Financial statement analysis, analysis and interpretation, ratio analysis, fund flow statement, cash flow statement, Indian accounting standards,

1. FINANCIAL STATEMENT
ANALYSIS
DR.C.SAHILA
ASSISTANT PROFESSOR
DEPARTMENT OF COMMERCE
SRM INSTITUTE OF SCIENCE AND TECHNOLOGY
CHENNAI

2. INTRODUCTION
Financial statements are the end products of the accounting
process, which reveals the financial results of the specified period and
financial position as on particular date. It is the basic and formal annual
report through which a business communicates financial information to
its various user groups.

3. NATURE OF FINANCIAL STATEMENT
1. Recorded facts
2. Accounting conventions
3. Postulates(Assumptions)
4. Personal Judgements

4. OBJECTIVES
To provide an accurate and reliable financial
information
To provide overall changes made in the financial
information
To provide an accurate and reliable financial
information
To provide financial information which helps the top
management

5. FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
means the process of systematic
analysis of the financial
information of the company for a
particular period of time.

6. FSA consist of the Comparison of
same company
over the period
of time
different
companies in the
same industry
different
companies in
different
industries

7. ANALYSIS
Analysis – To Analyse – to cut into pieces
But only analyse – No – It means also Interpretation.
Thus
Financial Statement Analysis means “Analysis, comparisons and
interpretation of Financial data to achieve the desired result”

8. TYPES OF
FINANCIAL
ANALYSIS
On the basis of
Information
used
External
Analysis
Internal
Analysis
On the basis of
Modus
Operandi
Horizontal Vertical

10. Comparative Statement
This helps to understand the comparative position of financial and
operational performance at different period of time.
Two major types of comparative:
Comparative Balance Sheet Analysis
Comparative Income Statement Analysis

11. Common Size Statements
A common size income statement is an income statement in
which each line item is expressed as a percentage of the value of
revenue or sales.
Types of common size statements
(1)Common Size Balance Sheet
(2)Common Size Income Statement

12. Trend Analysis
Trend analysis evaluates an organization’s financial information
over a period of time. Periods may be measured in months, quarters,
or years, depending on the circumstances.

13. Ratio analysis is a particular type of
financial statement analysis where the
relationship between two or more items
from the financial statements is
analyzed.
A particular ratio might include
information from various sources,
including information not typically
contained in the financial statements,
such as market price of a stock.

22. FUND FLOW STATEMENT
CHANGES IN
WORKING
CAPITAL
FUNDS FROM
OPERATION
STATEMENT
OF SOURCES
AND USES OF
FUNDS

30. LIST OF INDIAN ACCOUNTING STANDARDS
Ind AS
101
• First-time adoption of Indian Accounting Standards
Ind AS
102
• Share-based payment
Ind AS
103
• Business combinations
Ind AS
104
• Insurance contracts
Ind AS
105
• Non-current assets that are held for sale and
discontinued operations
Ind AS
106
• Exploration for and evaluation of mineral resources
Ind AS
107
• Financial instruments: disclosures
Ind AS
108
• Operating segments

31. Ind AS 1
• Presentation of financial statements
Ind AS 2
• Inventories
Ind AS 7
• Statement of cash flows
Ind AS 8
• Accounting policies, changes in accounting estimates and errors
Ind AS 10
• Events after the reporting period
Ind AS 11
• Construction Contracts
Ind AS 12
• Income Tax
Ind AS 16 • Property, Plant and Equipment

32. Ind AS
17
• Leases
Ind AS
18
• Revenue
Ind AS
19
• Employee Benefits
Ind AS
20
• Accounting for Government Grants and Disclosure of
Government Assistance
Ind AS
21
• The Effects of Changes in Foreign Exchange Rates
Ind AS
23
• Borrowing Costs
Ind AS
24
• Related Party Disclosures
Ind AS
27
• Consolidated and Separate Financial Statements

33. Ind AS 28 • Investments in Associates
Ind AS 29 • Financial Reporting in Hyperinflationary Economies
Ind AS 31 • Interests in Joint Ventures
Ind AS 32 • Financial Instruments: Presentation
Ind AS 33 • Earnings per Share
Ind AS 34 • Interim Financial Reporting
Ind AS 36 • Impairment of Assets
Ind AS 37 • Provisions, Contingent Liabilities and Contingent Assets

34. Ind AS 38
• Intangible Assets
Ind AS 39
• Financial Instruments: Recognition and Measurement
Ind AS 40
• Investment Property

35. MCQ

36. Question
Consolidated financial statements are prepared on the principle
a) In form the companies are one entity, in substance they are
separate.
b) In form companies are separate, in substance they are one.
c) In form and substance the companies are one entity.
d) In form and substance the companies are separate.
Answer
c) In form and substance the companies are one entity.

37. Question
Comparison of the financial statements of the current year with the
performance of previous years of the same firm', is known as
a) Trend analysis
b) Horizontal analysis
c) Intra firm comparison
d) All the above
Answer
d) All the above

38. Question
X' Ltd. has a liquid ratio of 2:1. If its stock is Rs. 40,000 and its current liabilities are of Rs. 1 Lakh, What will be the current
ratio________.
a) 1.4 times
b) 2.4 times
c) 1.2 times
d) 3.4 times
Answer
b) 2.4 times
Liquid Ratio = [Current Assets minus Stock]/ Current Liabilities
2 = [Current Assets - 40000]/ 100000
200000 = Current Assets - 40000
Therefore, Current Assets = Rs.240000
Now,
Current Ratio = Current assets/Current liabilities
= 240000/100000
= 2.4 times

39. Question
A company proposes to introduce a new product in the market. The company wants to maintain
P/V Ratio at 25%. If variable cost of the product is Rs 300, what will be the selling price ?
a) 100
b) 200
c) 300
d) 400
Answer
d) 400
P/V Ratio = contribution / sales ×100
let the sales is x
25 % = x- 300 / x ×100
0.25 % = (x - 300 ) / x
0.75%x = 300
x = 300 / 0.75= 400
sales price = 400

40. Question
Assertion (A): Accounting information refers to only events which are concerned with business firm.
Reason (R): Accounting information is presented in financial statements.
a) is correct, but (R) is wrong.
b) Both (A) and (R) are correct.
c) (A) is wrong, but (R) is correct.
d) (D) Both (A) and (R) are wrong.
Answer:
(b) Both (A) and (R) are correct.

41. Question
The main objective of Accounting Standards is
a) To prepare the accounting reports which is easily understood by common man.
b) To comply with the legal formalities.
c) To harmonise the diversified accounting practices.
d) To comply with the requirements of the International Accounting Standards (IAS).
Answer:
c) To harmonise the diversified accounting practices.

42. Question
Given below are two statements:
I. Activity ratios show where the company is going.
II. Balance Sheet ratios show how the company stand.
Codes:
a) I is correct, but II is wrong.
b) Both I and II are correct.
c) I is wrong, but II is correct.
d) Both I and II are wrong.
Answer:
b) Both I and II are correct.

43. Question
If the current ratio is 2: 1 and working capital is Rs. 60,000, what is the value of
the Current Assets?
a) Rs. 60,000
b) Rs. 1, 00,000
c) Rs. 1, 20,000
d) Rs. 1, 80,000
Answer:
(c) Rs. 1, 20,000
working capital = current assets - current liabilities.
1 = 2 – 1
(WC) 1 60,000
(CA) 2 Cross Multiply = 60,000 x 2 / 1
Current assets = 120000

44. Question
The statement of cash flow clarifies cash flows according to
a) Operating and Non-operating Flows
b) Inflow and Outflow
c) Investing and Non-operating Flows
d) Operating, Investing, and Financing Activities
Answer:
d) Operating, Investing, and Financing Activities

45. Question
Which item comes under financial activities in cash flow?
a) Redemption of Preference Share
b) Issue of Preference Share
c) Interest Paid
d) All the above
Answer:
d) All the above

46. Question
Match list I and list II
a b c d
A) iii iv ii i
B) ii i iv iii
C) ii iii i iv
D) i ii iii iv
Answer
D) i ii iii iv
List I List II
a) Ind AS 16 i) Property, land and equipments
b) Ins AS 17 ii) Leasing
c) Ind AS 12 iii) Income Tax
d) Ind AS 38 iv) Intangible Assets

47. Question
The funds available with a company after paying all claims including tax and dividend is called
a) Net Profit
b) Net Operating Profit
c) Capital Profit
d) Retained Earnings
Answer
d) Retained Earnings

48. Question
Which one of the following is not an example of ‘financing activities’ with
reference to cash flow statement ?
a) Repayment of bank loan
b) Interest on debentures/Dividend paid
c) Cash proceeds from public deposits
d) Sale of fixed assets
Answer
d) Sale of fixed assets

49. Question
When accounting standard board has been constitute
a) 21 Feb 1977
b) 21 March 1977
c) 21 April 1977
d) 21 May 1977
Answer
c) 21 April 1977

50. Question
When equipment is sold for cash, the amount received is reflected as cash?
a) Inflow in the operating section
b) Inflow in the financing section
c) Inflow in the investing section
d) Outflow in the operating section
Answer
c) Inflow in the investing section

51. Question
Which of the following cash flows results from an operating activity?
a) Paying dividends to stockholders
b) Repaying note payable
c) Receiving interest on investment
d) Purchasing equipment
Answer
c) Receiving interest on investment

52. Question
Fund flow statement is based on the concept of…
a) business entity
b) accounting period
c) going concern
d) all of the above
Answer
c) going concern