INTRODUCTION

PREPERATIONOFCASHFLOWANALYSIS:

An organization should prepare a cash flow statement according to

accounting standered-3. The following basic information’s are required for the
pr3peration of a cash flow statement:

1. Comparative Balance Sheets

2. Profit and loss account
3. Additional data.
This statement is prepared in three stages as given below;

 Net Profit before Taxation and Extra Ordinary items.

 Cash flow from operating, investing and financing activities.
 Cash flow statement.
Changes in fixed assets and fixed liabilities have not been adjusted as
these are shown separately in the cash flow statement. It is so because current assets and
current liabilities are directly related to operations. Cash paid is deducted from cash
generated from operations in order to get the figure of cash flow before extraordinary
items in order to get the figure of cash provided by or using from operating activity.

SPECIAL ITEMS:

In addition to the general classification of three types of cash flows accounting

standard-3 for the treatment of cash flows of certain social item as under;

a) Foreign currency cash flows

b) Extraordinary items
c) Interest and dividends
d) Taxes on income

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 e) Investments in subsidiaries ,associates and joint ventures
f) Acquisitions and disposal of subsidiaries and other business units.
g) Non-cash transactions;
 The acquisition of assets by assuming directly related liabilities;
 The acquisition of an enterprise by means of issue of shares ; and
 The conversion of debt to equity.
So, cash flow analysis reveals the various items of inflow and out flow of cash. It is an
essential tool for short term financing analysis and is very helpful in the evaluation of
current liability of a business concern. It helps the business

OBJECTIVESOFTHE STUDY

PRIMERYOBJECTIVE:

➢ Cash Flow statement is prepared with a no objective to highlight the sources and
uses of cash and cash equivalents for a period.
➢ Cash flow statement is classified under operating activities and financing activities.

➢ The economic decisions that are taken by users require an evaluation of the ability
of an enterprise to generate cash and cash equivalents and the timing and certainty
of their generation.

SECONDARY OBJECTIVE:

➢ It deals with the provision of information about the historical changes in cash and
cash equivalents of an enterprise by means of a cash flow statement which classifies
cash flows during the period from operating, investing and financing activities.
➢ Information about the cash flows of an enterprise is useful in providing users of
financial statements.
➢ A basis to assess the ability of enterprise to generate cash ,cash equivalents and the
needs of the enterprise to utilize those cash flows

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SCOPE OF THE STUDY

➢ An enterprise should prepare a cash flow statement and should present it for each
period for which financial statements are presented.
➢ Users of an enterprise’s financial statements are interested in how the enterprise
generates and uses cash and cash equivalents.
➢ This is the case regardless of the nature of the enterprise’s activities and irrespective
of whether cash can be viewed as the product of the enterprise, as may be the case
with a financial enterprise.
➢ Enterprises need cash for essentially the same reasons, however different their
Principal revenue-producing activities might be.
➢ They need cash to conduct their operations, to pay their obligations, and to provide
returns to their investors

NEED FOR THE STUDY

➢ The choice of area of the study for the project work was given after initial study of
company’s cash flows.
➢ Through the company has several departments; the prime of my interest was in finance. Cash is very
important basic input needed to keep the operations of the business going on a continuous basis.
➢ It is also the final output expected to be realized by selling the product Manufactured by the
manufacturing unit.
➢ To analyze the various cash outflows and inflows of company and also to study the
various sources of the cash in this company is needed to study this cash flow
analysis.

RESEARCH METHODOLOGY OF THE STUDY

The following is the methodology of the study. The collection of data is done in
two principle sources. They are as follows:
1 Primary data.
2 Secondary data.

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PRIMARYDATA

The primary data needed for the study is gathered through interview with
concerned officers and staff, either individually or collectively. Some of the information has
been verified or supplemented with personal observation conduct.

SECONDARYDATA

The secondary data needed for the study was collected from published
sources such as pamphlets of annual reports, returns and internal records, reference from
text book and journals of financial management.

LIMITATIONS OF THESTUDY

In spite of various uses of cash flow statement, it has the following limitations:

➢ Cash flow statement gives the main of inflow and outflow of cash only and does
not show the liquidity position of the company.
➢ This statement is not a substitute of income statement which shows both cash and
non-cash items. Therefore, net cash flow does not necessary mean net income of the business.

➢ It cannot replace funds flow statement as it cannot show the financial position of
The concern in totally.

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CHAPTER-2

Cash is the basic input needed to keep the operations of the business
going on a continuing basis; it is also the final output expected to be realized by selling
the product manufactured by the manufacturing unit. Cash is both the beginning and the
end of the business operations.

Sometimes, it so happens that a business unit earns sufficient profit, but

inspire of this is not able to pay its liabilities when they become due. Therefore, a
business unit should always try to keep sufficient cash, neither more nor less because
shortage of cash will threaten the firm’s liquidity and solvency, whereas excessive of
cash will not be fruitfully utilized, will simply remain idle and will affect the
profitability of a concern. Effective cash management, therefore, implies a proper
balancing between the two conflicting objectives of liquidity and profitability.

The management of cash also assumes importance because it is difficult to

predict cash inflows and outflows accurately and there is no perfect coincidence
between the inflows and outflows of cash giving rise to either cash outflows exceeding
inflows or cash inflows exceeding cash outflows. Cash flow statement is one important
tool of cash management because it throws light on cash inflows and cash outflows of a
particular period.

CLASSIFICATIONOFCASHFLOWS:

Cash flows for a period can be classified into the three categories of cash
inflows and cash out flows as given below:

1. Cash flows from operating activities

2. Cash flows from investing activities
3. Cash flow from financing activities

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 1. CASHFLOWFROMOPERATINGACTIVITIES:

The amount of cash flows arising from operating activities is a key

indicator of the extent to which the operations of the enterprise have generated
sufficient cash flows to maintain the operating capability of the enterprise, pay
dividends, re-pay loans and make new inventions without recourse to external sources
of financing. Information about the specific components of historical operating cash
flows, in conjunction with other information, in forecasting future operating cash flows.

Cash flows from operating activities are primarily derived from the
principal revenue-producing activities of the enterprise. Therefore, they generally result
from the transactions and other events that enter into the determination of net profit or loss.
Examples of cash flows from operating activities are;
➢ Cash receipts from the sale of goods and the rendering of services;
➢ Cash receipts from royalties, fees, commissions, and other revenue;
➢ Cash payments to suppliers for goods and services;
➢ Cash payments to and on behalf o f employees;
➢ Cash receipts and cash payments of an insurance enterprise for premiums and
claims, annuities and other benefits;
➢ Cash payments or refunds of income taxes unless they cash be specifically identified
With financing and investing activities; and
➢ Cash receipts and payments relating to future contracts, forward contracts, option
contracts, and swap contracts when the contracts are held for dealing or trading
purposes.
Some transactions, such as the sale of an item of plant, may give
rise to a gain or loss which is included in the determination of net profit or loss.
However, the cash flows relating to such transactions are cash flows from investing
activities.

An enterprise may hold securities and loans for dealing or trading purposes in
which case they are similar to inventory acquired specifically for resale. Therefore, cash

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flows arising the purchases and sale of dealing or trading securities are classified as
operating activities. Similarly, cash advances and loans made by financial enterprises
are usually classified as operating activities since they relate to the main revenue
producing activity of that enterprise.

II.CASHFLOWFROMINVESTINGACTIVITIES:

The separate disclosure of cash flows arising from investing activities is

important because the cash flows 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). These payments

include those relating to capitalized research & development costs and self-
constructed fixed assets;
➢ Cash receipts from disposal of fixed assets(including intangibles)
➢ Cash payments to acquire shares, warrants, or debt instruments of other enterprises
and interests in joint ventures (other than payments for those instruments considered
to be cash equivalents and those held for dealing or trading purposes);
➢ Cashreceiptsanddisposalofshares,ordebtinstrumentsofotherenterprisesand
Interests in joint ventures (other than receipts for those instruments considered to be
cash equivalents and those held for dealing or trading purposes);
➢ Cashadvancesandloansmadetothirdparties(otherthanadvancesandloansmade
By a financial enterprise);
➢ Cash receipts from the repayment of advances and loans made to third parties(other
than advances and loans made by a financial enterprise);
➢ Cashpaymentsforfuturecontracts,forwardcontracts,opinioncontracts,andswap
contracts except when the contracts are held for dealing or trading purposes, or the
payments are classified as financing activities; and
➢ Cashreceiptsforfuturecontracts,forwardcontracts,opinioncontracts,andswap
contracts except when the contracts are held for dealing or trading purposes, or the
payments are classified as financing activities; and

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 When a contract is accounted for as a hedge of an identifiable
position, the cash flows of the contracts are classified in the same manner as the cash
flows of the position being hedged.

III.CASHFLOWSFROMFINANCINGACTIVITIES:

The separate disclosure of cash flows arising from financing activities is

important because it is useful in predicting claims or future cash flows by providers of
funds (both capital and borrowings) to the enterprise. Examples of cash flows arising
from financing activities are;

➢ Cash proceeds from issuing shares or other similar instruments;

➢ Cash proceeds from issuing debentures, loans, notes, bonds, and other short-term or
long-term borrowings; and
➢ Cash repayments of amounts borrow
➢ Cash payments to redeem preferences

MOTIVESFORHOLDING CASH:

The firm’s need to hold cash may be attributed to the following three motives;

1. The Transactions Motive

2. The Precautionary Motive
3. The Speculative Motive
4. The Compensation Motive.
1. The Transactions Motive:

An important reason for maintaining cash balances is the transactions

motive. This refers to the holding of cash, to meet routine cash requirements to finance
the transactions which a firm carries on in the ordinary course of business. A firm enters
into a variety of transactions to accomplish its objectives which have to be paid form in
the form of cash. For example, cash payments have to be made for purchases, wages
operating expenses, financial charges, like interest, taxes, dividends, and so on.

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Similarly, there is a regular inflow of cash to the firm from sales operations, returns on outside
investments, etc. These receipts and payments constitute a continuous two way flow of cash.
But the inflows (receipts) and outflows (disbursements) do not perfectly coincide or
synchronies, that is they do not exactly match. At times, receipts exceed outflows while, at
other times, payments exceed inflows. To ensure that firm can meet its obligations when
payments becoming due in a situation in which disbursements are in excess of the current
receipts, it must have an adequate cash balances.

The requirement of cash balances to meet routine cash needs is known as the transactions
motive at such cash balances are termed as transaction balances. Thus, the transaction motive
refers to the holding of cash to meet anticipated obligations whose timing is not perfectly
synchronized with cash receipts. If the receipts of cash and its disbursements could exactly
coincide in the normal course of operations, a firm would not need cash for transaction
purposes. Although a major part of transaction balances are held in cash, a part may also be in
such marketable securities whose maturity confirms to the timing of the anticipated payments,
such as payment of taxes, dividends, etc.

2. The precautionary motive:

In addition the non-synchronization of anticipated cash inflows and outflows in

the ordinary course of business, a firm may have to pay cash for purposes which cannot be
predicted or anticipated. The unexpected cash needs at short notice may be result of;
Floods, strikes and failure of important customers;

 Bills may be presented for settlement earlier than expected;

 Unexpected slow down in collection of accounts receivable;
 Sharp increase in cost of materials.

The cash balances held in reserve for such random and unforeseen fluctuations in
cash flows are called as ‘precautionary balances’. In other words, a precautionary
motive of holding cash implies the need to hold cash to meet unpredictable obligations.
Thus, precautionary cash balance serves to provide a cushion to meet unexpected
contingencies.

Another factor which has a bearing on the level of such cash balances is the
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availability of short term credit. If firm cash borrow at short notice to pay for
unforeseen obligations, it will need to maintain a relatively small balance and vice
-versa. Such cash balances are usually held in the form of marketable securities so that
they earn a return.

3. The speculative motive:

It refers to the desire of a firm to take advantage of opportunities which

present themselves at unexpected moments and which are typically outside the normal
course of business. While the precautionary motive is defensive in nature, in that, firms
must take provisions to tide over unexpected contingencies, the speculative motive
represents a motive represents a positive and aggressive approach. Firms aim to exploit
profitable opportunities and keep cash in reserve to do so. The speculative motive helps
to take in advantage of;
➢ An opportunity to purchase raw materials at a reduced price on payment of
immediate cash;
➢ A chance to speculation’s interest rate movements by using securities when interest
Rates are expected to decline;

4. Compensative motive:

Another motive to hold cash balances is to compensate banks for providing

certain services and loans.

Banks provide a variety of services to business firms, such as clearance of

cheque, supply of credit information, transfer of funds, etc. While for some of the
services banks charge a commission or fee, for others a seek indirect compensation.
Usually, clients are required to maintain a minimum balance of cash at the bank. Since
this balance cannot be utilized by the firm for transaction purposes, the banks
themselves can use the amount to earn a return. To be compensated for their services
indirectly in this firm, they require the clients to always keep a bank balances sufficient
to earn a return equal to the cost of services. Such balances are compensating balances.

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 COMPANYPROFILE
Introduction:-

Lanco is one of the fastest growing Integrated Infrastructure Enterprises of India,

operating across a synergistic span of verticals comprising Power Generation, Power
Trading, Non-Power Infrastructure, Construction, EPC, Property Development and
Renewable.

Lanco Infratech Ltd's current market capitalisation is approximately Rs. 12,000 Crores
(USD 2.59 billion), of which about 68 % equity stake is held by its promoters. Its gross
revenue as on March 2009 was over Rs. 6,000 Crores (USD 1.3 billion). Lanco is fast
emerging as one of the leading private sector power developers in India with 2087 MW
under operation, 8468 MW under construction, and 1039 MW of projects under
development. Out of the total portfolio of 11594 MW, the company has achieved
financial closure for 4533 MW. Having over two and a half decades of experience in
Construction and Civil Engineering, Lanco has created a niche for itself besides building
powerful knowledge bank and systems which facilitate continuous adoption and
implementation of best practices and technologies. Lanco has strategic global partnership
with top-notch companies which include: OHL of Spain, Westports and Genting of
Malaysia, Harbin, GE, Dongfang, Doosan etc. Today, Lanco is one of India's largest
Power Traders in the private sector.

A people driven organization, Lanco operates from 20 States in India and has a human
resource base of 5500 people. Lanco is also a privileged member of theWorld Economic
Forum and it has been acknowledged as an elite member of the top two hundred “Global
Growth Companies”. As part of its business strategy, the company has evolved Lanco's
Vision for 2015: to build a High Performance Organisation with an operating capacity of
15000 MW in Power. Lanco also envisages aggressive growth plan for the Construction
and EPC division to achieve an Annual Turnover of Rs 40,000 Crores(USD 8.64 billion)
by 2015.
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The year 2010 is being celebrated as Lanco's Silver Jubilee Year. It has been twenty five
years since the founder chairman L Rajagopal, taking inspiration from his uncle
Lagadapati Amrappa Naidu, began his career as an entrepreneur. Lanco has risen to its
present level on the strength of their vision and inspiration and under the leadership of L
Madhusudhan Rao, the Chairman of Lanco Group.

Corporate Structure:-

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DATA ANALYSIS AND INTERPRETATION
BalanceSheetasat31stMarch,2008

Schedules Rs. Rs.

I. SOURCESOFFUNDS:

1. Shareholders' Funds:

a. Capital A 56,69,92,680

b. Reserves B 157,25,55,583 213,95,48,263

2.LoanFunds:
a. Secured Loans C 185,73,40,134
D 48,99,46,869 448,68,35,132
b. Unsecured Loans

II. APPLICATIONOFFUNDS:

1. Fixed Assets:

Gross Profit E 337,35,07,089

Less : Depereciation 160,60,60,818 176,74,46,271

Net Profit 6,05,16,710
Capital Work-in-progress 182,79,62,981

2.Investments F 1,500

3.Current Assts,
Loans and Advances G1 14,12,92,290

Sundry Debtors G2 17,81,32,470

Cash & Bank Balances G3 4,81,30,040

Other Current Assets H 8,61,72,470 45,45,72,470

Less : Current Liabilities & provisions

a. Liabilities I 651,941,573

b. provisions J 2,05,61,230 21,79,53,160

Net Current Assets

1. Deferred tax asset(Net) K 55 ,48,82,327

2. Profit & Loss Account 232,19,41,484 448,68,35,132

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Profit and Loss Account for the year ended
( 31stMarch, 2008 )
INCOME:

Gross Sales (including

Excise Duty 1341716993

L 49259933

Other Income 1390976079

EXPENDITURE: 2781953005

Raw Materials consumed 181903306

Payments and Benefits of

Employees M1 99557971

Manufacturing, Selling
Administration and M 892417716

Other Expenses 598078982

Excise Duty N 1497310

Interest 28600214

Depreciation 72918704

Increase/Decrease in stocks 135681510

Profit/(Loss) before Reliefs and Concessions 55178068

And Write-offs 80503442

Add: Reliefs and concessions 741142301

ReferNoteNo:20(b)of Schedule "o") 2832301456

Balance Carried forward to Next Year 4829617

Earning per share

(Refer Note No27 of

Schedule "O"

Basic -1.42

Dilted -1.42

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Cash Flow StatementfortheYearEnded31st
March, 2008
Particulars Rs.

Cash Flow From Operating Activates

Profit/(Loss) as per profit and Loss Account 8,05,03,442

Add/(Less):Adjustments for: 1,85,30,324

Depreciation 7,29,18,704

Extraordinary items(Reliefs & Concessions) 5,51,78,068

Extraordinary items(Deferred Revenue Expenditure) 1,58,90,678

Extraordinary items Deferred Tax Asset(net) 12,000

Credit balances written back 32,16,554

Dividends received 33,45,291

Interest received 21,028

Assets written off 38,70,495

Lesson sale of assets 1,56,567

Provision for gratuity 14,04,32,984

Provision for leave encashment 7,56,567

Interest 21,50,897

Provision for doubtful advances 7,67,416

Profit on sale of investments 1,56,110

Provision for obsoletes stores & Raw materials 519

Provision for diminution of investments 7,72,096

Stores written off 6,25,95,791

Operating profit Before working Capital Changes: 11,43,152

Adjustments for:
Inventories 6,13,85,596
Trade & other receivables 13,90,64,443

19,93,06,887

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 Trade Payables 13,67,11,096

B. Cash Flow From Investing Activities:

Purchase of Fixed Assets( Net after transfer

from capital work in progress ) 10,58,980

Interest received 21,27,742

Sale of fixed assets 34,79,111

Sale of investments 22,27,555

Dividends received 7,72,415

Taxes paid 12,000

Deferred Revenue Expenditure 9,05,990

Net cash used in investing activities 23,98,369

C. Cash Flow from Financing Activities:

Interest paid 4,44,32,595

Unsecured loans 2,96,83,876

Repayment of secured Loans 7,04,88,164

Net increase in cash and cash equivalents 14,46,04,635

Net cash from financing equivalents 54,95,170

Add : Cashandcashequivalentsasat31-03-2002 5,36,25,210

Cashandcashequivalentsasat31-03-2003

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 FINDINGS

In 2007-2008 year, the cash out flows is more than inflows of cash.
Because purchases, payments amount is higher than the sales,
receivables amount i.e., [(35521.92)-32728.29] = (2793.63). The
operating income is Rs 3783.33.

SUGGESTIONS:

Company should try to reduce the purchases of fixed assets, investments

and current investments in Lacnco infra Ltd.

And also reduce to receive the borrowings from outside of the company. It
will show effects on the time of payment of interest.

To try to increase the traded posits from stockiest and dealers.

And also should increase in cash credit and demand loans.

To reduce the purchases and utilize this amount in the place of

receiving borrowings.

And try to reduce the provision for doubtful debts and miscellaneous
expenses

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 Conclusion
Every enterprise needs budgeting for effective running of the business activities.
Budgeting is a way of managing business and industry. It emphasizes that management
should anticipate problems and difficulties. Advance decision should be taken for the
course of activities during the forthcoming budget period. Budgetary control denotes a
formal system based on the concept of budgeting. Budgetary control is essential for
policy planning and control. It also acts as an instrument of coordination. The main
objective of budgetary control is to ensure planning for future budget setting up various
budgets. The requirements and expected performance of the enterprise are anticipated.

Lanco Infra-tech Ltd has introduced various systems of budgetary control in order to
achieve the future objectives of the organization

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 Bibliography
1Books:-

▪ ManagementAccountingPrinciplesandPractice,EighthEdition,R.K.Sharma&
Shashi K.Gupta.
▪ Advanced Cost Accounting, Vasisth and Suxena

▪ Financial Management, Ninth Edition, I.M.Pandey.

▪ Financial Management, SixthEdition, Prasanna Chandra.

▪ Financial Management, FifthEdition, MY.Khan and PK.Jain.

▪ Advance Accounting, R.L.Gupta.

▪ Management and organizational Behavior, P.Subba Rao

▪ Annual Reports of the company.

2Websites:-

▪ www.lancogroup.com
▪ www.google.com

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