CHAPTER-I

INTRODUCTION

1.1. Background of the Study

Cash in the life blood of any business organization. Without cash no

business activities can be taken place. So, a business must have an adequate
amount of cash to operate as the decision market must pay close attention to
firm's cash position and events and transaction that affect the cash position
of the company is termed as a cash flow analysis (www.cashflow.com).

Cash flow Statement is done through statement of cash flow of company's

ability to generate cash from various activities such as operating, investing
and financing and their need of cash. It is a statement which shows the
inflows and outflows of cash equivalents during the year. Cash flows
statement is defined as 'a statement of company's ability to generate cash
from various activities and their need of cash (Munankarmi, 2003).

Encyclopedia of Banking and finance (EBF) (1994) has stated that the
statement of cash flows is a major financial statement prepared to report the
cash provided and used by operating, investing and financing activities and
the aggregate effect of these activities on the cash balance during the period
of time. It is important to investors and creditors in identifying the amount
and sources of cash receipts and cash payments of an entity during a period
of time. (EBF. 1994)

"Cash flow statement is a statement designed to highlight upon the cause

which bring changes in cash position between two balance sheets' dates. It is
also known as the statement of accounting for variations in cash" (Gupta.
1990).

The statement of cash flow is now a standard feature of financial reporting in

a number of countries and is required in addition to the balance sheet and
profit and loss statement. From 1988, companies in United States have been
required to present statement of cash flows. Beginning 1992 British
companies are required to publish cash flow information. Cash flow
statements arc also required in other many countries including Australia,
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New Zealand and South Africa. In 1992, the international accounting
standard committee issued an accounting standard on cash flow statements.
Nepal Company Act, 2053 also made mandatory to present cash flows
statement along with balance sheet and income statement. So every
enterprise should prepare it as an integral part of its financial statements for
each period for which financial statements are presented (Gupta, 1990).

Nepal is an agro based country. Eighty percent of Nepalese people are

depended in agriculture although this country is considered a rich country in
natural resources. Therefore, many tourists from various countries come in
Nepal to visit its natural resources annually. That's why it is also considered
popular from tourism point of view. Beside this business, profession and
projects have been operated by Nepalese people.

1.2 Profile of the Organization

Chitwan is the one of the emergent district of Nepal. If viewed histological

story Chitwan is a corrupted from a word from "Chitrban" the famous
hunting for the king "Chitrasen". Chitwan, one of the five district of
Narayani zone of central development region, lies almost at the center.

Annapurna Milk Production Co-operative is the oldest milk cooperative of

Chitwan. Previously there were no cooperative and milk collection center in
Chitwan. As DDC started to collect milk from different places forming milk
collection centers, previously Annapurna Milk Production Co-operative was
established as Gitanagar Dugdha Sankalan Kendra at Bharatpur-6,
Gitanagar, Chitwan with collaboration of Hetauda Dugdha Bikash Aayojana
in 26th of Mangsir 2041. Previously leader farmers of this area brought
improved cattle from Aasham of India and raised in this place for milk
production. 1st of Shrawan 2042 it was changed to Annapurna Dugdha
Uthpadak Sastha and at 2049/09/03 B.S. as the Annupurna Dugdha
Uthpadak Sahakari Sastha Limited. It has started from the 50 founder
shareholder member but now it has expanded its shareholder members to
333 till date consisting of 65 female members and 268 male members with
different caste groups consisting of around.

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It has been estimated that this, firm has helped in agricultural field.
Therefore, such organizations are needed in Nepal.

The main mission of writing this report is to find out the present financial
position of the chosen firm and to fulfill the T.U. requirement and liquidity
condition of Annapurna Milk Product Co-Operative Limited.

1.3 Statement of Problem

Co-operative operating in Nepal is facing tough difficulties. They are not

able to attain the desirable growth. They are not able to diversify their
activities and good cash flow practice that they are following is traditional.

The crux on the problem of Nepalese co-operative is lack of designing

effective program to suit the Nepalese context and in appropriate focus on
management.

Cash flow is the life blood of any business organization and without cash no
business activities can be taken. In recent year the statement of cash flow has
been viewed as a part of full set of financial statement. Cash flow statement
provides relevant information about the cash receipts and cash payments of
an enterprise during the period.

What are the amounts CFOA, CFIA, CFFA of in financial years?

How much changes in cash position of the Annapurna Milk Production Co-
operative in financial year.

1.4 Objective of the Study

The main objectives of this report were cash flow statement of Annapurna
Milk Production Co-operative Pvt. Ltd., and other specific objective are as
follows.
1. To find out cash flow operating, financial and investing activities of
the Annapurna Milk Production Co-operative Limited. In the fiscal
year,
2. To find out changes in case study of Annapurna Milk Production Co-
operative during the study period.

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1.5 Rationale of the Study

Cash flow statement is the main function of any organization. So this

organization also liable to manage the cash flow statement to fulfill the
desire activities for daily operation.

1. This study will helpful to understand cash flow statement of

Annapurna Milk Production Co-operative limited.
2. This study will be helpful to prepare and analyze cash flow statement
in organization.
3. This study will also help to further research on different organization
by researcher etc.

1.6 Review of Related Study

Cash flow statement is prepared on the basis of cash basis of accounting.

While calculating operating profits for cash flow statement, adjustment for
prepaid and outstanding expenses and incomes are made to convert the data
from accrual basis to cash basis. The statement is prepared by taking the
opening balance of cash, adding to this all the inflows of cash and deducting
all the outflows of cash from the total. The statement is more useful for the
short term -analysis and the cash panning of the business. Cash flows
statement shows the sources and application of cash. Following are the
major sources and application of cash (I-Iorngreenet.al., 2001:12 1).

Source of Cash:

1. Cash from operation

2. Sales of fixed assets
3. Issues of shares
4. Issues of debenture
5. Raising of long term long
6. Decrease in working capital

Use of Cash:

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 1. Cash loss on operation
2. Purchase of investment
3. Purchase of fixed assets
4. Redemption of redeemable preference shares
5. Redemption of debentures
6. Payment of dividend and income tax
7. Increase in working capital

Under the informative approach the cash flow statement may be presented
using: a. Indirect Method and h. Direct Method

Indirect Method:

Indirect method is that type of method which calculates the cash flow
operating activities by considering the non-cash items. The non-cash
expenses are added on net profit and non-cash income is deducted on net
profit and changes in working capital are also considered.

Operating Activities:

Under indirect method the net cash flow from operating activities is
determined by adjusting net profit or loss for the effect of:

1. Changes during the period in inventories and operating receivables

and payables.
2. Non-cash items such as depreciation, provisions, deferred taxes and
unrealized gains or losses and
3. All other items for which the cash effects are investing or financing
cash flows.

Alternatively, the net cash flows from operating activities under indirect
method may be present showing operating revenues and expenses excluding
non-cash items disclosed in the statement of profit or loss and changes in
inventories and operating receivables and payables during the period.

Operating activities are:

1. Non-cash and non-operating gain/expenses

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 2. Depreciation/loan on sales of assets, provision for taxes, gain on sales
of assets.
3. Operating profit before/working capital changes.
4. Increase/decrease in current assets and current assets and current,
liabilities.

Investing Activities:

In includes lending money (investment) and collecting on those loan for

buying and selling productive assets that are expected to generate revenues
in future periods and buying and selling securities not classified as cash
equivalents.

Investment Activities are

1. Cash payments to acquire the fixed assets.

2. Cash receipts from disposal of fixed assets.
3. Cash payments to acquire shares, warrants or debt instrument of other
companies.
4. Cash advances and loan made to other parties.
5. Cash receipts from the payment of advances and loans made to third
parties.

Financing Activities:

It includes borrowing money from creditors and repaying the amounts to

borrower and obtaining resources from owner's repayment of borrowed
funds/amount and payment of dividend to owners. The separate disclosures
of cash flows arising from financing activities is important because it is
useful in predicting claims on future cash flow by provider of funds.
Financing activities are:
1. Cash proceeds from issuing shares or other similar instrument.
2. Cash proceeds from issuing debenture, loan, notes bonds and other
short term and long term borrowings and
3. Cash repayments of amount borrowed.

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 Table 1.1

Cash Flow Statement-Format under Indirect Method

Details Rs. Rs.

Net Profit for the Period ***
Add, Non-cash/Non-operating expenses:
a. Depreciation ***
b. Amortization of goodwill ***
c. Amortization of patents/copy right ***
d. Amortization of trade mark/investment ***
e. General reserve maintained ***
f. Discount on issue of share and debentures written off ***
g. Premium on redemption of preference share & debenture ***
h, Loss on sales of fixed assets . ***
i. Preliminary expenses written of ***
j. Provision for taxation ***
k. Provision for dividend ***

Total ***
Less, Non-operating Income:
a. Appreciation of fixed assets ***
b. Premium on issues of Shares and debentures ***
c. Discount on redemption of preference shares and debenture ***
d. Profit on Sales of fixed assets ***
e. Dividend received ***
f. Refund of tax ***
Funds from operation ***
Decrease in current assets (except cash item wise) ***
Less, Decrease in current liabilities (item wise) Increase in current ***
assets (except cash item wise)
Net cash available from operating activities before tax Less, Tax paid ***

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 (i) Net cash available from operating activities after tax ***
(-) Purchase of share and debenture of other company ***
(+) Sales of share and debenture of other company ***
(-) Purchase of investment ***
(+) Sales of investment ***
(-) Purchase of fixed assets ***
(+) Sales of fixed assets ***
ii. Net cash available from investing activities ***
Cash available from financing activities: - ***
Issue of share or debentures ***
Issue of long term loan ***
Redemption of long term loan ***
Repayment of long term loan ***
Dividend paid ***
iii. Net cash available from financing activities ***
Net changes in cash or equivalent to cash (i+ii+iii) ***
Add, Operating balance of cash ***
Cash balance at the end
Source: Gyawali el at, 2004

Direct Approach to Cash Flow Statement:

When the direct method is used the flow statement does not begin with net
income, rather, it shows cash collected from customer and deducted cash
used for various expenses. That is major class of gross cash receipt and gross
cash payments are disclosed.

Cash from Operating Activities

This part included all those activities which are main activities of all the
company. If the cash inflow from this activity is greater than the out flow
than it is considered satisfactory because it shows the company has ample
cash to operate and to bear all the expenses and overheads occurred during
the operation. According to international accounting standard seven
operating activities includes.

1. Cash receipts from the scale of goods and rendering of services.

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 2. Cash receipts from royalties, fee, commissions and other revenue,
3. Cash payments to suppliers for goods and services,
4. Cash payments to on behalf of employee,
5. Cash receipts and cash payments of an insurance enterprise for
premiums and claims, annuities and other policy benefits,
6. Cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities,

7. Cash receipts and payments from contracts held for dealing or trading
purposes as far as the financial institutions are concerned the
operating activities are:
i. Interest and commission received
ii. Interest payments
iii. Cash payments to employees and suppliers
iv. Operating profit before change in operating assets.
v. Short term funds
vi. Deposit held for regulatory or monetary control purpose
vii. Funds advanced to customers
viii. Increase in other short term securities
ix. Deposit from customers
x. Certificate of deposit
xi. Income taxes paid

Cash from Investing Activities

This part includes all those investments made or sold inside or outside the
company. If the cash inflow is less than the cash outflow than it is
considered satisfactory for the company because more the company is able
to invest more it is considered to be able to expand. According to
international accounting standard seven items that can be included in the
investing activities are:

1. Cash payment to acquire property plant and machinery intangible and

others long-term assets. These payments include those relating to
capitalized development cost and self-constructed property plant and
equipment.
2. Cash receipts from sales of property plant and equipment and other
long assets.

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 3. Cash payments to acquire equity or debt instrument of other enterprise
and interest in joint venture.
4. Cash receipts from sales of equity or debt instrument of other
enterprises and interest in joint venture.
5. Cash advances loans made to other parties.

For insurance companies investing activities are:

1. Purchased of fixed assets.

2. Sales of fixed assets.
3. Investment in fixed deposit account.
4. Purchase of shares of other company shares.
5. Purchase of nation saving letter.

Cash from Financing Activities

This part includes all those activities which generate cash inside the
company by the outer source public other institutions and commercial banks
or shares and debenture issued to public. It also includes issues of long-term
loan and outgoing of cash, redemption of preference shares and debenture,
repayment of long-term loan, payment of dividend repayment of principal
with interest etc. it shows the company ability to take risk.

According to international accounting standard financing activities are:

1. Cash proceeds from issuing shares or other equity instrument.

2. Cash payments to owners to acquire or redeem the enterprise shares.
3. Cash proceeds from issuing debentures loans notes bonds mortgage
and other short, term or long-term borrowings.
4. Cash repayments of amounts borrowed and
5. Cash repayments by a lessee for the reduction of the outstanding
liability relating to a finance lease.

For insurance company financing activities:

1. Issue of Shares
2. Dividend Paid
3. Income Tax Payment
4. Bank Loan Borrowing/Payment

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 5. Unexpired Risk Reserve Fund

Table No. 1.2

Cash Flow Statement-Format under Direct Method
Particular Amount
Operating Activities:
A. Cash Collection from debtors and sales ****
Net Sales (Less Sales Return) ****
Add, Decrease in accounts receivable/bills receivable/sundry debtors ****
Less, Increase in accounts receivable/bills receivable/sundry debtors ****
Add, Bad debts recovered ****
Less, Bad debts written off ****
Add. Increase in provision for doubtful debts ****
Less, Decrease in provision for doubtful debts ****
Total ****
B. Cash purchase and Payment made to suppliers ****
Net Purchase/cost of goods sold ****
Add, Decrease in accounts payable/bills payables/sundry credits ****
Less, Increase in accounts payable/bills payables/sundry credits ****
Add, Increase in inventories ****
Less, Decrease in inventories ****
Add, Purchase related expenses ****
Total ****
C. Payment made to employees and other operating expenses ****
Direct Labor ****
Manufacturing Overhead ****
General expenses ****
Administrative expenses ****
Selling and distribution expenses ****
Rent interest expenses ****
Add, Decrease in outstanding expenses ****
Less, Increase in outstanding expenses ****
Add, Increase in prepaid expenses ****
Less, Decrease in prepaid expenses ****
Total ****
D. Payment made for tax expenses ****
Tax expenses for the year ****
Add, Increase in prepaid Tax ****

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 Less, Decrease in prepaid Tax ****
Add, Decrease in outstanding Tax ****
Less, Increase in Outstanding Tax ****
Total ****
E. Cash flow for interest income ****
Interest income ****
Interest Receive ****
Add, Decrease in outstanding interest income ****
Less, Increase in outstanding interest income ****
Total ****
F. Cash available from operating activities before extra-ordinary items ****
(A-B-C-D+E)
Add, Increase in bank overdraft/Short Term loan ****
Less, Decrease in bank overdraft/Short Term loan ****
1. Net Cash Available from Operating Activities ****
Cash available from investing Activities ****
Purchase of Share and debenture of other company ****
Sales of share and debenture of other company ****
Purchase of Fixed Assets ****
2. Net cash available from Investing Activities ****
Cash available from financing activities ****
Issue of share and debenture ****
Redemption of preference share debenture ****
Issue of long term loan ****
Re-Payment of long term loan ****
Dividend paid ****
3. Net cash available from Financing Activities ****
Net Changes in cash or equivalent to cash(1+2+3 ****
Add, Opening Cash Balance ****
Cash Balance at the end ****
Source: Gyawali el at, 2004

Indirect Approach to Cash Flow Statement

Following is the specimen of the cash flow statement for the companies. The
cash flow statement of the insurance companies has been prepared for the
study of cash flow analysis.

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 Table No. 1.3
Company
Cash Flow Statement from the Year
Particular Rs. Rs.
Net Profit for the Year ****
a. Non-Operating activities
Deprecation for the year ****
Loss on Sales of Fixed Assets ****
Gain on Sales of Fixed Assets ****
Amortization expenses ****
Profit on investment ****
Reserve for loss on investment ****
Funds from operation ****
b. Changes in current assets and liabilities ****
Increase/Decrease in debtors ****
Increase/decrease in loan and advance ****
Increase/decrease in other limitation ****
Increase/decrease in reinsurance ****
Increase/decrease in claim and allow liabilities ****
Commission due to the agency ****
1. Net Cash flow from operating activities **** ****
2. Investing activities:
Increase/decrease in fixed assets ****
Purchase of national deposit letter ****
Increase in fixed deposit ****
Sales of national deposit ****
Purchase of new share of other company ****
3. Financing activities
Dividend paid ****
Issue of share of debenture ****
Redemption of debenture ****
Repayment of long term loan ****
Payment if income tax ****
Increase of provision for doubtful debt ****
Net changes in cash flow (1+2+3) ****
Add, Opening balance of cash/bank ****
Closing Balance of cash/bank ****

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Source: Gyawali el at, 2004

1.6.1 Review of Journal and Articles

Munankarmi (2004), in this article call cash flow analysis "stated the
importance of cash in organization by calling it is the life blood of business
enterprise. According to him it is the fuel that keeps a business alive so a
business must have adequate amount of cash to operate and decision makers
should pay attention to the firm's cash position and events transaction affect
the position of cash. Analysis of events and transaction that affect that cash
position of the company is termed cash flow analysis.

Due to the increasing importance of cash flow analysis FASB stated that
financial statements should include information about how a business
obtains and spends cash about its borrowing and payment activities about
the sales and repurchase of its ownership securities about dividend payments
and other distribution to its owners and about other factors that affect a
company's liquidity and solvency. According to the article, profits are
accounting measures that may not reflect the economic realities of the firm
that means profit can be manipulated and increasing profits will not always
result in higher stock prices. Cash flow analysis not only recognizes profit,
but it also goes a little further and measures the actual cash available for the
firm. It is after all the available cash not the profit that determines the firm's
future investment and growth.

As the article stated further, recognizing the importance of the cash flow
analysis FASB issued financial statement standards number 95 and
statements of cash flows in November 1987. This standard requires business
to include a statement of cash flows in all financial reports that contains
balance sheet and income statements. The IAS has also replaced FES and
asked its entire member to present cash flow statement along with the
balance sheet and income statement since 1992.

As the article suggest following are the importance of cash flow statement.

1. Cash flow is important to have information about.

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2. A company's ability to meet its obligations its ability to pay dividends and
its need for external financing.
3. A company's ability to generate positive future cash flows.
4. The reasons for differences between income and associated cash receipts
and payments.
5. Both the cash and non-cash aspects of a company's investment and
finance transaction.
6. A company's quality of earning refers to how closely income is correlated
with cash flow the higher the correlation the higher the earning quality.
7. A company's solvency, liquidity and financial flexibility, solvency is the
ability of a company to pay its debt as they mature.

Nepal (2005) has mentioned the current market of insurance industry in

Nepal. The articles, is the complete study of potentials of insurance in Nepal
and problems facing by the insurance companies or Nepal. Lie reveals that
there is keen competition in general insurance company. There are 13
general insurance companies in the small country like Nepal. So they are
competition each other to capture other's market without creating their own
market and going to other sectors of insurance behind the traditional
functioning. But the 99% of life insurance market remains untouched. The
life insurance companies are far from reach to the majority pubic. There is
further potential in the life insurance in Nepal.

1.6.2 Review of Previous Research Works

Adhikari (2011), conducted a "Cash flow analysis of selected finance

companies in Nepal".

The major objectives of his were:

1. To analyze the trend of cash flow of finance companies.

2. To analyze and compare the cash flow statement of selected finance

companies.

3. To analyze the liquidity and profitability position of selected finance

companies.

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4. To provide the package of suggestions or possible guidelines in order to
improve their cash flow and Liquidity' position.

The major Findings were

1. Deposit mobilization/collection is in increasing trend in some finance

companies. The contribution to the total cash inflow is also increasing
year after year.
2. The amount of current liabilities is in fluctuating.
3. Cash flow from investing activities is in fluctuating.
4. Amount of dividend to the shareholder is increasing.

His recommendations are:

1. Company should concentrate on increasing the deposit collection /

mobilization activity because that is the main item which contributes
mainly to the total cash inflow. The company should be less dependent to
the creditors to flow cash inside the company.

2. The company should invest as per the availability of the cash from
operating activities otherwise it has to borrow from outsider to make
investment.

3. The review clearly pointed out that the cash management is the major
problem in Nepalese enterprises. But the success and failure of an
enterprise greatly depend upon the efficient management of cash.

Pradhan (2012), in his study on "Working capital policy of manufacturing

public enterprise (MPE) in Nepal"

His objectives are:

1. To study the working capital of selected MPE.

2. To study holding of cash and receivables, in relation to total assets of
selected MPE.
3. To analyze the turnover of cash and receivable in comparison to inventory
of sample MPE.

His major findings are:

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1. The study showed that almost all selected MPE has followed a moderate
working capital approach. The holding of cash and receivables in relation
to total assets is decreasing whereas the inventories are increases.

2. The selected MPE has sufficient liquidity.

3. There are improvement in the use of current in selected MPE there is high
turnover of cash and receivable in comparisons to inventory.

4. Capacity utilization is the significant factor while sales cash flow cycle
and interest rate are not significant factor in working capital
determinations.

His recommendations are:

1. They suggested for aggressive sale promotion policy indicated the need to
match production and demand schedule adoption of standard costing as
well as marginal costing techniques formulation of sound working capital
policy and training to financial employees to acquaint about latest
development in the art of working capital management.

Joshi (2013) study in his thesis entitled, "A Study of Financial Performance
of Commercial Banks".

His objectives are:

• To study the financial position of sample banks.

• To study the liquidity and profitability position of selected bank.

• To analyze the growth position of loan and advances, total investment and
net profit of selected banks.

• To analyze cash flow position of selected banks.

His major findings are:

1. The study found there is satisfactory liquidity position of commercial

banks. There is high leverage of local commercial banks in

17
 comparison to joint venture banks. Banks are found adopting
conservatives credit policy. So they are interesting much on loans and
advances than from the main sources of income. The profit
performance of SCBNL is better than NBL.
2. In the case or SCBNL the amount of the total cash flow in operating
activities, its inflow is greater than outflow in the beginning of study
period whereas in the end of two years it reverse.
3. The amount of other current, liabilities is in increasing trend except
the end year of the study period. The contribution to the total cash
inflow from operating activities is in same trend throughout the study
period in case of SCBNL. Cash outflow under investing activities is
more than 'cash inflow in the beginning year of the study period. The
amount of cash outflow is increasing compared to the last year. In the
last year it is decreasing then in the beginning years. It is increasing
and finally the amount of cash outflow is decreasing in the final year
compared to beginning years in case of NBL. So from the study of
investing activities it is found that the trend of cash outflow is not
regular.
4. As per the investing activities of SCBNL it is found that the bank has
invested in every year. But outflow, lesser than inflow. Through the
study of investing activities, it is found that there is no regular trend.
5. As per the net cash available from financing activities of NBL it is
found that there is positive and negative trend in study period. The
cause to be negative is loan loss provisioning.
6. In the case of NBL, the total cash flow is negative in second year of
the study period. In the third and fourth year of the study the amount
is increasing and again decreasing in the fifth year while in the final
year of the study period the amount is increasing but the highest is in
fourth year of the study.
7. The analysis of the liquidity position of NBL revealed that its position
of the current and liquid ratio is not up to the required standard which
is supposed to be 2:1 and 1:1 respectively however in the financial
year 2062/63 the liquidity ratio of NBL is found to be 1.24:1 which is
higher than the normal standard. The comparative study indicated that

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 the position of average current ratio of SCBNL (1.72) is better than
the NBL (1.124).

His recommendations are:

1. Banks should concentrate on increasing the deposit collection /

mobilization activity because that is the main item which contributes
mainly to the total cash inflow. The company should be less
dependent to the creditors to flow cash inside the company.
2. The banks should invest as per the availability of the cash from
operating activities otherwise it has to borrow from outsider to make
investment.
3. The review clearly pointed out that the cash management is the major
problem in Nepalese commercial banks. But the success and failure of
an enterprise greatly depend upon the efficient management of cash.

Bohara (2013) in his thesis paper "A Comparative Study of the financial
performance of Nabil Bank Ltd. and Nepal Investment Bank Ltd."

His objectives are:

1. To examine the comparative financial performance of NABIL and

NIBL in terms of their liquidity, activity and profitability.
2. To study the profitability position of two banks.
3. To analyze the growth position of total deposit, loan and advances,
and market value of selected banks.

His major findings area:

1. He has summarized and concluded that the increasing trend of N1131.

Earnings per share, cash dividend per share, tax pre-share, net profit,
total deposits and total loans and advances and market value per share
in the last three years of the study period had shown improvement
than that of NABIL.

His recommendations are:

1. Banks should concentrate on increasing the deposit collection /

mobilization activity because that is the main item which contributes

19
 mainly to the total deposit. The bank should be less dependent to the
creditors to deposit flow cash inside the bank.
2. The company should invest as per the availability of the cash from
operating activities otherwise it has to borrow from outsider to make
investment.
3. The review clearly pointed out that the financial performance is the
major issues in Nepalese commercial banks. But the success and
failure of the banks greatly depend upon the efficient management of
deposit mobilization.

Adhikari (2014) has conducted a complete study on "Premium collection

and investment f the insurance industry of Nepal.

His objectives are:

1. To analyze the investment practices of Nepalese insurance companies.

2. To evaluate the proportion of investment in different sectors of
Nepalese insurance companies.
3. To identify the future trend of different indicator in relation to the
general insurance & to determine the empirical relationship between
the variables.

His major findings are:

1. Regarding the portfolios investment return, non-life insurance

industry got higher return from government securities and Bank
Finance Company field deposits than life insurance industry in
aggregate. It might be the outcome of the investment being made on
the middle of the fiscal year and the result yet to be received.
2. Regarding the life insurance industry. Major proportion of investment
is incepted with in the head Government securities and Bank fixed
deposits falling into the classification compulsory only a very smaller
proportion of investment is invested in the others.
3. The return from the Government Securities is highest and return from
the 'Policy Loan' is lowest and 'Bank fixed deposits is more stable
than others.

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His recommendations are:

1. Company should concentrate on increasing the premium collection

and mobilization activity because that is the main item which
contributes mainly to the total cash inflow.
2. The company should invest as per the availability of the cash from
premium collection otherwise it has to borrow from outsider to make
investment.
3. The review clearly pointed out that the investment management is the
major problem in Nepalese insurance companies. But the success and
failure of insurance greatly depend upon the efficient management of
premium.

1.6.3 Research Gap

There is significant gap between present research work and the previous
research works. There is hundreds of research which is conducted mainly on
financial performance analysis. Mainly operating, investing and financing
activities are very important activities of the services industry but these facts
are not really studied by the previous researcher.

1.7 Research Methods

This chapter is mainly associated with research design, sample design,

period of study, sources of data and data collection procedures, data
processing and terms, methods tools techniques, theories employed in the
analysis and interpretation.

Research design is the arrangement and condition for collection and analysis
of data in a manner that aims to combine relevance to the research purpose
with economy in procedure" (Kothari, 2005) Thus, research design is a
research plan or structure which is path for conducting research work
without research design. it is not possible to conduct a research work.

A well, settled research design is necessary to fulfill the objective of this

study. It means definite procedure and techniques that guide to study and
propounds way of research variability. The present study is basically a case
study of Annapurna Milk Production Cooperative Pvt. Ltd. This study is

21
based on descriptive and analytical research design. For the deeply study,
historical data of last five years are collected to find out performance of
Annapurna Milk Production Co-operative Pvt. Ltd.

Population and Samples

There were 15 milk cooperative established in Chitwan. Sample of the study

is based from Annapurna Milk Production Cooperative Limited. These
cooperative are selected for the research purpose as firstly the data collection
procedure is convenient. The study is based on previous 5 years' data
covering the FY 2070/71 to FY 2074/75.

Source of Data and the Collection Procedures

The data used in the study is taken from secondary sources. The audited
balance sheet, profit and loss account and related schedules of the concerned
cooperative are collected. Besides these, other essential data and information
are collected from same published and unpublished documents.

So far as the data collection procedure is concerned, annual reports of

cooperative is collected by making an access to the related cooperative and
the chartered accountants firm. In addition, answers on certain queries made
to the staffs of concerted organization also included in data collection
procedure. The researcher also consulted the central library to gather
necessary data and information during the course of study.

Data Processing

First of all, the audited accounts of different years of cooperative are

presented in separated sheets each. Therefore, cash flow statement is
prepared by comparing the five consecutive fiscal years balance sheet. After
preparing the cash flow statements the data is analyzed on the basis of the
same annual report.

Tools and Methods of Analysis

Financial tools are used in the process of interpretation and analysis of data.
Cash Flow analyses are done for the financial analysis. Similarly, several

22
statistical tools such as average, percentage, and graphs are used for
analysis.

1.8 Limitation of the Study

a. This study is based on five years 2070/2071 to 2074/2075
b. Basically this analysis is based on secondary data provided by the
account section of AMC Ltd. which was published in their annual
reports. Therefore, any discrepancy or reliability of study depends
upon data provided by the organization.
c. This-study held belongs particularly to AMC Ltd. So the result
derived from the study might not be applicable to any other
organization.
d. This study is concerned only with quantitative techniques of
performances measurement. It ignores other qualitative techniques.

23
 CHAPTER - TWO

RESULT AND ANALYSIS

2.1 Data Presentation

In this chapter, the researcher analyzed and interpreted the relevant and
available data of Annapurna Milk Production Cooperative according to
research methodology as mentioned in previous chapter.

Following are the cash flow statement of Annapurna Milk Production Co-
operative of the FY 2071/72 to 2074/75

2.2 Data Analysis

The cash flow analyses of cooperative are as follows:

Table 2.1

Cash Flow Statement for the FY 2070/71 to 2074/075 (in Rs)

Particulars Annapurna Milk Cooperative
2070/71 2071/72 2072/73 2073/14 2074/75
Net Profit for the Year 7265126 9520140 10404690 18315172 19560272

Adjustment of Non-Operating Items: 1863555 1015364 3922782

Depreciation 996096 1876445 - 90360 28853
Loss on Sales of fixed Assets 34838 - - - -
Gain on Sales of Fixed Assets 608307 608307 - 771374
Amortization Exp. 765040 - 12876552 19420896 24283281
Funds from operation 9061100 12004892 12876552 19420896 24283281
Change in current Assets/Liabilities
+/- Debtors 1565755 7415123 3093464 (4190972) (8134616
+/- Other current Assets - - - (7378295) (23209318)
+/- Other current liabilities (5394739) (1260990) (8713927) 5941704 12405608
+/- Payable agent commission 3815531 6913954 8131207 5973573 (448937)
+/- Re-insurance premium Estimated - - - 35527665 14593181
claim liabilities - - - 5998366 718663
+/- Employee Provident Fund 3144963 1762159 3676184 196261 480459
Net Cash available from operating 10626855 19420015 15970016 61489198 20688321
activities (A)
Investing Activities:
Purchased of fixed assets (4591399) (1901535) 2027528 (1607880) (439207)
Sales of fixed assets 251625 - - 785000 20001

24
Purchase of Govt. Securities - - - - -
Investment in fixed deposit account (13024816) (24774900) (10050026) (7972317) (42816881)
Purchase/Sales of Shares - - -

Net Cash available from Investing (17364590) (26676435) (12077554) (23265997) (43236087)
activities (B)
Financing Activities:
Dividend payment (2040000) (3570000) (3876000) (2598830) (5701315)
Issue of Share/debenture 10200000 - - - -
Unexpired risk reserve fund 4945784 5770126 2872531 10262192 2829876
Income tax payment - (723939) - - (429204)
Bank loan - - - - 18318816
Net Cash Available from financing 13105784 1476189 (1003469) 7663362 1508173
Activities (C)
Net Change in Cash (A-B-C) 6368049 (5780231) 2888993 45886563 (7529593)
Add, Opening Cash Balance 3255539 9623588 3843357 6732350 75538211
Closing Cash Balance 9623588 3843357 6732350 75538211 68008618

Figure 2.1

Cash Flow of the FY 2070/71

15000000

10000000

5000000

0
Operating Activities
Rs.

-5000000 Investing Activities

Financing Activities
-10000000

-15000000

-20000000

Source: Table 2.1

This figure shows that in the fiscal year 2070/071 net profit of the
cooperative is Rs. 65126. Similarly, the fund from operations is Rs.
9061100. The cash flow from operating activities is Rs. 10626855.
Similarly, cash flow from investing activities is (17364590) and cash flow

25
from financing activities Rs. 13105784. Net change in cash and closing
balance were Rs. 6368049 and Rs. 9623588.

Figure 2.2
Cash Flow of the FY 2071/72

20000000
15000000
10000000
5000000
0
-5000000 es es es
v iti v iti v iti
ti ti ti
-10000000
g Ac Ac Ac
-15000000 atin ng cin
g
sti n
er v e a
Op
-20000000 In Fin
-25000000
-30000000

Source: Table 2.1

This figure shows that in the fiscal year 2071/072 net profit of the
cooperative is Rs. 9520140. Similarly, the fund from operation is Rs.
12004892. The cash flow from operating activities is Rs. 19420015.
Similarly, cash flow from investing activities is Rs. (26676435) and cash
flow from financing activities Rs. 1476189. Net change in cash and closing
balance were Rs. 5780231 and Rs. 3843357.
Figure 2.3
Cash Flow of the FY 2072/73

20000000

15000000

10000000

5000000

0
Operating Activities Investing Activities Financing Activities
-5000000

-10000000

-15000000

Source: Table 2.1

26
This figure shows that in the fiscal year 2072/073 net profit of the
cooperative is Rs. 10404690. Similarly, the fund from operation is Rs.
12876552. The cash flow from operating activities is Rs. 15970016.
Similarly, cash flow from investing activities is Rs. (12077554) and cash
flow from financing activities Rs. 1003469. Net change in cash and closing
balance were Rs. 2888993 and Rs. 6732350.

Figure 2.4

Cash Flow of the FY 2073/74

70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
Operating Activities Investing Activities Financing Activities
-10000000
-20000000
-30000000

Source: Table 2.1

This figure shows that in the fiscal year 2073/074 net profit of the
cooperative is Rs. 18315172. Similarly, the fund from operation is Rs.
19420896. The cash flow from operating activities is Rs. 61489198.
Similarly, cash flow from investing activities is Rs. (23265997) and cash
flow from financing activities Rs. 7663362. Net change in cash and closing
balance were Rs. 45886563 and Rs. 75538211.

27
 Figure 2.5

Cash Flow of the FY 2074/75

30000000

20000000

10000000

0
Operating Activities Investing Activities Financing Activities
-10000000

-20000000

-30000000

-40000000

-50000000

This figure shows that in the fiscal year 2074/075 net profit of the
cooperative is Rs. 29560272. Similarly, the fund from operation is Rs.
24283281. The cash flow from operating activities is Rs. 20688321.
Similarly, cash flow from investing activities is Rs. (43236087) and cash
flow from financing activities Rs. 15018173. Net change in cash and closing
balance were Rs. 7529593 and Rs. 68008618.

2.3 Major Finding

 The figure no. 2.1 shows that in the fiscal year 2070/071 net profit of
the cooperative is Rs. 7265126. Similarly, the fund from operation is
Rs. 9061100. The cash flow from operating activities is Rs. 10626855.
Similarly, cash flow from investing activities is Rs. (17364590) and
cash flow from financing activities Rs. 13 105784. Net change in cash
and closing balance were Rs. 6368049 and Rs. 9623588.
 The figure no. 2.2 shows that in the fiscal year 2071/072 net profit of
the cooperative is Rs. 9520140. Similarly, the fund from operation is
Rs. 12004892. The cash flow from operating activities is Rs.
19420015. Similarly, cash flow from investing activities is Rs.
28
 (26676435) and cash flow from financing activities Rs. 1476189. Net
change in cash and closing balance were, Rs. 5780231 and Rs.
3843357.
 The figure no. 2.3 shows that in the fiscal year 2072/073 net profit of
the cooperative is Rs. 10404690. Similarly, the fund from operation is
Rs. 12876552. The cash flow from operating activities is Rs.
15970016. Similarly, cash flow from investing activities is Rs.
(12077554) and cash flow from financing activities Rs. 1003469. Net
change in cash and closing balance were Rs. 2888993 and Rs.
6732350.
 The figure no. 2.4 shows that in the fiscal year 2073/074 net profit of
the cooperative is Rs. 18315172. Similarly, the fund from operation is
Rs. 19420896. The cash flow from operating activities is Rs.
61489198. Similarly, cash flow from investing activities is Rs.
(23265997) and cash flow from financing activities Rs. 7663362. Net
change in cash and closing balance were Rs. 45886563 and Rs.
75538211.
 This figure no. 2.5 shows that in the fiscal year 2074/075 net profit of
the cooperative is Rs. 29560272. Similarly, the fund from operation is
Rs. 24283281. The cash flow from operating activities is Rs.
20688321. Similarly, cash flow from investing activities is Rs.
(43230087) and cash flow from financing activities Rs. 15018173.
Net change in cash and closing balance was Rs. 7529593 and Rs.
68008618.

29
 CHAPTER THREE

SUMMARY AND CONCLUSION

3.1 Summary

The organization was established in order to solve the problem of agriculture

and sell some of the product of dairy uses. It purchases milk from framer and
sells it to the market and it purchases some of the product of housing and
daily product directly from market at suitable price.
The project work is basically undertaken for partial fulfillment of the degree
of business study. The objectives of this field work study are to analyze and
interpret cash flow statement of this firm.
Consulting the various books, analyzing and interpreting upon the cash flow
analysis of this firm are made in course of analysis upon the financial
statement. Some limitations are made for simplifying the process. The firm
earned net profit in different from fiscal year 2070-071 to 074/075 were Rs.
72005126, Rs.9520140, Rs.10404690, Rs. 18315172, Rs.19560272 etc.
3.2 Conclusion
Cash flow analysis and interpretation is a process of evaluating the
relationship between the components of cash flow analysis and interpret
them in relation of accounting principles and business natures. It uses
different financial tools and method.
The basic conclusion can he drawn from cash flow analysis is that the firm
utilized the fixed assets property for increasing the purchase and sales. But
the firm was unable to maximum utilization of resources. Firm is not in
financially strong position.
At last the firm works not only as a business organization but also it
provides various social benefits. Like villages that have no other sources of
income except farming, get benefits from selling their surplus milk. Firm
gave lot of time for social benefits therefore its net profit is not increased
than expectation: It serves the farmer and other customer by selling the
agricultural product and other household product in cheap. Many people of
these areas have taken lot of benefit from this firm. As a whole we can say
that it pays nominated role for the country. I wish to the bright future of the
firm.
30
 REFRENCES

Agrawal, Govinda Ram, (2003), "Project management in Nepal",

Katmandu M.K Publishers & Distribution.

Chaudary S, (1992), "Project Management", New Delhi TATA M.C. Graw

Hill Publishing Company,

Dangol, R.M and Prajapati K.P, (2001), "Accounting for Financial

Analysis and Planning", Katmandu Taleju Prakashan,

Jain S.P and Narang K.L, (1998), "Advance Accounting", India Kalyani
Prakashan,

Pandey I.M, (1995), "Financial Management", New Delhi Vikash

Publishing House Pvt. Ltd,

Panta P.R, (1998), "Fieldwork Assignment and Report Writing", -

Katmandu Veena Academic Enterprises;

Weston J.F and Brigham E.F, "Essential of Managerial Finance", Chicago

The dryder Press,

http://www.annapurnamilk.org/

31
 APPENDIX

Questionnaires: -

1) When did the company established?

2) What are the main objectives being the establishing the company

3) What are the sources of kind and how is the expenditure occur?

4) What are the ultimate goals of this project?

5) What is its function?

6) What are the future plans of the company?

7) What are the main problems faced by the company?

8) How many employees are employed in this project?

9) How the companies contribute to the society?

32