Funds Flow Statement Lanco

FUNDS FLOW STATEMENT
CHAPTER-1
INTRODUCTION
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1.1 INTRODUCTION
Finance is the life blood and nerve system of any business organization. Just as
Circulation of blood is necessary in the human body to maintain life finance is very
essential to the business organization for smooth running of the business.
Financial management involves Managerial activities concerned with the
acquisition of Fund for the business purpose. The Finance Function does with
procurement of money taking in to consideration of today as well as future need and
finance is required to purchase need and finance is required to purchase a machinery
and raw materials, to pay salaries and wages and also for day to day expenses.
Financial Management is an appendage to the Finance function. With the
Creation of complex industry structure, the finance function has grown to very great
heights. One cannot think of any business activity in isolation from its financial
implication.
Financial Management:
Meaning:-
Financial Management refers to that part of Management activity, which is
concerned with planning and controlling of firms financial resources, Financial
Management is applicable to every type of organization, irrespective of size, kind of
nature.
Objectives of Financial Management:

Financial Management evaluates how funds are produced and used. In all
cases, it involves a sound judgment combined with logical approach of decision
making. Financial management provides a framework for selecting a course of action
and deciding an economically viable strategy
.
The Main objective of a business is to maximize the owner’s welfare. This
objective can be achieved by
(1) PROFIT MAXIMIZATION
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(2) WEALTH MAXIMIZATION
PROFIT MAXIMIZATION:
Profit earning is the primary of every economic activity. Business can service
only it earns profit; profit is the measure of the efficiency of a business enterprise. It is
remuneration for innovation. The survival of the firm depends upon it ability to earn
profit but from the experience it is learn that concept of maximization is a myth.
WEALTH MAXIMIZATION:
Wealth maximization is the appropriate objective for an enterprise.
The concepts of wealth maximization tell value of assets in terms of benefits it
can produce. The concept of wealth maximization universally accepted in financial
decision-making.
FINANCIAL DECISIONS:
 Investment decisions
 financing decisions
 Dividend decisions
INVESTMENT DECISIONS:
The decisions relates to the determination of the total amount of assets to be
held by the firm, their composition, the business risk and the image of the firm’s
perceived by the investors.
FINANCING DECISION:
After taking the Investment decision, the firm commits itself to the new
investment, and hence it must decide upon the best means of Financing these
commitments. The cost of raising funds for investing is very crucial in making the
financial decisions.
DIVIDEND DECISIONS:
This refers to the reimbursement of profit to the investors who have
supplied funds.
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FUNDS FLOW INTROUDUCTION
Significant technique of financial analysis is ‘Funds Flow Analysis’. It is

designed to highlight changes in the financial condition of a business concern
between two points of time which generally conform to beginning and ending
financial statement dates. Funds Flow statement is also termed as a ‘Statement
of Sources and Applications of Founds’ , ‘Statement of Changes in working
Capital, ‘Statement of Changes in Financial Position,’ ‘Statement of Funds
Supplied and applied’, ‘Statement of Founds Generated and Expended,, ‘Where
Got and Where Gone Statement,’ Funds statement.
Although financial statements supply useful information to the

management and describe the nature of changes in ownership as a result of the
period’s productive and commercial activities, these statement fail to mirror the
funds changes that have taken place over a given time span. They do not spell
out the movement of funds. Taken place over a given time span. The do not
spell out the movement of funds. It is more important to describe the sources
from which additional funds were derived and the uses to which these funds
were put, because the ultimate success of a business enterprise depends on
where got a where gone situations. The funds flow statement is, there fore,
prepared to uncover the information which the financial statements fail to
describe clearly.
Funds Flow Statement:
The following are the definitions of Funds Flow Statement.

R.N.Anthony: “The Funds Flow Statement describes the sources from
which additional funds were derived and the uses to which these funds were put.
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R.A.Foulk: “ A Statement of Sources and Applications of Funds is a technical

device designed to analyse the changes in the financial condition of a business
between two dates.”
Bierman: “It is a statement which highlights the underlying financial

movements and explains the changes of working capital form one point of time
to another”.
Thus, funds flow statement is a report which summarizes the events

taking place between the two accounting periods. It spells out the sources from
which funds were derived and the uses to which these funds were put. This
statement is essentially derived from an analysis of the changes that have
occurred in assets and liabilities items between two balance sheet dates. In this
statement, only the net changes are shown s that the become of a transaction or
of a series of transactions upon the financial condition of a business enterprise,
is reflected more sharply.
Concept of Fund:
The term ‘Funds’ has a variety of meanings. Some people take funds
synomymous to cash, and to them there is no difference between a Cash Flow
Statement prepared on this basis and a Funds Flow Statement. While others
include marketable securities and cash to constitute business funds. However,
the most common definition of the term ‘funds’ is ‘Working Capital’ or Net
Current Assets’. Thus the difference between Current Assets and Current
Liabilities is called ‘Funds’.
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Significance of Funds flow Statement
Funds Flows Statement is an important tool of financial analysis. The

utility of the funds flow statement stems from the fact that it enables
management, shareholders, investors, creditors and other interested in the
enterprise to evaluate the uses of funds by the enterprise and to determine how
these uses are financed.
Useful in Decision Marking to the Management:
The funds Flow Statement serves as valuable tool of financial analysis to
the finance manger. It helps in understanding the financial stability and
efficiency of financial policies of the management.
Decisions relation to financing: With the help of the funds flow statement,
the analyst can evaluate the financing pattern of the enterprise. An analysis of
the major sources of funds in the past reveals what portion of the growth was
financed internally ands what portion externally. The statement is also
meaningful in judging whether the company has grown at too fast a rate, credit
has increased out of proportion to expansion in current assets and sales. If trade
credit has increased at relatively higher rate, one would wish to evaluate the
consequences of slowness in trade payments on the credit standing of the
company and its ability to finance in future.
Decisions on Capitalization: The funds flow statement serves as handmaid

to the finance manager in deciding the make-up of capitalization. Estimated uses
of funds for new fixed assets, working capital, dividends and repayment of debt
are made for each of several future years. Estimates are made of the funds to be
provided by operations, and the balance must be obtained by borrowing or
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issuance of new securities. If the indicated amount of new funds required is

greater than what the finance manager thinks possible to raise, then plans for
new fixed asset acquisition and the dividend policies are re-examined so that the
uses of funds can be brought into balance with the anticipated sources of
financing them. In particulars, funds statements are very useful in planning
intermediate and long-term financing.
Reveals the reasons for financial difficulties: The funds flow statement
reveals clearly the causes for the financial difficulties of the company. The
difficulties may be due to improper mix of short and long terms sources,
unnecessary accumulation of inventory of fixed assets, etc. These can be found
out by a careful study of the funds flow statement.
Other uses: Funds Flow Statement is useful to the management in the

following cases.
 Estimating the amount of funds needed for growth;

 Improving the rate of income on assets;
 Planning the temporary investment of iFdle funds;
 Securing additional working capital when needed;
 Securing economies in the centralized management of cash in
organization whose management is decentralized;
 Planning the payment of divided to shareholders and interest to creditors;
and
 Easting the effects of insufficient cash balance.
Useful as a control Device:

The funds flow statement also serves as a control device in that the
statement compared with the budgeted figures will show to what extent the
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funds were put to use according to plan. This enables the finance manager to
find out deviation form the planned course of action and take remedial steps to
correct the deviations.
Useful to the external parties:
The outside parties can have a clear knowledge about the financial
policies that the company has pursued. In the light of the information so
supplied by the statement, the outsiders can decide whether or not to invest in
the enterprise and on what terms funds have to be invested. The funds statement
provides an insight into the financial operations of a business enterprise-an
insight immensely valuable to the finance manager in analyzing the past and
future expansion plans of the enterprise and the impact of these plans on its
liquidity. He can detect imbalances in the uses of funds and undertake remedial
actions.
Thus, the funds statement draws the attention of the finance manager to
problems which call for detailed analysis and immediate action. In view of
these, funds flow statement is becoming more popular which management. Even
some bank managers make it obligatory for the borrowers to furnish a funds
statement along with their annual balance sheet. Now a days many Indian
companies are publishing this statement in their annual reports although they are
not obliged to do so under the companies Act.
Financial Statements and Funds flow statement
Financial statement means the profit and loss account and the balance
sheet. All the organizations more particularly, the company form of
organizations are required to present the annual financial statement every year.
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The financial statement differ with the funds flow statement in many ways.
A Funds Flow Statement is statement measuring the inflows and

outflows of net working capital that result form any type of business activity
between two dates. An Income Statement in a statement measuring the inflows
and outflows of net asses of revenue nature that result form rendering goods or
services to customers between two dates.
A funds flow statements has become a useful tool in the hands of

financial analyst. That is because the financial statements, i.e., Income
Statement measures the flows restricted to transition relation to rendering of
goods and services to customers. It is not capable of any accurate information of
the resources operating unless the income data is converted into founds data.
The Balance Sheet is merely a static statement of assets and liabilities as on a
particular date. It does not depict the major financial transactions which have
resulted in changes in Balance Sheet.
Preparation of funds flow statement:
In order to prepare a Funds Flow Statement, it is necessary to find out the

“sources” and “applications” of funds.
Sources of Funds:
Funds from Operations: Funds from operations is the only internal source of
funds. Some adjustments are to be made in calculating funds operations to the
net profit given in the financial statement.
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Calculation of funds From operations:
The follwing procedure is to be followed in the calculation of funds from

operations.Start with the Net Profit given in the profit and loss account.
Add the following items to the Net Profit as they do not result in out flow of
funds.
 Depreciation on fixed assets.
 Preliminary expenses or goodwill etc., written of.
 Contribution to debenture redemption fund, transfer to general resrve
etc., if they have been deducted before arriving at the figure of net profit.
 Provision for taxation and proposed divided. These may be taken as
appropriations of profits or current liabilities for the purposes of Funds
Flow Statement. Tax or dividends actually paid are taken as applications
of funds. Similarly, interim dividend paid is shown as an application of
funds. All these items will be added back to net profit if already
deducted, to find funds from operations.
 Loss on sale of fixed assets.
Deduct the following items from net profit as they do not increase the
funds:
 Profit on sales of fixed assets, since the full sale proceeds are taken as a
separate source of funds and inclusion here will result in duplication.
 Profit on revaluation of fixed assets.
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 Non-operating income such as dividend received or accrued rent. These

items increase funds but they are non-operating incomes. They will be
shown under separate heads as “sources of funds” in the Funds Flow
Statement.
In case the profit and loss account shows ‘Net Loss” this should be taken as
an item which decreases the funds.
Applications of funds:
The uses to which funds are put to are called “applications of funds”.
Following are some of the purposes for which funds may be used:
 Purchase of fixed assets: Purchase of fixed assets such as land,

buildings, plant, machinery, long-term investments, etc., result in
decrease of current assets without any decrease in current liabilities.
Hence, there will be an outflow of funds. But in case shares or
debentures are issued for acquisition of these fixed assets. There will
be no outflow of funds.
 Payment of dividend: Payment of dividends results in decrease of
a fixed liability and therefore, it affects funds. Generally,
recommendation of directors regarding declaration of dividend (i.e.,
proposed dividends is simply taken as an appropriation of profits and
not as an item affecting the working capital.
 Payment of fixed liabilities: Payment or redemption of
redeemable preference shares results in reduction of working capital
and hence it is taken as an application of funds.
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 Payment of tax liability: Provision for taxation is generally taken

as an appropriation of profits and not as an application of funds. But
if the tax has been paid, it will be taken as an application of funds.
 Increase in working capital: Working capital is increased, if
current assets increase and current liabilities decrease. Funds are
required in both the cases i.e., in order to acquire more current assists
or paying current liabilities and thus funds are said to have been
applied or used.
Statement of changes in working capital:
The increase or decrease in working capital can be calculated by

preparing the schedule of changes in working capital.
Working capital represents the excess of current assets over current

liabilities. Several items of all current assets and current liabilities are the
components of working capital. In order to ascertain the working capital at the
beginning and at the end of the period and to measure the increase or decrease
therein it is necessary to prepare a statement or schedule of changes in working
capital.
Statement of Sources and Application of Funds:
 Funds from operation: It is an internal source of funds. Funds from

operations are to be calculated as per the method stated above.
 Funds from long-term loans: Long-term loans such as debentures,
borrowings from financial institutions will increase the working capital
and therefore, there will be inflow of funds. However, if the debentures
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have been issued in consideration of some fixed assets, there will be no

inflow of funds.
 Sale of fixed assets: Sale of land, buildings, long –term investments
will results in generation of funds.
 Funds from increase in share capital: Issue of shares for cash or for
any other current asset or in discharge of a current liability is another
source of funds. However, shares allotted in consideration of some fixed
assets will not result in funds. However, it is recommended that such
purchase of fixed assets as well as issue of securities to pay for them be
revealed in Funds Flow Statement.
 Decrease in Working Capital: Decrease in working capital is the
results of decrease in current asset or increase in current liabilities. In
both the cases inflow of funds takes place. Suppose stock, a current asset
reduces form Rs.15000 to Rs.12000 the decrease of Rs.3000 is assumed
to be due to the disposal of stock which undoubtedly brings funds into
the business. In the same way, increase in current liabilities means lesser
payment, so retaining funds is also a source.
Funds Flow Statement:
The funds flow statement is a statement, which shows the movement of

funds and is a report 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 find were employed.
In simple, the funds flow statement is a statement of sources and application of

funds. In short, it is a technical device designed to high light the change in the
financial condition of a business enterprise between tow Balance Sheets.
According to Robert Anthony "The Funds Flow Analysis describes the

sources fro which additional funds were derived and the uses to which these
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funds were put.”

According to Fouke, "A Statement of Sources and Applications of funds is
a technical device designed to analyze the changes in the financial position of a
business enterprise between two periods.”
Funds flow statement is widely used by the financial analyst and credit
granting institution and financial managers in performance of their jobs. It has become
a useful tool in their analytical kit. This is because the financial statement like income
statement and· balance sheet have limited role to perform.
Income statement measures flows restricted to transaction that pertain to

rendering of good and services to customers. The balance sheet is merely a static
statement's these statements do not sharply focus those major financial transactions,
which have behind the n\balance sheet changes.
However financial analyst must know the purpose for which the loan
was unitized and the sources from which it has rises. This will help him in making a
better estimate about the company's financial position and polices.
Uses, Significance and Importance of Funds Flow Statement:
Analysis of financial operations: -
A funds flow statement shows bow the resources have beer obtained and the
uses to which they are put.
The funds flow statements determining the financial consequences of business
operation. It also useful in guiding whether the firm has expanded at too fast rate and
whether financing is strained, it also point out to the effectiveness with which the
management has handled working during the period under review.
Evaluation of the firms: -

This statement can consist the financial manager in planning intermediate and
long-term finance for obtaining sources in the further and determining how they are to
be used. That is analysis of the major sources of funds in the past reveals what
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positions of the firms growth was financed internally and what position externally.
Comparison with the budget: -
The statement defines the past flow of funds and gives insight in to the
evolution of the present situation. It provides certain useful information about the
firms. Financial policies to the outside world like bankers, government, etc;
Funds flow statement is becoming popular with the management because it
helps to explain why in spite of earning sizable amount of profits, the company is
experiencing difficulty in making payments to creditors, the rate of dividend on equity;
shares cannot be increased and the bank balance is getting thinner. The funds flow
statements has an analytical value and is an important planning tool. It helps in guiding
the destiny of the business by enabling the executives to visualize the movements of
funds that constantly takes place. This statement also helps in working capital
requirements. It highlights and future need for funds and provides sample time to work
out suitable arrangements. The funds flow statement shows what portion externally.
The analysis of funds flow statement for the future is externally available to the
executive in planning.
General Rule:
The flow of funds occurs when a transaction changes on the one hand a non-
current account and vice versa.
 A current asset and a fixed asset.
 A fixed asset and a current liability.
 A current asset and a fixed liability.
 A fixed liability and a current liability.
Uses-of Funds Flow Analysis:
 It helps in the analysis of financial operations.

 It throws light on many perplexing question of general interest.
 It helps in the formation of a realistic dividend policy.
 It helps in the proper allocation of resources.
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Limitations of funds Flow Analysis:
 It is essentially historic in nature and projected funds flow statement cannot

be prepared with much accuracy.
 It cannot be reveal continues changes.
 It is not an original statement but simply a re - arrangement of data given in
the financial statements.
Different names of funds Flow Statement:
A statement of sources and Uses of funds.

 A statement of Sources and Application of funds.
 Where got and where gone Statement.
 Inflow and out flow of funds statement.
Main purpose of Funds Flow Statement:
 To help to understand the changes in assets and which are not evident
 Financial statements or I the income statement.
 To inform on to how the loans to the business has been used.
 To point out the financial strengths and weakness of the business.
 To help in planning sound dividend policy.
Procedure for preparing a Funds Flow Statement:
The preparation of funds flow statement consists of some parts:

Statement or schedule of changes in working capital.
 Statement of sources of funds.
 Statement of application of funds.
 Finding out the hidden transactions or changes in non-current assets and
non-current liabilities.
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Statement or Schedule of Changes in Working Capital:
The increase or decrease in working capital can be calculated by preparing the

schedule of changes in working capital. Working capital means the excess of current
assets over current liabilities. Statement of changes in working capital is purpose to
show the changes in the working capital between two balance sheets data. This
statement is prepared with the help of current assets and current liabilities derived from
two balance sheets.
While preparing a schedule of Changes in Working Capital, it should

be note that:
 Increase in Current Assets, Increases the Working Capital.

 Decrease in Current assets, Decreases the Working Capital.
 Increase in Current Liabilities, Decreases the working capital.
 Decrease in Current Liabilities, Increases the Working Capital.
 An increase in current assets and increase in current liabilities does not
affect working capital.
 A decrease in current assets and decrease in current liabilities does not
 Changes in fixed (non-current) assets and fixed (non-current) liabilities
The changes in all current assets and current liabilities are merged into one
figure only either an increase of decrease in working capital over the period for which
funds statements has been prepared.
If the working capital at the end of the period is more than the working capital
at the beginning the difference is expresses as “Increase in Working Capital”. On the
other hand, if the working capital at the end of the period is less than at the
commencement, the difference is called “Decrease in Working Capital”.
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Working Capital = Current Assets – Current Liabilities
Current Assets:
The expression ‘Current Assets’ denotes those assets, which are
continually on the move. Since they are constantly in motion, they are known as the
circulating capital of the business. These assets can or will be converted into cash
during a complete operating cycle of the business.
Current assets include:

 Stock-in-trade or inventories,
 Debtors,
 Payments in advance or prepaid expenses,
 Stores,
 Bills receivable,
 Cash at bank,
 Cash in hand and
 Work-in-progress etc.
Current Liabilities:
‘Current Liabilities’ are those liabilities, which are to be paid in the
near future, i.e., during a complete operating cycle of the business.
Current liabilities include: -

 Trade creditors,
 Accrued or outstanding expenses,
 Bills payable,
 Income tax payable,
 Dividends declared and
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 Bank overdraft.
Note: - according to the experts opinion ‘bank overdraft’ has a tendency to become
more or less permanent source of financing and hence it need not be included among
‘current liabilities’
PROFORMA OF STATEMENT OF CHANGES IN WORKING CAPITAL
Particulars Beginning Ending Changes in working

capital
Increase Decrease
Current assts (CA):
Inventories: XXX XXX
Raw material XXX XXX
Consumable stores XXX XXX
Finished goods XXX XXX
Sundry debtors XXX XXX
Cash in hand XXX XXX
Balance with bank XXX XXX
Other current assets: XXX XXX
Deposits XXX XXX
Income tax (advance tax) XXX XXX
Sales tax XXX XXX
Total Current assets XXXXX XXXXX
Current liabilities:
Trade creditors XXX XXX
Dealers deposits XXX XXX
Expenses payable XXX XXX
Total current liabilities XXXXX XXXXX
Working Capital (CA-CL) XXXXX
Net Increase / decrease XXXXX XXXXX
working capital
XXXXX XXXXX XXXXX XXXXX
Statement of Sources and Application of Funds:
Funds flow statement is a statement, which indicates various sources

for which funds have been obtained during a chain period and the uses or applications
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to which these funds have been put during that period.
 Sources of funds
 Application of Funds.
Statement of Sources and Applications
Sources of funds Amount Application of funds Amount
Funds from Operating ( profit) XXXX Funds in operations (loss) XXXX
Issue of shares and debentures XXXX Repayment of debentures XXXX
Receipts of dividend and Interest XXXX Reduction in share Capital XXXX
Sales Proceeds of Non-current XXXX Interest and dividend paid XXXX

asset
Payment of Long-term loans. XXXX
Long – term Borrowings
XXXX
Decrease in working Capital
XXXX Increase in working capital XXXX
XXXXX XXXXX
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1.2 INDUSTRY PROFILE
About the industry:-
India, in 1994 has become the 4 th largest producer of cement

in the world. This impressive record owes its origin to the progressive policies of the
government since late 70s and enabled on assured 12% post tax return on net worth
(70). It economy refers of July 91gave a further fillip by abolishing the licensing
system for setting up cement plants. Since then, innumerable technological
development look place in cement production enabling cost reduction and mass
production. The kilns of the late 70,s were replaced by dry kilns which reduced the fuel
cost by 30%. Thermal efficiency was improved by instilling pre-heaters, followed by
the addition of pre-calcinatory. Optimal usage of fuel and power we achieved through
computerization and quality control or raw materials.
In a developing country like India, the requirement of housing and
infrastructure is high and so the demand elasticity of the cement with respect to G.D.P
of 1.6% is also high.
Cement Industry in India:-
South India Industries Limited. Madras, produced cement for the first time in
India in1904. This unit, which had an installed capacity of 30 tones/day since the
partial decontrol in 1989. The cement industry has witnessed spectacular progress
mainly due to the force economic liberalization and the jettisoning of price controls
and capacity restriction.
The foundation of a stable Indian cement industry was laid in 1914 2h3n Indian
Cement Company Limited started manufacturing cement at Porbader in Gujarat. By
the end of March 1988 there were 20 large and 136 small cement plants with a total
installed capacity of 57 million tones.
In 1936, all the Cement companies (with exception of Song Valley Portland Co.
Ltd.) merged to form the Associated Cement Companies Ltd., this facilitated cost
education ads as well as uniformity in quality. By 1947 the installed capacity of the
industry rose to 2.2 million tones per annum.
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After partition, five cement-producing units in the country went to Pakistan and the
total installed capacity of the eighteen units that remained in India was 1.5 million
tones/annum. This increased to 3.8 million tones/annum 1950-51.
During sixty plan period, government approved 33 million tones to additional
capacity and about two third of this was expected to materialize during this plan period
target set intercept to additional capacity generation was realized with the impulse
given by the partial decontrol announced in 1982, several units looked up to projects
for expansion to capacity and modernization which contributed towards increased
production.
Cement industry is undergoing rapid transformation due to the merges and
acquisitions over the past few years. Some half a dozen dominant players now account
for about half of the total output that there are still as many as 51 companies and 117
cement plants in country.
A large number of small cement plants that come up during the 80’s have
disappeared. The large and efficient players have effected cost reduction through use of
captive power bulk transportation, investing in port infrastructure and reduction of
work force.
For India’s industrial economy, the 90’s have been a period of transition and
structural changes. Since the economic reforms in 1991 and the gradual opening up to
extension competition, the economic environment transformed dramatically. Following
the virtual dismantling of licensing and easing of production, pricing and distribution
controls, there has been transition form a controlled to a market-oriented economy.
While this gave the industry of greater freedom of operation External

competition took away the high level of protection it enjoyed since independence.
Now cement industry has been facing problems with indigenous coal with
large scale open east mining affecting the quality of coal marked by high content and
non-uniform quality and it includes high price and transportation cost and loss of
weight in transit.
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The focus of Mr. Jaswanth Singh’s Union Budget 2003-04 in an infrastructure

development with a proposed investment of Rs. 60,000 crore through public and
private participation. A chunk of this investment (Rs. 40,000Cr) has been proposed for
development of 48 new Road projects involving 10,000 km with 25% of this mode of
cement and concrete which will result in double digital growth in cement industry.
As on now India cement industry has been marked by significant growth in last few
years, ranking 2nd after China today with a production of 108.40 million tones last
fiscal, which is expected to touch the 113 million tones mark by the end of current
fiscal. The union budget 2003-04 has given a scope for it. It, in the words of senior
meaner, Cement manufacturers Association (CMA).
And only disappointing factor is the increase in excise duty already it is 24-
25% and will now increase by a further 4-5%. It must be released that already the total
tax at state and center amounts to one third of the price amounts to one third of the
price the consumers pay affecting the revenue of the cement companies.
Types of Cement in India:-
The types of cement in India have increased over the years with the advancement
in research, development, and technology. The Indian cement industry is witnessing a
boom as a result of which the production of different kinds of cement in India has also
increased. By a fair estimate, there are around 11 different types of cement that are
being produced in India. The production of all these cement varieties is BIS.
Some of the various types of cement produced in India are:-

 Clinker Cement
 Ordinary Portland Cement
 Portland Blast Furnace Slag Cement
 Portland Pozzolana Cement
 Rapid Hardening Portland Cement
 Oil Well Cement
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 White Cement
 Sulphate Resisting Portland Cement
In India, the different types of cement are manufactured using dry, semi-
dry, and wet processes. In the production of Clinker Cement, a lot of energy is
required. It is produced by using materials such as limestone, iron oxides, aluminum,
and silicon oxides. Among the different kinds of cement produced in India, Portland
Pozzolana Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag
Cement are the most important because they account for around 99% of the total
cement production in India.
The Portland variety of cement is the most common one among the types of cement in
India and is produced from gypsum and clinker. The Ordinary Portland cement and
Portland Blast Furnace Slag Cement are used mostly in the construction of airports and
bridges. The production of white cement in the country is very less for it is very
expensive in comparison to grey cement. In India, while cement is usually utilized for
decorative purposes, marble foundation work, and to fill up the gaps between tiles of
ceramic and marble.The different types of cement in India have registered an increase
in production in the last few years. Efforts must be made by the cement industry in
India and the government of India to ensure that the cement industry continues
innovation and research to come up with more and more varieties in the near future.
For more information click on following links:-
 Ordinary Portland Cement
 Portland Pozzolana Cement
 Portland Blast Furnace Slag Cement
 Oil Well Cement
 Rapid Hardening Portland Cement
 Sulphate Resisting Portland Cement
 White Cement
 Clinker Cement
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Ordinary Portland cement:-

Ordinary Portland Cement (OPC) is manufactured in the form of different grades,
the most common in India being Grade-53, Grade-43, and Grade-33. OPC is
manufactured by burning siliceous materials like limestone at 1400 degree Celsius and
thereafter grinding it with gypsum.
Tata Chemicals Limited is a major producer of OPC Grade 43 and 53. The value of
each of these grades of cement has been briefly mentioned below:
 Ordinary Portland Cement-Grade 43: Having been certified with IS 8112:1989

standards, Grade 43 is in high demand in India and is largely used for residential,
commercial, and other building construction purposes. It has a compressive strength of
560 kg per square cm. Today OPC 43 is most widely available in Gujarat through an
extensive distribution network.
 Ordinary Portland Cement-Grade 53: Having been certified with

IS12269:1987 standards, Grade 53 is known for its rich quality and is highly
durable. Hence it is used for constructing bigger structures like building
foundations, bridges, tall buildings, and structures designed to withstand
heavy pressure. Expert opinions and directions from technicians and
engineers are a must in this regard. With a good distribution network this
cement is available most abundantly in Gujarat.
 As such, Ordinary Portland Cement is used for quite a wide range of

applications. The chemical components of Ordinary Portland Cement are
Magnesium (MgO), Alumina (AL2O3), Silica (SiO2), Iron (Fe2O3), and
Sulphur trioxide (SO3).
Some of the big names involved in OPC manufacture are Tata Chemicals,
Ultratech Cement, and ACC cement. Ordinary Portland Cement is in great demand in
India and will continue to be used in Indian infrastructural upgradation and other
constructions.
Portland Pozzolana Cement:-

Portland Pozzolana Cement is manufactured by blending pozzolanic materials, OPC
Page 25
clinker, and gypsum either grinding them together or separately. Today Portland
Pozzolana Cement is widely in demand for industrial and residential buildings, roads,
dams, and machine foundations. Pozzolana is an important ingredient in PPC which is
commonly used in the form of:
 Fly ash
 Volcanic ash
 Silica fumes
 Calcined clay
PPC is resistant to harsh water attacks and prevents the formation of calcium
hydroxide at the time of cement setting and hydration. It withstands aggressive gases,
thermal cracks, wet cracking, etc. The BIS quality specifications for Pozzolana
materials used in PPC have been mentioned below:
 Fly ash - IS 3812:1981
 Calcined clay - IS 1344:1981
PPC is used in heavy load infrastructure and constructions such as marine structures,
hydraulic structures, mass concreting works, plastering, masonry mortars, and all
applications of ordinary Portland cement. One of the top Indian brands of Portland
Pozzolana is 'Shudh Cement' manufactured by Tata Chemicals Limited.
Shudh cement has 5 percent of the market share and is available abundantly in
Gujarat, penetrating all 3 - primary, secondary, and tertiary markets. Some of the
other big names in the Portland Pozzolana manufacture are Ultratech, Ambuja,
ACC cements, Star Cement, and Birla group.
Portland Pozzolana Cement is highly popular in India and with many cement plants
setting up jetties for transportation, initial costs would gradually decrease as well.
Portland Blast Furnace Slag Cement:-

In recent years, there has been a significant growth in the production of Portland Blast
Furnace Slag Cement and its sales have also increased considerably over the last few
Page 26
years. This has given a major boost to the Indian cement industry.
The Slag Cement of the Portland Blast Furnace is a type of cement that is hydraulic
and is manufactured in a blast furnace where iron ore is reduced to iron. The molten
slag which is tapped is quickly drenched with water, dried, and then grounded to a fine
powder. .
The manufacture of Portland Blast Furnace Slag Cement requires 75% less energy than
that needed for the production of the Portland cement. The low cost of production of
Portland Blast Furnace Slag Cement makes it cheaper than Portland cement. It is for
this reason that in recent years, the sales of Portland Blast Furnace Slag Cement.
Portland Blast Furnace Slag Cement has a typical light color and an easier 'finish'
ability. Its concrete workability is better and it has a higher flexural and compressive
strength. It is resistant to chemicals and also has more hardened consistency. This is the
reason that Portland Blast Furnace Slag Cement is used in the construction of dams,
bridges, building complexes, and pipes.
The various raw materials required for the production of Portland Blast Furnace Slag
Cement are:
 Limestone
 Iron Ore
 Iron Scrap
 Coke
The major companies producing Portland Blast Furnace Slag Cement in India are:
 J K Cement
 Grasim Industries and Ultra Tech
 ACC
 India Cement Ltd
 Gujarat Ambuja Cement Ltd
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The major countries where Portland Blast Furnace Slag Cement is exported from
India are:
 South Africa
 UAE
 Sri Lanka
 Nepal
 Bangladesh
 Australia
 Doha-Qatar
The production and use of Portland Blast Furnace Slag Cement have increased over the
years. The Indian government has undertaken several investments in the production of
the Portland Blast Furnace Slag Cement so that its quality and durability can be
improved
Oil Well Cement:-

Oil Well Cement as the name suggests, is used for the grouting of the oil wells, also
known as the cementing of the oil wells. This is done for both, the off-shore oil.
As the number of oil wells in India is increasing steadily, the sales of Oil Well Cement
have also increased. This has boosted the Indian cement industry to the extent.
Oil Well Cement is manufactured from the clinker of Portland cement and also from
cements that have been hydraulically blended. Oil Well Cement can resist high
pressure as well as very high temperatures. Oil Well Cement sets very slowly because
it has organic 'retarders' which prevent it from setting too fast. It is due to all these
characteristics that it is used in the building of the oil wells where the pressure is
around 20,000 PSI and the temperature is around 500 degrees Fahrenheit.
There are 3 grades of Oil Well Cements. Grades O is ordinary and is used
commonly; HSR is high sulphate resistant; and MSR is moderate sulphate resistant.
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Each grade is used where it is applicable at a particular range of oil well sulphate
environments, temperatures, pressures, and depths. Oil Well Cement has proved to be
very beneficial for the petroleum industry due to its characteristics.
The various raw materials required for the production of Oil Well Cement are:
 Limestone
 Iron Ore
 Coke
 Iron Scrap
The major companies manufacturing Oil Well Cement in India are:-

 ACC
 Gujarat Ambuja
 India Cement Ltd.
 J K Cement
Rapid Hardening Portland cement:-
Rapid Hardening Portland Cement (RHPC) is a type of cement that is used for special
purposes when a faster rate of early high strength is required. RHPC has a higher rate
of strength development than the Normal Portland Cement (NPC).
The Rapid Hardening Portland Cement's better strength performance is achieved by
increasing the refinement of the product. This is the reason that its use is India.
Rapid Hardening Portland Cement is manufactured by fusing together

limestone (which has been finely grounded) and shale, at extremely high temperatures
to produce cement clinker. To this cement clinker, gypsum is added in small quantities
and then finely grounded to produce Rapid Hardening Portland Cement. It is usually
manufactured using the dry process technology. Rapid Hardening Portland Cement is
used in concrete masonry manufacture, repair work which is urgent, concreting in cold
weather, and in pre-cast production of concrete. Rapid Hardening Portland Cement has
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proved to be a boon in the places where quick repairs are required such as airfield and
highway pavements, marine structures, and bridge decks.
The Rapid Hardening Portland Cement should be stored in a dry place, or
else its quality deteriorates due to premature carbonation and hydration. As the Indian
cement industry produces Rapid Hardening Portland Cement in large quantities, it is
able to meet the domestic demand and also export to other countries. The cement
industry in India exports cement mainly to the West Asian countries.
The raw materials required for the manufacture of Rapid Hardening Portland Cement
are:
 Limestone
 Shale
 Gypsum
 Coke
The major companies producing Rapid Hardening Portland Cement in India are:
 ACC
 Gujarat Ambuja
 J K Cement
 Grasim Industries
 Indian Cement Ltd.
Sulphate Resisting Portland cement:-
Sulphate Resisting Portland Cement (SRC) is a type of Portland cement
in which the quantity of tricalcium alumiante is less than 5%. It can be used for
purposes wherever Portland Pozzolana Cement, Slag Cement, and Ordinary Portland
Cement are used. The use of Portland Sulphate Resisting Cement has proved
beneficial, particularly in conditions where there is a risk of damage to the concrete
from sulphate attack. The use of Sulphate Resisting Portland Cement is recommended
in places where the concrete is in contact with the soil, ground water, exposed to
seacoast, and sea water. In all these conditions, the concrete is exposed to attack from
sulphates that are present in excessive amounts, which damage the structure. This is
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the reason that the use of the Sulphate Resisting Portland Cement have increased in
India.
The Sulphate Resisting Portland Cement should be kept in a place which is dry
otherwise through premature hydration and carbonation the quality of cement
deteriorates. The cement industry in India manufactures Sulphate Resisting Portland
Cement in large quantities so that it is able to meet the domestic demand and also
export to other countries as well. The Indian cement industry exports cement chiefly to
the West Asian countries.
The various uses of Sulphate Resisting Portland Cement are:
 Underground and basements structures

 Works in coastal areas
 Piles and foundations
 Water and sewage treatment plants
 Sugar, chemical, and fertilizers factories
 Petrochemical and food processing industries
The raw materials required for the production of Sulphate Resisting Portland Cement
are:
 Coke
 Limestone
 Iron Ore
 Iron Scrap
The major companies manufacturing Sulphate Resisting Portland Cement in India are:
 ACC
 J K Cement
 Indian Cement Ltd
 Grasim Industries
 Gujarat Ambuja
Sulphate Resisting Portland Cement has proved beneficial for construction purposes in
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India due to its climatic conditions. The cement industry in India must take steps in
order to ensure that its quality is improved and to ensure that it is readily available in
market.
The Sulphate Resisting Portland Cement should be stored in a dry place, or else its
quality deteriorates due to premature carbonation and hydration. As the Indian cement
industry produces Sulphate Resisting Portland Cement in large quantities, it is able to
meet the domestic demand and also export to other countries. The cement industry in
India exports cement mainly to the West Asian countries.
White Cement:-
White Cement has registered growth in production and sale in India in the last few
years. The White Cement sector has been growing at the rate of 11% per year. This has
given the Indian cement industry a major boost.
White Cement is much like the ordinary grey cement except that it is white in color. In
order to get this color of the White Cement, its method of production is different from
that of the ordinary cement. However, this modification in its production method
makes White Cement far more expensive then the ordinary cement.
The production of White Cement requires exact standards and so it is a product which
is used for specialized purposes. White Cement is produced at temperatures that hover
around 1450-1500 degrees Celsius. This temperature is more than what is required by
the ordinary grey cement. As more energy is required during the manufacture of White
Cement, it goes to make it more expensive than the ordinary grey cement.
White Cement is used in architectural projects the use of white cement has been
specified. It is used in decorative works and also wherever vibrant colors are desired.
White Cement is used to fill up the gaps between marble and ceramic tiles for beautiful
finish.
The various raw materials required for the production of White Cement
are: -
 Limestone
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 Sand
 Iron Ore
 Nickel
 Titanium
 Chromium
 Vanadium
The major companies producing White Cement in India are:-
 ACC
 J K Cement
 Gujarat Ambuja Cement Ltd.
 India Cement Ltd.
The major countries where White Cement is exported from India are:-
 UAE
 Australia
 South Africa
 Sri Lanka
 Doha- Qatar
 Bangladesh
 Nepal
Clinker Cement:-
Clinker Cement has registered a growth over the last few years in India.
The Indian cement industry is growing at a rapid pace and this has given a major boost
to the production and sale of Clinker Cement in India. The cement industry in India is
highly technologically intensive and as a result, the quality of clinker cement that is
produced in India is of a very high grade and is often considered among the best in the
world. The production of Clinker Cement requires a lot of energy because it needs to
Page 33
be manufactured at the temperature of around 1400-1450degree Celsius.

The various raw materials required for the production of Clinker Cement are:-
 Iron Ore
 Bauxite
 Clay
 Limestone
 Quartz
Clinker Cement in India is produced in such large quantities that it is able to meet the
domestic demand and is also exported. In 2001- 2002, 1.76 million tons of clinker
cement were exported. In 2002- 2003, that figure stood at 3.45 million tons, and in
2003- 2004 5.64
Million tons of clinker cement was exported from India. This shows that the export of
clinker cement from India has been increasing gradually but steadily.
Clinker Cement is usually ground with calcium sulphate so that it becomes
Portland cement. It is also ground with other ingredients to produce Pozzolanic
Cement, Blast Furnace Slag Cement, and Silica Fume Cement. If Clinker Cement is
kept in a dry condition, it can be stored for a long period of time without any loss of its
quality. It is for this reason that Clinker Cement is preferred in construction of houses
Etc.
The major companies producing Clinker Cement in India are:
 ACC
 Gujarat Ambuja Cement Ltd.
 JK Cements
Page 34
1.3 COMPANY PROFILE
The name Lanco has been derived from the promoter of the Group Shri.
Lagadapati Amarappa Naidu. The Lanco group is a diversified multi faced
conglomerate with the business interests in Pig Iron, Cement, Power, Graded Castings,
Spun Pipes, Information Technology and Infrastructure Development. Young
technocrats with exceptional entrepreneur skills promote the Lanco Group with a
mission and a great vision and the top agenda to put the group on the global corporate
may be during the next 10 years.
"Economy builds the nation and industry builds the economy"
LANCO industries limited are one of the best mini-blast furnace pig iron
manufacturing units in our country and it was 5th plant under TATA - KORE
technology. The company was incorporated on 1st November 1991 under company's
act-1956, in the name of LANCO FERRO LTD.,
THE COMPANY started construction work in august 1993. The entire
construction work was completed in a record time of 12 months. This was achieved by
teamwork of LANCO collective and the best efforts of the contractors. With this
achievement the company started commercial productions in September 1994.
The name LANCO Ferro limited was changed to LANCO INDUSTRIES
L1MITDED ON JULY 6th, 1994.
Lanco Industries Limited is located in between Tirupathi and Srikalahasti with
an access of about 30kms from Tirupati and about Rachagunneri village, Srikalahasti
Mandal of Chittoor district Andhra Pradesh is as follows
 Cheap availability of required land.
 There is more water resource.
 The distance between the harbor and present work spot is less.
 Proximity to raw materials.
 Proximity to marketing.
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 To have financial subsidy.

 Nearer to the railway sidings.
 Well connected to the road, rail and port.
 Availability of labour.
LANCO industries are importing coke from china, Japan and Australia
because; there is scarcity of prime cooking coal, which is the raw material for
producing coke. The coke, which is imported, comes to Chennai port. This is
approximately 100km away from the site. And from there is brought to site, and also
fluxes. Which are required to produce pig iron like Limestone, Dolomite, Quartzite and
Manganese, are available in near by districts.
Administration :-
Administration
Managing director General manager Financial manager HR

manager
The general administration of the company is carried out by managing director,

and general managers of finance. Commercial, operations, materials, purchase, human
resource and administration.
The chairman and managing director are holding Overall control on
administration in all aspects, with the help of Vice-President and-other General
Managers.The board consists of five member's directors, Vice-Chairman, a
ManagingDirector and a Company Secretary.
Lanco industries limited:-
Established in the year of 1993. An ISO 9002 Company, it had setup a state of
the art integrated manufacturing facility for Pig Iron through mini-blast furnace route
conforming to the latest international technology with initial capacity of 1,00,000 TPA.
Its quality products of S G-Grade pig iron are being supplied to foundries in the
south. As a forward integration, it has utilized the slag produced in the Pig Iron are
being supplied to foundries in the south.
Page 36
As a forward integration, it has utilized the slag produced in the Pig Iron
manufacturing process to install the cement plant is being met through a 2.5 mw co-
generation power plant. Due to severe completion and survival, company has increased
the production capacity from 90,000 TPA to 1, 50,000 TPA from 2003.
Location:-
A Lanco industry limited is a rural based factory sprawling over many areas of
land with deep resources and congenial soil. It is located in Rachagunneri village near
Tirupati. Nearly 50% of the consumption of electrical power is supplied by APSES,
Government of Andhra Pradesh and other 50% of power is maintained by the company
owned Dg sets and power plants.
Since it is a rural area labour potential is available and also company is
enjoying the subsides from state government. the Lanco group is a diversified
multifaceted onglo merale, with business interests I n Pig Iron, Cement, Power Graded
Castings, Spun Pipes, Real Estate Development, Information Technology a past from
infrastructure use development promoted by entrepreneurial skills and the agenda to
put the group on the global corporate map during the next 10 years
Lanco Kalahasti Castings Limited (LKCL)
Merged with Lanco Industries Limited:-
Established in 1997 and strategically located in close proximity to the mini-

blast furnace of the Pig Iron Plant, it has a clear economic mileage over other casting
sites. The molten metal from the blast furnace is directly used as a basic raw material
to produce graded castings, cast iron pipes and Ductile iron spun pipes with a capacity
of 60,000 TPA, which will be gradually expanded for the to meet the surging demand
of the products.
The ups to the pipe plant will be met through 10 MW captive power plants. To
emerge to enhance the necessities and the self-sufficiency, it was decided to enhance
the production capacity from 60,000 TPA to 90,000 TPA from 2003.
Brief History of LIL since Incorporation till Date:-
Page 37
Lanco Industries Limited (LIL) was incorporated on 1st November 1991 by

Lanco Group of Companies to manufacture Pig Iron using Korf (German) technology
and Cement. The unit is located at Rachagunneri Village on Tirupati Srikalahasti road,
which is about 30Kms from Tirupati and 10Kms from Srikalahasti. The installed
capacity of Pig Iron was 90,000 TPA and with similar capacity 90,000 TPA for cement
As a measure of forward integration project for adding value to the Pig Iron
manufactured by the Company, LIL floated an another company named Lanco
Kalahasti Castings Limited (LKCL) on 4th March 1997 to manufacture iron castings
and spun pipes in the same campus of the Company with an annual capacity of 40,000
TPA and 35,700 TPA respectively. However, due to falling Pig Iron prices, increase
additional capacity in the industry, competition and the technical and financial
assistance, the operations of both LIL and LKCL were affected and the Company was
exploring financial and technical strategic alliance with Indian 1st Foreign Partner.
During the same time Mrs. Electrosteel Castings Limited, was also
looking for additional capacities for producing spun pipes. Considering the synergies
involved, Lanco Industries Limited entered into a strategic alliance partnership during
December 2002, with MIs. Electro steel Castings Limited (ECL), Calcutta a. leading
manufacturer of CI, Pipes and DI pipes. This was win-win situation for both L1L and
ECL.After takeover, a financial re-engineering and re-structuring of LIL was
undertaken by ECL by implementing the following
 Immediately after take over an amount of RS.2200 lakhs was infused as
share capital of the Company by Mis ECL to strengthen the equity base of the
company.
 During 2002, the capacity of Pig Iron was increased from 90,000 TPA to
150,000 TPA. With effect from 1st April, 2002 LKCL was merged with the company to
take advantage of the close synergy in the business of the two companies, since a large
part of Molten Iron/Pig Iron is consumed by LKCL for manufacture of 01 Pipes.
 After the merger, the share capital of LIL, the paid up share value of
RS.101- was reduced to RS.2.50 per share and accordingly one share of RS.101- each
fully paid up in LIL was issued to all the existing shareholders for every 4 shares held
by them. Using 2003, the capacity of the 01 pipe was increased to 90,000 TPA.
Page 38
 During 2004, the company took the step of backward integration by setting
up 150,000 TPA coke oven plant in the same complex, which was commissioned in
June 2005.
 During 2005, the company started setting up of a Captive Power Plant of 12
MW by using the waste heat recovered from the coke oven plant which is expected to
be commissioned by March 2006.
 An additional amount of RS.25crores is being spent on other capital works
like revamping of bitumen coatings machine, balancing equipment and facilities for
production of higher diameter DI pipes etc. to increase the capacity of 01 pipe from the
present 90,000 TPA to 120,000 TPA by 2006-07.
The above has resulted in the company witnessing a profitable years after a gap of 8
years during the years ended 31st March, 2003, 2004 and 2005 and a dividend of 10%
was declared for the years ended 31 st March 2004 and 2005 to the shareholders.
Page 39
Page 40
Corporate information
Directors : Shri G. Maruthi Rao

Shri Gouri Shankar Rathi
Shri L. Madhusudhan Rao
Shri G. Bhaskara Rao
Shri L. Sridhar
Shri P.M. Suresh (Nominee of IDBI)
Shri Vinod Kumar Agrawal, IAS
Managing Director : Shri Mayank Kejriwal
Sr. General Manager : Shri G.D. Saini

Finance & Company
Secretary
Auditors : M/s. K.R. Bapuji & Co.
Solicitors : Khaitan & Co.
Bankers : ICICI Bank Ltd.

HDFC Bank Ltd.
IDBI Bank Ltd.
Standard Chartered Bank
Punjab National Bank
Bank of India
Andhra Bank.
Registered Office & Works : Rachagunneri-517 641

Srikalahasti Mandal
Chittoor District
Andhra Pradesh.
Share Transfer Agents : M/s. Karvy Computershare

Pvt.Ltd
Plot No. 17-24, Beside Image Hospital
Vittalrao Nagar, Madhapur
Hyderabad-500 081
.
Page 41
GROUP OF COMPANIES
POWER PROJECTS:-
With operational experience in gas, wind and biomass- based power projects
and a strong foothols in coal and hydropower generation, LANCO is emerging as a key
player in the Indian power sector.
INFORMATION TECHNOLOGY:-
LGS is a strategic initiative to provide world-class Information Technology solutions

to global customers, delivering them maximum business value through continuous
innovation.
Page 42
CIVIL CONSTRUCTION:-
Power projects, industrial structures, institutional facilities, mass housing, water
supply projects, flyovers and bridges such varied operations serve to explicate the
diversification roadmap of LANCO.
PROPERTY DEVELOPMENT:-
Being a Pioneer in Civil Construction and Infrastructure
Development, LANCO is venturing into property Development with the winning of the
bid for IT Parks-cum-Commercial and residential complex in Hyderabad and
Visakhapatnam of Andhra Pradesh.
Page 43
MANUFACTURING:-
Being one of the largest integrated foundried in India with Ductile Iron Spun
Pipes, Metallurgical Coke, Pig Iron and Slag cement as products; LANCO has a
towering presence in the Indian manufacturing sector.
STATEMENT OF THE PROBLEM
Funds flow statements are major tools in the hands of the finance management
and analyzing the existing data. Funds flow statements are calculated for finding the
trend in liquidity position, marginal solvency and utilization of funds and inventory
maintenance over a period of time. This study mainly focuses in above said area by
using financial ratios.
Page 44
CHAPTER-2
2.1 Need for the study
2.2 Scope of the study
2.3 Objectives of the
study
2.4 research methodology
2.5 limitations of the
study
Page 45
2.1 NEED FOR THE STUDY
The main need of the study is to study the sources and applications of funds in the
company and methods to evaluate the financial performance of the company.
 With the help of funds flow statements to evaluate the pattern of the firm.
 The funds flow reveals clearly the causes for the financial difficulties of the
company.
 To know about the need of the funds for the growth of the firm.
 To know the working capital position of the company.
 With the help of the funds flow statements we can estimate the cash balance
of the company.
 To find out the out flow and inflow of the funds.
Page 46
2.2 OBJECTIVES OF THE STUDY
The major objective of the study is to assess the inflow and outflow of the funds in the
LANCO INDUSTRIES LIMITED. The specific objectives of the study are:
 To analyze the funds flow operations.
 To identify sources and applications of the funds.
 To suggest some measures to improve the performance of the company.
Page 47
2.3 SCOPE OF THE STUDY
The scope of the study covers the previous five years financial reports of the company.
 An extensive study is done on the investment made by LANCO INDUSTRY; on

its funds flow statements and its adequacy, and the factors determining that
investment.
 The study concentrates on the liquidity position of the firm and the brief study.
 The technique used by the firm of the management of its current assets and
sources though which the finance of the funds flow statement in availed for the
firm.
 The study covers all the financial information of the firm.
Page 48
3.4 RESEARCH METHODOLOGY
Research:
“A systematic search for an answer to a question or a solution to a problem is
called research.”
“Research is the process of systematic and in depth study or search for any
particular topic, subject area of investigation, collection, presentation and
interpretation of relevant details of data.”
Secondary source:
The data which is collected from the published sources that is for the first time is called
secondary data.
The secondary data for the study is collected from the annual reports of lanco
industries from 2013-18.
Tools Used:
 Funds flow statement
 Funds from operations
Page 49
3.5 LIMITATIONS OF THE STUDY
The funds flow analysis of the organization fully depends upon the secondary data. The
primary data were used only to throw light on the company's history and growth. Thus
the following are the main limitations of the study.
 These statements were over all reports (2013-2014, 2014-2015, 2015-2016,

2016-2017, and 2017-18). Hence it is a postmortem analysis of the financial
statement.
 The figures taken from the financial statement like profits and loss accounts
and balance sheets were historical in nature.
 Time value of money is not being considered.
 Availability of accurate financial information and analytical reports of the

company may limit. So, the analysis of the study to some extent.
 Time is also a limiting factor of the study because the analysis of the project
is restricted for a period of 8 weeks only.
 The members of financial department are very busy with the audit work,
hence they are not be able to spend time more for me.
Page 50
CHAPTER – 3
THEORETICAL
BACKGROUND
Page 51
THEORETICAL BACKGROUND
In our present day economy, finance is defined as the provision of money at
any time when it is required. Every enterprise, whether big, medium and small, needs
finance to carry out its operations and to achieve its targets. In fact, finance is so
indispensable today that it is rightly said that it is the lifeblood of an enterprise.
Without adequate finance, no enterprise can possibly accomplish its objectives.
Finance may be defined as the provision of money at the time when it is

required. Finance refers to the management of flows of money through an organization.
It concerns with the application of skills ion the manipulation uses and control of
money divestment authorities have interpreted the term finance differently.
Finance is concerned with the task of providing funds to the Enterprises on the
term that is most favorable towards the attainment of the Organizational goal’s objects.
The function of finance is not merely Furnishing funds to the organization. Finance
has a broader meaning and it covers financial planning, forecasting of cash receipts and
disbursements, rising of funds, use and allocation of funds and financial control. The
area of operation of finance manager is vague from one compact to another and
industry – to – industry etc.
There are many definitions of finance of all the best was of Howard and Upton.
“That administrative area of set of administrative area of organization will have the
means to carryout as objectives to satisfactorily as possible and at the same time meet
its obligations as they become due”.
FUNDS FLOW ANALYSIS

funds and is a report of the financial operations of the business undertaking. It
and the ways in which these funds were employed.
Page 52
In simple, the funds flow statement is a statement of sources and

application of funds. In short, it is a technical device designed to high light the
change in the financial condition of a business enterprise between two Balance
Sheets.
Funds flow statement is widely used by financial analyst and credit

granting institution and financial managers in performance of their jobs. It has
become a useful tool in their analytical kit. This is because the financial
statement like income statement and balance sheet have limited role to perform.
However, financial analyst must know the purpose for which the loan was
utilized and the source from which it has rises. This will help him in making a
better estimate about the company's financial position and policies.
DEFINITION
 Funds flow statement in “a statement either prospective or re-retrospective

setting out the sources and application of the funds of an enterprise. The
purpose of the statement is to indicate clearly the requirement of funds and
how they are propose to be raised and efficient utilization and application
of the same.
 A financial statement with summary for the period covered by it, the
changes in financial position including the sources from which funds were
obtained by the enterprise and specific uses to which funds were applied.
 A statement of funds received and expanded a statement of changes in

financial position or sources and application of funds in which elements of
net income and working capital contributing to an understanding of the
whole of financial operation during the reporting period replace total of
these items.
Concepts of Funds
Funds in the narrowness sense of the term as are equated to cash. But in the
Page 53
broader sense and appropriate one here, it refers to working capital that is current
assets less current liabilities.
Working capital=current assets-current liabilities
A still broader interpretation of the term “funds” has been given by some
accountants, and according to them funds includes all resources used in the business
whether in the form of men, material, money, machinery and other.
But it is not relevant for the purpose of flow statement. The most common
definition of fund is working capital since they use the term working capital as
synonym to current assets. How ever for the purpose of this book and present chapter
too, the term working capital has been taken as equivalent to the difference of current
assets and current liability.
Concept of flow
The dictionary meaning of the word flow is movement denoting change
Therefore, whenever there is a change of funds that is either increase or decrease there
is a flow of funds. There must be some cause of change- the cause may result in either
raising the funds inflow of funds there by becoming a source of fund or the cause may
lead depletion of funds that is out of funds, implying there by an application or use of
funds in other words source of funds show the reasons of increase in funds that is
working capital and application of funds reveal the reasons of decrease in funds that is
working capital.
Funds flow statement
funds and is a report the financial operations of the business undertaking. It
and the ways in which these find were employed.
In simple, the funds flow statement is a statement of sources and

application of funds. In short, it is a technical device designed to high light the
change in the financial condition of a business enterprise between tow Balance
Page 54
Sheets.
According to Robert Anthony "the funds flow analysis describes the

sources for which additional funds were derived and the uses to which these
funds were put.”
According to Fouke, "A Statement of sources and Applications of funds

is a technical device designed to analyze the changes in the financial position of
a business enterprise between two periods.”
Funds flow statement is widely used by the financial analyst and credit
granting institution and financial managers in performance of their jobs. It has
become a useful tool in their analytical kit. This is because the financial
statement like income statement and· balance sheet have limited role to perform.
Income statement measures flows restricted to transaction that pertain to

rendering of goods and services to customers. The balance sheet is merely a
static statement's these statements do not sharply focus those major financial
transactions, which have behind the n\balance sheet changes.
Uses, significance and importance of funds flow statement
Analysis of financial operations
A funds flow statement shows bow the resources have beer obtained and
the uses to which they are put.
The funds flow statements determining the financial consequences of

business operation. It also useful in guiding whether the firm has expanded at
too fast rate and whether financing is strained, it also point out to the
effectiveness with which the management has handled working during the
period under review.
Evaluation of the firms
This statement can consist the financial manager in planning intermediate

and long-term finance for obtaining sources in the further and determining how
Page 55
they are to be used. That is analysis of the major sources of funds in the past
reveals what positions of the firms growth was financed internally and what
position externally.
General Rule
The flow of funds occurs when a transaction changes on the one hand a
non-current account and vice versa.
 A current asset and a fixed asset.
 A fixed asset and a current liability.
 A current asset and a fixed liability.
 A fixed liability and a current liability.
Uses-of Funds Flow Analysis
 It helps in the analysis of financial operations.
 It throws light on many perplexing question of general interest.
 It helps in the formation of a realistic dividend policy.
 It helps in the proper allocation of resources.
 It acts as a future guide
Limitations of funds Flow Analysis
 It is essentially historic in nature and projected funds flow statement

cannot be prepared with much accuracy.
 It cannot be reveal continues changes.
 It is not an original statement but simply a re - arrangement of data given

in the financial statements.
Different names of funds Flow Statement
A statement of sources and Uses of funds.
 A statement of Sources and Application of funds.
Page 56
 Where got and where gone Statement.
 Inflow and out flow of funds statement.
Main purpose of funds Flow Statement
 To help to understand the changes in assets and which are not

evident
 Financial statements or I the income statement.
 To inform on to how the loans to the business has been used.
 To point out the financial strengths and weakness of the business.
 To help in planning sound dividend policy.
 Procedure for preparing a Funds Flow Statement
 The preparation of funds flow statement consists of some parts
 Statement or schedule of changes in working capital.
 Statement of application of funds
 Statement of sources of funds.
 Finding out the hidden transactions or changes in non-current assets

and non-current liabilities.
 The difference of these two parts is change in working capital. When

sources of funds exceed the application of funds, it is increase in
working capital and when application of funds exceeds the sources, it
is decrease.
Funds Flow Statement presents those items only which affect the working
capital. If any transaction does not affect the working capital at all i.e., if it
results in increase or decrease in both current assets and current liabilities (such
as payment to creditors) or it affects only fixed assets and fixed liabilities (such
as conversion of debentures into shares, or shares into stocks or vice versa, issue
of bonus shares, purchase of fixed assets like building or machinery by issue of
Page 57
shares or debentures etc.), it is not to be shown in funds Flow Statement.
1. Loss from operations. Loss from operations either decreases the current
assets or increases the current liabilities or in other words reduces the funds. It
may either be shown as application of funds in the Funds Statement or as a
reduction in sources of funds.
2. Purchase of Fixed Assets. If any fixed asset like building, machinery,

furniture or investments is purchased, it will reduce the current asset without any
corresponding decrease in current liability. It is, thus, an application of funds.
Purchase of asset against issue of share capital is not application of funds.
3. Repayment of loans: Redemption of Debentures or preference share capital.
Any such repayment including the payment of premium on redemption of
debentures or preference shares is an application of funds because it reduces the
current assets.
4. Payment of Dividend. Payment of dividend (and not proposed dividend) is an

application of fund if paid in cash. If bonus shares are issued, it shall not be treat
application of funds.
5. Other Applications. Any loss such as embezzlement, compensation,

donations etc. involving cash, is an application of fund.
6. Increase in Working Capital. Increase in working capital (as per schedule of

changes in working capital) represents investment in current assets hence it is an
application of funds. In other words, the excess of sources over application of
funds is increase in working capital.
Sources of Funds
1. Issue of Share Capital. If there is any increase in share capital it denotes

issue of additional shares during the period. Issue of shares is a source of
funds as it constitutes inflow of funds
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2. Issue of debentures of long term loans. Issue of debentures, accepting

public deposits, and raising long term loans results in the flow of funds.
3. Sale of fixed assets or long term investments. When any fixed asset like
land, Building, machinery, Furniture on long term investments etc. are
sold, it generate funds and becomes a source of funds.
4. Non-Trading income. Any non-trading receipts like dividends, rent, and

interest etc.
5. Decrease in Working Capital. if working capital is decreased during the

accounting period, when compared with previous period, it denotes
release of.
Statement or Schedule of changes in Working Capital
The increase or decrease in working capital can be calculated by

preparing the schedule of changes in working capital.
Working capital means the excess of current assets over current liabilities.
Statement of changes in working capital is propose to show the changes in the
working capital between two balance sheets data. This statement is prepared
with the help of current assets and current liabilities derived from two balance
sheets.
While preparing a schedule of changes in working capital, it should be

note that
 Increase in Current Assets, Increases the Working Capital.
 Decrease in Current assets, Decreases the Working Capital.
 Increase in Current Liabilities, Decreases the working capital.
 Decrease in Current Liabilities, Increases the Working Capital.
 An increase in current assets and increase in current liabilities does

not affect working capital.
Page 59
 A decrease in current assets and decrease in current liabilities does not

 Changes in fixed (non-current) assets and fixed (non-current) liabilities

The changes in all current assets and current liabilities are merged into
one figure only either an increase of decrease in working capital over the period
for which funds statements has been prepared.
If the working capital at the end of the period is more than the working
capital at the beginning the difference is expresses as “increase in working
capital”. On the other hand, if the working capital at the end of the period is less
than at the commencement, the difference is called “decrease in working
capital”.
Working Capital = Current assets – Current Liabilities
Current Assets
The expression ‘current assets’ denotes those assets, which are

continually on the move. Since they are constantly in motion, they are known as
the circulating capital of the business. These assets can or will be converted into
cash during a complete operating cycle of the business.
Current assets include

Stock-in-trade or inventories,

Debtors,

Payments in advance or prepaid expenses,

Stores,

Bills receivable,

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Cash at bank,

Cash in hand and

Work-in-progress etc.
Current Liabilities
‘Current Liabilities’ are those liabilities, which are to be paid in the near
future, i.e., during a complete operating cycle of the business.
Current liabilities include

Trade creditors,

Accrued or outstanding expenses,

Bills payable,

Income tax payable,

Dividends declared and

Bank overdraft.
NOTE - ACCORDING TO THE EXPERTS OPINION ‘BANK

OVERDRAFT’ HAS A TENDENCY TO BECOME MORE OR LESS
PERMANENT SOURCE OF FINANCING AND HENCE IT NEED NOT BE
INCLUDED AMONG ‘CURRENT LIABILITIES’.
Differences between funds flow and balance sheet
Balance sheet is a statement showing the financial position of the concern

on a particular date. The asset side portrays the development of resources in
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various types of properties an liabilities side indicates the manner in which these
resources are obtained. It shows all assets and liabilities whether current or fixed,
tangible or intangible etc., while Funds Flow Statement shows the changes in
current assets an current liabilities during a particular period of time.
Balance Sheet shows the total financial position on a particular date and
in this way, it is of a historical nature and therefore, its utility is very limited for
the management. On the other hand, Funds Flow Statement is a comparative
statement of assets and liabilities and depicts the changes in working capital
during the period of two Balance sheets.
Funds Flow Statement is an analysis and control device for the

management. Management can ensure the long term and short term solvency of
the firm by studying the internal funds flow cycles. It is a modern technique of
knowing the inflows and outflows of funds during a particular period. Balance
Sheet represents the balance of various assets and liabilities and does not present
analysis of any kind.
There are two views of h financial position of the firm-long term a short-
term. Short-term financial position means the technical solvency of the firm in
the near future while on the other hand, long-term financial position means
future financial structure of the firm. Both are inter-relate but there is a
differences in their analysis.
Differences between funds flow and cash flow
Funds Flow Statement is concerned with all items constituting funds

(Working Capital) for the business while Cash Flow Statement deals only with
cash transactions. In other words, a transaction affecting working capital other
than cash will affect Funds statement, and not the Cash Flow Statement.
In Funds Flow Statement, net increase or decrease in working capital is

recorded while in Cash Flow Statement; individual item involving cash is taken
into account.
Page 62
Funds Flow statement is started with the opening cash balance and closed
with the closing cash balance records only cash transactions.
Cash Flow Statement is started with the opening cash balance and closed
with ht closing cash balance while there a no opening or closing balances in
Funds Flow Statement.
CHAPTER-4
DATA ANALYSIS
AND
INTERPRETATION
Page 63
TABLE 4.1 : STATEMENT OF CHANGES IN WORKING CAPITAL 2013-14

Changes in working capital
Particulars 2013 2014
Increase Decrease
Current assets (CA)
Inventories 7,075.18 9,194.08 2118.90 -
Sundry debtors 7,197.89 6,706.59 - 491.30
Cash and bank balances 247.72 350.67 102.95 -
Loans and advances 1,616.75 2,070.42 453.67 -
Total current assets 16,137.54 18,321.76
Current liabilities (CL)
Current liabilities 8,090.45 9,202.11 - 1111.66
Provisions 586.14 354.42 231.72 -
Total current liabilities 8,676.59 9,556.53
Net working capital 7,460.95 8,765.23 - -
Increasing working capital 1,304.28 - - 1,304.28
Total 8,765.23 8,765.23 2,907.24 2,907.24
Net increase in working capital Rs.1, 304.28
Interpretation: -
From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have increase
from Rs16, 137.54. in 2013 to Rs18,321.76 in 2014.
But the bank balance decreased from Rs.247.72 to Rs.350.67 i.e.102.95 . The
total current liabilities increase from Rs.8,676.59 to Rs.9,556.53 The net working
capital increases Rs.1,304.28.
Page 64
TABLE 4.2 : ADJUSTED FUND FROM OPERATIONS P&L A/C

FOR THE YEAR OF 2013-2014
Particulars Amount Particular Amount
Deferred tax liability 787.50 Funds from operation 1,198.57

411.07
Capital W-in-Progress
Total 1,198.57 Total 1,198.57
TABLE 4. 3 : Statement of Sources and Applications of Funds for the

year ending at 31st March 2014.
Sources Rs Applications Rs
Unsecured loan 5,480.37 Purchase of fixed assets 3,921.37
Reserves & surplus 188.32 Secured loans(paid) 1,641.55
Funds from operation 1,198.57
Net increase in working
capital 1,304.28
6,867.20 6,867.20
Interpretation: -
It is evident from the above table the total funds during the period from 2013-
2014 amounts to Rs. 6,867.20.
In the application side we can see the 57% of funds were utilized for purchasing
of assets, 24% of funds were utilized to Secured loans and % 19 of funds were utilized
for working capital.
In the sources side 80% of funds were received through unsecured loans and
remaining 20% of funds were received through reserves & surplus and funds from
operations.
Page 65
TABLE 4.4 : STATEMENT OF CHANGES IN WORKING

CAPITAL 2014-15

Increase Decrease
Current assts (CA)
Inventories 9,194.08 10,636.86 1,442.78 -
Sundry debtors 6,706.59 7,667.92 961.33 -
Cash and bank balances 350.67 2,650.37 2,299.7 -
Loans and advances 2,070.42 5,241.68 3,171.26 -
Total Current Assets 18,321.76 26,196.83
Provisions 354.42 538.25 - 183.83
Total 15,470.24 15,470.24 7,875.07 7,875.07
Net increase in the working capital is Rs. 6,705.01
Interpretation:
company shows increasing trend. The total current assets of the company have
increased from Rs.18,321.76 in 2014 to Rs.26,196.83 in 2015.
And the bank balance increased from Rs.350.67 to Rs.2,650.37
i.e.,2,299.70 . The total current liabilities increased from Rs.9,556.53 to Rs.10,726.59.
The net working capital increases Rs.6,705.01.
Page 66

Differed tax liability 569.59

Capital working in progress 4,849.57 Funds from operation 5,419.16
Total 5,419.16 Total 5,419.16
TABLE 4.6 : Statement of Sources And Applications Of Funds for the

year ended at 31st March 2015.
Sources Amount Applications Amount
Reserves & surplus 1,115.58 Purchase of fixed assets 5,632.38
Secured loans 7,138.11 Unsecured loans 1,335.46
Net increase in working 6,705.01
capital
13,672.85 13,672.85
Interpretation:
It is evident from the above table the total funds during the period from
2014-15 are of amounted Rs.13,672.85 lakhs.
The acquisition of funds through taking secured loans of 52%, reserves &
surplus8% and funds from operation are of 40%.
The application of funds is unsecured loans 10%, purchase of fixed assets 41%,
utilized for working capital 49%.
Page 67

CAPITAL 2015-16

Increase Decrease
Current assts (CA)
Inventories 10,636.86 12,092.91 1,456.05 -
Sundry debtors 7,667.92 8,814.31 1,146.39 -
Cash and bank balances 2,650.37 420.10 - 2,230.27
Current liabilities 10,188.34 9,319.38 868.96 -
Provisions 538.25 711.30 - 173.05
Total 16,586.30 16,586.30 3,519.38 3,519.38
Net increase in the working capital is Rs.1,116.06
Interpretation:
increased from Rs.26,196.83 in 2015 to 26,616.98 in 2016.
But the bank balance decreased from Rs.2,650.37 to Rs.420.10 i.e.,
2,230.27. The total current liabilities decreased from Rs.10,726.59 to Rs.10,030.68. The
net working capital increases Rs.1,116.06.

Page 68
Deferred tax liability 1,395.75

Total 1,395.75 Total 1,395.75
TABLE 4.9 : Statement of Sources and Applications Of Funds for the

year ended at 31st March 2016.
Reserves & surplus 2,071.06 Capital work in progress 107.56
Secured loan 1,449.41 Purchase of fixed assets 2,230.27
Funds from operation 1,395.75 Unsecured loan 1,462.33
Net increasing in working
capital 1,116.06
4,912.22 4,912.22
Interpretation:
It is evident from the above table that the total flow during the period from
2015-2016 amounts Rs.4,912.22.
In the total funds 30% of funds were received through secured loans, 42% of
funds received through reserve & surplus, 28% of funds received from funds from
operation.
Regarding application of the funds the 45% were invested in fixed assets i.e.
purchase of fixed assets, 32% of funds were utilized for unsecured loans & W-I-P and
remaining 23% of funds were utilized for working capital.

CAPITAL 2016-17
Particulars 2016 2017 Changes in working capital
Page 69
Increase Decrease
Current assts (CA)
Inventories 12,092.91 14,436.48 2,343.57 -
Sundry debtors 8,814.31 11,966.16 3,151.85 -
Cash and bank balances 420.10 3,550.27 3,043.56 -
Provisions 711.30 774.95 - 63.65
Increased working capital 8,504.21 - - 8,504.21
Total 25,090.51 25,090.51 9,356.86 9,356.86
Net increase in the working capital is Rs.8,504.21

Interpretation:
increased from Rs. 26,616.98. in 2016 to Rs. 35,973.84 in 2017.
And the bank balance is also increased from Rs.420.10 to Rs.3,463.66
i.e., 3,043.56. The total current liabilities increased from Rs. 10,030.68 to Rs.10,883.33.
The net working capital increases Rs.8,504.21

Deferred tax liability 546.78 Funds from operation 983.42

436.64
Capital work in progress
Total 983.42 Total 983.42
Page 70
TABLE 4.11 : Statement Of Sources And Applications Of Funds for

the year ended at 31st March 2017
Secured loans 4,813.21
Unsecured loans 3,189.14
Funds from operation 983.42 Net increasing in working
capital 8,504.21
10,355.84 10,355.84
Interpretation:
It is evident from the above table that the total flows during the period from
2016-17 amounts Rs. 10,355.84 lakhs.
In the total funds 47% of funds were received through secured loans, 31% of
funds received through the unsecured loans, 13% of funds were received through
reserves & surplus and the remaining 9% of funds received from funds from operation.
Regarding application of the funds the 18% were invested in fixed assets i.e.
purchase of fixed assets and remaining 82% of funds were utilized for working capital.

CAPITAL 2017-18
(Rupees in lakhs)

Particulars 2017 2018 capitalcapital
Increase Decrease
Current assets (CA)
Inventories 14,436.48 11,519.49 - 2,916.99
Sundry debtors 11,966.16 11,845.80 - 120.36
Cash and bank balances 3,550.27 1,516.42 - 2,033.85
Page 71
Loans and advances 6,020.93 5,581.47 - 439.46

Total current assets 35,973.84 30,463.18

Current liabilities 10,108.38 6,853.94 3,254.44 -
Provisions 774.95 1,066.74 - 291.79
Net working capital 25090.51 22,542.50 - -
Decrease working capital - 2,548.01 2,548.01 -
TOTAL 25,090.51 25,090.51 5,802.45 5,802.45
Net decrease in the working capital is Rs.2, 548.01

Interpretation:
From the above table is observed that the networking capital of the company
shows decreasing trend. The total current assets of the company have decreased from
Rs. 35,973.84. In 2011 to Rs.30,463.18 in 2012.
And the bank balance is also decreased from Rs.3, 463.66 to Rs.1,516.42 I.e.,
1,947.24 the total current liabilities decreased from Rs. 10,883.33to Rs.7,920.68. The
net working capital decreases Rs. 2,548.01

Deferred tax liability 312.01 Funds from operation 792.90

Net fixed assets 480.89
Total 792.90 Total 792.90
Page 72
TABLE 4.14 : Statement of Sources and Applications of Funds for

the year ending at 31 st March 2018.

Unsecured loans 1,251.75 Secured loans (paid) 6,740.96
Funds from operation 792.90
Net decreasing in working
capital 2,548.01
9,756.80 9,756.80
Interpretation -
It is evident from the above table the total funds during the period
from2017- 2018 amounts to Rs. 9,756.80.
In the application side we can see the 31% of funds were utilized for purchase
of fixed assets, and 69% to secured loans.
In the sources side we can see the 66% of funds were received through reserves
& surplus and unsecured loans, 8% of funds were received through funds flow
operation and remaining 26% of funds were received through working capital.
TABLE 4.15 : The statement showing the working capital

from 2013-14 to 2017-18
Year Increase Decrease
2013-14 1,304.28 -
2014-15 6,705.01 -
2015-16 1,116.06 -
2016-17 8,504.21 -
2017-18 - 2,548.01
Page 73
Interpretation:
The above diagram clearly shows that the net working capital of the LIL
showing an increase with a decreasing trend. As the net working capital for the year
2016-17 is -2,548.01 it is decrease in the net working capital but for the years before
2016-17 the net working capital of the firm was increasing at a decreasing rate i.e.,
1,304.28, 6,705.01, 1,116.06 and 8,504.21,respectively for the years 2013-14 2014-15,
2015-16,2016-17.
Page 74
CHAPTER-5
FINDINGs,
SUGGESTIONs AND
Conclusion
Page 75
5.1 FINDINGS
 In 2013 most of the funds were generated through the unsecured loans ie.80%
to 81% of funds were using for purchasing of fixed assets & payment secured
loans.
 In 2014, 60% of funds were raising through secured loans and reserves &
surplus. If we observe at application side funds were utilized to purchase of
fixed assets is 41% and for working capital is of 49%.
 In 2015, 28% of funds generated through trading activity & another 72%
through secured loans and reserve & surplus. In applications the 45% of funds
were utilized to purchase fixed assets.
 In 2016, 77% of funds generated through secured and unsecured loans. If we

observe at application side funds were utilized to purchase of fixed assets is
18% and for working capital is of 82%.
 In 2017, the funds were utilized through purchase of fixed assets, Funds lost in
operation is 26%. paid of loans. So, the balance sheet was not looking strength
by comparing with the other financial year balance sheet.
Page 76
5.2 SUGGESTIONS
 Sales should be increased to get more returns
 In the financial senses acquiring the share capital will makes profitable not
borrowing the loans through secured and unsecured.
 Trading activity should be operated effectively to generate more funds.
 By increasing share capital the customers will increase by that awareness of the
company will take place.
 Promoting sales in Andhra Pradesh will generate sales volume more.
Page 77
CONCLUSION
The following conclusions are arrived at based on the observations made on the present
study: -
 Except of the last year the study period it is observed that the fund for
operations is on profit. It generated the funds in application of total funds.
 Except of the last year of the study of period, funds were utilized for
financing the working capital requirements.
 The study revealed a mixed trend of application and sources of funds in

respect of secured and unsecured loans.
Page 78
ANNEXURE
31st MARCH (2013-2018)
Particulars 2013-14 2014-15 2015-16 2016-17 2017-18

(in lakhs) (in lakhs) (in lakhs) (in lakhs) (in lakhs)
INCOME
Sales(gross) 33,589.67 41,045.08 49,472.02 68,046.95 71,051.85
Less: Excise Duty 3,294.07 4,108.43 3,106.39 3,575.34 1,993.89
Sales(Net) 30,295.60 36,936.65 46,365.63 64,471.61 69,057.96
Other Income 77.70 33.59 93.21 210.18 71.93
Increase/(Decrease) in Stocks 741.46 471.24 14.16 (246.82) 503.99
TOTAL 31,11.76 37,441.48 46,473.00 64,434.97 69,633.88
EXPENDITURE
Raw Material Consumed 18,264.94 19,232.45 24,779.93 39,775.51 37,578.14
Cost Of Material Sold 276.09 644.45 659.16 607.33 640.58
Salaries, Wages And Other 1,254.33 1,449.85 1,862.53 2,142.75 ---
allowances
Manufacturing Expenses 6,479.97 8,629.04 8,874.80 10,091.71 18,761.11
Other Expenses 1,879.06 2,331.70 2,479.56 2,745.53 ---
Interest and Financial Charges 1,257.86 1,832.36 2,302.59 4,607.48 2,061.82
Depreciation 1,093.60 1,156.89 1,512.99 1,641.84 1,794.60
TOTAL 30,505.85 35,276.74 42,471.56 61,612.84 60,836.25
Profit Before Tax 608.91 2,164.74 4,001.44 2,822.82 8,797.63

Provision For Tax-Current 52.78 242.93 453.41 318.20 1,984.16
MAT Credit Utilized(Entitlement) (52.78) (242.93) (453.41) 108.14 707.49
Provision For Deferred Tax 193.89 566.73 1,392.16 546.78 312.01
Provision For Fringe Benefit Tax - 17.21 17.54 14.41 ---
Profit After Taxation 415.02 1,580.80 2,591.74 1,835.29 5,793.97
Balance Brought Forward From 748.77 837.09 852.92 1,242.48 1,143.80
Previous Year
Prior period adjustment(Note-9 on - - (55.46) - 67.99
schedule-20)
Debenture Redemption Reserve - - - - 750.00
Written Back
Profit Available For Appropriation 1,163.79 2,417.89 3,395.20 3,077.77 7,755.76
Page 79
APPROPRIATIONS
Transfer To Debenture Redemption - 93.75 187.50 468.75 ---
Reserve
Transfer To General Reserve 100.00 1,000.00 1,500.00 1,000.00 5,400.00
Proposed Dividend 198.82 397.64 397.64 397.64 596.45
Tax On Dividend 27.88 67.58 67.58 67.58 101.37
Balance Carried To Balance Sheet 837.09 858.92 1,242.48 1,143.80 1,657.94
1,167.79 2,417.89 3,395.20 3,077.77 7,755.76
Basic & Diluted EPS (Rs) 1.04 3.98 6.52 4.62 14.57
No. of Shares used in computing 39,763,595 39,763,595 39,763,595 39,763,595 39,763,595
basic & diluted EPS
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE

YEAR 2013-14
PARTICULARS 2014 2013
Sources of funds:
Share holders’ funds:
A) Share capital 3,976.36 3,976.36
B) Reserves and Surplus 3,993.06 3,804.74
Loan Funds:
A) Secured Loans 9,244.81 10,886.36
B) Unsecured Loans 15,069.11 9,588.74
Deferred Tax Liability (Net) 618.06 424.17
Total 32,901.40 28,680.37
Application of funds:
Fixed Assets:
A) Gross Block 25,035.99 20,021.36
B) Less: Depreciation 6,510.29 5,417.03
Net Block 18,525.70 14,604.33
Capital Work In Progress 5,604.02 6,015.09
Investment _ 589,83
Current Assets, Loans and Advances
A) Inventories 9,194.08 7,075.18
B) Sundry Debtors 6,706.59 7,197.89
C) Cash and Bank Balance 350.67 247.72
D) Loans and Advances 2,070.42 1,616.75
18,321.76 16,137.54
Less: current Liabilities and Provisions
Page 80
A) Current Liabilities 9,202.11 8,090.45

B) Provisions 354.42 586.14
Net Current Assets 8,765.23 7,460.95
Miscellaneous Expenditure 6.45 10.17
Total 32,901.40 28,680.37
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE

YEAR 2014-15
Sources of funds:
A) share capital 3,976.36 3,976.36
Loan Funds:
A) Secured Loans 16,382.92 9,244.81
Deferred Tax Liability 1,184.79 618.06
Total 40,386.36 32,901.40
Fixed Assets:
A) Gross Block 31,824.32 25,035.99
Net Block 24,158.08 18,525.70
Capital Work In Progress 754.45 5,604.02
Investment _ _
A) Inventories 10,636.86 9,194.08
C) Cash and Bank Balance 2,650.37 350.67
26,196.83 18,321.76
Page 81
10,726.59 9,556.53
Miscellaneous Expenditure 3.59 6.45
Total 40,386.36 32,901.40
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE YEAR 2015-16

Sources of funds:
A) share capital 3,976.36 3,976.36
Loans funds
A) Secured Loans 17,832.33 16,382.92
Differed tax Liability (Net) 2,576.95 1,184.79
Total 43,836.66 40,386.36
Fixed Assets:
A) Gross Block 35,516.23 31,824.32
Net Block 26,388.35 24,158.08
Capital Work In Progress 862.01 754.45
Investments _ _
A) Inventories 12,092.91 10,636.86
C) Cash and Bank Balance 420.10 2,650.37
26,616.98 26,196.83
Page 82
10,030.68 10,726.59
Miscellaneous expenditure - 3.59
Total 43,836.66 40,386.36

Sources of funds:
A) Share capital 3,976.36 3,976.36
Loans funds
A) Secured Loans 22,645.54 17,832.33
Deferred Tax Liability (Net) 3,123.73 2,576.96
Total 53,755.86 43,836.66
Fixed Assets:
A) Gross Block 38,974.86 35,516.23
Net Block 28,239.98 26,388.35
Capital Work In Progress 425.37 862.01
Investment - -
A) Inventories 14,436.48 12,092.91
B) Sundry Debtors 11,966.16 8,814.31
C) Cash and Bank Balance 3,550.27 420.10

10,883.33 10,030.68
Page 83

Miscellaneous Expenditure - -
Total 53,755.86 43,836.66

Sources of funds:
A) Share capital 3,976.36 3,976.36
Loan Funds
A) Secured Loans 26,486.50 33,227.46
Deferred Tax Liability (Net) 3,435.74 3,123.73
Total 53,742.80 53,755.86
Fixed Assets:
A) Gross Block 40,286.29 38,974.86
B) Less: Depreciation 12,527.20 10.734.88
Net Block 27,759.09 28,239.98
Capital Work In Progress 3,441.21 425.37
Investment - -
A) Inventories 11,519.49 14,436.48
B) Sundry Debtors 11,845.80 11,966.16
C) Cash and Bank Balance 1,516.42 3,550.27
B) Provisions 1,066.74 774.95
7,920.68 10,883.33
Page 84
Miscellaneous Expenditure _ _
Total 53,742.80 53,755.86
Page 85
BIBLIOGRAPHY
 James C.Vann Horne Financial Management, 9th edition Prentice – Hall of India
Private Limited, New Delhi, 1994.
 Khan M.Y. & Jain P.K. Financial Management, 2nd Edition Tata Mc. Graw-Hill
Publishing Co. Ltd., New Delhi.
 Pandey I.M., Financial Management, 7th Edition, Vikas Publishing House Pvt.
Ltd., New Delhi, 1995.
 Maheswari S.N., Financial Management, 4th Edition, Sultan Chand & Sons,
New Delhi. 1997.
 Man Mohan & Goyal S.N., Principles of Management Accountings 6 th Edition,

Sathiya Bhavan, Agra, 1998.
 Prasanna Chandra, Financial Management, 3rd Edition, Tata Mc.Graw-Hill

Publishing Co., Ltd., New Delhi, 1984.
Website: www.lancoindustries.com
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Funds Flow Statement Lanco

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FUNDS FLOW STATEMENT

Objectives of Financial Management:

(2) WEALTH MAXIMIZATION

FUNDS FLOW INTROUDUCTION

Significant technique of financial analysis is ‘Funds Flow Analysis’. It is

Although financial statements supply useful information to the

Funds Flow Statement:

The following are the definitions of Funds Flow Statement.

R.A.Foulk: “ A Statement of Sources and Applications of Funds is a technical

Bierman: “It is a statement which highlights the underlying financial

Thus, funds flow statement is a report which summarizes the events

Significance of Funds flow Statement

Funds Flows Statement is an important tool of financial analysis. The

Decisions on Capitalization: The funds flow statement serves as handmaid

issuance of new securities. If the indicated amount of new funds required is

Other uses: Funds Flow Statement is useful to the management in the

 Estimating the amount of funds needed for growth;

Useful as a control Device:

Useful to the external parties:

Financial Statements and Funds flow statement

A Funds Flow Statement is statement measuring the inflows and

A funds flow statements has become a useful tool in the hands of

Preparation of funds flow statement:

In order to prepare a Funds Flow Statement, it is necessary to find out the

Calculation of funds From operations:

The follwing procedure is to be followed in the calculation of funds from

 Non-operating income such as dividend received or accrued rent. These

 Purchase of fixed assets: Purchase of fixed assets such as land,

 Payment of tax liability: Provision for taxation is generally taken

Statement of changes in working capital:

The increase or decrease in working capital can be calculated by

Working capital represents the excess of current assets over current

Statement of Sources and Application of Funds:

 Funds from operation: It is an internal source of funds. Funds from

have been issued in consideration of some fixed assets, there will be no

The funds flow statement is a statement, which shows the movement of

In simple, the funds flow statement is a statement of sources and application of

According to Robert Anthony "The Funds Flow Analysis describes the

funds were put.”

Income statement measures flows restricted to transaction that pertain to

Evaluation of the firms: -

Uses-of Funds Flow Analysis:

 It helps in the analysis of financial operations.

Limitations of funds Flow Analysis:

 It is essentially historic in nature and projected funds flow statement cannot

Different names of funds Flow Statement:

A statement of sources and Uses of funds.

Procedure for preparing a Funds Flow Statement:

The preparation of funds flow statement consists of some parts:

Statement or Schedule of Changes in Working Capital:

The increase or decrease in working capital can be calculated by preparing the

While preparing a schedule of Changes in Working Capital, it should

 Increase in Current Assets, Increases the Working Capital.

Working Capital = Current Assets – Current Liabilities

Current assets include:

Current liabilities include: -

PROFORMA OF STATEMENT OF CHANGES IN WORKING CAPITAL

Particulars Beginning Ending Changes in working

Statement of Sources and Application of Funds:

Funds flow statement is a statement, which indicates various sources

to which these funds have been put during that period.

Statement of Sources and Applications

Sources of funds Amount Application of funds Amount