CASH FLOW

Cash Flow (CF) is the increase or decrease in the amount

of money a business, institution, or individual has. In
finance, the term is used to describe the amount of cash
(currency) that is generated or consumed in a given time
period. There are many types of CF, with various
important uses for running a business and performing
financial analysis.

How the Cash Flow Statement Is Used?

The cash flow statement paints a picture as to how a
company’s operations are running, where its money
comes from, and how money is being spent. Also known
as the statement of cash flows, the CFS helps its
creditors determine how much cash is available (referred
to as liquidity) for the company to fund its operating
expenses and pay down its debts. The CFS is equally
important to investors because it tells them whether a
company is on solid financial ground. As such, they can
use the statement to make better, more informed
decisions about their investments.
Structure of the Cash Flow Statement
The main components of the cash flow statement are:

(A) -Cash flow from operating activities

(B) -Cash flow from investing activities
(C )-Cash flow from financing activities
Disclosure of non-cash activities, which is sometimes
included when prepared under generally accepted
accounting principles (GAAP).

(A) Cash From Operating Activities

The operating activities on the CFS include any sources
and uses of cash from business activities. In other words,
it reflects how much cash is generated from a company’s
products or services.
These operating activities might include:
Receipts from sales of goods and services
Interest payments
Income tax payments
Payments made to suppliers of goods and services used
in production
Salary and wage payments to employees
Rent payments
Any other type of operating expenses

(B) Cash From Investing Activities

Investing activities include any sources and uses of cash
from a company’s investments. Purchases or sales of
assets, loans made to vendors or received from
customers, or any payments related to mergers and
acquisitions (M&A) are included in this category. In short,
changes in equipment, assets, or investments relate to
cash from investing.

Changes in cash from investing are usually considered

cash-out items because cash is used to buy new
equipment, buildings, or short-term assets such as
marketable securities. But when a company divests an
asset, the transaction is considered cash-in for
calculating cash from investing
 (C) Cash From Financing Activities
Cash from financing activities includes the sources of
cash from investors and banks, as well as the way cash is
paid to shareholders. This includes any dividends,
payments for stock repurchases, and repayment of debt
principal (loans) that are made by the company.

Changes in cash from financing are cash-in when capital

is raised and cash-out when dividends are paid. Thus, if a
company issues a bond to the public, the company
receives cash financing. However, when interest is paid
to bondholders, the company is reducing its cash. And
remember, although interest is a cash-out expense, it is
reported as an operating activity—not a financing activity.
 COMMON SIZE STATEMENT

Common size statement is a form of analysis and interpretation

of the financial statement. It is also known as vertical analysis.
This method analyses financial statements by taking into
consideration each of the line items as a percentage of the base
amount for that particular accounting period.
Objectives of a Common-size Income Statement are as follows:

1. The basic objective of a Common-size Income Statement is

to analyse the change in individual terms of the Income
Statement.

2. It is also prepared to study the trend in different items of

Incomes and Expenses.

3. Lastly, it is prepared for the assessment of efficiency.

Types of Common Size Statements

There are two types of common size statements:
Common size income statement
Common size balance sheet
1. Common Size Income Statement

This is one type of common size statement where the sales is

taken as the base for all calculations. Therefore, the calculation
of each line item will take into account the sales as a base, and
each item will be expressed as a percentage of the sales.
2. Common Size Balance Sheet:

A common size balance sheet is a statement in which balance

sheet items are being calculated as the ratio of each asset in
relation to the total assets. For the liabilities, each liability is
being calculated as a ratio of the total liabilities.
Common size balance sheets can be used for comparing
companies that differ in size. The comparison of such figures for
the different periods is not found to be that useful because the
total figures seem to be affected by a number of factors.
Advantages of Common-Size Statement:
The advantages of Common-Size Statement are:

(a)Easy to Understand:
Common-size Statement helps the users of financial statement
to make clear about the ratio or percentage of each individual
item to total assets/liabilities of a firm. For example, if an analyst
wants to know the working capital position he may ascertain the
percentage of each individual component of current assets
against total assets of a firm and also the percentage share of
each individual component of current liabilities.

(b) Helpful for Time Series Analysis:

A Common-Size Statement helps an analyst to find out a trend

relating to percentage share of each asset in total assets and
percentage share of each liability in total liabilities.

(D) Comparison at a Glance:

An analyst can compare the financial performances at a glance

since percentage of increase or decrease of each individual
component of cost, assets, liabilities etc. are available and he
can easily ascertain his required ratio.

(c)Helpful in analysing Structural Composition:

A Common-Size Statement helps the analyst to ascertain the
structural relations of various components of
cost/expenses/assets/liabilities etc. to the required total of
assets/liabilities and capital.

Limitations of Common-Size Statement:

Common-Size Statement is not free from snags.

Some of them are:

(a)Standard Ratio:

Common-Size Statement does not help to take decisions since

there is no standard ratio/percentage regarding the change of
percentage in the various component of assets, liabilities, sales
etc.

(b) Change in Price-level:

Common-Size statement does riot recognise the change in price

level i.e. inflationary effect. So, it supplies misleading
information’s since it is based on historical cost.
(C) Following Consistency:

If consistency in the accounting principle, concepts,

conventions is not maintained then Common Size Statement
becomes useless.

(D) Seasonal Fluctuation:

Common-Size Statement fails to convey proper records during

seasonal fluctuations in various components of sales, assets
liabilities etc. e.g. sales and closing stock significantly vary.
Thus, the statement fails to supply the real information to the
users of financial statements.

Advantages of Cash Flow Statement:

The advantages of Cash Flow Statement are:

(a)Ascertaining Liquidity and Profitability Positions:

Cash Flow Statement helps the management to ascertain the
liquidity and profitability position of a firm.

ADVERTISEMENTS:
Liquidity means one’s ability to pay the obligation as soon as it
becomes due.

Since Cash Flow Statement presents the cash position of a firm

at the time of making payment it directly helps to ascertain the
liquidity position, the same is also applicable in case of
profitability.

One can understand from Cash Flow Statement that how

efficiently the firm is paying its obligation in various forms of
expense and liability. At the same-time, as the cash earning
capacity of a firm can be ascertained from this statement,
profitability position depends also on cash earning capacity.

(b) Ascertaining Optimum Cash Balance:

Cash Flow Statement helps also to ascertain the optimum cash
balance of a firm. If optimum cash balance can be determined, it
is possible for a firm to ascertain the idle and/or excess and/or
shortage of cash position. After ascertaining the cash position,
the management can invest the surplus cash, if any, or borrow
funds from outside sources accordingly to meet the cash deficit.

© Cash Management:
ADVERTISEMENTS:
Proper management of cash is possible if cash flow statement is
properly prepared. The management can prepare an estimate
about the various inflows of cash and outflows of cash so that it
becomes very helpful for them to make plans for the future.

(c)Capital Budgeting Decisions:

Since capital budgeting relates to the decision of capital
expenditure in various forms on a long-term basis cash flow
timing is very important for this purpose

Limitations of Cash Flow Statement:

(a)Fails to present Net Income:
ADVERTISEMENTS:

Cash flow statement actually fails to present the net income of a

firm for a period since it does not consider non-cash items
which can easily be ascertained by an Income Statement. It can
be used as a supplement to Income Statement.

(b) Fails to Assess the Liquidity and Solvency Position:

Practically cash flow statement does not help to assess liquidity
or solvency position of a firm. Proper liquidity position cannot be
assessed from the cash flow statement which presents only the
cash position at the end of the period. It only helps how much
amount of obligation can be met i.e. cash flow statement does
not represent the real liquidity position.

© Neither a substitute of Funds Flow Statement nor Income

Statement:
Cash flow statement is neither a substitutes of funds flow
statement nor a substitute of income statement. The functions
which are performed by a funds flow statement or Income
statement cannot be done by a cash flow statement.

(c)Not to Assess Profitability:

Practically, cash flows from operation does not help to assess
profitability of a firm since it neither considers the costs nor
revenues.
 DOMS INDUSTRIES LIMITED
1.Company Information

DOMS Industries Limited (DIL) (stylized as DOMS) is an Indian stationery

and art materials manufacturing company, headquartered in Valsad,
Gujarat. Its products include wooden pencils, color and polymer pencils,
mathematical and drawing instruments, wax crayons and oil pastels,
stationery kits and combos, office supplies, hobby and craft supplies, and
fine art products. It works under a multinational Italian company Fila
Group .

Incorporated in 2006, DOMS Industries Limited is a stationery and art

product company primarily engaged in designing, developing,
manufacturing, and selling a wide range of these products under the
flagship brand, DOMS. As of March 31, 2023, the company has marked its
presence in over 40 countries. The company held 29% and 30% market
share, respectively, in Fiscal 2023 for its core products for pencils and
mathematical instrument boxes.

The company offers well-designed and high-quality stationery and art

materials to consumers, which are classified into seven categories: (i)
scholastic stationery; (ii) scholastic art materials; (iii) paper stationery;
(iv) kits and combos; (v) office supplies; (vi) hobby and craft; and (vii) fine
art products.

The company has an exclusive tie-up with certain entities of the FILA
Group for the distribution and marketing of their products in South AsiaAs
of March 31, 2023, the company has a strong, global multi-channel
distribution network across the Americas, Africa, Asia Pacific, Europe,
and the Middle East.
 HISTORY
Doms was established in 1993 by Doms Industries in
India. The company started with a vision to provide high-
quality stationery products at affordable prices, primarily
targeting students and artists. Initially, it focused on
producing pencils, which quickly gained popularity due
to their quality and performance.

Over the years, Doms expanded its product range to

include a variety of stationery items, such as pens,
markers, erasers, and color products, becoming a trusted
brand in the educational sector. The company is known
for its innovative designs and vibrant colors, catering to
diverse artistic needs.

Doms has also emphasized sustainability by

incorporating eco-friendly practices in its production
processes. Today, it is recognized as one of the leading
stationery brands in India, with a strong presence in both
domestic and international markets.
The objectives of ”oms typically include:

1. **Quality Products**: To manufacture high-quality stationery that

meets the needs of students and artists.

2. **Affordability**: To provide products at competitive prices, making

quality stationery accessible to a broader audience.

3. **Innovation**: To continually innovate and develop new products

that enhance user experience and meet market demands.

4. **Sustainability**: To implement eco-friendly practices in

production and promote sustainability within the industry.

5. **Customer Satisfaction**: To ensure customer satisfaction through

reliable products and excellent service.

6. **Market Expansion**: To expand its presence in both domestic and

international markets, reaching more consumers.

7. **Brand Trust**: To build and maintain a strong brand reputation

based on reliability, quality, and customer loyalty.
 The chairman and the board of directors play crucial roles in the
governance of a company like Doms.
Chairman

The chairman is the leader of the board of directors. Their main

responsibilities include:
- **Setting Meeting Agendas**: Ensuring that meetings are productive and
focused.
- **Leading Meetings**: Facilitating discussions and ensuring all board
members have a chance to contribute.

- **Strategic Oversight**: Guiding the company’s long-term strategy and

objectives.
- **Liaison Role**: Acting as a primary contact between the board and
company management.
Board of Directors

The board consists of members who represent shareholders and have

various responsibilities, including:
- **Governance**: Establishing policies and ensuring the company
adheres to legal and ethical standards.
- **Decision-Making**: Approving major business decisions, including
budgets, mergers, and acquisitions.

- **Performance Oversight**: Monitoring the company’s performance and

holding management accountable.
- **Advisory Role**: Providing guidance and expertise to the management
team.
Together, the chairman and the board of directors ensure that the
company operates effectively and in the best interests of its shareholders
and stakeholders.