Why Analysis?
To answer these questions related
with--
The factors responsible for the
difference in the owner’s equity, ...
 Are long term sources adequate to
finance fixed assets purchases?
 Does the firm posses adequate WC?
 Why did the firm...
FUNDS FLOW STATEMENT
What is FFS?
The funds flow statement or
statement of changes in financial
position is a statement of...
A summary of a firm’s changes in
financial position from one period to
another; it is also called a sources and
uses of fu...
What are “funds”?
All of the firm’s investments and claims
against those investments.
Extends beyond just transactions
inv...
Analyzing the Sources and Uses
Statement
Sources
Primarily through net profit from
operations and long-term debt increas...
Sources and uses
 Source
 Funds from business
operations.
 Other incomes
 Sale of non current
assets.
 Long term borr...
Rule for sources and uses of
funds
A L
S - +
U + -
Transactions not affecting WC
 A simultaneous increase in CA and
increase in CL does not affect WC.
 A simultaneous decr...
General Rules
Transactions affecting WC:
 An increase in CA –Increases WC
 A decrease in CA- Decreases WC
 An increase ...
Step 1: Schedule of changes in WC.
Particulars Amt. PY Amt. CY Inc.
Rs
Dec.
Rs.
A. Current Assets
e.g. Cash
Inventory
10,0...
Calculation of FFO/FLO
A. Net income as per
P&L a/c
 B. Add:
 Dep. Expenses
 Amortization of
Goodwill, Patents
and othe...
Alternative method
 A. Sales Revenue
 B. Less: Expenses
Cost of RM
Wages and Salary
Manu. Expenses
Advt. Exp.
Insurance ...
 The cash flow statement
simultaneously provides an
explanation of why a firm’s cash
position has changed between
success...
Revised cash flow AS-3
 Net Cash flow from operating activities.
(Cash in flows – cash out flows)
 Net Cash flow from in...
Solution statement of changes in
working capital
Particulars 2005 2006 Inc. Dec.
A. Current Assets:
Cash 30,000 10,000 Nil...
B. Current
Liabilities
2005 2006 Inc. Dec.
Tax Payable 77,000 43,000 34,000 Nil
A/cs Payable 96,000 1,92,000 Nil 96,000
In...
Solution statement of changes in
working capital
Particulars 2005 2006 Inc. Dec.
A. Current Assets:
Cash
Debtors
Stock – i...
Statement of Sources and
Application of Funds.
Sources Amt. Rs. Application Amt. Rs.
Issue of Share
Capital
Funds from
Ope...
Solution statement of changes in working capital
Particulars 2005 2006 Inc. Dec.
A. Current Assets:
Stock
Bank
Debtors
3,0...
Provision for Depreciation on
P&M A/c
Particulars Amt. Rs Particulars Amt. Rs
To P & M A/c
(dep on sold
Machinery)
To Bal ...
Provision for Depreciation
on Land & Building A/c
Particulars Amt. Rs Particulars Amt. Rs
To Bal C/d 24,000 By Bal B/d
By ...
Plant & Machinery A/C
Particulars Amt. Rs Particulars Amt. Rs
To Bal B/d
To Cash
(purchases)
4,00,000
3,15,000
By Cash (sa...
Adjusted P& L A/c
Particulars Amt. Particulars Amt.
To Prov for Dep
P & M
L & B
To Pre. Exp
W / off
To Dividend
To loss on...
Funds Flow Statement
Sources Amt.Rs. Uses Amt.Rs.
Issue of Sh.
Issue of Debt
Sale of Mach.
FFO
2,00,000
1,00,000
6,000
2,4...
Common Size Income Statement
s.n Particulars Top
Rs %
Ten
Rs. %
1.
2.
3.
4.
5.
Sales
-Cost of
sales
GP (1-2)
-OP exp
(inc ...
6.
7.
8.
9.
10.
11.
-Int on Debt
NPBT(5-6)
-Taxes
Net PAT(7-8)
-Dividend
-Retained
Earning(9-10)
7,500
2,50,000
1,00,000
1...
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2 funds flow_statement

  1. 1. Why Analysis? To answer these questions related with-- The factors responsible for the difference in the owner’s 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.
  2. 2.  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?
  3. 3. FUNDS FLOW STATEMENT What 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.
  4. 4. A summary of a firm’s 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.
  5. 5. What are “funds”? All of the firm’s investments and claims against those investments. Extends beyond just transactions involving cash.
  6. 6. Analyzing the Sources and Uses Statement Sources Primarily through net profit from operations and long-term debt increases. Uses Primarily through an increase in inventories and expenditures on capital assets.
  7. 7. Sources and uses  Source  Funds from business operations.  Other incomes  Sale of non current assets.  Long term borrowings  Issue of additional share capital.  Decrease in WC  Uses  Loss from business operations.  Purchase pf non current assets.  Redemption of debentures or pref. shares.  Payment of dividend and tax.  Increase in WC
  8. 8. Rule for sources and uses of funds A L S - + U + -
  9. 9. Transactions not affecting WC  A 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.)
  10. 10. General Rules Transactions affecting WC:  An increase in CA –Increases WC  A decrease in CA- Decreases WC  An increase in CL- Decreases WC  A decrease in CL – Increases WC.
  11. 11. Step 1: Schedule of changes in WC. Particulars Amt. PY Amt. CY Inc. Rs Dec. Rs. A. Current Assets e.g. Cash Inventory 10,000 12,000 12,000 8,000 2,000 Nil Nil 4,000 Total current assets B. Current Liabilities Creditors Bills Payable 22,000 7,000 5,000 20,000 5,000 8,000 2,000 Nil Nil 3,000 Total current liabilities Net WC(A-B) 12,000 10,000 13,000 7.000 Net Increase/ Decrease in WC. 10,000 3,000 10,000 3,000 7,000 7,000
  12. 12. 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)
  13. 13. Alternative method  A. Sales Revenue  B. Less: Expenses Cost of RM Wages and Salary Manu. Expenses Advt. Exp. Insurance exp. Office exp. other operating exp. interest Income Tax C. Funds form Operations (A-B)
  14. 14.  The cash flow statement simultaneously provides an explanation of why a firm’s cash position has changed between successive balance sheet dates and explains changes that have taken place in the firm’s noncash asset, liability, and stockholders’ equity accounts over the same time period.
  15. 15. Revised cash flow AS-3  Net 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)
  16. 16. Solution statement of changes in working capital Particulars 2005 2006 Inc. Dec. A. Current Assets: Cash 30,000 10,000 Nil 20,000 A/c s Receivable 70,000 1,40,000 70,000 Nil Stock in Trade 1,50,000 2,25,000 75,000 Nil Work in Progress 80,000 90,000 10,000 Nil Total CA 3,30,000 4,65,000
  17. 17. B. Current Liabilities 2005 2006 Inc. Dec. Tax Payable 77,000 43,000 34,000 Nil A/cs Payable 96,000 1,92,000 Nil 96,000 Interest Payable 37,000 45,000 Nil 8,000 Dividend Payable 50,000 35,000 15,000 Nil Total CL 2,60,000 3,15,000 Net WC (A-B) 70,000 1,50,000 Net Increase in WC 80,000 80,000 1,50,000 1,50,000 2,04,000 2,04,000
  18. 18. Solution statement of changes in working capital Particulars 2005 2006 Inc. Dec. A. Current Assets: Cash Debtors Stock – in –trade 1,10,000 1,60,000 85,000 1,70,000 1,50,000 1,05,000 60,000 Nil 20,000 Nil 10,000 Nil Total CA 3,55,000 4,25,000 Current liabilities Sundry Creditors 1,00,000 70,000 30,000 Nil Total CL 1,00,000 70,000 Net Working Capital Net Increase in WC 2,55,000 1,00,000 3,55,000 3,55,000 3,55,000 1,10,000 1,00,000 1,10,000
  19. 19. Statement of Sources and Application of Funds. Sources Amt. Rs. Application Amt. Rs. Issue of Share Capital Funds from Operations Total 1,00,000 15,000 1,15,000 Purchase of Plant & Machinery Purchase of Furniture & Fix. Net increase in WC Total 10,000 5,000 1,00,000 1,15,000
  20. 20. Solution statement of changes in working capital Particulars 2005 2006 Inc. Dec. A. Current Assets: Stock Bank Debtors 3,00,000 20,000 69,000 3,50,000 40,000 61,000 50,000 20,000 Nil Nil Nil 8,000 Total 3,89,000 4,51,000 B. Current Liabilities: Creditors Provision for Doubtful Debts 1,15,000 6,000 90,000 3,000 25,000 3,000 Nil Nil Total 1,21,000 93,000 Net Working Capital (A-B) 2,68,000 3,58,000 Net Increase in WC 90,000 90,000 3,58,000 3,58,000 98,000 98,000
  21. 21. Provision for Depreciation on P&M A/c Particulars Amt. Rs Particulars Amt. Rs To P & M A/c (dep on sold Machinery) To Bal C/d 2,000 35,000 By Bal b/d By Adj P&L A/c (Balancing Fig) 30,000 7,000 Total 37,000 Total 37,000
  22. 22. Provision for Depreciation on Land & Building A/c Particulars Amt. Rs Particulars Amt. Rs To Bal C/d 24,000 By Bal B/d By Adj P&L A/c 20,000 4,000 Total 24,000 Total 24,000
  23. 23. Plant & Machinery A/C Particulars Amt. Rs Particulars Amt. Rs To Bal B/d To Cash (purchases) 4,00,000 3,15,000 By Cash (sale) By Prov. For Dep By Adj P&L a/c By Bal C/d 6,000 2,000 62,000 6,45,000 Total 7,15,000 Total 7,15,000
  24. 24. Adjusted P& L A/c Particulars Amt. Particulars Amt. To Prov for Dep P & M L & B To Pre. Exp W / off To Dividend To loss on sale To Bal C/d 7,000 4,000 1,000 50,000 62,000 2,50,000 By Bal B/d By FFO 1,25,000 2,49,000 3,74,000 3,74,000
  25. 25. Funds Flow Statement Sources Amt.Rs. Uses Amt.Rs. Issue of Sh. Issue of Debt Sale of Mach. FFO 2,00,000 1,00,000 6,000 2,49,000 Purch. P& M Purch. L & B Dividend paid Net Inc in WC 3,15,000 1,00,000 50,000 90,000 Total 5,55,000 5,55,000
  26. 26. Common Size Income Statement s.n Particulars Top Rs % Ten Rs. % 1. 2. 3. 4. 5. Sales -Cost of sales GP (1-2) -OP exp (inc int). Dep OPBIT(3-4) 10,00,000 6,00,000 4,00,000 1,32,500 10,000 2,57,500 100 60 40 13.25 1.00 25.75 12,00,000 8,00,000 4,00,000 1,97,500 20,000 1,82,500 100 66.67 33.33 16.45 1.67 15.21
  27. 27. 6. 7. 8. 9. 10. 11. -Int on Debt NPBT(5-6) -Taxes Net PAT(7-8) -Dividend -Retained Earning(9-10) 7,500 2,50,000 1,00,000 1,50,000 70,000 80,000 0 .75 25.00 10.00 15.00 7.00 8.00 7,500 1,75,000 70,000 1,05,000 75,000 30,000 0.63 14.58 5.83 8.75 6.25 2.50

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