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CASH FLOW ANALYSIS

INTRODUCTION TO THE TOPIC


Cash is the basic input needed to keep the operations of the business going on a
continuing basis; it is also the final output expected to be realized by selling the product
manufactured by the manufacturing unit. Cash is both the beginning and the ending of the
business operations.

Cash flow analysis can be defined as “As a statement which summaries sources of cash
inflows and outflows of particular period of time, say a month or a year”.

A cash flow analysis is more useful because it gives detailed information to the
management about the sources of cash inflows and outflows. Cash flow analysis means to reveal
the cash outflows and cash inflows in a particular period. An analysis of cash flows is useful for
short run planning.

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CASH FLOW ANALYSIS

INDIAN CEMENT INDUSRTY

Cement is the preferred building material in India. It is used extensively in household and
industrial construction. Earlier, government sector used t consumes over 50% of the total cement
sold in the India, but in the last decade its share has come down to 35%. Rural areas consume
less than 23% of the total cement. Availability of cheaper building materials for non-permanent
structures affects the rural demand.

Demand for cement is linked to the economic activity in any country. Broadly, it can be
categorized into demand for housing construction and infrastructure creation. The real driver of
cement demand is creation of infrastructure; hence cement demand in emerging economies is
much higher than developed countries where the demand has reached a plateau. In India too, the
demand for cement will be affected by spending on infrastructure.

With the boost given by the Govt. to various infrastructure projects, road, network and
housing facilities, growth in the cement consumption is anticipated in the coming year. The
favorable housing finance environment is expected to full fill the waste housing requirement
both in rural and urban areas. The increase infrastructure projects by the Govt. coupled with the
construction of the golden Quadrilateral and north south and east west corridor projects have led
to an increase in the consumption of the cement this increase is expected to continue in the
future. The reduction in import duties is not likely to affect the industry as the cement produced
is at par with the international standards and the prices or lower than those prevailing in
international market.

What is heading?

Cement is a typical cyclical industry characterized by the boom and bust syndrome. A
huge potential market and rapid growth in the early stages lead to a surge in interest and a flurry
of research. The projected growth rates point to a lucrative market the buoyant markets and huge
profits raked in by players tempt to more players in to the market. Capacities increase in excess
of demand and a glut in capacity is created. Competition increases prizes fall and margins come
under pressure. Capacity addition comes to a halt; weaker players shut shop or sell off to larger

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once. Demand catches up and the cycle is repeated all over again. Perhaps of all the cyclical
industries, the Indian cement industries exhibit this boom and bust cycle most visibly.

Temptation:

A huge potential market easy availability of raw material of and cheap labor leads to a
flurry of activity and a surge in interest. The easiest way to estimate the potential that exists is
the per capita consumption of cement, which is abysmally low in India at 82kgs as against a
world average of 225 kgs and the Asian average of 200kgs. Although the growth of the industry
depends more on the level of consumer spending rather than on the per capita consumption,
nevertheless, it serves as an easy benchmark to estimate the potential that exists.

Fuel to fire:

The projected growth rate in demand fuels stock market rallies. Consider the boom in the
cement stocks in1994. Every cement company was attracting valuations it never dreamt about.
Scarcity induced by lower capacities and to a large extent on non-availability of power, drove
cement prices to the hilt. The kind of money minted by most cement companies as well as
investors in that period made strategies plan enormous increase in capacity creation starting 1994
was so enormous.

The Rush:

The amount of profits being raked in tempts more players to enter the industry,
contagious enthusiasm sweeps the industry and suddenly there is a glut of new players.
Capacities start increasing at a rate greater than the demand growth rates. A scenario of excess
supply to demand becomes imminent. Average annual capacity addition during the three year
periods1994-95 to 1996-97 was 8.33 million tons, while that for the five year period till 1994-95
was just 3.3 million tons. The capacity further increased 104.51 million tons in1998-99 and
reached 130 million tons in2001-02. In FY02 the production increased by 9.39% at 102.4 million
tons being produced the previous year. At present the annual capacity is around 135 million tons.

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The Anguish:

With competition increasing and growth in supply exceeding demand growth, prices
begin to fall. This is also the time when players realize that Greenfield capacity addition would
be to their own detriment. Consolidation within the industry starts. Most of the players weakened
during the excess supply induced recession sell off to larger and stronger players. Hostile
takeovers are also witnessed during this period as the only way to expand is by takeovers. The
slew of takeovers in the last two years culminating in Gujarat Ambuja cement taking a stake in
ACC, the largest cement company in India bears ample testimony to this fest.

Government Policies:

Govt. policies have affected the growth of cement plants in India in various stages. The
control on cement fir a long time and then total decontrol have contributed to the gradual
opening up of the market for cement producers. The stages of growth of the cement industry can
be described in the following stages:

Price and Distribution Controls (1940-1981):

During the Second World War, cement was declared as an essential commodity under the
defense of India rules and was bought under price and distribution controls which resulted in
sluggish growth. The installed capacity reached only 27.9 million tons by the year 1980-81

Partial Decontrol (1928-88):

In Feb.1982, partial decontrol was announced. Under this scheme, levy cement quota was
fixed for the units and the balance could be sold in the open market. This resulted in extensive
modernization and expansion drive, which can be seen from the increase in the installed capacity
to 59 MT in 1988-89 in comparison with the figure of a mere 27.9 MT in 1980-81, an increase of
almost 111%.

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Total Decontrol (1989):

In the year 1989, total control of the cement industry was announced. By decontrol of the
cement industry, govt. relaxed the forces of demand and supply. In the next two years, industry
enjoyed a boom of sales and profits. By 1992, the pace of overall economic liberalization had
peaked: ironically, however, the economy slipped into the cement industry down with it. For
1992-93, industry remained stagnant with no addition to existing capacity.

Government Controls:

The prices the primarily control the price of cement are coal, power tariff, railways,
freight, royalty, and cess on limestone. Interestingly, Govt. controls all of these prices.

Coal:

The consumption of coal in a typically dry system ranges from 20-25% of clinker
production. This means for ton clinker produced 0.20-0.25 ton pf coal is consumed. This
contributes 35-40% of the production cost. The cement industry consumes about 10mn tons of
coal annually. Since coalfields like BCCL supply a poor quality of coal, NCL and CCL the
industry has to blend high-grade coal with it. The Indian coal has a low calorific value (3500-
4000 K.cal/Kg) with ash content as high as 25-30% compared to imported coal of high calorific
value (7000-8000 K.cal/kg) with low ash content 6-7%. Lignite is also used as a fuel by
blending it with coal. However this process is not very common.

Electricity:

Cement industry consumes about 5.5 bn units of electricity annually while one ton of
cement approximately requires 120-130 units of electricity. Power tariffs vary according to the
location of the plant and on the production process. The state govt. supply this input and hence
plants in different states shall have different power tariffs. Another major hindrance to the
industry is severe power cuts. Most of the cement producing states like AP, MP experience
power cuts to the tune of 25-30% every year causing production loss.

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Infrastructure:

To reduce uncertainty relating to power, most of the leading companies like ACC, Indian
Rayon, and Grasim rely on captive power plants. A few companies are also considering power-
generating windmills.

Limestone:

This is the largest bulk in terms of input to cement, for producing one ton of cement,
approximately 1.6 ton of limestone is required, and therefore the cement plant location is
determined by the location of limestone mines. The major cash out flow takes place in way of
royalty to the central government and cess on royalties levied by the state and central
governments. The total limestone deposit in the country is estimated to be 90 billion tons. AP has
largest share of 34%, Karnataka-13%, Gujarth-13%, MP-8%, and Rajasthan-6.5%. The plants
near the limestone deposit pay less transportation cost than others.

Transportation:

Cement is mostly packed in the paper bags now. It is then transported by rail or road.
Road transportation beyond 200kms is not economical therefore about 55% of the cement is
being moved by the railways. There is also the problem of inadequate availability of wagons
especially on western railways and southeastern railways. Under this scenario, manufacturers are
looking for sea routes; this is being not only cheap but also reducing the losses in transit. Today
70% of the cement movement worldwide is by sea compared to 1% in India. However, the
scenario is changing with most of the big players like L&T, ACC and Grasim having set up their
bulk terminals.

Infrastructure for future:

The consumption of cement is determined by factors influencing the level of housing and
industrial construction, irrigation projects, and roads and laying of water supply and drainage
pipes etc. the level and growth of GDP and its sectoral composition, capital formation,
development expenditure, growth in population, level of urbanization etc, in turn , determine
these factors. But the domestic demand for cement is mainly from the housing activities and

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infrastructure development. Te Govt. paved the way for the entry of the private sector in road
projects. It has amended the National Highway Act to allow private toll collection and identified
projects, bridges, expressways and big passes for private construction. The budget gave
substantial incentives to the private sector construction companies. Ongoing liberalization will
lead to an increase in the industrial activities and infrastructure development so it is hoped that
Indian cement industry shall boom again in near future.

Incentive in States:

Most state governments, in order to attract investments in their respective states, offer
fiscal incentives in the form of sales tax exemptions/deferrals. In some states, this applies only to
intrastate sales, like MP and Rajasthan. States like Haryana offer a freeze on power tariff for 5
years, while Gujarat offers exemption from electric duty.

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CASH FLOW ANALYSIS

NATURE OF THE CEMENT INDUSTRY


Installed capacity:

North Region
Punjab 2173.34
Delhi 500.00
Haryana 172.00
Himachal Pradesh 4060.00
Rajasthan 16299.34
J&K 200.00
TOTAL 23404.68
West
Maharashtra 8950.00
Gujarat 12937.00
TOTAL 21887.00
South
Tamil Nadu 12913.18
Andhra Pradesh 19831.02
Karnataka 9744.00
Kerala 420.00
TOTAL 42908.20
East
Bihar 1000.00
Orissa 2761.00
West Bengal 2291.66
Assam Meghalaya 400.00
Jharkhand 3475.01
Chhattisgarh 11287.33
TOTAL 21215.00
Central
UP 6297.00
MP 16185.00
TOTAL 20482.00

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CASH FLOW ANALYSIS

India is the world’s second largest cement producing country after china. The industry is
characterized by a high degree of fragmentation that has created intense competitive pressure on
price realizations. Spread across the length and breadth of the country, there are 120 large plants
belonging to 56 companies with an installed capacity of around 135 million tons as on March
2002.

Group wise installed capacity:

L&T, with 16MT accounts for 11.88% of the total cement production capacity in the
country. It is followed by ACC, with 15MT, accounting for 11.15%. Grasim industries with a
production capacity of 13 million tons have 9.66% of the total cement production. Gujarat
Ambuja has a production capacity of 12.5 mn tons (including its plant in Chandrapur,
Maharashtra). It took a 14.4% stake in ACC and together they account for 27% of the total
cement production capacity in the country. Grasim Industries has 10% stake in L&T, and
together they account for 29% of the total cement production capacity.

State wise capacity:

As cement is low value commodity, freight costs assume a significant proportion of the
final cost. Transporting cost render the prices of cement in distant destinations uncompetitive.
For instance, it is financially infeasible to transport cement by road over 250kms. Railways are
mostly used to transport cement over longer distances. However, its bulky nature and
infrastructure bottlenecks render even rail transport unviable over very long distances (i.e., why
Madras cements or India cements located I the south, can hardly make a difference to the
fortunes of west based)

South accounts for 33.30% of cement production capacity of the country, with Andhra
Pradesh accounting for15.27% of the total production capacity of India. It has an installed
capacity of around 20 million tons of cement and ranks first in the country, followed by Tamil
Nadu with 9.94% of the total production capacity. North accounts for 18.02% of the total
production capacity, with Rajasthan at 12.55% of the total production capacity of the country.
West accounts for 16.85% of the total production capacity. Maharashtra and Gujarat have
production capacity of 6.89% and 9.96% respectively.

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East and central regions account for 16.33% and 15.77% of the total production capacity
of the country respectively.

Trade between these regions is on a very low scale mainly because of the transportation
bottlenecks and uncompetitive cost of transportation. These apart, there are other factors that
determine the location of a cement plant. Proximity to limestone deposits, availability of coal and
power and the markets plants cater to, are some of the critical factors that determine the viability
of a cement plant.

Seven Clusters:

Cement and its raw materials namely coal, limestone, are all bulky items that make
transportation difficult and uneconomical. Given this, cement plants are located close to both,
sources of raw materials and markets. Most of the limestone deposits in India are located in MP,
Rajasthan, AP, Maharashtra, and Gujarat leading to concentration of cement units in these states.
This has resulted in Clusters. There are seven clusters in country and account for 51% of the
cement capacity. There is a trade-off between proximity to markets and proximity to raw
materials due to which some cement plants have been set up near big despite lack of raw
materials.

Exports:

The cement sector is relatively insulated from international markets. This is largely due to
inadequate infrastructure to carry on international trade. Being a very bulky item, international
trade is very limited and only between neighboring states. This is amply borne out by the fact
that cements accounts for not more than 0.20% of total world exports. Although India has been
consistently exporting cement in the past, the volume of exports took a beating after the
Southeast Asian crisis. From a peak of 2.68 million tons in 1997-98, cement exports from india
have slid down to 2.06 million tons in 1998-99. However the situation has improved gradually.
In FY02 the exports were 2.77 million tons as against 2.37 million tons in FY01, an increase
by16.87%.

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CASH FLOW ANALYSIS

Having a long coastline, India is well positioned to export cement to the Middle East
countries and Sri Lanka. However, congestion at the Indian ports and lack of cement handling
facilities restrict the free movement of cement out of India. Hence, only those companies who
have their own jetties are able to export moreover, currently, prices in the international market
too are at un-remunerative levels. Nevertheless, companies like Gujarat Ambuja cement and
L&T are major exporters, who export mainly to get incentives like duty free import of high grade
coal and oil. This apart, large scale cement exports are possible only when cement prices in the
international market up.

Capacity utilization:

The installed capacity, which was 62MT per annum in 1993, has increased up to 134.59
MT in March 2002. The all-India average capacity utilization of cement plants is at 8%. The fall
in utilization levels has been o account of severe shortages of key raw materials such as power,
coal and rail wagons.

Reasons for full capacity utilization vis-à-vis Demand:

The basic reason for not keeping production low or reducing production and inter-alia
utilization is due to the incidence of high fixed costs. The cement units continue to operate at
rated capacities to cover their costs. This can be gauged by the fact that most units had installed
captive power generation facilities to reduce dependence on the grid.

Cost Components:

Energy and freight are major cot components. Interest and depreciation account for 25-
30% of costs, depending on the age and capital structure of the plant. Another important cost
element is taxes levied by the Govt. Most of the companies prefer to maintain capacity utilization
and hence, sell cement in the nearest market to increase their net realization. However, if there is
less demand in adjacent states, cement will inevitably have to be transported over longer
distances? This squeezes margins.

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CASH FLOW ANALYSIS

Key Indicators of Profitability:

Given the cost structure, the key indicator of the cement sector profitability is the cement
prices. The entire sector valuations will be driven by outlook on cement prices. Given the role
the government has in fixing key input costs, it is very difficult for a company to minimize costs
beyond a point. The key driver of profitability is cement prices, which fluctuate depending on
outlook on demand- supply gaps.

Per Capita cement consumption:

Per Capita cement consumption in India is 82kgs against a global average of 225kgs and
Asian average of 200kgs.

Consolidation:

A peculiar factor of the cement sector has been the high degree of interest that is being
shown by international cement giants in acquiring domestic companies. Consolidation becomes a
prominent activity as both domestic and international companies try to consolidate their positions
in one of the most promising cement markets worldwide. Lafarge has already acquired 4.5 MT
capacities in India through acquisition. Among the others that are believed to be eyeing domestic
companies include Holder Bank and Cemex.

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CEMENT CONSUMPTION SCENARIO IN INDIA

YEAR QUANTITY(MT) GROWTH RATE (%)

1996-97 679.28 -

1997-98 733.80 8.03

1998-99 797.61 8.70

1999-00 918.76 15.18

2000-01 899.84 -2.06

2001-02 989.82 10.00

2002-03 1078.90 9.00

CEMENT CONSUMPTION SCENARIO IN AP

YEAR SAES (MT) GROWTH RATE%

1995-96 44.10 7.00

1996-97 47.94 8.70

1997-98 58.32 21.65

1998-99 63.54 8.95

1999-00 77.11 21.35

2000-01 58.73 -23.83

2001-02 67.25 14.50

2002-03 42.89 9.00

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ZUARI CEMENT LIMITED- AN OVERVIEW

Quality is area distinction. Aspired by many, but attained only by a selected few. Zuari
cement is one of those few. Part of the prestigious K.K.birla Group, a Rs. 4000 crore
conglomerate. To give the company an international edge and to benefit from the advantage of
worldwide organization, Zuari Cement has entered into a joint venture Italcementi Group, the
largest producer and distributor of cement in Europe and is one of the leaders in cement
production in the world.

The joint venture between the two companies ia an unbeatable combination of Zuari
group’s strength and Italcementi technology.

Zuari Cement sustained its efforts to become a dominant player in the south, Zuari
cement has acquired the entire holding of in India cements limited in Sri Vishnu Cement
Limited, which has its plant in Nalgonda District in AP. The Acquisition, which adds over 1.2
million tons to its capacity, now the total capacity is 3.4 million tons.

Zuari cement has within a short time–span made its presence felt in the cement industry.
It has done so by making top quality cement.

Consistently, cement that has won the confidence and trust of millions in the country.
This commitment to quality has seen it grow from a modest 0.5 million ton capacity in 1995to
2.2 million tons today. Zuari’s quality drive originates in its state of ate cement plant. Situated at
Yerraguntla, renowned for its rich Narji limestone deposits, Zuari plant is a cement
manufacturer’s envy. Yet, strategic location is just one factor contributing to Zuari’s success.
These are other equally important reasons. Superior work force; Cutting edge technology; & De-
centralized Quality Assurance teams. All these combine seamlessly to ensure that very bag of
cement that leaves the plant is of consistent quality and worthy of bearing the Zuari label.
Cement that will make sound concrete arrests expansion and prevents thermal and tensile cracks.
This is why across South India, Zuari Cement is preferred by the customer and is recommended
by the expert. Be it for building dams, bridges, high-rise buildings and airports or small
apartment block.

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Process technology: the key Quality

The culture of quality that always prevailed in Zuari Cement’s manufacturing facilities is
best exemplified in the process technology. Advanced technological methods are used to ensure
that a high level of quality is attained and sustained right through the manufacturing process.
Yet, these high standards are being constantly improved by an experienced and dedicated R&D
team to attain performance oriented cement.

Key features of Zuari Cement’s process technology:

Complete homogenization of limestone is achieved by stacking the limestone in


stockpiles with the use of stackers and reclaiming it through reclaimers.

The optimum ratio of raw mix is attained by the use of X-Ray Analyzer and automatic
weigh feeders, which are linked to the centralized Computer Control Room.

Reduced variability in kiln feed and complete homogenization of raw materials is


attained by storing it in continuous fluidized silo. This ensures that every grain of cement is of
consistent quality.

The totally computerized monitoring system enables clinkerisation. It dictates the


optimum retention time in the pre-claicinar and the kiln. Equipped with a six-stage double stream
preheated cyclone system, the pre-culinary only adds to the quality.

The modern closed circuit grinding units have a high efficiency separator that produces
finer particles of cement hydrates. This yields cement matrix with a lower pore diameter. This in
turn gives concrete of higher density and lower permeability.

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CORPORATE CLIENTS

 Madras refineries limited.

 Airports authority of India.

 Tamil Nadu real estate limited.

 Karnataka Power Corporation limited.

 Tamil Nadu housing Board.

 Exide industries.

 Asia Pacific hotels limited.

 Tirumala Tirupathi Devasthanams.

 Gammon India limited.

COMPANY’S COMPETITORS

1. Coromandel Cements.

2. L&T Cement.

3. Penna Cement.

4. Ramco Cement.

5. ACC Cements.

6. Orient Cements.

7. Duccan Cements.

8. Ambuja Cement.

9. Biral Super Cement.

10. Nagarjuna Cement.

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ZUARI CMENTS LIMITED- A JOINT VENTURE

Zuari cements is a joint venture between Zuari industries and Italcementi spa, Italy, has
its registered office in Zuari Nagar, Goa. Its installed capacity is 1700000 tons, and is wholly
into cement manufacturing. It also sells clinkers. It has 45 marketing offices in the state of AP.
These marketing offices are responsible for procurement of orders, and sales of cemnts in that
particular region. The marketing office in Hyderabad is situated at Raj Bhawan road,
Somajiguda. The various marketing officers contact the dealers and procure the orders. The
credit limits to be allowed to reach dealer is recommended by the marketing officer and decided
by the concerned authority.

During the year 2001-02 the company entered into an agreement with the promoters of
Sri Vishnu Cement Limited to acquire approximately 94.7% of the equity shares held by them,
comprising 2,24,,62,960 equity shares of Rs. 3308.77 Million and made an open offer for
purchase of balance 5.3% of the voting equity capital under SEBI regulations, 1997. The open
offer had closed on 23rd April 2002 and the company had completed the formalities of SEBI
regulations, 1997 y 16th May 2002. The Board of Directors of SVCL was reconstituted by
including the nominees of Zuari Cements Limited on 18th May 2002 and after the transfer of
shares from the erstwhile promoters of SVCL and from open offer was completed. As a result
SVCL has become a subsidiary of Zuari Cement limited

The manufacturing facilities of SVCL are suited at Sitapuram, around 220 kilo meters
from Hyderabad with a production capacity of around 1.2 Mt. with the acquisition of Sri Vishnu
Cements limited, the company’s business is further consolidated in terms of volume and market
share in South India.

The company has not engaged in any foreign exchange activity therefore it has no foreign
exchange earnings.

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The Existing marketing system:

As has been mentioned earlier, the company has 45 marketing offices in the state of AP.
It is comparatively new in Hyderabad with the present market share varying between 5-8%. The
company clientele’s base consists of dealers, corporate, builders, etc., Dealers contribute to 70-
80% of the company’s sales. Though the corporate and the builders etc., buy directly from the
company and are less risky than the dealers in defaulting, the dealers are more profitable for the
company. It is thus more preferable for the company to have more and more dealers as its
customers.

The company has various marketing offices that are responsible for contacting the
dealer’s and procuring orders from them. The various orders to be supplied are than
communicated to the company by the marketing officers. The company then appraises the order,
in order to see whether the concerned dealer is permitted to receive the credit facility asked for.
The information is fed into the computer. If the concerned dealer is already a debtor I the
company’s records, and the carrying out of the order would increase the debt due from him
beyond the credit limit set for him, the order is not executed. In certain cases, like cash/ check in
transit from the dealer, etc, the permission for exceeding the credit limit is granted. Ageing
analysis of the receivables is done on a regular basis. On exceeding the 30 days limit the dealers
are contacted, and credit facility is temporarily withdrawn. The credit appraisal technique of the
company is uniform and equal for all type of dealers.

The marketing officers are also responsible for appraising the prospective dealers. Based
on knowledge about the dealer, the marketing officer proposes the credit limit allowable to the
Dealer.

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The financial position of the company (through ratio analysis):

KEY RATIO INDUSTRY FOR TH EYEAR


STANDARDS 2001-02

Inventory turnover 17.86 13.36

Inventory/Current Assets 27.34% 19.97%

Inventory/ Working Capital 145.47% 26.34%

Debtors payment period 27 33

Credit availing period 27 108

Investment Income/ Financial assets 0.12 0.058

Gross sales to total sales 0.53 0.45

Gross sales to fixed assets 0.78 0.901

Gross sales to capital employed 0.65 0.47

Gross sales to current assets 2.76 2.624

Net sales to capital employed 0.64 0.399

Operating cash flow to total sales 0.15 0.132

The sales of the company have gone up by 8.93%, with the other incomes showing a
striking growth of over 280%. This is primarily attributable to the increase in investments of the
company. The company seems to have excessive liquid assets, indicating availability of more
funds for profitable investments. This company has been mentoring the inventory very
efficiently. This is confirmed by the inventory ratios being more comfortably placed in
comparison with the industry aggregates.

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CASH FLOW ANALYSIS

One question, which comes to the mind at this stage, is , that, if the inventory is managed
well, then what could be the possible reason behind the excessive liquidity in the business? Well,
the answer can be figured out, if we take a closer look at the creditor’s turnover. Refining to the
above table, we can see that the creditors of the company are paid at a much later period than the
industry practices. We can also see that the difference between the dates of receipt of payment
from the debtors and the payment to the creditors is very high. This indicates that the company
has excess liquid cash remaining idle for a considerable period of time.

The company seems to have taken concrete steps to increase the investment in the present
year. This forming a major source of income from the other sources can be utilized for
minimizing the losses arising out of operations. The company appears to be very risk averse, as it
seems to have invested in securities with less risk associated with them. This is evident from the
ratio of investment income to financial assets, given in the above table. The company’s low net
working capital indicates that it utilizes short term funds to finance its working capital needs.
This means the company can further reduce the cost by way of funding the working capital
through long term sources. In India the cost of long term loans are lesser than the short term
funds.

The company can as well improve the financial position by ensuring better utilization of
assets. The asset utilization ratios can indicate lower degree of utilization of the company’s
assets in comparison with the industry aggregates. A lower operating cash flow to total assets
ratio indicates that the company can improve its profitability by recommending its credit
policies.

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Price Movements Graphs and Price Trend analysis:

Demand for cement is inelastic due to lack of substitutes. Small imbalances in demand
and supply result in disproportionate changes in cement prices. Given the commodity nature and
a widespread production base, it is difficult for any single manufacturer to control process.

Adjusted for seasonality, cement prices tend to move in supply chain drivers. In a
scenario with fairly stable demand growth, strong prices have driven up capacities and supplies
ahead of demand. Consequently, cement prices fall rendering new capacities unviable. Prices
begin to move up when demand catches up with supply.

Historically, given inflation rates, prices at the absolute levels always moved up in India.
Depressed prices therefore indicate not lower absolute prices but price increase, which were
insufficient to offset increasing costs.

Strong demand growth in FY96, insufficient capacity additions in 1993-94 and


infrastructure bottlenecks helped the producers to raise prices.

Cement prices remained firm through FY95 and FY96. Booming prices in FY95 and
FY96 attracted large-scale capacity creation. Predictably, prices began to slip from early FY97 as
these capacities started adding to production.

Cement prices adjusted for seasonality remained under pressure in FY98. However, there
had been a recovery by the end of the year FY99.

Though production and dispatches have increased in FY01 and FY02, the prices have not
increased mainly due to oversupply of cement. With consolidation taking place in the sector the
prices are expected t fir up in future.

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CASH FLOW ANALYSIS

FUTURE PROSPECTS

The cement industry, which was considered as one of the most perspective industries a
couple of years ago, has fallen into tough times thanks to the industrial slow-down, large
capacity buildup and step rise in input costs. Exports, which shot up by 74% during April-
December 1997, are likely to suffer next year due to the crisis in the East Asian countries and
their highly depreciated currencies. Supply overhang in domestic markets has affected cement
prices adversely.

The industry is expecting a shakeout with weak companies being taken over by the bigger
and stronger ones. The trend is already visible with India cements taking over Visakha Cements
and the Yerraguntla unit of CCI and Gujarat Ambuja Cement taking over Modi Cement. With
the replacement cost of existing units being very high, existing companies are good takeover
candidates. Long term investors should add cement companies to their portfolios.

The cement industry has just turned the corner after years of recession-generated glut.
Suddenly, its smack in the middle of a wooing spree with MNC heavy weights offering some
eye-popping tags for looks like regional footholds. A foreign investment curve in a newly
opened-up economy initially moves northwards. Investments first come into basic industries and
then gradually percolate down to other core sectors. However, in the case of India, this
conventional wisdom has, in fact, been turned on its head. Since 1991, the economy has seen
substantial investments in core infrastructure areas such as power, telecom, and even
transportation with intermediary sectors such as cement, steel and paper having been left out of
the loop. However, a correction has started to take shape, if the M&A trend in the cement sector
is anything to go by.

The capacity in the Indian market is more than the current demand. Besides depressed
market conditions had pushed most companies to the wall making them ripe for acquisition.

The incentives doled out to housing and other infrastructure sectors would lead to
increased developmental activities, which in turn would ensure higher demand for Cement in the
near future. The MNC’s are bullish about the Indian market precisely for this reason.

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CASH FLOW ANALYSIS

For foreign majors it is just a matter of waiting and watching. Given their deep pockets,
these companies can absorb losses in the initial years. Besides, Indian companies may not be in a
position to consolidate their market share any further given the high cost of debt availability
locally. Overseas, companies have access to low cost funds, in fact as low as 6%-7%. In contrast,
for a blue chip Indian companies like Gujarat Ambuja, the cost of raising funds will not come
down below 12.75% to 13%. Even if the promoters venture abroad, the cost would work higher
than what MNC muscle can garner. So, at the end of the day, even a company like Gujarat
Ambuja could become a possible target for MNC takeover. Already Lafarge, with 4.1 million
metric ton per annum capacity under its belt, is fast emerging a major player in the eastern
markets. Cement Francis, with its JV with Birla Group is aiming to consolidate its position in the
South. The game is still wide open but the MNC’s are back in the match.

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CASH FLOW ANALYSIS

OBJECTIVES OF THE STUDY:


1. To analyze the overall cash inflows of Zuari Cements Limited during the study period
i.e., 2004-05 to 2008.
2. To study the overall cash outflows of Zuari Cements Limited during the study period i.e.,
2004-05 to 2008.

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CASH FLOW ANALYSIS

LIMITATIONS OF THE STUDY:


1. The cash flow statement is not a substitute for financial statement.
2. The study is restricted to a period of four financial years i.e., from 2004-05 to 2008.
3. Lack of updated financial statements for the study i.e., statements of the year 2009.

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CASH FLOW ANALYSIS

NATURE OF THE STUDY


The project study focuses on the study of cash inflows and out flows for the period of
time. The study is confined to find out the changes in the cash flows of Zuari Cements Limited,
between the beginning and ending of the different financial years.

Cash flow analysis is a tool used to analyze the financial statements of the company
through which we are able to know the cash generating capability of the firm. It summarizes the
causes and of changes in cash position of a business enterprise between dates of the Balance
sheet. It describes the inflows and outflows of cash at particular period of date.

Now cash flow statements are widely used by the financial managers and analysts to
credit granting agencies.

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CASH FLOW ANALYSIS

RESEARCH METHODOLOGY
A science of studying how research is done scientifically is methodology. It helps to
understand not only the information of research enquiry but the steps involved in it too. It aims to
describe and analyze methods, through light on their limitations and resources, clarifye their
presuppositions and consequences, relating their potentialities to the frontiers of knowledge.

Research Design:

Before performing any research work the analyzer/ researcher needed to develop a frame
work. Which directs the researcher to perform his functions in an efficient and complete manner
is called a research design.

Types of Data:
Every analysis requires some data the data for the analysis is generally collected from
different sources. This collected data is classified into two types. They are as follows:

Primary Data: Data collected directly by interaction with the people i.e., by interacting with the
financial experts from the industry.

Secondary Data: Data collected from various sources Such as Annual reports, Schedules, and
some other printed sources such as industry journals etc.

For this cash flow analysis, the data was collected is from the secondary sources only.

Types of Research:
The research involves different types, the research depends on the type of data what we
have and the techniques available to perform.

Based on the available data and scope for analyzing the type of research what we selected
is Descriptive research.

Descriptive Research:

It is a type of research methods in which the research is restricted to a particular area. It


is purely due to the availability of less information. This research is restricted to certain extent
only. The researcher is only ale to understand what is there in the available data but he is not able
to explore or forecast future trend of it.

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CASH FLOW ANALYSIS

CASH FLOW ANALYSIS

Introduction:

Cash is the basic input needed to keep the operations of the business going on a
continuing basis; it is also the final output expected to be realized by selling the product
manufactured by the manufacturing unit. Cash is both the beginning and the ending of the
business operations.

Sometimes, it is so happens that a business unit earns sufficient profit, but inspire of this
is not able to pay its liabilities when they become due. Therefore, a business unit should always
try to keep sufficient cash, neither more nor less because shortage of cash will threaten the firm’s
liquidity and solvency, where as excessive of cash will not be fruitfully utilized, will simply
remain idle and will affect the profitability of ac concern. Effective cash management therefore
implies a proper balancing between the two conflicting objectives of liquidity and profitability.

The management of cash also assumes importance because it is difficult to predict


coincidence between the inflows and outflows accurately and there is no perfect coincidence
between the inflows or cash inflows exceeding cash outflows. Cash flow statement is one f the
tool of cash management because it throws light on cash inflows and cash out flows of particular
period.

Meaning of Cash flow:

A cash flow analysis is more useful because it gives detailed information to the
management about the sources of cash inflows and outflows. Cash flow analysis means to reveal
the cash outflows and cash inflows in a particular period. An analysis of cash flows is useful for
short run planning.

Definition:

Cash flow analysis can be defined as “As a statement which summaries sources of cash
inflows and outflows of particular period of time, say a month or a year”.

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CASH FLOW ANALYSIS

Such statement can be prepared from the data made available from comparative balance
sheets, profit and loss account and additional information.

It is an essential tool short term financial analysis and is very helpful in the evaluation of
current liquidity of a business concern. It helps the business executives of a business in the
efficient cash management and internal financial management. It is evaluating the cash inflows
and outflows of company’s during a particular period. It reveals the cash position of the
company.

Objective of Cash flow Analysis:

1. The economic decisions that are taken by users require an evaluation of the ability of an
enterprise to generate cash and cash equivalents and the timing and certainty of their
generation.

2. It deals with the provision of information about the historical changes in cash and cash
equivalents of an enterprise by means of cash flow statement which classifies the flow
during the period from operating, investing and financing activities.

3. Information about the cash flows of enterprise is useful in providing users of financial
statements with a basis to assets the ability of enterprise to generate cash and cash
equivalents and the needs of the enterprise to utilize those cash flows.

Scope of Cash Flow Analysis:

1. An enterprise should prepare a cash flow statement and should present it for each period
for which financial statements are presented.

2. Users of enterprise’s financial statements are interested in how the enterprise generates
and uses each and cash equivalents. This is the case regardless of the nature of the
enterprise’s activities and irrespective of whether cash can be viewed as the product of
the enterprise, as may be the case with a financial enterprise.

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CASH FLOW ANALYSIS

Enterprise needs cash for essentially the same reasons, however different their principal
revenue producing activities might be. They need cash to conduct their operations, to pay their
obligations, and to provide returns to their investors.

Applications of Cash Flow Analysis:

1. Predicts future cash flows.

2. Determines the ability to pay dividends and other commitments.

3. Shows the relationship of net income to change in the business cash.

4. Efficiency in the cash management.

5. Discloses movement of cash.

6. Discloses success or failure of cash planning.

7. Evaluate management decisions.

8. Enhances the comparability of reports.

Limitations of Cash Flow Analysis:

In spite of various uses of cash flow statement, it has the following limitations:

1. Cash flow statement gives the main of inflow and out flow of cash only and does not
show the liquidity position of the company

2. This statement is not a substitute of income statement which shows both cash and non
cash items. Therefore net cash flow does not necessary mean net income of the business.

3. It cannot replace funds flow statement as it cannot show the financial position of the
concern in totally.

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CASH FLOW ANALYSIS

MOTIVES FOR HOLDING CASH:

The firms need to hold cash may be attitude to the following three motives;

1. The transaction motive

2. The precautionary motive

3. The speculative motive

4. The compensation motive

Transaction Motive:

An important reason for maintaining cash balances is the transaction motive. This refers
to the holding of cash, to meet routine cash requirements to finance the transactions which a firm
carriers on the ordinary course of business. A firm enters into a variety of transactions to
accomplish its objectives which have to be paid form in the form of cash. For example, cash
payments have to be made for purchases, wages, operating expenses, financial charges like
interest, taxes, and so on.

Precautionary Motive:

In addition the non –synchronization of anticipated cash inflows and outflows in the ordinary
course of business, a firm may have to pay cash for purposes which cannot be predicted or
anticipated. The unexpected cash needs at short notice may be result of;

 Floods, strikes and failure of important customers;

 Bills may be presented for settlement earlier than expected;

 Unexpected slow down in collection of accounts receivable;

 Sharp increase in cost of materials.

 To meet unexpected contingencies.

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CASH FLOW ANALYSIS

Speculator Motive:

It refers to the desire of a firm to make advantage of opportunities which present


themselves at unexpected moments and which are typically outside the normal course of
business. While the precautionary motive is defensive in nature, in that, firms must take
provisions to tide over unexpected contingencies, the speculative motive represents a positive
and aggressive approach. Firms aim top exploit profitable opportunities and keep cash in reserve
to do so. The speculative motive helps to take in advantage of;

 An opportunity to purchase raw materials at reduced price on payment of immediate


cash;

 A chance to speculate to interest rate movements by using securities when interest rates
are expected to decline;

 Delay purchase of raw materials on the anticipation of decline in prices; and

 To make purchases at favorable prices.

Compensative Motive:

Another motive to hold cash balances is to compensate banks for providing certain
services and loans.

Banks provide a variety of services to business firms, such as clearance of Cheque,


supply of credit information, transfer of funds, etc. While for some of the services banks charge a
commission or fee, for others seek indirect compensation. Usually, clients are required to
maintain a minimum balance of cash at the bank. Since this balance cannot be utilized by the
firm to earn a return. To be compensated for their services indirectly in this firm, they require the
clients to always keep a bank balances sufficient to earn a return equal to the cost of services.
Such balances are compensating balances.

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CASH FLOW ANALYSIS

CLASSIFICATION OF CASH FLOWS:

Cash flows for a period can be classified into the three categories of cash inflows and
outflows as given below:

1. Cash flow from operating activities

2. Cash flow from investing activities

3. Cash flow from financing activities

CASH FLOW FROM OPERANG ATIVITIES:

The amount of cash flows arising from operating activities is a key indicator of the extent
to which the operations of the enterprise have generated sufficient cash flows to maintain the
operating capability of the enterprise, pay dividends, repay loans, and make new inventions
without recourse to external sources of financing . Information about the specific component of
historical operating cash flows, in conjunction with other information, in forecasting future
operating cash flows.

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

 Cash receipts from the sales of goods and the rendering of services;

 Cash receipts from royalties , fees, commissions, another revenue;

 Cash payments to suppliers for goods and services;

 Cash payments to and on behalf of employees;

 Cash receipts and cash payments of an insurance enterprise for premium and claims,
annuities, and other benefits;

 Cash payments or refunds of income taxes unless they cash be specifically identified with
financing and investing activities; and
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CASH FLOW ANALYSIS

 Cash receipts and payments relating to future contracts, and swap contracts when the
contracts are held for dealing or trading purposes.

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

CASH FLOW FROM INVESTING ACTIVITIES:

The separate disclosure of cash flows arising from investing activities is important
because the cash flows represent the extent to which expenditures have been made for resources
intended to generate future income and cash flows arising from investing activities are:

 Cash payments to acquire fixed assets. These payments include those relating to
capitalized research & development costs and self constructed fixed assets.

 Cash receipts from disposal of fixed assets.

 Cash payments to acquire shares, warrants, or debt instruments of other enterprises and
interests in joint ventures.

 Cash receipts and disposal of shares, or debt instruments if other enterprise and interests
in joint ventures.

 Cash advances and loans made to third parties.

 Cash receipts from the repayment of advances and loans made to third parties.

 Cash payments for future contracts, forward contract, opinion contracts, and swap
contracts except when the contracts are held for dealing or trading purposes, or the
payments are classified as financing activities.

When a contract is accounted for as a hedge of an identifiable position, the cash flows of
the contracts are classified in the same manner as the cash flows of the position being hedged.

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CASH FLOW ANALYSIS

CASH FLOWS FROM FINANCING ACTIVITIES:

The separate disclosure of cash flows from financing activities is important because it is
useful in predicting claims or future cash flows by provider of funds to the enterprise. Examples
of cash flow s arising from the financing activities are;

 Cash proceeds from issuing shares or other similar instruments;

 Cash proceeds from issuing debentures, loans, bonds, notes, and other short term or long
term loans;

 Cash repayments of amounts borrowed;

 Cash payments to redeem preference shares;

 Payment of dividend.

PREPERATION OF CASH FLOW STATEMENT:

An organization should prepare a cash flow statement according to accounting standard -


3. The following basic information is required for preparation of cash flow statement:

1. Comparative balance sheets.

2. Profit and loss account.

3. Additional data.

This statement is prepared in three stages as given below

 Net profit before taxation and extraordinary items

 Cash flow from operating, investing, and financing activities Cash flow statement

Changes in fixed assets and fixed liabilities have not been adjusted as these are shown
separately in the cash flow statement. It is so because current assets and current liabilities are
directly related to operations. Cash paid is deducted from cash generated from operations in
order to get the figure of cash flow before extraordinary items in order to get the figure of cash
provided by or using from operating activities.
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CASH FLOW ANALYSIS

SPECIAL ITEMS:

In addition to the general classification of three types of cash flows accounting standard-3 for the
treatment of cash flows of certain social item as under;
Foreign currency cash flows.

a) Extraordinary items

b) Interest and dividends.

c) Taxes on income.

d) Investments in subsidiaries, associates and joint ventures.

e) Acquisitions and disposal of subsidiaries and other business units.

f) Non cash transactions.

 The acquisition of assets by assuming directly related liabilities

 The acquisition of an enterprise by means of issue of shares and

 The conversion of debt to equity.

So cash flow analysis reveals the various items of inflow and outflow of cash. It is an
essential tool for short term financial analysis and is very helpful in the evaluation of current
liability of a business concern. It helps the business executives of a business in the efficient cash
management and internal financial management.

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CASH FLOW ANALYSIS

Format of cash flow statement as per revised AS-3 (Indirect Method):


Particulars As on Date
A. Cash from operating activities
Net profit made during the year xxxx
Adjustments for depreciation xxx
Loss on sale of machinary xxx
Operating porofit before Working Capitl Cahnges
Add:
Decrease in stock xxx
Increase in creditors xxx
Decrease in debtors xxx
Less:
Increase in stock xxx
Decrease in creditors xxx
Increase in debtors xxx
Net cash flow from operaring activities(A): xxxx

B. Cash from investing activities:


Sale of machinary xxx
Less: Purchase of land xxx
Less: Purchase of building xxx
Net cash from investing activities(B) xxxx

C. Cash from financing activities


Loans from Bank xxx xxxx
Ms A loan repaid xxx
Drawings xxx
Net cash from financing activities( C) xxxx
Net increase or decrease in Cash and Cash equivalents xxxxx
Cash and Cash equivalents at the starting of the year xxxxx

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CASH FLOW ANALYSIS

Table: 1

Sources and applications of cash through various activities as on 31-03-2005


Particulars 31-3-2005
(A).Cash from operating activities Rs 000's Rs 000's
Profit/loss before tax -1897.43
Adjustments for:
Add: Cash outflows:
Depreciation 2839.05
Miscellaneous expenses 109.09
Doubtful debts 31.41
Interest expenses and financial charges 2333.38
Less: Cash inflows:
Interest Income 47.07
Profit on sale of current investement 9.33
Add: Loss on sale of fixed assets 24.03 5280.56
Operating profit before working changes and adjustments: 3383.13
Workig capital changes:
Increase/(Decrease) in inventories 221.28
Increase/(Decrease) in trade & other recievables 610.92
(Increase)/Decrease in loans and advances 123.15
Increase/(Decrease) in trade & other payables 32.71
Less: Deffered revenue expenditure ___ 233.79
Cash generated before extraordinary items: 3616.91
Extraordinary item: Compensation for
Employees under voluntery retiremnent 207.49
Cash generated from operations 3409.42
Less: Income tax Paid: 6.67
Net cash generated from operating activities:(A) 3416.09

(B) Cash from Investing activities:


Add: Cash inflow:
Sale of assets: 1.02
Sale of current investement 5684.76
Interest received: 28.81
Less: Cash Outflows:
Purchase of fixed assets: 289.01
Purchase of current investement 5675.25
Investement in purchase of Sri Vishnu cements ltd 36.21
Net cash generated from the Investing activities:(B) -282.28
Source: Annual Reports of Zuari Cements Limited published on 31-03-2005

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CASH FLOW ANALYSIS

Table: 2

(C)Cash flow from financing activities: Rs 000's Rs 000's


Add: Cash inflows:
Increase or decrease in cash credit and demand loans 314.36
Borrowings 106.43
Sales tax deferral 1048.16
Increase in trade depositsfrom stocklist and dealers 119.58
Less: Cash outflows:
Repayent of borrowings 2950
Interest & financing charges paid 2198.03
Net cash generated from financing activities:(C ) -3559.5
Net increase in cash and cash equivalents: -425.69
(A+B+C)=(3146.09-282.38-3559.50)
Cash and cash equilaents at the start of the year 1806.4
Cash and cash equilaents at the end of the year 1380.71

Source: Annual Reports of Zuari Cements Limited published on 31-03-2005

Analysis:
The net cash flow during the year 2004-05 is 425.69 as an outflow. Which is a
composition of cash flows from the various activities are as follows:

Cash from operating activities is 3416.09 as a cash inflow; Cash from investing activities
is as an out flow i.e., 282.28; Cash from financing activities are as an out flow of 3559.5.

Interpretation:
1. Investments made on purchase of fixed assets and the purchase of cash investment in Sri
Vishnu cements Limited made additional cash out flow then the cash inflows through the
investing activities.

2. The repayment of borrowings and the increase in the financial charges that are needed to
payable made an increase in more cash out flows then compared to the cash inflows through
the financing activities.

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CASH FLOW ANALYSIS

Table: 3

Sources and applications of cash through various activities as on 31-03-2006


Particulars 31-3-2006
(A). Cash from operating activities Rs 000's Rs 000's
Profit/loss before tax 2456.46
Adjustments for:
Add: Cash outflows:
Depreciation 2859.77
Miscellaneous expenses 102
Interest expenses and financial charges 2234.88
Less: Cash inflows:
Interest Income 13.47
Provision for Doubtful debts 30.94
Profit on sale of current investement 138.15
Add: Loss on sale of fixed assets 29.99 5044.88
Operating profit before working changes and adjustments: 7500.54
Workig capital changes:
Increase/(Decrease) in inventories 611.37
Increase/(Decrease) in trade & other recievables 1554.54
(Increase)/Decrease in loans and advances 363.49
(Increase)/Decrease in trade & other payables 654.1
Less: Deffered revenue expenditure ___ 1223.78
Cash generated before extraordinary items: 8724.32
Extraordinary item: Compensation for
employees under voluntery retiremnent 126.35
Cash generated from operations 8597.97
Less: Income tax Paid: 47.24
Net cash generated from operating activities:(A) 8550.73

Source: Annual Reports of Zuari Cements Limited published on 31-03-2006

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CASH FLOW ANALYSIS

Table: 4

(B) Cash from Investing activities: Rs 000's Rs 000's


Add: Cash inflow:
Sale Of assets: 4.42
Sale of current investement 6659.81
loans repaid to sri Vishnu Cement ltd 525
Interest received: 121.61
Less: Cash Outflows:
Purchase of fixed assets: 949.89
Purchase of current investement 6646.34
Investement in purchase of Sri Vishnu cements ltd 13.04
Investements in Sitapuram power ltd 725.99
Business advance for power management 800
Loans to Sri Vishnu cement ltd 2123
Net cash generated from the Investing activities:(B) -3974.42

(C)Cash flow from financing activities:


Add: Cash inflows:
Borrowings 3684.11
Sales tax deferral 947.66
Increase in trade depositsfrom stocklist and dealers 92.39
Less: Cash outflows:
Repayent of borrowings 6314.66
Interest & financing charges paid 2104.55
Increase/ Decrease in cash credit and demand loans 798.62
Net cash generated from financing activities:(C ) -4493.67
Net increase in cash and cash equivalents: 82.64
(A+B+C)=(8550.73-3974.42-4493.67)
Cash and cash equilaents at the start of the year 1380.71
Cash and cash equilaents at the end of the year 1463.35

Source: Annual Reports of Zuari Cements Limited published on 31-03-2006

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CASH FLOW ANALYSIS

Analysis:
The net cash flow during the year 2005-06 is 82.64 as an inflow. Which is a composition
of cash flows from the various activities are as follows:

Cash from operating activities is 8550.73 as a cash inflow; Cash from investing activities
is as an out flow i.e., 3974.42; Cash from financing activities are as an out flow of 4493.67.

Interpretation:
1. Investments made on purchase of cash investment in Sri Vishnu cements Limited and the
Sitapuram power limited made additional cash out flow then the cash inflows through the
investing activities.

2. The repayment of more borrowings then the new borrowings resulted in the more cash out
flows then the cash inflows through the financing activities.

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CASH FLOW ANALYSIS

Table: 5

Sources and applications of cash through various activities as on 31-12-2006(9M)

Particulars 31-12-2006
(A). Cash from operating activities Rs 000's Rs 000's
Profit/loss before tax 13444.82
Adjustments for:
Add: Cash outflows:
Depreciation 2200.41
Miscellaneous expenses 67.1
Provision for Doubtful debts 43.26
Interest expenses and financial charges 990.68
Less: Cash inflows:
Interest Income 60.18
Dividend on investements 76
Profit on sale of current investement 1.65
Add: Loss on sale of fixed assets 450.41 3614.03
Operating profit before working changes and adjustments: 17058.85
Workig capital changes:
(Increase)/Decrease in inventories 225.06
(Increase)/Decrease in trade & other recievables 965.58
Increase/(Decrease) in loans and advances 49.26
(Increase)/Decrease in trade & other payables 1792.15
Less: Deffered revenue expenditure ___ 1100.89
Cash generated before extraordinary items: 18159.74
Extraordinary item: Compensation for
employees under voluntery retiremnent ___
Cash generated from operations 18159.74
Less: Income tax Paid: 1074.02
Net cash generated from operating activities:(A) 17085.72

Source: Annual Reports of Zuari Cements Limited published on 31-12-2006 (9 Months)

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CASH FLOW ANALYSIS

Table: 6

(B) Cash from Investing activities: Rs 000's Rs 000's


Add: Cash inflow:
Sale Of assets: 3.71
Sale of current investement 14024.45
loans repaid to sri Vishnu Cement ltd 1598
Dividend on investements 1.65
Interest received: 61.93
Less: Cash Outflows:
Purchase of fixed assets: 3917.45
Purchase of current investement 17756.65
Investement in purchase of Sri Vishnu cements ltd 24.82
Investements in Sitapuram power ltd 927
Business advance for Sitapuram power mgt ____
Loans to Sri Vishnu cement ltd ____
Net cash generated from the Investing activities:(B) -6936.18

(C)Cash flow from financing activities:


Add: Cash inflows:
Borrowings 134.11
Sales tax deferral 675.94
Less: Cash outflows:
Repayent of borrowings 9274.15
Increase in trade deposits from stockist and dealers 125.74
Increase/ Decrease in cash credit and on demand loans 329.5
Interest & financing charges paid 1037.07
Net cash generated from financing activities:(C ) -9956.41
Net increase in cash and cash equivalents: 193.13
(A+B+C)=(17085.85-6936.18-9956.41)
Cash and cash equilaents at the start of the year 1463.35
Cash and cash equilaents at the end of the year 1656.48

Source: Annual Reports of Zuari Cements Limited published on 31-12-2006 (9 Months)

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CASH FLOW ANALYSIS

Analysis:
The net cash flow as on 31-12-2006 is 193.13 as an inflow. Which is a composition of
cash flows from the various activities are as follows:

Cash from operating activities is 17085.72 as a cash inflow; Cash from investing
activities is as an out flow i.e., 6936.18; Cash from financing activities are as an out flow of
9956.41.

Interpretation:
1. Investments made on purchase of cash investment in Sri Vishnu cements Limited and the
Sitapuram power limited made additional cash out flow then the cash inflows through the
investing activities.

2. The repayment of more borrowings then the new borrowings and also the increased credit
sales resulted in the more cash out flows then the cash inflows through the financing
activities.

Dept. of MBA, SITAMS


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CASH FLOW ANALYSIS

Table No: 7

Sources and applications of cash through various activities as on 31-12-2007


Particulars 31-12-2007
(A).Cash from operating activities Rs 000's Rs 000's
Profit/loss before tax 28360.18
Adjustments for:
Add: Cash outflows:
Depreciation 5204.23
Amortisation of goodwill 1799
Interest expenses and financial charges 950.93
Less: Cash inflows:
Interest Income 1118.67
Dividend on investements -0.39
Profit on sale of current investement 194.82
Add: Loss on sale of fixed assets 265.76 6906.24
Operating profit before working changes and adjustments: 35593.64
Workig capital changes:
Decrease in inventories 750.95
(Increase)/Decrease in sundry debtors 707.52
(Increase)/Decrease in loans and advances 1579.34
Increase in current liabilities 984.5
Less: Deffered revenue expenditure ___ 863.63
Cash generated before extraordinary items: 36130.05
Less: Income tax Paid: 5827.03
Net cash generated from operating activities(A): 30303.02
(B) Cash from Investing activities:
Add: Cash inflow:
Sale Of fixed assets: 453.53
Sale of current investement 4003.02
Dividend on investements 0.39
Interest received: 826.64
Less: Cash Outflows:
Purchase of fixed assets: 17314.8
Purchase of current investement 4950.96
Investement in purchase of Sri Vishnu cements ltd 16.95
Net cash generated from the Investing activities:(B) -16999.13

Source: Annual Reports of Zuari Cements Limited published on 31-12-2007

Dept. of MBA, SITAMS


46
CASH FLOW ANALYSIS

Table: 8

(C)Cash flow from financing activities: Rs 000's Rs 000's


Add: Cash inflows:
Proceeds from Borrowings 2551.31
Less: Cash outflows:
Repayent of borrowings 5071.07
Interest & financing charges paid 952.86
Net cash generated from financing activities©: -3472.62
Net increase or decrease in cash and its equivalents: 9831.27
(A+B+C)=(30303.02-16999.13-3742.62)
Cash and cash equilaents at the start of the year 1656.48
Net increase in cash and its equivalents aquired on amalgamation 604.41
Cash and its equilaents cash the end of the year 12092.16
Net increase in cash and its equivalents at end of the year 9381.27

Source: Annual Reports of Zuari Cements Limited published on 31-12-2007

Analysis:
The net cash flow as on 31-12-2007 is 9831.27 as an inflow. Which is a composition of
cash flows from the various activities are as follows:

Cash from operating activities is 30303.02 as a cash inflow; Cash from investing
activities is as an out flow i.e., 16999.13; Cash from financing activities are as an out flow of
3472.27.

Interpretation:

1. Investments made on purchase of fixed assets and purchase of cash investment in Sri
Vishnu Cements Limited in more quantities then the cash inflows through the investing
activities such as dividends and sale of fixed assets. This resulted in the more cash
outflows then the inflows.

2. The net proceeds in the form of borrowings are very less then compared to the quantity of
amount of the repayment of borrowings made, and also more financial charges are paid.
This resulting in the more cash out flows then inflows through financing activities.

Dept. of MBA, SITAMS


47
CASH FLOW ANALYSIS

Table: 9

Sources and applications of cash through various activities as on 31-12-2008

Particulars 31-12-2008
(A).Cash from operating activities Rs 000's Rs 000's
Profit/loss before tax 32195.97
Adjustments for:
Add: Cash outflows:
Depreciation 5377.68
Amortisation of goodwill 1799.2
Interest expensesand financial charges 534.19
Less: Cash inflows:
Interest Income 881.08
Dividend on investements 8.39
Profit on sale of current investement 475.92
Add: Loss on sale of fixed assets 535.38 6881.06
Operating profit before working changes and adjustments: 39077.03
Workig capital changes:
Decrease in inventories -2216.97
Increase/(Decrease) in sundry debtors -109.09
(Increase)/Decrease in loans and advances -2942.11
Increase in current liabilities 10079.44
Less: Deffered revenue expenditure ___ 4811.27
Cash generated before extraordinary items: 43888.3
Less: Income tax Paid: 11364.05
Net cash generated from operating activities:(A) 32524.25

(B) Cash from Investing activities:


Add: Cash inflow:
Sale Of fixed assets: 13.91
Sale of current investement 43360.55
Dividend on investements 8.39
Interest received: 1009.81
Less: Cash Outflows:
Purchase of fixed assets: 54181.05
Purchase of current investement 37933.67
Net cash generated from investing activities -47722.06

Source: Annual Reports of Zuari Cements Limited published on31-12- 2008

Dept. of MBA, SITAMS


48
CASH FLOW ANALYSIS

Table: 10

(C)Cash flow from financing activities: Rs 000's Rs 000's


Add: Cash inflows:
Proceeds from Borrowings 10915.03
Less: Cash outflows:
Repayent of borrowings 1575
Repayment of non-convertiable borrowings 846.72
Interest & financing charges paid 534.19
Net cash generated from financing activities: (C ) 7959.12
Net increase or decrease in cash and its equivalents: -7238.69
(A+B+C)=(32524.25-47722.06+7959.12)
Cash and cash equilaents at the start of the year 12092.16
Cash and cash equilaents at the end of the year 4853.47
Net increase in cash and its equivalents aquired on amalgamation ___
Net increase in cash and cash equivalents at end of the year -7328.69

Source: Annual Reports of Zuari Cements Limited published on 31-12-2008

Analysis:
The net cash flow as on 31-12-20078 is 7238 as an outflow. Which is a composition of
cash flows from the various activities are as follows:

Cash from operating activities is 32524.25 as a cash inflow; Cash from investing
activities is as an out flow i.e., 47722.06; Cash from financing activities are as an inflow of
7959.12.

Interpretation:
1. Even though the cash inflows are increased tremendously by the sale of current
investment the purchases of fixed assets worth which is more than the net proceedings in
the form cash inflows resulted in more cash outflows.

2. The net proceeds n the form of borrowings are increased then compare to the amount of
repayment of borrowings this resulted in the more cash inflows then compared to the cash
outflows.

Dept. of MBA, SITAMS


49
CASH FLOW ANALYSIS

COMPARITIVE STATEMENT OF CASH FLOWS IN THE STUDY PERIOD:

Table: 11

YEAR CASHFLOW CASH FROM CASH FROM CASH FROM


OPERATIONS INVESTEMENTS FINACING
2004-05 -425.69 3416.09 -282.28 -3559.50
2005-06 82.64 8550.73 -3974.42 -4493.67
2006(9 Months) 193.13 17085.72 -6936.18 -9956.41
2007 9831.27 30303.02 -16999.13 -3472.62
2008 -7238.69 32524.25 -7722.06 -7238.69

40000

30000

20000 Cash flow


Operating
10000
Financing
0 Investing
2005 2006 2006 2007 2008
-10000

-20000

Figure 1 Comparison of Cash flows from various activities during the Study period i.e., from 2005 to 2008

Interpretation:

The overall cash inflows and the cash flows from the financing and investing activities
are fluctuating during the study period. And the cash from the operating activities are in
constantly increasing manner.

Dept. of MBA, SITAMS


50
CASH FLOW ANALYSIS

FINDINGS:

1. The major cash inflows of the firm are through the operating activities such as
Depreciation, amortization of goodwill.
2. The major cash outflows of the firm are through the investing and financing activities
such as Purchase of investments in Sri Vishnu Cements Limited. And the loans and
advances provided to the Sithapuram Power Limited.

Dept. of MBA, SITAMS


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CASH FLOW ANALYSIS

SUGGESTIONS:

As the firms cash inflows are less, the firm needed to reduce its investment and financing
activities and needed to try for achieving the inflows through the financing and investment
activities also. Otherwise the firm needs to pay more financial charges and interest on loans
provided by the financial institutions for providing additional investment for its operations.

Dept. of MBA, SITAMS


52
CASH FLOW ANALYSIS

CONCLUSION:

From the analysis I had concluded that the firm’s major inflows are through operating
activities and the outflows are through the financing and investing activities. The firms overall
cash flows at end of the year are fluctuating due to its improper planning of resources. The firm
needed to plan all its expenses i.e., the investments and acquires not exceeding the overall inflow
of cash.

Through overall study its clearly showing that firm is trying invest its funds in various
firms such as Sitapuram power limited and Sri Vishnu Cements Limited due to this the major
cash generated through the operating activities was gone as an out flow through the investment
in those firms.

As the firm is a joint venture between the Italcementi group and the Zuari cements
limited, the venture wants to extend its operations across various firms and increase its net worth
of the firm.

Dept. of MBA, SITAMS


53