fund. On the other hand, if these fixed assets are accompanied by decrease in current assets or increase in current liability, there would certainly be out flow of fund. CHAPTER-5 DATA ANALYSIS

DATA ANALYSIS AND INTERPRETATION Table 5.Statement of changes in working capital of G.S Alloy Casting Limited during the period 2006-07 Particulars20062007Effect on Working Capital

Increase

RsDecreaseRs

CURRENT ASSETS

Inventories 8300794.0030687803.0022387009.00

Sundry debtors 44778397.5390215354.0545436956.52

Cash and bank balance 1993509.143244604.231251095.09

Loans and advances 11124294.6717924217.656799922.98

Advances against purchases1409151.07206947.761202203.31

Advance against capital goods12472173.00102565.0012369608.00

Total (A) 80078319.41142381491.69

CURRENT LIABILITIES

Outstanding liabilities 8682219.5113086022.204403802.69

Creditors for purchase 29839376.2460479057.7530639681.51

Creditors for capital goods8695078.382914609.705780468.68

Advances against sales4466402.265367973.67901571.07

Total (B) 51683076.3981847663.32

Net current assets (A-B) 28395243.0260533828.37

Increasing working capital 32138585.3532138585.35

60533828.3760533828.3781655452.2781655452.27

Table 5.2Adjusted profit and loss account of G.S.Alloy Casting Limited during the period of 2006-07ParticularsAmount

Rs. (Crores)ParticularsAmount

Rs. (Crores)

To Depreciation 13335179.34By balance b/d2390805.42

To Preliminary Expenses 172840.00

To Balance c/d520784.79By funds from operations 11637998.71

14028804.1314028804.13

Table 5.3Funds flow statement of G.S.Alloy Casting Limited during the period of 2006-07SourcesRs.

(in crores)ApplicationRs.

(in crores)

Issue of equity shares 30933850.00Payment of shares application of money 14981639.00

Raising secured loans 101682386.11Reduction of unsecured loans10291.50

Funds from operations11637998.71Purchase of fixed assets 98531088.39

Decrease in deferred tax1407369.42Increasing working capital 32138585.35

145661604.82145661604.82

INTERPRETATION:From the above table 5.1 it is observed that the Working Capital of the company shows increased trend. The current assets of the company were increased from Rs.80078319.41, in 2005-06 to Rs.142381491.69, in 2006-07. The current liability of the company was increased from Rs 51683076.39 in 2005-06 to Rs.81847663.32 in 2006-07. In 2005-06, the net working capital of the company stood at Rs.28395243.02 cores and it was increased to Rs.60533828.37crores in 2006-07.

It is also evident from the above table 5.3 that the total funds flow during the period from 2006-07 amounts to Rs.145661604.24 crores. In the total funds 11637998.74 cores was received from funds from operation, 30933850 cores from issue of equity share, 101682386.11 cores from secured loans and 1407369.42 fromdecreased differed tax

Whereas the application of funds 14981639.00 cores is used for payment of share application money, 10291.50 for redemption of unsecured loans, 98531088.39 cores for purchasing fixed assets, and increasing working capital is 32138585.35 crores.

Table 5 .4 Statement of changes in Working Capital of G.S. Alloy casting Limited during the period 2007-08 Particulars 20072008Effect on working capital

IncreaseDecrease

CURRENT ASSETS

Inventories 30687803.0072538681.0041850878.00

Sundry debtors 90215354.05138031674.2547816320.20

Cash and bank balance 3244604.235226109.511981505.28

Loans and advances 17924217.6516118243.351805974.30

Advances against purchases206947.762433140.202226192.44

Advance against capital goods102565.005908128.005805563.00

Total (A) 142381491.69240255976.31

CURRENT LIABILITIES

Outstanding liabilities 13086022.2015329108.002243085.80

Creditors for purchase 60479057.75134539412.4774060354.72

Creditors for capital goods2914609.700.002914609.70

Advances against sales5367973.679516114.004148140.33

Total (B) 81847663.32159384634.47

Net current assets (A-B) 60533828.3780871341.84

Increasing working capital 20337513.421.95

80871341.8480871341.84102595068.62102595068.62

Table 5.5Adjusted profit and loss account of G.S.Alloy Casting Limited during the period of 2007-08 ParticularsAmount

Rs.(Crores)ParticularsAmount

Rs.(Crores)

To Depreciation 27896642.33By Balance b/d520784.79

To Preliminary Expenses 129630.00

To Balance c/d2436339.64By Funds from operations 29941827.18

30462611.9730462611.97

Table 5.6Funds Flow Statement of G.S.Alloy Casting Limited during the Period Of 2007-08SourcesRs.

(in Crores)ApplicationRs.

(in Crores)

Issue of shares application money 4083740.00Payment of secured loans 2964844.65

Issue of secured loans 111428.90Purchase of fixed assets9798078.54

Funds from operations29941827.18Decreasing deferred tax1036559.42

Increasing working capital 20337513.47

34136996.0834136996.08

INTERPRETATION:

From the above table 5.4 it is observed that the Working Capital of the company shows increased trend. The current asset of the company was increased Rs.142381491.69 cores in 2006-07 to Rs.240255976.31 crores in 2007-08. The current liability of the company is increased from Rs.81847663.32 cores in 2006-07 to Rs.159384634.47 cores in 2007-08. In 2006-07 the net working capital of the company stood at Rs.605338