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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
INDUSTRY PROFILE
About the industry
India, in 1994 has become the 4th largest producer of cement in the
world. This impressive record owes its origin to the progressive policies of the
government since late 70s and enabled on assured 12% post tax return on net
worth (70). It economy refers of July 91 gave a further fillip by abolishing the
licensing system for setting up cement plants. Since then, innumerable
technological development look place in cement production enabling cost
reduction and mass production. The kilns of the late 70,s were replaced by dry
kilns which reduced the fuel cost by 30%. Thermal efficiency, was improved
by instilling pre-heaters, followed by the addition of pre-calcinatory. Optimal
usage of fuel and power we achieved through computerization and quality
control or raw materials.
In a developing country like India, the requirement of housing andinfrastructure is high and so the demand elasticity of the cement with respect to
G.D.P of 1.6% is also high.
Plants under the Group
The pig iron and Lanco Cement are two plant are two plants, which are
presently under the name of M/s. Lanco Industries Limited and Lanco
Construction Limited is the sister of concern of it.
Lanco Pig-iron Division
It is located at Rachagunneri. The Pig-iron is commissioned in a record
time of eleven months, drawing on the groups expertise in civil engineering
and industrial construction.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Highlights
State of art mini blast furnace.
Strategic location with easy access.
One of the few plants with its own railway siding.
High quality ore from the neighboring Donimalai deposits,
Access to best grade coke from China.
90,000 tpa capacity.
Proximity to end-users.
Manufacturing all grades of pig iron with the highest rating
quality.
Cement Division
Lanco Industries limited has setup a Portland slag cement plant of
70,000 TPA capacities at Rachagunneri. The cement plant utilizing as a raw
materials-slag, coke breeze& iron are time being generated by the pig iron
plants as by product & waster. By this cement plant LANCO INDUSTRIES
LIMITED adding values to by -products /waste generated from pig iron, in
addition to solving the problem of storing slag in the plant promises.
The main plant & machinery installed is lime stone crusher , raw mill
system for blending and grinding iron ore, clay, limestone& coke breeze, a
vertical shift kiln, a cement mill for grinding slag, clinker &gypsum & slag
drying system.
Cement Industry Highlights
The India cement industry has return on investment. There exist a large
markets which are not yet been completely taped. With the existing levels of
supply and growing demand the prices tend to rise. But, the industry being a
fast growing one, many players are attracted. Every year new capacities are
added raising the supply levels, price stability is thus maintained and the high
profits are observed by new entrants.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
The per capita consumption of manufacture commodities like steel,
power and cement are indicators of the economic state of a country. Of the total
output nearly 95% is accounted for by the private sector. However, in terms of
usage, the private sector, accounts for only 90% while the government sector
accounts for 10%. The housing activity accounts for 55% of total consumption.
Nearly 47% of the total costs, most of which are administrated prices are
beyond the control of cement units. The cost elements include limestone, coal,
transport, freight, power consumption and excise duty.
Production and Consumption Pattern Of Cement
In the case of cement production regional imbalance continue. Cement
plants are generally put up where limestone is available. This is because, to
produce I ton of cement 1 Vi tones limestone is required. Also it is easier to
transport cement than limestone.
Cement is mainly produced in the western and southern regions. Hence,
only half of the cement produced is consumed within the region. Cement is
usually transported from south to west, north no east and from west to north
and east. North are the most deficit regions, while west is the most surplus
region which are close to the consumption and excise duty. The destination of
cement transport is mainly dependent on mode of transport available and the
transportation cost incurred.
Cement Manufacturing Process
In wet process, limestone is crushed and grounded and mixed with water
to from slurry which is fed in to the kiln. The slurry has water content of 30-
40%. Before the mineralogical process commences, the water content in the
slurry has to be evaporated. This process consumes high energy and power.
On the other hand, the dry process is more energy efficient. The raw
materials are dried in a combined drying and grinding plant to reduce the
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
moisture content to less than 1%.
Due to regular shifts from wet and dry process nearly 89% of the total
industries kiln capacity is at dry process. Of the remaining, 9% wet process and
2%is coal consumption. The energy costs reduce by 30-40% and the kiln
output also increases for a given size kiln, the output for dry process is 250-
3007- as compared to 130-1507- for semi dry and 100% for wet process. The
capacity utilization is also higher for dry process plants.
Cement Branding
Cement has emerged as a commodity product .brand play and impotent
role especially in metres like Delhi, Mumbai, Calcutta, Chennai etc, where the
established brands surprise the success of small brands. In order to build up
their brand loyalty, companies have tie-ups with real estate agents and
construction companies. Some manufactures also organize workshops, training
and seminars to educate the consumers on the maximum use of cement.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
COMPANY PROFILE
The name Lanco has been derived from the promoter of the Group Shri.
Lagadapati Amarappa Naidu. The Lanco group is a diversified multi faced
conglomerate with the business interests in Pig Iron, Cement, Power, Graded
Castings, Spun Pipes, Information Technology and Infrastructure
Development. Young technocrats with exceptional entrepreneur skills promote
the Lanco Group with a mission and a great vision and the top agenda to put
the group on the global corporate may be during the next 10 years.
"Economy builds the nation and industry builds the economy"
LANCO industries limited are one of the best mini-blast furnace pig
iron manufacturing units in our country and it was 5th plant under TATA -
KORE technology. The company was incorporated on 1st November 1991
under company's act-1956, in the name of LANCO FERROLTD.,
THE COMPANY starred construction work in august 1993. The entire
construction work was completed in a record time of 12 months. This was
achieved by teamwork of LANCO collective and the best efforts of the
contractors. With this achievement the company started commercial
productions in September 1994.
The name LANCO Ferro limited was changed to LANCO
INDUSTRIES L1MITDED ON JULY 6th, 1994.
LANCO INDUSTRIES LIMITED is located in between Tirupathi and
Srikalahasti with an access of about 30kms from Tirupati and about
Rachagunneri village, Srikalahasti Mandal of Chittoor district Andhra Pradesh
is as follows:
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Cheap availability of required land.
There is more water resource.
The distance between the harbor and present work spot is less.
Proximity to raw materials.
Proximity to marketing.
To have financial subsidy.
Nearer to the railway sidings.
Well connected to the road, rail and port.
Availability of labour.
LANCO industries are importing coke from china, Japan and Australia
because; there is scarcity of prime cooking coal, which is the raw material for
producing coke. The coke, which is imported, comes to Chennai port.
Which is approximately 100km away from the site. And from there is
brought to site, and also fluxes. Which are required to produce pig iron like
Limestone, Dolomite, Quartzite and Manganese, are available in near bydistricts.
Plants under the group
The pig iron plant and LANCO cement plant are two plants, which are
presently under of m/s, LANCO industries limited and LANCO Construction
limited is the sister of concern of it.
Administration:
The general administration of the company is carried out by managing
director, and general managers of finance, commercial, operations, materials,
purchase, human resource and administration.
The chairman and managing director are holding Overall control on
administration in all aspects, with the help of Vice-President and-other General
Managers. The board consists of five member's directors, Vice-Chairman, a
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Managing Director and a Company Secretary.
Lanco industries limited
Established in the year of 1993. An ISO 9002 Company, it had setup a
state of the art integrated manufacturing facility for Pig Iron through mini-blast
furnace route conforming to the latest international technology with initial
capacity of 1,00,000 TPA.
Its quality products of S G-Grade pig iron are being supplied to
foundries in the south. As a forward integration, it has utilized the slag
produced in the Pig Iron are being supplied to foundries in the south.
As a forward integration, it has utilized the slag produced in the Pig Iron
manufacturing process to install the cement plant is being met through a 2.5
mw co-generation power plant. Due to severe completion and survival,
company has increased the production capacity from 90,000 TPA to 1, 50,000
TPA from 2003.
Location
A Lanco industry limited is a rural based factory sprawling over many
areas of land with deep resources and congenial soil. It is located in
Rachagunneri village near Tirupati. Nearly 50% of the consumption of
electrical power is supplied by APSES, Government of Andhra Pradesh and
other 50% of power is maintained by the company owned Dg sets and power
plants.
Since it is a rural area labour potential is available and also company is
enjoying the subsides from state government, the Lanco group is a diversified
multifaceted onglo merale, with business interests I n Pig Iron, Cement, Power
Graded Castings, Spun Pipes, Real Estate Development, Information
Technology a past from infrastructure use development promoted by
entrepreneurial skills and the agenda to put the group on the global corporate
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
map during the next 10 years
Lanco Kalahasti Castings Limited:
Merged with Lanco Industries Limited:
Established in 1997 and strategically located in close proximity to the
mini-blast furnace of the Pig Iron Plant, it has a clear economic mileage over
other casting sites.
The molten metal from the blast furnace is directly used as a basic raw
material to produce graded castings, cast iron pipes and Ductile iron spun pipes
with a capacity of 60,000 TPA, which will be gradually expanded for the to
meet the surging demand of the products.
The ups to the pipe plant will be met through 10 MW captive power
plants. To emerge to enhance the necessities and the self-sufficiency, it was
decided to enhance the production capacity from 60,000 TPA to 90,000 TPA
from 2003.
Brief History of Lil Since Incorporation Till Date
Lanco Industries Limited (LIL) was incorporated on 1st November 1991
by Lanco Group of Companies to manufacture Pig Iron using Korf (German)
technology and Cement. The unit is located at Rachagunneri Village on
Tirupati Srikalahasti road, which is about 30 Kms from Tirupati and 10 Kms
from Srikalahasti. The installed capacity of Pig Iron was 90,000 TPA and withsimilar capacity 90,000 TPA for cement.
Due to the poor demand and other reasons, the operations of the cement
unit of the Company was suspended and the unit was reengineered for
producing a different product mix having potential in South India.
As a measure of forward integration project for adding valueto the Pig Iron manufactured by the Company, LIL floated an another
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
company named Lanco Kalahasti Castings Limited (LKCL) on 4th March
1997 to manufacture iron castings and spun pipes in the same campus of
the Company with an annual capacity of 40,000 TPA and 35,700 TPA
respectively.
However, due to falling Pig Iron prices, increase additional
capacity in the industry, competition and the technical and financial
assistance, the operations of both LIL and LKCL were affected and the
Company was exploring financial and technical strategic alliance with
Indian 1st Foreign Partner.
During the same time Mrs. Electrosteel Castings Limited, was also
looking for additional capacities for producing spun pipes. Considering the
synergies involved, Lanco Industries Limited entered into a strategic alliance
partnership during December 2002, with Mis. Electrosteel Castings Limited
(ECL), Kolkatta a. leading manufacturer of CI, Pipes and DI pipes. This was
win-win situation for both LIL and ECL.
After takeover, a financial re-engineering and re-structuring of LIL was
undertaken by ECL by implementing the following:
Immediately after take over an amount of RS.2200 lakhs was infused as
share capital of the Company by Mis ECL to strengthen the equity base
of the company.
During 2002, the capacity of Pig Iron was increased from 90,000 TPAto
150,000 TPA.
With effect from 1st April, 2002 LKCL was merged with the company
to take advantage of the close synergy in the business of the two
companies, since a large part of Molten Iron/Pig Iron is consumed by
LKCL for manufacture of 01 Pipes.
After the merger, the shctre capital of LIL, the paid up share value of
RS.101- was reduced to RS.2.50 per share and accordingly one share of
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
RS.101- each fully paid up in LIL was issued to all the existing
shareholders for every 4 shares held by them.
During 2003, the capacity of the 01 pipes was increased to 90,000 TPA.
During 2004, the company took the step of backward integration by
setting up 150,000 TPA coke oven plant in the same complex, which
was commissioned in June 2005.
During 2005, the company started setting up of a Captive Power
Plant of 12 MW by using the waste heat recovered from the coke
oven plant which is expected to be commissioned by March
2006.
An additional amount of RS.25 crores is being spent on other capital
works like revamping of bitumen coatings machine, balancing
equipment and facilities for production of higher diameter DI pipes etc.
to increase the capacity of 01 pipes.
The above has resulted in the company witnessing a profitable years
after a gap of 8 years during the years ended 31st March, 2003, 2004 and 2005
and a dividend of 10% was declared for the years ended 31 st March 2004 and
2005 to the shareholders.
Step-by-Step Company's Growth
1991 - Incorporation of Lanco
1994 - Setting up of Mini Blast Furnance with 90,000 TPA capacity
1995 - Setting up a 250 TPO Mini cement Plant
1997 - Setting up of LKCL for manufacture of 40,000 TPA castings and
35,000 TPA 01 pipes.
2002 - Infusion of Rs. 2200 lakhs to the equity and inancial restructing
2003 - Merger of LKCL with LIL for synergy
2004 - Capacity of Pig Iron was increased to 90,000 TPA to 150000
TPA
2005 - Capacity of 01 pipes iron was increased to 90,000 TPA
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
2006 - Commissioning of 150,000 TPA coke oven plant.
2007 - Setting up of Captive power plant of 12 MW by using the waste
heat
Recovered from the coke oven plant.
2008 - Merger of LKCL with LIL for synergy.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Committee of LANCO Executive and Directors (COLEAD)
COLEAD is the apex review and decision – making body of LANCO Group.
Pradip Kumar Khait Chairman, LANCO Group of Companies
G. Bhaskar Rao Vice Chairman, LANCO Group of CompaniesL.Sridhar Director, LANCO Group
G. Venkatesh Babu Joint Managing Director, LANCO Group
J.Suresh Kumar Chief Financial Officer, LANCO Group
P.Panduranga Rao Director and Chief Executive Officer, LANCO
Kondapalli Power Private Limited and ABAN Power
Company Limited.
D.V.Rao Director and Chief Executive Officer, LANCO Green
Power Private Limited
K. Raja Gopal Director and Chief Executive Officer, LANCO
Amarkantak Power Private Limited
D.N.Reddy Director Operations, LANCO Infratech Limited
K.K.V. Nagaprasad Director and Chief Executive Officer, Rithwik Energy
Systems Limited and Clarion Power Corporation
Limited.
V. Sreenivas Director – Corporate Affairs LANCO Group Limited.
M.N.Srinvas Executive Director LANCO Electric Utility Limited
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Competitors of Lanco cements; -
In the cement industry the Lanco industries are facing the competition
from the following cement industries:
Sagar cements limited,
Ambuja cements limited,
Bheema cements limited,
Sri Chakra cements limited,
Priya cements limited,
K C P cements limited,
Ultratek cements limited,
Ambuj a cements limited,
Maha cements limited,
Raasi cements limited,
Vishnu cements limited,
Nagarjuna cements limited.
Bharati cements limited.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
PRODUCT PROFILE
GROUP COMPANIES
POWER PROJECTS
With operational experience in gas, wind and biomass; based power
projects and a strong foothols in coal and hydropower generation, LANCO is
emerging as a key player in the Indian power sector.
INFORMATON TECHNOLOGY
LGS is a strategic initiative to provide world-class Information
Technology solutions to global customers, delivering them maximum business
value through continuous innovation.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
CIVIL CONSTRUCTION
Power projects, industrial structures, institutional facilities, mass
housing, water supply projects, flyovers and bridges such varied operations
serve to explicate the diversification roadmap of LANCO.
PROPERTY DEVELOPMENT
Being a Pioneer in Civil Construction and Infrastructure
Development, LANCO is venturing into property Development with the
winning of the bid for IT Parks-cum-Commercial and residential complex in
Hyderabad and Visakhapatnam of Andhra Pradesh.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
MANUFACTURING
Being one of the largest integrated foundried in India with Ductile Iron
Spun Pipes, Metallurgical Coke, Pig Iron and Slag cement as products,
LANCO has a towering presence in the Indian manufacturing sector.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
STATEMENT OF THE PROBLEM
Funds flow statements are major tools in the hands of the finance
management and analyzing the existing data. Funds flow statements are
calculated for finding the trend in liquidity position, marginal solvency and
utilization of funds and inventory maintenance over a period of time. This
study mainly focuses in above said area by using financial ratios.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
OBJECTIVES OF THE STUDY
The major objective of the study is to assess the inflow and outflow of the funds in the LANCO INDUSTRIES LIMITED.
The specific objectives of the study are:
To assess the financial position of the LANCO INDUSTRIES LTD., To
study and analyze the changes those have taken place in the
financial position of the company.
To analyze the funds flow operations.
To identify sources and applications of the funds.
To find out operating efficiency of the organization.
To examine the working capital position of the company
To suggest some measures to improve the performance of the company.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
SCOPE OF THE STUDY
The scope of the study covers the previous five -years financial
reports of the company.
An extensive study is done on the investment made by LANCO
INDUSTRY; on its funds flow statements and its adequacy, and the
factors determining that investment.
The study concentrates on the liquidity position of the firm and the brief
study.
The technique used by the firm of the management of its current assets
and sources though which the finance of the funds flow statement in
availed for the firm.
The study covers all the financial information of the firm.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
NEED OF THE STUDY
The main need of the study is to study the sources and applications of
funds in the company and methods to evaluate the financial performance of the
company.
With the help of funds flow statements to evaluate the pattern of the
firm.
The funds flow reveals clearly the causes for the financial difficulties
of the company.
To know about the need of the funds for the growth of the firm.
To know the working capital position of the company.
With the help of the funds flow statements we can estimate the cash
balance of the company.
To find out the out flow and inflow of the funds.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
LIMITATIONS OF THE STUDY
The funds flow analysis of the organization fully depends upon the
secondary data. The primary data were used only to throw light on the
company's history and growth. Thus the following are the main limitations of
the
study.
These statements were over all reports (2005-06 to 2010-11). Hence it is
a postmortem analysis of the financial statement.
The figures taken from the financial statement like profits and loss
Accounts and balance sheets were historical in nature.
Time value of money is not being considered.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
REVIEW OF LITERATURE
In our present day economy, finance is defined as the provision of
money at any time when it is required. Every enterprise, whether big, medium
and small, needs finance to carry out its operations and to achieve its targets.
In fact, finance is so indispensable today that it is rightly said that it is the
lifeblood of an enterprise. Without adequate finance, no enterprise can
possibly accomplish its objectives.
Finance may be defined as the provision of money at the time when it is
required. Finance refers to the management of flows of money through an
organization. It concerns with the application of skills ion the manipulation
uses and control of money divestment authorities have interpreted the term
finance differently.
Finance is concerned with the task of providing funds to the Enterprises
on the term that is most favorable towards the attainment of the Organizational
goal's objects.
The function of finance is not merely Furnishing funds to the
organization. Finance has a broader meaning and it covers financial planning,
forecasting of cash receipts and disbursements, rising of funds, use and
allocation of funds and financial control. The area of operation of finance
manager is vague from one compact to another and industry - to - industry etc.
There are many definitions of finance of all the best was of Howard and
Upton. "That administrative area of set of administrative area of organization
will have the means to carry out as objectives to satisfactorily as possible and at
the same time meet its obligations as they become due".
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
The fundamental principle of finance:
A business proposal - regardless of whether it is a new investment or
acquisition of another company or restructuring initiative - raises the value of
the firm, only if the present value of the future stream of net cash benefits
expected from the proposal is greater than the initial cash outlay required to
implement the proposal.
The difference between the present value of future cash benefits and the
initial outlay represents the net present value of NPV of the proposal.
Significance of financial management;
Financial management is the managerial activity, which is concerned
with planning and controlling of the firms financial resources.
The subject of financial management is of immense interest both to the
academicians and the practicing managers. The practicing managers all
interested in this subjects become the most crucial decisions of the firm all
those which results to the finance, and on understanding of the theory of
financial management provides them with conceptual and analytical insights to
make these decisions skillfully.
As a separate activity as discipline it is of recent origin. It was a branch
of economic till 1890, today financial management is recognized as the most
important branch of business administration.
According to Howard, and Upton, financial management involves the
application of general management principals to particular financial operation.
N.G. Wright financial management is intimately itself woven into the
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Net present value =
Present value of future cash benefits — initial cash outlay
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fabric of the management itself its central role is concerned with the same
objectives as these of the management which the way in which the way in
which the resources of the management in to three main areas.
Decision on the capital structure.
Allocation of available funds to specific uses.
Analysis and appraised of problems.
Financial management includes planning of finance cash budgets and
source of finance. Era sloman and John prigle insists that financial management
must attend to investment decision because if these decisions.
The Balance sheet:
The balance sheet shows the financial conditions or the state of affairs of
the firm at a particular point of time. More specifically the balance sheet
conditions detailed information of the firm's assets and liabilities. Assets
represents economic resources possessed by the firm while the liabilities are
the amounts payable by the firm. The balance sheet gives concise summery of the firm resources and obligations and measures the firms liquidity and
solvency.
Profit and loss account:
The profit and loss account shows the profitability of the firm by giving
the details about income and expenses. It is simply income and expenditure
account. Revenues are benefits, which customers contribute to the firm in
exchange of goods and services. The cost of economics resources used in
providing goods and services to the customer are called expenses.
Profit and loss account provides a concise summary of firm's revenues
and expenses during the period of time and measures its profitability.
The above two statements provide useful information regarding the
operations of the firm.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
They fail to explain the financial data required for financing and
investing decisions by the management i.e. causes for changes in assets and
liabilities and owner's equities. They do not indicate the movement of funds
between sources and uses from the end of the period to the end of next periods.
It is therefore; necessary to prepare an additional statement called funds flow
statements to overcome the above difficulties.
Funds flow statement;
The funds flow statement is a statement, which shows the movement of
funds and is a report the financial operations of the business undertaking. It
indicates various means by which funds were obtained during a particular
period and the ways in which these find were employed.
In simple, the funds flow statement is a statement of sources and
application of funds. In short, it is a technical device designed to high light the
change in the financial condition of a business enterprise between tow Balance'
Sheets.
According to Robert Anthony “The funds flow analysis describes the
sources fro which additional funds were derived and the uses to which
these funds were put."
According to Fouke, "A Statement of sources and Applications of
funds is a technical device designed to analyze the changes in the financialposition of a business enterprise between two periods."
Funds flow statement is widely used by the financial analyst and credit
granting institution and financial managers in performance of their jobs. It has
become a useful tool in their analytical kit. This is because the financial
statement like income statement and- balance sheet have limited role to
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
perform.
Income statement measures flows restricted to transaction that pertain to
rendering of good and services to customers. The balance sheet is merely a
static statement's these statements do not sharply focus those major financial
transactions, which have behind the n\balance sheet changes.
However financial analyst must know the purpose for which the loan
was unitized and the sources from which it has rises. This will help him in
making a better estimate about the company's financial position and polices.
Uses, significance and importance of funds flow statement;
Analysis of financial operations: -
A funds flow statement shows bow the resources have beer obtained and the
uses to which they are put.
The funds flow statements determining the financial consequences of
business operation. It also useful in guiding whether tne firm has expanded at
too fast rate and whether financing is strained, it also point out to the
effectiveness with which the management has handled working during the
period under review.
Evaluation of the firms: -
This statement can consist the financial manager in planning
intermediate and long-term finance for obtaining sources in the further and
determining how they are to be used. That is analysis of the major sources of
funds in the past reveals what positions of the firms growth was financed
internally and what position externally.
Comparison with the budget: -
The statement defines the past flow of funds and gives insight in to the
evolution of the present situation. It provides certain useful information about
the firms. Financial policies to the outside world like bankers, government, etc;
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Funds flow statement is becoming popular with the management
because it helps to explain why in spite of earning sizable amount of profits,
the company is experiencing difficulty in making payments to creditors, the
rate of dividend on equity; shares can not be increased and the bank balance is
getting thinner. The funds flow statements has an analytical value and is an
important planning tool. It helps in guiding the destiny of the business by
enabling the executives to visualize the movements of funds that constantly
takes place. This statement also helps in working capital requirements. It
highlights and future need for funds and provides sample time to work out
suitable arrangements. The funds flow statement shows what portion
externally. The analysis of funds flow statement for the future is externally
available to the executive in planning.
General Rule:
The flow of funds occurs vhen a transaction changes on the one hand a
non-current account and vice versa. A current asset and a fixed asset.
A fixed asset and a current liability.
A current asset and a fixed liability.
A fixed liability and a current liability.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Uses-of Funds Flow Analysis:
It helps in the analysis of financial operations.
It throws light on many perplexing question of general interest.
It helps in the formation of a realistic dividend policy.
It helps in the proper allocation of resources.
It acts as a future guide. .
Limitations of funds Flow Analysis;
It is essentially historic in nature and projected funds flow statement
cannot
be prepared with much accuracy.
It cannot be reveal continues changes.
It is not an original statement but simply a re - arrangement of data
given in the financial statements.
Different names of funds Flow Statement:
A statement of sources and Uses of funds.
A statement of Sources and Application of funds.
Where got and where gone Statement.
Inflow and out flow of funds statement.
Main purpose of funds Flow Statement:
To help to understand the changes in assets and which are not evident
Financial statements or I the income statement.
To inform on to how the loans to the business has been used.
To point out the financial strengths and weakness of the business.
To help in planning sound dividend policy.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Procedure for preparing a Funds Flow Statement:
The preparation of funds flow statement consists of some parts:
Statement or schedule of changes in working capital.
Statement of sources of funds.
Statement of application of funds.
Finding out the hidden transactions or changes in non-current assets and
non-current liabilities.
Statement or Schedule of changes in Working Capital;
The increase or decrease in working capital can be calculated by
preparing the schedule of changes in working capital. Working capital means
the excess of current assets over current liabilities. Statement of changes in
working capital is propose to show the changes in the working capital between
two balance sheets data. This statement is prepared with the help of current
assets and current liabilities derived from two balance sheets.
While preparing a schedule of changes in working capital, it should
be note that
Increase in Current Assets, Increases the Working Capital.
Decrease in Current assets, Decreases the Working Capital.
Increase in Current Liabilities, Decreases the working capital.
Decrease in Current Liabilities, Increases the Working Capital.
An increase in current assets and increase in current liabilities does not
affect working capital.
A decrease in current assets and decrease in current liabilities does not
affect working capital.
Changes in fixed (non-current) assets and fixed (non-current) liabilities
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
affect working capital.
The changes in all current assets and current liabilities are merged into
one figure only either an increase of decrease in working capital over the
period for which funds statements has been prepared.
If the working capital at the end of the period is more than the working
capital at the beginning the difference is expresses as "increase in working
capital". On the other hand, if the working capital at the end of the period is
less than at the commencement, the difference is called "decrease in working
capital".
Current Assets:
The expression 'current assets' denotes those assets, which are
continually on the move. Since they are constantly in motion, they are known
as the circulating capital of the business. These assets can or will be convertedinto cash during a complete operating cycle of the business.
Current assets include:
Stock-in-trade or inventories,
Debtors,
Payments in advance or prepaid expenses,
Stores,
Bills receivable,
Cash at bank,
Cash in hand and
Work-in-progress etc.
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Working Capital = Current assets - Current Liabilities
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Current Liabilities:
“Current Liabilities” are those liabilities, which are to be paid in the near
future, i.e., during a complete operating cycle of the business.
Current liabilities include:-
Trade creditors,
Accrued or outstanding expenses,
Bills payable,
Income tax payable,
Dividends declared and
Bank overdraft.
Note: - according to the experts opinion 'bank overdraft' has a tendency to
become more or less permanent source of financing and hence it need not be
included among “current liabilities”.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
FORMATION OF STATEMENT OF CHANGES IN WORKING
CAPITAL
Particulars Previous
year
Current
year
Change in working
capitalIncrease Decrease
Current Assets (CA) - - - -
Inventories - - - -
Raw material - - - -
Consumable stores - - - -
Finished goods - - - -
Sundry debtors - - - -
Cash in hand - - - -
Balance with bank - - - -Other current assets - - - -
Deposit - - - -
Income tax - - - -
Sales tax - - - -
Total current assets - - - -
Current liabilities - - - -
Trade Creditors - - - -
Dealers deposited - - - -
Expense payable - - - -
Total current liabilities - - - -Working capital - - - -
Current assets – current
liabilities)
- - - -
Net increase / decrease - - - -
Working capital - - - -
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Statement of Sources and application of funds
Funds flow statement is a statement, which indicates various sources for
which funds have been obtained during a chain period and the uses or
applications to which these funds have been put during that period.
Source of funds
Application of funds
Source of funds Amount Application of funds Amount
Funds from operations - Funds lost in operation -
Issue of shares and Debentures - Repayment of debentures -
Receipt of dividend and interest - Reduction in share capital -
Sales proceed of non-current
asset
- Interest and dividend paid -
Long – term borrowings - Payment of long term
loans
-
Decrease in working capital - Increase in working capital -
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Introduction of Ratio Analysis
Accounting is the process of identifying, measuring and communicating
economic information to present informed judgments and decisions by users of
the information. It involves recording, classifying and summarizing various
business transactions.
Financial Statements
Financial statements are the sources of information on the basis of
which conclusions are drawn about the profitability and liquidity position of
the business enterprise at the financial year. The primary objective of financialstatement is to assist decision - making.
Financial statement are end products of financial accounts, prepared by
the accountant that purpose to reveal financial position of the enterprise, the
result of its resent activities and an analysis of what has been done with the
analysis.
Types of financial statement
Financial statements primarily comprise two basic statements.
The position statement (or) the balance sheet
The income (or) profit and loss account. Analysis Meaning
The term financial analysis also known as analysis and interpretation of
financial statement refers to the process of determining financial strengths and
weakness of the firm by establishing strategic relationship between the items of
balance sheet, profit and loss account of other operative data.
Classification of Ratios
The use of ratio analysis is not confined to financial manage only. There
are different parties interested in the ratio analysis for different purposes. In
view of several of ratios, there are many types of ratio's, which can be
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
calculated from the information given in the financial statements. The
particular purpose of the user determines the particular ratio's that might be
used for financial analysis.
Various Accounting Ratios can be classified as follows
Traditional Classification
Functional Classification
Significance Ratios
Liquidity Ratio's
Liquidity refers to the ability of a concern to meet its current obligations
as and when these become due. The short-term obligations are met by realizing
amounts from current floating (or) circulating assets. The bankers, suppliers of
goods and other short-term creditors are interested in the liquidity of the
concern. They will extend credit only if they are sure that current assets are
enough to payout the obligations.
Current Ratio
Quick or Acid Test (or) Liquid Ratio
Absolute Liquid Ratio or cash position ratio
Net working capital Ratio.
Current Ratio
Current Ratio may be defined as the relationship between current assets
and current liabilities. This ratio, also known as working capital ratio, is a
measure of general liquidity and is most widely used to make the analysis of a
short-term financial position (or) liquidity of a firm.
Current AssetsCurrent Ratio =
Current liabilites
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
A relatively high current ratio is an indication that the firm is liquid and
has the ability to pay its current obligations in time as and when they become
due. On the other hand a relatively low current ratio represents that the liquidity
position of a firm is not good and the firm shall not able to pay its current
liabilities in time. "Two to one ratio" is referred to as a banker's rule of thumb
(or) arbitrary standard of liquidity for a firm.
Current assets include cash and those can be easily converted into cash with
in a short period of time generally, one year such as marketable securities,
debtors,
inventories, work-in-progress etc.
Current liabilities are those obligations which are payable within a short
period of time generally one year and include outstanding expenses, bills
payable, sundry creditors, accrued expenses short term advances, income tax
etc.
Quick Ratio (or) Acid Test Ratio
Quick ratio is known as acid test ratio or liquid ratio is a more rigorous
test of liquidity then the current ratio. The term liquidity raffs to the ability of a
firm to pay its short-term obligations as and when they become due. The two
determinants of current ratio as a measure of liabilities.
Quick ratio may be current or liquid liabilities. Inventories cannot be
termed to be liquid asset because they cannot be converted into cash
immediately without a sufficient loss of value. The quick ratio can be
calculated by dividing the total of the quick assets by total current liabilities. As
a rule of thumb (or) as a convention quick ratio of 1 1 is considered
satisfactory.
Current (or) Liquid AssetsQuick /Liquid (or) Acid Test Ratio =
Current liabilites
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Absolute Liquid Ratio
Although receivables, debtors and bills receivables are generally more
liquid than inventories, yet there may be doubts regarding their realization into
cash immediately (or) in time. Absolute liquid assets include cash in hand and
at bank and marketable securities or temporary investment. The acceptable
norm for this ratio is 50% (or) 0.5 (or) 12.
AbsoluteLiquid AssetsAbsoulte Liquid Ratio =
Current liabilites
One of the value aids to the financial manager or the creditor is funds
flow statement, with which evaluate how a firm uses funds and determine how
these uses are financed. In addition to studying the past flow, the analyst can
evaluate the future flows by means of the funds statement based on forecasts.
Such as statement provides an efficient method for the financial
manager to assess the growth of the firm and its resulting financial needs as
well as to determined the best way in which those needs may be financed. In
particular, funds statements are very useful in planning intermediate and long -
term financing.
Net working capital Ratio.
The difference between the current assets and the current liabilities
excluding short-term bank borrowings is called net working capital. It is some
times used as a measure of a firm's liquidity.
It is considered that between two firms, the one having the larger
networking capital has greater ability to meet its current obligations.
This is no necessary so; the measure of liquidity is a relationship, rather
than the difference between Current Assets and Current Liabilities.
Net working capitalNet working Capital Ratio =
Net Assets
Net working capital = current assets - current liabilities
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Funds flow statement (report from)
Sources of Funds
1 Funds from Operations
2 Issue of share capital ..........
3 Issue of debentures ..........
4 long term loans ...........
5 sale of fixed assets ..........
6 non-trading receipts ...........
Eg, dividend,rent, interest on donation
7 decrease in working capital (as per ...........
Schedule of changes in working capital)
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
RESEARCH METHODOLOGY
Sources:
The data have been collected from both the primary and secondary
sources. The data was collected from the officials of the organization.
The data collected related to the study was from the two sources.
Primary data
Secondary data
Primary Data
For the study most of the data were collected from the primary data i.e.
Income statements, financial reports etc. Consulting financial manager and
accounting assistance gathered income statements of the company.
Secondary data:
The information collected to the company profile from the company past
records and websites are secondary data. However, the entire study was based
on the primary data and secondary, which are collected from the books,
records, journal, newspaper, survey and profiles of the organization.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
DATA ANALYSIS AND INTERPRETATION
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE YEAR
2005-06
Source of funds 2005 2006
Share holder funds
A) Share Capital 5191.23 5191.23
B)Reserve and Surplus 385.97 385.97
Loan Funds :
A) Secured Loans 2855.27 3691.52
B )Unsecured Loans 1826.19 2004.22
Total 9908.69 11272.94
Application of funds
Fixed AssetsA ) Gross Block 7069.46 7.39.98
B) Less : Depreciation 2718.85 2373.82
Net Block 4350.61 4666.16
Capital work in progress 719.09
Investment 235.54 57.7
Current Assets, Loans and Advances
A) Inventories 1193.26 2752.56
B )Sundry Debtors 2011.67 2619.99
C) Cash and Bank Balance 629.03 1669.89
D) Loans and Advances 338.81 332.21Less: Current liabilities and Provisions
A) Current Liabilities 2828.57 3536.64
B) Provisions 66.55 40.39
Net Current Assets 1277.65 3797.62
Miscellaneous expenditure 11.14 20.58
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE YEAR 2006-2007
Source of funds 2006 2007
Share holder funds
A) Share Capital 3976.36 5191.23
B)Reserve and Surplus 2160.18 385.97
Loan Funds :
A) Secured Loans 10723.23 2855.27
B )Unsecured Loans 5404.59 1826.19
Total 22264.36 9908.69Application of funds
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Fixed Assets
A ) Gross Block 17884.47 7069.46
B) Less : Depreciation 4648.10 2718.85
Net Block 13236.37 4350.61
Capital work in progress 2652.95 719.09Investment 235.54
Current Assets, Loans and Advances
A) Inventories 5924.05 1193.26
B )Sundry Debtors 4098.66 2011.67
C) Cash and Bank Balance 447.49 629.03
D) Loans and Advances 1462.76 338.81
Less: Current liabilities and Provisions
A) Current Liabilities 5294.57 2828.57
B) Provisions 572.72 66.55
Net Current Assets 5677.67 1277.65Differed Tax Assets 683.48
Miscellaneous expenditure 13.83 11.14
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE YEAR
2007-2008
Source of funds 2007 2008
Share holder funds
A) Share Capital 3976.36 3976.36
B)Reserve and Surplus 3804.74 2610.18
A) Secured Loans 10886.36 10723.23
B )Unsecured Loans 9588.74 5404.59
Differed tax liability 424.17
Total 28680.37 22264.36
Application of funds
Fixed Assets
A ) Gross Block 2002136 17884.47
B) Less : Depreciation 5417.03 4648.10 Net Block 14604.33 13236.37
Capital work in progress 6015.09 2652.95
Investment 589.83
Current Assets, Loans and Advances
A) Inventories 7075.18 5294.05
B )Sundry Debtors 7197.89 4098.66
C) Cash and Bank Balance 247.72 447.49
D) Loans and Advances 1616.75 1462.76
Less: Current liabilities and Provisions
A) Current Liabilities 8090.45 5052.57B) Provisions 586.14 572.72
Net Current Assets 7460.95 5677.67
Differed Tax Assets 683.48
Miscellaneous expenditure 10.17 13.83
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE YEAR
2008-2009
Source of funds 2008 2009
Share holder funds
A) Share Capital 3976.36 3976.36
B)Reserve and Surplus 3993.06 3804.74
A) Secured Loans 9244.82 10886.36
B )Unsecured Loans 15069.11 9588.74
Deferred tax liability 618.06 424.17
Total 32901.40 28680.37
Application of funds
Fixed AssetsA ) Gross Block 25035.39 2002316
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
B) Less : Depreciation 6510.29 5417.03
Net Block 18525.70 14604.33
Capital work in progress 5604.02 6015.09
Investment - 589.83
Current Assets, Loans and AdvancesA) Inventories 9194.04 7075.18
B )Sundry Debtors 6705.59 7197.89
C) Cash and Bank Balance 350.67 247.72
D) Loans and Advances 2070.42 1616.75
Less: Current liabilities and Provisions
A) Current Liabilities 9202.1 8090.45
B) Provisions 354.42 586.14
Net Current Assets 8765.23 7460.95
Differed Tax Assets - -
Miscellaneous expenditure 6.45 10.17
LANCO INDUSTRIES LIMITED BALANCE SHEET FOR THE YEAR
2009-2010
Source of funds 2009 2010
Share holder funds
A) Share Capital 3976.36 3976.36
B)Reserve and Surplus 7179.70 3993.06A) Secured Loans 17832.33 9244.82
B )Unsecured Loans 12271.32 15069.11
Deferred tax liability 2576.95 618.06
Total 43836.66 32.91.40
Application of funds
Fixed Assets
A ) Gross Block 35516.23 25035.39
B) Less : Depreciation 9127.88 6510.29
Net Block 26388.35 18525.70Capital work in progress 862.01 5604.02
Investment - -
Current Assets, Loans and Advances
A) Inventories 12092.91 9194.04
B )Sundry Debtors 8814.31 6706.59
C) Cash and Bank Balance 420.10 3505.67
D) Loans and Advances 5289.66 2070.42
Less: Current liabilities and Provisions
A) Current Liabilities 9319.38 9202.11
B) Provisions 711.30 3545.42 Net Current Assets 16586.30 8765.23
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Differed Tax Assets - -
Miscellaneous expenditure - 6.45
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
STATEMENT OF CHANGES IN WORKING CAPITAL(Rupees in Lakhs)
Particulars 2003-04 2004-05 Changes in working capital
Increase Decrease
Current Assets (I)
Inventories 2752.55 1193.25 - 1559.29
Sundry debtors 2619.99 2011.67 - 608.32
Cash and bank balances 1669.88 629.03 - 1040.85
Loans and advances 332.21 338.81 6.59 -
Total current assets 7374.65 4172.77 - -
Current liabilities (II)
Current Liabilities 3536.64 2828.57 708.07 -
Provisions 40.39 66.55 - 26.15Total current liabilities 3577.04 2879.51 - -
Working capital (I-II) 3979.61 1277.65 - -
Net working capital 2519.95 2519.95 -
TOTAL 3797.62 3797.62 3234.63 3234.63
Net decrease in working capital 2519.95
Interpretation
From the above table is observed that the networking capital of the company
shows decreasing trend. The total current assets of the company have decreased
from 2003-04 to Rs. 7374.65. in 2004-05 to Rs. 4172.77 in 2006-07.
But the bank balance decreased from Rs. 1699.86 to Rs. 629.03 i.e, 1040.81.
The total current liabilities increased from Rs. 3577.04 to Rs. 2879.51. The
networking capital decrease Rs. 2519.96.
STATEMENT OF CHANGES IN WORKING CAPITAL(Rupees in Lakhs)
Particulars 2004-05 2005-06 Changes in working capital
Increase DecreaseCurrent Assets (I)
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Inventories 1193.26 5294.05 4100.79 -
Sundry debtors 2011.67 4098.66 2086.99 -
Cash and bank balances 629.04 447.49 - 181.55
Loans and advances 338.81 1462.76 1132.95 -
Total current assets 4172.78 113.02.96 - -Current liabilities (II)
Current Liabilities 2828.58 5052.57 - 2223.99
Provisions 66.55 572.72 - 506.17
Total current liabilities 2985.13 5625.29 - -
Working capital (I-II) 1277.65 5677.67 - -
Net working capital 4400.02 - - 4400.02
TOTAL 5677.67 5677.67 7311.73 7311.73
Net decrease in working capital 2519.95
Interpretation
From the above table is observed that the networking capital of the company
shows decreasing trend. The total current assets of the company have decreased
from Rs. 4172.78. in 2004-05 to Rs.11302.96 in 2005-06
But the bank balance decreased from Rs. 629.04 to Rs. 447.49 i.e, 181.55. The
total current liabilities increased from Rs. 2828.58 to Rs. 5052.57. The
networking capital decrease Rs. 4400.02.
STATEMENT OF CHANGES IN WORKING CAPITAL(Rupees in Lakhs)
Particulars 2005-06 2006-07 Changes in working capital
Increase Decrease
Current Assets (I)
Inventories 5294.05 7075.18 1781.13 -
Sundry debtors 4098.66 7197.89 3099.23 -
Cash and bank balances 447.49 247.72 - 199.77
Loans and advances 1462.76 1616.75 153.99 -
Total current assets 11302.96 16137.54 - -
Current liabilities (II)
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Current Liabilities 5052.57 8090.45 - 3037.88
Provisions 572.72 586.14 - 13.42
Total current liabilities 5625.29 8676.59 - -
Working capital (I-II) 5677.67 7460.95 - -
Net working capital 1783.28 - - 1783.28TOTAL 7460.95 7460.95 5034.35 5034.5
Net decrease in working capital 2519.95
Interpretation
From the above table is observed that the networking capital of the company
shows decreasing trend. The total current assets of the company have decreased
from2005-06 Rs. 11302.96. in 2006-07 to Rs. 16137.54 in 2008-09.
But the bank balance decreased from Rs. 447.49 to Rs. 247.72 i.e, 199.77. The
total current liabilities increased from Rs. 5677.67 to Rs. 8676.59. The
networking capital decrease Rs. 1783.28.
STATEMENT OF CHANGES IN WORKING CAPITAL(Rupees in Lakhs)
Particulars 2006-07 2007-08 Changes in working capital
Increase Decrease
Current Assets (I)
Inventories 7075.18 9194.08 2118.9 -
Sundry debtors 7197.89 6706.59 - 491.3Cash and bank balances 247.72 350.67 102.95 -
Loans and advances 1616.75 2070.42 453.67 -
Total current assets 16137.54 18321.76 - -
Current liabilities (II)
Current Liabilities 8090.45 9202.11 - 1111.66
Provisions 586.14 354.42 231.72 -
Total current liabilities 8676.59 9556.53 - -
Working capital (I-II) 7460.95 8765.23 - -
Net working capital 1304.48 - - 1304.48
TOTAL 8765.23 8765.23 2907.24 2907.24
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Net decrease in working capital 2519.95
Interpretation
From the above table is observed that the networking capital of the company
shows decreasing trend. The total current assets of the company have decreased
from 2006-2007 Rs. 16137.54. in 2007-08 to Rs. 18321.76 in 2009-10.
But the bank balance decreased from Rs. 247.72 to Rs. 350.67 i.e, 102.95. The
total current liabilities increased from Rs. 8676.59 to Rs. 9556.53. The
networking capital decrease Rs. 1304.48.
STATEMENT OF CHANGES IN WORKING CAPITAL(Rupees in Lakhs)
Particulars 2007-08 2008-09 Changes in working capital
Increase DecreaseCurrent Assets (I)
Inventories 9194.08 12092.91 2898.83 -
Sundry debtors 6706.59 8814.31 2107.72 -
Cash and bank balances 350.67 420.10 69.43 -
Loans and advances 2070.42 5289.66 3219.24 -
Total current assets 18321.76 26616.98 - -
Current liabilities (II)
Current Liabilities 9202.11 9319.38 - 117.27
Provisions 354.42 711.03 - 356.61Total current liabilities 9556.53 10030.68 - -
Working capital (I-II) 8765.23 16586.30 - -
Net working capital 7821.34 - - 7821.34
TOTAL 16586.30 16586.30 8295.22 8295.22
Net decrease in working capital 2519.95
Interpretation
From the above table is observed that the networking capital of the company
shows decreasing trend. The total current assets of the company have decreased
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
from 2007 -08 Rs. 18321.76. in 2008-09 to Rs. 26616.98 in 2007-08 But the
bank balance decreased from Rs. 350.67 to Rs. 420.10 i.e, 69.43. The total
current liabilities increased from Rs. 9556.53 to Rs. 10030.68. The networking
capital decrease Rs. 7821.34.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
The statement showing the working capital from 2003-04 to 2008-09
Year Increase Decrease2005-06 - 2519.95
2006-07 4400.02 -
2007-08 1783.28 -
2008-09 1304.48 -
2009-10 7821.34 -
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
-2519.
4400.
1783.1304.
7821.
-4000
-2000
0
2000
4000
6000
8000
10000
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation
The above diagram clearly shows that the net working capital of the LIL
showing an increase with a decreasing trend. As the net working capital for the
year 2005-06 is -2519.95 it is decrease in the net working capital but for the
year after 2006-07 the net working capital of the firm was increasing at a
decreasing rate i.e., 4400.02, 1783.28, 1304.48 and 7821.34 respectively for the
years 2006-07, 2007-08, 2008-09, 2009-10 and 2009-10 and 8534.21.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Statement of Sources and Applications of Funds for the year ending at 31st
March 2005.
Sources Rs Applications Rs
Decreasein working Purchase of fixed assets 29.49
Capital 2519.96 Capital W-in-Progress 719.09
Secured loan paid 836.25
Unsecured loans paid 178.02
Purchase of investments 178.49
Funds lost in operation 578.62
2519.96 2519.96
Interpretation
It is evident from the above table the total funds during the period from 2004-
2005 amounts to Rs. 2519.95
In the application side we can see the 15% of funds were utilized for purchase
fo fixed assets, 33% of funds were utilized to pay secured loans and 8% to
unsecured loans. Funds lost in operation are of 44%
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Statement of Sources and Applications of Funds for the year ending at 31st
March 2007.
Sources Rs Applications Rs
Secured loans 163.13 Purchase of fixed assets 2136.89
Unsecured loans 4184.15 Capital W-in-P 3362.14
Funds from operation 3524.86 Purchase of investments 589.83
Increase in working
capital
1783.28
7872.14 7872.14
Interpretation
It is evident from the above table that the total flow during the period from
2006-07 amount R.s 7872.14 lakhs. In the total funds 3% of funds were
received through secured loans, 87% of funds received through the unsecured
loans and the remaining 10% of funds received from funds from operation.
Regarding application of the funds the 63% were invested in fixed assets i.e.
purchase of fixed assets and remaining 37% of funds were utilized for working
capital.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Statement of Sources and Applications of Funds for the year ending at 31st
March 2008.
Sources Amount Applications Amount
Unsecured loans 5480.37 Investment 5014.63
Capital W-in-P 411.07 Purchase of fixed assets 1641.55
Sale of investment 589.83 Increase in working
capital
1304.28
Funds from
Operation 1478.19
7960.46 7960.46
Interpretation
It is evident from the above table that the total flow during the period from
2007-08 amount Rs. 7960.46 laksh. In the total funds 3% of funds were
received through secured loans, 87% of funds received through the unsecured
loans and the remaining 10% of funds received from funds from operation.
Regarding application of the funds the 63% were invested in fixed assets i.e.
purchase of fixed assets and remaining 37% of funds were utilized for working
capital.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Statement of Sources and Applications of Funds for the year ending at 31st
March 2009.
Sources Rs Applications Rs
Secured loan 1449.41 Purchase of fixed assets 2230.27
Capital W-in-Progress 107.56
Unsecured loans paid 1462.33
Increase in working
Funds from
operations
10172.09 Capital 7821.34
11621.50 11621.50
Interpretation
It is evident from the above table the total funds during the period from 2008-
2009 amounts to Rs. 11621.50.
In the application side we can see the 19.19% of funds were utilized for
purchase of fixed assets, and 12.58% to unsecured loans. Funds from
operations are of 87.53%.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Statement of Sources and Applications of Funds for the year ending at 31st
March 2010.
Sources Rs Applications Rs
Secured loan 4813.21 Purchase of fixed assets 1851.63
Unsecured loans 3189.14 Capital w-in-progress
increasing working
capital
436.64
Funds from
operations
2820.13 8534.21
10822.48 10822.48
Interpretation
It is evident from the above table the total funds during the period from 2009-
2010 amounts to Rs. 10822.48.
In the application side we can see the 17.52% of funds were utilized for
purchase of fixed assets, and 26.58% to unsecured loans. Funds from
operations are of 25.51%.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
RATIO ANALYSIS
Current Ratio:
Year Current Assets Current
Liabilities
Current Ratio
2005-06 4,172.78 2,895.13 1.44
2006-07 11,302.96 5,625.29 2.01
2007-08 16,137.54 8,676.29 1.86
2008-09 18,321.76 9,556.63 1.92
2009-10 26,616.98 10,030.68 2.65
Source: Collected from the annual Report of Lanco Industries Ltd, Tirupati.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
C urrent R
1.
2.01.8 1.9
2.6
0
0.51
1.5
2
2.5
3
2005-062006-072007-082008-092009-10
Year
R
a t i o s
Inference
The above table shows that the current ratio’s of the company from 2005-06
to2009-10. From the current ratio table it is clear that the current ratio of the
year 2005-06 is satisfactory because it satisfies the rule of thumb ratio i.e., 2:1
ratio.
But the current ratio of the remaining two years i.e., 2005-06 and 2006-
07 is not satisfactory 2007-08, 2008-09 and 2009-10 is satisfactory. For better
performance the company should hold optimum current assets to meet the
current liabilities.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Quick Ratio (or) Acid Test (or) Liquid Ratio
Year Current Assets Current
Liabilities
Current Ratio
2005-06 2,979.52 2,985.13 1.032006-07 6,008.91 5,625.29 1.07
2007-08 9,062.36 8,676.59 1.04
2008-09 12,062.26 9,556.53 1.08
2009-10 14,120.10 10,030.68 1.45
Source: Collected from the annual Report of Lanco Industries Ltd, Tirupati.
Qu ick R atio (or) Ac id T est (or) LRati
1.0 1.0 1.0 1.0
1.4
0
0.5
1
1.5
2
2005-06 2006-07 2007-08 2008-09 2009-10
Year
R a t i o s
Inference:
From the above table shows indicates Acid test ratio the Company. Acid
test ratio from 2005-06 to 2009-10 is more than the normal standard of 1:1.
Liquid Assets are quite sufficient to provide a cover to the current liabilities.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Net working Capital:
Year Current Assets Current
Liabilities
Current Ratio
2005-06 3797.62 9908.69 0.132006-07 5677.67 22264.36 0.26
2007-08 7460.95 28680.37 0.26
2008-09 8765.23 32901.40 0.27
2009-10 16586.30 43836.66 0.38
Source: Collected from the annual Report of Lanco Industries Ltd, Tirupati.
Net W orking C apita
0.1
0.2 0.2 0.2
0.3
0
0.1
0.2
0.3
0.4
2005-062006-072007-082008-092009-10
Year
R a t i o s
Interpretation
The net working capital ratio shows the relationship between the net current
assets and the net total assets. The above diagram shows the firm is having an
increasing net working capital.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
Lanco industries balance sheet as on 2005-10
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
I. Sources of Funds (In Lacs) (In Lacs) (In Lacs) (In Lacs) (In Lacs)
1. Share holders funda) Share Capital 3976.36 3976.36 3976.36 3976.36 3976.36
b) Reserves and Surplus 2610.18 3804.74 3993.06 7179.70 8549.77
2. Loan Fund
a) Secured Loans 10723.23 10886.36 6244.81 17832.33 22645.54
b) Unsecured Loan s 5404.59 9588.74 15069.11 12271.32 15460.46
3. Differed Tax Liability 424.17 618.06 2576.95 3123.73
TOTAL 22264.36 28680.37 32901.40 43836.66 53755.86
II. Application of funds
1. Fixed Assets
a) Gross-Block 17884.47 20021.36 25035.99 35516.23 38974.86
b) (-) Depreciation 4648.10 5417.03 6510.29 9127.88 10734.88
c) Net Block 13236.37 14604.33 18525.70 26388.35 28239.98
d) Capital Work-in-Progress 862.01 425.37
2. Investment 589.83 - -
3. Current Assets Loans and
Advances
a) Inventories 5294.05 7075.18 9194.08 12092.91 14436.48
b) Sundry Debtors 4098.66 7197.89 6706.59 8814.31 11966.16c) Cash & Bank balances 447.49 247.72 350.67 420.10 3463.66
c) Loans and Advances 1462.76 1616.75 2070.42 5289.66 6107.54
Total
Less: Current Liabilities &
Provisions
11302.96 16137.54 18321.76 26616.98 35973.84
a) Current Liabilities 5052.57 8090.45 9202.11 9319.38 10108.38
b) Provision
Net Current Assets
572.72
5677.67
586.14
7460.95
354.42
8765.23
711.30
16586.30
774.95
25120.51
4. Differed tax asset
5. Miscellaneous Expenditure 13.83 10.17 6.45 - 25090.51
Profit and Loss account - - - -
TOTAL 22264.36 28680.37 32901.40 43836.66 53755.86
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
FINDINGS
In 2005-06 financial year 34% of funds generated through trading
activity and if we observe at application side the share capital was
reduced by 7% purchase of fixed assets is by 67% and not increase in
working capital is of 26%.
In 2006-07 financial year 10% of funds generated through trading
activity and another 90% through secured loans and unsecured loan. In
applications the 63% of.funds were utilized to purchase fixed assets.
In 2007-08 financial year 7% of funds generated through trading activity
and another 93% through secured loans and unsecured loan. In
applications the 42% of funds were utilized to purchase fixed assets.
Current ratio of the company is in below the standard norms. Quick
ratio;: is in standard norm position. This means current liabilities are
very high than compare with the current assets.
In 2009-10 financial year 19.19% of funds utilized for purchase of fixed
assets, and 12.58% to unsecured loans. Funds from operations are of
87.53%
In current ratio’s of the company from 2004-05 to 2009-10 from the
current ratio of the year 2005-06 is satisfactory. But the current ratio of
the remaining two years i.e., 2004-05 and 2005-06 is not satisfactory.
For better performance the company should hold optimum current assets
to meet the current liabilities.
The quick ratio (or) Acid test (or) liquid ratio the company acid test ratio
from 2005-06 to 2009-10 is more than normal standard at 1:1 liquid
assets are quite sufficient to provide a cover the current liabilities.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
CONCLUSION
The following conclusions are arrived at based on the observations made
on the present study –
Except of the first year the study period it is observed that the fund for
operations is on loss. It generated the funds in application of total funds.
Except of the first year of the study of period, funds were utilized
for financing the working capital requirements.
The study revealed a mixed trend of application and sources of funds in
respect of secured and unsecured loans.
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Funds Flow Statements of Lanco Industries ltd., Srikalahasti
BIBLIOGRAPHY
James C.Vann Home Financial Management, 9th edition Prentice -Hall
of India Private Limited, New Delhi, 1994.
Khan M.Y. & Jain P.K. Financial Management, 2nd Edition Tata Me.
Graw-Hill Publishing Co. Ltd., New Delhi.
Pandey I.M., Financial Management, 7th Edition, Vikas Publishing
House Pvt. Ltd., New Delhi, 1995.
Kothari C.R. Research Methodology, 2nd Edition, Wishwa Prakasham,
New Delhi, 1990.
Maheswari S.N., Financial Management, 4th Edition, Sultan Chand &
Sons, New Delhi. 1997.
Man Mohan & Goyal S.N., Principles of Management Accountings 6th
Edition, Sathiya Bhavan, Agra, 1998.
Prasanna Chandra, Financial Management, 3rd Edition, Tata
Mc.Graw-Hill Publishing Co., Ltd., New delhi, 1984.
Website : www.lancoindustries.com