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Cash flow analysis is a valuable aid to the financial executive and creditors for evaluating the uses of funds by the firm and in determining how these uses were financed. A cash flow statement indicates where funds came from and where it was used during the period under review. They are important tools for communication and Very helpful for financial executives in planning the intermediate and financing of the Firm. Cash flow statement is a statement of Cash flow. Cash flow signifies the movement of cash in and out of a business concern. In flow of cash is a known as source out flow of cash is called use of cash. The term cash here stands for and bank balance. Cash flow Statement shows the changes in position between two balance sheet dates. It provides the details in respect of cash generate and applied during the accounting period. The Transactions which increase the cash position of the business are known as in flows of cash (Ex: Sales of current and fixed assets, issue of shares and debentures etc.) The transactions which decrease the cash position are known as out flows (Ex: Purchase of current and fixed assets, redemption of debentures, and performance says and other long term depicts) Cash flow statements constants on transactions that have a direct impact on cash. This statement depicts factors responsible for such in flow and out flow of cash. In brief, cash flow statement summarizes process of changes in cash position between dates of balance sheets. A cash flow statement is like receipt and payments account in summary form. The net flow cash is equal to net profit but this cannot be true in all cases because of the presence of non-cash from operations certain adjustments are to be made to the net profit as disclosed by profit and loss account. There are three methods of determining cash from operations namely. 1. Cash sales method. 2. Net Profit/Net loss method. 3. Cash from operations: Cash sales – Cash purchases – Cash operating expenses.
NEED AND IMPORTANCE
. 1. To know about The future plans of the company depend upon the cashflow analysis of the company. 2. This study helps in finding the comparison between the past and performance Of the company. 3. This study also helps up the goals and objectives for future in the content of cash flow control. 4. This analysis to these statements will provide the decision maker to understand strengths and weaknesses of the firm.
5 This analysis is important for the management and also for outside dealing with organization is moving
OBJECTIVE OF THE STUDY
The objectives of the study are as under:
• To Evaluate and analyze the financial performance of the Co-operative Electric Supply Society Limited (CESS LTD.) • To Draw conclusions and offer suggestions for improvement of the financial performance of the above said organization in the light of finding of the study. • To study the resources pattern and their utilization with a view to analysis the cash flow of CESS Limited. • To evaluate the sources of funds and their application by using cash flow techniques of financial statements. • To analyze profitability and capital structure of company.
The data collection of the study consists
1. Primary source of data
This is first hand in nature and can be collected through • • • Officers of accounting section. Executives and staff of finance and accounts department. Personal observation.
2. Secondary data
Methods of collection of the secondary data which is already exists are • • • • Financial management text books. Journal and magazines and newspapers. Text books. Worldwide webs.
3. Tools/Techniques used for analysis
• Cash flow statement
SCOPE OF THE STUDY
The study of cash flow analysis of CESS Limited is a very wide topic. In the Study many factors that need detailed analysis could not be discussed in detail because Of the limitations regarding length of the project and available time. The scope of the Study has, therefore, been limited to the presentation of, cash flow statements and their Analysis.
LIMITATIONS OF THE STUDY
The limitations of the present study are: 1. In the study many factors that need detailed analysis could not discussed in detail Because of the limitations regarding length of the project and available time. 2. The study is subject to limitations of the nature of cash flow analysis tools and Techniques. 3. It is not always possible to make future estimation on the basis of the past as it is always does not come true.
CHAPTER – II PROFILE OF C.E.S.S
CO-OPERATIVE SUPPLY SOCIETY LIMITED SIRCILLA HISTORY OF CESS
India is predominantly an agricultural country. Nearly 70% of the Indian population lives in villages and about 70% of them directly or indirectly depend on agriculture for their livelihood and nearly 50% of the total income is generated from agriculture. Electric power is one form of energy, which is an essential ingredient of economic development and it is requited for commercial and non-commercial uses. Electricity plays a vital role in the development of agricultural and oriented industries require electricity at a very economical rate. The necessity of electricity is increasing day by day in all fields. Power is essential for the modern necessities in the town or villages or rural areas. Per capita consumption is an indicator for development of the country. Electricity boards have been formed states wide to meet the demand of electricity.
NATIONAL RURAL ELECTRIC CO-OPERATIVE ASSOCIATION
The NRECA (National rural electric co-operative association) Experts investigated the feasibility in three phases dealing with identification of areas suitable for the location of pilot rural organizational and economic aspects. Five pilot rural electric co-operative societies have been started and financed by the National Rural Electric Co-operative Association in 1969. The experiAmerican co-operatives were largely drawn upon in organizing these pilot rural electric co-operatives. The five pilot co-operative projects are as follows: 1. SIRCILLA (ANDHRA PRADESH) 2. 3. 4. 5. HUKERI (MYSORE) KODINAR (GUJARAT) MULA-PRAVARA (MAHARASTRA) LUCKNOW (UTTAR PRADESH) 9
OBJECTIVES OF CO-OPERATIVES:
The main objectives of co-operative projects: 1 Furnish electricity to the rural people at the lowest possible cost in order to increase agricultural production to stimulate agro-industry and improve the standard of living of the rural people. 2 3 4 Increase the responsible action of the people by giving them some degree of control over the electric supply. Establish local organizations for the financing, procurement, installation, repair and proper use of electrical appliances and equipment such as pump sets. Assure a rapid and standardized pattern of construction and operation of rural electric system in all states.
THE CO-OPERATIVE ELECTRIC SUPPLY SOCIETY LTD., SIRCILLA
During the middle of 1960’s Govt. of India felt the need for establishment of a separate organization for quicker pace of rural electrification, with a view to increase food production in the country and also for socio economic development in rural India. The experts of National Rural Electric Co-operatives Association (NRECA) of U.S.A. and United States Agency for International Development (US AID) have studied the feasibility and recommended for establishment of pilot Rural Electric Co-operatives in India. With the result pilot RE Co-operatives viz. Sircilla (in Andhra Pradesh), Hukeri (in Karnataka), Kodinor (in Gujarat), Lucknow (in Uttar Pradesh) and Mulapravara (in Maharastra) were taken birth in the country in the year 1970. The Puri committee appointed by the REC, New Delhi has studied the performance of the five pilot Co-operatives during middle of 1970s and recommended for the growth of RE Co-operatives.
Mathur committee has also endorsed the
recommendations of Puri committee, during 1980s. With the result about 100 RE Co-operatives become functional in India, of which 9 Co-operatives in Andhra Pradesh. At present about 30
are working in the country including 4 in Andhra Pradesh.
As a result the Rural Electric Co-operatives are established. The CESS Limited, Sircilla is one of the 1st five Rural Electric Co-operative in India It is registered on 30-10-1969 with Regd.No.748/TD as per the APCS Act 1964 and started functioning from 1st November 1970. The area of operation of the society comprises of nine revenue mandals, conterminous with entire revenue division Sircilla and Nallagonda and Thippaipally villages of Kodimyal mandal, consisting 173 villages, 150 hamlets, with geographical area of 1870 sq. Km
The Society has successfully grounded all the five projects sanctioned by the Rural Electrification Cooperation (REC), New Delhi and achieved the targets envisaged in the above projects reports, well in advance.
PHYSICAL ACHIEVEMENTS: Sl No. 1 2 3 4 5 6 Particulars Villages Electrified (No.) Hamlets Electrified (No.) 11 K.V. lines (Km) Transformers LT Lines (Km) Service Connections: a) Domestic (No) b) Commercial c) Industrial d) Cottage industries e)Agriculture h)Others TOTAL: 7 Sub-Station (NPDCL assets) a) 132/33 kv b) 33/11 kv 1798 474 105 ---2299 44 4720 ---1 1000 50 10 40 600 ---1700 --------2846 1105 24 215 621 45 3866 ----2 114226 5230 1743 5173 52800 1637 180809 4 29 (No.) Take over Position on 31-10-70 46 7 194 109 461 Target for 2006-07 0 0 60 90 75 Achivement for 2006-07 0 0 21 133 21 Position As on 31-03-2007 173 150 2047 2965 6401
Some of the statistics shows below indicates the pace and intensive rural electrification made by the society. This could be achieved with the active Co-operation of society members.
Sol. No. 1 2 3 4 5 6
Particulars Villages Electrified (No.) Hamlets Electrified (No.) 11 K.V. & LT lines (Km) Transformers (No.) Installed capacity (KVA) Service Connections: a) Agriculture b) LT industrial c) Cottage industries d)Domestic & others
Position as on 31-10-70 46 7 655 109 8225
Project Targets Position Up to as on 31-03-97 30-09-06 127 1 4657 1258 79001 173 150 8432 2845 275835
2299 105 --2316
25500 1180 300 31414
52358 1729 5055 119481
PER SQUARE KM DATA:
Sl.No. 1 2 3 4 5 6 7 8 9
Particulars Total services Agriculture connections 11KV & LT lines Distribution Transformers Capacity of DTRs Consumption per year Per capita LT consumption Consumers per employee Distribution Losses
Unit No. No. KM No. KVA MWH KWH No. %
State 60.00 8.60 2.63 1.48 81 137 404 267 16.89
CESS 92.55 27.66 4.46 1.45 141 183 613 627 16.06
CAPITAL FOR CESS
1. WORKING CAPITAL: The society is taking up rural electrification works mainly with the loan assistance provided by the REC, New Delhi and member contribution. No regular allocation of funds is available to this society either from the state Govt. or from the Central Govt. Working capital of the society as on 31-03-2006 comprises of the following:
3 4 5 6
REC Loans: a) Sanctioned b) Released c) Repaid d) Balance Share capital: a) state Government i) Sanctioned ii) Repaid iii) Out standing b) A.P. Transco c) Members 2,02,361 Development charges(paid by the members) Grant from the state Govt.under SPF,CBI,etc, Grant from MOP Consumers service connections deposits & contribution
(Rs.in crores) 10-03 10-03 7-57 2-46 0.63 0.63 --Nil-0.26 5.83 10.22 0.73 2.86 3.26
1. REPAYMENT OF LOANS: The society is repaying the REC loan as scheduled in the project reports and there is no over dues. The society has got a rebate of Rupees15.20 lakhs from rural electrification corporation for prompt repayment of loan installments, yearly installments under this head is about Rs.45 lakhs towards principal and Rs.25lakhs towards interest.
2. PAYMENT TO A.P.TRANSCO/DISCOM:
The CESS is paid HT bill regularly to the DISCOM and there are no outstanding dues. The average bill for month is Rs.1.20 crores.
3. SPECIAL RESERVE FUND:
The REC, New Delhi has sanctioned loan assistance for execution of works and declared a moratorium period of 5 years. The amount equivalent to interest remission on project loan during the moratorium period, is invested separately in Special Reserve Fund (SRF).The total SRF including the interest accrued on it is of the order of Rs.10.92crores.This amount is available in the shape of fixed deposits in the nationalized banks.
4. ASSETS CREATED:
The values of fixed assets taken over from the APSEB on 31-10-1970 are Rs. 0.59crores. The same has been grown to the extent of Rs.50.76crores, as on 31-03-2007.In addition to this society is having liquidity assets of about Rs. 35crores
DEVELOPMENTS OF SOCIETY
1. VILLAGE ELECTRIFICATION:
All the 173 revenue villages have been electrified with in a short span of 5 years i.e. by 31-03-1975. Similarly all the 150 hamlets and 320 Harijan Basties and existing weaker section colonies have also electrified by 31-03-1989 itself. The has achieved 100% electrification of habitations in the area of operation of CESS.
2. ENERGISATION OF AGRICULTURE PUMP SETS:
At the time of take over, there were only 2299 pump sets. Now the same has been increased to 52,800 Nos. on account of which about 1.60 lakhs acres of additional land is brought into cultivation. Further providing livelihood to one lakh agricultural labourer and helped in increasing of production 4.50 lakh tons of paddy every year.
3. ELECTRIFICATION OF DWELLING HOUSES:
The average electrification of houses in our country is about 46.5% and in Andhra Pradesh it is 59.60% whereas in our co-operative area achievement is 86%. The society has been prepared a scheme “Rajiv Gandhi Grameen Vidhyuthikarana Yojana” for a achivement of 100% Electrification of Houses. The total houses Electrified as on 31-032007 are 1, 14,226.
4. SUPPLY OF ELECTRICITY TO INDUSTRIES:
The industrial service connections have been increased from 105 to 6916 and 75% of them belongs to cottage industries of backward classes i.e. power looms, which has resulted in creation of employment potential to 15,000 families and producing 12 lakh meters of cloth worth of about Rs. 1crore per day.
5. POWER SUPPLY ARRANGEMENTS:
There are (29) 33/11kv sub-stations existing in CESS area. These sub-stations are being fed from four 132/33 kV sub-stations peddur, Mallaram, Yellareddipet and Ellanthakuta. All the sub-stations are owned and maintained by the APNPDCL/APTRANSCO. In addition to the above existing sub-stations. Six 33/11kv sub-stations sanctioned at Bowsaipet, Garjanpally, Lingannapet, Bonala, Nampally, and Somarampet. Further four 33/11kv sub-stations proposed at Rajannapet, Pothgal, Chekkapally and Sanugula are under sanction.
The stores section is broadly divided in to two wings namely in-door section and out-door section. transformers. In-door section deals mainly with, consumables, spares for meters and The Out-door section deals with hardware line materials transformers
conductor etc. There are all together about 200 items of in-door section and 100 items of out-door section. 7. RCC POLE MANUFACTURING CENTRE: The RCC poles of 8m length both for HT and LT lines were being manufactured at poles manufacturing center of CESS Ltd. There are twenty curing ponds at RCC pole manufacturing center, which is constructed in 1971. The capacity of each pond is 25 poles. The manufacturing of RCC poles is being carried out on labour contract basis manufacturing center is 750 numbers per month and it can be increased to 1000 numbers if circumstances warrant. In addition to RCC poles RCC base plates are also being manufactured. On an average 3,500 poles and 4,000 base plates were manufactured every year to meet our demand. At present the RCC poles manufacturing is stopped and proposed to switch over to PSCC pole manufacturing in view of introduction of PSCC poles. poles are being purchased. 18 These
8. METERS AND TRANSFORMERS:
The society is self-sufficient in testing and repairing of transformers and addition to overhauling 400DTRs. energy
meters. About 350 distribution transformers (DTRs) are being repaired every year in
The Work-shop is set up for fabrication of important line material such as cross arms, D.P. structures, stay sets etc. The work-shop consists of drilling machine, cutting machine, welding transformer and a grinder.
10.REVENUE FOR CESS:
The society is adopting the same L.T. tariff rates as that of A.P. Transco to its consumers. The society is purchasing power form A.P. Transco to its consumers. The HT tariff payable by the society to the Transco is being fixed by APERC from time to time taking into account the viability of the society; present rate is 40 paisa per unit. Distribution staff are taking meter readings at the end of every month and furnishing the same to the revenue wing, for billing purpose, for all categories except agriculture. In case of agriculture the billing is being done once in six months, synchronizing the collections with the harvesting season of agriculture. With a view to effective collection at the door steps of the consumers, fixed programme of Bill Collector is chalked out in such a way that they visit every village at least twice, every month. 11. REVENUE REALISATION: The average percentage of collection of c.c. charges is more than 90%.
At the time inception the percentage of line losses were at 28%. The same has been brought down to 16%.
With the view to asses agriculture consumption and line losses. mandals. Energy meters are
installed to agricultural services under on LT feeder of a transformer in 10 villages of various The concerned O&M staff will furnish readings every month. Based on this agriculture consumption and line losses are being worked out.
14. D.P.E SECTION:
One DPE section headed by an on ADE is formed and allotted a jeep exclusively to this section for conducting inspections/rides and to arrest theft and malpractice of energy. Pole to pole inspections is also being conducted once in a month pooling about 100members from various sections to arrest theft.
15. FAILURE OF TRANSFORMERS:
The present rate of failure of DTRs is 10.37% with the view to reduce the rate of failures amaintenance squad is formed. They are provided with a van, men and material to attend to all minor defects on the spot such as replacement of LV bushings, rods, washers, top up of transformer oil etc. However the rat of failure of transformers is in increasing trend as the Load Diversity Factor adopted is not working mostly due to continuous restrictions and control of power. New improvement transformers are being added to the system, every year, to bring down the LDF.
The society is purchasing energy at 11 KV from APNPDCL and metered at 33/11 kv sub-stations. The tariff payable by the society to NPDCL is being fixed by the APERC every year. The present tariff rate is 40 paise/unit. The society is adopting the same LT tariff rates as that of DISCOMs to its consumers. 20
17. IN HOUSE COMPUTER:
In house computer has been established with an expenditure of Rs.11.5 lakhs. At present the following works are being carried out in computer. 1. Preparation of CC bills. 2. Preparation of Revenue ledgers. 3. Preparation of Bill Book abstract. 4. Preparation of Revenue analysis. 5. Preparation of “D” lists. 6. Preparation of Daily Cash book. 7. Preparation of Pay Bills. Further it is programmed to take up the following work: 1. Financial Accounting. 2. Inventory Accounting. 3. Personal Information System. 4. Share Capital Accounts etc.
Audit of the accounts of the society is completed up to the year 2006-07 and submitted to the DCAO, Karimnagar yet to be issued.
2. ADMINISTRATION OF CESS Ltd:
The constitution Managing Committee to manage the affairs of the society as follows. Chairman Elected Directors Official Nominated Directors the society). : 1 : 10 (one from each mandal incl. 1 from sircilla Municipal area) : 4 (Civil. Elecl. Engineer from A.P. Transco, Chief Project
Manager from REC, Cist. Co-op. Officer from Co-op. Department and Managing Director of
In month of January, 2007 elections were conducted the existing elected body assumed charge on 22.01.2007. The Chairmain is one of the members of elected directors.
The unique feature of the society is voluntary labour contribution i.e. “SHRAMADAN” by the prospective consumers in transportation of poles, digging of pits, erection of poles and stringing of lines etc. The value of the “SHRAMADAN” is of the order of 15to 20% value of the fixed assets.besides this they have also contributed about Rs.1022.41 lakhs in the shape of development charges..
SOME OF THE PERFORMANCE PARAMETERS:
A) TECHNICAL: 1. Failures of Transformers 2. 3. 4. 5. 6. Time taken for replacement of Failed distribution transformers Break downs Average time taken for rectification of break downs Line losses : 16% Accidents per every 100Km of line/year: 0.2 B) GENERAL : : 1/11KV feeder/year : 3.5 hours
: 9.4% : 1 day
No. of consumers per employee Percentage of revenue collection
: 620 : Above 90%
History of the Electric Power Industry
America enjoys some of the most reliable and affordable electricity in the world. But have you ever wondered how today’s electricity system, with its “on-demand” power, got its start? You would probably guess that any discussion about the early and you’d be right. Although knowledge of electricity dates back to the ancient Greeks, it wasn’t until Edison’s pioneering work with electricity in the late 19th century that we were able to harness electricity in a useful way of life and we have him to thank for the last 125 years of electric innovation.
Invention of the Light Bulb:
On October 21, 1879, Edison created his now famous incandescent light bulb, which Burned for 40 hours. During 1880, Edison continued work to refine his light bulb. He also began exploring ideas for an equality important invention: a way to generate and transmit the electricity his light bulb was ever to become a practical appliance for homes and business.
Edison’s Pearl Street Station:
By the end of 1880, Edison had formed the Edison Electric Illuminating Company to build central station electric generating plants in New York City. The first central power plant-Pearl Street Station in lower Manhattan-began generating electricity on September 4, 1882. Pearl Street had one generator and it produced power for 800 electric light bulbs. Within 14 months, Pearl Street Station had 508 subscribers and 12,732 bulbs. With the success of Pearl Street Station, Edison created the Edison Company of Isolated Lighting. This company was formed in May 1883 to build and sell electric power stations, like Pearl Street Station, to towns and cities throughout the United States.
Emergence of an Electric Utility Industry Structure:
Early electric companies were somewhat inefficient and redundant in the services they provided. Separate companies provided electricity for different needs such as street illumination, industrial power, residential lighting, and street car service. They frequently operated under nonexclusive franchises, often in competition with one another. Companies used different equipment, voltages, and frequencies, so their systems were not compatible. In order to operate, the companies had to acquire franchise rights from the local municipality. Franchise territories differed greatly, from a single block to the entire city. The franchise process kept the industry fragmented and inefficient. It was not unusual for franchises to be granted on the basis of bribes and payoffs to city officials. The issuance of numerous short-term franchises created an uncertain, chaotic operating environment. It was during these early years that entrepreneurs like Samuel Insul, who had worked with Edison, gave his attention to utility operations and began to shape and define important economic concepts, which still govern modern utility planning and pricing.
Emerging Financial Framework:
Early leaders recognized that electric companies suffered from high fixed costs as a result of the heavy investment needed to finance central generating plants and distribution systems. At the same time, their operating-or variable-costs were relatively low. Insull understood that with more customers on a system, more revenue was generated, spreading out fixed costs. He reduced prices and aggressively marketed to attract more customers. Many companies gave away light bulbs and electric irons to encourage electricity use. The difficulty was in establishing an appropriate price for electricity. The development of the demand meter made it possible for Insull to more accurately price his commodity. The demand meter measured a customer’s electric demand, or the “share” of fixed cost required for usage, as well as the actual energy for kilowatthours used. Insull set the price of electricity to cover both of these costs: fixed (demand) and operating (energy or variable). Fixed costs reflect the foxed amount of investment that must be paid, 24
regardless of output, and include power plant construction and equipment. Variable costs are those which vary with the level of electric output and include fuel expenses. Early analyses showed that the more time a plant was in use, the higher the profit, with a lower average kilowatthour cost to the customer. Since electricity cannot be stored the trick was to find the right mix of customers to utilize the plant for as much of the day as possible. For example, in order to maximize plants to their fullest, one might take into account the early morning and late afternoon streetcar load, an evening residential lighting load, and a business and industrial load between the two streetcar peak loads. Insull realized that the same three loads could be served by one plant instead of three different plants which were then being used. In addition to load diversity, it was discovered that there was a way of increasing efficiency through economies of scale. One large centrally located power station could be operated more cheaply than numerous isolated small generating units. Thus, the formation of the industry was heavily influenced by the inherent advantage in serving many customers, the desirability, and some renewable energy plants, smaller units can again be cost effective, especially to meet unusually high demand.
The Evolution of the Natural Monopoly and the Advent of Regulation:
Utilities frequently found that it was difficult to maintain inventor confidence and attract adequate capital. This was attributable to both the dubious franchise process, which made operation of the utility over the long term an uncertain prospect, and the low returns investors received. Early industry leaders began to think that if that if the franchise granting process and the rates charged by utilities were overseen by a nonpartisan state agency instead of a city council, financing might be easier and cheaper to obtain. In 1898, in an address before the National Electric Light Association (the forerunner of Edison Electric Institute), Samuel Insull proposed that electric companies be regulated by state agencies which would establish rates and set service standards. The idea became increasingly appealing to investor-owned companies in the face of public enthusiasm for the growth of municipal electric systems. Privately-owned companies surmised that the public might be more supportive if their companies were regulated so that customer interest would be protected. By 1916, 33 states had regulatory agencies. Early regulation of the industry proved beneficial to
both the electric companies and their customers, who got reliable, reasonably priced service without the uncertainties caused by duplicate services and inefficient operations.
Characteristics of Electric Utilities:
As the structure of the electric industry evolved, electric utilities began to assume certain common characteristics. These include: Assignment of Franchise or Service Territory— A franchise allows an electric utility to serve customers within a designated geographic area, known as its service territory, for a specific period of time; Obligation to Serve—In return for its franchise, an electric utility is required to serve all existing and future customers equally and at reasonable cost; Service as a Natural Monopoly—A single company providing electric service is more economically efficient because it eliminated duplication of service and equipment.
Forms of Ownership:
Private investor funds fueled the earliest electric power production and distribution facilities. This tradition has continued to today, with shareholder-owned electric companies providing approximately 70 percent of all power generated in the U.S. by electric utilities, or about 50 percent of all the electricity generated in the country. Shareholder-owned electric companies are owned by millions of small investors, either directly or indirectly through other investments such as life insurance policies, retirement funds, and mutual funds. •
Shareholder-owned electric companies sell power at retail rates to
several different classes of customers and at wholesale rates (for resale) to state and local government-owned utilities, public utility districts, and rural electric cooperatives. While most electricity is provided by shareholderowned electric utilities, other entities that function as electric utilities include: municipally-owned systems, federally-owned systems, and rural electric cooperatives.
Municipally-owned electric utilities are those that are owned by the city
or municipality in which they operate and are financed through municipal bonds. They are self-regulated. Approximately 11 percent of the nation’s power needs are met by about 2,000 municipally-owned systems.
Federally-owned utilities are agencies of the federal government involved in the generation and/or transmission of electricity, most of which is sold at
Wholesale prices to local government-owned and cooperatively-owned utilities and to shareholder-owned companies. These government agencies are the Army Corps of Engineers and the Bureau of Reclamation which generate electricity at federally-owned hydroelectric projects. There are five power marketing agencies that sell this relatively low-cost power on a preferential basis to local government-owned and cooperativelyowned utilities. In addition, the Tennessee Valley Authority produces and transmits electricity in the Tennessee Valley region. In 1936 the Rural Electrification Administration was created to provide low-interest loans to expand electric service to rural areas. Rural electric cooperatives were and can still be formed by groups of rural area residents. There are approximately 1,000 rural cooperatives in the U.S. Most are distribution cooperatives which purchase power from federally-owned and/or investor-owned utilities, but about 60 of them are Generation and Transmission Cooperatives that provide wholesale power to their member Distribution Cooperatives.
Electric Power India
The electric power industry in India is both a supplier and a consumer of primary energy, depending on the kind of energy used to turn the generators. Hydroelectric and nuclear power plants add to the country’s supply of primary energy. The total installed electricity capacity in public utilities in 1992 was 69,100 megawatts, of which 70 percent was thermal, 27 percent hydropower, and 3 percent nuclear. The total installed capacity was programmed to reach around 1, 00,000 megawatts by FY 1996 through a package of government-supported incentives to the private sector. Because they cannot always depend on public utilities, many larger enterprises have developed their own power generation systems. In 1992 there was a capacity of 9,000 megawatts outside the public utility system. Overall, the generation and transmission of power in India –with an average 57 percent plant load factor in FY 1992 in thermal plants and transmission losses of 22 percent--were inefficient. About 322 billion kilowatt-hours of power were generated by utilities in FY 1992, approximately 8.5 percent shy of demand. The resulting deficit led to acute shortages in some states. This trend continued the next year when 315 billion kilowatthours were produced. Many factors contributed to the shortfall of electric power in India, including slow completion of new installations, low use of installed capacity because of insufficient maintenance and coal, and poor management. In FY 1990, industry accounted for 45 percent of electricity consumed, agriculture 26 percent, and domestic use 16.5 percent. Other sectors, including commerce and railroads, accounted for the remaining 12.5 percent. Villages received electricity for the first time. In 1990 around 84 percent of India’s villages had access to electricity. Most of the villages without electricity were in Bihar, Orissa, Rajasthan, Uttar Pradesh, and West Bengal. Villagers complain that government figures on electrification of villages are artificially inflated. Actually, although lines have been run to most villages, electricity is provided only sporadically (for example, only nine to twelve hours per day), and villages feel they cannot depend on electricity to operate pumps and other equipment. Electricity to cities also is sporadic; blackouts occur every day in most cities.
India’s first hydroelectric station was constructed in 1897 in Darjiling (then Darjeeling). In FY 1990, installed capacity for hydroelectric power was 18,000 megawatts. The country has a large economically exploitable hydroelectric potential, especially in the foothills of the Himalayas, but no large increase in capacity is predicted for the mid-1990s. Hydroelectric facilities have to be coordinated with other sources of electricity because seasonal and annual variations in rainfall affect the amount of water needed to turn the generators and consequently the amount of electricity that can be produced. Hydroelectric power projects in India have not been without controversy. Indian Dams for irrigation and power generation have displaced people and raised the specter of ecological problems.
Power India 2008
Power India 2008 the Total Energy Industry show
Past Events: The prime focus of the Foundations activities is on modernization and technology Up graduation of Indian industry through international techno-economic cooperation, and to assist in overall development of selected industry sectors through promotion of exports, technology transfer and joint ventures. Also in evolved in International Exhibitions, Institution of Awards, and Trade Delegations etc. The India-Tech Foundation’s Upcoming Trade shows includes Costru India 2008, Telecom India 2008, and Power India 2008.
Past events include: POWER INDIA 2007This event Show cased the latest Indian Power scenario to the world. It brought together the technocrats, Industry Leaders, and senior officials from central & state government as well as experts from both private &public sectors. POWER India 2007 offered a unique platform to meet all the Techno-commercial personal at the Exhibition and
Conference that represented, Co-generators, Self-generators & Fuel Suppliers, OEMs, Independent Power producers, Utility Engineers, Electric Utilities, End Users & Buyers. Entrepreneurs with approved projects as well as officials from SEBs and other government agencies related to the power sector and also entrepreneurs, technocrats and engineers from major industrial users of electricity.
POWER INDIA 2008- 8th International Exhibition and Conference for power and related
sectors, 12-14 October 2006, Mumbai: The Objective of POWER India 2006 was to highlight the progress made so far in power & related sectors and policy initiatives to help achieve the target: Power for all by 2012. In this event the special focus was on how Tech-innovation can help accelerate this progress and how energy security/independence can be achieved through availability & affordability of quality fuel i.e. oil, gas and coal. In addition, to help strengthen Made in India image for Indian Technologies, expertise and services, leading Indian companies showcased their products, services and/or the progress made by them in these sectors as well as their planned projections for the coming years. The theme of this year mega show was “Making Power Sector Efficient & Substainable”.
NTPC Limited or National Thermal Power Corporation Ltd is the largest thermal power Generating company of India. NTPC is the sixth largest thermal power generator in the world and the second most efficient utility in terms of capacity utilization based on data of 1998. NTPC was founded in 1975 to give boost to power development in the country as a wholly owned company of the Government of India. Presently, Government of India holds 89.5% equity in the company and the balance 10.5% is held by Flls, Domestic Banks, Public and others. NTPC is engaged in engineering, construction and operation of power generating plants. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad. NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. Since then, every year, NTPC has been placed under the ‘Excellent category’ (the best category). In recognition of its excellent performance and tremendous potential NTPC has been given the status of “Navratna” by the Government of India. As on date, NTPC’s total installed capacity is 27,904 MW. NTPC’s coal based power stations are at: Singrauli (Uttar Pradesh), Korba (Chhattisgarh), Ramagundam (Andhra Pradesh), Farakka (West Bengal), Vidhyachal (Madhya Pradesh), Rihand(Uttar Pradesh), Kahalgaon (Bihar), NTCPP (Uttar Pradesh), Talcher (Orissa), Unchahar (Uttar Pradesh), Simhadri (Andhra Pradesh), Tanda (Uttar Pradesh), Badarpur (Delhi), and Sipat (Chattisgarh). NTPC’s Gas/Liquid based power stations are located at: Anta (Rajasthan), Auraiya (Uttar Pradesh), Kawas (Gujarat), Dadri (Uttar Pradesh), Jhanor-Gandhar (Gujarat), Rajiv Gandhi CCPP Kayamkulam (Kerala), and Faridabad (Haryana). NTPC’s Power Plants with Joint Ventures are located at Durgapur (West Bengal), Roukela (Orissa), Bhilai (Chattisgarh), and RGPPL (Maharashtra).
Subsidiaries of NTPC: NTPC Electric Supply Company Ltd (NESCL): NESCL is a wholly owned
subsidiary of NTPC. IT was incorporated in August 2002 with the objective to acquire, establish & operate Electricity Distribution Network in various circles/cities across India. The company provides consultancy in the area of: Turnkey execution, Project monitoring, Quality Assurance and Inspection, and Third Party Quality inspection on the behalf of utility.
NTPC Vidyut Vyapar Nigam Ltd. (NVVN): It was formed to cater to and deal with the
vast potential of power trading in the country and optimum capacity utilization.
NTPC Hydro Limited (NHL): It was set up in December, 2002 to develop small and
medium sized Hydro Electric Power Projects of up to 250 MW capacities.
Major Achievements of NTPC:
Largest thermal power generating company of India. Sixth largest thermal power generator in the world. One of the nine PSUs to be awarded the status of Navratna. Provides power at the cheapest average tariff in the country.
On October 1, 2004 the province of New Brunswick the Electricity Act which resulted in the reorganization of New Brunswick power Corporation (“NB Power”) into a holding corporation with subsidiary operating companies. Under the Electricity Act, Genco was established and assumed the conventional generation business (Heritage Assets) of NB Power. Genco, which is not a regulated entity under the Electricity Act, wholly-owns two subsidiaries • New Brunswick Coleson Cove Corporation (“Coesonco”), which owns and Operates Coleson Cove Generating Station • NB Coal Limited (“NB Coal”), which mines local coal to supply Grand Lake Generating Station
Genco operates and maintains one of North America’s most diverse generating systems consisting of 14 hydro, coal, oil and diesel-powered stations. The network of conventional generating stations has an installed net capacity of 3,313 megawatt (“MW”) comprised of 1,903 MW thermal capacity, 884 MW hydro capacity and 526 MW combustion turbine capacity. In addition, Genco also has PPAs representing an additional 402 MW of capacity. Disco represents Genco’s sole in-province customer. Genco supplies capacity and energy to Disco fewer than two PPAs; a Genco PPA and a Colesonoco PPA. Genco is obligated to supply energy to Disco from the Heritage Assets in priority to any other customers. When market condition exist, Genco sells surplus capacity and into out-of- province market including New English, Quebec, Prince Edward Island and Nova Scotia. However, the forecasted export benefits that are derived from these out-of-Province sales are credited to Disco through the PPA.
Purpose of Evidence
The following evidence has been prepared in response to the Board’s ruling of July 16, 2007. To provide detailed evidence on underlying generation costs. An overview of the Components of Genco’s forecasted net earning for 2007/08 is presented in Table A. Each component identified in Table A is discussed in a separate section within this evidence.
Pass through of costs to Disco
It is important to note that the costs of Genco do not flow through to Disco on a direct Basis. The Genco PPA and colesonco PPA are contrast that were structured to Recover, over the life of the PPAs, all of Genco’s costs, net of miscellaneous revenues and expert gross margin benefits and to provide a return to Genco. Variable costs such as fuel and purchased power expense were designed to be recovered through a direct fuel charge and non-fuel costs recovered through capacity payments and other charges are based on prescribed rates. The PPAs were constructed based on long-term cost estimates and designed to allocate risk between Genco and Disco. Please refer to the Attachment to PPAs-Allocation of risk in the PPAs’. The increases that may occur in terms such as OM&A and capital costs, taxes, and interest expense, compared to the original cost estimates factored into the design of the PPAs, is a risk that is borne by Genco (except in certain situations such as increased costs resulting from changes in environmental regulations). The variability in these items only impacts Genco’s net earnings, it does not flow through to disco by means of the PPA. Other risks are also borne by Genco, including changes in Station heat rates, operational results, and expert market results outside of pre-determined amounts. Table B provides a comparision of Genco’s PPA revenue to net expenses for 2007/08. The table outlines the relationship between the PPA revenue to components and the net costs that they were intended to recover. These costs and revenue items will be discussed in greater detail in the respective sections contained in the evidence.
CHAPTER - III REVIEW OF LITERATURE
Financial statements, as used in corporate business hours refer to a set of report and schedule, which an account prepare at the end of the period of the time for a business enterprise. The financial statement are the means with the help of which the accounting system perform its main function of providing summarized information about the financial affair of the business this statement comprises balance sheet or position statement and profit and loss account or income statement, India, every company has to present it financial statement in the form and contents as prescribed under section 211 of the companies Act, 1956.
ANALYSIS OF FINANCIAL STATEMENTS
Financial analysis is to be determined the significant operation and financial characteristic of a firm from accounting data. It is a technique typical devoted to evaluate the past, current and projected of a business firm. Financial Analysis is an attempt to determine the significance and meaning of financial statement data so that forecast may be made of the future prospects for earnings, ability to pay interest and debit maturities and profitability. Published financial statements are the only source of information about the activities and affair of a business entity available tom the public, shareholders, investors and creditors and the government. This various groups are interested in the progress, position and prospect of such entity in various ways. But these statements however, correctly and objectively prepared, by themselves do not reveal the significance, meaning and relationship of the information contained therein. For this proposes, financial statements have to be carefully studied, dispassionately analyzed and intelligently interpreted. Financial analysis results in the presentation of information by arranging financial statement data in a system manner that aids business managers, investor, and financial statement can provide valuable insighits into a company’s performance.
OBJECT OF FINANACIAL ANALYSIS
• • • • • To estimate the earning capacity of the sirm. To gauge the financial position and financial performance of the firm. To determine the long-term liquidity of the funds as well as solvency. To determine the debit capacity of the firm. To decide about the future prospects of the firms.
TYPES OF FINANACIAL STATEMENTS ANALYSIS:
A distinction may be drawn between various type of financial and it may be as under:
(A)According to the nature of the analysis and the material used by him 1).External analysis: - it is made by those who do not have access to the detailed record
of the company. This group, which has to depend almost entirely on Published financial statement, includes investors, credit agencies and government
Agencies regulating a business in nominal way. 2).Internal analysis: - the internal analysis is accomplished by those who have access to
the books of account and all other information related to business. While conducting this analysis is a apart of the enterprise he is analyzing. Executives and employees of the enterprise conduct it.
(B) Accounting to the Modus Operandi of Analysis: 1) Horizontal analysis: When financial statements for a number of years are reviewed
and analysis, the analysis is called ‘Horizontal’. As it is based on data from to years rather on one date or period of time as a whole, this is also known as ‘Dynamic Analysis’.
2) Vertical Analysis: It is frequently used for referring to ratio developed for date or for
one accounting period. It is also called ‘Static Analysis’. This is not very conductive to proper analysis of the firm’s financial position and its interpretation, as it does not enable to study data in perspective. 37
According to the objective of analysis: 1. Long term analysis: - This analysis is made to order to study the long term financial
stability, and liquidity as well as profitability and earning capacity of a business. The objective of this analysis is to know whether the firm will be able to earn a minimum amount, which will be sufficient to maintain a reasonable rate of return on the investment.
2. Short term analysis: -This analysis is made to determine the short term solvency,
stability, liquidity and earning capacity of the business. The requirement or not and sufficient borrowing capacity to meet contingencies in the near future.
PARTIES INTERESTED IN FINANCIAL
1. Financial Executives:The first party interested in the financial analysis in the financial department of the business concern who have a deep insight into the financial of the enterprise and a view of the past performance, which help in decisions making.
2. Management:The management of the concern is also interested in the analysis of the statements because it helps them in reaching conclusion regarding the over all operation of the business. The management is interested in every aspect of the financial analysis it is there overall responsibility to see that the firm are used most effectively and firm’s financial position is sound. As such, return on analysis is very important for them.
3. Creditors:Creditors also evaluate the financial statements and on the basis if these financial statements they come about the credit worthiness of the business enterprises and chosen to extends, maintain or restrict credit. Creditors will be interested to give credit for those business enterprises having sound financial position and having capable of being repayments of their credit. Some of the aspects of enterprise operation that are of interested 38
of the creditor’s are liquidity of funds, soundness of the financial structure, profitability of the operations, effectiveness of working capital management etc. The bankers and trade creditors of a business enterprise are interested in its cash generation and credit worthiness. They want to asses whether the enterprise will as interested payment due as per agreed schedules. They get all this information from the analysis of balance sheet and income statement of the company.
4. Investor: Investors, present as well as prospective, are interested in the business in the measurement of earning capital of secureties. Every investor as the tendency to get fair return on his or investments.Investers hav been increased concerned with he cash generation capability of on enterprise primarly in terms of the flexibility availability to such enterprises to acquire other business and new assets on an advantageous basis. For this purpose each cash flow analysis and funds flow analysis are very useful.
5. Government: The financial statements are used to asses the tax liability of the business enterprise. The government studies economic situations of the country from these statements enable the government to find out whether business is following varios rules and regulations or not.
6. Bankers:The Banker is interested to see that the loan the amount is secure and the customer is also able to take the interest regularly. The banker will analysis the balance sheet to determine financial strength of the concern and profit and loss account will also be studied to fine out earning position. The information provide by the analysis and interpretation of various financial statement is important and useful to those groups also that are interested in working of the business due to one or other motive.
IMPORTANT OF FINANCIALS
Financial analysis is very important for the management, shareholder, investers and general public. Following are important points in this regard. 1. It simplifies, summarize and systematizes a long arise of accounting figures, which prove very useful to the interested parties as it helps these in arriving at valuable decisions. 2. Financial analysis is invaluable aid to the management in discharge of its basic function of fore, planning, co-ordinatinon, communication and control. 3. It identifies the financial health of enterprises the evaluating important aspects of business like liquidity, solvency, profitability, capital gearing, extra, such an evaluation enables conclusion to be drawn regarding financial health of business. 4. The process of analysis financial statements involves the preparation and interpretation of meaning device such as ratios and trend percentages. So with the preparation of meaning devices the data become easy to establish its relationship and other data can be easily ranked in terms of its relative significance. 5. Without analysis of financial statement it is impossible to interpret the financial statements figures. Therefore interpretation requires analysis. 6. Owing to the increasing demand for analytical information by business executive, bankers and other it is necessary to have analysis and interpretation of financial and operatintg data. The financial statements are a mirror, which reflect the financial position and operating strength are weakness of the business enterprise.
PROCEDURE OF ANALYSIS The process of analyzing financial statements involves the rearranging, comparing and measuring the significance of financial and operating data. Interpretation, which follows analysis, is an attempt to logical conclusion regarding the position and progress of the business on the basis of analysis. The procedure may be as under Deciding up on the extend of analysis: - The depth, object and extend of analysis have to be determined so that the scope of the analysis, tool of analysis and the amount and quality of financial data required could be determined. 2. Going through the financial statements: - Before analysis and preparing any statements are composing financial ratios, it is necessary to go through the varios financial statement of the firm.
3. Collection of necessary information: - Other useful information that can not be
revealed from financial statements but is useful for analysis has to be collected from
management. 4. Rearranging of financial data: - The data available has to be arranged in a useful
manner before analysis and interpretation.
5. Analysis In this step the actual: - analysis is made for which any technique such as,
comparative financial statement, trend analysis, ratio analysis and cash flow statements, statements of change in working capital, etc., can be used.
6. Interpretation: - After analysis, interpretation is done and conclusions are drawn.
These interpretations are of vital importance to the management, shareholder, workers, etc., to know the relative worth of the company .Thus, analysis and interpretation of financial statements are regarded as complimentary to each other.
TOOLS OF FINANCIAL ANALYSIS
The analysis of financial statements consists of relationship and trends, top determine whether the financial position of the company is satisfactory or not. The analytical methods or devices, listed below are used to ascertain or measure the relationships among the financial stetements items. Analysis methods and devices used in analyzing financial statements are as follows:
Comparative financial statements. Common size financial statements. Trend ratios Ratio Analysis Cash Flow Statements They may be discussed as under: Comparative financial statements:Statements prepared in a form the reflects data for two or more periods are know as Compared with similar data for a previous period or a number of prior period. Annual data can be compared with similar data for prior years. Comparative statements can be prepared for both types for financial statements balance sheet shows the effect of operations on the assets and liabilities i.e., change in the financial position during the period under consideration. The comparative profit and loss account will present a review of operating activities of the business.
Common Size financial Statements:Comparative statements that give only the vertical percentage of ratios for financial data without giving rupee values are known as Common Size Financial statements. They are also known as 100% statements. A common size statements show the relation of each component to the whole. It is useful in vertical financial analysis and comparison of two business enterprise at a certain date.
Trend Analysis:Under the technique of trend analysis the ratio of different items for various periods are calculated and then a comparison is made. An analysis of the ratios over the past few years may well suggests the trend or direction in which the concern is going-upward or downward.
Ratio Analysis:Ratio analysis is the most widely used tool of financial analysis. It is essentially an attempt to develop meaningful relationship between individual items or groups of items in the balance sheet or profit and loss account. The objects and utility of ratio analysis is confined not only to the internal parties but to the credit suppliers, bans and leading institution also. Ratio analysis tells about the financial position of the enterprise as to whether the capital structure of the business is in proper order, whether the capital structure of the enterprise is satisfactory, whether the credit policy in relation to sales and purchase is sound and whether the company is creditworthy. Thus, ratio analysis highlights the liquidity, solvency, profitability and capital gearing position.
CASHFLOW ANALYSIS:Cash flow analysis is a valuable aid to the financial executive and creditors for evaluating the uses of funds by the firm and in determining how these uses were financed. A cash flow statement indicates where funds came from and where it was used during the period under review. They are important tools for communication and very helpful for financial executives in planning the intermediate and long-term financing of the firm. When it is desired to explain to management the source of cash and its uses during a particular period of time, a statement know as cash flow statement is prepared. A statement of cash flow reports the inflows (receipts) and outflow (payments) of cash and its equivalent of an organization during a particular period. It provides important information that compliments profit and loss account and balance sheet. A statement of cash flow report cash receipts and payments classified according to the entities major activities- operating, investing and financial during the period. The main object of cash flow analysis is to show the causes of changes in cash balance during the period under consideration. Cash flow analysis also provides the information to 43
the management regarding movement of cash and the availability of cash. This analysis is not only concerned with the good or bad management of cashes but also the liquidity position of the concern. It also helps the management in short-term financial decision relating to liquidity.
UTILITY OF CASH FLOW ANALYSIS:
A cash flow statement is very important for financial management. It is an essential tool of short-term financial analysis, as a business enterprise needs sufficient cash to meet its various obligations in the near future such as payments for purchase of fixed assets, expanses of business etc., A historical analysis of the different source and application cash will enable the management to make reliable cash flow
projections for the immediate future. It may then plan out for investment of surplus or meeting the deficit, if any. The main uses of cash flow analysis are as follows:Help in efficient cash management: Cash flow analysis helps in evaluating financial polices and cash position, as the cash is the basis for all operations. A projected cash flow statement will enable the management to plan and coordinate the financial operations.
Help in internal financial management: Cash flow analysis provides information
about funds, which will be available from operations. This will help the management in determining polices regarding internal financial management, e.g., dividend policies, possibility of repayment of long-term debt, etc. Disclose the movement of cash: Cash flow statements disclose the complete story of cash movement. The increase in, or decrease of, cash and the reason thereof can be know. It discloses the reason for low cash balance in spite of low profit. The comparison of original forecast with the actual result highlight the trends of management of cash, which may otherwise go undetected. Discloses success or failure of cash planning: The extent of success or failure of cash planning can be known by comparing the projected cash flow statement with the actual cash flow statement and necessary remedial can be taken.
LIMITATIONS OF CASH FLOW ANALYSIS:Cash flow analysis is a useful tool of financial analysis, but it has its own limitations. Of cash flow analysis are as follows: Cash flow statement cannot be equated with the income statement. An income statement takes into account both cash as well as non-cash items and therefore, net cash flow does not necessarily means net income of the business. The cash balance as disclosed by the cash flow statement may not represent the real liquid position of the business it can be easily influenced by postponing purchase and other payments. Cash flow statements cannot replace the income statement or the funds flow statement or the fund flow statement. Each of them has a separate function to perform.
CASH FLOW ANALYSIS AND STATEMENT:
Cash flow analysis is a method of analyzing the financing, investing, and operating activities of a company. The primary goal of cash flow analysis is to identity, in a timely manner, cash flow problems as well as cash flow opportunities. The primary document used in cash flow analysis is the cash flow statement. Since 1988, the Securities and Exchange Commission (SEC) has required every company that files reports to include a cash flow statement with its quarterly and annual reports. The cash flow statement is useful to managers, leaders, and investors because it translates the earnings reported on the income statement—which are subject to reporting regulations and accounting decisions— into a simple summary of how much cash the company has generated during the period in question. “Cash flow measures real money flowing into, or out of, a company’s bank account,” Harry Domash notes his Web site, WinningInvesting.com. “Unlike reported earnings, there is little a company can do to overstate its bank balance.”
THE CASH FLOW STATEMENT:
A typical cash flow statement is divided into three parts: cash from operations (from daily business activities like collecting payments from customers or making payments to suppliers and employees); cash from investment activities (the purchase or sale of assets); and cash from financing activities (the issuing of stock or borrowing of funds). The final total shows the net increase or decrease in cash for the period. 45
Cash flow statements facilitate decision making by providing a basis for judgments concerning the profitability, financial condition, and financial management of a company. While historical cash flow statements facilitate the systematic evaluation of past cash flows, projected (or pro forma) cash flow statements provide insights regarding future cash flows. Projected cash flow statements are typically developed using historical cash flow data modified for anticipated changes in price, volume, interest rates, and so on. To enhance evaluation, a properly-prepared cash flow statement distinguishes between recurring and nonrecurring cash flows. For example, collection of cash from customers is a recurring activity in the normal course of operations, where as collections of cash proceeds from secured bank loans (or issuances of stock, or transfers of personal assets to the company) is typically considered a recurring activity. Similarly, cash payments to vendors is a recurring activity, whereas repayments of secured bank loans (or the purchase of certain investments or capital assets) is typically not considered a recurring activity in the normal course of operations. In contrast to nonrecurring cash inflows or outflows, most recurring cash inflows or outflows occur (often frequently) within each cash cycle (i.e., within the average time horizon of the cash cycle). The cash cycle (also known as the operating cycle or the earnings cycle) is the series of transactions or economic events in a given company whereby:
Cash is converted into goods and services. Goods and services are sold to customers. Cash is collected from customers.
To a large degree, the volatility of the individual cash inflows and outflows within the cash cycle will dictate the working-capital requirements of a company. Working capital generally refers to the average level of unrestricted cash required by a company to ensure that all stakeholders are paid on a timely basis. In most cases, working capital can be monitored through the use of a cash budget.
PREPARATION OF CASH FLOW STATEMENTS:
Cash flow statement is prepared with the help of balance sheet, income statement, and surplus appropriations statement and other given information. The measurement of cash flow is primarily based on income statement as the items in any income statement6 are shown on actual basis, where as in cash flow statement they are shown cash basis. 46
Cash flow measurement depends primarily on determining cash receipt and disbursements over a given period. The measurement of cash flow constitutes two aspects, determining the inflow of cash and outflow of cash. The items constitution inflows of cash are the sources of cash while outflow of cash is the application of cash.
SORCE OF CASH OR CASH INFLOWS:
The transactions, which increase the cash position of the firm, are called as sources of cash of cash inflows. The main sources of cash inflow are as follows: Increase in share capital: - Share capital raised whether in the form of preference of equity capital would constitute inflow of cash. The inflow would be to the extent of actually received on issue of share. However, issue of share by capitalization of reserves or issue of share for consideration other that cash or issue of share in conversion of debentures or long-term loans would not be a cash inflow.
Issue of debenture, loans etc: - The net amount received on the issue of debentures and
rising of loan will constitute inflow of cash. However, if the debentures are issued or loans raised for consideration other cash, it will not constitution inflow of cash.
Reduction in or sale of assets: - Sale proceeds of fixed assets and long-term investment
to the extent payment being received in cash would be inflow of cash. Similarly, decrease in debtors and bill receivable will be inflow of cash.
Other receipts: - There may also be some other sources of cash inflows. For example,
sale proceeds of by-products of waste material, cash receipts of dividends and interest, income-tax refund, compensation received etc.
APLICATION OF CASH OR CASH OUTFLOW:
Operation loss: - If a business is operating at a loss then to that extent it is treated as application of cash or cash flow. Reduction of redeemable shares of debentures: - Amount actually paid on the redeemable of preference share or debentures constitute outflow of cash. While paying back the preference capital, arrears of dividend may also be paid. However, if equality share are allocated in repayment of preference capital or debentures, there will be no cash outflow.
Decrease in or repayment of loans: - Decrease in the long-term or short-term loans,
creditors and bills payable also constitute outflow of cash. 47
Increase in or purchase of non-current assets: - The acquisition of fixed assets and investments also involves the use of cash. For example, if furniture is purchased for cash, it will constitute an outflow of cash. However, if the acquisition is made on credit or by the issue of shares or debentures, it will not involve out of cash.
Other payments: - Payments of dividend, income tax, interest, compensation etc., also
constitute outflow of cash.
FORM OF CASH FLOW STATEMENT: There is no set format for cash flow statements; it can also be prepared in two types may be adopted:Reminder type :- Under this type, the cash flow statement is divided into two parts sources of cash and application .The difference of the total of the sides would show increase in cash or decrease in during under study. Self balance type :- Under this method, cash flow statement is prepared in the same way as in reminder type but in this method the short side of the statement is balanced by showing change in the balance of cash. Which the cash balance shown in the current year balance sheet. This method is most popular and widely used in practice. Reconciling type: - Under this method opening and closing balances of cash are tallied in it, the statement starts with the opening balance of cash. In this balance all the inflow of cash are added and all outflows of cash are Detected, the resulting figure will be closing balance of cash, which must tally, with the balance shown in the current year’s balance sheet. This method is most popular and widely used in practice. forms, either in report form or in an account form. Under both these form any of the following
CHAPTER – IV ANALYSIS AND INTERPRETATION
COMMON SIZE BALANCE SHEETS 2002 TO 2005
2004 LIABILITIES SHARE CAPITAL 16371306 121081993 137453299 147117994 49 326815264 362629131 393773915 RESERVS AND 35813866.7 .7 .4 .9 SURPLUS 46086540 SECURITY 9664695 31144784. 52 2002 2003 2003 2004 2004 2005 2005
COMMON SIZEBALANCE SHEET 2004 TO2007
2004 2006 2005 2005 2006 2006 2007 2007
SHARE CAPITAL RESERVS AND SURPLUS SECURITY LOANS CUURENT LIABILITES SUN DRY CREDITERS OTHER LIABILITIES PROFIT TOTAL 7667330 30523985. 85 -5658702 11959600 4253614.8 8 43259624. 59 6033171 98038624. 32 147117994 393773915 .9 34769136 132349612 .2 76179337. 96 253211263 .5 47628058. 37 108502931 8 1547853 24 4242979 02 2911043 4 1443092 12 8043295 3 2964708 88 5366122 9 1.183E+0 9 163198122 402286875 .4 24588758 153814064 .2 74249055. 96 341769273 .1 60895813. 9 122080196 3 8412798 22011026. 4 -4521676 9504852 6183896.8 8 45298385. 02 7234584.5 3 37734020. 28
FIXED ASSETS CURRENT ASSETS LOANS AND ADVASNCES SUN DRY DEBITERS CASH AND BANK BALANCE INVESTMENTS AND DEPOSITS OTHER ASSETS TOTAL 31459136. 18 7498636.3 4 2116624.2 7 38687447. 25 15145789. 15 22408386. 5 25539377. 65 98038624. 35 538972271 .5 14151793. 24 10384448. 2 212651567 .2 2085770.7 2 289072965 .8 17710501. 24 108502931 8 5704314 08 2165043 0 1250107 2 2513390 14 1723156 0 2666645 79 4324987 9 1.183E+0 9 603557860 .8 11277563. 2 13861451. 16 290789895 .9 10794080. 92 228311272 .7 62209837. 75 122080196 3 33126453. 15 10372866. 4 1360378.6 9 39450881. 5 6437478.9 5 38353306. 6 18959958. 86 37734020. 28
COMMON SIZE CASHFLOWSTATEMENT SHEETS 2004 TO 07
2004 2005 2006 2007
SHARE CAPITAL RESERVS AND SURPLUS SECURITY LOANS CUURENT LIABILITES SUN DRY CREDITERS OTHER LIABILITIES PROFIT 16371306 35813866.7 -5658702 9151103.47 -4085281 52898503.8 7 152656.34 29458133.4 9 -3830970.44 1780737.85 50510771.4 5 5017397.76 22473247.9 765864.63 9664695 31144784.5 2 -5658702 15001894.5 3 989711 25234357.6 8 6013449.65 47803836.8 5 5542707.82 -989711 9787867.16 -4002292.31 16634004.3 7 10238777.2 6 7667330 8412798 30523985.8 5 22011026.39 -5658702 11959600 4253614.88 -4521676 9504852 -6183896.88
43259624.5 9 45298385.02 6033171 7234584.53
FIXED ASSETS CURRENT ASSETS LOANS AND ADVASNCES SUN DRY DEBITERS CASH AND BANK BALANCE INVESTMENTS AND DEPOSITS OTHER ASSETS 31459136.1 8 33126453.15 7498636.34 10372866.38 2116624.27 1360378.69 38687447.2 5 39450881.5 15145789.1 5 -6437478.95 22408386.4 9 38353306.59 25539377.6 5 18959958.86
CASH FLOW STATEMENT FOR THE YEAR 2004
SHARE CAPITAL RESERVS AND SURPLUS CURRENT LIABILITES OTHER LIABILITES CURRENT ASSETS OTHER ASSETS CASH FROM OPERATIONS
16371306 SECURED LOANS
5658702 4085281 29458133.49 1780737.85 50510771.45 5017397.76 22473247.9 118984271.5
35813866.7 SUNDRY CREDITORS 9151103.47 FIXED ASSETS 52898503.87 LOANS AND ADVANCES 3830970.44 SUNDRY DEBITORS 765864.63 CASH &BANK BALANCE 152656.34 INVSTMENTS&DEPOSITS 118984271.5
SOURCES: 1. SHARE CAPITAL, RESERVS AND SURPLUS, CURRENT LIABILITES, OTHER LIABILITES & CASH FROM OPERATIONS these are Increased. 2. CURRENT ASSETS & OTHER ASSETS these are Decreased. A PPLICATION: 1. FIXED ASSETS, LOANS AND ADVANCES, SUNDRY DEBITORS, CASH &BANK BALANCE & INVSTMENTS&DEPOSITS These are increased. 2. SECURED LOANS & SUNDRY CREDITORS these are decreased. 53
CASH FLOW STATEMENT FOR THE YEAR 2005 SOURCES
SHARE CAPITAL (IN) RESERVS AND SURPLUS (IN) CURRENT LIABILITES (IN) OTHER LIABILITES (IN) SUNDRY CREDITORS (IN) LOANS AND ADVANCES (DE) CASH &BANK BALANCE (DE) CASH FROM OPERATIONS(IN)
5658702 5542707.8 2 47803836. 85 10238777. 26 9787867.1 6 16634004. 37
SECURED LOANS 9664695 (DE) 31144784. CURRENT ASSETS 52 (IN) 15001894. 53 FIXED ASSETS (IN) 25234357. 68 OTHER ASSETS (IN) SUNDRY 989711 DEBITORS(IN) INVSTMENTS&DEPOS 3614710.8 ITS (IN) 4002292.3 1 6013449.6 5 95665895. 49
SOURCES: 1.SHARE CAPITAL, RESERVS AND SURPLUS ,CUURENT LIABILITES, OTHER LIABILITES ,SUNDRY CREDITORS & CASH FROM OPERATIONS These are Increased. 2. LOANS AND ADVANCES & CASH &BANK BALAN APPLICATION: 1. CURRENT ASSETS ,FIXED ASSETS ,OTHER ASSETS ,SUNDRY DEBITORS, &INVSTMENTS&DEPOSITS These are Increased 2. SECURED LOANS are decreased.
CASH FLOW STATEMENT FOR THE YEAR
SHARE CAPITAL (IN) RESERVS AND SURPLUS (IN) CUURENT LIABILITES (IN) OTHER LIABILITES (IN) INVSTMENTS&DEPOS ITS (DE) SUNDRY CREDITORS (IN) CASH FROM OPERATIONS (IN)
7667330 30523985. 85
SECURED LOANS (DE) CURRENT ASSETS (IN)
7498636.34 31459136.1 11959600 FIXED ASSETS (IN) 8 43259624. LOANS AND 59 ADVANCES(IN) 2116624.27 22408386. SUNDRY 38687447.2 49 DEBITORS (IN) 5 4253614.8 CASH &BANK 15145789.1 8 BALANCE (IN) 5 OTHER ASSETS 25539377.6 6033171 (IN) 5 126105712 126105712. .8 84
1. SHARE CAPITAL, RESERVS AND SURPLUS, CUURENT LIABILITES, OTHER
LIABILITES, SUNDRY CREDITORS & CASH FROM OPERATIONS These are increased.
INVSTMENTS & DEPOSITS are decreased.
1. CURRENT ASSETS, FIXED ASSETS, LOANS AND ADVANCES ,SUNDRY
DEBITORS, CASH &BANK BALANCE & OTHER ASSETS These are Increased. 3. SECURED LOANS are Decreased.
CASH FLOW STATEMENT FOR THE YEAR
SHARE CAPITAL (IN) INVSTMENTS&DEPOS ITS (DE) CUURENT LIABILITES (IN) OTHER LIABILITES(IN) CURRENT ASSETS (DE) CASH &BANK BALANCE (DE) CASH FROM OPERATIONS (IN)
8412798 38353306. 59 9504852 45298385. 02 10372866. 38 6437478.9 5 7234584.5 3 125614271 .5
SECURED LOANS (DE) SUNDRY CREDITORS (DE) FIXED ASSETS (IN) LOANS AND ADVANCES (IN) SUNDRY DEBITORS (IN) RESERVS AND SURPLUS (DE)
4521676 6183896.8 8 33126453. 15 1360378.6 9 39450881. 5 22011026. 39
18959958. OTHER ASSETS (IN) 86 125614271 .5
1. SHARE CAPITAL, CUURENT LIABILITES, OTHER LIABILITES & CASH FROM OPERATIONS These are increased. 2. INVSTMENTS&DEPOSITS, CURRENT ASSETS & CASH &BANK BALANCE These areDecreased.
1. SECURED LOANS, SUNDRY CREDITORS & RESERVS AND SURPLUS These are Decreased. 2. FIXED ASSETS ,LOANS AND ADVANCES ,SUNDRY DEBITORS & OTHER ASSETS These are increased.
CASHFLOW STATEMENTS INCREASING & DECREASING
In this section an attempt has been made to analyze in detail the cash flow statements of CESS Ltd. For the period of five years from 2002-03 to 2006-07. These cash flow statements have been taken from the published accounts of the company. The sources and application of funds have been computed on year to year basis. The objective of the analysis is to find out the different sources from where the company has raised the funds during the period and how where this funds utilized in order to achieve its objectives. After going through the cash flow statements we can conclude that cash flow at the end of the financial year 2006-07 was maximum compared to other years, as there was proper carry out of financial activities, it can be said that the company has invested in the purchase of fixed assets. It has also applied adequate dividends to shareholders. Consequently, CESS Ltd., is in a better position which can be seen from the cash positions at the end of the financial year 200607. The company is constantly investing in the purchase of fixed assets and prompt repayments 58
of loans. There was no issue of shares throughout the period it is clear from the cash flows of the year 2006-07 that company has substantially invested in the purchase of fixed assets.
CHAPTER - V FINDING SUGGETIONS, CONCLUSION
SUMMARY OF FINDINGS: CASH FLOW ANALYSIS:1. The cash flow statement we can conclude that cash in a better position.
2. The company has invested in the purchase of fixed assets. It has also paid adequate dividends to the shareholders. 3. The company is constantly investing in purchase of repayment of loans. 4. From the study we can conclude that the CESS Ltd Gross Profit is high in all years, higher the gross profit better the results. 5. From the study the Net profit of CESS Ltd it is indicates the organization efficiency of the management, manufacturing, selling, administrative and other activities of the firm is not good. fixed assets and promote
The following are the suggestions for the CESS Ltd:
1) The performance in maintenance the Cash of the organization is good. This shows the health of financial strength of organization. 2) The Debt-Equity is in down ward trend. There is sufficient scope provision to avail the further debt. 3) The fixed assets and capital are to be improved, as it is very marginal in the year 200506 and 2006-07. It reflects the in appropriation of the fixed assets and capital employed in the organization. This situation can be avoided by increasing the sales. 4) The management is to minimize the administrative expenditure to the extent possible to increase the cash from operation or (net profits different), which is found very low. 5) The management of CESS Ltd., have to examine efforts to increase the cash from operation or (net profits different) in the same way as achieved better results in case of gross profit.
In the previous chapters, we analyzed the cash flow statement of CESS Ltd. The present chapter is a summary on the performance of the company based on its financial analysis an attempt has been made to recommend improvements in its performance to achieve the objective of the company.
BOOKS REFFERED 1) FINANCIAL MANAGEMENT 2) INTERNET -----------3) ANNUAL REPORTS OF CESS LTD. 4) BOOKS REFERS 5) FINANCIAL MANAGEMENT 6) FINANCIAL MANAGEMENT WEB SITES: www.electricpower.com www.transco.com www.genco.com www.ntpc.com M.Y. KHAN & P.K.JAIN PRASANNA CHANDRA ----I.M.PANDEY