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INTRODUCTION

The success of business beside other things depends upon the manner in

which its Cash flow is managed. Thus, Cash flow is required as the life and

blood of business concern.

Cash flow management in simple term is the flow of funds which a

company must have to finance its day to day operation.

It includes the form near cash asset or even assets a little further from

cash but yet in process of moving towards the cash from in short period. It

comprises of stock of finished goods, semi-processed items, sundry

debtors, cash and short-term investment, if any.

Cash flow management throws light on adequacy of the firm and also risk

of bankruptcy. If firm do not have adequate Cash i.e. it does not invest

sufficient funds in current assets, it may become liquid and consequently

may not have ability to met its current obligation and thus, invite risk of

bankruptcy. It also focuses on key strategy and consideration trade off

between profitability and liquidity of the firm.

Management of Cash flow gives financial position, profitability and also

efficient use of an individual current asset like cash, receivables and

inventory.

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OBJECTIVES

� The purpose of preparing a cash flow projection is to determine

shortages or excesses in cash.

� Ways to reduce the amount of cash paid out includes having fewer

inventories, reducing purchases of equipment or other fixed assets,

or eliminating some operating expenses.

� The objective is to finally develop a plan which, if followed, will

provide a well-managed flow of cash.

� It involves the study of the existing pattern of cash flow

management in the organization.

� Understand the types of transactions that result in cash flows from

operating, investing, and financing activities.

� To know the financial soundness of the company.

� Develop an ability to analyze the statement of Projected cash flows,

including the relation among cash flows from operating, investing,

and financing activities for businesses in various stages of their

growth.

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LIMITATIONS OF THE STUDY

• Lack of time for completing the study.

• The company executives were able to give valuable time only for a few

days in a week. Hence the required information could not be obtained.

• This project report is based on the analysis of two years data which

may not be sufficient to in some cases.

• Time will be a major constraint.

• The respondent may be biased.

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TYPES & TECHNIQUES

The study conducted is a conclusive descriptive statistical study; the

researcher comes to the decision which is precise and rational. The study

is conclusive because after doing the study the researcher comes to a

conclusion regarding the position of the brand in the minds of respondents

of different firms groups. The study is statistical because throughout the

study all the similar samples are selected and group together. All the

similar responses are taken together as one and their percentages are

calculated.

Thus, this, conclusive descriptive statistical study is the best study for this

purpose as it provides the necessary information which is utilize to arrive

at a concrete decision.

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RESEARCH METHODOLOGY

Definition of Research:

The word research is derived from the Latin word meaning to know.

It is a systematic and a replicable process, which identifies and defines

problems, within specified boundaries. It employs well-designed method to

collect the data and analyses the results. It disseminates the findings to

contribute to generalize able knowledge. The characteristics of research

presented below will be examined in greater details later are:

� Systematic problem solving which identifies variables and tests

relationships between them,

� Collecting, organizing and evaluating data.

� Logical, so procedures can be duplicated or understood by others

� Empirical, so decisions are based on data collected

� Reductive, so it investigates a small sample which can be

generalized to a larger population

� Replicable, so others may test the findings by repeating it.

� Discovering new facts or verify and test old facts.

� Developing new scientific tools, concepts and theories, this would

facilitate to take decision.

For the proper analysis of data simple statistical techniques such as

percentage were use. It helps in making more generalization from the data

available. The data which was collected from a sample of population was

assumed to be representing entire population was interest. Demographic

factors like age, income and educational background was used for the

classification purpose.

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Primary Data:

Primary data is collected with consultation and discussion with the

concerned staff. The company whenever requires funds they arrange

the funds from the internal sources. They arrange the funds from

customer advance. The company mostly does not borrow funds from

the banks. Whenever the company receives the money from the

debtors they simultaneously pay to their creditors. The company has

proper balances between the inflow and outflow of the funds through

the debtors and creditors.

Secondary Data:

It was collected from the P&L A/c, balance sheet, reference books

based on financial management & management accounting. The various

books helped in understanding the various theoretical concepts

associated with the project such as the significance of Cash flow

management & the way to interpret various funds. All the figures

required to carry out the ratio analysis were gathered from financial

statements such as P&L A/c, Balance sheet of the company

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VERROC GROUP COMPANY PROFILE

Name of Concerns : 1) Varroc engineering Pvt. Ltd.

2) Varroc Polymers Pvt. Ltd.

Regd. Office : Varroc Engineering Pvt. Ltd.

E-4, MIDC, Waluj, Aurangabad. (M.S.)

India 431136.

Phone: +91 240 2556227,

Fax: +91 240 2564540.

Email: varroc.info@varrocgroup.com

Website: http://www.varrocengg.com/

Plant Address : Varroc polymers Pvt. Ltd.(VPPL III)

M-165-167 MIDC Industrial Area,

Waluj, Aurangabad – 431 136, M.S. India

Telephone No. : +91-240-2551101/2563325.

Fax Nos. : +91-240-2551102

Website : www.verrocengg.com

Constitution : Partnership Firms

Name of Promoters : Mr.Naresh Chandra Jain – Chairman

Mr. Tarang Jain – Managing Director

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Year of establishment : 1990.

Bankers : HDFC Bank

Work Exposures : Hood, Foam and seat covers of all types of

Vehicles like two and three wheelers his

Division manufactures the following:

Interior Pillar Trims, Door Panels, Floor

Console

Exterior Parts- Bumpers, Fenders, Claddings,

Wheel Arches

Rubber Parts

Mirror Assemblies and Mirror Plates

Air Cleaner Assembly

PU Foam Pad and Seating System.

Companies Clients :

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TAN NO. : NSKV02183G

VAT NO. : 27270286289V

PAN NO. : AABCM2508F

EXCISE REG.NO. : AABCM2508FXM002

SERVICE TAX NO. : AABCM2508FXM002

MAN POWER VPPL Office staff : 08

Supervisory Staff : 10

Technical Staff : 06

Quality Control Staff : 02

Skilled worker : 12

Unskilled worker : 75

Human Resource : 03

Infrastructure facility:

They have a wide range of machinery out of which some

machinery are most sophisticated special purpose machines on which any

type of work of high precision and accuracy can be successfully carried

out.

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Preamble:

In the late eighties, as India opened up to liberalization, international

companies and markets started looking at India with renewed interest.

Amongst other industries, major international automobile and consumer

durable companies saw India as a promising business destination and set

up state-of-art manufacturing plants here.

Varroc Group saw a vast potential in the automobile industry and focused

on manufacturing and supplying of different components as well as setting

up subassemblies for the booming automobile, consumer durable and

white goods industry.

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Varroc created three distinct

divisions that would supply quality

products to match global standards.

� Polymer Division

� Electrical Division

� Metallic Division

To manage growth in a highly

competitive business environment,

Varroc follows the principles of

� Strong Leadership

� Positive Work Environment

� Financial Discipline

Varroc's success stems from

continuous improvements in

� Quality

� Cost Innovation

� Delivery

Varroc is focusing on three critical

areas that give it world-class status

� Efficiency

� Innovation

� Reliability

Beginning with a venture in Aluminum Die Casting in 1985, the Jain Group

made a successful foray into the automobile industry by manufacturing

engineering products. However, with plastics making its presence felt in

different aspects of life, the Jains foresaw a vast potential to expand its

business in the booming automobile and consumer durable industries. This

far-sight enabled them to sow the seeds of successful foray into polymer

engineering. Consequently, Varroc Engineering was setup in the year

1990. It is operating through two divisions: Metallic and Electrical..

Varroc Group has 19 plants: 14 in Western India, 3 in Northern

India and two in Europe with head quarters in Aurangabad,

Maharashtra, INDIA.

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Export market in European and American Countries, Indonesia, Hong

Kong, Singapore, Malaysia and also domestic customers in all Major cities.

The percentage of export sales during last 3 years was 98.9%, 95.9%, and

95.65% respectively.

Varroc Group - Total Sales FY 2007-2008 US $ 450 Million

Market Segments:

� Two Wheelers - 60%

� Four Wheelers and Earth Moving - 35%

� White Goods - 5 %

Varroc Engineering Pvt Ltd ( US $ 283.5 Million )

Electrical Division ( Sales US $ 166.5 Million)

The Electrical division manufactures and supplies:

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� A.C. generators & Magneto

� Digital CDI, digital regulator rectifier units.

� Starter motors, wiper motors

� Switch assembly and handle bar assembly for motorcycle, LED

lights

� Electronic control unit., Electronic Clusters

Metallic Division ( Sales US $ 117 Million )

The Metallic Division manufactures and supplies :

� Engine Valves.

� Crank pins for motorcycles.

� Hot, cold & warm forged machined components.

� Catalytic converters for 2, 3 and 4 wheelers.

Varroc Polymers Pvt. Ltd. (US $ 166.5 Million)

This Division manufactures the following :

� Interior Pillar Trims, Door Panels, Floor Console

� Exterior Parts- Bumpers, Fenders,Claddings,Wheel

Arches

� Underbody/ HVAC parts

� Injection and Compression Molded Rubber Parts

� Mirror Assemblies and Mirror Plates

� Air Cleaner Assembly

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� PU Foam Pad And Seating System Assembly

� Multilayer co-extruded Thermoplastic Sheets

� Molded parts for White Goods and Consumer Electronic

Parts

� Series Molds and Pre Production Molds

A key differentiator between Varroc’s Polymer division and other

companies manufacturing similar products is the in-house capability to

design and manufacture custom tooling according to the customer’s

requirement.

Varroc therefore offers a “one stop shop” for engineering plastics, with the

capability to design a product based on only broad requirements provided

by the client. This represents significant value addition over generic

manufacturing of plastic moulded components.

Tool Room:

� General Capability to make Plastic and Rubber

Mould.

� 7 State of Art CNC Machining Centre with CAM

Facility.

� EDMs.

� Conventional Tool Room M/c's and Inspection

equipments.

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SERVICES OFFERED:

The product manufactured by the Company is fully guaranteed for its

quality and workmanship. However, if the tool is damaged for some

unforeseen reasons the damaged tool is replaced by the Complaint free of

cost and the tool in replacement of the defective one is sent to the

customer. This service is offered to all their valued customers.

SELECTION & TRAINING:

The selection of the employees is done purely on the basis of their

qualification. Such selected employees are given in-plant training in the

Organization.

VISION:

Since inception Varroc Group has maintained. A path sustained growth,

responding pro actively to market’s new opportunities and customer

needs. Propelling this dynamism has been our total commitment to quality

and customer satisfaction. Regardless of other changes that processes will

demand our conviction will remain steadfast.

Varroc Group will continue to apply the very best of emerging technologies

to match global standards. To complement Varroc Group organic growth, it

will make strategic alliances with likeminded partners.

In this way Varroc Group will move forward to meet the challenges of the

new millennium.

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MISSION:

� Expand the horizon by targeting niche markets in the pharmaceutical

industry.

� Attain corporate success and personal progress in an environment of

integrity and fair practices

� Create products that maximizes customer satisfaction, while

improving the quality of human life.

� Provide products and services of high quality.

� Achieving customer satisfaction.

HR Strategies:

� Do it on Kaizen Basis rather than disruptive/ drastic changes.

� Achieving up-gradation/changes through existing resources so that

HR team can see HR and learn through ‘On the Job Training’ (OJT)

approach.

� Improve each and every subcomponent of HR Architecture for

systemic gains (synergy). DO it on authentic data-based decision

matrix rather than guesstimates/ hunches.

� Make employees future ready – move them from ‘Command and

Control’ mindsets to ‘Learning Organization’ paradigms.

� Upgrade the education/knowledge base of the existing employees to

make them ‘Knowledge Workers’ for a long term future health of the

organization.

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HR Objectives:

� Making High Performance Work System (HPWS) where employees

can grow both professionally as well as personally.

� Improve employee enthusiasm, involvement and commitment

towards the organization.

� Improve the Quality of Work Life (QWL) and ensure a better Work

Life balance.

� Be amongst the top 50 employers of choice, especially in

Maharashtra.

� Become internal consultant to the organization.

� Create a Knowledge Management (KM) system to avoid reinvention

of wheel and build on past strength.

� Move from P&A to HR and then to Strategic HRM

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Varroc Group Sales Turnover

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STRENGTH:STRENGTH:STRENGTH:STRENGTH:

1. Pioneer,

2. Goodwill,

3. Quality,

4. Top management acceptance to dynamism,

5. Growing stage of product life cycle.

WEAKNESS:WEAKNESS:WEAKNESS:WEAKNESS:

1. Lack of proper communication, (internal & external)

2. Lack of training department,

3. Quality unawareness at lowers level,

4. Less effective gales.

OPPORTUNITIES:OPPORTUNITIES:OPPORTUNITIES:OPPORTUNITIES:

1. Large potential market still untapped,

2. Going for related diversification.

THREATS:THREATS:THREATS:THREATS:

1. Increasing competition,

2. Increasing substitutes inn various areas for aluminium logos, names,

plates & label,

3. Very less product differentiation,

4. Low diversity.

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INTRODUCTION TO

CASH FLOW STATEMENT

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Cash flow statement

In financial accounting, a cash flow statement or statement of cash flows

is a financial statement that shows how changes in balance sheet and

income accounts affect cash and cash equivalents, and breaks the analysis

down to operating, investing, and financing activities. As an analytical tool,

the statement of cash flows is useful in determining the short-term

viability of a company, particularly its ability to pay bills. International

Accounting Standard 7 (IAS 7) is the International Accounting Standard

that deals with cash flow statements. The success, growth and survival of

every reporting entity depends on its ability to generate or otherwise

obtain cash. Cash flow is a concept that everyone understands and with

which they can identify. Reported profit is important to users of financial

statements, but so too is the cash flow generating potential of an

enterprise. What enables an entity to survive is the tangible resource of

cash not profit, which is merely one indicator of financial performance. A

cash flow statement (CFS) is important to external users, and should be of

significant importance internally as well. Cash flow refers to the movement

of cash into or out of a business, or project, or financial product. It is

usually measured during a specified, finite period of time. Measurement of

cash flow can be used.

� To determine a project's rate of return or value. The time of cash

flows into and out of projects are used as inputs in financial models

such as internal rate of return, and net present value.

� To determine problems with a business's liquidity. Being profitable

does not necessarily mean being liquid. A company can fail because

of a shortage of cash, even while profitable.

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� As an alternate measure of a business's profits when it is believed

that accrual accounting concepts do not represent economic

realities. For example, a company may be notionally profitable but

generating little operational cash (as may be the case for a

company that barters its products rather than selling for cash). In

such a case, the company may be deriving additional operating cash

by issuing shares, or raising additional debt finance.

� Cash flow can be used to evaluate the 'quality' of Income generated

by accrual accounting. When Net Income is composed of large non-

cash items it is considered low quality.

� To evaluate the risks within a financial product. E.g. matching cash

requirements, evaluating default risk, re-investment requirements,

etc.

Cash flow is one of the most important aspects of running any business -

large or small. It is one of the single most important reasons why many

businesses fail - regardless of how good the business is. Managing cash

flow therefore is vitally important in the smooth running, survival and

success of a business. This activity will look at what cash flow is, and use

some examples to show how cash flow can make the difference between

success and failure. Failure in this case means insolvency. If you are

insolvent then you are unable to pay your debts. We often use the term

'bankrupt' to describe this but strictly, only an individual can be declared

bankrupt. Companies are declared as insolvent. The principle however is

the same. Some firms deal with so-called 'personal insolvency' which

effectively means bankruptcy so the use of the terms can sometimes be

confusing!

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Business success might not be determined by how many customers you

have, the quality of your product, the price or many other things - it might

be down to a simple case of managing your cash flows!

Cash flow should not be confused with 'profit' - these are two different

things. Profit refers to the difference between the total revenue (TR) and

total cost (TC) over a period of time.

Most businesses, when starting up, will have to spend money to get things

set up. In the example of the fruit business, the students had to spend out

money on buying some of the main things they needed to run the business

- the shed, the lab coats, the display boxes and the money box.

These represented their 'fixed costs' - the costs that do not depend on the

level of output or sales.

Money flowing out of the business

It should be clear from what we have said so far that the business will

have to pay out money in order to carry out its activities. This is its

'expenditure'.

A business has a responsibility to pay all sorts of bills in carrying out its

activities. In our simple example we have tried to keep the amount of

information to a minimum. In a real business the firm will be paying out

for all sorts of things. This will include paying wages to staff, insurance

premiums, interest on loans, rent for premises, postage costs, heating,

lighting, telephone bills, payments for paper, computers, photocopiers,

water bills, rates and so on.

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Some of these costs have to be paid monthly, others perhaps every three

months, some might be paid yearly and in some cases costs might be

incurred every day. In many cases, the business will know when it has bills

that it has to pay.

The people to whom a business owes money are called the 'creditors'. If

you enter into an agreement as a business with a creditor, you have an

obligation to pay them. If you do not pay then the creditor could take you

to court to force you to pay your debts. If this happens with lots of

creditors then this could be the thing that causes the firm to become

insolvent.

Money flowing into a business

To balance this out, the firm receives money from selling its goods and

services. In our simple example, Fruit28 receives revenue from selling

fruit. The revenue they receive depends on the amount they sell (Q) and

the price that they charge (P). We can say therefore that Total Revenue

(TR) = P x Q.

Bills will arise for all sorts of things - they all represent a flow of money

out of the business and the business has to make sure it has enough cash

to cover these debts when they are due.

Some businesses do not receive their revenue on such a regular basis. It

will depend on the agreements they have with their customers. If a

business is involved in selling goods to another business, for example,

there might be an agreement that they will receive payment for goods

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supplied every 28 days, or possibly 3 months; it might be 6 months or

even annually.

A firm will normally send an invoice to its customers to notify them how

much they owe. The people who owe money to a firm are called 'debtors'.

Payments do not always arrive when they should, however, which can be

the start of the cause of cash flow problems

Some firms might see revenue rise at certain times of the year but at

other times sales might be very slow. Toy shops for example, might

expect to receive the vast majority of the revenue from sales in the period

from September to December. The period from February to August might

be very slow.

Revenue, therefore, does not come in at the same time as costs have to

go out. This is the main problem facing firms and the whole point about

cash flow. A firm has to manage its cash to ensure that it has enough

money coming in to pay its bills. If it cannot pay a bill for some reason, it

could perhaps negotiate with the creditor to delay the payment. However,

it cannot keep doing this!

The importance of Cash flow planning is linked to liquidity of a business. In

any business, there is a need for cash in running day-to-day operations.

Some examples include the purchase of office stationary or fuel.

“Cash flow is simply Cash Receipts minus Cash Disbursements.

That means Cash In versus Cash Out. “

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These 'cash needs' of the firm would not be met should a business have its

monies tied up in other areas. Examples include:

� Credit sales - Having sold goods for n days of credit (ie company to

be paid in n days). Credit sales is ok but too much would have

effects on the business especially if it is not managing its cash flow.

� Assets - Purchases of assets like buildings and machinery must be

checked against the cash flow management capacity of a firm given

that they would become cash flow burdens to the firm after a

purchase.

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The diagram above helps to understand this idea of a 'flow'. If the money

coming into the business is more than that going out, the business will

have a surplus of cash.

If there is a problem in getting the money in from debtors (people who

owe the business money) then the firm might face problems in paying its

creditors (the people it owes money to). Many businesses, especially small

ones, find that getting the money they are owed is not always easy. If

they cannot pay their debts however, this can force the firm to have to

close down.

Cash Flow Forecasts:

Many businesses will be expected to prepare a cash flow forecast as part

of their business planning. This means trying to plan out when costs will

arise over the next year and also what they think their revenue is going to

be.

For a new firm, they might do this based on the market research they

have conducted prior to starting in business. For an established firm, they

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might base their forecast revenue on what has happened to them in

previous years.

There are a few things we need to make clear about these

forecasts.

Receipts: This will be an estimate of the predicted sales revenue for each

month. This is found by multiplying the amount the firm thinks it will sell

by the price they charge.

Payments: This section will detail the payments that the firm expects to

have to make during the year. This will be added together to give a 'Total

Payments' box for each month.

Net Cash Flow: This will show the difference between the total payments

and the receipts. For example, if in January a firm expects to receive £500

in revenue but will expect its total payments to be £650, it will have a net

cash flow of -£150. This can either be put into the box as a minus number

or is sometimes put in brackets (£150) to show that it is a negative figure.

Opening Balance: This shows the money that a firm has carried over

from a previous month. For example, in the case above, the firm would

have to show that it had a negative cash flow of -£150 carried over from

January in the box for 'opening balance' for February.

Closing Balance: This is the difference between the net cash flow figure

and the opening balance.

Cash flows are classified into:

� Operational cash flows: Cash received or expended as a result of

the company's internal business activities. It includes cash earnings

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plus changes to working capital. Over the medium term this must be

net positive if the company is to remain solvent.

� Investment cash flows: Cash received from the sale of long-life

assets, or spent on capital expenditure (investments, acquisitions

and long-life assets).

� Financing cash flows: Cash received from the issue of debt and

equity, or paid out as dividends, share repurchases or debt

repayments.

Purpose:

The cash flow statement was previously known as the statement of

changes in financial position or flow of funds statement. The cash flow

statement reflects a firm's liquidity or solvency.

The balance sheet is a snapshot of a firm's financial resources and

obligations at a single point in time, and the income statement

summarizes a firm's financial transactions over an interval of time. These

two financial statements reflect the accrual basis accounting used by firms

to match revenues with the expenses associated with generating those

revenues. The cash flow statement includes only inflows and outflows of

cash and cash equivalents; it excludes transactions that do not directly

affect cash receipts and payments. These noncash transactions include

depreciation or write-offs on bad debts to name a few. The cash flow

statement is a cash basis report on three types of financial activities:

operating activities, investing activities, and financing activities. Noncash

activities are usually reported in footnotes.

The cash flow statement is intended to:

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� Provide information on a firm's liquidity and solvency and its ability

to change cash flows in future circumstances.

� Provide additional information for evaluating changes in assets,

liabilities and equity.

� Improve the comparability of different firms' operating performance

by eliminating the effects of different accounting methods.

Cash flow activities:

The cash flow statement is partitioned into three segments, namely: cash

flow resulting from operating activities, cash flow resulting from investing

activities, and cash flow resulting from financing activities.

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The money coming into the business is called cash inflow, and money

going out from the business is called cash outflow.

Operating activities:

Operating activities include the production, sales and delivery of the

company's product as well as collecting payment from its customers. This

could include purchasing raw materials, building inventory, advertising,

and shipping the product.

Operating cash flows include:

Receipts from the sale of goods or services

Receipts for the sale of loans, debt or equity instruments in a trading

portfolio

Interest received on loans

Dividends received on equity securities

Payments to suppliers for goods and services

Payments to employees or on behalf of employees

Interest payments

Items which are added back to [or subtracted from, as appropriate] the

net income figure (which is found on the Income Statement) to arrive at

cash flows from operations generally include:

Depreciation (loss of tangible asset value over time)

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Deferred tax

Amortization (loss of intangible asset value over time)

Any gains or losses associated with the sale of a non-current asset,

because associated cash flows do not belong in the operating

section.(unrealized gains/losses are also added back from the income

statement)

Investing activities:

Examples of investing activities are

Purchase of an asset (assets can be land, building, equipment marketable

securities, etc.)

Loans made to suppliers or customers.

Financing activities:

Financing activities include the inflow of cash from investors such as banks

and shareholders, as well as the outflow of cash to shareholders as

dividends as the company generates income. Other activities which impact

the long-term liabilities and equity of the company are also listed in the

financing activities section of the cash flow statement.

Proceeds from issuing shares

Proceeds from issuing short-term or long-term debt

Payments of dividends

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Payments for repurchase of company shares

Repayment of debt principal, including capital leases

For non-profit organizations, receipts of donor-restricted cash that is

limited to long-term purposes

Dividends paid

Sale or repurchase of the company's stock.

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Preparation methods:

The direct method of preparing a cash flow statement results in a more

easily understood report. The indirect method is almost universally used,

because FAS 95 requires a supplementary report similar to the indirect

method if a company chooses to use the direct method.

Direct method:

The direct method for creating a cash flow statement reports major classes

of gross cash receipts and payments. Dividends received may be reported

under operating activities or under investing activities. If taxes paid are

directly linked to operating activities, they are reported under operating

activities; if the taxes are directly linked to investing activities or financing

activities, they are reported under investing or financing activities.

Indirect method:

The indirect method uses net-income as a starting point, makes

adjustments for all transactions for non-cash items, then adjusts for all

cash-based transactions. An increase in an asset account is subtracted

from net income, and an increase in a liability account is added back to net

income. This method converts accrual-basis net income (or loss) into cash

flow by using a series of additions and deductions.

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Rules:

The following rules are used to make adjustments for changes in current

assets and liabilities, operating items not providing or using cash and

nonoperating items.

Decrease in noncash current assets are added to net income

Increase in noncash current asset are subtracted from net income

Increase in current liabilities are added to net income

Decrease in current liabilities are subtracted from net income

Expenses with no cash outflows are added back to net income

Revenues with no cash inflows are subtracted from net income

(depreciation expense is the only operating item that has no effect on cash

flows in the period)

Nonoperating losses are added back to net income

Nonoperating gains are subtracted from net income

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What is a projected cash flow statement?

The projected cash flow statement indicates the source and

amount of income and expense activities for a given period in

the future. It also shows when money will be borrowed and

when it will be paid. The cash flow demonstrates the ability to

repay a loan in a timely manner, something that is important to

lenders.

A projected cash flow statement also functions as a planning

tool. You can anticipate situations when you will not have

enough money to pay your bills. Then you can make

arrangements for other sources of funds to get you through

cash flow crunches.

Definition:

A cash flow projection is a forecast of cash funds a business

anticipates receiving and paying out throughout the course of a

given span of time, and the anticipated cash position at specific

times during the period being projected. [For the purpose of

this projection, cash funds are defined as cash, checks, or

money order, paid out or received.

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Objective:

The purpose of preparing a cash flow projection is to determine

shortages or excesses in cash from that necessary to operate

the business during the time for which the projection is

prepared. If cash shortages are revealed in the project,

financial plans must be altered to provide more cash until a

proper cash flow balance is obtained. For example, more owner

cash, loans, increased selling prices of products, or less credit

sales to customers will provide more cash to the business.

Ways to reduce the amount of cash paid out includes having

less inventory, reducing purchases of equipment or other fixed

assets, or eliminating some operating expenses. If excesses of

cash are revealed, it might indicated excessive borrowing or idle

money that could be "put to work." The objective is to finally

develop a plan which, if followed, will provide a well-managed

flow of cash.

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Procedure:

Most of the entries for the cash flow spreadsheet are self-

explanatory; however, the following suggestions are offered to

simplify the procedure:

� Suggest even dollars be used rather than showing

cents.

� If this is a new business, or an existing business

undergoing

� significant changes or alterations, the cash flow part

of the

� column marked "Pre-start-up Position" should be

completed. [Fill in appropriate blanks only.] Costs

involved here are, for example, rent, telephone, and

utilities deposits before the business is actually open.

Other items might be equipment purchases, alterations,

the owner's cash injection, and cash from loans received

before actual operations begin.

� Next fill in the pre-start-up position of the essential

operating data [non-cash flow information], where

applicable.

� Complete the spreadsheet using the suggestions for

each entry, provided in the partial spreadsheet on the next

worksheet.

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Difference between cash flow and fund flow

Fund flow statement Vs Cash Flow Statement

Both fund flow statement and cash flow statement serves as a

fundamental parts of the financial statements. In 1961, the

AICPA issued ARS No. 2, “Cash Flow Analysis and the Fund

Statements “which recommended that a fund statement

covered by auditor’s opinion be included in companies financial

reports.

According to paragraph 5 of Preface to Statement of

International Accounting Standard [approved by the IASC Board

in November1982 for publication in January 1983 and

supersedes the preface published in January 1975 (amended

March 1978)], “the term ‘financial statements’. Covers balance

sheets, income statement or profit and loss accounts,

statements of change in financial position, notes and other

statements and explanatory materials which are identified as

being part of financial statements” (IASC, 2000:32)

As per paragraph 7 of framework for the Preparation and

Presentation of Financial Statements (approved by IASC board

in April 1989 for publication in July 1989), “A complete set of

financial statement normally includes a balance sheet, an

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income statements, a statements of change in financial position

(which may be presented in a variety of ways, for example as a

statement of cash flow or a statement of fund flows) and those

notes and other statements and explanatory material that are

an integral part of the financial statements”.

As per paragraph 4 of the previous IAS 7 (October 1977),

statements of change in financial position, the term ‘ funds’

referred to cash, cash and cash equivalents or working capital

(IFAC, 1992: p.813). Funds provided or used in operation of an

enterprise should be presented in the statements of changes in

financial statement separately from other sources and uses of

fund. Unusual items, which are not part of ordinary activities of

the enterprise, should be separately disclosed (IASC: Para 21).

But many users of financial statements considers current

practices of reporting fund flows as confusing because too much

information is compressed in the statements of change in

financial position, and because no single definition has been

established. (Mosich and Larsen, 1982; p. 935) In order to

develop a conceptual framework for financial accounting and

reporting the FASB issued in December 1980, a discussion

memorandum” reporting Fund flow, Liquidity and Financial

Flexibility” which was issued for the following reason.

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(1) For assessing future cash flow.

(2) Current practices regarding the reporting of funds

flow information are not entirely satisfactory.

As a result of deliberation, FASB issued SFAS NO. 95

‘Statements of Cash Flow’ in 1987. The statements requires the

inclusion of statements of Cash Flows rather than a statement

of Change in Financial position when issuing a complete set of

financial statements which was made effective for annual

periods ending after July 15, 1988. The major requirements of

the statements are of the following two areas.

(a) Basis of Presentation. The statement must focuses on

fund increase and

decrease and must explain the change in cash plus cash

equivalents.

(b) Classification of Fund flows: Fund flows are to be

classified according to operating, investing and financing

activities. The basis of such classification is derived from the

financial theory, which state that enterprise derives the cash

used for investing activities and settlement of outstanding

financial obligation in an accounting period from internal and

external sources. Internal cash sources emanate from the net

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cash generated from current operation and perhaps disinvesting

and depletion of cash resources at start of the period. External

cash sources come from financing activities such as borrowing,

and receiving cash from the sale of equity shares to existing

and new shareholders.

Objective and Scope of IAS 7, Fund flow statements

Information about the fund flows of an enterprise is useful in

providing users of financial statements with a basis to assess

the ability of the enterprise to generate cash and cash

equivalents and the needs of the enterprise to utilize those cash

flows. The economic decision are taken by users require an

evaluation of the ability of an enterprise to generate cash and

cash equivalents and timing and certainty of their generation.

The objective of IAS 7 is to require the provision of information

about the historical change in cash and cash equivalents of an

enterprise by means of a cash flow statement that classifies

cash flows during the period from operating, investing and

financing activities. An enterprise should prepare a cash flow

statement in accordance with the requirements of IAS 7 and

should present it as an integral parts of its financial statements

for each period for which financial statements are prepared,

Users of an enterprise’s financial statements are interested in

how the enterprise generate and uses cash and cash

equivalents. This is the case regardless of the nature of the

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enterprise activities and irrespective of whether cash can be

viewed as the product of the enterprise, as may be the case

with a financial organization. Enterprises need cash for the

same reason s however different their principal revenue-

producing activities might be. They need cash to conduct their

operations, to pay their obligation s, to provide return to the

investors. Accordingly this standard requires all enterprise to

present a cash flow

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GROWTH IN THE NET PROFIT

YEAR NET PROFIT (IN CR.)

2006 (84.51)

2007 818.74

2008 553.22

2009 936.69

2010 1030.45

2011 1133.59

2012 1247.04

2013 1371.83

WITH THE HELP OF ABOVE BAR DIAGRAM WE CAN CONCLUDE THAT

THE GROWTH OF NET PROFIT IS INCREASING EVERY YEAR.

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GROWTH IN THE NET SALES

YEAR NET SALES (IN CR.)

2006 6556.81

2007 8924.17

2008 8425.12

2009 18570.19

2010 20427.21

2011 22469.93

2012 24716.93

2013 27188.62

GROWTH IN THE SALES OF THE COMPANY IS DECREASED IN THE

YEAR 2008 IN THE ACTUAL DATA BUT IN PROJECTED DATA WE IMPROVING THE SALES STRATEGY AND MARKTING STRATEGY

AND I HAVE INCREASED THE SALES IN THE EVRY YEAR BY 10%

BASED ON THE ASSUMPTIONS.

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ASSUMPTIONS Assumption for the year 31/03/2009 to 31/03/2013

� For sales company have good track record of sales since last

three as per company data so I assume that company have good

prospect in future of growing sale as per I projected.

� For expenses as projected that sales will grow at the projected

growth rate the expenses will also grow with the proportion to

sales to fulfill the sales requirement.

� As per company law company doesn’t transfer any amount to any

reserve and all the profit is transfer to balance sheet for further

growth.

� Coming to balance sheet

� I assume that as per growing of company and as per growing of

sales company want funds to complete the assigned project so

company require funds that Fund Company will collect from share

holder as per requirement.

� For unsecured loan I assume that company will repay the

unsecured mainly from relative through available cash in hand at

the rate of 10% P.A. with interest

� For term loan I assume that by growth in earning profit company

is sufficient to pay term loan as per I projected

� Coming to assets side of the balance sheet company showing that

fixed assets growing in the later year like in 2010 ,2011, 2013

because as per assumption to fulfill or to complete the project

company wants machinery.

� All current assets are growing with the growing rate of sales.

� All current liability are also growing at the rate of company will

get the assignments as per projection

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OBSERVATION & FINDINGS

� Cash flow statement cannot be equated with the income

statement. An income statement takes into account both

cash as well as non-cash items and therefore, net cash

flow does not necessarily mean net income of the

business.

� It reports the effects on cash flows of a firm’s operating,

investing and financing activities.

� Cash flow measures the amount of cash that a company

brings in and uses during the course of an accounting

period (quarter or year) after all fixed expenses are

eliminated.

� Net profit ratio is in decline in first year. So it is not good

for the company.

� Debtor’s ratio is in the every year which is less than

previous year, high is good for the company. It shows

stable condition of supply of the company.

� Creditors are decrease in first two years. It shows creditors

collection period is less than previous year. It is not good

for the company.

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CONCLUSIONS

� The cash position at the end of each year should be

adequate to meet the cash requirements for the following

year. If too little cash, then additional cash will have to be

injected or cash paid out must be reduced. If there is too

much cash on hand, this money is not working for your

business.

� The cash balance as disclosed by the projected cash flow

statement may not represent the real liquid position of the

company since it can be easily influenced by postponing

purchases and other payments

� The projection becomes more useful when the estimated

information can be compared with actual information as it

develops. It is important to follow through and complete

the actual columns as the information becomes available.

Utilize the cash flow projection to assist in setting new

goals and planning operations for more profit.

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SUGGESTIONS

� Decrease in the creditors from one period to another

period will result of decrease of cash from operation it

means more cash payments have been made to creditors.

So company should increase the creditors.

� Same as in debtors company should decrease debtors to

maintain the cash

� The working capital requirement of the company has

increased with the increase in inventories, debtors and

creditors, company should follow sound strategy so that

the inventories and creditors are minimized and cash in

hand is increased.

� In the actual cash flow the cash in hand or at bank is very

less company so should keep sound cash in hand or cash

at bank.

� Investment for long term shall be done.

� The factory should try to maintain Cash Flow to the extent

of optimum level.

� The company should reduce the capital expenditure.

� The factory should try to collect additional share capital

from the share-holders and Repay the long-term secured

and unsecured loan.

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VARROC POLYMERS PVT. LTD. (VPPL III)

PROFIT & LOSS ACCOUNT

Actual

Sr.no. Particulars SCH 2006 2007 2008

A Income:

Sales Including Excise Duty 6,556.81 8,924.17 8,425.12

Less:

Excise Duty 759.02 1,165.99 1,170.04

Net Sales 5,797.79 7,758.19 7,255.08

Other Income 13 21.66 30.07 16.42

5,819.45 7,788.26 7,271.50

B Expenditure:

Materials 14 5,170.00 6,163.08 5,962.03

Expenses 15 564.81 633.01 568.81

Interest 16 90.03 109.98 115.87

Depreciation/Amortisation 79.12 63.45 71.57

5,903.97 6,969.52 6,718.28

Add: Depreciation written back

Profit Before Taxation -84.51 818.74 553.22

Provision for Taxation

Current Taxation

Fringe Benefit Tax

Profit for the Year -84.51 818.74 553.22

Expenses for Earlier years

Balance Profit -84.51 818.74 553.22

Add:

Profit Brought Forward 1,115.06 1,030.55 1,849.29

Balance Profit Available for Appr. 1,030.55 1,849.29 2,402.51

Balance Carried to Balance Sheet 1,030.55 1,849.29 2,402.51

1,030.55 1,849.29 2,402.51

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VARROC POLYMERS PVT. LTD. (VPPL-III)

SCHEDULES FORMING PART OF BALANCE SHEET Actual

Sr.no. Particulars 2006 2007 2008

Schedule: 1

Share Capital:

- - -

Schedule: 2

Reserves & Surplus

General Reserve

Balance brought Forward - - -

Profit & Loss Account 1,030.55 1,849.29 2,402.51

1,030.55 1,849.29 2,402.51

Schedule: 3

Secured Loans:

Term Loans:

Cash Credit from Banks 318.90 312.88

318.90 312.88

Schedule: 4

Unsecured Loans: 2,000.00 980.00 1,200.00

2,000.00 980.00 1,200.00

Schedule: 5

Schedule: 6

Investments (At Cost, Unquoted)

Schedule: 7

Inventories:

Raw Material 77.24 99.98 41.05

Work In Process 34.44 49.17 50.15

Finished Goods 9.76 3.47 2.84

Stores & Spares 19.76 20.29 31.37

Tools & Instruments 1.52 2.47 3.03

Packing Material 4.84 1.10

Stock of Trading Items 9.31 0.72

156.88 177.20 128.43

Goods In Transit - At Cost 41.36 263.51

198.24 440.72 128.43

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VARROC POLYMERS PVT. LTD. (VPPL-III)

SCHEDULES FORMING PART OF BALANCE SHEET

Actual

Sr.no. Particulars 2006 2007 2008

Schedule: 8

Sundry Debtors:

(unsecured, Considered Good) 0.23

Add: Considered Doubtful 14.48 46.21 7.91

Total Over Six month 14.48 46.21 8.14

Less: Bad & Doubtful Debts 7.91

Others 1,213.12 1,200.00 1,214.23

1,227.60 1,246.21 1,214.46

Schedule: 9

Cash & Bank Balances:

Cash In Hand 45.00 65.00 76.00

Current Account 0.40 0.90 58.56

Fixed Deposits 10.17

Interest Accrued on Fixed Deposits 0.18

55.75 49.28 47.23

Schedule: 10

Loans & Advdances:

(unsecured,Considered Good)

Advances Recoverable in Cash or kind or for Value

to be received 37.32 76.66 30.48

Balance with Excise Department 17.20 29.64 0.30

Sundry Deposits 4.24 4.24 4.24

Advances Tax & Tax Deducted at Source 22.80 35.89 47.78

Interest Receivable 0.17 0.18

Receivable from Varroc Eng. Pvt. Ltd. 0.17 5,563.65

Loan Repaid 10.00 22.00 35.09

91.73 168.59 5,681.71

Schedule: 11

Current Liabilities:

Sundry Creditors for Supplies 600.00 952.22 1,008.00

Sundry Creditors for Capital Goods 15.61 5.10 1.57

Other payble 55.84 139.67 30.21

Expenses Payble 61.77 100.47 30.50

Interest Accrued but not due on Loans 9.77

733.22 1,197.46 1,080.05

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Schedule: 12

Provisions for:

Leave Encashment 2.97 1.95 5.76

2.97 1.95 5.76

Schedule: 13

Other Income:

Intrest - Gross (TDS Rs/-) - -

Fixed Deposits With Banks 0.23 0.48

Others 0.25 0.24 0.23

Profit on sale of Fixed Assests 0.00 4.40

Miscellaneous Receipts 19.40 9.84 11.79

Excess Provision Written back 1.02

Foreign Exchange Fluctuation - Gain 1.78 18.49 0.00

21.66 30.07 16.42

Schedule: 14

Materials:

A) Raw Materials Consumed

Opening Stocks 106.86 77.24 99.98

Add: Purchases 4,130.19 5,588.78 5,925.22

4,237.05 5,666.02 6,025.20

Less: Closing Stocks 77.24 99.98 41.05

(A) 4,159.80 5,566.04 5,984.15

B) Increase/(Decrease) in Stocks

Closing Stock - Finished Goods 9.76 3.47 2.84

- Working in

Process 34.44 49.17 50.15

44.20 52.64 52.99

Less: Opening Stock-Finished Goods 9.01 9.76 3.47

-Work in Process 97.85 67.48 96.51

106.86 77.24 99.98

(B) -62.66 -24.60 -47.00

C) Excise Duty on Finished Goods

Opening Stock 1.32 1.51 0.51

Closing Stocks 1.51 0.51 0.39

Net (C) 0.20 -1.00 -0.13

4,097.34 5,540.44 5,937.03

Cost of Trading Items Sold 1,072.67 622.64 25.00

5,170.00 6,163.08 5,962.03

VARROC POLYMERS PVT. LTD. (VPPL-III)

SCHEDULES FORMING PART OF BALANCE SHEET

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VARROC POLYMERS PVT. LTD. (VPPL-III)

SCHEDULES FORMING PART OF BALANCE SHEET Sr.no. Particulars 2006 2007 2008

Schedule: 15

Expenses:

Stores & Spares Consumed 33.19 25.51 41.25

Tools & Instruments 0.04 0.05 0.49

Packing Material Consumed 27.64 27.96 5.99

Labour Charges 274.22 325.81 295.24

Power & Water 28.08 34.55 35.46

Freight 81.97 68.59 56.23

Salary,Wages & Bonus 56.99 71.96 64.43

Gratuty Provision & Contribution 0.66 0.79 0.43

Contribution to Provident Fund 3.72 5.08 4.56

Staff Welfare 2.53 4.17 3.75

Repairs: 0.00 0.00 0.00

A) Machinery 7.55 9.13 6.84

B) Building 2.64 1.19 1.45

C) General 7.62 7.16 16.95

Insurance 5.33 5.48 2.39

Rates & Taxes 0.75 1.77 7.83

Excise Duty Paid 0.07 0.06 0.00

Foreign Exchange Fluctuation - Loss 2.57 4.88 -16.01

Amount Written Off Against Lease Hold Land 0.90 0.90 0.90

Rent 0.70 0.72 0.28

Provision for Bad & Doubtful Debts 0.00 0.00 7.91

Miscllaneous Expenses 27.65 37.24 32.44

564.81 633.01 568.81

Schedule: 16

Interest On:

Term Loans

Bank Overdraft 89.99 109.98 115.87

Others 0.04

90.03 109.98 115.87

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VARROC POLYMERS PVT. LTD.(VPPLIII)

CASH FLOW STATEMENT SR.

NO. PATICULARS

ACTUAL

2006-2007 2007-2008

A Cash Flow from Operating Activities

Net Profit before Tax & Earlier Expenses 818.74 553.22

Adjustment for:

Add:

Depreciation 63.45 71.57

Lease Written Off 15.80 15.80

Provision for Leave Encashments - -

Interest Paid 109.98 189.23 115.87 203.24

Less: Interest Received 0.73 0.73 0.23 0.23

Operating Profits before Working 1007.24 756.23

Capital Changes

Add: Increase in Creditors 464.24 (117.41)

Less: Increase in Inventories 242.48 (312.29)

Increase in Debtors (18.61) 240.37 31.75 (397.94)

Cash Generated from Operations 1247.61 358.29

Less: Interest Paid 109.98 115.87

Income Tax Paid 13.09 11.89

Wealth Tax Paid 55.90 178.97 70.89 198.65

Net Cash from Opereating Activities 1068.64 159.64

B Net Cash from Investing Activities

Add: Interest Received 0.73 0.23

Sale of Fixed Assets 6.23 6.96 17.87 18.10

Less: Capital Expenditure 80.09 (73.13) 100.00 (81.90)

Net Cash used in Investing Activities (73.13) (81.90)

C Cash Flow from Financing Activities

Add: Increase in Term Loans

Increase in Cash Credits 6.02 (312.88)

Increase in Unsecured Loans (1020.00) 220.00

Less: Loan Repaid (12.00) (1001.98) (13.09) (79.79)

Net Cash used in Financing Activities (1001.98) (79.79)

Net Cash & Cash Equivalants (A+B+C) (6.47) (A+B+C) (2.05)

Opening Cash & Bank Balance on 01.04.07 55.75 49.28

Closing Cash & Bank balance on 31.03.07 49.28 47.23

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BIBLOGRAPHY

Books:

• S.N. MAHESHWARI (FINANCIAL MANAGEMENT)

• COMPANIES ANNUAL REPORTS

• COST AND MANAGEMENT ACCOUNT (ICWA-I STAGE)

• FINANCIAL MANAGEMENT BY PRASANNA CHANDRA.

• FINANCIAL MANAGEMENT BY KHAN & JAIN.

• FINANCIAL ACCOUNTING FOR MANAGERS – T. P. GHOSH (TAXMAN)

• MANAGMENT ACCOUNTING FOR PROFIT CONTROL – KELLER &

FERRARA.

Web Resources:

www.verrocengg.com

http://ezinearticles.com/

http://asbdc.ualr.edu/

http://en.wikipedia.org/wiki/Main_Page

http://www.bized.co.uk/index.htmhttp