There are other ways to play around with balancce  sheet and cash flow.

 

Take for example,a company needs to improve the cash operating cash flow without taking on additonal liabliites.One way is to  reduce the inventory but how?.In this recession nobody is going to buy from this company.So now comapny wants to elimintae the inventory and improve the BS and Op cash flow.

 

They can transfer the Inventory to an unlisted company and get the money on the condition that the Listed company will buy back the goods within next 1-2 years at a higher price.Let us say Inventory is valued at Rs100 in Listed company.They transferred 50%(50/-) of it to  another unlisted company and agreed that the listed comapny will buy it back at Rs 65/- after 1-2 years.

 

What is the effect of this transfer.The invenotry is reduced to 50/-from 100/-  and they get cash of 50/-.This is a kind of pledge disguised as sale sale.So the Listed company without actaully selling the inventory increased the cash balance and reduced inventory.Now Inventory turnover ratio will look good.Operating cash will improve becasue of inventory reduction.

 

But in actaul they have pledged the inventory to another company.The listed comapny is laible to buy back the inventory at 65/- after some time.So this liability of 65/- is not at all shown in the liability side of the BS of the listed company.The difference between the Sales price 50 and buy back price of 65 is the interest, the lsited has to pay to the other company.If a companies do like this,I dont think ordinary people like me will be able to figure that out.

 

reagrds

Kishor

 

See, SRF may have declared 2 interims in 2008-09, but in 2008-09, it has actually paid the final dividend of 2007-2008 and the first interim of 2008-2009. The second interim declared has actually been paid in 2009-2010.

 

So, in 2008-09, it paid 7 rupees per share. So, the amount paid must be 7*6=42 crores.

 

The reason its 48 crores, is that the equity you are seeing is the reduced equity as the compay did a buyback during the year. So, the final dividend of last year was paid on the higher equity. If you account for this, the amount in the cash flow statement will tally.

 

 

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