3124633 fmfinancial statement analysis

7/27/2019 3124633 FMfinancial Statement Analysis

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fsa

financial

statement

analysis


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fsa

Who are interested in FSA?


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fsa

Management

Shareholders

Creditors

Other

Groups


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fsa

What are their interests?


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fsaWhat are their interests?

1What is the financial position of the firm at a given point of time?

2 How the firm performed financially over a given period of time ?

3 What have been the sources/ uses of Cash over a given period

of time?


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fsa

What statements may match these Questions?

1 Balance Sheet

2 Profit & Loss Account

3 Statement of Cash Flows


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fsa

BALANCE SHEET

BS Shows the financial condition of a business

at a given point of time

Can be shown in Account or Report form

Companies Mostly use Report Form


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fsaStructure of Balance Sheet as Per the Companies Act

Account Form

Liabilities Assets

Share Capital

Reserves & Surplus

Secured LoansUnsecured LoansCurrent Liab. & Provisions

Current Liabilities

Provisions

Fixed Assets

Investments

Current Assets,Loans & Advances

Misc Exp & Losses

Current Assets

Loans & Advances


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Account Form

Liabilities 20x1 20x0 Assets 20x1 20x0

Share Capital 150 150

Equity 150

Pref -

Reserves & Surplus 112 106Secured Loans 143 131

Unsecured Loans 69 25

C Liabilities & Prov 105 81

579 493

Fixed Assets 330 322

Investments 15 15

CA,loans & Adv 234 156

Misc Exp - .

579 493


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Report Form

Current Liabilities

Provisions

Current Assets

Loans & Advances

I Sources of Funds1 Share Holders funds

a) Share Capital

b) Reserves & Surplus

2 Loan Funds

a) Secured Loansb) Unsecured Loans

II Application of Funds

1 Fixed Assets

2 Investments

3 Current Assets, Loans and Advances

Less CL and Provisions

Net Current Assets

4 Misc Expenditure and Losses


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Report Form 20x1 20x0

Current Liabilities

Provisions

Current Assets

Loans & Advances

I Sources of Funds1 Share Holders funds 262 256

a) Share Capital 150

b) Reserves & Surplus 112

2 Loan Funds 212 156

a) Secured Loans 143b) Unsecured Loans 69

Total 474 412

II Application of Funds1 Fixed Assets 330 322

2 Investments 15 153 CA, Loans and Advances 234 156

Less CL and Provisions 105 81

Net Current Assets 129 75

4 Misc Expenditure and Losses -- --

Total 474 412


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fsaBalance Sheet of Horizon Ltd as on March31,20x1

Liabilities 20x1 20x0 Assets 20x1 20x0

Share Capital 150 150Equity 150

Reserves & Surplus 112 106

Secured Loans 143 131

Term Loans 70 58

Cash Credit 73 73

Unsecured Loans 69 25

Bank Credit 25 25

Deposits 44 --

C Liabilities & Prov 105 81Trade Credit 75 60

Advances 20 13

Provisions 10 8

579 493

Fixed Assets 330 322Gross Block 500 462

Depreciation 170 140

Investments 15 15

CA,loans & Adv 234 156

Cash at Bank 10 6Debtors 114 68

Inventories 105 72

Advances 5 10

Misc Exp - .

579 493


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fsa Liabilities

Share CapitalReserves & Surplus

Secured Loans

Unsecured Loans

Current Liabilities & Provisions


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fsa Assets

Fixed Assets

Investments

CA, Loans and Advances

inventories Sundry Debtors

Cash and Bank Balances

Other Cash Assets Loans & Advances

Misc. Expenditure & Losses


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fsa Accounting Values & Economic Values

Use of Historical Cost Principle

Exclusion of Intangible Assets

Understatement or omission of certain Liabilities


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fsa Profit & Loss Account

Sales

Cost of Goods SoldGross Profit

Operating Expenses

Operating Profit

Non Operating Surplus/Deficit

Profit before interest and Tax

Interest

Profit before Tax

Tax

Profit after TaxPrior Period Adjustments

Amount Available for Appropriation

Appropriations

Balance Carried forward

P fit d L A t f H i Ltd


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fsaProfit and Loss Account of Horizon Ltd.

for the year ending on March 31,20x1

20x1 20x0

Rs in Million

Net Sales 701 623

Cost of Goods Sold 552 475

Stock 421

Wages and Salaries 68

Other Mfg Expenses 63

Gross Profit 149 148

Operating Expenses 60 49

Depreciation 30

G Administration 12

Selling 18

Operating Profit 89 99

Non Operating Surplus/Deficit -- 6

Profit before interest & Tax 89 105Interest 21 22

Profit Before Tax 68 83

Prov for Tax 34 41

Profit after Tax 34 42


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fsa NET CASHFLOW

Net Cash

Flow

Profit after

Tax

Non Cash Rev

+

Non Cash Exp=

_

Net Cash

Flow

Profit after

Tax

Depreciation

+

Amortization= +

OR


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fsa Accounting Income Versus Economic Value

Use of Accrued Principle

Omission of Changes in Value

DepreciationInflation

Creative AccountingTreatment of R&D &

Adv Expenditure


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fsa Balance Sheet Related Finance Topics

What should be the capital structure of the company?

What is the cost of capital of the firm?

What should be the WC Financing Policy of the Firm?

How should capital budgeting decisions be taken?

What is the rational approach to portfolio management?

How can cash management be made more effective?

What is a sensible framework forcredit Management?

How should the firm develop its inventory policy?


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fsa Balance Sheet Related Finance Topics

Share Capital

Equity

Preference

Reserves and Surplus

Secured Loans

Debentures

Loans and Advances

Unsecured Loans

Current liabilities and

Provisions

Trade Creditors

Provisions

Capital Structure &

Cost Of Capital

Working Capital

Financing Policy


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fsa Profit & Loss Related Finance Topics

What is the Revenue Risk of the firm?

What is the gross profit margin of the firm?

Is the Depreciation policy of the firm reasonable?

How much is the business Risk of the firm?

What is the degree offinancial risk?

What is the scope ofTax planning?

What is the return on equity?

What should be the dividend policy of the firm


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fsaProfit & Loss Account & Finance Topics

Net Sales

COGSStock

Wages & Salaries

Other Mfg Exp

Gross Margin

Operating Expenses

Selling and Administration

Depreciation

Operating Profit

Non Operating surplus/deficit

Earnings Before income Tax

Interest

Revenue Risk

GP Risk

Depreciation policy

Business Risk

Financial Risk


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fsaProfit & Loss Account & Finance Topics

Profit Before Tax

Tax

Profit after Tax

Dividends

Retained Earnings

Tax Planning

Return on Equity

Dividend policy

Mgt. Of Retained Er


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fsa

How BOTTOM LINE can be manipulated ?


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fsa Manipulation of Bottom Line

Inflate Sales

Alter other income

Fiddle with depreciation

Valuation of Stock

Capitalize certain ExpensesDefer Discretionary Expenses

Treat certain Liabilities as Contingents

Extra Provisions in prosperous years

Revalue assets to create reservesLengthen Accounting Year


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fsa Why do companies Manipulate their F Statements?

Project as low Risk Company

To promote management Competence

To show growth

To enhance compensation


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fsa

What Can you do?

Acquire knowledge, how accountants prepare FS

Pursue notes to the statements

Auditors report

Analyzing Financial Performanceover a period of time

3124633 fmfinancial statement analysis

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