11-08-2012, 03:49 PM
FUNDS FLOW STATEMENT
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INTRODUCTION
Financial management is an important function in any organization. Every enterprise, whether big, medium or small needs finance to carry on its operations and to achieve its targets. Finance is so indispensable today that it is rightly said that it is the life blood of an enterprise. Without adequate finance, no enterprise can possibly accomplish its objectives.
Capital required for a business can be classified under two main categories namely fixed capital and working capital. Fixed capital stands for that amount of capital which is required for long term and to create production facilities through purchase of fixed assets such as plant, machinery, land and buildings. Working capital refers to that part of the firms capital which is needed for financing short term or current assets such as cash, marketable securities, debtors and inventories. Working capital in brief, is the amount of funds necessary to cover the cost of operating the enterprise. Just as circulation of blood is essential in the human body for maintaining life of a person, working capital is very essential to maintain the smooth running of a business.
Investment Decision:
Investment a decision of allocation of capital budgeting involves the decision of allocation of capital or commitment of funds to long-term assets that would yield benefits in the future. Two important aspects of the investment decisions are,
a. The evaluation of the prospective profitability of new investment.
b. The measurement of cut-off rates against the prospective return of new investments.
There is a broad agreement that the correct cut-off is the required rate of return or the opportunity cost of capital. However, there are problems in competing the opportunity cost of capital in practice from the available data and information.
FINANCING DECISION
Financing decision is the second important function to be performed by the financial manager. Broadly, he or she must decide when, where and how to acquire funds to meet the firm’s investment needs. The central issue before him or her is to determine the proportion of equity that is the firm’s capital structure. The financial manager must strive to obtain to best financing mix or the optimum capital structure for his or firm.
DIVIDEND DECISION
Dividend decision is the third major financial decision. The financial manager must decide whether the firm should distribute all profits or retain them, or distribute a portion and retain the balance. Like the debt policy, the dividend policy should be determined in terms of its impact on yhr share holders value.
LIQUIDITY DECISION:
Current assets manager that affects a firm’s liquidity is yet another important financial function, in addition to the management of long term assets. Current assets to be managed efficiently for safeguarding the firm against the dangers of liquidity and risk.
FUNDS FLOW STATEMENT
The term “Flow” means change and therefore, The term “Flow of Funds” means “Change in Funds” or “Change in working capital”. In other words any increase or decrease in Working Capital means, “Flow of Funds”.
Concept of Funds Flow statement:
According to the International Accounting Standards – 7 on “ Statement of changes in financial position” also recognize the absence of single, generally accepted, definition of the term.
Funds Flow statement is a summary from that indicates changes in items of financial position between two different balance sheets dates showing clearly the difference sources and applications of funds. The major purpose of the funds statements is to provide a detailed presentation to the result of financial management as distinguished from operating management. Its summarizes the financing and investing activities of the enterprise. The statement shows directly information that readers of the financial report could otherwise obtain only the making an analysis and interpretation of published balance sheets and statements of incomes and retained earnings.
INDUSTRY PROFILE
PROFILE OF THE OIL INDUSTRY:
The power and strength of the company depends on how strong and secure it is on the food front. In trying to achieve this goal, the oil seed scenario in the country has undergone a substantial charge during the post few years. The country is moving away from a situation of scarcity and huge import bills to one of self-sufficiency and possibly even export of vegetable oils.
India ranks high among the oil seeds producing countries in the world with perhaps the larges number of commercial varieties of oil seeds such as ground not, rape and mustard, sesame, kardi seed, nigerseed, soya beans, sunflower seeds, linseed, castor seed, copra, cotton seed and a number of minor seeds of tree origin oil seeds takes their place, as the second largest agricultural crop, next only to food grains. The cultivation of oil seeds in India is spread over various states with a distinct regional pattern covering about 19 to 20 million hectares, which accounts for about 11 percent of the total land under cultivation in the country.
In India where fats of animal origin such as fish oil are seldom used as coking media. The term “ vegetable oils” is used as a synonym for “edible oil”. However it needs to be recommended that there are, on the one hand vegetables oils such as castor, groundnut and coconut oils, which are finding increasing.
Industrial applications such as in cosmetics, soap making etc… edible oils are a major source of nutrition for the people in the country. Oil cakes that are by-products of the oil extraction process are an important source of animal nutrition. They can also be processed in to protein rich edible.