Cash Flow At BTTL*

Nisha Kothari, an MBA aspirant always had an immense interest in stock market. Her interest in stock market was obvious as her father had inaugurated his first entrepreneurial venture, a broking firm on Nishas first birthday. Before starting the broking firm, he had worked seven long years as a Portfolio Manager in one of the leading broking firms. During childhood, the colourful pages of the annual reports often caught Nishas attention. Though she didnt understand, she tried to read the report, most specifically, the figures. Since she joined commerce, her father used to teach her Accounting. Last year when Nisha finished her graduation and joined a premiere B-school, her father started tutoring her about Financial Statement Analysis, the prerequisite for valuation of stocks. Recently, he taught Nisha the importance of Cash Flow statement in a Fundamental Analysis of the company and also taught her Free Cash Flow to the Firm and Free Cash flow to the Equity Methods of stock Valuation. Nisha wanted to apply these methods to the index stocks to see its result. But before experimenting, she wanted to get an expertise over preparation and analysis of Cash Flow Statement. Will will find a way, Nisha had found something interesting while reading an annual report of the company, Bhilwara Technical Textiles Ltd. in June 2010. The points of her interest in the company were- It was a very small company, de-merged from RSWM LTd., a leading textiles company in March 2009. As per the scheme of demerger, approved by the Hon'ble High Court of Rajasthan, every shareholder of RSWM holding 4 equity shares of Rs.10/- each was allotted 10 equity shares of Re.1/- each of BTTL . Though the main object of BTTL was to carry on the business of manufacturers and producers of all kinds of automotive and home furnishing fabrics, the major source of the income for the company was from dividend and interest on the investment made in one of the group companies, BMD Pvt Ltd. She thought, being a small company, it would be a great experience for her to prepare and analyse a cash flow statement of this company. Though the Cash flow statement was a part of the annual report, she had to prepare the statement of her own and wanted to compare it with the Cash Flow Statement printed in the annual report. Now, she had to proceed accordingly. She found that the information mentioned in the annual report was not enough to prepare the statement, so she had asked her father, the shareholder of BTTL, to collect the necessary information from the company in his next visit to Noida.
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*This case was prepared by Prof. Hariprasad R Soni .This case is intended to be used for class discussion and is
no way designed to present illustrations of either correct or incorrect handling of administrative problems.

Extract of statements from annual report:

Balance Sheet as at 31st March, 2010

SOURCES OF FUNDS Shareholder's Funds Capital Reserve and Surplus As at 31-03-2010 (Rs.) ( Schedule 1) ( Schedule 2) 55,300,000 13,130,725 As at 31-03-2009 (Rs.) 300,000 2,096,325 60,500,000

Share Capital- Pending Allotment Loan Funds Unsecured Loan 68,430,725

1,000,000 63,896,325

APPLICATION OF FUNDS Fixed Assets Less Accumulated Depreciation Goodwill Investment Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Loans and Advances

5,000,000 (1,000,000) 4,000,000 54,000,000

5,000,000 (500,000) 50,300 4,550,300 55,000,000

110,200 510,500 10,472,425 500,000 11,593,125

166,000 310,000 1,979,325 2,000,000 4,455,325

Current Liabilities and Provisions Current Liabilities Provisions

320,500 841,900 1,162,400 10,430,725

75,000 45,500 120,500 4,334,825 11,200

Net Current Assets Miscellaneous Expenditure (to the extent not written off or adjusted)

68,430,725

63,896,325

Profit & Loss Account for the year ended 31 March,2010

st

INCOME Sales Other Income (Schedule 3)

2,050,626 5,999,766 8,050,392

EXPENDITURE Operating and Other Expenses (Schedule 4) Depreciation and Amortization (Schedule 5) PBT Provision for tax Net Profit for the year Add: Balance brought forward from previous year Amount Available For Appropriation Appropriations Less Proposed dividend Less Corporate Dividend Tax thereon Balance Carried to Balance Sheet

1,112,592 561,500 6,376,300 122,350 6,253,950 2,096,325 8,350,275 615,000 104,550 7,630,725

Schedules to Statement of Accounts

As at 31.03.2010 (Rs.) 1. Share Capital Authorised 70,000,000 (Previous Year 70,000,000) Equity Shares of Re. 1/- each Issued, Subscribed & Paid-up 55,000,000 (Previous Year 300,000) Equity Shares of Re.1/-each fully paid up 70,000,000 70,000,000 55,300,000 As at 31.03.2009 (Rs.) 70,000,000 70,000,000 300,000 300,000

55,300,000 Note : Equity Share Capital includes 55,000,000 equity shares issued for consideration other than cash, pursuant to the Scheme of demerger of RSWM Limited. As at 31.03.2010 2. Reserves and Surplus Share Premium Account Profit and Loss Account (Rs.) Additions (Rs.) 5,500,000 2,096,325 2,096,325 5,534,400 11,034,400 Deductions (Rs.)

As at 31.03.2010 (Rs.) 5,500,000 7,630,725 13,130,725 (Rs.) 5,049,517

3. Other Income Dividend on Investment

Interest (Net)* 825,249 Profit on Sale of Investment 125,000 Total 5,999,766 *Interest (net) includes Receipt of Interest on Investment Rs. 925249 and Payment of Interest on Loan Rs. 1,00,000

4.Operating and Other Expenses Material Consumed Salaries & Benefits Legal & Professional Advertisement Postage Directors Sitting Fees Miscellaneous Expenses Audit Fees Bank Charges Total 5 Depreciation and amortization Depreciation on Fixed AssetsGoodwill Preliminary Expenses Total (Rs.)

(Rs.) 534,688 360,000 17,000 84,560 7,592 60,000 12,152 34,580 2,020 1,112,592

500,000 50,300 11,200 561,500

Additional information collected by her father-

1) Provision for 2009 includes - Proposed Dividend - Rs25,000, Provision for tax on Dividend Rs. 4,250, Provision for Tax Rs. 16,250 During the year, the amount of proposed dividend along with DDT and Tax has been paid in full. 2) During the year Investment having book value Rs. 1,000,000 was sold for Rs.1,125,000 .Unsecured Loan was paid in full. 3) Loans and Advances for the year 2009 was the amount of dividend declared but not received by the company. This amount was received in full during the year. Loans and advances for the year 2010 is the amount of interest accrued but not received.