Introduction

Cash is the basic input needed to keep the operations of the business
going on a continuing basis; it is also the final output expected to be
realized by selling the product manufactured by the manufacturing unit.
Cash is the both the beginning and the end of the business operations.

Sometimes, it so happens that a business unit earns sufficient

profit, but in spite of this it is not able to pay its liabilities when the
become due. Therefore, a business should be always try to keep
sufficient cash, neither more nor less because shortage of cash will
threaten the firms liquidity and solvency, whereas excessive cash will not
be fruitful utilized, will simply remain ideal and affect the profitability of
a concern. Effective cash management, therefore, implies a proper
balancing between the two conflicting objectives of liquidity

The management of cash also assumes importance because it is

difficult to predict cash inflows and outflows accurately and there is no
perfect coincidence between the inflows and outflows of cash giving rise
to either cash outflows exceeding inflows or cash inflows exceeding
outflows. Cash flow statement is one important tool of cash management
because it throws light on cash inflows and cash outflows of a particular
period.

Meaning of Cash Flow Statement

A funds flow statement based on working capital is very useful in long-

range financial planning but this statement may conceal or exclude too
much. This is so because it does not take into considerations the
movements among the individual current assets and current liabilities

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i.e. it shows net change in working capital. Moreover, this statement
treats increases in receivables, inventories and prepaid expenses and
decreases in accounts payable, outstanding expenses and bank over
draft as equivalent to decrease in cash. Likewise, decreases in
receivables, inventories and prepaid expenses and increases in creditors,
bills payable, outstanding expenses and bank overdraft are treated as
equivalent to increases in cash. This is not a correct treatment because
this items do not decrease cash or make cash available. Sundry
creditors, bills payable, outstanding expenses become payable in the
next period. Similarly, inventories and receivable make cash available in
the next period. It is quite possible that there may be sufficient working
capital as revealed by the funds flow statement and still the company
may be unable to meet its current liabilities as and when they fall due. It
may be due to an accumulation of inventories and an increase in trade
debtors caused by a slow down in collections. In such a situation, a
cash flow statement is more useful because it gives detailed information
to the management about the sources of cash inflows and outflows. A
cash flow statement can be defined as a statement which summarizes
sources of cash inflows and uses of cash outflows of a firm during a
particular period of time, say a month or a year. Such a statement can
be prepaid from the data made available from comparative balance sheet,
profit and loss account and additional information. This statement
reports cash receipts and payments classified according to entities major
activities operating, investing and financing during the period a format
that reconciles the begging and ending cash balances. It reports a net
cash inflow or net cash outflow for each activity and for the overall
business. It also reports from where cash has come and how it has been
spent.

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Usefulness of Cash Flow Statement

Cash Flow Statement is very useful to the

management for short term planning due to the following
reasons:-

(i) Predict future cash flows. This statement is often

use as an indicator of the amount, timing and certainty of
future cash flows on the basis of what happened in the past.
This approach is better than accrual basis data presented by
profit and loss account and balance sheet.

(ii) Determine the ability to pay dividends and

other commitments. This statement indicates the sources
and uses of cash under operating, investing and financing
activities, helps share holders to know whether the business
can make the payment of amount of dividends on their
investments in shares and creditors to receive interest and
principal amount in time.

(iii) Show the relationship of net income to changes

in the business cash. Generally there is direct relation
between net income and cash. I net income leads to increase
in cash and wise versa. But there may be a situation where a
company’s net income is high but decrease in cash balance

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and increase in cash balance when net income is low. Every
user is interested to know the reasons or difference between
the net income and net cash provided by operations. The net
income generally tells the progress of the business while cash
flow relates to the liquidity of business. The uses or helped to
assess the reliability of net profit with the help of this
statement.

(iv) Efficiency in Cash Management. This statement

is very useful to the management in evaluating financial
policies and cash position. It will help the management to
make the reliable cash flow projections for the immediate
future and will tell surplus or deficiency of cash so that
management may be able to make plan for investment of
surplus cash or to tap the sources where from the deficiency
is to be met. Thus it is an important financial tool for the
management as it helps in the efficient cash management.

(v) Discloses Movement of Cash. Previous year

cash flow statement when compared with the budget of that
year will indicate as to what extent the resources of the
enterprise were raised and applied. Actual results when
compared with the original forecast may highlight the trend of
the movement of cash that may otherwise remain undetected,

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 (vi) Discloses Success or Failure of Cash Planning.
A Comparison of projected Cash flow Statement with the
actual Cash flow Statement will reveal the success or failure
of cash planning and incase of failure, necessary remedial
steps can be taken to improve the position. It also provides
better measure for inter period and inter firm comparison.

(vii) Evaluate Management Decision. This statement,

by providing information relating to companies investing and
financial activities, gives the investors and creditors about
cash flow information which help them evaluate management
decisions.

(viii) Enhances the Comparability of Report. It

enhance the comparability of the reporting of operating
performances by different enterprises, because it eliminates
the effect of using different accounting treatments for the
same transactions and events.

Objectives

Information about the cash flows of an enterprise is useful in

providing users of financial statements with a basis to assess the
ability of the enterprise to generate cash and cash equivalents and
the needs of the enterprise to utilize those cash flows. The economic
decisions that are taken by users require an evaluation of the ability of

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an enterprise to generate cash and cash equivalents and the timing
and certainty of their generation.

The Statement deals with the provision of information about the

historical changes in cash and cash equivalents of an enterprise by
means of a cash flow statement which classifies cash flows during the
period from operating, investing and financing activities.
The following terms are used in this Statement with the
meanings specified:

(i) Cash comprises cash on hand and demand

deposits with banks.

(ii) Cash equivalents are short term, highly liquid

investments that are readily convertible into known amounts
of cash and which are subject to an insignificant risk of
changes in value.

(iii) Cash flows are inflows and outflows of cash and

cash equivalents.

(iv) Operating activities are the principal revenue-

producing activities of the enterprise and other activities that
are not investing or financing activities.

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 (v) Investing activities are the acquisition and
disposal of long-term assets and other investments not
included in cash equivalents.

(vi) Financing activities are activities that result in

changes in the size and composition of the owners’ capital
(including preference share capital in the case of a company)
and borrowings of the enterprise.
Financing Activities

The separate disclosure of cash flows arising from

financing activities is important because it is useful in
predicting claims on future cash flows by providers of funds
(both capital and borrowings) to the enterprise. Examples of
cash flows arising from financing activities are:

(a) Cash proceeds from issuing shares or other

similar instruments;
(b) Cash proceeds from issuing debentures, loans,
notes, bonds, and other short or long term borrowings;
(c) Cash repayments of amounts borrowed.
(d) Cash payments to redeem preference shares and

(e) Payment of dividend.

Preparation 0f cash flow statement

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 An organization should prepare a cash flow statement
according to according to Account standard-3. The following
basic information are required for the preparation for the cash
flow statement:
(1) Comparative Balance Sheets. Balance sheets at the
beginning and at the end of the accounting period are
required to indicate to indicate the amount of changes
that have taken place in assets and liabilities and capital.
(2) Profit and loss account. This account of the current
period enables to determine the amount of cash provided
by or used in operating activities during the accounting
period after making adjustments for non cash current
assets and current liabilities.
(3) Additional data. In addition to the above statements,
additional data are collected to determine how cash has
been provided or used e.g. sale or purchase of asset for
cash.

This statement is prepared in three stages as given below :

1. Net profit before taxation and extra ordinary items.
2. Cash flows from operating, investing and financing
activities.
3. Cash flow statement
These are discussed one by one
1. Net profit before taxation and extraordinary items. This will
not be equal to the net profit as reported in the profit and loss

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account. It is so because of taxation and certain non operating
items (e.g., loss or profit on sale of fixed assets, dividend
received or paid, amount transferred to general, provision for
taxation, fictitious assets written of f etc.) charged to the profit
and loss account . Tax paid and non-operating items are
adjusted to the figure of profit or loss in order to get the net
profit before taxation and extraordinary items.
2. Cash flows from operating, investing and financing
activities. Net profit before taxation and extraordinary items is
further adjusted with reference to depreciation in order to get
the figure of operating profit before working capital changes.
This figure is further adjusted for changes in current assets
(except cash)/bank balance), current liabilities and tax paid
deducted to get the amount of net cash provided or used by
operating activities. All the increases in current assets except
cash and decreases in current liabilities decrease cash. It is so
because increase in debtors takes place as current sales are
greater than cash collections; inventories increase when the
current cost of goods purchased is more than the current cost
of goods sold leading to reduction in cash. Increase in prepaid
expenses reduces cash from operations because more cash is
paid than is required for their current services. Likewise,
decrease in current liabilities reduces cash from operations
because decrease in current liabilities takes place when they
are paid in cash. Similarly all decreases in current assets
except cash and increases in current liabilities increase cash

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from operations. Creditors would increase because current
purchases are more than the cash paid to them during the
current period. Decrease in prepaid expenses indicates that
less payment has been made for services than are currently
used, i.e., some cash has been saved causing an increase in
cash from operations.
Changes in fixed assets and fixed liabilities have not
been adjusted as these are shown separately in the cash flow
statement. It is so because current assets (i.e., debtors as a
result of credit sales, inventories as a result of purchases and
sales and prepaid expenses caused by operating expenses) and
current liabilities (i.e., creditors because of credit purchases
and outstanding expenses caused by non-payment of some of
the expenses of the current period) are directly related to
operations.

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 Aims & 0bjectives
Based on the information furnished in the financial statements, various
objectives of the HDFC Bank.
I have two objective regarding my research project this are shown
blow:
1. Primary Objective
2. Secondary Objective
Primary Objective
 To study the software use in HDFC Bank.
 To analyze the financial statement of the corporation to its
true financial position by the use of ratios.
Secondary Objective
 To find out the shortcomings in HDFC Bank.
 To see whether HDFC in going well or not in different areas.
 To inform the management about the financial condition of
HDFC Bank.

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 Justification of the project
Certain head like Net profit before taxation and extraordinary items are
considered in this project report. This will not be equal to the net profit
as reported in the profit and loss account. It is so because of taxation
and certain non operating items (e.g., loss or profit on sale of fixed
assets, dividend received or paid, amount transferred to general,
provision for taxation, fictitious assets written of f etc.) charged to the
profit and loss account . Tax paid and non-operating items are adjusted
to the figure of profit or loss in order to get the net profit before taxation
and extraordinary items.
2. Cash flows from operating, investing and financing activities. Net profit
before taxation and extraordinary items is further adjusted with
reference to depreciation in order to get the figure of operating profit
before working capital changes. This figure is further adjusted for
changes in current assets (except cash)/bank balance), current liabilities
and tax paid deducted to get the amount of net cash provided or used by
operating activities. All the increases in current assets except cash and
decreases in current liabilities decrease cash. It is so because increase in
debtors takes place as current sales are greater than cash collections;
inventories increase when the current cost of goods purchased is more
than the current cost of goods sold leading to reduction in cash. Increase
in prepaid expenses reduces cash from operations because more cash is
paid than is required for their current services. Likewise, decrease in
current liabilities reduces cash from operations because decrease in
current liabilities takes place when they are paid in cash. Similarly all
decreases in current assets except cash and increases in current
liabilities increase cash from operations.

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 Hypothesis
 During the tuff competition between the banks HDFC financial

activities are balanced and growing positively

 Its cash flow statement are positive and very much satisfactory for

the investors

A Hypothesis consists either of a suggested explanation for an

observable phenomenon or of a reasoned proposal predicting a possible

causal correlation among multiple phenomena. The term derives from

the Greek, hypotithenai meaning "to put under" or "to suppose." The

scientific method requires that one can test a scientific hypothesis.

Researchers generally base such hypotheses on previous observations or

on extensions of scientific theories. Even though the words "hypothesis"

and "theory" are often used synonymously in common and informal

usage, a scientific hypothesis is not the same as a scientific theory.

Hypothesis may be defined as a proposition or a set of proposition set

forth as an explanation for the occurrence of some specified group

of phenomenon either asserted merely as a provisional conjecture to

guide some investigation or accepted as highly probable in the light of

established facts. Quite often a research hypothesis is a predictive

statement, capable of being tested by scientific methods, that relates an

independent variable to some dependent variable.

Null Hypothesis

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A null hypothesis is a hypothesis (within the context of statistical

hypothesis testing) that might be falsified on the basis of observed data.

The null hypothesis typically proposes a general or default position, such

as that there is no relationship between two quantities, or that there is

no difference between a treatment and the control. The term was

originally coined by English geneticist and statistician Ronald Fisher.

The null hypothesis (often denoted by H0) formally describes some aspect

of the statistical "behavior" of a set of data.

ALTERNATE HYPOTHESIS

Alternative hypothesis is the "hypothesis that the restriction or set of

restrictions to be tested does NOT hold." (Often denoted H1) . Synonym for

'maintained hypothesis.'

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 Scope of the study

The scope of the study is confined to detail analysis of cash flow

statement in union HDFC Bank
 An enterprise should prepare a cash flow statement and
should present it for each period for which financial statements are
presented.
 Users of an enterprise’s financial statements are interested
in how the enterprise generates and uses cash and cash
equivalents.
 This is the case regardless of the nature of the enterprise’s
activities and irrespective of whether cash can be viewed as
the product of the enterprise, as may be the case with a
financial enterprise.
 Enterprises need cash for essentially the same reasons,
however different their principal revenue-producing activities
might be.
 They need cash to conduct their operations, to pay their
obligations, and to provide returns to their investors.

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 Layout (Chapterisation)

 Chapter I : Introduction

 Chapter II : Aims and Objectives

 Chapter III : Company Profile

 Chapter IV : Research Methodology

 Chapter V : Analysis of Data & Interpretation

 Chapter VI : Finding Suggestions

Recommendation & Conclusion

 Chapter VII : Bibliography

: Annexure

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 Conclusion

The process of financial risk management is an ongoing one. Strategies need to

be implemented and refined as the market and requirements change.
Refinements may reflect changing expectations about market rates, changes to
the business environment, or changing international political conditions, for
example. In general, the process can be summarized as follows:
• Identify and prioritize key financial risks.
• Determine an appropriate level of risk tolerance.
• Implement risk management strategy in accordance with policy.
• Measure, report, monitor, and refine as needed. Risk management needs

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 Bibliography
• “Management Accounting-Principles and Practice.”, - By Sharma R.K &
Gupta Shashi K Eighth Edition, Kalyani Publisher’s, New Delhi.

• “Financial Management and Policy”, - By Bhalla V.K

First Edition, Annual Publications, New Delhi.

• “Management Accounting and Financial Control”, - By Maheshwari S.N

Thirteen Edition, Sultan Chand & Sons, New Delhi(2002).

• “Research Methodology-Methods & Techniques”, - By Kothari C.R

Second Edition, Vishwa Prakashan Delhi (1990).

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