Balance sheet analysis ppt @ bec doms bagalkot mba finance

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Balance sheet analysis ppt @ bec doms bagalkot mba finance

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Balance sheet analysis ppt @ bec doms bagalkot mba finance

  1. 1. BALANCE SHEET ANALYSIS Sources of Funds1) Capital2) Reserves & Surplus3) Term Liabilities4) Current Liabilities
  2. 2. BALANCE SHEET ANALYSIS Uses of Funds 1) Fixed Assets 2) Intangible Asets 3) Non Current Assets 4) Current Assets
  3. 3. BALANCE SHEET ANALYSIS Capital 1) Authorised Capital 2) Issued Capital 3) Subscribed Capital 4) Paid-up Capital
  4. 4. BALANCE SHEET ANALYSIS Reserves 1) Subsidy Received From The Govt 2) Development Rebate reserve 3) Revaluation of fixed assets 4) Issue of Shares at Premium 5) General Reserves Surplus The credit balance in profit and loss account
  5. 5. BALANCE SHEET ANALYSIS Tangible Net Worth This refers to the total funds arrived by paid-up capital , Reserves and P&L Surplus Less Intagible Assets
  6. 6. BALANCE SHEET ANALYSIS Term Liabilities Redeemable preference shares Debentures Deferred payment gaurantees Public Deposits(Repayable after 12 months) Term loans and unsecured loans from friens, relatives,directors repayable over a period of time Remark : The company can raise public
  7. 7. BALANCE SHEET ANALYSIS Current Liabilities Working capital bank borrowings T.loans deferred credit inst falling due in 12 mths public deposits maturing within 12 months unsecured loans, unless the repayment is on deferred terms sundry creditors advances from dealers and customers
  8. 8. BALANCE SHEET ANALYSIS Contingent Liabilities Tax disputes Legal litigations Bills and cheques discounted with banks Claims against the company not acknowledged
  9. 9. BALANCE SHEET ANALYSIS Fixed Assets Infrastructure like land & building plant & machinery Vehicles Furniture & fixtures Depreciation Straight line method Written down Value Method Remark : Dep added to profit to arrive
  10. 10. BALANCE SHEET ANALYSIS Investments 1) Shares And Securities 2) Associate Companies 3) Fixed deposits with banks/finance companies Remark : While analysing bal sheet we can analyse necessity of such investments Remark : While fixed deposits with banks are considered as fixed assets, the investmetns in
  11. 11. BALANCE SHEET ANALYSIS Non Current Assets Deferred recievables/Overdue recievables(like disputed amounts and Over Due > 6 mths) Non moving stocks/inventory/un usable spares Investment/Lending to associate concern Borrowing of the directors from the company Telephone deposits/ ST deposits etc
  12. 12. BALANCE SHEET ANALYSIS Intangible Assets Preliminary & Preoperative expenses Deferred Revenue Expenditure Goodwill Trade mark Patents Rem : The o/s balance to be written off every year by charging P&L account
  13. 13. BALANCE SHEET ANALYSIS Current Assets Raw materials, work-in-progress,finished goods,spares and consumables Sundry debtors and recievables < 6 mths Advances paid to suppliers of raw materials Cash and bank balances Interest recievables Other current assets such as Government securities, Bank deposits ..etc
  14. 14. BALANCE SHEET ANALYSIS Notes All expenses or provisions or advances or loans etc which are accrued and payable within 12 months are current liablities When a company makes investments in unconnected avenues such as shares, securites, associate concerns are to be treated as non cur ast The slow moving and absolete inventory - NCA
  15. 15. BALANCE SHEET ANALYSIS Notes Bal Sh Analy not only to be quantitative but to be qualitative It is the fin pos on a part date. Min three years bal sh ana would be more meaningful It is a mixture of facts, opinions and conventions While opinions are of the company’s management, the conventions are practiced by the finance managers of the company.
  16. 16. BALANCE SHEET ANALYSIS Notes The valuation of the stock is done as per the opinion of the management Depreciation method may be changed to boost profit It may be silent on key personnel and staff turnover Marginal changes in the classification of certain items would lead to different results.
  17. 17. BALANCE SHEET ANALYSIS Notes Management competence Investment decision Resorting to window dressing experience of the promoters Board comprises of only family members The key personnel of the company The structure of the organisation The authority and decision making are
  18. 18. BALANCE SHEET ANALYSIS Notes The state of industrial relations Financial systems and procedures management control planning, budgeting, forecasting capacity utilisation status of the technology awareness of the market, competitions ..etc for listed co: share prices, EPS, book value,
  19. 19. Profit & Loss Account It is a summary of revenue earned and expenses incurred which ultimately results in profit or loss of to the company No defined format in law Operating revenue = Sales revenue Non_operating revenue = Other income ( out of sale of investments, interest, commission and discount etc) Hence operating profit is a yard stick for operating profit of the company
  20. 20. Profit & Loss Account Gross Sales Gross sales includes excise duty to be charged to the customer, central sales tax applicable, state sales tax applicable, the discount o be allowed to distributors/dealers/customers. The gross sales appears in the P&L account comprises of all the above part from the basic unit price. Net Sales The sales figure excluding all the factors
  21. 21. Profit & Loss Account Cost of production This is the cost incurred right from the procurement of raw material to the finished good. For ex in a garment firm following cost is incurred while production 1) cost of raw material cloth, buttons, canvas, hooks, zips etc 2) Maintenace of sewing machines 3) payment of wages to workers 4) power
  22. 22. Profit & Loss Account Selling And General Administarative Expenses Maintaining office staff for admn & acctg marketing effort payment of salaries/Tr All to marktg personnel All the expenses which are not directly connected to manufacturing are classifed as selling and/or general expenses
  23. 23. Profit & Loss Account Cost of goods sold Cost of goods sold includes all manufacturing expenses and the adjustments for opening and closing stock Cost of Goods sold = Opening stock + Purchases + Manufacturing expenses - Closing stock Gross Profit is arrived deducting figure of cost of goods sold from the sales figure ie Gross profit = Sales - Cost of goods sold.
  24. 24. Profit & Loss Account Operating Profit is arrived deducting selling, administrative and general expenses , provision for bad debts, interest and miscellaneous expenses from the gross profit. ie Op Profit = Gr Prof - (Sel & adm exp + Prov bad debt + mis exp ) Profit Before Tax When other income is added and other expenses are deducted from the operating profit we get profit before Tax ie PBT = Op Profit + oth Inc - oth exp
  25. 25. Profit & Loss Account Non Operating Income/Expenses The income earned by the unit from other than manufacturing and seling operations is classified under this head . i.e a) Interest earned on fixed deposits b) Dividends and profit earned by sale of assets and share. All those expenses which are not directly connected with operations of the unit are classified under this head. i.e

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