3. • Financial awareness is fundamental to business success
• Financial knowledge is not just for accountants – it’s for
everyone
A survey found that 8 out of every 10 owners are trying to manage their
business without having the financial side under control. That's a
recipe for disaster! by Philip Campbell, CPA
6. ...understanding the finance side of business means the
ability to understand the impact of every decision you
make on the organization’s profitability...
9. How Business Gets Money?
“Never spend your money before you have earned it”
– Thomas Jefferson, Past president of USA
10. How Business Uses Money?
Buy
Current
Fixed Investments Deposits
assets
Assets
11. Recording – Accounting
and book keeping
People want to learn about finance because they want to know
what accountants are talking about – anonymous
15. Balance Sheet
Is one of the key financial
statements and is a
snapshot of the financial
What a What a
position of a business at a business business
owns owes
point in time
16. Profit & Loss Account
Why Profit and Loss
account made?
What Does it contain?
What is top line and
bottom line?
“Top line is merely a means towards achieving an end, and the end is to have healthy
bottom line.”
17. Cash Flow Statements
Profit does
not mean
Cash Profits
Cash flow Accounts are
from prepared on
financing matching
activities concept
Cash flow
Statement
Cash flow Cash flow
from from
investing operating
activities activities
18. Cash Flow Statement Example
Cash Flow from Operating activities
Profit for the period 8500
Adjustments for timing differences -1650
Interest and taxes paid -3250
3600
19. Cash Flow Statement Example
Cash Flow from Operating activities
Profit for the period 8500
Adjustments for timing differences -1650
Interest and taxes paid -3250
3600
Cash flow from investing activities
Purchase of property -9450
Proceeds from sale of equipments 2250
Interest and dividends received 900
-6300
20. Cash Flow Statement Example
Cash Flow from Operating activities
Profit for the period 8500
Adjustments for timing differences -1650
Interest and taxes paid -3250
3600
Cash flow from investing activities
Purchase of property -9450
Proceeds from sale of equipments 2250
Interest and dividends received 900
-6300
Cash flows from financing activities
Proceeds from issue of share capital 1500
Proceeds from long-term borrowings 7500
Dividends paid -3000
6000
21. Cash Flow Statement Example
Cash Flow from Operating activities
Profit for the period 8500
Adjustments for timing differences -1650
Interest and taxes paid -3250
3600
Cash flow from investing activities
Purchase of property -9450
Proceeds from sale of equipments 2250
Interest and dividends received 900
-6300
Cash flows from financing activities
Proceeds from issue of share capital 1500
Proceeds from long-term borrowings 7500
Dividends paid -3000
6000
Net Increase in cash and cash equivalents 3300
Cash at the beginning of period 6450
Cash and cash equivalents 9750
22. Why the difference arises between profits and cash
profits?
• Depreciation
• Amortization
23. Accounting Standards and Regulations
Generally
Accepted
Indian Accounting
Accounting Practice
Standards [GAAP]
International
Financial Audits
Reporting
Standards
[IFRS]
24. Who Uses Financial Statements
• Shareholders
• Financial analysts, advisers and
Advisors & journalists
Analysts • Credit Rating Agencies
• Local Tax authorities
• Governments
Officials & • Providers of finance, such as banks
Government
• Suppliers
• Customers
• Managers
Stakeholders • Employees
25. Making Profits
If a man goes into business with only the idea of making money, the chances are he won’t
-By Joyce Clyde Hall, founder of Hallmark Cards
26. Costs
• Direct Cost
• Indirect Cost
Cost behaviour
• fixed and variable costs
• semi variable costs
31. Break Even point
• Contribution = Revenue
– Variable Costs
• Profit = Contribution –
fixed Costs
32. How to manage Profits
Maintain Service
Increase Sales Volume Quality
Increase In Price Manage Interest
Costs
Improve Keeping Current
Margins/Contribution
Reduce Fixed Changing Business
Costs Needs
33. Be aware [beware] of Taxes
„of two things you can be certain; death
and taxes‟
-By Benjamin Franklin,
American Philosopher
34. Taxes
Tax Classes
Income or Corporate Tax
Employment or Payroll Tax
Capital Gain Tax
Value Added Tax
Excise Duty and Customs Duty
Service Tax
Professional Tax
Entry Tax
36. Cash Is King...
The most common reason that businesses fail is not through lack of
profit but through lack of cash
Key Aspects
• Profitability Vs Liquidity
• Cash is like oxygen
• Ideal goals
41. Measuring Business Performance
• Measuring Return –
Gross Profit Ratio = Gross Profit/Revenue * 100%
Net Profit Ratio = Net Profit/Revenue * 100%
• Measuring Investment
Asset turnover = Annual Revenue / Capital employed;
• Measuring Liquidity
Current Ratio = current assets / current liabilities
• Measuring Long term solvency
The debt equity Ratio
Interest Cover = Operating profit / Finance expenses
Investor Ratios
Earnings Per Share = Earnings available for distribution/Number of shares in issue
43. Business Valuation
Discounted cash • Present value of estimated
flow future cash flows
[DCF]
Income multiples • Income * Multiple
Asset based
valuations • Net Asset Value
44.
45. A few financial flashpoints…
Turnover
Turnover Rs. In Lacs
861,176
712,745
2010 2011
46. Segment-wise revenue
Rs. In Lacs
100%
98%
96% Short Term Total Access
94% Telecom Income
92% Consultancy Income
Transmission Income
90%
88%
86%
2010 2011
47. Number of Employees
Number Of Employees
Number Of Employees
9162
8214
7427 7645
2006-07 2007-08 2008-09 2009-10
