The document discusses the analysis of a company's balance sheet and profit and loss statement. It defines key components of the balance sheet such as sources of funds (capital, reserves, liabilities), uses of funds (assets), and notes on various reserves, liabilities, assets. It also defines elements of the profit and loss statement such as gross sales, net sales, costs of goods sold, operating profit, non-operating income and expenses, and how profit before tax is calculated.

1. BALANCE SHEET ANALYSIS
 Sources of Funds
1) Capital
2) Reserves & Surplus
3) Term Liabilities
4) Current Liabilities

2. BALANCE SHEET ANALYSIS
 Uses of Funds
 1) Fixed Assets
 2) Intangible Asets
 3) Non Current Assets
 4) Current Assets

3. BALANCE SHEET ANALYSIS
 Capital
 1) Authorised Capital
 2) Issued Capital
 3) Subscribed Capital
 4) Paid-up Capital

4. BALANCE SHEET ANALYSIS
 Reserves
 1) Subsidy Received From The Govt
 2) Development Rebate reserve
 3) Revaluation of fixed assets
 4) Issue of Shares at Premium
 5) General Reserves
 Surplus
 The credit balance in profit and loss account

5. BALANCE SHEET ANALYSIS
 Tangible Net Worth
 This refers to the total funds arrived by
paid-up capital , Reserves and P&L
Surplus
 Less
 Intagible Assets

6. BALANCE SHEET ANALYSIS
 Term Liabilities
 Redeemable preference shares
 Debentures
 Deferred payment gaurantees
 Public Deposits(Repayable after 12 months)
 Term loans and unsecured loans from friens,
relatives,directors repayable over a period of
time
 Remark : The company can raise public

7. BALANCE SHEET ANALYSIS
 Current Liabilities
 Working capital bank borrowings
 T.loans deferred credit inst falling due in 12
mths
 public deposits maturing within 12 months
 unsecured loans, unless the repayment is on
deferred terms
 sundry creditors
 advances from dealers and customers

8. BALANCE SHEET ANALYSIS
 Contingent Liabilities
 Tax disputes
 Legal litigations
 Bills and cheques discounted with banks
 Claims against the company not
acknowledged

9. BALANCE SHEET ANALYSIS
 Fixed Assets
 Infrastructure like land & building
 plant & machinery
 Vehicles
 Furniture & fixtures
 Depreciation
 Straight line method
 Written down Value Method
 Remark : Dep added to profit to arrive

10. BALANCE SHEET ANALYSIS
 Investments
 1) Shares And Securities
 2) Associate Companies
 3) Fixed deposits with banks/finance
companies
 Remark : While analysing bal sheet we can
analyse necessity of such investments
 Remark : While fixed deposits with banks are
considered as fixed assets, the investmetns in

11. BALANCE SHEET ANALYSIS
 Non Current Assets
 Deferred recievables/Overdue
recievables(like disputed amounts and Over
Due > 6 mths)
 Non moving stocks/inventory/un usable
spares
 Investment/Lending to associate concern
 Borrowing of the directors from the company
 Telephone deposits/ ST deposits etc

12. BALANCE SHEET ANALYSIS
 Intangible Assets
 Preliminary & Preoperative expenses
 Deferred Revenue Expenditure
 Goodwill
 Trade mark
 Patents
 Rem : The o/s balance to be written off every
year by charging P&L account

13. BALANCE SHEET ANALYSIS
 Current Assets
 Raw materials, work-in-progress,finished
goods,spares and consumables
 Sundry debtors and recievables < 6 mths
 Advances paid to suppliers of raw materials
 Cash and bank balances
 Interest recievables
 Other current assets such as Government
securities, Bank deposits ..etc

14. BALANCE SHEET ANALYSIS
 Notes
 All expenses or provisions or advances or
loans etc which are accrued and payable
within 12 months are current liablities
 When a company makes investments in
unconnected avenues such as shares,
securites, associate concerns are to be treated
as non cur ast
 The slow moving and absolete inventory -
NCA

15. BALANCE SHEET ANALYSIS
 Notes
 Bal Sh Analy not only to be quantitative but
to be qualitative
 It is the fin pos on a part date. Min three
years bal sh ana would be more meaningful
 It is a mixture of facts, opinions and
conventions
 While opinions are of the company’s
management, the conventions are practiced by
the finance managers of the company.

16. BALANCE SHEET ANALYSIS
 Notes
 The valuation of the stock is done as per the
opinion of the management
 Depreciation method may be changed to
boost profit
 It may be silent on key personnel and staff
turnover
 Marginal changes in the classification of
certain items would lead to different results.

17. BALANCE SHEET ANALYSIS
 Notes
 Management competence
 Investment decision
 Resorting to window dressing
 experience of the promoters
 Board comprises of only family members
 The key personnel of the company
 The structure of the organisation
 The authority and decision making are

18. BALANCE SHEET ANALYSIS
 Notes
 The state of industrial relations
 Financial systems and procedures
 management control
 planning, budgeting, forecasting
 capacity utilisation
 status of the technology
 awareness of the market, competitions ..etc
 for listed co: share prices, EPS, book value,

19. Profit & Loss Account
 It is a summary of revenue earned and
expenses incurred which ultimately results
in profit or loss of to the company
 No defined format in law
 Operating revenue = Sales revenue
 Non_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 company

20. Profit & Loss Account
 Gross Sales
 Gross 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 Sales
 The sales figure excluding all the factors

21. Profit & Loss Account
 Cost of production
 This 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 production
 1) cost of raw material cloth, buttons, canvas,
hooks, zips etc
 2) Maintenace of sewing machines
 3) payment of wages to workers
 4) power

22. Profit & Loss Account
 Selling And General Administarative
Expenses
 Maintaining office staff for admn & acctg
 marketing effort
 payment of salaries/Tr All to marktg personnel
 All the expenses which are not directly connected
to manufacturing are classifed as selling and/or
general expenses

23. Profit & Loss Account
 Cost of goods sold
 Cost of goods sold includes all manufacturing
expenses and the adjustments for opening and
closing stock
 Cost of Goods sold = Opening stock + Purchases
+ Manufacturing expenses - Closing stock
 Gross Profit is arrived deducting figure of cost
of goods sold from the sales figure
 ie Gross profit = Sales - Cost of goods sold.

24. Profit & Loss Account
 Operating 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 Tax
 ie PBT = Op Profit + oth Inc - oth exp

25. Profit & Loss Account
 Non Operating Income/Expenses
 The 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