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BKL - Operational Activities
BKL - Operational Activities
Experiential Learning
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Introduction
Balkrishna Industries Limited (BKT) manufactures and sells tires worldwide. The
company offers rubber tires, tubes, and carbon black products. It provides off-
highway tires for use in various applications, such as agricultural, industrial and
construction, earthmoving and port, mining, forestry, lawn and garden, and all-
terrain vehicles. The company sells its products through a network of distributors.
Balkrishna Industries Limited was incorporated in 1961 and is based in Mumbai, India.
Operational activities:
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The cash flow from financing activities (CFF) portion of a company's cash flow
statement illustrates the net cash flows used to fund the business. Transactions
involving debt, stock, and dividends are all examples of financing operations.
Investors can see a company's financial strength and how well its capital structure is
managed by looking at cash flow from financing operations.
The following figure shows the cash flows involved in financing activities for FY20-21
and FY19-20.
The cash flows involved in proceeds of short-term borrowings and repayment of short-
term borrowings are included under this section. Common types of short-term debt
include short-term bank loans, accounts payable, wages, lease payments, and income
taxes payable. Net amount for short term borrowings is -13,529 in FY20-21 compared
to that of 23,933 in FY19-20 which indicates that there is more cash outflow in FY20-21
compared to inflow and the opposite in FY19-20.
The negative cash flow from financing activities reflects in the current ratio and quick
ratio, if the net short-term borrowings from operating activities and investing activities
does not counter balance it.
Long-term debt has a maturity date of more than a year. Long-term debt can be looked
at from two angles: the issuer's financial statement reporting and financial investing.
Companies must show long-term debt issuance and all associated payment obligations
on their financial statements as part of their financial statement reporting. Investing in
long-term debt, on the other hand, entails placing money into debt instruments with
maturities of longer than one year.
Amounts acquired through bank loans and amounts received by issuing debentures are
included in the proceeds from long-term borrowings. Long-term borrowing proceeds
total 60,468 in FY20-21 and 46,453 in FY19-20. As a result, the proceeds amount in
FY20-21 is higher than in FY19-20. This could imply that the corporation has taken out
larger loans to fund capital expenditures and operating activities.
Repayment of long term borrowings include paying interests to the long-term loans
and buying back preferential shares, buying back debentures. The repayment of long
term borrowings caused negative cash flow of 42,144 in FY20-21 and 70,381 in FY19-
20. Higher the number indicates that capital of a company is affected if the counter
balance is not done in operating and investing activities.
Dividend Paid
Amount paid by company in FY20-21 in form of dividend is 23,157 and 51,255 in FY19-
20. Higher amount of dividend paid indicates that company is sharing the profits with
the potential stakeholders. But the lower amount doesn’t mean that the company is
underperforming, it may also indicate that the profits generated are again reinvested
in the company to expand its operational activities.
To gauge the company health, one can check the metric EBIDTA which indicates the
profits generated form operational activities.
Lease Liability paid
The lease liability is equal to the present value of future lease payments and
represents the commitment to make lease payments. We simply discount the liability
over the lease duration using the discount rate once we have gathered our
information, i.e., we know the lease term, the lease payment, and the discount rate. In
FY20-21 the lease paid was 80 and in FY19-20 it was 130.
The cost, interest, and other charges associated with borrowing money to create or
purchase assets are referred to as financing cost (FC) or cost of finances (COF). This can
include the cost of obtaining a mortgage on a home, obtaining a car loan from a bank,
or obtaining a school loan. In FY20-21 it was 979 and in FY19-20 it was 714.
Higher amount compared to previous year indicates that the company has taken the
higher long-term loans in FY20-21 and this may also indicate that company might be
expanding its operations.
To gauge the company’s performance, we can make use of metrics like EPS (Earnings
per Share), P/E ratio, Net Profit. To check company’s operational efficiency the use of
metrics like ROCE (Return on Capital Expenditure) and ROA (Return on Assets) are used.
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents. Investing activities relate to purchase
and sale of long-term assets or fixed assets such as machinery, furniture, land and
building, etc. Transactions related to long-term investment are also investing activities.
Separate disclosure of cash flows from investing activities is important because they
represent the extent to which expenditures have been made for resources intended to
generate future income and cash flows. Examples of cash flows arising from investing
activities are:
Cash payments to acquire fixed assets including intangibles and capitalized research
and development
Cash payments to acquire shares, warrants or debt instruments of other enterprises
other than the instruments those held for trading purposes
Cash advances and loans made to third party (other than advances and loans made
by a financial enterprise wherein it is operating activities)
The term sale of property, plant, and equipment refers to the selling or exchange of the
company’s assets. When the sale of property, plant, or equipment occurs, the company
must compare the asset’s original purchase price and accumulated depreciation to its
selling price to determine if there was a gain or loss on the transaction.
In accounting, the gain or loss would be in the income statement under either
continuing or discontinued operations. One of the ways a company can dispose of
assets is through their voluntary sale or exchange. Involuntary conversions can also
occur, which are the result of an unwanted event such as a fire, flood, or even theft.
When a company disposes of an asset, it must calculate the depreciation occurring
between the last journal entry date and the date of retirement. The net book value is
then determined by subtracting the total accumulated depreciation from the asset’s
historical cost. Net book value is then compared to the selling price of the asset to
determine if there was a gain or loss on the transaction. The gain or loss would be
shown on the income statement, and categorized as continuing operations; unless the
sale involved the disposition of a business segment. In that situation, the gain or loss
would be associated with discontinued operations.
We observe an decrease in the sale of PPE from FY19-20 to FY20-21, which indicates
that the company is making good purchases and has faith in the long-term outlook and
profitability. It is also a good sign for the investors who are looking out for our company.
Purchase of Investments:
When a company purchases an investment with cash, the price of that purchase
decreases the amount of cash available to the company. No matter what type of
investment (stock, bond, securities or something else) it is, the impact on cash
influences the cash flows from investing activities.
No matter what type of investment (stock, bond, or something else) it is, the impact on
cash influences the cash flows from investing activities. There is an increase in the
purchase in the year FY19-20, cost of that investment will mean a decrease in the
company’s cash flow from investing activities. However, the purchase of investments
has reduced in the following year which means that the company has reduced its
spending on purchasing in investment which in turn leads to an increase in cash flow
from investing activities.
Sale of investment: The sales of investment can indicate either a profit or loss due to
the sales. The sales of investment have reduced from FY19-20 to FY20-21.
Interest received
Interest received impacts net income as revenue. The interest received has been
increasing from the FY19-20 to FY20-21. High values indicate good and reason could be
due to shift in capital structure from equity to interest gaining activities.