Cash Flow At BTTL*

Nisha Kothari, an MBA aspirant always had an immense interest in stock market. Her interest in

stock market was obvious as her father had inaugurated his first entrepreneurial venture, a

broking firm on Nisha’s first birthday. Before starting the broking firm, he had worked seven long

years as a Portfolio Manager in one of the leading broking firms. During childhood, the colourful

pages of the annual reports often caught Nisha’s attention. Though she didn’t understand, she

tried to read the report, most specifically, the figures.

Since she joined commerce, her father used to teach her Accounting. Last year when Nisha

finished her graduation and joined a premiere B-school, her father started tutoring her about

Financial Statement Analysis, the prerequisite for valuation of stocks. Recently, he taught Nisha

the importance of Cash Flow statement in a Fundamental Analysis of the company and also

taught her Free Cash Flow to the Firm and Free Cash flow to the Equity Methods of stock

Valuation.

Nisha wanted to apply these methods to the index stocks to see its result. But before

experimenting, she wanted to get an expertise over preparation and analysis of Cash Flow

Statement. Will will find a way, Nisha had found something interesting while reading an annual

report of the company, Bhilwara Technical Textiles Ltd. in June 2010. The points of her interest

in the company were- It was a very small company, de-merged from RSWM LTd., a leading

textiles company in March 2009. As per the scheme of demerger, approved by the Hon'ble High

Court of Rajasthan, every shareholder of RSWM holding 4 equity shares of Rs.10/- each was

allotted 10 equity shares of Re.1/- each of BTTL .

Though the main object of BTTL was to carry on the business of manufacturers and producers of

all kinds of automotive and home furnishing fabrics, the major source of the income for the

company was from dividend and interest on the investment made in one of the group

companies, BMD Pvt Ltd.

She thought, being a small company, it would be a great experience for her to prepare and

analyse a cash flow statement of this company. Though the Cash flow statement was a part of

the annual report, she had to prepare the statement of her own and wanted to compare it with

the Cash Flow Statement printed in the annual report. Now, she had to proceed accordingly.

She found that the information mentioned in the annual report was not enough to prepare the

statement, so she had asked her father, the shareholder of BTTL, to collect the necessary

information from the company in his next visit to Noida.

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*This case was prepared by Prof. Hariprasad R Soni .This case is intended to be used for class discussion and is

no way designed to present illustrations of either correct or incorrect handling of administrative problems.

Extract of statements from annual report:

Balance Sheet as at 31st March, 2010

SOURCES OF FUNDSAs at 31-03-2010 (Rs.)

As at 31-03-2009 (Rs.)

Shareholder's Funds

Capital ( Schedule 1) 55,300,000 300,000

Reserve and Surplus ( Schedule 2) 13,130,725 2,096,325

Share Capital- Pending Allotment 60,500,000

Loan Funds

Unsecured Loan 1,000,000

68,430,725 63,896,325

APPLICATION OF FUNDS

Fixed Assets 5,000,000 5,000,000

Less Accumulated Depreciation (1,000,000) (500,000)

Goodwill 50,300

4,000,000 4,550,300

Investment 54,000,000 55,000,000

Current Assets, Loans and Advances

Inventories 110,200 166,000

Sundry Debtors 510,500 310,000

Cash and Bank Balances 10,472,425 1,979,325

Loans and Advances 500,000 2,000,000

11,593,125 4,455,325

Current Liabilities and Provisions

Current Liabilities 320,500 75,000

Provisions 841,900 45,500

1,162,400 120,500

Net Current Assets 10,430,725 4,334,825

Miscellaneous Expenditure 11,200

(to the extent not written off or adjusted)

68,430,725 63,896,325

Profit & Loss Account for the year ended 31st March,2010

INCOMESales 2,050,626Other Income (Schedule 3) 5,999,766     8,050,392   EXPENDITURE  Operating and Other Expenses (Schedule 4) 1,112,592Depreciation and Amortization (Schedule 5) 561,500   PBT 6,376,300Provision for tax 122,350Net Profit for the year 6,253,950Add: Balance brought forward from previous year 2,096,325Amount Available For Appropriation 8,350,275Appropriations  Less Proposed dividend 615,000Less Corporate Dividend Tax thereon 104,550Balance Carried to Balance Sheet 7,630,725

Schedules to Statement of Accounts

As at 31.03.2010(Rs.)

As at 31.03.2009(Rs.)

1. Share CapitalAuthorised 70,000,000 70,000,000

70,000,000 (Previous Year 70,000,000) Equity Shares of Re. 1/- each 70,000,000 70,000,000Issued, Subscribed & Paid-up55,000,000 (Previous Year 300,000) Equity Shares of Re.1/-each fully paid up

55,300,000 300,000

55,300,000 300,000Note : Equity Share Capital includes 55,000,000 equity shares issued for consideration other than cash, pursuant to the Scheme of demerger of RSWM Limited.

As at 31.03.2010 Additions Deductions As at 31.03.20102. Reserves and Surplus (Rs.) (Rs.) (Rs.) (Rs.)Share Premium Account 5,500,000 5,500,000Profit and Loss Account 2,096,325 5,534,400 7,630,725

2,096,325 11,034,400 13,130,725

3. Other Income (Rs.)Dividend on Investment 5,049,517

Interest (Net)* 825,249Profit on Sale of Investment 125,000Total 5,999,766*Interest (net) includes Receipt of Interest on Investment Rs. 925249 and Payment of Interest on Loan Rs. 1,00,000

4.Operating and Other Expenses (Rs.)Material Consumed 534,688Salaries & Benefits 360,000Legal & Professional 17,000Advertisement 84,560Postage 7,592Directors Sitting Fees 60,000Miscellaneous Expenses 12,152Audit Fees 34,580Bank Charges 2,020Total 1,112,592

5 Depreciation and amortization (Rs.)

Depreciation on Fixed Assets- 500,000

Goodwill 50,300

Preliminary Expenses 11,200

Total 561,500

Additional information collected by her father-

1) Provision for 2009 includes - Proposed Dividend - Rs25,000, Provision for tax on Dividend – Rs. 4,250, Provision for Tax – Rs. 16,250During the year, the amount of proposed dividend along with DDT and Tax has been paid in full.

2) During the year Investment having book value Rs. 1,000,000 was sold for Rs.1,125,000 .Unsecured Loan was paid in full.

3) Loans and Advances for the year 2009 was the amount of dividend declared but not received by the company. This amount was received in full during the year. Loans and advances for the year 2010 is the amount of interest accrued but not received.