A

STUDY ON

FUNDS FLOW STATEMENT

With reference to

PENNA CEMENT INDUSTRIES LIMITED , TALARI CHERUVU

VILLAGE,TADIPATRI"

A project report submitted to the

RVR & JC COLLEGE OF ENGINEERING (AUTONOMOUS)

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

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY

E.SIVA KUMAR REDDY

Regd. No: Y20MS017

Under the Guidance of

Mr. P. SIDDARDHA

ASSISTANT PROFESSOR

DEPARTMENT OF MANAGEMENT SCIENCES

RVR & JC COLLEGE OF ENGINEERING (AUTONOMOUS)

Chowdavaram, Guntur-522019, Andhra Pradesh

2020-2022
 DEPARTMENT OF MANAGEMENT SCIENCES

RVR & JC COLLEGE OF ENGINEERING

Chowdavaram, Guntur.

CERTIFICATE

This is to certify that the project report titled "A STUDY ON FUNDS FLOW
STATEMENT With reference to PENNA CEMENT INDUSTRIES LIMITED ,
TALARI CHERUVU VILLAGE,TADIPATRI " is a Bonafide work done by E.Siva
Kumar Reddy, Regd. No:Y20MS017,II MBA under my guidance & submitted to the Department
of Management Sciences, R.V.R. & J.C. COLLEGE OF ENGINEERING
(AUTONOMOUS),GUNTUR, in partial fulfillment of requirements for the award of Degree of
Master of Business Administration, during 2020-2022.

Mr. P.Siddardha Dr. T.Sreekrishna

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

Head, Dept. of MS

EXTERNAL EXAMINER
 DECLARATION

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

Administration,R.V.R& J.C.COLLEGE OF ENGINEERING (AUTONOMOUS),GUNTUR.
I hereby declare that the project entitled "A STUDY ON FUNDS FLOW STATEMENT
with reference to PENNA CEMENT INDUSTRIES LIMITED , TALARI CHERUVU
VILLAGE,TADIPATRI " is a genuine work done by me during 2020-22.

The project report is prepared under the guidance of Mr. P.SIDDARDHA , Assistant
Professor in partial fulfillment of the requirements for the award of the Degree of
Master of Business Administration by Acharya Nagarjuna University, Guntur .

I hereby declare that, this is the result of my own efforts and it has not been submitted
to any other university for the award of any Degree or Diploma.

E.SIVA KUMAR REDDY

Regd.No:Y20MS017
 ACKNOWLEDGEMENT

The Successful completion of this report is made possible with the help
and guidance received from various quarters. I would like to avail this opportunity to
express my sincere thanks and gratitude to all of them.

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

infrastructure and resources for the accomplishment of my project report in R.V.R. &
J.C. COLLEGE OF ENGINEERING, Chowdavaram, Guntur.

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

T. SREEKRISHNA, Head of the Department of Management Sciences for his
valuable guidance and constant encouragement given to me during this project work.

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

Professor, Department of Management Sciences for his valuable guidance, constant
encouragement, constructive criticism and keen interest evinced throughout the course
of my project work.

I am very much thankful to all the faculty members of the MBA

department for their value based imparting of the theory and practical subjects related to
the project. Finally I have a notation to express my sincere thanks to my family
members, friends and all those who guided, inspired and helped me in the completion of
my project work.

E.SIVA KUMAR REDDY

REGD.NO.Y20MS017
SYNOPSIS
 1. INTRODUCTION
Funds flow statement is a technical device designed to highlight the changes in
the financial condition of a business enterprise between the opening and closing
balance sheet dates.  The flow of funds results in mainly profits of a business due to
business operations.  And has been well said that “a business with an income at it heals
furnishes always oil for its own wheels”, it is the profit which becomes main sources of
funds for a business.  However profitable companies can also be anemic with respect to
working capital and since working capital is the life blood of an enterprise, its shortage
can disturb the operating cycle of the business. The concept of  ‘funds’ the flow which
is to be examined in detail as to its sources and applications so as to know the net
increase or decrease in working capital over a period of time, usually a year. 
One of the most important techniques of financial analysis is a preparation of  
funds flow statement.   It is the statement which portrays the changes in the financial
position of an enterprise.  Balance sheet and income statement do not present a
comparative picture, even if placed side by side in that much clarity as the statement of
changes   in financial position which focuses on the sources and uses of funds. 

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

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

position or sources and application of funds in which elements of net income and
working capital contributing to an understanding of the whole of financial operation
during the reporting period replace total of these items.

Concept of Funds:
Funds in the narrowness sense of the term as be equated to cash.  But in the
broader sense and appropriate one here, it refers to working capital that is current
assets less current liabilities.
 A still broader interpretation of the term “funds” has been given by some
accountants, and according to them funds includes all resources used in the business
whether in the form of human, material, money, machinery and other.  But it is not
relevant for the purpose of flow statement.  The most common definition of fund is
working capital since they use the term working capital as synonym to current assets. 

CONCEPT of Flow:
The dictionary meaning of the word flow is movement denoting change
Therefore, whenever there is a change of funds that is either increase or decrease there
is a flow of funds. There must be some cause of change- the cause may result in either
raising the funds inflow of funds there by becoming a source of fund or the cause may
lead depletion of funds that is out of funds, implying there by an application or use of
funds in other words source of funds show the reasons of increase in funds that is
working capital and application of funds reveal the reasons of decrease in funds that is
working capital.  
 

Concept of Funds Flow Statement: The meaning of funds flow or

flow of funds illumination the concept of funds flow statement clearly the statement
which analysis the flow of funds that is the reasons for changes in working capital is a
funds flow statement. 

The reasons are set by the sources and application of funds and therefore the
statement can be called as the statement of sources an application (uses) of funds. 
Some accountants prefer to call it in short as fund and to which place have gone.  It is
also designated as where got and where (movements) of working capital, movements of
flow statements etc.

Importance of Funds Flow Statement:

 The information which is provided by funds flow statement is neither available in
the balance sheet nor in the income statement and hence it’s important.  The changes
which have taken place in between two accounting dates are highlighted by funds flow
statement.  A lay man cannot grasp the underlying significance of achievements and
progress of the company simply by a personal of the balance sheet and income
statement of different years.  The comparative and analytical study presented by the
statement giving the details of sources and uses of funds during a given period of
immense help to the users of information. 

It is very useful tool in analytical kit of the management also, besides the outsiders, in
order to have ‘at a glance’ appraisal of the financial and operating performance of a
company.  Since the statement shows the extent to which the working capital has been
effectively put to  use,  the management’s task of taking policy decision regarding
investment, dividends etc, is great facilitated .  

Uses of funds flow statement:

        Funds flow statement of a company is of great value to management share
holders, creditors, bankers, money lending institutions etc. 

 Informative value:-
The financial consequence of business operation are clearly explained in
details by a funds flow statement some of the problems which crop up in the
minds of investors are well solved by a simple perusal of this statement for e.g.,

 Where have the profit gone.

 Why does an imbalance exist between liquidity position and profitability
position of enterprise?

 Forecasting value:- A projected funds flow statement can be prepared

and resources can be properly allocated after an analysis of the present state of
affairs.  The optimal utilization of available funds are necessary for the overall
growth of the enterprise.  The funds flow statement prepared in advance given a
clear direction to the management in this raged.

 Testing value:- Whether the working capital has been effectively used or
not by the management can well be tested by funds flow statement.  Whether
working capital has been maintained at proper level, and whether it is adequate
or inadequate can be known by a study of the statement.  The management is
warned against the injudicious uses of funds.
 Decision-making value: Since overall credit worthiness of the enterprise is
known, creditors and money lenders can decide as to whether they have to provide
loans to company or not.  The sources of raising funds and their application help the
shareholders to decide whether the management of the business is an enlightened or
not regarding managing funds.  Mismanagement of funds may be prevented.  The
management can be decided about the future financing policies and capital.

NEED FOR THE STUDY

Every company needs to know the flow of funds both inflow and outflow. So that
the efficiency in utilizing the funds can be better understand. For this the present
analysis through funds flow statement will be helpful.

The main need for the study is to study the operating activities, investing
activities and Financing activities in the Penna Cement Industries Limited and methods
to evaluate the financial performance of the company, with the help of Funds flow to
evaluate the pattern of the firm.

The importance of cash management is so essential in any organization to run

the business with continuous basis. The present study also attempts to know the “cash
management system in selected in selected organization”.

SCOPE OF THE STUDY

The present study focuses as sources funds and application of funds for a period

of time. The study is confirmed to find out the changes in the financial position of

The Penna Cement Financial Services Limited between the beginning and ending

financial Year. It is a technical device designed to analyze the changes in the

financial condition of the business enterprises between two dates.

This funds flow statement is a statement which indicates various means by

which the funds have been obtained during a certain period and the ways to which

these funds have been used during the period.

 The term funds used here means working capital that is the excess of current

assets over current liabilities. It is an essential tool for the financial analysts and is of

primary importance to the financial management.

Now a days it is being widely used by the financial analyst credit granting institutions

and financial managers. The basic purpose of the funds flow statement is to reveal

the changes in the working capital on the two balance sheet dates. It helps in the

analysis of financial operations. It helps in the formation of realistic dividend policy. It

helps in the proper allocation of resources. It helps in appraising the use of working

capital and finally it acts as future guide.

OBJECTIVES OF THE STUDY

1. To analyze and examine the funds flow statement through working capital, funds
from operations and funds flow statement.
2. To measure the financial strength of the firm during the period of the study (2016-
2017 to 2020-2021).
3. To analyze the changes in assets and liabilities from the end of one period of the
time to the end of another period of time
4. To find out the sources from which additional funds were derived and the use to
which their sources were put.
5. To study measures for the effective working of Penna Cement Industries limited.
6. To determine the progress and profitability of the organization and to offer
appropriate suggestions for better performance of the organization.
7. To study theoretical aspect of funds flow analysis and compare with practical
fund flow analysis with that of Penna Cement Industries limited.

METHODOLOGY OF THE STUDY

 Methodology is a systematic process of collecting information in order to
analyze and verifies a phenomenon. The collection of data is two principle sources.
They are discussed as

● Primary data

● Secondary data

Primary Data:-

The primary data needed for the study is gathered through interview with
concerned officers and staff, either individually or collectively, sum of the information
has been verified or supplemented with personal observation conducting personal
interviews with concerned officers of finance department of "PENNA CEMENT
INDUSTRIES LIMITED".

Secondary Data:-

The secondary datu needed for the study was collected from published
sources such as, pamphlets annual reports, returns and internal records, reference from
text books and journal management.

Further data needed for the study was collected from:-

● Collection of required data from annual records of the company.

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

Diagrammatic Representation of Research Methodology

Diagram 2.1
 DATA
SOURCE

Primary Secondary
data data

Inside the
Management Respondents
company

LIMITATIONS OF THE STUDY

● Due to the confidential records the data not exposed so the study may not
exposed , so the study may not be full fledged .

● The study is purely based on the data available in the firm of annual reports .

● The period of the study for 5 years and the performance evaluation is also limited
to 5 years

● The study is based on the past date, which cannot predict the future performance
accurately.
 ● The study may not be detailed in all aspects.

● The study time period is limited.

● It should remember that a funds flow statement is not a substitute of an income

statement or a balance sheet. It provides only some additional information as

regards changes in working capital.

● The study based on the available annual reports and internal information of

Penna cement industries Limited Financial Services only.

● It cannot reveal continuous changes.

INDUSTRY PROFILE

Cement Industry has been decontrolled from price and distribution on 1 st

March 1989 and de – licensed on 25 th July 1991. However, the performance of the

industry and prices of cement are monitored regularly. Being a key infrastructure

industry.

The constraints faced by the industry are reviewed in the Infrastructure

Coordination Committee meetings held in the Cabinet Secretariat under the

Chairmanship of Secretary (Coordination). The Committee on Infrastructure also

reviews its performance. The industry is subject to quality control order issued on

17.2.2003 to ensure quality standards.

CEMENT INDUSTRY IN INDIA

In India it came to be established during the beginning of 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 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.

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

2016 – 2017 3.47 3.45 6.92

2017 – 2018 3.36 5.64 9.00
2018 – 2019 3.31 4.82 8.13
2019 - 2020 5.2 4.4 9.6
2020 - 2021 5.48 4.56 10.04

Overview of the performance of the Cement Sector:

The Indian Cement Industry not only ranks second in the production of

cement in the world but also produces quality cement, which meets global standards.

However, the Industry faces a number of constraints in terms of high cost of power.

High railway tariff; high incidence of state and central levies and duties; lack

of private and public investment in infrastructure projects; poor quality coal and

inadequate growth of related infrastructure like sea and rail transport, ports and bulk

terminals. In order to utilize excess capacity available with the cement Industry, the

Government has identified the following thrust areas for increasing demand for cement:

(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

Indian cement industry is modern and uses latest technology. Only a small

segment of industry is using old technology based on wet and semi-dry process. Efforts

are being made to recover waste heat and success in this area has been significant.

India is also producing different varieties of cement like Ordinary Portland

Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag

Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate

Resisting Portland Cement, White Cement, etc. Production of these varieties of cement

conforms to the BIS Specifications. It is worth mentioning that some cement plants have

set up dedicated jetties for promoting bulk transportation and export.

Infrastructure – driven demand push

The bulk of cement demand is from housing and commercial development of

which metros account for a significant amount. It is estimated that Mumbai, which

consumes almost six million tones, along with Pune, accounts for 45 percent of

Maharastra’s cement consumption, Bangalore consumes four million tones and

Chennai around 3 million tones, “these are really the growth clusters. Today bulk of the
demand is driven by housing and commercial construction and as infrastructure picks

up, for example, Bangalore international airport, Hyderabad airport and modernization

of Mumbai and Delhi airports.

Another large consumer has been the roads sector. The off take was good

when the NHDP programme was launched but there was a Null last year. “Once again

new orders have been placed and in 2006, the industry will pick up. The estimate is that

from roads, demand is not more than 4-5 million tones but it makes a difference in the

growth numbers”.

Narrowing demand-supply gap:

The industry has a capacity of 165 million tons and in Jan 2006, dispatches

were at almost 100%. On an overall basis, the industry does not do more than 90-92%

because of constraints such as transport and raw material.

The industry has been adding capacity of 6-7 million per annum by

Brownfield expansion and de-bottlenecking which is expected to partly cater to the

requirement because it is growing by around 20 million tons per annum.

Challenges before the industry:

Energy costs account for half of the cost of production of cement. Last

year saw a 15-16% increase in coal prices and then diesel prices went up pushing up

transportation costs.

Freight problems
The importance of freight for the cement industry cannot be emphasized

enough. While in the last few months’ railways have been steadily losing freight to road
sector they have been confined cement to market-is around Rs.350-400 a ton or Rs.20

and bag that could go as high a Rs.800 for long leads. This would only easy the first

level of sale and additional costs are involved to take it further.

Another issue, which will hit the industry hard, is that of logistics and a

Supreme Court judgment on carrying capacity for trucks. Accordingly, a state govt. has

been directed to enforce the discipline that trucks only carry a specified load. “Many

states and already implementing this and there is already an increase in freight rates

and in some cases, it has gone up by 50%. Also, the requirement for trucks to carry the

same freight has nearly doubled and in many places the industry is being forced to

move to railways.”

High taxes
While the railways have had capacity to meet the requirement, it is expected that

in March the commencement of peak season for the procurement of food grains, the

railways would be constrained to provide adequate number of wagons.

So fright rates are up, railways cannot provide wagons and trucks are unlikely

to be viable so there could be a serious dislocation of supplies going forward.According

to the cement manufactures association total taxes and duties on cement come to

around Rs.900 a ton or Rs. 45 a bag. “So at a price of Rs.150 a bag in the market,

taxes and duties account for one third. Which is high for such a basic product. This

includes excise duty, sales tax and royalty on limestone.

 The importance of limestone can only be underscored as for every ton of cement

produced. 1.5tons of limestone is required. “For limestone, royalty is on a per ton basis

at Rs. 40 whereas for most minerals it is a percentage of the pithead cost. Effectively

we are paying Rs.70 a ton for limestone as royalty. VAT is at 12.5% without any

justification and it should be in 4% category, excise is at Rs.408 per ton when it should

be around Rs.200.

Export Advantages

From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of

cement/clinker have grown rapidly at about 30-40% and this year exports will cross 10

million tons.

Major cement producers – market shares:

● Acc -12.8%

● Abuja -10.7%

● Grasim-10.4%

● Ultra tech-9.5%

● India cement-6.0%

● Jaypee-4.1%

● Lafarge-3.2%

● Madras-3.2%

Overall, the industry is in a better state today than 2 years ago. “Cement

prices even today are way below global levels. So setting up Greenfield capacities is
 not attractive, as prices will not give attractive returns on investment. That is a minor

reason why there is no Greenfield capacity coming up. It has to be born in mind that

one third of the prices is accounted for by taxes and duties and nearly 20-25% by

the freight component. So what produces earn at the factory gate is among the

lowest in the world.”

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

good month with dispatches at 12.5 million tons and January dispatches were in

excess of 13 million tons.

“This means capacity utilization is in the nineties which is healthy and will

actually lead to firming up of prices. It looks like sales could be 137 million a ton for

2007-08(125 million tons in 2006-07) and so far growth has been 10%. There are

enough reasons to believe it will sustain.”

COMPANY PROFILE

A Penna cements industry Ltd was incorporate on Oct 24 th 1991, to set up a cement

plant at Tadpatri in Anantapur District of Andhra Pradesh. The plant commenced

commercial production on Aug 10 th 1994 as mini cement plant with initial capacity of

0.30 million tones. The company short period getting profits. Later 1995 plant capacity

was increased 0.4 million tones which upgrade its state major plant.

Penna cement industries ltd establishing by Mr. Prathap Reddy aged 44 began

his entrepreneur career with civil engineering contracts by lunching pioneer builders

mr.prathap reddy has experiences of two decades in cement industry .he was the
executive director of priyadrashini cement right from its inception in 1984 in 1991 Mr.

Pratap Reddy incorporated his own cement company located in between Talaricheruvu

and Urichintala village. At present about 2720 tones of various grades of cement is

being manufactured daily at the factory.

Quarry:

Major raw material for cement industry. The quarry has a mining lease of 235.52

acres in Talaricheruvu village. 440.47 acres in Urichintala village and 629.75 acres in

Korumanipalli village of Kurnool district.

RAW MATERIALS :

Limestone:

Limestone is the major raw material for the cement industry. Limestone

constitutes 60 to 70 percent of the total raw material costs. Nearly 1.5 – 1.6 tons of

limestone is required for producing one ton of cement clinker limestone (calcium

carbonate) is a rock of either sedimentary or metamorphic origin with calcium oxide as

its main constituent. In India limestone occurs mainly as sedimentary rocks and

constitutes 30 percent of the total sedimentary rocks in the country. Cement grade

limestone is available in 21 states in the country. About 65 percent of the cement plants

in India uses sedimentary limestone and 20 percent use metamorphic crystalline

limestone. India has 85,980 million tones of cement grade limestone deposits, which is

enough to produce 100 million tones of cement for the next 500 years.

Total reserve

No. of years limestone reserve would last = -------------------------------------

Avg., limestone Consumption

It is quite clear that India’s limestone reserves are adequate for the next several

years. More over new reserves would be discovered every year Limestone is mixed

extensively in India and ranks second in production next to coal mining. Major portion of

limestone mining portion of limestone mining is for cement industry (nearly 75% to 80%)

therefore the demand supply situation is quite comfortable.

In India limestone deposits are abundantly found only in Siroly (Rajasthan),

Santna, Belaspur (M.P., wadi (Karnataka), 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%

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.
Inputs:

Although limestone is the major raw material for cement industry, the critical raw

material is energy. How well the company uses coal and electricity and how much it

costs will determine the success ratio for cement manufacturers. Major inputs in cement

manufacturing include coal, power and freight.

Coal:

In India coal I am being used as the fuel for the manufacturing of cement. Else

where in the world lignite, nature gas and oil are also used. They are not used in India

as continuous supply of natural gas is not assured used by plants in southern plants of

India, like Dalmia Cement, Chettinad cement etc., as a supplement to coal which

compensates the storage for coal in this area. Non cooking coal of lower ash content is

required by cement plants. It should be less than 30%. A useful heat of 4500

kilocalories per kg of coal. Coal of lower ash enables comparatively lower quality of

limestone. The coal should have volatile matter and high temperature. Transport of coal

is another big issue as many of larger cement plants are located close to the limestone

deposits, which may not have coal deposits nearby.

Power:

Power constitutes about 10% of the total cement production costs. About 3

percent of the total power generated in the country is used by cement industry. The
average consumption of power in the dry process kilns is around 125 units per million

tons of clinker.

Freight:

Freight constitutes a very significant part of the cost structure of cement units in

India. On an average freight for transporting finished product alone forms 13.85% of the

cost of production of large cement plants.

The main areas of freight coast for the cement industries are

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

ii. Transporting cement from the plants to their mark

Limestone transport would be even costlier than transporting coal or cement.

Hence cement plants are located in cluster near limestone deposits. Indian railway is

moving up to 60% of the total cement production.

SALIENT FEATURES OF PENNA CEMENT:

● High strength and great durability

● A very perceptible saving in costs (up to 20% to 25%) due to low

setting time

● Superior quality of the cement resulting in a better overall finest

● Stronger bonding with aggregates.

Growth and Performance:

The company has enhanced its capacity from 600 TPD to 8000 TPD over the

period of 10 years. The Existing cement plant was upgraded to 5000 tones capacity per

day. The profits for the year 2007-08 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 18,25,000 tons.

Competitiveness of Cement Project:

companies – Ultra tech, Andhra Cement, Grasim Cement, Gujarat Ambuja cement,

Parasakthi, Larsen and Tubro,Coramandal cement,Priya Cement, Nagarjuna cement,

Sagar cement ACC Suraksha cement, Zuari cement, and India cement Ltd.

TECHNOLOGY ADOPTION AND INNOVATION:

The company has obtained the basic engineering designs and other technical

know-how from M/s. 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 PENNA CEMENT are 345 covering all departments.

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

Raw Materials & Requirement:

Limestone, Iron ore, Bauxite, Gypsum and Coal are the basic raw materials used

in the manufacturing process of cement. The average consumption of various raw

materials is shown in the table.

REQUIREMENT OF RAW MATERIALS

S. No Raw material 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 Penna Cement Limited.,

Note:
 Due to change in the quality of lime stone and coal, the consumption of additives

has been changed accordingly.

Material Balance:

Limestone + Additives Raw material

Raw material (1.46%) +coal Calcinations clinker

Clinker + Gypsum Ordinary Portland cement

Clinker + Fly ash Pozzoland Portland

Note:

Depending upon quality of raw materials the above consumption may value.

PRODUCT PROFILE:

Penna Cement manufactures and distributes its own main product lines of

cement. It aims to optimize production across all the marketers, providing a completer

solution for customer’s needs at the lowest possible cost, an approach known as

“strategic Integration of Activities”. Cement is made from a mixture of 80 percent

limestone and 20 percent clay. These are crushed and ground to provide the “raw
meal”, a pale, flour – like powder. Heated to around 1450 o C (2642o F) rotating kilns, the

“meal” undergoes complex chemical changes and is transformed into clinker. Fine –

grinding the clinker together with a small quality of gypsum produces cement. Adding

other constituents at this stage produces cements for specialized uses.

PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS:

Presently the company is manufacturing 43 grade, 53 grade. Ordinary portal

cement port land slag cement, soleplate Resistant with brand name of “PENNA”

Penna Suraksha - 53 Grade

Penna Power - 53 Grade

Penna Super - 43 Grade

ADVANTAGES:

Here are five of the many reasons why Penna 53 Grade and 43 Grade cement

edges out its competitors.

● High compressive strength.

● Low heat of hydration.

● Better soundness.

● Lesser consumption of cement for M-20 Concreate Grade and above.

● Faster de – shuttering of formed work

● Reduced construction time with a superior and wide range of cement

catering to every conceivable building need, Penna Cement is a

formidable player in the cement market.

 Here are just a few reasons why Penna Cement chosen by millions of

India.

● Ideal raw material

● Low lime and magnesia content and high proportion of silicates

● Greater fineness

● Slow initial and fast final setting

● Wide range of applications

● Quality customer services

 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.,

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:

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.

10

Vertical Analysis:

It is the analysis of relationship as between different individual components for a given

period of time. Comparison of current assets to current liabilities or comparison of debt to equity

for one point of time is the examples of vertical analysis. It can be made in the following ways.

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

 ● By preparing common size statement of different years of the same business.

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.

11

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.

 ● 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.

12

Common-size Statement Analysis:

Common-size statement is a financial tool of studying key changes and trends in financial

position of a company. In common-size statement, each item is stated as percentage of the total

of which that item is a part, each percentage exhibits the relation of the individual item to its

respective total. Therefore, the common-size percentage method represents a type of ratio

analysis. That is why this statement is also designated as “component percentage” or “100

percent statement”. Preparation of the common-size statement involves two steps:

 ● State the total of the statement as 100 percent.

● Compute the ratio of each item to the total in the statement

There are 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.

13

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.

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.

14

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.

15

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.

16

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 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.

17

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’.

18

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.

19

MEANING AND CONCEPT OF FLOW OF FUNDS

 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. If the effect of transaction results in the increase

of funds, it is called source of funds and it results in the decrease of funds, it if known as an

application of funds.

Rule:

The flow of funds occurs when a transaction changes on one hand a non-current account

and on the other a current account and on the other a current account and vise – versa.

When a change in non-account e.g., fixed assets, long-term liabilities, reserves and

surplus, fictitious assets etc., is followed by change in another non-current account, it dues no

amount flow of funds.

20

Funds Flow:
 Here flow means changes, i.e., ‘flow of funds’ means changes in working capital by

business transactions. The business transaction brings the change in working capital either in the

form of decrease or increase. Flow of fund involves in flow or out flow of fund. It means,

transfer of economic values from one asset to another or equity

to another, from an asset to an equity or vice versa.. if there is change in current assets and

current liabilities in the same direction and by the same amount, there will be change only in

their amount. The working capital or fund will be the same and hence there would be flow in

such a situation.

PROCEDURE FOR KNOWING WHETHER A TRANSACTION RESULTS IN THE FLOW

OF FUNDS OR NOT:

● Analyze the transaction and find out the tow accounts involved.

● Make journal entry of the transaction.

● Determine whether the accounts involved in the transactions are Current or non-current.

● If both the accounts involved are non-current i.e., either permanent assets of permanent

liabilities, it still does not result in flow funds.

● If the accounts involved are such that one is a current account while the other is a non-

current i.e., current assets and permanent liability and fixed assets or current liability and

permanent liability then it results in flow of funds.

21

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.

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. PENNA

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.

22

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.

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.

23

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?

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.

24

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 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.

25

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.

26

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.

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- Short-term loans

progress, Finished Goods, Stores,etc

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 Provision for doubtful debts and discount

Temporary investments, etc on debtors

27

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, Long –term loans
 preliminary expenses and profit and loss

account(deficiency),etc

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 .

28

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.

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.

29

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.

Where its name may be the 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”.

30

IMPORTANCE OF FUNDS FLOW STATEMENT:

● 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.

31

DIFFERENCE BETWEEN
 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.

32

DIFFERENCE BETWEEN

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.

33
 PROCEDURE FOR PREPARING A FUNDS FLOW STATEMENT

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:

34

● 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 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.

35
1) Schedule of changes in Working capital:

PARTICULARS PREVIOU CURRENT EFFECT ON WORKING

S YEAR CAPITAL
INCREASE DECREASE
 YEAR
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 *** *** **
**

● **** **** *** ***

 36

2) Statement of sources and uses of funds:

Sources Amount Applications Amount

Rs Rs
 Funds from operations *** Redemption of preference ***
Issue of shares and *** shares and debentures ***
Debentures *** Repayment of loan ***
Long-term Loans Purchase of Investment,
*** ***
Sale of investment, Fixed Fixed assets, etc
***
assets, etc Non-Trading Expenses ***
Non-trading Income *** Increase in working capital ***
Decrease 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.

37
Therefore the Funds Flow Statement shows the movement of funds into or out of the current
asset account of the firm.

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.

38

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:

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.

39

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.

40

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.

41
 INDUSTRY PROFILE

Cement Industry has been decontrolled from price and distribution on 1 st March

1989 and de – licensed on 25th July 1991. However, the performance of the industry and prices

of cement are monitored regularly. Being a key infrastructure industry.

The constraints faced by the industry are reviewed in the Infrastructure Coordination

Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary

(Coordination). The Committee on Infrastructure also reviews its performance. The industry is

subject to quality control order issued on 17.2.2003 to ensure quality standards.

CEMENT INDUSTRY IN INDIA

In India it came to be established during the beginning of 20th century. In fact the cement

era in India commenced with the establishment of a small cement factory at

WASHERMANPET in 1904 by South India industry Ltd. a company that dates to 1879. The

potential capacity of this plant was only 10,000 metric tones per annum. This was the first

attempt of manufacturing Portland cement with cat carious seashells as a principal raw material.

There was sufficient demand for that product, but because of technological defects and

inadequate supply of raw materials, the plant did not operate economically, a later on collapsed.

42

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.

43
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:-

44

Export of Cement
(In million tons)

Year Cement Clinker Total

2005 – 06 3.47 3.45 6.92

2006 – 07 3.36 5.64 9.00
2007 – 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:

(v) Housing development programs;

(vi) Promotion of concrete highways and roads;

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

(viii) Construction of concrete roads in rural areas under Prime Ministers Gram

Sadak Yolanda.

45
Technological advancements

Indian cement industry is modern and uses latest technology. Only a small segment of

industry is using old technology based on wet and semi-dry process. Efforts are being made to

recover waste heat and success in this area has been significant.

India is also producing different varieties of cement like Ordinary Portland Cement

(OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil

Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White

Cement, etc. Production of these varieties of cement conforms to the BIS Specifications. It is
worth mentioning that some cement plants have set up dedicated jetties for promoting bulk

transportation and export.

Infrastructure – driven demand push

The bulk of cement demand is from housing and commercial development of which

metros account for a significant amount. It is estimated that Mumbai, which consumes almost six

million tones, along with Pune, accounts for 45 percent of Maharastra’s cement consumption,

Bangalore consumes four million tones and Chennai around 3 million tones, “these are really the

growth clusters. Today bulk of the demand is driven by housing and commercial construction

and as infrastructure picks up, for example, Bangalore international airport, Hyderabad airport

and modernization of Mumbai and Delhi airports.

46
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 orders have

been placed and in 2006, 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 2006, dispatches were at

almost 100%. On an overall basis, the industry does not do more than 90-92% because of

constraints such as transport and raw material.

 The industry has been adding capacity of 6-7 million per annum by Brownfield

expansion and de-bottlenecking which is expected to partly cater to the requirement because it is

growing by around 20 million tons per annum.

Challenges before the industry:

Energy costs account for half of the cost of production of cement. Last year saw a

15-16% increase in coal prices and then diesel prices went up pushing up transportation costs.

47
Freight problems
The importance of freight for the cement industry cannot be emphasized enough.

While in the last few months’ railways have been steadily losing freight to road sector they have

been confined cement to market-is around Rs.350-400 a ton or Rs.20 and bag that could go as

high a Rs.800 for long leads. This would only easy the first level of sale and additional costs are

involved to take it further.

Another issue, which will hit the industry hard, is that of logistics and a Supreme

Court judgment on carrying capacity for trucks. Accordingly, a state govt. has been directed to

enforce the discipline that trucks only carry a specified load. “Many states and already

implementing this and there is already an increase in freight rates and in some cases, it has gone
up by 50%. Also, the requirement for trucks to carry the same freight has nearly doubled and in

many places the industry is being forced to move to railways.”

High taxes

While the railways have had capacity to meet the requirement, it is expected that in

March the commencement of peak season for the procurement of food grains, the railways would

be constrained to provide adequate number of wagons.

So fright rates are up, railways cannot provide wagons and trucks are unlikely to be

viable so there could be a serious dislocation of supplies going forward.According to the cement

manufactures association total taxes and duties on cement come to around Rs.900 a ton or Rs. 45

a bag. “So at a price of Rs.150 a bag in the market, taxes and duties account for one third. Which

is high for such a basic product. This includes excise duty, sales tax and royalty on limestone.

48

The importance of limestone can only be underscored as for every ton of cement

produced. 1.5tons of limestone is required. “For limestone, royalty is on a per ton basis at Rs. 40

whereas for most minerals it is a percentage of the pithead cost. Effectively we are paying Rs.70

a ton for limestone as royalty. VAT is at 12.5% without any justification and it should be in 4%

category, excise is at Rs.408 per ton when it should be around Rs.200.

Export Advantages

From a modest beginning if 1.6 lacks tons in 1989-90, Indian exports of cement/clinker

have grown rapidly at about 30-40% and this year exports will cross 10 million tons.
Major cement producers – market shares:

● Acc -12.8%

● Abuja -10.7%

● Grasim-10.4%

● Ultra tech-9.5%

● India cement-6.0%

● Jaypee-4.1%

● Lafarge-3.2%

● Madras-3.2%

49
Overall, the industry is in a better state today than 2 years ago. “Cement prices even

today are way below global levels. So setting up Greenfield capacities is not attractive, as

prices will not give attractive returns on investment. That is a minor reason why there is no

Greenfield capacity coming up. It has to be born in mind that one third of the prices is

accounted for by taxes and duties and nearly 20-25% by the freight component. So what

produces earn at the factory gate is among the lowest in the world.”

This year 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 2007-08(125 million
tons in 2006-07) and so far growth has been 10%. There are enough reasons to believe it will

sustain.”

50
 INTRODUCTION

A Penna cements industry Ltd was incorporate on Oct 24 th 1991, to set up a cement

plant at Tadpatri in Anantapur District of Andhra Pradesh. The plant commenced commercial

production on Aug 10th 1994 as mini cement plant with initial capacity of 0.30 million tones. The

company short period getting profits. Later 1995 plant capacity was increased 0.4 million tones

which upgrade its state major plant

Penna cement industries ltd establishing by Mr. Prathap Reddy aged 44 began his

entrepreneur career with civil engineering contracts by lunching pioneer builders mr.prathp

reddy has experiences of two decades in cement industry .he was the executive director of

priyadrashini cement right from its inception in 1984 in 1991 Mr. Pratap Reddy incorporated his

own cement company located in between Talaricheruvu and Urichintala village. At present

about 2720 tones of various grades of cement is being manufactured daily at the factory.

Quarry:
 Major raw material for cement industry. The quarry has a mining lease of 235.52 acres in

Talaricheruvu village. 440.47 acres in Urichintala village and 629.75 acres in Korumanipalli

village of Kurnool district.

51

RAW MATERIALS :

Limestone:

Limestone is the major raw material for the cement industry. Limestone constitutes 60 to

70 percent of the total raw material costs. Nearly 1.5 – 1.6 tons of limestone is required for

producing one ton of cement clinker limestone (calcium carbonate) is a rock of either

sedimentary or metamorphic origin with calcium oxide as its main constituent. In India

limestone occurs mainly as sedimentary rocks and constitutes 30 percent of the total sedimentary

rocks in the country. Cement grade limestone is available in 21 states in the country. About 65

percent of the cement plants in India uses sedimentary limestone and 20 percent use

metamorphic crystalline limestone. India has 85,980 million tones of cement grade limestone

deposits, which is enough to produce 100 million tones of cement for the next 500 years.

Total reserve

No. of years limestone reserve would last = -------------------------------------

 Avg., limestone Consumption

52

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%

Silican : 3%

Aluminium : 4%

Iron oxide : 0.50%

Magnesiam : 0.50%

Loss on Ignition : 42%

 Total : 100%

53

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.

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.

54

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.
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.

55

The main areas of freight coast for the cement industries are

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

iv. 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 PENNA CEMENT:

● High strength and great durability

● A very perceptible saving in costs (up to 20% to 25%) due to low setting time

● Superior quality of the cement resulting in a better overall finest

● Stronger bonding with aggregates.

Growth and Performance:

 The company has enhanced its capacity from 600 TPD to 8000 TPD over the period of 10

years. The Existing cement plant was upgraded to 5000 tones capacity per day. The profits for

the year 2007-08 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.

56

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.

57

The total employees in PENNA CEMENT are 345 covering all departments. There are

nearly 500 contract labor working every day on casual basis.

Raw Materials & Requirement:

Limestone, Iron ore, Bauxite, Gypsum and Coal are the basic raw materials used in the

manufacturing process of cement. The average consumption of various raw materials is shown

in the table.

REQUIREMENT OF RAW MATERIALS

S. No Raw material 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 Penna Cement Limited.,

58

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.
 59

PRODUCT PROFILE:

Penna Cement manufactures and distributes its own main product lines of cement. It

aims to optimize production across all the marketers, providing a completer solution for

customer’s needs at the lowest possible cost, an approach known as “strategic Integration of

Activities”. Cement is made from a mixture of 80 percent limestone and 20 percent clay. These

are crushed and ground to provide the “raw meal”, a pale, flour – like powder. Heated to around

1450o C (2642o F) rotating kilns, the “meal” undergoes complex chemical changes and is

transformed into clinker. Fine – grinding the clinker together with a small quality of gypsum

produces cement. Adding other constituents at this stage produces cements for specialized uses.

PRESENTLY THE PLANT PRODUCES THREE TYPES OF PRODUCTS:

Presently the company is manufacturing 43 grade, 53 grade. Ordinary portal cement port

land slag cement, soleplate Resistant with brand name of “PENNA”

Penna Suraksha - 53 Grade

 Penna Power - 53 Grade

Penna Super - 43 Grade

60

ADVANTAGES:

Here are five of the many reasons why Penna 53 Grade and 43 Grade cement edges out

its competitors.

● High compressive strength

● Low heat of hydration

● Better soundness

● Lesser consumption of cement for M-20 Concreate Grade and above

● Faster de – shuttering of formed work

● Reduced construction time with a superior and wide range of cement catering

to every conceivable building need, Penna Cement is a formidable player in

the cement market.

 61

Here are just a few reasons why Penna Cement chosen by millions of India.

● Ideal raw material

● Low lime and magnesia content and high proportion of silicates

● Greater fineness

● Slow initial and fast final setting

● Wide range of applications

● Quality customer services

 62

STATEMENT OF CHANGES IN WORKING CAPITAL

 2004-2005
Table-1
Particulars 2004 2005 Changes in WC
Rs. Rs. Rs.

Increase Decrease
Current Assets:

Inventories 8,88,68,774 11,52,02,941 26334167 -

Sundry Debtors 11,23,63,109 17,85,50,027 66186918 -

Cash &Bank 1,24,33,458 7,27,32,900 6029925442 -

Loans& Advances 28,17,26,538 59,86,51,897 316925359 -

Total Current Assets(a) 49,53,91,879 96,51,37,765

Current Liabilities:

Current Liabilities & 23,49,02,360 42,38,38,372

Provisions - 18,89,36,012
23,49,02,360 42,38,38,372
Total current liabilities(b)

Working Capital a-b 26,04,89,519 54,12,99,393

Increase in Working Capital 28,08,09,874 28,08,09,874

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

63
Table-1
Sources: we have taken this information from Penna cement, from 2004-2005

Interpretation:

Comparing the year 2004-2005 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.

64
FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH
 31.12.2005
Table-2
Amount Amount
Sources Rs. Uses Rs.

Funds from operations 12,06,57,250 Increase in Working capital 28,08,09,874

Long term loans 85,74,96,949 Purchase of fixed assets 113,41,49,337

Sale of Investments 40,02,17,536

Decrease in Miscellaneous 14,78,511
expenditure
Increase in Deferred tax liability 3,51,08,965

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

Sources: we have taken this information from Penna cement, from 2004-2005

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.

65
 STATEMENT OF CHANGES IN WORKING CAPITAL
2005-2006
Table-3
Particulars 2005 2006 Changes in WC
Rs. Rs. Rs.

Increase Decrease
Current Assets:

Inventories 11,52,02,941 16,15,83,313 4,63,80,372

Sundry Debtors 17,85,50,027 26,56,85,722 8,71,35,695

Cash &Bank 7,27,32,900 4,10,06,192 - 3,17,26,708

Loans& Advances 59,86,51,897 59,81,54,044 - 4,97,853

Total Current Assets(a) 96,51,37,765 106,64,29,271

Current Liabilities:

42,38,38,372 74,94,16,641 - 32,55,78,269

Current Liabilities &
Provisions
42,38,38,372 74,94,16,641
Total current liabilities(b)

Working Capital a-b 54,12,99,393 31,70,12,630

Decrease in Working Capital 22,42,86,763 22,42,86,763

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

66
Table-3
Sources: we have taken this information from Penna cement, from 2005-2006

Interpretation:

Comparing the year 2005-2006 the current assets increased by 10,12,91,506 rupees

compare the current liabilities 32,55,78,269 as a result working capital decrease 22,42,86,763

rupees. There fore short term financial position of The Financial Services limited is not good.

67

FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH

 31.12.2006
Table-4
Amount Amount
Sources Rs. Uses Rs.

Funds from operations 16,01,23,732 Redemption of shares 5,40,942

Long term loans 15,15,15,878 Purchase of fixed assets 21,69,98,475

Decrease in Working capital 22,42,86,763 Purchase of Investments 42,03,47,770

Decrease in Miscellaneous 10,76,442

expenditure
Increase in Deferred tax liability 10,08,85,372

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

Sources: we have taken this information from Penna cement, from 2005-2006

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.

68

STATEMENT OF CHANGES IN WORKING CAPITAL

 2006-2007
Table-5
Particulars 2006 2007 Changes in WC
Rs. Rs. Rs.

Increase Decrease
Current Assets:

Inventories 16,15,83,313 21,89,56,216 5,73,72,903 -

Sundry Debtors 26,56,85,722 37,09,00434 10,52,14,712 -

Cash & Bank 4,10,06,192 11,21,52,347 7,11,46,155 -

Loans& Advances 59,81,54,044 62,82,93,656 3,01,39,612 -

106,64,29,271 133,03,02,653
Total Current Assets(a)

Current Liabilities:

Current Liabilities & 74,94,16,641 76,05,69,548 - 1,11,52,907

Provisions

74,94,16,641 76,05,69,548
Total current liabilities(b)

31,70,12,630 56,97,33,105
Working capital a-b

Increase in working capital

25,27,20,475 25,27,20,475
56,97,33,105 56,97,33,105 26,38,73,382 26,38,73,382

69

Table-5
Sources: we have taken this information from Penna cement, from 2006-2007.

Interpretation:

Comparing the year 2006-2007 the current assets increased by 26,38,73,382 rupees

compare the current liabilities 1,11,52,907 as a result working capital Increase 25,27,20,475

rupees. There fore short term financial position of The Financial Services limited is good.

70
 FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH
31.12.2007
Table-6
Amount Amount
Sources Rs. Uses Rs.

Funds from operations 23,51,80,715 Increase in Working capital 25,27,20,475

Long term loans 27,31,74,976

Decrease in Miscellaneous 2,50,800 Purchase of fixed assets 22,58,55,400

expenditure
Purchase of Investments 4,56,00,000
Increase in Differed tax liability 1,55,69,384

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

Sources: we have taken this information from Penna cement, from 2006-2007.

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 some of these

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

working capital.

71

STATEMENT OF CHANGES IN WORKING CAPITAL

2007-2008
 Table-7
Particulars 2007 2008 Changes in WC
Rs. Rs. Rs.

Increase Decrease
Current Assets:

Inventories 21,89,56,216 35,30,33,377 13,40,77,161 -

Sundry Debtors 37,09,00434 41,35,39,323 4,26,38,889 -

Cash & Bank 11,21,52,347 11,86,08,237 64,55,890 -

Loans& Advances 56,39,26,687 56,98,39,851 59,13,164 -

126,59,35,684 145,50,20,788
Total Current Assets(a)

Current Liabilities:

Current Liabilities & 69,62,02,579 102,90,32,147 - 33,28,29,568

Provisions

69,62,02,579 102,90,32,147
Total current Liabilities(b)

56,97,33,105 42,59,88,641
Working capital a-b

Decrease in working capital

14,37,44,464 14,37,44,464

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

72
Table-7
Sources: we have taken this information from Penna cement, from 2007s-2008.

Interpretation: - Comparing the year 2007-2008 the current assets increased by 18,90,85,104

rupees compare the current liabilities 33,28,29,568 as a result working capital Decrease

14,37,44,464 rupees. There fore short term financial position of The Financial Services limited

is not good.

73
 FUNDS FLOW STATEMENT FOR THE YEAR ENDED WITH
31.12.2008
Table-8
Amount Amount
Sources Rs. Uses Rs.

Funds from operations 99,81,84,829

Purchase of fixed assets 225,80,53,270
Increase in loans 118,07,66,087
Purchase of Investments 3,59,00,000
Decrease in Miscellaneous 89,747
expenditure Proposed Dividend 13,38,00,000

Decrease in Working capital 14,37,44,464

Increase in Deffered tax liability 10,49,68,143

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

Sources: we have taken this information from Penna cement, from 2007-2008.

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 some of these funds

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

working capital.

74
FINDINGS:

● It is found that The Financial Services limited is holding sufficient share capital.
● 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 2005-2006 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 2006-2007 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 2007-2008 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
75
SUGGESSIONS:

● 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 Penna 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 2006-07 to decrease its

liabilities and maintain the profit.

76
 CONCLUSION

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.
77
 BIBLIOGRAPHY

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

Edition-5thMay 2006, 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

● Penna Cement Annual reports from 2004-2008

● http:/www.Pennacement.in
 78
PENNA CEMENT INDUSTRIES LIMITED
BALANCE SHEET AS AT 31.3.2005

Particulars Schedule No. 2005

SOURCES OF FUNDS
Share holder’s Funds:
Share Capital A 13,43,40,942
Reserves and Surplus B 89,66,23,798
Loan Funds C
Secured Loans 94,03,76,495
Unsecured Loans 96,39,05,443
Deferred Tax Liability 24,78,34,769
Total 318,30,81,447
APPLICATION OF FUNDS
Fixed Assets D
Gross Block
266,23,57,147
Less: Depreciation
55,57,90,567
Net Block
210,65,66,580
Add: Capital works- in- progress E 18,15,99,085
INVESTMENTS F 228,81,65,665
Current Assets, Loans and Advances G
Inventories 35,21,99,400
Sundry debtors 11,52,02,941
Cash and Bank Balances 17,85,50,027
Loans and Advances 7,27,32,900
59,86,51,897
Less: Current Liabilities and provisions 96,51,37,765
H
Miscellaneous Expenditure(to the extent 42,38,38,372
not return of or adjusted) 54,12,99,393
I
14,16,989
Total
318,30,81,447
79
PENNA CEMENT INDUSTRIES LIMITED
BALANCE SHEET AS AT 31.3.2006
Particulars Schedule No. 2006
SOURCES OF FUNDS
Share holder’s Funds:
Share Capital A 13,38,00,000
Reserves and Surplus B 105,67,47,530
Loan Funds C
Secured Loans 84,56,73,700
Unsecured Loans 121,84,87,846
Deferred Tax Liability 34,87,20,141
Total 360,34,29,217
APPLICATION OF FUNDS
316,89,56,316
Fixed Assets D
67,98,52,280
Gross Block
Less: Depreciation
Net Block 248,91,04,036

Add: Capital works- in- progress 1,60,60,104

E
INVESTMENTS 250,51,64,140
F
Current Assets, Loans and Advances G
Inventories 78,09,11,900

Sundry debtors 16,15,83,313

Cash and Bank Balances 26,56,85,722

Loans and Advances 4,10,06,192

59,81,54,044
106,64,29,271

Less: Current Liabilities and provisions 74,94,16,641

H
Miscellaneous Expenditure(to the extent 31,70,12,630
 not return of or adjusted) I 3,40,547

Total 360,34,29,217,81,447
80
PENNA CEMENT INDUSTRIES LIMITED
BALANCE SHEET AS AT 31.3.2007
Particulars Schedule No. 2007
SOURCES OF FUNDS
Share holder’s Funds:
Share Capital A 13,38,00,000
Reserves and Surplus B 129,19,28,245
Loan Funds C
Secured Loans 92,73,53,942
Unsecured Loans 140,99,82,580
Deferred Tax Liability 36,42,89,525
Total 412,73,54,292
APPLICATION OF FUNDS
Fixed Assets D
320,81,62,454
Gross Block
82,53,36,717
Less: Depreciation
238,28,25,737
Net Block
Add: Capital works- in- progress 34,81,93,803
E
273,10,19,540
82,65,11,900
INVESTMENTS F
Current Assets, Loans and Advances
G 21,89,56,216
Inventories
37,09,00,434
Sundry debtors
11,21,52,347
Cash and Bank Balances
56,39,26,687
Loans and Advances
126,59,35,684

Less: Current Liabilities and provisions 69,62,02,579

H
Miscellaneous Expenditure(to the extent 56,97,33,105

not return of or adjusted) I 89,747

 Total 412,73,54,292,81,447
81
PENNA CEMENT INDUSTRIES LIMITED
BALANCE SHEET AS AT 31.3.2008
Particulars Schedule No. 2008
SOURCES OF FUNDS
Share holder’s Funds:
Share Capital A 13,38,00,000
Reserves and Surplus B 215,63,13,074
Loan Funds C
178,57,14,077
Secured Loans
173,23,88,532
Unsecured Loans
46,92,57,668
Deferred Tax Liability
627,74,73,351
Total
APPLICATION OF FUNDS
Fixed Assets D
398,46,31,393
Gross Block
98,12,21,831
Less: Depreciation
300,34,09,562
Net Block
198,56,63,248
Add: Capital works- in- progress E
498,90,72,810

86,24,11,900
INVESTMENTS F
Current Assets, Loans and Advances
G
Inventories 35,30,33,377

Sundry debtors 41,35,39,323

Cash and Bank Balances 11,86,08,237

Loans and Advances 56,98,39,851

145,50,20,788
Less: Current Liabilities and provisions 102,90,32,147
H
Miscellaneous Expenditure(to the extent 42,59,88,641
not return of or adjusted) I ----
627,74,73,35181,447
 Total
82

PENNA CEMENT INDUSTRIES LIMITED

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2005
Particulars Schedule No. 2005
INCOME
Sales J 385,65,72,118
(Increase/decrease) in Stock K -1,60,57,823
Total Income 384,05,14,295
EXPENDITURE
Manufacturing Expenses L 153,07,01,345
Cost of trading goods ---
Central Excise Duty 69,86,42,442
Sales Tax 55,90,24,763
Administrative and Selling Expenses M 58,82,88,777
Interest and Finance Charges 14,43,46,417
Depreciation 11,88,30,197
Miscellaneous Expenditure Written off E 22,32,340
Total Expenditure 364,20,66,281
Profit for the year F 19,84,48,014
Provision for taxation 152,54,699
G
Profit after Tax 18,31,93,315
Deferred Tax for the year 3,89,50,042
Fringe Benefit Tax for the year -----------
Prior period expenditure
11,56,849
Profit available for appropriations
14,30,86,424
Transfer to General Reserve
-----------
Proposed Dividend
-----------
Tax on Dividend I ------------
Profit brought forward from previous
56,76,50,645
year
Goodwill on Merger written off -1,98,40,834
 Profit Carried to Balance Sheet 69,08,96,2351,447
N
83
PENNA CEMENT INDUSTRIES LIMITED
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2006
Particulars Schedule No. 2006
INCOME
Sales J 452,87,19779
(Increase/decrease) in Stock K -98,74,875
Total Income 451,88,44,904
EXPENDITURE
Manufacturing Expenses L 188,52,41,099
Cost of trading goods 32,67,699
Central Excise Duty 81,46,64,469
Sales Tax 62,30,34,491
Administrative and Selling Expenses M 68,09,34,484
Interest and Finance Charges 9,96,49,474
Depreciation 12,47,85,177
Miscellaneous Expenditure Written off E 10,76,442
Total Expenditure 423,26,53,335
Profit for the year F 28,61,91,569
Provision for taxation 2,24,41,139
G
Profit after Tax 26,61,91,569
Deferred Tax for the year 10,08,85,372
Fringe Benefit Tax for the year -------------
Prior period expenditure 27,41,325
Profit available for appropriations 16,01,23,733
Transfer to General Reserve -----------
Proposed Dividend ------------
Tax on Dividend I ------------
Profit brought forward from previous year 69,08,96,235
Goodwill on Merger written off ----------
 Profit Carried to Balance Sheet N 85,10,19,968447
84
PENNA CEMENT INDUSTRIES LIMITED
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2007
Particulars Schedule No. 2007
INCOME
Sales J 640,97,93,371
(Increase/decrease) in Stock K 2,96,92,824
Total Income 643,94,86,195
EXPENDITURE
Manufacturing Expenses L 241,01,65,622
Cost of trading goods 67,40,11,176
Central Excise Duty 95,80,88,420
Sales Tax 63,36,87,866
Administrative and Selling Expenses M 118,57,25,154
Interest and Finance Charges 9,99,66,070
Depreciation 14,54,84,437
Miscellaneous Expenditure Written off E 2,50,800
Total Expenditure 610,73,79,545
Profit for the year F 33,21,06,650
Provision for taxation 7,51,17,114
G
Profit after Tax 25,69,89,536
Deferred Tax for the year 1,55,69,387
Fringe Benefit Tax for the year 17,33,786
Prior period expenditure 45,05,648
Profit available for appropriations 23,51,80,715
Transfer to General Reserve -----------
Proposed Dividend ------------
Tax on Dividend I ------------
Profit brought forward from previous year 85,10,19,968
Goodwill on Merger written off -------------
Profit Carried to Balance Sheet 108,62,00,683
N
 85
PENNA CEMENT INDUSTRIES LIMITED
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.12.2008
Particulars Schedule No. 2008
INCOME
Sales J 914,46,59,562
(Increase/decrease) in Stock K 3,74,11,258
Total Income 918,20,70,820
EXPENDITURE
Manufacturing Expenses L 311,40,33,391
Cost of trading goods 5,55,30,769
Central Excise Duty 114,28,05,092
Sales Tax 94,83,24,696
Administrative and Selling Expenses M 197,79,88,742
Interest and Finance Charges 13,47,58,957
Depreciation 15,59,73,434
Miscellaneous Expenditure Written off E 89,747
Total Expenditure 752,95,04,820
Profit for the year F 165,25,65,992
Provision for taxation 50,76,18,003
G
Profit after Tax 114,49,47,989
Deferred Tax for the year 10,49,68,144
Fringe Benefit Tax for the year 22,35,543
Prior period expenditure 1,68,20,163
Profit available for appropriations 102,09,24,139
Transfer to General Reserve 15,00,00,000
Proposed Dividend 13,38,00,000
Tax on Dividend I 2,27,39,310
Profit brought forward from previous 108,62,00,683
year -----------
Goodwill on Merger written off
N
Profit Carried to Balance Sheet 180,05,85,512
86