FUNDS FLOW ANALYSIS

CHENNAI CUTTING DIES

SCOPE OF STUDY
Funds flow statement is a analysis by which his study the change in the financial position
beginning and ending of financials statement dates of the CCD. The funds flow statement is
prepared by comparing two balance sheets and with help of such other information derived from
the account as may be needed.

1. Statement changes in working capital of CCD.

2. Statement of source and application of CCD.
The causes of changes in cash position between dates of two balance sheet of the CCD. This
statement is very much similar to the statement of changes in financial position prepared on
working capital.

OBJECTIVE OF STUDY
1.
2.
3.
4.

To study the different sources and applications of the funds of CCD.

To study the different working capital of CCD.
To analysis the changes of financial position of CCD between two balance sheet.
To find out the source from which additional funds were derived and the use to which
their source were put.

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LIMITATION OF STUDY

1. Time has been a limited factor and it has been difficult to analyze the various aspect of
finance within the prescribed time.
2. Financial statements are prepared on the basis of certain accounting concepts and
conventions.
3. Any change in the methods or procedures of accounting system limits the utility of
financial statements. The analysis is based on the secondary data that is financial reports
of 5 years.
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RESEARCH METHODOLOGY

The study had conducted based upon the financial statement in annual reports and accounts of
the firm. Which are published annually by the company.

O Data collection:
Data means information. Data was collected secondary data.
O Secondary data:

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The data has been collected from the annual reports of last 4 years that is the balance sheet profit
and loss account of the company have been taken from the audit report of company. The annual
report of the company was the most direct and easily obtainable source of financial information.

INTRODUCTION
INTRODUCTION TO FINANCIAL MANAGEMENT:
Financial management has always vital and an integrated part of business management.
Financial management is concerned with the planning and controlling of the firms financial
resource. It is often said that the financial management has receives less emphasis as compared
to topics like production and marketing.
However the task of financial planning and on tolling will assume relative more
important role than in the past due to certain changes that have taken place or will take place in
economy.

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Factors such as increasing pace of industrialization, technological innovations land

inventions, raising price levels, increasing influence of government in financial matters etc.
definition of financial management.

Financial management as an application of general managerial principles to the area of

financial decision-making.
-Howard and Upton

Financial management is an area of financial decision making harmonizing individual

motives and enterprise goals.
- Western and Brigham
AICPA (American Institute of Certified Public Accounts) says financial statements are

prepared for the purpose of presenting a periodical review or reports on the progress by the
management and deal with
The status of investments in the business and
The results achieved during the period under review.

IMPORTANCE OF FINANCE:
The developments during past decades have proved the finance function as

foremost

important managerial function, now a day the policy statement of business Concern. In variably
includes these four activities.
(1). Production
(2). Personnel or Human Resource
(3). Marketing
(4). Finance
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Finance provides the necessary for continued business operations of all types. As A
matter of fact, financial decision is involved so extensively in each type of business Activity that
it may be rightly called a binding force; it is so intermingled with other Functions- Production,
Marketing, and Personnel etc., that there is very difficult in
Appreciating the part it Place. Finance is concerned with the task of providing funds to
the enterprises on the term that is most favorable towards the attainment of the organizational
goals objects. The function of finance is not merely furnishing funds to the organization.
Finance may be defined as the provision of money at the time when it is required. Finance may
refer to the management of flows of money through an organization.

FUNDAMENTAL PRINCIPLE OF FINANCE:

A business proposal-regardless has whether it is a new investment or acquit Ion of another
company or restructuring initiative raises the value of the firm, only if the Present value of the
future stream of net cash benefits expected from the proposal is greater Than the initial cash
outlay required to implement the proposal.
The difference between the present value of future cash benefits and initial outlay

Represent

outlay represents the net present value of NPV of the proposal.

NPV = Present value of future cash benefits Initial cash outlay

FUNDS FLOWS STATEMENT

Funds Flow Statement is an analytical tool in the hands of financial manager. The basic
purpose of this statement is to indicate on historical basis the changes in the working capital i.e.,
where funds came from and were there are used during a given period.
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Funds Flow Statements summarize a firms inflow and outflow of funds. Simply put, it
tells investors where funds have come from and where funds have gone. The statements are often
used to determine whether companies efficiently source and utilize funds available to them.

DEFINITION:
"the fund flow statement describes the sources from which additional funds there derived
and the uses to which these funds were. Put".
-R.K.Anthony
"a statement of sources and application of funds is a technical device designed to analyses
the changes in financial conditions of a business between two dates.
-R.A.F bulk
"it is a statement which highlights the underlying financial movements and explains the
changes of working capital from one point of time to another".
-Bier man
Funds flow statements are prepared by taking the balance sheets for two dates
representing the coverage period. The increases and decreases must then be calculated for each
item. Finally, the changes are classified under four categories:
(1) Long-term sources,
(2) Long-term uses,
(3) Short-term sources,
(4) Short-term uses.
It is also important to zero out the non-fund based adjustments in order to capture only
the changes that are accompanies by flow of funds. However, income accrued but received and
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expenses incurred but not received reckoned in the profit and loss statement should not be
excluded from the profit figure for the fund flow statement.
Fund flow statements can be used to identify a variety of problems in the way a company
operates. For example, companies that are using short-term money to finance long-term
investments may run into liquidity problems in the future. Meanwhile, a company that is using
long-term money to finance short-term investments may not be efficiently utilizing its capital.
A summary of main points of differences between these two is give below:1. Balance sheet is a statement showing the financial position of the concern on a particular
date. The asset side portrays the development of resources in various types of properties
an liabilities side indicates the manner in which these resources are obtained. It shows all
assets and liabilities whether current or fixed, tangible or intangible etc., while Funds
Flow Statement shows the changes in current assets an current liabilities during a
particular period of time.
2. Balance Sheet shows the total financial position on a particular date and in this way, it is
of a historical nature and therefore, its utility is very limited for the management. On the
other hand, Funds Flow Statement is a comparative statement of assets and liabilities and
depicts the changes in working capital during the period of two Balance sheets.
3. Funds Flow Statement is an analysis and control device for the management.
Management can ensure the long term an short term solvency of the firm by studying the
internal funds flow cycles. It is a modern technique of knowing the inflows and outflows
of funds during a particular period. Balance Sheet represents the balance of various assets
an liabilities and does not present analysis of any kind.
4. There are two views of h financial position of the firm-long term an short-term. Shortterm financial position means the technical solvency of the firm in the near future while
on the other hand, long-term financial position means future financial structure of the
firm. Both are inter-relate but there is a differences in their analysis. The short-term view
of the financial position of the firm ca not be had from the Balance Sheet
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PREPARATION OF FUNDS FLOW STATEMENT:

In order to prepare a fund flow statement it is necessary to mind out the sources and applications of
funds.

SOURCES OF FUNDS:
1. Funds from Operation:
Fund from operation is the only internal source of funds. Some adjustments are to made in
calculative funds from operation to the net profit given in the financial statement.
2. Calculation of Funds from Operation:
Start with the net profit given in the profit and loss account.

OBJECTIVE OF FUND FLOW STATEMENT:

Fund Flow Statement is a widely used tool in the hands of financial executives for
analyzing the financial performance of a concern. Funds keep on moving in a business which
itself is based on a going concern concept. In a narrow sense, it means cash only and a funds
flow statements prepared on this basis is called as Cash Flow Statement. Such a statement
enumerates net effects of the various business transactions on cash and takes into account
receipts and disbursements of cash. In a broader sense, the term Fund refers to money values in
whatever form it may exist. Here Funds means all financial resources in the form of men,
Materials, Money, Machinery etc. But in a popular sense, the term Funds, means working
capital, i.e. the excess of current assets over current liabilities. When the funds move inwards or
outwards, they cause a flow or rotation of funds. The word Fund here means net working
capital.

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The main purposes of Fund Flow Statement are:

1. To help to understand the changes in assets and assets sources which are not readily

evident

in the income statement of financial statement.

2. To inform as to how the loans to the business have been used.
3. To point out the financial strengths and weakness of the business.
The utility of this statement can be measured on the basis of its contributions to the
financial management. It generally serves the following purposes:(1)Analysis of Financial Position
The basic purpose of preparing the statement is to have a rich into the financial operations of the
concern. It analyses how the funds were obtained and used in the past. In this sense, it is a
valuable tool for the finance manager for analyzing the past and future plans of the firm and their
impact on the liquidity. He can deduce the reasons for the imbalances in uses of funds in the past
a take necessary corrective actions. In analyzing the financial position of the firm, the Funds
Flow Statement answers to such questions as-

1. Why were the net current assets of the firm down, though the net income was up or
vice versa?
2. How was it possible to distribute dividends in absence of or in excess of current income
3.
4.
5.
6.
7.

for the period?

How was the sale proceeds of plant and machinery used?
How was the sale proceeds of plant and machinery used?
How were the debts retired?
What became to the proceeds of share issue or debenture issue?
How was the increase in working capital financed?
Though it is not an easy job to find the definite answerers to such questions because

funds derived from a particular source re rarely used for a particular purpose. However, certain

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useful assumptions can often be made and reasonable conclusions are usually not difficult to
arrive at.

(2) Evaluation of the Firm's Financing:

One important use of the statement is that it evaluates the firm' financing capacity. The
analysis of sources of funds reveals how the firm's financed its development projects in the past
i.e., from internal sources or from external sources. It also reveals the rate of growth of the firm.

(3) An Instrument for Allocation of Resources:

In modern large scale business, available funds are always short for expansion
programmers and there is always a problem of allocation of resources. It is, therefore, a need of
evolving an order of priorities for putting through their expansion programmers which are phase
accordingly, and funds have to be arranged as different phases of programmers get into their
stride. The amount of funds to be available for these projects shall be estimated by the finance
with the help of Funds Flow Statement. This prevents the business from becoming a helpless
victim of unplanned action.

(4) A Tool of Communication to Outside World:

Funds Flow Statement helps in gathering the financial states of Business. It gives an
insight into the evolution of the present financial position and gives answer to the problem
'where have our resources been moving'? In the present world of credit financing, it provides a
useful information to bankers, creditors, financial, it provides a useful informations and
government etc. regarding amount of loan required, its proposes, the terms of repayment an
sources for repayment of loan etc. the financial manager gains a confidence born out of a study
of Funds Flow Statement. In fact, it carries information regarding firm's financial policies to the
outside world.

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(5) Future Guide: An analysis of Funds Flow Statements of several years reveals certain
valuable information for the financial manager for planning the future financial requirements of
the firm and their nature too i.e. Short term, long-term or midterm. The management can
formulate its financial policies based on information gathered from the
Analysis of such statements. Financial manager can rearrange the firm's financing more
effectively on the basis of such information along with the expected changes in trade p payables
and the various accruals. In this way, it guides the management in arranging its financing more
effectively.
Analysis of such statements. Financial manager can rearrange the firm's financing more
effectively on the basis of such information along with the expected changes in trade p payables
and the various accruals. In this way, it guides the management in arranging its financing more
effectively.

ADVANTAGES OF THE FUNDS FLOW STATEMENT

It provides information about how funds are obtained and in the process of decision

making.
It registers changes in the flow of funds during a given period of time.
It is supplementary to the conventional financial statements.
It indicates how funds are generated from the different financial resources of a
corporation and how the reservoir of its assets is created. In other words it depicts

changes in the financial structure of the corporation.

It is an important tool in the hands of the financial manager deter5mines the financial
consequences of business operations. It explains why in spite of making profits a

corporation is illiquid position.

Indicates how funds are generated from the different financial resources of a corporation
and how the reservoir of its assets is created. In other words it depicts changes in the
financial structure of the corporation.

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It is an important tool in the hands of the financial manager in the process if decision

making.
It determines the financial consequences of business operations. It explains why in spite

of making profits a corporation is illiquid position.

It enables the financial manager to obtain answers to a number of questions regarding the
amount of loan requirements the purpose for which it may be required the terms of

repayment the source of repayment etc.

It may enable the financial manager to allocate resources to productive investments.
It is closely related to the normal business decision making process accounting statements

balance sheets and income statements and is related to a time span.

It any enable the management to take decision on planning a dividend policy on
challenge out a programmed of the financial re- organization.

LIMITATIONS OF FUNDS FLOW ANALYSIS:

It is essentially historic in nature and projected funds flow statement cannot be prepared

with much accuracy.

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

DIFFERENT NAME OF FUNDS FLOW STATEMENT:

1. A statement of sources and Uses of funds.
2. A statement of Sources and Application of funds.
3. Where got and where gone Statement.
4. Inflow and out flow of funds statement.

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MAIN PURPOSE OF FUNDS FLOW STATEMENT:

1.
2.
3.
4.
5.

To help to understand the changes in assets and which are not evident
Financial statement or I the income statement.
To inform on to how the loans to the business has been used.
To point out the financial strengths and weakness of the business.
To help in planning sound dividend policy.

PROCEDURE FOR PREPARING A FUNDS FLOW STATEMENT:

(1) The preparation of funds flow statement consists of 2 parts.
(2) Statement or schedule of changes in working capital.
(3) Statement of sources and Applications of funds.

STATEMENT OR SCHEDULE OF CHANGES IN WORKING CAPITAL:

Working capital means the excess of current assets over current liabilities. Statement of
changes in working capital is proposed to show the changes in the working capital between two
balance sheets data. This statement is prepared with the help of current assets and current
liabilities derived from two balance sheets.

Working Capital = Current Assets Current Liabilities

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

Increase in Current Assets, Increases the Working Capital.

Decrease in Current assets, Decrease the Working Capital.

Increase in Current Liabilities, Decreases the working capital.

Decrease in Current Liabilities, Increases the Working Capital.

PROFORMA OF STATEMENT OF CHANGES IN WORKING CAPITAL

Base
Year

Curre
nt
Year

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx

Income tax (advance tax)

Sales tax
Total Current assets

xxx
xxx
xxx

xxx
xxx
xxx

Current liabilities
Trade creditors

xxx

xxx

PARTICULAR
Current assts (CA)
Inventories:
Raw material
Consumable stores
Finished goods
Sundry debtors
Cash in hand
Balance with bank
Other current assets:
Deposits

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Changes in working
Capital
Increasin Decreasin
g
g

FUNDS FLOW ANALYSIS

Dealers deposits

CHENNAI CUTTING DIES

Expenses payable
Total Current liabilities

xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx

Working Capital (Current assets

- current liabilities)

xxx

xxx

Net Increase/ decrease working

capital

xxx
****
*
***

xxx
******
**

********

********

STATEMENT OF SOURCES AND APPLICATION OF FUNDS:

Funds flow statement is a statement, which indicates various sources for which funds
have been obtained during a chain period and the u3es nr applications to which these funds have
been put during that period.
1. Sources of funds
2. Application of Funds.

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STATEMENT OF SOURCES AND APPLICATIONS

Particulars

Amount

Particulars

(Rs)
Sources of funds

Application of funds

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Amount(Rs)

FUNDS FLOW ANALYSIS

Funds

from

CHENNAI CUTTING DIES

trading

factitively or operating
Profit Issue of shares

of

costs

in .

operations
Repayment

and debentures
Receipts

Funds

of

debentures
dividend

and Interests
.
Sales proceeds of Non
current asset long term

Borrowings

Reduction

Capital

in

share

Capital
Interest

Decrease

in

and

dividend

paid [Payment of Long

working
..

term loans.
Increase

in

working

capital

REVIEW OF LITERATURE

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

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In simple, the funds flow statement is a statement of sources and application of funds. In
short, it is a technical device designed to high light the change in the financial condition of a
business enterprise between tow Balance Sheets.
According to Robert Anthony the funds flow analysis describes the sources fro which
additional funds were derived and the uses to which these funds were put.
According to Fouke, A Statement of sources and Applications of funds is a technical
device designed to analyze the changes in the financial position of a business enterprise between
two rates.
Finds flow statement is widely used by the financial analyst and credit granting
institution and financial managers in performance of their jobs. It has become a useful tool in
their analytical kit. This is because the financial statement like income statement and - balance
sheet have limited role to perform, Income statement measures flows restricted to transaction that
pertain to rendering of good and services to customers. The balance sheet is merely a static
statements these statements do not sharply focus those major financial transactions, which have
behind the n\balance sheet changes.

DATA ANALYSIS AND INTERPRETATION

FUNDS FLOW STATEMENT ANALYSIS FOR THE YEAR ENDED 31 ST

2007-2008

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statement of changes in working capital 2007-2008

(Rs in crores)

FUNDS FLOW ANALYSIS

particulars

CHENNAI CUTTING DIES

2007

2008

Increase

Decrease

current assets
cash in hand

10801657

11582492

cash at bank

2165179

475225

deposits & advance

5130000

car loan

15022309

closing stock

8476200

780835

5130000

52000000

1689954

36977691

3212000

5264200

Total current assets(A) 41595345 72399717

Current liabilities
Sundry creditors

Over drafts

136840102 89743795

100900450 96536531

Total current liabilities 237740552 186280326 37758526

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(B)

Working capital (A-B)

196145207 113880609

47096307

4363919

97684380

FUNDS FLOW ANALYSIS

DATA ANALYSIS AND INTERPRETATION

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STATEMENT OF CHANGING IN WORKING CAPITAL 2008-2009 (Rs in crores)

FUNDS FLOW ANALYSIS

Particular

CHENNAI CUTTING DIES

2008

2009

Increase

Decrease

Current assets

Sundry debtors

72356202

143949008

Cash in hand

11582492

1233628

Cash at bank

475225

Deposits & advance

Closing stock

Total current assets

5130000

10348864
475225

5130000

3212000

92755919

71592806

5321200

2109200

155633836

(A)

Current liabilities

Sundry creditors

Sundry creditors for

13986855

120149585 30405790

12529900

12529900

expenses
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bank over draft

96536531

91889023

4647508

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FUNDS FLOW STATEMENT ANALYSIS FOR THE YEAR ENDED 31ST 2008-2009

DATA ANALYSIS A DAT

DATA ANALYSIS AND INTERPRETATION

FUNDS FLOW STATEMENT ANALYSIS FOR THE YEAR ENDED 31ST 2009-2010

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STATEMENT OF CHANGING IN WORKING CAPITAL 2009-2010 (Rs in crores)

Particular

2009

2010

Increase

Decrease

Current assets

Sundry debtors
Cash in hand
Deposits & advance

Closing stock

Total current assets

143949008
1233628
5130000

53212000

155633836

30157122
24709831
5130000

4153000

13791886
23476203
0

49059000

64149953

(A)

Current liabilities

Sundry creditors

120149585

88918122

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31231463

FUNDS FLOW ANALYSIS

Sundry creditors

CHENNAI CUTTING DIES

12529900

12529900

expenses

bank over draft

91889023 80524209

11364814

Total current
Liabilities (B)

Working capital(A-B)

224568508

68934672

169442331 23476203

217977063

105292378

Increases in working

36357706

Capital

DATA ANALYSIS AND INTERPRETATION

FUNDS FLOW STATEMENT ANALYSIS FOR THE YEAR ENDED 31ST 2010-2011
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STATEMENT OF CHANGING IN WORKING CAPITAL 2010-2011 (Rs in crores)

Particular

2010

2011

Increase

Decrease

Current assets

Sundry debtors
Cash in hand
Deposits & advance

30157122
24709831
5130000

Closing stock

4153000

Cash in bank

Total current assets

64149953

188587375

158430253

27872382

3162551

9441187

4311187

5621500
49610151

1468500
49610151

281132595

(A)

Current liabilities

Sundry creditors

88918122

210157910

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679030212

FUNDS FLOW ANALYSIS

Sundry creditors

CHENNAI CUTTING DIES

12529900

12529900

expenses

bank over draft

80524209

80524209

Total current
Liabilities (B)

Working capital(A-B)

169442331

210157910 167372491

105292378

772084321

70974685

Increases in working
Capital

FUNDS FLOW STATEMENT 2007-2008

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34317693

FUNDS FLOW ANALYSIS

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source

AMOUNT

SHARE CAPITAL

176570556

CAR LOAN

67022309

Fund from operation

202663276

DECREASE OF WORKING

Application

FIXED ASSETS

DEPOSISTS

82264598

CAPITAL

528520739

528520739

INFERENCE:
The above statement shows that decrease in working capital of Rs 8.2crores.

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AMOUNT

528418139

102600

FUNDS FLOW ANALYSIS

source

AMOUNT

CHENNAI CUTTING DIES

Application AMOUNT

SHARE CAPITAL

266865662

FIXED ASSETS

CAR LOAN

960556

DEPOSISTS

609367196

102600

Funds from
operation

380220168

INCREASE IN WORKING

CAPITAL

648046384

648046384

FUNDS FLOW STATEMENT 2008-2009

INFERENCE:
The above statement shows that Increase in working capital of Rs 3.8crores.
FUNDS FLOW STATEMENT 2009-2010
INFERENCE:
The above statement shows that Increase in working capital of Rs 3.6crores.

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38576590

FUNDS FLOW ANALYSIS

source

AMOUNT

CHENNAI CUTTING DIES

Application AMOUNT

SHARE CAPITAL

577801165

CAR LOAN

581613

HOUSING LOAN

1435013

FIXED ASSETS

DEPOSISTS

INCREASE IN WORKING

CAPITAL
Funds from

322852547

operation

902670338

902670338

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853781458

14571187

34317693

FUNDS FLOW ANALYSIS

source

AMOUNT

CHENNAI CUTTING DIES

Application AMOUNT

SHARE CAPITAL

388178576

FIXED ASSETS

CAR LOAN

790617

DEPOSISTS

HOUSING LOAN

587076OO

INCREASE IN WORKING

CAPITAL
Funds from operation

337198561

447676793

447676793

FUNDS FLOW STATEMENT 2010-2011

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74017926

102600

36357706

FUNDS FLOW ANALYSIS

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INFERENCE:
The above statement shows that Increase in working capital of Rs 9crores.

SUGGESTIONS

As the company is paying huge amount as interest to bank and financial institute, it is better for
the company to concentrate on moderating net worth.
The company should take proper care in financing the assets. As far as possible working capital
should be used for long term.
The company must reduce the operating expenses.
The company should decrease its current liabilities to increase its working capital.

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CONCLUSION

Except of the first year the study period it is observed that the fund for operations is on profit.
Except of the first year of the study of period, funds were utility for financing the working capital
requirements.
The study revealed a mixed trend of application and source of funds in respect of secured and
unsecured loans.

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FINDINGS

O The company assets decrease RS3.3crores and 7.2crores.

O (2007-2011) the company has been in profit.
O To increase current liabilities from3.3crores in the year 2007 to RS6.9crores in 2011
The financial level of the company is not satisfactory.

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FUNDS FLOW ANALYSIS

CHENNAI CUTTING DIES

BALANCE SHEET OF CHENNAI CUTTING DIES (2007-2011)

2007

2008

2009

2010

2011

222614690

305803449

303563747

436611179

417170279

particular

CURRENT ASSETS:

FIXED ASSETS

VCR Institute of Management Studies Page 35

FUNDS FLOW ANALYSIS

DEPOSITS

CHENNAI CUTTING DIES

&

ADVANCE

5130000

5130000

5130000

5130000

9441187

83853503

72356202

143949008

30157122

188587375

10801657

11582492

1233628

24709831

27872382

2165179

475225

49610151

8476200

3212000

5321200

4153000

5621500

333041230

398559368

459197583

500761132

698302874

SUNDRY DEBTORS
CASH IN HAND

CASH AT BANK

CLOSING STOCK

TOTAL CURRENT
ASSET

CURRENT
LIABILITIES:

SHARE CAPITAL
SUNDRY
CREDITORS
VCR Institute of Management Studies Page 36

FUNDS FLOW ANALYSIS

SUNDRY

CHENNAI CUTTING DIES

80278369

96292187

170573475

217605101

360196064

136840102

89743795

120149585

88918122

210157910

13986855

12529900

96536531

91889023

80524209

50000000

20000000

20000000

20000000

15022309

52000000

44055600

35006100

23155200

58707600

84793700

333041230

398559368

459197583

500761132

698302874

CREDITORS-EXP
BANKOVERDRAFT

RENTAL ADVANCE
CAR LOAN

100900450

HOUSINGLOAN
TOTAL CURRENT
LIABILITIES

VCR Institute of Management Studies Page 37