bharat sanchar nigam limited, india alttc, ghaziabad -ashwani khurana analysis of financial...

Bharat Sanchar Nigam Limited, India

ALTTC, Ghaziabad

-Ashwani Khurana

Analysis of Financial StatementsCash Flow Statements


ALTTC, Ghaziabad

Contents

• Financial Statement Analysis

• Cash Flow Statement


ALTTC, Ghaziabad

Financial Statements - Meaning

• The financial statements are nothing but the financial information presented in concise and capsule form, and the financial information is the information relating to the financial position of any firm.

• Final Product of the Accounting Process.• Indicate the completion of the accounting

work for the period.


ALTTC, Ghaziabad

Financial Statements - Meaning

• Should comply with the format and rules laid down by an enactment concerning the enterprise.

• Comprises of – Balance Sheet– Profit & Loss Account (Income Statement)– Cash Flow Statement


ALTTC, Ghaziabad

Proforma Balance SheetAs On ______________________

Capital and Liabilities Amount Assets Amount

Share CapitalReserves & SurplusSecured LoansUnsecured LoansCurrent LiabilitiesProvisions

XXXXXXXXXXXXXXXXXX

Fixed Assets XXXLess: Dep. XXX

InvestmentsCurrent AssetsLoans & AdvancesMiscellaneous Expenditures

XXXXXXXXXXXX

XXX

XXX XXX


ALTTC, Ghaziabad

Proforma Profit & Loss AccountFor the Year Ending ______________________

Particulars Amount Particulars Amount

Cost of Goods SoldOperating ExpensesNon-Operating ExpensesInterestProvision for TaxNet Profit (Balancing Figure)

XXXXXXXXXXXXXXX

XXX

Net SalesOther Income

XXXXXX

XXX XXX


ALTTC, Ghaziabad

Analysis of Financial Statements – Meaning and Necessity

• Analysis– A comparison of one figure with another is a

process of analysis and is helpful in analyzing the situation and diagnosing the problem.


ALTTC, Ghaziabad

Analysis of Financial Statements – Meaning and Necessity

• Financial Statement Analysis– Process of the critical examination of the

financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm.

– Involves making comparisons and establishing relationship among related items.

– It is linked with the purpose and interest of the agency involved.


ALTTC, Ghaziabad

Analysis of Financial Statements – Purpose

• Purpose may be to seek information relating to:– Profitability– Solvency– Liquidity


ALTTC, Ghaziabad

Analysis of Financial Statements – Agency/Users

• Investors

• Government Authorities

• Creditors

• Banker

• Employees

• Management


ALTTC, Ghaziabad

Analysis of Financial Statements – Different Ways

• External and Internal– External– Internal

• Dynamic and Static– Dynamic (Horizontal)– Static (Vertical)


ALTTC, Ghaziabad

Analysis of Financial Statements – Techniques / Tools

• Comparative Financial Statements

• Common-Size Financial Statements

• Trend Percentages Analysis

• Ratio Analysis


ALTTC, Ghaziabad

Ratio Analysis - Meaning

• A ratio is a relationship expressed in mathematical terms between two individual or groups of figures connected with each other in some logical manner.

• Form of Ratios:– As a pure ratio like 4:1– As a rate of times like 2.5 times– As a percentage like 20%


ALTTC, Ghaziabad

Ratio Analysis - Uses

• Ratios – Useful by product of financial statements.

• Ratios – Provide standardized measure of firm’s financial position, profitability and riskiness.

• Ratios – Useful in analyzing the performance of a firm from different points of view.


ALTTC, Ghaziabad

Ratio Analysis - Uses

• Helps in Inter-Firm Comparison.

• Helps in Intra-Firm Comparison.

• To analyse the weak spots as well as strong points of the enterprise.


ALTTC, Ghaziabad

Ratio Analysis - Classification

• Liquidity Ratios

• Profitability Ratios

• Turnover Ratios

• Leverage Ratios

• Valuation Ratios


ALTTC, Ghaziabad

Ratios

LiquidityRatios

ProfitabilityRatios

TurnoverRatios

LeverageRatios

ValuationRatios

Current Ratio

Quick Ratio

GP Ratio NP Ratio ROA Ratio ROCERatio

Debt Equity Ratio

Debt Ratio Interest Coverage Ratio

Inventory Turn over

Ratio

Debtors Turn Over Ratio

Creditors Turn over

Ratio

Fixed Assets Turn over Ratio

Assets Turn over Ratio

Price – Earning Ratio

MV to BV Ratio


ALTTC, Ghaziabad

Liquidity Ratios

• Current Ratio = Current Assets

Current Liabilities

• Quick Ratio = Quick Assets

Current Liabilities


ALTTC, Ghaziabad

Profitability Ratios

• Gross Profit Ratio = Gross Profit *100

Net Sales

• Net Profit Ratio = Net Profit *100

Net Sales


ALTTC, Ghaziabad

Profitability Ratios

• Return on Assets Ratio= Net Profit *100

Average Total Assets

• Return on Capital Employed Ratio= Net Profit *100

Average Capital Employed


ALTTC, Ghaziabad

Turnover Ratios

• Inventory Turnover Ratio= Cost of Goods Sold

Average Inventory

• Debtors Turnover Ratio= Net Credit Sales

Average Debtors


ALTTC, Ghaziabad

Turnover Ratios

• Creditors Turnover Ratio= Net Credit Purchases

Average Creditors

• Fixed Assets Turnover Ratio= Net Sales _

Average Fixed Assets


ALTTC, Ghaziabad

Turnover Ratios

• Assets Turnover Ratio= Net Sales _

Average Assets


ALTTC, Ghaziabad

Leverage Ratios

• Debt Equity Ratio= Long Term Debt _

Total Shareholders Funds

• Debt Ratio= Total Debts

Total Assets


ALTTC, Ghaziabad

Leverage Ratios

• Interest Coverage Ratio= Earnings before Interest & Tax

Interest


ALTTC, Ghaziabad

Valuation Ratios

• Price-Earnings Ratio= Market Price Per Share

Earnings Per Share

• Market Value to Book Value Ratio= Market Price Per Share

Book Value Per Share


ALTTC, Ghaziabad

Ratio Analysis - Limitations

• Ratios are meaningful only in conjunction with the firm’s past performance or other firms or industry average. Taken by itself, a ratio provides only a limited information.

• Ratios are subject to misinterpretation. Eg. A higher Current Ratio is considered better but beyond a certain limit it may signify inefficient use of resources of firm.


ALTTC, Ghaziabad

Ratio Analysis - Limitations

• Ratios are based on Accounting data based on historical cost concept.

• Ratios are based on Accounting data that are based on diverse accounting practices and principles.


ALTTC, Ghaziabad

Statement of Changes in Financial Position

• It deals with the flow of funds during the year.

• It summarizes the sources from where the funds might have been arranged / produced by the firm and the uses for which the funds might have been used by the firm during the year


ALTTC, Ghaziabad

Statement of Changes in Financial Position

• Based on the concept of fund, Statement of Changes in Financial Position can be prepared on:– Cash Basis: Cash Flow Statement– Net Working Capital Basis: Funds Flow

Statement– Total Resources Basis: SCFP(Total Resources)


ALTTC, Ghaziabad

Cash Flow Statement

• The Cash Flow Statement can be conceived as a compact version of a cash book in which the details are condensed and presented in broad and meaningful categories.

• The CFS reconciles the difference between the opening and closing balance of cash by the net cash flow from a company’s operating, investment and financing activities during a period.

• It provides important information that supplements the P & L A/c and B/S.


ALTTC, Ghaziabad

Cash Flow Statement

• AS-3 deals with the Cash Flow Statement.• ‘Cash’ comprises cash on hand and demand

deposit with banks.• ‘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. Eg. Treasury bills, commercial paper etc.


ALTTC, Ghaziabad

Cash Flow Statement

• Classification of Cash Flows relating to a particular period:– Cash Flows from Operating Activities– Cash Flows from Investing Activities– Cash Flows from Financing Activities.


ALTTC, Ghaziabad

Data required in preparation of CFS

• Comparative Balance Sheets

• Profit & Loss Account

• Additional data


ALTTC, Ghaziabad

Cash Flow Statement

• Two methods has been prescribed for its preparation:– Direct Method– Indirect Method


ALTTC, Ghaziabad

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bharat sanchar nigam limited, india alttc, ghaziabad -ashwani khurana analysis of financial...

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