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Analysis of 
financial 
statements 
CA. Dhruv Seth 
FCA, DISA (ICAI) 
ds@sethspro.com
Coverage of the presentation 
• Legal forms of business 
• Basic principles of accounting 
• Components of financial statements 
• Understanding the key elements 
• Deciphering the numbers 
• Illustrations
Legal Forms of 
business
Legal forms of business 
• Proprietorship / HUF 
• Partnership Firms 
• Limited Liability partnerships (LLP) 
• Companies Incorporated 
– Private Limited 
– Public Limited 
• Societies / Trusts
Basic principles 
of accounting
Basic principles of accounting 
• Accrual 
• Matching 
• Consistency 
• Going Concern 
• Disclosure 
– Prudence 
– Materiality 
– Substance over form
Components of 
financial 
statements
Components of Audited FS 
• Balance Sheet 
• Profit and Loss 
• Cash Flow 
• Accounting Policies 
• Notes to Accounts 
• Board Reports 
• Auditors Reports 
• Auditors report on CARO
Legal Format and 
Understanding Key 
elements
Sch III to Companies Act, 2013 
I. EQUITY AND LIABILITIES 
AMOUNT 
(1) Shareholders’ funds 
(a) Share capital xxxx.xx 
(b) Reserves and surplus xxxx.xx 
(c) Money received against share warrants xxxx.xx 
(2) Share application money pending allotment xxxx.xx 
(3) Non-current liabilities 
(a) Long-term borrowings xxxx.xx 
(b) Deferred tax liabilities (Net) xxxx.xx 
(c) Other Long term liabilities xxxx.xx 
(d) Long-term provisions xxxx.xx 
(4) Current liabilities 
(a) Short-term borrowings xxxx.xx 
(b) Trade payables xxxx.xx 
(c) Other current liabilities xxxx.xx 
(d) Short-term provisions xxxx.xx
Sch III to Companies Act, 2013 
II. ASSETS AMOUNT 
(1) Non Current Assets 
(a) Fixed Assets 
(i) Tangible assets xxxx.xx 
(ii) Intangible assets xxxx.xx 
(iii)Capital work-in-progress xxxx.xx 
(b) Non-current investments xxxx.xx 
(c) Deferred tax assets (net) xxxx.xx 
(d) Long-term loans and advances xxxx.xx 
(e) Other non-current assets xxxx.xx 
(2) Current Assets 
(a) Current investments xxxx.xx 
(b) Inventories xxxx.xx 
(c) Trade receivables xxxx.xx 
(d) Cash and cash equivalents xxxx.xx 
(e) Short-term loans and advances xxxx.xx 
(f) Other current assets xxxx.xx
Sch III to Companies Act, 2013 
Particulars Cr. Yr Pr. Yr. 
I. Revenue from operations Xxxxx Xxxxx 
II. Other income Xxxxx Xxxxx 
III. Expenses: 
• Cost of materials consumed 
• Employee benefits expense 
• Finance costs 
• Depreciation and amortization expense 
• Other expenses 
• Total expenses 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
IV. Profit before exceptional and extraordinary 
items and tax (I + II – III) Xxxxx Xxxxx 
V. Exceptional Items Xxxxx Xxxxx 
VI. Profit before extraordinary items and tax (IV – 
V) 
Xxxxx Xxxxx
Particulars Cr. Yr Pr. Yr. 
VII. Extraordinary Items xxxxx xxxxx 
VIII. Profit Before Tax (VI – VII) xxxxx xxxxx 
IX. Tax expense: 
(1) Current tax 
(2) Deferred tax 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
X. Profit (Loss) for the period from continuing 
operations Xxxxx Xxxxx 
XI. Profit/(loss) from discontinuing operations Xxxxx Xxxxx 
XII. Profit/(loss) for the period (X + XI) Xxxxx Xxxxx 
XIII. Earnings per share 
(1) Basic 
(2) Dilluted 
Xxxxx 
Xxxxx 
Xxxxx 
Xxxxx 
Sch III to Companies Act, 2013
Deciphering the 
numbers
Ways and Means 
• Ratio Analysis 
– Horizontal 
– Vertical 
– Industry Norms 
• Cash Flow statement 
• Segment Report 
• Change in Accounting Policies 
• Notes to accounts
Ways and Means 
• Report on Corporate Governance 
• Board Report 
• Deferred Tax Asset / Liability 
• Contingent Liabilities 
• Consolidated Financial statements 
• CARO report 
• Auditors report
Where to Invest ? 
Particulars ABC Ltd XYZ Ltd 
Fixed Assets 10.00 20.00 
Inventory 20.00 25.00 
Sundry Debtors 35.00 60.00 
Cash and Bank 15.00 25.00 
Deferred Revenue Expenditure 50.00 0.00 
ASSETS TOTAL 130.00 130.00 
Share Capital 70.00 60.00 
Long Term Loans 40.00 30.00 
Current Liabilities 20.00 40.00 
LIABILITIES TOTAL 130.00 130.00
Where to Invest ? 
Particulars ABC Ltd XYZ Ltd 
Earning Before Interest and Tax 45.00 40.00 
Interest 8.00 8.00 
Tax 18.00 17.00 
Net Profit 19.00 15.00 
Balance Sheet - Liabilities 
Share Capital 50.00 60.00 
Long Term Loans 20.00 30.00 
Current Liabilities 60.00 40.00 
LIABILITIES TOTAL 130.00 130.00 
Industry Average Debt Equity 0.60 0.60
Analyze 
Particulars 2014 2013 
Sales 150.00 160.00 
Purchases 60.00 55.00 
Interest Paid 12.00 15.00 
Staff Salary 50.00 48.00 
Administrative Expenses 20.00 22.00 
Bad Debts 10.00 12.00 
Staff Welfare 3.00 9.00 
Electricity 6.00 7.00 
Opening Stock 35.00 50.00 
Closing Stock 55.00 35.00 
Debtors 30.00 80.00
Balance Sheet 
Other components of 
Financial statements
THANK YOU 
CA Dhruv Seth 
ds@sethspro.com

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Financial Statement Analysis and Key Elements

  • 1. Analysis of financial statements CA. Dhruv Seth FCA, DISA (ICAI) ds@sethspro.com
  • 2. Coverage of the presentation • Legal forms of business • Basic principles of accounting • Components of financial statements • Understanding the key elements • Deciphering the numbers • Illustrations
  • 3. Legal Forms of business
  • 4. Legal forms of business • Proprietorship / HUF • Partnership Firms • Limited Liability partnerships (LLP) • Companies Incorporated – Private Limited – Public Limited • Societies / Trusts
  • 5. Basic principles of accounting
  • 6. Basic principles of accounting • Accrual • Matching • Consistency • Going Concern • Disclosure – Prudence – Materiality – Substance over form
  • 8. Components of Audited FS • Balance Sheet • Profit and Loss • Cash Flow • Accounting Policies • Notes to Accounts • Board Reports • Auditors Reports • Auditors report on CARO
  • 9. Legal Format and Understanding Key elements
  • 10. Sch III to Companies Act, 2013 I. EQUITY AND LIABILITIES AMOUNT (1) Shareholders’ funds (a) Share capital xxxx.xx (b) Reserves and surplus xxxx.xx (c) Money received against share warrants xxxx.xx (2) Share application money pending allotment xxxx.xx (3) Non-current liabilities (a) Long-term borrowings xxxx.xx (b) Deferred tax liabilities (Net) xxxx.xx (c) Other Long term liabilities xxxx.xx (d) Long-term provisions xxxx.xx (4) Current liabilities (a) Short-term borrowings xxxx.xx (b) Trade payables xxxx.xx (c) Other current liabilities xxxx.xx (d) Short-term provisions xxxx.xx
  • 11. Sch III to Companies Act, 2013 II. ASSETS AMOUNT (1) Non Current Assets (a) Fixed Assets (i) Tangible assets xxxx.xx (ii) Intangible assets xxxx.xx (iii)Capital work-in-progress xxxx.xx (b) Non-current investments xxxx.xx (c) Deferred tax assets (net) xxxx.xx (d) Long-term loans and advances xxxx.xx (e) Other non-current assets xxxx.xx (2) Current Assets (a) Current investments xxxx.xx (b) Inventories xxxx.xx (c) Trade receivables xxxx.xx (d) Cash and cash equivalents xxxx.xx (e) Short-term loans and advances xxxx.xx (f) Other current assets xxxx.xx
  • 12. Sch III to Companies Act, 2013 Particulars Cr. Yr Pr. Yr. I. Revenue from operations Xxxxx Xxxxx II. Other income Xxxxx Xxxxx III. Expenses: • Cost of materials consumed • Employee benefits expense • Finance costs • Depreciation and amortization expense • Other expenses • Total expenses Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx IV. Profit before exceptional and extraordinary items and tax (I + II – III) Xxxxx Xxxxx V. Exceptional Items Xxxxx Xxxxx VI. Profit before extraordinary items and tax (IV – V) Xxxxx Xxxxx
  • 13. Particulars Cr. Yr Pr. Yr. VII. Extraordinary Items xxxxx xxxxx VIII. Profit Before Tax (VI – VII) xxxxx xxxxx IX. Tax expense: (1) Current tax (2) Deferred tax Xxxxx Xxxxx Xxxxx Xxxxx X. Profit (Loss) for the period from continuing operations Xxxxx Xxxxx XI. Profit/(loss) from discontinuing operations Xxxxx Xxxxx XII. Profit/(loss) for the period (X + XI) Xxxxx Xxxxx XIII. Earnings per share (1) Basic (2) Dilluted Xxxxx Xxxxx Xxxxx Xxxxx Sch III to Companies Act, 2013
  • 15. Ways and Means • Ratio Analysis – Horizontal – Vertical – Industry Norms • Cash Flow statement • Segment Report • Change in Accounting Policies • Notes to accounts
  • 16. Ways and Means • Report on Corporate Governance • Board Report • Deferred Tax Asset / Liability • Contingent Liabilities • Consolidated Financial statements • CARO report • Auditors report
  • 17. Where to Invest ? Particulars ABC Ltd XYZ Ltd Fixed Assets 10.00 20.00 Inventory 20.00 25.00 Sundry Debtors 35.00 60.00 Cash and Bank 15.00 25.00 Deferred Revenue Expenditure 50.00 0.00 ASSETS TOTAL 130.00 130.00 Share Capital 70.00 60.00 Long Term Loans 40.00 30.00 Current Liabilities 20.00 40.00 LIABILITIES TOTAL 130.00 130.00
  • 18. Where to Invest ? Particulars ABC Ltd XYZ Ltd Earning Before Interest and Tax 45.00 40.00 Interest 8.00 8.00 Tax 18.00 17.00 Net Profit 19.00 15.00 Balance Sheet - Liabilities Share Capital 50.00 60.00 Long Term Loans 20.00 30.00 Current Liabilities 60.00 40.00 LIABILITIES TOTAL 130.00 130.00 Industry Average Debt Equity 0.60 0.60
  • 19. Analyze Particulars 2014 2013 Sales 150.00 160.00 Purchases 60.00 55.00 Interest Paid 12.00 15.00 Staff Salary 50.00 48.00 Administrative Expenses 20.00 22.00 Bad Debts 10.00 12.00 Staff Welfare 3.00 9.00 Electricity 6.00 7.00 Opening Stock 35.00 50.00 Closing Stock 55.00 35.00 Debtors 30.00 80.00
  • 20. Balance Sheet Other components of Financial statements
  • 21. THANK YOU CA Dhruv Seth ds@sethspro.com