TABLE 3: Sources and Uses of Funds for Shatabdi Industries Ltd.
Sources of Funds
Deferred Liabilities 5434
Debentures 2449
Long Term Loans 2985
Internal Generation 9664
Profit after Tax 5442
Depreciation 4222
15098
Uses of Funds
Increase in Current Assets 8256
Decrease in Current Liabilities 778
Increase in Gross Block 5132
Dividends 932
15098
5.4. One of the major uses of Funds flow Analysis is to find out whether the firm
has used short term sources of funds to finance long-term investments. Such
method of financing increases the risk of liquidity crunch for the firm, as
long-term investments, because of the gestation period involved may not
generate enough surpluses in time to meet the short-term liabilities incurred
by the firm. Many a firm has come to grief because of this mismatch
between the maturity periods of sources and uses of funds.5.5. It is clear from Table 3 that Shatabdi Industries has been quite prudent in its
choice of source mix. A large proportion of total funds have come from
long-term sources, which has not only been used to finance the long-term
uses but also to finance current assets and reduce current liabilities.5.6. The Funds Flow Analysis also reveals the extent to which a company is able
to finance its growth from Internal Generation of funds. In Table 3, we see
that in the case of Shatabdi Industries, internal generation accounts for about
two-thirds of the total requirements of funds.- Cross-sectional and Time Series Analysis
6.1. One of the main purposes of examining financial statements is to compare
two firms, compare a firm against some benchmark figures for its industry
and to analyses the performance of a firm over time. This kind of
comparison becomes difficult if it is done on the basis of the figures reported
in the annual statements. For example, can we say that a firm with long-term
loans of Rs.50 crores is more risky (because of higher leverage) as compared
to a firm with long-term loan of just Rs.4 crores? A correct assessment
would require that we reflect the relative size of the firms in our comparison.