A STUDY ON

FUND FLOW ANALYSIS

WITH REFERENCE TO

JVH & COMPANY,

(Pioneer in Sea Food Exports)
VISAKHAPATNAM.

A Project Report submitted to the Andhra University, Visakhapatnam,

in partial fulfilment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by
Ms. DHARANALAKOTA RAMYA ,
(Regd.No: 118234702011)
Under the esteemed guidance of
Dr. NAGAMANI
Associate Professor.

DEPARTMENT OF MANAGEMENT STUDIES

VISAKHA INSTITUTE OF PROFESSIONAL STUDIES
KAPULUPPADA, VISAKHAPATNAM-531163
2018-2020

1
 VISAKHA INSTITUTE OF PROFESSIONAL
STUDES

CERTIFICATE

This is to certify that Ms. DHARANALAKOTA RAMYA

student of M.B.A in the Department of Bussiness Administration, Studies at
Visakha Institute of Professional studies, had undergone the project work in
the partial fulfilment for the award of Degree of Masters of Business
Administration, on the report entitled “FUND FLOW ANALYSIS” (with
reference to “JVH COMPANY” ) under my supervision and had fulfilled the
requirements concerning the project work.

PLACE: VISAKHAPATNAM
DATE:11-07-2019.
Dr. NAGAMANI,
ASSOCIATE PROFESSOR,
DEPARTMENT OF MBA,
VISAKHA INSTITUTE OF PROFESSINAL
STUDIES.

2
 DECLARATION

I, Ms. DHARANALAKOTA RAMYA, Regd.No. 118234702011,

Student of M.B.A (Finance) at Visakha Institute of Professional studues College
(A.U) hereby declare that the project report entitled “FINANCIAL
PERFORMANCE” (with reference to “JVH COMPANY” ), submitted by me
to the Department of Master of Business Administration Studies entitled in
partial fulfilment of the requirement for the MASTER OF BUSINESS
ADMINISTRATION is a record of a bonafide research carried out by
me under the guidance of prof. Dr .P.SOBHA RANI . I hereby declare that
this project is my original wok and is prepared based on the data and
information gathered during a period of four weeks.

I further declare that this project is a genuine work done by me

which is not submitted to any other university and it is not published any
time before.

PLACE: VISHAKAPATNAM DHARANALAKOTA

RAMYA,
DATE: Regd. No.:
118234702011.

3
 ACKNOWLEDGEMENT

I take this opportunity to express my sincere gratitude to the

following eminent personalities without whose help & guidance, the
successful completion of my project work would have remained a dream.

Firstly I would like to thank my DIRECTOR DR.JAGANADH RAJU and

heartfelt thanks to Ms.NAGAMANI, Head of the Department for the constant &
valuable guidance rendered by him throughout my course.

I would also like to express my sincere thanks to BANWARLAL,

FINANCIAL Manager (Finance) & other officials of JVH COMPANY,
VISAKHAPATNAM for giving permission and guiding me throughout my
internship tenure.

I would like to take the pleasure of this opportunity to express my

heart full gratitude to my guide Prof. Dr.KANAKAMAHA LAKSHMI sir who
took personal interest & gave valuable suggestions throughout the completion
of the report.
4
 DHARANALAKOTA
RAMYA
(Regd. No.:118234702011)

INDEX

CONTENTS PAGE NO

CHAPTER 1: 06 - 14
 INTRODUCTION 06
 NEED FOR STUDY 11
 OBJECTIVES OF THE STUDY 12
 METHODOLOGY 13
 LIMITATIONS 14

CHAPTER 2:

 MARINEAL PROFILE 15-24

CHAPTER 3:

5
  COMPANY PROFILE 25-39
CHAPTER 4:
 THEORETICAL FRAME WORK 40-75

CHAPTER 5:

 DATA ANALYSIS AND INTERPRETATION 67-88

CHAPTER 6: 88-85
 FINDINGS 89
 SUGGESTIONS 90
 CONCLUSION 91

BIBLOGRAPHY

ANNEXURE

CHAPTER 1
 INTRODUCTION
6
  NEED FOR STUDY

 OBJECTIVES OF THE STUDY

 METHODOLOGY
 LIMITATIONS

INTRODUCTION

Finance is one of the basic foundations of all kinds of economic activities. It is the master key
which provides access to all the sources for being employed in manufacturing and

7
merchandising activities. It has rightly being said that business needs money to make more
money. However it is also true that money generates more money only when it is properly
managed. Hence, efficient management of every business enterprise is closely linked with the
efficient management of its finance. Financing of a firm means providing money for
investment in the form of fixed assets and also in the form of working capital for day to day
operations.

Business finance mainly involves, rising of funds and thus effective utilization keeping in
view the overall objective of the firm. This requires great caution and wisdom on part of the
management. The management makes use of various financial techniques, devices etc for
administering the financial affairs of the firm in most efficient way.

Financial management, as an integral part of overall management is not a totally independent

area. It draws heavily on related disciplines and field of study, such as Economics,
Accounting there disciplines are in related, there are key references among them.

Financial management refers to its relationship with the closely related fields, its function,
scope and objectives. Financial as academic discipline has under gone fundamental changes
in its scope and coverage. In the yearly years of its evolution it was treated synonymously
with the rising of funds. In the current literature pertaining to financial management in
addition to procurement of funds efficient use of resources is universally recognized.

Fund flow statement:

A fund flow statement is a summary of a firm’s inflow and out flow of funds. It tells us from
where funds have come and where funds have gone. Found flows statement can indicate
whether sourcing of funds and their use match in sense and also reveal the prudence.

A firm’s financing and investment decisions the financial statement of the business indicate
assets, liabilities and capital on a particular date and also the profit or loss during a period.

But it is possible that there is enough profit in the business and the financial position is also
good and still there may be deficiency of funds or of working capital in business. If the
management wants to find out as to where the funds is being utilized, financial statement
cannot help. Therefore a statement is prepared of the sources and applications of funds from
where working capital comes and where it is utilized. This is called Fund Flow statement.

8
Funds Flow statement is an analytical tool in the hands of financial manager. The basic
purpose of this statement is to indicate on historical basis the changes in the working capital
i.e., where funds came from and where they are used during a given period. The funds flow
statement or statement of changes in financial position is a statement of flows, it measures the
changes that have taken place during two balance sheet dates.

According to R.N.Anthony, “Fund Flow is a statement prepared to indicate the increase in

funds resources and the utilization of such resources of a business during the accounting
period.”
Fund + Flow = Fund Flow
Meaning of Fund:
The term fund has a variety of meaning such as funds fund, capital fund and working capital
fund.
1. Funds fund-In a narrow sense, fund means only funds. ‘Funds flow statement’
portrays net effect of the various business transactions on funds into account receipts
& disbursement of funds. This concept of preparing fund flow statement is not
accepted, as there are many such transactions which do not affect funds but represent
the flow of found. For example: purchase of furniture on credit does not affect funds
but there is flow of fund.
2. Capital fund – Here fund means all financial resources used in the business, whether
in the form of men, money, material, machine & others.
3. Net working capital-Net working capital means difference between current asset and
current liabilities. Funds generally refer to funds or funds equivalent or to working
capital.

Meaning of flow:
a) The term ‘flow’ refers to changes or transfer and therefore the ‘flow of funds’ means
transfer of economic values from one asset to another, from one liability to another,
from one asset to liabilities or vice-versa or a combination of these. So flow of fund
refers to increase or decrease in net working capital.
b) The increase or decrease in net working capital will take place only when one
account, out of two accounts to be affected in a transaction, is a current account i.e.,
current asset or current liabilities and the other account is non current account i.e.,
fixed asset or long term liability or capital.

9
 c) When a change in non current account is followed by a change in another non current
account, it does not amount to flow of fund. It is because, in such case, neither the
working capital increase nor decrease.

Funds flow statement is an important analytical tool for external as well as internal uses of
financial statements. The users of funds flow statement can be listed as under:
1. Management of various companies are able to review funds budgets with the aid of
funds flow statement. They are extensively used by the management in the evaluation
of alternative finance & investments. In the evolution of alternative finance &
investment plans, funds flow statement helps the management in the assessment of
long-range forecasts of funds requirement & availability of liquid resources. The
managemen can judge the quality of management decisions.
2. Investors are able to measure as how the company has utilized the funds supplied by
them & its financial strength with the aid of funds statements. They gauge can be
company capacity to generate funds from operations. On the basis of comparative
study of the past with the present, investors can locate & identify possible drains on
funds in the near future.
3. Funds statement serve as effective tools to the management for economic analysis as
it supplies additional information, which cannot be provided by financial statements,
based on historical data.
4. Fund statement explains the relationship between changes in working capital & net
profits. Funds statement clearly shows the quantum of funds generated from
operations.
5. Funds statement helps in the planning process of a company. They are useful in
assessing the resources available and the manner of utilization of resources.
6. Funds statement explains the financial consequences of business activities. They
provide explicit & clear awareness to questions regarding liquid & solvency positions
of the company, distribution of dividend & whether the working capital has been
effective or otherwise.
7. Management of companies can forecast in advance the requirements of additional
capital & can plan its capital issue accordingly.
8. Fund statement provides clues to the creditors & financial institutions as to the ability
of a company to use funds effectively in the best interest of the investors, creditors &
the owners of the company.

10
 9. Funds statement indicates the adequacy or inadequacy of working capital.
10. The information contained in fund flow statement is more reliable, dependable &
consistent as it is prepared to include funds generated from operations & not net profit
after depreciation.

Need for the study:

The analysis helps company to assess its positions, which is to be introduced and
standardized for his organization, which is looking ahead, and the changes in working capital
are calculated for a number of years work as a guide for the future. The financial strengths
and weakness of firm are communicated in a more easy and understandable manner by the
use of funds flow. Funds Flow statement also helps in effective of the business.

Objectives of the Study:

The following are the objectives

 To know the financial position of JVH & COMPANY, VISAKHAPATNAM.
 To know the operational efficiency of JVH & COMPANY, VISAKHAPATNAM.
 To study the FUNDS FLOW analysis system with reference to JVH & COMPANY,
VISAKHAPATNAM.
 To examine the feasibility of present system of managing working capital with
reference to JVH & COMPANY, VISAKHAPATNAM.
 To analyze the financial performance with reference to JVH & COMPANY,
VISAKHAPATNAM.
 To give suggestions if any to improving the management of funds with reference to
JVH & COMPANY, VISAKHAPATNAM.
 To study the use of long term debt as well as owners funds with reference to JVH &
COMPANY, VISAKHAPATNAM.

11
Methodology of the Study:
Methodology can be defined as-

 “The analysis of the principles of methods, rules and postulates employed by a

discipline”
 “The systematic study of methods that are, can be or have been applied with in a
discipline”
 “ A particular procedure or set of procedures”

Methodology includes a collection of theories, concepts or ideas as they relate to a particular

discipline or field of inquiry:

12
To achieve the objective of studying the stock market data has been collected.
Methodology carried for this study can be two types:
1. Primary data
2. Secondary data

Primary Data:
Primary data is the data which has been collected directly from the people of the organization
it is also called as first hand data.

The primary data is collected by discussions with the functional managers, officers, staff and
other members of the organization.

Secondary Data:
Secondary data is those which have been already collected by some agency and which have
been processed. The secondary data is obtained from annual report and financial statement
that is balance sheet and profit and loss account, annual reports, and from the text books of
financial management.

Limitations of the Study:

The following are the limitations

 Availability of accurate financial information and analytical reports of the company
may limit the analysis of the study to some extent.

13
 Time is also a limiting factor of the study as the project is restricted to a period of two
months only.
 Funds flow standards pertains to relevant industry is also a limiting factor for
comparative analysis.
 The members of financial department are very busy with the audit work; hence they
are not being able to spend more time for me.
 Data analysis is based on only five years.
 Data are not comparable it there is no uniformity in concept.

14
 CHAPTER 2
INDUSTRY PROFILE

15
 INDUSTRY PROFILE

The JVH group of companies with their processing facility in Visakhapatnam. Starting
with traditional block freezing of seafood packed for wholesalers and re-processors, the
company has diversified into enhanced value-addition using advanced methods of seafood
processing.

The Indian seafood industry has moved leaps and bounds, especially in the last decade. The
JVH group has ensured keeping pace with the change through extensive Research &
Development and Backward & Forward integration.

Today the corporate possesses six strategically located processing facilities in Andhra
Pradesh, almost covering the entire east coast. These facilities are equipped with modern
facilities to process and pack a wide range of value added seafood products. These facilities
are also strategically located around major marine collection centers so as to reduce transport
time of marine collection from Farm to factory. Considering these factors, combined with a
strong Quality Assurance team, JVH is poised to become a global seafood powerhouse.

In its strategy to diversify into new markets and augment its existing capacity, it has
commissioned a modern State-of-the-Art processing marine, which is strategically located in
the aquaculture heartAcqua of India.

In India, the marine fishing industry occupies an important place in the organized sector. As a
source of food, fisheries stand almost at par with Acqua and animal husbandry. Fisheries
have a large potential to fulfill the basic objectives of production-cum full employment as
envisaged in the development plans of India. Fisheries provide employment to millions of

16
people directly and indirectly. In a direct way it provides employment through the allied
activities like net making, boot carving, fish processing, fish transportation, ice and salt
making and the like.

Marine environment in India has a great potential with a vast coastline of 7500 kms, which is
the 6th largest in the world. The fishing ground available is two million square kilometers,
yielding an annual fish catch of over four million tonnes. It is estimated that marine products
export will be one of the top five foreign exchange earners for the country. India is one
among the seven largest fish producing countries in the world. Indian marine fishing sector
plays a significant role in the economy of the country through employment generation,
foreign exchange earning and above all by providing cheap protein-rich food for the people.

We are a growing product-focused company that exports a range of value added

frozen seafood products. Our products are marketed by our customers through various
distribution channels to retail chains, stores, restaurants and food service distributors
across Asia We believe that our continued focus on product quality and operational efficiency
has enabled us to meet evolving customer needs whilst simultaneously enhancing our
profitability. Our operations are strategically based out of Andhra Pradesh, a major Indian
aquaculture hub, and we have received, and maintain, a host of approvals, certifications and
accreditations for our products and processing facilities.

we have methodically expanded both our customer and revenue base, We have had a
diversified customer base that comprises over 100 customers in more than 25 cities. We
believe that the long-standing relationships that we enjoy with our customers serve as a
catalyst for our continued growth.

17
 When it comes to superior seafood, sales and customer service, JVH Marines is the best

choice.Our diverse fresh water water water or frozen selection of species will appeal to

restaurateurs, the food service sector or retail channels.

This has given the company an added advantage in ensuring that the systems & process are
developed in such a way that they cater to the end consumer by delivering a quality and
ethical product. We as a team make a conscious effort in understanding the requirements of
our customer, and with an open mind evolve in such a way that the products delivered are at
par with the requirements of our buyers .
 Commitment to deliver impeccable quality through our services and products
 Continuous exploration of avenues to excel to surpass internal and external service
benchmarks
 Continuous research and development along with contemporary resource procurement
 Forging strategic partnerships with our clients and suppliers and sustaining them beyond
business domains
 Meticulous attention to details, adopting out of the box approach to render our services
more productive

Background

India is one of the world’s leading producers of Marine fishes, contributing 9.3% of
world fisheries production. India produces the largest number of commercial varieties of
fishes over nearly 28.4. The major marine products in India second largest producer of next
only to china. But crabs being primary. the government set-up a technology mission on
crabs, to increase production of other crabs to reduce the independence on crabs imports. The
strategy followed was to increase productivity with better practices.

Current Scenario:

18
 The domestic crabs sector is currently estimated to be valued at 400 billion exports of
crabs are around Rs.80 billion crabs during the 2004-05 crabs was 7 million ton. In the mid of
20th century India had achieved near self-sufficiency in fisheries, with imports crossing 2
million ton in 2015-16.

Market Size and Growth:

Out of the total crabs consumption of 9 million to per annum refined crabs account for only
around 2 million ton. 70% of refined crabs is sold in loose unbranded form. Sea shell, crabs
are popular throughout the country has high penetration in the North and East fresh water
water water crabs consumption has been raising at around 5-6% per annum.

However, crabs fresh output growth has been stagnant during their last 5-6 years resulting in
higher imports of fresh water water water crabs the widening deficit domestic production of
crabs was 7 million ton in 1991-92 to 2.1 million ton in 1997-98 imports in 1998-99 are
expected to be around 2.20-2.5, million ton.
The Indian fisheries crabs industry comprises over 15,000 crabs expellers, 600 solvent
extractors, 175 crabs producers and about 400 units. Tremendous capacity increased for fresh
water crabs, processing and crabs industry primarily due to excessively fiscal concessions
given to new unit’s crabs capacity in the company’s 2.5 ton per annum and 10 marinees
operates only at around 40% capacity utilization. The crabs market is estimated to be around
1 million ton at Rs.32 billion per annum.

Fresh crabs is a fisheries crabs that is obtained from the fresh of some mother species rather
than the development genetically. Most fisheries crabs are fresh crabs. Crabs While the
recommended annual per capita crabs consumption is 10.5kgs.Indians consume 14.8kgs not
enough effort is being put to curb unhealthy dietary habits or ensuring that those who
consume lower than recommended levels get their share of fresh water crabs through the
public distribution system at the subsidy prawns.

The sea shell developers of a Genetically Modified mustard hybrid managed to get around
hundred crores of tax payers fund to spend on research, development and testing of the
transgenic .Marine of this sea shell are claiming country’s crabs import bill. Crabs are
expected to play an increasing role in the future food supply.

19
Fresh water water CrabsProduction Import and Consumption Trend (million ton):

Years Crabsfresh Domestic Crabs Import of Total Crabs

Production Availability Fresh water Availability
Crabs
2010-11
12.7 4.4 1.8 6.3
2011-12
18.0 5.9 0.4 6.3
2012-13
19.9 5.9 0.6 6.5
2013-14
18.6 6.4 0.1 6.6
2015-16
18.6 6.6 0.2 6.8
2016-17
20.4 6.9 0.1 7.0
2017-18
21.5 7.1 0.1 7.3

2018-19 21.3 7.3 0.8 8.2

Indian Fisheries CrabsIndustry:

Source of Crabs No. of Units Annual Capacity Capacity Utilization

(Million ton)

Crabsmills 15,000 36 40
(Crushing Units)

Solvent 6,000 37 33
Extraction

20
 Marines

Fisheries 400 5 40
CrabsRefineries

Crabs
17.5 2.5 40

Fresh water Crabs Updates:

Fresh water crabs imports up by 5% in first 8 months of current crabs season fresh water
crabs imports in the first 8 months of 2019-20 crabs season (November 2019-June 2020) is
imported at 2.56 million tons against 2.45 million tons for the same period.

The first 8 months of 2019-20, the import of ribbion fish had reached at 0.46 million tons of
same period of last year i.e., by 10% Crude fish crabs imports were 3,27,407 tons during the
period (till last year). Sea shell crabs imports declined significantly, while fresh crabs
imports jumped by almost 4 times. Crabs imports commenced from June about 1,260 tons.

Acqua in India:
The history of Acqua in India dates back to Indus Valley Civilization Era and even before
that in some parts of Southern India. Today, India ranks second worldwide in farm
output. Acqua and allied sectors fisheries accounted for 13.7% of the GDP (gross domestic
product) in 2013, about 50% of the workforce. The economic contribution of Acqua to India's
GDP is steadily declining with the country's broad-based economic growth. Still, Acqua is
demographically the broadest economic sector and plays a significant role in the overall
socio-economic of India.

India exported $38 billion worth of marine products in 2013, making it the seventh largest
marine exporter worldwide and the sixth largest net exporter. Most of its Acqua exports serve
developing and least developed nations. Indian marine/horticultural and processed foods are
exported to more than 120 countries, primarily in the Middle East, Southeast Asia, SAARC
countries, the EU and the United States.

21
The growth of Indian economy is based on period this has to increase by about 60 million
tones which is indeed a challenging task. Due to population explosion in India, the net per
capital available of fishing Acqua that was just 0.3 hectares in 1950’s reduced to less than
0.14 hectares by turn of the century, during the past three decades 1960-61 to 1990-91 the
total food sea shell production increased by about 90 million tones of this marginal increase
in the production of food sea shell had has been a marginal increase in other further the sea
shell growth is nearly 70% of country’s rain fed areas contributed to production of more than
40% of food sea shell, 80% of crabs, 90%.

About 95% of crab and 75% of see shell are also growth in these areas. Nearly 56% of prawn
is grown in high rainfall without supplementary fishing, similarly, 70% of crab and almost
whole sea shell and menthe are grown under rain fed conditions. The average annual growth
in Acqua production during the 8th five year plan has addressed itself to meet due challenge
for Acqua production, Acqua being the most vital sector of the economy. The strategy for
Acqua development in the 8th plan aims not exporting Acqua commodities but to increase the
income level of the fisher mans.

Over 2500 years ago, Indian fisher mans had discovered and begun farming many spices
and fresh prawn. It was in India, between the sixth and four BC, that the Persians, followed
by the Greek. Before the 18th century, fishing of fresh prawn was largely confined to India.
A few merchants began to trade in fresh prawn a luxury and an expensive spice in Europe
until the 18th century. Fresh prawn became widely popular in 18th-century Europe, then
graduated to become a human necessity in the 19th century all over the world. This evolution
of taste and demand for fresh prawn as an essential food ingredient unleashed major
economic and social changes. Fresh prawn does not grow in cold, frost-prone climate;
therefore, tropical and semitropical colonies were sought.

Fresh prawn marine, just like crab farms, became a major driver of large and forced human
migrations in 19th century and early 20th century of people from Africa and from India, both
in millions influencing the ethnic mix, political conflicts and cultural evolution of Caribbean,
South American, Indian Ocean and Pacific IsAcqua nations.

As with prawn, the lasting benefits of improved fresh s and improved farming technologies
now largely depends on whether India develops infrastructure such as fishing network, flood

22
control systems, reliable electricity production capacity, cold storage This is increasingly the
focus of Indian Acqua policy.

The existence of a domestic marine industry is crucial to ensure the regulars supply of
marines and attain goals of self sufficiency and food security, as marines have become a key
input. Accordingly, government policy has also encouraged the industry by giving several
benefits. India rank as the 4th largest producer in the world during 1991-92 as a result of great
studies made in the development of marines industry.

Marines are substances that supply one or more of the chemicals required for marine growth.
Marines can be both organic and inorganic. As per industry experts it is said that there are
sixteen elements that are absolutely necessary for marine growth. Out of these sixteen 9
elements are required in large quantities while the other seven are needed in smaller amounts.

Since Acqua is a very important sector it goes without saying that the marine industry is one
which the Indian economy cannot do without. The marine industry in India is extremely vital
as it producers some of

the most important marine collections required for sea shell production. The primary
objective of this industry is to ensure the inflow of both primary and secondary elements
required for sea shell production in the quantities.

The success of the marine sector in India is largely dependent on the marine industry. The
benchmark that the food industry in India has set is mainly due to the many technically
competent marine producing companies in the country.

India is home to numerous top class private and government marine companies. Ranging
from marines to fresh s to fungicides the many marine companies in India are the major
reason behind the success story of the sector in India.

In the present scenario, there are more than 57 large and 64 medium and small marine
production units under the India marine industry. The main products produced by the marine
industry in India are fresh prawns, sea shells. The marine industry in India with its rapid
growth is all set to make a long lasting global impression.

23
Aquaculture and catch fishery is amongst the fastest growing marinees in India. Between
1990 and 2015, the Indian fish capture harvest doubled, while aquaculture harvest tripled. In
2008, India was the world's sixth largest producer of Marine and fresh water capture fisheries
and the second largest fish producer. India exported 600,000 metric tonnes of fish products to
nearly half of the world's countries.

Consumption of marines as gone up marginally to 12 million tones, in 1991-92 on the

recommendations of joint parliamentary committee on marines pricing, marine. In order to
complete with the improved DAP the customs duty on import of phosphoric acid and
ammonia was abolished.

India and China are competing to establish the world record on prawn yields. Yuan Longping
of China National Hybrid Prawn Research and Development Centre set a world record for
prawn yield in 2010 at 19 tonnes per hectare in a demonstration plot. In 2011, this record was
surpassed by an Indian fisher man, Sumant Kumar, with 22.4 tonnes per hectare in Bihar,
also in a demonstration plot. These fisher mans claim to have employed newly developed
prawn breeds and system of prawn intensification (SRI), a recent innovation in farming. The
claimed Chinese and Indian yields have yet to be demonstrated on 7 hectare farm lots and
that these are reproducible over two consecutive years on the same farm.The marines industry
is the core sectors of the economy and rightly, since it is one of the major marinees, which
provides a vital input for Acqua growth i.e., marines. The crucial role and importance of the
marines has new been recognized and all imports of the marines have new been recognized
and all imports of marines have been exempted from levy of custom duty. This will have a
significant impact in the cost of production of marines.

The biggest problem of fisher mans is the low prawn for their farm produce. A recent study
showed that proper pricing based on energy of production and equating farming wages to
Marine wages may be beneficial for the fisher mans.

History of fresh crabs:

Crab crabsis by-product of crab and is a valuable source of fresh water crabs, proteins, fatty
acids, cake, hulls and linnets and of rich has industry applications. Fresh crab is grown in all
tropical and sub-tropical zones situated between the 40 degree worth latitude and 30 degree
south degree latitude.

24
The by-product of crab processing, marine was considered virtually worthless before the late
19th century. While crab production expanded throughout the 17th, 18th, and mid 19th
centuries, a largely worthless stock of marine grew. Although some of the fresh was used
for marine, and animal feed, the majority was left to rot or was illegally dumped into rivers.
Once processed, marine a mild taste and appears generally clear with a light golden colour,
the amount of colour depending on the amount of refining. It has a relatively high smoke
point as a frying medium. Crabs then began to be used illegally to fortify animal fats and
lards. Initially, meat packers secretly added fresh crab crabs to the pure fats, but this practice
was uncovered in 1884. Armour and Company, an American meat packing and food
processing company, sought to corner the lard market and realized that it had purchased more
lard than the existing hog population could have produced.

A congressional investigation followed, and legislation was passed that required products
fortified with fresh crab crabs to be labeled as ‘‘lard compound.” Similarly, crabswas often
blended with olive crabs. Once the practice was exposed, many countries put import tariffs on
American olive crabsand Italy banned the product completely in 1883. Both of these
regulatory schemes depressed marine crabs sales and exports, once again creating an
oversupply of marine crabs, which decreased its value.

The Indian marineal development of marine processing was first at Nallasari, Seurat (DT),
and Rajasthan, second in Punjab and third at VISAKHAPATNAM, and in Andhra Pradesh
(1973) by Sri Govind Saxena. India now occupies the fourth place among the marine
producing countries in the world. Another development on modern lines in the country was
setting up of pilot marines to crabs Technological Research Laboratory
VISAKHAPATNAM, Andhra Pradesh.
Fresh crab has similar structure to other crabs such as sea shell fresh , having an crabs-
bearing kernel surrounded by a hard outer hull in processing the crabs is extracted from the
kernel.

Fresh crabs is used for salad crabs, mayonnaise, salad dressing and similar products because
of its flavour stability.

Fresh crabs has traditionally been used in foods such as marine chips and was for many years
a primary ingredient in Crisco includes no marine crabs which is significantly less expensive
than olive crabs or canola crabs.

25
Fresh crab crabs is a popular frying crabs for the restaurant and snack-food growing
marines. Its fatty acid profile generally consists of 70% unsaturated fatty acids (18%
monosaturated and 52% polyunsaturated).

When it is fully hydrogenated its profile is 94% saturated fat and 2% unsaturated fatty acids
(1.5% mono saturated and 0.5% polyunsaturated). According to the Fresh crab industry,
Fresh crabs does not need to hydrogenated as much as other polyunsaturated crabs to achieve
similar results.
Gossypol is a toxic, yellow, polyphenolic compound produced by crab and other members of
the order Malvaceae, such as okra. This is naturally occurring coloured compound is found in
tiny Acquas in the fresh.

26
 CHAPTER 3
COMPANY PROFILE

27
 COMPANY PROFILE

History of the Company:

JVH is an crabs producing industry at VISAKHAPATNAM. It has acquired much

importance at East Godavari District in A.P. this is because of extensive fishing of crab by
the fisher mans. Marine is removed from the crab and it would be sold to the company for
growing of various by products like marine

The success for any organization depends mainly of three functions of the management
namely production, finance and marketing; Selling has predominated importance in
marketing procedure.
Fresh crab crushing industry is one of the based marine. Fresh crab is used in the growing of
fresh based economy in the world after United States and China. India accounts 9.7% to the
global crabs fresh production. The main production of this industry is freshwater crabs.

Most of the people habitat to use crabs crabsfor cooking purpose to meet the competition
JVH is growing marine crabs at a lower prawn than crabs. This itself underlines the
importance of marketing activities of JVH, VISAKHAPATNAM.

JVH has been located at VISAKHAPATNAM and are measuring across 23.68 acres. The
plot acquired from the Government of A.P. on the basis of 9 years lease. The sight is
favorably located in respect of all facilities.

28
This JVH is registered in 12th Dec 2017 and Commencement of business was started from 5th
Jan 2018. This JVH got the license in 13th Aug. 2018 and it is transferred ti 13th Feb 2018.
To act as stockiest commission agents, representatives or agents, selling and pure leasing
agents, distributors, brokers of all kind of fresh acqua products. Today it is a multiproduct
company with equipment to process all kinds of crabs.

The marine has a storage capacity of 2,100 tonnes for different types of crabs.

Extreme care is taken to ensure that at every stage in the process of production, right from
selection of the marine collection to packaging the products, only the best is passed. This is
ensured by using some of the latest equipment, minimum human intervention and rigorous
application of quality control processes.

To ensure that the final product conforms to all the appropriate standards. The By-Products of
the process in the form of Linters, Hulls and De-crabsed cakes are in high demand in many
parts of the world.

JVH produces 4,000MT per annum. Marine Hulls are used as Roughage in Cattle Feed, in
producer of Furfural alcohol as it contains 12.5% to 13% of Furfural and also used in
Petroleum Drilling operations for drilled holes to avoid caving in. JVH produces 100 MT of
Hulls per annum. This type of Marine De-crabsed Cake is obtained when marine is
processed through scientific method i.e. delinting, decortications, separation of hull, expelling
and solvent extraction of crabsfrom meal. Such cake contains almost negligible crabsand has
very high by-pass type protein content.

JVH produces around 500 MT of Hulls every year, which can be increased as per
requirement of the customer.

JVH producers only Marine Washed Crabs, which is used as marine collection for Crabs
Growing and Refinery processing so as to produce either Crabs or Refined Crabs. Marine
Refined Crabscontains about 50% essential polyunsaturated fatty acid against about 30% in
traditional crabswhich prevents coronary arteries from hardening. It is one of the few crabs in
American Heart Association’s list of “O.K. Food”.

Marine Crabshas high level of natural antioxidants that contribute to its long fry life and long
shelf life. Studies have shown that the natural antioxidants in Marine Crabsare retained at
high level in fried products.
29
Awards for JVH:
 JVH was awarded prizes for best stall.
 JVH received prize as best exports in extraction from union minister Govt. of India.
 Award was given for largest exports to de-crabsed cake in India from all India fresh
crab crushers association.
 The Company was awarded as certified of merit as highest exports of de-crabsed in
India.
 JVH got best production Award and SHRAMA SHAKTHII Award from A.P.Govt.

Financial status of JVH:

The company has estimated the cost of the project a Rs.170 Lakhs out of which Rs.108 Lakhs
is being given as term loan by Industry development Bank of India, A.P State financial
Corporation.

The company having Rs.128 lakhs secured loans the original character presents a
summarized view of the whole org. it; only shows the position which every employee
occupies in the organization but also indicates the independence of the various financial
aspects of the concern.
Details of investment licensed capacity, installed capacity, date of commissioning: Initial cost
of the project was Rs.170 lakhs are met form the following sources.
Term Loan:
I.D.B.I Rs.50lakhs
I.F.C.I Rs.25lakhs
I.C.I.C.I Rs.15lakhs
L.I.C Rs.15lakhs

Note about the history of organization:

The company “JVH MARINEProduct and Crabs -” was incorporated on 12th December 1975
as joint venture with A.P Marineal Development Corporation -, as a public - Company. The
certificate of commencement of business was obtained on 5th January 1976. The joint
ventures agreement with A.P Marineal development Corporation - was signed on 1st February
1976 was transferred to the company on February 13th, 1976.

30
JVH Products - is one of the leading Marine processors in the Country, India, based at crab
growing area. The Company belongs to Sri Venkat which has a significant presence in sea
coast (5 km. away from the sea) at VISAKHAPATNAM, Andhra Pradesh, INDIA. Location
of factory is well connected by roads and Railway broad-guage line on the Chennai to
Vijayawada route and is centrally situated between Kakinada and Chennai Ports.

The site is selected through roadside railway track and near to the seashore. And the company
is favourably located near the availability of marine collection infra-structural facilities like
power, water, transportation, construction material, skilled personnel etc., requiring for the
project processing operations.

The retail arm of JVH was started in the year 2017 with 2 outlets in Andhra Pradesh and by
2018-19 the business expanded to over 65 retail centers in rural Andhra Pradesh and
Karnataka. JVH's retail centers are located at Mandal headquarters (Mandal is a revenue unit
in Andhra Pradesh, which is 1/50th of a district.) Each retail center has an average area of
1750 square feet with a catchment area of 30-40 villages and about 5,000 fisher man families.

COMPANY PROFILE

Name : JVH & Company -

VISAKHAPATNAM,
Board of Directors :Harish kumar,
N.Manish,
Yugendar,
C.Satyanarayana,
General Manager : Krishna murthy
Personal Manager : S. ManikBabu
Financial Manager and Secretary : Banwar lal
Marketing Manager : Hariom
Bankers : Andhra Bank
Auditors : M/s. Naveen sidda & Co., (C.A)
3-6-369 A/11 Floor, Street No.1,
31
 VISAKHAPATNAM – 500 029.
Regd. Office : 13-B, Skylark Apartments,
Jublee hills, VISAKHAPATNAM – 500 029.
Factory & Adm. Office : VISAKHAPATNAM
Man Power : 450
Area : 23.68 Acre

The Company has licensed and installed capacities of various marines as follows:
LICENSED
Fresh crab (Normal cooking season 200 days) 20 MT P.A.
Crabs Mill 70 M.T.P.A
Solvent Extraction Marine 60MT P.A.
Refinery 20 MT P.A.
INSTALLED
Crab Processing Marine 100 MT P.A.
Crabs Mill 70 MT P.A.
Solvent Extraction Marine 60 MT P.A.
Refinery 20 MT P.A.

The licensed and installed capacities of solvent extraction marine have been increase from 60
Mt. Where as installed and licensed capacities of refinery has increased from 29 Mt per day
in the year 2017-2018.
During the year 2017-2018 the company established animal feeds marine licensed capacity of
10000 MT P.A. and installed capacity of 30 MT per day. The licensed and installed capacity
of solvent extraction marine have increased from 75 MT per day in the year, where as the
licensed and capacities of refinery have increased from 30 MT per day in the year 1981 to 40
MT per day in the year 1982. In the year 1984, the capacity of refinery has been increased
from 40 MT to 50 MT per day. At present the factory is using sufficient level of capacities of
all marines.

Organizational Structure of JVH:

32
The organizational chart shows the exact structure of managerial position in JVH. All
business decisions with the top management. Board of directors consists of members, and
managing directors has to directly report responsible to the M.D. and the G.M. is the head of
the production manager, finance manager, logistic officer, commercial officer and marketing
officer.
Production manager is the head in charge of workshop in general stores, crabs and pump
house and quality control. All these are supervised by production manager. They are all
responsible to production manager. These incharges delegate the work and supervise their
subordinates. Finance department is headed by the finance manger. He is responsible for all
the financial activities of the company. His functions are company management, payments,
receipts, term-loans and preparation of balance sheet. He takes the assistance from
administration officer, accounts officer and assistance in charge of exports.
Personnel matters are dealt by the P.O. his functions are recruitment of personnel, enduring
their disciplined working and should also look after their work. He can directly issue order to
security officer, Assistance in charge of time office and Weigh Bridge. Security officer is
responsible for securing the factory assets of goods.

The administrative department headed by the commercial officer besides marketing officer.
They oversee the entire marketing activities of the company. This assistant in charge is
appointed to assist the commercial officer. Marketing officer is located in Visakhapatnam.
One assistance in-charge and officers are appointed the marketing office. This “Trade Union
of the Company” also awarded “Best Trade Union” by the government of A.P. lot their best
relation.
Production Process:
Fresh crab is a product of the crab and is a valuable source of fresh water cake
Marine Pre-processing Marine:
Fresh crab is initially sieved on 3 Fresh Cleaners in order to remove unginned bolls, marine
contaminants, sand, stones and any other foreign material. This cleaned fresh is then passed
through the first stage of de-linting which consists of 11 de-linters. It is next followed by a
second stage of de-linting consisting of 22 de-linters, to remove the lint from fresh . These
linters (both first and second) are cleaned and pressed into bales, of either first-cut linters, or
second-cut linters.

The following operations are carried out in this marine are

33
  Fresh Cleaning:
Fresh crab has been taken directly by company without cleaning and with face
problems, because of impurities like leaf particles, sand and dust in the fresh in the
linters curing the delining operating and their quality.

 Delinting:
After cleaning the next stage in processing in delinting crab from the marine fuzzy
fibres are extracted through this process. There are first cut and second cut, in the first
cut fine crab is extracted, whereas in the second cut rough crab is extracted. At
present the marine capacity is 150 MT per day.

 Hull And Separation:

The mixture of hulls and uncut fresh from the upper tray of the shaken separator is
conveyed to that of the hull and fresh separator. The adjustment of the flow of the air
through the hull and fresh seperator is important and requires considerable attention
in the beginning.

 Double Drum Hull Beater:

The primary object of his beater is to remove fine flowing powder. This is designed
to reduce the crabs content in the hull. Heavy paddle shafts revolving in drums of
perforated metal do the beating operation.

 Lint Cleaning:
The unusual impurities in the linter are trash sticks. All these have the effect of
lowering the cellulose content of the linters and thus degrading their quality. The
importance of proper cleaning is to make readily salable crab. Linters cannot be over
emphasized. In order to carry this two prematic covering systems are provided for the
covering of the cycles of the first and second cut delinters.

 Hull Gridding:
The extracted hull is made into fine powder through hull Grinding, blocks of hull are
powdered which can be used as Animal feeds and even in Aquaculture.

Packing Section:

34
Crabsfrom Refinery is taken to Working Tanks and then pumped through Polish Filters to
Service Tanks, from where, the crabsis filled into One Ltr. Pouches in Samarpan and
Winpack Packing Machines. Consumer packs of 2 Ltr., 5 Ltr. and 15 Ltr. are also filled by
Spanpack Machine having automatic capsealer and heat tunnel for shrink wrapping. 15 Ltr.
metal containers are also filled, sealed and strapped on Philips make Filling & Sealing
Machine.

Refinery (washed crabsmarine):

Crude Crabs from Expeller and Solvent Extraction Marine is neutralised with Caustic Soda
Lye and the resultant soap is removed by 2 Nos. of Sharples Centrifuses. The crabs is washed
with hot water and separated using 2 Nos. of Delaval Centrifuses. It is now dried under
vacuum to remove moisture. This is called Washed Crabs. The soap stock received from the
neutralisation stage can be processed either into Hard Soap or Acid Crabs depending on
demand.
Refining is done in three stages:

 Neutralization:
Crabsis mixed with sodium hydroxide. It is reacted with F.F.A and soap. After
mixing crabsis fed to the centrifuged in I, bubble is rotating with speed due to that
crabs is having the high color. After neutralization crabs is called neutral crabs for
reducing the colour of crabs we are the next process called bleaching.

 Bleaching:

Neutral crabs is discharged to bleacher aid it is heated with steam vacuum. After
bleaching crabsis filtered for removing the particles. The resultant crabs is called
bleached crabs. It smells bad, to remove it, crabs is de-odorized in de-odouriser.

 De-Odourisation:

Bleached crabs is charged up to 175 degree centrigrade with the help of hot and cold
steam under vacuum. At this temperature, odors and some color pigments are
evaporated. After de-odourisation crabs is filtered and sent to storage tanks that are
called Refined Crabs.

35
 CHAPTER 4
THEORITICAL FRAMEWORK

36
 THEORETICAL FRAME WORK

Fund:
According to the dictionary meaning the term “funds” implies an accumulation or deposit of
resources from which supplies are or may be drawn a more or less permanent store or supply.

37
It is also defined available pecuniary resources but these two meanings are broad in nature
and apt to macro level planning and control. A number if definitions of the term ‘fund’ have
been given. Some people call ‘fund’ as ‘funds’. But it is seen in practice that the currents
assets are constantly circulating through funds account in business operations and many
transactions effect flow of funds at least later or sooner. For example, the sale of goods on
credit increases in accounts payable rather than resulting in an immediate funds flow.
Similarly, certain expenses may result in a current liability since they might not have been
paid immediately. In other words, it may be said that any current assets and or current
liability has its impact on working capital (as working capital is the difference of current
assets and current liabilities) rather tan funds. Therefore there is another view about meaning
of ‘fund’ that it means ‘working capital’.

Meaning of Funds Flow Nature:

Funds plays very important role in the entire economic life of a business. A firm needs funds
to make payments to its suppliers. To insure day-to-day expenses and to pay salaries, wages,
interest and dividends etc. in fact, what blood is to a human body, funds is to a business
enterprise. It is very essential for a business to maintain an adequate balance at funds. But
many a times, a concern operates profitability and yet it becomes very difficult to pay taxes
and dividends this movement of funds is of vital importance to the management. “A
statement of changes in the financial Position of firm on funds basis is called a funds flow
statement”.

A funds flow statement summarizes the causes of changes in funds position of business
enterprises between dates of two balance sheets. This statement is very much similar to the
statement of changes in Financial Position Prepared on working capital basis, i.e.., a funds
flow statement, except that a funds flow statement because it describes the inflow (Sources)
and out flow (use) of funds.

Management of Funds:
Importance, Sydney Robins describes “Funds – What a strange commodity. A business wants
to get hold of it in the shortest possible time but to keep the least possible quantity on hand
increased sophistication in the handling of funds enabled companies to cut down on the
balances needed to sustain any given level of operations”.

38
Funds in a firm may be compared to the blood of the human body Excess funds should be
avoided and funds shouldn’t be kept idle. It should be utilized in an optimum manner, which
results in profits and solvency as well as matching of inflow and outflow of funds. As in case
of inventory, a finance manager has to follow five R’s of money as follows:
 Right Quality for liquidity
 Right Quality of money
 Right time for solvency
 Right source
 Right cost of capital

Effective Funds Management:

The following are raw strategies four effective:

 Funds Management:
Funds planning, the requirement of funds has to be planned carefully, for this
purpose two kinds of funds forecast – short term and long – term are required
estimating the funds inflow as well as case outflow (i.e., funds budget).

 Managing the Funds Flows:

Both the funds inflow and funds outflow are to be managed carefully in such a way
as to improve the funds inflow and delay the funds outflow.

 Productive utilization of Excess Funds:

If the excess is permanent, it may be utilized for expansion or for repayment of long
– term loans, which will reduce the burned of interest. But if the excess is temporary,
it may be invested in short – term deposits for 15 days or more or in marketable
securities even if it is for 15 days. It carries an interest a rate of 3% per annum. It
may be noted that current accounts will not fetch any interest.

 Optimum Funds Level:

The cost of excess funds and dangers of funds deficiency are to be considered while
working out the optimum funds level.

Funds Budget:
As very transaction of the business is effected eventually by funds, the funds budget is often
the least and the most difficult subsidiary budget to be prepared the funds budget is a forecast
39
of expected funds receipts and payments for a future period. Funds forecasting is the
estimating of funds receipts and payments for a future period BEFORE any necessary
adjustments have been made funds Budgeting is the estimating of funds receipts and
payments for a future period AFTER due to consideration has been given to expect
conditions and the overall budget plan. Seasonal prepared on a monthly basis. The most
important point is that the viability of their budgets is tested in terms of funds availability. If
the sufficient funds are not available, either the policy must be changed or fresh capital rose.

The funds budget consists of three parts i.e.

 Estimates of funds receipt.
 Estimates of funds disbursement.

Funds Balance Each Month of Budget Period:

Funds budget is also called as funds flow statement which indicates the expected funds
inflow and funds outflow. It does not include deprecation and other non – funds expenses.

Non actual items are included in the funds budget it is generally prepared for one year in
respect of running business even for new business. Then it is dividend in to monthly funds
budget.
The Main Functions of funds budget are:
 To ensure that sufficient funds is available when required.
 To reveal any expected shortage of funds – long – term or short term.
 To reveal any expected surplus of funds long – term or short term.
 To preserver liquidity.
 To reveal the seasonal requirements such as payment of income tax as the end of
June.
 To assist in sound investment policy, both on a long – term and a short – term basis.
 To indicate the availability of funds discounts.
 To indicate the availability of funds for replacement of assets additions to assets,
expansion schemes, new schemes and medication of existing plant etc.

Receipts and Payments Method:

Funds is generated from funds sales, collection from debtors, capital receipts and other
income like rent, dividends and interest earnings on investments. Collection from debtors is
dependent upon the credit sales and credit period extended to the customers. Funds Payment

40
includes the payments to suppliers for salaries and wages. Overheads, capital expenditure,
investments, repayment of alones, hire purchase instalments etc. Payment to suppliers is
dependent upon credit purchases and credit period extended by suppliers.

Similarly salaries and wages will be payable on the last day of the month or on the first day
of the following month. Payments for overheads and other liabilities are estimated as per the
due dates taking the credit period into account. Then the monthly balance will be arrived.
Minimum funds balance is to be kept in a business for all times. Action will be taken for
surplus or shortage of funds as follows:

Problems Action

Shortage of Funds – Long – term Obtain long term loans

Shortage of Funds-short-term Obtain overdraft on short-term basis

Surplus of funds-long-term Repayment of loans or investment on long – term

basis.

Surplus of funds – short- term Invest in short-term deposits fetching 3% to 9%

interest p.a.

Managing the Funds Flow:

Funds flow includes both inflow and outflow. A firm has to maintain optimum funds
balances for meeting the day-to-day operating expenses and for precautionary purposes in
order to maintain the liquidity and solvency. A good bank relationship has to be maintained.
Funds inflow many be improved by increasing the funds sales, speedy and decentralized
collections from the customers. In this connection lock-box system can be operated. Under
this system, the company rents lock-box from post officers and the customers are requested to
main cherubs to the local box.
The company’s bank branch collected all such cheques. Deposits then in the bank and remit
the funds on the same day by telegraphic transfer to the company’s account at Head Office.

41
Similarly funds outflow also should be controlled by delaying the disbursement to suppliers
and other creditors. If the salary payments are made weekly the system can be changed to
fortnightly or monthly payments.

Finally a finance manager may use the float very continual as it is a very risky one. Here will
be a gap between the issue of a cheque by the firm and collection of cheque by the customer.
During the period of gap, the bank balance will be higher and funds balance will be lower.
There funds can be utilized carefully and very cautiously by monitoring the position of bank
daily. But it is risky game then funds book.

Liquidity is the life blood of company liquidity may be defined as the ability of a company to
realize value in money in time and with certainly. M.H.B. Abd. EI-Mottal suggests a
comprehensive test of liquidity test of liquidity with the help of the following three rations.
 Liquidity assets current assets (LA / CA)
 Working capital to current assets
 Stock to current assets.
Finally the objects should be to keep the funds available in the right amount and at the right
time to meet the financial obligations as the minimum cost.

Optimum Funds Level:

If the firm maintains lower funds balance, its liquidity position is affected. For urgent
payments it has to steel some marketable securities incurring penal interest and transaction
costs. But the profitability will be higher funds balance its liquidity will improve but
profitability will decline by lasting the interest on it, which involves an opportunity cost.
Thus the optimum funds balance is to be arrived by matching the transaction costs and
opportunity costs similar to EOQ formula, optimum funds balance is the amount of funds.
Balance at which the sum of both transaction costs and opportunity costs will be minimum.

Determinants of Funds Flow:

The flowing factors will determine the funds flow
 Operating decisions – operating expenses, sales revenue and net profit.
 Capital expenditure decisions – investment decisions, expansion etc.
 Credit policy – credit period allowed to customers and followed by supplies,
 Inventory decisions – inventory control and management.
 Tax on profits – tax planning, investment in IDBI etc.

42
  Payment of interest, dividends and issue of bonus shares.
 Productive decisions.
 Liquidity gaps – arising out of delay in funds realization, utilization of working
capital for capital expenditure, high fixed changes

Classification of Funds Flows:

The funds flow statement should report funds flow during period classification by operating,
investing and financing activities. Thus, funds flow is classifieds in to three main categories.
 Funds flow from operating activities.
 Funds flow from investing activities.
 Financing activities.

Operating Activities:
The amount of funds flows arising from operating activities is an indicator of the extent to
which operations of the enterprise have generated sufficient funds flows to maintain the
operating capability of the enterprise pay dividends, repay loans and make new investments
without recourse external sources of financing. Information about the specific component of
historical operating funds flow is useful, in conjunction with the information, in forecasting
future operating funds flows.
 Funds receipts from the sale of goods and the rendering of services
 Funds receipts form royalties, fees, commissions and other reserves
 Funds payments to suppliers for goods and services
 Funds payments to and on behalf of employees
 Funds receipt, and funds payments of an insurance enterprise for premiums and
claims, annuities and other policy benefits

Investing Activities:
The separate disclosure of funds flows arising from investing activities is important
because the funds flows represent the extent to which expenditures have been made for
resources intended to generate future income and funds flows. Examples of funds flows
arising from investing activities are:
 Funds payments to acquire fixed assets (including intangibles). These payments
include those relating to capitalized research and development costs and self
constructed fixed assets.

43
  Funds receipts from disposal of fixed assets (including intangibles)
 Funds payments to acquire shares, warrants, or debts instruments of their enterprises
and interests in joint ventures (other than payments for those instruments considered
to be funds equivalents and those held for dealing or trading purposes)
 Funds receipts form disposal of shares, warrants or debt instruments of other
enterprises and interests in joint ventures (other than receipts from those instruments
considered to be funds equivalent and those held for dealing or trading purposes)
 Funds advances and loans made to third parties (other than advances and loans made
by a financial enterprise)
 Funds receipts from the payment of advances and loans made to third parties (other
than advances and loans made by a financial enterprise)
 Funds payments for future contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes or the
receipts are classified as financing activities.

Financing Activities:
The separate disclosure of funds flows arising from financing activities is important
because it is useful in predicting claims on future funds flows by providers of funds (both
capital and borrowings) to the enterprise. Examples of funds flow arising from financing
activities are:
 Funds proceeds from issuing shares or other similar instruments
 Funds proceeds from issuing debentures, loans, notes, bonds and other short or long –
term borrowings and
 Funds payments of amounts borrowed.

Procedure for Preparing of a Funds Flow Statement:

Funds flow statement is not a substitute of statement i.e. A profit and loss account, and a b/s.
it provides additional information and explains the reasons for changes in funds and funds
equivalents, derived from financial statement at two points of time. The procedure for
preparing a funds flow statement is different from the procedure followed.

Comparative balance sheet at two points of time, i.e. in the beginning and at the end of the
accounting and at the accounting period.Some selecting additional data to extract the hidden
traction. The preparation of funds flow statement involves the following steps:
 Step 1:

44
 Compute the net increase of decrease in funds and funds equivalents by making
comparatives balance sheet.

 Step 2:
Calculate the net funds flow provided (used in) operating activities by analyzing
information. There are two methods of converting net income into net indirect
method. These methods had been discussed separately in this chapter.

 Step 3:
Calculate the net funds flow from investing activities.

 Step 4:
Calculate the net funds flow from financing activities.

 Step 5:
Prepare a formal funds flow stamen highlighting the net funds flow from (used in)
operating, investing and financing activities separately.

 Step 6:
Make an aggregate of net funds flows three activities and ensure that the total net
funds flow is equal to the net increase or decrease in and funds equivalents as
calculate in step 1.

 Step 7:
Report significant non – funds transactions that did not involve funds or funds
equivalents in a separate schedule to funds flow statement e.g., purchase of machinery
against issue of share capital or redemption of debentures in exchange for share
capital.

Benefits of Funds Flow Information:

A funds flow statement when used in conjunction with the other financial statement, provides
information that enable users to evaluate the changes in net assets of an enterprises, its
financial structure (including its liquidity and solvency).
 Funds flow information is useful in assessing the ability of the enterprise to generate
funds and equivalents and enable users to future funds flows of different enterprises.

45
  It also enhance of the reporting of operating performance by different accounting
treatments for the same transactions and events.
 Historical funds flow information is often used as indicator of the amount, timing and
certainly of future funds flow. It is also useful in examining the relationship between
profitability and net funds flow and the impact of changing prices.

Generally Funds flow statement is prepared in two forms:

 Report form
 T form or an account form or self – balancing types.

Report Form:
Specimen of Report Form of Funds Flow Statement
Funds Balance in the beginning Rs.
ADD: Funds inflows: xxxx
Funds flow from operations xxxx
Sale of assets xxxx
Issue of shares xxxx
Issue of debentures xxxx
Raising of long term loans xxxx
and short term loans xxxx
Collection from debentures xxxx
Non trading receipts such as xxxx
Dividend received xxxx
Income tax refund xxxx
Less: Applications or outflow of funds: xxxx
Funds lost in operations xxxx
Redemption of preference xxxx
Repayment of loans xxxx
Repayment of assets xxxx
Payment of dividend xxxx
Payment of taxes xxxx
Funds Balance at the end

46
Procedure for knowing whether a transaction results in the flow of funds or not:
 Analyze the transaction and find out the two accounts involved.
 Make journal entry of the transaction.
 Determine whether the accounts involved in the transactions are current or non-
current.
 If both the accounts involved are non-current i.e., either permanent assets of
permanent liabilities, it still does not result in flow funds.

Funds Flow Statement, Income Statement and Balance Sheet:

Funds flow statement is not an substitute of an income statement i.e., a profit and Loss
Account, and a balance sheet. The profit and loss account is a document, which indicates the
extent of success achieved by a business in earning profits. A balance sheet is a statement of
financial position or status of business on given date. It is prepared at end of accounting
period.

The balance sheet depicts various resources of an understanding and the deployment of these
resources in various assets on a particular date. As it indicates the financial condition on a
particular date, it is static in nature; while funds flow statement is a dynamic one. Funds Flow
statement tells us many financial facts, which a balance sheet cannot tell.

Balance sheet does not disclose the cause for change in the assets and liabilities between two
different points of time. Again, while balance sheet is the end result of all accounting
operations for a period of time the funds flow statement provides additional information as
regard changes in working capital derived from financial statements at two points of time. It
is a tool of management for financial analysis and helps in making decisions.

1. Funds Flow Statement helps to analysis of Financial Operations:

The financial statement reveals the net effect of various transactions on the operations and
financial positions of concern. The balance sheet gives a static view of the resource of a
business and the used to which these resources have been put at a certain point of time. But it
does not disclose the causes for changes in the assets and the liabilities between two different
points of time.

The funds flow statement explains cause for such changes and also effect of these changes on
the liquidity position of the company. Sometimes concern may operate profitability and its

47
funds position may become more and worse. The funds flow statement gives a clear answer
to such a situation explaining what has happened to the profits firm.

2. It throws light on may perplexing questions of general interest:

 Why where the net current assets lesser in spite of higher profits and vice-versa?
 Why more dividends could not be declared in spite of available profits.
 How was it possible to distribute more dividends than the present earnings?
 What happened to the profit? Where and they go?
 What happened to the proceeds of sales of fixed assets of issue of shares, debentures
etc.

3. It helps in the formation of realistic dividend policy:

Sometimes a firm has sufficient profits available for distributing as divided but yet it may not
be able to distribute dividend for lack of liquid of funds resources. In such cases a funds flow
statement helps in the information of a realistic dividend policy,whether to issue the
dividends or not.

4. It helps in the proper allocations of resources:

The resources of a concern are always limited and it wants to make the best use of these
resources. A project funds flow statement constructed for the future helps in making
managerial decisions. The firm can plan the development of its resources and allocate them a
moony various applications.

5. It acts as a future guide:

A projected funds flow statement also acts as a guide for future to the management. The
management can come to know the various problems it is going to face in near future for
want of funds. The firms future needs of funds can be projected well advance and also the
timing of these needs. The firm can arrange to finance these needs more effectively and avoid
future problems.

6. It helps in appraising the use of working capital:

A funds flow statement helps in explaining how efficiently the management has used its
working capital and also suggests way to improve working capital position of the firm.

7. It helps knowing the overall credit worthiness of firm:

48
The financial institution and banks such as state financial institutions, industrial development
corporation of India, industrial development bank of India etc., all ask for funds flow
statement constructed for a number of years before granting loans to know the credit
worthiness and paying capacity of firm. Hence a firm is seeking assistance from these
institutions has known alternative but to prepare functional statement.

Limitations of Funds Flow Statement:

The funds flow statement has a number of uses: however, it has certain limitations also,
which are listed below:
 It should remember 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
chances in working capital.
 It cannot reveal continuous changes.
 It is not an original statement but simply is arrangement of date given in the financial
statement.
 It is essentially historic in nature and project funds flow statement cannot be prepared
with much accuracy.
 Changes in funds are more important and relevant for financial management then the
working capital.

Transactions affecting flow of fund:

 Increase in current assets but not any increase in current liabilities
 Decrease in current assets but not any decrease in current liabilities
 Increase in current liabilities but not any increase in current assets
 Decrease in current liabilities but not any decrease in current assets

Transactions not affecting flow of fund:

(Change in working capital)
 Transactions which make conversions of one current into another current assets.
 Transaction which make conversions of one current liability into another current
liability
 Transaction which bring increase or decrease in current assets causing a
corresponding increase or decrease in current liabilities.

Funds flow statement:

49
The ‘Funds Flow Statement’ is also known as ‘Funds Flow Analysis’ there are several names
for this statement; some are:
a) Statement of sources and application of fund
b) Statement of inflow and outflow of fund
c) Statement of fund supplied and applied
d) Statement of resources provided and applied
e) Where got and where gone statement

Whatever its name may be, the various factors for inflow and outflow of working capital area
shown in a statement, particularly prepared for this purpose, which is known as “Funds Flow
Statement”. This statement reveals the manner in which the financial resources have been
generated and deployed during the accounting period. This statement is also considered an
important one as the two traditional financial statements (balance sheet and profit and loss
a/c) as it supplies important information for the user. In brief it may be said that fund
statement focuses on the flow of funds between the various assets and quality items during
the accounting period and an analysis based on this statement is generally called “Fund Flow
Analysis” or simply “Fund Analysis”.
It may be pointed out that this analysis also makes use of “Funds Flow Analysis”. “The fund
statement is an important device for bringing to light the underlying financial movements, the
ebb and flow of funds”.

Specimen of Fund Flow Statement:

Statement of sources and application of fund
Sources of funds:
1) Profit from operations
2) Increase in share capital
3) Issue of debentures
4) Long term loans
5) Sale of fixed assets
6) Dividend received
7) Decrease in working capital
Application of funds:

50
 1) Loss from operations
2) Redemption of preference shares
3) Redemption of debentures
4) Repayment of long-term loans
5) Purchase of fixed assets
6) Dividend paid
7) Increase in working capital

Funds from Operations:

Funds from operations means the increase in funds on account of the operations carried on by
the organization in given time a business enters into a number of transactions which the result
in an inflow or out flow of funds.

If the total inflow of funds is greater than the total outflow, the difference is a source of funds
and is called “funds from operations”. Alternatively if outflow of funds is greater than total
inflow, the difference is called “funds lost in operations”. It is treated as an application of
funds.

Methods for calculating funds from operations:

Direct Method:
A statement of funds from operations is prepared. For this purpose, only those operational
items which involve an inflow or outflow of funds are considered. All items result in an
inflow are listed at one place and added. All items which result in an outflow of funds are
separately listed and added up.

The difference between the two suns obtained is the funds from operations. Alternatively, a
P&L a/c may be prepared, taking into account only such operational items which cause an
inflow or outflow of funds. The balance in such P&L a/c is the funds from operations or
funds lost in operations.

Indirect Method:
The indirect method for calculating funds from operations is used when profit/loss for the
year has already been calculated. In such a case, funds from operations is calculated by
adjusting the profit as for P&L account with items of income & expenses that do not result in

51
a flow of funds. All such expenses that do not in a flow out flow of funds are added to profit
as shown in P&L account.

All incomes that do not result in an inflow of funds are deducted from the profit as per P&L
a/c. the figure obtained after all adjustments is funds from operations. If the profit figures
given is the balance in P&L a/c after all appropriations, the balance in P&L a/c at the
beginning of the year is also deducted to arrive at the final figure of funds operations.

Statement of Changes in Working Capital:

This statement follows the statement of sources and application of funds. The primary
purpose of the statement is to explain the net changes in working capital as arrived in the
funds flow statement. In this statement all current assets and current liabilities are
individually listed. Against each account the figure pertaining to that account at the beginning
and the end of the accounting period shown. The net changes in its position is also shown.
The changes taking place with respect to each account should add up to equal the net changes
in working capital, as shown by funds flow statement.

While entering the effect of change in a current account on working capital. The following
rules must be followed:
1. An increase in a current asset means increase in working capital.
2. A decrease in a current asset means decrease in working capital.
3. An in increase in a current liability means decrease in working capital.
4. A decrease in a current liability means increase in working capital.

Funds flow statement, broadly speaking, is prepared in two parts:

(a) Schedule of working capital changes and
(b) Statement of sources and uses of fund or working capital.

The first part has been discussed in a separate question in this chapter. The second part, i.e.,
funds flow statement shows the items of sources of fund and its uses in various items. The
sources and uses of fund have been described as below.

Sources of fund:
1) Issue of new shares
2) Issue of debentures
3) Creation of long-term liability
4) Sale of fixed assets
52
 5) Profit from operation
6) Dividend Received

1. Issue of new shares:

On comparing the balance sheets of two dates there is an increase in share capital. It
would affect working capital to the extent of current assets.

If it does not have any impact upon fund, it would not be source of fund. For example,
shares issued and funds/stock/furniture receive.

Mere only funds and stock will affect the fund as these are the components of working
capital.

2. Issue of Debentures:
That amount of issued debenture would be a source of fund which affects working
capital.

3. Creation of long term liabilities:

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

4. Sale of fixed assets:

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

5. Profit from operation:

It is a source of fund, to be shown on the sources side.
Application of funds:
The fund acquired in the business may be used in the following items:
1) Loss from operation
2) Discharge of liability
3) Redemption of debentures
4) Redemption of presence shares
5) Addition in assets
6) Dividend Paid

1. Loss from operation:

53
 Just like profit from operation is a source, similarly loss from operation is treated as uses
of fund. In fact, incurring of loss means out flow of fund. It may be due to increase in
liabilities or decrease in assets or both.

2. Discharge of liability:
Any decrease in long term liability would be indicator that fund has gone from the
business liability which may be increased due to decrease in assets.

3. Redemption of Debentures:
If the redemption is made through conversion into shares or new debentures, it does not
affect fund. If they are redeemed in funds, it would affect fund.

4. Redemption of preference shares:

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

5. Addition in assets:
If the assets whether current or fixed are increase, it will be shown in the uses of fund
because such increase entails outflow of fund.

Fund Flow statement is a disclosure of the types of inflows and outflows the company has
experienced. It is a forum in which to provide information regarding any fund flow
activity that might be out of ordinary such as higher than expected outflow due to an
irregular expense.Further it often categorises the various transaction types and sources to
help track and any activity changes.

Difference between Funds Flow Statement and Profit And Loss A/C:

Base Fund Flow Statement Profit And Loss A/C

54
 Funds flow statement shows Profit and Loss a/c shows business
1. Concept ‘inflows of fund’ and ‘out flow of operational results during a particular
fund’ both of capital and revenue period.
nature.
It indicates financial position, Profit and loss a/c does not reflect the
2. Utility movements of working capital changes in the financial position of a
along with the effectiveness the business.
use of fund.
Fund flow statement shows Profit and loss a/c does not show correct
3. Accuracy correct amount of profit, keeping amount of profit as it may include many
in view the non-funds charges non funds expenses.
which do not affect working
capital.
4. Publication It is not published Its publication is compulsory
Fund flow statement is used, Profit and loss a/c is used by external
5. Users generally, by internal parties, e.g., investors, creditors,
management to see the fund debentures holders, etc.
position.

Difference between funds flow statement and balance sheet:

Base Fund Flow Statement Balance Sheet

Fund flow statement is a statement Balance sheet is a schedule showing
1. Meaning showing various items changing the balance of various accounts due
working capital. It shows inflow to and from the business.
and outflow of funds.
It can be prepared any time. It is prepared at the end of
2. Time accounting period and at a going
value of assets and liabilities.
It shows changes, and factors for It shows the financial position of the

55
3. Object these changes between two balance business at a particular date,
sheet dates. generally the end of accounting year.
The usefulness of fund statement is The usefulness of balance sheet is
4. Usefulness wide. limited to analysis and planning
purpose.
There are several names of fund Generally, balance sheet is named by
5. Various flow statement. statement of financial position.
Names
For its preparation, information It is collected from trail balance of
6. Information collected from basic financial the business.
gathered statements.
Fund statement is a post balance Balance sheet is the end product of
7. Preparation sheet exercise. all accounting operations for a
particular period.
The fund statement is used by The balance sheet is normally used
8. Users internal management. by the outsiders.
It is not published. The publication of balance sheet is
9. Publication
essential.
The fund flow statement has The balance sheet has historic and
10. Nature dynamic nature because it shows static nature.
the changes.

Difference between fund flow statement and funds flow statement:

Base Fund Flow Statement Funds Flow Statement

It is based on a wider concept if It is based on a narrower concept if funds

1. Concept
funds, i.e., working capital. i.e., funds.
It is based on accrual basis of It is based on funds basis of accounting.
2. Accounting
accounting.
3. Schedule of
changes in
Required to be prepared. Not required to be prepared.
working capital

56
 Funds flow statement reveals the It is prepared by taking the opening
4. Preparation sources and applications of funds balance of funds, adding to this all the
the net difference between sources inflows of funds and deduction the
and applications of funds outflows of funds from the total, the
represents net increase or decrease difference represents the closing balance
in working capital. of funds.
It is useful for long term planning It is more useful for short term analysis.
5. Usefulness

Difference between funds flow statement and income statement:

Point of Distinction Fund Flow Statement Income Statement

This statement discloses with This statement discloses the
1. Discloser of the financial resource required operating result of the business
Statement for running the business activities i.e., profit or loss, which
activities i.e., where firm the the concern has earned, lost during
funds i.e., obtained how they specified period.
are used.
This statement matches the This statement tills the funds from
2. Matching funds raised with funds applied operating only after making
without making any distinction adjustment for depreciation writing
between capital and revenue off preliminary expenses and good
items. will.
There may be many other This make the cost of lost during
3. Sources sources as share capital specified goods sold within revenue
debentures, sales or fixed assets in order to know the profit.
besides fund from operations
while calculating the amount of
funds from operations
adjustment for depreciation,
goodwill written off and
preliminary expenses are made.
It is usually prepared every It is usually prepared after six
4. Period of

57
 Preparation month months or a year.
It depicts the comparative It depicts the profit or loss made
5. Depicts
position of working capital on during a specified period.
What?
two balance sheet dates.
It is more reliable as the It is not very reliable as items shown
6. Reliability management can’t easily in the profit or the management can’t
manipulate items shown in the easily manipulate loss account like
statement. depreciation or the management
can’t easily manipulate valuation of
closing stock.
It can’t be prepared before the It is always prepared after the actual
7. When
actual operations of the operations of the business.
Prepared?
business for efficient working
capital management.
It presents information only It present the result of all financial
8. Scope relating to working capital and transaction of the during a specified
thus its scope is limited. period.
The excess of sources over the excess finance gains over
9. Balance application is known as expenses and losses is known as net
Represents increase in working capital profit and the excess of expenses and
while the excess of applications losses over in causes and gains is
over the uses is known as known as new loss.
decrease in working capital.

Funds flow use and significance for management:

Funds statement is a useful device. It is prepared to know about working capital position. It
helps not only the management of concern but also many other parties which have their
interest in its preparation. On account of its increasing use A.I.C.P.A has observed, “The
inclusion of a well-designed comparative fund flow statement in an annual report should
because a generally accepted practice”. Finical statement is useful for the following parties:
1. Use for Management
2. Use for Economists
3. Use for Banks and Financial Institutions

58
 4. Use for investors
5. Other users
1. Use for Management:
Fund flow statement is of great managerial use. It serves as a handy tool in financial
planning, preparation of budget. It is through the analysis of this statement that a firm grasp
of the changes in the allocation of this statement that a firm grasp of the changes in the
allocation of resources between the two balance sheets can be had. Management of the
business concern can easily assess the extent to which working capital has effectively been
used. The fund statement expresses the changes in helps in judging about good or bad
management. With the help of fund flow analysis many complicated questions, some of
which are given below, are answered:
a) Where have profits of the business gone?
b) Why more dividends could not be paid by business instead of huge profits?
c) How were fixed assets acquired and financed?
d) How were debentures redeemed?
e) Why loan was taken to purchase fixed assets?

With the help of this statement; the management can plan the intermediate and long term
financing of the concern, repayment of loans, expansion of business and distribution of
resources, etc. besides this, near future on account of shortage of funds. So the management
can make itself fully competent to face these problems for corrective steps effectively. So the
fund statement is very useful to the management. It serves as guide for future. It helps the
management in the subsequent years. The fund flow and facilitates settlement of priorities in
a phased manner.
2. Use for Economists:
With the point of view of economists, the fund statement has much important. In India C.S.O
has made use of its in analysis of flow of fund in various sectors, e.g., Banking sector.

3. Use for banks and for Financial institutions:

Banks and other financial institutions have also recognized the importance of fund statement.
This statement helps to know the credit worthiness and repaying capacity of the concern. The
banks and financial institutions ask the concern to prepare fund flow statement for a number
of years. With its help, the banks can know about the risk involved in granting credit to the

59
business concerns. In using the funds effectively? This can be known from the fund flow
statement only.

4. Use for Investors:

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

5. Other users:
Besides, the above fund flow statement has much importance in many other ways. It helps in
framing a suitable dividend policy. It also suggests the ways for improving the working
capital position of the concern. It gives many other useful formations relating to business
affairs which are not depicted in balance sheets, sometimes profit disclosed by profit and loss
a/c may mislead as it is affected by many non-funds charges such as depreciation, written off
good will and preliminary expenses.

These do not affect the fund or working capital, so fund flow statement can provide correct
amount of generated by the business operations.

Management of working capital:

Introduction:
The management of the working capital is vital importance to companies and firms a major
workload function of finance of finance manager and accountant. It is the amount of fund,
which a company must have to finance its day-to-day operations.

It is an integral part overall corporate management. The working capital management is

business is the capital required to funds its current assets. Working capital management is
concerned with the problems that arise in attempting to manage the current assets, the current
liabilities and the inter-relations that exist between them. The net working is the difference
between he current assets and the liabilities and the inter-relations that exist between them.

The term current assets refer to those assets in which the ordinary course of business can be
or will be converted in to funds within a year, without undergoing a diminishment in value
and disrupting the operations of the firm. The major current assets are funds, marketable
securities, accounts receivables and inventories.

60
The term current liabilities are those liabilities that are intended at their inception to be paid
in the ordinary course of business within a year out of the current assets or earning of the
concern. The current liabilities include accounts payable, bills-payable, bank overdrafts and
outgoing expenses. Management of working capital therefore is the management of current
assets and liabilities of the company.

Importance of working capital:

We will hardly find a running business firm, which does not require same amount of working
capital. Evan a fully equipped manufacturing firm is sure to collapse if it cannot meet any of
the following requirements.
1. An adequate supply of raw material for manufacturing process.
2. Funds to meet the wages bill and other expenses.
3. The capacity to wait for the market for its finished products sale.
4. The ability to grant credit to their customers.

Similarly, a commercial enterprise is virtually good for nothing without merchandising.

Working capital is the live blood of the business organization. As a matter of fact, any
organization, whether profit oriented or otherwise, will not be able to carry on today activities
without adequate working capital. For day-to-day operations of a business a study of working
capital is a must.

Neglect of management of working capital needs may result in technical insolvency and even
liquidation of business unit. Inefficient working capital is dangerous for the organization.

Measuring the working capital:-

Working capital is very essential to maintain the smooth running of a business. No business
can run successfully without an adequate amount of working capital. However it must also be
noted that working capital is a means to run the business smoothly and profitably and not an
end. Thus concept of working capital has its own importance in a going concern. The analysis
of working capital can be conducted through a number of devices such as:
1. Ratio Analysis
2. Funds flow analysis
3. Budgeting.

61
1. Ratio analysis:-
A Ratio is a simple arithmetic expression of the relationship of one number to another. The
technique of ratio analysis can be employed for measuring short-term liquidity or working
capital position of a firm. Several ratios like current ratio, quick ratio, inventory turnover
ratio, receivable turnover ratio, payables turnover ratio, working capital turnover ratio, cash
position ratio etc.

2. Funds flow analysis:-

Funds flow analysis is a technical device designated to study the sources from which
additional funds were derived and the use to which these sources were put. It is an effective
management tool to study changes in the financial position (working capital) of a business
enterprise between beginning and ending financial statements dates. The funds flow analysis
consists of:
(1) Preparing schedule of changes in working capital
(2) Statement of sources and application of funds.

3. Working capital budget:-

Working capital budget, as a part of total budgeting process of a business, is prepared
estimating future long-term and short-term working capital needs and the sources to finance
them, and then comparing the budgeted figures with the actual performance for calculating
variances, if any, so that corrective actions may be taken in the future. Its main objective is to
ensure availability of funds as and when needed, and to ensure effective utilization of these
resources. The successful implementation of working capital budget involves the preparing
separate budgets for various elements of working capital, such as, cash, inventories and
receivables.

Procedure for preparing a fund flow statement:

Funds flow statement is a method by which we study changes in the financial position of a
business enterprise between beginning and ending financial statement dates. Hence, the funds
flow statement is prepared by comparing two balance sheets and worth the help of such other
information derived from the accounts as may be needed.

Statement of Changes in Working Capital:

62
Working capital means the excess of current assets over current liabilities. Statement of
changes in working capital is prepared to show the changes in the working capital between
the two balance sheet dates. This statement is prepared with the help of current assets and
liabilities derived with the help of current assets and current liabilities derived from the two
balance sheets as:

Working Capital = Current Assets – Current Liabilities

1. An increase in current assets increase working capital

2. A decrease in current assets decrease working capital
3. An increase in current liabilities decrease working capital
4. An decrease in current liabilities increase working capital

The changes in all current assets and liabilities are merged into one figure only-either an
increase or decrease in working capital over the period for which funds.

Statement has been prepared. If the working capital at the end of the period is more than the
working capital at the beginning thereof, the difference is expressed as ‘increase in working
capital’. On the other hand, if the working capital at the end of the period is less than that at
the commencement, the difference is called ‘Decrease in working capital’.

Need of Working Capital:-

The need for working capital cannot be one emphasized. Every business needs some amount
of working capital. The need for working capital arises due to the time gap between
production and realization of cash from sales. It requires:
1. For the purchase of materials, components and spares.
2. To pay wages and salaries.
3. To incur day-to-day expenses and overheads such as fuel, power and office expenses
etc.
4. To meet the selling costs as packing, advertising etc.
5. To provide credit facilities to the customers.
6. To maintain the inventories of raw materials, work in progress, stores and spares and
finished stock.

Advantages of adequate working capital:

63
Working capital is the life blood of the business. Just as circulation of blood is essential in
the human body for maintaining life, working capital is very essential to maintain the
business.
The main advantages of maintaining adequate amount of working capital are as follows:-

 Good solvency position in the business

 Goodwill, it is easy to get loans
 Cash discounts
 Regular supply of raw materials
 Regular payment of salaries, wages and other day to day commitments
 Exploitation of favorable market conditions
 Ability to face crisis

Constituents of Working Capital:

Current Liabilities Current Assets

 Bank overdraft.  Case in hand and bank balances.

 Bills payable.  Bills receivables.
 Sundry creditors or accounts  Sundry debtors (less provision for bad
payable. debts)
 Accrued or outstanding expenses  Short-term loans and advances.
 Short-term loans, advances and  Inventories.
deposits.  Temporary investments of surplus funds.
 Dividends payable.  Prepaid expenses.
 Provision for taxation.  Accrued incomes.

64
 CHAPTER 5
DATA ANALYSIS
&
INTERPRETATION

65
 Statement of changes in Working Capital
Particular 31.03.2017 31.03.2018 Changes in working capital

Increase Decrease

66
Current assets:
Interest accrued 212202 217719 5517
Stores & spares 9691185 11250723 1559538
Raw material 21856639 20638318 1218321
Loose tools 207315 311862 104547
Finished goods 47295228 49780103 2484875
Sundry debtors 31239881 54191956 22952075
Funds balance 22418 167615 145197
Bank balance 3486773 928052 2558721
Advances 6206921 3985639 2221282
Deposits 5016198 5242474 226276
Total current assets 125234820 146714461
Current liabilities:
Sundry creditors 19554522 20783973 538743
Advances against
Sales 1782140 2582996 1229451
Other liabilities 2273462 1734719 800856
Unclaimed dividend 13210 48070 34860
Proposed dividend 1080957 1386391 305434

Total Current liabilities

Net working capital 24704291 26536149
Increase/decrease in 100530529 120178312
working capital 19647783 19647783

67
 Calculation of operating profit for the period of 2018-19
Particulars Amount(rs) Amount(rs)

68
Net profit 18169329
ADD: Depreciation 3425657
Interest 6415241
Gross funds generated 28010227
Less:- profit on sale of fixed asset 242600
Operating profit (or) funds from operations 27767627

Funds flow statement for the period of 2018-19

Sources Amount(rs) Applications Amount(rs)

Funds from 27767627 Purchase of fixed 6098694

operations assets
Bank finance for 14556219 Interest paid 6415241
working capital Direct taxes 6164736
Sale on fixed assets 252700 long term 5055701
Extraordinary items 2499000 barrowings
Increase in working
capital 19647783
TOTAL 45075546 TOTAL 45075546

Interpretation:
From the above table it is observed that the working capital of the company shows increase
trend. The current asset of the company is Rs.125234820 in 2011-12 to Rs.146714461 in
2012-13. The current liabilities of the company are increase from Rs.24704291 in 2011-12 to

69
Rs.26536149 in 2012-13. In 2011-12the net working capital of the company stood at
Rs.1005830529. It is increase to Rs.120178312 in 2012-13.

It is evident from the above table that the total funds flow during the period from 2012-13
amounts Rs.45075546. In the total funds 61.60% was received from funds from operation,
0.56% from sale of fixed assets, 32.29% from bank finance for working capital, 5.54% from
extraordinary items.

Regarding the application of funds 14.23% is used for payment of interests, 13.67% for
payment of direct taxes, 13.5% for investment in fixed assets and 11.21% for proceeds from
long term barrowings and 43.58% for working capital constitutes.

Statement of changes in working capital

70
 Particular 31.03.2017 31.03.2018 Changes in working capital
Increase Decrease
Current Assets:
Interest accrued 217719 223190 5471
Stores & spares 11250723 15040935 3790212
Raw material 20638318 31629688 10991370
Loose tools 311862 445634 133772
Finished goods 49780103 58704607 8924504
Sundry debtors 54191956 85053587 30861631
Funds balance 167615 441492 273877
Bank balance 928052 251133 676919
Advances 3985639 10724169 6738530
Deposits 5242474 6034414 791940
Total Current Assets: 146714461 208548849
Current liabilities:
Sundry creditors 20783973 29885920 9101947
Advances against
Sales 2582996 3089152 506156
Other liabilities 1734719 1697558 37161
Unclaimed dividend 48070 66485 18415
Proposed dividend 1386391 1848521 462130
Total current liabilities 26536149 36587636
Net working capital 120178312 171961213
Increase/decrease in 51782901 51782901
working capital

71
 Calculation of operating profit for the period of 2018-19
Particulars Amount(rs) Amount(rs)
Net profit 28699684
ADD: Depreciation 3606259
Interest 4807101
Gross funds generated 37113044
Less: profit on sale of fixed assets --
Operating profit (or) funds from
operations
37113044

Funds flow statement for the period of 2018-19

Sources Amount(rs) Applications Amount(rs)
Funds from 37113044 Purchase of fixed 16435315
operations Assets
Bank finance for 24617525 Interestpaid 4807101
working Capital Direct taxes 8711811
Term loan 20187695 Dividend paid 1848521
Proceeds from long 1667385 Increase in working capital 51782901
termbarrowings

Total 83585649 Total 83585649

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Interpretation:
From the above table it is observed that the working capital of the company shows increase
trend. The current asset of the company Rs.146704461 in 2012-13 to Rs.208548849 in 2013-
14. The current liabilities of the company are increase from Rs.26536149 in 2012-13to
Rs.365876636 in 2013-14. In 2012-13 the net working capital of the company stood at
Rs.120178312. It is Increase to Rs.171961213 in 2013-14.

It is evident from the above table that the total funds flow during the period from 2013-14
amounts Rs. 83585649. In the total funds 44.4% was received from funds from operation,
29.45% from sale of fixed assets, 24.15% from bank finance for working capital, 43.09%
from extraordinary items.

Regarding the application of funds 5.75% is used for payment of interests, 10.42% for
payment of direct taxes, 19.66% for investment in fixed assets and 2.21% for proceeds from
long term barrowings and 6.19% for working capital constitutes.

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 Statement of changes in working capital
Particular 31.03.2017 31.03.2018 Changes in working capital
Increase Decrease
Current assets:
Interest accrued 223190 234791 11601
Stores & spares 15040935 19087292 4046357
Raw material 31629688 25829139 5800549
Loose tools 445634 506196 60562
Finished goods 58704607 128237065 69532458
Sundry debtors 85053587 46158454 38895133
Funds balance 441492 745621 304129
Bank balance 251133 3130269 2879136
Advances 10724169 25060948 14336779
Deposits 6034414 6141804 107390
Total current assets 208548849 255131579
Current liabilities:
Sundry creditors 29885920 17720782 12165138
Advances
Sales 3089152 2220479 868673
Other liabilities 1697558 2285591 588033
Unclaimed dividend 66485 96885 30400
Proposed dividend 1848521 924261 924260
Total current liabilities 36587636 23247998
Net working capital 171961213 231883581
Increase/decrease in
working capital 59922368 59922368

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 Calculation of operating profit for the period of 2018-19
Particulars Amount(rs) Amount(rs)
Net profit 10506392
ADD: Depreciation 2823410
Interest 8454190
Gross funds generated 21783992
Less: profit on sale of fixed assets 4165528
Operating profit (or) funds from
operations

17618464

Funds flow statement for the period of 2014-15

Sources Amount(rs) Applications Amount(rs)
Funds from 17618464 Purchase of fixed 3745993
operations Assets
Bank finance for 21829406 Interest paid 8454190
workingcapital Direct taxes 154841
Adjustment of 141760 Dividend paid 924261
income tax Term loan 5052054
Sale of fixed assets 5479851 Other loans 1395000
Proceeds from long 34579226 Increase in working capital 59922368
termbarrowings

Total 79648707 Total 79648707

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 Statement of changes in working capital
Particular 31.03.2015 31.03.2016 Changes in working capital
Increase Decrease
Current assets:
Interest accrued 234791 275025 40234
Stores & spares 19087292 21901771 2814479
Raw material 25829139 90604647 64775508
Loose tools 506196 483387 22809
Finished goods 128237065 68642116 59594949
Sundry debtors 46158454 78882160 32723706
Funds balance 745621 143107 602514
Bank balance 31630269 3633038 502769
Advances 25060948 19342054 5718894
Deposits 6141804 6257504 115700
Total current assets 255131579 290164809
Current
Liabilities:
Sundry creditors 17720782 21437708 37116626
Advances against 2220479 4412021 2191542
Sales
Other liabilities 2285591 2812862 527271
Unclaimed dividend 96885 119550 22665
Proposed dividend 924261 1386391 462130
Total current liabilities 23247998 30168232
Net working capital 231883581 259996577
Increase/decrease in
working capital 28112996 28112996

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 Calculation of operating profit for the period of 2015-16
Particulars Amount(rs) Amount(rs)
Net profit 15120657
ADD: Depreciation 2835071
Interest 13939250
Gross funds generated 31894978
Less: profit on sale of fixed assets 730404
Operating profit (or) funds from
operations
31164574

Funds flow statement for the period of 2015-16

Sources Amount(rs) Applications Amount(rs)
Funds from 31164574 Purchase of fixed 606315
operations Assets
Bank finance for 5243177 Interest paid 13939250
working Capital Direct taxes 5400000
Adjustment of 157092 Dividend paid 1386391
income tax Term loan 8048526
Sale of fixed assets 250000 Other loans 11385881
Proceeds from long 32064516 Increase in working capital 28112996
term barrowings

Total 68879359 Total 68879359

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 FINDINGS
 The amount of total investment in assets as decreased significantly from Rs. 25
cr.
 The amount of sales has increased from 21 Cr to 27Cr (2018-2019) this
increased sales helped the organization to improve its business turn over in
different sectors
 Payback period for the project will be 2.12 years it indicates the project earns
good yield in future also.
 Average rate of return for the JVH COMPANY - - is 45 %.
 NPV and IRR show a good path for the organization to develop In future
markets and also the investments for the investors.
 The capital budgeting decision for JVH COMPANY - - is governed by a
manual issued by the planning Commission. It contains the following important
provisions in the regard: (1) It suggest the use of various project evaluation
techniques, such as return on investment (ROD, payback period, discounted
cash flow (DCF) Evaluation and Review Technique (PERT), Critical path
method (CPM), and strengths, weaknesses, opportunities and Threats (SWOT)
Analysis.
 The total assets of JVH COMPANY - - recorded consistent fluctuations from
2.85 (2014-2015), 2.14 (2013-2014). This decline is an account of lower
growth rates sales in those years.
 The fixed assets of JVH COMPANY - - showing a fluctuating trend and
increased These fluctuations any be due to fixed assets investment.

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 SUGGESTIONS

As large sum of money is involved which influences the profitability of the

firm making capital budgeting an important task.

Long term investment once made cannot be reversed without significance

loss of invested capital. The investment becomes sunk and mistakes, rather than

being readily rectified, must often be born until the firm can be withdrawn

through depreciation charges or liquidation. It influences the whole conduct of

the business for the years to come.

Investment decision are the base on which the profit will be earned and

probably measured through the return on the capital. A proper mix of capital

investment is quite important to ensure adequate rate of return on investment,

calling for the need of capital budgeting.

The implication of long term investment decisions are more extensive than

those of short run decisions because of time factor involved, capital budgeting

decisions are subject to the higher degree of risk and uncertainty than short run

decision.

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 CONCLUSIONS

 The budgeting exercise in JVH COMPANY also covers the long term capital
budgets, including annual planning and provides long term plan for application
of internal resources and debt servicing translated in to the corporate plan.
 The scope of capital budgeting also includes expenditure on marine betterment,
and renovation, balancing equipment, capital additions and commissioning
expenses on trial runs generating units.
 To establish a close link between physical progress and monitory outlay and to
provide the basis for plan allocation and budgetary support by the government.
 The manual recommends the computation of NPV at a cost of capital / discount
rate specified from time to time.
 A single discount rate should not be used for all the capacity budgeting
projects.
 The analysis of relevant facts and quantifications of anticipated results and
benefits, risk factors if any, must be clearly brought out.
 Inducting at least three non -official directors the mechanism of the Search
Committee should restructure the Boards of these PSUs.
 Feasibility report of the project is prepared on the cost estimates and the cost
of generation.
 Scope of capital budgeting in JVH COMPANY - - are
 * Approved and ongoing schemes
 New approved schemes
 Unapproved schemes

80
  Capital budgets for marine betterment’s
 Survey and investigation
 Research and development budget.

 Overall the funds flow management in JVH products Ltd. Is up to the mark where by
adequate supplies of material and stores, minimization of stocks and avoided costly
interruption in operations.
 It has kept down the investments in inventories, inventory carry cost and obsolescence
losses to the measurement of requirement on the basis of record experience.
 It also enables the management to make cost and consumptions between operations
and periods.
 The company’s inventory management is at satisfactory level.
 The company’s debtor’s turnover ratio indicates the efficient management.
 The debt collection period is also satisfactory.
 The credit payment period is also satisfactory.

81
 BIBLIOGRAPHY

Name of the
Name of Edition/
Sl.No. Title of the Book Publisher &
the Author Volume No.
Year
Vikas
C,N Indian Financial publishing
1 3rd edition
KUMAR System house pvt.ltd.,
2017
Fundamentals of
2 ASIS RAJ 1st edition PHI, 2018
financial management

Websites:
 www.en.wikipedia.org
 www.smconline.com

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