INTRODUCTION

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 INTRODUCTION
In our present day economy, finance is defined as the provision of money at
any time when it is required. Every enterprise, whether big, medium and small, needs
finance to carry out its operations and to achieve its targets. In fact, finance is so
indispensable today that it is rightly said that it is the lifeblood of an enterprise.
Without adequate finance, no enterprise can possibly accomplish its objectives.

Finance may be defined as the provision of money at the time when it is

required. Finance refers to the management of flows of money through an
organization. It concerns with the application of skills ion the manipulation uses and
control of money divestment authorities have interpreted the term finance differently.

Finance is concerned with the task of providing funds to the Enterprises on the
term that is most favorable towards the attainment of the Organizational goal’s
objects. The function of finance is not merely Furnishing funds to the organization.
Finance has a broader meaning and it covers financial planning, forecasting of cash
receipts and disbursements, rising of funds, use and allocation of funds and financial
control. The area of operation of finance manager is vague from one compact to
another and industry – to – industry etc.

There are many definitions of finance of all the best was of Howard and
Upton. “That administrative area of set of administrative area of organization will
have the means to carryout as objectives to satisfactorily as possible and at the same
time meet its obligations as they become due”.

For many years, balance sheet and profit and loss account have constituted the
basic financial statement of a business enterprise. These constituted the basic financial
statements fail to represent all the useful financial data required for investing and
financing divisions by management. These shows the nature of transactions entered
into during the period of finance firms operations.

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 They do not give a complete report of financial activity of all resources
provided during the period and uses to which they were applied. Fox example, profit
and loss account indicates a general ways the resources provided by operation. It
contains a variety of write off and other adjustments, which do not involve any cash
outflow. Like this, balance sheet helps to show only partially the items regarding the
acquisition of new assets, liquidation of old debts, creating new liabilities and so on
by the firm during the two balance sheet dates.

Owing to these limitations, provide information on the major financing and

investment activities of the firm during the period. Such a statement is called the
statement of changes in financial position. It summarizes the sources from which
funds have been obtained and uses to which they have been applied.

Initially the statement begin from an analysis called the where got and where
gone statement. It was merely concerned listening increase or decrease in various
items of company’s balance sheet. After some time, the title of the statement was
changed to funds statement. In 1963, the statement was renamed as statement of
sources and applications of funds. During 1971, it was again changed as statement of
changes in financial position.

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 THE FUNDAMENTAL PRINCIPLE OF FINANCE

A business proposal – regardless of whether it is a new investment or

acquisition of another company or restructuring initiative – raises the value of the
firm, only if the present value of the future stream of net cash benefits expected from
the proposal is greater than the initial cash outlay required to implement the proposal.

The difference between the present value of future cash benefits and the initial
outlay represents the net present value of NPV of the proposal.

Net present value =

Present value of future cash benefits – initial cash outlay

SIGNIFICANCE OF FINANCIAL MANAGEMENT

Financial management is the managerial activity, which is concerned with

planning and controlling of the firms financial resources.

The subject of financial management is of immense interest both to the

academicians and the practicing managers. The practicing managers all interested in
this subjects become the most crucial decisions of the firm all those which results to
the finance, and on understanding of the theory of financial management provides
them with conceptual and analytical insights to make these decisions skillfully.

As a separate activity as discipline it is of recent origin. It was a branch of

economic till 1890; today financial management is recognized as the most important
branch of business administration.
According to Howard, and Upton, financial management involves the
application of general management principals to particular financial operation.

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 N.G. Wright financial management is intimately itself woven into the fabric of
the management itself its central role is concerned with the same objectives as these
of the management which the way in which the way in which the resources of the
management in to three main areas.

 Decision on the capital structure.

 Allocation of available funds to specific uses.
 Analysis and appraised of problems.

Financial management includes planning of finance cash budgets and source

of finance. Era sloman and john prigle insists that financial management must attend
to investment decision because if these decisions.

That affects in a large measure the future of a firm major financial

management is on operational function it is involved with financial planning
forecasting and providing of finance as well as the formation of financial policies.

Hunt William and Donald son have called financial management as resources
management became in a large organization; the finance manager is the member of
the planning. Organizing, Performing, and controlling the financial affairs of the
enterprise. The financial management is of great importance I n the present day
corporate world. It is science of money, which permits the authorities to go further.
The significance of financial management can be summarized as

 It assists in the assessment of financial needs of industries large or small

and indicates the internal and external resources for meeting them.
 Analyzing the viability of that project through capital budgeting
techniques.
 It permits the management to safeguard the interests of shareholder by
properly utilizing the funds procured from different sources and it also regulates
and controls the funds to get maximum use.
 It assesses the efficiency and effectiveness of financial institutions in
mobilizing individual or corporate savings. It also prescribes savings into desirable

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investment channels.
Introduction

The basis for financial planning, analysis and decision-making is the counting
reports. Two basics financial statements prepared for the purpose of external report to the
owners, investors and creditors are; balance sheets annual reports/statements of financial
position and profit and loss accounts/income statements.

Balance sheet

The balance sheet shows the financial conditions or the state of affairs of the firm at a
particular point of time. More specifically the balance sheet conditions detailed information
of the firm’s assets and liabilities. An asset represents economic resources possessed by the
firm while the liabilities are the amounts payable by the firm. The balance sheet gives concise
summery of the firm resources and obligations and measures the firms liquidity and
solvency.

Profit and loss account

The profit and loss account shows the profitability of the firm by giving the details
about income and expenses. It is simply income and expenditure account. Revenues are
benefits, which customers contribute to the firm in exchange of goods and services. The cost
of economics resources used in providing goods and services to the customer is called
expenses.

Profit and loss account provides a concise summary of firm’s revenues and expenses
during the period of time and measures its profitability.

The above two statements provide useful information regarding the operations of the
firm. They fail to explain the financial data required for financing and investing decisions by
the management i.e. causes for changes in assets and liabilities and owner’s equities. They do
not indicate the movement of funds between sources and uses from the end of the period to
the end of next periods. It is therefore; necessary to prepare an additional statement called
funds flow statements to overcome the above difficulties.

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INDUSTRY
PROFILE

7
COMPANY

PROFILE

8
Funds flow statement
The funds flow statement is a statement, which shows the movement of
funds and is a report the financial operations of the business undertaking. It
indicates various means by which funds were obtained during a particular period
and the ways in which these find were employed.

In simple, the funds flow statement is a statement means sources and

application of funds. In short, it is a technical device designed to high light the
change in the financial condition of a business enterprise between two Balance
Sheets.
According to Robert Anthony "the funds flow analysis describes the
sources from which additional funds were derived and the uses to which these
funds were put.”
According to Fouke, "A Statement of sources and Applications of
funds is a technical device designed to analyze the changes in the
financial position of a business enterprise between two periods.”

Funds flow statement is widely used by the financial analyst and credit
granting institution and financial managers in performance of their jobs. It has
become a useful tool in their analytical kit. This is because the financial statement
like income statement and· balance sheet have limited role to perform.

Income statement measures flows restricted to transaction that pertain to

rendering of good and services to customers. The balance sheet is merely a static
statement's these statements do not sharply focus those major financial transactions,
which have behind the balance sheet changes.

However financial analyst must know the purpose for which the loan was unitized
and the sources from which it has rises. This will help him in making a better estimate about
the company's financial position and policies.

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Uses, significance and importance of funds flow statement
Analysis of financial operations

A funds flow statement shows how the resources have been obtained and the uses to
which they are put. The funds flow statements determining the financial consequences of
business operation. It also useful in guiding whether the firm has expanded at too fast rate
and whether financing is strained, it also point out to the effectiveness with which the
management has handled working during the period under review.

Evaluation of the firms

This statement consist the financial manager in planning intermediate and long-term
finance for obtaining sources in the further and determining how they are to be used. That is
analysis of the major sources of funds in the past reveals what positions of the firms growth
was financed internally and what position externally.
Comparison with the budget

The statement defines the past flow of funds and gives insight in to the evolution of
the present situation. It provides certain useful information about the firms. Financial policies
to the outside world like bankers, government, etc;

Funds flow statement is becoming popular with the management because it helps to
explain why in spite of earning sizable amount of profits, the company is experiencing
difficulty in making payments to creditors, the rate of dividend on equity; shares can not be
increased and the bank balance is getting thinner. The funds flow statements has an analytical
value and is an important planning tool. It helps in guiding the destiny of the business by
enabling the executives to visualize the movements of funds that constantly takes place. This
statement also helps in working capital requirements. It highlights and future need for funds
and provides sample time to work out suitable arrangements. The funds flow statement
shows what portion externally. The analysis of funds flow statement for the future is
externally available to the executive in planning the intermediate and long term financing of
the firm.

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General Rule:
The flow of funds occurs when a transaction changes on the one hand a non-
current account and vice versa.
 A current asset and a fixed asset.
 A fixed asset and a current liability.
 A current asset and a fixed liability.
 A fixed liability and a current liability.

Uses-of Funds Flow Analysis:

 It helps in the analysis of financial operations.

 It throws light on many perplexing
question of general interest.
 It helps in the formation of a realistic
dividend policy.
 It helps in the proper allocation of
resources.
 It acts as a future guide.

Limitations of funds Flow Analysis:

 It is essentially historic in nature and projected funds flow

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

Different names of funds Flow Statement

 A statement of sources and Uses of funds.

 A statement of Sources and Application of funds.
 Where got and where gone Statement.

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 Inflow and out flow of funds statement.

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 Main purpose of funds Flow Statement

 To help to understand the changes in assets and which are not

evident
 Financial statements or the income statement.
 To inform on to how the loans to the business has been
used.
 To point out the financial strengths and weakness of the
business.
 To help in planning sound dividend policy.
Procedure for preparing a Funds Flow Statement

The preparation of funds flow statement consists of some parts:

 Statement of sources of funds.

 Statement of application of funds.
 Finding out the hidden transactions or changes in non-
current assets and non-current liabilities.

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Statement or Schedule of changes in Working Capital
The increase or decrease in working capital can be calculated by preparing the
schedule of changes in working capital. Working capital means the excess of current
assets over current liabilities. Statement of changes in working capital is proposed to
show the changes in the working capital between two balance sheets data. This
statement is prepared with the help of current assets and current liabilities derived
from two balance sheets.

While preparing a schedule of changes in working capital, it should

be note that
 Increase in Current Assets, Increases the Working Capital.
Capital.
 Increase in Current Liabilities, Decreases the working capital.
 Decrease in Current Liabilities, Increases the Working
 Decrease in Current assets, Decreases the Working Capital.
 An increase in current assets and increase in current liabilities does not
affect working capital.
 A decrease in current assets and decrease in current liabilities does not
affect working capital.
 Changes in fixed (non-current) assets and fixed (non-current) liabilities
affect working capital.
The changes in all current assets and current liabilities are merged into one
figure only either an increase of decrease in working capital over the period for which
funds statements has been prepared. If the working capital at the end of the period is
more than the working capital at the beginning the difference is expresses as
“increase in working capital”. On the other hand, if the working capital at the end of
the period is less than at the commencement, the difference is called “decrease in
working capital”.

Working Capital = Current assets – Current Liabilities

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Current Assets

The expression ‘current assets’ denotes those assets, which are continually on
the move. Since they are constantly in motion, they are known as the circulating
capital of the business. These assets can or will be converted into cash during a
complete operating cycle of the business.

Current assets include

 Stock-in-trade or inventories,

Debtors,

Payments in advance or prepaid expenses,

Stores,

Bills receivable,

Cash at bank,

Cash in hand and


Work-in-progress etc

Current Liabilities

‘Current Liabilities’ are those liabilities, which are to be paid in the

near future, i.e., during a complete operating cycle of the business.

Current liabilities include

 Trade creditors,

Accrued or outstanding expenses,

Bills payable,

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 
Income tax payable,

Dividends declared and

Bank overdraft.
Note: - according to the experts opinion ‘bank overdraft’ has a tendency to become
more or less permanent source of financing and hence it need not be included among
‘current liabilities’.

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 PROFORMA OF STATEMENT OF CHANGES IN WORKING
CAPITAL

Particulars Beginning Ending Changes in working

capital
Increase Decrease
Current assts (CA):
Inventories: XXX XXX
Raw material XXX XXX
Consumable stores XXX XXX
Finished goods XXX XXX
Sundry debtors XXX XXX
Cash in hand XXX XXX
Balance with bank XXX XXX
Other current assets: XXX XXX
Deposits XXX XXX
Income tax (advance tax) XXX XXX
Sales tax XXX XXX
Total Current assets XXXXX XXXXX
Current liabilities:
Trade creditors XXX XXX
Dealers deposits XXX XXX
Expenses payable XXX XXX
Total current liabilities XXXXX XXXXX
Working Capital (CA-CL) XXXXX
Net Increase / decrease XXXXX XXXXX
working capital
XXXXX XXXXX XXXXX XXXXX

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 Statement of Sources and application of funds

Funds flow statement is a statement, which indicates various sources for

which funds have been obtained during a chain period and the uses or applications to
which these funds have been put during that period.

 Sources of funds

 Application of Funds.

Statement of sources and Applications

Sources of funds Amount Application of funds Amount

Funds from trading factitively Funds costs in operations XXXX

or
XXXX Repayment of debentures XXXX
Operating profit
XXXX Reduction in share Capital XXXX
Issue of shares and debentures
XXXX Interest and dividend paid XXXX
Receipts of dividend and
XXXX Payment of Long-term XXXX
Interest
loans.
Sales Proceeds of Non-current
asset XXXX
Increase in working capital
Long – term Borrowings XXXX XXXX

Decrease in working Capital XXXX

XXXXX XXXXX

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Introduction of Ratio Analysis
Accounting is the process of identifying, measuring and communicating
economic information to present informed judgments and decisions by users of the
information. It involves recording, classifying and summarizing various business
transactions.

Financial Statements

Financial statements are the sources of information on the basis of which

conclusions are drawn about the profitability and liquidity position of the business
enterprise at the financial year. The primary objective of financial statement is to
assist decision - making.

Financial statement are end products of financial accounts, prepared by the

accountant that purpose to reveal financial position of the enterprise, the result of its
resent activities and an analysis of what has been done with the analysis.

Types of financial statement

Financial statements primarily comprise two basic statements.

 The position statement (or) the balance sheet

 The income (or) profit and loss account.

Analysis Meaning
The term financial analysis also known as analysis and interpretation of
financial statement refers to the process of determining financial strengths and
weakness of the firm by establishing strategic relationship between the items of
balance sheet, profit and loss account of other operative data.

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Classification of Ratios

The use of ratio analysis is not confined to financial manage only. There are
different parties interested in the ratio analysis for different purposes. In view of
several of ratios, there are many types of ratio’s, which can be calculated from the
information given in the financial statements. The particular purpose of the user
determines the particular ratio’s that might be used for financial analysis.
Various Accounting Ratios can be classified as follows

 Traditional Classification

 Functional Classification

 Significance Ratios

Liquidity Ratio’s

Liquidity refers to the ability of a concern to meet its current obligations as

and when these become due. The short-term obligations are met by realizing
amounts from current floating (or) circulating assets. The bankers, suppliers of
goods and other short-term creditors are interested in the liquidity of the concern.
They will extend credit only if they are sure that current assets are enough to payout
the obligations.

 Current Ratio

 Quick or Acid Test (or) Liquid Ratio

 Absolute Liquid Ratio or cash position ratio

 Net working capital Ratio.

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Current Ratio:

Current Ratio may be defined as the relationship between current assets and
current liabilities. This ratio, also known as working capital ratio, is a measure of
general liquidity and is most widely used to make the analysis of a short-term
financial position (or) liquidity of a firm.

Current Assets
Current Ratio = ----------------------------
Current Liabilities

A relatively high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time as and when they become due. On the
other hand a relatively low current ratio represents that the liquidity position of a firm
is not good and the firm shall not able to pay its current liabilities in time. “Two to
one ratio” is referred to as a banker’s rule of thumb (or) arbitrary standard of liquidity
for a firm.

Current assets include cash and those can be easily converted into cash with in
a short period of time generally, one year such as marketable securities, debtors,
inventories, work-in-progress etc. Current liabilities are those obligations which are
payable within a short period of time generally one year and include outstanding
expenses, bills payable, sundry creditors, accrued expenses short term advances,
income tax etc.

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Quick Ratio (or) Acid Test Ratio

Quick ratio is known as acid test ratio or liquid ratio is a more rigorous test of
liquidity then the current ratio. The term liquidity refers to the ability of a firm to pay
its short-term obligations as and when they become due. The two determinants: of
current ratio as a measure of liabilities.

Quick ratio may be current or liquid liabilities. Inventories cannot be ‘termed

to be liquid asset because they cannot be converted into cash immediately without a
sufficient loss of value. The quick ratio can be calculated by dividing the total of the
quick assets by total current liabilities. As a rule of thumb (or) as a convention quick
ratio of 1: 1 is considered satisfactory.
Quick (or) Liquid Assets
Quick / Liquid (or) Acid Test Ratio = --------------------------------------------
Current Liabilities

Absolute Liquid Ratio

Although receivables, debtors and bills receivables are generally more liquid
than inventories, yet there may be doubts regarding their realization into cash
immediately (or) in time. Absolute liquid assets include cash in hand and at bank and
marketable securities or temporary investments. The acceptable norm for this ratio is
50% (or) 0.5 (or) 1:2.

Absolute Liquid Assets

Absolute Liquid Ratio = ---------------------------------
Current Liabilities

One of the value aids to the financial manager or the creditor is funds flow
statement, with which evaluate how a firm uses funds and determine how these uses
are financed. In addition to studying the past flow, the analyst can evaluate the future
flows by means of the funds statement based on forecasts.

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 Such as statement provides an efficient method for the financial manager to
assess the growth of the firm and its resulting financial needs as well as to determined
the best way in which those needs may be financed. In particular, funds flow
statements are very useful in planning intermediate and long – term financing.

The main purpose of preparing funds flow statement is that it reveals clearly
the important items relating to sources and applications of funds fixed assets, and long
– term loans including capital. It also informs how far the assets derived from
normal activities of business have been utilized properly with adequate consideration.

It also reveals how much out of the total funds is collected by disposing of
fixed assets, how much from issuing shares or debentures, how much from long-term
or short-term loans how much from normal operational activities of the business.

It also provides information about the specific utilization of such funds, that is,
how much has been applied for acquiring fixed assets, how much for repayment of
long – term or short – term loans as well as for payment of tax and dividend etc.

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Net working capital Ratio
The difference between the current assets and the current liabilities excluding
short-term bank borrowings is called net working capital. It is some times used as a
measure of a firm’s liquidity.

It is considered that between two firms, the one having the larger networking
capital has greater ability to meet its current obligations.

This is no necessary so; the measure of liquidity is a relationship, rather than

the difference between Current Assets and Current Liabilities.
Net working capital
Net working capital Ratio = ---------------------------
Net assets

Net working capital = current assets – current liabilities

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 RESEARCH
METHODOLOGY

25
 RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

The main objective of the present study is to analyse the Funds flow
performance in PIONEER OF SPINNING&WEAVING MILLS Ltd., this is being
attempted with the help of following objectives.

OBJECTIVES OF THE STUDY:-

• To identify the sources and applications of funds year by year from 2005-06 to
2008-2009.
• To examine the working capital position of the company.
• To assess the financial position of the company.
• To identify the deviations from standards.

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 NEED FOR THE STUDY

In an ever-competing corporate world, there is every necessity to check all the

minute aspects of the business, finance being the lifeblood of an organization. It is
important criteria to analyze the financial statement. Keeping the above points into
considerations, my study is aimed at analyzing the financial position of S.V Co-
operative sugar factory Ltd, during 2003-07 so as to enable the organization to have a
clear picture of their financial health.

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 SCOPE OF THE STUDY

Finance is the lifeblood of any organization the future of an organization

depends on the ability of the organization to make use of its resources in the best way.
The information relating to the financial position of the company is of great interest to
management, Creditors, investors and others to form judgment about the operating
performance and financial position of the firm.
This study is carried in the months of June-July. The data for the study are
collected from the balance sheet, profit and loss account and various schedules
relating it for five years.
This study covers analysis like ratio analysis

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 LIMITATIONS
 The information is used primarily from historical annual reports to
the public and the same does not indicate the current situation of the firm.
 Only 5 years financial reports have been considered i.e. from 2005
to 2009.
 For making the inventory management details not available.
 The information available in the balance sheet has been taken from
the published Annual reports. So, it has its Own limitations in the form of non
-Availability of information of exceptional transactions.

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 DATA COLLECTION

Interviewing primary and secondary data has been the source of data. The study
Derives its data mainly from primary source of information from finance employee of
the company and the major source of secondary data was annual report of S.V CO-
operative sugars for years 2003,04,05,06,07 from the balance sheet and profit and loss
account of the company.

(1) PRIMARY DATA

The primary data for this project is collected from with Sr. Accountant and the
officials of the company.

(2) SECONDARY DATA

The secondary data is collected from the following sources.

 Annual financial reports of the company.
 Brochures and books of the company.
 And schedule, Budgets and other statements provided by the finance
department of S.V. Co-operative sugar factory Ltd.,

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 Tools of analysis

In order to analyze the financial position of the unit, various techniques of

financial management such as ratio analysis, working capital requirements and fund
flow statements have been used here to arrive at just logical conclusion the figures
contained in the annual reports. Fund means net working capital. The flow of fund
will occur in a business. When a transaction result in a change i.e., increase or
decrease in the amount of funds.

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 DATA ANALYSIS
AND INTERPRETATION

32
 DATA ANALYSIS AND INTERPRETATION

STATEMENT OF CHANGES IN WORKING CAPITAL PIONEER OF

SPINNING&WEAVING MILLS LTD., FOR THE YEAR 2005 & 2006
Working Capital
Particulars 2005 (Rs.) 2006 (Rs.)
Increase (Rs) Decrease (Rs)

Current Assets
Cash & Bank Balance 8555326.49 21802346.79 13247020.30
Receivables as per
18225187.50 24279070.06 6053882.56
Schedule
Loans & Advances 55260347.73 48208735.19 7051612.54
Closing Stock 99045550.69 198556118.2 99510567.54
Work-in-Progress 366550.34 366550.34
Prepaid Expenses 55018.39 -44808.32 99826.71
Total Current Assets
181507981.10 293168012.30
(A)
Current Liabilities
Payables as per
126230398.07 172885234.12 46654836.05
Schedule
Sundry Creditors 8458505.41 13850959.98 5392454.57
Total Current
134688903.50 186736194.10
Liabilities (B)
Working Capital (A-B) 46819077.66 106431818.19
Net Increase in
59612740.53 59612740.53
Working Capital
Totals 106431818.19 106431818.19 118811470.40 118811470.40

INFERANCE
From the above table it is observed that the networking capital of the company
shows increasing trend. The current assets of the company have increased from Rs.
181507981 to Rs. 293168012 in 2005-2006. But the loans and advances decreased
from Rs. 55260348 to 48208735. The current liabilities were increased from Rs.
134688903 to Rs. 186736194 in 2005-2006. The working capital for the year
increased from Rs. 46819078 to Rs. 106431818 in 2005-2006. The increase in
working capital recorded as Rs.59612740.

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 FUNDS FLOW STATEMENT FOR THE YEAR ENDING 31-MAR-2006

Amount Amount
Sources Applications
(Rs) (Rs)
Sale of Long term
1,25,09,598 Other Assets 1,930
Investment
Net Working Capital
Borrowings From Bank 10,59,14,209 5,96,12,741
Increase
Receipts From Cash &
7,96,77,469 Funds Lost in Operation 13,84,88,205
Credit pledge
Issue of Share Capital 1,600
19,81,02,876 19,81,02,876

INFERANCE

It is evident from the above table that the total funds flow during the period
from 2005-2006 is amount of Rs.19,81,02876.in the total funds flow 53% of sources
of funds raised through the borrowings from the bank, 40% of funds raised through
the Credit Pledge and the remaining 7% of funds from sale of long term investments.
Regarding the application of funds, the 30% of funds is used for working
capital and the remaining 70% of funds were lost in operation

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 STATEMENT OF CHANGES IN WORKING CAPITAL OF PIONEER
OF SPINNING&WEAVING MILLS LTD., FOR THE YEAR 2006 & 2007
Working Capital
Particulars 2006 (Rs.) 2007 (Rs.)
Increase (Rs) Decrease (Rs)

Current Assets

Cash & Bank Balance 21802346.79 30080690.41 8278333.62

Receivables as per
24279070.06 22547064.87 1732005.19
Schedule
Loans & Advances 48208735.19 51287646.57 3078911.38
173908065.2
Closing Stock 198556118.20 24648053.03
0
Work-in-Progress 366550.34 366550.34

Prepaid Expenses -44808.32 251782.75 296591.07

Total Current Assets 278441790.1
293168012.30
(A) 0
Current Liabilities
Payables as per 248179819.9
172885234.12 75294585.80
Schedule 0
Sundry Creditors 13850959.98 17187792.92 3336832.94
Total Current 265367612.8
186736194.10
Liabilities (B) 0
Working Capital (A-B) 106431818.19 13074177.30
Net Decrease in
93357640.89 93357640.89
Working Capital
106431818.1
Totals 106431818.19 105011476.96 105011476.96
9

INFERANCE
From the above table it is observed that the networking capital of the company
shows increasing trend. The current assets of the company have decreased from
Rs.293168012 to Rs. 278441790 in 2006-2007. But the loans and advances increased
from Rs. 48208735 to 51287646. The current liabilities were increased from
Rs.186736194 to Rs. 265367612 in 2005-2006. The working capital for the year
increased from Rs. 106431818 to Rs. 13074177 in 2005-2006. The decrease in
working capital recorded as Rs.93357640

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 FUNDS FLOW STATEMENT FOR THE YEAR ENDING 31-MAR-2007

Amount Amount
Sources Applications
(Rs) (Rs)
Issued share capital 16,600 Payments of deposits 1,01,65,241
Decrease in working
9,33,57,641 Payment of credit pledge 2,22,55,174
capital
Purchase of Investments 3,495
Funds lost in operations 6,09,50,331

9,33,74,241 9,33,74,241

INFERANCE

It is evident from the above table that the total funds flow during the period
from 2005-2006 is amount of Rs.93374241.in the total funds flow 53% of sources of
funds raised through the borrowings from the bank, 40% of funds raised through the
Credit Pledge and the remaining 7% of funds from sale of long term investments.
Regarding the application of funds, the 30% of funds is used for working
capital and the remaining 70% of funds were lost in operation

STATEMENT OF CHANGES IN WORKING CAPITAL OF PIONEER OF

SPINNING&WEAVING MILLS LTD., FOR THE YEAR 2007 & 2008

36
 Working Capital
Particulars 2007 (Rs.) 2008 (Rs.)
Increase (Rs) Decrease (Rs)

Current Assets

Cash & Bank Balance 30080690.41 22697751.22 7382929.19

Receivables as per
22547064.87 22247366.62 299698.25
Schedule
Loans & Advances 51287646.57 53626415.42 2338768.85

Closing Stock 173908065.20 277235075.90 103327010.70

Work-in-Progress 366550.34 366550.34

Prepaid Expenses 251782.75 1027363 775580.25

Total Current Assets
278441790.10 377200522.50
(A)
Current Liabilities
Payables as per
248179819.90 203856321.90 44323498.06
Schedule
Sundry Creditors 17187792.92 17798033.07 610240.15
Total Current
265367612.80 221654354.90
Liabilities (B)
Working Capital (A-B) 13074177.30 155546167.50
Net Increase in
142471990.20 142471990.20
Working Capital
Totals 155546167.50 155546167.50 150764857.86 105011476.96

INFERANCE
From the above table it is observed that the networking capital of the company
shows increasing trend. The current assets of the company have increased from Rs.
278441790 to Rs. 377200522 in 2007-2008. But the loans and advances increased
from Rs. 51287646 to 53626415. The current liabilities were decreased from Rs.
265367612 to Rs. 221654354 in 2007-2008. The working capital for the year
increased from Rs. 13074177 to Rs. 155546167 in 2007-2008. The increase in
working capital recorded as Rs.142471990.

37
 FUNDS FLOW STATEMENT FOR THE YEAR ENDING 31-MAR-2008

Amount Amount
Sources Applications
(Rs) (Rs)
Issued share capital 16,03,34,150 Increase in Working Capital 14,24,71,990
Deposits & Borrowings 27,66,890 Purchase of Investments 17,64,829
Credit Pledge 9,20,52,983 Funds lost in operations 11,09,17,204

9,33,74,241 9,33,74,241

INFERANCE

It is evident from the above table that the total funds flow during the period
from 2007-2008 is amount of Rs.93374241.in the total funds flow 53% of sources of
funds raised through the borrowings from the bank, 40% of funds raised through the
Credit Pledge and the remaining 7% of funds from sale of long term investments.
Regarding the application of funds, the 30% of funds is used for working
capital and the remaining 70% of funds were lost in operation

38
 STATEMENT OF CHANGES IN WORKING CAPITAL OF PIONEER OF
SPINNING&WEAVING MILLS LTD., FOR THE YEAR 2008 & 2009
Working Capital
Particulars 2008 (Rs.) 2009 (Rs.)
Increase (Rs) Decrease (Rs)

Current Assets

Cash & Bank Balance 22697751.22 33719028.40 11021277.18

Receivables as per
22247366.62 21234265.41 1013101.21
Schedule
Loans & Advances 53626415.42 73738017.89 20111602.47

Closing Stock 277235075.90 336322208.00 59087132.12

Work-in-Progress 366550.34 0

Prepaid Expenses 1027363 392141.42 635221.58

Total Current Assets
377200522.50 465772211.40
(A)
Current Liabilities
Payables as per
203856321.90 119992838.50 83863483.34
Schedule
Sundry Creditors 17798033.07 23706608.97 5908575.90
Total Current
221654354.90 143699447.50
Liabilities (B)
Working Capital (A-B) 155546167.50 322072764.00
Net Increase in
166526596.40 166526596.40
Working Capital
Totals 322072764.00 322072764.00 174083495.11 174083495.11

INFERANCE
From the above table it is observed that the networking capital of the company
shows increasing trend. The current assets of the company have increased from Rs.
377200522 to Rs. 465772211 in 2008-2009. But the loans and advances increased
from Rs. 53626415 to 73738017. The current liabilities were decreased from Rs.
221654354 to Rs. 143699447 in 2008-2009. The working capital for the year
increased from Rs. 155546167 to Rs. 322072764 in 2008-2009. The increase in
working capital recorded as Rs.166526596

39
 FUNDS FLOW STATEMENT FOR THE YEAR ENDING 31-MAR-2009

Amount Amount
Sources Applications
(Rs) (Rs)
Issued share capital 7,000 Increase in Working Capital 16,65,26,596
Deposits & Borrowings 4,51,37,517 Purchase of Investments 8,07,466
Credit Pledge 26,94,540 Purchase of Land 501
Sale of Share Investments 13,000 Purchase of Furniture 14,217
Funds from Operations 122247739 Other Assets 56,473
167405253 167405253

INFERANCE

It is evident from the above table that the total funds flow during the period
from 2008-2009 is amount of Rs.167405253.in the total funds flow 53% of sources of
funds raised through the borrowings from the bank, 40% of funds raised through the
Credit Pledge and the remaining 7% of funds from sale of long term investments.
Regarding the application of funds, the 30% of funds is used for working
capital and the remaining 70% of funds were lost in operation

40
 SUMMARY OF THE CHANGES IN WORKING CAPITAL
FROM THE YEAR 2005 TO 2009.

INCREASE IN DECREASE IN
YEAR
WORKING CAPITAL WORKING CAPITAL
2005-06 59612740.53
2006-07 93357640.89
2007-08 142471990.20
2008-09 166526596.40

INFERENCE

The above table shows that the Summary of the Working Capital from the
year 2005-06 to 2008-09. In this table we observe the increased working capital for all
the years except the year 2006-07. From the year 2005 to 2009 the working capital is
in increasing trend except the year 2006-07 due to the increase in current liabilities
(Bills Payable) and decrease in the current assets (Closing Stock) by comparing with
the last year (2005-06) values. It indicates the poor working capital maintenance in
the year 2006-07. Remaining all the years there is increasing working capital which
means Current Assets are more than the Current Liabilities.

41
LIQUIDITY RATIOS

Current Ratio:

A current ratio of 2:1 is considered as minimum in a sound business. A higher

current ratio explains that the company will be able to pay its debts maturing
within a year. On the other hand, a low current ratio points to the possibility that
the company may not be able to pay its short-term debts.
Current Assets
Current Ratio = ----------------------------
Current Liabilities

Current Current
Year Ratio
Assets(crores) Liabilities(crores)
2004-05 18.15 13.47 1.35
2005-06 29.32 18.67 1.57
2006-07 27.84 26.54 1.05
2007-08 37.72 22.17 1.70
2008-09 46.58 14.37 3.24
3.5 3.24
3
2.5
VALUES

2 1.57 1.7
1.35 CURRENTRATIO
1.5 1.05
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR

INTERPRETATION

The current ratio of 1.35 times in the year 2004-05, 1.57 times in the year
2005-06,1.05 times in the year 2006-2007 and 1.70 times in the year 2007-08 says
that it is below to the standard norms so, the company may not able to pay its short-
term debts. However a low ratio would mean inadequacy of working capital. But the
current ratio of 3.24 in the year is more than the standard norm so, the company will
be able to pay its debts maturing within a year. However higher current ratio is
indicative of poor planning since an excessive amount of funds lie idle.

42
QUICK RATIO:-

Generally a quick ratio of 1:1 is considered to represent a satisfactory current

financial condition. A company with a high value of quick ratio can suffer from the
shortage of funds it is has slow paying, doubtful and long-duration outstanding book
debts. On the other hands a company with a low value of quick ratio may really be
prospering and paying its current obligation in time if it has been turning over its
inventories efficiently.
Liquidity Assets
Quick Ratio = ----------------------------
Current Liabilities

Liquidity Current
Year Ratio
Assets(crores) Liabilities(crores)
9.01 0.67
2004-05 13.47
10.58 0.57
2005-06 18.67

2006-07 11.67 26.54 0.44

2007-08 11.67 22.17 0.53

14.67 1.02
2008-09 14.37
1.2
1.02
1
0.8 0.67
Values

0.57 0.53
0.6 0.44 Quick Ratio
0.4
0.2
0
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR

INTERPRETATION

The above graph shows that the quick ratio is in poor of 0.67, 0.57, 0.44 and
0.53 times in the years 2004-05, 2005-06, and 2006-07 respectively with comparing
of the standard norm 1:1. It means that the company is not having the immediate
ability to pay off its short-term obligations. But the quick ratio of 1.02 times in the
year 2008-09, it’s more than the standard norm and more liquid than required.

43
ABSOLUTE LIQUID/CASH RATIO:-

Generally an absolute liquid ratio of 0.5:1 will be taken as standard norm. It is

suggested that it would be useful, for the management, the liquidity measure also
takes into account reserve borrowing power. As the firm’s real debt paying ability
depends not only on cash resources available with it but also on its capacity on its
capacity on borrow from the market at short notice. Absolute liquid assets include
cash in hand at bank and marketable securities or temporary investments. This ratio
may be expressed as under:
Absolute liquid assets
Absolute liquid ratio = --------------------------------------
Current liabilities

Absolute liquid Current

Year Ratio
Assets(crores) Liabilities(crores)
2004-05 0.86 13.47 0.064
2005-06 2.18 18.67 0.117
2006-07 3.00 26.54 0.113
2007-08 2.27 22.17 0.102
2008-09 3.37 14.37 0.235
0.25 0.235
0.2
VALUES

0.15
0.117 0.113 0.102
0.1
0.064
0.05 Absolute Liqud Ratio

0
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR

INTERPRETATION

From the above graph the Absolute cash ratio indicates that the financial
condition in terms of this ratio is very un-satisfactory. So the company has not
maintains cash reserves 2004-05 to 2008-09 years.

44
WORKING CAPITAL TURNOVER RATIO

Sales
Working capital turnover ratio = -----------------
Working Capital

Working
Year Sales Ratio
Capital(Crores)
2004-05 12.82 4.68 2.74
2005-06 10.89 10.64 1.02
2006-07 28.82 13.30 2.17
2007-08 19.53 15.55 1.26
2008-09 33.36 32.20 1.04
3 2.74
2.5 2.17
2
VALUES

1.26 WorkingCapital Turnover

1.5 1.04
1.02 Ratio
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
YEAR

INTERPRETATION

The Ratio indicates the extent of the working capital turnover in achieving the
sales the organization. The analysis show that the company.
The analysis show that the company could not maintain the turned over more
working capital in achieving the sales of the company and it is continuously
fluctuating all the five years.

45
 FINDINGS
(1) Funds loss in operation gradually decreased from the year 2005 to
2009 but in the year 2008-09 there are funds from operations.
(2) The company was getting funds trough Borrowings, Cash Credit
pledge in 2006 & 2008. Another Source of funds through issuing of shares
in the year 2008. The other source is through funds from operations in the
year 2009.
(3) The company uses some of the funds to working capital and some of
the funds for covering the losses through funds lost in operations.
(4) The schedule in working capital shows net increase from the year
2005-2009, but in 2006-2007 it show net decrease in working capital.
(5) The liquid assets position was continuously increasing over the year’s
period 2005-2009, but in 2007-08 there was a little bit increase in this
value.
(6) The company is facing the losses in all the financial years 2005-2009.
(7) The company could not maintain standard current ratio 2:1 and
standard quick ratio 1:1 from the year 2005 to 2009 except in the year
2008-09.

46
 SUGGESTIONS

A. ) The company should make effort to utilize the fixed assets in an effective
manner.
B. ) The company should reduce its Borrowings in order to sustain in the market,
instead of Borrowings the company forward to get loan from Government.
C. ) The company has to develop its production system and process by adopting
new technology in order to improve the output.
D. ) The company could not make funds from its operations because of its higher
expenditure over income. Hence it was suggested that the company should
reduce its revenue expenditure in order to make funds from operation.

47
Conclusion

48
 BIBLOGRAPHY

1) M.Y. Khan and P.K. Jain, Financial Management, Tata McGraw – Hill

Publishing Company Limited, New Delhi, Third Edition, Year 1999.

2) I.M. Pandey, Financial Management, Vikas Publishing House Private

Limited, New Delhi, Eighth Edition, Year 2003.

3) Prasanna Chandra, Financial Management, Tata McGraw – Hill

Publishing Company Limited, New Delhi, Fifth edition, Year 2001.

4) T.S Grewal, Introduction to Accountancy, S. Chand & Company Limited,

New Delhi, seventh Edition, Year 2002.

5) K.Rajeswara Rao, G. Prasad: Accounting & Finance, Jai Bharat, Tenth

Edition, 2008.

49