SHIVA

A
STUDY ON
FUNDS FLOW STATEMENT
With reference to
PENNA CEMENT INDUSTRIES LIMITED, TALARI CHERUVU
VILLAGE,TADIPATRI"
A project report submitted to the
RVR & JC COLLEGE OF ENGINEERING (AUTONOMOUS)
In partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION
SUBMITTED BY
E.SIVA KUMAR REDDY
Regd. No: Y20MS017
Under the Guidance of

Mr. P. SIDDARDHA
ASSISTANT PROFESSOR
DEPARTMENT OF MANAGEMENT SCIENCES
NAAC ‘A+’ GRADE
Chowdavaram, Guntur-522019, Andhra Pradesh
2020-2022
DEPARTMENT OF MANAGEMENT SCIENCES
NAAC ‘A+’ GRADE
Chowdavaram, Guntur.
CERTIFICATE
This is to certify that the project report titled "A STUDY ON FUNDS FLOW STATEMENT
With reference to PENNA CEMENT INDUSTRIES LIMITED , TALARI CHERUVU
VILLAGE,TADIPATRI" is a Bonafide work done by E.Siva Kumar Reddy, Regd.
No:Y20MS017,II MBA under my guidance & submitted to the Department of Management
Sciences, R.V.R. & J.C. COLLEGE OF ENGINEERING (AUTONOMOUS),GUNTUR, in
partial fulfillment of requirements for the award of Degree of Master of Business Administration,
during 2020-2022.
Mr. P.Siddardha Dr. T.Sreekrishna
Project Guide M.B.A. Lr.Ship (UGC), M.Phil,Ph.D.
Head, Dept. of MS
EXTERNAL EXAMINER
DECLARATION
I E.SIVA KUMAR REDDY, student of Master of Business Administration,

R.V.R& J.C.COLLEGE OF ENGINEERING (AUTONOMOUS),GUNTUR. I hereby declare
that the project entitled "A STUDY ON FUNDS FLOW STATEMENT with reference to
PENNA CEMENT INDUSTRIES LIMITED , TALARI CHERUVU
VILLAGE,TADIPATRI " is a genuine work done by me during 2020-22.
The project report is prepared under the guidance of Mr. P.SIDDARDHA , Assistant Professor
in partial fulfillment of the requirements for the award of the Degree of Master of Business
Administration by Acharya Nagarjuna University, Guntur.
I hereby declare that, this is the result of my own efforts and it has not been submitted to any
other university for the award of any Degree or Diploma.
E.SIVA KUMAR REDDY

Regd.No:Y20MS017
ACKNOWLEDGEMENT
The Successful completion of this report is made possible with the help and
guidance received from various quarters. I would like to avail this opportunity to express my
sincere thanks and gratitude to all of them.
I sincerely thank Principal Dr. K. RAVINDRA for providing necessary

infrastructure and resources for the accomplishment of my project report in R.V.R. & J.C.
COLLEGE OF ENGINEERING, Chowdavaram, Guntur.
I would like to express my profound gratitude and sincere thanks to Dr. T.

SREEKRISHNA, Head of the Department of Management Sciences for his valuable
guidance and constant encouragement given to me during this project work.
I am deeply indebted to the supervisor P. SIDDARDHA, Assistant Professor,

Department of Management Sciences for his valuable guidance, constant encouragement,
constructive criticism and keen interest evinced throughout the course of my project work.
I am very much thankful to all the faculty members of the MBA department for
their value based imparting of the theory and practical subjects related to the project. Finally I
have a notation to express my sincere thanks to my family members, friends and all those who
guided, inspired and helped me in the completion of my project work.
E.SIVA KUMAR REDDY

REGD.NO.Y20MS017
SYNOPSIS
1. INTRODUCTION
Firms create manufacturing capacities for production of goods: some provide services to
consumers. They sell their goods or services to earn profit. They raise funds to acquire
manufacturing and other facilities. Thus, the three most important activities of a business firm
are: finance, production and marketing. A firm secures whatever capital it needs and employees
it (finance activity) in activities which generate returns on invested capital and marketing
activities.
FUNCTIONS OF FINANCIAL MANAGEMENT:

The financial functions can be divided into four broad categories:
1. Investment decisions.
2. Financing decisions.
3. Dividend decisions.
4. Liquidity decisions.
1. Investment decision:
Investment decision or capital budgeting involves the decision of allocation of capital or
commitment of funds to long-term assets, which would yield, benefits in future. It's one very
significant aspect is the task of measuring the prospective profitability of new investments.
Future benefits are difficult to measure and cannot be predicted with certainty.
2. Financing decision:
Financing decision is the second important function to be performed by the financial
manager. Broadly, he must decide when, where and how to acquire funds to meet the firm's
investment needs. The central issue before him is to determine the proportion of equity and debt.
The mix of debt and equity is known as the firm's capital structure. The firm's capital structure is
considered to be optimum when the market value of shares is maximized.
3. Dividend decision:
Dividend decision is the third major financial decision. The financial manager must
decide whether the firm should distribute a portion and retain the balance. Like the debt policy,
the dividend policy should be determined in terms of impact on the shareholder's value. The
optimum dividend policy is one, which maximizes the market value of the firm's shares.
4. Liquidity decision:
Current assets management, which affects a firm's liquidity, is an important finance
function. Current assets should be managed efficiently for safe guarding the firm against the
dangers of liquidity and insolvency. Investment in current assets affects firm's profitability,
liquidity and insolvency. Investment in current assets affects firm's profitability, liquidity and
risk. A conflict exists between profitability and liquidity while managing current assets.
Financial analysis is the process of identifying the financial strengths and weaknesses
of the firm. It is done by establishing relationships between the items of financial statements viz.
balance sheet and profit and loss account. Financial analysis can be undertaken by management
of the firm or by parties outside the firm viz., owner's creditors, investors and others.
Types of analysis:
1. Vertical analysis
2. Horizontal analysis
1. Vertical Analysis:
It is the analysis of relationship as between different individual components for a given
period of time. Comparison of current assets to current liabilities or comparison of debt to equity
for one point of time is the examples of vertical analysis. It can be made in the following ways.
● By preparation of common size statements of the two similar units.

● By preparing common size statement of different years of the same business.
2. Horizontal Analysis:
It is the analysis of changes in different components the financial statements over
different periods with the help of a series of statements. Study of trends in debt or share capital
or their relationship over the past ten years period or study of profitability trends for a period of
five years or ten years are examples of horizontal analysis. It comprises:
● Comparison of the financial statements of different years of the same business

unit.
● Comparison of financial statement of a particular year of different business
units.
Method of analysis:
Now the financial analyst may use one or multiple methods. financial analysis are:
i. Comparative statements.
ii. Common size statements.
iii. Trend analysis.
iv. Ratio analysis.
v. Funds flow analysis.
vi. Cash flow analysis.
vii. Cost-volume-profit analysis (cvp analysis).
NATURE AND SCOPE OF FINANCIAL MANAGEMENT:

⮚ Financial management is a branch of business management, which is associated with
future planning. Organization, co-ordination and control.
⮚ Financial management provides a sound base to all managerial decisions.
⮚ Production, research and development decisions based on financial management.
⮚ Financial management is a scientific and analytical analysis.
⮚ In the process of decision making and financial analysis modern mathematical
techniques are used. Managing a firm is both science and an art.
⮚ An analysis of the various definitions mentioned above make it clear that financial
management is concerned with the proper management of funds keeping in view the
enterprise objectives:
⮚ The financial manager should look after that the funds are procured the risk and cost
considerations are properly balanced and there is optimum utilization of funds.
Financial Functions:
Initially the finance managers were considered advent of an event requiring funds. The
finance manager was given a target amount of funds to rise and was given a target amount of
funds to rise and was given the responsibility of procuring those Funds. So his function was
limited to raising funds as and when the need arise. Once the funds were procured, his function
was over.
However, over a period the scope of his function has tremendously widened. His
presence is required at every moment whenever any decision having involvement of funds is to
be taken.
Now it is the F.M require looking into the financial implication, of any decision in the
firm. The functions of F.M are to manage the funds. Any act. procedures, decision relating to
funds comes under the purview of the F.M. since every activity in the business organization, be it
purchases, production marketing or capital expenditure has a financial implication, the finance
function is interlinked with all areas. In particular, the FM has to focus his attention on:
1. Procurement the required quantum of funds as and when necessary, at the lowest cost.
2. Investing those funds in various assets in the most profitable way.
3. Distribute returns to the shareholders in order to satisfy their expectations from the firm.
The FM is usually faces with the following distinct scenario

1. What should be the size of a firm and how fast should it grow?
2. What are the various types of assets to be acquired? (Investment decision)
3. What should be the pattern of raising funds from various sources? (Financing decision)
Depending upon the nature and size of the firm, the finance manager is required to
perform all or some of these functions from time to time. While performing the functions he is
required to take different decisions, which can be broadly classified into three groups.
Funds flow statement is a technical device designed to highlight the changes in the
financial condition of a business enterprise between the opening and closing balance sheet dates.
The flow of funds results in mainly profits of a business due to business operations. And has
been well said that “a business with an income at it heals furnishes always oil for its own
wheels”, it is the profit which becomes main sources of funds for a business. However profitable
companies can also be anemic with respect to working capital and since working capital is the
life blood of an enterprise, its shortage can disturb the operating cycle of the business. The
concept of ‘funds’ the flow which is to be examined in detail as to its sources and applications
so as to know the net increase or decrease in working capital over a period of time, usually a
year.
One of the most important techniques of financial analysis is a preparation of funds flow
statement. It is the statement which portrays the changes in the financial position of an
enterprise. Balance sheet and income statement do not present a comparative picture, even if
placed side by side in that much clarity as the statement of changes in financial position which
focuses on the sources and uses of funds.
Definition:
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. Funds flow statement in a statement either prospective
or 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 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.
Concept of Funds:
Funds in the narrowness sense of the term as be equated to cash. But in the broader sense
and appropriate one here, it refers to working capital that is current assets less than 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
human, 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.
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.

Concept of Funds Flow Statement:
The meaning of funds flow or flow of funds illustrates the concept of funds flow
statement clearly the statement which analysis the flow of funds that is the reasons for changes in
working capital is a funds flow statement.
The reasons are set by the sources and application of funds and therefore the statement can be
called as the statement of sources an application (uses) of funds. Some accountants prefer to call
it in short as fund and to which place have gone. It is also designated as where got and where
(movements) of working capital, movements of flow statements etc.
Importance of Funds Flow Statement:
The information which is provided by funds flow statement is neither available in the
balance sheet nor in the income statement and hence it’s important. The changes which have
taken place in between two accounting dates are highlighted by funds flow statement. A lay man
cannot grasp the underlying significance of achievements and progress of the company simply
by a personal of the balance sheet and income statement of different years. The comparative and
analytical study presented by the statement giving the details of sources and uses of funds during
a given period of immense help to the users of information.
It is very useful tool in analytical kit of the management also, besides the outsiders, in order to
have ‘at a glance’ appraisal of the financial and operating performance of a company. Since the
statement shows the extent to which the working capital has been effectively put to use, the
management’s task of taking policy decision regarding investment, dividends etc, is great
facilitated.
Uses of funds flow statement:

Funds flow statement of a company is of great value to management share holders,
creditors, bankers, money lending institutions etc.
❖ Informative value:-
The financial consequence of business operation are clearly explained in details

by a funds flow statement some of the problems which crop up in the minds of investors
are well solved by a simple perusal of this statement for e.g.,
⮚ Where have the profit gone.

⮚ Why does an imbalance exist between liquidity position and profitability position
of enterprise?
❖ Forecasting value:-
A projected funds flow statement can be prepared and resources can be properly
allocated after an analysis of the present state of affairs. The optimal utilization of available
funds are necessary for the overall growth of the enterprise. The funds flow statement
prepared in advance given a clear direction to the management in this raged.
❖ Testing value:- Whether the working capital has been effectively used or not by the
management can well be tested by funds flow statement. Whether working capital has
been maintained at proper level, and whether it is adequate or inadequate can be known
by a study of the statement. The management is warned against the injudicious uses of
funds.
Decision-making value:
Since overall credit worthiness of the enterprise is known, creditors and money
lenders can decide as to whether they have to provide loans to company or not. The sources of
raising funds and their application help the shareholders to decide whether the management of
the business is an enlightened or not regarding managing funds. Mismanagement of funds may
be prevented. The management can be decided about the future financing policies and capital.
NEED FOR THE STUDY
Every company needs to know the flow of funds both inflow and outflow. So that the
efficiency in utilizing the funds can be better to understand. For this the present analysis through
funds flow statement will be helpful.
The main need for the study is to study the operating activities, investing activities and
Financing activities in the Penna Cement Industries Limited and methods to evaluate the
financial performance of the company, with the help of Funds flow to evaluate the pattern of the
firm.
The importance of cash management is so essential in any organization to run the
business with continuous basis. The present study also attempts to know the “cash management
system in selected in selected organization”.
SCOPE OF THE STUDY
The present study focuses on sources of funds and application of funds for a period of
time. The study is confirmed to find out the changes in the financial position of the Penna
Cement Financial Services Limited between the beginning and ending financial Year. It is a
technical device designed to analyze the changes in the financial condition of the business
enterprises between two dates.
This funds flow statement is a statement which indicates various means by which the
funds have been obtained during a certain period and the ways to which these funds have
been used during the period.
The term funds used here means working capital that is the excess of current assets
over current liabilities. It is an essential tool for the financial analysts and is of primary
importance to the financial management.
Now a days it is being widely used by the financial analyst credit granting
institutions and financial managers. The basic purpose of the funds flow statement is to
reveal the changes in the working capital on the two balance sheet dates. It helps in the
analysis of financial operations. It helps in the formation of realistic dividend policy. It helps
in the proper allocation of resources. It helps in appraising the use of working capital and
finally it acts as future guide.
OBJECTIVES OF THE STUDY
1. To analyze and examine the funds flow statement through working capital, funds from
operations and funds flow statement.
2. To measure the financial strength of the firm during the period of the study (2016-2017 to
2020-2021).
3. To analyze the changes in assets and liabilities from the end of one period of the time to
the end of another period of time
4. To find out the sources from which additional funds were derived and the use to which
their sources were put.
5. To study measures for the effective working of Penna Cement Industries limited.
6. To determine the progress and profitability of the organization and to offer appropriate
suggestions for better performance of the organization.
7. To study theoretical aspect of funds flow analysis and compare with practical fund flow
analysis with that of Penna Cement Industries limited.
METHODOLOGY OF THE STUDY
Methodology is a systematic process of collecting information in order to analyze and

verifies a phenomenon. The collection of data is two principle sources. They are discussed as
● Primary data
● Secondary data
Primary Data:-
The primary data needed for the study is gathered through interview with concerned
officers and staff, either individually or collectively, sum of the information has been verified or
supplemented with personal observation conducting personal interviews with concerned officers
of finance department of "PENNA CEMENT INDUSTRIES LIMITED".
Secondary Data:-
The secondary data needed for the study was collected from published sources such as,
pamphlets annual reports, returns and internal records, reference from text books and journal
management.
Further data needed for the study was collected from:-

● Collection of required data from annual records of the company.
● Reference from text books and journals relating to financial management.
Diagrammatic Representation of Research Methodology
Diagram 2.1
DATA SOURCE
Primary data Secondary data
Management Respondents Inside the company

LIMITATIONS OF THE STUDY
● Due to the confidential records the data not exposed so the study may not exposed , so the
study may not be full-fledged .
● The study is purely based on the data available in the firm of annual reports .
● The period of the study for 5 years and the performance evaluation is also limited to 5
years .
● The study is based on the past date, which cannot predict the future performance
accurately.
● The study may not be detailed in all aspects.
● The study time period is limited.
● It should remember that a funds flow statement is not a substitute of an income statement
or a balance sheet. It provides only some additional information as regards changes in
working capital.
● The study based on the available annual reports and internal information of
Penna cement industries Limited Financial Services only.
● It cannot reveal continuous changes.
INDUSTRY PROFILE
Cement Industry has been decontrolled from price and distribution on 1 st March
1989 and de – licensed on 25th July 1991. However, the performance of the industry and prices
of cement are monitored regularly. Being a key infra structure industry.
The constraints faced by the industry are reviewed in the Infrastructure Coordination
Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary
(Coordination). The Committee on Infrastructure also reviews its performance. The industry is
subject to quality control order issued on 17.2.2003 to ensure quality standards.
CEMENT INDUSTRY IN INDIA:
In India it came to be established during the beginning of 20th century. In fact the cement
era in India commenced with the establishment of a small cement factory at
WASHERMANPET in 1904 by South India industry Ltd. a company that dates to 1879. The
potential capacity of this plant was only 10,000 metric tons per annum. This was the first attempt
of manufacturing Portland cement with cat carious seashells as a principal raw material. There
was sufficient demand for that product, but because of technological defects and inadequate
supply of raw materials, the plant did not operate economically, a later on collapsed.
India is ranked fourth in the world after China, Japan, and USA in cement production.
Yet the per-capital consumption of cement in India however low at 70 to 80 kgs against the
world average of around 220kgs.
CEMENT INDUSTRY IN ANDHRA PRADESH:

Cement was first manufactured in America in the year 1875. In India, in 1914 the India
Cements Company Limited was established a cement factory at Portland. Andhra Pradesh is the
second largest cement production state in India, one third of the limestone (138crore tones) is
available in A.P.I.A.P. the cement production was started in 1936 with two factories. Of these
two factories one is Andhra Cement Company Limited and another in Krishna Cement Factory.
One is on the side of Krishna Cement Factory. One is on the side of Krishna River and another
is in between Krishna and Guntur districts respectively.
In 1995, one more factory was established at Panyam in Kurnool Dist., named as Panyam
Cement and mineral industries. At the same time one more factory has been established at
Maacherla in Guntur district. At the end of July 1985 the total capital invested on cement
industry was Rs.427.81 lakhs and provided employment for 1262 persons and 19 factories were
functioning with a production of 85lakh tones.
Capacity, Production and Exports:

India today boasts 129 large plants and over 300 mini cement plants with a capacity
of 165 million tones and production of 134 million tones (2016-17).
It ranks second in the world among cement producing countries, with per capita
consumption at 118Kg compared to the world avg. Of around 317. Per capita consumption is
366 Kg in Thailand, 626 Kg in China, 606 Kg in Malaysia and 1216 Kg in South Korea. This
indicates a huge potential for increase in consumption.
The Cement Corporation of India, which is a central public sector undertaking, has 10
units. Besides, there are 10 large cement plants owned by various state Governments. Keeping
in view the past trends, a production target of 133 million tons has been set for the year 2016 –
17. During the Tenth Plan, the Industry is expected to grow at the rate of 10% per annum and is
expected to add capacity of 40 – 52 million tons.
Mainly through expansion of existing plants and use of more fly ash in the production of
cement. A part from meeting the domestic demand, the cement Industry also contributes towards
exports. The export of cement and clinker during the last three years is as under:-
Export of Cement:
(In million tons)
Year Cement Clinker Total
2016 – 2017 3.47 3.45 6.92

2017 – 2018 3.36 5.64 9.00
2018 – 2019 3.31 4.82 8.13
2019 – 2020 5.2 4.4 9.6
2020 – 2021 5.48 4.56 10.04
Overview of the performance of the Cement Sector:

The Indian Cement Industry not only ranks second in the production of cement in the
world but also produces quality cement, which meets global standards. However, the Industry
faces a number of constraints in terms of high cost of power.
High railway tariff; high incidence of state and central levies and duties; lack of
private and public investment in infrastructure projects; poor quality coal and inadequate growth
of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize
excess capacity available with the cement Industry, the Government has identified the following
thrust areas for increasing demand for cement:
● Housing development programs;
● Promotion of concrete highways and roads;
● Use of ready – mix concrete in large infrastructure projects; and
● Construction of concrete roads in rural areas under Prime Ministers Grama

Sadak Yojana.
Technological advancements:
Indian cement industry is modern and uses latest technology. Only a small
segment of industry is using old technology based on wet and semi-dry process. Efforts are being
made to recover waste heat and success in this area has been significant.
India is also producing different varieties of cement like Ordinary Portland Cement
(OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil
Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White
Cement, etc. Production of these varieties of cement conforms to the BIS Specifications. It is
worth mentioning that some cement plants have set up dedicated jetties for promoting bulk
transportation and export.
Infrastructure – driven demand push:

The bulk of cement demand is from housing and commercial
development of which metros account for a significant amount. It is estimated that Mumbai,
which consumes almost six million tones, along with Pune, accounts for 45 percent of
Maharastra’s cement consumption, Bangalore consumes four million tones and Chennai around
3 million tones, “these are really the growth clusters. Today bulk of the demand is driven by
housing and commercial construction and as infrastructure picks up, for example, Bangalore
international airport, Hyderabad airport and modernization of Mumbai and Delhi airports.
Another large consumer has been the roads sector. The off take was good when the
NHDP programme was launched but there was a Null last year. “Once again new orders have
been placed and in 2006, the industry will pick up. The estimate is that from roads, demand is
not more than 4-5 million tones but it makes a difference in the growth numbers”.
Narrowing demand-supply gap:

The industry has a capacity of 165 million tons and in Jan 2006, dispatches were at
almost 100%. On an overall basis, the industry does not do more than 90-92% because of
constraints such as transport and raw material.
The industry has been adding capacity of 6-7 million per annum by Brownfield
expansion and de-bottlenecking which is expected to partly cater to the requirement because it is
growing by around 20 million tons per annum.
Challenges before the industry:

Energy costs account for half of the cost of production of cement. Last year saw a
15-16% increase in coal prices and then diesel prices went up pushing up transportation costs.
Freight problems:
The importance of freight for the cement industry cannot be emphasized enough.
While in the last few months’ railways have been steadily losing freight to road sector they have
been confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could go as
high a Rs.800 for long leads. This would only easy the first level of sale and additional costs are
involved to take it further.
Another issue, which will hit the industry hard, is that of logistics and a Supreme
Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed to
enforce the discipline that trucks only carry a specified load. “Many states and already
implementing this and there is already an increase in freight rates and in some cases, it has gone
up by 50%. Also, the requirement for trucks to carry the same freight has nearly doubled and in
many places the industry is being forced to move to railways.”
High taxes:
While the railways have had capacity to meet the requirement, it is expected that in
March the commencement of peak season for the procurement of food grains, the railways would
be constrained to provide adequate number of wagons.
So fright rates are up, railways cannot provide wagons and trucks are unlikely to be
viable so there could be a serious dislocation of supplies going forward.According to the cement
manufactures association total taxes and duties on cement come to around Rs.900 a ton or Rs. 45
a bag. “So at a price of Rs.150 a bag in the market, taxes and duties account for one third. Which
is high for such a basic product. This includes excise duty, sales tax and royalty on limestone.
The importance of limestone can only be underscored as for every ton of cement
produced. 1.5tons of limestone is required. “For limestone, royalty is on a per ton basis at Rs. 40
whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying Rs.70
a ton for limestone as royalty. VAT is at 12.5% without any justification and it should be in 4%
category, excise is at Rs.408 per ton when it should be around Rs.200.
Export Advantages:
From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of cement/clinker
have grown rapidly at about 30-40% and this year exports will cross 10 million tons.
Major cement producers – market shares:

● Acc -12.8%
● Abuja -10.7%
● Grasim-10.4%
● Ultra tech-9.5%
● India cement-6.0%
● Jaypee-4.1%
● Lafarge-3.2%
● Madras-3.2%
Overall, the industry is in a better state today than 2 years ago. “Cement prices even
today are way below global levels. So setting up Greenfield capacities is not attractive, as
prices will not give attractive returns on investment. That is a minor reason why there is no
Greenfield capacity coming up. It has to be born in mind that one third of the prices is
accounted for by taxes and duties and nearly 20-25% by the freight component. So what
produces earn at the factory gate is among the lowest in the world.”
This year 2021 has commenced on a good note and in fact, December was a very good
month with dispatches at 12.5 million tons and January dispatches were in excess of 13
million tons.
“This means capacity utilization is in the nineties which is healthy and will actually lead
to firming up of prices. It looks like sales could be 137 million a ton for 2020-21(125 million
tons in 2019-20) and so far growth has been 10%. There are enough reasons to believe it will
sustain.”
COMPANY PROFILE
A Penna cements industry Limited was incorporate on Oct 24 th 1991, to set up a cement plant at
Tadipatri in Ananthapur District of Andhra Pradesh. The plant commenced commercial
production on Aug 10th 1994 as mini cement plant with initial capacity of 0.30 million tons. The
company short period getting profits. Later 1995 plant capacity was increased 0.4 million tons
which upgrade its state major plant.
Penna cement industries ltd establishing by Mr. Prathap Reddy aged 44 began his
entrepreneur career with civil engineering contracts by lunching pioneer builders Mr.Prathap
reddy has experiences of two decades in cement industry .he was the executive director of
priyadarshini cement right from its inception in 1984 in 1991 Mr. Prathap Reddy incorporated
his own cement company located in between Talaricheruvu and Urichintala village. At present
about 2720 tons of various grades of cement is being manufactured daily at the factory.
Key Management:
Chairman and Managing Director:
⮚ Mr. P.Prathap Reddy
Whole-time Director:
⮚ Mr. Lakshmi Kantham Dabbara
Non-Executive Directors:
⮚ Mrs. P.Deepthi Reddy
⮚ Mr. P.Venu Gopal Reddy
Independent Directors:
1. Mr. Anil Kumar K.
2. Dr. Kancherla Ravindranath
3. Mr. P.Pradeep Kumar
4. Mr. Sairam Mocherla
5. Mrs. Umanath Varahabhotla
Chief Financial Officer:

Mr. Petluru. Venugopal Reddy
Company Secretary:
Mr. Raj Kumar Singh
Statutory Auditor:
M/s C.Ramachandram & Co.
Chartered Accountants
H.No. 3-6-237,606
Lingapur Build Complex, Himayathnagar,
Hyderabad – 500029,
Telangana.
Internal Auditor:
M/s Deloitte Haskins & Sells LLP
KRB Tower, Plot No. 1 to 494A, 2nd Floor, Awing,
Jubliee Enclave Madhapur, Hyderabad – 500081,
Telangana.
Bankers:
State Bank of India
IDBI Bank Limited
Yes Bank Ltd.
Registered Office:
H.No.8-2-268/A/1/S & S1, Plot No.705 Road No.3,
Banjara Hills,
Hyderabad – 500034
Telangana, India.
LOCATION OF THE COMPANY:

TALARICHERUVU VILLAGE,
TADIPATRI MONDAL,
ANANTHAPUR DISTRICT,
ANDHRA PRADESH.
GST No. :
37AABCP2290D1ZN
CIN NO. :
U26942AP1991PLC013359
Quarry:
Major raw material for cement industry. The quarry has a mining lease of 235.52 acres in
Talaricheruvu village. 440.47 acres in Urichintala village and 629.75 acres in Korumanipalli
village of Kurnool district.
RAW MATERIALS :
Limestone:
Limestone is the major raw material for the cement industry. Limestone constitutes 60 to
70 percent of the total raw material costs. Nearly 1.5 – 1.6 tons of limestone is required for
producing one ton of cement clinker limestone (calcium carbonate) is a rock of either
sedimentary or metamorphic origin with calcium oxide as its main constituent. In India
limestone occurs mainly as sedimentary rocks and constitutes 30 percent of the total sedimentary
rocks in the country. Cement grade limestone is available in 21 states in the country. About 65
percent of the cement plants in India uses sedimentary limestone and 20 percent use
metamorphic crystalline limestone. India has 85,980 million tones of cement grade limestone
deposits, which is enough to produce 100 million tones of cement for the next 500 years.
Total reserve
No. of years limestone reserve would last = -------------------------------------
Avg., limestone Consumption
It is quite clear that India’s limestone reserves are adequate for the next several years.
More over new reserves would be discovered every year Limestone is mixed extensively in India
and ranks second in production next to coal mining. Major portion of limestone mining portion
of limestone mining is for cement industry (nearly 75% to 80%) therefore the demand supply
situation is quite comfortable.
In India limestone deposits are abundantly found only in Siroly (Rajasthan), Santna,
Belaspur (M.P., wadi (Karnataka), Tadipatri (A.P.) and some places in Gujarat. Units are
generally located in close proximity of limestone deposits in Madhya Pradesh, Andhra Pradesh,
Tamil Nadu, Karnataka, Rajasthan, and Gujarat.
The quality of required for the cement production should have the following composition.
Lime : 50%
Silicon : 3%
Aluminum : 4%
Iron oxide : 0.50%
Magnesium : 0.50%
Loss on Ignition : 42%
Total : 100%
If Magnesium content exceeds 0.4-0.5 percent, the limestone is not suitable for cement.
Similarly, lime content is directly proportional to the clinker and cement quality and quantity.
GYPSUM:
Gypsum is another important required material for cement manufacturing, constitutes

about 5 percent of the weight of the cement. Gypsum is added in required quantity at the time of
grinding of clinker. The clinker and the required amount of the Gypsum is added to control the
setting time of the cement. India possesses resources of gypsum. Hence its availability is not a
concern for the cement manufacture.
Other Raw Materials:
A few other raw materials like Blast furnace slag and fly ash are also required for the
manufacture of the cement. Blast furnace slag is a waste product obtained from iron smelting
furnace whereas fly ash is the left over ash from thermal power station.
Inputs:
Although limestone is the major raw material for cement industry, the critical raw
material is energy. How well the company uses coal and electricity and how much it costs will
determine the success ratio for cement manufacturers. Major inputs in cement manufacturing
include coal, power and freight.
Coal:
In India coal I am being used as the fuel for the manufacturing of cement. Else where in
the world lignite, nature gas and oil are also used. They are not used in India as continuous
supply of natural gas is not assured used by plants in southern plants of India, like Dalmia
Cement, Chettinad cement etc., as a supplement to coal which compensates the storage for coal
in this area. Non cooking coal of lower ash content is required by cement plants. It should be less
than 30%. A useful heat of 4500 kilocalories per 1k.g of coal. Coal of lower ash enables
comparatively lower quality of limestone. The coal should have volatile matter and high
temperature. Transport of coal is another big issue as many of larger cement plants are located
close to the limestone deposits, which may not have coal deposits nearby.
Power:
Power constitutes about 10% of the total cement production costs. About 3 percent of the total
power generated in the country is used by cement industry. The average consumption of power
in the dry process kilns is around 125 units per million tons of clinker.
Freight:
Freight constitutes a very significant part of the cost structure of cement units in India. On an
average freight for transporting finished product alone forms 13.85% of the cost of production of
large cement plants.
The main areas of freight coast for the cement industries are
● Transporting coal from the coal fields to the cement factories.
● Transporting cement from the plants to their mark
Limestone transport would be even costlier than transporting coal or cement. Hence
cement plants are located in cluster near limestone deposits. Indian railway is moving up to 60%
of the total cement production.
SALIENT FEATURES OF PENNA CEMENT:

● High strength and great durability.
● A very perceptible saving in costs (up to 20% to 25%) due to low setting time
● Superior quality of the cement resulting in a better overall finest
● Stronger bonding with aggregates.
Growth and Performance:

The company has enhanced its capacity from 600 TPD to 8000 TPD over the period of 10
years. The Existing cement plant was upgraded to 5000 tones capacity per day. The profits for
the year 2017-18 are Rs. 92.77 lakhs and sales of Rs. 946.20 lakhs. The company holds the
assets of Rs. 601.92 lakhs. The annual capacity of the company 18,25,000 tons.
Competitiveness of Cement Project:

companies – Ultra tech, Andhra Cement, Grasim Cement, Gujarat Ambuja cement, Parasakthi,
Larsen and Tubro, Coramandal cement, Priya Cement, Nagarjuna cement, Sagar cement ACC
Suraksha cement, Zuari cement, and India cement Ltd.
TECHNOLOGY ADOPTION AND INNOVATION:
The company has obtained the basic engineering designs and other technical know-how
from M/s. ONODA ENGINEERING and consulting company limited Japan for the cement
plant he technical collaborates are continuously guiding the company for achieving improved
productivity and benefits such as conservation of energy etc., besides trouble shooting a specific.
Man power:
Based on requirement of individual departments, Head of that department is asked to give
information to man power planning department regarding the number of persons required. The
departmental heads assess their requirements based on the available departmental job description
to ensure role clarity and to avoid role ambiguity. The Central Personnel Dept. carries out the
recruitment process.
The total employees in PENNA CEMENT are 345 covering all departments. There are
nearly 500 contract labor working every day on casual basis.
Raw Materials & Requirement:

Limestone, Iron ore, Bauxite, Gypsum and Coal are the basic raw materials used in the
manufacturing process of cement. The average consumption of various raw materials is shown
in the table.
REQUIREMENT OF RAW MATERIALS

S. No Raw material Tons per day Consumption per tons
of Cement
1 Limestone 2282 1.4 to 1.5
2 Additives 375 0.06 to 0.75
3 Bauxite iron ore 155 1.16 to 0.20
4 Gypsum 85 0.04 to 0.05
5 Product clinker 500 ------
Source: Annual reports of Penna Cement Limited.
Note:
Due to change in the quality of lime stone and coal, the consumption of additives has
been changed accordingly.
Material Balance:
Limestone + Additives Raw material
Raw material (1.46%) +coal Calcinations clinker
Clinker + Gypsum Ordinary Portland cement
Clinker + Fly ash Pozzoland Portland
Note:
Depending upon quality of raw materials the above consumption may value.
PRODUCT PROFILE:
Penna Cement manufactures and distributes its own main product lines of cement. It
aims to optimize production across all the marketers, providing a complete solution for
customer’s needs at the lowest possible cost, an approach known as “strategic Integration of
Activities”. Cement is made from a mixture of 80 percent limestone and 20 percent clay. These
are crushed and ground to provide the “raw meal”, a pale, flour – like powder. Heated to around
1450o C (2642o F) rotating kilns, the “meal” undergoes complex chemical changes and is
transformed into clinker. Fine – grinding the clinker together with a small quality of gypsum
produces cement. Adding other constituents at this stage produces cements for specialized uses.
PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS:

Presently the company is manufacturing 43 grade, 53 grade. Ordinary portal cement port
land slag cement, soleplate Resistant with brand name of “PENNA”
Penna Suraksha - 53 Grade
Penna Power - 53 Grade
Penna Super - 43 Grade
ADVANTAGES:
Here are five of the many reasons why Penna 53 Grade and 43 Grade cement edges out
its competitors.
● High compressive strength.

● Low heat of hydration.
● Better soundness.
● Lesser consumption of cement for M-20 Concrete Grade and above.
● Faster de – shuttering of formed work
● Reduced construction time with a superior and wide range of cement catering
to every conceivable building need, Penna Cement is a formidable player in
the cement market.
Here are just a few reasons why Penna Cement chosen by millions of India.
● Ideal raw material
● Low lime and magnesia content and high proportion of silicates
● Greater fineness
● Slow initial and fast final setting
● Wide range of applications
● Quality customer services
THEORETICAL FRAMEWORK
Funds Flow Statement:

The following are the definitions of funds flow statement.
According to 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".
According to R.N. Foulk:

"A statement of sources and applications of funds is a technical devise designed to
analysis the changes in the financial conditions of a business between two dates":
According to BIER MAN:

It is a statement which highlights the underlying financial movements and explains the
changes of working capital from 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 balances sheet dates. In
this statements only the net changes are shows that the outcome of a transaction as of a series of
transactions upon the financial condition of at business enterprise is reflected more sharply.
SIGNIFICANCE OR CONCEPT OF FUNDS FLOW STATEMENT:

The funds flow statement is an important tool of financial analysis. The utility of the
funds flow statement items from the fact that it enables management, shareholders, investors,
creditors and other interested in the enterprise to evaluate the uses of financial policies of the
management.
Decisions Relating To Financing:

With the people of the funds flow statement the analyst can evaluate the financing
patterns of the enterprise. An analysis of the major sources of funds in the past reveals what
portion of the growth was financed internally and what portion externally. The statement is also
meaningful in judging whether the company has grown at too fast rate. credit has increased at
relatively higher rate, one would wish to evaluate the consequences of slowness in the trade
payments on the credit standing of the company and its ability to finance in future.
Decision On Capitalization:
The funds flow statement serves as handmaid to the finance manager in deciding the
make up of capitalizations. Estimated uses of funds for new fixed assets working capital,
dividend, 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
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 assets 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 particular funds statements are very useful in planning
intermediate and long term financing
USES OF FUNDS FLOW STATEMENT

The financial statements reveal the net effect of various transactions on the operational
and financial position of a concern. The balance sheet gives a static view of the resources or a
business and the uses to which these resources have been put at a certain point time. But it does
not disclose the causes for changes in the assets and liabilities. between two different points of
time.
The funds flow statement explains causes for such changes and also the effect of these
changes on the liquidity position of the company. Sometimes a concern may operate profitably
and yet its cost position may become more and worse. The funds flow statement gives a clear
answer to such a stimulation explains what has happened to the profit of the firm.
It shows light on many perplexing question of general interest which otherwise may be difficult
to be answered, such as:
1. Why were the net current assets lesser in spite of higher profits and vice versa?
2. Why more dividends could not be declared in spite of available profits?
3. How was it possible to distribute more dividends than the present earnings?
4. What happened to the net profit? Where did they go?
5. What happened to the proceeds of sale of fixed assets or issue of shares? Debentures etc.?
6. What are the sources of the repayment of debt?
7. How was the increase in working capital financial and how will it be financed in future?
It helps the formation of a realistic dividend policy, sometimes a firm has sufficient
profits available for distribution as dividend but yet it may not be advisable to distribute divided
for lack of liquid of cash resources. In such cases, a funds flow statement helps in the formation
of a realistic dividend policy.
GROWTH AND PERFORMANCE

TABLE 4.1
STATEMENT OF CHANGES IN WORKING CAPITAL
DURING THE YEAR 2016-2017
(IN LAKHS)
Particulars 2016 2017 Changes in WC
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 9194.08 10636.86 1442.78 -
Sundry Debtors 6706.59 7667.92 961.33 -
Cash &Bank 350.67 2650.37 2299.70 -
Loans& Advances 2070.42 5241.68 3171.26 -

18321.76 26196.83
Total Current Assets(a)
Current Liabilities:
Current Liabilities 9202.11 10188.34 986.23
Provisions 354.42 538.25 183.83
9556.53 10726.59
Total current liabilities(b)
Working Capital (a-b) 8765.23 15470.24
Increase in Working Capital 6705.01

6705.01
15470.24 15470.24 7875.07 7875.07

Interpretation: -
It is clear from the above table that the current assets of the company have increased from
Rs.18321.76 lakhs in (2016) toRs.26196.83 lakhs in (2017). The current liabilities of the
company have decreased from Rs.9556.53 lakhs in (2016) to Rs.10726.59 lakhs in (2017).
There is an increasing the working capital is Rs.6705.01 (lakhs).
TABLE 4.2
ADJUSTED PROFIT AND LOSS ACCOUNT 2017
(IN LAKHS)
Particulars Amount Particulars Amount
To balance c/d 5108.64 By balance b/d 3993.06

Funds from operation 2841.12
To differed tax 566.73
To depreciation 1156.89
To preliminary expenses 1.92
6834.18 6834.18
TABLE 4.3
FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH
31.12.2017
(IN LAKHS)
Amount Amount
Sources Rs. Uses Rs.
Secured loans 7138.11 Payment of un-secured loans 1335.46

Decrease in capital work in Purchase of fixed assets 6788.33
progress 4849.57 Increasing working capital 6705.01
Funds from operations
2841.12
14828.80 14828.80
TABLE 4.4
DURING THE YEAR 2017-2018
( IN LAKHS)
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 10636.86 12092.91 1456.05
Sundry Debtors 7667.92 8814.31 1146.39
Cash &Bank 2650.37 420.10 2230.27
Loans& Advances 5241.68 5289.66 47.98
Total Current Assets(a) 26196.83 26616.98
Provisions 538.25 711.30 173.05
Total current liabilities(b) 10726.59 10030.68
Working Capital a-b 15470.24 16586.30

Increase in Working Capital 1116.06 1116.06
16586.30 16586.30 3519.38 3519.38
Interpretation: -
Rs.26196.83 lakhs in (2017) to Rs.26616.98 lakhs in (2018). The current liabilities of the
company have increased from Rs.10726.59 lakhs in (2017) to Rs.10030.68 lakhs in (2018).
There is an increasing the working capital is Rs.1116.06 (lakhs)
TABLE 4.5
(IN LAKHS)

Funds from operations 4976.21
To preliminary expenses -
10084.85 10084.85
TABLE 4.6
31.12.2018
(IN LAKHS)
Amount Amount

Funds from operations 4976.21 Purchase of fixed assets 3691.91
Increasing working capital 1116.06
Increase in capital work in
107.56
progress
Prior period adjustment 47.76
6425.62 6425.62
OBSERVATIONS
● During the year 2017 the company utilized Rs 6705.01 (lakhs) towards finance which
worked out to be 45.21 percent of the total application of funds utilized and the company
had generated funds from operation Rs 2841.12 (lakhs). This consists 19.16 percent of
total funds.
had generated funds from operation Rs 4976.21 (lakhs). This consisted 77.44 percent of
total funds.
● In the year 2019 the company utilized Rs 8504.21 (lakhs) towards finance which worked
out to be 43.86 percent of the total application of funds utilized and the company had
generated funds from operation Rs 3558.69 (lakhs). This consists18.35 percent of total
funds.
funds.
funds.
RECOMMENDATIONS
● All the reserves and surplus amount are utilizing for purchasing fixed assets and for
working capital. It is better to utilize some amount for purchasing investments which
diversifies the financial risk.
● Company is maintaining more current ratio. Hence, firm’s funds will be unnecessarily
ties up in current assets. It could be better to invest the amount in purchasing the
marketable securities.
● In the financial senses acquiring the share capital will makes profitable not borrowing the
loans thorough secured and unsecured.
Trading activity should be operated effectively to generate more funds.
BIBLIOGRAPHY
BOOK NAME AUTHOR PUBLICAION YEAR
FINANCIAL IM pandey 9/e, Vikas Publishing 2004

MANAGEMENT
Fundamentals of Prasanna chandra Tata McGraw Hill, 2003

Financial Management New Delhi.
Financial Management- M.Y Khan,P K Jain Tata McGraw Hill, 2003

Text and Problems New Delhi.
Maheswari S N, Vikas Publishing House 2009

Financial Accounting
Maheswari S K Private Limited,
New Delhi.
Financial Management James C.VanHorne Pearson Education 2004

And policy
INTERNET SITE:
● www.google.com
● www.wikipedia.com
● www.penna cement.com
CONTENTS
INDEX
S.No CHAPTER NAME Page No.s
1 CHAPTER – I
INTRODUCTON
2 CHAPTER – II
INDUSTRY PROFILE & COMPANY PROFILE&
PRODUCT PROFILE
3 CHAPTER – III
4 CHAPTER – IV
GROWTH & PERFORMANCE
5 CHAPTER – V
OBSERVATIONS & RECOMMENDATIONS
BIBLIOGRAPHY
CHAPTER - I
INTRODUCTION
1. INTRODUCTION
Funds flow statement is a technical device designed to highlight the changes in the
financial condition of a business enterprise between the opening and closing balance sheet dates.
The flow of funds results in mainly profits of a business due to business operations. And has
been well said that “a business with an income at it heals furnishes always oil for its own
wheels”, it is the profit which becomes main sources of funds for a business. However profitable
companies can also be anemic with respect to working capital and since working capital is the
life blood of an enterprise, its shortage can disturb the operating cycle of the business. The
concept of ‘funds’ the flow which is to be examined in detail as to its sources and applications
so as to know the net increase or decrease in working capital over a period of time, usually a
year.
One of the most important techniques of financial analysis is a preparation of funds flow
statement. It is the statement which portrays the changes in the financial position of an
enterprise. Balance sheet and income statement do not present a comparative picture, even if
placed side by side in that much clarity as the statement of changes in financial position which
focuses on the sources and uses of funds.
Definition:
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. Funds flow statement in a statement either prospective
or 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 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.
Concept of Funds:
Funds in the narrowness sense of the term as be equated to cash. But in the broader sense
and appropriate one here, it refers to working capital that is current assets less 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
human, 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.
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.

Concept of Funds Flow Statement:
The meaning of funds flow or flow of funds illustrates the concept of funds flow
statement clearly the statement which analysis the flow of funds that is the reasons for changes in
working capital is a funds flow statement.
The reasons are set by the sources and application of funds and therefore the statement can
be called as the statement of sources an application (uses) of funds. Some accountants prefer to
call it in short as fund and to which place have gone. It is also designated as where got and
where (movements) of working capital, movements of flow statements etc.
Importance of Funds Flow Statement:

The information which is provided by funds flow statement is neither available in the
balance sheet nor in the income statement and hence it’s important. The changes which have
taken place in between two accounting dates are highlighted by funds flow statement. A lay man
cannot grasp the underlying significance of achievements and progress of the company simply
by a personal of the balance sheet and income statement of different years. The comparative and
analytical study presented by the statement giving the details of sources and uses of funds during
a given period of immense help to the users of information.
It is very useful tool in analytical kit of the management also, besides the outsiders, in order to
have ‘at a glance’ appraisal of the financial and operating performance of a company. Since the
statement shows the extent to which the working capital has been effectively put to use, the
management’s task of taking policy decision regarding investment, dividends etc, is great
facilitated.
Uses of funds flow statement:

Funds flow statement of a company is of great value to management share holders,
creditors, bankers, money lending institutions etc.
❖ Informative value:-
The financial consequence of business operation are clearly explained in details

by a funds flow statement some of the problems which crop up in the minds of investors
are well solved by a simple perusal of this statement for e.g.,
⮚ Where have the profit gone.

⮚ Why does an imbalance exist between liquidity position and profitability position
of enterprise?
❖ Forecasting value:-
A projected funds flow statement can be prepared and resources can be properly allocated
after an analysis of the present state of affairs. The optimal utilization of available funds are
necessary for the overall growth of the enterprise. The funds flow statement prepared in advance
given a clear direction to the management in this raged.
❖ Testing value:-
Whether the working capital has been effectively used or not by the management can well
be tested by funds floflow statement. Whether working capital has been maintained at proper
level, and whether it is adequate or inadequate can be known by a study of the statement. The
management is warned against the injudicious uses of funds.
Decision-making value:
Since overall credit worthiness of the enterprise is known, creditors and money lenders
can decide as to whether they have to provide loans to company or not. The sources of raising
funds and their application help the shareholders to decide whether the management of the
business is an enlightened or not regarding managing funds. Mismanagement of funds may be
prevented. The management can be decided about the future financing policies and capital.
NEED FOR THE STUDY
Every company needs to know the flow of funds both inflow and outflow. So that the
efficiency in utilizing the funds can be better to understand. For this the present analysis through
funds flow statement will be helpful.
The main need for the study is to study the operating activities, investing activities and
Financing activities in the Penna Cement Industries Limited and methods to evaluate the
financial performance of the company, with the help of Funds flow to evaluate the pattern of the
firm.
The importance of cash management is so essential in any organization to run the
business with continuous basis. The present study also attempts to know the “cash management
system in selected in selected organization”.
SCOPE OF THE STUDY
The present study focuses as sources funds and application of funds for a period of time.
The study is confirmed to find out the changes in the financial position of The Penna Cement
Financial Services Limited between the beginning and ending financial Year. It is a technical
device designed to analyze the changes in the financial condition of the business enterprises
between two dates.
This funds flow statement is a statement which indicates various means by which the
funds have been obtained during a certain period and the ways to which these funds have
been used during the period.
The term funds used here means working capital that is the excess of current assets
over current liabilities. It is an essential tool for the financial analysts and is of primary
importance to the financial management.
Now a days it is being widely used by the financial analyst credit granting institutions and
financial managers. The basic purpose of the funds flow statement is to reveal the changes in
the working capital on the two balance sheet dates. It helps in the analysis of financial
operations. It helps in the formation of realistic dividend policy. It helps in the proper
allocation of resources. It helps in appraising the use of working capital and finally it acts as
future guide.
OBJECTIVES OF THE STUDY

● To analyze and examine the funds flow statement through working capital, funds
from operations and funds flow statement.
● To measure the financial strength of the firm during the period of the study (2016-
2017 to 2020-2021).
● To analyze the changes in assets and liabilities from the end of one period of the time
to the end of another period of time
● To find out the sources from which additional funds were derived and the use to
which their sources were put.
● To study measures for the effective working of Penna Cement Industries limited.
● To determine the progress and profitability of the organization and to offer
appropriate suggestions for better performance of the organization.
● To study theoretical aspect of funds flow analysis and compare with practical fund
flow analysis with that of Penna Cement Industries limited.
METHODOLOGY OF THE STUDY
Methodology is a systematic process of collecting information in order to analyze and

verifies a phenomenon. The collection of data is two principle sources. They are discussed as
● Primary data
● Secondary data
Primary Data:-
The primary data needed for the study is gathered through interview with concerned
officers and staff, either individually or collectively, sum of the information has been verified or
supplemented with personal observation conducting personal interviews with concerned officers
of finance department of "PENNA CEMENT INDUSTRIES LIMITED".
Secondary Data:-
The secondary data needed for the study was collected from published sources such as,
pamphlets annual reports, returns and internal records, reference from text books and journal
management.
Further data needed for the study was collected from:-
● Collection of required data from annual records of the company.
● Reference from text books and journals relating to financial management.
Diagrammatic Representation of Research Methodology
Diagram 2.1
DATA
SOURCE
Primary Secondary
data data
Inside the
Management Respondents
company
LIMITATIONS OF THE STUDY

● Due to the confidential records the data not exposed so the study may not exposed , so the
study may not be full -fledged .
● The study is purely based on the data available in the firm of annual reports .
● The period of the study for 5 years and the performance evaluation is also limited to 5
years
● The study is based on the past date, which cannot predict the future performance
accurately.
● The study may not be detailed in all aspects.
● The study time period is limited.
● It should remember that a funds flow statement is not a substitute of an income statement
or a balance sheet. It provides only some additional information as regards changes in
working capital.
● The study based on the available annual reports and internal information of
Penna cement industries Limited Financial Services only.
● It cannot reveal continuous changes.
CHAPTER-2
INDUSTRY PROFILE & COMPANY PROFILE &
PRODUCT PROFILE
INDUSTRY PROFILE
Cement Industry has been decontrolled from price and distribution on 1 st March
1989 and de – licensed on 25th July 1991. However, the performance of the industry and prices
of cement are monitored regularly. Being a key infra structure industry.
The constraints faced by the industry are reviewed in the Infrastructure Coordination
Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary
(Coordination). The Committee on Infrastructure also reviews its performance. The industry is
subject to quality control order issued on 17.2.2003 to ensure quality standards.
CEMENT INDUSTRY IN INDIA:

In India it came to be established during the beginning of 20th century. In fact the cement
era in India commenced with the establishment of a small cement factory at
WASHERMANPET in 1904 by South India industry Ltd. a company that dates to 1879. The
potential capacity of this plant was only 10,000 metric tons per annum. This was the first attempt
of manufacturing Portland cement with cat carious seashells as a principal raw material. There
was sufficient demand for that product, but because of technological defects and inadequate
supply of raw materials, the plant did not operate economically, a later on collapsed.
India is ranked fourth in the world after China, Japan, and USA in cement production.
Yet the per-capital consumption of cement in India however low at 70 to 80 k.gs against the
world average of around 220kgs.
CEMENT INDUSTRY IN ANDHRA PRADESH:

Cement was first manufactured in America in the year 1875. In India, in 1914 the India
Cements Company Limited was established a cement factory at Portland. Andhra Pradesh is the
second largest cement production state in India, one third of the limestone (138crore tones) is
available in A.P.I.A.P. the cement production was started in 1936 with two factories. Of these
two factories one is Andhra Cement Company Limited and another in Krishna Cement Factory.
One is on the side of Krishna Cement Factory. One is on the side of Krishna River and another
is in between Krishna and Guntur districts respectively.
In 1995, one more factory was established at Panyam in Kurnool Dist., named as Panyam
Cement and mineral industries. At the same time one more factory has been established at
Maacherla in Guntur district. At the end of July 1985 the total capital invested on cement
industry was Rs.427.81 lakhs and provided employment for 1262 persons and 19 factories were
functioning with a production of 85lakh tones.
Capacity, Production and Exports:
India today boasts 129 large plants and over 300 mini cement plants with a capacity
of 165 million tones and production of 134 million tons (2016-17).
It ranks second in the world among cement producing countries, with per capita
consumption at 118Kg compared to the world avg. Of around 317. Per capita consumption is
366 Kg in Thailand, 626 Kg in China, 606 Kg in Malaysia and 1216 Kg in South Korea. This
indicates a huge potential for increase in consumption.
The Cement Corporation of India, which is a central public sector undertaking, has 10
units. Besides, there are 10 large cement plants owned by various state Governments. Keeping
in view the past trends, a production target of 133 million tons has been set for the year 2016 –
17. During the Tenth Plan, the Industry is expected to grow at the rate of 10% per annum and is
expected to add capacity of 40 – 52 million tons.
Mainly through expansion of existing plants and use of more fly as in the production of
cement. A part from meeting the domestic demand, the cement Industry also contributes towards
exports. The export of cement and clinker during the last three years is as under:-
Export of Cement:
(In million tons)
Year Cement Clinker Total
2016 – 2017 3.47 3.45 6.92

2017 – 2018 3.36 5.64 9.00
2018 – 2019 3.31 4.82 8.13
2019 – 2020 5.2 4.4 9.6
2020 – 2021 5.48 4.56 10.04
Overview of the performance of the Cement Sector:
The Indian Cement Industry not only ranks second in the production of cement in the
world but also produces quality cement, which meets global standards. However, the Industry
faces a number of constraints in terms of high cost of power.
High railway tariff; high incidence of state and central levies and duties; lack of
private and public investment in infrastructure projects; poor quality coal and inadequate growth
of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize
excess capacity available with the cement Industry, the Government has identified the following
thrust areas for increasing demand for cement:
● Housing development programs;
● Promotion of concrete highways and roads;
● Use of ready – mix concrete in large infrastructure projects; and
● Construction of concrete roads in rural areas under Prime Ministers Grama

Sadak Yojana.
Technological advancements:
Indian cement industry is modern and uses latest technology. Only a small
segment of industry is using old technology based on wet and semi-dry process. Efforts are being
made to recover waste heat and success in this area has been significant.
India is also producing different varieties of cement like Ordinary Portland Cement
(OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil
Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White
Cement, etc. Production of these varieties of cement conforms to the BIS Specifications. It is
worth mentioning that some cement plants have set up dedicated jetties for promoting bulk
transportation and export.
Infrastructure – driven demand push:

The bulk of cement demand is from housing and commercial development of which
metros account for a significant amount. It is estimated that Mumbai, which consumes almost six
million tones, along with Pune, accounts for 45 percent of Maharastra’s cement consumption,
Bangalore consumes four million tones and Chennai around 3 million tones, “these are really the
growth clusters. Today bulk of the demand is driven by housing and commercial construction
and as infrastructure picks up, for example, Bangalore international airport, Hyderabad airport
and modernization of Mumbai and Delhi airports.
Another large consumer has been the roads sector. The off take was good when the
NHDP program was launched but there was a Null last year. “Once again new orders have been
placed and in 2018, the industry will pick up. The estimate is that from roads, demand is not
more than 4-5 million tones but it makes a difference in the growth numbers”.
Narrowing demand-supply gap:

The industry has a capacity of 165 million tons and in Jan 2018, dispatches were at
almost 100%. On an overall basis, the industry does not do more than 90-92% because of
constraints such as transport and raw material.
The industry has been adding capacity of 6-7 million per annum by Brownfield
expansion and de-bottlenecking which is expected to partly cater to the requirement because it is
growing by around 20 million tons per annum.
Challenges before the industry:

Energy costs account for half of the cost of production of cement. Last year saw a
15-16% increase in coal prices and then diesel prices went up pushing up transportation costs.
Freight problems:
The importance of freight for the cement industry cannot be emphasized enough.
While in the last few months’ railways have been steadily losing freight to road sector they have
been confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could go as
high a Rs.800 for long leads. This would only easy the first level of sale and additional costs are
involved to take it further.
Another issue, which will hit the industry hard, is that of logistics and a Supreme
Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed to
enforce the discipline that trucks only carry a specified load. “Many states and already
implementing this and there is already an increase in freight rates and in some cases, it has gone
up by 50%. Also, the requirement for trucks to carry the same freight has nearly doubled and in
many places the industry is being forced to move to railways.”
High taxes:
While the railways have had capacity to meet the requirement, it is expected that in
March the commencement of peak season for the procurement of food grains, the railways would
be constrained to provide adequate number of wagons.
So fright rates are up, railways cannot provide wagons and trucks are unlikely to be
viable so there could be a serious dislocation of supplies going forward.According to the cement
manufactures association total taxes and duties on cement come to around Rs.900 a ton or Rs. 45
a bag. “So at a price of Rs.150 a bag in the market, taxes and duties account for one third. Which
is high for such a basic product. This includes excise duty, sales tax and royalty on limestone.
The importance of limestone can only be underscored as for every ton of cement
produced. 1.5tons of limestone is required. “For limestone, royalty is on a per ton basis at Rs. 40
whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying Rs.70
a ton for limestone as royalty. VAT is at 12.5% without any justification and it should be in 4%
category, excise is at Rs.408 per ton when it should be around Rs.200.
Export Advantages:
From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of cement/clinker
have grown rapidly at about 30-40% and this year exports will cross 10 million tons.
Major cement producers – market shares:

● Acc -12.8%
● Abuja -10.7%
● Grasim-10.4%
● Ultra tech-9.5%
● India cement-6.0%
● Jaypee-4.1%
● Lafarge-3.2%
● Madras-3.2%
Overall, the industry is in a better state today than 2 years ago. “Cement prices even
today are way below global levels. So setting up Greenfield capacities is not attractive, as
prices will not give attractive returns on investment. That is a minor reason why there is no
Greenfield capacity coming up. It has to be born in mind that one third of the prices is
accounted for by taxes and duties and nearly 20-25% by the freight component. So what
produces earn at the factory gate is among the lowest in the world.”
This year 2021 has commenced on a good note and in fact, December was a very good
month with dispatches at 12.5 million tons and January dispatches were in excess of 13
million tons.
“This means capacity utilization is in the nineties which is healthy and will actually lead
to firming up of prices. It looks like sales could be 137 million a ton for 2020-21(125 million
tons in 2019-2020) and so far growth has been 10%. There are enough reasons to believe it
will sustain.”
COMPANY PROFILE
A Penna cement industry Limited was incorporate on Oct 24th 1991, to set up a cement plant at
Tadipatri in Ananthapur District of Andhra Pradesh. The plant commenced commercial
production on Aug 10th 1994 as mini cement plant with initial capacity of 0.30 million tones. The
company short period getting profits. Later 1995 plant capacity was increased 0.4 million tones
which upgrade its state major plant.
Penna cement industries ltd establishing by Mr. Prathap Reddy aged 44 began his
entrepreneur career with civil engineering contracts by lunching pioneer builders mr.prathap
reddy has experiences of two decades in cement industry .he was the executive director of
priyadrashini cement right from its inception in 1984 in 1991 Mr. Pratap Reddy incorporated his
own cement company located in between Talaricheruvu and Urichintala village. At present
about 2720 tones of various grades of cement is being manufactured daily at the factory.
Key Management:
Chairman and Managing Director:

⮚ Mr. P.Prathap Reddy
Whole-time Director:
⮚ Mr. Lakshmi Kantham Dabbara
Non-Executive Directors:
⮚ Mrs. P.Deepthi Reddy
⮚ Mr. P.Venu Gopal Reddy
Independent Directors:
1. Mr. Anil Kumar K.
2. Dr. Kancherla Ravindranath
3. Mr. P.Pradeep Kumar
4. Mr. Sairam Mocherla
5. Mrs. Umanath Varahabhotla
Chief Financial Officer:

⮚ Mr. Petluru. Venugopal Reddy
Company Secretary:
⮚ Mr. Raj Kumar Singh
Statutory Auditor:
M/s C.Ramachandram & Co.
Chartered Accountants
H.No. 3-6-237,606
Lingapur Build Complex, Himayathnagar,
Hyderabad – 500029,
Internal Auditor:
M/s Deloitte Haskins & Sells LLP
KRB Tower, Plot No. 1 to 494A, 2nd Floor, Awing,
Jubliee Enclave Madhapur, Hyderabad – 500081,
Telangana.
Bankers:
State Bank of India
IDBI Bank Limited
Yes Bank Ltd.
Registered Office:
H.No.8-2-268/A/1/S & S1, Plot No.705 Road No.3,
Banjara Hills,
Hyderabad – 500034
Telangana, India.
LOCATION OF THE COMPANY:

TALARICHERUVU VILLAGE,
TADIPATRI MONDAL,
ANANTHAPUR DISTRICT,
ANDHRA PRADESH.
GST No. :
37AABCP2290D1ZN
CIN NO. :
U26942AP1991PLC013359
Quarry:
Major raw material for cement industry. The quarry has a mining lease of 235.52 acres in
Talaricheruvu village. 440.47 acres in Urichintala village and 629.75 acres in Korumanipalli
village of Kurnool district.
RAW MATERIALS :
Limestone:
Limestone is the major raw material for the cement industry. Limestone constitutes 60 to
70 percent of the total raw material costs. Nearly 1.5 – 1.6 tons of limestone is required for
producing one ton of cement clinker limestone (calcium carbonate) is a rock of either
sedimentary or metamorphic origin with calcium oxide as its main constituent. In India
limestone occurs mainly as sedimentary rocks and constitutes 30 percent of the total sedimentary
rocks in the country. Cement grade limestone is available in 21 states in the country. About 65
percent of the cement plants in India uses sedimentary limestone and 20 percent use
metamorphic crystalline limestone. India has 85,980 million tons of cement grade limestone
deposits, which is enough to produce 100 million tons of cement for the next 500 years.
Total reserve
No. of years limestone reserve would last = -------------------------------------
Avg., limestone Consumption
It is quite clear that India’s limestone reserves are adequate for the next several years.
More over new reserves would be discovered every year Limestone is mixed extensively in India
and ranks second in production next to coal mining. Major portion of limestone mining portion
of limestone mining is for cement industry (nearly 75% to 80%) therefore the demand supply
situation is quite comfortable.
In India limestone deposits are abundantly found only in Siroly (Rajasthan), Santna,
Belaspur (M.P., wadi (Karnataka), Tadipatri (A.P.) and some places in Gujarat. Units are
generally located in close proximity of limestone deposits in Madhya Pradesh, Andhra Pradesh,
Tamil Nadu, Karnataka, Rajasthan, and Gujarat.
The quality of required for the cement production should have the following composition.
Lime : 50%
Silicon : 3%
Aluminum : 4%
Iron oxide : 0.50%
Magnesium : 0.50%
Loss on Ignition : 42%
Total : 100%
If Magnesium content exceeds 0.4-0.5 percent, the limestone is not suitable for cement.
Similarly, lime content is directly proportional to the clinker and cement quality and quantity.
Gypsum:
Gypsum is another important required material for cement manufacturing, constitutes
about 5 percent of the weight of the cement. Gypsum is added in required quantity at the time of
grinding of clinker. The clinker and the required amount of the Gypsum is added to control the
setting time of the cement. India possesses resources of gypsum. Hence its availability is not a
concern for the cement manufacture.
Other Raw Materials:

A few other raw materials like Blast furnace slag and fly ash are also required for the
manufacture of the cement. Blast furnace slag is a waste product obtained from iron smelting
furnace whereas fly ash is the left over ash from thermal power station.
Inputs:
Although limestone is the major raw material for cement industry, the critical raw
material is energy. How well the company uses coal and electricity and how much it costs will
determine the success ratio for cement manufacturers. Major inputs in cement manufacturing
include coal, power and freight.
Coal:
In India coal I am being used as the fuel for the manufacturing of cement. Else where in
the world lignite, nature gas and oil are also used. They are not used in India as continuous
supply of natural gas is not assured used by plants in southern plants of India, like Dalmia
Cement, Chettinad cement etc., as a supplement to coal which compensates the storage for coal
in this area. Non cooking coal of lower ash content is required by cement plants. It should be less
than 30%. A useful heat of 4500 kilocalories per kg of coal. Coal of lower ash enables
comparatively lower quality of limestone. The coal should have volatile matter and high
temperature. Transport of coal is another big issue as many of larger cement plants are located
close to the limestone deposits, which may not have coal deposits nearby.
Power:
Power constitutes about 10% of the total cement production costs. About 3 percent of
the total power generated in the country is used by cement industry. The average consumption of
power in the dry process kilns is around 125 units per million tons of clinker.
Freight:
Freight constitutes a very significant part of the cost structure of cement units in India.
On an average freight for transporting finished product alone forms 13.85% of the cost of
production of large cement plants.
The main areas of freight coast for the cement industries are
● Transporting coal from the coal fields to the cement factories.
● Transporting cement from the plants to their mark
Limestone transport would be even costlier than transporting coal or cement. Hence
cement plants are located in cluster near limestone deposits. Indian railway is moving up to 60%
of the total cement production.
SALIENT FEATURES OF PENNA CEMENT:

● High strength and great durability.
● A very perceptible saving in costs (up to 20% to 25%) due to low setting time
● Superior quality of the cement resulting in a better overall finest
● Stronger bonding with aggregates.
Growth and Performance:

The company has enhanced its capacity from 600 TPD to 8000 TPD over the period of 10
years. The Existing cement plant was upgraded to 5000 tones capacity per day. The profits for
the year 2020-21 are Rs. 92.77 lakhs and sales of Rs. 946.20 lakhs. The company holds the
assets of Rs. 601.92 lakhs. The annual capacity of the company 18,25,000 tons.
Competitiveness of Cement Project:

companies – Ultra tech, Andhra Cement, Grasim Cement, Gujarat Ambuja cement, Parasakthi,
Larsen and Turbo, Coramandal cement, Priya Cement, Nagarjuna cement, Sagar cement, ACC
Suraksha cement, Zuari cement, and India cement Ltd.
TECHNOLOGY ADOPTION AND INNOVATION:

The company has obtained the basic engineering designs and other technical know-how
from M/s. ONODA ENGINEERING and consulting company limited Japan for the cement
plant he technical collaborates are continuously guiding the company for achieving improved
productivity and benefits such as conservation of energy etc., besides trouble shooting a specific.
Man power:
Based on requirement of individual departments, Head of that department is asked to give
information to man power planning department regarding the number of persons required. The
departmental heads assess their requirements based on the available departmental job description
to ensure role clarity and to avoid role ambiguity. The Central Personnel Dept. carries out the
recruitment process.
The total employees in PENNA CEMENT are 345 covering all departments. There are
nearly 500 contract labor working every day on casual basis.
Raw Materials & Requirement:

Limestone, Iron ore, Bauxite, Gypsum and Coal are the basic raw materials used in the
manufacturing process of cement. The average consumption of various raw materials is shown
in the table.
REQUIREMENT OF RAW MATERIALS
S. No Raw material Tons per day Consumption per tons of

Cement
1 Limestone 2282 1.4 to 1.5
2 Additives 375 0.06 to 0.75
3 Bauxite iron ore 155 1.16 to 0.20
4 Gypsum 85 0.04 to 0.05
5 Product clinker 500 ------
Source: Annual reports of Penna Cement Limited.,
Note:
Due to change in the quality of lime stone and coal, the consumption of additives has
been changed accordingly.
Material Balance:
Limestone + Additives Raw material
Raw material (1.46%) +coal Calcinations clinker
Clinker + Gypsum Ordinary Portland cement
Clinker + Fly ash Pozzoland Portland
Note:
Depending upon quality of raw materials the above consumption may value.
PRODUCT PROFILE
Penna Cement manufactures and distributes its own main product lines of cement. It
aims to optimize production across all the marketers, providing a completer solution for
customer’s needs at the lowest possible cost, an approach known as “strategic Integration of
Activities”. Cement is made from a mixture of 80 percent limestone and 20 percent clay. These
are crushed and ground to provide the “raw meal”, a pale, flour – like powder. Heated to around
1450o C (2642o F) rotating kilns, the “meal” undergoes complex chemical changes and is
transformed into clinker. Fine – grinding the clinker together with a small quality of gypsum
produces cement. Adding other constituents at this stage produces cements for specialized uses.
PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS:

Presently the company is manufacturing 43 grade, 53 grade. Ordinary portal cement port
land slag cement, soleplate Resistant with brand name of “PENNA”
Penna Suraksha - 53 Grade
Penna Power - 53 Grade
Penna Super - 43 Grade
ADVANTAGES:
Here are five of the many reasons why Penna 53 Grade and 43 Grade cement edges out
its competitors.
● High compressive strength.

● Low heat of hydration.
● Better soundness.
● Lesser consumption of cement for M-20 Concrete Grade and above.
● Faster de – shuttering of formed work
● Reduced construction time with a superior and wide range of cement catering
to every conceivable building need, Penna Cement is a formidable player in
the cement market.
Here are just a few reasons why Penna Cement chosen by millions of
India.
● Ideal raw material
● Low lime and magnesia content and high proportion of silicates
● Greater fineness
● Slow initial and fast final setting
● Wide range of applications
● Quality customer services
CHAPTER-III
FUNDS FLOW ANALYSIS

The following are the definitions of funds flow statement.
R.N.ANTONY
"The funds flow statement described the sources from which additional funds were
derived and the used to which these funds are put."
R.N. Foulk
"A Statement of sources and application of funds in technical device designed to analyze
the charges 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 from one point of time to another."
These, funds flow statement is report which summarizes the events taking place between
the two accounting periods. It spells out the sources from which funds were derived and the use
to which these funds were put. This statement in essentially derived from an analysis of the
changes that have occurred in assets and liabilities item between two balance sheets dates.
CONCEPTS OF FUNDS:
The term 'funds have a variety of meaning. Some people take funds synonymous to cash,
and to them there is no difference between a cash flow statement prepared on the basis and a
fund flow statement. While other include marketable securities and cash to constitute business
funds. However the most common definition of the term 'Fund' is "working capital' or net
'current assets'. Thus the difference between current assets and current liabilities is called funds.
SIGNIFICANCE OF FUNDS FLOW STATEMENT:
Funds flow statement is an important tool of financial analysis. The utility of the funds
flow statement turns form the fact that it enable management, shareholder. investors, creditors
and other interested in the enterprise to evaluate the user of funds by the enterprise to evaluate
the user of funds by the enterprise , and to determine how these funds are financed.
USEFUL IN DECISION MAKING TO THE MANAGER:

The funds flow statement services as valuable tool of financial analysis to the finance
manager. It helps in understanding the financial stability and efficiency of financial policies of
management. 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 part reveals what
portion of the growth was finance internally and what portion externally. The statement is also
measuring for judging whether the company has grown as fast a rate, credit has increased out of
proportion to expansion in current assets and sales. If trade credit has increased relatively high
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.
Decision relating 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 part reveals what portion of the
growth was finance internally I portion externally. The statement is also measuring for judging
whether the company has grown as too fast a rate, credit has increased out of proportion to
expansion in current assets and sales. If trade credit has increased at relatively high 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.
Decision of capitalization:
The funds flow statement serves as hand maid to the financial manager in deciding the
making up of capitalization. Estimated user of funds for new fixed assets, working capital.
dividends and repayment of debt are made for each of several futures years. Estimates are made
for each of several future years. Estimate is made of the funds to be provided by operations and
the balance must be obtained by barrowing or issuance of new securities. If the indicated amount
of new funds required is greater than what the financial Manager thinks possible to raise, then
plans for new fixed assets acquisition and the dividend policies are re-examined so that the Use
of the funds can be brought into balance with the anticipated sources of financing them. In
particular funds statements are very useful in planning intermediate and long term financing.
USES OF FUNDS FLOW STATEMENT:

Funds flow statement helps the financial analyst in having a more detailed analysis and
understanding of changes in the distribution of resources between two balance sheet dates. In
case such study is required regarding the future working capital position of the company, a
projected funds flow statement can be prepared. The uses are as follows.
● It explains financial consequences of balances operation. Funds flow statement provides a

ready access or many conflicting Situations such as.
● Why the liquidity position of business is becoming more and more unbalanced
● How was it possible to distribute dividends in excess of current earnings or in the
presence of net loss for the period.
● Where have the profits gone.
● How the business could have good liquid position in spite of business making losses. (or)
acquisition of funds assets.
● It answers intricate queries
The financial analyst can find out answers to a number of intricate Questions.
● What are the sources of payment of loan taken.
● What is the overall credit worthiness of the enterprise.
● How much funds are generated through normal business operation.
● What way the management has utilized the. funds in the part and
● What are going to be likely uses of funds.
It Acts an instruments for allocation of resources. A projected funds flow statement will
help the analyst in finding out how the management is going to allocate the scare resources for
meeting the productive requirements of business. The use of funds should be phased in such as
order that the valuable resources are put to the best use of the enterprise. The funds should be
managed in this way that the business is in a position to make payment of interest and loan
installments as per the agreed schedule.
FUNDS FLOW STATEMENT:
Current
Fidjifhf Assets Fixed Assets
Current Liabilities Fixed Liabilities
Flow of funds is indicated by
No flow of funds is indicated by <- - - - - ->

MEANING AND TYPES OF FINANCIAL STATEMENTS:
A financial statement is an organized collection of data. According to logical and
consistent accounting procedures its purpose is to convey and understanding or some financial
aspects of business firm. It may show a position at a moment of time as, in the case of a balance
sheet or may reveal a series of activities ones a given period of time, as in the case of an Income
statement.
Financial statement analysis when used carefully, can produce meaningful insights about
a company's, financial information and its prospects for the future. However, the analyst must be
aware of certain important considerations about financial statements and the use of these
analytical tools. For example, the dollar amounts for many types of assets and other financial
statement items are usually based on historical costs and thus do not reflect replacement costs or
inflationary adjustments. Furthermore, financial statements contain estimates of numerous items.
John Myor, "Financial Statement analysis is largely a study of relationship among the various
financial factors in a business as disclosed by single set of statements and a study of the trend of
these factors' as shown in a series of statements.
Thus the financial statement generally refers to, four financial statements.
● Income Statement
● Balance Sheet Of course a business may also prepare profit & loss account.
● Statement of retained earnings.
● A statement of changes in financial position.
● Financial Statement
Income Statement Balance Sheet Statement of Statement of

retained earnings charges
STATEMENT OF CHANGES IN FINANCIAL POSITION:
The Balance Sheet shows the financial condition of the business a particular moment of
time, while the income statement discloses the result of operating of business once a period of
time. However, for a better understanding of affairs of the business it is essentially to identify the
movement of working capital or cash and out of the business is essential to identify the
movement of working capital or cash in and out of the business this information is available in
the statement of changes in financial position of the business.
● Change in working capital position in such a case the statement in termed (SCFP) or
funds flow statement.
● Change in cash position in such a case the statement in termed as (SCFP) or cash flow
statement.
● Change in overall financial position. In such a case the statement is termed as statement
of changes in finance.
The technique of funds flow analysis is widely used by financial analysis, credit
granting instructions and financial managers in performance of their jobs. It has become a useful
tool in their analytical kit. This is became the financial statement, income statement measure
flows restricted to “Balance Sheet “have a limited role to perform. Income statement measure
flows restricted to transactions that certain to rendering of goods or services to customers. The
Balance sheet is merely a static statement. It is the statement of assets and liabilities of business
as a particular date, it does not supply focus those major financial transactions which have been
believed the Balance Sheet changes. One has to draw inferences from the balance sheet about
major financial transactions only after comprising the balance sheet of two periods.
For example, if fixed assets worth Rs.3,00,000 are purchased during the current year
by raising share capital of Rs.3,00,000 the balance sheet simply shows as higher capital figure
and higher fixed asset figure. Certain important transactions which might (occur during the
course of the accounting) not find any place in the Balance Sheet. For example, if loan of
Rs.3,00,000 was raised and paid in the accounting year , the balance sheet will not depict this
transaction. However , a financial analyst must know the purpose for which loan utilized and the
source from it was raised. This will help him in making better estimates about the company’s
financial position and policies.
Change in cash position in such a case the statement in termed as SCFP (or) cash flow statement.
FINANCIAL ANALYSIS:
Financial analysis is highly essential to understand the efficiency and financial position of
the center prices.
The term "Analysis means methodical clarification of the data provided in the financial
statements. 'Analysis' and 'Interpretation' are complementary to each other Interpretation requires
analysis, while analysis is useless without interpretation. The term "Analysis" to cover the
meanings of analysis and interpretation, since analysis involves interpretation.
Myers States:
"Financial statement analysis is largely a study of the relationship among. The various
financial factors in a business as disclosed by a single set of a statements and a study of the trend
of these factors as shown in a series of statements".
TYPES OF FINANCIAL ANALYSIS:

We can classify various types of financial analysis in to different categories depending upon.
● The material used.
● The method of operation fallowed in the analysis of the modus operandi of analysis.
ON THE BASIS OF MATERIAL USED:
According to mate Hal used financial analysis can be classified into two types.
1. External analysis.
2. Internal analysis.
1. EXTERNAL ANALYSIS:
It is the analysis by outsiders who don't have access to the detailed internal accounting
records of the business firm, these outsiders include investors, Potential investors, Potential
creditors and government agencies, credit agencies and the general public. For the financial
analysis, the external parties to the firm depend almost entirely on the published financial
statements. External analysis only serves for limited purpose. However the recent changes in the
Government regulations requiring business firm to make available more detailed information to
the public through audited published account have considerably improved the position of the
External analysis.
2. INTERNAL ANALYSIS:
The analysis conducted by person who has access to the financial accounting records of
a business firm is known as internal analysis. Such an analysis can therefore be performed by
executive and employee of the firm.
ON THE BASIS OF MATERIAL USED:

Organization as well as Government agencies which have statutory power rested in these
financial analyses for managerial purpose is the internal type of analysis that can be affected
depending upon the purpose be achieved.
ON THE BASIS OF PROCESS:

This analysis also classification in to two types
1) Horizontal Analysis
2) Vertical Analysis
1. HORIZONTAL ANALYSIS:
Horizontal analysis refers to the comparison of financial data of a company for several
years. The figure for this type of Analysis are presented Horizontal-over, a no of columns. The
figures of the various years are compared with standard or base year. A base year is a year
chosen as beginning point. This type of analysis is also called dynamic as it is based on the data
from year rather that an data from any one year.
Horizontal analysis means it possible to focus attention on items that have changed
significantly during the period under review comparison of an item over several periods with a
base year may show a trend development comparative statement and trend percentage are two
tools employed in Horizontal analysis.
Since this reflects changes in financial position of the company over a long period of time it
comprises:
1. Comparison of the financial statements of different years of the same business unit.
2. Comparison of financial statement of a particular year of different business units.
2. VERTICAL ANALYSIS:
Vertical analysis is refers to the study of the various items in the financial statement of
one accounting period. In this type of analysis of the figure from financial statement of a year are
compared with a. base select from the same year statement. It is also known as "Static analysis"
common size financial statement and financial ratios are two tools employed in Vertical
Analysis.
Since Vertical Analysis considers data for one time period only it is very conductive to a proper
analysis of financial statement. However may be used along with horizontal analysis to make it
more effective and meaningful..
METHODS OF FINANCIAL ANALYSIS:

The analysis and interpretation of financial statement is used to determine the financial
position and result of operations as well. A number of methods (or) devices are used to study the
relationship between different statements. An effort is made to use those devices which clearly
analysis are generally used.
(i) Comparative statement
(ii) Common size statement
(iii) Trend analysis
(iv) Ratio analysis
(v) Cash flow statement
(vi) Funds flow statement
(vii) Cost volume profit analysis
(i). Comparative Statement Analysis:

Comparative financial statements are those statements which are designed to provide
time perspective to the consideration of various elements of financial position embodied in such
statements. In these statements figures for two or more periods are shown side by side to
facilitate comparison. Both the income statement and balance sheet can be prepared in the form
of comparative financial statements.
(ii). Common-size Statement Analysis:

Common-size statement is a financial tool of studying key changes and trends in financial
position of a company. In common-size statement, each item is stated as percentage of the total
of which that item is a part, each percentage exhibits the relation of the individual item to its
respective total. Therefore, the common-size percentage method represents a type of ratio
analysis. That is why this statement is also designated as “component percentage” or “100
percent statement”. Preparation of the common-size statement involves two steps:
● State the total of the statement as 100 percent.

● Compute the ratio of each item to the total in the statement
There are two types of common-size statements, viz., common-size income Statement
and Balance Sheet.
(iii). Trend Analysis:

Trend analysis depicts behavior of the ratios over a period of time and the trends in the
operation of the enterprise. The trend figures are index figures giving a bird’s eye view of the
comparative data by presenting it over a period of time. This is horizontal analysis of financial
statement, often called as Pyramid Method of Ratio Analysis – a guide to yearly changes.
Under this form of analysis, generally financial ratios are studied for a specified number
of years. It is a dynamic analysis depicting the changes over a stated period. The working of
trend analysis involves the following three steps:
● Selection of the base year.
● Assignment of an index number of 100 to each item of the base year.
● Calculation of percentage relationship that each item bears to the same item in
the base year.
(iv). Ratio Analysis:
Ratio Analysis is powerful tool of financial analysis. The relationship between two
accounting figures, expressed mathematically, it is known as a financial ratio. In financial
analysis, a ratio is used as a benchmark for evaluating financial position and performance of a
firm. Ratios help to summarize large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.
Several ratios, calculated from the accounting data, can be grouped into various classes
according to financial activity or function to be evaluated. In view of the requirements of the
various users of ratios.
Classification of Ratios:
Ratios may be classified in a number of ways keeping in view the particular purpose.
Ratios indicating profitability are calculated on the basis of the profit and loss account, those
indicating financial position are computed on the basis of the balance sheet and those which
operating efficiency or productivity or effective use of resources are calculate on the basis of
figures in the profit and loss account and the balance sheet.
This classification is rather crude and unsuitable to determine the profitability and
financial position of the business. To achieve this purpose effectively ratios may be classified as.
Ratios:-
● Profitability Ratio
● Activity Ratios
● Liquidity Ratio
● Leverage Ratio
Profitability Ratios:
Profitability reflects the final result of business operations. There are two types of
profitability ratios, profit margin ratios and rate return ratios. profit margins ratios show the
relationship between profit and sales. The two popular profit margin ratios are, gross profit
margin ratio and net profit margin ratio. Rate of return ratios select the relationship between
profit and investment the important rate of return measures are: return on total assets, earning
power and return on equity.
. Generally, there are two types of profitability ratios:
● Profitability in relation to sales
● Profitability in relation to investment.
The profitability ratios are:
● Gross profit ratio.
● Net profit ratio.
● Return on equity ratio.
● Return on capital employed ratio.
Turnover (Performance or Activity) Ratios:
Turnover ratio is also referred to as activity ratios or asset management ratios,
measure how efficiently the asset are employed by a firm . These ratios are based on the
relationship between the level of activity , represented by sales or cost of goods sold and
levels of various assets.
The important turnover ratios are :
i. Inventory Turnover Ratio
ii. Debtors Turnover Ratio
iii. Debtors Collection Period Ratio
iv. Fixed Assets Turnover Ratio
v. Total Assets Turnover ratios
Liquidity Ratios:
● Current ratios
● Quick ratio
● Cash ratio
● Net working capital ratio
Leverage Ratios:
The short-term creditors like bankers and suppliers of raw material are more
concerned with the firm's current debt paying ability. On the other hand long-term creditors like
debenture holders, financial institutions etc. are more concerned with the firm's long-term
financial strengths in fact a firm should have strong short-term as well as long-term financial
position of the firm like financial leverage or capital structure are also calculated their ratios
indicated mix of fund provided by owners and lenders.
● Debt ratio.
● Debt equity ratio.
● Interest coverage ratio.
V. Cash flow analysis:

Cash flow is of vital importance to the financial management. It is an essential tool of
financial analysis for short-term planning. The chief advantages of cash flow statement are as
follow.
● Since cash flow statement is based on the cash basis of accounting, it is very useful in the
evaluation of cash position of a firm.
● A projected cash flow statement can be prepared in order to know the future cash position
of a concern so as to enable a firm to plan and coordinate its financial operations
properly. By preparing this statement, a firm can come to know as to how much cash will
be generated into the firm and how much cash will he needed to make various payments
and hence the firm can well plan to arrange for the future requirements of cash.
● Cash flow statement helps in planning the repayment of loans, replacement of fixed
assets and other similar long-term planning of cash. It is also significant of capital
budgeting decisions.
FORMS OF WORKING CAPITAL:
1. Gross Working Capital
2. Net Working Capital
3. Permanent Working Capital
4. Temporary Working Capital
1. GROSS WORKING CAPITAL:

It refers to the company’s investments in current assets which can be converted into cash
within one year (or) in an accounting year. It includes cash, short term securities.
Working capital is necessary to run a business firm and to meet day-to-day expenses.
Cash is generated through sales which is possible with the investment in inputs such as raw
materials, consumables, labor etc.. Hence working capital is necessary for acquiring inputs.
Gross working capital focuses on two aspects of current assets management.

(i) How to optimize in current assets
(ii) How current assets should be financed.
The financial manager should have knowledge of the sources of working capital funds as well as
investment revenue where idle funds may be temporarily invested.
2. NET WORKING CAPITAL:

It refers to excess of current assets over current liability i.e. difference between current
assets and current liabilities. Current liabilities are those claims of outsiders. Which are expected
to mature of payment. With in accounting expenses. Net working Capital may be positive or
negative. A present working capital will arise when current assets are exceed current liabilities.
A net working capital will occur when current liabilities are in excess of current assets. Net
working capital is a qualitative concept of indicators the liquidity position of the company and
suggests the extent to which working capital.
3.PERMANENT WORKING CAPITAL:
It refers to the minimum level of current assets, which is continuously required by the
company to carry out the business operations. Permanent working capital is also known as fired
working capital. It is payment in the way as the company's fixed assets are depending upon the
changes in production and sales. The need for working capital ones and above permanent
working capital will fluctuation.
4.TEMPORARY WORKING CAPITAL:

It refers to that part of total working capital which required by business over and
above permanent working capital. The extra working capital needed to support the changing
production and sales activities. It is also called 'Variable working capital.
ELEMENTS IN WORKING CAPITAL:

(a) CURRENT ASSETS:
The term current. asset includes intention of converting them in to assets which are
acquired with the cash during the normal business operation of the company. However, the
definition of the current assets has been given by Grady in the following words. For accounting
purpose, the term Current assets is used to designate cash and other assets or resources
commonly identified on, those which are reasonable expected to be realized in cash or sold or
'consumed during the normal operating cycle of the business.
The current assets are

● Cash including fixed deposit with bank
● Account receivables
● Inventory
● Advance receivables
Prepaid expenses:
It should be noted that short term investment should be included in the definition of the
term current assets while loose tools should be excluded from the category of current assets. Of
course, this is not strictly accordingly to the requirements of the companies Act regarding
presentation of financial statement where investments even though held temporarily are to be
shown separately from current assets while loose tools are shown separately from current assets
while loose tools are shown under the category of current assets.
The term Current Liabilities is used principally to designate such obligation whose
liquidation is reasonably expected to require the use of assets classified as current assets in the
same balance sheet or the operation of other current liability of those expected to be satisfied
with in a relatively a short period of time usually one year.
● Account payable
● Outstanding expenses
● Bank overdraft
● Short term loans.
● Advance payment received by business
PROVISIONS AG1 (INST CURRENT ASSETS):

Provision for doubtful debts, provision for loss on stock, provision for discount on debtors
etc, are treated as current liabilities. Since they reduce the amount of current assets.
NON-CURRENT ASSETS:
All assets other than current assets come within the category of non-current assets
include goodwill, land building, machinery, furniture long term investment, Patent rights, Trader
marks, debt balance of the profit & loss account, discount on issue of debentures and preliminary
expenses etc.
NON-CURRENT LIABILITIES:
All liability other than current liability comes with in the category of Noncurrent
liabilities. They include share capital, long term loans, debentures, share premium, credit balance
in the profit & loss Account. Revenue and capital reserve, dividend equalization fund, debentures
sinking fund.
TABLE 3.1
LIST OF WORKING CAPITAL ACCOUNTS
Current Assets Current Liabilities
1. Cash in hand 1. Bills payable

2. Cash at bank 2. Sundry creditors are Accounts payable
3. Bills receivable 3. Outstanding expenses
4. Sundry Debtors 4. Dividend payable
5. Short term loans and Advances 5. Bank Overdraft
6. Temporary marketable investor 6. Short term loans, advances &deposits
7. Inventories or stocks such as 7. Provision against Current assets
(a) Raw material 8. Provision for taxation
(b) Work in process 9. Proposed dividend
(c) Stores and spares
8. Prepaid expenses
TABLE 3.2
Non-Current Items
Non-Current Assets Non-Current Liabilities
1. Good Will 1. Equity Capital

2. Land and Buildings 2. Preference Capital
3. Plant and Machinery 3. Debentures
4. Furniture and fitting 4. Long term liabilities
5. Trade marks 5. Credit Balance of their profit and loss
6. Patents account
7. Long-term funds 6. Capital reserve
8. Debit balance and profit and loss 7. Depreciation on Fixed Assets
account
9. Opening expenses
Preparation of funds flow statement:

1. Schedule of changes in working capital
2. Funds flow statement
1. Schedule of Changes in Working Capital:

Working Capital means the excess of current assets over current liabilities. Statement of
Changes in Working Capital Is prepared to show the changes in the working capital between the
two balance sheet dates. This statement is prepared with the help of Current Assets and
Liabilities derived with the help of Current Assets and Current Liabilities derived from the two
balance sheets dates:
Working Capital = Current Assets – Current Liabilities.
RULES FOR PREPARING THE SCHEDULE:

● Increase in a Current Assets results in increase in Working Capital
● Decrease in a Current Assets results in decrease in Working Capital
● Increase in a Current Liabilities results in decrease in Working Capital
● Decrease in current Liabilities results in increase in Working Capital
The changes in all current assets and liabilities are merged into one figure only – either an
increase or decrease in working capital over the period for which funds statements has been
prepared. If the working capital at the end of the period is more than the working capital at the
beginning thereof, the difference is expressed as ‘Increase in working capital’. On the other
hand, if the working capital at the end of the period is less than that at the commencement, the
difference is called ‘Decrease in Working Capital’.
SCHEDULE OF CHANGES IN WORKING CAPITAL (TABLE 3.3)

PARTICULARS AS ON AS ON Changes in working capital
Increase Decrease
CURRENT ASSETS
Inventories *** *** ** -
Sundry Debtors *** *** ** -
Cash &Bank *** *** - **
*** *** - **
Loans& Advances
Total Current Assets(a) **** ****
CURRENT LIABILITIES
Bank Overdraft
*** *** ** -
Provisions *** *** - **
Outstanding expenses *** *** - ***

**** ****
Working Capital (a-b) *** ***
Net increase or decrease in

working capital *** *** ** **
● **** **** *** ***
FUNDS FLOW STATEMENT:

While preparing a funds flow statement current assets and current liabilities are to be
ignored attention is to be given to change in fixed assets fixed liabilities. The statement may be
prepared in fare following form. There will be no flow of funds if there transition involves
1. Current assets and fixed assets.

Ex: Purchasing of building for cash.
2. Current assets and capital.
Ex: issue of shares for cash.
3. Current assets and fixed liability.
Ex: Redemption of debentures in cash.
4. Current liabilities and fixed liabilities.
Ex: Credit paid off in debentures.
5. Current liability and capital
Ex: Creditors paid off in shares
6. Current liability and fixed assets
Ex: Building transferred to creditors in satisfaction of their claim. There will be no flow of
funds if these transactions involves.
i ) Current assets and current liability
Ex: Pay to creditors
ii) Fixed assets and fixed liability.
Ex: Building purchased and payment made in debentures
iii) Fixed assets and capital.
Ex: Building purchased and payment made in debentures.
MEANING OF FUNDS FLOW:

The term "Flow" means change and therefore the term "Flow of funds" means change
"Funds" or change in "Working capital" in other words any, increase or decrease in working
capital means "Flow of Funds".
Funds Flow statement is also called as a "Statement of Source and Application of Funds"
summary of financial operation etc.
In business several transactions take place some of the transactions increase the funds
while other decrease the funds some may not make any change in the funds position. In case a
transaction results in increase of funds. It will be termed as source of funds. In case a
transactions results in decrease of funds it will be taken as an application or use of funds.
PREPARATION OF FUNDS FLOW STATEMENT:

In order to prepare a Funds flow statement if it is necessary to find out the "sources" and
"Application" of funds.
SOURCES OF FUNDS:
Sources of funds can be divided in to two types.
1. Internal source
2 External source
INTERNAL SOURCE:
Funds from operation is the only internal source of funds how ever, the following adjustment
will be required in the figure of net profit for finding our real funds from operation.
i) Depreciation on Fixed assets
ii) Preliminary expenses and good will written / off.
iii) Contribution to debentures redemption fund transfer to general reserve.
iv) Loss on sale of fixed assets.
v) Provision for tax proposed dividend.

EXTERNAL SOURCES:
a) Funds from long term loans:

Long term loans such as debentures borrowing from financial institutions will increase
the working capital and therefore, there will be Flow of Funds. However if the debenture have
been issued in consideration of some fixed assets, there will be no flow of funds.
b) State of fixed assets:

Sale of land, Building Long term investment will result in generation of funds.
c) Funds from Increase in share capital:

Issue of share for cash or for my other current assets result in increase in working capital
and hence will be a flow of funds.
APPLICATION OF FUNDS:
The uses to which funds are called application of funds. Following are some of the purpose
for which funds may be used.
i) PURCHASE OF FIXED ASSETS:

Purchase of fixed assets such as land, Building Plant, Machinery long term investments
etc, results in decrease of current assets. Without any decrease in current liabilities. Hence there
will be a flow of funds. But in the case of debentures are issued for acquisition of fixed assets,
there will be no Flow of funds.
ii) PAYMENT OF DIVIDEND:

Payment of dividend result in decrease of fixed liability and therefore it affects funds
generally recommendations of directors regarding declaration of dividends is simply taken as an
appropriation of profit and not as an item effecting the working capital.
iii) PAYMENT OF FIXED LIABILITY:
Payment of long term liability such as redemption of debentures of redemption of
redeemable preference shares results in reduction of working capital and hence it is taken as
application of fund.
iv) PAYMENT OF TAX LIABILITY:

Provision for taxation is generally taken as an appreciation of profit and not as an
application fund. But if the tax has been paid it will be taken as an application.
V) INCREASE IN WORKING CAPITAL:

Working capital is increased. If current assets are increase and current liabilities are
decrease. Funds are in both the case i.e. order to acquire more current assets or paying current
liabilities and thus funds are said to have been applied per used.
STATEMENT OF SOURCES AND APPLICATION OF FUNDS FROM

OPERATIONS:
It is an internal source of funds. A fund from operation is to be calculated as per this
method. Funds from operation is the only internal source of funds some adjustments are to be
made in calculating funds from operation to the net profit given in the financial statement.
USEFUL AS 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 funds were put to use according to plant.
This enables the financial manager to find out deviation from the planned course of action and
taken remedial steps to correct the deviation.
USEFUL TO THE EXTERNAL PARTIES:

The outside parties can have a clear knowledge about the financial policies that the
company had purchased in the light of the information so supplied by the statement, the outsider
can decide whether or not to invest in the enterprise and on what terms funds have to be invested.
The funds flow statement provides an insight into the financial operation 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 debut imbalance in
the use of funds and undertake remedial actions.
STATEMENTS SHOWING OF FUNDS FROM OPERATIONS:

Trading profits or the profits from operations of the business are the most important
major sources or inflow of funds in the business as they increase assets but at the same time
funds flow Out of business for expenses and cost of goods sold.
Thus the net effect of operation will be a sources of funds if inflow from sales exceeds the
outflow for expanses and cost of goods sold and vice-versa but it must be remembered that funds
from operation do not necessarily mean the profit as shown by the profit & loss of a firm because
there are many non-kind (or) Non operating items which may have been either debited or
credited to profit & loss Account. The examples of such items on the debt side of a profit & loss
Account are amortization of fictitious and intangible assets such as good will, preliminary
expenses and discount on issue of share & debentures written off Appreciation of retained
earnings such as transfer to reserve etc. depreciation and depletion loss and sale of fixed assets,
payment of dividend etc. The Non-fund items are those which may be operational expenses but
they do not affect funds of the business.
E.g. for depreciation charged to profit & loss account funds really don't move out of
business non operating items are those which although may result in the outflow of funds but are
not related to the trading operations of business such as loss on sale of machinery or payment of
dividends the method of calculating funds from operation have been discussed.
METHOD OF CALCULATING FUNDS FROM OPERATION:

● The first method is to prepare the Profit & loss A/e a fresh by taking in to Consideration
only funds and operational items, which involve funds, are related to normal operation of
the business. The balancing figures in this case will be either funds generated from
operations or funds in operations depending up on. The income or audit side (or) profit &
loss a/c exceeds the expenses or debit side of profit & loss a/c or vice versa.
● The second method which is generally used to precede from figure of net profit & loss
account already prepared Funds from operations by this method can be calculated as
under.
TABLE 3.4
ADJUSTED PROFIT AND LOSS ACCOUNT
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Depreciation on Fixed Assets XXX By Opening Balance XXX

To Good Will written off XXX By Dividend received XXX
To preliminary Expenses XXX By Profit on sale of assets XXX
To Transfer to general reserve XXX By Funds from operations XXX
To Payment of proposed dividend XXX (Balancing Figure)
To Provision for tax XXX
To Loss On sale of assets XXX
To Closing Balance XXX
XXX XXX
TABLE 3.5
FUNDS FLOW STATEMENT
Sources Amount Applications Amount
Rs Rs
Issue of Shares XXX Redemption of redeemable
preference shares and XXX
Issue of Debentures XXX debentures
Long-term borrowing XXX payment of equity shares

capital XXX
Sale of investment, Fixed assets XXX
Payment of other long term
Operating profit loan
XXX
XXX
Decrease in working capital Purchase of Investment, Fixed
assets, etc
XXX
Operating loss XXX
Payment of dividend and tax
Net increase in working capital XXX
XXX
XXX
XXX XXX
TREATMENT OF ADJUSTMENTS:
Sometimes the factors affecting the funds from operation may not be given in the problem
directly and there may be some hidden information as such some of the transactions have to
designed our using the additional. Information provided as adjustments to the balance sheet there
items include
a) Provision for tax
b) proposed dividend
c) Sale (or) Purchase of fixed assets
a) PROVISION FOR TAX:
It is a current liability while preparing on funds flow statement there are two options
available. i) Provision for Tax may be taken as a current liability. In such a case, where provision
for tax is made their transaction involves profit and loss appropriation Account which is a fixed
liability and provision for Tax Account. Which is a current liability it will thus decrease the
working capital on payment of tax there will be no change in working capital because it will
involve one current liability and other a current assets.
b) PROPOSED DIVIDEND:
What ever has been said about the Provision for Tax' is also applicable to "Propose dividends".
Proposed dividend can also be dealt with in two ways.
i) Proposed dividend may be taken as a current liability since declaration of dividends by the
share holders in simply a formality. Once the dividends are declared in the general meeting, they
will have to be paid with in 42 days their declaration.
ii) Proposed dividends may simply be taken as an appropriation of profits. In such as case
proposed dividend for the current year will be added back to current year's profit in order to find
out funds from operations if such amount of dividend has already been charged to profits
payment, of dividend will be shown as an "Application of Funds".
c) SALE OR PURCHASE OF FIXED ASSETS:

For arriving at the final figure we have to prepare the assets depreciation account assets,
sold or purchased account.
CHAPTER - IV
GROWTH & PERFORMANCE
TABLE 4.1
2016-2017
(IN LAKHS)
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 9194.08 10636.86 1442.78 -
Sundry Debtors 6706.59 7667.92 961.33 -
Cash &Bank 350.67 2650.37 2299.70 -
Loans& Advances 2070.42 5241.68 3171.26 -

18321.76 26196.83
Provisions 354.42 538.25 183.83
9556.53 10726.59
8765.23 15470.24
Working Capital (a-b)
Increase in Working Capital 6705.01

6705.01
15470.24 15470.24 7875.07 7875.07
Interpretation: -
Rs.18321.76 lakhs in (2016) toRs.26196.83 lakhs in (2017). The current liabilities of the
There is an increasing the working capital is Rs.6705.01 (lakhs)
TABLE 4.2
(IN LAKHS)

To preliminary expenses 1.92
6834.18 6834.18
TABLE 4.3
31.12.2017
(IN LAKHS)
Amount Amount

Decrease in capital work in Purchase of fixed assets 6788.33
progress 4849.57 Increasing working capital 6705.01
Funds from operations
2841.12
14828.80 14828.80
TABLE 4.4
2017-2018
( IN LAKHS)
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 10636.86 12092.91 1456.05
Sundry Debtors 7667.92 8814.31 1146.39
Cash &Bank 2650.37 420.10 2230.27
Loans& Advances 5241.68 5289.66 47.98
Provisions 538.25 711.30 173.05
Working Capital a-b 15470.24 16586.30
Increase in Working Capital 1116.06 1116.06

16586.30 16586.30 3519.38 3519.38
Interpretation: -
company have increased from Rs.10726.59 lakhs in (2017) to Rs.10030.68 lakhs in (2018).
TABLE 4.5
(IN LAKHS)

Funds from operations 4976.21
To preliminary expenses -
10084.85 10084.85
TABLE 4.6
31.12.2018
(IN LAKHS)
Amount Amount

Funds from operations 4976.21 Purchase of fixed assets
Increasing working capital
3691.91
Increase in capital work in 1116.06
progress
107.56
Prior period adjustment
47.76
6425.62 6425.62
TABLE 4.7
2018-2019
(IN LAKHS)
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 12092.91 14436.48 2343.57 -
Sundry Debtors 8814.31 11966.16 3151.85 -
Cash & Bank 420.10 3550.27 3130.17 -
Loans& Advances 5289.66 6020.93 731.27 -
Current Liabilities 9319.38 10108.38 - 789.00

Provisions 711.30 774.95 - 63.65
Working capital a-b 16586.30 25090.51 -
8504.21
Increase in working capital 8504.21
25090.51 25090.51 9356.86 9356.86

Interpretation: -
TABLE 4.8
(IN LAKHS)

10738.39 10738.39
TABLE 4.9
31.12.2019
(IN LAKHS)
Amount Amount

Decrease in capital work in 436.64 Purchase of fixed assets
progress Increasing working capital 3458.63
Funds from operations 3558.69 Prior period adjustment 8504.21
34.84
19390.46 19390.46
TABLE 4.10
2019-2020
(IN LAKHS)
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 14436.48 11519.49 - 2916.99
Sundry Debtors 11966.16 11845.80 - 120.36
Cash & Bank 3550.27 1516.42 - 2033.85
Loans& Advances 6020.93 5581.47 439.46
35973.84 30463.18
Current Liabilities 10108.38 6853.94 -

3254.44
Provisions 774.95 1066.74 - 291.79
Total current Liabilities(b) 10883.33 7920.68
Working capital a-b

25090.51 22542.50
Decrease in working capital
2548.01 2548.01
25090.51 25090.51 5802.45 5802.45
Interpretation: -
It is clear from the above table that the current assets of the company have decreased from
company have increased from Rs.10883.33 lakhs in (2019) to Rs.7920.68 lakhs in (2020). There
is a decreasing the working capital is Rs.2548.01 (lakhs).
TABLE 4.11
(IN LAKHS)

15820.52 15820.52
TABLE 4.12
31.12.2020
(IN LAKHS)
Amount Amount
Un-Secured loans 1251.75 Payment of Secured loans 6740.96

Decrease in capital work in 2548.01 Purchase of fixed assets 1311.43
progress Increasing working capital 3015.84
Funds from operations 7270.75 Prior period adjustment 2.28
11070.51 11070.51
TABLE 4.13
2020-2021
(IN LAKHS)
Rs. Rs. Rs.
Increase Decrease
Current Assets:
Inventories 11519.49 23883.36 12363.87 -
Sundry Debtors 11845.80 13725.85 1880.05 -
Cash & Bank 1516.42 1899.09 382.67 -
Loans& Advances 5581.47 4454.39 - 1127.08
30463.18 43962.69

-
Provisions 1066.74 1290.34 - 223.6
Total current Liabilities(b) 7920.68 16923.88
22542.50 27038.81
Working capital a-b
Increase in working capital 4496.31 4496.31
27030.81 27030.81 14626.59 14626.59
Interpretation:
It is clear from the above table that the current assets of the company have increased
from Rs.30463.18 lakhs in (2020) to Rs.43962.69 lakhs in (2021). The current liabilities of the
company have decreased from Rs.7920.68 lakhs in (2020) to Rs.16923.88 lakhs in (2021). There
is an increasing the working capital is Rs 4496.31 (lakhs)
TABLE 4.14
(IN LAKHS)

19214.93 19214.93
TABLE 4.15
31.12.2021
(IN LAKHS)
Amount Amount
Secured loans 3601.37 Payment of Un- Secured 284.81

Funds from operations 5501.02 loans
Purchase of fixed assets 2811.96
Increasing working capital 4496.31

Increase in capital work in 1509.31
progress
9102.39 9102.39
CHAPTER - V
OBSERVATIONS & RECOMMENDATIONS
OBSERVATIONS
had generated funds from operation Rs 2841.12 (lakhs). This consists 19.16 percent of
total funds.
had generated funds from operation Rs 4976.21 (lakhs). This consisted 77.44 percent of
total funds.
generated funds from operation Rs 3558.69 (lakhs). This consists 18.35 percent of total
funds.
funds.
funds.
RECOMMENDATIONS
● All the reserves and surplus amount are utilizing for purchasing fixed assets and for
working capital. It is better to utilize some amount for purchasing investments which
diversifies the financial risk.
● Company is maintaining more current ratio. Hence, firm’s funds will be unnecessarily
ties up in current assets. It could be better to invest the amount in purchasing the
marketable securities.
● In the financial senses acquiring the share capital will makes profitable not borrowing the
loans thorough secured and unsecured.
● Trading activity should be operated effectively to generate more funds.
.
ANNEXURE
PENNA CEMENT INDUSTRIES LIMITED BALANCE SHEET AS ON 2017

(IN LAKHS)
PARTICULARS SCHEDULE 2017
I. SOURCE OF FUNDS
1. Share holders fund
a) Share capital 1 3976.36
b) Reserves and Surplus 2 5108.64
2. Loan Fund
a) Secured Loans 3 16382.92
b) Unsecured Loans 4 13733.65
3. Differed Tax Liability (net) 1184.79
Total 40386.36
Application Of Funds
1. Fixed Assets
a) Gross-Block 31824.32
b) (-) Depreciation 7666.24
c) Net Block 24158.08
d) Capital Work in Progress 754.45
2. Investments NIL
3. Current Assets, Loans and Advances
a) Inventories 10636.86
b) Sundry Debtors 7667.92
c) Cash & Bank balances 2650.37
d) Loans and Advances 5241.68
Total 26196.83
Less: Current liabilities and Provisions
a) Current liabilities 10188.34
b) Provisions 538.25
Total 10726.59
Net Current Assets 15470.24
4.Deffered Tax Assets NIL
5. Miscellaneous Expenditure 3.59
Profit & loss Account NIL
Total 40386.36

(IN LAKHS)
I. SOURCE OF FUNDS
2. Loan Fund
Total 43836.66
1. Fixed Assets
2. Investments NIL
Total 26616.98
Total 10030.68
5. Miscellaneous Expenditure NIL
Total 43836.66

(IN LAKHS)
I. SOURCE OF FUNDS
2. Loan Fund
Total 53755.86
1. Fixed Assets
2. Investments NIL
Total 35973.84
Total 10883.33
Total 53755.86

(IN LAKHS)
I. SOURCE OF FUNDS
2. Loan Fund
Total 53742.80
1. Fixed Assets
a) Gross-Block 4028629
2. Investments NIL
Total 30463.18
Total 7920.68
Total 53742.80

(IN LAKHS)
I. SOURCE OF FUNDS
2. Loan Fund
Total 60688.77
1. Fixed Assets
2. Investments NIL
Total 43962.69
Total 16923.88
Total 60688.77
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 2017

(IN LAKHS)
INCOME
Sales(Gross) 41045.08
(-) Excise Duty 4108.43
Total sales 36936.65
Other Income 13 33.59
Increase / decrease in stocks 14 471.24
Total 37441.48
EXPENDITURE
Purchases -
Raw Materials Consumed 15 19232.45
Manufacturing expenses and other expenses 16 13055.04
Interest and financial changes 1832.36
Depreciation 1156.89
Total 35276.74
Profit and Loss Before Tax 2164.74
Provision for Tax [current + Deferred] 242.93
MAT Credit Entitlement (242.93)
Provision for deferred Tax 566.73
Provision for Fringe Benefit Tax 17.21
PROFIT AFTER TAX 1580.80
Balance brought forward from previous year 837.09
Prior Period Adjustment -
Profit available for appropriate 2417.89
Appropriation
Transfer to debenture redemption reserve 93.75
Transfer to General reserve 1000.00
Proposed Dividend 397.64
Tax on dividend 67.58
Balance carried to balance sheet 858.92
Total 2417.89
Basic & Diluted EPS (Rupees) 3.98
No of shares used in computing basic & diluted EPS 39763595

(IN LAKHS)
INCOME
Total 46473.00
EXPENDITURE
Purchases -
Total 42471.56
MAT Credit Entitlement (453.41)
Prior Period Adjustment 55.46
Appropriation
Total 3395.20

(IN LAKHS)
INCOME
Increase / decrease in stocks 14 (246.82)
Total 64434.97
EXPENDITURE
Purchases 607.33
Total 61612.15
MAT Credit Entitlement 108.14
Prior Period Adjustment -
Appropriation
Total 3077.77

(IN LAKHS)
INCOME
Total 69633.88
EXPENDITURE
Purchases 640.58
Total 60836.25
MAT Credit Entitlement 707.49
Provision for Fringe Benefit Tax -
Prior Period Adjustment 67.99
Appropriation
Transfer to debenture redemption reserve -
Total 7755.76

(IN LAKHS)
INCOME
Increase / decrease in stocks 14 (46.96)
Total 72763.33
EXPENDITURE
Purchases 2869.91
Total 67178.81
MAT Credit Entitlement -
Provision for Fringe Benefit Tax -
Prior Period Adjustment (59.08)
Appropriation
Transfer to debenture redemption reserve -
Total 5801.49
BIBLIOGRAPHY
BIBLIOGRAPHY
BOOK NAME AUTHOR PUBLICAION YEAR

FINANCIAL IM pandey 9/e, Vikas Publishing 2004
MANAGEMENT
Fundamentals of Prasanna Chandra Tata McGraw Hill, 2003

Financial Management New Delhi.
Financial Management- M.Y Khan,P K Jain Tata McGraw Hill, 2003

Text and Problems New Delhi.
Maheswari S N, Vikas Publishing House 2009

Financial Accounting
Maheswari S K Private Limited,
New Delhi.
Financial Management James C.VanHorne Pearson Education 2004

And policy
INTERNET SITE:
● www.google.com
● www.wikipedia.com
● www.penna cement.com

SHIVA

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In partial fulfillment of the requirement for the award of the degree of

E.SIVA KUMAR REDDY

Regd. No: Y20MS017

Under the Guidance of

RVR & JC COLLEGE OF ENGINEERING (AUTONOMOUS)

NAAC ‘A+’ GRADE

Chowdavaram, Guntur-522019, Andhra Pradesh

RVR & JC COLLEGE OF ENGINEERING (AUTONOMOUS)

NAAC ‘A+’ GRADE

Mr. P.Siddardha Dr. T.Sreekrishna

Project Guide M.B.A. Lr.Ship (UGC), M.Phil,Ph.D.

I E.SIVA KUMAR REDDY, student of Master of Business Administration,

E.SIVA KUMAR REDDY

I sincerely thank Principal Dr. K. RAVINDRA for providing necessary

I would like to express my profound gratitude and sincere thanks to Dr. T.

I am deeply indebted to the supervisor P. SIDDARDHA, Assistant Professor,

E.SIVA KUMAR REDDY

FUNCTIONS OF FINANCIAL MANAGEMENT:

● By preparation of common size statements of the two similar units.

● Comparison of the financial statements of different years of the same business

NATURE AND SCOPE OF FINANCIAL MANAGEMENT:

The FM is usually faces with the following distinct scenario

A statement of funds received and expanded a statement of changes in financial position

Concept of Funds Flow Statement:

Importance of Funds Flow Statement:

Uses of funds flow statement:

The financial consequence of business operation are clearly explained in details

⮚ Where have the profit gone.

NEED FOR THE STUDY

SCOPE OF THE STUDY

METHODOLOGY OF THE STUDY

Methodology is a systematic process of collecting information in order to analyze and

Further data needed for the study was collected from:-

● Reference from text books and journals relating to financial management.

Diagrammatic Representation of Research Methodology

Primary data Secondary data

Management Respondents Inside the company

CEMENT INDUSTRY IN ANDHRA PRADESH:

Capacity, Production and Exports:

Year Cement Clinker Total

2016 – 2017 3.47 3.45 6.92

Overview of the performance of the Cement Sector:

● Housing development programs;

● Promotion of concrete highways and roads;

● Use of ready – mix concrete in large infrastructure projects; and

● Construction of concrete roads in rural areas under Prime Ministers Grama

Infrastructure – driven demand push:

Narrowing demand-supply gap:

Challenges before the industry:

Major cement producers – market shares:

Chief Financial Officer:

LOCATION OF THE COMPANY:

Gypsum is another important required material for cement manufacturing, constitutes

SALIENT FEATURES OF PENNA CEMENT:

Growth and Performance:

Competitiveness of Cement Project:

Raw Materials & Requirement:

REQUIREMENT OF RAW MATERIALS

Raw material (1.46%) +coal Calcinations clinker

Clinker + Gypsum Ordinary Portland cement

Clinker + Fly ash Pozzoland Portland

PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS: