INTRODUCTION AND RESEARCH METHODOLOGY

INTRODUCTION

Financial management involves the management of finance functions it is

concerned with the planning, organizing, directing and controlling the financial
activities of an enterprise it deals mainly raising funds in the most economic
and the suitable manner using these funds as profitable as possible planned
future development through financial account cost accounting budgeting
statistics and other means.

The finance function mainly deals with the following three functions:

1. Investment decision
2. Finance decision
3. Dividend decision firm.
Investment decision:

The investment decision relates to the selection of assets by a firm. The

assets selection decision of firm one (or) two types. The first of these involving
fixed assets is popularly known capital budgeting. The aspect of financial
decision-making with reference to current assets or short-term assets is
designated as working capital management.

Financial decision:

In this function, the finance manager has to establish carefully the total
funds required by the enterprise after taking into account both the fixed and
working capital requirement in this contest the financial manager is required to
determine the best financing mix or capital structure of the firm. Them he
must decide how to acquire funds to meet the firm’s investment needs. The
central issue before the finance manager is to determine the best financing mix
or optimum or optimum capital structure for his firm.
Dividend decision:

The finance manager must decide whether the firm should distribute all
profits or retain them. Distribute a portion and retain the balance. The finance
has to develop such a dividend policy, which divides the net earnings into
dividends and retained earnings in an optimum way to achieve the objective of
maximizing the market value of firm. In order to make these decisions rational
the management must have a clear understanding of the objectives rational the
management must have a clear understanding of the objectives, which are
sought to be achieved. Importance of finance need not be emphasized. It is
needed the key to successful business operations without proper
administration of finance, no business enterprise can be utilizing is full
potentials for growth and success. Money is a universal lubricant, which keeps
the enterprise dynamic and keeps man and machine at work and encourages
management to make progress and creates value.

The growth of a business to a large extent depends on the current

operations. So the working capital management, the liquidity position of the
firm can be understood. Working capital management is an important part of
investment decisions and is major importance to the finance manager in order
accomplish he wealth maximization, which is the capital ultimate goal of any
organizations, depends on the working capital decisions, maintaining an
optimum level of working capital is a serious problem with which the finance
manager is seriously concerned because the problem of tradeoff between risk
and return is involved, so working capital management has now assumed an
importance place in the business management.
NEED FOR THE STUDY:

Working capital may be regarded as life blood of a business. Its effective

provision can do much to ensure the success of a business while its inefficient
management can lead not only loss of profits but also the ultimate down fall of
what otherwise might be considered as promising concerns.

Liquidity and profitability often go opposite direction so, the company has to
maintain an optimum level of current assets to sustain liquidity and
profitability: the study of working capital management is utmost important to
maintain liquidity.

Fund flow analysis is a technical device designated to the study the source
from which additional funds were derived and the use to which these sources
were put. The fund flow analysis consists of:

a) Preparing schedule of changes of working capital

b) Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position

(working capital) business enterprise between beginning and ending of the
financial dates
Scope of the study

The study focuses on working capital management and working capital

management related techniqus like funds flow statement analysis and ratio
analysis. In general, analysis of working capital trends, relationship of working
capital to sales, liquidity of working capital, analysis of management of
components of working capital and the management of working capital finance
in the select unit. The period covered by the study in five years from 2008 to
2012.
OBJECTIVES OF THE STUDY

The main objectives of the study are

 To find out working capital position of the company

 To study liquidity position of the company
 To study turn over performance of the company

 To study & prepare Funds Flow Statements

 To analyze the movement of funds between the dates of two balance sheets in period
of study.
 RESEARCH METHODLOGY

Database:

Primary data:

It is also known as first hand information. It is collected through questionnaire.

In the present study no primary data is used.

Secondary data:

It is also known as readymade information. The secondary data is collected

from the published reports of like profit and loss account, balance sheet of the
company. This date is also collected from books, journals etc.

Period of the Study:

The period of research study is three months and five years data is considered
for the study.

Tools of Analysis:
The data collected through secondary sources have been analyzed using
appropriate statistical measures like ratios and percentages, diagrams, tables
and charts are presented to illuminate the facts and figures.

Limitations of the Study:

The study is based on five years data. It is not sufficient to present clear
picture of the organization. The accuracy of results depends on the accuracy of
published reports. All the limitations of financial statements will apply to the
study more ever the research period is not sufficient to cover up all aspects.

 The study is only pertaining to RELIANCE COMMUNICATIONS.

 The period of study is of 5 years and the performance evaluation is also

limited to 5years.

 The study is purely based on the data available the form of annual

reports...

 This study is conducted within a short period. The time factor is also a
limitation.
  It cannot reveal continuous changes.
 It is not original statement but simply is arrangement of data given in the
financial statements.
 Figures for analysis are taken from annual reports. So, all the limitations
of the financial statements will apply to the study.

Chapter Scheme:

The study is divided in to 5chapters as detailed below.

 The first chapter deals with introduction and methodology.

 The second chapter is deals with theoretical frame work on the working
capital management and the funds flow analysis.
 The third chapter covers industry and company profiles.
 The fourth chapter is devoted to data analysis and interpretations.
 The fifth chapter is devoted to present a brief summary of findings,
suggestions and conclusions of the study.
 THEORETICAL FRAME WORK

THEORETICAL FRAME WORK OF WORKING CAPITAL MANAGEMENT

INTRODUCTION

Working capital management (WCM) is the management of short-term

financing requirements of a firm. This includes maintaining optimum balance
of working capital components – receivables, inventory and payables – and
using the cash efficiently for day-to-day operations. Optimization of working
capital balance means minimizing the working capital requirements and
realizing maximum possible revenues. Efficient WCM increases firms’ free cash
flow, which in turn increases the firms’ growth opportunities and return to
shareholders. Even though firms traditionally are focused on long term capital
budgeting and capital structure, the recent trend is that many companies
across different industries focus on WCM efficiency.
A firm is required to maintain a balance between liquidity and profitability
while conducting its day to day operations. Liquidity is a precondition to
ensure that firms are able to meet its short-term obligations and its continued
flow can be guaranteed from a profitable venture. The importance of cash as an
indicator of continuing financial health should not be surprising in view of its
crucial role within the business. This requires that business must be run both
efficiently and profitably. In the process, an asset-liability mismatch may occur
which may increase firm’s profitability in the short run but at a risk of its
insolvency. On the other hand, too much focus on liquidity will be at the
expense of profitability and it is common to find finance textbooks (for e.g see
Gitman, 1984 and Bhattacharya, 2001) begin their working capital sections
with a discussion of the risk and return tradeoffs inherent in alternative
working capital policies. Thus, the manager of a business entity is in a
dilemma of achieving desired tradeoff between liquidity and profitability in
order to maximize the value of a firm.

Definitions of Working Capital:

According to P.V. Kulkarni “Working Capital is defined as the excess of current

assets over current liabilities and provisions. It is not current assets or not
working capital.”

According to Board of American Institute of Certified Accountants, “Working

Capital sometimes called net working capital, is represented by the excess of
current assets over current liabilities and identified as the relatively liquid
position of the total enterprise capital which constitutes a margin or buffer for
maturing obligations with in the ordinary operation cycle of the business."

According to Corine T. Morgand, “Working Capital is defined as the difference

between company’s current assets and current liabilities the accounts, which
belong to this group are usually the most active in the company. Unlike fixed
assets they reflect the company’s daily activities."

According to Estern and Bringham, “Working capital refers to a firm’s

investment in short term assets such as cash, short term securities accounts
receivable and inventory. Working capital is defined as current assets minus
current liabilities. If the term working capital is used without further
qualification, it generally refers to gross working capital."

Working capital is essentially circulating working capital. Working capital

moves from one process to another, from cash to inventories and back to cash.
The term circulating working capital is used to designate those assets that are
changed with relative rapidity from one from to another i.e. from cash to
inventories to receivable to cash.

In the case of manufacturing concern, working capital is required to cater the

following needs of business in order.
The above operating cycles is repeated again and again over the period
depending upon the nature of the business and type of product etc.

The summarize it may be emphasized that gross and net concept of working
capital are two important facts of the working capital management. There is no
precise way to determine the exact amount of gross and net working capital for
every firm. The data and problems of each company should be analyzed to
determine the account of working capital. There is no specific way realizable in
practice to finance current assets by short sources only.

Keeping in view the constraints of individual company, a judicious mix of long

term and short term finance should be invested in current assets.

Gross Working Capital: This concept refers to the total of current assets.
Current assets are those assets which are convertible into cash within the
ordinary course of business. It is also known as Circulating capital and current
capital. Current assets include:

 Cash in Hand.

 Cash at Bank

 Sundry Debtors

 Short term loan and advances

 Inventory of stock as: Raw material, work in progress, finished goods.

 Temporary investment of surplus funds.

 Prepaid expenses.

Net Working Capital: This concept defined the most common definition of net
working capital. In this concept working capital is the difference between
current assets and current liabilities, which are expected to be paid in the
ordinary course of business within a year.

Current Liabilities includes:

 Bills payable

 Sundry creditors

 Outstanding Expenses

 Dividend Payable

 Bank Overdraft

 Provision for Taxation.

Net Working Capital may be positive or negative. Net working capital will be
positive when current assets are more than the current liabilities. If current
liabilities are more than current assets then net working capital will be
negative.

Working Capital Management - Circulating system: The funds in the business

are obtained from the issue of shares, issue of debentures. Other long term
arrangement and from operations of business. A high part of generated funds
is used to acquire fixed assets viz. plant and machinery, land and building and
some other fixed assets, while the remaining part of the generate funds is used
for day to day operations for the business i.e. to pay wages, creditors for raw
material purchases and overhead expenses, for the raw material processed.
This makes possible the stocking of finished goods by whose sales either
account receivable are created or cash is received. In this process profit are
generated. A part of profit is used to pay tax. Interest and dividends while the
remaining part is ploughed back in the business. This cycle goes on constantly
throughout the life of business.

Classification of Working Capital

The working capital can be classified as follows:

1. Gross working capital: Gross working capital is the total amount of funds
invested in the various components of current assets such as cash, inventory,
marketable securities and account receivable.

2. Net Working Capital: Net working capital is the difference between current
assets and current liabilities. This type of working capital enables a firm to
determine how much amount is left for operational requirement.

3. Permanent Working Capital: Permanent or fixed working capital is the

minimum amount which is required to ensure effective utilization of fixed
facilities and for maintaining the circulation of current assets. There is always
a minimum level of current assets which is continuously required by the
enterprise to carry out its normal business operations. For example, every firm
has to maintain a minimum level of current assets is called permanent or fixed
working capital as this part of capital is permanently blocked in current assets.
As the business grows the requirements of permanent working capital also
increase due to the increase in current assets.

4. Fluctuating or Variable Working Capital : Temporary or variable working

capital is the amount of working capital which is require to meet the seasonal
demands and some special exigencies. Variable working capital can be further
classified as seasonal working capital and special working capital. Most of the
enterprises have to provide additional working capital to meet the seasonal and
special needs. The capital required to meet the seasonal needs of the enterprise
is called seasonal working capital. Special working is that part of working
capital which is required to meet special exigencies such as launching of
extensive marketing companies for conducting research etc.

Temporary working capital differs from permanent working capital in the sense
that it is required for short periods and cannot be permanently employed
gainfully in the business. Figures given below illustrate the difference between
permanent and temporary working capital. Permanent working capital is stable
or fixed over time while the temporary or variable working capital fluctuates.
Permanent working capital is also increasing with the passage of time due to
expansion of business but even then it does not fluctuate as variable working
capital which sometimes increases and sometime decreases.

5. Cash working capital: Cash working capital is calculated from the items
appearing in the profit and loss account of a business. It shows the real flow of
money at a particular time. It is the basis of the operation cycle concepts which
is assumed a great importance in financial management in recent years.

The reason is that the cash working capital indicates the adequacy of working
capital.

6. Balance sheet working capital: The working capital, which is calculated from
the balance sheet items, is known as balance sheet working capital, gross
working capital and net working capital are the example of the balance sheet
working capital.

7. Negative working capital: Negative working capital is the excess of current

liabilities over current assets such a situation is called negative working capital
when current liabilities are more than current assets.

Factors effecting on working capital management:

A firm should have neither low nor high working capital. Low working capital
involves more risk and more returns, high working capital involves less risk
and less returns. Risk here refers to technical insolvency while returns refer to
increased profits/earnings. The amount of working capital is determined by a
wide variety of factors.

1. Nature of business
2. Seasonality of operations

3. Production cycle

4. Production policy

5. Credit Policy

6. Market conditions

7. Conditions of supply

Nature of Business: The working capital requirement of a firm depends on the

nature of the business. For example, a firm involved in sale of services rather
than manufacturing or a firm is allowing only cash sales. In the first instance,
no investment is required in either raw materials or WIP or finished goods,
while in the second instance there exists no receivables as there is immediate
realization of cash. Hence the requirement of working capital will be lower.
Seasonality of Operations:

If the product of the firm has a seasonal demand like refrigerators, the firms
need high working capital in the periods of summer, as the demand for the
refrigerators is more and the firm needs low working capital in the periods of
winter, as the demand for the product is low.

Production Cycle:

The term production cycle refers to the time involved in the manufacture of
goods. It covers the time span between the procurement of the raw materials
and the completion of the manufacturing process leading to the production of
goods. As funds are necessarily tied up during the production cycle, the
production cycle has a bearing on the quantum of working capital. The longer
the time span of production cycle, the larger will be the funds tied up and
therefore the larger the working capital needed and vice versa.

Production Policy:

The quantum of working capital is also determined by production policy. In

case of the firms having seasonal demand of the products like refrigerators, air
coolers etc., and the production policy of the firm determines the amount of
working capital requirement. If the firm has production policy to carry
production at a steady level to meet the peak demand, this will result in a large
accumulation of finished goods (inventories) during the off-seasons and the
abrupt sale during the peak season. The progressive accumulation of finished
goods will naturally require an increasing amount of working capital. If the firm
has production policy to produce only when there is a demand then the firm
needs low working capital during the slack season and high working capital
during season.

Credit Policy:
The level of the working capital is also determined by the credit policy, as the
firm’s credit policy determines the amount of receivables. If the firm has a
liberal credit policy, then the firm needs high working capital and the firm
needs low working capital if the company’s credit policy does not allow it to
extend credit to the buyers.

Market Conditions:

The working capital requirements are also determined by the market

conditions. In case of the high degree of competition prevailing in the market
the firm has to maintain larger inventories as customers are not inclined to
wait for the product. This needs higher working capital requirements. If there is
good demand for the product and the competition is weak, a firm can manage
with smaller inventory of finished goods, as customers can wait for the product
if it is not available in the market. Thus, a firm can manage with low inventory
and will need low working capital requirements.

Conditions of Supply:

The availability of raw materials and spares also determine the level of working
capital. If there is ready availability of raw materials and spares, a firm can
maintain minimum inventory and need less working capital. If the supply of
raw materials is unpredictable, then the firm has to acquire stocks as and
when they are available for ensuring continuous production. Thus, the firm
needs to maintain larger inventory average and needs larger requirement of
working capital.

WORKING CAPITAL ANALYSIS

Working capital is the life blood and the centre of a business. Adequate amount
of working capital is very much essential for the smooth running of the
business. And the most important part is the efficient management of working
capital in right time. The liquidity position of the firm is totally effected by the
management of working capital. So, a study of changes in the uses and sources
of working capital is necessary to evaluate the efficiency with which the
working capital is employed in a business. This involves the need of working
capital analysis.

The analysis of working capital can be conducted through a number of devices,

such as:

1. Ratio analysis.
2. Fund flow analysis.
3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The

technique of ratio analysis can be employed for measuring short-term liquidity
or working capital position of a firm. The following ratios can be calculated for
these purposes:

1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Receivables turnover.
6. Payable turnover ratio.
7. Working capital turnover ratio.
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

.
Introduction
The basic financial statements i.e., the balance sheet and profit and loss account
or income statement of business, reveal the net effect of various transactions on the
operational and financial position of the company. The balance sheet gives a summary of the
assets and liabilities of an undertaking at a particular point of time. It reveals the financial states
of the company. The assets side of a balance sheet incurred and the revenue realized in an
accounting period and the revenue realized in an accounting period. Both the statement
provides the essential basic information on the financial activities of a business but their
usefulness is limited for analysis and planning purposes. The balance sheet gives a static view of
the resources (liabilities) of a business and the uses (assets) to which these resources have been
put at a certain point of time. It does not disclose the causes for changes in the assets and
liabilities between two different points of time. The profit and loss account, in a general way
indicates the resources provided by operations. But there are many transactions that take place
in an undertaking and which do not operate through profit and loss account. Thus another
statement has to be prepared to show the change in the assets and liabilities from the end of
one period of time to the end of another period of time. The statement is called a statement of
changes in financial position or a funds fl

The Funds Flow Statement is a statement, which shows the movement of funds
and is a report of 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
funds were employed. In simple words it is a statement of sources & applications of funds.

There are many transactions that take place in an undertaking and which do not operate Profit
& Loss A/c. Thus another statement has to be prepared to show the change in Assets &
Liabilities from the end of one period of time to the end of another period of time. The
statement is called a statement of changes in financial position or a Funds Flow Statement.

The Funds Flow Statement is a statement which shown the movement of funds and is a report of
financial operations of business undertaking. In simple words it is a statement of source and
application of funds.
In any business we cannot under estimate the flow of funds from two operations. The business
runs with funds but the organization knows how to flow of funds. The Funds Flow Statement is
concerned with sources and applications of organization. Statement of changes in working
capital shows the increase or decrease in the working capital.

“Funds from Operations” statement shows how much funds from operations.

A Funds Flow Statement is a statement which reflects flow of funds. The statement is called "
Statement of Sources and Applications of Funds " or "Statement of Derivation and Disposition
of the Means of Operation " or " Where Got, Where Gone Statement " or " Movement of
Working Capital Statement " or " Movement of Funds Statement " other self explanatory names
may also be used for the statement.

The Statement Show flows of funds into (i.e. sources) and out of (i.e. applications) business.
Obviously, statement will have two aspects

1. Sources of Funds and

2. Their Application.

Before, we know about the Sources and Application of Funds. It is better to understand the
word “Funds”

Funds:
The work “Funds should not be constructed as 'cash' only. They are understood as 'Working
capital'. That is why the items which do not affect the working capital are not reflected in the
statement. For example, conversion of debentures into shares, dividend paid through issue of
bonus shares and such other items are not included in the statement. In other words, the
statement does not contain the transfers, amortizations, and accruals i.e., internal transactions.
Thus, we may say that 'sources' consist of the transactions that increase the net working capital
and their 'Application' consists of the transaction that decreases the net working capital.
Sources of Funds:

1. Issue of Share Capital.

2. Borrowing.
3. Sale of Fixed assets and Investments.
4. Income from Investments.
5. Income from Trading Operations (i.e. Profit).
6. Decrease in Working capital.
7. Non-Trading operations like dividend received, gifts etc.

Application of Funds:

1. Repayment of Debentures, Lines and Redeemable shares.

2. Purchase of Investments and other Fixed Assets.
3. Payment of Dividends.
4. Increase in Working Capital.
5. Loss on account of Trading Operations.
6. Non-Trading expenses.
Importance of Funds Flow Statement:

The primary object of preparing the Funds Flow Statement is to know the sources of funds and
their application during a given period, normally one year. The statement is prepared with the
help of two balance sheets (opening and closing) and the profit and loss account for the
particular period. Many large companies prepare such statement for their shareholders as part
of the published accounts. The statement is useful to both the external and internal parties
concerned.

Usefulness to Outsiders:

1. To assess the funds available for payment of dividend and interest on the investments.
2. To assess the probable expected return on the future investments.
3. To assess the efficiency of management in application of funds.
4. To assess degree of risk involved in lending money to the concern.

Usefulness to Management:

1. Management knows the sources and application of funds and their compositions.
2. The statement, though historical in nature, may be said to be a counterpart to business
budgets. It facilitates control. Management may know whether the working capital has
been efficiently used or not. Hence the statement is very helpful in policy decisions.

Uses of Funds Flow Statement:

The various uses of funds flow statement ate summarized as under

(a) As a Tool of Historical Analysis:

It provides an answer to some of the important financial questions such as:

1. How was it possible to distribute dividend in excess of current earnings or in the

presence of a net loss for the period?
2. Why has the net working capital decreased although there has been a net loss for the
period?
3. Why has the net working capital increased even though there has been a net loss for the
period?
4. What happened to the proceeds of the sale of plant and equipment?
5. Why did the firm issue new equity or preference shares?
6. How was the retirement of long-term debts or redemption of redeemable preference
shares accomplish?

(b) As a Tool of Planning:

The projected Funds Flow Statement enables the management to plan its future investments,
operating and financial activities such as the repayment of long-term loans and interest there
on, modernization or expansion of plant, payment of dividend etc.

(c) As a Tool in Managing and Utilizing the Working Capital:

The management can know the adequacy or otherwise of the working capital and can plan for
the effective utilization of working capital or can make arrangement in case of inadequacy of
working capital. The management can identify the magnitude and directions of change in
various components of working capital and if there is any undesired situation such as high
inventory high receivables then normally required, the necessary corrective action may be
taken so as to achieve the desired level.

Meaning and concept of Funds:

The term flow means movement and includes both inflow and out flow. The
term flow of funds means transfer of economic values from one asset of equity to another flow
of funds is said to have taken place when any transaction makes changes in the amount of
funds available before happening of the transaction. If the effect of transaction results in the
increase of funds it is called a source of funds and if it results in the decrease of funds, it is
known as an application of funds. Further, in case the transaction does not change funds, it is
said to have not resulted in the flow of funds.

The term fund has been defined in a number of ways. In a narrow sense, it
means cash only and a funds flow statement. Such a statement enumerates net effects of the
various business transactions on cash and takes into account receipts and disbursements of
cash. Fund refers to all the financial resource of the company on the other extreme fund has
been understood as cash only. The most acceptance meaning of the “fund” is “working
capital”.

The term fund has a variety of meaning:

A) Cash Fund Or Narrow Sense:

In a narrow sense, funds mean only cash. ‘Cash flow statement portrays net effect of various
business transactions cash into account receipts & disbursement of cash.

The concept of preparing funds from statement is not accepted, as there are many such
transactions that do not affect cash but represent the flow of fund.

B) Capital Fund (or) Broader Sense:

The term ‘funds’, refers to money values in whatever form it may exit. Here
‘funds’ means all financial resources, used in business whether in the form of men, material
money, machinery and others.

C). Net Working Capital (or) Popular Sense:

Networking capital means differences between current assets & liabilities. A fund generally
refers to cash or cash equipment or to working capital. The term ‘funds’, means working
capital, i.e., the working capital concept of funds has emerged due to the fact that total
resources of a business are invested partly in fixed assets in the form of fixed capital and partly
kept in form of liquid or near liquid form as working capital.

Definition of Flow of Fund:

Flow of fund means movement of fund. I take the example of air; we can feel its movement or
flow of air. Same thing is happen with fund, due to the activity of business fund is transfer from
one asset to another assets. If fixed assets are converted into current asset or fixed liability is
converted into current liabilities, these are the flow of fund. But if current assets are changed
with current assets or current assets are changed into current liabilities, then, there is no flow of
fund because there is no change working capital. Suppose, we get the money from debtor, this is
not flow of fund because, working capital is not changed. Both items of current assets and when
current assets change into current assets, there will not be change in working capital.
Flow of Fund = Fixed asset changes into current asset or current asset changes into fixed assets
Or
Fixed liability changes into current liability or current liability changes into fixed liability.

Definition of Funds Flow Statement:

Fund flow statement is a statement which shows the inflow and out flow of funds between two
dates of balance sheet. So, it is known as the statement of changes in financial position. We all
know that balance sheet shows our financial position and inflow and outflow of fund affects it.
So, in company level business, it is very necessary to prepare fund flow statement, to know
what the sources and what are the applications of a fund between two dates of a balance
sheet. Generally, it is prepare after getting two year balance sheet.

Fund flow statements are known with different names

Statement of source and uses of funds or Summary of financial operations

Movement of working capital statement or Fund received and distributed statement

or

Fund generated and expended statement

“The funds flow statement describes the source from which additional funds were derived and
the use to which these coerces were put”.
--ANTHONY.

Funds flow statement, income statement and balance sheet:

Funds flow statement is not a substitute of an income statement, i.e., a profit &
loss account and balance sheet.
A balance sheet is a statement of financial position or status of a business on a
given date. It is prepared at the end of accounting period. The balance sheet depicts various
resources of an undertaking and his deployment of these resources in various assets on a
particular date.
Hence, funds flow statement is not competitive but complementary to financial
statements. The funds statement provides additional information as regards changes in working
capital. It is a tool of management for financial analysis and helps in making decisions.

Funds Flow Statement is different from Income Statement (Profit and Loss
Account):
A funds flow statement differs from an income statement (i.e. Profit and Loss Account) in
several respects:

1. A Funds Flow Statement deals with the financial resources required for running the business
activities. It explains how were the funds obtained and how were they used, whereas an
income statement discloses the results of the business activities, i.e., how much has been
spent.

2. A Funds Flow Statement matches the “funds raised” and " funds applied” during a particular
period. The sources and applications of funds may be of capital as well as of revenue nature. An
income statement matches the incomes of a period with the expenditures of that period which
are both of a revenue nature. For example where shares are issued for cash, it becomes a
source of funds while preparing a funds flow statement but it is not an item o income for an
Income statement.

3. Sources of funds are many besides operations such as share capital, debentures, sale of fixed
assets, etc. An income statement which discloses the results of operations cannot even
accurately tell about the funds from operations alone because of non-funds items (such as
depreciation, writing off of fictitious assets, etc.) Being included there in,

Thus, both income statement and Funds Flow Statement have different functions to perform.
Modern management needs both. One cannot be substituted for the other; rather they are
complementary to each other.
 Difference between funds flow statement and income statement

Funds flow statement Income statement

1. It highlights the changes in the
financial position of a business and
indicates the various means by
which funds were obtained during
a particular period and the ways to
which these funds were employed.
2. It is complementary to income
statement. Income statement helps
the preparation of funds flow
statement.
3. While preparing funds flow
statement both capital and revenue
item are considered.
4. There is no prescribed format for
preparing a fund flow statement.
1. It does not reveal the inflow and
outflows of funds but deposits
the items of expenses and
income arrive at the figure of
profit or loss.
2. Income statement is not
prepared from fund flow
statement.
3. Only revenue item are
considered.
4. It is prepared prescribed format.
 Difference between funds flow statement & balance sheet
Funds flow statement
1. It is a statement of changes in
financial position and hence is
dynamic in nature.
2. It shows the sources and uses of
funds in a particular period of time.
3. It is a tool of management for
financial analysis and helps in
making decisions.
4. Usually, schedule of changes in
working has to be prepared before
preparing funds flow statement.
Balance sheet
1. It is a statement of
financial position on a particular
date and hence is static in nature.
2. It depicts the assets and
liabilities at a particular point of
time.
3. It is not of much help to
management in making decisions.
4. No such schedule of
changes in working capital is
required. Rather profit & loss
account is prepared.

Uses, significance and importance of funds flow statement:

1. A fund flow statement is an essential tool for the financial analysis and is of
primary importance to the financial management. The basic purpose of a funds flow statement
is to reveal the changes in the working capital on the two balance sheet dates. If also describes
the sources from which additional working capital has been financial and the uses to which
working capital has been applied. Such a statement is particularly useful in assessing the growth
of the firm. The significance or importance of funds flow statement can be well followed from
its various uses given below. It helps in the analysis of financial operations.
The financial statements reveal the net effect of various transactions on the operational and
financial position of a concern. The balance sheet gives a static view of the resources of a
business and the uses to which these resources of a business and the uses to which have been
put at a certain point of time. The funds flow statement explains causes for such changes and
also the effect of this change on the liquidity position of the company sometime a concern may
operate profitably and yet its cash position may become more and worse. The funds flow
statement gives a clear answer to such a situation explaining what has happened.

2. It throws light on many perplexing questions of general interest:

Which otherwise may be difficult to be answered, such as

1. Why were the net current assets lesser spite of higher profits and vice versa?
2. Why more dividends could not be declared in spite of available profits?
3. How was it possible to distribute more dividends than the present earnings?
4. What happened to the proceeds of sale of fixed assets or issue of shares, debentures,
etc.?
5. What happened to the net profit? Where did they go?
6. How was the increase in working capital financed and how will it be financed in future?

3. It helps in the formation of a realistic dividend policy:

Sometimes a firm has sufficient profits available for distribution as dividend but
yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such
cases, a funds flow statement helps in the formation of a realistic dividend policy.

4. It helps in the proper allocation of resources:

 The resources of a concern are always limited and it wants to make the best use
of these resources. A projected funds flow statement constructed for the future helps in making
managerial decisions. The firm can plan the deployment of its resources and allocate them
among various applications.

5. It acts as a future guide:

A projected funds flow statement also acts a guide for future to the
management. The management can come to know the various problems it is going to face in
near future for want of funds. The firm’s future needs want of funds. The firm’s future needs of
funds can be projected work in advance and also the timing of these needs.

6. It helps in appraising the use of working capital:

A funds flow statement helps in explaining how effectively the management has
used its working capital and also suggests ways to improve working capital position of the firm.

7. It helps knowing the overall credit worthiness of a firm:

The financial institutions and banks such as state financial institutions Industrial
Development Corporation, industrial finance corporation of India, industrial development bank
of India, etc., all ask for funds flow statement constructed for a member of years before
granting loans to know the credit worthiness and paying capacity of the firm. Hence, a firm
seeking financial assistance from these institutions has no alternative but to prepare funds flow
statement.
FINANCIAL ANALYSIS:

A fund flow statement is a financial analysis tool that helps managers makes decisions. It
highlights the changes in the financial position of a company. Unlike other financial statements,
such as an income statement and balance sheet that provide only a static view of an
organization's financial operations, a fund flow statement is dynamic and depicts the flow of
funds and how they have been allocated between various business activities. It provides
complete information to financial managers on the effectiveness of fund allocation and reveals
an organization's fund-generating strengths and weaknesses. A fund flow statement also
throws light on the financial position of a firm at a given point in time and highlights the
financial consequences of major business operations, allowing managers to take corrective
actions if required. Funds flow statements allow financial managers to plan on how to improve
the rate of return on assets, manage the effects of insufficient funds and cash balance and plan
how to pay interest to creditors and dividends to shareholders.

Effective Resource Allocation:

A fund flow statement is a useful resource allocating tool. It helps financial managers allocate
resources efficiently. It is not uncommon for managers to design projected fund flow
statements as a forecasting tool. A fund flow statement, therefore, can be thought of as a
control device that allows managers to make effective financial planning decisions. It helps
managers plan on how to invest idle funds and secure additional capital.

Fund Transactions:

There is a plenty of business transactions which results in flow of funds or which cause changes
in working capital. For this purpose, all the business transactions classified into (a) those
transactions which increase funds i.e. sources of funds (b) those transactions which decrease
funds i.e. application of funds. Identification of transactions causing for increase or decrease in
funds is essential for funds flow statement analysis. The following transactions do not affect the
flow of funds. These are

1. Transactions between two current assets. (For ex. conversion of stock into cash)
2. Transactions between two current liabilities.
3. Transactions between current assets and current liabilities.
4. Transactions between two non-current or fixed assets.
5. Transactions between two long-term liabilities.
6. Transactions between non-current assets and long-term liabilities.

There are various elements of business that affect fund/cash flow. These include such things as
increased sales, reductions or increases in debtors, longer or shorter times in paying creditors,
repayments of loans, etc., a summary of which should be shown on separate lines of the
statement. It can start with a section listing the elements that contribute to an increase in cash,
and then the next section lists those items which have contributed to a decrease in cash.
Space (and time!) does not permit more comprehensive details of what is needed and how to
do it. You should consult a text book on Financial Accounting and look at the fund/cash flow
statement of a company similar to the one for which you wish to prepare such a statement.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and

polices to be pursued in the future period time. Working capital budget as a
part of the total budge ting process of a business is prepared estimating future
long term and short term working capital needs and sources to finance them,
and then comparing the budgeted figures with actual performance for
calculating the variances, if any, so that corrective actions may be taken in
future. He objective working capital budget is to ensure availability of funds as
and needed, and to ensure effective utilization of these resources. The
successful implementation of working capital budget involves the preparing of
separate budget for each element of working capital, such as, cash, inventories
and receivables etc.  

 
ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF
LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit

and commercial banks short-term loans are primarily interested to know the
ability of a firm to meet its obligations in time. The short term obligations of a
firm can be met in time only when it is having sufficient liquid assets. So to
with the confidence of investors, creditors, the smooth functioning of the firm
and the efficient use of fixed assets the liquid position of the firm must be
strong. But a very high degree of liquidity of the firm being tied – up in current
assets. Therefore, it is important proper balance in regard to the liquidity of the
firm. Two types of ratios can be calculated for measuring short-term financial
position or short-term solvency position of the firm.

1. Liquidity ratios.
2. Current assets movements ‘ratios.

A). LIQUIDITY RATIOS

Liquidity refers to the ability of a firm 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 assts. The current assets should
either be liquid or near about liquidity. These should be convertible in cash for
paying obligations of short-term nature. The sufficiency or insufficiency of
current assets should be assessed by comparing them with short-term
liabilities. If current assets can pay off the current liabilities then the liquidity
position is satisfactory. On the other hand, if the current liabilities cannot be
met out of the current assets then the liquidity position is bad. To measure the
liquidity of a firm, the following ratios can be calculated:

1. CURRENT RATIO
2. QUICK RATIO
3. ABSOLUTE LIQUID RATIO
 1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general

liquidity and its most widely used to make the analysis of short-term financial
position or liquidity of a firm. It is defined as the relation between current
assets and current liabilities. Thus,

Curreneassets
Current ratio=
Current liabilities

The two components of this ratio are:

a) CURRENT ASSET
b) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry

debtors, inventories and work-in-progresses. Current liabilities include
outstanding expenses, bill payable, dividend payable etc.

QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio
may be defined as the relationship between quick/liquid assets and current or
liquid liabilities. An asset is said to be liquid if it can be converted into cash
with a short period without loss of value. It measures the firms’ capacity to pay
off current obligations immediately.

Quick Assets
Quick Ratio=
Current liabilities

Where Quick Assets are:

 Marketable Securities
 Cash in hand and Cash at bank.
 Debtors.
A high ratio is an indication that the firm is liquid and has the ability to meet
its current liabilities in time and on the other hand a low quick ratio represents
that the firms’ liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought

that if quick assets are equal to the current liabilities then the concern may be
able to meet its short-term obligations. However, a firm having high quick ratio
may not have a satisfactory liquidity position if it has slow paying debtors. On
the other hand, a firm having a low liquidity position if it has fast moving
inventories.

ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more liquid
than inventories, yet there may be doubts regarding their realization into cash
immediately or in time. So absolute liquid ratio should be calculated together
with current ratio and acid test ratio so as to exclude even receivables from the
current assets and find out the absolute liquid assets. Absolute Liquid Assets
includes:

Absolute liquid assets

Absolute liquid ratio =
Current liabilities

Absolute liquid assets = cash & bank balances.

B) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn
profits. The efficiency with which assets are managed directly affects the
volume of sales. The better the management of assets, large is the amount of
sales and profits. Current assets movement ratios measure the efficiency with
which a firm manages its resources. These ratios are called turnover ratios
because they indicate the speed with which assets are converted or turned over
into sales. Depending upon the purpose, a number of turnover ratios can be
calculated. These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio
3. Creditors Turnover Ratio
4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets
include high amount of debtors due to slow credit collections and moreover if
the assets include high amount of slow moving inventories. As both the ratios
ignore the movement of current assets, it is important to calculate the turnover
ratio.

INVENTORY TURNOVER OR STOCK TURNOVER RATIO:

Every firm has to maintain a certain amount of inventory of finished goods so

as to meet the requirements of the business. But the level of inventory should
neither be too high nor too low. Because it is harmful to hold more inventory as
some amount of capital is blocked in it and some cost is involved in it. It will
therefore be advisable to dispose the inventory as soon as possible.

Cost of goods sold

Inventory turnover ratio =
Average inventory

Inventory turnover ratio measures the speed with which the stock is converted
into sales. Usually a high inventory ratio indicates an efficient management of
inventory because more frequently the stocks are sold; the lesser amount of
money is required to finance the inventory. Where as low inventory turnover
ratio indicates the inefficient management of inventory. A low inventory
turnover implies over investment in inventories, dull business, poor quality of
goods, stock accumulations and slow moving goods and low profits as
compared to total investment.

Opening stock +closing stock

Average stock =
2

DEBTOR’S TURNOVER RATIO:

A concern may sell its goods on cash as well as on credit to increase its sales
and a liberal credit policy may result in tying up substantial funds of a firm in
the form of trade debtors. Trade debtors are expected to be converted into cash
within a short period and are included in current assets. So liquidity position
of a concern also depends upon the quality of trade debtors. Two types of ratio
can be calculated to evaluate the quality of debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

Total sales (credit )

Debtors Turnover Ratio =
Average debtors

Debtor’s velocity indicates the number of times the debtors are turned over
during a year. Generally higher the value of debtor’s turnover ratio the more
efficient is the management of debtors/sales or more liquid are the debtors.
Whereas a low debtors turnover ratio indicates poor management of
debtors/sales and less liquid debtors. This ratio should be compared with
ratios of other firms doing the same business and a trend may be found to
make a better interpretation of the ratio.

Opening debtors+closing debtors

Average debtors =
2

WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio indicates the velocity of utilization of net
working capital. This ratio indicates the number of times the working capital is
turned over in the course of the year. This ratio measures the efficiency with
which the working capital is used by the firm. A higher ratio indicates efficient
utilization of working capital and a low ratio indicates otherwise. But a very
high working capital turnover is not a good situation for any firm.

Cost of sales
Working Capital Turnover Ratio =
Net working capital
INDUSTRY PROFILE
 INDIAN CELL PHONE INDUSTRY

Evolution of cell phones in India

The means of communication was revolutionized in the past century, a result

of unprecedented progress in Science and Technology. What started as a
support system for US army to communicate ultimately became a way of life for
millions across the world. The emergence of mobile phones is indeed
fascinating and the current post deals with its development in a fascinating
country called India.

The mobile operations for general public began in mid 90s in India, though it
was a luxury of the rich only. The reasons were several. The call rate was very
high, the sets were expensive. There were fewer service providers which
operated only in big metros. Another important reason was that our country
was in a state of transition. After the post independence failure of the socialist
model, the country had just opened up its economy and its middle class, who
form the bulk of consumers in any country, were yet to rise.

By the turn of the new millennium, the change was visible. With the growth
rate shooting high, we were experiencing a new change in our lives. The
bourgeois class had finally made its present felt in the country with all sorts of
consumer goods taking a leap in sales. The sales of cell phones also started
rising as it began to make its presence felt among the new confident Indians
who entered the new century with high ambition. Since there was charge on
incoming calls, cell phones were mainly used by those who had business
related to it. Although the status symbol that it represented were diluting day
by day.
The news came that the incoming calls were made free by the government. It
was the turning point for cell phones in India as it was embraced by the
masses, whether they actually required it or not was not a question to be
asked. Since then there have been rapid development in the mobile phone
industry. With low call rates and reduction of handset prices, it became
affordable to any average man who comfortably earned his living.

The major reason for the cellular boom in India was its economic progress. We
can’t deny the power of money but it was not the sole reason. . During the
BSNL monopoly, one had to wait for long, even 8 years in some cases, to get a
connection. The author believes that whoever possesses cell phones today are
among those who don’t have the knack to wait for those many years to get a
connection.
Another major reason was the lack of connectivity in rural India. Many villages
don’t have electricity. Cell phones came as a surprise as well as a boon for
them who even don’t have access to decent roads to commute.

If economic boom has enabled people to buy cell phones, the latter have also
made people lead better lives. Many small businessman, artisans and workers
have really benefited with cell phones and there are plenty of examples all
around us.

Today, cell phones have become a way of life. From the dhobi alas to corporate
honchos, everyone uses it. Some use for their business, some to gossip, and
some just to make style statements, the truth is that cell phones have become
an intrinsic way of life. Few years down the line it would be unimaginable a life
without cell phones. Coming to facts, India has over 100 million users and
almost 8 million add every month making it the second largest cell phone
market in the world after China.

The telecom industry is one of the fastest growing industries in India. India has
nearly 200 million telephone lines making it the third largest network in the
world after China and USA. With a growth rate of 45%, Indian telecom industry
has the highest growth rate in the world.

Cellular services are a part of the telecommunication sector of India. It was

launched in 1999 with the adoption of New National Telecom Policy by Telecom
regulatory authority of India (TRAI). Cellular services are further divided into
two categories, namely GSM (Global System for Mobile Communications) and
CDMA (Code Division Multiple Access).GSM segment consists of players like
Airtel, Vodafone, Idea and BSNL. Whereas, CDMA segment consists of players
like Reliance, Tata, etc. There are ten private service operators in each area,
and an incumbent state operator. Cellular companies provide two types of
subscriptions – pre-paid and post-paid.

The DoT has allowed cellular companies to buy rivals within the same
operating circle provided their combined market share did not exceed 67 per
cent. Previously, they were only allowed to buy companies outside their circle.

Wireless Telecommunication Networks in India Today

Today, India is one of the fastest growing telecom markets in the world with
current sub-scriber base nearing 490 mil-lion and looking positive to touch
500 million subscribers by 2010. India, the fastest growing telecom market in
world, registered a CAGR of around 34% over the last decade and has left
analysts around the world totally in awe.

Among the various segments, cellular or mobile segment has been the key
contributor and specially prepaid services, with its wide offerings of services,
has been leading the growth wave. With the upcoming 3G allotment, the sector
is likely to grow at a good rate riding on better and possibly a whole new range
of services.

The Indian telecommunications industry is one of the fastest growing in the

world and India is projected to become the second largest telecom market
globally. According to the Telecom Regulatory Authority of India (TRAI), the
number of telecom subscribers in the country increased to 562.21 million in
December 2009, an increase of 3.5 per cent from 543.20 million in November
2009. With this the overall teledensity (telephones per 100 people) has touched
47.89.The telecom industry notched up US$ 8.56 billion in revenues during the
quarter ended December 31, 2009 helped by a recovery in earnings from both
mobile and landline services. According to Business Monitor International,
India is currently adding 8-10 million mobile subscribers every month. It is
estimated that by mid 2012, around half the country's population will own a
mobile phone. This would translate into 612 million mobile subscribers,
accounting for a tele-density of around 51 per cent by 2012.

The growing affluent-middle-class, low cost of handsets and call tariffs has
helped this stupendous growth .Even now the penetration rate of mobile
phones in India, in comparison to other markets like China, Japan, and
European countries is low. This presents an enormous opportunity for the
Indian mobile service operators to enhance their market share through
mindshare. The recent policy initiative of allowing new operators in a circle has
added fuel to the competition in the cellular market, bringing the call tariffs to
the lowest in the world.

The fierce competition among the cellular service providers resulted in

numerous tariff plans, group plans, contracts (life long validity), and top-up
plans. Today, an Indian mobile customer is overwhelmed with the competing
offers and service packages from the competing operators.

Many of the world-renowned telecom giants are eying the fast-growing Indian
mobile market. With the FDI limit of 74% these MNCs are partnering with
Indian business houses to enter into India. Telenor, Datacom, Loop mobile,
NTT Docomo are among the new entrants in the Indian mobile space. Their
entry with high-end value added services and quality infrastructure is bound to
push the prices further southward. The choice set for the Indian customer is
widening with increasing number of players in each telecom circle. These global
competitors will spread their arms by adopting innovative pricing strategies
and value added services at lower costs, leveraging their technology and
financial muscle.

Mobile call tariffs in India are the lowest in the world. The tariffs dwindled from
Rs. 6.50/minute to 1paisa/second in just above seven years. Competition is
intense among the players to attract customers. Every now and then, a new
scheme with low service charges and tariff plan pops up and gets superseded
by another new scheme within no time. The mobile market is flooded with
offers and packages and in fact, the customer is overwhelmed with competing
choices. Customer retention has become a challenge for the mobile operators
with increasing competition. Some marketers target brand switchers because
brand switchers have higher market potential .Switching is encouraged by all
the players in the mobile market to enhance the customer base. Moreover, in
the prepaid GSM services, the switching costs are low that they make switching
easy. The only major impediment to switching, as of now, is the inconvenience
of changing to a new number. The Telecom Regulatory Authority of India is in
the process of finalizing the procedure for Mobile Number Portability which
allows the customer to retain the same mobile number across the operators.
This is expected to open floodgates for customer switching in both pre-paid and
post-paid segments. In the wake of the above, in order to effectively design
strategies to retain customers to enhance profitability, there is a need to
understand the factors that are prompting customers to switch operators.

Sector Overview:

15 years back, no one had thought that India will become a country with more
number of GSM subscribers than fixed line sub-scribers. According to the
Telecom Regulatory Authority of India (TRAI), the number of telecom
subscribers in the country increased to 562.21 million in December 2009, an
increase of 3.5 per cent from 543.20 million in November 2009. With this the
overall teledensity (telephones per 100 people) has touched 47.89.

As per the estimates of Stock watch the expected mobile subscriber base will
touch around 771 million by the year 2013. Telephony services i.e. (mobile and
basic) and internet services dominate the Indian Tele-com services market.
With a CAGR of 29% from 2002 to 2007 with revenues of $20 billion, it is
expected to stabilize at 16% by 2010 with revenues in the range of $43 billion.
Over the years, wire-less services has acquired almost 92% of the total
telephony market, with State owned BSNL as the leader in the landline domain
and Bharti Airtel being the leader in cellular services with other players like
Reliance, Idea Cellular and Vodafone giving it a tough competition.

The number of telephone subscribers in India increased from509.03 Million at

the end of Sep-09 to 562.16 Million at the end ofDec-09, registering a growth of
10.4%. The overall Teledensity in India has reached 47.88 as on 31st December
2009.

Subscription in Urban Areas grew from 357.22 Million at the end of Sep-09 to
387.63 Million at the end of Dec-09, taking the urban Teledensity from 102.79
to 110.96. Rural subscription increased from 151.81 Million to 174.53 Million
leading to increase in Rural Teledensity from 18.46 to 21.16, during this
period.

About 57% of the total net additions have been in urban areas as compared to
65% in the previous quarter. These in other words imply rapid increase in rural
subscriptions during the quarter. However, this uptake in rural subscription is
in wireless segment.

The share of rural subscribers has increased to 31% in total subscription from
29.8% in Sep-09.
Growth Prospects: Telecom in India

Indian telecom industry has set an example by penetrating the market to an

extent of around 43% in a span of 10 years when analysts and experts were
extremely skeptical about India as a market. The growth has not been
restricted only to the higher section of the society, now it is driven primarily by
the rural market as well and the acceptance has been in-creasing considerably
over the years. On an average approximately 8 million users are added per
month to the kitty thereby making India the world‘s fastest growing telecom
market and thus happens to be the country offering highest ROI for the
telecom companies. To support the growing telecom market, the government is
supporting telecom manufacturing by providing tax sops as well as setting up
Special economic zones The future for the Indian Telecom industry looks bright
with fierce com-petition making way for consolidation. The growth will be
majorly driven by rural sector which is currently attracting good investment
not only from the players but also from the government. The biggest challenge
will be to keep in touch with the rural customers as setting up customer touch
points requires investment with not much tangible returns as the number of
sub-scribers is still pretty low. As of now the penetration in rural areas is
around 10% as opposed to around 30% in urban landscape. The industry
currently is nicely poised with great new policy changes and new players
entering the market to make it more fruitful for the consumers.

India’s Competitive Advantage

An analysis of the Indian telecom industry under the Porter’s Diamond Model
reveals that India offers a competitive advantage for firms operating in the
country.
India is the fastest growing free market democracy in the world. It has a
mature and dynamic private sector, which accounts for 75 per cent of India’s
GDP, and a market with enormous potential due to its large size and diversity.
It is also expected to achieve the highest growth rate among the BRIC countries
(Brazil, Russia, India and China). India offers significant business
opportunities to the services, as well as the manufacturing sectors. This is
because India offers benefits such as cost advantage in product development
and back-office processing and the large-scale availability of skilled English-
speaking professionals. The middle class population is also a significant
market for any business entity. AT Kearney ranked India as the second-most
attractive democracy in its FDI confidence index. The success of MNCs is a
proof that India is an attractive investment destination. India’s huge domestic
market and buoyant economic growth have always attracted foreign investors.

Stable Economic Outlook

A decade of reforms has opened the country to greater competition and spurred
industries to become more efficient. India is currently the fourth-largest
economy on PPP basis and is well positioned on a continuously increasing
growth curve. India’s emergence as a leading destination for foreign investment
is a result of positive indicators such as a stable 6 per cent annual growth,
rising foreign exchange reserves of over US$ 266.18 billion(July 24th 2009) and
Foreign Direct Investment (FDI) of US$ 15 billion. Goldman Sachs had earlier
predicted that India will become the third-largest economy in the world.
However, it has now revised its previous estimates and claims that by 2050,
India will even surpass the US and become the second-largest economy after
China. The country’s economic growth has become more attractive due to the
rising share of the services sector in the GDP. ed foreign investors.

Large Talent Pool

The working age population is expected to rise by 83 per cent by 2026. India
has over 380 universities and about 1,500 research institutes, which churn out
approximately 200,000 engineers, 300,000 post graduates, 2,100,000 other
graduates and around 9,000 PhDs. This large base of skilled manpower offers
unparalleled advantages to the companies operating in India. As a result, many
multinational companies have either established operation hubs in India to
leverage this sizeable talent pool, or they have outsourced their work to a third
party in India. The numerous BPOs and KPOs flourishing in India are a direct
consequence of companies choosing the latter option.

Low Labor Cost

CII estimates that manufactured product outsourcing accounted for US$ 10

billion in 2007. The value will escalate to US$ 50 billion by 2015. India has one
of the lowest labor costs among the developing countries, which is the foremost
factor for attracting multinational giants in every sector. The Ministry of
Commerce, Government of India, has estimated that off shoring operations to
India can provide a cost benefit of up to 40 to 60 per cent, as compared to
developed countries. The country has also emerged as a major R&D hub with
more than hundred Fortune 500 companies based in India. An apt example is
Nokia, which has set up its manufacturing operations in India considering the
long term sustainable demand for mobile telephony. The company believes that
this initiative will help the company in reducing time to market and respond
better to customer requirements. It has pumped in US$ 150 million into its
Chennai facility

Key trends in telecom industry:

3G spectrum:

3G spectrum will be the next growth wave in the industry and also the source
of additional revenues for the companies. Foreign players such as AT&T and
NTT Do Como have show great interest for the same. The spectrum allotment is
a major investment opportunity and is estimated to attract an investment of
around US$8-10 billion during 2008-11. The state owned incumbent BSNL has
successfully launched its 3G service under the proposed ‘India-Golden 50’
scheme but could not create that much of buzz though for not being aggressive
in marketing the same. WiMax on the other hand promises seamless
connectivity with speed of more than 4 Mbps in tough terrains also. With the
growing number of smart phones entering the market coupled with buzz
created by the social networking websites, one can surely expect a substantial
amount of people using their mobile phones for the internet. The telecom
ministry is planning to auction few slots in WiMax in near future. VAS on the
other hand is the constant source of revenue and a means to en-gage
subscribers. The expected revenue from VAS will be around US$ 4.0 billion by
2015. The con-current developments like M-Commerce, focus on localization,
availability of content in vernacular languages, availability of mobile TV are few
out of many growth drivers for the VAS industry. With the customer data at
their disposal, telecom companies are generating knowledge and information
by churning out this data to serve their customers better.

Mobile Number portability (MNP)

One of the most frequent definitions that prevail in the telecom circles for
number portability is: "Number portability is a circuit-switch
telecommunications network feature that enables end users to retain their
telephone numbers when changing service providers, service types, and or
locations." Why mobile number portability (MNP)? When fully implemented
nationwide by both wire line and wireless providers, portability will remove one
of the most significant deterrents to changing service, providing unprecedented
convenience for consumers and encouraging unrestrained competition in the
telecommunications industry. In short, this is the best method to increase the
efficiency of the service provider by increasing the competition, thereby
ensuring better services in all respects. From the subscribers’ perspective, this
is a deceptively simple and very welcome change, because they can change
wireless service providers without worrying about notifying friends, family and
business contacts that their wireless number is changing. In addition, being
able to ‘port’ a number from one provider to another eliminates the hassle and
expenses of changing business cards, stationery, invoices and other materials
for businesses. From the wireless carrier’s perspective the change is anything,
but simple. Virtually all of wireless carriers’ systems are affected. Especially
any system that relies on mobile identity numbers (MINs) or mobile directory
numbers (MDNs) will be affected. Examples of critical systems and processes
that would be affected are: billing, customer service, order activation, call
delivery, roamer registration and support, short messages service center,
directory assistance, caller ID, calling name presentation, switches,
maintenance and CSC systems, home location registers (HLRs), and visiting
location registers (VLRs).
Mobile Virtual Network Operator (MVNO)

Mobile Virtual Network Operator (MVNO) is a GSM phenomenon where an

operator or company which does not own a licensed spectrum and generally
with out own networking infrastructure. Instead MVNOs resell wireless services
under their brand name, using regular telecom operator's network with which
they have a business arrangements. Usually they they buy minutes of use from
the licensed telecom operator and then resell minutes of usage to their
customers of MVNO. Currently MVNOs are emerging in fast pace in European
markets and beginning in USA also. Slowly MVNO phenomenon is catching up
in Asia and other parts of the world also.

IPTV

IPTV (Internet Protocol Television) delivers television programming to

households via a broadband connection using Internet protocols. It requires a
subscription and IPTV set-top box, and offers key advantages over existing TV
cable and satellite technologies. IPTV is typically bundled with other services
like Video on Demand (VOD), voice over IP (VOIP) or digital phone, and Web
access, collectively referred to as Triple Play. Because IPTV arrives over telephone
lines, telephone companies are in a prime position to offer IPTV services initially, but it
is expected that other carriers will offer the technology in the future.

COMPANY PROFILE
 THE RELIANCE GROUP OF INDUSTRIES LIMITED

OUR FOUNDER

Few men in history have made as dramatic a contribution to their country’s

economic fortunes as did the founder of Reliance, Sh. Dhirubhai H Ambani.

Fewer still have left behind a legacy that is more enduring and timeless. As

with all great pioneers, there is more than one unique way of describing the

true genius of Dhirubhai The corporate visionary, the unmatched strategist,

the proud patriot, the leader of men, the architect of India’s capital markets,

the champion of shareholder interest. But the role Dhirubhai cherished most

was perhaps that of India’s greatest wealth creator. In one lifetime, he built,

starting from the proverbial scratch, India’s largest private sector enterprise.

When Dhirubhai embarked on his first business venture, he had a seed capital

of barely US$ 300 (around Rs 14,000). Over the next three and a half decades,

he converted this fledgling enterprise into a Rs 60,000 crore colossus—an

achievement which earned Reliance a place on the global Fortune 500 list, the

first ever Indian private company to do so. Dhirubhai is widely regarded as the

father of India’s capital markets. In 1977, when Reliance Textile Industries

Limited first went public, the Indian stock market was a place patronised by a
small club of elite investors which dabbled in a handful of stocks.Undaunted,

Dhirubhai managed to convince a large number of first-time retail investors to

participate in the unfolding Reliance story and put their hard-earned money in

the Reliance Textile IPO, promising them, in exchange for their trust,

substantial return on their investments. It was to be the start of one of great

stories of mutual respect and reciprocal gain in the Indian markets. Under

Dhirubhai’s extraordinary vision and leadership, Reliance scripted one of the

greatest growth stories in corporate history anywhere in the world, and went on

to become India’s largest private sector enterprise. Throughout this amazing

journey, Dhirubhai always kept the interests of the ordinary shareholder

uppermost in mind, in the process making millionaires, out of many of the

initial investors in the Reliance stock, and creating one of the world’s largest

shareholder families.

THE RELIANCE ANIL DHIRUBHAI AMBANI GROUP

OUR CHAIRMAN

 Regarded as one of the foremost corporate leaders of contemporary

India, Shri Anil D Ambani, 48, is the chairman of all listed companies of

the Reliance ADA Group, namely, Reliance Communications, Reliance

Capital, Reliance Energy and Reliance Natural Resources.

 He is also the president of the Dhirubhai Ambani Institute of

Information and Communications Technology, Gandhinagar

  An MBA from the Wharton School of the University of Pennsylvania,

Shri Ambani is credited with pioneering several financial innovations in

the Indian capital markets. He spearheaded the country’s first forays

into overseas capital markets with international public offerings of

global depositary receipts, convertibles and bonds.

 Under his chairmanship, the constituent companies of the Reliance

ADA group have raised nearly US$ 3 billion from global financial

markets in a period of less than 15 months.

 Shri Ambani has been associated with a number of prestigious

academic institutions in India and abroad.

HE IS CURRENTLY THE MEMBER OF:-

 Wharton Board of Overseers, The Wharton School, USA

 Board of Governors, Indian Institute of Management (IIM), Ahmedabad

 Board of Governors, Indian Institute of Technology (IIT), Kanpur

 Executive Board, Indian School of Business (ISB), Hyderabad

 In June 2004, Shri Ambani was elected as an Independent member of the

Rajya Sabha – Upper House, Parliament of India, a position he chose to

resign voluntarily on March 25, 2006.

SELECT AWARDS AND ACHIVEMENTS:-

 Voted ‘the Businessman of the Year’ in a poll conducted by The Times of

India – TNS, December 2006

 Voted the ‘Best role model’ among business leaders in the biannual Mood of

the Nation poll conducted by India Today magazine, August 2006

 Conferred ‘the CEO of the Year 2004’ in the Platts Global Energy Awards

 Conferred 'The Entrepreneur of the Decade Award' by the Bombay

Management Association, October 2002

 Awarded the First Wharton Indian Alumni Award by the Wharton India

Economic Forum (WIEF) in recognition of his contribution to the

establishment of Reliance as a global leader in many of its business areas,

December 2001

 Selected by Asia-week magazine for its list of 'Leaders of the Millennium in

Business and Finance' and was introduced as the only 'new hero' in

Business and Finance from India, June 1999

RELAINCE PHILOSOPHY:-

VISION

To build a global enterprise for all our stakeholders, and A great future

for our country, To give millions of young Indians the power to shape their

destiny,The means to realize their full potential…

VALUES

 Shareholder Interest

 People Care

 Consumer Focus
  Excellence in Execution

 Team Work

 Proactive Innovation

 Leadership by Empowerment

 Social Responsibility

 Respect for Competition

 Shareholder Interest

We value the trust of shareholders, and keep their interests paramount in

every business decision we make, every choice we exercise

People Care

We possess no greater asset than the quality of our human capital and no

greater priority than the retention, growth and well-being of our vast pool of

human talent

Consumer Focus

We rethink every business process, product and service from the standpoint of

the consumer – so as to exceed expectations at every touch point.

Excellence in Execution

We believe in excellence of execution – in large, complex projects as much as

small everyday tasks. If something is worth doing, it is worth doing well.

Team Work
The whole is greater than the sum of its parts; in our rapidly-changing

knowledge economy, organizations can prosper only by mobilizing diverse

competencies, skill sets and expertise; by imbibing the spirit of “thinking

together” -- integration is the rule, escalation is an exception.

Proactive Innovation

We nurture innovation by breaking silos, encouraging cross-fertilization of

ideas & flexibility of roles and functions. We create an environment of

accountability, ownership and problem-solving –based on participative work

ethic and leading-edge research.

Leadership by Empowerment

We believe leadership in the new economy is about consensus building, about

giving up control; about enabling and empowering people down the line to take

decisions in their areas of operation and competence.

Social Responsibility

We believe that organizations, like individuals, depend on the support of the

community for their survival and sustenance, and must repay this generosity

in the best way they can.

Respect for Competition

We respect competition – because there’s more than one way of doing things

right. We can learn as much from the success of others as from our own

failures.

OUR STRUCTURE
ABOUT RELIANCE ENERGY
 Reliance Energy Limited, incorporated in 1929, is a fully

integrated utility engaged in the generation, transmission

and distribution of electricity. It ranks among India’s top

listed private companies on all major financial parameters,

including assets, sales, profits and market capitalization.

 It is also India’s foremost private sector utility with aggregate

estimated revenues of Rs 9,500 crore (US$ 2.1 billion) and

total assets of Rs 10,700 crore (US$ 2.4 billion).

 Reliance Energy distributes more than 21 billion units of

electricity to over 25 million consumers in Mumbai, Delhi,

Orissa and Goa, across an area that spans 1,24,300 sq.

kms. It generates 941 MW of electricity, through its power

stations located in Maharashtra, Andhra Pradesh, Kerala,

Karnataka and Goa.

 Reliance Energy is currently pursuing several gas, coal, wind

and hydro-based power generation projects in Maharashtra,

Uttar Pradesh, Arunachal Pradesh and Uttaranchal with

aggregate capacity of over 12,500 MW. These projects are at

various stages of development.

 Reliance Energy is vigorously participating in emerging

opportunities in the areas of trading and transmission of

 power. It is also engaged in a portfolio of services in the

power sector in Engineering, Procurement and Construction

(EPC) through a network of regional offices in India.

RELIANCE CAPITAL

 Reliance Capital Ltd is a part of the Reliance - Anil Dhirubhai Ambani

Group, and is ranked among the 15 most valuable private companies in

India.

 Reliance Capital is one of India's leading and fastest growing private

sector financial services companies, and ranks among the top 3 private

sector financial services and banking groups, in terms of net worth.

 Reliance Capital has interests in asset management and mutual funds,

life and general insurance, private equity and proprietary investments,

stock broking, depository services, distribution of financial products,

consumer finance and other activities in financial services.

 The Reliance Anil Dhirubhai Ambani Group is one of India's top 3

business houses, and has a market capitalisation of over Rs.2,90,000

crore (US$ 75 billion), net worth in excess of Rs.40,000 crore (US$ 10

billion), cash flows of Rs. 9,000 crore (US$ 2.2 billion), net profit of Rs.

5,000 crore (US$ 1.3 billion) and zero net debt.

RELIANCE ENTERTAINMENT

Reliance Entertainment is spearheading the Group’s foray into the

media and entertainment space. Reliance Entertainment’s core focus is to build

significant presence for Reliance in the Entertainment eco-system: across

content and distribution platforms.

‘Adlabs Films’

The key content initiative are across Movies, Music, Sports, Gaming,

Internet & mobile portals, leading to direct opportunities in delivery across the

emerging digital distribution platforms: digital cinema, IPTV, DTH and Mobile

TV.

Reliance ADA Group acquired Adlabs Films Limited in 2005, one of the

largest entertainment companies in India, which has interests in film

processing, production, exhibition & digital cinema. www.adlabsfilms.com,

www.adlabscinemas.com

‘BIG92.7FM’

BIG 92.7 FM, already rolled out in several cities successfully, is on the

verge of creating a pan-Indian presence, spanning 45 cities, 1,000 towns and

50,000 villages. It will reach 200 million people across the length and breadth

of the country. The company plans to promote radio not only as a medium of

entertainment but also as a vehicle for informing and empowering listeners in

key metro towns as well as far-flung rural markets. The aim is to create a radio

network that is exciting, innovative and contemporary, yet retains an essential

element of 'Indian-ness' in its content. Keeping with the tag line ‘Suno Sunao,

Life Banao!’, it is BIG 92.7 FM’s endeavour to ensure its offerings have a

positive impact on people’s lives. www.big927fm.com.

‘RELIANCE BIG ENTERTAINMENT’

Helping to realise Reliance Anil Dhirubhai Ambani Group’s vision of assuming

a position of leadership in communications, media and entertainment, Reliance

Entertainment is geared to create a significant presence in businesses across

various vectors of content, services and platforms for distribution. Recognising

that India is standing on the threshold of an experience and entertainment

economy, the company strives to create converged services and platforms for

masses to access innovative, cutting-edge content. Key content initiatives

include production and strategic collaboration in areas such as gaming,

movies, animation, music, sports and user-generated content, amongst others.

‘ZAPAK’

Zapak.com is India’s No.1 online gaming portal. It has been one of

the most successful youth brand launches in the past three years. Zapak

acquired more than 1 million registered users in the first four months of its

launch; the current registered user base exceeds 3 million. The company has
already started building a pan-India gaming infrastructure with the launch of

state-of-the-art gameplexes and

‘massively multiplayer online games’ (MMOGs). Zapak is committed to

spearhead the online gaming revolution in India with the best content and

gaming experience. www.zapak.com.

‘BIG FLICKS’

Bigflicks.com aims to redefine the home entertainment business by

providing movie rental and movie download services both to the domestic

market as well as the NRI community. Apart from Internet-based services, the

company has started building a pan-India infrastructure to reach out to

masses with the opening of a chain of DVD stores. The service is subscription-

based and rides on a robust infrastructure for home delivery. Bigflicks is

poised to create the largest content library in India to provide its customers

with the widest choice of movie viewing. www.bigflicks.com.

‘BIGADDA’

Bigadda.com is India’s own social networking platform for Web and

mobile. A Web 2.0 initiative, Bigadda is built on a technology framework for

user-generated content. It is innovative and comprehensive with unique youth-

centric appeal across communities, hosting video and photo sharing features,

blogging and music platforms. www.bigadda.com.

‘BIG MOTION PICTURES’

Big Motion Pictures is India's first motion picture studio with a

countrywide presence and a vision to create movies that entertain Indian—and

global—audiences. With one of the largest movie slates ever mounted in the

history of the Indian film industry and partnerships forged with the best

creative talent across the country, Big Motion Pictures is poised to redefine the

movie viewing experience of audiences. The company has established world-

class production facilities that will offer a platform for unfettered creativity and

cutting-edge filmed entertainment content. With a production pipeline

exceeding 40 films, Big Motion Pictures is poised to become a dominant player

in one of the world's fastest growing film industries.

‘BIG ANIMATION’ (AniRights Infomedia)

AniRights is a technologically superior digital animation content

creation company. Its state-of-the-art studio in Pune creates next-generation

animation for theatre, television, direct-to-home and other platforms. Its team

excels in producing world-class, award-winning digital animation shows by

blending technology and creativity. AniRights aims to create content for the

entire audio-visual spectrum and keep the global audience informed and

entertained. www.anirights.com.
‘JUMP GAMES’

Jump Games is a leading publisher and developer of mobile games. It

has leveraged its experience and expertise to create innovative gaming content

endorsed by some of the best global brands. Its commitment to quality gaming

is reflected in award-winning games like Bappi Da Disco King, which won the

Best Mobile Game in India in 2007. Distributed across the US, Europe, South

Africa, Australia, the Middle East and Asia, Jump's games can be played on

leading networks in over 40 countries.www.jumpgames.co.in.

‘BIG MUSIC&HOME ENTERTAINMENT’

Big Music & Home Entertainment launched its first product,

Kireedam, in June 2007. In the next three months, it rapidly made its presence

felt in the Hindi and South Indian film industries with successful musical

launches such as Cash, Johnny Gaddaar, Dhamaal and Happy Days. In

addition, the company has signed on the greatest names in the industry,

including Asha Bhosle, Jagjit Singh, Ghulam Ali and Shankar Mahadevan. Big

Music and Home Entertainment plans to focus on digital platforms such as the

Internet and mobile and radio networks, in addition to traditional physical

formats. It will also make its foray into events and live entertainment through

talent management and conducting live events. An example is its tie-up with

Star Voice of India to manage the winner and other finalists with shows and

albums.
 ABOUT RELIANCE COMMUNICATIONS

The Late Dhirubhai Ambani dreamt of a digital India - India Where the

common man would have access to affordable means of information and

Communication . Dhirubhai, who single – handed built India’s largest private

sector company virtually from scratch , had stated as early as 1999 : “ Make

the tools of information and communication available to people at an

affordable cost . They will overcome the handicaps of illiteracy and lack of

mobility ” It was with this belief in mind that Reliance Communications

(formerly Reliance Infocomm ) started laying 60,000 route kilometres of a

pan – India fibre optic backbone . This backbone was commissioned on 28

December 2002 , the auspicious occasion of Dhirubhai’s 70th birthday ,

though sadly after his unexpected demise on 6 July 2002 . Reliance

communications has a reliable , high – capacity , integrated ( both wireless and

wire line ) and convergent ( voice , data and video ) digital network . It is

capable of delivering a range of services spanning the entire infocomm

( information and communication ) value chain , including infrastructure and

services — for enterprises as well as individuals , applications , and

consulting . Today , Reliance Communications is revolutionising the way India

communicates and networks, truly bringing about a new way of life.

 PRODUCT PROFILE

PRODUCTS OF RELIANCE COMMUNICATIONS

Handsets providers of reliance communications are

 LG

 CLASSIC

Various handsets provided by LG are:

 2690 (b/w)

 2530 (b/w)

 2750 (b/w)

 RD3000 (colour)

 RD3100 (colour + fm(radio))

various handsets provided by CLASSIC are:

 701 (b/w)

 703 (colour display)

 731 (colour)

 702 (b/w)

 762 (colour + fm)

 761 (colour + fm)

 161 (recently launched)

DATA ANALYSIS
 DATA ANALYSIS

CHANGES IN WORKING CAPITAL STATEMENT OF APOLLO HOSPITAL ENTERPRISES FOR THE

YEAR 2007 -2008 (AMOUNT Rs.IN CRORES)

Particulars 2007 2008 Increase Decrease

Current Assets, loans and

advances

Inventories 98.51 201.22 102.71

Sundry Debtors 802.11 1093.21 291.10

Cash and bank balances 28.08 192.65 164.57

Loans and Advances (short 19137.97 17028.20 2109.77

term)

Fixed deposits (short term) 40.97 0.01 40.36

Total Current Assets 20107.04 18515.29

Current Liabilities

Current Liabilities 6309.33 7214.31 904.98

Provision 4422.81 4023.85 398.96

Total Current Liabilities 10732.14 11238.16

Net Working (CA - CL) 9374.90 7277.13

Increase in Working Capital 2097.77 2097.77

9374.90 9374.90 3055.11 3055.11

INTERPRETATION:

As per the schedule of changes in working capital the current assets in 2007
Rs. 20107.04 crores and the current liabilities are Rs. 10732.14 crores and
working capital is Rs. 9374.90 crores.

In 2008, current assets amounts Rs. 18515.29 crores and current liabilities Rs.
11238.16 crores and working capital is Rs. 7277.13 crores

During the year 2008, working capital is decreased by Rs. 2097.77crores.

According to company policy loans and advances and fixed deposits are also
current assets.
CHANGES IN WORKING CAPITAL STATEMENT OF APOLLO HOSPITAL ENTERPRISES FOR THE
YEAR 2008 -2009 (AMOUNT Rs.IN CRORES)

Particulars 2008 2009 Increase Decrease

Current Assets, loans and

advances

Inventories 201.22 253.14 51.92

Sundry Debtors 1093.21 1482.22 389.01

Cash and bank balances 192.65 534.89 342.24

Loans and Advances (short 17028.20 23272.50 6244.30

term)

Fixed deposits (short term) 0.01 0.26 0.25

Total Current Assets 18515.29 25543.01

Current Liabilities

Current Liabilities 7214.31 5774.74 1439.57

Provision 4023.85 3590.72 433.13

Total Current Liabilities 11238.16 9365.46

Net Working (CA - CL) 7277.13 16177.55

Increase in Working Capital 8900.42 8900.42

16177.55 16177.55 8900.42 8900.42

INTERPRETATION:

As per the schedule of changes in working capital the current assets in 2008,
current assets amounts Rs. 18515.29 crores and current liabilities Rs. 11238.16
crores and working capital is Rs. 7277.13 crores

In 2009, current assets amount Rs. 25543.01 crores and current liabilities Rs.
9365.46 crores and working capital is Rs. 16177.55 crores

During the year 2009, working capital is increased by Rs. 8900.42 crores.
CHANGES IN WORKING CAPITAL STATEMENT OF APOLLO HOSPITAL ENTERPRISES FOR THE
YEAR 2009 -2010 (AMOUNT Rs.IN CRORES)

Particulars 2009 2010 Increase Decrease

Current Assets, loans and

advances

Inventories 253.14 298.34 45.20

Sundry Debtors 1482.22 1738.63 256.41

Cash and bank balances 534.89 81.92 452.97

Loans and Advances (short 23272.50 17886.79 5385.71

term)

Fixed deposits (short term) 0.26 0.26 _________ __________

Total Current Assets 25543.01 20005.94

Current Liabilities

Current Liabilities 5774.74 5836.53 61.79

Provision 3590.72 3386.84 203.88

Total Current Liabilities 9365.46 9223.37

Net Working (CA - CL) 16177.55 10782.57

Increase in Working Capital 5394.98 5394.98

16177.55 16177.55 5900.47 5900.47

INTERPRETATION:
As per the schedule of changes in working capital the current assets in 2009,
current assets amount Rs. 25543.01 crores and current liabilities Rs. 9365.46
crores and working capital is Rs. 16177.55 crores

In 2010 the current assets amounts Rs. 20005.94 crores and the current
liabilities Rs. 9223.37 crores and working capital is Rs. 524.27 crores

During the year 2010, working capital is decreased by Rs. 5394.98 crores.

CHANGES IN WORKING CAPITAL STATEMENT OF APOLLO HOSPITAL ENTERPRISES FOR THE

 YEAR 2010 -2011 (AMOUNT Rs.IN CRORES)

Particulars 2010 2011 Increase Decrease

Current Assets, loans and

advances

Inventories 298.34 306.11 7.77

Sundry Debtors 1738.63 1969.25 64.11

Cash and bank balances 81.92 3812.95 3731.03

Loans and Advances (short 17886.79 13065.25 4821.54

term)

Fixed deposits (short term) 0.26 0.26 _________ __________

Total Current Assets 20005.94 19153.82

Current Liabilities

Current Liabilities 5836.53 7551.94 1715.41

Provision 3386.84 2855.35 531.49

Total Current Liabilities 9223.37 10407.29

Net Working (CA - CL) 10782.57 8746.53

decrease in Working Capital 2036.04 2036.04

10782.57 10782.57 6536.95 6536.95

INTERPRETATION:
As per the schedule of changes in working capital the current assets in 2010
the current assets amounts Rs. 20005.94 crores and the current liabilities Rs.
9223.37 crores and working capital is Rs. 10782.57 crores

In 2011, the current assets amount Rs. 19153.82 crores and the current
liabilities Rs. 10407.29 crores and working capital is Rs. 8746.53 crores

During the year 2010, working capital is decreased by Rs. 2036.04 crores.

CHANGES IN WORKING CAPITAL STATEMENT OF APOLLO HOSPITAL ENTERPRISES FOR THE

 YEAR 2011 -2012 (AMOUNT Rs.IN CRORES)

Particulars 2011 2012 Increase Decrease

Current Assets, loans and

advances

Inventories 306.11 329.00 22.89

Sundry Debtors 1969.25 1932.00 37.25

Cash and bank balances 3812.95 178.00 3634.95

Loans and Advances (short 13065.25 13229.00 163.75

term)

Fixed deposits (short term) 0.26 0.00 0.26

Total Current Assets 19153.82 15668.00

Current Liabilities

Current Liabilities 7551.94 6026.00 1525.94

Provision 2855.35 6911.00

Total Current Liabilities 10407.29 12937.00

Net Working (CA - CL) 8746.53 2731.00

decrease in Working Capital 6015.53 6015.53

8746.53 8746.53 7728.11 7728.11

INTERPRETATION:
As per the schedule of changes in working capital the current assets in 2011,
the current assets amount Rs. 19153.82 crores and the current liabilities Rs.
10407.29 crores and working capital is Rs. 8746.53 crores

In 2012, the current assets amount Rs. 15668.00 crores and current liabilities
Rs. 12937.00 crores and working capital is Rs. 2731.00 crores

During the year 2010, working capital is decreased by Rs. 6015.53 crores.

CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2009

PARTICULARS AMOUNT AMOUNT
(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (50658.3-23808.02) 26850.28

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:

Depreciation written off

during the year (6533.38-4688.69) 1844.69

Decrease in capital work in progress 3473.70

Early dividend paid 165.12
Corporate tax 28.06
5511.57
32361.85
Less ; 1844.69
Non –operating income

30517.16
Funds from operations

FUNDS FLOW STETMENT FOR THE YEAR 31-3-2009

(Rs.in crores)
Sources Amount Applications Amount

Issue of share capital

----- Purchase of fixed assets 14520.14

Funds from Secured loans

2050 Payment of dividend 165.12

Increase in unsecured
Loans 8567.19 Corporate tax 28.06

Increase in working
Funds from operations 30517.16 8900.17
capital

Purchase of inventory 17520.61

Increase in fixed
0.25
deposits

41134.35 41134.35

Interpretation;

The above statement indicates that the fund from operations is Rs.30517.17crores. This is a
major source of fund in 2009 and funds generated from secured loans are 2050 crores.
Working capital is increased by Rs. 8900.17crires this leads to application of funds. The major
application of funds in 2009 is purchase of investments Rs. 17520.61 and payment of dividend
constitutes Rs.165.12.
 CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2010

PARTICULARS AMOUNT AMOUNT

(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (50658.3-49466.88) (-)1191.43

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:

Depreciation written off

during the year 2692.31
Capital work in progress 1960.34
Early dividend paid 175.44
Corporate tax 29.14
4857.23
3665.8

Less ; 2896.88
Non –operating income

768.92

Funds from operations

 FUNDS FLOW STETMENT FOR THE YEAR 31-3-2010
(Rs.in crores)

Sources Amount Applications Amount

Issue of share capital

----- Unsecured loan paid 6425.33

Funds from Secured loans

----- Purchase of investments 533.85

Sale of fixed asset

795.28

Decrease in working
capital 5394.98

Funds from operations

768.92

6959.18 6959.18

Interpretation;

The major source of funds in 2010 is decrease in working capital Rs5394.98 crores followed by
sale of fixed assets 795.28 crores and funds from operation is 768.92 crores
The major application of funds is unsecured loans paid 6425.33 crores followed by purchase of
investments 533.85.
 CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2011

PARTICULARS AMOUNT AMOUNT

(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (49466.88-47112.47) (-)2354.41

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:

Depreciation written off

during the year 2837.58

Early dividend paid 103.20

Corporate tax 17.14

2957.92
603.51
Less ; -8224.14
Increase in work in progress 2957.92
Non –operating income

10578.55

Funds from operations

 FUNDS FLOW STETMENT FOR THE YEAR 31-3-2011
(Rs.in crores)

Sources Amount Applications Amount

Funds from Secured loans Payment of un secured

12226.02 5251.56
loans
Decrease in working
capital 2036.04 Purchase of investments 203.53

Sale of asset
1771.58 Funds lost on operation 10578.55

16033.64 16033.64

Interpretation;

The major source of finance in 2011 is funds from secured loans Rs.12226.02 crores followed by
decrease in working capital is 2036.04 and sale of assets is 1771.58 crores.
The major application of funds is payment of unsecured loan Rs.5251.56 crores followed by
purchase of investments 203.53 crores.
 CACULATION OF FUNDS FROM OPERATIONS IN THE YEAR-2012

PARTICULARS AMOUNT AMOUNT

(RS.IN (RS.IN
CRORES) CRORES)

Profit earned during the year (44165-47112.47) -2947.47

(i.e.balence carried to balance sheet)
Add: Non-operating items, debited to profit and
loss account:
Miscellaneous expenses 299.00
Depreciation written off
during the year 1741.00
Equity dividend 52.00
Corporate dividend tax 8.00
capital work in progress 9142.66

11242.66
8295.19

Less ; 2338.75
Non –operating income

5956.44
Funds from operations
 FUNDS FLOW STETMENT FOR THE YEAR 31-3-2012
(Rs.in crores)

Sources Amount Applications Amount

Secured loans Payment of unsecured

11038.98 14620.72
loan
Sale of investments
213.13 Purchase of fixed assets 8543.10

Decrease in working
capital 6015.27 Equity dividend paid 52.00

Funds from operations

5956.44 Corporate tax paid 8.00

23223.82 23223.82

Interpretation;

The major source of funds in 2012 is secured loans Rs.11038.98crores followed by decrease in
working capital Rs.6015.27 crore and funds from operation is Rs5956.44 crores.
The major application of funds in 2012 is payment of unsecured loan 14620.72 crores followed
by purchase of fixed assets Rs.85431.1 crores and equity dividend paid is Rs. 52 crores.
.

RATIOS RELATING TO WORKING CAPITAL

A) LIQUIDITY RATIOS

CURRENT RATIO
Current ratio indicates the firm’s commitment to meet short term liabilities.
The ideal ratio is 2:1. Current assets means either used or converted into cash
with in the year time at normal operating cycle. Current liabilities are those
which are payable within a year.

Curreneassets
Current ratio=
Current liabilities

Current assets Current liabilities

Year Ratio
Rs in crores Rs in crores
2007-08 18515.29 11238.16 1.65
2008-09 25543.01 9365.46 2.73
2009-10 20005.94 9223.37 2.17
2010-11 19153.82 10407.29 1.84
2011-12 15668.00 12937.00 1.21
 CURRENT RATIO

3
2.5
2
1.5
1
0.5
0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:

The above table indicates the current ratios for different years. There are
fluctuations in the current ratios for all the years. The ratios are excellent in
2008-09 and 2009-10 because they are above 2:1 for remaining years the
rations are not satisfactory.
LIQUID RATIO

Liquid ratio is also known as quick ration or acid test ratio. The quick assets
are defined as the current assets excluding inventories and prepaid expenses.
The standard quick ration is 1:1.

Qucik assets
Quick ratio=
Current liabilities

Quick assets Current liabilities

Year Ratio
Rs in crores Rs in crores
2007-08 18314.07 11238.16 1.63
2008-09 25289.87 9365.46 2.70
2009-10 19707.60 9223.37 2014
2010-11 18847.71 10407.29 1.81
2011-12 15339.00 12937.00 1.19
 QUICK RATIO

2500

2000

1500

1000

500

0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:

The above table indicates the quick ratios for all the years are very good as they
are above standard 1:1. The ratio is highest in 2008-09 2.70:1 and least in
2007-08, 1.63:1
ABSOLUTE LIQUID RATIO

The absolute Liquid ratio is also known as super quick ratio. It is more
stringest test of liquidity. The standard for absolute liquid ration is 0.5:1 (1:2)

Cash+ Marketable securities

Absolute liquid ratio=
Current liabilities

Absolute liquid assets Current liabilities

Year Ratio
Rs in crores Rs in crores
2007-08 192.65 11238.16 0.02
2008-09 534.89 9365.46 0.06
2009-10 81.92 9223.37 0.008
2010-11 3812.95 10407.29 0.37
2011-12 178.00 12937.00 0.01
 ABSOLUTE LIQUID RATIO
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:

The absolute liquid ratios of the firm are not satisfactory for all the years
because they are below the standard 0.5:1
 B) TURN OVER RATIOS

STOCK TURNOVER RATIO

This ratio indicates how many times a firm converted its stock into sales. A
higher ratio is desirable.

Cost of goods sold

Stock turnover ratio=
Average stock

Sales
Or Average stock

opening stock+ closing stock

Average stock =
2

Cost of goods sold Average stock

Year Ratio
Rs in crores Rs in crores
2007-08 14792.05 149.87 98.7
2008-09 15086.66 227.18 66.4
2009-10 13554.60 275.74 49.2
2010-11 13308.71 302.23 44.0
2011-12 12135.00 317.56 38.2
 STOCK TURNOVER RATIO

100
90
80
70
60
50
40
30
20
10
0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:

The turn over performance of the company is excellent though there are
variations in the ratios. The ratio is highest in 2007-08 that is the company
converted stock into sales 198.37 times. The ration is lest in 2010-11 :44times.
WORKING CAPITAL TURNOVER RATIO

This ratio shows the number of times working capital is turnover as sales in a
year. Higher ratio is desirable. This ratio is calculated as follows.

Net sales
Working capital turnover ratio=
Workingcapital

Working capital =current assets−current liabilites

Net sales Working capital

Year Ratio
Rs in crores Rs in crores
2007-08 14792.05 7277.13 2.03
2008-09 15086.66 16177.55 0.93
2009-10 13554.60 10782.57 1.26
2010-11 13308.71 8746.53 1.52
2011-12 12135.00 2731.00 4.44
 STOCK TURNOVER RATIO

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:

There are variations in working capital turnover ratios. In 2007-08 the working
capital turnover by the company is 2.03 times.. In 2011-12, the working capital
turn over by the company is 4.44 times which is highest. Least in 2008-09:
0.93 times.
DEBTORS TUROVER RATIO

It is also known as receivables turnover ratio. It indicates the relationship

between credit sales and average debtors.

Credit sales
Debtors turnover ratio=
Average trade debtors

opening trade debtors+ closing trade debtor

Average trade debtors = 2

Trade debtors =Debtors +Bills receviables

Average trade
Credit sales
Year debtors Ratio
Rs in crores
Rs in crores
2007-08 14792.05 947.66 15.61
2008-09 15086.66 1287.72 11.72
2009-10 13554.60 1610.43 8.42
2010-11 13308.71 1854.44 7.18
2011-12 12135.00 1950.63 6.22
 DEBTOR TURNOVER RATIO

16
14
12
10
8
6
4
2
0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:

In the year 2007-08 the debtor’s turnover ratio is 15.61 times, in2008-09 it is
11.72 times. In 2009-10 it is 8.42 times. In 2010-11 it is 7.18 times where as
in 2011-12 it is 6.22times.

There is a declining trend in debtors turnover ratio.

DEBT COLLECTION PERIOD

The ratio indicates the collection period of the firm less time period is better.

Number of days∈a year

Debt collection perion=
Debtorsturnover ratio

Number of days in a Debtors turnover Debt collection

Year
year ratio period
2007-08 365 15.61 23
2008-09 365 11.72 31
2009-10 365 8.42 43
2010-11 365 7.18 51
2011-12 365 6.22 59

DEBT COLLECTION PERIOD

60
50
40
30
20
10
0
2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION:
 The debt collection period denotes the lock in period of funds. In the year
2007-08 the debt collection period 23 days in 2008-09 it is increased to 31
days. In 2009-10 the debt collection period is 13 days.

In 2010-11 the debt collection period is 51 days. In 2011-12 it is increased to

59 days.

CHAPTER – 6

FINDINGS SUGGESTIONS AND CONCLUSIONS

 SUMMARY OF FINDINGS AND SUGGESTIONS

MAJOR FINDINGS

1. The amount of working capital is in the order, 2007-08: Rs. 7277.13

crores; 2008-09: Rs.16177.55 crores; 2009-10: Rs.10782.57 crores;
2010-11: Rs.490.918746.53 crores; 2011-12: Rs.2731.00 crores.
2. The working capital decreased by Rs.2097.77 crores in 2007-08; it is
increased by Rs.8900.42 crores in 2008-09. In 2009-10, the working
capital is decreased by Rs.5394.98 crores. It is decreased by Rs.2036.04
crores in 2010-11. In 2011-12 the working capital also decreased by
Rs.6015.53 crores
3. The current ratios of the company are good because they are at the
standard 2:1. The rations are in the order: 2008-09-2.73:1, in 2009-10-
2.17:1 for other years they are not good because they are below the
standard 2:1
4. The quick ratios for all the years are very good as they are above
standard 1:1. In 2007-08 the ratio is 1.63:1. In the 2008-09:2.70:1. In
2009-10 the ratio increased to 2.14:1. In 2010-11the ratio is 1.81:1 and
in 2011-12 is 1.19:1.
5. The absolute liquid ratios of these are not satisfactory for all the years
because they are below standard 0.5:1. It is 0.02: 1 in 2007-08 and in
2011-12 is 0.01:1.
6. The turnover performance of the company is quite good. In 2007-08 the
company converted stock into 98.7 times where as in 2008-09 66.4
times. In 2009-10, it is 49.2 times where as in 2010-11, 44 times, In
2011-12 it is highest 38.2 times. There is a declining trend in turnover
performance.
7. There are minor variations in working capital turnover ratio. The ration
is highest is 2011-12 that is 4.44 times and it is least in 2008-09 0.93
times.
1. There is an increase trend in the debt collection period. In 2007-08
the debt collection period is 23 days. In 2008-09 it is increased to
31 days. In 2009-10 the debt collection period is 43 days In 2009 the
major sources of finance from unsecured loan is Rs.30517.17 crores where as in
2010decrease in working capital is R.s.5394.98.in 2011 major source is funds
from secured loans where as in 2012 is secured loan Rs. 11038.98

2. In 2009 the major application of funds is purchase of investment Rs. 17520.61

crores in 2010 is payment of unsecured loans Rs.6425.33. in 2011 is also
payment of unsecured loans Rs. 5251.56. Where as in 2012 is also payment of
unsecured loans 14620.72.
3. In current assets loans advances occupy large extent. Being short term in nature
as per company policy.
4. There are heavy flucatations in cash and bank balances . in 2009
Rs.534.89crores; in 2010Rs.81.92 crores; in 2011 R.s3812.95 crores and in 2012
R.s 178 crores.
5. For the study period debtors amount in current assets also occupy significant
portion

8. . In 2010-11 the debt collection period is 51days. In 2011-12 it is

increased to 59 days.
 So we conclude that the debt collection period is not satisfactory as there
is increase in trend.

SUGGESTIONS

1. The company is advised to increase the amount of working capital in

tune with increased sales.
2. The company is advised to improve current ratio either by increasing
current assets or reducing current liabilities.
3. The company is advised to reduce debt collection period.

4. The company is advised to reduce debtor’s level and has to take

necessary step to speed up collection efforts.
5. It is advised the company to improve turnover performance

1.
2. For entire study period company has positive working capital so the
company liquidity position is good. It is advised to maintain this in future
years.
3. The company is advised not to pay loans in large amounts. Ultimately it
affects company cash stability.
4. The company is advised to maintain an optimum level of working capital.
i.e based on turnover performance and scale of operations the working
capital should be maintained.
5. The company is advised to decrease current provisions.
CONCLUSIONS

For entire study period there is decreasing trend in working capital

except 2008-09. The company’s liquid position is not satisfactory but
absolute liquid ratios are good. Regarding turn over performance the
company performance is excellent.
The company’s debt collection period is not satisfactory level. The
working capital turnover performance is also satisfactory level.
BIBLIOGRAPHY

1. I.M. Pandey, Financial Management Ninth Edition, Vikas Publishing

House Pvt Ltd, 10th edition, 2009
2. Prasanna chandhra, Financial Management, Tata McGraw-Hill
Education, 7th edition, 2008.
3. Dr.R.K. Mittal, Management Accounting and Financial
Management,V.K(india) Enterprises-2010.

WEBILIOGRAPHY
1. http://www.rcom.co.in/
2. en.wikipedia.org/wiki/Working_capital
3. www.caalley.com/art/WorkingCapitalManagement.pdf