funds flow statement 103

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Why Analysis? Why Analysis? To answer these questions To answer these questions related with-- related with-- The factors responsible The factors responsible for the difference in the for the difference in the owner’s equity, assets and owner’s equity, assets and liabilities of the firm at liabilities of the firm at two consecutive balance two consecutive balance sheet dates. sheet dates. The premier financing and The premier financing and investment activities of investment activities of the firm during this the firm during this

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  • Why Analysis?To answer these questions related with--The factors responsible for the difference in the owners equity, assets and liabilities of the firm at two consecutive balance sheet dates.The premier financing and investment activities of the firm during this period.

  • Are long term sources adequate to finance fixed assets purchases?Does the firm posses adequate WC?Why did the firm not pay the dividend in spite of adequate profits?How much funds have been generated from operations?Has the liquidity position improved?

  • FUNDS FLOW STATEMENTWhat is FFS?The funds flow statement or statement of changes in financial position is a statement of flows, it measures the changes that have taken place during two balance sheet dates.

  • A summary of a firms changes in financial position from one period to another; it is also called a sources and uses of funds statement or a statement of changes in financial position.

  • What are funds?

    All of the firms investments and claims against those investments. Extends beyond just transactions involving cash.

  • Analyzing the Sources and Uses StatementSourcesPrimarily through net profit from operations and long-term debt increases.UsesPrimarily through an increase in inventories and expenditures on capital assets.

  • Sources and usesSourceFunds from business operations.Other incomesSale of non current assets.Long term borrowingsIssue of additional share capital.Decrease in WC

    UsesLoss from business operations.Purchase pf non current assets.Redemption of debentures or pref. shares.Payment of dividend and tax.Increase in WC

  • Rule for sources and uses of funds

    ALS-+U+-

  • Transactions not affecting WCA simultaneous increase in CA and increase in CL does not affect WC.A simultaneous decrease in CL and decrease in CA does not affect WC.A simultaneous increase/ decrease in CA and CL does not affect WC.Eg. Payment of cr. (-cash and Cr.)

  • General Rules Transactions affecting WC:An increase in CA Increases WCA decrease in CA- Decreases WCAn increase in CL- Decreases WCA decrease in CL Increases WC.

  • Step 1: Schedule of changes in WC.

    ParticularsAmt. PYAmt. CYInc.RsDec.Rs.Current Assetse.g. CashInventory10,00012,00012,000 8,0002,000NilNil4,000Total current assetsB. Current LiabilitiesCreditorsBills Payable22,000

    7,000 5,00020,000 5,000 8,000

    2,000Nil

    Nil3,000Total current liabilitiesNet WC(A-B)12,00010,00013,000 7.000Net Increase/ Decrease in WC.10,000 3,00010,000 3,000 7,0007,000

  • Calculation of FFO/FLO

    A. Net income as per P&L a/c B. Add: Dep. Expenses Amortization of Goodwill, Patents and other intangibles.Discount on debenture or share.Extraordinary losses.Loss on sale of non current assets.

    C . Less:Premium on Debenture.Revaluation of non CA.Dividends and interest received.

    D. Funds from /lost in Operations:(A+B-C)

  • Alternative methodA. Sales RevenueB. Less:ExpensesCost of RMWages and SalaryManu. ExpensesAdvt. Exp.Insurance exp.Office exp.other operating exp.interestIncome TaxC. Funds form Operations (A-B)

  • The cash flow statement simultaneously provides an explanation of why a firms cash position has changed between successive balance sheet dates and explains changes that have taken place in the firms noncash asset, liability, and stockholders equity accounts over the same time period.

  • Revised cash flow AS-3Net Cash flow from operating activities. (Cash in flows cash out flows)Net Cash flow from investing activities. (Cash in flows cash out flows)Net Cash flow from financing activities. (Cash in flows cash out flows)

  • Solution statement of changes in working capital

    Particulars20052006Inc.Dec. A. Current Assets:Cash 30,00010,000Nil20,000A/c s Receivable70,0001,40,00070,000NilStock in Trade1,50,0002,25,00075,000NilWork in Progress80,00090,00010,000NilTotal CA3,30,0004,65,000

  • B. Current Liabilities20052006Inc.Dec.Tax Payable77,00043,00034,000NilA/cs Payable96,0001,92,000Nil96,000Interest Payable37,00045,000Nil8,000Dividend Payable50,00035,00015,000NilTotal CL2,60,0003,15,000Net WC (A-B)70,0001,50,000Net Increase in WC80,00080,0001,50,0001,50,0002,04,0002,04,000

  • Solution statement of changes in working capital

    Particulars20052006Inc.Dec.A. Current Assets:Cash DebtorsStock in trade1,10,0001,60,000 85,0001,70,0001,50,0001,05,00060,000Nil20,000Nil10,000NilTotal CA3,55,0004,25,000Current liabilitiesSundry Creditors1,00,00070,00030,000NilTotal CL1,00,00070,000Net Working CapitalNet Increase in WC2,55,0001,00,0003,55,0003,55,000

    3,55,000

    1,10,0001,00,0001,10,000

  • Statement of Sources and Application of Funds.

    Sources Amt. Rs. Application Amt. Rs.Issue of Share CapitalFunds from Operations

    Total1,00,000

    15,000

    1,15,000Purchase of Plant & MachineryPurchase of Furniture & Fix.Net increase in WC

    Total 10,000 5,000

    1,00,000

    1,15,000

  • Solution statement of changes in working capital

    Particulars20052006Inc.Dec.Current Assets:StockBankDebtors3,00,000 20,000 69,000 3,50,000 40,000 61,00050,00020,000NilNilNil8,000Total3,89,0004,51,000B. Current Liabilities:CreditorsProvision for Doubtful Debts1,15,000

    6,000 90,000

    3,00025,000

    3,000Nil

    NilTotal 1,21,000 93,000Net Working Capital (A-B)2,68,0003,58,000Net Increase in WC 90,00090,0003,58,0003,58,00098,00098,000

  • Provision for Depreciation on P&M A/c

    ParticularsAmt. RsParticularsAmt. RsTo P & M A/c(dep on sold Machinery)To Bal C/d 2,000

    35,000By Bal b/dBy Adj P&L A/c (Balancing Fig)30,000

    7,000

    Total37,000Total37,000

  • Provision for Depreciation on Land & Building A/c

    ParticularsAmt. RsParticularsAmt. RsTo Bal C/d24,000By Bal B/dBy Adj P&L A/c20,000 4,000Total24,000Total24,000

  • Plant & Machinery A/C

    ParticularsAmt. RsParticularsAmt. RsTo Bal B/dTo Cash (purchases)4,00,000

    3,15,000By Cash (sale)By Prov. For DepBy Adj P&L a/cBy Bal C/d 6,000

    2,000 62,0006,45,000 Total7,15,000Total7,15,000

  • Adjusted P& L A/c

    ParticularsAmt.ParticularsAmt.To Prov for DepP & ML & B To Pre. Exp W / offTo DividendTo loss on saleTo Bal C/d 7,000 4,000

    1,000 50,000 62,0002,50,000By Bal B/dBy FFO1,25,0002,49,0003,74,0003,74,000

  • Funds Flow Statement

    Sources Amt.Rs.Uses Amt.Rs.Issue of Sh.Issue of DebtSale of Mach.FFO2,00,0001,00,000 6,0002,49,000Purch. P& MPurch. L & BDividend paidNet Inc in WC 3,15,0001,00,000 50,000 90,000Total5,55,0005,55,000

  • Common Size Income Statement

    s.nParticularsTop Rs%TenRs.%1.2.

    3.4.

    5. SalesCost of salesGP (1-2) OP exp(inc int). DepOPBIT(3-4) 10,00,000

    6,00,000 4,00,000 1,32,500

    10,000 2,57,500100

    604013.25

    1.0025.7512,00,000

    8,00,000 4,00,000 1,97,500

    20,000 1,82,500100

    66.6733.3316.45

    1.67 15.21

  • 6.7.8.9.10.11.Int on DebtNPBT(5-6)TaxesNet PAT(7-8)DividendRetained Earning(9-10)

    7,5002,50,0001,00,0001,50,000 70,000 80,000

    0 .75 25.00 10.00 15.00 7.00 8.00 7,5001,75,000 70,0001,05,000 75,000 30,000 0.6314.58 5.83 8.75 6.25 2.50