CHAPTER-I

INTRODUCTION
1.1Analysis of Cash flow and Funds flow Statements
1.2 Objective of the Study
1.3 Objective of the Study
1.4 Limitation

1.1 INTRODUCTION:Cash plays important role in entire economic life of a business .A firm needs cash
to make payments to its suppliers, to incur day to day expenses and to play salaries,
wages, interest and dividend, etc.
Infact what is blood is to a human body, cash is to a business enterprise. It is very
essential for a business to maintain an adequate balance of cash. But many a times,
a concern operates profitability and yet it becomes very difficult to pay taxes and
dividend. This may be because of
(i)
although huge profits have been earned yet cash may not have been
received or
(ii)
Even if the cash has been received , it may be drained out for some
other purposes.

Funds flow statement is a statement is 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 a particular period and the way in
which these funds were employed .In simple words, it is a statement of sources and
applications of funds.

1.2 Objective of the Study

The present study was undertaken as partial of fulfillment of the MBA curriculum
during Aug-sept 2010(summer internship training).The objectives are as under
1. To know the financial position.
2. Performance of the firm
3. Growth rate of the firm
4.To critically examine the system of the firm over its business activity.
5.The firm has strength of fulfilling its obligations or not

1.3Scope of study:j The data and information were gathered during training.
j The scope is limited to the secondary data only.
j The scope is delimited to the year 2007 -08 to 2009-10.

1.4 Limitation:j It is only based on mathematical interpretation of figures and ignores the
factors such as management style, motivation of workers, leadership.
j It is effected by price level changes.
j It is post-mortem analysis of what has happened .The position in the interim
period is not revealed by analysis of cash flow and funds flow analysis.

CHAPTER-II
RESEARCH METHODOLOGY

2.1 Primary Data

2.2 Secondary Data

2.RESEARCH METHODOLOGY
The data or information has been collected from two sources:
(i)
(ii)

Primary data
Secondary data

2.1 PRIMARY DATA

Primary data are those data collected from individuals, officials, guide ,view
from heads of Finance department .These data are collected through observation
of records and files.
2.2 SECONDARY DATA

Secondary data are those which are already gathered and available .They may be
internal sources within the firm. Externally these sources include books,
periodicals, published report etc.For collection of data; I have consulted the
following secondary data:







Books on the subject

Annual reports
Published reports relevant to the subject
Commercial data
Files and records of the firm
Broachers provided by the financial department

CHAPTER-III

COMPANY PROFILE
3.1 ABOUT THE UNIT
3.2 PROMOTERS PROFILE
3.3 LOCATION
3.4 MARKET POTENTIAL
3.5 TECHNICAL ASPECTS
3.6 ECONOMIC FEASIBILITY
3.7 BASIS OF PRESUMPTION

3.1 PROJECT SUMMARY

Name of the Unit

MATRUSHAKTI RICE MILL

Location of the Unit

SHYAMAGUDIA, CHHAGARIA, PO:BAGADA,

DIST.:KENDRAPARA-754212

Name of the Entrepreneur

ISWAR CHANDRA SWAIN

Address

S/O : MANDAR SWAIN,

SHYAMAGUDIA, CHHAGARIA, PO:BAGADA,
DIST.:KENDRAPARA-754212

Father
Date of Birth
Permanent Account No.
Constitution
Nature of Business

MANDAR SWAIN
05/08/1964
CRHPS6283B
PROPRIETORSHIP
MANUFACTURING/PROCESSING OF PADDY
INTO RICE(RICE MILL)

Total Project cost

Rs.67,26,000

Break UP of Project Cost

CAPITAL EXPENDITURE
WORKING CAPITAL

Means of Finance

PROMOTERS CONTRUBUTION Rs. 23,26,000

BANK FINANCE: FUND BASED-CC Rs. 18,00,000
TL Rs. 26,00,000
Bank Guarantee : Rs. 5,00,000/GENERAL

Category
Banker

Rs. 40,26,000
Rs. 27,00,000

Product and By Product

STATE BANK OF INDIA, KENDRAPARA BAZAR

BRANCH, KENDRAPARA
54%
2.98
1.62
1.47
4.86
PADDY
7 Years(6 MONTHS MORATORIUM PERIOD EMI
OF RS. 51,000)
RICE, BROKEN RICE, RICE POLICY & HUSH

Production Capacity(Per Annum)

Quantity : 6000 MT

Average Break-Even Point

Average DSCR
Current Ratio
TOL/TNW
Net Profit Ratio
Major Raw Materials
Pay Back period

3.1

INTRODUCTION:

Rice is mainly used as main food in the form of milled grain. Rice may also be
used as flour or in broken form for any other food preparation. Rice constitutes the
stable food for half of the worlds population. Rice is a principal cereal crop grown
in warm humid areas of subtropical regions like India, Pakistan, China, Japan,
Thailand, Berma, Srilanka etc. Our country is second largest producer of rice in the
world. More than 80 million tones of paddy are milled annually in the mechanized
sector. Rice is a major crop in our country and most of the people live on rice. The
popularity of Rice depends on the fact that, it can readily cook into a soft, easily
digestible and palatable product. It is mainly consumed in the form of whole milled
grain. Rice Production in India accounts for about 60 percent of the total
production of all food grains. The production o Rice is one of the most important
cereal food grain and is used in almost all homes as eatables. The process of Rice
milling ends into by products like the husk and the outer layer of the rice that is
bran and broken rice from the raw material paddy.
About 90% of population of Orissa mainly consumes Rice as their two times
meals. Rice is abundantly grown particularly in districts like Balasore, Sundarga rh,
Gunjam, Undivided Cuttack, Puri, Khorda, Jajpur etc. The Abundant availability of
paddy and a vast market promoted the promoter to promote this unit and the same
has also been sponsored by KVIC under PMEGP scheme, NABARD and other
govt. sponsored scheme. Govt nodal agencies like, FCI, Orissa Stae Civi Supply
Corp. etc. are processing paddy in the rice mills.
Paddy is being processed by various methods. Major quantity of paddy is processed
through Rice hullers. In these hullers both shelling and polishi ng operations are
carried out simultaneously as a result there is no proper control on polishing of rice.
In this case, bran is obtained admixed with husk and higher breakage of rice occurs.
The yield of rice is 2-5% less than that obtained in modern mills . Today some
advanced techniques are being used for processing of paddy to get better yield and
white quality of rice. These types of rice milling plant are known as modern rice
milling plant. Advantage of modern rice mill is viz.
-

gives high yield and quality of white rice;

suitable for any kind of rice variety;
Easy operation and maintenance.

This scheme is prepared on the basis of modern rice mill and designed to
meet the needs of villages and substitute for a huller mill to get polished rice,
parboiled rice, rice bran and paddy husk.

3.2 ABOUT THE UNIT :

Mr. Iswar Chandra Swain S/o Mandar Swain is resident of Shyamgudia, Chhagaria,
PO : Bagada, Kendrapara, aged about 46 and has doing rice trading business more
than 25 years. The family is well established and well known in the locality. The
promoter will manage the proposed rice mill M/s Matrushakti Rice Mill with the
assistant of Cash Credit limit for Rs. 18,00,000.00, TL for Rs. 26,00,000.00 and
BG for Rs. 5,00,000.00 from State Bank of India, Bazar Branch, Kendrapara. The
said unit will be situated at Shyamgudia, Chhagaria, Po. : Bagada, Kendrapara
754212. The promoter has already started the development of the land. This year
Govt has estimated to process 2,27,000 quintal of paddy by the millers of
kendrapara. The Civil Supply Corporation permits the millers to procure and
process paddy only when the miller gives Bank Guarantee in favour of the
Corporation. The promoter projects to obtain the bank guarantee from the bank for
such procurement and processing. The promoter will use 60% of the total used
capacity of the plant for processing of Govt. paddy and 40% of the used capacity
will be used for processing of paddy purchased from open market. The unit will be
situated 3 kms from Kendrapara Town and adjacent to NH5A.

3.3 PROMOTERS PROFILE :

Mr. Iswar Chandra Swain aged 46 years old. Though he is undermatric, he is
successfully carring the rice/paddy trading business since last 25 years. Mr Swain
is very much capable and confide nt to implement the proposed unit in time
successfully. He has got excellent marketing knowledge and dashing performance
track record.

3.4 LOCATION

The proposed unit will be located at Shyamagudia, Chhagharia, po : Bagada,

Dist.:Kendarapara which is adjacent to NH 5A and near to Kendarapara Town.
There is bumper paddy production in the surrounding areas like
Jagatsinghpur, Pattamundai, Kendrapara. The unit is located in the centre of all
these said areas and also Govt. nodal agencies like FC I, Civil Supply Corp. etc. are
supplied paddy to the millers in the said ares for processing.

3.5 MARKET POTENTIAL :

In orissa, the yield per hectare of paddy is higher in kendrapara and
jagatsinghpur district in comparison with other parts. Previously orissa depends
upon neighbour states but now orissa supplies paddy/rice to these states. Now due
to the use of improved varieties of seeds, modern technology, mechanized
agricultural implements, use of fertilizers and pesticides etc. i.e green revolution,
the yield per hectare has improved significantly. Govt. is now sponsoring the rice
mills, godowns to process and store the paddy and rice. It shows that the production
and demand is increasing day by day particularly in kendrapara district.
The exporter performance of agriculture commodities in general taken an upward
trend since the country attained self sufficiency in food grains. And India plays a
very importance role in Worlds Rice trade. But virtue of food habits of Indians,
more than 70% population in urban areas and more than 90% the Rice market have
both internal and international demand for all times.
Rice is being taken as a food by majority of the population in our country and it is a
mass consumed item of every household. Its demand is ever growing. Rice bran,
which is a by-product, is a source of valuable edible oil. Husk can be used for
manufacturing of particleboard or Millboard. Crushed form of husk is also used as
cattle feed. With the development of new varieties of paddy by various Agricultural
Research Institutes and application of proper fertilizer and proper agricultural
practices yield of paddy is growing and it is expected in near future yield of paddy
in our country will increase manifold, which will further enhance the scope of
modern rice milling plants in different parts of the country, including Orissa.
The promoter projects to utilize 60% of total capacity in processing govt paddy and
40% of total capacity in own manufacturing. This implies that the project is more
secure and less risk. As it is explained above Govt nodal agencies are not able to
fulfill the requirements projected be cause of which they are encouraging
entrepreneurs to establish the Rice Mills. In this scheme, emphasis is being given
for proper marketing techniques and it proposed that along with bulk sales, unit
will also market rice in small pack size of 2 Kg, 5 Kg, 10 Kg, etc. Marketing in
small pack size will also attract new segment of customers. Keeping in view of
above fact, it is hoped that the unit will achieve its targets successfully.

10

3.6 TECHNICAL ASPECTS

1. Process of Manufacture :
The process of manufacture of Rice is a very simple one. For plain rice, the
raw material that is paddy to be cleaned and processed through the
Machinery for Raw rice. For boiled rice, the paddy has to be cleaned, boiled,
dried in the yard and processed thereafter through the Machinery.

Rice milling consists of a paddy cleaner, sheller, separator and polisher. The
total process can be summarized as below :
a)
A bucket elevator conveys the paddy brought into the Paddy cleaner.
The cleaner is designed to remove straw dust, stones, pebbles, etc. for the
enhancement of value of rice as well as to prevent malfunction of following
process due to mixing of dust.
b)
Clean paddy is thus obtained is then carried to a paddy husker. The
paddy husker consists of a husking chamber and an aspirator to separate
husked rice and husk. In the husking chamber, there are two rubber rollers
which revolve at different speeds and in opposite directions. The paddy
passes between the roller in a gap. The husking rate of paddy husk er through
dependent upon the quality of paddy, attains generally 85 -95%. Means the
husked rice discharged from paddy husker contains about 5 to 15% of
unhusked rice (Paddy).
c)
The separated paddy is again returned into the paddy husker for the
rehusking. Meanwhile husked rice is moved into the next whitening machine
made up of a combination of 3 or 5 units of abrasive roller type and fraction
type. Further refining is done by the removal of bran. The help of cone
polishing does polishing.
d)
Polished rice and bran are got separated and collected separately. For
milling of parboiled paddy, boiling of paddy with hot water takes place after
cleaning then it is dried and dehisced. The additional equipment required for
parboiling unit is mechanical drier and soaking tank for paddy.
The Raw materials is available within a radius of 10 kms. In Orissa now
farmers are harvesting two crops in a year hence raw materials is available
throughout the year at Govt. fixed rates. Also the same can be obtained from
Govt. nodal agencies. The unit is to be registe red with the various Govt.
Dept. (Like FCI, Nabard etc.) in future as a result the milling quota of paddy
is to be fulfill by the unit throughout the year.

11

2. Quality Standards:
There is no Indian Standard Specification for the quality of the Rice except
the size gradation. Hence the product is sold as per customers specification.
3. Production Capacity:
Quantity

(Per Annum)
6000 MT

4. Power requirement:

1000KW.

5. Pollution Control Needs:

Rice milling causes air pollution by exhausting husk particles during
dehusking and polishing. Besides air pollution it also creat es noise. So such
unit should be located far from human habilitation. Proper care should be
taken in dumping/sale of the husk and bran. Workers should be provided
with masks and noise protective implements. Unit should obtain NOC from
State Pollution Control Board.
6. Energy Conservation Needs:
Every care has to be taken in best and efficient utiliza tion of both the man
and machine hours avoiding wast age and help up of works.

3.7 ECONOMIC FEASIBILITY:

As we have already discussed, it is expected that 60% capacity will utilized for
govt paddy processing and 40 % capacity will be utilized for own manu facturing.
According out of total capacity of 6000mt, govt paddy processing will be 3600mt
and own processing will be 2400mt. From paddy processing the outputs are rice,
bran, husk and broken rice. The demand of these products in the market is
increased day by day. The details of out put and its present market value are as
under:
A)

INCOMES

PRODUCT MIX & TURNOVER ( AT 100 % Level)

PRODUCT

CAPACITY
PER YEAR

Fine/Polished Rice

1,440,000

Broken Rice
Bran

12

RATE
PKG (RS.)

Total
Value In
RS.

16.00

23,040,000

240,000

8.00

1,920,000

240,000

6.00

1,440,000

Husk

408,000

0.70

Dust

72,000

Processing Charges (Govt. Milling)

3,600,000

Total

6,000,000

285,600

0.90

3,240,000

29,925,600

TOTAL TURNOVER AT 100 % CAPACITY

29,925,600

The said projection is feasible because of Govt . agencies target and bumper
production of paddy in the nearby areas and also geographical location of the unit.

B. EXPENDITURE : The details of expenditure at 100%

capacity level will be as under which is viable in this type of
industries :
STATEMENT OF PROJECTED EXPENSES
A

Salary & Wages

Manager

Nos.

Rate ( Rs.)

Total Per
Month

SELF

Particulars

Supervisor

6,000

6,000

Per Annum
72,000

Skiled

7,000

14,000

168,000

3,000

6,000

72,000

Unskilled

12

3,500

42,000

504,000

Peon/watchman

2,000

4,000

48,000

72,000

864,000

72,000

Helper

864,000

Packing Materials
Sr. No.
1

Items

TON

Paddy
Gunny Bags
and other
packing
materials

200

10,000

LS

Total

13

Rate (Rs.)

Value In Rs.(PER MONTH)

2,000,000

20,000

2,020,000

UTILITIES
Water & Electricity
(100kw)

40,000
40,000

Other Admin. Expenses

Postage & Stationery

1,000

Transportation & Travelling Expenses

30,000

Repair & Maintenance

20,000

Telephone Exp.

2,000

Misc. Exp.(Including Insurance)

20,000
73,000

C.

D.

Capacity utilization :1st Year - 60%,

3rd Year - 80%,

2nd Year - 70%,

4th Year - 80%

Interest on term loan and Repayment :

This has been taken at 13.50% per annum. Repayments shall be done
in 78 equal monthly installments after 6 months moratorium period for
Rs. 51,000/- per month.
STATEMENT SHOWING THE REPAYMENT OF BA NK TERM LOAN @ 13.50% INTEREST

YEAR
1

Opening
Balance

principal
paid

Installment

Closing
Balance(
Rs.)

Interest(Rs.)

2,600,000

277,771

612,000

2,322,229

334,229

2,322,229

317,679

612,000

2,004,550

294,321

2,004,550

363,322

612,000

1,641,229

248,679

1,641,229

415,522

612,000

1,225,707

196,479

1,225,707

475,221

612,000

750,486

136,779

750,486

750,486

612,000

206,987

68,502

206,987

206,987

213,093

E.
p.a.

14

6,106

Interest on working capital loan : This has been taken at 12.50%

F.

Depreciation :
Depreciation has been taken only on assets to be created by the
promoter and shown in the fixed assets schedule of Balance Sheet.

G.

Profitability: The unit has projected to achieve an increase in net

profit continuously. The future projections suggest the trend of
profitability to continue. The firm projects to achieve a net profit of
Rs.8.73 Lacs, Rs. 11.40lacs, Rs. 16.01lacs, Rs. 17.08Lacs during the
period 2011-12, 2012-13, 2013-14, 2014-15 respectively. This
incremental is due to increase in the sales and decrease in interest on
Banks Loan as well as depreciation. We consider this is achievable in
the light of the explanation given above.

FEASIBILITY STUDY :

The project is feasible because of market potential, easy to manufacture of the

product, Govt. agencies assistance and the experience of the promoter in this line of
trade.
3.8 BASIS OF PRESUMPTION :

1. The production has been calculated on the basis of single of 10 hours and
300 working days in a year with provision of double shift in season.
2. The production capacity presumed to be achieved in the 1 st, 2nd and 3rd year
is 60%, 70%, and 80% respectively of total production capacity.
3. Labour wages has been considered keeping on eye on minimum wages act.
4. The entrepreneur will arrange 35% of Fixed Capital Expenditure and
Working Capital requirements.
5. The rate of interest on fixed capital is @13.5% and working capital is @
12.5%.
6. The operative period of the unit has been considered as 7 years within which
full repayment of loan has to be made.
7. The cost of machinery and equipment has been considered basing on the
prevailing market rates and as per the quotation collected from the suppliers.

15

8. The plant will run by the electricity from state electricity supply where a
sub-station has been/ will be installed with separate transformer and
connecting bass-bars.
9. The project cost is Rs. 67.26 lacs. Bank will finance Rs. 18.00 lacs for
working capital and Rs. 26.00 lac for building & plant commissioning along
with bank guarantee for Rs. 5.00 lac. The promoter will contribute Rs. 23.26
lacs for the project.
10. Moratorium period for the project is 6 months from the date of disbursement
of Term Loan.

IMPLEMENTATION SCHEDULE :
1.

Preparation of Project Report

Completed

2.

Selection of site and development of land

Complete

3.

2 months

4.

Registration and obtaining of permission from Deptt

of Food & Civil Supplies and NOC from State
Pollution Control Board, Bhubaneswar
Financial assistance

5.

Construction of Building or Shed

5 months

6.

Procurement and Installation of Plant & Machinery

5 months

7.

Electricity, Fuel and water tie up for availability

1 months

8.

Selection of raw material and placement of orders

6th Month

9.

Receipt of Raw Material

6th Month

10.

Trial Production.

6th Month

To be done

Note : Two and more activities can be undertaken simultaneously.

16

17

CHAPTER-IV
CASHFLOW AND FUNDS FLOW STATEMENTS
4.1.1Cash flow statement
4.1.2 Purpose
4.1.3 Cash flow activities
4.1.4Preparation methods
4.2.1Definition of fund
4.2.2 Definition of Funds flow Statement
4.2.3Procedure for preparing fund flow statement
4.2.4Application or uses funds
4.2.5 Significance of Funds Flow Statement
4.2.6 Limitations of Funds Flow Statement
4.2.7 Current Ratio

18

4.1.1Cash flow statement:In financial accounting, a cash flow statement, also known as statement of cash
flows or funds flow statement is a financial statement that shows how changes in
balance sheet accounts and income affect cash and cash equivalents, and breaks the
analysis down to operating, investing, and financing activities. Essentially, the cash
flow statement is concerned with the flow of cash in and cash out of the business.
The statement captures both the current operating results and the accompanying
changes in the balance sheet. As an analytical tool, the statement of cash flows is
useful in determining the short-term viability of a company, particularly its ability
to pay bills. International Accounting Standard 7 (IAS 7), is the International
Accounting Standard that deals with cash flow statements.
People and groups interested in cash flow statements include:
y
y
y
y
y

Accounting personnel, who need to know whether the organization will be

able to cover payroll and other immediate expenses
Potential lenders or creditors, who want a clear picture of a company's abili ty
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
Shareholders of the business.

4.1.2 Purpose
Statement of Cash Flow - Simple Example
for the period 01/01/2006 to 12/31/2006
Cash flow from operations
Rs.4,000
Cash flow from investing
Rs.(1,000)
Cash flow from financing
Rs.(2,000)
Net cash flow
Rs.1,000
Parentheses indicate negative values

The cash flow statement was previously known as the flow of Cash statement.
The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a
single point in time, and the income statement summarizes a firm's financial

19

transactions over an interval of time. These two financial statements reflect the
accrual basis accounting used by firms to match revenues with the expenses
associated with generating those revenues. The cash flow statement includes o nly
inflows and outflows of cash and cash equivalents; it excludes transactions that do
not directly affect cash receipts and payments. These non cash transactions include
depreciation or write-offs on bad debts or credit losses to name a few. The cash
flow statement is a cash basis report on three types of financial activities: operating
activities, investing activities, and financing activities. Noncash a ctivities are
usually reported in footnotes.
The cash flow statement is intended to
1. provide information on a firm's liquidity and solvency and its ability to
change cash flows in future circumstances
2. provide additional information for evaluating changes in assets, liabilities
and equity
3. improve the comparability of different firms' operating performance by
eliminating the effects of different accounting methods
4. indicate the amount, timing and probability of f uture cash flows
The cash flow statement has been adopted as a standard financial statement because
it eliminates allocations, which might be derived from different accounting
methods, such as various timeframes for depreciating fixed assets.

4.1.3 Cash flow activities:The cash flow statement is partitioned into three segments, namely: cash flow
resulting from operating activities, cash flow resulting from investing activities,
and cash flow resulting from financing activities.
The money coming into the business is called cash inflow, and money going out
from the business is called cash outflow.

1. 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.
Under IAS 7, operating cash flows include:

20

y
y
y
y
y
y
y

Receipts from the sale of goods or services

Receipts for the sale of loans, debt or equity instruments in a trading
portfolio
Interest received on loans
Dividends received on equity securities
Payments to suppliers for goods and services
Payments to employees or on behalf of employees
Interest payments (alternatively, this can be reported under financing
activities in IAS 7, and US GAAP)

Items which are added back to [or subtracted from, as appropriate] the net income
figure (which is found on the Income Statement) to arrive at cash flows from
operations generally include:
y
y
y
y

Depreciation (loss of tangible asset value over time)

Deferred tax
Amortization (loss of intangible asset value over time)
Any gains or losses associated with the sale of a non-current asset, because
associated cash flows do not belong in the operating section.(unrealized
gains/losses are also added back from the income statement)

2. Investing activities
Examples of investing activities are
y
y
y

Purchase or Sale of an asset (assets can be land, building, equipment,

marketable securities, etc.)
Loans made to suppliers or received from customers
Payments related to mergers and acquisitions

3. Financing 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 financi ng activities section of the
cash flow statement.
Under IAS 7,

21

y
y
y
y
y

Proceeds from issuing short-term or long-term debt

Payments of dividends
Payments for repurchase of company shares
Repayment of debt principal, including capital leases
For non-profit organizations, receipts of donor-restricted cash that is limited
to long-term purposes

Items under the financing activities section include:

y
y
y
y

Dividends paid
Sale or repurchase of the company 's stock
Net borrowings
Payment of dividend tax

Disclosure of non-cash activities

Under IAS 7, noncash investing and financing activiti es are disclosed in footnotes
to the financial statements. Under US General Accepted Accounting Principles
(GAAP), noncash activities may be disclosed in a footnote or within the cash flow
statement itself. Noncash financing activities may include
Leasing to purchase an asset
y
y
y

Converting debt to equity

Exchanging noncash assets or liabilities for other noncash assets or liabilities
Issuing shares in exchange for assets

4.1.4Preparation methods:The direct method of preparing a cash flow statement results in a more easily
understood report. The indirect method is almost universally used, because FAS 95
requires a supplementary report similar to the indirect method if a company
chooses to use the direct method.

Direct method
The direct method for creating a cash flow statement reports major classes of gross
cash receipts and payments. Under IAS 7, dividends received may be reported
under operating activities or under investing activities. If taxes paid are directly
linked to operating activities, they are reported under operating activities; if the

22

taxes are directly linked to investing activities or financing activities, they are
reported under investing or financing activities.
Sample cash flow statement using the direct method]
Cash flows from (used in) operating activities
Cash receipts from customers
3,000
Cash paid to suppliers and employees
(2,000)
Cash generated from operations (sum)
7,500
Interest paid
(2,000)
Income taxes paid
(4,000)
Net cash flows from operating activities
2,500
Cash flows from (used in) investing activities
Proceeds from the sale of equipment
7,500
Dividends received
3,000
Net cash flows from investing activities
10,500
Cash flows from (used in) financing activities
Dividends paid
(2,500)
Net cash flows used in financing activities
(2,500)
.
Net increase in cash and cash equivalents
10,500
Cash and cash equivalents, beginning of year
1,000
Cash and cash equivalents, end of year
$11,500

Indirect method
The indirect method uses net-income as a starting point, makes adjustments for all
transactions for non-cash items, then adjusts from all cash-based transactions. An
increase in an asset account is subtracted for net income, and an increase in a
liability account is added back to net income. This method converts accrual -basis
net income (or loss) into cash flow by using a series of additions and deductions.

23

Rules

The following rules are used to make adjustments for changes in current assets and
liabilities, operating items not providing or using cash and non -operating items.
y
y
y
y
y

y
y
y

Decrease in non-cash current assets are added to net income

Increase in non-cash current asset are subtracted from net income
Increase in current liabilities are added to net income
Decrease in current liabilities are subtracted from net income
Expenses with no cash outflows are added back to net income (depreciation
and/or amortization expense are the only operating items that have no effect
on cash flows in the period)
Revenues with no cash inflows are subtracted from net income
Non operating losses are added back to net income
Non operating gains are subtracted from net income

4.2.1Definition of fund
fund simply means availability of cash in daily use

Definition of fund flow

flow of fund is just like circulation of blood. Like circulation of blood, fund flow
should come in business and go from business.
Flow of fund here means conversation of one asset to be use to purchase of another
asset or use to deduction in liabilities.

4.2.2Definition of fund flow statement

fund flow statement is a statement which shows source and use of fund in particular
time. This period may be two years or more years. Basis of making fund flow
statement is two years or more than two years balance sheet.

24

4.2.3Procedure for preparing fund flow statement

For making fund flow statement, we took three steps
1st step

1 making schedule or statement of change working capital

2nd step

2 making adjusted profit and loss account or statement showing fund from
operation or lost in operation
3rd Step

fund flow statement

schedule of changing working capital Performa
particular previous year current year increase working capital decrease in w/c

4.2.4Application or uses funds:1. Funds lost in operation:Sometimes the result of trading in a certain year is a loss and some funds are
lost during that period in trading operations. Such loss of funds in trading amounts
to an outflow of funds and is treated as an application of funds.

2. Redemption of preference share capital:If during the year any preference shares are redeemed, it will result the shares are
redeemed at premium or discount, it is the net amount paid (inclu ding premium or
excluding discount, as the case may be ).However , if shares are redeemed in
exchanges of some other type of shares or debentures , it does not constitute an
outflow of funds as no current account is involved in the case.

25

3. Repayment of loans or redemption of debentures, etc:In the same way as redemption of preference share capital , redemption

of

debentures or repayment of loans also constitute an application of funds .

4. Purchase of any current or fixed asset:When any fixed or non-current assets like land, building, plant and machinery,
furniture long term investment, etc are purchased funds outflow from the business.
However, if fixed assets are purchased for a consideration of issue of shares or
debentures or if some fixed asset is exchanged for another, it does not involve any
funds and hence not an application of funds.

5. Payment of dividends and tax:Payments of dividends and tax are also application of funds .It is the actual
payment of dividend (may be interim dividend) and tax which should be taken as
an Outflow of funds and not the mere declaration of dividend creating of of a
provision for taxation.

6. Any other non-trading payment:A payment or expense not related to the trading operati on of the business
amounts to outflow of funds and is taken as an application of funds. The examples
could be drawings in case of sole trader or partnership firms, loss of cash, etc.

4.2.5 Significance of Funds Flow Statement

1. It helps in the analysis of financial operations
2. It throws light on many perplexing questions of general interest which otherwise
may be difficult to be answered .such as:
a. Why were the net current assets lesser in spite of higher profits and vice versa?
b. Why more dividends could not be declared in spite of available profits?

26

3. It helps in the formation of realistic dividend policy

4. It helps in proper allocation of resources
5. It acts as future guide
6. It helps in appraising the use of working capital
7. It helps knowing the overall creditworthiness of a firm

4.2.6 Limitations of Funds Flow Statement

The funds flow statement has a no 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 regards changes in working capital.
2. It cant reveal continuous changes .

4.2.7 Current Ratio:Current ratio can be defined as the relationship between current assets and current
liabilities .this ratio, is also known as working capital ratio , is a measure of general
liquidity and is most widely used to make the analysis of short term financial
position or liquidity of a firm .it is calculated by dividing the total of current assets
by total of the current liabilities.
Current ratio =current asset
Current liabilities
Or current asset: current liabilities

4.2.8 Break Even Point:The Break Even Point can be calculated by dividing the fixed cost by percentage of
contribution to sales or P/V Ratio.
Break Even Point =Fixed cost
p/v ratio

27

CHAPTER-V

DATA ANALYSIS AND INTERPRITATION

28

Calculated Balance Sheet

2007-08

2008-09

2009-10

1st

2nd

3rd

Opening balance

2809189

3442318

Capital introduced

2326108

Reserves and surplus

882537

1133253

1604417

3208645

3942442

5046736

Less: drawing during the year

399456

500124

598640

Proprietors fund

2809189

3442318

4448096

Long term loan

2322229

2004550

1641229

Cash credit from bank

179956

1801245

1802451

Total

6930983

7248114

7891775

Gross fixed assets

4026000

4026000

4026000

Less: depreciation

542425

1009634

1410878

Net fixed asset

3483575

3016366

2615122

Closing stock

1500243

1501243

1499568

Receivables

1199865

1488976

2000457

Cash and bank balance

747300

1241529

1776628

6930983

7248114

7891775

Particulars/year
Liabilities

Assets

29

Calculated Profit and Loss account:2007-08

2008-09

2009-10

Particulars

1st

2nd

3rd

Capacity utilization

60

70

80

Sales/receipts

17955360

20947920

23940480

Less :Opening Stock

1500243

1501243

Add:Closing stock

1500243

1501243

1499568

19455603

20948920

23938805

Material consumed

15844675

16968543

19392546

Salary and wages

518400

604800

691200

Repair and Maintainance

145782

169851

189452

Utility

284571

336842

374512

Other overhead Exp.

Depreciation

542425

467209

401243

Administrative Exp.

17335853

18547245

21048953

Transport and Travelling

355421

375684

398654

Postage and Stationary

12457

15431

19850

Telephone Expences

24510

31204

33420

Bank Charges and Commision

42571

41523

48571

Other misc Exp.

241567

285746

294751

Administrative cost

676526

749588

795246

Interest on Term Loan

334229

294321

248679

Interest on working capital

226457

224513

241510

COST OF SALES

18573066

19815667

22334388

NET PROFIT

882537

1133253

1604417

Less: Income tax

NET PROFIT AFTER TAX

882537

1133253

1604417

Manufacturing Exp.

30

M/S MAA DURGA DEVI RICE MILL, PROP. :NIRMAL KUMAR

BEHERA
AT : BADABARANG, PO : SRI
BALADEVJEW
DIST:KENDRAPARA
- 754212
BREAK EVEN POINT& RATIO
ANALYSIS
2007-08
1st

2008-09
2nd

2009-10
3rd

1,79,55,360

2,09,47,920

2,39,40,480

18,33,684

18,99,903

Variable Cost

1,52,39,139

1,79,14,764

2,03,88,065

Total Cost

1,70,72,823

1,98,14,667

2,23,36,063

27,16,221

30,33,156

Particulars

Sales/Receipts

Fixed Cost

Contribution( SalesVariable Cost)

Breakeven Point (IN
%)
Average BEP (IN %)
Gross Profit Ratio
(in %)
Net Profit Ratio ( IN
%)

31

68

63

19,47,997

35,52,415

55
55

11.81

11.46

12.07

4.92

5.41

6.70

CALCULATION OF DEBT SERVICE COVERAGE

RATIO

16,04,417

Net Operating Profit

8,82,537

11,33,253

Add: Depreciation

5,42,425

4,67,209

4,01,243

Add: Interest on w.c

2,26,457

2,24,513

2,41,510

Total

16,51,419

18,24,975

PAYMENTS
Interest on Term
Loan

5,60,686

5,18,834

4,90,189

Instalment (Principal)

2,77,771

3,17,679

3,63,322

Total

8,38,457

8,36,513

8,53,511

1.97

2.18

2.63

DSCR

22,47,170

Average DSCR

2.36

CALCULATION OF CURRENT
RATIO

Closing Stock

15,00,243.00

15,01,243.00

14,99,568.00

Recviables

11,99,865.00

14,88,976.00

20,00,457.00

Investment
Cash & Bank
Balance
TOTAL CURRENT
ASSETS
Cash Credit From
Bank
Loan Instalment due
in next year
TOTAL CURRENT
LIABILITIES

7,47,300.00

12,41,529.00

17,76,628.00

34,47,408.00

42,31,748.00

52,76,653.00

17,99,564.00

18,01,245.00

18,02,451.00

3,17,679.00

3,63,322.00

4,15,522.00

21,17,243.00

21,64,567.00

22,17,973.00

CURRENT RATIO

1.63

1.96

2.38

TOL/TNW

1.47

1.11

0.77

PAYMENTS
Interest on Term Loan

5,60,686

5,18,834

4,90,189

Instalment(Principal)

2,77,771

3,17,679

3,63,322

Total

8,38,457

8,36,513

8,53,511

1.97

2.18

2.63

DSCR
Average DSCR

32

2.36

CALCULATION OF CURRENT RATIO

Closing Stock

15,00,243.00

15,01,243.00

14,99,568.00

Receivables

11,99,865.00

14,88,976.00

20,00,457.00

Investment

Cash & Bank Balance

7,47,300.00

12,41,529.00

17,76,628.00

TOTAL CURRENT ASSETS

34,47,408.00

42,31,748.00

52,76,653.00

Cash Credit From Bank

Loan Instalment due in next
year
TOTAL CURRENT
LIABILITIES

17,99,564.00

18,01,245.00

18,02,451.00

3,17,679.00

3,63,322.00

4,15,522.00

21,17,243.00

21,64,567.00

22,17,973.00

CURRENT RATIO

1.63

1.96

2.38

TOL/TNW

1.47

1.11

0.77

33

M/S MAA DURGA DEVI RICE MILL, PROP. :NIRMAL KUMAR BEHERA
AT : BADABARANG, PO : SRI BALADEVJEW
DIST:KENDRAPARA
754212

Calculated Cash- flow

Statement
1st

2nd

3rd

2007-08

Particulars

2008-09

2009-10

Inflow of Cash

Promoter's Capital

23,26,108

Profit

8,82,537

11,33,253

16,04,417

Add: Depreciation

5,42,425

4,67,209

4,01,243

Term Loan

26,00,000

Cash Credit

17,99,564

1,681

1,206

Decrease in Investment
81,50,634

Total

16,02,143

20,06,866

ASSETS
Gross Fixed Assets

40,26,000

Drawing Of Capital

3,99,456

5,00,124

27,00,108

2,90,111

5,09,806

2,77,771

3,17,679

3,63,322

74,03,335

11,07,914

14,71,768

7,47,300

4,94,229

5,35,098

7,47,300

12,41,529

12,41,529

17,76,627

Increase in Current Assets

Repayment of Instalment

5,98,640
-

Repayment of Cash Credit Loan

Net Surplus/Deficit
Opening balance of Cash
Closing Balance of Cash

7,47,300

Interpretation:1. The promoters capital at 2007-08 is 2326108 and in 2008-09, 2009-10

there no promoters capital is utilised.
2. At year 2007-08 depreciation is 542425 and at 2008-09 the depreciation
reduced to 467209 and then 401243.
3. The above cash flow statement is showing the flow of cash from different
activities.
4. The statement is also showing the utilization of assets and liabilities with
the oening and closing balance.

34

SCHEDULE OF CHANGES IN WORKING CAPITAL

(2007-08 & 2008-09)
Current Assets(CA)
Closing stock
Receivables
Cash & Bank Balances
Total
Less: Current Liabilities(CL)
Cash credits
Total
Working Capital (CA-CL)
Increase/Decrease in W.C
Total

2007-08
1500243
1199865
747300
3447408

2008-09
1501243
1488976
1241529
4231748

1799564
1799564
1647844
782659
2430503

Increase Decrease
1000
289111
494229

1801245
1801245
2430503
2430503 784340

1681

782659
784340

Interpretation:1. The statement of changes in working capital at 2007 -08 shows closing stock
is 1500243 and later 2008-09 increased to 1501243.hence increase in assets
occurs.
2. Receivables are increased by 289111 at 2008 -09 from 2007-08.
3. The liquidity of the firm has improved due to significance increase of
494292 in cash.
4. Amount of current liability has increased and hence there will be decrease in
working capital.
5. WORKING CAPITAL HAS INCREASED WHICH FINANCIAL SOUNDNESS OF
THE FIRM.

35

SCHEDULE OF CHANGES IN WORKING CAPITAL

(2008-09 & 2009-10)
Current Assets(CA)
Closing stock
Receivables
Cash & Bank Balances
Total
Less: Current Liabilities(CL)
Cash credits
Total
Working Capital (CA-CL)
Increase/Decrease in W.C
Total

2008-09
1501243
1488976
1241529
4231748

2009-10 Increase Decrease

1499568
1675
2000457 511481
1776628 535099
5276653

1801245
1801245
2430503
1043699
3474202

1802451
1802451
3474202

1206

1043699
3474202 1046580 1046580

Interpretation:1. The statement of changes in working capital at 2009 -10 shows a minute
decrease in closing stock than 2008-09 i.e. 1675.hence decrease in assets
occurs.
2. Receivables are increased by 511481 in 2009 -10 than at 2008-09.
3. The liquidity of the firm has improved due to significance increase of
535099 in cash.
4. Amount of current liability has increased and hence there will be decrease in
working capital.
WORKING CAPITAL HAS INCREASED WHICH SHOWS A GOOD SOLVENCY
POSITION.

36

CALCULATION OF FUNDS FROM /LOST IN OPERATIONS

ADJUSTED P/L ACCOUNT
PARTICULARS 2007-08

2008-09

2009-10

To net profit

822537

To
Depreciation
To balance
c/d

542425

113325
3
467209

160441
7
401243

60000

142496
2

160046
2

200566
0

PARTICULARS 2007-08

2008-09

By funds from 142496 160046 200566

operations
2
2
0

142496 160046 200566

2
2
0

Interpretation:1. The net profit occurs at 2008-09 is 250616 which is more than the 2007 -08
and there is a little increase at 2009 -10 in net profit which is more than the
year 2008-09 by 471164.
2. Change in Depreciation occurs is less in year 2009 -10 incomparatively to
2008-09 and 2008-09 is lower than 2007-08.
3. Less funds from operations change made in 2007 -08 than 2008-09 than that
of 2009-10.

37

2009-10

STATEMENT OF SOURCES AND APPLICATIONS OF FUNDS

SOURCES
Introduction
of capital
Raising of
long term
loans
Funds from
operations

2007-08 2008-09 2009-10 APPLICATIONS 2007-08 2008-09 2009-10

2326108 Drawings
399456 500124 598640
2322229 -

Repayments of
long term loans

4026000 317679

1424962 1600462 2005660 Purchase of fixed 1647844 782659 1043699

assets
6073300 1600462 2005660
6073300 1600462 2005660

Interpretation:1. The funds flow of 2007-08 is 6073299 which is the highest in comparision
to 2008-09 and 2009-10.
2. The funds flow of 2009-10 is higher than 2008-09.
3. Long term loans are not used in 2008-09 and 2009-10.
4. Funds from operations was very less.

38

363321

year

2007-08

2009-10

1st

Sales/recei ts

2008-09
2nd

3rd

17955360

20947920

23940480

SALES/RECEIPTS
23940480

25000000
20000000

20947920
17955360

15000000

particulars

10000000

sales/Receipts

5000000

0
2007-08

2008-09

2009-10

Fi

IT TION:

INTE

From t e above graph this can be concl ded that

(i

(ii
(iii

39

In year 2007-08 the amount of sales/receipts is 17955360 and in

2008-09 the amount is increased to 20947920 and then increased by
Rs.2992560 in 2009-2010.
mong the three years the highest sales/receipts is increased by 2009
2010.
Hence it can be expected that more sales /receipts will received in
future.

year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

Fixed cost

183384

1899903

1947997

FIXED OST
89990

84

947997

 

2000000

00000



particulars

000000

fixed cost

00000

2008-09



Fi

IT TION:



INTE

2009- 0

2007-08

From this above graph this can be concluded that

(i

(ii

40

In year 2007-08 the amount of fixed cost is 1833684 and in 2008

-09
the amount is increased by 66219 from 18833684to 1899903 and then
increased by Rs.1947997 in 2009-2010.
mong the three years 2009-2010 have the highest fixed cost..

year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

Variable cost

15239139

17914764

20388065

VARIABLE COST
,000,000

(3

4 3

9,

0,000,000

(6

0, 88,0

7,9 4,7 4

4) 43 ()

,000,000

10

Particulars

0,000,000

Variable Cost

,000,000

008-09

$#"!

Fi

'

IT TION :

%&%

INTE

009- 0

007-08

From the above graph this can be concluded that

(i

(ii

41

In year 2007-08 the the variabl cost is 15239139 and in 2008-09

the gross profit ratio is increased to 17914764 and then increased to
20388065 in 2009-2010.
Among the three years the highest variabl cost is 2009-2010.i.e
20388065 as shown in above.

year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

Break even
point(in %)

68

63

55

62

Average
B (%)
87

BREAK EVEN POINT

8

FH

GG

70
0
0
40
0
0
0
-

G
H

Particulars
Breakeven Point ( IN %)

D
E
F

Avearge BEP ( IN %)

008-09

009- 0

007-08

@9

Fi

IT TION :

ABA

INTE

re 4

From this graph this can be concluded that

(i)

(ii)

42

In year 2007-08 the the break even point is 68 and in 2008-09 the
break even point is decreased to 63 and then increased to 55 by 8point
in 2009-2010.
Among the three years the average break even point is 2008
-09.i.e 62
as shown in above figure.

year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

DSCR

1.97

2.18

2.63

Average DSCR

2.12

DEBT SERVICE COVERAGE RATIO

`

`
2

Particulars

DSCR

Average DSCR

X
-

2008-09

2009- 0

2007-08

T SR

Fi

IT TION :

UVU

INTE

re

From this graph this can be concluded that

(i)

(ii)
(iii)

43

In year 2007-08 the the DSCR(Debt service coverage ratio) is 1.97

and in 2008-09 the DSCR is increased to 2.13 and then increased to
2.63 in 2009-2010.
Among the three years the highest DSCR is 2009-2010.i.e 2.63 as
shown in above figure.
The average DSCR is reached in between 2008-09 and 2009-10 i.e
2.32.

year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

Gross profit
Ratio(in %)

11.81

11.46

12.07

GROSS PROFIT RATIO

2.07

.4

f ee

.8

d dd

Particulars

Gross Profit Ratio

2
-

2008-09

Figure

2009- 0

2007-08

INTERPRIT TION :

From the above graph this can be concluded that

(i)

(ii)

44

In year 2007-08 the the gross profit ratio is 11.81 and in 2008-09
the gross profit ratio is increased to 11.46 and then increased to 12.07
in 2009-2010.
Among the three years the highest gross profit ratio is 2009-2010.i.e
12.07 as shown in above figure.

Year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

Net Proft
Ratio(in %)

4.92

5.41

6.70

NET PROFIT RATIO

.70

.4

h p

4.92

p
4

Particulars

Net Profit Ratio ( IN % )

h
2008-09

2009- 0

2007-08

Figure 7

INTERPRIT TION :

From the above graph this can be concluded that

(i)

(ii)

45

In year 2007-08 the the net profit ratio is 4.92 and in 2008-09 the
net profit ratio is increased to 5.41 and then increased to 6.70 in
2009-2010.
Among the three years the highest net profit ratio is 2009-2010.i.e
6.70 as shown in above

year

2007-08

2008-09

2009-10

particulars

1st

2nd

3rd

Current ratio

1.63

1.96

2.38

CURRENT RATIO
. 8

.96

.6

y x

Parti ular

CURRENT RATIO

u
u
009- 0

008-09

007-08

Figure 8

INTERPRIT TION :

From the above graph this can be concluded that

(i)

(ii)

46

In year 2007-08 the the current ratio is 1.63 and in 2008-09 the
gross profit ratio is increased to 1.96 and then increased to 2.38 in
2009-2010.
Among the three years the highest current ratio is 2009-2010.i.e
2.38 as shown in above

CHAPTER-VI
CONCLUSIONS

RECOMMENDATIONS
BIBLIOGRAPHY

47

CONCLUSION :This project work in the finance sector is going to help me a lot in future. I got to
learn many financial aspects of the organization.
It was great opportunity for me to do my Summer Project at S. Das and Associates.
Since it is both labour and capital intensive industry, the cash flow and funds flow
statements requirement is quite essential and hence my job was to analy ze the trend
of working capital, cash flows and flow of funds over the past years.
I have put up the best in me and left no stone un-turned to reveal the facts and
figures that carry equal importance for accurate analysis. I have spent a
considerable time and effort in analyzing, conceptualizing and designing this
project.
This project contains several features are visibly apparent with some subtle
findings and exploration. For instance, I have described theoretical concepts and
specialized analysis techniques in simple and lucid terms, without any technical
jargons. This project report contains data and calculations in readable and
comprehensible framework.
I have streamlined the chapters to move thoughtfully and pondering to important
points and thereby making the entire project quite concise precise.
From all the above interpretation we may conclude that the overall performance
of the chaterd firm is satisfactory.the growth rate of the rice mill shows a sound
position in the future.

48

Compa y should raise fu ds through short term sources for short term
requireme ts of fu ds, which comparatively eco omical as compare to
lo g term fu ds.
Compa y should take co trol o debtors collectio period which is
major part of curre t assets.
Compa y has to take co trol o cash bala ce because cash is o
ear i g assets a d i creasi g cost of fu ds.
Over all compa y has good liquidity positio a d sufficie t f u ds to
repayme t of liabilities. Compa y has accepted co servative fi a cial policy
a d thus mai tai i g more curre t assets bala ce. Compa y is i creasi g
sales volume per year which supported to compa y for sustai i g a good
positio i the world.

49

BIBLIOGRAPHY:Web-sites:(ii)
(iii)

www. google .com

www.s.das & associates.co.in

Reference Books:
 Annual report of the rice mill
 Financial management by (R.k Sharma,Shashi Gupta, 2010)

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