Complete Topic Funds Flow Analysis at ZAURI Cement

INTRODUCTION

A funds flow statement is a technical device designed to analyze, the changes

in the financial condition of a business enterprise between two years. It is also called as a

‘statement of sources and applications of funds . The funds flow statement is becoming

popular with the management because it not only helps them in analyzing financial

operations, providing basis for comparison with budgets, and serving as a tool of

communication, but also explains the financial consequences of such operations suchas

the reason why the company is experiencing difficulty in making payments to creditors or

why the bank balance is getting thinner.

There is a general recognition in industry and business and among professional

accounting bodies that financial statements should provide relevant information which

sub serves the multiple objectives of shareholders, investors, creditors, customers and the

public and which enable them to arrive at rational economic decisions. Normally what the

shareholders look for in these statements is an account of the stewardship of the firm and

the amount which may be expected as dividend. Potential investors look upon funds flow

statements as the source of there realistic view of the value of a company’s shares in

terms of an expected futures stream of distribution and judge the efficiency of the

management accordingly.

1

YEAR EVENTS 1967 - The Company was incorporated on 12th May. It was promoted

by Birla Gwalior (P) Ltd., and Armour & Co., Chicago, U.S.A. The Company

manufacture fertilisers and allied products.

1968 - A fresh collaboration agreement was signed with the United States Steel

Corporation on 1st November, under which the scope of the project was enhanced to

include the manufacture of compound fertilisers (28:28:0) as well.

1977 - 160 No. of equity shares subscribed for by the signatories to the Memorandum of

Association and 55,57,340 No. of equity shares subscribed for in cash by the institutional

promoters of the Company (United State Steel Corporation - 37,72,500; Sutlej Cotton

Mills - 10,00,000 Pilani Investment Corporation - 2,00,000 Birla Education Trust -

1,80,000; Century Spg. & Mfg. Co. 1,50,000; Gwalior Rayon Silk Mfg. Co. 1,10,000;

Birla Bombay Pvt. Ltd. - 70,000; and Jiyajeerao Cotton Mills - 40,000).

- 4,12,500 Pref. Shares and 68,70,000 No. of Equity shares issued through prospectus in

May 1970. Out of the issue, 9,14,964 No. of equity shares reserved for foreign

collaborators (7,27,500 for United States Steel Corpn., and 1,87,464 for Armour & Co.,

U.S.A.) for allotment against plant and machinery and technical know-how, etc.; 37,536

No. of equity shares issued to Armour & Co., against cash subscription; 33,30,000 No. of

equity shares issued to foreign financial institutions (23,92,500 to International Financial

Corpn. Washington; 7,50,000 to Bank of America, N.Y. and 1,87,500 to First

2

International Finance Corpn. Chicago) against cash subscription; 125 Pref. and 5,000 No.

of equity shares issued for Communidade of Sancoale of Goa. The balance of 4,12,375

Pref. and 25,82,500 No. of equity shares offered for public subscription. The Pref. shares

are redeemable on or after 8th July, 1982 after giving 3 months' notice.

1984 - A letter of intent was received to set up a fertiliser complex comprising of an

ammonia plant and an urea plant with capacities of 1,350 tonnes and 2,250 tonnes per

day respectively based on off-shore gas at Sawai Madhopur, Rajasthan. For this purpose,

the Company promoted a new Company under the name and style of Aravali Fetilisers

Ltd.

1985 - AFL was incorporated on 7th May, 1985 and the Certificate of Commencement of

Business was obtained on 18th July. Due to the new guidelines fixed by the Government,

the original contract with Snamprogetti SPA had to be re-negotiated. Rate of Pref.

dividend raised to 15% effective from 11.7.1985 and redemption date extended to

10.7.1992/95. 10,310 Pref. shares belonging to dissenting shareholders redeemed.1986 -

The Company issued 5,00,000 - 15% redeemable non-convertible debentures of Rs 100

each on private placement basis to Army Group Insurance Fund. These debentures are

redeemable at a premium of Rs 5 per debenture at the expiry of 7th year from the date of

allotment.1989 - Application for financial assistance for the cement project was

submitted to IDBI. Our

3

Company Our History

Strong foundations for a company of strength.

Zuari entered the Cement business in 1994 to operate the Texmaco Cement Plant. In

1995, Texmaco’s Plant at Yerraguntla was taken over by Zuari and a Cement Division

was formed. The fledging unit came into its own in the year 2001 when Zuari Industries

entered into a Joint Venture with the Italcementi Group, the 5th largest producer of

Cement in the world , Zuari Cement Limited was born. Zuari Cement took over Sri

Vishnu Cement Limited in 2002. Today, the Company is amongst the topmost cement

produces in South India.

Zuari and Italcementi. The strength of two

.

- The Company entered into an agreement with Texmaco Ltd for running and operating

their Cement unit at Yerraguntla, Andhra Pradesh effective 1st January, 1994.

1994 - The Company formed a wholly owned subsidiary in the name of Zuari Leasing &

Finance Corporation Ltd.

- The Company set up a joint venture in the name of Zuari Seeds Ltd., with Institute of

Field & Vegetable Crops & KOP Investments, Cyprus (IFVC) on 50:50 basis for

4

production and marketing of hybrid seeds.

- 7,00,000 Shares allotted on private placement basis.

1995 - The Company commenced marketing of single super phosphate under the brand

name "Jai Kisaan Superphos" making the existing range of products most comprehensive.

- "Bioneem" an eco friendly neem based pesticide launched during January.

- Two hybrid seeds of sunflower were developed with Institute of Field and Vegetable

cups and KOP Investments.

Argon recovering plant was commissioned on 9th May, and registered 51% capacity.

1996 - The Capacity utilisation of Ammonia, Urea, NPX and DAP plants was maintained

at higher levels.

- With view to energy saving, the company undertook to remove pneumatic instruments

in a phased manner to be replaced by microprocessor based control systems. In the

cement divisions, fluxo was replaced by air lift pump and elevator & belt combination for

transport of cement from mill out let to cement silo.

- The Company undertook to expand the existing di ammonium phosphate plant from 500

5

to 1100 tpa at a cost of Rs 18.67 crores based on technology supplied by Grand Parroise

(GP) of France. Also expansion of its NPK plant was undertaken to increase the capacity

from 500 to 1100 tap at a cost of Rs 46.18 crores based on technology from Grand

Parroise of France.

- Approval was received from requisite authorities for amalgamation of Indian Furniture

Products Ltd. (IFP) with the company IFP is an EOU with facilities to manufacture ready

to assemble furniture at Kakalur, Tamil Nadu.

- IFP had entered into a technical & financial collaboration agreement with M/s. Seribo

France, one of the pioneers in manufacturing and marketing reading to assemble

furniture.

- Subject to necessary approvals being obtained the company proposed to issue 26252800

rights equity shares in prop. 1:1.

- Pref. shares redeemed. Authorised equity capital increased.

1997 - To ensure the smooth and continuous production of NPK/DAP plants, the

company has decided to set up additional captive power capacity and placed an order

with M/s. Wartsila NSD, Finland for supply and erection of 6 MW DG set at a total cost

of Rs 8.86 crores.

6

- 131,15,210 rights shares issued in prop. 1:1. 31,98,368 shares issued to erstwhile Indian

Furniture Products Ltd. on its amalgamation with the Company.

1998 - With effect from 12th February, the name of Company was changed to Zuari

Industries Ltd. from Zuari Agro Chemicals Ltd to represent all the activities of the

company.

- For the first time among Indian corporates, Zuari Leasing and Finance Corporation, a

subsidiary of Zuari Industries of the K K Birla group, has disclosed in its balance sheet

that it has paid Rs.15.69 lakh as tax to the Income-Tax Department under the Voluntary

Disclosure of Income Scheme (VDIS).

- Zuari Industries Ltd. said that its operations have been affected because of a strike by

contract labourers in its packing and despatch section at its fertiliser division in Goa.

- Gautier India Ltd, a 50:50 joint venture between Groupe Seribo, France and Zuari

Industries Ltd, will launch an exclusive range of entertainment furniture in India.

1999 - Zuari Industries, the K.K. Birla group company, is tying up with Groupe Seribo of

France to forge a 50:50 joint venture which will market state-of-the art furniture products

manufactured at its Chennai factory.

- The company undertook further expansion of complex fertiliser capacities to 3.30 lakh

7

tonnes per annum from 1.50 lakh tonnes per annum at Rs. 41.70 crores and installation of

captive power generation facilities.

- Leading the race is Gautier India Ltd, a furniture manufacturing company set up by

Zuari Industries Ltd, belonging to the KK Birla Group, in collaboration with Groupe

Seribo of France.

- Zuari Industries was able to present the record of its transactions, the faster was the

collection process from the government.

- The company also has interests in furniture and cement manufacturing. For fertilizers

the company has tied up with Grand Parroise of France to improve quality of its products

like Urea, Ammonia, and Diammonium Phosphate (DAP).

2000

The Italcementi Group and Zuari Industries Ltd (ZIL) have reached an agreement to

create a 50:50 joint venture company, which will take over the cement activities of ZIL.

The Company proposes to enter into a joint venture agreement with Ciments Francais and

Italcementi Group company for carrying on the cement business as a separate joint

venture company.The Company has signed an agreement with Italcementi Spa, Italy on

2nd August, for carrying on its cement business as a joint venture.

Indian Furniture Products, a division of Zuari Industries of the K K Birla group, has

launched its Zuari furniture range in Bangalore.

2001

8

The cement division of Rs 4000 crore KK Birla group company Zuari Industries, has

been hived off into a separate company called Zuari Cement Ltd.The Company is signing

an MoU for acquiring 76 per cent stake in Greentech Seeds International Pvt. Ltd.

Bangalore, which is in the business of production and marketing of hybrid seeds of

vegetables and other crops. The Company has acquired themajority stake in GreenTech

Seeds International Pvt Ltd. and GSIPL has become the subsidiary of the company.

2002

Zuari Maroc Phosphates becomes subsidiary of Zuari Industries -Paradeep Phosphates

becomes a subsidiary of Zuari Industries. AF Ferguson & Co (AFF) has withdrawn as

auditor for Zuari Industries Ltd. 2003 -Board approved the issue of Cumulative

Redeemable Preference Shares aggregating to Rs 1000 million instead of Rs 2000 million

approved earlier. The Zuari Cement unit near Yerraguntla in Cudappah district was

closed down by the management due to labour unrest

2010

Zuari Industries Ltd has entered into Joint Venture Agreement with Israel Chemicals Ltd

for establishment of water soluble NPK Fertiliser Plant with an initial capacity of 10,000

tonnes per year. Zuari Industries Ltd has appointed Mr. J N Godbole as an Additional

Director of the Company with effect from August 01, 2010.

2009

Zuari Industries Ltd has informed that the Board of Directors of the Company at its

9

meeting held on May 15, 2009, has appointed Mrs. Jyotsna Poddar as Additional Director

of the Company with immediate effect. Zuari Industries Ltd has informed that the

Company has entered into a Gas Transmission Agreement with GAIL (India) Ltd on May

26, 2009 for transportation of gas to Company's plant at Zuarinagar, Goa for use as

fuel/feed stock. Zuari Industries Ltd has informed that the Board of Directors of the

Company at its meeting held on July 21, 2009 has appointed Air Chief Marshal (Retd.)

Mr. S P Tyagi as Additional Director of the Company with immediate effect.

10

MEANING OF FUNDS Fund

According to the dictionary meaning of the term “Funds” implies an accumulation

or deposit of resources from which supplies are may be drawn a more or less permanent

store or supply. It is also defined as available pecuniary resources but these two meanings

are abroad in nature and apt to macro level planning and control. A number of definitions

of the term ‘fund’ have been given.

Some people call ‘fund’ as ‘cash’. But it is seen in practice that the current assets

are constantly circulating through cash account in business operations and many

transactions affect flow of cash at least later or sooner.

The term ‘flow’ means movement and includes both ‘inflow’ and ‘out

flow’. The term ‘flow of funds’ means transfer of economic values from one asset of

equality to another. Flow of funds is said top have taken place when any transaction

makes changes in the amount of funds available before happening of the transaction.

OBJECTIVE OF STUDY:

1) Helpful in planning.

2) Helpful in organizing.

3) Helpful in interpreting financial information.

4) Helpful in making decision

5) Report to management.

NEED FOR STUDY

11

1. To study the financial statements of The ZAURI CEMENT Financial Services limited for the 4 years.

2. To analyze how The ZAURI CEMENT Financial Services is utilizing its resources.

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.

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

ZAURI 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.

12

RESEARCH METHODOLOGY

Research is a process in which the researcher wishes to find out the end result for a

given problem and thus the solution helps in the future course of action. Redman and

Mory defines research as a “systematized effort to gain new knowledge”.

Research Design

A research design is the arrangement of conditions for collection and analysis of

data in a manner that aims to combine relevance to the research purpose with company in

procedure. In fact, the research design is the conceptual structure within which research

is conducted; it constitutes the blue print for the collection, measurement and analysis of

data.

Sources of Data:

The data was collected through primary and secondary sources.

Primary Data:

First hand information was collected using the direct personal interview.

Interaction with guide to understand the general & specific aspects regarding

utilization of resources.

Secondary Data:

Annual reports collected from the M/S ZAURI CEMENT Ltd., Tadpatri.

Period of study:

The analyze presented in the study are “Annual Reports” of M/S

PENNACEMENT, TADPATRI from 2004-2005 to 2010-2008

13

LIMITATIONS

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

Pennas cement Financial Services Ltd only.

It cannot reveal continuous changes.

14

LITERARY REVIEW

15

PARTIES INTERESTED IN FINANCIAL ANALYSIS

There are different parties interested in the financial analysis of these statements.

But their aim and objective of the analysis differ significantly. The users of the financial

statements can be divided into tow broad groups:

(a) Internal users

(b) External Users.

Internal Users:

Financial Executives:

The first party interested in the financial statement analysis is the Finance

Department of the company itself. This analysis helps the Financial Manager to have a

deep insight into the financial condition of the enterprise.

Top Management:

The Top Management of the concern is also interested in the analysis of financial

statements. It helps them in reaching conclusion on the following:

Is the firm in a position to meet its current obligations?

What sources of long-term finance are employed by the firm?

How efficiently does the firm use its assets?

Are the earnings of the firm adequate? etc.,

16

External Users:

Investors:

Those who are interested in buying the shares of a company are naturally

interested in the financial statements to know how safe the investment already made is

and how safe the proposed investment will be.

Creditors:

Lenders are interested to know whether their loan, principal and interested will be

paid when due. Suppliers and other creditors are also interested to know the ability of the

firm to pay their dues in time.

Workers:

In our country, workers are entitled to payment of bonus which depends on the

size of profit earned. Hence, they would like to be satisfied that the bonus being paid to

them is correct.

Customers:

They are also concerned with the stability and profitability of the enterprise. They

may be interested in knowing the financial strength of the company to take further

decisions relating to purchase of goods.

Government: Financial analysis helps government in knowing the role and status of

industry in general and companies in particular in framing Macro-Economic policies.

Researches:

17

The financial statements, being a mirror of business conditions, are of great interest

to scholars understanding research in Accounting theory as well as business affairs and

practices.

Significance of Financial Analysis:

Analysis of financial statement is carried out to measure the enterprise’s liquidity,

profitability, solvency and other indicators to assess its operating efficiency, financial

position and performance. Financial analysis serves the following purpose:

To know the operational efficiency of the business.

Helpful in measuring the solvency of the firm.

Helpful in comparison of past and present results.

Helps in measuring the profitability.

It is more helpful in inter-firm comparison.

Helps in judging the solvency of the undertaking.

Types of analysis:

Two types of analysis are undertaken to interpret the position of an enterprise.

They are:

Vertical Analysis

Horizontal Analysis

The Companies Act, 1956 permit the companies to present the financial

statements in vertical as well as horizontal form.

Vertical Analysis:

18

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.

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.

Methods of Analysis:

A financial analyst can adopt the following tools for analysis of the financial

statements. These are also termed as Methods of Financial Analysis.

Comparative Statement Analysis.

Common-size Statement Analysis.

19

Trend Analysis.

Funds flow Analysis.

Cash flow Analysis.

Ratio Analysis.

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.

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

20

There are tow types of common-size statements, viz., common-size income

Statement and Balance Sheet.

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

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.

21

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.

We may classify them into the following categories:

Liquidity Ratios.

Leverage Ratios.

Activity Ratios.

Profitability ratios.

Financial analysis is the processes of identifying the financial strengths and

weaknesses of the firm by properly 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., Owners,

Creditors, Investors and others.

Users of Financial Analysis:

Financial analysis is the process of identifying the financial strengths and

weakness of the firm by properly establishing relationship between the items of the

Balance Sheet and the Profit and Loss Account financial analysis can be under taken by

management of the firm of by parties outside the firm viz., Owners, Creditors, Investors

and others. The nature of analysis will differ depending on the purposes of the analyst.

22

Trade creditors:

Trade creditors are invested in firm’s ability to meet the climes over very short

period of time. Their analysis therefore, confine to the revolution of the firm’s liquidity

position.

Suppliers of long term debt:

On the other hands are concerned with the firm’s long – term solvency and

survival. They analyze the firm’s profitability over time its ability to generate cash to be

able to pay interest and repay principle and the relationship between various courses of

funds.

Investors:

Who have invested their money in the firms shares are must be concerned about

the firm’s earnings. They restore more confidence in those firms. That show study

growth in earnings as such they concentrate analyzing the firms present and future

profitability.

Management:

Management of the firm would be invested in every aspect of the financial

analysis. It is their over all responsibility to see that the resources of the firms are used

most effectively and efficiently and that the firms financial condition is sound.

Funds Flow Analysis:

Significant technique of financial analysis is ‘FUNDS FLOW ANALYSIS’. It is

designed to highlight changes in the financial condition of a business concern between

23

concern between two points of time which generally conform to beginning and ending

financial statement dates.

Thus, Funds Flow Statement is a report which summarizes

the events taking 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 which these have occurred in assets and liabilities

items between two balance sheet dates. In this statement, only the net changes are shown

so that the outcome of a transaction upon the financial condition of a business enterprise

reflected more sharply.

24

MEANING AND CONCEPT OF FUNDS

Fund: According to the dictionary meaning of the term “Funds” implies an

accumulation or deposit of resources from which supplies are may be drawn a more or

less permanent store or supply. It is also defined as available pecuniary resources but

these two meanings are abroad in nature and apt to macro level planning and control. A

number of definitions of the term ‘fund’ have been given.

Some people call ‘fund’ as ‘cash’. But it is seen in practice that the current assets

are constantly circulating through cash account in business operations and many

transactions affect flow of cash at least later or sooner.

For example, the sale of goods on credit increases in accounts payable rather than

in an immediate cash flow. Similarly, certain expenses may result in a current liability

since they might not have been paid immediately. In other words, it may be said that any

current assets and current liability has its impact on working capital (as working capital is

the difference of current assets and current liabilities) rather than cash. Therefore there is

another view about meaning of ‘fund’ that it means ‘working capital’.

25

The term funds have been defined in a number of ways.

In a Narrow Sense:

It means cash only and a funds flow statement prepared on this is called a cash flow

statement. Such a statement enumerates net effects of the various business transactions on

cash and takes into account receipts and disbursements of cash.

In Broader sense:

The term Funds refers to money values in whatever from it may exist here Funds

means all means all financial resources used in business whatever in the firm of men,

material, money, machinery and others.

In a Popular Sense:

The term Funds means working capital i.e., the excess of current assets over current

liabilities. The working capital concept of funds has emerged due to fact that total

resource of a business are invested partly in fixed assets in the form of fixed capital and

partly kept in firm of liquid of near liquid form as working capital.

In any business we cannot under estimate the flow of funds from two operations.

The business runs with funds but the organization knows how much important the flow of

funds is.

The Funds Flow Statement is concerned with sources and applications of

organization.

Statement of changes in working capital shows the increase or decrease in working

capital.

“Funds from Operation” statement shows how much funds from operations

26

IMPORTANCE OF FUNDS FLOW ANALYSIS:

The importance of funds Flow analysis and ratio analysis in all undertakings

needs no emphasis.

How is it managed? What are the practices adopted? What are the problems

faced?

This study is an attempt to answer the questions. This is considered to M/S.

ZAURI CEMENT LIMITED, TADPATRI.

Funds Flow Statement, Income Statement and Balance Sheet:

Funds Flow Statement is not a substitute of an income statement i.e., a Profit and

Loss Account, and a Balance Sheet. The Profit and Loss Account is a document, which

indicates the extent of success achieved by a business in earning profits.

A balance sheet is a statement of financial position or status of business on given

date. It is prepared at end of accounting period. The balance sheet depicts various

resources of an understanding and the deployment of these resources in various assets on

a particular date. As it indicates the financial condition on a particular date, it is static in

nature; while funds flow statement is a dynamic one.

Funds Flow Statement tells us many financial facts, which a balance sheet cannot

tell. Balance sheet does not disclose the cause for change in the assets and liabilities

between two different points of time. Again, while balance sheet is the end result of all

accounting operations for a period of time? The funds flow statement provides additional

information as regard changes in working capital derived from financial statements at two

points of time. It is a tool of management for financial analysis and helps in making

decisions.

27

1. It helps in the Analysis of Financial operations:

The financial statements reveal the net effect of various transactions on the

operational and financial position of the concern. The balance sheet gives a static view of

the resource of a business and these have been put at a certain point of time. But it does

not disclose the causes for changes in the assets and liabilities between two different

points of time. The funds flow statements explains cause for such changes and also effect

these changes on the liability position of the company. Some times concern may operate

profitability and yet its cash position may become more and worse. The funds flow

statement gives a clear answer to such a situation explaining what happened to the profits

firm.

2. It throws light on May perplex Questions of general interest:

Why were the net current assets lesser in spite of higher profits and

vise versa?

Why more dividends could not be declared in spite of available

profits?

How was it possible to distribute more dividends than the present

earnings?

What happened to the profit and where it has gone?

What happened to the proceeds of sales of fixed assets, issue of shares,

debentures, etc?

28

3. It helps in the Formation of Business of Realistic Dividend Policy:

Sometimes a firm has sufficient profits available for distributing as dividend but

yet may not be available to distribute for cash resources. In such cases a funds flow

statement helps in the information of a realistic dividend policy.

4. It helps in the proper Allocation of Resources:

The resources of a concern are always limited and it wants to make the best use of

these resources. A project funds flow statement constructed for the future helps in making

managerial decisions. The firm can plan the development of its resources and allocate

them many various applications.

5. It Acts as a Future Guide:

A projected funds flow statement also acts as a guide for future to the

management. The management can come to know the various problems it ids going to

face in near future for want of funds. The firms future needs of funds can arrange to

finance these needs more effectively and avoid future problems.

6. It helps in appraising the use of Working Capital:

A funds flow statement helps in explaining the management has its working

capital and also suggest way the management has used its working capital position of the

firm.

7. It helps knowing the Overall credit Worthiness of a firm:

The financial institution and banks such as state financial institutions, industrial

development corporation of India, Industrial Development Bank of India etc., all ask for

29

funds flow statement constructed for a number of years before granting loans to know the

credit worthiness and paying capacity of firm. Hence a firm is seeking assistance from

these institutions has to know alternate but to prepare functional statement.

LIMITATIONS OF FUNDS FLOW STATEMENT

The Funds Flow Statement has a number of uses: however, it has certain

limitations also, which are listed below.

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 chances in working capital.

It cannot reveal continuous changes.

It is not an original statement but simply is arrangement of date given

in the financial statements.

It is essentially historic in nature and project funds flow statement

cannot be prepared with much accuracy.

Changes in cash are more important and relevant for financial

management than the working capital.

Business transactions and flow of funds:

It may be noted at this stage of analysis that for the purpose of funds flow

statement, the items of balance sheet are classified into two broad categories viz.,Items of

current accounts and Items of non-current accounts.

30

Current account Items

Current assets Current liabilities

Cash in hand Bills payable

Cash at bank (including fixed deposits) Trade or sundry creditors

Bills receivable Outstanding expences

Trade or sundry debtors Cash credit/bank overdraft

Inventory-Raw-materials, work in-

progress, Finished Goods, Stores,etc

Short-term loans

Prepaid expenses Income received in advance

Outstanding incomes Long-term loans (or part) which fall due

for repayment within a year

Short-term loans and advances

Temporary investments, etc

Provision for doubtful debts and discount

on debtors

31

Non-current Account Items

Non-current assets Non-current liabilities

Land and Buildings Equity share capital

Plant and Machinery and vehicles Preference share capital

Furniture and fittings Debentures

Goodwill Reserves and surplus

Patents, trade marks, copy rights,

preliminary expenses and profit and loss

account(deficiency),etc

Long –term loans

The word ‘fund’ is to denote working capital. Funds flow there fore refers to the

changes in the fund (i.e., working capital) by the transactions – operational, financial and

investment, though the effect of all the transactions on the funds are considered, it should

be remembered here that not all the transactions cause the flow of funds .

Transactions Affecting Flow of Funds:

Increase in current assets but not any increase in current liabilities.

Decrease in current assets but not any decrease in current liabilities.

Increase in current liabilities but not any increase in current assets.

Decrease in current liabilities but not any decrease in current assets.

32

Transactions not Affecting Flow of Funds:

(CHANGE IN WORKING CAPITAL)

Transactions which make conversions of one current into another

current assets.

Transactions which make conversions of one current liability into

another current liability.

Transactions which bring increase or decrease in current assets

causing a corresponding increase or decrease in current liabilities by

the same amount.

Funds Flow Statement:

The Funds Flow Statement is also known as “FUNDS FLOW ANALYSIS”.

There are several names for this statement; some are

Statement of sources and applications of funds.

Statement of inflow and outflow of funds.

Statement of Fund Supplied and Applied.

Statement of Resources provided and Applied.

Where got and where gone Statement.

33

Funds Flow Statement:

The Funds Flow Statement is also known as “FUNDS FLOW ANALYSIS”.

There are several names for this statement; some are

Statement of sources and applications of funds.

Statement of inflow and outflow of funds.

Statement of Fund Supplied and Applied.

Statement of Resources provided and Applied.

Where got and where gone Statement.

various factors for inflow and outflow of working capital area shown in a statement,

particularly prepared for this purpose, which is known a “Funds Flow Statement.” This

statement reveals the manner in which the financial resources have been generated and

deployed during the accounting period. This statement is also considered as an important

one as the two traditional financial statements as it supplies important information for the

users. In brief it may be said that fund statement focuses on the flow of funds between the

various assets and equity items during the accounting period and on analysis basis this

statement is generally called as “Funds Flow Analysis”.

IMPORTANCE OF FUNDS FLOW STATEMENT:

34

The balance sheet and profit and loss account failed to provide the

information which is provided by Funds Flow statement i.e., changes in

financial position of an enterprise. This statement indicates the changes in

financial position of an enterprise.

This statement indicates the changes which have taken place between the

two accounting dates.

Gives details of sources and uses of funds during given period is of great

help to the users of financial information.

It is also a very useful tool in the hands of management judging the

financial and operating performance of the company.

It also indicates the working capital position which helps the management

in taking policy decisions regarding dividend etc.,

Funds Flow statement helps in answering questions like where the profits

have gone? Why there is imbalance existing between liquidity position

and profitability position of the enterprise? Why is the concern financially

solid in spite of losses?

It helps management to take policy decisions to decide about the

financing policies and capital expenditure programmed for future.

DIFFERENCE BETWEEN

35

FUNDS FLOW STATEMENT AND BALANCESHEET

FUNDS FLOW STATEMENT BALANCE SHEET

1. It is a statement of changes in 1. It is a statement of financial

Financial position and hence is position on a particular date

Dynamic in nature and hence static in nature.

2. It shows the sources and 2. It depicts the assets and

Applications of funds in a funds liabilities at a

Particular period of time. Particular point of time.

3. It is a tool of management for 3. It is not of much help to

Financial analysis and helps in management in making

Making decisions. Decisions.

4. Usually, schedule of changes in 4. No such schedule of

Working capital has to be prepared changes in working

Before preparing funds flow capital is required rather

Statement. Profit & loss account is

Prepared.

DIFFERENCE BETWEEN

36

FUNDS FLOW & CAH FLOW STATEMENT

FUNDS FLOW STATEMENT CASH FLOW STATEMENT

1. It is based on a wider concept 1. It is based on a narrower

of Funds, i.e., working capital. concept of funds i.e., Cash.

2. It is based on accrual basis of 2. It is based on cash basis of

Accounting. Accounting.

3. Schedule of changes in 3. Schedule of changes in

working capital is required working capital is not

to be prepared. required to be prepared.

4. Funds Flow Analysis reveals 4. It is prepared by taking the

the sources and applications opening balance of cash,

of funds the net difference adding to this all the inflows

between sources and application of cash and deducting the

of funds represents net increase outflows of cash from the

or decrease in working capital. total, difference represents

Closing balance of cash.

5. It is useful for long term planning. 5. It is more useful for short

term analysis and cash

Planning.

PROCEDURE FOR PREPARING A FUNDS FLOW STATEMENT

37

Funds Flow statement is a method by which we study changes in the financial

position of a business enterprise between beginning and ending financial statements

dates. Hence, the funds flow statement is prepared by comparing two balance sheets and

worth the help of such other information derived form the accounts as may be needed.

Broadly speaking, the preparation of funds flow statement consists of two parts:

Statement of Schedule of Changes in Working Capital

Statement of sources and Application of Funds

1. Statement 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 as:

Working Capital = Current Assets – Current Liabilities.

An increase in Current Assets increase Working Capital

A decrease in Current Assets decrease Working Capital

An increase in Current Liabilities decrease Working Capital

A decrease in current Liabilities increase 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

38

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’

2. Funds Flow Statement:

Funds flow statement is a final statement. It shows the amount used in a

particular period of time i.e., “Application of Funds” and the how much amount comes

into the organization in a particular period. Finally those application and sources are

balanced.

1) Schedule of changes in Working capital:

PARTICULARS PREVIOUS

YEAR

CURRENT

YEAR

EFFECT ON WORKING

CAPITAL

39

INCREASE DECREASE

CURRENT ASSETS

Inventories

Sundry Debtors

Cash &Bank

Loans& Advances

Total Current Assets(a)

CURRENT LIABILITIES

Current Liabilities

Provisions

Total current liabilities(b)

***

***

***

***

***

***

***

***

**

**

-

-

**

-

**

-

-

**

**

-

**

**

**** ****

***

***

***

***

**** ****

Working Capital (a-b)

Net increase or decrese in

working capital

***

***

***

***

**** **** *** ***

2) Statement of sources and uses of funds:

Sources Amount

Rs

Applications Amount

Rs

40

Funds from operations

Issue of shares and

Debentures

Long-term Loans

Sale of investment, Fixed

assets, etc

Non-trading Income

Decrease in working capital

***

***

***

***

***

***

***

Redemption of preference

shares and debentures

Repayment of loan

Purchase of Investment,

Fixed assets, etc

Non-Trading Expenses

Increase in working capital

***

***

***

***

***

***

Note:* Any one of these will find the place in the statement

+ Any one of these will find the place in the statement

Funds means working capital this working capital represents the difference

between current assets, current liabilities. All flows of funds pass through working

capital. This means that every transaction has an effect on the firms working capital

position.

1. An example illustrates this as follows:-

2. An increase in profits increases the cash balance and hence working

capital,

3. An increase in long term liability or any decrease in fixed assets increase

the cash balance and hence working capital.

Therefore the Funds Flow Statement shows the movement of funds into or out of the

current asset account of the firm.

41

The movement of funds has two aspects:-

Sources of funds.

Uses of funds

The former supply funds to the working capital and enhances its position. On the

other hand, the latter consume funds and erode the working capital position.

SOURCES OF FUND:

Issue of new shares

Issue of debentures

Creation of long term liability

Profit from operation

Issue of new shares:

On comparing the balance sheet of two dates there is an increase in share capital.

It would affect working capital to the extent of current assets. If it does not have any

impact upon fund, it would not be a source of fund. For example, shares issued and

cash/stock/furniture received. Merely only cash and stock will affect the fund as these are

the companies of working capital.

Issue of Debentures:

That amount of issued debentures would be a source of fund which affects

working capital.

Creation of Long term Liabilities:

If loan and mortgaged loan has been taken its increase between two balances

sheet dates would be a source of fund.

Sale of Fixed Assets:

42

Any decrease in fixed assets due to sale of fixed assets is shown in the sources of

fund as it involves cash or other current assets which are the elements of working capital.

Profit from Operations:

It is a source of fund, to be shown on the sources side.

Applications of Funds:

The fund acquired in the business may be used in the following items:

LOSS FROM OPERATION

DISCHARGE OF LIABILITY

REDEMPTION OF DEBENTURES

REDEMPTION OF PREFERENCE SHARES

ADDITION IN ASSETS

Loss from Operations:

Just like profit from operations is a source. Similarly loss from operations is

treated as uses of fund. In fact, incurring of loss means out flow of funds. It may be due

to increase in liabilities or decrease in assets or both.

Discharge of Liability:

Any decrease in long term liability would be the indicator that fund ha gone from

the business liability which may be decreased due to decrease in assets ( payment of

creditors by giving cash of fixed assets to them ) or increase in liability. For example, a

liability is converted into another.

43

Redemption of Debentures:

If the redemption is made through conversion into shares or new debentures, it

does not affect funds. If they are rendered in cash, it would affect fund.

Redemption of Preference Shares:

If these preference shares are rendered by issue of new preference shares or equity

shares or debentures such decrease in preference shares will not be treated as use of fund,

as the flow of fund does not take place in this transaction.

Addition in Assets:

If these assets whether current or fixed are increased, it will be shown in the users

of fund because such increase entails outflow of fund. If there is increase in fixed assets

accompanied either by increase in long term liabilities or increase in share capital, there

will not be outflow of fund. On the other hand, if these fixed asset are accompanied by

decrease in current assets or increase in current liability, there would certainly be out

flow of fund.

44

INTRODUCTION OF PROFILE

45

INTRODUCTION

We are happy to share information on our WTD Mr.

Krishna Srivastava winning an award from the

CMO(Chief Marketing Officer) council Asia ,being

amongst the ‘50 Most talented CMO’s of India. The

prestigious award was presented at an recent event held

at the TAJ Lands, Mumbai .The award recipient was

chosen by a joint think tank from CMO council & CMO

Asia based on a overall ranking on leadership in the

marketing area .

Info on CMO Asia: The CMO Asia is dedicated to

high level knowledge Exchange Leadership &

Networking

senior CMOs and brand decision makers across industry segments.

CEMENT INDUSTRY IN INDIA

In India it came to be established during the beginning of 20 th 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 tones per annum. This was the

46

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 forth 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.

47

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 (2004-05).

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 2004 – 05. 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 inthe

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

2005 – 06 3.47 3.45 6.92

2009 – 07 3.36 5.64 9.00

48

2010 – 08 3.31 4.82 8.13

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:

(i) Housing development programs;

(ii) Promotion of concrete highways and roads;

(iii) Use of ready – mix concrete in large infrastructure projects;

and

(iv) Construction of concrete roads in rural areas under Prime

Ministers Gram Sadak Yolanda.

Technological advancements

49

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 lull last year. “Once again new

50

orders have been placed and in 2009, the industry will pick up. The estimate is that from

roads, sdemand 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 2009, 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.

51

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

52

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.”

53

This year 2008 has commenced on a good note and in fact, December was a

very good month wit 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

2010-08(125 million tons in 2009-07) and so far growth has been 10%. There are enough

reasons to believe it will sustain.”

54

COMPANY PROFILE

55

COMPANY PROFILE

Thanks to a careful plan of investments and take-overs of other cement producers, the

company expanded, quickly reaching a strong position on the market and becoming the

leading cement manufacturer in Italy.

After several acquisitions abroad, in 1992 Italcementi achieved important international

status with its take-over of Ciments Français, one of the main global cement producer.

In 1997 Italcementi consolidated its verticalisation strategy with the acquisition of

Calcestruzzi, thus becoming Italian leader in the ready-mixed concrete sector.

In March 1997, all the international companies of the Group gathered under one single

corporate identity.

Since 1998 Italcementi Group has been pursuing its internationalisation strategy by

acquiring new cement works in Bulgaria, Kazakhstan, Thailand, Morocco, India, Egypt

and the United States.

Strong foundations for a company of strength.

Zuari entered the Cement business in 1994 to operate the Texmaco Cement Plant. In

1995, Texmaco’s Plant at Yerraguntla was taken over by Zuari and a Cement Division

was formed. The fledging unit came into its own in the year 2001 when Zuari Industries

entered into a Joint Venture with the Italcementi Group, the 5th largest producer of

Cement in the world , Zuari Cement Limited was born. Zuari Cement took over Sri

56

Vishnu Cement Limited in 2002. Today, the Company is amongst the topmost cement

produces in South India.

Zuari and Italcementi. The strength of two

Zuari Cement is one of the leading cement producers in South India.A fully owned

subsidiary of the Italcementi Group, Commitment to customer satisfaction has seen Zuari

Cement grow from a modest 0.5 million tonne capacity in 1995 to almost 6 million

tones in 2010,and earned a place among the most reliable cement producers in the

country. Italcementi Group History

enhance phosphorus use efficiency was well received. High quality seeds of various

crops in the brand name "Jaikisaan" was launched.

The Company entered into an agreement with Texmaco Ltd for running and operating

their Cement unit at Yerraguntla, Andhra Pradesh effective 1st January, 1994

.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

57

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), Tadpatri (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%

58

Silican : 3%

Aluminium : 4%

Iron oxide : 0.50%

Magnesiam : 0.50%

Loss on Ignition : 42%

Total : 100%

If Magnesia content exceeds 0.4-o.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.

59

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 ogf

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.

61

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

i. Transporting coal from the coal fields to the cement factories.

ii. Transporting cement from the plants to their markets.

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 ZAURI 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

62

day. The profits for the year 2010-08 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

18,25000 tones.

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. ONADA 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 ZAURI CEMENT are 345 covering all departments.

There are nearly 500 contract labor working every day on casual basis.

63

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 Tones per day Consumption per tones

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 ZAURI 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

64

PRODUCT PROFILE:

ZAURI 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”

ZAURI Suraksha - 53 Grade

ZAURI Power - 53 Grade

ZAURI Super - 43 Grade

ADVANTAGES:

Here are five of the many reasons why ZAURI 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 Concreate Grade and above

65

Faster de – shuttering of formed work

Reduced construction time with a superior and wide range of cement

catering to every conceivable building need, ZAURI CEMENT is a

formidable player in the cement market.

Here are just a few reasons why ZAURI 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

66

ANALYSIS & INTERPRETATION

67

STATEMENT OF CHANGES IN WORKING CAPITAL2011-2012

Table-1Particulars 2011

Rs.2012Rs.

Changes in WC Rs.

Increase DecreaseCurrent Assets:

Inventories

Sundry Debtors

Cash &Bank

Loans& Advances


Current Liabilities:

Current Liabilities & Provisions


Working Capital a-b

Increase in Working Capital

8,88,68,774

11,23,63,109

1,24,33,458

28,17,26,538

11,52,02,941

17,85,50,027

7,27,32,900

59,86,51,897

26334167

66186918

6029925442

316925359

-

- -

- -

18,89,36,012

28,08,09,874

49,53,91,879 96,51,37,765

23,49,02,360 42,38,38,372

23,49,02,360 42,38,38,372

26,04,89,519

28,08,09,874

54,12,99,393

54,12,99,393 54,12,99,393 46,97,45,886 46,97,45,886

68

Table-1

Sources: we have taken this information from ZAURI CEMENT, from 2011-2012

Interpretation:

Comparing the year 2011-2012 the current assets increased by 46,97,45,886

rupees compare the current liabilities 18,89,36,012 as a result working capital increase

28,08,09,874 rupees. There fore short term financial position of The Financial Services

limited is good.

69

Changes In Working Capital

0

200000000

400000000

600000000

800000000

1000000000

1200000000

TotalCurrentAssets

TotalCurrentLiabilities

WorkingCapital

2011

2012

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH

31.12.2012

Table-2

Sources

Amount

Rs. Uses

Amount

Rs.


Long term loans

Sale of Investments

Decrease in Miscellaneous

expenditure

Increase in Deferred tax liability

12,06,57,250

85,74,96,949

40,02,17,536

14,78,511

3,51,08,965

Increase in Working capital

Purchase of fixed assets

28,08,09,874

113,41,49,337

63,78,87,187 63,78,87,187


Interpretation: The Financial Services limited take huge amount of Long term loans

through funds from operations and Sale of investments. The Financial Services limited

use some of these funds to purchase fixed assets. The Financial Services limited is also

use these funds to Increase working capital.


70


Rs.2010Rs.

Changes in WC Rs.


Inventories

Sundry Debtors

Cash &Bank

Loans& Advances





Working Capital a-b

Decrease in Working Capital

11,52,02,941

17,85,50,027

7,27,32,900

59,86,51,897

16,15,83,313

26,56,85,722

4,10,06,192

59,81,54,044

4,63,80,372

8,71,35,695

-

-

-

22,42,86,763

3,17,26,708

4,97,853

32,55,78,269

96,51,37,765 106,64,29,271

42,38,38,372 74,94,16,641

42,38,38,372 74,94,16,641

54,12,99,393 31,70,12,630

22,42,86,763

54,12,99,393 54,12,99,393 35,78,02,830 35,78,02,830

Table-3

71


Interpretation:


rupees compare the current liabilities 32,55,78,269 as a result working capital decrease


limited is not good.

72

Changes in Working Capital

0

200000000

400000000

600000000

800000000

1000000000

1200000000

TotalCurrentAssets


WorkingCapital

Am

ou

nt

2011

2010


31.12.2011

Table-4

Sources

Amount

Rs. Uses

Amount

Rs.


Long term loans

Decrease in Working capital


expenditure

Increase in Deferred tax liability

16,01,23,732

15,15,15,878

22,42,86,763

10,76,442

10,08,85,372

Redemption of shares


Purchase of Investments

5,40,942

21,69,98,475

42,03,47,770

63,78,87,187 63,78,87,187


Interpretation:

The Financial Services limited take huge amount of Long term loans

through funds from operations and Purchase of investments. The Financial Services

limited use some of these funds to purchase fixed assets. The Financial Services limited

is also use these funds to Decrease working capital.

73



Rs.2008Rs.

Changes in WCRs.


Inventories

Sundry Debtors

Cash & Bank

Loans& Advances





Working capital a-b

Increase in working capital

16,15,83,313

26,56,85,722

4,10,06,192

59,81,54,044

21,89,56,216

37,09,00434

11,21,52,347

62,82,93,656

5,73,72,903

10,52,14,712

7,11,46,155

3,01,39,612

-

-

-

-

-

1,11,52,907

25,27,20,475

106,64,29,271 133,03,02,653

74,94,16,641 76,05,69,548

74,94,16,641 76,05,69,548

31,70,12,630

25,27,20,475

56,97,33,105

56,97,33,105 56,97,33,105 26,38,73,382 26,38,73,382

74

Table-5

Sources: we have taken this information from ZAURI CEMENT, from 2010-2008.

Interpretation:


rupees compare the current liabilities 1,11,52,907 as a result working capital Increase

75


0

200000000

400000000

600000000

800000000

1000000000

1200000000

1400000000

TotalCurrentAssets


WorkingCapital

2010

2008


limited is good.


31.12.2008

Table-6

Sources

Amount

Rs. Uses

Amount

Rs.


Long term loans


expenditure

Increase in Differed tax liability

23,51,80,715

27,31,74,976

2,50,800

1,55,69,384

Increase in Working capital



25,27,20,475

22,58,55,400

4,56,00,000

52,41,75,875 52,41,75,875


Interpretation:

The Financial Services limited take huge amount of long term loans through

funds from operations and Purchase of investment. The Financial Services limited use

76

some of these funds to purchase fixed assets. The Financial Services limited is also use

these funds to increase working capital.



Rs.2009Rs.

Changes in WCRs.


Inventories

Sundry Debtors

Cash & Bank

Loans& Advances




Total current Liabilities(b)

Working capital a-b

Decrease in working capital

21,89,56,216

37,09,00434

11,21,52,347

56,39,26,687

35,30,33,377

41,35,39,323

11,86,08,237

56,98,39,851

13,40,77,161

4,26,38,889

64,55,890

59,13,164

-

14,37,44,464

- - -

-

33,28,29,568

126,59,35,684 145,50,20,788

69,62,02,579 102,90,32,147

69,62,02,579 102,90,32,147

56,97,33,105 42,59,88,641

14,37,44,464

56,97,33,105 56,97,33,105 33,28,29,568 33,28,29,568

77

Table-7


Interpretation: - Comparing the year 2008-2009 the current assets increased by

18,90,85,104 rupees compare the current liabilities 33,28,29,568 as a result working

78


0

200000000

400000000

600000000

800000000

1000000000

1200000000

1400000000

1600000000

TotalCurrentAssets


WorkingCapital

2008

2009

capital Decrease 14,37,44,464 rupees. There fore short term financial position of The

Financial Services limited is not good.


31.12.2009

Table-8

Sources

Amount

Rs. Uses

Amount

Rs.


Increase in loans


expenditure

Decrease in Working capital

Increase in Deffered tax liability

99,81,84,829

118,07,66,087

89,747

14,37,44,464

10,49,68,143



Proposed Dividend

225,80,53,270

3,59,00,000

13,38,00,000

242,77,53,270 242,77,53,270


Interpretation:

79

The Financial Services limited take huge amount of Long term loans through

funds from operations and Purchase of investment. The Financial Services limited use

some of these funds to purchase fixed assets. The Financial Services limited is also use

these funds to Decrease working capital.

FINDINGS:

It is found that The Financial Services limited is holding sufficient share capital.

80

It is inferred that The Financial Services limited is maintaining a minimum Cash

Balances.

.

In 2004-2005 the Working capital of The Financial Services limited is increased

by 28,08,09,874 rupees. In the same period the long term loans of The Financial

Services limited is high because the company get huge amount of funds from

operations and also from decrease in miscellaneous expenditure reserve. The

Financial Services limited uses that fund to redeem the shares and to purchase

fixed assets.

In 2011-2012 the Working capital of The Financial Services limited is decreased

by 22,42,86,763 but the flow of funds is decreased because The Financial

Services limited do not get any funds from decrease of reserves, The Financial

Services limited get funds only from operations and purchase of investment. The

Financial Services limited uses some of those funds to purchase fixed assets.

In 2009-2010 the Working capital of The Financial Services limited is increased

by 25,27,20,475 but the flow of funds is high as compared to previous year

because The Financial Services limited get funds only from operating activities.

The Financial Services limited use some funds to purchase fixed assets.

In 2010-2008 the Working capital of The Financial Services limited is decreased

by 14,37,44,464 but the flow of funds is high as compared to previous year

because The Financial Services limited get funds only from operating activities.

The Financial Services limited use some funds to purchase fixed assets

SUGGESSIONS:

81

It may be suggested that The Financial Services limited should utilize Limited

Funds for the purchase of fixed assets.

If The Financial Services limited spend more money on purchase of fixed assets

& investments it effects the growth of the ZAURI CEMENT company limited.

The company must maintain the sufficient working capital in order to meet the

daily needs of the firm.

The company should increase its investments and its fixed assets.

It has to keep concentration on working capital, expenses, and fixed assets.

It has to decrease its Long term loans (liabilities).

It is better to maintain the same steps which it has followed in 2009-07 to

decrease its liabilities and maintain the profit.

CONCLUSION

82

It can be concluded that funds flow performance of the financial

services limited is good because funds from operations are high in every year but increase

in loans of funds. The Financial services limited utilize some funds to purchase fixed

assets every year the financial services limited do some investment activities to utilize

funds effectively.

83

ANNEXURE

84

ZAURI CEMENT INDUSTRIES LIMITED

BALANCE SHEET AS AT 31.3.2010

Particulars Schedule No. 2009

SOURCES OF FUNDS

Share holder’s Funds:

Share Capital

Reserves and Surplus

Loan Funds

Secured Loans

Unsecured Loans

Deferred Tax Liability

Total

APPLICATION OF FUNDS

Fixed Assets

Gross Block

Less: Depreciation

Net Block

Add: Capital works- in- progress

INVESTMENTS

Current Assets, Loans and Advances

Inventories

Sundry debtors

Cash and Bank Balances

Loans and Advances

Less: Current Liabilities and provisions

Miscellaneous Expenditure(to the extent

not return of or adjusted)

A

B

C

D

E

F

G

H

I

13,43,40,942

89,66,23,798

94,03,76,495

96,39,05,443

24,78,34,769

318,30,81,447

266,23,57,147

55,57,90,567

210,65,66,665

18,15,99,085

228,81,65,665

35,21,99,400

11,52,02,941

17,85,50,027

7,27,32,900

59, 86,51,897

96,51,37,765

42,38,38,372

54,12,99,393

14,16,989

85

Total 318,30,81,4471,447

ZAURI CEMENT INDUSTRIES LIMITED BALANCE SHEET AS AT 31.3.2008


SOURCES OF FUNDS


Share Capital


Loan Funds

Secured Loans

Unsecured Loans


Total


Fixed Assets

Gross Block

Less: Depreciation

Net Block


INVESTMENTS


Inventories

Sundry debtors


Loans and Advances



A

B

C

D

E

F

G

H

I

13,38,00,000

105,67,47,530

84,56,73,700

121,84,87,846

34,87,20,141

360,34,29,217

316,89,56,316

67,98,52,280

248,91,04,036

1,60,60,104

250,51,64,140

78,09,11,900

16,15,83,313

26,56,85,722

4,10,06,192

59,81,54,044

106,64,29,271

74,94,16,641

31,70,12,630

3,40,547

86


Total360,34,29,217,81,447



SOURCES OF FUNDS


Share Capital


Loan Funds

Secured Loans

Unsecured Loans


Total


Fixed Assets

Gross Block

Less: Depreciation

Net Block


INVESTMENTS


Inventories

Sundry debtors


Loans and Advances




A

B

C

D

E

F

G

H

I

13,38,00,000

129,19,28,245

92,73,53,942

140,99,82,580

36,42,89,525

412,73,54,292

320,81,62,454

82,53,36,717

238,28,25,737

34,81,93,803

273,10,19,540

82,65,11,900

21,89,56,216

37,09,00,434

11,21,52,347

56,39,26,687

126,59,35,684

69,62,02,579

56,97,33,105

87

Total 89,747

412,73,54,292,81,447



SOURCES OF FUNDS


Share Capital


Loan Funds

Secured Loans

Unsecured Loans


Total


Fixed Assets

Gross Block

Less: Depreciation

Net Block


INVESTMENTS


Inventories

Sundry debtors


Loans and Advances



A

B

C

D

E

F

G

H

I

13,38,00,000

215,63,13,074

178,57,14,077

173,23,88,532

46,92,57,668

627,74,73,351

398,46,31,393

98,12,21,831

300,34,09,562

198,56,63,248

498,90,72,810

86,24,11,900

35,30,33,377

41,35,39,323

11,86,08,237

56,98,39,851

145,50,20,788

102,90,32,147

42,59,88,641

88


Total

----

627,74,73,35181,447

ZAURI CEMENT INDUSTRIES LIMITEDPROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2010


INCOME

Sales

(Increase/decrease) in Stock

Total Income

EXPENDITURE

Manufacturing Expenses

Cost of trading goods

Central Excise Duty

Sales Tax

Administrative and Selling Expenses

Interest and Finance Charges

Depreciation

Miscellaneous Expenditure Written off

Total Expenditure

Profit for the year

Provision for taxation

Profit after Tax

Deferred Tax for the year

Fringe Benefit Tax for the year

Prior period expenditure

Profit available for appropriations

Transfer to General Reserve

Proposed Dividend

Tax on Dividend

Profit brought forward from previous

J

K

L

M

E

F

G

I

385,65,72,118

-1,60,57,823

384,05,14,295

153,07,01,345

---

69,86,42,442

55,90,24,763

58,82,88,777

14,43,46,417

11,88,30,197

22,32,340

364,20,66,281

19,84,48,014

152,54,699

18,31,93,315

3,89,50,042

-----------

11,56,849

14,30,86,424

-----------

-----------

------------

89

year

Goodwill on Merger written off

Profit Carried to Balance Sheet

N

56,76,50,645

-1,98,40,834

69,08,96,2351,447



INCOME

Sales


Total Income

EXPENDITURE



Central Excise Duty

Sales Tax



Depreciation


Total Expenditure

Profit for the year


Profit after Tax






Proposed Dividend

Tax on Dividend

J

K

L

M

E

F

G

I

452,87,19779

-98,74,875

451,88,44,904

188,52,41,099

32,67,699

81,46,64,469

62,30,34,491

68,09,34,484

9,96,49,474

12,47,85,177

10,76,442

423,26,53,335

28,61,91,569

2,24,41,139

26,61,91,569

10,08,85,372

-------------

27,41,325

16,01,23,733

-----------

------------

------------

90

Profit brought forward from previous year



N

69,08,96,235

----------

85,10,19,968447



INCOME

Sales


Total Income

EXPENDITURE



Central Excise Duty

Sales Tax



Depreciation


Total Expenditure

Profit for the year


Profit after Tax






Proposed Dividend

Tax on Dividend

J

K

L

M

E

F

G

I

640,97,93,371

2,96,92,824

643,94,86,195

241,01,65,622

67,40,11,176

95,80,88,420

63,36,87,866

118,57,25,154

9,99,66,070

14,54,84,437

2,50,800

610,73,79,545

33,21,06,650

7,51,17,114

25,69,89,536

1,55,69,387

17,33,786

45,05,648

23,51,80,715

-----------

------------

------------

91

Profit brought forward from previous year



N 85,10,19,968

-------------

108,62,00,683



INCOME

Sales


Total Income

EXPENDITURE



Central Excise Duty

Sales Tax



Depreciation


Total Expenditure

Profit for the year


Profit after Tax






Proposed Dividend

Tax on Dividend

Profit brought forward from previous

J

K

L

M

E

F

G

I

914,46,59,562

3,74,11,258

918,20,70,820

311,40,33,391

5,55,30,769

114,28,05,092

94,83,24,696

197,79,88,742

13,47,58,957

15,59,73,434

89,747

752,95,04,820

165,25,65,992

50,76,18,003

114,49,47,989

10,49,68,144

22,35,543

1,68,20,163

102,09,24,139

15,00,00,000

13,38,00,000

2,27,39,310

92

year



N 108,62,00,683

-----------

180,05,85,512

BIBLIOGRAPHY

Student hand book on cost accounting and financial management by B. Sarvana

Prasad, Edition-5thMay 2009, Page. No. 16.1 to 16.11

Financial Accounting & Finance by K. Rajeshwar Rao, G. Prasad, Edition-1998,

14.1 to 14.6, 15.1 to 15.12

Financial Management Theory & Practice by Prasanna Chandra, Edition-5th 2004,

727 to 758

Financial Management by I.M. Pandey, Edition -4th 2005, Page no 345 to 325

ZAURI CEMENT Annual reports from 2008-2012

http:/www.zuaricement.com

93

Complete Topic Funds Flow Analysis at ZAURI Cement

Documents

Transcript of Complete Topic Funds Flow Analysis at ZAURI Cement