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A

PROJECT REPORT

ON

CASH FLOW STATEMENT & RATIO ANALYSISFor

GUJARAT ALKALIES & CHEMICAL LIMITED

Submitted to

C.K.SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

Under

Gujarat Technological University

UNDER THE GUIDANCE OF

Faculty Guide Company Guide

Ms.Stuti Trivedi Mr.A.K.Mishra

Assistant Lecturer Finance Officer

Submitted by

Dhruti R.Bhatt

Enrollment No.:107050592071

M.B.A.-SEMESTER

C.K.Shah Vijapurwala Institute of Management

M.B.A. PROGRAMME

Affiliated to Gujarat Technological University

Ahmedabad

July 2011


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PREFACE

In the present fast moving, globalize economy, only theoretical

knowledge is not sufficient for an individual to perform efficiently to bridge the

gap between theory and practical.

The students are required to undergo training in any organization in

subjects like marketing, finance, human resources or information technology.

Summer Internship Program is a Prelude to the final placements that

the students will be getting. It is during these fourty-five days of exposure to

the industry that the student can make a mark of hard-work, sincerity,

knowledge and ethics on the host organization.

Summer Internship Program would also be a great learning experiencesince it enables the students to apply theory to practice, observe, and learn

the current trends in the market.

Therefore, in order to have a practical exposure, I have been placed in

GUJARAT ALKALIES & CHEMICAL LIMITED. company for my Summer

Internship Program, as my specialization is FINANCE.


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ACKNOWLEDGEMENT

It is a universal truth that NO PREPARATION IN ANY WORK CAN BE

OBTAINED WITHOUT INSPIRATION. For successful completion of any

work, you may need requisite guidelines.

First of all,I like to extend sincere thanks to Ms.Ishita Ashara, Faculty of

C.K.Shah Vijapurwala Institute of Management, Vadodara for providing

me an opportunity to undertake this project & giving me her valuable

guidance.

I am very thankful to Shri Rajkumar Emmunal, Manager (Human Resource

Department) who has permitted me to undertake all activities associated with

my project during office hours.

I am also thankful to my sectional head Mr.A.K.Mishra, Manager (Finance

Department) who has provided me necessary guidance regarding my topic.

I am also thankful to C.K.Shah Vijapurwala Institute of Management,

Vadodara for providing me a golden opportunity to attain the professional

qualification in the field of Financial Management.

I also like to extend sincere thanks to Gujarat Technological University,

Ahmedabad for introducing such type of training in M.B.A. syllabus.


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DECLARATION

I Dhruti R.Bhatt, herby declare that the report for Summer Training

Project entitled Cash Flow Statement is a report of my own hard my own

hard work and my indebtedness to other work publications, referances, if any,

have been acknowleged.

Place: Vadodara

Date: 28/7/11 Dhruti R. Bhatt


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EXECUTIVE SUMMARY

This project contains bird view about global chemical industry, details of GujaratAlkalies & Chemical Ltd, details about Caustic soda and status of chemical market

in India.

In section of Indian chemical industry, I have put details about introduction, history,

major domestic and global chemical market, various types of chemical product,

various demand detail and analysis of finance sector. Moreover, I have taken

Gujarat Alkalies & Chemical Ltd for company study. It contains details like

introduction, company profile, product profile and also details about various functional

departments.

This project gave an idea about future research related to Cash Flow Statment.This

project taught us how we can use secondary data and relate it to find out any details.


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TABLE OF CONTENTS

PREFACE

ACKNOWLEDGEMENT

DECLARATION

ANNEXTURE

REFERENCE

SR.NO. PARTICULARS PAGE NOS.

PART-1 GENERAL INFORMATION

1 About GACL

1.1 GACL History 10

1.2 World Market 21

1.3 Indian Market 23

1.4 Growth of GACL 25

1.5 SWOT Analysis of GACL 26

2 About major companies in the Industry 28

3 Product Profile 29

PART-2 PRIMARY STUDY

4 4.1Introduction of the study 34

4.2 Literature Review 36

4.3 Background Information 37

4.4 Objectives of the study 41

4.5 Specimen of Cash Flow Statment 43

5 Data Analysis and Interpretation 47

6 Result & Findings 64

7 Limitation of the Study 65

8 Conclusion/Suggestions 66


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LIST OF TABLES

SR. NO. PARTICULARS TABLE NO. PAGE NO.

1. Export Oriented Countries of GACL 1 22

2. Product Analysis 2 30

3. Formate of Cash Flow Statment:

Indirect Method

3 42

4. Formate of Cash Flow Statment: Direct

Method

4 44

5. Cash Flow Statment of GACL 5 46

6. Cash Flow Margin Ratio 6 51

7. Free Cash Flow to Operating Cash FlowRatio

7 53

8. Short term Debt Coverage Ratio 8 56

9. Capital Expenditure Coverage Ratio 9 58

10. Dividend Payout Ratio 10 61

11. Operating Cash Flow Ratio 11 62

LIST OF GRAPHS

SR. NO. PARTICULARS GRAPH NO. PAGE NO.1. Cash Flow Margin Ratio 1 51

2. Free Cash Flow to Operating Cash Flow

Ratio

2 56

3. Short term Debt Coverage Ratio 3 57

4. Capital Expenditure Coverage Ratio 4 59

5. Dividend Payout Ratio 5 62

6. Operating Cash Flow Ratio 6 63


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PART- 1

GENERAL INFORMATION


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1.1 ABOUT GACL

GACL HISTORY:

Gujarat Alkalis and Chemicals Limited (GACL) were incorporated on

29th March, 1973 in the State of Gujarat by Gujarat Industrial Investment

Corporation Limited (GIIC), a wholly owned company of Govt. of Gujarat, as a

Core Promoter.

GACL has two units located at Vadodara and Dahej, both in the State

of Gujarat. It has integrated manufacturing facilities for Caustic Soda,

Chlorine, Hydrogen Gas, Hydrochloric Acid, Chloromethanes, Hydrogen

Peroxide, Phosphoric Acid, Potassium Hydroxide, Potassium Carbonate,

Sodium Cyanide, and Sodium Ferrocyanide. The Dahej unit also has 90 MW

Captive Power Plant (CPP) for regular and economical power supply.

The Company commenced its operations in 1976 with 37,425 MTPA

Caustic Soda Plant based on the then, state-of-the-art Mercury Cell process

at its Plant which is situated 16 km North of Vadodara near Village Ranoli on

the main Railway track route between Ahmedabad and Mumbai.

Right from the inception, GACL has been following the strategy of

continuous capacity expansion in core areas. The first stage expansion of the

Caustic Soda Plant raising the capacity to 70,425 MTPA was undertaken in

October, 1981 followed by a diversification programme to produce 2000

MTPA of Sodium Cyanide in December, 1982.

In 1984, the second stage expansion to increase the capacity ofCaustic Soda Plant to 103,425 MTPA was undertaken. Simultaneously, the


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Company undertook the diversification project for manufacture of 10,560

MTPA of Chloromethanes using Chlorine, a co-product of the Company and

in 1991, the capacity of Chloromethanes production was doubled.

As power is the major input for production of Caustic Soda and

constitutes about 65% to 70% of the cost of production, the Company along

with other Corporations like M/s. GSFC, Petrofils Co-operative Ltd. and

Gujarat Electricity Board promoted a gas based power unit in Vadodara under

the name of Gujarat Industrial Power Company Ltd. (GIPCL) during the year

1985. As a promoter of GIPCL, the Company gets low cost power, as the

plant is gas based and is depreciated.

Since production of Caustic Soda is highly power intensive, in order to

reduce power cost and to eliminate mercury pollution, the Company, during

the year 1989, converted one of its Cell Houses producing Caustic Soda from

Mercury Cell Technology to environment friendly Membrane Cell Technology,

thereby eliminating the use of mercury. The Capacity of Caustic Soda wasincreased to 132000 MTA.

The conversion of second Mercury Cell to Membrane Cell was carried

out during March, 1994, thereby eliminating the total use of mercury from the

Complex for production of Caustic Soda and increasing the capacity of plant

along with this conversion to 170000 MTA including Potassium Hydroxide

facility.

As part of this Membrane Cell Conversion Project, a new facility for

manufacture of 16500 MTA of Potassium Hydroxide Lye based on Membrane

Cell was also set up. The Company has further set up facility for converting

part of this Caustic Potash Lye into Potassium Carbonate with a capacity of

13200 MTA.


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In order to add further value to its products, the company had set up

manufacturing facility for production of 11000 MTA Hydrogen Peroxide

(100%) at Vadodara Complex during the year 1996 to utilize Hydrogen gas,

which is a co-product from Caustic Soda Process.

In 1995, as a part of diversification programme and to meet the

growing demand of its products in the State of Gujarat and nearby areas, the

Company had set up a plant for manufacture of Technical Grade Phosphoric

Acid with capacity of 26400 MTA "(85% Phosphoric Acid) at a new location at

Dahej, District Bharuch. The Company also set up Membrane Cell based

grass root Caustic-Chlorine Unit with a capacity of 100000 MTA at Dahej.

Along with this, a captive 90 MW co-generation Power Plant was set up so as

toensure uninterrupted and low cost power for its captive operation.


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COMPANY PROFILE:

NAME:-

GUJARAT ALKILIES & CHEMICAL LIMITED (GACL)

REGISTERED OFFICE:-

P.O. Petrochemicals -391346

Dist -Vadodara

Gujarat (INDIA)

Pin-391346

VADODARA COMPLEX:-

P.O. Petrochemicals -391 346

DistVadodara

Gujarat (INDIA)

Pin-391346

Phone - (0265) - 2232681 -82 / 2232701

DAHEJ COMPLEX:-

Village: Dahej -392 130

Tal: Yagra

Dist: BharuchGujarat (INDIA)

Phone -(02647) - 256315-16-17 / 256235

FORM OF ORGANISATION:-

Joint Venture

SIZE OF ORGANISATION:-

Large Scale Organisation

AUDITIORS:-

Messers Prakash Chandra Jain & Co.

Chartered Accountants,

Vadodara

SOLICITORS:-

Messers Amarchand & Mangaldas

& Suresh A. Shroff & Co.


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COST AUDITORS:-

Messers Diwanji & Associate

Cost Accountants

Vadodara.

COMPANY SECRETARY & GENERAL MANAGER:-

Shri. V.L.Vyas

BOARDS OF DIRECTORS:-

Dr. ManjulaSubramaniam (I.A.S) Chairman

Shri V.I.Joshi (I.A.S)

Shri G.C.Murmu (I.A.S)

Shri G.M.Yadwadkar

Dr. Sukh Dev

Shri Guruprasad Mohapatra (I.A.S.). Managing Director

BANKERS:-

State Bank of India

Central bank of India

AXIS Bank Ltd. (UTI)

IDBI Bank Ltd.

UCO Bank

Indian Bank

HDFC Bank Ltd.


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POLICIES ADOPTED BY GACL:

1. SHE Policy:


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2. Supply Chain Policy:


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3. Training & Development Policy:


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4. Information Technology Policy:


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5. Quality Policy:


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ORGANISATION STRCTURE:

GM(Pe

rsonnel

)

CS &

GM

CGM(

Materia

l Mgt.l)

Chief

(financ

e

ED

(Com

m-

Sr.ED(Tech.)

CGM(Dahej)

GM(Eng.

Service

GM(Security

&Vigila

GM(Elect.

)

GM(Safety

&Env.)

I/CGM

(Operation S

GM(Corpor

atePlann)

DG

M(P

&

GM

(Finan

DGM

(MM)

DGM

(Secre

GM

(Mktg

GM(M

S.Adm

DGM

(Mktg.)

DGM

(Corporate

DGM

(Oper -3)

DGM(Elect.)

DGM

(Elect)

DGM

(Inst.)

DGM

(Mech)

GM

(Engg.

DGM(Operation -4)

DGM

(Financ

MD


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1.2 WORLD MARKET

EXPORT:

GACL is exporting various goods to other countries.

Export: -

Raw materials are purchased from India only but its ultimate food is to

sent, out of India as finished foods, are treated as export orient unit(EOU).

Deemed Export: -

Finished goods are sold within the country only but outside Gujarat in

another state.

Consignment Sales: -

Transfer of raw materials, semi-finished goods from one branch to

other. There is no service tax charged.

Export finance is done by commercial banks in two phases, namely

pre-shipment and post-shipment. Mostly the medium and small scale

exporters who required working capital for buying raw material and buying

manufacturing expenses generally required pre-shipment finance. It is rupee

finance provided by the commercial banks on the basis of the confirmed

export order. It is presently available at 9% rate of interest, which is must

lower than the commercial rate charge by the banks for extending credit for

domestic trade.


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GACL's export destinated countries:

Export Destinated Countries

Table No.1

Export Item Country

Caustic Soda African Countries

Chlorine Australia

Hydrochloric acid China

Potassium Carbonate Europe

Methaline chlorine East countries

Chloroform Latin American Countries

Phosphoric acid Middle east

Sodium Cyanide Mauritius

Hydrogen peroxide South Asia

Aluminum chloride USA


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1.3 Indian Market

GACL is one of the largest producers of caustic soda in India with a

market share of 18% in the domestic chlor-alkali market.

It has an installed production capacity of 4,29,000 metric tons (MT) of

caustic soda as on 31st March, 2010. The companys caustic soda group

includes caustic soda lye, caustic soda flakes, caustic soda prills, sodium

hypo chlorite, liquid chlorine, compressed hydrogen, gas and hydrochloric

acid.

GACL has capicity expansion plans of about Rs.26 bn for various projects

for next three to four years.

The company is putting up a 600 tons per day (TPD) chlor-alkali project,

20,000 tons per annum (TPA) sodium chlorate project, 100MW captive co-

generation power plant, 8000 TPA hydrazine hydrate project and 150

KTPA polyols project. The projects are progressing as per schedule and

expected to commence by Fnancial Year 2014. Also the company has

taken up an expansion of its existing hydrogen peroxide project to

increase the capacity by 14000 TPA and project scheduled for commission

in Financial Year 2011.

The company is a multi-product company and has more than 27 products

in their product portfolio.

The company manufactures various basic chemicals like chloromethanes,

sodium cyanide, sodium ferro cyanide, hydrochloric acid, caustic potash,

potassium carbonate, phosphoric acid (85%), hydrogen peroxide, poly

aluminum chloride, anhydrous aluminum chloride and many more.

GACL drives 65% of its revenue from chlor-alkali business and 35% from

other products

Key risks in Indian Market:

Timely and successful completion of expansion projects

Intense competition from domestic as well as international market

Rise in raw material prices due to scarcity in the global market

Increasing power & fuel cost which is major input for production of

caustic soda

Foreign exchange fluctuation


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1.4 GROWTH OF GACL

GROWTH STRATEGY:

To remain the largest producer.

To maintain highest quality & be the first choice of customer.

To remain in the lowest production through captive power.

To have down stream value added products & flexibility of product

mix for better margins & wide market.

To ultimate good to remain leader in the chlor alkalis.

VISION:

To continue to be identified & recognized as dynamic, modern & eco

friendly chemicals company with enduring ethics & values.

MISSION:

To manage business responsibility & sensitivity in order to address the

needs of customers & stakeholders.

To strive for continuous improvement performance, measuring results

precisely & ensuring GACL's growth & profitability through innovations.

To achieve the highest ethical standards and to ensure products &

processes to be of the highest quality.


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1.5 SWOT ANALYSIS OF GACL

STRENGTH : Single largest caustic soda producer in the country coin a capacity of

27000 TPA having industry share of 13.75%

Leader in chlor-alkali industry

Low cost power from GIPCL Baroda

Integrated down stream plants

In house research and development

Dedicated men power

Proximity to raw material source and market Excellent industry relation

Strong and committed work force

The company has been awarded ISO9001:2000certificated from 20th

Nov.03 Nationals award by government of India 1993 for contribution of R &

D department of the company in the pollution control environment

protection.

WEAKNESS:

High Price.

Highly power intensive products as power.

Company's products are in commodity group and therefore the prices

are purely market driven.

The supply of natural gas for the power plants varies depending upon

availability.


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OPPORTUNITY:

Foreign market the demand for company's products in foreign market

is high therefore GACL has golden opportunity to gain share market

by exporting its products to foreign countries.

Excess capacity in power plant will help in setting up down stream

projects for increasing the capacity of caustic soda production.

THREATS:

The chlore alkali industry in cyclical in nature

The industry has faced with over capacity in the country

Dependence on the performance of consuming sectors

Threats of impact of slow down Indian economic growth

Highly competition market for the products of the company


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2. ABOUT MAJOR COMPANIES IN THE INDUSTRY

COMPETITORS:

GACL'S major competitors are:

Atul Product Limited

Comfad Alkails Limited

Century Chemical Limited

Tata Chemicals Limited

Saurashtra Chemicals Limited

Gujarat Heavy Chemical Limited

Southen Petrochemicals Industry Limited

Modi Alkalis And Chemical Limited

CUSTOMERS:

Distribution channel:

FERTILIZER: -

Gujarat State Fertilizer Corporation

Gujarat National Fertilizer Corporation

IFFCO

Deepak Nitrite

Deepak Fertilizer

PHARMACUTICALS: - Dr. Reddy's

Aurbide Pharma

Turrent

Runbuxy

Cadila

San Pharma

Lupin Laboratory


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TEXTILE: -

Arvid Mills Limited

Ashima Industires Limited

AGRO-CHEMICALS: -

Gujarat Agrom Chemicals Limited

BildgChemicals

Arti Industries

MeghumaniOrganics

Tagro

REFINERY:-

IOC

IPCL

Reliance Hajira Jamanagar

DETERGENT

HLL

Godrej

WFLimited

Nepal Lever

Nirma

PAPERS: -

BILT

Rama New Print

TamilNadu Pup Industries

JK Paper


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3. PRODUCT PROFILE

1. Caustic Soda Lye

2. Caustic Soda Flakes

3. Caustic Soda Prills

4. Liquid Chlorine

5. Hydrochloric Acid

6. Sodium Hypochloride

7. Sodium Cyanide

8. Sodium Ferrocyanide9. Caustic Potash Lye

10. Caustic Potash Flakes

11.Potassium Carbonate

12.Poly Aluminum Chloride

13.Chlorinated Paraffin Wax

14.Methyl Chloride

15.Methylene Chloride

16.Chloroform

17.Carbon Tetrachloride

18.Phosphoric Acid

19.Hydrogen Peroxide

20.Compressed Hydrogen Gas

21.Dilute Sulpharic Acid

22.Scalewin

23.Bleachwin

24.Aluminum Chloride25.Calcium Chloride Powder


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PRODUCT ANALYSIS

Table No.2

Sr.No

Name of product Product Consumption /Sales

Place

Main By Product Own Customer India Both

1 Caustic soda lyes

2 Caustic soda flakes

3 Caustic soda prills

4 Liquid chlorine

5 Hydrochloric acid

6 Sodium hypochloride

7 Compressed

hydrogen

8 Dilute sulpharic acid

9 Aluminum, chlorine,

anhydrous

10 Chloride paraffin wax

11 Sodium cyanide

12 Sodium Ferrocyanide

13 Caustic Potash Lye

14 Caustic Potash

Flakes

15 Potassium carbonate

16 Methaline chloride

17 Chloroform

18 Carbon tetrachloride

19 Phosphoric Acid

20 Calcium chlorine

Powder


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21 Hydrogen Peroxide

22 Bleachwin

23 Scalewin

24 Poly AluminumChloride


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PART- 2

PRIMARY STUDY


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4.1 INTRODUCTION OF THE STUDY

WHAT DOES CASH FLOW MEAN?

Cash that comes into or goes out of a persons or companys account.

In investments, cash flow represents earnings before depreciation,

amortization and non-cash charges. Sometimes called cash earnings.

Cash flow from operations is important because it indicates the ability to

pay dividends.

WHAT DOES CASH FLOW STATEMENT MEAN?

Cash Flow Statement is one of the quarterly financial reports any publicly

traded company is required to disclose to the public. The document

provides aggregate data regarding all cash inflows a company receives

from both its ongoing operations and external investment sources, as well

as all cash outflows that pay for business activities and investments during

a given quarter.

It answers the questions Where the money came (will come) from? And

where it went (will go)?

Cash flow statements assess the amount, timing, and predictability ofcash-

inflows and cash-outflows, and are used as the basis for budgeting and

business-planning.

In cash flow statement the accounting data is presented usually in three

main sections:

(1) Operating-activities (sales ofgoods orservices),

(2) Investing-activities (sale orpurchase of an asset), and

(3) Financing-activities (borrowings, or sale ofcommon stock).
http://financial-dictionary.thefreedictionary.com/bfglosi.htm#investmenthttp://financial-dictionary.thefreedictionary.com/bfglose.htm#earningshttp://financial-dictionary.thefreedictionary.com/bfglosd.htm#depreciationhttp://financial-dictionary.thefreedictionary.com/bfglosa.htm#amortizationhttp://financial-dictionary.thefreedictionary.com/bfglosc.htm#cash_flowhttp://financial-dictionary.thefreedictionary.com/bfglosd.htm#dividendhttp://www.businessdictionary.com/definition/answer.htmlhttp://www.businessdictionary.com/definition/money.htmlhttp://www.businessdictionary.com/definition/cash-flow.htmlhttp://www.businessdictionary.com/definition/cash-flow.htmlhttp://www.businessdictionary.com/definition/statement.htmlhttp://www.investorwords.com/8863/assess.htmlhttp://www.investorwords.com/205/amount.htmlhttp://www.businessdictionary.com/definition/cash-inflow.htmlhttp://www.businessdictionary.com/definition/cash-inflow.htmlhttp://www.businessdictionary.com/definition/cash-outflow.htmlhttp://www.businessdictionary.com/definition/budgeting.htmlhttp://www.businessdictionary.com/definition/accounting.htmlhttp://www.businessdictionary.com/definition/data.htmlhttp://www.investorwords.com/10249/main.htmlhttp://www.businessdictionary.com/definition/section.htmlhttp://www.businessdictionary.com/definition/sales.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/services.htmlhttp://www.businessdictionary.com/definition/investing-activities.htmlhttp://www.businessdictionary.com/definition/sale.htmlhttp://www.businessdictionary.com/definition/purchase.htmlhttp://www.businessdictionary.com/definition/asset.htmlhttp://www.businessdictionary.com/definition/financing-activities.htmlhttp://www.businessdictionary.com/definition/borrowing.htmlhttp://www.businessdictionary.com/definition/common-stock.htmlhttp://www.businessdictionary.com/definition/common-stock.htmlhttp://www.businessdictionary.com/definition/borrowing.htmlhttp://www.businessdictionary.com/definition/financing-activities.htmlhttp://www.businessdictionary.com/definition/asset.htmlhttp://www.businessdictionary.com/definition/purchase.htmlhttp://www.businessdictionary.com/definition/sale.htmlhttp://www.businessdictionary.com/definition/investing-activities.htmlhttp://www.businessdictionary.com/definition/services.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/sales.htmlhttp://www.businessdictionary.com/definition/section.htmlhttp://www.investorwords.com/10249/main.htmlhttp://www.businessdictionary.com/definition/data.htmlhttp://www.businessdictionary.com/definition/accounting.htmlhttp://www.businessdictionary.com/definition/budgeting.htmlhttp://www.businessdictionary.com/definition/cash-outflow.htmlhttp://www.businessdictionary.com/definition/cash-inflow.htmlhttp://www.businessdictionary.com/definition/cash-inflow.htmlhttp://www.investorwords.com/205/amount.htmlhttp://www.investorwords.com/8863/assess.htmlhttp://www.businessdictionary.com/definition/statement.htmlhttp://www.businessdictionary.com/definition/cash-flow.htmlhttp://www.businessdictionary.com/definition/money.htmlhttp://www.businessdictionary.com/definition/answer.htmlhttp://financial-dictionary.thefreedictionary.com/bfglosd.htm#dividendhttp://financial-dictionary.thefreedictionary.com/bfglosc.htm#cash_flowhttp://financial-dictionary.thefreedictionary.com/bfglosa.htm#amortizationhttp://financial-dictionary.thefreedictionary.com/bfglosd.htm#depreciationhttp://financial-dictionary.thefreedictionary.com/bfglose.htm#earningshttp://financial-dictionary.thefreedictionary.com/bfglosi.htm#investment


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Together, these sections show theoverall (net) change in the firm's cash-

flow for the period the statement is prepared.
http://www.investorwords.com/10510/overall.htmlhttp://www.investorwords.com/10510/overall.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.investorwords.com/10510/overall.html


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4.2 LITERATURE REVIEW

Multi Line Industry

Conglomerates Family Firm

In GCS Industry

Category Busine & Chemical

Cash Flow Statement is an important ingredient in the smooth working of

businesss entities, it has not attracted much attention of scholars. Whatever

studies have conducted, those have exercised profound influence on the

understanding of cash flow statement good number of these studies which

pioneered work in this area have been conducted abroad, following which,

Indian Scholars have also conducted research studies exploring various

aspects of working capital. Special Studies have been undertaken, mostly

economists, to study the total cash position.

After Analysis of the various reports, I have observed that each research

paper make with their own nature. These types of different papers teach me

many things. These papers gave me idea about the base of financial

planning. It also tells about which activity is more important for company and

vice-versa.

I also came to know how activities of finance department are managed by

manager in a proper manner. They also give me idea about the various

assumptions and limitations of working capital management.

According to me, cash position in the company must receive little attention

and yielding more significant results. Cash flow management is important

because of its effects on the firms profitability and risk, and consequently its

value. Greater the investment in current assets, the lower the risk, but also the

lower the profitability obtained.


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4.3 BACKGROUND OF CASH FLOW

SCOPE OF THE CASH FLOW STATEMENT:

1. An entity which prepares and presents financial statements under the

accrual basis of accounting should prepare a cash flow statement in

accordance with the requirements of the Standard and should present it as an

integral part of its financial statements for each period for which financial

statements are presented.

2. Information about cash flows may be useful to users of an entitys financial

statements in assessing the entitys cash flows, assessing the entitys

compliance with legislation and regulations and for making decisions about

whether to provide

resources to, or enter into transactions with an entity. They are generally

interested in how the entity generates and uses cash and cash equivalents.

3. The Accounting Standard (AS-3) applies to all public sector entities other

than Government Business Enterprises.

4. Consolidated cash flow is a financial statement that presents information

about the companys cash receipts and disbursements during the accounting

period.

5. The purpose of cash flow statement is to provide information on sources

and uses of cash and cash equivalents during the period of accounting and

cash reconciliation at the beginning of the period with cash at the end of the

period plus the cash equivalent balances.

NEED OF CASH FLOW STATEMENT:

1. A cash flow statement is the motor oil for any business finance engine. It

measures the amounts of money that come into a company and out of it over

a given time period. This way a company is able to keep track of how much

cash it has on hand to pay expenses and buy assets.

2. Cash flow statements use information from both income statements and

balance sheets. Using this information, the cash flow statement will reveal the

net increase or decrease in cash for the period. Most cash flow statements


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are divided into three separate activities: operating activities, investing

activities, and financing activities.

(i) Operating Activities

Operating activities shows cash flow from net income to net losses to

cash used in and for operation procedures. Sometimes, non- cash items are

adjusted for any cash that was used or provided by utilizing other operating

assets and liabilities.

(ii) Investing Activities

Investing activities is usually the second part of a cash flow statement.

This includes the purchases or sales of long-term assets, such as property,

equipment, and even stocks. These actions are still represented as " cash in"

or " cash out" depending on what is purchased & sold.

(iii) Financing Activities

This is the third part of the cash flow statement. And, as the name

might suggest, the financing activities section tracks financing activities. For

large companies this includes money raised by issuing stock in the company,

or borrowing many from banks. Paying back these loans are also considered

under this section of the cash flow statement.

IMPORTANCE OF CASH FLOW STATEMENT:

1. Many business owners disregard the importance of cash flow statements

because they unwittingly believe that their current financial standing can be

construed from other financial reports and projections. Unfortunately,

however, a cash flow statement is necessary to adequately assess the

incoming and outgoing flow of cash and other resources in a business.

2. Not only will a business owner with a cash flow system be more aware of his

or her financial standing, but it will also help investors to make educated

decisions on future investments. A business with regular and reliable cash

flow statements shows more economic solvency, and is more attractive to

investors.

3. A cash flow statement documents the incoming and outgoing cash in plain

terms. Future sales and sales made for credit (unless they have been paid off)

are not included in the cash flow statement, and most of the data will come

from core operations. Payables and receivables should be expressly defined,


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as should depreciation of product value and inventory that has not yet been

moved.

4. This will allow a business owner to compare past periods with the current

financial standing and determine whether your receivables have increased or

decreased.

5. This can also help to track your investments next to your receivables and

payables. Are your investments increasing or decreasing in value? And has

your inventory moved at a steady pace? New or expanding businesses can

expect to see a decrease in cash flow, but this doesn't mean that the business

is going under. More stables businesses should see a steadily increase in

cash flow over a period of several months or years.

6. The Statement of Cash Flows is the final document prepared in the Financial

Report set, and provides information that is a direct flow of information from

the Income Statement, Owner Equity Statement and Balance Sheet;

therefore, this report adds validity and accountability to the Financial

Statements.

ADVANTAGES OF CASH FLOW STATEMENT:

1. It helps the newly formed companies to know their inflow and outflow of

cash.

2. It helps the investors to judge whether the company is financially sound or

not.

3. It helps the company to know whether it will be able to cover the payroll and

other expenses.

4. It helps the lenders to know the companys ability to repay.

5. A cash flow statement is provided on monthly basis or quarterly basis or six

monthly basis or yearly basis.

6. These statements help to have an accurate analysis of the firms ability to

meet its current liabilities.

7. A cash flow statement is helpful for planning and managing future financial

commitments.

8. A cash flow statement summarizes the companys cash receipts and cash

payments over a period of time.
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9. It is useful for determining the short term ability of the concern to meet its

liabilities as it does & not include non cash items.

10. A cash flow statement gives vital information not only about the

companys performance but also about its major activities during the year.

DISADVANTAGES OF CASH FLOW STATEMENT:

1. By itself, it cannot provide a complete analysis of the financial position of

the firm.

2. It can be interpreted only when it is in confirmation with other financial

statements and other analytical tools like ratio analysis.


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4.4 OBJECTIVES OF THE CASH FLOW STATMENT

Cash flow statement aims at highlighting the cash generated from operating

activities.

Cash flow statement helps in planning the repayment of loan schedule and

replacement of fixed assets, etc.

Cash is the centre of all financial decisions. It is used as the basis for the

projection of future investing and financing plans of the enterprise.

Cash flow statement helps to ascertain the liquid position of the firm in a

better manner. Banks and financial institutions mostly prefer cash flow

statement to analyse liquidity of the borrowing firm.

Cash flow Statement helps in efficient and effective management of cash.

The management generally looks into cash flow statements to understand

the internally generated cash which is best utilised for payment of

dividends.Cash Flow Statement based on AS-3 (revised) presents separately

cash generated and used in operating, investing and financing activities.

It is very useful in the evaluation of cash position of a firm.

The cash flow statement identifies the sources of cash inflows, the items

on which cash was expended during the reporting period, and the cash

balance as at thereporting date.

Cash flow information allows users to ascertain how a public sector entity

raised the cash it required to fund its activities and the manner in which that

cash was used.

In making and evaluating decisions about the allocation of resources, such

as the sustainability of the entitys activities, users require an understanding of

the timing and certainty of cash flows.

The objective of this standard is to require the provision of information

about the historical changes in cash and cash equivalents of an entity by


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means of a cash flow statement whichclassifies cash flows during the period

from operating, investing and financing activities.


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4.5 FORMATE OF CASH FLOW STATMENT

Table No.3

Indirect methodFormat for Cash flow Statement for the year ended...............

As per Accounting Standard-3 (Revised)

PARTICULARS AMOUNT

(i) Cash flows from operating Activities

Net Profit as per Profit and Loss A/c xxx

Add : Transfer to reserve xxx

Proposed dividend for current year xxx

Interim dividend paid during the year xxx

Provision for tax made during the current year xxx

Extraordinary items, if any, debited to Profit and Loss A/c xxx

Less : Extraordinary Items, if any, credited to Profit

and Loss A/c

xxx

Refund of Tax credited to Profit and Loss A/c xxx

A. Net profit before taxation and Extra ordinary items

Adjustment for Non-Cash and Non-Operating Items

B.Add :

Depreciation xxx

Preliminary expenses xxx

Discount on issue of shares and debentures written off xxx

Interest on borrowings and debentures xxx

Loss on sale of fixed assets xxx

C. Less :

Interest income/received xxx

Dividend income received xxx

Rental income received xxx

Profit on sale of fixed asset xxx

D. Operating profits before working capital changes(A + B - C) xxxx

E. Decrease in current assets and increase in current liabilities xxx


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F. Less : Increase in current assets and decrease in current

liabilities

xxx

G. Cash generated from operations (D + E F) xxx

H. Less : Income tax paid (Net tax refund received) xxx

I. Cash flow from before extraordinary items xxx

Adjusted extraordinary items (+/) xxx

J. Net cash from operating activities xxxx

(ii) Cash from investing accounting

Add :

Proceeds from sale of fixed assets xxx

Proceeds from sale of investments xxx

Proceeds from sale of intangible assets xxx

Interest and dividend received xxx

Less :

Rent income xxx

Purchase of fixed assets xxx

Purchase of investment xxx

Purchase of intangible assets like goodwill xxx

Advanced extraordinary items (+/) xxx

Net cash from (or used in) investing activities xxx

(iii) Cash flows from financing activities

Add :

Proceeds from issue of shares and debentures xxx

Proceeds from other long term borrowings xxx

Less :

Final dividend fund xxx

Interim dividend fund xxx

Interest on debentures and loans paid xxx

Repayment of loans xxx

Redemption of debenture preference shares xxx

Adjust extraordinary items (+/)

equivalent (i + ii + iii) xxx

(v) Add : cash and cash equivalents in the beginning of the


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year

cash in hand xxx

cash at bank overdraft xxx

short term deposit xxxmarketable securities xxx

(vi) Less : cash and cash equivalents in the end of the

year

cash in hand xxx

cash at Bank (by bank overdraft) xxx

short term deposits xxx

Cash flow from operation xxx

Table No.4

Direct method

Format for Cash flow Statement for the year ended...............

As per Accounting Standard-3 (Revised)

PARTICULARS AMOUNT

(i) Cash flow from operating activities xxx

A. Operating cash receipts xxx

Cash sales xxx

Cash received from customers xxx

Trading commission received xxx

Royalties received xxx

B. Less : Operating cash payment xxx

Cash purchase xxx

Cash paid to the supplier xxx

Cash paid for business expenses like office expenses,

Manufacturing expenses,

selling and distribution expenses

xxx

C. Cash generated from operation ( A B) xxx

D. Less Income tax paid (Net of tax refund received) xxx


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E. Cash flow before extraordinary items xxx

F.Adjusted extraordinary items (+/)/Receipt/payment xxx

G. Net cash flow from (or used in) operating activities xxx

(ii) Cash flow from investing activities(calculation same as under indirect method)

xxx

(iii) Cash flow from financing activities

(Calculation same as under indirect method)

xxx

(iv) Net increase/decrease in cash and cash equivalents (i + ii +

iii)

xxx

v) Add cash and cash equivalent in the beginning of the year

(same as under indirect method)

xxx

(vi) Less cash under cash equivalent in the end of the year xxx

Cash Flow from Operation xxx


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5. DATA ANALYSIS & INTERPRETATION

CASH FLOW STATEMENT OF GACL

Table No.5

[Rs. in Lakhs]

PARTICULARS 2009-10 2008-09

A. CASH FLOW FROM OPERATING

ACTIVITIES

28,601.32 33,789.78

B. CASH FLOW FROM INVESTING ACTIVITIES (25,910.27) (33,703.35)

C. CASH FLOW FROM FINANCING ACTIVITIES (4,077.09) (2,887.07)

D. CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE YEAR

2,646.92 5,447.56

E. CASH AND CASH EQUIVALENTS AT THE

END OF THE YEAR

1,260.88 2,646.92

F. TOTAL CASH FLOW DURING THE YEAR

(A+B+C) or (E-D)

(1,386.04) (2,800.64)

A. CASH FLOW FROM OPERATING

ACTIVITIES:

NET PROFIT / (LOSS) BEFORE TAX AND

EXTRAORDINARY ITEMS

14,627.90 26,130.40

Adjustments for :

Addition / (deduction)

Depreciation

(Includes Prior Period ` 23.43 Lakhs, Previous

Year `3.63 Lakhs)

12,178.70 10,946.94

Interest received (356.39) (173.74)

Dividend received (688.92) (678.88)

Interest charged to profit & loss account 1,747.60 2,459.40

Profit on sale of assets - (0.45)


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Loss on sale of assets 16.27 23.16

Loss on impairment of assets - 470.62

Other capital expenditure (recoating &

remembraning)

985.90 964.64

Contribution of power, water & services written off 96.88 96.88

Loss on derivative transactions - 936.23

Excess provision written back on derivative

transactions

(447.46) -

Diminution in value of investment 736.93 301.66

Sub total 14,269.51 15,346.46

OPERATING PROFIT BEFORE WORKING

CAPITAL CHANGES

28,897.41 41,476.86

DECREASE OR (INCREASE) IN ASSETS :

Trade and other receivables (2,254.04) (6,435.89)

Inventories 3,032.41 (6,585.06)

INCREASE / (DECREASE) IN LIABILITIES :

Trade payables 1,549.36 8,199.15

CASH GENERATED FROM OPERATIONS

BEFORE TAX

31,225.14 36,655.06

Direct taxes paid (2,623.82) (2,865.28)

CASH FLOW BEFORE EXTRAORDINARY

ITEMS

28,601.32 33,789.78

Extraordinary items - -

NET CASH FLOW FROM OPERATING

ACTIVITIES:(TOTAL - A)

28,601.32 33,789.78

B. CASH FLOW FROM INVESTING ACTIVITIES:

Purchase of fixed assets (23,648.62) (33,873.01)

Sale or adjustment of fixed assets 22.33 14.03

Purchase of investments (3,059.99) (96.42)

Proceeds from sale of investments - 118.10

Interest received 356.39 173.74

Dividend received 688.92 678.88

Other capital expenditure (recoating & (269.30) (718.67)


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remembraning)

NET CASH FLOW FROM INVESTMENT

ACTIVITIES :(TOTAL - B)

(25,910.27) (33,703.35)

C. CASH FLOW FROM FINANCINGACTIVITIES:

Interest paid (2,062.43) (2,205.94)

Dividend paid (2,577.53) (3,007.11)

Long term borrowings (12.93) 10,731.07

Short term borrowings 575.80 (8,405.09)

NET CASH FLOW FROM FINANCING

ACTIVITIES: (TOTAL - C)

(4,077.09) (2,887.07)

D. CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE YEAR :

Cash and cheques on hand 2,186.57 3,954.57

Balances with banks 460.35 1492.99

NET CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE YEAR: (TOTAL - D)

2,646.92 5,447.56

E. CASH AND CASH EQUIVALENTS AT THE

END OF THE YEAR :

Cash and cheques on hand 940.62 2,186.57

Balances with banks 320.26 460.35

NET CASH AND CASH EQUIVALENTS AT THE

END

OF THE YEAR: (TOTAL - E)

1,260.88 2,646.92

F. TOTAL CASH FLOW DURING THE YEAR

(A+B+C) OR (E - D)

(1,386.04) (2,800.64)


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5.1 ANALYSIS OF CASH FLOW STATMENT OF GACL

1. Cash Flow from Operating Activities has been decresed from Rs.

33,703.35 lacs of 2008-09 to Rs. 25,910.27lacs in 2009-10.

Purchase of the asset is lesser than previous year, i.e. 23,648.62 lacs in

comparison of previous years 33,873.01.But because of cash outflow;

cash flow from investing activities is lesser.

Purchase of investment is increased much higher than previous year, i.e.

From 96.42 lacs of 2008-09 to 3,059.99 lacs in2009-10.Thus, cash outflow

is increased much more in comparison of previous year.

There is no proceeds occur from sale of investment.

Interest received & dividend received has been increased in compare to

previous year, i.e. From 173.74 lacs to 356.39 lacs and 678.88 lacs to

688.92 lacs. It shows that cash inflow has increased, but less than cash

outflow.

Other capital expenditure has been decreased from 718.67 lacs to 269.30

lacs. So cash outflow is decreased. But, here, it is not higher in

comparision to increased cash outflow.

2. Cash Flow from Investing Activities has been decreased from Rs.

33,703.35 lacs of 2008-09 to Rs. 25,910.27 lacs of 2009-10.It is in

negative form.This shows cash outflow. So, it can be said that cash

outflow has been decreased in 2009-10.The reasons are:

Purchase of the asset is lesser than previous year, i.e. Rs. 23,648.62 lacs

in comparison of previous years Rs. 33,873.01lacs. So, cash outflow has

been decreased and cash flow from investing activities is lesser.

There is no proceeds occur from sale of investment.

Interest received & dividend received has been increased in compare to

previous year, i.e. from Rs. 173.74 lacs to Rs. 356.39 lacs and Rs. 678.88

lacs to Rs. 688.92 lacs, respectively. It shows that cash inflow has been

increased. Due to this, cash outflow has been settled down.

Other capital expenditure has been decreased from Rs. 718.67 lacs to Rs.

269.30 lacs. So cash outflow is decreased.

Purchase of investment is increased much higher than previous year, i.e.

from Rs. 96.42 lacs in 2008-09 to Rs. 3,059.99 lacs in 2009-10, so, cash


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outflow is increased much more in comparison of previous year.

Eventhough overall cash outflow of 2009-10 has been decreased. It is

happened because of increase in cash inflow & decrease in cash outflow

during the year. Increase in cash inflow & decrease in cash outflow is

higher than cash outflow due to purchase of Investment.

3. Cash Flow rom Financing Activities has been increased from Rs.

2,887.07 lacs in 2008-09 to Rs. 4,077.09 lacs in 2009-10.The reasons are:

Interest paid has been decreased from Rs. 2,205.94 lacs in 2008-09 to Rs.

2,062.43 lacs.So, cash outflow has been decreased.

Dividend paid has been decreased to Rs. 2,577.53 lacs in 2009-10 from

Rs. 3,007.11 lacs in 2008-09. Here, also, cash outflow has been

decreased.

Long term borrowings have been decreased from Rs. 10731.07 lacs in

2008-09 to Rs. 12.93 lacs in 2009-10.

Short term borrowings have, also, been decreased to Rs. 575.80 lacs in

2009-10 from Rs. 8405.09 lacs in 2008-09. Thus, in all financing activities,

cash outflow has been decreased. So, cash flow from financiaing activities

is increased as compared to previous year.

4. Cash and Bank balance at the beginning of the year 2009-10 has been

decreased to Rs.2,186.57 lacs & Rs. 460.35 lacs, respectively, in 2009-10

from Rs. 3,954.57 lacs & Rs. 1492.99 lacs, respectively, in 2008-09.Thus,

net cash equivalents at the beginning of the year have been decreased by

Rs.2982.64 lacs.

5. Cash and Bank balance at the end of the year 2009-10 has, also, been

decreased to Rs.940.62 lacs & Rs. 320.26 lacs, respectively, in 2009-10

from Rs. 2,186.57 lacs & Rs. 460.35 lacs, respectively, in 2008-09. Thus,

net cash equivalents at the end of the year have been decreased by

Rs.1386.04 lacs.

Thus, because these activities, overall cash flow for the year 2009-10 has

been decreased to Rs.1414.6 lacs.


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5.2 Cash Flow Indicator Ratio

1. Cash Flow Margin Ratio:

The Cash Flow Margin ratio is an important ratio as it expresses the

relationship between cash generated from operations and sales. The

company needs cash to pay dividends, suppliers, service debt, and invest in

new capital assets, so cash is just as important as profit to a business

firm.The Cash Flow Margin ratio measures the ability of a firm to translate

sales into cash.The numerator of the equation comes from the firm's

Statement of Cash Flows. The denominator comes from the Income

Statement. The larger the percentage, the better for the firm.

Formula:

Cash Flow Margin Ratio= Operating Cash Flow

Net Revenue

Cash Flow Margin ratio

Table No.6

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

Operating Cash

Flow (Rs. In

lacs)

33,580.50 27,563.15 35,203.78 33,789.78 28,601.32

Net Revenue(Rs. In lacs)

1,09,395.71 1,21,510.69 1,32,238.59 1,56,412.58 1,38,444.30

Operating Cash

Flow to Sales

Ratio(In

Percentage)

30.70 22.68 26.62 21.60 20.66
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Cash Flow Margin ratio

Graph No.1

Interpretation:

GACL has net cash provided by operating activities is Rs. 28,601.32

lacs and net sales is Rs. 1,38,444.30 lacs.An operating cash flow to sales

ratio of 2009-10 is 20.66%, or approximately 21 percents of operating cash

flow in every sales rupee.It shows that company can able to gain 20.66%

cash from sales.The ratio is less in previous year, i.e. 21.60%.From the

comparision of five years, it can be seen that in the year, 2005-06, ratio is

highest, i.e. 30.70%.It can ,also, be seen that sales has been grown since last

four years, from 2005-06 to 2008-09.But it has decreased in previous year.So,

in that year, companies ability to convert sales into cash is decreased.

0

5

10

15

20

25

30

35

2005-06 2006-07 2007-08 2008-09 2009-10

R

A

T

I

O

(

I

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%)

YEAR

RATIO


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2. FreeCash Flow to Operating Cash Flow:

The free cash flow to operating cash flow ratio measures the relationship

between free cash flow and operating cash flow. Free cash flow is most often

defined as operating cash flow minus capital expenditures, which, in analytical

terms, are considered to be an essential outflow of funds to maintain a

company's competitiveness and efficiency. The cash flow remaining after this

deduction is considered "free" cash flow, which becomes available to a

company to use for expansion, acquisitions, and/or financial stability to face

difficult market conditions.

Formula:

FCF/OCF Ratio= Free Cash Flow(Operating Cash Flow-Capital Expenditure)

Operating Cash Flow

Free Cash Flow to Operating Cash Flow Ratio

Table No.7

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

Free Cash

Flow (Rs. In

lacs)

32493.4 26655.15 34392.66 29386.94 25011.96

Operating

Cash Flow

(Rs. In lacs)

33,580.50 27,563.15 35,203.78 33,789.78 28,601.32

Free Cash

Flow toOperating

Cash Flow

Ratio (In

Percentage)

96.76 96.71 97.70 86.97 87.45
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Free Cash Flow to Operating Cash Flow Ratio

Graph No.2

Interpretation:

This ratio shows financial strength of the company. The higher the percentage

of free cash flow embedded in a company's operating cash flow, the greater

the financial strength of the company.

In all the five years ratio is high.It shows that GACL is financially stable

company.It has above 90% ratio in three years,starting from 2005 to 2007.In

2008 & 2009 company has lesser ratio as compared to last three years.But it

is not so less.The reason for lesser ratio in these two years is that GACL has

incurred more capital expenditure in these years.But it can be said that GACL

has achieved strong financial condition.

80

82

84

86

88

90

92

94

96

98

100

2005-06 2006-07 2007-08 2008-09 2009-10

R

A

T

I

O

(

I

n

%)

YEAR

RATIO


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Short term Debt Coverage Ratio

Graph No.3

Interpretation:In previous year GACL has Ratio of 3.36 times.It

indicates that company has 3.36 Rs.cash to repay its short - term debt

of Re.1.This is good sign for company.But it can be shown that this

Ratio is less as compared to 2008-09. Short term Debt Coverage

Ratio shows more fluctuation in five years,as it is 3.36 times in 2005-06

& than falls to 1.6 times in 2006-07. It again rises to 2.34 times in2007-

08.In 2008-09 it is at highest level, i.e.4.20 times & then again falls to

3.36 times.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2005-06 2006-07 2007-08 2008-09 2009-10

R

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ii. Capital Expenditure Coverage Ratio:

This Ratio indicates how much company is incurring Capital

Expenditure against available operating cash.This Ratio is in times.

Formula:

Capital Expenditure Coverage Ratio= Operating Cash Flow

Capital Expenditure

Capital Expenditure Coverage Ratio

Table No.9

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

Operating

Cash Flow

(Rs. In lacs)

33,580.50 27,563.15 35,203.78 33,789.78 28,601.32

Capital

Expenditure(Rs. In lacs)

960.09 908.00 811.12 4402.84 3589.36

Capital

Expenditure

Coverage

Ratio (In

Times)

34.98 30.36 43.40 7.67 7.97


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Capital Expenditure Coverage Ratio

Graph No. 4

Interpretation:

In years from 2005 to 2007 capital expenditure is very low.Due to this,

Ratio is much smaller than next two years.In 2009-10, GACL has

incurred one rupee of capital expenditure against 7.97 Rs.of operating

cash.so, it can be said that company has incurred lesser amount of

capital expenditure in the year 2007-08 as compared to above five

years.

Thus, higher the Ratio, the lesser amount of capital expenditure isincurred during that year.

0

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10

15

20

25

30

35

40

45

50

2005-06 2006-07 2007-08 2008-09 2009-10

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YEAR

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iii. Dividend Payout Ratio:

This ratio identifies the percentage of earnings (net income) per

common share allocated to paying cash dividends to shareholders.

The dividend payout ratio is an indicator of how well earnings support

the dividend payment.The payment of a cash dividend is recorded in

the statement of cash flows under the "financing activities" section.

Formula:

Dividend Payout Ratio= Dividend per Share

Earning Per Share

Dividend Payout Ratio

Table No.10

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

Dividend Per

Share (In Rs.)

2.00 2.50 3.50 3.00 3.00

Earning Per

Share

(InRs.)

26.96 25.00 30.00 26.00 23.00

Dividend

Coverage

Ratio

(In

Percentage)

7 10 11.67 11.54 13.04


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Dividend Payout Ratio

Graph No.5

Interpretation:

This ratio indicates that how well earnings support the dividend

payment.In GACL this ratio is constantly increasing during the period of

2005 to 2009.In 2005-06 it is only 7%,while in 2009-10 it is 13%.During

the year 2007 & 2008, the ratio is approximetaly same. There was an

increase in both, dividend per share & EPS in 2007 but in 2008,both

has decreased.

At last, it can be said that the earnings of GACL supports to pay

dividend to its shareholders.

0

2

4

6

8

10

12

14

2005-06 2006-07 2007-08 2008-09 2009-10

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4. Operating Cash Flow Ratio:

It is a measure of how well current liabilities are covered by the cash flow

generated from a company's operations. The operating cash flow ratio can

gauge a company's liquidity in the short term. Using cash flow as opposed to

income is sometimes a better indication of liquidity simply because, as we

know, cash is how bills are normally paid off.

Formula:

Operating Cash Flow Ratio= Cash Flow from Operation

Current Liabilities

Operating Cash Flow Ratio

Table No.11

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

Cash Flow

from

Operation

(Rs. in lacs)

33,580.50 27,563.15 35,203.78 33,789.78 28,601.32

Current

Liabilities

(Rs. in lacs)

23,677.87 31,135.27 41,440.03 53,322.03 50,064.90

Operating

Cash Flow

Ratio

(In Times)

1.42 0.88 0.85 0.64 0.57


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Operating Cash Flow Ratio

Graph No.6

Interpretation:

In previous year,current liabilities are more & cash flow was less,so,ratio islowest as compared to other years.In 2005-06, company had 1.42 times cash

to cover its current liabilities.Such ratio is good for company.But then ratio

has decreased,till previous year.so,it can be said that, as compared to

previous years, liquidity of the company has decreased.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2005-06 2006-07 2007-08 2008-09 2009-10

R

A

T

I

O(

I

n

T

i

m

e

s)

YEAR

RATIO


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7. RESULTS & FINDINGS

It can be seen that since last two years short term debt of GACL has

decreased. So, it is good for the company to repay such loans from

available funds.

Dividend Payout Ratio has, also, increased in last five years.

Earnings of Gacl support well to pay dividend to the shareholders.

GACL should reduce its capital Expenditure. So that, it can become more

strong in terms of financial strength.

GACL should increase its operating cash flow, because operating cash

flow is less as compared to previous four years.It can affect financial

strength & liquidity position of the firm.


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8. LIMITATION OF THE CASH FLOW STATMENT

Cash is one of the major lubricants of business activity, but there are

certain things that cash flow doesn't shed light on. For example, it doesn't

tell us the profit earned or lost during a particular period: profitability is

composed also of things that are not cash based.

This is true even for numbers on the cash flow statement like "cash

increase from sales minus expenses", which may sound like they are

indication of profit but are not.

As it doesn't tell the whole profitability story, cash flow doesn't do a very

good job of indicating the overall financial well-being of the company.

The statement of cash flow indicates what the company is doing with its

cash and where cash is being generated, but these do not reflect the

company's entire financial condition.

The cash flow statement does not account for liabilities and assets, which

are recorded on the balance sheet.

Furthermore accounts receivable and accounts payable, each of which

can be very large for a company, are also not reflected in the cash flow

statement.

In other words, the cash flow statement is a compressed version of the

company's checkbook that includes a few other items that affect cash, like

the financing section, which shows how much the company spent or

collected from the repurchase or sale of stock, the amount of issuance or

retirement of debt and the amount the company paid out in dividends.
http://www.investopedia.com/terms/a/accountsreceivable.asphttp://www.investopedia.com/terms/a/accountspayable.asphttp://www.investopedia.com/terms/a/accountspayable.asphttp://www.investopedia.com/terms/a/accountsreceivable.asp


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9. CONCLUSION/SUGGESTION

GACL is the cashcow for government of Gujarat. It is the single caustic soda producer in the country with the market share

of 13.75%.

It is a leader in the chore-Alkalie Industry.

It can get raw material at the lowest cost, as Gujarat is having 1600km of

sea shore.

It has the captive power plant at dahej.

The Company enjoys low cost powder which is also considered as rawmaterial.

Research & Development department of GACL comes out with new

products like poly Aluminums Chloride with even more law cost.

It has won many awards on quality control and environmental

protection.The company has shown its commitment towards becoming a

green company.

The Company is having problems with dumping activity of Chinesecompanies for last many years. But the Indian govt has granted all its

recommendation and took Anti-dumping measurements against these

Chinese companies.

Company has recently adopted performance based pay which will make it

more efficient in coming period.


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ANNEXTURE:

1. Balance Sheet as on 31.3.2010: (Rs. In Lacs)

PARTICULARS SCHE-DULE

RS. 31.03.2010RS.

31.03.2009RS.

SOURCES OF

FUNDS:

Shareholders Funds:

Share Capital 1 7,343.84 7,343.84

Reserves and Surplus 2 1,31,764.11 1,17,148.75

1,39,107.95 1,24,492.59

Loan Funds :

Secured Loans 3 23,797.95 25,784.15Unsecured Loans 4 8,525.86 8,088.79

32,323.81 33,872.94

Deferred Tax (Net) 31,757.03 27,908.89

Total 2,03,188.79 1,86,274.42

APPLICATION OF

FUNDS :

Fixed Assets :

Gross Block 5 2,78,899.07 2,58,073.16

Less : Depreciation 1,27,099.94 1,14,067.96

Net Block 1,51,799.13 1,44,005.20

Capital Work-in-

Progress

9,097.35 8,385.44

1,60,896.48 1,52,390.64

Investments 6 14,050.58 11,727.52

Current Assets,

Loans and Advances:

Inventories 7 14,024.88 17,057.29

Sundry Debtors 8 26,355.19 24,810.49

Cash and Bank

Balances

9 1,260.88 2,646.92

Loans and Advances 10 36,665.68 30,963.59

78,306.63 75,478.29

Less : Current

Liabilities and

Provisions

11 50,064.90 53,322.03

28,241.73 22,156.26

Miscellaneous

Expenditure

--- ---

Total : 2,03,188.79 1,86,274.42


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2. Schedule of Balance Sheet used in Analysis of Cash Flow

Statement:

Schedule-4 (Rs. In Lacs)

Unsecured Loans 31.03.2010

Rs.

31.03.2009

Rs.

1.Short term Loans

Banks 8,500.00 5,000.00

Others (Net of pre-

payment advances)

---- 3050.00

2.Sales Tax DefermentLoans

25.86 38.79

Total 8,525.86 8,088.79

3. Profit & Loss Statement for the year ended on 31.3.2010:

(Rs. In Lacs)

PARTICULARS SCHE-

DULE

RS. 31.03.2010

RS.

31.03.2009

RS.

INCOME :

Sales (Including Excise Duty) 12 1,38,444.30 1,56,412.58

Less : Excise Duty 10,636.37 17,730.47

1,27,807.93 1,38,682.11

Other Income 13 6,183.56 4,325.27

1,33,991.49 1,43,007.38

Increase/(Decrease) in Stock ofFinished Goods & Prcoess

Stock

14 (620.12) 1,802.12

1,33,371.37 1,44,809.50

EXPENDITURE :

Raw Materials Consumed 15 57,790.78 52,202.62

Manufacturing and Operating

Expenses

16 29,328.69 36,582.27

Difference of Excise Duty on

Opening and Closing Stock

7.70 106.7

Employees Remuneration and 17 11,990.79 9,059.51


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Benefits

Administration, General and

Marketing Expenses

18 5,234.01 7,137.21

Interest 19 1,747.60 2,459.4

Depreciation 12,155.27 10,943.31Profit 1,18,254.84 1,18,491.04

Prior Period Adjustments (Net)

Debit / (Credit)

15,116.53 26,318.46

Profit before Taxation 488.63 188.06

Provision for Taxation 14,627.90 26,130.40

Provision for Taxation 2,368.93 2,883.53

Deferred Income Tax (Net) 3,848.14 3,980.39

Wealth Tax 1.07 0.95

Fringe Benefits Tax --- 38.26

MAT Credit Entitlement (2,368.93)Excess Provision for Income

Tax of earlier years written back

(6,405.69)

Profit after Taxation (2,556.48) 6,903.13

Surplus Balance Brought

forward from Previous Year

17,184.38 19,227.27

Amount Available for

Appropriations

29,101.99 22,066.25

46,286.37 41,293.52

APPROPRIATIONS :

Proposed Final Dividend 2,203.11 2,203.11Tax on Proposed Dividend 365.91 374.42

Transferred to General Reserve 8,593.00 9,614.00

Balance Carried to Balance

Sheet

35,124.35 29,101.99

46,286.37 41,293.52


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REFERENCE

1. http://[email protected] dated on 11/06/2011

2. www.wikipedia.org dated on 16/06/2011

3. www.ibef.org dated on 26/06/2011

4. www.edelweiss.com dated on 15/06/2011

5. www.final-yearprojects.co.cc dated 1/06/2011

6. CRISIL, I-Sec Research dated on 10/06/2011

7. Economic Survey 2009-10, DIPP dated on 16/06/2011

8. http://eaindustry.nic.in dated on 17/06/2011

9. http://www.moneycontrol.com/stocks/company_info//25/6/2011

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