Full balance sheet_&_profit_&_loss_analysis
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  • 1. CAIIB - Financial ManagementModule B – Study of Financial Statements- Balance Sheet AnalysisM. Syed Kunmir
  • 2. BALANCE SHEET ANALYSIS Sources of Funds1) Capital2) Reserves & Surplus3) Term Liabilities4) Current Liabilities
  • 3. BALANCE SHEET ANALYSIS Uses of Funds 1) Fixed Assets 2) Intangible Asets 3) Non Current Assets 4) Current Assets
  • 4. BALANCE SHEET ANALYSISCapital1) Authorised Capital2) Issued Capital3) Subscribed Capital4) Paid-up Capital
  • 5. BALANCE SHEET ANALYSISReserves1) Subsidy Received From The Govt2) Development Rebate reserve3) Revaluation of fixed assets4) Issue of Shares at Premium5) General ReservesSurplusThe credit balance in profit and loss account
  • 6. BALANCE SHEET ANALYSISTangible Net WorthThis refers to the total funds arrived by paid-up capital , Reserves and P&L SurplusLessIntagible Assets
  • 7. BALANCE SHEET ANALYSISTerm LiabilitiesRedeemable preference sharesDebenturesDeferred payment gauranteesPublic Deposits(Repayable after 12 months)Term loans and unsecured loans from friens, relatives,directors repayable over a period of timeRemark : The company can raise public deposits to the extent of 25% of paid up capital plus free reserves and 10% from share holders for the maturity period ranging from 6 months to 3 yrs
  • 8. BALANCE SHEET ANALYSISCurrent LiabilitiesWorking capital bank borrowingsT.loans deferred credit inst falling due in 12 mthspublic deposits maturing within 12 monthsunsecured loans, unless the repayment is on deferred termssundry creditorsadvances from dealers and customersinterest accrued but not paidtax provisionsDividend declared and payable
  • 9. BALANCE SHEET ANALYSISContingent LiabilitiesTax disputesLegal litigationsBills and cheques discounted with banksClaims against the company not acknowledged
  • 10. BALANCE SHEET ANALYSISFixed AssetsInfrastructure like land & buildingplant & machineryVehiclesFurniture & fixturesDepreciationStraight line methodWritten down Value MethodRemark : Dep added to profit to arrive repayment obligation especially in term loans
  • 11. BALANCE SHEET ANALYSISInvestments1) Shares And Securities2) Associate Companies3) Fixed deposits with banks/finance companiesRemark : While analysing bal sheet we can analyse necessity of such investmentsRemark : While fixed deposits with banks are considered as fixed assets, the investmetns in associate concerns are treated as non current assets.
  • 12. BALANCE SHEET ANALYSISNon Current AssetsDeferred recievables/Overdue recievables(like disputed amounts and Over Due > 6 mths)Non moving stocks/inventory/un usable sparesInvestment/Lending to associate concernBorrowing of the directors from the companyTelephone deposits/ ST deposits etc
  • 13. BALANCE SHEET ANALYSISIntangible AssetsPreliminary & Preoperative expensesDeferred Revenue ExpenditureGoodwillTrade markPatentsRem : The o/s balance to be written off every year by charging P&L account
  • 14. BALANCE SHEET ANALYSISCurrent AssetsRaw materials, work-in-progress,finished goods,spares and consumablesSundry debtors and recievables < 6 mthsAdvances paid to suppliers of raw materialsCash and bank balancesInterest recievablesOther current assets such as Government securities, Bank deposits ..etc
  • 15. BALANCE SHEET ANALYSISNotesAll expenses or provisions or advances or loans etc which are accrued and payable within 12 months are current liablitiesWhen a company makes investments in unconnected avenues such as shares, securites, associate concerns are to be treated as non cur astThe slow moving and absolete inventory - NCA
  • 16. BALANCE SHEET ANALYSISNotesBal Sh Analy not only to be quantitative but to be qualitativeIt is the fin pos on a part date. Min three years bal sh ana would be more meaningfulIt is a mixture of facts, opinions and conventionsWhile opinions are of the company’s management, the conventions are practiced by the finance managers of the company.( ex Over due recievable > 6 mths as NCA is a acccounting convention
  • 17. BALANCE SHEET ANALYSISNotesThe valuation of the stock is done as per the opinion of the managementDepreciation method may be changed to boost profitIt may be silent on key personnel and staff turnoverMarginal changes in the classification of certain items would lead to different results.
  • 18. BALANCE SHEET ANALYSISNotesManagement competenceInvestment decisionResorting to window dressingexperience of the promotersBoard comprises of only family membersThe key personnel of the companyThe structure of the organisationThe authority and decision making are decentralised
  • 19. BALANCE SHEET ANALYSISNotesThe state of industrial relationsFinancial systems and proceduresmanagement controlplanning, budgeting, forecastingcapacity utilisationstatus of the technologyawareness of the market, competitions ..etcfor listed co: share prices, EPS, book value, dividend record, public response ..etc
  • 20. PROFIT & LOSS ACCOUNTIt is a summary of revenue earned and expenses incurred which ultimately results in profit or loss of to the companyNo defined format in lawOperating revenue = Sales revenueNon_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 companyOperating profit = Sales Revenue- Operating Cost
  • 21. PROFIT & LOSS ACCOUNTGross SalesGross 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 SalesThe sales figure excluding all the factors explained above are the net sales.
  • 22. PROFIT & LOSS ACCOUNTCost of productionThis 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 production1) cost of raw material cloth, buttons, canvas, hooks, zips etc2) Maintenace of sewing machines3) payment of wages to workers4) power5) washing, ironing,packing etc.
  • 23. PROFIT & LOSS ACCOUNTSelling And General Administarative ExpensesMaintaining office staff for admn & acctgmarketing effortpayment of salaries/Tr All to marktg personnelAll the expenses which are not directly connected to manufacturing are classifed as selling and/or general expenses
  • 24. PROFIT & LOSS ACCOUNTCost of goods soldCost of goods sold includes all manufacturing expenses and the adjustments for opening and closing stockCost of Goods sold = Opening stock + Purchases + Manufacturing expenses - Closing stockGross Profit is arrived deducting figure of cost of goods sold from the sales figureie Gross profit = Sales - Cost of goods sold.
  • 25. PROFIT & LOSS ACCOUNTOperating 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 Taxie PBT = Op Profit + oth Inc - oth expNet Profit When provision for taxes is deducted from the Profit Before Tax we get
  • 26. PROFIT & LOSS ACCOUNTNon Operating Income/ExpensesThe 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 a) Preliminary expenses written off b) Loss suffered due to sale of assets &