Post on 21-Nov-2014
transcript
A STUDY ON CASH MANAGEMENT IN CASTWEL AUTO PARTS
PRIVATE LIMITED CHENNAI.
CHAPTER -I
1.1 INTRODUCTION
Cash is one of the current assets of a business. It is needed at all times to keep
the business going. A business concern should always keep sufficient cash for
meeting its obligations. Any shortage of cash will hamper the operations of a concern
and any excess of it will be unproductive. Cash is the most unproductive of all the
assets. While fixed asset like machinery, plant etc. and current assets such as
inventory will help the business in increasing its earning capacity, cash in hand will
not add anything to the concern. It is in this context that cash management has
assumed much important.
Cash itself does not produce goods or services. It is used as a medium to
acquire other assets. It is the other assets which are asset in manufacturing foods or
providing services. The idle cash can be desalted in bank to earn interest.
A business has to keep required cash for meeting various needs. The assets
acquired by cash again help the business in producing cash. The goods manufactured
or services produce dare sold to acquire cash. A. firm will have to maintain a critical l
level of cash it at a time does not have sufficient cash with it, it true borrow from the
marked for reaching the required level.
The firm has to maintain a minimum amount of cash for setting the dues in
time Cash is needed to purchase raw materials pay creditors pay creditors day to day
expenses. Dividend etc. and to meet various obligation it is done on the basis of past
experiences and future expectation if higher cash balance maintain an opportunity to it
earn is lost.
1
1.2 INDUSTRY PROFILE
Indian Die casting industry pays a major role in the country's economy. Indian
is the third producer of tools. The Indian Die casting tools industry has been focusing
on International markets and International products. Indian Die casting tools industry
brats the competition and makes world market.
Indian Die casting tools industry is considered as the mother industry. And
tools are the largest marketing sector in India. India is the II'1' largest producer of
quality tools availability in India.
According to the survey the cost of power for the Indian Die casting tools
industry has been focused to be highest among competitors.
The Indian Die casting tools industry the largest single industry in India holds
second place among the countries of the world in tools production with in investment
Rs. 184,300 corers in 6615 Die casting tools companies in India.
India provides direct employment to nearly 12 lakhs workers. It also provides
indirect employment many millions like the who are estimated to be over three
million and innumerable. Tools and dies.
The industry contributes in increasing measures to the central and state
government by way of taxes and duties. This birth of this industry dates back to 1932
when the first Die casting tools were established at sort gloster near Calcutta with
English capital. The real growth of the industry however started with the setting up
the Bombay Indian Die casting tools industry in 1945 with Paris capital. These
industry mainly manufacture the pressure die casting, Auto parts, tools, Die casting
moulds, electrical goods.
2
1.3 COMPANY PROFILE
Castwel Autoparts Pvt. Ltd company (CAPL)is one of the leading company
around the world in producing the autoparts. And it has been a trail blazer in the auto
component sector. This organization has a great reputation for producing the good
quality of the auto products among the other companies, casket autoparts pvt ltd was
established in the year 1985 , as a partnership concern and then moved on to become a
private limited company in the year 2006.
The company is currently having two manufacturing locations near chennai,
with the development capability for precision parts , which are supplied to leading
global automobile and auto parts manufacturers in India. CAPL is engaged in
manufacturing of high precision automotive machine components of FDC & GDS
including assemblies.
CAPL is a 100% subsidiary company of M.K auto\ components ltd ., labuan ,
malaysia. In which 51 of shares are owned by UMV & 49 of shares are owned by
MKI.
CAPL is also a member of UMW and MK joint venture company .Lets see
the business structure of UMW in an automotive. It has UMW Toyota & perodua ih
equipment manufacturing It helps in producing heavy equipments , industrial, main &
power.
In oil & gas it helps in manufacturing of pipes, helps in oil & gas exploration ,
fabrican, oil field services , oil filed products.
Machine shop:
1. Critical measuring machine (CMM)
2. Pressure dei-casting machine shop (PDC)
3. Computer numerical concept (CNC) lathe
4. Vertical machining concept (VMC) machine
5. Spectro max
3
CAPL has a great reputation of dealing with the customers who are famous
throughout the world.
The major customers of CAPL are:
BOSCH
TAFE
SONA
AVTEC
RANE
MAHINDRA
SUNDARAM-CLAYTON LTD
PANASONIC
SAME
TVS&
FAIVELESY TRANSPORT
MISSION & VISION OF CAPL
‘create value to shareholders and all other stake holders by cost efficiency
& timely delivery of products adopucts adopting best manufacturing practices’
Shareholding structure of castwel auto parts pvt ltd shareholding structure is as
follows,
100% subsidiary of MK auto components ltd, Malaysia
Jointly owned by UMW and MK
CAPL capabilities span wide range of products in automotive sector and the
company stands as a perfect amalgam of people, technology and resources
reinforced with through knowledge of nuances of automotive industry.
4
DEPARTMENT PROFILE
MRS Section
Material Receipt Section. This section receives the raw materials and issues to
Processing and Production.
E.g.: Raw materials like Casting, Aluminum etc.
INSPECTION
All the materials received from MRS section are inspected here using various
instruments.
STORE
All the approved materials are stored here and sent for further processing.
Store consists of three divisions
(a) Process store
Certain processing is done for raw materials.
(b)Hardware store
Materials are purchased from outside and stored here.
(c) Component store
The approved and rejected materials are segregated and approved
materials are sent for production.
PURCHASE DEPARTMENT:
Identifying the supplier based upon the advertisement, internet and contacts.
They also determine the materials to be purchased and fix the rate.
EDP (IT) DEPARTMENT
It stores whatever data related to the company. In this department data are
stored and processed electronically. The software used in this company is FOXPRO.
FOXPRO is a text-based procedural programming language and DBMS, originally
published by Microsoft, for MS-DOS, Microsoft Windows, Macintosh, and UNIX.
5
They store the details of goods and raw materials, details of supplier and employee
etc.
ASSEMBLY DEPARTMENT
For assembly of the components are received from store and the components
are assembled as per the flow chart / work instructions.
TESTING
Testing is done after assemble of the product. Testing is carried out to check
whether the products are assembled properly.
PACKING
In this department the assembled material are Packed, and a pre-despatch
inspection is carried out. After the inspection the materials are dispatched for sale.
6
PHASES OF DEVELOPMENT
MRS
Material Receipt Section. This section receives the raw materials and issues to
the processing and production. The materials are received based upon the Purchase
Order (PO).The SECURITY STAFF checks for Quantity, Item code, Invoice number
etc., and enters the
Supplier name
Date
Voucher number
Item name and
Quantity in the GATE INWARD REGISTER.
After receiving the materials, the MRS assistant checks the
DC(Delivery Challan) copy with Security seal
Purchase order number
Supplied quantity
Item description
Validation of PO.
The validation of Purchase Order must be 30 days for local purchase and 45
days for outstation.The Unit Head prepares the CCIP/CCIL ( Challan Cum
Invoice Purchase/ Challan Cum Invoice Labour) and enters the necessary details
and the goods are handed over to Inspection department.
INSPECTION
All the materials are received from MRS section through the CCIP/CCIL and
they are kept in YELLOW bags /bins with suitable tag. All the materials are
subject to inspection as per RAW MATERIAL INSPECTION PLAN. The
inspection is carried out using Gauge /Calibrated instruments.
They also check for visual defects such as cracks, holes, thread damage, air
holes etc.,They enter the necessary details in CCIP / CCIL.The rejected materials are
separated in RED colored bags / bins and handed over to store through CCIP/CCIL
7
for corrective action.The approved materials are kept in GREEN colored bags / bins
and handed over to store through CCIP / CCIL.
STORESReceive materials from Inspection. The materials are preserved in this section.
The materials are protected from heat and sunlight. Sufficient fire extinguishers are
provided at some required places. There are three types of store. They are
Process store
Component store
Hardware store.
(a)PROCESS STORE
The raw materials are received and necessary processing is done in process
store.
(b)COMPONENT STORE
In this store the approved and rejected materials are separated and the
approved materials are sent for rework and the rejected goods were sent for
rework / disposed.
(c)HARDWARE STORE
Materials required are purchased from outside and stored. The quotations are
received from the different departments as the material requirement.
8
PURCHASE
In purchase department, they identify the supplier based upon the
advertisement, web, internet, contacts, experience etc. Register form is sent to
suppliers for required materials. The new suppliers are monitored for three months
based on performance during trial period. Based upon the performance during trial
period they are approved or rejected. The purchase requisition is received from store
for procurement of materials. The HOD scrutinizes the purchase requisition. In case
of capital purchase like the purchase of machinery, equipments are ordered after the
approval of GM.
EDP
Electronic Data Processing. It stores whatever data related to the company. It
is also known as IT department. It stores the production details, details of raw
materials purchased, total production and sale. It helps to store data such as the
Date of purchase
Supplier name
Sales / purchase order
Date of delivery date
Supplier address
Service period
Accounting data so on.
This department also stores all the employee details such as
Employee name
Employee salary
Employee detail
Date of joining
Employee address
Employee contact number and so on
9
The software used in the company is FOXPRO. It is a DBMS (Data Base
Management System).LINUX OS is used. Now the department is shifting the data to
use with Oracle as back end and Java as front end. The head of department is EDP
manager. The EDP manager is the senior software engineer. The EDP manager directs
the Maintenance engineer (Software engineer) in the development of software. The
senior software engineer helps in the development of software.
ASSEMBLY
For assembly of die components are received from stores and certain materials
are received from varnishing department, as some materials are varnished to prevent
the water leakage. The components are assembled as per the flow chart/ work
instruction. During assembly the assembly details are recorded in the daily production
report. During assembly if any components are found defective it is returned to stores
through replacement indent and recorded in the Non-conformance register. After
assembly of die components they are sent to testing department separately and, testing
is carried out as per testing plan and testing work instructions.
3.8 PACKING
Receives from testing. Name plate is fixed. Final inspection is carried out.
Dispatched. After the final product testing the materials are received for final
assembly. The product is cleaned. necessary assessories, safety measures are taken.
Name plates are received from store and product serial number is punched in the
name plate of the product. The packing materials are drawn from store and the
packing of the material are done in carton/wooden boxes as per work instruction.
Guarantee cards, Manual and packing slip is put into box indicating the serial number.
Identification and safety stickers are fixed. During and after completion of packing
the correctness are verified by carrying out a pre dispatch inspection plan.
PRE DESPATCH INSPECTION
Stickers, Serial numbers are checked. Name plate detail is verified. Bursting
strength is checked.MRP details are checked. Verification of instruction manuals,
guarantee cards etc. Verification of cable length is done. The material are set
10
separately with their corresponding serial number. Packed boxes that are ready for
dispatch are moved to finished goods area and stacked neatly. Package details are
recorded. The non conformities are identified are recorded and disposed.
1.4 REVIEW OF LITERATURE
Kaith V. Smith say’s that financial managers Can consider a series of seven
strategies for handling the excess cash balance with the firm (i) Do noting (ii) Make
adhoc investments (iii) ride the yield curve (iv) develop guidelines (v) Utilize control
limits (vi) manage with a part folio prospective and (vii) follow a mechanical
procedure
The liquid resources of a firm may be kept in various firm Michel Lazare
posted about the public cash management and the supreme loan crisis he say’s that Be
aware of financial investment risks. Effective cash management is one of the basis
pillars of sound public financial management is one of the basis pillars of sound
public financial management is conservation of cash. This includes minimizing idle
cash balances by : (a)Keeping on the governments account only the working cash
balances needed to face day – to –day routine expenditures and the cash needed to
face immediate financial obligations: (b) investing the remaining cash on liquid and
interest – earning financial assets. But, like any other financial investment, investing
cash may present risks.
Denise Ryan Discover new cash management strategies by seeking cash
management education and training. He says that by utilizing effective cash
management techniques. you’ll be able to maximize any available cash by
immediately reinvesting it into your business or allocating it or allocating it for future
expenses. Seeking training to fine tune your business cash flow management enables
you to avoid risky investments and strike a successful balance between saving and
spending. Cash management techniques cover everything from simple budgeting.
There have been a harmful of studies that have examined Senior Officials
from African Countries Discuss cash Management Issues in a workshop Organized by
IMF African East.
11
Africa East, the regional technical assistance center of the IMF in east Africa,
in collaboration with the Africa Capacity Building Foundation, conducted a workshop
on cash management reforms, at the Kenya school o Monetary Studies in Nairobi
from September 22-26 2008. It was arrended by 31 mid- and senior – level officials –
including. Heads of Departments of Treasury , Fiscal policy Units, Macroeconomic
Management Units, Financial Controllers, Senior Economists. Principal Finance and
Accounting Officers, and Budget Officers – from 9 countries (Ethiopia, Kenya,
Lesotho. Malawi Mozambique, Namibia, Rwanda, Uganda, and Zanzibar). The
workshop was facilitated by AFRTAC East advisors and staff from the IMF
Headquarters. It was inaugurated by the permanent Secretary to the Treasury of the
Ministry of Finance of Kenya, and closed by the AFRITAC East Center Coordinator.
A new IMF FAD Technical Guidance Note on Cash Management, Prepared
by lan Lienert of Fiscal Affairs Department, explores how countries can improve the
or cash management practices and eliminate some of the inefficiencies in current
practices he says that do you manage your own cash well? Can you always pay your
bills in time? Do you borrow unnecessarily? Do you have balance in bank accounts
that aree not receiving the interest rate ? just as individuals are concerned about
managing their cash well, so are governments. In practices, however, not all
governments manage cash well. some countries have unremunerated balances in
thousands of bank accounts, yet at the same , they are borrowing from domestic or
external creditors at market interstates. Commercial bank and other purchasers of
government bonds are very happy with such arrangements.
12
CHAPTER - II
RESEARCH METHODOLOGY
2.1 Title of the Project
The title is “A study on Cash Management in Castwel Auto parts Private Ltd
Chennai.
2.2 Scope of the study
The scope of finance is indeed vast and it is determined by the financial needs
of an enterprise. The study aims to find out the most favorable way to manage cash
which is most unproductive of all the .assets and also used as a medium to acquire
other assets and also find out the must feasible way if maintain a balance between
cash in flow and out flow.
2.3 Objectives :
a) To analyze the cash balances held by the firm in a certain point of time.
b) To analyze the cash in flows and out flows.
c) To make a detail planning of cash requirements.
d) To manage the fund flow by accelerating the cash collection.
e) To analyze the day to day working capital position.
2.4 Types of research
This study is an analytical research based secondary data. The researcher has
to use facts or information already available, and analyze these to make a critical
evaluation the material.
2.5 Tools used for Analysis
The statistical tools used for analysis of the data are1. Correlation analysis.2. Trend analysis3. Regression Analysis
13
Financial Tools
1. Fund flow statement Analysis2. Ratio analysis
2.6 Sources of data collection
Secondary data in Castwel Auto Parts Private Ltd.,
2.7 Limitations of the study
The data collected for the study was historic in nature so all the limitation
of secondary data apply to the same.
Data taken for analysis to last 5 years
14
CHAPTER - III
DATA ANALYSIS & INTERPRETATION
RATIO ANALYSIS
Ratio analysis is the systematic process of determining and interpreting the
numerical relationship of various pairs of items derived from the finance statements of
another number.
Ratio analysis involves the use of various methods for calculating and
interpreting financial analysis to assess the performance and status of the business
unit. It is a tool of financial analysis, which studies the numerical or quantitative
relationship between two variable and item.
The primary use of financial statement is evaluated past performance and
predicting future performance arid bother of these are facilitated by comparison.
There focus on financial analysis is always on the crucial information contained the
financial statement.
CURRENT RATIO
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio also known as working capital ratio, is a measure of
general liquidity and is most widely used to make the analysis of a short-term
financial position or liquidity of a firm. It is calculated by dividing the total of current
assets by total of the current liabilities.
QUICK OR ACID TEST OR LIQUID RATIO
Quick Ratio, also known as Acid Test or liquid Ratio, is a more rigorous test
of liquidity than the current ratio. The term ‘liquidity’ refers to the ability of a firm to
pay its short-term obligations as and when they become due. The two determinants of
current ratio, as a measure of liquidity , are current assets and current liabilities.
Current assets include inventories and prepaid expenses which are not easily
convertible into cash within a short period.
15
Quick ratio may be defined as the relationship between quick/liquid assets and
current or liquid liabilities. An assets is said to be liquid if it can be converted into
cash within a short period without loss of value. In that sense, cash in hand and cash
at bank are the most liquid assets.
The other assets which can be included in the liquid assets are bills
receivable, sundry debtors, marketable securities and short-term or temporary
investment. Inventories cannot be termed to be liquid asset because they cannot be
converted into cash immediately without a sufficient loss of value.
In the same manner, prepaid expenses are also excluded from the list of
quick/liquid assets because they are not expected to be converted into cash. The quick
ratio can be calculated by dividing the total of the quick assets by total current
liabilities.
ABSOLUTE LOQUID RATIO OR CASH RATIO
Although receivables, debtors and bills receivable are generally more liquid
than inventories, yet there may be doubts regarding their realization into cash
immediately or in the time. Hence, some authorities are of the opinion that the
absolute liquid ratio should also be calculated together with current ratio and acid test
ratio sp as to exclude even receivables from the current and find out the absolute
liquid assets.
DEBT-EQUITY RATIO
Debt- Equity Ratio, also known as External – Internal Equity Ratio is
calculated to measure the relative claims of outsiders and the owners (i.e.,
shareholders) against the firm’s assets. This ratio indicates the relationship between
the external equities or the outsiders funds and the internal equities. or the
shareholders’ funds.
16
OPERARING RATIO
Operating ratio establishes the relationship between cost of goods sold and
other operating expenses on the one hand and the sales on the other. In other words, it
measures the cast of operations per rupee of sales. The ratio is calculated by dividing
operating costs with the net sales and is generally represented as a percentage.
CASH PROFIT RATIO
The net profit of a firm are affected by the amount/method of depreciation
charged. Further, depreciation being a non- cash expense, it is to calculate cash profit
ratio. This ratio measures the relationship between cash generated from operations
and the net sales.
17
(a) RATIO ANALYSIS
3.a.(1) QUICK RATIO
Quick assetsQuick liability
3.a (1)Table showing quick ratio for CAPL (RS in Lakhs).
Year Quick Asset Quick liability Result
2004-2005 1981 1228 1.613
2005-2006 944 1542 0.612
2006-2007 542 1402 0.386
2007-2008 534 1253 0.426
2008-2009 655 1741 0.376
Interpretation:
From the above table ,shows the quick Ratio for 2004-2005 is 1.613 and
2005-2006 Ratio is 0.612 2006-2007 Ratio is 0.386 where as in 2007-2008 the quick
ratio is 0.426 and 2008-2009 Ratio is 0.376.
18
Quick Ratio =
3.a.(1) The Figure Showing Quick Ratio
19
3 .a (2) OPERATING RATIO
Cost of goods soldNet sales
3.a. (2) Table showing operating ratio for CAPL (RS in Lakhs)..
Year Cost of goods sold Net Sales Result
2004-2005 11717 12634 0.927
2005-2006 12668 13697 0.924
2006-2007 13126 15148 0.866
2007-2008 12969 15760 0.822
2008-2009 13679 14931 0.916
Interpretation:
Operating ratio table shows in the year 2004-2005 it is 0.927 2005-2006
0.924, 2006-2007 0.866, 2007-2008 0.822,the last year ratio 2008-2009 is 0.916.
20
Operating Ratio =
3.a (2)The Figure Showing Operating Ratio
21
Op
erat
ing
Rat
io
3.a(3) . DEBT EQUATY RATIO
DebtEquity
3.a (3) Table showing Debt Equity Ratio (RS in Lakhs).
Year Debt Cash Profit Equity Result
2004-2005 2378 4127 0.576
2005-2006 2141 4127 0.518
2006-2007 1599 4127 0.387
2007-2008 701 4127 0.169
2008-2009 394 5000 0.0788
Interpretation:
The above Debt equity ratio table shows in the year 2004-2005 it is
0.576,2005-2006 0.518, 2006-2007 0.387,2007-2008 0.169, the last year ratio
2008-2009 is 0.0788.
22
Debt equity Ratio =
3.a. (3)The Figure Showing Debt Equity Ratio
23
Deb
t E
qu
ity
Rat
io
3.a(4) . CASH RATIO
Cash + Marketable securities Current liability
3.a.(4)Table showing cash ratio (RS in Lakhs).
Year Cash + Marketable securities
Current liabilities Result
2004-2005 212 1228 0.172
2005-2006 574 1542 0.372
2006-2007 1356 1402 0.961
2007-2008 2165 1253 1.728
2008-2009 2305 1741 1.323
Interpretation:
From the table, cash ratio shows in the year 2004-2005 it is 0.172,2005-2006
0.372,2006-2007 0.961, 2007-2008 1.728, the last year ratio 2008-2009 is 1.323
24
Cash ratio =
3.a.(4)The Figure Showing Cash Ratio
25
Cas
h R
atio
3.a.(5) . CURRENT RATIO
Current Ratio = Current Assets Current Liabilities
3.a.(5) The Table showing Current Ratio (RS in Lakhs).
Year C.A C.L Ratio
2004-2005 5019 1228 4.087
2005-2006 4481 1542 2.905
2006-2007 3952 1402 2.818
2007-2008 3500 1253 2.793
2008-2009 4167 1741 2.39
Interpretation:
Current ratio table shows in the year 2004-2005 it is 4.087,2005-2006
2.905,2006-2007 2.818,2007-2008 2.793 the last year ratio 2008-2009 is 2.39.
26
3.a.(5) The Figure Showing Current Ratio
27
Cu
rren
t R
atio
3.a(6) . CASH PROFIT RATIO
Cash profit Sales
3.a.(6)Table showing Cash profit Ratio (RS in Lakhs).
Year Cash Profit sales Result
2004-2005 1957 25268 0.07744
2005-2006 2120 27393 0.0773
2006-2007 4057 30296 0.1339
2007-2008 5753 31519 0.1825
2008-2009 2990 29861 0.1001
Interpretation:
Above table shows in the year 2004-2005 it is 0.07744, 2005-2006 0.0773,
2006-2007 0.1339, 2007-2008 0.1825 the last year ratio 2008-2009 is 0.1001.
28
Cash profit Ratio =
3.a. (6)The Figure Showing Cash Profit Ratio
29
Cas
h P
rofi
t R
atio
3.(b) FUND FLOW STATEMENT
The Funds flow Statement is a statement which shows the movement of funds
and is a report of the financial operations of the business undertaking. It indicates
various means by which funds were obtained during a particular period and the ways
in which these funds were employed. In simple words, it is a statement of sources and
applications of funds.
MEANING AND CONCEPT OF FUNDS
The term ‘funds’ has been defined in a number of ways
(a) In a narrow sense, it means cash only and a funds flow statement prepared on
this basis 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.
(b) In a broader sense, the term ‘funds’ refers to money values in whatever form it
may exist. Here ‘funds’ means all financial resources, used in business whether in the
form of men, material money machinery and others.
(c) In a popular sense, the term ‘finds’ , means working capital, i.e., the excess of
current over current liabilities. The working capital concept of funds has emerged due
to the fact that total resources of a business are invested partly in fixed assets in the
form of fixed capital and partly kept in from of liquid or near liquid form as working
capital.
The narrower concept of ‘funds’, i.e., cash or working capital concept, fails to
reveal the changes in the total financial resources of a business. Some significant
items., such as purchase of building in exchanges of shares or payment of bonus in the
30
form of shares, which do not directly affect cash or working capital are not revealed
from the analysis based on these concepts.
However, the concept of funds as working capital is the most popular one and
in this chapter we shall generally refer to ‘funds’ as working capital and a funds flow
statement as a statement of sources and application of funds.
MEANING AND CONCEPT OF ‘FLOW OF FUNDS’
The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’.
The tern ‘flow of funds’ means transfer of economic values from one asset of equity
to another. Flow of funds is said to have taken place when any transaction makes
changes in the amount of funds available before happening of the transaction.
It the effect of transaction results in the increase of funds, it is called a source
of funds and if it results in the decrease of funds, it is known as an application of
funds. Further, in case the transaction does not change funds, it is said to have not
resulted in the flow of funds.
According to the working capital concept of funds, the term ‘flow of funds’
refers to the movement of funds in the working capital. If any transaction results in
the increase in working capital, it is said to be a source or inflow of funds and if it
results in the decrease of working capital, it is said to be an application or out-flow of
funds.
RULE
The flow of funds occurs when a transaction changes on the one hand a non-
current account and an the other a current account and vice-versa.
When a change in a non-current account e.g., fixed assets, long-term liabilities,
reserves and surplus, fictitious assets, etc., is followed by a change in another non-
current account, it does not amount to flow of funds. This is because of the fact that in
such cases neither the working capital increase nor decreases. Similarly, when a
31
changes in one current account results in a change in another current account, it does
not affect funds.
Funds move from non- current to current transactions or vice-versa only. In
simple language funds move when a transaction affects (i) a current asset and a fixed
asset, or (ii) a fixed and a current liability, or (iii) a current asset and a fixed liability,
or (iv) a fixed liability and current liability; and funds do not move when the
transaction affects fixed assets and fixed liability or current assets and current
liabilities.
CURRENT AND NON-CURRENT ACCOUNTS
To understand flow of funds, it is essential to classify various accounts and
balance sheet items into current and non-current categories.
Current Accounts can either be current assets or current liabilities. Current
assets are those assets which in the ordinary course of business can be or will be
converted into cash within a short period of normally one accounting year.
Current liabilities are those liabilities which are intended to be paid in the
ordinary course of business within a short period of normally one accounting year out
of the current assets or the income of the business.
32
3.b.(1) The Schedule showing changes in working capital
(2005-2006 and 2006-2007)
(RS in Lakhs).
Capital
Particulars
2005-2006 2006-2007 Changes in working capital
Increase Decrease
Current Assets
Inventories
Debtors
Cash
Other current
assets
Current Liabilities
W.C (CA-CL)
Net decrease in
Current Cash
3038
1977
212
1
3537
1234
574
4
499
-
362
3
193
743
5228
1228
4000
5349
1542
3807
193
4000 4107 1057 1057
Fund from operations (RS in Lakhs). .
Particulars Amount Amount
Transfer to general reserve
Provision
Fund from operation
69
169
238
33
3.b.(2) Fund flow statement 2005-2006
(RS in Lakhs).
Sounds Amount Application Amount
Issue of share capital
Fund from operation
Net decrease in W.C
Increase in
miscellaneous
expenses
Increase deferred tax
liabilities
-
238
193
61
189
Decrease in seared loan
Decrease in
Unsecured loans
purchase of Net block
Increase in WIP
Decrease in loans and
advances
23
214
245
93
106
681 681
3.b.(3) Schedule Showing Changes in working capital
(2006-2007 and 2007-2008)
(RS in Lakhs).
Particulars 2006-2007 2007-2008 Changes in working capitalIncrease Decrease
Current AssetsInventoriesDebtorsCashOther Current Assets
35371234 574 4
3410 7961356 12
782 8
127438
34
Total Current assets
Current Liabilities
Total Current Liabilities
Working capital(CA-CL)Increase in work in Capital
140
365
5349
1542
1542
3807 365
5574
1402
1402
4172
Fund From operations (RS in Lakhs).
Particulars Amount Amount
Transfer to general reserve
Provisions
Fund from operation
267593
860
3.b.(4) Fund Flow Statement 2006-2007 (RS in Lakhs)
.Sources Amount Application Amount
Issue of share capital
Fund from operation
Decrease in work in process
Increase in Loans and Advances
Increase differed tax and Liabilities
-
860
242
107
455
Decrease In secured loans
Decrease in unsecured loans
Purchasing of Net block
Net increasing working
capital
Decrease in miscall igneous
Expenses
527
10
686
365
76
1664 1664
35
3.b.(5). The Schedule Showing changes in working capital (2007-2008 and 2008-2009)
(RS in Lakhs).
Particulars 2007-2008 2008-2009
Changes in working
capital
Increase Decrease
Current Assets
Inventories
Debtors
Cash
Other current assets
Total current assets
3410
796
1356
12
3534
718
2165
17
125
809
5
149
78
1010
5574 6434
Current Liabilities
Working capital (C.A –
C.L)
Net increase in working
capital
1402
1402
4172
1010
1253
1253
5182
5182 5182 1088 1088
Fund from Operations
(RS in Lakhs).
Particulars Amt Amt36
Transfer to General Reserve 872
- provision 135
Funds from Operation 1007
3.b.(6)Fund flow statement for the year 2007-2008
(RS in Lakhs).
Sources Amt Applications Amt
Issue of share Capital - Decrease in secured loan 558
Fund from operation 1007 Increase in WIP 8
decrease in Net block 823 Decrease in Loans and Advances 171
Decrease the deferred Tax 83
Net increase in working capital 1010
1830 1830
3.b.(7) . Schedule of changes in working capital
(2008-2009 and 2009-2010)
(RS in Lakhs).
Particulars 2008-2009 2009-2010Changes in working
capitalIncrease Decrease
Current AssetsInventoriesDebtorsCashOther Current Assets
3534718 2165 17
3512 4422305 25
140 8
22276
37
Total Current assets
Current Liabilities
Total Current Liabilities
W.C (CA-CL)Net Decrease in working Capital
638
488
6434
1253
6284
1741
1253
5181
1741
4543 638
5181 5181 786 786
Funds from Operations
(RS in Lakhs).
Particulars Amt Amt
Transfer to General Reserve 284
- provision 161
Funds from Operation 123
3.b.(8)Fund flow statement for the year 2008-2009
(RS in Lakhs).
Sources Amt Applications Amt
Increasing the Capital 873 Decrease in secured loan 607
Fund from operation 123 Purchase of net block 591
Net decrease in W.C 638 Increase in WIP 596
Increase the deferred tax
liabilities
227 Decrease in Loans and Advances 67
1861 1861
38
3.b. (9)Yearly Changes in working capital (2005-2006 to 2008- 2009)
(RS in Lakhs).
Year Changes in working capital
Increase Decrease
2005-2006193 193
2006-2007365 365
2007-2008
1010 1010
2008-2009638 638
Interpretation
The working capital is increase two years that is 2006-2007,2007-2008 and
two years decrease the work capital for 2005-2006,2008-2009
39
3.b. (9)The figure Showing Changes in working capital
(2004-2005 to 2007- 2008)
40
Year
Ch
ange
s of
wor
kin
g ca
pit
al
3.1 TREND ANALYSIS
Trend analysis is apple usual tool for the management. Since it reduces large
amount of absolute data in to a simple and easily from. This method determines the
direction up ward and down ward and involves the computation of the percentage
relationship that statement item bears to the same item in base year.
3.1 (a) The Table showing Five Year Cash Profit and Deficit
Year Cash profit and deficit
(y)
Deviations from the year (y)
xy X2 Trend value
2005 978 -2 -1956 4 1117.4
2006 1060 -1 -1060 1 1402.4
2007 2028 0 0 0 1687.4
2008 2876 1 2876 1 1972.4
2009 1495 2 2990 4 2257.4
∑y 8437 ∑x 0 ∑xy 2850 ∑x2 10
Yc = a+bx
A = ∑y = 8437 a = 1687.4 n 5
41
B == ∑xy =2850 b = 285 ∑x2 10
Yc = a+bx
=1687.4 + 285x
Estimated the profit and deficit for 2011
For 2012 x = 5 so we have
Y2012 = 1687.4 +285x
Y2012 = 1687.4 +285(5) = 3112.4
Estimated the profit and deficit for 2012 = 3112.4
3.1.(a)The Figure Showing Five year Cash Profit and Deficit
0
500
1000
1500
2000
2500
2005 2006 2007 2008
Year
Tre
nd
val
ue
Series1
3.1.(b) Estimates the Cash Profit and deficit for fourth coming year
Year Estimate the cash profit and Deficit
2009-2010 2542.4
2010-2011 2827.4
2011-2012 3112.4
2012-2013 3367.4
42
2013-2014 3682.4
Interpretation
The fourth coming year cash profit increasing the trend.
3.1.(b) The figure Showing Estimates the Cash Profit and deficit for
fourth coming year
43
Est
imat
e th
e ca
sh p
rofi
t an
d D
efic
it
Year
CHAPTER –IV
FINDINGS,
1. Quick Ratio is high in 2004-2005 and the continuous years is fell down bad
position of the company.
2. The operating Ratio of a company is fluctuating . The variation is 0.1. This Ratio
is does not affect the company.
3. The cash profit ratio also goes on fluctuating movement that depicts the company
has good profit earnings for present and future years.
4. The organization debt equity ratio is goes on downward movement this shows that
the company does not maintain the debt and equity proportion as 1:1.
5. The current ratio is shows the bad position of the company, The ratio does not
have the good liquidity position.
6. Schedule of changes in working capital of a company is increasing 2006-2007,
2007-2008 .decrease the working capital 2005 – 2006 , 2008 - 2009.
7. The fund from operation cost is increasing . But the last year is decreasing (2007-
2008) .
8. The cash profit, sales turn over, cash balance, fixed assets year by year increasing
in trend.
44
9. Estimate the forthcoming years Trend is Cash Profit and deficit , Cash balance ,
Sales Turnover is increase.
CHAPTER - V SUGGESTIONS
1. The company must take care of the Quick ratio during the last year in 2008.
2. Castwel auto parts private limited does not have a correlation between sales and
cash. The company must care about the sales and cash.
3. The current Ratio of 2:1 is considered normally satisfactory. Castwel auto parts
private limited should try to improve the current ratio.
4. The company followed an aggressive policy of financing working capital should try
to finance 50% of their working capital using long term source and improve their
status.
5. The company must take care of fund from operation for the last year 2008-2009..
6. The company must take care of the current ratio and cash profit ratio during the
last year.
7. They need to kept more money in reserve and surplus, because the industry has
quick profit as well as quick losses.
8. The enhance the efficiency of cash management collection and disbursement must
be properly monitored.
45
46
CHAPTER - VI
CONCLUSION
The Cash Management Analysis done on the financial position of the
company has provided a clear view on the activities of the company. The use of the
ratio analysis, trend analysis, Fund Flow Statement and other accounting and financial
management helped in this study to find out the financial soundness of the company.
This project was very useful for the judgment of the financial status of the company
from the management point of view.
This evaluation proved a great deal to the management to make a decision on
the regulation of the funds to increase the sales and bring profit to the company. . So
this study will helps the management to eradicate such a negative impact of Quick
ratio , Current ratio, and also helps the organization to take necessary actions in
areas where they are needed. Overall the company cash management is effectively.
The company have a strong solvency position.
47
BIBLIOGRAPHY
Shashi K. Gupta and R.K. Sharma “Financial Management” in Kalyani
Publishers. Sixth Edition.
Company annual report
K.V. Smith “Management of working capital”
Google search
o www.financial management.com
Statistical Methods Gupta S.T. New Delhi, Sultan Chand and Sons, 1998.
s
48
ANNEXTURE
Balance sheet of Castwel Auto parts Pvt.Ltd. (RS in Lakhs).
Particulars March-
05
March-06 March-
07
March-
08
March-
09
Source of funds
Share capital
Reserve and surplus
Total
4127
5450
4127
5519
4127
5786
4127
6658
5000
6942
9577 9646 9913 10785 11942
Loans funds
Secured loans
Unsecured loans
Deferred tax liabilities
Total
2019
269
1243
2086
55
1432
1559
40
1887
1001
-
1504
394
-
1731
13198 13219 13399 13290 14067
Fixer assets
Net block
WIP
Total
7769
183
8014
276
8700
34
7887
42
11837
638
7952 8290 8734 7919 9116
Investments
Inventors
Debtors
Cash
Other current assets
Loans and advances
Total
-
3038
1977
212
1
1332
-
3537
1234
574
4
1226
-
3410
296
1356
12
1333
-
3534
718
2165
17
1162
-
3512
442
2305
25
1095
6560 6575 6907 7596 7379
Current Liabilities
Provisions
Net current assets
Miscellaneous Expenses
Total
1228
314
5019
77
1542
483
4481
138
1402
1076
3952
62
1253
941
3500
-
1741
780
4167
-
13198 13219 13399 13290 14067
49
50