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I-Flex Solution Limited


Submitted to:
Submitted By:
Miss Sukhwinder Kaur
Mr. Vikas Joshi



SEC:- T1001

I-flex Solutions Ltd.

I-flex Solutions Ltd. is one of the leading companies in the world which provides
complete IT solutions to various industries belonging to the financial sector. In
fact, the company has its roots in more than 130 countries serving over 790
customers worldwide. A major part of the company is owned by Oracle which
presently holds 81% shares of the company. This is the reason why I-flex
Solutions Ltd has changed its name to Oracle Financial Services Ltd'.

I-flex Solutions Ltd. offers a wide range of services including custom solutions,
services related to consulting and application software. This helps the financial
organizations to reduce costs. Some of the esteemed customers of this company
include Banco de Chile, Citibank, IMF (International Monetary Fund), UBS and
Shinsei Bank. It also helps the companies to comply with the market needs at the
opportune moment and increase customer service facilities by diminishing risks.
Brief History about Oracle
Financial Services Ltd
I-flex Solutions Ltd was established in the 1989. It has branches in the USA,
Netherlands, Greece, Singapore and India. The company has been ranked among
the best 100 companies throughout Asia. Besides, the company has successfully
collaborated with corporate giants like IBM, HP, Intel, Microsoft and Sun
About The Company
Date of Establishment:
Management team
Sergio Giacoletto
Rs. 2,061 Crores Roggio-Additional
Market Cap: Director

Rs. 9536.65(March 31, Sam Bharucha-Director

2008) Rajesh Hukku-Director
Address: Charles Phillips-Director
Unit 10-11, SDF-1 William T Comfort Jr.-
SEEPZ Andheri (East), Director
Mumbai, Maharashtra,
Tarjani Vakil-Director
R Ravisankar-Director
Derek Williams-Director
US, the Netherlands,
Greece, Singapore and Y M Kale- Director
India Deepak Ghaisas-Director
Facilities Provided By Oracle Financial
Services Ltd:-
1. Oracle Flexe Cube Solutions
2. Oracle Reveleus Solutions
3. Oracle Mantas Solutions
4. Oracle Business Intelligence Applications
5. Oracle Complex Event Processing
6. Oracle Crm on Demand for Wealth Management
7. Oracle Financial Services Analytical Applications
8. Oracle Lease & Finance Management
Services Provided By Oracle
Related To Banking Are Given
Banking Front Office
• Oracle Self-Service
• Oracle CRM On Demand
• Oracle Revenue Management and Billing for Financial Services
• Private Banking Front Office
• Siebel Branch Sales and Service
• Siebel Branch Teller
• Siebel Banking Contact Center
• Oracle Self-Service
• Siebel Consumer Lending (Collections, Credit Cards, Mortgage)
• Oracle CRM On Demand
• PeopleSoft Customer Relationship Management
Marketing and Business Intelligence
• Oracle Enterprise Performance Management and Business Intelligence
• Oracle Reveleus CRM Analytics
• Siebel Enterprise Marketing Suite

Private Banking Front Office

 Oracle CRM on Demand for Wealth Management

Core Systems
• Oracle FLEXCUBE Lending and Leasing
• Oracle FLEXCUBE Enterprise Limits and Collateral Management
• Oracle Daybreak
• Oracle FLEXCUBE Core Banking
• Oracle FLEXCUBE Islamic Banking
• Oracle FLEXCUBE Private Banking
• Oracle FLEXCUBE Direct Banking
• Oracle Lease Management

Payments and Settlements

• Oracle Financial Messaging Solutions
• Oracle FLEXCUBE Messaging Hub

Oracle Technology
• Identity Management
• Oracle Portal
• Oracle SOA Suite
• Oracle Fusion Middleware
• Application Server
• Business Integration
• Developer Tools

Database and Grids

Performance and
Profitability Management
• Oracle Financial Services Pricing Management, Transfer Pricing
• Oracle Financial Services Profitability Analytics
• Oracle Financial Services Analytical Applications Infrastructure
• Oracle Financial Services Funds Transfer Pricing
• Oracle Financial Services Profitability Management
• Oracle Budgeting and Planning

Risk and Compliance Management

• Oracle Reveleus Economic Capital Advanced
• Oracle Reveleus Market Risk
• Oracle Reveleus Corporate Credit Risk
• Oracle Reveleus Retail Risk
• Oracle Financial Services Asset Liability Management
• Oracle Financial Services Asset Liability Management Analytics
• Oracle Tutor
• Oracle Reveleus ICAAP Analytics
• Oracle Reveleus Basel II
• Oracle Reveleus Operational Risk
• Oracle Mantas Anti Money Laundering
• Oracle Mantas Know Your Customer
• Oracle Mantas Fraud

• Oracle Purchasing
• Oracle Services Procurement
• Oracle iSupplier Portal
• Oracle Sourcing
• Oracle Procurement Contracts
• Oracle iProcurement

HR Management
• Oracle Learning Management
• Oracle Time and Labor
• Oracle Payroll
• Oracle iRecruitment
• Oracle Human Resources
• Oracle Self-Service HR
• Oracle Advanced Benefits
• PeopleSoft Human Capital Management

• Oracle Advanced Collections
• Oracle Financial Services Accounting Hub
• Oracle E-Business Suite Financials
• Oracle Internet Expenses
• Oracle iReceivables
• PeopleSoft Enterprise Financial Management

Business Process Management

Oracle Industry Reference Model for


Apart from these, the company also provides services that cater to the Capital
Andheri (East), Mumbai,
Maharashtra - 400096
Phone: +91-22-28291020



Financial statements, the end product of the accounting process, are prepared following the
accounting concepts, accounting principles consistently followed and the legal environment in
which the enterprise operates. Financial statements are used by a number of users to arrive at the
conclusion and decisions.

Meaning of Financial Statements

Financial statements are the summarized statements of accounting data produced at the end of
the accounting process by an enterprise through which it communicates the accounting
information to the internal (management) and external users. The external users can be investors,
lenders, suppliers and trade creditors, customers, government and their agencies and employees.
Customarily, a set of financial statements include:

1. Balance Sheet: It is a statement of assets and liabilities, i.e. financial position of an

enterprise at a given data. It is also known as ‘Position statement’.

2. Profit and Loss Account: It shows the net result of business operations during an
accounting period. It is also known as ‘income statements’.

3. Schedules and Notes to Accounts: The Balance sheet and profit and loss account are
supported by the schedules having details of items in the balance sheet and profit and loss
account, while the notes to accounts are the statement of accounting policies and
explanation to materials items.

Financial Statements: According to the John N. Myer, “The Financial Statements provide a
summary of accounts of a business enterprise, the balance sheet reflecting the assets, liabilities
and capital as on a certain date and income statement showing the results and operations during a
certain period.”

Tools and Techniques of Financial Statements Analysis

Financial statements indicate certain absolute information about assets, liabilities, equity,
revenues, expenses and profit or loss of an enterprise. They are not readily understandable to the
external users of financial statements. A financial analyst can adopt the following tools and
techniques for analysis of the financial statements:

1.Comparative Statements.

2.Common Size Statements.

3.Trend Analysis.

4.Ratio Analysis.

5.Cash Flow Statements.

6.Funds Flow statements.

SOLUTION LTD. (comparative
Profit & Loss
account of
Oracle Financial
Mar'08 Mar'0 Mar' INC/D %INC/D INC/D %INC/D
9 10 EC(08 EC(08- EC(09 EC(09-
-09) 09) -10) 10)
12 mths 12 12
mths mth
Sales Turnover 1,792.97 2,212 2,24 419.65 23.4052 30.85 1.39427
.62 3.47 9959 4661
Excise Duty 0 0 0 0.00 0 0.00 0-
Net Sales 1,792.97 2,212 2,24 419.65 23.4052 30.85 1.39427
.62 3.47 9959 4661
Other Income 36.66 121.4 - 84.74 231.151 - -
68.2 1184 189.67 156.235
7 5848
Stock Adjustments 0 0 0 0.00 0 0.00 0
Total Income 1,829.63 2,334 2,17 504.39 27.5678 - -
.02 5.20 6891 158.82 6.80456
Raw Materials 0 0 0 0.00 0 0.00 0
Power & Fuel Cost 0 0 0 0.00 0 0.00 0
Employee Cost 870.07 1,058 1,04 188.44 21.6580 -9.95 -
.51 8.56 2752 0.94000
Other Manufacturing 49.04 49.33 19.3 0.29 0.59135 -30.02 -
Expenses 1 3997 60.8554
Selling and Admin 358.4 386.5 271. 28.16 7.85714 - -
Expenses 6 35 2857 115.21 29.8039
Miscellaneous 60.06 64.19 50.9 4.13 6.87645 -13.23 -
Expenses 6 6876 20.6106
Preoperative Exp 0 0 0 0.00 0 0.00 0
Total Expenses 1,337.57 1,558 1,39 221.02 16.5239 - -
.59 0.18 9501 168.41 10.8052
Mar'08 MAr'0 Mar'
9 10

12 mths 12 12
mths mth
Operating Profit 455.4 654.0 853. 198.63 43.6166 199.26 30.4664
3 29 0079 9236
PBDIT 492.06 775.4 785. 283.37 57.5885 9.59 1.23673
3 02 0547 3167
Interest 0.21 0.29 0.23 0.08 38.0952 -0.06 -
381 20.6896
PBDT 491.85 775.1 784. 283.29 57.5968 9.65 1.24493
4 79 283 6399
Depreciation 60.31 42.84 37.4 -17.47 - -5.43 -
1 28.9670 12.6750
0381 7003
Other Written Off 0 0 0 0 0 0 0
Profit Before Tax 431.54 732.3 747. 300.76 69.6945 15.08 2.05926
38 8219 5328
Extra-ordinary items 0 0 0 0 0 0 0
PBT (Post Extra-ord 431.54 732.3 747. 300.76 69.6945 15.08 2.05926
Items) 38 8219 5328
Tax 20.67 36.58 86.5 15.91 76.9714 49.94 136.522
2 5622 69
Reported Net Profit 410.87 695.7 660. 284.84 69.3260 -34.86 -
1 85 6421 5.01070
Total Value Addition 1,337.57 1,558 1,39 221.02 16.5239 -168.4 -
.59 0.19 9501 10.8046
Preference Dividend 0 0 0 0 0 0 0
Equity Dividend 0 0 0 0 0 0 0
Corporate Dividend 0 0 0 0 0 0 0
Per share data
Shares in issue 837.47 837.6 838. 0.22 0.02626 0.86 0.10266
(lakhs) 9 55 9598 3276
Earning Per Share 49.06 83.05 78.8 33.99 69.2825 -4.24 -
(Rs) 1 1121 5.10535
Equity Dividend (%) 0 0 0 0 0 0 0
335.85 418.9 498. 83.09 24.7402 79.21 18.9072
Book Value (Rs) 4 15 114 4209

1)Net sales growth in the year 2008-2009 was 23.4052%,while in the year 2009-
2010 it declined to just 1.39427. This shows that the sales of the company has
declined. This is not a good situation for the company.

2) The total income in the year 2008-2009 increased by 27.56786891, while in the
year 09-10, it decreased by 20.763299969 and remained only 6.804568941.

3)Expenses like employee cost increases by 21.65802752% in the year 08-09,

while it decreased to 0.940000567% in the year 09-10.

4)D epriciation decreased to -28.9670 in the year 08-09, while it decreased to only
-12.6750 in the year 09-10,with decrease in the net sales.

5)The “PBT” is decreasing with decrease in the net sales.


Mar'08 common Mar'09 common Mar'10 common size
size % size % %

12 12 12
mths mths mths
Sales Turnover 1,792. 100.00 2,212. 100.00 2,243. 100
97 62 47
Excise Duty 0 0 0 0 0 0
Net Sales 1,792. 100.00 2,212. 100.00 2,243. 100
97 62 47
Other Income 36.66 2.044652 121.4 5.486708 -68.27 -
169 066 3.043053841
Stock Adjustments 0 0 0 0 0 0

Total Income 1,829. 102.04 2,334. 105.49 2,175. 96.95694616

63 02 20
Raw Materials 0 0 0 0 0 0
Power & Fuel Cost 0 0 0 0 0 0

Employee Cost 870.07 48.52674 1,058. 47.84 1,048. 46.73831163

613 51 56
Other 49.04 2.735126 49.33 2.229483 19.31 0.860720224
Manufacturing 633 599
Selling and Admin 358.4 19.98917 386.56 17.47069 271.35 12.09510268
Expenses 996 086
Miscellaneous 60.06 3.349749 64.19 2.901085 50.96 2.271481232
Expenses 299 591
Preoperative Exp 0 0 0 0 0 0
Total Expenses 1,337. 74.60 1,558. 70.44 1,390. 61.96561576
57 59 18
Mar'08 Mar'09 Mar'10

12 12 12
mths mths mths
Operating Profit 455.4 25.39919 654.03 29.55907 853.29 38.03438424
798 476
PBDIT 492.06 27.44385 775.43 35.04578 785.02 34.99133039
015 283
Interest 0.21 0.011712 0.29 0.013106 0.23 0.010251976
41 634
PBDT 491.85 27.43213 775.14 35.03267 784.79 34.98107842
774 619
Depreciation 60.31 3.363692 42.84 1.936166 37.41 1.66750614
644 174
Other Written Off 0 0 0 0 0 0

Profit Before Tax 431.54 24.06844 732.3 33.09651 747.38 33.31357228

509 002
Extra-ordinary items 0 0 0 0 0 0

PBT (Post Extra-ord 431.54 24.06844 732.3 33.09651 747.38 33.31357228

Items) 509 002
Tax 20.67 1.152835 36.58 1.653243 86.52 3.856525828
798 666
Reported Net Profit 410.87 22.91560 695.71 31.44281 660.85 29.45660071
93 44
Total Value Addition 1,337. 74.60 1,558. 70.44 1,390. 61.9660615
57 59 19
Preference 0 0 0 0 0 0
Equity Dividend 0 0 0 0 0 0
Corporate Dividend 0 0 0 0 0 0
Per share data 0 0 0
Shares in issue 837.47 46.70853 837.69 37.85964 838.55 37.37736631
(lakhs) 389 151
Earning Per Share 49.06 2.736242 83.05 3.753468 78.81 3.512861772
(Rs) 101 738
Equity Dividend (%) 0 0 0 0 0 0

335.85 18.73149 418.94 18.93411 498.15 22.20444223

021 431
Book Value (Rs)

1) Total income was 102.04% in the year 2008, it increased to
105.49% in the year 2009, but decreased to 96.95694616% in the
year 2010.
2) Total expenditure was 74.60 in the year 2008, but it decreased to
70.44 in the year 2009, and again decreased to 61.96561576 in the
year 2010, which is a good sign for the company.

3) The net profit of the company was 22.9156093% in the year 2008,
which rises to 31.4428144% in the year 2009, but declined a little
to 29.4566071 in the year 2010, which means that the company is
quite struggling in the last year.

4) Earning per share was 2.736242 in the year 2008, which increased
to 3.753468738;which was a good signal, but it slightly decreased
to 3.512861722 in the year 2010;which is not good for the

5) The tax was 1.152835798 in the year 2008,which increased to

1.653243666 in the year 2009, and again increased to 3.856525825
in the year 2010, because of the increasing profit of the company.

Mar' Mar' Mar' INC/DEC(0 %CHNGE(0 INC/DEC(09 %CHNGE(09
08 09 10 8-09) 8-09) -10) -10)

12 12 12
mths mths mths
Sources Of Funds
Total Share Capital 41.8 41.8 41.9 0.01 0.023883449 0.05 0.11938873
7 8 3
Equity Share 41.8 41.8 41.9 0.01 0.023883449 0.05 0.11938873
Capital 7 8 3
Share Application 0.03 0.01 0.81 -0.02 - 0.8 8000
Money 66.66666667
Preference Share 0 0 0 0 0 0 0
Reserves 2,77 3,46 4,13 696.78 25.14770369 667.8 19.25866539
0.75 7.53 5.33
Revaluation 0 0 0 0 0 0 0
Networth 2,81 3,50 4,17 696.77 24.77272323 668.65 19.05300591
2.65 9.42 8.07
Secured Loans 0 0 0 0 0 0 0
Unsecured Loans 0 0 0 0 0 0 0
Total Debt 0 0 0 0 0 0 0
Total Liabilities 2,81 3,50 4,17 696.77 24.77272323 668.65 19.05300591
2.65 9.42 8.07
Mar' Mar' Mar'
08 09 10

12 12 12
mths mths mths
Application Of
Gross Block 403. 500. 487. 97.76 24.2568607 -12.8 -2.55601262
02 78 98
Less: Accum. 222. 264. 281. 41.56 18.66942186 17.24 6.526100617
Depreciation 61 17 41
Net Block 180. 236. 206. 56.2 31.15126656 -30.04 -
41 61 57 12.69599763
Capital Work in 131. 101. 130. -29.69 - 29.08 28.69831244
Progress 02 33 41 22.66066249
Investments 723. 720. 724. -3.27 - 4.59 0.637376066
41 14 73 0.452025822
Inventories 0 0 0 0 0 0 0
Sundry Debtors 903. 1,17 877. 267.73 29.63877296 -293.8 -
31 1.04 24 25.08880995
Cash and Bank 87.9 135. 356. 47.65 54.17235107 220.42 162.5396357
Balance 6 61 03
Total Current 991. 1,30 1,23 315.38 31.81575151 -73.38 -
Assets 27 6.65 3.27 5.615887958
Loans and 705. 904. 1,09 198.4 28.11353105 186.53 20.63133911
Advances 71 11 0.64
Fixed Deposits 552. 948. 1,40 396.49 71.81098654 454.59 47.92119078
13 62 3.21
Total CA, Loans & 2,24 3,15 3,72 910.27 40.47245355 567.74 17.96998145
Advances 9.11 9.38 7.12
Deffered Credit 0 0 0 0 0 0 0
Current Liabilities 427. 642. 532. 214.16 50.04089072 -109.84 -
97 13 29 17.10557052
Provisions 43.3 65.9 78.4 22.57 52.0886222 12.57 19.07435508
3 7
Total CL & 471. 708. 610. 236.73 50.22915341 -97.27 -
Provisions 3 03 76 13.73811844
Net Current Assets 1,77 2,45 3,11 673.54 37.88593832 665.01 27.12831705
7.81 1.35 6.36
Miscellaneous 0 0 0 0 0 0 0
Total Assets 2,81 3,50 4,17 696.78 24.77307877 668.64 19.05266667
2.65 9.43 8.07
165. 170. 195. 5.1 3.082315968 25.19 14.76899625
46 56 75

335. 418. 498. 83.09 24.7402114 79.21 18.90724209

Book Value (Rs) 85 94 15

1) Total debt of the company was 0 in both the years; this is a good sign for the

2)The total liability was 696.77 crore in 08-09, but it decreased to 668.65 crore in
the year 09-10, which is a good sig for the company.

3)Investment of the company has increased from -0.4520258% from the year 08-
09 to 0.637376066% in the year 09-10. This is a good sign.

4) The current assets of the company has decreased from 39.88593832% to

27.12831705% in the year 09-10.


Mar'08 %INC/DEC Mar'09 %chnge Mar'10 %chnge

12 12 12
mths mths mths
Sources Of Funds
Total Share Capital 41.87 1.4886317 41.88 1.1933595 41.93 1.00357342
17 86
Equity Share Capital 41.87 1.4886317 41.88 1.1933595 41.93 1.00357342
17 86
Share Application Money 0.03 0.0010666 0.01 0.0002849 0.81 0.019386942
1 47
Preference Share Capital 0 0 0 0 0 0
Reserves 2,770.7 98.51 3,467.5 98.81 4,135.3 98.97703964
5 3 3
Revaluation Reserves 0 0 0 0 0 0
Networth 2,812.6 100.00 3,509.4 100.00 4,178.0 100
5 2 7
Secured Loans 0 0 0 0 0 0
Unsecured Loans 0 0 0 0 0 0
Total Debt 0 0 0 0 0 0
Total Liabilities 2,812.6 100.00 3,509.4 100.00 4,178.0 100
5 2 7
Mar'08 Mar'09 Mar'10

12 12 12
mths mths mths
Application Of Funds

Gross Block 403.02 14.328835 500.78 14.269594 487.98 11.67955539

8 41
Less: Accum. Depreciation 222.61 7.9146001 264.17 7.5274546 281.41 6.735406539
1 79
Net Block 180.41 6.4142356 236.61 6.7421397 206.57 4.944148853
85 27
Capital Work in Progress 131.02 4.6582404 101.33 2.8873717 130.41 0.031212976
49 02
Investments 723.41 25.719872 720.14 20.520199 724.73 17.34604734
72 92
Inventories 0 0 0 0 0 0
Sundry Debtors 903.31 32.115976 1,171.0 33.37 877.24 20.99629733
04 4
Cash and Bank Balance 87.96 3.1272998 135.61 3.8641712 356.03 8.521398636
77 88
Total Current Assets 991.27 35.243275 1,306.6 37.23 1,233.2 29.51769597
91 5 7
Loans and Advances 705.71 25.090572 904.11 25.762376 1,090.6 26.1039188
95 69 4
Fixed Deposits 552.13 19.630241 948.62 27.030677 1,403.2 33.58512423
94 43 1
Total CA, Loans & 2,249.1 79.96 3,159.3 90.03 3,727.1 89.206739
Advances 1 8 2
Deffered Credit 0 0 0 0 0 0
Current Liabilities 427.97 15.215899 642.13 18.297325 532.29 12.74009291
6 48
Provisions 43.33 1.5405400 65.9 1.8778031 78.47 1.878139907
6 7
Total CL & Provisions 471.3 16.756439 708.03 20.175128 610.76 14.61823282
66 65
Net Current Assets 1,777.8 63.21 2,451.3 69.85 3,116.3 74.58850618
1 5 6
Miscellaneous Expenses 0 0 0 0 0 0
Total Assets 2,812.6 3,509.4 100.00 4,178.0 100
5 3 7
165.46 5.8827084 170.56 4.8600623 195.75 4.685177606
Contingent Liabilities 78 46

Book Value (Rs) 335.85 11.940696 418.94 11.937585 498.15 11.92296922

5 13
1) According to common size statement, total debt is constantly zero for all the
three years f the company.

2) Gross block was 14.328835% in the year 08, and decreases to 14.26959441% in
09, and again decreases to 11.67955539% in the year 10.

3) Cash and bank is increasing constantly from 3.127299877% to 3.864171288%

to 8.5213986361% in all the three years, this shows that the company has good
financial position.

4) Net current asset of the company is increasing from 63.21% to 69.85% to

74.58850618% in all the three years. This shows that the company is n good


Mar'08 Mar'09 Mar'10 %CHNGE(08-09) %CHNGE(09-10)
12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 41.87 41.88 41.93 100.0238834 100.1433007
Equity Share Capital 41.87 41.88 41.93 100.0238834 100.1433007
Share Application 0.03 0.01 0.81 33.33333333 2700
Preference Share 0 0 0 0 0
Reserves 2,770.75 3,467.53 4,135.33 125.1477037 149.2494812
Revaluation Reserves 0 0 0 0 0
Networth 2,812.65 3,509.42 4,178.07 124.7727232 148.5456776
Secured Loans 0 0 0 0 0
Unsecured Loans 0 0 0 0 0
Total Debt 0 0 0 0 0
Total Liabilities 2,812.65 3,509.42 4,178.07 124.7727232 148.5456776
Mar'08 Mar'09 Mar'10
12 mths 12 mths 12 mths
Application Of Funds

Gross Block 403.02 500.78 487.98 124.2568607 121.0808397

Less: Accum. 222.61 264.17 281.41 118.6694219 126.4139077
Net Block 180.41 236.61 206.57 131.1512666 114.5003049
Capital Work in 131.02 101.33 130.41 77.33933751 99.53442223
Investments 723.41 720.14 724.73 99.54797418 100.1824691
Inventories 0 0 0 0 0
Sundry Debtors 903.31 1,171.04 877.24 129.638773 97.11394759
Cash and Bank 87.96 135.61 356.03 154.1723511 404.7635289
Total Current Assets 991.27 1,306.65 1,233.27 131.8157515 124.4131266
Loans and Advances 705.71 904.11 1,090.64 128.1135311 154.5450681
Fixed Deposits 552.13 948.62 1,403.21 171.8109865 254.1448572
Total CA, Loans & 2,249.11 3,159.38 3,727.12 140.4724535 165.7153274
Deffered Credit 0 0 0 0 0
Current Liabilities 427.97 642.13 532.29 150.0408907 124.3755403
Provisions 43.33 65.9 78.47 152.0886222 181.098546
Total CL & Provisions 471.3 708.03 610.76 150.2291534 129.5904944
Net Current Assets 1,777.81 2,451.35 3,116.36 137.8859383 175.2920728
Miscellaneous 0 0 0 0 0
Total Assets 2,812.65 3,509.43 4,178.07 124.7730788 148.5456776
Contingent Liabilities 165.46 170.56 195.75 103.082316 118.3065393
Book Value (Rs) 335.85 418.94 498.15 124.7402114 148.3251452

1) There is an increase in the assets of the company from 124.7730788% to
148.5456776% from year 08-09 to 09-10. This shows the strong financial position
of the company.

2) There is a huge decline in the net block of the company. It decline from
131.1512666% in the year 08-09 to 114.5003049% in 09-10.

Accounting Ratios

Definition of Accounting Ratios:

The term "accounting ratios" is used to describe significant relationship between figures shown
on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part
of accounting organization. Accounting ratios thus shows the relationship between accounting

Advantages of Ratios Analysis:

Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages / Benefits of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition of the business
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios
highlight the factors associated with successful and unsuccessful firm. They also reveal
strong firms and weak firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management,
in its basic functions of forecasting. Planning, co-ordination, control and
4. Makes inter-firm comparison possible: Ratios analysis also makes possible
comparison of the performance of different divisions of the firm. The ratios are helpful in
deciding about their efficiency or otherwise in the past and likely performance in the
5. Help in investment decisions: It helps in investment decisions in the case of investors
and lending decisions in the case of bankers etc.

Limitations of Ratios Analysis:

The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.
1. Limitations of financial statements: Ratios are based only on the information which
has been recorded in the financial statements. Financial statements themselves are subject
to several limitations. Thus ratios derived, there from, are also subject to those
2. Comparative study required: Ratios are useful in judging the efficiency of the business
only when they are compared with past results of the business. However, such a
comparison only provide glimpse of the past performance and forecasts for future may
not prove correct since several other factors like market conditions, management policies,
etc. may affect the future operations.
3. Ratios alone are not adequate: Ratios are only indicators; they cannot be taken as final
regarding good or bad financial position of the business.
4. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful
comparison is to be made through accounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There
are no well accepted standards or rule of thumb for all ratios which can be accepted as
norm. It renders interpretation of the ratios difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense.
To make a better interpretation, a number of ratios have to be calculated which is likely
to confuse the analyst than help him in making any good decision.
7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpret and different people may interpret the same ratio in different way.
8. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison
of ratios difficult and misleading.

Classification of Accounting Ratios:

1. Income Statement Ratios: These ratios are calculated on the basis of the amounts of
income statements (Profit and Loss Account) only. For example: gross profit ratio, stock-
turnover ratio, etc.
2. Position Statement Ratios: These ratios are calculated on the basis of the amounts of
position statements (Balance Sheet) only. For example: Current ratio, debt-equity ratio
3. Inter-Statements Ratios or Composite Ratios: These ratios are based on amounts of
income statements as well as position statements. For example: fixed assets turnover
ratio, net profit to capital employed ratio etc.
1. Liquidity Ratios (Short-Term Solvency): A class of financial metrics that is used to
determine a company's ability to pay off its short-terms debts obligations. Generally, the
higher the value of the ratio, the larger the margin of safety that the company possesses to
cover short-term debts. Common liquidity ratios include the current ratio, the
quick ratio and the operating cash flow ratio. Different analysts consider different assets
to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash
and equivalents divided by current liabilities because they feel that they are the most
liquid assets, and would be the most likely to be used to cover short-term debts in an

A company's ability to turn short-term assets into cash to cover debts is of the utmost
importance when creditors are seeking payment. Bankruptcy analysts and mortgage
originators frequently use the liquidity ratios to determine whether a company will be
able to continue as a going concern. They comprise of current ratio, liquidity ratio,
absolute liquidity ratio.

Current Ratio: Current ratio may be defined as the relationship between

current assets and current liabilities. This ratio is also known as
"working capital ratio". It is a measure of general liquidity and is most
widely used to make the analysis for short term financial position or
liquidity of a firm. It is calculated by dividing the total of the current
assets by total of the current liabilities.

Following formula is used to calculate current ratio:

Year Mar '08 Mar '09 Mar '10
current assets 2249.11 3159.38 3727.12
current liabilities 471.3 708.03 610.76
current ratio 4.772 4.4622 6.1024

a) Acid-Test Ratio/Liquidity Ratio or Quick Ratio: Liquid ratio is also termed as

"Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to
current liabilities. The true liquidity refers to the ability of a firm to pay its short term
obligations as and when they become due. Companies with ratios of less than 1 cannot pay
their current liabilities and should be looked at with extreme caution. Furthermore, if the
acid-test ratio is much lower than the working capital ratio, it means current assets are highly
dependent on inventory. Retail stores are examples of this type of business.


Following formula is used to calculate current ratio:

Quick ratio
Mar- Mar- Mar-
Year 08 09 10
2249.1 3159.3 3727.1
current assets 1 8 2
Inventories 0 0 0
2249. 3159. 3727.
Quick assests 11 38 12
current liabilities 471.3 708.03 610.76
4.772 4.462 6.102
quick ratio 1 2 4

b) Absolute Liquid Ratio: Absolute liquidity is represented by cash and near cash items. It
is a ratio of absolute liquid assets to current liabilities. In the computation of this ratio only
the absolute liquid assets are compared with the liquid liabilities. The absolute liquid assets
are cash, bank and marketable securities. It is to be observed that receivables
(debtors/accounts receivables and bills receivables) are eliminated from the list of liquid
assets in order to obtain absolute4 liquid assets since there may be some doubt in their

Formula of Absolute Liquid Ratio:

Mar’0 Mar’0 Mar’1

Asolute liquid ratio 8 9 0
135.6 356.0
cash and bank balance 87.96 1 3
current liabilities 471.3 708.03 610.76
0.186 0.191 0.582
absolute liquid ratio 6 5 9

2. Solvency Ratios (Long-Term Solvency): One of many ratios used to measure a

company's ability to meet long-term obligations. The solvency ratio measures the size of a
company's after-tax income, excluding non-cash depreciation expenses, as compared to the
firm's total debt obligations. It provides a measurement of how likely a company will be to
continue meeting its debt obligations. They comprise debt equity ratio, proprietary or
equity ratio, interest coverage or debt service ratio, capital gearing ratio, over and under
Debt to Equity Ratio: Debt-to-Equity ratio indicates the relationship between the external
equities or outsiders funds and the internal equities or shareholders funds. It is also known
as external internal equity ratio. It is determined to ascertain soundness of the long term
financial policies of the company.
Computation: The ratio is ascertained as follow:


Total Debt 0 0 0
Equity Share Capital 41.87 41.88 41.93
2770. 3467. 4135.
Reserves 75 53 33
2812. 3509. 4178.
Shareholder funds 65 42 07
Debt equity ratio

This ratio gains much significance only when it is used in conjunction with the current
and liquid ratios. A standard of 0.5 : 1 absolute liquidity ratio is considered an acceptable
norm. That is, from the point of view of absolute liquidity, fifty cents worth of absolute
liquid assets are considered sufficient for one dollar worth of liquid liabilities. However,
this ratio is not in much use.

Proprietary Ratio or Equity Ratio: This is a variant of the debt-to-equity ratio. It is also
known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's
funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency
position of the business.
Computation: The ratio is ascertained as follow:

Equity Share Capital 41.87 41.88 41.93

2770. 3467. 4135.
Reserves 75 53 33
2812. 3509. 4178.
Shareholder funds 65 42 07
2812. 3509. 4178.
Total Assets 65 43 07
Propriety Ratio

Interest Coverage Ratio: Interest coverage ratio is also known as debt service ratio or debt
service coverage ratio. This ratio relates the fixed interest charges to the income earned by
the business. It indicates whether the business has earned sufficient profits to pay
periodically the interest charges. It is calculated by using the following formula.

Formula of Debt Service Ratio or interest coverage ratio:

Current Assets Movement or Efficiency/ Activity Ratios: Funds are invested in various
assets in business to make sales and earn profits. The efficiency with which assets are
managed directly affects the volume of sales. The better the management of assets, the
larger is the amount of sales and the profit. Activity ratios measure the efficiency or
effectiveness with which a firm manages its resources or assets. These ratios are also called
turnover ratios because they indicate the speed with which assets are converted or turn over
into sales.

Inventory Turnover Ratio or Stock Turnover Ratio (ITR): Every firm has to maintain a
certain level of inventory of finished goods so as to be able to meet the requirements of the
business. But the level of inventory should neither be too high nor too low. A too high
inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas
too low inventory may mean the loss of business opportunities. It is very essential to keep
sufficient stock in business.

Formula of Stock Turnover/Inventory Turnover Ratio:

The ratio is calculated by dividing the cost of goods sold by the amount of average stock
at cost.

Generally, the cost of goods sold may not be known from the published financial
statements. In such circumstances, the inventory turnover ratio may be calculated by
dividing net sales by average inventory at cost. If average inventory at cost is not known
then inventory at selling price may be taken as the denominator and where the opening
inventory is also not known the closing inventory figure may be taken as the average

Cost of goods sold/net 1792. 2212. 2243.
sales 97 62 47
Inventory 0 0 0
inventory turnover ratio 0 0 0

Debtors Turnover Ratio: A concern may sell goods on cash as well as on credit. Credit is one
of the important elements of sales promotion. The volume of sales can be increased by
following a liberal credit policy. The effect of a liberal credit policy may result in tying up
substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are
expected to be converted into cash within a short period of time and are included in current
assets. Hence, the liquidity position of concern to pay its short term obligations in time
depends upon the quality of its trade debtors. Debtors turnover ratio or accounts receivable
turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates
the number of times average debtors (receivable) are turned over during a year.

Formula of Debtors Turnover Ratio:


1792. 2212. 2243.
TOTAL SALES 97 62 47
903.3 1171. 877.2
DEBTORS TURNOVER 1.984 1.889 2.557
RATIO 8 4 4
Creditors Turnover Ratio: This ratio is similar to the debtors turnover ratio. It compares
creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in
paying creditors. Accounts payable include both sundry creditors and bills payable. Same
as debtors turnover ratio, creditors turnover ratio can be calculated in two forms, creditors
turnover ratio and average payment period.


Following formula is used to calculate creditors turnover ratio:

Average Payment Period:

Average payment period ratio gives the average credit period enjoyed from the
creditors. It can be calculated using the following formula:

Average Payment Period = Trade Creditors / Average Daily Credit Purchase

Average Daily Credit Purchase= Credit Purchase / No. of working days in a year


Average Payment Period = (Trade Creditors × No. of Working Days) / Net Credit

Significance of the Ratio:

The average payment period ratio represents the number of days by the firm to pay its
creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the
creditors are being paid promptly. This situation enhances the credit worthiness of the
company. However a very favorable ratio to this effect also shows that the business is not
taking the full advantage of credit facilities allowed by the creditors.
Average Collection Period Ratio: The Debtors / Receivable Turnover ratio when
calculated in terms of days is known as Average Collection Period or Debtors Collection
Period Ratio. The average collection period ratio represents the average number of days
for which a firm has to wait before its debtors are converted into cash.

Formula of Average Collection Period:

Note: Data not available.

Working Capital Turnover Ratio: Working capital turnover ratio indicates the velocity of the
utilization of net working capital. This ratio represents the number of times the working
capital is turned over in the course of year and is calculated as follows:

Formula of Working Capital Turnover Ratio:

Following formula is used to calculate working capital turnover ratio

The two components of the ratio are cost of sales and the net working capital. If the
information about cost of sales is not available the figure of sales may be taken as the
numerator. Net working capital is found by deduction from the total of the current assets
the total of the current liabilities.

Equity Share Capital 41.87 41.88 41.93

2770.7 3467.5 4135.3
Reserves 5 3 3
Total Debt 0 0 0
2812.6 3509.4 4178.0
1792.9 2212.6 2243.4
Net Sales 7 2 7

3. Profitability Ratios: The Primary objective of a business undertaking is to earn profits.

Profit earning is consideration essential for the survival of the business. In the words of
Lord Keynes, “Profit is the engine that drives the business enterprise”. A business needs
profits not only for its existence but also for expansion and diversification. The investors
want an adequate return on their investments, workers want higher wages, creditors want
higher security for their interest and loan and so on. A business enterprise can discharge its
obligations to the various segments of the society only through earning of profits The
various profitability ratios are discussed below:

a) Gross Profit Ratio (GP Ratio): Gross profit ratio (GP ratio) is the ratio of gross profit to
net sales expressed as a percentage. It expresses the relationship between gross profit and
sales. Gross profit ratio may be indicated to what extent the selling prices of goods per
unit may be reduced without incurring losses on operations. It reflects efficiency with
which a firm produces its products. As the gross profit is found by deducting cost of
goods sold from net sales, higher the gross profit better it is. There is no standard GP
ratio for evaluation. It may vary from business to business. However, the gross profit
earned should be sufficient to recover all operating expenses and to build up reserves
after paying all fixed interest charges and dividends.

Causes / reasons of increase or decrease in gross profit ratio:

It should be observed that an increase in the GP ratio may be due to the following factors.

1. Increase in the selling price of goods sold without any corresponding increase in
the cost of goods sold.
2. Decrease in cost of goods sold without corresponding decrease in selling price.
3. Omission of purchase invoices from accounts.
4. Under valuation of opening stock or overvaluation of closing stock.
On the other hand, the decrease in the gross profit ratio may be due to the following

1. Decrease in the selling price of goods, without corresponding decrease in the cost
of goods sold.
2. Increase in the cost of goods sold without any increase in selling price.
3. Unfavorable purchasing or markup policies.
4. Inability of management to improve sales volume, or omission of sales.
5. Over valuation of opening stock or under valuation of closing stock

Hence, an analysis of gross profit margin should be carried out in the light of the
information relating to purchasing, mark-ups and markdowns, credit and collections as
well as merchandising policies.


Following formula is used to calculate Gross Profit Ratio:


Gross profit
Net sales
Gross profit ratio
b) Net Profit Ratio (NP Ratio): Net profit ratio is the ratio of net profit (after taxes) to net
sales. It is expressed as percentage. NP ratio is used to measure the overall profitability
and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not
sufficient, the firm shall not be able to achieve a satisfactory return on its investment.
This ratio also indicates the firm's capacity to face adverse economic conditions such as
price competition, low demand, etc. Obviously, higher the ratio the better is the
profitability. But while interpreting the ratio it should be kept in mind that the
performance of profits also be seen in relation to investments or capital of the firm and
not only in relation to sales.



Net Profit after Tax:

Operating Ratio: Operating ratio is the ratio of cost of goods sold plus operating
expenses to net sales. It is generally expressed in percentage. Operating ratio measures
the cost of operations per dollar of sales. This is closely related to the ratio of operating
profit to net sales. Operating ratio shows the operational efficiency of the business.
Lower operating ratio shows higher operating profit and vice versa. An operating ratio
ranging between 75% and 80% is generally considered as standard for manufacturing
concerns. This ratio is considered to be a yardstick of operating efficiency but it should
be used cautiously because it may be affected by a number of uncontrollable factors
beyond the control of the firm. Moreover, in some firms, non-operating expenses from a
substantial part of the total expenses and in such cases operating ratio may give
misleading results. Yardstick

Formula of operating ratio:


Return on Equity Capital (ROEC) Ratio: In real sense, ordinary shareholders are the
real owners of the company. They assume the highest risk in the company. (Preference
share holders have a preference over ordinary shareholders in the payment of dividend as
well as capital. Preference share holders get a fixed rate of dividend irrespective of the
quantum of profits of the company). The rate of dividends varies with the availability of
profits in case of ordinary shares only. Thus ordinary shareholders are more interested in
the profitability of a company and the performance of a company should be judged on the
basis of return on equity capital of the company. Return on equity capital which is the
relationship between profits of a company and its equity can be calculated as follows:


This ratio is more meaningful to the equity shareholders who are interested to know
profits earned by the company and those profits which can be made available to pay
dividends to them. Interpretation of the ratio is similar to the interpretation of return on
shareholder's investments and higher the ratio better is.

Formula of Return on Equity Capital:

Formula of return on equity capital ratio is:

1. Return on Capital Employed Ratio (ROCE Ratio): Capital employed and

operating profits are the main items. Capital employed may be defined in a number of
ways. However, two widely accepted definitions are "gross capital employed" and "net
capital employed". Gross capital employed usually means the total assets, fixed as well
as current, used in business, while net capital employed refers to total assets minus
liabilities. On the other hand, it refers to total of capital, capital reserves, revenue
reserves (including profit and loss account balance), debentures and long term loans.

Calculation of Capital Employed:

Method--1. If it is calculated from the assets side, It can be worked out by adding the

1. The fixed assets should be included at their net values, either at original
cost or at replacement cost after deducting depreciation. In days of inflation, it is
better to include fixed assets at replacement cost which is the current market
value of the assets.
2. Investments inside the business
3. All current assets such as cash in hand, cash at bank, sundry debtors, bills
receivable, stock, etc.
4. To find out net capital employed, current liabilities are deducted from the
total of the assets as calculated above.
Gross capital employed = Fixed assets + Investments + Current assets

Net capital employed = Fixed assets + Investments + Working capital.

Working capital = current assets − current liabilities.

Method--2. Alternatively, capital employed can be calculated from the liabilities side of
a balance sheet. If it is calculated from the liabilities side, it will include the following

Share capital:
Issued share capital (Equity + Preference)
Reserves and Surplus:

General reserve
Capital reserve
Profit and Loss account
Other long term loans

Formula of return on capital employed ratio:

Adjusted Net Profit = Net profit before interest and tax - Income from investments.

Significance of Return on Capital Employed Ratio:

Return on capital employed ratio is considered to be the best measure of profitability

in order to assess the overall performance of the business. It indicates how well the
management has used the investment made by owners and creditors into the business. It
is commonly used as a basis for various managerial decisions. As the primary objective
of business is to earn profit, higher the return on capital employed, the more efficient the
firm is in using its funds. The ratio can be found for a number of years so as to find a
trend as to whether the profitability of the company is improving or otherwise.

2. Earnings Per Share (EPS) Ratio: Earnings per share ratio (EARNINGS PER
SHARE Ratio) is a small variation of return on equity capital ratio and is calculated by
dividing the net profit after taxes and preference dividend by the total number of equity

Formula of Earnings per Share Ratio:


The earnings per share is a good measure of profitability and when compared with
Earnings Per Share of similar companies, it gives a view of the comparative earnings or
earnings power of the firm. Earnings per share ratio calculated for a number of years
indicates whether or not the earning power of the company has increased.

Funds Flow Statements

Meaning and concept of Funds

The term ‘funds’ has been defined in a number of ways.

In a narrow sense: It means cash only and funds flow statement prepared on this basis is
called a cash flow statement.

In a broader sense: The term ‘funds’ refers to money values in whatever form it may
exist. Here ‘funds’ means all financial resources, used in business whether in the form of
men, material, money, machinery and others.

In a popular sense: the term ‘funds’ means working capital i.e. the excess of current
over current liabilities. The working capital concept of funds has emerged due to the fact
that total resources of a business are invested partly in fixed assets in the form of fixed
capital and partly kept in the form of liquid or near liquid form as working capital.

Flow of funds: The term ‘flow’ means movement and includes both ‘inflow’ and
‘outflow’. The term flow of funds, means transfer to economic values from one asset of
equity to another. Flow of funds is said to have taken place when any transaction makes
changes in the amount of funds available before happening of the transaction. If the
effect of transaction results in the increase of funds, it is called a source of funds and if it
results in the decrease of funds, it is known as application of funds.

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

Funds Flow Statement: The funds flow statement which shows the movement of funds
and is a report of the financial operations of the business undertaking. It indicates various
means by which funds were obtained during a particular period and the ways in which
these funds were employed. In simple words, it is a statement of sources and application
of funds.

Balance sheet and income statements

Funds flow statement is not a 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 earnings profits. It reports the results of
business activities and indicates the reasons for the profitability or lack thereof. The
profit and loss account done not highlight the changes in the financial position of a
business. It does not reveal the inflows and outflows of funds in business during a
particular period.

A balance sheet is a statements financial position or status of a business on a given date.

It is prepared at the end of accounting period. The balance sheet depicts various resources
of an undertaking and the deployment of these resources in various assets as on particular
date. As it indicates the financial conditions on particular date, it is static in nature; while
funds flow statement is a dynamic one. Funds statements tell us many financial facts
which a balance cannot. Balance sheet does not disclose the caused for changes 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, funds flow statements is
essentially a post balance sheet exercise. It is prepared (funds statements) to show
various sources form which the funds came into business and various applications where
they have been used.

Uses, significance and importance of funds flow statement

Funds flow statements an essential tool for the financial analysis and is of primary
important to the financial management. The basic purpose of a funds flow statement is to
reveal the changes in the working capital on the two balance sheet dates. It also describes
the sources from which additional working capital has been financial and the uses to
which working capital has applied. Such a statement is particularly useful in assessing
the growth of the firm. The significance or importance of funds flow statement can be
well followed form its various used given below:

i. It helps in the analysis of financial operations.

ii. It throw light on many perplexing questions of general interest which otherwise may
be difficult to be answered.
iii. It helps in the formation of a realistic dividend policy.
iv. It helps in the proper allocation of resources.
v. It acts as future guide.
vi. It helps in appraising the use of working capital.
vii. It helps knowing the overall creditworthiness of a firm.

Procedure for preparing a funds flow statement

Funds flow statement is a method by which study changers in the financial position of a
business enterprise between beginning and ending financial statements dates. Broadly,
the preparation of a funds flow statements consists of two parts:

i. Statement or schedule of changes in working capital.

ii. Statement of sources and application of funds.




Investment 720.14 724.73 4.59
Inventories 0 0
Sundry debtors 1171.04 877.24 293.8
Cash and bank balance 135 356 221
TOATL ASSETS 2026.18 1957.97
Total current liabilities 708.03 610.76 97.27
LIABILITIES 708.03 610.76
CAPITAL(A-B) 1318.15 1347.21 322.86 293.8
Increase in working capital 29.06 29.06
1347.21 1347.21 322.86 322.86


To balance b/d (closing balance) 660.85 By balance b/d (opening balance) 695.71
To depriciation 37.41
To income tax 86.52
To general reserves 667.8
1452.58 By fund from operation 756.87
1452.58 1452.58



Fund from operation 756.87 Payment of dividend and tax 86.52
Payment of loan 641.29
Increase in working capital 29.06
756.87 756.87

Cash Flow Statement:-

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

The terms cash, cash equivalents and cash flows are used in this statement with the following

1) Cash comprises cash on hand and demand deposits with banks.

2) Cash equivalents are short term, highly liquid investments that are readily convertible
into known amounts of cash and which are subjects to an insignificant risk of changes
in values. Cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment or other purpose.
3) Cash flows are inflows and outflows of cash and cash equivalent. Flow of cash is said
to have taken place when any transaction makes changes in the amount of cash and
cash equivalents available before happening of the equivalent. If the effect of
transaction results in the increase of cash and its equivalents, it is called an inflow
(source) and if it results in the decrease of total cash, it is known as outflow (use) of

Classification of cash flows:-

The cash flow statement should report cash flows during the period classified by
operating, investing and financial activities. Thus, cash flows are classified into three
main categories:

a) Cash flows from operating activities.

b) Cash flows from investing activities.
c) Cash flows from financial activities.

a) Cash flows from operating activities: Operating activities are the principal revenue-
producing activities of the enterprise and other activities that are not investing or
financial activities. The amount of cash flows arising from operating activities is a key
indicator of the extent to which the operating capability of the enterprise, pay dividends,
repay loans, and make new investments without recourse to external sources of
financing. Information about the specific components of historical operating cash flows
is useful, in conjunction with other information, in forecasting future operating cash

Cash flows from operating activities are primarily derived from the principal revenue-
producing activities of the enterprise. Therefore, they generally result from the
transaction and other events that enter into the determination of net profit or loss.

Examples of cash flows from operating activities are:

i) Cash receipts from the sale of goods and rendering of services.

ii) Cash receipts form royalties, fee, commissions, and other revenue.
iii) Cash payments to suppliers for goods and services.
iv) Cash payments to and on behalf of employees.
v) Cash receipts and cash payments of an insurance enterprise for premiums and
claims, annuities and other policy benefits.
vi) Cash payments or refunds of income taxes unless they can be specifically
identified with financial and investing activities.
vii) Cash receipts and payments relating to futures contractors, forward contracts,
option contracts, and swap contracts when the contracts are held for dealing or
trading purposes.

Some transitions, such as the sale of an item of plant, may give rise to a gain or
loss which is included in the determination of net profit or loss. However, the
cash flows relating to such transactions are cash flows from investing activities.

b) Cash flows from investing activities: Investing activities are the acquisition and
disposal of long-term and other investments not included in cash equivalents. The
separate disclosure of cash flows arising from investing activities is important because
the cash flows represent the extent to which expenditures have been made for resources
intended to generate future income and cash flows. Example of cash flows arising from
investing activities are:
i) Cash payments to acquire fixed assets. These payments include those relating to
capitalized research and development costs and self constructed fixed assets.
ii) Cash receipts from disposal of fixed assets.
iii) Cash payments to acquire shares, warrants, or debt instruments of other
enterprises and interest in joint ventures.
iv) Cash receipts from disposal of shares, warrants, or debt instruments of other
enterprises and interest in joint venture.
v) Cash advance and loans made to third parties.
vi) Cash receipts form the repayment of advance and loans made to third parties.
vii) Cash payments for future contracts, forward contracts, opinion contracts and
swap contract except when the contracts are held for dealing or trading purpose,
or the receipts are classified as financial activities.

c) Cash flows from financial activities: Financial activities are activities that results in
changes in the size and composition of the owners’ capital and borrowing of the
enterprise. The separate disclosure of cash flows arising from financial activities is funds
(both capital and borrowing) to the enterprises. Example of cash flows arising from
financial activities are:

i) Cash proceeds from issuing share or other similar instruments.

ii) Cash proceeds from issuing debentures, loans, bonds, and other short or long term
iii) Cash repayments of amounts borrowed such as redemption of debentures, bonds,
preferences shares, etc.

Cost analysis:-
Concepts of cost
The term cost has a wide variety of meanings. Different people use this term in different senses
for different purpose. In common use, the word cost means price. For our purpose cost is not the
same as price. I management terminology, the term cost refers to expenditures and not the price.
It also refers to something that must be sacrificed to obtain a particular thing. In fact, the scope
of term ‘cost’ is so broad and general that it has caused some confusion.
To make the concept clear, some important definition about cost as follows:
According to the terminology of the British Institute of cost and works Accountants, “Cost is the
amount of expenditure (actual or notional) incurred on or attributable to a given thing.”
According to the W.M. Harper, “Cost is the value of economic resources used as a result of
producing or doing the things costed.”

Analysis and classification of costs:-

The main object of costing is to ascertain the cost of each product, process, department, service
or operation. The ascertainment of cost involves further the study, analysis and classification of
costs such as prime cost, work cost, production cost etc. cost analysis refers to the breakup of
total cost into certain elements or sub-divisions.
Cost may be classified into different categories depending upon the purpose of their
classification. Some of important basis of cost classification are as follows:
1. Classification by nature or element:
According to the nature or element of cost, cost can be broadly classified as:
a) Direct costs: Direct Costs are the cost which can be conveniently identified with and
allocated to a particular unit of final product. Such costs are treated as the cost of the
unit produced. Direct cost can be further classified as:
i. Direct material: All materials which become an integral part of the finished
product and which can be conveniently assigned to specific physical units is
called direct material.
ii. Direct labor: Direct labour cost consists of wages paid to workers directly
engaged in manufacturing and handling a product, job or process.
iii. Direct expenses: All expenses other than the direct material or direct labour that
are specifically incurred for a particular job, product or process are called direct
b) Indirect cost: Indirect costs are those costs which cannot be assigned to any
particular cost unit, i.e., job, product or process. Indirect costs are, usually, incurred
for the business as a whole and are, therefore, apportioned among the various cost
units (product, job or process) on some reasonable basis. Like direct cost indirect cost
i. Indirect materials: Indirect material such as fuel, lubricating oil, small tools, materials
consumed for repair and maintenance work, miscellaneous stores used in the factory, etc.
ii. Indirect labour: Indirect labour which includes wages of general supervisors,
inspectors, workshop cleaners, store-keepers, time-keepers, etc.
iii. Indirect expenses: Indirect expenses such as rent, lighting, insurance, canteen, hospital,
welfare expenses, etc.
Indirect costs are also called ‘Overheads’. Overhead may be further classified as:
a) Factory overheads which include all indirect expenses connected with the
manufacture of a product such as lubricants, oil, consumable stores, works manager’s
salary, time-keeper’s salary, factory rent, factory insurance, etc.
b) Office and administration overheads which include all indirect expenses relating to
administration and management of an office such as office rent, office lighting,
salaries of clerical and executive staff, etc.
c) Selling and distribution which induced all indirect costs connected with marketing
and sales such as advertising expenses, salaries of salesman, indirect packing
material, etc.
2. Functional classification:-
Functionally, cost can be classified under the following heads:
a) Prime cost: It consists of the cost of direct materials that go into the product, the cost
of direct labour and direct expenses.
b) Factory cost: It consist of price cost plus factory overhead or works expenses or
factory on cost. Factory cost is known as work cost, production cost or manufacturing
c) Cost of production: Also called office cost, administration cost or gross cost of
production, it consists of factory cost plus office and administrative expenses.
d) Total cost or cost of sales: It comprises cost of production plus selling and
distribution overheads.
3. Classification on the basis of behavior :-
On the basis of behavior or variability, costs may be classified as:
a) Variable cost: Costs that vary almost in direct proportion to the volume of
production are called variable costs. The examples of such cost are direct materials,
direct labour and direct chargeable expenses, such as electric power, fuel, etc.
b) Fixed costs: Costs which do not vary with the level of production are known as fixed
costs. These costs are called fixed costs because these remain constant irrespective of
the level of the output.
c) Semi-variable costs: Those costs which are partly fixed and partly variable are
called semi-variable costs. These costs vary with the level of production but not in
direct proportion to the level of production.


THE YEAR 2010:-
Direct material 0
direct labour 0
Direct expense 0
add: factory overheads
other manufacturing expenses 19.31
ADD: office and administrative expenses
employee cost 1048.56
miscellaneous expenses 50.96
add: selling and distribution expenses
selling and distribution expenses 271.35 271.35

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