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Transcript of Cash Management System Pepsi
“CASH MANAGEMENT SYSTEM AT PEPSI”
Submitted for the partial fulfillment of the requirement
For the award of Post Graduate degreeOf
Master of business administrationDegree Programme of G.B, Technical University, Lucknow
SESSION 2009– 2011
Submitted to Submitted By: Amit Kumar
MBA – III SEM Roll No. 0927170007
BHARAT INSTITUTE OF TECHNOLOGY MEERUT
1
TABLE OF CONTENTS
1. PREFACE 3
2. ACKNOWLEDGE 4
3. DECLARATION 5
4. INTRODUCTION 6
5. OBJECTIVE OF THE STUDY 9
6. RESEARCH METHODOLOGY 15
I. METHOD OF DATA COLLECTION
II. SOURCE OF DATA
III. TOOLS AND TECHNIQUES OF ANALYSIS
7. INDUSTRY 19
I.PROFILE
II.PLANTS
III.COMMITMENT
IV.CLIENTELES
V .PRODUCT
8. PROJECT PROFILE 30
CASH MANAGEMENT
9. THEORITICAL ASPECTS 33
I.OBJECTIVE AND SCOPE OF CMS 42
II.CASH MANAGEMENT SERVICE OF PEPSI 44
III.ADVANTAGES OF CMS 51
2
IV.LIMITATIONS OF CMS 51
10. DATA ANALYSIS AND INTERPRITATION 56
I. FINANCIAL STATEMENTS 56
II.POSITION STATEMENT 59
III.INCOME STATEMENT 63
IV.CASH FLOW STATEMENT 68
V.PURPOSE OF FINANCIAL STATEMENTS 71
VI.COLLECTION CHARGES OF BANK 73
11. CONCLUSION 87
12. RECOMMENDATION 89
13. KEY FINDING 90
14. BIBLIOGRAPHY 91
3
PREFACE
For any Management Course Summer training is an essential part of curriculum
of MBA degree. It is an exposure to corporate environment and helps MBA
aspirants to get acquainted with organizational norms, procedures, practices,
ethics and culture. It also gives an insight of actual functioning of the
organization. It helps the students to understand and coirelate theoretical aspects
with practical reality.
It was a great experience to work with PEPSI during my summer project which
has help me to improve my communication and interpersonal skills and also
give me the better understanding on the subject CASH MANAGEMENT
SYSTEM & LATTER OF CRADIT. AT PEPSI.
4
ACKNOWLEDGEMENT
On the successful completion of this project I would like to express my
gratitude to all the people who have helped me & encouraged me throughout the
project.
At first, I owe my dept of thanks to Mr. AJAY KEDIA (FINANCE,
Manager), for providing me with this opportunity of working as a summer
trainee in PEPSI It was a real great and unforgettable moment for me to meet
such a great personality face to face.
My sincere thanks are also due to Dr. YASMEEN ANSARI., Faculty of
Management for their significant help extended for the successful completion
of the project. I highly the help I got from them in providing me and lot of
information regarding the functioning of this organization.
AMIT KUMAR
ROLL NO. – 0927170007
MBA III SEM
5
DECLARATION
I hereby declare that the study entitled “Cash Management System” in the
Context Of Pepsi ” being submitted by me in the partial fulfilment of the
requirement by the “BIT, Meerut ”, Meerut is a record of my own work. The
study was conducted at Finance Department, ITC Saharanpur.
AMIT KUMAR
Roll No. –
0927170007
M.B.A. III SEM
6
INTRODUCTION
This Research Report is very practical approach for me being a student. All
students learn theoretical subjects in their classroom, but as we are the
management students, apart from theoretical studies we need to get a deeper
insight into the practical aspects of those theories by working as a part of
organization during our Research Report is a period in which a student can
apply his theoretical knowledge in practical field. Basically practical knowledge
and theoretical knowledge have a very broad difference.
So this training has high importance as to know how both the aspects are
applied together.
The study of management acquires most crucial position in the business
administration. In order to be successful, it is necessary to give priority to the
management in an organization. But it can’t be denied that the study of
management would be more educational, materialistic and even more
interesting, if it is to be paired with the work in organization as an employee.
The training session helps to get details about the working process in the
organization. It has helped me to know about the organizational management
and discipline, which has its own importance. The training is going to be a life
long experience.
7
Background of the study
Pepsi have been using two techniques for managing cash inflow – Cash
Management Services (CMS) provided by ICICI CORPRATION.
HDFC HSBC & UTI bank and Short term financing through Letter Of Credit
(LC). The first Technique is used to manage the funds through cash sales and
the other is used in case of sale on credit.
In case of Cash Sales the Industry had to wait for 4-5 days before it could
realize the cash (in case the customer paid through draft. In case of payments
through cheques the lag as even larger) as the customers are based in different
locations in India. So the basic aim of the project is to evaluate the cost benefit
to after adopting CMS. The project stress on the ways to further lower down
the cost of procuring funds through cash sales by doing a comparative analysis
of the banks providing this facility to the corporate.
Letter of Credit also is important means of procuring funds as the corporate can
realize the payment against sale made on credit terms. The project intends to
study various terms and conditions involved in realizing payments through LC.
It also throws light on the procedures to be followed to realize payments as if
any of the terms and conditions of an LC remains unfulfilled the bank is under
no obligations to make payment. The transactions in the steel industry are
usually of high value that runs into lakhs and crores. Also, LC insures the
credibility of buyer and seller as the transactions are through banks. Thus, the
8
Study becomes very crucial in the era of globalization where the trade could be
between buyer and seller in two different countries.
9
OBJECTIVE OF THE STUDY
Main Objective
To meet Cash disbursement as per payment schedule & minimize the
amount locked up as cash balance.
1.Meeting Payment Schedule :- The main objective of cash management is
to meet the payment schedule. In other words, the Industry should have
sufficient cash to meet the various requirements of the Industry at
different times. The Industry has to make payment for purchase of raw
materials, purchase of plant-machinery parts & tools, wages, taxes etc.
2.Minimize the amount lock up as cash balance :- Other main objective of
cash management of the Industry is to minimize cash balance. For
minimizing the cash balance, the company’s financial manager always
focuses to have an optimum amount of cash balance keeping in mind
that a high level of cash balance will result in a large balance of cash
remaining idle because cash is a non earning asset. On the other hand, a
low level of cash balance will result in the failure of meeting the
payment schedule.
10
Specific Objective
To achieve the main objectives, the Industry will have to do Sthe following:-
1. Cash Planning & Control: - Industry should hold adequate cash balance.
Cash planning serves as a useful device for maintaining optimum level of
cash. Cash planning includes cash control, the process to assure that cash
receipts & payments are in accordance with the cash planning. The
various tools of cash planning & control as under:-
(a). Cash Budget : It is an important tool of cash planning. A cash
budget is a statement which shows the various estimated sources of cash
receipts & various applications of cash. Company, by preparing the cash
budget may predict whether at any point of time, there is likely to be
excess or shortage of cash.
(b). Cash Flow Statement : The statement depicting change in cash
position from one period to another period. It may be prepared on the
basis of actual or estimated data.
11
(c). Cash Management Models : With the help of cash management
models, an optimum level of cash can be ascertained to facilitate control
& planning.
(d). Ratio Analysis : Cash ratios are also important tool of cash control.
Various ratios are acid test ratio, cash ratio, receivable turnover ratio etc.
2. Managing the Cash Flows :- To achieve the main objective, managing
the cash flow is an very important factor. Cash flow includes both cash
inflows & cash outflows.
(a). Cash Inflow : It is closely related with managing the cash efficiency
which, by & large, is the concern of collection department under the
finance manager.
Thus, an important problem for the financial manger is to manage the
cash inflow. He has to face the problem of speedy & timely recoveries
of receivables. In order to make quicker collection, the finance manager
can adopt two ways- one to motivate the debtors for prompt payments
and another to convert the payment received from debtors into cash as
early as possible. Methods of improving cash collections are as under :
12
(i). Prompt payments by Customers : For this purpose, prompt billing
policy must be adopted & customers should be promptly informed about
the amount payable. Another method in this regard is to allow cash
discount to its customers.
(ii). Establishment of Cash Collections : Industry must establish the
collection centers in different parts of the country to save the postal
delays. This is known as
concentration banking. Under this system, the collection centers themselves
collect payments from customers & deposit them in local bank account.
The concentration banking results in saving of time of collection & hence
result in better cash management.
(iii). Lock-Box : Under this system, the Industry hires a post-office box at
important collection centers. The local bankers of the Industry are
authorized to pick up the cheques from the lock-box. The bank informs
the Industry about the details of cheques received & credited. This system
helps to reduce the overhead expenses.
(b). Cash Outflows : Industry must manage the cash outflow in order to
reduce the cash requirements. The financial manager should try to slow
13
disbursements as much as possible but goodwill & credit rating of the
Industry shouldn’t be affected. Payments to creditors need not be delayed. The
credit facilities allowed by the creditors should be fully utilized. The
discount offered by the creditors for prompt payment must be evaluated
properly. Balance lying in the bank a/c should also be managed properly
to take maximum advantage out of it. There may not be balance in the
bank a/c when a cheque is issued but there must be sufficient balance
when the cheque is expected to be presented for payment. The Industry
should follow centralized system for disbursement. Under this system , all
payments are made from a single control account
3. Determining the Optimum Cash Level :- The problem of determining
the optimum cash balance for an organization, in fact implies a trade off
between risk and return of maintaining cash balance. In case the cash
balance is less than the requirements, the Industry have to borrow from
outside sources and the transaction cost will have to be born. If the
Industry has surplus cash, it causes the loss of interest or profit from
investment
4.Investing Surplus or Idle Cash :- Cash in excess of the company’s
normal cash requirement is surplus cash. It may be temporary or may
14
exist more or less on permanent basis. There are, sometimes, surplus
funds with the Industry which are required after sometime. These funds
can be employed in liquid & risk free securities to earn some income.
Finance manager of the Industry is required to consider the minimum
cash balance to avoid the cost of running out of funds. Such minimum
level is called as safety level for cash. For this purpose , the finance manager
must consider both normal & peak periods. If the finance manager is
anticipating cash shortage in any particular month, then he should arrange
additional funds from some reliable source. These requirements of funds
are generally for short term. Industry must avail bank loan etc. If the
shortage is on regular basis, long term sources of funds may be used. If
cash is surplus , the finance manager must decide the channels of
investment. For this purpose, the finance manager must consider the security,
liquidity, yield & maturity factors before investingthesurplesfund.
15
RESEARCH METHODOLOGY
Methodology is the bone of a project. It has also an important place as
regards to cash management system project. A person who is going to
prepare a project, he should be very aware in connection with collection
& analysis of data. I have gone very deeply in preparing the project & I
devoted my full attention to get the accurate & real data collection. For
this purpose I became in close contact with sources of data collection by
personally & through Internet.
The Methodology contains the following things:-
Methods of Data Collection :- For the project report, methods of
data collection also has an important role in connection with
accuracy & exact information. So, I adopted both the methods
primary as well as secondary method of data collection.
(A) Primary Data : Throughout the preparation of the project
report, I was in the contact of DGM(Finance) & other staff
of finance department of Pepsis to get the information in
connection with the practical working of transaction between
the Industry & banks.
(B) Secondary Data : I have also collected the information, figures
& data in connection with the preparation of project report
from Balance-sheet & annual report of Bhushan Steel from
16
annual report of Jindal Steel Ltd for comparative analysis,
from the Internet in connection with the whereabouts of the
Steel Industry. I have also collected the information about cash
management services & Latter of Credit provided by the bank to
the company.
Sources of Data :- Sources of collection of data for a
project report has a very important role. So, the sources
must be very reliable. For this purpose, I did my best
efforts to get proper & correct information.
(A) I have taken the figures, information & data in connection with
Profit & Loss A/c, Balance Sheet, Cash Flow Statement from the
annual report of
the Industry & through website of the Industry which are
most important for cash management system.
(B) I have also got the figures, data & information in connection
with Jindal Steel From the website of the Jindal steel for the
purpose of comparative analysis like Balance Sheet & Ratio
analysis with Bhushan Steel
(C) With the help of Internet, I have got the information, data &
figures about the steel industry, beginning of steel industry in
India, Recent Developments of steel industry, history of the
steel industry, global & Indian scenario of the steel industry.
17
(D) I have collected the information from the website of HSBC,
Corporation & UTI Banks, HDFC regarding services provided by
the banks to the Industry in connection with day to day
transactions like payment & receivable etc.
(E) I have collected the data, information & figures from the
printed annual report of Bhushan Steel (PEPSI) for the
purpose of preparing of charts of Gross Sales, Net Profit,
Exports, EPS, Cash Accruals etc.
I have also got the figures, information & data from the
DGM(Finance) & other staff of the Industry with the discussion
personally regarding working of the Industry with banks.
Instrument Used :- The use of reliable, necessary & authentic
instrument are the most important for cash management.
Instrument must be used according to the requirement of the
company. A finance manager of the Industry must be very
careful in this matter. Vouchers, daybook, main cashbook,
petty cashbook, cheque book, Bank Pay-in-slip, Bank Draft,
Bankers Cheque, Bank Statements of Ledger, Bank
Reconciliation Statement, Bank Book are being used by the
company.
Tools and Techniques of Analysis :- The relevant tools &
proper techniques must be used in connection with analysis.
18
Tools:- In preparing the project report , I have used the
Profit & Loss A/c, Balance-sheet, Cash Flow & annual
report of Pepsi Balance-sheet of Jindal Steel Ltd is also
used in the project report.
Techniques:- As a technique of analysis,I have prepared
comparative Profit & Loss A/c and Balance Sheet,Ratio
analysis statement & cash
Flow Statement of Pepsi Ltd for the financial year 2008-09 & 2009-10
19
INDUSTRY PROFILE
THE PEPSICO.
PepsiCo Inc. was founded in the year 1965. Major products of the new Industry
are Pepsi Cola, Diet Pepsi and Mountain Dew. Pepsi entered the Indian market
in 1992 and now is the market leader with a market share of 26.5 percent in the
cola segment. Pepsi is in between the two of it’s closet competitors as far as
marketing strategies are concerned. Pepsi is an international drink with Indian
imagery in it’s communication. Traditional focus of Pepsi has been on the early
teenager with a gender skew more to the female.
Pepsi is by far the more aggressive player in the market. With in your face
advertising, continuous event marketing targeting the new generation and eye
catching merchandising. It’s got its selling strategy well mapped out.
The Industry has always been innovating it’s ad campaigns which has helped
the Industry to get top of the mind recall. From “The choice of the new
generation” to the “Freedom” campaign the Industry has been able to Indianise
the brand. With the help of promotional schemes Pepsi has managed to keep the
brand alive and has not let it become old. During 1995 the total ad spent by the
Industry was Rs.6,98 crore only on television. Pepsi has set aside Rs. 8 crore for
its advertising programme in the run up to and during the cricket world cup.
On April 2, 1996 Pepsi announced that the second most popular drink in the
world would hence forth come in Blue packaging. Pepsi had spent $ 500 million
20
to relaunch it’s product. But the results of this exercise are still awaited, and it is
expected that they would not be as good as expected by the company.
According to Roger Enrico, President PepsiCo, that much of the ammunition
that the two companies lab at each other in the cola war is “damn silly stuff”
and Dough Ivester, Coca Cola claiming that “the cola was is over”, the cola
war continues.
21
SHAREHOLDERS
PepsiCo (symbol: PEP) shares are traded principally on the New York Stock
Exchange in the United States. The Industry is also listed on the Amsterdam,
Chicago, Swiss and Tokyo stock exchanges. PepsiCo has consistently paid cash
dividends since the corporation was founded.
CORPORATE CITIZENSHIP
PepsiCo believes that as a corporate citizen, it has a responsibility to contribute
to the quality of life in our communities. This philosophy is put into action
through support of social agencies, projects and programes. The scope of this
support is extensive – ranging form sponsorship of local programs and support
of employee volunteer activities, to contributions of time, talent and funds to
programs of national impact. Each division is responsible for its own giving
program. Corporate giving is focused on giving where PepsiCo employees
volunteer.
22
PEPSICO HEADQUARTERS
PepsiCo World Headquarters is located in Purchase, New York, approximately
45 minutes from New York City. The seven building headquarters complex was
designed by Edward Durrell Stone, one of America’s foremost architects. The
building occupies 10 acres of a 144 – acre complex that includes the Donate M.
Kendall Sculpture Gardens, a world acclaimed sculpture collection in a garden
setting.
The collection of works is focused on major twentieth century art, and features
works by masters such as Auguste Rodin, Henri Laurens, Henry Moore,
Alexander Calder, Alberto Giacometti, Arnaldo Pomodoro and Class Olden
berg. The gardens were originally designed by the world famous garden
planner, Russelll Page, and have been extended by Francois Goffinet. The
grounds are open to the public, and a visitor’s booth is in operation during the
spring and summer.
23
OVERALL MARKET STRUCTURE OF SOFT DRINKS
Indian soft drink industry is witnessing a boom time. It’s Growth rate is around
20%. With such a high growth rate, volume could reach billion carats within 10
years. Three major multinational companies are fighting to grab major chunk of
business from Indian markets. These three are Coca- Cola, Pepsi and Cadbury
Schweppes. All these companies have seen an enormous potential in this
country. Consequently, by world standard, Indian per capita consumption of soft
drinks, is still very low. There fore soft drinks giants feel that per capita
consumption can only grow up. Soft drink industry has already seen an
estimated sale of 170 million case (2000) ( one case =24 bottles) which is 30
million crates higher than last year’s sale of 140 million crates ( 1999). The
main reason for such a high growth rate is heighten compassion between Coca-
Cola and Pepsi. Cadbury Schweppes, being a new entrant is far behind.
Size &Sector
India is a actually more vivid in taste and preference than any other country
market. Delhi far instance, accounts for about 20% of total soft drink
consumption in India, states like Orissa accounts for a meager contribution in
terms of sales.
There are about 3, 00,000 soft drink retailers in India and their number is
increasing day by day. This actually means that there is just one soft drink
retailer on a population of 31,334 which is far below the international standard.
24
Where as Philippines has one soft retail counter over a population of 150 people
i.e., 4, 00,000 outlets on population of 60 million.
25
INTRODUCTION
What is a Brand ?
The concept of a brand is probably the most powerful idea in the commercial
world. The formal history of brands is in many ways a prosaic one, starting not
all that many years ago when mass production and wider distribution led
manufacturers to identify (or brand) their merchandise in a recognizable way, so
as to offer a promise of consistent quality. But the real history of brands is much
longer and more interesting. Brands truly understood are the things which patrol
the boundary between people and the world outside them. Well before the
industrial revolution people were acquiring swords, horses, estates even
countries, not only for their usefulness but because of what they projected about
the person him or herself. In a deeper sense, people have always used objects
not just to change outward impressions, but also to change things inwardly, i.e.
to change themselves. Children’s obsession with trivial objects like, say’
colored pens, is instructive. Once they have acquired the desired, but frequently
useless object, their interest disappears because they find that no amount of
colored pens makes you into a different person.
The same is sadly true in later life. The anticipation of owning a fast sports car
is never matched by the reality. In truth, one car turns out to be much like
another, and you’re still the same person. The science and art of branding has
become much more valuable since its practitioners have learnt to expand the
26
notion beyond the makers’ mark and pure performance-based claims, to
embrace the whole relationship between a product or service and its customers.
In the yearly 1990’s, the marketing big wig were deliberating vociferously
about “The Immortal Brand” and it was said that :
‘Building age and become dilapidated.
Machines wear out.
People die.
But what live on are the brands.’
The metaphor is clear: the brand as deity, a sentient being whose existence
transcends our merely human lifespan. And indeed this how we in marketing
and advertising talk of brands. They life cycles; they have personalities. In our
research we personify brands, and find consumers can play the game.
Unconsciously we credit the brand with some kind of absolute platonic
existence. Our mission is to discover (rather than invent) its ‘core values’ and
abide by them. In fact, the brand is a rather primitive kind of god. If we keep its
laws and pay regularly the tributes due (mainly advertising), fortune will smile
on us - otherwise disaster.
Now most of this is way of saying valuable and important things about
branding. Brands can ‘live’ longer than people. The metaphor of personality has
been very helpful, here. A brand may have ‘personality’, but it is not a person,
27
still less a good on a cloud. you cannot talk to its and it cannot answer you back.
In fact, a brand has no absolute or objective existence - nor are its ‘core values’
are engraved on any stone. A brand is simply a collection of perceptions in the
mind of the consumer.
The tentative answers in this chapter - and I regard it only as an essay which I
hope others may improve on - are rather complex. Branding can be seen as
satisfying various different needs, and working at different levels and in
different ways. What I will suggest in fact has happened is that brands originally
begin as a badge or promise of certainty in an uncertain world, and that this
offers simple and functional benefits to any consumer. But because a brand
offers this kind of certainty it also becomes a kind of currency for consumers to
carry out less obviously related kinds of transactions with themselves and with
each other. In a sense, consumers have ‘hijacked’ brands for their own
purposes. But all the ways in which brands can be used derive from the basic
promise of certainty, and I will therefore argue that we are talking about one
coherent, if complex phenomenon. Brands as a badge, and brands as personality
are aspects of the same thing.
At its simplest, a brand is a recognizable and trustworthy badge of origin, and
also a promise of performance. But to be No. 1. is the name of the game. To be
the Best brand in a product category entails much-much more than just being
recognizable, trustworthy promise of performance. It is to a very large extent
28
perceptual in nature. In other world, it is directly proportional the consumer.
And, Consumer is the King. To be No. 1. is something that every brand in its
lifespan would try to achieve. Is it possible? If yes, what does it take to be No.
1.? Let’s find out.
How do Brands Become Number One ?
Now a days, everyone is talking about Coca Cola, McDonalds, Marlboro etc.
But what is common to these Brands, that makes them the talk of the town! The
common feature in these brands is that, either they are, or have been the
Number One Brands of the worlds.
Since Liberalization of the Indian economy, Indian companies are now facing
tough competition from these brands. Coca Cola is here to compete with its
traditional rival Pepsi and with other Indian brands of Pure Drinks. Pepsi, on the
other hand, had an even tougher task to gain market share in the Indian market,
as is had to compete with two big players, Pure Drinks and Parle, with brands
such as Thums Up, Gold Spot and Limca.
McDonalds has come into the Indian market only a few months back and is
already creating waves. It’s giving a tough competition to the already strong
local player Nirula’s which has been on the scene for a long time.
Now, the talk is of the cigarette giant Philip Morris Inc. of “Marlboro” fame
planning to enter India with it’s world famous brands. What should the Indian
big wig ITC do to make their brands of cigarettes compete against the challenge
29
posed by the one time Number One brands of the world ? Are there any
common attributes in the Number One brands which make them Number One?
To find out the answer to this question and also to find out whether these
attributes can be applied across different industries lets take a journey into the
“World of Brands”.
30
PROJECT PROFILE
CASH MANAGEMENT CYCLE
Pepsi Ltd (PEPSI) have been using two techniques for managing cash inflow-
Cash management service (CMS) provided by ICICI,Bank,UTI,HDFC and
Corparation Bank and short term financing through Letter of credit .
31
CASH COLLECTIONS
CASH PAYMENTS
DEFICIT
SURPLUS
BORROW
INVEST
BUSINESSOPERATIONS
INFORMATION&
CONTROL
In case of Cash Sales the Industry had to wait for 4-5 days before it could
realize the Cash (in case the customer paid through draft.In case of payments
through cheques the iag as evan larger) as the customers are based in different
locations in India . So the basic aim of project is to evaluate the cost benefit to
PEPSI after adopting CMS. The project stress on the ways to further lower
down the cost of procuring funds through cash sales by doing a comparative
analysis of the banks providing this facility to the corporates.
TYPICAL CASH FLOW
CASH FLOW UNDER CMS
32
Sales in Cash
Payment by Draft or Cheque
Locking time 3-7 days
Realization of Payment
Sales in Cash
Collection by banker locking period 1-2days
Realization on day 1 or day 2
33
THEORITICAL ASPECTS
CASH MANAGEMENT SYSTEM
The Cash Management System manages the transfer of funds between your
cash accounts, cash management investment accounts, asset
based revolving line of credit accounts and line of credit
accounts, according to the rules you set up for them. For each account, you
must establish minimum and maximum balances and determine the relative
priority for applying cash to the account, or using cash from the account.
The Cash Management System applies these rules automatically throughout the
Plan Period, using the Other/Miscellaneous cash account as a balancing
account. The balance in the Other/Miscellaneous cash account will be
calculated as containing whatever cash is available after all of the Cash
Management System rules have been applied for the other accounts in the Cash
Management System. If there is inadequate cash in the system, this will result in
Other/Miscellaneous cash having a negative balance.
Applying Extra Cash to the Cash Management Accounts - Cash is first
applied to put enough cash in each of the Cash Management accounts so that
their minimum balance requirements are met. This will occur even if it leaves
the Other/Misc Cash account with a negative balance.If additional cash exists
34
after the minimum balance requirements are met for all of the Cash
Management Accounts, then cash is first applied to 'fill up' the Priority 1
account until it reaches its maximum allowed balance. If additional cash exists,
it is next applied to the Priority 2 account, and so on until all Cash Management
accounts have been filled to their maximum allowed balance, or the Other/Misc
Cash account has run out of cash to apply. If the system runs out of extra cash to
apply, the disbursement ends, leaving the Other/Misc Cash account with a zero
balance. If all of the Cash Management accounts are filled to their maximum
allowed balance, or the Other/Misc Cash account has run out of cash to apply. If
the system runs out of extra cash to apply, the disbursement ends, leaving the
Other/Misc Cash account with a zero balance. If all of the Cash Management
accounts are filled to their maximum limits, then all remaining cash will be left
in the Other/Misc. Cash account.
35
Using Needed Cash from the Cash Management Accounts - If the
Other/Misc. Cash account has a positive balance, cash is first used from it until
it is reduced to a zero balance. If more cash is required, it is then taken from the
Priority 1 account, until it is reduced to the minimum amount, or no more cash
is required. Next, cash is used from the Priority 2 account, and so on in similar
fashion, until no more cash is needed or until all Cash Management Accounts
have been reduced to their minimum amounts and more cash is required, then
cash is removed from the Other/Misc. Account even if this results in a negative
balance.
36
CASH MANAGEMENT SERVICES GENERALLY OFFERED
Cash Management offers a variety of services to its customers and its not
necessary that one must choose all the services offered under Cash Management
for its Industry .Its compltely on the discretion of the Industry whether to avail
all the services or as per the requirement .The following is a list of services
generally offered by banks and utilised by larger businesses and corporations.
1. Account Reconcilement Services: Balancing a checkbook can be a difficult
process for a very large business, since it issues so many checks it can take a
lot of human monitoring to understand which checks have not cleared and
therefore what the
2. company's true balance is. To get around this, banks have developed a
system which allows companies to upload a list of all the checks that they
issue on a daily basis, so that at the end of the month the bank statement will
show not only which checks have cleared, but also which have not. More
recently, banks have used this system to prevent checks from being
fraudulently cashed if they are not on the list, a process known as positive
pay.
3. Advanced Web Services: Most banks have an Internet-based system which
is more advanced than the one available to consumers. This enables
managers to create and authorize special internal
37
4. logon credentials, allowing employees to send wires and access other cash
management features normally not found on the consumer web site.
5. Armored Car Services: Large retailers who collect a great deal of cash may
have the bank pick this cash up via an armored car company, instead of
employees depositing the cash.
6. Automated Clearing House: services are usually offered by the cash
management division of a bank. The Automated Clearing House is an
electronic system used to transfer funds between banks. Companies use this
to pay others, especially employees (this is how direct deposit works).
Certain companies also use it to collect funds from
7. customers (this is generally how automatic payment plans work). This
system is the subject of the ire of some consumer groups, because under this
system all banks assume that the Industry initiating the debit is correct until
proven otherwise.
8. Balance Reporting Services: Corporate clients who actively manage their
cash balances usually subscribe to secure web-based reporting of their
account and transaction information at their lead bank. These sophisticated
compilations of banking activity may include balances in foreign currencies,
as well as those at other banks.
9. Wire Transfer: A wire transfer is an electronic transfer of funds. Wire
transfers can be done by a simple bank account transfer, or by a transfer of
cash at a cash office. Bank wire transfers are often the most expedient
38
method for transferring funds between bank accounts. A bank wire transfer
is a message to the receiving bank requesting them to effect payment in
accordance with the instructions given. The message also includes settlement
instructions. The actual wire transfer itself is virtually instantaneous,
requiring no longer for transmission than a telephone call.
10.Controlled Disbursement: This is another product offered by banks under Cash
Management Services. The bank provides a daily report, typically early in the day, that
provides the amount of disbursements that would be charged to the customers account.
This early knowledge of daily funds requirement allows the customer to invest any
surplus in intraday investment opportunities, typically money market. This is different
from delayed disbursements, where payments are issued through a remote branch of a
bank and customer is able to delay the payment due to increased float time.
Location Days Rate
Agra 2 0.18
Aligarh 2 0.18
Allahabad 2 0.18
Banglore 2 0.18
Bareilly 2 0.18
Belgaum 1 0.18
Bhopal 2 0.05
Coimbatore 2 0.18
Deharadun 2 0.18
39
Dindigul 2 0.18
Ernakulam 2 0.18
Gorakhput 2 0.18
Guwahati 2 0.18
Hubli 2 0.18
Jammu 2 0.18
Jamshedpur 2 0.18
Jodhpur 2 0.18
Kanpur 2 0.05
Lucknow 1 0.18
Madhurai 2 0.18
Muzf. Nagar 2 0.18
Pondicherry 2 0.18
Rewari 2 0.18
Rohtak 2 0.18
Saharanpur 2 0.18
Salem 2 0.18
Tirchirapally 2 0.18
Tirupati 2 0.18
Tumkur 1 0.18
40
Varanasi 2 0.18
In the past, other services have been offered the usefulness of which has
diminished with the rise of the Internet. For example, companies could have
daily faxes of their most recent transactions or be sent CD-ROMs of images of
their cashed checks.
These services can be costly but usually the cost to a Industry is outweighed by
the benefits: costsavings, accuracy, efficiencies,etc
Banks having CMS account are:
HDFC
ICICI
HSBC
Corporation bank
UTI Bank
Axis Bank etc
Sales are of two types
41
OEM- original equipment manufacturer – These are the major customers of
Pepsi Like TATA, Maruti, Hyundai, Godrej etc.
These are the buyers who purchase the remaining production of products
produced by Pepsi As the order of fixed units cannot be produced, excess or
deficit will always remain same. This excess is sold to Traders at reasonable
rate. They sell the small quantity of steels which is left over.
in order to manage the cash, we have to calculate opportunity cost of receiving
90 days before date of receiving cash.
42
OBJECTIVE AND SCOPE OF CMS
PEPSI has saved huge amount of cost after adopting CMS. Had PEPSI not
adopted this system of collection it would have received the amount in not less
than 4-5 days. And for the same period it would have to avail the Cash Credit
(CC) facilities granted to it by various banks. But in order to use the funds
available through CC account it had to pay an interest of 9-10% and in some
cases up to 12%. Use of CMS has brought down the cost considerably and
PEPSI has been able to save the interest amount because now it receives the
fund within 24-48 hrs. For calculating the cost saving for PEPSI the data set for
the two month of Ist quarter end (Mar 08, April 08-) is considered for Pepsi.
The cost incurred by PEPSI would include the draft charges, Postage charges
and interest forgone. While calculating the draft charges it has been assumed
that PEPSI bears the cost of draft sent by customers all the time, this might not
hold true in all cases but for its major customers it would have to do so because
of the competition in the industry. If PEPSI received cash in 4 days it had to
avail the CC limit and paid interest for the same period that would also add to
the cost incurred by PEPSI. PEPSI also would have to bear courier charge
which is assumed to be Rs 35 per day per location which is equal to what
charges. Interest is calculated @ 11% p.a.
Interest Forgone = Total cash in a week * .11/365*( 4- days taken in CMS)
Where 4 are the days taken by the draft to reach Delhi & gets realized i.e. 2
days in transit & 2 days clearing.
43
The Objective was to gather information about the collection charges charged
by different banks at different locations for the given period and find out which
Bank provides better services at minimum cost.
The scope of research is spread over the comparison of the collection charges
under the Cash Management System availed by Pepsi through the above stated
Banks.
44
CASH MANAGEMENT SERVICES OF PEPSI
Cash Management is the stewardship or proper use of an entity’s cash
resources. It serves as the means to keep an organisation functioning by making
the best use of cash or liquid resources of the organisation. At the same time the
organisations have the responsibility to use timely, reliable and comprehensive
financial information systems.
Cash Management helps the organisation in:
Eliminating idle cash balances.
Monitoring exposure and reducing risks.
Ensuring timely deposit of collections.
Properly timing the disbursements.
Cash Management Services (CMS) is one of our thrust areas. Today, we have
large number of satisfied CMS customers, many of whom are in the top
segment of the Indian Corporate and Public Sectors. This has been a result of a
robust, end to end cash management product which offers innovative and
reliable solutions by combining an efficient collections and disbursements
product, backed by state of the art systems to ensure customised delivery. The
Bank has constructed a wide range of CMS products covering collections and
disbursements of operating flows, as well as specialized cash flow streams such
as rights/public issue collections, dividends, interest/principal repayments,
excise and sales tax payments etc. We operate out of a large and expanding
45
network of over 175 outlets across the country. This is the largest network of
online, electronically linked branches in the country. This provides us with a
clear competitive advantage, which naturally translates into a lower cost and
faster credit to corporates. In addition to our network, we have an extensive
correspondent banking arrangement, which allows us to offer you Cash
Management Services – over 1100 locations covered for collections and over
650 locations for Payments.
Benefits to Corporates
If your organisation is multi-locational, managing outstation funds collections
and payments can often be time consuming and expensive. Delays of days or
even weeks in realising outstation cheques, constant tracking and follow-up to
transfer funds from outstation collection accounts, uncertainty and delays
regarding information on the fate of cheques etc., are common.
At Pepsi we offer a comprehensive range of Collections and Payments solutions
under our Cash Management Services (CMS) umbrella to meet your needs and
put you in control of your cash position.
Pepsi's Cash Management Services will enable you to :
46
Lower Interest Costs
Our collection services enable you to receive funds in your main concentration)
account with the bank with a minimum transit time thereby reducing interest
costs.
Improve Liquidity
Saving on transit time enables you to realise cheques and use funds earlier and
therefore gives you enhanced liquidity.
Better Accounting and Reconciliations
Detailed information on cheques deposited are made available on a daily /
weekly basis/periodically thus simplifying accounting, reconciliation and query
resolution. Pepsi can also provide customised MIS as per your requirements.
Achieve Overall Operational Convenience
Pepsi's Collection Services enable you to derive convenience in banking
operations thereby facilitating management of cash positions through a central
treasury. Also, the same may be used for improved control over different
business segments. The advantages of our collection products can also be
availed without opening a current account with Pepsi.
Transfer Cheque Collections
This product provides quick realisation of local/outstation cheques drawn on
any branch of Pepsi This product is available at all locations of Pepsi
("HDFCTRF") locations.
47
Clean Collections
Cheques drawn on any locations, which are not covered, by Pepsi or our
correspondent bank are also collected at any of our locations and proceeds
credited to your account as soon as credit is received by Pepsi.
Pepsi's comprehensive MIS includes:
Daily report of deposits made at various locations.
Location wise report
Credit Forecast report
Monthly cumulative report - date wise / location wise
Monthly charging statement
Monthly cheque return statement
Customized reports as per mutual agreement.
48
IMPORTANCE OF CMS FOR A COMPANY
Cash is the ready money in the bank or in the business. It is not
inventory, it is not accounts receivable (what you are owed), and it is not
property. These might be converted into cash at some point in time, but
it takes cash in hand or at the bank to pay suppliers, to pay the rent, to
pay wages & to make day by day payments.
Cash Budget
By preparing cash budget Industry planned the sources & application of
funds in the manner of cash.
Operating Cash Flow
Operating cash flow, often referred to as working capital, is the cash flow
generated from internal operations. It is the cash generated from sales of the
product or service of company’s business. It is the real lifeblood of your
business, and because it is generated internally, it is under a finance
manager’s control.
Since it is easy to control the Operating Cash Flow the companies these days
are adopting Cash Management Services. This service reduces the time taken in
realization of cash considerably and at a much lower cost.
Investing Cash Flow
Investing cash flow is generated internally from non-operating activities.
This component would include investments in plant and equipment or
49
other fixed assets, non recurring gains or losses, or other sources and
uses of cash outside of normal operations.
Financing Cash Flow
Financing cash flow is the cash to and from external sources, such as
lenders, investors and shareholders. A new loan, the repayment of a loan,
the insurance of stock and the payment of dividend are some of the
activities that would be included in this section of the cash flow
statement.
50
ADVANTAGES OF CMS:
1. Saves a huge amount in form of DD commission and clearing charges.
2. All high value cheques get cleared and credit is given the same day.
3. We desired the desired liquidity in form of cash very quickly. This means
there is a saving of interest on the amount that would have remained
blocked under the normal course of clearing and credit by banks.
4. Even if the cheque gets dishonored we can use the amount till the banks
get to know it. During this time we can use this money.
5. When credit is given same day, we have our cash position by evening we
can accordingly plan our investment and expenditures accordingly for
coming days.
6. We can have an accurate figure of what were our collections from which
place.
LIMITATIONS OF CMS:
1. Collection would have meant collection either through outstation cheque
or through DD.
2. DD’s worth crores of rupees would have brought substantial amount of
DD charges to the company’s P/L account.
51
The outstation cheque would take days to reach to the company’s account s
department and some more days to get cleared with deduction of some bank
charges from the cheque amount.
52
Advantages to the Buyer
The buyer is assured that his/her bank will refuse payment to the seller
unless
the seller’s documents comply with the terms and conditions of the Letter
of Credit
If the seller is willing to grant extended terms to the buyer, the buyer may
arrange for a Letter of Credit which is payable at a future date (i.e. 60 or
90 days after presentation of complying documents).
Through the use of Banker’s Acceptances, a buyer who has purchased
goods under a Letter of Credit may finance the goods until they are
marketed.
By the documents called for, the Buyer can seek to minimize the risks in
not receiving the goods ordered. The Buyer may also impose conditions
on the manner and dates in which the goods are to be shipped.
53
Risk to the Buyer
In Letters of Credit, banks deal only with documents, not with goods.
The merchandise may not be as it is represented in the documents.
Advantages to the Seller
The seller may rely on a bank’s credit worthiness rather than the buyers.
The seller is more confident when he has a bank’s commitment to pay
upon presentation of complying documents.
The seller can reduce the risk that payment for the goods might be delayed or
otherwise jeopardized by political or foreign exchange problems in the
buyer’s country.
The seller may be able to obtain financing for the purchase or
manufacture of goods that will be shipped under the Letter of Credit.
Under Banker’s Acceptance financing the seller may receive funds
shortly after shipment despite having granted credit terms to the buyer, or
the seller may receive funds prior to export. The decision is typically
based on the seller’s cash flow position.
54
Risk to the Seller
The seller’s documents must comply strictly with the terms and
conditions of the Letter of Credit to entitle the seller to payment.
The seller is exposed to the commercial risk that the bank providing its
undertaking is willing and able to perform.
The seller assumes any political and foreign exchange risk affecting the
issuing bank’s obligation.
55
DATA ANALYSIS AND INTERPRITAION
FINANCIAL STATEMENTS
Financial statements (or financial reports) are formal records of business
financial activities. Financial statements paint a picture of the transactions that
flow through a business. Each transaction or exchange - for example, the sale of
a product or the use of a rented a building block – contributes to the whole
picture.
Let's approach the financial statements by following a flow of cash-based
transactions. In the illustration below, we have numbered four major steps:
56
Shareholders and lenders supply capital (funds) to the company.
The capital suppliers have claims on the Industry assets. The balance sheet
is an updated record of the capital invested in the business as on date. On the
Left-hand side of the balance sheet, lenders hold liabilities and shareholders
hold equity. The equity claim is "residual", which means shareholders own
whatever assets remain after deducting liabilities. The capital is used to buy
assets, which are itemized on the Right-
57
hand side of the balance sheet. The assets are or long-term, such as a land, plant
& machinery, furniture/fixtures, and short term or current assets, such as
inventory, debtors, investments, liquid funds (cash & bank balances).
The assets are deployed to create fund flow in the current year (cash inflows are
shown in green, outflows shown in red). Selling equity and issuing debt start the
process by raising cash. The Industry then "puts the cash to use" by purchasing
assets (long term & short term) in order to create (build or buy) inventory. The
inventory helps the Industry make sales (generate revenue), and most of the
revenue is used to pay operating costs, which include salaries.
After paying costs (and taxes), the Industry can do three things with its profits.
One, it can (or probably must) pay interest on its debt. Two, it can pay
dividends to shareholders at its discretion. And three, it can retain or re-invest
the remaining profits. The retained profits increase the shareholders' equity
account (retained earnings). In theory, these reinvested funds are held for
the shareholders' benefit and reflected in a highershareprice.
This basic flow of funds through the business introduces two financial
statements: the balance sheet and profit /loss account. The other statements
are fund flow and cash flow statements. It is often said that the balance
sheet is a static financial snapshot taken at any given moment of time in a year.
The Profit/Loss statement on the other hand always covers a period of time.
58
POSITION STATEMENT
In financial accounting, a balance sheet or statement of financial position is a
summary of a person's or organization's balances. Assets, liabilities and
ownership equity are listed as of a specific date, such as the end of its financial
year. A balance sheet is often described as a snapshot of a company's financial
condition. The only statement, which applies to a single point in time.
A Industry balance sheet has three parts: assets, liabilities and shareholders'
equity. The main categories of assets are usually listed first and are followed by
the liabilities. The difference between the assets and the liabilities is known as
equity or the net assets or the net worth of the company; according to the
accounting equation, net worth must equal assets minus liabilities
Another way to look at the same equation is that assets equal liabilities plus net
worth. This is how a balance sheet is presented, with assets in one section and
liabilities and net worth in the other section. The sum of these two sections must
be equal; they must "balance".
Records of the values of each account or line in the balance sheet are usually
maintained using a system of accounting known as the double-entry
bookkeeping system.
A business operating entirely in cash can measure its profits by withdrawing the
entire bank balance at the end of the period, plus any cash in hand. However,
59
real businesses are not paid immediately; they build up inventories of goods and
they acquire buildings
and equipment. In other words: businesses have assets and so they can not, even
if they want to, immediately turn these into cash at the end of each period. Real
businesses owe money to suppliers and to tax authorities, and the proprietors do
not withdraw all their original capital and profits at the end of each period. In
other words businesses also have liabilities.
60
BALANCE SHEET OF PEPSI (Rs. In Lacs)
SOURCES OF FUNDS: Schedule: 2007-08 2008-09 2009-10
Shareholders' funds:
Share capital 1 4047.17 4127.17 4247.17
Reserves and surplus 2 69011.88 84839.55 117203.29
73059.05 88966.72 121450.46
Advances for share warrant
money received _ 360 _
Loan funds:
Secured loans 3 108979.08 165091.22 241283.74
Unsecured loans 4 22768.07 38526.59 82913.96
Total 131747.15 203617.81 324197.7
Deferred tax liability (net) 7487.52 6631.24 12374.12
(Refer note No. 11 of schedule
17)
Total 212293.72 299575.77 458022.28
APPLICATIONS OF FUNDS
Fixed assets:- 5
Gross block 165781.29 179590.57 269372.64
Less: Depreciation 61080.68 77582.98 97027
Net block 104700.61 102007.59 172345.64
61
Capital work in progress 38570.2 129522.49 189211.25
Total 143270.81 231530.08 361556.89
Investments 6 1899.01 1916.57 2085.39
Current Assets, Loans and
Advances
Inventories 7 58167.25 47478.46 75634.14
Sundry debtors 8 33943.53 40447.72 53889.61
Cash & Bank balances 9 1738.94 8151.64 10013.68
Loans & Advances 10 12976.33 24114.2 36737.48
Total 106826.05 120192.02 176274.91
Current Liabilities &
Provisions
Current Liabilities 11 38891.16 52658.74 80115.57
Provisions 12 810.99 1404.16 1779.34
Total 39702.15 54062.9 81894.91
Net Current Assets 67123.9 66129.12 94380
Miscellaneous Expenditure _ _ _
Total 212293.72 299575.77 458022.28
62
INCOME STATEMENT
An Income Statement, also called a Profit and Loss Statement (P&L), is a
financial statement for companies that indicates how Revenue (money received
from the sale of products and services before expenses are taken out, also
known as the "top line") is transformed into net income (the result after all
revenues and expenses have been accounted for, also known as the "bottom
line"). The purpose of the income statement is to show managers and investors
whether the Industry made or lost money during the period being reported.
The important thing to remember about an income statement is that it represents
a period of time. This contrasts the balance sheet, which represents a single
moment in time.
Charitable organizations that are required to publish financial statements do not
produce an income statement. Instead, they produce a similar statement that
reflects funding sources compared against program expenses, administrative
costs, and other operating commitments.
A financial statement that measures a company's financial performance over a
specific accounting period. Giving a summary of how the business incurs its
revenues and expenses through both operating and non-operating activities
assesses financial performance. It also shows the net profit or loss incurred over
a specific accounting period, typically over a fiscal quarter or year.
63
Also known as the "profit and loss statement" or "statement of revenue and
expense". The income statement is divided into two parts: the operating and
non-operating sections.
The portion of the income statement that deals with operating items is
interesting to investors and analysts alike because this section discloses
information about revenues and expenses that are a direct result of the regular
business operations. For example, if a business creates sports equipment, then
the operating items section would talk about the revenues and expenses
involved with the production of sports equipment.
The non-operating items section discloses revenue and expense information
about activities that are not tied directly to a company's regular operations. For
example, if the sport equipment Industry sold a factory and some old plant
equipment, then this information would be in the non-operating items section.
64
PROFIT AND LOSS ACCOUNT OF PEPSI (Rs. In Lacs)
PARTICULARS 2007-08 2008-09 2009-10
Income
Sales of products 282921.52 299259.23 417925.85
Less: Excise duty 18577.55 27763.81 36432.5
Net sales 264343.97 271495.42 381493.55
Export Incentives 13 3868.56 7778.56 2279.45
Other Income 681.12 1240.8 3043.35
Total Income 4549.68 280514.78 386816.15
Expenditure 14
Manufacturing & Other
expenses 227772.94 239670.11 320962.37
Profit before Interest,
Depreciation and Tax 15 41120.71 40844.67 65853.78
Interest and Financial Charges 8082.91 8303.07 7725.02
Profit Before Depreciation 33037.8 32541.6 58128.76
Depreciation 16472.12 16575.77 20892.21
Profit Before Tax 16565.68 15965.83 37236.55
Less: Income Tax
Current Tax 1310 1345 4170
MAT Credit Available for set off _ _ -4120
65
Deferred Tax -79.54 -856.28 5742.88
Fringe Benefits Tax _ 32 117.69
Profit After Tax 16565.68 15445.11 31325.98
Profit brought forward from
previous year 12576.34 3992.52 3604.36
Profit available for
Appropriations 27911.56 19437.63 34930.34
Appropriations
Proposed Dividend 607.07 1031.79 1061.79
Provision for Dividend Tax 79.34 144.71 180.45
Dividend paid for earlier year _ 4.5 _
Interim Dividend paid 404.72 _
Dividend tax paid on Interim
Dividend 52.89 _
Dividend Tax paid for earlier
year _ 6.44 _
Tranferred to Debenture
Redemption Reserve 2500 _ 8975
Release from Debenture
Redemption Reserve -734.38 -5354.17 -3036.45
66
Tranferred to General Reserve 21009.4 20000 26000
Balance carried forward to
Balance sheet 3992.52 3604.36 1749.55
27911.56 19437.63 34930.34
Basic Earning Per Share 37.89 37.9 74.96
Diluted Earning Per Share 37.89 37.75 74.45
Nominal Value of Share 10 10 10
67
CASH FLOW STATEMENT OF PEPSI ( In Rs. Lacs)
A. Cash flow from operating activities 2007-08 2008-09 2009-10
Net Profit before Tax, Dep. and
Extraordinary items 16565.68 15965.83 37236.55
Depreciation 16472.12 16575.77 20892.21
Transfer from General Reserve _ _ _
Expenses Amortised _ _ _
Provisions 58.1 23.53 90.15
Interest & Financial Charges 7938.7 8303.07 7725.02
Interest /Dividend Income _ -0.46 -28.46
Interest Income on Investments -652.16 -1185.31 -1653.71
Profit on sale of non trade Investment -1.05 -7.47 -69.88
Profit on sale of fixed assets -22.64 -16.47 -64.41
Provision for doubtful debts 2.18 -193.31 127.68
Bad debts written off 0.96 254.24 __
Effects of exchange rate change 4.32 102.54 -1837.57
Operating Profit Before Working
Capital Changes
40366.21 39821.13 62417.58
Adjustments for:
Increase(-) / Decrease in inventories -18756.28 10688.79 -28155.68
Increase (-)/Decrease in other 1115.34 -6564.65 -13618.13
68
receivables
Increase (-)/Decrease in loans and
advances -4099.28 -11174.53 -8503.28
Increase/ Decrease (-) in trade payables 5941.22 13840.3 27237.36
15799 6789.91 -23039.73
Cash flow from operating activities 24567.21 46611.87 39377.85
Less: Direct tax paid(net of refund) -1239.9 -1260.79 -4068.4
Net cash flow from operating activities
(A) 23327.31 45351.08 35309.45
B. Cash flow from investing activities
Purchase of fixed assets -50353 -96090.85
-
132421.76
Sale of fixed assets 68.21 27.64 99.58
Purchase of investments -18.39 -10317.66 -20756.12
Sale of investments 20 10307.57 20657.18
Interest income 652.16 1185.31 2559.33
Dividend income _ 0.46 28.46
Net cash used in investing activities (B) 49631.02 -94887.53
-
129833.33
C). Cash flow from financing activities
69
Interest & financial charges paid -10692.7 -17219.77 -27397.27
Proceeds from cash credit from banks 10009.84 -8436.52 13879.8
Proceeds from other borrowings 28676.45 80307.18 106700.09
Proceeds from share capital' _ 80 120
Proceeds from share premium _ 1570 2280
Proceeds from share warrants _ 360 -360
Dividend paid -809.44 -612.24 -1031.4
Dividend tax paid -104.75 -85.78 -144.71
Effect of exchange rate change -166.8 -13.72 2339.41
Net cash flow from financing activities
© 26912.6 55949.15 96385.92
Net increase in cash and cash
equivalents (A+B+C) 608.89 6412.7 1862.04
Opening balance of cash and cash
equivalents 1130.05 1738.94 8151.64
Closing balances of cash and cash
equivalents 1738.94 8151.64 10013.68
70
PURPOSE OF FINANCIAL STATEMENTS
"The objective of financial statements is to provide information about the
financial strength, performance and changes in financial position of an
enterprise that is useful to a wide range of users in making economic decisions."
Financial statements should be understandable, relevant, reliable and
comparable. Reported assets, liabilities and equity are directly related to an
organization's financial position. Reported income and expenses are directly
related to an organization's financial performance.
Financial statements are intended to be understandable by readers who have "a
reasonable knowledge of business and economic activities and accounting and
who are willing to study the information diligently."
Owners and managers require financial statements to make important business
decisions that affect its continued operations. Financial analysis is then
performed on these statements to provide management with a more detailed
understanding of the figures. These statements are also used as part of
management's annual report to the stockholders.
Employees also need these reports in making collective bargaining agreements
(CBA) with the management, in the case of labour unions or for individuals in
discussing their compensation, promotion and rankings.
2. External Users: are potential investors, banks, government agencies and
other parties who are outside the business but need financial information about
the business for a diverse number of reasons.
71
Prospective investors make use of financial statements to assess the viability of
investing in a business. Financial analyses are often used by investors and is
prepared by professionals (financial analysts), thus providing them with the
basis in making investment decisions.
Financial institutions (banks and other lending companies) use them to decide
whether to grant a Industry with fresh working capital or extend debt securities
(such as a long-term bank loan or debentures) to finance expansion and other
significant expenditures. Government entities (tax authorities) need financial
statements to ascertain the propriety and accuracy of taxes and other duties
declared and paid by a company.
Media and the general public are also interested in financial statements for a
variety of reasons.
72
BANK COLLECTION CHARGES
CORP-CMS BANK SERVICE CHARGES FOR THE M/O
JAN-2010
LOCATION COLLECTION RATE TOTAL
ALLAHABAD 3983356.00 0.00008 318.67
SAHARANPUR 4135340.00 0.00008 330.83
BHOPAL 905190.00 0.00003 27.16
LUCKNOW 10106181.00 0.00008 808.49
GORAKHPUR 40055502.90 0.00008 3204.44
AGRA 10362284.00 0.00008 828.98
DEHRADUN 3398447.00 0.00008 271.88
JAMMU 30438496.00 0.00008 2435.08
TOTAL 103384796.90 8225.52
73
CORP-CMS CH.RTURNS CHARGES FOR THE M/O JAN-
2010
LOCATION AMOUNT RET.CHGS INTEREST TOTAL
BHOPAL 452595 100.00 359.60 459.60
TOTAL 100.00 359.60 459.60
PARTICULARS AMOUNT
Collection-
Charges 8325.52
SERVICE-TAX 12.36% 1029.03
INTEREST 359.60
TOTAL 9714.16
74
CORP-CMS BANK SERVICE CHARGES FOR
THE M/O FEB-2010
LOCATION COLLECTION RATE TOTAL
ALLAHABAD 2138971.00 0.00008 171.12
SAHARANPUR 3843031.00 0.00008 307.44
BHOPAL 329907.00 0.00003 9.90
LUCKNOW 10964321.06 0.00008 877.15
GORAKHPUR 36136865.00 0.00008 2890.95
AGRA 15236079.00 0.00008 1218.89
DEHRADUN 1264099.00 0.00008 101.13
JAMMU 23360461.00 0.00008 1868.84
TOTAL 93273734.06 7445.40
75
CORP-CMS CH.RTURNS CHARGES FOR THE M/O
FEB-2010
LOCATION AMOUNT RET.CHGS INTEREST TOTAL
GORAKHPUR 345573.00 100.00 137.28 237.28
JAMMU 249682.00 100.00 0.00 100.00
GORAKHPUR 644589.00 100.00 256.07 356.07
TOTAL 1239844.00 300.00 393.35 693.35
PARTICULARS AMOUNT 12.36% 10.30% TOTAL
Collection-
Charges 7838.75 5671.00 2167.72 7838.72
RET.CHARGRS 300.00 0.00 0 300.00
SERVICE-TAX 922.34 700.94 223.28 924.21
TOTAL 9061.09 6371.94 2391.00 9062.93
76
UTI-CMS BANK SERVICE CHARGES FOR THE M/O JAN-2010
LOCATION COLLECTION RATE COLL.CHGS. COURIER TOTAL
COIMBATORE 2131775.00 0.00004 85.27 0.00 85.27
RUDDRAPUR 460704.00 0.00004 18.43 0.00 18.43
VARANASI 50102939.07 0.00004 2004.12 400.00 2404.12
TOTAL 52695418.07 2107.82 400.00 2507.82
UTI-CMS BANK CH.RETURNS FOR THE M/O JAN-2010
LOCATION AMOUNT RET.CHARGS INTEREST TOTAL
RUDDRAPUR 24000.00 100.00 11.67 111.67
VARANASI 168856.38 100.00 82.12 182.12
VARANASI 364366.00 100.00 177.19 277.19
TOTAL 300.00 270.98 570.98
Collection+Ret.Chargs 3078.79
SERVICE-TAX 12.36% 380.54
TOTAL 3459.33
77
UTI-CMS BANK SERVICE CHARGES FOR THE M/O FEB-2010
LOCATION COLLECTION RATE COLL.CHGS. COURIER TOTAL
COIMBATORE 2438624.00 0.00004 97.54 0.00 97.54
RUDDRAPUR 1175094.00 0.00004 47.00 0.00 47.00
VARANASI 58848048.42 0.00004 2353.92 400.00 2753.92
TOTAL 62461766.42 2498.47 400.00 2898.47
UTI-CMS BANK CH.RETURNS FOR THE M/O FEB-2010
LOCATION AMOUNT RET.CHARGS INTEREST TOTAL
VARANASI 100000.00 100.00 49.64 149.64
VARANASI 403373.00 100.00 196.16 296.16
VARANASI 557367.00 100.00 271.05 371.05
VARANASI 337665.00 100.00 0.00 100.00
VARANASI 232607.00 100.00 0.00 100.00
VARANASI 118371.00 100.00 0.00 100.00
TOTAL 600.00 516.85 1116.85
Collection+Ret.Chargs 4015.32
78
SERVICE-TAX 12.36% 496.29
TOTAL 4511.62
CHARGED BY BANK 4510.47
HDFC-23-CMS BANK COLLECTION CHARGES FOR THE
M/O JAN-2010
LOCATION COLLECTION RATE COLL.CHGS. TOTAL
LUDHIANA 38454277.00 0.00005 1922.71 1922.71
BELAGUM 1427504.00 0.00005 71.38 71.38
ALIGARH 10883185.00 0.00005 544.16 544.16
MADRAS 14985828.75 0.00002 299.72 299.72
ALLAHABAD 3322628.30 0.00005 166.13 166.13
HALDWANI 16959326 0.00005 847.97 847.97
SRINAGAR 55499596.00 0.00005 2774.98 2774.98
CHANDIGARH 2291431.00 0.00004 91.66 91.66
TRIUPATHI 11889163.00 0.00005 594.46 594.46
PUNE 20702003.43 0.00004 828.08 828.08
79
MUZAFAR
NAGAR 6691780.06 0.00005 334.59 334.59
JAIPUR 34666128.00 0.00004 1386.65 1386.65
KANPUR 125790462.34 0.00004 5031.62 5031.62
GUWAHATI 100167375.00 0.00004 4006.70 4006.70
TOTAL 443730687.88 18900.79 18900.79
HDFC-23-CMS BANK -CH.RETURNS FOR THE M/O JAN-
2010
LOCATION AMOUNT
PER.CH INTEREST TOTAL
HALDWANI 69379.00 100.00 0.00 100.00
GUWAHATI 50000.00 100.00 0.00 100.00
PUNE 543524.00 100.00 0.00 100.00
KANPUR 1548306.00 100.00 0.00 100.00
GUWAHATI 942981.00 100.00 0.00 100.00
CHANDIGARH 208033.00 100.00 0.00 100.00
CHANDIGARH 209780.00 100.00 0.00 100.00
GUWAHATI 50000.00 100.00 0.00 100.00
GUWAHATI 1689504.00 100.00 0.00 100.00
80
MADRAS 1000000.00 25.00 250.00 275.00
MADRAS 1000000.00 25.00 250.00 275.00
MADRAS 1915491.00 25.00 478.87 503.87
TOTAL 9226998.00 975.00 978.87 1953.87
PARTICULARS AMOUNT
COLLECTION-
CHARGES 20854.66
SERVICE-TAX
12.36% 2577.64
TOTAL 23432.29
CHARGED BY
BANK 23432.27
81
HDFC-23-CMS BANK COLLECTION CHARGES FOR THE M/O
FEB-2010
LOCATION COLLECTION RATE COLL.CHGS. TOTAL
LUDHIANA 27997404.5 0.00005 1399.87 1399.87
BELAGUM 215478 0.00005 10.77 10.77
ALIGARH 9177777 0.00005 458.89 458.89
MADRAS 12472932.65 0.00002 249.46 249.46
ALLAHABAD 3621722 0.00005 181.09 181.09
HALDWANI 16396284 0.00005 819.81 819.81
SRINAGAR 61581320 0.00005 3079.07 3079.07
CHANDIGARH 1947787 0.00004 77.91 77.91
TRIUPATHI 22083026 0.00005 1104.15 1104.15
KOLHAPUR 301107.00 0.00005 15.06 15.06
BANGALORE 14803837.79 0.00003 444.12 444.12
INDORE 12695119.86 0.00003 380.85 380.85
PUNE 10233839.71 0.00004 409.35 409.35
MUZAFAR NAGAR 5541336.88 0.00005 277.07 277.07
JAIPUR 13648449.00 0.00004 545.94 545.94
KANPUR 105954613.72 0.00004 4238.18 4238.18
82
GUWAHATI 123780224 0.00004 4951.21 4951.21
TOTAL 442452259.11 18642.80 18642.80
HDFC-23-CMS BANK -CH.RETURNS FOR THE M/O FEB-2010
LOCATION AMOUNT
PER.CH INTEREST TOTAL
HALDWANI 184564.00 100.00 0.00 100.00
GUWAHATI 1004566.00 100.00 0.00 100.00
PUNE 301107.00 100.00 0.00 100.00
KANPUR 666888.00 100.00 0.00 100.00
GUWAHATI 1693781.00 100.00 0.00 100.00
GUWAHATI 1303746.00 100.00 0.00 100.00
GUWAHATI(COURIER) 0.00 800.00 0.00 800.00
GUWAHATI 1473642.00 100.00 0.00 100.00
MADRAS 667126.00 100.00 0.00 100.00
MADRAS 752655.00 100.00 0.00 100.00
MADRAS 667126.00 100.00 0.00 100.00
LUDHIANA 344719.00 100.00 0.00 100.00
LUDHIANA 901375.00 100.00 0.00 100.00
LUDHIANA 773857.00 100.00 0.00 100.00
83
KANPUR 200000.00 0.00 25.00 25.00
KANPUR 200000.00 100.00 25.00 125.00
MADRAS 595697.00 25.00 148.92 173.92
JAIPUR 400000.00 100.00 0.00 100.00
JAIPUR 423578.00 100.00 0.00 100.00
TOTAL 12554427.00 2425.00 198.92 2623.92
PARTICULARS AMOUNT
COLLECTION-
CHARGES 21266.72
SERVICE-TAX 10.30% 2190.47
TOTAL 23457.19
CHARGED BY BANK 23457.18
84
ICICI-CMS BANK SERVICE CHARGES FOR M/O
JAN-2010
LOCATION COLLECTION RATE TOTAL
AHMEDABAD 1172762.00 0.00004 1500.00
JALLANDHAR 2967710.00 0.0003 1500.00
LUDHIANA 10109515.00 0.0002 2021.90
TOTAL 14249987.00 5021.90
ICICI-CMS BANK CH.RET.CHARGES FOR M/O JAN-
2010
LOCATION AMOUNT TOTAL
JALLANDHAR 342816.00 100.00
TOTAL 100.00
PARTICULARS AMOUNT
Collection-Charges 5121.90
SERVICE TAX 12.36% 633.07
85
TOTAL 5754.97
ICICI-CMS BANK SERVICE CHARGES FOR M/O
FEB-2010
LOCATION COLLECTION RATE TOTAL
AHMEDABAD 1235827.00 0.00004 1500.00
JALLANDHAR 2076661.00 0.0003 1500.00
LUDHIANA 5557843.00 0.0002 1500.00
TOTAL 8870331.00 4500.00
PARTICULARS AMOUNT
Collection-Charges 4500.00
SERVICE TAX 10.30% 463.50
TOTAL 4963.50
86
CONCLUSION
Cash Management Services has saved huge amount of cost which PEPSI had to
pay to procure funds from its customers. The savings have been nearly to the
tune of Rs 4800000. CMS has not only saved cost but have also ensured fast
realization of cash.
Earlier it used to take PEPSI at least 4-5 days to realize the payments made by
its customers whereas now it takes 24-48 hrs. The cost to PEPSI under
conventional method of collection (through drafts) is estimated by taking the
cash inflow through sale in cash only and current rates in the market is used for
the calculation e.g. BPEPSI has been availing the CC facility from Punjab
national bank and paying an interest @ 11% p.a. Also, the return charges are
ignored while doing all the calculations because there are very few cases of
return each month and most of the time the banks adjust the amount the very
same days so no interest is levied upon it. In such cases PEPSI has to pay Rs
100 flat as return charges. It would be in best interest of PEPSI to change the
banks from which it is availing CMS as the cost can be further reduced. The
above study leads us to the conclusion that HDFC and UTI are best suited for
PEPSI. The conclusion has not been made only on the grounds of financial
charges, while finalizing the banks the return interest rate, MIS report by banks
have also been taken into consideration. Any rate below 13.5% should be
87
acceptable to PEPSI. The MIS reports of all the banks are at par. Also, the
banks have ruled out the possibility of delayed credit as they have sophisticated
softwares to insure timely credit. Still PEPSI should insist on writing a clause in
the agreement stating that in case of delayed credit PEPSI is entitled to claim
an interest equivalent to the interest charged by the bank in case of instrument
return. Thus fresh negotiations with banks could save up to 70% of the cost.
Where as, Letter of Credit has been an important source of funds for PEPSI and
huge amount of transactions are carried out by way of Letter of credit in both
domestic and international market. It not only hedges the Industry against the
default risk but also ensures that the cash is realized much earlier than the due
date of payment. However, In many cases I have noticed that the party does not
default but delays the payment to the bank which in turn charges interest to
PEPSI for the period for which it has remained out of funds. This increases the
cost of financing. Provisions should be made while entering into agreement with
the party so as to avoid such costs. Also, at times it has been observed that the
party makes payment to its banker on the due date only and hence the transfer
of funds are delayed, again PEPSI ends up paying an interest for the same. This
does not make much of a difference if the credit period is anywhere between 60-
180 days. But in case the credit period is less than 60 say 30-45 the cost of
financing becomes high. Thus, while entering into agreement with the party
such costs must also be taken into consideration.
88
PEPSI has been managing the funds very well by employing latest management
techniques and have also ensured timely realization of funds.
RECOMMENDATION
I would like to recommend PEPSI to negotiate with HDFC for location
suchasLudhiana,Aligarh,Allahabad,Mandi-
Gobindgarh,Kanpur,Pune,Guhawati as from these location PEPSI is
receiving a huge amount, so if negotiated at lower rates, then the saving
would increase at higher rates.
PEPSI is doing business with UTI but not at a large, furthermore PEPSI
should negotiate with UTI for the rates which would suits the dealing.
As regard business with Corporation Bank, Corporation Bank is having
very high rate as compared to HDFC and UTI.
ICICI Bank is another option but it charges high in case of delayed
payment
89
KEY FINDING
Industry has an outstanding name in the field increasing of exports
as increament of around rs. 500 cr as compare to last financial year.
The purchases made by the Industry are in cash whereas the sales
are in cash and credit both this makes the working capital
requirement of the Industry very high.
The Industry has a conservative approach towards hedging exchange rate
risks.
From the locations as varanasi, gorakhpur, kanpur, Allahabad compny is
receiving a huge amount.
90
BIBILOGRAPHY
1. www.google.com
2. www.pepsi.com
3. www.wikipedia.com
NEWSPAPERS
1Business line
2Financial Express
3Economic Times
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