This document discusses financial statement analysis. It provides an overview of key topics including the purpose of financial statement analysis, the primary tools used, important financial statements and ratios analyzed, sources of financial data, why analysis is needed, and who uses financial statement analysis information both internally and externally. Key ratios discussed include liquidity, leverage, profitability and turnover ratios. Limitations of financial statement analysis are also covered.

1. Financial Statement Analysis Prof. Anjali Kulkarni

11. Classification of Ratios Prof. Anjali Kulkarni Balance Sheet Ratio P&L Ratio or Income/Revenue Statement Ratio Balance Sheet and Profit & Loss Ratio Financial Ratio Operating Ratio Composite Ratio Current Ratio Quick Asset Ratio Proprietary Ratio Debt Equity Ratio Gross Profit Ratio Operating Ratio Expense Ratio Net profit Ratio Stock Turnover Ratio Fixed Asset Turnover Ratio, Return on Total Resources Ratio, Return on Own Funds Ratio, Earning per Share Ratio, Debtors’ Turnover Ratio,

12. Format of Balance Sheet for Ratio Analysis Prof. Anjali Kulkarni LIABILITIES ASSETS NET WORTH/EQUITY/OWNED FUNDS Share Capital/Partner’s Capital/Paid up Capital/ Owners Funds Reserves ( General, Capital, Revaluation & Other Reserves) Credit Balance in P&L A/c FIXED ASSETS : LAND & BUILDING, PLANT & MACHINERIES Original Value Less Depreciation Net Value or Book Value or Written down value LONG TERM LIABILITIES/BORROWED FUNDS : Term Loans (Banks & Institutions) Debentures/Bonds, Unsecured Loans, Fixed Deposits, Other Long Term Liabilities NON CURRENT ASSETS Investments in quoted shares & securities Old stocks or old/disputed book debts Long Term Security Deposits Other Misc. assets which are not current or fixed in nature CURRENT LIABILTIES Bank Working Capital Limits such as CC/OD/Bills/Export Credit Sundry /Trade Creditors/Creditors/Bills Payable, Short duration loans or deposits Expenses payable & provisions against various items CURRENT ASSETS : Cash & Bank Balance, Marketable/quoted Govt. or other securities, Book Debts/Sundry Debtors, Bills Receivables, Stocks & inventory (RM,SIP,FG) Stores & Spares, Advance Payment of Taxes, Prepaid expenses, Loans and Advances recoverable within 12 months INTANGIBLE ASSETS Patent, Goodwill, Debit balance in P&L A/c, Preliminary or Preoperative expenses

32. Common Size Statements Prof. Anjali Kulkarni Common-size statements use percentages to express the relationship of individual components to a total within a single period. This is also known as vertical analysis .

34. Prof. Anjali Kulkarni Common Size Balance Sheets: Divide All Items by Total Assets Assets 200 6 200 7 200 8 Cash 0.6% 0.3% 0.4% ST Invest. 3.3% 0.7% 2.0% AR 23.9% 21.9% 25.0% Invent. 48.7% 44.6% 48.8% Total CA 76.5% 67.4% 76.2% Net FA 23.5% 32.6% 23.8% TA 100.0% 100.0% 100.0%

35. Prof. Anjali Kulkarni Divide all items by Total Liabilities & Equity 200 6 200 7 200 8 AP 9.9% 11.2% 10.2% Notes pay. 13.6% 24.9% 8.5% Accruals 9.3% 9.9% 10.8% Total CL 32.8% 46.0% 29.6% LT Debt 22.0% 34.6% 14.2% Total eq. 45.2% 19.3% 56.2% Total L&E 100.0% 100.0% 100.0%

37. Trend Percentages Prof. Anjali Kulkarni Trend percentages state several years’ financial data in terms of a base year, which equals 100 percent.

38. Trend Analysis Prof. Anjali Kulkarni Trend Percentage Current Year Amount Base Year Amount 100% = ×

41. The DuPont System Prof. Anjali Kulkarni

42. The DuPont System Prof. Anjali Kulkarni

43. The DuPont System Prof. Anjali Kulkarni

44. The DuPont System Prof. Anjali Kulkarni

45. The DuPont System Prof. Anjali Kulkarni

46. Q.1Following is the profit for the year ended : Prof. Anjali Kulkarni Particulars Rs. Rs. Sales - COGS Gross Profit - Operating Expenses Net Profit -Taxes Net Profit After Tax

47. Du Pont Chart Evolution Prof. Anjali Kulkarni Strategic Drivers Operating Drivers Industry Attractiveness Competitive Position Revenue/ Customer Customer Service Level Receivables Policy Sourcing Costs Original Du Pont Chart High Level Financial Drivers The idea has been extended forward to shareholder value … and back to the operating and strategic drivers of value. Price Cost W/c NFA Margin Turnover ROI Financing Contribution ROE NI Growth Cash Flow COC Value